FEDERAL CIRCUIT COURT OF AUSTRALIA

Transcription

1 FEDERAL CIRCUIT COURT OF AUSTRALIA DEPUTY COMMISSIONER OF TAXATION v NUGAWELA [2017] FCCA 1289 Catchwords: BANKRUPTCY Sequestration order made by a Registrar application to review decision of Registrar special leave application to the High Court application to the Federal Court for judicial review application for stay of sequestration order factors for consideration. Legislation: Bankruptcy Act 1966 (Cth), s.52 Income Tax Assessment Act 1936 (Cth), s.167 Federal Circuit Court Rules 2001 (Cth), r Federal Court Act 1976 (Cth) Federal Court Rules 2011 (Cth), r.36.08, Sch.1 Judiciary Act 1903 (Cth), s.39b Taxation Administration Act 1953 (Cth), Part IVC, ss.14zzm, 14ZZR, Schedule 1, ss , Cases cited: Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 Bryant v Commonwealth Bank of Australia & Anor (1996) 90 LGERA 126 Commonwealth Bank of Australia v Pattison [2012] FCA 1511 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473; (2008) 82 ALJR 1411; (2008) 69 ATR 357; (2008) 248 ALR 693; (2008) 67 ACSR 593; (2008) ATC ; (2008) 26 ACLC 880 Federal Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; (2008) 237 CLR 146; (2008) 82 ALJR 1177; (2008) 69 ATR 41; (2008) 247 ALR 605; (2008) ATC Kellow v Dudzinski [2003] FCA 143 Liprini v Liprini [2010] FCA 1117 Murdaca v Accounts Control Management Services Pty Ltd [2007] FCA 964; (2007) 5 ABC(NS) 251 Nolten v Groeneveld Australia Pty Ltd [2011] FCA 1494 Nugawela v Federal Commissioner of Taxation [2016] FCA 578 Nugawela v Federal Commissioner of Taxation [2016] FCAFC 164 Nugawela v Deputy Commisioner of Taxation [2015] WASC 468 Nugawela v Deputy Commisioner of Taxation [2017] WASCA 9 Nugawela v Deputy Commissioner of Taxation [2017] HCASL 114 Nugawela v Deputy Commisioner of Taxation (No 2) [2017] WASCA 66 Re Lewin and Glasson; Ex parte Milner (1986) 67 ALR 591 Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Cover sheet and Orders: Page 1

2 Re Verma; Ex parte Deputy Commissioner of Taxation (1984) 4 FCR 181 Rigg v Commonwealth Bank of Australia [2001] FCA 1340 Totev v Sfar & Anor [2008] FCAFC 35 (2008) 167 FCR 193; (2008) 247 ALR 180; (2008) 5 ABC(NS) 691 Westpac Banking Corporation v Carver [2003] FCA 221; (2003) 126 FCR 113 Darvall and Fernon (Eds), Australian Bankruptcy Law and Practice, Volume 1 Applicant: Respondent: DEPUTY COMMISSIONER OF TAXATION PATRICK ALLAN NUGAWELA File Number: PEG 121 of 2016 Judgment of: Judge Antoni Lucev Hearing date: 14 March and 2 June 2017 Date of Last Submission: 2 June 2017 Delivered at: Perth Delivered on: 19 June 2017 REPRESENTATION Counsel for the Applicant: Solicitors for the Applicant: For the Respondent: Mr C Slater Jackson McDonald In person ORDERS (1) That the respondent s interim application for a stay of orders made by a Registrar of this Court on 21 February 2017 be dismissed. Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Cover sheet and Orders: Page 2

3 FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH PEG 121 of 2016 DEPUTY COMMISSIONER OF TAXATION Applicant And PATRICK ALLAN NUGAWELA Respondent Introduction REASONS FOR JUDGMENT 1. On 21 February 2017 a Registrar of this Court made a sequestration order ( Sequestration Order ) under s.52(1) of the Bankruptcy Act 1966 (Cth) ( Bankruptcy Act ) against the estate of Dr Patrick Allan Nugawela ( Dr Nugawela ), and also made ancillary orders for costs, and for a stay of all proceedings under the Sequestration Order until 4pm on 14 March 2017 ( Other Orders ). 2. On 10 March 2017 Dr Nugawela applied to this Court to review the Registrar s Orders ( Review Application ). Separately, Dr Nugawela filed an interim application with this Court for a stay of the Sequestration Order and the Other Orders ( Stay Application ). 3. The Deputy of Commissioner of Taxation ( Deputy Commissioner ) opposes the Stay Application. 4. On 14 March 2017 this Court made an order staying all proceedings under the Sequestration Order pending further orders of the Court. 5. The Stay Application was heard on 14 March and 2 June These Reasons for Judgment relate only to the Stay Application. Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 1

4 Review Application 6. The Registrar s Orders the subject of the Review Application are as follows: 1. The estate of Patrick Nugawela be sequestrated under the Bankruptcy Act The Applicant s costs be fixed in the sum of $6, and be paid from the estate of the Respondent in accordance with the Bankruptcy Act There be a stay of all proceedings under the sequestration order until 4.00 pm on Tuesday, 14 March The Court notes that the date of the act of bankruptcy is 15 February The Court also notes that a consent to act as trustee signed by Gregory Bruce Dudley has been served. 7. The Review Application sought the following orders: Stay Application 1. The orders and proceedings made by Registrar Trott on 21st February 2017 in proceeding PEG121/2016 be set aside, pursuant to ss 102(2), 104(2) and 104(3) of the Federal Circuit Court of Australia Act 1999 (Cth). 2. Continue the stay and effect of the all proceedings of sequestration orders made on permanently. Rule Federal Circuit Court Rules Set aside/anul Bankruptcy Notice No issued on 18 January Rule defect in affidavit in support of the Creditor's Petition (Alyx Sudall ) 8. The Stay Application seeks the following orders: 1. The orders and proceedings made by Registrar Trott on 21st February 2017 in proceeding PEG121/2016 be set aside, pursuant to ss 102(2), 104(2) and 104(3) of the Federal Circuit Court of Australia Act 1999 (Cth). Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 2

