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[2019] FCA 1537
Federal Court of Australia
2019-09-18
Katzmann J
Original judgment source is linked above.
Counsel for the Applicant: Mr A McInerney SC with Mr T Arnold
Solicitor for the Applicant: Craddock Murray Neumann Lawyers
BETWEEN: DEPUTY COMMISSION OF TAXATION Applicant
AND: CHANGRAN HUANG First Respondent
JUDGE: KATZMANN J DATE OF ORDER: 16 SEPTEMBER 2019
(a) You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia ('Australian assets') up to the unencumbered value of AUD$140,925,953.98 ('the Relevant Amount') other than to make payment to the Commissioner of Taxation. (b) If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount. (c) If the unencumbered value of your Australian assets is less than the Relevant Amount, and you have assets outside Australia ('ex-Australian assets'): (i) You must not dispose of, deal with or diminish the value of any of your Australian assets and ex-Australian assets up to the unencumbered value of your Australian and ex-Australian assets of the Relevant Amount; and (ii) You may dispose of, deal with or diminish the value of any of your ex-Australian assets, so long as the unencumbered value of your Australian assets and ex-Australian assets still exceeds the Relevant Amount. 7. For the purposes of this order, (a) your assets include: (i) all your assets, whether or not they are in your name and whether they are solely or co-owned; (ii) any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and (iii) the following asset in particular, the real property at: A. 31 Douglas Ave, Chatswood NSW 2067; B. Unit 5205, 438 Victoria Ave, Chatswood NSW 2067; and C. Flat B,36/F, Tower 5, Bel-Air on the Peak Island South (Phase 4), 68 Belair Peak Avenue (b) the value of your assets is the value of the interest you have individually in your assets. EXCEPTIONS TO THIS ORDER 8. This order does not prohibit you from: (a) paying up to $10,000 a week on your ordinary living expenses; (b) paying up to $50,000 on your reasonable legal expenses; (c) dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; and (d) in relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation. 9. You and the applicant may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case the applicant or you must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the applicant and you, and the Court may order that the exceptions are varied accordingly. 10. (a) This order will cease to have effect if you: (i) pay the sum of AUD$140,925,953.98 into Court; or (ii) pay that sum into a joint bank account in the name of your solicitor and the solicitor for the applicant as agreed in writing between them; or (iii) provide security in that sum by a method agreed in writing with the applicant to be held subject to the order of the Court. (b) Any such payment and any such security will not provide the applicant with any priority over your other creditors in the event of your insolvency. (c) If this order ceases to have effect pursuant (a), you must as soon as practicable file with the Court and serve on the applicant notice of that fact. COSTS 11. The costs of this application are reserved to the judge hearing the application on the Return Date. PERSONS OTHER THAN THE APPLICANT AND RESPONDENT 12. Set off by banks This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave you before it was notified of this order. 13. Bank withdrawals by the respondent No bank need inquire as to the application or proposed application of any money withdrawn by you if the withdrawal appears to be permitted by this order. 14. Persons outside Australia (a) Except as provided in subparagraph (b) below, the terms of this order do not affect or concern anyone outside Australia. (b) The terms of this order will affect the following persons outside Australia: (i) you and your directors, officers, employees and agents (except banks and financial institutions); (ii) any person (including a bank or financial institution) who: (A) is subject to the jurisdiction of this Court; and (B) has been given written notice of this order, or has actual knowledge of the substance of the order and of its requirements; and (C) is able to prevent or impede acts or omissions outside Australia which constitute or assist in a disobedience of the terms of this order; and (iii) any other person (including a bank of financial institution), only to the extent that this order is declared enforceable by or is enforced by a court in a country or state that has jurisdiction over that person or over any of that person's assets. 15. Assets located outside Australia Nothing in this order shall, in respect of assets located outside Australia, prevent any third party from complying or acting in conformity with what it reasonably believes to be its bona fide and properly incurred legal obligations, whether contractual or pursuant to a court order or otherwise, under the law of the country or state in which those assets are situated or under the proper law of any contract between a third party and you, provided that in the case of any future order of a court of that country or state made on your or the third party's application, reasonable written notice of the making of the application is given to the applicant. SCHEDULE A UNDERTAKINGS GIVEN TO THE COURT BY THE APPLICANT (1) The applicant undertakes to submit to such order (if any) as 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 order. (2) As soon as practicable, the applicant will file and serve upon the respondent copies of: (a) this order; (b) the application for this order for hearing on the return date; (c) the following material in so far as it was relied on by the applicant at the hearing when the order was made: (i) affidavits (or draft affidavits); (ii) exhibits capable of being copied; (iii) any written submission; and (iv) any other document that was provided to the Court. (d) a transcript, or, if none is available, a note, of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put, to the Court; (e) the originating process, or, if none was filed, any draft