Commissioner of Taxation v Zou

IF YOU (BEING THE PERSON BOUND BY THIS ORDER): (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 NOT TO DO, 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: Shuming Zou This is a 'freezing order' made against you on 26 April 2021 by Justice Davies at a hearing without notice to you after the Court was given the undertakings set out in Schedule A to this order and after the Court read the affidavits listed in Schedule B to this order.

The Court orders: Introduction (1) (a) The application for this order is made returnable immediately. (b) The time for service of the Documents is abridged and service is to be effected by 5.00 pm 28 April 2021. (2) Subject to the next paragraph, this order has effect up to and including 5.00 pm on 5 May 2021 (the Return Date). On the Return Date at 10:15 am there will be a further hearing in respect of this order before Justice Davies. (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 in any way dispose of, deal with or diminish the value of the Property. (7) For the purposes of this order (a) the Property means the property at Lot 2608E on Plan of Subdivision 723350Q of Parent Title Volume 11825 Folio 364 being the property known as Unit 2608E, Level 26, 888 Collins Street, Docklands in the State of Victoria; (b) the Documents means: (i) The originating application; (ii) The interlocutory application; (iii) The affidavit of Yi Deng sworn 12 April 2021 (iv) The affidavit of Yi Deng sworn 23 April 2021 (v) The affidavit of Kim Nguyen affirmed 23 April 2021 (vi) The applicant's amended outline of written submissions; (vii) A transcript of the hearing on 26 April 2021, or, if none is available, a note of the oral submissions put to the Court; and (viii) The Court's orders made on 26 April 2021. (8) (a) This order will cease to have effect if you: (i) pay the sum of $24,762,187 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. (b) 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. (c) If this order ceases to have effect pursuant 8(a) above, you must as soon as practicable file with the Court and serve on the applicant notice of that fact.

Costs (9) The costs of this application are reserved to the Court hearing the application on the Return Date.

Persons other than the applicant and respondent (10) 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. (11) Bank withdrawals by the 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. 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 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 respondent which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the 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 respondent or the respondent's assets. SCHEDULE B Affidavits Relied On Name of deponent Date affidavit made (1) Yi Deng 12 April 2021 (2) Yi Deng 23 April 2021 (3) Kim Nguyen 23 April 2021

