Federal Court of Australia

Yu v Commissioner of Taxation [2026] FCA 1344

ORDERS

THE COURT ORDERS THAT:

1. The Applicants’ amended interlocutory application is dismissed.

2. The Applicants pay the Respondent’s costs of this interlocutory application to be assessed or agreed.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

WHEATLEY J:

Introductory Overview

1 The taxpayer Applicants bring an interlocutory application seeking an alteration to freezing orders which have been made in VID112/2022 and VID716/2022, which are related proceedings.  Initially, the application was only brought in these proceedings, QUD431/2023 and QUD433/2023, being the taxation appeals against certain amended assessments of the Commissioner of Taxation.  The Commissioner had earlier brought debt recovery proceedings, being the VID112/2022 and VID716/2022 proceedings (debt recovery proceedings).  Judgments have been entered in the debt recovery proceedings as follows, as against:

(a) Ms Yumei Yu for $1,385,880.38;

(b) Hongtaifu Pty Ltd as trustee for the Sunshine Family Trust in the amount of $6,931,493.79;

(c) Dingsheng Fortune Pty Ltd as trustee for the Yuanda Property Trust in the amount of $6,611,308.93;

(d) Songbo Pty Ltd as trustee for the Dongyuan Property Trust in the amount of $1,949,283.97;

(e) Mr Xue Qian Liang in the amount of $1,029,667; and

(f) Hongji Caijin Pty Ltd in the amount of $2,932,031.01.

2 Leave was granted to amend this interlocutory application in two respects, which was not opposed.  First, that the application should also be brought in the debt recovery proceedings, those being the proceedings in which the freezing orders have been made.  Second, to remove the reference to being able to “sell” or to the “sale proceeds”, in the application.

3 As amended, the interlocutory application relevantly sought the following:

1.    Under the freezing orders of Justice Murphy dated 7 March 2022 in Proceedings VID 112/2022 and freezing orders of Justice Bromberg dated 7 December 2022 in Proceedings (sic) 716/2022 the Applicants be permitted to mortgage or sell the restrained assets listed below to obtain an advance and / or sale proceeds up to the sum of $2,400,000.00 (Funds) for payment of legal expenses incurred in connection with the Proceedings QUD431/2023 and QUD433/2023.

Properties

a)    27 Pepperell Avenue, Glen Waverley, Victoria, 3150

b)    6 Eldale Avenue, Greensborough, Victoria, 3087

2.    The Funds be paid into the trust account of the solicitors for the Applicant and only be drawn upon to meet the legal expenses incurred by the Applicants in these proceedings.

4 I have deliberately described the application as one seeking an alteration and not a variation, as I accept the Applicants’ submission that they do not need to establish a change in circumstances.  The alteration was sought to ensure that there were funds available to meet the reasonable legal expenses of the Applicants in the Part IVC proceedings, being the taxation appeals which are set for trial.  No issue was taken by the Commissioner with the quantum of the estimate of the reasonable legal expenses and as such I will proceed on the basis that the estimate is reasonable.

5 By way of summary, the Commissioner contends that the Applicants have not sufficiently established that they do not have recourse to other assets in New Zealand which are not the subject of the freezing orders and which could be used to pay their reasonable legal expenses.  The Applicants submit that they do not bear any onus as contended by the Commissioner; however, if they do, they submit it has been discharged.  The New Zealand properties, it is contended, are the subject of a security interest to Mr Zhao, who has lent money to one or other of the Applicants.  As such, the Applicants submit that the New Zealand properties cannot be otherwise encumbered to raise funds for the legal expenses.

6 It is important to keep in mind that this is an interlocutory application, and it is not appropriate or necessary to finally resolve any of the substantive issues in dispute.  The observations made in the course of these reasons are only for the purposes of this application and only for determining the two issues which need to be resolved on this application.  It is also important in this context, as was submitted by the Applicants, that Mr Liang was not required for cross-examination; that is, the Applicants submit his evidence is unchallenged.

7 The two issues which need to be resolved then are as follows:

(1) do the Applicants bear an onus to establish that they have no other assets out of which the reasonable legal expenses could be paid?; and

(2) if so, have they evidentially satisfied that requirement?

