Commissioner of Taxation v Oswal

The parties' cases 4 The applicant (the Commissioner) seeks declarations, under s 39B(1A)(a) of the Judiciary Act 1903 (Cth), that a mortgage registered over two properties owned by Mrs Oswal in the Perth suburbs of Dalkeith and Peppermint Grove (the Mercury Mortgage) is void pursuant to s 89 of the Property Law Act 1969 (WA) (PLA) on the basis that she entered into the Mercury Mortgage with an intention to defraud her creditors. 5 I have already set out the Commissioner's case more particularly in an earlier interlocutory judgment in this matter: Commissioner of Taxation v Oswal [2012] FCA 1507 at [27]-[30]. It is convenient simply to repeat substantially what I said in that case as follows. 6 Mrs Oswal, an Indian national, together with her husband, Mr Pankaj Oswal (Mr Oswal), was a part owner of the Burrup group of companies which owned and operated an ammonia plant in Western Australia. As at 2010, the Oswals and the Burrup group of companies had a very large exposure to the ANZ Bank, in excess of USD1.5 billion. 7 Also, in 2009 and 2010, the Australian Taxation Office (ATO) commenced and conducted an audit in relation to the taxation affairs of the Oswals and the Burrup group of companies. One of the matters the subject of the audit was a trust referred to as the Burrup Trust of which Mr Oswal was trustee and Mrs Oswal a beneficiary. That audit culminated in assessments issued to Mrs Oswal in February 2011 for tax, interest and penalties which gave rise to a tax-related liability of $178,210,810.14. On 9 August 2011, the Commissioner obtained judgment against Mrs Oswal for $186,321,790.11. 8 On 3 December 2010, the ANZ Bank made demands on Mr Oswal and Mrs Oswal on personal guarantees each had provided in connection with the debts of the Burrup group of companies. On 13 December 2010, the Oswals left Australia and have not returned. On 16 December 2010, the ANZ Bank appointed receivers to entities within the Burrup group of companies. Receivers were also appointed to shares held by Mrs Oswal in Burrup Holdings Limited (BHL) - now known as Yara Pilbara Holdings Pty Ltd - pursuant to a share mortgage executed by her in favour of the ANZ Bank. On 24 December 2010, the Mercury Mortgage was registered over the Peppermint Grove property and the Dalkeith property. 9 The Commissioner relies on the following matters, taken in combination, as supporting an inference that the Mercury Mortgage was an "alienation of property" made with the intention to hinder or delay execution by Mrs Oswal's creditors against the Peppermint Grove property and the Dalkeith property under s 89 of the PLA: (a) the Mercury Mortgage was made very soon after financial disaster had, in effect, overtaken the Oswals. The ANZ Bank had made demands on personal guarantees given by the Oswals for in excess of USD1.5 billion and appointed receivers to the Burrup group of companies. Moreover, the Mercury Mortgage was made after the ATO had commenced an investigation into the taxation affairs of the Oswals and only shortly before that culminated in very large assessments being issued to Mrs Oswal; (b) the Mercury Mortgage was made at a time after Mrs Oswal departed Australia for the United Arab Emirates (UAE) from where they have not returned. The only executed copy of the Mercury Mortgage, which is incomplete, purports to be witnessed by a Mr Ramesh Sodum (Mr Sodum) with an address in Western Australia. The evidence indicates that on the date of the purported execution of the Mercury Mortgage, 24 December 2010, Mr Sodum was in Australia and Mrs Oswal was not; (c) aside from the Mercury Mortgage, the Peppermint Grove property and the Dalkeith property were unencumbered and available to satisfy Mrs Oswal's unsecured creditors. According to Mrs Oswal's evidence, the Mercury Mortgage secures effectively the whole of the equity in the Peppermint Grove property and the Dalkeith property. The natural and probable consequence of the Mercury Mortgage was to remove the Peppermint Grove property and the Dalkeith property from the pool of assets available to satisfy the claims of Mrs Oswal's unsecured creditors; (d) according to Mrs Oswal's evidence given in an affidavit provided pursuant to an order obtained by the Commissioner as ancillary to a freezing order made against Mrs Oswal by the Court, the Mercury Mortgage secured amounts advanced by Mercury in 2009 and 2010. Even if this is so, that is not good consideration for the provision of a security. In Re Hyams; Offical Receiver v Hyams (1970) 19 FLR 232 at 254, Gibbs J stated: It is clear that the mere existence of an antecedent debt is not consideration for the giving of security in respect of that debt; "in order to have consideration for a further security there must be an agreement, express or implied, to give time or some further consideration, or else there must be an actual forbearance which ex post facto may become the consideration to support the deed": Wigan v English and Scottish Law Life Assurance Association [1909] 1 Ch 291 at 303. This was quoted with approval by Owen J in Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) and (No 10) (2008) 39 WAR 1 at [9180]. There is no suggestion in Mrs Oswal's evidence of any further consideration of the kind referred to by