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

DAVIES J: 1 By a Security Bond Notice (security notice) given pursuant to ss 255-100 and 255-105 of Schedule 1 of the Taxation Administration Act 1953 (Cth), the Commissioner of Taxation (the Commissioner) required the First Respondent (Mr Zou) to give security to the Commissioner in the amount of $24,762,187 by 5:00 pm on 5 January 2021 for the due payment of a future tax-related liability of Mr Zou. The security was required to be given by means of a first-ranking mortgage in registerable form over the real estate registered with the Victorian Land Registry Services in his name, being Lot 2608E on Plan of Subdivision 723350Q, Parent Title Volume 11825, Folio 098. The evidence before the Court is that Mr Zou has not complied with the security notice nor sought to review the decision of the Commissioner to give the security notice. On 15 April 2021, the Commissioner instituted these proceedings for a declaration that Mr Zou has failed to comply with the requirement to give security and an order under s 255-115 that Mr Zou comply with the requirement to give security. The Commissioner also seeks interlocutory relief under either s 23 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) or r 7.32 of the Federal Court Rules 2011 (Cth) (Federal Court Rules) restraining Mr Zou, until further order, from mortgaging, charging, encumbering or disposing of or otherwise diminishing the value of the property. 2 The application for interlocutory relief was made today under r 7.32 of the Federal Court Rules and proceeded as an ex parte application, although steps were taken to put Mr Zou on notice of the Commissioner's intention to seek restraining orders. Mr Zou currently resides in China and the originating process and supporting affidavits were emailed to three email addresses which, on the information presently available to the Commissioner, the Commissioner believed would bring those matters to the attention of Mr Zou and also by delivering the relevant documents to two locations where the Commissioner believed that such delivery would enable notification to be brought to the attention of Mr Zou. There has been no attendance by Mr Zou in Court today and, in view of the fact that personal service of the relevant documents has not been effected on Mr Zou in accordance with the Federal Court Rules and also noting that such service would, in any event, constitute short service, the matter has proceeded ex parte. 3 In order to obtain a freezing order under r 7.32, an applicant must show first, that there is a good arguable case on a claim within the Court's jurisdiction and, secondly, there is a danger that the prospective judgment will be unsatisfied because the prospective judgment debtor might abscond, remove assets, dispose of assets or deal with the assets in a way that would diminish them in value. 4 I am satisfied on a prima facie level that the Commissioner has a good arguable case that: (1) the security notice meets the requirements of s 255-105(2); (2) the notice was served on Mr Zou on 4 December 2020 at the address for service; and (3) there has been non-compliance with the security notice. As required by s 255-105(2), the security notice stated that Mr Zou was required to give security; explained why the Commissioner requires the security; set out the amount of the security to be given; described the means by which Mr Zou is required to give the security; specified the time by which the security is to be provided; and explained how the Commissioner's decision may be reviewed. The evidence of service of the security notice is contained in the affidavit of a taxation officer, Yi Deng, sworn on 12 April 2021 in paragraphs 10 and 11, who also gave evidence of the failure to comply. 5 There are a number of reasons for being satisfied that there is a real risk of dissipation. 6 First, the future tax related liability in the amount of $24,762,187 has since crystallised into an actual liability by the issue by the Australian Taxation Office of notices of amended assessment of income tax and penalties in March 2021 with due dates for payments variously of 22 March 2021, 29 March 2021 and 1 April 2021. Copies of the notices of assessment are in evidence and the evidence is that none of the tax, as assessed, has been paid. 7 Secondly, Mr Zou has been assessed to tax on amounts of income which were undisclosed to the Australian Taxation Office, giving rise to the inference that Mr Zou has grossly understated his income over a number of years. 8 Thirdly, the significant amount of the tax liability, the failure to pay the tax debt together with the failure to comply with the security notice gives rise to an inference that there is a risk of asset dissipation. The evidence is that the property over which the security is required to be given is the only Australian real estate property of Mr Zou of which the Commissioner is aware. Mr Zou is now located in China; the property is presently not mortgaged; it would appear that the property, at least at the time of the issue of the security notice, had been listed on the market for sale. Mr Zou appears to have business interests in China and the ability and motive to sell the property and move funds offshore. He has also, on the evidence available, been uncooperative with the Commissioner in failing to respond to numerous requests for information and documents from the Australian Taxation Office and demonstrated a lack of willingness to comply with his obligations. 9 Taking all of those matters into account, there is a proper basis for concern of risk of dissipation of the property, either through the sale of the property or through that property being encumbered by Mr Zou to a third party, which would seriously compromise the ability of the Commissioner to enforce the security notice. 10 These considerations collectively provide a sufficient basis on which to be satisfied that there is a danger that Mr Zou may deal with the property in order to frustrate a prospective judgment against him and orders should be made against him, restraining him from dealing with the property. In aid of the freezing orders, it is also appropriate to make an order against the Registrar of Titles, who is on notice of this application, preventing dealings affecting the property. 11 As Mr Zou is in China, it is also necessary that the Commissioner have leave to serve Mr Zou in the People's Republic of China in accordance with the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, opened for signature 15 November 1965, 658 UNTS 163 (entered into force 10 February 1969) (Hague Convention) following the procedure prescribed in Div 10.4 of the Federal Court Rules. I am satisfied that the requirements for service under r 10.43 are met - Mr Yeng's affidavit includes the information about where Mr Zou is likely to be in China, the proposed method of service and that the method of service is permitted by the Hague Convention, and that the Hague Convention applies to service in China. I am also satisfied that the Court has jurisdiction in this proceeding, which is of a kind mentioned in the table to 10.42 and, for the reasons given in respect of the making of the freezing order, that the Commissioner has a prima facie case for the relief claimed in the proceeding. I am not aware of factors that would justify an exercise of discretion against making such an order. 12 In addition, the Commissioner seeks an order for substituted service pursuant to r 10.24 of the Federal Court Rules by reason of the evidence that service in accordance with the Hague Convention would take approximately four to six months. It is appropriate to make that order as there is urgency in the service of the relevant documents on Mr Zou by virtue both of the subject matter of the originating process itself, and the return date in respect of the freezing orders. I am also satisfied that the proposed methods of substituted service would, in all reasonable probability, bring the relevant documents to the attention of Mr Zou, namely by leaving a copy of the documents at Electronic Taxation and Accounting Proprietary Limited, being the business address of Mr Zou's taxation agent in Australia, by leaving a copy of the documents at Unit 102, 8 Murrell Street, Ashfield, New South Wales, which is registered in the name of Mr Zou's spouse, and also by emailing a copy of the documents to two email addresses that have been notified to the Australian Taxation Office in the past and used by the Australian Taxation Office in the past in order to communicate with the taxpayer. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Davies.