Commissioner of Taxation v Pavihi
[2018] FCA 1603
•23 October 2018
FEDERAL COURT OF AUSTRALIA
Commissioner of Taxation v Pavihi [2018] FCA 1603
File number: VID1347 of 2018 Judge: WHEELAHAN J Date of judgment: 23 October 2018 Catchwords: PRACTICE AND PROCEDURE – interim injunction – service of originating process – application for interim injunction granted on an ex parte basis. Legislation: Superannuation Industry (Supervision) Act 1993 (Cth) ss 68B(1), 315(1)(a) and (b), (2), (5 - 9) Date of hearing: 23 October 2018 Registry: Victoria Division: General Division National Practice Area: Taxation Category: Catchwords Number of paragraphs: 33 Counsel for the Applicant: Mr T Begbie with Mr S Linden Solicitor for the Applicant: AGS Counsel for the Respondent: The Respondent did not appear ORDERS
VID1347 of 2018 BETWEEN: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Applicant
AND: KALANGALUPE PAVIHI
Respondent
JUDGE:
WHEELAHAN J
DATE OF ORDER:
24 OCTOBER 2018
THE COURT ORDERS THAT:
1.Until 4.00pm Eastern Summer Time on 30 November 2018, or further order, the respondent be restrained, whether by herself or her employees, servants or agents, directly or indirectly, from inducing, advising or assisting or facilitating any person to:
(a)establish a self-managed superannuation fund;
(b)rollover or transfer of money or property from any other funds into a self-managed superannuation fund; or
(c)make payments from a self-managed superannuation fund.
2.The application for interim orders be adjourned to 9.30am Eastern Summer Time on 30 November 2018, at which a case management hearing will also take place.
3.There be liberty to apply.
4.Costs reserved.
THE COURT DIRECTS THAT:
1.By 4.00pm Eastern Summer Time on 25 October 2018 a sealed copy of this order be sent to the respondent care of the following email address: [email protected].
2.As soon as practicable a copy of these reasons and of the transcript of the hearing on 23 October 2018 be sent to the respondent care of the email address, [email protected].
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
WHEELAHAN J:
By an Originating Application filed 18 October 2018 the applicant seeks declaratory relief, a final injunction, and payment of a civil penalty against the respondent in respect of an alleged contravention of s 68B(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) (the Act). The applicant alleges that the respondent has contravened s 68B(1) of the Act by promoting to trustees or intended trustees of self-managed superannuation funds (SMSFs) a scheme that resulted, or was likely to result in an early release of funds from a SMSF that was not permitted by law.
The applicant also seeks interlocutory orders in the following terms:
Pending further or other orders, the respondent be restrained, whether by herself or her employees, servants or agents, directly or indirectly, from inducing, advising or assisting or facilitating any person to:
Establish a SMSF;
Rollover or transfer of monies/property from any other fund into a SMSF; or
Make payments from a SMSF.
Section 68B of the Act is in the following terms:
68B Promotion of illegal early release schemes
(1) A person must not promote a scheme that has resulted, or is likely to result, in a payment being made from a regulated superannuation fund otherwise than in accordance with payment standards prescribed under subsection 31(1).
(2) Subsection (1) is a civil penalty provision as defined by section 193, and part 21 therefore provides for civil and criminal consequences of contravening, or being involved in a contravention of, that subsection.
(3) In this section:
promote, in relation to a scheme, includes the following:
enter into the scheme;
induce another person to enter into the scheme;
carry out the scheme;
commence to carry out the scheme;
facilitate entry into, or carrying out of, the scheme.
scheme means:
any agreement, arrangement, understanding, promise or undertaking:
(i)whether express or implied; or
(ii)whether or not enforceable, or intended to be enforceable, by legal proceedings; or
(iii)any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.
The term “Regulator” is defined in the Act in s 10 as follows:
Regulator means:
(a)APRA if the provision in which it occurs is, or is being applied for the purposes of, a provision that is administered by APRA; and
(b)ASIC if the provision in which it occurs is, or is being applied for the purposes of, a provision that is administered by ASIC; and
(c)the Commissioner of Taxation if the provision in which it occurs is, or is being applied for the purposes of, a provision that is administered by the Commissioner of Taxation.
