BETWEEN : DEPUTY COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA

Practice and procedure Western Australia - Mareva injunctions - Application for continuance of mareva injunction - Whether there was a serious case to be tried between the parties - Whether there was a real risk of disposition of assets - Whether affidavit evidence from prior criminal investigations was relevant to the question of there being a real risk of disposition - Whether, in the absence of evidence of actual attempts to dissipate assets, illustrating that party is an "entirely dishonest" person, is enough to show that there is a real risk of dissipation of assets

Income Tax Assessment Act 1936, s177(1)

Application for extension of mareva injunction successful

Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 162 ALR 294

Commissioner for Taxation (Cth) v Goldspink (1985) 82 FLR 21

Commissioner of State Taxation (WA) v Mechold Pty Ltd (1965) 30 ATR 69

Construction Engineering (Aust) Pty Ltd v Tambel (1984) 1 NSWLR 274

DCT (WA) v Australian Machinery and Investment Co Pty Ltd [1972] HCA 48; (1945) 3 ATR 236

DCT v Mackey (1982) 13 ATR 547

DCT v Ousley (1992) 23 ATR 176

DCT v Richard Walter Pty Ltd [1995] HCA 23; (1995) 183 CLR 168

DCT v Rosenthal (1985) 16 ATR 159

FCT v Karageorge (1996) 34 ATR 196

FCT v Stokes [1996] FCA 1128; (1997) 72 FCR 160

FJ Bloeman Pty Ltd v FCT [1981] HCA 27; (1981) 147 CLR 360

Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612

R v Hickman; Ex parte Fox and Clinton [1945] HCA 53; (1945) 70 CLR 598

Third Chandris Shipping Corp v Unimarine SA [1979] AB 645

1 TEMPLEMAN J: This is an application to continue a mareva injunction granted initially by McKechnie J on Christmas Eve. There is a point which is taken by the defendant, which I should perhaps deal with at the outset. It is set out in par 26 of the defendant's submissions, where it is said that McKechnie J was apparently reluctant to deal with the matter, obviously because of his prior role as Director of Public Prosecutions. But on 24 December 1999 McKechnie J was the vacation Judge and he was the only one available to hear the application.

2 The defendant, accepting that, says that nonetheless he has a reasonable apprehension that his Honour was not in a position to bring an independent judicial mind to the consideration of the application and that the injunction should be discharged for that reason.

3 I quite understand the defendant's concern, although of course I wouldn't accept for a moment that McKechnie J was biased or did prejudge the issue. But, as I say, I can understand the reasonable apprehension. I want to make it quite plain that I am dealing with this matter on a de novo basis. My consideration of it is not influenced by the fact that the injunction was granted in those circumstances.

4 The history of the matter commences in December 1992 when the defendant's assets, which are substantially those the subject of the present application, were seized by the Western Australian Police and were made the subject of various embargo notices and holding orders. That was because the defendant was then the subject of criminal investigation, as a result of which he was charged on indictment for drug-related offences. I do not know anything of the detail of those matters.

5 The defendant was tried, apparently on three occasions, before the Director of Public Prosecutions entered a nolle prosequi on 17 February 1997. The Director of Public Prosecutions, however, proceeded with an application for an order for the forfeiture of the defendant's assets. That was discontinued by consent on 24 December and, hence, apparently, the reason for the application which was then made for a mareva injunction.

6 On 24 August 1999 the plaintiff, who is the Deputy Commissioner of Taxation for the Commonwealth, issued assessments and amended assessments to income tax for the years ended 30 June 1989, 90, 91 and 92. The date payable was 28 September, just a little over a month later.

7 The assessments were not paid on that date and on the following day the plaintiff issued a writ seeking judgment in respect of the tax, the subject of the assessments, and interest. The amount with interest which has accrued since then, which is now sought, is something of the order of $555,000 with interest running at approximately $200 a day since the beginning of this year.

8 Between October 1999 and the end of the year there were negotiations between the parties with a view to providing some of the defendant's assets to the plaintiff as security for the alleged debt and for settling the plaintiff's claim. On 3 December, while those negotiations were apparently still in progress, the plaintiff issued a chamber summons for leave to apply for summary judgment and for summary judgment itself. The summary judgment applications are to be heard on 31 January this year.

9 In the meantime, on 22 December the plaintiff issued notices disallowing objections to the assessments which the defendant had lodged on 18 October.

