Federal Court of Australia Huang v Deputy Commissioner of Taxation [2020] FCA 1518 Appeal from: Deputy Commissioner of Taxation v Huang [2019] FCA 1728 File number: NSD 1759 of 2019 Judgment of: BESANKO J Date of judgment: 22 October 2020 Catchwords: PRACTICE AND PROCEDURE — application for a stay of the orders of the Full Court of the Federal Court — where freezing order made in relation to assets in Australia and overseas — where appellant has substantial assets in Hong Kong and China — where appeal allowed and order set aside with respect to overseas assets — where application made for special leave to appeal to the High Court of Australia — consideration of the prospects of success of the application for special leave — consideration of the balance of convenience Legislation: Bankruptcy Act 1966 (Cth) ss 40, 43, 81 Federal Court of Australia Act 1976 (Cth) s 25 Federal Court Rules 2011 (Cth) rr 7.32, 7.35 Cases cited: Alexander v Cambridge Credit Corp Ltd (Receivers Appointed) (1985) 2 NSWLR 685 Ballabil Holdings Pty Ltd v Hospital Products Ltd (1985) 1 NSWLR 155 Bryant v Commonwealth Bank of Australia [1996] HCA 3; (1996) 70 ALJR 306 Derby & Co Ltd v Weldon (Nos 3 and 4) [1990] Ch 65 Derby & Co Ltd v Weldon (No 6) [1990] 1 WLR 1139 Federal Commissioner of Taxation v Myer Emporium Ltd (No 1) [1986] HCA 13; (1986) 160 CLR 220 George v Fletcher (Trustee) (No 3) [2012] FCAFC 188 Huang v Deputy Commissioner of Taxation [2020] FCAFC 141 Huang v Deputy Commissioner of Taxation (No 2) [2020] FCAFC 160 Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No 1) [1986] HCA 84; (1986) 161 CLR 681 Masri v Consolidated Contractors International (UK) Ltd (No 2) [2009] QB 450 Mercanti v Mercanti [2017] HCA 1; (2017) 91 ALJR 258 Owners of "Shin Kobe Maru" v Empire Shipping Co Inc [1994] HCA 54; (1994) 181 CLR 404 Rinehart v Welker [2012] NSWCA 1; (2012) 83 NSWLR 347 Division: General Division Registry: New South Wales National Practice Area: Taxation Number of paragraphs: 31 Date of hearing: 12 October 2020 Counsel for the Applicant: Mr G Ng with Mr N Li Solicitor for the Applicant: Unsworth Legal Counsel for the Respondent: Mr S Lloyd SC with Mr T Livingston Solicitor for the Respondent: Craddock Murray Neumann Lawyers ORDERS NSD 1759 of 2019 BETWEEN: CHANGRAN HUANG Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent order made by: BESANKO J DATE OF ORDER: 22 OCTOBER 2020 THE COURT ORDERS THAT: 1. The orders in paragraphs 4–8 inclusive made by the Full Court of the Federal Court of Australia on 28 September 2020 be stayed until the later of: (a) the date of the determination of the Deputy Commissioner of Taxation's application for special leave to appeal to the High Court; or (b) in the event that special leave to appeal from the orders is granted, the date of the determination of that appeal. 2. The costs of the stay application be costs in the cause of any appeal. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BESANKO J: Introduction 1 This is an interlocutory application by the Deputy Commissioner of Taxation against Mr Changran Huang dated 24 September 2020 in which the Deputy Commissioner seeks a stay of orders made by the Full Court of this Court on 28 September 2020. Under s 25(2) of the Federal Court of Australia Act 1976 (Cth), a single judge has jurisdiction to hear and determine an application for a stay of orders of a Full Court. 2 A judge of this Court made a freezing order in favour of the Deputy Commissioner against Mr Huang. Mr Huang applied for leave to appeal from those aspects of the freezing order which restrained his conduct with respect to assets he holds in the People's Republic of China (China) and in Hong Kong. Leave to appeal was granted and the appeal was allowed. The Full Court handed down its reasons on 17 August 2020 and made the following order: The applicant file within seven days consent minutes of order reflecting the conclusions in the Court's reasons. In the event the parties are unable to agree, the applicant file and serve within seven days draft minutes setting out the orders he seeks and a short note setting out the areas of dispute between the parties. (Huang v Deputy Commissioner of Taxation [2020] FCAFC 141.) 3 The parties were unable to reach agreement on all the outstanding issues and the Court handed down a second set of reasons dealing with the outstanding issues on 28 September 2020 (Huang v Deputy Commissioner of Taxation (No 2) [2020] FCAFC 160.) The Court made the following orders, relevantly: 4. The applicant be granted leave to appeal from Order 1 made by the Court in proceeding NSD 1490/2019 on 21 October 2019. 5. The applicant's appeal be allowed. 6. The orders made by the Court in proceeding NSD 1490/2019 on 21 October 2019 be varied by: (1) substituting Annexure A referred to in Order 1 with the Penal Notice directed to the applicant which is Annexure A to these orders; and (2) adding an Order 4 as follows: "The applicant is to pay 50% of the costs of the hearing on 17 October 2019 including the costs of preparing submissions for that hearing." 