FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Greenfield Electrical Services Pty Ltd [2016] FCA 653

ORDERS

THE COURT ORDERS THAT:

1.    Order 2 of 2 June 2016 is varied to read as follows: A freezing order up to and including 12:00pm on Friday, 10 June 2016 against the First Respondent in the terms specified in Annexure A to the short minutes of order dated 2 June 2016.

2.    Order 3 of 2 June 2016 is varied to read as follows: A freezing order up to and including 12:00pm on Friday, 10 June 2016 against the Second Respondent in the terms specified in Annexure B to the short minutes of order dated 2 June 2016.

3.    Order 4 of 2 June 2016 is varied to read as follows: A freezing order up to and including 12:00pm on Friday, 10 June 2016 against the Third Respondent in the terms specified in Annexure C to the short minutes of order dated 2 June 2016.

4.    Order 5 of 2 June 2016 is varied to read as follows: A freezing order up to and including 12:00pm on Friday, 10 June 2016 against Riverlow Pty Ltd in the terms specified in Annexure D to the short minutes of order dated 2 June 2016.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    Presently before the Court is an ex parte application made by the Deputy Commissioner of Taxation seeking freezing orders as against:

    Greenfield Electrical Services Pty Ltd (“Greenfield”);

    Mr Brian Greenfield;

    Mrs Virginia Greenfield; and

    Riverlow Pty Ltd, as trustee for the Greenfield Superannuation Fund.

Greenfield was incorporated in June 1999 and from about 2001 Mr and Mrs Greenfield have conducted their electrical business through that corporate entity.

2    Filed in Court yesterday was an Originating Application. The Respondents to that Originating Application are Greenfield (as First Respondent) and Mr and Mrs Greenfield (as Second and Third Respondents respectively).

3    The present interlocutory application is made against the backdrop of the Australian Taxation Office (the “ATO”) having conducted an audit of Greenfield and Mr and Mrs Greenfield commencing in September 2014. Initially that audit was confined to the financial years ending June 2012 and June 2013. The ambit of that audit has recently been expanded to the financial years from 2007 to 2011. The ATO has formed the view that there has not been the disclosure of assessable income and that (inter alia) deductions have been claimed which are not allowable. Other transgressions are also believed to have occurred. The present interlocutory application is also made against the backdrop of Amended Assessments having been issued on 30 and 31 May 2016, and the backdrop of proposed assessments in respect to the imposition of administrative penalties. The quantum of the assessments and proposed penalties is not insignificant and may be summarised as follows:

These amounts total $3,694,681.19, namely the limit imposed in the freezing orders as made.

The source of the power to make the orders

4    The source of this Court’s powers to make the orders sought is to be found in rr 7.32 and 7.35 of the Federal Court Rules 2011 (Cth).

5    Rule 7.32 provides as follows:

Freezing order

(1)    The Court may make an order (a freezing order), with or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.

(2)    A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.

Rule 7.32, it will be noted, provides that an order may be made “without notice…”.

6    Rule 7.35 provides as follows:

Order against judgment debtor or prospective judgment debtor or third party

(1)    This rule applies if:

(a)    judgment has been given in favour of an applicant by:

(i)    the Court; or

(ii)    for a judgment to which subrule (2) applies—another court; or

(b)    an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in:

(i)    the Court; or

(ii)    for a cause of action to which subrule (3) applies—another court.

(2)    This subrule applies to a judgment if there is a sufficient prospect that the judgment will be registered in or enforced by the Court.

(3)    This subrule applies to a cause of action if:

(a)    there is a sufficient prospect that the other court will give judgment in favour of the applicant; and

(b)    there is a sufficient prospect that the judgment will be registered in or enforced by the Court.

(4)    The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur:

(a)    the judgment debtor, prospective judgment debtor or another person absconds;

(b)    the assets of the judgment debtor, prospective judgment debtor or another person are:

(i)    removed from Australia or from a place inside or outside Australia; or

(ii)    disposed of, dealt with or diminished in value.