originating process produced to the Court. (3) As soon as practicable, the applicant will cause anyone notified of this order to be given a copy of it. (4) The applicant will pay the reasonable costs of anyone other than the respondent which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the respondent's assets. (5) If this order ceases to have effect1 the applicant will promptly take all reasonable steps to inform in writing anyone to who has been notified of this order, or who he has reasonable grounds for supposing may act upon this order, that it has ceased to have effect. (6) The applicant will not, without leave of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings, either in or outside Australia, other than this proceeding. (7) The applicant will not, without leave of the Court, seek to enforce this order in any country outside Australia or seek in any country outside Australia an order of a similar nature or an order conferring a charge or other security against the respondent or the respondent's assets. SCHEDULE B AFFIDAVITS RELIED ON Name of Deponent Date affidavit made (1) Yi Deng 16 September 2019 NAME AND ADDRESS OF APPLICANT'S LEGAL REPRESENTATIVES The applicant's legal representatives are: c/- Craddock Murray Neumann Lawyers Pty Ltd Level 21, 227 Elizabeth Street SYDNEY NSW 2000 Telephone: (02) 8268 4000 Facsimile: (02) 8268 4001 Attention: Khaled Metlej ANNEXURE B (JIEFANG HUANG) PENAL NOTICE TO: JIEFANG HUANG IF YOU: (A) REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR (B) DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING, YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT. ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED. TO: JIEFANG HUANG This is a 'freezing order' made against you on 16 September 2019 by Justice Katzmann at a hearing without notice to you after the Court was given the undertakings set out in Schedule A to this order and after the Court read the affidavits listed in Schedule B to this order. THE COURT ORDERS: INTRODUCTION
KATZMANN J : 1 Changran Huang, also known as Huang Xiangmo, and Jiefang Huang are husband and wife. For several years they lived in Australia and, since 1 February 2013, they were tax residents of Australia. On 4 December 2018 Mr Huang left Australia bound for the People's Republic of China (PRC). Mrs Huang left on 11 September 2019, also bound for the PRC, presumably to join him. At the time of Mr Huang's departure, an audit into Mr Huang's income tax affairs was under way. On 11 September 2019, as a result of that audit, the Deputy Commissioner of Taxation issued notices of amended assessment and a notice of assessment of shortfall penalty (the tax assessment notices) for a total amount of $140,925,953.98. Five days later, on 16 September 2019 the Deputy Commissioner of Taxation filed an originating application in the Court seeking judgment against Mr Huang in that amount together with interest. The Deputy Commissioner also applied for freezing orders against the respondents, for leave to serve them outside the jurisdiction, and for substituted service. In addition, the Deputy Commissioner sought urgent interim freezing orders to preserve the status quo. 2 The originating application was supported by an affidavit sworn the same day by Yi Deng to which 10 lever arch files were exhibited. Mr Deng is employed in the Debt section of the Australian Taxation Office (ATO) as Senior Technical Leader of Significant Debt Management. 3 The application for urgent interim freezing orders was made at an ex parte hearing that took place on the day the originating application was filed. The orders sought were substantially in the form in which they appear in Annexure A to Federal Court Practice Note GPN-FRZG. The only significant variation was to remove the provision for an undertaking to provide a security bond, which the Deputy Commissioner contended was unnecessary. 4 After considering the evidence in the affidavit and the submissions, both written and oral, made on behalf of the Deputy Commissioner, I determined that the orders should be made. Given the lateness of the hour when the hearing concluded, however, I indicated I would provide my reasons later. These are those reasons.
The relevant rules 5 The power to make freezing orders is contained in r 7.32 of the Federal Court Rules 2011 (Cth) (FCR or Rules). It provides that: (1) The Court may make an order (a freezing order), with or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the Court's process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied. (2) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets. 6 The Court may also make ancillary orders: FCR, r 7.33. 7 Rule 7.35 deals with the circumstances in which the Court may make a freezing order against a judgment debtor or a prospective judgment debtor and a person other than a judgment debtor or a prospective judgment debtor. It relevantly provides as follows: (1) This rule applies if: … (b) an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in: (i) the Court; … … … (4) The Court may make a freezing order or an ancillary order or both against a … prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a … prospective judgment will be wholly or partly unsatisfied because any of the following might occur: … (b) the assets of the… prospective judgment debtor or another person are: (i) removed from Australia or from a place inside or outside Australia; or (ii) disposed of, dealt with or diminished in value. (5) The Court may make a freezing order or an ancillary order or both against a person other than a… 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… 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… 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… prospective judgment debtor; or (b) a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment. (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 Although r 7.36 makes it clear that the Court's "inherent, implied or statutory jurisdiction to make a freezing order" is preserved, the Deputy Commissioner relied only on the power in r 7.35.
