Bolton v Commissioner of Taxation

Bolton v Commissioner of Taxation - [2018] FCA 817 - FCA 2018 case summary — Zoe

[20]

COLVIN J: 1 Mr Kitay, in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (in liq) (CAT), together with CAT, petition the Court for sequestration orders in relation to the estates of Mr and Mrs Frigger. They claim that Mr and Mrs Frigger owe them the amount of $61,000.42 pursuant to an order for indemnity costs before Master Sanderson of the Supreme Court of Western Australia dated 12 June 2014. They rely upon a failure to comply with a bankruptcy notice in respect of the amount claimed pursuant to the costs order. There have been challenges to the bankruptcy notice by Mr and Mrs Frigger, but they have been ultimately unsuccessful. 2 The petition is dated 5 December 2017, and appears to have been presented on 6 December 2017. Amongst others, Mr Donald Campbell-Smith, and Professional Services of Australia Pty Ltd seek to intervene as creditors supporting the petition. On 16 March 2018, I made directions for submissions to be filed and for the petition to be listed for hearing on 5 June 2018. 3 The submissions filed by Mr and Mrs Frigger identify four grounds of opposition, namely: (1) they are able to pay their debts; (2) the solicitors who issued the bankruptcy notice on behalf of CAT did not have authority to do so because submissions have been made by Mr John to the Supreme Court of Western Australia that he was acting for the liquidator and not the company; (3) Mr Kitay, as liquidator, had no liability to pay the costs pursuant to the order because of the terms of engagement of Herbert Smith Freehills as solicitors in the matter in which the costs order was obtained; and (4) the costs order was obtained by Mr Kitay allegedly by swearing false affidavit. 4 In addition, by an amended notice of opposition, Mr and Mrs Frigger seek to claim that they have a counterclaim, set off or cross-demand arising as a result of an order by Allanson J of the Supreme Court of Western Australia on 15 January 2018. Mr Frigger separately claims that the costs order was made only against Mrs Frigger, and that is a further reason why his estate should not be sequestrated. 5 Mr and Mrs Frigger have given notice that they require the deponents to certain affidavits to attend for cross-examination. Rule 29.09 of the Federal Court Rules 2011 (Cth) provides that if a person is given such a notice and fails to attend, the person's affidavit may not be used. However, the Court has a general power to dispense with compliance with any of the Rules: r 1.34. 6 Applications are made to me to dispense with compliance with the Rules in respect of affidavits of Mr Kitay, Ms Shepherd and Mr Eastwood. If I do not dispense with the requirement in respect of Mr Kitay, then I am asked to adjourn the hearing on the basis that Mr Kitay is unable to attend on 5 June 2018. 7 Reliance was placed in support of the application on the decision in Bolton v Commissioner of Taxation [2017] FCA 1462 where Pagone J granted a dispensation of the type sought in this instance. In that case, reliance was sought to be placed on an affidavit of Mr Bolton, even though he was not available to be cross-examined. It was found that the bulk of the affidavit was uncontentious and procedural, and the Commissioner, who was the respondent in the proceedings, did not press a submission of any serious prejudice in not being able to cross-examine Mr Bolton, although there was some prejudice to the Commissioner in not being able to do so. The judge also identified prejudice to some extent to Mr Bolton. 8 In the present case, there is no similar concession by Mr and Mrs Frigger to that made by the Commissioner. In those circumstances, it seems to me that I should only dispense with the relevant requirement to attend if it be shown that no purpose would be served by cross-examination, or as a matter of proper case management, the issues to be raised in cross-examination are of such marginal relevance that the interests of justice are consistent with there being a dispensation of the application of the rule. 9 As to Ms Shepherd, her affidavits deal with formal matters by producing court decisions and by giving details of service and of the relevant index search. In the submissions filed for Mr and Mrs Frigger there is no suggestion that these matters are contentious. In oral submissions before me today, it was suggested that Ms Shepherd may be able to give evidence as to the circumstances surrounding the engagement of Herbert Smith Freehills. In the view which I take, that is an issue which would only be opened up in a manner that would require cross-examination if I was persuaded to go behind the costs order in relation to such matters. For reasons which I will express shortly it seems to me that that issue should be separated out and not dealt with at the hearing on 5 June 2018. There is no suggestion that Ms Shepherd may be able to give evidence relevant to any of the other grounds raised, and in those circumstances I am satisfied that an order dispensing with her requirement to attend should be made. 10 Mr Kitay also gives evidence as to formal matters to support the petition, in particular, evidence that the alleged debt the subject of the costs order remains outstanding. It is clear from the submissions filed by Mr and Mrs Frigger that it is accepted that the costs order has been made and it has not been paid. What they seek to do is to raise issues that go behind the costs order as reasons why the petition should not be granted. There are also the other issues in relation to solvency and whether there is a set off or cross-demand which I have already explained. 