Deputy Commissioner of Taxation v Cutili Invest 88 Pty Ltd

1. Pursuant to section 31A of the Federal Court of Australia Act 1976 and rule 26.01 of the Federal Court Rules 2011, there be summary judgment for the applicant against the respondent in the sum of $799,712.83
2. The respondent pay the applicant's costs of this proceeding as agreed or taxed.
3. Upon the applicant continuing the undertakings given in Schedule A to the Penal Notice comprising Annexure A to the Orders made on 16 August 2019, the Orders in the Penal Notice addressed to the respondent at Annexure A to these Orders have effect.
4. The proceeding be listed for case management on 7 May 2020 at 9.30AM. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BETWEEN: DEPUTY COMMISSIONER OF TAXATION Applicant

AND: ELEGANT SWAN PTY LTD Respondent

JUDGE: STEWART J DATE OF ORDER: 4 February 2020

1. Pursuant to section 31A of the Federal Court of Australia Act 1976 and rule 26.01 of the Federal Court Rules 2011, there be summary judgment for the applicant against the respondent in the sum of $1,008,724.84.
2. The respondent pay the applicant's costs of this proceedings as agreed or taxed.
3. Upon the applicant continuing the undertakings given in Schedule A to the Penal Notice comprising Annexure A to the Orders made on 16 August 2019, the Orders in the Penal Notice addressed to the Respondent at Annexure A to these Orders have effect.
4. The proceeding be listed for case management on 7 May 2020 at 9.30AM. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