The issues 9 The following issues therefore arose: (1) Does the Deputy Commissioner have a good arguable case on a prospective cause of action that is justiciable in the Court? (2) Is there a danger that the prospective judgment will be wholly or partly unsatisfied because Mr Huang's assets are disposed of, dealt with or diminished in value? (3) Is there such a danger because Mrs Huang holds, is using, has exercised, or is exercising a power of disposition over assets of her husband? (4) Do the interests of justice and the balance of convenience favour the making of the orders? 10 Before dealing with these issues, it is necessary to refer to some matters of fact established by the evidence.
Some relevant background facts 11 Mr Huang is a citizen of the PRC. 12 Mr Huang has been conducting business in the PRC since the 1980s. The Huang family's business focusses on property development and investments in various industries. In 2006 Mr Hunag established the Shenzhen Yuhu group of companies. According to a response to a request for information prepared by KPMG on his behalf in February 2017, he accumulated "significant personal wealth" in the PRC before moving to Australia in 2013. The KPMG response indicated that Mr Huang continued to exercise a significant measure of ownership and/or control over 10 corporate entities in the PRC and owned 100% of three Hong Kong based companies, although he asserted that none of those three entities had ever traded. 13 The evidence disclosed that from April 2011, Mr Huang was appointed a director of 20 Australian companies. He was also an appointor or beneficiary of a number of Australian resident trusts. 14 The records of the Huang Family Trust show that as at 30 June 2018 loans owing to the Huang Family Trust exceeded $165 million. While the last recorded creditor is named only as "unitholder", the previous recorded creditor in an amount of over $108 million, is named as Mr Huang. Information acquired during the course of the audit indicates that that debt was not repaid. The loans appear to have been made to some of those Australian companies and trusts. The financial statements for the Austrump Family Trust, for example, record a loan from Mr Huang of nearly $12 million. 15 Mr Huang has cash in numerous accounts with several Australian and overseas banks. The present value of those accounts, however, is currently unknown. 16 Mr Huang also has substantial real estate holdings. 17 On 31 March 2007 he acquired a property in Hong Kong with an estimated value of HKD25,861,500 (approximately AUD3,711,311). On 18 September 2015 he purchased a unit in Chatswood, NSW with an estimated value of $3,428,258. On 14 April 2016 he purchased a house in Chatswood, NSW with an estimated value of $3,275,128. As far as the evidence shows, none of these properties is subject to a mortgage. 18 According to his last income tax return lodged with the ATO on 13 December 2018 he last resided in Australia at a property in Bay Street Mosman, NSW (the Mosman property). The Mosman property was purchased in the name of Mrs Huang for the sum of $12,800,000. Settlement took place on 29 January 2013. It is unencumbered. 19 In addition to the Mosman property, Mrs Huang is also the owner of a property in Hong Kong which she purchased in about December 2018 for the amount of HKD520,000,000 (approximately AUD96,000,000). This, too, is apparently unencumbered. 20 In January 2016 the Deputy Commissioner began a comprehensive risk review of Mr Huang's taxation affairs, covering the three income years ending 30 June 2013, 30 June 2014 and 30 June 2015. On 4 October 2017 the risk review was escalated to an audit. 21 On 18 March 2016, after the risk review had started, Mr Huang resigned as a director of one of the Australian companies. On 16 January 2018, after the audit had started, he resigned as a director of another. On 12 November 2018, while the audit was still under way, he resigned as a director of 16 of the Australian companies and on 20 December 2018 he resigned as a director of another. So by 21 December 2018, Mr Huang had removed himself as a director of all but one of the Australian companies. 22 On 9 March 2019, by consent, Mr Huang was removed as a beneficiary of the Huang Family Trust, the Yuhu Investment Trust, the Austrump Family Trust, and the 626 Family Trust. The same day he was also removed by consent as the appointor of the last three of those trusts. 