GAFFNEY v FC of T

Judges:
Mansfield J

Court:
Federal Court

Judgment date: 26 March 1998

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Mansfield J

The applicant seeks to set aside a bankruptcy notice dated 23 December 1997 issued on the application of the respondent (``the bankruptcy notice''). Earlier bankruptcy notices dated 31 July 1997 and 24 October 1997 in respect of the same debt alleged by the respondent have been set aside, ultimately without opposition from the respondent, for reasons which do not impinge upon the validity of the bankruptcy notice.

Primary facts

The primary facts are not in dispute.

The applicant is an accountant. Between the late 1980s and the early 1990s he was a director of six companies which operated motels in various parts of Australia, namely:

• Oimited Pty Ltd (``Oimited'')
• Deviran Pty Ltd (``Deviran'')
• Wilfern Pty Ltd (``Wilfern'')
• Mohican Pty Ltd (``Mohican'')
• Tangarut Pty Ltd (``Tangarut''), and
• Hixgold Pty Ltd (``Hixgold'').

Between June 1990 and June 1993, and in the case of Hixgold up to September 1993, those companies variously failed to pay group tax deducted from employees' wages to the respondent, contrary to s 221F(5) of the Income Tax Assessment Act 1936 (Cth) (``the ITAA''). As at 9 September 1993, the total group tax instalment deductions owing to the respondent was $354,339 by the six companies referred to (collectively, ``the companies'').

On 9 March 1994, the applicant became bankrupt. The liability giving rise to his bankruptcy was a debt due under a guarantee provided by the applicant. It was not related to the outstanding tax instalment deductions due to the respondent by the companies.

On 8 September 1994, a complaint was laid and summons issued against the applicant alleging many offences of failure to pay tax

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ATC 4661

instalment deductions to the respondent, contrary to s 221F(5)(a), ITAA. The complaint charged separately each occasion of a failure by the companies to pay the tax instalment deductions due.

On 5 May 1995, the applicant pleaded guilty to sixty-four such offences. He was convicted, and penalty was imposed. The Court also made a reparation order against him pursuant to s 21B(1), Crimes Act 1914 (Cth), that he pay $354,000 to the respondent. It is the debt ultimately created by reason of that reparation order which founds the bankruptcy notice. Pursuant to s 21B(3), Crimes Act 1914, on 29 August 1996, the respondent procured from the Registrar, Criminal Registry, Adelaide Magistrates Court a certificate that the reparation order was made and as to its terms. The respondent demanded, but did not receive, from the applicant payment of that sum of $354,000.

On 9 March 1997, the applicant was discharged from bankruptcy.

The respondent did not prove, or seek to prove, the amount of the reparation order in the applicant's bankruptcy. It obtained judgment for the sum of $354,000 in the District Court of South Australia on 10 July 1997, based on the certificate and s 21B(3), Crimes Act 1914. The bankruptcy notice was issued for $331,722, being the amount of that judgment after giving credit for $22,278 received from its claims from the companies.

The contentions

The applicant seeks to set aside the bankruptcy notice on three grounds:

• (1) the debt the subject of the bankruptcy notice was a provable debt in the applicant's bankruptcy under s 82(1), Bankruptcy Act 1966 (Cth) (``Bankruptcy Act'') and so may not now be pursued against him: s 58(3), Bankruptcy Act,
• (2) the bankruptcy notice is an abuse of process because the officers of the respondent responsible for its issue are not acting bona fide, but are motivated solely by malice towards the applicant so as to destroy his prospects of successfully resuming his profession, and
• (3) the respondent is estopped from pursuing the recovery of the reparation sum because the respondent represented or undertook to the applicant to take all possible steps to collect the tax instalment deductions from the companies, and it has failed to do so; it is asserted by the applicant that, had it done so, the amount of the unpaid tax instalment deductions would have been entirely, or very substantially, recovered variously from the companies so no debt would be owing by the applicant to the respondent as alleged, or at least a very much smaller one than that upon which the bankruptcy notice is based.

I also address briefly the amount of the debt asserted in the bankruptcy notice, although the respondent elected to make no submission on that topic.

Section 82(1), Bankruptcy Act

The applicant's principal contention is that the debt resulting from the reparation order was provable in his bankruptcy under s 82(1), Bankruptcy Act. It is then said that s 58(1) of that Act prevents the respondent from taking any further steps to recover that debt, including by the bankruptcy notice.

The issue between the parties is whether that debt falls within s 82(1), which provides:

``Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.''

It is necessary to note that, subject to the tax instalment deductions totalling $23,489 made in June, July and August 1993 and payable by Hixgold on 7 July, 7 August and 7 September 1993: s 221F(5)(a)(ii), ITAA, all the tax instalment deductions which were not paid by the companies in contravention of s 221F(5)(a)(ii) related to amounts payable prior to the commencement of the Insolvency (Tax Priorities) Legislation Amendment Act (Act 32 of 1993) (``the 1993 Act''). Counts 84, 85 and 86 of the charges laid against the applicant were in respect of Hixgold's failure to remit tax instalment deductions made in the months of June, July and August 1993. The applicant was convicted of each of those offences.

