Joossé v Deputy Commissioner of Taxation

On appeal from a single judge of the Federal Court of Australia V1037 of 2003

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

of the Federal Magistrates Court of Australia V 118 of 2004

REASONS FOR JUDGMENT JACOBSON J: Introduction 9 These appeals concern the question of whether a judge of the Court who heard an application to set aside a bankruptcy notice and the Chief Federal Magistrate who heard a bankruptcy petition based upon failure to comply with the notice each erred in failing to exercise the Court's discretion to go behind the judgment debt which gave rise to the notice and the petition. 10 The judgment debt was a default judgment issued by the County Court of Victoria in August 2001. However, the appellant had applied unsuccessfully to the County Court to set the judgment aside. 11 Moreover, the appellant was refused leave to appeal from the County Court's judgment by the Court of Appeal. Significantly, the appellant filed five affidavits in the Court of Appeal in endeavouring to make good the proposition that he had an arguable defence to the claim. Those affidavits were not before the County Court. 12 The Court of Appeal, after considering all of the affidavit material, was of the view that the appellant had no arguable defence to the claim which gave rise to the judgment debt. Batt JA considered that the appellant had "no possible defence". 13 Notwithstanding this, the appellant sought to argue before Gray J on the application to set aside the bankruptcy notice that there were substantial reasons for going behind the judgment debt. His Honour considered, at some length, all of the evidence and arguments put forward by the appellant but came to the view that no substantial reason had been advanced as to why the appellant should be allowed to go behind the judgment. 14 The judgment debt arose from the appellant's personal liability as a director of a company, known as Bellhop Pty Limited ("Bellhop") for the estimated amount of unremitted group tax under the provisions of Divisions 8 and 9 of Part VI of the Income Tax Assessment Act 1936 (Cth) (the "ITAA"). 15 Division 9 provides, relevantly, that the directors of a company must, within 14 days after the day on which notice of the estimate is sent to the company, cause the company to pay the amount of the estimate or cause it to "begin to be wound up" within the meaning of the companies legislation. Section 222 APC of the ITAA provides that if the estimate is not paid or the directors do not cause the company to be placed into liquidation within the 14 day period, the directors are liable to pay to the Commissioner by way of penalty, an amount equal to the unpaid amount of the estimate. 16 There was an issue before Gray J as to whether Bellhop commenced to be wound up within 14 days of the day on which two of the statutory notices were given. However, the issue turned solely upon the date of service of the notice. Although his Honour does not refer in his judgment to the date of the winding up of Bellhop, it is implicit in his Honour's reasons that the winding up began on 3 November 1999. 17 In the hearing before the Chief Federal Magistrate, the appellant swore that the directors resolved on 10 September 1999 to place Bellhop into voluntary liquidation. A photocopy of a purported resolution was exhibited to the affidavit. This evidence was not put before Gray J or the Court of Appeal. 18 It is plain on the face of the photocopy resolution that the date has been altered. It appears to have been altered from 10 November 1999 to 10 September 1999 but no such finding was made by the Chief Federal Magistrate. 19 Her Honour found at [32] that despite the resolution "apparently passed" on 10 September 1999, no liquidator was appointed, nor were statutory notices required under the companies legislation given, and Bellhop was wound up by order of the Supreme Court of Victoria on 3 November 1999. 20 The appellant, who appeared in person, contended that the Chief Federal Magistrate was in error in failing to find that the winding up of Bellhop commenced on 10 September 1999. He also contended that there were other errors of principle in the judgments of Gray J and Chief Federal Magistrate Bryant. 21 The errors for which he contended repeated the substance of what he had put in earlier proceedings. 