What Must The Applicants Establish?

8 The Applicants submitted that I would not follow the decision relied on by the Commissioner in Deputy Commissioner of Taxation v Karas [2011] VSC 673 (Bell J), as that court was effectively applying the test for a variation of freezing orders and, hence, required a change of circumstances.  The court in Karas does not mention or use the phrase “change in circumstances” in the decision; that is telling.  Although Bell J does describe the application as seeking a variation of a freezing order, it was expressly recognised that the terms of the alterations sought in Karas were within an intended purpose and a known exception of those freezing orders.

9 Further, Karas is not the only authority relied on to support the proposition that on an application by the parties the subject of a freezing order which includes exceptions for the assets to be used for permitted purposes, those parties must satisfy the court that they have no other assets out of which those permitted expenses could be paid.  In Karas, it was observed by Bell J at [6] that the submission was that the defendant technically did not need the court’s permission for the intended transactions to take place, those transactions being the payment of reasonable legal expenses.

10 The need for the court’s express permission in Karas was recorded as being one because the bank of the defendants had required such permission.  The exceptions in the freezing order in Karas expressly permitted the use of the assets frozen for ordinary living expenses, reasonable legal expenses and in the ordinary and proper course of business.  At [10], however, Bell J observed that it was relevant in those circumstances to take into account whether the defendants had access to other sources of funds for those purposes.

11 Bell J observed at [11]:

…that conclusion follows from the purpose of a freezing order, which is to protect the processes of the court. Because that is the purpose of a freezing order, the court is always concerned with the scope and the preservation of the assets of the defendant. As to the scope of the defendant’s assets, freezing orders usually require them to swear an affidavit disclosing all of their worldwide assets.

12 It is in that context that the Applicant taxpayers the subject of the freezing orders must establish that they have no other source of funds on which they can draw.  In this regard, also see Karas at [12], [13] and [19].

13 Relevant to this issue is also the decision of Phillips J in Commissioner of Taxation v Manners and Terrule Pty Ltd (No 2) (1985) 81 FLR 131 where his Honour set out the principles to be applied at 134:

I turn now to the principles to be applied in deciding this application. In A v C (No 2), reported at [1981] 1 QB 961, an application by two defendants for variation of a Mareva injunction, Robert Goff J held that, since the defendants had failed to adduce evidence to show they had no other assets, that is, assets not caught by the Mareva, out of which they could pay legal fees, the application would be dismissed. His Lordship expressly stated at 963 that “The defendants have not discharged the burden of proof which rests upon them”. Rogers J, an experienced judge of the Common Law Division of the Supreme Court of New South Wales, appears to take the same view in Australian Iron & Steel Pty Ltd v Buck [1982] 2 NSWLR 889:

“It has been submitted on behalf of the defendants that Lloyd J made no reference to such an onus of proof in deciding P C W (Underwriting Agencies) Ltd v Dixon [1983] 2 All ER 158. This was an application by a defendant for variation of a Mareva order so as to allow payment of reasonable living expenses and legal costs. But it was unnecessary in the circumstances of that case, for His Lordship to make any such reference. In that case, in contradistinction to the present one, the defendant did make an affidavit about his assets. Not only that, his evidence went unchallenged and as His Lordship remarked at 162, ‘There was no application to cross-examine the first defendant on his affidavit, although he was known by the plaintiffs to have been sitting in court throughout the hearing’.”

Geoffrey George Manners himself, furnished no evidence in the hearing. In my opinion, the other material provided no satisfactory evidence as to his assets in this connection.

