Deputy Commissioner of Taxation v Hua Wang Bank Berhad

Deputy Commissioner of Taxation v Hua Wang Bank Berhad - [2010] FCA 1014 - FCA 2010 case summary — Zoe

[4]

THIS COURT NOTES that the applicant by his counsel undertakes to the Court to submit to such order, if any, that 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 freezing orders referred to in paragraphs 1 to 5 of this order. THE COURT ORDERS THAT:

The date specified in paragraph 2 of the freezing order made on 12 August 2010 against Hua Wang Bank Berhad be extended until 4.15 pm on 11 October 2010.
Paragraph 14 (first appearing) of the freezing order made on 12 August 2010 against Hua Wang Bank Berhad cease to have effect.
The date specified in paragraph 5 (first appearing) of the freezing order made on 12 August 2010 against Chemical Trustee Limited be extended until 4.15 pm on 11 October 2010.
Paragraph 14 (first appearing) of the freezing order made on 12 August 2010 against Chemical Trustee Limited cease to have effect.
The date specified in paragraph 8 (first appearing) of the freezing order made on 12 August 2010 against Derrin Brothers Properties Limited be extended until 4.15 pm on 11 October 2010.
Paragraph 14 (first appearing) of the freezing order made on 12 August 2010 against Derrin Brothers Properties Limited cease to have effect.
The date specified in paragraph 11 (first appearing) of the freezing order made on 12 August 2010 against Bywater Investments Limited be extended until 4.15 pm on 11 October 2010.
Paragraph 14 (first appearing) of the freezing order made on 12 August 2010 against Bywater Investments Limited cease to have effect.
The date specified in paragraph 14 (first appearing) of the freezing order made on 12 August 2010 against Southgate Investment Funds Limited be extended until 4.15 pm on 11 October 2010.
Paragraph 14 (second appearing) of the freezing order made on 12 August 2010 against Southgate Investment Funds Limited cease to have effect.
The parties have leave to file a minute of order providing for the division of the proceedings, and the Respondents' notice of motion dated 1 September 2010 be otherwise dismissed.
The Applicant's notice of motion dated 12 August 2010 be adjourned to 4.15 pm on 11 October 2010.
The Applicant's costs be reserved. THE COURT NOTES THAT:
The Applicant will give notice of the freezing orders to each of the Third Parties listed below by serving a copy of the orders on them as soon as practicable: 14.1 Computershare Investor Services Pty Limited 14.2 Link Market Services Limited 14.3 Registries Limited 14.4 Advanced Share Registry Services Limited 14.5 Security Transfer Registrar Pty Ltd 14.6 Gould Ralph Pty Ltd.
Each Respondent will lodge its taxation objection under Part IVC of the Taxation Administration Act 1953 by 30 September 2010.

[8]