22 The respondent filed a motion seeking an order that the appeal against the judgment of Gray J be deemed to have been abandoned under s 60(3) of the Bankruptcy Act 1966 (Cth) ("the Act") or, alternatively, an order that the appeal be dismissed as incompetent. This contention turns upon the failure of the Official Trustee to elect to prosecute the appeal in accordance with s 60(2) of the Act. 23 We heard the motion with the hearing of the appeals. The motion turns upon whether the bankruptcy petition is a "civil proceeding, whether at law or in equity"; see s 60(5) of the Act. The Relevant Provisions of the ITAA 24 It is unnecessary to set out the entire statutory scheme. The relevant provisions for present purposes are as follows:- 222 AFA "(1) The purpose of this Division is to enable the Commissioner to take prompt and effective action to recover amounts not remitted as required by Divisions 1AAA, 3B and 4 of this Act, or Part 2-5 in Schedule 1 to the Taxation Administration Act 1953. (2) It does so by empowering the Commissioner to make an estimate of the amounts, and to recover the amount of the estimate. (3) Although an estimate creates a liability distinct from the underlying liability to remit amounts, the person liable can ensure that the Commissioner does not keep more than those amounts. …" 222 APB (1) The persons who are directors of the company from time to time on and after the day when the Commissioner sent to the company notice of the estimate must cause the company to do at least one of the following within 14 days after that day: (a) pay to the Commissioner the amount of the estimate; (b) make an agreement with the Commissioner under section 222ALA in relation to the company's 's liability to pay the estimate; (c) appoint an administrator of the company under section 436A of the Corporations Act 2001; (d) begin to be wound up within the meaning of that Act. …. (3) If this section is not complied with before the end of the 14 days, the persons who are directors of the company from time to time after the 14 days continue to be under the obligation imposed by subsection (1) until this section is complied with. 222 APC If section 222APB is not complied with before the end of the 14 days, each person who was a director of the company at any time during the 14 days is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the estimate. 222 APE (1) The Commissioner is not entitled to recover from a person a penalty payable under this Subdivision until the end of 14 days after the Commissioner gives to the person a notice (the penalty notice) that: (a) sets out details of the unpaid amount of the estimate; and

(b) … (d) states that the penalty will be remitted if, at the end of 14 days after the penalty notice is given: (i) the company's liability to pay the estimate has been discharged; or (ii) an agreement relating to that liability is in force under section 222ALA; or (iii) the company is under administration within the meaning of the Corporations Act 2001; or (iv) the company is being wound up." The decision of the Court of Appeal of Victoria in Joossé v Deputy Commissioner of Taxation[2002] VSCA 48 (Batt and Buchanan JJA) 25 The principal judgment was given by Batt JA. His Honour addressed three main points of substance which were raised by the applicant. 26 The first point was that Bellhop had no employees during the relevant period. His Honour dismissed this submission at [12] because it was inconsistent with the applicant's answers to a questionnaire which he provided to the liquidator of Bellhop. 27 Batt JA was also of the view at [12] that the contention that Bellhop had no employees was inconsistent with the findings of Marshall J in proceedings in the Federal Court to which the applicant for leave to appeal was a party; see Textile Clothing & Footwear Union of Australia v Bellhop Pty Ltd & Ors [1999] FCA 1095. 28 The second point was that certain of the notices under s 222 APE of the ITAA were served less than 14 days before the winding up of Bellhop. However, Batt JA accepted, at [13], that the notices were served on the date sworn to in the affidavit of a process server. His Honour rejected the applicant's submission that there was an arguable defence that the notices were served at a later date. The applicant's submission was based upon affidavit evidence as to the date on which the notices were discovered in a mail box. 29 The argument on this point proceeded on the basis that Bellhop was wound up by Court order on 3 November 1999. There was no reference to an earlier resolution that Bellhop be wound up voluntarily, see at [16]. 30 The third point was that the provisions of the ITAA which gave rise to the applicant's personal liability were unconstitutional. Batt JA rejected this submission at [16]. 31 Batt JA said at [19] that he considered that the applicant had "no possible defence". His Honour said at [20] that his reasons were much longer than would ordinarily be given on such an application but he considered it desirable to show that the applicant's arguments had not been rejected without full consideration. 32 Buchanan JA agreed with Batt JA and said at [23] that the points taken were "not tenable". The application for special leave to appeal to the High Court 33 On 14 February 2003 McHugh and Heydon JJ rejected the application. In the course of argument McHugh J said:- "Now, I have read the Court of Appeal judgment several times and at the moment I do not see any error in it and I have not heard any submission from you which indicates there is any error in it." The decision of Gray J in Joossé v Deputy Commissioner of Taxation of the Commonwealth of Australia (2003) 54 ATR 387;[2003] FCA 1325 34 His Honour referred at [4] to the three grounds relied upon by the applicant to set aside the bankruptcy notice. The first was that he had a counterclaim which he could not set up in the County Court. The second was that there were defects in the bankruptcy notice. The third was that there no debt owing. 