Plaintiff v Respondents

Supreme Court of Victoria|2009-09-28|Before: FORREST J

PRACTICE AND PROCEDURE - Freezing order - Continuation of freezing order - Risk of dissipation of assets - Ancillary orders.

1 The Deputy Commissioner of Taxation ("DCT") seeks a continuation of freezing orders made by Mandie J on 10 June 2009 and subsequently extended on a number of occasions by other judges of this Court. In addition, his Honour made ancillary orders relating to the filing of affidavits, which have been held over pending this hearing.

2 AES Services (Aust) Pty Ltd ("AES") and its two directors George Haritos and Alex Kyritsis ("the directors"), are the first, second and third respondents respectively. Ten other respondents, being companies and individuals associated with AES and the directors are also respondents to the orders (collectively referred to as "the third parties").

3 The genesis of DCT's claim is the asserted failure by AES and the directors to disclose over $30 million in assessable income in the financial years ending June 2005, 2006, 2007 and 2008.[1] DCT contends that AES and the directors have already alienated funds or assets to the third parties and there is a real likelihood that absent a freezing order, it will be unable to recover outstanding amounts of income tax owed by AES and the directors, as well as GST owed by AES. This is said to amount to over $28 million (including additional taxes, penalties and interest).

4 The respondents, who are jointly represented, argue that (a) there was non-disclosure to Mandie J of relevant material; (b) there is insufficient evidence in relation to the risk of dissipation of assets, especially in relation to that of the respondents other than AES and the directors and (c) there should be no ancillary orders made, given the uncertainty surrounding the investigations into the affairs of AES.

5 Ultimately I have concluded that it is appropriate to make orders continuing those made by Mandie J, with a slight variation.

6 AES is, in effect, the corporate successor to AES Property Services Pty Ltd which ceased trading on 1 January 2005 and was ultimately dissolved on 19 May 2008.[2]

7 AES was incorporated on 8 October 2004; the directors were appointed on that date and Mr Haritos was appointed secretary. Fifty of AES's 100 issued shares were held by Mr Haritos and 50 by Mr Kyritsis.[3] It is said to have commenced operating on 1 January 2005.

8 Between the time of its incorporation and 30 June 2008, AES operated a substantial and apparently highly successful cleaning business throughout Melbourne and its suburbs. A significant amount of its income was gleaned from contracts with MTE/Connex, Yarra Trams, RMIT, United Group, Resolve, Holmesglen TAFE and CSIRO.[4] It also had a large number of smaller contracts.[5]

9 Between October 2004 and May 2006, Mr Haritos and the third parties became the registered proprietors of ten properties in Prahran, Toorak, Caulfield North and South Yarra at a cost of approximately $13.5 million.[6]

10 In July 2008 the Australian Federal Police ("AFP") commenced an investigation into the financial affairs of AES and examined, particularly, two accounts operated by AES, one with the Commonwealth Bank of Australia ("CBA") and the other with Westpac.[7]

11 The preliminary inquiries of the Australian Tax Office ("ATO") indicate that the majority of income derived by AES was deposited into the CBA account. This account was also used to pay the vast majority of the business expenses of AES. Payments from three major clients were deposited in the Westpac account. Random samples of Westpac vouchers demonstrated that 95% of the vouchers were made out to cash, with the balance going to a particular contractor. By contrast, only one of the CBA vouchers was made out to cash, with the balance appearing to be business-related payments.[8]

12 The allegation by DCT, reduced to its simplest, is that a large amount of income received by AES and paid into the Westpac account was not declared as income and therefore avoided income tax and GST.

13 An audit by ATO officers[9] concluded that AES and the directors had understated their income for the four financial years ending June 2005 through to June 2008. The ATO assessment of AES's taxable income was increased by $25,756,137, Mr Haritos by $7,733,388 and Mr Kyritsis by $343,991.[10]

14 On 10 June 2009 AFP executed a search warrant on eight premises and four vehicles[11]. In particular the warrants were executed at AES's premises in South Yarra and also at the office of its accountants, Gillard Pty Ltd, the home of Mr and Mrs Haritos in St Georges Road, Toorak and the home of Mr and Mrs Kyritsis in Chasserton Avenue, Toorak.[12]

15 On the same day ATO delivered amended assessments imposing additional taxes, penalties and interest levied in the following total sums:

On that day, as well, DCT made the application to Mandie J for the freezing orders.

