Piccinin v Deputy Commissioner of Taxation

Federal Court of Australia (Full Court)|2002-09-04|Before: French J, Black CJ, Moore JJ

REASONS FOR JUDGMENT 1 This is an appeal from a judgment of French J given on 7 September 2001. His Honour made a sequestration order against the estates of Neil and Jeanny Piccinin (the "appellants") on a petition issued by the Deputy Commissioner of Taxation for the Commonwealth of Australia (the "DCT"), and against objections lodged by the appellants. His Honour's reasons are published: see Deputy Commissioner of Taxation, in the Matter of Piccinin v Piccinin [2001] FCA 1609.

(a) Act of bankruptcy 2 The DCT filed a creditors' petition for a sequestration order against the estate of the appellants in this Court on 4 April 2001. The petition recited that the appellants owed the DCT the amount of $17, 453.37 pursuant to judgments given by the Local Court of Western Australia ("Local Court") on 28 August 1998 and 30 October 1998; that the DCT did not hold security over the property of the appellants; and that the appellants had each failed on or before 6 February 2001 to comply with the requirements of the bankruptcy notices served on them on 16 January 2001, or to satisfy the Court that they had a complying counter-claim, set-off or cross-demand equal to or exceeding the sum specified in the bankruptcy notice. 3 The DCT also filed an affidavit deposing to the acts of bankruptcy set out in the creditor's petition. The judgment obtained in the Local Court was based upon notices of penalties issued by the DCT in relation to unpaid group tax connected with the administration by the appellants of companies of which they were directors.

(b) Proceedings in the High Court 4 On 2 November 1998, the DCT commenced proceedings in the Supreme Court of Western Australia to wind up the companies of which the appellants were directors. In February 1999, the companies filed in the High Court and served on the DCT notices of motion to remove the winding-up applications to the High Court pursuant to s 40 of the Judiciary Act 1903 (Cth) ("Judiciary Act"). On 5 March 1999, a Master of the Supreme Court of Western Australia ordered that the companies be wound up in insolvency. Despite the fact that the liquidator of the companies, appointed as a result of the winding-up order, did not consent to the prosecution of the removal applications, the appellants continued to pursue those applications on behalf of the companies until they were discontinued on 27 September 1999.

(c) Stay of execution of Local Court judgments 5 On 26 November 1998, the appellants applied for orders to set aside the summary judgments of the Local Court. On 16 December 1998, the appellants obtained an interim stay of the warrants of execution that had been issued by the DCT against the appellants. On 4 January 1999 orders were made by consent adjourning the appellants' applications to set aside judgment and extending the stay of execution in relation to each of the Local Court actions. These orders were made on the basis of an undertaking given by the appellants to be bound by the outcome of the application to the High Court. After the proceedings in the High Court were discontinued, orders were made in each of the Local Court actions lifting the stay of execution and dismissing the appellants' applications to set aside judgment. This happened on 21 December 1999.

ARGUMENTS against the creditor's petition 6 Section 52 of the Bankruptcy Act 1966 (Cth) ("Bankruptcy Act") provides: "Proceedings and order on creditor's petition (1) At the hearing of a creditor's petition, the Court shall require proof of: (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient); (b) service of the petition; and (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. … (2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: (a) that he or she is able to pay his or her debts; or (b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition." 7 The appellants do not, and have not, put any of the matters in s 52(1) in issue, nor have they sought to demonstrate their ability to pay their debts. Rather, the appellants have argued at first instance and on appeal that the steps that the DCT has taken to recover the debts owed to it by the appellants have been flawed and beyond power for various reasons. It is convenient to set out the appellants' submissions broadly in the order that they have emerged in the proceedings.

