Re Briggs, P. v. Ex parte Briggs, P. & Anor [1986] FCA 512

GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA

1. The application to set aside the bankruptcy notice issued on

2. The time for compliance with the bankruptcy notice be

3. There be liberty to each party to apply for relisting of the

application on 3 days written notice to the other party.

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Ehe hearing be reserved. settlement and entry of orders

GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA

This is an application to set aside a bankruptcy notice issued against the applicant on 6 October 1986. The time for complying with the notice has been extended pending a decision by

The bankruptcy notice calls on the applicant to pay the sum of $1,048,179.82 due under a judgment of the Supreme Court of Western Australia on 24 January 1986. That judgment was in respect of income tax, additional tax and penalty tax arising from notices of amended assessment of income tax for the years ended 30

June 1976, 1977 and 1978 and notices of assessment of income tax

respect of the motlees fF amended assessment and notices of assessment mentloned in Che preceding paradraph:; were the subject of obiectrons lodged by the applicant under the provisions of the

Income Tax Assessment Act 1936 i"the Income Tax Act"). Those

objections were disallowed and the applicant asked the Commissioner of Taxation to treat each objection as an appeal and to forward 1t to the Supreme Court of Western Australia in

accordance with the provisions of Pt V of the Income Tax Act. As

There is a further stream of litigation to be mentioned and 1t arises in this wav. On 29 April 1986 the applicant beqan proceedings in the New South Wales District Registry of the Federal Court, seeking writs of mandamus and prohibition against the Deputy Commissioner of Taxation for the state of Western Australia and against three officers of the Australian Taxation Office in that state. The application called upon the respondents to show cause why mandamus and prohibition should not issue in respect of decisions taken to issue the assessments. In the grounds of application the decisions are attacked as being in excess of power, as an abuse of power or made in bad faith or for a@ purpose not authorised by the Act, as denying natural justice to the applicant. as taking into account irrelevant matters and failing to take into account relevant matters, as unreasonable, as

contrary to law and as vitiated bv fraud. The grounds echo the

lanquage of the Administrative Decisions «Judicial Review: Act

1977 though the form of the application evidences an intention Eto relv upon s.39B of the Judiciary Act 1963.

I return now to the application itself to consider the scope of the Court's power in regard to the setting aside of a

The Bankruptcy Act 1966 does not expressly confer power

on the Court to set aside a bankruptcy notice. But I am content to adopt the views expressed by Lockhart J. in Re Sterling; Ex parte Esanda Ltd. (1979) 44 F.L.R. 125 in which his Honour held

the power to derive from at least two sources - sub-s.30(1) of the

Bankruptey Act, which gives the Court power to decide all

questions coming within its cognisance and to make orders necessary for carrying out or giving effect to the Act, and the principle that a power conferred by parliament carries with it the power necessary for its performance or execution, 50 that the express power to extend time for compliance with the requirements of a bankruptcy notice, when an application to set it aside "has

been filed, carries with it the power to set aside the bankruptcy notice itself. On the matter of necessary powers, I would refer

also to Parsons v. Martin (1984) 58 A.L.R. 395 at 401.

As to the qrounds upon which a bankruptcy notice may be set aside, there is at least a starting point in para.40(1)(g) of

the Act. That paragraph identifies as anact of bankruptcy

failure to comply with a notice or <¢atisfv the Court that the debtor "has a counter-claim, set-off or cross demand equal to or excéeains the amount of the iudament debt or sum pavable under the final order, as the case may be. being a counter-claim, set-off or cross demand that he could not have set up in the action or proceedina in which the judament or order was obtained". Is that the only ground? The cases suaqgest not though none attempts to define with any precision other relevant circumstances. In Re Sterling at 129 Lockhart J. mentioned some of the grounds on which

"Instances of the exercise of this power are where the notice is not in accordance with the terms of the judament and is calculated to perplex the debtor; the notice is issued for the whole of a judgment debt, yet the judqment debtor has paid into court in part satisfaction of the debt; in truth no debt lies behind the judament ... and the sum of which payment is required by the terms of a notice has in fact been paid by the debtor".

Counsel for the applicant arqued for some general principle of fairness, according to which a bankruptcy notice will be set aside if in some way the notice is unfair to the debtor. I do not accept the existence of such a principle. There is nothing in the Bankruptcy Act to justify it and no authority to support it. It seems to me that, however formulated, the grounds upon which a bankruptcy notice may be set aside must relate to the form or content of the notice itself, service of the notice or the existence of the debt upon which the judgment and in turn the

notice is founded. Having regard to the language of

para.4u(li(a), reference to the existence of a debt must include the existence of a counter-claim, set-off or cross demand equal to

A court hearing an application to set aside a bankruptcy notice is not hearing a petition for sequestration and the provisions of sub-s.52(2), whereby a court may dismiss a petition if satisfied that the debtor is able to pay his debts or that for other sufficient cause a sequestration order ought not be made, cannot be imported into such an application. In my view a court faced with an application to set aside a bankruptcy notice 1s constrained to look only at the regularity of the notice itself (including service) and otherwise at the circumstances surrounding the existence of the judgment debt and any demand which the debtor

may have against the creditor for a comparable amount.

