SARROFF v DEPUTY COMMISSIONER OF TAXATION SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL MAHONEY P and HANDLEY JA 4 November 1996 [1996] NSWCA 466 Mahoney P. There are before the Court this morning two applications. One is for leave to appeal against a judgment entered by his Honour Judge Garling on 5 September 1995, and the second is an application for a stay of proceedings pending the hearing of an appeal in this Court pursuant to that leave if it be granted. Mr Sarroff has appeared for himself in relation to the matter, he being of course a solicitor of this Court. The Court has dealt first with the application for a stay because that goes to the heart of the matter. If there be no stay then it may well be the other application, the application for leave to appeal, may become academic. However, I shall deal with the application for stay first. The position appears from the affidavit of Rachel Ann Granada that income tax assessments were issued or otherwise liability arose for payment of income tax in respect of an amount of over $105,000. Proceedings were taken against Mr Sarroff in the District Court for the recovery of the amount of taxation and, as appears frompar 17 of that affidavit, on 5 September 1995 judgment was entered for an amount of $105,954.57. It is accepted that that was an amount in excess of the true liability by an amount of $3,693.46. (At least that is what appears from those paragraphs). However that be, the fact is that the judgment entered in the District Court was excessive to the amount of $3,693.46. It is proper to record that when the proceedings were commenced in the District Court to recover the amount of taxation said to be owing, no defence was entered by Mr Sarroff. A reference is made in his affidavit to a reason for that, or at least what is suggested to be a reason. It is said that when the assessments arrived at his office he was experiencing heart failure due to the malfunction of a cardiac pacemaker. However, nothing further appears to have been done in relation to the matter and it does not appear from the circumstances of that matter whether and to what extent it prevented a proper defence being entered at some stage before the entry of judgment. The proceeding came before his Honour Judge Garling on 5 September 1995. The Court has a copy of the judge's judgment. The judge said that the matter before him was a motion filed on 29 May 1995 for an order that the judgment of the Court dated 22 March 1995 be set aside. During the course of the judgment his Honour refers to the excess amount for which the judgment has been entered, the amount to which I have referred. He said: It has always been conceded by the plaintiff that judgment should be amended to allow for a sum of about $3,000 which was wrongly credited to another account. 2 UNREPORTED JUDGMENTS His Honour then, in the course of his judgment, dealt with a number of the matters which have been raised before the Court this morning. His Honour pointed out, as I have indicated, that no defence has been entered to the proceeding and that the judgment was in effect a judgment by default. His Honour pointed to the contention — I refer to p 2 of his judgment — that if he set aside the judgment he should allow the defendant Mr Sarroff twenty-eight days to file a defence. His Honour said that it was said that the defendant had moved for leave to challenge the assessment in the Administrative Appeals Tribunal. It was argued that he should be satisfied there is an arguable defence and should set aside the judgment and let matters proceed normally. I say parenthetically that it appears from what has been said this morning that no steps have yet been taken in the Administrative Appeals Tribunal to challenge the assessments or other the basis of the liability for income tax upon the basis of which the present proceedings are brought. His Honour recorded that the defendant Mr Sarroff did not disclose, that is put before the Court, a draft defence but set out in a paragraph of an affidavit the grounds upon which he intended to challenge the plaintiff's claim. His Honour said: The defendant also says he wishes to plead estoppel, as a result of a conversation with an officer of the plaintiff's department and himself. The only matter now urged as a basis for the contention that the judgment entered or amended by the judge, Garling J, in September 1995, was wrong is the claim to a promissory estoppel. In relation to that his Honour said: The plaintiff argues that this defence has no merit. As far as the estoppel question is concerned, it is argued on behalf of the plaintiff that an officer made certain statements relating to the payment of the debt. The plaintiff says even if the officer did, the officer had no right to do so, because the officer is not an authorised person under the Act, and therefore cannot bind the Commissioner. His Honour went on to say: It should be remembered that the defendant did not seek to put on a defence to the statement of claim. Judgment was signed, and it was not until after judgment was signed that there was any mention of a defence being put on. There was an application which sought to stay proceedings, but that failed.""His Honour dealt with the matter further and at length. On p 4 of his judgment he ordered that the judgment be set aside. He indicated that he would allow the plaintiff to enter judgment immediately for the correct sum, that is the sum of $105,954.57. He then said: The defendant has no defence to this claim. An assessment was issued. It was not disputed. It may now be disputed, but that is a matter for another jurisdiction. I am not satisfied that the defendant has a defence on the estoppel point, because the person who allegedly said something to the defendant does not have the power to bind the Commissioner. The defence is not properly set out in the affidavit. That is not just a technical point, but it does not really allow me to have a look at the full and detailed defence. All I can do is go with what is in paragraph 25. His Honour then added: As far as any dispute which may be considered by the Administrative Appeals Tribunal, as I understand it the defendant would be required to meet his obligation, and then should the Administrative Appeals Tribunal agree that there was any amount to be refunded, then it would be refunded. As I have said, I am not satisfied there is any arguable defence. URJ SARROFF v DEPUTY COMMISSIONER OF TAXATION (Mahoney P) 3 His Honour, as I have indicated, set aside the judgment in the sense that he allowed the amendment of the judgment to which I have referred. His Honour entered judgment forthwith in favour of the plaintiff for the particular amount. An application was then made on behalf of Mr Sarroff for a stay of proceedings