Commissioner of Taxation v Zou

1. Orders 2 and 3 of the orders dated 26 April 2021, as varied by orders 1 and 2 of the orders dated 5 May 2021 and orders 8 and 9 of the orders dated 2 June 2021 and order 1 of these orders, shall cease to operate and have effect 14 days after the registration by the Second Respondent of any transfer of the property referred to in those orders which is permitted by those orders.
2. The First Respondent pay the Applicant's costs of and incidental to the interlocutory application dated 22 November 2024 (including any reserved costs), to be taxed if not agreed.

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

1. By an interlocutory application dated 22 November 2024, the Commissioner of Taxation seeks a variation of freezing orders previously made in this proceeding so as to allow the sheriff to exercise powers of sale in relation to a property owned by the first respondent (the taxpayer), and to allow the second respondent, the Registrar of Titles (Vic), to register a dealing relating to the exercise of those powers.
2. The property in question is at Unit 2608E, Level 26, 888 Collins Street, Docklands, Victoria, which is described as Lot 2608E on Plan of Subdivision 723350Q of Parent Title Volume 11825 Folio 364 (the Property).
3. For the reasons set out below, it is appropriate to vary the freezing orders in order to facilitate the enforcement by the Commissioner of a judgment debt obtained against the taxpayer in related proceedings.
4. The freezing orders were originally made to prevent the taxpayer from dealing with or disposing of the Property, in circumstances where he had failed to give security under ss 255-100 and 255-105 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA) in respect of a tax-related liability that was ultimately the subject of the judgment debt. The taxpayer was also ordered to provide security by way of a first mortgage in respect of the Property. As the taxpayer failed to provide that security in accordance with the Court's orders, the freezing orders remain in effect.
5. The Commissioner now seeks to execute the judgment debt against the Property. Because the freezing orders were directed to both the taxpayer and the Registrar, it is necessary to vary those orders in so far as they operate to prevent the Registrar from registering a dealing arising from the exercise by the sheriff of powers under the Sheriff Act 2009 (Vic) and under Order 69 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), such as the sale and subsequent transfer of the Property. The sale of the Property and the application of the proceeds of sale towards the payment of the taxpayer's debt is no more than what was within the contemplation of the orders previously made in this proceeding.
6. Accordingly, the freezing orders are varied in the manner proposed by the Commissioner. It is also appropriate that the freezing orders should come to an end once they have served their purpose, upon the sale and transfer of the Property by the sheriff in the execution of the judgment debt in favour of the Commissioner.

1. The evidence before the Court indicates that the taxpayer departed Australia for the People's Republic of China on 3 November 2019 and has not since returned to Australia.
2. By a notice dated 4 December 2020 given under ss 255-100 and 255-105 of Schedule 1 of the TAA, the Commissioner required the taxpayer to give security in the amount of $24,762,187 in respect of the payment of a future tax-related liability, by means of a first-ranking mortgage in registerable form over the Property. The taxpayer did not comply with the notice.
3. By an originating application filed on 15 April 2021, the Commissioner sought a declaration that the taxpayer had failed to comply with the requirement to give security, and an order under s 255-115 of Schedule 1 of the TAA requiring him to comply with the requirement by giving security by way of a first mortgage in registrable form in respect of the Property. The Commissioner also sought an order that the Registrar not register any dealings affecting the Property until 14 days after the taxpayer gave such security, or further order.
4. The Commissioner applied for interlocutory orders, including freezing orders against the taxpayer and an injunction against the Registrar in respect of dealings affecting the Property, along with orders for leave to serve the taxpayer outside Australia and for substituted service.
5. The application for interlocutory relief was heard on 26 April 2021 before Davies J, who made orders that included interim freezing orders and an injunction directed to the Registrar: see Commissioner of Taxation v Zou [2021] FCA 433. The orders made on 26 April 2021 relevantly included:
   1. Upon the usual undertaking as to damages and upon the undertakings given by the Applicant set out in schedule A of the document entitled "Penal Notice", a copy of which is annexure A to these orders, a freezing order be made against the First Respondent in the terms specified in that document.
   2. Until 5.00 pm on 5 May 2021 or until further order, the Second Respondent, the Registrar of Titles in Victoria, must not register any dealing which affects the property that is 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.
6. In making these orders, Davies J stated (at [9]-[10]):

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.

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.