STEWART J: 1 There were eight matters before me in which the Deputy Commissioner of Taxation had applied for summary judgment against each of the respondents on tax debts. Five of those matters were resolved, at least for the present, in one way or another by consent. There was a ninth matter which was before me only for case management. All nine of the matters are related proceedings that commenced together and have been case managed together. These reasons concern only the three matters in which I was called upon to make judgments other than by consent (i.e. NSD1304/2019, NSD1305/2019 and NSD1311/2019). 2 All nine matters commenced on 16 August 2019 when Rares J granted freezing orders over the assets of the respondent in each matter in the usual form. The freezing orders stated the amount of the debt then claimed and encumbered the assets to that extent. They provided that they would cease to have effect if that sum was paid or secured. They also provided that they would have effect up to and including the return day, which was stated to be 21 August 2019. 3 Also on 16 August 2019, in each case, the applicant filed an originating application claiming payment of a tax debt. In each case, the freezing order was sought on the basis of a fear that the respondents would "take steps to dispose of or otherwise encumber assets to frustrate recovery of the amounts due to the Commonwealth of Australia and payable by the respondents". In other words, what was sought to be protected was the ability to recover the amounts said to be due, not the ability to obtain judgments in those amounts. 4 Indeed, freezing orders have been described as being for the purpose of preventing the frustration or abuse of the process of the court "by depriving the plaintiff the fruits of any judgment that may be obtained in the action": Jackson v Sterling Industries Ltd [1987] HCA 23; 162 CLR 612 at 624-626 per Deane J. It is also clear that freezing orders can operate before and/or after judgment: Federal Court Rules 2011 (Cth) (FCR), rr 7.32(1) and 7.35; Freezing Orders Practice Note (GPN-FRZG) at [20.20]. 5 On 21 August 2019, the return day, the freezing orders were extended by Perry J up to and including 25 September 2019. On that day I extended the orders to 3 October 2019 on which date I further extended them to 10 October 2019. The reasons for the extension on each occasion are not presently important. They mostly related to ongoing discussions that some or all of the respondents were having with the applicant. 6 On 10 October 2019, I extended the freezing orders once more. On that occasion they were extended "until further order". They still provided, in paragraph [12] of the penal notice in each case, that they would cease to have effect on the payment of the stated indebtedness or on that amount being secured. 7 I have set out that history because, as will be seen, an issue has now arisen with respect to the status of the freezing orders once judgment on the claimed debts has been made. 8 In each of the three matters a notice of appearance was entered and on one or more occasion there was an appearance at a case management hearing on the respondent's behalf. In two of the matters (NSD1304/2019 and NSD1311/2019), the legal representative on record withdrew by filing the requisite notices prior to the applicant, on 2 December 2019, filing an application for summary judgment. In the other matter (NSD1305/2019), I gave the respondent's solicitor leave to withdraw but required that he file the requisite notice. 9 The result is that in the three summary judgment applications before me, the respondents are unrepresented. 10 In each of the three matters, I am satisfied that summary judgment should be entered. Evidence of proper service of the summary judgment application on each of the respondents has been adduced. None of the respondents has appeared to oppose summary judgment. 11 The applicant relies on the usual provisions with regard to the nature and proof of tax debts and a tax payer's proper recourse to the Administrative Appeals Tribunal to dispute such a debt. The submissions of Mr Josifoski for the applicant identify the relevant provisions and set out the relevant principles. I accept those submissions. The principles are well known. Little purpose is served by repeating them here. 12 In each case, the indebtedness as at 30 January 2020 was proved by a Running Balance Account (RBA) statement and an evidentiary certificate for an RBA in reliance on ss 8AAZI and 8AAZJ of the Taxation Administration Act 1953 (Cth). They establish the claimed indebtedness as follows: NSD1304/2019: $1,079,578.78 NSD1305/2019: $799,712.83 NSD1311/2019: $1,008,724.84. 13 I am satisfied that, in each case, the respondent has no reasonable prospect of successfully defending the proceeding within the meaning of r 26.01(1)(e) of the FCR. 14 On that basis I indicated that I was prepared to grant summary judgment in each case. Mr Josifoski then explained that the applicant wishes to ensure the continuation of the freezing orders beyond the time when judgment is entered in order to allow for the opportunity to execute on the judgments without the frozen assets being dissipated. He drew to my attention authority to the effect that the final determination of the substantive claims by the judgments might have the effect of causing the freezing orders to be discharged. 15 In that regard, I was referred to Fatimi Pty Ltd v Bryant [2002] NSWSC 750; (2002) Aust Torts Rep 81-677 in which the question arose whether freezing orders that had been made "until further order" were discharged when substantive judgments were entered in the action. Campbell J (at [227]-[229]) cited authority in England and in Australia in support of the proposition that the expression "until further order" in an interlocutory order means that when final orders disposing of the substantive relief in the proceeding are made the interlocutory order comes to an end automatically. Campbell J reasoned (at [230]) that a particularly persuasive reason why the orders in the case before his Honour should be construed "in the fashion of most interlocutory orders, as lasting until judgment, is that, if that were not so, it would be, potentially, an order which had perpetual effect" and that "there is no other sensible endpoint for a non-perpetual order, which could be read into the order as a matter of implication, than the determination of the suit". 16 Significantly, in that case there was no provision akin to the provision in paragraph [12] of the penal notice in the present case that the freezing orders will come to an end in the event that the underlying debt is either paid or secured. The consideration with regard to the potential perpetual effect of the orders is thus less significant in this case. 17 Campbell J also stated the following (at [233]): It is, of course, possible for a Mareva Order to continue in force after judgment has been obtained, if there are reasons to fear that assets of a judgment debtor might be dissipated, and execution thereby frustrated: Balfour Williamson (Australia) Pty Ltd v Douter Luingner [1979] 2 NSWLR 844 [sic - 884]. However, in that case it is usual to make an express order at the time of judgment, that the Mareva Injunction continue in force in aid of execution (Stewart Chartering Ltd v C & O Managements SA [1980] 1 All ER 718 at 719, per Robert Goff J; Devlin v Collins (1984) 37 SASR 98 at 99 per King CJ, 105 per Zelling J, 116 per White J; Deputy Commissioner of Taxation v Winter (1988) 92 FLR 327 at 329-330 per Yeldham J). 