In arguing against the existence of .the debt which is the subject of the judqment of the Supreme Court of Western Australia, the applicant faces two difficulties. The first is the existence of the judgment itself, a judgment which was 'Yegularly entered after a hearing before a judge of the court. The second difficulty lies in the combined effect of 38.175 and 177 of _ the Income Tax Act. Section 175 does not relieve the Commissioner from the necessity of performing his duty to make an assessment. But where there has been an assessment, a court is compelled to

treat a document produced to it and satisfving sub-s.177(1) as

conclusive evidence that the Commissioner has made an assessment.

F.J. Bloemen Pty. Utd. v. Federal Commissioner of Taxation

(1980-1981) 147 C.L.R. 360. A taxpayer mav of course challenge an assessment through the machinery provided in Pt V of the Act. But subject thereto, sub-s.177(1) operates to make the production of a notice of assessment conclusive evidence of the due making of the assessment and that the amount and all the particulars are

In the present case the applicant has gone further. He is proceeding in the Federal Court against the Deputy Commissioner of Taxation and three of his officers to have the decisions taken to issue assessments against him set aside and the assessments quashed. On 4 July 1986 Lockhart J. dismissed a motion by the respondents for an order that the proceeding against them be stayed or dismissed generally on the basis that no reasonable cause of action was disclosed or that the proceeding was frivolous or vexatious or an abuse of the Court's process. His Honour did so essentially because he considered-,there was an arguable question that the Deputy Commissioner had not engaged in the process of assessment and that therefore the matter was not concluded by existing authority, in particular by Blioemen's case.

It is apparent that a number of questions will arise in that

proceeding including the existence and relevance of the grounds.

relied upon by the applicant, whether the Court may in that

proceeding quash the assessments and the effect of sub-s.177(1) of -

the Income Tax Act. On 27 August Sheppard J., in that proceeding, |

reserved questions for consideration of a Full Court. The

"1. Whether by reason of the operations of Section 177 af the Income Tax Assessment Act 1936 the Court is precluded from determining all or any of the grounds of the Prosecutor's application.

2. Whether by reason of the operation of s.177 of the Income Tax Assessment Act 1936 the Court is

precluded from qrantinag all or anv of the relief sought by the prosecutor."

On 20 October a Full Court in Sydnev heard argument on the

questions reserved for its consideration and in turn reserved its decision. The application before me was listed for judgment on 7 November. On 5 November the Full Court gave judgment on the questions reserved for its consideration, answering "No" to both questions. Instead of delivering judgment I invited counsel to make further submissions in the light of the

reasons for judgment of the Full Court. This they did. -

In my view there is presently no basis upon which the

Court may set aside the bankruptcy notice. The applicant did not

seek before me to make good, even ina prima facie way, - the.

various matters upon which he relies in his other application in this Court. He did not seek to argue to a conclusion the very questions which had been reserved for the consideration of the Full Court. This is not surprising but as a consequence I am faced with the existence of a bankruptcy notice based upon a

judgment debt, with little more than the knowledge that there is

a proceeding in the Federal Court in which the validity of the assessments is attacked. And of course I now have the reasons for qudgment of the Full Court. In the other proceeding the applicant claims damages against the respondents. In an affidavit filed in support of the present application, the applicant deposed to Leing unformed by his solicitors that the claim for damages constituted a counter-claim, set-off or cross demand at least equal to the judgment debt, being a counter-claim, set-off or cross demand which could not have been pleaded in the Supreme Court action. But, as counsel for the applicant conceded, no attempt was made before me to substantiate the existence of a claim for damages and the mere recitation of advice does not meet the requirements of

I have no hesitation therefore in refusing to set aside the bankruptcy notice. However that is not the end of the matter. The applicant sought by way of alternative relief an order that the time for compliance with the bankruptcy notice be extended until such time as the various proceedings in which he is involved (the other application in the Federal Court, the appeals to the

Supreme Court under Pt V of the Income Tax Act and certain

I am not prepared to accede to the alternative relief claimed in that broad form. To begin with, it would be difficult to formulate an order in sufficiently precise terms to be capable

of enforcement. The existence of criminal charges against the

applicant 1s not, I Lhink, a relevant consideration. If there 1s in truth no answer to the bankruptcy notice, the respondent should be permitted cto proceed with such riahls as are available to him. I am not persuaded that any publicity arising from the hearing of a bankruptcy petition would prejudice the applicant in his defence to the charges against him. Even if I were of sucha mind, I would have grave doubts as to the justification for impeding

proceedings under the Bankruptcy Act for that reason alone.

Equallv, the fact that the applicant is appealing against the assessments against him is not of itself a sufficient reason for extending the time for compliance with the bankruptcy notice, Sub-section 201(1) of the Income Tax Act is a clear

"The fact that a review or appeal is pending in relation

to an assessment does not in the meantime interfere with, or affect, the assessment and income tax may be recovered as if no review or appeal were pending".

