HIS HONOUR: This is an application by a judgment debtor to set aside a default judgment. The plaintiff, the Deputy Commissioner of Taxation of the Commonwealth of Australia in and for this State, filed a statement of claim on 21 July 2014. There is no dispute that the statement of claim was personally served upon the judgement debtor on 31 July 2014 at his then residence in Broken Hill at 8.45am. The judgment debtor had 28 days in which to file any defence. He filed no defence. On 25 September 2014, the plaintiff moved the Court for the entry of judgment and on that day the registrar entered judgment for the plaintiff against the defendant for $421,727.09 inclusive of costs. A formal minute of judgment has been taken out and bears date 24 November 2014.
Over two and a half years later, the judgment debtor filed a notice of motion seeking to set aside the default judgment. The matter came before an Assistant Registrar on 30 June 2017 when orders were made that the applicant file and serve any evidence-in-chief by 21 July 2017; that the respondent file and serve any evidence in reply by 25 August 2017 and the matter was then listed for further directions on 7 September 2017. On that day, the Judicial Registrar set the matter down for hearing on 16 November 2017 with an estimate of a half to one day. On that day, the matter came before me at some stage. The judgment creditor's principal witness, Ms Jennifer Anne Crump was sworn at 4.24pm. The matter could not be finalised on that day and Ms Crump was not available on the following day, Friday 17 November 2017, because of certain commitments which she had in Brisbane. I then adjourned the motion part heard to last Friday, 2 February 2018, when addresses were completed at 3.45pm. I then stood the matter over to today in order to give judgment. I shall hereafter refer to the judgment creditor as the ATO; and to the judgment debtor as the applicant.
The notice of motion filed by the applicant on 18 May 2017 does not disclose pursuant to which provision it is brought, but both the ATO and I have proceeded on the basis that the application is under Uniform Civil Procedure Rules 2005 ('UCPR') 36.16(2). That provides that the Court may set aside a default judgment other than one made in open Court. That the orders have taken effect does not extinguish the Court's power under this subrule: Goater v Commonwealth Bank of Australia [2014] NSWCA 382. The following principles can be gleaned from the judgment of Hope JA in Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503 commencing at 506:
"1. the court has to look at the whole of the relevant circumstances and decide whether or not sufficient cause has been shown;
2. the existence of a bona fide ground of defence and an adequate explanation for the default are the most relevant matters to consider;
3. the applicant must swear to facts which, if established at trial, would afford a defence: Simpson v Alexander (1926) 26 SR (NSW) 296 at 301;
4. if the judge concludes that the applicant is lying about the alleged defence and is thus dishonest in raising it, the defence is not bona fide;
5. the applicant does not necessarily fail for want of an adequate explanation for the default. It depends on the circumstances.
As was said in Evans v Bartlam [1937] AC 473 at 489, "if merits are shown, the Court will not prima facie desire to let a judgment pass on which there has been no proper adjudication";
6. the absence of an explanation for the default, particularly if it is coupled with prejudice to the plaintiff, may justify the denial of relief, but only when considered with other relevant circumstances."
The importance of there being a defence on the merits to be contrasted with other considerations has been repeatedly stressed, particularly by Priestley JA in Byron v Southern Star Group Pty Limited trading as KGC Magnetic Tapes (1995) 123 FLR 352 and Cohen v McWilliam (1995) 38 NSWLR 476 at 480.
There is some commentary available on the question of delay in bringing an application of this nature. That is contained in Ritchie's Practice at [36.16.80]:
"An application to set aside a judgment or order should be made as soon as possible after it comes to the defendant's knowledge: Sevil v Heath (1877) Knox 359; North v Shierlaw (1897) 13 WN (NSW) 163; Rosing v Ben Shemesh [1960] VR 173. Any delay in making the application ought be satisfactorily explained: Term Sales Pty Ltd v Joseph (1949) 67 WN (NSW) 44. The affidavit must be sworn by someone who has knowledge of the facts, but in the appropriate case it may be sufficient for the affidavit to be filed by the solicitor's client: Migel v Bowles (1894) 10 WN (NSW) 172.
So far as delay is concerned, there are differing views as to whether, on its own, it can provide a sufficient basis for refusing the application to set aside a default judgment. Some cases take the view that delay is ordinarily not sufficient to deprive individual litigants of a determination of the merits of their position, at least in the absence of irremediable prejudice to the opposing party: Davies v Pagett (1986) 10 FCR 226; 70 ALR 793; Byron v Southern Star Group Limited [supra]: Cohen v McWilliams [supra]; Civil Procedure Act s 59 and the notes to both section 58 and UCPR Pt 2 emphasise the relevance of efficiency (and the desirability of compliance with procedural requirements) to such decisions…However in Lachlan v HP Mercantile Pty Limited (2015) 89 NSWLR 198; [2015] NSWCA 130 at [30] the Court of Appeal said that ss 56 - 58 provide an exegesis to, but have not altered, the nature of the Court's general procedural directions and the scope of the considerations relevant to their exercise."
