Commissioner of Taxation v Growth Investment Fund SA - [2014] FCA 780 - FCA 2014 case summary — Zoe

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Commissioner of Taxation v Growth Investment Fund SA

[2014] FCA 780

Federal Court of Australia|2014-07-28|Before: Gilmour J

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Source facts

Court

Federal Court of Australia

Decision date

2014-07-28

Before

Gilmour J

Source

Original judgment source is linked above.

Judgment (26 paragraphs)

[1]

This interlocutory application be returnable immediately. 2. Pursuant to section 17(4) of the Federal Court of Australia Act 1976 (Cth), the hearing be conducted in private. 3. Pursuant to rule 2.32 of the Federal Court Rules 2011 (Cth), the documents filed in the proceeding will remain confidential and no person, other than a party to the proceedings, may inspect the file, until the earlier of either: (a) the end of the hearing at the next return date, as specified in order 13; or (b) further order. 4. A freezing order be made against the first respondent in the terms specified in Annexure "A" up to and including 5:00 pm on 26 June 2014. 5. The second respondent and third respondent be restrained from disposing of, dealing with or diminishing the value of any assets held by either of them or in the name of either for or on behalf of the first respondent until either: (a) the freezing order made against the first respondent in these proceedings on 19 June 2014 is discharged; or (b) further order. 6. The applicant have leave to serve the Documents* on the first respondent in Switzerland in accordance with the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters. 7. The applicant have leave to serve the Documents* on the first respondent: (a) by emailing them to the first respondent at gtbomotiers@bluewin.ch; (b) by emailing them to the first respondent at fondation-bf@bluewin.ch; (c) by pre-paid post to the first respondent at Chateau D'Ivernois, Grande Rue 7, CH-2112 Motiers, Val-de-Travers NE Switzerland; and (d) by pre-paid post to the First Respondent at Monaval Asset Management Ltd, Talstrasse 39 PO Box 2621, CH-8022 Zurich Switzerland. 8. Service in accordance with order 7 be deemed good and sufficient service of the Documents* upon the first respondent. 9. Subject to order 10, the applicant serve the Documents* on the second and third respondents within 2 days of the making of the orders. 10. On or before 5:00 pm 20 June 2014, a sealed copy of the orders be served on the second and third respondents. 11. On or before 5:00 pm 20 June 2014, a sealed copy of the orders be served by facsimile on Bankwest, a division of Commonwealth Bank of Australia. 12. On or before 5:00 pm 20 June 2014, a sealed copy of the orders be served by facsimile on the following share registries: (a) Computershare Investor Services Pty Ltd; (b) Link Market Services Ltd; and (c) Security Transfer Registrars Pty Limited. 13. The matter be listed for a directions hearing at 11:45 am on 26 June 2014. 14. Liberty to apply be granted on 24 hours' notice. 15. The costs of the interlocutory application be reserved.

[2]

PENAL NOTICE TO: GROWTH INVESTMENT FUND SA IF YOU: (A) REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR (B) DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING, YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT. ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED. TO: growth investment fund sa This is a 'freezing order' made against you on 19 June 2014 by Justice Gilmour at a hearing without notice to you after the Court was given the undertakings set out in Schedule A to this order and after the Court read the affidavits listed in Schedule B to this order. THE COURT ORDERS: INTRODUCTION 1. (a) The application for this order is made returnable immediately. (a) The time for service of the application, supporting affidavits and originating process is abridged and service is to be effected by 20 June 2014. 1. Subject to the next paragraph, this order has effect up to and including 26 June 2014 ('the Return Date'). On the Return Date at 11.45 am there will be a further hearing in respect of this order before Justice Gilmour. 2. Anyone served with or notified of this order, including you, may apply to the Court at any time to vary or discharge this order or so much of it as affects the person served or notified. 3. In this order: (a) 'applicant', if there is more than one applicant, includes all the applicants; (b) 'you', where there is more than one of you, includes all of you and includes you if you are a corporation; (c) 'third party' means a person other than you and the applicant; (d) 'unencumbered value' means value free of mortgages, charges, liens or other encumbrances. 4. (a) If you are ordered to do something, you must do it by yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions. (b) If you are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way. FREEZING OF ASSETS 5. (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$14,272,352.46 ('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 following shareholdings: Company Shares Adslot Ltd 3,000,000 Alcyone Resources Ltd 10,312,500 Alcyone Resources Ltd Options 1,656,250 Alcyone Resources Ltd Options May 15 1,656,250 Base Resources Limited 1,083,333 Bassari Resources Limited 5,000,000 Coca-Cola Amatil Limited 105,286 Empired Ltd 1,300,000 Entek Energy Ltd 578,242 Euroz Limited 664,335 Ikwezi Mining Limited 2,000,000 Luiri Gold Limited 2,200,000 Mineral Deposits Limited 100,000 Metals X Limited 1,000,000 Mincor Resources NL 100,000 Regis Resources Limited 1,000,000 Saracen Mineral Holdings Limited 2,363,637 Straits Resources Limited 7,000,000 Southern Hemisphere Mining Limited 100,000 Teranga Gold Corporation 885,000 Wesfarmers Limited 25,646 Westoz Investment Company Limited 500,000

