Deputy Federal Commissioner of Taxation v. Rosenthal & Ors.

O'Bryan J

Supreme Court of Victoria

Judgment date: Judgment handed down 30 November 1984.

O'Bryan J.

Return of a Summons seeking an interlocutory injunction until the trial and determination of the action herein.

The plaintiff issued a writ in October which was subsequently amended by order of Tadgell J. to add the third-named defendant. In an amended statement of claim the plaintiff claims against the first defendant a basic tax liability of $2.4 million and against the third defendant a basic tax liability of $1.8 million in respect of the tax years 1979-1983. The plaintiff also claims provisional tax assessed and additional tax, but for present purposes it is unnecessary to specify the claims in detail. The claims for basic tax due and payable pursuant to the Income Tax Assessment Act are very substantial indeed.

On 24 October orders were made by Tadgell J., ex parte, restraining the three defendants from disposing of, charging, mortgaging or otherwise dealing with their assets within the jurisdiction of this court or from removing assets from the jurisdiction and ordering the defendants to pay the proceeds of the sale of a property situate at 15 Harcourt Street, Hawthorn, formerly occupied and used by the first-named defendant and Mrs Rosenthal as their matrimonial home. The order was varied on 14 November 1984 to permit the defendants to bring money into the jurisdiction and/or to borrow money for legal fees.

Whereas the plaintiff seeks the continuance of an interlocutory injunction, the defendants seek to have the injunction dissolved or varied further.

The first defendant's wife, Mrs Rosenthal, intervened, seeking to have portion of the proceeds of the sale of Harcourt Street released to enable her to complete the purchase of a recently acquired house property in Armadale. Mrs Rosenthal has deposed that matrimonial differences between herself and Mr Rosenthal in 1983 led to the first-named defendant vacating Harcourt Street and agreeing to provide Mrs Rosenthal with a substantial settlement from the proceeds of sale in order that she might acquire another home in which to live with her children.

The jurisdiction to grant a Mareva injunction to prevent a defendant dealing with assets so as to remove them from the reach of the plaintiff has been invoked in a number of cases within the jurisdiction of this court. The principles for the grant of a Mareva injunction have been refined over the past decade.

There are three matters which the plaintiff must show before a basis for jurisdiction is established. Firstly, whether there is a sufficiently strong case to justify the relief pending the trial and determination of the claim. Secondly, whether there is a risk of the defendant removing his assets from the jurisdiction or dissipating his assets. Thirdly, whether the balance of convenience requires that an order be made.

The relief is discretionary and the form of order appropriate will be moulded to suit the requirements of each particular case. In the present case the nature and quantum of the defendants' assets is largely unknown because the defendants have not disclosed to the plaintiff or to the court the whereabouts and extent of them. Consequently, an order appropriate to this case would present some difficulty.

The plaintiff's claim is founded upon an allegation that the first-named defendant organised, promoted or participated in a tax avoidance scheme known as the Commodities Future Scheme whereby, for a commission, clients' funds were channelled overseas. It is uncessary for the purposes of this application that I understand the complexities of the scheme or determine its legality. The Income Tax Assessment Act 1936 now contains provisions in Pt. IVA which operate to strike down a certain type of scheme designed to provide a tax benefit for the taxpayer. Elsewhere in the Act are provisions which make contrived arrangements absolutely void as against the Commissioner.

The Commissioner issued notices of assessment against the first and third-named defendants on 19 October 1984, the assessments of income being made in accordance with sec. 167. Pursuant to sec. 177 production of a notice of assessment is conclusive evidence. ``that the amount and all the particulars of the assessment are correct''. Notwithstanding that the defendants have lodged objections against the disallowance of deductions claimed, and against the assessment of tax in the amounts claimed, there is a sufficiently strong case to justify the injunctive relief claimed if the other matters are satisfied.

