FEDERAL COURT OF AUSTRALIA

Schiffer v Pattison [2005] FCA 494

BANKRUPTCY – bankrupt discharged from bankruptcy – trustee issued proceedings in Federal Magistrates Court to recover money from bankrupt – trustee’s calculation based upon assessments of amount of income bankrupt likely to have derived during certain specified contribution assessment periods – reasonable remuneration used as basis for calculations – no payment made – trustee issued certificate of outstanding contribution, filed in Federal Magistrates Court – trustee sought summary judgment against respondent – respondent challenged validity of certificate of outstanding contribution – respondent also filed purported cross-claim seeking declaratory relief – Federal Magistrate held no arguable defence raised, summarily dismissed cross-claim, and made findings as to respondent’s lack of cooperation with trustee – appeal to Federal Court – whether leave to appeal required from summary judgment – whether leave to appeal should be granted – whether appellant needed to pursue cross-claim for declaratory relief – whether Federal Magistrate should have dealt with appellant’s challenges to validity of key documents – whether Federal Magistrate erred by having regard to irrelevant considerations

Bankruptcy Act 1966 (Cth) ss 139S, 139W(1), 139Y, 139ZG(4) and (5)

Re Ellis; Ex parte Jefferson & Stevenson (unreported, Federal Court of Australia, 17 February 1995) discussed

Kluska v Kluska [1965] VR 457 referred to

Tampion v Anderson (1974) 3 ALR 414 considered

Port of Melbourne Authority v Anshun Pty Ltd (1980) 147 CLR 35 considered

MZWHW v Minister for Immigration and Multicultural and Indigenous Affairs [2005] FCA 466 at [6] referred to

Cox Brothers (Australia) Ltd v Cox (1934) 50 CLR 314 followed

Standard Discount Co v La Grange (1877) 3 CPD 67 referred to

In re a Debtor (1903) 19 TLR 152 referred to

Salter Rex & Co v Ghosh [1971] 2 QB 597 at 601 referred to

Weatherall v Satellite Receiving Systems (Aust) Pty Ltd (1999) 30 ACSR 698 referred to

National Mutual Life Association of Australasia Ltd v Grosvenor Hill (Qld) (2001) 183 ALR 700 referred to

Cubillo v Commonwealth (2001) 112 FCR 455 at 503 referred to

Johnston v Cameron (2002) 124 FCR 160 at [8] followed

Decor Corp Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 followed

Geoffrey Inc v Luik (1997) 38 IPR 555 referred to

Dey v Victorian Railways Commissioners (1949) 78 CLR 62 followed

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 followed

McKellar v Container Terminal Management Services Ltd (1999) 165 ALR 409 at [12]–[19] referred to

Energex Ltd v Alstom Australia Ltd [2004] FCA 575 at [157]-[161] referred to

HORST DIETER SCHIFFER v PAUL ANTHONY PATTISON

V436 OF 2004

WEINBERG J

26 APRIL 2005

MELBOURNE

THE COURT ORDERS THAT:

1.             Assuming leave to appeal is required, leave be granted.

2.             The appeal be allowed.

3.             Orders one and three of the orders made by the Federal Magistrate on 19 March 2004 be set aside. 

4.             In lieu thereof, the matter be remitted to his Honour to be heard and determined according to law.

AND THE COURT DIRECTS THAT:

1.             Each party file and serve written submissions regarding costs, both of and incidental to the appeal, and before the Federal Magistrate, within twenty-one days of the publication of these reasons for judgment.

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

REASONS FOR JUDGMENT

1                     By notice of appeal, filed on 2 April 2004, the appellant, Mr Horst Schiffer, purported to appeal from the judgment of a Federal Magistrate dated 19 March 2004, in which Mr Schiffer was ordered to pay his former trustee in bankruptcy, Mr Paul Pattison, the sum of $96,961.74 plus interest, and costs:  Pattison v Schiffer [2004] FMCA 171. 

2                     By notice of motion, filed on 20 May 2004, Mr Pattison foreshadowed an application pursuant to O 52 r 18 of the Federal Court Rules to have the purported appeal dismissed as incompetent.  The basis for that contention was that the judgment of the Federal Magistrate was interlocutory, and not final.  Accordingly, it was submitted that leave to appeal was required. 

3                     On 3 September 2004, I heard argument regarding the competency of the appeal.  I adjourned the hearing of the notice of motion until the trial, but granted leave to Mr Schiffer to amend his notice of appeal by seeking leave to appeal, in the event that leave was required. 

4                     By amended notice of appeal, filed on 11 November 2004, Mr Schiffer sought leave to appeal from the Federal Magistrate’s decision.  In the meantime, on 6 September 2004, the Chief Justice directed, pursuant to s 25(1A) of the Federal Court of Australia Act 1976 (Cth), that a single judge of the Court hear and determine this matter. 

background

5                     Mr Schiffer was made bankrupt by a sequestration order on 17 May 1995.  He was discharged from bankruptcy on 13 July 2003, eight years after he filed his Statement of Affairs.  Mr Pattison was Mr Schiffer’s trustee in bankruptcy.  In 1998, Mr Pattison objected to Mr Schiffer’s discharge from bankruptcy.  On 20 July 1999, the Administrative Appeals Tribunal (“the AAT”) upheld that objection.  On 10 August 2001, Kenny J dismissed an appeal against the decision of the AAT. 

