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[2011] FCA 1269
Federal Court of Australia
2011-11-07
Mr P, Lander J
Original judgment source is linked above.
The Application is Incompetent 83 The Deputy Commissioner has argued that the application is incompetent. Unsurprisingly, Commercial & General Law has argued that the application is competent. It has argued that if the finding of fact made by the Registrar cannot be reviewed by this Court then the delegation of powers to the Registrar is unconstitutional. 84 However, the question here is not whether the Court cannot ever review the exercise of judicial power by the Registrar. Rather, the question is whether the Court can review a finding of fact made in a proceeding where no power has been exercised by the Registrar. 85 The Commonwealth Parliament can legislate to allow Registrars of the Court to exercise part of the jurisdiction, powers and functions of the Federal Court. However, "the power of delegation cannot be exercised in a manner that is inconsistent with the continued existence of the … Court as a federal court constituted under Ch III": Harris v Caladine (1991) 172 CLR 84 at 94 per Mason CJ and Deane J. 86 The delegation will only be lawful and in conformity with Chapter III of the Constitution if the delegation is not "inconsistent with the obligation of a court to act judicially and that the decisions of the officers of the court in the exercise of their delegated jurisdiction, powers and functions must be subject to review or appeal by a judge or judges of the court": Harris v Caladine at 95 per Mason CJ and Deane J. 87 In Trustees of the Franciscan Missionaries of Mary v Weir (2000) 98 FCR 447, the Full Court said, speaking of the delegation of the exercise of judicial power to an officer of the Court, at [20]: [20] …What is essential is that the control and supervision of the Court over the exercise of the delegated powers must be so real and effective that the decision, being within the Court's jurisdiction, though made by an officer who is not a Judge, can still be seen to be a decision of the Court. … 88 Section 35A of the Federal Court Act provides: 35A Powers of Registrars (1) Subject to subsection (2), the following powers of the Court may, if the Court or a Judge so directs, be exercised by a Registrar: (a) the power to dispense with the service of any process of the Court; (b) the power to make orders in relation to substituted service; (c) the power to make orders in relation to discovery, inspection and production of documents in the possession, power or custody of a party to proceedings in the Court or of any other person; (d) the power to make orders in relation to interrogatories; (e) the power, in proceedings in the Court, to make an order adjourning the hearing of the proceedings; (f) the power to make an order as to costs; (g) the power to make an order exempting a party to proceedings in the Court from compliance with a provision of the Rules of Court; (h) a power of the Court prescribed by Rules of Court. (2) A Registrar shall not exercise the powers referred to in paragraph (1)(f) except in relation to costs of or in connection with an application heard by a Registrar. (3) The provisions of this Act and the Rules of Court that relate to the exercise by the Court of a power that is, by virtue of subsection (1), exercisable by a Registrar apply in relation to an exercise of the power by a Registrar under this section as if references in those provisions to the Court were references to the Registrar. (4) Notwithstanding any other provision of this Act and any provision of the Public Service Act 1999 or of any other law, a Registrar is not subject to the direction or control of any person or body in relation to the manner in which he or she exercises powers pursuant to subsection (1). (5) A party to proceedings in which a Registrar has exercised any of the powers of the Court under subsection (1) may, within the time prescribed by the Rules of Court, or within any further time allowed in accordance with the Rules of Court, apply to the Court to review that exercise of power. (6) The Court may, on application under subsection (5) or of its own motion, review an exercise of power by a Registrar pursuant to this section and may make such order or orders as it thinks fit with respect to the matter with respect to which the power was exercised. (7) Where an application for the exercise of a power referred to in subsection (1) is being heard by a Registrar and: (a) the Registrar considers that it is not appropriate for the application to be determined by a Registrar acting under this section; or (b) an application is made to the Registrar to arrange for the first-mentioned application to be determined by the Court; he or she shall not hear, or continue to hear, the application and shall make appropriate arrangements for the application to be heard by the Court. (8) In this section, Registrar means the Registrar, a Deputy Registrar, a District Registrar or a Deputy District Registrar of the Court. 89 Section 35A(1) identifies the powers delegated to the Registrar, including powers prescribed by Rules of Court: s 35A(1)(h). Section 35A(7) allows for a party to a proceeding to insist upon the application which is to be heard by the Registrar be heard by the Court by obliging the Registrar to cease to hear, or continue to hear, the application and to make arrangements for the application to be heard by the Court: s 35A(7). In other words, s 35A(7) allows a party to request the Court to hear an application at any time, even after the Registrar has commenced the hearing. 