The applicant to this proceeding falls with the definition of “Regulator” because by s 6(1)(e) of the Act the Commissioner of Taxation has the general administration of a number of provisions of the Act to the extent that they relate to self-managed superannuation, including in particular Part 7 of which s 68B forms part.
Application for interlocutory relief
The application for interlocutory relief is supported by an affidavit of Raleigh Agdaca affirmed 16 October 2018. Mr Agdaca states that he is employed in the Australian Taxation Office as a Compliance Investigations Officer in the Aggressive Tax Planning Team. He states that he has been involved in the Commissioner’s civil investigation of alleged breaches by the respondent of s 68B(1) of the Act.
Mr Agdaca deposes to facts based upon investigations including those undertaken by the applicant in the exercise of powers under s 269 of the Act to give notice requiring the production of documents, and in the exercise of powers under s 353-10(1)(b) of schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA) to require persons to give evidence.
Mr Agdaca gives evidence of ongoing investigations by the applicant in relation to 34 SMSFs. Detailed evidence is given in relation to four such funds. They are known as:
(a)the Kolofale and Tupou Superfund;
(b)the Atelea Maka Superfund;
(c)the Ngungutau and Aviga Superfund;
(d)Patelisio Loloa Superfund.
In relation to those four funds Mr Agdaca exhibits to his affidavit a number of documents which, on a prima facie basis, are capable of supporting inferences that the respondent, in contravention of s 68B of the Act, has promoted schemes that have resulted in payments made from regulated superannuation funds otherwise than in accordance with the payment standards prescribed under s 31(1) of the Act. Features that appear common to each of the four cases include the following:
(a)the establishment of a SMSF with the involvement of the respondent;
(b)the rollover of superannuation benefits from an industry superannuation fund into the SMSF;
(c)the withdrawal of almost all the benefits from the SMSF;
(d)the use of the monies withdrawn from the fund by the beneficiaries for various personal purposes such as funding renovations, paying stamp duty on the purchase of a house, and assisting family members financially; and
(e)in each instance, the payment of one or more fees to the respondent in the sum of $2,000.
It would appear that each of the four SMSFs which is the subject of the affidavit evidence was established for the benefit of vulnerable individuals, in that it is open to conclude on a prima facie basis that they likely relied upon advice given in relation to the establishment of the funds, and relied on a representation they were entitled to withdraw monies from the funds for various purposes.
By withdrawing funds from self-managed superannuation funds for personal purposes, the trustees and beneficiaries of the funds are potentially exposed to a range of additional taxation liabilities. In his affidavit Mr Agdaca identified the following potential taxation consequences:
(a)as all the members of the subject SMSFs were under preservation age and no payment standard prescribed under sub-section 31(1) of the Act was met, the taxable component and the untaxed element of the superannuation lump sums received from the Australian Prudential Regulation Authority (APRA) regulated funds, are assessable income, under sub-sections 301-35(1) and 301-155(1) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) respectively;
(b)an amount of shortfall interest charge (SIC) is payable in respect of the income tax shortfall pursuant to s 5-10 of the ITAA 1997 and calculated under Division 280 in Schedule 1 of the TAA;
(c)pursuant to section 284-75 in Schedule 1 to the TAA, an administrative penalty of up to 75% of the income tax shortfall may be imposed; and
(d)if the amount of the income tax shortfall and SIC that the Participant is liable to pay remains unpaid on the due date for payment, general interest charge accrues in respect of the unpaid amount for each day that it remains unpaid pursuant to section 5-15 of the ITAA 1997 and calculated under Part 11A of the TAA.
I express no view whether, in any given case, those taxation consequences will arise. It is sufficient for the resolution of this application that I identify a real risk that such taxation consequences might arise.
Mr Agdaca deposes that in addition to the 34 SMSFs under investigation, there are a further 41 SMSFs that have been identified as suspicious and potentially involving the respondent.
