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[2018] FCA 1087
Federal Court of Australia
2018-07-17
Colvin J
Original judgment source is linked above.
FREEZING OF ASSETS 6. (a) You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia ('Australian assets') up to the unencumbered value of AUD$7,599,252.32 ('the Relevant Amount'). (b) If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount. (c) If the unencumbered value of your Australian assets is less than the Relevant Amount: (i) you must not dispose of, deal with or diminish the value of any of your Australian assets and ex-Australian assets up to the unencumbered value of your Australian and ex-Australian assets of the Relevant Amount; and (ii) you may dispose of, deal with or diminish the value of any of your ex-Australian assets, so long as the unencumbered value of your Australian assets and ex-Australian assets still exceeds the Relevant Amount. 7. For the purposes of this order, (1) your assets include: (a) all your assets, whether or not they are in your name and whether they are solely or co-owned; (b) any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and (c) the value of your assets is the value of the interest you have individually in your assets, and (2) the following assets in particular: (i) the following real property: Address Title details 9 St Ives Cove, Warnbro, Western Australia, 6169 Lot 95 on plan 20057 Certificate of Title volume 2012 folio 873 16 Herlihy Way, Warnbro, Western Australia, 6169 Lot 127 on plan 20270 Certificate of Title volume 2027 folio 866 72/375 Hay Street, Perth, Western Australia, 6000 Lot 72 on strata plan 54018 Certificate of Title volume 2694 folio 272 312/12-14 Wirra Drive, Newport Quays, South Australia, 5015 Lot 312 Primary Community Strata Plan 24172 Certificate of Title volume 5992 folio 960 95/288 Wattle Street, Ultimo, New South Wales, 2007 Lot 95 in Strata Plan 64807 at Ultimo Certificate of Title Folio 95/SP64807 3 Lytham Circuit, North Lakes, Queensland, 4509 Lot 207 on survey plan 231816 Title reference 50820087 No. 5 at Robert Street, known a Mahim Chandra Das Sarani, Calcutta India Premises no. 5 at Robert Street, known a Mahim Chandra Das Sarani, in the city of Calcutta within Holding No. 380 in survey Block No. XIII in the South division of the town of Calcutta
(ii) any money held in or on behalf of the following accounts: Entity Account number Commonwealth Bank of Australia 615910553334 Commonwealth Bank of Australia 627410023941 Commonwealth Bank of Australia 615910720438 Commonwealth Bank of Australia 5523505273291216 Commonwealth Bank of Australia 615910561078 Commonwealth Bank of Australia 600012008412 National Australia Bank 146908548 National Australia Bank 128941985 National Australia Bank 139610970 AMP Bank Limited 343249413 Kotak Mahindra Bank 4811258537 Macquarie Private Wealth PW0066613
PROVISION OF INFORMATION 8. Subject to paragraph 9, you must: (a) at or before the further hearing on the Return Date, (or within such further time as the Court may allow) to the best of your ability inform the applicant in writing of all your assets world wide, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets; (b) within 10 working days after being served with this order, swear and serve on the applicant an affidavit setting out the above information. 9. (a) This paragraph 9 applies if you are not a corporation and you wish to object to complying with paragraph 8 on the grounds that some or all of the information required to be disclosed may tend to prove that you: (i) have committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) are liable to a civil penalty. (b) This paragraph 9 also applies if you are a corporation and all of the persons who are able to comply with paragraph 8 on your behalf and with whom you have been able to communicate, wish to object to your complying with paragraph 8 on the grounds that some or all of the information required to be disclosed may tend to prove that they respectively: (i) have committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) are liable to a civil penalty. (c) You must: (i) disclose so much of the information required to be disclosed to which no objection is taken; and (ii) prepare an affidavit containing so much of the information required to be disclosed to which objection is taken, and deliver it to the Court in a sealed envelope; and (iii) file and serve on each other party a separate affidavit setting out the basis of the objection.
