Commissioner of Taxation v Regent Pacific Group Limited

PENAL NOTICE TO: REGENT PACIFIC GROUP LIMITED 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: REGENT PACIFIC GROUP LIMITED This is a 'freezing order' made against you on 23 January 2013 by Justice Siopis 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.

INTRODUCTION

1. (a) The application for this order is made returnable immediately. (b) The time for service of the application, supporting affidavits and originating process is abridged and service is to be effected by 5.00 pm 25 January 2013.
2. Subject to the next paragraph, this order has effect up to and including 5 pm on 31 January 2013 ('the Return Date'). On the Return Date at 10.15 am there will be a further hearing in respect of this order before Justice Siopis.
3. 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.
4. 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.
5. (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 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$ 12,783,976.50 ('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 Bannerman Resources Ltd ACN 113 017 128 10,850,000 Drake Resources Limited ACN 108 560 069 3.650,000 Tigers Realm Coal Limited ACN 146 752 561 12,700,000 Venturex Resources Limited ACN 122 180 205 438,400,000

(2) the value of your assets is the value of the interest you have individually in your assets.

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. (a) 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. (b) 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) subject to paragraph 6, dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; (d) paying amounts to the applicant in respect of your taxation liabilities; and (e) in relation to matters not falling within (a), (b), (c) or (d), 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 before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation. 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 $12,783,976.50 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. (a) 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. (b) 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 FIRST 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 first 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 directors, officers, 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 of 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 in respect of any money which the third party may owe or may later owe to either the first 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

AFFIDAVITS RELIED ON Name of deponent Date affidavit made (1) Aris Zafiriou 21 January 2013

NAME AND ADDRESS OF APPLICANT'S LAWYERS The applicant's lawyers are: Australian Government Solicitor Level 19, Exchange Plaza 2 The Esplanade PERTH WA 6000 Reference: 11101456/TPB Telephone: (08) 9268 1116 Facsimile: (08) 9268 1772 Email: timothy.burrows@ags.gov. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 18 of 2013