14 This has also been followed in this Court by Besanko J in H&B Professional Tiling Pty Ltd (In Liquidation) v Haidari, in the matter of H&B Professional Tiling Pty Ltd [2024] FCA 207 at [21], referring there expressly to Phillips J’s decision and a decision of Austin J.  In Cogent Nominees Pty Ltd v Anthony [2003] NSWSC 804 at [12], Austin J described the position as follows:

12    The only issue before me is whether to vary the order so as to permit the applicants to have access to the proceeds of sale of the Cashel Street Property for their additional expenditure on legal expenses.  In my opinion, the applicants bear the burden of proving facts sufficient to persuade the Court to vary the existing Mareva order in the manner sought.  That proposition is supported, by analogy, by Commissioner of Taxation v Manners and Terrule Pty Ltd (1983) 81 FLR 131.  There, the plaintiff obtained Mareva orders preventing the defendants from dealing with certain assets, and the defendants sought to have the orders varied to allow them to pay legal fees.  Phillips J dismissed the application by the first defendant on the ground that he had failed to discharge the burden of proof to show that he had no other assets from which to pay legal fees.  Here the position is different because the Mareva order is expressed in general terms, rather than being directed to specific assets.  Nevertheless, the reasoning of Phillips J (especially at 134) supports the general proposition that the applicants bear the onus of showing that the amendment they seek is appropriate, and that it is needed (either because they have no other source of funds for legal expenses or because it would be unfair to require them to rely on any such other source).

15 In this regard, also see BCI Finances Pty Limited (in liq) v Binetter (No 7) [2018] FCA 1083 at [47]-[53] where Foster J considered the plaintiff’s submissions and the authorities relied on and then applied those principles at [57].

16 The Applicants do bear an onus to satisfy the Court that they have no other assets out of which those permitted expenses, being reasonable legal expenses, could be paid, and as such it is necessary to consider the second issue.

Other Available Assets

17 The Applicants primarily rely on two affidavits in support of this application.  The first affidavit is of the Applicants’ solicitor, which sets out the estimate of legal costs which will be incurred for the trial, annexes a letter from solicitors in New Zealand who act for Mr Zhao and provides the relevant correspondence as between the solicitors for the Applicants and the Commissioner.  As already observed, the quantum of reasonable legal expenses is not in dispute.  The second affidavit relied on is an affidavit of Mr Liang, dated 21 July 2026 (July Affidavit).

18 Evidence for the purposes of the taxation appeals has also been filed in the proceedings.  Relevantly, there is evidence which has been given by Mr Liang in his affidavit dated 28 November 2025 (Trial Affidavit).  This is a voluminous affidavit of more than 10,000 pages, including annexures.  Also, Mr Zhao has provided an affidavit dated 1 May 2026 in these proceedings, for the purposes of the trial (Zhao Affidavit).  There is some consistent evidence from each of Mr Liang and Mr Zhao, that Mr Zhao has lent money to Mr Liang and/or related entities from time to time, for various purposes.

19 The Applicants in their written submissions describe the New Zealand properties as being subject to a “security interest”.  There is no document produced to support this alleged security interest.  The Applicants rely on the July Affidavit of Mr Liang and the letter from the New Zealand solicitors on behalf of Mr Zhao as evidence to support that security interest said to have been created.  It is on the basis of that security interest which the Applicants then contend that there are no other assets or funds out of which the permitted reasonable legal expenses could be paid.

20 The Applicants submit that there is sufficient evidence to establish this security interest to Mr Zhao, a person who has lent money to Mr Liang and/or related entities.  It will be necessary to outline these loans in a little detail.  The Applicants did not seek to identify the kind of security interest it was, by way of an equitable mortgage or an equitable charge, and did not address the authorities in this regard as to whether the evidence would satisfy those elements:  see generally, Swiss Bank Corporation v Lloyds Bank Ltd [1981] 2 All ER 449; AC 584 at 594-595 (Buckley LJ, Brandon and Brightman LJJ agreeing).  That being, that the essence of a charge is that the property is made liable or specifically appropriated to discharge the debt or obligation.

21 Hence, it is necessary to specifically identify the debt and the property said to be so appropriated.  The intention of the parties said to create this security interest must be objectively ascertained.

22 Mr Liang, in his Trial Affidavit, has given evidence of the assets relevantly held during the period.  Relevantly, he gives evidence that such assets included the following:

(a) 150 Sandspit Road, Auckland, New Zealand;

(b) 3 Willoughby Avenue, Auckland, New Zealand; and

(c) 5 Willoughby Avenue, Auckland, New Zealand,

(the NZ Properties).