The primary consideration is whether there is an arguable defence. It is important to bear in mind the claim that was made by the ATO in the statement of claim. The first part of the statement of claim, claims amounts payable in respect of the applicant's personal income tax. Paragraphs 2 to 7 refer to that personal liability of the applicant. The sum claimed for the total income tax debt, as at 18 July 2014, was $15,303.24. Paragraph 8 of the statement of claim pleads the incorporation of Bobos Engineering Australia Pty Limited, and par 9 pleads that the applicant was at all relevant times a director of that company within the meaning of certain provisions of the Income Tax Assessment Act 1936. The statement of claim then contains a heading "Director Penalties Imposed In Respect Of Actual Liabilities". Paragraph 10 of the statement of claim is this:
"The company withheld amounts under Division 12 in Schedule 1 to the TAA 1953, but failed to meet its obligation under subdivision 16-B in Schedule 1 to the TAA 1953 to pay each amount withheld to the Commissioner."
Under par 11 is set out a table showing the indebtedness of Bobos Engineering Australia Pty Limited to the ATO. The total indebtedness was $492,564.
Paragraph 13 in the statement of claim is this:
"The defendant was, in respect of each Amount Withheld, under that obligation under section 269 15 in Schedule 1 to the TAA 1953 at or before each Due Day, because the defendant was a director of the company.
PARTICULARS
The defendant was a director of the company continuously in the period beginning on 1 December 2012 and ending on 21 January 2014."
Paragraph 14 then pleads the unpaid amount of the company's liabilities under the same provision. The total unpaid amount, that is after allowing credits, was $408,095.71. That is alleged in par 17 of the statement of claim to be the total amount of the director penalties that remained unpaid after becoming due and payable. The total of the two sums, that is the total of the personal income tax owed by the applicant and the total of director penalties payable by him, was $423,398.95. The ATO claimed those sums, together with interest and costs. That led to the judgment entered up by the Registrar on 25 September 2014.
Exhibit 3-3 is the defence which the applicant seeks leave to file in the event that his application be successful. The applicant has pleaded to each individual paragraph in the statement of claim. The plaintiff admitted that the income tax for the period ending 30 June 2012 was as pleaded, but denied that the income tax for the period ending 30 June 2013 was payable on the basis of "I don't believe this could have a due date 22 days before the issue date of the Notice of Assessment." The denial appears to be no denial of the amount of the indebtedness but rather a technical denial of when the tax became payable. In answer to par 6 of the statement of claim the applicant said, "Neither admit nor deny," which I take to be a non-admission. Paragraph 7 contains a schedule showing the amount of the indebtedness for income tax. The defence proposed to this part of the statement of claim is this:
"Deny.
Bobos made multiple payments which were not acknowledged towards to [sic] PAYG withholding account/debt. I believe the Deputy Commissioner of Taxation placed these payments towards the BAS account rather than the intended PAYG withholding account."
The denial is limited but there is no actual denial of the amount of the liability for income tax.
To simplify the defence proposed to the claim for director penalties imposed, I turn to the defence raised to par 14 of the statement of claim, which reiterates an argument that the ATO failed to properly hypothecate payments made by him to the correct account:
"The amount provided in this table is incorrect due to the unrecognised payments which were made to this account/debt. Again, I believe the Deputy Commissioner of Taxation allocated these payments to the wrong account/debt."
In answer to paragraphs 15 and 16 of the statement of claim, this is alleged:
"A concluded agreement was made between Bobos and the Deputy Commissioner of Taxation, for Bobos to repay this debt. There was an agreement between Bobos and the Deputy Commissioner of Taxation. Also, the Deputy Commissioner of Taxation submitted a Proof of Debt with the appointed liquidators of Bobos, thus holding them liable for the debt."
The latter averment is also pleaded in response to par 18 of the statement of claim and again reiterates the argument of an incorrect hypothecation by the ATO of payments made by the applicant to the ATO. There is also a further averment of the ATO's submitting a Proof of Debt to the liquidators of Bobos Engineering Australia Pty Ltd as being some form, I assume, of waiver of the applicant's personal debt to the ATO.
The only documentary evidence available to me prior to the commencement of proceedings which led to the entry of default judgment is a letter under the hand of the applicant, as a director of Bobos Engineering Australia Pty Ltd on that company's letterhead, which was sent to the ATO. It bears the date 3 March 2014. It refers to the Director Penalty Notice concerning PAYG withholding amounts. The letter commences thus:
"In response to the abovementioned penalty notice, I would like to respond per the following explanations sought by the [ATO] in accordance with ATO form QC32232."
