Theo, Sol v Official Trustee in Bankruptcy

[1998] FCA 679

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 7130 of 1997

BETWEEN:

SOL THEO
APPLICANT

AND:

THE OFFICIAL TRUSTEE IN BANKRUPTCY
FIRST RESPONDENT

THE DEPUTY COMMISSIONER OF TAXATION
SECOND RESPONDENT

JUDGE:	DRUMMOND J
DATE OF ORDER:	10 JUNE 1998
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. The application be dismissed with costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 7130 of 1997

BETWEEN:

SOL THEO
APPLICANT

AND:

THE OFFICIAL TRUSTEE IN BANKRUPTCY
FIRST RESPONDENT

THE DEPUTY COMMISSIONER OF TAXATION
SECOND RESPONDENT

JUDGE:	DRUMMOND J
DATE:	10 JUNE 1998
PLACE:	BRISBANE

REASONS FOR JUDGMENT

The applicant seeks the following relief in respect of his bankruptcy:

1. An order that the proof of debt, submitted by the second respondent (“the DCT”) and accepted by the first respondent, be expunged pursuant to s 99 the Bankruptcy Act 1966 (Cth);

2. An order that the first respondent continue for the benefit of the applicant’s estate certain legal proceedings instituted by the applicant prior to his bankruptcy or, alternatively, an order that that respondent “indemnify the applicant accordingly”;

3. A declaration that the first respondent knowingly sought an order he was not entitled to and “mislead about same thus being malicious and embarking on an abuse of process”;

4. A declaration that the proof of debt submitted by the DCT is false, malicious and not provable under s 82 the Bankruptcy Act and an order imposing a pecuniary penalty on the DCT for “a sum not less than the excess claimed in the proof of debt”.

On 23 May 1983, a notice of assessment was issued for Mr Theo in relation to the 1982 year and, upon failure to pay this tax, Mr Theo incurred additional tax from 24 June 1983, pursuant to ss 204 and 207 the Income Tax Assessment Act 1936 (Cth) (“ITAA”). On 24 April 1985, notices of assessment for 1976, 1981, 1983 and 1984 were issued, and on that same date notices of amended assessment were issued for 1977, 1978, 1979, 1980 and 1982. The additional tax on these unpaid assessments began accruing from 28 May 1985. Save for the 1984 year, all these assessments were made by the DCT on his view of the assets betterment position of the applicant and in reliance on his power under s 167 the ITAA: see 90 ATC 448 at 449. Mr Theo challenged all these assessments in proceedings before the Administrative Appeals Tribunal, which took the form of requests by the applicant for review by the Tribunal of his dissatisfaction with the DCT’s rejection of his objections to these assessments. Although the Tribunal rejected much of the applicant’s testimony and supporting evidence, he had some success: while the Tribunal affirmed the DCT’s objection of the applicant’s objection to his assessment for the 1984 year, it in effect required the DCT to issue amended assessments for the other years, 1976 to 1983. This was done. Notices of amended assessments were issued on 10 August 1990 and additional tax began to accrue thereon from 10 September 1990. Mr Theo then became bankrupt on his own petition on 19 October 1990. The DCT submitted its proof of debt in respect of his tax indebtedness on 12 December 1990: the DCT proved for $86,975.20.

Mr Theo claims that he was not served with these notices of amended assessment.  His own letter to the DCT of 5 September 1990, however, is inconsistent with this contention.  He did not attempt to explain what it was that caused him to so write to the DCT.  I have no hesitation in inferring that his letter was his response to receipt of the notices of 10 August 1990.

I reject Mr Theo’s argument that additional tax that accrues under s 207(1) the ITAA is not provable by force of s 82(3) the Bankruptcy Act:  such tax is not a penalty imposed by a court but rather a penalty imposed by operation of the statute itself.  Moreover, the additional tax, in respect of which the DCT proved, all accrued prior to Mr Theo’s bankruptcy on primary tax all of which had also fallen due for payment prior to the bankruptcy.  Re Kavich (1995) 58 FCR 82, on appeal, 96 ATC 4752, was concerned with an attempt by the Commissioner to prove for additional tax that was said to have accrued only on primary tax that became due after the bankruptcy commenced. Re Kavich provides no support for Mr Theo’s attack on the proof of debt here in question.

Nor was the DCT time-barred from issuing any of the amended assessments of 10 August 1990, as Mr Theo contends: the issue of these assessments, made to give effect to the Tribunal’s decision of July 1990, was authorised by s 200B the ITAA, as then in force.

Mr Theo submits that the 24 April 1985 notices were set aside by the AAT decision, thereby erasing the additional tax which had accrued on those assessments up to the date of that decision. However, only the objection decisions of the DCT were set aside, not the notices of assessment and amended assessment: see the Tribunal decision reported at 90 ATC 448 at 466.