90 I offered to hear the application for winding up in lieu of the Registrar but that offer was declined by Commercial & General Law. Mr McNamara said that no application would be made to the Registrar to have the Registrar cease to hear, or continue to hear, the application for winding up in the event that this matter was returned to the Registrar. Therefore, I proceed on the basis that Commercial & General Law is content to have the Registrar continue to hear the application for winding up if I find that this application is incompetent or, alternatively, if competent, that it should be dismissed. 91 Section 35A(5) addresses the Constitutional imperative in Chapter III by allowing a party to apply to the Court for a review of the exercise of a power of the Court by a Registrar under subsection (1). Subsection (6) allows the Court to carry out that review of its own motion and make such order or orders as the Court thinks fit with respect to the proceeding in which the power has been exercised by the Registrar. 92 Section 35A(1) empowers the Registrar to exercise the powers identified in the paragraphs of the subsection. Importantly, it authorises the Registrar to exercise the powers to make orders although, for some reason, paragraph (a) only talks about the power to dispense with service of any process of the Court. However, that power could only be exercised by the Registrar making an order to that effect. 93 In all other respects subsection (1) identifies the powers that may be exercised by the Registrar. 94 As I have said, s 35A(1) allows for Rules of Court to prescribe the power of the Court which may be exercised by the Registrar. It is important to note that paragraph (h) talks of Rules of Court, not "the Rules of Court". The Federal Court Rules 2011 have prescribed a wide-range of powers that may be exercised by the Registrar, but those powers are not relevant in this proceeding. Instead the relevant authority is given to the Registrar by the Corporations Rules, which provide in r 16.1: 16.1 Powers of Registrars (1) For the purposes of paragraph 35A(1)(h) of the Federal Court of Australia Act 1976, if the Court or a Judge so directs, a Registrar may exercise a power of the Court: (a) under a provision of the Corporations Act mentioned in column 2, or a provision of these Rules mentioned in column 3, of an item in Part 1 of Schedule 2; or (b) under a provision of the ASIC Act mentioned in column 2, or a provision of these Rules mentioned in column 3, of an item in Part 2 of Schedule 2. (2) A decision, direction or act of a Registrar made, given or done under these Rules, may be reviewed by the Court or a Judge. (3) An application for the review of a decision, direction or act of a Registrar made, given or done under these Rules, must be made within: (a) 21 days after the decision, direction or act complained of; or (b) any further time allowed by the Court. 95 Schedule 2 of the Corporations Rules identifies the provision of the Corporations Act and the rule of the Federal Court Rules, and then identifies (for information only) the power which is given to the Registrar. 96 Item 48 provides for the power given to the Court in s 459P of the Corporations Act. Rule 16.1 of the Corporations Rules and Schedule 2 to those Rules are consistent with s 35A(1) of the Federal Court Act in that what is given to the Registrar is the power to make an order. In the case of s 459P the Registrar is given the power to wind up a company in insolvency. 97 Rule 16.1(2) provides that a "decision, direction or act of a Registrar made, given or done under these Rules, may be reviewed by the Court or a Judge". Rule 16.1(2) is superfluous because that power is given to the Court in s 35A(6). Section 35A does not empower the Court to make rules providing for a review process not otherwise contemplated in s 35A itself. There are no other powers given to the Court in the Federal Court Act to provide for wider review powers to the Court than those powers contemplated in s 35A. 98 Section 35A(5) does not contemplate that a party may, from time to time, seek to have the Court review individual findings of fact made by a Registrar before the Registrar exercises the power given to the Registrar in s 35A(1) or pursuant to the rules under s 35A(1)(h). 99 The power which is given to the Court in s 35A(5) and (6) is to review the exercise of the power, which means the order made by the Registrar under that power. If it were otherwise a party could, without asking the Registrar to cease hearing the application, ask the Court to review every individual finding of fact as and when the Registrar made those findings of fact. 100 It is for those reasons that in my opinion the application is premature. No right of review is available to a party in relation to a finding of fact made by a Registrar except insofar as a party might apply under s 35A(7) to have the matter referred to a court for further consideration. If a party is content for the matter to proceed before the Registrar, then the party's right to review arises when the Registrar has exercised the power that the Registrar has been given either under s 35A itself or under Rules of Court pursuant to s 35A(1)(h). The Registrar exercises the power when the Registrar makes the relevant order. As soon as that order is made the party who seeks the review is entitled to apply to the Court for that review. 101 It follows then that in my view the application is incompetent because the Registrar has not yet exercised any power. 102 However, in case I am wrong about that I will address the application on its merits because I think, as did the Registrar, that Commercial & General Law's evidence falls far short of that necessary to prove that it compounded for the debt owed to the Deputy Commissioner.
