Re McCauley; Ex parte Fraser
[1995] FCA 1086
•14 DECEMBER 1995
C A T C H W O R D S
BANKRUPTCY - Family Court proceedings commenced by Deputy Commissioner of Taxation pursuant to s.79A Family Law Act 1975 (Cth) seeking to set aside consent orders - whether Family Court proceedings competent - whether Family Court proceedings in respect of a "provable debt" - whether Family Court proceedings "to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt" - whether leave to continue Family Court proceedings ought to be granted - s.58(3) Bankruptcy Act 1966 (Cth) - whether Family Court proceedings ought to be stayed - s.60(1)(b) Bankruptcy Act 1966 (Cth).
TAXATION - whether the bringing of proceedings under s.79A Family Law Act are proceedings within the statutory function of the Deputy Commissioner of Taxation pursuant to the Income Tax Assessment Act 1936 (Cth)
FAMILY LAW - whether Deputy Commissioner of Taxation, as a creditor of the bankrupt, has standing to commence proceedings in the Family Court - whether the Commonwealth and the Deputy Commissioner are persons "affected by" the alleged fraud.
Bankruptcy Act 1966 (Cth) - ss.48(3), 60(1)(b)
Family Law Act 1975 (Cth) - s.79A
Deputy Commissioner of Taxation v Spanjich (1988) 93 FLR 98
Rickard v Caldwell (1911) 12 SR (NSW) 1
Re Brennan; ex parte Gordon (1930) 2 ABC 120
Ganas v Ganas (1971) 18 FLR 298
James v Deputy Commissioner of Taxation (1957) 97 CLR 23 at 35
In re Hutton. Mediterranean Machine Operations Ltd v Haigh [1969] 2 Ch 201
Re McMaster; Ex parte McMaster (1991) 105 ALR 156
The Official Trustee in Bankruptcy v Dimitrios Racovitis and Katina Racovitis (unreported, 28 November 1995, Davies, Lockhart & Spender JJ)
BRUCE MICHAEL McCAULEY; EX PARTE PETA ANNE FRASER
BRUCE MICHAEL McCAULEY; EX PARTE DEPUTY COMMISSIONER OF TAXATION
No NB 475 of 1995
Davies J
14 December 1995
Sydney
IN THE FEDERAL COURT OF AUSTRALIA )
)
BANKRUPTCY DISTRICT OF THE ) No NB 475 of 1995
)
STATE OF NEW SOUTH WALES )
)
GENERAL DIVISION )
RE: BRUCE MICHAEL McCAULEY
Debtor
EX PARTE: PETA ANNE FRASER
Applicant
RE: BRUCE MICHAEL McCAULEY
Debtor
EX PARTE: DEPUTY COMMISSIONER OF TAXATION
Applicant
Coram: Davies J
Date: 14 December 1995
Place: Sydney
MINUTES OF ORDER
UPON the undertaking of the Deputy Commissioner of Taxation, in respect of Family Court proceedings No. SY 4162/1990:
not to oppose any application which the Official Trustee in Bankruptcy may make to be joined in the proceedings and;
to keep the Official Trustee in Bankruptcy advised of the orders which are proposed to be sought in the proceedings:
THE COURT ORDERS THAT:
Leave be granted to the Deputy Commissioner of Taxation to continue Family Court of Australia proceedings No. SY 4162/1990.
The application by Peta Anne Fraser be dismissed.
Peta Anne Fraser pay the costs of the Deputy Commissioner of Taxation. Leave is reserved to the Official Trustee to apply in respect of costs.
NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
BANKRUPTCY DISTRICT OF THE ) No NB 475 of 1995
)
STATE OF NEW SOUTH WALES )
)
GENERAL DIVISION )
RE: BRUCE MICHAEL McCAULEY
Debtor
EX PARTE: PETA ANNE FRASER
Applicant
RE: BRUCE MICHAEL McCAULEY
Debtor
EX PARTE: DEPUTY COMMISSIONER OF TAXATION
Applicant
Coram: Davies J
Date: 14 December 1995
Place: Sydney
REASONS FOR JUDGMENT
Orders and declarations are sought by Mrs Peta Anne Fraser, the former wife of the bankrupt, Bruce Michael McCauley, with a view to bringing to an end proceedings which have been instituted in the Family Court of Australia by the Deputy Commissioner of Taxation. In the Family Court, the Deputy Commissioner has sought to have set aside, as a fraud on the Commonwealth of Australia, certain
consent orders obtained in the Family Court and certain dispositions of property made in implementation of those orders. In these present proceedings, orders are sought by the Deputy Commissioner that he have this Court's leave under s.58(3)(b) of the Bankruptcy Act 1966 (Cth) to continue the proceedings in the Family Court.
