Clyne, Peter Leopold v Deputy Commissioner of Taxation [1982] FCA 166

Federal Court of Australia|1982-08-13|Before: Lockhart J

Bankruptcy - Bankruptcy Notice - application to set aside - whether notice misleading - failure to notify debtor that date

of posting deemed to be date of service of notice by Court

order - meaning of expression "final judgment" in para. 40 (1) (g) - whether common law judgment for income tax is a "final judgment" when appeals or references pending under Part V of Income Tax Assessment Act 1936 - jurisdiction of Court to set aside notice.

Bankruptcy Act, 1966 para. 40 (1) (g) sub-s. 30 (1)

PETER LEOPOLD CLYNE - Applicant DEPUTY COMMISSIONER OF TAXATION Respondent

NO. B. 1905 OF 1982 LOCKHART J. FRIDAY 13 AUGUST 1982

BANKRUPTCY DISTRICT OF THE STATE NO. B 1905 oF 1982

Respondent ORDERS JUDGE MAKING ORDERS: LOCKHART J. DATE OF ORDERS: FRIDAY 13 AUGUST 1982 WHERE MADE: AT SYDNEY

THE COURT ORDERS THAT: Bankruptcy Notice No. 1905 of 1982 be set aside. The respondent pay the applicant's costs of the application

) BANKRUPTCY DISTRICT OF THE STATE ) NO. B.1905 OF 1982

Peter Leopold Clyne, the applicant, seeks to set aside a

bankruptcy notice issued on 4 May 1982 at the request of the Deputy Commissioner of Taxation, the respondent. The notice requires the applicant to pay the sum of $334,826.25 or to secure the payment thereof or compound it. The notice 1s based on a judgment obtained by the respondent against the applicant in the Supreme Court of New South

Wales, Common Law Division, on 11 March 1982 in the above sum.

The applicant, who conducted his own case, challenged the

validity of the bankruptcy notice on two grounds. First, he submitted

that the notice did not clearly and unambiguously specify a period of

time within which compliance was required. Second, he argued that the

judgment was not a final judgment within the meaning of para. 40 (1) (g) of the Bankruptcy Act 1966 ("the Act") and therefore could not be

In the event that he fails on both these grounds' the applicant sought an order extending time for compliance with the requirements of the notice until certain references to a Board of

Review under the Income Tax Assessment Act 1926 ("the Assessment Act")

and any appeals arising therefrom have been determined.

The facts relating to the service of the bankruptcy notice

are important and need to be stated in some detail. The notice was

served pursuant to an order of this Court made on 25 May 1982, on the

ex parte application of the respondent, in the following terms:-

personal service of Bankruptcy Notice No. B. 1905 of 1982 dated 4 May 1982 and filed herein, be dispensed with;

leave be given to effect service of the said Bankruptcy Notice on the Respondent Judgment

stamped and signed by the Deputy Registrar together with sealed copies of todays orders be sent, as follows -

(i) by pre-paid air mail addressed to the said Respondent Judgment Debtor at C/-

(ii) by pre-paid mail addressed to the office of 2Z. Weiss Solicitor, the said

Respondent Judgment Debtor's Solicitor in Australia, C/-Messrs Weiss & Co., Solicitors, 8th floor, 64 Castlereagh Street, Sydney in the State of New South Wales;

4,___ upon the expiration of fourteen (14) days from the date of posting the said documents pursuant to these orders, due service of the said Bankruptcy Notice be deemed to have been effected upon the said Respondent Judgment Debtor;

5.___ the time for compliance with the requirements of the said Bankruptcy Notice or the time within which the said Respondent Judgment Debtor shall satisfy the Court that he has a_ counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt, being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment was obtained shall be twenty-eight '(28) days from the date of such due service of the said Bankruptcy Notice as 1s ordered by the Court pursuant to these orders;

in addition to the orders already made I allow amendment of the said Bankruptcy Notice by substituting therein, the figures and words

In fact the form of order entered in the Registry 1s incorrect because order 7, when made by the Court contained no reference to the figures "28" or "14". The order referred only to the

words "twenty-eight" and "fourteen". However although this

discrepancy was referred to in argument, nothing turns on it.

