Applicant v Respondent

1 There are two applications before the Court. The first application is by the Director of Public Prosecutions for Victoria ("DPP") pursuant to s.31(1) of the Confiscation Act 1997 (Vic) ("the Act"). Section 32(1) of the Act provides that if a defendant is convicted of a Schedule 1 offence, the DPP may apply to the Supreme Court for a forfeiture order in respect of tainted property. In the present matter it is common ground that the respondent ("Mrs Smith") was convicted[1] of a number of Schedule 1 offences and that the real estate to which I will refer in a moment is "tainted property" in that it was used by Mrs Smith in or in connection with the commission of the offences.[2]

2 The second application is an application by the respondent's husband ("Mr Smith") pursuant to s.49(1) of the Act which provides that, so far as relevant, if property is sought to be forfeited under a forfeiture order, a person (other than the defendant) who claims an interest in the property may apply to the court from which a forfeiture order is sought for an order under s.50 of the Act (an order excluding the property from the operation of the forfeiture order - "an exclusion order").[3]

3 At the conclusion of the hearing on 3 April 2007, the Court ordered that the DPP's said application be dismissed. These are my reasons for that order.

4 The circumstances giving rise to the application by the DPP are as follows. On 7 September 2005 in the Magistrates' Court of Victoria at Castlemaine, Mrs Smith pleaded guilty to charges that at Green Gully she committed breaches of the Drugs, Poisons and Controlled Substances Act 1981 (Vic) from 1/1/2005 to 1/4/2005 and from 1/4/05 to 20/7/2005, by cultivating a narcotic plant (cannabis) and by possessing cannabis, and, on 19/7/2005 by using cannabis, and a breach of the Crimes Act 1958 (Vic) from 1/1/2005 to 20/7/2005 by theft[4]. On those charges, without conviction, a Community Based Order ("CBO") for a period of 12 months was made against Mrs Smith and she was required to attend the Newport Community Corrections Centre on a specified date. It was a condition of the CBO, additional to all the core conditions, that Mrs Smith perform 125 hours of unpaid community work. It appears from the Police Summary of Charges that on 20 July 2005 the police attended with a search warrant at a holiday residence located at 88 McMillan Road, Green Gully ("the subject property")[5] where, by arrangement, they met Mrs Smith. It appeared that no person was residing at the property but on the second storey police found a hydroponic crop of a number of cannabis plants in various stages of maturity. Mrs Smith told the police that she was the sole cultivator of the crop and had no assistance by anyone else in setting up the hydroponic system, the diversion of electricity and the growing and harvesting of the crop. Mrs Smith told the police that the crop was grown for her own personal use and that of her family and friends and that she had last used cannabis herself on the previous day. She told them that she was in the process of growing her second crop and that her first crop had been cultivated in January 2005 and harvested in early April 2005. Mrs Smith told the police that she had diverted the power herself by digging a hole outside the subject property and splicing the power cable prior to it reaching the legal meter box. The value of the power so diverted and utilised was said to be $6286.55. However, the evidence shows that Mrs Smith obtained a personal loan in order to repay to the electricity company the value of the power diverted.

5 The following appears from the affidavits of Mrs Smith sworn 1 March 2006 and of Mr Smith sworn 1 March 2006 and 21 June 2006 (and from cross-examination of Mr Smith on his affidavits). Mr and Mrs Smith were married in 1978 and there are six children of the marriage. The eldest child Kelly is 28 and is on constant medication due to a diagnosis of bipolar disorder some four years ago.

6 The subject property, which is a bush property situated about 15 kilometres from Castlemaine, was purchased in July 1992 and Mr and Mrs Smith were registered following the purchase as joint proprietors. Their intention was to build a mud-brick house on the subject property and their original intention was for the family to live in it. The purchase price was $15,000 and was paid by Mr Smith cashing in some unused holiday pay for about $5000 and borrowing about $10,000 from the Railways Credit Cooperative. That loan was repaid by Mr Smith within about one year from his earnings with the Railways and from a part-time job.

7 In 1993 Mr Smith ceased his employment with the Victorian Railways and received a termination payment in the amount of about $90,000. Since that time Mr Smith has worked as a bus driver. In 1993 construction of a mud-brick house was commenced at the subject property. Mr Smith used part of his payout from the Railways towards construction of the house. Construction proceeded slowly, according to Mr Smith's affidavit, with "us" doing most of the work and obtaining tradesmen as "we" needed them. Mr Smith testified that the payments[6] for the tradesmen and the materials used in construction were also paid from his income. The house was eventually brought to lock-up stage but it has never been finally completed. In 1995 Mr and Mrs Smith purchased their current matrimonial home in Paisley Street, Footscray.

8 In the year 2000 Mr Smith received legal advice in relation to a potential liability for costs that might be awarded against him in a class action brought by him and a number of other former employees of the Public Transport Corporation against their former employer. As a result of that advice the subject property was transferred by Mr and Mrs Smith into the sole name of Mrs Smith.