5 2. A stay of all PEG121/2016 orders and proceedings under the sequestration order be extended beyond 4.00 pm on Tuesday, 14 March 2017 and permanently stayed. 3. An urgent order that the said Sequestration Order and all proceedings made against the estate of the Applicant Patrick Allan Nugawela, on the 21st February 2017 by the Federal Circuit Court of Australia in PEG121/2016, be permanently stayed until and unless the final determination of the High Court of Australia Appeal No: HCA9/2017 appealing the judgment of the Court of Appeal, Supreme Court of WA to dismiss an application for an appeal out of time against the primary judgment, upon which the Creditor s Petition is based, is heard and determined according to Law. 4. A stay of sequestration orders and all proceedings of sequestration of the estate of Patrick Allan Nugawela pending the review of the Registrar's judgment of sequestration of the estate of Patrick Nugawela pursuant to Rule 2.02(3) of the Federal Circuit Court (Bankruptcy) Rules The primary judgment referred to in [3] of the Stay Application is the judgment of the Supreme Court of Western Australia in Deputy Commissioner of Taxation v Nugawela [2015] WASC 468 ( Nugawela Supreme Court ). Nugawela Supreme Court was appealed, unsuccessfully by Dr Nugawela, to the Supreme Court of Western Australia, Court of Appeal ( WA Court of Appeal ): Nugawela v Deputy Commissioner of Taxation [2017] WASCA 9 ( Nugawela State Appeal ). Nugawela Supreme Court 10. The background to the judgment in Nugawela Supreme Court is as follows: a) Dr Nugawela was a medical practitioner practising as a general practitioner who failed to file taxation returns for the financial years ended 30 June 2003 to 30 June In respect of the financial years 30 June 2003 to 30 June 2010 the Commissioner of Taxation ( Commissioner ) made assessments under s.167 of the Income Tax Assessment Act 1936 (Cth). Dr Nugawela also became liable for general interest charges on unpaid tax; Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 3

6 b) on 30 April 2015 a Deputy Commissioner of Taxation issued a certificate under s of Schedule 1 of the Taxation Administration Act 1953 (Cth) ( TA Act ) certifying that the sum of $1,632, was a debt due and payable by the appellant to the Commonwealth of Australia in respect of tax related liabilities pursuant to notices of assessment for the abovementioned years; c) for the financial years ending 30 June 2011, 2012 and 2013 Dr Nugawela was issued with an administrative penalty in respect of which he also became liable for general interest charges. A further certificate under s of Schedule 1 to the TA Act was issued for the sum of $2,442.63; d) in the meantime the Deputy Commissioner had commenced proceedings (on 9 December 2014) to recover $1,575, said to be owing by Dr Nugawela, and in respect of which an application for summary judgment was made to the WA Supreme Court on 12 May In support of that application an affidavit was filed by an employee of the Australian Taxation Office asserting that the debt owed was an amount of $1,668, as at 19 August 2015, which was accompanied by a further certificate under s of Schedule 1 to the TA Act in respect of that amount; e) Dr Nugawela opposed the summary judgment application asserting that his failure to lodge tax returns was due to psychological problems since 2003, the flooding of his medical practice in 2014 from a burst water pipe, and litigation with his landlord, and also asserted that the Commissioner s assessments needed to be reconsidered as they were based on incomplete information and he sought an adjournment of the summary judgment application to allow him time to file further tax returns; and f) on the hearing of the application for summary judgment on 19 August 2015 the primary Judge refused an adjournment and ordered that summary judgment be entered for the Deputy Commissioner in the sum of $1,668,164.16, plus interest. Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 4

7 11. The reasoning in Nugawela Supreme Court is, with respect, succinctly and sufficiently summarised in Nugawela State Appeal at [10]-[15] per Newnes and Murphy JJA as follows: 10 The primary judge noted that the application for summary judgment was out of time but considered that the delay had been satisfactorily explained and that leave to bring the application should be granted. 11 His Honour considered that the appellant's arguments for an adjournment of the application did not withstand intellectual scrutiny or analysis. They were, in his Honour's view, very weak arguments and, in any event, could only apply to the financial years ended 30 June 2007 and 30 June 2008 [28]. 12 The primary judge observed that if the appellant intended to challenge the Commissioner's assessments he could do so under pt IVC of the TAA, although an extension of time might be required [30]. The fact that an assessment was disputed did not, on the face of it, relieve the taxpayer from paying it [35]. It was open to apply for a stay of the application for judgment in tax recovery proceedings where there is a pending tax objection under pt IVC of the TAA but a stay is not inevitable in those circumstances and was an even more remote prospect in the present case because no proceedings under pt IVC of the TAA had been commenced by the appellant [36]. 13 The appellant's assertion that the flooding of his medical premises in 2014 had prevented him from lodging tax returns was rejected by the primary judge, who observed that it provided no explanation for the failure to do so in the period 2003 to 2013 [37] - [38]. Nor, in his Honour's view, did the mere statement that the appellant was involved in litigation with his landlord provide any explanation [40]. The explanation that the appellant had been suffering from psychological problems from 2003 for which he had been receiving treatment, was also rejected by the primary judge in the absence of a detailed expert report from a clinical psychologist or psychiatrist as to the psychological condition and details of the diagnosis and treatment [44], [47]. 14 The primary judge said that whether or not the appellant's objections to the Commissioner's assessments had any substance would depend upon the outcome of a reconsideration of those assessments, such as by proceedings by the appellant under pt IVC of the TAA [50]. The correctness of the assessments could not be undermined by tax returns filed many years out of time. Under Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 5