In the proceedings in the Family Court, it is alleged by the Deputy Commissioner that Mr McCauley understated his taxable income in his returns for the years ended 30 June 1980 to 1985. In particular, it is alleged that his declared taxable income for the 1984 year was $7,317 and for the 1985 year $46,801, whereas his taxable income for 1984 was $1,530,117 and for the 1985 year $3,664,685. On 18 February 1992, the Deputy Commissioner issued amended Notices of Assessment which assessed tax in respect of all 6 years and, in particular, assessed tax including penalty for the 1984 year at $2,236,883.68 and for the 1985 year at $5,116,413.68. On 21 July 1992, judgment was entered in the Supreme Court of New South Wales in favour of the Deputy Commissioner against Mr McCauley for the sum of $8,301,358.78 and costs. That judgment has not been satisfied. The Deputy Commissioner alleges that, in early 1990, Mr McCauley & Mrs Fraser, who were then married, each instructed a firm of solicitors to obtain orders in the Family Court for the distribution of their combined matrimonial property. The property which had been owned directly or indirectly by Mr McCauley was alleged to have a value of $3,737,140 and that which Mrs Fraser owned directly or indirectly had a value of $2,470,803.
On 30 March 1990, a 19 page document headed "Minutes of Notations and Consent Orders", was signed by Mr McCauley and Mrs Fraser in the Family Court. In the minutes, Mr McCauley & Mrs Fraser acknowledged and agreed that the terms were orders to which the provisions of s.77A of the Family Law Act 1975 (Cth), which deals with spouse maintenance, and the provisions of s.66L of that Act, which deals with child maintenance, applied. The minutes expressed the intention of s.81 of the Family Law Act that the orders should finally determine the financial relationship between the parties and avoid further proceedings between them. The orders were made orders of the Family Court on 3 April 1990.
The contention of the Deputy Commissioner in the Family Court proceedings is that the consent orders, if implemented, would have the effect of divesting Mr McCauley of all his property except for minor items of a total value of $107,700 and of investing Mrs Fraser with property of a value of approximately $5,891,443. The Commissioner contends that the consent orders were obtained, not for the purpose of resolving issues between Mr McCauley & Mrs Fraser, but for the purpose of divesting Mr McCauley of assets and of precluding recovery by the Deputy Commissioner of the tax which had been evaded and which became payable under the amended Notices of Assessment.
The proceedings in the Family Court were instituted by the Deputy Commissioner on 14 December 1992. An amended initiating application was filed on 17 March 1993. Section 79A of the Family Law Act confers a discretion on the Family Court to set aside an order on the ground, inter alia, of miscarriage of justice
by reason of fraud. Such application may be made by any person "affected by" the order. The Deputy Commissioner alleges that he is such a person. Cf. Deputy Commissioner of Taxation v Spanjich (1988) 93 FLR 98. The respondents to the proceedings are Mr McCauley and Mrs Fraser.
On 9 March 1995, on the petition of the Deputy Commissioner, Mr McCauley's estate was sequestrated. Mr McCauley & Mrs Fraser were at some stage divorced. Mr McCauley was charged with an offence, presumably a taxation offence, and was convicted and sentenced to a term of imprisonment.
On 15 July 1994, a subpoena was issued in the Family Court on behalf of the Deputy Commissioner addressed to the Officer in Charge of the Australian Federal Police. The subpoena sought the production of documents held by the Australian Federal Police which were thought to be relevant to the proceedings in the Family Court. By way of application dated 26 May 1995, Mrs Fraser moved the Family Court for an order that the proceedings in that case be permanently stayed or summarily dismissed.
On the hearing of the motion on 31 May 1995, Cohen J ruled that the Family Court proceedings could not continue without the leave of the Federal Court. Section 58(3) of the Bankruptcy Act 1966 (Cth) provides:-
"58(3)Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a)to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b)except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding."
Cohen J held that s.58(3)(b) applied as the proceedings in the Family Court were proceedings "in respect of a provable debt".
I am content to apply his Honour's ruling. I doubt, however, that leave is required. The proceedings in the Family Court are not concerned with debt or damages. The Deputy Commissioner already has judgment for the debt. In the proceedings, the Deputy Commissioner does not seek and cannot obtain any order for the payment to him of money or for the transfer to him of property. The sole issue is whether the consent orders should be set aside for fraud and, if so, what consequential orders should be made. The Deputy Commissioner of Taxation seeks the following final orders:-
"(1)That order 1 [the consent orders] made by the court on 3 April 1990, be vacated.
(2)Such further or other orders as the court deems fit.
(3) Costs."
