FEDERAL COURT OF AUSTRALIA

Carey v Carey [2007] FCA 1482

PRACTICE AND PROCEDURE – ex parte application – preliminary discovery and preservation of assets  

Held: Application for orders for preliminary discovery and preservation of assets allowed.

Federal Court Rules 1979 (Cth), Order 15A rule 6, Order 15A rule 12

Bailey v Beagle Management Pty Limited (2001) 105 FCR 136 considered

Fermanis v Cheshire Holdings Pty Limited (1990) ATR 1862 considered  

Paxus Services Ltd v People Bank Pty Limited (1990) 99 ALR 728 followed

Minister for Health and Aged Care v Harrington Associates Ltd [1999] FCA 549 referred to  

Skyes v Stratton [1972] 1 NSWLR 145 cited

MARK CAREY AND MARION CAREY v IAN CAREY

NSD 1565 OF 2007

COWDROY  J

10 AUGUST 2007

SYDNEY

Upon the applicants by their counsel, A W Street SC, giving the usual undertaking as to damages,

THE COURT ORDERS THAT:

1.          Until further order, pursuant to Order 15A r 12  of the Federal Court Rules the respondent by himself, his servants or agents be restrained from disposing, encumbering, transferring or otherwise dealing with any moneys or shares in the name of or on behalf of Grace Carey and/or Harvey Carey outside Australia including any monies held in the name of the respondent, Grace Carey or Harvey Carey or in names on their behalf at Lombard Odier Darier Hentsch & Cie, Banquiers a Geneve or at Vernes Gestion SA.

2.          The applicants may give notice of order 1 above to Lombard Odier Darier Hentsch & Cie, Banquiers a Geneve by facsimile + 41 (0) 22 709 2911 and to Vernes Gestion SA at +41-22-789-30-75.

3.          Until further order, pursuant to Order 15A r 12 of the Federal Court Rules the respondent by himself, his servants and agents preserve all records relating to the foreign investments in bank accounts or shares of moneys in the name of or on behalf of Grace Carey and/or in the name of or on behalf of Harvey Carey.

4.          Until further order pursuant to Order 15A r 12  that the respondent by himself, his servants and agents preserve the hard drive in his possession and on which he has sent emails in relation to the Estate of the Late Grace Carey.

5.          Pursuant to Order 15A r 12 the respondent produce to the Court forthwith the hard drive in his possession and on which he has sent emails in relation to the Estate of the Late Grace Carey provided that if the respondent is unable to produce to the Court, the said hard drive is to be provided into the custody of Mr Michael Schmidt, solicitor and who may be contacted by mobile phone number 0417412737.

6.          The respondent be restrained from leaving Australia unless and until order 5 above has been complied with.

7.          Under Order 15A r 6 the documents within order 3 above be produced for the purpose of preservation, to the Court on or before 15 August 2007.

8.          The proceedings be adjourned until 10.15 am on 17 August 2007.

9.          The applicants serve these orders by email to ianhcarey@gmail.com and to ian.carey@robeco.com and by the applicants’ solicitor by telephone to mobile number 0416 366 965 and by facsimile c/- Kedo Pty Ltd to number 02 4731 4409 and upon solicitor Peter Stiles at 3 Spring Street, Sydney NSW.

10.      Notice of this order restraining the respondent from leaving the jurisdiction be given to the Australian Federal Police and the Australian Customs Service forthwith.

11.      These orders be entered forthwith.

12.      Liberty to apply be granted to any party to the Duty Judge on 2 hours of notice.

13.       Pursuant to Order 7 r 10 service of the application upon the respondent is confirmed.

NOTICE TO IAN HARVEY CAREY:

You are liable to imprisonment and/or sequestration of property if you:

a.       Disobey orders 1,3,4,5,6 and 7 above;

b.       Refuse or neglect to comply with orders 1,3,4,5,6 and 7 above.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     The applicants seek urgent ex parte relief in the nature of preliminary discovery pursuant to Order 15A Rule 6 of the Federal Court Rules (‘the Rules’) and for the preservation of property pursuant to Order 15A Rule 12 of the Rules. The applicant appeared in Court on 8 August 2007 and orders were made inter alia for preliminary discovery and the preservation of assets. The proceedings were returnable before the Court on 10 August 2007 at which time orders were made confirming service of the application. Minor amendments were made to the Court’s orders of 8 August 2007 including the addition of a notice to the respondent of his obligations to comply with Court orders.

