FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Grimaldi (No. 3) [2009] FCA 740

INJUNCTION – Application for Mareva relief in respect of assets of foreign corporations – undertakings proffered to the Court

EQUITY – consequences of the mixture of funds of several parties in an indistinguishable mass

International Companies Act No. 32 of 1992 (Republic of Vanuatu)

International Tax Agreements Act 1953 (Cth)

Mutual Assistance in Criminal Matters Act 1992 (New Zealand) ss 56 and 58

Federal Court Rules Order 25A rules 5(4)-(5)

Ron Medich Properties Pty Ltd v Bentley-Smythe Pty Ltd (No. 3) [2009] FCA 335

Sutherland Re; French Caledonia Travel Service Pty Ltd (In Liq) (2003) 59 NSWLR 361

In Re Hallett’s Estate: Knatchbull v Hallett (1880) 13 ChD 696

Taylor v Plumer (1815) 3 M&S 562; (1815) 105 ER 721

Brady v Stapleton (1952) 88 CLR 322  

COMMISSIONER OF TAXATION v PHILLIP GRIMALDI, GARRY BONACCORSO, IFTC BROKING SERVICES LTD, MGG CAPITAL PTY LIMITED AS TRUSTEE FOR WEBTEL MANAGEMENT SUPER FUND and INTERNATIONAL FINANCE TRUST COMPANY LTD (FIFTH RESPONDENT ON THE NOTICE OF MOTION FILED IN COURT ON 11 MAY 2009)

NSD 407 of 2009

GRAHAM J

9 JULY 2009

SYDNEY

THE COURT ORDERS THAT:

1.         The applicant’s application for relief against the third respondent in terms of paragraph 4 of the Notice of Motion filed 11 May 2009 be dismissed.

2.         The applicant’s application for relief against the fifth respondent in terms of paragraph 6 of the Notice of Motion filed 11 May 2009 be dismissed.

3.         The third and fifth respondents pay one quarter of the costs of the applicant of the Notice of Motion filed 11 May 2009.

4.         Orders 1 and 2 may be entered forthwith but Order 3 shall not be entered before 17 July 2009.

AND THE COURT GRANTS:

5.         Liberty to apply in respect of Order 3.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                          These proceedings were instituted by an Application filed 11 May 2009 in which the substantive relief sought related to alleged tax liabilities of the first respondent, the second respondent, the third respondent and the fourth respondent.

2                          In relation to the assets of those respondents and also the fifth respondent referred to in a Notice of Motion filed 11 May 2009, freezing orders have been sought by the applicant under Order 25A rules 5(4) and 5(5) of the Federal Court Rules to prevent an abuse or frustration of the process of the Court in respect of the primary claims for relief.  In relation to applications such as this, I would refer to the applicable principles as summarised by me in Ron Medich Properties Pty Ltd v Bentley-Smythe Pty Ltd (No. 3) [2009] FCA 335 (‘Medich’) at [10]-[24].  None of the parties to whom this judgment relates submit that the summary of the principles in Medich contains any errors. 

3                          On 19 May 2009 freezing orders were made by consent and without admissions against the second respondent restraining him from removing from Australia or in any way disposing of, dealing with or diminishing the value of his Australian assets up to the unencumbered value of $A 3,519,120.99 other than to make a payment to the applicant.  The relevant freezing order also provided that if the unencumbered value of the second respondent’s Australian assets was less than the said amount and he had assets outside Australia, he was also restrained from disposing of, dealing with or diminishing the value of his Australian assets and his ex-Australian assets up to the unencumbered value of the said amount.  It is necessary to turn to the precise terms of the order to identify the ambit of the restraint which was imposed upon the second respondent.  In defining the assets of the second respondent to which the restraint applied paragraph 6(1)(c)(ii) of the orders defined ‘your assets’ as including ‘the sum of AUD$220,000’ held in ten bank accounts in New Zealand (eight at ANZ National Bank Limited and two at Bank of New Zealand) in the name of the fifth respondent.  There is no evidence as to the amount standing to the credit of those accounts and, for reasons which will shortly appear, there are, so it would seem, other claims upon the monies standing to the credit of some or all of the bank accounts mentioned in the said orders.

4                          On 22 May 2009 freezing orders were made by consent and without admissions against the first and fourth respondents. 

5                          The orders made against the first respondent restrained him from removing from Australia or in any way disposing of, dealing with or diminishing the value of his Australian assets up to the unencumbered value of $A 35,807,867.41 other than to make payment to the applicant.  Once again the orders extended to assets of the first respondent outside Australia if the unencumbered value of his Australian assets fell below the said amount in which case the restraint extended to both the first respondent’s Australian assets and his ex-Australian assets up to the unencumbered value of the said amount.  In paragraph 6(1)(c)(ii) of the freezing orders against the first respondent his assets were defined as including ‘[t]he sums of US $32,142.56 and AUD $14,263,136.36’ held in the same ten bank accounts in New Zealand in the name of the fifth respondent. 

6                          The freezing orders made in respect of the assets of the fourth respondent restrained it from removing from Australia or in any way disposing of, dealing with or diminishing the value of its assets in Australia up to an unencumbered value of $A 6,151,624.64 other than to make payment to the applicant.  Once again the freezing orders extended to assets outside Australia in the event that the unencumbered value of the fourth respondent’s Australian assets was less than the said amount in which case the restraint applied to both Australian and ex-Australian assets up to the unencumbered value of the said amount.  Once again paragraph 6(1)(c)(ii) of the freezing order defined the assets of the fourth respondent to which the restraint applied as including ‘the sums of US$32,142.56 and AUD$14,263,136.36’ held in the ten bank accounts in the name of the fifth respondent to which reference has already been made.  Presumably, given the identical amounts, the applicant is contending that the assets of the first respondent are also the assets of the fourth respondent.

7                          Resolution of the differences between the applicant and the first, second and fourth respondents in respect of the applicant’s Notice of Motion filed 11 May 2009 has left for determination, the claims for freezing orders against the third respondent, a party to the proceedings, and the fifth respondent as a ‘third party’ against whom freezing orders have been sought. 

8                          On 11 May 2009 the duty judge made freezing orders against each of the first, second, third, fourth and fifth respondents up to and including 5:00pm on Friday 15 May 2009 but those orders lapsed on that day. 