7. The respondent is to pay the applicant's costs of the appeal as agreed or taxed. 8. Upon agreement as to the amount or after taxation, the costs payable to the applicant by the respondent in this proceeding by Order 4 above and in proceeding NSD 1490/2019 by Order 4 on 21 October 2019 as inserted by Order 3 above, are to be set-off against the applicant's liability for the judgment sum and costs in proceeding NSD 1490/2019 by Orders 1, 2 and 3 on 19 December 2019. 9. Orders 4–7 inclusive be stayed until further order. 10. The Interlocutory application dated 24 September 2020 be fixed for hearing at 10:00 am (Sydney time) on Monday, 12 October 2020. 11. The applicant file and serve any affidavits and written submissions it intends to rely on in relation to the Interlocutory application referred to in Order 10 by 12:00 pm (Sydney time) on Wednesday, 7 October 2020. 4 In her Interlocutory application, the Deputy Commissioner sought the following orders: 1. This Interlocutory Application be made returnable instanter. 2. The Orders made by the Full Court of the Federal Court of Australia on 28 September 2020 be stayed until the later of: (a) 4.00pm on the 35th day from the date of those orders; or (b) in the event that an application for special leave to appeal to the High Court in respect of the orders is filed before the expiry of 28 days from the date of these orders, the date of the determination of that application for special leave to appeal; or (c) in the event that special leave to appeal from the orders is granted, the date of the determination of that appeal. 3. The parties have liberty to apply on 48 hours' notice. 4. Costs. 5. Such further or other orders as this Honourable Court deems fit. 5 By the time the application for a stay came on for submissions on 12 October 2020, the Deputy Commissioner had lodged her application for special leave to appeal with the High Court of Australia. The orders which the Deputy Commissioner seeks to have stayed are those in paragraphs 4–8 inclusive. 6 The Deputy Commissioner relies on an affidavit of Mr George Khouri sworn on 24 September 2020. Mr Khouri is an Australian public servant who is currently a Senior Technical Leader in the Australian Public Service, employed by the Debt Section of the Australian Taxation Office. Various matters are established by Mr Khouri's evidence and those matters are identified in the course of these reasons. Mr Khouri referred to a previous affidavit of Mr Yi Deng sworn on 16 September 2019 which the Deputy Commissioner also relies upon. Mr Deng's affidavit was before the primary judge and is referred to in the Full Court's first set of reasons (at [19]). As it happens, Mr Khouri summarises the key points based on Mr Deng's affidavit and it is not necessary for me to refer to Mr Deng's affidavit. 7 The Deputy Commissioner also relies on an affidavit of her solicitor. That affidavit annexed her application for special leave to appeal. The proposed ground of appeal if special leave is granted is in the following terms: The Full Court erred at [42]-[43] and [47] in imposing, as a jurisdictional precondition for the making of a worldwide freezing order, proof of a realistic possibility of enforcement of a judgment debt against assets of the defendant in each foreign jurisdiction to which the proposed order relates. 8 Each party relied on written submissions as well as oral submissions. The Deputy Commissioner's written submissions were dated 25 September 2020 and 9 October 2020 respectively, and Mr Huang's written submissions were dated 6 October 2020 and 9 October 2020 respectively. 9 As the application for special leave to appeal has now been filed, the orders sought by the Deputy Commissioner are as follows: (1) The orders made by the Full Court of the Federal Court of Australia on 28 September 2020 be stayed until the later of: (a) the date of the determination of the Deputy Commissioner's application for special leave to appeal to the High Court; or (b) in the event that special leave to appeal from the orders is granted, the date of the determination of the appeal. (2) The costs of the stay application be costs in the cause of any appeal. 10 For the reasons which follow, and subject to the identification of the relevant paragraphs of the orders of the Full Court, I have reached the conclusion that these orders should be made. The Prospects of Success of the Application for Special Leave 11 The prospects of success of an application for special leave to appeal is a relevant factor in the exercise of the discretion to grant a stay. 12 In the case of an appeal as of right, the prospects of success of the appeal will be considered, but that consideration will necessarily be limited. However, some assessment must be made and the appeal must be at least arguable. The extent to which something more than mere arguability is required, is likely to depend on other factors relevant to the exercise of the discretion to grant a stay (Alexander v Cambridge Credit Corp Ltd (Receivers Appointed) (1985) 2 NSWLR 685 (Alexander v Cambridge Credit) at 694–695). 