Deputy Federal Commissioner of Taxation v. Sharp & Anor; Ex parte Deputy Federal Commissioner of Taxation

Kelly J

Supreme Court of the Australian Capital Territory

Judgment date: Judgment handed down 24 June 1988.

Kelly J.

By amended assessments issued under the Income Tax Assessment Act 1936 (the Act) on 11 May 1988 for the income years ended 30 June 1981, 1982, 1983, 1984, 1985 and 1986 the plaintiff assessed the defendant Gay Frances Sharp to additional tax totalling $224,807.01 payable on 14 June 1988. On the same day the plaintiff issued amended assessments in respect of the same years against the defendant Ian Robert Sharp assessing him to additional tax for those years in a total of $232,224.21 payable also on 14 June 1988.

On 9 June 1988 the plaintiff moved ex parte for Mareva injunctions seeking orders restraining the defendants from removing from the jurisdiction or otherwise disposing of or dealing with any of their assets within the jurisdiction and in particular land known as Block 22, Section 28 Mackellar.

When the matter came before me counsel for the plaintiff pointed out that no writ had issued in either matter because the period allowed for payment of the assessments had not elapsed. The applications therefore raised a point which has not, so far as I am aware, been decided in this Territory, namely, whether a Mareva injunction may go at the suit of a person alleging that he or she is a creditor where no action has been or can be commenced because the debt said to be due is not immediately payable.

The evidence established that, on the balance of probabilities, there was a prima facie case that there was a real risk that the defendants might remove their assets from the country and so stultify any judgment which the Court might give in any action brought by the plaintiff on the assessments.
Barclay-Johnson v. Yuill (1980) 1 W.L.R. 1259 at p. 1264; (1980) 3 All E.R. 190 at p. 194 per Megarry V.-C.

Standing in the path of the plaintiff was a dictum of Lord Diplock in
Siskina (Owners of Cargo Lately Laden on Board) & Others v. Distos Compania Naviera S.A. (1979) A.C. 210, where his Lordship, with whom all their Lordships agreed, said at p. 256:

``A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent upon there being a pre-existing cause of action against the defendant arising out of an evasion, actual or threatened by him, of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the court. The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action. It is

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granted to preserve the status quo pending the ascertainment by the court of the rights of the parties and the grant to the plaintiff of the relief to which his cause of action entitles him, which may or may not include a final injunction.''

Mareva injunctions have been granted by this Court. See, for example,
Barisic v. Topic (1981) 37 A.C.T.R. 1 and
Szentessy v. Woo Ran (Australia) Pty. Ltd. (1985) 64 A.C.T.R. 98.

Construction Engineering (Aust.) Pty. Ltd. v. Tambel (Australasia) Pty. Ltd. (1984) 1 N.S.W.L.R. 274, Clarke J. (as he then was) held that the Supreme Court of New South Wales had jurisdiction to grant a Mareva injunction where there was no pending proceeding before the Court and where the party seeking the injunction did not propound a cause of action but was claiming moneys in pending arbitration proceedings. At pp. 277-278, he said:

``The question then arises whether this Court has jurisdiction to grant a Mareva injunction when there is no primary proceeding before it and the plaintiff does not propound a cause of action. Mr Bathurst, who appeared for the plaintiff, submitted that the court was empowered to grant injunctive relief whenever a litigant was exposed to the risk that his opponent would dissipate his assets and deprive him of the fruits of victory. He said that there was no reason in principle why the court should distinguish between arbitral proceedings and those instituted in this Court. On the contrary there was every reason why such a person should obtain the same protection as a litigant propounding a claim in the courts.

In particular machinery is provided for the enforcement of arbitration awards by the courts. The Arbitration Act 1902, s 14, provides for the granting of leave for the enforcement of an arbitration award in the same manner as a judgment or order of the court. Alternatively, a successful party in an arbitration can sue at law upon the award. Therefore, according to the plaintiff, any dissipation of assets by a party would operate effectively to stultify and render ineffective any arbitral award in respect of which the successful party would use the court's processes, just as a successful plaintiff would, for enforcement. If this is so why then, the plaintiff asks, is the court not entitled to adopt the same procedures in an endeavour to ensure that enforcement is fruitful.

In my opinion there is no reason in principle why the jurisdiction of the court to grant Mareva injunctions should not apply where the party seeking the order is claiming moneys in an arbitration as well as when he is propounding a claim in the courts.

Riley McKay [Riley McKay Pty. Ltd. v. McKay [1982] 1 N.S.W.L.R. 264] instructs that, whilst the jurisdiction should be exercised with caution, its whole purpose is to prevent conduct inimical to the administration of justice. This appears from a passage (at 276) which reads:

  • `Assuming that the jurisdiction is exercised with due caution, it seems to us that it is necessary for the administration of justice in this State that the court should have power to prevent a defendant who would otherwise have assets to satisfy a judgment from setting the court and its procedures at naught by making sure that its judgment will be a mere brutem fulmen. The whole sense and purpose of the inherent powers, as well as the powers which s 23 confers, are to ensure the effective administration of justice... The reported decisions show that a `Mareva' injunction will be granted where necessary to ensure that justice is effectively administered.'

