Commissioner of Taxation v Zeitouni

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1772 of 2013

MROC ENTERTAINMENT AUSTRALIA PTY LIMITED (ACN 127 748 896)

JUDGE: KATZMANN J DATE: 4 october 2013 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 On 28 August 2013, following a without notice audit of their taxation affairs, the Australian Taxation Office concluded that Leonard Zeitouni ("Leonard"), Habib Zeitouneh ("Habib"), Zegna Holdings Pty Ltd and MROC Car Wholesalers Pty Ltd had failed to disclose taxable income and issued them with notices of assessment for unpaid tax, interest and penalties. The audit was commissioned to investigate the involvement of Leonard and Habib in two different kinds of arrangement: one in which monies were deposited into Australian bank accounts, transferred to Indonesia and later remitted to Australian bank accounts; the other in which monies were deposited into Australian bank accounts, transferred to MROC Entertainment Australia Pty Ltd and later used to buy property. 2 The next day, the Commissioner of Taxation filed an originating application together and three affidavits in support seeking, amongst other things, the recovery of the amounts in the notices of assessment. The sums involved are considerable. That day, as duty judge, I heard an urgent interlocutory application for freezing orders. At the same time I also heard an application for substituted service of the originating documents on the first two respondents - Leonard and Habib (who, despite the different spelling of their names, are apparently brothers and for convenience I will refer to them as such). I granted both applications, sitting beyond normal court hours to do so. Service was effected - in accordance with the Court's orders - on 30 August 2013. Ten days later, on 9 September 2013, Swaab Attorneys, presumably on instructions from the brothers, filed an interlocutory application for orders setting aside service of the originating application and a declaration that the originating application had not been duly served on them. The brothers' application is brought under r 13.01 of the Federal Court Rules 2011 (Cth) ("the Rules"). 3 The grounds for the application were: (1) as the brothers were in a foreign country at the relevant time, it was first necessary for the Commissioner to obtain the leave of the Court to serve the originating documents in accordance with r 10.43 of the Rules; (2) in any event, substituted service should not have been given because the Commissioner failed to establish that it was not practicable to serve the two men personally; and (3) in any event, as the applications for substituted service were made ex parte and the Commissioner had an obligation to draw the Court's attention to r 10.43, the relevant authorities and the deficiencies in its evidence which he failed to discharge, in the exercise of the Court's discretion the orders should be set aside. 4 On 16 September 2013 the Commissioner responded with an interlocutory application of his own seeking the following orders: (1) leave to serve the brothers pursuant to r 10.43(2) of the Rules in the Republic of Indonesia in accordance with the Convention between the United Kingdom and the Netherlands regarding Legal Proceedings in Civil and Commercial Matters, done at London, 31 May 1932 ("the bilateral convention") either on a nunc pro tunc basis (that is with retroactive effect) or otherwise; (2) alternatively, if leave is not granted on a nunc pro tunc basis, leave to serve the brothers pursuant to r 10.24 in the same way as before. 5 The Commissioner later amended his interlocutory application to seek orders for deemed service under r 10.48, that is to say, orders that the originating application be taken to have been served on the brothers on the dates that they were served in accordance with the Court's orders. 6 Both parties seek costs. The brothers' application is for indemnity costs to be taxed and paid forthwith.

The evidence 7 The evidence for the brothers consisted of an affidavit from Terence Paul Sperber of Swaab Attorneys confirming that the orders for substituted service had been carried out and annexed the transcript of the hearing on 29 August 2013. 8 The Commissioner relied on the evidence adduced at the last hearing and on two new affidavits. In the first of the new affidavits Stephen Vorreiter, the Commissioner's instructing solicitor in the proceedings, stated that he was informed by the Commissioner that the brothers were outside Australia, were likely to be in Indonesia and had extensive ties to Australia, including close family members, direct and indirect proprietary interests in real property, bank accounts and motor vehicles. He said he was told that their whereabouts were unknown to the Commissioner. He explained that, as the general law applying to the making of ex parte freezing orders required that the preceding be returnable on an inter parts basis as soon as possible, he formed the opinion that the Commissioner should make an application for substituted service under r 10.24. He said that he considered that the quickest way of bringing the freezing orders to the attention of the respondents was to serve process in Leonard's case on his tax agent and in the case of his brother on the registered office of the 3rd to 9th respondents - the office of Swaab Attorneys - because Habib was the sole director and shareholder of the 3rd to 9th respondents. These were the orders I was persuaded to make on 29 August 2013. Conversations Mr Vorreiter had with Mr Davis and Mr Sperber on 2 and 4 September 2013 respectively confirm that service was effected in this way. 9 The effect of Mr Vorreiter's evidence is that neither he nor George Khouri, the taxation officer who was the principal source of instructions in relation to the freezing orders, was aware of the need to seek leave to serve the brothers outside the jurisdiction under r 10.43(2) of the Rules before an order for substituted service could be made. Mr Vorreiter stated that he was unaware of the decision in Commissioner of Taxation v Ma [1999] FCA 1093 (upon which the brothers rely), which is one of several authorities in support of the proposition, and that Mr Khouri had told him that he too was unaware of it. 10 Mr Vorreiter also provided information in connection with the application to serve the originating documents outside Australia. I will deal with those matters in the context of that application. 11 The second new affidavit was from Jennifer Pauline Grimley, a senior employee of the Australian Taxation Office ("ATO"), who gave evidence at the earlier hearing. I will deal with the evidence in that affidavit later in these reasons.