9                          The applicant’s Notice of Motion came before me for hearing as the docket judge on 19 May 2009, 20 May 2009, 22 May 2009, 1 June 2009 and 5 June 2009. 

10                        On 20 May 2009 the third and fifth respondents by their counsel without admissions and without prejudice to any entitlement to resist the making of a freezing order gave to the Court an undertaking that the third and fifth respondents would take no steps which may be open to them to dispose of or otherwise deal with their assets restrained by the orders made by Hislop J in the Supreme Court of New South Wales on 25 October 2008 in proceeding No. 12212 of 2008 in the Common Law Division, without first giving 14 days’ notice to the applicant.  It was noted that the undertakings proffered were given severally by the third and fifth respondents. 

11                        At the commencement of the day on 22 May 2009 separate undertakings to the Court were formally given by the third and fifth respondents.  These were as follows:

(a)       The third respondent by its counsel gives the following undertaking to the Court:

‘Without admissions, and without prejudice to any entitlement to resist the making of a freezing order, the third respondent will take no steps which may be open to it to dispose of or otherwise deal with the assets restrained by the orders made by Hislop J on 25 October 2008 in Supreme Court of New South Wales proceeding 12212 of 2008, without first giving 14 days’ notice to the applicant.’

(b)        The fifth respondent by its counsel gives the following undertaking to the Court:

‘Without admissions, and without prejudice to any entitlement to resist the making of a freezing order, the fifth respondent will take no steps which may be open to it to dispose of or otherwise deal with the assets restrained by the orders made by Hislop J on 25 October 2008 in Supreme Court of New South Wales proceeding 12212 of 2008, without first giving 14 days’ notice to the applicant.’

On 5 June 2009 each of the third and fifth respondents by their counsel added to their undertakings to the Court the words ‘by his solicitor, the Australian Government Solicitor (Attention Denis Stokes/Tanya Sklepic)’ after the words ‘notice to the applicant’.  Later on the same day the undertakings were further extended to be expressed as undertakings to the Court on behalf of the third respondent, its directors and officers and, later still, on behalf of the third respondent, its directors and other officers, servants and agents in the one case and on behalf of the fifth respondent its directors and officers and, later still, on behalf of the fifth respondent, its directors and other officers, servants and agents on the other.

12                        On 22 May 2009 the evidence had not concluded.  In all the circumstances, freezing orders were made on that day against each of the third respondent and the fifth respondent in each case up to and including 1 June 2009.  On 1 June 2009 those freezing orders were continued up to and including 5 June 2009.  The restraint in respect of the third respondent precluded it from removing from Australia or in any way disposing of, dealing with or diminishing the value of any of its assets in Australia up to the unencumbered value of $A 3,597,587.90 other than to make payment to the applicant.  Once again the orders were expressed to extend to assets of the third respondent outside Australia in the event that the unencumbered value of the Australian assets was less than the said amount.  In those circumstances the restraint was expressed to apply to the third respondent’s Australian assets and its ex-Australian assets up to the unencumbered value of the said amount.  In the freezing order as made the assets of the third respondent were defined in paragraph 6(1)(c)(ii) to include ‘the whole of the amounts held in the following bank accounts in New Zealand’, those accounts being the same ten bank accounts in the name of the fifth respondent to which reference was made in the earlier orders against the first, second and fourth respondents.

13                        The freezing orders made on 22 May 2009 against the fifth respondent up to and including 1 June 2009 and continued up to and including 5 June 2009 restrained the fifth respondent from disposing of, dealing with or diminishing the value of any of ‘your Assets’ and for that purpose ‘your Assets’ was defined to mean ‘the whole of the amounts held in the following bank accounts in New Zealand’ once again referring to the same ten bank accounts in the name of the fifth respondent.

14                        The applicant was not content to rely upon the undertakings to the Court given by the third and fifth respondents and pressed for the making of freezing orders by the Court until further order.  When challenged to explain why a freezing order would provide the applicant with more effective relief than the undertakings given to the Court, it was suggested that the freezing orders would have a character analogous to a judgment in rem so that other parties, such as the banks mentioned in the definitions of ‘your assets’ in the orders previously made, would be bound to observe the orders if they were served upon them.

15                        Senior counsel for the applicant resiled from this position on 1 June 2009 but still maintained that the applicant would be placed in a stronger position were freezing orders to be made arguing, amongst other things, that notice of an intended withdrawal of one or other or both of the undertakings could be given to a remote office of the applicant and not come to the relevant officer’s attention until, metaphorically speaking, the horse had bolted.  This last mentioned concern was overcome by the addition of the words mentioned above to the third and fifth respondents’ respective undertakings to the Court on 5 June 2009.

16                        Pending the delivery of my reasons for judgment on the applicant’s Notice of Motion filed 11 May 2009, the freezing orders have been progressively extended.  On 2 July 2009 they were continued up to and including Friday 10 July 2009 or earlier order.

17                        The third and fifth respondents have conceded, for the purposes of the Notice of Motion presently before the Court, that the Commissioner has shown an arguable case.  The ‘first limb’ requirement that the applicant establish a prima facie cause of action against the respondent, has been satisfied.  However, the third and fifth respondents submitted that not only was there no danger of dissipation of assets, there was absolutely no risk of dissipation.

18                        It seems to me that there is something of a problem with the applicant’s assertion that at one and the same time monies standing to the credit of bank accounts in the name of the fifth respondent with ANZ National Bank Limited and Bank of New Zealand can be wholly the property of the third respondent, wholly the property of the fifth respondent, and at the same time, the property of the second respondent as to $A220,000, the property of the first respondent as to $US32,142.56 and $A14,263,136.36 and the property of the fourth respondent as to like amounts namely $US32,142.56 and $A14,263,136.36.  As mentioned above, there is no evidence as to the current balances of the ten bank accounts nor is there any evidence of the claims that the first, second, third or fourth respondents or others might have on the fifth respondent in respect of the moneys standing to the credit of the said accounts or otherwise.

19                        The Banks are not trustees of the monies standing to the credit of the fifth respondent’s accounts.  Each of them is simply a debtor of the fifth respondent for the whole of the amounts standing to the credit of the accounts with them from time to time (see per Campbell J in Sutherland Re; French Caledonia Travel Service Pty Ltd (In Liq) (2003) 59 NSWLR 361 (the ‘Travel Service case’) at [61]).