8 the TAA, production of a notice of assessment was conclusive evidence that the assessment was properly made and correct in amount, and moreover tax returns had only been lodged for the financial years ended 30 June 2007 and 30 June 2008 [51]. His Honour observed that it appeared the appellant had not commenced proceedings under pt IVC of the TAA, or even applied for an extension of time to do so [54]. 15 The primary judge was satisfied that the respondent had established the appellant's indebtedness and the appellant had not raised any arguable defence [57]. His Honour ordered that judgement be entered for the respondent in the sum of $1,668, [58]. (The paragraph numbers in the text of the above quote are references to the relevant paragraphs in Nugawela Supreme Court). Nugawela State Appeal 12. Dr Nugawela appealed Nugawela Supreme Court to the WA Court of Appeal on the basis of nine grounds of appeal. 13. In Nugawela State Appeal the WA Court of Appeal grouped the grounds of appeal and dealt first with grounds 1-4 and 6-7 in which Dr Nugawela submitted that on the proper construction of s of Schedule 1 to the TA Act the lodgement of an objection under Part IVC of the TA Act rendered the production of a notice of assessment no longer conclusive evidence that the amounts and particulars of the Commissioner s assessment were correct. Section of Schedule 1 to the TA Act is, relevantly, as follows: The production of a notice of assessment under a taxation law is conclusive evidence that (a) the assessment was properly made and (b) except in proceedings under Part IVC of this Act on a review or appeal relating to the assessment the amounts and particulars of the assessment are correct. 14. Nugawela State Appeal observes that Dr Nugawela s submission must be rejected being based on a misunderstanding of the effect of s of Schedule 1 to the TA Act: Nugawela State Appeal at [20] per Newnes and Murphy JJA, and goes on to observe at [22] per Newnes and Murphy JJA as follows: Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 6

9 The effect of s is that in all proceedings, other than proceedings under pt IVC on a review or appeal relating to the assessment, the production of a notice of assessment will be conclusive evidence that the amounts and particulars of the assessment are correct. The production of a notice of assessment is not conclusive in proceedings on a review or appeal under pt IVC because the very purpose of those proceedings is to challenge the assessment. But the fact that proceedings have been commenced under pt IVC to challenge an assessment does not detract from the conclusive nature of the notice of assessment in any other proceedings. In any other proceedings, the production of a notice of assessment remains conclusive. 15. Nugawela State Appeal also found that an objection to an assessment was not a review or appeal for the purposes of Part IVC of the TA Act, and that no such proceedings were on foot at the time of the judgment in Nugawela Supreme Court: at [23] per Newnes and Murphy JJA. 16. Nugawela State Appeal found (at [24 per Newnes and Murphy JJA) that the effect of s of Schedule 1 to the TA Act, for the purposes of the summary judgment proceeding the subject of Nugawela Supreme Court was that: the production of the notice of assessment was conclusive proof that the assessment was properly made and the amount and particulars of the assessment were correct. In those circumstances, the appellant's own (lower) estimates of his taxation liabilities for the relevant period were properly disregarded by the primary judge. 17. Nugawela State Appeal also noted that even if the primary judge was in error in refusing the adjournment sought by Dr Nugawela there was no injustice to Dr Nugawela because after the hearing of the summary judgment application the Commissioner varied the original assessments in light of the tax returns lodged by Dr Nugawela for the years ended 30 June 2007 and 30 June 2008: Nugawela State Appeal at [25]-[26] per Newnes and Murphy JJA. 18. Ground 5 related to a submission that it was arguable that the notices of assessment issued by the Commissioner were invalid because the amount of the assessments had been arrived at arbitrarily or had no rational basis: Nugawela State Appeal at [28] per Newnes and Murphy JJA. The WA Court of Appeal found that: Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 7

10 a) there was no evidence that the notices of assessment were the result of anything other than a proper attempt by the [Deputy Commissioner] to assess [Dr Nugawela s] liability: Nugawela State Appeal at [30] per Newnes and Murphy JJA; b) there was no evidence from which an inference to the contrary might properly be drawn: Nugawela State Appeal at [30] per Newnes and Murphy JJA; and c) it could reasonably be inferred that the notices of assessment issued in relation to each of the financial years ended 30 June 2003 to 30 June 2011 were the result of an audit of Dr Nugawela s taxation affairs conducted by the ATO in 2011, but contrary to Dr Nugawela s submission the mere fact that Dr Nugawela s tax returns for the financial years ended 30 June 2007 and 30 June 2008 resulted in the Deputy Commissioner reducing the amount claimed by a sum of $238, is not capable of giving rise to an inference that the original assessments were not properly made : Nugawela State Appeal at [30] per Newnes and Murphy JJA. 19. It is unnecessary for the Court to deal with grounds 8 and 9 of Nugawela State Appeal which dealt with issues of credibility and an allegation of bias. 20. In Nugawela State Appeal, the WA Court of Appeal found that none of the grounds of appeal had a reasonable prospect of success, and they therefore dismissed Dr Nugawela s application which was for a grant of an extension of time for compliance with a springing order dismissing his appeal: Nugawela State Appeal at [45] per Newnes and Murphy JJA. Special leave application and disposition 21. Subsequent to the judgment in Nugawela State Appeal, Dr Nugawela filed an application in the High Court for special leave to appeal Nugawela State Appeal ( Special Leave Application ) (a copy of which is Exhibit 1 in these proceedings) and sought the following orders: 6. Special leave be granted and the appeal allowed. Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 8