The relevant rules 12 The Rules require that originating documents (the originating application and accompanying affidavit or statement of claim) must be served personally on each respondent named in the originating application: r 8.06. 13 Division 10.2 provides for methods of service other than personal service: service upon a lawyer who has authority to accept service (r 10.22); deemed service (where it is not practicable to serve a document on the person in a way required by the Rules and the party provides evidence that the document has been brought to the attention of the person to be served) (r 10.23); substituted service (where it is not practicable to serve a document on the person in a way required by the Rules and steps need to be taken to bring the document to the attention of the person or where service will be taken to have occurred on the happening of a specified event or at the end of a specified time) (r 10.24); in a case where the Court grants an interlocutory injunction, by fax or electronic communication (r 10.27); and service in a way or at a place agreed between the parties (r 10.28). 14 Division 10.3 deals with the modes of service for documents that are not required to be served personally. 15 Division 10.4 deals with service outside Australia. 16 Rule 10.42 provides that, subject to r 10.43, an originating application or an application under Part 7 (for orders before the start of a proceeding, including freezing orders), may be served on a person in a foreign country in a proceeding that consists of, or includes, any one of more of the kinds of proceeding mentioned in the table to the rule. Relevantly, that includes a proceeding based on a cause of action arising in Australia. 17 Rule 10.43 is in the following terms: 10.43 Application for leave to serve originating application outside Australia (1) Service of an originating application on a person in a foreign country is effective for the purpose of a proceeding only if: (a) the Court has given leave under subrule (2) before the application is served; or (b) the Court confirms the service under subrule (6); (c) the person served waives any objection to the service by filing a notice of address for service without also making an application under rule 13.01. (2) A party may apply to the Court for leave to serve an originating application on a person in a foreign country in accordance with a convention, the Hague Convention or the law of the foreign country. (3) The application under subrule (2) must be accompanied by an affidavit stating: (a) the name of the foreign country where the person to be served is or is likely to be; and (b) the proposed method of service; and (c) that the proposed method of service is permitted by: (i) if a convention applies - the convention; or (ii) if the Hague Convention applies - the Hague Convention; or (iii) in any other case - the law of the foreign country. (4) For subrule (2), the party must satisfy the Court that: (a) the Court has jurisdiction in the proceeding; and (b) the proceeding is of a kind mentioned in rule 10.42; and (c) the party has a prima facie case for all or any of the relief claimed in the proceeding. (5) A party may apply to the Court for leave to give notice, in a foreign country, of a proceeding in the Court, if giving the notice takes the place of serving the originating application. (6) If an originating application was served on a person in a foreign country without the leave of the Court, a party may apply to the Court for an order confirming the service. (7) For subrule (6), the party must satisfy the Court that: (a) paragraphs (4) (a) to (c) apply to the proceeding; and (b) the service was permitted by: (i) if a convention applies - the convention; or (ii) if the Hague Convention applies - the Hague Convention; or (iii) in any other case - the law of the foreign country; and (c) there is a sufficient explanation for the failure to apply for leave. 18 Rule 10.44 deals with service of documents other than an originating application and also requires an applicant to seek the leave of the Court. 19 Rule 10.48 permits a party to apply without notice for an order for deemed service where it is not practicable to serve the document on the person in a foreign country in accordance with a convention, the Hague Convention or the law of a foreign country and the party provides evidence that the document has been brought to the attention of the person to be served. Rule 10.49 provides for substituted service if service on the person in a foreign country in accordance with a convention etc was not successful. 20 Nevertheless, r 10.45 provides that: The other provisions of Part 10 apply to service of a document on a person in a foreign country in the same way as they apply to service on a person in Australia to the extent that they are: (a) relevant and consistent with this Division; and (b) consistent with: (i) if a convention applies - the convention; or (ii) if the Hague Convention applies - the Hague Convention; or (iii) in any other case - the law of the foreign country. 21 Consequently, r 10.24, under which the Commissioner proceeded, applies to service of the brothers provided that the rule is consistent with div 10.4 and with the applicable convention or foreign law. 22 Rule 13.01 permits a respondent to apply to the Court to set aside an originating application or service of the application.

The Commissioner's case 23 The Commissioner's case was (and remains) that it was not practicable to serve the brothers personally. He proposed (and I allowed for) service on Leonard to be effected by serving his tax agent (Ian Davis & Co) and service on Habib to be effected by service at the registered business office of the companies of which he is the sole director (Swaab Attorneys). These were the places to which the ATO had sent the notices of assessment and the accompanying reasons by express post the previous day.

Was leave required to serve the brothers with the originating documents? 24 Mr O'Brien, who appeared for the brothers on the application to set aside service, submitted that before any application for substituted service could be considered, the Commissioner had to apply for leave under r 10.43. 25 The Commissioner omitted to make an application for leave to serve the brothers under r 10.43 when the matter was first before the Court although he believed them to be in a foreign country at the time. 26 There is certainly authority to support Mr O'Brien's submission. In particular, there is a line of authority to the effect that where the person to be served is in a foreign country, it is inappropriate for a court to consider an order for substituted service unless an order has first been obtained for service outside Australia: Ricegrowers Co-operative Ltd v ABC Containerline NV (1996) 138 ALR 480 ("Ricegrowers"); Commissioner of Taxation v Ma (1999) 92 FCR 569 ("Commissioner of Taxation v Ma") at [14], ASIC v Sweeney (No 2) (2001) 38 ACSR 743; [2001] NSWSC 477 at [40]-[41]; ACCC v Chaste Corporation Ply Ltd (in liq) [2002] FCA 1183 at 11; Humane Society International Inc v Kyodo Senpaku Kaisha Ltd [2007] FCA 124 ("Humane Society v Kyodo") at [7]; Freehills, Re New Tel Ltd (in liq) ACN 009 068 955 (2008) 66 ACSR 311; [2008] FCA 762 at [40]. To this list should be added Mondial Trading Pty Ltd v Interocean Marine Transport Inc (1985) 65 ALR 155 ("Mondial Trading") at 157, which the earlier authorities merely follow or apply, and Federal Commissioner of Taxation v Oswal [2012] FCA 1507 ("Federal Commissioner of Taxation v Oswal"). 27 In Mondial Trading the plaintiff claimed damages against the owner of a ship for breach of contract or breach of duty in relation to the loading, handling, custody, care, discharge and carriage of certain cargo from various ports in the United States to Australia pursuant to bills of lading. Relevantly, the plaintiff applied ex parte for an order for substituted service on the solicitors for the defendant shipowner, a foreign company. Dawson J, sitting as a single judge of the High Court of Australia, decided that it would not be proper to make such an order, "there being at the moment no order for service of the writ or of a concurrent writ out of the jurisdiction" (156). His Honour said that it was apparent that the defendant had never been present within the jurisdiction. It was for this reason that his Honour considered he should not give leave to serve the writ by substituted service. He explained: I ought not do so because at no time could personal service of the writ have been effected within the jurisdiction and, without application having been made and the necessary orders obtained, service cannot, in the absence of agreement, be effected outside the jurisdiction either personally or by substituted service. 