9 Mr Smith testified and I accept that he was not involved in any way in the commission of the said offences by Mrs Smith. He further testified and I accept that as a result of his performing considerable amounts of overtime in his employment as a bus driver he had not been able to attend the subject property very often and was not aware of what was happening on the second storey of the residence which was used as a storage area.

10 Mr Smith also testified that Mrs Smith had been taking Kelly to stay at the subject property for a few days each week and that this appeared to be assisting her in recovering from her mental illness and that she was to recommence studies for a Diploma of Education.

11 Valuation evidence was not provided by either party but, without objection from the DPP, a rate notice from the Mount Alexander Shire Council relating to the subject property with a valuation date of 1 January 2004 was tendered showing the site value as $47,500 and the capital improved value of the subject property as $252,000. The parties were content that the Court should proceed on the basis that the value of the subject property with improvements was in the region of $250,000. Likewise the parties were content that the Court should proceed on the basis that the value of the cannabis seized in the second crop was in the region of $13,700 to $22,000.

12 Mr Saunders of counsel who appeared on behalf of Mr and Mrs Smith submitted that Mr Smith had a substantial interest in the subject property by virtue of a constructive trust, having regard to the financial and other contributions made by him towards the purchase of the property and the building thereon. Mr Saunders referred to Baumgartner v Baumgartner[7]. In that well-known case the parties to a de facto relationship had both contributed to the purchase of a residence. Mr Saunders referred to the statement in the judgment of Mason CJ, Wilson and Deane JJ[8] that one partner's attempt to treat the property as his sole property amounted to unconscionable conduct attracting the intervention of equity and the imposition of a constructive trust. Mr Saunders also referred to the passage in the judgment of Toohey J[9] referring to the pooling of contributions of the parties towards the purchase of land or the building of a home on it and considering whether in those circumstances a constructive trust resulting in a tenancy in common or in a proportionate adjustment of beneficial interests was appropriate. Mr Saunders submitted that, having regard to the respective financial and other contributions of Mr and Mrs Smith in the present case, Mr Smith's interest in the property by way of constructive trust should amount to approximately 60 to 70%. Mr D'Arcy, who appeared as counsel for the DPP, did not seek to debate Mr Saunders' submissions and conceded that Mr Smith must have some interest in the subject property but Mr D'Arcy did not specify any particular proportionate interest.

13 I find it unnecessary, for the reasons that follow, to determine whether any doctrine of constructive trusts is operative in the circumstances or to hold that Mr Smith has any particular equitable interest in the subject property. What I think is of importance is the uncontradicted evidence that Mr Smith made substantially all, if not entirely all, the payments required to purchase the subject property and to build the residence on it. Even allowing for the fact that Mrs Smith must have made contributions, perhaps financial and certainly non-financial, to the parties' overall position, and thus indirectly to the subject property, there is no reason to doubt that, whether Mr Smith has a proprietary interest in the subject property or not, the forfeiture of the subject property would represent a substantial confiscation of the product of Mr Smith's expenditure, labour and efforts.

14 Both parties referred to the cases of Winand[10] and R v Tran[11] ("Tran") as providing guidance as to the relevant principles on an application for forfeiture and I accept that they do so.

15 In Winand the appellant was convicted of trafficking and possession of a drug of dependence (cannabis) and cultivating the same. He was sentenced to an effective sentence of 9 months imprisonment of which 6 was suspended for 12 months. The DPP applied for the forfeiture of his suburban residence in Burwood East which had been wholly devoted to the growing and processing of cannabis. The Court of Criminal Appeal (Phillips CJ, Crockett and Southwell JJ) said[12] that relevant matters included the following: the value of the subject property, the nature and gravity of the offence, the use made of the property, the degree of the offender's involvement, the offender's antecedents, the value of any other property confiscated and the penalty imposed, the nature of the offender's interest in the property, the value of the drugs involved or the size of the crop, whether the property was acquired with the proceeds of the sale of drugs, the utility of the property to the offender, the length of ownership of the property, the extent to which the property was connected with the commission of the offence, the fact that forfeiture is intended as a deterrent, the interests of innocent parties in the property and the extent (if any) to which the retention of the property might bear upon the offender's rehabilitation. Their Honours went on to say:[13]

"It is clear that what also must be borne in mind is the question of proportionality, that is to say, would forfeiture of the property be sufficiently proportionate to the nature and gravity of the offence having regard also to the sentence imposed on the offender."

16 The Court in Winand in all the circumstances of that case overturned the forfeiture order made by the trial judge stating:[14]

"... the making of an order did, to an unacceptable degree, operate disproportionately to the nature and gravity of the offence. To order the taking from the appellant of his only asset with any significant value and which is his home the equity in which is worth $65,000 to $70,000 is in all the circumstances of this case to make an order which would cause unacceptable hardship and thus we believe to be manifestly unfair."

