Deputy Commissioner of Taxation v Gashi (No 4)

[2011] VSC 487

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 1590 of 2010

DEPUTY COMMISSIONER OF TAXATION	Plaintiff
v
RASIM GASHI and MANUELA GASHI	Defendants

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JUDGE:	DIXON J
WHERE HELD:	MELBOURNE
DATES OF HEARING:	23 SEPTEMBER 2011
DATE OF JUDGMENT:	28 SEPTEMBER 2011
CASE MAY BE CITED AS:	DEPUTY COMMISSIONER OF TAXATION v GASHI (NO. 4)
MEDIUM NEUTRAL CITATION:	[2011] VSC 487

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Practice and Procedure – freezing order – properties bought and developed in names of defendant’s children and family company that is trustee of a discretionary trust – assets frozen include trust assets of a family company now held as funds in court – variation sought by payment out from funds in court – to fund legal and other expenses of defendants – to fund fine imposed and legal expenses of trust company following contempt proceedings – neither trust nor trustee liable for all legal and other expenses – whether variation should be permitted – Supreme Court (General Civil Procedure) Rules 2005, Order 37A.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr I Martindale SC	Norton Rose
For the Defendants	Mr G Parncutt	Kiatos & Co

HIS HONOUR:

1. In this proceeding there are two summonses seeking interlocutory relief. The plaintiff seeks to be released from the implied undertaking not to use 13 affidavits filed in the proceeding for any purpose other than the conduct of this proceeding. In particular, a trial is scheduled to commence in the Federal Court of Australia in proceedings No. VID 972/2010 and VID 973/2010. These are tax appeal proceedings pursuant to Part IVC of the Taxation Administration Act 1953 (Cth), and the plaintiff seeks release from the implied undertaking in order that the Commissioner of Taxation may use the affidavits in the tax appeal proceedings.

1. Save in one respect, the application is not opposed. The defendants seek to limit the extent of the release from the undertaking sought by the plaintiff. The plaintiff is not now pressing for the release in wider terms. In the circumstances, I accept that the relief should be so limited. The orders I will make on the plaintiff’s summons are as follows:

(1)The plaintiff be, and is, released from any undertaking not to use the following affidavits for any purposes other than the conduct of this proceeding, so that they may be used by the Commissioner of Taxation in and in relation to the conduct of proceedings No. VID 972/2010 and VID 973/2010 in the Federal Court of Australia:

(a)       Affidavit of Rasim Gashi sworn 31 March 2010;
(b)      Affidavit of Rasim Gashi sworn 6 April 2010;
(c)       Affidavit of Manuela Gashi sworn 6 April 2010;
(d)      Affidavit of Victoria Gashi sworn 29 April 210;
(e)       Affidavit of Samira Gashi sworn 29 April 2010;
(f)       Affidavit of Rasim Gashi sworn 30 April 2010;
(g)      Affidavit of Manuela Gashi sworn 2 May 2010;
(h)      Affidavit of Rasim Gashi sworn 3 May 2010;

(i)       Affidavit of Rasim Gashi sworn 13 May 2010;
(j)        Affidavit of Samira Gashi sworn 16 June 2010;
(k)      Affidavit of Rasim Gashi sworn 6 February 2011;
(l)       Affidavit of Rasim Gashi sworn 22 February 2011; and

(m)     Affidavit of Rasim Gashi sworn 7 September 2011.

(2)       The defendants pay the plaintiff’s costs of the application.

1. On 9 September 2011, the defendants filed a summons seeking variation of the freezing order and on 23 September, by leave, filed an amended summons. By consent, I dispensed with service of the amended summons. The defendants apply to vary the freezing order made by Bell J on 14 April 2010 for two purposes. They seek, from funds in court representing the net proceeds of the sale of the Hamilton Street properties, the release of funds for payment of:

(a)The fine of $50,000 imposed on Gashi Nominees on 15 September 2011;

(b)Legal expenses incurred by the defendants and Gashi Nominees Pty Ltd in this proceeding, on the application before Ferguson J for variation of the freezing order to permit the sale of Hamilton Street, and on the contempt application; and

(c)Payments on account of reasonable legal and accounting expenses in the Federal Court proceedings.

1. Secondly, the defendants seek release from the prohibition on dealing with the land on 19 Dudley Street, North Essendon to enter into a building contract with Frederick Benjamin for construction work at that property at a cost of $350,090. They also seek the release of funds for payment of that contract.

1. In part, the plaintiff does not oppose parts of this application. It consents to a variation of the freezing order to permit the following payments to be made:

(a)The fine of $50,000;

(b)The plaintiff’s reasonable legal expenses of and incidental to this proceeding; and

(c)The reasonable legal expenses of Gashi Nominees Pty Ltd of and incidental to this proceeding.