28 His Honour went on to say at 157: The plaintiff must, in the absence of an agreed mode of service upon the defendant, obtained leave for service outside the jurisdiction and must attempt to effect service by that mode. No such attempt has been made and there is insufficient evidence in the material that the plaintiff would be unable by the exercise of reasonable effort, to effect service on the defendant outside the jurisdiction... Whilst the plaintiff is at the moment unable to obtain an order for substituted service, it does not follow that, should the plaintiff obtain an order for service out of the jurisdiction and then, having made reasonable efforts to do so, be unable to effect service, an order for substituted service within the jurisdiction cannot be made. However, that is something which must await the outcome of the plaintiff's having taken the necessary steps to pursue its claim. (Citations omitted.) 29 Emmett J cited these remarks with approval in Commissioner of Taxation v Ma at [13]-[14]. 30 I was taken to none of these decisions at the last hearing, nor even to Division 10.4. The Commissioner accepted that he should have done so but said that the non-disclosure was wholly inadvertent. 31 The Commissioner formally submitted that this line of authority should not be followed but, in the circumstances, accepted that this was a matter for a Full Court. Alternatively, the Commissioner contended that leave was not required under the Rules. 32 I propose to apply the above line of authority. Indeed, it was not seriously suggested that I should do anything else. Accordingly, I hold that the Commissioner required the leave of the Court to serve the brothers outside the jurisdiction before an order for substituted service was made. The next question is whether the omission to seek that order can now be rectified.

Should leave be granted to the Commissioner to serve the brothers under r 10.43(2)? If so, should it be granted nunc pro tunc? 33 To obtain the leave of the Court the Commissioner must prove three things: that the Court has jurisdiction in the proceeding, that the proceeding is of a kind mentioned in r 10.42 and that the party has a prima facie case for all or any of the relief claimed in the proceeding: r 10.43(4). As Branson J explained in Bray v F Hoffmann-La Roche Ltd (2003) 130 FCR 317 ("Bray") at [183]-[184] "relief" means "remedy". I will return to these matters shortly. 34 The Commissioner must also file with the leave application an affidavit stating the name of the foreign country in which the person to be served is or is likely to be, the proposed method of service and that the proposed method is permitted by the relevant convention or foreign law: r 10.43(3). The affidavit accompanying the application came from Mr Vorreiter. It satisfies the three requirements in subrule (3). 35 First, it discloses that the brothers are most likely in Indonesia. Mr Vorreiter said that on 2 September 2013 Mr Davis telephoned him and informed him that "he had emailed his clients in Indonesia and advised them to cooperate with the ATO". 36 Secondly, it discloses that Indonesia is not a party to the Hague Convention. The evidence given by Mr Vorreiter shows that Australia's service arrangements with Indonesia pre-date Indonesian independence and are based on the bilateral convention. 37 At first, Mr O'Brien challenged the evidence upon which Mr Vorreiter relied, but ultimately withdrew his challenge and accepted that the bilateral convention applies to service in Indonesia. 38 Articles 2 and 3 of the bilateral convention provide for service through diplomatic channels. Mr Vorreiter obtained advice from the Commonwealth Attorney-General's Department that this method of service "can result in some delay". But service through diplomatic channels is not the only method of service permitted by the convention. Article 4 relevantly provides: (a) The provisions of Articles 2 and 3 in no way prejudice the liberty to use in the territory of either High Contracting Party, without any request to or intervention of the authorities of the country, where service is effected, any of the following methods of service in connexion with judicial or extra-judicial documents: (1) Service by a Consular Officer of the High Contracting Party on whose territory the documents emanate; (2) Service by an agent appointed for the purpose either by the judicial authority by whom service of the document is required or by the party on whose initiative service of the documents is required; (3) Service by the competent officials or officers of the country where the documents are to be served, acting directly at the request of the party on whose initiative service of the documents is required; (4) Service through the post; (5) Any other mode of service recognised by the law existing at the time of service in the country from which the documents emanate. (Emphasis added.) 39 As the Commissioner submitted, substituted service within the meaning of r 10.24 of the Rules is a "mode of service recognised by the law existing at the time of service in the country from which the documents emanate". It follows that the mode of service deployed by the Commissioner was a mode of service permitted by the bilateral convention. 40 The Commissioner submitted that leave should be granted because he easily satisfied the preconditions contained in r 10.43(4). The submission is undoubtedly correct. 41 First, the Court plainly has jurisdiction. The originating application seeks injunctive and declaratory relief, amongst other things. Section 39B(1A)(a) of the Judiciary Act 1903 (Cth) gives this Court jurisdiction in any matter in which the Commonwealth is seeking an injunction or declaration. Gilmour J held in Federal Commissioner of Taxation v Oswal at [12] (following Sackville J in Commonwealth v Westwood (2007) 163 FCR 71 at [52]) that "the Commonwealth" in s 39B(1A)(a) includes the Commissioner. In any event, s 39B(1A)(c) of the Judiciary Act also confers original jurisdiction on the Court in any matter "arising under any laws made by the Parliament". This proceeding concerns matters arising under the Taxation Administration Act 1953 (Cth) ("TAA") and the Income Tax Assessment Act 1997 (Cth) ("ITAA 1997"). 42 Secondly, this is a matter in which an originating application may be served on a person in a foreign country for the purposes of r 10.42. The causes of action in respect of which relief is sought in the proceedings indisputably arise in Australia. The proceedings are concerned with the enforcement of a "tax-related liability" within the meaning of s 255-1 of Schedule 1 to the TAA or, put another way, the recovery of a tax debt due and payable to the Commonwealth. 43 Thirdly, the Commissioner has a prima facie case for all or any of the relief claimed. That necessarily follows from my conclusion that underpinned the freezing orders, namely, that the Commissioner had a good, arguable case against them. The reasons for that conclusion may be shortly stated. 44 The respondents were served with notices of assessment. Evidence was tendered on the last occasion of copies of those notices. The same evidence was tendered on this occasion. 45 The brothers' tax-related liabilities were due and payable at the time the Commissioner instituted the proceedings: Income Tax Assessment Act 1936 (Cth) ("ITAA 1936"), s 204 (for the notices of assessment served for the income years up to 2010) and ITAA 1997, s 5-5(5) (for the assessments served for the income years following the 2010 income year). 