The Supreme Court of Victoria has held that asset freezing orders obtained by a Deputy Commissioner of Taxation were “without a legitimate purpose”.
The Deputy Commissioner had brought proceedings under r 37A of the Supreme Court (General Civil Procedures) Rules 2005 (Vic) for freezing orders over assets to the approximate value of assessments issued to the taxpayer, dated 21 December 2012. The assessments were issued following a lengthy ATO audit into the affairs of the taxpayer, members of his family and associated trusts and companies, including a company incorporated in the British Virgin Islands and a superannuation fund (covering the years of income ended 30 June 2002 to 30 June 2011, inclusive).
The Court said ex parte orders were made on 24 December 2012 against the taxpayer and others prohibiting removal from Australia, or the disposal of, dealing with, or diminishing the value of any assets in Australia up to an unencumbered value of id=”mce_marker”1.4m. The assessments imposed a total liability comprised of unpaid tax, penalties and interest charges for each relevant year. The basis of the assessments concerned purported trust distributions, unexplained deposits to a bank account, advances made by way of loans, interest paid on the loans, and an unsubstantiated gift.
The Court said the Deputy Commissioner’s contention that the balance of convenience favoured the making of freezing orders was predicated on the Court accepting his case paradigm, that only required the evidence to support a “case to be investigated” by a trustee in bankruptcy. Curiously, the Court said, “the [Deputy Commissioner] asserted that ‘there is a significant risk that in the absence of freezing orders against the Respondents, any protective judgment obtained by the applicant against Mr Ekelmans may remain largely unsatisfied’. At the time of so asserting, the applicant had no intention of seeking any such judgment.”
The Court concluded that, in the absence of evidence of some existing or contemplated process, “the freezing orders now in existence are without a legitimate purpose and, more practically, they are without a relationship to a proceeding that will define the duration and inform the question of their continued utility”. The Court proposed not to make any final orders in respect of any property until it was satisfied that an appropriate proceeding had been commenced, will be prosecuted with reasonable expedition, and within an acceptable timetable. The Court adjourned the further hearing to a date to be fixed, when it said the Deputy Commissioner would have an opportunity to adduce evidence on the question of any proposed proceeding to recover the amount due under the assessments. At that time, if satisfied with the Deputy Commissioner’s evidence, the Court said it would make final orders.
(DCT v Ekelmans & Ors [2013] VSC 346, Supreme Court of Victoria, Judd J, 8 July 2013.)
[LTN 131, 19/7/13]
Supreme Court (General Civil Procedures) Rules 2005 (Vic) – 37A.02. Freezing order
(1) The Court may make an order (a freezing order), upon or without notice to
the 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.
(3) A freezing order may be in Form 37AA.
(4) In making a freezing order or an ancillary order, the Court shall have
regard to the practice note concerning freezing orders.
(5) The affidavits relied on in support of an application for a freezing order
or an ancillary order shall, as far as possible, address the following-
(a) information about the judgment that has been obtained, or if no judgment has been obtained, the following information about the cause of action-
(i) the basis of the claim for substantive relief;
(ii) the amount of the claim; and
(iii) if the application is made without notice to the respondent, the applicant’s knowledge of any possible defence;
(b) the nature and value of the respondent‘s assets, so far as they are known to the applicant, within and outside Australia;
(c) the matters referred to in Rule 37A.05; and
(d) the identity of any person, other than the respondent, who the applicant believes may be affected by the freezing order and how that person may be affected by it.