1. The orders set out above were extended by further orders made on 5 May 2021 and 2 June 2021. On the latter occasion, Davies J granted the substantive relief sought by the Commissioner by declaring that the taxpayer had failed to comply with the requirement to give security pursuant to ss 255-100 and 255-105 of Schedule 1 of the TAA, and ordering him to comply with that requirement by giving to the Commissioner security by way of a first mortgage in registrable form in respect of the Property: see Commissioner of Taxation v Zou (No 2) [2021] FCA 633. The freezing or restraining orders made against the taxpayer and the Registrar respectively were each extended until the earlier of 14 days after the taxpayer gave the security to the Commissioner, or until further order, with liberty to apply in respect of the freezing orders on 24 hours' notice.
2. In relation to the extension of the freezing orders, Davies J relevantly stated (at [11]):

Additionally, the Commissioner seeks an order that the freezing orders against Mr Zou and the second respondent, the Registrar of Titles be extended until the earlier of either 14 days after the security is given or until further order: Commissioner of Taxation v Zou [2021] FCA 433 at [10]. It is appropriate to grant that extension. Given that Mr Zou has not participated in the proceeding, given his substantial tax liability and his failure to comply with the security notice and given his absence from Australia, there is a high risk that he may not comply with any order of the Court in respect of the required security and there remains the same risk of asset dissipation that justified the making of the freezing order against him in the first place. Secondly, even if security was given the Commissioner would still need some time to register the mortgage. A 14 day time period seems appropriate for that purpose and the freezing order would then automatically be discharged after security was given.

1. The taxpayer did not comply with the order requiring him to give to the Commissioner security by way of a first mortgage in registrable form in respect of the Property.
2. On 15 August 2022, the Commissioner obtained summary judgment in a separate proceeding against the taxpayer for $26,972,229.13 in respect of his tax-related liabilities: Deputy Commissioner of Taxation v Zou [2022] FCA 1018 (the debt recovery proceeding). Post-judgment interest continues to accrue on the judgment debt.
3. The Commissioner proceeded to file a Request for Enforcement and a Warrant of Seizure and Sale in the debt recovery proceeding. The Warrant was lodged on the title of the Property. As at May 2024, the taxpayer had failed to respond to letters of demand from the Sheriff's Office Victoria. However, before any auction date was set for the Property, the Registrar advised the Commissioner's solicitors that the extant freezing orders in this proceeding would preclude the registration of any dealings affecting the Property, including any instrument of transfer from the sheriff. The Registrar suggested that the Commissioner consider seeking a variation of the freezing orders "to permit a transfer in the event that the Sheriff's office sells the land".
4. On 22 November 2024, the Commissioner filed the present interlocutory application, seeking a variation of order 3 of the orders made on 26 April 2021 (the freezing order against the Registrar), as subsequently extended by the orders made on 5 May 2021 and 2 June 2021. The variation that is sought by the Commissioner is to ensure that the Registrar can register a dealing that relates to a sale or other dealing with the Property by the sheriff in the exercise of functions and powers under the Sheriff Act and Order 69 of the Supreme Court Rules. For the avoidance of doubt, the variation sought by the Commissioner also ensures that the freezing orders do not restrain the sheriff from exercising those functions and powers in respect of the Property.
5. On 5 March 2025, I made orders granting the Commissioner leave to serve the interlocutory application and supporting documents on the taxpayer in the Peoples Republic of China, and for substituted service of those documents by leaving them at the taxpayer's last known postal address in Ashfield, NSW marked for his attention, and by emailing them to an email address that has previously been used by the taxpayer in his dealings with the Commissioner. In making those orders, I was satisfied that it was not practicable to serve the relevant documents on the taxpayer in a way otherwise required by the Federal Court Rules 2011 (Cth), and that the methods of substituted service would in all reasonable probability bring the relevant documents to the taxpayer's attention.

1. On the hearing of the interlocutory application, the Commissioner relied on the following affidavits:

(a) the affidavits of Jaya Nair affirmed 21 November 2024 and 25 February 2025;

(b) the affidavits of Shenali Dasuni Biyanwila affirmed 22 November 2024, 10 March 2025 and 13 March 2025; and

(c) the affidavit of service of Joseph Khoury sworn 11 March 2025.

1. In accordance with the orders for substituted service, the interlocutory application and supporting documents were left by a process server in a sealed envelope at the front door of the Ashfield property on 10 March 2025. On the same day, the solicitors for the Commissioner sent an email to the service email address attaching the interlocutory application and supporting documents, other than the proposed orders sought by the Commissioner. On 13 March 2025, the Commissioner's solicitors emailed to the service email address a copy of the Commissioner's proposed orders, together with the affidavit of Ms Biyanwila affirmed 10 March 2025 and the affidavit of service of Mr Khoury sworn 11 March 2025.
2. I am satisfied that the taxpayer has been served with the interlocutory application and relevant material in support of that application in accordance with the substituted service orders.
3. The Registrar advised the Commissioner's solicitors that she has no objection to the orders sought by the Commissioner on this interlocutory application, and did not intend to appear on the interlocutory application.
4. The enforcement of judgments of this Court is governed by s 53 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and Part 41 of the Rules. Section 53 of the FCA Act provides that, subject to the Rules, "a person in whose favour a judgment of the Court is given is entitled to the same remedies for enforcement of the judgment in a State or Territory, by execution or otherwise, as are allowed in like cases by the laws of that State or Territory to persons in whose favour a judgment of the Supreme Court of that State or Territory is given". Rule 41.10(1) and (2) relevantly provides:

(1) A party who wants to enforce a judgment or order of the Court may apply to the Court to make an order, to issue any writ, or to take any other step that can be taken in the Supreme Court of the State or Territory in which the judgment or order has been made as if the judgment or order was a judgment or order of that Supreme Court.