There is then a heading "Information re Financial situation" which details how the debt arose. The first part of that says this:
"During June 2012, Bobos Engineering entered into negotiations with Cristal Mining Australia Ltd to construct a mineral processing plant and a storage shed for its $30 million expansion at its processing plant in Broken Hill, NSW. The works were scheduled to be completed in December 2012. However, the program submitted by Cristal Mining was unrealistic."
The letter then sets out a number of vicissitudes occurring after June 2012. The next heading is "Why it hasn't been able to have been paid" and the material under that commences thus:
"As stated above, in effect, Bobos Engineering carried out works for Cristal Mining for approximately a year for which Bobos has only been paid for approximately three months work."
The next heading is "Plan to pay for the debt". There is a paragraph numbered 3.8 which is this:
"It is planned that amounts outstanding to [ATO] will come from funds generated by new works and funds acquired from the above claims, if necessary. Depending on timeliness and amounts of awarded funds, Bobos Engineering proposes to make instalment payment in order to continue to maintain operation of the business."
That is a clear admission of the amounts being sought by the ATO as director penalties were properly payable. The next paragraph of the letter is this:
"In the meantime, we ask for a deferment of enforcement action until actions against Cristal Mining are resolved. Meanwhile, Bobos Engineering will continue to maintain the current payment arrangements of $27,936 as a minimum on the seventh day of each month."
The letter then sets out a large number of matters, essentially referring to the financial position and business expectations of the company. On the final page of the letter is a "summary". It is this:
"In summary, in order to have any penalty remitted, we observe that there are three options in this regard: …
(a) Discharge of company liability:
This option could be achieved on receipt of funds from the current payment plan under the Building and Construction Industry Security of Payment Act 1999 (NSW). However, it is unlikely that this will occur within the 21 day period within the date of the letter, dated 11 February 2014. Additional time is needed to accommodate the repayment under a payment arrangement. Under the current circumstances, he can only maintain the current facility of $27,936 per month.
(b) Company under administration:
Should the company go into voluntary administration before the three claims are adjudicated and enforced or settled, Bobos Engineering will not be able to pursue its claim under the Building and Constructing Industry Security of Payment Act 1999. This is because this legislation is for companies that are not under administration, or in liquidation. As soon as a company is in administration or in liquidation, claims under [that Act] cannot be enforced by it.
[I omit a reference here to a case referred to by the applicant.]
(c) The company being wound up:
In the event of a failure of all three claims, the director, in his capacity of responsibility would consider voluntary administration of the company as an ultimate course of action. However, the director believes that if Bobos Engineering is successful, its upcoming and future intended tenders, that all of the above may not be necessary."
It is clear from what I have quoted that this letter was written by the applicant in response to a letter of 11 February 2014, which is likely to have made a demand on the applicant for a director penalty, and have given him 21 days in which to pay the claim. It is also clear from what I have quoted, that the relief or benefit which the applicant sought was merely a period of indulgence, a deferral of the due date for the payment of the amount demanded. As is clear from what I have quoted, the applicant had been given 21 days from 11 February 2014, which probably amounts to about 3 March 2014.
There is no evidence of any written response to this letter by the ATO, nor is there any evidence of any oral response, that is, a response that may have been made by telephone to this letter by anybody for or on behalf of the ATO. The next communication before me is a letter, again, under the hand of the applicant, on behalf of Bobos Engineering Pty Ltd, addressed to the ATO, and dated 27 August 2014, 28 days after the service, of the statement of claim on the applicant. That commences with a reference to a telephone call with "Rakesh" on 27 August 2014. There is reference in the records of the ATO to a telephone call made on 26 August 2014. The record is this:
"Nicholas Bobos called regarding the summons issued to him. Client was served with a summons on 31/07/2014. Client has said that he is involved in a legal action case against a mining company that owes money for the work done by the client. Client has sent information regarding this issue…dated 05/03/2014. Client has advised that his circumstances haven't changed, and he is preparing evidence which is going to be presented to the court on Friday. Client was going to send the information into the ATO after it was lodged to the courts. Advised client to send in letter advising his circumstances and details of what steps are being taken to address debt."
There is no record of any conversation between any officer of the ATO and the applicant on 27 August and I, therefore, assume that the letter of the applicant of 27 August 2014 is, in fact, referring to the conversation on 26 August 2014 which occurred at 4.25pm.
The letter of 27 August 2014 goes on to refer to the letter of 3 March and then sets out developments in litigation between, I infer, Bobos Engineering Australia Pty Ltd and Cristal Mining Australia Ltd, proceedings in the Supreme Court of this State which appear to have been commenced on 14 February 2014 in the Technology and Construction List. There is also a reference to payment claims being made on 31 August 2013, in June 2012 [this might be a mistaken date] and a further one to be filed on or about 14 September 2014. There is also said to be a further final payment claim and the amounts contained in these payment claims would appear to be in excess of $6.5 million. The letter then says this:
"On the outcome of the above claims by [another company owned beneficially by the applicant] we will be able to pay the outstanding money due."
