Deputy Commissioner of Taxation v Ma [2017] FCA 1317 (3 November 2017)

Last Updated: 14 November 2017

FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Ma [2017] FCA 1317

File number:	VID 1199 of 2017
Judge:	MORTIMER J
Date of judgment:	3 November 2017
Catchwords:	PRACTICE AND PROCEDURE – application for freezing orders – freezing orders against third party to proceeding sought – orders granted
Legislation:	Taxation Administration Act 1953 (Cth), Sch 1 ss 255-45, 263-25, 263-30 Federal Court Rules 2011 (Cth), Div 7.4, r 7.35(5) Convention between Australia and New Zealand for the Avoidance of Double Taxation with respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion [2010] ATS 10, signed in Paris on 26 June 2009
Cases cited:	BCI Finances Pty Limited (in liq) v Binetter (No 3) [2015] FCA 1336 Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014; 273 ALR 194 Paterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645
Date of hearing:	3 November 2017
Registry:	Victoria
Division:	General Division
National Practice Area:	Taxation
Category:	Catchwords
Number of paragraphs:	26
Counsel for the Applicant:	Mr S Linden
Solicitor for the Applicant:	Australian Taxation Office

REASONS FOR JUDGMENT
(Delivered Ex Tempore and Revised)

		VID 1199 of 2017
BETWEEN:	DEPUTY COMMISSIONER OF TAXATION Applicant
AND:	CHANG-SHAN MA First Respondent XIAN-YING SONG Second Respondent JIAN GUANG MA Third Respondent

MORTIMER J:

