Commissioner of the Australian Federal Police v Hart & Ors; Flying Fighters Pty Ltd v Commonwealth of Australia & Anor; Commonwealth of Australia v Yak 3 Investments Pty Ltd & Ors [2016] QCA 215

SUPREME COURT OF QUEENSLAND

CITATION: Commissioner of the Australian Federal Police v Hart & Ors; Flying Fighters Pty Ltd v Commonwealth of Australia & Anor; Commonwealth of Australia v Yak 3 Investments Pty Ltd & Ors [2016] QCA 215

PARTIES: In Appeal No 3885 of 2013: / COMMISSIONER OF THE AUSTRALIAN FEDERAL POLICE (appellant) v STEVEN IRVINE HART (first respondent) FLYING FIGHTERS PTY LTD ACN 067 895 005 (second respondent) MERRELL ASSOCIATES LIMITED HK (third respondent/not a party to the appeal) NEMESIS AUSTRALIA PTY LTD ACN 010 225 537 (fourth respondent) MERRELL ASSOCIATES (AUSTRALIA) PTY LTD (fifth respondent/not a party to the appeal) YAK 3 INVESTMENTS PTY LTD ACN 010 623 560 (sixth respondent) BUBBLING SPRINGS OLIVE GROVE PTY LTD ACN 010 281 866 (seventh respondent) / In Appeal No 3908 of 2013: / FLYING FIGHTERS PTY LTD ACN 067 895 005 (appellant) v COMMONWEALTH OF AUSTRALIA (first respondent) COMMISSIONER OF THE AUSTRALIAN FEDERAL POLICE (second respondent) / In Appeal No 4987 of 2013: / COMMONWEALTH OF AUSTRALIA (appellant) v YAK 3 INVESTMENTS PTY LTD ACN 010 623 560 (first respondent) BUBBLING SPRINGS OLIVE GROVE PTY LTD ACN 010 281 866 (second respondent) NEMESIS AUSTRALIA PTY LTD ACN 010 225 537 (third respondent) FLYING FIGHTERS PTY LTD ACN 067 895 005 (fourth respondent) ALFREDTON PTY LTD ACN 070 015 057 (fifth respondent)

FILE NO/S: Appeal No 3885 of 2013 / Appeal No 3908 of 2013 / Appeal No 4987 of 2013 / DC No 1416 of 2003 / DC No 3068 of 2006

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeals

ORIGINATING COURT: District Court at Brisbane – [2013] QDC 60

DELIVERED ON: 29 August 2016

DELIVERED AT: Brisbane

HEARING DATE: 11, 12, 13 March 2015 / 26 April 2016 – Further Written Submissions

JUDGES: Morrison JA and Douglas and Peter Lyons JJ / Separate reasons for judgment of each member of the Court, Douglas and Peter Lyons JJ concurring as to the orders made, Morrison JA dissenting

ORDERS: **1.**Appeal number 3885 of 2013 is dismissed. / **2.**Appeal number 4987 of 2013 is dismissed. / **3.**The appellants in appeal number 3908 of 2013 are granted leave to amend the notice of appeal in accordance with paragraph 23 of their submissions of 26 April 2016. / **4.**Within seven days, the parties are to attempt to agree on, and submit to the Court, a form of order to be made in appeal number 3908 of 2013 to give effect to these reasons; and on orders for costs in each of appeals numbered 3885 of 2013, 4987 of 2013, and 3908 of 2013; and to the extent that there is any failure to agree, each party is to submit within 14 days the draft order for which it contends, together with supporting submissions not exceeding two pages in length.

CATCHWORDS: CRIMINAL LAW – PROCEDURE – CONFISCATION OF PROCEEDS OF CRIME AND RELATED MATTERS – FORFEITURE OR CONFISCATION – SERIOUS CRIME RELATED ACTIVITY OR CONFISCATION OFFENCE – APPLICATION FOR ORDER FOR TRANSFER OF FORFEITED PROPERTY TO PERSONS CLAIMING AN INTEREST IN IT – POWERS OF COURT – where Hart, an accountant, engaged in systematic tax fraud, by running a number of tax avoidance schemes in which he involved his clients – where companies associated with Hart, Flying Fighters Pty Ltd, Nemesis Australia Pty Ltd, Yak 3 Investments Pty Ltd and Bubbling Springs Olive Grove Pty Ltd, acquired various assets – where in May 2003, the Commonwealth was granted a restraining order over property of the companies, Flying Fighters, Nemesis, Yak and Bubbling Springs, under s 17 of the Proceeds of Crime Act 2002 (Cth) (POCA) on the basis that the interest of each company in the property was under Hart’s effective control – where in May 2005 Hart was convicted of nine offences of defrauding the Commonwealth, in contravention of s 29D of the Crimes Act 1914 (Cth) with the restrained property forfeited to the Commonwealth on 18 April 2006, under s 92 POCA – where the Hart companies applied for orders under s 102 POCA directing that their interests in the forfeited property be transferred to them, or that they be paid an amount equal to the value of their interests – whether the Court has power to order transfer of property without declaring its value – whether the Court had power to make the transfer of property conditional on compliance by the applicants with other orders – whether power properly exercised / CRIMINAL LAW – PROCEDURE – CONFISCATION OF PROCEEDS OF CRIME AND RELATED MATTERS – FORFEITURE OR CONFISCATION – SERIOUS CRIME RELATED ACTIVITY OR CONFISCATION OFFENCE – APPLICATION FOR ORDER FOR TRANSFER OF FORFEITED PROPERTY TO PERSONS CLAIMING AN INTEREST IN IT – DERIVATION OF PROPERTY – where Hart, an accountant, engaged in systematic tax fraud, by running a number of tax avoidance schemes in which he involved his clients – where companies associated with Hart, Flying Fighters Pty Ltd, Nemesis Australia Pty Ltd, Yak 3 Investments Pty Ltd and Bubbling Springs Olive Grove Pty Ltd, acquired various assets – where in May 2003, the Commonwealth was granted a restraining order over property of the companies, Flying Fighters, Nemesis, Yak and Bubbling Springs, under s 17 POCA on the basis that the interest of each company in the property was under Hart’s effective control – where in May 2005 Hart was convicted of nine offences of defrauding the Commonwealth, in contravention of s 29D of the Crimes Act 1914 (Cth) with the restrained property forfeited to the Commonwealth on 18 April 2006, under s 92 POCA – where the Hart companies applied for orders under s 102 POCA directing that their interests in the forfeited property be transferred to them, or that they be paid an amount equal to the value of their interests – where conditions for relief include condition that the property was not derived or realised, whether directly or indirectly, from unlawful activity – whether condition not satisfied if some of the purchase monies were the obtained from unlawful activities – whether condition not satisfied if some money borrowed for the purchase of the property was the result of unlawful activity – whether condition not satisfied if some money used to pay for repairs to the property was the result of unlawful activity / CRIMINAL LAW – PROCEDURE – CONFISCATION OF PROCEEDS OF CRIME AND RELATED MATTERS – FORFEITURE OR CONFISCATION – SERIOUS CRIME RELATED ACTIVITY OR CONFISCATION OFFENCE – PECUNIARY PENALTY ORDER – APPLICATION FOR DECLARATION THAT PROPERTY AVAILABLE TO SATISFY PECUNIARY PENALTY ORDER – EFFECTIVE CONTROL – where Hart, an accountant, engaged in systematic tax fraud, by running a number of tax avoidance schemes in which he involved his clients – where companies associated with Hart, Flying Fighters Pty Ltd, Nemesis Australia Pty Ltd, Yak 3 Investments Pty Ltd and Bubbling Springs Olive Grove Pty Ltd, acquired various assets – where in May 2003, the Commonwealth was granted a restraining order over property of the companies, Flying Fighters, Nemesis, Yak and Bubbling Springs, under s 17 POCA on the basis that the interest of each company in the property was under Hart’s effective control – where in May 2005 Hart was convicted of nine offences of defrauding the Commonwealth, in contravention of s 29D of the 1914 (Cth) with the restrained property forfeited to the Commonwealth on 18 April 2006, under s 92 POCA – where the Commonwealth was granted a pecuniary penalty order against Hart, under s 116 POCA with Hart ordered to pay $14,757,287.35 – where the Commonwealth applied for an order under s 141 POCA, declaring that the forfeited property available to satisfy the pecuniary penalty order – where order may be made where the Court is satisfied that the property is under the effective control of the person against whom the pecuniary penalty order was made – time for determining whether the property was under the effective control of that person / 1901 (Cth), s 33(2A) / 1914 (Cth), s 29D / (Cth), s 400.1, s 400.9(1) / (Qld), s 408C(1)(f) / 1987 (Cth), s 4, s 82 (repealed) / 2002 (Cth), s 5, s 17, s 18, s 26, s 29, s 33, s 34, s 37, s 38, s 42, s 44, s 45, s 92, s 96, s 102, s 102(1), s 102(2), s 102(3), s 116, s 121, s 123, s 124, s 128, s 130, s 134, s 141, s 142, s 296, s 315B, s 329, s 330, s 336, s 337, s 338 / 1953 (Cth), s 8N / (1880) 5 App Cas 473; [1880] UKHL 2, applied / (2001) 46 ATR 347; [2001] FCA 164, approved / (2007) 232 CLR 138; [2007] HCA 47, applied / [2013] QDC 60, related / (2011) 37 VR 464; [2011] VSCA 436, approved / (2004) 49 ACSR 62; [2004] NSWCA 105, cited / (2012) 31 NTLR 16; (2012) 165 NTR 12; [2012] NTCA 1, cited / [1988] VicSC 661, approved / [2003] NSWSC 238, cited / , unreported, Commissioner Templeman, Court of Criminal Appeal, WA, No 2531 of 1987, 2 February 1990, approved / [2007] 2 Qd R 318; [2007] QCA 58, cited / [2005] 2 Qd R 246; [2005] QCA 51, applied / (1992) 58 A Crim R 310, cited / (2008) 102 SASR 246; [2008] SASC 330, cited / (2010) 41 WAR 249; [2010] WASCA 47, cited / (1991) 29 FCR 166; [1991] FCA 176, approved / [1943] KB 587, cited / [1998] AC 214, cited / [2010] NSWLEC 245, applied / (1995) 79 A Crim R 514, cited / (1993) 178 CLR 408; [1993] HCA 56, applied / (1959) 101 CLR 298; [1959] HCA 8, applied / [1979] 2 NSWLR 206, cited / (2011) 243 CLR 361; [2011] HCA 11, cited / (2009) 75 NSWLR 581; [2009] NSWCA 347, cited / (1994) 122 FLR 1, distinguished / (2014) 41 VR 548; [2014] VSCA 35, cited / (1986) 162 CLR 24; [1986] HCA 40, cited / (2000) 104 FCR 238; [2000] FCA 1528, cited / (1998) 43 NSWLR 468; [1998] NSWSC 163, applied / [1988] 2 Qd R 506, cited / [2006] 1 AC 23; [2005] EWCA Civ 1072, not followed / (2011) 243 CLR 478; [2011] HCA 20, cited

COUNSEL: In Appeal No 3885 of 2013: / A R Moses SC, with G J Del Villar, for the appellants / The first respondent appeared on his own behalf / P J Roney QC, with A J Greinke and G C Dempsey, for the second respondent / In Appeal No 3908 of 2013: / P J Roney QC, with A J Greinke and G C Dempsey, for the appellant / A R Moses SC, with G J Del Villar, for the respondents / In Appeal No 4987 of 2013: / A R Moses SC, with G J Del Villar, for the appellant / P J Roney QC, with A J Greinke and G C Dempsey, for the respondents

SOLICITORS: In Appeal No 3885 of 2013: / The Commissioner of the Australian Federal Police for the appellants / The first respondent appeared on his own behalf / No appearance for the second respondent / In Appeal No 3908 of 2013: / No appearance for the appellants / The Commissioner of the Australian Federal Police for the respondents / In Appeal No 4987 of 2013: / The Commissioner of the Australian Federal Police for the appellant / No appearance for the respondents

Overview

MORRISON JA: Mr Hart, an accountant, engaged in systematic tax fraud, by running a number of tax avoidance schemes in which he involved his clients. As a result Mr Hart and his companies, Flying Fighters Pty Ltd, Nemesis Australia Pty Ltd, Yak 3 Investments Pty Ltd and Bubbling Springs Olive Grove Pty Ltd[^1] made a lot of money. They acquired various assets with the proceeds.

On 8 May 2003 the Commonwealth[^2] was granted a restraining order over property owned or leased by Mr Hart or his companies, Flying Fighters, Nemesis, Yak and Bubbling Springs, under s 17 of the Proceeds of Crime Act 2002 (Cth) (POCA).

On 26 May 2005 Mr Hart was convicted of nine offences of defrauding the Commonwealth, in contravention of s 29D of the Crimes Act 1914 (Cth). He was sentenced to seven years’ imprisonment for each offence, to be served concurrently.

Mr Hart challenged the convictions, first by appealing to this court[^3] and then by seeking special leave to appeal to the High Court.[^4] Neither was successful.

Because he had been convicted the restrained property was forfeited to the Commonwealth on 18 April 2006, under s 92 POCA.

The Commonwealth was granted a pecuniary penalty order against Mr Hart, under s 116 POCA.[^5] Mr Hart was ordered to pay $14,757,287.35. That sum reflected the net value of benefits derived by Mr Hart from the offences of which he was convicted on 26 May 2005, and from the unlawful activity of a company called Overseas Credit Ltd (UOCL).

Mr Hart challenged the pecuniary penalty order, first by appealing to this Court[^6] and then by seeking special leave to appeal to the High Court.[^7] Neither was successful.

The Commonwealth applied for an order under s 141 POCA, that the forfeited property be applied to reduce the pecuniary penalty order. Subsequently Flying Fighters, Nemesis, Yak 3 and Bubbling Springs[^8] applied for orders under s 102 POCA directing that their interests in the forfeited property be transferred to them, or that they be paid an amount equal to the value of their interests. The Commonwealth then sought orders that if any of the Hart Companies did recover an interest in any of the forfeited property, that it be applied to reduce the pecuniary penalty order.

On 2 April 2013 the learned trial judge:[^9]

refused the orders sought by the Hart Companies, but permitted them relief on an alternate basis; that was to the effect that if they paid $1.6m to the Commonwealth then specific assets would be transferred to them; those orders were made on 6 May 2013;[^10]

dismissed the Commonwealth’s application under s 141 POCA; notwithstanding that his Honour found that all elements under s 141 had been established, and that the assets were under the effective control of Mr Hart at the date of the restraining order, relief was refused on discretionary grounds; the discretion turned on the fact that the assets were encumbered by charges to Merrell Associates Limited (Merrell), a company alleged by the Commonwealth to be under the effective control of Mr Hart; and

held that the date of effective control for the purposes of s 141(1)(c) is the date on which a restraining order was made.

There are three appeals, two by the Commonwealth and one by Mr Hart and the Hart Companies. Each have notices of contention. There are over 60 grounds in contention, some with sub-grounds. Whilst there is a degree of overlap on some grounds, between them the parties have managed to challenge a considerable number of the learned trial judge’s findings. That means the task of dealing with the various contentions is a substantial one.

However there are some central issues which affect all three appeals and do not depend upon findings as to individual assets. Some of those issues involve questions of the proper construction of the POCA. Others depend on the resolution of those questions. The common issues can be stated in this way:

should s 102(3)(a) be construed as if it read that “the applicant substantially acquired the property lawfully”;

does s 102(1)(d)(i) authorise an order transferring assets without determining the monetary value of the interest in them, and without making an order declaring the “nature, extent and value” of that interest;

does s 102 authorise the making of conditional orders;

for the purposes of s 141(1)(c) is the date of effective control the date on which a restraining order was made;

if the court cannot declare the monetary value of the interest in assets, should the court have made orders for the transfer of assets;

what was the correct approach to the evidentiary burden, and the application of the onus of proof, in relation to the assets accumulated by the Hart Companies; and

should the court have granted an adjournment to the Hart Companies, and not permitted the Commonwealth to amend its pleadings.

A synopsis of the main grounds of the appeals is set out below. Given the number of grounds and the breadth of the challenges, they will be more fully articulated and dealt with in the appropriate section of these reasons.

In Appeal No 3885 of 2013:

the Commonwealth challenges the refusal of relief under s 141 POCA; and

Mr Hart and the Hart Companies contend that the finding as to the relevant date of effective control was in error, and maintain that the application ought to have been dismissed; for this contention the issue is whether the date of effective control for the purposes of s 141(1)(c) is the date on which a restraining order was made, or the date of hearing of the application;

Further issues raised by Appeal No 3885 of 2013 are whether:

the exercise of the discretion conferred by s 141 POCA miscarried; and

the refusal of relief was unreasonable.

In Appeal No 3908 of 2013:

the Hart Companies challenge a number of findings in respect of: whether particular assets were derived from unlawful activity; the value of assets; the state of charges over the assets; and the $1.6m to be paid in order to receive a transfer of untainted assets; and

the Commonwealth challenges the learned trial judge’s finding that s 102(3)(a) should be construed as if it read that “the applicant substantially acquired the property lawfully”, and say his Honour:should have held that he could not have been satisfied that assets were not used in or in connection with, or directly or indirectly derived from, unlawful activity;even if assets were lawfully acquired, should not have exercised any discretion in favour of Mr Hart or the Hart Companies because Mr Hart was in effective control of the assets at the date of the restraining order, and the pecuniary penalty order had been made;should have held that an asset would be derived or realised from unlawful activity even if the unlawful funds did not constitute a substantial part of the funds used; andshould have held that an asset was unlawfully acquired by a Hart company, if the funds were obtained from another company which, itself, obtained the funds unlawfully.

In Appeal No 4987 of 2013 the main points raised are:

the Commonwealth contends that the learned trial judge erred in making orders for the transfer of assets because:s 102(1)(d)(i) did not authorise an order transferring assets without determining the monetary value of the interest in them, and making an order as to the “nature, extent and value” of that interest;as the learned trial judge held that he could not declare the monetary value, he should not have made orders for the transfer of assets, and, in any event, not conditional orders;his Honour held that if particular assets were not derived or realised from the unlawful activity identified in the Commonwealth’s pleading, then Mr Hart and the Hart Companies had discharged their onus of showing that the assets were not derived or realised from unlawful activity; andparticular assets or payments were found to have not been directly or indirectly derived from, or used in, or in connection with, unlawful activity;

Mr Hart and the Hart Companies contend that the learned trial judge erred because:if it was necessary to declare the monetary value of assets, there was evidence from which that could be done;incorrect rulings or findings were made about parts of the evidence; andincorrect findings were made about whether particular assets and loans were derived from unlawful activity.

Summary of the outcome of the appeals

For the reasons set out below:

the appeal in Appeal No 3885 of 2013 ought to be dismissed;

the appeal in Appeal No 3908 of 2013 ought to be dismissed;

the appeal in Appeal 4987 of 2013 ought to be allowed; and

the consequence of allowing the appeal in Appeal No 4987 of 2013 is that the orders made below on 6 May 2013 ought to be set aside, and in lieu thereof it should be ordered that the application for s 102 relief brought by the Hart Companies is dismissed.

By way of a summary of the outcomes of issues, the following is a general guide only, and is not to be read as qualifying or replacing the more detailed treatment of each issue below.

General issues

The Commonwealth has succeeded in respect of:

whether s 102(3) should be read as if the word “substantially” was included;

whether “effective control” affects the exercise of the discretion under s 102;

the lawfulness and impact of the tax avoidance scheme known as the Hendon Arrangement;

the lawfulness and impact of the tax avoidance scheme known as the Northbourne Arrangement; and

whether it should have been concluded that Mr Hart was still in effective control at the date of the trial or orders, and whether that would have affected the exercise of the discretion under s 102.

The Commonwealth has failed in respect of:

whether the court was functus officio when it made the orders on 2 April 2013; and

whether a Jones v Dunkel inference should have been drawn in respect of the failure to call Mr Hart.

The Hart Companies have succeeded in respect of:

whether there is power to make conditional orders under s 102;

whether under s 102(1)(c) the court must declare all of the “nature extent and value” of the interest, or could it declare just the nature and extent; and

whether an order can be made under s 102(1)(d)(i) without determining and declaring the monetary value of the interest.

The Hart Companies have failed in respect of:

their challenge to the lawfulness and impact of the offences concerning Perpetual Nominees Limited, and the related questions of indemnities, inducement and reliance;

whether there was evidence of value, and the evidentiary status of the affidavit of Ms Goodey;

whether leave to amend should have been granted to the Commonwealth, and whether an adjournment should have been granted;

whether the principles in Director of Public Prosecutions v Brauer[^11] were or should have been applied to an assessment of the evidence, and whether it would have made a difference;

whether the value of the Hart Companies’ interests were diminished by the value of the Merrell charge;

whether the Merrell charge ceased to exist on the forfeiture of the property; and

at what point of time must “effective control” exist under s 141(1)(c).

Individual assets

The Commonwealth has succeeded on its appeals in respect of:

Aerovod L-39C Albatross aircraft, VH-SIC;

North American Trojan aircraft, VH-AVC;

Hangar 400 (Archerfield Airport lease 703146442 sub-lease 70447517);

6 Merriwa Street, Sunnybank Hills; and

Doonan’s Road, Grandchester.

The Commonwealth has failed in respect of the Akrotech CAP 232 aircraft and Hangar 101.

The Hart Companies have failed in their appeals in respect of:

27 Samara Street, Sunnybank;

1983 Mercedes Benz 380SL;

Sea Fury aircraft, VH-SHF; and

North American T-28 aircraft, VH-SHT.

The s 141 application

The Commonwealth has succeeded in its challenge to the exercise of the discretion under s 141, but because of the outcomes in respect of the appeals concerning individual assets, the Commonwealth has failed in its challenge to the dismissal of the s 141 application.

Construction of s 102(3)(a) POCA

As always the task of construction of a statute must begin and end with the text, but that must be considered in its context, which includes the legislative history and extrinsic materials.[^12] Where possible, meaning must be given to the words used.[^13]

The parties were agreed that the relevant edition of POCA was that as at July 2006. That is the edition to which these reasons refer.[^14] That approach is correct when one has regard to the fact that in this case the parties’ rights to seek relief under s 102 and s 141 had accrued by 2006:

the restraining orders were made in 2003;

the Commonwealth’s application for relief under s 141 was filed in 2003;

the Hart Companies’ application under s 102 was filed in 2006; and

the forfeitures under s 92 occurred in 2006.

The delay since then is partly explained by the lengthy appeal processes followed by Mr Hart and the Hart Companies. For example the pecuniary penalty order was made in 2010, and appeals against that order took until 2012 to resolve.

The statutory context

The long title of POCA is “An Act to provide for confiscation of the proceeds of crime, and for other purposes”.

The principal objects of POCA are set out in s 5. Relevantly they include:

depriving persons of the proceeds of, and benefits derived from, offences against the laws of the Commonwealth;

depriving persons of unexplained wealth amounts that the person cannot satisfy a court were not derived from certain offences;

providing for confiscation orders and restraining orders;

preventing the reinvestment of proceeds, benefits and unexplained wealth amounts in further criminal activities; and

giving 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.

The way in which POCA sets out to achieve those objects is by setting up a scheme to confiscate the proceeds of crime,[^15] including by providing the processes by which confiscation can occur,[^16] and the ways in which Commonwealth law enforcement agencies can obtain information relevant to these processes.[^17]

Chapter 2 contains comprehensive provisions relating to confiscation, including the use of:

freezing orders;

restraining orders prohibiting disposal of, or dealing with, property;

forfeiture orders under which property is forfeited to the Commonwealth;

forfeiture of property to the Commonwealth on conviction of a serious offence; and

pecuniary penalty orders requiring payment of amounts based on benefits derived from committing offences.

Confiscation orders and restraining orders are defined in s 338 as the “principal orders” in POCA.

Chapter 3 sets out the ways in which the Commonwealth can obtain information. They include:

examining any person about the affairs of people covered by examination orders;

requiring people, under production orders, to produce property-tracking documents or make them available for inspection;

requiring financial institutions to provide information and documents relating to accounts and transactions;

requiring financial institutions, under monitoring orders, to provide information about transactions over particular periods; and

searching for and seizing tainted property or evidential material, either under search warrants or in relation to conveyances.

Under Part 2-1A, s 15B, a freezing order can be made against an account with a financial institution if there are reasonable grounds to suspect the account balance reflects proceeds or an instrument of certain offences, and the court is satisfied that unless the order is made, there is a risk that the balance of the account will be reduced so that a person will not be deprived of all or some of the proceeds or instrument. For that purpose the balance of the account may be proceeds of an offence even though the balance is only partly derived from the offence: see s 329.

Part 2-1 POCA provides for restraining orders. Essentially restraining orders can be made against property, in relation to certain offences, on grounds that relate to possible forfeiture or confiscation orders relating to those offences. There is not always a requirement that a person has been convicted of such an offence.

Under s 17(1), a restraining order is required to be granted if the Director of Public Prosecutions (DPP) applies for one, and[^18] the relevant person has been convicted of, or has been charged with, an indictable offence, or it is proposed that they be charged with an indictable offence.[^19] Such an order can apply to property which is not owned by, but is subject to the effective control of, the suspect: s 17(3)(b)(i). Under s 29 a person covered by a restraining order can apply to have property excluded from the order. However, an interest in property cannot be excluded unless the court is satisfied that a pecuniary penalty order could be made against the person who owns the interest or who has effective control of it: s 29(4).

The breadth of the power to make a restraining order is shown by s 18, which compels an order to be made where there are reasonable grounds to suspect that a person has committed a serious offence:

“(1)A court with proceeds jurisdiction must order that:

(a)property must not be disposed of or otherwise dealt with by any person; or

(b)property must not be disposed of or otherwise dealt with by any person except in the manner and circumstances specified in the order;

if:

(c)the DPP applies for the order; and

(d)there are reasonable grounds to suspect that

(i)a person has committed a serious offence; and

(ii)if the offence is not a terrorism offence—the offence was committed within the 6 years preceding the application, or since the application was made; and

(e)any affidavit requirements in subsection (3) for the application have been met; and

(f)the court is satisfied that the authorised officer who made the affidavit holds the suspicion or suspicions stated in the affidavit on reasonable grounds.”

The reasonable grounds referred to in s 18(1)(d) need not be based on a finding as to the commission of a particular serious offence,[^20] and court must make a restraining order even if there is no risk of the property being disposed of or otherwise dealt with.[^21]

A person commits an offence if they contravene a restraining order: s 37. The wide ambit of the powers given to the court to enforce restraining orders is seen from s 39(1)(d), under which an order may be made directing the suspect in relation to the restraining order to give a sworn statement, within a specified period, setting out all their interests in property.

Part 2-2 sets out various provisions under which a forfeiture order can be made: ss 47 and 49. Similar to other Parts of POCA, orders can be made forfeiting property to the Commonwealth if certain offences have been committed. It is not always a requirement that a person has been convicted of such an offence. Once again the powers given are very broad. That can be demonstrated by s 54, and in particular s 54(c), which provides:

“If:

(a)the DPP applies for:

(i)a forfeiture order under section 47 or 49 against particular property in relation to a person’s commission of a terrorism offence; or

(ii)a forfeiture order under section 48 against particular property in relation to a person’s conviction of an indictable offence; and

(b)evidence is given, at the hearing of the application, that the property was in the person’s possession at the time of, or immediately after, the person committed the offence;

then:

(c)if no evidence is given that tends to show that the property was not used in, or in connection with, the commission of the offence – the court must presume that the property was used in, or in connection with, the commission of the offence; or

(d)in any other case – the court must not make a forfeiture order against the property unless it is satisfied that the property was used or intended to be used in, or in connection with, the commission of the offence.”

Under s 51 the fact that a person has been acquitted of an offence with which the person has been charged does not affect the court’s power to make a forfeiture order under sections 47 or 49 in relation to the offence. Property specified in a forfeiture order vests absolutely in the Commonwealth at the time the order is made: s 66.

A person who was not notified of a restraining order may effectively resist a forfeiture order made under s 47 or s 49 (each of which involve property the subject of a restraining order) by obtaining an order revoking the restraining order: s 42. Application may also be made under s 73 to exclude a specified interest in property from a forfeiture order. The applicant will effectively be compelled to put on some evidence, at least where the DPP’s evidence is sufficient for the making of the order sought, as s 73(1) requires, for an order for the exclusion of property to be made, that the court be satisfied that the property is neither the proceeds of unlawful activity nor an instrument of a terrorism offence on which the forfeiture order was, or would be, based.

The far reaching effect that POCA was intended to have can be seen from s 80, which provides that forfeiture orders under s 47 or s 49 are not affected even if the person charged with an offence is acquitted, or if a conviction is quashed. Even a forfeiture order under s 48 can be maintained after a conviction is quashed, if the DPP successfully applies to confirm the order: see s 81 and s 84.

Part 2-3, in which s 102 is found, deals with forfeiture, and in essence provides that if a person is convicted of a serious offence, property that is subject to a restraining order relating to the offence is forfeited to the Commonwealth, unless the property is excluded from forfeiture. By virtue of s 96, property forfeited under s 92 vests absolutely in the Commonwealth at the time of the forfeiture.[^22]

A “serious offence” is defined in s 338 and relevantly includes an indictable offence punishable by imprisonment for three or more years, involving unlawful conduct by a person that causes, or is intended to cause, a benefit to the value of at least $10,000 for that person or another person.

Under s 116 the court must make a pecuniary penalty order if the DPP applies for one and the court is satisfied that the relevant person has committed a serious offence, or that the person has been convicted of an indictable offence, and has derived benefits from the commission of the offence.

Legislative Purpose and Context

The legislative purpose of POCA was concisely stated in Lee v Director of Public Prosecutions (Cth):[^23]

“[20]The next step is to identify the broad purpose of the legislation. The Proceeds of Crime Act (Cth) manifests a plain and clear intention to effect the confiscation of property in the circumstances which it prescribes, regardless of the interests of any person in the property. As a law of the Commonwealth, it constitutes an accepted exception to the requirement that any law of the Parliament providing for the compulsory acquisition of property from a person must provide for compensation on just terms: Commonwealth Constitution, s 51(xxxi); Burton v Honan at 180–181 per Dixon CJ; Re Director of Public Prosecutions; Ex parte Lawler (1994) 179 CLR 270; Mutual Pools & Staff Pty Ltd v The Commonwealth (1994) 179 CLR 155 at 187–188 (Deane J and Gaudron J). There was no argument put to the contrary.

[21]Thus, the confiscation of property is not achieved by words of general implication, nor is it an intrusion on general law protections which has come about incidentally to the main purpose of the legislation: see Balog v Independent Commission Against Corruption (1990) 169 CLR 625 at 635–636 (Mason CJ, Deane J, Dawson J, Toohey J and Gaudron J); Hadjigeorgiou v New South Wales Crime Commission [2007] NSWCA 197; (2007) 174 A Crim R 124 at 146 [95]. The taking of the property in the prescribed circumstance is the primary purpose of the legislation: Proceeds of Crime Act (Cth), s 5. The interests of a person in property the subject of a valid restraining order are deliberately and expressly at risk of confiscation, absent affirmative steps to exclude property on the application of the interested person. There is thus a clear and manifest intention to interfere with property rights.”

In Markovski v Director of Public Prosecutions[^24] Santamaria JA[^25] referred to the context of POCA, saying:[^26]

“So, those engaged in crimes from which large profits are derived have to contend with more than being charged with and convicted of specific offences. They subject themselves to the prospect of having their property confiscated. That confiscation is not confined to whatever implements they used in, or to whatever profits they derived from, their criminal activity. On the contrary, the Act permits a restraining order to be made in respect of all that person’s property. The (unstated) presumption in the Act is that such a person has not come by his or her interest in property lawfully, and, for that reason, the property should be confiscated. The draconian nature of the Act is mitigated either (a) by those provisions which, by their own force, limit the duration of a restraining order or cause it to cease to be in force or (b) by the jurisdiction to make exclusion orders. The Act provides that the presumption of unlawful acquisition may be overcome by proof of lawful acquisition.”

Historical context

Lee also set out the historical context in which the POCA was enacted:[^27]

“[14]As noted by McPherson JA in Director of Public Prosecutions (Cth) v Hart (No 2) [2005] 2 Qd R 246 at [16], in relation to the Proceeds of Crime Act (Cth):

[16]‘There is a lengthy history of the use of legislative provisions like these as adjuncts to enforcing customs and excise duties, trade and navigation laws, anti-slave trading measures, and other activities prohibited by Parliament. Courts of Admiralty and Exchequer developed special procedures in rem against forfeited goods to give effect to such legislation, which in modern times have been held to be still available to common law courts in the United States: see discussion in CJ Hendry Co v Moore (1943) 318 US 133 and cf Willey v Synan (1935) 54 CLR 175, 185–186.’

[15]In Burton v Honan (1952) 86 CLR 169 an issue was raised as to the constitutional validity of such provisions in the Customs Act 1901 (Cth). Noting that reliance had been placed on the incidental power, Dixon CJ (at 178) acknowledged the potential for injustice to innocent individuals if their property were forfeit. His Honour continued (at 178):

‘On the other side it is pointed out that in the history of English and Australian Customs legislation forfeiture provisions are common, drastic and far reaching, and that they have been considered a necessary measure to vindicate the right of the Crown and to ensure the strict and complete observance of the Customs laws, which are notoriously difficult of complete enforcement in the absence of strong provisions supporting their administration.’

[16]Modern legislation permitting the confiscation by the state of proceeds of crime has a history of some two decades in this country: see Proceeds of Crime Act 1987 (Cth), Confiscation of Proceeds of Crime Act 1989 and Drug Trafficking (Civil Proceedings) Act 1990. In Director of Public Prosecutions (Cth) v Saxon (1990) 28 NSWLR 263 at 264, Kirby P noted that there was similar legislation in the United Kingdom, namely the Drug Trafficking Offences Act 1986 (UK) and that a common progenitor appeared to be the forfeiture statute enacted in the USA in 1982. The present Act identifies as one of its principal objects giving effect to Australia’s obligations under the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (Strasbourg, 1990) to which Australia is a signatory: Proceeds of Crime Act (Cth), s 5(f).”

Construction of s 102 POCA; grounds 1 and 2 in the notice of contention in 3908/13; grounds 4 and 5 in 4987/13

This analysis of the POCA is sufficient to demonstrate the context in which s 102 is found. In short, it provides for the transfer of an interest in forfeited property from the Commonwealth to someone who had an interest in the property before it was forfeited, provided that interest is not the proceeds of unlawful activity, and was acquired lawfully.

At material times s 102 provided:

“(1)If property is forfeited to the Commonwealth under section 92, the court that made the restraining order referred to in paragraph 92(1)(b) may, if:

(a)a person who claims an interest in the property applies under section 104 for an order under this section; and

(b)the court is satisfied that the grounds set out in subsection (2) or (3) exist;

make an order:

(c)declaring the nature, extent and value of the applicant’s interest in the property; and

(d)either:

(i)if the interest is still vested in the Commonwealth—directing the Commonwealth to transfer the interest to the applicant; or

(ii)declaring that there is payable by the Commonwealth to the applicant an amount equal to the value declared under paragraph (c).

(2)An order under this section may be made if:

(a)the applicant was not, in any way, involved in the commission of the offence to which the forfeiture relates; and

(b)the applicant’s interest in the property is not subject to the effective control of the person whose conviction caused the forfeiture; and

(c)the applicant’s interest in the property is not proceeds of the offence or an instrument of the offence.

(3)An order under this section may also be made if:

(a)the property was not used in, or in connection with, any unlawful activity and was not derived or realised, directly or indirectly, by any person from any unlawful activity; and

(b)the applicant acquired the property lawfully; and

(c)the applicant is not the person convicted of the offence to which the forfeiture relates.”

The learned trial judge considered this issue at paragraphs [96]-[136] of the reasons below (Reasons). His Honour concluded that the word “substantially” had to be read into s 102(3)(a) so that it read:

“… the property was not substantially used in, or in connection with, any unlawful activity and was not substantially derived or realised, directly or indirectly, by any person from any unlawful activity”.

The reason given for reading the word into the section was that the POCA was a penal statute.[^28] Thus his Honour held the word should be read in even though the ordinary and natural meaning of the words “in connection with any unlawful activity” did not comprehend the meaning which derived from adding “substantially”.[^29]

The power to grant relief under s 102 arises when property has been forfeited under s 92. In turn s 92 applies where:

“(a)a person has been convicted of a serious offence; and

(b)either:

at the end of that period, the property is covered by a restraining order against the person that relates to the offence; or

the property was covered by such a restraining order against the person, but the order was revoked under section 44 or the property was excluded from the order under that section; and

(c)the property is not subject to an order under section 94 excluding the property from forfeiture under this Part.”

One of the requirements for excluding property under s 94 is that the court be satisfied that the property is not “proceeds of unlawful activity”: s 94(1)(e). Section 338 defines “unlawful activity” as the acts or omissions that constitute an offence.

The terms “proceeds” and “instrument” bear the meanings given to them by s 329 and applied in s 330.

Section 329 defines a property to be “proceeds of an offence” if it is wholly or partly derived or realised, whether directly or indirectly, from the commission of the offence. The full text of that definition is significant:

“(1)Property is proceeds of an offence if:

it is wholly derived or realised, whether directly or indirectly, from the commission of the offence; or

it is partly derived or realised, whether directly or indirectly, from the commission of the offence;

whether the property is situated within or outside Australia.

(2)Property is an instrument of an offence if:

the property is used in, or in connection with, the commission of an offence; or

the property is intended to be used in, or in connection with, the commission of an offence;

whether the property is situated within or outside Australia.

(3)Property can be proceeds of an offence or an instrument of an offence even if no person has been convicted of the offence.

(4)Proceeds or an instrument of an unlawful activity means proceeds or an instrument of the offence constituted by the act or omission that constitutes the unlawful activity.”[^30]

Four things are evident from that text. First, the section defines “proceeds of an offence” by reference to whether it is wholly or partly derived or realised from an offence. Secondly, the legislature chose the word “partly” to indicate something less than the whole, without using the word “substantially”. Thirdly, the same section defines “instrument of an offence” and its relationship to the offence, using the same words as s 102(3)(a) when it describes the relationship between the property and unlawful activity, namely property “used in, or in connection with” the commission of an offence or the unlawful activity. Fourthly, the definition section itself does not include the word “substantially” as a qualification to the phrase “used in, or in connection with”.

Section 330 provides that property becomes proceeds of an unlawful activity if the property becomes proceeds of the offence. The text is significant:

“(1)Property becomes proceeds of an offence if it is:

wholly or partly derived or realised from a disposal or other dealing with proceeds of the offence; or

wholly or partly acquired using proceeds of the offence;

including because of a previous application of this section.

(2)Property becomes an instrument of an offence if it is:

wholly or partly derived or realised from the disposal or other dealing with an instrument of the offence; or

wholly or partly acquired using an instrument of the offence;

including because of a previous application of this section.

…

(6)Property becomes, remains or ceases to be proceeds of an unlawful activity, or an instrument of an unlawful activity, if the property becomes, remains or ceases to be proceeds of the offence, or an instrument of the offence, constituted by the act or omission that constitutes the unlawful activity.”

Once again the phrase “wholly or partly” is used in the definition and the word “substantially” is not.

Restraining orders can be made against property under sections 17,[^31] 18,[^32] or 20.[^33] In all the basis for obtaining an order is similar, in that the supporting affidavit must show that the property is subject to the effective control of a suspect,[^34] or the proceeds of an offence.

No part of the definition of “effective control”[^35] uses a form of words that suggests the property must be substantially under the control of the person. As noted above, a property is proceeds of an offence if it is wholly or partly derived or realised, whether directly or indirectly, from the commission of the offence.

Thus it can be seen that the legislature included, in the sections dealing with obtaining a restraining order, a form of words that dealt with divisions less than the whole of a property, i.e. “wholly or partly” in the case of sections 17, 18, 19 and 20.

Further, that form of words was included in s 94(1)(e), as a basis for excluding property from a restraining order, by reason of the definition of “proceeds of unlawful activity” in s 329.

Section 102(2) provides for one occasion when an order relating to transferring forfeited property may be made, namely when:

the applicant was not at all involved in the relevant offence; and

the applicant’s interest is not under the effective control of the convicted person; and

the applicant’s interest is not “proceeds of the offence” or an “instrument of the offence”.

The applicant under s 102(2) cannot be the convicted person, nor involved in any way in the offence. It thus contemplates an applicant who had nothing whatever to do with the offence that led to the forfeiture. Further the subsection also focusses on the “interest” claimed by the applicant, rather than on the property itself.[^36] The interest cannot be under the effective control of the convicted person. Finally, the interest cannot be one that was wholly or partly derived (directly or indirectly) from the offence,[^37] nor can it have been used in or in connection with the commission of the offence.[^38]

As seen above the legislature used wording in the definition of “proceeds of an offence” that contemplated divisions of the whole property, and therefore an “interest” less than the entirety, but did not embrace the word “substantially”. Similarly the very definition of “instrument of an offence” in s 329 refers to the use of the property “in, or in connection with the commission of the offence”, but does not introduce the word “substantially” to qualify that phrase. In my view, they are compelling reasons why the word “substantially” should not be read into s 102(2).

Section 102(3) provides an additional basis upon which an order may be made, transferring forfeited property. It applies when:

the property was not used in, or in connection with, any unlawful activity; and

the property was not derived or realised, directly or indirectly, by any person, from any unlawful activity; and

the applicant for the order acquired the property lawfully; and

the applicant is not the person convicted of the offence to which the forfeiture relates.

There are contrasts between s 102(2) and s 102(3). First, the applicant under s 102(3) can have been involved, even intimately, with the commission of the relevant offence. The only person barred from applying for an order under this subsection is the convicted person. Secondly, the text of the subsection uses the word “property” rather than “interest in the property”. Whilst “property” includes an “interest” in it, it seems the subsection has a wider aim. So, an applicant may be unable to come within s 102(3) because the property was used in or in connection with unlawful activity, but still come within s 102(2) because their interest in the property is not caught by the definitions in s 329.

Thirdly, under s 102(3) the applicant must show that they have acquired the property, or interest, lawfully. That is not a condition applying to s 102(2), where the requirement is simply that the interest be unconnected with the particular offence to which the forfeiture relates. Fourthly, s 102(3) requires that the property or interest: (i) not to have been used in or in connection with “any unlawful activity”;[^39] and (ii) that it has not been directly or indirectly derived[^40] or realised “by any person from any unlawful activity”. The requirement that the property’s use be unconnected with “any unlawful activity” is not confined to the particular offence that led to the forfeiture, and on its face casts the obligation to show the property or interest is “innocent” very wide indeed. That is even more so with the requirement to show that the property or interest has not been derived or realised “by any person from any unlawful activity”.

The fact that the applicant under s 102(3) can be a person connected with or involved in the offence that led to the forfeiture, as long as it is not the convicted person, suggests that the legislature would hardly have intended that such an applicant would face lower barriers to relief, than is the case for a totally innocent applicant under s 102(2).

The legislature can be taken to have been well aware of the meaning of the word “substantially”, and its utility, as it is used a number of times in the POCA: s 230(3)(a), referring to an order or warrant “in terms substantially corresponding to those given by the magistrate”; s 122(1)(c), “similar or substantially similar act or thing”; s 338, defining to related offences where the “physical elements of the 2 offences are substantially the same acts or omissions”.

These textural considerations lend support to the view that the absence of the qualifying word “substantially” in s 102(3) was a deliberate omission.

There is nothing in the context and the purpose of the POCA – see paragraphs [30] to [51] above – that compels a different view. The POCA has deliberately wide powers for the purpose of ensuring that those who commit offences do not profit from them, and the benefits cannot be enjoyed unless very stringent hurdles are overcome. There is no warrant to lower those hurdles when the legislature has not seen fit to do so.

Does authority compel a contrary view?

In Director of Public Prosecutions (DPP) v George[^41] the court considered the words in the definition of an “instrument of an offence”, namely “used in, or in connection with, the commission of an offence” in the Criminal Assets Confiscation Act 2005 (SA). That Act had a similar purpose to the POCA, and many similarities in terms of the way the sections were constructed. Doyle CJ[^42] referred to the fact that the purpose of the Act and the nature of its sections suggested a wide meaning would be given to the term “instrument”. He went on to make two relevant points:[^43]

“[62]There is one thing which I consider to be clear. It is that there is no basis for qualifying the statutory definition by requiring that any connection be a ‘substantial connection’. To take that approach is to introduce an expression which the draftsman has not used. In that respect I agree with Millhouse J and with Debelle J in Taylor v Attorney-General (SA) at 466 and at 472 respectively, and with the majority of the Court of Criminal Appeal of Western Australia in R v Rintel (1991) 3 WAR 527 at 530–531 ,Malcolm CJ, and at 542, Pidgeon J.

[63]I also approach the issue of interpretation on the basis that the statutory definition should not be read as referring to or requiring a causal link between the property and the offence. Something less than that may suffice. Nor is it necessary that the property be something that is essential or necessary for the commission of the offence, or something that makes a unique contribution to the commission of the offence. Nor is it appropriate, when the instrument is land, to assign to the land a single or dominant use. There is no reason why land cannot be used in, or in connection with, the commission of an offence when it is also used for other purposes, and when on the objective circumstances it would be described as being used in another manner. Thus, the use of Mr George’s land might be described as residential, but it could nevertheless fall within the statutory definition of ‘instrument’.”

The third member of the court, Vanstone J, referred to a number of the authorities including Director of Public Prosecutions v Jeffrey,[^44] Re Application Pursuant to the Drugs Misuse Act 1986,[^45] Ward, Marles & Graham v R,[^46] and R v Hadad,[^47] and initially came to the conclusion that the words required a substantial connection between the activity and the use of the property. Her Honour expressed it this way:[^48]

“Having regard to the fact that the Act is penal in its operation and that consequences out of all proportion to the gravity of the crime could flow from a wide interpretation of the word “instrument”, for this and other serious offences (as defined), I would be prepared, if necessary, to find that a substantial connection is required between the property and the commission of the crime under consideration before it is found to be an instrument of that crime. I would require that the property was put to use in a positive sense; that it was a means through which the crime was effected; that the property was used as a tool in the commission of the crime, or in connection with its commission. I would be content to approach the matter in much the same way as did Hunt CJ in Jeffery, remembering always that the expression being construed there was “tainted property” rather than “instrument”. Such an interpretation would largely conform with the aims of the CAC Act as expressed in the legislation itself and as outlined by the Attorney-General in the Second Reading Speech referred to earlier. Absent any curial discretion in s 95, a more wide-ranging interpretation of instrument would result in manifest injustice in imposing a penalty bearing no relationship to the crime committed, not just in the present case, but also in cases of the nature described in the earlier part of these reasons. I do not consider that Parliament could have intended such a result.”

However Vanstone J agreed with White J that the section dealing with pecuniary penalty orders, s 95, gave a discretionary power to the court rather than a mandatory one. As a consequence Vanstone J said:[^49]

“[170]However, since writing a draft of these reasons, I have had the benefit of reading the reasons of White J. I am persuaded that the interpretation he has given to s 95 of the CAC — that s 95 confers a discretionary power — is not only available, but also leads to a result that does no violence to the scheme of the Act. In particular, his Honour’s approach allows for an expansive interpretation of the term “instrument” to be, in effect, ameliorated or balanced, where appropriate, by an exercise of the court’s discretion, including under s 95. That remedy to the otherwise harsh results identified herein is preferable to narrowing the interpretation of instrument. I gratefully concur in the reasons of White J on the interpretation of s 95.”

George was applied in Dickfoss v Director of Public Prosecutions & Anor,[^50] where the Northern Territory Court of Appeal considered the Criminal Property Forfeiture Act 2002 (NT). The particular phrase in issue was whether property was “crime-used”, which meant “is or was used, or intended for use, directly or indirectly, in or in connection with the commission of a forfeiture offence”.[^51] Riley CJ[^52] agreed with the trial judge that the connection between the offence and the use did not have to be substantial,[^53] expressly adopting the comments of Doyle CJ at [62] in George. His Honour also said:

“[17]I acknowledge that it is necessary to bear in mind that the Northern Territory legislation does not provide the court with a discretion when dealing with an application under s 96 of the Act to forfeit crime-used property, and also that there is no requirement for proportionality between the relevant forfeiture offence and the value of the property to be forfeited. In this regard the operation of the Act has been described as draconian. Nevertheless, in my view, it is not appropriate to read into the section a necessity to find a connection which is direct and immediate. The words used are capable of wide application and the nature of the Act suggests an intention on the part of the legislature that they be given a wide application. The expression “in connection with” is of wide effect and, as Doyle CJ observed in relation to similar words used in the South Australian Act (at [57]):

[57]The composite expression involves practical considerations and matters of degree. There is no point in trying to define the statutory expression, as each case will turn on its own facts.”[^54]

Such Queensland authority as there is does not assist.

In Drugs Misuse, Carter J considered the phrase “used in connexion with the commission of” in the context of an application for relief akin to an interlocutory restraining order pursuant to s 41 of the Drugs Misuse Act 1986 (Qld). The order was sought in relation to the offender’s house (where drugs had been found) and his truck (in which he had driven drugs to his house). The question was not approached as a question of statutory construction, but merely whether the particular connection was sufficient. His Honour expressly declined to finally determine if the truck and house were “used in connexion with” the offence, saying: “That question can best be addressed by the trial judge who is asked to make the order and who will be in possession of the whole of the material facts relied upon by the Crown at the respondent’s trial.”[^55] He went on to say that because the Act had only been in force for a very short time, and restraining orders had been made in other cases in the magistrate’s court, “it may be of assistance if I say something about” the sections.[^56]

His Honour referred to Murdoch v Simmonds[^57] and said:

“One must look, as Adam J. suggests, for a substantial connection between the use of the property and the commission of the offence — not a mere accidental or incidental connection with the commission of that offence. There must therefore be in a very real sense a substantial connection between the use of the property and the actual commission of the offence in the sense that the commission of the offence is related to or is dependent upon or could not have been committed without or resulted directly from the use of the property.”[^58]

The legislation in Murdoch was far removed from that in question here, or, for that matter, in Drugs Misuse. Carter J’s views were obiter dicta, and constrained by the limitations of the issues and the hearing itself. Indeed his Honour went on to say:[^59]

“As I have said, I do not think that it is necessary for me to express a concluded view on the question whether, if nothing more is proved at the trial than what is in the typewritten record, the property will become liable to forfeiture. I have only limited research and library facilities at this circuit and I would have preferred more detailed argument.”

Subsequently, the Full Court in Ward had to consider a question concerning the forfeiture of vehicles under s 34 of the Drugs Misuse Act 1986 (Qld) which used the words “in connection with the commission of” an offence. The question, however, was not one of the construction of the section, but whether the sentencing discretion miscarried because the forfeiture order was made. Carter J[^60] referred to his earlier decision in Drugs Misuse, which involved the same section, acknowledging that it had been “without the benefit of full argument”.[^61] Having quoted from what was said in that decision, Carter J acknowledged that the Full Court “did not have the benefit of detailed argument on the point nor as appears from a perusal of the transcript did the learned sentencing judge”.[^62]

Authority in New South Wales and Victoria take an approach inconsistent with the imposition of the term “substantially”.

In Hadad the New South Wales Court of Criminal Appeal had to consider whether, for property to come within the definition of “tainted property” in the Crimes (Confiscation of Profits) Act 1985 (NSW), proof was required of a substantial connection between the use of the property and the commission of the offence. A car had been made the subject of a restraining order because it had been used by a drug offender while he sold drugs which were carried in the car. As part of the sentence the Crown sought an order forfeiting the car, as “tainted property”, a term defined under s 3(1) to mean property that was “used in, or in connection with, the commission of a serious offence”.

McInerney J[^63] distinguished cases which turned on different legislation. Ward was also distinguished, largely on the basis that the rationale for the decision was that if the words were given their ordinary grammatical meaning there would be many cases where hardship would be considerable where innocent parties who owned property were caught by the provisions of the Act. McInerney J considered that the legislature had reposed in the courts a very wide discretion on the question of whether or not forfeiture orders should be made in respect to tainted property in order to enable the courts to overcome the type of problem envisaged by Carter J. Significantly, however, it was not the hardship that flowed from the provisions of the Act that was important to his conclusion that the section should not be read down, but hardship otherwise flowing from a forfeiture:

“It must be pointed out, of course, there would always be hardship stemming from the provisions of the Act itself, but, in my view, that is not the hardship about which the Act speaks and to which a court is entitled to have regard. It is this very wide discretion reposed in the court on this question of hardship that convinces me that the legislature intended the section to have its ordinary grammatical meaning.”[^64]

McInerney J refused to adopt an interpretation that would effectively import the word substantially into the definition:

“I am of the opinion, having regard to the ambit of the legislation and the discretion reposed in the Court on the question of whether or not an order should be made, the intention of the legislature is that a wide scope be given to the concept of tainted property. I do not accept that the legislature intended the courts to construe the section by requiring a substantial connection between the commission of the crime and the alleged tainted property.”[^65]

As to the approach taken in Hadad, namely that the ability to avoid hardship was instructive as to the correct construction in Jeffrey No. 1, Hunt CJ referred to Hadad, and said:[^66]

“That decision is, of course, binding upon me, but I am not concerned here with the same statute. Section 48(4) of the Proceeds of Crime Act does not itself permit hardship to be taken into account in determining whether relief should be granted to have property disregarded for the purposes of the automatic forfeiture provisions of s 30. It was argued by the Director that, because a person convicted of any offence may seek pursuant to s 48(3) to have his interest excluded from any restraining order upon his property, and because in relation to that particular application his financial hardship may be taken into account, the approach adopted in Hadad should similarly be adopted in relation to s 48(4).