Merits of the Application 103 In Commonwealth Bank of Australia v Parform Pty Ltd (1995) 13 ACLC 1309, Sundberg J said at 1311: To "compound" for a debt is to accept an arrangement for payment of the amount of the debt or of a different amount. 104 The word "arrangement" has different meanings in different contexts. However, in The Commissioner of Taxation of the Commonwealth of Australia v Lutovi Investments Pty Ltd (1978) 140 CLR 434, Aickin J said at 463 that where the arrangement has to be "entered into", "… it is hard to see how it can be distinguished from an agreement …". 105 In the same case Gibbs and Mason JJ noted that an arrangement can be implied or inferred from the conduct of the parties. They went on to state at 444 that: It is, however, necessary that an arrangement should be consensual, and that there should be some adoption of it. But in our view it is not essential that the parties committed to it or are bound to support it. An arrangement may be informal as well as unenforceable and the parties may be free to withdraw from it or to act inconsistently with it, notwithstanding their adoption of it. 106 The parties reached at least an arrangement and possibly an agreement in September 2010 that Commercial & General Law could pay the debt owing at the rate of $6,000 per month together with the two larger payments to which I have referred. Only one payment was made and therefore at some time after Commercial & General Law had defaulted that agreement or arrangement ceased to exist. There was no agreement or arrangement in place at the time the Deputy Commissioner issued the statutory demand on 8 March 2011. 107 No agreement was ever entered into after that time, but that does not by itself resolve the question because it may have been that an arrangement or understanding was reached between the parties that Commercial & General Law was entitled to time within which to pay the debt and therefore had compounded for its debts. 108 The telephone conversation of 25 March does not demonstrate that any agreement, arrangement or understanding was reached at that time. Indeed, Commercial & General Law was told that the ATO could not grant an extension, which clearly indicates that there was no agreement or arrangement or understanding at that time that Commercial & General Law had any time within which to pay the debt. The debt remained immediately payable. 109 Commercial & General Law was told that it could send a written proposal on how Commercial & General Law would address the debt. That was the only invitation given to Commercial & General; that is, to submit a written proposal. There was no indication in that invitation that the ATO would accept, or indeed be bound to accept, any proposal which was made. 110 Mr Smith was asked in his oral evidence to address the ATO file note in respect of the telephone conversation of 25 March. He said: Is that a telephone conversation you [had]?---Yes, that sounds like the one that triggered me to send them the fax we talked about earlier. Does that set out in full the detail of the conversation you had?---Again, my recollection is that we had an agreement that they would take no further action, and that's not on here. … And is that changed from anything that - or any way that they had treated previous agreements that you had reached with them? Was anything different about---?---No. And what was your expectation as a result of sending them the information that you sent them?---My expectation is that they would take no further action, and that, when the money came in, we would send it to them. Was your expectation that you had to keep in touch with them at all?---Effectively, yes. When it delayed again, I sent them the next fax in May. Because it had still taken a bit longer and I thought it was a smart thing to do, to keep them in the loop. That was really the basis of the agreement we had, that I would keep them informed, and they would keep a watching brief on it. 111 The proposal put on 31 March was sent by facsimile at about 3.00pm, probably Brisbane time, which meant that the ATO only had in the order of two and a half hours available to it to consider the request if it was to reply within the period. The ATO did not reply within the period and as I have mentioned it did not mark up its file that it had received the facsimile until 16 April. 112 Mr McNamara contended that because the ATO did not respond within the two and a half hour window of opportunity it must be inferred that it had agreed to the proposal. 113 In my opinion, that is an inference which cannot be drawn. 114 Examination of the facsimile of 31 March reveals that it did not assume that the proposal would be accepted. The final two paragraphs show that Mr Smith must have understood that he required the ATO's consent to his proposal. The last paragraph enquires unequivocally as to whether the ATO was prepared to consent. 