(a) Grounds for opposition to creditor's petition 8 On 10 May 2001 the appellants filed a document entitled "Affidavit in Opposition to Bankruptcy Petition". The substantive grounds of opposition to the petition set out in that affidavit were, in summary: (a) That it is "contrary to the provisions provided by Parliament to provide the Commissioner of Taxation with authority to delegate officers to act in the capacity of the Commissioner to prosecute but did not give power of delegation to institute action to the Deputy under s.8(1) of the Tax Administration Act and section 34Abb of the Acts Interpretation Act." (b) That the Master of the Supreme Court of Western Australia should not have made the order winding up the companies of which the appellants were directors prior to the determination of the appellants' application for removal to the High Court. In acting while that High Court application was undetermined, the Master acted "illegally, both in law and in process" and exceeded his powers. (c) That the DCT, by seeking indemnity costs against the solicitor and barrister appearing for the appellants in their application to the High Court, used "its power, influence and unlimited funds to force us to capitulate and thereby den[ied] ourselves natural justice." (d) That the Local Court should not have proceeded to enter judgment against the appellants because the submissions in their defence raised constitutional issues within the "sole and exclusive" jurisdiction of the High Court. (e) That the commissions issued to judges and magistrates of the Local Court under letters patent from the Governor of Western Australia are contrary to federal law because issued by authority of a 'foreign power', the Queen of the United Kingdom of Great Britain and Northern Ireland. (f) That the incorporation of the Australian Taxation Office was invalid and a nullity because of conflict between the provisions of "the Commonwealth and State legislation." (g) That if the Court makes the order for sequestration of the appellants' estate, the effect would be to preclude the appellants taking (unspecified) actions before the expiry of relevant statutory limitation periods.

(b) Application for removal of the creditor's petition to the High Court 9 On 15 June 2001, the appellants filed a notice of a constitutional matter, stating that they intended to move the Federal Court for an order that the proceedings in this Court be removed to the High Court under s 40 of the Judiciary Act on the ground that the matters to be dealt with in the appellants submissions arose under the Constitution or involved its interpretation. The notice proceeded to describe the nature of those matters. In summary, they were that the Governor-General of the Commonwealth and the Governor of Western Australia are appointed under prerogative power of the Queen of the United Kingdom of Great Britain and Northern Ireland, and it followed, the appellants argued, that Commonwealth officials are appointed under the executive power of the United Kingdom of Great Britain and Northern Ireland, contrary to the provisions of the Australia Act 1986 (Cth). The appellants also stated that they would seek a hearing of these matters "before a Court where the appointments of the Judges are not dependent upon the issues which are in question."

(c) Submissions at first instance 10 It is apparent from the other papers filed by the appellants before the return of the creditor's petition on 7 September 2001, and from the reasons for judgment of French J published that day, that the appellants continued to maintain the grounds set out in their notice of opposition.

REASONS FOR THE JUDGMENT APPEALED FROM 11 After hearing the appellants on 7 September 2001, French J delivered an ex tempore judgment, and made orders granting the sequestration order sought by the DCT. His Honour identified two issues directed to the validity of the judgment in the Local Court. The first was the validity of the appointments of Western Australian judges and magistrates. His Honour said: "There is no substance in the validity of appointment question. It was adverted to recently by Hayne J in the High Court in the matter of Miller v Chapman, M31/2001, an ex tempore judgment which was given on 18 July 2001. His Honour there observed, in response to a similar argument, that the complaint about invalidity of judicial appointments was without foundation: 'The Constitutions of the States, in accordance with which judicial appointments are made, were continued by operation of section 106 of the Commonwealth Constitution and the complaints now made seek to challenge steps taken by the constitutional monarch of Australia under those State Constitutions.'" 12 The second issue identified by French J concerned the authority of the relevant officers of the Commissioner to issue the penalty notices which grounded the judgments given in the Local Court. His Honour noted that the appellants did not bring any evidence to establish that there was a break in the chain of authority. His Honour said: "… to agitate that issue in this Court involves going behind the judgment and, in my opinion, the Court ought not to do that and more particularly, ought not to do that on a mere speculation that there is some break, as yet unascertained, in the authority to issue the relevant notices."

NOTICE OF APPEAL 13 The notice of appeal filed by the appellants on 28 September 2001 includes the following grounds: "2a That the Judgment for the debt is before the Local Court is before the Local Court [sic] for review and therefore is not a valid ground upon which to base a Sequestration Order. 2b That the question of Judgment of the Local Court, where the validity of penalties has been raised, was not determined. That the issue is central to the matter, where there was no head of power to judgment sought by the applicant, as the initiation of the action by an officer of the ATO was unlawful. 2c That there is no locus standi for the person claiming right of petition in that they have not been appointed to the position in accordance with Section 67 of the Constitution."