17 In Tran the defendant was found guilty of cultivating cannabis and convicted and sentenced to a term of 15 months imprisonment, wholly suspended for two years. The property sought to be forfeited was valued at approximately $260,000 subject to a first mortgage of about $200,000. The cannabis had a market value in the range of approximately $69,000 to $103,500. The estranged wife of the defendant and his son asserted an interest in the property as a result of the alleged purchase from joint funds. Warren CJ adopted what was said by Kirby P (as he then was) in Lake[15]:

"In considering hardship, it is necessary to bear in mind that, of necessity, in achieving its object, the Act will cause a measure of hardship in the deprivation of property. Indeed that is its intention. ... The provision for relief [under the Act] must not be so interpreted as to frustrate the achieving of the purpose of Parliament in enacting the exceptional provisions of that Act. Something more than ordinary hardship in the operation of the Act is therefore meant."

18 Warren CJ then referred to the factors described by Debelle J in Taylor v Attorney-General of South Australia[16] and their adoption in Winand. Her Honour then turned to the facts and found that the nature and gravity of the offence, although serious, was not necessarily such as to warrant in all the circumstances the gravity of the consequences of the forfeiture sought and that forfeiture was disproportionate in all the circumstances. Her Honour finally stated that the most significant factor was that the defendant would be rendered "homeless" (a factor not present in this case as Mr D'Arcy pointed out). The application for forfeiture was dismissed.

19 Sections 32(1) and 33(1) of the Act empower a court to make an order that tainted property, or such of the property as is specified in the order, be forfeited to the Minister and, by s.33(4) of the Act, the court may take into account in determining the application any material that it thinks fit. Pursuant to s.33(5) of the Act, the court may have regard to (a) the use that is ordinarily made, or had been intended to be made of the property, (b) any hardship that may reasonably be likely to be caused to any person by the order and (c) the claim of any person to an interest in the property, having regard to the matters specified in s.50(1). The matters specified in s.50(1), as to which the court must be satisfied in order to make an exclusion order, relevantly include that:

• The applicant for an exclusion order was not in any way involved in the commission of the Schedule 1 offences;

• Where the applicant for an exclusion order acquired the interest in the property before the commission of the offences, the applicant did not know that the defendant would use or intended to use the property in or in connection with the commission of the offences.

20 In the present case I take into account the following matters, bearing in mind at all times that forfeiture and the consequent deprivation of property is intended as a deterrent to the commission of serious offences such as occurred in this case. Mrs Smith had no previous convictions and the relative seriousness of the offences (which are of course serious, particularly having regard to their surreptitious nature and the planning involved) is indicated by the Magistrates' Court having not recorded a conviction and making a CBO. The offences and the sentencing disposition may be contrasted with Winand in which there was an offence of trafficking and with Tran in which there was a substantial sentence of imprisonment (albeit suspended). I have already referred to the substantial value of the property, to the value of the cannabis and to the value of the electricity diverted (the latter having been repaid). I note that the property was purchased over ten years earlier. The purchase of the property and the subsequent building of the holiday house was substantially financed by Mr Smith and involved considerable labour and effort by him. Mr Smith did not know that the defendant would use or intended to use the subject property in or in connection with the commission of the offences and he was not in any way involved in the commission of the offences. The forfeiture of the property would cause significant prejudice to innocent parties, namely Mr Smith and at least one child of the marriage, Kelly.

21 In my opinion, in all of the circumstances, forfeiture of the subject property would be wholly disproportionate to the nature and gravity of the offences and would be manifestly unfair both to Mrs Smith and, importantly, to Mr Smith.

22 For those reasons the application by the DPP was dismissed and it was unnecessary to determine the application for an exclusion order.

[1] "Conviction" is defined by s.4(1)(b) of the Act to include a case where the person has been charged with the offence and the court hearing the charge finds the person guilty of the offence but does not record a conviction, as occurred in this case.

[2] See sub-para (a) of the definition of "tainted property" in s.3(1) of the Act.

[3] Although there were some procedural defects in the documents filed, the parties agreed that the Court should treat Mr Smith as having applied for an exclusion order.

[4] Of electricity.

[5] Also referred to as Lot 13 McMillan Rd, Green Gully, being the property more particularly described in Certificate of Title vol. 10526 fol. 976.

[6] A bundle of receipts and invoices was exhibited to his affidavit.

[7] (1987) 167 CLR 137.

[8] (1987) 167 CLR 137, 149.

[9] (1987) 167 CLR 137, 154-5.

[10] (1994) 73 A Crim R 497.

[11] [2004] VSC 218.

[12] (1994) 73 A Crim R 497, 500-501.

[13] (1994) 73 A Crim R 497, 501.

[14] (1994) 73 A Crim R 497, 503.

[15] (1989) 44 A Crim R 63, 66-7.

[16] (1991) 53 A Crim R 166, 175-9.