7 For present purposes, subrules 5(5) and 5(6) are also relevant. They state: (5) The Court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a third party) if the Court is satisfied, having regard to all the circumstances, that: (a) there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because: (i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; … (6) Nothing in this rule affects the power of the Court to make a freezing order or ancillary order if the Court considers it is in the interests of justice to do so. 8 In substance, O 25A re-states the current judge-made law with respect to freezing orders. A brief reference to the cases is useful to show how, and in what circumstances, the courts have previously thought it appropriate to make such an order. The cases speak of the need for the applicant to establish, first, a prima facie cause of action against the respondent, and, secondly, a "danger" or "real risk" that a judgment debt will go unsatisfied because assets are removed from the jurisdiction or disposed of in some way: see Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 ('Patterson') at 321-2 per Gleeson CJ, with whom Meagher JA generally agreed; and Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG (The Niedersachsen) [1983] 1 WLR 1412 ('Ninemia Maritime') at 1422-3. In the latter case (at 1422), the Court of Appeal in England described the test as "whether, on the assumption that the plaintiffs have shown at least 'a good arguable case', the court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgement or award in favour of the plaintiffs would remain unsatisfied". 9 Depending on the circumstances, the interests of justice may support the grant of a freezing order to prevent the dissipation of assets pending the hearing of an action even though the risk of dissipation is less probable than not: Patterson at 325 per Gleeson CJ; Peter Biscoe, Freezing and Search Orders: Mareva and Anton Piller Orders (LexisNexis Butterworths, Australia, 2008) ('Biscoe') at p 209 [6.17], citing Patterson, Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49 ('Glenwood') at 54, and Lifetime Investments Ltd v Commercial (Worldwide) Financial Services Pty Ltd [2005] FCA 226 at [14] per Kiefel J referring to Victoria University of Technology v Wilson [2003] VSC 299 at [36]. As Redlich J noted in the last-mentioned case (at [36]), "[w]hat must be established is a sufficient likelihood of risk which in the circumstances of a particular case justifies an asset preservation order". 10 A freezing order may be granted even though there is no evidence of the respondent's positive intention to frustrate a judgment: see National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271 at 277 per Mason CJ, Brennan and Deane JJ; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 394 [26]; Glenwood at 53 per Young CJ; and Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264 ('Riley McKay') at 276. In Riley McKay at 276, the Court of Appeal of the New South Wales Supreme Court said, and I accept, that the jurisdictional basis for relief of this kind "is directed to dispositions … which are intended to frustrate, or have the necessary effect of frustrating, the plaintiff in his attempt to seek through the court a remedy for the obligation to which he claims the defendant is subject" (emphasis added). In this case, there is no direct evidence of positive intention on the respondents' part to frustrate a judgment. Nonetheless, the Commissioner argues that there is a danger of the removal of assets from the jurisdiction, which would have the effect of frustrating any judgment. 11 The existence of the danger, so the Commissioner argues in this case, is to be inferred from the evidence. Relying on the law as stated in Biscoe, the Commissioner apparently accepts that "[s]olid evidence is required": see Biscoe at p 210 [6.20], quoting a passage from the judgment of Mustill J in Ninemia Maritime at 406, saying: It is not enough for the plaintiff to assert a risk that the assets will be dissipated. He must demonstrate this by solid evidence. This evidence may take a number of different forms. It may consist of direct evidence that the defendant has previously acted in a way which shows that his probity is not to be relied on. Or the plaintiff may show what type of company the defendant is (where it is incorporated, what are its corporate structure and assets, and so on) so as to raise an inference that the company is not to be relied on. Or again, the plaintiff may be able to found his case on the fact that the inquiries about the characteristics of the defendant have led to a blank wall. Precisely what form the evidence take will depend on the particular circumstances of the case. But the evidence must always be there. Mere proof that the company is incorporated abroad, accompanied by the allegation that there are no reachable assets in the United Kingdom apart from those which it is sought to enjoin, will not be enough. (Emphasis added.) 12 The fact that assets within the jurisdiction are moveable, and that the respondent is incorporated outside the jurisdiction is not enough to warrant an inferential finding of danger of dissipation. Rather, there must be facts from which, to quote Lawton LJ in Third Chandris Shipping Corporation v Unimarine SA [1979] 1 QB 645 ('Chandris') at 671 "a prudent, sensible commercial" person can "properly infer a danger of default if assets are removed from the jurisdiction". In this connection, Lawton LJ also said (at 672): In my judgment an affidavit in support of a Mareva injunction should give enough particulars of the plaintiff's case to enable the court to assess its strength and should set out what inquiries have been made about the defendant's business and what information has been revealed, including that relating to its size, origins, business domicile, the location of its known assets and the circumstances in which the dispute has arisen. These facts should enable a commercial judge to infer whether there is likely to be any real risk of default. Default is most unlikely if the defendant is a long established, well known foreign corporation or is known to have substantial assets in countries where English judgments can easily be enforced either under the Foreign Judgments (Reciprocal Enforcement) Act 1933 or otherwise. But if nothing can be found about the defendant, that in itself may be enough to justify a Mareva injunction.

[10]