20                        In Re Hallett’s Estate: Knatchbull v Hallett (1880) 13 ChD 696 (‘Re Hallett’s Estate’) is not authority for the proposition for which the applicant contends, namely, ‘[t]he mixing or pooling of the monies in the New Zealand account (sic) does not create an “indistinguishable mass” which precludes equitable ownership being asserted in respect of an aliquot amount that represents the sum of monies owned by any particular person.’

21                        In Re Hallett’s Estate, Mr Hallett, a solicitor, acting without authority and improperly sold some Russian 5% 1822 bonds.  Some of those bonds represented trust funds under a marriage settlement of Mr Hallett.  Others were held by him for a client, Mrs Cotterill.  The bonds had been sold by Hallett directing his bankers, Messrs Twining, to do so.  Hallett had drawn monies from the account with his bankers and paid in other monies.  In an action for the administration of his estate following his death, claims were made by several persons against monies in the hands of the bankers.

22                        It followed from Sir George Jessel MR’s reasoning in Re Hallett’s Estate at 717-719, that:

(a)        if a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own i.e. the trust property comes first;

(b)        so long as trust property can be traced and followed into other property into which it has been converted, that property remains subject to the trust;

(c)        the product of or substitute for the original thing follows the nature of the thing itself as long as it can be ascertained to be such and the right only ceases when the means of ascertainment fail.

23                        The Master of the Rolls then proceeded to reject Lord Ellenborough’s statement in Taylor v Plumer (1815) 3 M&S 562; (1815) 105 ER 721which followed ‘the means of ascertainment fail’, namely ‘which is the case when the subject is turned into money, and mixed and confounded in a general mass of the same description.’  The Master of the Rolls opined that in such circumstances equity could follow the money and create a charge.  Employing this refinement, the means of ascertainment would, in equity, still remain.

24                        In Brady v Stapleton (1952) 88 CLR 322 at 337-338 Dixon CJ and Fullagar J said, referring to Sir George Jessel’s judgment in Re Hallett’s Estate at 717:

‘If all other means failed, said the Master of the Rolls, equity would impose a charge on the “indistinguishable mass”. But, if it were a case of money, “equity would have followed the money, even if put into a bag or into an indistinguishable mass, by taking out the same quantity” …

It is … in particular in the words italicized above [expressed herein in reverse type], that the solution of the present problem is to be found.  For it would be a great mistake to suppose that the great case of Re Hallett’s Estate … lays down a doctrine peculiar to money.  On the contrary, it extends to money paid into a bank account, and so losing its identity as money, a doctrine which equity would never have had the slightest hesitation in applying to money physically existing or to any other kind of personal property to which it could, as a matter of practical possibility, be applied.  And there is no difficulty, and we do not think equity would ever have had the least difficulty, in applying the same doctrine to shares or bonds.’

Later at 339 Dixon CJ and Fullagar J said:

‘The real distinction which equity draws is between the case where it is, and the case where it is not, practicable to give effect to the rights of the cestui que trust by appropriating to him a specific severable part of the available property.’

25                        Later at 727-728 the Master of the Rolls said in Re Hallett’s Estate:

‘When we come to apply that principle [that where a man does an act which may be rightfully performed, he cannot say that that act was intentionally and in fact done wrongly] to the case of a trustee who has blended trust moneys with his own, it seems to me perfectly plain that he cannot be heard to say that he took away the trust money when he had a right to take away his own money.  The simplest case put is the mingling of trust moneys in a bag with money of the trustee’s own.  Suppose he has a hundred sovereigns in a bag, and he adds to them another hundred sovereigns of his own, so that they are commingled in such a way that they cannot be distinguished, and the next day he draws out for his own purposes £100, is it tolerable for anybody to allege that what he drew out was the first £100, the trust money, and that he misappropriated it, and left his own £100 in the bag?  It is obvious he must have taken away that which he had a right to take away, his own £100.  What difference does it make if, instead of being in a bag, he deposits it with his banker, and then pays in other money of his own, and draws out some money for his own purposes?  Could he say that he had actually drawn out anything but his own money?  His money was there, and he had a right to draw it out, and why should the natural act of simply drawing out the money be attributed to anything except to his ownership of money which was at his bankers.’

26                        Re Hallett’s Estate says nothing about the division of monies standing to the credit of bank accounts into aliquot shares nor does it address a case such as this where it is said that there are conflicting claims to the same monies standing to the credit of the several bank accounts in the name of the fifth respondent.

27                        It is instructive to consider the excellent, if I may say so, critique of Re Hallett’s Estate which is to be found in the judgment of Campbell J in the Travel Service case at [43]-[65] although I am not persuaded that, as a matter of generality, coins in a bag may be treated as ‘separate and individually identifiable things’.  Money, like grain, is fungible and, generally speaking, indistinguishable (cf per Campbell J at [61]).  However, the distinction remains between money as a chose in possession and a banker’s obligation to the bank’s customer, which his Honour rightly described as an inchoate chose in action. 

28                        As Campbell J observed at [61] when considering Re Hallett’s Estate:

‘… the purpose of the activity that the Court of Appeal was engaged in was working out whether the defaulting solicitor could, conscientiously, deny that some of the money which remained in the bank account – the inchoate chose in action to pay the balance to the customer – was money of a particular client.’ 

Giving emphasis to the words ‘For that purpose’ his Honour then said:

‘For that purpose, there was no difference between a bank account, and coins from various sources placed in a bag.  Functionally, the bank account and coins in the bag operated identically.’

However, as Campbell J observed at [65]:

‘There is no reason why the banker ought be presumed to know of, or be in any way affected by, [a] presumption of honest intention between trustee and beneficiary.’

29                        It is useful to bear in mind what Dixon CJ and Fullager J said in Brady v Stapleton at 339 namely that the real distinction which equity draws is between the case where it is, and the case where it is not, practicable to give effect to the rights of a cestui que trust by appropriating to him a specific severable part of the available property.  Tracing money into a bank account and obtaining a charge over an identifiable part of it may be impracticable.