THE APPEAL PROCEEDINGS 14 The appeal was listed for hearing on 8 March 2002 in Perth. On 7 March 2002, the appellants filed a notice of motion seeking "written determination to questions put to the court to consider as outlined". These questions were: "The Deputy Commissioner of Taxation for the Commonwealth of Australia brought the action before this court. The penalties sought are payable to the Commonwealth. Section 75(iii) of the Commonwealth Constitution states that the ORIGINAL JURISDICTION OF THE HIGH COURT are 'In all matters in which the Commonwealth, or a person suing or being sued on behalf of the Commonwealth, is a party.' (a) Was the hearing and subsequent decision by [French J at first instance] in the light of S75(iii) of the Constitution, lawful or unlawful? (b) Was the said hearing and subsequent decision, in light of S38(c) and 44(2) of the Judiciary Act 1903, lawful or unlawful?" 15 The notice of motion also sought an order that these constitutional questions be removed to the High Court for determination. 16 The appellants sought an extension of time in which to lodge their appeal books.

WRITTEN SUBMISSIONS FILED IN THE APPEAL 17 On 8 March 2002 the appellants filed written submissions. The submissions addressed two points. The first was an allegation that the proceedings at first instance had been conducted "in violation of due process and authority vested in the presiding senior officer of the court". The basis for this allegation is described in the written submissions: "I understood from Justice French that I would present my submission in total, whereafter opposing counsel would argue their submission, whereafter I may then be given the opportunity to counter the submission of opposing counsel. This, I believe, was necessary as I had matters of fundamental importance to the case contained in the affidavit filed with the court that morning, the 7th September 2001, that required consideration by all parties. That Justice French did not allow the opposing counsel to argue their case at all and oppose the matters contained in my affidavit lodged that morning, whereas Justice French took it upon himself to prosecute and arbitrate the matter by myself at the trial by denying opposing counsel to argue the case .." 18 The appellants' written submissions were that, in deciding not to hear from counsel appearing for the DCT at the hearing of the creditors petition, French J had: (a) "violated the principle set out in the 'Separation of Powers Doctrine'"; (b) rendered his decision "ultra vires and unconstitutional in so far as he would treat the Deputy Commissioner of Taxation unlike any other creditor and is deemed to be discriminative by nature, and violate the Constitution."; and, in giving judgment in favour of the DCT, (c) "resulted in the gagging of my right to be heard" and "blocking my access to the court actively sought by the ATO." 19 The appellants also repeated their complaint that the judgment in the Local Court went beyond power because the Local Court had not referred the matters to the High Court, so that the DCT could there apply for the matters to be remitted to the Local Court for trial, pursuant to s 44(2) of the Judiciary Act. This submission was said to be grounded in s 75(iii) of the Constitution and s 38(c) of the Judiciary Act.

FURTHER WRITTEN SUBMISSIONS FILED IN THE APPEAL 20 When the appeal came on for hearing on 8 March 2002, the Court, having heard from the appellants, made orders for the Registrar to prepare the appeal book, and for the appellant and respondent to file further written submissions on the footing that the Court would proceed to determine the appeal having regard to what the parties had submitted orally and what was put in written submissions. 21 On 3 May 2002, the appellants filed further written submissions in support of their contention that the Federal Court has no valid authority in these proceedings. The appellants submitted that because the DCT is a person suing on behalf of the Commonwealth the High Court has original jurisdiction in the matter under s 75(iii), and further, that the jurisdiction of the High Court is exclusive by operation of s 38(c) of the Judiciary Act. They also submitted that the Federal Court has no power to hear challenges to the Local Court judgment and the Supreme Court orders for winding-up of the companies because they are courts of a foreign power (namely, the Queen of the United Kingdom of Great Britain and Northern Ireland).

RESPONDENT'S SUBMISSIONS 22 In his written submissions, Mr Jenshel of counsel for the DCT has dealt succinctly with the appeal grounds and it is convenient to set out what he has said as follows: (a) In relation to appeal ground 2(a), the judgments of the Local Court have not been appealed, and the appellants' application to set them aside had been dismissed before the matter was heard by French J. Further, he submits that there is no reason why the Local Court judgments could not form the basis of a bankruptcy notice even though the appellants' second application to set the judgments aside was pending, because there was no stay of the judgments. (b) In relation to appeal ground 2(b), it is not appropriate to look behind the Local Court judgments in the present case where the appellant has not taken any appropriate action to challenge the Local Court's judgment. In any event, it is well established that the Deputy Commissioner of Taxation may authorise officers to exercise his powers and functions in his name and on his behalf. (c) In relation to appeal ground 2(c), the DCT is merely exercising its rights as a creditor, and in accordance with its statutory duty to pursue debts owed to the Commonwealth. 23 In subsequent written submissions, Mr Jenshel dealt with the further matters raised by the appellants' 7 March 2002 notice of motion and their written submissions. He noted that these submissions fall outside the scope of the notice of appeal. He noted that s 38(c) does not make the High Court's jurisdiction exclusive in this case, and that s 39B confers original jurisdiction on the Federal Court in this matter, which is commenced pursuant to the Bankruptcy Act. He submitted that the appellants' argument that the Federal Court cannot hear a challenge to the judgments of the Western Australian courts proceeds from a failure to appreciate that the Queen of the United Kingdom of Great Britain and Northern Ireland is relevantly a separate and distinct constitutional entity from the Queen of Australia.

