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Deputy Commissioner of Taxation v Widdup (No 2) [2023] FCA 377 (27 April 2023)

Last Updated: 27 April 2023

FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Widdup (No 2) [2023] FCA 377

File number:	NSD 466 of 2022
Judgment of:	WIGNEY J
Date of judgment:	27 April 2023
Catchwords:	PRACTICE AND PROCEDURE – ex parte freezing orders obtained against respondents per rr 7.32 and 7.35 of Federal Court Rules 2011 (Cth) – where respondents paid money into Court to discharge freezing orders – application for repayment of money paid into Court – whether applicant had a good or reasonably arguable case based on a prospective cause of action – whether there was risk of asset dissipation that may defeat prospective judgment – whether balance of convenience favoured the making of the orders TAXATION – freezing orders based on first and second respondents’ family trust distribution tax and income tax liabilities – challenge to applicant’s reliance on conclusive evidence provision in s 350-10 of sch 1 to Tax Administration Act 1953 (Cth) – argument of conscious maladministration and jurisdictional error as recognised in Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 – whether there was material non-disclosure at the ex parte hearing
Legislation:	Constitution Evidence Act 1995 (Cth) s 50 Family Trust Distribution Tax (Primary Liability) Act 1998 (Cth) Federal Court of Australia Act 1976 (Cth) s 23 Income Tax Assessment Act 1936 (Cth) ss 170(1), sch 2, ss 271-15, 271-15(1), 271-80, 271-90, 271-105, 272-75, 272-80, 272-80(1), 272-80(2), 272-80(3) Judiciary Act 1903 (Cth) ss 39B, 78B Tax Administration Act 1953 (Cth) sch 1, ss 284-75(1), 350-10, 388-50(1), 388-50(1A) Federal Court Rules 2011 (Cth) rr 2.42, 2.43, 7.32, 7.33, 7.34, 7.35
Cases cited:	Anglo American Investments Pty Ltd v Deputy Commissioner of Taxation (2017) 347 ALR 134; [2017] NSWCA 17 Batagol v Commissioner of Taxation (Cth) [1963] HCA 51; (1963) 109 CLR 243 Bou-Simon v Attorney-General of the Commonwealth (2003) 133 FCR 230; [2003] FCA 1303 Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 Commissioner of Taxation v Growth Investment Fund SA [2014] FCA 780 Deputy Commissioner of Taxation v Advanced Holdings Pty Ltd [2018] FCA 1263 Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014 Deputy Commissioner of Taxation v Ma (2017) 106 ATR 773;  [2017] FCA 1317  Deputy Commissioner of Taxation v Shi [2018] FCA 1915 Deputy Commissioner of Taxation v Vasiliades [2014] FCA 1250 Deputy Commissioner of Taxation v Wang [2020] FCA 1711 Duncan (as trustee for the bankrupt Estate of Garrett) v National Australia Bank Ltd (2006) 95 SASR 208; [2006] SASC 239 Re Farrow [2004] FCA 1569 Xu v Wan Ze Property Development (Aust) Pty Ltd (in Liq) [2015] FCA 1042
Division:	General Division
Registry:	New South Wales
National Practice Area:	Taxation
Number of paragraphs:	166
Date of hearing:	23 September, 11 October 2022
Counsel for the Applicant:	Ms E Bishop SC and T Russell
Solicitor for the Applicant:	HWL Ebsworth Lawyers
Counsel for the First, Second, Fourth and Fifth Respondents:	Mr C Bevan
Solicitor for the First, Second, Fourth and Fifth Respondents:	Dwyer Lawyers

ORDERS

THE COURT ORDERS THAT:

1. The interlocutory application filed by the first, second, fourth and fifth respondents on 29 August 2022 be dismissed.
2. The first, second, fourth and fifth respondents pay the applicant’s costs of and associated with the interlocutory application filed on 29 August 2022.

REASONS FOR JUDGMENT

WIGNEY J:

1. On 21 June 2022, the Deputy Commissioner of Taxation applied to the Court ex parte for freezing orders pursuant to rr 7.32 and 7.35 of the Federal Court Rules 2011 (Cth) to be made against Mr Julian Widdup, Ms Cecilia Widdup and two companies associated with them (the Widdup respondents), as well as two offshore companies with which the Widdup respondents had relevant dealings. The Deputy Commissioner relied on a lengthy affidavit sworn by an officer of the Australian Taxation Office (ATO) and made detailed written and oral submissions in support of the application. The duty judge who heard the interlocutory application on an urgent basis made the freezing orders against all respondents. The freezing orders were to have effect up to and including 29 June 2022. The proceeding was listed for “further hearing” of the interlocutory application before the duty judge on 29 June 2022. There was, however, no further hearing of the Deputy Commissioner’s interlocutory application. On 29 June 2022, the freezing orders were, with the consent of the respondents, extended until further order. On 1 August 2022, the orders ceased to have effect, by operation of paragraph 13(a)(i) of the freezing orders contained in Annexure A to the orders of the Court, because $4,810,316.34 was paid into Court by and on behalf of the respondents. On 5 August 2022, the freezing orders, along with some ancillary orders, were discharged by consent.
2. While there remains a dispute between the parties as to the precise nature of the extant interlocutory dispute, the main question for determination in this judgment is whether the money paid into Court on 1 August 2022 should be repaid. Other questions may arise if that question is resolved in favour of the Widdup respondents.
3. While the arguments advanced by the Widdup respondents in support of the proposition that the funds paid into Court by the respondents should be repaid were at times confused and confusing, their central contention was essentially that the money was paid into Court as a direct result of the making of the freezing orders and the freezing orders should not have been made in the first place. The Widdup respondents submitted, among other things, that the Deputy Commissioner had failed to disclose some material facts at the ex parte hearing on 21 June 2022 and that there was no basis for finding that there was a danger that any prospective judgment in favour of the Deputy Commissioner would be unsatisfied if the freezing orders were not made. They contended that there had been conscious maladministration or jurisdictional error on the part of the Deputy Commissioner in issuing the notices of liability for family trust distribution tax upon which the prospective judgment was said to be partly based.
4. For the reasons that follow, I am not persuaded that the Court should exercise its discretion to order that the money paid into Court by the respondents be repaid. Nor am I satisfied that the Widdup respondents are entitled to any other relief arising from the making of the freezing orders or the payment of money into Court.

THE MAKING OF THE FREEZING ORDERS

5. On the morning of 21 June 2022, the Deputy Commissioner issued Mr Widdup and Mrs Widdup with a number of notices under various provisions in the Income Tax Assessment Act 1936 (Cth) (ITAA36). Those notices included: first, notices of liability under s 271-90 of sch 2F to the ITAA36 to pay family trust distribution tax of $3,599,409, being tax imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998 (Cth) for which Mr and Mrs Widdup were said to have been liable since 20 July 2018 (the FTDT notices); second, notices of liability to a general interest charge of $1,210,907.34 (accrued as at 21 June 2022) in respect of the family trust distribution tax liability (the GIC notices); third, notices of amended assessment to income tax under s 170(1) of the ITAA36 which assessed Mr and Mrs Widdup to each be liable for income of $1,785,073.69 for the income year ended 30 June 2018 (the amended assessments); and fourth, notices of assessment of shortfall interest of $249,943.59 in respect of the assessed income tax shortfall.
6. On the afternoon of 21 June 2022, counsel appeared on behalf of the Deputy Commissioner before the duty judge, who on that day was Nicholas J. Counsel for the Deputy Commissioner sought leave to file in court an interlocutory application, an originating application, an affidavit sworn by an officer of the ATO, Ms Maria Llorca, and a lengthy documentary exhibit to that affidavit. None of those documents had, at that point, been served on the respondents to the applications. Nor had the respondents been given notice of the Deputy Commissioner’s application. Needless to say, the respondents were not represented at the hearing before Nicholas J and the application proceeded ex parte.
7. The respondents to the originating application were Mr Widdup and Mrs Widdup. In the originating application, the Deputy Commissioner sought judgment against both Mr and Mrs Widdup in respect of the following liabilities: first, $3,599,409 in respect of family trust distribution tax for the income year ended 30 June 2018; second, $1,785,073.69 in respect of income tax for the income year ended 30 June 2018; third, $259,943.59 in respect of shortfall interest charge on the income tax shortfall for the income year ended 30 June 2018; and fourth, $892,536.80 in respect of administrative penalties for the income year ended 30 June 2018. The Deputy Commissioner also sought to recover general interest charges in respect of the particularised liabilities calculated from the date the liabilities were due up until the date of judgment.
8. The respondents to the interlocutory application were Mr and Mrs Widdup, Fidelity Pacific Insurance Company Limited, FPL Partnership Pty Ltd, Aurum Asset Management Pty Ltd and FPLJCW Investment Fund LLC. The interlocutory application sought, among other things, freezing and ancillary orders pursuant to rr 7.32, 7.33, 7.34 and 7.35 of the Rules against each of the respondents. The general effect of the freezing orders sought against Mr and Mrs Widdup was to restrain them from removing from Australia or in any way disposing of, dealing with or diminishing the value of any of their assets in Australia up to the unencumbered value of $4,810,316.34. It should be noted at this point that the figure of $4,810,316.34 was the aggregate of $3,599,409, being the liability imposed as a result of the issue of the FTDT notices, and $1,210,907.34, being the liability imposed as a result of the issue of the GIC notices. The general effect of the freezing orders sought against the corporate respondents was to restrain them from dealing with certain assets in which they were said to have an interest, the detail of which is not presently relevant.
9. It is necessary to first identify the basis upon which the Deputy Commissioner applied for the freezing orders and the circumstances in which they were made.
10. The applicable principles in respect of the making of freezing orders against a prospective judgment debtor in this Court are settled and well-known. In simple terms relevant to this matter, an applicant must establish that: first, the applicant has a good or reasonably arguable case on a prospective cause of action justiciable in the Court; second, there is a danger that a prospective judgment in respect of that cause of action may be wholly or partly unsatisfied because, among other things, the assets of the prospective judgment debtor or another person will be removed from Australia, or disposed of, dealt with or diminished in value; and third, the balance of convenience favours the making of the order: see r 7.35 of the Rules and the summary of the applicable principles in Deputy Commissioner of Taxation v Vasiliades [2014] FCA 1250 at [35]- [37], [74].
11. The basis upon which the Deputy Commissioner sought freezing orders against both Mr Widdup and Mrs Widdup may be summarised as follows.