I am not persuaded that the relevance of hardship to an application that property be excluded from a restraining order, but which hardship is irrelevant to an application for a declaration that that property should be disregarded for the purposes of the automatic forfeiture of that property, should require such an approach to be adopted to the proper interpretation of the statutory provisions relating to the latter. The property with which s 48(4) deals includes property in which innocent parties may well also have an interest – even a significant interest. Accordingly, in my view, the distinction made in Hadad does not apply to the meaning of the phrase as used in s 48(4).”

Support for that conclusion is also offered by the decision in Director of Public Prosecution v Diez.[^67] Greg James J considered whether a requirement that the court take into account the public interest had any impact on hardship, saying:

“[56]When considering the applicability of s 48(3)(g), I accept the applicant's submissions:-

"17.'Public interest' invokes considerations of hardship to the defendant and others (Blake (supra at 262).[^68]

'The inevitable and intended consequence of the operation of the Act is that it will have a punitive consequence. However, the Act must operate and have its deterrent effect according to its terms. Those terms give relief if the sentencing judge considers that, in all the circumstances, hardship would be occasioned by on order under the Act. Therefore the fact that allowing hardship will, to that extent, reduce the deterrent impact of the Act, is simply part and parcel of the ordinary operation of the Act, according to the language which Parliament has used. [It] is not a frustration of that operation, but a fulfilment, as Parliament intended' (Christopher David Lake (1989) 44 A Crim R 63 at 69)."”

In any event, I pause to note that the POCA contains provisions that ameliorate hardship from forfeiture orders.

Part 2-2 contains Div 5, directed to reducing the effect of forfeiture orders. Section 72 provides that a dependant of a person whose property is subject to a forfeiture order[^69] can obtain relief if the forfeiture would cause them hardship. Section 73 enables a court to exclude an interest in property from a forfeiture order if the person’s interest in the property is not proceeds of unlawful activity or the offence, nor an instrument of it. Section 77 enables compensation orders to be made in favour of a person, where that person can show that a proportion of the value of their interest in property subject to a forfeiture order is not acquired using proceeds of any offence.

Further, forfeiture under s 92 of Part 2-3 only occurs where a restraining order has been made. The sections that empower the court to make those orders also contain provisions whereby the court can decline the order, in some circumstances, if it is not in the public interest.[^70] An order can be refused if the Commonwealth will not give an undertaking with respect to the payment of damages or costs.[^71] There is provision for a restraining order to be revoked, or property excluded from it, on the giving of security.[^72] Further, s 94 permits the exclusion of property from forfeiture if it is unconnected with unlawful activity, s 102 permits the transfer or property or interests notwithstanding forfeiture, and s 103 permits the buyback of forfeited property.

Consistently with the decision in Hadad, and the approach of Vanstone J in George, those considerations would also point to s 102(3) being given its ordinary meaning, without the intrusion of the word “substantially”.

Hadad and George have since been cited with approval by the Victorian Court of Appeal, in Chalmers v The Queen.[^73] That case concerned a forfeiture under a statutory regime similar to that in Hadad, that is, where tainted property had been used in connection with an offence. The court adopted a number of propositions in relation to the approach to “used in connection with the commission of an offence”:[^74]

“[76]This court has not previously had occasion to consider the correct interpretation of the phrase “used in connection with the commission of the offence”, as used in the definition of “tainted property”. Over the past two decades, however, the intermediate appellate courts of several other states have given detailed consideration to the same phrase, or close equivalents of it, in cognate statutory contexts. The High Court, too, has recently expressed relevant views, although the Court did not need to decide this particular question of construction.

[77]We have found the analyses by the respective courts illuminating, and they disclose a high degree of unanimity of approach. We would respectfully adopt the following propositions which emerge from those authorities:

1. The word “used” should be given its ordinary meaning of “employed, or made use of, for a particular end or purpose”.

2. The statutory phrase is of wide scope. The inclusion of the words “in connection with” was plainly intended to extend the scope of the definition of “tainted property” beyond circumstances where the property could be said to have been “used in the commission of” the offence.

3. Whether there is a connection between the use of the property and the commission of the crime is a question of fact and degree. It is not necessary for it to be established that there was a “substantial” connection, or that the crime could not have been committed without using the property.

4. The nature, extent and significance of the use of the property in connection with the commission of the crime will be matters which go to the court’s discretion whether or not to order forfeiture of the property.”

The learned trial judge placed great reliance on Jeffrey No. 1 and referred to Diez.

In Jeffrey No. 1 Hunt CJ said:[^75]

“I conclude that the phrase "used ... in connection with any unlawful activity" in s 48(4)(e)(i) should be interpreted in the way suggested by Carter J in Re Drugs Misuse Act 1986 and (on behalf of the Queensland Court of Criminal Appeal) in Ward, Marles and Graham. Use in connection with any unlawful activity within the meaning of s 48(4) therefore requires a substantial connection between the activity in question and the use of the property; it is not sufficient for there to be a mere accidental or incidental connection. The unlawful activity must be related to, or dependent upon, or could not have been committed without, or have resulted directly from the use of the property.”

I do not find the reasoning in Jeffery No. 1 compelling on this point. The application was acknowledged to have been heard and determined in a compressed timeframe. More importantly, the analysis of the statutory construction was not carried in the way that High Court authority now dictates. Further, the construction point in issue was not taken on the appeal.[^76]

Diez was not concerned with the words “used in, or in connection with”, but was confined to the issue of whether the property had been derived from unlawful activity. Nonetheless Greg James J said, referring to the decision of Hunt CJ in Jeffrey No. 1:

“[42]On the issue of how much of the contribution to the property must be shown to be innocent, his Honour later expressed a view. When referring to "use in connection with any unlawful activity within the meaning of s 48(4)" he held that the subsection:-

"therefore requires a substantial connection between the activity in question and the use of the property; it is not sufficient for there to be a mere accidental or incidental connection. The unlawful activity must be related to, or dependent upon, or could not have been committed without, or have resulted directly from, the use of the property."

[43]I consider I should apply to the concept of derivation a similar test and require that I be satisfied that there is no substantial contribution from illegal activity.”

It is evident that in Diez, Greg James J did not approach the issue as one of the proper construction of the section; indeed, no part of the reasons reveals that the appropriate analysis of the text, in context, was carried out. Notwithstanding the adoption of what fell from Hunt CJ, the passage above seems more to do with examining what connection, as a matter of fact, was required.

Conclusion as to s 102(3)(a)

For the reasons given above I do not consider that the text of s 102(3)(a), considered in its context, compels the view that the word “substantially” should be read into the section. Nor do I consider that authority compels that approach. It follows that, in my respectful view, the learned trial judge fell into error in holding that such a qualification is warranted.

Construction of s 102(3)(b)

The same reasoning applies in the case of s 102(3)(b). It follows that the learned trial judge was in error in reading that subsection as providing that an order could be made if the court was satisfied that the applicant had “substantially acquired the property lawfully”.[^77]

What degree of use or derivation is required for s 102(3)(a) to be satisfied?

The ordinary meaning of the word “used’ is to (i) “make use of (some immaterial thing) as a means or instrument; to employ for a certain end or purpose,”[^78] or (ii) to “[m]ake use of (a thing), esp for a particular end or purpose; utilise, turn to account”.[^79] That meaning has been consistently applied to definitions involving use of property in offences such as money laundering,[^80] and within legislation providing for confiscation of property, where it concerns “property used for criminal activity” or “used in, or in connection with, the commission of an offence”.[^81]

The phrase “in connection with” has long been held to be a wide phrase which, depending on the context, can describe the spectrum of relationships between two things. In Director of Public Prosecutions v White, the court said:[^82]

“The words “in connection with” are of wide import and, subject to the context in which they are used, are capable of describing a spectrum of relationships ranging from direct and immediate to tenuous and remote: Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 288. They can readily extend to matters leading up to and after the confiscation offence. Macfarlane J in the Canadian case of Nanaimo Community Hotel Ltd v British Columbia [1944] 4 DLR 638 at 639 said:

One of the very generally accepted meanings of “connection” is “relation between things one of which is bound up with or involved in another”; or again “having to do with”. The words include matters occurring prior to as well as subsequent to or consequent upon so long as they are related to the principal thing. The phrase “having to do with” perhaps gives as good a suggestion of the meaning as could be had.”

The authorities support giving “use” and “used in, or in connection with” a wide scope of operation, and not requiring that there be a substantial connection between the property used and the offence.[^83] The position was, in my respectful opinion, accurately summarised in Chalmers:[^84]

“We have found the analyses by the respective courts illuminating, and they disclose a high degree of unanimity of approach. We would respectfully adopt the following propositions which emerge from those authorities:

1.The word “used” should be given its ordinary meaning of “employed, or made use of, for a particular end or purpose”.[^85]

The statutory phrase is of wide scope. The inclusion of the words “in connection with” was plainly intended to extend the scope of the definition of “tainted property” beyond circumstances where the property could be said to have been “used in the commission of” the offence.[^86]

Whether there is a connection between the use of the property and the commission of the crime is a question of fact and degree.[^87] It is not necessary for it to be established that there was a “substantial” connection, or that the crime could not have been committed without using the property.[^88]

The nature, extent and significance of the use of the property in connection with the commission of the crime will be matters which go to the court’s discretion whether or not to order forfeiture of the property.[^89]”

Having examined a number of cases where it was held that some particular use of property in the commission of an offence led to the conclusion as to whether it was “use” for the purposes of the relevant legislation, the Court in Chalmers said:[^90]

“[89]At one end of the spectrum are cases where the property is deployed in an instrumental sense to commit the offence. An obvious example is the weapon that is used to inflict an injury. Land can be used to cause death or injury, such as where a domestic pool is used to drown the victim. Another example is where a beam in a ceiling of a house is used to support a rope for the purpose of hanging the victim. A further example is where the victim is thrown off a second floor balcony. These are examples of cases where an attribute or feature of the property is actively used in the commission of the offence.

[90]At the other end of the spectrum are cases where the property is merely the passive location at which the offence is committed. An example is where a discussion takes place in the offender’s home which constitutes a conspiracy to commit an offence at another location. Another example is where, during dinner in the family home, a domestic dispute erupts spontaneously which leads to one person reaching across the table and assaulting another person. These are examples of cases where an offence is committed at the property (the home) but there is no relevant connection between the use of the property and the commission of the offence.

[91]There will, of course, be cases along this spectrum where the question whether the requisite connection exists (between the use of the property and the commission of the offence) will be a matter of difficulty. Those cases will require a close examination of the nature of the property, its precise use, the nature of the offence that was committed and the manner, if any, in which the property was used in connection with the commission of the offence. The more passive the use of the property and the more incidental its role, the less likely it is that the requisite connection will be found to exist.”

Thus the question whether a property has been used in, or in connection with, unlawful activity, or derived directly or indirectly from such activity, is a question of fact. The facts of each case will determine whether the court can be satisfied to the requisite standard that property has been so used or derived.

So, when will the use be sufficient for a court to be satisfied that an asset was “used in or in connection with” unlawful activity? And, what is sufficient to satisfy a court that an asset has been “derived” from unlawful activity?

Some assistance with the answers to the questions can be gained from the different expressions by authority on the phrase concerned with use in or in connection with unlawful activity:

in George Doyle CJ observed that the “composite expression involves practical considerations and matters of degree”,[^91] including “the extent to which the property is so used and to how much of the property, or what part of it, is used”, and that the connection must be “sufficiently significant”;[^92] but his Honour went to point out that a causal link between the property and the offence is not required, as something less than that may suffice; nor is it necessary that the property be something “that is essential or necessary for the commission of the offence, or something that makes a unique contribution to the commission of the offence”;[^93]

in Drugs Misuse Carter J said that the connection had to be “in a very real sense”;[^94]

in Jeffrey No. 1 Hunt CJ held that the connection could not be “accidental or incidental”;[^95]

in Dickfoss Riley CJ said that it involved consideration of the degree to which the connection is direct or immediate or remote or tenuous;[^96]

in Chalmers the Victorian Court of Appeal said the question was one of fact and degree, but it “is not necessary for it to be established that there was a substantial connection, or that the crime could not have been committed without using the property.”[^97]

From those statements some parameters can be drawn, though it must be kept in mind that because it is ultimately a question of fact for each case, no list will be definitive for all cases.

In doing so the word “used” should be given its ordinary meaning of “employed, or made use of, for a particular end or purpose”.[^98]

The connection between the use and the unlawful activity:

does not have to be substantial, but has to be more than slight or negligible;

does not require a causal link;

must be direct or immediate;

must not be tenuous or remote;

must not be accidental or incidental.

Derived

As mentioned above, POCA s 329 provides the definition of “proceeds”:

“Property is proceeds of an offence if:

(a)it is wholly derived or realised, whether directly or indirectly, from the commission of the offence; or

(b)it is partly derived or realised, whether directly or indirectly, from the commission of the offence;

whether the property is situated within or outside *Australia.”

In my view, the plain words of s 329 show that property is “proceeds” when it is either wholly or partly derived, and whether that occurs either directly or indirectly.

Section 336 provides an extended definition of “derived’:

“A reference to a person having derived *proceeds, a *benefit or *literary proceeds includes a reference to:

(a)the person; or

(b)another person at the request or direction of the first person;

having derived the proceeds, benefit or literary proceeds directly or indirectly.”

The effect of s 336 is to make plain that a person can derive (relevantly) “proceeds” even though it is done via a second person. Even then the proceeds will still have been “derived” by the first person if the second person derives them indirectly.

POCA is a legislative enactment establishing a “scheme to confiscate the proceeds of crime”: s 6. Section 102 is the pivotal section under consideration. It only applies to property forfeited under s 92. In turn s 92 applies to property the subject of a restraining order. All the forms of restraining order affect “property”, which is defined in a way that makes it proceeds of an offence: s 329(1). One of the grounds for a restraining order is that the property is the proceeds of an offence.

Section 102 provides:

“(2)An order under this section may be made if:

(a)the applicant was not, in any way, involved in the commission of the offence to which the forfeiture relates; and

(b)the applicant’s *interest in the property is not subject to the *effective control of the person whose conviction caused the forfeiture; and

(c)the applicant’s interest in the property is not *proceeds of the offence or an *instrument of the offence.

(3)An order under this section may also be made if:

(a)the property was not used in, or in connection with, any *unlawful activity and was not derived or realised, directly or indirectly, by any person from any unlawful activity; and

(b)the applicant acquired the property lawfully; and

(c)the applicant is not the person convicted of the offence to which the forfeiture relates.”

An obvious difference between s 102(2) and s 102(3) is that s 102(2) deals only with an “interest” in property, whereas s 102(3) is not so restricted. But each deals with proceeds of an offence. Section 102(2) expresses that directly. Section 102(3) does not, but catches property that is “derived or realised, directly or indirectly, by any person from any unlawful activity”, which is within the definition in s 329(1).

When considering the proper construction of the statutory provisions it is necessary to adopt the approach referred to by McHugh J in Kelly v The Queen.[^99] That requires that the words of a definition section must first be read into the substantive enactment to which it applies and only then can the substantive enactment be construed, bearing in mind its purpose and the mischief that it was designed to overcome.[^100]

Doing what Kelly requires, s 102 reads as follows:[^101]

“(2)An order under this section may be made if:

(a)the applicant was not, in any way, involved in the commission of the offence to which the forfeiture relates; and

(b)the applicant’s *interest in the property is not subject to the *effective control of the person whose conviction caused the forfeiture; and

(c)the applicant’s interest in the property is not wholly or partly derived or realised, whether directly or indirectly, from the commission of the offence or an *instrument of the offence.

(3)An order under this section may also be made if:

(a)the property was not used in, or in connection with, any *unlawful activity and was not wholly or partly derived or realised, whether directly or indirectly, from the commission of the offence or realised, directly or indirectly, by any person from any unlawful activity; and

(b)the applicant acquired the property lawfully; and

(c)the applicant is not the person convicted of the offence to which the forfeiture relates.”

Read that way, in my view the proper construction of s 102(3) is that if property is partially derived from unlawful activity that is enough to disentitle an applicant to an order under that section.

Of course, that does not answer the question: what qualifies as partial derivation? In my view, the answer is that given below at paragraph [138].

In my respectful view, it does not greatly assist to categorise s 102 as remedial or beneficial. POCA is a statute directed at one thing, namely establishing a scheme for the confiscation of proceeds of crime: s 6. The objects are drawn with that in mind. The various provisions that form part of that scheme are designed to achieve that end. Given that the applicant under s 102(3) can be a person who was completely involved in the criminal activity that led to the forfeiture (the only restriction is that the applicant cannot be the person convicted) it is difficult to see why a relaxed approach to construction is warranted.

The ordinary meaning of the word “derive” is: to get or trace from a source; or to arise from or originate in; or show the origin of something.[^102] Section 102(3)(a) provides that an order can be made where property “was not derived or realised, directly or indirectly, by any person from any unlawful activity”. The meaning of “derived” in that section is guided by s 336, which is the only definition of “derived” in POCA and deals with its meaning in relation to “proceeds, benefits or literary proceeds”. The term “proceeds” is defined in s 329 which provides that property is “proceeds of an offence” if it is wholly or partly derived or realised, whether directly or indirectly, from the commission of the offence.

The natural meaning is to do with the origins of something, in the sense of being able to trace back to where the thing stemmed from or how it arose. That, in my view, is the way in which “derived” is used in s 102(3). Support for that view comes from the decisions in Jeffrey No. 1 and Jeffrey No. 2.

In Jeffrey No. 1 the word “derived” was construed by Hunt CJ in CL:[^103]

“The word “derived” as used in s 48(1)(e)(i) is not defined in the statute. Its ordinary English meaning is to show the origin or the source of the thing said to have been derived. I do not obtain any assistance from the decisions upon the use of the word in the taxation statutes. The word should be interpreted in its ordinary sense. It is significant, however, that the derivation may be either direct or indirect.”

The meaning of the word “derived” also received attention in Jeffrey No. 2. Cole JA said:[^104]

“Within s 48(4)(e), a distinction is drawn between a lawfully “acquired” interest in property and property “derived” directly or indirectly from an unlawful activity. “Derived” is thus different to “acquired”. Derived involves a wider consideration than merely the specific circumstances involved in acquisition.

Whether property is “derived”, directly or indirectly, from any unlawful activity is a question of fact.”

Giles AJA said:[^105]

“The submission concerning the meaning of “derived” was relevant to the real property and the currency. Hunt CJ at CL took the ordinary meaning of the word to refer to the origin or source of the thing said to have been derived, while pointing to the significance of the derivation being either direct or indirect. I agree with Cole JA that whether property is “derived”, directly or indirectly, from unlawful activity is a question of fact. While the concept of derivation has regard to the origin or source of the thing said to have been derived, I see no point in substituting for the legislature's word a collection of other words: in particular, I consider that reference to the origin or the source may unduly restrict the fact-finding exercise.”

The word “derive”, and its variations, should bear its ordinary meaning: to get or obtain from a source, to originate from.[^106] The Commonwealth adopted the passage from Giles AJA as being correct.[^107]

The approach of Hunt CJ at CL in Jeffrey No. 1 was approved by this Court in Director of Public Prosecutions (Cth) v Corby:[^108]

“The word “derived” is defined by the Macquarie Dictionary to mean: “To receive or obtain from a source or origin; to trace as from a source or origin”. As Hunt CJ at CL observed of an analogous provision in the Proceeds of Crime Act 1987 (Cth), the “ordinary English meaning (of ‘derived’) is to show the origin or the source of the thing said to have been derived... The word should be interpreted in its ordinary sense.” See DPP (Cth) v Jeffery (1992) 58 A Crim R 310 at 320. I agree.”

In Markovski[^109] the Victorian Court of Appeal considered what is meant by a property being “lawfully acquired”. The contention there was that it was satisfied if it were proved that the transaction by which the owner obtained his interest in the property was itself lawful. That is, the deposits into the bank and the sales and transfers of the car and the apartment were themselves lawful transactions. The appellant contended that this requirement would be met notwithstanding an inability, or failure, to prove that the funds deposited and the funds used to buy the car and the apartment were lawfully acquired.

Redlich JA said:[^110]

“ … if the property is acquired by the use of funds that are the proceeds of criminal activity, the transaction by which the property was acquired will not be lawful. It would be inconsistent with those provisions were the term “lawfully acquired” to be construed as excluding from consideration the source of the funds and their effect upon the lawfulness of the transaction.”

Section 22(a) of the Confiscation Act 1997 (Vic) set out what was required, namely the court had to be satisfied that:[^111]

property in which the applicant claims an interest was lawfully acquired by the applicant;

the property was not used in, or in connection with, any unlawful activity and was not derived or realised, directly or indirectly, by any person from any unlawful activity; and

the property is not tainted property.

Whelan JA[^112] reviewed authorities including Jeffrey No. 1 and Jeffrey No. 2, but in the context of “lawfully acquired”. He referred with apparent approval to the statements of Cole JA, that the question whether a property has been lawfully derived is a wider question that whether it has been lawfully acquired.[^113] In answer to the submission that the first subsection (dealing with “acquired’) limited or confined the other (dealing with “derived”), Whelan JA said:[^114]

“The correct approach is to focus on the proper construction of the words used in subs (a)(i), as enacted and as it has always remained. In that respect I think Jeffrey[^115] reveals the correct conclusion. Subsection (a)(i) overlaps with subs (a)(ii). They are to be distinguished from each other, but both may involve consideration of source, albeit not to the same extent.”

Whelan JA approved of what was said by Hunt CJ at CL in Jeffrey No. 1, in relation to whether the proof for derivation might also constitute the proof for acquisition:[^116]

“The focus of attention both at first instance and, on the subsequent appeal, was on the provisions of subs (i) (not used or derived). Hunt CJ at CL did, however, make some observations about (ii) (lawfully acquired). He said:

As a matter of practical reality, what such an applicant must do in most cases in order to establish the negative facts stated in para (i) is not only to deny on oath in general terms that the property was so used in or derived from any such unlawful activities but also to establish what activities it was in fact used in and derived from: cf General Motors-Holden’s Pty Ltd v Bowling (1976) 51 ALJR 235 at 241. To a large extent, the derivation of the property would ordinarily be proved by the same facts as an applicant must establish in relation to para (ii).

In the emphasised passage Hunt CJ at CL suggests that there is substantial overlap between subs (i) and (ii), and that both involve consideration of derivation.”

Because s 336 defines the term “derived” as including (where that occurs) indirectly, the connection between the derivation and the unlawful activity is slightly different from that for “use”. Further, as will be seen in paragraphs [161]-[165] below, the connection comprehends derivation by means of the use of lawful funds and unlawful funds, where the one enables the use of the other in creating or preserving property. The connection:

does not have to be substantial, but has to be more than slight or negligible;

does not require a causal link;

can be indirect;

must not be tenuous or remote;

must not be accidental or incidental.

Examination of an alternative test for “derived”

Since preparing my reasons in draft I have had the opportunity to read those of P Lyons J. As a result there are some matters which I will deal with.

At paragraph [72] of his reasons, [907] Lyons J has referred to the decision of McGarvie J in Director of Public Prosecutions v Allen.[^117] Consideration of Allen, and cases referred to in it, are relied on to propound a test for ascertaining whether a property was derived, directly or indirectly, from an offence, or, as it is put, the source of a property. The test adopted by P Lyons J is that propounded by McGarvie J in the following passage in Allen:[^118]

“In the circumstances of this case, I apply the test of deciding whether a practical person, as a practical matter of fact, would regard the item of property as acquired by money, all of which, or all but an insignificant part of which, should be treated as originating from or traceable to moneys received in the commission of the offences of trafficking heroin or cannabis.”

That approach was said to have been adopted by Commissioner Templeman in Director of Public Prosecutions v Lynch.[^119]

Allen needs some further explanation. The decision was handed down on 12 December 1988, and concerned the application of the Crimes (Confiscation of Profits) Act 1986 (Vic), which had only come into operation on 1 August 1987. The crimes involved were (relevantly) trafficking in heroin and cannabis over an eight and a-half month period. There was a conviction on the trafficking charges, and the DPP sought a forfeiture order against a variety of assets, under s 7(1) and (2) which provided:

“(1)If an application is made to a court under section 5(1)(a), the court may, if it considers it appropriate, order that the property be forfeited to the State if it is satisfied that the property;

(a)was used in or in connection with, the commission of the offence; or

(b)was derived or realised, directly or indirectly, by that person or another person, as a result of the commission of the offence.”

There was some evidence that the offender received cash from betting on horse races and trots, and gambling at cards. McGarvie J found that the offender’s trafficking supplied the vast bulk of the money he used to acquire assets or fund their use. That finding is expressed in the following passages:

“I consider that the proper inference is that almost all of the moneys received in notes by Peter Allen after 4 September 1985 was money he received from the sale of heroin or cannabis; the winnings of bets he made with money almost all of which he had received from the sale of heroin or cannabis; or cash receipts from dealings with furniture and the like which had been financed with money almost all of which had been received from the sale of heroin or cannabis.”[^120]

and

“I find that from 4 September 1985 to 16 April 1986 Mr Allen’s gross earnings from his drug dealing business were about $600,000.

The evidence points only to relatively minor amounts which came to the respondent over that period other than as the sale price of heroin or cannabis or as gambling winnings.”[^121]

and

“On the evidence, an estimate that a total of $20,000 could have come to Mr Allen over his period of drug dealing from other than heroin or cannabis sales or gambling winnings would be generous. That sum is equivalent to about 3 per cent of his gross earnings over the period.

It is probably realistic on the evidence to regard the only real injection of money from outside that derived directly or indirectly from heroin and cannabis trafficking as the $5,000 to $6,000 in the respondent’s bank account on 4 September 1985. That would amount to about 1 per cent of his gross receipts over the period. Whatever the correct view, I regard the proportion of his receipts from sources other than dealing in heroin and cannabis, as against the amounts received from that dealing, as insignificant.”[^122]

Thus the factual scenario in Allen was one where the money used to acquire the assets under threat of forfeiture was, except for an insignificant amount, money obtained from the trafficking offences.

McGarvie J considered the meaning of the words in s 7(1)(b), namely property “derived … directly or indirectly, by that person or another person, as a result of the commission of the offence”. His Honour identified two aspects to consider: (i) where an item was purchased or acquired partly by trafficking money and partly by money unrelated to the trafficking; and (ii) where property such as money was received as a result of a legitimate transaction, such as a bet with a bookmaker, or purchase and sale of furniture for profit, but the money used for the bet or to purchase the furniture was the proceeds of the trafficking.[^123]

Then, having identified the meaning of “derive” as “to receive or obtain from a source or origin”, and “to trace, as from a source or origin”, McGarvie J turned for guidance to three taxation cases: Commissioner of Taxation v Cam and Sons,[^124] Nathan v Federal Commissioner of Taxation,[^125] and Liquidator, Rhodesia Metals Ltd v Commissioner of Taxes.[^126] However, in doing so his Honour said:

“On the first aspect, I think it is sufficient for the resolution of this case to to apply by analogy the principle applied in taxation cases and look to the source of the property. The source of the property is to be determined not as a legal concept but by the concepts of ordinary people. One is guided by what, as a practical matter of fact, a practical person would regard as a real source of the property.”[^127]

McGarvie J then cited the passage by Jordan CJ in Cam and went on:

“According to the law considered in that case, if the practical view is that there were multiple sources of income, the income cannot be treated as coming from one source. However, if all the income came from one source, except for an insignificant element or factor, the whole of the income might be treated as from that one source.”[^128]

If the first sentence in that passage is understood literally, it has a potential impact in this case. Thus, if an applicant for relief under s 102(2) or (3) can only demonstrate that there are multiple sources of income, then the income cannot be treated as coming from one source, i.e. the non-tainted source. Since that applicant bears the onus of showing that the property is not derived from an offence, it would not satisfy that onus.

McGarvie J applied a principle which his Honour said was analogous to that set out in Cam. The enunciation of that appears in two passages:

“On the application to this case of an analogous principle, if, except for an insignificant element or factor, the direct or indirect source of an item of property is a result of the commission of the offence, the item may fall within s.7(1)(b). It may be that an item could fall within s.7(1)(b) even though a significant element or factor is a source which is not a result of the commission of the offence, but I did not need to decide that in [this] case.”[^129]

and

“In the circumstances of this case, I apply the test of deciding whether a practical person, as a practical matter of fact, would regard the item of property as acquired by money, all of which, or all but an insignificant part of which, should be treated as originating from or traceable to moneys received in the commission of the offences of trafficking heroin or cannabis.”[^130]

In my view, McGarvie J was not intending to set out a test applicable beyond the particular facts in Allen. So much is clear from the emphasised parts of the passages set out above in paragraphs [146] and [149], and particularly the fact that his Honour expressly left open that an asset might be caught “even though a significant element or factor is a source which is not a result of the commission of the offence”. That is the case in respect of many of the assets in dispute on these appeals.

In addition, I am not persuaded to adopt Allen, for a number of reasons. First, McGarvie J did not construe the provisions in question in accordance with the principles laid down by the High Court in cases such as Project Blue Sky Inc v Australian Broadcasting Authority.[^131]

Secondly, there seems to me to be a significant difference between the legislative regime in a taxation setting and that in a proceeds of crime setting. The former seeks to identify the source of income with a view to the imposition of a tax. The latter is an entirely different regime, the whole object of which is the confiscation of the proceeds of serious offences. I do not see that tests for the taxation setting are necessarily to be imported into the confiscation setting, or at least not without appropriate construction of the relevant provisions in their context.

In Nathan the taxation provision in question levied tax on income “derived directly or indirectly … from sources within Australia”. It was the statutory use of the word “sources” that led to the High Court’s discussion of what a “source” meant, and from that to “what a practical man would regard as a real source of income”. The question did not turn on the word “derived”. In POCA there is no word equivalent to the word “sources” in the taxation legislation. In POCA the phrase used is “derived … from any unlawful activity”: s 102(3)(a). Thus it identifies the “source” whereas the legislation in Nathan did not.

Similarly, in Cam the provision levied a special tax on income “derived by a resident of the State from any source outside the State”, and “income” was defined as income “derived … from any source in the State”.[^132] The question was: what was the source of the income? Was it the contract of employment and where the contract was made, or was it the work the men did, part of which was in New South Wales? Given that the legislative provisions in Nathan and Cam were to the same effect it is not surprising that the Court of Appeal in Cam followed the High Court in Nathan.

Rhodesia Metals considered legislation similar to Nathan and Cam. The case concerned the tax that could be levied on income “received … from any source within the Territory”. A liquidator entered into a contract to sell assets in Rhodesia to an English company. The contract was made in England and the payment was received in England. At issue was: what was the source of the profit? As can be seen, whilst the statute there was similar to Nathan it did not use the word “derived”. No part of the consideration, therefore, concerned the word “derived’. The exercise concerned, again, something that POCA does not call for, as the ‘source” is identified by POCA as the unlawful activity.

For those reasons, in my view the utility of Nathan, Cam and Rhodesia Metals to the resolution of the issues in this case is doubtful. As Lord Atkin aptly said in Rhodesia Metals, referring to some of the many cases cited to the House of Lords:

“Their Lordships have no criticisms to make of any of those decisions, but they desire to point out that decisions on the words of one statute are seldom of value in deciding on different words in another statute …”[^133]

Thirdly, the Allen test is whether a practical person would regard the item of property as acquired by money, all of which, or all but an insignificant part of which, should be treated as originating from or traceable to moneys received in the commission of the offences. Adoption of that as the test would lead to odd results. It would mean that property that was acquired in circumstances where more than half, or even three quarters, of the source money was tainted would not be caught. A practical example of that (as will be seen) is the Sea Fury VH-SHF aircraft in these appeals, where the two components of the purchase price were: (i) $178,769.82 untainted, and (ii) $485,566 tainted.[^134] Thus only about 27 per cent was untainted. The Allen test would say that asset was not derived from the proceeds of crime.

Indeed, such a property would not be caught on the Allen test unless the non-tainted proportion was “insignificant”. Adoption of the Allen test would mean that offenders could purchase assets with impunity, as long as they kept the non-tainted contribution from being considered “insignificant”, for example by putting their proceeds of crime in at 75 per cent of the purchase price. It is difficult to see that as what the legislature intended when it enacted the confiscation scheme in POCA, gave a wide definition to “derived’, and placed the onus of proving untainted sources on the applicant, not the DPP.

Fourthly, so far as my researches have shown, Allen has not been cited or adopted since it was decided, with the exception of Lynch. The reason for that may well be the limits McGarvie J imposed on its utility.

I do not consider that Lynch takes the matter anywhere. In Lynch, Commissioner Templeman adopted the test in Allen without any apparent analysis of the decision or consideration of the limits expressed by McGarvie J, nor construction of the legislation in accordance with the Blue Sky principles.

Further, the evidence of the applicant in Lynch was that he earned income from gold and jewellery trading and gambling. That evidence was largely rejected on adverse credit and reliability findings, such that the court was not satisfied that he made any non-tainted income, with the consequence that the court could not find that any part of the money used to acquire the relevant asset came from lawful activities.[^135] That being the case, the adoption of the test was unnecessary to the decision.

Tracing into a property “derived”

Where Allen is useful is in respect of the second matter for consideration, namely where property such as money was received as a result of a legitimate transaction, such as a bet with a bookmaker, or purchase and sale of furniture for profit, but the money used for the bet or to purchase the furniture was the proceeds of the trafficking.[^136] In respect of that McGarvie J said:[^137]

“The second aspect requires consideration of how far back through transactions it is permissible to go to find a source of the property which is a result of the commission of the offence. I think the property cannot be regarded as derived directly or indirectly from the source which is the result of the commission of the offence unless it is in some sense the fruit or the product of the fruit of the tree. Compare, Nourse, J. in Davenport v. Chilver, (1983) 1 Ch. 293 at 300.

… I regard it as correct to treat property as having been derived directly or indirectly as a result of the commission of an offence if it was derived directly or indirectly from money which was a result of the commission of the offence. I think that the use of the word, “indirectly”, and the provisions of the Act considered as a whole, disclose an intention to render property liable to forfeiture if a practical person would regard it as realistic to trace the property to the source of money received from trafficking in drugs of dependence. Property may, therefore, be regarded as derived indirectly as a result of the commission of an offence where it has been acquired, for example, through a betting or dealing transaction financed by the proceeds of drug trafficking. In my opinion, the process of tracing to an indirect source may go back through a number of transactions.”

The relevance of that approach is that McGarvie J held that property will still be regarded as being indirectly derived from the offence where the unlawful proceeds have been used to finance the acquisition. The example his Honour gave was using unlawful proceeds to finance a lawful transaction (in that case, betting or gambling), which then gave a lawful return which was the money actually used to purchase the property. However, the same reasoning would apply to: (i) unlawful funds being used to acquire a property (even as a loan), and that being paid off by lawful funds; and (ii) unlawful funds being used to repay lawful finance that was used to acquire a property.

Indeed, McGarvie J made the first finding in Allen. One item that was forfeited was a bullet-proof vest. Mr Allen had used unlawful funds to make a loan to his brother. The brother owned the vest, which did not come from any unlawful activity. He gave the vest to Mr Allen as part forgiveness of the loan. It was held that the vest, in Mr Allen’s hands, was derived indirectly from unlawful funds:

“I am satisfied that all or almost all of the money Peter advanced to Dennis at Christmas 1985 came from money received from selling heroin or money directly or indirectly derived from money so received. The vest was obtained by forgiving part of the debt created by that advance. In my opinion the vest was derived by the respondent indirectly as a result of the commission of the offence for which he was convicted on count 1.”

In my respectful view, the approach adopted by McGarvie J in this respect is correct and should be followed. Of course, each case will still depend on the facts applicable to the particular transactions.

Construction of s 102(1)(c); declaration of value; ground 1 in 4987/13

Section 102(1) provides that the court may make an order, if subsections (a) and (b) are satisfied:

“(c)declaring the nature, extent and value of the applicant’s interest in the property; and

(d)either:

(i)if the interest is still vested in the Commonwealth—directing the Commonwealth to transfer the interest to the applicant; or

(ii)declaring that there is payable by the Commonwealth to the applicant an amount equal to the value declared under paragraph (c).”

The learned trial judge held that he was “unable to determine or declare the monetary value of the interest of any individual former owner in its asset at the date of forfeiture” and went on:[^138]

“[851]In respect of property at 6 Merriwa Street, property at 27 Samara Street and property at Doonan’s Road, the proceeds of sale of those assets are held by the Official Trustee, and may exceed $720,000. There seems from the submissions to be a difference between the parties’ beliefs as to the amount held in respect of Doonan’s Road. This was not a disputed issue and it seems unnecessary to resolve it.

[852]However, I am satisfied that the collective value of the interests of Fighters, Yak, Nemesis and Bubbling in the 9 assets can be valued, although not in dollars because there is no evidence of the value in dollar terms. Whether the collective interests’ value is positive or negative after taking account of the charges securing repayment of $1.6M is something I cannot determine. It is not appropriate to order the Commonwealth to make payment to the Companies or any of them in respect of an asset where it cannot be determined that the asset’s value is positive.

[853]I determine that the nature and extent of the collective interests (sic) of interests of Fighters, Yak, Nemesis and Bubbling in the three relevant aircraft, in Hangar 101, and “Hangar 400” and in the proceeds of sale of the 3 properties retained by the Official Trustee is an interest in the whole of those assets and those proceeds currently retained, less $1,600,000 being the equivalent of the amount whose repayment was secured by charges in favour of Merrell at the date of forfeiture against all relevant assets.”

As is evident, his Honour did not determine or declare the value of the “interest” of the Hart Companies for the purposes of s 102, but proceeded on the basis that the nature and extent of that interest was “an interest in the whole of those assets and those proceeds currently retained, less $1,600,000.”[^139]

The course adopted by his Honour was then set out in these passages in the Reasons:

“[854]It seems to me that it is within the power given to a court making orders under POCA s 102(1) in these particular circumstances to allow the Companies or any of them to pay to the Commonwealth $1,600,000 and that if the Companies or any of them make such payment to the Commonwealth it is within the power of the court to make the appropriate declarations and orders for transfer…

[855]Upon making such declarations it seems to me that it would be appropriate that the Commonwealth be directed, subject to submissions as to the proper wording, to transfer the three relevant aircraft, Hangar 101 and “Hangar 400” to the respective former owners and to authorise the Official Trustee to release the proceeds of sale retained in respect of properties at 6 Merriwa Street and at Doonan’s Road to the respective former owners, Nemesis and Bubbling.

[856]Alternatively, it is within the power given to a court making orders under POCA s 102(1) in these particular circumstances, subject to submissions as to the appropriate form of orders and directions, to give the Companies or any of them liberty to pay to the Commonwealth an amount which represents $1,600,000 less the proceeds of sale retained by the Official Trustee in respect of the sale of properties at 6 Merriwa Street and at Doonan’s Road and upon payment of that sum to the Commonwealth and upon release to the Commonwealth of the proceeds retained by the Official Trustee to direct the Commonwealth to transfer the three relevant aircraft, Hangar 101, and “Hangar 400” to the respective former owners and for the Official Trustee to release the retained proceeds of sale to the Commonwealth. In either case it would be appropriate to allow the Companies reasonable time to make the appropriate payment. Subject to submissions, I expect that would be within 28 days of making orders upon an application by the Companies or any of them for liberty to pay the Commonwealth.

[857]I refuse the particular orders sought by the Companies and give the Companies liberty within 7 days to apply for orders in accordance with the two paragraphs immediately above.”

The Commonwealth challenges the course taken as being beyond the power granted under s 102(1) for three reasons. First, the section requires that the court declare the value of the interest, and that could not be done. Secondly, s 102 does not authorise a conditional declaration, i.e. a declaration as to nature, extent and value conditional on the applicant taking some steps. Thirdly, once the relief was refused in paragraph [857] of the reasons, the court was functus officio.

The Hart Companies contend that a declaration of value is only required if the order to be made is one under s 102(1)(d)(ii), and that is not the case here. Further, the discretion given by the word “may” extends to treating the nature, extent and value in s 102(1)(c) as disjunctive items. Finally, there was no conditional declaration, and the court was not functus officio as it merely refused relief in the form sought by the Hart Companies, at the same time granting leave to apply for orders in a different form.

Construction of s 102(1)(c) – declaring nature, extent and value

Section 102(1) is engaged only if the application is made by a person claiming an interest in the forfeited property. Section 338 defines “property” as “real or personal property of every description … whether tangible or intangible ... and includes an interest in any such real or personal property”. That section also defines the term “interest” in relation to property as meaning: (a) a legal or equitable estate or interest in the property; or (b) a right, power or privilege in connection with the property.

Plainly a legal or equitable estate or interest could be as to the entirety of the property. In such a case it is difficult to see what utility there is in declaring the value of that “interest”, except as the basis for an order under s 102(1)(d)(ii). However the legislature has used the conjunctive “and” in the phrase “nature, extent and value”.

There is no separate definition in POCA for each of the terms “nature, “extent” or “value”. The ordinary meaning of “nature” is the kind, sort or class of the interest.[^140]

The phrase “nature, extent and value” is used in four other provisions of POCA. They provide assistance in construing that phrase in s 102.

Section 55 deals with the court specifying other interests in a forfeiture order. That applies where the amount received from disposing of the combined interests would be greater than if done separately, or disposing of the interests separately would be impracticable or more difficult than disposing of the combined interests. Sections 55(2) and (3) provide that the court has power to make ancillary orders for the protection of the person who has one of the other specified interests:

“(2)If the court so specifies other interests in the forfeiture order, the court may make such ancillary orders as it thinks fit for the protection of a person having one or more of those other interests. These ancillary orders may include:

(a)an order directing the Commonwealth to pay the person a specified amount as the value of the person’s interest in the property; or

(b)an order directing that specified other interests in the property be transferred to the person.

(3)In deciding whether to make an ancillary order, the court must have regard to:

(a)the nature, extent and value of the person’s interest in the property concerned; and

(b)if the court is aware that any other person claims an interest in the property—the nature, extent and value of the interest claimed; and

(c)any other matter that the court considers relevant.”

Given that the purpose of the provision is the protection of a person whose interest has been caught up in a forfeiture order, the court could hardly ignore all or even some of the matters specified in s 55(3). For that reason, in my view it is clear that “must” in ss (3) means “must” and not “may”. The court “must” have regard to the matters in ss (3)(a), namely nature, extent and value of the interest, even if the ancillary order is one made under ss (2)(b).

Section 73 provides for property to be excluded from a forfeiture order. Subsection (1) contains the requirements to be established before an order can be made. Relevantly they are that the property is not the proceeds of unlawful activity, nor an instrument of the offence. Subsection (2) provides:

“An exclusion order must:

specify the nature, extent and value … of the property concerned; and

direct that the property be excluded from the operation of the relevant forfeiture order; and

if the property has vested … in the Commonwealth under this Part and is yet to be disposed of – direct the Commonwealth to transfer the property to the applicant; and

if the property has vested … in the Commonwealth under this Part and has been disposed of – direct the Commonwealth to pay the applicant an amount equal to the value specified under paragraph (a).”

Section 73(1) uses the word “must” in relation to the making of an order if the matters in that section are satisfied. None of them provide any residual discretion once they are established, so that “must” here means “must” and not “may”. Once an order is made it “must” specify the matters in ss (2). In my view “must” means “must” here too, and not “may”. The result is that the court is obliged to specify the nature, extent and value, even if the order made is one for transfer under s 73(2)(c).

The two other provisions where the phrase “nature, extent and value” is used are sections 57 and 103.

Section 57 permits a person to buy back property the subject of a forfeiture order. It provides that where the court is satisfied that a person’s interest should be transferred to them, it may, by order, “declare the nature, extent and value of the interest”, and declare that the interest is excluded from the forfeiture order, under s 89. Section 89 provides that payment of the value (specified in the s 57 order) discharges the forfeiture order to the extent it relates to that interest.

Section 103 also provides for a person to buy back an interest in property which has been forfeited under s 92, in terms much the same as s 57.

Sections 55 and 73 do not lend weight to the view that “value” must be declared under s 102(1)(c), regardless of which order is then made. That is because the phrase is preceded by the word “must” as opposed to s 102(1) which uses “may”. In the case of the buy-back provisions in s 57 and s 103, it is not hard to see why declaring the value is essential to that process.

Section 102(1) gives power to the court to make an order if satisfied that the requirements of ss (2) or (3) are met. If so, the court “may” make an order:

declaring the nature, extent and value of the interest; and either

transferring the interest, but only if it remains vested in the Commonwealth; or

paying the value.

The nature of the interest is its kind, sort or class.[^141] Thus, at its most basic level, identifying the nature of the interest would comprehend whether the interest was:

legal or equitable;

beneficial, and on what basis;

contingent; and

freehold or leasehold.

The extent of the interest is its range, limits or scope.[^142] Again, at the most basic level, to identifying the extent of the interest would include whether the interest:

extends to the entirety of the property, or just some physical part, and which;

if a proportion of the whole, what proportion or percentage;

if based on contributions, what sum of money was contributed; and

if based on contributions by labour, the extent of those efforts.

If the order is for payment of the value under s 102(1)(d)(ii) then value must be established. But that is not necessarily the case where the order is for transfer, under s 102(1)(d)(i). That is because the type of interest that a person may have in property can be wide and varied, such that establishing its value is not necessary to identify it for the purposes of transfer.

The wide scope of what an interest may be is signified by the definition of that term, which includes legal and equitable interests, in property that may be intangible.

That is consistent with the use of the word “may” which, in my view, has two functions. First, it gives the court a discretion as to whether to make an order or not. Secondly, it gives a discretion as to whether all of the three items in s 102(1)(c) need be declared.

A simple, and common, example will suffice to demonstrate the point.

Consider the case where:

a person, X, has a beneficial interest in freehold property, the title to which is held by the convicted person whose offences have led to forfeiture of that property;

the interest has arisen because X has contributed the entirety of the purchase price and all relevant payments;

beyond holding the title, the convicted person has contributed nothing;

the forfeited property is still held by the Commonwealth, so transfer is possible under s 102(1)(d)(i).

In such a case the applicant has a strong argument that the claimed interest is a beneficial interest under a constructive trust (its nature) and by the monetary amount of the contributions (its extent). However, since the interest is as to the entirety, there would be little purpose in assessing value.

However consider the same situation but where the contributions by X are only half, the balance being contributed by the convicted person from unlawful funds. In that case the claimed interest is of the same nature and extent, but not as to the entirety. The beneficial interest in that case is not limited to the amount of the contributions, but the proportion of the property’s value represented by those contributions. In that case value would have to be established in order to transfer the true interest.

In my view, the legislature cannot have intended s 102(1) to operate such that the applicant for an order, who can only succeed by establishing that either the interest or the property was innocently acquired, should bear a greater burden than necessary in establishing the entitlement to relief. If it can be established that the interest or property comes within s 102(2) or (3), and that declaring the value is not actually necessary to grant the relief, why should the legislature be taken to have intended that the applicant and the respondent be put to the expense of adducing and dealing with evidence of value? For that matter, why should the legislature be taken to have intended that the court would be engaged in an inutile exercise?

Further, in my view the word “may” in the phrase “may make an order” means that the court’s obligation to make the declarations as to each item under s 102(1)(a) is not mandatory in every case, but intended to be those appropriate to the particular case. Therefore, s 102(1)(c) should be read as though the words “to the extent necessary” followed the word “declaring”. Thus it should be read as saying: “declaring the nature, extent and value of the applicant’s interest in the property”. That means the declaration as to value need only be made in the case of relief under s 102(1)(d)(i), if it is necessary to do so.

Conditional declaration as to transfer? Ground 3 in 4987/13

At paragraphs [464]-[466] of the Reasons the learned trial judge made three findings relevant to the relief. First, the discretion reposed in the court under s 102(1)(c) was not to make such order as it thinks fit. Secondly, the power to make a declaration under s 102(1)(c) is conditional on making a declaration of value. Thirdly, s 102(1)(c) did not give power to grant the orders sought by the Hart Companies, which were that the assets be transferred, with liberty to the Commonwealth to later establish the amount owing to Merrell, and to exercise the chargee’s rights under the charges.

As is apparent from the reasons below the learned trial judge was unable to find the value of any of eight specific assets held by the Hart Companies. Those eight assets are referred to in paragraph [849] of the Reasons. The findings are that:

there was insufficient evidence of the value of any particular asset, and therefore no finding or declaration could be made as to value under s 102(1)(c);[^143]

it was not possible to assess that there was any value after taking into account the charge to Merrell, securing $1.6m;[^144]

in respect of the eight assets, the Hart Companies had failed to prove the value of the claimed interest at the time of forfeiture;[^145]

there was no evidence of the value, in dollar terms, of nine assets;[^146]

there was no evidence at trial of the market value of the property, collectively or individually, which is the subject of the Merrell charges;[^147]

neither the Commonwealth nor the Hart Companies called evidence of value, or of the value of any individual asset;[^148]

as to most of the assets dealt with individually in the reasons, in each case there was a finding that no evidence of value had been adduced, or that such evidence as there was as to value of the total property was not sufficient to prove the value of the relevant interest;[^149] and

the Hart Companies made no submission as to the value of the Hart Companies’ interest in any asset, nor the value of all the assets charged, nor how the court could value any of the Hart Companies’ interest.[^150]

The reference to the Merrell charge needs some short explanation.[^151] In 2002 each of the Hart Companies granted fixed and floating mortgage debenture charges to Merrell, and provided cross-guarantees of the debts of the other Hart Companies. The charges contained an “all monies clause”, so that the charges secured not only the debts of the chargor, but also any amounts guaranteed by the chargor, and the amount of any further or future indebtedness to Merrell. The net effect is that each of the Hart Companies was liable, under its charge, for the full amount outstanding to Merrell by all Hart Companies.

The learned trial judge found that the indebtedness under the Merrell charges was $1.6m.[^152] That finding is not challenged.

The final orders made on the Hart Companies’ application were, in summary, that:

the companies pay the Commonwealth $1.6m (less the sum already held from the sale of Merriwa Street and Doonan’s Road); and

upon that payment being made, the Commonwealth is to take specified steps to transfer unencumbered assets to the Hart Companies, namely Hangars 400 and 101, and three aircraft.

The basis of the order was explained by the learned trial judge in reasons given on 6 May 2013. First, the value referred to in s 102(1)(c) is not necessarily a monetary value. Secondly, where the entire interest in an asset is to be transferred under s 102(1)(d)(i), there is no need to value that interest. Thirdly, the interest of the Hart Companies was capable of precise proof, namely the entirety of the assets less $1.6m.

Under s 338, an “interest” includes a legal or equitable estate or interest, or a right, power or privilege in connection with the property, and whether present or future and whether vested or contingent. The term “property” means real or personal property of every description, whether situated in Australia or elsewhere and whether tangible or intangible, and includes an interest in any such real or personal property.

The wide scope of what an interest may be is signified by the definition of that term, which includes legal and equitable interests, in property that may be intangible.

The legislature has provided that interests of all types are covered by POCA, and within the power to transfer under s 102(1)(d)(i). As the definitions show the power to transfer may, depending on the circumstances, extend to interests that are any combination of:

real or personal property of every description;

present or future interests;

vested or contingent interests;

legal or equitable interests;

interests in intangible property; and

merely rights, powers or privileges in connection with such property.

A person’s right to enjoy the interest they hold in property, whatever that interest and whatever that property, can be interfered with under POCA. The most obvious example of that is when a restraining order is made, and then forfeiture occurs. In that event the interests that are disrupted are not only those of the person whose offences prompted the intervention, but also those of innocent persons who have an interest in the property, and the innocent interests of others.

The variety of possible transactions in respect of property is, no doubt, large and varied, given the ingenuity of human interaction. However, one example will suffice to make the point.

Consider a case not far removed from that in Riches v Hogben,[^153] where:

a landowner, X, promises another person, Y, that if Y spends money and effort building a house on X’s land, then Y will be granted a half share in the property;

Y relies on that promise, adjusting Y’s affairs to some disadvantage, and commences to build the house;

shortly before the house is completed X has a restraining order placed over the property under one of the POCA provisions;

nothing can be done on the property and Y cannot finish the house;

the property is then forfeited under s 92;

Y is entirely innocent of X’s unlawful activity, and the funds that Y uses to build the house are entirely unconnected with X’s unlawful activities; and

Y applies for relief under s 102(1)(d)(i), on the basis that Y is entitled to a equitable interest, or will be, once the house is completed.

Given that the evident purpose of a provision such as s 102 is to protect the interests of those innocent of the unlawful activity that resulted in the forfeiture, could it be reasonably supposed that the legislature intended that Y should fail because the court could not make the transfer of Y’s interest conditional on, say, completion of the house?

The construction of s 102(1)(d) cannot depend on whether it happens that a court of statutory jurisdiction (such as the District Court in this case), as opposed to a court of unlimited jurisdiction, happens to wield the power in a particular case.

The power given to the court under s 102(1)(d) is a power unconstrained by conditions evident in the text of the section. It is a power given to cope with the myriad of interests that might conceivably arise in the course of human affairs.

In those circumstances it is hard to discern an intention on the part of the legislature that the power could only be exercised in a mechanistic way, limited to transfer without conditions.

Further, such a construction would run counter to the evident intention of POCA otherwise.