35 Most of the judgment was concerned with the third ground in which his Honour considered, in accordance with well-established authority, whether there were substantial reasons for going behind the judgment debt. 36 His Honour said at [15] that the judgment of the County Court was not to be regarded as an ordinary default judgment because the applicant had failed to satisfy the County Court or the Court of Appeal that he had an arguable defence. As his Honour observed, the test which the applicant failed to meet was a relatively easy one. 37 The arguments put forward by the applicant as to why there was no debt were similar to those which were dealt with by the Court of Appeal. He contended that Bellhop had no employees during the relevant period. He also contended that two of the notices under s 222APE of the ITAA were served less than 14 days before Bellhop was wound up. His Honour rejected both of these arguments; see at [41] and [49]. 38 His Honour also rejected the applicant's submission that the relevant provisions of the ITAA were unconstitutional. His Honour found that there were no defects in the form of the bankruptcy notice. The effect of his Honour's findings was that the applicant had no counter-claim against the respondent. The decision of the Chief Federal Magistrate in Deputy Commissioner of Taxation of the Commonwealth of Australia v Joossé [2004] FMCA 21 (Bryant CFM) 39 Her Honour said at [27] that the problem which the applicant faced was that he had been unable to persuade the County Court, the Court of Appeal, the High Court or Gray J that he had an arguable case. 40 Her Honour, in accordance with Full Court authority in Makhoul v Barnes (1995) 60 FCR 572 at 582, declined to allow the applicant to revisit issues which had been determined against him by Gray J. 41 The only new point of substance raised by the applicant was the resolution of Bellhop which was said to have been passed on 10 September 1999. The effect of the applicant's argument was that a voluntary winding up commenced at the time of passing of the resolution. 42 Her Honour said at [28] that the applicant relied on the provisions of ss 490, 491 and 492 of the Corporations Act 1989 (Cth) to argue that the winding up commenced on the date of the resolution. 43 Her Honour's attention was apparently not drawn to the fact that the Corporations Act 1989 was not in force. The relevant legislation was the Corporations Law. Section 492, which provided that a voluntary winding up commences at the time of passing the resolution, was repealed in 1993. However, the effect of s 513B of the Corporations Law was that if a valid resolution had been passed, the winding up would have commenced on the date of the resolution. 44 As stated above, her Honour did not make a finding of fact as to whether the resolution was passed. She said at [32] that:- "Despite the special resolution apparently passed by the members on 10 September 1999 no liquidator was appointed nor were the notices required by section 491 given, and the company was wound up by order of the Supreme Court on 3 November 1999." The arguments on the appeals 45 The only real issue which arises is whether the Chief Federal Magistrate's discretion miscarried by reason of her rejection of the appellant's assertion that the winding up of Bellhop commenced on 10 September 1999 when the special resolution was said to have been passed. I will deal with that issue separately below. 46 Despite the appellant's lengthy written submissions, which I have read and re-read, no other question arises. 47 It is true, of course, as the appellant submits, that the making of a sequestration order is a serious matter which has an adverse impact on him. It is also true, as he reminded the Court several times, that the judgment debt was entered by default. Indeed, at the heart of his submissions was the proposition that he has been denied the opportunity to obtain discovery and to cross-examine the respondent's witnesses. 48 However, the proposition that the appellant was denied a hearing on the merits overlooks the fact that he would have had one if he could have satisfied the Court of Appeal that he had an arguable defence. 49 Nor is it correct to say, as the appellant submitted, that the decision of Gray J was based upon issue estoppel. His Honour considered afresh whether the matters put forward by the appellant disclosed an arguable defence. His Honour determined that they did not. 50 Nothing has been put before the Court to suggest any error in the exercise of Gray J's discretion to refuse to go behind the judgment of the County Court. Gray J considered at length whether substantive reasons had been advanced as to whether the appellant should be allowed to go behind the judgment debt. His Honour considered that no such reasons had been shown. Thee was no error in this. The purported resolution of 10 September 1999 was not put before Gray J and can therefore have no bearing on the correctness of his Honour's decision. 