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[1997] FCA 533
Federal Court of Australia
1997-06-19
Lehane JJ, Hill J
Original judgment source is linked above.
REASONS FOR JUDGMENT HILL J: The short matter for decision in the present appeal is whether a taxpayer who has duly objected to an assessment made by the Commissioner of Taxation is entitled to challenge the disallowance of that objection in the Administrative Appeals Tribunal where, subsequent to the objection, the taxpayer becomes a bankrupt. The facts are in short compass. On 7 April 1993 the Commissioner issued amended assessments against Mr McCallum for the years of income ended 30 June 1985 to 30 June 1988 inclusive. An objection was lodged to these assessments on 4 June 1993. There is a question whether the objection was adequate to comply with s 14ZU of the Taxation Administration Act 1953 (Cth) ("the TAA"), but for present purposes it must be assumed that the objection was competent. The objection was disallowed on 15 March 1995. However, in the meantime, on 13 December 1994, the applicant was made bankrupt on the application of a creditor, not being the Commissioner of Taxation. Mr McCallum duly applied to the Tribunal for a review of the Commissioner's objection decision. The Tribunal took the view that the decision of the majority of this Court in Fuller v Beach Petroleum NL (1993) 43 FCR 60 required the conclusion that the right to prosecute the appeal against the objection decision vested in Mr McCallum's trustee in bankruptcy (the Official Receiver) by force of being "property'" divisible among his creditors, under s 116(1) of the Bankruptcy Act 1966 (Cth). It held that since 15 March 1995, that being the date of communication of the objection decision, any right to appeal that decision was capable only of being exercised by the Official Receiver. From this decision Mr McCallum appealed to this Court. The appeal, which is authorised by s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act") is an appeal on and thus limited to a question of law. Although the appeal is, in the present circumstances, heard by the Court constituted as a Full Court, it is, nevertheless, brought in the original jurisdiction of the Court. It might be added that it may very well be that the case properly should have involved an appeal brought under s 44(2) of the AAT Act, but nothing turns upon that. The Court has undoubted jurisdiction to hear the matter. After the Tribunal's decision, the Full Court of the High Court decided the appeal from the judgment of this Court in Fuller. The High Court's judgment is reported as Cummings v Claremont Petroleum NL (1996) 185 CLR 124. The High Court affirmed the result reached by the majority in this Court, but for different reasons. It is necessary, for the purposes of the present proceeding, to consider first what was decided by the High Court. In doing so it should be immediately noted that it was properly conceded by senior counsel for the Commissioner that it was a consequence of the decision of the High Court that the right to pursue an appeal against the objection decision of the Commissioner was not "property" which vested in Mr McCallum's trustee in bankruptcy. Thus, the underlying foundation for the Tribunal's decision was, it was conceded, swept away. The facts in Cummings differ from the present in a number of respects. Mr Cummings and Mr Fuller were directors of a number of public companies, including Claremont Petroleum NL, and its subsidiary, Beach Petroleum NL. The two companies brought proceedings against Messrs Cummings and Fuller. These proceedings were tried (the trial lasted upwards of a year) and ultimately judgment was entered against them for $44.45M for a liability in tort for breach of their duties as directors and their fiduciary duties, for damages in deceit and for contraventions of the Companies (South Australia) Code and the Fair Trading Act 1987 (SA). Both Mr Fuller and Mr Cummings were then made bankrupt. They sought, however, to appeal against the judgments which had been entered against them. By majority, Gummow and Whitlam JJ, Hill J dissenting, this Court held that the appeals were incompetent because the right to appeal was, as has already been indicated, property of the bankrupt which vested in the bankrupt's trustee. On appeal, the High Court, by majority, took a contrary view. Perhaps with some reluctance, the majority, comprising Brennan, Gaudron and McHugh JJ (Dawson and Toohey JJ dissenting), formed the view that the right to appeal was not "property" as that term is defined by s 5(1) of the Bankruptcy Act. Specifically, although a right to appeal was a substantive right, the majority expressed the view that it was not "property" of the person against whom the judgment was entered, nor was it a power over or in respect of "property" (see at 133). The High Court, however, concluded that neither Mr Cummings nor Mr Fuller had standing to appeal against the judgment. Their Honours came to this conclusion following the decision of the Court of Appeal in the United Kingdom in Heath v Tang [1993] 1 WLR 1421, a case which had not been drawn to the attention of the Full Court of this Court in the course of argument here. The principle for which that case is authority is expressed in the following passage from the judgment of Hoffmann LJ, cited with approval by the Full Court of the High Court in Cummings (supra at 137): "In cases in which the bankrupt is defendant, there is of course usually no question of the cause of action having vested in the trustee. Unless the defence is set-off ... the bankrupt will not be asserting by way of defence any cause of action of his own. But in cases in which the plaintiff is claiming an interest in some property of the bankrupt, that property will have vested in the trustee. And in claims for debt or damages, the only assets out of which the claim can be satisfied will have likewise vested. It will therefore be equally true to say that the bankrupt has no interest in the proceedings. As we have seen, s 285(3) [Insolvency Act 1986, the United Kingdom analogue of s 58(3) of the Act] deprives the plaintiff of any remedy against the bankrupt's person or property and confines him to his right to prove." (Emphasis added) Their Honours continued (at 137-8): "So far as a judgment entered in an action against a bankrupt creates or evidences a provable debt, we respectfully agree that the bankrupt has no financial interest which would confer locus standi to appeal in his own name against the judgment. That is because it is fundamental to the law of bankruptcy that the bankrupt is divested of both his interest in his property and liability for his provable debts [Heath v Tang[1993] 1 WLR 1421 at 1427; [1993] 4 All ER 694 at 701. It was not suggested in argument that, pursuant to s 153, the discharge of the appellants from bankruptcy would not release them from liability for the judgment debt, albeit there has been a finding of fraud. On that footing, the appellants have no financial interest in the judgment entered against them.] Of course, a money judgment entered against a bankrupt has the effect of increasing the amount of the debts provable in his estate. But it is immaterial that, if an appeal against the judgment were successful, there would or might be a surplus in the estate after the remaining creditors are paid. A bankrupt's contingent interest in a surplus does not give him an interest which would allow him to sue to enforce proprietary rights [Rochfort v Battersby (1849) 2 HLC 388 at 408, 409 [9 ER 1139 at 1147]] and, that being so, it cannot give him an interest to appeal to minimise liabilities. If the bankrupt cannot appeal against such a judgment, does his trustee have the power to do so? The powers of a trustee are defined by s 134. By sub-s (1)(j), the trustee is authorised to 'bring, institute or defend any action or other legal proceeding relating to the administration of the estate'. That is an ample power to permit the trustee to institute an appeal against a judgment entered against a bankrupt that affects the administration of the estate. But if the judgment against which a bankrupt wishes to appeal reflects on his personal or professional character (as the present judgment does), it seems unjust to leave the institution of an appeal to the discretion of a trustee whose interests do not extend, or do not necessarily extend, to the preservation of the bankrupt's personal or professional character [This consideration led Hill J, rejecting what Manning J had said in Want v Moss, to think that it would be "monstrous" if the right to appeal against a judgment which carried with it findings of fraud was to be taken away from the appellants; Fuller (1993) 43 FCR 60 at 75-76]. Is the bankrupt without any prospect of relief in such circumstances? When a trustee declines to exercise his power to sue or to appeal against a judgment, the bankrupt may apply to the Court under s 178 of the Act and the Court is empowered to make such an order 'as it thinks just and equitable'. That jurisdiction has long been exercised by the courts charged with the supervision of administrations in bankruptcy [Spragg v Binkes (1800) 5 Ves Jun 583 at 587 [31 ER 751 at 752] ; Benfield v Solomons (1803) 9 Ves Jun 77 at 83-85 [32 ER 530 at 532-533]]. If it was just and equitable that an action should be brought or an appeal instituted in order to prevent an injustice being suffered by the bankrupt, Lord Eldon LC held [Benfield v Solomons (1803) 9 Ves Jun 77 at 84 [32 ER 530 at 533]] that - 'the Court would say, with reference to the circumstance, that the bankrupt cannot sue, the law supposing, that he has no interest in the property, yet that is not to be acted upon to the effect of gross injustice. Therefore, if he can give security for the costs, the Lord Chancellor will order the assignees to permit him to use their names, to enable him to recover the property; indemnifying them. The bankrupt therefore is without any ground of complaint.' The cases were reviewed by Hoffmann LJ in Heath v Tang where his Lordship said [Heath v Tang [1993] 1 WLR 1421 at 1425; [1993] 4 All ER 694 at 699] that, just as a bankrupt might apply to the court for an order compelling the trustee to lend his name to the bringing of an action, so the bankrupt might 'apply to the court exercising bankruptcy jurisdiction to direct the trustee to appeal or to allow the bankrupt, on providing suitable security, to use the trustee's name'. He further observed [Heath v Tang [1993] 1 WLR 1421 at 1427; [1993] 4 All ER 694 at 701]: 'The bankruptcy court acts as a screen which both prevents the bankrupt's substance from being wasted in hopeless appeals and protects creditors from vexatious challenges to their claims.' The Court's discretion is at large and is to be exercised in the particular circumstances of each case." Dawson and Toohey JJ dissented. Their Honours, however, discussed the decision in Heath v Tang at 146-7 but did so to reinforce the conclusion that their Honours reached that the right of appeal was property which vested in the trustee. The Commissioner, as already indicated, concedes that the consequence of the High Court's decision is that the right to prosecute an administrative appeal against an administrative decision would not be "property". However, the Commissioner submits, by analogy with Cummings, that Mr McCallum has no locus standi to be heard in the Tribunal. He submits that the trustee would be entitled to exercise that right, although he advances no persuasive reasons for that conclusion. If the Commissioner's submission be correct it may well be that there is no-one who could pursue the objection. That may well be an attractive outcome to the Commissioner. It is not one that I would be quick to embrace. To determine the question of standing it is necessary to analyse the relevant statutory provisions, for ultimately the question for decision is one of construction of the Income Tax Assessment Act 1936 (Cth) ("the Assessment Act") and the TAA. By force of s 17 of the Assessment Act income tax is levied and is to paid for each financial year upon the taxable income derived during the year of income by a person. The tax is levied by specific Rating Acts. The Commissioner is bound to assess the taxable income of a taxpayer and the tax payable, pursuant to s 166. In certain circumstances default assessments may be made under s 167, but such assessments are assessments made for the purpose of s 166. The word "taxpayer" is used in s 166 and, unless the contrary intention otherwise appears, elsewhere in the Act means (s 6(1)): "a person deriving income or deriving profits or gains of a capital nature;". In its present form, that definition replaced a previous definition which defined "taxpayer" as a person "chargeable" with income tax. The learned authors of Gunns Commonwealth Income Tax Law and Practice 4th ed suggest that the change of definition was prompted by doubts expressed by Higgins J in The British Imperial Oil Co Ltd v Federal Commissioner of Taxation (1926) 38 CLR 153 at 208. Whether that is the case is of little relevance here. What is significant is that a trustee in bankruptcy does not readily become a "taxpayer" within the definition merely by virtue of appointment: cf Commissioner of Stamps (Western Australia) v West Australian Trustee, Executor and Agency Company Limited (1926) 38 CLR 63 at 69 per Higgins J.. Once the tax is assessed it becomes, by force of s 204 of the Assessment Act, due and payable on a date specified in a notice of assessment or thirty days after the service of that notice, if there was no date so specified. It becomes thus a debt due to the Commonwealth (s 208) which may be sued for and recovered (s 209). Section 175A provides: "A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the matter set out in Part IVC of the Taxation Administration Act 1953." (Emphasis added) Thus, there are two prerequisites for an objection, that being the step necessary to enliven the appeal procedure in the TAA. The first is that there be a person who is a taxpayer. The second is that that person be "dissatisfied with the assessment". There is no doubt in the present circumstances that Mr McCallum prima facie satisfied the test of being a taxpayer and he was, at the time he objected against the amended assessments made by the Commissioner, dissatisfied with them. The right to object is to be determined at the time of objection. It is important to note that the assessment must be an assessment "in relation to" the relevant taxpayer. It would not seem that a trustee in bankruptcy could object to an assessment made in relation to the bankrupt of whose estate the trustee has been appointed. The trustee would not, in relation to the assessable income included in the taxable income assessed, have been the taxpayer. Nor would the assessment have been an assessment in relation to the trustee. One turns then to the provisions of the TAA which deal with objections and