Deputy Commissioner of Taxation v Mei Mei Yan (aka Quinnie Wong)

[1998] FCA 783

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7468  of  1997

BETWEEN:

DEPUTY COMMISSIONER OF TAXATION

Petitioner

AND:

MEI MEI YAN (AKA QUINNIE WONG)

Debtor

JUDGE:

EMMETT J

DATE:

12 JUNE 1998

PLACE:

SYDNEY

THE COURT ORDERS:

1. That the Commissioner notify the Taxpayer no later than Tuesday 16 June 1998 of the further evidence which the Commissioner wishes to adduce on the hearing of the adjournment application.

1. That the Taxpayer indicate no later than 19 June 1998 the Taxpayer’s attitude to the admissibility of that further evidence.

1. That the Commissioner file and serve no later than 3 July 1998 any further evidence intended to be relied upon in opposition to the adjournment application.

1. The Taxpayer file and serve no later than 17 July 1998 any evidence intended to be relied upon in answer to that further evidence of the Commissioner.

1. That the further hearing of the petition be adjourned to 27 July 1998.

1. That the question of the costs thrown away by the adjournment be reserved.

1. That the costs of the motion generally be reserved.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7468  of  1997

BETWEEN:

DEPUTY COMMISSIONER OF TAXATION
Petitioner

AND:

MEI MEI YAN (AKA QUINNIE WONG)

Debtor

JUDGE:	EMMETT J
DATE:	12 JUNE 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

HIS HONOUR:  I have before me an application for the adjournment of the hearing of a bankruptcy petition which was presented on 24 April 1997.  The Deputy Commissioner of Taxation (“the Commissioner”) seeks a sequestration order in respect of the estate of Ms Quinnie Wong (“the Taxpayer”).  The Commissioner has obtained judgment against the Taxpayer in respect of assessments issued under the Income Tax Assessment Act 1936 (Cth). The basis of the assessments is the asserted betterment of the assets of the Taxpayer in successive years ending 30 June 1990 to 1994 inclusive.

The Taxpayer's objection to the assessments was rejected and the Taxpayer has brought proceedings in the Administrative Appeals Tribunal (“the Tribunal”) for review of the Commissioner's decision on the objections.  The Taxpayer, of course, has the onus of establishing that the Commissioner's assessments are excessive.

The application to the Tribunal was fixed for hearing before Mr J. Block, Senior Member, on 8 September 1997.  However, prior to the commencement of that hearing, the Taxpayer was charged with a number of offences relating to the transfer of moneys out of Australia.  Those charges have been fixed for hearing in the New South Wales District Court in February 1999.  In the course of the proceedings before Mr Block on 8 September 1997, it emerged that it would be undesirable from the Taxpayer's point of view, in the light of those proceedings, for the proceedings before the Tribunal to continue and accordingly the proceedings were adjourned without any opposition from the Commissioner.  The Taxpayer now seeks an adjournment of the hearing of the petition to a time in 1999 after the determination of the proceedings before the Tribunal, in the expectation that those proceedings will not be determined until after the criminal proceedings in the District Court have been determined. 

A court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings, provided that the appeal is based on genuine and arguable grounds (see Ahern v The Deputy Commissioner of Taxation (1987) 76 ALR 137 at 148). That statement of principle has been confirmed on several occasions by this Court.

I have before me evidence indicating the nature of the evidence which will be before the Tribunal.  That evidence consists of a substantial number of affidavits sworn by Phillip Yip, who was then the solicitor for the Taxpayer, in which he sets out, on information and belief, the evidence which prospective witnesses before the Tribunal will give.  I also have the evidence of a chartered accountant, Mr Christer Osterberg, who says that, on the assumption that the facts asserted by those prospective witnesses are true, the Commissioner's assessment based on the betterment of assets will be shown to be excessive.  As I understand it, there is no real dispute, from the Commissioner's point of view, that if the facts asserted by those prospective witnesses are accepted, what Mr Osterberg says follows as a matter of arithmetic.

The real question, however, is whether or not it can be said that, on the basis of the material contained in Mr Yip's affidavits and the evidence otherwise adduced before me by the Taxpayer, the grounds of appeal by the Tribunal can be said to be reasonable and arguable.  I am satisfied that there would be a significant detriment and prejudice to the Taxpayer if a sequestration order were made before she had the opportunity of arguing her appeal before the Tribunal.  In particular, McCallum v Federal Commissioner of Taxation (1997) 97 ATC 4509 would place considerable doubt on the standing of the Taxpayer to pursue the appeal if a sequestration order was made.

The Commissioner's general contention is that the Taxpayer received income as a result of unlawful activities engaged in by her.  The Taxpayer's contention, however, is that, to the extent that moneys were received by her during the years of income, they were either received from her husband as the proceeds of gambling activities by her husband or were moneys received by her from relatives in Hong Kong.

