Deputy Commissioner of Taxation v Purdie
[2014] QDC 222
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- Unreported Judgment
- Deputy Commissioner of Taxation v Purdie[2014] QDC 222
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Deputy Commissioner of Taxation v Purdie[2014] QDC 222
Deputy Commissioner of Taxation v Purdie[2014] QDC 222
DISTRICT COURT OF QUEENSLAND
CITATION: | Deputy Commissioner of Taxation v Purdie [2014] QDC 222 |
PARTIES: | DEPUTY COMMISSIONER OF TAXATION v KENNETH JAMES PURDIE |
FILE NO: | 4235 of 2013 |
DIVISION: | Civil |
PROCEEDING: | To set aside default judgment |
ORIGINATING COURT: | District Court, Brisbane |
DELIVERED ON: | 30 September 2014 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 23 September 2014 |
JUDGE: | Butler SC, DCJ |
ORDER: |
|
CATCHWORDS: | JUDGMENT – DEFAULT JUDGMENT – APPLICATION TO SET ASIDE – whether pleading defective – whether judgment irregularly obtained – whether discretion to set aside should be exercised. |
COUNSEL: | C D Coulsen for the applicant K Bell for the respondent |
SOLICITORS: | ATO Dispute Resolution for the respondent Morgan Conley for the applicant |
- [1]The applicant seeks to set aside a default judgment entered against him on 15 May 2014 requiring payment of $220,346.53 including costs and interest.
- [2]The claim was for a debt due and recoverable pursuant to the Taxation Administration Act 1953 (“the TAA”) together with interest calculated under the Act. The Statement of Claim pleads the existence of a Running Balance Account (“RBA”) deficit in respect of primary tax debts due under the BAS provisions of the Income Tax Assessment Act 1997.
- [3]In argument before me the applicant confined his submissions to two grounds. They are:
- The judgment should be set aside as being irregularly obtained in that the pleading is defective in law.
- Alternatively, my discretion should be exercised in favour of setting the judgment aside, as the pleading failed to provide particulars sufficient to allow the applicant to determine in what capacity it is alleged he incurred tax liabilities or to assess how the RBA was calculated.
The legal position
- [4]The court may set aside or amend a judgment by default under s 290 of the Uniform Civil Procedure Rules 1999 (“the UCPR”). The law pertaining to default judgments in Queensland was stated by Muir JA in Cusack v De Angelis[1]:
“It has been long accepted that a defendant is entitled to have an irregularly entered judgment set aside as of right, subject to the exercise of a power of amendment and the futility of interfering with the judgment. Such judgments are the product of the exercise of administrative acts performed without legal authority. Irregularity, as that term is used in relation to default judgments, normally results from a failure to comply with the rules of court relating to the entering of default judgments.”
- [5]His Honour went on to observe that the concept of irregularity has been given a more extended meaning and concluded as follows:
“The cases in which default judgments have been held to be irregular are ones in which there was either some deficiency in the steps pre-requisite to the entering of default judgment or an abuse of process or something akin to it resulting from the plaintiff’s obtaining a judgment to which the plaintiff knew or ought reasonably have known he or she was not entitled.”[2]
Was the judgment irregularly obtained?
- [6]Here irregularity is said to arise because the pleading does not comply with rr 149 and 150 of the UCPR. Rule 149(1)(b) requires that the pleading contain a statement of all material facts on which the party relies. Rule 150(3)(a) requires that for a claim for a debt or liquidated demand a Statement of Claim must state particulars of the debt or liquidated demand.
- [7]The applicant submits that by pleading only that a RBA was established and that the Commissioner had allocated primary tax debts to the RBA, without identifying the primary tax debts or detailing how they were incurred, the Statement of Claim failed to comply with rr 149 and 150.
- [8]Reliance was placed on the unreported decision of Wylie QC, DCJ in the Deputy Commissioner of Taxation v Phillips where his Honour ruled that a pleading by the Deputy Commissioner of Taxation in identical form was defective in failing to plead facts establishing the defendant’s liability in law to pay the taxation debts. In that case the defendant was seeking an order for further and better particulars which was resisted by the plaintiff Taxation Commissioner.
