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[2014] FCA 1250
Federal Court of Australia
2014-11-24
Mr P, Gordon J
Original judgment source is linked above.
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 74
Counsel for the Applicant: Mr P J Hanks QC with Mr S A Linden
Solicitor for the Applicant: Australian Taxation Office
Counsel for the Respondents: Mr I D Martindale QC with Mr S A Tisher
Solicitor for the First, Third and Fourth Respondents: Peter Murray, KPMG Legal and Tax Services
Solicitor for the Second Respondent: Robert McNab, McNab Lawyers
IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 610 of 2014
SOUTH YARRA STATION DEVELOPMENT CO. PTY LTD (ACN 081 754 323)
JUDGE: GORDON J DATE OF ORDER: 24 NOVEMBER 2014 WHERE MADE: MELBOURNE
UPON the Applicant undertaking 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 this Order.
ANNEXURE A PENAL NOTICE TO: SOCRATES VASILIADES 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: SOCRATES VASILIADES This is a 'freezing order' made against you on 24 November 2014 by Justice Gordon after the Court was given undertakings set out in Schedule A to this order. THE COURT ORDERS: INTRODUCTION
ANNEXURE B PENAL NOTICE TO: CELESTE VASILIADES 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: CELESTE VASILIADES This is a 'freezing order' made against you on 24 November 2014 by Justice Gordon after the Court was given undertakings set out in Schedule B to this order. THE COURT ORDERS: INTRODUCTION
IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 610 of 2014
SOUTH YARRA STATION DEVELOPMENT CO. PTY LTD (ACN 081 754 323)
JUDGE: GORDON J DATE: 24 NOVEMBER 2014 PLACE: MELBOURNE
INTRODUCTION 1 The Deputy Commissioner of Taxation (the Commissioner) seeks orders, on an inter partes basis, freezing the assets of the first respondent (Mr Vasiliades) under Div 7.4 of the Federal Court Rules 2011 (Cth) (the FCR) "to prevent frustration of the court's process". Freezing orders were made on an ex parte basis on 17 October 2014 and extended on 22 and 29 October 2014 and 12 November 2014. 2 The Commissioner also seeks orders against Mr Vasiliades' wife, the second respondent (Ms Vasiliades), in respect of a share of the net proceeds of sale of 3 Towers Road, Toorak, Victoria (the Towers Road Property) which the Commissioner claims belongs to Mr Vasiliades. Further, the Commissioner seeks orders against the third respondent (SYSDC) and the fourth respondent (Falconbridge), being companies over which the Commissioner submitted that Mr Vasiliades has, or had, control and which hold or use a power of disposition over assets of Mr Vasiliades. 3 According to the records of the Australian Securities and Investments Commission (ASIC), Mr and Ms Vasiliades each own 50% of the shares of SYSDC. Mr Vasiliades is SYSDC's sole director. Mr Vasiliades is the sole director and sole shareholder of Falconbridge, which is the trustee of the Vasiliades Family Trust (Trust). Mr and Ms Vasiliades are specified beneficiaries of the Trust and Mr Vasiliades is, during his lifetime, the Appointor of the Trust. 4 These reasons for judgment will consider the facts, the Court's power to make freezing orders and whether that power should be exercised in the circumstances of this case.
FACTS 5 In 1997, Mr and Ms Vasiliades purchased their first family home in Australia at 34 St Georges Road, Toorak, Victoria (St Georges Road, Toorak). Mr Vasiliades gave evidence that Ms Vasiliades provided most of the funds used to purchase St Georges Road, Toorak and he contributed a smaller amount. The balance was raised by mortgage. In her affidavit, Ms Vasiliades said that, as best she could recall, she provided more than half of the funds to purchase St Georges Road, Toorak. No specific details or amounts were provided by Mr or Ms Vasiliades. The certificate of title for St Georges Road, Toorak shows that Mr Vasiliades lodged a caveat in his capacity as "purchaser / fee simple" in April 1997 and the property was registered in Ms Vasiliades' name in July 1997. 6 On 8 May 2002, Mr Vasiliades entered into a contract of sale to purchase the Towers Road Property for $4,600,000 in his name "and / or nominee". Mr Vasiliades nominated Ms Vasiliades as purchaser and, on 11 September 2002, the Towers Road Property was registered in her name. The purchase was financed in part by a loan to Mr and Ms Vasiliades from the Commonwealth Bank of Australia (the CBA) on about 26 August 2002 (loan number *****0102) (the joint CBA loan). The registered mortgage indicates that the joint CBA loan was for $3,925,000. Mr and Ms Vasiliades gave evidence that the net proceeds of the sale of St Georges Road, Toorak were also used to purchase the Towers Road Property. The family moved into the Towers Road Property in October or November 2002. 