Deputy Commissioner of Taxation v Miraki

1. Pursuant to rule 39.05(a) of the Federal Court Rules 2011 (Cth) the orders dated 20 August 2021, 16 September 2021 and 2 November 2021 be set aside.
2. The parties confer with a view to providing by email to the Associate to Thawley J agreed further orders giving effect to these reasons for judgment by no later than 4.00pm on 27 April 2022.
3. If agreement is not reached in accordance with Order 2, the outstanding issues be determined at 4.30pm on 2 May 2022.
4. Reserve liberty to the parties to apply on 3 days' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 The general background to these proceedings may be found in Deputy Commissioner of Taxation v Miraki (Summary Judgment) [2021] FCA 1361 and Deputy Commissioner of Taxation v Miraki (Freezing Orders) [2021] FCA 1367. 2 For present purposes, it necessary only to give the following account of relevant facts. On 22 March 2021, after an ex parte hearing, the Court made various orders, including an order pursuant to rules 7.32 and 7.33 of the Federal Court Rules 2011 (Cth) against Ms Miraki in the terms set out in Annexure "A" to the orders. Annexure "A" (the freezing orders) was in the following form: THE COURT ORDERS: Introduction 1. Subject to the next paragraph, this order has effect up to and including 30 March 2021 (the Return Date). On the Return Date at 9.30am there will be a further hearing in respect of this order before the Duty Judge. 2. Anyone served with or notified of this order, including you, may apply to the Court at any time to vary or discharge this order or so much of it as affects the person served or notified. 3. In this order: (e) 'applicant', if there is more than one applicant, includes all the applicants; (f) 'you', where there is more than one of you, includes all of you and includes you if you are a corporation; (g) 'third party' means a person other than you and the applicant; (h) 'unencumbered value' means value free of mortgages, charges, liens or other encumbrances. 4. If: (a) you are ordered to do something, you must do it by yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions. (b) you are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way. Freezing Of Assets 5. (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$5,844,558.03 (the Relevant Amount). (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. 6. For the purposes of this order, (i) 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 assets in particular: (A) the property identified in Schedule C to these Orders or, if it has been sold, the net proceeds of the sale; and (B) any money in the bank accounts identified in Schedule D to these Orders. (j) the value of your assets is the value of the interest you have individually in your assets. Provision of Information 7. Subject to paragraph 8, you must: (a) at or before the further hearing on the Return Date (or within such further time as the Court may allow) to the best of your ability inform the applicant in writing of all your assets in Australia, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets; (b) within 7 working days after being served with this order, swear and serve on the applicant an affidavit setting out the above information. 8. (a) This paragraph (8) applies if you are not a corporation and you wish to object to complying with paragraph 7 on the grounds that some or all of the information required to be disclosed may tend to prove that you: (i) have committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) are liable to a civil penalty. (b) This paragraph (8) also applies if you are a corporation and all of the persons who are able to comply with paragraph 7 on your behalf and with whom you have been able to communicate, wish to object to your complying with paragraph 7 on the grounds that some or all of the information required to be disclosed may tend to prove that they respectively: (i) have committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) are liable to a civil penalty. (c) You must: (i) disclose so much of the information required to be disclosed to which no objection is taken; and (ii) prepare an affidavit containing so much of the information required to be disclosed to which objection is taken, and deliver it to the Court in a sealed envelope; and (iii) file and serve on each other party a separate affidavit setting out the basis of the objection. Exceptions To This Order 9. This order does not prohibit you from: (k)[a] paying up to $2000 per week on your ordinary living expenses; (l)[b] paying your reasonable legal expenses in connection with the application; (m)[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; (n)[d] in relation to matters not falling within (k)[a], (l)[b] or (m)[c] above 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; and (o)[e] paying the Deputy Commissioner of Taxation. 10. 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. … 3 The freezing orders were made in connection with Ms Miraki's tax liabilities and liabilities to administrative penalties of over $5 million. 4 The freezing orders have been varied from time to time and consent orders have been made to facilitate the sale by Ms Miraki of properties owned by her. Such orders was contemplated by Order 10 of the freezing orders, set out above. 