When a restraining order is made it can be subject to conditions: s 23. That is consistent with the power to make a restraining order that “property must not be disposed of or otherwise dealt with by any person except in the manner and circumstances specified in the order”.[^154]

Those conditions can be varied by an ancillary order made under s 39(1)(b). An application for such an order can be brought, by leave, by any person: s 39(2)(d).

At the point where property subject to a restraining order is then made subject to a forfeiture order the court has power to give “all directions that are necessary or convenient for giving effect to the order”: s 58(1). That would include directions ensuring the continued existence of attached conditions.

Therefore, in the scenario above, the court has power to permit fulfilment of Y’s condition (attached to the promise of an interest in the property) in at least three circumstances. First, it could be done as part of the initial restraining orders under one of the subsections enabling conditions to be attached; that is, ordering that the property could be dealt with by Y in the manner and circumstances specified in the order. Secondly, it could be done as a condition of the order under s 23. Thirdly, it could be done under s 39(1)(b) as the result of an application by Y under s 39(2)(d).

If the court has power: (a) at the point of granting a restraining order, to impose a condition requiring or permitting a person to do something in respect of their interest in the property; and (b) at the point of a forfeiture order, to protect such a condition, how could it be reasonably supposed that the legislature intended to deny such a power at the point of protecting the person’s interest on transfer?

An even more prosaic example can be considered:

X owns real property;

X has committed offences which result in a restraining order, and then forfeiture;

Y has contracted to purchase the property, and paid a deposit;

Y is entirely innocent of X’s unlawful activities, and the funds that Y will use to complete the purchase are entirely innocent; and

Y applies for relief under s 102(1)(d)(ii).

Y could hardly be denied relief, and it is difficult to envisage why relief would be opposed by the Commonwealth, assuming the price was at market value. However part of the relief granted to Y would need to include orders as to the steps that Y had to take to perfect the completion of the contract at settlement.

The case is even more compelling if the property is a form of crown leasehold where the purchaser has to take steps to obtain ministerial consent, or comply with conditions relating to things such as water control, rehabilitation, pest prevention or pasture improvement.

The logical extension of the Commonwealth’s contention is that the court could not impose a condition, such as the time when the transfer was to take place, or the steps to achieve it. That, in my view, is an extreme construction which must be rejected.

A further contention advanced by the Commonwealth was that the jurisdiction vested in the courts was limited, especially in the case of the District Court, which is a court of limited and not inherent jurisdiction. Allied to this point was a contention that s 102 is, in effect, a code as to the power of the courts.

In my view those contentions cannot be sustained, partly for the reasons already advanced above, but also because the provisions of POCA do not suggest any such limitation.

Section 314 provides simply that the State courts have jurisdiction under POCA:

“(1)Jurisdiction is vested in the several courts of the States and Territories with respect to matters arising under this Act.

(2)Subject to section 53, the jurisdiction vested in a court by virtue of subsection (1) is not limited by any limits to which any other jurisdiction of the court may be subject.”

Though not worded as elegantly as it might be, s 314(2) preserves the full jurisdiction the relevant State court, and in respect of POCA jurisdiction frees the District Court from any of its other limitations.

The reference to s 53 does not support a limit on jurisdiction, but rather the reverse. Relevantly it provides:

“(1)A court cannot make a forfeiture order in respect of property if the court does not have jurisdiction with respect to the recovery of property of that kind.

(2)A court may make a forfeiture order in respect of property even though, apart from section 314, the court does not have jurisdiction with respect to property whose value equals the value of that property.”

Finally, s 15 provides: “It is the intention of the Parliament that this Act is not to apply to the exclusion of a law of a State … to the extent that the law is capable of operating concurrently with this Act”. Thus POCA is not intended to operate to the exclusion of a State law, such as those giving the courts power to make efficacious orders.

For the foregoing reasons I am of the view that the court has power to make conditional orders.

However the Hart Companies contend that it was an error to make the orders on 6 May 2013 with the particular condition they contained, namely that the Hart Companies pay the Commonwealth the sum of $1.6m before any obligation arose to transfer assets to them.

Imposition of the condition to pay $1.6m; ground 2 in 3908/13

The contentions is this regard are not restricted to challenging that a conditional order could be made. They include that the learned trial judge erred in two respects, when he imposed the particular condition that the Hart Companies pay the amount of the Merrell charge, namely $1.6m:[^155]

first, by finding that the value of the Hart Companies’ interests were diminished by the value of the Merrell charge; and

secondly, by not finding that the charge ceased to exist on forfeiture of the properties the subject of the restraining order.

The first challenge misconstrues what the learned trial judge’s findings were.

His Honour found, accepting Mrs Hart’s evidence, that the amount owing under the Merrell charge at the date of forfeiture on 18 April 2006, was $1.6m.[^156]

The Hart Companies submitted that they were still bound by the charge, which could be enforced by the Commonwealth. Therefore, they submitted:

“where the court finds that one of the Companies has an interest in an asset subject to the Commonwealth’s charge, the value of a company’s interest in the asset is “the value of the interest less the charge” and the court should order the transfer of the asset to the Companies, subject to the charge.”[^157]

However, as his Honour accepted, the Commonwealth did not contend that it held a right as chargee or that it held Merrell’s rights to payment under the charges.[^158] No such right was asserted by the Commonwealth before this Court. His Honour included consideration of the contrary position only if he had misinterpreted the Commonwealth’s position.[^159] On that basis he held that forfeiture of the properties, and the charges, did not affect Merrell’s rights as a creditor under the underlying loan agreements that were supported by the mortgage debentures granting the charges.[^160] However the charges were forfeited so that the Commonwealth held the properties “subject only to the former owner’s remedy under POCA s 102(1)”.[^161]

Having then dealt with each asset in turn, his Honour held that he could not determine or declare the monetary value of the interest in any asset, or of the collective interests in the assets.[^162] Then paragraph [853] of the Reasons records his Honour’s finding upon which the condition as to payment of $1.6m was ultimately based:

“I determine that the nature and extent of the collective interests of interests of Fighters, Yak, Nemesis and Bubbling in the three relevant aircraft, in Hangar 101, and “Hangar 400” and in the proceeds of sale of the 3 properties retained by the Official Trustee is an interest in the whole of those assets and those proceeds currently retained, less $1,600,000 being the equivalent of the amount whose repayment was secured by charges in favour of Merrell at the date of forfeiture against all relevant assets.”

In my view, the learned trial judge was deliberate in making findings only as to the nature and extent of the interests of the Hart Companies, but not the value. In doing so his Honour proceeded on the basis that it was the interest immediately before forfeiture that was relevant:

“If the aeroplane was charged with payment of money at the time of forfeiture, the company’s interest at forfeiture would have been less than a 100% interest in the plane”;[^163]

“If the court could treat the diminution in the value of the Companies’ interests at forfeiture as applying to the extent of one third to each asset, the court would still be unable to assess the value of the former owner’s interest without evidence of the value of the asset at the relevant date”.[^164]

In my view, that was the correct approach. When property is forfeited under s 92 the former owner loses any interest it had in that property, as it vests absolutely in the Commonwealth.[^165] More particularly it vests “at the time of the forfeiture”: s 96. However the former owner is granted a statutory right to apply for relief under s 102, or to buy back the interest under one of the buy-back provisions, such as s 103 or s 105.[^166] The interest which can be re-transferred is the interest at the time of forfeiture, as that is the last time that the claimant held an interest in the property, immediately before it vested absolutely in the Commonwealth.

Section 102(1)(d)(i) supports that conclusion, as a condition for a transfer is that the interest “is still vested in the Commonwealth”. The only thing that vests in the Commonwealth is the interest that exists at the time of forfeiture under s 92.[^167]

The buy-back provisions also support that conclusion as it is the interest “as at the time when the [forfeiture] order is made” that is to be the subject of a declaration of the nature, extent and value, so as to be excluded from the forfeiture or forfeiture order.[^168]

The second challenge fails because of what follows from the conclusion that it is the interest immediately before forfeiture that is relevant for the purposes of s 102.

The Hart Companies’ interests in the assets were, immediately before the forfeiture, subject to the Merrell charges, which were fixed and floating charges over all assets, securing the debts of all of the Hart Companies. There was no contention that the charge was other than valid and enforceable at that point. Therefore at that time the Hart Companies’ interests were burdened by the amount owing under the charge, namely $1.6m.

That is what the learned trial judge recognised, particularly at Reasons [448], and led to the approach adopted at Reasons [852]. Because his Honour held that he could not establish values, he determined the nature and extent of the total interests as being the entire assets less that amount with which they were burdened immediately prior to forfeiture.

For those reasons whether the charge ceased to exist upon forfeiture was not relevant to any issue. The Hart Companies’ contentions on these matters fail.

Was the court functus officio**? Ground 2 in 4987/13**

The learned trial judge explained that he was not prepared to grant the relief sought by the Hart Companies, in the form in which they proposed. The relevant passages are:

“I am not satisfied that the Companies collectively or any one of them is presently entitled to the relief they seek in their submissions or in their originating application”;[^169]

the Hart Companies had failed to prove the value of each of their interests at the time of forfeiture; “But for that failure Fighters, Yak, Nemesis and Bubbling would each have been entitled to relief”;[^170]

because individual values could not be found, relief under s 102(1)(d)(ii) was not appropriate; “It is not appropriate to order the Commonwealth to make payment to the Companies or any of them in respect of an asset where it cannot be determined that the asset’s value is positive”;[^171]

having determined that the extent of the interests was the entirety less $1.6m, alternative relief was within power and appropriate; two forms of alternative relief are canvassed in the reasons;

firstly: (i) payment to the Commonwealth of the $1.6m; (ii) declarations as to ownership, and (iii) orders for transfer;[^172]

secondly: (i) payment to the Commonwealth of the $1.6m (less the proceeds of sale of certain assets, held by the Public Trustee); and (ii) upon payment of the $1.6m and release to the Commonwealth of the proceeds held by the Official Trustee, orders for transfer;[^173]

his Honour then said: “I refuse the particular orders sought by the Companies and give the Companies liberty within 7 days to apply for orders in accordance with the two paragraphs immediately above”.[^174]

The published judgment[^175] records the orders as: 1. The orders sought by the applicant companies are refused. 2. The applicant companies have liberty within 7 days to apply for orders in accordance with these reasons at paragraphs [854] - [856]. 3. Costs reserved.

In my view the learned trial judge made it plain that the refusal of relief was limited to the relief in the form in which the Hart Companies sought it. That was identified as: “a transfer of the property to the relevant company with the Commonwealth at liberty to establish the amount owing to Merrell at the date of forfeiture and to exercise a chargee’s rights over the asset to secure payment to the Commonwealth of that amount”.[^176]

The intention of the orders made on 2 April 2013 were not intended as a discharge of the court’s function. The contrary is the case. The orders were made so that the final form of the relief available could be the subject of submissions.

That being so I do not consider that the Commonwealth’s contention, that the court was functus officio on 2 April 2013, can be sustained.

The date of effective control under s 141; grounds 1-3 in the notice of contention in 3885/13

A pecuniary penalty order was made against Mr Hart in the sum of $14,757,287.35.[^177] That order was the subject of unsuccessful challenge, and has yet to be satisfied.

The Commonwealth applied for an order under s 141, making the nominated assets of the Hart Companies available to partly satisfy the pecuniary penalty order. It was in response to that application that the Hart Companies applied under s 102(3) for those assets to be transferred to them.

Even if any forfeited assets are ordered to be transferred to the Hart Companies as a consequence of the application under s 102, the Commonwealth contends that under s 141 they should still be made available to satisfy (in part) the pecuniary penalty order. As will appear that relief turns on whether Mr Hart was in effective control of those assets.

Section 141 provides:

“(1)If:

a person is subject to a pecuniary penalty order; and

the DPP applies to the court for an order under this section; and

the court is satisfied that particular property is subject to the effective control of the person;

the court may make an order declaring that the whole, or a specified part, of that property is available to satisfy the pecuniary penalty order.

(2)The order under subsection (1) may be enforced against the property as if the property were the person’s property.

(3)A restraining order may be made in respect of the property as if:

(a)the property were the person’s property; and

(b)the person had committed a serious offence.”

As can be seen the section requires that the court be satisfied that particular property “is” subject to the effective control of the person the subject of the pecuniary penalty order; that is Mr Hart in this case.

Two restraining orders were made in 2003 by Brabazon DCJ, covering the assets in contest in this case. The first was on 8 May 2003 and the second on 19 December 2003. The Hart Companies then applied under s 29 POCA to exclude the assets from the restraining orders. That application was dismissed, and a finding was made that at that time Mr Hart was in effective control of the assets.[^178] That was unsuccessfully challenged in this court, with McPherson JA stating:[^179]

“[T]he evidence leaves no doubt that [Mr Hart] was in effective control of the property as well as the affairs of the corporate appellants. His attitude and his behaviour towards them is reminiscent of many others who persist in treating the business and assets of companies as if they were their own, with scant regard for the legal boundaries dividing personal and corporate powers and ownership.”

The learned trial judge held that the date at which the property is to be under effective control is the date of the restraining orders.[^180] That finding relied in part on an express concession by Mr Hart that the relevant date was the date of the restraining order.[^181]

The Hart Companies now contend that it should be the date of the application for relief under s 141.

Section 141

Section 141 only applies if:

a person is subject to a pecuniary penalty order, made under s 116 and still in force;[^182] and

the court is satisfied that particular property is subject to the effective control of that person;

the issue to be resolved is whether the word “is”, when used in the phrase “is subject to” in subsection (1)(c), means that the effective control must be determined;

at the time of the application under s 141; or

at the time when that property was placed under a restraining order.

Effective control, restraining orders and forfeiture

The meaning of “effective control” is not fully defined in POCA. Section 338 provides that “effective control” has a “meaning affected by section 337”. In turn s 337 provides some insight as to what may constitute effective control, for example, property held on trust,[^183] and what factors may be taken into account in assessing effective control, such as shareholdings, debentures, directorships, and family, domestic and business relationships. But it adds nothing as to the time at which that control must exist.

Ordinarily one would conclude that a person could no longer be in “effective control” of property from the time it was made subject to a restraining order, or from when the Official Trustee takes custody and control by an order under s 38.

That conclusion may be seen as having some force, at least prior to 2010, when the legislature amended the POCA to add s 337(4A),[^184] which provides that in determining whether or not property is subject to the effective control of a person, “the effect of any order made in relation to the property under this Act is to be disregarded”.

Thus, before s 337(4A) was introduced in 2010, when determining “effective control” one could have regard to the fact that a restraining order, and other orders, take “effective control” away from the person. Some examples of such orders are:

a restraining order that specifies property because the court was satisfied, under s 17(2)(c), s 18(2)(c), or s 20(2)(c), that the property was the subject to the effective control of the suspect;

orders under s 38 for the Official Trustee to take custody and control of property;

ancillary orders made under s 39, particularly where some of those orders may have continuing effect under s 39(5); and

forfeiture orders made under Division 4 of Part 2-2.

In any event the impact of a restraining order does not assume the same significance in respect of property forfeited to the Commonwealth under s 92. That is because under s 92, property is forfeited to the Commonwealth when: the person is convicted of a serious offence, the property is or was (subject to conditions) subject to a restraining order under s 17, s 18, s 19 or s 20 and the property has not been excluded from forfeiture. That forfeiture does not take place because of the effect of an order, but by operation of the statute.

Restraining orders under s 17 and s 18 can extend to property that is under the “effective control” of the person who is convicted of, charged with or to be charged with an indictable offence (s 17), or simply suspected of committing a serious offence (s 18). In each case the order must specify the property under effective control: s 17(2)(c) and s 18(2)(c).

Thus, once the conditions in s 92 are met and property forfeited, that property can include property under the “effective control” of the convicted person.

When forfeiture takes place under s 92:

the property vests absolutely in the Commonwealth: s 96; and

any restraining order ceases to be in force: s 45(4).[^185]

From that point it could not be said that the person retained any form of control over the property, let alone “effective control” as contemplated by POCA. So much is emphasised by s 99, which sets the time as to when the Commonwealth can deal with forfeited property.

Scope of s 141

The evident purpose of s 141 is to enhance the enforcement of pecuniary penalty orders. It does so by permitting the recovery of property under the “effective control” of a person who is subject to the pecuniary penalty order.

It is true that an order under s 141 can be made in respect of property even though it has never been the subject of a restraining order. The Hart Companies contend that this factor, and the use of the word “is”, in the phrase “is subject to the effective control of the person”, are compelling reasons to construe s 141 as requiring the existence of “effective control” is at a time earlier than the hearing of an application under s 141.

The resolution as to the correct construction requires that the scope of s 141 be kept at the forefront of the analysis. One can conceive of different factual scenarios to which s 141 will potentially apply, but three will suffice to demonstrate the point.

The first case is where the particular property has never been subject to a restraining order, even though the relevant person has been convicted and a pecuniary penalty order made.[^186] There is therefore no forfeiture under s 92.

The second case is where:

property has been the subject of a restraining order made against a person who is not the one who has committed, or is suspected of committing, relevant offences;[^187]

however, an order under s 44(2) has been made, either revoking the restraining order as to particular property, or excluding particular property from the order, upon the property owner giving an undertaking to the court.

In that case there will have been no forfeiture under s 92, because the restraining order was not against the person who was convicted.

The third case is where, as here, the property under a restraining order has been forfeited under s 92, with the consequence that the restraining order ceased to have effect at the time of the forfeiture, under s 45(4). In such a case any “effective control” ended, at the earliest when the restraining order was made, and at the latest when the property was forfeited.

It is only in the first case that one can see some force in the contention that “is” means what it says, namely the time at which the application under s 141 is heard and determined. There is nothing in that case scenario that compels a construction of “is” as meaning an earlier point, such as the date of the offence, date of conviction or the date of the pecuniary penalty order.

However, in the second and third cases the position is different. In those cases the impact of the restraining order, and ultimately forfeiture, is that the relevant person’s “effective control” is suspended, and in that sense lost, for so long as the order remains. However, that loss of effective control is because of the court’s imposition of orders designed to protect and preserve the property so that it can be made available for recovery under POCA. The power to impose such an order, and the order itself, are designed to achieve the objects of POCA,[^188] relevantly:

punishing and deterring persons from breaching laws of the Commonwealth;

depriving persons of the proceeds of offences, and benefits derived from offences; and

preventing the reinvestment of proceeds or benefits and unexplained wealth amounts in further criminal activities; and

giving effect to Australia’s obligations under the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime.

Thus a restraining order imposes a new regime that suspends “effective control”. In those circumstances it is hard to see why “is” could mean the date when the s 141 application was heard and determined. The fact that the person lost “effective control”, albeit by the court’s processes, leads to the view that s 141(1)(c) must be taken to refer to an earlier point, when the person had “effective control”. The logical point is that when the person last had “effective control”, namely when the restraining order was made. That is the moment when the court’s order suspends the control.

There is authority on this question.

In Logan Park Investments Pty Ltd & Others v Director of Public Prosecutions (Cth)[^189] the New South Wales Court of Appeal had the following to say about the construction of the word “is” in s 48(3)(fa) of the Proceeds of Crime Act 1987 (Cth):

“Section 48(3)(fa) requires the court to grant an application for variation of a restraining order where the court “is satisfied” that “the applicant’s interest in the property is not subject to the effective control of the defendant”. The judge held, following Gray v Official Trustee in Bankruptcy (1991) 29 FCR 166 that the applications before him could not succeed simply on the ground that the defendant “has now no effective control because he is in prison and because of the existence of the restraining orders... Section 48(3)(fa) can only be given practical effect if the word ‘is’ in subpar (iii) is read as ‘was at the date of the restraining order’”.

This construction was challenged by Mr Hughes but in our opinion his Honour was perfectly correct. There is substantial authority which supports that construction: see Re M (a minor) [1994] 2 AC 424; Re D (a minor) [1987] AC 317. There is also a substantial body of earlier authority supporting such a construction where it is apparent from the context and purpose of the statute that words in the present tense are being used without any temporal connotation: see Public Trustee v McKay [1969] NZLR 995 where these authorities are collected. In the present case any other construction would defeat the purpose of Parliament: cf Re M (at 435-436).”

The section under consideration, s 48(3)(fa), was similar to s 141 POCA in so far as concerns the use of the word “is” in relation to “effective control”. Section 48 gave power to make ancillary orders when a restraining order was made in respect of property. Then subsection 3 permitted a person to apply to vary the restraining order to exclude that person’s interest in the property:

“(fa)where the applicant is not the defendant and the restraining order was made by virtue of subsection 44(7A) – the court is satisfied that:

the applicant was not, in any way, involved in the commission of the offence;

the property is not tainted property in relation to the offence; and

the applicant’s interest in the property is not subject to the effective control of the defendant; or …”

The earlier authorities, In re M[^190] and In re D,[^191] came to the same conclusion as to construction, in relation to a statute that dealt with the provision of child care. It provided that a child could be placed in care, but only if the court was satisfied that the child “is suffering, or is likely to suffer, significant harm”. The House of Lords in Re M[^192] concluded that: the word “is” was not used in a temporal sense; it was used to signify a continuing situation, and related back to the moment in time when the process to put the child in care was first put in motion; and to construe it as referring to the time when the application was heard would be to defeat the purpose of the Act.

Logan was followed in Queensland, in Hart No. 2.[^193] As the name reveals it was a separate edition in the long history of the litigation between Mr Hart and the Hart Companies, and the Commonwealth. One of the questions concerned s 17(2)(c) of POCA, which referred to property liable to restraint under a restraining order as including “specified property of another person … that is subject to the effective control of the suspect”. As to that this Court said:[^194]

“A restraining order may therefore extend to and restrain the disposition of property other than that of the suspect if it is property that is under his or her “effective control”. That the order must do, according to s. 17(2), to the extent that the court is satisfied that there are reasonable grounds to suspect that specified property of another is “subject to the effective control of the suspect”. Whether or not that is so falls to be determined at the time the restraining order is made: see Logan Park Investments Pty Ltd v. Director of Public Prosecutions (1994) 122 F.L.R. 1, 3–4.”

Given that Hart No. 2 is a previous decision of this Court we should follow it unless it is plainly wrong. The Hart Companies did not attempt to argue that it was, or that it was not an answer to the contentions as to the proper construction of s 141(1)(c). In my view Logan and Hart No. 2 were correctly decided and should be followed.

The reasoning in Logan and Hart No. 2 is applicable here. The application for a restraining order is the start of the process by which the relationship between the property and its effective controller is altered for the purposes of POCA. A new relationship and state of affairs is created by the order, and that situation continues until the relief sought under s 141 is granted. The word “is” in s 141(1)(c) is not used in a strict temporal sense, but to refer to that continuing state of affairs. Thus the relevant time to assess “effective control” is the time when the restraining order was made.

The Hart Companies’ challenge on this ground fails.

Was Mr Hart in “effective control” at the time of the restraining order?

Any discussion of what constitutes “effective control” has to take place acknowledging the various warnings against paraphrasing or redefining the concept.[^195]

As to effective control, Kaye J said in Director of Public Prosecutions v Ferguson:[^196]

“What is relevant is the de facto, rather than the de jure, relationship between the defendant and the property. In ordinary usage, “control” means the power of directing or commanding. Ordinarily, a person may be in effective control of real property if that person has the power to make and implement basic decisions which affect the ownership, possession, use and enjoyment of property. In terms of real property, effective control would therefore encompass the de facto power to make and implement decisions such as to sell, lease, use, exclude others from possession of, and make significant improvements to, the property. Similarly a person might be considered to have the effective control of items of personal property where the person has the power to make and implement decisions such as to sell, lease, use and possess, the item of property in question.”

Kaye J adopted[^197] what was said by the Full Court of Western Australia in Connell v Lavender:[^198]

“In my opinion the ordinary meaning of ‘control’ is de facto control or control in fact. The question then is: what effect does the adjective ‘effective’ have upon the meaning? ... In my opinion, ‘effective control’ in the context of the statute means de facto control. The expression contemplates control that is practically effective, in the sense that the person concerned has in fact the capacity to control the possession, use, or disposition of the property.”

I respectfully adopt those statements of what amounts to “effective control”.

The learned trial judge was asked to proceed on the basis that Mr Hart was in effective control of all the contested assets at the date the restraining order was made:[^199]

“The Companies concede the court found effective control of the property by Mr Hart as at the date of a restraining order made after a contested hearing before Brabazon QC DCJ in 2003. The finding that Mr Hart then had effective control of the property was upheld by the Court of Appeal. The Companies have accepted the ruling for the purposes of their application under section 102 and the Commonwealth’s application under section 141 and have not sought to re-litigate the issue in these proceedings. The Companies consent to my reliance upon that ruling in these proceedings.”

There is no basis to disturb that finding.

Relevance of Mr Hart’s effective control; discretion under s 102; ground 6 in 4987/13; ground 6 of the notice of contention in 3908/13

This ground concerns the reasoning and findings of the learned trial judge at Reasons [148]-[169], where his Honour dealt with the question whether Mr Hart’s effective control of the Hart Companies as at 8 May 2003, or at the date of the orders, was relevant or decisive for the applications under s 102(3) POCA.

The Hart Companies conceded at trial that Mr Hart was in effective control as at the date of the restraining order on 8 May 2003.[^200] The Hart Companies did not challenge the finding by the learned trial judge that Mr Hart was also in effective control at 2001.[^201]

At trial the competing positions on this issue were succinctly recorded in Reasons [149]:

“The Commonwealth submits the finding that Mr Hart had effective control of the property is decisive against the Companies. A finding for the Commonwealth that this ground is decisive would be the end of the proceeding. The Companies respond that they rely on the grounds in s 102(3) and that Mr Hart’s control is irrelevant to proof of those grounds.”

The Commonwealth contends that the learned trial judge was wrong to exercise the discretion under s 102 on the basis that two facts were irrelevant, namely: (i) that Mr Hart was in effective control as at the date of forfeiture, and (ii) that Mr Hart had been ordered to pay the pecuniary penalty.

It is not in issue that the court, once it is satisfied of the matters in s 102(2) or (3), is not obliged to make an order for transfer or payment of value. The court has a discretion, signified by the use of the word “may” in s 102(1).[^202] POCA does not specify the circumstances in which a court could refuse to exercise the discretion, or the factors to be taken into account.

However, the Commonwealth’s contention is that the subject matter, scope and purposes of the Act must be considered to determine what factors are relevant. For that proposition the decision in Minister for Aboriginal Affairs v Peko-Wallsend Ltd[^203] is relied upon.

The statutory regime imposed by POCA is set out in paragraphs [30] to [51] above. From that, the following may be observed:

the principal object of POCA is to “deprive persons of the proceeds of offences, the instruments of offences, and benefits derived from offences, against the laws of the Commonwealth”: s 5(a);

one method of achieving that object is the imposition of pecuniary penalty orders, under which a person is ordered to pay the Commonwealth an amount equivalent to the benefits that the person has derived from offences that they have committed: s 116;

another is the use of restraining orders, by which property can be restrained pending the making of a pecuniary penalty order; that applies not only to property owned by the person, but also under the “effective control” of that person: s 17 and s 18;

property that is derived lawfully, and not used in unlawful activity, cannot be excluded from a restraining order if a pecuniary penalty order could be made against the person suspected of committing the relevant offence: s 29(4); and

POCA has provision for directions so that property can be sold to satisfy a pecuniary penalty order, where that property is under the “effective control” of the person the subject of the order.

That being so, the Commonwealth submitted that:[^204]

“It would defeat the Act’s objects if property which was under Mr Hart’s effective control at the time the restraining order was obtained is returned to the Companies in circumstances where Mr Hart has been ordered to pay a pecuniary penalty to the Commonwealth and the pecuniary penalty order has not been paid. It was not submitted by the companies that the pecuniary penalty order could be recovered from assets of Mr Hart or without recourse to these assets.”

The Hart Companies contended that:[^205]

“… Parliament considered two alternative types of claims, namely brought under s 102(2) or s 102(3). The Companies’ application was under s 102(3) POCA. Effective control is relevant only in respect of s 102(2). To construe the section as contended by the Commonwealth would make a nullity of s 102(3).”

That contention must be rejected. Each of s 102(2) and s 102(3) provide that certain matters must be established before relief “may be made” under s 102(1). That means that those requirements have to be established before the power to grant relief under s 102(1) is enlivened. They are preconditions to the jurisdiction to exercise the power under s 102(1).

As discussed in paragraphs [67] to [73] above, s 102(2) and s 102(3) deal with different applicants and different claims. Section 102(2) deals with a totally innocent applicant; that is, someone who is not, in any way, involved in the offence that led to the forfeiture. That person must be claiming an interest in the forfeited property which is: (a) not under the “effective control” of the convicted person; and (b) not proceeds of the offence that led to the forfeiture. Therefore, one requirement of this section is that the absence of “effective control” be proven.

If the applicant is someone who was involved in any way in the offence, they can only apply under s 102(3). However the applicant under s 102(3) can also be an innocent person. The s 102(3) applicant must be claiming an interest in the forfeited property and can show: (a) the property was not used in (or in connection with), nor derived or realised (directly or indirectly) from, unlawful activity; and (b) the applicant acquired the property lawfully.

Because of that fact that the sections deal with different applicants and different claims, it would be wrong to read the requirement in one as being a requirement in the other. However, just because the absence of “effective control” is not a requirement to be established under s 102(3) before the power to give relief is enlivened, does not mean that the presence of “effective control” cannot be a matter affecting the discretion to make an order.

So much is clear, in my view, from the fact that the presence of “effective control” is a disqualifying feature of s 102(2), and prevents the enlivening of the discretion because the power to grant relief under s 102(1) is not enlivened. Given the objects of POCA, it can hardly be thought that the legislature viewed it as a disqualifying feature for innocent applicants, but irrelevant to the discretion to grant relief to applicants who were actually involved in the offence (even though not the convicted person).

In my respectful view, the learned trial judge’s approach seems to have conflated two different matters, namely (a) the preconditions to the discretionary power being enlivened, and (b) the factors that might be taken into account upon the discretion being exercised.

The learned trial judge cited passages from Peko Wallsend[^206]:

“If the statute expressly states the considerations to be taken into account, it will often be necessary for the court to decide whether those enumerated factors are exhaustive or merely inclusive. If the relevant factors – and in this context I use this expression to refer to the facts which the decision maker is bound to consider – are not expressly stated, they must be determined by implication from the subject-matter, scope and purpose of the Act.

…this court has held that where a statute confers a discretion which, in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject-matter, scope and purpose of the statute some implied limitation on the facts to which the decision-maker may legitimately have regard.”

Then, dealing with Peko Wallsend, the learned trial judge then made these findings:[^207]

“[155]The relevant factors for the court’s consideration are expressly stipulated in s 102(3). Thus, there is no need to ascertain them by implication from the subject-matter, scope and purpose of the Act unless the factors expressly stipulated in s 102(3) are “merely inclusive”. Nothing within the words of s 102 suggests that the factors stipulated in s 102(3) are merely inclusive. Further, the discretion conferred upon the court by s 102 is not “unconfined”. Rather, the words of s 102 make clear that there are preconditions for the exercise of the discretion: if the court is satisfied that the factual grounds in s 102(2) or s 102(3) exist, it may make an order under s 102(1). The pages to which the Commonwealth referred in Minister for Aboriginal Affairs v Peko-Wallsend Ltd do not support the Commonwealth’s argument. I am not persuaded that s 102 (3) is a statutory provision of the type considered in those passages of the judgment relied upon by the Commonwealth.”

Having said that the learned trial judge proceeded to consider the Commonwealth’s contention that there was a wide discretion under s 102(1), informed by matters such as the objects of POCA. That consideration concluded reference to the principle of statutory construction, referred to in Jeffrey No. 1,[^208] namely that an intention to abrogate or curtail fundamental property rights, or take away property without compensation, must be clearly manifested by unmistakable and unambiguous language, expressing that intention with irresistible clearness.[^209]

The learned trial judge then said:[^210]

“I respectfully accept that approach as appropriate when interpreting POCA s 102. I do not accept that those sections referred to by the Commonwealth reveal an intention that POCA s 102(3) should be interpreted as including a further fact about which the court must be satisfied, namely “the property is not or at the time of the restraining order was not subject to the effective control of the person whose conviction caused the forfeiture”.

Plainly the learned trial judge construed s 102(3) as exhaustively stating the factors to be taken into account when exercising the discretion under s 102(1). In my respectful view that was an erroneous approach. That would mean there was no discretion under s 102(1) once the factors in s 102(3) were established. It would turn the “may” in s 102(1), s 102(2) and s 102(3) into “must”. The legislature used the word “must”, in the phrases “must order” or “must make an order”, in a number of provisions of POCA.[^211] It used the word “may”, in the phrases “may order” or “may make an order”, in many other different provisions, including s 102 and s 103.[^212] Of note is the fact that in s 48 and in s 280 the legislature used “must” in one subsection and “may” in another. It therefore seems that the legislature intended a different meaning when “must” was used from that applicable when “may” was used.

In my view s 102(3) provides, exhaustively, for the preconditions to the power to grant relief being enlivened, but does not confine the exercise of that discretion.

The learned trial judge’s ultimate finding was expressed at Reasons [169]:

“The Commonwealth’s written and oral arguments contending that Mr Hart’s effective control of the property at the date the restraining order was made is a decisive consideration under POCA s 102(3) are rejected. Mr Hart’s effective control was neither decisive nor relevant. The exercise of the court’s discretion under POCA s 102(3) would miscarry if it found against the Companies on a basis which included Mr Hart’s effective control of an asset at the date the restraining order was made.”

That finding, in so far as it holds that Mr Hart’s effective control is not relevant, cannot be sustained.

The question whether Mr Hart’s effective control would be decisive is another matter. Within that question is another, namely: if effective control of a property or interest is a relevant factor in the exercising of the discretion under s 102(1), when must the property or interest be subject to that effective control?

One consideration is that s 102(2)(b) uses “effective control” by the convicted person as a disqualifying factor. In other words, unless the applicant can show that the interest claimed is not subject to the effective control of the convicted person then the power to grant relief does not arise at all.

In my view, the reasons set out in paragraphs [249] to [289] above, in respect of the date for “effective control” in s 141(1), apply equally to s 102(2)(b). That is reinforced by the fact that under s 102 the interest to be transferred is one that was forfeited under s 92, which only applies if there was a restraining order: s 92(1)(b). Further, the interest transferred is the interest as it stood at the date of forfeiture. The restraining order freezes the interest and any question of effective control. Thus, the date of “effective control” for the purposes of s 102(2)(b) is the same as that for s 141(1), namely the date of the restraining order.

However, in my view that does not mean that when the court considers the question, whether “effective control” by the convicted person is a factor affecting the exercise of discretion under s 102(1), it would use the same date.

For an application brought under s 102(2) it cannot be the same date, i.e. the date of the restraining order, as establishing “effective control” at that date would mean that s 102(2)(b) was triggered. However it is not difficult to see that there may be a change in circumstances between the date of the forfeiture and the date of the court’s order that would be relevant to the exercise of the discretion under s 102(1). For example, the property or interest may not have been under the effective control of the convicted person at the date of the restraining order, but the relationship between the owner and the convicted person is now such that the convicted person will exercise effective control when the property or interest is transferred. To permit a transfer under s 102(1) when the property or interest would then fall into the hands of the very person whose offences caused its forfeiture, would, in my view, offend the objects of POCA.

Even though an applicant does not have to establish that there was no “effective control” as a requirement of an application under s 102(3), there is no reason to conclude that the same considerations do not apply if, at the date of the hearing, it can be shown that the property will come under the “effective control” of the convicted person.

In my view, that conclusion receives support from s 29(4) POCA, which provides a qualification on the power to exclude property from a restraining order made under ss 17 or 18:

“However, the court must not exclude property from a restraining order under section 17 or 18 unless it is also satisfied that neither a pecuniary penalty order nor a literary proceeds order could be made against:

the person who owns the property; or

if the property is not owned by the suspect but is under his or her effective control—the suspect.”

Thus, the court under s 29(4) cannot exclude property that is under the “effective control” of the suspect, unless it is satisfied that a pecuniary penalty order could not be made against the suspect.

An order granting a restraining order over property, and the question of exclusion of property under s 29, is likely to arise well before any question of an application for a pecuniary penalty order. Similarly, the question under s 29(4) is likely to arise well before any questions of property ownership have been determined.

Those considerations suggest that the intention of POCA was that property under “effective control” of a suspect should remain available: (i) until questions of ownership are settled, and (ii) to satisfy a pecuniary penalty order.

Effective control at the date of the orders

There is a related but separate question as to whether the evidence established that Mr Hart was in “effective control” at the date of trial or order. The learned trial judge held that no such issue was litigated at trial:[^213]

“Another part of the Commonwealth’s oral submission was that: “Section 102 should not operate in a way that a person who would have effective control of property upon release and who has a PPO outstanding should obtain the benefit.” There was no issue litigated in these proceedings about whether Mr Hart would have or would be given effective control of property if the Commonwealth is directed to transfer property to the Companies or to pay the value of property to them. There was no issue litigated about whether Mr Hart will benefit or be given a benefit if the Companies succeed.”

Later findings, made in the context of the Commonwealth’s application under s 141, showed that his Honour meant that there was no pleaded issue. He held that the Commonwealth had not satisfied the onus of showing that Mr Hart had remained in effective control:[^214]

“The CDPP submits that Mr Hart remains in effective control of the Companies. There has been no issue raised in pleadings about whether Mr Hart continued in effective control of the Companies at the time of trial or about whether Mr Hart controls the exercise of the discretion as trustees of Yak, Bubbling, Flying or Alfredton. It is possible that Mr Hart remains in effective control of the Companies. The issue about his current control has not been adequately explored in evidence. The CDPP bears the onus. I am not persuaded that Mr Hart is currently more than the trusted adviser to the directors.”

The Hart Companies pleaded the relief they sought in the s 102 application.[^215] It was a declaration that they “are entitled to the properties” claimed, and that orders be made “directing the respondent to transfer” the property. The Commonwealth pleaded[^216] that the discretion given to the Court pursuant to s 102(1) should not be exercised because “at all material times the [Hart Companies] were under the effective control of Mr Hart and but for forfeiture the property would have been available to satisfy any pecuniary penalty order made in respect of Mr Hart”.

Pleaded or not, the issue was addressed at the trial.[^217]

The Commonwealth’s position at the trial was that the fact of Mr Hart’s effective control was a relevant consideration to the discretion to grant relief under s 102(3).[^218] The date of effective control for which the Commonwealth initially contended was the date of the restraining order. However the position was put more broadly when submissions were made as to the discretion under s 102(3):[^219]

“Section 102 should not operate in a way that a person who would have effective control of property upon release and who has a PPO outstanding should obtain the benefit. That would not be in accordance with the intention of section 29(4) nor with the general purposes and objects of the Act. So we say that the structure of the Act permits your Honour as a matter of discretion to take the question of effective control into account at that stage, even though the very terms of section 102(3) do not.”

That submission was put on the basis of effective control at the time of the transfer of the property under an order made pursuant to s 102(1). That submission was what the learned trial judge referred to in the first sentence of Reasons [169]: see paragraph [311] above.

At trial the Commonwealth’s submissions as to effective control were not confined to relying on Mr Hart’s representation of the Hart Companies and running the trial. They were based on: (a) evidence that was adduced at the trial under the order of 24 November 2010 giving the Commonwealth leave to rely on evidence from the hearings before Brabazon DCJ and the decision in that case;[^220] (b) this court’s decision on appeal;[^221] and (c) the concessions that the Hart Companies were bound by those findings.

The submissions included the following points:[^222]

s 337(5) POCA was relied upon; it provides that in determining “effective control” the court is to have regard to “family, domestic and business relationships” between those who have an interest in the property, and other persons;[^223]

effective control could be inferred from the continuing relationship between Mr Hart and Mrs Hart, who remained Mr Hart’s wife and a director of the Hart Companies;[^224]

Brabazon DCJ had held, on the question of effective control, that: “[T]he evidence of family and personal relationships is vital in this case”;

Brabazon DCJ held that while Ms Petersen and Mrs Hart were capable of conducting many of the day to day affairs of the companies, they took their directions from Mr Hart on any occasion which was significant, or when he chose to intervene;[^225]

the Hart Companies had offered little or no evidence to suggest that the relationship between Mr Hart and his wife, Mrs Hart, or with Ms Petersen had changed;[^226] by contrast where there had been a change in relationships, that had been specifically dealt with, e.g. the failure in the relationships with Mr Arnot, Dr Ambler and Dr Fleming;[^227]

Mr Hart had commenced to act for the Hart Companies in June 2010, several months before they were granted leave (in October 2010), to have him appear for them;[^228] and

Mr Hart had admitted to “reworking” the affidavits of Mrs Hart and Ms Peterson used in the trial in the present matter;[^229] those affidavits revealed heavy reliance on Mr Hart for important pieces of information about management of companies, disbursement of funds, and gross income; that bespoke influence by Mr Hart over the evidence given by the Hart Companies.[^230]

The submissions of the Commonwealth were the subject of specific response at trial by the Hart Companies.[^231]

In so far as those submissions related to the question of effective control as at the date of the restraining order, they were made redundant when Mr Hart conceded, on behalf of the Hart Companies, that there was effective control at that point.[^232] However, it was made clear that the concession related only to the date of the restraining order. Therefore, in so far as the question of effective control at the date of the orders was concerned, the issue remained alive, and it was addressed by Mr Hart.[^233]

The Notice of Appeal in 4987/13 refers to Mr Hart’s effective control, for this ground, as being “at the date of forfeiture”, rather than the date of the restraining order. However the Commonwealth’s outline refers to the date of the restraining order.[^234] In oral address on the appeal the Commonwealth submitted that effective control at the date of the orders existed and would affect the discretion under s 102.

In any event no issue was taken on appeal that the point, i.e. the contention that effective control existed at the time of the orders, could be agitated.[^235] That was understandable because of the position taken by the Hart Companies in relation to when effective control is to exist, namely at the date of the hearing.[^236]

The learned trial judge made some findings relevant to this question, but in the context of whether Mr Hart was in effective control as at 2001, as well as at 2003 when effective control was conceded.[^237] His Honour accepted that the correct approach to the question included “that when considering whether there was effective control of one company by Mr Hart: it was proper to consider the evidence as a whole and not to keep separate the evidence relating to each of the Companies; the evidence of family and personal relationships was very relevant to the issue”. His Honour then said:[^238]

“The Companies concession that Mr Hart was in effective control at two dates in 2003 is circumstantial evidence of his control at earlier dates than 2003. I note that the conduct of the proceedings before me by Mr Hart as advocate and McKenzie friend for the Companies was consistent with his being the dominant and controlling figure at the time of the hearings.”

On appeal the Hart Companies contended that the evidence of effective control at the time of the trial, or the orders resulting from the trial, came down only to Mr Hart’s representation of the Hart Companies (in respect of both applications) as a McKenzie friend, and his conduct of the proceedings on behalf of the Hart Companies.[^239] That is not strictly correct.

It is true that the Commonwealth submitted that Mr Hart’s representation of the Hart Companies and conduct of the trial was sufficient, of itself, to find that effective control existed.[^240] That submission reflected a description by the learned trial judge, of Mr Hart’s role in the proceedings:[^241]

“The Companies were not legally represented in these two proceedings. In theory, they appeared by their directors, Ms S Petersen and Mrs L Hart. However, the directors used as their spokesperson in court, Mr Hart who acted as a McKenzie friend. It was Mr Hart who, for the directors, made oral submissions, examined and cross-examined witnesses, made and responded to objections to evidence. Mr Hart as a respondent to the application of the CDPP appeared for himself and acted as McKenzie friend for the other six respondents. Mr Hart has no legal qualification.”

However the Commonwealth did not abandon the contentions urged at trial.[^242]

Therefore further consideration must be given to whether the findings at Reasons [880] can be sustained. That task proceeds on the basis that the learned trial judge was correct to adopt the approach of Brabazon DCJ[^243] that “when considering whether there was effective control of one company by Mr Hart: it was proper to consider the evidence as a whole and not to keep separate the evidence relating to each of the Companies; the evidence of family and personal relationships was very relevant to the issue”.

The evidence adduced by the Commonwealth at the trial included:

the concession that Mr Hart was in effective control in 2003;

the matters referred to in sub-paragraph [330](d)-(g) above;

the findings of this court in Director of Public Prosecutions (Cth) v Hart, particularly those at paragraphs [25]-[26] and [31];[^244]

the fact that Mrs Hart, a director of the Hart Companies, was still the wife of Mr Hart;

the change in the relationships of directors, specifically Mr Arnot, Dr Ambler and Dr Fleming, referred to in paragraph [330](e) above;

Mr Hart’s representation of the Hart Companies, his conduct of the trial and involvement in preparing evidence; and

the fact that Mrs Hart and Ms Peterson said little or nothing to suggest that there had been any real change in control since 2003.

Once the Commonwealth adduced that evidence, there was an evidentiary onus on the Hart Companies to lead evidence that might displace the inferences that could be drawn as to continuing effective control. Such evidence as was led, was not at all compelling.[^245]

In my view there was an evidentiary base that enabled the only one reasonable inference, namely a state of continuing “effective control” by Mr Hart. I do not consider that when regard is had to that evidence, and the failure to lead evidence to contradict it, the finding in Reasons [880] can be supported.

That conclusion also means that the finding that Mr Hart was still in effective control, and would be if an order was made under s 102 to transfer the properties to the Hart Companies, would be a decisive reason to refuse that relief.

The Commonwealth’s appeal on these grounds succeeds.

The evidence as to value; grounds 1 and 15 (part) in 3908/13; ground 2 of the notice of contention in 4987/13

The Hart Companies contended that the learned trial judge was in error in finding that there was no evidence of value, or that value could not be assessed. The only evidence that they pointed to was an affidavit of Ms Goodey, a Deputy Receiver employed by the Insolvency and Trustee Service Australia, which was filed in the pecuniary penalty proceedings by the Commonwealth. In that affidavit Ms Goodey merely deposed to valuation reports she had received, in each case exhibiting the reports. They were from:

Mr Dally, in respect of three properties at Doonan’s Road,[^246] Samara Street[^247] and Merriwa Street;[^248]

Mr Morgan of Southern Cross Aircraft Engineering Services Pty Ltd, which dealt with 11 aircraft;[^249]

Mr Simshauser, in respect of a car[^250] and some number plates[^251]; and

Mr Gregory, in relation to four hangar sites.[^252]

None of the identified authors were called to prove their reports, their expertise to give relevant valuation opinions, nor the opinions contained in the reports. Ms Goodey could prove nothing as to the truth of the reports as she was not the author of any of them, let alone qualified to express a view.

Use of the Goodey affidavit

In the pecuniary penalty proceedings the parties were the Commonwealth and Mr Hart, but not the Hart Companies. The issues in those proceedings required the Commonwealth to prove the “penalty amount” to be determined under Div 2 Part 2-4 of POCA. That involved the Commonwealth establishing, absent agreement, the value of the property forfeited, by admissible evidence.

The Goodey affidavit was read as part of the Commonwealth’s material on the application for a pecuniary penalty order, on the second day. The purpose of doing so, it was said, was to use the valuations attached to that affidavit to prove the value of the forfeited property. It is self-evident that, absent agreement or Mr Hart not requiring the authors for cross-examination, that had to be done by calling the authors of the valuations. At that point there was no agreement as to the value of the forfeited property. Once agreement was reached (between the Commonwealth and Mr Hart, but not the Hart Companies) as to the value of the forfeited assets, the Goodey affidavit ceased to be relevant to the pecuniary penalty proceedings, and was no longer relied upon (by either side).

In the pecuniary penalty proceedings, the Commonwealth’s list of material on the initiating application[^253] included (in the schedule) the unsworn Goodey affidavit as one of the affidavits to be relied on. Ultimately agreement was reached on the value of the assets forfeited.

The sequence of the proposed use of the Goodey affidavit in the trial below is as follows:

the Commonwealth’s amended application under s 141, dated 12 April 2010, did not list the Goodey affidavit as part of the material to be relied upon; the Commonwealth’s list of material did list the transcript of the pecuniary penalty proceedings as part of its s 141 material;[^254]

on 25 October 2010 the Commonwealth provided its lists of material to be relied upon in the s 102 and s 141 applications; the lists included the Goodey affidavit, and the transcript of the pecuniary penalty proceedings;[^255]

the Hart Companies required Goodey for cross-examination;[^256]

at the commencement of the trial the Commonwealth’s lists of material in the s 102 and s 141 applications (amended to refer to that which was relied on under r 395), did not include the Goodey affidavit;[^257] and

in the s 102 and s 141 applications, the Hart Companies’ final lists of material (dated 8 March 2011) did not include the Goodey affidavit as part of the affidavits to be relied upon.[^258]

On the day the trial was set to begin[^259] counsel for the Commonwealth referred to reliance on the evidence in the pecuniary penalty proceedings, in the context of foreshadowing the Commonwealth’s grounds of opposition to an adjournment application foreshadowed by the Hart Companies:[^260]

“I can put this on the record: we’ll be resisting any adjournment application; we will press with an application under rule 395 for the evidence in the effective control case and the evidence in the PPO[^261] to be evidence in this case;…”

The reference to rule 395 was to UCPR r 395 which provides:

“A party may, with leave of the court, rely on evidence given or an affidavit filed in another proceeding or in an earlier stage of the same proceeding.”

In the result the trial was stood down for a time and when it resumed counsel for the Commonwealth announced that agreement had been reached on some matters that meant the Hart Companies no longer sought an adjournment:[^262]

“Nor does Mr Hart wish to seek an adjournment of the trial subject to this: Mr Hart has indicated that he needs some time to source certain documents in relation to the allegation of unlawful - unlawful conduct in respect to the Hendon and Northborn (sic) transactions, and he will require some time to source those documents. What is suggested, with your Honour’s discretion - sorry, your Honour’s leave, of course, is that the matter be adjourned to Tuesday for the trial to commence then. Mr Hart originally indicated that he required some 21 witnesses for cross-examination, but he is willing to consent to the application by the Commonwealth pursuant to rule 395. That means that the only witnesses for trial in order will be Ms Peterson, who I will cross-examine but I won’t be that long with, Mrs Hart, who I will be some days with in cross-examination because of the extent of her numerous affidavits, then Mr Hart will require Mr Ian Stevens for cross-examination, but that won’t be terribly lengthy, but he will be some time then, of course, with our expert Mr Vincent. It is expected that the trial will finish within the two weeks.”

As will become evident the form of the order sought was one granting the Commonwealth leave to rely on the evidence in the pecuniary penalty proceedings (amongst others).

As can be seen from the transcript above, the Hart Companies consented to an order that the Commonwealth have leave to rely on the evidence in the pecuniary penalty proceedings, in the s 102 trial. That order was then made, but was restricted to the s 102 trial.[^263] An amendment to that order was sought on day two of the trial, to include the s 141 trial. The description of its effect by Counsel for the Commonwealth make it clear that it sought that the leave extend to relying on both the evidence and affidavits in the pecuniary penalty proceedings, in the trial:[^264]

“Similarly, your Honour’s - the evidence in the PPO which your Honour has heard, both the transcripts and affidavits would be evidence in the 102 application and the 141 application.”

The Hart Companies did not consent to the amendment, so that argument on the application for that order followed. Counsel for the Commonwealth made clear the purpose for which the order was sought:

“The purpose of it is that this order we seek not to relitigate the issue of effective control, we seek not to relitigate the issue of the unlawful activity constituting serious conduct, serious offences in the PPO. We would say that those matters, as a matter of law, give rise to an issue estoppel. Secondly, we’d say a requirement to cross-examine everyone who gave evidence in the PPO and everyone who gave evidence in the effective control trial would also constitute an abuse of process.”[^265]

and

“So this order, really, has the effect of allowing that evidence to be brought into this trial and considered as part of this trial because of the discretion that your Honour is ultimately having to exercise, but it also is seeking, through other means to ensure that we don’t have a collateral review of your Honour's PPO decision in this trial and we don’t have a collateral review of the decision of Judge Brabazon and the Court of Appeal in relation to effective control issues.”[^266]

The learned trial judge gave the following reasons for making the order:

“Having made an order last Friday with respect to a similar application for the use of such evidence in the section 102 proceedings of the five applicants, it is sensible that the evidence that can be relied upon by the Commonwealth of Australia in that application should also be relied upon by the Commonwealth Director of Public Prosecutions in its application pursuant to section 141 of the Proceeds of Crime Act. As well as that reason, I have had the benefit of the submissions just made to me by Mr Flanagan, and accept those submissions. Mr Hart, for the five applicants, neither consents nor opposes.”[^267]

The order as taken out on 24 November 2010 was as follows:

“That paragraph 1 of the order made pursuant to Rule 395 of the Uniform Civil Procedure Rules on 19 November 2010 be amended so as to read as follows:

‘Pursuant to rule 395 of the Uniform Civil Procedure Rules, at the hearing of the Originating Application filed 17 October 2006 in these proceedings and the Application filed 7 September 2007 (as amended) in proceedings numbered BD1416 of 2003, leave be granted to the Respondent to rely on the transcript of proceedings, affidavits read and any exhibits tendered in evidence at the hearing of the following:’”[^268]

The terms of the order are clear. The Commonwealth was the only party given leave to rely on the affidavits in the pecuniary penalty proceedings, if it chose to do so. However it is, in my view, equally clear that by the start of the trial below the Commonwealth did not exercise that right in respect of the Goodey affidavit, because its lists of material to be relied on excluded the Goodey affidavit. That was evidently a deliberate exclusion because the earlier lists had included that affidavit.