7 In around February 2005, Mr and Ms Vasiliades and their family moved out of the Towers Road Property. The existing house was then demolished and a new house constructed. In her affidavit, Ms Vasiliades stated that Mr Vasiliades organised the finance for the project. The construction of the new house was partly financed through the same joint CBA loan. A letter from Ms Vasiliades' tax agent, Mr John Paolacci of PKF Chartered Accountants & Business Advisers dated 18 August 2011, indicated that the facility was for $2,100,000. Between July 2006 and September 2012, Mr Vasiliades made interest payments on the joint CBA loan totalling $943,600.40. 8 The construction of the new house on the Towers Road Property was also financed through a loan with Macquarie Bank (Macquarie) through SYSDC. As noted above, according to ASIC's records, Mr and Ms Vasiliades are each 50% shareholders in SYSDC. However, according to the letter from Ms Vasiliades' tax agent, Mr John Paolacci, aside from being a beneficiary of two trusts, Ms Vasiliades was not aware of any entities of which she was a beneficiary or director, or in which she beneficially held shares at the date of the letter or at the end of each of the 2006, 2007 and 2008 income years. SYSDC had a loan facility with Macquarie with a limit of $3,700,000. Between 12 September 2007 and 19 May 2008, Mr Vasiliades made lump sum payments from an account in his name with Bank International Luxembourg to SYSDC's Macquarie loan account totalling $1,149,940. 9 The company that conducted the construction work of the new house was Grenelle Construction Pty Ltd, of which Mr Vasiliades was a director from 22 April 2005 to 25 July 2012. The balance sheets of Grenelle Construction Pty Ltd and SYSDC reveal that Mr Vasiliades provided a loan to SYSDC of approximately $2.1 million, and SYSDC in turn provided a loan to Grenelle Construction Pty Ltd of approximately $3.7 million, for construction costs of the Towers Road Property. 10 The family moved into the new house in February 2008. In around August 2008, Mr and Ms Vasiliades and their children left Australia, intending to live in Europe permanently. They have been non-residents of Australia since that time. 11 On 30 June 2009, Mr Vasiliades transferred all of the issued shares in Core Mining Pty Ltd (ACN 107 690 415), an Australian company of which he was the sole shareholder and director, to Core Mining Limited, a company located at the time in the Isle of Man and now located in the British Virgin Islands. Mr Vasiliades remains the sole director of Core Mining Pty Ltd. 12 Since August 2010, Mr and Ms Vasiliades have been resident in Europe. 13 In May 2011, Mr Vasiliades transferred $56,244 and $19,654 from an account in his name held in Europe to Kay and Burton, real estate agents, for advertising the Towers Road Property for sale. 14 From 20 October 2011, the Commissioner has conducted an audit into the tax affairs of Mr Vasiliades. 15 On 30 April 2012, Mr Vasiliades made a voluntary disclosure to the Australian Tax Office (ATO), increasing his taxable income as follows: (1) for the year ending 30 June 2007 from $0 to 54,179; (2) for the year ending 30 June 2008, from $17,305 to $207,533; (3) for the year ending 30 June 2009, from $0 to $1,762,162; and (4) for the year ending 30 June 2010, from $0 to $173,052. 16 Mr Vasiliades subsequently withdrew from that position and sought to amend his returns to decrease his liabilities as voluntarily disclosed. The Commissioner did not accept Mr Vasiliades' changed position. 17 On 2, 3 and 5 October 2012, the Commissioner issued amended assessments for the 2007 to 2010 income years. These amended assessments are included in Table A of the Annexure to these reasons for judgment. 18 In September 2012, Mr and Ms Vasiliades opened a new facility with ANZ for $5,000,000, secured on the Towers Road Property (the joint ANZ loan). On 10 October 2012, Mr Vasiliades transferred $2,600,032 from that account to a bank account in his name with the Nordea Bank in Luxembourg. In his affidavit, Mr Vasiliades said that "I did this because we were living in Europe, we had no need for capital to be tied up in Australia and we needed the funds for our life in Europe". Ms Vasiliades said that they transferred the money to Luxembourg "because we were no longer living in Australia and we needed capital in Europe rather than Australia so the funds could be used for our living expenses in Europe". Funds from the joint ANZ loan were used to discharge the mortgage held by the CBA in relation to the CBA joint loan, and that mortgage was discharged, and the new mortgage registered, on 11 October 2012. 19 Between 6 November 2012 and 6 September 2013, amounts totalling $238,567.76 were transferred from the joint ANZ account secured against the Towers Road Property to an account in the name of Mr Vasiliades. 20 On 2 September 2013, Mr Vasiliades arranged a new facility with Macquarie in Ms Vasiliades' name for $7,500,000 secured against the Towers Road Property (the new Macquarie loan). Mr Vasiliades guaranteed Ms Vasiliades' obligations in respect of the facility. The loan agreement states that "[t]he purpose of the loan is to assist with refinancing an existing property loan and with investment in overseas property". In his affidavit, Mr Vasiliades asserted that, "[a]t this stage we had been trying without success to sell [the Towers Road Property] and wanted to access more of the equity in it for our life in Europe pending a sale". 