Good arguable case 14 The Commissioner issued notices of assessment for unpaid income tax and notices of assessment for administrative penalties to each of the respondents on 12 August 2010. On the same day, the notices were sent by ordinary prepaid post to each of them, together with advice on the outcome of audits undertaken by the Australian Taxation Office ('ATO'). Under s 255-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth) ('TAA'), the Commissioner may sue in the Federal Court to recover any tax liability that is due and payable. Pursuant to s 204(1) of the Income Tax Assessment Act 1936 (Cth) ('ITAA') (and subject to the issue of service discussed below) the income tax liabilities were due and payable at the time the Commissioner instituted this proceeding in this Court. The administrative penalties were due when assessed and notices of the assessment served, although not payable until 10 September 2010: see Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 16-7 and TAA, s 298-15 of Schedule 1. 15 Generally, a taxpayer cannot challenge the correctness of an assessment except under Part IVC of the TAA, i.e., by making a taxation objection as prescribed and pursuing an appeals process under Part IVC if the objection decision is unfavourable. In any proceeding other than a proceeding under Part IVC, the production of a notice of assessment, or a document under the hand of the Commissioner or a Deputy Commissioner purporting to be a copy of a notice of assessment, is conclusive evidence of the due making of the assessment and that the amount and all the particulars of the assessment are correct: s 177(1) of the ITAA and s 298-30(3) of Schedule 1 to the TAA; also FJ Bloemen Pty Ltd v Commissioner of Taxation (1981) 147 CLR 360 at 376 and Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 at 157 and 166-7. The Commissioner has produced documents under his hand purporting to be copies of the notices of assessment. Thus, in a recovery proceeding such as the proceedings on foot or contemplated here, the correctness of the assessments in question is not an issue the Court can consider. Once an assessed liability is due and payable, the Commissioner may move for judgment in reliance on the conclusive evidence provision of s 177(1) even where the resolution of an objection under Part IVC is pending: see generally Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473. Further, the Commissioner has also certified under s 255-45 of Schedule 1 of the TAA that there are debts due and payable to the Commonwealth by each respondent. According to the certificates under s 244-45, the sums in question, as at 1 September 2010, were: Hua Wang Bank Berhad $4,390,132.65 Chemical Trustee Limited $3,064,785.14 Derrin Bros Properties Ltd $6,489,502.69 Bywater Investments Ltd $10,257,462.30 Southgate Investment Funds Ltd $6,547,270.45 16 The result is that the Commissioner plainly satisfies the "good arguable case" requirement for obtaining a freezing order, although, in the case of the administrative penalties, the cause of action was prospective at the time the proceeding was instituted. This good arguable case is justiciable in this Court: see Judiciary Act 1903 (Cth), s 39B(1A)(c). 17 The respondents accepted that, if the assessments were validly served, then, the Commissioner had established existing or prospective causes of action against them. The respondents argued, however, that the assessments had not been validly served and that the Commissioner could not, therefore, rely on s 177(1) of the ITAA and the other associated provisions. Section 174 of the ITAA provides that "[a]s soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof in writing by post or otherwise upon the person liable to pay tax". Batagol v Commissioner of Taxation (1963) 109 CLR 243 held that an assessment was not made until the Commissioner, having made the calculation, served upon the taxpayer a notice of the assessment. The respondents argued that, under Part 4A of the Income Tax Regulations 1936 (Cth) ('the 1936 Regulations'), "[a] tax assessment cannot be validly served on a foreign taxpayer unless the taxpayer has nominated a preferred address" for service. The Commissioner maintained that the respondents had been properly served at their known addresses in accordance with sub-regulation 38(2) of the 1936 Regulations. Regulation 38 provides as follows: (1) This regulation applies if: (a) a person has not given the Commissioner a preferred address for service; or (b) the Commissioner is satisfied that none of a person's preferred addresses for service is effective. (2) If the Commissioner has a record of another address relating to the person … and it appears to the Commissioner that it is likely that the address is effective, the Commissioner may treat that address as the person's preferred address for service for all purposes under the Act or these Regulations. 18 Bearing in mind this provision, and sub-regulation 40(1)(b) and (c), in the absence of further argument or evidence, at this interlocutory stage at least, it seems to me that service has been validly effected: see also Acts Interpretation Act 1901 (Cth), s 28A(1)(b). In any event, even if service of the notices of assessment had not been validly effected, a prospective cause of action would exist in respect of each of them. 19 Under the circumstances of the present case, the real issue is whether the Commissioner has established a sufficient likelihood of risk that the assets will be put out of reach that, in all the circumstances, justifies the continuance of the freezing orders. Before dealing with this key question, however, I first note several other issues that were also raised by the respondents, but, in the circumstances of this case, do not warrant a great deal of discussion.

[11]

