Davis v Insolvency and Trustee Service Australia

Davis v Insolvency and Trustee Service Australia - [2009] FCA 562 - FCA 2009 case summary — Zoe

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Introduction 1 The applicant (Mr Davis) has three children. In 2005, Mr Davis was required to pay arrears of maintenance in respect of one or more of his children and was also subjected to a costs order in respect of proceedings in the Family Court of Australia (the Family Court). 2 On 20 January 2009, Mr Davis commenced the current proceedings. In the proceedings, Mr Davis claims by way of final relief a declaration that certain orders made by a NSW Local Court Magistrate on 8 November 2005 (the Local Court orders) "are invalid and of no effect". He also claims consequential and ancillary relief. Mr Davis also seeks to set aside the Local Court orders by invoking principles of judicial review. In general terms, the Local Court orders were by way of enforcement of the maintenance liabilities incurred by Mr Davis and of the Family Court order for costs made against him. The Local Court orders are expressed to have been made by consent. It is common ground between Mr Davis and the second respondent (the Registrar) that this was not the fact. The orders were not made by consent. 3 At a Directions Hearing held on 25 March 2009, I fixed for hearing at 10.15 am today an application made by the Registrar for an order pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) that the whole of the proceedings be dismissed. The hearing of that Motion would have been fixed at an earlier time had Mr Davis and his legal representatives been available. 4 On 24 April 2009, at very short notice, I heard an application brought by Mr Davis for leave to amend his Application for a second time and for interlocutory injunctive relief. Mr Davis' application for an interlocutory injunction was prompted by the fact that, by Notice dated 25 March 2009 (the Notice), the Registrar had purported to require payment to the Registrar, pursuant to s 72A of the Child Support (Registration and Collection) Act 1988 (Cth) (the Collection Act), of any moneys due to Mr Davis or becoming due to him from three named persons, DC Beale, MJ Horton and AJ McMinn (the Estate's solicitors), up to the amount of $53,383.11 (being the amount due to the Registrar under the Local Court orders plus interest). At the time the Notice was issued, the Registrar believed that the Estate's solicitors were the executors and trustees of the Will of the late Dr Eric Lewis Davis (Dr Davis), who was Mr Davis' father, and that the estate would, in the future, be obliged to pay moneys to Mr Davis in his capacity as a residuary beneficiary under his late father's Will. As the interlocutory hearing proceeded, it became clear that the named persons were not the executors and trustees under Dr Davis' Will. Their true role was as the solicitors for the executor and trustee of that Will (Mr Graham John Cowley). 5 These Reasons for Judgment address and determine the interlocutory applications made by Mr Davis on 24 April 2009.

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9C. Declaration that sections 104(2) and 105(2) of Child Support (Registration and Collection) Act 1988, and such other provisions as may be relied on herein by the Second Respondent, are invalid to the extent that or to the effect that the said provisions confer federal functions on a State Court, and/or affect the structure and organisation of the Court, and/or confer powers and jurisdiction on a member of the Court and not upon the Court. 9 He also sought to add the following par 1A to Section B (Claim for Interlocutory Relief) in his Amended Application so as to seek on an interlocutory basis an: 1A. Order pending final hearing herein restraining the Second and Fourth Respondents from taking any steps pursuant to Notice dated 30 March 2009 purportedly issued under Child Support (Registration and Collection) Act 1988 section 72A. 10 Proposed order 1A is in terms which are different from the terms of the injunction claimed in Mr Davis' Notice of Motion filed on 24 April 2009. Order 1A is sought against both the Registrar and the Estate's solicitors whereas the injunction sought in the Notice of Motion is claimed against the Registrar only. Order 1A addresses only the Notice whereas the injunction sought in the Notice of Motion addresses any and all future attempts by the Registrar to rely upon s 72A of the Collection Act in respect of the maintenance debts due by Mr Davis to the Commonwealth. At the hearing, Counsel for Mr Davis provided to me a document styled Applicant's Proposed Minutes of Orders. In that document, it was made clear that Mr Davis was pressing for an order in the terms of proposed order 1A. I will deal with the application on that basis. 