The letter ends with this matter immediately following what I have just quoted:
"I am asking for consideration to enable me to complete the following claims and disputes. I believe by the end of next month Cristal will be in a position to negotiate a settlement price to close off this matter. Considering the amount offered to [the other company beneficiary owned by the applicant] we would accept. Thanking you for your consideration,..."
Again, this letter does not dispute any indebtedness. Rather, it merely seeks further time in which to pay the claim, an accommodation. On 25 September 2014 the ATO sent a letter to the applicant advising him that the ATO had made an application to this Court for the entry of judgment against him for the sum of $421,727.09.
No agreement had been reached between the applicant and the ATO prior to the entry of judgment. There was never a protestation or averment by the applicant that he was not indebted as alleged by the ATO. In fact, there were admissions made by him that he was so indebted. On both 3 March 2014 and 27 August 2014 the applicant merely asked for further time in which to discharge his indebtedness. At no time did the ATO waive its entitlement to recover the outstanding debts. The mere sending of a letter to the ATO did not create any contract between the applicant and the ATO. The mere act of sending a letter to the ATO seeking some accommodation did not in any way create any form of estoppel because the ATO did nothing other than grant to the applicant the extension of time which he sought in order to pay the claim.
He had been given 21 days from 11 February 2014 to discharge the director penalty notice and the ATO granted him an extension until 21 July 2014 when the statement of claim was filed. Even after the statement of claim was served, the plaintiff did not dispute his liability to make the payment, but rather sought further time. Judgment could have been entered against the applicant on 28 August 2014, but the defendant delayed making an application for default judgment until 25 September 2014. Again he had sought an accommodation and an accommodation had been granted. However, nothing that occurred amounts to either an agreement between the applicant and the ATO by which the ATO forewent its debt or was stopped from enforcing that debt.
According to the applicant's affidavit, he received the letter from the defendant on 25 September 2014 "in late October 2014". The applicant said in his affidavit that when he received that letter he rang the telephone number stated on it and spoke with "Sef". In [10] of his affidavit of 18 May 2017 the plaintiff sets out the conversation that he had with "Sef". It is clear that Sef merely was seeking to obtain information from the applicant as to when he could repay the debt and nothing that Sef is alleged to have said could in any way be said to amount to or create some form of estoppel. In [11] of his affidavit the applicant then said this:
"I was unaware that judgment was made and never was given a chance to put on a defence as I was on [sic] the understanding that [ATO] would wait for the outcome of the claim to pay the debt."
With the utmost respect to the applicant, this Court's process advised him that he had 28 days from service of the statement of claim upon him to make a response in accordance with the rules of the Court. Nothing that was said by the ATO could have in any way led him to any rational belief that the ATO would await the outcome of some litigation between the applicant and/or one or more of his companies and a third party until the claim made in the statement of claim would be paid.
It would appear that the next relevant step was the issue by the ATO to the applicant of a bankruptcy notice based upon the judgment entered in this Court. On 18 December 2014 the applicant sent a letter as director of Bobos Engineering Australia Pty Ltd to the ATO. Endorsements on it indicate that it may have been sent by facsimile transmission at 7.40pm on 18 December 2014. It refers to a meeting held in Sydney with an officer of the ATO on 8 December 2014. It contains this further material:
"To recap, Bobos Engineering entered into a contract with Cristal Mining in June 2012 for completion by December 2012. Due to major changes in tender documentation, Bobos Engineering completed the project on 1 November 2013. Also due to the changes, variations were submitted for $6,800,000 which Cristal has refused to pay.
UPDATE
Bobos Engineering has submitted three payment claims under the Building and Construction Industry Security of Payment Act 1999…for the additional works.
Claim 1: $1,373,355
Claim 2: $1,438,758
Claim 3: $6,885,668.
The adjudicator has been unable to make a determination. Bobos Engineering is currently proceeding [in] its action in Supreme Court against Cristal Mining. Our legal team submitted a revised list statement, which was filed on 17/12/2014 claims exceeding $6,800,000. Bobos intends to pay all outstanding debts with the money received from these proceedings."
It ought be clear that, the three claims made under the Security of Payment Act amount to $9,697,781 but it appears that the real claim was for $6,800,000. The letter then sets out a proposal for Bobos Engineering to pay $2,500 on the 5th day of each month to discharge the "outstanding debt." The letter formally asks for a suspension of "all further action" until the matter between Bobos Engineering and Cristal Mining could be resolved.