10 The defendant is entitled to take the objections further. He can, at his election, either go to the Tribunal or to the Federal Court. I am told the time within which the defendant must make that election has not yet expired. It will expire, I think, at about the end of February.

11 The basis on which the mareva injunction is sought is that there is a serious case to be tried as between the plaintiff and the defendant, and that there is a risk - a real risk and not a fanciful risk - that unless the disposition of the defendant's assets are restrained, the plaintiff may be left with, as it is put, an empty shell after judgment. In other words, it is said that there is a risk that the defendant would dispose of those assets in a way which would make them unavailable to satisfy a judgment.

12 There is really very little issue about the first point; that is, that there is a serious case to be tried. The plaintiff's claim, as I have said, is based on assessments to income tax. By s 177(1) of the Income Tax Assessment Act 1936, certified copies of the relevant notices of assessment are conclusive evidence that the assessments were duly made and correct. The notices cannot be challenged in this jurisdiction. That being so, there is not only a serious case to be tried: it is really accepted by the defendant that there is likely to be a judgment entered against him on the hearing of the summary judgment application. As Ms Price says, who appears today for the defendant, his best hope might be to seek a stay of any such judgment pending the determination of the objections, assuming that the defendant does exercise his right and go and take the matter further.

13 Again, being realistic I am told by the defendant's counsel, that the matter could take 2 years to be disposed of finally.

14 Therefore, as I say, there is not only a serious case to be tried; there is at present prima facie a very strong case against the defendant.

15 I then turn to the second limb to which the greatest attention has been paid today. That is the plaintiff's contention that there is a risk that the assets may be disposed of if no injunction is granted.

16 The plaintiff relies principally on affidavits given by two persons, whose evidence is the subject of objection by the defendant. The deponents are Mr Kim Griffiths who is a certified practising accountant and fellow of the Taxation Institute of Australia. He is currently employed as a financial intelligence analyst by the Australian Federal Police. Before that, he was employed as a financial analyst by the Commonwealth director of public prosecutions and before that, he was on secondment to the CIB proceeds of crime unit.

17 Mr Griffiths conducted an analysis of the financial affairs of the defendant covering the period 1 July 1988 to 30 December 1992 and he produced a report dealing with those matters. The information on which Mr Griffiths based his report was obtained substantially from the other deponent Mr Joe Simon Zanetti who is currently a sergeant with the West Australian police force and has been a police officer for 18 years. He is also a nationally accredited financial investigator.

18 In 1992 when the defendant was charged with the drug offences to which I have referred, Mr Zanetti was a detective senior constable employed with the CIB proceeds of crime unit. His evidence consists of an affidavit referring to a number of investigations that he made and interviews which he had with the defendant principally in 1992.

19 I should deal first with the objections to those affidavits. It is said by Ms Price, quite rightly, that the evidence was obtained for the purpose of criminal proceedings against the defendant in circumstances in which the defendant was not obliged to provide any assistance to the police or investigating authorities nor indeed was he obliged to say anything.

20 It is said on the defendant's behalf that the evidence of the investigations made by Mr Zanetti and Mr Griffiths apparently forms the basis of the assessments and that since the assessments are taken to be conclusive, there is no relevance in the material on which they are based which is therefore inadmissible for present purposes.

21 I accept that the defendant was not obliged to say anything or to assist the police in 1992. However, it is relevant to note that the basis on which the defendant has objected to the assessments is that the income on which it is said he should pay tax was income derived from the sale of gold which he obtained from prospecting in the relevant period: and in particular at a time when such income was tax exempt.

22 The evidence contained in the affidavits of Mr Griffiths and Mr Zanetti deals with those matters because they refer to explanations given by the defendant, albeit at a time when he was not obliged to say anything, about the way in which he obtained gold and derived income from it. That being so, it seems to me that the evidence contained in those affidavits is relevant to the present proceedings.

23 I accept entirely that the criminal proceedings are a matter of history. However, as I have said the defendant has raised this issue in his objections. The plaintiff is therefore entitled, in my view, to have regard to evidence relating to it. In the civil proceedings the defendant has the opportunity to deal with the evidence as he thinks fit and he has indeed done so to a certain extent, and I will refer to that in a little more detail in a moment. Therefore, I conclude that the evidence is relevant and admissible.

24 The evidence on which the plaintiff relies principally may be summarised in the following way. It is said that between 1 July 1988 and 30 December 1992 the defendant derived unexplained income amounting to some $355,000. That assessment takes into account arrangements which the defendant said that he had with a company known as Kurango which apparently paid him a gross weekly wage of $500 from which income tax was deducted at source.