11 The "Fourth Respondents" referred to in the amendments proposed by Mr Davis are the Estate's solicitors. These are the persons to whom the Notice is addressed and upon whom it was served. Those persons have not yet been joined as parties to the proceedings although Mr Davis has now sought to join them. 12 When the proceedings were called on before me on 24 April 2009, there was no appearance either by or on behalf of the first respondent or either by or on behalf of the third respondent. Those respondents had previously filed submitting appearances whereby they submit to any order of the Court save as to costs. The Estate's solicitors did not appear. The only respondent party which appeared was the Registrar. She opposed the making of any of the orders sought by Mr Davis. 13 Counsel for Mr Davis made clear that the only claims for final relief made in his client's proposed Further Amended Application upon which he relied to support his client's application for interlocutory relief in respect of the Notice were those made in pars 4, 9A, 9B and 10 of that Application. In par 4, Mr Davis seeks a writ of prohibition against all of the respondents prohibiting them from acting upon or giving effect to the Local Court orders. The grant of such a writ is said to follow from the proposition that the Local Court orders are invalid and of no effect. Paragraph 10 contains the usual general catch-all: Such further or other order as to the Court seems fit.

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7 The principal objects of the Registration and Collection Act are to ensure that children receive from their parents the financial support that the parents are liable to provide, and that periodic amounts payable by parents towards the maintenance of their children are paid on a regular and timely basis (s 3). Those objects are achieved by a system of registration and enforcement. The scheme is available to a carer who wishes to take advantage of it. Some carers may not. They can rely on private enforcement if they wish. If a liability has arisen under a child support assessment, it may be registered under the Registration and Collection Act (s 17). The effect of registration is that the carer is no longer entitled to enforce payment of the liability and, instead, there is a debt owing by the liable parent to the Commonwealth (s 30). The carer entitled to child support becomes entitled to payment of an amount equivalent to that collected by the Commonwealth from the liable parent or on account of that parent's liability (s 76). The debt owed by the liable parent to the Commonwealth must be paid in the manner prescribed by the Act, and may be collected from certain debtors of the parent. Amounts collected are paid into, and disbursed to carers out of, the Consolidated Revenue Fund. The Commonwealth does not benefit financially. 18 Towards the end of his Honour's discussion of the taxation ground of challenge, at [14]-[16] (p 344) his Honour also said: 14 The Assessment Act creates a private or personal obligation, in the form of a debt payable by the liable parent to the eligible carer. The debt is recoverable by the carer. The creation of a legal obligation, enforceable by private action, in a parent, to pay for the support of a child, is not taxation. It is a scheme for the creation and adjustment of private rights and liabilities. But the existence of the obligation is of significance in considering the aspect of the legislative scheme upon which the plaintiff principally relies, which is in the Registration and Collection Act. What is alleged to be taxation is in substance no more than a mechanism for the enforcement of a pre-existing private liability.