Equally the jurisdiction is available to ensure that an arbitral award, which may as the result of the grant of leave been forced by court process, is not a `brutum fulmen'.''

At p. 279, his Honour said:

``I am aware that his Lordship was dealing with a case where a defendant sought, and was granted, a stay of proceedings to enable the resolution of the dispute by arbitration. But I see no reason why a distinction should be drawn in this regard between an arbitration proceeding which is instituted without any prior attempt to commence court proceedings and one instituted consequent upon a stay of court proceedings. I do not consider the

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jurisdiction to grant the injunction depends, or in principle ought to depend, on whether a party has, contrary to a Scott v. Avery clause, sought to litigate its dispute in the courts. Accordingly, I conclude that the court has jurisdiction to grant the injunction, notwithstanding that the plaintiff has not commenced the primary proceedings in this Court.''

It is clear from p. 276 of his Honour's judgment that there was a ``Scott v. Avery clause'' (
Scott v. Avery (1856) 5 H.L.C. 811; 10 E.R. 1121) in the contract in accordance with which the arbitration proceedings were commenced. Under such a clause, of course, it is necessary that a party to the contract obtain an award in an arbitration before he or she may commence an action in court for the recovery of the amount said to be due.

In Riley McKay (supra) the Court of Appeal of New South Wales said, at pp. 276-277:

``As has been made clear by judgments in England, the jurisdiction is still the subject of development on a case by case basis. It is, accordingly, undesirable to undertake the formulation of general tests or boundary-lines which might, in their very generality, preclude or distort the useful development of this new remedy. These observations are made with particular reference to a question which was mentioned in the course of argument but which it is not necessary for present purposes to decide. That question is whether the plaintiff must have a vested and accrued cause of action before commencing proceedings. The observations of Lord Diplock in The Siskina [1979] AC 210, at p 254 postulate as an indispensable prerequisite the existence of a vested and accrued cause of action for which substantive final relief can be immediately granted. See also the passage in the judgment of Ackner LJ, in
A J Bekhor & Co Ltd v. Bilton [1981] 2 WLR 601, at p 616; [1981] 2 All ER 565, at p 577. It was suggested in argument that a plaintiff holding an unmatured thirty-day bill ought to be able to approach the court for a `Mareva' injunction. In a cognate sense, reference was made to a guarantee situation in which, prior to formal default by the principal debtor, the guarantor is feared likely to spirit away his assets. The point originally had significance in the present case in that, at the date of the commencement of the present proceedings, the plaintiff company was in the hands of a provisional liquidator, a winding up order not having been made. One of the claims advanced by the plaintiff in respect of which the protection of a `Mareva' injunction was sought was the liability of the second defendant to repay the amount of a preference which it was said to have received. Such a claim would not be cognizable until a winding up order had been made. In the events which have happened, the winding up order has now been made and it is accordingly unnecessary to decide whether or not this particular claim at the date of inception of the proceedings fell within the permissible scope of the protection of the injunction granted.''

Counsel for the plaintiff informed me that the Supreme Court of New South Wales had granted three Mareva injunctions at the suit of the Deputy Commissioner of Taxation when no action in respect of the relevant assessment had been or could have been properly commenced because they were not immediately payable.

Counsel said that he could give only the names of the cases in which, apparently, no reasons for judgment were handed down. In none of the cases did it appear that any difficulty arose because action had not been commenced. But I note that counsel did not suggest that the point in question in this case had been raised in any of the three cases.

The first of them was
D.F.C. of T. v. Rowell (unreported). There a notice of assessment issued for tax payable in due course. A Mareva injunction was granted before the tax was due for payment but a statement of claim began proceedings for recovery of the assessed tax before the due date for payment. On 1 August 1986 Grove J. struck out the statement of claim, leaving, therefore, no action on foot. Nevertheless he continued the injunction to 8 August 1986 for further argument. On 8 August, after further argument to do with unrelated points, his Honour continued the injunction indefinitely.

The second was
D.F.C. of T. v. Waterhouse (unreported). An assessment was notified, apparently on 20 May 1987, since the tax was

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payable within 30 days of that date. A Mareva injunction was granted on 22 May 1987.

The third was
D.F.C. of T. v. Verner Pty. Limited (unreported). An assessment was notified, apparently on 28 September 1987, since the tax was payable 30 days from that date. A Mareva injunction was granted on 30 September 1987.

It seems to me that special circumstances obtain when the Commissioner of taxation seeks a Mareva injunction in respect of an assessment which has issued but is not immediately payable because the time which must be allowed for the payment of the assessment has not elapsed. Such a debt has peculiar characteristics attaching to it because of the legislation which gives rise to it. Section 204 of the Act provides that, subject to the provisions of Pt VI in which it appears, any income tax assessed shall be due and payable by the person liable to pay the tax on the date specified in the notice as the date upon which tax is due and payable, not being less than 30 days after the service of the notice, or, if no date is so specified, on the 30th day after the service of the notice. By sec. 177(1) the production of a notice of assessment or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct.