6                     After Mr Schiffer was finally discharged from bankruptcy, Mr Pattison issued proceedings in the Federal Magistrates Court seeking to recover from Mr Schiffer the sum of $96,961.74.  The basis of the claim was that Mr Pattison, pursuant to s 139W(1) of the Bankruptcy Act 1966 (Cth) (“the Act”), had made various assessments of the amount of income that Mr Schiffer was likely to have derived during certain specified contribution assessment periods.  Based on those assessments, Mr Pattison had determined the amount of the contribution that Mr Schiffer, though no longer a bankrupt, was liable to pay for each such period. 

7                     There were four periods in question.  They were:

·           8 December 1994 to 7 December 1995 – amount of contribution $24,583.50;

·           8 December 2000 to 7 December 2001 – amount of contribution $26,734.04;

·           8 December 2001 to 7 December 2002 – amount of contribution $28,090.99; and

·           8 December 2002 to 12 July 2003 – amount of contribution $17,553.21.

8                     Mr Pattison had determined Mr Schiffer’s income in the subsequent income assessments, based upon the reasonable remuneration figure used in the income assessment dated 10 November 1995 (“the November assessment”), with adjustments for changes in the consumer price index (“CPI”).  Mr Pattison adopted that approach on the basis that Mr Schiffer had failed to complete and return annual statements of income for the period of his bankruptcy.

9                     On 26 June 2003, Mr Schiffer received a letter to which was attached a document titled “Explanation of Words Used in Assessment”.  The explanation advised him, inter alia, that if he disagreed with Mr Pattison’s decision regarding the contributions or assessments, he could apply to the Inspector-General for review of that decision.  Alternatively, he could lodge an appeal with the AAT. 

10                  Mr Schiffer did not file an application for review by the Inspector-General in respect of the subsequent income assessments.  Nor did he appeal Mr Pattison’s decision to the AAT.  He did not pay any amount in reduction of the outstanding income assessments totalling $96,961.74. 

11                  On 28 November 2003, Mr Pattison issued a certificate of outstanding contribution, pursuant to s 139ZG(4) of the Act, which was filed in the Federal Magistrates Court Registry on 15 January 2004.

the relevant legislation

12                  Section 139S of the Act sets out the formula to be used for determining the contribution payable by a bankrupt.  The section provides:

“The contribution that a bankrupt is liable to pay in respect of a contribution assessment period is the amount worked out in accordance with the formula:

Assessed income – Actual income threshold amount

2

where:

Assessed income means the amount assessed by the trustee to be the income that the bankrupt is likely to derive, or derived, during the contribution assessment period.

Actual income threshold amount means the actual income threshold amount assessed by the trustee to be applicable in relation to the bankrupt when the assessment is made.”

13                  Section 139Y sets out the conditions under which a trustee may regard a bankrupt as receiving reasonable remuneration.  It states:

“(1)     If:

(a)               the bankrupt is engaging or has engaged during a contribution assessment period in employment or other work or in activities that resemble employment or other work; and

(b)               the bankrupt does not receive or did not receive any remuneration in respect of the employment, work or activities or receives or received remuneration that is less than the remuneration (in this subsection called the reasonable remuneration) that:

(i)                 in the case of employment where an industrial award or agreement prescribes rates or minimum rates of salary or wages for the employment—might reasonably be expected to be or to have been received by the bankrupt in respect of the employment by virtue of that award or agreement; or

(ii)               in any other case—might reasonably be expected to be or to have been received by a person who engaged in similar employment, work or activities where there was no relationship or other connection between that person and the person for whom the employment, work or activities were carried out;

then, for the purpose of making an assessment, the trustee may determine that the bankrupt receives or received the reasonable remuneration in respect of the employment, work or activities.

(2)       If:

(a)               the bankrupt enters or entered during a contribution assessment period into any transaction that might reasonably be expected to produce or to have produced income; and

(b)               the bankrupt does not derive or did not derive any income from the transaction or derives or derived income that is less than the income (in this subsection called the reasonable income) that might reasonably be expected to be or to have been derived if the transaction were or had been entered into at arm's length;

then, for the purpose of making an assessment, the trustee may determine that the bankrupt derives or derived the reasonable income from the transaction.”

14                  Section 139ZG of the Act sets out the circumstances under which contribution is payable.  Subsections 139ZG(4) and (5) provide:

“(4)      The trustee may, in connection with proceedings to recover the debt:

(a)               sign a certificate setting out the nature and the amount of the debt; and

(b)               file the certificate in the court in which the proceedings have been instituted.

(5)       In such proceedings, the certificate is prima facieevidence of the existence of the debt and the amount of the debt.”

the proceeding before the federal magistrate

15                  Mr Pattison brought proceedings in the Federal Magistrates Court against Mr Schiffer for what he contended was effectively a simple debt claim in relation to income contribution assessments made under the Act.  In his amended statement of claim, Mr Pattison alleged that Mr Schiffer had, at all times during the period of his bankruptcy, been liable to pay a contribution of income derived during a contribution assessment period where such income was assessed by Mr Pattison to exceed the threshold amount applicable in relation to him.  He pleaded that a series of demands had been made upon Mr Schiffer for payment of all such monies outstanding at such times, but that Mr Schiffer had not made any payment in response to those demands. 

16                  Mr Pattison relied upon the certificate of outstanding contribution as prima facie evidence of the existence and amount of the debt, pursuant to s 139ZG(5).  There was no dispute before his Honour that the assessments were made, and no dispute that they remained unpaid.  Mr Pattison contended that, in the absence of any contradictory evidence, that was the end of the matter. 