On Thursday 27 May 1982 a true copy of the bankruptcy notice stamped and signed by a Deputy Registrar in Bankruptcy, a sealed copy

of the Court's order made on 25 May 1982 and a covering letter dated

27 May 1982 from the Deputy Crown Solicitor were sent by pre-paid air mail addressed to the applicant at his Vienna address. Also on 27 May 1982 copies of the above documents were sent by pre-paid mail addressed to the Sydney office of Mr.Weiss, the solicitor for the applicant. The applicant admits that he received these documents on 1

June 1982 and that his solicitor also received them.

It is common ground that the bankruptcy notice sent to the applicant and to his solicitor was in the form set out in the document which for convenience I have annexed to my reasons for judgment and which is accurately reproduced except that the word "twenty-eight" in the body of the notice together with the initials "J.H." which appear to their right, the asterisk to their left and the words and figures

"*aAmended pursuant to Order of Court of 25 May 1982 J.P. Hasson 27

were written in red on the copies served on the applicant and his

solicitor with the result that they readily attract the eye.

Bankruptcy notices must conform strictly to the requirements of the Act and the Bankruptcy Rules. If a notice is defective a question arises whether the defect renders the notice a nullity. If the defect is such as could reasonably mislead the debtor then the

notice is a nullity: Pillai v. Comptroller of Income Tax [1970] A.c.

The test is not whether the debtor was in fact misled but

whether he could be misled: James v. F.C. of T. (1955) 93 C.L.R. 631

at p. 644; Re Wong; Ex parte Kitson (1979) 38 F.L.R. 207. I said in

"A debtor is not required to engage in the task of construing a bankruptcy notice and resolving questions of doubt or ambiguity. A bankruptcy notice ought to be clear and unambiguous.

Noncompliance with its requirements constitutes an act of bankruptcy with quasi penal consequences. If it 1s equivocal, generally the equivocation must be resolved in favour of the debtor.

It 1s well established that to determine whether the debtor

could be misled the Court 1s not confined to a mere examination of the

notice itself. It may look at facts extraneous to the notice: Re

Wimborne; Ex parte The Debtor (1979) 24 A.L.R. 494.

I turn to the applicant's submission that the bankruptcy notice is a nullity because it did not clearly and unambiguously

specify a period of time within which compliance was required.

There were two limbs to this argument. First the applicant submitted that the notice was misleading in that it stated the period within which compliance was required as being "fourteen" days in the typed form, yet over the word "fourteen" there was handwritten in red colour "Twenty-eight" together with the asterisk referring the reader's attention to the other asterisk in the top right-hand corner where reference was made to the amendment pursuant to the Court order of 25 May 1982. The applicant submitted that the debtor would be in a

quandry as to the period within which compliance was required.

I do not know why the bankruptcy notices served on the applicant and his solicitor pursuant to the Court's order did not show the word "fourteen" struck out and "twenty-eight" substituted so that it would have been obvious that compliance with the requirements of the notice was required within twenty-eight days after service of the notice ou the applicant. The order allowed the bankruptcy notice to be amended by substituting "twenty-eight" for "fourteen". Plainly this required striking out the reference to "fourteen" and inserting

"twenty-eight", otherwise there could not be the substitution of the

If the notice were to be read by itself without reference to the copy of the Court's order which accompanied it in the post when served on the debtor, in my view it would be misleading and fundamentally defective. What I said in the passage cited earlier

It 1s permissible, however, to consider the notice in the light of matters extraneous to the notice itself, in particular the

The applicant submitted that the copy of the order should be treated as part of the notice itself because the words and figures

written in red on the notice incorporated the order by reference. It

was said that the two documents should be read as one.