23 As I have already noted, Mr Huang left Australia for the PRC on 4 December 2018. The following day his visa was cancelled pursuant to s 128 of the Migration Act 1958 (Cth). On 18 December 2018 he withdrew an application he had made for Australian citizenship. The evidence indicates that he has not made any application for the issue of a new visa. It is likely that he now resides in Hong Kong. 24 AUSTRAC records show that between January 2016 and August 2019 Mr Huang transferred tens of millions of dollars into and out of Australia. That evidence shows a substantial excess of monies going out compared to monies coming in. It also shows that the amount of money transferred out of Australia since December 2018 exceeds the amount coming in by $46,749,253, nearly twice as much as the previous year. 25 The tax assessment notices were issued on 11 September 2019 at the same time the Deputy Commissioner issued reasons for her decisions. The due date for payment is 7 October 2019. 26 On 13 September 2019, a certificate under s 255-45 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA) was issued by the Commissioner through his delegate. The certificate was signed by Melinda Smith, Deputy Commissioner of Taxation and delegate of the Commissioner of Taxation. It specified that Mr Huang had a tax-related liability as a result of a number of amended and other assessments listed in the notice, that certain specified notices were or were taken to have been served on him, and that he has a debt of $140,925,953.98 due to the Commonwealth as a tax related liability. A tax-related liability is defined in the TAA to mean "a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable)". 27 Upon service of the tax assessment notices, the Deputy Commissioner caused 39 notices to be issued under s 260-5 of the TAA. The recipients include Mrs Huang, Jiquan Huang (the son of Mr and Mrs Huang), Australian banks, and Australian companies and trusts with which Mr Huang was or remains involved. A s 260-5 notice is a statutory garnishee notice issued by the Commissioner to a third party who owes or may later owe money to a debtor. 28 Based on his experience working in this area, Mr Deng is concerned that, upon being informed of the substantial amounts of tax, penalties and interest to which Mr Huang has now become liable, Mr Huang and his wife may take steps to encumber or otherwise dispose of their assets and thereby frustrate the Deputy Commissioner's proceedings for the recovery of the tax liability. In particular, he is concerned that the capacity of the Deputy Commissioner to recover the amounts due would be compromised for the following reasons. 29 First, by "grossly understating" income he received for the 2013 to 2015 income tax years, Mr Huang has evinced an intention not to pay income tax. 30 Second, Mr Huang's financial affairs are complex and his assets and those held in the name of his wife "are amenable to being encumbered or disposed of before there could be any real investigation into [the] availability of those assets to satisfy [the Deputy Commissioner's] prospective judgment". 31 Third, Mr Huang's primary business interests and wealth exist outside Australia and the Commissioner may be delayed or hindered in taking recovery action outside Australia, assuming that course is available. 32 Fourth, Mr Huang has demonstrated an ability to quickly move large sums of money outside Australia. 33 Fifth, the substantial size of the tax debt, in combination with the cancellation of Mr Huang's visa, gives him and his wife a significant incentive to dissipate assets or encumber them and to remove property from Australia. 34 Mr Deng also deposed that a prospective judgment obtained against Mr Huang was unlikely to be enforceable in either mainland China or Hong Kong. He stated that, although he was aware from the Council of Europe's website that the PRC and Hong Kong were parties to the Convention on Mutual Administrative Assistance in Tax Matters, he was also aware that: [I]n the instrument of ratification deposited with the Secretary General of the OECD, on 16 October 2015, with respect to Article 30, paragraph 1.b, of the Convention, the People's Republic of China reserved that it shall not provide assistance in the recovery of tax claims, or in conservancy measures, for all taxes. (The period covered is 01/02/2016 - present). 35 Moreover, with respect to Hong Kong, Mr Deng said that, by a letter from the Chinese ambassador to France dated 28 May 2018, registered at the Secretariat of the OECD on 29 May 2018, the Government of the PRC declared that the reservation made by the PRC shall apply to Hong Kong.