The 1993 Act amended various Commonwealth laws, including the ITAA, so as to abolish the respondent's priority in relation to group tax instalment deductions under s 221P, ITAA: see s 221P(1A) and (1B). The

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ATC 4662

regime established under the 1993 Act included measures to enable the respondent to recover unremitted tax instalment deductions speedily, including by enforceable estimations, and imposed new responsibilities and liabilities upon directors of companies which did not remit tax instalment deductions in a timely manner: Pt VI Div 9, ITAA. The provisions of the ITAA, introduced by the 1993 Act, required the directors of a company to oblige the company to comply with the remitting obligations of the company, or otherwise take certain specified action if it does not do so: s 222AOB, ITAA. Each director of a company becomes liable to pay to the respondent by way of penalty an amount equal to the unremitted amount of the tax instalment deductions: s 222AOC, provided the appropriate notice has been given of the respondent's intention to recover the penalty: s 222AOE. There are provisions which preclude ``double dipping'' and which entitle a director to recover any penalty from the company: s 222AOH and s 222AOI.

Until the 1993 Act, there was no provision in the ITAA which created any actual or potential obligation on the part of a director of a company to pay to the respondent unremitted tax instalment deductions. Nor was there any such provision which imposed on a director any form of penalty which was determined so as to reflect the amount of any unpaid tax instalment deductions. It is only by the somewhat circuitous route of:

• • the commission of an offence by a company which failed to remit tax instalment deductions as required by s 221F(5): s 221F(14)
• • the deeming of a person concerned in, or taking part in, the management of the company also to have committed that taxation offence: s 8Y, Taxation Admin- istration Act 1953 (Cth) (the applicant by his guilty plea acknowledged he was such a person)
• • the conviction of such a person
• • the exercise by the Court of its discretionary power to make a reparation order: s 21B(1)(a) and (c), Crimes Act 1914

that the circumstances giving rise to the liability of the applicant arose.

Although the reparation order did not separately deal with the loss said to be suffered by the respondent by reason of the companies' failure to remit tax instalment deductions, in particular in respect of those failures by Hixgold which occurred after the commencement of the 1993 Act, it was contended that I should first treat the reparation order as having been made essentially in respect of failures of the companies prior to 16 June 1993 when the 1993 Act relevantly came into force.

I note that there is no contention that the reparation order was not properly made, either generally in the circumstances or in its particular terms.

Section 21B(1), Crimes Act 1914 relevantly provides:

``Where-

• (a) a person is convicted of an offence against a law of the Commonwealth; or
• (b)...

the Court may, in addition to the penalty, if any, imposed upon the person, order the offender-

• (c) to make reparation to the Commonwealth or to a public authority under the Commonwealth, by way of money payment or otherwise, in respect of any loss suffered, or any expense incurred, by the Commonwealth or the authority, as the case may be, by reason of the offence; or
• (d)...''

It is apparent that, as at 5 May 1995, the Court was satisfied that the respondent had suffered loss amounting effectively to the full amount of the unremitted tax instalment deductions by the companies. The evidence of the applicant indicates that, at best, token opposition to that order was presented. No matter was then raised, nor evidence sought to be led, that the respondent's ``loss'' was less than the unremitted tax instalment deductions because of any capacity to recover those deductions from some of the companies. I do not know what, if any, material the court was presented with at the time of the reparation order being made.

On the assumption that all unremitted tax instalment deductions related to a period prior to 16 June 1993, I have concluded that the reparation order was not a debt provable in the applicant's bankruptcy. As at the date of his

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bankruptcy, he had no personal liability to the respondent in respect of those deductions by reason of their non-payment by the companies concerned. There were at that time no existing circumstances which gave rise to a contingent debt or liability, and which would crystallise by the happening of some future event. That is so whether one adopts the test that there must be a real or realistic possibility of that future event occurring: cp.
Official Trustee in Bankruptcy v CS & GJ Handby Pty Ltd (1989) 7 ACLC 1,070; (1989) 21 FCR 19;
Vale v TMH Haulage Pty Ltd (1993) 31 NSWLR 702, or whether it is necessary simply that the future event should occur during the bankruptcy.

The critical issue, in my view, is whether the reparation order arose or was made ``by reason of an obligation incurred'' by the applicant to the respondent prior to his bankruptcy. If so, then the debt or liability created by it would fall within s 82 as a contingent debt or liability, even though its enforcement may have required certain further procedural steps under s 21B, Crimes Act.