21 On 19 September 2013, $5,049,566.34 was drawn down on the new Macquarie loan. On 26 September 2013, a discharge of the mortgage held by ANZ and a mortgage to Macquarie over the Towers Road Property were registered. 22 On 30 October 2013, $1,500,000 was drawn down on the new Macquarie loan. Mr Vasiliades said that Ms Vasiliades transferred this money to Europe. In her affidavit, Ms Vasiliades referred to drawing down about $2,300,000 after paying out the joint ANZ loan, but did not offer any explanation about her reasons for doing so. 23 On 16 December 2013, the new Macquarie loan was further drawn down by $60,000. 24 On 24 and 26 March 2014, the Commissioner issued further amended assessments for the 2007 and 2008 income tax years. These amended assessments are also included in Table A of the Annexure to these reasons for judgment. 25 On 1 April 2014, the new Macquarie loan was drawn down by a further $800,000. That amount was likely part of the $2,300,000 referred to by Ms Vasiliades in her affidavit: see [22] above. 26 On 21 May 2014, Ms Vasiliades arranged for the limit on the new Macquarie loan to be increased to $12,500,000. Each of Mr Vasiliades and Ms Vasiliades made a statutory declaration (both dated 21 May 2014) that they understood that Macquarie's assessment of Ms Vasiliades' ability to meet repayment obligations was dependent on Mr Vasiliades' ability and willingness to help meet those obligations. 27 On 19 June 2014, the Towers Road Property was sold for $18,550,000. It was the only Australian real property registered in the name of either of Mr or Ms Vasiliades. Contrary to the documentary materials, Mr Vasiliades said in his affidavit that, as soon as Ms Vasiliades had sold the Towers Road Property, she increased the limit. As is clear from the timeline above, the documents indicate that Ms Vasiliades arranged for the limit to be increased before the Towers Road Property was sold. Mr Vasiliades also stated that "allowing enough headroom to cover the interest payments, [Ms Vasiliades] drew down on the facility and remitted the funds to Europe". 28 The new Macquarie loan was further drawn down: (1) on 24 June 2014 by $4,900,000; (2) on 14 July 2014 by $95,000; (3) on 13 August 2014 by $70,000; and (4) on 23 September 2014 by $23,400. Neither Mr Vasiliades nor Ms Vasiliades offered reasons for those draw downs. Ms Vasiliades said that, from June 2014, she drew the facility almost down to its limit, pending settlement, on the basis that the facility would be discharged from the sale proceeds of the Towers Road Property. 29 On 1 August 2014, the Commissioner issued a further amended assessment for the 2009 income tax year. That amended assessment is also included in Table A of the Annexure to these reasons for judgment. 30 On 4 August 2014, $1,795,950 of the deposit moneys of $2,000,000 from the sale of the Towers Road Property were transferred from the real estate agent to an account in the name of "Celesta Doukaki" held with the Nordea Bank in Luxembourg. Celeste Doukaki is the maiden name of Ms Vasiliades. 31 On 15 September 2014, Mr Vasiliades signed a "promesse unilaterale de vente" in relation to a property in France. Mr Vasiliades said that he had been informed that this "unilateral promise of sale" was a usual form of preliminary contract used in France for the sale of property. On 19 September 2014, Ms Vasiliades was substituted as purchaser of the "usufruct", which Mr Vasiliades described as the "right to use the property", and Mr and Ms Vasiliades' children were substituted as purchasers of the "bare ownership" of the property, which Mr Vasiliades described as "the right to dispose of the property". Ms Vasiliades said in her affidavit that she plans to apply the proceeds of the Towers Road Property towards the settlement of the property in France and has relied on those funds being available. Ms Vasiliades further said that she needs about €3,050,000 to complete the purchase of the property, and she will complete the purchase if given access to the funds held by Macquarie. 32 As at 17 October 2014, the total debt to the Commissioner, including tax, penalties and interest was $29,806,048.77. The calculation of this amount can be seen in the Annexure to these reasons for judgment. As noted at [1] above, ex parte freezing orders were made on this day. 33 On 20 October 2014, the sale of the Towers Road Property settled. At this time, the sum of $16,157,225.36 was paid to Macquarie. After deduction of $12,532,782.01 owing to Macquarie, the net proceeds of sale were $3,624,443.35. On 21 October 2014, Macquarie provided an undertaking that it would provide two days' written notice of its intention to pay or otherwise make available $2,710,196.68. That figure was comprised of an amount equal to 50% of the net proceeds of sale, plus the sum of $897,975. The $897,975 was equal to half of the deposit monies transferred to the account in Luxembourg on 4 August 2014: see [30] above.
