FEDERAL COURT OF AUSTRALIA Singh v Deputy Commissioner of Taxation [2011] FCA 889 Citation: Singh v Deputy Commissioner of Taxation [2011] FCA 889 Appeal from: Deputy Commissioner of Taxation v Singh [2010] FMCA 849 Parties: PREM JEET KAUR SINGH v DEPUTY COMMISSIONER OF TAXATION File number: NSD 1604 of 2010 Judge: COLLIER J Date of judgment: 8 August 2011 Catchwords: BANKRUPTCY – appeal from decision of Federal Magistrate – sequestration order made against estate of appellant – whether Federal Magistrate should have dismissed creditor's petition for "other sufficient cause" within meaning of s 52(2)(b) Bankruptcy Act 1966 (Cth) – whether all documentation had been served on appellant by petitioning creditor – whether Federal Magistrate erred in failing to take into consideration damages claim of appellant in State Courts – whether claim in State Courts was likely to succeed – whether procedural fairness – whether hearing of appeal should be adjourned pending determination of other proceedings filed in the Federal Court – whether Federal Magistrate was justified in concluding that appellant was insolvent – whether Federal Magistrate erred in refusing to adjourn proceedings before his Honour Legislation: Bankruptcy Act 1966 (Cth) s 52 Cases cited: Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 258 ALR 14 cited Deputy Commissioner of Taxation v Singh [2010] FMCA 849 cited Goldberg v Morrow [2004] FCA 1490 cited ICM Agriculture Pty Ltd v Young (2009) 260 ALR 515 cited Jordan v Smart [1961] NSWR 735 cited Singh v Ginelle Pty Ltd [2010] NSWCA 310 cited Singh v Super City Home Loans Pty Ltd [2011] FCA 646 cited Thornberry v R (1995) 69 ALJR 777 cited Totev v Sfar (2009) 260 ALR 515; [2008] FCAFC 35 cited Date of hearing: 23 May 2011 Place: Brisbane (Video to Sydney) Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 35 Counsel for the Appellant: Mr B Singh, appeared on behalf of the Appellant Counsel for the Respondent: Mr S Golledge Solicitor for the Respondent: Australian Taxation Office, Legal Services Branch IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION NSD 1604 of 2010 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: PREM JEET KAUR SINGH Appellant AND: DEPUTY COMMISSIONER OF TAXATION Respondent JUDGE: COLLIER J DATE OF ORDER: 8 AUGUST 2011 WHERE MADE: BRISBANE (VIDEO TO SYDNEY) THE COURT ORDERS THAT: The appeal be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION NSD 1604 of 2010 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: PREM JEET KAUR SINGH Appellant AND: DEPUTY COMMISSIONER OF TAXATION Respondent JUDGE: COLLIER J DATE: 8 AUGUST 2011 PLACE: BRISBANE (VIDEO TO SYDNEY) REASONS FOR JUDGMENT 1 This is an appeal from a decision of a Federal Magistrate delivered 2 November 2010, in which the Federal Magistrate made a sequestration order against the estate of the appellant, Mrs Singh, on the application of the Deputy Commissioner of Taxation (the Deputy Commissioner). 2 The debt identified in the creditor's petition of the Deputy Commissioner, dated 15 December 2009 and filed in the Federal Magistrates Court, is the sum of $148,715.29, being funds due on a final judgment in the District Court, plus costs and interest to judgment. 3 I note that in the judgment below the Federal Magistrate incorrectly refers to the judgment debt as "the sum of $1,488,715.29". This is clearly a typographical error in his Honour's judgment – his Honour's decision was clearly made by reference to the creditor's petition and the evidence before him, and there is no suggestion that his Honour was under a misapprehension as to the size of the debt owed by the appellant to the Deputy Commissioner. I note that the existence of this typographical error was raised by the Deputy Commissioner in written submissions filed in these proceedings, and no issue in respect of it has been taken by the appellant. 4 The grounds of appeal raised by the appellant are as follows: 1. His Honour erred by not taking into account that all the documents had been properly served on the appellant and/or fail to satisfy himself on this issue to the requisite standard prior to making the sequestration order. 2. His Honour erred in law in failing to recognise that the recovery from the potential judgment would provide a basis for solvency. 3. His Honour denied the appellant procedural fairness when his Honour failed to adjourn the matter so as to enable the Appellant to provide all the relevant evidence of the solvency to the Court. 