1. I am satisfied that the freezing orders sought by the Deputy Commissioner in this matter should be made. I propose to fix a return date for this matter, either substantively or for directions, on a date after 14 November 2017 and I propose to order service on the respondents by Wednesday 8 November 2017.
2. I turn to explain my reasons for making these orders. I note the Deputy Commissioner relied on an affidavit of Aris Zafiriou sworn on 2 November 2017 in support of the freezing order application. I accept the affidavit evidence to which he deposes. Leave was granted to file an amended version of the affidavit and one exhibit to correct an error that is not material to my decision.
3. The Deputy Commissioner has issued proceedings in this Court to recover accrued taxation liabilities owed by the first and second respondents to the New Zealand Commissioner of Inland Revenue pursuant to arrangements under Art 27 of the Convention between Australia and New Zealand for the Avoidance of Double Taxation with respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion [2010] ATS 10, signed in Paris on 26 June 2009.
4. Those arrangements find their expression, amongst other places, in s 263-25 to Sch 1 to the Taxation Administration Act 1953 (Cth). By s 263-30, upon registration of these foreign revenue claims, the amount owed becomes a pecuniary liability to the Commonwealth of Australia. Notice of the particulars of these foreign revenue claims against the first and second respondents were given to the first and second respondents under s 263-30(2) and those liabilities became due and payable on 28 August 2017.
5. The proceedings issued by the Deputy Commissioner also seek relief in relation to the third respondent, but by reason of amendments, for which I granted leave at the hearing of this application, the relief is of a slightly different kind. That is because the Deputy Commissioner accepts the liability of the third respondent in relation to a foreign revenue claim under the Convention is currently prospective in the sense the liability exists, but the amount is not yet payable. The foreign revenue claim against the third respondent has, on the evidence, been registered under s 263-25 and is therefore a pecuniary liability under s 263-30. However, notice has not yet been served on the third respondent and time for payment therefore has not arisen. The Deputy Commissioner seeks judgment against the third respondent once the time for payment has passed.
6. Each of the first three respondents is, on the evidence relating to their travel movements produced by the Deputy Commissioner, present in Australia with property and assets held and used in Australia. The first and second respondents are husband and wife, the third respondent is their son. Interlocutory relief by way of freezing orders is sought against the first three respondents and also against four corporations the Deputy Commissioner contends are controlled by one or more of the first three respondents. The Deputy Commissioner contends that some of the assets controlled by the first, second and third respondents are held by these corporations.
7. I am satisfied that this Court has jurisdiction in this proceeding on the basis set out in para 9 of the Deputy Commissioner’s submissions. The applicable principles to the exercise of the Court’s discretion to make a freezing order under Div 7.4 of the Federal Court Rules 2011 (Cth) are well-established and they are set out in para 4 of the Deputy Commissioner’s submissions. Aside from jurisdiction, I must be satisfied of three matters: first, that the applicant has a reasonably arguable case, both on the law and the facts; second, that there is a danger that a prospective judgment will be wholly or partially unsatisfied because the assets of the prospective judgment debtor or another person are removed from Australia or from a place inside or outside Australia or that the assets may be disposed of, dealt with or diminished in value; and third, the balance of convenience favours the granting of the freezing orders.
8. Based on the outline of how the Deputy Commissioner’s claim has arisen, to which I have referred, I am satisfied the Deputy Commissioner has a reasonably arguable case, on the law and the facts, against the first and second respondents. The claim against the third respondent is in a slightly different category, as I have noted. Nevertheless, the evidence is clear that the third respondent has a debt to the New Zealand Commissioner of Inland Revenue which has not been paid and that debt has been duly registered, on the evidence before the Court, in Australia.
9. I am satisfied that this, in and of itself, gives rise to an arguable case against the third respondent. That is particularly so because pursuant to s 255-45 to Sch 1 of the Taxation Administration Act, the certificates which are in evidence before me in relation to each of those three respondents, albeit that the certificate in relation to the third respondent is in a different form, are to stand as prima facie evidence of the matters to which they refer in relation to the debts owed by each of those respondents.
10. The debts are very significant. For the first respondent, the debt is in the sum of AUD$763,769.13. For the second respondent, the debt is in the sum of AUD$1,401,734.25. For the third respondent, the debt is in the sum of AUD$14,706,917.14. I am satisfied on the evidence that there is a danger that each of those three respondents may seek to dissipate the assets they control or remove assets from Australia so that prospective judgments may remain unsatisfied. On the evidence, there is a danger those judgment debts may, indeed, remain wholly unsatisfied.
11. Although there is no evidence of positive intention on the part of any of the respondents to frustrate a judgment of this Court, there is evidence from which inferences can be drawn of a real risk or danger that each of them might attempt to do so. This is, as the Deputy Commissioner submits, a sufficient basis: see Paterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321G, 323, 325 (Gleeson CJ), 327A (Meagher JA); Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645 at 671-672 (Lawton LJ); Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014; 273 ALR 194 at [12] (Kenny J).
12. I bear in mind the caution that a court should be slow before making an ex parte order which constitutes a substantial interference with the proprietary interests of parties and, as here, non-parties. However, as the Deputy Commissioner submits, the purpose of freezing orders is to permit such interference if the requisite preconditions are met and the court is satisfied the orders are necessary and appropriate. The evidence of conduct relied on by the Deputy Commissioner as evidence from which a risk of deliberate dissipation or removal of assets can be drawn falls into several categories.
13. First, there is evidence of the use by the first respondent of a bank account in Australia through which substantial transactions have occurred since 2006, but which is in the name of a Chinese national who arrived in Australia in May 2006, established the bank account and then left in August 2006 and has not returned. The first respondent was authorised by this person to operate the bank account, but the Deputy Commissioner contends, and I accept, that the evidence discloses the first respondent has treated the account as his own and, in that sense, has dishonestly pretended it was his own account where, in fact, it was the account of another. The first respondent, on the evidence, has deposited moneys into this account from the sale of assets he controlled.
14. The garnishee notice issued in relation to the first respondent’s liabilities was not treated as effective by the ANZ Bank in relation to this bank account because the bank saw the account as belonging to the other Chinese national. However the Deputy Commissioner contends the evidence is wholly to the effect that the first respondent uses this bank account for his own purposes. I am satisfied on the evidence at least at this stage of the proceeding that the first respondent appears to be concealing his financial activities behind the façade of another person through the use of this bank account.
15. Secondly, only a few weeks after the New Zealand Commissioner of Inland Revenue Service notified the first and second respondents of the New Zealand taxation debts, the first and second respondents proceeded sequentially over the subsequent months to put their Australian properties, either owned personally by them or through a corporation they control, on the market for sale and have concluded sales for some of those properties.
16. Thirdly, after the Deputy Commissioner notified the first and second respondents of the foreign revenue claims and consequent garnishee notices, each of them transferred substantial funds from Australia to China or otherwise removed from the bank account used by the first respondent (but in someone else’s name) almost all of the funds standing to the credit of that bank account. Those transfers occurred, on the evidence before me, within days of the notifications and the amounts transferred totalled at least $450,000, approximately, possibly more.
17. Fourthly, there is evidence of other dishonest behaviour by the first and third respondents. The evidence is that the first and third respondents have been directors of companies that have claimed and been paid large amounts of goods and services tax credits to which they were not entitled. In relation to the first respondent, the evidence is that the company controlled by him received approximately $1,158,577 over almost four years to which it was not entitled; and in relation to the third respondent, the credits received total approximately $1,429,748 over almost four years.
18. I accept that each of those four categories of conduct relied on by the Deputy Commissioner on the evidence disclosed behaviour, either directly connected to the debts the Deputy Commissioner seeks to enforce or, more generally, which reveals elements of dishonesty or avoidance of liability in the behaviour of each of the respondents. In turn, this gives rise to an inference that there is a real and not fanciful risk that each of the three respondents may seek to dissipate or dispose of assets if these orders are not made. As to the balance of convenience, I am satisfied the balance favours the making of freezing orders, taking into account the undertakings that are proffered by the Deputy Commissioner.
19. The assets of each of the three individual respondents, as identified so far in the evidence, are summarised in the Deputy Commissioner’s submissions:
    30. The assets which, according to the Zafiriou Affidavit, the first respondent has a beneficial interest in are shares in the following companies:

Company	Shareholding %
Yue Ma Pty Ltd	51%
Max Professional Massage Services Pty Ltd	70%

31. The assets which, according to the Zafiriou Affidavit, the second respondent has a beneficial interest in are shares in the following companies:

Company	Shareholding %
Yue Ma Pty Ltd	49%
Health & Recovery Management Centre Pty Ltd	100%

32. The assets which, according to the Zafiriou Affidavit, the third respondent has a beneficial interest in is the residential property at 41 Frederick Street, Balwyn.
20. Accordingly, some personal assets have been dissipated already and some are held by third-party corporations the Deputy Commissioner contends are controlled by one or more of the respondents. It is for that reason that there are orders also sought against the four corporate entities named in the interlocutory application. This Court has power under r 7.35(5) of Div 7.4 to make orders against third parties where the requirements in that rule are met. See, for example, the judgment of Gleeson J in BCI Finances Pty Limited (in liq) v Binetter (No 3) [2015] FCA 1336 at [30]- [34] and the authorities to which her Honour there refers.
21. The Commissioner makes contentions, which I accept are supported by the evidence, in relation to each of these entities in terms of the properties or assets held by them and how the individual respondents control those corporations. Those submissions are set out in para 34 of the Deputy Commissioner’s submissions:
    34. The applicant seeks orders against the following corporate third parties believed to be owned and/or controlled by the first and second respondents.

34.1. Yue Ma Pty Ltd, the fourth respondent, is the sole registered proprietor of the property at 98 Severn Street Box Hill referred to above. The property has an estimated value of $1,600,000. There is no mortgage registered on the title. The property is on the market for sale.
34.2. Max Professional Massage Services Pty Ltd, the fifth respondent, is the sole registered proprietor of the Werribee property referred to above. The Werribee property is subject to a registered mortgage to Westpac Bank, securing a loan on 13 July 2013 in the amount of $700,000 to the company in its capacity as trustee for ‘Seaview Trust’. The property is on the market for sale.
34.3. Max Investment Group Pty Ltd, the sixth respondent, is sole registered proprietor of the property at 152-154 Serpells Road, Templestowe, Melbourne, Victoria. The first and second respondent’s daughter, Weifang Ma is its sole director and shareholder. The property is the residence of first and second respondent and of Weifang Ma. It appears that that Max Investment Group Pty Ltd acts as trustee for the ‘Max Trust’, based on information from the ANZ bank in relation to the mortgage.
34.4. Health & Recovery Management Centre Pty Ltd, the seventh respondent. The assets of this entity are not known by the applicant.

22. It is apparent from the evidence and submissions that some of these properties may be held on trust by some of the corporations, although the present evidence only consists of bank documents, and the terms of the trust are not known to the Deputy Commissioner or to the Court.
23. As the Deputy Commissioner contends, the respondents can clarify these matters in compliance with the Court’s orders in relation to the provision of further information and can seek to have these orders discharged or varied on the return of this application if they so submit.
24. I am satisfied that the form of orders sought by the Deputy Commissioner accords with the general form of orders to be made in applications such as this and I am satisfied the orders are appropriate. One matter to be noted is the exclusion of one of the standard exceptions contemplated by para 10(c) of the example form of freezing order, which is Annexure A to the Practice Note on Freezing Orders (GPN-FRZG).
25. That exception relates to enabling a person affected by such orders to deal with or dispose of assets in the ordinary and proper course of that person’s business, including paying business expenses bona fide and properly incurred. The Deputy Commissioner contends – and I accept – that such an exception is not appropriate in the context of the present application because the respondents, apart from the seventh respondent, so far as the evidence discloses and the Deputy Commissioner is aware, do not carry on any businesses in Australia and there is a risk, based on those four categories of evidence to which I have already referred, that the first to third respondents may use an exception such as this improperly or inappropriately to continue to dispose of assets. For that reason, I am satisfied that it is not appropriate for the orders to contain an exception to that effect.
26. Accordingly, orders will be made in the form sought save that in relation to the first, second and third respondents the orders will require personal service of the Court’s orders and the Deputy Commissioner’s application. If there is a difficulty with personal service, then the Deputy Commissioner may apply in the usual way for orders for substituted service and, on the current state of the evidence, I would expect that those orders can be dealt with in chambers without the need for further appearance. The return date for this application, as I said, will be fixed for a date on or after 14 November 2017. The Deputy Commissioner will be advised of the date and the judge before whom it will be returned as soon as that information is available.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mortimer.

Associate:

Dated: 10 November 2017