POWER TO MAKE FREEZING ORDERS 34 Rule 7.35 of the FCR empowers the Court to make a freezing order, in certain circumstances. The rule relevantly provides: (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; or … (4) The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur: (a) the judgment debtor, prospective judgment debtor or another person absconds; (b) the assets of the judgment debtor, 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 judgment debtor or prospective judgment debtor (a third party) if the Court is satisfied, having regard to all the circumstances, that: (a) there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because: (i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; 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. 35 There are three limbs in relation to imposing a freezing order on a prospective judgment debtor in the circumstances of the present case. First, the Court must be satisfied that the applicant has a good or reasonably arguable case on both the law and the facts: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [68] and Rule 7.35(1) of the FCR. Second, there must be a danger that a prospective judgment will be wholly or partly unsatisfied because the assets of the prospective judgment debtor or another person are removed from Australia or from a place inside or outside Australia or the assets are disposed of, dealt with or diminished in value: Rule 7.35(4) of the FCR. Finally, the balance of convenience must favour the granting of the orders: BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd [2010] WASC 25 at [22] and the cases there cited. 36 Other relevant principles may be summarised as follows: (1) The freezing order is not intended to operate as a form of security in advance: Cardile at [51]; Goumas v McIntosh [2002] NSWSC 713 at [23]; (2) A freezing order may be granted even though there is no evidence of the respondent's positive intention to frustrate a judgment: Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014 at [10]; (3) However, there must be facts from which the Court can infer a real risk or danger that the respondent will dispose of or otherwise deal with his assets in a way that the applicant will not be able to satisfy any judgment obtained against the respondent: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319; Third Chandris Shipping Corporation v Unimarine S.A. [1979] QB 645; Hua Wang Bank Berhad at [8]; (4) Depending on the circumstances, the interests of justice may support the grant of a freezing order to prevent the dissipation of assets pending the hearing of an action, even though the risk of dissipation is less probable than not: Patterson at 325; Hua Wang Bank Berhad at [9]; and (5) The Court may take into account the prior conduct of a respondent, the value of the prospective judgment and the assets or income available to the respondent to satisfy that judgment. Although the Court must be cautious before making freezing orders, it must be borne in mind that their very purpose is "to ensure that assets are not alienated so as to avoid or frustrate the [C]ourt process": Deputy Commissioner of Taxation v Gashi (2010) 27 VR 127 at [33] citing Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd [2009] VSC 418 at [34]. 37 Where a freezing order or an ancillary order is sought against a third party, the second limb described at [35] above is different: Rule 7.35(5) of the FCR. The Court must be satisfied, having regard to all the circumstances, that: (1) there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because: (a) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (b) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (2) a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment of the Court, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment. 38 The Commissioner seeks orders against Ms Vasiliades in respect of a share of the net proceeds of sale of the Towers Road Property which the Commissioner claims belongs to Mr Vasiliades. The Commissioner also seeks orders against SYSDC and Falconbridge, being companies over which the Commissioner contends that Mr Vasiliades has, or had, control and which hold or use a power of disposition over assets of Mr Vasiliades.
FIRST LIMB - ACCRUED CAUSE OF ACTION JUSTICIABLE IN THIS COURT 39 This limb is necessary for the proposed freezing orders against Mr Vasiliades and each third party. There are two issues - has a cause of action accrued and is that cause of action justiciable in this Court? The answer to both is yes. The respondents accept that the Commissioner has a good arguable case in relation to the assessments and the freezing order against Mr Vasiliades. 40 First, a cause of action has accrued. Notices of amended assessment of income tax for Mr Vasiliades for the 2007 to 2010 income years have been issued by the Commissioner. They are listed in Table A of the Annexure to these reasons for judgment (Assessments). That tax is "due and payable": s 5-5 Income Tax Assessment Act 1997 (Cth) (ITAA97). Once the time for payment set out in the notices of assessment has passed, the Commissioner may sue to recover that amount which remains unpaid: s 255-5 in Sch 1 of the Taxation Administration Act 1953 (Cth) (TAA). The production of a notice of assessment, or a copy of it, is conclusive evidence of the due making of the assessment and (except in proceedings under Part IVC of the TAA) that the amount and all particulars of the assessment are correct: s 177 of the Income Tax Assessment Act 1936 (Cth) (ITAA36) and s 298-30(3) in Sch 1 to TAA; FJ Bloemen Pty Ltd v Commissioner of Taxation (1981) 147 CLR 360 at 376ff; Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 at [22]-[25] and [64]-[68]. 41 Second, these proceedings are within the jurisdiction of the Federal Court by reason of s 39B(1A)(c) of the Judiciary Act 1903 (Cth) as a matter arising under a law of the Commonwealth: Deputy Commissioner of Taxation v Cheung Kong Infrastructure Holdings Ltd [2013] FCA 707 at [11]; Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 8) [2013] FCA 494 at [12]-[14] and LNC Industries Ltd v BMW (Australia) Ltd (1983) 151 CLR 575 at 581. "[A] matter may properly be said to arise under a federal law if the right or duty in question … owes its existence to federal law or depends upon federal law for its enforcement, whether or not the determination of the controversy involves the interpretation (or validity) of the law": R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett (1945) 70 CLR 141 at 154. That conclusion does not depend on the form of the relief sought or on whether the relief depends on federal law: LNC Industries at 581. 42 The Assessments owe their existence to federal law and depend upon federal law for their enforcement. The Commissioner submitted that he has a good arguable case on accrued causes of action in respect of the Assessments and the administrative penalty assessments totalling $29,806,048.77 (including interest charges): r 7.35(1)(b) of the FCR. I agree.