5 The appellant seeks orders including that the appeal be allowed, that orders of his Honour made on 2 November 2010 be set aside, and costs. 6 At the hearing before me, and in light of a statement by the appellant's husband Mr Singh as to the ill-health of the appellant, I allowed Mr Singh to make submissions in respect of the notice of appeal on the appellant's behalf. Background 7 The judgment debt identified in the Deputy Commissioner's creditor's petition, and upon which the sequestration order is based, flows from unpaid goods and services tax and Pay As You Go tax contributions due from the debtor, who previously ran a business. 8 An issue in dispute before his Honour concerned the ability of the appellant to raise funds to discharge the debt owed to the Deputy Commissioner. To this extent, before his Honour the appellant sought an order that the Deputy Commissioner's petition be dismissed, in reliance on s 52(2)(b) of the Bankruptcy Act 1966 (Cth) (the Act) which provides: (2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: (a) … (b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition. 9 A précis of the history of the appellant's claim for dismissal of the Deputy Commissioner's petition pursuant to s 52(2)(b) was set out by his Honour in his judgment Deputy Commissioner of Taxation v Singh [2010] FMCA 849 in the following terms: [5] No notice of grounds of opposition has been filed by the debtor. However, her husband appeared before me today and told me that he is representing his wife's interests. The debtor is seriously ill and has undergone cancer surgery. Mr Singh explained to me the history of his wife's business dealings, which have apparently involved a series of borrowings, both for the purchase of real estate and for the running of the former business. The history of those borrowings has been a singularly unhappy one. The circumstances are further detailed in the two affidavits of Jasvinder Ranbir Kaur Singh, the eldest child of the respondent debtor, made on 4 August 2010 and 30 August 2010. In addition, I have before me the affidavit of Balbir Singh made on 2 November 2010. He is the debtor's husband who appeared today. [6] On the basis of what I have been told, the family of the respondent debtor, as well as she herself, have faced increasingly desperate financial circumstances and she has entered into dubious loan arrangements in an attempt to resolve a series of financial crises. These culminated in a borrowing from a company called Ginelle Pty Limited. That loan was secured by a mortgage over the Singhs' land at 20 Spencer Road, Londonderry in New South Wales. Within a short time after the Singhs entered into that loan agreement, there was a default and recovery action followed. [7] The Londonderry property was sold and funds were disbursed to cover the mortgage costs and interest and for other purposes. The Singhs were dissatisfied with the way in which the proceeds of the sale of the property were disbursed and instituted legal proceedings in the Supreme Court of New South Wales. The fact of those proceedings, which were said to raise the possibility of the awarding of damages sufficient to pay the debt to the Deputy Commissioner of Taxation, has led to eight adjournments of the creditor's petition. Judgment in the Supreme Court was given by Garling J on 22 October 2010. That judgment establishes that the Singhs were successful in persuading the Supreme Court that they should recover $25,000 from Ginelle improperly retained by that company, but were otherwise unsuccessful, and had to pay their own legal costs. [8] There is an appeal to the Court of Appeal of New South Wales, which has been heard, and on which judgment is reserved. Mr Singh sought a further adjournment of the petition on the basis that he has an expectation that the appeal will be resolved favourably and will result in the awarding of damages sufficient to pay the debt to the Deputy Commissioner. In my view, such an outcome is so unlikely as to be fanciful. In addition, there is no guarantee that whatever funds might be recovered as a result of the outcome of the appeal in the Court of Appeal would be applied to reduce or eliminate the Deputy Commissioner's debt. 10 I note that on 19 November 2010, approximately two weeks after his Honour's decision, the Court of Appeal of New South Wales delivered judgment in Singh v Ginelle Pty Ltd [2010] NSWCA 310. In that decision the Court of Appeal dismissed appeals from the appellant and Mrs Singh against decisions