Deputy Commissioner of Taxation v Oswal (No 2)
[2014] FCA 463
FEDERAL COURT OF AUSTRALIA
Deputy Commissioner of Taxation v Oswal (No 2) [2014] FCA 463
Citation: Deputy Commissioner of Taxation v Oswal (No 2) [2014] FCA 463 Parties: DEPUTY COMMISSIONER OF TAXATION v RADHIKA PANKAJ OSWAL File number(s): WAD 95 of 2011 Judge(s): SIOPIS J Date of judgment: 9 May 2014 Catchwords: PRACTICE AND PROCEDURE – judgment obtained against the respondent in the sum of $186,321,790.11 – freezing order precluded the respondent from removing, or dealing with, or diminishing the value of the respondent’s assets in Australia up to the unencumbered value of the judgment sum – the respondent’s main asset is legal claims made against parties in Australia – the respondent has entered into a litigation funding agreement with a company in Dubai in the United Arab Emirates – application to amend the freezing order to permit the respondent to enter into a litigation funding agreement.
Legislation: Taxation Administration Act 1953 (Cth) Sch 1 s 260-5 Date of hearing: 10 and 19 March 2014 Date of last submissions: 22 April 2014 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 27 Counsel for the Applicant: Mr NJ Williams SC and Mr DFC Thomas Solicitor for the Applicant: Australia Government Solicitor Counsel for the Respondent: Mr M Walton SC and Mr A McLure Solicitor for the Respondent: Kennedys Counsel for Mercury Services Limited: Ms KR Lendich
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 95 of 2011
BETWEEN: DEPUTY COMMISSIONER OF TAXATION
ApplicantAND: RADHIKA PANKAJ OSWAL
Respondent
JUDGE:
SIOPIS J
DATE OF ORDER:
9 MAY 2014
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1.The respondent’s application filed on 13 February 2014 is dismissed.
2.The respondent is to pay the applicant’s costs.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 95 of 2011
BETWEEN: DEPUTY COMMISSIONER OF TAXATION
ApplicantAND: RADHIKA PANKAJ OSWAL
Respondent
JUDGE:
SIOPIS J
DATE:
9 MAY 2014
PLACE:
PERTH
REASONS FOR JUDGMENT
The applicant, the Deputy Commissioner of Taxation (the Deputy Commissioner) has obtained a judgment in the amount of $186,321,790.11 against the respondent, Mrs Radhika Oswal. On 1 November 2011, Gilmour J varied an existing freezing order obtained by the Deputy Commissioner precluding Mrs Oswal from removing, or dealing with, or diminishing the value of her assets in Australia up to the unencumbered value of the judgment sum, other than to pay the judgment debt.
Mrs Oswal has brought a number of legal proceedings in Australian courts against various defendants who are resident in Australia. According to the evidence, these claims comprise Mrs Oswal’s principal asset in Australia. It is said that the amount of damages and compensation which Mrs Oswal claims in these legal proceedings exceeds the amount of the Deputy Commissioner’s judgment. I should also add that Mrs Oswal is challenging that judgment. In some of the legal proceedings referred to, Mrs Oswal is the plaintiff or the applicant, and in other proceedings she is the defendant or the respondent.
The Deputy Commissioner has issued garnishee notices under s 260–5 of Sch 1 of the Taxation Administration Act 1953 (Cth) to the defendants and/or respondents in the proceedings brought against them by Mrs Oswal requiring that the defendants and/or respondents pay any compensation which would otherwise be payable to Mrs Oswal, pursuant to the litigation, to the Deputy Commissioner.
Mrs Oswal has not given evidence herself. Rather, the evidence on these matters is deposed to in a hearsay manner by Mr Philip Hoser, a solicitor representing Mrs Oswal in a number of the proceedings. This is far from satisfactory in an application of this nature, where Mrs Oswal seeks an indulgence from the Court. The hearsay evidence discloses that Mrs Oswal has obtained monies for her legal costs from two sources. One source is said to be her family and friends. The other source is from two companies, namely, Maruti Ventures Limited, and Supreme Infratech Limited, which are referred to in Mr Hoser’s affidavit as “funders”.
The evidence of the relationship which Mrs Oswal has with the two corporate funders is at a very high level of generality. All that is said is that the funding has been obtained through informal arrangements on the basis that the funders will be repaid. It is also said that each of the two companies is not owned or controlled by her husband, Mr Pankaj Oswal, or herself, and that there is no litigation funding agreement between either of the companies and Mrs Oswal. However, there is no evidence as to who does own or control each of the companies, nor is there any evidence as to the nature of the business conducted by each of the companies. Mr Hoser’s evidence also states that each company no longer wishes to continue the funding. There is no evidence from an officer of either of the companies nor from Mrs Oswal as to the reason for this decision.
