Solicitors:
Criminal Assets Litigation, Australian Federal Police (Plaintiff)
Pope & Spinks Lawyers (Fourteenth Defendant)
AHD Lawyers (Fifteenth Defendant)
Dentons Australia Limited (National Australia Bank)
File Number(s): 2023/00032255
[2]
JUDGMENT
Amongst the numerous applications before the Court on 12 August 2024 was an application by an interested party, namely the National Australia Bank. The application concerns a residential property at Bellevue Hill of which the fourteenth and fifteenth defendants are registered proprietors. It is their home where the fifteenth defendant lives with their eight "children". The fourteenth defendant also lived there until he went into custody on 1 February 2023.
On the application of the plaintiff, on 31 January 2023 the Court made restraining orders under ss 18(2)(a), 18(2)(b) and 19 of the Proceeds of Crime Act 2002 (Cth) in relation to the property. NAB is the first registered mortgagee of the property. It did not have notice of the application for restraining orders and did not appear before the Court on 31 January 2023. NAB's mortgage secures a home loan made by NAB to the fourteenth and fifteenth defendants in 2021, at which time the principal advanced was approximately $9.2 million.
There is no dispute that the fourteenth and fifteenth defendants are now in default under the mortgage. On 22 August 2023 NAB issued a default notice demanding payment of the amount then due, just over $9 million. Since then, the amount due has increased. In May 2024 it was approximately $9.5 million. It may be inferred that the amount has increased further since then.
NAB wants to be repaid. It wishes to enforce the security, including exercising its rights under the mortgage to enter into possession of the property.
On 27 May 2024 NAB filed a Notice of Motion in these proceedings pursuant to which it sought:
1. an order under ss 29 and 30 of the Proceeds of Crime Act that the interest of NAB in the property be excluded from the restraining orders made on 31 January 2023; and
2. other orders which permit NAB to exercise its rights as mortgagee in conformity with the continuing restraining orders which remain over any other interests in the property (prayer 2 and 3).
In support of the application NAB relied upon an Affidavit of its solicitor which was affirmed on 24 May 2024, and the documentation exhibited to that Affidavit. The Affidavit largely addresses the matters set out in the preceding paragraphs.
Apart from the fourteenth and fifteenth defendants, there is no objection to the orders sought by NAB. In particular, the plaintiff, who obtained the restraining orders in the first place, does not object to NAB's interest now being excluded.
The fourteenth and fifteenth defendants oppose the orders sought by NAB. On 9 August 2024 the fourteenth defendant filed his own Notice of Motion together with an Affidavit by his solicitor. By his Notice of Motion, the fourteenth defendant sought:
1. an order that NAB's Notice of Motion be temporarily stayed (prayer 1); and
2. orders that other property which is currently the subject of other restraining orders be realised and the debt to NAB repaid from the proceeds.
The other property which is referred to in the fourteenth defendant's Notice of Motion includes real property at Richmond, Tarlo and other places. There are also some bank accounts in the names of various individuals and corporations.
Apart from the stay in prayer 1, the fourteenth defendant's Notice of Motion does not explicitly address NAB's rights as mortgagee. An essential element of the arrangement contemplated by the fourteenth defendant is that NAB will be precluded from exercising its rights under the mortgage and instead be obliged to look to other assets to ensure repayment of the debt. In the absence of NAB's agreement (which is not forthcoming), the fourteenth defendant seeks to have the alternative arrangement imposed upon NAB by order of the Court.
At a procedural level the fourteenth defendant has proposed that NAB's motion be adjourned to a date in November 2024 and that a timetable be set to prepare the fourteenth defendant's motion for simultaneous hearing on that date.
The Affidavit by the fourteenth defendant's solicitor explains how the solicitor was instructed in the case in mid-May 2024. He has had difficulty getting instructions because of the unavailability of documents and because of poor communication with the fourteenth defendant who is a non-English-speaking person currently in custody and heavily distracted by other legal matters, including criminal proceedings. There have also been difficulties in retaining counsel.
The fourteenth defendant's solicitor also gives some evidence about the alternative property which might be used to repay NAB's debt instead of the Bellevue Hill property. The real properties at Richmond and Tarlo are said to be "substantial rural properties" available for sale to "reduce" the NAB debt. There is no evidence about the other real properties. As for the bank accounts, the amount of money in the accounts is not specified. The solicitor is informed, but does not express any belief, that there is more than $4.5 million being held in trust for "ACIF Prosperity Fund". There is no evidence about the availability of that money for use by the fourteenth and/or fifteenth defendants. The plaintiff points out some of this property is held in the name of various corporations and it is not clear the basis upon which the fourteenth and/or fifteenth defendants would be entitled to use the property for their own benefit.