of the Supreme Court of New South Wales. At first instance the learned primary judges had dismissed notices of motion whereby the appellant and Mr Singh had sought, inter alia, orders including that: an agreement dated 9 June 2009 between Ginelle Pty Ltd and Mr Balbir Singh be set aside; judgment against Mr and Mrs Singh dated 1 December 2009 be set aside; the sale of land at 20 Spencer Road, Londonderry, NSW be stayed; the agreement dated 9 June 2009 was unconscionable and deceptive; certain parties be joined to the proceedings. (Ex post facto, I note that this outcome vindicates his Honour's decision to reject the appellant's submissions in respect of s 52(2) of the Act, and that there was clearly no basis to the claim of the appellant that she would be in a position pay her debts after the decision of the Court of Appeal.) 11 At the hearing before me Mr Singh sought to file in Court a notice of motion seeking the following orders: 1. An Order to vacate the Hearing of the Appeal until the conclusion and Judgment of Case No NSD 1601 of 2010 in the Federal Court of Australia. 2. In the alternative, the Court consider the Evidence filed in this Court on 23 May 2011. 3. An Order that the Applicant, Prem Jeet Kaur Singh remain Solvent until after the conclusion and Judgment of the Federal Court Case No NSD 1601 of 2010. 4. An Order that the relief money granted to the Applicant from Case Number 1601 of 2010 pay the ATO's dues. 5. Any other Order his Honour deems fit to see that justice is done to the Applicant. (errors in original) 12 After hearing submissions from Mr Singh, it became apparent that: After the decision of the Federal Magistrate in Deputy Commissioner of Taxation v Singh [2010] FMCA 849, the appellant and Mr Singh had filed new proceedings in the Federal Court in relation the security over her property in Londonderry, New South Wales (Singh v Super City Home Loans Pty Ltd NSD 1601 of 2010). In those proceedings the applicants claimed, inter alia, damages, declarations that various agreements be set aside, and an order that numerous parties be joined as respondents. The proceedings in NSD 1601 of 2010 were before Foster J on 21 April 2011, and his Honour had reserved judgment. Those claims related to matters to which the Federal Magistrate adverted in the decision currently the subject of appeal and in respect of which the appellant had a positive expectation. In substance, Mr Singh submitted that the likelihood of recovery of moneys in the proceedings before Foster J was such that the Court should now be satisfied that a sequestration order ought not be made against the estate of the appellant within the meaning of s 52(2)(b) of the Act (transcript p 12 ll 1-4). 13 After hearing from both Mr Singh and Mr Golledge for the Deputy Commissioner, I dismissed the appellant's notice of motion filed in Court. At the time I indicated that I would give reasons for this decision in my judgment. 14 Those reasons are as follows: Any findings by Foster J in subsequent proceedings in the Federal Court would be irrelevant to the solvency of the appellant at the date of the hearing before the Federal Magistrate. Indeed, I accept the submission of the Deputy Commissioner that, as a sequestration order had been made against the estate of the appellant, her standing to commence the subsequent proceedings in this Court is dubious. In order to substantiate a claim under s 52(2)(b) of the Act that a sequestration order ought not be made "for other sufficient cause", the appellant was required to establish that her claims before Foster J were likely to succeed, and not merely arguable: ICM Agriculture Pty Ltd v Young (2009) 260 ALR 515 at [85], Totev v Sfar (2009) 260 ALR 515; [2008] FCAFC 35 (in particular Cowdroy J at [78]-[87]). No material was produced to me to support any finding other than that the prospect of success before Foster J was speculative (at best). In any event, no evidence was provided by the appellant supporting the proposition that success in the proceedings before Foster J would impact on her solvency. As a general proposition, there is a public interest in having bankruptcy proceedings such as those before me completed expeditiously. Contrary to the submission of Mr Singh, the order of Emmett J of 2 February 2011 in these proceedings that the proceedings under the sequestration order be stayed up to the final time of final disposition of the appeal do not support the appellant's application for an adjournment. Rather, the