Respondents' arguments as to the Commissioner's failures to disclose and like matters 20 The respondents argued that the Commissioner failed to disclose certain facts adverse to the application for freezing orders during the 12 August ex parte hearing before Jessup J; and, in so doing, the Commissioner failed to comply with standards of care and good faith incumbent on an applicant for a freezing order. The respondents' allegations in this respect were thinly supported and not made out. It is fair to say that the respondents took a 'shotgun' approach to these sorts of matters, with the result that not all of the numerous items raised by them warrant individual comment. Those pressed most strongly by the respondents are discussed briefly below. 21 The principles applicable to alleged non-disclosure in circumstances such as the present are set out in Savcor Pty Ltd v Cathodic Protection International APS (2005) 12 VR 639 ('Savcor') at 647 [24]-650 [36]. In summary: (1) an applicant for ex parte relief has a duty to disclose all facts material to the court's determination; (2) if there is a breach of this duty on the applicant's part, the court has a discretion whether or not to set aside the order; and (3) absent deliberate and intentional non-disclosure or misleading information, which usually leads to a discharge, the court must weigh all relevant factors, including that another application may be made. 22 The respondents drew attention to the fact that the second respondent had previously been involved in dealings with the ATO about its tax liability. The respondents alleged in substance that the Commissioner ought to have disclosed the correspondence in 2006 with the second respondent and the nature of that correspondence. The evidence showed that the Commissioner had issued a default assessment in respect of the 2002 income year in respect of a distribution from the Babcock and Brown Infrastructure (DBCT) Trust. The related correspondence confirmed that there was no taxable capital gain on disposal in respect of the parcel of securities. At the hearing, the Commissioner explained that matters had since come to the Commissioner's attention that caused the Commissioner to issue an amended assessment in respect of that year, on the basis that the second respondent was engaged in share trading. This was explained at paragraph [97] of the Reasons for Decision for the second respondent, which was included in the material before Jessup J. I accept that, as the Commissioner submitted, there was nothing relating to the 2002 default assessment and associated correspondence that required further disclosure to the Court on the ex parte application for a freezing order. 23 The respondents also alleged as material non-disclosures the Commissioner's failure to inform the Court that four of the respondents are controlled by Australian citizens, or people who live in or have ties to Australia. In particular, the respondents argued that the Commissioner failed to disclose "that Peter Borgas, the director of the second, third and fourth [r]espondents is a former Australian citizen with family in Australia and a record of substantial charitable activity within Australia; or that the principal of the fifth [r]espondent (Dr Joseph Ross) lives in Sydney and has three children". The Commissioner denied knowledge of the alleged facts regarding Mr Borgas, and there was no attempt by the respondents to establish that the matters were within the Commissioner's knowledge. At any rate, it is not self-evident how information regarding Mr Borgas' personal family connections and claimed charitable activity, or the number of Dr Ross' children relates to the likelihood of the currently frozen assets being removed from Australia or the ability of the respondents to satisfy a judgment in the event they are removed. I accept that, as the Commissioner submitted, there was nothing with regard to Mr Borgas or Dr Ross that required further disclosure to the Court on the ex parte application for a freezing order. 24 The respondents also argued that the Commissioner had breached s 3C(2) of the TAA because information regarding the tax affairs of each respondent was revealed to the other four respondents via the Commissioner's application and supporting material. Section 3C(2) relevantly provides: Subject to subsection (4), a person who is or has been an officer shall not directly or indirectly: (a) make a record of any information with respect to the affairs of a second person; or (b) divulge or communicate to a second person any information with respect to the affairs of a third person; being information disclosed or obtained under or for the purposes of this Act and acquired by the person by reason of the person's appointment or employment by the Commonwealth or in the course of such employment, or by reason of the delegation to the person of powers or functions by the Commissioner, or in the course of the exercise of such powers or the performance of such functions, as the case may be. Penalty: $10,000 or imprisonment for 2 years, or both. 25 By virtue of s 3C(2A), however, this provision "does not apply to the extent that the person makes a record of the information, or divulges or communicates the information: (a) for the purposes of this Act; or (b) in the performance of the person's duties as an officer". 26 The effect of s 16(2) and (2A) of the ITAA is much the same effect as ss 3C(2) and (2A) of the TAA. 27 As the Commissioner said, these provisions do not apply to disclosure to a Court since the Court is not relevantly a "person": see Canadian Pacific Tobacco Company Limited v Stapleton (1952) 86 CLR 1 ('Canadian Pacific') at 6; and Commissioner of Taxation v Nestle Australia Ltd (1986) 12 FCR 257 ('Nestle') at 262. The circumstances show, moreover, that the disclosures in question were made "in the performance of the person's duties as an officer" and fall clearly within the statutory exceptions in s 3C(2A) of the TAA and s 16(2A) of the ITAA. In this context, "duties" have been widely construed, so as to encompass, for example, the production of documents upon discovery: see Nestle at 262; also Canadian Pacific at 6 and Simionato Holdings Pty Ltd v Commissioner of Taxation (1995) 60 FCR 375 at 384. Mr Zafiriou's affidavit - the source of the disclosures complained of by the respondents - was filed in conformity with Order 4 of the Federal Court Rules and as evidence in support of the Commissioner's application for a freezing order. The order is sought in furtherance of the recovery of income tax, being a primary purpose of the income tax legislation, including the TAA. 28 In the face of the authorities, the respondents advanced no tenable argument in support of their allegation that an officer or officers acted other than for the purposes of the relevant taxation legislation or other than in the course of their duties. The respondents noted that the matter could have been brought as a series of separate proceedings, but it does not follow that joining the respondents in the one proceeding was outside the officers' duties. The respondents' argument, in effect, was that the disclosure was improper and the officers therefore were acting outside of their duties. That argument is obviously circular. It may be observed that the depth of the respondents' analysis was not commensurate with the seriousness of the violation alleged. 29 The respondents also complained of the Commissioner's failure to effect prompt service of the originating documents and transcript on the respondents. Nothing turns on this, since the respondents had all this documentation by the time they came to contest the continuation of the freezing order. In any event, I am not satisfied that the Commissioner was improperly dilatory. 30 The respondents argued that the Commissioner's submissions to Jessup J amounted to an allegation of fraud, and that the Commissioner wrongly failed to plead this. The Commissioner responded, and I accept, that the Commissioner did not allege fraud against the respondents. 31 As indicated already, the respondents made certain other arguments that I have not addressed to this point. To the extent that they are not addressed below, I have regarded them as so weak as not to require discussion in these reasons. I would note particularly that, having read the transcript of the hearing before Jessup J on 12 August 2010 and considered the parties' subsequent submissions and evidence, I would reject the respondents' contention that the Commissioner breached any element of the duty described in Savcor.

