Re Pollack, P.J. v Ex parte Deputy Commissioner of Taxation

[1991] FCA 547

Re: PHILLIP J. POLLACK
Ex Parte: DEPUTY COMMISSIONER OF TAXATION
No. P 667 of 1991
FED No. 547
Bankruptcy - Practice and Procedure
22 ATR 431

COURT

IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
Beaumont J.(1)

CATCHWORDS

Bankruptcy - Deputy Commissioner of Taxation obtains District Court judgment for tax - application by debtor, to pay by instalments, not dealt with - whether stay - whether debt payable either immediately or at a certain future time within s.44(1)(b)(ii) of the Bankruptcy Act 1966 for the purposes of s.52(1)(c) of the Act.

Practice and Procedure - Whether desirable to state a case for Full Court under s.25(6) of the Federal Court of Australia Act 1976 - difficult and important questions of constitutional and bankruptcy law.

HEARING

SYDNEY

#DATE 30:8:1991

Counsel and Solicitors Mr P.K. Searle instructed
for Debtor: by Messrs. Barkell and Peacock

Counsel and Solicitors Mr S. Gageler instructed by
for Petitioning creditor: Australian Government Solicitor

ORDER

Direct that the parties submit a draft stated case as soon as practicable.

NOTE: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.

JUDGE1

At the commencement of the hearing of a creditor's petition on 29 August 1991, a preliminary point of law emerged. The background to the point is as follows

The background

1. By his petition, presented on 27 March 1991, for a sequestration order against the estate of the debtor, Phillip J. Pollack, the Deputy Commissioner of Taxation alleges (para.2):
   

"The debtor is justly and truly indebted to me in the sum of $37,156.43 being the amount due under the final judgment recovered in the District Court of New South Wales at Sydney on the Twenty First day of August 1990 ($33,940.04) for income tax and additional tax for late payment and $3,216.39) interest thereon calculated to 18 February 1991."

1. By s.44 of the Bankruptcy Act 1966 ("the Act"), the conditions on which a creditor may petition are prescribed. By s.44(1), it is provided, so far as presently relevant:
   

"44(1) A creditor's petition shall not be presented against a debtor unless -

(a) there is owing by the debtor to the petitioning creditor a debt that amounts to $1,500 or 2 or more debts that amount in the aggregate to $1,500, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $1,500;

(b) that debt, or each of those debts, as the case may be -

(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and

(ii) is payable either immediately or at a certain future time; and

..."

1. By s.52(1)(c) of the Act, it is provided that, at the hearing of the petition, the Court shall require proof of -
   

"(c) the fact that the debt...on which the petitioning creditor relies is...still owing."

1. By his amended notice of intention to appear at the hearing of the petition, Mr Pollack gave the following, amongst other, grounds of opposition:
   

"2. Judgment debt has been stayed.

3. Judgment debt is not payable immediately or at a certain future time."

1. In support of these grounds, Mr Pollack, by affidavit, gave the following evidence:
   

"2. On 3rd July, 1991 I attended the Registry of the District Court, Sydney for the purposes of lodging an Application to Pay by Instalments the judgment debt entered in favour of the Petitioning Creditor. A copy of such Application is annexed hereto and marked 'A'. At the time when I attempted to lodge the said Application I was told by the counter clerk that the District Court could not grant the Application by reason of the fact that the Plaintiff was the Deputy Commissioner of Taxation. I insisted on speaking to a senior officer at the Registry who also advised me that the Court could not grant the Application but that the Application would be accepted and placed on the relevant District Court file as evidence that it had been lodged.

3. On 4th July, 1991 I attended on a Registrar of the District Court, Sydney in relation to the said Application to Pay by Instalments. I was advised that the Court had received advice from the State Crown Solicitor to the effect that the Court did not have power to deal with such instalment applications by reason of the decision of the Supreme Court of Victoria in the case Deputy Federal Commissioner of Taxation v Zarzycki (1990) (ATC 4707)."

1. The application to pay by instalment was purportedly made pursuant to Part 31A r.2(1)(a) of the District Court Rules. So far as presently relevant, those Rules provide as follows:
   

"PART 31A - PAYMENT OF JUDGMENT DEBT

1. (1) The Court may, on the application of any party to an action or without any such application being made, when giving judgment in the action, order that the judgment debt (if any) be paid at such time, or by such instalments payable at such times as it thinks fit.

(2) Subject to this Part, every judgment debt shall be payable forthwith.

...

(6) Where the Court makes an order under subrule (1) the order shall, while it remains in force, operate as a stay of enforcement of the judgment.