SECOND LIMB - DANGER THAT PROSPECTIVE JUDGMENT WHOLLY OR PARTLY UNSATISFIED
5.1 Introduction 43 There are two issues in relation to the proposed freezing order against Mr Vasiliades. What are the relevant assets? Second, is there a real risk or danger that those assets will be removed from Australia or from a place inside or outside Australia or disposed of, dealt with, or diminished in value those assets so that a prospective judgment in favour of the Commissioner would be wholly or partly unsatisfied? 44 In relation to the proposed freezing orders against the third parties, it is necessary to identify the relevant assets of Mr Vasiliades over which the third party holds, or is using, or has exercised or is exercising, a power of disposition, or which the third party is in possession of, or concerning which the third party is in a position of control or influence. Second, it is necessary to consider whether there is a risk that a prospective judgment will be wholly or partly unsatisfied because of that power of disposition, possession, or control or influence, or whether a relevant process in the Court may ultimately be available to the applicant. 45 It is appropriate to deal with the issues in reverse order.
5.2 Risk of dissipation? 46 The evidence demonstrates a real risk or danger that Mr Vasiliades will dispose of, deal with, or diminish in value the assets in Australia over which he has control so that a prospective judgment in favour of the Commissioner would be wholly or partly unsatisfied. As Mr Vasiliades is the sole director of SYSDC and Falconbridge, to the extent that either of those companies have a power of disposition, possession, or control or influence over assets of Mr Vasiliades, that real risk or danger is relevant to whether a judgment would be wholly or partly unsatisfied. 47 First, Mr and Ms Vasiliades are non-residents of Australia and have been so since August 2008: see [10] above. Their affidavit evidence confirmed they left Australia in August 2008 intending to live in Europe permanently. 48 Second, as submitted by the Commissioner, the borrowing from Macquarie "by" Mr and Ms Vasiliades (see [20]ff above) "demonstrates a willingness and ability to reduce substantially the equity in the [Towers Road Property] available to creditors in Australia". 49 Third, having regard to the liquid nature of the net proceeds of sale and Mr and Ms Vasiliades' history of transferring funds out of Australia (see [18]ff above), there is a real and substantial prospect of all of the net proceeds being transferred out of Australia in the absence of a freezing order. 50 Fourth, there is significant evidence of the transfer of assets out of Australia: see [18], [22] [27] and [30] above. In addition, on 30 June 2009, Mr Vasiliades transferred all of the issued shares in Core Mining Pty Ltd, an Australian company of which he was the sole shareholder and director, to Core Mining Limited, a company located at the time in the Isle of Man and now located in the British Virgin Islands. Mr Vasiliades remains the sole director of Core Mining Pty Ltd: see [11] above. 51 Finally, and no less importantly, the evidence demonstrates that unless restrained by court order, Mr and Ms Vasiliades will transfer the net proceeds of sale of the Towers Road Property out of Australia, leaving no assets of substantial value in Australia to meet Mr Vasiliades' tax debt: see [31] above. 52 To the extent that Ms Vasiliades has a power of disposition, possession, or control or influence over assets of Mr Vasiliades, the factors outlined at [46]-[49], the first sentence of [50] and [51] above are relevant, and there is a danger that a prospective judgment of the Court would be wholly or partly unsatisfied.
5.3 Mr Vasiliades 53 Mr Vasiliades does not hold substantial assets in Australia. He holds 50% of the shares in SYSDC and is the company's sole director. He is a beneficiary of the Trust, and is the sole director and sole shareholder of the trustee, Falconbridge. He does not hold or own any real property in his own name. However, the Commissioner contends that he is entitled to a share of the net proceeds of sale of the Towers Road Property held by his wife, Ms Vasiliades.
