Hua Wang Bank Berhad v Deputy Commissioner of Taxation

REASONS FOR JUDGMENT 1 The applicants by notice of motion filed on 23 September 2010 have sought leave to appeal pursuant to O 52 r 10(2) of the Federal Court Rules (the Rules) from orders made by a judge of this Court on 15 September 2010. 2 The applicants have also sought an order that the appeal for which they seek leave be heard concurrently with the applicants' application for leave to appeal. 3 The applicants have filed an affidavit to which is exhibited a draft notice of appeal. On 30 September 2010 Tracey J made an order extending the time within which the applicants could seek leave to appeal to the date of the notice of motion. 4 On 12 August 2010 the respondent, the Deputy Commissioner of Taxation, commenced a proceeding against the applicants seeking declarations that each of the applicants owed the respondent sums of money over a period varying between the financial year ended 30 June 2000 and the financial year ended 30 June 2007 in respect of income tax and administrative penalties. The respondent seeks a declaration that the respective applicants owed the following sums: First Applicant $4,577,836.85 Second Applicant $3,528,456.37 Third Applicant $6,406,569.90 Fourth Applicant $10,765,111,25 Fifth Applicant $2,677,460.24 5 In that proceeding the respondent also sought orders pursuant to O 25A r 5(4) of the Rules restraining each of the applicants from removing any assets located in Australia or from disposing of or dealing with or diminishing the value of those assets (freezing orders). 6 The originating proceeding also claimed interlocutory relief in the nature of freezing orders. The originating proceeding was accompanied by a notice of motion seeking interlocutory orders of the kind predicated in the originating application. 7 On the same day Jessup J made freezing orders under O 25A of the Rules and adjourned the further hearing of the notice of motion to 19 August 2010. 8 On 19 August 2010 orders were continued by another judge of the Court until on 7 September 2010 the parties were heard in relation to the continuation of the freezing order. On that day the primary judge ordered that the freezing order be continued until the day that her judgment was to be delivered. 9 On 15 September 2010 the primary judge made orders which had the effect of continuing the freezing orders until 4.15pm on 11 October 2010. It is those orders from which leave to appeal is sought. 10 On 11 October 2010 the primary judge continued the freezing orders until 4.15pm on 18 October 2010. On 18 October 2010 the primary judge again continued the freezing orders this time until 4.00pm today. 11 On 9 November 2010 the primary judge heard the respondent's application for summary judgment and reserved judgment on the application. On 16 November 2010 the applicants filed a notice of motion seeking to re-open the case in respect of the applications for a stay of the judgment. On 22 November 2010 the primary judge heard the applicants' motion to re-open the case. On 25 November 2010 the primary judge entered judgment against the respondents and refused the respondents' application for a stay. 12 The orders from which the application for leave to appeal has been brought are spent. They ceased to have effect at 4.15pm on 11 October 2010. The orders which presently prevent the applicants from removing from Australia their assets to the extent of the amount sought in the declarations were made on 18 October 2010. By its terms, the orders only have effect until 4.00pm today. 13 The Court has heard argument in relation to the application for leave to appeal and for the reasons that follow, the Court is of the opinion that leave to appeal should be refused. 14 In Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397, the Full Court identified the test for leave to appeal as (a) whether in all the circumstances the decision is attended with sufficient doubt to warrant it being reconsidered by the Full Court; and (b) whether a substantial injustice would result if leave were refused supposing the decision to be wrong. 15 The primary judge noted that the purpose of the freezing order which this Court has jurisdiction to make is to prevent frustration of the Court's processes and not for the purpose of creating a security for the applicant. 16 Her Honour noted that O 25A r 2 of the Rules specifically empowers the Court to make a freezing order 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. Order 25A rule 2(2) provides that an order can be made to restrain a respondent from moving any assets located in or outside Australia or from disposing of or dealing with or diminishing the value of those assets. 17 Order 25A rule 5 addresses the circumstances in which the power might be exercised and O 25A r 5(4) addresses the particular circumstances where a judgment or order to pay a sum of money has not been made against any person but that there is a danger that a judgment or prospective judgment would be wholly or partly unsatisfied. It provides: (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; or (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. 18 Subrules (5) and (6) are also relevant. Those subrules state: (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; … (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. 