30                        As to how competing claims on the fifth respondent in respect of monies standing to the credit of the bank accounts with ANZ National Bank Limited and Bank of New Zealand, if there be such competing claims, are to be dealt with will, no doubt, turn on a number of facts, that are presently unknown. 

31                        It cannot be said that, as a matter of law, a fund in which assets of several beneficiaries have become mixed should always be distributed amongst all beneficiaries, pro rata according to their claims.  Rateable abatement does not automatically apply whenever there is a mixed fund because there is a preliminary question, the answer to which cannot be assumed, of whether all the claimants on the fund, in the form the fund takes at the time of trial, have claims which are equal (see per Campbell J in the Travel Service case at [176]-[193]).

32                        On 5 May 2009 a Notice of Assessment was issued to the third respondent under the Income Tax Assessment Act 1936 (Cth) (‘the 1936 Act’) and the Income Tax Assessment Act 1997 (Cth) (‘the 1997 Act’) in respect of the year of income ending 30 June 2008.  That Notice of Assessment recorded that the Commissioner had made an assessment of the amount of the taxable income of the third respondent in the sum of $1,980,080 and of the tax payable thereon, being $594,024.00.  The Notice of Assessment also recorded that $1,129,991.56 was payable by the third respondent to the Commissioner from previous notices.

33                        The previous notices which gave rise to the figure of $1,129,991.56 were Notices of Assessment issued on 5 May 2009 to the third respondent in respect of the years of income ended 30 June 2001, 30 June 2002, 30 June 2003, 30 June 2004, 30 June 2005, 30 June 2006 and 30 June 2007.  Those Notices of Assessment recorded that the Commissioner had made assessments of the amount of the taxable income of the third respondent, and of the tax payable thereon in the years in question, as follows:

34                        On 6 May 2009 a ‘Notice Assessment and liability to pay penalty for failing to provide a document’ was issued to the third respondent whereby penalties were imposed in respect of the income years ended 30 June 2001, 30 June 2002, 30 June 2003, 30 June 2004, 30 June 2005, 30 June 2006, 30 June 2007 and 30 June 2008 totalling $1,551,525.60.  And, by a letter dated 6 May 2009 the third respondent was advised that a General Interest Charge had been imposed on an amount that was overdue.  To 4 May 2009 the General Interest Charge imposed was $322,046.76.  

After a rounding down of two cents the actual amount payable by the third respondent to the applicant was said to be $3,597,587.90.

35                        By a Notice of Appearance filed 13 May 2008 the third and fifth respondents who gave their address as ‘First Floor, PKF House, Lini Highway, Port Vila, Vanuatu’ appeared conditionally.  The conditional appearance was superseded by an unconditional Notice of Appearance filed on 21 May 2009.

36                        In relation to the fifth respondent, Mr Van Der Pol, an officer of the Australian Taxation Office, swore an affidavit on 8 May 2009 in which he deposed as follows under the heading ‘International Finance Trust Company Limited …’:

‘130.    I believe that the funds from the share trading activities carried out in Australia by:

•     Iron Investments (on behalf of Mr Grimaldi and/or MGG Capital);

   

•     RLB (on behalf of Mr Bonaccorso);

   

•     IFTC Broking Services have been remitted to accounts held in the name of [the fifth respondent] in New Zealand.

   

  131.     The basis for this belief is as follows:

   

•     the Grimaldi Deed and the Bonaccorso Deed; [at Tabs 5 and 6 in Exhibit B1]

   

•     part of the proceeds of sale of Iron Investments’ shares being held in accounts in New Zealand in the name of [the fifth respondent] [see inter alia Exhibit B1 at Tab 43];

   

•     statements made by Mr Grimaldi that [the fifth respondent] controlled the monies [Exhibit B1 at Tab 1 page 54]; and

   

•     extract from the direct investment account held with the Commonwealth Bank by IFTC Broking Services (being the bank account connected to the CommSec trading account) which shows transfers of monies to [the fifth respondent’s] accounts in New Zealand; [Exhibit B2 at Tab 85].

   

  132.     Freezing orders are sought in respect of the New Zealand bank accounts which nominate [the fifth respondent] as account holder.’

  
  

  37                        Evidence for the third and fifth respondents was given by Mr M J Sophocles, a partner in the firm of Atanaskovic Hartnell, the Sydney solicitors of the third and fifth respondents.  Mr Sophocles was not aware of what assets the fifth respondent had in Australia, in Vanuatu or elsewhere in the world.  Similarly, he was unaware of what assets the third respondent had in Australia, in Vanuatu and elsewhere in the world.

  38                        By a Notice to Produce dated 18 May 2009 the third respondent was called upon to produce the following documents:

  ‘1.        All journals , ledgers , cash books , and other books of account recording or evidencing :-

   

  (a)       the receipt of money on account of any of the following :-

   

  (i)        Phillip Grimaldi

  (ii)       Garry Bonaccorso

  (iii)      MGG Capital Pty Ltd

  (iv)      Iron Ore Sales and Management, now known as Iron Investments Ltd

  (v)       RLB Investments Limited

   

  During the period 1 July 2005 to 11 May 2009 ( the relevant period ).

   

  (b)       the payment of money to, or on behalf of any of the persons or entities identified in para ( a ) (i) - (v) during the relevant period.

   

  2.         All records held or maintained by you or on your behalf during the relevant period recording the ownership of shares held in Commonwealth Securities Ltd (Commsec) share trading accounts number 577406 by any of the persons or entities identified in para 1 (a) (i) - (v) above’

  
  

  39                        A Notice of Produce dated 18 May 2009 was also served upon the fifth respondent.  It called for the production of:

  ‘All journals , ledgers , cash books , and other books of account recording or evidencing :-

   

  (a)       the receipt of money on account of any of the following :-

   

  (i)         Phillip Grimaldi

  (ii)        Garry Bonaccorso

  (iii)       MGG Capital Pty Ltd

  (iv)       Iron Ore Sales and Management, now known as Iron Investments Ltd

  (v)        RLB Investments Limited

   

  During the period 1 July 2005 to 11 May 2009 ( the relevant period )

   

  (b)        The payment of money to , or on behalf of any of the persons or entities identified in para ( a ) (i) - (v) during the relevant period.’