It was then open to the Hart Companies, if they so chose, to include the Goodey affidavit in their own material (having signified earlier that Goodey was required for cross-examination). They did not do so.

Therefore, whatever use had been made of that affidavit at the pecuniary penalty proceedings, the leave granted under the order of 24 November 2010 was not availed of in respect of the Goodey affidavit, and it was not part of the evidence in the trial below. In this respect the submissions of the Hart Companies overlook the terms of the order actually made on 24 November 2010, and wrongly assume that the order was to the effect that all evidence at the pecuniary penalty proceedings was evidence at the trial below.

The Hart Companies also submitted that Mr Hart “referred to the valuations in the hearing below without objection”.[^269] That is too broad an assertion, and cannot be accepted for three reasons.

First, the initial reference occurred in the written submissions. It was in the form of a suggested alternative outcome in respect of four aircraft. In each case it was that the relevant Hart Company should pay the amount of the “Commonwealth valuation” for release of that aircraft from forfeiture “as part payment of the Merrell charge”.[^270] That is not a submission that the valuations could be used to establish value.

Secondly, the next reference was on day 13, in address. Mr Hart submitted that the learned trial judge should not accept a submission by the Commonwealth, namely that an inference could be drawn about the Mercedes car from the fact that Mr Hart was driving it. In that context he referred to a report from Ms Bundesen which identified that he paid $120 per fortnight for the use of the car. Then followed this exchange:[^271]

“Now, I’ll take you to that exhibit[^272] in a minute, but if your Honour notes in the valuation supplied by Ms Gooding[^273] from the Insolvency Trustee Services Australia, they value the motor vehicle at 15,000 wholesale and 20,000 retail. It’s pretty significant, that amount that they’ve valued that motor vehicle at. If I could say, and go to B00040463.[^274]

HIS HONOUR: Are you submitting that the amount of money that was deducted from wages for the vehicle was a commercial rate?

MR HART: Yes, I am, your Honour.

ASSOCIATE: Sorry, can you repeat that again?

MR HART: B00040463.

HIS HONOUR: $3,000 a year for a 20,000 motor vehicle.

MR HART: And Ms Bundensen attached as Exhibit 114 the payslip of Mr Hart showing the deduction of the $120 a fortnight from his wages. The submission I’m making to your Honour on behalf of the companies is that it was - irrespective of whether Mr Hart was the driver, he paid for the privilege of driving that motor vehicle. So any inference that the Commonwealth want to draw on the fact that Mr Hart drove the motor vehicle should be ignored, because he paid for the right to drive it.”

That passage does not show reliance on the Goodey affidavit to establish values, let alone values of the Hart Companies’ interests in the individual assets. It was being referred to only to show that the return to the owner because of the car’s use was a commercial rate. The same was explicit in the submissions in reply by the Hart Companies.[^275]

Thirdly, and in any event, the references above ignore the fact that the valuations were not in evidence in the trial, for the reasons above.

Further, at the trial below the Hart Companies made it clear that they did not accept that the agreed value of the forfeited assets was $4.8m.[^276] Shortly before that, counsel for the Commonwealth had was said the $4.8m “was an agreed value as at the time of forfeiture based on valuation evidence”.[^277] Given the matters referred to above in paragraphs [348] to [366] above the reference by counsel for the Commonwealth cannot possibly be seen as relying on the valuations in the trial below; it merely explained how a figure in previous proceedings was agreed. The Hart Companies’ response is consistent only with the valuations reports not being agreed.

Of itself the Goodey affidavit provides no evidence of value. The reports attached as exhibits might do so, were the relevant authors called to establish the opinions in the normal way, but they were not. The reports might be admissible under s 92 of the Evidence Act 1977 (Qld), if the reports were sought to be tendered and the authors were not required for cross-examination. But the reports were not sought to be tendered.

Further, it is clear that the affidavit was not relied upon at trial to establish value, by either side.

In any event, reliance of the valuations in the Goodey affidavit to establish the value required by s 102(1)(c) would have had to confront some serious hurdles:

as noted above in paragraph [345], the reports were (at least in some cases) not done a proper market value basis, or were heavily qualified;

in the pecuniary penalty proceedings the value required to be established under s 130 was the value of such property as has been forfeited “in relation to the offence to which the order relates”; individual interests do not matter for that exercise;

the value required by s 102(1) is different, namely the value of a person’s interest;

the dates at which the value is to be established are different; the value for s 130 is that as at the date of the pecuniary penalty order (in this case 19 November 2010); the date for the value under s 102(1) is the date immediately before forfeiture (in this case 18 April 2006);[^278] and

at the time of forfeiture there were registered mortgages over Hangar 400, Doonan’s Road, Samara Street and Merriwa Street; the interests of the registered mortgagees were excluded from the forfeiture;[^279] Doonan’s Road, Samara Street and Merriwa Street were subsequently sold;[^280] the valuations would therefore not establish, by themselves, the value for s 102(1).

As it happens the learned trial judge did make use of some evidence of value[^281] in the case of the properties at Merriwa Street and Samara Street. In each case his Honour noted evidence of the price at which the property sold, some months after the date of forfeiture.[^282] Using that evidence his Honour established the value of the property but could not find the value of the relevant Hart company’s interest, after taking the Merrell charge into account.

On the appeal the issue as to the status of the Goodey affidavit was the subject a purported clarification by senior counsel for the Commonwealth:

“…there is no dispute that Ms Goode’s [sic] affidavit was in evidence. It became part of the evidence in the proceedings before the trial Judge because it was part of the evidence in the pecuniary penalty proceedings, and the trial Judge made rulings that the evidence from that proceeding was to be evidence in the proceedings before his Honour.”[^283]

and

“…but for the purpose of the submission that my friend wants to make, there is no dispute that it was in evidence. If they want to deploy it now on the appeal for a certain purpose, they can no doubt persuade your Honours as to what weight, as the fact that something may be before the court is different from the question as to what weight it is given or what probative … value it has.”[^284]

and

“ … but we do concede that it was in evidence and we do concede that Mr Hart made reference to valuations which have been obtained by the Commonwealth in relation to three of the assets, that is, also to the car and to three of the planes in his closing submissions.”[^285]

However there are two points to observe about the purported clarification: first, it was made in the absence of knowing precisely how it came to be in evidence or how it was used;[^286] and secondly, it was plainly made without a proper appreciation of the effect of the order made on 24 November 2010,[^287] and the lists of material relied upon.[^288]

I do not consider that the purported clarification amounts to a concession that binds the parties or this court so as to deny the correct analysis of the issue.

In my view, the Hart Companies’ challenge on these grounds fails.

Leave to the Commonwealth to amend on 26 October 2010; refusal of adjournment on 23 November 2010**; grounds 20 and 20A in 3908/13**

The Hart Companies contend that the learned trial judge was in error in two respects:leave to amend should not have granted to the Commonwealth on 26 October 2010; andthe Hart Companies’ request on 23 November 2010, for an adjournment of the trial, should have been granted.

Each of those decisions was discretionary, and occurred in the process of managing the trial. Therefore, to succeed the Hart Companies need to demonstrate error of the kind identified in House v The King.[^289]

There are some links between the two grounds. It is convenient to first deal with the application to adjourn the trial.

The transcript reveals the sequence of events preceding the application for adjournment on 23 November:

the Hart Companies filed an application seeking to adjourn the trial, due to start on Monday 22 November, before 19 November;

the application to adjourn the trial came before the learned trial judge on Friday 19 November; Mr Hart appeared for the Hart Companies;

at that time the learned trial judge said that he was in a position to deliver judgment in the pecuniary penalty proceedings, but not the reasons; his Honour explained that there were technical problems with power to the courts over the weekend, and that would impact on his ability to finalise the reasons, but that he hoped to have them finalised by the following Monday;[^290] however, his Honour said: “I am in a position to give judgment in that matter immediately, if the parties so request. It would mean that I - if the parties request it that I would give my judgment with my reasons to be published”;[^291]

both sides requested that his Honour do so;

having delivered the judgment, the learned trial judge was asked to stand the matter down for a time so Mr Hart consider the Hart Companies’ position;

the Commonwealth foreshadowed that it would press for the trial to proceed;

the matter was stood down;

the parties then reached agreement on a number of matters, including the Commonwealth’s application to make use of evidence from previous proceedings, and the application for an adjournment;

when the matter resumed the court was told that: “Nor does Mr Hart wish to seek an adjournment of the trial subject to this: Mr Hart has indicated that he needs some time to source certain documents in relation to the allegation of …. unlawful conduct in respect to the Hendon and Northborn (sic) transactions, and he will require some time to source those documents”;[^292]

Mr Hart consented to the application for adjournment being dismissed;[^293]

the hearing was adjourned so that the first day of trial was Tuesday 23 November, not 22 November; and

the application to adjourn was then renewed on 23 November.

The grounds for adjourning, as articulated on 23 November, were:

first, that the trial should be deferred until after the appeal against the pecuniary penalty order;[^294]

secondly, the Hart Companies needed time to review the pecuniary penalty reasons, and then seek advice as to what further evidence might be called in the s 102 application;[^295] that advice would be difficult to seek once the trial was under way and witnesses such as Mrs Hart and Ms Peterson were in evidence; the question was the ability of the Hart Companies to effectively and efficiently run the s 102 application;[^296] and

thirdly, the Hart Companies should be given further time to search for relevant documents;[^297] this principally arose out of the Hendon and Northbourne Arrangements, raised in the Commonwealth’s amended pleadings on 27 October 2010;[^298] as well, inspection of documents (that had been disclosed and of which copies had been received) was still under way.[^299]

As to the first point, as the learned trial judge pointed out, it was a point that should have been raised much earlier, when the matter was listed to follow the pecuniary penalty proceedings.[^300] Mr Hart conceded that it should have been raised much earlier, as much as seven or eight weeks earlier, and that he had intended to do so, but did not.[^301]

As to the second point, again the learned trial judge pointed out that it was a matter that should have been raised well before 23 November, and at the time the trial was set down.[^302]

As to the third point, the learned trial judge observed, and Mr Hart conceded, that the Hart Companies’ application for disclosure had come very late, and well after the trial date had been set.[^303] Mr Hart’s submission was that until the amendments were made the Hart Companies had been satisfied with the existing disclosure; the further disclosure only became necessary because of the Commonwealth’s amendments.[^304] The Commonwealth’s response was that after it filed its expert report further affidavits of Mrs Hart and Ms Peterson identified sources of funds that were connected to the Hendon and Northbourne Arrangements, thus prompting the amendment.[^305] Further it was pointed out that the amendments affected only three of about 20 assets.[^306]

In the course of argument the learned trial judge summarised the Commonwealth’s submission in this way, adopted by the Commonwealth:[^307]

“The Commonwealth has amended its pleadings late and that does cause prejudice to the applicants, but the Commonwealth has an excuse for amending late and the prejudice that is caused to the applicants has one source. One cause for it is the Commonwealth’s late amendment, which is explicable by the applicant’s late affidavits. And, really, the - your submission is that the applicants are primarily to blame for the uncomfortable position they are currently in.”

Of the three points set out above it was only the second (that the Hart companies needed time to review the reasons for the pecuniary penalty order), that was relied on in the grounds of appeal. However, as developed orally, only the third point was advanced, namely, that the adjournment was warranted because of the Commonwealth’s amendments in October.[^308]

The Hart Companies’ submission was that they should have been given an opportunity to properly answer the Hendon and Northbourne allegations, and that it was “perverse to … give priority to the Commonwealth’s difficulties … in not being able to recover costs.”[^309] As will be seen the latter submission significantly overstates the position. On the balancing of the prejudice to each side, the submission was that the Commonwealth’s prejudice was “a virtual irrelevance”.[^310]

The Hart Companies contended that the outcome of this ground should be a re-trial in respect of the Hendon and Northbourne arrangements.[^311]

At the time that the learned trial judge was dealing with the application to amend, Aon Risk Services Australia Ltd v Australian National University[^312] gave guidance as to the proper approach. The High Court recognised that the overriding purpose of rules such as r 5 UCPR is the just resolution of the real issues in the proceedings, with minimum delay and expense.[^313] The plurality identified a number of relevant factors that ought to be taken into account on the consideration of amendment to a pleading:[^314]

“The achievement of a just but timely and cost-effective resolution of a dispute has an effect upon the court and upon other litigants”: [93]; what may be just requires account to be taken of other litigants, not just the parties to the proceedings in question;

“Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings”; that “should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and cost are taken into account”:[98];

costs may not meet the prejudice suffered by a party; that can be so if the consequence of the order is that a party has to litigate a question afresh;

the delay in seeking the amendment, and the delay caused by it if it is allowed;

the explanation for the delay;

the nature and importance of the amendment;

the effect of the amendment on the parties;

wasted costs; and

the stage the litigation has reached relative to a trial.

The plurality had the following to say:[^315]

“[111]An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. Statements in JL Holdings which suggest only a limited application for case management do not rest upon a principle which has been carefully worked out in a significant succession of cases. On the contrary, the statements are not consonant with this Court’s earlier recognition of the effects of delay, not only upon the parties to the proceedings in question, but upon the court and other litigants. Such statements should not be applied in the future.

[112]A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate.

[113]In the past it has been left largely to the parties to prepare for trial and to seek the court’s assistance as required. Those times are long gone. The allocation of power, between litigants and the courts arises from tradition and from principle and policy. It is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings.”

The Reasons set out a number of factors weighed by the learned trial judge in the decision making process:

the Hart Companies’ task was described: “Essentially the applicants are obliged to carry the onus of proof pursuant to section 102 … that several items of property are not derived or realised directly or indirectly by any person from unlawful activity, and that they acquired the property lawfully”;[^316]

the Hart Companies had to mount a comprehensive case as to the source of funds required for the assets;[^317]

that task was particularly formidable, given the Hart Companies bore the onus, “for it must consider the risk that it cannot exclude, on the balance of probabilities, that funds for an interest payment or for maintenance of the assets might be unlawfully acquired”;[^318]

the need to mount that comprehensive case had existed from the beginning of the proceeding, although it had been made more obvious as a result of amendments to the points of defence;[^319]

nearly a year earlier, on 27 November 2009, the trial had been set to start on 22 November;[^320]

there was prejudice to the Commonwealth, and disarray to the court’s civil list if the matter was adjourned;[^321]

his Honour had to consider the prejudice to the Hart Companies, being one of the matters which appear in Aon Risk; others were the extent of the delay, the explanation for the delay, and the point the litigation had reached relative to the trial commencement date;[^322]

the Hart Companies pleaded their case as to the source of funds in points of claim, and enlarged that case by affidavits filed in July and September 2010, correcting allegations in their points of claim;[^323]

as a result leave was granted to the Commonwealth to amend “to raise matters it was fairly obliged to raise as a result of new sources of funds which emerged in the affidavits filed for the [Hart Companies] in July and September”; those matters had been promptly raised by the Commonwealth;[^324]

the Commonwealth amendments had “exponentially enlarged the problems” for the Hart Companies in tracing historical sources of funds; that problem was a significant one for the Hart Companies and caused them prejudice;[^325]

however that prejudice was not the fault of the Commonwealth; the primary cause of the prejudice was the Hart Companies and their late identification of sources of funds, to which the Commonwealth had responded in a timely way;[^326]

the prejudice to the Commonwealth was that it could not be compensated for the adjournment by an order for costs, because neither the Hart Companies, nor their directors, could afford to pay;[^327] and

additionally, an adjournment for the two months sought would mean finding a new judge to hear the trial, and delay and disruption to the court calendar.[^328]

On a balancing of the factors mentioned above, the learned trial judge dismissed the application to adjourn. In doing so the learned trial judge plainly relied upon, and applied, the principles set out in Aon Risk.

His Honour identified, and weighed in the balance, the competing factors, including the question of the cause of the difficulty, the prejudice to each side, the impact of delay, the point in the proceedings at which the application was made, and the impact on the due administration of justice. It is not correct to say that the Commonwealth’s prejudice was given priority, or that it was “a virtual irrelevance”. The Hart Companies had pleaded a case long before the trial date, and had raised the new sources of funds for the first time in September or October, in affidavits rather than the pleading. There was no challenge to the learned trial judge’s finding that the Commonwealth’s response to those allegations was timely, and raised matters that it was fairly obliged to raise. On that basis there can be no criticism of the finding that the Hart Companies’ prejudice was primarily caused by the Hart Companies themselves. Given that the date for the trial had been set a year ahead, and the application to adjourn was made on the first day set for the trial, the application was very late and would cause disruption, not only to the parties, but to the court and other parties.

The Hart Companies have not been able to show that error of the kind referred to in House tainted the learned trial judge’s exercise of discretion. No wrong principle, mistake about the facts, omission of material consideration, or taking into account irrelevant considerations, has been identified. In the circumstances it cannot be demonstrated that the discretion, to dismiss the application to adjourn, miscarried.

The sequence of findings referred to above, particularly those in paragraphs [390](h)-(k), are also sufficient to demonstrate that the grant of leave to amend in October 2010 is unimpeachable.

The Hart Companies’ challenge on these grounds fail.

Assessment of evidence by reference to the capacity of the Commonwealth to adduce it; ground 22 in 3908/13

This ground of appeal was advanced as relevant to the evidence required to be led in respect of individual assets.

The learned trial judge summarized the contention put at trial, which was essentially the same as was put on appeal:[^329]

“The Companies submit, in effect, that their evidential burden is reduced as:

the Commonwealth is in a better position to know and prove the essential facts relating to the sources of income that the Companies received over the past 25 years. ...

the Commonwealth is better placed to trace the ultimate sources of funds used to acquire, directly or indirectly, any of their assets. ...

because of those features, the amount and quality of evidence required from the Companies to discharge their burden of proof should be lessened so that slender evidence will suffice. For the reasons which follow, I do not make general findings about how much evidence is required as suspicions move further from remote possibilities and closer to probabilities.”

At its simplest the proposition was that: (i) the Hart Companies should not have been criticised for the failure to call various possible witnesses or other documents; and (ii) the evidence they did lead should have been accepted as sufficient to prove that assets were not used in connection with unlawful activity, or derived therefrom; because (iii) the Commonwealth had seized all relevant documents and were in a far superior position to lead evidence as to the sources of funds for assets.[^330]

The Hart Companies submitted that application of the principles in Brauer[^331] impacted on their position in several ways:

it answered any criticism by the Commonwealth that relevant witnesses ought to have been called to explain transactions;[^332]

the learned trial judge should have been satisfied more easily that the Hart Companies had discharged their onus;[^333]

the learned trial judge did not refer to the Commonwealth’s power to examine persons as to what was put forward by the Hart Companies, when assessing the evidence.[^334]

The proposition as ultimately put[^335] is that:

while the court might expect a better level (in terms of amount and quality) of evidence from a fully resourced party who has control of all the documents; and

the court might, therefore, not make a finding in that party’s favour if the expected better level of evidence was not produced; nevertheless

in relation to a party upon whom the onus lies to prove a negative, the court may make that finding with a lesser level of evidence, or even slight or slender evidence, if the circumstances identified in Brauer are present;

those circumstances include: whether one party is in a better position to know and prove the essential facts, whether the other party has the greater means to produce evidence contradicting it, and any difficulty in the person’s capacity to lead suitable evidence to discharge the onus of proof.

That contention was linked to another, which was that criticism for failing to call witnesses in relation to particular issues only has force if there is evidence sufficient for the court to draw inferences in relation to those issues. It’s not enough to simply have some suspicion in relation to some of the allegations.

The Hart Companies relied upon the sequence of events commencing in 1987 or 1988 when the Australian Taxation Office (ATO) conducted audits on Nemesis. The sequence is set out in detail in Reasons [37], but the salient features are:[^336]

1987/1988 – ATO audited Nemesis;

1990-2001 – further audits and copying of records of the Hart Companies, HAL, Harts Consulting Pty Ltd (Consulting) and other Hart companies; as a result the ATO receives significant quantities of documents, including copies of contracts for the purchase and sale of properties;

1993-1995 – Hendon offences;

1995-1999 – Northbourne offences;

September 1996 – the ATO seize financial records of the Hart Companies and other companies in the Hart group;

April 1997 – the ATO asks Mr Hart to provide copious documents for the period 1990 to 1997;

1998-2003 – the UOCL offences;

February 2001 – the ATO seize records from the Hart Companies, and others in the Hart group, including Mr and Mrs Hart; records include banking records, contracts and correspondence;

December 2001 – Perpetual offences;

8 May 2003 – restraining order;

9 May 2003 – the Australian Federal Police take financial records, including banking records, contracts and correspondence, from the work premises of the Hart Companies and others;

February 2004 – exclusion application by the Hart Companies; defended on the basis that Mr Hart was in effective control; and

May 2004 – finding that Mr Hart was in effective control of the assets and Hart Companies.

In addition, the learned trial judge made unchallenged findings that:[^337]

the Commonwealth examined various people, including Mrs Hart, Ms Peterson, Mr Arnot, and a UOCL representative;

over 100,000 documents were seized from UOCL, Merrell, their banks and auditors, all banks with whom the Hart Companies dealt, and other parties; and

because of the execution of search warrants many records were removed from the control of the applicants; further, the passage of time from 1983 means that many records were, at the trial, no longer in the custody, possession or control of the applicants.

Notwithstanding those findings, the learned trial judge expressly did not make a finding that the Commonwealth could have achieved a full tracing of the ultimate source of income for each of the Hart Companies, to see whether it was used directly or indirectly to purchase or acquire any asset.[^338] Then his Honour made a finding that is not challenged on appeal, and is significant for the point under consideration:[^339]

“I accept the opinion of the Commonwealth’s forensic accountant that the operations that Mr Hart conducted through the Hart group and the Companies together with the assistance of UOCL and Merrell were interwoven in such a way as to make it extremely difficult to follow thoroughly even the simplest of transactions. I am not persuaded that the Commonwealth is in a better position to know and prove the essential facts relating to the sources of income that the Companies received over the past 25 years.”

The Hart Companies principally rely on what was said by Thomas J (as he then was) in Brauer. That case concerned the 1987 edition of POCA, and an application to exclude property from a restraining order on the basis that it was not used in connection with drug importation. Thomas J said:[^340]

“All evidence is to be weighed according to the proof which it was in the power of one side to produce, and in the power of the other to have contradicted. That is a maxim expressed by Mansfield C.J. in Blatch v. Archer (1774) 1 Cowp. 63, 65; 98 E.R. 969, 970. But it applies to the weighing process, not to a determination of the burden of proof.

The starting point here depends upon which party has the evidential burden. The amount and quality of evidence required to discharge it may be lessened when it may reasonably be supposed that the adversary is in a better position to know and prove the essential facts: … However, as the learned authors of Cross on Evidence … have observed, this does not mean that the peculiar means of knowledge of one party spares the other of the burden of adducing evidence on the issue, although very slight evidence will often suffice. This is particularly true when a party has the proof of a negative …

…

These are perhaps merely robust examples of the proposition that slender evidence may suffice to satisfy an evidential burden in relation to a negative state of affairs.

The suggestion has been made that where one party bears the burden of proving a negative proposition, and where the other party has the greater means to produce evidence contradicting it, it is enough for the plaintiff to establish “sufficient evidence” (which must be more than a mere scintilla), upon which there is cast upon the other party an evidential burden to advance evidence as to particular matters that could defeat the discharge of that proof …. Such a proposition is hardly novel, and is an application of Purkess v. Crittenden (1965) 114 C.L.R. 164. However it should not be assumed that the Commonwealth is in a superior position to the defendant to lead proof of some connection between the property and illegal activity. The inherent difficulty under s. 48(4)(e)(i) lies in the absence of any joinder of issue upon the use of the property at a specified time or times.

In the end it is plain that there is no evidentiary principle which can convert the initial evidential burden which lies on the defendant into one which lies on the Commonwealth. I am however fortified, by reference to the above cases, in concluding that there is no requirement that a defendant account for every minute of the use of the property from the moment he acquired it, and that where a defendant is able to satisfy a court that he personally is unaware of any unlawful use of that property, and is able to demonstrate its lawful use from time to time in circumstances where it may reasonably be inferred that lawful use continued, a court may be generous in applying the presumption of continuance and in drawing appropriate inferences in favour of the absence of unlawful use. Such presumptions arise in relation to both physical and human conditions, and are commonly found in relation to knowledge, habit, motive, plan or course of business, (cf. Wigmore on Evidence (Chadbourn Revision) paras 437, 2530). There is no reason why they cannot arise in relation to the use of property. All that is needed to surmount the initial evidential burden is a circumstantial case with a sufficient basis for an inference of the continuance of lawful use.”

Whilst Derrington J did not adopt what was said in the passage above, nonetheless he made some observations that are to similar effect:[^341]

“Accordingly, the court will take into account any difficulty which may exist in some cases in the proof of a negative and in other appropriate cases any difficulty in the person’s capacity to lead suitable evidence to discharge his onus of proof.”

The Hart Companies also relied on passages in the judgment of Hunt CJ at CL, in Jeffrey No. 1.[^342] I do not consider they advance the contention, as they are more concerned with the question of the onus of proof rather than the weighing of evidence in the Brauer sense. Further, that point does not seem to have been agitated when the decision was dealt with on appeal in Jeffrey No. 2.[^343]

Reliance was also placed on what was said in Diez.[^344] In my view that does not advance the contention beyond the general principles that can be drawn from Brauer. In Diez the applicant had to deal with allegations concerning the disposal of real property in Columbia and the bringing to Australia of the proceeds, which were said to have gone into real property here. The applicant was serving a period of life imprisonment for drug offences, with a non-parole period of 25 years. The application was brought in circumstances of urgency, which meant that oral evidence was limited, and the hearing proceeded on documents, including many that were in Spanish and the subject of objection. Regard was had to them, applying the principles in Jeffrey No.1.[^345] The nature of the evidence actually adduced was described this way:[^346]

“Detailed and voluminous evidence supporting lawful acquisition and denying derivation from unlawful activity was given both orally and in the affidavits by the applicant and his wife. It was supported by affidavits of members of his family in Australia and Columbia, voluminous financial records in English and Spanish and by the statements of numerous persons who could not be cross-examined because of the limited time and the fact that they were overseas. All of that evidence attempted to cover the whole of the applicant’s and his family’s financial circumstances in detail for many years and it was submitted it showed positively no substantial part of the monies of the applicant had been derived unlawfully. I am satisfied a genuine attempt was made to set out income and expenditure as exhaustively as possible.”

Greg James J, applying the principles in Brauer and Jeffrey No. 1, concluded that he was satisfied that the applicant had met the burden of proof:

“I am satisfied on the balance of probabilities of the source of the sums as referred to therein. Although no concession was made, it was not so much the source that was challenged as the lawful character of the relevant activity from which the money came. Although it was submitted these transactions were at least suspicious, I considered the sworn oral and affidavit evidence and other material tendered sufficiently satisfies the applicant’s burden, applying the principles in Jeffrey (supra) and Brauer (supra).”[^347]

“When I look at the volume and detail of the material supporting the applicant’s evidence of the obtaining of the funds, even if dealing with his contention on the basis that it required detailed corroboration. I consider that he has done the best he could, particularly since I considered that the plaintiff had, with its resources, ample opportunity to examine the applicant and his family under the provisions of the Act, to utilise the other information gathering powers provided by the Act, and to investigate the material provided by the applicant in the affidavits and statements. I had regard to the applicant, confined as he is, seeking to provide material from overseas with limited financial and other resources and that the proof offered was not merely a general assertion but appeared to condescend to such particularity and to provide such proof as best one could expect (See the discussion of such matters by Hunt, CJ. at CL. in Jeffrey (supra) and the Full Court of Queensland in Brauer (supra), particularly in the judgments of Thomas and Derrington, JJ.)”[^348]

What is evident from the passages referred to is that Diez did not elevate the principles expressed in Brauer or Jeffrey No. 1, but merely applied them to a particular set of facts. Those facts are quite removed from the present case.

In my view, whilst the principle is unexceptional its application depends on the circumstances of each particular case. That means that it is not inevitable that slender evidence will satisfy the evidential burden. As was said by Cole JA in Jeffrey No. 2:[^349]

“As it is the appellant whose property has been made the subject of a restraining order pursuant to s 43 who must bring application and persuade the Court that the property the subject of the restraining order “was not used in, or in connection with any unlawful activity and was not derived, directly or indirectly, by any person from any unlawful activity; and the defendant’s interest in the property was lawfully acquired”, the onus of so satisfying the court lies upon the applicant for such a declaration. Satisfying that onus in relation to the matters addressed in s 48(4)(e)(i) but not (ii), involves establishing a negative. Depending upon the circumstances of each particular case, “slender evidence may suffice to satisfy an evidential burden in relation to a negative state of affairs”: Brauer v DPP (1989) 45 A Crim R 109 at 113-114.”

The learned trial judge examined the question of the evidentiary burden at some length, setting out the passage relied upon from Brauer.[^350] His Honour considered that the general propositions from Brauer were applicable to the present case, and concluded that the following propositions could be drawn from them:

“the slenderness of evidence required from an applicant varies with the issue”;[^351]

“the large volume of documentary material in the Commonwealth’s possession and the capacity of the Commonwealth to search for more documents does not inevitably mean the Commonwealth was in a better position than the Companies to lead proof of an issue in this factually complex matter”;[^352]

“A director’s ability to know and reliably say whether assets have been unlawfully used is quite different from a director’s ability to know and reliably say whether a company‘s assets have been derived directly or indirectly by any person from any unlawful activity”; “A director’s evidence about that issue might require much more complex evidence than for an issue about unlawful use of property: for example it might require evidence of all sources of a company’s income for years to determine what sources were used to maintain an asset or to repay interest or capital on a loan for its purchase price”;[^353]

on the question whether any asset was “not derived or realised, directly or indirectly, from any unlawful activity, one cannot assume the Commonwealth was in a better position to know and trace the ultimate source of funds for each of the Companies during the long relevant periods”;[^354] and

it was unhelpful to make general findings about how much evidence is required: (i) “as suspicions move further from remote possibilities and closer to probabilities”; and (ii) “from the Companies where the Commonwealth has much relevant evidence in its possession”.[^355]

In my respectful opinion those conclusions are correct.

The formidable nature of the task facing the Hart Companies, to satisfy the onus placed on them by POCA, was squarely acknowledged by the learned trial judge.[^356] That included the following: the complications which followed from the fact that the Commonwealth had seized, and remained in control of, an enormous number of documents; the Commonwealth’s control of seized documents, and the enormous volume of documents held by the Commonwealth, had made tracing difficult, and potentially more difficult for the Hart Companies than if they (and others in the group) had retained continuous control of their own documents; the limitations as a result of the disclosure process; the identified unlawful activities and sources had multiplied as time went on; the unlawful activity could have generated income many times and over a long period; the Hart Companies had attempted to discharge the evidential burden by trying to trace funds used to indirectly derive an asset, and trying to exclude the possibility that unlawfully derived funds were used to derive an asset.

As to the suggested imbalance between the resources and abilities of the Commonwealth on the one hand, and the Hart Companies on the other, the learned trial judge held:[^357]

“I am not satisfied that the Commonwealth could have done a full tracing with a reasonable allocation of resources to the task. The enormity of the tracing task facing the Companies may or may not have been greater than the task facing the Commonwealth if it had chosen to trace. The Companies had the advantage of the knowledge of Mrs Hart, Ms Petersen and Mr Hart. I am not satisfied that the Commonwealth had an advantage over the Companies for proving essential facts.”

His Honour then referred to the long established principles in Briginshaw v Briginshaw[^358] as to the fact that "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences, when a civil case involves a question whether a crime has been committed. His Honour then said:[^359]

“Where the Companies bear the onus of disproof of fraud or recklessness, it may be that a court can conclude that the onus is satisfied by less exact proofs than would be required to establish fraud or recklessness on the balance of probabilities. Generally, “people are less likely to be fraudulent than to be negligent”. That is the approach I will take when considering the particular issue of whether the Companies have established that there was no dishonest conduct, for example, in the case of the alleged “Perpetual offences” with which I must deal or no reckless conduct in the case of the Hendon and Northbourne arrangements.”

The review above demonstrates that the learned trial judge was seized of the principles that the Hart Companies urged that he apply, and was aware of the factual foundation which made those principles applicable. However several findings tempered the potential application of the principles, particularly:

the operations that Mr Hart conducted through the Hart group and the Hart Companies, together with the assistance of UOCL and Merrell, were interwoven in such a way as to make it extremely difficult to follow thoroughly even the simplest of transactions;

his Honour was not persuaded that the Commonwealth was in a better position to know and prove the essential facts relating to the sources of income that the Hart Companies received over the past 25 years;

the Commonwealth’s control of the enormous quantity of seized documents had only made tracing potentially more difficult for the Hart Companies than if they had retained continuous control of their own documents;

his Honour was not satisfied that the Commonwealth had an advantage over the Hart Companies for proving essential facts;

there was expressly no finding that the Commonwealth could have achieved a full tracing of the ultimate source of income for each of the Hart Companies; and

disclosure had taken place, and the Hart Companies had been at liberty to apply for specific classes of documents to be disclosed.

On appeal there was no real challenge to those findings.

In making the findings referred to above the learned trial judge must be taken to have remembered, and taken into account, the circumstances in which disclosure of the large volume of documents occurred. How could he not, when he was the judge who managed the trial and heard the applications for amendment, adjournment and disclosure? Further, it is important to note that disclosure[^360] took place in the following context:

the trial dates were set on 27 November 2009, for the trial to start in November 2010;[^361]

on 7 June 2010 the Hart Companies served a subpoena to produce documents on the Commonwealth;[^362] generally speaking the documents were those concerned with the Perpetual offences; that was complied with on 15 June 2010;[^363]

in September 2010 Mrs Hart identified in her affidavit, for the first time, that Tinkadale and Astion were sources for funds that went into various assets;[^364]

because of the matters raised by Mrs Hart’s affidavit, on 1 or 2 October 2010 the Commonwealth foreshadowed that it intended to raise the offences based on s 8N of the Taxation Administration Act;[^365]

on 8 October 2010 the Hart Companies filed an application for disclosure;[^366]

on 12 October the Commonwealth was granted leave to amend; the court ordered that the Commonwealth give continuous disclosure relating to the Hendon and Northbourne arrangements, to be completed by 12 November;[^367]

on 27 October 2010 the Commonwealth made the amendments to its pleading;[^368]

Mr Hart was given contacts to arrange inspection times; the Hart Companies were given any document, electronically, upon request;[^369]

The ATO and Australian Federal Police documents were inspected between 4 and 12 November 2010;[^370]

all copies requested were provided in tranches, electronically on disc;[^371] the Hart Companies requested the documents electronically, not in paper form; those tranches were on 4, 10 and 12 November;[^372]

Mr Hart said that disclosure only became necessary when the October 2010 amendments were made: “Up until that stage, it was not necessary … because the applicants were content with the tracing they did on their sources of funds for those periods”;[^373]

Mr Hart said that in relation to any direct payments from Tinkadale or Astion into the Hart Companies, “there’s not much that the applicants needed to trace”;[^374] it was payments from (relevantly) Hendon and Tinkadale that went indirectly to the Hart Companies that Mr Hart said was still an issue on day eight of the trial;[^375] and

Mr Hart did not dispute that, with respect to Tinkadale and Astion, “any financial records of these entities held by the AFP or the ATO were disclosed”.[^376]

What that demonstrates, and particularly by the concessions from Mr Hart in subparagraphs [419](k)-(m) above, is that the contention advanced under this ground only has application, if at all, to assets affected by the Hendon and Northbourne Arrangements, and then only those where findings went against the Hart Companies, namely: North American T-28 aircraft VH-SHT, Sea Fury aircraft VH-SHF, Mercedes Benz car and Samara Street.

Each of the assets affected by this contention has been the subject of consideration elsewhere in these reasons. Having regard to what was said in those sections, for the following reasons the Hart Companies cannot succeed in demonstrating error on the part of the learned trial judge in the application of the Brauer principles.

The Sea Fury aircraft was affected by tainted funds from UOCL and Merrell and the involvement of Watson Benefit Services, not the Hendon or Northbourne Arrangements.

Likewise the North American T-28 VH-SHT was affected by tainted funds from UOCL and Merrell, not the Hendon or Northbourne Arrangements.

The Mercedes car was linked to the Sea Fury, in that the essential finding was that the lender would not have loaned without the security of the Sea Fury. That had nothing to do with the Hendon or Northbourne Arrangements.

Samara Street was affected by the Hendon Arrangement, in that funds came from Astion. Features of the Hendon Arrangement, and the evidence adduced in respect of it and Astion, are:

as for the scheme itself, evidence came in affidavits from Mr Stevens[^377] and Mr Young[^378] (and their oral testimony), as well as from the decision in BRK; the Hart Companies did not contend that the evidence in BRK, together with the evidence relied on by the Commonwealth, misstated the operation of the scheme;[^379]

at the time of the scheme Mr Stevens was a Harts Australia Limited group employee, responsible for managing the scheme;[^380]

Mr Hart was intimately involved in the creation and management of the scheme;[^381]

Mr Hart was a director of Astion and Tinkadale;[^382]

Mr Hart was able to cross-examine Mr Stevens as to the detail of receipts and payments in the scheme, and the books and records;[^383]

as far as Astion was concerned the learned trial judge accepted the propositions put forward by the Hart Companies, namely (i) that the money paid by Astion to the HAL Group would have been paid in June, July and August, and (ii) that Astion would have paid the fees over the two years that the scheme was in place;[^384]

HAL’s statement of cash flows for the 1993 and 1994 years was in evidence;[^385]

Tinkadale’s receipts were in evidence, in Exhibit 11;[^386]

reckless representations were made to the effect that Astion was a beneficiary to whom each distribution was, or could be, properly made; each receipt by Astion of a part payment of a purported distribution from clients was directly related to that representation, because the representation was about the payment’s propriety;[^387]

the learned trial judge was not satisfied that the payments that Astion received as purported distributions were not substantially derived or realised from unlawful activity;[^388]

neither the Commonwealth nor the Hart Companies had done an analysis to show the closeness, or lack of closeness of the connection between the unlawful activity and the payment of rent to Astion;[^389]

the learned trial judge inferred that the distributions to Astion assisted Astion to accumulate the rental payments it received, and therefore the rental payments were indirectly derived from unlawful activity;[^390]

in preparation of evidence for Samara Street Mrs Hart had “traced the purchase of the assets … Miss Petersen, while we helped each other … both with parts, did the servicing of the loans”;[^391]

Mrs Hart was able to depose as to the source of the impugned $45,000 payment in respect of Samara Street;[^392] both the Commonwealth and the Hart Companies agreed that this payment was used to acquire Samara Street, with the balance coming from an ANZ loan;[^393] and

Mrs Hart was able to give detailed evidence of how the ANZ loan repayments were made, and that evidence was accepted by the learned trial judge.[^394]

Thus it can be confidently concluded that there was a deal of evidence from both sides as to the Hendon Arrangement, and Astion’s involvement. The records of Astion’s receipts from distributions was in evidence, and Mr Hart (someone intimately involved in the Hendon Arrangement) was able to cross-examine as to the significance of that cash flow. Since both sides accepted that the $45,000 payment was the only impugned payment in respect of Samara Street, and that it came from Astion, it could only be the product of accumulated distribution income, or rental income. Either way, Astion’s involvement in the Hendon Arrangement was what permitted it to generate both sources of income.

The foregoing demonstrates, in my view, that in so far as Samara Street was concerned, this was not an occasion where the Brauer principles were applicable. That principle depends upon the Commonwealth being in a better position to know the facts and adduce evidence to establish their proof.[^395] In my view, the Hart Companies were not in such a disadvantageous position compared with the Commonwealth that there was room to contend that some sort of slight or slender evidence should have been accepted as discharging the Hart Companies’ evidentiary onus.

In any event, the learned trial judge was clearly aware of the Brauer principles and the Hart Companies’ contentions in that regard. Even though his Honour did not expressly refer to them in the case of each asset dealt with, it cannot be supposed that he failed to take those matters into account.

In their written outline the Hart Companies only raised the Brauer principles in respect of one asset, the Sea Fury. For the reasons above that contention fails. In any event, the Sea Fury was one asset where the Hart Companies were in a superior position to the Commonwealth, being in a better position to know the facts and adduce evidence to establish their proof. Not only did Mrs Hart deal with the cash flows in her evidence,[^396] it was she who detailed the agreement with WBS under which the $1m provided by Nemesis was said to be justified.[^397]

The Hart Companies’ appeal on this ground fails.

Perpetual Nominees Limited offences; indemnities; inducement and reliance; grounds 6-18 of the notice of contention in 4987/13

These grounds arise out of findings by the learned trial judge concerning offences committed when two of the Hart Companies, Yak and Bubbling Springs, arranged finance from Perpetual Nominees Limited (Perpetual).

The learned trial judge’s recitation of the facts found in respect of the offences appears at paragraphs [198] – [236] of the Reasons. Most of those findings are not challenged. For present purposes a shorter summary, set out below in paragraphs [434] to [452], is sufficient.[^398]

The Commonwealth alleged two offences of fraud pursuant to s 408C(l)(f) of the Criminal Code (Qld). In short, each of Yak and Bubbling Springs made fraudulent representations to Perpetual to induce Perpetual to lend to them.

In 2000 Yak took a sublease of land on which it built a hangar (Hangar 400). Yak and Nemesis paid just over $1m for the construction.

Steve Hart Family Holdings Pty Ltd had changed its name to Nemesis. It was trustee for the Steve Hart Family Trust. Nemesis, Bubbling Springs, Yak and Fighters are each trustees of discretionary trusts. Mr Hart was at relevant times listed as a beneficiary of the trusts of which Nemesis and Bubbling Springs are trustees.

Prior to 1 July 2002, Nemesis was the service company for a number of companies in a family group which included Yak and Bubbling Springs. Nemesis would pay the wages for all of the companies in the family group. Each company would pay its own bills, but Nemesis would lend any funds needed if a company's income was insufficient.

On 11 May 2001, the National Australia Bank (NAB):

issued a Notice of Termination of a Bill Facility to Nemesis because of its failure to pay the face value of the bill on its maturity date;

demanded immediate payment of $2.3m and $1.05m;

issued a demand for Nemesis’ commercial bill facility of $1.1m and $2.4m;

issued a notice of default and demand to Nemesis, for $57,752.89 owing on an overdraft account; and

then on 29 May 2001 issued a notice of exercise of power of sale over all the assets of Nemesis in its own capacity and as trustee for the Steve Hart Family Trust, and demanded about $3.6m in 30 days.

Prior to 25 September 2001, Nemesis and Sea Fury Investments Pty Ltd applied to McLaughlin Financial Services (MFS) for loans. On 25 September 2001, MFS advised that it would not proceed with those loans because of “further searches, media coverage and information further revealed”. It seems that the practice of MFS was to consider approval of applications for loans which might then be lent by Perpetual.

There was bad publicity at the time for Harts Australasia Limited (which had announced a consolidated net loss after tax of $92.8 million for the year ended 30 June 2001), and any company obviously connected with it. Harts Australasia Limited was easily perceived to be associated with companies in which Mr Hart’s family had an interest. In an effort to prevent that real or perceived association from adversely affecting companies in which his family had an interest, Mr Hart resigned his directorship of several companies.

Bubbling Springs and Yak knew, by 1 October 2001, that MFS would not be likely to approve loans to companies associated with Mr Hart. On 1 October 2001, Mr Hart resigned as a director of Bubbling Springs, and as a director and secretary of Nemesis.

In about October 2001, Mr and Mrs Hart informed Dr Ambler (a wealthy client) that the NAB wanted all their loans paid out. They asked Dr Ambler if he would be prepared to offer a guarantee to Perpetual so that Yak could secure a loan. Mr Hart informed Dr Ambler that he (Mr Hart) was unable to refinance the debt because of his adverse circumstances, however Perpetual had agreed to refinance the mortgage but they would require a personal guarantee from Dr Ambler.

Dr Ambler agreed, as a friend, to offer his guarantee so long as he was adequately protected against the risk of being called upon pursuant to his guarantee. The learned trial judge held that Mr Hart asked Dr Ambler if he was willing to guarantee a loan on the terms which included that Dr Ambler would become a director of Yak.

Dr Ambler also provided the guarantee for commercial reasons: Mr Hart’s promise of a block of land from a development at Moggill, which Dr Ambler believed was worth $80,000, and a conditional option to buy the hangar sublease.

A Dr Fleming was asked to give a similar guarantee, on a similar basis. Mr Hart also told Dr Fleming that it was the requirement of the proposed mortgagee (Perpetual) that Dr Fleming become a director of Bubbling Springs.

On 23 October 2001 Dr Ambler was appointed as a director of Yak, and Dr Fleming was appointed director of Bubbling Springs. Shortly after, on 1 November 2001, NAB appointed a controller of Nemesis.

Before 3 December 2001, Bubbling Springs had applied to MFS for a loan facility for $1m from Perpetual, and Yak had applied to MFS for a loan facility for $650,000 from Perpetual.

The credit analysis done by MFS, for at least one of the loan applications, noted that the directors of the company were the relevant doctor, Ms Petersen and Mrs Hart, and that the original loan application was declined for various reasons. However it noted that since that time, the director of the company, Mr Hart, was no longer, with the subject “property” now being owned by the “above company and directors”. MFS by their letter of offer required a guarantee from each relevant doctor. A special condition noted in the credit analysis was that MFS would require the “borrower” to sign an acknowledgement that “they are entering into a loan agreement on their own behalf and are not doing so on behalf of Steven Hart or any of his associated companies”.

MFS wrote to Bubbling Springs and to Yak on 3 December 2001 to advise that the loan facility applications were conditionally approved. One condition required in each case was a written representation from the borrower and guarantor.

In response to that condition, Yak, Ms Petersen, Mrs Hart and Dr Ambler signed a document entitled Loan Facility Terms and Conditions which included a representation (the clause 16 representation) that:

“The Borrower and Guarantor represent and acknowledge that they are entering into this agreement of their own volition and are not doing so on behalf of Steven Irvine Hart nor any associated company with which he is associated. Neither Steven Irvine Hart nor any associated company is indemnifying us as to the repayment of the loan. We make this representation acknowledging that the lender is relying upon this representation in approving the loan facility.”

Bubbling Springs, Ms Petersen, Mrs Hart, Nemesis, Mr Arnot and Dr Fleming signed a document entitled Loan Facility Terms and Conditions, which included the same representation.

The documents were signed to induce MFS and Perpetual to approve loans and to lend. The loans applied for by Yak and by Bubbling Springs were approved by MFS. Two amounts of $650,000 were then lent, one to Yak and one to Bubbling Springs, and the borrowed funds were then used to partly repay monies owed to NAB. The documents (and the clause 16 representation) did, in fact, induce Perpetual to approve the loan, and to lend.

On 19 December 2001, Perpetual lent Bubbling Springs $650,000, on the security of Doonan’s Road; and Perpetual lent Yak $650,000, on the security of Hangar 400.

The Commonwealth alleged, in summary, that Yak and Bubbling Springs each respectively induced Perpetual to approve a loan facility to Yak and Bubbling Springs by misrepresenting the true nature of the arrangements between Mr Hart and Dr Ambler and Dr Fleming, and between Mr Hart and Bubbling Springs and Mr Hart and Yak, and that Yak and Bubbling Springs did so by the clause 16 representation.[^399]

Further, the Commonwealth alleged that doctors knew the representations were false because: Yak and Bubbling Springs were under Mr Hart’s effective control; part of the consideration offered by Mr Hart to Dr Ambler, for the doctor’s guarantee to the lender, was an option dated 10 December 2001 to buy the Hangar 400 sublease; and part of the consideration Mr Hart offered to Dr Fleming, in consideration for the doctor’s guarantee to the lender, was an option dated 23 July 2002 to buy a property at Doonan’s Rd.[^400]

The learned trial judge rejected the Hart Companies’ submission that there was no evidence advanced by the Commonwealth that the directors and others realised that what they did was dishonest by the standards of ordinary honest people. His Honour held that there was evidence tending to prove that:[^401]

Mrs Hart, Ms Petersen, the doctors and Mr Hart knew and believed the doctors were being given an indemnity by Yak or Bubbling Springs;

Mrs Hart read the loan documentation;

Ms Petersen and the doctors signed it and should have read it;

the terms included the clause 16 representation;

Mr Hart was in effective control of the Companies including Yak and Bubbling Springs, and in effective control of those companies’ assets in May and December 2003;

Mr Hart was in effective control of Yak and Bubbling Springs and their assets in January 2002; and

Mr Hart was in effective control of Yak and Bubbling Springs and their assets in December 2001.

After discussion of the evidence and competing contentions the learned trial judge held that Mr Hart was in effective control of Yak and Bubbling Springs on 8 January 2002 and in December 2001.[^402] Further, based in part on a concession[^403] by the Hart Companies, the learned trial judge held that Mr Hart was in effective control of Yak and Bubbling Springs, and of their assets, at dates in May and December of 2003.[^404]

Further, because s 102(3)(a) POCA placed the onus upon the Hart Companies to prove the absence of an offence, his Honour’s findings were (mostly) expressed in the form of negatives:[^405]

“I am not satisfied that the Companies have shown that no offence was committed. I am not satisfied that Bubbling and Yak did not each dishonestly represent that it was not entering into the agreement “on behalf of Mr Hart nor any associated company with which he was associated”. I am not satisfied that Bubbling and Yak by Mrs Hart and Ms Petersen, and by Dr Ambler or Dr Fleming did not dishonestly represent that no “associated company” was indemnifying the relevant doctor as to the repayment of the loan. If the representations were dishonestly made, I am satisfied that the dishonesty would have been dishonest by the standards of ordinary honest people and that the maker of the representation would have realised that what he or she represented was dishonest by those standards.”

The Hart Companies raise two primary challenges on these grounds:

firstly, the evidence from Mrs Hart and Ms Peterson should have led to a finding that there was no dishonesty;[^406] in that respect the learned trial judge was wrong to find that there was no evidence of the obtaining of legal advice; further, from the way questions were put to Mrs Hart and Ms Peterson, a finding of no dishonesty should have been drawn;[^407] and

secondly, that Perpetual was not induced by clause 16 to make the loan to Yak or Bubbling Springs;[^408] in this respect the learned trial judge should not have rejected a letter from Mr Hart to Perpetual as inadmissible, and ought to have drawn an adverse inference from the fact that an officer of Perpetual, who had provided an affidavit, was not called.

As to the first point, the Hart Companies referred to the evidence of Mrs Hart and Ms Peterson, the fact that it was not expressly put to either that they were dishonest, and the denial by Ms Peterson that clause 16 was false.

In their supplementary outline[^409] the Hart Companies expanded on the point:

it was said that the learned trial judge had failed to have regard to evidence of Mrs Hart and Ms Peterson where they stated their beliefs about the difficulties about which MFS or Perpetual were concerned, and whether the option agreements constituted indemnities, and denied that there was a false representation;[^410]

the Hart Companies pointed to Mrs Hart’s affidavit dated 23 July 2010[^411] and her oral testimony, where she set out her understanding of the concerns that MFS and Perpetual had in relation to the Hart group of companies; she said it was that the Hart family group of companies may be caught in actions brought by ASIC;[^412] to like effect, it was said, Ms Peterson’s evidence;[^413]

reference was made to Mrs Hart’s affidavit and oral evidence that she believed that Dr Ambler and Dr Fleming were not indemnified;[^414]

reference was made to Ms Peterson’s evidence where she denied any false representation;[^415] and

it was said that the learned trial judge failed to have regard to any of that evidence,[^416] the evidence was credible,[^417] and in light of the failure to challenge it in cross-examination at all, enough to discharge the Hart Companies’ onus.[^418]

There are a number of reasons why, in my view, that contention cannot be accepted. Principal amongst them are two: first, there were adverse findings as to the credit of Mrs Hart and Ms Peterson, in the latter case on the questions of the Perpetual loan itself and effective control by Mr Hart, which means that their evidence did not have to be accepted; secondly, the contention depends on the erroneous assumption that just because the learned trial judge did not refer to some evidence, he did not have regard to it.[^419]

Other reasons appear from the evidence that the learned trial judge accepted, or which was against interest:

the asserted belief that MFS or Perpetual were only concerned about the possibility that the Hart family companies would get caught in the ASIC action, is contrary to the terms of clause 16, which was insisted upon as a term of lending;

it is also contrary to the steps taken in Yak and Bubbling Springs; Mr Hart was asked, by Mr Hart and Ms Peterson, to step down as a director of each company,[^420] which would not have been required if the concern of MFS or perpetual was as constrained as suggested; indeed, Ms Peterson said that MFS and Perpetual themselves asked him to stand down;[^421]

in place of Mr Hart a new director was brought into each company, but neither of them had been involved with the companies before,[^422] and each were friends of Mr and Mrs Hart; Ms Peterson did not approach them to become directors;[^423] Mrs Hart approached Dr Ambler, and Mr Hart approached Dr Fleming;[^424]

the unchallenged findings that Mr Hart was in effective control of Yak and Bubbling Springs in 2001, 2002 and 2003,[^425] mean that the clause 16 representation was false;

the learned trial judge accepted the evidence of Dr Ambler and Dr Fleming when they said that their guarantees were given in return for a block of land and the option to purchase the property;[^426] his Honour held that the options “were intended to provide Dr Ambler and Dr Fleming with some protection or security if their guarantees were called on or were in jeopardy of being called on”,[^427] and the doctors (by then directors) and Mrs Hart and Ms Peterson knew that;[^428] those findings implicitly reject the evidence of Mrs Hart and Ms Peterson to the contrary;

Mrs Hart sat through the cross-examination of Ms Peterson and heard the allegations that the clause 16 representation was false; she understood that the Commonwealth’s allegation was one of false representations under s 408C of the Criminal Code;[^429] given the fact that Ms Peterson’s evidence was on day three, and Mrs Hart’s on day six, there was ample time to respond to the allegation, and no need to confront her in specific terms;[^430]

the case put in the Commonwealth’s pleadings was that the directors of Yak and Bubbling Springs knew the clause 16 representation was false because of Mr Hart’s effective control, and the consideration given for the options that each doctor received for the guarantees;[^431] those matters were established, so that the denials of Mrs Hart and Ms Peterson were able to be rejected;

Ms Peterson’s evidence was that Perpetual was not told of the option agreements;[^432] it is not difficult to infer that was done because it would have revealed the falsity of the clause 16 representation.