As any property the subject of an order for setting aside will vest not in or to the benefit of Mr McCauley, but in or to the benefit of the Official Trustee, it seems to me that the Family Court proceedings are not proceedings "in respect of a provable debt." The debt for which judgment has been obtained is significant only as a fact relevant to the standing of the Deputy Commissioner as a "person affected" and as a fact relevant to the proof of fraud.
In Rickard v Caldwell (1911) 12 SR (NSW) 1, A H Simpson CJ in Eq held, that, where a plaintiff had brought a suit in Equity seeking to have a contract rescinded on the grounds of misrepresentation and fraud by Caldwell, and Caldwell subsequently became bankrupt, the suit could proceed without the leave of the Bankruptcy Court. In Re Brennan; ex parte Gordon (1930) 2 ABC 120, Long Innes J explained at 122 that, in Rickard v Caldwell, no claim was made as against Caldwell for the repayment of the deposit or of any purchase money paid by Rickard under the contract of which rescission was claimed. The present case is similar to Rickard v Caldwell and different from Re McMaster; Ex parte McMaster (1991) 105 ALR 156. In Re McMaster, the applicant, who was the wife, sought orders for the payment of money or for the vesting in her of property. The proceedings contemplated were therefore held to be proceedings "in respect of a provable debt".
Nevertheless, as Cohen J has ruled that the leave of this Court is necessary, I think that I should deal with the matter on that footing.
Mr F.M. Douglas QC, senior counsel for Mrs Fraser, submitted that, once Mr McCauley's estate was sequestrated, the sole right of the Deputy Commissioner was to lodge a proof of debt in relation to the debt, which under s.208 of the Income Tax Assessment Act 1936 (Cth), was due to the Commonwealth but payable to the Deputy Commissioner. Mr Douglas submitted that transactions which had occurred with respect to the bankrupt's property were subject to challenge only under the provisions of the Bankruptcy Act, that is to say under provisions such as ss.115, 120, 121 and 122. The operation of these sections is that, insofar as they operate to avoid transactions, they do so only so far as the Trustee in Bankruptcy has an interest. The transactions are avoided as against the Trustee and not otherwise. The Trustee's interest is limited to obtaining payment in full of the debts and of the costs of the administration. Once that has occurred, the Trustee's interest is at an end and the sections will cease to affect the impugned transaction. In The Official Trustee in Bankruptcy v Dimitrios Racovitis and Katina Racovitis (unreported, 28 November 1995, Davies, Lockhart & Spender JJ) Lockhart J said:-
"A settlement is only avoided so far as is necessary to satisfy the debts of the bankrupt and pay the costs and the expenses of the bankruptcy. The title to the surplus of the settled property, if any, is not affected: Re Simms. Ex parte Sheffield [1896] 3 Mans 340; Re Parry. Ex parte Salaman [1904] 1 KB 129; and Re Macdonald. Ex parte McCullum [1920] 1 KB 205."
As the Bankruptcy Act does not purport to cover the whole field, the principle suggested by Mr Douglas cannot be drawn from its provisions. Transactions which are subject to avoidance for reasons other than those with which the Bankruptcy Act is concerned remain susceptible to attack, except insofar as s.58(3) precludes that attack. See Ganas v Ganas (1971) 18 FLR 298.
It was next submitted by Mr Douglas that the Deputy Commissioner has no standing to continue the proceedings in the Family Court. This was put on two grounds, one being that the proceedings were not within the statutory function conferred upon the Deputy Commissioner by the Income Tax Assessment Act and the other being that, as the property of Mr McCauley vested in the Official Receiver on the making of the sequestration order, the Deputy Commissioner has no further interest with it.
Questions of standing seem to me to be matters for the Family Court rather than for this Court. I therefore do not attempt to determine the issue. It is sufficient to say that, as presently advised, it seems to me that a claim to have orders set aside by reason of fraud on the Commonwealth is a matter in which the Commonwealth is a proper party and that, when the fraud involves non-payment of tax, the Commissioner or a Deputy Commissioner is an appropriate person to represent the interests of the Commonwealth: James v Deputy Commissioner of Taxation (1957) 97 CLR 23 at 35. The Commonwealth, and the Deputy Commissioner, as representing the Commonwealth's interests, would be persons "affected by" the consent orders.