16 Mandie J made two orders pursuant to o 37A. The first was directed to AES and the directors ("the AES orders"). The second was directed to the third parties ("the third party orders"), being the five individuals related to Messrs Haritos and Kyritsis namely Effie Haritos, Betty Kyritsis, Stella Haritos, Steven Kyritsis and Anastasias Haritos, all relatives of the directors. In addition, five companies were the subject of orders. Each of the companies are controlled by the directors or their relatives.

17 The AES orders prevented AES and the directors transferring or dealing with any of their assets. It also particularised specific properties said to be held by the directors.[16] Ancillary orders as to the provision of affidavits were also made.

18 The third party orders related to specific properties. For example, in relation to Effie Haritos, the order read as follows:[17]

"6. The fourth respondent, Effie Haritos, must not transfer, deal with, charge, diminish, mortgage, dissipate, assign or dispose of:

(a) the land described in certificate of title volume 07898 folio 170, situated and known as 51 Lansell Road, Toorak;

(b) the land described in certificate of title volume 10362 folio 389, situated and known as Lot 1/529 Chapel Street, South Yarra."

19 In addition to freezing the assets, ancillary orders were also made by his Honour in relation to the provision of information by AES, the directors and the third parties. Paragraphs 16 and 17 of the third party orders read as follows:

"16. Subject to paragraph 17, the following respondents must within seven (7) working days after being served with this order, swear and serve on the applicant an affidavit setting out all relevant facts, circumstances and matters relating to the transfer to, and or acquisition by, them of their interest/s in the properties identified below, including but not limited to the source of the funds used by them to acquire their interest in such properties:

(a) the fourth respondent, Effie Haritos - 51 Lansell Road, Toorak;

(b) the fifth respondent, Betty Kyritsis - 4 Grattan Street, Prahran;

(c) the sixth respondent, Stella Melas (formerly known as Stella Haritos) - 3 Yarradale Road and 5 Grattan Street, Prahran;

(d) the seventh respondent, Steven Kyritsis - 17 High Road, Prahran;

(e) the eighth respondent, Anastasios Haritos - 5 Grattan Street, Prahran;

(f) the ninth respondent, Grattan Heights Pty Ltd - 6 and 7 Grattan Street, Prahran;

(g) the tenth respondent, Kyritsis Nominees Pty Ltd - 91 Hawthorn Road, Caulfield North and 153 and 151 Toorak Road, South Yarra;

(h) the eleventh respondent, Diamond Sun Pty Ltd - 153 and 151 Toorak Road, South Yarra.

(a) This paragraph 17 applies if you are not a corporation and you wish to object compliance with paragraph 16 may tend to incriminate you or make you liable to a civil penalty.

(b) This paragraph 17 also applies if you are a corporation and all persons who are able to comply with paragraph 16 on your behalf and with whom you have been able to communicate, wish to object that compliance may tend to incriminate them respectively or make them respectively liable to a civil penalty.

(c) You must at or before the further hearing on the return date (or within such further time as the Court may allow) notify the applicant in writing that you or all the persons referred to in sub-paragraph (b) wish to take such objection and identify the extent of the objection.

(d) If you give such notice, you need comply with paragraph 16 only to the extent, if any, that it is possible without disclosure of the material in respect of which the objection is taken.

(e) If you give such notice and the applicant wishes, the Court may give directions as to the filing and service of affidavits setting out such matters as you or the persons referred to in sub-paragraph (b) wish to place before the Court in support of the objection."[18]

20 Last year in Zhen and Mo v ors[19] I endeavoured to set out what I thought were the appropriate principles regarding applications under o 37A. I reproduce those points:

First, that a freezing order, by its very nature, is a drastic remedy and a court must exercise a high degree of caution before taking a step which will interfere with a party's capacity to deal with his or her assets.[20]

Second, the order is not designed to provide security for the applicant's claim.[21] It is solely directed to preserving assets from being dissipated, thereby frustrating the court process.[22]

Third, the applicant bears the onus both in satisfying the Court that the order should be continued and in satisfying the Court as to the amount which is to be the subject of the order.