As mentioned above one major difficulty faced by the contention is that the findings of fact in this area of dispute were based, at least in part, on an assessment of the credit of each of Mrs Hart and Ms Peterson. Mrs Hart was the subject of adverse findings as to her credit.[^433] Ms Peterson’s evidence was the subject of adverse credit findings, particularly on the topic of whether Mr Hart was in effective control.[^434] The adverse findings against her at Reasons [180] concern the question of the Perpetual loan itself.

Thus to challenge those findings it must be shown that the learned trial judge has palpably misused his advantage in seeing and hearing the witnesses, or has acted on evidence inconsistent with facts incontrovertibly established, or on evidence which is glaringly improbable.[^435]

In their original written outline the Hart Companies referred to the evidence given by Mrs Hart and Ms Peterson, saying that it “was credible and ought to have been accepted”, and that their evidence was not held to be dishonestly given.[^436] In that respect reference was made particularly to those parts of the evidence where Ms Peterson and Mrs Hart gave their understanding of the effect of the option agreement by each doctor, and whether it gave the doctors the right to purchase the relevant property, and at what price.[^437]

This amounts simply to saying the witnesses should have been believed when they weren’t. That approach does nothing to satisfy the tests in the cases such as Abalos. Further it confronts the substantial difficulties identified above.

In my view, the complaint that it was not expressly put to Mrs Hart and Ms Peterson that they were guilt of dishonesty does not take the matter far. At best it might raise a question of whether the cross-examination was unfair because it infringed the rule in Browne v Dunn.[^438] The rule is one of fairness, so that a witness has the chance to dispute or comment upon what the cross-examiner is proposing. The rule is of less importance where pleadings, affidavits or pre-trial preparation, have already made clear that the particular assertion or evidence will be disputed.[^439] Here the Commonwealth specifically pleaded dishonesty in relation to the Perpetual offences, and the trial was conducted on affidavits which addressed the issue. Further, the Hart Companies bore the onus of disproving the offences, and therefore had to deal with them up front and not wait for cross-examination. No question of unfairness arose.

Complaint is also made that the learned trial judge found that there was no evidence of the legal advice obtained by the doctors. This misunderstands the actual finding:[^440]

“The Companies refer to the option agreements having been prepared by lawyers for Dr Fleming and Dr Ambler. There is, however, no evidence about the legal advice that may have been given in relation to the Loan Facility Terms and Conditions. There is no evidence from which it can be inferred that all parties to the Loan Facility Terms and Conditions received legal advice that the representation contained in the special condition was not false or that they relied on that advice.”

The specific nature of the finding is not contradicted by the exhibits to which the Hart Companies refer in their outline.[^441] The paragraphs in Q00064089 (Mrs Hart’s affidavit) do not reveal the giving of advice.[^442] Q00064158 records the solicitor simply saying, as part of a certificate, “I advised the Guarantor before any of the documents were signed”. That is all that is said in the transcript references as well. It says nothing about the advice in the way referred to in paragraph [250] of the Reasons.

As developed orally the Hart Companies’ contentions focussed on the second point only, though it was said by senior counsel that he was “not abandoning the written argument”.[^443] The contention was that the learned trial judge was in error to find that the clause 16 representation was part of the inducement to Perpetual to lend, and did induce that lending. The relevant part of the Reasons are in paragraphs [222]-[227], reflected in paragraphs [440] to [450] above. They record findings that the clause 16 representation was part of the documents “signed to induce … Perpetual to approve loans and to lend”, and that the “representations induced …the approval of the loan facility and the loan”.[^444]

The argument put was that “there was evidence which his Honour either did not accept or was capable of accepting which would’ve justified the conclusion that the advances were not made in reliance upon what was in the warranty”.[^445]

The evidence referred to was:

a letter from MFS to Steve Hart Family Holdings Pty Ltd on 26 September 2001;[^446] shortly put, it asked whether any person who was going to be a party to the proposed loan transactions, was a defendant in the proceedings commenced by ASIC against various companies in the Hart group; it was accepted by senior counsel for the Hart Companies that the letter did not address the guarantee point in terms,[^447] but should be read as indicating that the potential lender was “seeking some assurance and it’s going to be a significant one in terms of whether they approve the loan … or advance it.”;[^448]

an MFS credit analysis[^449] for the Yak loan, noting that the original application for a loan had been declined, and identifying a risk, namely whether the borrower may be taking out the loan on behalf of Mr Hart in order to pay off Mr Hart’s debts; the analysis also noted that Mr Hart was no longer a director;

each of the Yak and Bubbling Springs credit analyses identified the need for a special condition, namely: “The Borrower will need to sign an acknowledgment that they are entering into a loan agreement on their own behalf and are not doing so on behalf of Mr Hart or any of his associated companies”; and

the letter of offer from MFS on 3 December 2001,[^450] which contained an approval “subject to the terms and conditions outlined in this Letter of Offer”; the letter stated that “the approval is not finalised until the making of the advance”; the loan terms and conditions set out in the letter of offer included clause 16.

None of those documents offers evidence that would suggest that the clause 16 representation was other than an important part of what the lender sought in exchange for a finalised approval, and loan. Indeed the letter of offer says so expressly.

Acknowledging the inevitable, namely that the offer was made on the basis that clause 16 would be an assurance given to the lender, the Hart Companies put their contention as:

“… independently of what clause 16 actually says, if it said something different to deal with a concern which … the proposed lender did not have, then clearly the lender was really thinking of it in terms of the assurances it had received to overcome its concerns that Mr Hart was still involved, or that Mr Hart was in fact the borrower to pay out his debts.”[^451]

As the argument progressed it became apparent that the point was even more strained. The Hart Companies accepted that there was no challenge to the findings in paragraph [227] of the Reasons, but sought to draw a distinction between: (a) on the one hand, the documents being signed to induce, and inducing, a loan; this was what was found in [227]; and (b) on the other hand, the particular clause 16 being offered to induce, and inducing, a loan.[^452]

The distinction is illogical given the terms of the letter of offer. Plainly the lender offered an approval on the basis that the terms of clause 16 were given as a binding assurance. Those terms expressly acknowledged that the lender relied on it for the approval itself, and it was to be a term of the loan. Given it was a term expressly listed as a requirement of the approval it cannot be reasonable thought that the lender would lend without it. Particularly is that so, given the sequence of concerns mentioned in the Reasons and in the documents referred to in paragraph [472] above.

The Hart Companies also advanced that the failure to call Mr Stride (from Perpetual) as a witness should have been the subject of an adverse inference of the kind in Jones v Dunkel.[^453] It was said that the failure to call Mr Stride was relevant to whether the learned trial judge could have found that clause 16 was an inducement to Perpetual, and whether Perpetual was induced by it. That submission cannot be accepted for several reasons.

first, the point was not taken below;

secondly, the affidavit formed part of the evidence contained in the Commonwealth’s list of materials at the start of the trial;[^454] Mr Hart had originally signified that he wished to cross-examine all 48 witnesses,[^455] but subsequently reduced that number to 18;[^456] Mr Stride was not one of them; thereafter Mr Stride was not required for cross-examination;

thirdly, it was said that Mr Stride could have been cross-examined about Perpetual’s knowledge of Mr Hart’s involvement in Yak and Bubbling Springs; however, that was an unlikely avenue of cross-examination given: the concerns expressed by MFS about Mr Hart’s involvement; the requirement for the clause 16 assurance; and the resignation of Mr Hart as a director of Yak and Bubbling Springs, a change ostensibly intended to show the reality of non-involvement; and

fourthly, Mr Stride was the Chief Legal Officer of Perpetual; it is entirely unlikely that he would contradict the legal documents constituting the offer to lend.

These matters, in my view, demonstrate that a Jones v Dunkel inference was not likely to have been drawn.

The Hart Companies’ written outline also complained that the learned trial judge ruled as inadmissible, a letter from Mr Hart to Mr Adams of Perpetual, two days after the loan settled.[^457] This point was apparently adhered to in oral submissions. It can be disposed of in short terms. Whilst the paragraph of the affidavit was ruled inadmissible, the letter itself was admitted into evidence as Exhibit 3.[^458] The learned trial judge took it into account.[^459] Notwithstanding its terms the finding was that Perpetual did rely on the terms of the clause 16 representation.[^460] It is not surprising that the letter did not weigh heavily against that finding, as it does not, of itself, signify that Perpetual knew anything of the ongoing involvement of Mr Hart.

In my view the Hart Companies cannot establish that the learned trial judge erred in respect of these grounds. These grounds therefore fail.

Hendon Arrangement; grounds 13 and 14 in 4987/13; ground 18 of the notice of contention in 4987/13

The learned trial judge’s findings as to the Hendon Arrangement appear at [318]-[351] of the Reasons.

The Hendon Arrangement was a tax minimisation (or evasion) scheme developed by Mr Hart and Mr Adcock (Adcock). The facts relating to it appear in the Federal Court judgment in BRK (Bris) Pty Ltd v Commissioner of Taxation.[^461] BRK was one of the decisions listed specifically in the Commonwealth’s list of material to be relied upon at trial.[^462] As the learned trial judge noted, the Hart Companies “did not contend that the reasons in that case, together with other evidence relied upon by the Commonwealth in its submissions, misstated the operation of the scheme”.[^463]

The essential features of how the scheme operated were:[^464]

Westside Commerce Centre Pty Ltd (WCC) was the trustee of the Hendon Unit Trust;

it had accrued losses of about $40m; it was also in default and unable to borrow to complete a real estate development;

Adcock worked for Mr Hart’s firm, Harts Accountants and Auditors;[^465]

the scheme was to be a joint venture between WCC and Hendon Unit Trust;

Mr Hart incorporated Astion Pty Ltd (Astion) and it took over as trustee from WCC, and acquired the real estate development;

clients of Mr Hart would distribute profits to the Hendon Unit Trust, thus reducing their tax liability;

for that purpose Hendon Unit Trust entered into a number of joint ventures with client trusts, and the client trusts would make the profit distributions;

WCC, or Astion once it took over as trustee, would be appointed as a beneficiary of the client trusts;

the object was to take advantage of the WCC tax losses, reduce clients’ tax liabilities, and isolate the income from the secured and general creditors of WCC;

from the income directed to WCC, 12 per cent would be paid to Astion and Tinkadale Pty Ltd (Tinkadale), both companies associated with Harts Accountants and Auditors; if paid, the money would be split 10 per cent to Astion and two per cent to Tinkadale;

under the scheme there were about 52 client trusts, which distributed over $12m to WCC;

thus Astion would have been paid over $1.2m;

the client trustees did not declare appointed income for the 1993, 1994 and 1995 years; and

the clients were eventually assessed to tax and penalty tax on the basis of the recklessness of the tax agent, Harts Australasia Limited (HAL).

At [334] of the Reasons the learned trial judge set out some passages from BRK in which the Federal Court made findings of the intimate involvement of Mr Hart and HAL in the scheme. Those findings were of recklessness in various steps, signified by reference to the lack of care taken:

“…no consideration was given to whether or not the applicant was empowered under the terms of the Trust to make the appointments”;

“There can have been no attempt made to ascertain whether or not WCC was in fact and law beneficially entitled.”;

“Harts failed … to make the necessary investigation to enable it to advise the applicant to take the steps provided for in the proforma documentation and to execute the same”;

“Harts had no basis to rely upon the proforma documentation executed by the applicant in preparing the income tax returns because it knew there was a real risk, in the sense that it was not a fanciful risk, that the resolutions recorded therein may not have been effective”;

“Hart and Robert Adcock, when the income tax returns were prepared and lodged, were indifferent as to whether or not the statements as to the distribution of income contained in the returns were correct”.

Those matters led the learned trial judge to find:[^466]

“[335]The Companies’ submissions did not expressly take issue with the Commonwealth’s argument that there was recklessness in breach of s 8N of the TAA, in relation to the Hendon arrangement. Reference to the matters set out in the BRK (Bris) case above, reveals that, with Hendon, Harts had legal advice that the effectiveness of the clients’ resolutions appointing WCC would depend on the terms of the clients’ trust deeds and whether the terms authorised the appointments. Harts knew that if the terms did not authorise such an appointment, Harts could advise the client how to take steps provided for in proforma documents and execute them so as to make subsequent appointments of income to WCC valid. If the accountants had ensured that the process had been followed, the distributions of income would have been valid. The accountants’ fault was inaction when they were forewarned by lawyers that action by the accountants was required. With respect, the finding of recklessness was based on a strong footing.

[336]There are reasonable grounds to suspect recklessness in breach of s 8N of the TAA in relation to the Hendon arrangement. There are reasonable grounds to regard the net commissions paid by Astion to Steve Hart Family Holdings or Harts Consulting Pty Ltd as derived from unlawful activity.”

At the trial the Commonwealth called Mr Young, an officer of the Australian Taxation Office, who deposed that the participants in the Hendon Arrangement had been assessed to penalty tax on the basis that their tax agent (HAL) was reckless.[^467] Mr Young also deposed to the unsuccessful challenges brought against those assessments.[^468]

It is clear that “reckless” has a meaning that goes beyond mere negligence. In a criminal context where misrepresentations and a guilty mind are involved, it has been said to mean:

“Bearing in mind the approach taken by the High Court to the meaning of the word “reckless” in R v Crabbe (1985) 156 CLR 464; 58 ALR 417, it seems to me it might now be more precisely defined in the context as indifference as to whether a representation is true or false knowing that, more probably than not, it is false.”[^469]

Tuckwood involved a charge of stealing by obtaining goods by recklessly misrepresenting the condition of other goods. Kelly J adopted what was said by the High Court in Pemble v The Queen:

“But it is of paramount significance to observe that recklessness to be relevant involves foresight of or, as it is sometimes said, advertence to, the consequences of the contemplated act and the willingness to run the risk of the likelihood, or even perhaps the possibility, of those consequences maturing into actuality. This aspect of recklessness entails an indifference to a result of which at least the likelihood is foreseen. An awareness of the consequences of the contemplated act is thus essential. This aspect of the branch of the law relating to murder is of importance in reviewing the summing up in the present case. It is the state of the accused's mind in this respect about which the jury must be satisfied to the requisite extent.”[^470]

The conclusion that recklessness was involved was supported by evidence from Mr Stevens, an employee of the Hart group. He deposed that legal advice had been taken in respect of the Hendon Arrangement, but the haste to have the Arrangement in place meant that the advice was not followed.[^471]

There was no substantive challenge to Mr Young’s evidence. No participant in the Hendon Arrangement was called, and Mr Hart did not give any evidence.

The Hart Companies’ challenge – ground 18

As developed orally the Hart Companies’ challenge to the findings in respect of the Hendon Arrangement were: first, the late amendment by the Commonwealth to include that Arrangement in the list of disputed sources should not have been permitted; and secondly, the learned trial judge ought to have found there was no offence in contravention of s 8N of the Taxation Administration Act 1953 (Cth).

The first point does not succeed, for the reasons in paragraphs [377] to [395] above.

The second point as developed turned on the terms of s 8N which provided:

“A person is guilty of an offence if:

the person makes a statement (whether orally, in a document or in any other way) to a taxation officer; and

the statement:is false or misleading in a material particular; oromits any matter or thing without which the statement is misleading in a material particular; and

the person is reckless as to whether the statement:is false or misleading in a material particular; oromits any matter or thing without which the statement is misleading in a material particular.

The contention is that under s 8N the person who makes the statement under subsection (a) must be the same person who is reckless under subsection (c), whereas the case was conducted on the basis that HAL or Mr Hart caused the clients to make the statements to the ATO. In this respect paragraph 9(d)4 of the Commonwealth’s pleading[^472] was referred to. It alleged that “Mr Hart and others committed [the Hendon] offences”, in that “Mr Hart and others recklessly caused statements to be made to a taxation officer…”, and then particularised that by reference to the affidavits of Mr Young and Mr Stevens.

Section 8N must be construed in light of s 8J(9) of the Act, which provides that a reference in Subdivision B[^473] to a “statement made to a taxation officer includes a reference to a statement made to a person other than a taxation officer for a purpose in connection with the operation of a taxation law”. Further, s 8J(10)(c) extends the concept of a statement to include a statement made “in any information furnished to the person”.

That has the effect that an offence under s 8N occurs if “the person makes a statement (whether orally, in a document or in any other way) to a person other than a taxation officer for a purpose in connection with the operation of a taxation law”. In this case that would read that Mr Hart or HAL commit an offence if: (i) they make a statement, in information furnished to clients, for a purpose in connection with the operation of a taxation law; (ii) the statement is false or misleading; and (iii) they are reckless as to whether the statement is false or misleading.

The Hart Companies sought to confine the scope of s 8J(10) by submitting that as a matter of construction it could not be read so widely as to catch what is said by an accountant to a client about the operation of the taxation laws or their own tax affairs. This was said to follow because:

s 8N is in the Taxation Administration Act, which regulates how taxpayers deal with the government in relation to their taxation affairs;

the statement had to be for “a purpose in connection with the operation of a taxation law”[^474]; and

ss (10) reveals that it is concerned with applications, certificates, declarations and the like.[^475]

The submission by the Hart Companies was put that a wide reading of s 8J(9) was not open:[^476]

“…because the intention is to refer to declarations and statements which may not be made directly to a taxation officer but are needed in relation to the operation of the taxation laws. And your Honours can think of a range of ways in which that can occur; declarations in relation to fringe benefits tax, PAYG declarations by employees that they give to their employers in order to meet requirements of those law, declarations into things such as GST and so forth.”

For a number of reasons I do not consider that s 8J(9) should be read as narrowly as that contention would have it.

First, s 8J(9) is a definition section which is designed to give effect to the offence provision in s 8N. The evident purpose of s 8J(9) is to expand the scope of s 8N by providing that statements to persons other than a taxation officer are caught; so it is directed at who a statement can be made to.

Secondly, s 8J(10) deals with a different subject matter, namely the different ways in which an offending statement can be made. Thus it expands the wording of s 8N (“whether orally, in a document or in any other way”) to “orally, in writing, in a data processing device or in any other form”, and then provides for particular ways of making a statement to be included. The first in subsection (a) is the one that the Hart Companies fix on, “application, certificate, declaration, notification or other document”. In that phrase one can accept that the “other document” would be of the type referred to. However, three other categories are included, and subsections (aa) and (b) would add nothing if they were taken to be within the scope of (a). Likewise subsection (c), which expands the way in which a statement can be made, to “any information furnished to the person”.

Thirdly, the fact that s 8J(9) is designed to expand the scope of s 8N, to catch statements made to persons other than a taxation officer, suggests that the statements intended to be caught are not confined to the formal type of document exemplified in s 8J(10)(a), namely application, certificate, declaration or notification.

Fourthly, in so far as s 8J(9) applies to a statement “for a purpose in connection with the operation of a taxation law”, that does not confine the scope of the statement. The phrase “in connection with” has long been held to be one of the widest phrases used to denote a connection between one thing and another. Accepting that the statement has to be for a purpose in connection with a taxation law, the whole purpose of the Hendon Arrangement was to let accumulated tax losses of one trust be accessed by clients, so that they could reduce their tax. Mr Stevens’ evidence was that Mr Hart explained the purpose as being: so client trusts could reduce their tax liability, by taking advantage of accumulated tax losses, and thereby not paying tax on the distributed income. The Hendon Arrangement was promoted by the Hart organisation to clients. Plainly clients were given to understand that if they participated in the Hendon Arrangement the operation of the taxation laws was such that they could reduce their taxation liability. Further, that the pro forma documents to achieve that end were prepared by the Hart organisation, and Adcock (a Hart employee) was given Power of Attorney by the clients to make the agreements.[^477] The only inference one could draw from that evidence is that the things said, and furnished, to clients were for a purpose in connection with the operation of a taxation law.

Fifthly, I do not consider NAB v FCT to be of assistance. It was a case concerning a declaration required to be given by an employee to the employer, for the purposes of fringe benefits tax, and the parties accepted that it came within s 8K of the Taxation Administration Act. It did not explore the possible scope of the definitions otherwise.

The contentions advanced in the Hart Companies’ written outline were different from those advanced orally. First, it was said that the finding of reasonable grounds to suspect an offence under s 8N was impermissibly based on the findings in BRK.[^478] Secondly, that the obvious inference was negligence rather than recklessness.[^479]

The first contention fails because it is evident that the learned trial judge did not rely solely on BRK, but addressed the evidence of Mr Young and Mr Stevens on the point.[^480] Further, there was no challenge to the finding that the Hart Companies “did not contend that the reasons in [BRK], together with other evidence relied upon by the Commonwealth in its submissions, misstated the operation of the scheme”.[^481]

The second point fails also. One must bear in mind that all the learned trial judge was finding was that there reasonable grounds to suspect an offence under s 8N. The Hart Companies’ submissions below did not advance mere negligence as the finding to be made instead of recklessness.[^482] All they said, relevant to this contention, was:

“In the Hendon arrangement, the penalty invoked by the ATO and upheld by the Federal Court of Australia, was for recklessness in accordance with section 226H of the Income Tax Assessment Act ("ITAA"). The Commonwealth has not advanced any evidence in these proceedings of a finding of recklessness in accordance with section 8N of the Taxation Administration Act.”[^483]

That submission justified the finding that the Hart Companies’ submissions “did not expressly take issue with the Commonwealth’s argument that there was recklessness in breach of s 8N of the TAA, in relation to the Hendon arrangement”.[^484] In my view the evidence referred to by the learned trial judge amply supports the conclusion that there were reasonable grounds to conclude that recklessness was involved rather than mere negligence.

The Hart Companies’ challenge to the finding in respect of the Hendon Arrangement fails.

The Commonwealth’s challenge based on the Hendon Arrangement – grounds 13 and 14

According to the notice of appeal in 4987/13 the Commonwealth’s challenge to the finding below is on two bases. First, that it was an error to treat the HAL cash flow for 1993 and 1994 as lawful except for the commissions from Astion, when no evidence was adduced to establish that it was lawful. Secondly, it was an error to find that four specific payments were not derived or realised from unlawful activity, when no evidence was called from Adcock, Tinkadale or Mr Hart. Those payments are:

$100,000 to Tinkadale from Harts Pty Ltd on 21 October 1994;

$50,000 from Tinkadale to Nemesis on 24 October 1994;

$40,000 from Tinkadale to Astion on 8 March 1994; and

$35,000 from Tinkadale to Astion on 25 March 1994.

The Commonwealth’s outline did not address the first point,[^485] nor did it address the third and fourth payments. The oral address did not do so either. I would treat them as not pressed and consequently do not see the need to deal with them.

The first and second payments were concerned with the Akrotech CAP 232 aircraft. That is the subject of separate grounds of appeal, to which I now turn.

Akrotech CAP 232 aircraft; grounds 16 and 17(b) in 4987/13

The learned trial judge’s findings as to the Akrotech CAP 232 (Akrotech), appear at [705]-[719] of the Reasons. Immediately prior to its forfeiture it was owned by Fighters, and subject to the Merrell charge.

Mrs Hart had identified the sources of funds used to acquire the Akrotech, and they appear in a table at Reasons [708]. The total acquisition cost was $244,133.58. Of that, the learned trial judge accepted the evidence of Mrs Hart that $232,579.99 was lent to Fighters by Nemesis, on 1 July 1995. Mrs Hart gave evidence of the details of that loan (which was made by paying sums to various payees) and his Honour held that $230,000 was “paid to derive the plane”.[^486]

Mrs Hart said that the loan funds were paid to Fighters from Nemesis’ operating account, from whatever funds were available on the day of the relevant payment.[^487] She also identified the six nominated sources of the funds used by Nemesis for the loan. The table below sets out the two payments relevant for the purposes of this ground of appeal, namely No 2 for $50,000 and No 3 for $30,000:

No. Date Ref Details Amount

1 21.10.94 - Harts Pty Ltd to Tinkadale $100,000

2 24.10.94 234 Income from Tinkadale – fees received $ 50,000

3 17.02.95 485 Dep – Hannan Nominees – Bal plane purchase $ 30,000

Payments No 2 and No 3 are payments to Nemesis, which Nemesis then used to make the relevant payments to Fighters. The Commonwealth seeks to impugn payment No 2 by reason of its likely source of funds, namely Tinkadale. That is because Tinkadale received those funds from Harts Pty Ltd in the form of payment No 1, which was derived from the Hendon Arrangement.

The learned trial judge made two findings in respect of the payments by Tinkadale and Maurice Hannan (Hannan):

“[712]Tinkadale Pty Ltd was an entity involved in the Hendon Arrangement. It was also the trustee of Mr Adcock’s practice trust. Maurice Hannan Nominees Pty Ltd was a participant in the Hendon and Northbourne arrangements. It was also an income earner. The Commonwealth, consistently, rested on the Companies’ onus and left unexplored the issue of whether these two payments were unlawfully derived. The payment from Tinkadale was not derived from the Hendon arrangement or unlawfully derived.

[713]As for Maurice Hannan Nominees Pty Ltd: the payment was not of a size and was not paid at a date consistent with commissions paid by participants in the Hendon arrangement. It was not tainted.”

No evidence was adduced from Mr Hart as to these payments, nor from Tinkadale, Nemesis, Adcock, nor Hannan or Hannan Nominees Pty Ltd (Hannan Nominees). In short no participant in the Hendon Arrangement gave evidence.

The Commonwealth contends that each of those findings was wrong, and that in the absence of evidence from those identified witnesses (or at least some of them) his Honour should not have been satisfied that the payments were lawful.

The Commonwealth challenged the findings in respect of three payments: (a) $50,000 from Tinkadale to Nemesis; (b) $30,000 from Hannan Nominees to Nemesis; and (c) a further sum of $14,590 revealed in the records.

The $50,000 payment by Tinkadale

The learned trial judge held that the $50,000 payment from Tinkadale was not derived from the Hendon Arrangement and not unlawfully derived.[^488] The Commonwealth’s challenge is that there was no evidence adduced by the Hart Companies that dealt with that payment, particularly from Tinkadale, Hannan, Hannan Nominees or Mr Hart.[^489]

Tinkadale was involved in the Hendon Arrangement.[^490] The Hendon clients distributed income to WCC, and 12 per cent of that income would be paid to Astion and Tinkadale, both companies associated with Harts Accountants and Auditors. The 12 per cent would be split, 10 per cent to Astion and two per cent to Tinkadale.

The payment by Tinkadale to Nemesis was made on 24 October, and on 21 October Harts Pty Ltd had paid $100,000 to Tinkadale. The learned trial judge held that: “the $100,000 Tinkadale received on 21 October 1994 was not from the unlawful activity of the Hendon arrangement and that the payment of $50,000 by Tinkadale to Nemesis on 24 October 1994 was derived from that money and was not unlawfully derived”.[^491]

That finding had a number of reasons behind it:[^492]

Tinkadale may have received income earned from insolvency work done by Adcock who was a registered liquidator;

the timing of the $100,000 payment was not consistent with its being money from Hendon scheme participants, who mainly paid from June to September; the payment was in late October and well out of time;

Tinkadale earned two per cent of fees; the fees it earned can have been no more than about $120,000 for each of the two years (1994 and 1995); the fees were mainly received from June to September;

Ex 11[^493] showed that between 28 June 1993 and 6 September 1993, Tinkadale received about $102,800 in amounts less than $12,000, with the exception of a payment of $20,000 from Astion; there were other and much larger payments, generally inconsistent with amounts from Hendon participants;

between 8 June 1995 and the end of August 1995 the receipts of payments in similarly sized amounts total about $136,000; and

if the $100,000 had been from the Hendon arrangement it would have inflated Tinkadale’s earning from Hendon well beyond the $240,000 maximum to be expected.

The Commonwealth’s attack was based on the absence of evidence from anyone who could attest to the circumstances of the payment, such as any Hendon participant, Astion,[^494] Adcock, Mr Hart or Tinkadale. In the absence of an explanation, it was said, the learned trial judge could not have been satisfied that the payment came from legitimate sources.

The absence of Mr Hart as a witness received some explanation. The terms of the explanation, not in evidence but given in the final submissions[^495] and, it seems, without objection, were:

“The Applicants were informed by Mr Hart that he was advised by his legal advisers not to give evidence in these proceedings on the basis that all of the allegations of unlawful activity alleged by the Respondent involve Mr Hart

Mr Hart has been charged on 4 separate occasions with criminal conduct involving the ATO and ASIC:Due to the above charges Mr Hart has faced 4 criminal trials since 2004, the last of which was permanently stayed by the District Court Brisbane on 5 August 2010;Two of the other three criminal trials, the CDPP eventually entered “Nolle prosequi”;On the other criminal trial, Mr Hart was convicted on 25 May 2005 and sentenced to 7 years imprisonment.

The conduct of unlawful activity involving, Hendon, Northbourne, UOCL and Tinkadale involve alleged fraud against the ATO.

The conduct of unlawful activity involving Perpetual, also involves fraud as defined by s 408C of the Queensland Criminal Code.

The Applicants are aware that Mr Hart also declined to give evidence in the Pecuniary Penalty Application initiated by the CDPP against him in the trial heard in 2009.

The Applicants submit that there was “no utility” in issuing a subpoena to Mr Hart in attempting to force him to give evidence on behalf of the Applicants as his legal advice was to refuse to answer questions, given the propensity of the CDPP to issue criminal charges against him.

Based on all the above, the Applicants submit that no adverse findings should be drawn by this Court in the failure by the Applicants to obtain an affidavit from Mr Hart or having him available for cross-examination as it was outside of their control to do so.”

The learned trial judge accepted that explanation, and inferred, from the refusal to give evidence in the pecuniary penalty proceedings, that Mr Hart would have declined to answer questions again.[^496]

For the following reasons I do not consider that the explanation was sufficient to conclude that Mr Hart could have resisted a subpoena to attend to give evidence, or could have refused to answer all questions in these proceedings:

first, the fact that Mr Hart may have been advised by his lawyers to refuse to give evidence does not mean that he could resist a subpoena;

secondly, where any allegation of offences committed by, or involving, Mr Hart, were of offences for which Mr Hart had already been found guilty, the rules against double jeopardy mean that there could be no reasonable basis to fear incrimination; some conduct had been found to be unlawful in previous civil proceedings,[^497] which would have left open a continuing risk to Mr Hart; however, in respect of the nine convictions on 26 May 2005 for offences of defrauding the Commonwealth in contravention of s 29D of the Crimes Act 1914 (Cth), there could be no further question of jeopardy; the appeals in respect of those convictions had been concluded in 2006;[^498] and

thirdly, while it is true that the topic of the Hendon and Northbourne schemes, and the Perpetual loan, might involve Mr Hart dealing with alleged unlawful conduct on his part, and therefore a basis to resist answering questions on the basis of self-incrimination, the position may well have been different with the actual payments to acquire assets; whilst the UOCL, Nemesis and Merrell payments were accepted to be from tainted funds, and therefore one can see that Mr Hart might resist answering questions, in so far as the Hart Companies sought to establish that there were innocent funds used in the various assets, there could be no ground for Mr Hart to fear giving evidence or answering questions.

However, for present purposes I do not need to reach a final view as to the absence of Mr Hart. Whatever the position with Mr Hart, no such explanation was given in respect of other witnesses, nor was there any evidence that potential witnesses from Tinkadale, Hannan Nominees, Astion,[^499] or Adcock and Hannan themselves, were unavailable or under a similar constraint. There was evidence that Tinkadale was deregistered on 30 December 2001,[^500] and Mr Vincent accepted that Adcock had been a trustee in bankruptcy and an insolvency expert, in 1994.[^501] However that evidence goes nowhere in terms of suggesting that no witnesses could be called to explain the payments.

As can be seen from Reasons [347] the learned trial judge drew heavily on Ex 11,[^502] showing Tinkadale’s receipts, in reaching his conclusion that the $100,000 payment was not tainted. In my view, there are reasons why that document does not necessarily give the strong support suggested:

the exhibit was a document from Tinkadale, but no witness from Tinkadale (especially Adcock) gave evidence about it; that is remarkable given that Tinkadale was trustee of Adcock’s practice trust;

it is correct to say that it shows receipts in the 1993 calendar year totalling $103,000 with the $20,000 from Astion included; but that includes $11,000 from “P Hart” which is unlikely to be a receipt of commission income from the Hendon Arrangement, and four unattributed payments totalling $31,500; deletion of the four attributed non-Hendon payments leaves a total of $60,500 for the period;

the 1994 year lists about $51,700 in the category of payments less than $12,500, which the learned trial judge was focussed on; however, that assumes that they are all Hendon clients; none of them appear on the list in Mr Steven’s affidavit, but it must be acknowledged that he listed only 18 of about 35 Hendon clients;

the 1995 year reveals sub-$12,500 payments totalling $92,405, leaving aside the $100,000 payment from Harts; however, that also assumes that they are all Hendon clients; again none of them appear on the list in Mr Steven’s affidavit, but he listed only 18 of about 35 Hendon clients;

once the totals are adjusted the total across the three years is $204,605; there is some support in that total for the “$240,000 maximum to be expected” as referred to in Reason [347]; further, the conclusion that $240,000 was the “maximum to be expected” was based on Tinkadale’s two per cent of $12m, the amount referred to by Mr Young in his affidavit;[^503] however, Mr Stevens agreed with the proposition put by Mr Hart, that not all Hendon clients paid the 12 per cent as there were other arrangements made;[^504]

however, the spread of Hendon payments ends in September for 1993, June for 1994 and October for 1995; that casts doubt on the conclusion in [347] that the $100,000 payment was “well out of time”, so much that it could not be from Hendon; and

finally, when one has regard to the finding that there was “no evidence to suggest that all participants in the Hendon arrangement paid funds directly to Tinkadale or to Harts Pty Ltd”, that leaves a question mark over the true source of the $100,000 payment from Harts on 21 October; it was accepted that it was that payment that enabled Tinkadale to pay Nemesis.

The Hart Companies submitted that the evidence of Mr Stevens established that the commission payments from Hendon were received in June to August each year.[^505] That lent support to the finding by the learned trial judge that “the fees were mainly received from June to September”.[^506] However, examination of what Mr Stevens said does not lend that unqualified support. When asked when the “funds from tax arrangements” were paid, he said:[^507]

“Normally paid within a couple of weeks of the money being received as it was a tax minimisation arrangement. Those funds were usually received prior to the 30th of June each year, and therefore any payments out with respect to commissions, I think you are referring to, would be paid probably post 30th of June, maybe July, August.

And can I suggest that it wasn’t that, I was meaning – but you’ve answered my next question-----?—Sorry

-----in advance. What I was meaning is that the funds received by HAL would be received in the period mainly June through - sometimes a bit later, but through to August, September?-- Yes, I agree with that.”

That evidence was not that payments would only be received in the June to August period, but “probably” or “mainly” so.

Whilst there are some suspicions that might be entertained about the true source of the $100,000 payment by Harts to Tinkadale, and some residual questions over the absence of any witness to attest to the detail, the question is whether the findings by the learned trial judge were open. In my view, Exhibit 11 revealed that the level of Tinkadale fees from the Hendon scheme was likely in the range of $204,000 which is close to the finding that $240,000 was the “maximum to be expected”. As the learned trial judge said, if the $100,000 was added to that, it would be disproportionate to the anticipated level of likely fees. Those matters lead me to the view that the learned trial judge’s finding on this payment (that the Hart Companies, who bore the onus, had not established that the $100,000 payment had not come from unlawful activity) was open.

The Commonwealth’s appeal on this ground fails.

The $30,000 payment

This payment was by Hannan Nominees on 17 February 1995. Hannan Nominees was a participant in the Hendon and Northbourne Arrangements.[^508]

The learned trial judge relevantly held:[^509]

“Maurice Hannan Nominees Pty Ltd was a participant in the Hendon and Northbourne arrangements. It was also an income earner. The Commonwealth, consistently, rested on the Companies’ onus and left unexplored the issue of whether these two payments were unlawfully derived.

As for Maurice Hannan Nominees Pty Ltd: the payment was not of a size and was not paid at a date consistent with commissions paid by participants in the Hendon arrangement. It was not tainted.”

As to this payment the same criticisms are made by the Commonwealth as are made about the payment from Tinkadale, namely that no witness was called to testify to the innocent provenance of the payment; in particular, no witness from Hannan Nominees was called. It was submitted that the two things relied on by the learned trial judge, size and timing, were not sufficient to discharge the onus on the Hart Companies.

The Hart Companies drew attention to the evidence of Mrs Hart in her affidavit sworn 23 July 2010.[^510] She identified the payment of $30,000 by Hannan Nominees, and a previous payment of $161,422.90 in respect of the sale of two aircraft, and said:

“The two items listed above under item numbers 385 sale of Pitts and Laser for $161,422.90 and Maurice Hannan balance plane purchase of $30,000 both relate to 2 aircraft owned by FF to [sic] some considerable time. The two aircraft VH-SIS and the VH-KGZ was [sic] sold to facilitate the purchase of this aircraft VH-SHI. Mr. Maurice Hannan was the solicitor used in the sale process and the $30,000 detailed above was paid from his trust account at a later date. The balance of $161,422.90 was paid direct at the time of settlement.”

Appendix 37 to that affidavit was a “Bank Statement Entry List” for Nemesis, which showed the payment as “Bal of Plane Purchase”.[^511]

The Hart Companies submit that the question over the $30,000 payment was not raised in evidence with Mrs Hart or Ms Peterson. That may be correct, but the issue concerning the Akrotech source of payments, raised by Mrs Hart in her affidavit of 17 October 2010 was referred to in the Supplementary Report of Mr Vincent, attached to his affidavit dated 21 October 2010.[^512] Further, the question of whether the Hart Companies had discharged the onus on them (justifying s 102 relief) in respect of the Akrotech, and this payment, was raised in the closing submissions of the Commonwealth[^513] and the Hart Companies.[^514]

In my view, the finding that this payment was shown to be from non-tainted funds was open to the learned trial judge:

the source of the $30,000 payment was explained by contemporaneous documentary evidence, not just the memory of Mrs Hart;

the inferences drawn by the learned trial judge from the size and timing of the $30,000 payment were compelling; Hannan Nominees was a client participant in the Hendon and Northbourne Arrangements, not the recipient of commissions, unlike Tinkadale; and

in those circumstances the lack of further explanation from Hannan or Hannan Nominees does not have the same force here as it does for the payment by Tinkadale.

The Commonwealth’s appeal on this ground fails.

Conclusion

The result of the appeals on the grounds concerning the Akrotech aircraft is that the Commonwealth has failed in respect of the $50,000 payment and the $30,000 payment.

Whether the acquisition cost of the Akrotech was $244,133.58 or $232,579.99 (see paragraph [514] above), the fact is that $50,000, or over 20 per cent, of that cost was from tainted funds. In accordance with the conclusions earlier in these reasons that is sufficient to establish that the Akrotech was, within the meaning of s 102, derived from unlawful funds. Relief should have been denied in respect of it.

The US$14,590 payment

This payment represented parts bought for the Akrotech subsequent to the initial acquisition.

At Reasons [715] the learned trial judge said, referring to the amount expended on the parts: “The maximum cost was about US$14,590”. It is accepted that by doing so his Honour incorrectly categorised the payment. The maximum cost was not US$14,590, as that was simply one payment.

The learned trial judge dismissed the contention that the incorporation of parts derived from tainted funds had the effect that the aircraft was derived from tainted funds:[^515]

“$200,000 repaid to Arnot on 28 August 2003 in reduction of the loan from Arnot of $300,000 was substantially from tainted funds. I am satisfied that the parts derived for US$14,590 were incorporated into the plane and that the parts were not initially derived from tainted funds but by virtue of a loan repayment to Mr Arnot became partly derived from unlawful activity. As the parts represent about 5% of the funds used to derive the plane and as the parts became tainted to the extent of about two thirds of their acquisition cost, I am satisfied that they do not result in the plane being substantially derived from unlawful activity.”

As can be seen the finding was based on the erroneous finding that the US$14,590 was the total of the cost of the parts, and therefore it was not a substantial part of the acquisition cost or derivation cost of the aircraft.

Ultimately there was no challenge from the Hart Companies to the finding that the $200,000 repayment of the Arnot loan was from tainted funds. What was in issue was whether there were any repairs, for US$14,590 or otherwise, and whether that made any material difference to the question whether the Akrotech had been derived from unlawful activity.

The US$14,590 was for a replacement propeller on the Akrotech.[^516] The email exchange shows that a replacement propeller was purchased, and the Hart Companies pointed to the evidence of Mrs Hart, supported by contemporaneous documents, that showed the propeller was purchased for $13,908.78.[^517]

Whilst there was evidence which would have justified finding that the cost was on repairs, and a debate as to whether that meant the Akrotech was derived from unlawful activity, resolution of those issues is unnecessary. The total cost of this item was US$14,590. As against the acquisition cost of $244,133.58, or even the alternate sum of $232,579.99, the propeller contributed only a slight amount, namely something about six per cent of the overall cost. Consequently I would uphold the learned trial judge’s finding in respect of this element.

Northbourne Arrangement; ground 15 in 4987/13

The learned trial judge dealt with the Northbourne Arrangement (Northbourne) at Reasons [352]-[368]. The ultimate finding was that the Hart Companies had discharged their onus in satisfying the court that the arrangement did not involve an offence. The key to that finding was that the element of recklessness, that was at the heart of the Hendon Arrangement, was absent in Northbourne.

The Commonwealth’s challenge was that: (i) a proper analysis of the reasoning would lead to the opposite conclusion to that reached by the learned trial judge; and (ii) where evidence was scant (owing largely to Mr Hart’s failure to give evidence), the only finding open was that the onus had not been met.[^518]

Northbourne had a deal of similarity to Hendon, in terms of the structure of the arrangement. The learned trial judge accepted the following explanation of the scheme:[^519]

Northbourne Holdings Unit Trust (Northbourne Trust) was established in 1989 for the purpose of acquiring and redeveloping real property;

No 22 Pitt Street Pty Ltd was the Trustee;

the investment was unsuccessful and Northbourne Trust incurred substantial losses;

in or about 1995 Harts Consulting Pty Ltd acquired units in Northbourne Trust, and the shares issued in No 2 Pitt Street, for the purpose of getting access to approximately $13.5 million in accumulated losses; Northbourne Trust had no value at that time except for any value of tax losses;

from about March 1995 Harts Consulting controlled No 22 Pitt Street;

in the 1995 to 1999 tax years Harts Consulting promoted a scheme whereby trustees of family trusts were invited to acquire units in Northbourne Trust on the basis of one unit for each $1,000 of net income of the family trust appointed to Northbourne Trust;

under the scheme it was essential that the trustees nominated Northbourne Trust as a General Beneficiary of the family trusts;

fees at 12 per cent were payable to Harts Consulting;

there was no intention that the family trusts would be required to repay the acknowledged debts, being the unpaid distributions in favour of Northbourne Trust;

Northbourne Trust had limited recourse;

most appointments of Northbourne Trust as a General Beneficiary were not valid;

Northbourne purported to enter into contracts for the purpose of the Biralee Shopping Centre in stages between July 1996 and December 1997;

client trustees participated in the Biralee investment; the attraction for client trustees was that income tax payments would be deferred for 10 years, and there was a prospect of some return on the Biralee investment, though not for 10 years; however, the decision of client trustees to invest was unlikely to have been made independently from the decision to appoint income to Northbourne Trust;

73 trustees participated in the scheme; distributions totalling $14,112,476 were made to Northbourne Trust;

Harts Consulting would have received fees of $1,693,497.12;

the Administrative Appeals Tribunal was satisfied that the avoidance of tax was due to evasion; when considering the penalty the Tribunal drew a distinction between the conduct of the beneficiaries and the conduct of the trustee; the Tribunal was unable to come to a fair view of the conduct of Mr Hart (and Harts Consulting) in the context of his clients’ financial affairs on the one hand and his clients’ income tax affairs on the other hand; and

for this reason, the Tribunal could not be satisfied that there was relevant conduct which could be described as reckless; however, the Tribunal was satisfied that there was a lack of reasonable care by both the beneficiaries and the tax agent in relation to the beneficiaries’ income tax returns.

The learned trial judge distinguished the error in Hendon from that in Northbourne. For that purpose he relied on the description of the error in Northbourne, as revealed in the decision in Capershaw.[^520] It was that the accountant adviser had simply made a mistake as to the interpretation of the relevant trust deed, and in particular who came within the definition of “beneficiary”.[^521] By contrast there were findings in relation to Hendon that were of recklessness: see paragraphs [482] to [508] above. The learned trial judge also noted[^522] that the AAT made identical findings falling short of recklessness, in Maurice Hannan Nominees.[^523]

The Commonwealth submitted on the appeal, as it did below, that a failure to find recklessness is not the equivalent of a finding of no recklessness. Accepting that to be so, the learned trial judge held:[^524]

“It is for the Companies to persuade me that there was no recklessness amounting to an offence against s 8N of the TAA in respect of this arrangement about 15 years ago. Where there is such scant evidence I am informed by the observations extracted in these reasons from Briginshaw. Just as people are less likely to be fraudulent than negligent, people are less likely to be reckless than negligent. The Companies have satisfied their onus. I proceed as if the funds realised from the Northbourne arrangement were not unlawfully derived.”

The Commonwealth contended that in making that finding the learned trial judge impermissibly interposed an assumption about behaviour in place of evidence, and by doing so, did not properly weigh the fact that the Hart Companies bore the onus and led no evidence to substantiate a finding of no recklessness.

The Commonwealth relied upon what the High Court said in Henderson v State of Queensland.[^525] There the issue was s 68(2)(b) of the Criminal Proceeds Confiscation Act 2002 (Qld), which provided that Court “must, and may only, make an exclusion order if it is satisfied …(b) it is more probable than not that the property to which the application relates is not illegally acquired property.”

In Henderson the appellant had engaged in a serious crime related activity within the meaning of the Criminal Proceeds Confiscation Act within a period of six years before the application for a forfeiture order. The money the subject of the order was found in the appellant’s possession. The money was the proceeds of the sale of jewellery given to the appellant for the benefit of the appellant and his siblings by their now deceased father. At issue was the provenance of jewellery.

The Criminal Proceeds Confiscation Act has many similarities to POCA:

the Supreme Court must make a forfeiture order if it finds it more probable than not that the prescribed respondent engaged in a serious crime related activity during a six year period prior to the application;

there is a discretion to refuse, on public interest grounds, to make the order;

a doubt as to whether a person engaged in a serious crime related activity does not suffice to avoid a finding on which a forfeiture order may be made;

on the making of the order the property the subject of the order is forfeited to the State and vests absolutely in the State;

application for an exclusion order in relation to property the subject of a forfeiture application may be made by the prescribed respondent;

pursuant to s 68(2)(b), the order cannot be made unless the Court is satisfied that “it is more probable than not that the property to which the application relates is not illegally acquired property”;

the effect of an exclusion order is to exclude the applicant’s property from the forfeiture application; the property is also freed from the effect of the restraining order otherwise applicable to it.

The Commonwealth relied on several passages in the reasons in Henderson for the proposition that assumptions cannot be used in place of proper discharge of the onus:

“In order to discharge the burden imposed by s 68(2)(b) it was necessary for the appellant to satisfy the Supreme Court that it was more probable than not that the jewellery was not illegally acquired in his father’s hands at the time that the appellant received it. The placement of the burden of proof is uncompromising and unable to be ameliorated by any “conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct”. On the facts found by the primary judge, there was no available hypothesis to explain how the appellant’s father acquired the jewellery. The appellant failed to discharge the onus placed upon him.”[^526]

and

“Moreover, it is wrong to approach the determination of an exclusion application under the Act upon a presumption that individuals ordinarily do not engage in criminal activity. Such a presumption is inconsistent with the allocation of the burden of proof in s 68(2) of the Act.”[^527]

and

“The burden of proof that the jewellery was not illegally acquired property was squarely upon Mr Henderson: it was not discharged. The burden cast upon Mr Henderson by s 68(2)(b) cannot be reduced or overcome by some general presumption of lawful behaviour. That would be inconsistent with the statutory allocation of the burden of proof; indeed, a presumption of lawful behaviour has little place in the context of a statute which operates upon proof that the respondent has been found to have been a person who has engaged in serious criminal activity, and without the need for proof that the respondent acquired property by his or her own illegal activities.”[^528]

In my view, there is force in the Commonwealth’s contention. There was no evidence led from anyone involved in Northbourne, with the exception of Mr Stevens who occupied an administrative type of role, described as “the collation of proforma documents and day to day management issues”.[^529] Other witnesses may well have been called. For example, Mr Hannan had given evidence about Northbourne before the AAT in Maurice Hannan Nomninees, and Mr and Mrs Bradley had done so in Capershaw. Therefore they were unlikely to try to avoid answers on the basis of self-incrimination if called in this case.

Mr Hart did not give evidence, and, given the criminal conduct at the heart of Northbourne, it was likely that he would have objected to answering on the grounds of self-incrimination. For that reason an adverse inference could not be drawn against him in respect of his failure to give evidence on this aspect of the case. However, that did not prevent him from cross-examining Mr Stevens, and tendering documents into evidence.

The critical feature of Northbourne was the requirement to appoint the Northbourne Trust as a beneficiary under the family trust deeds. Because the family trusts acquired units in Northbourne Trust they had the right, if Northbourne Trust was a beneficiary under the family trust deed, to distribute income to Northbourne Trust. Therefore under the scheme it was essential that the client trustees nominated Northbourne Trust as a beneficiary under the “General Beneficiary” clause of the family trusts.

Mr Stevens referred to the fact that his role in Northbourne included the collation of “proforma documents” used in Northbourne.[^530] The pro-forma documents included the forms to nominate Northbourne as a general beneficiary under the family trusts.

Mr Stevens deposed that: “No separate legal advice was taken prior to the Northboume arrangement being implemented”.[^531] It seems there was some doubt as to whether that was true. In fact Mr Hart put it expressly to Mr Stevens that legal advice had been obtained from Cleary Hoare in respect to Northbourne.[^532] Mr Stevens said that he was not aware of such advice, but did not deny it had been given.

Ultimately no evidence was led of the seeking or receipt of legal advice as to any aspect of Northbourne, but in particular the efficacy of Northbourne and the pro-forma documents.

It was, in my view, astonishing that Mr Hart, and the relevant Hart Companies involved in Northbourne, did not seek legal advice in respect of Northbourne. That is what occurred in Hendon, with advice coming from Cleary Hoare. Northbourne came later in time, and the terms of Mr Stevens’ evidence, that no “separate legal advice was taken”[^533] prior to Northbourne being implemented, left open the inference that the Hendon advice was relied on as applicable to Northbourne.

In my view it does not matter whether the Hendon advice was relied on, or whether no specific advice as to Northbourne was sought. Either course was reckless given the size of the scheme,[^534] and the critical feature required to make it efficacious.[^535] The recklessness is demonstrated by these facts:

Mr Hart had modified the structure of the Hendon scheme to produce the Northbourne structure; he told Mr Stevens that Northbourne “… was similar in nature to the Hendon Unit Trust investments that had been undertaken in 1993 and 1994, however he had amended the structure and the investment structure was much simpler, as it did not involve joint venture agreements and the like”;[^536]

legal advice was sought for Hendon, and the solicitors developed a set of pro-forma documents for use in the scheme; no legal advice was sought for Northbourne;

the deficiency in the arrangements in Hendon was that the trustee of the Hendon Trust had not been properly appointed as a beneficiary of the various client trusts, and was therefore not presently entitled to the appointed income;

the deficiency in Northbourne was that Northbourne Trust did not come within the definition of General Beneficiary in the client trustees’ deeds, so the appointment was ineffective;

legal advice identified the way to proceed lawfully in Hendon, but the advice was not followed;

no legal advice was sought as to the way to proceed lawfully in Northbourne;

without any advice, as part of the scheme the clients were given pro-forma documents under which Northbourne Trust was to be appointed as a General Beneficiary of the client family trusts;

as part of the scheme the beneficiaries and trustees of the family trusts were told to lodge tax returns on the basis that the appointment of Northbourne Trust was effective, and that the income was distributed accordingly; and

the tax returns would be false if the appointment of Northbourne Trust was ineffective, or if the income distribution was incorrect.

I have earlier referred to the authorities that establish that recklessness involves more than negligence, and an element that can be described as indifference to the result of a likelihood that is foreseen: paragraphs [487] to [488] above. Here it is not hard to conclude that if a taxation evasion or minimisation scheme was promulgated without specific advice on its efficacy, a foreseeable likelihood is that it would run contrary of the complex taxation laws.

The offence in respect of the Northbourne Arrangement contained the element of indifference, where Mr Hart evidently recognised that legal advice was important to the proper structuring and operation of the Hendon Arrangement, and went to the trouble and expense of getting that advice, but did not do so in respect of the Northbourne Arrangement.

