Grapsas v Deputy Commissioner of Taxation

Federal Court of Australia|2010-08-16|Before: Middleton J

INTRODUCTION 1 In this proceeding, the second respondent ('the Trustee') seeks orders: (a) That the appellant's appeal against a decision of the Federal Magistrates Court be dismissed under s 31A of the Federal Court of Australia Act 1976 (Cth) ('the Federal Court Act') as the appellant has no reasonable prospect of successfully prosecuting the appeal; (b) In the alternative, that the appellant pay into Court the sum of $25,134 as security for the costs of the Trustee under s 56 of the Federal Court Act. 2 The background giving rise to the appellant making application to a Federal Magistrate and instituting this appeal in the Federal Court is that a sequestration order was made in the Federal Magistrates Court by a Registrar against the estate of the appellant on 14 August 2008, with the second respondent being appointed the Trustee in bankruptcy on the same day. The appellant was bankrupted on the basis of a judgement debt owed to the first respondent ('the Commissioner'), following proceedings in the County Court of Victoria where judgment was obtained against the appellant in the sum of $273,880.29 on 5 November 2007. 3 Since then, and in the course of the administration of the appellant's bankrupt estate, the Trustee has decided not to permit the appellant to travel overseas.

THE APPLICATION BEFORE THE FEDERAL MAGISTRATE 4 The appellant's application, filed on 14 March 2010 before the Federal Magistrates Court, was effectively an application for: (a) Orders that the sequestration order against the appellant made on 14 August 2008 be annulled; (b) Orders that the appellant be granted an extension of time to review, and if granted, that there be a review of the Registrar's decision making the sequestration order; (c) Orders to review the decision of the Trustee not to permit the appellant to travel overseas pursuant to s 178 of the Bankruptcy Act 1966 (Cth) ('the Bankruptcy Act'). 5 By orders made on 18 May 2010, the Federal Magistrates Court dismissed the appellant's application and ordered that the appellant pay the costs of the application personally.

THE APPEAL 6 The appellant has appealed against the orders of the Federal Magistrates Court made on 18 May 2010. 7 The appellant was an unrepresented litigant before the Federal Magistrates Court and before this Court. 8 The material before the Court comprises the evidence before the Federal Magistrates Court and as well as the evidence placed before me by the Trustee and the appellant. This includes the affidavit of the appellant of 24 May 2010. Subsequent to the hearing the appellant filed further material, which I do not regard as relevantly adding anything to his evidence or submissions placed before me prior to my reserving my decision. 9 The grounds of appeal as set out by the appellant are: (a) the alleged mistakes by the Federal Magistrate in mistaking quarterly profit and loss statements as monthly profit and loss statements; (b) the mistake by the Federal Magistrate in mistaking monthly wages of $4,200 every quarter as monthly wages rather than quarterly wages; (c) the alleged withdrawal of the Victorian Civil and Administrative Tribunal ('VCAT') Proceeding C6625/2005 concerning Alan Winkler; (d) the lodgement of draft BAS statements with the Commissioner; and (e) the lodgement of draft income tax returns with the Commissioner. 10 The appellant seeks various orders including orders that: (a) the sequestration order be annulled or reviewed due to fresh evidence; (b) the appellant be permitted to travel overseas; and (c) the appellant not be required to pay the costs of the earlier proceeding. 11 The appellant does not raise in his grounds of appeal any appeal in respect of the Federal Magistrate's decision to refuse to allow him an extension of time in which to seek a review of the Registrar's decision making the sequestration order. This was a discretionary decision. 12 Nevertheless, I have considered the question of whether an extension of time should have been granted to review the making of the sequestration order. I can see no error in the reasons of the Federal Magistrate. In addition, no satisfactory reason was given to the Court by the appellant, other than some unfortunate vicissitudes of life, which would adequately and satisfactorily explain the lengthy delay in seeking review. This in itself is not determinative, but is an important factor to take into account. 13 The Commissioner supports the first order sought by the Trustee under s 31A of the Federal Court Act. 14 The Commissioner submits that if the Court is persuaded that the appellant has no reasonable prospect of successfully prosecuting his appeal for the purposes of s 31A, an order should be made dismissing the appeal against both respondents, there being no relevant distinction between the prospects of the appeal against the Commissioner and the Trustee. The Commissioner does not seek costs in the event this order is made. 15 The Commissioner takes no position in relation to the orders sought by the Trustee relating to security for costs.