The first limb: the alleged tax liabilities, the originating application and the prospective judgment

12. The Deputy Commissioner contended that the first limb of the freezing order test had been satisfied because the Deputy Commissioner had a good or reasonably arguable case based on a prospective cause of action against Mr Widdup and Mrs Widdup in respect of the tax liabilities identified in the FTDT notices and the amended assessments. Those tax liabilities were the subject of the originating application.
13. The Deputy Commissioner contended, among other things, that she had a good or reasonably arguable case in respect of the recovery of tax liabilities owed by Mr Widdup and Mrs Widdup, those being the liabilities identified in the originating application. In the Deputy Commissioner’s submission, the amounts identified in the FTDT notices were already due and payable by virtue of the relevant legislative provisions. Similarly, by virtue of the relevant legislative provisions, the amounts identified in the amended assessments would, once the amended assessments were served, become due and payable on the dates identified in the amended assessments, which were in the near future.
14. Importantly, the Deputy Commissioner relied on the operation of s 350-10 of sch 1 to the Tax Administration Act 1953 (Cth) (TA Act), the general effect of which was that the production of the FTDT notices and the amended assessments was conclusive evidence that: the notices were properly given; the amounts and particulars of the notices were correct; the amended assessments were properly made; and the amounts and particulars of the amended assessments were correct (the conclusive evidence provision). In the Deputy Commissioner’s submission, it was therefore effectively not open to Mr Widdup and Mrs Widdup to dispute their indebtedness in the proceeding commenced by the filing of the originating application.
15. While the Deputy Commissioner relied on the conclusive evidence provision, counsel for the Deputy Commissioner nevertheless gave Nicholas J a detailed explanation of the somewhat complicated facts and circumstances which had given rise to the issue of, among other things, the FTDT notices and the amended assessments. It is unnecessary, for present purposes, to provide a detailed recitation of those facts and circumstances. It suffices to note that Mr and Mrs Widdup’s tax liabilities had their origins in a capital gain of almost $8 million that the trustee of a family trust associated with Mr and Mrs Widdup made in October 2017. The family trust was named the J&C Widdup Family Trust (later the Fidelity Holdings Trust) (the Family Trust) and the trustee of that trust was JCW Capital Pty Limited (the Trustee). While the funds referrable to that capital gain flowed through various bank accounts controlled by or associated with members of the Widdup family during 2018 and 2019, a series of complicated interactions, arrangements and transactions involving the Trustee, Fidelity Pacific and a rather unusual partnership between FPL Partnership, FPLJCW and Aurum, accounted for the funds rather differently.
16. Critically, shortly before the end of the 2018 tax year, the Trustee of the Family Trust resolved to irrevocably distribute the trust estate’s capital gains to Fidelity Pacific. Fidelity Pacific, a Canadian incorporated company which provided “offshore financial services” out of the Republic of Vanuatu, had only just been made a beneficiary of the Family Trust. Funds referrable to the relevant capital gain were subsequently transferred from a joint account held by Mr and Mrs Widdup to FPL Partnership. That payment was recorded as representing a capital contribution by FPLJCW to the partnership. The Deputy Commissioner contended that Mr and Mrs Widdup retained control of the funds that had been transferred to FPL Partnership.
17. As has been said, it is unnecessary to unravel the complicated arrangements and transactions that occurred in respect of the funds referable to the capital gain made the Trustee. It does not appear that the Widdup respondents take issue with the description of those arrangements and transactions given to Nicholas J, at least for the purposes of the current interlocutory dispute. The important point to note for present purposes is that the liability of Mr Widdup and Mrs Widdup to pay $3,599,409 in respect of family trust distribution tax for the income year ended 30 June 2018, as reflected in the FTDT notices, was premised on the Family Trust being a “family trust” for the purposes of div 271 of sch 2F to the ITAA36.
18. The Deputy Commissioner’s case in that regard, as put to Nicholas J, was that, in the tax returns for the Family Trust that had been lodged for the income years ended 30 June 2009 to 30 June 2017, the “Family Trust election status” box was marked to indicate that a family trust election had been made. The Deputy Commissioner also relied on the fact that all of the distributions by the Family Trust during those years had been made to members of the Widdup family or companies associated with them. The Deputy Commissioner inferred from those facts and circumstances that a valid family trust election in respect of the Family Trust was in force at the relevant time and it was therefore a “family trust” as defined in s 272-75 of sch 2F to the ITAA36. It was on that basis that s 271-15(1) of sch 2F to the ITAA36 was said to apply and, on that basis, it was said that the distribution to Fidelity Pacific gave rise to a family trust distribution tax liability on the part of the Trustee and its directors, Mr Widdup and Mrs Widdup.
19. As will be seen, the main submissions advanced on behalf of the Widdup respondents in support of the repayment of the funds paid into Court are premised on the contention that the Family Trust was not a “family trust” because no family trust election in accordance with s 272-80 of sch 2F to the ITAA36 had been made. Indeed, the Widdup respondents appear to go further and contend that the Deputy Commissioner in effect knew that to be the case, knew that the Family Trust was not a family trust and deliberately failed to disclose facts to Nicholas J which revealed that to be the case. Those contentions will be addressed later in these reasons.
20. One other important aspect of the basis upon which the Deputy Commissioner sought the freezing orders against Mr Widdup and Mrs Widdup should be emphasised. As has already been noted, the originating application sought to recover from Mr Widdup and Mrs Widdup amounts referrable to their liability for family trust distribution tax and income tax, as well as other charges or penalties. It is again unnecessary, at this point, to explain in detail the basis upon which the Deputy Commissioner had issued the amended assessments. It suffices to note that the income tax liability of Mr Widdup and Mrs Widdup also arose from the capital gain made by the Trustee in October 2017. In simple terms, the Deputy Commissioner assessed that either Mr Widdup or Mrs Widdup were liable to income tax in respect of the capital gain because, based on the events that had occurred, it was clear that they had the benefit and control of the proceeds of the capital gain, and the proceeds therefore formed part of their assessable income.
21. While the Deputy Commissioner claimed that Mr Widdup and Mrs Widdup were liable in respect of both family trust distribution tax and income tax, it was made clear to Nicholas J that if the family trust distribution tax liability was recovered from Mr Widdup and Mrs Widdup, they would then not be liable to pay the amount of income tax in the amended assessments by reason of the operation of s 271-105 of sch 2F to the ITAA36. The obvious purpose of that provision was to avoid double taxation. The Deputy Commissioner’s cause of action based on the liability of Mr Widdup and Mrs Widdup in respect of income tax was, therefore, in effect an alternative claim. It was nevertheless a claim that the Deputy Commissioner pressed. If the family trust distribution tax liabilities were for some reason not able to be recovered from Mr Widdup and Mrs Widdup, the Deputy Commissioner would seek to recover the income tax liabilities.
22. As explained earlier, the freezing orders that the Deputy Commissioner sought in respect of Mr Widdup and Mrs Widdup were in effect capped at $4,810,316.34. They were only to be restrained from disposing or dealing with their assets up to that amount. That amount was the sum of the family trust tax distribution liability of Mr Widdup and Mrs Widdup and the general interest charge in respect of that liability. The Deputy Commissioner told Nicholas J, in both the written and oral submissions, that the freezing orders were capped at that amount, as opposed to the sum or aggregate of the family trust tax liability and income tax liability, essentially because the Deputy Commissioner was not seeking to recover (and effectively could not recover) that aggregate amount. In her oral submissions, for instance, counsel for the Deputy Commissioner, after referring to the aggregate sum of $4.8 million referrable to family trust distribution tax, said as follows:

And then there’s also income tax penalties and shortfall interest charge. But the way the income tax assessment works is that once the family trust distribution tax is paid, it extinguishes the income tax liability because otherwise there would be a double amount, and the [C]ommission [sic] is prevented from doing that. So that is the way that works, so that there’s not a double recovery, if you like. And that’s why the [C]ommissioner has limited this freezing order application to $4.8 million.

23. Limiting the freezing order to the maximum amount likely to be recovered by the Deputy Commissioner was entirely consistent with the Court’s practice note concerning freezing orders: Freezing Orders Practice Note (GPN-FRZG) at [2.11].
24. As will be seen, the Widdup respondents’ challenge to the freezing orders focusses almost entirely on arguments relating to the liability of Mr Widdup and Mrs Widdup in respect of family trust distribution tax. They do not contend that the Deputy Commissioner does not have a good or reasonably arguable case against Mr Widdup and Mrs Widdup in respect of income tax. They maintain, however, that the Deputy Commissioner did not seek the freezing orders on the basis of the income tax liability of Mr Widdup and Mrs Widdup. They contend that the freezing orders were only sought in respect of the liability for family trust distribution tax.
25. That contention is not maintainable in light of what was in fact said to Nicholas J. Read fairly and in context, the Deputy Commissioner’s written and oral submissions make it tolerably clear that the freezing orders were sought on the basis of causes of action, or prospective causes of action, relating to both the family trust distribution tax liabilities and the income tax liabilities. What was put to Nicholas J was that the freezing orders were capped at an amount referrable to the family trust distribution tax liabilities because, if that amount was recovered, the Deputy Commissioner would not seek to recover the income tax liabilities. The family trust distribution tax liability was, therefore, in effect the maximum amount that could be recovered by the Deputy Commissioner.

The second limb: danger that the prospective judgment will be unsatisfied

26. The Deputy Commissioner submitted to Nicholas J that the evidence demonstrated that there was “a real and not fanciful risk” (cf Deputy Commissioner of Taxation v Ma (2017) 106 ATR 773;  [2017] FCA 1317  at  [18] ) that, once Mr Widdup and Mrs Widdup became aware of the FTDT notices and amended assessments and the proceeding that was based on them, they were likely to attempt to dissipate or dispose of their assets unless the freezing orders were made. As will be seen, the Widdup respondents contend that there was and is no proper evidential basis for that submission.
27. The Deputy Commissioner submitted that the existence of a real and not fanciful risk of dissipation was supported by evidence which established the following facts and circumstances.
28. First, Mr Widdup’s professional training and experience well equipped him to dissipate assets if he wanted or needed to.
29. Second, Mr Widdup and Mrs Widdup had forged ties with Fidelity Pacific. The Deputy Commissioner asserted that Fidelity Pacific was known or believed to have been involved in assisting other parties in respect of tax avoidance arrangements. The individual behind Fidelity Pacific was also said to have had a “colourful litigation history”.
30. Third, the arrangements which had been established by Mr and Mrs Widdup were said, on any view, to be “opaque” and suggestive of both a “positive intention to conceal the provenance and control of assets in Australia” and an intention on the part of Mr Widdup and Mrs Widdup to avoid their tax liabilities, or the tax liabilities of the Trustee, arising from the capital gain derived in October 2017.
31. Fourth, Mr Widdup and Mrs Widdup had each demonstrated their propensity to move large amounts of money around, whether to their own accounts or those of their children or associated entities. Much of the evidence adduced by the Deputy Commissioner was directed at proving the complex flow of funds referrable in one way or another to the capital gain.
32. Fifth, the Deputy Commissioner submitted that, given the size of the prospective judgment debt as compared to the known gross assets of Mr Widdup and Mrs Widdup, it was reasonable to infer that, absent the freezing orders, there would be a significant incentive for them to dissipate their assets.
33. Sixth, Mr and Mrs Widdup, as directors of the Trustee, had acted recklessly by failing to pay the Trustee’s family trust tax distribution liability, and instead allowed the Trustee’s assets to be dissipated in favour of Fidelity Pacific before meeting the outstanding tax obligations.

The third limb: the balance of convenience

34. It is unnecessary to deal at length with the Deputy Commissioner’s case in respect of the balance of convenience. The arguments advanced by the Widdup respondents in relation to the making of the freezing orders were not squarely directed at the balance of convenience considerations.
35. The Deputy Commissioner drew attention to the following considerations: first, the quantum of the tax liabilities was significant as compared to the known assets of Mr Widdup and Mrs Widdup; second, the Deputy Commissioner had a strong case for final relief; third, the scope of the freezing orders was limited to the sum of the family trust distribution tax liabilities and associated general interest charges; fourth, the orders would not inhibit Mr Widdup and Mrs Widdup from meeting their living expenses or reasonable legal expenses; fifth, the orders gave Mr Widdup and Mrs Widdup liberty to apply to the Court to vary the orders; sixth, the Deputy Commissioner had given an undertaking as to damages; and seventh, the Deputy Commissioner had instituted the proceeding expeditiously.

The freezing orders against the corporate respondents

36. It is also unnecessary to give detailed consideration to the case advanced by the Deputy Commissioner in respect of the freezing orders against the corporate respondents. The Widdup respondents’ submissions were primarily directed at the making of the freezing orders against Mr Widdup and Mrs Widdup, or at least were not squarely directed at a different basis upon which the orders were sought against the corporate respondents. It suffices for present purposes to make the following points.
37. First, the Deputy Commissioner contended that it could be inferred from the primary facts and circumstances that the distribution, or purported distribution, to Fidelity Pacific was subject to a concealed arrangement the effect of which was that the fruits of that distribution would be applied at the direction of Mr Widdup and Mrs Widdup and for their benefit, or the benefit of members of their family. It followed, according to the Deputy Commissioner, that Mr Widdup and Mrs Widdup may have rights in respect of assets held by Fidelity Pacific referable to the arrangement, including in particular a proprietary or beneficial interest in a parcel of shares in FPLJCW held by Fidelity Pacific.
38. Second, the scope of the freezing orders sought against Fidelity Pacific was confined to Fidelity Pacific’s Australian assets, in particular the parcel of shares in FPLJCW.
39. Third, the Deputy Commissioner contended, in respect of the other corporate respondents, that the evidence revealed that Mr Widdup and Mrs Widdup controlled, or had the capacity to control, FPL Manager and Aurum and had effectively used FPL Manager as a “money-box”. In those circumstances, according to the Deputy Commissioner, Mr Widdup and Mrs Widdup could use FPL Manager and Aurum to prevent or frustrate the satisfaction or enforcement of the prospective judgment against them.