I do not accept that submission. Even if I were to do so the

whole of the order could not be treated as incorporated in the notice itself. Only order 7, which allowed the notice to be amended by substituting "twenty-eight" for "fourteen" days, could be relevantly treated as part of the notice. In my view the order is not part of the notice; but it may be examined to determine whether the debtor could have been reasonably misled. This was the submission of counsel for the respondent and I accept it. The order accompanied the notice and therefore presumably would have been read by the applicant. To ignore the order when considering the assertion of the applicant that he could have been perplexed by the notice would be unreal and

When the notice is read in the light of the order it 1s clear that "twenty-eight" must be treated as having been substituted for

"fourteen". The applicant could not reasonably have been misled.

Whether he was in fact misled is not, of course, the point.

The second limb of the attack made by the applicant on the

validity of the bankruptcy notice 1s more difficult. It was submitted that the applicant could not know when the notice was served on him and therefore would not be able to calculate the commencing date from which the period of twenty-eight days for compliance ran. The argument was that, as due service of the notice was deemed to have been effected "upon the expiration of fourteen (14) days from the date of posting the said documents pursuant to these orders", the applicant could not have known when the documents were posted. Although they

were in fact posted on 27 May 1982 this could not have been known by

the applicant. The fact that the letter from the Deputy Crown Solicitor accompanying the documents was dated 27 May was irrelevant because, so far as the debtor was concerned, it may not have been posted on that date. The debtor conceded that the position may have been different if some statement had been made to him in one of the documents, for example the letter, stating that the date of posting

Counsel for the respondent submitted that the notice was not

defective in this -respect. He submitted that as the Court order is not part of the notice it must be ignored for the purpose of determining if the notice is itself defective. He pointed to the relevant provisions of the Act, in particular sub-ss. 41 (1) and (2), Bankruptcy Rule 83 and the prescribed form of bankruptcy notice (Form 4) and submitted that the notice complied with the prescribed form and therefore was not defective in the particular respect aileged by the

In my opinion this submission of the respondent is sound. The notice itself did follow the prescribed form when it required

compliance with the notice within twenty-eight days after service of

the notice on the applicant excluding the day of service.

However, on the evidence before me the applicant could not

have known with any certainty the date on which the notice and Court order were posted to him. They were in fact posted on 27 May and were

received by the debtor on 1 June; but there was nothing received by

the applicant which would have reliably informed him of the date of

It ais the practice in the office of the Deputy Crown Solicitor of the Commonwealth at Sydney, which had the carriage of the

service of the bankruptcy notice on the applicant, "for all mail to be

franked with the appropriate postage by a franking machine (which also records the date upon which the franking occurs) prior to the said Mail being delivered to the General Post Office, Martin Place, Sydney". There 1s no clear evidence that the date franked on the envelope sent to the debtor was 27 May although probably that was the

The envelope is not in evidence. It was received by the applicant but there is no evidence of its ultimate fate. The applicant was entitled to know clearly and unambiguously the date of posting of the notice. On no view of the facts could he have known this. It goes too far to say that because the envelope probably bore the franked imprint of a date, which more likely than not was the date of posting, the applicant should be assumed to know what that date was. People frequently either do not look at such matters on envelopes or throw them away. Also, printing from franking machines may become obscured in the course of transit of the envelope, and it

is possible that the date was not clearly shown on the envelope at

This 1s too thin a branch, or perhaps I should say a twig, on

which to set in train the machinery of bankruptcy which may ultimately

These matters Lead me to conclude that the notice should be

set aside. As I observed in Re Steriing; Ex parte Esanda Limited

(1979-80) 30 A.L.R. 77, the Court's power to set aside bankruptcy

notices is not conferred specifically by any provision of the Act, although it is assumed (see for example sub-ss. 41 (6A), (6B) and