[15]

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.

[19]

REASONS FOR JUDGMENT 1 I made orders in this application on 19 June 2014, at which time I indicated that I would deliver written reasons in due course. These are my reasons. 2 The applicant, the Commissioner of Taxation, seeks: (a) interlocutory orders, on an ex parte basis, freezing the assets of the first respondent under Div 7.4 of the Federal Court Rules 2011 (Cth) (FCR) to prevent the frustration of the Court's process; (b) interlocutory orders against the second and third respondents in relation to assets of the first respondent held by those respondents; (c) leave to serve the originating application and certain other documents on the first respondent in a foreign country, under Div 10.4 FCR; (d) orders for substituted service of the originating application and certain other documents on the first respondent; and (e) confidentiality orders. 3 These reasons broadly adopt the detailed written submissions of the applicant, which I have considered and generally accept, but without attribution at every point. 4 The applicant seeks urgent orders on an ex parte basis freezing the assets of the first respondent, based on the matters set out in the affidavit of Aris Zafiriou sworn 18 June 2014 ("Zafiriou Affidavit"). This evidence discloses: (a) the first respondent is a company incorporated in Panama which appears to have its place of business in Switzerland. It is not registered for a tax file number nor has it lodged any tax returns in Australia; (b) although they are not disclosed by the relevant regulatory authority in Panama as directors of the first respondent, the first respondent appears to be controlled by persons resident in Switzerland; (c) the first respondent has a history of trading in shares in Australian companies. It owns shares in a number of Australian companies, through either the second or third respondents, as nominees; (d) the applicant has carried out an audit of the share trading business carried on by the first respondent in Australia since 2000 and has determined that between the 2004 to 2013 income years the first respondent derived taxable income totalling $17,857,784; (e) on 18 June 2014 the applicant issued notices of assessment to the first respondent: (i) for income tax, pursuant to s 167 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) for each of the income years ending 30 June 2004 to 30 June 2013, which assessed the first respondent to income tax of $5,357,335.20 (Income Tax Assessments); and (ii) for administrative penalties totalling $4,744,510.35 (Penalty Assessments) in respect of the income years ending 30 June 2004 to 30 June 2013, totalling $10,101,845.55 (together, the Assessments), with General Interest Charge which accrues pursuant to Part IIA of the Taxation Administration Act 1953 (Cth) (TAA 1953) estimated as at 27 May 2014 to be $4,170,506.91, with a total taxation liability of $14,272,352.46 (Total Estimated Liability); (f) the due dates for payment for the Income Tax Assessments, which are set out in the table below; Income Tax Year ending Evidence Due Date 30 June 2004 AZ-24 1 December 2004 30 June 2005 AZ-25 1 December 2005 30 June 2006 AZ-26 1 December 2006 30 June 2007 AZ-27 3 December 2007 30 June 2008 AZ-28 1 December 2008 30 June 2009 AZ-29 1 December 2009 30 June 2010 AZ-30 1 December 2010 30 June 2011 AZ-31 1 December 2011 30 June 2012 AZ-32 3 December 2012 30 June 2013 AZ-33 2 December 2013 and (g) the due date for payment of each of the Penalty Assessments is 7 July 2014. 5 The applicant seeks freezing orders over the first respondent's remaining Australian shares (including those held for it by the second or third respondents) to the value of the Total Estimated Liability, to provide a means by which the first respondent's taxation liabilities can be met, in the circumstances disclosed in the Zafiriou Affidavit.