11 7. Decision of the Court of Appeal and appeal to the Court be allowed. 8. Decision of Martin J be set aside and summary judgement application dismissed. 22. The orders sought in the Special Leave Application were said to be based on the following grounds: 1. In Giris Pty. Ltd. v. Federal Commissioner of Taxation(Cth) [1969] HCA 5; (1969) 119 CLR 365 Kitto J. pointed out that the expression incontestable tax refers to a tax provided for by a law which, while making the taxpayer's liability depend upon specified criteria, purports to deny him all right to resist an assessment by proving in the courts that the criteria of liability were not satisfied in his case An incontestable tax is invalid (MacCormick v Commissioner of Taxation (Cth) [1984] HCA 20). The honourable Court below erred in limiting the appellant's opportunity and constitutional rights to object to an excessive tax assessment and contest a tax liability. Section 14ZU under Pt IVC of the Taxation Administration Act 1953 (Cth) (TAA 1953) sets out how a person may make a taxation objection. Part IVc of the TAA, comprising Divisions 3, 4 and 5 provides the 'staged' statutory regime for tax objections. 2. Part IVC is supported by Section77(i) of the Commonwealth of Australia Constitution Act. The effect of Section 75 (v) of the Constitution Act can be affected by the discretionary powers of the trustee in bankruptcy and the resources of the newly bankrupt. 3. An incontestable tax can come into existence by occurrence of bankruptcy. Section 60 (2) of the Bankruptcy Act The honourable Court below failed to recognise that the appellant's objection in Division 3 of Part IVC was a valid tax objection in form, content, timing and manner fully compliant in all respects with s of Schedule 1 and 14ZU of the TAA. [At Para 26 [2017] WASCA 9]. 5. The honourable Court below erred in adopting an unnecessarily restrictive approach in interpreting s of Schedule 1 of the TAA. There is no indication that the legislature intended excluding Division 3 tax objections to create an incontestable tax in Summary Judgments in the Supreme Court WA. (Transcribed without amendment from Exhibit 1). Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 9

12 23. Dr Nugawela applied to the WA Appeal Court for a stay, or an order suspending the enforcement Nugawela Supreme Court pending an application to the High Court for special leave to appeal: Nugawela v Deputy Commissioner of Taxation [No 2] [2017] WASCA 66, which application was dismissed with the WA Court of Appeal observing as follows at [5]-[7] per Newnes and Mitchell JJA: 5 In the present case, a stay is not required to preserve the subject matter of the litigation. It is not suggested, and there is no reason to believe, that if a stay were refused the appeal would be rendered nugatory or that practical difficulties may arise in respect of the relief that may be granted on a successful appeal to the High Court. The judgment is simply one for a money sum and plainly there is no question as to the capacity of the respondent to repay the money in the event of a successful appeal. The present application is supported by a very brief affidavit which does not disclose any particular prejudice which the appellant will suffer if a stay is not granted and his appeal to the High Court were to ultimately succeed. There is no basis for depriving the respondent of a litigant's ordinary entitlement to enforce a judgment pending the determination of any appeal. 6 The appellant refers to the influence of the judgment debt on bankruptcy proceedings. That impact is not a relevant prejudice which demands the grant of a stay. Rather, bankruptcy proceedings are simply a consequence of failure to pay a judgment debt. 7 We have also reviewed the appellant's application for special leave to appeal to the High Court. We are not satisfied that there is a substantial prospect that special leave will be granted on any of the proposed grounds. 24. On 11 May 2017 the High Court dismissed the Special Leave Application observing that: The application for special leave does not raise any reason to doubt the correctness of the decision of the Court of Appeal of the Supreme Court of Western Australia. Special leave is refused. Nugawela v Deputy Commissioner of Taxation [2017] HCASL 114 at [1] per Bell and Gageler JJ ( Nugawela High Court ). Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 10