(6c)). Courts exercising bankruptcy jurisdiction have set aside bankruptcy notices over many years and on various grounds. The circumstances in which notices may be set aside 'are not governed by rigid rules and do not fall into fixed categories. The power may be exercised if warranted on the facts of a particular case. The source of this power is sub-s. 30 (1) of the Act. That- sub-section has been liberally construed by the courts. The circumstances which may give rise to questions or problems in matters of bankruptcy are so multifarious that it 1s impossible to confer powers upon the Court to

deal with them other than in general terms. Such powers must not be

given any narrow or mean construction. Non-compliance with the requirements of a bankruptcy notice 1s an act of bankruptcy on which almost every petition is based which comes before the Court. A bankruptcy notice is the foundation of a bankruptcy and involves quasi penal consequences. The Court must be able to supervise bankruptcy

notices at all stages of their existence. If an alternative source of

power were needed, however, it would be found in the Court's inherent

jurisdiction. In my opinion fairness requires that the bankruptcy

The respondent submitted that if the Court considered that the notice should be set aside because of the problems associated with the posting, it was an appropriate, case for the Court to vary the orders made on 25 May 1982. The amendment suggested was that the words "from the date of posting the said document pursuant to these orders" be deleted from order 4 and the words "from the date of receipt by the Respondent Judgment Debtor of a true copy of the said Bankruptcy Notice stamped and signed by the Deputy Registrar as referred to in

order Three made by me" substituted. The applicant opposed the

Time for compliance with the requirements of the bankruptcy notice has already been extended by the Court so that no act of bankruptcy has yet been committed by the applicant. The respondent concedes that if an act of bankruptcy had already been committed the

In my opinion it would be inappropriate to vary order 4 at this stage. The effect of the variation would be to render certain an event previously uncertain, namely the date of deemed service of the bankruptcy notice upon the applicant. That date is critical as it sets in motion events that may result in the commission of an act of bankruptcy. To seize upon the date on which the applicant received the notice, a date which is known because the applicant admitted it,

and thereby retrospectively render certain the date from which an act

of bankruptcy may flow would be wrong. I therefore decline to vary

I turn to the question whether the judgment on which the

bankruptcy notice is based was a final judgment within the meaning of

The respondent issued notices of assessment to income tax against the applicant for the financial years ended 30 June 1977, 1978, and 1979, The applicant lodged objections against each assessment which the respondent disallowed. Upon the applicant's

request the objection for the 1977 year was treated as an appeal and

referred to the Supreme Court of New South Wales. That appeal was dismissed for want of prosecution by Hunt J. on 1 March 1982. The

applicant appealed to this Court against that decision. The appeal

was heard last week by a Full Court of this Court and the decision was

Following the disallowance by the respondent of the applicant's objections in respect of the 1978 and 1979 years of income

the matters were referred to a taxation Board of Review and the

references are Listed for hearing on 13 September 1982.

On 11 March 1982 the respondent obtained judgment against the

applicant in the Supreme Court of New South Wales, Common Law Division, in the sum of $334,826.25 being the amount claimed in the bankruptcy notice the subject of this proceeding. That amount is the sum of the income tax and additional tax for late payment claimed by the respondent to be due by the applicant in respect of the financial

years 1977, 1978 and 1979 (including provisional tax where relevant)

less a credit of $108,829.07 which was recovered by the respondent from a bank and a building society with which the applicant had

deposited moneys, pursuant to notices issued by the reSpondent under

s. 218 of the Assessment Act. The applicant has appealed to the Court

There is a considerable body of evidence as to the progress of the appeals and references. I do not propose to refer to this

I will summarise the applicant's argument. He submitted that the judgment of the Supreme Court on which the notice was founded is not a final judgment within the meaning of paragraph 40 (1) (g) because it does not finally dispose of the rights of the parties. He

relied on Bozson v. Altrincham Urban District Council [1903] 1 K.B.

547 at p. 548, Egerton v. Shirley [1944] 2 A.E.R. 583; Hall v. The

Nominal Defendant (1966) 117 C.L.R. 423 (at pp. 439 and 440); and Re Pannow1tz? Ex parte Wilson (1975) 6 A.L.R. 287 (at pp. 292-3) as establishing this definition of "a final judgment". The applicant

then submitted that the Act and the Assessment Act must be read

together. The Assessment Act entitles the respondent to obtain and enforce a "Suagment against a taxpayer for tax payable pursuant to an assessment, and it is not open to the taxpayer in that proceeding to challenge the assessment in any way. This can only be done on a reference to a Board of Review or an appeal to the Supreme Court: F.