[21]

Prospective cause of action justiciable in this Court 7 An assessment creates a statutory debt when the liabilities assessed become "due and payable": ss 255-1 and 255-5(1) of Sch 1 to the TAA 1953 and s 5-5(5) of the Income Tax Assessment Act 1997 (Cth). Once the time for payment set out in the notices of assessment has passed, the applicant will ordinarily be entitled to judgment for the amount of the tax assessed. 8 By s 177 ITAA 1936 and ss 298-30(3) in Sch 1 of the TAA 1953, the production of a notice of assessment, or a copy of it, is conclusive evidence of the due making of the assessment and (except in proceedings under Part IVC TAA 1953 on a review or appeal relating to the assessment) that the amount and all particulars of the assessment are correct. 9 The Assessments were issued on 18 June 2014 and sent by pre-paid post to the first respondent's business address in Switzerland. The Income Tax Assessments were due and payable on various dates prior to the commencement of the proceedings. The Penalty Assessments are due and payable on 7 July 2014. 10 The applicant's claim is sufficient to found a freezing order where an assessment has been made and a notice of the assessment has issued, even if the tax is not due and payable until the date specified on the notice of assessment has lapsed. Income tax is "due" and is a debt presently in existence when it is assessed and notice is served of the assessment, although it is not payable before the date fixed by the relevant tax legislation: see, eg Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 16-17 per Mason J. 11 Proceedings need not otherwise be on foot. That is, if the time for payment of an assessment has not yet elapsed, a freezing order may be obtained: Deputy Commissioner of Taxation v Sharp (1988) 91 FLR 70 at 74-75; Federal Commissioner of Taxation v Resource Capital Fund III LP (2010) 81 ATR 13 at [20]. 12 Once service of the Income Tax Assessments has been effected, the first respondent will owe a statutory debt to the applicant which is payable. It will owe a statutory debt which is payable in respect to the Penalty Assessments once those notices have been served and the due date for those assessments has passed. 13 Consequently, the applicant would seem to be entitled to move for orders against the first respondent for the amount of the tax assessed, which is a cause of action that is justiciable in this Court: Federal Commissioner of Taxation v Edgewater Estates Ltd (2009) 72 ATR 956 at [20]-[21].

[22]

Danger of dissipation 14 A freezing order may be granted even though there is no evidence of the respondent's positive intention to frustrate a judgment: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194 at [10] per Kenny J, and cases there cited. 15 There must, however, be facts from which the Court can infer a real risk or danger that the respondent will dispose of or otherwise deal with its assets in a way that the applicant will not be able to satisfy any judgment obtained against the respondent: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321-322 per Gleeson CJ; Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645 at 671-672 per Lawton LJ; Hua Wang Bank Berhad at [12]. 16 Depending on the circumstances, the interests of justice may support the grant of a freezing order to prevent the dissipation of assets pending the hearing of an action, even though the risk of dissipation is less probable than not: Patterson at 325 per Gleeson CJ; Hua Wang Bank Berhad at [9] per Kenny J. 17 The Court may take into account the prior conduct of a respondent, the value of the actual or prospective judgment and the assets or income available to the respondent to satisfy that judgment: Deputy Commissioner of Taxation v Gashi (2010) 27 VR 127 at [33]. Although the Court must be cautious before making freezing orders, it must be borne in mind that their very purpose is to ensure that assets are not alienated so as to avoid or frustrate the court process: Gashi at [33], citing Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd (2009) 77 ATR 414 at [34]. 18 The Zafiriou Affidavit demonstrates a real and not fanciful risk that the first respondent will dispose of, deal with, or diminish in value the assets it has in Australia so that any potential judgment in favour of the applicant would be wholly or partly unsatisfied. 19 This is because: (a) the amount of the Total Estimated Liability is greater than the value of the first respondent's assets which the applicant has been able to identify in Australia; (b) the nature of the first respondent's assets in Australia, being shares traded on the ASX and cash in a bank account, is highly liquid; (c) there has been share trading in the period between 21 February 2014 and 16 June 2014; (d) the first respondent has not registered for a tax file number or filed any tax returns in Australia; (e) the first respondent it would appear has earned taxable income from share trading in Australia in every income year since 2004 but has not returned any of that income in Australia; (f) the first respondent is registered in Panama and has its business office in Switzerland; and (g) neither Panama nor Switzerland have a bilateral collection policy or process with Australia. 20 The fact that the first respondent has now been assessed for a tax liability raises an inference that there is a real risk of asset dissipation unless the first respondent's assets are restrained: Deputy Commissioner of Taxation v Gashi at [42] per Bell J. 21 The large quantum of the Total Estimated Liability is a further factor which may be taken into consideration by the Court in determining whether a real rather than fanciful risk of asset dissipation exists unless the assets are restrained: see, eg Deputy Commissioner of Taxation v Chemical Trustee Limited (No 4) [2012] FCA 1064 at [24] per Perram J.