Does the Deputy Commissioner have a good arguable case on a prospective cause of action that is justiciable in the Court? 36 Without doubt, the Deputy Commissioner has a good arguable case on her prospective cause of action that is justiciable in the Court. 37 "A good arguable case" is one which is "reasonably arguable on legal and factual matters": Insolvency Guardian Melbourne Pty Ltd v Carlei (2016) 111 ACSR 236; [2016] FCA 72 at [18] (Edelman J); Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [68] (Gaudron, McHugh, Gummow and Callinan JJ). 38 Copies of the tax assessment notices were included in volume 1 of the exhibit to Mr Deng's affidavit. They were summarised in a table in the affidavit: Income Year: Amended Taxable Income Shortfall amount of income tax assessed Shortfall Penalties SIC: Increase in liability following Audit: 2013 $10,863,286 $4,894,867.05 $2,447,433 $1,535,944.20 $8,878,244.25 2014 $124,413,338 $57,862,280.25 $28,931,140 $13,984,713.58 $100,778,133.83 2015 $38,132,677 $18,472,535.95 $9,236,267 $3,150,416.91 $30,859,219.86 TOTAL $173,409,301 $81,229,683.25 $40,614,840 $18,671,074.69 $140,515,597.94
"SIC" is an acronym for shortfall interest charges. 39 By Sch 1 s 350-10 item 2 of the TAA, the production of a notice of assessment is conclusive evidence that the assessment was properly made and, except in proceedings under Pt IVC of the TAA on a review or appeal relating to the assessment, it is conclusive evidence that the amounts and particulars of the assessment are correct. The validity of an assessment is not affected by a failure to comply with any provision of the Income Tax Assessment Act 1936 (Cth) (ITAA): ITAA, s 175; Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 at [24], [67] (Gummow, Hayne, Heydon and Crennan JJ). Nor is the validity of an assessment of an assessable amount affected by non-compliance with the TAA or any other taxation law: TAA, s 155-85. 40 Moreover, a certificate signed by the Commissioner, a Second Commissioner or a Deputy Commissioner stating that a person named in it has a tax-related liability is prima facie evidence of the matter in a proceeding to recover the amount of the liability: TAA, s 255-45. The certificate signed by the Deputy Commissioner satisfies the terms of that section. 41 A cause of action in debt accrues to the Commissioner against a taxpayer upon service of a notice of assessment: Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243 at 251-2 (Kitto J). Section 14 of the Taxation Administration Regulations 2017 (Cth) permits the Commissioner to serve a document on a person for the purposes of the taxation laws by various means, including leaving a copy of the document at a physical address and posting a copy of the document to a postal address if the person has given a preferred address for service, defined in s 15, that answers that description. Service could also be effected by leaving the documents at the residential address last known to the person serving the documents: Acts Interpretation Act 1901 (Cth), s 28A(1)(a). 42 The evidence is that on 12 September 2019 copies of the tax assessment notices were placed in a sealed envelope, marked with a priority label, and posted to Mr Huang care of Deloitte Private's post office box address, which was his preferred address for service within the meaning of the Regulations and left by an employee of the ATO at his last known residential address, being the Mosman property. 43 While due service of a notice of assessment is a condition precedent to the creation of a liability to pay the tax assessed (Federal Commissioner of Taxation v Naidoo (1981) 55 FLR 245 at 256 per Everett J), even if service is invalid, the issuing of the tax assessment notices gives the Deputy Commissioner a prospective cause of action in debt against Mr Huang as the prospective judgment debtor: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194; 80 ATR 449; [2010] FCA 1014 at [18] (Kenny J). 44 Finally, the Commissioner or the Deputy Commissioner may sue in a court of competent jurisdiction to recover any tax liability that is due to the Commonwealth and payable to the Commissioner: TAA, Sch 1, s 255-5. This Court is such a court; it has original jurisdiction, amongst other things, in a matter arising under a law of the Commonwealth Parliament: Judiciary Act 1903 (Cth), s 39B(1A)(c). Taxation assessments owe their existence to federal law and depend upon federal law for their enforcement: Deputy Commissioner of Taxation v Vasiliades (2014) 323 ALR 59; (2014) 99 ATR 799; [2014] FCA 1250 at [42] (Gordon J). 45 It follows that the Deputy Commissioner has a good arguable case and her cause of action is justiciable in this Court.
Is there a danger that the prospective judgment will be wholly or partly unsatisfied because Mr Huang's assets might be removed from Australia or disposed of, dealt with or diminished in value? 46 As I observed in Deputy Commissioner of Taxation v Advanced Holdings Pty Ltd [2018] FCA 1263 at [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]. 47 Here, there was no direct evidence that Mr Huang intends to divest himself of his Australian assets or diminish them in value for the purpose of avoiding his tax liability or frustrating the court process. But direct evidence of such an intention is unnecessary. There may still be a danger that the prospective judgment will be wholly or partly unsatisfied even if intention cannot be established. It is enough that there is a danger that the assets could be dissipated which would have the effect of frustrating the court process: Hua Wang Bank at [10]; see also Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 4) [2012] 90 ATR 711; FCA 1064 (Perram J) at [23]. 48 Nonetheless, the danger must be established by evidence. Depending on the circumstances, however, the interests of justice may support the grant of a freezing order to prevent the dissipation of assets pending the hearing of an action although the risk of dissipation is less probable than not. What must be demonstrated is a sufficient likelihood of risk which in the circumstances of the case justifies the making of such an order. See Hua Wang Bank at [9]. 49 Based on the evidence given by Mr Deng, for the following reasons taken together, I was satisfied that there is a danger that the prospective judgment will be wholly or partly unsatisfied because Mr Huang's assets might be removed from Australia or disposed of, dealt with or diminished in value. 50 First, at over $140 million the size of his tax liability is considerable. 51 Second, although there is no direct evidence that he intended to divest himself of his Australian assets or diminish them in value, the results of the audit indicate an intention to avoid paying tax by grossly understating income. 