The scope of the freezing orders as made

40. The freezing orders that were made by Nicholas J were, in terms of their nature and scope, unexceptional and consistent with the example form of freezing orders annexed to the Court’s practice note concerning freezing orders: GPN-FRZG at [2.4] and Annexure A. Only two aspects of the freezing orders as made warrant mention in the present context.
41. First, the freezing orders as made by Nicholas J only had effect up to and including 29 June 2022 – a period of 8 days. The orders provided that there would be a “further hearing” before the duty judge on 29 June 2022. That reflected the fact that the orders were made following an ex parte hearing. It was plainly envisaged that the orders and all of the material relied on by the Deputy Commissioner would be served on the respondents and that, if any of them intended to oppose the continuation of the orders, they could appear at the hearing on 29 June 2022 and adduce evidence and make submissions. If that occurred, the onus would be on the Deputy Commissioner to satisfy the Court that the orders should be continued or renewed: see GPN-FRZG at [2.9].
42. Second, paragraph 13(c) of the freezing orders provided that the orders would “cease to have effect” if any of the respondents paid into Court the sum of $4,810,316.34. As will be seen, the respondents took advantage of that paragraph of the orders and paid the required sum into Court. The freezing order thereafter ceased to have effect and was subsequently discharged by consent. The parties, however, remain at loggerheads as to the effect of the discharge of the freezing orders insofar as the current interlocutory dispute is concerned. That issue is addressed later in these reasons.

Ancillary orders

43. The freezing orders also imposed a number of ancillary positive requirements on the respondents. Those requirements included, in summary: first, a requirement to advise the Deputy Commissioner in writing, at or before the return date on 29 June 2022, of all their assets, including the value, location and details of each asset and the extent of their interest in the assets; second, a requirement to advise the Deputy Commissioner, on or before the return date, of all the dealings they had entered into with Fidelity Pacific or any of its associates; and third, a requirement to swear and serve an affidavit on the Deputy Commissioner, within seven days of being served with the orders, which deposed to the information which had been provided in response to the earlier two requirements.
44. The respondents never provided the Deputy Commissioner with the information or affidavits that the freezing orders obliged them to provide. They instead sought extensions of time in which to comply with the requirements. They were then effectively released from the obligations when they paid money into Court and the orders ceased to have effect and were discharged.

EVENTS FOLLOWING THE MAKING OF THE FREEZING ORDERS

45. The events which followed the making of the freezing orders have already been touched on.
46. The Deputy Commissioner’s interlocutory application was listed for further hearing before the duty judge on 29 June 2022. When the matter came before the duty judge on that day (Abraham J), however, the respondents consented to an order extending the operation of the freezing orders until further order of the Court. Orders were also made for the filing and service of affidavits and written submissions by the parties, and the interlocutory application was listed for further hearing on 5 August 2022.
47. Prior to the Deputy Commissioner’s interlocutory application coming on for further hearing on 5 August 2022, Mr Widdup and Mrs Widdup launched what could fairly be characterised as an extraordinary pre-emptive strike against the Deputy Commissioner. They filed a cross-claim against the Deputy Commissioner in which they sought various declarations and orders pursuant to s 39B of the Judiciary Act 1903 (Cth). Those orders and declarations included: a declaration that the FTDT notices were “invalid and of no force or effect”; an order that the FTDT notices be quashed; an order permanently restraining the Deputy Commissioner from collecting any taxation liabilities or related liabilities notified in the FTDT notices or otherwise; an order that the Deputy Commissioner’s interlocutory application be dismissed with costs on an indemnity basis; an order that the freezing orders and other consequential orders made on 21 June 2022 be dissolved; an order that there be an inquiry into the damages suffered by Mr Widdup and Mrs Widdup “in consequence of the making of the freezing orders”; an order that the originating application filed by the Deputy Commissioner on 21 June 2022 be dismissed with costs on an indemnity basis; and an order that the Deputy Commissioner pay Mr Widdup’s and Mrs Widdup’s costs of the cross-claim on an indemnity basis. The notice of cross-claim did not suggest that any of the relief was sought on anything other than a final basis.
48. The statement of cross-claim filed by Mr Widdup and Mrs Widdup revealed that the relief sought by them was premised on the following allegations or contentions, stated in short summary: first, the FTDT notices were invalid and affected by jurisdictional error because the Deputy Commissioner had no power to issue them in circumstances where the Trustee had not made a family trust election in the approved form as required by s 272-80 of sch 2F to the ITAA36; second, Mr Widdup had advised an officer of the ATO that no family trust election had ever been lodged with the ATO; third, the Deputy Commissioner’s construction of the relevant statutory provisions concerning family trust elections was erroneous and “not adopted in good faith”; fourth, the Deputy Commissioner had “usurped the statutory power” of the Trustee to specify an individual as the individual whose family group was to be taken into account in relation to the election; fifth, the Deputy Commissioner’s issue of the FTDT notices was “not a bona fide power to issue” such notices; sixth, the Deputy Commissioner did not act for a proper purpose when she sought to enforce the FTDT notices, sought final judgment against Mr Widdup and Mrs Widdup in the originating application in respect of both the alleged family trust distribution tax liability and the income tax liability, sought ex parte relief in respect of the interlocutory application and relied on the conclusive evidence provisions; and seventh, the originating application constituted an abuse of process and was filed without the “requisite good faith” because the originating application sought “multiple recovery” and there is no power in the “taxation laws” to “empower multiple recovery”.
49. The Widdup respondents did not just file a notice and statement of cross-claim. They also filed a veritable deluge of affidavits, most of them sworn by their solicitor, Dr Terence Dwyer. Most of those affidavits annexed vast reams of paper, which mostly comprised copies of unhelpfully combative correspondence between the parties, mostly instigated by Dr Dwyer. Most of the material filed on behalf of the Widdup respondents was filed outside the times specified in the orders made on 29 June 2022. The relevance and admissibility of most of the evidence was not readily apparent.
50. Given the filing of the cross-claim and the deluge of other material outside the terms of the orders made on 29 June 2022, the matter was listed for a case management hearing on 28 July 2022. Plainly the further hearing of the interlocutory application was not able to proceed on 5 August 2022. Following the case management hearing on 28 July 2022, orders were made extending the time for the parties’ compliance with the orders made on 29 June 2022 and the Deputy Commissioner’s interlocutory application was listed for further hearing on 23 September 2022.
51. At the case management hearing on 28 July 2022, there was some discussion concerning the impact that the freezing orders were having on the Widdup respondents’ preparation for the hearing of the Deputy Commissioner’s interlocutory application. It was noted, in that context, that it was open to the Widdup respondents to pay the money specified in the freezing orders into Court, the result of which would be that the freezing orders would cease to have effect. That discussion appears to have prompted the respondents to do just that. On 1 August 2022, $4,810,316.34 was paid into Court by the respondents. On 5 August 2022, the Court ordered, by consent, that the freezing and ancillary orders made on 21 June 2022 were discharged with immediate effect.
52. The payment of monies into Court and the discharge of the freezing and ancillary orders did not bring the battle between the parties in respect of the freezing orders to an end. Far from it. The Widdup respondents pressed for the further hearing of the Deputy Commissioner’s interlocutory application, though an issue arose between the parties as to the nature of any such hearing. That issue should briefly be addressed, before considering the substantive issues for determination.