appeals, namely, those to be found in Part IVC. That Part is made applicable, inter alia, where the Assessment Act provides that a person dissatisfied with an assessment may object against it (s 14ZL). Objection decisions are to be made in accordance with the provisions of s 14ZU in writing, stating the grounds relied upon. The "person" referred to in s 14ZU is the person making the taxation objection. That is to say, in its application to the facts of the present case, s 14ZU refers to Mr McCallum, not the trustee of Mr McCallum's bankrupt estate. Section 14ZY then requires the Commissioner to consider the objection and to either allow it, wholly or in part, or to disallow it. Notice of the objection decision is then to be served "on the person". The reference to "person" is, again, a reference back to the person making the taxation objection. Section 14ZZ then provides: "If the person is dissatisfied with the Commissioner's objection decision, the person may: (a) ... (i) apply to the AAT for a review of the decision;". Again the reference to the "person" can only be a reference to the person who lodged the objection. However, s 14ZZ adds an additional element, namely that that person be dissatisfied with the Commissioner's objection decision. The question arising in the present case, it being clear that Mr McCallum was not bankrupt at the time of objection and so was a person who had a right to object, is whether Mr McCallum is properly to be described as a person "dissatisfied" within the meaning of s 14ZZ. The issue is a statutory one. It differs to that extent from the question of standing to appeal with which Cummings was concerned. With respect to those who take a contrary view, s 14ZZ is capable of two constructions: one, that given by the majority, which construes the word "dissatisfied" narrowly and so as to exclude Mr McCallum who, although a bankrupt, is clearly dissatisfied. The other construction gives a broader meaning to the word as befits its status, inter alia, as the criterion for administrative relief. The narrow construction produces injustice, the broader construction justice. I know of no principle or authority that this Court is to adopt a construction producing injustice when a construction which does not is open. But that, with respect, is what the majority has done. The Commissioner relies upon the decision of the Full Court of this Court in CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397. That case concerned an appeal against a private ruling brought under the TAA. One of the two rulings appealed from concerned a proposed transaction which had not been proceeded with. The question arose, the ruling having had no practical impact at all upon the applicant, whether the applicant was a person "dissatisfied" within the meaning for the purposes of s 14ZZ. The relevant statutory provision was thus the same as that presently under consideration, although the circumstances in which the question arose were quite different. The Court was unanimous in the view that the applicant was not a person "dissatisfied". The principal judgment was that of Gummow J, with which judgment Jenkinson J agreed. After pointing out that the Court's decision could produce no legal consequence to the applicant, his Honour said (at 408): "In my view, if regard is had to the context in which s 14ZZ appears, in its operation upon the jurisdiction of this Court, then the 'dissatisfaction' of the person initiating the proceeding is of the following nature. It is a dissatisfaction with the absence of a favourable decision upon the objection which would, if now rectified by the Court, place the party in the position for the administration of the taxation laws which should have applied if the ruling had been made by the Commissioner in the terms sought. A mere curiosity or interest in having a formal ruling by the Commissioner for some collateral commercial purpose of the applicant is not sufficient to amount to 'dissatisfaction' in the relevant sense. That being the case, s 14ZZ clearly is valid." The reference to "validity" in that passage is a reference to an argument suggested by In re Judiciary Act 1903-1920 and In re Navigation Act 1912-20 (1921) 29 CLR 257 that the provisions of Chapter III of The Constitution require there to be a real and not purely hypothetical issue before the Court. In the same judgment I said (at 432): "There is no definition of 'dissatisfied' in this context but the word must bear more than its ordinary dictionary meaning of 'displeased with' or 'not contented with'. More is required than mere lack of satisfaction with the objection decision. It can hardly be said that a university lecturer, learning of the disallowance of an objection by a public company of which he or she was neither a director or shareholder, could, because he or she was not happy with the objection decision, refer the matter to the Court, thus binding the Court to hear and determine an appeal in the original jurisdiction of the Court. The existence of the constitutional requirement that a federal court's jurisdiction be limited to a 'matter' requires that the word 'dissatisfied' be interpreted in a way which would lead to the legislation being valid, rather than in a way which would lead to its being struck down ....' In my opinion a person will only be 'dissatisfied' in the relevant sense if that person is a person to whom the 'ruling' is still capable of having legal effect. In the case of a ruling relating to a proposed arrangement, that means that the arrangement must be one which, if entered into, will fall within the ruling. If the ruling relates to a year of income which has passed before the appeal is instituted (or perhaps before the appeal has been heard) so that the ruling can not affect the taxation liability of a putative appellant, that person, no matter how discontented, will not be a 'person dissatisfied'." The expression "person dissatisfied", like the expressions "person interested", "person affected' or "person aggrieved" is an expression often used in conjunction with standing. The divergence of expression may signify shades of difference so that it may not be wholly safe to extrapolate from decisions on the one set of words the outcome where dependent upon another set of words. Section 27(1) of the AAT Act makes standing depend upon whether the interests of the applicant are affected by the decision and it will be for the Tribunal to determine that question of standing. However, s 27 is specifically excluded by s 14ZZ(b)(1) in its application to a reviewable objection decision so that there was no necessity for the Tribunal to make a determination in the present case whether there was an interest affected. For there to be dissatisfaction there is no need that it be shown that an interest has been affected. In my view, s 14ZZ is not concerned with the question whether the person seeking review of an objection decision has a legal interest. That is a question of relevance to standing before courts, not a test of dissatisfaction. Being "aggrieved" is the test of standing to be found in ss 5 and 6 of the Administrative Decisions (Judicial Review) Act 1977 ("the ADJR Act"). However, s 3(4) extends the reference to a person aggrieved to a person whose interests are affected. Thus, cases concerned with standing to bring proceedings under the ADJR Act tend to concentrate upon the affection of interests rather than the broader test of grievance. Nevertheless, Ellicott J, in Tooheys Limited v Minister for Business