23 Mr Liang gives evidence in his Trial Affidavit that the two Willoughby Avenue properties are each the subject of a mortgage with ANZ Bank.  The amounts of those mortgages combined to lending on those properties of about NZ$2 million; however, each bank loan is separately identified.  The Sandspit Road property, in Mr Liang’s evidence, is not said to be the subject of a registered legal mortgage to a bank and was said to have been purchased in November 2016 for NZ$3.2 million.

24 The “Owner” is described by Mr Liang as the “NZ Sunshine Family Trust”.  The NZ Sunshine Family Trust is described as the owner of each of the NZ Properties.

25 In terms of the relevant assets held during the audit period that are real properties, Mr Liang in his Trial Affidavit then addresses the circumstances of each of the nine Australian properties in some detail from [185] to [236], however, Mr Liang does not give similar evidence in relation to the NZ Properties.

26 Mr Zhao has also given evidence for the purposes of the trial, being the Zhao Affidavit.  Mr Zhao describes four loans he says he made to the Applicants and/or related entities.  Mr Zhao does not give any evidence in the Zhao Affidavit of any alleged security interest he holds to secure any of the moneys lent from Mr Zhao.  In the July Affidavit (which was for the purposes of this application) Mr Liang expressly refers to this portion of his Trial Affidavit being the assets held during the audit period and describes the NZ Properties as being owned by NZ Hongtaifu Limited as trustee of the NZ Sunshine Family Trust.

27 Mr Liang deposes that (in relation to the NZ Sunshine Family Trust):

(a) he is the settlor of the trust and appointor under the relevant trust deed;

(b) he is the sole director and shareholder of NZ Hongtaifu Limited; and

(c) the discretionary beneficiaries under the relevant trust deed include himself, his wife and their child.

28 Mr Liang does not put into evidence the relevant trust deed, title documents or other relevant documents in relation to the NZ Sunshine Family Trust or the NZ Properties.  Mr Liang states, broadly, that the NZ Properties were purchased using the funds obtained from the ANZ Bank and funds obtained from the Zhao loans.

29 Mr Liang’s Trial Affidavit does not depose to the funds lent from Mr Zhao as being used to purchase the NZ Properties; neither does the Zhao Affidavit give evidence for the purposes of the trial that the funds lent were used to purchase the NZ Properties.

30 Mr Liang, in his July Affidavit, states that he has made some repayments to Mr Zhao.  He does not state, in his July Affidavit, the quantum of those repayments.  Mr Liang does state that he initially transferred some shares to Mr Zhao; however, these shares were transferred back on 4 July 2022.  The share transfer was said to provide some security for Mr Zhao.

31 Mr Liang then gives the following evidence in relation to the submitted security interest created.  No documents are annexed to the July Affidavit to support this claimed security interest.  Due to its importance, it is worth setting it out in full:

g    Mr Zhao did not require a second mortgage to be registered over the [NZ Properties] but sought and obtained my commitment that whilst no formal mortgage would be registered, the [NZ Properties] would be security for the Zhao Loans.. (sic)

h    Consequently in practical terms, [Mr Liang] cannot borrow against or realise net proceeds from these properties without first satisfying the pre-existing debt to Mr Zhao.  To deplete these assets without repaying Mr Zhao would directly breach my commitment to him that the [NZ Properties] were security for repayment of the Zhao Loans.

(emphasis added)

32 It was submitted on Mr Liang’s behalf that this security interest was created after 4 July 2022 when the shares were transferred back from Mr Zhao and, hence, it was after that event that the security interest was created.  Mr Liang also relies on a solicitors’ letter from Duthie Whyte dated 20 July 2026 who were acting on behalf of Mr Zhao (the July letter).

33 The July letter stated that funds were lent to Mr Liang, the Sunshine FT (being the NZ Sunshine Family Trust), Liang’s Trading (NZ) Limited, another company owned and controlled by Mr Liang; and/or persons or entities associated with him over a period of years.  The advances were stated to be as follows:

5.    Those documents record, among other things, advances of approximately:

(a)    RMB 8 million under an agreement dated 26 August 2014;

(b)    RMB 30 million under an agreement dated 14 September 2015;

(c)     RMB 3.5 million under an agreement dated 24 February 2016;

(d)     RMB 16 million under an agreement dated 1 August 2021; and

(e)     NZD 2 million under an agreement dated 25 April 2022.