5.4 SYSDC 54 SYSDC previously held real property in Australia at 232 Smith Street, Collingwood, Victoria but that was sold in or about January 2009. The Commissioner seeks a freezing order against 50% of the unencumbered value of its assets, reflecting the 50% shareholding of Mr Vasiliades. 55 Before the hearing, Mr Vasiliades, SYSDC and Falconbridge filed an affidavit by Mr John Paolacci, their Accountant and Registered Tax Agent (who since July 2012 has worked at Moore Stephens, Accountants and Tax Advisors). That affidavit annexed accounts for SYSDC and Falconbridge for the financial years ended 30 June 2011, 2012 and 2013. As noted at [8] above, Mr Paolacci was also the Tax Agent for Ms Vasiliades. At the conclusion of the hearing, the respondents filed a further affidavit from Mr Paolacci dealing with SYSDC and Falconbridge. Annexed to that second affidavit were draft accounts for the financial year ended 30 June 2014 (FY2014) for SYSDC and Falconbridge. Those draft financial statements raised more questions than they answered. 56 The second affidavit asserted that SYSDC is not currently trading. That assertion was consistent with the Business Activity Statements annexed to the affidavit. For FY2014, although SYSDC's draft financial statements recorded no gross profit, they did record interest income of $163,814 giving rise to a net profit of $111,642. The draft balance sheet was more confusing. The draft balance sheet recorded net assets of $1,816,231 primarily comprised of long term "liabilities" described as "Loan - S Vasiliades" at a total of "($2,881,843)". Those long term loans were in fact loans made by SYSDC to Mr Vasiliades. 57 Mr Vasiliades' shares in SYSDC are his assets. In addition, by reason of his sole directorship and shareholding, he holds a power of disposition over SYSDC's assets.
5.5 Falconbridge 58 As stated above, Mr Vasiliades is the sole director and shareholder of Falconbridge. Falconbridge is the trustee of the Trust. Mr and Ms Vasiliades are specified beneficiaries of the Trust and Mr Vasiliades is the Appointor of the Trust. The draft financial statements annexed to Mr Paolacci's second affidavit disclose that during FY2014 Falconbridge disposed of substantial freehold land and buildings, derived total income and gross profit in excess of $2,154,000 and then distributed approximately $2,109,000 to beneficiaries of the Trust. 59 Falconbridge remains the registered owner as to 2 of 4 equal undivided shares of a property located at 1950 Old Sydney Road, Wallan, Victoria 3756. This registration was lodged for registration on 1 August 2011 and recorded on 4 August 2011. The property is recorded in the 30 June 2012 and 2013 balance sheets, and the draft balance sheet for FY2014 at cost of $40,180. The property is on the market for sale. An advertisement lists the price as $1,300,000. 60 A beneficiary who effectively controls a trustee's power of selection because he or she is the trustee or one of them and / or has the power to appoint a new trustee may have something approaching a general power and the ownership of the trust property: Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509 at [37]. 61 What then is the position here? The Trust is discretionary. Mr Vasiliades is just one of the specified beneficiaries. His entitlement to the income and corpus of the Trust is not immediately ascertainable: Carey (No 6) at [19] and the authorities cited. However, can it be said that Mr Vasiliades is a beneficiary who effectively controls Falconbridge (the trustee of the discretionary trust) so that the control approaches a general power and thus a proprietary interest in the income and corpus of the Trust: Carey (No 6) at [19]ff? Or as French J (as he then was) put it (at [36]), can it be said that the Trust is controlled by Falconbridge, which is in truth the alter ego of Mr Vasiliades, so that it can be said that a contingent interest may be identified because "it is as good as certain" that Mr Vasiliades will receive the benefits of distributions of income or capital or both from the Trust? It is unnecessary to finally resolve that question. It is sufficient for present purposes to find that I am satisfied that the Commissioner has a good arguable case that it can be said that Mr Vasiliades does have a contingent interest of the kind identified by French J.
5.6 Ms Vasiliades 62 Ms Vasiliades was the registered proprietor of the Towers Road Property. The Commissioner seeks orders against Ms Vasiliades in respect of a share of the net proceeds of sale of the Towers Road Property which the Commissioner contends belongs to Mr Vasiliades. The Commissioner contends that Mr Vasiliades had an equitable interest in the Towers Road Property by virtue of a resulting trust or a constructive trust, which is traceable to the net proceeds of sale. The relevant principles of a resulting trust were set out by the High Court in Calverley v Green (1984) 155 CLR 242. Those principles apply where money is paid for the purchase of property in the name of another. The presumed intention of the party paying the money is that the person taking the title to the property holds the legal title on trust for the payer, subject to proof of any contrary intention. In Calverley v Green, Mason and Brennan JJ said, at 259: This is the basic presumption [that beneficial shares in the property are held in accordance with and proportionate to contributions to the purchase price], though it may be displaced in appropriate cases by the presumption of advancement or, perhaps qualified by an inference of the kind espoused by Lord Upjohn in Pettitt v. Pettitt. His Lordship said: ... where both spouses contribute to the acquisition of a property, then my own view (of course in the absence of evidence) is that they intended to be joint beneficial owners and this is so whether the purchase be in the joint names or in the name of one. This is the result of an application of the presumption of resulting trust. Even if the property be put in the sole name of the wife, I would not myself treat that as a circumstance of evidence enabling the wife to claim an advancement to her, for it is against all the probabilities of the case unless the husband's contribution is very small. 