and Consumer Affairs (1981) 36 ALR 64 at 79, in a passage subsequently adopted by the Full Court of this Court in US Tobacco Co v Minister for Consumer Affairs (1988) 20 FCR 520 at 527 stated: "The words 'a person who is aggrieved' should not, in my view, be given a narrow construction. They should not, therefore, be confined to persons who can establish that they have a legal interest at stake in the making of the decision. It is unnecessary and undesirable to discuss the full import of the phrase. I am satisfied from the broad nature of the discretions which are subject to review and from the fact that the procedures are clearly intended in part to be a substitution for the more complex prerogative writ procedures that a narrow meaning was not intended. This does not mean that any member of the public can seek an order of review. I am satisfied, however, that it at least covers a person who can show a grievance which will be suffered as a result of the decision complained of beyond that which he or she has as an ordinary member of the public. In many cases that grievance will be shown because the decision directly affects his or her existing or future legal rights. In some cases, however, the effect may be less direct. It may affect him or her in the conduct of a business or may, as I think is the case here, affect his or her rights against third parties ...". I am inclined to the view that "dissatisfaction" provides an even broader gateway than "aggrieved". That is not necessarily surprising, for the context of the ADJR Act is judicial review where the present context is, or includes, an administrative review of an administrative decision. What is required to satisfy any test of standing must be found in the context for which standing is required and particularly the scope and purpose of the legislation in relation to which the issue of standing arises: cf Alphapharm Pty Ltd v Smithkline Beecham (Australia) Pty Ltd (1994) 49 FCR 250 at 260. The purposes for which administrative review are conferred are various. First, administrative review is designed to ensure that so far as possible the correct or preferable decision is arrived at: Drake v Minister for Immigration & Ethnic Affairs (1979) 24 ALR 577 at 589. Secondly, it is a corollary of the basic rules of procedural fairness that a person affected by a decision at some stage will, at an appropriate time, be given a right to be heard. Whether the rules of natural justice apply depends, as it has often been said, on a variety of considerations, not the least of which is the scope and purpose of the context in which the issue arises. So, the scheme of the income tax legislation leaves no scope for the taxpayer to be given a right to be heard prior to assessment. But, it would clearly offend all notions of fairness if a taxpayer were given no right at all to be heard. An arbitrary imposition, albeit for public purposes, may not be a tax at all. Finally, administrative review of decision-making acts to promote better decision-making for the future. Each of these objects leads to the conclusion that the criterion for standing to review an administrative decision, such as the disallowance of a taxation objection, should not be set so narrowly that these objects might be frustrated. The test of dissatisfaction adopted in the TAA should thus not be given a restrictive interpretation. Particularly, there can be no need to demonstrate that a legal right is affected for dissatisfaction to be made out. Something more than a mere intellectual or emotional interest will, nevertheless, be necessary before a person can be properly said to be dissatisfied. The nature of the dissatisfaction must be more than that felt by a member of the general public: cf Australian Conservation Foundation v Commonwealth (1980) 146 CLR 493 at 530; Onus v Alcoa of Australia Limited (1981) 149 CLR 27. But the context of administrative appeal of taxation objection decisions suggests, to my mind, a criterion wider than the general law test of special interest. It is not necessary to consider how much wider the test of "dissatisfaction" is than the general law. It suffices that it encompasses the right of a taxpayer to have the Tribunal review an objection decision adverse to the taxpayer, notwithstanding that the assets of the taxpayer, out of which the tax will be satisfied, vest in the taxpayer's trustee in bankruptcy. In the present case, Mr McCallum has a further source of dissatisfaction. It is one which would not give him, as a bankrupt, standing in a court to challenge a judgment against him but, in my view, is not irrelevant in demonstrating his real dissatisfaction. It seems that Mr McCallum wishes to apply for an annulment of his bankruptcy. It may well be that he wishes to pay out all creditors. The quantum of the Commissioner's debt is of real concern in such a case. The question whether that debt exists depends upon the correctness of the objection decision which the Commissioner has made. The question differs from the simple case of a bankrupt challenging a debt. What is involved here is not a challenge against the liability which has been converted into a proof of debt and is payable out of assets vested in the trustee, but a challenge to an administrative decision whether to allow or disallow an objection, which decision determines whether there comes into existence at all a liability. This distinction is important. Liability for income tax may depend upon the exercise by the Commissioner of a discretion. That discretion may be as broad as in s 167 where the Commissioner may determine the amount upon which income tax should be levied, or as narrow as in s 80B dealing with the disallowance of losses. The income tax debt which is created by assessment and service of a notice of assessment thus differs from liability in contract or tort for it depends upon the making of an administrative decision open to challenge only by virtue of the objection and appeal procedure. Except in such procedure, production of the notice of assessment will be conclusive evidence not only of the existence of the tax debt but also as to the validity of any exercise of discretion giving rise to the tax debt: ss 175 and 177 of the Act. It is not necessary for present purposes to determine whether the trustee in bankruptcy could pursue the objection. As presently advised I am inclined to the view that it could not. As has already been noted, the trustee in bankruptcy is not the "taxpayer" who objected. The assessment is not "in relation to" the trustee. The force of the provisions to which I have already made reference, is that it is the taxpayer who has the right to object and prosecute that objection through the objection and appeal procedures in the TAA. Where a taxpayer dies, a right to object and appeal is given statutorily to the legal personal representative by force of the provisions of s 220(7) of the Act. A right to object in certain circumstances may arise in a beneficiary of a deceased taxpayer's estate. But there is no provision which operates to transmit to the trustee in bankruptcy the right to pursue objections and appeals. There is no explanation given by the High Court in Cummings as to how the trustee in bankruptcy comes to be a party to the appeal against a verdict in damages if the right of appeal is not property which, by force of statute, passes to the trustee. In that respect, the judgment of the minority is easier to comprehend. But the decision of the majority is, of course, binding. Cummings