Mr Hoser has deposed that a Dubai registered corporation, Mercury Services Limited (Mercury), has entered into a litigation funding agreement with Mrs Oswal. There was annexed to Mr Hoser’s affidavit a copy of the litigation funding agreement signed by Mrs Oswal, but not executed by Mercury, which was dated 16 December 2013. In short, the litigation funding agreement provides that Mercury will repay the two existing funders, continue to pay Mrs Oswal’s ongoing legal costs and indemnify her in respect of any costs orders made against her in the legal proceedings. The consideration for these promises is that Mrs Oswal promises to pay to Mercury the monies that Mercury has paid in respect of all legal costs (including repayment to the existing funders and the adverse costs orders), and to pay a premium, from the proceeds of any recovery which Mrs Oswal receives from the legal proceedings. The amount of the premium varies depending upon when the amount recovered is received. Importantly, the litigation funding agreement also provides for the assignment by Mrs Oswal to Mercury of all right title and interest in Mrs Oswal’s litigation claims.
During the course of the first hearing on 10 March 2014, the Deputy Commissioner objected to the operation of the assignment clause which, said the Deputy Commissioner, would have the effect of transferring Mrs Oswal’s potentially principal asset offshore to Mercury and, thereby, rendering the freezing order nugatory.
Senior counsel for Mrs Oswal advised the Court that Mrs Oswal would seek to renegotiate the terms of the litigation funding agreement with Mercury, and in so doing, would seek to meet the objections raised by the Deputy Commissioner as to the terms of the litigation funding agreement. I observe that Mercury was represented by counsel at the hearing. The matter was adjourned until 19 March 2014 to permit the negotiations to occur.
At the hearing on 19 March 2014, a proposed amended litigation funding agreement was discussed. A major change to the original agreement was the substitution of the assignment of the rights to the proceeds of Mrs Oswal’s recovery, with a charge over the proceeds of the recovery. This did not satisfy the Deputy Commissioner. During the course of the hearing, however, senior counsel for Mrs Oswal foreshadowed that amendments to the litigation funding agreement may be able to be made which would accommodate the Deputy Commissioner’s objections, by, inter alia, exempting the amount of the judgment sum from the ambit of the charge. The matter was again adjourned so that any proposed further amended litigation funding agreement could be forwarded to the Deputy Commissioner for his comment.
Ultimately, however, the amendments foreshadowed by Mrs Oswal’s senior counsel as potentially achievable, did not materialise. The terms of the proposed further amended litigation funding agreement did not accommodate the Deputy Commissioner’s objections. Accordingly, Mrs Oswal has asked the Court to rule on her application to vary the terms of the freezing order, insofar as may be necessary, so that Mrs Oswal would be permitted to give effect to the proposed further amended litigation funding agreement.
In brief, the proposed further amended litigation funding agreement (the proposed funding agreement) has the following relevant terms.
First, cl 3.1.1 of the proposed funding agreement provides that Mrs Oswal is to pay Mercury a premium; and also to reimburse Mercury the costs which Mercury has incurred under the agreement, including the costs of paying out the previous two funders, the ongoing costs incurred by Mrs Oswal in conducting her litigation and the amount of the adverse costs orders made against Mrs Oswal paid by Mercury. The amount of the premium (referred to in the proposed funding agreement as “the Interest”) varies between 35% of the amount recovered to 60% of the amount recovered, depending upon when the amount is recovered. This total amount (being the reimbursement and the premium) is to be paid from any proceeds of the litigation which may become payable to Mrs Oswal consequent upon her success (including settlement) in the litigation. These monies are referred to in the agreement as “the Recovery”.
Secondly, by cl 3.1.2 of the proposed funding agreement Mrs Oswal grants a charge in favour of Mercury over all right title and interest in the Recovery including the “right to demand and receive payment of the Recovery”, and the “right to enforce any rights and bring any action for the recovery of the Recovery”.
Thirdly, cl 23 of the proposed funding agreement refers to an undertaking to the Federal Court; and goes on to provide that subject to the undertaking and the freezing order, Mrs Oswal will pay to Mercury the monies due under cl 3.1.1 of the proposed funding agreement.
The parties to the proposed undertaking to the Federal Court are Mrs Oswal, Mercury and four solicitors representing Mrs Oswal in the various legal proceedings. The proposed undertaking records Mrs Oswal’s instructions to each of the solicitors to receive the monies comprising any Recovery on her behalf, and to deposit the monies into the solicitor’s trust account. Mrs Oswal will then undertake to the Court that she will not withdraw, nor vary, that authority without giving the Deputy Commissioner seven days’ notice of an intention to do so. Mrs Oswal will also undertake not to take any step to cause the Recovery to be disbursed from the solicitor’s trust account without first giving the Deputy Commissioner seven days’ notice of her intention to do so. Mrs Oswal will also undertake to be bound by the same undertakings in respect of any new litigation upon which she embarks.
Mercury will undertake that in the event that Mrs Oswal becomes entitled to a Recovery, it will prepare an account setting out how it intends to deal with the Recovery, and will not take any steps to cause the Recovery to be disbursed from the solicitor’s trust account any earlier than seven days after having given the Deputy Commissioner notice by way of a copy of the account.