  
  

  40                        The documents produced in response to the Notice to Produce served upon the third respondent together with a copy of the Notice to Produce became Exhibit E on the hearing of the applicant’s Notice of Motion and the documents produced by the fifth respondent together with a copy of the Notice to Produce directed to it became Exhibit F on the hearing of the motion.

  41                        The Court was not invited to consider in any detail the documents which were produced.  However, it was observed that copies of many of the documents produced by the third respondent were also produced by the fifth respondent.  Many of the documents so produced had a heading which included ‘IFTC Limited’ which I understand to be a reference to the fifth respondent, International Finance Trust Company Limited.

  42                        Mr Sophocles gave evidence that the documents produced in answer to both notices were identical except for the third respondent’s response to the paragraph number 2 dealing with share ownership.

  43                        When asked about the production of journals, by way of example, Mr Sophocles gave evidence that no hard copies of journals were produced nor were photocopies of such books.  He said:

  ‘I believe there were journals produced.  Not in the traditional sense of a journal, but as those things are now stored electronically by accountants.’

  
  

  Mr Sophocles proceeded to give evidence indicating that there was ‘one central repository of information within the accounting firm of PKF Vanuatu’ and that Mr Sophocles’ understanding was that the third respondent and the fifth respondent maintained one common set of books.

  44                        Mr Sophocles gave evidence that the third and fifth respondents were each Vanuatu companies.

  45                        The address given for each of the third and fifth respondents in the Notices of Appearance was the same address as that of ‘PKF Chartered Accountants & Business Advisers’ of Vanuatu namely First Floor, PKF House, Lini Highway, Port Vila, Vanuatu.  A letter written by Robert F. Agius as a partner of PKF Chartered Accountants & Business Advisers to Mr Martin Woods, a solicitor for the first respondent in Sydney on 26 January 2008 reveals that the ‘Resident Partners’ at that time were ‘Robert Agius, B.Com, M.B.A., F.C.A., Andrew Neill, B.Bus. A.C.A., A.S.I.A., Iain Johns, B.Bus, M.B.A., C.P.A.’  Following the disclosure of the names of the ‘Resident Partners’ the stationery disclosed: ‘The PKF International Association is an association of legally independent firms’.

  46                        The four page letter sent by Mr Agius to Mr Woods was headed ‘International offshore structures’.  Under that heading the letter included:

  ‘You have asked us to give you an indication of the best way to dismantle and an (sic) offshore structure in the circumstances where there is a company limited by guarantee (CLG) and where a Singapore company has been interposed between potential beneficiaries in Australia and the Vanuatu CLG Company.

   

  The nature of a CLG

   

  We have explained that the nature of the CLG is that it has no shareholders and no members who are resident (sic) of Australia.  This ensures that it is not caught by the FIF or the CFC rules in the Australian taxation act.

   

  The Vanuatu Companies Act incorporating the CLG and the Constitution that our firm uses ensures that any distribution from a CLG on liquidation is of a capital nature not of an income nature.  Why this is so and how this is carried out is that the CLG after going through the liquidation procedure the Constitution the company has it mandatory (sic) that the Appointor and the Guardian must advise the liquidator and (sic) what to do with the distribution on the windup.

   

  The Appointor and the Guardian with all the CLG companies that International Finance Trust Co Ltd, managers (sic) are the partners of the firm including myself.

  …

   

  New Zealand Finance Company

   

  All funds placed into Australia have gone through your trust account and have had their source from bank accounts in New Zealand controlled by International Finance Trust Co Ltd [the fifth respondent].  The same people operate the bank accounts of a New Zealand finance company, Nelson Finance and Leasing Ltd. (‘Nelson’) I would suggest that the appropriate entity to have forwarded funds to your trust account is Nelson.  I would suggest that loans be set up for each of the individuals in Australia who have received the money from your trust account so as to identify a source of funds which is capital in nature and recorded as such. 

   

  The debt to Nelson will appear in the balance sheet of the CLG and on liquidation will be distributed in specie to the individuals who are showing as debtors to Nelson.

   

  We believe this method will firstly explain if necessary to any authority the source of the funds and also how any debts owing have been repaid.

   

  Other assets of the CLG

   

  On liquidation there will remain other assets such as shares in public companies and other assets by way of shares in Australian entities.  The Appointor and Guardian will require some guidance in how (sic) these are to be dealt with and whether they should be transferred to the Singapore Company or the new CLG.

  …’

  
  

  47                        One of the documents which is in evidence is a copy of a Constitution of Iron Ore Sales and Management (HK) Ltd.  The cover page of the Constitution refers to the ‘International Companies Act No. 32 of 1992’ of the Republic of Vanuatu.  It identifies the company as a ‘private company limited by guarantee’ and records the name of the fifth respondent on the foot of the cover page with the address ‘PKF House, Lini Highway, Port Vila, Vanuatu’ and the E-mail address ‘pkf@vanuatu.com.vu’.  For the purposes of the motion presently before the Court it is reasonable to infer that ‘the Constitution that our firm uses’ to which Mr Agius referred in his letter of 26 January 2008 was the same form of Constitution as used for Iron Ore Sales and Management (HK) Ltd.

  48                        The Constitution of Iron Ore Sales and Management (HK) Ltd included the following:

  ‘…

  RESTRICTIONS ON OPERATIONS

  5.…

     (2)    The Company is an International Company and accordingly shall not, except as may be permitted by the Act:-

   

  (a)       carry on business in Vanuatu or own an interest in immovable property situate in Vanuatu other than a lease of premises from which to carry on its business;

  …

   

    (3)     For the purposes of subparagraph (2)(a) the Company shall not be treated as carrying on business in Vanuatu by reason only that it –

   

  (a)       carries on business with another company incorporated under the Act or in furtherance of the business of the Company carried on outside Vanuatu;

   

  (b)       leases premises from which to carry on its business as permitted by the Act;

   

  (c)        makes or maintains deposits with a person licensed to carry on banking business in Vanuatu;

   

  (d)       obtains professional services from its registered agent, counsel, attorneys, accountants, bookkeepers, trust companies, management companies, investment advisers, insurance brokers or agents or other similar persons carrying on business within Vanuatu;

   

  (e)        prepares or maintains its books or records within Vanuatu;

   

  (f)        holds meetings within Vanuatu of its directors or members;

   

  (g)       holds shares, debt obligations or other securities in a company incorporated under this Act or under the Companies Act; or

   

  (h)       issues shares, debt obligations or other securities to any person resident in Vanuatu or any company incorporated under this Act or under the Companies Act.

