Commissioner of the Australian Federal Police v Aouli

The Current Application

1. By notice of motion filed 27 September 2024, the National Australia Bank Limited ("NAB"), the registered mortgagee named in Order 11, as an interested party seeks, by leave if necessary, the following relief: "1 Pursuant to Sections 29 and 31 of the Proceeds of Crime Act 2002 (Cth) (the Act), the interests of NAB and its registered mortgage AM294 with respect to the property at xxxx, Connells Point NSW 2221 (the Property) be excluded from the restraining orders made on 4 August 2022 (Restraining Orders). 2 Pursuant to Section 39(1) of the Act, the Restraining Orders with respect to the Property be varied in accordance with these orders. 3 NAB is to provide the Plaintiff, by email to its legal representatives EC­ CAL@afp.gov.au copies of the following documents, associated with the sale of the Property, no later than 72 hours prior to completion of the sale: a. a copy of the contract of sale; b. details in writing of the time for settlement to occur via a PEXA Workspace; c. a copy of any Australian Taxation Office foreign resident capital gains withholding clearance certificate or variation certificate; d. a copy of the statement of adjustments and the settlement statement; e. copies of any tax invoices for any agent's commission or fees payable on the sale and a copy of the memorandum of fees from any solicitor acting on the sale; and f. any other documents evidencing the disbursement of the sale price reasonably requested by the Plaintiff. 4 Upon completion of the sale of the Property, the 'net proceeds of sale' shall continue to be subject to the terms of the Restraining Orders as they relate to the Property, until further order of the Court (subject to Part 2-1 Division 6 of the Act). 5 Upon completion of the sale of the Property, 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'. 6 The 'net proceeds of sale' referred to in these Orders means the sale price of the Property, less any amounts payable with respect to the sale of the Property, including: a. outstanding rates, Land Tax and other charges due; b. the amount owing under NAB's registered mortgage AM294, including NAB's legal fees and disbursements payable to the solicitor for NAB; c. reasonable real estate agent's fees and commission in respect of the sale; and d. any other reasonable expenses in connection with the sale, provided NAB has provided the Plaintiff written evidence in support of those amounts prior to completion. 7. On completion of any sale of the Property, NAB will direct the purchaser to pay to the Official Trustee the 'net proceeds of sale' as directed by the Official Trustee in writing. 8. These orders be entered forthwith."
2. At the hearing before me the plaintiff, the Commissioner of the Australian Federal Police ("the Commissioner") was represented by Mr K Anderson of counsel; the first defendant ("the registered proprietor") who is the person suspected of having committed a serious offence for the purpose of s 18(1), by Mr P English and Mr T Gooley, both of counsel; and the NAB by Mr J Foley of counsel.

The Issue of Leave

1. Under s 39(1), the court that has made a restraining order has wide powers to make such ancillary orders as the court considers appropriate. Without limiting the generality of that wide conferral of power, nine sub-paragraphs follow the chapeau to s 39(1) concerned with one or more specific ancillary orders that may be made. Leaving to one side the NAB's application for exclusion orders under s 29 to which, in this case, s 31 applies, the NAB seeks detailed orders controlling the exercise by it of its mortgagee's power of sale and directions as to the distribution of the proceeds of sale, including an order for payment of the net proceeds to the Official Trustee. I am satisfied orders of this type are covered by either the general conferral of power under the chapeau to s 39(1) or perhaps under s 39(1)(a) or (b), namely, an order varying the property covered by the restraining order or the conditions to which it is subject.
2. Section 39(2) is concerned with who has standing to apply for an ancillary order, which may be applied for either when the restraining order is made or "in any case - at any time after the restraining order is made": s 39(4). Section 39(2) is in the following terms: "(2) The court can only make an ancillary order on the application of: (a) the * responsible authority; or (b) the owner of the property covered by the order; or (c) if the official trustee was ordered to take custody and control of the property--the official trustee; or (d) any other person who has the leave of the court."
3. While possibly the NAB could be an owner of property covered by the restraining order as referred to s 39(2)(d), there is arguably some difficulty in that regard. This is because the s 18 restraining order in respect of the Schedule 1 property the subject of this application appears limited to the interests of the registered proprietor by its express terms. This is not clearly so in relation to the s 19 restraining order so far as it applies to the Schedule 1 property. By necessary implication, the same may be true given that it appears to be the interest of the registered proprietor, as opposed to NAB, in the Schedule 1 property that is covered by Order 8 as pronounced by Davies J. I will return to this issue below.
4. There can be no doubt that NAB is an interested party given its right to deal with the Schedule 1 property, in accordance with its registered mortgage as expressly reserved by Order 11. Moreover as a mortgagee in possession in the course of the exercise of its power of sale, it will be in the position of a trustee of the purchase moneys paid upon completion: Charles v Kay (1887) 35 Ch D 544 at 549-550; Adams v Bank of New South Wales [1984] 1NSWLR 285 at 299, 302; Bofinger v Kingsway Group Limited [2009] 239 CLR 269; [2009] HCA 44 at [34]-[35]; s 58(3) Real Property Act 1900 (NSW) ("RPA"). As such, its position is somewhat analogous to a trustee who may pay money into court under s 95 or s 98 Trustee Act 1925 (NSW) for the determination of the competing claims to entitlement.
5. It is appropriate that NAB be given leave, if necessary, to seek ancillary orders to better give effect to Order 11 and to remove any doubt or ambiguity concerning its right to deal with the Schedule 1 property, and in what manner, under the mortgage.