63 In Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 at [68], the High Court referred to the above statement of Mason and Brennan JJ. At [71] the Court 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. (Footnote omitted) 64 In the alternative, it was contended that there is a prima facie basis for Mr Vasiliades to claim a constructive trust in accordance with the principles set out in Muschinski v Dodds (1985) 160 CLR 583. 65 What then are the facts relied upon by the Commissioner in support of the contention that he has a good arguable case that Mr Vasiliades had an equitable interest in the Towers Road Property by virtue of a resulting trust or a constructive trust, which is traceable to the net proceeds of sale? (1) Mr and Ms Vasiliades both contributed to the purchase of the Towers Road Property: see [5]-[6] above. (2) Mr Vasiliades contributed to the construction costs of the new house on the Towers Road Property: see [7]-[9] above. (3) Mr Vasiliades used funds secured against the Towers Road Property: see [18]-[19] above. (4) Mr Vasiliades made significant contribution to the other costs of the Towers Road Property, including interest payments on loans and payment of real estate advertising costs: see [7], [8], and [13] above. (5) There is no evidence that Ms Vasiliades made any payments in respect of any loan taken out for the purchase of the Towers Road Property or construction of the new house. (6) Ms Vasiliades did not have the means, based on her reported income, to make repayments of the loans. In her affidavit, Ms Vasiliades said that, when they moved to Melbourne in 1996, Mr Vasiliades was the family breadwinner, and that was the case in September 2012. That is consistent with the statutory declarations made by Mr and Ms Vasiliades in relation to the new Macquarie loan: see [26] above. 66 Despite these significant considerations, the respondents submitted that the Commissioner's attempt to suggest that Mr Vasiliades had an equitable interest in the Towers Road Property by virtue of a resulting trust or a constructive trust, which is traceable to the net proceeds of sale, was misconceived. That misconception was said to arise because Mr and Ms Vasiliades had adduced evidence as to their actual intentions. That evidence, in the form of affidavit evidence from each of them, was that they agreed that the family home (which included the Towers Road Property) would be bought in Ms Vasiliades' name and further evidence from Mr Vasiliades that any financial contributions to the purchase or renovation of the home would be a gift to his wife. It was based on this evidence that the respondents contended that any presumption as to equal ownership was displaced (cf Calverley v Green), that there was no basis for the Commissioner to claim a constructive trust (cf Muschinski v Dodds) and that there was an insufficient basis to draw an inference of equal ownership regardless of the state of the legal title (cf Cummins v Cummins). 67 Although it is unnecessary to finally resolve this question, the objective facts provide the Commissioner with a good arguable case that Mr Vasiliades had an interest in the Towers Road Property which can be traced to the proceeds of sale. As Senior Counsel for the Commissioner submitted, the evidence of Mr Vasiliades' dealings in relation to the Towers Road Property (see [65] above) supports the contention that the position stated by Mr and Ms Vasiliades in their affidavits does not disclose the actual intention of the parties, and their statements need to be tested against the known events or, alternatively, whatever their intentions at the time that St Georges Road, Toorak and then the Towers Road Property were purchased, those intentions changed at least to the extent that the intention was to give Mr Vasiliades an equitable interest in the Towers Road Property. I agree.
THIRD LIMB - BALANCE OF CONVENIENCE 68 The balance of convenience favours the granting of certain freezing orders.
6.1 Mr Vasiliades 69 In the absence of a freezing order, there is a real risk of asset dissipation. On the other side of the ledger, Mr Vasiliades' position is protected by the Commissioner's undertaking as to damages. The Commissioner has a strong case for the ultimate relief he seeks. A freezing order will be made against Mr Vasiliades until further order.
6.2 SYSDC 70 For the reasons set out above, it is appropriate and sufficient to order that, until further order, SYSDC not dispose of, encumber or deal with its assets other than in the ordinary course of business, without first giving the Commissioner at least 14 days' notice. For the avoidance of doubt, the evidence of the respondents is that SYSDC is not trading.
6.3 Falconbridge 71 In relation to Falconbridge, it is not appropriate to continue the freezing order in its current form. Instead, it is appropriate to order that Mr Vasiliades must not himself, and must not through any partner, employee, agent or other person acting on his behalf or on his instructions exercise any power of distribution in respect of the Trust including any power as a director of any trustee of the Trust: cf Deputy Commissioner of Taxation v Ekelmans (No 2) [2013] VSC 376.