FACTS

2                     The applicants are the executors of the estate of Grace Dorothy Carey, retired medical practitioner late of Mosman NSW, who died on 26 January 2007 (‘the deceased’). Probate of the last will and testament of the deceased was granted to the applicants by the Supreme Court of New South Wales on 5 March 2007.

3                     The respondent is the brother of the applicants and a beneficiary in the estate of the deceased.

4                     The last will and testament of the deceased incorporated four testamentary trusts and imposed detailed provisions concerning investment of corpus and income. The return prepared in relation to the probate application assesses the value of the estate in the sum of $14,705,528.96 comprising real estate and Australian shares. The return does not indicate that the deceased owned any overseas assets.

5                     During the administration of the estate the executors located copies of correspondence which referred to foreign investments apparently owned by the deceased and to a Swiss bank account in her name as a reference was made to a copy of a letter written by the deceased to Lombard Odier and Cie, Geneva Switzerland (‘Lombard’). A document issued by Lombard entitled ‘Procuration’ bears the name of the deceased and a specimen signature of the respondent. The address for correspondence is shown as Vernes Gestion S.A. The document was signed by the deceased in Mosman on 17 March 2000.

6                     On 3 April 2007 Richard Arthur Schmidt, the applicants’ solicitor wrote to Teece Hodgson & Ward, solicitors for the respondent, seeking details of several share transactions which were made by the respondent for the deceased in the period 1 July 2000 until the date of death of the deceased. The respondent’s solicitor did not respond. However by letter dated 3 May 2000 a copy of a letter was forwarded to Mr Schmidt which recorded that Vernes Gestion of Geneva had opened a bank account on 21 February 2000 in the name of the deceased.

7                     Based upon such information Mr Schmidt sought details of an amount of $500,000 believed by him to have been deposited into that account. A response was received from the respondent’s solicitor stating that the respondent had no knowledge of ‘an amount of $500,000.00 deposited to the credit of Grace Dorothy Carey in a Swiss account with Vernes Gestion SA’.

8                     On or about 1 July 2007 Mr Schmidt obtained a statement made by Mr Andrew Frankland, the deceased’s former solicitor. The statement refers to conversations held between the deceased, Mr Frankland and the respondent on 1 December 2006. Mr Frankland’s statement records that during the course of that meeting he was shown documents containing information concerning several overseas bank accounts of the deceased and that at least two of the accounts contained more than one million dollars and a number of other accounts contained hundreds of thousands of dollars.

9                     By letter dated 20 March 2007 Mr Schmidt wrote to Lombard concerning the account. A response was received on 18 June 2007 which did not acknowledge the existence of the account but sought evidence of authority to make the inquiry. By letter date 17 July 2007 the appropriate authorisation was provided. To date no response has been received to Mr Schmidt’s inquiry.

10                  The respondent terminated the instructions to his solicitors on 8 August 2007. Whilst the respondent usually resides overseas, he is currently present in Australia and the Court has been informed that he may seek to leave Australia on 11 August 2007. The applicants wish to investigate the existence of the deceased’s overseas bank accounts with the respondent and for this purpose seek orders for discovery and preservation of property relating to the existence of overseas assets owned by the estate.

11                  By letter dated 6 August 2007 the applicants advised the Australian Taxation Office Offshore Voluntary Disclosure Initiative of their belief that there are substantial assets overseas in respect of which they have reason to believe that income thereon had not been disclosed in tax returns.

12                  Mr Street SC who appears for the applicants has submitted that the orders of the Court are justified on the basis that the estate of the deceased may have a cause of action against the respondent under s 254 of the Income Tax Assessment Act 1936 (Cth) (‘the ITAA 36’) in respect of possible liabilities of the estate arising under the ITAA 36 and/ or the Income Tax Assessment Act 1997 (Cth) (‘the ITAA 97’).