17                  Mr Schiffer, however, challenged the validity of the income contribution assessments.  In his defence, he denied Mr Pattison’s allegation that he was liable to make any payment, notwithstanding the certificate to that effect.  He also sought declaratory relief by way of purported cross-claim.  The pleading in support of the cross-claim was derisory.  It merely asserted that the facts alleged in the substantive paragraph of Mr Pattison’s statement of claim were “erroneous”, and that there were no facts upon which Mr Pattison could properly assess Mr Schiffer as set out in the certificate, or at all.  There was no prayer for relief in the cross-claim.

18                  In electing to file a cross-claim, and using it as the basis for an application for declaratory relief, Mr Schiffer relied upon the judgment of Drummond J in Re Ellis; Ex parte Jefferson & Stevenson (unreported, Federal Court of Australia, 17 February 1995) (“Re Ellis”). 

19                  The Federal Magistrate noted that the declaratory relief sought by Mr Schiffer was discretionary.  As Drummond J had observed in Re Ellis, considerable importance attached to the fact that in Subdiv G of Div 4B of Pt VI of the Act, Parliament had expressly provided for internal review by the Inspector-General of assessment decisions by trustees.  Mr Schiffer had not availed himself of those review opportunities, despite the fact that he was made aware of them in letters from Mr Pattison on 10 November 1995 and 26 June 2003, as well as in a conversation with a member of Mr Pattison’s staff on 19 April 1996.

20                  The Federal Magistrate found that Mr Schiffer had not cooperated with Mr Pattison.  He had failed to explain his non-cooperation.  His Honour referred to the findings of the AAT in 1999 that Mr Schiffer had never intended to make payment of the income contribution.  Nor had he responded to requests for information from Mr Pattison about his income or assets.  Based on the findings of the AAT, his Honour rejected “absolutely” Mr Schiffer’s application for declaratory relief.  He was satisfied that it would be “grossly unfair” to allow Mr Schiffer to take advantage of his own failure to comply with his statutory obligations in support of an equitable remedy that was largely discretionary. 

21                  His Honour then turned to Mr Schiffer’s specific objections to the income contribution assessments. 

22                  First, Mr Schiffer contended that he should not have been assessed on the basis that, before bankruptcy, he had effectively been managing director of a group of companies that made substantial amounts of money.  He submitted that it did not follow that he would be able to earn in that capacity after bankruptcy.  His Honour rejected that submission.  He reasoned that it overlooked the fact that Mr Schiffer had been employed by his wife, had failed to provide the details requested for his income statement, and had not cooperated with Mr Pattison.  In his affidavit filed in opposition to Mr Pattison’s application for summary judgment, Mr Schiffer had not addressed the nature or value of the work that he did for his wife.  The affidavit simply referred to his taxable income for the relevant years.  His Honour concluded that Mr Schiffer’s argument did not come to grips with the fact that Mr Pattison had assessed him on the basis of what his remuneration might reasonably have been, had he been employed at arms’ length, rather than by his wife.

23                  Secondly, Mr Schiffer referred to the November assessment.  That document took the form of a letter addressed to Mr Schiffer.  It claimed that he was liable to pay contributions to his estate of $24,583.50 under Div 4B of the Act.  It explained that that figure was based on the following information regarding income assessed:

24                  The notice then calculated the actual income threshold amount which was said to be based on the “Base Income Threshold Amount” $25,498.20 adjusted for any dependents.  That produced a figure for contribution payable of $74,665 minus $25,498, divided by two, resulting in the assessed contribution of $24,583.50. 

25                  Mr Schiffer complained that the notice showed a nil amount for “tax actually paid”.  He submitted that this rendered the notice invalid because the relevant question was not how much tax had actually been paid, but how much tax was payable.  He submitted that an error of this fundamental nature vitiated the notice in the same way as any significant error would invalidate a bankruptcy notice.

26                  His Honour rejected the challenge to the validity of the notice based on this ground.  He observed that given Mr Schiffer’s “complete lack of co-operation with respect to [Mr Pattison’s] ability to assess what his reasonable remuneration should be and the appropriate assessment of tax”, any error in the manner in which the notice dealt with tax did not render it invalid.

27                  Third, Mr Schiffer complained about Mr Pattison’s use of the CPI to adjust the quantum fixed in the later income contribution assessments.  His Honour rejected that contention, though seemingly without giving any specific reasons.  He merely said that he was satisfied that there was nothing in Mr Schiffer’s affidavit which in any way tarnished or diminished the basis of Mr Pattison’s assessment.

28                  In substance, his Honour concluded that none of Mr Schiffer’s objections to the income contribution assessments disclosed anything in the nature of an arguable defence, still less an arguable “counterclaim”.  He ordered Mr Schiffer to pay Mr Pattison $96,961.74 together with interest.  He dismissed the “cross-application”.  He also ordered Mr Schiffer to pay Mr Pattison’s costs.

the application to this court

29                  There are three main strands to the application for leave to appeal to this Court.  First, Mr Schiffer contends that this was not a case that was appropriate for summary judgment.  Second, he wishes to put a defence to Mr Pattison’s claim made below.  Third, he contends that his cross-claim, seeking declaratory relief, ought to have been heard and determined, and not summarily dismissed as it was. 