JUDGE: SIOPIS J DATE: 23 JANUARY 2013 PLACE: PERTH

REASONS FOR JUDGMENT 1 This is an ex parte application brought by the Commissioner of Taxation for freezing orders and associated interlocutory orders. 2 The originating application seeks a declaration that the first respondent is indebted to the Commissioner in the sum of $12,783,976.50 pursuant to a tax debt which is due but not yet payable. There are three respondents to the application. The first respondent is Regent Pacific Group Limited, a company incorporated in the Cayman Islands and whose shares are listed on the Hong Kong Stock Exchange. The second respondent is Sun Hung Kai Investment Services Ltd, a company incorporated in Hong Kong. The third respondent is NEFCO Nominees Pty Ltd, a company incorporated in Australia. 3 The originating application is founded on the fact that on 21 January 2013, the Commissioner issued a notice of assessment under s 168 of the Income Tax Assessment Act 1936 (Cth) in the sum of $12,783,976.50 in respect of a capital gain which the Commissioner alleges the first respondent has made from the sale of shares which it held in BC Iron Limited, a company engaged in mining operations in the north of Western Australia. 4 The notice of assessment provides that the time for the payment of the tax debt is 2 December 2013 - some 11 months hence. 5 At the same time that the notice of assessment was issued, a letter was sent to the first respondent, enclosing the reasons for making the assessment. The reasons relevantly state: Section 102-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income includes net capital gains for an income year. However section 855-10 of the ITAA 1997 provides that a foreign resident can disregard a capital gain or capital loss arising from a CGT event happening in regards to a CGT asset unless that CGT asset is taxable Australian property. Section 855-20 of the ITAA 1997 states that a CGT asset is taxable Australian real property if it is real property situated in Australia or a mining, quarrying or prospecting right in Australia. Under item 2 of the table in section 855-15 of the ITAA 1997, a CGT asset that is an indirect Australian real property interest is taxable Australian property. It has been determined that the BC Iron Limited shares disposed of by Regent Pacific Group Limited are taxable Australian property under item 2 of the table in section 855-15 of the ITAA 1997. As your shareholding in BC Iron Limited was greater than 10% the capital gain arising from this transaction is not disregarded under section 855-10 of the ITAA 1997. (Original emphasis.) 6 The evidence also discloses that the first respondent holds, through nominee companies, shares in four Australian companies whose shares are listed on the Australian Stock Exchange, to the total value, as at 18 January 2013, of $20,844,100. The companies are Bannerman Resources Ltd, Drake Resources Limited, Tigers Realm Coal Limited and Venturex Resources Limited. The shares in Venturex Resources Limited are held through the second respondent, and the shares in Drake Resources Limited, Tigers Realm Coal Limited and Bannerman Resources Ltd are held through the third respondent. These shareholdings are the only assets which the first respondent has in Australia. By this interlocutory application, the Commissioner seeks to enjoin the first respondent's dealing, through its nominee companies, in these shares. 7 I now deal with the matters in respect of which the Court must be satisfied in relation to the making of freezing orders. 8 First, I am satisfied that the Court has jurisdiction to entertain an application in relation to a declaration of a tax debt. 9 Secondly, I am satisfied that the Commissioner has a reasonably arguable case on the basis of the evidence of the issue of a notice of assessment and the operation of s 177 of the Income Tax Assessment Act and s 298-30(3) of Sch 1 of the Taxation Administration Act (1953) (Cth). 10 There is also authority that a freezing order can be made even though the time for the payment of the tax debt has not yet arisen, provided, of course, that the other requirements are met (Deputy Commissioner of Taxation v Sharp (1988) 91 FLR 70). 11 The Court must be satisfied of the matters in r 7.35(4) of the Federal Court Rules 2011 (the Rules), namely, that there is a danger that the prospective judgment will be wholly or partially unsatisfied. A freezing order can be granted even though there is no evidence that there is a positive intention to frustrate a judgment. I was taken to the following observations of Kenny J in Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2011) 273 ALR 194 at [10], which I adopt: A freezing order may be granted even though there is no evidence of the respondent's positive intention to frustrate a judgment: see National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271 at 277…per Mason CJ, Brennan and Deane JJ; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380…; Glenwood at 53 per Young CJ; and Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264 ("Riley McKay") at 276. In Riley McKay at 276, the Court of Appeal of the New South Wales Supreme Court said, and I accept, that the jurisdictional basis for relief of this kind "is directed to dispositions…which are intended to frustrate, or have the necessary effect of frustrating, the plaintiff in his attempt to seek through the court a remedy for the obligation to which he claims the defendant is subject"…In this case, there is no direct evidence of positive intention on the respondents' part to frustrate a judgment. None the less, the Commissioner argues that there is a danger of the removal of assets from the jurisdiction, which would have the effect of frustrating any judgment. (Original emphasis. Footnotes omitted.) 12 The Commissioner relied upon the following facts and matters to support the drawing of an inference by the Court that there is a danger that in the event that the freezing orders are not made, the assets which comprise shares held in Australian companies will be removed from Australia, with the effect that any judgment obtained by the Commissioner in respect of the tax debt will be unsatisfied. 13 First, the Commissioner pointed to the liquid nature of the first respondent's assets in Australia, being shares traded on the Australian Stock Exchange. The concern of the Commissioner is that, in the event that the freezing and associated interlocutory orders are not made, it would be very easy for the shares to be sold and the proceeds transmitted elsewhere. In support of this concern the Commissioner pointed to the fact that the disposal of the shares in BC Iron Limited occurred entirely offshore, with no funds passing through Australia. Further, the Commissioner emphasises that the first respondent has no other assets in the jurisdiction. 14 Secondly, the Commissioner referred to the fact that the first respondent had not registered for a tax file number and has never filed any tax returns in Australia. The Commissioner said that this meant that the first respondent did not have any tax history in Australia, and there was no basis, therefore, upon which to have confidence that any judgment would be met. 15 Thirdly, the Commissioner drew attention to the fact that the first respondent is registered in the Cayman Islands and has a business office in Hong Kong, and neither the Cayman Islands nor the People's Republic of China has a bilateral collection policy or process with Australia. There is also evidence that, although the Cayman Islands is a member of UNCITRAL, it has not adopted a provision relating to the recognition of foreign revenue debts, and the People's Republic of China is not a member of UNCITRAL, and that the laws of neither the Cayman Islands nor the People's Republic of China recognise foreign revenue debts. 16 Fourthly, the Commissioner referred to the fact that the tax debt is for a significant sum of approximately $12.7 million, and that the tax debt is not payable for some 11 months. The Commissioner contended that by reason of the combination of those two factors, as well as the lack of any tax history in Australia, the first respondent may well remove assets from Australia before any judgment is given, with the consequence that the Commissioner would not be able to satisfy any successful judgment against the first respondent. 17 I am satisfied that these facts and circumstances are sufficient to support an inference that there is a danger that the failure to make freezing orders will have the effect of the Commissioner not being able to recover from the first respondent on a successful judgment for the tax debt in his favour. 18 The next question is the balance of convenience. The balance of convenience raises the factor that the first respondent is a company, which invests in shares, and that the interlocutory orders sought, seek to restrain the trading in shares. I am mindful, therefore, that in weighing the balance of convenience, that this factor is to be given some considerable weight. 19 Against that factor are to be weighed the factors which I have already mentioned in relation to the danger of dissipation of the assets, and also the fact that the Commissioner has given an undertaking as to damages. 20 I am content, at least on an interim basis, that the balance of convenience favours the making of the interlocutory orders because this matter will be returnable to the Court on 31 January 2013. The restriction on the trading of the shares will, therefore, be for a relatively short period of time before the respondents will have an opportunity to oppose the continuation of those orders. 21 For the reasons set out above, I am content to make the interlocutory orders which restrict the second and third respondents from trading in the shares specified in those orders, and also to make the freezing orders. 22 The next question is leave to serve the originating process out of the jurisdiction. 23 I am satisfied that the requirements of the Rules have been satisfied in relation to the orders sought for leave to serve the first and second respondents out of the jurisdiction. The proceeding is plainly of a kind which is within r 10.42 of the Rules. The Court clearly has jurisdiction. On the basis of having issued the 21 January notice of assessment and the statutory provisions to which I have referred, I am satisfied that the Commissioner has a prima facie case in respect of the relief claimed. The service mode which the Commissioner has nominated for service on the first and second respondents is service in accordance with the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (The Hague, 15 November 1965). 24 I am satisfied that the orders sought for service out of the jurisdiction should be made. 25 The next question is whether there should be substituted service under r 10.24 of the Rules. 26 In my view, this is a case where it is not practicable to rely only upon the ordinary mode of service under the Rules, as being the sole mode of service upon the first and second respondents. The Draconian nature of the freezing and associated interlocutory orders, renders it important that this proceeding and these orders be brought to the attention of the first and second respondents as quickly as possible so that they may have an opportunity to oppose, at the earliest opportunity, the continuation of the orders (Rohalo Pharmaceutical Pty Limited v RP Scherer SpA (1994) 15 ACSR 347; Deputy Commissioner of Taxation v Seabrooke [2012] FCA 1158). 27 Accordingly, the orders sought for substituted service should be made. 28 In those circumstances, I will make orders in terms of the amended minute which I discussed with counsel for the Commissioner. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.