Each of Handby (above) and Vale (above) was concerned with the question of whether the liability of a director of a company for the company's debts under s 556(1) of the then Uniform Companies Code was a debt provable in the director's bankruptcy, having regard to s 82(1), Bankruptcy Act (in the Vale case (above), as it applied in the case of a composition with creditors). In Handby (above), the director's bankruptcy followed the winding up order of the company whereas in Vale (above) the resolution accepting the composition with creditors preceded the winding-up order of the company, but otherwise the issue was the same in each case. In my view, there is no relevant difference apparent in the reasons of the court arising from that factual difference: see Priestley JA with whom Meagher and Sheller JJA agreed in Vale (above) at 711.

Section 556(1), Companies Code provides:

``If-

• (a) a company incurs a debt, whether within or outside Tasmania;
• (b) immediately before the time when the debt is incurred-
  • (i) there are reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due; or
  • (ii) there are reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due; and
• (c) the company is, at the time when the debt is incurred, or becomes at a later time, a company to which this section applies,

any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred is guilty of an offence and the company and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt.''

Those decisions establish that a claim against a director under s 556(1) is a claim which may constitute a provable debt under s 82(1), Bankruptcy Act. Handby (above) did not then proceed to address whether, in the particular circumstances of the case, the claim should be admitted to proof in the director's bankruptcy (see at ACLC 1,073; FCR 23), although Vale (above) regards that decision as establishing that (at 710):

``... once conditions (a), (b), and (c) were fulfilled the director was liable, and that, prior to all three being fulfilled, he was contingently liable.''

Priestley JA added, in concluding in the circumstances of Vale, that there was a relevant contingent liability, at 710:

``If it is the fact that immediately before the time a debt is incurred by a company there are reasonable grounds to expect the company will not be able to pay all its debts as and when they become due or alternatively there are then reasonable grounds to suspect that because of the occurring of the debt the company will not be able to pay all its debts as and when they become due, then clearly there must at that time be at the very least a real possibility that, if the debt is incurred, the company will subsequently go into liquidation. That is frequently the fate of insolvent companies. This consideration leads me to think that it is realistic to regard the possibility of such a company becoming a company to which s

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556 applies as a relevant contingency and to regard the liability under s 556(1) as contingent within the meaning of s 82(1).''

By way of contrast, in
Lyford & Anor v Carey & Anor (1985) 3 ACLC 515, s 374D, Companies Act 1961 (WA) was addressed. It provided:

``(1) Where a person has been convicted of an offence under subsection (1) or subsection (2) of section 374C the Court on the application of the Commission or a prescribed person may if it thinks proper to do so, declare that the person shall be personally responsible without any limitation of liability-

• (a) in the case of a conviction under subsection (1) of section 374C, for the payment to the company of an amount equal to the whole or such part of the debt as the Court thinks fit in respect of which the conviction was made;
• ...''

The directors of a company had been convicted of being parties to the company contracting a debt when they knew the company had no real prospect of being able to pay it. Orders were sought against them for payment to the company, then in liquidation, of the sums in respect of which they were convicted. They had each entered into compositions with their creditors under Part X, Bankruptcy Act after the winding up of the company, but the compositions were finalised before the convictions were recorded. It was contended that orders could not be made under s 374D as the liability under that section constituted a contingent liability to which each director was subject at the date of the composition, and so was a provable debt under s 82(1), Bankruptcy Act and thus released by the compositions.

That contention was rejected. Franklyn J, after reviewing authorities, said at 518-519, that the expression contingent liabilities:

``... imports the necessity that there be in existence at the date of the bankruptcy, an obligation (which may itself as well as its performance be suspended by the condition of the contingency), out of which a liability to pay money will arise on the happening of the contingency. That is to say there must be an obligation upon which the contingency can operate. For the purposes of sec. 82 that obligation (suspended or not) must exist as at the date of bankruptcy. On the facts of the present case there was no obligation whatsoever on the part of either of the defendants to pay the debts the subject of the subsequent convictions under sec. 374C either at the date of the winding up or the date of the composition, and thus for the purposes of sec. 82, at the date of the bankruptcy. Consequently such debts were not contingent liabilities from which the defendants were released by the composition.''

The same issue arose in
Corporate Affairs Commission v Karounos (1985) 3 ACLC 410 with respect to s 374d, Companies Act 1961 (SA). The conviction, and the order sought under s 374d, each occurred whilst the director was bankrupt. Prior J at 412 said:

``An order made under sec. 374d certainly gives rise to a liability, but it is not a debt or liability to which the bankrupt was subject at the date of the bankruptcy. The offences occurred before the date of bankruptcy but the liability resulting from any order I make is contingent upon the conviction of 15 August 1984. My order and the conviction are both after the date of bankruptcy. Nor is the debt or liability to which he may become subject before his discharge `by reason of an obligation incurred before the date of bankruptcy'. The obligation is not incurred until after conviction and the order now sought. Thus, even if these proceedings were proceedings by a creditor, they are not with respect to any provable debts.''

The point of difference between decisions under s 374D, Companies Act 1961 and under s 557, Companies Code is that under the former liability for the company's debt depends upon some judicial determination as to personal responsibility whereas, under the latter, no such determination is necessary: see eg. Giles J in
CCA Systems Pty Ltd v Communications & Peripherals (Australia) Pty Ltd & Anor (1989) 7 ACLC 1,080 at 1,087; (1989) 15 ACLR 720 at 728.