Eventually, it would appear that the bankruptcy notice referred to in the letter of 18 December 2014 was withdrawn because I am aware that a further bankruptcy notice issued to the applicant on 9 October 2015 but that was set aside by consent, it would appear, on 29 March 2016. However, from the submissions made to me by the parties it would appear that the ATO has issued a further bankruptcy notice to the applicant but the Federal Court awaits the outcome of the present application before proceedings under that notice go further.
In early 2015 there were negotiations between Ms Elizabeth Shaw of the ATO and the applicant. Exhibit 5-5 is an email sent by Ms Shaw to the applicant on 13 January 2015. It commences thus:
"Thank you for discussing the company debt with me today.
As discussed the current debt owing for the company -
Bobos Engineering Australia Pty Limited is $1,263,201.83 as at 13 January 2015 and Super Guarantee debt of $152,619.29.
Boss Constructions (NSW) Pty Limited is $24,493.26 as at 13 January 2015.
A bankruptcy notice has been issued and served upon you personally for the amount of $425,021.96; however, there is a further $371,502.00 PAYG Withholding amount which I will be issuing director penalty notices as a director of Bobos Engineering Australia Pty Ltd, therefore increasing your personal liability to approximately $796,523.96.
To make a decision on acceptance of another payment proposal and to fully understand your circumstances, current financial situation and steps you have taken to pay your tax debt, I will need the following information by [close of business] Tuesday 20/01/15."
The email then sets out a large number of matters which had to be established to Ms Shaw's satisfaction. According to the applicant he was given an extension to respond to Ms Shaw's request and he responded by a letter whose correct date is 12 February 2015, although it has typed upon it the date 12 November 2015.
The letter was on the stationary of Bobos Engineering Australia Pty Ltd, was signed by "Nick Bobos" and beneath that is the word "proprietor" and beneath that are the names of two companies, Bobos Engineering Australia Pty Ltd and Boss Constructions Pty Ltd. At the top of the letter is a heading which says this: "Regarding Bobos Engineering Australia Pty Ltd, Nick Bobos and associated entities and the Australian Taxation Office." It recites, in the first paragraph, the indebtedness of Bobos Engineering to the ATO for $1,415,820.00. It also records that the company's director, Nick Bobos, had been made personally liable as a result of the company's non compliance. The letter then says this:
"Set out hereunder is a proposal including a payment arrangement to repay the ATO's outstanding debt. The payment arrangement incorporates payments over time plus this offering of security over assets to secure the repayment of a part of the ATO's debt."
The letter then sets out financial summaries for Bobos Engineering Australia Pty Ltd, Nick Bobos and "associated entities". It lists, inter alia, the assets of Bobos Engineering Australia Pty Ltd, the assets of Nick Bobos including realty, and the assets of Boss Constructions Pty Ltd and "new business opportunities". It then sets out a list of tenders that had been recently submitted, and under the heading, "ATO repayment proposal," it sets this out:
"With the objective of:
- maximising the opportunity of the ATO being repaid its outstanding debt.
- the Company pursuing a Cristal Mining claim and;
- preserving ongoing employment and ongoing contribution to the local Broken Hill community and economy
Bobos Engineering Australia Pty Ltd and associated entities submit the following proposal.
Payment Program
The company undertakes to make the following payments in reduction of the outstanding debt...
Bobos Engineering Australia Pty Ltd would like to offer to repay their debt to ATO by way of $5K per month for a period of six months and then increase in the amount by $5,000 at six monthly intervals. These payments to be made on the fifth of every month commencing on acceptance of this payment proposal."
There is then set out a schedule of dates, amounts and entities to pay the amounts, the entities being either Bobos Engineering Australia Pty Ltd or Boss Constructions Pty Ltd and covering a period from 5 March 2015 to 5 June 2017. There is then an offer to secure these payments by Boss Constructions Pty Ltd, guaranteeing an amount of $100,000 by a charge over real property on the Barrier Highway at Broken Hill. Nick Bobos also offered to provide a charge over a lodging house which he owned in Blende Street, Broken Hill, being an old nurses' home.
On 16 February 2015, Ms Shaw sent an email to the applicant. It commences thus:
"As per our discussion today, I am pleased to inform you that I have accepted the payment plan put forward for Bobos Engineering Australia Pty Ltd, without actioning on securities. As discussed however, should the arrangement default due to a payment as per arrangement not being met and/or current lodgments are not lodged or paid in full, then I will continue with the security on those properties.
Your first payment is due on 5 March 2015."
The email goes on to record other matter which I do not need to recite.