EXCEPTIONS TO THIS ORDER 10. This order does not prohibit you from: (a) paying your ordinary living expenses; (b) paying your reasonable legal expenses; (c) dealing with or disposing of any of your assets in the ordinary and proper course of your business for the purposes of paying Australian business and legal expenses bona fide and properly incurred or for making payment to the Commissioner of Taxation; and (d) in relation to matters not falling within (a), (b), or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that within a reasonable time before doing so you give the applicant written notice of the particulars of the obligation, which notice shall wherever possible be at least two working days. 11. You and the applicant may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case the applicant or you must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the applicant and you, and the Court may order that the exceptions are varied accordingly. 12. (a) This order will cease to have effect if you: (i) pay the sum of $7,599,252.32 into Court; or (ii) pay that sum into a joint bank account in the name of your lawyer and the lawyer for the applicant as agreed in writing between them; or (iii) provide security in that sum by a method agreed in writing with the applicant to be held subject to the order of the Court. (b) Any such payment and any such security will not provide the applicant with any priority over your other creditors in the event of your insolvency. (c) If this order ceases to have effect pursuant (a), you must as soon as practicable file with the Court and serve on the applicant notice of that fact.
COSTS 13. The costs of this application are reserved to the Court hearing the application on the Return Date.
PERSONS OTHER THAN THE APPLICANT AND RESPONDENT 14. Set off by banks This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave you before it was notified of this order. 15. Bank withdrawals by the respondent No bank need inquire as to the application or proposed application of any money withdrawn by you if the withdrawal appears to be permitted by this order. 16. Persons outside Australia (a) Except as provided in subparagraph (b) below, the terms of this order do not affect or concern anyone outside Australia. (b) The terms of this order will affect the following persons outside Australia: (i) you and your employees and agents (except banks and financial institutions); (ii) any person (including a bank or financial institution) who: (A) is subject to the jurisdiction of this Court; and (B) has been given written notice of this order, or has actual knowledge of the substance of the order and of its requirements; and (C) is able to prevent or impede acts or omissions outside Australia which constitute or assist in a disobedience of the terms of this order; and (iii) any other person (including a bank or financial institution), only to the extent that this order is declared enforceable by or is enforced by a court in a country or state that has jurisdiction over that person or over any of that person's assets. 17. Assets located outside Australia Nothing in this order shall, in respect of assets located outside Australia, prevent any third party from complying or acting in conformity with what it reasonably believes to be its bona fide and properly incurred legal obligations, whether contractual or pursuant to a court order or otherwise, under the law of the country or state in which those assets are situated or under the proper law of any contract between a third party and you, provided that in the case of any future order of a court of that country or state made on your or the third party's application, reasonable written notice of the making of the application is given to the applicant. 18. Notices under s260-5 of Schedule 1 to the Taxation Administration Act Nothing in this order shall prevent any third party complying with the terms of a notice issued by the Commissioner of Taxation to the third party pursuant to s260-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth) in respect of any money which the third party may owe or may later owe to the respondent. SCHEDULE A
UNDERTAKINGS GIVEN TO THE COURT BY THE APPLICANT (1) The applicant undertakes to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the order. (2) As soon as practicable, the applicant will file and serve upon the first respondent copies of: (a) this order; (b) the application for this order for hearing on the return date; (c) the following material in so far as it was relied on by the applicant at the hearing when the order was made: (i) affidavits (or draft affidavits); (ii) exhibits capable of being copied; (iii) any written submission; and (iv) any other document that was provided to the Court. (d) a transcript, or, if none is available, a note, of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put, to the Court; (e) the originating process, or, if none was filed, any draft originating process produced to the Court. (3) As soon as