That difference is relevant here. Consistent with the views of Franklyn J in Lyford (above) and Prior J in Karounos (above), I consider that the circumstances as they existed at the date of bankruptcy did not give rise to any obligation incurred by that time. I have set out above the process by which the reparation order was

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made. Whatever the expression ``obligation'' might encompass, I do not think it can properly be used to describe what was no more than a vulnerability to a criminal prosecution and conviction which in turn might give rise to a reparation order. The need for critical decisions to be made both to prosecute the applicant, and to convict him (I do not see that the outcome would be different depending upon whether the conviction was by plea or after a trial), and then to make a reparation order, in my view all remove the circumstances at the bankruptcy of the applicant from constituting at that time an obligation by the applicant to the respondent in respect of the liability which the bankruptcy notice now seeks to recover.

I have considered whether the position is different in respect of the amount of $23,489, being tax instalment deductions due by Hixgold after the 1993 Act came into force. The practical consequence might be that at least that amount as part of the reparation order might have been provable in the applicant's bankruptcy. The amount specified in the bankruptcy order would then significantly overtake the amount still owing by the applicant, and would have to be set aside. The applicant expressly declined to pursue this question because, as he said, the respondent might then issue a further bankruptcy notice at the yet further adjusted figure with the same ultimate consequence. I shall express my views on the question very briefly in those circumstances.

It is not clear that the penalty to which the applicant might have been exposed under s 222AOC, ITAA in respect of those payments would itself constitute a contingent debt reflected in an obligation which existed at the date of the applicant's bankruptcy: cp.
Woodhams v DFC of T 97 ATC 5119. It may do so. But that procedure was not adopted in any event. Despite the availability of that procedure, the procedure which ultimately gave rise to the debt on which the bankruptcy notice is based was the different one available under s 21B, Crimes Act 1914. The obligation which it gave rise to was not, for the reasons I have expressed, an obligation which existed at the date of the applicant's bankruptcy.

In those circumstances, whilst I understand the applicant's overall concern at the circumstances in which he finds himself, I conclude that the reparation order which is now represented by the enforceable debt upon which the bankruptcy notice is based was not a debt provable in his bankruptcy. In my view neither s 82(1) nor s 58(1), Bankruptcy Act oblige the Court to set aside the bankruptcy notice.

Abuse of process

The applicant's case is necessarily somewhat speculative. He contrasts what he regards as the passivity of the respondent in endeavouring to recover the tax instalment deductions from the companies with the vigour with which he regards himself as being pursued. He points to his lack of assets, and his modest income. He refers to the timing of the respondent's revived interest in him, coinciding with inquiries being made by David Colin Body (``Mr Body''), a member of the respondent's Prosecution Investigation unit directed to whether he was contravening the ITAA by practising as a taxation agent although no longer so registered under the ITAA. When, in about February 1998, he pleaded guilty to further offences relating to the failure to pay group tax (unrelated to the companies referred to), it was expressly stated that there was no application for a reparation order. The applicant regards that event as evidencing a softening of attitude by the respondent in the face of a strong case of ``persecution'' of the applicant by the respondent.

In May 1996, Mr Body did contact the applicant on the matter of his possible breach of the ITAA by acting as a tax agent without being registered. Mr Body's evidence was that he did so, as a result of information received, and in the normal manner. At the same time, Mr Body was preparing a prosecution brief against the applicant for other unrelated failures to pay to the respondent tax instalment deductions. In the course of his work, he reviewed the earlier files concerning the applicant and came across the reparation order. As it did not appear to have been paid, he contacted Mr Nissen to find out what action had been taken to enforce it. He did not previously know Mr Nissen but contacted him as the appropriate person in the recoveries section of the respondent. Although he had a few telephone contacts with Mr Nissen thereafter, he had no direct involvement in collecting moneys under the reparation order; his role was to provide information as requested by Mr Nissen. He denied any improper motive in relation to the applicant, in particular any

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conspiracy with Mr Nissen to damage the applicant for vindictive purposes.

I accept his evidence. He was an impressive witness: frank, open and responsive. His version of events I found inherently credible. Whilst I can understand the coincidences which feed the applicant's belief, I conclude that Mr Body's role and motives were simply as he expressed: he was just doing his job. He was not involved in the prosecution hearing in 1998 as he was on leave, and so did not himself give instructions not to seek a reparation order in respect of that later prosecution.

