FEDERAL COURT OF AUSTRALIA Taylor v Deputy Commissioner of Taxation [1999] FCA 195 CONSTITUTIONAL LAW - whether Deputy Registrar in making sequestration orders was exercising judicial power of the Commonwealth otherwise than in accordance with Chapter III of the Constitution - whether valid delegation of judicial power to Deputy Registrar - whether delegation of power to Deputy Registrar confined to uncontested matters. INTERNATIONAL LAW - whether Article 2 of the International Covenant on Civil and Political Rights grants private rights or imposes duties on the Court. TAXATION LAW - whether Deputy Commissioner of Taxation obliged by s 265 of the Income Tax Assessment Act 1936 (Cth) to refrain from acting oppressively in collection of tax - whether Deputy Commissioner acted unconscionably in keeping the contents of s 265 secret from the appellants - whether s 265 imposed a duty on Deputy Commissioner of Taxation to extend time for payment of outstanding tax - whether Deputy Commissioner entitled to refuse offer to pay sixty percent of debt with balance to be paid over six month period. PROCEDURE - whether jury capable of determining issues in dispute. BANKRUPTCY - whether making of sequestration order is acquisition of property within s 51(xxxi) of the Constitution. The Constitution s 79, s 51(xxxi) Bankruptcy Act 1966 (Cth) s 30(3), s 52 Judiciary Act 1903 (Cth) s 39B Federal Court of Australia Act 1976 (Cth) s 35A Human Rights and Equal Opportunity Commission Act Schedule 2 Income Tax Assessment Act 1936 (Cth) s 265 International Covenant on Civil and Political Rights Article 2 Harris v Caladine (1991) 172 CLR 84 applied Cheesman v Waters (1997) 143 ALR 78 applied Cheesman v Waters (1997) 77 FCR 222 applied Re East; Ex parte Nguyen [1998] HCA 72 applied Powell v Evreniades (1989) 89 ATC 4415 cited Sheahan v Joye (1995) 57 FCR 289 cited Corlette v Mackenzie (1995) 95 ATC 4578 cited The King v Trebilco Ex parte F S Falkiner & Sons Ltd (1936) 56 CLR 20 referred to Rozenbes v Kronhill (1956) 95 CLR 407 cited McIntosh v Sashona (1931) 46 CLR 494 cited In re Gentry [1910] 1 KB 825 referred to Re Dohnert Muller Schmidt and Company; Attorney-General of the Commonwealth v Schmidt (1961) 105 CLR 361 cited STEPHEN TAYLOR AND GLENDA TAYLOR v DEPUTY COMMISSIONER OF TAXATION QG150 OF 1998 COOPER, TAMBERLIN AND KIEFEL JJ BRISBANE 9 MARCH 1999 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG150 OF 1998 BETWEEN: STEPHEN TAYLOR AND GLENDA TAYLOR Appellants AND: DEPUTY COMMISSIONER OF TAXATION Respondent JUDGES: COOPER, TAMBERLIN AND KIEFEL JJ DATE OF ORDER: 9 MARCH 1999 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The appeal from the orders of Dowsett J made on 29 October 1998 be dismissed. 2. The appellants to pay the respondent's costs of and incidental to the appeal, including reserved costs, if any, to be taxed if not agreed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG150 OF 1998 BETWEEN: STEPHEN TAYLOR AND GLENDA TAYLOR Appellants AND: DEPUTY COMMISSIONER OF TAXATION Respondent JUDGES: COOPER, TAMBERLIN AND KIEFEL JJ DATE: 9 MARCH 1999 PLACE: BRISBANE REASONS FOR JUDGMENT THE COURT BACKGROUND 1 Stephen and Glenda Taylor are the appellants in this appeal. 2 On 18 December 1996 the Deputy Commissioner of Taxation obtained judgment against Mr Taylor in the sum of $16,380.05 for claim and $175.25 for costs, and against Mrs Taylor for $17,184.10 for claim and $175.25 for costs. The claim against each appellant was for unpaid tax. Subsequently each appellant was served with a bankruptcy notice. The appellants failed to comply with the requirements of the notice each received. In consequence, on 8 September 1997 a creditor's petition was filed by the Deputy Commissioner against each appellant. The act of bankruptcy in each case was the failure to comply with the respective notice. The hearing date endorsed on each petition was 9 October 1997. 3 Mr Taylor, on 13 November 1997, lodged a notice of intention to appear at the hearing of the petition to oppose the making of a sequestration order. The grounds of objection were stated as :- "MADE SUBSTANTIAL OFFER TO TAXATION OFFICE - WHICH WAS REFUSED. HAVE NOW LISTED HOUSE FOR AUCTION TO BE HELD 15/11/97 - EARLIEST AVAILABLE." 4 Mrs Taylor lodged an objection in identical terms on 13 November 1997 in the creditor's petition proceedings against her. 5 On 18 December 1997 each appellant filed a further notice of intention to appear and oppose the making of a sequestration order. The ground each appellant stated was :- "LOAN FUNDS HAVE BEEN APPROVED THROUGH STANFIELD FINANCE FOR SETTLEMENT OF DEBT & ARE NOW AWAITING COMPLETION OF PAPERWORK AUCTION OF MARTYN ST PROPERTY FAILED TO ATTRACT ANY BIDS." 6 On 8 February 1998 each appellant filed a further notice of intention to appear and oppose the making of a sequestration order. Again the ground related to the provision of finance to be secured on a refinancing of the Martyn Street, Cairns property. 