19 Her Honour said that O 25A states the judge-made law with respect to freezing orders which require an applicant to establish first a prima facie cause of action against the respondent; and secondly, a danger or real risk that a judgment debt would go unsatisfied because assets are removed from the jurisdiction or disposed of in some way. 20 Her Honour noted that the interests of justice could require the granting of freezing orders pending the hearing of an action even though the risk of dissipation is less probable than not. She noted that freezing orders could be granted even where there is no evidence of the respondent's positive intention to frustrate a judgment. 21 Her Honour said that it is not enough for the applicant to establish that because assets were within the jurisdiction and because the respondent is incorporated outside the jurisdiction an inference should arise of danger or dissipation. Her Honour said: Rather, there must be facts from which, to quote Lawton LJ in Third Chandris Shipping Corporation v Unimarine SA [1979] 1 QB 645 ('Chandris') at 671 "a prudent, sensible commercial" person can "properly infer a danger of default if assets are removed from the jurisdiction". In this connection, Lawton LJ also said (at 672): In my judgment an affidavit in support of a Mareva injunction should give enough particulars of the plaintiff's case to enable the court to assess its strength and should set out what inquiries have been made about the defendant's business and what information has been revealed, including that relating to its size, origins, business domicile, the location of its known assets and the circumstances in which the dispute has arisen. These facts should enable a commercial judge to infer whether there is likely to be any real risk of default. Default is most unlikely if the defendant is a long established, well known foreign corporation or is known to have substantial assets in countries where English judgments can easily be enforced either under the Foreign Judgments (Reciprocal Enforcement) Act 1933 or otherwise. But if nothing can be found about the defendant, that in itself may be enough to justify a Mareva injunction. 22 Her Honour concluded: In summary, the Court must consider, on the whole of the evidence before it, whether to continue, discharge or vary the freezing order previously made. In deciding this matter, the Court must determine, first, whether the Commissioner has shown a good arguable case on an accrued or prospective cause of action that is justiciable in the Court. Secondly, the Court must consider whether, on the evidence before it, there is a danger that a judgment or prospective judgment will be unsatisfied because assets are removed from Australia, or disposed of, dealt with, or diminished in value. Finally, the Court must consider the overarching question, whether, in all the circumstances, the case is one in which it is in the interests of justice to maintain or continue the freezing order. Amongst other things, in this regard, the Court must consider the likely consequences to the applicant if the assets are removed and the hardship that such an order inflicts on the respondents. The rights of third parties who may be affected by the grant of the order must also be borne in mind. 23 The applicants in this notice of motion claimed, in a way that was not particularised, that the primary judge misapplied the law. We reject that submission. In our opinion the primary judge faithfully followed the established law in Australia. 24 The principal argument put by the applicants was a misapplication of the law by the primary judge to the facts. The applicants contend that her Honour relied upon 10 separate matters for the making of the orders: (a) Each Appellant is a foreign corporation; (b) Not much is known about the Appellants; (c) The Appellants' known assets in Australia are liquid; (d) In the past each Appellant has transferred money out of Australia following sales of its shares; (e) None of the Appellants adduced evidence to show it has other assets in Australia, or in a jurisdiction where the enforcement of judgments is possible; (f) None of the Appellants has adduced clear evidence about the nature of its business activities, or management or control; (g) Each of the Appellants is advised by tax advisors; (h) Each of the Appellants has chosen not to file tax returns in Australia; (i) The size of the tax liabilities create an incentive for the Appellants to abscond with their assets; (j) Two of the Appellants are domiciled in tax havens. 25 The applicants argue that those 10 separate matters were not sufficient for the making of freezing orders of the kind made by the primary judge. The applicants contend there is no precedent for the making or continuation of freezing orders under such a set of circumstances and question whether the level of danger identified by the primary judge is sufficient for the grant of freezing orders. They contend that such circumstances have not previously been considered by the Full Court and the determination of the matter is a matter of public importance. 26 The applicants also contend that the question as to whether or not it is necessary to show some form of mala fides is necessary or simply that the judgment will be frustrated has not been addressed by the Full Court. They argued in support of the application for leave that there is a tension between the rule that a freezing order is not intended to put an applicant in a secured position and the rule, if it be the case, that removal of the assets in the ordinary course of business is sufficient to justify a freezing order. 