THE NATURE OF THE CURRENT APPLICATION

53. The issue as to the nature of the hearing arose because, as the Deputy Commissioner pointed out, once the money was paid into Court by the respondents and the freezing and ancillary orders ceased to have any effect and were discharged, none of the substantive orders made pursuant to the interlocutory application filed on 21 June 2022 remained in force. The Deputy Commissioner obviously did not seek to extend, continue or renew the freezing orders, or seek any other interlocutory relief, be it the interlocutory relief sought in the interlocutory application or otherwise. The Deputy Commissioner submitted that in those circumstances the only issue for interlocutory determination was the Widdup respondents’ apparent contention that the money paid into Court by the respondents should be paid out.
54. The significance of the point raised by the Deputy Commissioner was alleviated somewhat by the fact that on 29 August 2022, the Widdup respondents filed an interlocutory application in which they sought, among other things, an order pursuant to r 2.43 of the Rules that the money paid into Court by the respondents be repaid. The Widdup respondents nevertheless maintained that the Court not only had jurisdiction to determine the Deputy Commissioner’s interlocutory application “on its merits”, but that the Court had a “constitutional duty” to exercise that jurisdiction. They went so far as to serve on the Attorneys-General of the Commonwealth and States a notice pursuant to s 78B of the Judiciary Act which advised that two constitutional questions had arisen in the proceeding.
55. The questions articulated in the Widdup respondents’ s 78B notice were as follows: first, “whether the Court has a statutory duty to determine” the Deputy Commissioner’s interlocutory application “in accordance with the Federal Court of Australia Act 1976 (Cth) as interpreted in the context of sections 71 and 77(i) of The Constitution”; and second, “whether the challenge to the Court’s jurisdiction to determine” the Deputy Commissioner’s interlocutory application “involves a reading of the taxation head of legislative power of the Commonwealth in sec. 51(ii) of The Constitution as prevailing over, or as construed without any regard to the statutory context of, the acquisition head of legislative power of the Commonwealth in sec. 51(xxxi) of the Constitution”. The Widdup respondents filed and served lengthy and detailed written submissions in respect of those constitutional questions.
56. It is both unnecessary and undesirable to address either of those two constitutional questions. The questions, and the submissions advanced by the Widdup respondents in relation to them, do not properly arise in the proceeding. They are based on a misconception and mischaracterisation of the exchanges that had occurred at the prior case management hearings concerning the nature of the interlocutory issue that was before the Court. They also create false issues that are unnecessary to decide and are otherwise misconceived. They are, in short, a complete distraction. Needless to say, none of the Attorneys-General communicated any intention to intervene in the proceeding so as to address the supposed constitutional questions.
57. There is no doubt, and never was any doubt, that the Court is seized of jurisdiction to determine the controversy that has arisen as a result of the making of the freezing orders and the subsequent payment of money into Court by the respondents. Nor is there any doubt that the Court must resolve that controversy. The Court has before it a “matter”, within the meaning of s 39B of the Judiciary Act, s 23 of the Federal Court of Australia Act 1976 (Cth) and Ch III of the Constitution. That matter, broadly speaking, concerns the recovery of tax liabilities said to arise under the ITAA36 and, as a result of the cross-claim, a challenge to the exercise, or purported exercise, of certain powers by the Deputy Commissioner under the ITAA36 and the TA Act. The current controversy concerning the freezing orders and the payment into Court arises within or as part of that “matter”. It was never suggested that the Court lacked jurisdiction to determine that interlocutory controversy, or that the Court could or would refuse to resolve it. The only suggestion that was made was that it may be a more efficient and economical use of the resources of the Court and the parties to list the matter for early final hearing, particularly given the vast quantity of material that had been filed on behalf of the Widdup respondents. That suggestion was rebuffed by the Widdup respondents. The interlocutory controversy must therefore be determined.
58. The issue that does arise is essentially how best to characterise the current interlocutory dispute. Is it properly characterised as a further hearing of the Deputy Commissioner’s interlocutory application which was filed on 21 June 2022? Or is it more appropriately characterised as an application by the Widdup respondents for the payment out, or repayment, of the money they paid into Court, no doubt so as to ensure that the freezing orders ceased to have effect?
59. It is difficult to see how the interlocutory dispute could properly be characterised as the hearing, or further hearing, of the Deputy Commissioner’s interlocutory application. It may be accepted that, after that interlocutory application was heard ex parte on 21 June 2022, it was listed for further hearing in accordance with the Court’s practice note. Had the further hearing proceeded, the issue would have been whether the freezing orders should be continued, renewed or extended. The Deputy Commissioner would no doubt have borne the onus of demonstrating that it was appropriate to continue, renew or extend the orders. That further hearing, however, did not occur, initially because the parties, including the Widdup respondents, consented to the extension of the freezing orders until further order, and subsequently because the respondents paid money into Court with the result that the orders ceased to have effect. The Deputy Commissioner obviously does not now seek to extend or renew the freezing orders or press for any of the relief that was included in the interlocutory application. It would, in those circumstances, be entirely artificial to characterise the current interlocutory dispute as involving or arising from a further hearing of the interlocutory application.
60. The current interlocutory dispute concerns the question whether the money paid into Court by the respondents should be paid out or repaid to them. That is the relief sought by the Widdup respondents in the interlocutory application filed by them on 29 August 2022. That is also the correct way to characterise the current dispute.
61. It does not, of course, follow that, in determining whether the money paid into Court should be repaid, the Court can or should ignore the circumstances in which the money came to be paid into Court in the first place. The Court’s power, pursuant to r 2.42 of the Rules, to order that monies paid into Court be paid out in a particular manner involves a wide discretion. The Court is “entitled to take into account any circumstances relevant to the exercise of its discretion in a proper and judicial manner”: Bou-Simon v Attorney-General of the Commonwealth (2003) 133 FCR 230; [2003] FCA 1303 at [22], cited with approval in Re Farrow [2004] FCA 1569 at [7] and Xu v Wan Ze Property Development (Aust) Pty Ltd (in Liq) [2015] FCA 1042 at [21]. While no specific factors are required to be taken into account, or not taken into account, depending on the circumstances it might be expected that the relevant considerations are likely to include “the purpose for which the moneys have been paid in” and “any relevant event in the litigation in relation to which the moneys have been paid”: Duncan (as trustee for the bankrupt Estate of Garrett) v National Australia Bank Ltd (2006) 95 SASR 208; [2006] SASC 239 at [30], cited with approval in Xu at [20].
62. Plainly, therefore, the events in the litigation in this matter to date, including all the circumstances in which the freezing orders were made, the circumstances in which the monies were paid into Court, and the arguments raised by the Widdup respondents in relation to those matters, are relevant considerations in determining whether the Court should exercise its discretion under r 2.42 of the Rules. All of the evidence and arguments that the Widdup respondents could have advanced in opposition to the continuation of the freezing orders, had the further hearing of the Deputy Commissioner’s interlocutory application proceeded, can be advanced in support of the contention that the money paid into Court by the respondents should be repaid.
63. There is no legal, practical or forensic disadvantage to the Widdup respondents in characterising the current controversy as an application by them to have the Court exercise its discretion under r 2.42 of the Rules to repay the monies that they have paid into Court, as opposed to its characterisation as a further hearing of the Deputy Commissioner’s interlocutory application. The only material question that may arise if the interlocutory dispute is characterised in that way is which party bears the onus of proof. Even that issue is more theoretical than real.
64. Generally speaking, a party which seeks to have the Court exercise a discretion in their favour will bear the onus or burden of establishing why the discretion should be exercised in that way. That would tend to suggest that the Widdup respondents would bear the onus of demonstrating that it would be appropriate in all the circumstances for the Court to order that the money paid into Court by the respondents should be paid out. In the particular and somewhat unusual circumstances of this case, however, it would not be appropriate to approach the application in that way.
65. There could be no doubt that the money was only paid into Court as a consequence of the making of the freezing orders at the ex parte hearing on 21 June 2022. There could also be no doubt that the respondents only paid the money into Court so as to free themselves from the restraints imposed on them by the freezing orders. It was readily apparent at the time the money was paid into Court that the Widdup respondents contended that the freezing orders should never have been made and that, had the Deputy Commissioner’s interlocutory application proceeded to a further hearing, they would have opposed the renewal, continuance or extension of the freezing orders.
66. In those circumstances, while the freezing orders have been discharged and the Deputy Commissioner is not in fact seeking to have those orders renewed or extended, it would nevertheless be appropriate, as a practical matter, to approach the Widdup respondents’ application as if it was, in effect, an application by the Deputy Commissioner to renew or extend the freezing orders. Approached in that way, the Deputy Commissioner would in effect bear the onus of establishing that there was a proper basis for the making of the freezing orders on 21 June 2022 and that, had the monies not been paid into Court, with the result that the freezing orders ceased to have effect, there would have been a sound and proper basis to renew, continue or extend those orders.
67. If the Deputy Commissioner is unable to demonstrate that there was a proper basis for the making of the freezing orders, or that it would not have been appropriate, if it came to it, to renew, continue or extend the orders, that would no doubt provide a compelling reason to order that the money paid into Court be repaid. In relation to the Widdup respondents’ allegations of material non-disclosure, if it is established, as a matter of fact, that certain information was not disclosed to Nicholas J during the ex parte hearing, the Deputy Commissioner would effectively bear the onus of demonstrating that the information was immaterial and that there was no bad faith on the part of the Deputy Commissioner.
68. There is, however, one matter in respect of which the Widdup respondents should be taken to bear the onus of proof in the present context. As has already been noted, the Widdup respondents submitted that the Deputy Commissioner does not have a good cause of action against Mr Widdup and Mrs Widdup in respect of family trust distribution tax liabilities. They contend, in that context, that the Deputy Commissioner cannot rely on the conclusive evidence provision in respect of the FTDT notices because the notices are invalid on account of jurisdictional error and conscious maladministration. They allege as much in their cross-claim. As discussed in more detail later, there is little doubt that the Widdup respondents will bear the onus of proving jurisdictional error or conscious maladministration at the final hearing of their cross-claim. In those circumstances, they should also bear the onus of proving those allegations in the context of the present interlocutory dispute. Or, as discussed later, at the very least, they should bear the onus of proving that they have a good arguable case in that regard.

EVIDENCE

69. The Court was swamped with a veritable deluge of material in respect of this interlocutory application. Not all of that material was read or tendered. Much of what was read or tendered was not referred to, or addressed in any detail, in the parties’ submissions.
70. The Deputy Commissioner principally relied on the affidavit and documentary evidence that had been relied on before Nicholas J in support of the ex parte application for freezing orders: the affidavit of Ms Llorca and the extremely lengthy documentary exhibit referred to in that affidavit. It is perhaps understandable that the Deputy Commissioner relied on that affidavit and documentary exhibit in relation to the current application. It would nevertheless be remiss of me to not make the following observation concerning that material.
71. It was, with respect, entirely unnecessary and unhelpful for the Deputy Commissioner to rely on such voluminous material in support of urgent interlocutory relief before a duty judge. The documentary exhibit comprised over 2,500 pages. Most of the exhibit comprised documents that the Deputy Commissioner did not directly address in either the written or oral submissions in support of the application. Many of the documents concerned the flow of funds and comprised bank statements or other primary source documents. It was entirely unnecessary and undesirable to burden a busy duty judge with that material in the circumstances. It would have been sufficient for those documents to be reduced to a verified or verifiable summary that would have been admissible pursuant to s 50 of the Evidence Act 1995 (Cth), so long as the documents were available for tender if an issue arose concerning the summary. Much the same can be said in respect of a good deal of the other documentary material, which comprised primary source documents in respect of factual issues that were unlikely to be contentious, at least at an interlocutory stage.
72. The Deputy Commissioner relied on an additional affidavit sworn by a solicitor, as well as a documentary exhibit to that affidavit. It is unnecessary to address that evidence as ultimately nothing much turned on it.
73. As for the Widdup respondents, as has already been observed, they filed a large number of affidavits. Most of the affidavits were sworn by their solicitor, Dr Dwyer. Dr Dwyer’s affidavits mostly contained inadmissible commentary, argument and submission, or paraphrased the voluminous documentary annexures, most of which comprised correspondence between the parties the relevance of which was at best obscure or unclear. Affidavits sworn by both Mr Widdup and Mrs Widdup were also filed. The affidavits sworn by Dr Dwyer and Mr and Mrs Widdup were the subject of extensive objections by the Deputy Commissioner. Ultimately, however, none of the affidavits that had been filed were read by the Widdup respondents in support of the current application. Instead, counsel for the Widdup respondents, quite sensibly and reasonably, only tendered a handful of documentary exhibits. That was also in part a product of the fact that, again, quite sensibly and reasonably, the Deputy Commissioner made a number of factual concessions.

SUMMARY OF ISSUES

74. The application by the Widdup respondents to have the money that the respondents have paid into Court repaid to them, approached in the way discussed earlier in these reasons, raises the following issues.
75. First, does the Deputy Commissioner have a good or reasonably arguable case on an existing or prospective cause of action? If the Court is not satisfied that the Deputy Commissioner had, at the time of the ex parte application, and still has, a good or reasonably arguable case based on a cause of action, or prospective cause of action, that would provide a compelling reason for ordering that the funds paid into Court be repaid to the respondents. The question whether the Deputy Commissioner has a good or reasonably arguable case based on a prospective cause of action necessarily involves considering the operation of the conclusive evidence provision, the Widdup respondents’ allegations of jurisdictional error or conscious maladministration on the part of the Deputy Commissioner and the claims by the Widdup respondents that the Deputy Commissioner disclaimed reliance on their alleged liability for income tax as providing a basis for the freezing orders.
76. Second, is there a risk that the Widdup respondents may try to dissipate, deal with or dispose of assets such that the prospective judgment against Mr Widdup and Mrs Widdup may be unsatisfied if the monies paid into Court are paid out? If the Court is not satisfied that there was at the time of the ex parte application, and still is, such a risk, that would weigh in favour of exercising the discretion to order that the funds paid into Court be repaid.
77. Third, did the Deputy Commissioner fail to disclose any material facts or otherwise act in bad faith when applying for the freezing orders ex parte? If the Court is satisfied that there was any material non-disclosure, or that the Deputy Commissioner acted other than bona fide, that would provide a reason for requiring the funds paid into Court to be repaid, even if the Deputy Commissioner had and has a good or reasonably arguable case.
78. Fourth, are there any other considerations which weigh in favour of the Court exercising its discretion to order that the funds paid into Court be repaid? Where does the balance of convenience lie in respect of the monies paid into Court?

A GOOD OR REASONABLY ARGUABLE CASE ON A PROSPECTIVE CAUSE OF ACTION?

79. The Deputy Commissioner’s case that it had a good or reasonably arguable case on a prospective cause of action against Mr Widdup and Mrs Widdup relied to a large extent on the operation of the conclusive evidence provision. That was the case before Nicholas J, when the Deputy Commissioner applied, ex parte, for the freezing orders. It remained the case in the Deputy Commissioner’s defence of the Widdup respondents’ application that the funds paid into Court be repaid. It is nevertheless desirable to say something briefly concerning the basis upon which the amended income tax assessments and the FTDT notices were issued to Mr Widdup and Mrs Widdup.

Income tax liability

80. There does not appear to be any dispute that in October 2017 the Trustee derived a capital gain of $9,740,503 when it sold shares it had earlier acquired in Palisade Investment Partners Limited. The Trustee’s net capital gain for the financial year ending 30 June 2018 arising from the sale of shares was calculated as being $7,658,357 ($3,829,178 after 50% discount). The Deputy Commissioner concluded, however, that Mr Widdup, or alternatively Mrs Widdup, “had the benefit and control of the capital gain derived by [the] Trustee by reason of an undisclosed arrangement that exists or existed under which FPLI [Fidelity Pacific] agreed to apply any trust income or capital from FHT [the Family Trust]” for the benefit of Mr Widdup, or Mrs Widdup, or at their direction.
81. On 21 June 2021, the Deputy Commissioner issued notices of amended assessment pursuant to s 170 of the ITAA36 for the tax year ended 30 June 2018 to both Mr Widdup and Mrs Widdup on the basis that the amount of $3,829,178 (being the discounted amount of the capital gain made by the Trustee) should have been included in their assessable income for that tax period. The Deputy Commissioner’s reasons for deciding to issue those amended assessments were set out in considerable detail in the Reasons for Decision which were in due course provided to both Mr Widdup and Mrs Widdup. The Reasons for Decision and the notices of amended assessments were included in the exhibit to the affidavit of Ms Llorca which was relied on by the Deputy Commissioner both before Nicholas J and in its defence of the current application. The Reasons for Decision explained that the Commissioner was uncertain whether the income should be assessed to Mr Widdup or Mrs Widdup, and for that reason had issued alternative assessments. The Reasons for Decision made it clear, however, that the Commissioner would “not undertake double recovery of tax”. The income tax liability would be recovered from either Mr Widdup or Mrs Widdup, but not both of them.
82. The Deputy Commissioner also decided that Mr Widdup and Mrs Widdup were liable to administrative penalties pursuant to s 284-75(1) of sch 1 to the TA Act because they had made a statement to the Deputy Commissioner that was false or misleading in a material particular. The false or misleading statement was, in effect, the statement in their tax returns for the tax year ended 30 June 2018, which did not include the net capital gain that the Deputy Commissioner had determined should have been included in their assessable income. The administrative penalty was assessed at $897,933.25 and notices of assessment of that penalty dated 21 June 2022 were issued to both Mr Widdup and Mrs Widdup. The basis of the assessment of the administrative penalties payable by Mr Widdup and Mrs Widdup was explained in the Reasons for Decision.
83. The notices of amended assessment and notices of assessment of shortfall penalty issued to both Mr Widdup and Mrs Widdup stated that the amounts assessed were payable by 15 July 2022. The total amount payable by Mr Widdup by 15 July 2022 was $2,927,554.08 and the amount payable by Mrs Widdup by 15 July 2022 was $2,945,254.97.
84. It is worth noting at this point that, on a number of occasions during his submissions in respect of this matter, counsel for the Widdup respondents stated that Mr Widdup and Mrs Widdup did not dispute their liability for income tax arising from the amended assessments, at least in the context of the current interlocutory dispute.