Fourth, that an order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no substitute for either the facts or inferences properly drawn from proved facts.[23]

Fifth, that before such an order can be made it is necessary that the applicant establish -

(a) an arguable case against the defendant[24]; and

(b) that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendant's actions in either removing the assets or disposing or dealing with them so as to diminish their value.[25]

Sixth, the balance of convenience must favour the granting of the freezing order.[26]

Seventh, that there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case.[27]

Eighth, the applicant must establish with some precision the value of prospective judgment. The order should not unnecessarily tie up a party's assets and property.[28]

Finally, there may be discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court.[29]

21 Relevant to this application, the following should be added where the orders sought involve "freezing" the assets of third parties. In Cardile v LED Builders Pty Ltd[30] the High Court said:

"What then is the principle to guide the courts in determining whether to grant Mareva relief in a case such as the present where the activities of third parties are the object sought to be restrained? In our opinion such an order may, and we emphasise the word "may", be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which:

(i) the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including "claims and expectancies", of the judgment debtor or potential judgment debtor; or (ii) some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor."

22 Rule 37A.05(5) of this Court reflects the principles set out in Cardile. It reads as follows:

"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:

(a) there is a danger a judgment or prospective judgment will be wholly or partly unsatisfied because:

(i) the third party holds, is using, 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."

23 Mr Ribbands who appeared for the respondents raised no argument on this point.

24 DCT filed seven affidavits in support of the application: Aris Zafirou, Rajani Helaluddin, two of Rick Fisher, and three of Ivan Barbaric.

25 No answering material has been provided on behalf of AES or the directors on the issue of the freezing orders. Whilst for a portion of the time since 10 June 2009 there have been discussions between the parties, the fact remains that it was open to AES, the directors and the third parties to put material before the Court to contradict the assertions contained in the affidavits of the ATO officers.

26 It is patent that DCT has a good arguable case against AES and Mr Haritos. By a quirk of fate, Mr Kyritsis' outstanding liability to ATO (by virtue of the amended assessment) has been satisfied by the garnishee of a bank account held by him.[31] However, DCT's case is not confined, as I read the material, to a mere civil penalty involving the re-assessment of the tax liability of AES and the directors. Rather, there is also, on the material, an arguable case of criminal liability on the part of the directors and AES.

27 DCT has demonstrated a good arguable case against the directors and AES.

Danger of an unsatisfied judgment - risk of dissipation of assets

28 The income tax return for AES disclosed "zero values for total assets, liabilities and loans to shareholders". Its account with the CBA as at September of last year was overdrawn by $790,000, and with Westpac it had a positive balance of $364,000.[32]

29 The uncontradicted evidence of Mr Zafirou is that over $13.5 million has been applied by the directors and/or related persons or entities in the purchase of properties in Melbourne suburbs since October 2004.[33]

30 In his affidavit, Mr Zafirou has set out in considerable detail the background to the purchases of a number of the properties. Ultimately, he has concluded at [63]:

"The matters outlined in the affidavits filed in this proceeding establish that:

(a) AES has failed to disclose all of its taxable supplies for the years ended 30 June 2005 to 30 June 2008, resulting in a significant under-accounting of taxable income for that period;

(b) AES's non-disclosure has occurred over an extended period of time during which time steps have been taken by AES's directors to conceal the true value of AES's taxable supplies;

(c) AES's directors have ensured that AES has not acquired any assets of value and have stripped profits from the company by diverting AES funds to their personal bank accounts and to the bank accounts of persons related to them;

(d) a significant number of properties have been acquired in the names of persons and entities related to George Haritos and/or Alex Kyritsis;

(e) the information available to the ATO establishes that AES funds have been applied to the purchase of at least some of those properties;

(f) the information presently available to the ATO does not establish that those persons and entities had the capacity to purchase those properties in their own right."

31 The affidavits of Mr Fisher and Mr Helaluddin provide further factual substantiation of these conclusions, which I accept for the purpose of this application.

