Robertson and Deputy Commissioner of Taxation - [2001] AATA 563

DECISION AND REASONS FOR DECISION [2001] AATA 563

ADMINISTRATIVE APPEALS TRIBUNAL )

) No WT2000/6, 7, 8 & 9

TAXATION APPEALS DIVISION )
           Re      Nathaniel Robertson Jnr
  Applicant
           And    Deputy Commissioner of Taxation
  Respondent

DECISION

Tribunal Mr R D Fayle, Senior Member

Date20 June 2001
PlacePerth

Decision      Notwithstanding the applicant having, on 22 February 2000, made valid applications pursuant s14ZZ of the Taxation Administration Act 1953 for a review of objection decisions in relation to the years of income ended 30 June 1989 to 30 June 1992 inclusively, by reason of the applicant having entered into voluntary bankruptcy on 26 May 2000 and the appointment on that day of a trustee in bankruptcy for the applicant's estate, the applicant lost standing on that day to continue those applications, that standing having been vested in the applicant's trustee in bankruptcy by operation of law.
  ............(-sgd RD Fayle-)...........
  Senior Member
CATCHWORDS
INCOME TAX – application to Administrative Appeals Tribunal for review of objection decisions – voluntary bankruptcy – whether applicant continues to have standing before the AAT – Whether trustee in bankruptcy person who would be dissatisfied with the objection decision – whether trustee in bankruptcy has standing.
Administrative Appeals Tribunal Act 1975
Income Tax Assessment Act 1936
Taxation Administration Act 1953, ss14ZY, 14ZZ
McCallum v Federal Commissioner of Taxation 97 ATC 4509
Cummings v Claremont Petroleum NL and anor, and Fuller v Claremont Petroleum NL and anor (1995) 185 CLR 124
Boaler v Power [1901] 2 KB 229
.
Rochfort v Battersby (1849) 2 HLC 388 at 406, 40