In light of this evidence, NAB's apparent preference to focus on its legal rights to the Bellevue Hill property is understandable.
The fourteenth defendant's solicitor's Affidavit also includes evidence about the current occupation of the Bellevue Hill property by the fourteenth defendant's wife (the fifteenth defendant) and their eight "children". The fourteenth defendant is concerned that enforcement action by NAB will render his wife and children homeless.
Further information about the domestic circumstances of the fifteenth defendant and the eight children is provided in an Affidavit affirmed on 11 August 2024 by the fifteenth defendant herself. In that Affidavit she explains that she is a homemaker and that four of the children are aged 19, 22, 23 and 24. The eldest was previously employed full time but has recently decided to return to full time study which will necessitate financial assistance from her parents. The second eldest is employed by an "accounting company". The next two are university students. All four previously lived out of home but have now returned for want of financial support from their parents.
The other four children are aged between 14 and 18, one is at a private boys' school and the other three are at the local government school, having recently been removed from a private girls' school. As a result of the restraining orders made in these proceedings, the fifteenth defendant says she has been deprived of access to bank accounts and cash. She has been forced to change the girls' school.
Some of the children have undertaken some paid work to assist the family.
The fifteenth defendant says that one of the adult children has developed "psychological issues while carrying some burden of the family". Some of the school-aged children have found the recent events disruptive which has manifested itself in behavioural issues. The fifteenth defendant has personally also found recent events disruptive.
The fifteenth defendant hired PT Business Advisory Pty Ltd to "help me review my bank statements and work out the ordinary and reasonable living expenses of my household". As a result, the fifteenth defendant has been advised that her total annualised family living expenses is $921,704. That figure includes $284,509 in schooling costs per year, which the fifteenth defendant expects will decrease now that three of the children have been moved to a local government school.
Since April 2023, the fifteenth defendant has had to borrow money for expenses. She has borrowed $518,000 from family and friends.
Turning then to NAB's application, and as I have stated above, there is no dispute that there is a default under the mortgage and that in August 2023 NAB gave notice of the default.
The plaintiff, who obtained the restraining orders over the Bellevue Hill property, accepts that NAB's interest in the property ought to be excluded from the restraining orders. That is correct. For the purposes of the Proceeds of Crime Act, NAB's rights as mortgagee is an "interest" and, hence, "property" under the definitions in s 338. There are three restraining orders which concern the Bellevue Hill property. The first two were made under ss 18(2)(a) and 18(2)(b) which each provide for a restraining order to be made over specified property when the Court is satisfied there are reasonable grounds to suspect that the property is property "of the suspect" (as that term is defined). NAB is not the suspect. The third restraining order was made under s 19 which provides for a restraining order to be made over property if there are reasonable grounds to suspect that the property is the "proceeds of [an] indictable offence". There are no grounds to suspect that NAB's interest in the property is the proceeds of an indictable offence. There is no basis for a restraining order over the property of NAB in the Bellevue Hill property.
The fourteenth and fifteenth defendants have not identified any legal reason why NAB is not entitled to the orders it seeks.
The only non-legal reason given by the fourteenth and fifteenth defendants to resist the immediate exclusion of NAB's interest is the fear of disruption to the accommodation of the fifteenth defendant and the eight children living with her. Whilst one may have sympathy for the problems which will confront the family if the Bellevue Hill property is eventually sold, there is nothing in this case which sets it apart from any other case of a default on a bank loan secured over a family home.
It is submitted that NAB will not suffer any prejudice if there is a delay in NAB's interest being excluded from the restraining orders. The fourteenth defendant points out that NAB is a registered first mortgagee over a prestige property in Bellevue Hill. The Court is asked to assume that property value goes up. However, the evidence does not permit the Court to conclude that NAB is not exposed to potential prejudice in the face of a proven and growing debt of $9.5 million. There is no evidence about the current value of the property. In any event, the rights which NAB wants to enforce are private rights against the fourteenth and fifteenth defendants which NAB is entitled to enforce in accordance with its own interests. NAB does not want a delay.
The prospect of an alternative arrangement being made by which other assets might be released from restraining orders and realised to fund repayment of the debt to NAB does not assist the fourteenth and fifteenth defendants' cause. First, the evidence does not justify confidence that the other assets are of sufficient value to make it unnecessary for NAB to take possession of the Bellevue Hill property in any event. It appears to be accepted that the real property at Richmond and Tarlo are not valuable enough on their own. Nothing concrete is known about the other property. On the evidence, it is not even known if some of the other property is lawfully available to the fourteenth and fifteenth defendants.
