Danger that a prospective judgment will be wholly or partly unsatisfied
23 The purpose of an order of this kind is to prevent an abuse or frustration of the court process by depriving the applicant of the fruits of the action: Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 625 (Deane J). Something more than a bare assertion is required: Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft and Co KG (The Niedersachsen) [1983] 1 WLR 1412 at 1419; [1984] 1 All ER 413 at 417 (Kerr LJ). It is "no light matter" to impose a freeze on the assets of a person so courts must be sensitive to the need for caution: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 324F (Gleeson CJ). Indeed, a freezing order has been aptly described as "a drastic remedy" which should not lightly be granted: Frigo v Culhaci (unreported; NSW Court of Appeal, 17 July 1998) at 10-11 (Mason P, Sheller JA and Sheppard AJA), cited with approval by the plurality in Cardile at [51].
24 But the danger that a prospective judgment will be wholly or partially unsatisfied because the assets of the prospective judgment debtor or those of another person are removed from Australia or from a place inside or outside Australia or that the prospective judgment debtor would more probably than not dispose of, deal with or diminish the value of its assets need not be established on the balance of probabilities. Nor is it necessary that there be evidence that it had any such intention. See, for example, Hua Wang at [8]-[10]; Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 4) (2012) 19 ATR 711; [2012] FCA 1064 at [23]-[24] (Perram J); and Patterson at 325C-D (Gleeson CJ).
25 In the present case I was satisfied that there was such a danger because the evidence before the Court established that Advanced Holdings had the ability to divest itself of its assets and the incentive to do so and that there is reason to believe that in the recent past, in his dealings with the Commissioner and for the purpose of defeating the Commissioner's interests, the sole director of Advanced Holdings dishonestly engaged in conduct of this very kind.
26 First, the assets in this case consist of units in the trusts. The trust deeds for both the Camellia Estate Trust and the Riverlands Estate Trust exhibited to Mr Morelande's affidavit show that Advanced Holdings owns 100% of the units in each trust. As the Deputy Commissioner argued, this gives the company effective ownership of the underlying assets of the trusts. Under the terms of both deeds, Advanced Holdings may require the trustee to terminate the trust merely by notifying the trustee that it is to terminate on a specified date (cl 95), in which case the trustee is obliged to realise the assets of the trust (cl 96). As a unit holder, it may apply to the trustee to redeem one or more units (cl 31). If it does so, within 90 days of the redemption the trustee is required to pay it the redemption price (cl 35) which may be effected through a transfer to it of the assets of the trust (cl 36). Although the trustee has an absolute discretion whether or not to accept an application for redemption (cl 32), as the owner of 100% of the units Advanced Holdings may remove a trustee any time "in accordance with law or by passing a special resolution" (cl 88).
27 The powers vested in Advanced Holdings provide the means by which the company could dispose of, deal with, or diminish the value of its assets. As the Deputy Commissioner submitted, Advanced Holdings may dispose of its units in the trusts or take steps to result in a reduction in their value by borrowing against their security, by causing the trustees to issue new units to other entities, thereby diluting the value of the existing units, or by exercising its power as 100% unit holder to cause the trustees to dispose of the trusts' assets.
28 Mr Moreland's affidavit contains an illustration of conduct of this nature only last year by another entity controlled by Mr Demian, Mt Lewis Estate Pty Ltd, after it was served with a statutory demand for the payment of a tax debt of $627,441.78. Mt Lewis was the registered proprietor of a property in Punchbowl, NSW. Seventeen days after Mt Lewis had been served with the statutory demand, the Punchbowl property was sold to the brother of a principal in the firm of lawyers that has represented the Demian Group in various proceedings against the Deputy Commissioner.
29 Second, the amount of the liability to the Commissioner is a considerable one. That would give the respondents an incentive or motive to act as the Deputy Commissioner fears.
30 Third, it appears from the evidence that Mr Demian, Advanced Holdings, and other entities Mr Demian controls have engaged in dishonest conduct intended to defeat the interests of the Commissioner. Evidence of dishonest behaviour or avoidance of liability on the part of a prospective judgment debtor may give rise to an inference that there is "a real and not fanciful risk" that it may try to dissipate or dispose of assets unless freezing orders are made: Deputy Commissioner of Taxation v Ma (2017) 106 ATR 773; [2017] FCA 1317 at [18] (Mortimer J).
