NUDGMENT No. QA.Q) uBio CATCHWORDS INCOME TAX - Collection and recovery - taxpayer a bankrupt - B.210 notices -— Commissioner seeking payment of income tax out of damages awarded for personal injuries - whether 6.218 notices validly issued - whether 8.218 notices properly signed - whether &.218 notices void under provisions of the Bankruptcy Act 1966. Income Tax Assessment Act 1936 88.176, 201 and 218 Bankruptcy Act 1966 ss.55, 108, 116, 118 and 122 Taxation Administration Act 1953 5.8 BETWEEN BAIBA KERRISON Applicant - and - J.M. CAIN ACTING DEPUTY COMMISSIONER OF TAXATION Respondent No GS oF 1%628 Fisher J. Adelaide a 10 June 1988 RYN q4duNice . COURT OF AUBTAALIA INCIPAL, HOTA IN THE FEDERAL COURT OF AUSTRALIA ) SOUTH AUSTRALIA DISTRICT REGISTRY No. G5 of 1988 GENERAL DIVISION BETWEEN: BAIBA KERRISON Applicant - and - J.M. CAIN ACTING DEPUTY COMMISSIONER OF TAXATION Respondent MINUTES OF ORDER JUDGE MAKING ORDER : FISHER J. WHERE MADE H ADELAIDE DATE OF ORDER 3 10 JUNE 1988 THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicant pay to the respondent the costs of this application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) SOUTH AUSTRALIA DISTRICT REGISTRY No.G5 of 1988 GENERAL DIVISION BETWEEN: BAIBA KERRISON Applicant - and - J.M. CAIN ACTING DEPUTY COMMISSIONER OF TAXATION Respondent REASONS FOR JUDGMENT CORAM: Fisher J. 10 June 1988 In this matter Baiba Kerrison ("Mrs. Kerrison") by application and also by notice of motion seeks declarations and orders primarily in the nature of injunctions against the respondent the Acting Deputy Commissioner of Taxation ("the Deputy Commissioner"). Mrs. Kerrison issued the proceedings without legal assistance and has throughout been unrepresented except that, by leave, her husband Dr. Kerrison presented submissions on her behalf at the hearing. Though there was no doubt as to the relief which Mrs. Kerrison sought, namely to restrain the Deputy Commissioner from collecting monies under a notice pursuant to 8.218 of the Income Tax Assessment Act 1936 ("the Act") it was very difficult to determine under what statute she was making her claim. It was however ultimately agreed that 2. her claims should be regarded as an application under s.39B of the Judiciary Act 1903 seeking relief against an officer of the Commonwealth rather than an application to review a decision made under an enactment pursuant to the Administrative Decisions (Judicial Review) Act 1977. The application and the notice of motion are in similar form and each stated the relief claimed as follows: "1. A declaration that certain notices purporting to be given in respect of the applicant pursuant to s.218 of the Income Tax Assessment Act 1936 on the 4th day of December 1986 ("the said notices") and directed to: Ross McCarthy & Nosworthy. 29 Young Street, ADELAIDE. S.A. 5000 Donald C. Rodman of Unley, (Previously of Berri). R.R. Bentley & Co Pty. Ltd. G.P.O. Box 1544, ADELAIDE. S.A. 5001 State Government Insurance Commission Zil Victoria Square, ADELAIDE. 5.A. 5000 Tilley, Murphy, Hughes & Co. P.O. Box 101, BERRI. S.A. 5343 are void and of no effect. 2. An order that the said notices be rescinded. 3. An injunction to restrain the respondent whether by its servants agents officers or otherwise howsoever from enforcing or seeking to enforce the said notice or collecting or seeking to collect monies pursuant to the terms of the said notices. 4. An injunction to restrain the respondent whether by its servants agents officers or otherwise howsoever from collecting or seeking to collect or garnisheeing or seeking to garnishee pursuant to the provisions of 6.218 of the Income Tax Assessment Act 1936 monies which are now or may in the future be due to the applicant in respect of 3. existing assessments of taxation pursuant to the a provisions of the said Act. DATED this 14th day of January 1988. (Signed) BAIBA_KERRISON" Section 218 of the Act at the relevant time (4 December 1986) was in the following terms: "(1) The Commissioner may at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the taxpayer at his last place of address known to the Commissioner), require - (a) any person by whom any money is due or accruing Or may become due to a taxpayer; (b) any person who holds or may subsequently hold money for or on account of a taxpayer; (ec) any person who holds or may subsequently hold money on account of some other person for payment to a taxpayer; or (da) any person having authority from some other person to pay money to a taxpayer, to pay to the Commissioner, either forthwith upon the money becoming due or being held, or at or within a time specified in the notice (not being a time before the money becomes due or is held) - (i) so much of the money as is sufficient to pay the amount due by the taxpayer in respect of any tax and of any fines and costs imposed upon him under this Act, or the whole of the money when it is equal to or less than that amount; or (id) such amount as is specified in the notice out of each of any payments which the person so notified becomes liable from time to time to make to the taxpayer, until the amount due by the taxpayer in respect of any tax and of any fines and costs imposed upon him under this Act is satisfied, and may at any time, or from time to time, amend or revoke any such notice, or extend the time for making any payment in pursuance of the notice. (2) - (7) ..." 