Deputy Commissioner of Taxation v Sibai

… ["the two properties"] (ii) Bank Account at the Commonwealth of Australia in the name of Adnan Sibai with or the account number xxxxxxxxxxx0 (iii) Bank Account at St George Bank in the name of Adnan Sibai with the account number xxxxxxxxxx1, (2) the value of your assets is the value of interest you have individually in your assets. and: EXCEPTIONS TO THIS ORDER 10. This order does not prohibit you from: (a) paying up to $1,000 week on living expenses (b) paying 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; (d) paying amounts to the Commissioner in respect of your taxation liabilities; (e) in relation to matters not falling within (a), (b), (c) or (d), 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. 11. 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. 12. (a) This order will cease to have effect if you: (i) pay the sum of $6,198,330.28 into Court or to the Commissioner; or (ii) pay that sum into a joint bank account in the name of your lawyer and the lawyer 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) This order will not cease to have effect pursuant to (a), if any such security is given solely for the purpose of enabling the applicant to issue a Departure Authorisation Certificate pursuant to section 14U of the Taxation Administration Act 1953 (Cth). (d) 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.

Mr Sibai's application 5 Mr Sibai's counsel, Mr O'Brien, provided an outline of written submissions which stated, relevantly: 4. The Respondent is seeking a variation of the Freezing Orders along the following lines: • $5,200 per week for living expenses; • payment of an initial amount of $20,000 to meet reasonable legal expenses (with a system for continuing funding thereafter); and • payment of an amount not exceeding $30,000 per month to meet business expenses and that the source of the funds be from the sale of [the two properties]. 6 The Deputy Commissioner opposed the variation for the following reasons: (1) The freezing order already permit payment of reasonable legal expenses, and the Australian Taxation Office ("ATO") has said that it considers $20,000 to be a reasonable sum for those expenses; (2) Paragraph 10(c) of the freezing order permits payment of bona fide business expenses; (3) Paragraph 10(e) of the freezing order permits payments to discharge obligations bona fide and properly incurred under a contract and, on Mr Sibai's evidence, the majority of the identified living expenses of $5,200 per week appears to fall within this category of expenses; and (4) Mr Sibai has access to funds, particularly funds overseas comprising amounts sent to Turkey between March and May 2015.

Evidence 7 In support of his application, Mr Sibai relied on the following evidence: (a) an affidavit of Justin Wong, Mr Sibai's lawyer, affirmed on 9 July 2015; (b) two affidavits of Mr Sibai, affirmed on 10 and 17 August 2015 respectively; and (c) a letter from Minter Ellison to Streeton Lawyers dated 24 July 2015. 8 In opposition to Mr Sibai's application, the Deputy Commissioner relied upon: (a) an affidavit of Aris Zafiriou, Acting Assisting Commissioner of Service Delivery - Debt with the ATO sworn on 13 May 2015; (b) an affidavit of Daniel Tumino affirmed on 14 May 2015; and (c) a schedule prepared on behalf of Mr Sibai, referring to bank deposits of $300,000 jointly held by Mr Sibai with his wife. 9 Ms Morgan, counsel for the Deputy Commissioner, cross-examined Mr Sibai briefly. 10 There was no evidence about how Mr Sibai has been paying his living expenses since the freezing order was first made. Mr O'Brien submitted that I should not draw any adverse inference from this, because of the relatively short period of operation of the freezing order. 11 There were statements from the bar table about garnishee orders issued in respect of bank accounts affected by the freezing order. However, there was no evidence about the orders. Ms Morgan did not contend that Mr Sibai had access to funds in Australia, with the possible exception of the $300,000 jointly held.

Factual findings 12 In early February 2015, Mr Sibai, as tax agent for a taxpayer, was advised of the Commissioner's intention to audit his client in relation to refunds of tax paid by the Commissioner to the taxpayer. 13 On 26 February 2015, Mr Sibai attended an interview of the taxpayer by officers representing the Commissioner in relation to his client's tax affairs and refund payments. 14 From 6 March 2015, Mr Sibai made significant transfers of funds out of Australia. 15 According to the Deputy Commissioner, Mr Sibai transferred the following amounts to an account held by him in Turkey on the following dates: Date of transfer Amount 5 March 2015 $7,078 6 March 2015 $283,728 10 March 2015 $330,000 19 March 2015 $100,000 10 April 2015 $450,000 15 April 2015 $580,000 21 April 2015 $850,000 Total $2,600,806

16 Mr Sibai's own evidence is that, between 27 February and 9 May 2015, he transferred a total of $2,815,000 from Australia to Turkey in seven transactions as follows: Date of transfer Amount 27 February 2015 $5,000 10 March 2015 $330,000 19 March 2015 $100,000 10 April 2015 $450,000 15 April 2015 $580,000 21 April 2015 $850,000 9 May 2015 $500,000 Total $2,815,000

17 On 31 March 2015, Mr Sibai was verbally advised by officers of the Commissioner that a notice of intended audit letter would issue. That letter was issued on 2 April 2015. 18 By letter dated 6 May 2015, the ATO wrote to Mr Sibai to inform him of the results of their audit of him, and expressed the opinion that Mr Sibai had engaged in tax evasion when lodging his tax returns for the years ended 30 June 2011 to 30 June 2014. 19 On 13 May 2015, the two properties were listed for auction that evening.