SECTION 31A 16 Section 31A relevantly allows the Court to give judgment for one party against another in relation to the whole or any part of a proceeding if the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding (which includes an appeal). 17 Section 31A(3) expressly states that in order for a proceeding not to have reasonable prospects of success, it is not necessary that the proceeding be hopeless or bound to fail. 18 In assessing whether there are reasonable prospects of success, the Court must be cautious not to do an injustice by summary dismissal of a claim: see eg Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd [2006] FCA 1352. This principle applies equally to appeals: Rana v Commonwealth of Australia [2008] FCA 1667. 19 The discretion under s 31A should not be exercised unless only one conclusion can be said to be reasonable, namely a conclusion that the matter does not have any reasonable prospect of success: Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd. 20 There will be a reasonable prospect of success if there is evidence which may be reasonably believed to enable the party against whom summary judgment is sought to succeed at the final hearing. 21 In Boston Commercial Services Pty Ltd Rares J stated at pars 42, 44 and 45: [42] I am of opinion that properly construed, s 31A(2)(b) requires a person moving a motion for summary disposal ('the moving party') to satisfy the Court that there is no reasonable prospect of the party claiming relief ('the plaintiff') successfully prosecuting the proceeding or the part of the proceeding in question. Experience shows that there are cases which appear to be almost bound to fail yet they succeed. As Dixon CJ once said (Pontifical Society for the Propagation of the Faith v Scales (1962) 107 CLR 9 at 20): Experience of forensic contests should confirm the truth of the common saying that one story is good until another is told. … [44] In a case to which s 31A applies, where there is a real issue of fact to be decided in the sense identified in the above principle, and, possibly, where there is a real issue of law of a similar kind, it is obviously appropriate that the matter goes to trial. … This raises a very real question, as to what reasonable prospects are for present purposes. [45] I am of opinion that in assessing what reasonable prospects of success are for the purposes of s 31A, the Court must be very cautious not to do a party an injustice by summarily dismissing the proceedings where, in accordance with the principles in Hocking v Bell (1947) 75 CLR 125, contested evidence might reasonably be believed one way or the other so as to enable one side or the other to succeed. As soon as the evidence may have such an ambivalent character prior to a final determination, I am of opinion that then, as a matter of law, at that point there are reasonable prospects of success within the meaning of s 31A. Unless only one conclusion can be said to be reasonable, the moving party will not have discharged its onus to enliven the discretion to authorise a summary termination of the proceedings which s 31A envisages. …

ONUS ON APPEAL 22 In order to succeed in his appeal against the Federal Magistrate's decision not to annul his bankruptcy under s 153B of the Bankruptcy Act, or overturn the Trustee's decision not to allow him to travel, it is necessary for the appellant to satisfy the Court that the Federal Magistrate erred. 23 An appeal from a Federal Magistrates Court to the Court is conducted as a rehearing of the initial application; it is not a hearing de novo. It is necessary for the appellant to demonstrate that the judgment below is the result of a legal, factual or discretionary error: see eg Abeyesinghe v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCA 1558 at [4] and SZIAT v Minister for Immigration and Citizenship [2008] FCA 766 at [10]. 24 Further, to the extent that the decisions appealed against are exercises of discretion by the Federal Magistrate, the appellant must show some error has been made in exercising the discretion. 25 The appellant urged upon the Court that he was an honest man, citing examples of his honesty in the past. As I indicated during the hearing, it is not my role to re-assess de novo the credit of the appellant. Findings were made in this regard by the Federal Magistrate to which I will soon return. I am bound to take those findings into account unless such credit findings have no basis. Nothing the appellant has placed before the Court would allow me to disregard the findings of credit made by the Federal Magistrate.