7 The two creditor's petitions came on for hearing in Cairns on 18 March 1998. The affidavits of debt and search disclosed that the judgment debts remained unpaid. The hearing of each petition was before the District Registrar of the Court acting under an instrument of delegation made by Spender J. Being satisfied that each appellant had committed the respective act of bankruptcy and that each remained indebted in the requisite amount, the District Registrar made orders sequestrating the estate of each appellant. The District Registrar rejected a submission by the appellants that they be granted additional time to pay the judgment debts or that he direct the Deputy Commissioner to accept an offer of part payment with periodic payments over time to discharge the debts. THE PRESENT PROCEEDINGS 8 On 3 April 1998 the appellants filed an application which stated that it was made "... under s30(3) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") for determination by a jury of an application to extend the time for compliance with a Bankruptcy Notice served on us by the Australian Tax Office." The application also sought, under s 39B of the Judiciary Act 1903 (Cth) the quashing of the sequestration orders made by the District Registrar and that a writ of prohibition issue to prohibit the petitioning creditor and the Registry of this Court from entering the sequestration orders. The relief sought under s 39B of the Judiciary Act 1903 (Cth) was based on the alleged lack of jurisdiction of the District Registrar to make the sequestration orders. 9 On 10 September 1998 the appellants filed a notice of motion seeking discovery against the Australian Taxation Office. 10 Both the application and notice of motion were heard by Dowsett J on 29 October 1998. His Honour made the following orders :- "1. The application for an extension of time for compliance with the bankruptcy notice is refused. 2. The application for an extension of time in which to apply for a review of Registrar's decision is allowed. 3. The application to have review of Registrar's decision determined by a jury is refused. 4. The application for review of Registrar's decision is refused. 5. The applicants are to pay the respondent's costs of these proceedings." 11 On 11 December 1998 the appellants appealed from the whole of the judgment of Dowsett J. The grounds of appeal are :- "2. The Court misconceived the ramifications of Section 79 of the Constitution and that section, at no time permits a Registrar to make a Judicial order or exercise the Judicial power of the Commonwealth. 3. Under section 22 Federal Court of Australia Act of 1976 the Court must hear the matter lawfully brought before it, and is in contempt of the Civil Rights of the Appellant guaranteed by the Human Rights and Equal Opportunity Commission Act of 1986 Schedule 2 Article 2 subsection 3 by failing in It's public duty to ensure that any person claiming such remedy shall have his right thereto determined by a competent judicial Administrative or legislative authority, notwithstanding that the violation has been committed by persons acting in an official capacity." 12 The appellants were represented by Mr Taylor on the hearing of the appeal. Their primary submission is that the District Registrar, in making the sequestration orders, was purporting to exercise the judicial power of the Commonwealth which, by s 79 of the Constitution, was vested exclusively in Judges appointed in accordance with Chapter III of the Constitution. Because the District Registrar had no jurisdiction to make the orders, the appellants submit that the sequestration orders should be quashed and not given effect to. That would leave, they submit, the petitions to be heard by a Judge of this Court on the basis of new grounds of objection which include allegations that the appellants are not insolvent, that the conduct of the Australian Taxation Office and the Deputy Commissioner has been unreasonable and in breach of the Deputy Commissioner's statutory duty, and that the proceedings are an abuse of process. This would also leave the application for extension of time to comply with the bankruptcy notices to be heard. The appellants claim to be entitled to have the questions of