5 Two of the properties which were sold were Unit 303/5 Belmont Avenue, Wollstonecraft and 50/5 Gladstone Road, Castle Hill. The parties agreed that the net proceeds from the sale of those properties would be paid into Court: (1) On 16 April 2021, orders were made by consent, permitting the sale of the Wollstonecraft property. The Wollstonecraft property was subsequently sold. The parties had agreed to various payments being made from the proceeds of sale. The net proceeds of sale of $265,306 were paid into Court on 15 June 2021. (2) On 14 May 2021, orders were made by consent, permitting the sale of the Castle Hill property. The Castle Hill property was subsequently sold. The parties had agreed to various payments first being made from the proceeds of sale. The net proceeds of sale of $1,154,047.41 were paid into Court on 11 August 2021. 6 On 27 July 2021, the NSW Court of Appeal heard an appeal from a decision of the Supreme Court of NSW. Ms Miraki was represented in those proceedings by Williams Roberts Lawyers. William Roberts has also acted for Ms Miraki at all material times during these proceedings. Mr Coles QC and Mr Allen were briefed in the Court of Appeal proceedings. 7 The case before the Court of Appeal concerned a commercial relationship between Mr El-Cheikh and Ms Miraki concerning the Castle Hill property. The intended arrangement between Mr El Cheikh and Ms Miraki was that a company, Gladstone Rd Enterprises Pty Ltd, would purchase the property as trustee for the Gladstone Unit Trust. Interests associated with Mr El-Cheikh and Ms Miraki would be issued units in the Trust. 8 The trial judge determined that the Trust was never constituted, there were no unit holders and there was no trust property. Mr El-Cheikh appealed. During argument on appeal, the Court of Appeal raised with Ms Miraki's counsel why the conclusion should not be reached that Ms Miraki held the Castle Hill property on trust for herself and Mr El-Cheikh given that the parties' intentions were that: (a) the property be held on trust; and (b) the parties' contributions reflected equal contributions. Counsel for Ms Miraki responded that the matter had not been run that way at trial. 9 Before the Court of Appeal, Mr El-Cheikh also contended that he was entitled to be repaid an amount of $450,000 which he had loaned to Ms Miraki pursuant to a written Loan Agreement. This amount had been lent to Ms Miraki for the purpose of her satisfying her share of the purchase price of the Castle Hill property. Clause 5 of the Loan Agreement included: 5.3 … the Borrower hereby charges as beneficial owner in favour of the Lenders all its right, title and interest in or derived from, the Mortgaged Property and all its assets as security for payment to the lenders of the Loan. 10 Clause 8.21 provided (emphasis and errors in original): 8.21 The Borrower and the Guarantors charge in favour of the Lenders all his/her/it's estate and interest in any land which the borrower and/or the Guarantor now has or may later acquire and any other asset or trust asset with payment of all monies owed to the Lenders by the Borrowers or the Guarantors 11 Special condition 1(c) and (e) of the Loan Agreement stipulated: c. The Lender [Mr El-Cheikh] shall be entitled to register a second Mortgage over the property to better secure his interest in the property … e. … the Borrower [Ms Miraki] shall pay the capital gains tax applicable on the sale of the property for both the Borrower and the Lender and shall then distribute to the Lender his 50% share of the profits free of any liability for capital gains tax. 12 Mr El-Cheikh reformulated the relief Mr El-Cheikh sought over the course of an adjournment on 27 July 2021. This was reflected in a document which included (footnotes omitted): If the Court is minded to uphold the appeal as to the loan, the appellants submit that the following relief (in addition to orders as to costs) would be appropriate: 1. A declaration that the first appellant lent $450,000 to the first respondent pursuant to the Loan Agreement1 executed on 12 October 2016. 2. A declaration that the first respondent remains indebted to the first appellant pursuant to the Loan Agreement in the sum of $450,000. 3. Declarations in terms of prayers 6 and 7 of the Amended Points of Claim. 4. A declaration that, upon the sale of the Property known as Unit 50/5 Gladstone Road, Castle Hill (the Property), the first appellant is entitled to 50% of the profits thereof free of any liability on the first appellant's part for capital gains tax. 5. An order that, on the sale of the Property, an account be taken of the expenses paid by the parties referable to the Property and any revenue received by them. 13 Prayer 6 of the Amended Points of Claim referred to in paragraph 3 above was: A declaration pursuant to [sic] … clauses 5 and/or 8.21 of the Loan Agreement entered into on or about 16 October 2016, that the property located at Unit 50/5 Gladstone Road, Castle Hill, NSW, be charged with all amounts owing by the first defendant to the first plaintiff under the Loan Agreement. 14 The Court of Appeal reserved its decision. 