CONCLUSION ON APPEAL 24 We thought it desirable to set out the background to this appeal in some detail. 25 The grounds set out in the notice of appeal do not allege any error on the part of French J in the judgment appealed from. In so far as the first two grounds of appeal re-agitate the issues going to validity of the appointment of Western Australian judges and magistrates, and to the validity of the delegation of the DCT's authority, we can see no error in his Honour's reasons for dismissing those complaints at first instance. We also accept Mr Jenshel's submissions in relation to the grounds of appeal. In particular, we accept that the Local Court judgments could form the basis of a bankruptcy notice even though the appellants' application to set them aside was pending, where there was no stay: Bankruptcy Act, s 40(3)(b) and (d); and that the DCT may authorise officers to exercise his powers and functions in his or her name and on his or her behalf: O'Reilly v Commissioner of the State Bank of Western Australia (1983) 153 CLR 1. 26 We also accept Mr Jenshel's submissions in relation to the third ground of appeal. We observe that the appellants' reference to s 67 of the Constitution does nothing to advance their argument. Section 67 of the Constitution says: "Until the Parliament otherwise provides, the appointment and removal of all other officers of the Executive Government of the Commonwealth shall be vested in the Governor-General in Council, unless the appointment is delegated by the Governor-General in Council or by a law of the Commonwealth to some other authority." 27 We turn now to the further matters raised by the appellants. These are matters that, strictly speaking, fall outside the scope of the notice of appeal but in the circumstances it is desirable that we deal with them nevertheless. The first issue involves an allegation of failure by French J to provide procedural fairness. We have read the transcript of the hearing, and we cannot see how French J's decision not to hear from Mr Jenshel for the DCT could possibly be said to have caused prejudice to the appellants. The course adopted by the learned judge is one that it is open to a judge to adopt where a party has not raised matters that the judge considers require answering submissions. The course adopted by his Honour is very well established. Nor can we see how proceeding on that basis is 'discriminatory' or offends the separation of powers doctrine. It was for the appellants to make out an available ground for objection to the creditor's petition. The transcript shows that French J gave the appellants every opportunity to present their case. 28 The final matter concerns the power of this Court in these proceedings. The proceedings are brought under the Bankruptcy Act, and it is beyond question that the Court has jurisdiction: Bankruptcy Act, s 27(1), and see also Judiciary Act, s 39B(1A)(c). Contrary to the appellants' submissions, the High Court's jurisdiction in this matter is not made exclusive by s 38(c) of the Judiciary Act, because the appellants are neither "a State" nor "persons sued on behalf of a State." It is clear enough that the appellants have shown no ground for challenge to the Local Court (or for that matter Supreme Court) judgments. The appellants' argument that this Court does not have power to hear such a challenge fails because the Western Australian courts are not courts of a foreign power. The authority by which judicial appointments in Western Australia are made is that of the Queen of Australia, who is relevantly a different constitutional entity to the Queen of the United Kingdom of Great Britain and Northern Ireland: see Australia Act 1986 (Cth), ss 7 and 10; Constitution, s 107. 29 We note that the appellants have made allegations about the DCT's conduct in this and related litigation. No more has been shown than that the DCT has maintained an application to recover sums owed to the Commonwealth, as it is both authorised and obliged to do: see Income Tax Assessment Act 1936 (Cth), ss 208, 209; Financial Management and Accountability Act 1997 (Cth), s 47. 30 The applicants applied to this Court for an order removing the proceedings to the High Court pursuant to s 40 of the Judiciary Act. It is clear, however, that the power to remove proceedings to the High Court on application is exercisable only by the High Court itself. We have already indicated that there is no merit in the constitutional arguments advanced by the appellants. 31 It follows that the appeal must be dismissed, with costs. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court

Associate: Dated: 4 September 2002 Counsel for the Appellant: The first appellant appeared in person for the appellants

Solicitor for the Respondent: Australian Government Solicitor

Financial Management and Accountability Act 1997(Cth)

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