13 In the case of an application for special leave to appeal to the High Court, Brennan J in Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No 1) [1986] HCA 84; (1986) 161 CLR 681 (Jennings) at 684–685 said that an applicant for a stay pending an application for special leave to appeal to the High Court needed to show, among other things, a substantial prospect that special leave to appeal will be granted. However, it is not necessary to show that the prospects of success of the application are high (Mercanti v Mercanti [2017] HCA 1; (2017) 91 ALJR 258 at [11] per Kiefel J, as her Honour then was). Furthermore, as Kirby J said in Bryant v Commonwealth Bank of Australia [1996] HCA 3; (1996) 70 ALJR 306 (Bryant) at 308 "[n]ecessarily, the evaluation of the prospects of success will involve a judicial impression". 14 The existence of substantial prospects of success is not an essential pre-requisite to a stay being granted where the Court considers that there are other factors that warrant the granting of a stay (Rinehart v Welker [2012] NSWCA 1; (2012) 83 NSWLR 347 at [48]–[49] per Bathurst CJ, Beazley JA and McColl JA; George v Fletcher (Trustee) (No 3) [2012] FCAFC 188 at [6] per Siopis, Jessup and Katzmann JJ). 15 The Deputy Commissioner submits that her application for special leave has at least reasonable prospects of success, or, adopting the other way her counsel expressed the matter, not insubstantial prospects of success. Her arguments, broadly outlined, in support of this submission are as follows. 16 First, the Deputy Commissioner submits that the Full Court erred in holding that it was a jurisdictional precondition to the granting of a freezing order with respect to overseas assets that there be a realistic possibility that any judgment obtained by the plaintiff can be enforced against assets of the defendant in the place to which the proposed order relates. The Deputy Commissioner referred to various passages in the Full Court's reasons in support of the proposition that the Court had viewed such a requirement as a jurisdictional precondition (at [42], [43] and [47]). This was an error, so the Deputy Commissioner submits, because such a requirement is nowhere to be found in the relevant rules and, in particular, r 7.32(1) and r 7.35(4) of the Federal Court Rules 2011 (Cth). The Court's conclusion that such a requirement was to be implied or inferred as a jurisdictional precondition was not warranted and furthermore, it is well-established that limitations on jurisdiction are not to be implied or inferred unless they are found in the express words (Owners of "Shin Kobe Maru" v Empire Shipping Co Inc [1994] HCA 54; (1994) 181 CLR 404 at 421). Mr Huang disputes the proposition that the requirement was treated by the Full Court as a jurisdictional precondition. 17 It is correct that the Rules do not contain in express terms a requirement that in order to obtain a freezing order with respect to overseas assets there must be a realistic possibility that any judgment obtained by the plaintiff can be enforced against the assets of the defendant in the place to which the proposed order relates. 18 Secondly, the Deputy Commissioner submits that there is no authority in this country or in the United Kingdom for the jurisdictional precondition formulated by the Full Court in the case of worldwide freezing orders. Such authority as there is emphasises the in personam nature of freezing orders and suggests, or is to the effect, that there is no requirement that an applicant for a freezing order establish a realistic possibility or prospect that any judgment the plaintiff obtains can be enforced against the assets of the defendant in the place to which the proposed order relates. In support of that proposition, the Deputy Commissioner referred to a number of cases: Ballabil Holdings Pty Ltd v Hospital Products Ltd (1985) 1 NSWLR 155 (Ballabil) at 161, 163, 164–165, especially at 165F; Masri v Consolidated Contractors International (UK) Ltd (No 2) [2009] QB 450 (Masri) at [129], [132]–[135] per Lawrence Collins LJ (with whom Lord Neuberger of Abbotsbury and Ward LJ agreed); Derby & Co Ltd v Weldon (Nos 3 and 4) [1990] Ch 65 (Derby (Nos 3 and 4)) at 81–82 per Donaldson LJ ( with whom Neill LJ agreed); at 96 per Butler-Sloss LJ; Derby & Co Ltd v Weldon (No 6) [1990] 1 WLR 1139 at 1149–1150 per Dillon LJ (with whom Taylor and Staughton LJJ agreed). Mr Huang submits that a number of these cases deal with the enforceability of freezing orders, not the final judgment in the case and that that is a material difference. 