46 The Commissioner may sue in a court of competent jurisdiction to recover any tax liability that is due and payable: TAA, sch 1, s 255-5. This Court is such a court. It is not open to the respondents to challenge the correctness of these assessments in such a suit. The only way they may do so is to first lodge with the Commissioner a taxation objection and, if unsuccessful, to apply to the Administrative Appeals Tribunal under Part IVC of the TAA for a review of the Commissioner's decision. In the present proceedings the notices of assessment are conclusive evidence of the due making of the assessments and of the correctness of the amounts particularised in them: ITAA 1936, s 177(1); Commissioner of Taxation v Futuris Corp Ltd (2008) 237 CLR 146; FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 at 376 per Mason and Wilson JJ. Consequently, "[o]nce an assessed liability is due and payable", the Commissioner is entitled to move for judgment relying on "the conclusive evidence provision of s 177(1)": Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 80 ATR 449; [2010] FCA 1014 at [15] per Kenny J. 47 It follows that, had the Commissioner applied to the Court on 29 August for leave to serve the brothers in Indonesia in accordance with the bilateral convention, there can be no question that I would have granted his application. Indeed, Mr O'Brien did not submit otherwise. He acknowledged that the grounds for obtaining leave were made out. 48 The real issue is whether leave should be granted nunc pro tunc, that is, now instead of then. An order made nunc pro tunc has the same legal force and effect as if it had been made on a previous occasion. The Court will make such an order if it is satisfied that it is only doing now what it would have done then: Emanuele v Australian Securities Commission (1997) 188 CLR 114 ("Emanuele") at 131-2. The order the Commissioner seeks meets this description. 49 Rule 1.32 entitles the Court to make any order it considers appropriate in the interests of justice. I accept the Commissioner's submission that it would be better for the Court to grant leave nunc pro tunc than to require the Commissioner to apply for leave and then to make a fresh application for substituted service if (as seems likely, if not inevitable) he was unable to serve the respondents personally in Indonesia. That would be inconsistent with the overarching purpose of the civil procedure provisions of the Federal Court of Australia Act 1976 (Cth) ("FCA") and Rules, namely, "to facilitate the just resolution of disputes … according to law; and … as quickly, inexpensively and efficiently as possible" (see FCA, s 37M). 50 In Emanuele a majority in the High Court upheld an order of the Full Court of this Court pursuant to s 459P(2) of the Corporations Law granting leave nunc pro tunc to the Australian Securities Commission to apply to wind up certain companies in insolvency. Dawson J characterised the failure by the Australian Securities Commission to obtain the leave of the court as "a mere defect or irregularity" in the exercise of the court's jurisdiction (125). His Honour went on: Since the failure to obtain leave was procedural and did not go to jurisdiction, there was no reason why the Full Court of the Federal Court should not have cured the defect or irregularity by granting leave nunc pro tunc. 51 Toohey J said at 132 that if the absence of leave was not fatal to the Commission's application, there was no sufficient reason to interfere with the nunc pro tunc order made by the Full Court. Kirby J said at 152 that it was trite to say that the power of a court such as the Federal Court to correct obvious slips by orders in appropriate cases nunc pro tunc is granted by legislation and the rules of court and implied in the express powers of the court in order to avoid injustice. 52 As in Emanuele, in the present case the failure to obtain leave did not go to jurisdiction. The Court's jurisdiction did not depend on the brothers being present in Australia when the originating process was served. At common law the jurisdiction of a court in an action in personam (that is, an action seeking judgment against an individual) depended upon whether the individual was amenable to the writ of summons issued by the Court in the name of the sovereign and the writ did not run beyond the limits of the state (Laurie v Carroll (1958) 98 CLR 310 at 322-323). Consequently, in Laurie v Carroll the High Court discharged an order for substituted service of a writ of summons in Victoria where the defendant (Laurie) had no connection with the State and was not within the State when the writ was issued or at any time afterwards. But, as Branson J pointed out in Bray at [173], the common law position so far as this Court is concerned has been changed by div 10.4 of the Rules, the legislative authority for which is to be found in s 59 of the FCA. Section 59(2)(g) gives the Court express power to make rules in relation to: the service and execution of the process of the Court, including the manner in which and the extent to which the process of the Court, or notice of any such process, may be served out of the jurisdiction of the Court. 53 It cannot be said that the failure to obtain leave is fatal to the Commissioner's application and Mr O'Brien did not submit that it was. The Rules undoubtedly contemplate that in some circumstances service outside the jurisdiction will be effective although leave has not been given. One obvious case is where the party makes out a case for an order under r 10.43(6) confirming service. 54 At the hearing on 29 August the Commissioner established that the Court had jurisdiction to make the orders sought in the originating application. In substance, all he omitted to prove in order to invoke the Court's power to grant leave was that the method of service he proposed (substituted service) was a method permitted by the relevant convention or foreign law. As it happens, it was. Mr O'Brien submitted that this was fortuitous. That may be so. But in determining whether the discretion to make the order sought should be exercised it is an important consideration. 55 It may be accepted that in general the Court should exercise some caution in making an order granting leave to serve its process upon a person outside Australia (Bray at [219] per Finkelstein J). The historical rationale for such an approach can be found in cases like Société General de Paris v Dreyfus Bros (1885) 29 Ch D 239, to which Finkelstein J referred in Bray. In that case Pearson J said at 243 that it should always be a very serious question whether the court should "put a foreigner, who owes no allegiance here, to the inconvenience and annoyance of being brought to contest his rights in this country". But Leonard and Habib are not foreigners. They are Australian citizens, Australian citizens who have been assessed as liable to pay tax in Australia on income derived in Australia. 56 For all these reasons the Commissioner should be granted leave nunc pro tunc to serve the brothers in accordance with r 10.43. For the same reasons the brothers' objections to service appear little more than an insistence on adherence to technicalities. 57 In Emanuele Kirby J said (at 152-153): Courts today are less patient with meritless technicalities. They recognise the inconvenience that can attend an overly strict requirement of conformity to procedural preconditions. In the morass of modern legislation, it is easy enough, even for skilled and diligent legal practitioners (still more lay persons who must conform to the law) to slip in complying with statutory requirements… Against that risk, courts generally retain the facility to cure slips and to repair oversights in proceedings before them, in appropriate cases where justice requires it. 58 These remarks are particularly apt in the present case. 59 I would add that as substituted service was permitted by the relevant convention, it was open to the Commissioner to apply to the Court under r 10.43(6) for an order confirming the service. I regard as sufficient the explanation that was given for the failure to apply for leave. The remaining question is whether the conditions for substituted service had been met. For the reasons set out below I am satisfied that they were.

