Deputy Commissioner of Taxation v Cameron, in the matter of Cameron

2. other sufficient cause (par 52(2)(b) of the Act) in that: (a) Mr Cameron was owed approximately $490,274 in fees by solicitors who alleged, wrongly as to $340,457 of that sum, that they were not liable to pay until the monies were received from their clients; (b) some of the clients were in the process of selling property from which sufficient monies would be raised to pay the Commissioner's debt and costs in full; (c) since the date of the petition, the State of New South Wales had enacted legislation, the effect of which was to constitute the making of a sequestration order against a barrister's estate, "prima facie professional misconduct by a barrister resulting in the shame and disgrace of cancellation of his practising certificate and removal from the rolls";

3. that the Commissioner was a secured creditor (see below);

4. that the debt claimed in the petition included tax, interest and penalties assessed on a net income of $23,891.54 which was wrongly included as income earned in the year ended 30 June 1995. (It will be noted that if the allegation of the solicitors referred to in par 2(a) was correct, none of the sum of $490,274 represented a debt at law which Mr Cameron was entitled immediately to recover by action.) 14 The third ground of opposition was that the Commissioner was a secured creditor holding security over Mr Cameron's assets of about the value of $328,292 and that the Commissioner had, contrary to subs 44(3) of the Act, failed to surrender the security by a statement in the petition. As particulars of the security, the notice referred to the Commissioner's notice under s 218 of the ITA Act dated 11 May 2000 and asserted that Dennis & Co owed Mr Cameron at the date of the petition (said in the particulars to be 17 November 2000) amounts totalling $192,974. Accordingly, so the particulars stated, the Commissioner was secured for more than the amount of $157,401.87 claimed in the petition. 15 Clearly, if there was a debt of $192,974 due and owing by Dennis & Co to Mr Cameron and presently recoverable by him from them in a court of law and having a value of that amount, the Commissioner would not have been an unsecured creditor at all and would not have been in a position to petition for Mr Cameron's bankruptcy. The reason is that, subject to a secured creditor's right to surrender security, subs 44(2) of the Act provides that a secured creditor is deemed to be a creditor for the purpose of petitioning in bankruptcy only to the extent, if any, by which the amount of the debt owing to him or her exceeds the value of his or her security. 16 On 13 July 2001 I fixed the proceeding for hearing yesterday and today with an estimated hearing time of "one day plus". 17 On 24 October 2001, that is, seven days prior to the date fixed for the commencement of the hearing, the Commissioner, on the advice of the Australian Government Solicitor, "withdrew" his notice under s 218 of the ITA Act to Dennis & Co. It was not disputed before me that, if the Commissioner had been a secured creditor previously, the effect of this withdrawal was to make him an unsecured one. 18 Finally, as I said earlier, on 30 October 2001, the day prior to the date fixed for the hearing, Mr Cameron paid the Commissioner the amount then claimed of $186,201.65. 19 Yesterday there was filed in Court and read a further affidavit of Virginia Smith, sworn 31 October 2001, explaining some of the background to the Commissioner's approach to the question of security. Ms Smith is employed in the Australian Taxation Office at Newcastle. 20 Ms Smith said that at the time of preparing the creditor's petition, she did not turn her mind to the question whether the s 218 notice "might constitute a security". Following the filing of the petition, she went on holidays, from which she returned in February 2001, when she became aware that the notice "might constitute a security". She inquired of Robert Imer, "the team leader in the Advanced Legals team" within her office, who told her that there were arguments for and against the proposition that the giving of a notice under s 218 gave rise to a security. He said: "I am pretty sure it is OK, but check with Chris Coghlan who has more experience with this". 21 Ms Smith spoke to Mr Coghlan "from Advanced Legals in the Australian Taxation Office at 100 Market Street Sydney". Although she could not recall his words, Ms Smith concluded on the basis of them that the notice under s 218 did not give rise to a security. 22 On the hearing yesterday, Mr Gibb SC, who, with Mr McMillan of counsel, appeared for the Commissioner, said that the Commissioner wished to preserve a contention that a notice under s 218 does not give rise to a security, but frankly told me that his own view is that it does. I raised with counsel the question whether there was an enforceable legal obligation on Dennis & Co to pay Mr Cameron. No submissions were made by either party in relation to this question. 23 I am required to determine the question of costs without the benefit of evidence as to whether the notice under s 218 did or did not give rise to a security. 