Deputy Commissioner of Taxation v Huang

Assets in Hong Kong and China 5 I deal first with the scope of the freezing orders, which currently apply to the first respondent's assets both within and outside of Australia. 6 The respondent's case depends on the purpose for which a freezing order can be made as provided for in r 7.32 of the Federal Court Rules 2011 (Cth). The rule is as follows: (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. 7 The purpose of a freezing order is to prevent frustration or inhibition of the Court's process by seeking to meet a danger that a judgment of the Court may be wholly or partly unsatisfied. A freezing order is "relief granted to facilitate the process of execution or enforcement which will arise when, but only when, the judgment for payment of an amount of money has been obtained": Mercedes Benz AG v Leiduck [1996] AC 284 at 306. The Court is thus acting to protect the integrity of its processes which extend to preserving the "efficacy of execution which would lie against the actual or prospective judgment debtor": Cardile v LED Builders Pty Limited [1999] HCA 18; (1999) 198 CLR 380 at [25]. 8 The first respondent's point is that there is no process available for enforcement of any judgment in the applicant's favour in Hong Kong and the PRC where the first respondent holds significant assets. Accordingly, to the extent that the freezing orders operate upon those assets they do not serve the purpose of protecting or preventing the frustration of this Court's enforcement processes as those assets are not liable to execution in any event. 9 The first respondent noted the evidence of Mr Deng for the applicant that because the PRC and Hong Kong had made reservations in relation to the Convention on Mutual Administrative Assistance in Tax Matters he believed "that a prospective judgment…is not likely to be enforceable in either the People's Republic of China or Hong Kong". 10 The first respondent relied on the statement in Damberg v Damberg (2001) 52 NSWLR 492 at [119] that "where foreign law is not proved it will be presumed to be the same as the lex fori". As to the lex fori, Australian courts will not, directly or indirectly, enforce the revenue laws of another country: Re Ayres; ex parte Evans (1981) 51 FLR 395 at 400. 11 The first respondent also tendered two decisions of Hong Kong courts, Nanus Asia Co Inc v Standard Chartered Bank [1990] 1 HKLR 396 and Cido Car Carrier Service Ltd v Woori Bank (Hong Kong branch) [2011] HKEC 817. In both cases the applicable principle which was identified is that the courts of Hong Kong will not enforce, directly or indirectly, a penal, revenue or other public law of a foreign state. The first respondent said there was no evidence that the position was any different in China and, consistently with Damberg v Damberg it should be presumed to be the same. 12 The first respondent accordingly submitted that there was no basis in the evidence for concluding that a judgment for a tax debt of the first respondent would be enforceable in Hong Kong or China. As a result, the applicant could not identify any foundation for a serious question to arise in respect of the potential frustration of the Court's processes for enforcement; such enforcement was an impossibility on the evidence. 13 To the extent that the applicant relied on the capacity to bankrupt the first respondent, there was no evidence capable of satisfying s 43(1)(b) of the Bankruptcy Act 1966 (Cth) and all the evidence was to the contrary. Section 43(1)(b) requires the debtor at the time the act of bankruptcy is committed to satisfy one of the following requirements: (i) was personally present or ordinarily resident in Australia; (ii) had a dwelling-house or place of business in Australia; (iii) was carrying on business in Australia, either personally or by means of an agent or manager; or (iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager; 14 Even assuming the applicant obtained a sequestration order against the first respondent, the evidence is to the effect that the applicant is the sole creditor and the relevant principle is that the revenue laws will not be enforced directly or indirectly. Further, as explained in Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 625 a freezing order: …must be framed so as to come within the limits set by the purpose which it can properly be intended to serve. That purpose is not to create security for the plaintiff or to require a defendant to provide security as a condition of being allowed to defend the action against him. Nor is it to introduce, in effect, a new vulnerability to imprisonment for debt, or rather for alleged indebtedness, by requiring a defendant, under the duress of the threat of imprisonment for contempt of court, to find money, which he may or may not have (whether or not at some point of time it may have been available to him), to guarantee to a plaintiff that any judgment obtained will be satisfied. 15 Given that any judgment debt will not be enforceable against the first respondent's assets in Hong Kong or China, the purpose of the freezing orders extending to assets in those jurisdictions is the impermissible exerting of pressure on the first respondent, through the threat of a contempt charge or some other sanction, to apply assets that are beyond the reach of the Court's enforcement process for the purpose of satisfying the judgment. That is, it was submitted, far from protecting the Court's enforcement process, the freezing orders are directed to circumventing or ameliorating the absence of any enforcement process to protect. 16 According to the first respondent, the same principle, that foreign revenue laws will not be enforced directly or indirectly, answered the applicant's proposition that the penalties and interest components of the judgment debts may be in a different class from the revenue debt. Those aspects of the debt would still involve at least indirect enforcement of Australia's revenue laws. 17 The first respondent submitted that the applicant had not been able to point to the remotest possibility that it would be able to obtain enforcement of a judgment debt outside of Australia. The Court therefore would not make such a serious and intrusive order as this for a purpose outside the scope permitted by r 7.32 of the Federal Court Rules. 