Family Trust Distribution Tax liability

85. Section 271-15 of sch 2F to the ITAA36 provides as follows:

271‑15 Tax liability where family trust makes distribution etc. outside family group
(1) This section applies if:

(a) a trustee makes a family trust election in relation to a trust; and

(b) at any time while the election is in force (including a time before it was made), the trust confers a present entitlement to, or distributes, income or capital of the trust:

(i) upon or to a person who is neither the individual specified in the family trust election nor a member of the individual’s family group in relation to the conferral or distribution; or

(ii) upon or to the individual specified in the election or a member of the individual’s family group, where the individual or member is the trustee of a trust, or the member is a trust, that is not included in the individual’s family group in relation to the conferral or distribution.

(2) If this section applies:

(a) if the trustee is an individual—the trustee is liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998, on the amount or value of the income or capital to which the entitlement relates, or that is distributed; or

(b) if the trustee is a company—the trustee, together with each person who was a director of the company at the time of the conferral or distribution, is jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998, on the amount or value of the income or capital to which the entitlement relates, or that is distributed.

86. Section 271-90 of sch 2F to the ITAA36 provides, relevantly and in essence, that the Deputy Commissioner may give a person a notice specifying the amount of any family trust distribution tax that the Commissioner has ascertained is payable under s 271-15 by the person and the day on which that tax became or will become due and payable.
87. On 21 June 2022, the Deputy Commissioner issued the FTDT notices to Mr Widdup and Mrs Widdup, each of those notices being notices issued pursuant to s 271-90 of sch 2F to the ITAA36. The notices stated that Mr Widdup and Mrs Widdup were each liable, in their capacities as directors of the Trustee, to pay family trust distribution tax of $3,599,409 and specified the due date as 20 July 2018. The notices stated, in effect, that each of the Trustee, Mr Widdup and Mrs Widdup were jointly and severally liable to pay the family trust distribution tax and that both Mr Widdup and Mrs Widdup, in their capacities as directors of the Trust, were also liable to pay the general interest charge under s 271-80 of sch 2F to the ITAA36 on amounts of family trust distribution tax that remained unpaid 60 days after the due date.
88. The FTDT notices were accompanied by letters from the Deputy Commissioner to Mr Widdup and Mrs Widdup which explained, in short terms, the basis upon which it had been found that they were liable to pay family trust distribution tax in accordance with the FTDT notices. The “specific facts” that were said to give rise to that liability were set out in the following terms:

• On 19 October 2010, the Trustee for the Trust lodged its return for the financial year ended 30 June 2009 and recorded in its return that a Family Trust Election (‘FTE’) had been made in the same financial year.
• For each of the financial years that followed in the period between 1 July 2008 to 30 June 2017 the Trustee:

• recorded in the trust returns that an FTE had been made in the financial year ended 30 June 2009; and
• distributed annual trust income to individual members of the Widdup family or to a family-owned company (other than in 2011 when an overall loss was made).

• The period to revoke the election lapsed on 30 June 2013.
• On 25 June 2018, the Trustee resolved to appoint Fidelity Pacific Life Insurance Company Limited (‘FPLI’) to be a member of the ‘Eligible Classes’ for the purposes of the Trust. The resolution was signed by both directors of the Trustee.
• On 29 June 2018, the Trustee resolved to apply, set aside and pay all capital gains of the Trust to FPLI. The resolution was signed by both directors of the Trustee.
• On 11 February 2019, the Trustee lodged its return for the financial year ended 30 June 2018 and left blank the fields in the return concerning the Trust’s FTE status and interposed entity election status.
• Based on the terms of the Trust Deed dated 22 August 2008 and the Trust’s pattern of income distributions in the period between 1 July 2008 and 30 June 2017, we have inferred, for the purposes of the FTE, that you were the individual specified in the election and therefore that the family group comprised:

• you and your spouse, Cecilia Widdup;
• members of your family; and
• companies, partnerships and trusts that are owned by you or one or more members of your family.

• Your representative, Dwyer Lawyers, has made the following statements in its letters to us dated 28 February 2020 and 4 January 2021:

• “Neither the trustee nor its directors or shareholders are or have been shareholders or directors of FPLI nor are they holders of any beneficial interest in shares of FPLI”;
• “The trustee was not privy to the business affairs of [FPLI] but understands it is a Canadian incorporated company, is not incorporated in Australia, and has no branch offices in Australia, but may have offices in other countries”; and
• “Other than its payment obligations, the trustee had no relationship with [FPLI].”

• Based on the information in our possession, including the above statements, we have concluded that FPLI was not part of the relevant family group at the time it was conferred a present entitlement to the capital gains of the Trust.

89. In summary, the Deputy Commissioner had determined that: the Trustee had made a family trust election in relation to the Family Trust; Mr Widdup was the individual specified in the election and therefore the family group comprised Mr Widdup, Mrs Widdup, members of their family and companies, partnerships and trusts owned by Mr Widdup or members of his family; the Trust had conferred a present entitlement to capital gains made by the Trust to Fidelity Pacific; and Fidelity Pacific was not the individual specified in the family trust election (Mr Widdup) nor a member of Mr Widdup’s family group. It was on that basis that Mr Widdup and Mrs Widdup, as directors of the Trustee, were said to be jointly and severally liable for family trust distribution tax pursuant to s 271-15 of sch 2F to the ITAA36.
90. The FTDT notices issued to Mr Widdup and Mrs Widdup, and the letters which explained the basis of their liability for family trust distribution tax, were in the exhibit to Ms Llorca’s affidavit that was tendered in support of the ex parte application for freezing orders.
91. As has already been noted, and as will be discussed in more detail shortly, Mr Widdup and Mrs Widdup dispute their liability to pay family trust distribution tax on the basis that the Trustee never made a family trust election in the approved form as required by s 272-80(2) of sch 2F to the ITAA36, or a family trust election which included the information required by s 272-80(3) of sch 2F to the ITAA36.
92. Before addressing that issue, it is necessary to consider the operation of the conclusive evidence provision which, as indicated earlier, was relied on by the Deputy Commissioner.

Operation of the conclusive evidence provisions

93. Section 350-10(1) of sch 1 to the TA Act provides that the table which follows that section “has effect”. The table has a number of items, each of which specifies that the production of the document or documents in column 1 is conclusive evidence of the facts or matters specified in the corresponding column.
94. Item 2 in the table provides, in effect, that the production of a notice of assessment under a taxation law is conclusive evidence that the assessment was “properly made” and “except in proceedings under Part IVC of [the TA Act] on a review or appeal relating to the assessment – the amounts and particulars of the assessment are correct”.
95. An assessment, including an assessment amended by the Commissioner pursuant to s 170 of the ITAA36, is plainly an assessment under a taxation law as defined. It follows that, subject to one qualification to which reference will be made shortly, the production of the amended assessments issued to Mr Widdup and Mrs Widdup was and is conclusive evidence that those assessments were properly made and, except in proceedings under Pt IVC of the TA Act on a review or appeal relating to the assessments, the amounts and particulars of the assessments are correct.
96. Item 3 of the table in s 350-10 relevantly provides that the production of a notice under s 271-90 of sch 2F to the ITAA36 is conclusive evidence that the notice was “properly given” and that, “except in proceedings under Part IVC of [the TA Act] on a review or appeal relating to the notice – the amounts and particulars of the notice are correct”. It follows that production of the FTDT notices issued to Mr Widdup and Mrs Widdup was and is conclusive evidence that the notices were properly made and, except in proceedings under Pt IVC of the TA Act, on a review or appeal relating to the notices, the amounts and particulars of the notices are correct.
97. This proceeding is not a proceeding under Pt IVC of the TA Act.
98. There is a qualification to the conclusive operation of the items in the table in s 350-10 of sch 1 to the TA Act. In Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146, the High Court held, in relation to s 177 of the ITAA36, which was the predecessor provision to item 2 in the table in s 350-10 of sch 1 to the TA Act, that the section only operates where the assessment in issue actually answers the statutory description of “assessment” and does not operate in two circumstances: first, where the purported assessment does not answer the statutory description and may attract a remedy for jurisdictional error; and second, where “conscious maladministration of the assessment process may be said also not to produce an ‘assessment’”: Futuris at [25]. Section 177 of the ITAA36 did not operate to prevent “curial consideration of alleged deliberate maladministration” with respect to the issue of an assessment under the ITAA36 in proceedings pursuant to s 39B of the Judiciary Act: Futuris at [66].
99. At the point in time when the Deputy Commissioner applied for ex parte freezing orders against the respondents, the proceeding was not a proceeding under Pt IVC of the TA Act and did not involve any claim by Mr Widdup or Mrs Widdup for relief pursuant to s 39B of the Judiciary Act and did not involve any allegation of jurisdictional error or conscious maladministration in the issuing of the amended assessments or FTDT notices. In those circumstances, the Deputy Commissioner was entitled to rely on the conclusive evidence provision. The production by the Deputy Commissioner of the amended assessments and FTDT notices was therefore conclusive evidence that the amended assessments and FTDT notices were properly made and that the amounts and particulars of the assessments and notices were correct.
100. As has already been noted, however, the Widdup respondents subsequently filed a cross-claim in this proceeding in which they seek relief pursuant to s 39B of the Judiciary Act in respect of the amended assessments and FTDT notices, including orders that the amended assessments and FTDT notices be quashed on the basis of jurisdictional error and conscious maladministration. There could be little doubt, in light of Futuris, that the conclusive evidence provisions in the table in s 350-10 of sch 1 to the TA Act do not preclude the Widdup respondents from seeking that relief in their cross-claim on a final basis when the matter comes on for hearing: cf Anglo American Investments Pty Ltd v Deputy Commissioner of Taxation (2017) 347 ALR 134; [2017] NSWCA 17 at [1], [2], [42]-[54] and [78], a case where the recovery proceedings were not “judicial review” proceedings and no relief concerning the validity of the assessments was sought by the debtor.
101. The more pressing question, for present purposes, is how or to what extent the Court can have regard to the allegations of jurisdictional error and conscious maladministration in the context of the current interlocutory dispute. Before addressing that issue, it is appropriate to consider the claims made by the Widdup respondents in respect of jurisdictional error or conscious maladministration in the issuing of the amended assessments and FTDT notices.