is distinguishable. That case involves standing in a court to appeal. It does not involve the question of the interpretation of the word "dissatisfied" in the TAA. The reference to s 134(1)(j) of the Bankruptcy Act in the judgment of the majority quoted earlier has no relevance to the statutory issue. I find no reason here to determine whether that section is capable of being called in aid by a bankrupt wishing to prosecute an administrative appeal. It can hardly have that effect where the trustee has, as a matter of statutory interpretation, no right to participate in the appeal because the assessment appealed against is not one in relation to the trustee. I should add that the trustee in bankruptcy could reject the Commissioner's proof of debt but production of a notice of assessment would preclude a court from inquiring further into the correctness of the assessment absent bad faith: s 177 of the Assessment Act. The policy considerations which prompt the view that an unsuccessful litigant be not permitted to pursue an appeal to a court incurring greater and greater legal costs, have, likewise, no application to the present circumstances. No costs may be ordered against the bankrupt in the Administrative Appeals Tribunal. The assets of the bankrupt can not be substantially dissipated by force of the process of administrative review. If the taxpayer has objected, and appealed to this Court, and then becomes bankrupt, s 60(2) would operate to stay that appeal until the trustee determines whether to prosecute or discontinue the action. Interestingly, s 60(2) assumes, in cases to which it applies, that there would be standing but that there is a statutory stay. If the trustee elects to prosecute, the proceeding he or she would do so, presumably, in the name of the bankrupt. The section marginally supports the view, I believe, to be correct. It has no application to proceedings before an administrative appeals tribunal for administrative review. In my opinion, the dissatisfaction with the objection decision which Mr McCallum has in the present circumstances gives him standing to challenge in an administrative tribunal that decision, notwithstanding his bankruptcy. It is a real dissatisfaction. The validity of the assessment has consequences to him. It is not hypothetical in the sense that the dissatisfaction in CTC Resources was. It suffices, in my view, to authorise Mr McCallum to prosecute the appeal against the objection. The view which the majority of the Court has reached in the present case gives the Commissioner powers which are capable of abuse. It is no answer, in the remaining days of this century, to say that the Commissioner can be trusted. That is an argument which betrays a lack of realism and experience with tax administration. In so saying, I do not suggest that the present incumbent of the office of the Commissioner would in any way abuse his powers. But it is possible, as the report of the tax Ombudsman makes clear, that some officers might. If the present judgment stands, and I can but suggest that professional bodies assist an appeal or lobby the government to change the law, the following course of action can follow in the absence of evidence of mala fides on the part of the Commissioner. The Commissioner issues an assessment. The taxpayer objects to it. The assessment may be recovered as a debt. The Commissioner proceeds to do so. The taxpayer seeks a stay, but on the principles enunciated by the Court of Appeal in Federal Commissioner of Taxation v Mackey (1982) 82 ATC 4571 the stay is refused. The Commissioner proceeds to judgment and then issues a bankruptcy notice. That notice can not be challenged because if one sought to go behind the judgment debt one is met by an assessment unchallengeable under s 177: Clyne v Deputy Federal Commissioner of Taxation (1982) 82 ATC 4510; (1983) 83 ATC 4532. On the same basis, the taxpayer is made bankrupt. He is insolvent as a result of the tax debt. There may or may not be other creditors. The Commissioner appoints a trustee in bankruptcy or perhaps the Official Receiver becomes trustee. In either case the trustee has no interest in fighting the objection in the Administrative Appeals Tribunal. It is immaterial to the trustee. And the trustee has no funds to do so. Hence the taxpayer loses the right to appeal and is made bankrupt without ever having a right to challenge the assessment. It could not happen, could it? In my view, the Court should adopt an interpretation of s 14ZZ which ensures that taxpayers will always have a right to challenge assessments made against them. An interpretation conferring the right of appeal upon a trustee in bankruptcy without funds so to do may conduce to confer upon the Commissioner an absolute power with the consequences which Lord Atkin long ago observed. I certify that this and the preceding seventeen (17) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Hill Associate: Dated: 19 June 1997
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 804 of 1995 ) GENERAL DIVISION )
ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: JOHN STEWART McCALLUM Applicant AND: COMMISSIONER OF TAXATION Respondent
CORAM: Hill, Whitlam and Lehane JJ PLACE: Sydney DATED: 19 June 1997
REASONS FOR JUDGMENT WHITLAM J I agree with the judgment of Lehane J. Simplistic solutions are attractive. To me at least, it is a beguiling view that the question whether the applicant is entitled to apply to the Administrative Appeals Tribunal ("the Tribunal") may be determined simply by construing the Taxation Administration Act 1953 ("the Administration Act") and s 175A of the Income Tax Assessment Act 1936 ("the Assessment Act"). But such an approach is, in my opinion, wrong. It ignores the change in the applicant's status brought out about by the sequestration order made under the Bankruptcy Act 1966 ("the Bankruptcy Act"). A recognition of the important consequences of bankruptcy underpins the reasoning of the majority in Cummings v Claremont Petroleum NL (1996) 185 CLR 124. A debt owing to the Commonwealth under s 208 of the Assessment Act is just as much a provable debt under the Bankruptcy Act as that created or evidenced by a judgment entered in an action against a bankrupt. In Cummings the majority emphasized (at 138) that it is fundamental to the law of bankruptcy that the bankrupt is divested of liability for his provable debts. An objection against an assessment under s 175A of the Assessment Act is designed to procure an amendment effecting a reduction in liability for what, in the case of a bankrupt, is a provable debt. In the usual case, therefore, a bankrupt will be unable to show that he is "dissatisfied with the Commissioner's objection decision" within the meaning of s 14ZZ of the Administration Act, since he will have been divested of liability for the taxation debt. To adapt the language of Hill J in CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397 at 432, he will not be a person to whom "the objection decision" is still capable of having legal effect. However, it is just conceivable that there may be some other basis upon which the applicant can show that he is relevantly "dissatisfied". Lehane J tentatively instances the possibility of a personal tax liability in years following discharge from bankruptcy. This makes the order he proposes appropriate to determine this appeal. Having said that, I may say that nothing in the appeal papers indicates to me any cause for real dissatisfaction on the part of the