Issues

1. The Commissioner supports the NAB's application. The registered proprietor opposes it. While the latter's argument is nuanced, effectively the end point is that under the terms of the mortgage on the exercise of NAB's power of sale as mortgagee, it must account to him for the expected net proceeds: s 58(3) RPA; cl 20.5 of the registered mortgage (AM294). That is to say, the registered proprietor asserts that he, and no one else, is entitled to receive the net proceeds of the mortgagee sale by the NAB. Indeed in the absence of process seeking this relief, the registered proprietor asks for a declaration of right to that effect.
2. The bare outline of the registered proprietor's argument follows this path: 1. Prayer 1 seeking an exclusion order is "inutile" or of no practical effect as by Order 11, NAB's rights under its mortgage are not covered by either of the s 18 or s 19 restraining order (First Defendant's Written Submissions ("FDWS" at [5]). Moreover, NAB has "sold" the Schedule 1 property: s 330(4)(f); 2. Prayers 2 to 7 of NAB's notice of motion seek to vary the restraining orders to bring the net proceeds of sale upon completion within the existing restraining order and requiring payment to the Official Trustee under s 38 are "in the nature of a fresh restraining order applied for by a non-proceeds of crime authority". For that reason, they are beyond the power of the Court (FDWS at [4]); Only a proceeds authority is authorised to apply for a restraining order: see ss 17(1)(c), 18(1)(c), 19(1)(c), 20(1)(c), 20A(1)(c), and 25. 3. The registered proprietor argues that there can be no objection to the net surplus of a mortgagee sale being paid to him because the sale to the purchaser by dint of s 330(4)(f) means the Schedule 1 property will have ceased to be the proceeds, or instrument, of an offence for the purpose of the Act because a sale under Order 11 has the effect that "the property [has been] otherwise sold or disposed of under [the Act]" (FDWS at [23]).

Relevant Background Facts

1. Background facts in their legal context are within a narrow compass. They are common ground. The registered proprietor granted NAB, a RPA mortgage over the Schedule 1 property on 28 November 2016. Clause 20.5 of the registered mortgage (AM294) provides as follows: "NAB will pay any money remaining after the amount owing is paid either to you or to another person entitled to it (such as another person with security interest in the land). In particular, NAB may pay it to a person who NAB considers on reasonable grounds as a subsequent registered or unregistered security interest without incurring liability to you. NAB is not liable to pay interest on any money remaining after the amount owing is paid either to you or another person. (Italics in original, my underlining for emphasis; Exhibit PN1 to the Affidavit of Pip Ashleigh Nagam, sworn 27 September 2024, page 34 and following).
2. "Security interests" is defined as 'key words' in the mortgage. The definition of "land" includes: "(a) either or both the land described in this mortgage and all rights, title and interest in connection with the land."
3. "Security interest" is defined as meaning: "any security for the payment of money or performance of obligations including a mortgage, charge, lien, pledge, trust, power, or title retention or flawed deposit arrangement". (Exhibit PN1 pp 50-51).
4. In accordance with s 34, the restraining orders have been registered on the title to the property maintained by the Registrar General, Folio C/16990 (Exhibit PN1, p 53). Registration may only be affected by the responsible authority for the restraining order, here the Commissioner. Only the Commissioner can notify the Registrar General that "the property is no longer covered by" the restraining order because it is excluded; or because the property covered by the order is varied under s 39; or the conditions to which it is subject have been varied.
5. Under s 36 the Court has power to set aside dispositions or dealings that contravene a restraining order on the application of the Commissioner if the dealing was not for sufficient consideration or not in favour of a person who acted in good faith: s 36(1). It is an offence to deal with property in contravention of a restraining order: s 37.
6. On 8 October 2024, NAB as mortgagee in possession exercised its power of sale under the mortgage by conducting a public auction for the sale of the Schedule 1 property. The property was knocked down and a contract for the sale of land was entered into between NAB and the successful highest bidder on that date. The sale price makes it likely there will be substantial net surplus upon completion.