11 In those circumstances, no purpose would be served by cross-examining Mr Kitay as to the matters that he actually deposes to in his affidavit. In the course of oral submissions, it was suggested to me that, on the hearing of the petition, the cross-examination could only extend to the matters actually deposed to by Mr Kitay. In my view, it is open to the respondents to a creditor's petition to seek to cross-examine any deponent relied upon in support of the petition as to any matters that are relevant to the issues raised by grounds in opposition to the petition. 12 So, I would not give the dispensation on the basis that the matters the subject of Mr Kitay's affidavit are not in issue. However, as I have identified, some of the matters raised in opposition to the petition seek to go behind the costs orders. If the Court was persuaded to do that, then there are matters that might be raised with Mr Kitay as a consequence. For example, the allegations of fraud in relation to his affidavit in the Supreme Court, and the allegations concerning liability for costs, are matters about which he might properly be cross-examined if the Court was to go behind the cost order relied upon in support of the petition. 13 Of course, there would need to be a foundation for pursing particular questions, but I am not in a position on the present application to rule in advance, in effect, that there would be no relevant matters that could be the subject of cross-examination. 14 It is well established that on the hearing of a creditor's petition, that the Court must be satisfied that there is a reason to go behind any judgment said to give rise to the debt on which the petition is based before it then considers matters that might be raised if the judgment is not accepted on its face. In effect, only if such a reason is demonstrated will the Court go behind the judgment. These principles were most recently considered by the High Court in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28. 15 Further, where an issue is raised as to whether the Court should go behind a judgment, the Court may consider whether there should be a separate determination of that question as a preliminary issue: Wolff v Donovan (1991) 29 FCR 480, 486 approved in Ramsay Health Care at [16]. It is only if I was persuaded that there was a reason to go behind the costs order that any purpose would be served by cross-examination of Mr Kitay. In oral submissions to me on behalf of Mr and Mrs Frigger today, a number of matters were raised to identify the issues that would be explored if cross-examination was possible. 16 In the view that I formed as to those matters, for reasons that I expressed in the course of argument, it seemed to me that the matters that were identified went to legal issues, rather than factual issues properly explored with Mr Kitay at a time when the Court has not yet decided that there is a reason to go behind the costs order. Therefore, in the circumstances which have arisen, I consider it appropriate to make orders for a preliminary determination as to whether the Court should go behind the judgment on the date that has been allocated for hearing on 5 June 2018. 17 If I am persuaded that there is a reason to go behind the judgment at that time, then there will need to be a further hearing at a later date. If I am persuaded that there is not a reason, then I will proceed to determine the other issues raised in the petition at the hearing on 5 June 2018. On the basis that orders will be made to deal with the issues in that way, I am satisfied that it is appropriate to dispense with the requirement for Mr Kitay to attend for cross-examination on 5 June 2018. 18 A separate application was made in respect of Mr Eastwood, a solicitor acting on behalf of some of the creditors who seek to intervene. Mr Eastwood has sworn an affidavit in which he refers to other outstanding costs orders, the extent of liabilities that may arise after assessment of some of those costs orders, and also the circumstances relating to the superannuation fund of Mr and Mrs Frigger. 19 Mr and Mrs Frigger claim that access to moneys in the superannuation fund means they are able to pay their debts and the petition should not be granted for that reason, amongst other reasons which I have identified. Therefore, the evidence of Mr Eastwood is relevant to one of the grounds of opposition to the petition. In those circumstances, I am not persuaded that attendance by Mr Eastwood for cross-examination should be dispensed with. Having expressed that view, it will be necessary to consider at the hearing on 5 June 2018 the extent to which questions are relevant, given the nature of issues to be addressed at that hearing, particularly given the orders that I will now make limiting the issues to be addressed at that hearing. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.

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