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The Relevant Facts 26 At some time prior to 8 November 2005, the amount of $27,629.11 became a registrable maintenance liability of Mr Davis within the meaning of that expression as used in the Collection Act. That amount comprised $18,997.80 in arrears of child support and $8,631.31 in late payment penalties. There was no direct and clear evidence before me which established the circumstances in which that liability arose. The most likely circumstances were that, in maintenance proceedings brought by Mr Davis' former wife in the Family Court, that Court made an order that maintenance be paid by Mr Davis to his former wife as carer of one or more of Mr Davis' children and that, by August 2005, the amount of $27,629.11 comprised the arrears due under that order plus penalties. The other possibility is that the liability arose as a result of a child support assessment determined by the Registrar under the Child Support (Assessment) Act 1989 (Cth) (the Assessment Act). Such an assessment is made after application by the children's carer (see Pt 4 of the Assessment Act and s 4 and s 17 of the Collection Act). 27 In the present case, it does not matter how the liability first arose. It is clear that a registrable maintenance liability within the meaning of that expression as used in the Collection Act did arise at some time before 8 November 2005. Counsel for Mr Davis did not suggest otherwise. Furthermore, Mr Davis does not claim that the underlying debt due in respect of maintenance which ultimately became a registered maintenance liability was not, in fact, due. In Mr Davis' world, the relevant events for present purposes commenced with the making of the Local Court orders on 8 November 2005. 28 As explained by the High Court in Luton210 CLR 333, the Registrar must register in the Child Support Register kept under the Act a registrable maintenance liability once such a liability arises (see ss 23, 24 and 24A of the Collection Act). 29 The obligation to register such a liability does not arise if the carer to whom the maintenance is owed elects to pursue his or her own remedies and not to take advantage of the Commonwealth's collection scheme under the Collection Act (s 23(3) and s 24A(2) of the Collection Act). 30 Once the registrable maintenance liability is registered under the Collection Act, the underlying debt created by the child support assessment or Court order becomes a debt due to the Commonwealth from the payer in accordance with the particulars of the liability entered in the Child Support Register (s 30 of the Collection Act). 31 The registrable maintenance liability of $27,629.11 owed by Mr Davis in the present case was registered in the Child Support Register under the Collection Act at some time prior to 8 November 2005. Upon registration, that amount became a debt due from Mr Davis to the Commonwealth. Subject to a limited exception, once registration was effected, the carer/payee was no longer entitled to enforce the debt. 32 The Registrar then brought proceedings against Mr Davis in the Local Court of NSW (Family Matters) at Sydney in order to recover as debts due to the Commonwealth the unpaid maintenance and penalties and the amount due on account of costs under the Family Court costs order which had been made on 31 August 2005. This action was plainly authorised by the Collection Act. 33 On 8 November 2005, a NSW State Local Court Magistrate, sitting in the Local Court (Family Matters) at Sydney, made a declaration and orders in those proceedings. On that day, the Local Court made a declaration that: there is owing to the Commonwealth in respect of amounts owing as follows:

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(B) for orders with respect to the shares of the Respondent in FPD Pty Ltd. 37 Orders 1 and 2 made on 8 November 2005 required Mr Davis to pay to the Commonwealth: (a) The Commonwealth's costs of the Local Court proceedings (assessed at $4,274.00); and (b) The two sums referred to in the declaration made on the same day (viz $27,629.11 and $11,692.00). 38 The "Respondent" referred to in the Local Court orders is Mr Davis. The draft Enforcement Warrant attached to the orders required the seizure and sale of such of the real and personal property of Mr Davis as may be required to realise sufficient funds to satisfy the total debt due as at 8 November 2005 viz $43,595.11. A warrant in the form of the draft Warrant was issued by the Local Court on 21 November 2005. 39 Mr Davis had a right to appeal to the Family Court from the Local Court orders but did not do so within the time stipulated in the Family Law Act 1975 (Cth) and the Family Law Rules 2004. 