practicable, the applicant will cause anyone notified of this order to be given a copy of it. (4) The applicant will pay the reasonable costs of anyone other than the first respondent which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the first respondent's assets. (5) If this order ceases to have effect the applicant will promptly take all reasonable steps to inform in writing anyone to who has been notified of this order, or who he has reasonable grounds for supposing may act upon this order, that it has ceased to have effect. (6) The applicant will not, without leave of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings, either in or outside Australia, other than this proceeding. (7) The applicant will not, without leave of the Court, seek to enforce this order in any country outside Australia or seek in any country outside Australia an order of a similar nature or an order conferring a charge or other security against the first respondent or the first respondent's assets. SCHEDULE B AFFIDAVIT RELIED ON Name of deponent Date affidavit made Aris Zafiriou 17 July 2018 Norman Gerald Edwards 17 July 2018
NAME AND ADDRESS OF APPLICANT'S LAWYERS The applicant's lawyers are: Carmen McElwain, Minter Ellison, Rialto Towers, 525 Collins Street, Melbourne Victoria 3000. Reference: 1215664 Telephone: (03) 8608 2355 Facsimile: (03) 8608 1000 Email: carmen.mcelwain@minterellison.com Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
COLVIN J: 1 On 17 July 2018 I heard an application by the Commissioner of Taxation for freezing orders against Mr Chen under Division 7.4 of the Federal Court Rules 2011 (Cth). An affidavit of Mr Zafiriou, an executive officer with the Australian Taxation Office, was sworn in support of the application. After hearing counsel for the Commission, I made orders substantially in the terms sought (which reflected the terms of the example freezing order annexed to the Freezing Orders Practice Note (GPN-FRZG)). At the time I indicated that I would provide my reasons for making those orders. These are my reasons. 2 The Commissioner relied upon a claim based upon the statutory debt that arises when an assessment is made under the Income Tax Assessment Act 1997 (Cth). Assessments for a total amount of more than $7.5 million were served on Mr Chen prior to the hearing on 17 July 2018. 3 Relevantly for present purposes, a freezing order may be made to meet a danger that a prospective judgment of the Court will not be satisfied: r 7.32. There must be a good arguable case on a claim within the court's jurisdiction: r 7.35(1)(b). Also, the Court must be satisfied that there is a danger that the prospective judgment will be unsatisfied because the prospective judgment debtor might abscond or remove assets or dispose or deal with the assets or diminish them in value: r 7.35(4). 4 So, the Commissioner had to demonstrate a good arguable case, a danger that a judgment will be unsatisfied and that the balance of convenience favoured the grant of relief.
Good arguable case 5 A good arguable case is one which is more than barely capable of serious argument, yet not necessarily one that would have a better than even chance of success: Curtis v NID Pty Ltd [2010] FCA 1072 at [6]. The assessments establish that the Commissioner has a case of that kind: Commissioner of Taxation v Growth Investment Fund SA [2014] FCA 780 at [7]-[13]. It is not necessary for the Commissioner to show that the time for payment of the assessments has elapsed: Deputy Commissioner of Taxation (ACT) v Sharp (1988) 91 FLR 70, 74.
Danger that prospective judgment will be unsatisfied 6 In order to demonstrate that there is a danger that a judgment will be unsatisfied there must be shown to be a real risk that dissipation of the kind described in r 7.35(4) will occur: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 322-323. The risk must be sufficiently likely to support the grant of an order in the particular terms sought and in the particular circumstances of the case: Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014 at [9] (dealing with the rule that was the predecessor to the current rule). 7 A freezing order is made to preserve the status quo in order to protect the processes of the court from abuse, not to provide security in the interests of particular litigants. It is a protection against the danger that a judgment will be unsatisfied through particular activities by the judgment debtor. A high degree of caution must be exercised in considering whether a freezing order should be made. It must be kept in mind that a freezing order is a substantial encroachment upon basic rights in respect of property. 8 Even so, a positive intention to frustrate a judgment need not be demonstrated: Deputy Commissioner of Taxation v Hua Wang Bank Berhad at [10]. 