Gibbs J in Re Hyams; (e) further, Mrs Oswal's evidence is to the effect that no written loan agreement existed between her and Mercury in connection with the purported advances secured by the Mercury Mortgage; (f) AUSTRAC searches undertaken by the ATO have not produced any evidence to support the assertion that the Mercury Mortgage was to secure advances made by Mercury to Mrs Oswal in 2009 and 2010; (g) the documentation of the Mercury Mortgage is, at the least, unsatisfactory. No complete, executed copy of the Mercury Mortgage appears to exist. The complete copy produced by Mrs Oswal in her affidavit is unexecuted, undated and names a mortgagee other than Mercury; (h) the evidence supports an inference that Mercury is a company related to Oswals in some way. The address for Mercury in the UAE, which appears on the Mercury Mortgage, is very similar, if not identical, to an address Mrs Oswal has given on court documents. Investigations in the UAE have indicated that the address given in the Mercury Mortgage is a residential address and the persons in residence are a family of Indian appearance; and (i) according to the evidence which was before the Court in Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) v Oswal (No 7) [2012] FCA 1185 at [38]-[47], the Mercury Mortgage was prepared and registered on the instructions of Mrs Oswal and her agents. That evidence does not reveal the involvement of anyone for or on behalf of Mercury. The evidence before the Court in that case does not give the Mercury Mortgage the appearance of an independent, arm's length transaction. Further, the evidence before the Court in that matter was to the effect that the mortgage was to secure monies to be advanced and not, as Mrs Oswal deposes, monies already advanced by Mercury. There is no evidence, either from Mrs Oswal or disclosed in AUSTRAC searches, that any such advances were ever made. 10 The Commissioner does not, in terms, plead that the ANZ Bank was a creditor of Mrs Oswal although pleads that the demand made upon Mrs Oswal pursuant to the guarantee executed by her in favour of the ANZ Bank was not satisfied. 11 The Commissioner also pleads as a background event that in January 2009 the ATO commenced a comprehensive risk review of Mrs Oswal's income tax affairs for the income tax years 2006 to 2009. This is the audit to which I made reference earlier in relation to Notices of Assessment issued by the Commissioner to Mrs Oswal. The Commissioner later pleads that he issued notices of amended assessment to Mrs Oswal on 22 February 2011. This was approximately two months after the Mercury Mortgage was registered on 24 December 2010. 12 It is not expressly alleged by the Commissioner that Mrs Oswal was aware at the time the Mercury Mortgage was granted that the ATO had commenced a risk review of her tax affairs or that the Commissioner intended to issue income tax assessments to her. In her affidavit in these proceedings, dated 15 July 2014, Mrs Oswal deposes that she did not know in December 2010 that the Commissioner was investigating her financial affairs (if that was the case), that she had never had any communications with the Commissioner or the ATO prior to granting the Mercury Mortgage and that her first communications with the Commissioner or the ATO occurred in February 2011. Mrs Oswal deposes in her affidavit that she did not know at the time she signed the Mercury Mortgage that the Commissioner would subsequently contend that she underpaid taxes. 13 In her defence Mrs Oswal admits that she executed the documents referred to in the Commissioner's pleading in the Mortgage Proceeding in favour of the ANZ Bank, including the personal guarantee and the share mortgage. However, she relies on her pleading in the Duress Proceeding and contends that all of those documents are void, not valid or effective and do not bind her or her property. They constitute some of the impugned documents in the Duress Proceeding (Impugned Documents). 14 In answer to the allegations made by the Commissioner as to non-satisfaction of the demand made under the personal guarantee, Mrs Oswal: (a) says that if she owed a debt to the ANZ Bank (which debt is denied), it had sufficient security to meet any actual or contingent debt owed to it by her; (b) relies on her pleading in the Duress Proceeding as the basis of her denial of the existence of any debt to the ANZ Bank; and (c) also alleges that her shares were sold at an undervalue and relies on her pleading in the Duress Proceeding as the basis for that allegation. 15 In answer to the allegations made by the Commissioner that she alienated the properties with the intention of defrauding her creditors, Mrs Oswal: (a) says that if she owed a debt to the ANZ Bank (which is denied), it had sufficient security to meet any actual or contingent debt owed to it by her; (b) relies on her pleading in the Duress Proceeding as the basis of her denial of the existence of any debt to the ANZ Bank; (c) says that, if and to the extent that the Commissioner has been prejudiced as a creditor or potential creditor of Mrs Oswal, the Commissioner has not been prejudiced by her conduct but by the conduct of others due to the sale of her shares in BHL - her principal asset - at a significant undervalue in January 2012.