15 In early August 2021, Mr El-Cheikh instructed his solicitor, Mr Kennett of Cornwalls, that Ms Miraki had accepted an offer to purchase the Castle Hill property. On 4 August 2021, Mr Kennett wrote to Mr Tomaras of William Roberts requesting undertakings that Ms Miraki not dispose of the proceeds of sale of the Castle Hill property until after the Court of Appeal had delivered its decision. 16 Mr Tomaras responded on 11 August 2021 stating that the Castle Hill property had been sold and that the net proceeds had been paid into this Court. As noted earlier, the net proceeds were paid into Court on 11 August 2021. The letter included: 3 Settlement of the sale was completed, and the net proceeds of the sale have been paid into the Federal Court of Australia pursuant to Court order. 4 Our client is not able to give the undertaking to your client not to disburse the funds as the net proceeds of the sale have been paid into the Federal Court of Australia. 17 The letter from William Roberts did not indicate to Mr Kennett that Ms Miraki was, at the time, proposing to seek an order that part of the monies which had been paid into Court be used to pay stamp duty in relation to a property at Hunters Hill. 18 On 16 August 2021, Mr Kennett wrote a lengthy letter to Ms Talakovski of HWL Ebsworth Lawyers (HWLE), which acted for the Commissioner. The letter attached the grounds of appeal in the Court of Appeal, Mr El-Cheikh's written submissions in chief and the orders which Mr El-Cheikh had sought from the Court of Appeal (set out at [12] above). The letter included: At the hearing on 27 July the Court inquired about the status of the Property. Based on a title search obtained on the date of the appeal hearing, Mr Condon SC on behalf of the appellants indicated that the Property continued to be owned by Ms Miraki. The respondents' counsel did not dispute that proposition. We have since been made aware of the proceedings that have been brought by the ATO against Ms Miraki, including the asset preservation orders made by Justice Wigney on 22 March 2021. The purpose of this letter is to put you on notice of our clients' interest in the Property or otherwise the proceeds of sale. That interest arises in two ways … The purpose of this letter is to indicate that our clients claim to have priority over any secured creditor. We also request that you inform us of the status of the proceedings and what applications are before the Court in so far as they touch and concern the Property, or the sale proceeds thereof. We would appreciate your urgent advice, least [sic] we need to seek leave to intervene when the matter is next before the Federal Court. 19 On 20 August 2021, the Commissioner and Ms Miraki requested that the Court make orders by consent paying out of the monies held in Court an amount of $455,742.43 to Revenue NSW. Neither Ms Miraki nor the Commissioner informed the Court of Mr El-Cheikh's claims in relation to the funds held in Court. Neither of them informed Mr El-Cheikh that they were seeking those consent orders. The consent orders were made and included: 1. The amount of $455,742.43 be paid to Revenue NSW from monies paid into Court in the Proceedings for transfer duty payable on the purchase of the Hunters Hill Property. 20 It was put to Mr Kennett in cross-examination that he was aware, sometime within the days after it was made, that Order 1 had been made on 20 August 2021. He denied this. I accept his denial. Given the events which had occurred to that point in time, and the nature of his communications with William Roberts and HWLE, it is likely that Mr Kennett would have raised the matter immediately if he knew the funds to which he considered his client was beneficially entitled were being paid out of Court for Ms Miraki's benefit. 21 On 9 September 2021, the Court made orders by consent varying order 9(b) of Annexure A. The order was as follows: 1. Order 9(b) of Annexure "A" of the orders made by the Court on 22 March 2021 (Freezing Orders) be varied as follows: (b) paying your reasonable legal costs and disbursements in connection with: (i) the originating application filed by the applicant on 22 March 2021 (Application), and (ii) the objection filed by the respondent with the Australian Taxation Office on or about 16 May 2021 in relation to the amended assessments and penalty assessments that are the subject of the Application (Objection), on the condition that: Application (iii) on or before 30 September 2021, the solicitors for the respondent serve on the solicitors for the applicant a written certificate in the form of Annexure "B" setting out the amount of outstanding legal costs and disbursements reasonably incurred by the respondent for the period to 31 August 2021 inclusive in connection with the Application; (iv) on and from 1 October 2021, the solicitors for the respondent serve on the solicitors for the applicant monthly a written certificate in the form of Annexure "B" setting out the amount of outstanding legal costs and disbursements reasonably incurred by the respondent in the preceding month in connection with the Application; Objection (v) on or before 30 September 2021, the solicitors for the respondent serve on the solicitors for the applicant a written certificate in the form of Annexure "C" setting out the amount