The second matter requires a closer examination of the facts. There is uncontested

ATC 4033

evidence that the first-named defendant organised, promoted and participated in a scheme which channelled moneys overseas as part of a very substantial tax avoidance scheme. It is not improbable that the first-named defendant has substantial assets overseas. There is evidence of the remittance of moneys overseas by the defendants in 1979 and 1983 in respect of business ventures. In 1979 amounts totalling $80,000 were remitted in respect of the acquisition of a yacht and in 1983 approximately $101,000 was remitted overseas to meet a loss incurred in the United States with a theatre production. The first-named defendant has failed to answer allegations as to his assets in Australia or overseas and as to the movement of his assets during the last 12 months. He is clearly entitled not to file an affidavit in reply. However, the absence of an answering affidavit entitles the court to draw inferences more readily when material adverse to the defendants is unanswered.

The catalyst which provoked the initial application before Tadgell J. was a newspaper advertisement revealing that the Harcourt Street house was due to be auctioned on 23 October 1984. The house was purchased in 1973 and thereafter occupied as the matrimonial home of the first defendant and Mrs Rosenthal and their three children. It now appears that a breakdown in the marriage resulted in a proposal to sell the house. It was sold for a sum in excess of $700,000 and settlement is due in December. In the house is valuable furniture, silver and paintings, with an estimated value in excess of $300,000. The sale of Harcourt Street was not directly linked to the issuing of the assessments or the commencement of this action. The sale must have been contemplated some time earlier.

At a late stage in the hearing Mr Hayes of counsel for the plaintiff tendered evidence that in June 1983 Leeal Nominees Pty. Ltd., then a trustee of two family trusts, transferred a quantity of shares in Cobbler Mount Buller Pty. Ltd. to the first-named defendant's three children. Cobbler owns a ski lodge at Mount Buller. The transfer coincides with a deterioration in the marriage as deposed to by Mrs Rosenthal. The first-named defendant offered no reason for the transfer of the shares or the sale of the house. The court is faced with a paucity of evidence, but I believe the event is more probably related to the marriage than to this action.

The documents relied on by the plaintiff show that an arguable issue is raised as to the ownership of Harcourt Street. However, the contested issue of ownership of itself does not establish that there is a risk of the defendants removing assets from the jurisdiction.

Mr Merkel submits that the evidence of risk is very thin and that the jurisdiction invoked requires the plaintiff to prove more than the existence of a possible risk. There must be demonstrated a real danger that the defendant intends to remove assets from the jurisdiction or dispose of assets within the jurisdiction to defeat the plaintiff. One might suppose that the first-named defendant is most apprehensive about the outcome of this litigation. The amount claimed with additional tax is a vast sum. However, the Mareva procedure was not designed to freeze a defendant's assets to make a plaintiff's claim fruitful. There must be evidence to show that the risk to the assets has materialised or will probably materialise. There is no evidence from which I can infer that the defendant intends to place his assets beyond the reach of the plaintiff.

Presently, all that is known is that the first-named defendant and/or companies under his control have made certain financial arrangements for the welfare of Mrs Rosenthal and Mrs Rosenthal's estranged family, a perfectly legitimate and reasonable legal transaction.

I am not satisfied, therefore, that the second condition for a Mareva injunction has been established by the plaintiff. It is unnecessary, therefore, to consider the third condition. In my view, the order made on 24 October, as varied on 14 November, in so far as it affects the proceeds of sale of Harcourt Street and other assets of the defendants, should be discharged. In the future, if other facts emerge, the plaintiff may make a further application. The injunction granted by Tadgell J. is dissolved. (Discussion ensued re costs.)

I think the successful party in this proceeding should have the costs paid by the unsuccessful party. The costs of the hearing of the interlocutory injunction proceedings will be those of the defendants, also the costs of Mrs Rosenthal for intervening, which seem to me to have been reasonably incurred, including reserved costs are to be paid by the plaintiff. Certify.

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