18 The first respondent submitted further that, contrary to the applicant's submission, it would not be appropriate to merely exclude Hong Kong and China from the scope of the relevant order. The applicant was best placed to adduce evidence of the countries which would enforce foreign revenue laws but had not done so. As a result, the freezing orders should be confined to the first respondent's assets in Australia. 19 The applicant submitted that the evidence does not establish that enforcement in Hong Kong and China or elsewhere in the world is impossible. Mr Deng's evidence is only that he believes it is not likely that a judgment debt will be enforceable in Hong Kong or China. 20 Further, Damberg v Damberg is subject to a wide variety of exceptions so it should not be presumed that enforcement in Hong Kong or the PRC will be impossible. 21 The applicant submitted also that it is not self-evident from the terms of the reservations that they would apply to penalties or interest as opposed to unpaid tax. 22 The applicant submitted that the reservations from the Convention on Mutual Administrative Assistance in Tax Matters applying to China and Hong Kong may be withdrawn or varied. 23 The applicant pointed to Hong Kong cases in which steps have been taken to give effect to Australian insolvency administrations: In the Matter of Rennie Produce (Aust) Pty Ltd (In Liquidation in Australia) HCMP1640/2016, Ting Lei Miao v Chen Li Hung [1999] 1 HKLRD 123 and Chen Li Hung v Ting Lei Miao (2000) 3 HKCFAR 9. As to the latter case, the first respondent noted, however, that the rights involved were private and the Court said at 25 that the position might have been different if the Taiwan Government was the sole or main creditor. The applicant observed that the Court would not find that the current absence of other creditors means there will be no such creditors ultimately. Such information is within the knowledge of the first respondent but no evidence about it has been adduced. 24 The applicant noted that assets in Hong Kong and China may be moved to another jurisdiction as permitted by the freezing orders and thereby become amenable to the Court's jurisdiction as a result. 25 Otherwise, the applicant submitted that the recognition by the Hong Kong courts of any subsequent bankruptcy of Mr Huang would constitute recognition of Australian bankruptcy law, not of Australian revenue law. 26 The applicant said that the issue is the protection of the integrity or efficacy of any process ultimately enforceable by the courts at the suit of the judgment creditor, which includes bankruptcy: Cardile at [57]. 27 If the applicant's submissions are rejected then the relevant order (submitted the applicant) should exclude Hong Kong and China (with a similar exclusion applying to the ancillary asset disclosure order) as there is currently no evidence of the first respondent having any assets in any other jurisdiction. 28 I am not persuaded that the freezing order against the first respondent should be confined to the first respondent's assets in Australia. The applicant is right that the issue is the preservation of the integrity or efficacy of any process ultimately enforceable by the Court. The applicant's evidence acknowledges that it is not likely that a judgment debt of the first respondent will be enforceable in Hong Kong or China. However, on the evidence, I infer that it is not impossible that the applicant may be able to take enforcement action against the first respondent as a result of one or more of the possibilities which the applicant has identified. 29 To the extent that foreign law has been proved by evidence, there is evidence that the courts of Hong Kong have enforced foreign insolvency laws. Contrary to the first respondent's submission, I do not see potential enforcement by use of the bankruptcy legislation as necessarily involving a purpose antithetical to that of r 7.32: Cardile at [57]. The law of the PRC, however, has not been proved. It may be accepted that an Australian court would not assist in a bankruptcy if in substance it constituted the enforcement of a foreign revenue law: Peter Buchanan Ld v McVey [1955] AC 516 and India v Taylor [1955] AC 491. While the presumption in Damberg v Damberg is relevant, the presumption is subject to exceptions as explained at [118]-[147] and [162]. When these matters are taken together, and recognising the interlocutory nature of this proceeding, I consider that the applicant has provided a sufficient basis to conclude that there is a serious question to be tried in respect of the potential enforceability of the orders over the first respondent's assets in Hong Kong and the PRC so as to support the making of the freezing orders in terms which apply to the first respondent's assets within and outside of Australia. 30 The evidence and arguments of the applicant, to my mind, raise possibilities of enforcement sufficient to enable the conclusion to be reached that the purpose of r 7.32(1) (to prevent 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) is satisfied. The possibilities include exceptions to the presumption in Damberg v Damberg, the potential use of bankruptcy procedures, the potential willingness of the courts of Hong Kong and China to enforce Australian insolvency laws, the possibility of the first respondent moving assets to other jurisdictions where enforcement is readily available, as well as the potential willingness of the courts of Hong Kong and China to enforce Australian laws relating to the payments of penalties and interest. Given these circumstances, I am not satisfied that the first respondent's submissions about the impermissible scope of the freezing orders should be accepted. I consider that the freezing orders should continue in the form in which they were made by Katzmann J.