of outstanding legal costs and disbursements reasonably incurred by the respondent for the period to 31 August 2021 in connection with the Objection; (vi) on and from 1 October 2021, the solicitors for the respondent serve on the solicitors for the applicant monthly a written certificate in the form of Annexure "C" setting out the amount of outstanding legal costs and disbursements reasonably incurred by the respondent in the preceding month in connection with the Objection. … 22 On 16 September 2021, Ms Miraki and the Commissioner asked the Court to make orders by consent for payment of moneys out of Court. Neither of them informed the Court of Mr El-Cheikh's claims in relation to the funds held in Court. Neither of them informed Mr El-Cheikh that they were seeking those consent orders. The Court made the following orders, by consent: 1. The amount of $8,250.00 be paid to the respondent from monies paid into Court in the Proceedings for her costs in connection with the Objection incurred during the period between 24 March 2021 and 22 July 2021. 2. The amount of $157,333.73 be paid to the respondent from monies paid into Court in the Proceedings for her costs in connection with the Application incurred during the period between 24 March 2021 and 31 August 2021. 23 On 28 October 2021, I heard the application for summary judgment and the application made by Ms Miraki for a discharge of the freezing orders referred to at [2] above. On that occasion, Mr Allen submitted for Ms Miraki that the Court should make an order that all of the monies which remained in Court should be paid out to Ms Miraki, because the Commissioner was said to have conceded that the moneys were Ms Miraki's. That application was rejected for the reasons given in Miraki (Freezing Orders). The Court was not informed of Mr El-Cheikh's claims to a beneficial entitlement to those funds, only becoming aware of the claim when he sought leave to intervene in these proceedings. 24 On 2 November 2021, Ms Miraki and the Commissioner asked the Court to make orders by consent for payment of moneys out of Court. Neither Ms Miraki nor the Commissioner informed the Court of Mr El-Cheikh's claims in relation to the funds held in Court. Neither of them informed Mr El-Cheikh that they were seeking those consent orders. The Court made the following orders, by consent: 1. The amount of $17,600.00 be paid to the respondent from monies paid into Court in the Proceedings for her costs in connection with the Objection incurred during the period between 23 July 2021 and 22 October 2021. 2. The amount of $110,569.68 be paid to the respondent from monies paid into Court in the Proceedings for her costs in connection with the Application incurred during the period between 1 September 2021 and 22 October 2021. 25 The Court of Appeal delivered reasons for judgment on 8 November 2021: El-Cheikh v Miraki [2021] NSWCA 271 (Bathurst CJ, Basten JA and Emmett AJA). In substance, the Court of Appeal held that: (a) Ms Miraki was indebted to Mr El-Cheikh in the amount of $450,000; and (b) Mr El-Cheikh was entitled to 50% of the profits arising upon sale of the property after payment by Ms Miraki of all liability for capital gains tax (CGT) arising on the sale. As I have said, the net proceeds of the sale of the Castle Hill property paid into Court totalled $1,154,047.41. 26 On 10 November 2021, over opposition by Ms Miraki, Mr El-Cheikh was granted leave to intervene in these proceedings. By an interlocutory application filed on 1 December 2021, Mr El-Cheikh sought orders including: 2. An order pursuant to: a. this Honourable Court's implied jurisdiction; b. Federal Court of Australia Act 1976 (C'th), s 23; and/or c. Federal Court Rules 2011 (C'th), r 39.05 (sub-rules (a), (c) and (h)) that the following orders made be set aside: i. order 9(k) - (o) of annexure "A" made on 22 March 2021 up to a limit of $1,075,000; ii. order 1 made on 20 August 2021; iii. order 1 made on 9 September 2021; and iv. orders 1 and 2 be made on 16 September 2021. 3. An order that the respondent, Sepideh Miraki, pay into Court: a. the amount of such monies as she has received , or in respect of which she [h]as received a benefit, pursuant to the orders referred to in paragraph 1 hereof; or b. such sum as this Honourable Court otherwise determines. 4. An order that William Roberts Pty Ltd (ACN: 115 089 864) trading as William Roberts Lawyers (William Roberts) be joined as a respondent to these proceedings. 5. An order that William Roberts pay into Court: a. the amount of such sums as it has received pursuant to the orders referred to in paragraph 1 hereof; or b. such sum as this Honourable Court otherwise determines. 27 On 7 December 2021, the Court made an order joining William Roberts as second respondent, over its opposition: Deputy Commissioner of Taxation v Miraki (Application to Join William Roberts Lawyers) [2021] FCA 1573. Various orders were made on that occasion for the filing of evidence and submissions to facilitate a hearing on 23 December 2021 as to whether the relief sought by paragraphs 2, 3 and 5 of the interlocutory application should be made. It was indicated at the hearing on 23 December 2021 that there was no particular urgency in delivering reasons.