J. Bloemen Pty. Limited v. C. of T. (1981) 55 A.L.J.R. 451. If the

respondent is entitled to obtain the issue of a bankruptcy notice

based on the judgment and in due course obtain a sequestration order against a taxpayer's estate the status of the taxpayer is seriously affected. Bankruptcy would also affect rights and liabilities of the taxpayer, the respondent and third parties. Yet if a taxpayer succeeds in appeals to a Supreme Court or references to the Board of Review the assessment will be altered and the tax paid will be refunded (s. 202 of the Assessment Act). The foundation of the judgment will be destroyed and the judgment itself can be set aside. Section 202 assumes that the judgment is set aside. The judgment is therefore defeasible. Likewise if a taxpayer succeeds only partially on the appeal the assessment and the judgment may be varied

accordingly. Therefore the judgment is not a final judgment. This is

It is true that the cases relied on by the applicant, with the exception of Pannowitz to which I shall refer later, concern the question whether a judgment is final; but they did so in different contexts and for different purposes to those presently relevant. The question in Bozson was whether a Court order was final or

"...the real test ...ought to be this: Does the judgment or order, as made, finally dispose of the

In Salter Rex & Co. v. Ghosh [1971] 2 Q.B. 597, Lord Denning

disapproved this test and approved instead a test applied by Lord

Esher some years earlier in Standard Discount Co. v. La Grange [1877]

3 c.P.D. 67 and Salaman v. Warner [1891] 1 Q.B. 734 namely, that it

was the nature of the application to the Court and not the nature of

the order which the Court eventually made which determined whether an

In Hall v. The Nominal Defendant (1966) 117 C.L.R. 423 the

question before the High Court was whether an order was final under para. 35 (1) (a) of the Judiciary Act 1903. Barwick C. J. said (at p. 430) that the order in question in that case was final because it

finally determined the matter in dispute. Taylor J. regarded the test

propounded in Boszon by Lord Alverstone as providing "a broad test which is unexceptionable" (pp. 439-40). Windeyer J. (at p. 444) referred to "the general proposition that a f1nal order is one which finally disposes (subject only to appeal) of an action or existing

In Pannowitz Riley J. applied the tests approved in Hall to

determine whether the order before him was a "final order" within the

The question whether a judgment 1s final has been considered

by other cases in contexts more relevant to the present case than

Boszon, Egerton and Hall. In Opie v. Opie (1951) 84 C.L.R. 362 the

High Court considered whether a judgment entered under s. 13A of the

Deserted Wives and Childrens Act 1901 (N.S.W.) was a final judgment

within the meaning of para. 52 (j) of the Bankruptcy Act 1924 (the

equivalent of para. 40 (1) (g) of the Act). Dixon and Williams JJ.

"Section 52 (j) includes final judgments and final orders. Before final orders were included it had been held on numerous occasions that a finat judgment on which a bankruptcy notice could be founded was a final Judgment obtained in an action by which a previously existing liability of the defendant to the plaintiff is ascertained or

established ~- unless there is something to show an intention to use the words in a more extended sense..."

In Re Hanby; Ex parte Flemington Central Spares Pty. Limited

(1967) 10 F.L.R. 378, Gibbs J. held that although a judgment of a

District Court may be set aside under the District Courts Act 1912

(N.S.W.) on sufficient cause being shown the judgment, until set aside, is a final judgment for the purposes of a bankruptcy notice

Although I do not think anything turns in this case on any

distinction between the tests applied in Boszon and Hall on the one

hand and Opie on the other hand, I prefer for present purposes to

It is necessary to examine the provisions of the Assessment Act touching the question of the finality of the Supreme Court

Income tax is due and payable by the taxpayer on the date specified in the notice of assessment as the date for payment not being less than thirty days after the service of the notice or, if no date 1s so specified, on the thirtieth day after the service of the

Income tax when it becomes due and payable is a debt due to the Queen on behalf of the Commonwealth and payable to the

Commissioner in the manner and at the place prescribed (s. 208).