On 17 February 2015, a formal letter was sent by the ATO to Bobos Engineering Australia Pty Ltd. It is headed "Payment Arrangement Integrated Client Account". It sets out payments payable between 5 March 2015 and 5 August 2017. The payment schedule stipulated by the ATO differs in a few respects from that set out in the applicant's letter of 12 February 2015. Firstly, it does not indicate by whom the payments were to be made, albeit that a large number of payment slips were provided with the letter, all in the name of Bobos Engineering Australia Pty Ltd. Secondly, the final two payments appear to me to differ from those set out by the applicant's letter. The final two payments, according to the ATO's letter, were for $965,820 on 5 July 2017, and for $48,144.43 on 5 August 2017. According to the applicant's letter, a final payment of $965,820 was to be made on 5 June 2017, together with a payment of $25,000 on the same day, but there was to be no payment at all on 5 August 2017.
This correspondence is put forward by the applicant as indicating, firstly, that the defendant agreed the payments should be made by Bobos Engineering Australia Pty Ltd alone, and not by the applicant personally, and, secondly, that the payments had to be made in accordance with either the program set out in the applicant's letter of 12 February 2015, or the program set out in the defendant's letter of 17 February 2015.
It is patently clear from the letter of 12 February 2015 that Mr Bobos was aware that he was personally liable for the debts of Bobos Engineering Australia Pty Ltd, and had been made so aware by the ATO. Whilst he proposed that the payments come from one of the companies, there is nothing said in his letter, or in the letter from ATO, which indicates that he was to be absolved of his personal liability for a default by Bobos Engineering Australia Pty Ltd, or that the ATO had somehow waived his personal liability for any failure by the company to pay the debts.
After all, it has be recalled that the director's liability is a coordinate liability with that of the company of which he was a director, so that a payment made by the company to minimise or discharge its debt, minimised or discharged the debt owed by the director. In any event, this is an otiose exercise. According to the ATO, the applicant defaulted in this arrangement because he failed to make a payment due on 23 February 2015, of $41,275. The ATO argues that payment was a payment referred to in the opening paragraph of Ms Shaw's letter of 16 February 2015, being a "current lodgment not lodged or paid in full". Ms Crump, who gave oral evidence on behalf of the ATO, said that the opening words of the letter of 17 February 2015 refer to "all future lodgment obligations must be met by the due dates", and that payment was due on 23 February 2015, some time after 17 February 2015. This overly technical argument appears, in my view, to be inconsistent with the terms otherwise specified in both the applicant's letter of 12 February 2015, and the ATO's letter of 17 February 2015. In any event, the applicant defaulted, or perhaps I should say, Bobos Engineering Australia Pty Ltd and/or any other entity for which the applicant was responsible, failed to make the payment due on 5 April 2015, thereby negating the effect of the accommodation which the two had reached.
LUNCHEON ADJOURNMENT
On 18 April 2015, the applicant sent to the ATO a draft Deed of Company Arrangement (DOCA) for its consideration. According to the applicant, the draft DOCA proposal was more beneficial to unsecured creditors than would be a liquidation of Bobos Engineering Australia Pty Ltd. Under the applicant's DOCA, there would be a balance available for unsecured creditors in the amount of $719,300; however, in the opinion of the applicant, if there were a liquidation, the amount available to unsecured creditors would only be $224,300. On 23 March 2015, Stephen Duncan and Nicholas Gyss of DuncanPowell had been appointed as voluntary administrators of Bobos Engineering Pty Ltd. They were subsequently appointed as official liquidators of the company by order of the Supreme Court of this State on 22 April 2015.
In the liquidation of Bobos Engineering Australia Pty Ltd, the ATO submitted a proof of debt for $3,172,831.37. This document appears to have been received by the liquidators on 8 September 2015. The applicant maintained before me that this proof of debt amounted to some form of election by the ATO to pursue Bobos Engineering Australia Pty Ltd for debts due to the ATO rather than pursuing the applicant himself. However, that is based on a misapprehension of the real position. The applicant and Bobos Engineering Australia Pty Ltd have coordinate responsibilities for the debt of the company, insofar as the company might satisfy the debt it would reduce the indebtedness of the applicant to the ATO. Insofar as the applicant might reduce or pay any debt owing to the ATO that would reduce or eliminate any debt payable by the company to the ATO. That submission is of no weight at all.
There is before me, exhibited by the applicant, a report of DuncanPowell dated 7 August 2017 which, inter alia, discusses resolution of the dispute between Cristal Mining, Bobos Engineering Pty Ltd, and the applicant himself. The report of the liquidators dated 7 August 2017 says this:
"On 5 April 2016 we reported to Creditors on the status, at that time, of negotiations in relation to the resolution of the various claims between the Company, the Liquidators, Cristal and Nicholas Bobos.
A meeting of Creditors was held on 20 April 2016. The meeting of Creditors was adjourned to enable further negotiations between the parties to be undertaken. Further updates on the status of the negotiations were provided to Creditors on 15 April, 28 April, 15 June, 22 July and 8 September 2016 as the proposals progressed. The reconvened meetings of creditors were adjourned during this period.