13 Section 39B application 25. At the hearing of the Stay Application Dr Nugawela adverted to an application pursuant to s.39b of the Judiciary Act 1903 (Cth) ( Judiciary Act ) for judicial review of administrative acts of the Commissioner ( Section 39B Application ). 26. The Court does not have before it the statement of claim and accompanying affidavit in relation to the Section 39B Application, but the details of the claim as they appear in the originating application for relief for the Section 39B Application (which was tendered and has been marked as Exhibit 2) are as follows: On the grounds stated in the statement of claim and accompanying affidavit prescribed by the Rules, the Applicant applies for the following relief under section 39B of the Judiciary Act 1903: 1. A declaration dismissing the Creditor's Petition and all orders issued by the Federal Circuit Court under PEG 121/2016 on 21 February 2017; 2. An injunction to set aside the orders made by Registrar Trott PEG 121/2016 on 21 February 2017; 3. An injunction to set aside the sequestration orders made by Registrar Trott PEG 121/2016 on 21 February 2017; 4. An injunction to stay sine die the effect and execution of sequestration orders made by Registrar Trott PEG 121/2016 on 21February2017; 5. A declaration that the decisions and conduct of officers of the Respondent, the Commissioner of Taxation ( the Commissioner ) deprived me of my constitutional right to defend an action challenging jurisdictional error under the Income Tax Assessment Act 1936 and the Tax Administration Act 1953; 6. A declaration that the several decisions and conduct of officers of the Commissioner were ultra vires in creating an incontestable tax liability, constituting errors in fact and in law, infected with jurisdictional errors, improper use of power, recklessness in the administration of public office, denying me procedural fairness and natural justice in meeting my obligations and limiting my opportunity to exercise my constitutional rights and legitimate expectations to provide a defence as an unrepresented litigant; Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 11

14 7. A declaration that the Commissioner has not made a genuine attempt to assess my tax liability and that the decision processes and conduct have imposed purported default tax assessments; 8. A declaration to invalidate ultra vires purported default tax assessments issued by the Commissioner of Taxation for the years 2004 to 2010; 9. A declaration annulling and voiding the Summary Judgment debt and orders issued by the Supreme Court CIV 2686 of 2014 on ; 10. A declaration annulling and voiding the Bankruptcy Notice issued on 18 January 2016; 11. A declaration to obtain an injunction to restrain the Commissioner from continuing recovery proceedings under the said Summary Judgment CIV 2686 of 2014; Bankruptcy Notice and Creditor's Petition PEG 121/ The Section 39B Application also makes a claim for interlocutory relief, which appears, apart from the transposition of the words proceedings and orders in claim for relief numbered 1, to be in exactly the same terms as the Stay Application. Federal judgments in relation to the bankruptcy notice 28. On 18 January 2016 the Commissioner issued a bankruptcy notice based on the judgment in Nugawela Supreme Court, giving $238, credit for a revised assessment, the total debt in the bankruptcy notice therefore being $1,464, On 15 February 2016 Dr Nugawela lodged an application in the Federal Court to set aside the bankruptcy notice, which application was dismissed by a Registrar on 1 March Dr Nugawela filed an application to review the Registrar s decision, which application was dismissed on 25 May 2016: Nugawela v Federal Commissioner of Taxation [2016] FCA 578 ( Nugawela Federal Court ). Nugawela Federal Court 29. In Nugawela v Federal Commissioner of Taxation [2016] FCAFC 164 ( Nugawela Federal Appeal ), which was an appeal by Dr Nugawela to the Full Court of the Federal Court against Nugawela Federal Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 12

15 Court, the judgment in Nugawela Federal Court was summarised as follows: 10 The primary judge held at [61] that the act of bankruptcy under s 40(1)(g) of the Bankruptcy Act occurred on 15 February At that time: (i) the Commissioner had obtained a final judgment against Dr Nugawela; (ii) the Commissioner had served a bankruptcy notice on Dr Nugawela; and (iii) Dr Nugawela had not applied to set aside the bankruptcy notice within the time specified in the notice or satisfied the Court that he had a counter-claim, set-off, or costs demand equal to or exceeding the amount of the judgment debt. The primary judge said that arguments about the amount that might be owing are a different matter. 11 The primary judge explained at [11(c)] that the key question in the Application on the merits was whether under s 40(1)(g) of the Bankruptcy Act there was any counter-claim, set-off or cross demand equal to or exceeding the amount of the Supreme Court judgment debt that Dr Nugawela could not have set up in the action or proceeding in which the judgment was obtained. 12 The primary judge referred, at [57], to the exception to noncompliance with a bankruptcy notice under s 40(1)(g) of the Bankruptcy Act in relation to counter-claims, set-offs, and crossdemands. His Honour said that the exception is limited to: (1) applications equal to or exceeding the amount of the judgment debt; that (2) an applicant could not have set up in the action or proceeding in which the judgment or order was obtained. 13 As to (1), his Honour held that Dr Nugawela had pointed only to some credit adjustments as to his liability and that there was substantial remaining unmet liability ([57]). 14 As to (2), the primary judge held that Dr Nugawela had not shown that it was not open to him, as a matter of law, to raise the matters which he wished to rely upon in the Application to set aside the bankruptcy notice; to the contrary, the primary judge said that in fact Dr Nugawela wished to raise precisely the same issues ([68]). 15 The primary judge also dismissed an interlocutory application by Dr Nugawela to adjourn the Application until after determination by the AAT of an application concerning the correctness of the amount that he was said to owe to the Commissioner ([70]). Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 13