Mr Douglas further submitted that no leave may be granted as the proceedings in the Family Court are proceedings within paragraph 58(3)(a) of the Bankruptcy Act, namely proceedings "to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt". However, the Family Court proceedings are not proceedings against the person or property of the bankrupt. They are proceedings against what is now the property of Mrs McCauley and they are taken with a view to restoring property to the Official Trustee who stands in the shoes of the bankrupt. Moreover, the orders sought, the setting aside of the consent orders and orders ancillary thereto, are not a remedy "in respect of a provable debt". As s.58(3)(a) provides a statutory embargo and makes no provision for leave to be given by the Court, it should not be given the wide meaning which similar words appearing in s.60(1) of the Bankruptcy Act 1924 (Cth) were considered to bear by Clyne J in Re White (1960) 20 ABC 11. In the context, the provision refers to such matters as enforcing payment of a debt by means of seizing property or by execution or by
proceedings for the imprisonment of fraudulent debtors. The proceedings in the Family Court are not such a remedy.
Senior counsel for the Deputy Commissioner, Mr I. Temby QC, submitted for his part that Mrs Fraser had no standing to bring her application in this Court or to oppose the grant of leave. She is, however, represented by counsel and should be heard on the points which have been raised. They are matters in which she has an interest.
As I consider that the proceedings in the Family Court will benefit the estate of the bankrupt if successful, I am of the view that leave to continue the proceedings should be granted. Leave should be conditional, however, on the Deputy Commissioner's undertaking not to oppose any application which the Official Trustee may make to be joined in the proceedings and also on the undertaking that the Deputy Commissioner keep the Official Trustee advised of the orders which are proposed to be sought. I should add that, as the property of Mr McCauley is vested in the Trustee, the latter would appear to be a proper party to the Family Court proceedings, whether as an applicant or as a respondent. The bankrupt estate has an interest in the proceedings. Indeed, it may be appropriate for the Trustee to commence proceedings under s.120 or s.121 of the Bankruptcy Act and to have those proceedings transferred to the Family Court and heard together with the present proceedings.
Mr Douglas sought an order under s.60(1)(b) of the Bankruptcy Act which provides:-
"60(1)The Court may, at any time after the presentation of a petition, upon such terms and conditions as it thinks fit:
...
(b)stay any legal process, whether civil or criminal and whether instituted before or after the commencement of this subsection, against the person or property of the debtor:
(i)in respect of the non-payment of a provable debt or of a pecuniary penalty payable in consequence of the non-payment of a provable debt; or
(ii)in consequence of his refusal or failure to comply with an order of a court, whether made in civil or criminal proceedings, for the payment of a provable debt;
and, in a case where the debtor is imprisoned or otherwise held in custody in consequence of the non-payment of a provable debt or of a pecuniary penalty referred to in subparagraph (i) or in consequence of his refusal or failure to comply with an order referred to in subparagraph (ii), discharge the debtor out of custody."
Section 60(1) should be given a wide operation for this Court in its bankruptcy jurisdiction has, under s.30(1) of the Bankruptcy Act, power to decide "all questions ... coming within the cognizance of the Court." Thus, the Court may itself dispose of an issue where "although no bankruptcy point is involved the question directly affects the administration of what are undoubtedly assets of the bankrupt...": see In re Hutton. Mediterranean Machine Operations Ltd v Haigh [1969] 2 Ch 201 at 205. But the section does not, I think, empower the Court to make an order where the issue is not a bankruptcy issue and the decision making power can be exercised only by another court.
In any event, as the proceedings in the Family Court are potentially beneficial to the bankrupt estate, no order staying them should be made.
The final matter which is raised is that it is said that the proceedings in the Family Court and the subpoena to the Australian Federal Police are abuses of process by reason, inter alia, of matters arising in proceedings which were instituted by the Commonwealth Director of Public Prosecutions in the Supreme Court of New South Wales in which orders were sought under the Proceeds of Crime Act 1987 (Cth). This Court, in its bankruptcy jurisdiction, should not consider issues of abuse of process which are totally unrelated to any matter arising in its bankruptcy jurisdiction. Accordingly, I indicated to counsel that I would not hear them on the point.
For the reasons I have given, leave will be granted to the Deputy Commissioner in the terms I have set out above. The application by Mrs Fraser will be dismissed. Mrs Fraser should pay the costs of the Deputy Commissioner. Leave will be reserved to the Official Trustee to apply in respect of costs.
I certify that this and the 10 preceding pages
are a true copy of the reasons for judgment herein of
the Honourable Justice Davies.
Associate:
Date: 14 December 1995
Counsel for the Official Trustee: F. Gleeson
Solicitor for the Official Trustee: Australian Government Solicitor
Counsel for Peta Anne Fraser: F.M. Douglas QC
K.M. Connor
Solicitors for Peta Anne Fraser: McClellands
Counsel for the Deputy Commissioner
of Taxation: I. Temby QC
D.J. Fagan
Solicitor for the Deputy Commissioner
of Taxation: Commonwealth Director of Public Prosecutions
Date of hearing: 2 November 1995
Date of judgment: 14 December 1995
0
4
0