Heath v Tang [1993] 4 All ER 694

Taylor v Deputy Federal Commissioner of Taxation 87 ATC 4441

REASONS FOR DECISION

20 June 2001 Mr R D Fayle, Senior Member

On 22 February 2000 the applicant applied to this Tribunal to review decisions disallowing objections against notices of assessment (and amended assessment) for the years of income ended 30 June 1989 to 30 June 1992 inclusively, made by the respondent pursuant to s14ZY of the Taxation Administration Act 1953. Suffice it to say for the present purposes that the notice of assessment for the year ended 30 June 1989 and the notices of amended assessment for each of the other three years mentioned were issued on 24 August 1999 and assessed primary tax and penalties, in total, of $541,163.20.
The applicant lodged objections against the said assessment and amended assessments on 18 October 1999. The respondent notified the applicant on 22 December 1999 that those objections had been disallowed. The Tribunal understands that there is no dispute that the applicant lodged his applications to the Tribunal within time, that is, within 60 days of service of the notices of the decision.
On 26 May 2000 the applicant, pursuant to provisions of the Bankruptcy Act 1966, filed a Debtor's Petition for bankruptcy and on that day, pursuant to s156A(3) of that Act, Mr G Totterdell was appointed as his Trustee in Bankruptcy. Mr Totterdell wrote to the Tribunal on 15 August 2000 advising that as trustee of the applicant's bankrupt estate he did not propose to pursue the applications for review of the said objection decisions.
The respondent submitted that the applicant had no standing before this Tribunal and that the applications should be dismissed. The applicant opposed dismissal and, with the assistance of Mr Norman Rosenbaum, a solicitor (whom the Tribunal understands was acting pro bono) made submissions in support of the applicant's contention that he has standing before this Tribunal in relation to the review of the subject objection decisions.
Both parties filed and exchanged documents and were heard on 26 March 2001. That hearing was adjourned to allow the applicant to file, by 9 April 2000, additional documents in support of facts asserted. The respondent was afforded time to respond should the applicant comply, which he did not. However, a copy of the applicant's Statement of Affairs was subsequently filed on 24 April 2001 in respect of which the respondent duly made relevant submissions filed on 9 May 2000 with the leave of the Tribunal.
The applicant received a letter from his trustee in bankruptcy, dated 13 November 2000. That letter purports to assign to the applicant any rights, which the trustee has "to make such application to the Administrative Appeals Tribunal". The Tribunal merely observes that this is of no effect since the applicant had already made the relevant applications to this Tribunal before such purported assignment. To the extent that the purported assignment intended to assign to the applicant a right to pursue the applications through the review process pursuant to the Administrative Appeals Tribunal Act 1975, the Tribunal is of the opinion that no such assignment can exist pursuant to the said Act and would therefore be contrary to law. More in this regard follows.
On 23 November 2000 the applicant, purported to assign, in writing, to Stephen Craig Lloyd, "the right to pursue my application before the Administrative Appeals Tribunal". A document, which purports to bear the signature of Stephen Craig Lloyd, and also bearing the date 23 November 2000, purports to accept the previously mentioned assignment.
Copies of the two mentioned purported assignments were delivered to the Tribunal on 23 November 2000. Two things can be said about these. Firstly, the Tribunal has no power under its governing statute to be a party to any such assignment. Second, in all subsequent proceedings at the Tribunal in these matters the applicant appeared in person or was personally represented by Mr Rosenbaum. No mention was made of Stephen Craig Lloyd nor has the Tribunal ever heard from him in these respects. The Tribunal concludes that the purported assignments are a nullity and do not bind the Tribunal. As to whether they represent a private agreement made between the applicant and Stephen Craig Lloyd is of no relevance to these proceedings. It should be mentioned that Mr Rosenbaum, in his subsequent submissions on behalf of the applicant, referred to the purported assignment by the Trustee as follows:
"The applicant now concedes that pursuant to the principles set out in Cumming's Case (which were subsequently adopted by the Court in McCallum's Case) a trustee in bankruptcy cannot assign the right to pursue an application for review of an objection decision before this Honourable Tribunal, contrary to the [purported assignment]."
The principal submission of Mr Rosenbaum for the applicant is based on what might be described as the exception to the rule laid down by the Full Court in McCallum v Federal Commissioner of Taxation 97 ATC 4509. This is a particular reference to the judgment of Lehane J and acknowledged by Whitlam J (in the majority). The Tribunal cites the relevant passages from his Honour's judgment below. With respect and without intending to oversimplify the matter, it appears to the Tribunal that the principle is that generally a bankrupt, upon declaration of bankruptcy, looses standing in relation to any objection decision application for review made to the Tribunal before having become bankrupt. The exception appears to be limited. It demands something more than a demonstration that a successful application may result in a surplus to the bankrupt's estate. The exception requires some other footing on which to claim standing. His Honour then provides an example of this possibility – where consequences of the objection decision may result in a tax liability following bankruptcy.
With respect to their Honours, it is not apparent how a bankrupt could be given standing if, by reason of the declaration of bankruptcy alone, he or she loses standing because that person can no longer be the person dissatisfied with an objection decision (since that person has been divested of the tax liability by operation of bankruptcy).
In Cummings (supra) Brennan CJ, Gauldron J and McHugh J said:
"Neither Boaler v Power nor the cases cited establish the affirmative proposition that a right to appeal is property. They do establish the negative proposition that a bankrupt has no right to bring or prosecute proceedings to protect, enhance or add to the property of which he has been divested on bankruptcy."
Of relevance to the present matter is what their Honours said (in Cummings) in relation to the rights of creditors:
"The creditor of a bankrupt cannot enforce any remedy against the person or property of the bankrupt in respect of a provable debt (s58(3)(a) of the Bankruptcy Act); the creditor must prove in the bankruptcy (s82(2)), receiving a dividend out of the property divisible amongst the creditors of the bankrupt." (p.136) …
So far as judgment entered in an action against a bankrupt creates or evidences a provable debt, we respectfully agree that the bankrupt has no financial interest which would confer locus standi to appeal in his own name against the judgment. That is because it is fundamental to the law of bankruptcy that the bankrupt is divested of both his interest in property and liability for his provable debts; [Heath v Tang cited]."(pp.137-138)
