Re John Sarroff; Ex Parte: Deputy Commissioner of Taxation [1996] FCA 999 (8 October 1996)

CATCHWORDS

BANKRUPTCY - application to stay operation of bankruptcy notice - motion in Court of Appeal of New South Wales to stay operation of default judgment on which bankruptcy notice is based, pending an appeal to that Court against the default judgment - whether reasonable likelihood of motion being successful.

Bankruptcy Act 1966 - s 41(6A), s 41(6C)

Taxation Assessment Act 1966 - s 177, s 201

Re Sterling; Ex parte Esanda Ltd [1980] FCA 61; (1980) 30 ALR 77

Carr v Finance Corporation of Australia Limited [1981] HCA 20; (1981) 147 CLR 246

Re JOHN SARROFF; Ex parte DEPUTY COMMISSIONER OF TAXATION

No. NN 950 of 1996

CORAM: FOSTER J

DATE: 8 OCTOBER 1996

PLACE: SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA )

)

NEW SOUTH WALES DISTRICT REGISTRY ) No. NN 950 of 1996

)

BANKRUPTCY DIVISION )

RE: JOHN SARROFF

Debtor/Applicant

EX PARTE: DEPUTY COMMISSIONER OF TAXATION

Creditor/Respondent

JUDGE MAKING ORDERS: FOSTER J

DATE: 8 OCTOBER 1996

PLACE: SYDNEY

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1. The application for extension of time be dismissed.

2. The applicant pay the respondent's costs.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

)

NEW SOUTH WALES DISTRICT REGISTRY ) No. NN 950 of 1996

)

BANKRUPTCY DIVISION )

RE: JOHN SARROFF

Debtor/Applicant

EX PARTE: DEPUTY COMMISSIONER OF TAXATION

Creditor/Respondent

CORAM: FOSTER J

DATE: 8 OCTOBER 1996

PLACE: SYDNEY

REASONS FOR JUDGMENT

(Extempore)

HIS HONOUR: This matter comes before the Court today as an application to stay the operation of the bankruptcy notice issued by the Deputy Commissioner of Taxation as judgment creditor against the judgment debtor. Unless stayed, the time for compliance with the bankruptcy notice will expire today, with the result that an act of bankruptcy will be committed.

The period of extension that is sought is to a date conveniently close to but after 21 October, that being the day upon which a notice of motion will be heard before the Court of Appeal of the Supreme Court of New South Wales. That notice of motion is in respect of an appeal which has been brought by the judgment debtor from a judgment entered against him in the District Court of New South Wales. The judgment debtor has been unsuccessful in the District Court in obtaining any stay of the operation of that judgment, and, accordingly, application has been made to the Court of Appeal for a stay to be issued by that Court pending the appeal brought to that Court from the District Court judgment. It appears clear that if a stay is granted by the Court of Appeal, the actual hearing of the appeal in that Court will be some two years hence with the result that the stay, if granted, will prevent the Deputy Commissioner from exercising his rights under that judgment for a considerable period of time.

The application in this Court to set aside the bankruptcy notice is based simply upon an assertion that the amount claimed in the notice is in excess of any amount that might be owed. There has been a failure to comply with the rules of this Court in connection with the provision of notice relating to the amount of that claimed excess. No prejudice of any specific kind has been alleged on behalf of the judgment creditor should the period of the notice be extended to enable the notice of motion to be heard in the Supreme Court; however, a number of other grounds of opposition to the extension have been put forward and have resulted in fairly extensive argument of the matter before me this morning.

It was put that this Court has no power, in the circumstances, to grant any extension under s 41(6A) of the Bankruptcy Act, this being the section under which the Court receives power to grant extensions. Reference has been made in this regard to a judgment of this Court given by Lockhart J in the matter of Re Sterling; Ex parte Esanda Ltd [1980] FCA 61; (1980) 30 ALR 77. I do not perceive that that judgment is authority removing the power of the Court to make orders of the kind sought under s 41(6A), providing that the provisions of that section are complied with. It is, of course, persuasive authority that that power be exercised with some care.