He also submits that the 10 August 1990 notices in any event supersede the 24 April 1985 notices so that additional tax can only accrue after 9 September 1990, ie, thirty days after service of the most recent notices: see s 204(1) the ITAA.  I reject this argument.  To the extent that the Tribunal reduced the amounts of Mr Theo’s taxable income for the years in question before it, below the amounts on which the DCT had assessed tax and on which additional tax had accrued, the Tribunal, by its decision, effectively relieved Mr Theo of liability to pay the difference between the total primary tax originally claimed by the DCT and that assessable on the income figures adopted by the Tribunal.  The Tribunal decision also required the DCT to recalculate the additional tax due on the lower income figures which it substituted for the income figures on which the DCT had originally assessed Mr Theo to tax.  But the Tribunal decision did not have the effect of expunging Mr Theo’s liability to those reduced amounts of additional tax:  see FCT v Trautwein (1936) 56 CLR 211 at 220; DCT v Allanson (1994) 28 ATR 452 at 457 and ss 200B(1) and 201 the ITAA, as in force at relevant times.  Each of the 10 August 1990 notices, consistently with this view of the law, state that the “Due date for payment of $… is as previously advised”.

These notices, subject to one qualification, give proper effect to the Tribunal’s decision, as is required by s 200B. The qualification is this: the August 1990 amended assessment for the 1982 year incorporated the wrong figure from the Tribunal’s decision, $21,559 (the figure from the calculations scheduled to the decision for the 1982 year which included the Tribunal’s adjustments to the DCT’s assets betterment assessment) when the correct figure determined by the Tribunal as Mr Theo’s taxable income for that year and allowing for all proper deductions and recorded in its decision at 90 ATC 448 at 464 and 466 was $19,584. The DCT’s proof of debt was thus for a little more than the amount of the debt truly due. But the statutory scheme governing lodgment and examination of proofs in Division 1, Part VI the Bankruptcy Act is quite inconsistent with the notion that lodgment of a proof of debt incorrect in some particular, such as in the amount claimed, makes the proof a nullity or somehow invalidates it.  The proof overstates the amount truly due, because of what I accept was an innocent error on the part of the DCT’s officer, Ms Gilligan.

Mr Theo’s claim in para 2 of the application is based upon the first respondent’s alleged failure to pursue recovery action against two persons he claims are indebted to him.

The evidence he identifies as that on which he relies on in the written submissions I directed he file before the hearing is the testimony he said he would himself give, but failed to give, at the hearing and two pages of the transcript of certain proceedings before Cooper J, which he annexed to his submissions.  The preceding page of transcript was put in evidence by the respondents.  It shows what Mr Theo must have known all along:  the first respondent’s representative was being questioned before Cooper J by Mr Theo about why the first respondent did not pursue a matter entirely unrelated to any possible claim Mr Theo may have had against the two persons he now says the trustee should have pursued.

There is no evidence at all to support this complaint by Mr Theo.

Mr Theo, in his written submissions, makes it clear that the relief he claims in para 3 of his application is sought on the basis that the first respondent acted wholly improperly in bringing proceedings before Heerey J against his wife under s 121 the Bankruptcy Act to recover certain of Mr Theo’s property which he transferred to her when he was facing large tax claims by the DCT.  Mr Theo succeeded in persuading the Full Court to overturn Heerey J’s order appointing trustees for the sale of the properties.  This is the foundation on which he seeks to build a case of serious misconduct on the part of the first respondent.  However, he must have known from Cooper J’s judgment of 24 August 1995 that the first respondent was fully justified, if not compelled, to bring the proceedings in question before Heerey J.  And he can have been in no possible doubt that this complaint was wholly unjustifiable when he received the Full Court judgment of 28 April 1997, dismissing certain notices of motion filed by him.  Yet he has persisted with it.

Mr Theo also claims that the first respondent is guilty of maladministration of his estate by, in effect, failing to challenge the DCT’s failure to account to the first respondent for a tax refund of $88.40 to which the DCT recorded, in his notices of assessment for the 1992 year dated 19 February 1993, Mr Theo was entitled. In view of what I accept to be the bona fide claim by the DCT to retain this quite small sum pursuant to s 221H(2)(b) the ITAA, the first respondent cannot be accused of misconduct in failing to pursue its recovery.

As to para 4 of the application, based on Mr Theo’s assertion that he was not served with the notices of 10 August 1990, on his contentions that the proof of debt was not supported by any debt truly due or due in the amount claimed and on the DCT’s retention of the $88.40, for the reasons given, this claim to relief is also without any foundation.

The application should be dismissed with costs.

I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond.

Associate:

Dated:            10 June 1998

The Applicant appeared in person.
Counsel for the Respondents:	P E  Hack
Solicitor for the Respondents:	Australian Government Solicitor
Date of Hearing:	15 May 1997
Date of Judgment:	10 June 1998