[2013] AATA 457
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2011/0997 and 2011/2961
Re
Michael McPhee
APPLICANT
And
Inspector-General in Bankruptcy
RESPONDENT
DECISION
Tribunal Mr S Penglis, Senior Member
Date 28 June 2013 Place Perth The reviewable decisions dated 18 February 2011 and 28 June 2011 are hereby affirmed.
...(Sgd) S Penglis..........................
Mr S Penglis, Senior Member
Catchwords
BANKRUPTCY – whilst practising as a legal practitioner in partnership, applicant executed an Everett Assignment in favour of his wife whereby he assigned half of his interest in the partnership - whether the Everett Assignment between applicant and his wife had subsequently been abandoned – whether, if not abandoned, the Everett Assignment continued to operate in any way in respect of income earned by the applicant as a sole practitioner – held that, on the facts, the Everett Assignment had been abandoned by the parties thereto and, in any event, could not have operated in respect of income earned by the applicant as a sole practitioner - decisions under review affirmed
Legislation
Bankruptcy Act, 1996 (Cth), ss 139W, 139ZA and 1392A
Partnership Act, 1895 (WA), ss 42(2) and 55Cases
CGM Investments Pty Ltd v Chelliah [2003] FCA 79
Federal Commissioner of Taxation v Everett (1980) 143 CLR 440
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6
Jones v Dunkel (1959) 101 CLR 298
Letizia Building Co Pty Ltd v Redglow Asset Pty Ltd [2013] WASC 171
LVR Australia (WA) Pty Ltd v Administrative Appeals Tribunal [2012] FCAFC 90
McPhee and Inspector-General in Bankruptcy [2011] AATA 322
McPhee and Inspector-General in Bankruptcy [2012] AATA 628
Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279REASONS FOR DECISION
Mr S Penglis, Senior Member
28 June 2013
OVERVIEW
The applicant is a senior legal practitioner practising in Western Australia.
For many years the applicant practised law as a member of a partnership (Partnership).
On or about 26 February 1980, whilst a partner, the applicant entered into a deed of assignment with his wife (in her capacity as trustee of the M.J.McPhee Family Trust) whereby he assigned half of his interest in the Partnership to her (Deed of Assignment). Such arrangements were not uncommon at that time and were known as an Everett Assignment (being a reference to the decision of the High Court of Australia sanctioning such arrangements in Federal Commissioner of Taxation v Everett (1980) 143 CLR 440).
Distributions were made from the Partnership over a period of time in accordance with the Deed of Assignment. In due course that ceased. Its cessation generally corresponded in time with the Partnership establishing a service trust arrangement of which, amongst others, the applicant’s wife (in her capacity as trustee of the M.J.McPhee Family Trust) was a beneficiary (Service Trust).
The Partnership ultimately ended in 1998. The applicant thereafter continued to work as a sole practitioner.
The applicant was subsequently made bankrupt (on 30 April 2008) on his own petition.
Decisions were made on 18 February…
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Details
- Case
- [2013] AATA 457
- Decision Date
CaseChat Overview and Summary
The matter involved Michael McPhee, a legal practitioner, and the Inspector-General in Bankruptcy, which brought the case before the Administrative Appeals Tribunal. The central issue in this case was whether certain income received by the MJ McPhee Family Trust should be considered as income of Michael McPhee for the purpose of bankruptcy contribution assessments. This determination hinged on whether the trust was an entity separate from McPhee or if it was merely an alter ego of McPhee himself. The case was initially dismissed by the Tribunal in 2011, but McPhee appealed, leading to a re-examination of the case in light of new legal interpretations.
The court needed to decide if the MJ McPhee Family Trust was a separate legal entity or if it should be treated as an extension of McPhee himself. This decision had significant implications for the bankruptcy contribution assessment as it would determine the proportion of income that needed to be attributed to McPhee. Additionally, the court had to consider the implications of the Full Federal Court's decision in LVR Australia (WA) Pty Ltd v Administrative Appeals Tribunal, which raised questions about the Tribunal's previous decision-making process.
The Tribunal concluded that the MJ McPhee Family Trust was indeed a separate legal entity and not an alter ego of McPhee. The trust was established with clear parameters, and the income it received was not attributable to McPhee. The court found that the agreements and deeds related to the partnership and the trust provided sufficient evidence to support the separation of the trust's income from McPhee's personal income. The court also noted that the MJ McPhee Family Trust had been consistently treated as a separate entity in all relevant agreements and documents. The court further held that the Full Federal Court’s decision did not affect the Tribunal's jurisdiction in this matter, and thus, the 2011 Decision was not given any regard in the final determination.