Should the orders for substituted service nonetheless be set aside? 60 It is true that r 10.49 allows for a party to apply for an order for substituted service where service was not successful in the foreign country in accordance with the convention, the Hague Convention or the law of the foreign country. But, as Mr O'Brien accepted, an order for substituted service may be made under either r 10.24 or r 10.49. Cf. Humane Society v Kyodo at [6]; Australian Competition & Consumer Commission v Kokos International Pty Ltd [2007] FCA 2035 ("ACCC v Kokos") at [18]. Consequently, it is unnecessary to prove that attempts at service on the person in the foreign country have failed before an order for substituted service can be made. 61 Mr O'Brien submitted that the orders should be set aside for two reasons. First, because the Commissioner had not established that it was impracticable to serve the brothers personally and secondly, because of the Commissioner's failure to draw the Court's attention to r 10.43 and to take the Court to the relevant authorities. I reject the submission.

Was it not impracticable to serve the respondents personally? 62 There is no dispute that the Commissioner did not know and indeed does not know where either brother can be found in order to serve him personally. Though presumably in a position to provide those details, their lawyers have refrained from doing so. 63 In his affidavit of 28 August 2013 Mr Khouri provided evidence that since 2010 Habib has spent most of his time outside Australia, travelling often to Indonesia, and that since he left this country for Indonesia on 12 September 2012 he has not returned. Mr Khouri said that the residential address recorded for Leonard in the most recent document lodged with any government body (the Western Australian Department of Transport) was a street address in Perth but passenger movement records supplied by the Department of Immigration and Citizenship showed that he had left Australia on 13 August 2013 and had not returned since. 64 The Commissioner also relied on oral evidence from Ms Grimley, who oversaw the taxation audit involving the affairs of the first, second and third respondents. Her evidence was to the following effect. Leonard left Australia apparently for Indonesia on 13 August 2013 and Habib about a year earlier. About six months ago the Commissioner asked the Australian Federal Police ("AFP"), which has a presence in Indonesia, for assistance in trying to locate Habib. The latest contact was on the Friday before the hearing through an AFP liaison officer in Australia with the AFP in Indonesia. She indicated that the Commissioner had asked the AFP to look for him in such a way that he would not be "tipped off". The inference is that the investigation into his whereabouts was a covert one. Her advice was that the AFP was still looking. In the case of Leonard, Ms Grimley said that his departure card showed that his first stop was Indonesia and no address was provided. She said that no enquiries have been made as to his whereabouts "because the evidence before us was that he leaves the country regularly and only for a short period of time and comes back, so we're presuming he will be returning to Australia". 65 In substance, then, the evidence was that the brothers were overseas, possibly in Indonesia, and that the Commissioner did not know their address or addresses. In the case of Habib, the AFP had been looking for him for six months without success. 66 Mr O'Brien submitted that the Commissioner's evidence was not good enough to make out a case that personal service was not practicable. He argued that to do so it is necessary to show either that some attempt had been made to effect service in accordance with the Rules or that to attempt service in that way would obviously be futile. He emphasised that it is insufficient to simply show that personal service is inconvenient. There is authority to support Mr O'Brien's contention. The principal authority is Ricegrowers, a judgment of Tamberlin J. That decision was followed by Logan J in Combis (Trustee) v Spottiswood (2011) 123 ALD 40; [2011] FCA 1082 and Barker J in Fuller v Toms [2012] FCA 27. I accept that inconvenience to a party will not suffice. But, for the reasons I gave in Electrolux Home Products Pty Ltd v Delap Impex Ltd [2013] FCA 600 ("Electrolux") at [72]-[78] I do not think it is necessary for an applicant to prove that it is impossible to effect personal service or that it would be futile to attempt to do so before an order for substituted service can be made. I am not alone in this view and, ultimately, Mr O'Brien appeared to accept that I was right in this respect. 67 In Humane Society v Kyodo Allsop J doubted that it was incumbent on an applicant for an order for substituted service to prove that personal service was impossible or futile. In Statewide Secured Investments Pty Ltd v Tarrant [2011] FCA 1067 at [9] Flick J thought it was not. So did Dodds-Streeton J in British American Tobacco Australasia Limited v Taleb (No 1) [2012] FCA 1065 at [25]-[29]. In Mercator Property Consultants Pty Ltd v Christmas Island Resort Pty Ltd (Nicholson J, 14 July 1998, unreported) ("Mercator") it was sufficient that service on a corporation in Singapore would take approximately four to six months. In Humane Society v Kyodo Allsop J said (at [14]) that on one view "impractical" (the term used in the former rules) simply denoted "not sensible or realistic". In Federal Commissioner of Taxation v Oswal Gilmour J took that very approach. 68 In ACCC v Kokos (at [18]) French J accepted that it was impractical to personally serve Mr Yeo, whom the ACCC wished to join as a respondent because although the ACCC knew he had been in Japan on a three-year working visa, it had been unable to obtain an address at which he could be served. The reasons for judgment indicate that neither Mr Yeo nor his solicitors would provide an address for service and neither the Department of Foreign Affairs and Trade nor the Australian Embassy in Japan was able to make enquiries on the ACCC's behalf. Like Leonard Zeitouni, Mr Yeo had come and gone from Australia on more than one occasion in the previous twelve months. No attempt was made to serve him in Japan for this reason. 69 In Rohalo Pharmaceutical Pty Ltd v RP Scherer SpA (1994) 15 ACSR 347 at 366 Lindgren J held that it was not practical to require personal service where there were special circumstances making it "desirable that the litigation be progressed quickly and efficiently". In Australian Securities and Investments Commission v China Environment Group Ltd [2013] FCA 286 Besanko J accepted a submission from ASIC that it was not practicable in the circumstances of urgency which attended its claim for interlocutory relief. Both these cases concerned applications for deemed service. There is, however, no reason why a different approach should be taken to the meaning of impracticable in the context of an application for substituted service. 