4. On 4 December 1986 the Deputy Commissioner issued notices directed to the persons and corporations named in Mrs. Kerrison's application other than Messrs Tilley, Murphy, Hughes & Co which notices were, with the exception of the names of the persons or corporations, in common form. The notice to the State Government Insurance Commission was as follows: "AUSTRALIAN TAXATION OFFICE 65 King William Street, ADELAIDE (G.P.O. Box 288, ADELAIDE 5001) 59 Smith Street, DARWIN (P.O. Box 227, DARWIN 5794) STATE GOVERNMENT INSURANCE COMMISSION 211 VICTORIA SQUARE ADELAIDE. SA 5000 SECTION 218 INCOME TAX ASSESSMENT ACT 1936 TAKE NOTICE that, in the exercise of the powers conferred upon me as Deputy Commissioner of Taxation by delegation from the Commissioner of Taxation pursuant to section 8 of the Taxation Administration Act 1953, I DO BY THIS NOTICE REQUIRE STATE GOVERNMENT INSURANCE COMMISSION, being a person: (a) by whom any money is due or accruing or may become due to; (b) who holds or may subsequently hold money for or on account of; (ce) who holds or may subsequently hold money for or on account of some other person for payment to; or (d) having authority from some other person to pay money to; BAIBA KERRISON (hereinafter referred to as "the taxpayer") now or previously of C/- TILLEY MURPHY HUGHES & CO, PO BOX 101, BERRI 5343, a taxpayer by whom the amount of $249,390.24 is due in respect of tax, TO PAY TO THE COMMISSIONER so much of that money as is sufficient to pry, the amount of $249,390.24 or the whole of the money t is equal to or less than the amount AND if the money is now due by STATE GOVERNMENT INSURANCE COMMISSION to the taxpayer or is now held by STATE GOVERNMENT INSURANCE COMMISSION to the taxpayer or is now held by STATE GOVERNMENT INSURANCE COMMISSION on behalf of the taxpayer, the payment to the Commissioner 5. is required to be made forthwith, BUT if the money becomes due by STATE GOVERNMENT INSURANCE COMMISSION to the taxpayer in the future or is held by STATE GOVERNMENT INSURANCE COMMISSION on behalf of the taxpayer in the future, the payment to the Commissioner is required to be made forthwith upon the money so becoming due or held by STATE GOVERNMENT INSURANCE COMMISSION. AND TAKE FURTHER NOTICE that where a person refuses or fails to comply with this notice that person will be guilty of an offence against section 218 (a copy of which is attached) and be liable to a penalty not exceeding $1,000. AND TAKE FURTHER NOTICE that where a person is convicted before a Court of an offence in relation to the refusal or failure of the convicted person or another person to comply with this notice, the Court may, in addition to imposing a penalty on the convicted person, order the convicted person to pay to the Commissioner an amount not exceeding the amount or aggregate of the amounts that the convicted person or the other person refused or failed to pay to the Commissioner in accordance with this notice. If the said tax due by the taxpayer or any portion thereof is paid before any payment is made by STATE GOVERNMENT INSURANCE COMMISSION to the Commissioner under this notice, I shall forthwith give notice to STATE GOVERNMENT INSURANCE COMMISSION of such payment and, in that event, STATE GOVERNMENT INSURANCE COMMISSION will not be reguired to pay to the Commissioner, in pursuance of this notice, the tax or portion thereof, so paid. DATED this 4th day of December 1986. J.M. CAIN ACTING DEPUTY COMMISSIONER OF TAXATION™ Copies of each of the four notices were on the same day forwarded to Mrs. Kerrison C/- Messrs Tilley, Murphy, Hughes & Co. The amount of $249,390.24 referred to in the notices and which the Deputy Commissioner required to be paid, in whole or in part, to him represented tax allegedly due under assessments and 6. amended assessments together with additional tax under s.207 of the Act. The amounts payable under the assessments or amended assessments totalled $199,563.07 and the additional tax totalled as at 3 December 1986 $57,609.10. Mrs. Kerrison has lodged objections against each of these assessments, which objections were disallowed and the disallowances have been referred to this Court for determination. The recipients of the Deputy Commissioner's notices were all in one way or another concerned with a claim before the Supreme Court of South Australia for damages for personal injuries sustained by Mrs. Kerrison on 9 August 1982. The recipients were respectively Donald C. Rodman the defendant in the personal injuries claim, the State Government Insurance Commission, the defendant's insurer, Ross McCarthy and Nosworthy, solicitors for the State Government Insurance Commission and R.R. Bentley & Co Pty. Ltd, Mrs. Kerrison's