applicant. The amended grounds of objection lodged with the respondent by the applicant seek a deduction for past years' losses only in respect of the 1985 year of income. Quite apart from the impact of s 80(4) of the Assessment Act, the seven-year limit on the carry-forward of those losses will have expired. The Tribunal's reasons for decision are reported: Case 53/95 95 ATC 443. The Tribunal refers in pars 8 and 23 to an application for annulment. But that presumably relates to the exercise of the Court's powers under s 153B of the Bankruptcy Act. No application to the Court is required where the bankrupt wishes to pay his debts in full. In Cummings the majority held (at 138) that par 134(1)(j) of the Bankruptcy Act gave a bankrupt's trustee ample power to institute an appeal pursuant to s 24 of the Federal Court of Australia Act 1976. The judgment does not contain a close textual analysis of the provisions of the lastmentioned statute. That is hardly surprising. The judgment was dealing with what Hoffmann LJ described in Heath v Tang [1993] 1 WLR 1421 at 1427 as the "consequences for the bankrupt's right to litigate" of the fundamental principle of the law of bankruptcy. This meant that the bankrupt could not appeal in his own name against the judgment. The fundamental principle embodied in the Bankruptcy Act must also affect the applicant's right to apply to the Tribunal for review of the respondent's objection decision, since the applicant is no longer liable for the taxation debt. His locus standi cannot depend upon whether, under par 14ZZ(a) of the Administration Act, he "applies" to the Tribunal or "appeals" to the Court. Such a distinction would not be logical. In either case he can have no interest to minimize his liabilities. The trustee, on the other hand, plainly does have such an interest. (Section 177 of the Assessment Act affects the trustee to the same extent as the bankrupt.) Whatever may be the correct characterization of a taxation objection for the purposes of par 134(1)(j) of the Bankruptcy Act (a question which was not argued in the present appeal), I agree with Lehane J for the reasons he gives that a review of an objection decision under Pt IVC of the Administration Act is a "legal proceeding" that the trustee is empowered to institute. The existence of such a power in the trustee ensures that no injustice will be occasioned by the applicant's lack of locus standi to make such an application himself. Any concerns of the bankrupt can be addressed by the Court in the exercise of its supervisory jurisdiction over the conduct of the trustee. The Court's discretion is at large and is to be exercised in the particular circumstances of each case: Cummings (at 132 and 139). I do not understand anything that Lehane J or I have written as giving powers to the respondent. The appeal papers do not contain details of the applicant's bankrupt estate. However, the Tribunal commented in its reasons (par 19) that the respondent had lodged a proof of debt in the sum of $1,383,809.55 and that, if the application for review was successful, then the property divisible among the applicant's creditors would be significantly increased. There is also a hint in the "T documents" that a large trading bank is a creditor. I would not assume that such a creditor would adopt a supine position in relation to recovering as much as possible of any unsecured debt. I certify that this and the preceding three (3) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam Associate: Date 19 June 1997
IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 804 of 1995 GENERAL DIVISION ) ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: JOHN STEWART McCALLUM Appellant AND: COMMISSIONER OF TAXATION Respondent CORAM: Hill, Whitlam and Lehane JJ PLACE: Sydney DATE: 19 June 1997 REASONS FOR JUDGMENT LEHANE J: I have had the advantage of reading, in draft, the judgment of Hill J. I need not repeat his Honour's account of the facts. While I fully appreciate the force of Hill J's construction of the provisions of the Income Tax Assessment Act 1936 (the Assessment Act) and Part IVC of the Taxation Administration Act 1953 (the Administration Act) (and I shall return to the detailed construction of those provisions), I confess that I have not found this an easy case. Particularly, I would be surprised by a conclusion that, whereas a bankrupt taxpayer may object to an assessment under s 175A of the Assessment Act and may apply under s 14ZZ of the Administration Act for a review of the Commissioner's objection decision, the taxpayer's trustee in bankruptcy may do neither (I appreciate that Hill J has found it unnecessary to decide finally whether that is so). Doubtless there are circumstances in which such a taxpayer may wish to proceed with an objection, or with an application for review, despite the fact that the tax debt is converted by subs 82(1) of the Bankruptcy Act 1966 (the Bankruptcy Act) into a right of proof and will be released by s 153 of the Bankruptcy Act upon the taxpayer's discharge from bankruptcy. This, evidently, is a case of that kind. It may well be that in such a case the trustee, at least unless indemnified against any cost that may be involved, will not consider it appropriate to object or seek review and the Court may not necessarily see fit to make an order under s 178 requiring the trustee to do so. But conversely, if the taxpayer can object or seek review, and the trustee cannot, other creditors, whose claims compete with what may be an excessive assessment, will be prejudiced unless the taxpayer is willing to take the necessary steps: it is not immediately obvious that the taxpayer could be compelled to do so, under s 77 of the Bankruptcy Act or otherwise. In those respects there is little practical distinction between an assessment (or an objection decision) and a judgment debt, provable in bankruptcy, where there is a right of appeal from the judgment. It is true that, as a result of s 177 of the Assessment Act, there is a very important difference between a debt due under an assessment and other provable debts: the trustee cannot reject a proof for a tax debt on the ground that the assessment is excessive. There is also a significant difference between the debt due under an assessment and a judgment debt: the latter, unlike the former, results from a process in which the creditor has established, to the satisfaction of a court, both the existence and the amount of the debt. But if the question is, from the standpoint of the principle for which cases such as Cummings v Claremont Petroleum NL (1996) 185 CLR 124 and Heath v Tang [1993] 1 WLR 1421 are authority, is there a relevant distinction in principle between the right to seek review of an objection decision and the right to prosecute an appeal against a judgment for debt, it is difficult to see why the answer is not, there is no difference. If, though those cases require the appeal to be prosecuted by the trustee (and prevent the bankrupt from pursuing it), the bankrupt taxpayer may nevertheless prosecute an application for review of the objection decision, that can only be because the provisions giving rise to the right to apply for review, on their true construction, produce that result. Although the question here is whether the taxpayer himself has standing to apply for a review, not whether the Official Trustee has standing, it is I think unsatisfactory to consider the construction of the provisions of the Assessment Act and the Administration Act, as