I also accept his evidence, and that of Mr Nissen, that it was a coincidence that Mr Nissen commenced to review the reparation order and consider steps to enforce it in about May 1996, unprompted by contact with Mr Body. Mr Nissen had been informed of the reparation order shortly after 5 May 1995. He had put it aside due to other work priorities. He took it up again on 24 May 1996, when he inquired of the applicant's trustee whether the respondent had been disclosed in the applicant's statement of affairs as a creditor. There was no such disclosure. That prompted Mr Nissen to ask whether, in those circumstances, the trustee might apply to extend the bankruptcy. The trustee declined to do so. Mr Nissen considered other ways to recover the amount of the reparation order, including giving notices under s 218, ITAA to clients of the applicant to direct payment of outstanding accounts to the respondent. On 21 August 1996, he wrote to the applicant demanding payment of $354,000 within seven days. He was contacted by the applicant and had a discussion or discussions with him. Two things emerge from those communications. First, Mr Nissen agreed to seek legal advice on the effect of s 82, Bankruptcy Act on the recoverability of the reparation order and delayed further action for some time whilst that advice was procured. Secondly, Mr Nissen received from Mr Gaffney a lump sum offer to settle the claim, which led Mr Nissen to the belief that further pursuing recovery of the reparation order was not hopeless.

There is one contentious communication between the applicant and Mr Nissen, of January 1997. Mr Nissen had contacted the applicant to inform him that the respondent's advice was that the reparation order debt was still recoverable, notwithstanding s 82(1), Bankruptcy Act. Mr Nissen ``pushed'' the applicant, in the sense of disclosing to him that one option of recovery may be to endeavour to collect that debt by s 218 notices under the ITAA to the applicant's clients. The applicant says that Mr Nissen urged him to go bankrupt again, and threatened that he may call in the applicant's clients for questioning. Mr Nissen denied those two matters. From the applicant's point of view, that is an important conversation, because it shows (he contends) that Mr Nissen was motivated by the desire to stop him from continuing to work as an accountant, a motive he says is vindictive rather than driven by the proper performance of his duties.

I do not find it necessary to resolve that dispute. I suspect that the communication was a vigorous one. It may be that the applicant read more into Mr Nissen's comments to him than was warranted, or misunderstood them. On the other hand, despite Mr Nissen's notes of the conversation referring to neither disputed topic, I am not prepared to find that nothing he said might have been understood by the applicant in the way he asserts. The notes, although fulsome, are obviously a summary of the communication maintained for Mr Nissen's purposes; where, in his view, the communication was diverted from his view of its logical process, I suspect the discussion leading to it getting back on to Mr Nissen's track was not fully recorded.

As I have said, I do not need to make specific findings about that conversation. I accept Mr Nissen's evidence that, in his conduct in seeking recovery of the debt under the reparation order, he was not motivated by vindictiveness but by a desire to perform his proper responsibilities. I had the benefit of seeing him give evidence. He was a careful witness, but in my view, frank and open. His detailed and contemporaneous notes reflect my perception of his committed and thorough approach to his work. The apparent coincidence of Mr Body's contact with the applicant and Mr Nissen's revived attention to recovering the debt under the reparation order was just that. The understandable view of the applicant that he may be being victimised is derived from events which reflect no more than Mr Nissen's vigorous pursuit of his duties. The seven day notice, effectively ``out of the blue'', of 21 August 1996 reflects that attitude, and it is easy to understand how the applicant can suspect

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more than is the case when that notice is compared to a period of inactivity in respect of the reparation order of in excess of twelve months. But, ultimately, I accept Mr Nissen's evidence. I noted above that there is material available to Mr Nissen to suggest that pursuit of the debt is not a hopeless endeavour. I also understand the applicant's view that the vigour of proceedings against him contrasts with the (apparent) passivity of recovery processes against the companies. I deal with that general topic in the next section of my reasons, but in summary, on the material before me, I am not prepared to conclude such inappropriate inactivity on the part of the respondent.

I have also carefully considered the applicant's submissions based upon Mr Nissen's notes of the steps taken by him to recover the debt under the reparation order, and matters associated with those steps. There are observations in them, as the applicant contended, which at first appearance might call for some explanation as to why Mr Nissen was interested in those matters. Mr Nissen, in my view, satisfactorily explained the reason why he addressed those matters in the course of his evidence.

I have also considered the respondent's failure to call Mr Kaye, of the Prosecution and Investigation unit, who procured the reparation order and who dealt with the applicant at the time of the letter relied upon by him to give rise to the estoppel, namely 23 May 1994. I do not draw any adverse inference from the fact that he did not give evidence. It is not at all clear that he had any relevant evidence to give, either as to the recovery steps against the companies which on the evidence were taken outside his unit, or as to the motives of the respondent through Mr Nissen or Mr Body from mid-1996 in seeking to enforce the reparation order against the applicant, as there is nothing to suggest he has been involved at all in that process since mid-1996.

In the result, I do not conclude that the respondent, either through Mr Nissen or Mr Body in collaboration with Mr Nissen, was motivated by vindictiveness towards the applicant in causing the issue and service of the bankruptcy notice. This ground of attack must fail.

Estoppel

The foundation for this claim is a letter from the respondent to the applicant dated 23 May 1994. It relevantly provides:

``On the question of priority of group tax debts, you are advised that debts secured over a specific asset of a company rank for collection ahead of group tax.