   

  TYPE OF COMPANY

   

  6.(1)    The Company is limited by guarantee.

   

    (2)     Each member undertake to contribute to the assets of the company in the event of it being wound up while he is a member or within 3 months after he ceases to be a member, for payment of the debts and liabilities of the Company contracted before he ceases to be a member, and of the costs, charges and expenses of winding up, and for adjustment of the rights of contributories amongst themselves, such amount as may be required, not exceeding US$5.00.

   

  INTERPRETATION

  7.…

   

    (3)     In this Constitution:

   

  (a)       “the Appointor” means the individual nominated as such by instrument in writing signed by the Incorporator or Incorporators of the Company and deposited at the registered office of the Company dated of even date with this Constitution.  The Appointor may by notice in writing nominate a successor who shall thereupon be the Appointor, provided this nomination is confirmed in writing by both the Registered Agent and the Guardian.  Should any such Appointor die or otherwise become incapable of acting before nominating a successor, the Registered Agent is empowered to appoint a person to the office of Appointor provided this appointment is confirmed in writing by the Guardian.  The Appointor may be removed from office by notice in writing signed by both the Registered Agent and Guardian.

   

  (b)       “the Guardian” means the individual nominated as such by instrument in writing signed by the Incorporator or Incorporators and deposited at the registered office of the Company dated of even date with this Constitution.  The Guardian may by notice in writing nominate a successor who shall thereupon be the Guardian, provided this nomination is confirmed in writing by the both (sic) the Registered Agent and the Appointor.  Should any such Guardian die or otherwise become incapable of acting before nominating a successor, the Registered Agent is empowered to appoint a person to the office of Guardian, provided this appointment is confirmed in writing by the Appointor.  The Guardian may be removed from office by notice in writing signed by both the Registered Agent and the Appointor

  …

  PROFITS

  11.       The profits of the Company shall not be distributed in any way among the members of the Company but shall be accumulated as an accretion to the reserves of the Company.

  …

   

  REGISTERED OFFICE AND AGENT

  12.(1)  The Company shall at all times have a registered office and registered agent in Vanuatu.

   

     (2)    The directors may by resolution change the registered office or registered agent of the Company.

     …

   

  APPOINTMENT, TERM AND REMOVAL OF DIRECTORS

  13.(1)  The first directors shall and any subsequent directors may be appointed by the members for such term as they may determine.

  …

   

     (3)    The office of a director shall be vacated if:

   

  (a)       he is removed from office by a resolution of the members or of the directors (sic) of the Company;

   

  (b)       in the case of the (sic) corporate director, it enters liquidation or it ceases to be a body corporate;

  …

   

     (5)    Until directors are appointed, the Incorporators shall have the power to act as directors.

  …

   

  ADMISSION TO MEMBERSHIP

  29.(1)  Each Incorporator of the Company shall be a member of the Company until such other persons are admitted to membership in accordance with this Constitution at which time the Incorporator or Incorporators shall cease to be members unless their membership is approved in writing by the Appointor and confirmed in writing by the Guardian.

  …

   

  DURATION OF COMPANY

  50.(1)  The duration of the Company shall be until the later of the following:

   

  (a)       the date, if any, specified in any instrument signed by the Appointor and confirmed in writing by the Guardian and delivered to the Company, upon which date the company shall be dissolved; or

   

  (b)       the date the Company is wound up or struck off in accordance with the Act.

   

     (2)    Upon the date specified in subparagraph (1)(a) above, the directors shall forthwith proceed to convene a meeting of the members for the purpose of adopting a resolution requiring the Company to be wound up voluntarily in accordance with Part 12 of the Act.

     …

   

  WINDING UP

  52.       On a winding up of the Company, after payment of the expenses of winding up and all of the creditors of the Company, the surplus assets of the Company (including any accumulated profits of the Company) shall be applied in paying to all of the members divided between them no more than the sum of US$5.00 and the members of the Company shall have no further right to participate in the surplus assets aforesaid which shall be disposed of by the liquidator to such person or persons (other than the Appointor) in such amounts and in such manner as the Appointor by instrument of instruments (sic) in writing signed by the Appointor and confirmed by the Guardian, and delivered to the Company, shall appoint but if the Appointor and/or the Guardian shall not have made any such appointment and/or confirmation, or insofar as any such appointment and/or confirmation shall not extend to the whole of the surplus assets of the Company or in default of the aforesaid power of appointment being exercised within 20 years, of the date upon which the Company was put into liquidation, the surplus assets aforesaid shall be the date upon which the Company was put into liquidation (sic), the surplus assets aforesaid shall be disposed of by the liquidator by paying them over to the International Committee of the Red Cross, Geneva, Switzerland.

  …’

   

  49                        The third respondent was incorporated as Lemke Ltd, an International Company limited by Guarantee under the International Companies Act No. 32 of 1992 of the Republic of Vanuatu on 22 November 1999 and changed its name on the same day to IFTC Broking Services Ltd.

  50                        It would appear that as at 7 June 2000 the third respondent had as a director Astrolabe Limited.  On that day Mr Andrew Neill appears to have signed a letter on behalf of Astrolabe Limited, as ‘director of IFTC Broking Services Limited’ to the Manager of Commonwealth Securities Limited in Sydney.  The address shown on the letterhead was ‘Moore Stephens House, Kumul Highway, Port Vila, Vanuatu, South Pacific’.

  51                        By letter dated 12 October 2005 the fifth respondent whose registered address was shown as ‘1^st Floor, PKF House, Lini Highway, Port Vila, Vanuatu’, wrote to the New Accounts Department at ANZ Bank (Vanuatu) Limited forwarding certain documentation to open an AUD Bank Account for Iron Investments Ltd.  The ‘Company Account Authority’ which was forwarded to the bank included a form entitled ‘Authority for Operations’ which included:

  ‘In accordance with a resolution of the Board of Directors of the company held on 04/10/05, authority has been given to any of the persons whose specimen signatures appear below …

   

  ANY TWO OF THE ASTROLABE LTD AUTHORISED SIGNATORIES TO SIGN JOINTLY.