[12]

Risk of frustration of judgment - general considerations 32 The respondents properly noted that the Court must consider the risk of dissipation of assets in the circumstances of each respondent individually. However, there are several general points discussed at the hearing which were equally applicable to all respondents. These are discussed below. 33 The respondents argued that the freezing orders should not be extended because the Commissioner had adduced no evidence of lack of bona fides on the respondents' part. As it developed, the argument was not so much that the Commissioner was required to establish the respondents' intent to frustrate a prospective judgment (a position not supported by the authorities: see above) but that the Commissioner's case in favour of the freezing orders relied on allegations of "tax mischief" that were not sustainable. 34 The phrase "tax mischief" appears in the Commissioner's written submissions, originally filed before Jessup J. In context, it is clear that the phrase refers to the non-payment of taxes and failure to file returns in circumstances in which the Commissioner has determined that taxes are owed and returns should have been filed. This was confirmed by the Commissioner's oral submissions before me and written submissions in response to the respondents' argument. Understood in this way, the Commissioner's allegation of "mischief" is supported by the evidence on which the Commissioner relies. 35 The Commissioner is also of the view that the second respondent has engaged in avoidance and evasion - this view being the basis for the issue of the amended assessment for the year ended 30 June 2002. This is not, of course, the appropriate proceeding in which to consider this view; and I do no more than note it here. The Commissioner's characterization of the second respondent's conduct is plainly not an essential part of what the Commissioner means by the expression "tax mischief" in this proceeding. 36 The Commissioner has not alleged a common purpose between the respondents. The only point the Commissioner presently makes is that respondents are "linked in various ways" and have each participated in the same "tax mischief", which involves what the Commissioner says is a failure to disclose profits derived from share trading activities conducted in Australia. Again, it is not open to the respondents to contest this understanding of their activities in this proceeding; any contest must be made in accordance with Part IVC of the TAA. The Commissioner has not suggested to date that the links between the respondents have any particular tax significance. Rather, the Commissioner submits that the links justified the bringing of the applications simultaneously since "[t]here was otherwise a risk that one respondent would inform another of what has occurred and action might be taken by the latter to frustrate the Court's process". The respondents did not deny the existence of the links to which the Commissioner referred, although, for the reasons explained below, each denied there was any significant risk of dissipation. 37 The respondents argued that their decisions not to file returns were made on the advice of Mr Gould, an experienced tax advisor and, therefore, not with any wilful defiance of their income tax law obligations. The idea of "tax mischief", in the sense used by the Commissioner, does not, however, necessarily involve any deliberate breach on the respondents' part of these obligations. The respondents put forth various reasons for their disagreement with the Commissioner, but the principal contention was the same for each of them. This was that Mr Gould had formed the view, in regard to each of the respondents for each of the years for which they were assessed, that the relevant respondent had no taxable income and therefore did not have to file the relevant return, and had "advised accordingly". 38 Plainly, the Commissioner and the respondents take significantly different views of the respondents' tax liabilities. The unpaid liabilities on the Commissioner's view are substantial and have accrued over time in a regular pattern of non-filing and non-payment. Given the Commissioner's reliance here on s 177(1) of the ITAA and s 298-30(3) to Schedule 1 of the TAA, the difference between the parties' views is not a matter for the Court to consider further in this proceeding. This difference about the respondents' income tax obligations and liabilities does, however, provide part of the context for the Court's consideration of the risk that assets will be removed. 39 The Commissioner's case was essentially the same as to all five respondents. As to all the respondents, the Commissioner relied on the following factors to establish that there was an appreciable risk that the respondents' assets would be removed from the jurisdiction or dissipated so as to render prospective judgments nugatory if the freezing orders were not continued: · The respondents are incorporated overseas. This was particularly stressed with respect to those respondents who were incorporated, or whose parent companies were incorporated, in known "tax havens". · As securities traded on the ASX, the relevant assets are highly liquid. · The respondents have in the Commissioner's view engaged in "tax mischief" in the sense discussed above. · Significant amounts of money have in the past been transferred out of Australia to the respondents following the sale of securities. · The respondents, according to the Commissioner, "appear to be connected with or advised by international tax advisors experienced in setting up structures designed to minimise tax and which involve the ready movement of monies between jurisdictions". · The recent issuance of the assessments provides the respondents with an incentive to move their assets outside Australia. · In oral submissions, the Commissioner stressed the lack of information about the respondents and the lack of evidence regarding other assets in Australia (or in a country in which there existed a legally-enforceable arrangement for the satisfaction of Australian judgments). Factors particular to individual respondents are discussed below. 40 The respondents' case was also largely put in terms not specific to particular respondents. At heart, the respondents' argument was that there was no evidence of bad faith on their part and they had always conscientiously sought to comply with the Australian tax laws. As noted, it was the respondents' evidence that in each of the relevant years Mr Gould had advised each of the respondents that they did not need to file tax returns because they did not have any relevant taxable income. The respondents argued that the authorities did not support the grant of freezing orders under such circumstances. 41 The respondents relied in particular on their offer of an undertaking, pursuant to which each respondent undertook (amongst other things) not to remove any assets in which it had a beneficial interest from Australia without the Commissioner's consent or, in the absence of consent, without the Court's approval. The complete terms of the proposed undertaking and some correspondence accompanied Mr Hollo's second affidavit.