The negotiations relate to three separate proposals under consideration:
• Firstly, a proposal from Nicholas Bobos for the company's legal claim against Cristal to be assigned to him.
• Secondly, a proposal from Cristal or a Deed of Company Arrangement proposal.
• Thirdly, a tripartite negotiated settlement of all claims and legal proceedings between the parties including the cessation of the 2014 and 2016 proceedings.
In our Report of 8 September 2016, creditors were informed that an 'in-principle' agreement based on the third option of a negotiated settlement between the three parties had been reached. The key terms of the agreement were outlined in the 8 September 2016 report and the reason for the Liquidators' view as to why it represented a superior outcome for creditors. In summary, both the other proposals involved considerable delay and could not guarantee any return for creditors.
The purpose of the meeting of creditors held on 13 September 2016 was to fully report on the 'in-principle' agreement and give creditors the opportunity to raise any queries or concerns about the Liquidators' intention to proceed with the 'in principle' agreement. No issues were raised by creditors at the meeting as to the Liquidators entering into the agreement.
Accordingly, following the creditors meeting 'in principle' agreement was documented in a Deed of Settlement and executed by the four parties in October 2016. Pursuant to the Deed, Cristal paid an amount of $500,000 to the company in full and final settlement of the Company's claim. The Deed, included comprehensive releases, between he parties, and included any claims that the liquidators might otherwise have had against Mr Bobos including for insolvent trading...
Pursuant to the Deed, the 2014 proceedings initiated by the Company and the 2016 proceedings brought by the Director were dismissed, bringing the matters to a conclusion and all litigation to an end."
At the time of writing the report of 7 August 2017, funds were then available to the liquidators of $1,029,034.
On p 5 the report says this:
"In December 2016, the Liquidators formally adjudicated the ATO's proof of debt by admitting it for the amount of $375,027 and rejecting it to the extent of $1,384,833. The Liquidators' adjudication of the proof of debt was not challenged by the ATO, in accordance with the timeframes imposed by the Corporations Act."
That proof of debt does not refer to the proof of debt received on 8 September 2015 but rather, a further proof of debt for employee superannuation totalling $1,759,860. Therefore, there has been no adverse finding by the liquidators of the debt underlying the judgment obtained by the ATO against the applicant.
On a review of the evidence, there is clearly no agreement whereby the ATO agreed to forego the debt which was owed to it by the applicant which forms the subject of the judgment entered in this Court, nor was there any estoppel.
I can deal with a number of other issues raised by the applicant shortly. The first is the allegation made by the applicant that the that the ATO ought to have hypothecated payments made by Bobos Engineering Australia Pty Ltd to PAYG debts rather than to other debts; in particular, debts which were described by the applicant as "BAS" payments which I understand to be a reference to Business Activity Statements referrable to the payment of the Goods and Services Tax. The simple fact is that, according to the evidence of Ms Crump, which I have no hesitation in accepting, the principle applied by the ATO is that payments were assigned administratively by the ATO to the oldest debt owed by the taxpayer. Furthermore, how the ATO treats debts is a matter purely for it. I have earlier referred to the Taxation Administration Act 1953 by the acronym given to it in documentation, TAA. Section 8AAZL of the TAA provides in its first two subsections this:
"(1) This Division sets out how the Commissioner must treat the following kinds of amount:
(a) a payment the Commissioner receives in respect of a current or anticipated tax debt or tax debts of an entity;
(b) a credit (including an excess non RBA credit) that an entity is entitled to under a taxation law;
(c) an RBA surplus of an entity.
(2) The Commissioner must treat each such amount using the method set out in section 8AAZLA or 8AAZLB (but not both)."
A "RBA" means a running balance account established for a taxpayer under s 8AAZC. There is no dispute about that. The applicant had an RBA with the ATO. Section 8AAZLA is this:
"(1) The Commissioner may, in the manner he or she determines, allocate the amount to an RBA of the entity or, if the entity is a member of an RBA group, to an RBA of another member of the group.
(2) The Commissioner must then also apply the amount against the following kinds of debts (if there are any):
(a) tax debts that have been allocated to that RBA;
(b) general interest charged on such tax debts.
(3) To the extent that the amount is not applied under subsection (2), it gives rise to an excess non-RBA credit in favour of the entity that:
(a) is equal to the part of the amount that is not applied;
(b) relates to the RBA to which the amount was allocated."
Section 8AAZLB provides for the second method provided for in s 8AAZL but it is not applicable to the applicant or his associated companies. Section 8AAZLE contains a heading "Instructions to Commissioner not binding" and provides this: "In doing anything under this Division, the Commissioner is not required to take account of any instructions of any entity."