The Duress Proceeding 16 On 2 September 2011, Mrs Oswal commenced the Duress Proceeding against ANZ Bank and others. As presently constituted there are 12 defendants. 17 In her pleadings in the Duress Proceeding dated 14 May 2014, which runs to more than 350 pages, Mrs Oswal makes many claims including: (a) The Impugned Documents were executed under duress and, or alternatively, by undue influence and, or alternatively, the ANZ Bank acted unconscionably and that they are therefore void. (b) Alternatively, on the assumption that the Impugned Documents are binding and effective, ANZ Bank breached various fiduciary and other duties to her in various ways including, relevantly to the Mortgage Proceeding, that the price obtained for the sale of Mrs Oswal's BHL shares was less than the market value of the shares and the Bank and receivers failed to take reasonable precautions to obtain market value for the shares. 18 Mrs Oswal seeks various declarations including: (a) that the Impugned Documents are void or, alternatively, that they are not enforceable against her or her property; and (b) that the share sale deeds which purported to sell and transfer her shares in BHL are not binding on or enforceable against her, that they were ineffective to sell and transfer her shares, and that she remains the legal and beneficial owner of the purportedly transferred shares. 19 Mrs Oswal seeks other relief including an account of all income received by the ANZ Bank and payment of all sums due to her as a result of the taking of the account. 20 The Duress Proceeding is listed for hearing in the Supreme Court of Victoria commencing on 3 August 2015, with a hearing estimate of three to six months.

Legal principles 21 I had occasion to collect the principles generally applicable for an application for a stay of proceeding in Oswal v Apache Corporation [2014] FCA 642. They are well-established. Save for the following it is unnecessary to repeat what I said there. 22 The Court has a general power to control its own proceeding pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth). This includes the ability of the Court to order a temporary stay of proceedings before it in various circumstances including situations where it is desirable that proceedings in another forum are finalised before the proceedings before the Court are further progressed: Sterling Pharmaceuticals Pty Limited v The Boots Company (Australia) Pty Limited (1992) 34 FCR 287 at 290-291; see also Henry v Henry (1996) 185 CLR 571 at 590 and CSR Limited v Cigna Insurance Australia Limited (1997) 189 CLR 345 at 390. 23 Justice Lockhart in Sterling Pharmaceuticals at 291 identified a non-exhaustive list of considerations relevant to the exercise of the Court's power in such cases. The centrally relevant consideration here is whether the determination of one proceeding was likely to have a material effect on the other. 24 Mrs Oswal submits that a temporary stay should be ordered because the outcome of the Duress Proceeding may have a material effect on the Mortgage Proceeding arising from at least two overlapping issues which she develops in the following way.