[13]

Hua Wang Bank Berhad 42 Commissioner's Evidence. The facts regarding Hua Wang Bank Berhad on which the Commissioner relies may be summarized as follows: Hua Wang Bank Berhad is incorporated in Samoa. Nothing is known regarding the shareholders, directors or ultimate parents of the company. It holds a "'B' Class Offshore Banking Licence" under Samoa's Off-Shore Banking Act 1987. The licence entitles Hua Wang Bank Berhad to accept deposits only from persons or entities listed in an undertaking accompanying the licence application (which was itself not before the Court). The Bank was previously involved in off-shore superannuation schemes, but the present nature of its business is largely unknown. The company has loaned funds to 48 companies in Australia connected to Gould Ralph Pty Ltd or Gould Ralph Services Pty Ltd. Between September 1999 and July 2009, it has been involved in approximately 42 international funds transfers, with $547,151 transferred into Australia from Hua Wang Bank and $8,665,752 transferred out of Australia to Hua Wang Bank Berhad. Hua Wang Bank Berhad engaged in a number of share transactions on the Australian Stock Exchange ('ASX') between 30 June 1995 and 30 June 2009. 43 Respondents' Evidence. In his affidavit filed on 2 September 2009, Mr Gould indicates that he was responsible for setting up Hua Wang Bank Berhad, at the request of a client of his, identified as Mr Ian Gowrie-Smith. He also indicates that the Bank is "administered by directors who are also employees of Asiaciti Trust". Mr Gould confirms that the Bank has been involved with the administration of offshore superannuation funds, but denies that it was set up for this purpose. Other than this, the respondents' evidence does not provide any further substantive information about the control of Hua Wang Bank Berhad or the nature of its business. Mr Gould avers that various unspecified clients of Hua Wang Bank Berhad have contacted him since the imposition of the freezing orders and "expressed doubts" about relying on the Bank. 44 The respondents also rely on the affidavit of Mr Daud Yunus. Mr Yunus identifies himself as the "principal" of an entity he refers to as Normandy Malaysia, which he states is in the investment management business. The respondents relied on Mr Yunus' affidavit as evidence that Hua Wang Bank Berhad had no "beneficial interest" in any of the presently frozen assets. Mr Yunus' affidavit is, however, somewhat obscure and vague as to the claimed connection between Normandy Malaysia and any shares held by Hua Wang Bank Berhad in Australia. I have, therefore, placed little weight on Mr Yunus' affidavit, but my approach at this stage should be understood as not precluding Hua Wang Bank Berhad, Normandy Malaysia or Mr Yunus from making further application, and placing further material before me in support of the claim that persons other than Hua Wang Bank Berhad have ownership of any relevant frozen assets. 45 Mr Gould also states that "[t]o the best of [his] knowledge and belief, Hua Wang Bank has no equitable interest in any asset situated in the Commonwealth of Australia" and that he has had conversations with Mr Yunus which "always occur on the premise that the Bank's loans to Australia are beneficially owned by Normandy Malaysia, as are the Bank's shares in Australia". Mr Gould's assertions about his knowledge and belief and the "premise" of his conversations with Mr Yunus do not, however, provide a sufficient foundation for me to conclude that the freezing order should not continue on the ground that the shares are not property of Hua Wang Bank Berhad. No officer of Hua Wang Bank Berhad has come forward to clarify its ownership or otherwise of the shares. At present, all that is clear is that the shares are in the Bank's name. 46 In his affidavit of 6 September 2010 Mr Gould also estimates that $500,000 per year was paid in withholding tax in respect of the Bank for the years ended 30 June 2004, 2005, 2006 and 2007. For the reasons advanced by the Commissioner at the hearing, I would not regard this as material to the question whether or not the freezing order should be continued.

[14]