[25]

Substituted service 32 The applicant also seeks orders for substituted service on the first respondent, pursuant to r 10.24 FCR. This is sought in addition to, or in the alternative to, service on the first respondent under the Hague Convention. 33 The power of the Court to make an order for substituted service under r 10.24 (which is relevantly similar to the former Federal Court Rules Order 7, r 9) is available where the respondent is outside the jurisdiction, where leave to serve outside the jurisdiction has been made and the requirements of r 10.24 FCR are satisfied: see Australian Competition & Consumer Commission v Kokos International Pty Ltd [2007] FCA 2035 at [18]-[25]; Applecross Pte Ltd v Lim (No 2) [2010] FCA 589 at [8]. 34 Rule 10.24 provides that if it is not practicable to serve a document in a way required by the FCR, a party may apply for an order: (a) substituting another method of service; or (b) specifying that, instead of being served, certain steps be taken to bring the document to the attention of the person; or (c) specifying that the document is taken to have been served: (i) on the happening of a specified event; or (ii) at the end of a specified time. 35 If a freezing order is made over the Australian assets of the first respondent it is desirable that notice of these proceedings and of the making of that freezing order be brought to the attention of the first respondent as soon as possible. The evidence indicates that, although registered in Panama, the first respondent carries on its primary business in Switzerland. Service of documents pursuant to the required procedure under the Hague Convention will take some time. The proposed alternative methods of service involve sending the documents to the first respondent's business and home addresses in Switzerland by post and to email addresses associated with the first respondent and those who appear to control the first respondent. In all reasonable probability, if not certainty, notice of these proceedings and any freezing order made by the Court will come to the first respondent's attention almost immediately if service by these methods is permitted: see Porter v Freudenberg [1915] 1 KB 857 at 889.

[26]

Confidentiality orders 36 The applicant also seeks confidentiality orders, including an order that the hearing be conducted in private and an order that the documents filed in the proceedings be kept confidential until the inter partes return date. 37 The applicant seeks a closed hearing to protect the integrity of the orders he seeks and the privacy of the first respondent. 38 Given the factors to which I have referred I accept that any notice or report concerning the hearing of the application might give rise to a risk of dissipation of the assets so as to render nugatory any orders made. 39 Furthermore, the applicant is rightly concerned that any person who is not connected with the affairs of the first respondent, or its associated entities, for example a member of the press, might be present if the courtroom were not closed and thereby know about and potentially disclose matters private to the first respondent, without the first respondent knowing of the allegations against it. 40 The applicant is also concerned to ensure that the first respondent is not subject to non-party interest in its private taxation affairs, particularly in light of the privacy obligations of the applicant, so that it proposes that, until all parties are before the Court on the inter partes return date, access to the documents which are filed in these proceedings be restricted. This will strike a proper balance between the privacy obligations of the applicant and any privacy concerns of the first respondent on the one hand, and the public interest in open justice on the other. 41 Similar considerations to those I have identified have previously attracted the discretion of the Court in making confidentiality orders of the type sought: see Resource Capital Fund III LP at [7]-[9]. 42 Accordingly, for all these reasons, there will be orders substantially in terms of the applicant's minute of proposed orders dated 18 June 2014. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.

Commissioner of Taxation v Growth Investment Fund SA

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