solicitors. On 28 January 1988 Justice Cox of the Supreme Court of South Australia delivered judgment on Mrs. Kerrison's claim for damages for personal injuries, awarding her the sum of $32,095. However between the date of the service of the s.218 notices and the date of judgment Mrs. Kerrison had become bankrupt, a sequestration order having been entered on her own petition presented on 29 May 1987 under 8.55 of the Bankruptcy Act 1966. The disputation in this matter arises in consequence of the provisions of para 116(2)(g) of the Bankruptcy Act (1966) ("the Bankruptcy Act") which provisions exclude damages awarded 7. for personal injuries from property divisible under sub.s 116(1) amongst the creditors of a bankrupt. The former provisions are as follows: "116(2) Sub-section (1) does not extend to the following property — {g) any right of the bankrupt to recover damages or compensation - (i) for personal injury or wrong done to the bankrupt, the spouse of the bankrupt or a member of the family of the bankrupt; or (11) in respect of the death of the spouse of the bankrupt or a member of the family of the bankrupt, and any damages or compensation recovered by the bankrupt (whether before or after he became a_ bankrupt) in respect of such an injury or wrong or the death of such a person;" Mrs. Kerrison's contention was that she is entitled, notwithstanding her bankruptcy and the s.218 notices, to retain for her own use the fruits of the judgment awarding her damages. There was no dispute that these damages were excluded by s.116(2) from her property divisible amongst her creditors. However she contended that the Commissioner was in the circumstances not entitled to exercise his right to "garnishee" the judgment monies under 8.218 of the Act or alternatively that the garnishee notices were ineffective on a number of grounds. The evidence before the Court comprised an affidavit sworn by Mrs. Kerrison and two affidavits sworn by the Appeals Officer in the Adelaide office of the Australian Taxation Office together with a number of exhibits being some of the relevant documentation. Three dates were established which are of 8. relevance, namely 4 December 1986 being the date of the Deputy Commissioner's notice, 29 May 1987 the date of Mrs. Kerrison's bankruptcy and 28 January 1988 being the date upon which Justice Cox awarded her damages for her personal injuries. Mrs. Kerrison did not argue that the Commissioner could not issue a 6.218 notice on 4 December 1986 on the ground that no money was "due" to her on that date (cf. Deputy Federal Commissioner of Taxation v Steele and aAnor (1987) 87 A.T.Cc. 5050). Certainly the moneys which became payable under the damages award were not "due or accruing" on that date and did not become so until 28 January 1988. However 6.218 provides that a notice may be directed to a person by whom money "may become due" or who "may subsquently hold money for and on account of a taxpayer". There is no doubt that on this score the notices were validly issued, and if otherwise effective probably created a charge over the moneys as and when they became due. The consequence of the creation of a valid charge would appear to bring the Commissioner within the definition of a _ secured creditor in s.5 of the Act (see Steele's case at p.5052-3 and Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 of Steel's case. For my part I would be of the opinion, after considering the comments of Mason J. as he then was in Clyne''s case at p.19, that a charge has prima facie been created in favour of the Commissioner in this matter by the operation of 8.218 and the service of notices thereunder. I turn to consider Mrs. Kerrison's challenges, all of which were put to the Court by her husband Dr. Kerrison on her behalf. 9. Her first challenge was that the notices were unsigned. In support attention was drawn to the form of the signature to the notices, namely in type: "J.M. Cain Keting Deputy Commissioner of Taxation" Below the word "Acting" appeared in handwriting the word and initials "Per K.B.". The submission was that in this form the document was not duly signed. It was not altogether clear whether Mrs. Kerrison took any point other than this on the form of the document. Her husband did say that a s.218 demand should have been "suitably authorized as it was a massive threatening demand". His argument appears to have been that it was not suitably authorized because the demand was unsigned and that the lack of a signature left the identification of the "real sender totally unknown". The form of the "garnishee demand", he said "transgresses business banking legal and probate realism". He did not present any further argument than this either in the first instance or in reply to the submissions of counsel for the Deputy Commissioner on what she called the chain of authority. Dr. Kerrison did say, when referring to the evidence on this chain of authority, that "what goes on in the taxation department, from the top to the bottom, is not particularly significant in