All possible steps to collect the group tax debts incurred by the companies are being taken.''

In
Waltons Stores (Interstate) Ltd v Maher (1987-1988) 164 CLR 387 Brennan J at 428-429 identified the requirements for a plaintiff to prove equitable estoppel as:

``(1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.''

Mason CJ and Wilson J at 404 described equitable estoppel as:

``... the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has `played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it' (per Dixon J in
Grundt v The Great Boulder Proprietary Gold Mines Limited (1937) 59 CLR 641 at 675).''

The applicant must fail on this ground.

Firstly, there is no evidence that he relied on the representation to his detriment in any way. He acknowledged the absence of such evidence in the course of submissions. There is no evidence either that he did something that he otherwise would not have done, or that he did

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not do something that he otherwise would have done, in reliance upon the representation.

Secondly, I am not persuaded that the applicant has made out that the respondent failed to take all possible steps to collect the group tax debts from the companies concerned. The evidence is not sufficient to reach that conclusion. The applicant appeared in person. In the course of his evidence, I indicated to him that the very general allegations made by him would probably require to be supported by more specific, and in some cases formal documentary, evidence to make out the claims. He did adduce some further evidence. It is necessary to look separately to the circumstances of each of the companies, as disclosed in the evidence.

(1) Deviran and Wilfern

The applicant's evidence is that in February 1989, Deviran purchased the business and physical assets of the Penrith Valley Inn for $1,400,000 and at the same time Wilfern purchased the land of that motel for $4,600,000. The purchases were financed by a borrowing of $7,000,000 from Order of the Sons of Temperance National Division Friendly Society (``OST''), secured by a first mortgage over the land granted by Wilfern and a mortgage debenture over the assets of Deviran. Those security documents were not put into evidence, so I do not know their terms. The loan, and security, was at some point transferred to Independent Order of Odd Fellows of Victoria Friendly Society (``IOOF''). I suspect that resulted from some form of merger. In April 1989, Wilfern was said to have borrowed the Swiss franc equivalent of $A5,000,000 from Banque de Suez Nederland N.V. secured by a $A5,000,000 deposit and by a second mortgage over the land, and a second mortgage debenture over the assets of Deviran. Again, I do not have those documents in evidence. That transaction meant that the interest rate on $A5,000,000 of the borrowing of Wilfern and presumably Deviran was at the lower foreign currency loan rates, but the risk of adverse currency fluctuations was borne by Wilfern and presumably Deviran. Although it is common knowledge that there was a significant adverse currency fluctuation of the Australian dollar against the Swiss franc in the early 1990s, the detail of that fluctuation or its impact upon Wilfern or Deviran is not explained in evidence. The applicant said that in June 1990, as Deviran was in financial difficulties, Wilfern ``took over'' the motel and operated it thereafter. Deviran ceased to trade. The nature of the takeover, and any arrangements with the lenders to either Wilfern or Deviran at the time, was not explained. In September 1992, IOOF appointed a receiver or receivers of the assets (it is unclear what assets) and sold them. No evidence of the details of the sale are provided, save as noted below. The applicant asserts that the physical assets securing the mortgage debentures were worth some $350,000, and that the circumstances he described meant firstly that the ``take over'' of Deviran's assets by Wilfern was improper and the Deviran assets were thereafter never subject to any enforceable charge, and secondly that at no material time had the security or securities over the Deviran assets crystallised into a fixed charge. In either event, he says that the respondent had a priority over the receiver or receivers for moneys received from realisation of those physical assets under s 221P, ITAA as in force prior to the 1993 Act and would, if the respondent had asserted the priority vigorously, have led to the recovery from Deviran or Wilfern of the outstanding group tax instalment deductions of Deviran and Wilfern.

Documentary evidence shows that on 28 April 1989, Wilfern granted three fixed and floating charges to NCS International Finance Corporation N.V., later assigned to Banque de Suez Nederland N.V. and that all the assets represented by the motel were released from two of the charges on 12 November 1992. It also shows the transfer of the land of that motel to Wilfern for $4,600,000 and the grant of registered mortgages to OST and to NCS International Finance Corporation N.V. later transferred respectively to IOOF and to Banque de Suez Nederland N.V. It further shows notice of default was given by IOOF to Wilfern under a Deed of Facility of 27 February 1989 on 7 August 1992, with the principal and interest then outstanding of $9,979,126. It also shows a transfer of the land by mortgagee under power of sale for $2,500,000, and finally a settlement statement for that sale. It does not indicate, beyond the sale of the land subject to the mortgage to Wilfern, what became of the assets of Deviran and in particular whether they were realised and if so by whom, or in what capacity, or for what price, and whether any amount recovered for them led to any surplus funds

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which, subject to any legitimate claims of secured creditors, were available to the respondent under s 221P, ITAA. It does not show whether any security was a fixed charge over those physical assets, or whether any floating charge (which the applicant suspects) crystallised at a time earlier than the respondent's claims against Deviran and Wilfern.

