Nugawela v Commissioner of Taxation

Federal Court of Australia|2018-09-26|Before: Colvin J

The application by the first respondent for summary dismissal be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

COLVIN J: 1 Dr Nugawela has brought an appeal against a decision of the Administrative Appeals Tribunal dismissing six applications brought by him to review decisions by the Commissioner of Taxation as to objections to tax assessments. Dr Nugawela is a bankrupt. The Commissioner says that by reason of his bankruptcy, Dr Nugawela has no standing to bring the appeal and seeks orders for its summary dismissal. For the following reasons, the Commissioner's application should be dismissed.

Chronology of events 2 Dr Nugawela brought six applications in the Tribunal to review decisions made by the Commissioner concerning objections to tax assessments for the years 2005 to 2010. 3 A sequestration order in respect of Dr Nugawela's estate was made on 21 February 2017. The sequestration order was stayed for a period of time, but the stay came to an end on 19 June 2017. 4 On 9 August 2017, solicitors for the Commissioner wrote to Dr Nugawela's trustee in bankruptcy providing formal notification for the purposes of s 60(3) of the Bankruptcy Act 1966 (Cth) in respect of three of the applications in the Tribunal. Under that provision, if a trustee does not elect within 28 days of such a notice to prosecute or discontinue an action commenced by a person who subsequently becomes bankrupt then the trustee is deemed to have abandoned the action. 5 On 1 September 2017, the trustee informed the Commissioner that his then current intention was to allow the 28 day period to expire and for 'the matter deemed abandoned pursuant to s60(3)'. 6 On 2 October 2017, the solicitors for the Commissioner provided formal notification for the purposes of s 60(3) concerning the trustee's position in relation to the remaining three applications in the Tribunal. 7 No election was made by the trustee to proceed with the applications. 8 Thereafter, the Commissioner made application to the Tribunal for dismissal of the applications. Dr Nugawela opposed the application. 9 On 12 March 2018 the applications were dismissed.

The Tribunal's reasons 10 The Tribunal found that the six applications had been deemed to be abandoned, they were frivolous or vexatious in a technical sense and they should be dismissed under s 42B(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (which confers upon the Tribunal a power to dismiss an application if it is so satisfied) (para 57). The Tribunal also found that Dr Nugawela no longer had locus standi to prosecute the applications and that was a further basis upon which they should be dismissed (para 58). 11 The deemed abandonment of proceedings effected by s 60(3) does not mean, of itself, that proceedings should be dismissed. It is a separate question in any particular case whether there ought to be a dismissal and what order as to costs may be made consequent upon the abandonment effected by the statute: State of Queensland v Beames [2003] QSC 399; [2004] 2 Qd R 99. There could be an application to dismiss the proceedings for want of prosecution consequent upon the deemed abandonment: Cole v Challenge Bank Limited [2002] FCAFC 200 at [16]. However, whether any such application might be acceded to will depend upon all relevant considerations presented at the time of the application.

Dr Nugawela's appeal 12 On 9 April 2018, Dr Nugawela commenced an appeal in this Court in respect of the Tribunal's decision to dismiss the applications. The Commissioner brought an application for summary dismissal. 13 At a case management hearing on 30 May 2018, I made orders listing the application for hearing on 4 September 2018 and directed Dr Nugawela to file and serve any affidavit or submissions upon which he proposed to rely at the hearing by 17 August 2018. I also gave liberty to Dr Nugawela to apply to vacate the hearing for cause at any time prior to 9 July 2018. I further directed that the hearing of the matter may proceed in the absence of Dr Nugawela if there is no appearance by him on 4 September 2018. 14 Orders were made in those terms because in May 2018 the Court had received a number of communications on behalf of Dr Nugawela concerning his medical treatment and his inability to attend court. He was not in attendance when the orders were made, but subsequently a copy of the orders was served upon him by the Commissioner. 15 In July and September 2018 further correspondence was received by the Court on behalf of Dr Nugawela requesting that the hearing listed on 4 September 2018 be vacated on the basis that he was undergoing medical treatment. He was informed that in the absence of a formal application supported by an affidavit the hearing would proceed. 16 On 4 September 2018, there was no appearance by Dr Nugawela. The Commissioner sought to proceed with the application and have it dealt with substantively. I heard oral submissions in support of the application.