In this case, as before Lockhart J, there has been an application to set aside the bankruptcy notice filed with the Registrar, and the application for extension of time has been brought within the period prior to its expiry. In those circumstances the Court can have regard to s 41(6C), which requires consideration of the bona fides of the proceedings to set aside the judgment, and whether those proceedings have been prosecuted with due diligence.

Here there does not appear to be any significant question as to the proceedings having been prosecuted with due diligence. There is, however, the broad question, which certainly arises in this case, as to whether there is any bona fide prospect of the proceedings brought in the Court of Appeal being successful, resulting in the setting aside of the judgment entered in the District Court, that judgment being of course the judgment upon which the bankruptcy notice has been founded.

I do not have a great deal of information before me as to that judgment, but I have been told something of it from the bar table, in circumstances in which each party has had a reasonable opportunity to indicate to me their respective positions in relation to it. It would appear that a default judgment was originally entered in an amount which was ultimately conceded to have been too much. A notice of motion, heard in the District Court, to set the judgment aside was successful but thereupon application was made for the entry of summary judgment in the lesser amount, which, as I understand the situation, is the amount of the judgment now proceeded upon. Opposition to that course was raised on behalf of the judgment debtor, and his counsel gave an outline, apparently orally, as to the defences that would be sought to be raised. That opposition was unsuccessful, and summary judgment was entered. In my view the judgment so entered was a final judgment and not a default judgment of the type that was under consideration in the case of Carr v Finance Corporation of Australia Limited [1981] HCA 20; (1981) 147 CLR 246. Accordingly, I am of the view that the appeal which has been brought to the Supreme Court Court of Appeal is not, as it were, defective at the outset for failure to seek leave to bring it, on the basis that the judgment appealed from was merely interlocutory.

It has also been submitted that I should pay particular attention to the fact that the judgment creditor is the Deputy Commissioner of Taxation, and is in a special position insofar as he can have resort to the particular enabling sections, namely ss 177 and 201 of the Taxation Assessment Act. These, of course, are sections which provide particular protection to judgments founded upon notices of assessment. I am satisfied however that the sections do not render the assessments invulnerable where a judgment has been given in respect of them, that judgment being defective for other reasons.

The real problem in the application that I have to decide today, is whether it has been demonstrated to me that there is a reasonable likelihood of the notice of motion in the New South Wales Supreme Court Court of Appeal to stay the District Court judgment being successful.

The case has an extremely long history. The amount of the judgment upon which the bankruptcy notice is founded is a total of amounts which have accrued from 1986. I do not set them out in detail in these short reasons. They appear in paragraph 8 of the affidavit of Rachel Ann Granada of 29 August 1996 filed in these proceedings.

I am told that the basis of opposition to the judgment was an assertion that some estoppel arose in relation to the amount claimed for additional tax in 1986. This amount was $3,693.46. The total amount currently claimed as owing, and in respect of which judgment has been given in favour of the judgment creditor, is over $105,000, and it comprises amounts which have been added year by year from 1986 onwards. I am also told that the amounts represent, for the most part, non-payment of primary tax and additional tax in circumstances where the taxpayer has furnished returns in the ordinary way, been assessed in the ordinary way and has simply failed to pay the tax.

I cannot see, on the basis of what has been put before me, what conceivable bona fide defence could successfully be raised in respect of the Commissioner's claim in the District Court, in respect of which judgment has been given. I should add that an application to set that judgment aside in the District Court also failed.

I think in all the circumstances it has been sufficiently demonstrated to me that this is a case where there is simply no point whatever in extending further the time for compliance with this bankruptcy notice, and that if I were to do so it would be gravely unfair to the judgment creditor. In these circumstances, the application for extension of time is dismissed.

I order the applicant pay the respondent's costs.

I certify that this and the preceding five (5) pages are a true copy of the reasons for judgment herein of the Honourable Justice M. L. Foster.

Associate:

Date: 8 OCTOBER 1996

A P P E A R A N C E S

FOR THE DEBTOR/APPLICANT: P. COOK

INSTRUCTED BY: JOHN SARROFF & COMPANY

FOR THE CREDITOR/RESPONDENT: R. QUINN

INSTRUCTED BY: AUSTRALIAN GOVERNMENT SOLICITOR

DATE OF HEARING: 8 OCTOBER 1996

DATE OF JUDGMENT: 8 OCTOBER 1996