It is unclear to what extent the tax instalment deductions owing in respect of the operations of that motel were owed by Deviran, or by Wilfern once it ``took over'' the running of the motel.

The evidence of the respondent, through Mr Nissen, is largely common to all of the companies. He was not, until 1995, concerned in the collection of the tax instalment deductions. He himself did not take the steps referred to. He said that the respondent's practice, when a company indebted to the respondent goes into liquidation and/or a receiver or manager of its assets is appointed, is to lodge a proof of debt and to assert such priority as is available to him. The respondent then awaits the repayment of such amount as he is entitled to, as the liquidator or receiver and manager proceeds with the administration. In the normal course, no other action is taken. Those steps were taken in each instance.

The respondent was not aware, until the applicant's evidence before me, of the asserted irregularity in Wilfern wrongfully taking possession of the business and assets of Deviran in about June 1990, as alleged by the applicant. The applicant did not tell the respondent. Nor is there evidence to indicate that there was any reason to suspect that the persons, on behalf of IOOF, in control of the assets of Deviran or Wilfern would not respect the respondent's legitimate claims of which notice had been given.

The applicant alleges that the respondent in those two cases should have wound up the companies, and should then have funded the liquidator to recover from IOOF the proceeds of sale of the business, plant and equipment of those two motels, allegedly converted by IOOF through its agent in the circumstances outlined. As the respondent had no notice of that allegation, nor any evidence to suspect such a claim was available, it is difficult to criticise the respondent for that alleged failure. In addition, I am not persuaded on the limited material he presented that the claim is available in any event. I observed to the applicant to that effect during his evidence, but he did not enhance the picture beyond that described above. Nor am I prepared to find that the assets alleged by the applicant to have been so converted realised any particular sum or sums, or to find how much of the realised sums were (even on the case of the applicant) available to meet the priority of the respondent. There is simply no evidence on those questions. The applicant's own assertion, from his experience, as to the value of the physical assets is not sufficient to satisfy me as to the amounts realised on their sale, although I accept that the assets as listed by him (or most of them) existed at material times.

(ii) Hixgold

Hixgold was incorporated on 5 July 1988, for the purpose of buying the land and the business and assets of Inn on the Park - Brisbane for $5,350,000. It borrowed for that purpose $5,650,000 from OST, later assigned to IOOF, which borrowing was secured by a mortgage over the property and a mortgage debenture over the business and its assets. In September 1988, further finance of $A3,000,000 in Swiss francs was procured from Banque de Suez Nederland N.V. (or its predecessor), secured both by the deposit of $A3,000,000 and by a second mortgage over the land and a second mortgage debenture over the business and its assets. Again, the benefit of the lower interest rate achieved thereby was at the expense of the potential, and realised, adverse currency movement of the Australian dollar against the Swiss franc. In February 1990, the primary borrowing was increased by $850,000 to $6,500,000 secured as previously.

The tax instalment deductions owing as at September 1992 led to the respondent applying to wind up Hixgold, and then to payment of the amount then outstanding. However, the subsequent tax instalment deductions were also not paid. Certain of them, reflected in the reparation order, were deducted during June, July and August 1993 and due on the seventh of each succeeding month.

On 30 August 1993, IOOF appointed a receiver and manager of the assets of Hixgold, and subsequently on 31 January 1994 controllers of its assets were appointed under a mortgage debenture charge dated 18 August 1988 and over the land itself under a mortgage also dated 18 August 1988. Information

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provided to the respondent much later was that the realisation of the assets did not produce sufficient funds to meet the debt of the secured creditor. The respondent was told, in response to its later inquiry that the assets sold were insufficient to meet the debt of IOOF. I accept that Hixgold had significant furniture, as asserted by the applicant, but for reasons already given I do not accept his assessment of their value as reliable evidence of what was realised upon its sale.

In this instance there is no allegation of impropriety by Hixgold. There is no suggestion that the assets of Hixgold have been misapplied, or were not the subject of its security. There is no suggestion that, somehow, the priority of the respondent overrides the security, or did not crystallise before the further indebtedness to the respondent arose. There is no evidence of the amount realised in the sale of its assets, or what if any surplus was available after payment of the costs of realisation. I accept the evidence of Mr Nissen of a general nature referred to above as to the respondent's procedures to claim the tax instalment deductions, and to assert the priority to which the respondent is entitled. There is nothing upon which I conclude that, in this instance, the respondent should have done more, or if more had been done to recover the tax instalment deductions that any further amount would have been recovered.

(iii) Mohican and Tangarut

These two companies were respectively the owner of the business and operator of the Eldorado Motor Lodge at Tennant Creek and the landowner.