(5)    The Court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a third party) if the Court is satisfied, having regard to all the circumstances, that:

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

(i)    the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or

(ii)    the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or

(b)    a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.

(6)    Nothing in this rule affects the power of the Court to make a freezing order or ancillary order if the Court considers it is in the interests of justice to do so.

Rule 7.35, it will be noted, expressly provides for:

    the making of an order in respect to a “prospective cause of action” and an order against a “prospective judgment debtor”; and

    the making of an order against “another person”.

7    In considering the ambit of the power conferred by these provisions, and the manner of exercise of the power, it is important to recall that:

    the “purpose of such an order is to protect the processes of the Court from abuse not to provide security for the applicant for such an order”: Elderslie Finance Corporation Ltd v Newpage Pty Ltd [2007] FCA 61 at [14] per Stone J;

    the making of an order effects a substantial encroachment on a person’s basic right and freedom to deal with property: KGL Health Pty Ltd v Mechtler [2007] FCA 1410 at [12]; and

    “the justice of the case may require that injunctive relief be granted even before the cause of action arises”: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 329 per Gleeson CJ.

It is also to be recalled that:

    the requirement imposed by r 7.35(1)(b) that an applicant have a “good arguable case” is “one which is more than barely capable of serious argument and yet not necessarily one the judge considers would have better than a fifty per cent chance of success”: Curtis v NID Pty Ltd [2010] FCA 1072 at [6] per Edmonds J;

    the “danger” referred to in r 7.35(4) and (5) “does not mean that the court need be satisfied that the risk of dissipation is more probable than not; and there does not necessarily need to be evidence of any intention to dissipate”: Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 4) [2012] FCA 1064 at [22], (2012) 90 ATR 711 at 717 per Perram J. See also: Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014 at [8] to [10] per Kenny J; and

    the making of an order involves a discretionary exercise of power – even if the requirements imposed by r 7.35 are satisfied, the court nevertheless retains a discretion to refuse relief: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321 to 322 per Gleeson CJ.

The facts of the present case

8    On the facts of the present case, it has been concluded that the Applicant has made out a “good arguable case” in respect to both the existing cause of action founded upon the existing amended assessments (being those issued on 30 and 31 May 2016) and a “good arguable case” in respect to a prospective cause of action, namely the cause of action to be founded upon the assessments to be made in respect to the imposition of administrative penalties.

9    It has been further concluded that there is a “danger” that assets will be dissipated – and that the Court’s processes may be frustrated – if an order is not made. That conclusion is founded upon:

    the fact that there has been in the past a lack of candour on the part of the taxpayers or a lack of willingness to readily disclose the extent of their assets (as is exposed by the fact that a statement of the assets and liabilities of Mr and Mrs Greenfield lists as assets a series of land holdings, whereas a revised statement of assets and liabilities discloses a further asset in the form of “precious metals” having a stated value of $636,800);

    the fact that there appears to have been an attempt to conceal assets, namely the gold and silver;

    the fact that there has been in the past, at the very least, an attempt to conceal the true nature of transactions (as is exposed by the fact that Commonwealth Bank statements for Mr Greenfield in June 2013 expose a series of withdrawals of amounts of money with the notation that such withdrawals were in respect to “bedrock excavation”; “endeavour mats” and “Gordon macs mats” whereas it would appear that such monies were withdrawn for the purpose of buying gold in the form of “Kangaroo gold coin” in the sum of $402,022.50). It is noted that Mr Greenfield more recently has apparently sought to substantiate these withdrawals during an examination conducted on 26 and 27 April 2016 maintaining that Bedrock Drilling; Endeavour Energy and Gordon Macdonald Pty Limited were suppliers of goods or services to Greenfield;

    the fact that the transactions in June 2013 seem not to be an isolated event (as is exposed by a similar series of withdrawals on 17 and 18 September 2012 from the same bank account with a notation that such withdrawals were for “Endeavour Energy”, “Mat Q”, and “GKN” and a corresponding purchase of a “silver bar, 1 kilo Perth mint” in the sum of $55,900); and

    the fact that there has been an apparent lack of both candour and voluntary disclosure of information in dealings between the taxpayers (and their accountant) and the ATO throughout 2015.