this case... It does not matter if God authorized it and it works its way down the line". The significant and only challenge therefore on this aspect of the matter was on the ground that the notice was not signed by any person, I am in consequence relieved from having to consider most of the difficulties which were adverted to, albeit 10. in another context, by the Full Court in Sharp and Anor v Deputy Commissioner of Taxation & Ors (1988) 88 A.T.C. 4259. It is however pertinent to note that in the matter presently before the Court there is no express obligation in 5.218 for the notice to be signed by any person. Section 176 of the Act and regulation 62 are relevant to cure any apparent defects in the signature. Section 176 is as follows: "Section 176. All courts and all persons having by law or consent of parties authority to hear, receive and examine evidence, shall take judicial notice of the signature of every person who is or has been the Commission, a Second Commissioner or a Deputy Commissioner, provided such signature is attached or appended to any official document." Regulation 62 is in the following terms: "Regulation 62(1). Judicial notice shall be taken of the names and signatures of the persons who are, or were at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a prescribed delegate of the Commissioner. 62(2). A certificate, notice or other document bearing the written, printed or stamped name (including a facsimile of the signature) of a person who is, or was at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a prescribed delegate of the Commissioner in lieu of that person's signature shall, unless it is proved that the document was issued without authority, be deemed to have been duly signed by that person." In this present matter the notices, in accordance with regulation 62(2), show the printed name of the Acting Deputy Commissioner of Taxation and thus until there is proof that the notice was issued without authority, it is deemed under that regulation to have been duly signed by the Acting Deputy Commissioner. This challenge based on the form of the notice must 11. be rejected. On the matter of the requisite authority, counsel for the Deputy Commissioner drew attention to the powers of delegation by the Commissioner in the Taxation Administration Act 1953 and also to the provisions of 8.20 and s.34AA of the Acts Interpretation Act 1901 as authorising action by a person who is performing the duties of a specified officer. She also referred to O'Reilly v State Bank of Victoria Commissioners (1982-83) 153 CLR 1 on the question of delegation and authority. I particularly draw attention to the discussion by Gibbs C.J. on pages 10-13 inclusive and Wilson J. on pages 30-33 inclusive of the exercise of the powers of the Commissioner by a subordinate officer. The relevant notice in 0'Reilly's matter was served on 18 March 1981, since which date 8.13, which was referred to by their Honours, has been deleted from the Act and regulation 62 has been amended to provide as set out above. Counsel also referred to regulation 60 which is as follows: "60. Any notice to be given by the Commissioner may be given by any officer of the Commissioner duly authorized in that behalf; and any notice purporting to be signed by the authority of the Commissioner shall be as valid and effectual for all purposes as if signed by the Commissioner in person." The only further documents which would be relevant to establish conclusively (if there was a dispute) the particular chain of authority would be the formal delegation of the Commissioner to the Deputy Commissioner pursuant to 5.8 of the Taxation Administration Act 1953 and a direction in writing, pursuant to Regulation 108(1) of the Public Service Regulations, 12. to Mr. Cain to perform the duties of Acting Deputy Commissioner, Adelaide. I am however not justified in doubting their existence and I was not asked to do so. Mrs. Kerrison's next contention was that because the assessments were under challenge, the objections thereto having been disallowed, the Deputy Commissioner had no right to demand payment until the relevant proceedings had been determined. However 8.201 of the Act is the answer to this contention, namely "201. The fact that a review or appeal is pending 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." This submission must be rejected. The third ground upon which reliance was placed was based on sub.s118(6) of the Bankruptcy Act. "118 (6). Subject to this section, where notice in writing of the reference to the Court of a debtor's petition against a debtor is given to a creditor - (a) the creditor shall not take any action or further action, as the case may be, to attach a debt due to the debtor until the Court has dealt with the petition; and (b) if a debt due to the debtor has been attached by the creditor- (i) the creditor shall forthwith give notice of the presentation of the petition, being a notice in accordance with the presecribed form, to the person liable to pay that debt; and (1i) the attachment