The Court’s powers to grant an injunction in relation to contravention of the Act are found in
s 315 of the Act, together with s 23 of the Federal Court of Australia Act 1976 (Cth). The applicant relied on s 315 of the Act. Section 315(1)(a) and (b) of the Act provide:
315 (1)If a person (the perpetrator) has engaged, is engaging or is proposing to engage, in conduct that constituted, constitutes or would constitute:
(a)a contravention of this Act, a condition imposed on an RSE licence or a direction given under this Act by APRA or the Regulator; or
(b)attempting to contravene this Act, a condition imposed on an RSE licence or a direction given under this Act by APRA or the Regulator.
Section 315(2) of the Act provides:
315 (2)If granted, the injunction:
(a)is to restraining the perpetrator from engaging in the conduct; and
(b)if in the opinion of the Court it is desirable to do so, may also require that person to do any act or thing.
The powers of the Court under s 315(5) include the power to grant an interim injunction pending the determination of an application under sub-section (1). Under s 315(9) of the Act, the Court must not require the applicant as Regulator to give an undertaking as to damages as a condition of granting an interim injunction.
Service on the applicant
It is necessary to address the question of service of the originating application.
The affidavit of Mr Agdaca affirmed 16 October 2018 deposes at paragraphs [58] to [66] of contact between officers of the applicant and the respondent between January 2018 and August 2018. Mr Agdaca deposes to a telephone conversation between him and the respondent on 8 May 2018 in which the respondent informed him that she was then living in Rye, Victoria. By email dated 9 May 2018, which appears to be from the respondent, the respondent advised the applicant of an address in Rye, Victoria.
The affidavit of Mr Agdaca also deposes to a number of email communications between officers of the applicant and the respondent. Those email communications were to an Outlook email address which appears to be associated with the respondent. The affidavit of Mr Agdaca also deposed to information he received on 15 October 2018 that the respondent was proposing to leave Australia on “Thursday next week” which might be understood to mean Thursday 25 October 2018.
After filing the originating application with the Court on Thursday 18 October 2018 at 12.46pm, the solicitor for the applicant, Mr Owbridge, sent an email to the respondent at the Outlook email address which attached copies of the originating application, the affidavit of Mr Agdaca (but without the exhibits), and a covering letter dated 18 October 2018 addressed to the respondent at her Rye address. These matters are referred to in an affidavit of Mr Owbridge affirmed 22 October 2018. The covering letter advised the respondent of the fact that the application for injunctive relief had been listed to be heard by the Court at 10.15am on Tuesday 23 October 2018. It appears from the evidence that at 8.25pm the respondent responded to that email in which she stated –
Please be advised that I only just accessed my email I flew from Melbourne today to see my doctor and due to the delay of flights I couldn't get to my doctor for my appointment.
Can you please delay everything until I get back from Tonga I am going for a health treatment and had enough on my plate. Please note I also diagnose with PTSD and can't cope with rushing stuff like this.
I am not return until the 13 November if I will be fully healed and complete from my treatment. Please note this is too rush to email today that I will be in a hearing in couple of days.
I will email you a letter from thr [sic] doctor once I see him tomorrow morning
Mr Owbridge sent a further email to the respondent at 12.10pm on 19 October 2018. Mr Owbridge deposes to a telephone conversation that he had with the respondent at about 1.00pm. The substance of that conversation was that the respondent informed Mr Owbridge that she was unwell, that she was in Sydney to see her doctor to get a medical certificate, and that she was then travelling to Tonga to get treatment for “PTSD”. The respondent informed Mr Owbridge that she had not properly read the material and did not consent to the matter being dealt with on an interim basis. The respondent informed Mr Owbridge that she returns from Tonga on 13 November 2018 and that she will still reside at the Rye address. The respondent provided Mr Owbridge with an address in Canley Heights in Sydney where she could be served.
Mr Agdaca affirmed a second affidavit on 18 October 2018 in which he deposes to the receipt of information by email from another officer of the Australian Taxation Office at 2.10pm on Thursday 18 October 2018 that on that day, the respondent booked a flight to depart Australia from Sydney at 6.30am on Saturday 20 October 2018. A copy of a Fiji Airways reservation confirming a flight from Sydney to Tonga via Fiji is exhibited to that affidavit.