19 In my opinion, it is at least arguable that some of these cases provide support for the proposition for which the Deputy Commissioner contends. The precise extent to which they do so is not a debate to be had before me. 20 Thirdly, the Deputy Commissioner submits that proof of a realistic possibility of enforcement in the case of a worldwide freezing order creates substantial practical difficulties for an applicant for such an order and that is a consideration to be taken into account in determining whether there is such a requirement. Those practical difficulties will arise in circumstances of urgency and they include that the applicant will lack knowledge about the location of a defendant's assets and possible difficulties in ascertaining and proving opportunities for enforcement in particular jurisdictions. Mr Huang submits that the Deputy Commissioner's submissions exaggerate the practical difficulties. 21 In my opinion, it is at least arguable that the practical difficulties the Deputy Commissioner identified are relevant to whether proof of a realistic possibility of enforcement is required. 22 Finally, the Deputy Commissioner submits that if the existence of a realistic possibility of enforcement is relevant to whether a freezing order is made with respect to overseas assets, it is relevant to, the exercise of the discretion and not as a jurisdictional precondition. She identified judicial statements that support that submission: Ballabil at 165 per Priestley JA; Derby (Nos 3 and 4) at 98 per Butler-Sloss LJ. 23 I am satisfied that there are reasonable prospects, or not insubstantial prospects, that the Deputy Commissioner's application for special leave will be successful. In reaching this conclusion, I have also taken into account the apparent absence of authority on the point which the Deputy Commissioner wishes to agitate and that it appears to be an important issue in terms of the Court's power to grant worldwide freezing orders. Balance of Convenience 24 In the case of an appeal as of right, an application for a stay involves a consideration of the balance of convenience and this includes a consideration of the effect on the applicant if a stay is not granted and the effect on the respondent if a stay is granted. If a stay is not granted and there is a risk that the applicant's appeal albeit successful will prove abortive or rendered nugatory, then normally the Court will exercise its discretion to grant a stay (Alexander v Cambridge Credit at 694–695). 25 Similar principles apply in the case of an application for special leave to appeal: Jennings at 684–685 per Brennan J; Federal Commissioner of Taxation v Myer Emporium Ltd (No 1) [1986] HCA 13; (1986) 160 CLR 220 at 222–223 per Dawson J. It is also relevant to take into account whether, in a particular case, a stay will be protective of the public: Bryant. I consider that I am able to take into account as a factor in favour of a stay in this case that the underlying judgment (which the primary judge refused to stay) involves a very large taxation judgment debt in favour of the Commonwealth. 26 As far as whether the grant of a stay will cause loss to Mr Huang is concerned, the following matters are relevant: (1) the freezing orders made by the primary judge are supported by an undertaking as to damages given by the Deputy Commissioner as well as the other undertakings she has given which are set out in Schedule A of the freezing orders; (2) the evidence as to the assets Mr Huang holds in China and Hong Kong is to the effect that there are a number of foreign companies which he apparently controls and this is indicative that he has significant business interests in China and Hong Kong and "the structures and operations to allow him to easily move assets between jurisdictions" (Mr Khouri at para 22(i)); and (3) there is no evidence from Mr Huang or any person on his behalf that there is an existing transaction or a transaction in contemplation that will be affected with adverse consequences to him should the freezing orders remain in place. 