Deputy Commissioner of Taxation v Huang

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: Gageler,Keane,Gordon,Gleeson JJ,Edelman J
• Judgment Date: 08 December 2021
• Neutral Citation: [2021] HCA 43
• Docket Number: S26/2021

[2021] HCA 43

HIGH COURT OF AUSTRALIA

Gageler, Keane, Gordon, Edelman and Gleeson JJ

S26/2021

Deputy Commissioner of Taxation

Appellant

and

Changran Huang

Respondent

Representation

S P Donaghue QC, Solicitor-General of the Commonwealth, and S B Lloyd SC with L T Livingston SC for the appellant (instructed by Craddock Murray Neumann Lawyers)

B W Walker SC with G E S Ng and Y H Li for the respondent (instructed by Unsworth Legal)

Federal Court Rules 2011 (Cth), rr 7.32, 7.35.

Federal Court of Australia Act 1976 (Cth), s 23.

Practice and procedure — Freezing orders — Power of Federal Court of Australia to make worldwide freezing order conferred by r 7.32 of Federal Court Rules 2011 (Cth) — Where appellant commenced proceedings against respondent in Federal Court — Where appellant applied to Federal Court for worldwide freezing order — Where assets located in People's Republic of China and Hong Kong — Where presently no realistic possibility of enforcement of appellant's judgment debt in each foreign jurisdiction where assets located — Where freezing order made — Whether worldwide freezing order within power of Federal Court where presently no realistic possibility of enforcement in each foreign jurisdiction.

Words and phrases — “assets outside Australia”, “danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied”, “freezing order”, “frustration or inhibition of the Court's process”, “realistic possibility of enforcement”, “worldwide freezing order”.

ORDER

• 1. Appeal allowed with costs.

• 2. Set aside orders 4 to 9 of the orders of the Full Court of the Federal Court of Australia made on 28 September 2020 and, in their place, order that:

  • (a) the applicant be granted leave to appeal; and

  • (b) the appeal be dismissed with costs.

1 Gageler, Keane, Gordon and Gleeson JJ. This appeal concerns whether the power of the Federal Court of Australia to make an order restraining a person from disposing of, dealing with or diminishing the value of assets, including assets located in or outside Australia (a “Worldwide Freezing Order”), conferred by r 7.32 of the Federal Court Rules 2011 (Cth) (“the Rules”), may only be exercised if there is proof of a realistic possibility of enforcement of a judgment debt against the person's assets in each foreign jurisdiction to which the proposed order relates. Rule 7.32 states:

• “(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.”

2 For the following reasons, the Full Court of the Federal Court of Australia erred in holding that the power in r 7.32 is constrained by such a precondition. Accordingly, the appeal must be allowed.

Background to appeal

3 The respondent, Mr Huang, and his wife, Mrs Huang, were tax residents of Australia from 1 February 2013. On 4 December 2018, Mr Huang left Australia for the People's Republic of China (“the PRC”). At the time of his departure, the Australian Taxation Office was conducting an audit into Mr Huang's income tax affairs. Mrs Huang left Australia, also for the PRC, on 11 September 2019.

4 On 11 September 2019, the Commissioner of Taxation issued to Mr Huang assessments for tax liabilities and a shortfall penalty totalling almost $141 million. On 16 September 2019, the appellant (“the Deputy Commissioner”) filed an originating application in the Federal Court seeking judgment against Mr Huang based on the assessments. On the same day, a single judge of the Federal Court, Katzmann J, made an ex parte interim order against Mr Huang (“the interim order”) 1. The interim order was a Worldwide Freezing Order, effective up to and including 20 September 2019, and substantially in the terms set out in Annexure A to the Federal Court's Freezing Orders Practice Note (GPN-FRZG) published on

25 October 2016 (“the Practice Note”). Most relevantly, the interim order required Mr Huang to refrain from disposing of, dealing with or diminishing the value of his Australian assets up to the amount claimed in the originating application and his assets outside Australia to the extent that the value of Mr Huang's unencumbered Australian assets was less than the amount claimed in the originating application. On 20 September 2019, the interim order against Mr Huang was continued

5 In her reasons for making the interim order, Katzmann J referred to rr 7.32 and 7.35 of the Rules. Rule 7.35 states relevantly:

• “(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.

• …

• (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.”

6 Katzmann J found that r 7.35 applied because the Deputy Commissioner had a good arguable case against Mr Huang within r 7.35(1)(b)(i) 2. Her Honour also found, in accordance with r 7.35(4)(b)(i) and (ii), that there was a danger that the Deputy Commissioner's prospective judgment against Mr Huang would be wholly or partly unsatisfied because his assets might be removed from Australia or disposed of, dealt with or diminished in value 3. Her Honour gave the following seven reasons for finding this danger 4:

• (1) Mr Huang's tax liability of over $140 million was “considerable”.

• (2) The results of the tax audit indicated an intention to avoid paying tax by grossly understating income.

• (3) Mr Huang was a Chinese national, currently overseas, without an Australian visa who, since November 2018, had taken a number of steps towards severing his ties to Australia.

• (4) Mr Huang's Australian assets did not seem to be enough to satisfy the tax liability.

• (5) Mr Huang was likely to be a person of substantial wealth and has significant business interests in the PRC, including Hong Kong, that allowed him to easily move assets between jurisdictions. These circumstances demonstrated that Mr Huang had both a motive and the means to dissipate his Australian assets.

• (6) Mr Huang had already taken steps to divest himself of his interest in Australian companies and trusts. Although he transferred money overseas before becoming aware that he was under investigation by the Australian Taxation Office, the amount of money transferred increased dramatically after the audit began.

• (7) The recent issue of the tax assessment notices increased the likelihood of dissipation.

7 On 11 October 2019, the Deputy Commissioner applied for summary judgment against Mr Huang and a Worldwide Freezing Order against Mr Huang until further order. The applications were heard by another judge of the Federal Court, Jagot J (“the primary judge”). Before the primary judge, Mr Huang did not oppose the freezing order to the extent that it related to his assets in Australia, and subject to the Deputy Commissioner giving certain undertakings. Nor did Mr Huang object to filing an affidavit disclosing his assets in Australia. Further, Mr Huang did not seek to revisit the findings which led Katzmann J to make the interim order, instead confining his submissions to the single issue of whether the order should operate in respect of his assets outside Australia and, in particular, assets located in Hong Kong and the PRC.

8 On 21 October 2019, the primary judge made a Worldwide Freezing Order against Mr Huang until further order, in substantially the same terms as the interim order. Her Honour rejected Mr Huang's contention that the order affecting his significant assets in the PRC and Hong Kong did not serve the purpose of protecting or preventing the frustration of the Federal Court's process because there was no process available for enforcement of any judgment in the Deputy Commissioner's favour in those jurisdictions. She concluded that the issue was “the preservation of the integrity or efficacy of any process ultimately enforceable by the Court” 5. Her Honour considered that there were sufficient possibilities of

enforcement to enable the conclusion that the purpose specified in r 7.32(1) was satisfied 6. Those possibilities included 7:

“… the potential use of bankruptcy procedures, the potential...