30                  Mr Schiffer’s grounds in support of his application for leave to appeal, if leave be required, are voluminous and often repetitive.  Nonetheless, they were all argued, and it is probably helpful to set them out in full.  They are as follows:

“a)      That His Honour ought to have held that in this case there was no certainty that the respondent would succeed at the trial if the matter went to trial and consequently the application for summary order ought to have been refused.

b)         His Honour ought to have held that in respect of the claim and also in respect of the cross claim there were a number of questions which ought to have been tried.

c)                  That His Honour ought to have held that the Trustee had exercised his power of assessment arbitrarily or capriciously or in bad faith and that the assessments and the notices were therefore bad.

d)                 That His Honour was wrong in holding that the cross claim involves matters of discretion and therefore on the return of an application for summary judgment he ought not to have made a discretionary order, i.e., the order of refusing to exercise jurisdiction under s.30 of the Bankruptcy Act.

e)                  His Honour was wrong in holding that the respondent did not have at least an arguable case to set aside the notices on the ground of irregularity pursuant to s.30 of the Bankruptcy Act.

PARTICULARS

The notices refer to “tax actually paid” rather than any amount that the bankrupt pays or is likely to be liable to pay, or paid or was liable to pay as the case may be, during that period in respect of income tax as required by s.139N of the Bankruptcy Act 1966.

f)                   His Honour was wrong in holding that the Appellant had failed to complete and return annual statements of income and had not cooperated with the Trustee prior to the issue of the assessment dated 10 November 1995 (“the first assessment”);

g)                 His Honour was wrong in holding “that the applicant assessed the respondent on what his reasonable remuneration should be in the circumstances”

h)                 His Honour ought to have held that notices of assessment were invalidated by a defect or any irregularity and that a substantial injustice has been caused by that defect or irregularity which injustice cannot be remedied by an order of the Court.

i)                   That His Honour ought to have held that the expression “income-salary/wages deemed reasonable according to the salary and wages of the Industry Group in the same field as Kilsyth springs Pty Ltd/Condor Manufacturing as deemed pursuant to s.139Y of the Bankruptcy Act 1966 - $74,665” is essentially meaningless or at the very least was arguably so.

j)                   His Honour was wrong in holding that the fact that the appellant was employed by his wife was relevant to the assessment of his income pursuant to s.139Y.

k)                 His Honour was wrong in holding that the earnings prior to bankruptcy of a company which was related to the appellant and of which the appellant had been director were relevant to the assessment of the appellant’s income subsequent to his bankruptcy.

l)                   That His Honour was wrong in holding that the findings of AAT made on 20 July 1999 were relevant to the decision to enter final judgment in this proceeding.

m)               That His Honour ought to have held that the Trustee ought to have calculated the various amounts of the income assessments by deducting from the estimated amount income tax payable on that amount.

n)                 That in any event His Honour was wrong in dismissing the cross claim as:

i)                    The rule does not provide for dismissal of the cross claims

ii)                  The notice of motion did not seek that remedy.”

Mr schiffer’s submissions

31                  Mr Irlicht submitted in relation to ground a) that the Federal Magistrate should not have proceeded on the basis that this was a case that was suitable for summary judgment.  Whereas Mr Pattison contended that summary judgment was warranted because there was no answer to his claim, Mr Irlicht submitted that this was not so.  He submitted that the Federal Magistrate had relied on cases decided under pleading summonses where “the relevant facts were not in issue”.  Here, the following questions of fact had to be resolved:

·        whether Mr Pattison had exercised his power of assessment arbitrarily and capriciously, or in bad faith;

·        whether Mr Schiffer had cooperated with Mr Pattison prior to the issue of the November assessment;

·        whether Mr Pattison had assessed Mr Schiffer on what was reasonable remuneration in the circumstances;

·        whether there was any reasonable basis for Mr Pattison to disregard information provided by Mr Schiffer;

·        whether there was any basis upon which Mr Pattison could reasonably have arrived at the amount assessed in accordance with the requirements of the Act; and

·        what amount Mr Schiffer might reasonably have expected to receive from employment by virtue of any award or agreement, or what a reasonable person might have expected to have received from similar employment, work or activities, where there was no relationship between that person and the employer.

32                  Mr Irlicht submitted that ground b) was substantially similar to ground a) but also raised the question of what income tax, if any, was payable by Mr Schiffer, and upon what amount that tax ought to have been calculated for the purposes of the notice of assessment.  He submitted that the excessive amount claimed, and/or the erroneous reference to “tax actually paid”, rendered the notice invalid.

33                  In relation to ground c), Mr Irlicht noted that the November assessment provided that income assessed was calculated as:

“Salary/Wages deemed reasonable according to the salary and wages of the Industry Group in the same field as Kilsyth Springs Pty Ltd/Condor Manufacturing as deemed pursuant to Section 139 Y of the Bankruptcy Act, 1966”. 

34                  The subsequent notices of assessment referred to changes in the CPI.  In an affidavit sworn on 4 March 2004, Mr Pattison said that in making the November assessment, he inter alia:

“a. Exercised my powers under Section 139X(2) of the Act, and disregarded the information provided by the Respondent [Mr Schiffer] in his Annual Statement of Income on the basis that I had formed the opinion that the information provided to me by the Respondent was incorrect.  I formed this opinion on the basis that my investigations into the Respondent’s examinable affairs revealed that prior to the Respondent’s bankruptcy, he was effectively the managing director of a company and/or group of companies that made substantial amounts of money.  The Respondent’s Statement of Income hereto annexed and marked PAP2 indicated that the Respondent was a fitter and turner who would earn a gross annual income of $6000.00.”