18 Fatimi has been cited in support of the proposition that an interlocutory injunction that is granted "until further order" is "frequently" construed as operating until the determination of the proceedings or further order, which ever happens first. See, for example, Klewer v Official Trustee in Bankruptcy (No 2) [2010] NSWCA 258 at [6] per McColl and Campbell JJA and Sackville AJA. Fatimi and Klewer have been cited in support of a conclusion that particular interlocutory orders that are expressed to apply "until further order" will come to an end upon the making of final orders. See Hagerty v Hills Central Pty Ltd [2018] NSWCA 200; 19 BPR 38853 at [64] per Leeming JA, McColl and Macfarlan JJA agreeing; Maharaja's Palace Pty Ltd v Raj & Jai Construction Pty Ltd [2018] NSWCA 191 at [7] per Lemming JA. 19 The position is that the orders in question must be construed in accordance with the ordinary rules for interpreting court orders in order to answer the question whether they come to an end on the happening of any particular event, in this case the making of final orders on the substantive claims. Whilst the usual position may be that the making of final orders on substantive claims brings any interlocutory orders that were made "until further order" to an end, that need not be the case. It will depend on the circumstances. 20 In any event, in Cardile v LED Builders Pty Ltd [1999] HCA 18; 198 CLR 380 at [43] per Gaudron, McHugh, Gummow and Callinan JJ, it was explained that freezing orders are not interlocutory as they may operate after the recovery of final judgment, yet they are impermanent in the sense that they preserve assets and assist and protect the use of methods of execution and do not substitute for them (see also Jackson v Sterling Industries at 626, 633 and 637 and Winter at 328-331). 21 It seems to me reasonably clear that properly construed the freezing orders would continue after final orders on the substantive claims until further order expressly or impliedly causing them to be discharged or until, under the terms of the orders, the judgment debt up to the stated amount in the freezing orders is paid or secured. That is not only because that is the apparent purpose of the orders, but also because that is the most sensible way of giving effect to both the purpose of the orders and the terms of paragraph [12] of the penal notice which, as I have indicated, distinguishes this case from Fatimi and hence from the cases "frequently" encountered. 22 In my view, "until further order" in the orders that I made on 10 October 2019 extending the freezing orders does not mean until any other order in the matter, nor does it mean until judgment on the substantive claim. It means until further order dealing with the extension or discharge of the freezing orders, i.e. until another order is made that varies the extension that was granted "until further order". 23 Mr Josifoski also referred me to a judgment of Justice Neuberger, as his Lordship then was, in Cantor Index Ltd v Lister [2002] CP Rep 25; [2001] All ER (D) 339. There, the freezing orders in issue had provided that they would continue "until further order of the court" rather than the apparently frequently used formulation of "until trial or further order" or "until judgment or further order" in the Chancery Division. Issue (a) in the case was whether the freezing orders lapsed when judgment was obtained. His Lordship reasoned, against the backdrop of the usual order being until trial (or judgment) or further order, as follows on the meaning of the orders before him: I do not think that the reference to "further order" is an indication that the Freezing Order is to expire when final judgment is obtained. If it had that meaning, then it would be a reference to any order made in the proceedings, so an order, for instance, extending time for the service of a defence, would have the effect of causing the Freezing Order to lapse. It seems to me that the reference to "further order" in the Freezing Order must be a reference to an order which expressly or (unusually, but possibly) impliedly discharges the Freezing Order. 24 That reasoning is compelling in the present case. Of course, in the case of interlocutory orders that state something along the lines of "pending the determination of final relief or further order,…", which is of similar effect to the formulation "until judgment or further order" referred to by Justice Neuberger, the expectation would be that the interlocutory orders would lapse on final relief in the substantive claim being ordered. The freezing orders in this case are not qualified in that way. 25 All that said, I accept that the safest course is to make the continuance of the freezing orders express. That will serve to avoid any doubt, and it is in accordance with what courts on other occasions have done. Devlin v Collins and Winter, both referred to by Campbell J in Fatimi as quoted at [17] above, are examples. That course also makes it unnecessary to consider whether the summary judgment orders are themselves interlocutory and what impact that might have on construing the "until further order" extension of the freezing orders. On the former question, see Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd [2008] FCAFC 60; 167 FCR 372 and Commissioner of Taxation v Bosanac (No 5) [2019] FCA 2126 at [38]-[40]. 26 I am satisfied that the circumstances that gave rise to the assessment when the freezing orders were first granted that there was a danger that a judgment will be wholly or partly unsatisfied as a result of an irregular dissipation of assets remain. Further, as judgment is now being entered, the question of there being a sufficient prospect that a judgment will be entered is clearly satisfied. That also means that it may not be necessary for the applicant to maintain her undertaking as to damages. That question was not raised at the hearing, and no application was made that the undertakings be discharged. However, in the event that such an application is made, there might be a proper basis for acceding to it. 27 It was explained on behalf of the applicant that she intends to issue writs of execution in order to satisfy the judgments and that if those are not satisfied to then consider other enforcement mechanisms including possibly winding up the respondents. Whichever mechanisms she chooses, the requisite processes will necessarily take some time. I am concerned, however, to ensure that the freezing orders do not have an indefinite life. In that regard, Staughton LJ remarked in Republic of Haiti v Duvalier [1990] 1 QB 202 at 214 that "an injunction granted after judgment should normally, in my view, be of limited duration; the plaintiff should be encouraged to proceed with proper methods of execution; perpetual injunctions restraining a defendant from dealing with his assets until the crack of doom are undesirable." 28 I am also concerned to ensure that the respondents, who will become judgment debtors on judgment being entered, have the opportunity to apply to vary the freezing orders in the event that they have good reason to do so. The extant freezing orders make provision for that. 29 In the circumstances, the most practical way forward is to extend the existing orders, making it clear that that is still subject to further order, and bringing the matters back for case management from time to time for the purpose of checking that the freezing orders are still justified. The expectation is that the applicant will bring to the Court's attention any material change in circumstances that may have a bearing on whether the freezing orders should be maintained at all or in their present terms. 30 The penal notice annexed to the orders that I propose to make in each case provides as follows in paragraph 1: Until further order of the Court, the Freezing Orders made on 10 October 2019 in the penal notice addressed to the respondent be continued in aid of execution of the judgment entered in favour of the applicant in these proceedings on 4 February 2020. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stewart.