The claims of jurisdictional error and conscious maladministration

102. The Widdup respondents’ contentions concerning jurisdictional error and conscious maladministration mostly focussed on the issue of the FTDT notices and the question whether the Trustee had ever made a family trust election such as to enliven s 271-15 of sch 2F to the ITAA36.
103. As has already been noted, s 271-15 of sch 2F to the ITAA36 only applies if a trustee makes a family trust election in relation to a trust. Section 272-80(1) in effect defines a “family trust election” as being an election made in accordance with s 272-80. Section 272-80(2) provides that an election “must be in writing and in the approved form” and s 272-80(3) provides that the election must also “specify an individual as the individual whose family group is to be taken into account in relation to the election”.
104. Subsections 388-50(1) and (1A) of the TA Act provide as follows in respect of approved forms:

388-50 Approved forms
(1) A return, notice, statement, application or other document under a * taxation law is in the approved form if, and only if:

(a) it is in the form approved in writing by the Commissioner for that kind of return, notice, statement, application or other document; and

(b) it contains a declaration signed by a person or persons as the form requires (see section 388-75); and

(c) it contains the information that the form requires, and any further information, statement or document as the Commissioner requires, whether in the form or otherwise; and

(d) for a return, notice, statement, application or document that is required to be given to the Commissioner--it is given in the manner that the Commissioner requires (which may include electronically).

(1A) Despite subsection (1), a document that satisfies paragraphs (1)(a), (b) and (d) but not paragraph (1)(c) is also in the approved form if it contains the information required by the Commissioner. The Commissioner must specify the requirement in writing.

105. The Deputy Commissioner had approved a form in respect of a family trust election: ATO form NAT2787.
106. As discussed earlier, the Deputy Commissioner issued the FTDT notices to Mr Widdup and Mrs Widdup on the basis of findings that included a finding that the Trustee had made a family trust election in relation to the Family Trust and that Mr Widdup was the individual specified in the election. The finding that the Trust had made a family trust election was based on the fact that, in the Trust’s tax returns for the 2009 to 2017 tax periods, the family trust election status box had been ticked indicating that a family trust election had been made. Distributions made by the Trust during those tax years had also all been made to members of Mr Widdup’s family group. The Trust’s tax returns were signed by Mr Widdup.
107. The Widdup respondents contended, in effect, that there was no basis for the findings made by the Deputy Commissioner in respect of the Trust’s family trust election and that the Deputy Commissioner knew that to be the case when she issued the FTDT notices. In particular, they contended that the Trust had never made a family trust election in accordance with s 272-80 of sch 2F to the ITAA36 and, apparently, that the Deputy Commissioner knew that to be the case at the time the FTDT notices were issued. The evidentiary basis for those contentions, having regard to the evidence that was ultimately tendered or relied on in support of the current interlocutory application, was as follows.
108. First, the Deputy Commissioner conceded that the ATO had no record of a form NAT2787 for the Trust being lodged with the ATO.
109. Second, at least by the time of the ex parte application for freezing orders, the Deputy Commissioner was aware of a note on the ATO’s computer database which was in the following terms:

Received cold trfd call. Spoke to Julian Widdup and confirmed a Family Trust election was not lodged into ATO. Provided information on lodgement methods and approved ATO form NAT2787 which he will contact his Tax advisor regarding lodgement of FTE.

110. The telephone call referred to in that note took place on 22 March 2018. A transcript of that telephone call, which was tendered by the Widdup respondents, included the following exchanges:

MR WIDDUP: Hello Joan. My name is Julian Widdup. I’ve got a family trust and I’ve recently changed tax advisors and the new advisor asked me about a family trust election and it looks like an election was never made, looking over the trustee’s files- --
JOAN: Okay.
MR WIDDPUP: And I just wanted to check that with you because if an election hasn’t been made, I think I’ve got to revise some prior tax returns and pay some additional tax to the ATO but I just wanted to check whether that has, in fact, happened or not.
JOAN: Whether the family trust election has been lodged.
MR WIDDUP: Yes. Whether the election has been made and lodged. That’s correct.
....
JOAN: No. It doesn’t appear that we’ve received the family trust election.

111. The ATO officer, Joan, then provided Mr Widdup with information about how he could lodge a family trust election.
112. It may be noted that, as perhaps might be expected, the ATO officer could do no more than advise Mr Widdup as to whether the Trust had lodged a family trust election with the ATO, or whether a family trust election made by the Trustee had been received by the ATO. The question whether the Trust had made a family trust election was another matter.
113. Third, on 22 March 2018, Mr Widdup, in his capacity as director of the Trustee, wrote to the Deputy Commissioner. In that letter, Mr Widdup stated as follows:

Dear Sir
J&C Widdup Family Trust (TFN 886 729 936) and ATO call reference: 1051353 362 167
I refer to my discussion with the ATO today whereby the ATO confirmed that my family trust, the J&C Widdup Family Trust, has never made a family trust election.
Accordingly, it appears that the Family Trust Election Status should have been left blank in the trust's tax returns, rather than reporting 2009 as being the financial year when the trust was established. (I had thought that box had to be filled in by all family trusts). This had been a recurring error reported since 2009 and was simply repeated on subsequent trust tax returns.
As a result of having failed to make a family trust election, the 2012 Trust Tax Return for the J&C Widdup Family Trust (TFN 886 729 936) needs to be amended as follows:

1. Item 25 Tax Losses Deducted: should have been Nil (rather than $154). As a result of having failed to make a family trust election, I understand the prior year loss of $154 should not have been carried forward.
2. Item 26 Total Net Income or Loss: should be $313 (rather than $159) due to correcting the above error.
3. Item 65B Statement of Distribution Non-Primary Production: should be $313. The sole beneficiary, April Rose Widdup TFN 426 615 208, who was entitled to 100% of trust income for FY2012, should have been entitled to $313 rather than the original amount reported. The additional entitlement has been paid to April Rose Widdup.

I apologise for the above oversight, which had been detected as a result of appointing a new tax adviser and the ATO clarifying the family trust election status in our recent discussion. I trust this corrects the results of the family trust election box error to your satisfaction.
Thank you for your assistance in this matter.
Your [sic] sincerely
[signature]
Julian Widdup
Director
JCW Capital Pty Limited

114. It should perhaps be noted at this point that, while an affidavit sworn by Mr Widdup was filed by the Widdup respondents, that affidavit was not read in support of the interlocutory application. Mr Widdup was accordingly not cross-examined. It may well be the case that the version of events recorded in that letter, including the “recurring error” said to have been made in the Trust’s tax returns, will turn out to be contentious. Mr Widdup’s telephone call appears, at least at first blush, to have been rather contrived and calculated.

An arguable case of jurisdictional error or conscious maladministration?

115. It may well turn out to be the case, in proceedings pursuant to Pt IVC of the TA Act, that Mr Widdup and Mrs Widdup will be able to prove that they have no family trust distribution tax liability because the Trustee never made a family trust election in accordance with s 272-80 of sch 2F to the ITAA36 and that s 271-15 never applied to the Trust or the distribution made to Fidelity Pacific that formed the basis of the FTDT notices. That, however, is not the question which arises in the context of the current interlocutory application.
116. The question which arises is whether the Widdup respondents’ have proved that the FTDT notices are invalid by reason of jurisdictional error or conscious maladministration on the part of the Deputy Commissioner in issuing the notices, or that they have at least an arguable case in that regard. If the Widdup respondents are able to prove jurisdictional error or conscious maladministration on the part of the Deputy Commissioner, that would effectively preclude the Deputy Commissioner from relying on the conclusive evidence provision. It would also provide a powerful reason for ordering the repayment of the money paid into Court. If, however, the Widdup respondents are unable at this stage to establish no more than that they have an arguable case of jurisdictional error or conscious maladministration, that would not preclude the Deputy Commissioner from relying on the conclusive evidence provision. It may nonetheless be a consideration which would weigh in favour of exercising the discretion to order the repayment of the monies paid into Court.
117. I am not satisfied on the current state of the evidence that the Widdup respondents have established jurisdictional error or conscious maladministration on the part of the Deputy Commissioner in issuing the FTDT notices. Nor am I persuaded that the Widdup respondents have established that they have a good arguable case in that regard, or at least an arguable case that is strong enough to warrant the repayment of the money paid into Court. That is essentially because in my view it was at least open to the Deputy Commissioner to issue the FTDT notices on the basis of the information available to the Deputy Commissioner at the time.
118. It was in my view at least open to the Deputy Commissioner to find that the Trust had made a family trust election in accordance with s 272-80 because that is effectively what Mr Widdup, on behalf of the Trustee, told the Deputy Commissioner when he completed the Trust’s tax returns for the tax years 2009 to 2017. Even if the Deputy Commissioner was aware, actually or constructively, that Mr Widdup had claimed, in a “cold” call to an ATO enquiry line on 22 March 2018, that he had made a mistake when he indicated, in the Trust’s tax returns, that the Trust had made a family trust election, the Deputy Commissioner was not necessarily obliged to accept or act on the basis of that information.
119. Equally, even if the Deputy Commissioner was aware, actually or constructively, that the ATO’s records did not indicate that the Trust had lodged a family trust election in the approved form, it does not follow that the Deputy Commissioner was obliged to find that the Trust had not in fact made a family trust election. Section 271-15 provides that the tax liability applies if a trustee “makes” a family trust election. It does not require that the election be lodged with the ATO. It was open to the Deputy Commissioner to infer and conclude, on the basis of the information available to her, that the Trustee had made a family trust election in the approved form, even if it had not lodged that form with the ATO.
120. Perhaps more significantly, even if it turns out to be the case that the Deputy Commissioner was wrong in inferring, based on the Trust’s tax returns and the trust distributions that had been made, that the Trust had made a family trust election in the approved form, it does not follow that the issue of the FTDT notices was the product of conscious maladministration or jurisdictional error such that no reliance can be placed on the conclusive evidence provision in this proceeding. I am not persuaded, on the basis of the evidence as it currently stands, that the Deputy Commissioner knew that no family trust election had been made, yet chose to disregard that fact and issue the notices knowing that she had no power or jurisdiction to do so. Nor am I satisfied that the Deputy Commissioner acted in bad faith, as was contended by the Widdup respondents.
121. Indeed, at least on the current state of the evidence, I am not persuaded that the Widdup respondents have a good arguable case in that respect such as to warrant the relief currently under consideration – the repayment of the monies paid into Court.
122. As I have said, it may turn out to be the case that Mr and Mrs Widdup may be able to prove, in Pt IVC proceedings, that the Trust never made a family trust election in the approved form, that accordingly s 271-15 could not apply and that they are therefore not liable for any family trust distribution tax. It does not follow, however, that the Deputy Commissioner was not entitled to rely, at the hearing of the ex parte application for freezing orders, on the conclusive evidence provision in respect of the family trust distribution tax liability of Mr Widdup and Mrs Widdup. Nor does it follow that the Deputy Commissioner is not entitled to rely on the conclusive evidence provision in the context of the present application, being an application for repayment of the funds paid into Court.
123. I should emphasise, if it were not already apparent, that the conclusion I have reached in the context of the present application does not in any way preclude or inhibit the Widdup respondents from pursuing the relief sought by them in their cross-claim at the final hearing. It may be that the evidence adduced at the final hearing will be capable of persuading me that the issue of the FTDT notices arose from conscious maladministration or other relevant jurisdictional error on the part of the Deputy Commissioner.