115 Mr Smith gave evidence that he thought that after the conversation of 25 March "we had an agreement that they would take no further action". In the face of the note of the ATO it is very difficult to understand how he could have thought that, but I will assume that was his state of mind at the time. He also said that his expectation was that the ATO would take no further action. Again, having regard to the file note, it is difficult to understand how that could be his expectation, but again I will assume that. 116 However, Mr Smith's understanding and expectation are simply not relevant to a determination of whether there was an agreement, arrangement or understanding reached on 25 March or 31 March. Whether there was such an agreement, arrangement or understanding must depend upon the objective facts, and the objective facts in this case do not support Mr Smith's understanding or expectation. 117 The facsimile of 31 March does not support Mr Smith's understanding or expectation because he wrote asking if the proposal was acceptable. The facsimile clearly establishes that the ATO had not agreed and had not reached an arrangement or understanding to allow Commercial & General Law time to pay. 118 Moreover, the facsimile of 31 May also assumed that no agreement, arrangement or understanding of the kind Mr Smith understood or expected had been reached. If his understanding or expectation was as he said it was, and as I said I will assume that was his state of mind, then he must have been wrong about his understanding or expectation because otherwise he would not have needed to have sent the facsimile of 31 May in the terms that he did. 119 If the agreement, arrangement or understanding had already been reached on 25 March as he said, or 31 March as was argued, then there was no need to ask the ATO to withhold action regarding the statutory demand. The statutory demand could not be relied upon for an application under s 459P if there had been a previous agreement, arrangement or understanding of the kind to which he deposed. 120 I agree with the Registrar that there was no agreement, arrangement or understanding reached at any time after the issue of the statutory demand under which Commercial & General Law was entitled to pay the debt owed to the ATO at some later time or by instalments. 121 The Registrar also found that even if there was an arrangement or understanding of that kind it was not to the reasonable satisfaction of the ATO. 122 It is difficult to address this question in a vacuum. This question only needs to be addressed if first it is concluded that there is an agreement, arrangement or understanding. If the parties at any given time have reached an agreement, arrangement or understanding, then one would assume that it was at least to their subjective satisfaction because otherwise the agreement, arrangement or understanding would not have been reached. 123 However, as Sundberg J said in Commonwealth Bank of Australia v Parform Pty Ltd at 1311: The words "to the creditor's reasonable satisfaction" seem to me to posit an objective test. In other words, where the debtor puts up a proposal which the creditor rejects, it is for the court to decide whether in rejecting it the creditor was acting reasonably in all the circumstances. If the test were wholly subjective, the legislature would have employed the phrase "to the creditor's satisfaction". 124 If there was a proposal made to the ATO that it is said should have been satisfactory to the ATO, I would reject that contention. 125 Treating the test as objective, the history of the matter shows a number of proposals being put to the ATO, none of which were ever met. Indeed at one stage the parties were in agreement that Commercial & General Law could pay off the debt at the rate of $6,000 per month. Only one payment was ever made. No explanation was ever given for the failure to make the other payments in accordance with that agreement. 126 Commercial & General Law continued over a period of time to claim that it would be in a position to pay the whole of the debt when a particular event occurred, but either the event never occurred or Commercial & General Law never paid the amount. 127 In my opinion, looked at objectively, the proposals put to the Deputy Commissioner could not have been to the Deputy Commissioner's reasonable satisfaction. 128 For those reasons, I agree with the Registrar's conclusion.
Conclusion 129 In my opinion this application is incompetent and the Registrar should continue to hear the application for winding up, which has been listed before her on 8 November 2011. 130 As I have said, if I am wrong about the conclusion that the application is incompetent, in my opinion the Registrar's conclusions of fact were entirely correct and for that reason as well she should continue to hear the application for winding up on 8 November 2011. 131 Accordingly, there will be an order that the application be dismissed as incompetent. There will be a further order that Commercial & General Law pay the Deputy Commissioner's costs of the application for review. I certify that the preceding one hundred and thirty-one (131) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.