34 The July letter then continues and states that the solicitors were instructed that:

(a)    further advances were made by [Mr Zhao] and that substantial funds were transferred into accounts associated with Mr Liang, Liang’s Trading (NZ) Limited, the [NZ Sunshine Family Trust] and/or entities connected with them;

(b)    that all of the equity contributed toward the acquisition of the [NZ Properties] was derived from funds advanced by [Mr Zhao];

(c)    those advances have not been repaid in full;

(d)    in or about March 2022 Mr Liang expressly agreed that the [NZ Properties] would be made available as security for the amounts owing to [Mr Zhao]. …

35 The July letter states Mr Zhao had been informed that Mr Liang may seek to sell one or more of the NZ Properties to raise funds for costs associated with proceedings in the Federal Court, and that Mr Zhao had not agreed to such dealings and/or sales.  Mr Zhao asserts rights and interests in relation to the NZ Properties.  By the July letter, Mr Zhao also demanded a written undertaking that neither Mr Liang nor the NZ Sunshine Family Trust would directly or indirectly deal with the NZ Properties.  Those dealings (to which the demand related) are set out in some detail in [11] of the July letter.  It is unnecessary to recite them in full.

36 The Applicants alleged that the security interest arose in July 2022 (as opposed to the March 2022 date in the July letter).  It is described as a second mortgage by Mr Liang.  However, on the Sandspit Road property, at least insofar as the evidence before the Court on the application was, it would not be a second mortgage as there was no other mortgage in the evidence relied on, for that property.  The July letter describes the amounts the subject of the Zhao loans by way of five separate loans and further states that further advances in addition to those five separate loans were made.  There is no evidence by Mr Liang of any other loan amounts from Mr Zhao (only the four loans).

37 The final loan of the five loans listed in the July letter was said to be dated 25 April 2022 for NZ$2 million which is not a loan described by Mr Liang of that date.  However, this may be a reference to the purportedly additional loan of NZ$2 million said to have been made after the sale of the Knowlsey property.  However, Mr Liang does not give evidence that this purported loan was the subject of an agreement of any particular date.  It appears, at this stage, that this was really part of the fourth Zhao loan which was advanced for the purported Knowlsey property and which was subject of an initial repayment to Mr Zhao.  However, NZ$2 million of those funds had to be returned as being the subject of the freezing orders.

38 It is unnecessary to determine whether or not there is this fifth and separate loan.  What it does do, though, is support a finding that the evidence is unclear.  The July letter does not state any particular sum, quantum or amount of the loans purportedly secured by one or more of the NZ Properties.  It is only that “Mr Liang expressly agreed that the [NZ Properties] would be made available as security for the amounts owing to Mr Zhao”.

39 In the Zhao Affidavit, he also provides evidence of the first, second and fourth loans which is generally consistent with the evidence of Mr Liang (it is unnecessary to refer to the third loan, as explained below).  Mr Zhao also gives evidence of certain repayments having been made.  These differ from the repayments said to have been made on the Zhao loans given by Mr Liang.  Again, what this supports is a finding that, at this stage, the evidence is unclear.  There is also some evidence of an equitable mortgage for $418,800 for the loans to Mr Zhao on the Russell Street property.

40 In the Zhao Affidavit, under a heading “Australian and ongoing New Zealand Investments” he refers to particular matters.  He states that he requested loan repayments around the time of the COVID-19 restrictions.  He does not in express terms quantify the total of those repayments, but as already observed, does identify some repayments and there are some inconsistencies in the evidence in relation to that.  However, Mr Zhao gives no evidence himself in his affidavit of any security interest, equitable or otherwise, in the NZ Properties.