24 I am content to assume in favour of Mr Cameron, without deciding, that at the time of petitioning the Commissioner was a secured creditor, that the Commissioner failed to comply with subs 44(4) of the Act since he failed to set out in the creditor's petition particulars of his security, and that he came to recognise the true position by 24 October when he withdraw the notice and, so, surrendered the security. Accordingly, I am content to approach the question of costs on the assumption that Mr Cameron's notice of intention to oppose the petition correctly asserted that the Commissioner was a secured creditor down to that time. 25 I also approach the costs question on the following bases: · that the Commissioner acted in good faith throughout (the contrary has not been suggested); and · that the value of the Commissioner's security is not established (again, the contrary has not been suggested). 26 What would have happened if the petition had proceeded to a final hearing yesterday? The Commissioner would have sought leave to amend the petition by including in it a statement surrendering the security, or to amend it in that manner if amendment became necessary as a result of my conclusions. The reason why I think it clear that the Commissioner would have made such an application is that he had, in fact, withdrawn the s 218 notice on 24 October. 27 This is not the first occasion on which a creditor's petition which failed to disclose particulars of a security held by the petitioning creditor has been before the Court. That was the position in Re Florance; Ex parte Turimetta Properties Pty Ltd (No 2) (1980) 39 FLR 400 and Re Vassis; Ex parte Leung (1986) 9 FCR 518. In both of those cases leave was granted to the petitioning creditor to amend the petition. In In re A Debtor; Ex parte Okill v The Debtor [1977] 1 WLR 1308, a failure to allow amendment in similar circumstances was held to be, on the facts of that case, a wrong exercise of discretion. 28 I can think of no reason why I would not have granted the Commissioner leave to amend the petition and none has been suggested on behalf of Mr Cameron. I proceed on the assumption that I would have done so. 29 Ordinarily, I would expect a debtor who pays out the petitioning creditor's debt the day before the hearing to be ordered to pay the petitioning creditor's costs, even though the petition was dismissed: see Re Noye; Ex parte Deputy Commissioner of Taxation (1956) 18 ABC 77 at 78. There is no reason suggested why Mr Cameron should not be ordered to pay the Commissioner's costs, other than the Commissioner's non-compliance with subs 44(4) of the Act. Mr Rofe QC, who appeared for Mr Cameron, submitted that bankruptcy is generally acknowledged to be a technical area of the law and that petitioning creditors must be strictly held to the requirements of the Act, Regulations and Rules if they choose to invoke its procedures, having, as they do, the important result of altering a person's status. As it is sometimes said, if a creditor expects a debtor to comply strictly with, for example, a bankruptcy notice the creditor can expect to be held to nothing less than strict compliance with the law. 30 It is important to understand that this is the only basis on which it was submitted that Mr Cameron should not be ordered to pay the Commissioner's costs. I was not referred to any evidence and it was not submitted that Mr Cameron had any other ground on which he might have resisted the making of a sequestration order. Moreover, there is no evidence, and it has not been submitted, that Mr Cameron refrained from paying out the Commissioner until the day before the hearing because of the security question and paid then only because the Commissioner withdrew the s 218 notice on 24 October. Indeed, there is no explanation as to why Mr Cameron did not pay out the Commissioner until the day before the date fixed for the hearing. The case is therefore readily distinguished from cases such as Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284, in which, so far as the evidence reveals, both parties would have had an arguable case and therefore enjoyed at least some prospects of success. 31 Mr Cameron has not been prejudiced by the course of events which has occurred, except to the minor extent of having raised the security question in his notice of intention to oppose. There would have been some small amount of time occupied on Mr Cameron's behalf on the hearing in relation to amendment of the petition. The Commissioner would have been granted leave to amend on the basis that he pay any costs of Mr Cameron thrown away by the amendment. 32 I think the Commissioner should have an order for costs with a minor allowance for Mr Cameron's costs associated with the security point. To deprive the Commissioner of ten percent of his costs would be appropriate recognition of the rightness of the position taken by Mr Cameron on that issue. 33 In the result Mr Cameron should be ordered to pay ninety percent of the Commissioner's costs. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Counsel for the Applicant: S W Gibb SC and S J McMillan

Solicitors for the Applicant: Australian Government Solicitor

Solicitors for the Respondent: McLaughlin & Riordan