Deputy Commissioner of Taxation
Commercial & General Law
The Recusal Application 33 Prior to the hearing on 21 October Commercial & General Law had written to the Registrar in the following terms: I refer to the above Application that was filed yesterday. We have been advised that the matter will be heard by the Honourable Justice Lander. We respectfully submit that Justice Lander should disqualify himself from hearing this matter because of adverse findings His Honour has recently made against: 1. The writer, being a director and 50% shareholder of the Applicant, 2. The Applicant, and 3. Clients of the Applicant. The adverse findings were made in the judgement delivered by His Honour in Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 6) [2011] FCA 419 on the 29th [of] April 2011. 34 Commercial & General Law's application for me to recuse myself had to be considered in the following circumstances. Mr McNamara, who appeared for Commercial & General Law, is apparently a director and 50% shareholder in Commercial & General Law, and I have assumed also an employee of that company. Commercial & General Law holds a practising certificate and is therefore entitled to practise as a legal practitioner. 35 Commercial & General Law represented the applicant in a proceeding which I heard and which I dismissed on 29 April 2011: Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 6) [2011] FCA 419. 36 In that proceeding I was critical of the way in which the applicant conducted itself in the proceeding, and I rejected submissions made by Mr McNamara, who appeared for the applicant through his engagement with Commercial & General Law at a number of hearings. 37 In criticising the applicant in that proceeding I also said in my reasons that I disagreed with some assertions Mr McNamara had made as to what he thought was the effect of orders I had made. 38 I found that the applicant had failed to prosecute the proceeding diligently and had failed to comply with a number of orders that I had made, and I dismissed the proceeding. 39 Mr McNamara claimed that, as a result of my findings and my criticisms, a lay observer might reasonably apprehend that I might not bring an impartial mind to the resolution of this application. I reject that submission, which I think is simply not maintainable. 40 At no time was I ever critical of Commercial & General Law. Indeed I said nothing about that law firm at all. I did say that I thought some of Mr McNamara's claimed understandings were not reasonable, but I said no more than that. 41 I dismissed that proceeding because the evidence overwhelmingly showed that the applicant had failed to prosecute the proceeding diligently, and had failed to comply with a number of orders over a period of some years. 42 It was a necessary part of that inquiry to determine whether the applicant had acted reasonably, and I concluded that it had not. It was also necessary to deal with a number of submissions put by Mr McNamara and later senior counsel in relation to the applicant's corporate state of mind with respect to orders that I had made. 43 It cannot be said that a fair-minded lay observer might reasonably think that I might not bring an impartial mind to this inquiry: Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 at [8] per Gleeson CJ, McHugh, Gummow and Hayne JJ; Johnson v Johnson (2000) 201 CLR 488 at [12] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ; Livesey v New South Wales Bar Association (1983) 151 CLR 288; British American Tobacco Australia Services Pty Ltd v Laurie (2011) 242 CLR 283 at [104] per Heydon, Kiefel and Bell JJ. This is especially so in circumstances where there is no dispute between the parties in relation to the facts upon which the Registrar relied for her conclusion. There is no issue relating to the credibility of any witnesses. Nor is there any issue relating to Mr McNamara's credibility: compare Livesey v New South Wales Bar Association at 300; British American Tobacco Australia Services Pty Ltd v Laurie at [139]-[140] per Heydon, Kiefel and Bell JJ. The only witness who gave viva voce evidence was Mr Smith, and that evidence is to be considered in the light of documents which were created contemporaneously with what was claimed to be the date of the composition of the debt. 44 In Livesey v New South Wales Bar Association the High Court said at 294: …it would be an abdication of judicial function and an encouragement of procedural abuse for a judge to adopt the approach that he should automatically disqualify himself whenever he was requested by one party so to do on the grounds of a possible appearance of pre-judgment or bias, regardless of whether the other party desired that the matter be dealt with by him as the judge to whom the hearing of the case had been entrusted by the ordinary procedures and practice of the particular court. 45 For these reasons, I refused to recuse myself.
(2011) 242 CLR 283
(2000) 205 CLR 337
(1991) 172 CLR 84
(2000) 201 CLR 488
(1983) 151 CLR 288
(1978) 140 CLR 434
(2000) 98 FCR 447