Issue 1 25 Mrs Oswal submits that if the Impugned Documents are found to be void in the Duress Proceeding then the ANZ Bank will not have been a creditor of Mrs Oswal at the time the Mercury Mortgage was issued. She says that the existence of a creditor or creditors at the time of the alienation of property is a jurisdictional fact upon which s 89 of the PLA depends. 26 Mrs Oswal contends that the Commissioner was not one of her creditors at the time the Mercury Mortgage was registered and had not informed her that he had any monetary claim against her. 27 She will contend at the trial of these proceedings that if the ANZ Bank was not a creditor at the time the Mercury Mortgage was granted and that the Commissioner had not given any indication to her that he proposed to make a claim against her, then the Commissioner has failed to demonstrate the existence of the jurisdictional fact upon which s 89 depends, namely the existence of creditors at the time of the alienation of property. 28 For those reasons, she submits, the determination in the Duress Proceeding as to whether the Impugned Documents are void is an issue which also arises in the Mortgage Proceeding, and accordingly that it is appropriate that that issue in the Duress Proceeding should be determined first, given that the Duress Proceeding is further advanced than the Mortgage Proceeding.

Consideration - Issue 1 29 Section 89(1) of the PLA provides: (1) Except as provided in this section, every alienation of property made, whether before or after the coming into operation of this Act, with intent to defraud creditors is voidable, at the instance of any person thereby prejudiced. 30 The Commissioner, at trial, must establish three elements. First, that there was an alienation of property. Second, that the alienation was made with intent to defraud "creditors". Third, that the claimant is a person "thereby prejudiced". There is no contest that the Mercury Mortgage constituted an alienation of property. The third element is not relevant to Mrs Oswal's application. 31 As to the second element, the reference "defraud" includes, as is pleaded in this case, the hindering or delaying of creditors: Marcolongo v Chen (2011) 242 CLR 546 at [56]. That case involved consideration of a provision to the same effect in s 37A of the Conveyancing Act 1919 (NSW). I will now consider the other questions raised by this element, "intent" and "creditors", in reverse order.

Creditors 32 The word "creditors" does not refer to any one or more particular creditors of a defendant at the time the impugned alienation occurred. "Creditors" includes present and future creditors, whether individually or collectively: Cannane v J Cannane Pty Limited (in liquidation) (1998) 192 CLR 557 at 566, 574; Barton v Deputy Commissioner of Taxation of the Commonwealth of Australia (1974) 131 CLR 370 at 374. As Young JA noted in Chen v Marcolongo (2009) 260 ALR 353 at [180]: The word "creditors" in the section has been held on more than one occasion to mean present or future creditors, so that if a person fears that his or her activities may generate creditors and puts property out of the reach of such possible persons, the transfer of the property can be attacked under the section; see for example Mackay v Douglas (1872) LR 14 Eq 106. In Barling v Bishopp (1860) 29 Beav 417, 17 days before an action in trespass was tried in which Bishopp was a defendant, he transferred his property to his daughter. Bishopp had no creditors at that stage, but Romilly Mr had no difficulty at … 420 … finding that the conveyance was in fraud of creditors saying: It is obvious that the statute is not, in terms, restricted to existing creditors alone, but that it extends to future creditors also. (abbreviations omitted) 33 Whilst the decision of the Court of Appeal was reversed on appeal this passage was not doubted by the High Court in Marcolongo v Chen (2011). 34 At first instance Mrs Marcolongo had a claim for unliquidated damages pending before the District Court of New South Wales. Although she was not an existing creditor of the defendant at the time of the alienation that did not preclude the section, which is in equivalent terms to s 89 of the PLA, from being enlivened. As Young JA stated in Chen v Marcolongo (2009) at [181]: [I]f Mrs Marcolongo obtains a verdict in her action, she will become a creditor. It is sufficient if Lym's intention was to defeat future creditors generally of which Mrs Marcolongo might be one. (Emphasis added). 35 Similarly in Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 at [32], the High Court accepted that the Commissioner was a "creditor" for the purposes of s 121 of the Bankruptcy Act 1966 (Cth) in respect of impugned transactions occurring in August 1987 notwithstanding that notices of assessment were not issued by the Commissioner to the defendant until 2000 and those assessments related to years postdating August 1987, being the 1992 to 1999 income years. Such too is the case here.