they apply in the case of a bankrupt taxpayer, having regard to one of those questions to the exclusion of the other: that is not the course the High Court took in Cummings. I find it convenient to consider first whether the trustee has standing to initiate a review. There are three questions to be considered: first, is the trustee "the person" referred to in s 14ZZ of the Administration Act? Secondly, is the trustee appropriately to be described as "dissatisfied" with the objection decision? Thirdly, is a review for which application may be made under subpara 14ZZ(a)(i) a "legal proceeding" for the purposes of para 134(1)(j) of the Bankruptcy Act? The second of those three questions is relatively easy. If an objection decision leaves on foot an assessment which the trustee regards as excessive, and thus prejudicial to other creditors, I can see no reason to think that the trustee is not properly to be described as a person who is dissatisfied with the decision. The third question is slightly more complex, but in my view the answer is reasonably clear. It would be a mistake, I think, unless the language or authority compels it, to read para 134(1)(j) in a way which narrows rather than enlarges the authority of a trustee in bankruptcy to take appropriate steps in the administration of the estate, for the benefit of those having claims upon it. Authority does not compel a construction of "legal proceeding" which limits that phrase to proceedings in a court. It is true that in Herbert Berry Associates Ltd v Inland Revenue Commissioners [1977] 1 WLR 1437 Lord Simon of Glaisdale (at 1446) and Lord Russell of Killowen (at 1448) expressed surprise that a distraint should be regarded as a "proceeding" but that was for the purpose of a statutory provision which referred to "any action or proceeding ... pending in the High Court or Court of Appeal in England or Northern Ireland ..." or "... any other action or proceeding ... pending against the company" (see also Cheney v Spooner (1928) 41 CLR 532 at 538 per Starke J ‑ "a ... summons ... issued by any Court or Judge ... requiring any person to appear and give evidence or to produce books or documents in any civil ... trial or proceeding" ‑ and cf Forrest v Kelly (1991) 105 ALR 397 at 408, 409). On the other hand, in R v Westminster (City) London Borough Rent Officer [1973] 3 All ER 119 at 121, in relation to a provision which commenced "If any question arises in any proceedings whether a dwelling‑house is within the limits of rateable value ...", Lord Denning MR (with whom Orr and Lawton LJJ agreed) said, at 121: The word "proceedings" is not defined in the Act, but I think it covers any proceedings of a legal nature, even though they do not take place in a court of law. Reading through Sch 6 to the Rent Act 1968 (which sets out the procedure on applications to rent officers) I have no doubt that the application to a rent officer and the ensuing steps are "proceedings". In Re Dawson; ex parte Dawson and Arthur Andersen & Co (1985) 5 FCR 133 at 134, Pincus J held, while acknowledging that the issue and service of a bankruptcy notice, while not steps in a proceeding in a court (cf Re Maddox; ex parte The Debtor (1979) 36 FLR 392), were nevertheless within the meaning of "legal proceedings in respect of a provable debt" for the purpose of para 228(2)(c) of the Bankruptcy Act. I think para 134(1)(j) should be similarly construed, so that an application under subpara 14ZZ(a)(i) is to be regarded as (as an appeal under subpara (ii) clearly is) a legal proceeding. I do not think that Re Kassab; Ex parte Commissioner of Taxation (1994) 55 FCR 305, in which the Full Court considered the meaning of "any process in proceedings" in a rather different context (s 214 of the Assessment Act), requires a contrary conclusion. I can see no reason why the making of an objection (or of a request under subs 14ZW (2)) should not, by parity of reasoning, be regarded for this purpose as a legal proceeding. It is, after all, the necessary first step in a procedure which may lead ultimately to an application to the Administrative Appeals Tribunal (the AAT) (followed possibly by an appeal to the Court) or an appeal against the decision to the Court. The issue of Mr McCallum's competence to make a request under subs 14ZW (2) was raised in the notice of appeal but was not canvassed in argument, and I say no more about it. The first question is rather more difficult. Section 175A of the Assessment Act provides that: A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953. A "taxpayer" (s 6) is a person deriving income or deriving profits or gains of a capital nature. There can be no doubt that the taxpayer in relation to whom the assessment was made in this case was Mr McCallum, not the Official Trustee. When one turns to Part IVC of the Administration Act, one finds that s 14ZU describes the way in which "a person making a taxation objection" must go about it; s 14ZW then tells us within what time "the person" must lodge the objection; under s 14ZX the Commissioner is to give notice of his decision to "the person"; if the Commissioner delays, s 14ZYA provides that "the person" may give the Commissioner a notice requiring him to make an objection decision; and, finally, s 14ZZ provides that if "the person" is dissatisfied with the objection decision, "the person" may, in the circumstances specified, apply to the AAT for a review or appeal to the Court. There can, I think, be no doubt that "the person" referred to in s 14ZZ and the other sections following s 14ZU is the same person as the one referred to in s 14ZU itself and, in turn, in subs 14ZL(1); and subs 14ZL(1) makes it clear that the "person" concerned is the taxpayer referred to in s 175A of the Assessment Act who is dissatisfied with an assessment "made in relation to the taxpayer". And, as Hill J points out, whereas subs 220(7) of the Assessment Act empowers an executor or administrator of a deceased estate to lodge an objection to an assessment, there is no corresponding provision enabling a trustee in bankruptcy to lodge an objection and thus to become "the person" for the purpose of the provisions of the Administration Act to which I have referred. But if, as I would hold, an application for review under s 14ZZ of the Administration Act is a "legal proceeding", clearly it is a legal proceeding which relates to the administration of the estate: on the review may depend the size of a particular claim against the estate and therefore the proportions in which the estate will ultimately be divided among those entitled. If it is objected that the specific provisions of the Assessment Act and the Administration Act contemplate only an application by the taxpayer personally, the answer must be, I think, that a similar apparent difficulty was not seen as preventing the conclusion, in Cummings and in Heath, that though the bankrupt party might not appeal, the trustee might do so, apparently (Heath at 1425, 1426) in the trustee's name. Ordinarily, only a party to a proceeding may appeal against a judgment or order in the proceeding: that appears to be so in this Court, where the right of appeal arises under s 24 of the Federal Court of Australia Act 1976: see Sen v The Queen (1991) 30 FCR 173 at 175; Fuller v Beach Petroleum NL (1993) 43 FCR 60 at 63. The majority decision in Cummings makes it clear that the trustee in bankruptcy does not become entitled to a right of appeal which the bankrupt has, as property of the bankrupt. Nor does the Bankruptcy