16 Nugawela Federal Appeal at [10]-[15] per North, Dowsett and Edelman JJ. Nugawela Federal Appeal 30. The judgment in Nugawela Federal Appeal was appealed. It is unnecessary to set out the precise grounds of the appeal, which are lengthy: see Nugawela Federal Appeal at [21] per North, Dowsett and Edelman JJ. 31. The Full Court of the Federal Court dealt with whether there was any error in Nugawela Federal Appeal in failing to go behind the summary judgment, that is Nugawela Supreme Court. In Nugawela Federal Appeal at [23] and [27] per North, Dowsett and Edelman JJ the Full Court of the Federal Court said that: 23 At the date of issue of the bankruptcy notice there was no challenge to the summary judgment decision of Kenneth Martin J. The summary judgment matter had been fully argued and, at the date of issue of the bankruptcy notice, no appeal had been brought from that decision. The orders of Kenneth Martin J thus stood as unimpeached orders, obtained after a contested matter (including where Dr Nugawela was legally represented). And, as we have explained, the bankruptcy notice that was issued gave credit to Dr Nugawela for the revised assessments in his favour. The first group of grounds of appeal nevertheless sought to relitigate matters raised before Kenneth Martin J. The primary judge had concluded at [61] that there was not the slightest doubt that Kenneth Martin J was required to proceed as he did. 27 The grounds of appeal concerning a failure to go behind the summary judgment orders of Kenneth Martin J fail because there is nothing in the submissions before us that causes us to doubt the correctness of the orders of Martin J. 32. The Full Court of the Federal Court in Nugawela Federal Appeal then went on to observe that there was no misstatement or misdescription in the bankruptcy notice simply because AAT proceedings were on foot, and having set out s in Schedule 1 to the TA Act, and ss.14zzm and 14ZZR of the TA Act (dealing with applications to the AAT for review and to the Federal Court on appeal in relation to a review), observed that, coupled with the conclusive effect of the assessments, it was not possible for Dr Nugawela to go behind Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 14

17 Nugawela Supreme Court merely by asserting that there was a dispute concerning the calculation of the assessments: Nugawela Federal Appeal at [28]-[31] per North, Dowsett and Edelman JJ. 33. Nugawela Federal Appeal also dealt with the effect of the audit in relation to the assessments conducted by the Commissioner as follows at [31] per North, Dowsett and Edelman JJ: There is no basis for any conclusion in this case other than that the Commissioner in this case has made a genuine attempt to calculate Dr Nugawela's assessments. On 7 April 2011, the Commissioner commenced an audit of Dr Nugawela's financial circumstances based on estimates of income. In a letter sent from the Commissioner to Dr Nugawela on 4 April 2011, the Commissioner explained that the audit would initially cover the tax period 1 July 2009 to 30 June 2010, but was not limited to that period. It appears from the Commissioner's response to Dr Nugawela's later objections that an assessment for these years that the audit was substantially expanded to cover the financial years from 30 June 2000 to 30 June 2011 (inclusive). The notices of assessment were issued to Dr Nugawela by the Commissioner on 30 November 2011 and 8 December Further consideration, following the objections by Dr Nugawela, led the Commissioner to provide the credits described above at [3(5)-(6)]. 34. Nugawela Federal Appeal then deals with grounds specific to issues associated with the bankruptcy notice, and then refers to grounds 10 and 11 which assert conscious maladministration or abuse of power : Nugawela Federal Appeal at [40] per North Dowsett and Edelman JJ. In respect thereto the Full Court of the Federal Court noted that the primary judge had correctly observed that there is a strong legislative policy manifested in the recovery of tax debts to protect the revenue pursuant to s.14zzm of the TA Act, citing the comments of the High Court to that effect in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473; (2008) 82 ALJR 1411; (2008) 69 ATR 357; (2008) 248 ALR 693; (2008) 67 ACSR 593; (2008) ATC ; (2008) 26 ACLC 880 at [44] per Gummow ACJ, Heydon, Crennan and Kiefel JJ ( Broadbeach ). 35. Finally, the Full Court of the Federal Court indicated that even if there had been an error in Nugawela Federal Court in relation to extending time within which to set aside the bankruptcy notice or stay any action Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 15

18 upon it, the Full Court of the Federal Court would not re-exercise the discretion for a number of reasons, including: a) that although Dr Nugawela had filed a lengthy affidavit, he did not depose to the extent of his net assets; and b) that he was still able to contest the creditors petition proceedings (which by that time were on foot: Nugawela Federal Appeal at [3] and [12] per North, Dowsett and Edelman JJ) and the AAT proceedings in the absence of an extension of time or a stay: Nugawela Federal Appeal at [42] per North, Dowsett and Edelman JJ. Dr Nugawela s Affidavit and Submissions 36. Dr Nugawela swore an affidavit on 10 March 2017 for the purposes of the Stay Application ( Dr Nugawela s Affidavit ). 37. Dr Nugawela s Affidavit is a mix of pure legal submissions, submissions in relation to factual matters, and asserted facts. 38. Dr Nugawela s Affidavit: a) submits that a court exercising jurisdiction in bankruptcy should not sequestrate a debtor s estate where there is an appeal pending against the judgment relied on as the foundation of the bankruptcy proceedings where that appeal is based on genuine and arguable grounds; b) submits that where there is a genuine dispute as to liability it is open to the Court to adjourn the creditors petition and to grant the request for a stay until appeals are concluded; c) alleges that the refusal to grant the stay would not only cause hardship but would cause any appeal to be nugatory; d) alleges that the proposed appeals are genuine and based on reasonably arguable grounds; e) alleges that the Registrar failed to establish the debt despite genuine disagreement as to the debt and failed to go behind the Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 16