51 The Chief Federal Magistrate did not proceed on the basis that the decision of Gray J raised an issue estoppel. Her Honour merely refused, in the exercise of her discretion and in accordance with well established authority, to revisit matters which had been investigated by Gray J. The resolution of 10 September 1999 - whether the Chief Federal Magistrate's discretion miscarried 52 The relevant provisions of the Corporations Law in force at the time can be summarised. It is not necessary to set them out in full. 53 Section 491(1) provided that, subject to s 490, which was not relevant in the present case, a company may be wound up voluntarily by special resolution. 54 Section 491(2) contained provision for the company, within specified periods, to lodge a copy of the resolution with the Australian Securities Commission and to publish notice of the resolution in the Gazette. 55 Section 493(1) provided that the company was to cease to carry on business from the passing of the resolution except so far as in the opinion of the liquidator it was required to do so for the beneficial disposal or winding up of the business. 56 Section 494 made provision for the directors of a company which was proposing to wind up voluntarily to make a declaration of the company's solvency prior to the date of despatch of notices of the meeting at which the resolution for the winding up of the company was to be proposed. 57 Section 495 was applicable to a members' voluntary winding up. Section 495(1) required the company in general meeting to appoint a liquidator. Section 495(2) provided that upon the appointment of the liquidator the powers of the directors ceased, except as otherwise specified. 58 Section 513B provided that, subject to certain provisions which were not applicable, where a company resolved by special resolution to wind up voluntarily, the winding up was taken to have commenced on the day on which the resolution was passed. 59 The effect of these provisions, and of earlier legislation including the provisions of Division 3 of Part X of the Uniform Companies Act 1961, may be sufficiently summarised in the following propositions. 60 First, subject to the special resolution being validly passed, a voluntary winding up commences on the day on which the resolution was passed; In re West Cumberland Iron and Steel Company (1889) 40 Ch D 361; B M McPherson, The Law of Company Liquidation, 3rd ed, 1987, Law Book Company, Sydney, p 161. 61 Second, the failure to lodge the special resolution with the Commission or to publish it in the Gazette does not affect the commencement of the winding up; see Australian Corporations Law Principles & Practice, Butterworths, Sydney, Vol 2, [55.0020], at [55,106]. Failure to lodge the resolution or to publish it merely attracts penalties; see also R Pennington, Pennington's Corporate Insolvency Law, 2nd ed, Butterworths, Sydney, 1997, p 88. 62 Third, once a valid resolution for the winding up of the company has been passed, it must appoint a liquidator but it may do so at the same meeting at which the resolution was passed or at a later meeting; see In re Indian Zoedone Company (1884) 26 Ch D 70 at 76-77, 80; In re Trench Tubeless Tyre Company (1900) 1 Ch 408 at 410. 63 It follows that if the members of Bellhop did in fact pass the special resolution on 10 September 1999 the winding up commenced on that date. The commencement of the winding up would not have been affected by the failure to appoint a liquidator or to give the requisite statutory notices. 64 However, it does not follow that the learned Chief Federal Magistrate's discretion miscarried. This is because I would need to be satisfied that there are substantial reasons for questioning the finding that Bellhop was wound up by order of the Court on 3 November 1999. 65 I am not satisfied that substantial reasons exist. Indeed, in my view there are no such reasons because the evidence which was put before her Honour on that question was inconsistent with the basis upon which the proceedings had been conducted before the Court of Appeal and before Gray J and is tainted by the alteration appearing on the face of the document. 66 It is true that the appellant is a litigant in person but there can be no doubt that he was aware of the significance of the date of the winding up of Bellhop in the statutory scheme which gave rise to his personal liability under the ITAA. As I said earlier, in the Court of Appeal and before Gray J he contended that two of the notices were ineffective because they were served less than 14 days before the winding up of Bellhop on 3 November 1999. 