There is also before the Court an affidavit of Joseph Severino affirmed 22 October 2018 which deposes to an attempt to serve the respondent with the originating application, the affidavit of Mr Agdaca affirmed 16 October 2018 together with the exhibits to that affidavit, and the covering letter dated 18 October 2018 which was addressed to the respondent at the Rye address. That attempt at service took place at the address in Canley Heights at 5.32pm on 19 October 2018. The deponent did not leave the documents with the respondent, but left them with a male person at that address.
Rule 10.01 of the Federal Court Rules 2011 provides:
10.01 Service on individual
A document that is to be served personally on an individual must be served by leaving the document with the individual.
I am not currently satisfied that the attempt at service by leaving the documents with the male person at the address in Canley Heights constitutes personal service for the purposes of r 10.01. Nor does service by email of some of the documents constitute personal service for the purposes of r 10.01. In the circumstances, the application proceeded before me as an ex parte application, albeit with informal notice to the respondent.
Injunctive relief
In my view, on the basis of the evidence before me, there is a reasonably strong prima facie case that the respondent has promoted SMSF schemes with the object of having payments made from those funds otherwise than in accordance with payment standards prescribed under s 31(1) of the Act. There is a good arguable case that the consequences of promotion of the schemes to individuals who are vulnerable in the sense that they are liable to rely upon such promotion, include a risk that they are exposed to taxation liabilities as a result of drawing down funds for impermissible purposes, and the potential inability to restore those funds. In written submissions counsel for the applicant submitted that even though it appears that the respondent has left Australia for Tonga for a period, there remains a risk that the respondent’s promotion or assistance in setting up funds might continue by email while the respondent is overseas.
On the other hand, counsel for the applicant pointed to the applicant’s denial in her telephone conversation with Mr Owbridge on 19 October 2018 that she created the SMSFs, and her statement that she just helped people who asked her questions about forms that they received. Counsel also pointed to statutory defences under s 221 and s 323 of the Act which the respondent might invoke at trial, perhaps relying on the state of her health, and a lack of understanding of the legal position.
On the issue of potential prejudice to the respondent, counsel for the applicant relied on the absence of any suggestion in the evidence that the respondent was a registered tax agent, or an authorised financial planner.
I consider that protection of the public is a consideration to which I should give considerable weight in determining whether to make any interim orders. In my view the strength of the prima facie case, and the desirability of protection of the public outweigh any potential prejudice to the respondent.
On an ex parte basis, I propose to make the following orders:
(1)Until 4.00pm Eastern Summer Time on 30 November 2018, or further order, the respondent be restrained, whether by herself or her employees, servants or agents, directly or indirectly, from inducing, advising or assisting or facilitating any person to:
(a)establish a self-managed superannuation fund;
(b)rollover or transfer of money or property from any other funds into a self-managed superannuation fund; or
(c)make payments from a self-managed superannuation fund.
(2)The application for interim orders be adjourned to 9.30am Eastern Summer Time on 30 November 2018, at which a case management hearing will also take place.
(3)There be liberty to apply.
(4)Costs reserved.
I propose to make the following directions:
(1)By 4.00pm Eastern Summer Time on 25 October 2018 a sealed copy of this order be sent to the respondent care of the following email address: [email protected].
(2)As soon as practicable a copy of these reasons and of the transcript of the hearing on 23 October 2018 be sent to the respondent care of the email address, [email protected].
The order will be endorsed under rule 41.06, and service of the order will be subject to rule 41.07.
I do not propose to make any order for substituted service of the originating application, or to make any order under r 1.34 dispensing with compliance with the rules relating to personal service of the originating application at this point in time. I take into account that by this proceeding the applicant seeks the imposition of a civil penalty. I also take account of the evidence of statements by the respondent that she proposes to return to Australia by 13 November 2018 and to reside at the Rye address. It remains open to the applicant to apply at a later point for any such orders if the circumstances make such an application reasonably necessary.
I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wheelahan. Associate: Aviva Kalman
Dated: 30 October 2018
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