and that application was refused. Subsequently an application was made to another judge of the District Court, his Honour Judge McLachlan, on 27 August 1996. His Honour refused the application, an application for a stay of proceedings upon the judgment. It appears that the judgment entered or amended by Garling J in September 1995 remained on foot. The application for stay was dealt with by McLachlan J by a judgment of 27 August 1996. He refused the application for a stay. An appeal was then lodged to this Court against, as I understand it, the judgment entered by Garling J. That appeal resulted in an appeal book being prepared and a copy of that appeal book is before the Court this morning. The Court is informed that proceedings have been commenced in Bankruptcy against Mr Sarroff based upon the judgment in the District Court. The Court has been informed, without dissent, that an Act of Bankruptcy has been committed but no petition has yet been filed. An order has been made by a judge of the Federal Court dealing with that aspect of the matter. The Court is informed by the representative of the Department that the Commissioner proposes to issue a petition for Bankruptcy in ordinary course. The appeal papers having been filed, the question has been raised whether leave to appeal is necessary. It is at least arguable that it may be necessary. It is that which presumably has based the application for leave to appeal to which I have referred. The question arises whether the Court should grant the stay that Mr Sarroff seeks. Prima facie the judgment on the face of it is regular. In answer to questions from the Court this morning Mr Sarroff has indicated — no doubt quite rightly — that the only ground upon which it is said that the judgment which now exists is irregular, is because a defence of promissory estoppel was desired to be set up, not against the whole of the judgment but against part of it. What part of it does not clearly appear but in any event it appears that a substantial amount would be due even if such a defence were made out. Mr Sarroff has properly submitted that he is entitled to have any judgment which is entered against him entered regularly and not irregularly. He has submitted, rightly, that the courts should not proceed upon the basis of a judgment which, by reason of an irregularity, should not stand. It should not provide the basis of proceedings in Bankruptcy or otherwise against him. If one may adopt the old saying,""'A party is entitled, if his throat is to be cut, to have it cut by the statutory knife and not by some irregular instrument which has been manufactured by somebody else'. However I am by no means satisfied that the judgment which has been entered is irregular. As far as the material before the Court is concerned, it does not appear to be an irregular judgment. It was proper, I think, for the judge to enter the judgment as he did. He was not satisfied that there was any relevant defence and I am not satisfied that in that his Honour was wrong. His Honour did what he did upon the basis of the circumstances as set forth in his reasons for judgment. I do not think that the judgment which has been referred to was irregular in any sense here relevant. Upon that basis it appears unlikely that the appeal which has been lodged will be successful, assuming that it is properly brought. In my 4 UNREPORTED JUDGMENTS opinion, acting upon the discretion which is vested in the court in this regard, the application for a stay should not be granted. I should indicate that I am conscious of the principles which have been established by this Court in relation to stay of proceedings. In the present case it is not necessary to detail them. Prima facie a person who has a sufficiently arguable ground of appeal is entitled to have that ground dealt with in due course. That is why I have looked at the detail of the matter and why the Court has asked the questions of Mr Sarroff that it has this morning. But in the end, taking into account all of the circumstances, I have come to the conclusion that there is so little prospect of the appeal succeeding, succeeding upon any point of substance, that it is not appropriate that the stay be granted. I would therefore propose that the motion for stay of proceedings pending decision of the Court of Appeal in the appeal No 40625 of 1995 be dismissed with costs. Handley JA. I agree. Mahoney P. The order of the Court is therefore that that motion be dismissed with costs. Mr Sarroff, in these circumstances is there any point in proceeding with the application for leave to appeal at this stage? The Court — SARROFF: Only in so far as it may be that leave is required of this Court in order to bring that appeal. I would ask leave of the Court to do so. MAHONEY P: Ordinarily where it is doubtful whether leave to appeal is necessary, the Court — I say ordinarily, perhaps I should say often — the Court takes the course of merely referring that motion to the hearing of the appeal so that the Court can take the attitude that, if leave is necessary it will hear the appeal and we don't have to concern ourselves with the technicalities. I know the High Court has on one occasion referred to the necessity to deal with leave applications and the Court is conscious of that and makes appropriate orders. But it would be, I think, a waste of time to go into all of those technicalities at the moment when it would not be necessary. Now is there any reason why the Court should not merely stand over this application for leave to appeal until the hearing of the appeal, if the appeal is proceeded with? SARROFF: Yes I did — MAHONEY P: Yes. You see any objection to that —? SARROFF: Only to the extent your Honour, that that is in effect to grant leave if the leave application is stood over to the substantive hearing of the matter and there are — MAHONEY P: Did the Commissioner take this point? SARROFF: This particular point — MAHONEY P: I thought the court did. SARROFF: I think that's right your Honour, it was in Diamond's case I believe Handley JA. Mr Quinn the purpose of, I mean the time to take these points is really when the notice of appeal comes in and Mr Sarroff has been able to prepare appeal books, so the course proposed by the President is a convenient one in that appeal judges can't hear, there is no question of hearing the appeal today. QUINN: If your Honours are minded to make that order then — Mahoney P. The Court will order that the application for leave to appeal be stood over to the hearing of the appeal. I take it no date has been fixed for the hearing. So it will be stood over to be dealt with by the Court upon the date fixed for the hearing of the appeal if leave is granted. URJ SARROFF v DEPUTY COMMISSIONER OF TAXATION (Mahoney P) Orders accordingly.