Background
Yumei Yu, Xue Liang and related entities were pursuing appeals against amended tax assessments. In related debt-recovery proceedings, judgments had been entered against them for substantial amounts and freezing orders restrained certain assets.
Ahead of the tax appeals’ trial, the applicants sought an alteration of the freezing orders permitting them to mortgage restrained properties at 27 Pepperell Avenue, Glen Waverley, and 6 Eldale Avenue, Greensborough, to obtain an advance of up to $2.4 million for reasonable legal expenses. Their amended application had removed earlier references to selling the properties or using sale proceeds. The Commissioner did not dispute that the estimated legal expenses were reasonable, but argued that the applicants had not shown that unrestrained New Zealand properties were unavailable to fund those expenses.
The Court’s Holding
Justice Wheatley held that applicants seeking access to frozen assets for legal expenses bear the onus of showing that they have no other assets from which those expenses can be paid. That requirement applied even though the applicants sought an alteration within a permitted purpose of the freezing orders and did not need to demonstrate changed circumstances.
The applicants failed to discharge that onus. Their evidence did not sufficiently establish that the New Zealand properties were subject to a security interest in favour of Mr Zhao that exhausted the available equity. The evidence was vague and inconsistent about when the alleged security arose, which loans and properties it covered, the amount secured, and Mr Liang’s authority to encumber trust property. The Court therefore dismissed the interlocutory application with costs. It also refused the Commissioner’s last-minute request to delay judgment so that further evidence concerning one New Zealand property could be produced.
Key Takeaways
- A party seeking to use assets restrained by a freezing order for legal expenses must establish that no other assets are available for that purpose.
- Unchallenged affidavit evidence need not be accepted where it is vague, internally inconsistent or inconsistent with other evidence.
- An alleged informal security interest may not establish that alternative assets are unavailable unless the evidence clearly identifies the secured debt, affected property, parties’ intention and authority to grant the security.
Why It Matters
The decision underscores the evidentiary burden facing taxpayers and other litigants who seek access to frozen assets to fund their defence or related proceedings. Even where the proposed legal costs are reasonable, the court will examine whether unrestrained assets could meet them.
Applicants relying on informal arrangements that allegedly prevent access to other assets should present clear, consistent evidence of the arrangement’s terms, scope and legal effect. The absence of cross-examination will not cure material gaps or inconsistencies.