The learned trial judge found that the element of recklessness was missing. A central part of that reasoning was his Honour’s characterisation of the error leading to the ineffective appointment:[^537]

“The accounting adviser’s error appears to have been a failure to interpret the definition in the client’s trust deed as revealing that the client trustee’s power to appoint a new beneficiary did not extend to a power to appoint No 2 Pitt Street Pty Ltd in its capacity as trustee of the Northbourne Holdings Unit Trust as a beneficiary of the client’s family trust. There is no indication from the reasons that the accountant advisers were forewarned by lawyers that the deed should be interpreted with this limitation. There is no indication in the reasons that the lawyers warned that there were procedural matters to comply with. A misinterpretation of the deed could have been negligent rather than reckless.”

In my respectful view, that analysis misses the real point, which is that those propounding the scheme took no advice at all, in circumstances where they should have, and had done so before. In my view to propound the scheme in those circumstances was beyond being merely negligent in the interpretation of the trust deed. It was reckless on the part of Mr Hart and Harts Consulting.

There are two reasons why the fact that a contrary view was reached in Capershaw and Maurice Hannan Nominees does not alter matters.

First, one reason for the contrary view might lie in the submission as to what constituted the recklessness in those cases. It was that “Mr Hart was reckless as to the tax consequences of the scheme”.[^538]

Secondly, the tribunals concluded:[^539]

that each of the beneficiaries of client trusts had failed to disclose their true income, because of the purported appointment of income to Northbourne Trust;

in doing so they were guilty of tax evasion, not just tax avoidance;

that evasion occurred because of the client trustee’s “appointment of net income to Northbourne in the 1995 year of income but with the evident intent that the said net income not be paid to Northbourne”; and

in so finding, they used the term “evasion” as meaning “more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information”.

In other words, the actual finding was of conduct beyond mere negligence on the part of the client trustees. However, when the issue of recklessness arose it was in the context of recklessness on the part of the beneficiaries or Mr Hart as tax agent for the trustees.

That led to the limitations on the findings by the tribunal, revealed in this passage:[^540]

“While the conduct of the tax agent may be relevant we are unable in these cases to come to a fair view of the conduct of Mr Hart and his organisation. In particular, we are unable to come to any view as to the conduct of Mr Hart in the context of his clients’ financial affairs on the one hand and his clients’ income tax affairs on the other hand. We are therefore unable to be satisfied that there was relevant conduct that could be described as reckless in the terms of section 226H.”

In my respectful view, the learned trial judge’s benign view of the conduct cannot be sustained. On the facts available, and particularly the failure to take legal advice and act on it, the only appropriate finding was that recklessness was involved. To put it in the form of negative findings compelled by the Hart Companies’ bearing the onus, the learned trial judge should have found that he could not be satisfied that an offence had not been committed in respect of the Northbourne Arrangement.

I accept the submission that the learned trial judge’s assumption as to negligence was effectively substituted for the proper discharge of the onus on the Hart Companies. To paraphrase what was said in Henderson, the onus was reduced or overcome by some general presumption of negligent behaviour.

The Commonwealth’s appeal on this ground succeeds.

Grounds of appeal concerning individual assets

L39C Albatross aircraft, VH-SIC; ground 17(a) in 4987/13

This aircraft, an L-39C Albatross, VH-SIC, (the L39) was owned by Fighters prior to its forfeiture. As such it was subject to the Merrell charge.

The learned trial judge’s finding in respect of the L39 are at Reasons [639]-[704]. The ultimate finding was:[^541]

“Despite the use of Nemesis funds, I am satisfied that they were not substantially tainted during the period it used the NAB facility (for reasons above). I am satisfied the L39 was not substantially derived from tainted funds and was not substantially derived from unlawful activity.”

The Commonwealth challenges the finding on the basis that the evidence was inconsistent and unclear, and no evidence was led from any person directly involved in the acquisition of the L39, specifically Mr Hart, Mr Arnot or Mr Goode.[^542] Further, at trial the Commonwealth not only pursued those two points, but also identified the curious or suspicious nature of the dealings between Mr Goode and UOCL. That aspect was referred to by the learned trial judge:[^543]

“The Commonwealth submits there is insufficient information provided by Fighters to explain the ultimate source of funds used to acquire the property. There were some curious payments at the time of this acquisition. An example was the apparent payment of the purchase price ($418,000) by the plane’s vendor (Mr Goode) to UOCL. Another was the apparent account statement from Mr Arnot to Fighters suggesting more funds were payable after the last instalment of $65,000 was paid. The Commonwealth helpfully drew my attention in written submissions to some of the curious parts of the evidence relating to the L39. There was no submission from either side as to why the monies were paid.”

In order to follow the payments, and the learned trial judge’s analysis of them, it is necessary to know the named participants in the purchase events:

Fighters, which purchased the plane;[^544]

Mr Goode, who sold the plane to Fighters; he used the name Sukhoi Technologies;

Unlimited Aero Maintenance Pty Ltd, a company in the Hart group which changed its name to Flying Fighters Maintenance and Restoration Pty Ltd (FFMR); and

Ultimate Aerobatics Pty Ltd, Mr Arnot’s company (Aerobatics).

The Commonwealth’s case identified five payments as being related to the purchase of the L39, totalling US$255,000:[^545]

No. Date Payer Payee Amount

1 06.03.00 Aerobatics Goode - Sukhoi Tech $55,644 (US$33,560)

2 07.03.00 Aerobatics Goode - Sukhoi Tech $166,687 (US$100,530)

3 30.03.00 Aerobatics Goode - Sukhoi Tech $56,242 (US$33,953)

4 10.04.00 Fighters[^546] Goode - Sukhoi Tech $39,194 (US$23,207)

5 17.07.00 FFMR[^547] Goode - Sukhoi Tech $110,123 (US$63,750)

Payments 4 and 5 were uncontroversial in the sense that Mr Vincent and Mrs Hart agreed upon the sources of the funds. No 4 was borrowed from the NAB, by Fighters overdrawing its account. The account was restored to credit the next day, by Nemesis using its other NAB facility. No 5 was withdrawn from a bank account by Fighters, with Nemesis depositing $109,000 to offset it. As a result Nemesis went further into overdraft, but that overdraft was restored to credit a week later, using the proceeds of sale of shares in HAL, when HAL listed.[^548]

Payment 5 also responded to a fax from Mr Arnot to Ms Peterson, requesting the “final payment” for the L39 to be made to Mr Goode’s account.[^549]

On the final payment being made, Mr Arnot’s company, Aerobatics, had paid US$168,043 of the total price of US$255,000. That is the inference drawn by the learned trial judge.[^550]

Ms Peterson’s evidence was that Fighters could not pay Mr Goode for the L39, so Aerobatics did so on Fighter’s behalf, by way of a loan to Fighters.[^551]

On 1 August 2000, Aerobatics sent Mr Hart a letter giving a breakdown of what Aerobatics was owed, namely AU$279,120.40. Ms Peterson said that she believed that this was Fighters’ loan from Mr Arnot.[^552]

In late September and early October 2000 there were “anomalous”[^553] transactions that are at the heart of the debate on this ground of appeal:

28 September: $418,000 was withdrawn from UOCL’s account;[^554]

28 September: Ms Peterson gave Mr Arnot the UOCL bank account details, to pass on to Mr Goode; the fax contained Mr Hart’s handwritten notation “AU$418,000” and Ms Peterson’s handwritten words “where and when”;[^555]

28 September: Aerobatics (now Fighters) transferred $418,000 to Mr Goode; Ms Peterson arranged the transfer;[^556]

29 September: $418,000 was deposited to Geoff Klooger Trust Account, in the name of Merrell; Ms Peterson said that Mr Arnot had borrowed the money from Merrell;[^557]

3 October: Mr Arnot sent a fax to Ms Peterson, attaching a copy of the invoice for the L39, in the sum of US$255,000 (AUD$418,000);[^558]

3 October: Mr Goode deposited $418,000 to UOCL’s account;[^559] Ms Peterson could not explain why this occurred; and

4 October: UOCL received $417,902[^560] from Mr Goode.[^561]

The learned trial judge described transmission of the $418,000 sums from Hong Kong to Australia on 3 October and England to Hong Kong, as “suspicious”.[^562]

The Commonwealth’s final list of material at the start of the trial[^563] included those materials to be relied upon under the order dated 24 November 2010. That order was that leave be granted to the Commonwealth, under UCPR r 395, to rely on the “transcript of proceedings, affidavits read and any exhibits tendered in evidence” at certain previous hearings.[^564]

The list of material included the transcript of the hearing before Brabazon DCJ in 2004. That included the evidence of Mr Arnot,[^565] part of which touched on the L39. Mr Arnot explained the transactions this way:[^566]

he was owed money by Unlimited Aerobatics;

the $418,000 that went to Mr Goode on 28 September was part of the money that was owed to him by Unlimited Aerobatics; he was owed over $627,000, not just for the L39, but other parts and transactions;

the $418,000 that went into the Geoff Klooger trust account on 28 September was a temporary loan to him from Merrell, to allow him to pay out a mortgage and some other creditors; that loan had been organised weeks before 28 September; and

however, the two sums of $418,000 were “not completely unrelated” or “not unassociated”.

Mr Arnot’s evidence was, therefore, that the two payments were related. The relationship between them was difficult to discern on the face of the documents. For that reason he was questioned about them before Brabazon DCJ. Relevant portions of his evidence are:

he loaned Fighters $418,000 to buy the L39, and that loan was repaid “When the loan to Merrells was paid out”;[^567]

the L39 was “bought by Flying Fighters … and funded by Merrells”;[^568]

the $418,000 that went to Mr Goode on 28 September was: “moneys that was owed to me. A part of moneys that was owed to me by Unlimited Aerobatics, and if you recall, previously we discussed moneys that was loaned to me from Merrell. That was part of that money”;[^569]

when asked whether it was for “the money that you put in to the purchase of the L39?”, he answered, “That was part of it, yes”;[^570] “the way I believe it was repayment of moneys that I’d loaned to Unlimited Aerobatics prior to this”;[^571]

the $418,000 paid to Mr Goode on 28 September was transferred for this reason: “the reason it went there was virtually to balance the books with Richard [Goode] and it was sent straight on I believe the same day or the next day to - to Merrells in Hong Kong”;[^572]

he then said it was correct that “on the 28th of September, you were paid, by what became, Flying Fighters, for the purchase of the L39, or the money which you put into the L39”;[^573]

the $418,000 that went into Geoff Klooger’s trust account on 28 September was from Merrell, and its explanation was that: “we’d organised a temporary loan to pay out the mortgage I had on my property, and to pay, as you can see, a couple of other debtors - or creditors, whatever you call them at times”;[^574] he had “an agreement with the National Bank to pay out the loan on a certain date, and the moneys were supposed to have been repaid to me prior to that date by Flying Fighters. That did not happen and so a loan with Merrell was arranged”;[^575]

the loan to Mr Arnot had been “organised weeks and weeks prior to” 28 September;[^576]

the mortgage being paid out was over Mr Arnot’s house at 655 Haven Road, Brookfield;[^577]

part of the $418,000 loan from Merrell was paid to Unlimited Aerobatics, namely $50,807; that was paid to Unlimited Aerobatics because it had lent the money initially for the L39;[^578]

the loan from Merrell was paid out soon thereafter: “it was paid from Richard Goode, yes. It’s been paid out. It was paid out about a week later”; but Mr Arnot could not produce any documentation showing that;[^579]

when asked why Mr Goode paid out his (Mr Arnot’s) loan from Merrell, Mr Arnot said:[^580]

“I - I don’t understand at that particular time - I haven’t sat here and studied it and – and tried to recall what actually happened. I know that money went through Richard Goode, it was to balance the books in some particular way, I don’t know. The money was then - he was notified that it was sent there incorrectly or something had happened and he was notified and money was on sent to - to Merrell’s”;

Mr Arnot was asked about the fact that the $418,000 paid to Mr Goode did a round robin; he said:[^581]

“But at least what you can tell us is this; Goode was sent $418,000 on the 28th of September. You know nothing about it. Is that correct? - I don’t know particularly why that it went there. Why it did that so-called round robin.

All right. You don’t know why it went there. You had no contact with Goode about sending $418,000 to him? -- Only that he contacted me and said, “Wha’s this money doing here? What’s it for?” And I said - I then spoke to - to Shirley. I - I - and I think there’s actually correspondence in relation to this, and the money was on sent to Merrell’s. They were given the bank account of Merrell’s to send it to in Hong Kong”.

Mr Arnot said that the $418,000 that went into Geoff Klooger’s trust account and the $418,000 related to the L39 were “not unassociated” and “not completely unrelated”;[^582] in light of his evidence above he explained those comments in this passage:[^583]

“Well then, we have $418,000 coming from Merrell. That must then be entirely unconnected with the $418,000 that went to Richard Goode that he had to on send to Merrell, mustn’t it?-- Not at all.

But it must be-----?-- Not the way I see it, no.

It must be, on your story, because the money from Merrell came to Australia on the 28th of September?-- Yes.

Is that right?-- It did.

Yes. And it can’t have been the money that Richard Goode sent because you told us he contacted you which must have been after the 28th of September?-- No, but the loan was paid out to Merrell. The money that came from Merrell’s was a loan to me. It was paid out-----

By Richard-----?-- -----by money from Richard Goode about a week later.”

Mr Arnot made contact with Mr Hart who suggested the Merrell loan;[^584] without any further involvement of Mr Arnot someone from Hong Kong contacted him about the transfer of the funds to Geoff Klooger;[^585] and

Mr Arnot had no idea as to which transfer of $418,000 was received first, nor why it went on a particular day;[^586] he didn’t understand the setup;[^587] he didn’t understand why Mr Goode paid out Merrell, except to say it was some sort of balancing the books exercise;[^588] and he didn’t understand why the $418,000 went to Mr Goode on that date, but he thought there was “a misunderstanding … so it’s gone to him to balance his books or whatever.”.[^589]

Mr Arnot’s evidence was that the $418,000 sent to Mr Goode should not have gone to Mr Goode but to Merrell.[^590] Mr Goode contacted him after receiving the $418,000 to ask “What’s this money doing here? What’s it for?” It was after that exchange that Mr Arnot contacted Ms Peterson, and the money “was on sent to Merrells”.[^591]

Ms Peterson’s evidence at the trial was to the effect that: Mr Arnot paid for the L-39 and Fighters paid Mr Arnot back; when Fighters didn’t pay back on time, Mr Arnot had to borrow the money to pay out a house mortgage and some other expenses; when Fighters paid Mr Arnot back by transferring the money to Mr Goode, Mr Goode paid out Mr Arnot’s loan.[^592] However, she could not recall:

which account was used to transfer the funds to Mr Goode;[^593]

whether Mr Goode used the same money when he transferred back to pay out Mr Arnot’s loan;[^594]

what the arrangement between Mr Goode and Mr Arnot was, but “when I paid Mr Goode, he was to pay Merrell”;[^595]

why she gave Mr Goode the bank account details for UOCL, rather than Merrell, for the transfer from Mr Goode;[^596] and

what the arrangement was, as she simply did what she was told to do.[^597]

One curious feature of Ms Peterson’s evidence was that after reviewing the documents she said: “It’s obvious from today that we’ve paid for an L-39 twice”.[^598]

Ms Peterson’s evidence contradicted that of Mr Arnot in some respects. She said that the transfer of $418,000 to Mr Goode was on Mr Arnot’s instructions.[^599] However she said that on Mr Goode receiving the transfer, he “repaid the Merrell loan of Mr Arnot”.[^600] Further she disagreed with Mr Arnot’s evidence that Fighters purchased the L39 with Merrell funds.[^601]

Mrs Hart’s evidence on this topic suffered because she was not directly involved and could only give an account based on hearsay or the documents.

At the trial the main point in the Hart Companies’ explanation of the transactions was that the two transfers were separate, and that the transfer to Mr Goode was done on Mr Arnot’s instructions.[^602] However Mr Arnot’s evidence was to the contrary, and suggested that Mr Hart was involved in the transfer, and why it was done the way it was. He described a round robin of transfers, which he could not explain, except that he was owed money by Fighters and it was paid out when the Merrell loan to him was paid out.

The review above demonstrates that there were some serious deficiencies in the explanation proffered in relation to the transactions surrounding the L39. They included:

the untainted funds were said to be advanced by Mr Arnot between March and July 2000, as set out in paragraph [586] above; however, Mr Arnot himself gave evidence that the L39 was, in reality, purchased by Fighters and funded by Merrell;

the funds ultimately used to pay out Mr Arnot, who had made most of the actual payments for the L39, came from Merrell, allegedly by a loan from Merrell to Mr Arnot, and directed to be paid to Mr Goode;

the loan from Merrell was arranged by Mr Hart with no real involvement by Mr Arnot, who didn’t understand the arrangements;

there was a real conflict over who directed the transfer to Mr Goode, with Mr Arnot saying it wasn’t him;

Mr Arnot’s loan from Merrell was paid out when Mr Goode transferred the same amount as the loan, apparently to Merrell; Mr Arnot couldn’t explain how that came about or how the transaction worked; he described it as a round robin of payments;

Ms Peterson, who could not explain why the transaction was done as it was, could not offer any reason why, if the repayment was to come from Mr Goode to Merrell, that she gave Mr Goode the bank account details of UOCL; there was no other suggested transaction involving Mr Goode and UOCL;

on Mr Arnot’s evidence Mr Goode did not know why the transfer had been sent to him, or what it was for; and

on Mr Arnot’s evidence the two transfers of $418,000 were related; one was for a loan from Merrell to him, but directed, though not by Mr Arnot, to Mr Goode; the other was a repayment of that loan by Mr Goode transferring the same money to Merrell in a round robin.

In my view, those deficiencies were so serious that they called for a better explanation than was given, and the absence of Mr Arnot and Mr Goode compounded the situation. In the circumstances the learned trial judge should not have reached the conclusion he did in Reasons [702], and should have found that he could not be satisfied that the L39 was not derived from unlawful activity.

The Commonwealth’s appeal succeeds on this ground.

Sea Fury aircraft VH-SHF; Mercedes Benz car; grounds 10-12, 23 and 24 in 3908/13; ground 13 in 3908/13

Because there is an overlap of issues these two assets will be dealt with together.

Sea Fury VH-SHF

The Hart Companies’ complaints in the written outline are: (a) the learned trial judge erred in finding[^603] that the Hart Companies had not established that untainted funds were used in the acquisition of the Sea Fury; and (b) alternatively, the Commonwealth should not have been permitted to raise the allegations, as they were not pleaded and took the Hart Companies by surprise.[^604]

The first point has to be considered with one significant consideration in mind. That is, even if the Hart Companies’ contention is correct it is conceded that $185,566 out of a total of $664,335.82, or about 28 per cent of the acquisition cost, did come from tainted funds, from Merrell.[^605] A finding to that effect was made, and is not challenged.[^606]

The cash flows that were used to acquire the Sea Fury were, according to Mrs Hart’s evidence, as follows:[^607]

Cash Flow Date Payer Amount

1 17.12.1999 Nemesis (as a loan to Fighters) $ 58,600.45

2 14.02.2000 Merrell (as a loan to Fighters) $ 20,161.00

4 16.10.2000 Merrell (as a loan to Fighters) $165,405.00

5 16.10.2000 Unlimited Aero Maintenance (as a loan to Fighters) $382,141.93

6 19.10.2000 Unlimited Aero Maintenance (as a loan to Fighters) $ 38,027.44

It was accepted that cash flow 1 was untainted, and cash flows 2 and 4 were tainted.

Mrs Hart accepted that cash flows 5 and 6 (totalling $420,169.37) were paid by Unlimited Aero Maintenance to the vendor of the Sea Fury. The learned trial judge held that the account of Unlimited Aero Maintenance was brought back into credit by three payments: $20,000 by Nemesis on 18 October 2000; $144,000 by Yak on 27 October 2000; and $361,000 by Nemesis on 6 November 2000.[^608] None of that is challenged.

The learned trial judge’s factual findings as to what followed were:[^609]

the $361,000 from Nemesis was sourced by a deposit to Nemesis of $1.3 million from Blackshort Proprietary Limited (Blackshort);

Mr Watson, an investment shares trader in Sydney and a business associate of Mr Hart, was a former director of Blackshort;[^610]

Mrs Hart’s evidence was that Nemesis invested $1m with Watson Benefit Services Proprietary Limited (WBS) and in one month a return of $300,000 was made on that amount;

there was evidence of the transfer of $1m but no primary evidence of the alleged written agreement with WBS relating to the investment of those funds;

there was secondary evidence from Mrs Hart of an agreement that the profit was to be $300,000; but there was no evidence from Mrs Hart that she made the agreement, nor as to whether she read the agreement, nor how she learned of its terms;

on 4 October 2000 UOCL transferred $1.5m to WBS;[^611]

on 6 October 2000 Nemesis transferred $1m to WBS;[^612]

on 12 October 2000 a further $500,000 was deposited by UOCL into the bank account of WBS.[^613]

That led his Honour to conclude:[^614]

“The possibility exists that UOCL used its investment to transfer funds via WBS to Nemesis or to permit Nemesis to receive an agreed profit from investments made by UOCL and Nemesis. The reasons for a simultaneous investment by UOCL were not explored. Mrs Hart could not assist with evidence about UOCL’s simultaneous investment. I am not satisfied that $300,000 of the $361,000 paid by Nemesis on 6 November 2000 was untainted money.”

It must be noted that the Hart Companies bore the onus of proving that the funds were non-tainted.

The Hart Companies referred first to the bank statement for WBS.[^615] This showed the UOCL payment of $1,499,995 to WBS on 4 October. This revealed that those funds were disbursed on 4 and 5 October, to the point where the credit balance of the account was $215,125.16. Then it shows the Nemesis payment of $1m on 6 October. Once again the funds were disbursed to the point where the credit balance at 13 October was $70,871.78.

The point of this part of the address was to demonstrate that:

the $1.5m from UOCL and the $1m from Nemesis was disbursed to various payees, and only a comparatively small sum went to Blackshort;

it was said that there was only one payment to Blackshort, namely $22,000 on 13 October.[^616]

Reference to only those entries alone, and identifying payments to Blackshort as being only those named as Blackshort, shows that in the 10 day period between 4 to 13 October the UOCL and Nemesis funds had been disbursed with only $42,000 demonstrably going to Blackshort. However the statement also contains numerous undesignated payments, totalling over $612,000. As well there are payments apparently to Mr Watson, totalling over $200,000 in that 10 day period. Without more it would be unsafe to conclude that only $42,000 went to Blackshort.

The second piece of evidence referred to was the bank statement for Blackshort.[^617] That statement relevantly covers 1 to 6 November 2000, and does not cover the period in October 2000. It reveals a payment out by Blackshort to an undesignated payee, of $1.3m on 3 November, which was accepted as being to Nemesis. It also shows a credit from an undesignated source, of $1.3m on 6 November.

The Hart Companies’ submission was put thus:[^618]

“So the essence of this submission is that only $22,000 went to Blackshort from UOCL funds on the 13th of October, and these funds were not in the account by the 2nd of November. So no part of that $1.3 million could’ve come from there.”

The difficulty with the approach of the Hart Companies is that it ignores that they bore the onus of showing that the funds were untainted, and proceeds as though that onus lay on the Commonwealth.

Mrs Hart’s affidavit,[^619] done in response to Mr Vincent’s identifying the UOCL and Blackshort connection, raised the agreement that was said to explain the transaction. Significantly it was Mrs Hart who deposed that it was a written agreement between Mr Watson and Nemesis. However, the document was not produced, and Mrs Hart could give no evidence of its terms, or that she had even read it.

Further, there is no apparent reason why Mr Watson could not have been called to explain the arrangement and produce the document. Indeed there is nothing to suggest that a subpoena could not have issued to Mr Watson, to give evidence or produce the document. The issue had been foreshadowed well prior to the trial starting, and cross-examination of Mrs Hart took place on the sixth day of a 13 day trial.

I leave aside the suggestion, made by the Commonwealth, that the obvious witness to fill in the detail was Mr Hart and he was present at the trial but not called. That is true, but it may be that on this issue he would have had concerns as to self-incrimination, and therefore objected to answering.

In those circumstances the learned trial judge held that he could not be satisfied that the funds were untainted. That finding was, in my view, open to him. In the face of doubts as to the legitimacy of the source of funds, the only explanation proffered was one which could not be sustained because of the lack of evidence called by the Hart Companies.

In any event, it was conceded that $185,566, or 28 per cent, of the acquisition price was from tainted funds. On the construction of s 102 reached above[^620], that is a sufficient connection to justify the refusal of relief on the basis that it cannot be shown that the asset was not derived from unlawful activity.

As to the second point, referred to in paragraph [607] above, for reasons which follow I do not accept that the point arose without notice or adequate time to deal with it. Indeed, notwithstanding the submissions on the second point, it was accepted by senior counsel for the Hart Companies that even if the issue was not pleaded Mrs Hart was able to, and did, deal with the relevant cash flows in her evidence.[^621]

Mrs Hart addressed the source of the cash flows set out in paragraph [609] above, in her affidavit filed 21 September 2010.[^622] In respect of cash flow 5 Mr Vincent had suggested the ultimate source of the funds was Blackshort, and Mrs Hart had addressed the question of the dealings between WBS and Nemesis in her affidavit. She referred to the WBS deposit of $1.3m into the account of Nemesis, saying it was “the amount of the initial investment plus the agreed profit of $300,000”.[^623]

In evidence Mrs Hart was asked about the entries in the WBS bank statements, and the fact that Nemesis had provided $1m to WBS. She said that occurred because Nemesis was providing it to WBS “to be invested”.[^624] She said that:

the $1.3m represented “an investment that we had made with Watson Benefit Services and the payment that we were expecting back”;[^625]

“it was the arrangement that we had with Mr Watson, which was we invested the million dollars, 1.3 came back”;[^626]

“We made an arrangement with him to invest a million dollars that he was investing into forex market, that’s foreign exchange market, and he had told us that we would get a $300,000 profit over a month - like at the end of the month”;[^627] and

“… the arrangement that we had with Mr Watson, is that we would give him a million dollars to invest in the foreign exchange market, and in a month’s time he would repay that million dollars plus 300,000 profit. That was his business”.[^628]

Further it was evident that there had been a deal of time before the trial in which to come to grips with the report of Mr Vincent and the bank statements, including those of UOCL, Blackshort and WBS. Mrs Hart’s evidence was that the Hart Companies had the UOCL bank statements from about September 2009.[^629]

For these reason I consider that the Hart Companies’ challenge to the finding on the Sea Fury aircraft VH-SHF cannot be sustained. The appeal on this ground fails.

The conclusion that the Sea Fury was not demonstrated to be derived from untainted funds has a potential impact on the next ground to be considered, that concerning the Mercedes car.

Mercedes Benz car

The Hart Companies contend that the learned trial judge was in error to find that the Mercedes car was derived from unlawful activity.

The car is dealt with in the Reasons, at [832]-[845]. There are only a few unchallenged findings about it:

originally the car had been leased by Nemesis from Esanda; Nemesis paid out the Esanda loan; to that point the car was not derived from unlawful activity;[^630]

in September 2001, when Nemesis went into receivership, it sold the car to Fighters; the purchase was effected using funds borrowed from Dr Fleming;[^631]

the loan from Dr Fleming was for $400,000, and he took a fixed charge over some of Fighters’ assets;[^632]

immediately prior to forfeiture it was owned by Fighters;[^633] and

Fighter’s assets were subject to the Merrell charge, securing $1.6m.[^634]

The learned trial judge obviously had difficulty in determining the details of the sale to Fighters as conflicting accounts were given:

one set of records showed that Dr Fleming purchased the car on the same day that the receivers of Nemesis were discharged;[^635] Dr Fleming said he had purchased as a nominee of Fighters;[^636]

Mrs Hart said the funds were paid to the receivers, whereas Ms Peterson said the loan was to Nemesis;[^637]

Mrs Hart varied that account,[^638] saying that Dr Fleming acted as agent for Fighters, and that the sale, effected with the approval and involvement of the receivers, was on “trust for Fighters”; that conflicted with the confirmation letter; and

Fighters’ records showed a credit of $400,000 as a “loan for receivership” from a Dr Fleming company, and the car as a $20,000 fixed asset.[^639]

Evidence from the investigating accountant was that the collateral security for the $400,000 loan was a first registered charge over the Sea Fury aircraft, and that the funds for the purchase of the Sea Fury were sourced from UOCL.[^640]

Evidence from Mrs Hart was that the loan from Dr Fleming was paid out in January 2005 using the proceeds of sale of a property at Brandon Road. Brandon Road was the subject of the initial restraining order in 2003, as was the Sea Fury. Brandon Road was sold, with the approval of the Official Trustee, prior to forfeiture, the proceeds being used to pay down debts of the Hart Companies.[^641]

The learned trial judge made two critical findings:[^642]

the use of the Brandon Road proceeds of sale to pay down debts did not result in assets being derived from unlawful activity;[^643]

Fighters had not proved that the Sea Fury was not derived or realised, directly or indirectly, from unlawful activity.

His Honour then made the relevant finding as to the car:[^644]

“I am not satisfied that Dr Fleming’s loan would have been made without the security of the charge over the Sea Fury aircraft. Accordingly, I am not satisfied that the car was not derived or realised, indirectly from unlawful activity. I may not make an order in respect of it.”

The Hart Companies’ written outline took issue with this finding on the basis that it involved an error in the proper construction and application of s 102(3)(a), namely that an asset “is not ‘derived … from any unlawful activity’ merely because a general security … placed over the asset also coincidentally covers a tainted asset or fund”.[^645]

The point developed orally was different. It was that:

“… it all depends upon … whether there was some basis upon which his Honour could have been other than satisfied that the loan would have been made without the security of Sea Fury. Now, this issue, critically, whether Sea Fury’s use of a secondary security for an advance which allowed the residual of the lease to be refinanced, was never an issue that was actually raised on any pleading or any submission or in any evidence before the court.”[^646]

and

“It would be … speculation to embark upon a consideration of what might have been the position, but for the Sea Fury security.”[^647]

For a number of reasons that contention cannot be accepted:

the Sea Fury was always an asset that the Commonwealth said was tainted; it was in the 2003 restraining order and forfeited to the Commonwealth, and the Hart Companies’ application under s 102 sought its return;

it was an accepted fact that Dr Fleming’s loan was made on security that included the Sea Fury;[^648]

Dr Fleming described the charge over the Sea Fury as the “primary security”; he said that his enquiries had led to him being “satisfied that it was sufficient to cover the proposed loan”;[^649]

Dr Fleming said that his charge was to be the first registered charge, so in order to give the Sea Fury charge first priority over the Merrell charge, a Deed of Priority was entered into with Merrell;[^650]

as to the significance of the Sea Fury as collateral security, clause 1 of the Deed of Loan specified that the loan was subject to the execution of the “Collateral Security”; clause 22 defined the “Collateral Security”, and it was confined to the first registered company charge given over the Sea Fury;[^651] clause 6 limited recourse by the lender against the borrower “to the extent of any monies recovered by or on behalf of the Lender upon enforcement of the Lender’s rights under the Collateral Security.”; and

it was always the case that if the Sea Fury was found to be tainted, that exposed the Hart Companies to the contention that assets derived or realised by virtue of the loan proceeds were, themselves, indirectly tainted.[^652]

Those matters, particularly the importance of the collateral security to the lender’s rights under the Deed of Loan, provide an ample basis for the finding by the learned trial judge. In my view, where the loan is expressed to be on the basis of the provision of the security over the Sea Fury, that is the only collateral security, and recourse is affected by that security, it is easy to infer that the loan would not have been made without it. That inference is also supported by Dr Fleming’s evidence that the charge over Sea Fury was sufficient to cover the loan and that steps were taken to make it a first registered charge over that of Merrell. Indeed, in my view, the inference was irresistible.

The formulation of the point in the written outline takes the appeal no further. This was not a case where a general security placed over the asset also coincidentally covers a tainted asset. The Sea Fury was a tainted asset, as found by the learned trial judge. Further, it was always the primary security, sufficient of itself to cover the loan, and the subject of specific steps to give it first priority. Its importance was such that the loan would not have been made without it.

The Hart Companies’ appeal on this ground fails.

North American T-28 aircraft VH-SHT; ground 5 in 3908/13

The learned trial judge’s findings as to the North American T-28 aircraft VH-SHT (the T-28), appear at [480]-[499] of the Reasons.

The Commonwealth identified seven sources of funds, set out in a table at Reasons [482]. Of those cash flows, five were found to be untainted. The remaining two were as follows:

Cash Flow Date Payer Payee Amount

5 23.10.98 Merrell Geoff Klooger $ 83,100

6 07.12.98 Fighters AGC & MP Rolph-Smith (via Klooger Trust Account) $ 64,000

The cash flows totalled $282,100, of which $83,100 was sourced from Merrell (indirectly) and $64,000 was obtained from a NAB loan. The Hart Companies do not challenge the finding in relation to cash flow 5. The consequence is that of the total funds used to acquire the T-28, $83,100 (or about 29 per cent), was from funds that could not be shown to be untainted.[^653] I will return to the significance of this fact later.

The Hart Companies challenge the finding concerning cash flow 6, that involving the NAB loan.

The learned trial judge’s findings in respect of cash flow 6 were:[^654]

the payment of $64,000 to the Geoff Klooger Trust Account was sourced from a loan from the NAB to Fighters, obtained on 26 November 1998;

as at 24 March 1999 the Fighters’ loan account was in deficit, in the sum of $41,927.29;

on 23 March 1999 UOCL deposited $60,000 to Merrell;

on 24 March 1999 Merrell transferred $60,000 to Fighters;

Mrs Hart could not identify the ultimate source of an amount of $59,995 which was deposited into the account from overseas on 24 March 1999, putting the account into credit;

Mr Vincent identified the ultimate source of the $59,995 payment as UOCL;

Fighters received untainted funds to the account before and after receipt of Merrell’s $60,000;

Fighters made repayments of principal and interest to NAB before 24 March 1999 with untainted funds; and

after 24 March 1999 untainted funds were received to the account and mixed with the tainted funds from Merrell.

The Hart Companies contended that the learned trial judge overlooked evidence which was inconsistent with the findings, and wrongly said that the Hart Companies’ submissions had not dealt with the issue whether the T-28 “was also indirectly derived by the $60,000 of tainted funds”, notwithstanding that Fighters had received untainted funds into the account before and after the $60,000 payment.

To understand the contentions it is necessary to set out the relevant parts of the learned trial judge’s findings at Reasons [488] and [489]:

“[488]I am satisfied that money derived from unlawful activity which is then used to reduce the balance of a loan account from which drawings have been made to derive or realise an asset is money properly to be considered as money from which the asset has been derived or realised.[^655]

[489]Fighters received untainted funds to the account before and after receipt of Merrell’s $60,000. Fighters made repayments of principal and interest to NAB before 24 March 1999 with untainted funds. After 24 March 1999 untainted funds were received to the account and mixed with the tainted funds from Merrell. The issue is whether the aeroplane was also indirectly derived by the $60,000 of tainted funds. The Companies’ written submission does not consider the issue. The tainted payment is unexplained, is similar in size to cashflow 6, was received only 14 weeks after the loan from NAB, took Fighters’ overdrawn account from about $42,000 in debit to about $18,000 in debit and better equipped Fighters to continue repaying NAB its monthly instalments of principal and interest on the $64,000 loan. A charge over this plane was granted by Fighters to Merrell on 30 October 1998 and registered on 16 November 1998. It secured repayment of cashflow 5 and the $60,000 and interest, among other things.”[^656]

I pause to note that the learned trial judge’s finding in reasons [488] is in conformity with the conclusion of McGarvie J in Allen: see paragraphs [161] and [162] above.

The evidence that was said to have been overlooked came from Mr Vincent (the Commonwealth’s expert) on day nine of the trial. The critical part of that evidence was, it was said:

a repayment to the NAB (of $2,898.93) had been made on 1 March 1999;[^657]

that had helped to take Fighter’s account into overdraft, to the extent of $41,927.29 on 24 March;[^658]

the $60,000 payment went into Fighters’ account on 24 March 1999;[^659] that took the account into credit;

on 31 March a repayment of the NAB loan was made, in the sum of $2,898.93; at that time the account balance was $14,582.56;[^660]

by 22 April 1999 the account was again overdrawn, to the extent of $1,015.79;[^661] and

between 1 March and 22 April only two loan repayments were made, each $2,898.93.[^662]

From this evidence two things were submitted: first, that the judge was wrong to treat the $60,000 “as an amount used to reduce the … balance of a loan account used to derive this asset, whereas that is …not the evidence”;[^663] and secondly, that fact was said to have been put in the Hart Companies’ trial submissions,[^664] but forgotten by the learned trial judge.

As to the first point, the submission confuses both the evidence of Mr Vincent and the findings. Mr Vincent did not say that the $60,000 was a repayment of the loan, but rather it went into Fighters’ bank account and assisted in the servicing of repayments.[^665] The learned trial judge did not make any such finding either. At Reasons [488] his Honour made the finding noted above in paragraph [651], and then in Reasons [489] his Honour held that the $60,000 “tainted payment … took Fighters’ overdrawn account from about $42,000 in debit to about $18,000 in debit and better equipped Fighters to continue repaying NAB its monthly instalments of principal and interest on the $64,000 loan”.

The ultimate finding on this aspect was that the Hart Companies “have not established that this plane was not also indirectly derived by the $60,000 of tainted funds”.[^666] In my view that finding was correct. When that sum is put with the $83,100 that was accepted to be tainted the result is this: the T-28 was purchased for $282,100, of which $143,100, or 50.73 per cent, was held to be tainted. That is sufficient to deny relief under s 102 in respect of this asset, on the basis that it was derived from unlawful activity. In my view the same result would follow even if only $83,100 of the total of $282,100 was tainted. In that case 29 per cent of the purchase price was from tainted funds, more than sufficient to establish that the asset was derived from unlawful activity.

As to the second point, the Hart Companies’ submission[^667] did not deal with the issue identified by the learned trial judge in Reasons [489], namely whether the T-28 was also indirectly derived by the $60,000 of tainted funds. The submission actually made was that Mr Vincent had conceded that Merrell only contributed $5,797.86 of the repayments made on the NAB loan. In other words, the submission only dealt with direct derivation, not indirect derivation.

The Hart Companies have not succeeded in demonstrating error on the part of the learned trial judge in respect of this asset. This ground of appeal fails.

North American Trojan aircraft, VH-AVC; ground 17(c) in 4987/13

The learned trial judge dealt with the North American Trojan VH-AVC (Trojan) at Reasons [720]-[727].

The relevant findings were as follows:

accepting Mrs Hart’s evidence, work was done on the Trojan by FFMR in FYE 2003, which was recorded in the books as a debt due by Fighters to FFMR;[^668] and

between 30 January and 3 February 2003 Fighters transferred $159,500 to FFMR in three payments; the funds Fighters used to make these payments were part of $300,000 which Fighters borrowed from Mr Arnot’s company, Aerobatics; Mrs Hart did not dispute that the ultimate source of the funds for the $300,000 loan repayment was UOCL.[^669]

Having made those findings the learned trial judge then said:[^670]

“[726]The issue is whether the plane was derived from tainted funds. By paying for restoration and repairs with substantially tainted funds of $50,000 the total cost of derivation of the plane was $278,500. About 18% of the funds used were substantially tainted and were used for restoration and maintenance after the plain [sic] was purchased with untainted funds. I am satisfied that the plane was not substantially derived from tainted funds and that it was derived lawfully.”

The Commonwealth’s challenge is based on three points:[^671] first, it was an error to find that the Trojan had not been derived from unlawful activity, based on reading the word “substantially” into s 102; secondly, in any event 18 per cent of the total costs is a substantial proportion of the total costs, and cannot be regarded as insubstantial; and thirdly, the learned trial judge did not consider whether the expenditure on restoration and repair meant that the Trojan had been “used in connection with unlawful activity”.

As appears above, the ultimate finding was reached by adopting the approach that when s 102 says “derived from unlawful activity”, it should be read as saying “substantially derived from unlawful activity”. That construction was incorrect for the reasons given earlier, and on that basis alone the finding cannot stand.

The Hart Companies resist the challenge on the second basis, submitting that:[^672]

between 2003 to 2005 about $75,800 was spent on restoration work, of which $50,000 was spent in 2003; the repairs did not increase the value of the Trojan by the amount spent;

even if all of the restoration and repair costs were derived from tainted funds, the contribution was only 18 per cent of the total acquisition cost;

Fighters had already “derived” the aircraft by acquiring ownership 100 per cent from untainted funds; the later repair costs were not part of the consideration for the acquisition; and

the primary judge ought to have excluded the repair costs on the grounds such costs are not relevant, the aircraft having already been “derived” from untainted funds.

As developed orally the Hart Companies’ submissions also included a challenge based on the learned trial judge’s alleged failure to understand the evidence of Mr Vincent. It was said that Mr Vincent had conceded that no part of the $50,000 contributed to the repair and restoration costs, and that was missed by his Honour.[^673] The contention proceeds:[^674] Mr Vincent’s tracing exercise included an entry for $144,000 which was sourced from Mr Arnot; then the exercise identifies items of costs that went into different aircraft, including the $50,000 that went into the Trojan, and they total $223,000; therefore the $50,000 could not have come from the $144,000 loan.

This point may be quickly dispelled as it is based on a misunderstanding of Mr Vincent’s tracing exercise and evidence. Mr Vincent was not suggesting that the $144,000 loan was the source of the payment but:

“I’m not saying that it came out of the 144,000; I’m saying the 144,000 was put into that from the loan from Nigel Arnot and from – that 144,000 was a means by which those other payments - sorry, those other costs were incurred in those aircraft”[^675].

Earlier in these reasons the meaning of the word “derived” was examined: see paragraphs [114] to [138] above. Without intending to qualify what was said there, “derived” means to show the origin or course of the asset, but is wider than “acquired”.

Section 102 provides the context in which the phrase is used. What s 102 provides for is the ability to make an order in respect of forfeited property. What is handed back, if an order is made, is the interest or the property that was in being immediately prior to the forfeiture.

In my view, that means that it would be wrong to focus only on the time of acquisition or just on acquisition costs, each of which could be some time before the point of forfeiture. Where property, or an interest in property, assessed at the point of forfeiture, has arisen because of tainted expenditure subsequent to the actual acquisition that expenditure has to be taken into account in deciding whether the property or interest has been derived from unlawful activity. That conclusion is consistent with what was said in Jeffrey.[^676]

Similarly, in my view it would potentially mislead to assess the expenditure in terms of whether it added value to the property or interest. The question whether something has been derived from unlawful activity does not depend on the value added. It may be that considerable expenditure has been outlaid on property without actually adding to its value. That would not mean that the property had not been derived from the expenditure. Instead the question involves an examination of the contributions to the property or interest as part of the tracing back exercise, to see where or how the property or interest, as it stands at forfeiture, arose.

Furthermore, I do not consider that the precise form of expenditure makes a difference in the assessment of whether property, or an interest in it, has been derived from unlawful activity. The question is one of fact in each case:[^677] has the property (or interest), as it stands at the point of forfeiture, been derived from unlawful activity? That is, in tracing the sources or origins from which the property or interest has arisen, did those sources or origins involve unlawful activity?

In answering that question of fact, it may be that some sort of expenditure is assessed as so incidental, tenuous or remote that it cannot be said to reveal where or how the property, or interest, as it stands at forfeiture, arose. Earlier in these reasons, at paragraphs [114] to [138] above, the nature of the connection required for a property or interest to be “derived”, was examined. That is relevant to this discussion.

As each case will depend on its own facts, caution needs to be exercised by using examples that do not reflect the facts of the particular case. However some may be ventured, to demonstrate only the variety of different facts and how their impact may vary.

Consider a case where the property is a car. One can imagine a number of cases where the expenditure, or method of expenditure, might be persuasive or even decisive of the question whether the car was derived from unlawful activity:[^678]

the purchase price was provided from tainted funds;

the funds to buy were borrowed, and then the loan was repaid from tainted funds;

leasing instalments were paid with tainted funds;

the car was a gift, but known to have been purchased by the donor using tainted funds;

the car had a replacement engine put in, and the engine was the product of unlawful activity;

the car was in poor condition and the restoration costs to bring it back to good condition were from tainted funds; and

the cost of importing the car was paid from tainted funds.

Then there are some that are perhaps more tenuous or remote, even though they involve the use of tainted funds:

purchasing petrol;

washing and detailing;

taking out a comprehensive insurance policy;

transporting the car from A to B;

the costs of storing the car; and

payment of traffic or parking fines.

Then there are those, involving the use of tainted funds, that might straddle the two extremes, and fall either way depending on the facts:

the car’s registration, without which it cannot be lawfully driven;

repairs, without which the car cannot be driven;

replacement tyres; or

a new paint job.

In the case of the Trojan the learned trial judge’s findings were that $50,000 of the costs of restoration and repairs, or about 18 per cent of the total acquisition costs, came from tainted funds. The Hart Companies bore the onus of satisfying the learned trial judge that the Trojan was not derived from unlawful activity. That sum, and that percentage of the costs, represented a significant proportion of the acquisition cost, and not in any remote or tenuous way. It should have led to the opposite conclusion to that reached in Reasons [726].

Given that conclusion it is not necessary to deal with the Commonwealth’s third point concerning whether the Trojan had been used in connection with unlawful activity because tainted funds had been spent on repair and restorations costs. In any event it is by no means clear that the point was raised at the trial.

The Commonwealth’s appeal on this ground succeeds.

Hangar 400, Merriwa Street and Doonan’s Road; ground 10(c) and 11 of 4987/13

The learned trial judge dealt with Hangar 400 at Reasons [756]-[782], Merriwa Street at [783]-[795], and Doonan’s Road at [812]-[831]. All three of these properties were involved, in one way or another, in the dealings with Perpetual which resulted in Perpetual granting a loan of $1.3m: see paragraphs [431] to [452] above. Some short recitation of facts from that section of these reasons will assist.

It will be recalled that Nemesis was the service company for a number of companies which included Yak and Bubbling Springs. Nemesis would pay the wages for all of the companies. Each company would pay its own bills, but Nemesis would lend any funds needed if a company’s income was insufficient.

Nemesis had an overdraft facility with the NAB. In May 2001, the NAB:

issued a Notice of Termination of a Bill Facility to Nemesis because of its failure to pay the face value of the bill on its maturity date;

demanded immediate payment of $2.3m and $1.05m;

issued a demand for Nemesis’ commercial bill facility of $1.1m and $2.4m;

issued a notice of default and demand to Nemesis, for $57,752.89 owing on an overdraft account; and

then issued a notice of exercise of power of sale over all the assets of Nemesis in its own capacity and as trustee for the Steve Hart Family Trust, and demanded $3.6m in 30 days.

Bubbling Springs had applied for a loan facility for $1m from Perpetual, and Yak had applied for a loan facility for $650,000 from Perpetual.

On 19 December 2001, Perpetual lent Bubbling Springs $650,000, on the security of Doonan’s Road; and Perpetual lent Yak $650,000, on the security of Hangar 400. Those funds were advanced for the purpose of Yak and Bubbling Springs on-lending that money to Nemesis. Bubbling Springs and Yak lent the $1.3m to Nemesis so that Nemesis could pay out the NAB. Those loans,[^679] together with $1.75m borrowed from Equititrust Ltd (Equititrust), were used to pay out the NAB.

Immediately prior to forfeiture:

Hangar 400 was a lease registered in the name of Yak;[^680]

Merriwa Street was registered in the name of Nemesis;[^681]

Doonan’s Road was registered in the name of Bubbling Springs;[^682]

Hangar 400 was mortgaged to Perpetual, as security for the loan to Yak;

Equititrust was a registered mortgagee of Merriwa Street and Doonan’s Road;[^683] and

Yak, Bubbling Springs and Nemesis, and their assets, were subject to the Merrell charge.

Equititrust’s interest as mortgagee was excluded from the forfeiture by the order of Brabazon DCJ made on 18 April 2006.[^684]

Hangar 400 and Doonan’s Road*.*

In respect of each of Hangar 400 and Doonan’s Road, the Commonwealth challenges the finding that the use of the property as security for the Perpetual loan was too tenuous to lead to the conclusion that the property was used in, or in connection with, unlawful activity.

The learned trial judge recorded the submission as:[^685]

“Because funds borrowed from Perpetual Nominees were used to pay out the NAB loan secured over the property, the Commonwealth submits that Nemesis has not satisfied the court that its interest in the property was not derived or realised, directly or indirectly from unlawful activity.”

Whilst that passage only refers to the phrase based on an asset being “derived”, elsewhere the learned trial judge made it clear that the Commonwealth’s argument was also based on the phrase “used in or in connection with unlawful activity”.[^686]

The learned trial judge then said:[^687]

“The simplified question is whether assets derived with money borrowed from Perpetual after such (arguably) dishonest representations are derived from unlawful activity. There was no submission from either side about the degree of connection between the unlawful activity and the derivation of property with funds borrowed from Perpetual. I assume that the Commonwealth’s best argument would have been that without the representations, there would have been no advance by Perpetual and that fact makes the connection substantial. I regard the connection as too tenuous on the present facts. The representations were not the sole cause for Perpetual’s advances of money. Consider firstly, Perpetual’s agreement to lend. I infer that other causes of Perpetual’s agreement were Perpetual’s opinion of the capacity of the borrowers to repay, its opinion of the potential for profit from interest, its satisfaction with the security offered by way of mortgage and guarantee. Consider secondly, Perpetual’s advances of funds pursuant to the agreement. I infer that Perpetual continued to advance funds and refrained from demanding repayment because of Perpetual’s satisfaction that the borrower was adequately continuing to comply with the terms of the agreement.”

That finding does not rest on Reasons [781] alone. Earlier, in the course of dealing with the Perpetual offences, the learned trial judge had referred to Hangar 400 and Doonan’s Road:[^688]

“For reasons developed above, I found that the intent of the words “the property was not used in, or in connection with, any unlawful activity” in POCA s 102(3)(a) is that they require a “substantial connection between the activity in question and the use of the property”. I am satisfied that there is no sufficient connection with unlawful activity in the case of the Hanger (sic) 400 and the Doonan’s Rd properties arising from the provision of the properties as security for a loan arguably induced by the fraudulent representation. Hanger (sic) 400 and the Doonan’s Rd properties were “not used in, or in connection with”, the alleged fraudulent representations by reason of having been used as security for repayment of the loan that was induced by the representations.”

In so far as the finding in Reasons [781] was based on the fact that the representations “were not the sole cause for Perpetual’s advances of money”, that cannot be sustained. The central misrepresentation was in clause 16, and without it Perpetual would not have lent: see paragraphs [447] to [479] above.

Similarly, when one turns to the security offered to Perpetual, namely Hangar 400 and Doonan’s Road, there is no reason to conclude that Perpetual were indifferent to it being offered to support the loan. Perpetual stipulated that Hangar 400 and Doonan’s Road be offered as security and there is no basis to think that it would have lent without them.

When the representations were made to Perpetual they were made by Yak and Bubbling Springs,[^689] apart from the individuals who conducted the negotiations. Yak and Bubbling Springs therefore used their properties as part of the process to convince Perpetual to lend to them, offering the properties as security. That process involved committing an offence to obtain funding. The whole purpose of obtaining the Perpetual loan was so that it could be on-lent to Nemesis, so that Nemesis could pay out the NAB, which was threatening to move against Nemesis. Had the NAB not been satisfied it would almost certainly have resulted in property being lost to Nemesis. There was no evidence that Nemesis had any other way of meeting the NAB’s demand but that which involved the commission of offence in relation to Perpetual.

On that basis it is, in my view, difficult to reach any other conclusion but that the properties were “used in, or in connection with, unlawful activity”. The finding in Reasons [282] to the contrary was based on the view that the words “the property was not used in, or in connection with, any unlawful activity” in POCA s 102(3)(a) requires a “substantial connection between the activity in question and the use of the property”. That conclusion cannot be sustained for the reasons addressed earlier. In my view the finding in Reasons [282] cannot be sustained.

Merriwa Street

Merriwa Street stands in a slightly different position from that of Hangar 400 and Doonan’s Road. It was not proffered as security to Perpetual, and its owner, Nemesis, did not make representations to Perpetual.

Merriwa Street was taken as security by Equititrust, when it loaned $1.75m to Nemesis so that it could pay out the NAB.[^690] The repayments of the Equititrust loan, totalling $304,111 from 21 January 2002 to 4 June 2003, were paid from funds ultimately obtained from UOCL.[^691] There is no challenge to that finding. However his Honour made a specific finding, also not challenged, as to what percentage of the repayments came from UOCL:[^692]

“…UOCL funds represented substantially less than 5% of the funds used to pay repay Equititrust the principal and interest due on the two loans borrowed from Equititrust in December 2001”.

The Commonwealth challenged[^693] the conclusion drawn from that finding, namely that “the connection between UOCL’s funds and the derivation of the asset was not sufficient”, leading the learned trial judge to be “satisfied that 6 Merriwa Street was not derived from unlawful activity or that it was not acquired unlawfully”.

The Commonwealth’s contention in this regard was put orally as:[^694]

“…his Honour erred in failing to find that Nemesis had not satisfied the property was not derived directly or indirectly from unlawful activity. There was no evidence led that had the moneys not come from UOCL, that the mortgage payments or that percentage of it would have been able to be met by Nemesis Limited through some other source.”