25 The principal of that company was a Mr Axford who was a registered police informant. He told Mr Zanetti that in fact the money with which he paid the defendant had been provided to him by the defendant himself. It is said on behalf of the defendant that whatever Mr Axford said should be disregarded as being unreliable because Mr Axford has himself since been convicted of murder and is currently serving a sentence for that offence.

26 However, there is independent evidence in the form of employees of Kurango whose testimony is not the subject of the same degree of suspicion as Mr Axford's. They said that at the material time the defendant did not work for Kurango as a salesman in the way that he said that he had.

27 Then there is evidence that the defendant was asked by Mr Zanetti, indeed pressed by Mr Zanetti, to identify the persons to whom he had sold gold during the period in which he said he had acquired gold from his prospecting activities.

28 According to Mr Zanetti's evidence the defendant told him at about that time, the end of 1992 or thereabouts, that all his gold had gone; that he had no receipts, and that such receipts that he had were with his accountant. It then transpired that the accountant had no receipts but that the defendant's gold had not all gone; that he had some 13 kilograms of gold in a red tool-box which was deposited with a bank.

29 The defendant had been asked by Mr Zanetti whether he had a safety deposit box, according to the defendant, which he had denied, apparently on the basis as he subsequently said, that the box was a tool-box and not a safety deposit box.

30 The defendant has since produced receipts which were, according to him, not among those seized by the police who seized all his other documents. But the evidence of Mr Zanetti is that he made a very thorough search for receipts, the inference being that had this book, which was produced fairly recently, then been available, he would have found it.

31 There is further evidence, namely that there was an investigation conducted by the police and other appropriately qualified persons, as to the sources of the gold which were in the form of nuggets in the red tool-box. The defendant had said that he obtained the gold from prospecting on certain tenements that he owned. However, it emerged from the investigation that the gold came from some seven distinct sources. Further, the same investigators came to the conclusion that there was no evidence of any relevant mining activities on the defendant's tenements.

32 There was further investigation as to the origin of the nuggets contained in the red tool-box, it being discovered apparently that various persons were able to identify those nuggets on the basis that they had sold them either to the defendant or to others.

33 There is further evidence relied on by the plaintiff in relation to a company called Gold Crew which according to the defendant's accountant was established for the defendant and on his instructions. That company apparently paid consultancy fees to the defendant at about the time when he ceased receiving funds from Kurango: and in circumstances which suggest that the source of the funds which the defendant derived from Gold Crew was the defendant himself.

34 It is submitted by Mr O'Neal, who appears for the plaintiff, that the evidence discloses that the defendant is an entirely dishonest person. At least, Mr O'Neal submits, the evidence demonstrates that there is a real risk that the defendant would dissipate assets if he was permitted to recover them. Against that it is submitted by Ms Price that there is no evidence, beyond suspicion about the defendant's honesty, that he would in fact dissipate assets if they were made available to him.

35 Ms Price refers to a number of tax cases in which there has been evidence of actual intention on the part of the relevant defendant to dispose of assets or to move them offshore. Ms Price refers in particular to cases, for example, in which telephone calls have been tapped and in which the defendants have made admissions that it is their intention to act in such a way. Ms Price says that in the absence of any such evidence I should not come to the conclusion that there is a risk of dissipation.

36 Further, Ms Price refers to the fact that negotiations took place, as I have already mentioned, about October and December 1999 in which the defendant acted in perfectly good faith in attempting to come to a resolution of the matter with the plaintiff which would result in the plaintiff receiving some of those assets. I will come to that again in a moment.

37 It is true that there is no direct evidence of intention on the part of the defendant to dispose of assets or move them out of the jurisdiction. It is also true that the events relied on by the plaintiff all occurred some years ago. However, they have been brought into the present time by reason of the objections and the basis for the objections which the defendant has lodged to the income tax assessments.

38 It is not necessary in my view for there to be evidence that a defendant will remove assets. That is to say, it is not necessary for there to be evidence of direct intention. Ms Price referred me to a number of authorities, one of which is Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, a decision of the Court of Appeal of New South Wales, consisting of Gleeson CJ, Meagher and Rogers JJ.