  …’

   

  Against the words ‘Specimen signature’ the words ‘see attached list’ were added.  The Authority for Operations had applied to it a stamp reading

  ‘Astrolabe Limited, Director

  by its authorised signatory’

   

  against which the signature of Mr Iain D. Johns appeared.  It also bore the stamp

  ‘Astrolabe Nominees Limited – Secretary’

  By its authorised signatory’

   

  against which the signature of Kelly Fawcett appeared.  The attached list bore the heading

  ‘ASTROLABE LIMITED

  AUTHORISED SIGNATORIES’

   

  Under that heading a series of typed names appeared with a signature placed against each name.  The names of the authorised signatories were Robert F. Agius, Andrew Neill, Iain D. Johns, Allan J. McLeish, Kelly Fawcett and Neil G. Fontin.

  52                        Mr Sophocles gave evidence that he received instructions for the third respondent and the fifth respondent in the current proceedings from Andrew Neill, Kelly Fawcett and Robert Agius.  Mr Sophocles said that Ms Fawcett was described as ‘a manager’.  He believed her to be a resident of Vanuatu.

  53                        On 6 June 2007 the fifth respondent wrote a letter to a Sydney stockbroker BBY Limited under the heading ‘Iron Investments Limited (Formerly IOS Management Ltd)’.  That letter was signed:

  ‘Astrolabe Limited (Director)

  By its authorized Signatories’

   

  followed by the signatures of Kelly Fawcett and Iain D. Johns.

  54                        The evidence included minutes of a meeting of the Incorporators of Iron Ore Sales and Management (HK) Ltd held at PKF House, Lini Highway, Port Vila, Vanuatu on 10 November 2004.  Those present were shown as Diana Garae and Jenny Albert.  The minutes included a note that the first ‘Registered Agent’ appointed by the Constitution (sic) was ‘International Finance Trust Company Ltd [the fifth respondent] of PKF House, Lini Highway, Port Vila, Vanuatu’.  It was resolved that such appointment ‘be and is hereby confirmed’.

  55                        Under the heading ‘DIRECTOR’ a resolution was recorded as follows:

  ‘RESOLVED THAT Astrolabe Limited be and is hereby appointed the first director of the company.’

   

  Against the heading ‘SECRETARY’ a resolution was recorded as follows:

  ‘RESOLVED THAT Astrolabe Nominees Limited be and is hereby appointed Secretary to the Company.’

   

  Against the heading ‘MEMBERS’ the following was recorded:

  ‘IT WAS NOTEDthat pursuant to section 6 of the International Companies Act, Diana Garae and Jenny Albert as incorporators are from the date of incorporation deemed to be members of the company’

   

  Against the heading ‘APPOINTOR’ the following appeared:

  ‘IT WAS NOTEDthat Robert F. Agius of PKF House, Lini Highway, Port Vila, Vanuatu had been nominated by the Incorporators as Appointor in accordance with paragraph 7(3)(a) of the Constitution’

   

  Then, against the heading ‘GUARDIAN’ the following appeared:

  ‘IT WAS NOTEDthat Andrew Neill of PKF House, Lini Highway, Port Vila, Vanuatu, had been nominated by the Incorporators as Guardian in accordance with paragraph 7(3)(b) of the Constitution’

   

  56                        The foregoing records do not provide much detail in respect of the third and fifth respondents.  However they do give a clear indication as to the manner in which PKF in Vanuatu operated and the apparent involvement of Astrolabe Limited as a corporate director and of Astrolabe Nominees Limited as a corporate secretary of various corporate entities.

  57                        The 12 October 2005 letter sent by the fifth respondent to the New Accounts Department at ANZ Bank (Vanuatu) Limited was signed by Mr Iain Johns and not simply by him as an authorised signatory of Astrolabe Limited.

  58                        On 6 February 2006 the first respondent completed a ‘Memorandum of Wishes’ which was directed to ‘The Director’ of the fifth respondent.  The first respondent’s signature on that document was witnessed by his solicitor, Mr Martin Woods of Sydney.  The Memorandum of Wishes related to Iron Investments Limited.  Relevantly, it confirmed the first respondent’s wishes as follows:

  ‘1.        This Memorandum is intended for the guidance of you and any subsequent director or directors.  It has no legal effect and it is not intended in any way to fetter the powers vested in you under the constitution of the said Company [Iron Investments Limited]  Furthermore, it may be revoked by me by another Memorandum at any time during my lifetime and thereafter by my legal personal representative or representatives.

   

  2.         During my lifetime:

   

  (a)        The income of the Company should be dealt with as I may from time to time recommend.  In the absence of any recommendation you should accumulate it; and

   

  (b)        Distributions should be made out of the company only after consultation with me or persons authorised by me.

  …’

  
  

  [cf Clause 11 of the Constitution of Iron Ore Sales and Management (HK) Ltd]

   

  59                        The Memorandum of Wishes proceeded as if it were a will recording ‘my present wish’ that ‘[u]pon my death’ ‘The Director’ of the fifth respondent should stand possessed of the assets of Iron Investments Limited and the income thereof for each of the following (eligible) ‘beneficiaries’ in the proportions indicated in a table which was then incorporated in the ‘Memorandum of Wishes’.

  60                        By a letter dated 19 May 2006 the fifth respondent wrote to Commonwealth Bank of Australia ‘Re: IFTC Broking Services Limited A/c 10980897’.  The letter was signed for the fifth respondent by Allan J McLeish, Andrew Neill and Kelly Fawcett as authorized signatories.  The letter sought the payment out of the account of the third respondent of $A92,709.27 to ‘Rick Damelien Prestige Sales’ under reference ‘Payment for MGG Capital [MGG Capital Pty Ltd as trustee for Webtel Management Super Fund is the fourth respondent]’.

  61                        By the letter dated 6 June 2007 the fifth respondent thanked BBY Limited for effecting a sell order of 300,000 shares in Murchison Metals Ltd at $4.15.  The letter requested the issue of a contract note.  The letter was written under the heading ‘Iron Investments Limited (Formerly known as IOS Management Ltd)’ as indicated above.  A request was made that the proceeds of sale be remitted to ANZ Banking Group (NZ) Limited in Auckland New Zealand for credit to the account of the fifth respondent No 295659-AUD-00001 (one of the ten bank accounts referred to above – in fact at ANZ National Bank Limited).