41 The absence of this evidence was submitted to be consistent with the matters which would need to be satisfied at trial, being the Part IVC proceedings whereby the taxpayer bears the onus to establish that the assessments are excessive and what the assessments should be.  That is, what is their “actual taxable income”, being what was the source of the funds and where those funds went, or as was described (which I gratefully adopt) by Derrington J in Commissioner of Taxation v Ross (2021) 174 ALD 77; [2021] FCA 766 at [48(6)]:

(6)    In the context of a s 167 assessment based on the asset betterment method, the taxpayer must demonstrate that the identified unexplained accumulated wealth was derived from non-income sources and that may be achieved by an accepted denial of any undisclosed source of income, providing acceptable evidence of how the taxpayer spends their time, and demonstrating a reasonable explanation for any appearance of the possession of assets: Ma at FCR 230; ALD 605; Gashi at [64]–[65]. The taxpayer must account for the unexplained increase in assets by explaining the source of those assets and identifying that those sources are not taxable. “[I]f the disclosed “actual” taxable income does not explain the increase in assets, then the taxpayer is unlikely to have discharged the burden of establishing the assessment is excessive”: Gashi at [65].

42 The Applicants submitted that proof of any security interest or agreement would not necessarily be required to discharge their onus, in this respect.  Whether or not that is so is not necessary or appropriate to decide on this interlocutory application.  However, it can be observed that it is at least worthy of note that in the context of what appears to be a lengthy and detailed affidavit and one which seeks to support the Applicants in relation to discharging their onus of proof in the context of s 14ZZO of the Taxation Administration Act 1953 (Cth), that there is no mention of this alleged security interest.

43 However, in considering all of the evidence on this interlocutory application, it is also well to recall that Mr Liang was not subject to any cross-examination on his evidence for the purposes of this application.  While it would not be right to conclude that the absence of cross-examination entails the necessary acceptance of the evidence given, it certainly enables that evidence to be regarded with a greater degree of assurance than might otherwise have been the case (see Paric v John Holland Constructions Pty Ltd [1984] 2 NSWLR 505 at 507 (Samuels JA, Hutley and Priestley JJA agreeing)).  However, to that should also be added the observations of Campbell JA in Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; [2009] NSWCA 234 at [105] (with whom Allsop P and Bastin JA agreed) that:

105    While the evidence was not cross-examined on, that does not necessarily mean that the judge was obliged to accept it.  A judge can reject evidence that has not been cross-examined on if, for example, it was inconsistent with other evidence that he accepted or if it was inherently incredible:  Sullman v Sullman [2002] DFC 95-248; [2002] NSWSC 169 at [304]–[306]; Caldwell v J A Neilson Investments Pty Ltd (2007) 69 NSWLR 12; [2007] NSWCA 3 at [96] …

Also see in this context Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 at 586-7 of Samuels JA (with whom Meagher JA agreed), which was to similar effect.

44 Returning then to the evidence of the Zhao loans, these are only generally described in the July Affidavit.  It is only necessary to refer to the first, second and fourth Zhao loans, as the evidence of Mr Liang is that the third loan has been repaid.

45 The first Zhao loan is said to be between Mr Zhao as party A and Mr Liang as party B.  The loan document which is annexed in the Trial Affidavit states that the purpose was:

...for the purpose of commencing real estate development and construction.

46 It is said to be a loan dated 26 August 2014 for an amount of RMB 8 million.  There is also some evidence that some of those funds were utilised in a property described as the Eldale Avenue property.

47 The second Zhao loan is said to be dated 14 September 2015 and is again between party A, Mr Zhao, and party B, Mr Liang, which states that the purpose was for:

...the purchase, upgrading and renovation of commercial real estate properties, such as motels and commercial office buildings.

48 The loan was for an amount of RMB 30 million.  There is some evidence that some of those funds were utilised for the property described as Pepperell Avenue.

49 The fourth Zhao loan is said to be dated 1 August 2021 and is said to be between party A, being Mr Zhao, and party B, being DSTL Property Limited.  The purpose of the loan is stated to be:

Party B is in urgent need of funds to participate in the investment for the purchase of the property located at 27 Knowlsey Street, Stones Corner, Queensland, 4120 and other investment plans.