order was a usual order in these circumstances to restrain the trustee in bankruptcy of the appellant taking steps to implement the administration of the bankrupt estate. I am satisfied that the Deputy Commissioner would be prejudiced by the adjournment of the hearing because there was a possibility that, during the adjournment, any remaining assets with the appellant could be dissipated. Although there was a risk that the appellant would suffer prejudice by a refusal of this Court to take into account the possibility of success of the appellant before Foster J, in my view this possibility was purely speculative and not supported by anything beyond the bare assertions of the appellant. 15 In any event, during the period which this judgment has been reserved I note that Foster J has delivered judgment in respect of the proceedings before his Honour (Singh v Super City Home Loans Pty Ltd [2011] FCA 646) and dismissed the notices of motion filed by the appellant and Mr Singh. 16 I now turn to the grounds of appeal before this Court. First ground of appeal 17 The first ground of appeal is that the Federal Magistrate erred by not taking into account that all the documents had been properly served on the appellant and/or failed to satisfy himself on this issue to the requisite standard prior to making the sequestration order. The appellant has further submitted that the Federal Magistrate could not be satisfied that the sum of $148,715.29 was in fact the amount due, as his Honour did not have proof of the amount owing. 18 Section 52(1) of the Act provides: Proceedings and order on creditor's petition (1) At the hearing of a creditor's petition, the Court shall require proof of: (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient); (b) service of the petition; and (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. 19 At paragraph 2 of the judgment below, his Honour said: The petition is supported by the affidavits within it verifying its contents, as well as the affidavit of Greg Hughes made on 21 January 2010, verifying service of the petition, the bankruptcy notice preceding it and an affidavit of search. I also received by leave today, final affidavits of debt and search. 20 I note that the following affidavits were filed in the proceedings before his Honour: Affidavits of Greg Hughes sworn 28 May 2009, Jyothi Namgulurli affirmed 15 December 2009 and Cecilia Hunt affirmed 15 December 2009, supporting the commission of an act of bankruptcy by the appellant. An affidavit of Cecilia Hunt affirmed 1 November 2010 supporting the Deputy Commissioner's claim that the Commissioner was, at the date of the hearing of the petition, a creditor of the appellant whose debt was still outstanding. An affidavit of Greg Hughes sworn 21 January 2010 supporting the Deputy Commissioner's claim that the petition had been served on the appellant. An affidavit of Katherine Prestidge affirmed on 1 November 2010 in which Ms Prestidge deposed that she had undertaken a search of the records of the National Personal Insolvency Index of the Insolvency Trustee Service of Australia and ascertained that, inter alia, no details of any debt agreement in relation to the appellant's debt had been entered, bankruptcy proceedings had also been filed against the appellant by another party, and the appellant was not, at that stage, a bankrupt. 21 So far as concerns the amount of interest on the judgment debt, the Deputy Commissioner submits that the sum of $86,000 was given to his Honour from the bar table by the solicitor appearing for the Commissioner (transcript of the Federal Magistrates Court 2 November 2010 p 15 l 40). This has not been disputed by the appellant. 22 In my view this evidence was adequate to satisfy his Honour of the requirements of s 52(1), as stated at [10] of the judgment below. 23 The first ground of appeal has no merit. Second ground of appeal 24 The second ground of appeal is that the Federal Magistrate erred in failing to recognise that the recovery from the reserved judgment of the Court of Appeal of New South Wales would provide a basis for solvency of the appellant. 25 It is clear that this ground of appeal is grounded in s 52(2)(b) of the Act. 26 The only evidence filed on behalf of the appellant in the proceedings before his Honour was: An affidavit of Jasvindar Ranbir Kaur Singh, the daughter of the appellant, sworn 4 August 2010, in which Ms Singh deposed (inter alia) that the appellant had been the victim of mortgage fraud. So far as relevant, Ms Singh deposed: 15. I say that my mother will receive three sets of relief and damages in near future and may be able to meet her debt obligations to Australian Taxation Office. 