Act confer on the trustee a general, or any relevant special, agency for the bankrupt. The trustee was held to have the right, which (but for the Bankruptcy Act) was a right of the bankrupt only, to appeal against a judgment for debt because the appeal was a proceeding relating to the administration of the estate and para 134(1)(j) authorised the trustee to bring or institute it. Once that is seen, it is evident, in my view, that the way in which the Assessment Act and the Administration Act limit the rights of objection, review and appeal are not to be regarded as precluding the exercise of those rights by the trustee in bankruptcy of a bankrupt taxpayer. That being so, in my opinion it should be held, consistently with Cummings, that in this case the Official Trustee has standing to apply for a review of the objection decision. It does not necessarily follow that Mr McCallum lacks standing to apply for a review of the objection decision. Whether he has standing depends on whether, in the present circumstances, he is to be regarded as a person who is dissatisfied with that decision. Despite the long legislative history of the use of that term in the Assessment Act and other revenue statutes (see CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397 at 404, 405) authority ‑ except that of CTC Resources itself ‑ appears to be lacking as to its meaning; particularly, the extent to which it poses a test similar to other statutory tests of standing, such as "a person who is aggrieved" by a decision or conduct (Administrative Decisions (Judicial Review) Act 1977, subss 5(1) and 6(1)) or "a person interested" in a decision or conduct (subs 12(1) of that Act), or general law requirements as to standing to obtain a declaration of right or an injunction to restrain the infringement of a public right. None of those tests, of course, is directly applicable to the question of standing to institute an appeal, with which Cummings and Heath were concerned, nor are any such tests mentioned in the judgments in those cases. There is nothing surprising in that: where a party to proceedings is adversely affected by a final judgment or order made in them and an appeal lies from a decision of the Court pronouncing the judgment or making the order (as, in the case of this Court, it does under s 24 of the Federal Court of Australia Act) the party may appeal: there is no additional test of standing. It is not altogether easy to see that a test of dissatisfaction with a decision is likely to confer standing on a taxpayer to a more generous extent than a right of appeal does on a party to litigation adversely affected by an order made in it. Thus, with great respect, I am unable to see any firm basis on which the principle laid down in Cummings should be held not to be applicable here. If, in the one case, standing is lost because the debt concerned is payable solely out of the bankrupt estate, and is no longer otherwise recoverable from the debtor, I can see no reason why that is not equally so in the other case; and if, in the one case, it makes no difference that success in an appeal may result in a surplus in the estate (Cummings at 138) I cannot see why it does not equally make no difference in the other case, where a successful review may equally result in a surplus. I do not think that that view of the matter is at all in conflict with what was said in CTC Resources, in a rather different context, about "dissatisfaction: see per Gummow J at 408; per Hill J at 432. Indeed, as Gummow J pointed out (at 404, 405), in a comment which remains apposite to dissatisfaction with an objection decision under the present provisions: However, in the past, the cause for the dissatisfaction of the taxpayer has been a particular assessment to tax which because it leads to the creation of a debt in favour of the Commonwealth undoubtedly has an immediate and direct effect in a legal sense upon the taxpayer. As a result there has been little discussion in the authorities as to the meaning of the term ... Indeed, there is an obvious and, in my view, close analogy between a taxpayer in that circumstance and a litigant who suffers judgment for provable damages or a provable debt. For those reasons, in my opinion the decision in Cummings is applicable to this case, with the result that Mr McCallum is likely to lack standing to apply to the AAT for a review of the objection decision. I use the phrase "is likely to" deliberately: he will not have standing merely because, for example, a successful challenge to the objection decision may result in a surplus in his bankrupt estate or because of any effect that the assessments and the objection decision may have upon his reputation. It is conceivable, however, that there may be some other footing in which he could claim standing: for example, it may be that an objection decision in relation to a particular assessment will have consequences in relation to tax payable, perhaps in years following discharge from bankruptcy, for which Mr McCallum will be personally liable. Such a possibility was not canvassed in argument, and I express no opinion about it. There seems to be no difficulty in principle, in such a case, in according standing concurrently to a bankrupt and to the bankrupt's trustee in bankruptcy: United Telephone Company v Bassano (1886) 31 ChD 630. Because of the basis on which the AAT denied standing to Mr McCallum, the AAT did not have to consider matters of that sort. Cummings, however, has now established that that basis is incorrect and Mr McCallum should have the opportunity to claim standing, if he is in a position to do so, on a footing consistent with this judgment. The matter should, accordingly, be remitted to the AAT for further consideration in the light of these reasons. So that that may be done, the decision of the AAT should be set aside. As Cummings and Heath make clear, a bankrupt taxpayer, who wishes to challenge an assessment but lacks standing to do so, is not left without remedy. An extended passage in the majority judgment in Cummings, at 138, 139, emphasises that the Court will use its power to prevent injustice or oppression and that the power is available, and may be exercised (at least if it can be done without cost to the estate), even if its exercise is sought only for the purpose of vindicating a claim or interest personal to the bankrupt. There remains the question of costs. The AAT held that Mr McCallum lacked standing on a ground which has been shown to be incorrect. He has the opportunity to agitate the question of standing, before the AAT, on a basis which accords with these reasons. On the other hand, the Commissioner has achieved substantial success on the principal matters argued before us. In my view it is appropriate that there be no order as to costs. I certify that this and the preceding 10 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane. Associate: Dated: 19 June 1997 Heard: 20 May 1997 Place: Sydney Decision: 19 June 1997 Appearances: Ms Robin Hunt, solicitor, appeared for the appellant. A H Slater QC and K M Connor of counsel instructed by the Australian Government Solicitor appeared for the respondent.
Fuller
Beach Petroleum NL
(1993) 43 FCR 60
(1996) 185 CLR 124
(1988) 20 FCR 520
(1994) 49 FCR 250
(1979) 24 ALR 577
(1980) 146 CLR 493
(1981) 149 CLR 27
(1985) 5 FCR 133
(1994) 55 FCR 305
(1926) 38 CLR 153
(1926) 38 CLR 63
(1994) 48 FCR 397
(1921) 29 CLR 257
(1981) 36 ALR 64
(1928) 41 CLR 532
(1991) 105 ALR 397
(1979) 36 FLR 392
(1991) 30 FCR 173