It is therefore completely irrelevant that the applicant wished to hypothecate payments to his PAYG liability but the Commissioner allocated the payment to some earlier outstanding liability that the applicant or one of his associated companies had. How the payment is dealt with by the ATO is a question for it in accordance with its policies and it is not subject to any direction by the taxpayer or any entity related to the taxpayer.
In my findings as to the meaning of the applicant's letters of 3 March 2014 and 27 August 2014 and their effect, there is not any adequate explanation by the applicant for his failure to file a defence. Indeed, if he believed at the time that there was an agreement in place which required the ATO to forebear bringing proceedings against him and recovering judgment against him, he could have pleaded that at the time but he did not. That is further proof, as I have sought to point out earlier, that the applicant did not dispute his indebtedness to the ATO. As has been submitted by the ATO, there is no evidence showing that prior to the commencement of the current application on 18 May 2017, that the applicant disputed that he was liable to the ATO in the manner alleged in the statement of claim, or that he had any intention of seeking to set aside the default judgment after he was informed of it in late 2014. On the contrary, the applicant's affidavit evidence shows that after the entry of judgment, the applicant attempted to take steps that he considered would result in all of his and his company's debts to the ATO, including that resulting from the default judgment, being repaid.
In other words, he was proposing to take steps to pay the debt claimed by the ATO. Taking those steps shows a conscious acknowledgment of, and acceptance of, the correctness of the applicant's and his company's taxation debts, including the default judgment, and, of course, is wholly inconsistent with the course that the applicant has adopted since 18 May 2017. Indeed, in his oral submissions, the applicant acknowledged the debt and said that it always was his intention to pay it.
Perhaps dealing more expansively with an earlier point I have made, I should point out that I agree with the ATO's submission about what it described as an attempt by the applicant to submit that his liability to pay the judgment debt had in some manner been "transferred" to Bobos Engineering Australia Pty Ltd. As was submitted by Mr Swan, it is not clear how that could possibly be a defence to the statement of claim. The applicant has adduced no evidence to substantiate his claim that in some way his personal debt to the ATO was transferred to his company. It appears that the applicant claims that such a transfer occurred because of the "payment agreement" effected either by the applicant's letter of 12 February 2017 or the ATO's letter of 17 February 2016. However, it is patently clear from an examination of each of those letters that there was no intention by anybody that the applicant's personal indebtedness be absolved by the payment of the sum of the outstanding debt by any particular entity.
As I pointed out to the applicant in submissions, it was of no moment to the ATO, who paid the debt, whether it was Bobos Engineering Australia Pty Ltd, Mr Bobos personally, Boss Constructions Pty Ltd, by a family member or other benefactor of Mr Bobos, or by, for example, a bank which provided a bank cheque to the ATO in satisfaction of the debt that had been part of an agreement that Mr Bobos may have reached with his banker. What was important was not who paid, but the payment itself. Furthermore, a payment by the company reduced the applicant's personal indebtedness to the ATO and indeed, a payment by the applicant himself would reduce the indebtedness of the company to the ATO, as they have sought to point out. In any event, even if what occurred in February of 2015 could be construed in the manner argued by the applicant, that whole regime collapsed when the applicant defaulted in making the payment due on 5 April 2015, if not by failure to make the payment due on 23 February 2015 as argued by the ATO.
The applicant has failed to establish a prima facie defence to the claims made in the statement of claim. No bona fide ground of defence has been established; no arguable defence has been established. Furthermore, there is no adequate explanation for why the applicant permitted judgment to be entered against him, nor is there any adequate explanation for why it took him over two and a half years to seek to set aside the default judgment.
He has, at all material times, admitted that the liability existed and it appears that only when pressed with what might be a third bankruptcy notice has he decided to try to set aside the default judgment entered regularly in this Court. The applicant has submitted two sets of written submissions. The first was submitted on 16 November 2017 and has been marked "1" for identification. The second was submitted on Friday 2 February 2018 and has been marked 4 for identification. I have closely read each of them, but they do not persuade me to make any findings other than those that I have made. The applicant sets out, especially in MFI 1, great slabs of dicta from a number of cases and whilst they are all binding, the important question here is one of fact rather than one of law. For there to be a contract there must be offer, acceptance and consideration. The applicant has not established any contract standing in the way of the judgment that was entered regularly on 25 September 2014, nor has the applicant established any matter which amounts to an estoppel by conduct or any other form of estoppel prior to the entry of judgment, nor has anything been done since which would estop the ATO from enforcing the judgment debt, nor has there been any agreement subsequent to the entry of judgment which would prevent the ATO from enforcing the judgment debt. For those reasons, the application of 18 May 2017 is dismissed. I order the applicant to pay the ATO's costs.
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Decision last updated: 07 March 2018