Summary of Arguments of the Parties

1. In its written submissions, the NAB submits (at [3]) that its bringing of this application as an interested party is appropriate in circumstances where: it lawfully came into possession of the property; the likelihood of the sale price exceeding the amount due under the mortgage; no orders have been made regarding the payment of surplus funds upon completion; the Commissioner's refusal to remove the restraining order under s 35 until appropriate orders are made; and the registered proprietor's refusal to consent to NAB paying the surplus funds to the Official Trustee. NAB submits clear title cannot be transferred to the incoming purchaser on completion unless the Commissioner's registration of the restraining order is removed to allow the transfer to be duly registered.
2. NAB also refers to the definition of "property" in s 338, meaning "real or personal property of every description" and including "an interest in any such real or personal property". "Interest" is also defined to extend to a "legal or equitable estate or interest" and a "right, power or privilege in connection with the property or thing… whether present or future and whether vested or contingent". NAB argues that the net surplus funds resulting from its mortgagee sale of the property remain an interest in the property, as defined, and subject to the restraining orders. Reference is made to Australian Federal Police v AD (No 2) [2015] NSWSC 1756 and Lordianto v Commissioner of the Australian Federal Police (2019) 266 CLR 273; [2019] HCA 39 at [16].
3. The Commissioner argues that on their true construction, the restraining orders extend to all interests in the in the Schedule 1 property, including NAB's interests as registered mortgagee. It contends that Order 11 permitting NAB to deal with the property in accordance with its mortgage "does not have the effect of excluding [its] interest in the in the [Schedule 1 property]" (my emphasis) (Plaintiff's Written Submissions ("PWS") at [6]). The Commissioner also points out that the ancillary orders made thus far do not make provision for the distribution of the proceeds of a sale by the NAB under its mortgage. While the restraining order remains on title, s 330(4) makes it impossible for NAB to provide a clear title to the incoming purchaser because the registration of the restraining order on title would necessarily ground reasonable suspicion the property was proceeds of an offence or an instrument of an offence (as the case may require) tainting the purchaser's title: s 330(4).
4. The Commissioner also submits that Order 11 does not satisfy the requirements of ss 29 and 31 so as to empower the Court to exclude NAB's interest in the property from either restraining order. Accordingly, it is necessary for this application to be made. Reference is made to the decision of Faulkner J in Australian Federal Police v Xin [2024] NSWSC 1038 at [23].
5. I have outlined the argument of the registered proprietor above. The registered proprietor pointed out that by dint of ss 278(2) and s 281(1)(a), amounts realised from any sale of restrained property under the control of, and by, Official Trustee are taken to be covered by the restraining order. By s 281A, exercise by the Official Trustees of powers under Pt 4-1, Div 3 does not lead to the acquisition by the Official Trustee of any additional proprietary interest in controlled property. This is said to be a strong indication that absent a specific provision in the Act, the net surplus on sale by NAB is not restrained property.
6. The registered proprietor also submits that Order 11 permits NAB to exercise its mortgagee's power of sale notwithstanding the restraining order. In fact, he submits the property has been sold for the purpose of s 330(4)(f), meaning the net proceeds of the sale "will no longer retain its status as proceeds, or an instrument, of an offence" because a sale under Order 11 is a sale under the Act.
7. The Court, according to this argument would treat the net proceeds of sale as being separate to the Schedule 1 property and not covered by the restraining orders. That separate property when it comes into existence upon completion of the contract for sale by NAB will not be subject to the restraining order.
8. The registered proprietor argued that Order 11 was made under ss 18(1)(b) and 19(1)(b) and all actions to be taken by NAB are "under the Act". Somewhat inconsistently, with respect, the registered proprietor argued, had Davies J ordered a sale of the property by NAB or directed the Official Trustee to sell the property pursuant to Pt 4-1, Div 3, s 330(4)(f) would not have been engaged because in such sales the property would not lose its character as a proceeds, or an instrument, of an offence. Once the property is sold pursuant to Order 11 (which the registered proprietor submits has already occurred at the auction), the sale is one under the Act and accordingly, not only the real property when passed on to the purchaser but also, the proceeds of that sale themselves lose the character of proceeds of crime or as an instrument of crime.