39 Gleeson CJ reviewed a number of authorities relating to this issue in the context of mareva injunctions. His Honour did so having been invited to formulate a test which could be applied in order to determine whether there was a risk of dissipation or removal. His Honour declined to formulate any test because each case must be considered on its merits. His Honour said at the end of his judgment between 325 and 326:

"The trial Judge had held that the nature of the scheme in which, on the evidence to date, the appellant appeared to have engaged, was such that it was reasonable to infer that he was not the sort of person who would, unless restrained, preserve his assets intact so that they might be available to his judgment creditor."

40 Mr O'Neal referred me to a decision of this Court in Uniflex Australia Pty Ltd v Hanneybel, unreported; SCt of WA (White J); Library No 980465; 17 August 1998. That was a case in which a mareva injunction was granted on the basis of allegations of dishonesty on the part of the defendant. His Honour referred to and adopted what had been said by Mildren J in the case of Mitchell v Saengjan (1994) 117 FLR 273. Mildren J said this:

"All these factors together give rise to such a feeling of unease that I consider there is a sufficient danger that the defendant will remove or dispose of or otherwise deal with in some fashion her assets in such a way that the plaintiff, if he were to succeed in the action, will not be able to have his judgment satisfied."

41 That is the position in which I find myself. I have a feeling of unease that the defendant may not be the kind of person, who, unless restrained, would preserve his assets so that they might be available to a judgment creditor. I emphasise, as I said during the course of the argument, that my purpose here today is not to make a finding whether the defendant is or is not dishonest. The position is that there is evidence to which I have referred which shows prima facie that in 1992 the defendant may well have been dishonest. That is evidence which has been put before the defendant in these proceedings and he has been given an opportunity to deal with it. As Ms Price says, there are matters of detail in the plaintiff's evidence which would take time to answer in full.

42 Accepting that that is so to a certain extent, it is also true that the defendant has not, in the fairly full affidavit that he has filed recently, attempted in any detail to answer the plaintiff's allegations, not even by referring to matters which would need to be the subject of further affidavits prepared in the fullness of time.

43 In those circumstances, although I accept there is no direct evidence of an intention to dissipate assets, it seems to me on the evidence as it stands that there is a real and not a fanciful risk, given the history of the matter, that the defendant would do so. For that reason, subject to the discretionary considerations to which I will refer in a moment, I would be minded to grant the injunction.

44 The discretionary considerations include these. First it is said that the plaintiff did not allow any time to the defendant to respond to the disallowance of his objections. I have been referred to the decision of French J in the Federal Court in Snow v Deputy Commissioner of Taxation (1987) 87 ATC 4078 in which, I am told, the learned Judge was critical of the Deputy Commissioner for using his strong coercive powers before giving the tax payer an opportunity of having objections dealt with.

45 Again, of course, all must depend on the circumstances. A Commissioner is not obliged to allow latitude to a tax payer or a person who has been served with assessments. It is a matter for the Commissioner's discretion and he is clearly entitled to take a view. It is quite obvious in the present case that the plaintiff has formed a view strongly adverse to the defendant: and that is a view which, on the evidence available to the plaintiff, and certainly the evidence available as at when he commenced these proceedings, was, I think, not unreasonable.

46 Then it is said that the negotiations to which I have referred were undertaken by the defendant in good and demonstrated his bona fides. That is a matter that I take into account but it is not a matter to which I give any great weight because at that time, of course, the defendant was not in control of his assets.

47 There is then the question of hardship to which I have given consideration. It is said that the defendant already owes large sums of money to persons who funded his defence in the criminal proceedings and that if he is not permitted to have resort to his assets not only will he be unable to repay those debts but he will be unable to fund the proceedings in which the notices of objection would be determined by the Court or the Tribunal.

48 One of the difficulties, I think, with that argument is that it seems highly likely that within a few days there will be a judgment entered against the defendant for something in excess of $550,000. Even if the defendant was to obtain a stay of that judgment the situation would not be one in which he would be entitled to have access to the assets, so that whatever happens it seems to me to be unlikely that the defendant is going to be able to have resort to these assets in order either to repay debts or to fund ongoing proceedings. The question of hardship and in these circumstances therefore carries very little weight.

49 There is another matter to which I should refer and that is the application by the plaintiff for an affidavit from the defendant setting out his full asset position. It is submitted against that that the assets are of such a value that they would be sufficient to pay the debt currently claimed so that it would be unreasonable to require the defendant to make disclosure of any further assets.