The High Court stated in
McAndrew v. F.C. of T. (1956) 98 C.L.R. 263 at p. 270 that it was the policy of the legislation:

``On the one hand to give to the taxpayer full opportunity on objecting to his assessment of contesting his liability in every respect before a court or before a board of review but on the other hand to require that in proceedings for the recovery of the tax the taxpayer will be concluded by the assessment and will not be entitled to go behind it for any purpose.''

It follows, in my opinion, that a peculiar quality attached to a debt claimed as a result of an assessment made under the Act. All that the Commissioner need do to establish conclusively the existence of the debt is to produce the appropriate notice of or copy of the notice of assessment. The debt is not payable in presenti but is a debt in existence - debitum in presenti, solvendum in futuro. In these circumstances it seems to me that the Commissioner is entitled to pray in aid the injunctive power of the Court when he establishes that prima facie there is a real risk that the taxpayer will so deal with his assets as to render useless in whole or in part the judgment to which the Commissioner would be conclusively entitled upon the mere passage of time. If an order might properly be made in Construction Engineering (Aust.) Pty. Ltd. v. Tambel (Australasia) Pty. Ltd. (supra) as, with respect, I think it was, it seems to me that there was even greater reason why the Court should have granted an injunction in this case where the existence of the debt was not a matter of uncertainty, depending upon the result of other extra-curial proceedings which had not yet reached the point where an action might be instituted in this Court.

It seemed to me that no injustice would be done the taxpayers in these circumstances. The tax to which they had been assessed would have been payable in any event a relatively short time after injunctions could have been granted even if they were sought before the actions in respect of the assessed tax could have been commenced. If the injunctions had caused difficulty to the taxpayers because the proper and reasonable disposal of any of their assets in accordance with obligations, contractual or other, which they had undertaken, was prevented, application could have been made to the Court for immediate relief in that regard. Indeed, in this case the original Mareva injunctions were varied when the matter came before the Court on their return date to enable the taxpayers to deal with their major asset left in Australia but in such a fashion that proceeds from its disposal could not be dealt with to defeat the plaintiff's recovery of the amount assessed.

Counsel for the plaintiff made reference to
Faith Panton Property Plan Ltd. v. Hodgetts (1981) 2 All E.R. 877. In that case an order for costs had been made against the defendant but the costs had not been taxed and the plaintiffs were therefore unable to enforce judgment for them. The defendants by their ambivalent conduct indicated that they might divest themselves of their assets and make themselves bankrupt. The plaintiffs applied for an

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injunction to restrain the defendants from assigning or otherwise disposing of a copyright, some moulds and a patent. The Court of Appeal held that, on analogy with the pre-Mareva practice whereby the Court had power to enforce an order for costs which had not been taxed by appointing a receiver of the property of a person liable for the costs, the Court had power under sec. 45(1) of the Supreme Court Adjudicature (Consolidation) Act 1925 to protect a party in whose favour an order for costs had been made by granting, before taxation, an injunction restraining the other party from disposing of his assets. In the circumstances the Court exercised its discretion under sec. 45(1) which read:

``The High Court may grant a mandamus or injunction or appoint a receiver, by an interlocutory order in all cases in which it appears to the Court to be just or convenient so to do.''

Section 26(1) of the Australian Capital Territory Supreme Court Act 1933 is in almost exactly similar terms.

That case is authority for the proposition that an injunction may go in respect of a debt presently in existence but not payable until a future date because not quantified. But it is clearly distinguishable from this matter because action had already been brought and judgment obtained.

Nevertheless, it seems to me that, where, as in this case, there is undoubtedly a debt owing even if it cannot immediately be the subject of an action and where the granting of the injunction would work no injustice, particularly when the debt may in any event be sued for within a very short time, which may be only a matter of days and at most a period of 30 days, a Mareva injunction may be granted. Such an injunction should, of course, be returnable at the shortest possible notice. Should it prove that it was made in ignorance of facts which would establish either that there would be exceptional hardship in respect of transactions already properly entered into or that the taxpayer had no intention of dealing with his or her assets in such a way as to defeat the Commissioner's claim, it may readily be discharged.

In reaching the conclusion that the injunctions should be made, I proceeded with what I hope was the caution enjoined by the Court of Appeal of New South Wales in Riley McKay. In a developing jurisdiction where advances must be made step by step, it seems to me that the dictum of Lord Diplock in The Siskina ((1979) A.C. 210) earlier quoted must be reviewed as one factor only in what now seems to me to be the developed rule that a Mareva injunction may be made where there is a real risk that a debtor may deal with his or her assets before judgment against him or her so as to stultify that judgment when obtained. It is noteworthy that the House of Lords did not, in The Siskina, take the opportunity to deny the existence of the rule which came into being in apparent contradiction of the older rule that the High Court of England had no power to grant an interlocutory injunction except in protection or assertion of some legal or equitable right which it had jurisdiction to enforce by final judgment
North London Railway Co. v. Great Northern Railway Co. (1883) 11 Q.B.D. 30, at pp. 39-40, per Cotton L.J., referred to by Lord Diplock at p. 256.

For these reasons I granted the injunctions sought on 9 June 1988.

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