No source of funds overseas 20 Mr Sibai's evidence was that he made the transfers to Turkey to accumulate one larger amount to repay his lender, Abdullah Aslan, on about 10 May 2015. In support of this statement, Mr Sibai annexed to his first affidavit a copy of a document headed "Creditorship Agreement" dated 25 February 2009. The document records the receipt by Mr Sibai of $1.3 million. The document provides that Mr Aslan may determine the period of the investment of $1.3 million being "not earlier than 2 years". The document also provides that "[a]fter 10 years, this agreement is going to be automatically terminated." 21 Mr Sibai said that Mr Aslan is a business acquaintance of his de facto spouse's father. He says that he borrowed $1.3 million from Mr Aslan for a minimum term of 2 years and a maximum term of 10 years. The money was borrowed to fund Mr Sibai's business, pay down loans for the business and rental properties, and to renovate a rental property. 22 Mr Sibai gave evidence that he decided to repay the loan in May 2015 because: (a) The interest rate climate has dropped significantly over the years in Australia and the loan was becoming quite expensive relative to loans that were available in Australia. (b) I had many more assets available as security and the cost of lending in Australia had reduced significantly compared to 2009. This was particularly due to the property boom in [sic] since early 2013. (c) Until quite recently, obtaining alternative means of funding was not an option because my assets were not valuable enough to secure funding to pay down the current loan. (d) The decision to repay the loan was made by me, not by [Mr Aslan] making a call for the repayment. Therefore I received no notice from [Mr Aslan]. (e) Once the loan is paid out in full, I will receive a deed of release from [Mr Aslan]. 23 Mr Sibai also said: 11. I repaid the money to [Mr Aslan] by way of transfer, instead of repayment in cash. This was because the cost of transferring the funds to me was very cheap from my Australian Bank, the Commonwealth Bank of Australia. It literally only cost me the $50 international transfer fee. Once the funds were in my Turkish Bank account, transferring the money to [Mr Aslan] was a costless exercise. 12. I have calculated that the total amount payable as of about 10 May 2015, including capital and interest payable, is $2,933,506.63. Annexed and marked "B" to this affidavit is a copy of my calculations. To date, I have repaid $2,815,000.00. Therefore an amount of $118,506.63 is still payable. 24 In his affidavit of 17 August 2015, Mr Sibai referred to an email exchange with an officer of the alBaraka Bank in Turkey on 11 and 12 May 2015 concerning the payment of $2,810,000 to Mr Aslan. The first email, dated 11 May 2015, attaches a letter dated 12 May 2015 requesting transfers of 9484 Turkish lira and AUD$2,810,000 from two separate accounts to Abdullah Aslan and referring to two account numbers. Mr Sibai also annexed to the 17 August 2015 affidavit copies of two statements purporting to be statements from the alBaraka Bank account number xxxxxxx-3 showing a debit of $2,810,000 with an explanation "GDN/HV-ABDULLAH ASLAN" and a debit of 9484 Turkish lira with an explanation "GDN/HV-ABDULLAH ASLAN". 25 The AUSTRAC transaction report for the 15 April 2015 transfer of $580,000 records the following details of payment: CREDIT REFERENCE: AUD CBA AUST A SIBAI FERRARI F50 FUND 26 In cross-examination, Mr Sibai said that these details were in the nature of a joke. I found that evidence unconvincing. 27 Ms Morgan submitted that the Court could not be satisfied that the transfers to Turkey were in repayment of a loan, where there was no document from the purported lender to support that conclusion and no evidence of the existence of Mr Aslan, or of the transfer of $1.3 million from Turkey to Australia. Ms Morgan submitted, based on the AUSTRAC transaction report for the 15 April 2015 transfer, that over $500,000 appears to have been transferred to Turkey to fund the purchase of a Ferrari. 28 I accept Ms Morgan's submission that the evidence is insufficient to warrant a conclusion that the monies transferred to Turkey have been used to repay an amount in the order of $2,810,000 owing to Mr Aslan. While the documentary evidence provided by Mr Sibai is consistent with his claim, it is also not necessarily inconsistent with Mr Sibai continuing to have access to those funds. In particular, I would require substantial evidence to rebut the inference arising from the 15 April 2015 report that Mr Sibai has access to a fund of $580,000 in Turkey. 29 Accordingly, I do not accept that there are no offshore funds to which Mr Sibai has access. I conclude, on the balance of probabilities, that Mr Sibai has access, at least, to the fund that was $580,000 as at 15 April 2015.