The applicant or his family interests purchased the shares in each of those companies, for a total of $3,650,000 and again the borrowing of $4,250,000 to achieve that end exceeded the cost. An existing mortgage over the property was transferred to OST, later assigned to IOOF. The applicant described that the business soon struck problems, and that informally Tangarut simply assumed control of the business and its assets in early 1992 and Mohican simply dropped from the scene.

On 3 September 1992, Tangarut was placed into receivership by IOOF under the mortgage and under the mortgage debenture dated 1 September 1988. It is unclear whether rights under the mortgage debenture presumably also granted were exercised. Again, I accept that there were substantial physical assets used in operation of the Eldorado Motor Lodge, but for the reasons given I do not accept that the (presumed) realisation of those assets generated funds of the order of their value as described by the applicant.

In this case, however, further documentary evidence was produced. It indicates that on 14 February 1995 Tangarut sold the stock of that motel to Aaronview Pty Ltd for $8,584.59. The motel was sold and settled on or about 10 February 1995 for $700,000. Various demands and notices made by IOOF to the applicant, Tangarut, Mohican and others refer to a loan agreement dated 1 September 1988 for $4,350,000 to be lent to the applicant and another entity, guaranteed by Tangarut and Mohican, and assert the total indebtedness at 16 April 1992 to be $5,415,944, and refer to securities for the loan and guarantees including a registered first mortgage from Tangarut, registered debenture charges granted by Tangarut and Mohican, and a bill of sale granted by Mohican all dated 1 September 1988. It is unclear whether the sale of the stock was under the bill of sale referred to, or upon some other basis.

The respondent dealt with those receivers and managers, both to identify the precise amount of the tax instalment deductions unpaid, and to claim the amount outstanding. No payment was received. The receivership ceased on 12 October 1993 and Tangarut was dissolved on 7 July 1995. In the case of Mohican, whilst it was operating the motel business, the respondent had taken steps on three occasions towards winding it up for non-remittance of tax instalment deductions. It was wound up on 9 September 1992. The liquidator paid no dividend. The liquidation was finalised on 30 March 1995.

Again, the evidence satisfies me that the respondent followed its normal processes. The respondent was not told by the applicant, and had no reason otherwise to know, that there was any irregularity in Tangarut taking over Mohican's assets in 1992. In those circumstances, it cannot fairly be criticised for not pursuing that asserted claim, even if there is merit in it. The evidence does not satisfy me that there was otherwise any particular sum to which the respondent was entitled and which, by different or more vigorous action on its behalf, the respondent may have recovered. The

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considerations leading to that view are the same as my reasons concerning Deviran and Wilfern.

(iv) Oimited

In the case of Oimited, the evidence is sparse. It operated the Airport Motel in Adelaide. It was wound up on 9 September 1992 on the application of the respondent, and the respondent lodged a proof of debt for outstanding tax instalment deductions. On 2 November 1994, the respondent received $12,358.30 as a priority dividend. The liquidator in turn sought recovery of $9,919.82 received on 25 August 1992 by the respondent for tax instalment deductions made between April and June 1992, as a void disposition under s 468 of the Law, having been made after the filing of the winding-up application and that amount was refunded.

There does not appear to be any basis for criticising the respondent's processes.

Other matters

In the course of submissions, the applicant adverted to a few other matters which it is proper to note.

The debt which arises by virtue of the reparation order, and enforceable as a final judgment by the procedure of obtaining an appropriate certificate under s 21B(3)(b) and the filing of that certificate in an appropriate court under s 21B(3)(c) is one which thereby becomes a debt capable of founding the bankruptcy notice. I respectfully agree with the reasons for decision, and the decision of Olney J in
Re Barnes; Ex parte DFC of T (1995) 30 ATR 276.

There is no element of ``double jeopardy''. The applicant is not being required, should he comply with the bankruptcy notice, to pay to the respondent money already paid, nor is there any equivalence between the penalty imposed for the offences, and the obligation created by the reparation order. The vulnerability to a sequestration order which will result from non- compliance with the bankruptcy notice does not expose him to liability of the same character as that involved in his conviction for offences contrary to s 221F, ITAA: see
R v Knight (1990) 51 ACR 323.

I was also referred to
Tarea Management (North Shore) Pty Ltd (in liq) v Glass (1991) 9 ACLC 579; (1991) 28 FCR 93, and at first instance
Glass v Tarea Management (North Shore) Pty Ltd (in liq) (1990) 8 ACLC 748; (1990) 25 FCR 242. I note firstly that no application is made in the present matter under s 60(1), Bankruptcy Act and secondly that the finding that the compensation order there under consideration was ``in respect of... a provable debt'' within that section, so as to qualify for a stay order, is consistent with the view I have reached. The issue in the matter before me is not whether the enforceable debt arising from a reparation order is a provable debt in bankruptcy, but whether it was a provable debt in the applicant's bankruptcy in the particular circumstances.

Accordingly, I dismiss the application to set aside the bankruptcy notice dated 23 December 1997.

THE COURT ORDERS THAT:

1. Application to set aside the bankruptcy notice dated 23 December 1997 be dismissed.