Decision

1. All rights to property may be complex and involve a parcel of various interests capable of division as the familiar legal expression of "right, title and interest" makes clear. Section 338 when defining "interest" in property speaks of "right, power and privilege in connection with property". The registered proprietor of Real Property Act land has a parcel of interests which can be covered by the expression "right, power and privilege" in connection with the land. Apart from the right to possess and occupy the land, the registered proprietor enjoys the legal title and other interests relating to user. The right to possess and occupy the land can be parted with by way of a lease without in any way affecting the registered proprietor's legal title or other rights such as the right to mortgage the land. The right to possess and occupy the land might be shared with another by the grant by the registered proprietor of a mere licence whether for reward or otherwise. The registered proprietor may create a statutory charge over all of his right, title and interest by mortgaging the land: s 56 and 57 RPA; the mortgage does not operate as a transfer of the land.
2. When the registered proprietor mortgages his land as security for a loan, the registered proprietor's rights upon the lawful exercise by the mortgagee of its power of sale, including the registered proprietor's right to receive the net proceeds of the sale are part and parcel of his property in the land: s 58(3) RPA. This right is part of the registered proprietor's "proprietary right" in the land: Forsyth v Blundell (1973) 129 CLR 477 at 497-8. This right does not depend upon the terms of the mortgage, although terms of the mortgage, as between the registered proprietor and the mortgagee, may regulate how the net proceeds are to be ascertained and paid after the secured debt as defined in the mortgage has been satisfied.
3. It seems to me to be a mistake to oversimplify the nature of a registered proprietor's interest in land that may be subject to a restraining order by reference to the physical, real property itself. For instance, when by Order 3 Davies J restrained "the property in Schedule One, being property of the First Defendant" prohibiting it being disposed of, or otherwise dealt with by any person except in the manner and circumstances specified in the orders he was not simply referring to the real property described in Schedule 1, but to all of the first defendant's right, title and interest in that property, including the right of the registered proprietor to receive the net proceeds of sale in the event of a lawful sale by a mortgagee in possession should that event come to pass. Section 338 defines "interest" in relation to property in extensive terms "whether present or future and whether vested or contingent". The interest of the registered proprietor to receive the net proceeds of a mortgagee sale, at least prior to default, might properly be referred to as "contingent". I reiterate, property is defined as extending to "an interest in any… real or personal property" (my emphasis).
4. Without more, in my view, the right of the registered proprietor here to receive the net proceeds of sale in accordance with s 58(3) RPA and established equitable principles, is restrained property. The net proceeds when they are realised will likewise be restrained property.
5. There is the potential for ambiguity about Order 11 which qualifies both Order 3, the s 18 restraining order, and Order 8 and the s 19 restraining order. I interpolate, as the Commissioner points out Order 8 omits the expression "being property of the first defendant" which appears in Order 3. The omission may be significant. However, the language of Schedule 1 itself, which is incorporated in each of Order 3 and Order 8, refers to property "in the name of" the registered proprietor.
6. When considering Order 11 there is a certain potentiality for ambiguity. As the registered proprietor submits, it may operate as an exclusion order, on the one hand, or as a qualification, on the other, of the property specified by Orders 3 and 8. However, it may be simply an order covered by the concluding words of each of the restraining orders, including Orders 3 and 8: the Schedule 1 property "must not be disposed of or otherwise dealt with by any person except in the manner and circumstances specified in these orders" (my emphasis). If this third option is the correct construction or interpretation of the orders as a whole, Order 11 is not an exclusion order as such but an express exception to the restraining order as pronounced.
7. There is much about the third option to commend itself. As the Commissioner argued, it is difficult to see Order 11 as an exclusion order when one considers the detailed provisions of ss 29 and 31 governing the court's power to exclude specified property from a restraining order. I am satisfied the Commissioner's argument should be accepted.
8. Looked at this way, Order 11 permits the NAB to dispose of or otherwise deal with the registered proprietor's property, right, title and interest in the Schedule 1 property in accordance with the terms of its registered mortgage, the provisions of RPA and the general law. While a s 38 order was made in respect of the Schedule 1 property authorising the official trustee to take custody and control of the property, the ancillary orders do not spell out what is required to be done with any net proceeds of sale in the event that the NAB "disposed of, or otherwise dealt with" the registered proprietor's right, title and interest in the Schedule 1 property in accordance with the terms of its registered mortgage as permitted by Order 11.
9. My own view is that upon the lawful mortgagee sale without more the net proceeds are "likewise subject to [the] restraining order", as I have said in the Australian Federal Police v AD (No 2).
10. I should also say that I am not of the view that the entry into a contract for the sale of the Schedule 1 property by auction means the property "has been sold or otherwise disposed of" within the meaning of s 330(4)(f). Certainly, the entry by a vendor and purchaser into an executory contract for the sale of land creates equitable rights in the property in the purchaser, whether in personam or in rem does not matter for the present discussion. However, in my view, the real property is not sold or otherwise disposed of until completion of the contract in accordance with usual conveyancing practice. Section 330(4)(f) is a key tenet of registered proprietor's argument justifying his claimed entitlement to receive the net proceeds of sale, free of the taint of proceeds of crime or as an instrument of crime. I reject that argument.
11. Given this conclusion, no question about making a declaration in favour of the registered proprietor arises: cf. Kinsella v Gold Coast City Council [2015] 1 Qd R 274; [2014] QSC 65 (per McMurdo J (as his Honour then was) at [66]-[67] and [71]-[72]).
12. While I have my doubts about whether an exclusion order is in fact necessary in respect of NAB's right, title and interest in the Schedule 1 property as registered mortgagee, given the intervention of the rights of an innocent third part party, namely the purchaser at auction, and the need for the registration of the restraining order to be removed from title before settlement and subsequent registration of the transfer can occur, I am persuaded that I should make such an order out of an abundance of caution and for clarification of the rights of the incoming purchaser. As I have said, the Commissioner referred to the decision of Faulkner J in AFP v Xin where his Honour said (at [23]). 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.
13. These factual observations and path of logical analysis are equally applicable in the present case. While the registered proprietor in the present case has argued that the exclusion order is inutile for a number of reasons, I do not share that view, having regard especially to the position of the incoming purchaser. I propose to make the exclusion order sought.
14. It seems to me that for the purpose of ensuring that the net proceeds of the sale are dealt with in accordance with the restraining and other orders already made, it is appropriate to make orders in accordance with prayers to 2 to 7 of the notice of motion to govern the sale of the Schedule 1 property to conform to those orders and to ensure that NAB passes a good title in registrable form to the purchaser.