Secondly, the mere existence of alternative assets does not disentitle NAB from exercising its private rights in relation to the Bellevue Hill property if that is what NAB wants to do.
Thirdly, there is nothing in the Proceeds of Crime Act which gives the Court power to modify, restrict or diminish NAB's private rights as against the fourteenth and fifteenth defendants. In his Notice of Motion filed on 9 August 2024, the fourteenth defendant relies upon ss 24(1)(d) and 39(1). Section 24(1) provides:
24 Allowance for expenses
(1) The court may allow any one or more of the following to be met out of property, or a specified part of property, covered by a restraining order:
(a) the reasonable living expenses of the person whose property is restrained;
(b) the reasonable living expenses of any of the dependants of that person;
(c) the reasonable business expenses of that person;
(d) a specified debt incurred in good faith by that person.
The text of s 24(1)(d) makes clear that the Court is empowered to "allow" property to be applied to a particular debt even though the property is subject to a restraining order. The Court may give permission, with the effect that the proceeds of crime authority may not subsequently oppose the property being used in that way. Even if the Court were to make such an order in this case, it would not be enough for the fourteenth and fifteenth defendants' purpose. There is nothing in s 24(1)(d) which empowers the Court to go further and compel a lender to accept funds from a particular source. Even more pertinently to the current circumstances, the Court is not empowered to compel a lender to forego funds from some source to which the lender is entitled.
Section 39(1) does not assist either. It provides:
39 Ancillary orders
(1) The court that made a restraining order, or any other court that could have made the restraining order, may make any ancillary orders that the court considers appropriate and, without limiting the generality of this, the court may make any one or more of the following orders:
(a) an order varying the property covered by the restraining order;
(b) an order varying a condition to which the restraining order is subject;
(c) an order relating to an undertaking required under section 21;
(ca) an order directing the suspect in relation to the restraining order to give a sworn statement to a specified person, within a specified period, setting out all of his or her * interests in property, and his or her liabilities;
(d) an order directing the owner or a previous owner of the property (including, if the owner or previous owner is a body corporate, a specified director of the body corporate) to give a sworn statement to a specified person, within a specified period, setting out particulars of, or dealings with, the property;
(da) if the court is satisfied that there are reasonable grounds to suspect that a person (other than the owner or a previous owner) has information relevant to identifying, locating or quantifying the property--an order directing the person to give a sworn statement to a specified person, within a specified period, setting out particulars of, or dealings with, the property;
(e) if the * Official Trustee is ordered under section 38 to take custody and control of property:
(i) an order regulating the manner in which the Official Trustee may exercise its powers or perform its duties under the restraining order; or
(ii) an order determining any question relating to the property, including a question relating to the liabilities of the owner or the exercise of powers or the performance of duties of the Official Trustee; or
(iii) an order directing any person to do anything necessary or convenient to enable the Official Trustee to take custody and control of the property;
(f) an order giving directions about the operation of the restraining order and any one or more of the following:
(i) a forfeiture order that covers the same property as the restraining order;
(ii) a pecuniary penalty order or a literary proceeds order that relates to the same offence as the restraining order;
(g) an order requiring a person whose property is covered by a restraining order, or who has effective control of property covered by a restraining order, to do anything necessary or convenient to bring the property within the jurisdiction.
The power conferred on the Court under this provision is broad, but it is not unlimited. The ambit of s 39 is to be construed consistently with the language of the text and the purpose of all the provisions of the Proceeds of Crime Act: Commissioner of the Australian Federal Police v Kanjo & Ors [2019] QCA 143 at [43]. As for the text, s 39 empowers the Court to make an "ancillary" order. The ordinary meaning of "ancillary" is to be "subordinate, subsidiary. Later also in weakened sense: supplementary, additional; accompanying": Oxford English Dictionary, online ed, accessed 15 August 2024. Within s 39, "ancillary" evidently means ancillary to a restraining order which the Court has already made (or could have made): Kanjo's Case at [50]-[51].