Tax unpaid may be sued for and recovered in any court of

competent jurisdiction by the Commissioner or a Deputy Commissioner

"The production of a notice of assessment, or of a document under the hand of the Commissioner, a second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and ail the particulars of the assessment are correct".

In Bloemen, Mason and Wilson JJ. said (at p. 456):-

"An explicit and, in our view, correct statement of the effect of s.177 (1) was made by Taytor J. an McAndrew (1956), 98 C.L.R., at pp. 281-282. For the reasons there expressed his Honour concluded that 's. 177 (1) was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any ground'. He conceded that the word 'excessive' in s. 190 (b) was inappropriate. However, he considered that an assessment 'made in purported but not justifiable exercise of a statutory power' could properly be described as 'excessive' (p.282).

This interpretation gives expression to the policy which underlies, and 1s manifest in, the statutory provisions. The effect of this policy is that, once the Commissioner takes advantage of s. 177 (1) by producing an appropriate document, the taxpayer us precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to

dispute his substantive liability to tax in proceedings uhder Pt. V.

Although s. 190 (b) places the onus on a taxpayer upon a reference or appeal of proving that the assessment is excessive, it enables him to contest his substantive liability to tax. It is

then for the board upon a reference or the court on an appeal, within the framework of the taxpayer's

objection, to ascertain whether he is liable to tax and, if so, in what amount. The Pt. V procedures accordingly protect the taxpayer and enable him to have his liability to tax determined."

Stephen and Aickin JJ. agreed with the reasons for judgment

The Supreme Court hearing a taxpayer's appeal under Part V of the Assessment Act may make such order as it thinks fit and may, by

such order, confirm, reduce, increase or vary the assessment (sub-s.

pending shall not in the meantime interfere with or

The issues in the proceeding before the Supreme Court which resulted in the common law judgment are essentially different from those in the proceedings for review or appeal under Part V of the Assessment Act. The common law judgment established the previously

existing liability of the applicant to the respondent, and it finally

disposed of the rights of the parties on the matters in dispute

between them notwithstanding the pendency of the appeal to the Court of Appeal of New South Wales from that judgment leaving other issues

The applicant placed great emphasis on s. 202 to support his

argument; but I do not think that section supports it at all. Rather

it supports the argument of the respondent. Section 202 1s designed to adjust the financial position of the taxpayer and the respondent following the conclusion of the appeal or reference. Tax is either refunded to the taxpayer or recovered from him depending on the alteration made to the assessment on the appeal or reference. The taxpayer has no right to set aside any common law judgment which may have been entered against him following the conclusion of an appeal or reference in his favour under Part V. The judgment may become unenforceable if in the end he succeeds in his appeal. But his right under s. 202 does not arise until the determination of the appeal or reference under Part V. The true character of the right 1s one of entitlement to a refund. The rights and liabilities arising under s. 202 are in harmony with the notion of the common law judgment being a

In my opinion the judgment entered by the Supreme Court of New South Wales on which the bankruptcy notice is based is a final judgment within the meaning of para. 40 (1) (g). This conclusion follows whichever test is adopted as to what constitutes a final

In view of my finding it is unnecessary to consider the applicant's submission that, if he fails in his attack on the validity

of the bankruptcy notice, an order should be made extending time for

compliance with the requirements of the notice until the references to the Board of Review and any appeals arising therefrom have been

The Court orders that bankruptcy notice No. 1905 of 1982 be set aside and that the respondent pay the applicant's costs of the

| certdy that this and the Nites (14) preced.ng faces are a truco ccpy cf tha Reasons for Judgment herein of his Ionour

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by hin against you ia the SUrPRG.n COURT OF iFil SOUTH NALCL, aie DIVIGLO. al SYDLEY on the eleventh aay of Varch t3e2, tia $a1@ Juagient being a juamsent the execution of tmich has not

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Judgment (213 paragraphs)

Cited By (4)