Basis for application for summary dismissal 17 The basis for the Commissioner's application for summary dismissal is a claim that by reason of his bankruptcy, Dr Nugawela lacked standing to proceed with the applications before the Tribunal and continues to lack standing to start and prosecute an appeal against the dismissal of those applications. Reliance is not placed upon the consequences of any deemed abandonment by operation of s 60(3) of the Bankruptcy Act. 18 Therefore, given the way the Commissioner presents the case on the application it is not necessary to consider the relevance of the statutory abandonment as a basis for the dismissal of the proceedings by the Tribunal. The Commissioner's application for summary dismissal rests upon the claim that Dr Nugawela lacks standing as a bankrupt to bring the appeal given its subject matter. In effect, it advances the same argument that it relied upon before the Tribunal being an argument that was accepted by the Tribunal as a separate basis upon which the applications before the Tribunal should be dismissed. 19 In reaching its conclusions as to standing, the Tribunal relied upon the decision in Robertson Jnr v Deputy Commissioner of Taxation [2004] FCAFC 46; (2004) 137 FCR 513 which applied the decisions in Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124 and McCallum v Federal Commissioner of Taxation (1997) 75 FCR 458. The same decisions are relied upon by the Commissioner on the present application. 20 In Cummings, proceedings were brought against Mr Cummings and Mr Fuller by Claremont Petroleum NL. After judgment was reserved, Mr Cummings and Mr Fuller became bankrupts. Sometime later, judgment was pronounced in favour of Claremont Petroleum. Mr Cummings and Mr Fuller filed notices of appeal. The appeals were dismissed as incompetent. The High Court held that the bankrupts had no standing to institute the appeals. 21 Brennan CJ, Gaudron J and McHugh J observed that if the appeals had been commenced prior to their bankruptcy then they would have been stayed by operation of s 60(2) of the Bankruptcy Act: at 130. They noted that the effect of bankruptcy is to divest a bankrupt of his property and to vest the property in a trustee to be made available for the payment of provable debts: at 132. Further, the right of creditors to take a fresh step in legal proceedings against a bankrupt or enforce against the property of a bankrupt in respect of a provable debt is, in general, denied to creditors: at 132. They accepted that a right to appeal does not have the character of property: at 133-136. However, 'so far as a judgment entered in an action against a bankrupt creates or evidences a provable debt … the bankrupt has no financial interest which would confer locus standi to appeal in his own name against the judgment': at 137-138. This was because 'the bankrupt is divested of both his interest in his property and liability for his provable debts': at 138. This led to the conclusion that the bankrupt could not appeal and it was a matter for the trustee whether to appeal: at 138. 22 Their honours then dealt with the possible injustice that may arise where a bankrupt wished to pursue the appeal in order to vindicate the personal or professional character of the bankrupt (the judgment that had been entered against Mr Cummings and Mr Fuller was based upon findings of conspiracy and deceit). Reference was made to the ability of a bankrupt who objected to a decision made by a trustee to decline to sue or appeal to apply to the court in the exercise of its supervisory jurisdiction concerning administration in bankruptcy now expressed in s 178 of the Bankruptcy Act. However, that step had not been taken. 23 I note that before the Tribunal in the present case, the Commissioner referred to the fact that Dr Nugawela had commenced proceedings in the Federal Court (WAD 528 of 2017) to review the decision of the trustee to abandon the applications in the Tribunal. It does appear that Dr Nugawela relied upon that application as a reason why the application should be adjourned or held in abeyance while various other court proceedings are determined. The Tribunal did not consider that aspect in reaching its decision. 24 In McCallum, Lehane J (Whitlam J agreeing) found that a bankrupt was likely to lack standing to seek review of a decision by the Commissioner rejecting an objection because the subject matter of the objection would be a provable debt in the bankruptcy. However, as it may be that an objection decision in relation to a particular assessment may have consequences in relation to the years following discharge when there would be personal liability, the position did not pertain in all instances: at 475. 25 There is no suggestion that the nature of the assessments in this case had any consequence that might apply after the discharge of Dr Nugawela from bankruptcy. No proposition to that effect was advanced by Dr Nugawela in the submissions recorded by the Tribunal in its reasons. 26 In Robertson Jnr, the party seeking to bring the appeal applied to the Tribunal to review the objection decisions of the Commissioner, but became bankrupt before the review application was heard. The Commissioner then raised an objection and the Tribunal found that standing to proceed was lost upon bankruptcy: at [3]. The court upheld that decision applying Cummings and McCallum: at [22].