52 Third, Mr Huang is a Chinese national, currently overseas, without an Australian visa who, since November 2018, has taken a number of steps towards severing his ties to Australia. 53 Fourth, Mr Huang's Australian assets do not seem to be enough to satisfy the tax liability. The problem will be exacerbated if those assets are removed from Australia or sold and the proceeds moved offshore. Although Mr Huang is owed money by entities with which he was formerly associated, it is unknown when the loans fall due or whether the borrowers will ever repay them. 54 Fifth, Mr Huang is likely to be a person of substantial wealth having regard to the transfers of monies into and out of Australia between January 2016 and August 2019 and the number of foreign companies which he apparently controls. He has significant business interests in the PRC, including Hong Kong, and the structures and operations to allow him to easily move assets between jurisdictions. 55 These circumstances demonstrate that Mr Huang has both a motive and the means to dissipate his Australian assets. In this respect his position is similar to the position of the respondent in Chemical Trustee. These circumstances alone were sufficient to persuade Perram J that there was a danger of dissipation, notwithstanding the absence of evidence of an intention to dissipate and even though earlier freezing orders had been obeyed: Chemical Trustee at [24]-[27]. 56 Sixth, Mr Huang has already taken steps to divest himself of his interest in Australian companies and trusts. Although he transferred money overseas before he was aware that he was under investigation by the ATO, since the audit began the amount of money transferred offshore increased dramatically. 57 Seventh, as the Deputy Commissioner submitted, the issue of the tax assessment notices increases the likelihood of dissipation. What Perry J said of the respondent in Deputy Commissioner of Taxation v Ghaly [2016] FCA 707 at [37], might just as well be said of Mr Huang: [T]he seriousness of his position is now immediate and real given the issue of the assessments, the provision of the Deputy Commissioner's reasons for decision disbelieving his explanations and the size of the liabilities. This suggests that the danger that assets might be dissipated is greater than when the initial review began.
Is there such a danger that the prospective judgment will be wholly or partly unsatisfied because Mrs Huang holds, is using, has exercised, or is exercising a power of disposition over assets of her husband? 58 A freezing order is also sought against Mrs Huang under r 7.35(5). It relates only to the Mosman property. The Deputy Commissioner submitted that she has a reasonably arguable case that Mr Huang has a beneficial interest in the Mosman property on a resulting trust, where there is a proper basis to infer that Mr Huang contributed a significant part (in excess of $6 million) of the monies used by Mrs Huang to purchase the Mosman property. The basis for the argument is that the Mosman property was purchased unencumbered in the sum of $12,800,000. Yet Mrs Huang described her occupation as "housewife" and her declared annual income at the time of purchase was less than $100,000. 59 Where a husband makes a purchase in the name of his wife, there is a presumption that a resulting trust arises in his favour: Calverley v Green (1984) 155 CLR 242 at 247 (Gibbs CJ). Where both husband and wife contribute to the purchase, then in the absence of evidence to the contrary it is presumed that they intended to be joint beneficial owners, regardless of whether the purchase is in their joint names or the name of one only. This is an application of the same principle: see Pettitt v Pettitt [1970] AC 777 at 815 (Lord Upjohn), cited with approval by Mason and Brennan JJ in Calverley at 259. 60 Furthermore, in Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 at [71] the High Court accepted the following proposition: Where a husband and wife purchase a matrimonial home, each contributing to the purchase price and title is taken in the name of one of them, it may be inferred that it was intended that each of the spouses should have a one-half interest in the property, regardless of the amounts contributed by them. 61 Although it is far from certain that Mr Huang was the source of any, let alone all of the funds, the evidence raises a prima facie case, at least, that Mr Huang made a significant financial contribution to the purchase of the property. 62 First, the relationship between Mr and Mrs Huang as well as Mr Huang's capacity to pay indicates that he is a likely, if not the most likely, source of the funds. 63 Second, the evidence indicates that on 10 May 2012 a transfer of $1,000,030 was made from an account held by the Bank of Queensland in Mr Huang's name, described as "transfer to current acct" into a Bank of Queensland account in Mrs Huang's name and withdrawn the same day. The balance in Mrs Huang's account remained around $440,000 until 19 October 2012, when a credit transfer of $490,606.43 was recorded in her bank statement. The same day the same amount was debited from Mr Huang's account and described as "transfer to current acct". Thereafter, until the day of the settlement of the purchase of the Mosman property, the balance of Mrs Huang's account was around $930,000. 64 There is also evidence of other deposits of substantial sums into Mrs Huang's Bankwest accounts five days before the settlement, but the source or sources have not yet been identified. 65 On 29 January 2013, the day of the settlement, the amount of $900,010 was withdrawn from Mrs Huang's Bank of Queensland account. The transaction is described as "withdrawal property purchase". In addition, Mr Huang's ANZ bank account shows three withdrawals on the same day totalling $5,856,808.31. Although the evidence does not indicate a transfer into an account in Mrs Huang's name and the description is merely "card entry at Chatswood (382) branch", it would be a remarkable coincidence if this sum was not applied to the settlement of the Mosman property. 66 For these reasons, despite the uncertainty surrounding some of the transfers, I accepted that there is a reasonably arguable case that Mr Huang contributed to the purchase of the Mosman property and therefore has a substantial beneficial interest in it. It follows that I accepted that the Mosman property is likely to be an asset of both Mr Huang and his wife. Having regard to all the circumstances, I was satisfied that there is a danger that the prospective judgment will be wholly or partly unsatisfied because Mrs Huang holds a power of disposition over that property. If not restrained by Court order, there is a real risk that Mrs Huang could take steps to sell or encumber the property and thereby diminish the amount of money available to discharge the prospective judgment debt.