27 I turn now to whether refusal of a stay will or may render the application for special leave and any appeal should leave be granted, nugatory. The following matters, subject to the principal argument raised by Mr Huang in opposition to the grant of a stay in the context of the balance of convenience and dealt with below, are relevant: (1) Mr Huang's judgment debt to the Deputy Commissioner is $140,607,780.88 together with general interest charges to 19 December 2019. That is plainly a very substantial amount. It has not been paid in whole or in part and there is no arrangement for its payment between Mr Huang and the Deputy Commissioner (Mr Khouri para 5–9, 22(a)–(c)); (2) he Deputy Commissioner conducted an audit of Mr Huang's taxation affairs and that audit revealed a substantial difference between Mr Huang's pre-audit taxable income and his post-audit taxable income. The Deputy Commissioner considers that that difference arose as a result of Mr Huang making recklessly false and misleading statements to her in his Income Tax Returns (Mr Khouri para 22(f)); (3) Mr Huang is a Chinese national who left Australia on 4 December 2018. He does not currently hold a visa to return to Australia (Mr Khouri para 22(e)). Mr Huang is a person of substantial wealth who has taken steps to sever his ties with Australia. He has disassociated himself from a number of Australian corporate entities and trusts. Mr Huang's transfer of monies offshore increased dramatically between the commencement of the audit and the making of the freezing orders. As to Mr Huang's wealth, some indication of this is provided by details of net transfer of funds out of Australia between January 2016 and August 2019 as revealed by reports held by AUSTRAC: i. January 2016 to August 2019: $20,114,169; ii. October 2017 to August 2019: $24,238,669.00; and iii. December 2018 to August 2019: $46,749,253.00. (Mr Khouri paras 22(e), (g)). (4) The unencumbered value of Mr Huang's assets in Australia which the Deputy Commissioner may readily be able to recover is likely to be significantly less than the judgment debt (Mr Khouri para 22(d)). (5) I have already referred to Mr Huang's control of foreign companies and his significant business interests in China and Hong Kong (see [26] above). 28 Mr Huang's principal submission in opposition to the stay is that the Deputy Commissioner will not suffer prejudice if a stay is not granted because the Full Court found that enforcement of a judgment in China or Hong Kong is not a realistic possibility (at [50] and [62]). Mr Huang submits that that finding is not challenged in the Deputy Commissioner's application for special leave to appeal and that, whilst it is true that the finding was made on the basis of the evidence before the primary judge, the Deputy Commissioner has not since the hearing before the primary judge produced any evidence that suggests that enforcement is a realistic possibility. 29 The Deputy Commissioner submits that this submission fails to recognise the main argument that it wishes to advance, that is, that a realistic possibility of enforcement is not a jurisdictional precondition. As I have said, she submits that if it is a relevant matter, it is a discretionary consideration to be weighed and assessed with and against other discretionary considerations at the time the discretion is exercised. The Deputy Commissioner submits that there are or may be in due course other enforcement possibilities or matters that may give rise, or lead to enforcement possibilities. He identified the following: (1) the examination of Mr Huang on his affidavit as to the location of his assets; (2) the commission by Mr Huang of an act of bankruptcy in that execution is issued against him under process of the Court and any of his property has in consequence either been sold by the sheriff or held by the sheriff for 21 days (s 40(1)(d) Bankruptcy Act 1966 (Cth)); (3) the obtaining of a sequestration order in relation to Mr Huang's estate on the basis that Mr Huang is still carrying on business in Australia within s 43(1)(b)(iii) of the Bankruptcy Act. Furthermore, further information may come to light about the possible engagement of s 43(1)(b) generally; (4) it is possible that other creditors of Mr Huang will come to light such that the Hong Kong Courts would give effect to Australian bankruptcy law, not Australian revenue law; (5) furthermore, if a trustee in bankruptcy is appointed, he or she will be able to conduct examinations of the bankrupt or other examinable persons under s 81 of the Bankruptcy Act; and (6) in personam orders may be made and they include the appointment of a receiver as occurred in Masri or an order under s 37A of the Conveyancing Act 1919 (NSW) or its equivalent in other States (Singh v Singh [2009] WASCA 53; (2009) 253 ALR 575 at [27]–[32]; see generally, Dicey AV, Morris JHC and Collins L, The Conflict of Laws (15th ed, Sweet & Maxwell, 2012) at [30-134] and Davies M, Bell AS, Brereton PLG and Douglas M, Nygh's Conflict of Laws in Australia (10th ed, LexisNexis Butterworths, 2020) at [4.23] and following. 30 It seems to me that Mr Huang's principal submission is inextricably bound up with the issue the Deputy Commissioner wishes to agitate before the High Court. Having regard to the matters I have identified, I am of the opinion that the balance of convenience favours the grant of a stay. Conclusion 31 For these reasons, I am satisfied that a stay should be granted in this case. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Besanko. Associate: Dated: 22 October 2020