Income tax liability at the time of the ex parte hearing

124. Brief reference should be made to an argument raised by the Widdup respondents in respect of the Deputy Commissioner’s reliance on the conclusive evidence provision in respect of the income tax liability of Mr Widdup and Mrs Widdup. As discussed earlier in these reasons, the Widdup respondents maintained that, when applying ex parte for the freezing orders, the Deputy Commissioner disclaimed any reliance on the income tax liability of Mr Widdup and Mrs Widdup arising from the issue of the amended assessments.
125. For the reasons given earlier, there is no merit in that contention. Read fairly and in context, the Deputy Commissioner’s evidence and submissions made it tolerably clear that, while the Deputy Commissioner relied on both the family trust distribution tax liability and prospective income tax liability of Mr Widdup and Mrs Widdup, the amount specified in the freezing orders was capped at an amount representing the family trust distribution tax liability, plus the general interest charges associated with that liability. The capping of the freezing orders on that basis was said to avoid any suggestion of double taxation, it being accepted by the Deputy Commissioner that if the family trust distribution tax liability was paid, any income tax liability would be reduced accordingly.
126. The Widdup respondents also contended that the Deputy Commissioner could not rely on the amended assessments in respect of income tax in support of the freezing orders because, as at the date of the ex parte application, there was no tax liability arising from the amended assessments. That was said to be because they had not been served. The Widdup respondents relied on Batagol v Commissioner of Taxation (Cth) [1963] HCA 51; (1963) 109 CLR 243 at 252 in support of that proposition.
127. That submission by the Widdup respondents misses the point. When applying for the freezing orders, it was only necessary for the Deputy Commissioner to establish that she had a good arguable case in respect of a prospective cause of action. The Deputy Commissioner made it tolerably clear that, unlike the position in respect of the tax liability arising from the FTDT notices, Mr Widdup and Mrs Widdup were not liable to pay the income tax in the amended assessments until they had been served and the date for payment in the amended assessments had passed. The Deputy Commissioner’s evidence was that the amended assessments would be served on the afternoon of the day that the freezing orders were applied for. The Court has on many occasions granted freezing orders on the basis of amended assessments that have been issued, but not served at the time the freezing orders were applied for: see, for example, Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014; Commissioner of Taxation v Growth Investment Fund SA [2014] FCA 780; Deputy Commissioner of Taxation v Advanced Holdings Pty Ltd [2018] FCA 1263; Deputy Commissioner of Taxation v Shi [2018] FCA 1915; and Deputy Commissioner of Taxation v Wang [2020] FCA 1711.
128. Contrary to the Widdup respondents’ submission, those cases were not wrong, let along plainly wrong, in concluding, in effect, that the issuing of notices of assessment were sufficient to ground a prospective cause of action. It follows that the Deputy Commissioner was entitled to rely on the prospective income tax liability of Mr Widdup and Mrs Widdup in support of the application for freezing orders. The Deputy Commissioner was also entitled to rely on the conclusive evidence provision in respect of that income tax liability.
129. Three further points should be made in relation to the income tax liability of Mr Widdup and Mrs Widdup.
130. First, the amended assessments were in due course served on Mr Widdup and Mrs Widdup. It is therefore clear, in the context of the current application, that the Deputy Commissioner has a good cause of action against both Mr Widdup and Mrs Widdup in respect of their income tax liability. The Deputy Commissioner is also entitled to rely on the conclusive evidence provision in respect of the income tax liability of Mr Widdup and Mrs Widdup.
131. Second, as noted earlier in these reasons, the cross-claim that has been filed by the Widdup respondents includes some allegations concerning the Deputy Commissioner’s ability to recover the income tax liability of Mr Widdup and Mrs Widdup in the alternative to the family trust distribution tax liability. The Widdup respondents did not, however, contend that the amended assessments were invalid on the basis of conscious maladministration or jurisdictional error on the part of the Deputy Commissioner, at least in the context of the current application. Nor did they allege that the Deputy Commissioner was not entitled to rely on the conclusive evidence provision in respect of the income tax liability, other than on the basis that there was no income tax liability on the day that the ex parte freezing orders were sought. Indeed, as has already been noted, at various times counsel for the Widdup respondents has made it tolerably clear that there is no dispute concerning the income tax liability, at least in the context of the present interlocutory application.
132. Third, the fact that there is, in effect, no challenge in the current proceeding to the amended assessments and the income tax liability arising from them is important. That is because, even if the Widdup respondents had a good arguable case that the FTDT notices were invalid and could not be relied on by the Deputy Commissioner, either in support of the making of the freezing orders, or in opposition to the present application, the point remains that there is no relevant dispute concerning the income tax liability of Mr Widdup and Mrs Widdup. There is, therefore, effectively no dispute that the Deputy Commissioner has a good cause of action in respect of the recovery of a significant income tax liability from Mr Widdup and Mrs Widdup. That cause of action alone was sufficient to support the making of the freezing orders. It also provides a potentially compelling basis for the Court to refuse to exercise the discretion to order repayment of the monies paid into Court, subject to any issues that may arise in respect of the risk of dissipation of assets and the alleged material non-disclosure during the ex parte hearing.

Conclusion – the Deputy Commissioner has an arguable cause of action

133. For all the foregoing reasons, at the time that ex parte freezing orders were sought against Mr Widdup and Mrs Widdup, the Deputy Commissioner had good arguable causes of action, or prospective causes of action, in respect of the tax liabilities of Mr Widdup and Mrs Widdup. The Deputy Commissioner was entitled to rely on the conclusive evidence provisions in respect of those causes of action. The Widdup respondents’ contentions to the contrary are rejected.
134. I am also satisfied that the Deputy Commissioner still has good arguable causes of action against Mr Widdup and Mrs Widdup in respect of their tax liabilities.
135. In the case of the family trust distribution tax liability, the Deputy Commissioner is able to rely on the conclusive evidence provisions despite the allegations concerning conscious maladministration and jurisdictional error in respect of the issuing of the FTDT notices. I am not persuaded, on the current state of the evidence, that the Widdup respondents have demonstrated conscious maladministration or jurisdictional error on the part of the Deputy Commissioner. Nor am I persuaded that the Widdup respondents have made out a good arguable case of conscious maladministration or jurisdictional error such as to significantly weigh in favour of the Court’s exercise of its discretion to order repayment of the monies paid into Court.
136. In the case of the income tax liabilities, there is effectively no dispute that the Deputy Commissioner has a good arguable cause of action against Mr Widdup and Mrs Widdup in respect of their liability to income tax arising from the amended assessments.

RISK OF DISSIPATION OF ASSETS

137. The Widdup respondents contended that the evidence relied on by the Deputy Commissioner, both before Nicholas J at the ex parte hearing of the application for freezing orders, and in the context of the current application, was not capable of supporting a finding that there was a risk that the Widdup respondents would dissipate their assets such as to give rise to a risk that a prospective judgment against Mr Widdup and Mrs Widdup would not be met. I do not accept that contention.
138. While the evidence concerning the risk of dissipation of assets was by no means strong or compelling, I am satisfied that it was sufficient to provide a basis for the making of the freezing orders. I am also satisfied that the evidence relating to the risk of dissipation of assets is sufficient to militate against the exercise of the discretion to order the repayment of the monies paid into Court.
139. There was undoubtedly no direct evidence to suggest that Mr Widdup and Mrs Widdup intended to, or would, dissipate their assets in the face of the FTDT notices or the amended assessments. The Deputy Commissioner’s case concerning the risk of dissipation of assets was entirely circumstantial. As discussed in detail earlier, the Deputy Commissioner’s case was, and remains, in summary, that the following facts and circumstances supported the conclusion that there was a real and not fanciful risk that Mr Widdup and Mrs Widdup might dissipate their assets: Mr Widdup’s professional training and experience well equipped him to dissipate assets if needs be; Mr Widdup and Mrs Widdup had forged ties with offshore entities associated with a person who was known to have been involved with tax avoidance arrangements in the past; the arrangements which had been established by Mr and Mrs Widdup were opaque and suggestive of both a positive intention to conceal the provenance and control of assets in Australia and an intention to avoid tax liabilities; each of Mr Widdup and Mrs Widdup had demonstrated their propensity to move large amounts of money between various bank accounts; and the size of the prospective judgment debt gave Mr Widdup and Mrs Widdup a material incentive to dissipate their assets; and Mr and Mrs Widdup, as directors of the Trustee, had acted recklessly by failing to pay the Trustee’s family trust tax distribution liability, and instead allowed the Trustee’s assets to be dissipated before meeting the outstanding tax obligations..
140. The evidence that founded the Deputy Commissioner’s case concerning the risk of dissipation of assets was essentially the evidence in paragraphs 152 to 154 of Ms Llorca’s affidavit. Given the Widdup respondents’ contentions that the evidence did not support a finding of any risk of dissipation of assets, it is appropriate to set out that evidence in full:
     152. Based on the facts disclosed in this Affidavit, I am concerned that Mr Widdup and Mrs Widdup, being informed of the substantial amounts of tax, penalties and interest to which they have become liable under the assessments detailed in PART [B] of this Affidavit, may take steps to encumber or otherwise dispose of assets. FPL Manager and Aurum Asset are corporate entities which are controlled by Mr Widdup and Mrs Widdup. They hold a power to control the assets of the FPL Partnership which are in part derived from the capital gains referred to in paragraph 83 above. I am concerned that Fidelity Pacific, FPL Manager, Aurum Asset and FPLJCW LLC will also take steps to facilitate the disposition of assets of the FPL Partnership.
     153. Based on the facts disclosed in this Affidavit, I am also concerned that by taking the steps referred to in paragraph 152, the processes of the Court in the prospective proceedings for the recovery of FTDT will be frustrated in that any prospective judgment against Mr Widdup and Mrs Widdup may be wholly or partly unsatisfied because the assets of Mr Widdup and Mrs Widdup and their interests in the assets of the FPL Partnership will have been disposed of or encumbered before any judgment can be obtained and executed.
     154. In particular, I am concerned, that the Deputy Commissioner’s ability to recover amounts due will be compromised for the following reasons:

          (a) Mr Widdup and Mrs Widdup were the only directors of FHT Trustee during its lifetime. FHT Trustee was liable to pay FTDT in the amount of $4,810,316.34 while they were directors, but it was never paid and now FHT Trustee is deregistered.

          (b) The Commissioner has determined that Mr Widdup and Mrs Widdup have been reckless in their tax affairs (see paragraph 131(d) and paragraph 7.52 of Tabs 172 and 175).

          (c) As set out in paragraphs 134 to 141, the size of the prospective judgment debt owed by Mr Widdup and Mrs Widdup in respect of their joint and several liability for FTDT exceeds the total of the gross value of assets identified in PART [I].

          (d) As set out in paragraphs 27, Mr Widdup has a particular professional experience raising funds, encumbering assets and structuring investments.

          (e) As set out in PART [G] of this Affidavit, Mr Widdup and Mrs Widdup, members of their families and entities they are associated with, have demonstrated the ability to move large sums of money. As set out in paragraphs 138 and 148 Mr Widdup and Mrs Widdup are signatories on bank accounts and have a history of borrowing against assets (see paragraphs 134, Tabs 43, 56-93, 99-110 and 168-169).

          (f) Fidelity Pacific provides offshore services and is a member of a group of related entities which has been named in court and tribunal proceedings in Australia.

          (g) Mr Widdup and Mrs Widdup formed a relationship with Fidelity Pacific voluntarily some date prior to 25 June 2018. The full scope of that relationship is not known by the Commissioner. In particular, the Commissioner does not know whether Fidelity Pacific has become subject to any conditions or obligations in respect of the amount of $7,658,357 distributed to it by FHT.

          (h) As set out in paragraphs 42, 140 and 141 above, FPLJCW LLC has 2 of its shares owned legally by Mr Widdup and Mrs Widdup. The Commissioner considers that the 248 shares held by Fidelity Pacific in FPLJCW LLC are held beneficially on the behalf of Mr Widdup and Mrs Widdup (refer paragraph 154(g)). Further, Aurum Asset is wholly owned and controlled by Mr Widdup and Mrs Widdup (see paragraph 40).

          (i) As noted in PART [K] of this Affidavit, approximately $5,816,005.43 is located in bank accounts held in the name of FPL Manager (refer paragraph 148). A further $5,053,303 is held by FPL Manager in liquid securities (refer paragraph 149 above).

          (j) Mr Widdup and Mrs Widdup are the only shareholders and directors of FPL Manager (refer paragraph 37) and have the ability under the FPL Partnership deed to control the flow of moneys and investments in the partnership as if they were their own. For example, on 11 November 2019, FPL Manager transferred $1,970,000 from a term deposit account held by it with St George Bank (#0356922680) (Tab 110 page 766) into a new joint account of Mr Widdup and Mrs Widdup also held with St George Bank (#489280502) (Tab 81 page 613) (see also Tabs 65-71 for documents in relation to the term deposit account held with St George Bank). I am not aware of the legal basis for this transfer.

          (i) The use of the FPL Partnership structure implemented by Fidelity Pacific, enables Mr Widdup and Mrs Widdup to use the capital gains for their own benefit and which could be encumbered or disposed of before there could be further investigation into availability of those assets to satisfy prospective judgment.