Section 202 expressly provides for an adjustment of tax paid in the event of an appeal which is successful, whether wholly or in

When the matter came on for further argument following the judgment of the Federal Court, counsel for the applicant focused his submissions on securing an adjournment of the application until the proceeding in the Federal Court in Sydney

had been determined. This course, he said, was warranted by the

reasons for aiudament of the Full Court. Counsel for the respondent arqued that there should be no adjournment and that the application should be dismissed. The reasons for Judgment of the Full Court, he submitted. advanced the applicant's position no

further than it stood when the matter was first arqued.

The Full Court was asked to answer the questions reserved for its consideration, on the basis of an aaqreed statement of facts. Those facts were agreed simply to highlight the legal issues the parties wished to have resolved. To this end

the respondents admitted that, prior to the issue and service of the assessments, they made no attempt to ascertain the applicant's taxable income nor did they intend to undertake any relevant process of calculation. They admitted that they carried out no proper investigation of the applicant's affairs and that there was no material having any rational or logical probative force to justify the issue of the assessments. In consequence the Full Court approached the matter on the following basis, as appears from their reasons for judgment at p.16:

"But when regard is had to the whole of the facts and

surrounding circumstances of the present case and it appears that the respondents never intended to embark and did not in fact embark, upon the process of ascertaining the taxpayer's income, no 'assessment' is involved".

As a further consequence the Full Court concluded that the case

went beyond what was decided in Bloemen's case and that

In the respondent's submission, the decision of the Full Court is trrelevant to this applicaticn because the matter went to the Court on the basis of agreed facts, which would not otherwise

be agreed, and with the Commissioner of Taxation not availing

I do not accept this submission in its entirety. It is true that the matter went to the Full Court on the basis of agreed facts. No doubt, on the hearing of the substantive application before the Federal Court in Sydney the present applicant will have to prove all the matters on which he relies. But the point can be tested in this way. Assume that in the Federal Court proceeding in Sydney the trial judge found as facts all the facts agreed for the purpose of the reference to the Full Court. Further assume that on the basis of the facts as found the trial judge stated a case or reserved questions for the Full Court, pursuant to s.26 of

the Federal Court of Australia Act 1976, designed to obtain

answers to the questions on which the Full Court has just delivered judgment. I must take it that the Full Court would have come to the same conclusion. Thus, while the situation of agreed facts is an artificial one, it cannot be said that the answers of the Full Court are irrelevant to the application before me, any more than if those answers had been given in the context of facts as found. Furthermore, it is not correct to say that the Commissioner did not avail himself of sub-s.177(1).- The notices

of assessment and notices of amended assessment were attached to

and formed part of the aaqreed facts. This was surelv a

"production" of notices of assessment within sub-s.177(1).

What then are the arquments for and against adjourning the application to set aside the bankruptcy notice, at least until more is known of the fate of the proceeding in the Federal Court in Sydney? If an adjournment is refused, the applicant has foreshadowed a motion to adduce evidence in support of his application to set aside the bankruptcy notice. As I indicated earlier, there is nothing before the Court to justify setting aside the notice and, without some such step as is foreshadowed, the application to set aside the notice would inevitably he

To dismiss the present application in its entirety may well preclude the applicant from pursuing a case to have the bankruptcy notice set aside if the Federal Court, in the other proceeding, finds in his favour. It may then be too late. The respondent's answer is that, if a bankruptcy petition is presented against the applicant, he may seek an adjournment of the petition until the other proceeding has concluded or he may invoke sub-s.52(2) of the Bankruptcy Act and argue the existence of the other proceeding as "sufficient cause" why a sequestration order ought not be made. If he is unsuccessful anda sequestration order is made and the application in the Federal Court thereafter

succeeds, s.154 of the Bankruptcy Act is available to secure 'an

To dismiss the application to set aside the bankruptcy notice but extend the time for compl2zance until the outcome or the other proceeding has a certain appeal. But that step would, I think, be inconsistent with the notion that the power to extend

time is in aid of the power to set aside. Re Sterling at 131.

I must approach this matter on the basis that there is an arquable case before the Federal Court in Sydney to have the assessments quashed. Whether that case succeeds is of course a

quite different matter. But while the application is on foot and

in the absence of any contention that it is not being prosecuted with due diligence, it is appropriate that the application to set aside the bankruptcy notice be adjourned. Notwithstanding the arguments available to the applicant on the hearing of a petition for sequestration and notwithstanding the procedure available to annul a bankruptcy, he should not be denied the opportunity to have the bankruptcy notice set aside if he is successful in the other proceeding. While that proceeding continues, it would not be appropriate within the framework of an application to set aside the bankruptcy notice to litigate, even ona prima facie basis, the very issues before the Court in that proceeding. I am conscious of the implications of the date of commission of an act of bankruptcy for the doctrine of relation back - Bankruptcy Act s.115. But the present application can be monitored by reference

to what is happening or not happening in the other proceeding and

by anv other circumstances that warrant it being restored to the

I propose that the application to set aside the bankruptcy notice be adiourned to a date to be fixed and that the time for compliance with the bankruptcy notice be extended until further order. Liberty is reserved to each party to apply for relistinag of the application on three days written notice to the

I certify that this and the preceding thirteen pages are a true copy of the reasons for judgment herein of his Honour Mr. Justice Toohey