The head note of the Full Federal Court report in McCallum v FC of T 97 ATC 4509 (Lehane an Whitlam JJ, Hill J dissenting) provides a convenient summary of the facts:
On 7 April 1993, the Commissioner of Taxation issued amended assessments against the applicant for the years ended 30 June 1985 to 30 June 1988 inclusive. An objection to these assessments, lodged on 4 June 1993, was disallowed on 15 March 1995. However, in the meantime, on 13 December 1994, the applicant was made bankrupt on the application of a creditor not being the Commissioner.
The applicant duly applied to the Administrative Appeals Tribunal for a review of the Commissioner's objection decision. The Tribunal held that the right to prosecute the appeal against the objection decision vested in the applicant's trustee in bankruptcy (the Official Receiver) by force of being "property" divisible among his creditors. It held that since 15 March 1995, any right to appeal that decision was capable only of being exercised by the Official Receiver.
…
The Commissioner conceded on appeal that as a consequence of Cummings' case the right to prosecute an appeal against the objection decision of the Commissioner was not "property" which vested in the applicant's trustee in bankruptcy. He contended, however, relying on Cummings' case, that the applicant has no standing to be heard in the Tribunal. That right, he submitted, could only be exercised by the trustee. Under sec 14ZZ of the Taxation Administration Act 1953 (TAA), a person who is "dissatisfied" with an objection decision made by the Commissioner may apply to the AAT for a review of that decision.
In reaching its decision to set aside the AAT decision and remit it back to be determined in accordance with the Court's reasons, the Full Court (Lehane J, with Whitlam J concurring) said:
"For those reasons, in my opinion the decision in Cummings is applicable to this case, with the result that Mr McCallum is likely to lack standing to apply to the AAT for a review of the objection decision. I use the phrase 'is likely to' deliberately: he will not have standing merely because, for example, a successful challenge to the objection decision may result in a surplus in his bankrupt estate or because of any effect that the assessments and the objection decision may have upon his reputation. It is conceivable, however, that there may be some other footing in which he could claim standing: for example, it may be that an objection decision in relation to a particular assessment will have consequences in relation to tax payable, perhaps in years following discharge from bankruptcy, for which Mr McCallum will be personally liable. Such a possibility was not canvassed in argument, and I express no opinion about it."
As the Tribunal understands it, the applicant relied on this last passage in his submission, that neither Cummings nor McCallum contemplate the case where the elimination of the income tax debt "would eliminate entirely the basis of the bankruptcy per se."
That submission is easily dealt with in fact. The applicant's Statement of Affairs, dated 2 May 2000, shows total assets of $540,800 (of which $260,000 is secured), against disclosed liabilities of $287,674. The liabilities disclosed do not include the income tax debts, the subject of the objection decisions in question, which, as has been indicated, are now at least $589,978. Indeed, the Statement of Affairs refers to the tax debt as "disputed", without disclosing an amount of the debt. That debt is impregnable pursuant to s177 of the Income Tax Assessment Act 1936, except in "proceedings under Part IVC of the Taxation Administration Act 1953." Taking into account that debt results in the bankrupt estate having a deficiency of $336,852. In any event there is no substantive submission before the Tribunal that should the objection decisions be reviewed by due process that they would be eliminated. A perusal of the documents filed pursuant to s37 of the Administrative Appeals Tribunal Act 1975 in relation to the references to this Tribunal shows that the assessments have been made following considerable research on the part of the respondent and cannot be said to be without merit. Whether the assessments would be set aside in full or part is not a matter that can be concluded at this time. For that reason it is plain that the total liabilities of the applicant's trustee in bankruptcy include the aforementioned debt.
The applicant further submitted that because of the decision in Taylor v DFC of T 87 ATC 4441, there is a possibility that the applicant could be left with a personal liability for income tax notwithstanding his discharge from bankruptcy. In the opinion of the Tribunal that possibility is not apparent from the judgment and neither cited nor explained in submissions. Taylor's case concerned the set-off of group tax instalments in excess of the employee's income tax liability for a year of income (during bankruptcy) against a tax debt arising subsequently and during bankruptcy. No liability divested to the trustee in bankruptcy survived that bankruptcy and became a personal debt of the bankrupt. The submission of the applicant in this regard is not sustained.
The remaining ground of submission by the applicant is that his decision to go into voluntary bankruptcy following judgment being obtained by the respondent was precipitated by legal advice to the effect that in doing so he would not prejudice his right to contest the objections at the Tribunal. The applicant was not able to provide any documentary evidence that he was so advised, even though he had ample opportunity to do so. In any event, even though wrong legal advice may possibly be a mitigating circumstance, that for reasons already expressed, it would not assist the applicant.
The applicant submitted that these matters be held over affording him an opportunity to purse an alternate avenue of redress in another place and pursuant to the Bankruptcy Act 1966. In the opinion of the Tribunal the applicant has had ample time to make any such application, having declared himself bankrupt on 26 May 2000 and bearing in mind the fact that his bankruptcy did not come as a surprise since he initiated it.
Decision
For the above reasons, and pursuant to the Administrative Appeals Tribunal Act 1975, the Tribunal decides:
That notwithstanding the applicant having, on 22 February 2000, made valid applications pursuant s14ZZ of the Taxation Administration Act 1953 for a review of objection decisions in relation to the years of income ended 30 June 1989 to 30 June 1992 inclusively, by reason of the applicant having entered into voluntary bankruptcy on 26 May 2000 and the appointment on that day of a trustee in bankruptcy for the applicant's estate, the applicant lost standing on that day to continue those applications, that standing having been vested in the applicant's trustee in bankruptcy by operation of law.
I certify that the 20 preceding paragraphs are a true copy of the reasons for the decision herein of Mr R D Fayle, Senior Member
Signed:         ................(-sgd W. Treasure-)...................
  Associate
Date of Hearing  26 March 2001
Date of Decision  20 June 2001
Counsel for the Applicant        Mr N Rosenbaum
Solicitor for the Respondent    Mr T Burrows