35                  Mr Irlicht submitted that this passage from Mr Pattison’s affidavit was evidence of his failure to meet the requirements of s 139Y.  He submitted that it ought to be inferred that he had exercised his power of assessment arbitrarily and capriciously, or in bad faith. 

36                  Mr Irlicht next submitted, in relation to ground d), that his Honour had approached the cross-claim incorrectly by allowing discretionary considerations to intrude at a stage when what was being considered was nothing more than whether declaratory relief should be summarily refused.  Mr Irlicht relied upon the judgment of Winneke CJ in Kluska v Kluska [1965] VR 457 (“Kluska”) in support of that contention.  He submitted that the fact that Mr Schiffer had not sought internal review by the Inspector-General was no bar to seeking declaratory relief from the Court. 

37                  In relation to ground e), Mr Irlicht contended that the combined effect of ss 30 and 306(1) of the Act enabled the Court, in certain cases, to set aside a bankruptcy document for irregularity.  The reference in the income contribution assessment to “tax actually paid” being nil was a serious irregularity, whether the tax calculated ought to have been on the amount of some $6,000, claimed by Mr Schiffer to have been his actual wages, or the $74,665 claimed by Mr Pattison to have been Mr Schiffer’s deemed reasonable remuneration.  Mr Irlicht submitted that the correct approach was to calculate the tax payable on the amount deemed by Mr Pattison to have been earned by Mr Schiffer, and to deduct that amount from that deemed figure, before applying the statutory formula.  In this case, the effect upon the amount assessed was substantial.

38                  Mr Irlicht submitted in relation to ground f) that the only return of statement of annual income that had been forwarded before 10 November 1995 had been completed.  There was no correspondence, and specifically no unanswered correspondence, prior to that date.

39                  In relation to ground g), Mr Irlicht submitted that there was no evidence on which the Federal Magistrate could have reached the conclusion that Mr Pattison assessed Mr Schiffer “on what his reasonable remuneration should be in the circumstances”.  He submitted that under s 139Y(b)(i), there needed to be evidence of “an industrial award or agreement”.  He also referred to s 139Y(b)(ii), and submitted that the requirements of that subparagraph had not been satisfied. 

40                  In relation to ground h), Mr Irlicht submitted that, on any view, the assessment was excessive by reason of the failure to deduct income tax payable.  By analogy with bankruptcy notices, the income contribution assessments were invalid, and liable to be set aside.

41                  In relation to ground i), Mr Irlicht submitted that the expression used by Mr Pattison “income salary/wages deemed reasonable… of the Bankruptcy Act 1966 - $74,665” in the November assessment was essentially meaningless, or at least arguably so.

42                  In relation to ground j), Mr Irlicht submitted that the fact that Mr Schiffer had been employed by his wife was irrelevant for the purpose of assessing his income pursuant to s 139Y.  He submitted that s 139L(a)(vii) dealt specifically with this matter.

43                  In relation to ground k), Mr Irlicht submitted that under s 139X, a trustee may make an assessment on the basis of what he or she considers to be correct information.  There was no evidence of what Mr Pattison considered to be the “correct information” in this case.  There were clear guidelines in s 139Y.  These had been ignored.

44                  In relation to ground l), Mr Irlicht submitted that the findings of the AAT regarding Mr Schiffer’s lack of cooperation were both irrelevant and inadmissible. 

45                  Mr Irlicht submitted that ground m) was self-explanatory.  In substance, the matters raised were the same as those set out in ground e).  However, in further elaboration of the point, he referred to Re Ellis in which Drummond J considered the manner in which the amount upon which tax was payable was to be calculated. 

46                  In relation to ground n), Mr Irlicht submitted that there was nothing in the Federal Magistrates Court Rules that provided for the summary dismissal of cross-claims.  He noted that this issue had not been argued before the Federal Magistrate.  He submitted that, on any view, his Honour had no power to dismiss the cross-claim summarily in the absence of a specific application by Mr Pattison for that relief.

Mr Pattison’s submissions

47                  Mr Cull, who appeared on behalf of Mr Pattison, submitted that the Federal Magistrate’s decision was interlocutory, and that Mr Schiffer therefore required leave to appeal.  He further submitted that it was well established that an applicant was entitled to summary judgment in circumstances where it was apparent that the respondent had no real answer to his or her claim.  He submitted that Mr Schiffer had failed to raise any arguable defence. 

48                  Mr Cull noted that, notwithstanding the numerous grounds of appeal, Mr Irlicht had not challenged the Federal Magistrate’s formulation of the appropriate test for summary disposal of the proceedings. 

49                  In response to a number of the grounds of appeal, Mr Cull submitted that Mr Pattison had been entitled to rely upon the certificate of outstanding contribution, under s 139ZG(5) of the Act, as prima facie evidence of the existence and amount of the debt.  He submitted that there was clear and uncontradicted evidence before the Federal Magistrate as to a range of matters now apparently challenged by Mr Schiffer.  These included the finding that that Mr Schiffer had not cooperated with Mr Pattison prior to the issue of the November assessment, a matter that had not previously been disputed.  He submitted that the Federal Magistrate’s findings of fact had all been open on the evidence, and that those findings were at least relevant to the exercise of his discretion to refuse Mr Schiffer declaratory relief. 

50                  In relation to ground c), Mr Cull submitted that the paragraph in Mr Pattison’s affidavit of 4 March 2004, set out earlier in these reasons for judgment, upon which Mr Irlicht relied, complied completely with the requirements of s 139Y.  In any event, an inference of the kind for which Mr Schiffer now contended could only be relevant when considering whether or not to grant declaratory relief.  It would have no bearing upon Mr Pattison’s right to summary judgment on an undisputed, and unchallengeable debt. 