Intent 36 In this case, Mrs Oswal admits that she executed: (a) a share mortgage in favour of the ANZ Bank pursuant to which she mortgaged 82,503,106.5 shares in BHL registered in her name; (b) an Escrow Process Deed, Escrow Agreement and Power of Attorney; and (c) a personal guarantee in favour of the ANZ Bank to the extent of USD568 million. 37 The Commissioner submits that Mrs Oswal's admissions that the relevant documents were executed in favour of ANZ Bank are sufficient for the purposes of the proceedings. Moreover, senior counsel conceded, on behalf of Mrs Oswal, that she believed at the date the Mercury Mortgage was executed by her that the instruments in favour of the ANZ Bank were enforceable. The Commissioner does not allege that each of the documents will continue to be enforceable as against Mrs Oswal. It is the execution of the instruments and the actions taken by the Bank in December 2010 in purported reliance on those documents as well, now, as the conceded belief of Mrs Oswal as to their being enforceable when she executed those instruments, that form the essential facts relied upon in support of the Commissioner's claim as to her intent. 38 This is so even if it be assumed that Mrs Oswal will succeed in obtaining the declarations she seeks in the Duress Proceeding. The central issue in the trial of the Mortgage Proceeding will be as to her intent when the alienation of the property occurred. The Commissioner's case is that Mrs Oswal's intent in granting the Mercury Mortgage was to hinder or delay her creditors executing against the Peppermint Grove property and the Dalkeith property in order to recover their debts. 39 One of those creditors within the meaning of s 89(1) of the PLA at the time of the alienation was, arguably, the Commissioner. It is not necessary to determine that question now. The Commissioner says that, if it were relevant, he was, by operation of law, a creditor at that time but that it is not necessary to establish this to succeed in his claim. 40 The requisite intention on the part of Mrs Oswal is a question of fact which the Commissioner must establish. 41 It remains to be seen whether the relevant intent will be established. However, it is plain that on the Commissioner's case the validity or otherwise of the instruments executed by Mrs Oswal in the Duress Proceeding is irrelevant. 42 This is so even if it transpires that Mrs Oswal's only intention was to hinder or delay the ANZ Bank in respect to its perceived rights under the personal guarantee, share mortgage, and the escrow arrangements. The Commissioner, in that event, will contend that he should still succeed, whether or not the ANZ Bank was and is a creditor, because if Mrs Oswal's intention was to defraud the ANZ Bank which she then believed to be a creditor and which claimed to be a creditor, and alienated the property in those circumstances, then that will establish his case. 43 I am not called upon to determine those issues presently. The Commissioner's case will either succeed or not. However, the Commissioner does not contend and would not, on his present pleading, be permitted to contend that the ANZ Bank instruments are and will, in the future, be enforceable. 44 So far as Mrs Oswal's tax liability is concerned it may be accepted for the purposes of this application that the Commissioner had not informed Mrs Oswal at the time the Mercury Mortgage was granted that he was intending to claim that she underpaid taxes and was intending to issue assessments against her. That is to say, Mrs Oswal was not on notice from the Commissioner in December 2010 that the Commissioner was a potential creditor. 45 As I have explained the term "creditors" in s 89(1) of the PLA includes present and future creditors. The Commissioner's submission is that this section does not require a claimant to demonstrate that the defendant intended to defraud any one or more particular creditors; correspondingly, the Commissioner submits that it was not required to have put Mrs Oswal on notice of a pending tax obligation prior to the impugned alienation in order to fall within the meaning of the word "creditors". It is unnecessary for me to determine these matters on this application.