Each of the four instructing solicitors will undertake to accept the instructions of Mrs Oswal to pay any Recovery into the solicitor’s trust account and to notify the paying party of that instruction. Each solicitor will also undertake to deposit the Recovery into the trust account and not to disburse it any earlier than seven days after he or she has notified the Deputy Commissioner of an intention to do so.
The main object for making a freezing order is to facilitate the proper administration of justice. A freezing order restricts the use that a party may make of his or her assets as a means of seeking to ensure that there are assets available in the jurisdiction from which any judgment against that party may be satisfied. In this way, the Court seeks to assist in the enforcement of the judgment, such that obtaining a judgment against the party is not rendered a futile exercise.
The freezing order requires that Mrs Oswal maintain assets up to the “unencumbered value” of the judgment sum within Australia. If the proposed funding agreement were to take effect, the object of making the freezing order on the application of the Deputy Commissioner of Taxation would largely be defeated. This is because the proposed funding agreement creates a charge over the whole of the Recovery. As mentioned, Mrs Oswal’s legal claims are said to be her principal asset. Because the charge operates over the whole of the litigation proceeds, this means that the whole of the proceeds will be converted from, as they would currently be, unencumbered assets in Australia to a wholly encumbered asset, the subject of a charge in favour of a foreign corporation registered in Dubai in the United Arab Emirates. There is, therefore, no assured benefit accruing to the Deputy Commissioner from the proposed funding agreement taking effect. This is because even if the proposed funding agreement is instrumental in producing assets, there is no assurance that any of those assets would be available to the Deputy Commissioner for the purposes of meeting Mrs Oswal’s judgment debt. Whether such assets ever become available to meet the Deputy Commissioner’s judgment debt would depend entirely upon the extent of the Recovery and how Mercury decides to exercise control over the Recovery. In effect, Mrs Oswal’s application really amounts to an application to set aside the freezing order rather than merely seeking a variation of the freezing order.
I might add, in parenthesis, that in some circumstances a litigation funder may obtain a lien over the proceeds of litigation in respect of the amount it has paid for legal costs. However, the proposed funding agreement extends the security interest further than that.
Secondly, the proposed undertakings to the Court provide no amelioration of the position of the Deputy Commissioner as a judgment creditor. This is because the existence of the undertakings, cannot impact upon the operation of the substantive underlying rights of the parties to deal with the monies comprising the Recovery. I have already referred to the disadvantageous operation of that regime for the Deputy Commissioner.
Thirdly, not only is there no assured benefit to the Deputy Commissioner from the arrangements proposed by Mrs Oswal, there is a positive disadvantage. This is because, as I have said, the proposed funding agreement creates a charge which gives Mercury the right to claim any Recovery monies from Mrs Oswal’s judgment debtors directly. By this means, the proposed funding agreement creates a security over any monies owed by a judgment debtor to Mrs Oswal in competition with the garnishee notices which the Deputy Commissioner has served on the defendants and/or respondents from whom Mrs Oswal claims monies. Thus, if the freezing order was to be amended to give effect to the proposed funding agreement, not only would the creation of the charge undermine the purpose of the freezing order, but it would also give rise to the potential for further disputation in relation to a priority between Mercury, the beneficiary of the newly created charge, and the Deputy Commissioner as the beneficiary under the garnishee notices issued pursuant to s 260–5 of Sch 1 of the Taxation Administration Act.
Fourthly, the evidence before the Court is, in my view, not of a sufficiently probative value, to permit the Court to grant the indulgence sought by Mrs Oswal.
I have already mentioned that the evidence of Mrs Oswal’s relationship with the two existing funders, aside from being hearsay, is at a very unsatisfactory level of generality. The same is true in relation to the reason both of those funders have decided, apparently at the same time, that they do not wish to continue funding Mrs Oswal. I am not persuaded on the basis of that evidence that the existing funders would not be able to continue funding the litigation should Mrs Oswal so desire.
Further, I am not satisfied on the evidence that there is an arms-length relationship between Mercury and Mrs Oswal. The evidence shows Mercury and Mrs Oswal once shared the same address in Dubai. Further, in her affidavit of 26 May 2011, Mrs Oswal deposed that Mercury lent her in 2009 and 2010 a total of $45 million without requiring a written loan agreement. Mrs Oswal only granted Mercury a mortgage over her Peppermint Grove property in Perth as security for the loan, sometime later. By that time, her relationship with the financiers of Burrup Fertilisers Pty Ltd, the company in which she and her husband held shares, had deteriorated. The unsatisfactory state of this evidence weighs strongly against approving any variation to the freezing order which would result in Mercury acquiring an advantageous security over Mrs Oswal’s principal asset in Australia to the disadvantage of an existing judgment creditor.
I am not satisfied that alternative arrangements cannot be made in relation to the funding of Mrs Oswal’s litigation, which does not have the effect of rendering the existing freezing order nugatory, and which accommodates both the position of the Deputy Commissioner and Mrs Oswal.
In those circumstances, I dismiss Mrs Oswal’s application to amend the freezing order made by Gilmour J.
I certify that the preceding twenty‑seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate:
Dated: 9 May 2014
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