- [9]It will be useful to set out Wylie QC, DCJ’s reasoning in some detail:
“In opposing the defendant’s application, the plaintiff relied on the provisions of the Taxation Administration Act allowing the RBA deficit debt to be treated as if it were a single debt in its own right, adding that this claim represented “the standard form debt collection pleading Australia wide”. It may be, and it may also be the first demand for particulars made of the pleading.
I accept that the Commissioner has power to establish an RBA for any person (s 8AAZC) and on any basis that the Commissioner determines. The Commissioner’s allocation of a primary tax debt does not extinguish the original debt. The consequence is that a parallel liability is created since there is the primary tax debt and the RBA deficit debt (s 8AAZH). That allows the Commissioner to pursue proceedings for either debt but in the end result payment of one will discharge the liability to pay the other. I consider, however, howsoever the Commissioner proceeds there is no significant difference in the pleading of a claim that a debt exists. The starting point must always be a statement of those facts which are alleged to give rise to a person’s liability to pay a sum or sums of money to the Commissioner at particular times. These may then need to be supplemented by particulars of such facts as whether, and if so when, any notice was given to or demand made upon the person and then non-payment of all or part of a liability to pay.
As the claim is based on a claim for a RBA deficit debt, it is not good enough in my view simply to plead the establishment of an RBA, the posting of debits to the account and the resulting balance. The account is a useful tool but its very basis is as a record of debts properly due by a person. A debt is not due simply because the Commissioner sets up an RBA in the name of a person. The debts must be shown to exist in fact.”
- [10]While I accept his Honour’s reasoning that a parallel liability is created, I am not, with the greatest respect, persuaded that where the Commissioner chooses to pursue proceedings on the basis of the statutory debt alone it is necessary he plead facts showing that the primary debts exist in fact.
- [11]Section 8AAZH(1) of the TAA provides:
“If there is an RBA deficit debt on a RBA at the end of a day, the tax debtor is liable to pay the Commonwealth the amount of the debt. The amount is due and payable at the end of the day.”
- [12]The term “RBA deficit debt” is defined as follows:
‘“RBA deficit debt’, in relation to an RBA of an entity, means a balance in favour of the Commissioner, based on:
- ‘(a)primary tax debts that have been allocated to the RBA and are currently payable; and
- (b)payments made in respect of current or anticipated primary tax debts of the entity, and credits to which the entity is entitled under a taxation law, that had been allocated to the RBA.”’
- [13]The TAA has created a statutory debt which by virtue of the legislation is due and payable. In my view the respondent’s pleading sufficiently states the facts giving rise to that statutory debt; namely that the Commissioner has established an RBA and has allocated debt and credit amounts to the RBA and the balance of the RBA as at a stated date is set out. In my view those facts constitute all the material facts particularising the debt arising under the statute.
- [14]Accordingly, I respectfully decline to follow the decision in Deputy Commissioner v Phillips[3] and hold that the pleading is not defective and judgment was regularly obtained.
Should judgment be set aside in exercise of the discretion?
- [15]The court has a wide discretion in deciding whether or not to set aside a default judgment.[4] The authorities provide that where judgment in default has been regularly entered matters which generally will be considered are:
“1. whether or not the defendant has given a satisfactory explanation for his failure to appear;
- whether or not there has been any delay in making the application;
- whether or not the defendant has a prima facie defence on the merits.”[5]
- [16]In National Mutual Life Association of Australasia Limited v Oasis Developments Pty Ltd it was held by McPherson J that:
“Speaking generally it may be said that it is the last of these considerations that is the most cogent. It is not often that a defendant who has an apparently good ground of defence would be refused the opportunity of defending, even though a lengthy interval of time had elapsed provided that no irreparable prejudice is thereby done to the plaintiff.”[6]
- [17]The applicant submits that there was no inordinate delay and explanation has been given for his failure to resist the entry of judgment.
- [18]Judgment was entered on 15 May 2014. This application was filed on 14 August 2014. That delay is not of such length as to prejudice the plaintiff Commissioner. However, the applicant has not advanced a persuasive explanation for failing to oppose the entry of judgment. His affidavit asserts that upon receiving the Claim and Statement of Claim he was unsure of what was claimed and whether he incurred the tax liability personally or as trustee. Notwithstanding that the applicant, a practising solicitor, would have understood the potential consequences of not lodging a defence, he says he failed to seek specialist legal advice until served with the bankruptcy notice on 10 June 2014.