Issue 2 46 This submission was not pressed in oral argument. Nonetheless, as appears from her written submissions Mrs Oswal contends that at all material times, including when the Mercury Mortgage was registered, the ANZ Bank held sufficient security to meet any actual or contingent debt owed to it by her. There seems to be some confusion as to whether the amounts outlined in her submissions are denominated in Australian dollars or US dollars. 47 It is alleged that Mr and Mrs Oswal's combined 65% shareholding in BHL was worth in excess of $1.5 billion. Mrs Oswal deposes in her affidavit in this proceeding that she believed that the company was worth more than USD2 billion and that her shareholding alone was worth $700 million, which was far more than the amount of her alleged debt to the ANZ Bank under the personal guarantee being USD568 million, less what the Bank obtained from the sale of Mr Oswal's shares in BHL. She also deposes that even if it is assumed that she owed the Commissioner approximately $180 million as at 24 December 2010, her assets were sufficient to satisfy that debt and the alleged ANZ Bank debt. 48 Mrs Oswal submits that the Commissioner has declined to file any reply to her defence to the Commissioner's pleading and therefore it is not known whether the Commissioner disputes her beliefs as to the value of her shareholding in BHL at the time the Mercury Mortgage was granted. She then contemplates that if the Commissioner were to contend that her beliefs as to the value of her shareholding in BHL were not reasonable because her shareholding in BHL was not worth the amounts she believed that they were worth, then that issue will squarely overlap with the Duress Proceeding, where the value of Mr and Mrs Oswal's shareholding in BHL is a significant issue in dispute. That is because Mrs Oswal contends that the receivers appointed by the ANZ Bank sold her shares in BHL at an undervalue. There is likely to be substantial expert evidence on the topic in the Duress Proceeding. 49 She submits that a finding made in the Mortgage Proceeding that her belief that her shareholding in BHL was worth $700 million in December 2010 risks being contradicted by a finding in the Duress Proceeding, based on expert evidence, that her shareholding was worth that amount and thus raises the prospect of the "scandal of conflicting judgments" which the power to stay proceedings raising the same issues as another, earlier proceeding, exists to prevent: Ramsey Food Processing Pty Ltd v Tomlinson [2014] NSWCA 237 at [71], citing Rogers v The Queen (1994) 181 CLR 251 at 273 which cites Spencer Bower G and Turner A, The doctrine of res judicata (2nd ed, London, Butterworths, 1969) p 411.

Consideration - Issue 2 50 This is a straw man argument. Whatever Mrs Oswal has said in her affidavit as to her belief as to the value of her shares in BHL, she has not pleaded this in this proceeding. Rather, she has pleaded that she had sufficient assets in the form of her shareholding in BHL, worth between $700 million and $800 million, to meet any claims of the ANZ Bank and the Commissioner. This is a matter for her to prove. No reply was necessary. If, on the other hand, she intended to plead not the fact of what her assets were worth, but her belief as to what those assets were worth then she will be required to obtain leave to amend her defence. see r 16.51 of the Federal Court Rules 2011 (Cth). 51 It does not seem from her submissions on this interlocutory application that, despite her pleaded defence, she intends to assert at the trial of the Mortgage Proceeding her belief in the value of her BHL shares rather than the fact of their actual value at the material time. 52 There are significant differences between the two positions. Mrs Oswal may have genuinely held a belief that her BHL shares were worth at least $700 million even if in fact they were worth less than that. This, of course, would be relevant to the issue of her intention for the purposes of PLA s 89(1). 53 If that be the case, her belief at the time she executed the Mercury Mortgage could not have been based on an expert valuation not yet in existence. The reasonableness of any such belief, if it be such, must have been based on other facts. 54 Accordingly, the actual value of the Oswals' or Mrs Oswal's shareholding in BHL is not a relevant fact going to any issue likely to be tried in the Mortgage Proceeding. There is no spectre of conflicting judgments.

Other factors 55 Given the conclusions I have reached as to the irrelevance of the Duress Proceeding to the Mortgage Proceeding it is unnecessary to consider the other factors relied upon by Mrs Oswal in support of her application.

Conclusion 56 The application will for these reasons be dismissed with costs. I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.