Orders

1. I make orders from the following terms: 1. Pursuant to Sections 29 and 31 of the Proceeds of Crime Act 2002 (Cth) (the Act), the interests of NAB and its registered mortgage AM294 with respect to the property at xxxx, Connells Point NSW 2221 (the Property) be excluded from the restraining orders made on 4 August 2022 (Restraining Orders). 2. Pursuant to Section 39(1) of the Act, the Restraining Orders with respect to the Property be varied in accordance with these orders. 3. NAB is to provide the Plaintiff, by email to its legal representatives EC­ CAL@afp.gov.au copies of the following documents, associated with the sale of the Property, no later than 72 hours prior to completion of the sale: 1. a copy of the contract of sale; 2. details in writing of the time for settlement to occur via a PEXA Workspace; 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. copies of any tax invoices for any agent's commission or fees payable on the sale and a copy of the memorandum of fees from any solicitor acting on the sale; and 6. any other documents evidencing the disbursement of the sale price reasonably requested by the Plaintiff. 1. Upon completion of the sale of the Property, the 'net proceeds of sale' shall continue to be subject to the terms of the Restraining Orders as they relate to the Property, until further order of the Court (subject to Part 2-1 Division 6 of the Act). 2. Upon completion of the sale of the Property, 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'. 3. The 'net proceeds of sale' referred to in these Orders means the sale price of the Property, less any amounts payable with respect to the sale of the Property, including: 1. outstanding rates, Land Tax and other charges due; 2. the amount owing under NAB's registered mortgage AM294, including NAB's legal fees and disbursements payable to the solicitor for NAB; 3. reasonable real estate agent's fees and commission in respect of the sale; and 4. any other reasonable expenses in connection with the sale, provided NAB has provided the Plaintiff written evidence in support of those amounts prior to completion. 1. On completion of any sale of the Property, NAB will direct the purchaser to pay to the Official Trustee the 'net proceeds of sale' as directed by the Official Trustee in writing. 2. These orders be entered forthwith.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 November 2024