Norris v Deputy Commissioner of Taxation - [2008] FMCA 410

FEDERAL MAGISTRATES COURT OF AUSTRALIA

NORRIS v DEPUTY COMMISSIONER OF TAXATION

[2008] FMCA 410

BANKRUPTCY – Application to set aside bankruptcy notice – where application to set aside default judgment unsuccessful – where asserted fresh evidence.

Taxation Administration Act 1953, s.260-5 of Schedule 1

Applicant:

MICHAEL JOHN NORRIS

Respondent:

DEPUTY COMMISSIONER OF TAXATION

File Number:

BRG 397 of 2007

Judgment of:

Wilson FM

Hearing date:

21 December 2007

Date of Last Submission:

21 December 2007

Delivered at:

Brisbane

Delivered on:

2 April 2008

REPRESENTATION

Counsel for the Applicant:

N/A

The Applicant in person:

Mr Norris

Counsel for the Respondent:

N/A

Solicitors for the Respondent:

Australian Taxation Office Legal Services Branch

ORDERS

That the application filed 26 October 2007 to re-open the proceedings is dismissed.
That the application filed 21 May 2007 to set aside the bankruptcy notice is dismissed.
That the applicant is to pay the respondent’s costs, including reserved costs, of both applications to be taxed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG397 of 2007

MICHAEL JOHN NORRIS

Applicant

And

DEPUTY COMMISSIONER OF TAXATION

Respondent

REASONS FOR JUDGMENT

By application filed 21 May 2007, the applicant debtor seeks to have set aside a bankruptcy notice issued at the request of the respondent creditor, and for ancillary relief by way of an extension of time within which to comply with the bankruptcy notice.
In his initial affidavit in support of his application, the debtor said:
a)He was served with the bankruptcy notice on 28 April 2007;
b)Until such time he was not aware that default judgment had been entered against him in the Supreme Court of Queensland;
c)An application to set aside the judgment had been filed in the Supreme Court.
The debtor sought an extension of time until after his application to set aside the default judgment had been heard on 21 June 2007.
An order extending the time for compliance was made by a Registrar on 30 May 2007 (to 27 June 2007).
On 21 June 2007, the applicant’s application to set aside the default judgment was dismissed by Mackenzie J in the Supreme Court of Queensland. A transcript of part of the oral argument, and his Honour’s reasons for judgment was put before me. I was not given the written submissions that were obviously given to Mackenzie J.
When the matter came on before Burnett FM on 27 June, no further order was made for an extension of time within which to comply with the bankruptcy notice. An order was made that the matter be heard by me on 27 July 2007. It follows that if the application to set aside the bankruptcy notice is unsuccessful, an act of bankruptcy has already occurred. If I determine that the bankruptcy notice should be set aside, no act of bankruptcy capable of being relied upon will have occurred.
The matter was argued before me on 27 July 2007. At that time the applicant sought a further adjournment of his application, pending the determination of an appeal to the Queensland Court of Appeal against the decision of Mackenzie J. I heard argument on the merits of the applicant’s argument, and reserved my decision.
Subsequently, the applicant approached the court and sought to adduce further evidence that he said he wanted to put before the court. The matter was re-listed on 14 September. That mention was adjourned, at the request of the parties, it seems because the matter was to come before the Queensland Court of Appeal on 10 October 2007.
On 12 October 2007 I ordered that the applicant to make, file and serve any application to re-open to adduce further evidence, together with an affidavit in support by 26 October and tentatively listed that application for hearing on 23 November. An application to re-open was then filed on 26 October. In support of this application the applicant filed an affidavit exhibiting an affidavit filed by him in the Supreme Court of Queensland on 26 July. This affidavit was in fact already before me, having been filed by leave before me on 27 July 2007. The fresh evidence sought to be adduced was therefore already before me.
Because the applicant was again self represented, I allowed him a further opportunity to put any “fresh evidence” before the court, by