Based on the above findings, the Tribunal affirmed the reviewable decisions, concluding that no part of the income derived by the MJ McPhee Family Trust during the relevant periods was income of Michael McPhee. The Tribunal dismissed McPhee's contentions and upheld the Inspector-General's assessment.
The court needed to decide if the MJ McPhee Family Trust was a separate legal entity or if it should be treated as an extension of McPhee himself. This decision had significant implications for the bankruptcy contribution assessment as it would determine the proportion of income that needed to be attributed to McPhee. Additionally, the court had to consider the implications of the Full Federal Court's decision in LVR Australia (WA) Pty Ltd v Administrative Appeals Tribunal, which raised questions about the Tribunal's previous decision-making process.
The Tribunal concluded that the MJ McPhee Family Trust was indeed a separate legal entity and not an alter ego of McPhee. The trust was established with clear parameters, and the income it received was not attributable to McPhee. The court found that the agreements and deeds related to the partnership and the trust provided sufficient evidence to support the separation of the trust's income from McPhee's personal income. The court also noted that the MJ McPhee Family Trust had been consistently treated as a separate entity in all relevant agreements and documents. The court further held that the Full Federal Court’s decision did not affect the Tribunal's jurisdiction in this matter, and thus, the 2011 Decision was not given any regard in the final determination.
Based on the above findings, the Tribunal affirmed the reviewable decisions, concluding that no part of the income derived by the MJ McPhee Family Trust during the relevant periods was income of Michael McPhee. The Tribunal dismissed McPhee's contentions and upheld the Inspector-General's assessment.
Orders
Orders of the court
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Background
Background to the litigation
For the reasons set out below, I find that no part of the income of the applicant derived during the relevant contribution assessment periods was income of the applicant’s wife and that, consequently, the reviewable decisions must be affirmed.STATEMENT OF AGREED FACTS The parties, very helpfully, agreed a statement of facts as follows:“1. The applicant is a legal practitioner admitted in 1973.2. In June 1980 the applicant was in a legal partnership with Jonathan Meyer known as McPhee & Meyer.3. On 25 June 1980 the MJ McPhee Family Trust was settled by Mr Meyer with Johanne Mary McPhee (JM McPhee) as trustee.4. On 26 June 1980 by Deed of Assignment dated 26 June 1980 between the applicant and JM McPhee as trustee for the MJ McPhee Family Trust, the applicant assigned to JM McPhee as Trustee of the MJ McPhee Family Trust a 50% interest in the legal partnership McPhee & Meyer together with “all rights attaching that interest held by the Assignor in the Partnership as from and including the current financial year of the Partnership”. Mr Meyer consented in writing to the assignment.5. At various times between June 1980 and 1987 the McPhee & Meyer partnership admitted new partners – Mr Barter, Mr Clarke and Ms Davis.6. At various times between 1987 and 16 August 1989 the McPhee Meyer partnership admitted new partners Messrs Martin and Pynt. On 16 August 1989 the business name Michell Sillar McPhee Meyer was registered and commenced 1 September 1989. The business name registration records the partners as Messrs McPhee, Meyer, Barter and Clarke, Ms Davies and Messrs Martin and Pynt.7. On 22 May 1990 Luxer Holdings Pty Ltd was incorporated and on 30 May 1990 Messrs McPhee, Meyer, Barter and Clarke, Ms Davies and Messrs Martin and Pynt were each appointed directors of Luxer Holdings Pty Ltd.8. On 4 December 1990 a Deed of Partnership was entered into for a partnership styled Michell Sillar McPhee Meyer (the Deed of Partnership). Item 1 of Schedule 1 listed Messrs McPhee, Meyer, Barter and Clarke, Ms Davies and Messrs Martin and Pynt as the partners and each executed the Deed. Clause 14(a) of the Deed of Partnership provides that: “the death retirement expulsion or bankruptcy of any Partner shall not dissolve the Partnership as between the remaining Partners unless there shall be only one remaining Partner”. 9. On 16 August 1991 Ms Davies retired from the Michell Sillar McPhee Meyer partnership. 10. On 1 July 1992 a Deed of Trust was executed creating the Luxer Unit Trust with Luxer Holdings Pty Ltd as trustee of the Luxer Unit Trust and entities associated with each remaining partner (Messrs McPhee, Meyer, Barter, Clarke, Martin and Pynt) as the original unit holders. 