...

2. (1) Whether or not an order in respect of a judgment debt has been made under rule 1(1) -

(a) the judgment debtor may make an application in writing, supported by an affidavit (in duplicate) as to his property and means, to the registrar for leave to pay the judgment debt, or the balance of the judgment debt then owing to the judgment creditor, by such instalments payable at such times as may be specified in the application; or

(b) the judgment creditor and the judgment debtor may enter into an agreement specifying the amount agreed to be then owing to the judgment creditor, and may in that agreement specify by what instalments payable at what times that amount is to be paid. ...

(4) Where -

(a) an application is made by or on behalf of a judgment debtor under subrule (1)(a), the registrar shall forthwith consider and determine the application and may -

(i) order that the judgment debt be paid by such instalments payable at such times as are specified in the application; or

(ii) refuse to make such an order; or

(b) an agreement under subrule (1)(b) is filed, the registrar shall forthwith order that the judgment debt be paid by such instalments payable at such times as are specified in the agreement,

and where he makes an order under paragraph (a) or (b) the registrar shall, as soon as practicable thereafter, forward to the judgment creditor and judgment debtor notice of the order and to the judgment creditor a copy of any affidavit lodged under subrule (1)(a).

(5) Where an order is made by a registrar under subrule (4) to an application made by or on behalf of the judgment debtor under subrule (1)(a), the judgment creditor may, within 14 days after notice of the order and a copy of the affidavit were forwarded to him under subrule (4) by the registrar, file notice of his objection to the payment of the judgment debt by the instalments specified in the order.

(6) Where under subrule (4) the registrar refuses to make an order, or where the judgment creditor files with the registrar a notice of objection in accordance with subrule (5), the registrar shall set down the judgment debtor's application for hearing by the Court, and shall as soon as practicable thereafter forward to the judgment creditor and the judgment debtor notice of the time and place set down by him for the hearing of the judgment debtor's application, and, in the case of the registrar refusing to make the order, shall forward to the judgment creditor a copy of any affidavit lodged under subrule

(1) (a).

(7) Where an application has been set down for hearing under subrule (6), the Court may, after hearing the judgment debtor and the judgment creditor, or such of them as appears, deal with the application and -

(a) where the registrar refused to make the order -

(i) make an order that the judgment debt, or the balance of the judgment debt then owing to the judgment creditor, be paid by such instalments payable at such times as the Court thinks fit; or

(ii) refuse to make such an order; or

(b) where the judgment creditor has filed a notice of objection in accordance with subrule (5), confirm, vary or rescind the order of the registrar. ...

(8) Where -

(a) an application is made by or on behalf of a judgment debtor under subrule (1) and no application in respect of the judgment debt has previously been made by or on behalf of the judgment debtor under that subrule or under rule (1)(1); and

(b) the registrar refuses under subrule (4) to make an order pursuant to the application, the application shall, until it is dealt with under subrule (7), and unless the Court otherwise orders, operate as a stay of enforcement of the judgment in respect of which the application is made, except enforcement by way of a garnishee order to which section 98 of the Act applies made before the application was made to the registrar. (Emphasis added)

..."

The preliminary question

1. On behalf of Mr Pollack, it is submitted that, by virtue of the failure of the registrar of the District Court to deal with his application to pay by instalments, there is in force an indefinite stay of execution on the judgment with the result, it is said, that, for the purposes of s.52(1)(c) of the Act, there is no debt available of the kind described in s.44(1)(b)(ii) of the Act. This proposition having been disputed by the Deputy Commissioner, I ordered that the following question be determined as a preliminary point.
   Question: "Is the debt alleged in para.2 of the petition a debt that is payable either immediately or at a certain future time within the meaning of s.44(1)(b)(ii) of the Bankruptcy Act 1966 for the purposes of s.52(1)(c) of the Act?"

2. On behalf of Mr Pollack, reliance is placed upon the decision of Ryan J. in Re Faulkner; Ex parte Deputy Commissioner of Taxation, 1 February 1989, unreported. There, an instalment application was made under the Judgment Debt Recovery Act 1984 (Vic.) but had not been determined at the time the petition came on for hearing. Under the Victorian statute, the making of the application operated as a stay of enforcement of the judgment. Ryan J. referring to the decisions of Lukin J. in Seckold (1933) 5 ABC 195 and of Riley J. in Agrillo (1977) 29 FLR 484 and in Padagas (1977) 30 FLR 170, said:
   

"Because of the stay effected by the making of the application for an instalment order, and because no order for the payment by instalments had been made by 14 December 1988 (the date when the petition came on for hearing) the judgment debt in the present case was then, I consider, neither payable immediately nor payable at a certain future time. Of course, upon the making of an order for payment by instalments, the petitioning creditor's debt forthwith becomes payable at a certain future time, in accordance with the conclusions reached in Re Padagas and Re Seckold; Ex parte Sargood, Gardiner Ltd.