31 That conduct is set out at length in Mr Morelande's affidavit and supplemented by the evidence of Ms Ng. For the purpose of the present application, and although his written submissions went further, at the hearing the Deputy Commissioner was content to rely on one instance of this kind of behaviour which came to light after the seizure of documents during the audit. It is reasonable to infer from this evidence that, unless restrained, Advanced Holdings would not be likely to preserve the assets of the company intact so that they might be available to its prospective judgment creditor: Patterson at 325-6 (Gleeson CJ).
32 The facts are a little complicated.
33 One of the entities in the Demian Group is Lewisham Estate Trust (LET). LET is a fixed unit trust that was settled on 1 May 2003. Advanced Holdings was the initial unit holder of the trust. It had paid $10 for 100 units - all the units in the trust. The corporate trustee of the trust is Lewisham Estate Pty Limited. On 8 July 2014 LET lodged an income tax return for the 2013 financial year. The return described LET's main business activity as "renting or leasing of non-residential buildings as owner or leaseholder".
34 The return disclosed a gross income of $48,806,231, derived in part from rental income and income from the sale of two properties. LET claimed various deductions which resulted in an income of $10,817,178. It represented that 50% of its net income had been distributed to The Demian Trust and the other 50% to Abacus Funds Management Ltd. A month earlier, on 6 June 2014, The Demian Trust lodged its income tax return. It represented that it had distributed the money it had received from LET in various proportions to four companies: Tramdell Pty Ltd, Charles Apartments Pty Ltd, Ramsey Gardens Pty Ltd, and Merchant Project Marketing Pty Ltd (the primary beneficiaries). Mr Demian is the director of Tramdell and owns 99 of the ordinary shares, Hoda Demian, who is apparently Mr Demian's wife, the other ordinary share. Mr Demian is also the sole director of Charles Apartments and Merchant Project Marketing and Hoda Demian the sole shareholder of both. Mr Demian is the sole director and shareholder of Ramsey Gardens.
35 The returns filed by each of the primary beneficiaries for the 2013 financial year disclosed as part of their assessable income the amounts said to have been distributed to them in the tax return filed by The Demian Trust. Each of them purportedly had "carry forward losses" identical to the amount purportedly distributed to it by The Demian Trust. Consequently, according to their tax returns, none of them was liable to pay any tax in relation to these distributions.
36 On 17 December 2013 Mr Demian was notified that an audit had begun into his tax affairs and that the audit would cover his related entities, including LET. The audit of the taxation affairs of The Demian Trust and LET began in August 2014.
37 On 8 January 2015 the Deputy Commissioner issued Mr Gerardo Incollingo, the principal of LCI Partners, with a notice pursuant to s 264 of the ITAA requiring him "to provide details of the information and documentation relied upon to determine the unit holders reported in the 2013 income tax return in the statement of distribution lodged for [LET]".
38 Mr Incollingo replied to the notice by email dated 10 March 2015. Attached to the email were four documents including:
(1) a document entitled "Unit Certificate - Lewisham Estate Unit Trust" bearing Mr Demian's signature and dated 15 May 2003, which purported to certify that Demian Holdings Pty Ltd as trustee of The Demian Trust was the registered holder of 100 units in LET (Unit Certificate); and
(2) a document entitled "The Fourth Schedule Hereinbefore Referred To Transfer Unit Trust", also bearing Mr Damien's signature and dated 15 May 2003, which purported to record the transfer of 100 units in LET from Advanced Holdings to Demian Holdings for consideration of $100 (Transfer Form).
39 Mr Demian is the sole director and also the secretary of Demian Holdings Pty Ltd (Demian Holdings), the sole shareholder of which is Hoda Demian.
40 The evidence indicates that both these documents were created in 2015, during the course of the Commissioner's audit and after LCI Partners received the letter from the Deputy Commissioner, and that representations made in them and in Mr Incollingo's email were accordingly false.
41 On 14 December 2017 documents were seized from a number of premises associated with LCI Partners pursuant to search warrants obtained by the Australian Federal Police. Some of the documents obtained under the search warrants related to members of the Demian Group. The Commissioner later issued a notice under s 353-10 of the TAA to the ATO officer who had custody of those documents, and those documents were provided to the ATO's audit team.
42 The documents provided to the audit team included a number of emails passing between employees of LCI Partners and other professional advisors who were retained by the Demian Group in connection with the ATO audit.
43 Amongst other things, those emails indicate that the Unit Certificate and the Transfer Form attached to Mr Incollingo's email of 10 March 2015 were created in February 2015 and backdated to give the appearance that the documents came into existence in May 2003. It will be recalled that those documents were supplied by Mr Incollingo in response to the Deputy Commissioner's request made in January 2015 for documentation relied upon to determine the unit holders reported in the 2013 income tax return lodged by LET.