- [19]Turning to whether the applicant has a prima facie defence on the merits, it was submitted on his behalf that due to lack of particulars in the respondent’s pleading he is unable to properly plead his defence. If judgment is set aside the applicant will seek further and better particulars of the plaintiff’s Statement of Claim in terms of a draft document exhibited to his affidavit. The applicant deposed to being unsure as to what the plaintiff was claiming and as to whether the tax claimed was incurred by him personally or in his capacity as a trustee.
- [20]Those explanations are inconsistent with the history of the applicant’s dealings with the Australian Tax Office (“the ATO”).
- [21]The applicant purchased the law firm Harris Sushames Lawyers in December 2010 as trustee of the Three Legged Blue Toad Trust (“the Trust”). The applicant had become registered for BAS purposes as trustee of the relevant trust on 1 November 2009. In his affidavit he conceded that by 2014 the firm had been experiencing financial difficulties.
- [22]In the period from 25 October 2012 to 25 April 2013 the applicant requested time to pay the Trust overdue BAS liabilities and was allowed a number of payment arrangements by the ATO. During this period the applicant on numerous occasions corresponded in writing and personally over the phone with ATO staff about an inability of the Trust to make payments. Correspondence from the ATO clearly set out the overdue amounts.
- [23]On 24 April 2013 the applicant telephoned seeking a payment arrangement until 15 December 2014 when payment was to be made in full. It was agreed to and confirmed by the ATO in writing on 25 April 2013. Subsequently, the March and April 2013 liabilities were not paid by their due dates and on 5 July 2013 the applicant was warned by letter of intended legal action. In December 2013 he sought a further payment arrangement but that was refused. On 17 February 2014 he wrote on behalf of the Trust requesting a further payment arrangement. The letter relevantly read:
“It is my proposal that along with meeting my obligations to meet my BAS requirement that I make the following payments:
- $20,000 at the end of the first week of March, 2014;
- $30,000 by the end of the first week of July, 2014;
- $1,200 per month.”
- [24]It should be borne in mind that the debt arose from BAS liabilities self assessed by the Trust on returns submitted under the signature of the applicant. As the sole trustee of the Trust and having been personally involved in negotiations with the ATO over a lengthy period he was in a position to be aware of the nature and source of the primary tax liabilities.
- [25]In these circumstances any lack of particularity in the Statement of Claim would not have prevented the applicant from identifying a prima facie defence should one be available.
- [26]The only potential defence raised in the applicant’s affidavit is a claim he had no liability in his individual capacity.
- [27]The applicant’s affidavit exhibits an undated deed purporting to have effect from 1 December 2010. The deed provides for the resignation of the applicant as trustee in favour of Harris Sushames Pty Ltd. The deed is signed by the applicant in his personal capacity and also by him on behalf of Harris Sushames Pty Ltd as incoming trustee of the Trust. The difficulty with this is that Harris Sushames Pty Ltd was not incorporated until 1 August 2014, after the date of judgment. While the date this deed was executed is not known, it could not have effect to appoint Harris Sushames Pty Ltd as a trustee until that entity came into existence with legal personality on 1 August 2014.
- [28]A further undated deed executed by Harris Sushames Pty Ltd claiming to have effect from 1 August 2014 purports to retrospectively ratify the earlier deed appointing the company as trustee as at 1 December 2010.
- [29]Counsel for the applicant declined to rely upon these documents in support of his submissions. That approach was well advised. As trustee of the Trust the applicant was personally liable for trust liabilities. The first deed could not have had the effect of appointing as trustee an entity which did not, at that time, exist in law. The second deed could not retrospectively change the legal person liable as against a third party for the debts of the Trust when the applicant had already been found by prior judgement of the Court to be the person so liable. In my view, these deeds could not found a basis for relieving the applicant of his personal liability for the tax debts incurred by the Trust.
- [30]Having regard to all the matters canvassed above, the applicant has not satisfactorily explained his failure to resist entry of the judgement and has not established he has reasonable prospects of defending the claim.
- [31]The application will be refused.
- [32]Orders
- The application is dismissed;
- The applicant pay the respondent’s costs of and incidental to the application, fixed in the sum of $750.