The plaintiff objects to orders permitting the defendants, Mr and Mrs Gashi, to recover their reasonable legal expenses of this proceeding and in the Federal Court proceedings from the funds in court. Further, the plaintiff objects, on several grounds, to any relaxation of the freezing order to permit dealings with the Dudley Street property. However, during the course of the hearing, when it became apparent that there were insufficient funds available to finance the proposed building contract, that part of the application was withdrawn by the Gashi parties. I need say no more about it.

1. To date, two sales of properties by Gashi interests have generated cash funds. The first sale was the property at Ross Street, Niddrie, owned by Samira Gashi. The net proceeds of this sale were paid into a controlled monies account, the present balance of which is $29,692. Following Ferguson J’s variation of the freezing order, the sale of the units at Hamilton Street, Niddrie resulted in funds in court of $747,301.22. The court was not informed as to what had occurred with the sale of the Diggers Rest property.[1]

   [1]See Deputy Commissioner of Taxation v Gashi & Anor (No 2) [2011] VSC 351 (28 July 2011).

1. Most of the proposed disbursements have not been specifically quantified. The amount of the fine payable by Gashi Nominees Pty Ltd is fixed. The funds in court belong to it. Payment by Gashi Nominees’ of its fine out of its resources is not opposed by the plaintiff. Gashi Nominees is liable, by orders of this court, to pay the plaintiff’s costs of the contempt proceedings and the proceedings before Ferguson J. The plaintiff solicitors have billed a total of $162,271.72 on monthly invoices from December 2010 until May 2011. As variation of the freezing order to allow payment of this amount is unopposed, and it represents costs for which Gashi Nominees Pty Ltd is liable, I will vary the freezing order to permit payment out of its funds held in court of these two sums.

1. These two payments will reduce the funds remaining in court to $535,029.50. It is clear there are insufficient funds to finance both the Dudley Street construction costs and the costs and expenses of the Federal Court proceedings. It was for this reason that the application in respect of the Dudley Street construction costs was withdrawn.

1. Mr Gashi has received interim invoices totalling $259,447.28 in respect of work and services provided by solicitors Kiatos & Co in various matters on behalf of himself, the second defendant, his wife and Gashi Nominees Pty Ltd. Each of these invoices was addressed to either Mr Gashi alone or to the defendants, none are addressed to Gashi Nominees Pty Ltd. Mr Gashi is incurring legal expenses in:

·the current proceedings;

·proceedings issued by ANZ Bank against Rasim Gashi, Manuela Gashi, Samira Gashi and Gashi Nominees Pty Ltd (S CI 2011/00805);

·the tax appeal proceedings in the Federal Court of Australia; and

·a proceeding in the Magistrates’ Court brought by an accountant, Mr Karafili.

1. On the evidence, I am satisfied that the particular costs invoiced to Mr Gashi may be broken down in the following way:

·$147,655.12 — incurred in preparation for the Federal Court proceedings, predominantly comprising expert accounting fees, counsel’s fees and solicitors’ costs;

·$14,477.90 — representing, substantially, solicitors’ costs in respect of the Magistrates’ Court proceeding; and

·$97,314.26 — representing, substantially, the costs and expenses of the first defendant and Gashi Nominees Pty Ltd in the contempt proceeding and the earlier proceedings before Ferguson J.

1. Gashi Nominees Pty Ltd, as a party to the proceedings before Ferguson J and the contempt proceeding, is likely to be liable for those professional costs, there being no evidence to suggest otherwise. Although there is no evidence of the retainer of the solicitors, I am prepared to accept that this is likely to be so. The plaintiff did not oppose an order for payment of the reasonable legal expenses of Gashi Nominees Pty Ltd, of and incidental to this proceeding and I will allow those costs in the sum of $97,314.26.

1. The plaintiff did oppose any further payments from the funds in court towards legal expenses on the grounds that Gashi Nominees Pty Ltd, the owner of the funds in court, is not a party to either the Magistrates’ Court proceeding or the Federal Court proceeding. There is no evidence that Gashi Nominees Pty Ltd has any liability for these expenses.

1. The freezing order secures other assets owned by the defendants, as well as other family members. There is no evidence of the present financial position of any particular member of the Gashi family. On prior occasions, the defendants have chosen to present an estimated snapshot of a consolidated family position. In October 2010, in an application in this proceeding to vary the freezing order to obtain finance for legal expenses, evidence of the estimated consolidated family position showed a net equity of $599,597.75. This consolidated snapshot included the property at Dudley Street (of which Arif Gashi is registered proprietor), the property at Hamilton Street (of which Gashi Nominees Pty Ltd was registered proprietor) and the proceeds of sale of the unit at Ross Street (of which Samira Gashi was registered proprietor).