32 Mr Ribbands contended that there was no evidence of a risk of dissipation of assets in respect of both the AES orders and the third party orders. He made the point that this was a case unlike that considered by the New South Wales Court of Appeal in Patterson v BTR Engineering (Aust) Limited[34] where a fraudulent misappropriation of funds had been accompanied by secretive transactions designed to avoid detection. In this case, he pointed to the fact that all the transactions were open and disclosed on the public record, and therefore it should be assumed that there was no risk of dissipation. There was no evidence of concealment of surreptitious or secretive behaviour. He said that the case of DCT was based upon speculation and guesswork insofar as dissipation of assets was concerned.

33 I do not agree. Of course a Court must be cautious before making such orders. Further a Court should not rely upon intuition or guesswork when determining whether to make such an order. This, however, is not such a case.

34 The very purpose of a freezing order is to ensure that assets are not alienated so as to avoid or frustrate the Court process. In that situation, a Court is entitled to draw inferences on the basis of the past conduct of the relevant parties. As Redlich J said in Victorian University of Technology v Wilson & Ors,[35]

"It is well established that, in determining whether there is a sufficiently substantial danger of defendants disposing of assets in order to defeat a judgment that might be obtained against them, the court is permitted to consider the evidence adduced by the plaintiff to establish its claim to the substantive relief sought: see Patterson v BTR Engineering (Aust) Ltd. A risk of dissipation cannot be inferred merely from the fact that the plaintiff has a prima facie cause of action. One may in some cases, having regard to the nature of the plaintiff's claim, infer the existence of a risk of dissipation partly or wholly from the fact that the plaintiff has a good, arguable case. Where the plaintiff's prima facie case against a defendant involves proof of allegations of serious dishonesty, such an approach may be appropriate." (Emphasis added.)

35 In cases in which freezing orders are sought there will rarely be direct evidence of conduct deliberately designed to frustrate the processes of the Court.[36] DCT has established, at least, a prima facie case from which to draw an inference as to the risk of dissipation of assets by AES or the directors based upon:

• non-disclosure by AES and the directors of vast amounts of assessable income and taxable supplies;

• the apparent diversion of AES funds into personal bank accounts or accounts of related parties;

• the purchase of properties in the names of persons other than AES or the directors with the use of AES funds.

36 The inference to be drawn from this conduct is that the directors are prepared to, when it suits their needs, appropriate AES funds for their own purposes and to purchase properties in the names of close family members or associated companies with their consent. Such an inference is available against the directors and AES itself. I think it is also available, contrary to Mr Ribbands' submission, against the third parties. Each has participated in the arrangements which, on their face, have facilitated the diversion of funds from AES and in which each of the third parties, arguably, holds the properties for the benefit of the directors or AES.

37 Contrary to Mr Ribbands' submission that DCT's application is simply to obtain security for its claims, I am satisfied that it is proper to infer that, absent the order, there is a risk of the dissipation of assets by both the directors and the third parties. Arguably, the third parties have acted hand in glove with the directors. I reject Mr Ribbands' suggestion that the connection is tenuous. If DCT has an arguable case against AES and the directors based upon a failure to declare over $30 million in assessable income, then that, combined with the purchase of the various properties, leads one to infer, not speculate, that, faced with potential tax liabilities of $28 million, AES and the directors may choose to direct that the assets held by the third parties be placed beyond the reach of the processes of the Court.

38 I am satisfied that there is a real danger of an unsatisfied judgment on the part of AES and the directors and also that there is a real risk that the assets arguably purchased with AES funds and held in the names of the third parties will be dissipated if not frozen.

39 The balance of convenience strongly favours making orders against AES and the directors. Without such orders, there is a genuine risk that any prospective judgment or penalty will be unsatisfied.

40 In arguing against the continuation of the orders of 10 June 2009, Mr Ribbands contended that there was a material non-disclosure by DCT[37] to Mandie J "of the nature and extent of a substantial and very serious criminal investigation which forms the backdrop to this proceeding".[38] In oral and written submissions, he contended that the following matters had not been disclosed to Mandie J. First, the fact that search warrants had been executed at the premises of AES the directors and the accountants for AES; secondly, that AFP was conducting a criminal investigation into suspected offences against the laws of the Commonwealth by both the directors as disclosed by the warrants. Finally, he said that it was incumbent on counsel to point out to the judge (who, I note, has vast experience sitting in the commercial and equity division of this Court), that there may be innocent explanations for the asset acquisitions by the third parties.