fact arising in the resumed proceedings determined by jury under s 30(3) of the Bankruptcy Act. CONCLUSION ON THE APPEAL The first ground of appeal 13 Section 35A(1)(h) of the Federal Court of Australia Act 1976 (Cth) ("the FCA Act") provides that a power of the Court prescribed by Rules of Court may, if the Court or a Judge so directs, be exercised by a Registrar of the Court. Relevantly, O 77 of the Federal Court Rules provides for the conduct of bankruptcy proceedings under the Bankruptcy Act. Rule 7 of O 77 provides that the Court or a Judge may direct a Registrar (which term includes a District Registrar) to exercise the power of the Court under a provision of the Bankruptcy Act specified in column 2 of an item in Part 3 of the Third Schedule to the Rules. Item 4 in that Schedule is the power under s 43(1) of the Bankruptcy Act to make a sequestration order. Item 8 is the power to make a sequestration order against an debtor's estate under s 52(1) of the Bankruptcy Act. 14 The decision of a Registrar to exercise the power of the Court under a direction of the Court or a Judge is reviewable by the Court or the Judge on an application made under s 35A(5) of the FCA Act or O 77 r 8 of the Federal Court Rules. 15 The District Registrar, Mr Ramsey, was directed by Spender J by written instrument dated 3 February 1998 in respect of any proceeding under the Bankruptcy Act to exercise :- (a) the powers specified in s 35A(1)(a) to (h) of the FCA Act; (b) the powers of the Court specified in column 2 of the specified items in Part 3 of the Third Schedule to the Federal Court Rules. 16 On 16 February 1998, his Honour gave a direction to the District Registrar by written instrument that he may in any proceedings in this Court exercise the powers specified in s 35A(a) to (h) of the FCA Act. 17 The District Registrar, on 18 March 1998, had both the power and the jurisdiction to make the sequestration orders in question if these directions of Spender J were effective to give the District Registrar the power to exercise the power of the Court or a Judge in proceedings under the Bankruptcy Act. 18 The appellants submit that the decision of the High Court in Harris v Caladine (1991) 172 CLR 84 does not support the conferral of the power of the Court on a Registrar in proceedings which are contested. They submit that Dowsett J erred in law when he held to the contrary. 19 There is, in our view, no warrant to read the judgment in Harris v Caladine as limiting the power to delegate the exercise of the judicial power of this Court to matters which are not contested. The criteria which determine whether or not delegation of the power will be valid are contained in the joint judgment of Mason CJ and Deane J in Harris v Caladine. Their Honours said (at 95) :- "It seems to us that, so long as two conditions are observed, the delegation of some part of the jurisdiction, powers and functions of the Family Court as a federal court to its officers is permissible and consistent with the control and supervision of the Family Court's jurisdiction by its judges. The first condition is that the delegation must not be to an extent where it can no longer properly be said that, as a practical as well as a theoretical matter, the judges constitute the court. This means that the judges must continue to bear the major responsibility for the exercise of judicial power at least in relation to the more important aspects of contested matters. The second condition is that the delegation must not be inconsistent with the obligation of a court to act judicially and that the decisions of the officers of the court in the exercise of their delegated jurisdiction, powers and functions must be subject to review or appeal by a judge or judges of the court. For present purposes it is sufficient for us to say that, if the exercise of delegated jurisdiction, powers and functions by a court officer is subject to review or appeal by a judge or judges of the court on questions of both fact and law, we consider that the delegation will be valid. Certainly, if the review is by way of hearing de novo, the delegation will be valid. The importance of insisting on the existence of review by a judge or an appeal to a judge is that this procedure guarantees that a litigant may have recourse to a hearing and a determination by a judge. In other words, a litigant can avail him or herself of the judicial independence which is the hallmark of the class of court presently under consideration." 