As advanced in the written outline, the point was a little broader. It was that Merriwa Street had been mortgaged to the NAB, and repayments to the NAB had been sourced (at least in part) from funds from UOCL. This, added to the Perpetual offence which enabled the NAB to be paid out, and the five per cent repayments to Equititrust from UOCL funds, had the effect that Merriwa Street was derived from unlawful activity.[^695]

The use of tainted funds to make loan repayments, on a property which is mortgaged as security for those repayments, is, in my view, capable of leading to the conclusion that the property has been derived from unlawful activity. As referred to above, the word “derived” has the meaning of examining the the origins of the property, as it stands at the point of forfeiture, in the sense of being able to trace back to where the thing stemmed from or how it arose. Repayments do reveal from where, or how, the property arose, as it stands at forfeiture.

In this case one can reasonably infer that the repayments to the NAB served to keep the NAB from moving against the property. After all, the Perpetual loans were obtained for the very reason of preventing the NAB from exercising its rights under its securities, including against Merriwa Street. Similarly the repayments to Equititrust were necessary to ensure that Equititrust did not exercise its rights as mortgagee against the property.

Each of those sets of repayments involved the use of UOCL funds, i.e. tainted funds. Even if the repayments to Equititrust were, as the learned trial judge found, “substantially less than 5% of the funds used to pay repay Equititrust”,[^696] that has to be combined with the fact that the NAB repayments were also sourced, in part, from UOCL funds.

Remembering that the Hart Companies bore the onus on these issues, those facts should have led to the conclusion that the learned trial judge could not be satisfied that the property was not derived from unlawful activity.

The Hart Companies made an oral submission on appeal to the effect that the question whether Merriwa Street had been relevantly derived from the repayments to the NAB or Equititrust had not been raised at the trial or pleaded, and therefore should not be allowed now. Further, had it been raised an answer could be made that the NAB was permitting gradual releases of secured properties.[^697] Primary reliance was placed on what was said in Reasons [283]:

“[283]The money borrowed from Perpetual was used by Yak and Bubbling to lend to Nemesis to repay the NAB. It was not submitted that assets derived from that repayment of the NAB were derived from unlawful activity because of the fraud allegedly committed to induce the Perpetual advance. The only assets in respect of which the Commonwealth relied upon the Perpetual advance, in its submissions, were Hangar 400 and Doonan’s Road.”

I do not consider that submission can be accepted. First, the repayment referred to in Reasons [283] was the repayment of the NAB facility with the Perpetual and Equititrust loans, not the periodic repayments which used UOCL funds. Secondly, the Perpetual offences were pleaded in respect of Merriwa Street.[^698] Thirdly, the affidavit said to support the evidence of gradual release does not, on its face, do so. Fourthly, in oral address at the trial the Commonwealth put their case concerning the Perpetual offences, and repayment of the NAB and Equititrust facilities, very broadly, and in a way that would not now make it unfair to raise it.[^699]

In oral address the Commonwealth appeared to add a new point in respect of Merriwa Street. That was that on the facts as found the property was used in or in connection with unlawful activity.[^700] However it seems that was based on a misunderstanding as to whether Merriwa Street was caught in the Perpetual representations issue, which raised the question of an offence under s 408C(1)(f) of the Criminal Code (Qld). Merriwa Street was not part of the security offered to Perpetual, and Nemesis did not make the representations relied on for the Perpetual offences. Therefore it is difficult to see how the contention could be sustained in the way it applies to Hangar 400 and Doonan’s Road.

The Commonwealth’s appeal on this ground succeeds.

Samara Street; ground 25 in 3908/13

The learned trial judge dealt with Samara Street at Reasons [796]-[811]. At the date of forfeiture Samara Street:

was a property registered in the name of Bubbling Springs;

mortgaged to Sunshine Co-operative Housing Society Ltd (Sunshine);[^701] and

subject to the Merrell charge.[^702]

The Hart Companies agreed with Mr Vincent that $45,000 came from Astion. The learned trial judge held that Astion was involved in the Hendon Arrangement and that therefore he could not be satisfied that the $45,000 was not derived from unlawful activity.[^703]

The Hart Companies challenge that finding on several bases:

that the finding was wrong in so far as it was based on finding that the Hendon Arrangement involved unlawful activity, and the amendments in respect of the Hendon Arrangement should not have been allowed;[^704]

the $45,000 was borrowed well after the Hendon Arrangement, and from the Astion rent account, which derived rent lawfully from a Whyalla property;[^705]

it was an error to find[^706] that the Hart Companies had to show that but for the distributions derived from unlawful activity, Astion would have been able to save its lawfully earned rent; and

the acquisition cost, other than the $45,000, was from untainted funds, and therefore Samara Street ought to have been transferred to Bubbling Springs.[^707]

As to the points of challenge in paragraph [711](a) above, these grounds are the same as that advanced in respect of the Hendon Arrangement and they fail for the same reasons.[^708]

The learned trial judge found that the $45,000 from Astion was combined with $100,000 from a commercial lender (the ANZ Bank) in order to acquire Samara Street. On that basis his Honour said:[^709]

“The sum from Astion was 30% of the purchase price. I am doubtful that ANZ Bank or any other commercial lender would have lent 100% of the purchase price and doubtful that the property would have been purchased without that contribution lent by Astion. I am not satisfied that the property was not substantially derived from the proceeds of unlawful activity because of that $45,000 from Astion. The fact that the property was later refinanced and Astion may have then been repaid is relevant to the extent to which the Astion funds derived the property but does not alter my conclusion because the refinancing did not occur for four years and 9 months.”

Subsequent to the hearing of the appeal, the parties were asked to address the relevance of some evidence from Mrs Hart, where she said the $45,000 was initially a loan from Astion Unit Trust, but the following year “this loan was a contra against income for the invoice of its fee by arrangement”.[^710]

In address at the trial this evidence was squarely raised in the Hart Companies’ outline.[^711]

The ground of appeal concerning Samara Street is expressed in these terms:

“The primary judge erred in finding that $45,000 applied towards 27 Samara Street was derived from unlawful activity, and in particular ought to have found on the balance of probabilities that no offences had been committed in contravention of s 8N of the Taxation Administration Act 1953 (Cth).”

The Hart Companies’ outline in 3908/13 summarised the point in issue as:

“27 Samara Street – error in treating $45,000 borrowed from Astion Unit Trust as monies derived from unlawful activity, since the primary judge should not have been satisfied that Mr Hart and his accountants or clients had committed offences in contravention of s 8N TAA.”

The outline then set out the arguments that there was no contravention of s 8N, and followed with this:[^712]

“In any event, the $45,000 was borrowed in 1997 (well after the alleged offences) from the Astion rent account, which derived rental lawfully from a property at Whyalla.

The primary judge erred in finding that the Companies had to show that but for the distributions derived from unlawful activity, Astion would have been able to save the rent it had earned lawfully. In effect this requirement imposed a higher standard of proof than the balance of probabilities.”

The learned trial judge found that the $45,000 loan was made by Astion in March 1998.[^713] That finding was not, however, a finding that the loan was directly from the fees received by Astion from the Hendon arrangement, but rather that the receipt of those fees enabled Astion to save the rent it received from lawful sources, and in that way the rents were indirectly derived from the unlawful Hendon activities. The full finding is in these passages:[^714]

“[344]If rents Astion received were accumulated and used to derive any restrained assets, it is a reasonable inference that the rents were indirectly derived from Astion’s use of the distributions it directly derived from unlawful activity, being the reckless representations. I am not satisfied that the rent Astion lawfully earned from the Whyalla property was not substantially, indirectly derived from the unlawful activity of reckless representations from which the distributions were more directly derived.

[345]Put simply, the Companies have not proved that but for the distributions derived from unlawful activity, Astion would have been able to save the rent it earned lawfully. The Companies did not prove that tainted funds from distributions are an insignificant proportion of the total funds received into Astion’s account and that the tainted funds did not enable Astion to use rent receipts to derive property. The Companies have the onus of proof that this is not so. They have not satisfied the onus.

[346]On 3 March 1998 Astion paid $45,000. Mrs Hart deposed that the payment was from “rent account”. On the assumption that the source of the money was accumulated rent earned lawfully, it may have been derived indirectly from unlawful activity for the reasons explained above. I am not satisfied that it was not derived indirectly from unlawful activity. The derivation of that sum has particular relevance when considering the asset 27 Samara Street Sunnybank.”

The first sentence in Reasons [346] makes it plain that the learned trial judge was aware of, and took into account, the evidence from Mrs Hart. The phrase “rent account” which his Honour quoted comes from paragraph 64(a)(III)(aa) of her affidavit. There is no challenge based on the assertion that her evidence in this respect was left out of account, or given insufficient weight. In fact, her evidence in the paragraphs referred to were taken into account and accepted. The relevant findings turned on indirect effect that the receipt of fees had on the ability to save rent and therefore make the loan, albeit later in time than the Hendon scheme.

The Hart Companies contended in oral address[^715] that his Honour’s expression of doubt, that the ANZ Bank or any other commercial lender would have lent 100 per cent of the purchase price, was speculative and not pleaded. That contention must be rejected. It is hardly speculation that a commercial lender was unlikely to lend 100 per cent for a commercial property. After all, Bubbling Springs was getting Astion to contribute $45,000 to the purchase, or 30 per cent of the total. There is no suggestion that any other proposal was put to the ANZ. Bubbling Springs was, in fact, borrowing 100 per cent, but not from the ANZ. No doubt if Bubbling Springs could have persuaded the ANZ to do so, it would have.

Further, it is not to the point that the Commonwealth’s pleading may not have specifically pleaded the unlikelihood of a commercial lender lending 100 per cent. The Hart Companies bore the onus of showing lawful sources of funds so as to discharge the burden under s 102. They pleaded sources for acquisition that they contended were lawful, and the Commonwealth responded by reference to the unlawfulness of the conduct that lead to the sources of funds.

The point in paragraph [711](b) above was one taken into account by the learned trial judge, who dealt at some length with the fact that the Astion rent account could not be shown to have been totally from lawful sources. Referring to the payments made by clients under the Hendon Arrangement to Astion his Honour said:[^716]

“[343]…It seems likely that taxpayer clients made regular payments to Astion of the purported distribution. Each payment gave the appearance of a deduction from a client’s taxable income. The reckless representations were to the effect that Astion was a beneficiary to whom each distribution was properly made or could be properly made. Each receipt by Astion of a part payment of a purported distribution was directly related to the reckless representation, because the representation was about the payment’s propriety. I am not satisfied that payments Astion received as purported distributions were not substantially derived or realised from unlawful activity. It seems that after a payment of 2% of the distributions to Tinkadale, and 10% to Astion, 88% remained. It is probable that the 88% was mostly used for the purpose described by Mr Stevens, namely to assist “Hendon” (by which Stevens must have meant the trustee Astion) to meet loan repayments. It is a reasonable inference that the distributions were used to pay interest and possibly capital in relation to the loan borrowed to acquire the Whyalla property. If the distributions had not been used to meet loan repayments, it is a reasonable inference that the rents received would have been used to meet loan repayments.”

Those findings are not challenged. They formed the basis for the learned trial judge’s conclusion that Astion’s rents were indirectly derived from the Hendon Arrangement distributions, which were the product of unlawful activity.[^717] Contrary to the Hart Companies’ contention in paragraph [711](c) above the next step in reasoning was logical, namely that if Astion’s lawfully earned rent was not used for its own loan repayments, and that was because the unlawful funds were used for that purpose, the lawful rents were indirectly derived from the unlawful activity. That result must, in my view, be correct, as Astion was relieved of using its lawful funds to the extent that its obligations were met with unlawful funds. The conclusion was not speculative, nor did it impose a higher burden of proof than was warranted.

That reasoning meant that the ultimate finding was open, and compelling. The learned trial judge expressed it this way:[^718]

“[345]Put simply, the Companies have not proved that but for the distributions derived from unlawful activity, Astion would have been able to save the rent it earned lawfully. The Companies did not prove that tainted funds from distributions are an insignificant proportion of the total funds received into Astion’s account and that the tainted funds did not enable Astion to use rent receipts to derive property. The Companies have the onus of proof that this is not so. They have not satisfied the onus.”

The contention in paragraph [711](d) above was expanded in oral address. Though put in a variety of ways the contention was that Bubbling Springs had refinanced Samara Street, and that use of lawful funds should have been reflected in the assessment of whether the learned trial judge could be satisfied that Samara Street was not derived from unlawful activity.[^719]

In that respect the Hart Companies referred to: (i) a refinancing with Sunshine in 2002, when $280,000 was lent; and (ii) the fact that the Sunshine loan was paid down by $130,000 from the proceeds of sale of another property, which itself was derived from lawful funds. It was said that the $130,000 paid down meant that there was a significant percentage of untainted funds reflected in the amount held after Samara Street was sold.[^720]

The learned trial judge did take the refinancing and reduction of the loan into account.[^721] His Honour said:[^722]

“The fact that the property was later refinanced and Astion may have then been repaid is relevant to the extent to which the Astion funds derived the property but does not alter my conclusion because the refinancing did not occur for four years and 9 months.”

In my view, the Hart Companies’ contention on this aspect cannot be sustained, for three reasons.

First, the learned trial judge did take the two matters into account. Notwithstanding the suggestion to the contrary in oral address, the refinancing was specifically adverted to in the conclusions as to whether the learned trial judge was satisfied that Samara Street was not derived from unlawful activity.

Secondly, the fact that a property is subsequently refinanced with lawful funds does not, in my view, alter the fact that its acquisition was with unlawful funds. The correct analysis is:

if a property is acquired as to 30 per cent with tainted funds then at that point 30 per cent of the owner’s interest in the property has been derived from unlawful activity;

when the property is later refinanced, that 30 per cent interest does not alter just because untainted funds are used to refinance; what is being refinanced is the total interest in the property, 30 per cent of which is derived from unlawful activity; and

similarly when the loan is paid down with untainted funds, the amount paid down is not, without some special arrangement, paid down only against that part of the interest in the property that is lawfully derived; it is the total interest that is being relieved from the previous level of the debt; though the debt is lower it does not affect the fact that the 30 per cent interest was derived unlawfully; that is, it does not affect the extent of the interest, even though it may affect the value of the interest.

Thirdly, the contention ignores the state of satisfaction that the learned trial judge had to reach under s 102(3), that being the basis upon which the Hart Companies’ application was brought, and the fact that the Hart Companies bore the onus of proving it. Relevantly, the learned trial judge had to be satisfied about two matters, namely: (i) whether the property was derived, directly or indirectly, from unlawful activity; and (ii) whether the applicant acquired the property lawfully. The finding by the court under s 102(3) does not require a finding as to extent or value of the interest or property; that only occurs if an order is to be made under s 102(1)(c).

The Hart Companies referred to a comment by the learned trial judge at Reasons [85], where in the context of payment by Merrell his Honour said:

“If an advance by Merrell was used to derive an asset, and was repaid, with funds not derived from unlawful activity, the fact of repayment would arguably lessen the extent to which the asset was derived from unlawful activity. Some funds were repaid to Merrell. For example, Sea Fury borrowed $500,000 from Merrell and repaid it with interest. Neither side expressly considered the significance of repayment of money derived from unlawful activity upon the extent to which an asset derived from that money remains derived from unlawful activity.”[^723]

As is evident the passage does not express a concluded view, and is not of assistance for that reason.

The Hart Companies’ appeal on this grounds fails.

Hangar 101; grounds 2 and 16 in 3908/13; grounds 4 and 5 in the notice of contention in 3908/13

This issue arises in a curious way. As far as the Hart Companies’ appeal is concerned Hangar 101[^724] was not mentioned specifically, and only caught by broad grounds contending that the assets should have been transferred to the Hart Companies unconditionally.[^725] As far as the Commonwealth’s notice of contention is concerned, it likewise did not refer to Hangar 101 specifically, but swept it up in grounds contending that in respect of each asset the learned trial judge should have held that he could not be satisfied that it: (i) had not been derived from unlawful activity; and (ii) had been acquired lawfully.[^726]

Further, the Hart Companies’ written outline did not refer to Hangar 101 at all, nor did the oral submissions except to refer to its exclusion from the Merrell charge.[^727] The Commonwealth’s written outline dealt with Hangar 101 specifically,[^728] but it was only mentioned in passing in the oral address.[^729]

The learned trial judge held that Yak had a lessee’s interest in Hangar 101 at the time of forfeiture, and that its interest had been acquired with untainted funds.[^730] However, his Honour could not determine the market value of that interest, either at forfeiture or trial, but was satisfied that the value of the interest was diminished by the Merrell charge for $1.6m.[^731]

The orders made on 6 May 2010 provided that upon payment of the sum of $1.6m less the sales proceeds of Merriwa Street and Doonan’s Road, the Commonwealth was to take various steps, one of which was that it would remove a caveat from Hangar 101.[^732]

The Commonwealth’s challenge to the findings in respect of Hangar 101 are simply put:[^733]

the only one of the Hart Companies to claim an interest in Hangar 101 was Alfredton Pty Ltd (Alfredton);[^734]

Mrs Hart’s affidavit dated 17 October 2006[^735] indicated that none of the other Hart Companies had an interest in it; that was because she said that it was held by Yak for the Nemesis Group Superannuation Fund; she said that by declaration of Trust dated 1 November 2001, Yak sold the property to Nemesis Group Superannuation Fund for a consideration of $150,000.00;[^736]

the trustee of the Nemesis Group Superannuation Fund was Alfredton; Mrs Hart said that Yak had transferred the lease to Bubbling Springs, which was then trustee for the Nemesis Group Superannuation Fund; Alfredton had replaced Bubbling Springs as trustee;[^737]

Mrs Hart expressly swore that Alfredton: “is the owner of the Hangar built on the land comprising the Hangar 101 Lease”; and “is the owner of the Hangar 101 Lease”;[^738] and

the learned trial judge found that Alfredton had no interest in Hangar 101 because the transfer from Yak to Bubbling Springs was invalid; because that finding was not challenged, no order could be made to transfer Hangar 101, as none of the Hart Companies had a legitimate claim to it.

The evidence established that the lessee under the registered lease was Yak.[^739] The lease term was 20 years from 14 November 1994 to 13 November 2015. That meant that as at the date of the judgment below the lease still had about 19 months to run. By the time this appeal was heard the lease had expired, which may be why the parties paid so little attention to it.

However, the Commonwealth must be taken to have pressed for relief in respect of Hangar 101, as there was a caveat lodged, and that may have led Yak or Alfredton to seek damages based on some form of undertaking as to damages or wrongful lodgement of the caveat.[^740]

The learned trial judge held:

Yak “purported to sell its interest in the hangar to Alfredton in December 2001 for $150,000”;[^741]

however, the Hart Companies sought to have Hangar 101 transferred to Alfredton, not Yak;[^742] and

Alfredton did not have a sublease from Yak, because there was no evidence of consent to the declaration of trust, and no suggestion that any such evidence could have been led.[^743]

Those findings are not challenged on appeal.

On the learned trial judge’s approach, that left the question as to whether an order should be made in favour of Yak.

One difficulty with that approach is that such relief, i.e. an order transferring Hangar 101 to Yak, or a payment of the value of Yak’s interest in Hangar 101, was not sought by the Hart Companies. The relief sought in the originating application was orders in accordance with the affidavit of Mrs Hart dated 17 October 2006. That affidavit claimed that Alfredton, not Yak, had an interest in Hangar 101. The originating application[^744] claimed:

“1.Pursuant to section 102(1)(c) of the Proceeds of Crime Act 2002, an order declaring the nature, extent and value of the applicants’ interest in the property described in the affidavit of Laura Elizabeth Hart sworn 17th October 2006.

Further to 1, either:

(a)An order directing the respondent to transfer the applicants’ interests in the property described in the affidavit of Laura Elizabeth Hart sworn 17th October 2006 to the applicants; or

(b)An order declaring that there is payable by the respondent to the applicants an amount equal to the value declared pursuant to paragraph 1 hereof.”

That was then reflected in the Hart Companies’ Points of Claim, where it was pleaded that Alfredton had lawfully acquired Hangar 101 by its payment of $150,000 to Yak in 2001.[^745] That was also the thrust of the Hart Companies’ written submissions, which claimed that it had been proven that Yak sold the hangar to the Nemesis Group Superannuation Fund in 2001, and therefore Alfredton purchased it lawfully.[^746]

However that may be, in my view there were a number of reasons why it cannot be shown that the learned trial judge was wrong to look at the residual question, namely whether an order should be made in favour of Yak.

First, the argument that Alfredton’s interest as sublessee was invalid because no consent had been obtained from the lessor, was not raised in the pleadings or in the Commonwealth’s written submissions, but only in oral address on day 13 of the trial.[^747] The Hart Companies made the point in response, during oral submissions at trial, that they had tried to address the issues raised in the Commonwealth’s pleading.[^748] As the learned trial judge pointed out there was evidence from the lessor that it had no record of any assignment.[^749]

Secondly, the Hart Companies’ written submissions at trial were arguably wide enough to seek that Hangar 101 be returned to whoever owned it, on the basis that unlawful funds were not used in its acquisition nor was it derived from any such funds.[^750] Thus, if the Commonwealth’s point was correct, and Alfredton had not obtained a valid assignment, their contention that no unlawful funds had been used would warrant s 102 relief for Yak.

Thirdly, once the Commonwealth proved that Alfredton’s assignment was invalid, it must have been obvious that the true claimant was Yak, and that relief, if granted, should be to Yak.

Fourthly, the object of the trial was to resolve all the real issues between the two sides to the case. It would not be a sensible use of the court’s processes to force Yak to start a new application for relief. Had an amendment been sought to claim the same relief for Yak, it would have almost certainly been allowed.

The learned trial judge found that:

Yak purchased Hangar 101 from the proceeds of sale of various properties, in 1994;[^751] those funds were not from unlawful activity;[^752]

the source of the funds for the purchase by Alfredton was the sale of shares in public companies, and a company called Techstar Ltd;[^753] and

the source of the funds to buy those shares was not unlawful.[^754]

The Commonwealth does not challenge those findings on appeal.

Ultimately the Commonwealth’s contention is that relief under s 102 should have been denied to Yak, because the Hart Companies pleaded and advanced a case that Alfredton was the true owner, even though the Commonwealth contended that Yak was the true owner. In reality that is a contention that relief under s 102 should have been denied to Yak, even though it was established that Hangar 101 was not acquired or derived from unlawful activity by any of its putative owners, because the formality of amending the claim for relief was not sought.

In my view, that is an unacceptable approach, particularly where the Hart Companies were self-represented. I consider the learned trial judge was correct to grant relief to Yak in respect of Hangar 101, subject to what follows.

The relief granted did not, in my view, properly take into account the relationship between Yak and the trustee of the Nemesis Group Superannuation Fund. With respect, it seems that the learned trial judge approached it on the basis that once he concluded that “Alfredton did not have a sublease from Yak”, that meant that Yak held the entirety of any interest in Hangar 101. For reasons which follow I do not consider that to be the correct approach.

The central issue is the impact on the rights of Yak in respect of Hangar 101, by virtue of its having executed the Declaration of Trust on 1 November 2001.

Clause 16.1(b) of the lease provided that clause 4.1 and 4.2 are essential terms of the lease.[^755] Clause 16.2(b) provided that an event of default would occur if Yak failed to comply with an essential term. If an event of default occurred the lessor had the right to terminate the lease or convert it to a tenancy at will: clause 16.5.

Clause 4.1(c) provided that “Subject to the provisions of this clause 4 [Yak] may not…dispose of, deal with or, subject to clause 4.3, assign its estate or interests in the Premises or its rights or powers as tenant under this lease”. Clause 4.3 set out a suite of provisions applicable to an assignment. There was no evidence to suggest that any had been followed.

Clause 4.3 contained a provision that “[Yak] and the proposed assignee are not to be taken to have complied with this clause 4.3 until a notice to that effect is given by the [lessor] to [Yak]”. There was no evidence of any such notice being given; in fact the contrary was the case.[^756] Clause 4.4 of the lease provided: “An assignment does not take effect against the [lessor] … until … clause 4.3 has been complied with...”.

The Declaration of Trust[^757] was executed because the trustee of the Nemesis Group Superannuation Fund[^758] had agreed to pay Yak the sum of $150,000 for its interest in the lease. There were to be three payments, the last of $40,000.

Clause 1 of the Declaration of Trust provided:

“Yak … HEREBY DECLARES that immediately upon payment of the said balance of $40,000.00 it shall thenceforth hold in Trust for [Bubbling Springs as trustee of the Nemesis Group Superannuation Fund] all of its right title and interest in [the lease] …”

By clause 2 of the Declaration of Trust Yak covenanted that it would:

in subclause (a), transfer the lease to the trustee “when called upon to do so subject to the consent of the Lessor”; and

in subclause (e), “not to deal with the [lease] in any way other than in accordance with the instructions of the [trustee]”.

Therefore when the $40,000 payment was made on 20 December 2001, by virtue of Yak’s execution of the Declaration of Trust several things followed:

Yak committed a breach of clause 4.1(c) or 4.3, and thereby exposed the lease to termination or conversion to a tenancy at will;[^759]

the rights and interests of Yak were held on trust for the trustee for the Nemesis Group Superannuation Fund (then Bubbling Springs and later Alfredton);

Yak bound itself to act thereafter in respect of Hangar 101, only in accordance with the trustee; and

Yak bound itself to transfer the lease to the trustee, subject the lessor’s consent, when the trustee called upon Yak to do so.

The signatures on the Declaration of Trust and the lease show that each was executed by the same persons on behalf of Yak and Bubbling Springs.[^760] Given the findings as to the way in which Mr Hart ran the Hart Companies, and the finding that Mr Hart was in effective control as at 2001, there can be little doubt that Bubbling Springs should be imputed to have had full knowledge of the lease terms when it paid the $150,000 and when Yak executed the Declaration of Trust.

In my view Yak’s interest in Hangar 101 was, from 20 December 2001, as bare trustee for the trustee of the Nemesis Group Superannuation Fund. Evidently that trustee had not called upon Yak to transfer the lease to it before the restraining orders were made in 2003, not before it was forfeited on 18 April 2006.

The interest of Bubbling Springs (and then Alfredton) was, from 20 December 2001, a beneficial interest as to the entirety of the interest in lease of Hangar 101, but subject to the fact that a breach had occurred rendering the lease liable to termination or conversion to a tenancy at will.[^761] It is not difficult to infer that either outcome would have a serious adverse effect on the value of the interest in Hangar 101.

The requirement that the lessor’s consent was necessary to any transfer to the trustee of the Nemesis Group Superannuation Fund, whether by the terms of the lease or by the Declaration of Trust, means that relief by way of a transfer to Alfredton was not likely to have been ordered. More likely was a transfer to Yak, so that Yak could be directed by Alfredton to achieve the transfer, if it could.

Whatever the form of relief that the learned trial judge should have given, there is no relief that this court can give, because the lease has expired.

The Commonwealth’s appeal on this ground fails, but no relief flows because the lease in respect of Hangar 101 has expired.

Failure to call Mr Hart; Jones v Dunkel inference; ground 12 in 4987/13

The Commonwealth contends, not just in the context of specific assets but more globally, that the failure to call evidence from Mr Hart should have resulted in the learned trial judge’s drawing an adverse inference on the basis of Jones v Dunkel.[^762]

Aspects of this issue have been touched on elsewhere in these reasons: paragraphs [526] to [528] above.

The rule in Jones v Dunkel has application if there is a material witness who could shed light on areas of dispute or put the true complexion on the facts in issue, but that witness is not called by the party who could call them, and there is no sufficient explanation for the failure to call them. In those circumstances:[^763]

the evidence that has been given might be more readily accepted, because it had been left un-contradicted;

the omission to call the witness will not supply any gaps in the evidence adduced;

any inference favourable to the opposite party, which is open on the evidence, might be more confidently drawn; and

the court can infer that the witness’s evidence would not have assisted the party which failed to call them.

In Rossi v Westbrook & Anor[^764] this Court adopted some observations as to the scope of the rule in Jones v Dunkel, made in Minister for Immigration and Multicultural Affairs v Jia Legeng,[^765] and Australian Securities and Investments Commission v Hellicar.[^766] The first was by Callinan J in Legeng:[^767]

“[T]he statement of principle in Jones v Dunkel is no more than a particular instance of the old rule stated by Lord Mansfield in Blatch v Archer [(1774) 1 Cowp 63 at p 65; [98 ER 969 at 970]] and cited recently by this Court in Vetter v Lake Macquarie City Council [(2001) 202 CLR 439], that evidence has to be weighed according to the circumstances of, as well as the capacity of, a party to adduce it.”

The other observations were from Hellicar where, after referring to Blatch v Archer, the majority said:

“Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led. Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which the absence of evidence may be taken to account are confined by known and accepted principles ...”.[^768]

and

“This Court’s decision in Jones v Dunkel is a particular and vivid example of the principles that govern how the demonstration that other evidence could have been called, but was not, may be used.”[^769]

In Rossi[^770] the court said that some idea of the sorts of cases which, conformably with Hellicar, may attract the general principle in Blatch v Archer, can be gained from the cases which the High Court distinguished in Hellicar:

“This was not a case where ASIC’s case depended on inference, let alone on ‘uncertain inferences’, or where there was a question about whether ‘limited material is an appropriate basis on which to reach a reasonable decision’. It was not a case where ‘the missing witness would be expected to be called by one party rather than the other’ or where it was known that ‘his evidence would elucidate a particular matter’.”[^771]

In my view, the incomplete explanations by Mrs Hart and Ms Peterson of critical transactions, in the face of evidence that called for better explanation, make this a case where “demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard”.[^772]

The question on this ground is directed to the particular case of Mr Hart’s position.

The learned trial judge made a finding as to the level of assistance provided by Mr Hart which goes some way to demonstrating how he was inextricably involved in the Hart Companies pursuit of relief under s 102:[^773]

“Mr Hart assisted with the settling of some affidavits, explaining the significance of some documents when affidavits were prepared, acted as Mackenzie friend, energetically took an advocate’s role in the trial and in interlocutory skirmishes in these proceedings. I infer that he identified to the Companies funds he would have argued came from lawful activities. Such help would have been useful in identifying supporting documents. He would have reduced any disadvantage the Companies had in their tracing tasks.”

The Hart Companies do not challenge that Mr Hart was a material witness who would come within the rule. They simply contend that there was an adequate explanation for the failure to call him.

As explained in paragraph [526] above, the failure to call Mr Hart received an explanation given in the final submissions,[^774] but not in evidence. The explanation, given that way without objection, was:

“The Applicants were informed by Mr Hart that he was advised by his legal advisers not to give evidence in these proceedings on the basis that all of the allegations of unlawful activity alleged by the Respondent involve Mr Hart.

Mr Hart has been charged on 4 separate occasions with criminal conduct involving the ATO and ASIC.Due to the above charges Mr Hart has faced 4 criminal trials since 2004, the last of which was permanently stayed by the District Court Brisbane on 5 August 2010:Two of the other three criminal trials, the CDPP eventually entered "Nolle prosequi".On the other criminal trial, Mr Hart was convicted on 25 May 2005 and sentenced to 7 years imprisonment.

The conduct of unlawful activity involving, Hendon, Northbourne, UOCL and Tinkadale involve alleged fraud against the ATO.

The conduct of unlawful activity involving Perpetual, also involves fraud as defined by section 408C of the Queensland Criminal Code.

The Applicants are aware that Mr Hart also declined to give evidence in the Pecuniary Penalty Application initiated by the CDPP against him in the trial heard in 2009.

The Applicants submit that there was “no utility” in issuing a subpoena to Mr Hart in attempting to force him to give evidence on behalf of the Applicants as his legal advice was to refuse to answer questions, given the propensity of the CDPP to issue criminal charges against him.

Based on all the above, the Applicants submit that no adverse findings should be drawn by this Court in the failure by the Applicants to obtain an affidavit from Mr Hart or having him available for cross-examination as it was outside of their control to do so.”

The learned trial judge accepted that explanation, and did not draw any adverse inference from the failure to call Mr Hart.[^775]

I have set out in paragraph [528] above the reasons why the explanation was insufficient to conclude that Mr Hart could have resisted a subpoena to attend to give evidence, or could have refused to answer all questions in these proceedings. They bear repeating:

first, the fact that Mr Hart may have been advised by his lawyers to refuse to give evidence does not mean that he could resist a subpoena;

secondly, where any allegation of offences committed by, or involving, Mr Hart, were of offences for which Mr Hart had already been found guilty, the rules against double jeopardy mean that there could be no basis to fear incrimination; some conduct had been found to be unlawful in previous civil proceedings,[^776] which would have left open a continuing risk to Mr Hart; however, in respect of the nine convictions on 26 May 2005 for offences of defrauding the Commonwealth in contravention of s 29D of the Crimes Act 1914 (Cth), there could be no further question of jeopardy; the appeals in respect of those convictions had been concluded in 2006;[^777] and

thirdly, while it is true that the topic of the Hendon and Northbourne schemes, and the Perpetual loan, might involve Mr Hart dealing with alleged unlawful conduct on his part, and therefore a basis to resist answering questions on the basis of self-incrimination, the position may well have been different with the actual payments to acquire assets; whilst the UOCL, Nemesis and Merrell payments were accepted to be from tainted funds, and therefore one can see that Mr Hart might resist answering questions, in so far as the Hart Companies sought to establish that there were innocent funds used in the various assets, there could be no ground for Mr Hart to fear giving evidence or answering questions.

Those matters notwithstanding, the main difficulty confronting the Commonwealth’s contention is that the explanation was that Mr Hart was acting on legal advice not to give evidence, and that explanation was allowed to be given without challenge. Indeed the explanation was answered by the Commonwealth in its closing submissions:[^778]

“This is not a reasonable explanation. There is no evidence that Mr Hart would refuse to give evidence if called by the applicants. Nothing can be deduced from his refusal to give evidence on his own behalf in the pecuniary penalty proceedings. It should be inferred that the applicants failed to call Mr Hart not because he would refuse to give evidence, but because he could not assist their case.”[^779]

Thus the Commonwealth did not challenge that: (i) Mr Hart had been given legal advice about his potential exposure if he gave evidence; (ii) that advice was to refuse to give evidence in the present proceedings; and (iii) Mr Hart intended, at least so far as the Hart Companies could ascertain, to rely on that advice and refuse to answer questions if called.

Given that state of affairs it is difficult to understand how it was not open to the learned trial judge to exercise his discretion and decline to draw an adverse inference under the rule in Jones v Dunkel. The alternative course would have required a conclusion that Mr Hart would have given relevant evidence if he had been subpoenaed to attend. That conclusion itself requires some assumptions:

that Mr Hart would not have taken objection to most or all questions; there was no prospect of Mr Hart not doing so, given his advice, and the potential for incrimination; and

even if he had, that the objections would have been overruled, and that ruling not challenged.

In my view, the learned trial judge’s refusal to draw an adverse inference cannot be shown to have been in error. The Commonwealth’s appeal on this ground fails.

Miscarriage of the discretion under s 141; refusal of s 141 relief unreasonable; ground 1 in 3885/13

The Commonwealth’s claim for relief under s 141 only became relevant if the Hart Companies were granted relief under s 102. The learned trial judge granted that relief, in respect of eight assets which are dealt with in detail elsewhere in these reasons. Thus the s 141 application was relevant.

The learned trial judge dismissed the Commonwealth’s application under s 141 POCA. The principal reasons for that seem to be:

the Hart Companies, because of their use of tainted sums, had failed to recover from forfeiture assets partly derived from the proceeds of lawful activity; the Commonwealth had retained those assets without the need to account for the lawfully derived inputs;[^780]

any sums the Hart Companies derived from unlawful activity were more than adequately taken into account by the Commonwealth’s remedies in the s 102(1) application, without the need to order transfer of further assets proved not to have been used in connection with unlawful activity, or derived from unlawful activity;[^781]

such personal benefit as the directors of the Hart Companies may have derived from the payment of limited credit card expenses, did not render it just to deprive the Hart Companies of any of the property shown to have been “not substantially derived from unlawful activity”;[^782]

the learned trial judge was not persuaded that Mr Hart remained in effective control of the Hart Companies;[^783]

as to the reduction in the pecuniary penalty imposed on Mr Hart, negotiated by Mr Hart in those proceedings: it would not be unjust if Mr Hart could have the benefit of the reduction in his penalty by $4.8M while the Hart Companies retained assets, because Mr Hart and the Hart Companies were not identical; it would be unjust to deprive the Hart Companies of assets because of an agreement between Mr Hart and the Commonwealth to which the Hart Companies were not party;[^784]

Mr Hart was not said to be a beneficial owner of any asset;[^785] and

if an asset (or its value) was to be transferred to the Hart Companies under s 102, that was because it had not been derived from or used in connection with unlawful activity.[^786]

Miscarriage of the discretion

There was no real contest at the appeal that s 141 confers a discretion to grant relief, once the jurisdiction has been enlivened. That, in my view is correct.

The Commonwealth challenges the exercise of the discretion on the basis of an error of the kind referred to in House v The King.[^787] Thus the overall contention was that the learned trial judge acted on wrong principle, took into account irrelevant considerations, failed to take into account relevant considerations, and mistook the facts.

The Commonwealth’s first contention is that the learned trial judge took into account an irrelevant consideration, namely that the Hart Companies had failed to succeed in retrieving some forfeited assets under s 102, which were partly derived from unlawful activity, and therefore the Commonwealth had retained those assets without the need to account for the lawfully derived inputs of them.[^788]

The learned trial judge’s conclusion must be understood in light of the applications that were before him. The Hart Companies sought relief under s 102, for the return of forfeited assets. The Commonwealth’s application sought relief only if the Hart Companies succeeded in recovering any property:

“Pursuant to section 141 of the Proceeds of Crime Act 2002 a declaration that any property recovered from forfeiture by [the Hart Companies] … pursuant to their section 102 application … is property that is available to satisfy any pecuniary penalty order made against [Mr Hart]”.[^789]

Thus, if the Hart Companies did not recover any property under s 102, no question would arise under the s 141 application.

The consideration taken into account can therefore only have arisen because of the particular circumstances of this case, where s 102 relief was sought, and if it was granted then s 141 relief was sought. However, the way in which it was taken into account was not because relief under s 102 had been granted, but because it had not, and then only in respect of some assets. So, it seems it was a factor in refusing relief in respect of some assets because different assets had not been recovered under s 102.

Section 141 does not depend on that circumstance being present for any part of its operation. It applies only where a pecuniary penalty order has been made under s 116. That in turn depends on the court being satisfied that: (i) the person was convicted of an indictable offence and had derived benefits from the offence; or (ii) the person had committed a serious offence: s 116(1). For the purpose of determining whether a person has derived a benefit, the court may treat property in the person’s effective control “as property of the person”: s 116(3).

Nor does s 141 depend on there having been a restraining order, or forfeiture of property. That said, it would be an unusual case where proceeds or crime were being pursued by the Commonwealth, and a restraining order had not been sought.

In my view, there are several reasons why the consideration was irrelevant.

First, the scheme and objects of POCA point to that result. The nature of POCA has been dealt with in detail elsewhere in these reasons,[^790] and does not need repeating. It suffices to recall that:

the confiscation scheme in Ch 2 is one of the means by which POCA achieves the objects of, inter alia, depriving persons of the proceeds and benefits of offences, punishing and deterring persons from breaching laws, preventing the reinvestment of proceeds and benefits, and enabling law enforcement authorities effectively to trace proceeds and benefits;

the confiscation scheme includes restraining orders, forfeiture orders and pecuniary penalty orders;

the intentionally wide impact of a restraining order is modified by provisions allowing the court to: take into account the public interest in some circumstances,[^791] refuse to make the order,[^792] impose conditions,[^793] permit expenses to be met out of the restrained property,[^794] and make ancillary orders modifying the order;[^795]

a person whose interests in property may be affected by a restraining order has the ability to modify its impact by contesting it being granted,[^796] or seeking its exclusion from the order on the basis that it is not the proceeds of unlawful activity, or proceeds of the offence to which the order relates;[^797] or they can apply to vary the order;[^798]

the intentionally wide impact of forfeiture orders is also modified by provisions allowing the court to: consider hardship in some cases,[^799] consider the public interest in others,[^800] permit the transfer of interests to affected persons,[^801] and order the payment of compensation;[^802]

a person whose interests in property is affected by a forfeiture order has the ability to modify its impact by contesting it being granted,[^803] applying to have it excluded from the order on the basis that it is not proceeds of unlawful activity,[^804] or applying for compensation;[^805]

the impact of forfeiture under s 92 is also modified by provisions allowing the court to: consider the public interest in some cases,[^806] and

a person whose interest in property is affected by automatic forfeiture under s 92 can apply to exclude the property from the forfeiture if it is not proceeds of unlawful activity and was acquired lawfully,[^807] apply for transfer back or payment of its value,[^808] and apply to buy back their interest.[^809]

That provides the context in which the provisions to make a pecuniary penalty order, and enforce it, operate. A significant part of that context is the way in which s 102 operates.

Section 102 is the section that applies where property has been forfeited under s 92 and vested in the Commonwealth under s 96. The relief sought is different from that under s 103 and s 105, which involves the claimant buying back their interest. If relief is granted under s 102 it will be for the interest in property to be transferred to the claimant, or payment of the value of the interest. If relief is refused then the entire property remains vested in the Commonwealth. There is no further occasion provided under POCA for consideration to be given to the claimant’s interest in the property, even if it was derived in part from lawful sources or activity.

In my view, that provides a compelling reason to conclude that if s 102 relief fails, that is the end of any consideration of the nature, extent or value of the interest that the claimant asserted. In those circumstances it would be an odd outcome if that consideration could arise again when an application was heard under s 141. To permit its affecting the s 141 relief would be to let the lost issue arise again, when the scheme of the legislation is that the issue has been disposed of.

Secondly, there is nothing in the text of s 141 which would suggest that it was a relevant consideration.

Thirdly, it would go some way to negating the objects of POCA. Section 102 operates on the basis that to get relief the court must be satisfied that the person’s interest was not involved in unlawful activity (whether used in connection with it or derived from it). The very person who could not satisfy the court of that would then be permitted to deploy that interest as a way of defeating relief under s 141, which is designed to make a pecuniary penalty order efficacious.

The second point raised by the Commonwealth turned on what the learned trial judge said at Reasons [884]:

“If an asset, or its value, is to be transferred to the Companies as a consequence of the POCA s 102 application, it is on the basis that, in spite of Mr Hart’s effective control of the asset, it was not derived from or used in connection with unlawful activity.”

The passage above reflects one reason why relief under s 141 was refused. The Commonwealth contends that it proceeds on the basis that an asset that has been found to not be derived from, or used in connection with, unlawful activity, and therefore transferred to the owner under s 102, cannot be the subject of an order under s 141.[^810]

If that was what his Honour intended to say, it was in error. On its face s 141(1) draws no distinction between property derived lawfully or unlawfully. All that it requires to be shown, in order for the power to grant relief to be enlivened, is that the relevant property “is subject to the effective control of” the person who is subject to the pecuniary penalty order. Thus it applies to lawfully derived property if it is in the effective control of the person the subject of the pecuniary penalty order.

The third point raised is that the learned trial judge failed to take into account a relevant consideration, namely the amount of the pecuniary penalty order and whether it could be satisfied with the order under s 141.[^811] The learned trial judge accepted that the purpose of an order under s 141 was to satisfy the pecuniary penalty order, as s 141(1) states, and that the Commonwealth had satisfied the conditions to enliven the power to grant relief.[^812] However, it is true to say that no consideration of this point appears in the relevant parts of the Reasons. The Hart Companies contend that such a consideration would be an irrelevant one.

In my view, there is one simple way to test the proposition. On an application under s 141 the property owner (or the person with effective control) could well advance the case that the orders were not appropriate to make, as a matter of discretion, because: (i) the pecuniary penalty order had already been satisfied; or (ii) the pecuniary penalty order would be satisfied by just some, not all, of the properties the subject of the application.

Were those matters to be advanced they would, in my view, undoubtedly be relevant considerations going to the exercise of the discretion. How could it be otherwise if one could demonstrate that the very order that s 141 was designed to make effective, had been satisfied? On the same basis the other alternative, likely satisfaction of the order, would be relevant.

If that is so, the same approach would suggest that if one could show that the pecuniary penalty order could not be satisfied without the s 141 relief that is a relevant consideration going to the exercise of discretion. That is not to say that it would necessarily be determinative, but that is not the focus of this point.

The pecuniary penalty order was in the sum of $14,757,287.35. It had not been satisfied at the time of the trial. In light of that, the Commonwealth drew attention the following passage:[^813]

“Any sums the Companies derived from unlawful activity are more than adequately taken into account by the Commonwealth’s remedies in the s 102(1) application, without the need to order transfer of further assets proved not to have been used in connection with unlawful activity, or derived from unlawful activity.”

There are some difficulties with that passage. First, s 102 does not give remedies to the Commonwealth. However, it may be that his Honour intended to mean the practical outcome, rather than legal remedies. Secondly, by making an assessment based on the “sums the Companies derived from unlawful activities”, the approach seems at odds with the finding that the learned trial judge could not determine the value of the Hart Companies’ interests in the assets. Thirdly, there was no evidence that would have established that those properties that remained forfeited were enough to satisfy the pecuniary penalty order. Fourthly, it would seem to give little weight to the conceded fact that, at the time relevant for s 141, Mr Hart was in effective control of the Hart Companies and assets.

In my view, it was an error of principle to not take this aspect into account when exercising the discretion under s 141.

The fourth point turned on what the Commonwealth contended was the learned trial judge’s taking into account that Mr Hart was not said to be a beneficial owner of any asset.[^814] I do not consider that his Honour did take it into account. In Reasons [883] reference was made the fact that the Commonwealth did not submit that Mr Hart was a beneficial owner. That does not signify that it was a relevant consideration, nor that it was taken into account.

The fifth point raised was that the learned trial judge had taken into account an irrelevant consideration, namely that Mr Hart would have effective control at the time of trial. His Honour did not do so. The relevant passage in the Reasons is at [880]. It explains that, even though the Commonwealth contended that Mr Hart was in effective control at the date of the trial, the evidence did not permit such a finding.

However, whilst the date of effective control in s 141(1) is the date of the restraining order[^815] that is the date applicable to determining whether the jurisdiction to grant relief has been enlivened. Once it comes to the question whether to actually exercise the discretion in favour of relief, I see no reason why the question of effective control, or more likely its absence, at the date of the trial would not be a relevant consideration. For example, if it could be shown that whatever the position at the date of the restraining order, effective control had ceased, it is difficult to see why the court should not take that into account. However, that question need not be finally determined.

The sixth point raised by the Commonwealth is that the learned trial judge ignored the fact that the unlawful activity had benefited the Hart Companies notwithstanding that individual assets were not used in connection with, or derived from, unlawful activity. As developed, this contention focussed on those assets which were found to be not substantially used in (or in connection with), or not substantially derived from, unlawful activity, notwithstanding that the evidence showed that tainted funds went into them. The example used was the Trojan aircraft, where 18 per cent of its total cost was from tainted funds, but s 102 relief was granted for the whole interest in it.

Given that this contention depends on the learned trial judge’s conclusion that the word “substantially” should be read into s 103, and given the conclusion in these reasons that such a construction was in error, there is no need to consider this aspect further.

The Commonwealth’s appeal on this ground succeeds.

Refusal of relief unreasonable

In light of the conclusions reached above and elsewhere in these reasons in relation to the appeals in respect of the individual assets, the question of the refusal of s 141 relief does not need to be examined.

Derivative grounds of appeal; grounds 16 and 21 in 3908/13; grounds 4, 5, 7 and 8 in the notice of contention in 3908/13; grounds 7 and 8 in 4987/13; grounds 1 and 3 in the notice of contention in 4987/13

These grounds are all derivatives of the appeals concerning the construction of s 102, whether the word “substantial” should be read into s 102(s) and (3), the source of funds for individual assets, whether individual assets were lawfully acquired or derived, and the form of the orders made on 6 May 2013.

For the reasons advanced in respect of those matters it is not necessary to deal separately with these grounds.

Grounds of appeal not pressed or abandoned

There were some grounds which were expressly dealt with by saying that they were “not pressed”:[^816]

ground 19 of 3908/13; recusal of the trial judge;

ground 11 of 4987/13, in so far as it relates to Hangar 607;[^817] and

grounds 16 and 17 of the notice of contention in 4987/13; issue estoppel.

In respect of others, nothing was said in support of them in the relevant outline, or orally. I take them to be no longer pressed:

grounds 7-9 in 3908/13; the North American T-6, VH-USN;

ground 9 in 4987/13; consideration of intermediary’s source of funds;

ground 13 in 4987/13; Hendon Arrangement, general finding; and

grounds 14(c) and (d) in 4987/13; payments of $40,000 and $35,000 from Tinkadale to Astion.

Still others were in the outlines but not addressed orally. In respect of those issues the parties’ approach was to rely on the outlines.[^818]

Proposed orders

For the reasons set out above:

the appeal in 3885 of 2013 ought to be dismissed;

the appeal in 3908 of 2013 ought to be dismissed;

the appeal in 4987 of 2013 ought to be allowed; and

the consequence of allowing the appeal in 4987 of 2013 is that the orders made below on 6 May 2013 ought to be set aside, and in lieu thereof it should be ordered that the application for s 102 relief brought by the Hart Companies is dismissed.

Given that the Commonwealth has largely succeeded in its challenge to the orders made below, and the Hart Companies have failed in their challenges and cross-contentions, it seems to me that the appropriate order as to costs is that the Hart Companies should pay the Commonwealth’s costs on all appeals. However, it may be that the Hart Companies would wish to make a contrary submission once they have had a chance to examine these reasons. They should have a chance to do so, and the Commonwealth should have a chance to respond.

The orders I propose are:Appeal No 3885 of 2013 is dismissed.Appeal No 3908 of 2013 is dismissed.Appeal No 4987 of 2013 is allowed.The orders made on 6 May 2013 are set aside, and in lieu thereof it is ordered that Originating Application BD3068 of 2006 in the District Court, brought by Flying Fighters Pty Ltd, Nemesis Australia Pty Ltd, Yak 3 Investments Pty Ltd, Bubbling Springs Olive Grove Pty Ltd and Alfredton Pty Ltd for relief pursuant to s 102 of the Proceeds of Crime Act 2002 (Cth), is dismissed.The applicants in BD 3068 of 2006 are to file any submissions on the question of costs within 14 days from today, and the respondent is to file any submissions in response within seven days thereafter.

DOUGLAS J: I have had the significant advantage of reading draft versions of the judgments of Morrison JA and Peter Lyons J. Their Honours’ analyses of the complex factual and legal issues in these appeals has helped me to express my own views succinctly. I agree with the reasons of Peter Lyons J and wish only to add some further brief remarks, principally about the proper construction of s 102 of the Proceeds of Crime Act 2002 (Cth) (POCA).

His Honour’s conclusion that the proper interpretation of s 102(3)(a), did not mean that property was “derived” or “realised” from an unlawful activity simply because the person’s interest was a consequence of the combined effect of unlawful activity and other activities which do not involve unlawful activity [at [923]] is supported, in my view, by the absence of any equivalent to s 102(2)(c) in s 102(3). It is the subparagraph in s 102(2)(c), excluding an applicant's interest in property that is the proceeds of an offence, which brings s 329 into play. The definition of “proceeds of an offence” in s 329 excludes property “partly derived or realised, whether directly or indirectly, from the commission of the offence” from the beneficial effect of s 102(1). The absence of an equivalent from s 102(3) supports the more confined interpretation of “derived” or “realised” in that subsection as meaning “wholly derived" or “wholly realised”.

The factual example of the difference that I have found most useful in this case is that of the North American Trojan aircraft where the purchase money for the aircraft was untainted but tainted money was spent in partly restoring it. It seems wrong to me to conclude that, simply because of the source of the money spent on its repair, the property was derived by its owner from unlawful activity. The more natural meaning is that it had been derived lawfully when it was bought.

The other significant question of construction in the case related, in my view, to the issue whether the discretion to make orders relating to the transfer of forfeited property under s 102 required the Court to consider whether the property was in the effective control of the person whose conviction caused the forfeiture at the date of the restraining order; see s 102(2)(b). For the reasons expressed by Peter Lyons J at [1217]-[1227] in particular I agree that it has not been shown that the learned primary judge erred in granting relief to the Hart companies under s 102 because the property had been under the effective control of Mr Hart at the time when the restraining orders had been made and a pecuniary penalty order had been made against him.

I also agree with his Honour’s proposed approach to the making of orders in the appeal.

PETER LYONS J: I have had the advantage of reading in draft form the reasons for judgment of Morrison JA. I am grateful to his Honour for setting out much of the background and a number of the statutory provisions relevant for the determination of these appeals.

Background

It is convenient to make specific reference to some history relevant to these proceedings, notwithstanding what appears in his Honour’s reasons. On 8 May 2003 a restraining order was made in the Queensland District Court relating to much of the property the subject of these appeals (that property is referred to as the forfeited property). On 19 December 2003, this order was varied to include the balance of the forfeited property. The order was made on each occasion under s 17 of the POCA[^819]. Both as originally made and as varied, the order identified each item of property as being the property of one of the companies which are parties to these appeals (together, the Hart companies), and expressly recorded in each case that the interest of the relevant Hart company was subject to the effective control of Mr Hart, also a party to these appeals.

These companies changed name on occasion. There are also other relevant companies, some of which changed names[^820]. I shall attempt to adopt the names for the companies associated with Mr Hart, generally referred to as the Hart Group, by the names used by the learned primary Judge.