The Court's power is limited to making orders which the Court "considers appropriate". Appropriateness is not some unconstrained notion of right, proper or fair. In the first instance appropriateness must be informed by the objects of the Proceeds of Crime Act. The principal objects are set out in s 5 in the following terms:
Principal objects
The principal objects of this Act are:
(a) to deprive persons of the proceeds of offences, the instruments of offences, and benefits derived from offences, against the laws of the Commonwealth or the non - governing Territories; and
(b) to deprive persons of literary proceeds derived from the commercial exploitation of their notoriety from having committed offences; and
(ba) to deprive persons of unexplained wealth amounts that the person cannot satisfy a court were not derived or realised, directly or indirectly, from certain offences; and
(c) to punish and deter persons from breaching laws of the Commonwealth or the non - governing Territories; and
(d) to prevent the reinvestment of proceeds, instruments, benefits, literary proceeds and unexplained wealth amounts in further criminal activities; and
(da) to undermine the profitability of criminal enterprises; and
(e) to enable law enforcement authorities effectively to trace proceeds, instruments, benefits, literary proceeds and unexplained wealth amounts; and
(f) to give effect to Australia's obligations under the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, and other international agreements relating to proceeds of crime; and
(g) to provide for confiscation orders and restraining orders made in respect of offences against the laws of the States or the * self - governing Territories to be enforced in the other Territories.
The objects were summarised in Commissioner of the Australian Federal Police v Hart (2018) 262 CLR 76; [2018] HCA 1 at [32]-[33], where Gordan J said:
"[32] The Proceeds of Crime Act 2002 (Cth) ("the POCA") is intended to, and does, prevent criminals from enjoying the fruits of their crimes, deprive them of the proceeds of and benefits derived from criminal conduct, prevent the reinvestment of those proceeds and benefits in further criminal activities, punish and deter breaches of laws, and enable law enforcement authorities to trace the fruits of offences.
[33] It achieves these objects through a confiscation scheme which provides for orders restraining persons from disposing of or otherwise dealing with particular property, forfeiture orders, automatic forfeiture of property following conviction of a serious offence and pecuniary penalty orders."
Section 39 empowers the Court to make an order which it considers appropriate having regard to these purposes. The Court is empowered to make an order which the Court considers appropriate to support the particular restraining order in question.
Such an operation of s 39 is confirmed by the example orders. Nine examples of orders which the Court may make are set out in the sub-paragraphs of s 39. The examples are not exhaustive. All of the examples relate to the efficacy of the restraining orders, the efficacy of the Official Trustee's custody and control of the property and the information gathering work of the proceeds of crime authority
In the circumstances of this case, s 39 does not empower the Court to make any order which has as its object the restraint on the exercise of NAB's private rights against the fourteenth and fifteenth defendants. Such an order will not serve any of the objects of the statute. It could not be considered appropriate to support the restraining orders which have been made over the Bellevue Hill property, nor the restraining orders which have been made over any of the other property referred to in the fourteenth defendant's Notice of Motion. Such orders would not conform to or resemble any of the sample orders set out in s 39.
As a further matter as they concern NAB the purpose of the orders proposed by the fourteenth defendant is to compel NAB to give up its interests in the Bellevue Hill property. Given that Division 3 of Part 2-1 of the Proceeds of Crime Act specifically contemplates that interests such as that which NAB has in the Bellevue Hill property ought not to be disrupted by restraining orders, the arrangement which the fourteenth and fifteenth defendants seek to implement would be inconsistent with the statutory regime. That is, unless NAB agrees.
I have also had regard to the fact that the orders merely exclude NAB's interest from the restraining orders which apply to the Bellevue Hill property, and permit NAB to exercise its rights as mortgagee in conformity with the restraining orders. The orders do not enforce any of NAB's private rights against the fourteenth and fifteenth defendants. NAB does not seek a judgment for the debt or an order for possession or a writ for possession. Such matters are not before the Court. If there be a proper basis for it, the fourteenth or fifteenth defendants may resist an application for such orders when NAB makes it. That application will be the appropriate occasion to canvas any issue arising from the private rights and obligations asserted by NAB.
For these reasons, I accepted NAB's application on 12 August 2024. I also dismissed the fourteenth defendant's application for a stay.
The balance of the fourteenth defendant's Notice of Motion (prayers 2, 3 and 4) seeks orders under ss 24(1)(d) and 39(1) to facilitate an alternative arrangement for the repayment of the debt to NAB. The fourteenth defendant submitted that, even after NAB's interest is excluded from the restraining orders, there is still utility in those prayers being heard and determined by the Court at a future date.
Whether or not that is correct depends on whether the Court's powers under s 24(1)(d) and/or whether s 39(1) would permit the Court to compel the plaintiff (as opposed to NAB) to accommodate an alternative arrangement which (on this hypothesis) is acceptable to NAB. NAB does not consent to the arrangement currently proposed so the issue is hypothetical. However, it may be presumed that the fourteenth and fifteenth defendants wish to continue negotiations. On the evidence currently before the Court, it cannot be said that there is no prospect of agreement and hence no utility in the balance of the motion being heard at a later date.
In those circumstances, I made orders for the balance of the fourteenth defendant's motion to be prepared for hearing on 22 November 2024.