Living expenses 30 Mr Wong's affidavit annexes a letter from Streeton Lawyers to Minter Ellison dated 7 July 2015, which includes a schedule and source documents in support of Mr Sibai's contention that his weekly living expenses are $5,112.85. As Ms Morgan noted, the majority of the expenses listed in the schedule are described as "contractually committed". 31 The non-contractually committed expenses total approximately $1,500. Although some of the amounts (for clothing, petrol and tolls) seem high, I accept that they probably represent reasonably accurate estimates of reasonable living expenses.

Business expenses 32 The correspondence between the parties includes a letter dated 25 June 2015, which annexes a schedule entitled "Summary of expected business expenses" and an estimated monthly estimate of $30,177.55 for those expenses, supported by several invoices. 33 Mr O'Brien noted that all income from Mr Sibai's business is currently being banked by him (and will continue to be banked by him) into a St George Bank account in the name of Sibai Partners Pty Ltd. Once those monies are deposited, they are not accessible to Mr Sibai for payment of his business expenses.

Legal principles 34 Mr O'Brien relied on the following passage from the decision in Deputy Commissioner of Taxation v Karas [2012] VSC 68; (2012) 86 ATR 685 (per Kaye J) ("Karas"): 17. First, the purpose of a freezing order under order 37A.02 [of the Supreme Court (General Civil Procedure) Rules (Vic)] is to prevent the frustration or inhibition of the court's processes by seeking to meet a danger that a judgment or a prospective judgment of the court will not be wholly or partly satisfied. 18. Secondly, it is recognised that such an order constitutes a significant interference with the rights of the persons against whom the order is made. Thus, at each stage of the supervision of such an order, the court must ensure that the reach of the order is no greater than that which is necessary to protect the processes of the court. In particular, it is necessary that the court, in determining an application such as this, ensure that the freezing order does not constitute an instrument of unfair oppression to the party in respect of whose assets the freezing order has been made. 19. The third principle is that, ordinarily, freezing orders, as they have done in this case, allow the person, against whom the orders are made, to have reasonable access to its assets, in order to be able to pay any reasonable legal fees, particularly any fees associated with litigation in respect of the debt or transaction which is the basis of the freezing order. 20. Fourthly, in his reasons for judgment on 23 December, Bell J identified two other important matters. They are, first, that a freezing order is not an order for the appointment of the plaintiff as the de facto administrator of the defendants' business or assets. Secondly, and allied to that, if there is a basis for thinking that a defendant might have access to other sources of funds within its control, nonetheless that cannot justify seeking, in an application such as this, legal discovery of documents, or making detailed requests for the provision of information, which take the matter well beyond the scope of the type of application with which I am concerned. 35 The principles set out in that passage were endorsed and applied by McKerracher J in Deputy Commissioner of Taxation v Bollands [2012] FCA 1050; (2012) 90 ATR 679 ("Bollands").

Consideration 36 In Karas, the Court considered an application to vary a freezing order to enable the defendants to mortgage property as security for a loan to pay legal fees. At [25], Kaye J noted that the Commissioner had not identified any funds available to the defendants to pay legal expenses without needing to mortgage the property. It was not in issue that the defendants needed the funds, intended to be lent to them, for legal fees (at [36]). Kaye J was satisfied of the defendants' need to raise monies by way of loan in respect of the relevant property and decided to make orders permitting one of the defendants to enter into a loan agreement to borrow a specified amount for the sole purpose of the payment of legal fees and to execute a mortgage over the property to secure that borrowing. 37 In Bollands, the issue was whether to permit Mr Bollands to deal with one of his Australian assets the subject of a freezing order for the sole purpose of enabling him to pay his reasonable legal expenses. The Commissioner contended that Mr Bollands' evidence did not establish that he could not fund his reasonable legal costs by use of income and other assets at his disposal. McKerracher J accepted the Commissioner's submission that the evidence was unclear about the extent of the funding required and available. Despite this, his Honour considered that the practical balance between competing considerations involved granting the permission sought on the basis of self-certification by the solicitors up to an amount of $250,000 in the first instance. His Honour noted that the scope of the dispute appeared to be extremely complex and the amount of legal fees could be very substantial. 38 Unlike the positions in Karas and Bollands, I have found that Mr Sibai has access to substantial funds (at least $580,000 as at 15 April 2015) overseas, sufficient to meet his current reasonable expenses. Accordingly, I am not satisfied that he needs or should have access to the proceeds of sale of the two properties to meet those expenses, at this time. 39 For the avoidance of doubt, I will make a freezing order in the form of the orders made to date, but permitting Mr Sibai to pay up to $1,500 week on living expenses. The order should be for a duration which reflects (and does not exceed) the need for the Court to supervise the order. Otherwise, Mr Sibai's application will be refused with costs. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.