FEDERAL COURT OF AUSTRALIA Brewin v Deputy Commissioner of Taxation [1999] FCA 1079 BARRY BREWIN v DEPUTY COMMISSIONER OF TAXATION Q 7166 of 1999 DOWSETT J 5 AUGUST 1999 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 7166 OF 1999 BETWEEN: BARRY BREWIN Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent JUDGE: DOWSETT J DATE OF ORDER: 5 AUGUST 1999 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application to set aside the Bankruptcy Notice be dismissed. 2. The application for an extension of time in which to comply with the Bankruptcy Notice be dismissed. 3. The applicant is to pay the respondent's costs of the proceedings. 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 Q 7166 OF 1999 BETWEEN: BARRY BREWIN Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent JUDGE: DOWSETT J DATE: 5 AUGUST 1999 PLACE: BRISBANE REASONS FOR JUDGMENT 1 This is an application pursuant to section 41(6A) of the Bankruptcy Act 1966 (Cth) to extend time for compliance with the requirements of the Bankruptcy Notice and to set it aside. The application is based upon an assertion by the debtor that he has a defence to the action pursuant to the judgment upon which the Bankruptcy Notice has been issued. The judgment went in default of delivery of defence in 1996. 2 It is appropriate at this time that I say something about the chronology of proceedings. Between September 1995 and April 1996 a company, Precon Proprietary Limited, of which the applicant was a director, failed to remit group tax payments. Negotiations took place in relation to this failure and on 10 May 1996 an agreement was reached between Precon and the Tax Office as to payment of those instalments. The company breached this agreement in June 1996, as result of which, pursuant to section 222AQA of the Income Tax Assessment Act 1936 (Cth), the applicant became liable for the debt. 3 On 2 July 1996 Precon appointed an administrator. On 18 July a writ was issued in the Supreme Court of Victoria against the applicant. Judgment in default of defence was entered on 11 October 1996. Certain settlement negotiations then took place. A first bankruptcy notice was issued on 11 September 1997 and served on 6 October 1997. Settlement negotiations continued. On 21 May 1998 an application was made to set aside the first bankruptcy notice, but this was not proceeded with because it was out of time. 4 Thereafter, the Tax Office decided not to proceed further with the sequestration proceedings because of formal difficulties concerning that process which are not presently relevant. On 30 March 1999 a second Bankruptcy Notice was served, and on 20 April the present application was filed. The time for compliance with the notice expired on 21 April 1999. On 25 June this year, application was made to set aside the default judgment. This is to be heard in Melbourne on 19 August 1999. 5 Section 41(6A) contemplates an extension of time in either of two circumstances, one being where proceedings have been commenced to set aside the judgment, and the other where there is an application to set aside the Bankruptcy Notice. The first alternative does not apply in this case because proceedings to set aside the judgment had not been commenced at the time that the application was made. Thus the application must be treated as being made in reliance upon 41(6AB). The application to set aside the Bankruptcy Notice depends upon the applicant demonstrating that the debt was not, in fact, owing. The application to extend time in which to comply with the Bankruptcy Notice will only be entertained if it seems that there is a reasonable prospect that such an argument will be successful. 6 It seems to me that the applicant had, at the relevant time, no defence to the action and still has no such defence. His claimed defence depends upon the affidavit of Douglas James Love, sworn on 21 May 1999. I am told, although it does not appear from the material, that Mr Love was a barrister acting on behalf of the applicant and, perhaps, his company. He asserts that he entered into negotiations with Ms Balik of the Australian Tax Office in connection with a proposed agreement to be entered into with Precon concerning the payment of arrears of group tax. He said that he advised Ms Balik that future tax payments could not be guaranteed because their payment was dependent on future cashflow which was uncertain. This seems to be a fairly obvious statement. 7 He says that he did this: ... having regard to the difficult position of the directors under such an agreement. 8 I understand this to be a reference to the possible personal liability of such directors. He then claims that he negotiated a variation to the agreement that payments of future moneys due under the terms of the agreement were to come specifically from future cashflow, and in the event that Precon failed to receive its cashflow in time to meet the tax payments, then it would be voluntarily put into administration by the applicant, a director. 9 Mr Love then asserts that: To avoid personal liability it was agreed that Barry Brewin had to voluntarily put Precon Pty Ltd into administration in the event of payment default. 10 Mr Love says that this clause was inserted into the agreement at Ms Balik's request. His affidavit then concludes by saying that: I forwarded the agreement with this variation to Barry Brewin for execution and then it was subsequently forwarded undated by 10 May 1996 to the Australian Tax Office as requested. 11 Clearly, the agreement was executed after these negotiations. This is not a case of a variation to a concluded agreement but of negotiations leading up to the agreement. The very considerable difficulty which the applicant must face is that the actual amendment which was made to the agreement did not reflect the various matters to which Mr Love refers. The handwritten variation is to par 4 in the following form: In the event of any payment deficient whatsoever the directors of Precon Proprietary Limited agree to appoint an administrator to the company within 24 hours of such default. 12 Although this appears to reflect part of Mr Love's concerns, it by no means reflects all of them. In particular, it makes no reference to the liability of directors. It is pointed out that on a letter which has been handed to me, dated 1 May 1996, the following words have been written:- 7/5 (presumably the date) spoke to Sandra Balik, advised money coming from future cashflow and not guaranteed to come in. 13 It bears the initials DL. The suggestion appears to be that this is a note by Mr Love of his understanding of the conversation. It does not really take the matter any further than his affidavit. The position is that the agreement upon which the applicant's liability depends is, on his case, not one which reflects the actual agreement between the parties. In other words, in order to establish the defence which he claims, he would have to establish an entitlement to rectification of the written agreement. 14 It is difficult to see how any lawyer could think that the written amendment to the agreement reflected the matters to which Mr Love refers in his affidavit or that it could, in any way, lead to the result that the directors were to be excused from their personal liability under the Income Tax Assessment Act in the event that the company defaulted. For these reasons, it is very difficult to accept at face value the assertion that there is any proper basis for rectifying the written agreement and therefore, any basis upon which the present applicant can avoid personal liability for this debt of the company. 15 There are other unsatisfactory aspects to Mr Love's affidavit. In particular, in pars 3, 4 and 5 it is difficult to know to what extent it reflects his motivation in entering into negotiation, things that he claims to have said to Ms Balik, or proposals to which she may have agreed. To make out a case for rectification, there must be very clear evidence as to what was said by the parties leading to the assertion of agreement in terms inconsistent with the written terms to which they were subsequently reduced. I can see no prospect of a successful claim for rectification of the terms of this agreement. 16 Theoretically, I suppose, there may also be some possibility that a claim of estoppel could be mounted, but that is not available on the material presently before me. There is no suggestion of any representation by the Tax Office. In the circumstances, I am of the view that on the material, there is no prospect of the applicant being successful in having the default judgment against him set aside. In those circumstances there is also no prospect of his having the bankruptcy notice set aside. It follows that there should be no extension of time pursuant to section 41(6A). 17 Both the application to set aside the bankruptcy notice and the application for an extension of time in which to comply with it should be dismissed. 18 I order the applicant to pay the respondent's costs of the proceedings. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett. Associate: Dated: 5 August 1999 The Applicant appeared in Person: Counsel for the Respondent: Mr J A Logan Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 5 August 1999 Date of Judgment: 5 August 1999