27 It was contended by the applicants that her Honour failed to take into account the strength of the respondent's case in determining whether the order should be made because she found that s 177 of the Income Tax Assessment Act 1936 (Cth) ('ITAA') foreclosed such a consideration in a proceeding such as this. 28 The applicants contend that, contrary to her Honour's finding, the applicants contend that the conclusive nature of notices of assessment does not permit the Court to ignore the substance of the applicants' ultimate case as a factor relevant to the grant of a freezing order. 29 The applicants contend that they would suffer substantial injustice if they were unable to deal with their assets. Moreover, it was said that the applicants' combined taxation liability, including penalties, amounted to approximately $38 million AUD, but for the period 12 August 2010 until 18 October 2010, the Court's orders extended to the applicants' Australian assets with an aggregate value exceeding $100,000,000 AUD. 30 The applicants addressed the second limb of the Décor test by claiming that the orders caused reputational damage to the applicants. There was no evidence that any of the applicants had an established reputation. Nor was there any evidence of damage to any such reputation sufficient to satisfy the Court that a substantial injustice would result if the decision below remained. 31 On 12 August 2010 the respondent issued Notices of Assessment for unpaid income tax and Notices of Assessment for administrative penalties to each of the applicants. Under s 255-5 of Schedule 1 of the Taxation Administration Act 1953 (Cth) ('TAA'), the respondent may sue in the Federal Court to recover any tax liability that is due and payable. Because of the provisions of s 204(1) of the ITAA, the income tax liabilities were due and payable at the time the respondent instituted the proceeding in this Court. Section 177(1) of the ITAA and s 298-30(3) of Schedule 1 to the TAA make it clear that the production in this Court of a Notice of Assessment or document under the hand of the Commissioner or Deputy Commissioner purporting to be a copy of a Notice of Assessment is conclusive evidence of the due making of the assessment and that the amount and all particulars are correct. 32 The Commissioner has produced documents of that kind in this proceeding and, as a result, the correctness of the assessments in question was not an issue before the primary judge. The respondent was entitled to move for judgment in reliance on what s 177(1) deems to be conclusive evidence even in circumstances where there is an unresolved objection under Part IVC of the ITAA. 33 Her Honour was right to conclude therefore that the respondent plainly satisfied the "good arguable case" requirement for obtaining freezing orders. 34 The other matters to which her Honour has adverted and upon which she relied for the purpose of making the freezing order were all in our opinion relevant matters to be considered for that purpose. It has not been shown that her Honour failed to have regard to any relevant matter. 35 This was a discretionary judgment and unless the applicants can show that the primary judge's conclusion was not supported by the evidence or that she acted upon a wrong principle or had regard to irrelevant matters or failed to have regard to relevant matters the exercise of the discretion cannot be impugned. 36 The applicants have not in our opinion identified any matter in the reasons of the primary judge which would give rise to a consideration of any principle of law on appeal. Nor have they established that the judgment of the primary judge is attended by sufficient doubt to warrant it being reconsidered by the Full Court. In our opinion, the applicants have failed to make out the first limb of the Décor test. 37 As we have indicated, the applicants have failed as well to satisfy the second limb in that the ground upon which they rely for claiming that they would suffer a substantial injustice, namely reputational damage, was not supported by the evidence. 38 Leaving aside the fact that the orders as extended expire today, which of itself raises a real issue in relation to the utility of the appeal, the application should be dismissed for another reason relating to utility. 39 Since making the orders complained of, and since this notice of motion was brought on 25 November 2010, judgment was entered against the applicants and the applicants' application for a stay was refused. 40 If the respondent seeks an extension of the freezing orders made on 18 October 2010 from a single judge pending execution on the judgment, different considerations will apply to those which moved the primary judge to make the orders of 15 October 2010. However, that will be a matter for a single judge if an application were to be made. 41 For those further reasons, leave must be refused because there would be no utility in the grant of leave and the hearing of an appeal. 42 For completeness we should say we would not have refused leave because the orders for which leave is sought are spent. The parties have agreed that the orders made on 11 October 2010 and 18 October 2010 should be treated as if they were made for the reasons given by the primary judge on 11 September 2010. In those circumstances if we thought leave should be granted we would have treated the orders of 18 October 2010 as if they were the orders made by the primary judge on 15 September 2010. However, that said, those orders expire at 4:00pm today, and for the reasons mentioned above, the fact that the respondent now has a judgment against each of the applicants gives rise of itself to a question of the utility of granting leave. 43 The application for leave to appeal is dismissed. The applicants must pay the respondent's costs. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Lander, Middleton and Nicholas.