FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Keenan [1999] FCA 524

BANKRUPTCY - Bankruptcy notice founded on judgment debt for unpaid income tax - discretion to refuse sequestration order - conscientious objection to the direction of income tax to the military does not warrant the exercise of the discretion - sequestration not warranted where debtor solvent - solvency gauged by ability to pay, unaffected by debtor’s resistance to payment

INTERNATIONAL LAW  - relationship between treaty obligations and domestic law

Bankruptcy Act 1966 s 52(2)

Re Burrowes;  Ex parte Deputy Federal  Commissioner of Taxation (1991) 91 ATC 5,021 Refd to

Taylor v Deputy Commissioner of Taxation  [1999] FCA 195 (Full Court) Refd to

Sarina v Council of the Shire of Wollondilly (1980) 48 FLR  372 Refd to, Discussed

Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 Cons

Sandell v Porter (1966) 115 CLR 666 Cited

DEPUTY COMMISSIONER OF TAXATION v DAVID C KEENAN

QG 7309 of 1998

KIEFEL J

BRISBANE

28 APRIL 1999

THE COURT ORDERS THAT:

1.         The petition be dismissed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

EX TEMPORE

1                     Judgment was entered against Mr Keenan in the Magistrates’ Court at Brisbane on 25 May 1998 for $8,952.51 in favour of the Deputy Commissioner of Taxation.  A bankruptcy notice, founded upon that judgment, was served on him on 26 June 1998 and it called upon him to pay the sum due.  An act of bankruptcy was committed by him when he failed to comply with that requirement.  On 10 August 1998, the Deputy Commissioner of Taxation filed a petition seeking an order for the sequestration of his estate based on that act of bankruptcy.  The sum then due, with accrued interest and charges, was $9,623.33.  The fact of the debt is not disputed.  It represents taxes unpaid over some years because Mr Keenan withheld 10 per cent. 

2                     Mr Keenan has two arguments as to why his property should not be given over to a trustee in bankruptcy to meet this debt.

3                     Under section 52(2) Bankruptcy Act 1966, the Court has a discretion not to make the order sought if it is satisfied by the debtor that he or she is able to pay his or her debts;  or that “for other sufficient cause” the sequestration order ought not to be made.  The first argument advanced by Mr Keenan relies upon “other sufficient cause” being shown.  He submits that this is satisfied because it is against his conscientious belief to pay taxes which will be applied for the killing of fellow human beings, and that to require him to pay the sum he has withheld on that account is to violate his right to freedom of conscience according to Article 18 of the International Covenant on Civil and Political Rights.  He has assessed 10 per cent as being the proportion of taxes which might be applied to the Defence Forces.  The principle Mr Keenan maintains about himself killing is, he explains, equally applicable to paying money to be applied for that purpose.  There may be some argument about whether the treaty is in any event infringed by the requirement to make such a payment.  Article 18 refers to a person’s freedom to adopt, hold and manifest beliefs and is subject to limitations as are prescribed by law such as are necessary to protect the rights and freedoms of others.  There is obviously a debate available, but it is not necessary for me to consider that question.  Mr Keenan is aware that the Covenant to which he refers contains treaty obligations accepted by Australia, but that it is not part of the domestic law of Australia.  The effect of that is that it does not confer private rights upon him.  There are two decisions which recognise this:  Re Burrowes;  Ex parte Deputy Commissioner of Taxation (1991) 91 ATC 5,021 and the recent decision of Taylor v Deputy Commissioner of Taxation  [1999] FCA 195 (Full Court).  Mr Keenan is not then able to assert a legal right which the Court can recognise to prevail against the right of the Deputy Commissioner of Taxation to be paid.  There is no principle of law or a provision of a statute which colours that debt by reason of the purpose to which taxation monies might be applied.  It is true that defence legislation recognises a conscientious objection to service, but there is no statutory provision which recognises the application of such a belief to the payment of taxes.  Mr Keenan says that, because there is a general discretion available, the Court ought to recognise his beliefs and not make the order.  However sincerely he holds those beliefs, the discretion of the Court cannot be exercised on the basis of some personal view held by individual Judges as to the correctness or otherwise of a debtor’s moral stance.  The first argument therefore fails.

4                     The second argument relates to his solvency.  If he is able to show that he is able to pay his debts, a sequestration order would not be appropriate.  The Court would usually exercise its discretion not to make a sequestration order where it was satisfied of that:  see Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372.  That is so even if the debtor is able to pay the debt but has determined not to do so, for whatever reason.  As Deane J pointed out in Re Sarina, there is no policy discernible in the bankruptcy legislation which would entitle a creditor to make a recalcitrant debtor bankrupt even though the debtor satisfies the Court that he is solvent.  The Bankruptcy Act 1966 is concerned with persons who are insolvent.  Mr Hack, for the Deputy Commissioner of Taxation, pointed to the decision of the Full Court in Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 where it was said that the principle referred to in Re Sarina would not be satisfied by a sterile demonstration of an ability to pay.  Their Honours were, however, referring to a situation where payment could not be compelled because the debtor had placed funds out of reach.  Their Honours did not otherwise cast doubt upon the principles referred to in Re Sarina.

5                     The test of solvency is that a person is able to show that they are able to meet their debts as they fall due from their own monies, but this is not limited to their own cash resources immediately available and extends to what can be procured and realised by sale:  Sandell v Porter (1966) 115 CLR 666, 670.  It is not, however, sufficient in that regard simply to point to an excess of assets over liabilities.

6                     The amount now said to be due to the Deputy Commissioner of Taxation is $14,629.98.  This amount was first referred to in an affidavit read by leave on the hearing today.  Mr Keenan said that he has lodged and expects to receive a variation of part of the sum due.  I did not require Mr Keenan to affirm this but I have no reason to doubt it.  An adjournment to clarify the position is not warranted.  The amount then due would be some $10,828.98.  The only other debt owed by him is insignificant in amount.  Mr Keenan’s property comprises a house property jointly owned with his wife.  It is valued at $140,000 and there is a mortgage of some $60,000 over it.  He has shown by an affidavit filed, before he was aware of the higher figure, that there is a line of credit available to him of some $10,000 and presently a credit balance of $416.99 which he could utilise.  This goes to show that he is able to raise funds against the house property, which one would expect.  It has been shown as an advance to a joint account, which detracts from its standing as evidence as to what he personally can raise.  I do not find it difficult, however, to accept that a sum in excess of that due might be raised from the sale of the property. 

7                     It was pointed out that to refuse an order for sequestration would involve the Deputy Commissioner of Taxation in the cumbersome process of execution, given Mr Keenan’s vow to refuse to raise the monies in any event.  I have already dealt with the issue of his refusal as irrelevant to the question of his ability to pay.  The answer otherwise to the matters raised by the Deputy Commissioner of Taxation is that sequestration is not an alternative form of execution.  It is concerned with situations where someone is unable to pay their debts. 

8                     There are methods of execution available to the Deputy Commissioner of Taxation against Mr Keenan’s interest in the property.  He has been warned of the likelihood of that taking place.  For the reasons above, I am however satisfied that he is able, although unwilling, to pay his debts.  For that reason alone the petition will be dismissed.

Associate:

Dated:              28 April 1999