Do the interests of justice and the balance of convenience favour the making of the orders? 67 For the following reasons, both the interests of justice and the balance of convenience favoured the making of the orders. 68 In BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd [2010] WASC 25 at [22] Le Miere J observed that: Having regard to the nature of the remedy, once the other prerequisites are made out and subject to any other discretionary factors, the balance of convenience will almost inevitably lie in favour of the grant of the order, because the potential damage to the plaintiff of being unable to satisfy the judgment will outweigh the inconvenience to the defendant of being subjected to a properly drawn freezing order … 69 In the present case, several factors weighed in favour of the making of the orders. 70 First, the Deputy Commissioner appears to have a strong case for final relief. 71 Second, the amount of the tax liability is considerable and there is a real danger that, without the freezing orders, assets will be removed from Australia or otherwise dissipated. 72 Third, since the prospective judgment is not likely to be enforceable against Mr Huang in the PRC, including in Hong Kong, it is critical that the Australian assets be preserved. 73 Fourth, the orders are limited, in Mr Huang's case to the amount of the tax debt and in his wife's case to the amount she could recover from the sale of the Mosman property. 74 Fifth, the Deputy Commissioner gave the usual undertaking as to damages as well as all but one of the standard form undertakings in Practice Note GPN-FRZG. 75 On the other hand, the Commissioner has taken steps to collect the tax-related liability by issuing the s 260-5 notices. In circumstances such as the present, where a person has a tax-related liability, s 260-5 imposes an obligation on the third party to pay money to discharge the tax debt. If the third party fails to pay the money to the Commissioner by the time stipulated in the notice, the Commissioner may recover the amount owing from the third party by an action in debt: Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 at [51]; Federal Commissioner of Taxation v Barnes Development Pty Ltd (2009) 178 FCR 352 (Gilmore J) at [18]-[35]. As the Commissioner acknowledged, the availability of an alternative effective remedy could be a reason for refusing to make a freezing order. 76 Be that as it may, the weight to be attached to this circumstance is limited, given that the Commissioner does not know at this stage what amount of money is held by the recipients of, and which will be caught by, the s 260-5 notices. Further, the Commissioner's searches reveal that several of the respondents to whom s 260-5 notices were issued hold real property and s 260-5 notices do not operate in respect of real property. In any case, as the Deputy Commissioner pointed out, at a future return date, the value of assets caught by the freezing orders against the recipients of the s 260-5 notices can be adjusted to the extent of any recovery under those notices. 77 Finally, I was satisfied that the form of the orders ultimately sought was appropriate. Given the identity of the applicant, I accepted that a security bond was unnecessary. As counsel for the Deputy Commissioner put it, "the Commissioner is good for the money". 78 I should point out that in her originating application the Deputy Commissioner applied for an ancillary order for the disclosure of assets and arguments in support of that application were advanced in the written submissions. Since the proposal was to bring the matter back before the Court within days, counsel fairly acknowledged that it was unreasonable to expect Mr Huang to be able to comply with the order in the meantime. If the application is pressed, it can be dealt with at the next or a later return date.