19 judgment in Nugawela Supreme Court despite Dr Nugawela requesting the Registrar to do so; f) disputed the accuracy of affidavits verifying the debt lodged with the Court, and that the Registrar erred in not investigating those, and that the Registrar erred in relying on evidence as to the judgments of other courts to establish debt and quantum of debt; g) alleges that no consideration was given to Dr Nugawela s substantive submissions, and no reasons were provided for dismissal of his case by the Registrar, such that the Registrar failed to exercise his jurisdiction, or exercised it so unreasonably as to amount to jurisdictional error in either case; h) alleges that the Registrar was aware that there were Part IVC proceedings under the TA Act before the AAT, but nevertheless failed to go behind the judgment in Nugawela Supreme Court, and was further aware that the Deputy Commissioner had given a credit of approximately a quarter of a million dollars in relation to the assessments for the years ended 30 June 2007 and 30 June 2008; i) alleges that there were misstatements in relation to the relevant bankruptcy notice, which did not include garnishee payments from Medicare to the ATO; j) sets out details from the affidavit evidence in relation to the application for summary judgment and orders, and again notes that there was a partial credit as a result of the assessments for the years ended 2007 and 2008; k) alleges that the affidavits in support of the creditors petition failed to disclose any payments from Medicare or any other entities since summary judgment and that various credits post judgment in Nugawela Supreme Court have not been credited; l) alleges that there is a genuine dispute as to the judgment debt which arises from the conduct of the audit and default assessments by the ATO, and the conduct of the ATO in conducting the audits and making the assessments demonstrates Conscious Maladministration ; and Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 17

20 m) under the heading GOING BEHIND THE JUDGMENT Dr Nugawela says as follows: 101 The Respondent filed a copy of the High Court of Australia ( HCA ) appeal against the Court of Appeal judgment. The HCA application has now been filed and served. The Respondent discussed parts of the document in Court. I recount these in brief Part IVC proceedings. I notified the court that the judges of the Court of Appeal asked three times what is a 'proceeding' and got no answer. Part IVC was fundamental to the primary judgment because the primary judge failed to recognise the 2007 and 2008 lodgements prior to summary judgment as objections rather than wildly... out of time tax returns, thus denying application of relevant law and precedents. The Registrar erred in not going behind the judgment Applicability of conclusive evidence provisions to assessments which were provisional or not made bona fide or subject to Part IVC proceedings which, the Respondent conceded in the Court of Appeal, commenced in the Commissioner's office. Emphasis added. This evidence was not available to any hearings prior to the Court of Appeal (December 2016) Nature of the assessment. I disagreed with the view that the assessments were properly made. The fact that $238K of $570K claimed in the 2007 and 2008 objections was refunded showed the excessiveness of the default assessment, and supported the requirement for the Creditor's Petition court to go behind the debt The terms of the audit were such that it was destined to produce a large tax base upon which substantial penalties and daily compounding GIC were charged. The base tax is $148,000, GIC is $1.l M, penalties $832,000. As a result, the account was in the High Debt area of the ATO. The starting point for negotiations was prohibitive. (Book B tab. 8 para. 39 p.6) 106. A Part IVC application is pending at the AAT. If bankrupted, I will be unable to pursue the claim without the trustee's assent. The need for a bankrupt to pursue such matters against the Respondent is subject to question when the Respondent is also the major creditor by far. Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 18

21 107. The failure to negotiate is documented. (Book A para. 44 p.23) 108. The Respondent questioned absence of proof at the Creditor's Petition hearing that my business as a sole proprietor has been substantially damaged from the 100% Medicare garnishee. It is a simple matter for the Commissioner to use her extensive powers to obtain Medicare figures pre and post-garnishee to establish the impact of the garnishee on my income and liquidity, as a sole practitioner and bread winner. That is the duty of a Model Litigant At the Full Court Federal Court of Australia hearing on , Justice North addressed (see transcript W AD253/2016) the Respondent: NORTH J: Yes. And it seems to me that in those circumstances it's both in the ATOs interest, and probably its responsibility, to assist so much as it can. I mean, obviously it has to protect the public revenue, but you're dealing with human beings who have their own issues, and it would certainly be horrifying to imagine that the ATO didn't respond. Emphasis added The Respondent declined to consent to extension of the stay of sequestration. 39. In written submissions handed to the Court on 2 June 2017 Dr Nugawela made further submissions, and in particular the Court notes the following: a) that if the stay is extended then the stay ordered by the Court on 14 March 2017 would be rendered a nullity, and would remove Dr Nugawela s right to continue with the Review Application; b) that a sequestration order should be refused (and by inference the stay extended permanently) because to do otherwise would be to impose an incontestable tax upon Dr Nugawela; c) that Dr Nugawela seeks a further six week adjournment of the proceedings to enable Dr Nugawela as an unrepresented litigant to see legal representation; and Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 19

22 d) that there is an onus on the Deputy Commissioner to justify the removal of the existing stay order. The Deputy Commissioner s submissions 40. The Deputy Commissioner s submissions can be summarised as follows: a) the arguments raised by Dr Nugawela have already been dismissed by several other Courts: the Full Court of the Federal Court, the Federal Court, the Western Australian Supreme Court and the WA Court of Appeal which have addressed the merits of the debt, the way it was assessed, the conclusiveness of certificates and the process by which default assessments were made, and all have determined that there was no reason to question the judgment in Nugawela Supreme Court; b) Dr Nugawela says the amount of the judgment debt in Nugawela Supreme Court is wrong. This was a matter considered by the Registrar who had all of the relevant evidence before him; c) Dr Nugawela raised some other credits, that is, he said his business had been affected, but there was no proof of loss of business value or loss of income, and this had to be established, and it was not enough to simply raise doubts about these matters; d) as to the genuine disagreement on debt, that has been dealt with by other courts and it was dealt with by the Registrar; e) with respect to misstatements in the bankruptcy notice that has been dealt with by the Full Court of the Federal Court, which found that the bankruptcy notice was not misstated: see Nugawela Federal Appeal at [28]-[31] per North, Dowsett and Edelman JJ; f) the conduct of the audit which Dr Nugawela refers to is wrapped up with the conscious maladministration argument put by Dr Nugawela. That has also been dealt with by the Federal Court and the Full Court of the Federal Court, both of which said they were not substantiated; Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 20