20 Subject to satisfaction of these two conditions, their Honours in fact contemplated that contested matters could be heard by court officials and that determinations made by such officials would be binding and effective until set aside on review. There is nothing in the reasons of the other members of the majority which would suggest a limitation on the court's power to delegate of the type contended for by the appellants. As to the reasons of the other members of the majority, see Dawson J at 172 CLR 121 - 122; Gaudron J at 172 CLR 150 - 151 and McHugh J at 172 CLR 164. 21 In Cheesman v Waters (1997) 143 ALR 78, Merkel J held that a Registrar of the Court could validly exercise the judicial power of the Court in its bankruptcy jurisdiction to make a sequestration order. In that case the power being exercised was under s 31A(1)(n) of the Bankruptcy Act. That power was limited to the making of a sequestration order where no person opposed the making of the order: s 31A(8). 22 The limitation contained in s 31A(8) was removed by s 9 of the Law and Justice Legislation Amendment Act 1990 (Cth). The removal of the limitation did not affect his Honour's opinion that the power to make sequestration orders could be delegated to Registrars: see 132 ALR at 88. 23 The decision of Merkel J was upheld on appeal to a Full Court of this Court (Hill, Heerey and Sundberg JJ). In a joint judgment, their Honours said ((1997) 77 FCR 222 at 229 - 230) :- "... While it is true, as counsel for the appellants put, that the essential features of a bankruptcy system are sequestration and distribution, it does not follow that the making of a sequestration order is a judicial function of a kind that is inherently incapable of valid delegation to a non-judicial officer. In a setting where there is a complete right of rehearing de novo before a judge (see s 31A(6) and (7), Re Kwiatek; Ex parte Big J Ltd v Pattison (1989) 21 FCR 374 at 380 - 381), the making of a sequestration order is very often a routine and simple function. The act of bankruptcy relied on in the great bulk of cases is non-compliance with a bankruptcy notice. The function of the Registrar is to be satisfied as to issue and service of the notice and petition and that the other requirements of the Act and Rules have been complied with. The appellants' argument sought to draw a distinction between 'important' judicial functions and 'unimportant' ones. It was said that only the latter could be validly conferred on a non-judicial person, even a person who was within the organisational structure of a Ch III court. It may be at once accepted that the power to make a sequestration order, affecting as it does the status of the bankrupt and the rights of creditors, is important. It does not follow, in our view, that this characterisation has the consequence for which the appellants contend. Practically speaking, other claims under the Act such as the setting aside of fraudulent dispositions (s 121) or the avoidance of preferences (s 122) are much more likely to give rise to difficult and complex factual and legal issues calling for resolution by a Ch III judge (see, for example, Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372). In our opinion, the learned primary judge was correct in holding that the present case is indistinguishable from Harris v Caladine." 24 Special leave was refused by the High Court to argue the constitutional validity of s 31A(1)(n) of the Bankruptcy Act (19 May 1998 M71/1997), the High Court adding that there was no reason to doubt the correctness of the decisions of Merkel J and the Full Court. 25 Section 31A was repealed by s 3 and Schedule 1 of the Bankruptcy Legislation Amendment Act 1996 (Cth). The repeal took effect from 16 December 1996. Section 35A of the FCA Act remained. 26 The power to delegate previously found in s 31A of the Bankruptcy Act was recreated in Part 3 of the Third Schedule to the Federal Court Rules which came into effect on 31 July 1997. There is no change brought about by the repeal of s 31A of the Bankruptcy Act which would call into doubt the reasoning in Cheesman v Waters as applicable to the operation of s 35A(1)(h) of the FCA Act and O 77 r 7 in the present appeal. 