51                  In relation to ground d), Mr Cull submitted that the Federal Magistrate had not refused to exercise jurisdiction.  Rather, his Honour had simply refused to grant the declaratory relief sought by Mr Schiffer, which he correctly regarded as involving an exercise of discretion.  Mr Cull submitted that Kluska had no bearing upon any issue in this case.

52                  In response to grounds e), h) and m), Mr Cull submitted that the reference to tax actually being paid did not of itself lead to the inference that the certificate of outstanding contribution had not been properly calculated by reason of the fact that it did not comply with s 139N, and was therefore invalid.  He submitted that there was a clear distinction between income earned and income derived.  Mr Schiffer, by his own admission, had not paid tax for the relevant contribution assessment periods.  In any event, any error on the part of Mr Pattison in this regard had no bearing upon his entitlement to summary judgment.

53                  In relation to ground k), Mr Cull denied that the Federal Magistrate had made the finding claimed by Mr Schiffer.  Mr Schiffer’s employment by his wife was plainly relevant to the income contribution assessment, particularly when taken in conjunction with all of the other uncontradicted evidence. 

54                  In relation to ground l), Mr Cull submitted that the findings of the AAT made on 20 July 1999 were plainly relevant when considering whether to enter final judgment in favour of Mr Pattison.  Alternatively, those findings could be taken into account when considering whether to grant Mr Schiffer the declaratory relief that he sought. 

55                  Finally, in response to ground n), Mr Cull submitted that the cross-claim had not sought explicit relief.  Mr Pattison’s notice of motion sought summary judgment, together with other necessary orders.  In light of the purposes and “expected simplicity” of Federal Magistrates Court proceedings, the relevant rules should be read to provide for the summary dismissal of cross-claims, whether of the Federal Magistrate’s own motion, or in response to a successful application for summary relief by an applicant against a respondent.

conclusions

56                  It is somewhat surprising that there is such little authority on the question whether summary judgment in favour of a plaintiff (or, in this Court, an applicant) is interlocutory or final.  By contrast, there is a substantial body of authority for the proposition that summary judgment in favour of a defendant (in this Court, a respondent) is interlocutory.  See for example Tampion v Anderson (1974) 3 ALR 414 in which the Privy Council held that an order staying an action on the ground that it was frivolous, vexatious and an abuse of the process of the Court was an interlocutory judgment. 

57                  On the other hand, in Port of Melbourne Authority v Anshun Pty Ltd (1980) 147 CLR 35 (“Anshun”), the High Court held that an order by a Supreme Court judge that proceedings in an action be stayed as an abuse of process on the ground that the matters in question could and should have been litigated in earlier proceedings is an order which finally disposes of the rights of the parties.  Tampion v Anderson was considered, and distinguished.  Gibbs J, as his Honour then was, observed that there might well be a difference between a case in which an action was frivolous or vexatious in the ordinary sense, or in which the proceedings disclosed no reasonable cause of action, and a case in which the abuse of process lay in an attempt to litigate an issue which was res judicata.  His Honour observed that Tampion v Anderson had nothing to say about a case of the latter kind.  See also MZWHW v Minister for Immigration and Multicultural and Indigenous Affairs [2005] FCA 466 per Kenny J at [6]. 

58                  Perhaps the authority most directly in point with regard to summary judgment on behalf of a plaintiff is Cox Brothers (Australia) Ltd v Cox (1934) 50 CLR 314 (“Cox”).  In that case, the High Court held that an order giving leave to enter final judgment pursuant to order XIV rule 1 of the Rules of the Supreme Court 1916 (Vic) upon a specially endorsed writ of summons was interlocutory and not final.  Leave to appeal was therefore necessary.  Two English cases were referred to in support of that conclusion:  Standard Discount Co v La Grange (1877) 3 CPD 67 and In re a Debtor (1903) 19 TLR 152. 

59                  In Tampion v Anderson, their Lordships noted that there was a continuing controversy regarding the question whether a given judgment was of a final or an interlocutory character.  That controversy related to whether the broad test of finality in a judgment depended upon the effect of the order made, or on the application being of such a character that whatever order had been made in relation to it must finally have disposed of the matter in dispute.  They cited the well-known observation of Lord Denning MR in Salter Rex & Co v Ghosh [1971] 2 QB 597 at 601:

“This question of ‘final’ or ‘interlocutory’ is so uncertain that the only thing for practitioners to do is to look up the practice books and see what has been decided on the point.  Most orders have now been the subject of decision.”

60                  Notwithstanding Anshun, Tampion v Anderson has been regularly followed in Australia.  It has been held that an order granting summary judgment in favour of a respondent, based on a failure of a pleading to disclose a reasonable cause of action, is interlocutory:  Weatherall v Satellite Receiving Systems (Aust) Pty Ltd (1999) 30 ACSR 698.  So too, as Tampion v Anderson illustrates, is dismissal of an application as an abuse of process, at least where that abuse arises in circumstances outside the ambit of res judicata.  Likewise, an order dismissing or staying a proceeding for want of prosecution is interlocutory in nature, as the order involves no final determination of a matter in issue between the parties in those proceedings:  National Mutual Life Association of Australasia Limited v Grosvenor Hill (Qld) (2001) 183 ALR 700. 