(2) An order made under subrule (1) authorises the Sheriff, when executing the orders of the Court, to act in the same manner as a similar officer of the Supreme Court of the State or Territory in which the order is being executed is entitled to act.

1. In the present case, the debt recovery proceeding was issued in the Victorian Registry and the judgment in that proceeding was given in Victoria, where the Property is located. The enforcement of the judgment debt is therefore governed by the Supreme Court Rules.
2. Rule 66.02 of the Supreme Court Rules provides that a judgment for the payment of money may be enforced by, among other things, a warrant of seizure and sale. A warrant of execution (including a warrant of seizure and sale) is issued when it is sealed with the seal of the Court, and is valid for the purpose of execution for one year after the day it is issued, subject to extension by the Court from time to time for up to one year at any one time, provided that an application for extension is made before the expiry of the warrant: Supreme Court Rules, rr 68.04, 68.05. Accordingly, if a warrant of seizure and sale expires, it is necessary for a fresh warrant to be issued. In certain circumstances, including where six years have elapsed since the judgment took effect, a warrant cannot be issued without the leave of the Court: Supreme Court Rules, r 68.02. The sheriff is required to put up for sale all property liable to sale under a warrant as early as may be having regard to the interests of the parties, after having advertised the sale in the manner which seems to the sheriff best to give publicity to the sale: Supreme Court Rules, rr 69.05, 69.06.
3. Under the Sheriff Act, the sheriff has the functions and powers conferred and duties imposed by a warrant: s 7(1)(b). This includes the power and duty to execute a warrant directed to the sheriff as soon as practicable after receiving the warrant, including power to seize and sell property in accordance with a warrant for the purpose of applying the proceeds of the sale to the payment of a payable amount: Sheriff Act, ss 13, 23, 24 and 25; see also Property Law Act 1958 (Vic), s 208.
4. When the Registrar is served with a copy of any judgment, decree, order or process of execution of a court that identifies an affected folio or folios of the Register, the Registrar must record notice of the receipt of the judgement, decree, order or process of execution: Transfer of Land Act 1958 (Vic), s 52(2). After the land has been sold under any such judgment, decree, order or process, the Registrar is required to register a transfer of the land if it is lodged within six months from the day on which the copy of such judgment, decree, order or process was served on the Registrar: Transfer of Land Act 1958 (Vic), s 52(3).
5. In the present case, the Warrant lodged against the Property has expired. Accordingly, the Commissioner has filed in the debt recovery proceeding a fresh request for enforcement and a new warrant of seizure and sale in relation to the Property. Once the freezing orders have been varied, the Commissioner intends to register the sealed warrant on the title of the Property and to take the steps necessary to enforce the judgment debt against the Property.
6. The taxpayer left Australia in November 2019, and has not appeared in response to any of the applications brought by the Commissioner in this proceeding or in the debt recovery proceeding. The freezing orders in relation to dealings in the Property were initially made by way of security for the taxpayer's tax-related liability, which has since merged in the judgment debt. If the taxpayer had complied with the orders requiring him to give a mortgage over the Property in favour of the Commissioner, the freezing orders would have expired and there would have been no need for the present interlocutory application to vary those orders.
7. In the circumstances, it is clearly appropriate to vary the freezing order against the Registrar to enable the registration of any dealing resulting from the warrant of execution to enforce the judgment debt against the Property. The Property is properly regarded as security for the taxpayer's tax-related liability and for the judgment debt. The variation to the freezing order does no more than lift any restriction that might otherwise prevent the Registrar from recording the judgment and the warrant of execution on the title to the Property, and from registering a transfer of the land once it has been sold under the warrant of execution, in accordance with s 52 of the Transfer of Land Act 1958 (Vic).
8. While the freezing orders were not made against the sheriff, it is nevertheless convenient to make clear that those orders do not prevent the sheriff from carrying out their functions and exercising their powers under the warrant of seizure and sale.
9. Counsel for the Commissioner accepted that, once the Property has been sold and the transfer has been registered, the restraining order against the Registrar should cease to have effect, lest it be taken to have a continued operation in relation to dealings with the land by a subsequent registered proprietor. The freezing order made against the taxpayer will also be spent, and it is also appropriate for that to be reflected in the orders made by the Court.
10. Finally, the Commissioner sought his costs of the interlocutory application dated 22 November 2024, including the application for leave to serve the taxpayer outside Australia and for substituted service. There is no reason not to make such a costs order in favour of the Commissioner.

I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Horan.