27 It follows, in our view, that Dowsett J was correct when he held that the delegation to District Registrar Ramsey, pursuant to which he exercised the power to make the sequestration orders, was valid. The second ground of appeal 28 The appellants' second ground of appeal may be dealt with shortly. Article 2 of the International Covenant on Civil and Political Rights ("the Treaty") (Schedule 2 to the Human Rights and Equal Opportunity Commission Act "the HREOC Act"), gives no private rights to the appellants. The convention contains treaty obligations accepted by Australia. The HREOC Act represents the method adopted by the legislature to give effect to Australia's treaty obligations. The HREOC Act imposes no duties on this Court in terms of Article 2 of the Treaty. Where it is alleged that an act or practice is inconsistent with or contrary to any human right, there is provided an administrative process under s 20 of the HREOC Act to enquire into and report on the complaint. The only right the HREOC Act creates is a right to engage the processes prescribed by it and the duties or liabilities that are created are correlative to that right: Re East; Ex parte Nguyen [1998] HCA 72 at 19, 31, 32. There is nothing presently arising out of the HREOC Act which is justiciable in this Court by the appellants. 29 The matters alleged in the second ground of appeal provide no basis to set aside the orders of Dowsett J. THE ADDITIONAL ARGUMENTS ADVANCED 30 The orders of District Registrar Ramsey having been made under a valid delegation, it was necessary for Dowsett J to extend the time within which review of those decisions could be sought. This his Honour did pursuant to s 35A(5) of the FCA Act. 31 The review before his Honour proceeded as a hearing de novo to be determined on the basis of the evidence before his Honour and the law as it stood at the time of the review: Sheahan v Joye (1995) 57 FCR 389 at 391. 32 The appellants did not contest before Dowsett J the evidence which was before District Registrar Ramsey as to the commission by each of them of the act of bankruptcy alleged, or, the evidence contained in the affidavits of search and debt. 33 Rather, it was contended by the appellants that the sequestration orders should be quashed and that the matter proceed on the basis that a jury determine three issues which were in dispute between the appellants and the Australian Taxation Office. Those issues were :- (a) Whether the Deputy Commissioner was obliged by s 265 of the Income Tax Assessment Act 1936 (Cth) ("the Assessment Act") to refrain from acting oppressively in the collection of taxation from the appellants and whether the Deputy Commissioner acted unconscionably in keeping the contents of s 265 secret from them. (b) Whether the Deputy Commissioner, in refusing to extend time to the appellants to pay the tax outstanding, was acting in breach of the duty imposed upon him by s 265 of the Assessment Act. (c) Whether the Deputy Commissioner was entitled to refuse an offer to pay sixty percent of the taxation debt with the balance to be paid over a six month period. 34 It should be said immediately that these issues are questions of law, or at best mixed questions of fact and law. None is a pure question of fact. 35 Section 265 of the Assessment Act provides :- "265(1) In any case where it is shown to the satisfaction of a Board consisting of the Commissioner, the Secretary to the Department of Finance and the Comptroller-General of Customs or of such substitutes for all or any of them as the Minister appoints from time to time that: (a) a taxpayer has suffered such a loss or is in such circumstances; or (b) owing to the death of a person, who, if he had lived, would have been liable to pay tax, the dependants of that person are in such circumstances; that the exaction of the full amount of tax will entail serious hardship, the Board may release the taxpayer or the trustee of the estate of the deceased person (as the cases may be) wholly or in part from his liability, and the Commissioner may make such entries and alterations in the assessment as are necessary for that purpose." 36 The Board established by s 265 of the Assessment Act, has a discretionary power to relieve a taxpayer falling within the terms of the subsection wholly or partially from a liability for tax. The section imposes no duty upon the Deputy Commissioner in the discharge of his statutory duty under the Assessment Act. The section, as it relates to a decision of the Board, is permissive and not mandatory if the conditions contained in the section are made out: Powell v Evreniades (1989) 89 ATC 4415 at 4422 - 4424; Corlette v Mackenzie (1995) 95 ATC 4578 at 4584 - 4585, both cases relying upon the reasoning in The King v Trebilco Ex parte F S Falkiner & Sons Ltd (1936) 56 CLR 20. Section 265 of the Assessment Act provided the appellants with an administrative process to seek relief from the taxation which the Deputy Commissioner was seeking to recover from them. That process has not been availed of and no factual issue arises in respect of it capable of determination by a jury under s 30(3) of the Bankruptcy Act. 37 Section 265 forms part of the statute law of Australia. Those laws are in the public domain. There can be no question of the Deputy Commissioner keeping the existence or content of the Assessment Act, and in particular s 265, secret from the appellants. The existence of s 265 does not impose a duty on the Deputy Commissioner to advise the appellants of its provisions before taking steps to recover outstanding tax owed by each of the appellants. The appellants were, in any event, being represented by solicitors in Cairns in October 1997 in the period immediately following the filing of the petitions. 