70 In Unilever Australia Limited v PB Foods Limited [2000] FCA 798 ("Unilever"), which was also an application to set aside an order for substituted service, counsel conceded that substituted service could be ordered to ensure quick service where, for example, there was the risk of dissipation of property or the like. That was a risk in Mercator and, as will be seen, it was also a risk here. 71 In Electrolux I reflected, as Allsop J had done in Humane Society v Kyodo, on the distinction between impractical and "not practicable" (the term used in the current rules), but expressed the opinion that the difference in meaning is unlikely to be widely appreciated. According to Fowler's Modern English Usage, rev 3rd ed, p 612 ("Fowler's") in current use "practicable" when applied to things, policies and the like means "that can be done or used; possible in practice". "Practical", on the other hand, relevantly means "concerned with practice or use rather than theory". Fowler's states that the word "impractical" is tending to encroach on the proper territory of "impracticable". That much is evident from a perusal of the authorities. It is abundantly clear that the purpose of the current and the former rules is to provide for substituted service when personal service is impracticable. This was certainly the approach taken in the authorities. The linguistic purists in this Court have, however, prevailed. 72 I was satisfied at the time of the last hearing that it was not practicable for the Commissioner to serve either brother personally. I am not now persuaded that that conclusion was wrong. 73 In the first place, even if futility were required, it may well have been futile to insist on personal service. Where would the Commissioner start? It would be like looking for a needle in a haystack. At the time all he had to go on was an assumption, at best, and speculation, at worst, that the brothers were in Indonesia. Although they had had an interest in an Indonesian company, they had divested themselves of that interest some time last year. Despite a search in Indonesia over six months using the resources of the AFP, Habib had not been located. Perhaps that was because he wasn't there. Perhaps it was because he was in hiding. Perhaps it was because the police had not tried hard enough to find him. While the Court would ordinarily expect an applicant for an order for substituted service to call some evidence of what steps had been taken, in the particular circumstances of this case where time was of the essence I reject the submission effectively advanced on the brothers' behalf that it was essential for the Commissioner to do so before the Court could give the evidence from Ms Grimley any weight. 74 In the second place, Mr O'Brien's submission overlooks the circumstances in which the application came to be made. Whether something is possible in practice necessarily invites consideration of the circumstances in which the action is to be taken. As Moore J observed in Unilever at [13], the question of impracticability must be considered in the factual context in which the issue arises. 75 I suppose that the Commissioner might have engaged the services of a private investigator to conduct a search for the brothers but, even then, it is doubtful whether he would have had any success. Assuming they were in Indonesia, they could have been anywhere in the country. And how long would the search have taken? The proceedings were launched with some haste and the applications were heard and determined as a matter of urgency. It was vital that the brothers be served with the originating documents and the orders of the Court as quickly as possible. As the authorities show this is a matter that bears on the practicability of personal service. 76 It is true, as Mr O'Brien submitted, that the timing was entirely in the Commissioner's hands. But once the audit had been completed the Commissioner would have been neglectful of his statutory responsibilities if he had delayed issuing the assessments. For the same reason it is unreasonable to expect him to defer commencing proceedings until he located the brothers or exhausted all possible avenues to do so. 77 More importantly, perhaps, the Court had made freezing orders against the assets of the two men. It was of the utmost importance that they be notified of those orders as soon as possible. In theory at least, to fail to order substituted service in these circumstances would have meant that they would be kept in the dark about the freezing orders. I cannot conceive that the Rules were intended to bring about such a result. 78 The Commissioner's evidence indicated that there was a substantial risk that the brothers would take steps to dissipate assets and transfer money overseas. That was the reason the audit was conducted without notice to the brothers and it was the reason for the freezing orders. That evidence was given by Mr Khouri in his affidavit of 28 August 2013, which was read at the last hearing. It is unchallenged at least at this point in time. It contains the following pertinent information. 79 Mr Khouri has worked in the debt section of the Australian Taxation Office for over 26 years. As Senior Technical Leader, Debt Strategic Recovery, he manages the conduct of more complex tax debt recovery matters, including matters arising from Project Wickenby - a cross-agency task force established to protect the integrity of Australia's financial and regulatory systems by targeting tax evasion, avoidance and crime "in respect of the use of secrecy havens". Based on this experience Mr Khouri stated that he was concerned that, upon being informed of the substantial amounts of tax the subject of the assessments, the respondents could take steps to encumber or remove assets overseas which would frustrate the Court's process. He also expressed concern that the Commissioner's ability to recover amounts due from the first to fourth respondents would be compromised for the following reasons: (i) The amounts due under the assessments were considerable - in Leonard's case approximately $8.5 million and in Habib's nearly $6 million. (ii) The brothers have had access to an overseas entity and its bank accounts. That entity is PT Legian Fave, a company incorporated in Indonesia of which the brothers were formerly directors and majority shareholders. Mr Khouri's evidence showed that over a period of about 9 months in 2010 - 2011 more than $8 million had been transferred from Australia to Indonesia into a bank account in the name of Legian Fave. The money was transferred to Legian Fave in 88 transactions. The ATO's evidence reveals that these transactions (for the most part) were made in $100,000 amounts, often several times in the one day. Mr Khouri said that on the available evidence, he believes that the brothers then caused Legian Fave to transfer over $3 million into the bank accounts of various Australian entities under their control. (iii) The directors of the companies from which money was transferred to Legian Fave were, at the relevant time, Indian nationals residing in Australia either on student visas, temporary bridging visas or without valid visas, who each resided at the same address and each earned a taxable income of no more than $50,000. The remitting entities do not appear to have been conducting any real business at the relevant time. Mr Khouri stated that in his experience the use of foreign students as company directors is a common strategy deployed to disguise money-laundering and other unlawful activities. 