14 December 2007
and listed the matter for hearing on 21 December 2007. No further evidence was filed by the applicant.
On 21 December 2007 the applicant again appeared for himself. He sought a further adjournment of his application to set aside the bankruptcy notice, and of his application to re-open. Among the grounds for an adjournment was a recent proposal to obtain funds to satisfy the debt. This was rejected by the respondent. The application for adjournment was refused.
The application to re-open should be dismissed. As pointed out, the applicant does not seek to rely on any further evidence that was not put before the court when the matter was argued on 27 July 2007.
No complaint is made regarding the form or content of the bankruptcy notice. It refers to a debt owing of $447,460.15, being a default judgment of the Supreme Court of Queensland, together with statutory interest thereon.
The debtor’s affidavit filed in the Supreme Court proceedings asserts:
a)He is a director of Media Corporation Australia Limited (MCAL), an unlisted public company under external administration;
b)MCAL is the parent company of Zaxtorah Pty Ltd (formerly Black Ink No 2 Pty Ltd) and Loptran Pty Ltd (formerly Black Ink Agency Pty Ltd);
c)He is also a director of Quantain Pty Ltd (formerly Brisbane Newspapers Pty Ltd);
d)As part of its acquisition of Zaxtorah MCAL agreed to take over that company’s income tax liability of approximately $1.2 million;
e)The terms by which MCAL acquired shares in Zaxtorah led to it being unable to remain listed on the Australian Stock Exchange, which in turn limited its capacity to raise capital;
f)On 27 January 2004 the respondent issued four garnishee notices under s.260-5 of Schedule 1 to the Taxation Administration Act 1953 to asserted debtors of Zaxtorah. In fact, the applicant says that only one of the four recipients of the garnishee notices was in fact a debtor of Zaxtorah. The others were debtors of Loptran or other advertising agencies owned by MCAL;
g)Accordingly money obtained by the respondent from the three entities alleged not to be debtors of Zaxtorah was not from money owed to Zaxtorah;
h)The error was drawn to the respondent’s attention in February 2004;
i)Despite this, the respondent did not take corrective action, and as a result each of Zaxtorah, Loptran and other advertising agencies owned by the MCAL group were placed in the position of being unable to meet their normal operating liabilities and tax PAYG payments;
j)During 2004 and 2005 Quantain was providing financial support to the MCAL group. As a result, it fell behind in its own PAYG payments resulting in a tax liability to the respondent;
k)Between 25 May 2004 and 3 May 2005 the respondent issued Director’s Liability Notices against the applicant pursuant to s.222AOE of the ITAA;
l)These related to tax owed by Quantain to the respondent.
The applicant’s material relates to a number of corporate entities that are inter-related. There is some confusion because prior to changes of name, a number of them had the words “Black Ink” in their name. Put simply, the applicant’s case is that the respondent wrongly issued garnishee notices to customers of Loptran and other companies in the MCAL group, on the understanding or belief that they were customers of Zaxtorah. It is said that because Loptran and others were deprived of this money in the usual course of their businesses (because it had been unlawfully seized by the respondent) they were forced to borrow monies from related entities such as Quantain. The argument then proceeded that as a result of lending money to related entities, Quantain defaulted on its taxation obligations to the respondent, as a result of which the applicant was served with Directors’ Penalty Notices.
It was argued that if the respondent had not wrongly garnished the wrong customer’s debts, Quantrain, and thereby the applicant, would not have become liable to the respondent.
The applicant did not challenge the fact that Quantain was in fact indebted in the amount alleged, nor that he was a director of that company.
The application to set aside the default judgment obtained by the respondent was dismissed on 21 June 2007. The arguments that I have just attempted to encapsulate were put before Mackenzie J. His Honour said:
“Much of the discussion before me turned on a statement in Mr Norris’ affidavit, although not supported by documentary evidence, that garnishees served on entities on entities on the basis that they were indebted to Black Ink No 2 Pty Ltd were wrongly served on it. It was said that all but one of the companies were not clients of that company.
However, invoices had been sent by Black Ink No 2 as the affidavit says, “for ease of administration”. On the face of the matter as it stood, at that point the liability to pay to Black Ink No 2 was implicit in what had happened