In relation to the Notice of Motion filed by NAB on 27 May 2024, the following orders were made on 12 August 2024:
Exclusion Order
1. Pursuant to ss 29 and 31 of the Proceeds of Crime Act 2002 (Cth) (Act), the interest of National Australia Bank Limited (NAB) as registered mortgagee of the property specified in Schedule One to these orders (the Property) [Schedule 1 omitted], including both NAB's legal interest and all rights powers and privileges in connection with the mortgage, are excluded from the restraining orders made on 31 January 2023 (Restraining Orders).
Mortgagee Sale Order
1. Without limiting order 1 above, NAB, their agents and/or legal representatives, and/or any receivers (such term to include receivers and managers) appointed by NAB are permitted to deal with the property for the purpose of effecting its sale pursuant to the terms of its registered mortgage AR561384, including:
1. taking possession of the property;
2. exercise its power of sale with respect to the property; and
3. apply the proceeds from the sale of the property to discharge the amounts owing and secured by NAB's mortgage over the property.
1. In the event that the power of sale is exercised under NAB's registered mortgage over the Property (whether by NAB, NAB's agents or any receiver appointed by NAB), NAB is to provide to the plaintiff, by email to the plaintiff's legal representatives at EC- CAL@afp.gov.au, copies of the following documents 72 hours prior to completion of any sale:
1. a copy of any contract of sale;
2. details in writing of the time and place of settlement and settlement sheets;
3. a copy of any Australian Taxation Office foreign resident capital gains withholding clearance certificate or variation certificate;
4. a copy of the statement of adjustments and the settlement statement;
5. an itemised schedule of costs, charges, and expenses incurred in the sale of the property together with copies of all documents associated with the sale, including the tax invoice for any agent's commission payable on the sale and the memorandum of fees for any legal fees associated with the conveyance; and
6. any other documents evidencing the disbursement of the sale price reasonably requested by the Plaintiff.
1. Following completion of any sale of the property pursuant to NAB's mortgage (whether by NAB, its agent or any receiver appointed by NAB):
1. the "net proceeds of sale" (as defined below) together with any interest on that amount shall continue to be subject to the terms of the restraining orders as restrained property, until further order of the Court (subject to Part 2-1 Division 6 of the Act); and
2. pursuant to section 38 of the Act, the Official Trustee in Bankruptcy (Official Trustee) is to take custody and control of the "net proceeds of sale" together with any interest on that amount.
1. The "net proceeds of sale" referred to in these orders means, in respect of the Property, the sale price less the following in the following order:
1. First, any amounts payable on account of any outstanding rates, land tax, and other charges due to Sydney Water, and any other adjustment made upon completion of the sale of the property;
2. Second, all amounts owing under NAB's registered mortgage AR561384 in respect of the property, including without limitation:
1. reasonable legal fees and disbursements payable to the solicitor acting for NAB in respect of the sale of the property;
2. reasonable real estate agents' fees and commission in respect of the sale of the property;
3. reasonable commercial selling agents' fees and disbursements payable to any property management firm engaged to secure and/or maintain and/or present the property; and
4. the reasonable fees and disbursements of any receiver and manager appointed by NAB in respect of the property;
1. Third, any other reasonable expenses in connection with the sale of the property;
1. provided that NAB has provided to the plaintiff written evidence in support of those amounts prior to completion.
2. The Court orders that, to the extent necessary, the restraining orders are varied pursuant to section 39(1) of the Act such that NAB and any receivers appointed by NAB are permitted to deal with the property and the proceeds from the sale of the property in the manner set out in these orders and notations.
3. Liberty to restore on 24 hours' written notice.
4. There be no order as to costs with respect to NAB's Notice of Motion, noting that such costs are payable under the terms of NAB's loan agreement and mortgage and that such costs are secured and will form part of the debt secured over the property.
5. These orders be entered forthwith.
In relation to the Notice of Motion filed by the fourteenth defendant on 9 August 2024, the following orders were made on 12 August 2024:
1. Dismiss order 1 in the Notice of Motion of the fourteenth defendant dated 9 August 2024
2. The fourteenth defendant is to file and serve any evidence and submissions by 30 September 2024.
3. The Commissioner of the Australian Federal Police is to file and serve any evidence and submissions in reply by 28 October 2024.
4. A joint court book is to be provided to the Associate of Faulkner J 7 days prior to the hearing.
5. The Notice of Motion filed by the fourteenth defendant on 9 August 2024 is set down for hearing before Faulkner J, with an estimate of 1 day, on 22 November 2024.
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Decision last updated: 19 August 2024