6.4 Ms Vasiliades 72 In the absence of a freezing order, there is a real risk of asset dissipation. On the other side of the ledger, Ms Vasiliades' position is protected by the Commissioner's undertaking as to damages. A freezing order, in final form, against Ms Vasiliades will be made. The freezing order against Ms Vasiliades is limited to $2,710,196.68, being 50% of the net proceeds of sale of the Towers Road Property, $1,812,221.68, plus $897,975 (being 50% of the net proceeds of the deposit received by Ms Vasiliades), these amounts representing the portion said to be held on constructive and / or resulting trust for Mr Vasiliades. The order only applies to Mr Vasiliades' share of the net proceeds (as alleged by the Commissioner). It does not apply to any of Ms Vasiliades' assets, including her share of the net proceeds of sale of the Towers Road Property. 73 The Commissioner submitted, and I accept, that there was, and is, no need for an exception to the freezing order against Ms Vasiliades to meet her pre-existing obligations in relation to the purchase of a property in France: see [31] above. Ms Vasiliades is free to use any of her assets, including her share of the net proceeds of the Towers Road Property, to meet that pre-existing obligation. Her share of the net proceeds, on the Commissioner's case, is the same as Mr Vasiliades' share - $2,710,196.68 ($897,975 of the net proceeds of the deposit and $1,812,221.68 of the net proceeds of settlement). There are two further matters which support that contention. First, Ms Vasiliades did not provide detailed evidence about her own asset position. At best, the evidence was general and vague. For example, the evidence disclosed that between 30 October 2013 and 23 September 2014 and after the ANZ mortgage on the Property had been discharged, $7,448,400 was drawn down on the new Macquarie loan. What use was made of those funds was not explained. Whether assets were acquired and if so, what they were, was not explained. Second, and no less importantly, the exception for pre-existing obligations is not necessary to provide protection for the vendor of the property in France. If the sale does not proceed, Ms Vasiliades' evidence is that she is liable to pay the vendor a total of €280,000 (half of which has already been paid). There is no evidence that the position of the vendor would be damaged or compromised by extending the freezing order in respect of 50% of the net proceeds of sale of the Towers Road Property plus $897,975 (being 50% of the net proceeds of the deposit received by Ms Vasiliades). The vendor is protected by provisions in the sale contract.
6.5 Condition 74 Freezing orders can be granted on condition. In my view, it is appropriate that the Commissioner proceed to determine each objection which has been filed in relation to the Assessments, without delay. The Court was told that the Commissioner would determine the objections by no later than 28 November 2014. The timing is curious given that is the date of settlement on the property in France. If the objections are not determined before 28 November 2014, the respondents will have liberty to apply to discharge or vary one or more of the orders.
I certify that the preceding seventy-four (74) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.
Table A - Assessments for Mr Socrates Vasiliades Income ($) Tax ($) Tax period ending Date of issue Due date Previous taxable Amended taxable Description of variation Total adjustments to income Difference between this notice and previous notice Shortfall interest charge Amount (Income only) Income 4,208.00 Gross interest Supplement Income 25,000.00 30.06.07 02.10.12 26.10.12 24,971 54,179 Net capital gains 29,208 9,165.15 3,164.20 12,329.35 Supplement Income 30.06.07 26.03.14 22.04.14 54,179 678,603 624,424.00 624,424 283,484.00 144,992.75 428,476.75 Income 165,982.00 Dividends Unfranked Income 24,336.00 30.06.08 03.10.12 29.10.12 17,305 207,623 Gross Interest 190,318 71,548.90 20,854.68 92,403.58 Supplement Income 30.06.08 24.03.14 17.04.14 207,623 3,221,138 3,013,515.00 3,013,515 1,401,284.48 632,046.56 2,033,331.04 Supplement Income 1,572,819.00 Net capital gains Income 153,343.00 30.06.09 03.10.12 29.10.12 0 1,726,162 Dividends Unfranked 1,726,162 757,293.55 114,747.85 872,041.40 Losses 29,268,025.00 Taxable income or loss Supplement Income 29,268,025.00 30.06.09 01.08.14 25.08.14 1,726,162 30,994,187 Net capital gains 29,268,025 13,216,317.45 4,202,594.82 17,418,912.27 Supplement Income 173,052.00 30.06.10 05.10.12 29.10.12 0 173,052 Total Other income Category 2 Amount 173,052 59,009.75 3,892.40 62,902.15 Sub-total 20,920,396.54 Less credits and payments 489,108.14 TOTAL 20,431,288.40
Table B - Notice of assessment of shortfall penalty for Mr Socrates Vasiliades Tax period ending Date of issue Due date Amount of penalty ($) 30.06.07 02.10.12 23.10.12 916.50 30.06.07 26.03.14 16.04.14 141,742.00 30.06.08 03.10.12 24.10.12 7,154.85 30.06.08 24.03.14 17.04.14 840,770.65 30.06.09 03.10.12 24.10.12 75,729.35 30.06.09 01.08.14 18.08.14 7,723,018.15 30.06.10 05.10.12 26.10.14 5,900.95
Sub-total 8,795,232.45 Less credits and payments 89,701.65 TOTAL 8,705,530.80
Table C - Total amount owing to the Commissioner ($) Table A (tax) 20,431,288.40 Table B (penalties) 8,705,530.80 General interest 669,229.57 TOTAL 29,806,048.77
Deputy Commissioner of Taxation
Vasiliades
[2010] WASC 25
[2009] VSC 418
[2013] VSC 376
(2006) 153 FCR 509
(1984) 155 CLR 242
(1999) 198 CLR 380
(2008) 237 CLR 146
(2010) 27 VR 127
(1981) 147 CLR 360
(1983) 151 CLR 575
(1985) 160 CLR 583
(1989) 18 NSWLR 319
(1945) 70 CLR 141
(2006) 227 CLR 278