13                  As a second source of federal jurisdiction to support the orders sought the appellants rely upon Regulation 41 of the Banking (Foreign Exchange) Regulations 1959 (‘the Regulations’) which provides for a possible right to restitution. The applicants refer to the decision in Skyes v Stratton [1972] 1 NSWLR 145 at 160 and submit that any contract or arrangement is illegal if it is made for the purpose of or has the effect of defeating, evading, avoiding or preventing the operation of the Regulations. They submit that the evidence prima facie establishes the existence of such arrangement between the deceased and the respondent.

14                  The applicants submit that unless restrained, the respondent may destroy relevant records and deal with assets derived from the estate in such a manner as may defeat the interests of the Commissioner of Taxation. Further, there may be tax liabilities of the estate which will need to be met from the assets held overseas. The applicant’s concern is based upon the fact that the respondent has refused requests to make disclosure of the existence of such assets.

FINDINGS

15                  In these proceedings the applicants are trustees as defined by s 254(1) of the ITAA 36. By virtue of s 254(1)(f) of the ITAA 36 trustees are indemnified for all payments which they may make pursuant to the ITAA 36 or of any requirement by the Commissioner.

16                  In Fermanis v Cheshire Holdings Pty Limited (1990) ATR 1862 at 1865 Murray J said:

It is clear, I think, the provision operates as a machinery provision to facilitate tax collection in relation to liable trust income, when the liability is otherwise imposed than by s 254.

At 1866 his Honour continued:

I conclude that the Income Tax Assessment Act s 254(1)(d) is a machinery provision which requires a trustee in possession of trust income to retain out of such income received by him in his representative capacity moneys sufficient to pay tax which is, or will become due, in respect of the income.

17                  Since there may be a debt to the Commissioner of Taxation arising out of the nondisclosure of income from undisclosed overseas assets of the estate, the Court is satisfied that, prima facie, the applicants may have a claim arising under a Commonwealth statute sufficient to attract the jurisdiction of the Court pursuant to s 39B(1A)(c) of the Judiciary Act 1903 (Cth) and s 19 of the Federal Court of Australia Act 1976 (Cth). Accordingly the Court possesses jurisdiction to grant relief.

18                  The Court now considers the issue of discovery under Order 15A Rule 6 of the Rules. In Paxus Services Ltd v People Bank Pty Limited (1990) 99 ALR 728 at 733 Burchett J held that Order 15A Rule 6 is to be given a wide operation and construed beneficially: see also Minister for Health and Aged Care v Harrington Associates Ltd [1999] FCA 549 at [27]. Order 15A Rule 6 has been the subject of judicial consideration by the Full Court of this Court in Bailey v Beagle Management Pty Limited (2001) 105 FCR 136. At 143 the Court said:

In a number of cases it has been pointed out that O 15A, r 6 (discovery before action) expressly contemplates what once might have been castigated as fishing and that it would be incongruous if the power to order discovery were less extensive in favour of a party to a proceeding properly brought in the Court than in favour of someone unable for lack of evidence to mount a case: Caltex Refining Co Pty Ltd v Amalgamated Metal Workers Union (1990) 51 IR 113, Trade Practices Commission v CC (NSW) Pty Ltd (1995) 58 FCR 426 at 436 (Lindgren J), Treasurer of the Commonwealth v Canwest Global Communications Corp [1997] FCA 578 (Full Court), Microsoft Corporation v Adelong Electronics Pty Ltd (t/as Ade Computers) [1997] FCA 224 (Burchett J), Bertran v Vanstone [1999] FCA 1753 at [18]-[23] (Kenny J). Donnelly v Davison (2000) 105 FCR 1 (Branson J). Also one should not lose sight of what the majority of the High Court in Grant v Downs (1976)135 CLR 674 at 685 noted as the public interest

" ... which requires that in the interests of a fair trial litigation should be conducted on the footing that all relevant documentary evidence is available."

19                  The applicants have made inquiries of banking institutions in Sydney and the accountants for the deceased but they have not been able to ascertain any further details of any overseas accounts of the deceased. The Court is satisfied that there is reasonable cause to believe that the respondent has or is likely to have information relative to the foreign owned assets in accordance with Order 15A Rule 6 of the Rules and that it is in the interests of the administration of justice that the applicants be given the opportunity of obtaining such information.

20                  Accordingly the Court will make the orders sought for preliminary discovery and for preservation of the assets. The Court makes orders as above.

Associate:

Dated:         10 August 2007