61                  The position regarding summary judgment in favour of a plaintiff is perhaps less clear.  There is something odd about the notion that an order granting such judgment is not one that finally determines “the substantive rights of the parties”:  Cubillo v Commonwealth (2001) 112 FCR 455 at 503.  In one sense, the effect of such a judgment or order is plainly to finally dispose of the rights of the parties.  Nonetheless, Cox seems to suggest that summary judgment in favour of a plaintiff is interlocutory, and that case is of course binding upon me. 

62                  Mr Irlicht submitted that Cox could be distinguished on the basis that, under the Rules there in question, a further step had to be taken before the judgment could be enforced, the actual decision under challenge being merely an order giving leave to enter final judgment.  

63                  Without finally deciding the matter, I am inclined to reject that submission.  I accept, of course, that an order for summary judgment in favour of an applicant under the Federal Magistrates Court Rules operates in a different manner to the form of the judgment under consideration in Cox.  However, in my view, that difference is essentially one of form, and not one of substance. 

64                  The better view, or at least the view that I regard as binding upon me, therefore, is that the judgment of the Federal Magistrate in favour of Mr Pattison should be regarded as interlocutory.  It follows that Mr Schiffer requires leave to appeal from that judgment. 

65                  In the present case, the distinction between an appeal as of right, and leave to appeal, is of little consequence.  In considering whether to grant leave, I am conscious of Branson J’s observation in Johnston v Cameron (2002) 124 FCR 160 at [8] that leave to appeal is more readily granted in a case where a decision, if allowed to stand, will have “the practical effect” of determining a claim of an applicant to be entitled to an order, than in a case concerning practice and procedure only.  The present case plainly has that practical effect, and leave will therefore more readily be granted. 

66                  The principles governing the grant or refusal of leave to appeal from an interlocutory judgment are set out in Decor Corp Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 (“Decor v Dart”).  There are two questions to consider:

·           whether, in all the circumstances, the decision is attended by sufficient doubt to warrant its being reconsidered by the Full Court; and

·           whether, supposing the decision to be wrong, substantial injustice would result if leave were refused.

It is for the applicant seeking leave to appeal to satisfy the Court as to both these matters. 

67                  The principles that govern summary disposal are well established.  Summary judgment is regarded as an exception to the normal course, and requires strict and complete compliance with the principle that every element in an applicant’s cause of action must be satisfied.  The general rule is that the Court should be slow to give judgment in favour of an applicant without a trial, except in obvious cases where it is readily apparent the respondent has no defence:  Geoffrey Inc v Luik (1997) 38 IPR 555. 

68                  The general principles are set out in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125.  I discussed those principles in McKellar v Container Terminal Management Services Ltd (1999) 165 ALR 409 at [12]–[19].  See also Energex Limited v Alstom Australia Limited [2004] FCA 575 at [157]-[161]. 

69                  The Federal Magistrate discussed these principles at [16] of his reasons for judgment.  His Honour referred to Dey and General Steel, and accepted that summary judgment in favour of a party pursuing a claim would only be granted “in a very clear case”.  As previously indicated, Mr Irlicht does not challenge his Honour’s formulation of the relevant legal test.  It is only the application of that test, in the present case, that he submits was erroneous. 

70                  The first and most important question, on the appeal to this Court, is whether Mr Pattison’s claim for what he described as a “simple debt” was so clearly made out as to render it pointless to have a complete trial of the action.  Another way of formulating the question is to ask whether Mr Schiffer had any arguable defence to the claim made against him. 

71                  Regrettably, there appears to have been some unnecessary confusion introduced into the proceeding before his Honour.  It must be said that Mr Schiffer contributed significantly to that confusion by the manner in which he responded to Mr Pattison’s application for summary judgment.  He needed to do no more than demonstrate an arguable defence.  However, for reasons that are not immediately apparent, he sought to combine resistance to summary judgment with his own claim for declaratory relief.  That introduced a red herring into the proceeding, and explains much of what happened below. 

72                  I accept that there are cases where it may be appropriate for a bankrupt to seek declaratory relief in answer to a claim made by a trustee, whether for payment of a sum of money, or some other order.  This matter was canvassed Drummond J in Re Ellis.  However, it must be remembered that the grant of declaratory relief is always discretionary.  I cannot think of any reason why, in answer to a claim by a trustee under s 139W, a cross-claim seeking declaratory relief denying the validity of the trustee’s claim, has any particular utility.  Mr Schiffer did not need a declaration in order to meet Mr Pattison’s claim.  He merely needed to show that he had a defence to that claim.  And in relation to Mr Pattison’s application for summary judgment, he merely needed to show that he had an arguable defence to that claim.

73                  In my view, the introduction by Mr Schiffer of a dubious cross-claim into this proceeding led to the Federal Magistrate having his attention diverted from the central issue that had to be determined.  It opened up a range of matters that had no bearing upon that issue.  Hence, an inordinate amount of attention was directed to whether Mr Schiffer had cooperated with Mr Pattison, and whether his failure to do so disentitled him from seeking declaratory relief.  These were peripheral, if not irrelevant, considerations. 

74                  Mr Pattison submitted, correctly, that a certificate of outstanding contribution, pursuant to s 139ZG(4) of the Act, was prima facie proof of the existence and amount of the debt claimed.  He argued that, in the absence of any evidence to negate the effect of the certificate, his claim should be regarded as conclusive.  Mr Schiffer, on the other hand, sought to challenge the validity, not just of the November assessment, but also the later assessments that were based upon the November assessment. 