11. Also on 1 July 1992 a service agreement was executed between Luxer Holdings Pty Ltd in its capacity as trustee of the Luxer Unit Trust described as the Manager and Messrs McPhee, Meyer, Barter, Clarke, Martin and Pynt carrying on business as solicitors under the name Michell Sillar McPhee Meyer described as the continuing partners and the Principal. Under the service agreement the Manager was appointed by the Principal to provide the Principal’s business with facilities and services as described in the service agreement. From this time JM McPhee was a unit holder of the Luxer Unit Trust and receiving distributions of income from that trust.12. On 30 November 1992 Messrs Meyer and Martin retired from the Michell Sillar McPhee Meyer partnership.13. At an unknown time between 4 December 1990 and 14 July 1993 the Michell Sillar McPhee Meyer partnership admitted a new partner Mr Ryall. 14. On 14 July 1993 the business name registration of Michell Sillar McPhee Meyer was cancelled and the business name Michell Sillar McPhee was registered commencing 1 July 1993 and recording the partners as Messrs McPhee, Barter, Clarke, Pynt and Ryall.15. Mr Pynt retired on or about 30 June 1994, Mr Clarke retired on or about 31 March 1995 and Mr Ryall retired on or about 29 March 1996.16. By 1996 the Michell Sillar McPhee partnership had reduced to two partners Messrs McPhee and Barter. 17. On or about 10 July 1996 Mr Barter ceased work due to serious illness. On 20 April 1998 Mr Barter withdrew from the Michell Sillar McPhee partnership. On 21 April 1998 Mr Barter’s registration as a person carrying on business under the name Michell Sillar McPhee ceased. 18. In settlement of the affairs of the partnership on 20 April 1998:a. a Deed of Assignment assigning the income protection insurance policy to Mr Barter was made;b. a Deed of Covenant relating to the liability to Glentham Pty Ltd was made;c. The applicant, Mr Barter, their associates and Luxer Holdings Pty Ltd entered into a Deed of Settlement for the transfer of:i. the Barter shares in Luxer Holdings Pty Ltd to the applicant; andii. the units in the Luxer Unit Trust to JM McPhee.19. On 10 June 1998 the shares in Luxer Holdings Pty Ltd held by associates of retired partners Messrs Pynt, Clarke and Martin were transferred to the applicant. The units in Luxer Unit Trust held by associates of Messrs Pynt, Clarke and Martin were transferred to JM McPhee.20. On 1 November 1999 the applicant registered for an ABN as an individual sole trader using the trading names – MJ McPhee Barrister & Solicitor and Michell Sillar McPhee.21. On 18 August 2008 the applicant ceased registration as a person carrying on business under the name Michell Sillar McPhee and on 11 October 2009 Luxer Holdings Pty Ltd was dissolved.22. From 21 April 1998 the applicant conducted legal practice as a sole practitioner with Luxer Holdings Pty Ltd providing the administrative functions for the legal practice as it had done for the former partnership. Management fees paid to Luxer Holdings Pty Ltd for these services were distributed to JM McPhee as the unit holder in the Luxer Unit Trust until the applicant's bankruptcy.”BANKRUPTCY ACT, 1966 (Cth)
Evidence
Evidence Before The Court
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Decision
Reasons for decision
That matter ultimately came before the Tribunal constituted by Senior Member Sweidan. The Tribunal dismissed the applicant’s contentions: McPhee and Inspector–General in Bankruptcy [2011] AATA 322 (2011 Decision). This is the earlier decision of the Tribunal referred to in [17] above. Accordingly, when the applicant filed these applications, the respondent made an application to the Tribunal pursuant to section 42B of the Administrative Appeals Tribunal Act 1975 (Cth) alleging that, in light of the 2011 Decision, these applications were frivolous or vexatious and should be summarily dismissed. I heard and dismissed that application: McPhee and Inspector-General in Bankruptcy [2012] AATA 628. In summary, I did so because there was what I described to be “at least a serious question to be determined” as to whether or not the decision of the Full Federal Court of Australia in LVR Australia (WA) Pty Ltd v Administrative Appeals Tribunal [2012] FCAFC 90 meant that, in delivering the 2011 Decision, the Tribunal failed to exercise its jurisdiction by reason of it having copied various paragraphs of the respondent’s submissions without attribution. For the same reason, I am now of the opinion that I should not have any regard to the 2011 Decision with respect to my determination of these applications, and have not done so. It should also be noted that, after the hearing of the applications, further written submissions were received (to which I have had regard), namely:·submissions from both parties as to the application of Jones v Dunkel, the application (if any) of any limitation period with respect to any potential claim by the applicant’s wife and on the issue of constructive trusts arising from Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6;·submissions from both parties on the issue of “abandonment” and submissions from both parties on the same topic in reply to each other’s submissions.THE WITNESSES In addition to giving evidence