40 On 13 January 2006, Mr Davis made a belated attempt to overturn the Local Court orders. On that day, Mr Davis filed an Application in the Family Court in which he sought leave to appeal from the Local Court orders out of time. In the grounds of appeal relied upon in the draft Notice of Appeal which accompanied that Application, Mr Davis raised several alleged breaches of the Family Law Rules and also asserted that the statutory provisions allowing for the assessment and collection of child support by the Registrar were unconstitutional and invalid. On 3 April 2006, Lawrie J dismissed that application with costs (assessed at $1,129.55). 41 By way of enforcement of the Local Court orders, the first respondent subsequently acquired Mr Davis' interest in the Queensland property known as 20 St Kevins Avenue, Benowa (the Queensland property). The Commonwealth had lodged a caveat against the title to that property on 23 November 2005. Mr Davis asserts that the first respondent has for some time threatened to sell the Queensland property and continues to threaten to effect such a sale. As I have already mentioned, the Queensland property was held by Mr Davis as joint tenant with Ms Fofie Lau. 42 On 25 March 2009, the Registrar issued the Notice. Because Mr Davis has mounted a very vigorous attack upon the form of the Notice, I have attached a copy of the Notice to these Reasons for Judgment as Attachment "A". The Notice was received by the Estate's solicitors on 30 March 2009. 43 Apparently, both Mr Davis and the Estate's solicitors had been forewarned that the Registrar intended to serve a s 72A Notice on the Estate's solicitors. The Estate's solicitors were told of this on 17 March 2009. They immediately informed Mr Davis who then wrote to the Estate's solicitors on 22 March 2009 foreshadowing a technical challenge to the Notice. Mr Davis' letter dated 22 March 2009 was not tendered in evidence before me. On 30 March 2009 the Estate's solicitors asserted to the Registrar that, as at that date, there were no funds available to pay to Mr Davis and thus no funds to be attached by the s 72A Notice. 44 At the hearing before me, the solicitor for Mr Davis made certain assertions based upon the instructions of Mr Davis. Some relevant facts were proven in this way. These were: (a) The Estate's solicitors are the solicitors acting for the executor of the Will of Dr Davis in the administration of the estate; (b) Each of Dr Davis' five grandchildren was left a specific legacy of $5,000 with the balance of the estate being divided equally between Dr Davis' wife, his daughter and Mr Davis; (c) Dr Davis died on 25 October 2008; (d) Probate of the Will of Dr Davis was granted to Mr Cowley on 22 January 2009; (e) Dr Davis' estate has not yet been fully administered; (f) No debt was due from Dr Davis to Mr Davis as at the date of Dr Davis' death; and (g) The value of the estate (leaving aside real estate owned by Dr Davis and his wife as joint tenants) is approximately $210,404.00. Mr Davis' share is thus about $62,000.00 before testamentary expenses are taken into account. 45 The solicitor for Mr Davis (and Mr Davis) also asserted that there was no Public Officer of the description referred to in the Notice. Neither Mr Davis nor his solicitor stated the basis for their knowledge of this asserted fact. I do not accept this assertion. The three persons named as addressees in the Notice are solicitors practising under the firm name RBHM Commercial Lawyers. It is very likely that that firm does have a Public Officer for income tax and other regulatory purposes. 46 It is Mr Davis who contends that there is no such person. I do not think that he has established that fact. To the contrary, I think that the evidence establishes that there is such a person. If it matters, that is the finding which I make. 47 In the period from 30 March 2009 to 24 April 2009, correspondence passed between Mr Davis' solicitors and the solicitors for the respondents. In that correspondence, Mr Davis' solicitors sought undertakings in respect of the Queensland property. As at 24 April 2009: (a) The solicitors for the Registrar had informed the solicitors for Mr Davis that: … pending the determination of the current proceedings, [the Registrar] will not instruct ITSA to take action to sell the property [referring to the Queensland property]. This statement was first made in a letter from the Australian Government Solicitor to the solicitors for Mr Davis dated 17 April 2009. It was made in response to a request for an undertaking first made by the solicitors for Mr Davis to the Registrar by letter dated 14 April 2009. It was repeated in a letter passing between the same parties dated 23 April 2009; (b) In a letter dated 24 March 2009 from the solicitors for the first respondent to the solicitors for Mr Davis, the solicitors for the first respondent said: INSOLVENCY & TRUSTEE SERVICE AUSTRALIA & ORS ats PETER LEWIS DAVIS