41 In the course of the application before Mandie J, Ms Schilling, who appeared on behalf of DCT, said as follows:

"In addition Your Honour will have noted that the affidavits refer to the service of the amended notice of assessment that was going to occur this morning, that has taken place. That has occurred in conjunction with some action that's taking place by the Australian Federal Police who have entered the premises of the principal respondents who are the first, second and third respondents and have obtained documents that are going to be reviewed."

42 When combined with the contents of the affidavits this constituted adequate disclosure to the court.

43 It was implicit from what was said to his Honour and from the affidavit material that search warrants had been executed at the premises of the directors. There was no need to refer to other warrants.

44 I do not think it was necessary for counsel to inform his Honour as to the scale of the operation. The matter of relevance to the making of these orders was the fact that they were part of a number of steps taken by DCT in relation to a perceived major fraud. Each of the other steps were described in both the affidavits and counsel's submissions: namely, the levying of amended assessments and ongoing investigation, including the search of the premises of the directors.

45 Nor was it necessary to provide explanations consistent with innocence on the part of the directors or AES. It was self-evident that there may be explanations of the property purchases other than the utilisation of AES funds, notwithstanding the persuasive material marshalled by DCT in the affidavits.

46 Rule 37A.03 permits orders ancillary to a freezing order to be made for eliciting information relating to the assets relevant to a freezing order or a prospective freezing order. DCT relied upon what was said by Brereton J in Royal Australian College of Physicians Limited v Yadam:

"The effect of that order would be to require disclosure of what moneys Mr Yadam has received from the College, where they are, and what has become of them, including to whom if anyone else they have been paid. That is an entirely legitimate exercise by a plaintiff, which has established a prima facie case that it has been deprived of its property by deception by the first defendant, to endeavour to trace those funds with a view to recovering them." [39]

47 Here, there is a strong prima facie case that ATO has been deprived of many millions of dollars by the conduct of AES and the directors. It is appropriate that orders be made in relation to both the directors and, as subsequently considered, the third parties, so that AES's funds can be traced and, if it becomes necessary, recovered.

48 The requirement that AES and the directors swear and serve an affidavit identifying all assets world wide, with details of their value and location, forms part of order 9 of the AES orders made by Mandie J. The operation of those orders has been deferred until the hearing of this application. In the event of a continuation of the AES orders I did not understand Mr Ribbands to contend that the ancillary orders were inappropriate. I propose to allow AES and the directors ten working days from today's date in which to provide the affidavits.

49 The AES orders should be continued until further order. AES and the directors should furnish affidavits within 10 working days in accordance with paragraph 9 of the order of Mandie J, subject to the conditions contained in paragraph 10 of his Honour's order.

The extent of the freezing orders sought by DCT

50 The properties the subject of the third party orders fall into two categories:

(a) those acquired after 8 October 2004 and identified in Exhibit A2-40 of the affidavit of Mr Zafirou.

(b) properties acquired by two companies, Jinacan Pty Ltd and Bega Nominees Pty Ltd between 1987 and 1996. The directors and their wives are the directors of Bega Nominees. Jinacan's corporate position is unclear; it is clear however that the directors and their spouses are closely connected with it.

51 DCT seeks, subject to the variation made on 18 September 2009, continuation of the third party orders.

The third parties' power of disposition/position of control

52 The affidavits of Messrs Zafirou, Helaluddin and Fisher set out the inquiries and investigation conducted by ATO into the acquisition of the various properties which are the subject of the third party freezing orders. It suffices, for the purpose of this application, to recite only part of the affidavit of Mr Zafirou in relation to the purchase of a property in Lansell Road, Toorak:

"43. The transfer of land dated 12 December 2008 for 51 Lansell Road, Toorak ("Lansell Road") which his exhibit "AZ-10" discloses that:

(a) Stamp duty on the transfer was paid on 22 December 2008;

(b) the purchaser of Lansell Road was Effie Haritos;

(c) the transferor was Stephanie Kroger; and

(d) the purchase consideration was the sum of $3,850,00.