The Mosman property 31 Justice Katzmann dealt with the Mosman property at [58]-[66]. There is no dispute about the facts as found by her Honour. The only additional evidence is that on information and belief provided by the second respondent's solicitor to the effect that the second respondent understood that the funds advanced by the first respondent for the purchase of the property were by way of a gift to her as the first respondent's wife of almost three decades. 32 The debate between the parties about the Mosman property concerns whether the applicant has raised a serious question to be tried to the effect that the first respondent has a beneficial interest in the property. In my view, the applicant's case clearly reaches this threshold. I accept that, for the reasons which the respondents advanced, it may ultimately be found that the first respondent has no beneficial interest in the property. But the arguments are by no means as clear cut as the respondents' submissions would have it. 33 The respondents' contention is that the presumption of advancement applies to the advances from the first to the second respondent so that the equitable interest is at home with the legal title which is vested in the second respondent. Further, the respondents contend that in a case where there is no evidence of the first respondent's intention (such as here) there can be no resulting trust in his favour. The respondents relied on Allen v Snyder [1977] 2 NSWLR 685 as an authority rejecting any concept that where spouses contribute to the matrimonial home each spouse should be taken to hold a one half beneficial interest in that home irrespective of where the legal title to the property lies. The applicant's reliance on the apparently contrary observations in The Trustees of the Property of John Daniel Cummins, A Bankrupt v Cummins [2006] HCA 6; (2006) 227 CLR 278 at [71] is misplaced. In Cummins at [71] this was said: The present case concerns the traditional matrimonial relationship. Here, the following view expressed in the present edition of Professor Scott's work respecting beneficial ownership of the matrimonial home should be accepted: "It is often a purely accidental circumstance whether money of the husband or of the wife is actually used to pay the purchase price to the vendor, where both are contributing by money or labor to the various expenses of the household. It is often a matter of chance whether the family expenses are incurred and discharged or services are rendered in the maintenance of the home before or after the purchase." To that may be added the statement in the same work: "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." 34 The respondents noted that in Silvia (Trustee) v Williams, in the matter of Williams (Bankrupt) [2018] FCA 189 at [145]-[146] Wigney J explained that the context in Cummins was the question whether the presumption of a resulting trust for the spouses in the proportions in which they had contributed the purchase money had been rebutted. 35 The second respondent submitted further: 83. To the extent that the Applicant seeks to assert that Mr Huang holds a one half beneficial interest in the Mosman Property by reason of a resulting trust, that is inconsistent with the proposition that any beneficial interest under resulting trust (if it can somehow overcome the presumption of advancement) should reflect Mr Huang's actual contribution to the purchase price. 84. To the extent that the Applicant seeks to deploy the concept of a constructive trust to explain Mr Huang's alleged one-half beneficial interest in the Mosman Property, there is no evidence of any common intention or delinquent conduct by the holder of the legal estate that could disentitle her to the whole of her beneficial interest. 85. And to the extent that the Applicant relies on an express trust arising out of the actual intentions of Mr and Mrs Huang, such an express trust would fail for want of writing as required by s 23C of the Conveyancing Act 1901 (NSW). 36 The applicant relied on the interlocutory nature of the proceeding and the fact that, ultimately, the determination of any equitable interest of the first respondent in the property would be based on all of the evidence. According to the applicant, both the question whether the presumption of a resulting trust is rebutted and the question whether the presumption of advancement is rebutted depend on actual intention. Further, the objective probabilities and logic of events is likely to be a better guide to the actual intentions of the spouses than their professed intentions years after the relevant events. It is at least reasonably arguable that the inference referred to in Cummins in [71] may be called in aid to rebut the presumption of advancement. There is no reason in logic or principle why the inference in Cummins at [71] should be confined to the facts of that case. In the present case, there is no evidence of the first respondent's intention which is available to be weighed against the Cummins inference. The evidence relating to the second respondent is on information and belief and is based on an expressly poor recollection of the events and is objectively less probable in the circumstances than the Cummins inference. 37 The applicant pointed to Deputy Commissioner of Taxation v Vasiliades [2014] FCA 1250; (2014) 323 ALR 59 at [62]-[67] in which Gordon J placed principal reliance on objective events in preference to self-serving affidavit evidence as to past intentions that the husband's financial contributions would be a gift to the wife. Justice Gordon was satisfied on the facts that the Commissioner had a good arguable case that the husband had a beneficial interest in the property. According to the applicant the same conclusion should apply in the present case. 38 The applicant also noted that the respondents cited no authority for the proposition that any trust arising on the basis of actual intentions must be an express trust, and thus subject to the requirement of writing in s 23C of the Conveyancing Act 1919 (NSW). 39 According to the applicant, at the least, the Court ought not to conclude that the applicant's arguments fail the threshold of being reasonably arguable. 40 I accept the applicant's submission that the arguments advanced meet the threshold of being reasonably arguable. The evidence establishes a serious question to be tried in respect of the first respondent having a material beneficial interest in the Mosman property. It follows that the respondents have not persuaded me that the freezing orders against the second respondent ought not to be continued. 41 The applicant should submit orders today which provide for the continuation of the orders of Katzmann J in the form in which her Honour made those orders. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.