23 g) the Section 39B Application ventilates the same issues as have been ventilated before the Federal Court and the Full Court of the Federal Court in relation to the process by which the Commissioner went about an audit and determined the assessments, and was not a basis to stop the proceedings in any other court and should not be a basis to stop these proceedings; h) the Special Leave Application essentially raised one appeal point, namely that, the operation of conclusive evidence provisions imposes an incontestable tax which stops all courts from inquiring into the process or the amount of the assessment, and that Dr Nugawela cannot contest the basis for the assessment in the courts. That point has already been resolved by the High Court in Federal Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; (2008) 237 CLR 146; (2008) 82 ALJR 1177; (2008) 69 ATR 41; (2008) 247 ALR 605; (2008) ATC at [9] per Gummow, Hayne, Heydon and Crennan JJ ( Futuris ): The recourse to the Federal Court, and thereafter by special leave to the High Court, which is provided by Part IVC of the Income Tax Administration Act meets the requirement of the Constitution that a tax may not be made incontestable because, to do so, would place beyond examination the limits upon legislative power. i) the High Court has therefore already determined that the conclusive evidence provisions do not render assessments to be incontestable taxes; j) in the Special Leave Application Dr Nugawela says he is unable to contest the assessment of tax, and that if he is made bankrupt, he cannot therefore pursue the proceedings under Part IVC of the TA Act, but that is incorrect because Dr Nugawela s trustee in bankruptcy ( Trustee ) would have control of those proceedings, and the Trustee s decisions are capable of being controlled through the Bankruptcy Act which makes decisions of the Trustee reviewable; Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 21

24 k) the Special Leave Application discloses no reasonably arguable grounds, and will, on already decided High Court cases, be dismissed, and is not a basis to grant a stay; l) otherwise, Dr Nugawela s complaint is that the Registrar s decision was affected by some error and, in substance, that the Registrar was not persuaded by Dr Nugawela s arguments or evidence. Even if Dr Nugawela were correct on the complaints he makes about the amount of the assessment, there still remained a substantial amount of money owed to the Commissioner which was not being addressed, and not being paid and Dr Nugawela has not put any evidence to establish that that amount or some other amount could be paid, that is, that but for the Commissioner s debt, he would be able to pay his debts; m) the amount not disputed, or no longer subject to any review, is approximately $900,000, and Dr Nugawela does not come to this Court and say that that is capable of being paid; and n) the merits of the argument are not strong, and ought not to persuade the Court to extend the existing stay. Consideration 41. Both parties submitted that the Court has a broad discretion to stay proceedings under a sequestration order pursuant to r of the Federal Court Rules 2011 (Cth) ( FC Rules ): Commonwealth Bank of Australia v Pattison [2012] FCA 1511 at [4] per Jessup J. In Nolten v Groeneveld Australia Pty Ltd [2011] FCA 1494 at [24] per Kenny J ( Nolten ) the Federal Court observed that: Rule of the Rules confers a broad discretion to order a stay notwithstanding that an appeal shall not operate as a stay of execution or of proceedings under the judgment appealed from. In Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65, a Full Court of this Court held that the appropriate test for a stay under the equivalent of Rule of the current Rules was that set down in Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685, namely, whether the applicant for a stay showed a reason or an appropriate case to warrant the exercise of discretion in his favour. More specifically, with respect to an application for a stay of a sequestration order, the question Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 22

25 is whether there is an arguable point on the proposed appeal and whether the balance of convenience favours the granting of a stay: see Freeman at [3]-[4 ]; Coleman at 303; Beames v Rigby [2002] FCA 806 at [2]; Kellow v Dudzinski [2003] FCA 238 ( Dudzinski ) at [8]; and Shirreff v Beck Legal Pty Ltd [2010] FCA 1407 at [67], (2010) 119 ALD 284 at [67]. The test for a stay under s 52(3) of the Act is not materially different. 42. Ordinarily, this Court will not issue a sequestration order where an appeal against the judgment giving rise to the judgment debt is pending: Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 ( Ahern ); Westpac Banking Corporation v Carver [2003] FCA 221; (2003) 126 FCR 113 ( Westpac ). In Westpac the Federal Court said that a special leave application was not an appeal and different considerations apply when determining whether there ought to be an adjournment of a creditor s petition on the basis of a special leave application. They were that the application for special leave is genuine and that there were arguable grounds for concluding special leave to appeal will be granted: Westpac at [18] per Beaumont J. 43. In Re Lewin and Glasson; Ex parte Milner (1986) 67 ALR 591 ( Lewin ) the Federal Court said at per Pincus J: The question whether the appeal is brought bona fide and on substantial grounds is, however, a circumstance to be taken into account in exercising the discretion whether or not to adjourn the petition. 44. In Re Verma; Ex parte Deputy Commissioner of Taxation (1984) 4 FCR 181 ( Verma ) the Federal Court put the question as being whether: The present debtor demonstrated the existence of a genuine contest? 45. In Ahern at 148 per Davies, Lockhart and Neaves JJ the Full Court of the Federal Court held as follows: It is also well-established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings, provided the appeal is based on genuine and arguable grounds. Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289 Reasons for Judgment: Page 23