1. I bear in mind the well-established purpose of a freezing order — to restrain the disposition of or dealing with assets that might wholly or partly defeat a likely judgment. The purpose of a freezing order is to enable a court to protect its processes from abuse in relation to the enforcement of its orders. A freezing order does not give a claimant security for its claim or any proprietary interest in the assets retained.[2]

   [2]Jackson v Sterling Industries Ltd (1987) 162 CLR 612, 619; Patrick Stevedores Operations (No. 2) Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1, 45; Customs and Excise Commissioners v Barclays Bank Plc [2007] 1 AC 181, 193 [10].

1. The difficulties with the consolidated approach to reporting the financial position of the Gashi family is that it is not possible to determine whether any individual family member, as a financial entity, is solvent. There is also no evidence of a liability on the part of any Gashi entity, other than the defendants or one of them, for the expenses to be funded. This is of particular importance when considering the further claims to the funds in court. It is common ground that the funds in court are the property of Gashi Nominees Pty Ltd, which is the trustee for the Gashi family trust. Gashi Nominees Pty Ltd has not lodged income tax returns for the preceding five years. It has not lodged business activity statements for the preceding two years. Such tax returns as have been lodged by individual family members do not record any distributions from trusts. There is no evidence of any practice of distributions by Gashi Nominees Pty Ltd to assist beneficiaries with legal expenses requiring payment.

1. The Gashi parties sought to meet this objection by tendering an affidavit from each of the corpus beneficiaries of the trust, which is a discretionary trust. The trust deed provides that the trustee is not obliged to comply with the directions of any beneficiary and each discretion and power exercisable by the trustee is absolute, fully discretionary, and without any restriction implied from any other provisions of the trust deed.

1. The Gashi parties contended that Gashi Nominees Pty Ltd can, and would, make a distribution of funds for the benefit of the defendants who are defendants for the legal expenses incurred in the Federal Court and Magistrates’ Court proceedings. However, the net proceeds of the sale of Hamilton Street are restrained by paragraph 21 of the freezing order regarding disposing of, diminishing the value of or dealing with such net proceeds.

1. Could Gashi Nominees Pty Ltd properly exercise its discretion to make the distribution proposed? It is well recognised that it is not the purpose of a freezing order to prevent a defendant from carrying on business in the ordinary way, or from having access to its own assets for living expenses or payment of debts, nor is it intended to impede the defendant in defending himself against the claim.[3] Such principles are well recognised — see the Practice Note[4] and paragraph 16 of Bell J’s freezing order.

   [3]Atlas Maritime Co SA v Avalon Maritime Ltd (The Coral Rose) (No.3) [1991] 1 WLR 917, 920; Jackson v Sterling Industries Ltd (1987) 162 CLR 612, 642; Frigo v Culhaci [1998] NSWSC 393 (17 July 1998).

   [4]Supreme Court of Victoria, Practice Note No 5 of 2010 — Freezing Orders, 3 May 2010, [12].

1. These principles and provisions are relevant to the application of the defendants’ assets to the expenses they face, not the expenses of a third party. The funds in court cannot form part of the defendants’ assets unless, contrary to the freezing order, Gashi Nominees deals with the fund by making a distribution. But to do so, a variation to the freezing order is required.

1. I decline to order such a variation. There is no material before the court upon which a discretion to order such a variation could properly be exercised. I note a consent order that I made in this proceeding on 8 October 2010 permits the defendants to charge their properties by way of registered mortgage in favour of MCK Legal to secure the reasonable legal expenses incurred in the Federal Court proceedings. I was not informed whether any step was taken pursuant to that order. I am not satisfied that Gashi Nominees Pty Ltd has any obligation to pay legal expenses for the defendants in the Federal Court and Magistrates’ Court proceedings. As I have stated, it is unable to accept such an obligation by reason of the freezing order. There is no application that a dealing be permitted with the funds in court by allowing Gashi Nominees Pty Ltd to accept liability for the expenses of these proceedings. Further, without some appropriate evidence identifying the financial position of Gashi Nominees Pty Ltd and the Gashi family trust and the reasons why it ought accept responsibility for such expenses, I would not allow any further payments from the funds in court for this purpose.

1. For these reasons I will vary the freezing order to permit payment from the funds in court of the three amounts identified above, but no further. I will hear from counsel on the precise form of the orders and in relation to costs.

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