The affidavit material filed on behalf of the Deputy Commissioner details a far more extensive range of concerns evidencing tax anomalies. Such findings of fact as have been made, it should nevertheless be noted, have been made solely for the purposes of the present interlocutory application and without the benefit of hearing from those most affected. At a final hearing further evidence may well emerge, and such evidence as has presently been relied upon may be reviewed in far greater detail than is appropriate at an interlocutory hearing.

The exercise of discretion

10    Notwithstanding the urgings advanced by Senior Counsel for the Applicant that it would be a most unusual exercise of discretion (having made the above findings) to refuse relief, it was not understood that a submission was advanced that there nevertheless did not reside in the Court a residual discretion to refuse to do so.

11    The exercise of the discretion in the present case, it must be recognised, has not proved an easy task.

12    Every case must necessarily depend upon its own facts and circumstances and the present case should certainly not provide any encouragement to the Deputy Commissioner of Taxation to seek a freezing order against a taxpayer merely because of a general apprehension that a taxpayer may make the enforcement of any judgment founded upon an assessment more difficult.

13    Notwithstanding considerable misgivings, it has been concluded that the discretion should be exercised favourably to the Deputy Commissioner by reason of the fact that:

    the quantum of the amended assessments and the proposed assessments is quite considerable, especially when measured against the known assets of the taxpayers;

    there is a real danger that assets may be dissipated in the absence of an order being made;

    the scope of the assets the subject of the freezing orders is confined to no more than the quantum of the amended assessments and proposed assessments;

    allegations of deliberate evasion and dishonesty have only recently come to the attention of the taxpayers; and

    the audit period being extended to the years 2007-2011 has also only recently come to the attention of the taxpayers.

An earlier reservation founded upon the taxpayers not having taken any steps in the past to dissipate their assets notwithstanding an audit which commenced in September 2014 and an interview in February 2016, is sufficiently answered by the taxpayers only far more recently being informed of the extent of the allegations now levelled against them, and the more extensive periods of time over which their affairs will now be scrutinised.

The making of ancillary orders

14    The orders proposed by the Deputy Commissioner also included proposed ancillary orders requiring the provision of information.

15    It has been concluded that those ancillary orders should not be made, at least at present.

16    The freezing orders that will be made are to be served by no later than midday tomorrow and will expire at midday on Friday 10 June 2016. Any application for the making of ancillary orders can be made at the same time as any application to extend the freezing orders. By that time the taxpayers will have been served and will be afforded an opportunity to be heard.

CONCLUSIONS

17    Freezing orders should be made, but not the ancillary orders as sought by the Deputy Commissioner.

18    It should be noted that in between giving ex tempore reasons for decision yesterday and this afternoon, Short Minutes of Orders were made and entered for the making of orders in accordance with the form of freezing order annexed to the Originating Application. But those annexures included the ancillary orders. Those orders should thus be set aside and orders now made for freezing orders in a form which deletes any requirement to provide information.

THE ORDERS OF THE COURT ARE:

1.    Order 2 of 2 June 2016 is varied to read as follows: A freezing order up to and including 12:00pm on Friday, 10 June 2016 against the First Respondent in the terms specified in Annexure A to the short minutes of order dated 2 June 2016.

2.    Order 3 of 2 June 2016 is varied to read as follows: A freezing order up to and including 12:00pm on Friday, 10 June 2016 against the Second Respondent in the terms specified in Annexure B to the short minutes of order dated 2 June 2016.

3.    Order 4 of 2 June 2016 is varied to read as follows: A freezing order up to and including 12:00pm on Friday, 10 June 2016 against the Third Respondent in the terms specified in Annexure C to the short minutes of order dated 2 June 2016.

4.    Order 5 of 2 June 2016 is varied to read as follows: A freezing order up to and including 12:00pm on Friday, 10 June 2016 against Riverlow Pty Ltd in the terms specified in Annexure D to the short minutes of order dated 2 June 2016.

Associate:

Dated:    2 June 2016