50 The loan amount was for RMB 16 million.

51 Therefore, the first and second Zhao loans appear to be made between Mr Zhao and Mr Liang, personally.  However, the document which is said to support the fourth loan records that it is a loan between DSTL and Mr Zhao.  Mr Liang is a director of DSTL.  Freezing orders have also been made against DSTL.

52 Mr Liang describes the purchase of a property, since sold, at Knowlsey Street, by Dingsheng Fortune Pty Ltd as trustee for the Yuanda Property Trust ABN 28 515 141 521.  That is said to have been in part funded by funds from DSTL, which were in turn funded by the fourth Zhao loan.  It is not identified by Mr Liang in his evidence whether his “commitment” as described in his July Affidavit was that of himself, or that of DSTL as well.

53 Further, in the absence of the relevant documents for the NZ Sunshine Family Trust, it is also not possible to know whether Mr Liang has the necessary authority to commit that trust property for his personal debts, or potentially for the debts of DSTL.  It is unclear, applying the principles from Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524; [2019] HCA 20, how the assets of the NZ Sunshine Family Trust could be used for this purpose.  Neither of the parties’ submissions addressed this issue.  This observation, however, is also relevant as to how such assets could then be utilised to fund the reasonable legal expenses of the Applicants.  Again, the parties did not expressly address this issue.

54 The application seems to have proceeded on the basis that the funds could be so utilised.  In this context, it should also be observed that Mr Liang’s evidence identified beneficiaries who included himself, his wife and child.  There was also no identification of who else may have an interest as a beneficiary in that trust and what effect, if any, these arrangements might have;  however, having noted this difficulty and the observation that in some respects it applies both in relation to Mr Liang’s ability to commit the trust property for the security interest and his ability to utilise such funds for the legal expenses, I have approached the difficulty on a neutral basis.

55 During the course of the hearing, noting the various repayments said to have been made, the Applicants were asked whether the alleged quantum of the outstanding loans could be identified on the evidence.  A table was produced over the adjournment, which was then taken to be part of the Applicants’ submissions.  That table was effectively amended during the continuation of the hearing.  These observations are necessary as it is apparent that the evidence to support the application is unclear.

56 The Applicants, on the basis of that table, however, submitted that on any view of the evidence there was still an excess of (approximately) NZ$3.7 million outstanding by way of the Zhao loans.  Hence, the security interest said to have been created in the NZ Properties would mean that there was no equity and therefore no funds from these properties available to meet the reasonable legal expenses.

57 It is necessary to consider objectively whether such a security interest has been sufficiently established for the purposes of this interlocutory application on the evidence.  It is necessary to consider such evidence, with reference to the decisions in Paric, Masterton Homes and Ellis.  Although I am not bound to accept all of the evidence relating to the security interest, whether or not the evidence is inconsistent is relevant as to whether I accept that evidence or not.  In the absence of inconsistencies, such evidence may be regarded with a greater degree of assurance.  For the following reasons there are inconsistencies, vagaries and uncertainties in the evidence.

58 First, Mr Liang does not give evidence of any conversation, or of the words used that were said to create this alleged security interest.  Further, Mr Liang does not provide any documents which purport to record this intention, either as a contemporaneous note of a conversation or otherwise.  The extent of the evidence relied upon by Mr Liang is from his July Affidavit, as is set out in full above.  It is inconsistent with other evidence in terms of the date it has been created.  It is also vague and uncertain.

59 Second, the security interest said to have been created is not identifiable by reference to, again, a particular date, and the evidence of the date it is said to have been created is inconsistent.  It is inconsistent from the July letter, and then the evidence of Mr Liang himself.  It is not appropriate to try and resolve that inconsistency now.  It is sufficient to observe that it is inconsistent and inconclusive for the purposes of this application, and whether or not the Applicants have established that there are no other assets available.

60 Third, the security interest said to have been created does not identify which of the Zhao loans it purports to provide security.  If it is only for the loans to Mr Liang personally, that significantly reduces the quantum of the Zhao loans said then to be secured, as the fourth Zhao loan to DSTL was originally for $3,352,476.68.  Once again, it is not appropriate or even possible on the evidence that has been relied upon to understand whether or not the security interest is providing such an interest for all of the Zhao loans, or for only those loans to Mr Liang personally.