of the debt is suspended until the Court has dealt with the petition." It was submitted that as these proceedings concerning Mrs. Kerrison's bankruptcy had not been completed the petition 13. had not been "dealt with" by the Court within the meaning of that sub-section. Therefore it was claimed the Deputy Commissioner should not "take any further action... to attach a debt due to" the applicant and if a debt due had been attached the "attachment of the debt is suspended until the Court has dealt with the petition". This argument was raised under a misconception and must be dismissed. Mrs. Kerrison in fact presented her own petition, and that petition was "dealt with" as soon as it was accepted and she then became a bankrupt. The petition was "dealt with" on 29 May 1987. The next ground on which Mrs. Kerrison made submissions was under sub-s. 118(9) of the Bankruptcy Act. "118. (9) Subject to sub-section (10), where (a) a creditor has, within 6 months before the presentation of a petition, or after the Presentation of a petition, against a debtor obtained a charge or charging order against property of the debtor; and (b) the debtor subsequently becomes a bankrupt on, or by virtue of the presentation, the petition, the charge or charging order, as the case may be, is void as against the trustee in the bankruptcy." The contention was that the Commissioner obtained a charge during the relevant period by issuing a 5.218 notice, which charge was by virtue of the sub-section void. This ground of challenge must be dismissed as the sub-section has no application in the present circumstances. If 14. it be correct to find that the Commissioner has obtained a "charge"™ over the judgment monies, it is not a charge of the kind referred to in the section. That form of charge is defined in sub.s 12 as is a charging order - "118(12) In this section - 'charge' means a charge created by a law of the Commonwealth or of a State or Territory of the Commonwealth upon registration of a judgment in any registry; 'charging order' means a charging order made by a court in respect of a judgment." In this present matter there has been no judgment nor any registration of a judgment and no charging order made by a court. Finally Mrs. ' Rerrison referred to 8.108 of the Bankruptcy Act which provides that "all debts proved in a bankruptcy rank equally" and s.122 of that Act which makes void as a preference any "charge on property" incurred within 6 months before presentation of a petition. It was therefore submitted on behalf of Mrs. Kerrison that the notices, in so far as they gave a preference to the Commissioner, were void. In response to these final two submissions of the applicant, counsel for the Deputy Commissioner referred to para 116(2)(g) of the Bankruptcy Act. That section identifies "Property divisible amongst the creditors". Sub-section (2) however provides that sub-section (1) does not extend to certain property, para (g) of which former sub-section reads: 15. "(g) any right of the bankrupt to recover damages or compensation - (i) for personal injury or wrong done to the bankrupt, the spouse of the bankrupt or a member of the family of the bankrupt; or (ii)... " Also attention was drawn to sub-s 60(4). Section 60 gives the Court power to make certain orders after presentation of a petition. However sub.s (4) permits the bankrupt to retain certain rights. It reads - "(4) Notwithstanding anything contained in this section, a bankrupt may continue, in his own name, an action commenced by him before he became a bankrupt in respect of - (a) any personal injury or wrong done to the bankrupt his spouse or a member of his family; or (b) eee" The combined effect of these sections is that the monies which in this matter have been garnisheed are not available for the benefit of the bankrupt estate generally nor do they form part of "the property of the bankrupt" (see definition 5.5). They are thus not available for distribution pro rata amongst creditors in accordance with 8.108. For the same reason the garnisheeing of these monies cannot be said to have the effect of giving the Commissioner under sub.s8122(1) a "preference priority or advantage over other creditors" in the administration of the bankrupt estate. In truth, the extent to which the Commissioner's debt is in part satisfied amounts to a benefit to the general body of creditors, as the Commissioner's provable debt is to that extent reduced. In the particular circumstances of this matter therefore there is no need to consider whether the 16. combined effect of para 122(2)(a) and para 122(4)(b) was to exclude the transaction from the effect of sub.s 122(1). Mrs. Kerrison's application must be dismissed with costs and I so order. I certify that this and the/5 preceding pages are a true copy of the Reasons for Judgment of Mr Justice Fisher. ysAssociate ki . Dated: pated: 12 /o/a. Applicant in Person: Dr. Kerrison appearing for Mrs. B. Kerrison Solicitors for Respondent: Ms. A. Vicic Australian Government Solicitor. Hearing Date: 24th March 1988