9 In this case, these requirements are met on the basis of the matters stated in the affidavit of Mr Zafiriou. In particular: (1) Mr Chen is an Indian citizen who travels on an Indian passport; (2) Mr Chen is married to Heather Audrey Chen; (3) Mr Chen has lodged income tax returns in Australia since 2006, the last of which was for the 2015-2016 financial year; (4) since 2012, the returns have been lodged on the basis that he is a non-resident for Australian taxation; (5) Mr Chen is a director of Sandalwood Passion Pty Ltd. The other directors are Mrs Chen and one of their children. The shareholders are Mr and Mrs Chen; (6) Mr and Mrs Chen have interests in a company incorporated in India and another company incorporated in Hong Kong; (7) Mr Chen's business interests concern trading in sandalwood; (8) in the exercise of statutory functions, the Australian Taxation Office has conducted an audit of the affairs of Mr Chen; (9) the audit determined that Mr Chen derived income in each of the income years between 2008 and 2016 that he failed to disclose; (10) as I have noted already, assessments have issued for more than $7.5 million based on matters revealed by the audit; (11) the income disclosed by Mr Chen is about 6% of the assessed income; (12) Mr and Mrs Chen jointly own a number of properties in Australia and there is information to the effect that their equity in those properties is about $4 million; (13) Mr Chen was, as at 14 August 2009, the registered proprietor of a property in Kolkata; (14) Mr Chen, or Mr and Mrs Chen jointly, have a number of bank accounts in Australia and a number of overseas bank accounts in Vanuatu, Fiji, Hong Kong and India; (15) large amounts have been moved between certain bank accounts (although the Commissioner does not claim that this demonstrates impropriety, it does demonstrate the propensity for monies to be moved readily overseas or to other accounts); (16) there has been international movement of funds between the identified bank accounts in the past 11 years involving approximately 80 transactions in a total amount of over $14.5 million; (17) Mr Chen has reported some income for taxation purposes in India on the basis that he is not an Indian resident for tax purposes; and (18) Mr Chen travels in and out of Australia on a frequent basis. 10 In addition the Commissioner relies upon the following matters as giving rise to a basis for concern as to the lack of honesty on the part of Mr Chen in his business dealings: (1) the matters disclosed by the audit; (2) despite the matters stated above, in all Australian tax returns lodged by him since 2008, Mr Chen has said that he does not have a direct or indirect interest in a controlled foreign company, had never directly or indirectly caused the transfer of property including money or eservices to a non-resident trust estate and did not own or have an interest in assets located outside Australia with a value of $50,000 or more; and (3) Mr Chen has been charged with 42 counts of breaching s 15 of the Export Control Act 1982 (Cth) in relation to the export of sandalwood. 11 The charges are yet to be tried. Nevertheless they indicate that a view has been formed that there is a proper basis to bring the charges. 12 It is apparent from the above evidence that Mr Chen has a sophisticated international business structure and dealings in a number of jurisdictions. The evidence is sufficient to demonstrate a proper basis for a concern as to the honesty of Mr Chen. The assessed taxation liability is large. From the evidence as to Mr Chen's past behaviour there is also a proper basis for a concern that he has taken steps to evade his taxation liabilities and for a concern that he has moved considerable funds through international bank accounts. In all the circumstances I have described there is, in my view, a real risk of dissipation or steps being taken by Mr Chen that may seriously compromise the ability of Mr Chen to meet a prospective judgement based on the assessments. 13 Also, there is a proper basis for the orders to extend to foreign held assets. The practice of making such orders was recognised in: Walter Rau Neusser Oel und Fett ADG v Cross Pacific Trading Ltd [2005] FCA 399 at [5].
Balance of convenience 14 The form of orders proposed by the Commissioner has a number of protections. They reflect the usual form of orders in cases of this kind. They only apply to steps that would diminish the assets of Mr Chen up to the amount of the assessed tax liability (including steps in relation to assets under his control). They do not prohibit Mr Chen from paying his ordinary living expenses, his reasonable legal expenses, Australian business and legal expenses bona fide and properly incurred, and (with notice to the Commissioner) contractual obligations already incurred. 15 The orders that I made were only to apply until the matter was returned before me on 1 August 2018 with liberty to apply at short notice. 16 In those circumstances, the balance of convenience favoured the grant of the orders sought to preserve the position for a short period of time until the matter could come back before the court. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.
Commissioner of Taxation
Chen