Mr North of counsel for the petitioning creditor argued that s.52(1)(a) of the Bankruptcy Act requires proof only that at the time of the presentation of the petition the debt was immediately payable or payable at a certain future time. There was no requirement, Mr North contended, that the debt have one or other of those characteristics at the date of hearing of the petition. That contention involves the proposition that because of differences in language between the legislation in the United Kingdom and ss.44(1) and 52(1) of the Bankruptcy Act 1966, the conclusion reached by Riley J. in Re Agrillo was wrong. However, I am unable to perceive differences which negate the similar effect which a very experienced bankruptcy judge considered to have been achieved by the legislation, as authoritatively explained, in both countries.

I therefore uphold the submission of Mr Searle of counsel for the debtor that the petitioner was unable on 14 December 1988 to prove that the debt at that date answered the description in both paragraph (a) and paragraph (b) of s.44(1). However, that does not prevent the petitioning creditor from establishing the commission of the act of bankruptcy which is the foundation of the petition. Rather, I consider that the appropriate course is to adjourn the hearing of this petition to some date after the fate of the debtor's application to the Supreme Court for an instalment order has become known."

1. It is said, for Mr Pollack, that the present case is analogous in point of reasoning. Here, by virtue of r.2(8)(b) of Part 31A of the District Court Rules, it is claimed that by direct application of the Rules or by necessary implication, there is a stay until the application to pay by instalments is dealt with.

2. On behalf of the Deputy Commissioner, it is said that there is no stay at all. Reliance is placed upon the provisions of s.206 of the Income Tax Assessment Act 1936, dealing with extension of time and payment by instalments as follows:
   

"206 (1) The Commissioner may in any case grant such extension of time for payment of tax, or permit payment of tax to be made by such instalments and within such time as he considers the circumstances warrant; and in such case the tax shall be due and payable accordingly.

(2) In sub-section (1), "tax" includes additional tax under Part VII."

1. For the Deputy Commissioner, it is contended that the provisions of s.206 cover the field of the collection and recovery of income tax and by virtue of the operation of s.109 of the Constitution, s.206 covers that field to the exclusion of State moratorium legislation including provisions such as Part 3lA of the District Court Rules.

2. Particular reliance is placed by the Deputy Commissioner upon the decision of Jenkinson J. in Re Mazuran; Ex parte Deputy Commissioner of Taxation (1990) 97 ALR 391. There, on the hearing of his bankruptcy petition, the Deputy Commissioner relied upon a bankruptcy notice based upon a final order of the Magistrates Court at Melbourne for recovery of unpaid tax. After the act of bankruptcy, an order was purportedly made by the Registrar of that Court, pursuant to the Judgment Debt Recovery Act 1984 (Vic.), that the amount payable under the final order be paid by instalments. It was argued, for the debtor, that this order operated as a stay of proceedings on the final order and that, accordingly, the petition ought to be dismissed on several grounds, including discretionary considerations.
   

3. Jenkinson J. said (at 395):
   

"I find no sufficient indication, in the circumstances to which the Judgment Debt Recovery Act 1984 relates, in the purpose or content of the Act, or in 'the identity of the entity in respect of which the applicability of the provision arises', namely, the Commonwealth, to displace the presumption against an intention, on the part of the Victorian legislature in enacting the Judgment Debt Recovery Act 1984, to bind the Crown in right of the Commonwealth: cf Bropho v Western Australia... If that be the proper construction of the Act - that it does not purport to apply to the Crown in right of the Commonwealth as a judgment creditor - it would in my opinion follow that the Act does not purport to apply to a person answering the description of judgment creditor who had brought the action on behalf of the Commonwealth in pursuance of authority conferred on him by the Commonwealth."

1. Jenkinson J. went on to consider the position, assuming, contrary to his view, that the Victorian statute did apply, saying (at 396-7)"
   

"Thereby the Act would purport in my opinion to affect the prerogative right of the Commonwealth to priority over the claims of subjects in respect of debts of equal degree. ...