44 So much is apparent from the emails passing between Steven Amorello, a Senior Accountant at LCI Partners, and Mr Incollingo. It is also apparent from the evidence of Ms Ng, who, earlier this month, reviewed the electronic documents and analysed the metadata, which, as she said, shows "the digital footprint of when a document was created or modified".
45 The evidence also reveals that multiple drafts of both the Unit Certificate and the Transfer Form were created and circulated in February 2015.
46 On 19 February 2015, for example, Mr Amorello wrote to Mr Incollingo asking him to look at a Unit Certificate and a Transfer document. The Unit Certificate relevantly read:
This is to certify that DEMIAN HOLDINGS PTY LIMITED A.C.N. 082 158 049 of 29 Sixth Avenue Loftus NSW 2232 is the registered holder of 100 Unit(s) of $1.00 in THE DEMIAN UNIT TRUST …
47 These documents are unsigned.
48 Ms Ng's evidence establishes that this document was created on 18 and 19 February 2015. Different versions of the document were created on 24 February 2015, when the address was changed to "2-20 Carnarvon Street, Silverwater NSW 2125" (version 2), at 11.08 am on 27 February 2015 when "2-20" became "2/24" and the signatures of Mr Demian and Mr David Smedley (as witness), together with the date 15 May 2003 (in an apparently different hand), were added (version 3), and at 12.46 pm when the words "ATF The Demian Trust" were inserted and "Lewisham Estate Unit Trust" was substituted as the trust (version 4). This was the Unit Certificate attached to Mr Amorello's email of 10 March 2015. It relevantly read:
This is to certify that DEMIAN HOLDINGS PTY LIMITED A.C.N. 082 158 049 ATF The Demian Trust of 2/24 Carnarvon Street, Silverwater NSW 2125 is the registered holder of 100 Unit(s) of $1.00 in LEWISHAM ESTATE UNIT TRUST …
49 Ms Ng's evidence is that this document was created on 27 February 2015.
50 The other document Mr Amorello forwarded to Mr Incollingo was a form of transfer dated 15 May 2003 providing for the transfer to Advanced Holdings by Mr Demian of "100 units of the Company constituted by the Trust Deed dated the 15th day of May 2003 and made between Advanced Holdings Pty Ltd and Demian Holdings Pty Ltd". Ms Ng's evidence is that this document was created on 19 February 2015. A later version adding "Demian Holdings Pty Ltd" as transferor was created on 24 February 2015 (version 2). The signatures of Mr Demian and Mr Smedley appear on another version created at 11.08 am on 27 February 2015 (version 3). The final version produced to the Deputy Commissioner on 10 March 2015 swapped the names of the transferor and transferee (version 4). Ms Ng deposed that this version was created at 12.46 pm on 27 February 2015.
51 At 2.27pm on 24 February Mr Incollingo emailed Mr Amorello asking him:
How is the ATO and Charlie going?
Is the paperwork ready to send?
52 I infer from the context and a number of other documents mentioned in Mr Morelande's affidavit that "Charlie" is Charbel Demian.
53 Mr Amorello replied:
I've been trying to contact Charlie but he hasn't answered or got back to me.
I'm chasing the business address from 2003 financial year … and then I can send over to you to review.
54 Seven minutes later Mr Incollingo replied, telling Mr Amorello that he needed to send a text message "telling him that it is URGENT!!"
55 At 3.59 pm Mr Amorello wrote to Mr Incollingo:
Find attached the Unit Holders documents for your review…
I confirmed the business address with Charlie.
Let me know if you need anything else.
56 At 10.37 am on 26 February 2015 Mr Amorello emailed Mr Incollingo advising him that he had contacted "Charlie" the previous day "for signing of the Unit Holder documents", that he said he would come past the office to sign, but that he did not turn up. Mr Amorello lamented that he had tried to contact "Charlie" twice that day but said that he had not received a response.
57 At 10.57 am on 27 February 2015 Mr Amorello forwarded to Mr Incollingo a number of documents including version 3 of the Unit Certificate and the Transfer Form, both bearing the signatures of Mr Demian and Mr Smedley.
58 The final versions of the Unit Certificate and Transfer Form that were produced to the Deputy Commissioner on 10 March 2015 were scanned at 12.55 pm on 27 February 2015 and emailed to Mr Incollingo the same day.