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The Application for Leave to Amend the Originating Process 50 Mr Davis sought leave to amend his Application in the manner described in [8] and [9] above. His application for leave to amend was opposed by the Registrar on the ground that each of the additional claims sought to be added to the Application was bound to fail. 51 In my view, the claims made in proposed new pars 9B and 9C are both bound to fail. For that reason, I refuse leave to amend insofar as the inclusion of those paragraphs is concerned. 52 Paragraph 9A raises different considerations although I think that the claim made in that paragraph is barely arguable. The Registrar did not point to any particular prejudice (other than costs) if par 9A were included. 53 As I have already noted at [3] above, the Registrar's application for an order that the whole of the proceedings be dismissed is fixed for hearing before me later today. In light of that fact and given that the Registrar has not asserted prejudice, I think that the preferable course is to grant to Mr Davis leave to amend his Amended Application by the inclusion therein of par 9A and I grant that leave. For the same reasons, I grant leave to Mr Davis to include par 1A in his Claims for Interlocutory Relief. These amendments will be regarded as forming part of Mr Davis' claims when I come to hear the Registrar's dismissal application later today. That application will be regarded as covering the claim in par 9A. 54 I will now give my reasons for refusing leave to amend in respect of par 9B and par 9C. 55 The claim sought to be made in par 9B is that s 72A of the Collection Act is invalid because it impermissibly bestows upon the Registrar the judicial power of the Commonwealth in contravention of Ch III of the Constitution. In my view, when the Registrar issues a s 72A Notice, she does not exercise the judicial power of the Commonwealth. Section 72A provides for a collection mechanism in respect of debts already due to the Commonwealth under s 30. Those debts become due to the Commonwealth when they are registered in the Child Support Register. As Gleeson CJ pointed out in Luton 210 CLR 333 at [26] (p 346), there is a right of appeal in respect of such a registration. The registration of a child support liability does not involve a binding and conclusive determination of existing rights and liabilities. It creates rights for the future. 56 In Luton 210 CLR 333 at [27], Gleeson CJ stated very clearly that the Registrar's powers of collection in respect of registered child support debts do not involve the exercise by the Registrar of judicial power. The remaining members of the Court came to the same conclusion. 57 Paragraph 9B is a re-hash of an old, defeated argument. In my view, the reasoning of the High Court in Luton 210 CLR 333 provides a complete answer to Mr Davis' claim. Furthermore, in Whittaker v Child Support Registrar [2003] FCAFC 114 at [4], a Full Court of this Court held that the decision in Luton 210 CLR 333 foreclosed any constitutional challenge. I agree. 58 As far as par 9C is concerned, I do not agree that s 104(2) and s 105(2) of the Collection Act (and other unspecified provisions) are invalid for the reasons stated in par 9C. Those two subsections do no more than confer Federal jurisdiction on State Local Courts. This has long been recognised as within the permissible bounds of our constitutional principles. When conferring such jurisdiction, the Commonwealth must take State courts as they find them and not seek to alter their structure. In my judgment, the terms of the two subsections plainly do not infringe this principle. Further, the provisions must be construed as providing jurisdiction only so far as the Constitution permits (s 15(c) of the Acts Interpretation Act 1901 (Cth)). 59 The relevant principle was explained by Sackville J in Ly v Jenkins (2001) 114 FCR 237 when, at [70]-[71] (pp 258-259), his Honour said: 70. It is "accepted constitutional doctrine" that the Commonwealth, when it invests the judicial power of the Commonwealth in a State court, must take that court constituted and organised from time to time: Kable v Director of Public Prosecutions (NSW) (1996) 189 CLR 51; 138 ALR 577 at CLR 67 per Brennan CJ. The doctrine was stated by Knox CJ, Rich and Dixon J in Le Mesurier v Connor (1929) 42 CLR 481 at 496, as follows:

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Paragraph 9A (Serious Question to be Tried) 61 Counsel for Mr Davis submitted that the claims made by Mr Davis in par 9A were supported by s 39B(1) and s 39B(1A) of the Judiciary Act 1903 (Cth). He did not rely upon the Administrative Decisions (Judicial Review) Act 1977 (Cth). Counsel submitted that the Notice was invalid and of no effect for two broad reasons, namely: (1) The Notice was bad in form; and (2) The decision to issue the Notice was invalid because the pre-conditions or jurisdictional facts founding its issue had not been established. 62 In support of his first broad ground, Counsel for Mr Davis made a number of points about the Notice. 63 First, he submitted that a valid s 72A Notice had to be directed to a named person and that the Notice here was not so addressed. I do not think that the section imposes such a requirement. Provided that the addressee is sufficiently identified, I see no reason why that person necessarily must be named. However, in any event, I think that, in the present case, the "persons" to whom the Notice is directed are the three named parties, namely the Estate's solicitors. It is they who will be obliged to pay moneys to Mr Davis in the future. Prefacing the mention of their names with a reference to "the Public Officer" does not alter the nature of the relationships in play. It is merely a convenient way of politely addressing the command. But the command is directed to the persons who will owe the moneys in due course. I do not think that mentioning the Public Officer renders the Notice invalid. Counsel also submitted that, because there was no "Public Officer" of the named persons, the Notice was invalid. This contention depends upon my finding that there was no Public Officer. I have not made that finding. This contention must also fail. 64 Second, it was submitted that the Notice was ambiguous and unclear as to the identity of the person or persons who were intended to be required to comply with it. I disagree. A fair reading of the Notice as a whole leaves no doubt that it is directed to the named persons, namely the Estate's solicitors. The first line of the text (under the heading) makes this very clear. 65 Third, it was submitted that s 72A was directed only to those who were or might become debtors of the child support debtor, ie those who were in a creditor/debtor relationship or were likely to find themselves in such a relationship in the future. The proposition was that the Estate's solicitors were not debtors of Mr Davis as at 30 March 2009 and were unlikely to become debtors of Mr Davis in the future. I disagree with that submission both in principle and on the facts in the present case. 66 In my judgment, the language of s 72A expresses very widely the class of person to whom s 72A Notices might legitimately be addressed. The ordinary meaning of the text encompasses trustees, agents, debtors and perhaps other less well-known categories. The class of persons to whom a s 72A Notice might be given is not confined to debtors of the child support debtor. Nor does the money have to be actually in hand at the time the Notice is served. In the present case, in my view, given that the language covers persons who may, in the future, receive moneys on behalf of the child support debtor, the Estate's solicitors are persons who, in the future, may come to hold money on behalf of Mr Davis. Such an outcome is very likely given that the assets of Dr Davis have yet to be realised and gotten in and given that the Estate's solicitors represent the Executor and Trustee of Dr Davis' Will. The Notice was not defective on account of these matters. 67 Fourth, Counsel for Mr Davis submitted that the Notice was defective because it did not specify an amount of money which had to be paid to the Registrar. This submission should also be rejected. Paragraphs (i) and (ii) of the Notice make clear that, if the amount of the available funds in the hands of the Estate's solicitors is equal to or exceeds $53,383.11, then $53,383.11 must be paid to the Registrar. If the amount of the available funds is less than $53,383.11, then the whole of the available funds must be paid to the Registrar. 68 Fifth, Counsel for Mr Davis submitted that the Notice was bad because it did not specify a time for payment. I disagree. The Notice stipulates that, in respect of moneys held as at 30 March 2009, the requisite sum should be paid within seven days of the date of the Notice and, in respect of future moneys, within seven days of the date upon which the money becomes due or is held. 69 Sixth, Counsel for Mr Davis submitted that the Notice was invalid because it was not personally signed by the Registrar but was signed by the "State Manager" of the Child Support Agency. This submission should also be rejected. The Registrar has a broad power of delegation (s 15 of the Collection Act) and controls the manner and form in which a s 72A Notice might be given (s 16A of the Collection Act). For Mr Davis to make good this contention, he would need to prove by admissible evidence that the signatory to the Notice was not a duly authorised delegate of the Registrar and that s 16A had not been engaged. He has proven neither of these matters. In any event, the Registrar is entitled to the benefit of s 34AB(c) of the Acts Interpretation Act 1901 (Cth) which is in the following terms: 34AB Effect of delegation

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