67 For ease of reference I attach a photocopy of what was said before the Chief Federal Magistrate to be the resolution. It is clear that the date has been altered. It is unnecessary, and probably inappropriate, for me to make a finding as to the date from which the alteration was made although, as I said earlier, it appears to have been altered from 10 November 1999 to 10 September 1999. 68 I have looked at the original exhibit in the file in the Federal Magistrate's Court. The exhibit was itself a photocopy document and accordingly does not assist in resolving this issue. 69 There was also in evidence before the Chief Federal Magistrate a photocopy of a letter signed by the appellant and addressed to Bellhop's accountants. It is impossible to read the date of the letter or the date of a received stamp which appears on it. Reference to the original exhibit does not assist. ATTACHMENT

70 The letter states:- "It is with regret that we advise that last Friday, 10 September it was resolved to voluntarily withdraw from all business and commence winding up." 71 The appellant put before the Court on this appeal a photocopy letter to the Australian Securities and Investment Commission ("ASIC") apparently bearing a date in September 1999 stating that at an extraordinary meeting held on 10 September 1999 it was resolved to wind up Bellhop. This document does not seem to have been in evidence before the Chief Federal Magistrate. Even if it was, it would have made no difference to the conclusion I have reached. 72 It seems to me that in view of the history of the proceedings nothing less than a resolution proved to have been minuted and kept in accordance with the provisions of s 258 of the Corporations Law (see now s 251A of the Corporations Act 2001 (Cth)) was required to be put before the Chief Federal Magistrate to make good the proposition that the resolution was passed on 10 September 1999. I do not consider that the photocopy letter to ASIC referring to a resolution said to have been passed on that date was sufficient. Nor were the other photocopy documents which were in evidence before the Chief Federal Magistrate. 73 It is true that the resolution was admitted into evidence before the Chief Federal Magistrate, apparently without objection being taken. However, I do not consider that this was sufficient for it to be prima facie evidence of the proceeding under s 258(2) of the Corporations Law. Nor do I consider that the deeming effect referred to in s 258(3) occurred. 74 I hold this view because s 258(2) provided that a minute is prima facie evidence if it is "so entered", that is to say, if it was entered in accordance with s 258(1)(a). 75 Section 258(1)(a) of the Corporations Law provided that:- "A company shall: (a) cause minutes of all proceedings of general meetings and of meetings of its directors to be entered, within 1 month after the relevant meeting is held, in books kept for that purpose; …" 76 There was no evidence put before the Chief Federal Magistrate that the company kept minute books for the purpose of entry of minutes in them or that the minute of the relevant resolution was entered in such books within the period stipulated in s 258(1)(a). 77 Ordinarily, favourable inferences might be drawn as to these matters and the question may be left for cross-examination of the witness. However, here the appellant asks us to find that, notwithstanding the position he took before the Court of Appeal and Gray J, namely that Bellhop was wound up by Court order on 3 November 1999, a document not proved to have been made or entered in accordance with the formalities required by the law, constitutes evidence that Bellhop was wound up voluntarily at an earlier date. 78 In those circumstances it would be wrong to find that a failure to accept and act upon the documents put before Her Honour constituted a miscarriage of the Chief Federal Magistrate's discretion. Whether the appeal from the Chief Federal Magistrate was abandoned or is incompetent 79 The respondent's notice of motion seeks a declaration that the appeal from the decision of Gray J is deemed to have been abandoned under s 60(3) of the Act or alternatively an order that the appeal be dismissed as incompetent. 80 No such orders are sought in respect of the appeal against the sequestration order made by the Chief Federal Magistrate. 81 In view of the conclusion I have reached that the appeal against the decision of Gray J must be dismissed, it is unnecessary for me to consider the motion Orders 82 The orders I would make are that in each of matters V1037 of 2003 and V118 of 2004, the appeal be dismissed. The appropriate order in each appeal is that the respondent's costs of the appeal be paid out of the bankrupt estate of Walter Joossé in accordance with s 109(1)(a) of the Bankruptcy Act; see Guss v Johnstone [2002] FCA 1584; Stankiewicz v Plata [2000] FCA 1185. I certify that the preceding seventy-four (74) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Solicitor for the Respondent: Australian Government Solicitor