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.