  62                        On 17 October 2008 Robert Stewart, a partner in Izard Weston Lawyers, a New Zealand solicitor for the fifth respondent, sent an email to Aaron.Lyne@anz.com under the heading ‘International Finance Trust Company Limited’.  In the email Mr Stewart wrote:

  ‘I understand the original NSW restraining order has been set aside and that registration of the order in New Zealand will be cancelled by the New Zealand High Court within the next few days.

   

  Once that occurs, my client’s understanding is that a number of its accounts that are currently restrained by operation of the registration of the original NSW order in New Zealand will become “unrestrained”.  Once the accounts are unrestrained my client wishes to issue certain instructions to the bank regarding the transfer of funds.

   

  Accordingly, my client has requested that I contact the bank to obtain confirmation of the procedure required to effect such transfers.  In particular, will the bank accept faxed instructions from authroised (sic) signatories for transfers of sums less than NZ$1,000,000 in value, or will signed originals be required?

  …’

   

  63                        The applicant relies upon this communication as indicative of the fifth respondent’s position and the desire of those who may have funds held by the fifth respondent to have such funds dissipated.

  64                        On 12 November 2008 Atanaskovic Hartnell Lawyers, the Sydney solicitors for the third and fifth respondents, wrote to the Commonwealth Attorney-General’s Department requesting that it ‘issue a request to the Attorney-General of New Zealand to cancel [certain restraining orders registered in the High Court of New Zealand] forthwith’.

  65                        On 19 December 2008 orders were made by A D MacKenzie J, which were entered on 22 December 2008, in the High Court of New Zealand, Wellington.  Those orders cancelled the registration of two earlier foreign restraining orders made by the Supreme Court of New Zealand on 13 and 16 May 2008 which had been registered by the High Court of New Zealand on 21 and 22 May 2008 respectively (and varied by order dated 16 June 2008).  However, his Honour also registered in New Zealand a new foreign restraining order made by the Supreme Court of New South Wales on 25 October 2008 in relation to the ten New Zealand bank accounts in the name of the fifth respondent that were referred to above.

  66                        In the foregoing circumstances, the question is what, if any, relief should the Court grant?

  67                        In due course the Commissioner may be able to seek assistance in the collection of tax that is said to be due by the first, second, third and/or fourth respondents, pursuant to Article 27 of Schedule 4 to the International Tax Agreements Act 1953 (Cth) (see, in particular, clauses 1 and 3 of Article 27).

  68                        The applicant presses for what one might call ‘belt and braces’ freezing orders in respect of the assets of the third and fifth respondents, notwithstanding that he already has the derivative benefit of the orders made by the High Court of New Zealand on 19 December 2008 and entered on 22 December 2008 on the application of the Solicitor-General for New Zealand pursuant to ss 56 and 58 of the Mutual Assistance in Criminal Matters Act 1992 (New Zealand) which were founded upon orders made on 25 October 2008 by Hislop J in proceedings brought by the New South Wales Crime Commission in the Supreme Court of New South Wales.  The orders of the High Court of New Zealand were made in proceedings in which the respondents included the fifth respondent, the second respondent and the first respondent to the Notice of Motion presently before this Court and also the New Zealand banks, namely, ANZ National Bank Limited and Bank of New Zealand.

  69                        The applicant also has the benefit of the undertakings given to the Court by the third and fifth respondents to the current Notice of Motion as noted above. 

  70                        Just as freezing orders, if made, would operate as a very tight ‘negative pledge’ species of security over property, to which the contempt sanction is attached, like sanctions would be available were the undertakings to this Court breached.

  71                        As yet no money judgments have been obtained by the applicant although applications for summary judgment against the first, second, third and fourth respondents are presently listed for hearing on 13 July next.

  72                        It appears that both the third respondent and the fifth respondent are foreign companies incorporated in Vanuatu.  They each appear to have a sole corporate director although that corporate director acts by a variety of ‘authorized signatories’. 

  73                        It seems to me that those who act or have acted as directors, officers, servants or agents of the third respondent and/or the fifth respondent are as much at risk under the undertakings that have been given to the Court as they would be under freezing orders that may be made in respect of the assets of the third and fifth respondents at this stage.

  74                        The fifth respondent is, of course, not a party against whom the applicant seeks to obtain any money judgment.

  75                        In the exercise of my discretion, I do not consider that further freezing orders should be made in respect of the assets of the third and fifth respondents at this stage.  I am mindful of the terms of Mr Stewart’s email to Aaron Lyne of 17 October 2008, but, since then another restraining order has been made which has been registered in the High Court of New Zealand, the third and fifth respondents have each appeared unconditionally in these proceedings and they have each given undertakings to this Court in the terms indicated above.

  76                        In my opinion, the applicant’s application for prayers for relief 4 and 6 in the Notice of Motion filed 11 May 2009 should, in all the circumstances, be dismissed.

  77                        However, given the progression of the matter, and the timing of the giving and amplification of the undertakings to the Court by the third and fifth respondents, I consider that the third and fifth respondents should, nevertheless, be ordered to pay one quarter of the applicant’s costs of the motion.  It will be appreciated that the costs of the motion as between the applicant and the second respondent have been reserved, as have the costs of the motion as between the applicant and the first and fourth respondents. 

  78                        I will delay the implementation of the order as to costs which I have proposed, to allow oral submissions thereon to be made, should any of the applicant, the third respondent or the fifth respondent wish to do so, within the next 7 days.  In that regard I reserve liberty to apply.

   

  I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.

  
  

  Associate:

  
  

  Dated:         9 July 2009

  
  

  Counsel for the Applicant:	D B McGovern SC and A J O'Brien
  Solicitor for the Applicant:	Australian Government Solicitor
  Counsel for the Third and Fifth Respondents:	G J Jones and G A F Connolly (on 19 May 2008 alone)
  Solicitor for the Third and Fifth Respondents:	Antanaskovic Hartnell

  
  

  Dates of Hearing:	19, 20 and 22 May 2009 and 1 and 5 June 2009
  Date of Judgment:	9 July 2009