61 Fourth, there is evidence of an equitable mortgage of almost $420,000 on the Russell Street property.  That does not appear to have been taken into account in terms of identifying how this might affect any quantum of the Zhao loans, either to Mr Liang personally or to DSTL, and whether or not that affects the amount which was sought to be secured.

62 Fifth, the security interest does not specifically identify which of the NZ Properties is said to be so appropriated - that is, to secure any or all of the Zhao loans, and if it is to include the Willoughby properties as well.  On the basis of Mr Liang’s evidence, it appears that there is little to no equity in those properties.  Further, the inconsistency in relation to Mr Liang’s description of Mr Zhao not requiring a second mortgage may not be appropriate in relation to the Sandspit Road property.

63 Sixth, there is no evidence of any such security interest given directly by Mr Zhao.  It is only from his solicitors in the July letter.  As already described, that evidence is inconsistent in some respects with the evidence of Mr Liang.  It is inconsistent not only in terms of the date, but also in terms of the security interest as described, the quantum or amount to be secured and potentially which entities to which it might relate.  Again, it is not necessary or appropriate to resolve whether or not I accept that evidence on this application.  What it is relevant to note is the inconsistency of the evidence which the Applicants seek to rely on to support their application.

64 Finally, and seventh, neither Mr Liang nor Mr Zhao gave any evidence of this alleged security interest in the affidavits for the purposes of the trial.  That may be unnecessary for the final determination of the issues on the taxation appeal, as was submitted by the Applicants.  I do not need, and will not make, any findings on that at this time.  It is sufficient to note that this may be a gap in the evidence, or it may be an inconsistency in the evidence.  But on either view, it does not assist the Applicants to establish that there is no other source of funds.

ADJOURNMENT APPLICATION

65 On entering Court to deliver judgment on the Applicants’ interlocutory application, the Commissioner made an instanta application to effectively adjourn the proceedings and delay judgment awaiting the receipt of further evidence.  The Commissioner submitted that there was evidence in relation to what has been described as the Sandspit Road property in New Zealand and potentially a mortgage or at least additional evidence in relation to that property.

66 The Applicants’ interlocutory application was brought on fairly urgently seeking certain orders in relation to the freezing orders which have been made in related proceedings.

67 A case management hearing was held on 17 July 2026 and what has become apparent since hearing the interlocutory application is that the parties were engaged in correspondence in relation to the relevant issues from about 1 June 2026.  Programming orders were made on 17 July 2026 for the hearing of any interlocutory application.  It was expressly done on the basis that the listing would be in relation to any application as, at that stage, the parties were still corresponding in relation to the relevant issue.  Although the orders did not expressly provide for the Commissioner to provide any affidavit evidence, the issue in relation to the NZ Properties was raised in the correspondence by at least 3 July 2026 and potentially earlier when one considers the Trial Affidavit.

68 The Commissioner could have sought leave at the hearing (yesterday) to advance further evidence in relation to the Sandspit Road property.  The submission made today in support of the adjournment is effectively that as the argument developed, the relevance of the NZ Properties and their status became more apparent.  However, on a consideration of the correspondence, it does appear that the status of the NZ Properties was always going to be a matter in issue.

69 Whether or not this additional evidence would have assisted in ascertaining the status of the NZ Properties for the purposes of this application is not necessary to finally determine.  What is relevant is that the Mr Liang, who is perhaps best placed to give evidence in relation to this property, has stated at [107] of his Trial Affidavit that the Sandspit Road property is not subject to a legal registered mortgage to a bank.

70 As such, I declined the Commissioner’s application to produce further evidence, and proceeded to deliver this judgment in relation to the interlocutory application.

CONCLUSION

71 For all of those reasons, I am not satisfied on the basis of the current evidence that the Applicants have established that they do not have an alternative source of assets or funds, being the NZ Properties, from which the reasonable legal expenses as estimated could be paid.

72 As such, the application must be dismissed, with costs.

Associate:

Dated:    10 September 2026

SCHEDULE OF PARTIES