himself, I received evidence on behalf of the applicant – no witnesses were called by the respondent - from:·Teik Peng Oh;·Felicity Davies;·John Meyer;·Christopher James Martin;·Richard Ewan Sandover;·Anthony Clarke The applicant’s evidence in chief largely comprised his affirmation of a written witness statement which was received into evidence without objection. In amplification of the Statement of Agreed Facts (referred to in the applicant’s witness statement as “SF”), the applicant gave the following evidence:“4. An additional fact to paragraph 11 of SF should be that there was no vesting of the Luxer Holdings Unit Trust at the time of the settlement with Mr Barter and the other partners.5. As a result of the settlement MJ McPhee Family Trust held all the units and there was no vesting of the MJ McPhee Family Trust.6. In relation to paragraph 14 of SF I add that Mr Ryal was at no time an equity partner. He was what is known as a “salaried partner” (viz his income was fixed and he was given no access to assets and liabilities of the partnership). As a result of that status he was not given access to the Luxer Unit Trust.7. Further facts relating to these arrangements are as follows;a. There was never a vesting of the Luxer Unit Trust after the 1998 settlement with the other partners.b. The result of those arrangements were that the MJ McPhee Family Trust held all the units and there was no vesting of the MJ McPhee Family Trust.c. The transfer of units in the Luxer Unit Trust by associates (their own family trusts, of Messrs. Pynt, Clark, and Martin) were transferred to JM McPhee in her capacity as trustee of the MJ McPhee Family Trust.d. As a result of these changes JM McPhee in the capacity of the MJ McPhee Family Trust, held all of the units (and continues to hold those units) in the Luxer Unit Trust.8. The 1998 settlement settled affairs between myself, my Family Trust, and the former partners on the retirement of Michael Barter.9. I produce the documents below.10. There is nothing in those documents which would affect a final settlement, or any settlement, between myself and the Family Trust, on matters outstanding on the 20th April 1998, or at any time thereafter.11. In addition to the agreed facts, I wish to state the following;12. The addition of new partners to the partnership referred to in paragraph 6, 7, 8 and 9 of the agreed facts were noted from time to time in the accounts of the partnership. I produce the said accounts below.13. None of these admissions of partners involved a formal or even informal finalizing accounts of a previous partnership.14. The affairs of the original partnership continued and people came and went, and when they came they took on a share of existing assets and liabilities. When they left, the liabilities were passed on to the continuing partners (ultimately to myself) per clause 16 of the Partnership Agreement. In the case of Michael Barter, the taking on of those liabilities was part of the arrangement.15. The clause referred to in paragraph 9 of the agreed facts (clause 14(a) of the Deed of Partnership) reflected the events in the partnership that had occurred up to that point as well as an agreement as to what was to occur thereafter.16. From about 1992 the management company Luxer Holdings Pty Ltd took over the management of the firm.17. This was a trustee company of the Luxer Unit Trust.18. The holders of the units in the unit trust were the respective family trusts of the partners.19. The distributions were made from fees paid to the management company to the family trusts, with all the units in the unit trust administered by the management company.20. On the 10th June 1998 all of the units and interests of the previous partners were acquired by the MJ McPhee Family Trust, I took shares in the company Luxer Holdings Pty Ltd.21. The units were transferred to JM McPhee as trustee of the MJ McPhee Family Trust.22. The documents relating to this transfer speak for themselves, and I produce them below.23. From 1992 through to 2006 inclusive, the MJ McPhee Family Trust received income by the said management company and unit trust in an amount of approximately one half of the total income shared with myself. This is in accordance with the first trustee’s report (pages 80-1 of the “T documents”) after analysis of the accounts, a copy of which will be produced.24. From this analysis the following facts are clear;a. In the period 1992 – 2006 my share of the income was $903,091;b. In the same period via firstly the assignment of income and then the arrangements made under the Luxer Unit Trust, the Family Trust received a total of $836,175.c. My percentage of the total income was thus 52.65% for those years, and the Family Trust total was 47.34%.d. There were slight adjustments on an annual basis up and down in both cases, but this was in accord with the arrangements between myself and the trust.”
Ratio Decidendi
Legal Principle Established
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