80 These circumstances made it of critical importance that the Court act swiftly. The evidence indicated that the brothers had "the means and the motive" to remove assets and capital out of Australia (cf. Deputy Commissioner of Taxation v Chemical Trustee Ltd (No. 4) [2012] FCA 1064 at [24]) and experience to boot. 81 In Mercator Nicholson J held that the high risk of dissipation of assets was sufficient to establish that personal service was impractical and made orders for substituted service. 82 In Unilever it was sufficient that prompt service on a party the applicant wished to join to extant litigation was "practical and consistent with good case management". The same is true here. Moore J explained at [14]: In the present case Cadbury is pursuing in Australia under Australian law, applications for the registration of two of the infringing trade marks. It has, for that purpose, retained the services of patent attorneys. The apparent need to join Cadbury only arose after PB Foods successfully maintained, as an element of its defence, that registration of the alleged infringing marks could be secured if applied for by Cadbury. In those circumstances the prompt service of Cadbury on its patent attorneys was both practical and consistent with good case management in that it permitted the addition of an arguably relevant party in a timely manner. Requiring service on Cadbury in the United Kingdom with the attendant costs and at least the potential for delay rendered it, in my opinion, impractical in these unusual circumstances. 83 In Australian Competition and Consumer Commission v Yellow Page Marketing BV [2010] FCA 1218 at [38] Gordon J endorsed Moore J's view that impracticability must be considered in the factual context in which it arises. In that case her Honour apparently accepted the submission of the ACCC that personal service on the two respondents (one Dutch, one English) was impractical, despite no attempt having been made to effect service in the Netherlands. The only relevant consideration appears to have been the possibility of delay. Her Honour noted only the ACCC's allegation that the outcome of the proceeding was "time sensitive" because the respondent's contraventions of the Trade Practices Act 1974 (Cth) were continuing. Her Honour consequently made an order for substituted service by sending the documents by email to email addresses associated with the respondent companies. 84 The proposed method of substituted service must be one which in all reasonable probability will bring the document to the attention of the person to be served: Oswal at [37], Porter v Freudenberg [1915] 1 KB 857 at 889. There is no suggestion that the methods the Commissioner proposed would not have done that. We now know that they did. Indeed, there was good reason to believe that would happen. Leonard was served through his tax agent and Habib at the registered office of the companies of which he was the sole director and shareholder, which happens to be the offices of Swaab Attorneys, the solicitors who currently represent both him and his brother. I note that Mr Khouri's evidence shows that on Habib's incoming passenger card completed on his most recent entry into Australia Mr Sperber is named as his emergency contact. 85 Still, Mr O'Brien submitted that it was not possible to show that personal service was impracticable without evidence of what was necessary to effect personal service in the foreign country and that evidence was lacking at the first hearing. 86 There are two answers to this submission. First, as I have already observed, personal service is not actually required under the relevant convention. Secondly, all of the other methods by which service could be effected under the terms of the bilateral convention obviously required an address for the person to be served and the Commissioner had no address for either brother.

Should the orders be set aside for non-disclosure by the Commissioner? 87 I turn now to consider the second basis upon which the brothers sought to have the orders for substituted service set aside. In the circumstances of this case I would not set aside the orders for non-disclosure. 88 I accept, of course, that an applicant for any ex parte order has a duty of utmost good faith: Savcor Pty Ltd v Cathodic Protection International (2005) 12 VR 639 ("Savcor") at [24]. This includes an obligation to disclose to the court "fully and fairly" all material matters within the applicant's knowledge. Strictly speaking, however, the principle applies to matters of fact, the theory being that the judge is expected to know the law (R v Kensington Income Tax Commissioners; Ex parte Princess Edmond de Polignac [1917] 1 KB 486 at 513-4 per Scrutton LJ). The penalty for not disclosing the facts "fully and fairly" is that "the Court will set aside any action which it has taken on the faith of the imperfect statement" (Ibid). There is no suggestion here that the Commissioner failed to disclose any relevant factual matter or misled the Court on any question of fact. 89 The Commissioner nonetheless accepted (properly) that he had an obligation to draw the Court's attention to the relevant authorities. Certainly, his legal representatives were obliged to disclose legal matters within their knowledge and which they had reasonable grounds for believing would support an argument against the Commissioner's case. That duty is reflected in r 29 of the NSW Barristers' Rules and r A24 of the advocacy rules contained in the Revised Professional Conduct and Practice Rules 1995 (NSW) (Solicitors' Rules). But the evidence is to the effect that the Commissioner's solicitor had no relevant knowledge and his senior counsel told the Court that, had the authorities come to her attention, there was no question that she would have taken the Court to them. She apologised for the omission and said she was personally embarrassed by it. Mr O'Brien did not contend that the lawyers' conduct was anything but inadvertent. I accept Mr Vorreiter's evidence and senior counsel's apology without reservation. I have no doubt that, had they been aware of the line of authority, they would have informed the Court. The obvious inference to be drawn from the evidence is that the Commissioner and his lawyers were preoccupied with the need to prove the case for freezing orders and insufficient attention was given to the application for substituted service. 90 Mr O'Brien accepted that the Court has a discretion not to set the decision aside for non-disclosure. In Savcor Gillard J said at [33]: In my opinion a court does have a discretion to not set aside an order despite a material non-disclosure or misrepresentation of law or fact. Setting aside does not follow as a matter of course. Relevant to the discretion is whether the material non-disclosure was serious or otherwise the importance or weight that should be attached to the omitted fact in the decision-making process and also any hardship if the order was set aside. The approach is different if the plaintiff has acted culpably in the sense that the omission to disclose relevant matters was done deliberately to mislead the court. 91 In Hartwell Trent (Australia) Pty Ltd v Tefal Societe Anonyme [1968] VR 3 at 9 Pape J considered there was "real practical difficulty in holding that although the material justified the making of the order it ought nevertheless to be discharged on the ground of non-disclosure, except perhaps … where the non-disclosure was deliberate and made with the intention of deceiving the Court". 