38 There is nothing in the material before Dowsett J which would sustain a finding that the Deputy Commissioner had taken proceedings in bankruptcy without the bona fide intention of obtaining an adjudication, but for some collateral purpose amounting to an abuse of process. Prima facie, the Deputy Commissioner was entitled to a sequestration order upon proof of the matters in s 52 of the Bankruptcy Act unless the appellants could show some overriding reason why an order ought not be made: Rozenbes v Kronhill (1956) 95 CLR 407 at 414, 418 - 419. The only circumstances put forward in the notices of intention to appear and oppose the making of sequestration orders and put forward before Dowsett J, were that additional time to pay should be given and that the offer to settle and pay over time should have been accepted by the Deputy Commissioner. 39 The appellants show no basis upon which it could be held that the Deputy Commissioner, in the discharge of his statutory function, was obliged to grant to them further time beyond that which was granted from the date the judgments were obtained in December 1996 until the date the sequestration orders were made in March 1998 for the payment of the judgment debt. Nor could the Deputy Commissioner be compelled to accept part payment of the judgment debt or payments by instalment over time after an available act of bankruptcy had been committed: McIntosh v Sashona (1931) 46 CLR 494 at 508; In re Gentry [1910] 1 KB 825 at 830 - 831. 40 The appellants advance an additional argument on the appeal as to their entitlement to have a jury trial on the hearing of the petitions. They submit that the power to make a sequestration order is a power to acquire property of a person which falls within s 51(xxxi) of the Constitution. The constitutional guarantee that the power may only be exercised upon the provision of just terms to the person from whom the property is acquired gives rise, they submit, to the jury issue of whether the taking of their property is upon just terms. The submission misunderstands the administration of the property of a bankrupt for the benefit of the bankrupt's creditors. There is no acquisition of property within the operation of s 51(xxxi) of the Constitution when the property of a bankrupt is sequestrated and vested in a trustee in bankruptcy. Section 51(xxxi) has no bearing on the matter: Re Dohnert Muller Schmidt and Company; Attorney-General of the Commonwealth v Schmidt (1961) 105 CLR 361 at 372. 41 The appellants' submission as to the right to trial by jury on a trial on indictment of an offence against a law of the Commonwealth (s 80 of the Constitution) and to the requirements of full faith and credit being given to the laws of every State (s 118 of the Constitution) do not advance their case to a right to a trial by jury on the hearing of the bankruptcy petitions. 42 In these circumstances there were no issues of fact in dispute on the hearing of the bankruptcy petitions or on the hearing of the review of the District Registrar's decisions, which were capable of, or appropriate for, resolution by the verdict of a jury. Nor were the matters raised in opposition to the making of the sequestration orders in themselves sufficient to justify an exercise of the discretion under s 52(2) of the Bankruptcy Act to refuse to make a sequestration order "for other sufficient cause". 43 There is no appealable error in the reasons of Dowsett J. The appeal will be dismissed. 44 No basis has been shown to depart from the usual order that costs follow the event. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper, the Honourable Justice Tamberlin and the Honourable Justice Kiefel. Associate: Dated: 9 March 1999 Appellants in person: Stephen Taylor for himself and on behalf of Glenda Taylor Counsel for the Respondent: D Mullins SC Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 18 February 1999 Date of Judgment: 9 March 1999