Reasons for dismissing Commissioner's application 27 The Tribunal was correct to find that Dr Nugawela lacked standing to proceed with his applications for review. The same authorities as those relied upon by the Tribunal in reaching that conclusion demonstrate that he has no standing to appeal the dismissal of the applications insofar as that decision concerned his ability to advance the applications. 28 However, there was a separate basis upon which dismissal was opposed by Dr Nugawela before the Tribunal. It was the contention that the applications should be adjourned or held in abeyance pending the determination of his application concerning the decision of the trustee to take no action in respect of the applications. 29 As to this issue, I note that one of the appeal grounds raised by Dr Nugawela is expressed in the following terms: Jurisdictional error in dismissing six applications when there was an appeal against a Trustee Review on foot in the Federal Court to determine the Trustee elections under s 60(3) of the Bankruptcy Act 1966 (Cth). 30 In the context of the matters presented to the Tribunal, I take this ground to raise a claim that the Tribunal ought to have declined to dismiss the proceedings because of the pending application to the Federal Court to review the decision of the trustee. This is a matter that was not considered by the Tribunal. In effect, the complaint is that the Tribunal dismissed the applications without considering part of the case presented to the Tribunal. In those circumstances, it is a ground that could not be said to lack merit. 31 Although Dr Nugawela lacked standing to proceed with the applications for review, it is reasonably arguable that he had standing to seek an adjournment of the applications before the Tribunal pending the outcome of his application in the Federal Court seeking to review the decision of the trustee, in effect, to abandon those applications by taking no steps to prosecute them. The pursuit of such a course was one that was recognised in Cummings as part of the reasoning as to why there was no standing on the part of a bankrupt. In effect, the conclusion that a bankrupt could not appeal a decision because that right was entrusted in the trustee where it concerned a provable debt was supported by the availability of a right to object to the decision of the trustee and to bring that objection to the court. 32 It would appear to be reasonably arguable that the interest in preserving the subject matter of the objection to the trustee's decision would provide sufficient standing for Dr Nugawela to seek the adjournment. 33 But for that matter, I would have upheld the Commissioner's application. The cases relied upon by the Tribunal demonstrate that a bankrupt has no standing to bring an appeal where the subject matter of the decision was taxation liabilities provable in the bankruptcy and the liabilities are not of a character that they may affect the ongoing tax position of Dr Nugawela after he was discharged from bankruptcy. Therefore, to the extent that the appeal seeks to challenge those aspects of the decision by the Tribunal, Dr Nugawela does not have standing. However, the Commissioner brought the application on the basis that the whole of the appeal should be summarily dismissed. 34 For the reasons I have given, the application for summary dismissal of the appeal should be dismissed. The matter should be listed for a case management hearing so that directions can be made for the appeal to be heard. At that time consideration will be given as to which particular appeal grounds should be struck out in light of these reasons. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.

Bankruptcy Act 1966(Cth)ss 60(3), 178

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