44. I refer to the affidavit of Rajani Helaluddin sworn on 29 May 2009 ("the Helaluddin Affidavit") and paragraphs 46 to 50 of the Fisher Affidavit and the exhibits thereto. Those affidavits establish that:

(i) on 23 November 2007, cheque numbered 000200 for $1,200,000 was drawn on George Haritos's CBA Streamline Account and was deposited into the CBA account of Kristina Haritos;

(ii) on 10 September 2008, cheque numbered 000262 for $385,000 payable to Kay & Burton was drawn on George Haritos' CBA Streamline Account;

(iii) on 7 November 2008, cheque numbered 403044 for $400,000 drawn on the AES Westpac Account was deposited into Kristina Haritos's CBA Account;

(iv) on 3 December 2008, cheque numbered 402524 for $300,000 drawn on the AES Westpac Account was deposited into Kristina Haritos's CBA Account; and

(v) on 11 December 2008, Kristina Haritos purchased two bank cheques in the sums of:

(1) $1,762,760.26 payable to Andrew Kroger and negotiated through the National Australia Bank; and

(2) $5,405.65 payable to City of Stonnington and negotiated through the Commonwealth Bank of Australia.

45. The ATO believes Kristina Haritos to be the daughter of George and Effie Haritos.

46. The ATO believes that Kay & Burton were the agents handling the sale of the Lansell Road property. The payment to them of the sum of $385,000 is consistent with the payment of a 10% deposit of the Lansell Road purchase price of $3,850,000.

47. The ATO Records indicate that Kristina Haritos has a date of birth of 20 July 1989 and is aged 19. The ATO Records show that she has not been required to lodge a tax return for the 2003 to 2007 years. This indicates that her income is beneath the threshold at which income tax would be payable. No tax return has been lodged by her for the year ending 30 June 2008.

48. The ATO Records disclose that Kristina Haritos received salary and wages for the year ended 30 June 2008 of $408 from Salco Group Pty Ltd and interest from account 063 177 1015 7745 in the sum of $43,050.

49. Based upon the above information, I have formed the view that the funds transferred to Kristina Haritos from George Haritos' account and the AES Accounts were applied by Kristina Haritos to purchase the Lansell Road property from the transferor, Stephanie Kroger.

50. I note that the AES Tax Returns disclose zero values for total liabilities and loans to shareholders."

53 Mr Kyritsis and Mr Haritos are also directors of Grattan Heights Pty Ltd; Mr Kyritsis holds the total issued share capital. Mr Zafirou, in his affidavit, sets out the following in relation to the transfer of properties in Grattan Street, Prahran in March 2007:

"60. The Grattan Heights tax return for the year ended 30 June 2007 discloses that Grattan Heights had:

(a) total income of $12,222 and expenses of $11,025;

(b) no interest expenses;

(c) total assets of $686,929, of which current assets comprised $10,858; and

(d) total liabilities of $686,079, of which current liabilities comprised the total.

61. The Transfers of Land dated 20 March 2007 for 6 and 7 Grattan Street, Prahran ("Grattan Street Properties") which are exhibits "AZ-8" and "AZ-10" disclose that:

(a) The combined consideration for the Grattan Street Properties was $1,350,000;

(b) Stamp duty was paid on the transfers on 11 May 2007.

62. Based upon the above information, it is not clear:

(a) how Grattan Heights had the capacity to purchase properties valued at $1,350,000 during the 2007 financial year; and

(b) why the value of those assets was not disclosed in its 2007 tax return."

54 These two examples demonstrate the real prospect that AES funds, controlled by the directors, have been used to purchase properties in the names of relations and associated companies. The evidence assembled by ATO officers as a whole leads to a clear inference that there is an arguable case that AES and/or the directors have utilised AES funds to purchase the properties in the names of the third parties, each of whom have a direct relationship with the directors. I am satisfied that there is a danger that the prospective judgment will be wholly or partly unsatisfied because the relevant third party holds a power of disposition, control or influence over assets of AES and/or the directors.

55 I have set out at [28] to [38] my findings in relation to the risk of dissipation of the assets under the control of AES, the directors and the third parties. It is not necessary to say any more on this point.