16. I say that now I have taken over the affairs of my mother and that I have some figures to work on. I can negotiate an outcome of this debt with the Australian Taxation Office. (emphasis added) A second affidavit of Ms Jasvindar Singh sworn 30 August 2010 to which Ms Singh annexed material relevant to the proceedings then before the Supreme Court of New South Wales, deposed so far as relevant as follows: 4. I say that since last Court date I have kept the Australian Taxation Office up to date with the progress of my mother's finances. An affidavit of Mr Singh sworn 2 November 2010 in which Mr Singh supported an adjournment of the proceedings before his Honour for three months pending resolution of the proceedings before the Court of Appeal of New South Wales, and in which Mr Singh deposed (so far as relevant): 6. I say that the relief of money from the Supreme Court case will pay the ATO debt. 27 No evidence of the appellant's financial circumstances was lead at the trial upon which his Honour could make the finding to which this ground of appeal refers. Rather: The only evidence that any favourable resolution of the proceedings in the Court of Appeal of New South Wales would impact on the appellant's solvency was the unsubstantiated assertion of Mr Singh. I note that Ms Jasvindar Singh was more equivocal, and was only prepared to assert that any relief the Court of Appeal of New South Wales might grant "may" meet the appellant's debt obligations. There was evidence before his Honour (to which his Honour referred at [2] of the judgment below) that the appellant was the subject of another creditor's petition presented by the Workers Compensation Nominal Insurer, and which had been listed for hearing on 29 November 2010. 28 On the material before the Court to which I have already referred, his Honour was justified in concluding that, as at the date of the hearing, the appellant was insolvent. 29 The second ground of appeal has no merit. Third ground of appeal 30 The third ground of appeal is that his Honour denied the appellant procedural fairness when his Honour failed to adjourn the matter so as to enable the Appellant to provide all the relevant evidence of the solvency to the Court. 31 The decision to adjourn a hearing constitutes an exercise of the Court's discretion: Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 258 ALR 14, Goldberg v Morrow [2004] FCA 1490 at [36]. The exercise of the discretion miscarries where the refusal of an adjournment results in one of the parties being unable adequately to present its case: Thornberry v R (1995) 69 ALJR 777. Where there is a proper basis for an application for an adjournment, and refusal would seriously prejudice the party seeking the adjournment and not prejudice the other party, adjournment should ordinarily be granted: Jordan v Smart [1961] NSWR 735. 32 In this case the appellant's claim that the creditor's petition before his Honour ought be dismissed was by reference to s 52(2)(b) of the Act, namely that the appellant and her husband had a claim against a third party for an amount equal to or greater than the amount owed to the Deputy Commissioner. In such a case, as I have already observed, the appellant is required to demonstrate that the relevant claim is likely to succeed, and not merely arguable. 33 As is clear from [8] and [9] of the judgment below his Honour gave proper consideration to the submissions of the appellant concerning the proceedings then before the Court of Appeal of New South Wales. At [8], his Honour observed that an outcome from that litigation where the appellant was awarded damages sufficient to allow her to discharge her debt to the Deputy Commissioner in full was "so unlikely as to be fanciful". Further, his Honour also observed, practically and in my view correctly, that even if the appellant was successful in the Court of Appeal, there was no guarantee that whatever funds might be recovered would be applied to reduce or eliminate the Deputy Commissioner's debt. 34 No error is revealed in his Honour's reasoning in [8] and [9] of the judgment below. The third ground of appeal has no merit. Conclusion 35 The appropriate order is that the appeal be dismissed with costs. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier. Associate: Dated: 8 August 2011