50 The assets the subject of the injunction are first of all the 13-odd kilograms of gold nuggets to which I have referred. Those it is said have a value greater than the gold content because they are collectors' items, or at least some of them are, and that they have a value of between $17 and $30 per gram. At a value of $25 per gram the gold nuggets would be worth some $330,000 although they would not, it is said, be immediately saleable.

51 There is then a house which is said to be of block value only, that value being $265,000. However, the defendant's wife has apparently some claim to an interest in the house which would therefore reduce the value of the interest owned by the defendant.

52 There is then a series of motor vehicles and motorcycles which have been in police custody for some 7seven years. I am told from the bar table that conservatively those vehicles are worth some $40,000. However, the defendant's evidence is that there would be a considerable amount of money to be spent on them to make them roadworthy. The other asset is about $14,300 held now in the solicitor's trust account, that being Gold Crew money. There can be no dispute about the value of that asset.

53 Adding the figures to which I have referred, the assets would be worth $586,000, taking into account a mortgage of some $63,000 in relation to the property: that against a debt of some $555,000. However, of course, the value of those assets depends very considerably on the value of the house and the value of the gold nuggets.

54 It seems to me that there is a strong possibility that they may be worth less than $555,000 plus interest which would accrue at about $200 a day on any judgment that was entered against the defendant

55 In those circumstances I think it is appropriate to require the defendant to provide an affidavit of his assets. I do not see that as any great hardship because it seems to me, having regard to what Ms Price has said, it is likely that the defendant would be anxious to do that in any event in order to justify a stay of execution on any judgment entered against him.

56 I appreciate that, as Ms Price says, he would then be doing it voluntarily rather than under compulsion. But in all the circumstances and in the exercise of my discretion it seems to me that it is something which I should order.

57 Shortly before Ms Price closed her submissions she handed up to me a draft minute of proposed order on the basis that if I was of the view that a mareva injunction should be granted, some term should be incorporated into it which permitted the defendant to achieve the best price possible for the gold nuggets rather than suffering a forced sale by the plaintiff.

58 I had in fact been considering whether some such terms should be included in a mareva injunction in my consideration of this matter. What Ms Price proposed in essence was that the defendant should have access to gold nuggets, as it were, under supervision on the basis that he would then be able to arrange inspections and negotiate sales by potential buyers so that proceeds of sale could be paid into a solicitor's trust account.

59 I have concluded, having considered that matter for myself and also Ms Price's proposed order, that it would not be appropriate at the moment to make an order in those terms. That is because, as I have said, it seems to be likely that judgment will be entered against the defendant on or shortly after 31 January. In that case the question of the disposition of the assets would be a matter for the Judge or Master depending on the view he or she took as to whether a stay should be ordered.

60 I can see the advantage to both parties in making some such provision, although I think it would require closer supervision than is proposed in Ms Price's minute because of the risk of diversion of any cash which might be received on sale of a nugget. I can equally well see that the plaintiff would not wish to be himself involved in gold dealing activities for obvious reasons. But at the moment it seems to me that there would be little point in making an order in those terms because of the imminence of the summary judgment application and the likely outcome of it.

61 There is one other matter I should mention and that is the question of the Gold Crew funds which it is said should be excluded from the ambit of a mareva injunction because there is not sufficient evidence that they are assets of the defendant - they are said to be third party assets.

62 That submission, I think, does not take sufficient account of the circumstances in which Gold Crew was incorporated to which I have referred, nor does it take account of the fact that shortly after the mareva injunction was granted initially the defendant himself was able to procure the removal of the funds from a bank account which, through inadvertence, had not been correctly identified, and into another account.

63 Although I am told the money was actually removed by a director of Gold Crew and that the defendant is not a director, the evidence is nevertheless that the defendant was able to exercise control over those funds. For that reason I think that the injunction should extend to them also.

64 There is an issue about a loan made to Gold Crew of some $28,000. That is a matter referred to in a letter of 6 January 2000 from Mr Paterniti, the defendant's accountant, to the defendant. The loan is said to have been derived from cash provided by the defendant.

65 It is not entirely clear to me what has become of those funds. But the injunction is to restrain the disposition of some $14,300 which was in Gold Crew's account, now in the solicitor's trust account. I do not propose that the order should extend to anything further than that, although I will hear from counsel as to whether there should be any liberty to apply depending on the contents of the affidavit of assets to be sworn by the defendant.

66 In those circumstances I will grant a mareva injunction in the terms of the order which is currently on foot. I will hear from counsel as to the form of any further orders.