In relation to the first category the contention advanced by the Commissioner is that it is inherently unlikely that the Taxpayer's husband would be continually successful in gambling to the extent that he would be in receipt of the funds in question.  There is, however, some material before me which would corroborate the assertion made by the Taxpayer that the receipts were gambling winnings.  Part of that corroboration is hearsay evidence from her husband, known as Duncan Lam.  There is, however, evidence that Mr Lam has disappeared and is being sought in connection with alleged criminal activities.

There is also evidence from a registered bookmaker as to the extent of wagers made by Mr Lam in the relevant years.  There is also evidence that substantial numbers of payments were made by cheques drawn by the operator of the Totalisator Agency Board.  Ultimately, it may well be a matter of the credibility of the Taxpayer when giving evidence before the Tribunal as to whether or not those funds did in fact represent the proceeds of gambling wins.  There is material before me indicating what the various witnesses are prepared to say.  Accordingly, I am not persuaded that the Taxpayer’s grounds of appeal are not reasonable and arguable so far as they relate to the alleged gambling receipts.

Counsel for the Commission took me to three of the payments in the second category.  In relation to the three transactions involving receipt of money from Hong Kong, the Commissioner's case appears to be that, on the basis of evidence which indicates that in 1996 and 1997 substantial funds were remitted from Australia to Hong Kong by the Taxpayer, an inference should be drawn that, before the receipt of funds from Hong Kong in the years of income, the Taxpayer also remitted funds from Australia to Hong Kong.  There is, however, no evidence of any such transfer during the years of income.

The Taxpayer's evidence is that each of the three payments singled out by the Commissioner was a loan made to her by Ng Oi Cheung, the mother of her husband.  The three payments in question were $33,317 on 23 December 1991, $199,995 on 30 April 1993 and $57,083 on 3 November 1993.  The Commissioner contended that when one considers the detailed evidence in relation to those three payments, there are inconsistencies which throw considerable doubt on the veracity of the Taxpayer's evidence.

The Taxpayer says that the first payment represented a loan from her mother-in-law. However, the documentary evidence in relation to the payment indicates that it was received from Lee Tak Chuen.  The borrowing of that fund from Duncan Lam's mother is corroborated by hearsay evidence from Mr Lam although there may be some considerable doubt as to whether Mr Lam will give evidence before the Tribunal.  The Commissioner points to the fact that the payment of that sum is not corroborated by the proposed evidence of Mr Lam's mother who refers to the second and third payments but not to the first.  There is no explanation as to why Lee Tak Chuen was involved in the transfer.

In relation to the second sum of money, Mr Lam's mother will give evidence to the effect that she and her fifth son were the owners of a property in Hong Kong and that, when they sold the property, the sum of approximately $199,000 from the proceeds was remitted to the Taxpayer in Australia.  The bank records indicate that the remittance was also by Lee Tak Chuen. 

The Commissioner pointed to some inconsistency in the documents concerning the identity of Lee Tak Chuen.  At one point there is a suggestion by the Taxpayer that Lee Tak Chuen was the Taxpayer's mother-in-law.  It is quite clear from Ng Oi Cheung's evidence, however, that she will say that Lee Tak Chuen was a good friend who was appointed attorney by the vendors of the property to sign and execute all documents and do all other acts relating thereto because Ng Oi Cheung is illiterate and her fifth son spent most of his time doing business in mainland China.  The proceeds of sale were payable, as to substantial part, to Lee Tak Chuen.  That is consistent with the evidence given by Ng Oi Cheung. 

There are, on the evidence, some unusual aspects of the evidence as to Lee Tak Chuen.  For example Ng Oi Cheung will give evidence of her belief as to the place of residence of Lee Tak Chuen in Wanchai, Hong Kong.  However, the power of attorney which she executed showed his address as being at the property which was sold.  Ng Oi Cheung also says that she has lost contact with Lee Tak Chuen.  The suggestion put on behalf of the Commissioner is that that would be a convenient way of explaining the absence of any evidence from Lee Tak Chuen.  If that be the fact it could possibly be that Lee Tak Chuen is simply an alias for either Mr Lam or someone else.

The third payment was remitted from Hong Kong by Lam Mei Har who is said to be the sister of Duncan Lam.  The affidavits indicate that she did not participate in the earlier transfer because she was busy. However, Lam Mei Har will say that her mother told her that Duncan Lam had asked her to lend him the sum of $A200,000 and that she had agreed to advance that loan out of the proceeds of the sale of the property. 

Lam Mei Har will also say that, subsequently, her mother told her that Duncan Lam had again asked her to lend him the sum of $A57,000 because his restaurant needed money for redecoration.  Lam Mei Har will say that her mother told her that she agreed to lend that sum and asked her daughter to accompany her to the bank to assist her to remit the money to him.  That is said to be the explanation for the fact that Lam Mei Har is shown as the remitter of the funds rather than Mr Lam's mother.

There is evidence that, in the year after the payment of the sum of $199,995.00, a substantial remission from Australia to Hong Kong was made.  The Taxpayer says that that was by way of repayment of loans which had been made by her mother-in-law.  That, of course, is consistent with the Taxpayer's case. In the absence of any evidence of a prior transfer of funds from Australia to Hong Kong it does not in any way support the Commissioner's case.