"Borgas entities" 47 Commissioner's Evidence. The second, third and fourth respondents are all controlled by Mr Borgas and family and may be conveniently discussed together. All were involved in what the Commissioner described as "substantial" share trading. The second respondent, Chemical Trustee Ltd, is registered in the United Kingdom. Its directors are Peter, Timothy and Winny Borgas. Its parent company, JA Investments Ltd, is incorporated in the Cayman Islands. Its shareholder is Guardheath Securities Ltd, located in the United Kingdom. Between 30 June 2001 and 30 June 2007, Chemical Trustee engaged in 739 share transactions on the ASX. Between April 2001 and June 2007 $66,397,957 came into Australia from Chemical Trustee and $61,057,319 went out. 48 The third respondent, Derrin Brothers Property Ltd is registered in the United Kingdom and has Peter and Winny Borgas as directors. Its shareholders are Guardheath Securities Ltd and Lordhall Securities Ltd, both located in the United Kingdom. Derrin Brothers engaged in 120 share transactions between 30 June 1995 and 30 June 2009. Between December 2001 and December 2008, $6,463,208 was transferred into Australia from Derrin Brothers, and $11,097,603 out of Australia. 49 The fourth respondent, Bywater Investments Limited is registered in the Bahamas. Its director is Peter Borgas. Between 30 June 2002 and 30 June 2007, Bywater engaged in 240 share transactions on the ASX. Between January 2002 and July 2006, $42,045,711 was transferred into Australia from Bywater, and $73,172,425 out of Australia. The Commissioner also relied on the fact that Bywater had engaged in what was termed short term trading. 50 Respondents' Evidence. The description of the three companies given in Mr Borgas' affidavit filed on 2 September 2010 is simply that "[a]ll three companies invest in shares and securities across a number of different jurisdictions", though Mr Borgas also states cryptically that "[f]undamentally [Chemical Trustee] operates as a type of charitable institution". As to Bywater, Mr Borgas asserts that "there was no particular rationale for selecting the Bahamas as the place of incorporation for this company". I am unable to accept this assertion without further explanation. 51 Mr Borgas' assertions regarding prejudice are general and do not distinguish between the three companies. Mr Borgas states simply that the freezing orders were "detrimental to the efficient operation of the investment portfolio" of each of the three companies, because it might become desirable to sell shares based on changes in the market. He stressed his view that "flexibility" was important in this regard. Mr Gould makes similar comments in relation to Chemical Trustee at paragraph 19 of his affidavit sworn on 6 September 2010. He also expresses fear (at paragraph 24) that he may be unable to convince Chemical Trustee and other companies to invest in Australia because, in his opinion, companies "can invest freely in listed securities in the United States and Great Britain, and if taxation issues arise they will generally be resolved without the assets being seized". Mr Gould makes the general comment with respect to each of the companies that "many" or "the majority" of the company's investments are in his view "illiquid", and he singles out particular shares as "hard to sell".

[16]