REASONS OF FEDERAL MAGISTRATE 26 The Federal Magistrate made significant findings of credit against the appellant. The Federal Magistrate described the appellant's accounts as 'convoluted' and subject to change from time to time (at [15]). 27 The Federal Magistrate stated: 'The transcript will not fully reveal just how bad a witness Mr Grapsas was' (at [45]). The Federal Magistrate also found that the appellant had invented a 'fiction' to benefit himself (at [50]) and that he was 'a very unbelievable witness' (at [51]). The Federal Magistrate referred, by way of illustration, to the appellant's attempt to change his evidence regarding the source of a payment of $60,000 (at [45] and [50]). The Federal Magistrate also referred to the appellant's comprehensive failure to co-operate with the Trustee and his failure to disclose his debt to the Commissioner in his statement of affairs (at [52]-[53]). 28 The Federal Magistrate observed that there had been no attempt to challenge the debt in the County Court and that the appellant had taken no steps to challenge the Commissioner through the mechanisms available to him (at [58] and [60]). 29 The Federal Magistrate determined that, even if the appellant did not owe any amount on account of GST, even on his own account the appellant had earnings and owed an amount of income tax to the Commissioner, although that amount could not be determined (at [54]-[58] and [60]). The Federal Magistrate did refer to the sum of $4,200 per month in this passage of reasoning (at [54]) (which was in error as it should have been per quarter). However, the Federal Magistrate's conclusions would have been the same taking a figure of $4,200 per quarter - in that case there would still be some amount owed to the Commissioner which the appellant was not able to pay. 30 Further, the conclusions of the Federal Magistrate would not have been different had he had before him the draft income tax returns and BAS summary figures now introduced before the Court. The Federal Magistrate's decision was made on the (favourable) assumption that there was no GST liability (see [54]) whereas the draft BAS figures of the appellant disclose an overall liability of some $8,265. The draft returns are not consistent with the appellant's evidence as to the wages he paid himself ($4,200 per quarter). In light of his Honour's findings about the appellant's credibility, the appellant's tendency to change his account and the 'general miasma of confusion' surrounding the appellant's affairs (at addendum [4]), the addition of another contradictory source of information would not have altered the outcome of the application before the Federal Magistrate. 31 In relation to the VCAT proceeding, the appellant seeks to demonstrate error in the Federal Magistrate's findings by producing (as exhibit C to his affidavit of 24 May 2010) a VCAT document stating that the proceeding was withdrawn. It is not established that this is the same VCAT proceeding with which the Federal Magistrate was concerned, as the Federal Magistrate referred to the appellant's own evidence which stated that Mr Winkler was awarded money against him in VCAT. In any event, the Winkler debt was but one of a number of matters referred to by the Federal Magistrate in dismissing the appellant's application. It is apparent (in particular from [60]) that the existence of the Winkler debt (even if it be the same VCAT proceeding now referred to by the appellant) was not determinative in the Federal Magistrate's reasoning. Further, after questioning before me, the appellant seemed to be finally contending that the decision of VCAT was formally made and in existence but was based on misleading and false information. The real point of the appellant was that the decision was incorrectly made, although it was still operative in that it had not been set aside. 32 Finally, the Federal Magistrate clearly indicated that, even if he were satisfied of the appellant's claims he would not have exercised the Court's discretion to overturn the sequestration order. His Honour observed at [63]: … The abject failure of the applicant to comply with his obligations as a bankrupt I have already referred to. His contumelious disregard of the interests of his creditors in selling his business and sending the money (mainly) offshore to his sister as an agent is a matter which of itself alone would in my view properly require the continuation of the administration of his estate by his trustee. 33 Based upon the material facts found by the Federal Magistrate, the exercise of the discretion in this manner was not in error.

THE PROSPECTS OF THE APPEAL REGARDING THE ANNULMENT 34 The principles governing annulment of a sequestration order under s 153B of the Bankruptcy Act were conveniently summarised by Spender and French JJ in Rigg v Baker (2006) 155 FCR 531. Relevantly, the principles may be stated as follows: (a) where an annulment of a sequestration order is sought, the bankrupt bears the onus of satisfying the court that the sequestration order ought not to have been made (at [11]); (b) even if the court hearing the annulment application determines that the original sequestration order ought not to have been made, it retains a discretion whether or not to annul the bankruptcy (at [59]); (c) in determining whether the sequestration order ought not to have been made, the order should not be annulled unless the person making the sequestration order was 'in the circumstances bound not to make it' (at [62]); (d) the circumstances are to be assessed at the time of the sequestration order, although the court hearing the annulment application may consider subsequent evidence of the facts in existence at the time (at [61], [63]); (e) failure to appear at the hearing of a creditor's petition and the failure to take any other step to oppose the order sought is a 'significant, if not insuperable, obstacle' to succeeding in advancing the proposition that the registrar or judge hearing the petition 'was bound not to make a sequestration order' and is also relevant to exercise of the residual discretion to (or not to) annul (at [71] and [77]). 35 Having regard to the principles stated above, it is apparent that the Federal Magistrate did not err in his approach to the issues before him and made factual findings that were open to him, having heard the oral evidence of the appellant and made findings as to his credit-worthiness. The appellant has no reasonable prospects of succeeding in showing any error on the part of the Federal Magistrate in his findings of fact (that are material) or in his exercise of discretion not to annul the sequestration order.