Service of the originating application and supporting documents
Service generally 79 An originating application and accompanying affidavit must be served personally on each respondent named in the application: FCR, r 8.06. The Court may extend or shorten the time for service: FCR, r 1.39. 80 Rule 10.43(1) provides that service of an originating application on a person in a foreign country is only effective: (a) if the Court has given leave to do so in accordance with a convention, the Hague Convention or the law of the foreign country before the application is served; or (b) where leave has not been sought, if the Court confirms service; or (c) the person served waives any objection to service by filing a notice of address for service without also making an application to set aside the originating application or service of that application. 81 Rule 10.24 provides that if it is not practicable to serve a document on a person in a way required by the Rules, amongst other things, a party may apply to the Court without notice for an order substituting another method of service. 82 Rule 1.34 enables the Court to dispense with compliance with any of the Rules. 83 In her written submissions the Deputy Commissioner submitted that the Court should grant leave to serve the documents outside Australia, order that service outside Australia "be deemed"; and make orders for substituted service. Her purpose was to ensure that the Court's orders were brought to the attention of Mr and Mrs Huang as soon as possible. 84 The evidence suggests that Mr and Mrs Huang now reside in the PRC, probably in Hong Kong. Substituted service was sought on the basis that effecting service, in compliance with the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters done at The Hague on 15 November 1965 (Hague Convention), would cause unnecessary and lengthy delay.
Service outside Australia 85 Notwithstanding the terms of r 10.24 and the Court's general power to dispense with compliance with any of the Rules, I observed in Commissioner of Taxation v Zeitouni [2013] FCA 1011 at [26] that there is a line of authority to the effect that where the person to be served is in a foreign country, it is inappropriate for a court to consider an order for substituted service unless an order has first been obtained for service outside Australia. In Zeitouni I followed these authorities and held that the Commissioner was obliged to obtain leave from the Court to serve the respondents outside the jurisdiction before an order for substituted service could be made. There is no need to canvass the reasons here or to refer to those authorities. Counsel for the Deputy Commissioner accepted that this was the correct approach and proceeded to seek leave under Div 10.4 of the Rules. 86 To obtain an order for leave to serve a person in a foreign country, r 10.43(4) requires that the Deputy Commissioner satisfy the Court that: (a) that the Court has jurisdiction in the proceeding; (b) that the proceeding is of a kind mentioned in r 10.42; and (c) the party has a prima facie case for all or any of the relief claimed in the proceeding. 87 The application must be accompanied by an affidavit that includes the name of the relevant foreign country, the proposed method of service and that the proposed method of service is permitted by a convention, the Hague Convention or the law of the foreign country: FCR, r 10.43(3). The evidence adduced by the Deputy Commissioner satisfied these requirements. 88 I granted leave for the following reasons. 89 First, for the reasons given at [44] above, this Court had jurisdiction. 90 Second, this is a proceeding of a kind mentioned in r 10.42. It falls within several items in the table within the rule. Amongst other things, it is based on a cause of action arising in Australia (item 1) and an injunction is sought ordering a person to do, or to refrain from doing, anything in Australia (item 23). 91 Third, for the reasons given at [36]-[45] above, the Deputy Commissioner has a prima facie case for relief.
Substituted service 92 Mr Deng deposed that to effect service on the respondents in Hong Kong it would be necessary to serve them in accordance with the requirements of the Hague Convention, to which Australia and the PRC are both signatories. 93 The evidence was that effecting service under the Hague Convention in Hong Kong would take between three and four months. The Deputy Commissioner submitted that a delay of between three or four months to effect service in accordance with the Hague Convention was not practicable in the circumstances. She said the intention of seeking leave for substituted service was to ensure that the orders could be brought to the attention of the respondents as soon as possible. This would minimise the possibility of the respondents being unaware of the proceedings and inadvertently acting in a manner inconsistent with the freezing orders. 94 In Electrolux Home Products Pty Ltd v Delap Impex Ltd [2013] FCA 600 at [72]-[78] and Zeitouni at [66]-[71] I considered the meaning of "not practicable". In short, while inconvenience is not enough, it is unnecessary to show that personal service is impossible or would be futile. In Commissioner of Taxation v Regent Pacific Group Limited [2013] FCA 36 at [26] Siopis J considered that personal service was not practicable, having regard to the "Draconian nature" of freezing and associated interlocutory orders, where it is important that the orders be brought to the attention of the respondents as quickly as possible to give them the chance at the earliest opportunity to oppose the continuation of the orders. 95 The same considerations apply here. 96 The Deputy Commissioner proposed several methods for substituted service designed to ensure that the documents came swiftly to the attention of the respondents. With the exception of one method (leaving the documents at the Mosman property), which, for good reason, was abandoned, all were eminently sensible. I certify that the preceding ninety-six (96) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.
Associate: Dated: 18 September 2019
Deputy Commissioner of Taxation
Huang
[2010] WASC 25
(1963) 109 CLR 243
(1984) 155 CLR 242
(1999) 198 CLR 380
(2008) 237 CLR 473
(2010) 273 ALR 194
(2014) 323 ALR 59
(2009) 178 FCR 352
(2008) 237 CLR 146
(1981) 55 FLR 245
(2006) 227 CLR 278
(1987) 162 CLR 612
(1989) 18 NSWLR 319