(Bolding in original)

141. Ms Llorca was cross-examined by counsel for the Widdup respondents at the hearing of the current application. That cross-examination did little, if anything, to cast any doubt on the basis of the concerns expressed by Ms Llorca.
142. Ms Llorca was challenged about her evidence in paragraph 152 of her affidavit. It was put to her that the fact that Mr and Mrs Widdup controlled FPL Manager and Aurum provided no basis for any concern that Mr Widdup or Mrs Widdup might dispose of assets, particularly given that neither of those entities had been assessed as liable to pay tax. That rather missed the main point of paragraph 152, which was, in effect, that most of the proceeds of the capital gain had ended up in a bank account in the name of the FPL Partnership and that, by reason of their control of FPL and Aurum, Mr Widdup and Mrs Widdup were believed to be in a position to control FPL Manager or FPL Partnership and thereby facilitate the disposal of those funds. The basis of that belief is explained further in paragraph 154 and other parts of the affidavit: see in particular paragraphs 55 to 59, which address some of the rather unusual terms of the partnership deed.
143. Ms Llorca was also questioned about a number of the subparagraphs in paragraph 154. Some of the questioning was misconceived as it focussed on specific subparagraphs in isolation, rather than reading the subparagraphs cumulatively. For example, it was put to Ms Llorca that the fact that Mr Widdup had professional experience in raising funds, encumbering assets and structuring assets was not a reason for suggesting the risk of dissipation of assets. Ms Llorca readily agreed that that consideration “on its own” would not provide a basis for any concern about dissipation of assets. That, of course, is not to say that that consideration, considered together with the other matters referred to by Ms Llorca in paragraph 154, would not provide a basis for such a concern.
144. Ms Llorca was criticised for focussing on the fact that the size of the prospective judgment debt owed by Mr Widdup and Mrs Widdup exceeded the gross value of their assets. It was in effect put to her that she should have had regard to the assets of all the companies controlled by them. As Ms Llorca pointed out, however, the Deputy Commissioner could not seek to execute any judgment debt owed by Mr Widdup or Mrs Widdup against the assets of those companies. The freezing orders also only attached to the interests that those companies had in the FPL Partnership on the basis that the assets of the partnership were, on the Deputy Commissioner’s case, held for the benefit of Mr Widdup and Mrs Widdup.
145. When questioned about the fact that Mr Widdup and Mrs Widdup had the ability to move large sums of money between bank accounts, Ms Llorca agreed that the funds transfers specifically identified in her affidavit had ceased almost two years prior to the application for the freezing orders. When questioned about the urgency of the application for the freezing orders in those circumstances, Ms Llorca indicated that the urgency arose from the fact that the FTDT notices and amended assessments were about to issue. There was nothing illogical, irrational or unreasonable about that evidence.
146. On the whole, I am satisfied that Ms Llorca’s evidence provided a reasonable basis for her concern, and the Deputy Commissioner’s concern, about the risk of dissipation of assets. I am not persuaded that the cross-examination of Ms Llorca demonstrated that Ms Llorca’s or the Deputy Commissioner’s concerns about the dissipation of assets by Mr Widdup and Mrs Widdup were unreasonable or unfounded.
147. I should also note that, while both Mr Widdup and Mrs Widdup swore and filed affidavits, their affidavits were not ultimately read. The Widdup respondents accordingly adduced no evidence bearing on the risk of dissipation of assets. That is a significant consideration.

WAS THERE A MATERIAL NON-DISCLOSURE?

148. The Widdup respondents contended that the Deputy Commissioner failed to disclose a material fact to Nicholas J on the ex parte application for freezing orders. Those material facts were said to be “the absence of the making of any valid FTE [family trust election] by the Trustee of the [Family] Trust” and the “fact that no liability for FTDT [family trust distribution tax] could possibly be recognised” under the relevant legislation.
149. It is abundantly clear that the Deputy Commissioner did not tell Nicholas J that no valid family trust election had been made by the Trustee, or that Mr Widdup and Mrs Widdup could not be liable for family trust distribution tax. Nor was the Deputy Commissioner obliged to put either of those matters to Nicholas J. That is so for a number of reasons.
150. First, as has already been discussed at length, the Deputy Commissioner’s case, as disclosed to Nicholas J in the evidence adduced in support of the application, was that the Deputy Commissioner had found, based mainly on the information supplied in tax returns lodged by the Trustee and signed by Mr Widdup, that the Trustee had made a family trust election. The returns provided a reasonable basis for the Deputy Commissioner’s finding. The Deputy Commissioner was not obliged to disclose something that she did not believe to be the case; that is, that no valid family trust election had been made. To put it colloquially, she was not obliged to build a straw man only to knock it down. While it may perhaps have been preferable for there to have been some disclosure of the fact that Mr Widdup had apparently suggested that he had made an error in stating in the Trust’s tax returns that a family trust election had been made, I am not persuaded, in all the circumstances, that the non-disclosure of that fact amounted to a material non-disclosure, or suggested that the Deputy Commissioner had acted otherwise than in the utmost good faith. That is particularly so having regard to the next point.
151. Second, the Deputy Commissioner made it plain to Nicholas J that she relied on the conclusive evidence provision in establishing that the Deputy Commissioner had a good cause of action against Mr Widdup and Mrs Widdup in respect of the family trust distribution tax liability. For the reasons given in detail earlier, the Deputy Commissioner was entirely justified and entitled to rely on that provision. The proceeding, at that point in time, was a recovery proceeding. There was, at that point in time, no judicial review proceeding on foot concerning the FTDT notices. It followed that there neither was, nor could be, any issue concerning the validity or correctness of the FTDT notices.
152. The fact that Mr Widdup had previously contacted the ATO and suggested that no family trust election had been made, and that the statements to the contrary in the Trust’s tax returns were supposedly made in error, were, in those circumstances, effectively irrelevant. Even if that fact was capable of casting some doubt on the Deputy Commissioner’s finding that a family trust election had been made, Nicholas J was nonetheless obliged to treat the FTDT notices as conclusive evidence that the notices were properly given and that the amounts and particulars in the notices were correct. The production of the FTDT notices was, in the circumstances, sufficient to establish that the Deputy Commissioner had, for the purposes of the ex parte application for freezing orders, a good arguable case in respect of the cause of action for recovery of family trust distribution tax: Hua Wang Bank at [15]-[16]; Vasiliades at [40]; Advanced Holdings at [12]-[17]. Indeed, Nicholas J was effectively bound to accept that to be the case. It is difficult to accept that the Deputy Commissioner was required to disclose a fact to Nicholas J, only to then submit that his Honour was to disregard that fact as he was bound to accept that the FTDT notices were properly given.
153. Third, it had not been established at the time, nor has it been established to date, that there had been an “absence of the making of any valid FTE by the Trustee”. It is difficult to see how, in those circumstances, it could be said that the Deputy Commissioner was obliged to disclose that matter to the Court. It may ultimately be the case that, at the final hearing of their cross-claim, Mr Widdup and Mrs Widdup will be able to establish that the Trustee had never made a valid family trust election. If that is established, it may follow that Mr Widdup and Mrs Widdup will succeed in demonstrating that the FTDT notices were issued as a result of jurisdictional error on the part of the Deputy Commissioner. That, however, is beside the point when the issue is what the Deputy Commissioner was obliged to disclose when applying ex parte for freezing orders.
154. Fourth, as has already been discussed at length, the Deputy Commissioner’s ex parte application for freezing orders was in any event supported and supportable by the prospective cause of action in respect of the income tax liabilities of Mr Widdup and Mrs Widdup as a result of the issue and prospective service of the amended assessments. This is an issue that is addressed further in the context of the balance of convenience.
155. The Widdup respondents have accordingly failed to demonstrate material non-disclosure on the part of the Deputy Commissioner at the ex parte hearing before Nicholas J.

BALANCE OF CONVENIENCE

156. In its submissions in support of the ex parte application for freezing orders, the Deputy Commissioner identified three facts or circumstances that were said to tilt the balance of convenience in favour of making the freezing orders.
157. First, the Deputy Commissioner noted that the quantum of the tax liability was significant compared to the known assets of Mr Widdup and Mrs Widdup and that the Deputy Commissioner had a strong case for final relief. The Deputy Commissioner submitted that, in those circumstances, the receipt of the FTDT notices and amended assessments might motivate Mr Widdup and Mrs Widdup to dissipate their assets if the freezing orders were not made.
158. Second, it was submitted that: the scope of the freezing orders was limited; the freezing orders were capped at the amount of the family trust distribution tax liability so as to avoid double taxation; the orders permitted Mr Widdup and Mrs Widdup to meet their living expenses and reasonable legal expenses; and the Deputy Commissioner had given an undertaking as to damages.
159. Third, other discretionary considerations were said to favour the making of the orders, including that Mr Widdup and Mrs Widdup were within the jurisdiction and the Deputy Commissioner had initiated the proceeding expeditiously in the circumstances.
160. In their submissions in respect of the application currently before the Court, the Widdup respondents did not directly challenge any of the balance of convenience considerations. Nor did they advance any balance of convenience considerations which were separate or distinct from the arguments that they raised in respect of the Deputy Commissioner’s causes of action and the allegations of jurisdictional error or conscious maladministration and material non-disclosure. Those arguments have already been addressed.
161. I am not persuaded that the balance of convenience did not favour the making of the freezing orders. Nor am I persuaded that the balance of convenience considerations support the making of an order repaying the money that was paid into Court by the respondents.

CONCLUSION IN RELATION TO EXERCISE OF THE DISCRETION

162. Having regard to all the considerations that have been addressed earlier in these reasons, I am not persuaded that the Court should exercise its discretion to order the repayment of the money paid into Court by the respondents. In summary, and at risk of repetition, I am not persuaded that it was in any way inappropriate or erroneous for the Deputy Commissioner to apply ex parte for freezing orders, or that it was in any way inappropriate or erroneous for Nicholas J to have made the freezing orders. I am not satisfied that there was any material non-disclosure, or lack of bona fides, on the part of the Deputy Commissioner in applying for the ex parte relief.
163. I am also satisfied that the three criteria or requirements for the making of freezing orders were satisfied in all the circumstances. The Deputy Commissioner established that: she had good arguable causes of action, or prospective causes of action, in respect of the income tax and family trust distribution tax liabilities of Mr Widdup and Mrs Widdup; there was a real and not fanciful risk that Mr Widdup and Mrs Widdup may encumber or dissipate their assets if not restrained from doing so, with the result being that the prospective judgment may be defeated; and that the balance of convenience favoured the making of the freezing orders.
164. I am not persuaded that the evidence adduced by the Widdup respondents in support of the present application casts doubt upon any of the bases upon which the freezing orders were made. The Widdup respondents’ evidence and submissions focussed primarily on the Deputy Commissioner’s cause of action in respect of the family trust distribution tax liability. I am not persuaded by the evidence in its present state that the Widdup respondents have made out a good arguable case that the FTDT notices were the product of conscious maladministration or jurisdictional error. Nor have the Widdup respondents established any reason why the Court is not, at this point, bound by the terms of s 350-10 of sch 1 to the TA Act to regard the FTDT notices and amended assessments as conclusive evidence that the notices and assessments were properly given or made and that the amounts and particulars in the notices and assessments are correct. That is particularly the case in respect of the amended assessments.
165. I am also persuaded that the evidence relied on by the Deputy Commissioner supports a finding that there remains a real and not fanciful risk that a prospective judgment in the Deputy Commissioner’s favour may be defeated if the money that has been paid into Court is repaid to the respondents. The Widdup respondents did not adduce any evidence relevant to the risk of the encumbrance or dissipation of assets. Nor did they adduce any other evidence, or advance any other submissions, as to why the money paid into Court should be repaid. Their case rested almost entirely on the proposition that it was wrong, or inappropriate, for the freezing orders to be made in the first place and on that basis alone the funds paid into Court following the making of the freezing orders should be repaid. For the reasons already given, I am not persuaded that it was wrong or inappropriate for the freezing orders to have been made.
166. The Widdup respondents’ application for the repayment of the money paid into Court must accordingly be dismissed with costs.

Associate:

Dated: 27 April 2023