36 In reaching this conclusion, I regard the following facts as significant: · The Commissioner obtained judgment in the County Court against the appellant in default of a defence on 5 November 2007; · The Bankruptcy Notice was served on the appellant on 9 April 2008; · The Creditor's Petition was served on the appellant on 16 July 2008; · On 14 August 2008 a Registrar of the Federal Magistrates Court made a sequestration order against the appellant's estate; · The appellant appeared self-represented at the hearing of the Creditor's Petition; · The appellant has not: (a) lodged an objection with the Commissioner regarding the debt; or (b) applied for a review or appeal the debt to the Administrative Appeals Tribunal, or the Court; or (c) sought to set aside the judgment obtained by the Commissioner in the County Court. 37 The important matter to consider is the position at the time when the sequestration order was made against the appellant's estate, on 14 August 2008. At that time, the appellant had a significant number of outstanding income tax returns, and at the time he was made bankrupt, a significant number of un-lodged business activity statements. 38 Before the Court, the appellant was concerned about a number of taxation returns referrable to him which he has become aware of which he did not file with the Commissioner and he submits do not support the judgement debt. Upon enquiry, it was explained that these returns were default assessments administratively created by the Commissioner. There was nothing improper with this process on the part of the Commissioner. 39 Nothing put to the Court demonstrated that the sequestration order when made on 14 August 2008 was not properly made upon a debt owing to the Commissioner, based upon the judgement entered in the County Court. Further, there was nothing put to the Court that demonstrated that the judgment was not properly obtained or not properly based. 40 This is not to say that the Federal Magistrate (or the Court) may not consider the true facts as at the date of the sequestration order by reference to any fresh or new evidence. However, I am not satisfied that after considering the facts the appellant now relies upon that the sequestration order 'ought not have been made' or that the Federal Magistrate fell into error in so concluding on the material before him. 41 In any event, to the extent I need to exercise the discretion myself, I am not satisfied that an annulment order should be made. The appellant accepts that he owes some money to the Commissioner, which remains unpaid. The appellant has been bankrupt for nearly two years. The appellant cannot demonstrate he is solvent. The appellant has not made an application to set aside the judgment, nor challenge the excessiveness of the assessments pursuant to Pt IV C of the Taxation Administration Act 1953. 42 The mere fact that the appellant presently alleges the excessiveness of his assessments does not support the proposition that the appellant has genuine and arguable grounds for disputing the existence of the judgment debt.

THE TRUSTEES DECISION TO REFUSE PERMISSION TO TRAVEL OVERSEAS 43 Under s 178 of the Bankruptcy Act, the Court has a supervisory jurisdiction over the Trustee and may make any such order as it thinks 'just and equitable'. The Court may on the appellant's application under s 178 re-examine the Trustee's decision not to allow the appellant to travel overseas. It is to be remembered that the Trustee has a wide discretion to make such decision in relation to travel: see generally Re Hicks; Ex parte Lamb (1994) 217 ALR 195 at 198. 44 I do accept (as submitted by the appellant) that the appellant has previously left Australia and returned. However, in answer to my questions, it was clear that the appellant has work opportunities over in Greece and would stay there. The appellant says that in so acting he would be in a better position to pay his creditors in Australia. However, there is the risk that this may not happen, a matter properly taken into account by the Trustee in reaching the view that permission to leave Australia should be refused. 45 Submissions were made by the appellant as to the transfer of money after the sequestration order to the appellant's sister overseas, which money the appellant says was not part of his estate in bankruptcy. The appellant denies any wrong doing in this regard. This is a matter I need not determine finally. Even accepting the submission of the appellant on this issue would not affect my determination in this matter. I do observe, however, that the documentation in the form of a contract of sale indicates the seller of the property was the appellant, which would speak against the version of events submitted by the appellant as to whether such money was part of the bankrupt's estate. 46 As to the issue of co-operation with the Trustee, the appellant accepts that he is not going to co-operate with the Trustee. This is on the basis (as he responded to me) 'I am not going to co-operate with something that I don't agree with'. I take this to be an affirmation of the conclusions reached by the Federal Magistrate as to the failure of the appellant to assist in the administration of the bankruptcy. 47 The decision of the Federal Magistrate not to overturn the Trustee's decision in relation to travel was a discretionary decision open to him on the facts he found (including that the appellant was a 'flight risk' (at [54(f)])). None of the grounds of appeal in any way impugn the Federal Magistrate's decision and the appeal in that regard has no prospects of success.

security for costs 48 I do not need to consider the application for security for costs. I should indicate that if I did not dismiss the appeal, in my view it would have been appropriate to grant an order for security of costs on the basis of the written submissions of the Trustee dated 18 June 2010. However, the amount of such security would have only been $16,344 (not $25,134), as the estimated amount of the likely costs of the appeal if it continued.

CONCLUSION 49 I mention two other matters. During the course of the hearing, the issue arose concerning the delivering up of the appellant's passport as required by s 77 of the Bankruptcy Act. The appellant was at the hearing content to deliver his passport to the Trustee. The Court ultimately directed the appellant to deliver his passport to the Trustee. I understand that this was done. The appellant now wishes to retrieve his passport, because of the need (I perceive) to use the passport for the purposes of identification. In view of my decision, I do not propose to order the return of the passport. There are other means of proving identification to which the appellant could avail himself if necessary. 50 Secondly, the appellant objected to the Trustee (and his legal advisors) participating in this proceeding before the Court. The Trustee was both a necessary and proper party to this proceeding. This was because of the issues raised (including reviewing his decision relating to travel), and because the Court needed to be informed as to the administration of the bankrupt's estate. 51 The order of the Court will be: (1) The appeal be dismissed. (2) The appellant pay the costs of the second respondent to be taxed. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.

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