92 Here, the non-disclosure was nothing of the kind. There is no evidence (indeed no suggestion) that the Commissioner acted culpably. There is no reason to suppose that the Commissioner took the course he did in order to avoid the requirements imposed by r 10.43. There is no question of misfeasance on the Commissioner's part or malpractice on the part of his lawyers. No doubt they should have known, especially as the Commissioner was a party in two of the relevant authorities. It does not, however, follow that he should be punished because the particular officer involved or the particular lawyers were not conscious of them. The real question is whether it would be just, efficient and economical to set aside the orders in these circumstances. In my view it would not. 93 I accept that the brothers were entitled to bring their application but it is entirely opportunistic. They do not contend that they have suffered any prejudice as a result of the non-disclosure. Nor do they submit that if leave to serve them outside the jurisdiction had been sought on 29 August it would not have been granted. They accept that the Court always had jurisdiction to hear the Commissioner's claims for relief. The mode of service permitted by the relevant convention is the mode by which the brothers were in fact served. Service in accordance with the orders I made brought the proceedings swiftly to their attention. The purpose of personal service, after all, is to do just that. For these reasons I would not set aside the orders or grant declaratory relief on account of the Commissioner's non-disclosure. 94 What is more, for the same and the following additional reasons, even if I were persuaded that the Commissioner had not proved that personal service was not practicable, I would not take a different course. 95 Despite insisting on personal service, those in the best position to provide the information to enable personal service to be effected have refrained from supplying it. In an application to set aside service under r 13.01 (formerly O 9 r 7) the Court conducts a review by way of rehearing of the original decision: Armacel Pty Ltd v Smurfit Stone Containers Pty Ltd (2008) 248 ALR 573; [2008] FCA 592 ("Armacel") at [43] per Jacobson J. As Jacobson J explained in Armacel at [44] (albeit in the context of an application to discharge an order granting an applicant leave to serve a respondent in a foreign country), the rehearing is conducted on the basis that the respondent has the opportunity to put before the Court any additional material which might suggest that the order should not have been made. No such material was proffered in this case. Moreover, there was no question that the Court had the power to make the freezing orders and the brothers did not contend that the Court's discretion to exercise it miscarried. There is an element of unreality about the brothers' application, as Mr O'Brien all but conceded. 96 In all the circumstances it would not promote the overarching purpose of the civil procedure provisions of the FCA and Rules to do as the brothers' request. 97 Rule 1.34 gives the Court a wide discretion to dispense with compliance with any of the Rules either before or after the occasion for compliance arises. For all these reasons, if I am wrong in any of the conclusions I have reached on the substantive questions, I would dispense with the requirement for personal service of the originating documents in this case.

Alternatively, should the Court make orders for deemed service? 98 It is unnecessary to decide this question. I would, however, observe that it is reasonable to infer from the additional evidence given by Ms Grimley in her affidavit of 19 September 2013 that the AFP, upon whose services the Commissioner has relied to find Habib at least, is unaware of the location of either brother. Although the analogy is certainly not a perfect one, this case has some similarities with ASIC v China Environment Group where an order for deemed service was sought after an application for an interlocutory injunction had been granted and no application for leave had first been made to serve the respondent outside the jurisdiction. In both cases relief was sought as a matter of urgency. In ASIC v China Environment Group an order for deemed service was made after the sole director of the company had been served as he was boarding a plane for Singapore. Here, the companies of which Habib was the sole director were served as the Rules required at the address of the companies' registered office. Both methods were apt to bring the proceedings to the notice of the respondents in the most efficient manner. In neither case could it be said that the regulator was seeking to avoid the requirements of the Rules. Were it necessary to do so, I would make the orders for deemed service sought by the Commissioner.

Conclusion 99 There is no good reason to disturb the orders for substituted service made on 29 August 2013. The Commissioner has made out a case for leave to serve the originating application on the brothers in accordance with r 10.43 and for that leave to be granted nunc pro tunc. The brothers' application for relief under r 13.01 should therefore be refused.

Costs 100 Ordinarily, costs follow the event. In this case that would mean that the brothers would pay the Commissioner's costs in connection with their application and vice versa. The Commissioner accepted, however, that if he were to succeed, the brothers should not have to pay all his costs. He sought an order that the costs of his interlocutory application dated 16 September 2013 be costs in the cause because if he had applied for leave as he should have on 29 August 2013, this is the order he would have sought. In the case of the brothers' application, the Commissioner accepted that he should pay some, though not all, of their costs in any event. He submitted that he should pay those costs up to and including 16 September 2013 (the date that the Commissioner filed his interlocutory application) and that from 17 September 2013 the costs of the brothers' application be costs in the cause. The basis for this submission was that it was open to the brothers to agree to the orders sought in the Commissioner's interlocutory application. As I mentioned earlier, the brothers applied for costs on an indemnity basis. 101 In my view, notwithstanding the Commissioner's success, the Commissioner should pay the brothers' costs of their application. I have reached this view because the application was driven in part at least by the Commissioner's omission to apply for leave under r 10.43 on the last occasion. I would not limit those costs to costs incurred before 17 September 2013. As the failure to apply for leave under r 10.43 was an oversight, however, costs should be paid on an ordinary, rather than an indemnity basis. The Commissioner did not object to an order that the costs be taxed and payable forthwith. I will therefore make that order. There was no dispute about the costs of the Commissioner's interlocutory application, so I will order that those costs be costs in the cause. I certify that the preceding one hundred and one (101) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.