. . .
It was said that the consequence of this was the causing of cash flow problems relating to other entities in the group. It seems to me, at the end of the day that one of the major difficulties for the applicant is that it is difficult to avoid the view that the liabilities sought to be enforced exist. It is unclear on the material before me that the kind of problem raised in relation to the garnishees is more than an incident in the whole life of the companies at the highest. If one borrows from some other area of the law, it seems to suggest that, if it is, in fact, correct what is asserted in the affidavit about the garnishees, there has been something akin to a loss of a chance that the present situation might have been avoided. I have read the material before me and I am not persuaded that there is a prima facie case of success should the judgment be set aside.
In his second affidavit, filed by leave before me on 27 July 2007 the applicant says:
a)At the time of the hearing in the Supreme Court on 21 June 2007, he could not present documentary evidence he knew existed that would conclusively prove that previous actions taken by the respondent were unlawful;
b)The action taken by the respondent to wrongly issue garnishee notices to entities that were not debtors of Zaxtorah resulted in the respondent receiving $900,000 from those entities, when that money was properly payable to other companies in the MCAL group;
c)This had the result of the other companies being placed into external administration ;
d)Since the hearing in the Supreme Court on 21 June the applicant has been able to secure the documents the show that the garnishee notices were incorrectly issued;
e)On 26 July 2007 he filed an application in the Queensland Court of Appeal seeking to overturn the decision of Mackenzie J and have the default judgment set aside;
f)The new evidence now available includes copies of invoices and statements sent to each of the recipients of the garnishee notices that shows these were not clients of Zaxtorah;
g)In presenting evidence to the Court of Appeal he will be arguing that had the respondent not unlawfully removed funds from companies in the MCAL group that did not have a liability to the respondent, those companies could then have met their liabilities to the respondent;
h)The balance sheet of Loptran shows that it has made loans of $698,300.81 to support The Black Ink Agency (Brisbane) Pty Ltd (“BIA”) as the respondent garnished some $900,000 of funds that should have been paid to BIA;
i)Had these loans not been necessary, Loptrans would have met its liability to the respondent, and consequently no Director Penalty Notice would have been issued against the applicant for payments due to the respondent by BIA.
For the purpose of argument, let it be assumed that the respondent incorrectly issued garnishee notices to customers, not of Zaxtorah, but of Loptrans in 2004. The applicant has not taken any steps to have either the garnishee notices set aside, nor the proceeds thereof reimbursed to the companies to which they were correctly owed. Further, to the extent that Loptrans and others were wrongly deprived of money, Zaxtorah was enriched. The pool of money available to the group as a whole, and in respect of which the applicant was a director of each relevant entity, was not depleted. Most of the corporations in the MCAL group now seem to be under external administration.
In circumstances where no challenge is made to the indebtedness of Quantrain to the respondent, it is difficult to see why the judgment obtained by the respondent can be impeached. The fact that Quantrain was deprived of money that it could have used to meet its liability to the respondent seems to have arisen because that company chose to lend money to one of its associated companies rather than meet its taxation liabilities. That exposed the applicant to the judgment now obtained by the respondent. Much could have been done in the intervening three year period to ameliorate the respondent’s position, but for some reason no action was taken.
The applicant has had the opportunity to challenge the default judgment in the Supreme Court. He failed. There is nothing in the affidavit evidence presented by the applicant, including the affidavit evidence presented on 27 July 2007 that persuades me that I should go behind the judgment of the Supreme Court and set aside the bankruptcy notice.
It follows that the application to set aside the bankruptcy notice should be dismissed, with costs including reserved costs to be taxed.

I certify that the preceding twenty three (23) paragraphs are a true copy of the reasons for judgment of Wilson FM

Associate: Lynnette Chin

Date: 2 April 2008