56 Although there is evidence that AES did not commence trading until 1 January 2005 given the other evidence as to the use of AES funds I think it appropriate that the freezing orders be continued in respect of all property acquisitions after 8 October 2004 identified in Exhibit AZ-40 .

57 I also think it appropriate that the orders extend to properties acquired prior to October 2004 by the companies (Bega Nominees and Jinacan) controlled directly or indirectly by the directors. There is a real risk of dissipation of the assets without such orders.

58 The freezing orders made by Mandie J in relation to the third parties, subject to the variation of 18 September 2009 will be continued.[40] However, I think it appropriate to consider a slight modification of the orders so that the commercial activities carried on at the named premises can continue without the need for repeated applications to the Court. Provided the value of the assets is not diminished, DCT's position is preserved.

59 Much of Mr Ribbands' argument was directed to contesting the appropriateness of such orders at this point of time. [41] In its current form, each of the respondents would be required to provide an affidavit setting out the facts relevant to the acquisition of particular properties after October 2004. This information would, consistent with the orders made against AES and the directors, need to be provided within ten days.

60 In opposing such orders, Mr Ribbands contended that in providing such information, his clients would be subjecting themselves to the risk of self-incrimination when it was unknown if or when the third parties might face criminal charges. I think, at least at this stage of the proceeding, this argument is misconceived. Each of the respondents will have the opportunity, as provided by [17] of the third party orders, to raise the issue of self-incrimination. It sets out the steps to be taken by the respondents in relation to an objection based upon the risk of self-incrimination or liability to civil penalty. The time for consideration of such an objection is after notice is given to DCT as to the nature of the objection. The procedure is then set out in the balance of the paragraph and is appropriate in the present case given the number of respondents to the application. The concern as to self-incrimination or civil penalty may vary from individual to individual, and this may be raised by the giving of notice (as provided) and, if necessary, subsequent argument based upon affidavits filed by the parties.

61 Secondly, counsel relied upon the discretionary considerations related to the asserted failure to disclose to Mandie J the extent of the investigations and the potential liability of the third parties. He focused on what had been said to Mandie J in oral submissions. As I have said this ignores the contents of the affidavits of the ATO officers which his Honour had read. No-one could have been under any misapprehension as to DCT's position in relation to the property acquisitions after October 2004. There was an arguable case that these transactions involved the use of AES funds and that the third parties were willing participants in the alienation of those funds. For the reasons I set out previously, this argument can be put to one side.

62 Thirdly it was said that the ancillary orders were sought to determine whether DCT has a case. I disagree. The uncontradicted evidence demonstrates that it does have a case. Affidavits filed in accordance with the ancillary orders will assist in determining whether the assets have, in truth, been acquired with the use of AES funds. This exercise in tracing is perfectly proper in the circumstances of this case.

63 Finally, it was said on behalf of the respondents that it was not appropriate to order the provision of affidavits in relation to properties acquired prior to the incorporation of AES. However, as I read the third party orders and Exhibit AZ-40, (which provides details as to the dates upon which the properties the subject of the order were registered in the name of the particular respondent), each transfer was effected subsequent to 8 October 2004, the date of AES incorporation. It is these properties that are the subject of the ancillary orders. On that basis there is, at least, an arguable case that such properties have been acquired by the use of AES funds.

64 I am persuaded that it is appropriate to make the ancillary orders and the third parties should have ten working days in which to swear and serve on DCT an affidavit complying with the terms of [16] and [17] of the third party orders.

65 It is appropriate to make orders sought by DCT (as varied by the orders of 18 September 2009), with slight modification, namely, that of permitting the third parties to enter into appropriate commercial arrangements in relation to the use of those premises which are used for business purposes.

66 The affidavits which are the subject of the ancillary orders should be filed and served within ten working days of this day.

[1] Affidavit of Rick Fisher 9 June 2009 [28].

[6] Exhibit AZ40 to the affidavit of Aris Zafirou, 9 June 2009.

[11] Affidavit of Frederick Prickett 3 July 2009, Exhibit FMP-32.

[12] Affidavit of Frederick Prickett 26 June 2009 [8]-[10].

At a glance

Court

Decision date

Before

Source

Judgment (96 paragraphs)

Parties