Such a prerogative right of the Crown is exercisable by the Executive Government of the Commonwealth. It may be relinquished or modified by and with the consent of the Parliament of the Commonwealth. But from its very nature it must be outside the power of a State to detract from it. Here the Commonwealth Parliament has, I think, confirmed the prerogative right to preferential payment." ...

If, contrary to my opinion, the Act on its proper construction applied in relation to a judgment for the recovery of income tax due to the Commonwealth, it would in my opinion be to that extent invalid as beyond the legislative competence of the State of Victoria."

1. Turning to the question whether s.64 or s.67 of the Judiciary Act 1903 applied to the State Act, Jenkinson J. said (at 397-8):
   

"Whether it be s.64 or s.67 that is proposed as making the State Act applicable, I am of the opinion that the provisions of the Income Tax Assessment Act 1936 leave no room for such an application of either section. In DCT Qld v Moorebank Pty Ltd...the High Court came to the same conclusion in respect of a State statutory provision prescribing a limitation period and s.64, in a case in which income tax and additional tax was sought to be recovered in an action in the Supreme Court of that State."

1. Jenkinson J. next considered the operation of s.206 of the Income Tax Assessment Act, saying (at 401):
   

"Upon a consideration of Div 1 of Pt VI of the Assessment Act as a whole, however, I would interpret s 206 as conferring a broad power exercisable from time to time after an amount of 'tax' has first become due and until the liability to pay the tax has been discharged, and I would regard the power as not affected by the institution of a legal proceeding for recovery of the tax or by the recovery of a judgment for the tax, except in respect of the period between those two events. If that be the proper interpretation of s 206, the legislative scheme, of which ss 204, 208, 209, 201 and 206 are cardinal provisions, for the imposition of liability to pay income tax and for discretionary variation of the times within which, and the instalment payments by which, that liability may be discharged leaves no room, in my opinion, for the operation, by force of any provision of the Judiciary Act 1903, of any of the provisions of the Judgment Debt Recovery Act 1984. And in my opinion no provision of the Judiciary Act 1903 does operate to make that Act applicable to a 'judgment or order for the recovery of payment of' income tax."

1. Jenkinson J. then referred to, and followed, the decision of O'Bryan J., already mentioned in the evidence, in Deputy Commissioner of Taxation v Zarzycki (1990) 96 ALR 146.

2. Having concluded that there was no valid law authorising the registrar's order, Jenkinson J. went on to find, for other reasons, that the petition should be dismissed.

3. In Deputy Commissioner of Taxation v Homewood 91 ATC 4,633, Southwell J., following Mazuran, held, in a similar case, that a magistrate had no power to order the payment of a judgment debt by instalments.

4. On behalf of the Deputy Commissioner, it is now submitted that the decision of Ryan J. in Faulkner was decided per incuriam. On behalf of Mr Pollack, it is submitted that the reasoning in Mazuran, Zarzyck and Homewood cannot stand in the light of the decision and reasoning of the High Court in Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 510 to the effect that, once the Deputy Commissioner obtained a judgment, the cause of action merged, thereby destroying its independent existence. In answer to this contention, the Deputy Commissioner relies, inter alia, upon the principle, considered in In re King and Beesley (1895) 1 QB 189 that where judgment has been recovered upon a simple contract debt, although the original debt is for most purposes merged in the judgment, this does not cause the judgment to operate as an extinguishment of the debt for the purpose of bankruptcy proceedings, and such debt is still available as a petitioning creditor's debt.
   The desirability of stating a case for a Full Court

5. By s.25(6) of the Federal Court of Australia Act 1976, a single judge may state a case concerning a matter to which an appeal would lie from a judgment of the judge to a Full Court for its consideration. In Barton v Westpac Banking Corporation (1983) 50 ALR 397, Sheppard J. said (at 415):
   

"Section 25(6) is a general provision relating to all matters which are before a single judge of the court. The majority of these will be civil and not criminal. Appeals will therefore lie by either party in most cases. It will only be if the judge considers that it is convenient to refer a question, perhaps because it raises unusual difficulties or perhaps because there are conflicting decisions - the list is not exhaustive - that a judge will normally accede to an application. Sometimes he will act of his own motion and not at the behest of the parties."

1. In my opinion, it is in the interests of justice that the preliminary question be referred to a Full Court pursuant to s.25(6). The matter raises some important, and difficult, questions of constitutional law and of bankruptcy law and is clearly of considerable practical significance. Preliminary inquiries indicate that, if the parties are ready to proceed (and there is no reason why they could not be), the matter could be heard by a Full Court on 23 September 1991.

2. I direct that the parties submit a draft stated case as soon as practicable.