In all the circumstances I am not persuaded by the evidence to which I have been taken that the appeal to the Tribunal is not based on genuine and arguable grounds.  That, of course, says nothing as to the prospects of success and I express no view as to the likely outcome of the proceedings. All the matters referred to above may require an explanation before the Tribunal.  If there is no satisfactory explanation, that could have a bearing on the findings which may be made by the Tribunal.  That will be a matter for the Tribunal in the light of the evidence before it.  However, in the absence of anything further I would be disposed to adjourn the hearing of the petition to a time next year to enable the Taxpayer to have the opportunity of having the appeal heard and determined by the Tribunal. 

Two other matters, however, are relied on by the Commissioner.  The first is that the Commissioner says that it is more likely than not that the Tribunal's decision will not be given before 24 April 1999, at which date the petition will become stale.  That may or may not be so.  However, that, in my view, is not a reason why I should not at least give the Taxpayer the opportunity of having her appeal determined.  It would be a reason why I would keep careful management of the petition to ensure that the Commissioner is given the opportunity of having it heard before it expires even if the Tribunal has not given a decision by 24 April 1999.  Nevertheless, it is not a reason for not adjourning the petition until a reasonably short time before 24 April 1999.

The third matter relied upon by the Commissioner is one of more substance.  The Commissioner says that there is evidence that during 1996 and 1997 the Taxpayer remitted sums totalling approximately $A3.5 million to Hong Kong.  There are, in fact, further assessments issued in respect of years after 30 June 1994 but objections to those assessments have not yet been determined.

Nevertheless, the Commissioner says there is a prospective prejudice to creditors of the Taxpayer by reason of significant delay in the making of a sequestration order because, if the funds which were remitted are funds of the Taxpayer, the trail may be cold by the time a sequestration order is made as late as April 1999. An order has already been made under section 50 of the Bankruptcy Act 1966 (Cth) directing the Official Trustee to take control of the Taxpayer's property. However, the Commissioner says that notwithstanding that order, there are further steps which will be open to the Official Trustee if a sequestration order, is made, which are not open to him at present.

For example, under section 58 of the Bankruptcy Act the property of the bankrupt would vest in the Official Trustee. I am not sure that that is a matter which is of significance at this stage, having regard to the order under section 50. Section 77 of the Bankruptcy Act would require a bankrupt to give to the Trustee all books in the possession of the bankrupt that relate to the examinable affairs of the bankrupt, to attend on the Trustee to give such information about any of the bankrupt's conduct and examinable affairs as the Trustee requires, to disclose to the Trustee property that is acquired by the bankrupt and to aid to the utmost of his or her power in the administration of his or her estate. There are other provisions which could be relied upon by the Official Trustee in investigating the transfers of funds to which I have referred above and reference is made to sections 77AA, 77B, 77C, 80, section 81A and following and section 130 of the Bankruptcy Act.

I consider that if there were evidence before me to indicate that there is a reasonable prospect that assets of a debtor which might otherwise be available to the Official Trustee were in jeopardy as a consequence of adjournment of the petition, that would be a relevant consideration in deciding whether or not to adjourn the petition.  At present, however, there is no evidence before me which could be relied upon to establish that the funds to which I have referred are funds of the Taxpayer which might be available to an Official Trustee in the event that a sequestration order were made. 

Accordingly, it seems to me that the appropriate course is to adjourn the hearing of the petition for a short time to enable the Commissioner, if he wishes, to put on further evidence as to the prejudice which could be suffered by a longer adjournment of the hearing of the petition.  While I am satisfied that the Taxpayer's appeal is based on genuine and arguable grounds, I would not yet adjourn the proceedings for more than a relatively short time to enable the Commissioner to have the opportunity of pressing further the third basis of his objection to a lengthy adjournment.

I propose to direct the Commissioner to notify the Taxpayer no later than Tuesday, 16 June 1998 of the further evidence which the Commissioner wishes to adduce on the hearing of the adjournment application.  I will direct the Taxpayer to indicate no later than 19 June 1998 the Taxpayer's attitude to the admissibility of that further evidence.  I will direct the Commissioner to file and serve no later than 3 July 1998 any further evidence intended to be relied upon in opposition to the adjournment application.  I direct the Taxpayer to file and serve no later than 17 July 1998 any evidence intended to be relied upon in answer to that further evidence of the Commissioner, and I adjourn the further hearing of the petition to 27 July 1998.

I reserve the question of the costs thrown away by the adjournment and I reserve the costs of the motion generally.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett

Associate:

Dated:             12 June 1998

Counsel for the Petitioner:	P. Roberts
Solicitor for the Petitioner:	Australian Government Solicitor
Counsel for the Debtor:	D.M.J. Bennett QC A.J. O'Brien
Solicitor for the Debtor:	Potts Latimer
Date of Hearing:	12 June 1998
Date of Judgment:	12 June 1998