In conclusion 55 On the evidence before me, I am satisfied that there is a danger that a prospective judgment will be unsatisfied because assets of the respondents are removed from Australia or disposed of, or dealt with, or diminished in value. This danger is sufficient to justify the continuation of the freezing order in all the circumstances. 56 My analysis does not focus on the positive intent of the respondents to frustrate a judgment of the Court. This is because, while other views might arguably be taken, the Commissioner did not seek to contend that the evidence gave rise to an inference of such intent on the respondents' part. The factors that support a finding of sufficient likelihood of danger are therefore as follows: (1) Each respondent is a foreign corporation. (a) Hua Wang Bank Berhad is incorporated in Samoa. (b) As to the Borgas entities: Chemical Trustee Ltd is registered in the UK, and its parent company is incorporated in the Cayman Islands. Derrin Brothers Property Ltd is registered in the UK and so too are its shareholders, Guardheath Securities Ltd and Lordhall Securities Ltd. Bywater Investments Limited is registered in the Bahamas. (c) Southgate Investment Funds Limited is registered in the UK and so too are its shareholders, Guardheath Securities Ltd and Lordhall Securities Ltd. Its director is also a non-resident. (2) All of the respondents' known assets in Australia are securities tradeable on the ASX. They are liquid assets. Although Mr Gould expressed the view that the shares held by the respondents were "illiquid" and "hard to sell", I did not find this evidence particularly persuasive. (3) Each of the respondents has in the past been involved in transfers of significant amounts of money out of Australia following the sale of securities. (a) $8,665,752 was transferred out of Australia to Hua Wang Bank Berhad between September 1999 and July 2009, and the Bank has engaged in numbers of share transactions. (b) As to the Borgas entities: $61,057,319 was transferred out of Australia to Chemical Trustee Ltd between April 2001 and June 2007, and the company engaged in numerous share transactions. $11,097,603 was transferred out of Australia to Derrin Brothers Property Ltd between December 2001 and December 2008, and the company engaged in a number of share transactions. $73,172,425 was transferred out of Australia to Bywater Investments Limited between January 2002 and July 2006, and the company engaged in a number of share transactions. (c) $7,981,064 was transferred out of Australia to Southgate Investment Funds Limited between 2002 and 2010, and the company has engaged in share transactions. (4) None of the respondents has adduced evidence to show that it has other assets in Australia or in a jurisdiction where enforcement of judgments is possible under a reciprocal regime for registration and enforcement of foreign judgments. (5) None of the respondents has adduced clear evidence about the nature of their business activities, or their management and control. In light of all the evidence before me, and considering the observations in Chandris and other authorities cited at paragraph [12] above, this factor is particularly significant. On the available evidence, the nature of the companies is such that a reasonable commercial person might infer that a future judgment against the respondents would be frustrated if the relevant assets were removed from Australia. (a) Hua Wang Bank Berhad is apparently administered by directors who are employees of Asiaciti Trust. Beyond this little is known about the management and control of the Bank, or its business operations. The Bank is incorporated in what is commonly described as a "tax haven". (b) As to the Borgas entities: Chemical Trustee Ltd's directors are Mr Borgas and members of his family but little, if anything, is known about its parent company or its shareholder; and little is known about the business operations of any of these companies. Whilst Derrin Brothers Property Ltd has Mr Borgas and his wife as directors, little, if anything, is known about its shareholders; and nothing much is known about its business operations or any of its associated companies, save that Mr Borgas asserts that Chemical Trustee operated as a kind of "charitable institution". What Mr Borgas means by this is unclear. Chemical Trustee's parent company is incorporated in what is commonly described as a "tax haven". Even less is known about Bywater, save that it has apparently engaged in what the Commissioner calls short-term trading. Bywater is also incorporated in what is commonly described as a "tax haven". (c) Apart from the fact that Southgate Investment Funds Limited has a corporate director registered in the UK and that Mr Naresh Shah states that he is the director of it, nothing further is known about its management or its business operations or the business operations of the companies associated with it. (6) Each of the respondents is apparently advised by, or otherwise connected with, tax advisers, both international and Australian, with experience in setting up tax structures designed to minimise tax and in moving large amounts of money between jurisdictions. (7) Each of the respondents has chosen not to file tax returns in Australia. The Commissioner has now assessed each respondent as liable to pay substantial amounts in tax and administrative penalties, and this might provide incentive to remove the assets from Australia. 57 There are factors that militate against the finding of danger, including the proffered undertaking by the respondents. Without greater knowledge about the assets, business operations and management structures of the respondents, however, the proposed undertaking can do little to assuage the apprehension that there is sufficient likelihood of removal or dissipation of relevant assets to justify the continuation of the order. 58 I am satisfied that it is in the interests of justice to continue the freezing orders. A good arguable case and a real risk of dissipation have been established. On the evidence as it stands, if the relevant assets are removed or dissipated, the Commissioner would be unable to satisfy any prospective judgment. Such a judgment, if obtained, would represent a significant amount of unpaid taxes and administrative penalties. The risk of frustration of judgment is sufficient to justify a freezing order in light of this substantial unpaid tax liability, which, on the Commissioner's view, has accumulated over several years in a regular pattern of non-payment and non-filing by the respondents. The evidence of hardship to the respondents as a result of a freezing order was generalised and vague; and there is nothing to show that the Commissioner's undertaking as to damages will not offer them adequate protection. I have already referred to the evidence of Mr Gould and Mr Yunus regarding the Hua Wang Bank Berhad. In the case of the Borgas entities, as already noted, Mr Borgas' assertions were also general and did not differentiate between the three companies to any extent. Also as noted, Mr Shah did not refer to any particular hardship suffered by Southgate Investments Funds Limited as a result of the freezing order. The evidence as to hardship to third parties was slight or non-existent. Further, provision can be made for the release of funds to meet reasonable legal and business expenses. 59 There is a further question as to whether the Court should continue the orders earlier made against third parties - namely Computershare Investor Services Pty Limited, Link Market Services Limited, Registries Limited, Advanced Share Registry Services Limited, Security Transfer Registrar Pty Ltd and Gould Ralph Pty Ltd. Senior Counsel for the Commissioner informed the Court that the Commissioner "would not oppose the third parties being removed from the operation of the freezing orders, as parties affected, on the understanding that the [Commissioner] would give notice of the freezing orders, in their amended form, to those [third parties]", each of whom act as share registries. Accordingly, I would continue the freezing orders subject to removing the third parties from their operation upon the basis that the Commissioner will give notice of the orders that I now make to each of the third parties. 60 The last matter that has given me significant concern is the potentially lengthy duration of any freezing orders that the Court might make. One possibility is that these freezing orders will be brought to a relatively speedy end upon the Commissioner's expeditious application for judgment. Another possibility is that the litigation may become attenuated as the taxpayers challenge their assessments under and in accordance with Part IVC of the TAA. It seems to me that the Court should take steps to ensure as far as possible that the freezing orders operate only so long as they can be reasonably required. Amongst other things, this means that the Commissioner must act with reasonably alacrity when called upon to do so. At the hearing, I took up this aspect of the matter with senior counsel for the Commissioner and senior counsel for the respondents. Senior counsel for the respondents agreed that the respondents should be able to lodge their taxation objections in accordance with Part IVC within about a fortnight of the hearing. Senior counsel for the Commissioner indicated that the Commissioner would need about seven days from receipt of the objections in order to estimate the time needed to make decisions on them. In these circumstances, I would not continue the freezing orders indefinitely. Rather, I would extend them for a period of about three weeks until 11 October 2010, upon the basis that the respondents will lodge their objections in accordance with Part IVC by 30 September 2010. On 11 October 2010, I will be asking the parties for some statement of the likely progress of the matter.

At a glance

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Judgment (21 paragraphs)

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Legislation Cited (5)

Cases Cited (17)