75                  Regrettably, instead of dealing directly and forthwith with Mr Schiffer’s various challenges to the validity of these notices, and therefore to the validity of the certificate of outstanding contribution, his Honour focused upon whether Mr Schiffer’s failure to seek internal review of the assessment decision prevented him from seeking declaratory relief by way of cross-claim.  Having determined that question, he then went on to consider whether Mr Schiffer had cooperated with Mr Pattison during the period of the bankruptcy.  He relied upon the findings of the AAT in concluding that he had not.  However, this had very little to do with the central issue in the case, at least so far as the application for summary judgment was concerned. 

76                  His Honour’s discussion of Mr Schiffer’s objections to the various notices and assessments was certainly somewhat cursory.  That discussion is set out in summary at [22]-[27] above.  It consists largely of a series of general assertions of a conclusory nature.  It relies heavily upon Mr Schiffer’s history of non-cooperation with Mr Pattison.  It does not address, in any detail, the submissions that were made regarding the validity of the key documents. 

77                  It seems clear that the effect of a certificate under s 139ZG(4) is to shift the onus of proof from the trustee to the bankrupt in relation to the existence and amount of the debt claimed.  It is not clear whether what is intended is a shift of the legal onus, or the evidential onus.  On any view, however, it must be open to a bankrupt to challenge the assessment made, notwithstanding that it is supported by such a certificate.  In my view, the challenge can take any one of a number of forms.  The bankrupt can deny the debt, and adduce evidence to demonstrate why the assessment made should not be accepted.  Alternatively, he or she can challenge the validity of the certificate of outstanding contribution by challenging the validity of any notices upon which that certificate is based. 

78                  In his affidavit of 10 March 2004, Mr Schiffer denied that he had earned any more than about $6,000 during the period 8 December 1994 to 7 December 1995.  I doubt that the evidence in that form constitutes an arguable defence to a claim in relation to that period, couched in the language of the November assessment.  It will be recalled that Mr Pattison calculated the income assessed for that period as being $74,665 which, when treated in accordance with the formula under s 139S of the Act, produced the contribution payable figure of $24,583.50. 

79                  The inadequacy of Mr Schiffer’s affidavit was not, however, the end of the matter.  There were several distinct challenges to the validity of the various notices upon which the certificate of outstanding contribution rested.  These challenges had to be considered when determining whether to grant summary judgment.  In my view, there were at least three arguable points raised.

80                  First, the November assessment did not explain, in any coherent manner, how Mr Pattison calculated the reasonable remuneration that Mr Schiffer would have received had he not been employed by his wife, or a related entity, but rather at arms’ length. 

81                  Second, the November assessment used as a comparator an entity described as an “Industry Group”.  Mr Pattison provided no explanation as to what he meant by that expression.  Indeed, Mr Cull was unable to proffer any suggestion as to what it actually meant during the course of argument before me.  It is hardly satisfactory that a notice of this type, which may form the basis for a certificate under s 139ZG(4), and may have the most profound consequences for a bankrupt, should be couched in such imprecise and uncertain terms. 

82                  Third, the November assessment contained a manifest error.  It referred to “tax actually paid”, when it ought to have referred to tax payable.  More importantly, there was an issue to be determined regarding the amount in question.  If Mr Schiffer in fact earned only $6,000 in that period, as he claimed, there would be little, if any, tax payable.  If he were deemed to have earned $74,665, by virtue of the application of s 139Y, what amount, if any, should be deducted to cover tax payable?  In declining to deduct any amount, did Mr Pattison act arbitrarily and capriciously, or in bad faith, as suggested?

83                  I should emphasise that I am making no findings whatsoever regarding these matters.  The only question before me is whether the Federal Magistrate erred when he determined them adversely to Mr Schiffer upon the basis that they were simply not arguable.  If they were even tenable, in any realistic sense, his Honour ought to have refused to grant summary judgment.

84                  It is unnecessary for the purposes of this appeal to deal with the remaining grounds.  It is sufficient to say that several of those grounds raise matters that might be regarded as arguable.  They identify matters that should have been determined in the context of a trial, and not by way of summary disposal.  One example will suffice.  There may be a problem with Mr Pattison’s use of CPI adjustments in the later notices, rather than separate calculations based upon clearly specified comparators.  It is possible that the Act impliedly authorises the use of such a method, but it is at least arguable that the trustee must engage in a fresh assessment for each year, based on any relevant evidence that is available.

85                  I should indicate that I expressly reject Mr Irlicht’s contention that there ought to have been a trial of this proceeding so that he could obtain discovery, with a view to cross-examining Mr Pattison.  Mr Irlicht submitted that such cross-examination might have provided evidence to bolster his claim that Mr Pattison had acted in bad faith.  Whether or not discovery should be ordered, and its scope, must depend upon the ordinary rules that govern the conduct of litigation.  Fishing is not to be encouraged.  If Mr Pattison is to be cross-examined upon his affidavit, it must be in accordance with the rules of evidence, and not aimlessly, in the hope that something helpful to Mr Schiffer may turn up. 

86                  It follows from the above that leave to appeal should be granted, assuming that leave is required.  The appeal should be allowed.  Orders one and three of the orders made below should be set aside.  In lieu thereof, the matter should be remitted to the Federal Magistrate to be heard and determined according to law. 

87                  Mr Cull submitted that if the appeal were allowed, he should be given an opportunity to make submissions regarding the question of costs.  I think that is appropriate.  I propose to give directions for the filing of written submissions regarding that issue.

Associate:

Dated:              26 April 2005