On 26 May 2005, Mr Hart was found guilty of nine offences of defrauding the Commonwealth in contravention of s 29D of the Crimes Act. It was common ground that this had the consequence, by virtue of s 92 of the POCA that, after Mr Hart’s rights of appeal were exhausted, on 18 April 2006 the property previously referred to was forfeited under s 92 of the POCA.

On 17 July 2006 the Commonwealth Director of Public Prosecutions (CDPP) made an application under ss 116 and 134 of the POCA for a pecuniary penalty order (PPO) against Mr Hart. On 19 November 2010, the learned primary Judge made such an order, requiring Mr Hart to pay to the Commonwealth an amount of $14,757,287.35[^821].

On 7 September 2007, the CDPP applied for a declaration, pursuant to ss 119 and 141 of the POCA, that the PPO against Mr Hart be reduced by the value of certain property which had been forfeited to the Commonwealth. This application was amended to seek a declaration under s 141 that any property recovered from forfeiture by the Hart companies is property available to satisfy any PPO made against Mr Hart[^822], the amended application being filed on 12 April 2010.

As is apparent from the amendment, the Hart companies had applied (by an originating application filed on 17 October 2006) for orders declaring the nature, extent and value of the interest of each applicant in the forfeited property, and an order directing the Commonwealth (the respondent to the application) to transfer the applicant’s interests in that property to it; or an order declaring that there was payable by the Commonwealth to the applicants an amount equal to the value of the interests so declared[^823].

By an application filed on 23 November 2010, the Hart companies sought orders that the learned primary Judge recuse himself from hearing the applications made by the Hart companies, and the vacation of trial dates, being a period of two weeks commencing 22 November 2010; with the trial to be adjourned to 1 April 2011[^824]. The applications were refused[^825].

The hearing commenced on 23 November 2010, continuing until 2 December of that year; and resuming on 8 and 9 March 2011, with further written submissions received on 21 March 2011. Reasons were published on 2 April 2013.

Orders were made by the learned primary Judge on 2 April 2013, and 6 May 2013[^826]. The ultimate effect of those orders was that the Hart companies were to pay the sum of $1.6 million less the proceeds of sale of two properties to the Commonwealth, within 60 days; in which event, the Commonwealth was required to remove caveats over the subleases of two hangars, and three aircraft were to be transferred to Fighters. This property (the recoverable property) was part of the forfeited property. Otherwise the applications were dismissed.

Those orders resulted in the present appeals. I am grateful to Morrison JA for his summary of what his Honour described as common issues, and issues in each of the appeals.

The CDPP is not identified as a party to the appeals, but the Commissioner of the Australian Federal Police (FPC), not identified as a party in the proceedings at first instance, is named as a party in the appeals. No explanation was provided for the constitution of the appeals, and the change may perhaps be explained by reference to s 315B of the POCA. No point having been raised, it seems appropriate to proceed on the basis that the appeals are properly constituted, and in particular, that the FPC is entitled to pursue an appeal. It will be convenient to refer to the parties, other than Mr Hart and the Hart companies, collectively as the Commonwealth parties.

Given that the appeals arise out of applications made under the POCA, I propose to commence with a brief overview of provisions of that Act which are of some relevance to the appeals; followed by an observation about the sense in which the term “property” is used in the Act. As Morrison JA has noted, the appeals were conducted on the basis that the relevant version of the Act is that in force from 13 July 2006.

Relevant provisions of the POCA

The principal objects of the Act are set out in s 5. Morrison JA has sufficiently reproduced those of relevance in these proceedings.

Section 17 provides that a restraining order must be made in certain circumstances. They include that a person has been charged with an indictable offence, or it is proposed that he or she be charged with an indictable offence; and that the application be supported by an affidavit stating that the authorised officer making the affidavit suspects that that person (referred to in each of these cases as the “suspect”) has committed the offence, and that the officer suspects that the property is subject to the effective control of the suspect, or alternatively that the property is “proceeds” of the offence. The combination of those circumstances requires the Court to make a restraining order on an application by the CDPP, if the Court is satisfied that the authorised officer holds the suspicions on reasonable grounds. The order must specify the property subject to the order, which may be (relevantly for present purposes) specified property of another person if that property is subject to the effective control of the suspect. Thus, in substance, the Court is required to make a restraining order in respect of property of another person, if that property is subject to the effective control of a person charged with an indictable offence, or if it is proposed that that person be charged with an indictable offence (and reasonable grounds are shown for the suspicions mentioned).

Under s 26, notice of an application for a restraining order must be given to the owner of the property (if known); and to any other person the CDPP reasonably believes might have an interest in the property (though the Court must consider the application without notice being given, if the CDPP so requests; but the Court might direct the CDPP to give notice prior to the final determination of the application). A person claiming an interest in the property may appear and adduce evidence at the hearing of the application.

Under s 29, property the subject of a restraining order made under s 17 might be excluded from the order if, where the offence to which the order relates is a “serious offence” (a defined term), the property was neither proceeds nor an instrument of unlawful activity (a defined expression); or otherwise, if the property is neither proceeds nor an instrument of the offence (or any offence) to which the restraining order relates.

Section 37 makes it an offence to dispose of or otherwise deal with property in contravention of a restraining order, if the person doing so knows that, or is reckless to the fact that, the property is covered by a restraining order; or the person was given notice of the order (under s 33), or particulars of the order were recorded on a property register (under s 34).

Under s 42, a person who had not been notified of the application for a restraining order, may apply for its revocation. The substantial ground is that, at the time of considering the application, there were no grounds on which to make the order.

A suspect may apply under s 44 for revocation of a restraining order, or exclusion of property from a restraining order, if the suspect gives satisfactory security for any liability that might be imposed on the suspect under the POCA. Under the same section, the Court may revoke a restraining order, or exclude property from a restraining order, where the order covers property of a person who is not a suspect, and that person gives an undertaking concerning that person’s property that is satisfactory to the Court.

Under s 45 a restraining order that relates to an offence ceases to be in force where the charges that relate to the restraining order are withdrawn; or the suspect is acquitted of the offences with which the suspect was charged; or convictions of the suspect are quashed. However, this provision does not operate in a number of circumstances, including where there is a confiscation order (an expression which includes a forfeiture order and a PPO[^827]) that relates to the offence, or an application for a confiscation order is before the Court. A restraining order also ceases to be in force if a PPO relates to the offence relevant for the restraining order, and the PPO is satisfied; or the property is sold or disposed of to satisfy the PPO; or the PPO is discharged or ceases to have effect.

Part 2-2 of Chapter 2 of the POCA deals with forfeiture orders. It is not directly relevant to these proceedings. However some provisions of this Part might be noted. Under s 48, where a person is convicted of an indictable offence, a Court must, on an application by the CDPP, make a forfeiture order in respect of property that was proceeds of one or more of the offences; and may make such an order in respect of property that is an instrument of such an offence. Under s 56, the Court must specify, in any forfeiture order, the amount it considers to be the value, at the time the order is made, of property other than money. Under s 57, provision is made for a declaration as to the nature, extent and value (at the time of the order) of the interest of any person in the property, and a declaration that the interest might be excluded, under s 89, from the operation of the forfeiture order. Under s 89, payment of the declared value to the Commonwealth will result in the transfer of the interest to the person in whom it was vested immediately before the property was forfeited to the Commonwealth.

Section 92 provides that if a person is convicted of a serious offence, and, six months after the conviction, property is covered by a restraining order “against the (convicted) person that relates to the offence”, the property is forfeited to the Commonwealth (sometimes referred to as statutory forfeiture). Under s 94, the person so convicted may apply to have property the subject of the restraining order excluded from forfeiture, if the person owns the property, and the Court is satisfied the property is neither proceeds of unlawful activity, nor an instrument of unlawful activity, and is also satisfied that the person’s interest in the property was lawfully acquired (section 94 was amended by Act 4 of 2010 to permit an application to be made by any person, though the person must establish an interest in the property). However, an order cannot be made under s 94 if the forfeiture has already occurred.

Section 96 provides that property forfeited under s 92 “vests absolutely in the Commonwealth at the time of the forfeiture”. (There are exceptions which are immaterial for present purposes.) Section 99 identifies a period after which the forfeited property might be disposed of; and s 100 requires the prompt disposal thereafter of forfeited property; and, after the payment of certain expenses, the crediting of the remainder received to the Confiscated Assets Account (CAA).

This background leads to s 102, relating to the recovery of forfeited property, discussed in more detail later in these reasons. Section 103 also provides for a “buy back” of an interest in property forfeited under s 92 by a person claiming the interest, if that is not contrary to the public interest and there is no other reason why the interest should not be transferred to the person applying for the relief.

Section 106 requires the Minister to arrange for an interest in property to be transferred to a person, if a direction is made under s 102(1)(d)(i) (i.e., an order is made for the transfer, on the application of a person claiming an interest, who has satisfied one of the sets of conditions referred to in s 102) if certain conditions are satisfied. They include that that person’s interest was not the only interest in the property; that the person gave written notice to each other person “who had an interest in the property immediately before the forfeiture took place”, of what is referred to as that person’s intention to purchase “that other interest” (presumably, a reference to the interest of the person other than the person who has the benefit of the order under s 102); that no objection is made in response to the notice; and that the person with the benefit of the order pays to the Commonwealth “an amount equal to the value of that interest”.

Part 2-4 of Chapter 2 of the POCA deals with PPOs. It has the effect that such an order must be made, where a person has derived benefits from an indictable offence of which the person has been convicted, or the person has committed a “serious offence”[^828]. In determining whether a person has derived a benefit from an offence, the Court may take into account property of another person which is subject to the effective control of the person convicted[^829]. There are provisions for determining the value of the benefit, and the determination of the penalty amount, which it is not necessary to recite[^830]. It might be noted that in making this determination, the Court may treat as property of the person against whom the PPO is to be made, property that is under that person’s effective control[^831]. Moreover, by s 130, the amount of the PPO is to be reduced by an amount equal to the value, at the time of making the PPO, of property that is proceeds of the offence to which the PPO relates, if the property has been forfeited under the POCA.

Section 133 (relevant to an application by the Commonwealth parties in these proceedings) permits the Court to vary a PPO by increasing the penalty amount in certain circumstances. One is that the penalty amount was reduced under s 130 to take account of a forfeiture or proposed forfeiture of property; and an appeal against the forfeiture or forfeiture order is allowed, or the proceedings for the proposed forfeiture order terminate without the proposed forfeiture order being made.

Division 4 of Part 2-4 of the POCA deals with the enforcement of PPOs. The amount payable under the PPO is a civil debt due to the Commonwealth[^832]. Under s 141, discussed later in these reasons, the CDPP may apply for an order declaring that the whole, or a specified part, of property is available to satisfy the PPO, if the Court is satisfied that the property is subject to the effective control of the person against whom the PPO was made. It also provides for the making of a restraining order in respect of that property. Section 142 provides that if a PPO was made against a person in relation to an indictable offence, and a restraining order has been made against property of that person, or a declaration is made under s 141(1) in respect of the property of another person and a restraining order has been made in relation to that property, then a charge is created over the property, when the later of these orders is made. Moneys paid under a PPO are to be credited to the CAA[^833].

It is convenient at this point to record some provisions of the POCA, relating to definitions (an asterisk denotes that the term which follows is a defined term), being,

“329****Meaning of proceeds and instrument

(1)Property is proceeds of an offence if:

(a)it is wholly derived or realised, whether directly or indirectly, from the commission of the offence; or

(b)it is partly derived or realised, whether directly or indirectly, from the commission of the offence;

whether the property is situated within or outside *Australia.

(2)Property is an instrument of an offence if:

(a)the property is used in, or in connection with, the commission of an offence; or

(b)the property is intended to be used in, or in connection with, the commission of an offence;

whether the property is situated within or outside *Australia.

(3)Property can be proceeds of an offence or an instrument of an offence even if no person has been convicted of the offence.

(4)Proceeds or an instrument of an *unlawful activity means proceeds or an instrument of the offence constituted by the act or omission that constitutes the unlawful activity.

330****When property becomes, remains and ceases to be proceeds or an instrument

(1)Property becomes *proceeds of an offence if it is:

(a)wholly or partly derived or realised from a disposal or other dealing with proceeds of the offence; or

(b)wholly or partly acquired using proceeds of the offence;

including because of a previous application of this section.

(2)Property becomes an *instrument of an offence if it is:

(a)wholly or partly derived or realised from the disposal or other dealing with an instrument of the offence; or

(b)wholly or partly acquired using an instrument of the offence;

including because of a previous application of this section.

(3)Property remains *proceeds of an offence or an *instrument of an offence even if:

(a)it is credited to an *account; or

(b)it is disposed of or otherwise dealt with.

(4)Property only ceases to be *proceeds of an offence or an *instrument of an offence:

(a)if it is acquired by a third party for *sufficient consideration without the third party knowing, and in circumstances that would not arouse a reasonable suspicion, that the property was proceeds of an offence or an instrument of an offence (as the case requires); or

(b)if the property vests in a person from the distribution of the estate of a deceased person, having been previously vested in a person from the distribution of the estate of another deceased person while the property was still proceeds of an offence or an instrument of an offence (as the case requires); or

(ba)the property has been distributed in accordance with:

(i)an order in proceedings under the Family Law Act 1975 with respect to the property of the parties to a marriage or either of them; or

(ii)a financial agreement within the meaning of that Act;

and 6 years have elapsed since that distribution; or

(c)if the property is acquired by a person as payment for reasonable legal expenses incurred in connection with an application under this Act or defending a criminal *charge; or

(d)if a *forfeiture order in respect of the property is satisfied; or

(e)if an *interstate restraining order or an *interstate forfeiture order is satisfied in respect of the property; or

(f)if the property is otherwise sold or disposed or under this Act; or

(g)in any other circumstances specified in the regulations.

(5)However, if:

(a)a person once owned property that was *proceeds of an offence or an *instrument of an offence; and

(b)the person ceased to be the owner of the property and (at that time or a later time) the property stopped being proceeds of an offence or an instrument of the offence under subsection (4) (other than under paragraph (4)(d)); and

(c)the person acquires the property again;

then the property becomes proceeds of an offence or an instrument of the offence again (as the case requires).

(5A)Paragraph (4)(ba) does not apply if, despite the distribution referred to in that paragraph, the property is still subject to the *effective control of a person who:

(a)has been convicted of; or

(b)has been charged with, or who is proposed to be charged with; or

(c)has committed, or is suspected of having committed;

the offence in question.

(6)Property becomes, remains or ceases to be *proceeds of an *unlawful activity, or an *instrument of an unlawful activity, if the property becomes, remains or ceases to be proceeds of the offence, or an instrument of the offence, constituted by the act or omission that constituted the unlawful activity.

336****Meaning of derived

A reference to a person having derived *proceeds, a *benefit or *literary proceeds includes a reference to:

(a)the person; or

(b)another person at the request or direction of the first person;

having derived the proceeds, benefit or literary proceeds directly or indirectly.

337****Meaning of effective control

(1)Property may be subject to the effective control of a person whether or not the person has:

(a)a legal or equitable estate or *interest in the property; or

(b)a right, power or privilege in connection with the property.

(2)Property that is held on trust for the ultimate *benefit of a person is taken to be under the effective control of the person.

(3)However, if a person is one of 2 or more beneficiaries under a *discretionary trust, the following undivided proportion of the trust property is taken to be under the effective control of the person:

(4)If property is initially owned by a person and, within 6 years either before or after an application for a *restraining order or a *confiscation order is made, disposed of to another person without *sufficient consideration, then the property is taken still to be under the effective control of the first person.

(5)In determining whether or not property is subject to the effective control of a person, regard may be had to:

(a)shareholdings in, debentures over or *directorships of a company that has an *interest (whether direct or indirect) in the property; and

(b)a trust that has a relationship to the property; and

(c)family, domestic and business relationships between persons having an interest in the property, or in companies of the kind referred to in paragraph (a) or trusts of the kind referred to in paragraph (b), and other persons.

338****Dictionary

In this Act, unless the contrary intention appears:

…

confiscation order means a *forfeiture order, a *pecuniary penalty order or a *literary proceeds order.

deal: dealing with a person’s property includes:

(a)if a debt is owed to that person—making a payment to any person in reduction of the amount of the debt; and

(b)removing the property from *Australia; and

(c)receiving or making a gift of the property; and

(d)if the property is covered by a *restraining order*—*engaging in a transaction that has the direct or indirect effect of reducing the value of the person’s interest in the property.

encumbrance, in relation to property, includes any *interest, mortgage, charge, right, claim or demand in respect of the property.

interest, in relation to property or a thing, means:

(a)a legal or equitable estate or interest in the property or thing; or

(b)a right, power or privilege in connection with the property or thing;

whether present or future and whether vested or contingent.

Note:For references to an interest in property of a person who has died, see subsection 325(2).

property means real or personal property of every description, whether situated in *Australia or elsewhere and whether tangible or intangible, and includes an *interest in any such real or personal property.

tainted property means:

(a)*proceeds of an *indictable offence; or

(b)an *instrument of an indictable offence.

unlawful activity means an act or omission that constitutes:

(a)an offence against a law of the Commonwealth; or

(b)an offence against a law of a State or Territory that may be dealt with on indictment (even if it may also be dealt with as a summary offence in some circumstances); or

(c)an offence against a law of a foreign country.”

In Director of Public Prosecutions (Cth) v Hart (No. 2) (Hart No. 2), McPherson JA (with whose reasons Williams JA and Chesterman J agreed on this point)[^834] said, with reference to the definition of “property” in s 338 of the POCA[^835],

“The word ‘property’ is plainly capable of meaning either or both of the thing owned or ownership of the thing; as when one says of something that ‘that property is my property’. In Yanner v Eaton[^836], the relevant provision under consideration, which was s 7(1) of the Fauna Conservation Act 1974, provided that all fauna, meaning or including wild animals, ‘is the property of the Crown’. In that context, ‘property’ referred to ownership, and not to the wild animal itself which was, or was claimed by the Crown under the Act to be, the subject of its ownership. It is plainly not in this sense, but in the sense of a thing or object (or res as the Roman lawyers would have called it) that the word ‘property’ is used in s 338. To ascribe to it in that context the meaning ‘ownership’ would make nonsense of the statutory definition, as well as of the related definition of the word ‘interest’ which speaks of an estate or interest ‘in the property or thing’. Indeed, s 29(4) (of the POCA) speaks of ‘property’ that is ‘owned’ or ‘not owned’; and one does not naturally speak of ownership being owned. Taken together, the statutory meanings of ‘property’ and ‘interest’ are perhaps capable of referring to either or both of the object owned and the ownership of or an interest in it. But the primary meaning of ‘property’ in s 338(1) is the thing itself.”

McPherson JA held that when s 337 referred to the effective control of property, it referred to the effective control “of or over the things, such as aircraft and land, which are targets of the restraining order of 8 May 2003”[^837]. His Honour was dealing with an application under s 29 of the POCA for the exclusion of specific property from a restraining order. Under s 29(4), the Court was required not to exclude property from such an order unless it was satisfied that a PPO could not be made against the suspect, in the case of property not owned by the suspect but under his effective control. An issue arose as to whether the property referred to was the thing or object itself, or a proprietary interest in such a thing or object[^838]. The conclusion will be apparent from what has been quoted. The approach taken by McPherson JA in Hart No. 2 is in broad terms consistent with the view of the majority in White v Director of Public Prosecutions (WA)[^839] (White HC). In the latter case, their Honours emphasised, however, that which of the meanings of the expression “property” is relevant in a particular provision will depend upon the context and purpose of the provision in which the term is found[^840].

Thus, it was found in Hart No. 2 that what might be excluded from a restraining order is the thing or object which is capable of being owned; rather than a particular interest. It would seem to follow that a restraining order ordinarily relates to a thing or object; and that what is forfeited as a result of a forfeiture order, or statutory forfeiture, is usually the thing or object, rather than an interest in the thing or object.

These conclusions are supported by reference to ss 57 and 89, which might result in the exclusion of a particular interest from the operation of a forfeiture order; s 102, providing for a claim by a person with an interest in property, where the property has been forfeited under s 92; and s 106, which reflects the fact that there may be a number of persons who have an interest in property, when property has been forfeited under s 92.

It is now convenient to turn to some of what Morrison JA has described as central or common issues.

Conditions in s 102(3)(a) of the POCA

Section 102 of the POCA is as follows:

“Division 3—Recovery of forfeited property

102****Court may make orders relating to transfer of forfeited property etc.

(1)If property is forfeited to the Commonwealth under section 92, the court that made the *restraining order referred to in paragraph 92(1)(b) may, if:

(a)a person who claims an *interest in the property applies under section 104 for an order under this section; and

(b)the court is satisfied that the grounds set out in subsection (2) or (3) exist;

make an order:

(c)declaring the nature, extent and value of the applicant’s interest in the property; and

(d)either:

(i)if the interest is still vested in the Commonwealth— directing the Commonwealth to transfer the interest to the applicant; or

(ii)declaring that there is payable by the Commonwealth to the applicant an amount equal to the value declared under paragraph (c).

(2)An order under this section may be made if:

(a)the applicant was not, in any way, involved in the commission of the offence to which the forfeiture relates; and

(b)the applicant’s *interest in the property is not subject to the *effective control of the person whose conviction caused the forfeiture; and

(c)the applicant’s interest in the property is not *proceeds of the offence or an *instrument of the offence.

(3)An order under this section may also be made if:

(a)the property was not used in, or in connection with, any *unlawful activity and was not derived or realised, directly or indirectly, by any person from any unlawful activity; and

(b)the applicant acquired the property lawfully; and

(c)the applicant is not the person convicted of the offence to which the forfeiture relates.”

Section 102(3) sets out what I would describe as one of two alternative sets of conditions which an applicant must satisfy before a discretion (discussed later in these reasons) arises to make an order under s 102(1). The applications by the Hart companies at first instance were expressly based on s 102(3)[^841]. Section 102(3)(a) deals with two separate questions, one relating to the use of property (use test) and one relating to the source of property (source test).

The learned primary Judge held that, to satisfy the source test found in s 102(3)(a), an applicant must show that the property was not substantially derived or realised, directly or indirectly, by any person from any unlawful activity[^842]. In reaching that conclusion, his Honour adopted the approach taken by Greg James J in Director of Public Prosecutions v Diez[^843] (Diez). There the conclusion was reached that a similarly worded test for determining whether property might be excluded from a restraining order under s 48 of the Proceeds of Crime Act 1987 (Cth) (1987 Act) required the applicant to demonstrate that there was no substantial contribution from illegal activity to the derivation of the property[^844]. The learned primary Judge adopted similar tests on the questions of the realisation of property, and its use in connection with the commission of an offence, in the application of s 102(3)(a). In adopting this approach, and rejecting the submissions of the Commonwealth parties to the contrary, his Honour relied upon the penal nature of the forfeiture provisions of the POCA[^845].

For the Commonwealth parties it was submitted that there was no basis for introducing the notion of substantiality into s 102(3)(a)[^846], in connection with the source test or with the use test. They relied upon the decision of the Full Court of the Supreme Court of South Australia in Director of Public Prosecutions v George[^847] (George); and the decision of the Court of Appeal of the Northern Territory in Dickfoss v Director of Public Prosecutions[^848] (Dickfoss). It was also submitted that the learned primary Judge had read words into the provision, in a way inconsistent with the tests usually applied to such an approach, for example as set out in Taylor v Owners Strata Plan No 11564[^849] (Taylor). The decision of Hunt CJ at CL in Director of Public Prosecutions (Cth) v Jeffery[^850] (Jeffery No 1) was submitted to be wrong. The Commonwealth parties also relied on the decision of the New South Wales Court of Appeal in R v Hadad[^851] (Hadad).

For similar reasons, it was submitted that the learned primary Judge erred in introducing a notion of substantiality in relation to s 102(3)(b).

The learned primary Judge had distinguished Hadad[^852] because that case dealt with a different legislative provision, which conferred a wide discretion on the Court in cases where property was used in, or in connection with, the commission of a serious offence. His Honour noted that it was the width of the discretion to order forfeiture of property which was influential in that decision.

The Hart companies relied upon the decision of Carter J in Re An application pursuant to the Drugs Misuse Act 1986[^853] (DMA case), where, on the question whether property was liable to forfeiture under s 33 of that Act on the basis that it was used in connection with the commission of an offence, his Honour adopted the approach of Adam J in Murdoch v Simmonds[^854], which Carter J considered to “express adequately the relevant test”[^855]. That test would be satisfied if there was “‘a substantial connection’ and accordingly there should be in the circumstance of the case ‘in a very real sense’ a substantial connection” between the use of the property, and the offence[^856]. His Honour distinguished this from “a mere accidental or incidental connection” with the commission of the offence; though he pointed out that he was not trying to provide an exhaustive definition of the test[^857].

The Hart companies also submitted that the decision in George was not decisive[^858]. Apart from the fact that it was not clear that the majority of the Court had adopted the position for which the Commonwealth parties contended, even the judgment of Doyle CJ (on which those parties relied) recognised that the use of the property in connection with the commission of the offence “must be sufficiently significant” for the test to be met[^859].

It was submitted that the legislation considered in Dickfoss was different and it was in any event concerned with the question whether it was necessary that the connection be “direct and immediate”[^860].

It was submitted that the application of the approach taken by Doyle CJ in George and Riley CJ in Dickfoss might in any event result in the same outcome as was reached in the present case[^861].

It is convenient first of all to note that s 102 confers a discretion on a Court. That proposition appears to have been accepted by the Commonwealth parties[^862]. It is consistent with s 33(2A) of the Acts Interpretation Act 1901 (Cth)[^863]. Some provisions of the POCA provide that a Court “must” make an order if specified conditions are satisfied; others provide that a Court “may” make an order in such circumstances. Section 102 falls into the latter category. In my view, this provides confirmation of the discretionary nature of the power conferred on a Court by s 102.

The second thing which it seems to me to be appropriate to note is that the discretion is one to order the return of forfeited property, or to declare that an amount is payable by the Commonwealth to the applicant, equal to the value of the applicant’s interest in the forfeited property. The section is thus remedial or beneficial. Ordinarily, such a provision should be construed “so as to give the fullest relief which the fair meaning of its language will allow”[^864].

Plainly enough, the general purpose of the POCA may be identified as being to deprive persons of property which is the result of criminal activity; or, as was said in Lee v Director of Public Prosecutions (Cth)[^865], the taking of the property in the prescribed circumstances is the primary purpose of the legislation. No doubt its provisions were seen by the legislature as appropriate to assist in the enforcement of the criminal law. In many respects, they might be considered harsh, and the Act has been described as “draconian” by Santamaria JA in Markovski v Director of Public Prosecutions[^866].

Nevertheless, such considerations do not alter the nature of s 102. In Nilant v Macchia[^867] (Nilant) Weinberg J[^868] noted that the Bankruptcy Act 1966 (Cth) was not “a remedial Act”; but that s 306 was a remedial or beneficial provision, to which the general rule applicable to the construction of such provisions should apply[^869].

It is apparent from its language that s 102 is intended to work against or alter the effect resulting from the operation of other provisions, themselves no doubt designed to achieve what has been described as the primary purpose of the POCA. In those circumstances, while the POCA may be regarded as relevant background for the proper construction of the section, it seems to me that the general purposes of the POCA are not the purpose for the enactment of s 102, and those general purposes have at best limited relevance to the construction of the section. Support for these conclusions, it seems to me, is to be found in the following statement of Gleeson CJ in Carr v Western Australia[^870]:

“Another general consideration relevant to statutory construction is one to which I referred in Nicholls v The Queen[^871]. It was also discussed, in relation to a similar legislative scheme, in Kelly v The Queen[^872]. It concerns the matter of purposive construction. In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act is to be preferred to a construction that would not promote that purpose or object. As to federal legislation, that approach is required by s 15AA of the Acts Interpretation Act 1901 (Cth) ("the Acts Interpretation Act"). It is also required by corresponding State legislation, including, so far as presently relevant, s 18 of the Interpretation Act 1984 (WA). That general rule of interpretation, however, may be of little assistance where a statutory provision strikes a balance between competing interests, and the problem of interpretation is that there is uncertainty as to how far the provision goes in seeking to achieve the underlying purpose or object of the Act. Legislation rarely pursues a single purpose at all costs. Where the problem is one of doubt about the extent to which the legislation pursues a purpose, stating the purpose is unlikely to solve the problem. For a court to construe the legislation as though it pursued the purpose to the fullest possible extent may be contrary to the manifest intention of the legislation and a purported exercise of judicial power for a legislative purpose.

To take an example removed from the present case, it may be said that the underlying purpose of an Income Tax Assessment Act is to raise revenue for government. No one would seriously suggest that s 15AA of the Acts Interpretation Act has the result that all federal income tax legislation is to be construed so as to advance that purpose. Interpretation of income tax legislation commonly raises questions as to how far the legislation goes in pursuit of the purpose of raising revenue. In some cases, there may be found in the text, or in relevant extrinsic materials, an indication of a more specific purpose which helps to answer the question. In other cases, there may be no available indication of a more specific purpose. Ultimately, it is the text, construed according to such principles of interpretation as provide rational assistance in the circumstances of the particular case, that is controlling.

As explained in Kelly and Nicholls, the general purpose of legislation of the kind here in issue is reasonably clear; but it reflects a political compromise. The competing interests and forces at work in achieving that compromise are well known. The question then is not: what was the purpose or object underlying the legislation? The question is: how far does the legislation go in pursuit of that purpose or object?”

I am conscious that others have approached the construction of such provisions on the basis that the legislation is penal. Thus in Jeffrey v Director of Public Prosecutions (Cth)[^873] (Jeffrey No. 2), it was held that s 48 of the 1987 Act, being the analogue of s 102 of the POCA, should be construed on the basis that the legislation is penal[^874]. It seems to me that, broadly speaking, the results of either approach are unlikely to be different.

In my view, the use test raises quite different questions from the source test. The former seems primarily directed to the “thing or object” in which a person might have an interest, and which might be used in or in connection with the commission of an offence; and the latter primarily to a person’s interest in the property, a matter to which questions of derivation, or realisation from unlawful activity, are likely to be directed. It would seem unlikely that, when dealing with the source test, the legislation would generally be concerned with the origin of property, considered as a physical entity. As the cases show, difficulties arise, when an offence is committed in or on property, in deciding whether the property was used in connection with the commission of an offence; but these difficulties are quite different from those which arise when considering how property was derived or realised. Accordingly, I do not find it easy to reason from the test applicable in one case, to the test applicable in the other.

George was concerned with the question whether land was used in, or in connection with, the commission of an offence, and thus an “instrument” of an offence under s 7 of the Criminal Assets Confiscation Act 2005 (SA). If it were, that would preclude the exclusion of the land from a restraining order; and permit a PPO to be made in relation to it.

While Doyle CJ considered that there was no basis for reading the provision as requiring a “substantial connection” between the property and the commission of the offence[^875], his Honour nevertheless made a number of observations about the provision. Thus its application involved “practical considerations and matters of degree”, though the statutory expression had “a wide reach”[^876]. In determining the application of the provision, the fact that it had serious adverse consequences for the owner of the land was to be borne in mind[^877]; although the fact that there was a discretion to refrain from making a forfeiture order supported the adoption of a wide meaning for the expression[^878]. Doyle CJ regarded the fact that the use of the property facilitates, assists or contributes to the commission of the offence, to be “a starting point, not a conclusion”[^879]. His Honour then said[^880],

“The use of the property must be sufficiently significant … to warrant a conclusion (especially when the property is the place where the offence is committed) that the property is used in connection with the commission of the offence. This invites attention to the role that the property plays in the commission of the offence, to the extent to which the property is so used, and to how much of the property, or what part of it, is used.”

His Honour went on to consider the facts of the case, concluding that land on which a shed was located in which cannabis was hydroponically grown was used in connection with the production of cannabis[^881].

Although Doyle CJ made plain that it is not necessary to establish a “substantial connection” between the use of the property and the commission of the offence, nevertheless his Honour’s judgment identifies difficulty in determining whether property was used in, or in connection with, the commission of an offence. Nor has his Honour sought to articulate the meaning of the statutory expression.

White J agreed “generally” with the reasons of Doyle CJ on this question[^882]. It is not clear whether that agreement extended to the rejection of a requirement of substantiality.

Vanstone J expressed a preference for the approach of Carter J in the DMA case, adopted by Hunt CJ in Jeffery No. 1[^883]. Her Honour observed that what would amount to a sufficient connection between the use of property and the commission of an offence “in any particular case would depend upon the circumstances of that matter”[^884]. Nevertheless, her Honour was ultimately persuaded to agree with the conclusion to which the other members of the Court came about the outcome of the appeal, and not to restrict the interpretation of the term “instrument”, because of the discretion conferred on the Court whether to make a PPO under s 95 of the South Australian statute[^885].

The approach taken by Doyle CJ in George is consistent with that taken by the Victorian Court of Appeal in Chalmers v R[^886].

Dickfoss was concerned with the question whether property was “crime-used property” under s 11 of the Criminal Property Forfeiture Act 2002 (NT). Under s 11(1)(a), property is crime-used if it “is or was used, or intended for use, directly or indirectly, in or in connection with” the commission of a specified offence, or in or in connection with facilitating the commission of such an offence. Under s 11(1)(c) property is crime-used property if “an act or omission was done, omitted to be done or facilitated in or on the property in connection with the commission of” a specified offence. The appeal was concerned with s 11(1)(c). Thus it required a consideration of the connection between on the one hand, an act or omission (relevantly, on the property); and the commission of the offence on the other. Riley CJ (with whom the other members of the Court agreed) adopted[^887], in relation to the application of s 11(1)(c), a statement by McLure P in Director of Public Prosecutions (WA) v White[^888] (White CA) made in a similar context, that “the relationship between the use of, or the act or omission on…, the property does not have to be direct and immediate. However… it is not sufficient if the relationship be merely tenuous and remote. The requisite relationship would fall between these two extremes and involve matters of degree and judgment”[^889]. Riley CJ also accepted that the connection required to satisfy s 11(1)(c) does not have to be substantial[^890].

Another question in Dickfoss was whether land was used in connection with the offence of cultivating cannabis, under s 11(1)(a). Cannabis was grown in pots on the land, which were not hidden in a building. The pots occupied a minuscule part of a large property. Riley CJ upheld the trial judge’s finding that the land was not used in connection with the offence of cultivating cannabis[^891]. I am unable to detect any clear statement of principle in his Honour’s judgment in relation to that question, though it may be that he applied a similar test to that which he adopted for the application of s 11(1)(c).

As Riley CJ noted in Dickfoss[^892], McLure P in White CA had observed that the expression “in connection with” was “of wide import”, and capable of describing “a spectrum of relationships ranging from direct and immediate to tenuous or remote”. In both cases, it was nevertheless accepted that the expression should not be taken at its widest sense. In my respectful opinion, McClure P has identified good reason for taking this approach, and, like Doyle CJ in George, has attempted to provide useful guidance for the application of the test[^893].

I have already referred to the remarks of Carter J in the DMA case, concerned with whether property was used in connection with the commission of an offence. While his Honour stated that his views were tentative, he advanced them for the guidance of Magistrates who had to administer the same statutory provisions[^894]; and they have subsequently been of some influence. I also note that in R v Ward[^895] Carter J, sitting as a member of the Court of Criminal Appeal, with whose reasons the other members of the Court agreed, repeated his observations in the DMA case, but then noted the absence of full argument on the question.

In Jeffery No. 1, Hunt CJ at CL had to deal with an application made under s 48 of the 1987 Act for a declaration that a restraining order relating to certain property be disregarded for the purposes of s 30 of that Act. Section 30 provided for the automatic forfeiture of property subject to a restraining order six months after conviction of a relevant person. To obtain the declaration, the applicant had to establish, under s 48(4)(e)(i), that the property “was not used in, or in connection with, any unlawful activity and was not derived, directly or indirectly, by any person from any unlawful activity”. His Honour distinguished earlier appellate decisions of his own State[^896] and Western Australia[^897], preferring the approach taken by Carter J in the DMA case. Hunt CJ at CL said, adopting the views expressed by Carter J[^898],

“Use in connection with any unlawful activity within the meaning of s 48(4) therefore requires a substantial connection between the activity in question and the use of the property; it is not sufficient for there to be a mere accidental or incidental connection. The unlawful activity must be related to, or dependent upon, or could not have been committed without, or have resulted directly from, the use of the property.”

It might be noted that both of the cases distinguished by Hunt CJ at CL were concerned with whether, under legislation of the relevant State, an order might be made for the forfeiture of property on the ground that it had been used “in or in connection with” the commission of an offence. In each case, as his Honour noted, reliance was placed on the width of the discretion not to make the order, in reaching a conclusion which differed from that of Carter J[^899].

Some of the cases which have been discussed did not turn on a provision analogous to the use test in s 102(3)(a) of the POCA. However they emphasised the fact that such provisions include the expression “in connection with” unlawful conduct, which expands the scope of the test. It seems to me to be correct in principle to say that the test should not be read as if it included the word “substantial”, as a qualification on the connection referred to. That word is itself capable of expressing a range of meanings. They range from “not imaginary, unreal or apparent only” through “of ample or considerable amount or quantity” to “for the most part” (as in “substantially true”)[^900]. On the other hand, when the remarks of Carter J in the DMA case are read as a whole, their application seems to me unlikely to lead to a different result, to that reached by the approaches taken by Doyle CJ or McClure P. In the present case, to determine whether the learned primary Judge erred in applying the use test, it will, to the extent it arises, be necessary to consider the application of the test in each case.

In Jeffery No. 1, Hunt CJ at CL also had to consider the word “derived” in s 48(1)(e)(i). His Honour said[^901],

“Its ordinary English meaning is to show the origin or the source of the thing said to have been derived … The word should be interpreted in its ordinary sense.”

Hunt CJ at CL held that certain property which was paid for by funds which would not have been available but for income tax offences, was indirectly derived from those offences (in fact, two properties were purchased with borrowed funds; and the monies made available as a result of the taxation offences were used to repay the resulting debts[^902]).

Save in one respect not relevant for present purposes, the decision of Hunt CJ at CL in Jeffery No. 1 was upheld on appeal[^903]. Cole JA, with whom Handley JA agreed, stated that the question whether property is “derived”, directly or indirectly from any unlawful activity, is one of fact[^904]. His Honour also said that, in construing the statute, if two interpretations were open, and the more lenient would avoid confiscation, that interpretation is to be adopted[^905]. Giles AJA stated, in relation to the derivation of property[^906], that, “… reference to the origin or the source may unduly restrict the fact-finding exercise.” (emphasis in the original.)

The learned primary Judge also considered the decision of Loveday J in Blake v R[^907]. Loveday J was also dealing with an application under s 48(4) of the 1987 Act, and in particular with whether property was derived (whether directly or indirectly) from any unlawful activity. His Honour adopted statements from the judgment of Hunt CJ at CL in Jeffery No. 1[^908], including a statement that assistance was not to be gained from decisions upon the use of the word “derived” in taxation statutes[^909]. Nevertheless his Honour also said that he found the decision in DPP v Lynch[^910] (Lynch), referred to later in these reasons, helpful in understanding the provision. His Honour considered it to be significant that the word used was “derived”, rather than the phrase “wholly derived”[^911]. Otherwise, the judgment does not contain a statement of principle; though Loveday J found that property was derived from unlawful activity notwithstanding that a substantial portion of the purchase price (but less than half) was derived from lawful activity[^912]. With respect to another property, his Honour found that the majority of the monies paid for its purchase and improvement (it would seem to be a little less than $36,000 out of a total of $52,000) were derived from lawful activity, and accordingly, he was satisfied that the property was not derived from unlawful activity[^913].

In Diez, Greg James J dealt with an application under s 48(4) of the 1987 Act. He referred to the view of Hunt CJ at CL in Jeffery No.1 that a substantial connection was required between any unlawful activity, and the use of the relevant property, and continued[^914],

“I consider I should apply to the concept of derivation a similar test and require that I be satisfied that there is no substantial contribution from illegal activity.”

I propose to make some reference to two further cases. The first is the decision of McGarvie J in Director of Public Prosecutions v Allen[^915] (Allen). The second is Lynch. Allen was an application for forfeiture of property under the Crimes (Confiscation of Profits) Act 1986 (Vic). Section 7 gave the Court power to order that property be forfeited to the State if it was satisfied that the property “was derived or realised, directly or indirectly (by a person convicted of a particular class of offence or another person) as a result of the commission of the offence”. McGarvie J considered it appropriate “to apply by analogy the principle applied in taxation cases and look to the source of the property”. His Honour said,[^916]

“The source of the property is to be determined not as a legal concept but by the concepts of ordinary people. One is guided by what, as a practical matter of fact, a practical person would regard as a real source of the property.”

McGarvie J referred to three cases: Commissioner of Taxation v Cam and Sons Ltd[^917] (Cam); Nathan v Federal Commissioner of Taxation[^918] (Nathan); and Liquidator, Rhodesia Metals Ltd v Commissioner of Taxes[^919] (Rhodesia Metals). In particular, he cited from the reasons for judgment of Jordan CJ in Cam (the other members of the Court agreeing with these reasons). The question under consideration was whether wages ought to be regarded as derived directly or indirectly from a source in New South Wales. Jordan CJ said[^920],

“… a source may, and commonly does, consist of several factors. The character of the source may depend upon which of the factors is dominant. The earnings of a carpenter who owns his tools, or of a taxi driver who owns his car, are treated as wholly derived from personal exertion, although they are to a certain extent, derived from property.”

In coming to this view, Jordan CJ referred to the judgment in Nathan, including a statement to the effect that when the legislature used the term “source” it meant “not a legal concept, but something which a practical man would regard as a real source of income”; and a statement that “… the ascertainment of the actual source of a given income is a practical, hard matter of fact”[^921].

These considerations led McGarvie J to “apply the test of deciding whether a practical person, as a practical matter of fact, would regard the item of property as acquired by money, all of which, or all but an insignificant part of which, should be treated as originating from or traceable to moneys” received in the commission of the relevant offences[^922]. The approach taken by his Honour strongly reflects language found in Rhodesia Metals[^923].

This approach was adopted by Commissioner Templeman of the Western Australian Supreme Court, in Lynch, which determined an application made under s 31 of the 1987 Act, with tests similar to those found in s 102 of the POCA.

Morrison JA has referred to the decision in Director of Public Prosecutions (Cth) v Corby[^924] (Corby). The case was concerned with the derivation of literary proceeds in relation to an offence. Under s 153 of the POCA, literary proceeds are defined as any benefit that a person derives from the commercial exploitation of the person’s notoriety resulting from the commission of (amongst other things) a foreign indictable offence; the commercial exploitation may be by publishing the material in written or electronic form; and, in the case of a foreign indictable offence, the benefit is not treated as literary proceeds unless the benefit is derived in Australia. The proceedings were conducted ex parte. The monies in respect of which orders were sought were to be transferred to the respondent in Indonesia, in exchange for the respondent’s story of her arrest, imprisonment and conviction; and to relatives of the respondent for related material. The critical question was whether the benefit was derived in Australia.

Keane JA held that the provisions of s 153 were satisfied if the benefit was derived in Australia “in the sense that the benefit has its geographic origin or source in Australia”[^925]. It was not necessary that the benefit be the result of the respondent’s personal exertion in Australia.

In reaching this conclusion, Keane JA adopted the approach taken by Hunt CJ at CL in Jeffery No. 1, referred to previously. His Honour also said[^926],

“There is no indication in the language of the Act, and in particular s 153(3A), that the interception provisions of the Act are to be trammelled with the complexities which have attached to the concept of derivation as a result of judicial exegesis of provisions of the Income Tax Assessment Act 1936 (Cth), which are concerned to identify the locale of the rights or activities which cause the production of the taxable income, or assessable income.”

Williams JA said[^927],

“In my view, literary proceeds were generated in Australia in consequence of the publication in Australia of both the book and the article. That is sufficient to satisfy the test that a benefit was derived in Australia for purposes of the legislation.”

Williams JA also agreed with the reasoning of Keane JA.[^928] Helman J also agreed.[^929]

Section 153 has a very different character to s 102 of the POCA. It provides a definition of the term “literary proceeds”; obviously to identify benefits which might be the subject of an order under s 152. Different considerations are relevant to the construction of s 102 and s 153. It is apparent from what has been quoted above that the connection between the benefit and commercial exploitation in the section was influential in the conclusions reached in Corby. It seems to me that this case is not of assistance in construing s 102.

It is a matter of some importance that s 102 may be described as a remedial or beneficial provision. For that reason, it seems to me that, where there is doubt about its effect, the section should be read in a way which makes relief available, particularly when the grant of relief is discretionary.

Section 102(2) and s 102(3) identify alternative circumstances in which relief may be available. To satisfy s 102(2), the applicant and its interest must be divorced from the offender and the offence. An application under this provision might be described as a “cleanskin” application. No doubt s 102(3) is intended to provide an alternative pathway to relief for a person who cannot succeed on an application under s 102(2). That may be because the applicant cannot establish that its interest is not “proceeds of the offence”.

In s 329, the POCA defines property as “proceeds of an offence” if “it is wholly derived or realised, whether directly or indirectly, from the commission of an offence”; or if it is “partly derived or realised, whether directly or indirectly, from the commission of the offence”. The definition appears to reflect a recognition by those responsible for the drafting of the legislation that the terms “derived” and “realised” are ordinarily read as “wholly derived” and “wholly realised”; on the basis that property is not correctly described as being derived or realised from a particular source, if in truth it is derived or realised from a combination of that and some other source[^930]. The definition in s 329(1) appears to be intended to make clear that a contribution to the derivation or realisation of property is sufficient to satisfy that definition. In my view, s 329(4) is intended to make the same approach applicable to an unlawful activity. The same drafting technique also appears in s 330.

Section 102(2) and s 102(3) state sets of conditions, one of which must be satisfied before the court has a discretion to make orders under s 102(1). Section 102(2) uses the term “proceeds”, defined in s 329. The fact that s 102(3) does not use the defined term “proceeds”, nor the drafting approach adopted in s 329 and s 330, seems to me to be of some significance. It points rather strongly to the conclusion that the condition was not intended to specify that an applicant under s 102(3) must demonstrate that the property was not partly derived, nor partly realised, from unlawful activity. A path to relief was intended to be made available under this section to a person who could not satisfy s 102(2). I have considered whether the use of the expression “derived or realised” might be affected by the fact that the test in s 102(3) is in the negative; but that is also true of the relevant test in s 102(2).

The term “realised” in relation to property ordinarily means its conversion into money or something equivalent[^931]. In the context of s 102(3), it seems to me that the reference to property being realised was intended to ensure that the source test extended to a person’s interest in a sum of money, or its equivalent (for example, a balance in a bank account). Its presence does not materially affect the construction of the provision.

The considerations set out above have led me to conclude that the source test is not satisfied simply because a person’s interest in property is a consequence of the combined effect of unlawful activity, and other matters which do not involve unlawful activity. It seems to me the best guidance for the application of the source test is to be found in Allen and Lynch.

The power to make orders under s 102(1) of the POCA

I agree with Morrison JA that a Court may make an order declaring the nature and extent of an applicant’s interest in property under s 102(1)(c), and an order directing the transfer of the interest in the property to the applicant under s 102(1)(d), without a determination of the value of that interest. In those circumstances, it is unnecessary to determine the value of any asset, though I would accept the position common to all parties to this appeal, that the affidavit of Ms Vanessa Goodey was in evidence in the proceedings at first instance.

I also agree with his Honour’s conclusion that the power to make orders in s 102(1) includes a power to make orders which are subject to conditions.

Bennion[^932] identified Attorney-General v Great Eastern Railway Co[^933] as the source of a rule that an express statutory power carries implied ancillary power where needed. The learned author cited two passages from the judgments in that case. The first was from that of Lord Blackburn[^934], with respect to whether the conferral of a discretion carries with it the implied conferral of an incidental power,

“… those things which are incident to, and may reasonably and properly be done under the main purpose (of an enactment), though they may not be literally within it, would not be prohibited.”

The second is from the judgment of Lord Selborne[^935], who, in a similar context, said,

“… whatever may fairly be regarded as incident to, or consequential upon, those things which the Legislature has authorized, ought not (unless expressly prohibited) to be held, by judicial construction, to be ultra vires.”

The latter passage was referred to by Brennan J in Johns v Australian Securities Commission[^936] (Johns) as authority for the conclusion that the Commission had the implied power to impose a condition of confidentiality, when making available information obtained under its coercive powers, for the assistance of a State Royal Commission. In the same case McHugh J said[^937] of s 127(4) of the Australian Securities Commission Act 1989 (Cth), which authorised the Commission to make the information available to the State Royal Commission,

“Unlike s 25(3), s 127(4) contains no express power to impose conditions. But it is a discretionary power, and the discretion can be exercised by requiring the recipient of the information to comply with specified conditions. The scope of a statutory power is ascertained ‘by the character of the statute and the nature of the provisions it contains’[^938]. When the exercise of a power is left to the discretion of some person, the scope for implementing the power is fettered only by the necessity to maintain consistency with the purpose or purposes of the legislation. Consequently, the repository of the power may impose conditions on those affected by the exercise of the power as long as the conditions are not inconsistent with the purpose for which the power is granted.”

In North Sydney Council v Michael Standley & Associates Pty Ltd (Michael Standley)[^939] Mason P appeared to recognise that this was a general principle concerning the conditional exercise of discretionary powers. His Honour referred to the judgments of Brennan and McHugh JJ in Johns, as well as the United States decision of Southern Pacific Co v Olympian Dredging Co[^940]. There, Sutherland J, for the Supreme Court of the United States, said “The power to approve implies the power to disapprove and the power to disapprove necessarily includes the lesser power to condition an approval”.

In Jaimee Pty Ltd v Council of the City of Sydney[^941] Craig J, after citing the passage referred to in the judgment of Mason P in Michael Standley, and before referring to the passages from Johns, with reference to the judgment of Mason P, said

“Those observations of the President were taken up by McClellan J, when Chief Judge of this Court, in 1643 Pittwater Road Pty Ltd v Pittwater Council[^942]. For reasons then given by his Honour, he decided that an application under s 96 of (The Environmental Planning and Assessment Act 1979 (NSW)) could be determined by the grant of a conditional consent or approval, notwithstanding the absence of any specific power in the Act or Regulation so to do and notwithstanding the provisions of the Act expressly providing for conditions to be imposed upon the grant of development consent: see for example, ss 80 and 80A. The correctness of the decision in 1643 Pittwater Road has not since been questioned in this Court.”

As McHugh J pointed out, the power to impose conditions is constrained by the scope and purpose of the legislation. Nor, it seems to me, could a condition be imposed which is inconsistent with a provision of the Act.

Bennion points out that in Ward v Metropolitan Police Commissioner[^943] Baroness Hale qualified the rule by stating[^944], “(t)he implication has to be necessary in order to make the statutory power effective to achieve its purpose”. The author submits that Baroness Hale went too far, relying on the speech of Lord Rodger of Earlsferry[^945]. His Lordship identified the test for determining whether a power to impose a condition was to be implied, as being whether that power could fairly be regarded as incidental to the power expressly conferred. It seems to me, in light of the authorities discussed, that in Australia, an incidental power may be implied to impose conditions when a discretion is exercised, even if it is not necessary to make the primary power effective.

Onus of proof

The Commonwealth parties submitted that the learned primary Judge erred in relation to the onus of proof which fell on the Hart companies under s 102(3), by regarding the onus as satisfied if they showed that the property was not derived from unlawful activity specifically alleged by the Commonwealth “without the companies adducing evidence to the activity from which the property was derived”[^946]. The Commonwealth parties similarly contended that the learned primary Judge erred in finding that the Hart companies had satisfied the onus, if the Commonwealth had not raised a reasonable suspicion that specific unlawful activity had occurred; or had not quantified the benefits from the activity, and traced them to the acquisition or derivation of property[^947]. The learned primary Judge, so it was submitted, was mistaken to assume that the Hart companies would have been generally engaged in lawful activity, and to infer the lawfulness of particular transactions on which they had called no evidence[^948]. In relation to Hangar 400 and the Doonan’s Road property, the learned primary Judge placed the onus on the Commonwealth to show that the interest of the relevant company was derived from the Perpetual offence; and to have applied “a higher test” to be satisfied by the Commonwealth, which was identified by reference to paragraph 781 of the reasons of the learned primary Judge.[^949]

For the Hart companies it was contended that the learned primary Judge correctly identified and applied the onus of proof. By reference to Jeffery No. 1 it was submitted that the Commonwealth parties had an obligation to put the Hart companies on notice of an intention to rely on inferences as to specific unlawful activity[^950]. The case was conducted on pleadings[^951]. The learned primary Judge did not assume that the Hart companies were engaged in lawful activity.[^952]

The reasons for judgment of the learned primary Judge are replete with statements recognising that the onus lay on the Hart companies to establish the matters raised by s 102(3). The section commits to a Court the task of determining whether or not they have been established. By committing the task to a Court, absent some particular provision in the legislation, the legislature must be taken to expect that the application will be conducted adversarially; and that the Court will use its ordinary procedures to go about determining the relevant questions. A Court cannot be expected to conduct some wide-ranging commission of inquiry into matters relevant to the application. Moreover, it is implicit in the section that the legislature recognises that the proceedings are to be conducted fairly. Thus there is an acceptance that, in a Court where pleadings are common, issues will be defined by pleadings; or alternatively that directions might be given to ensure a fair hearing. The history of this matter reflects this course, the issues being defined by documents in the nature of pleadings. In those circumstances, the matters which the Hart companies had to address were those raised by the pleadings, save for any matter which might be regarded as fairly raised and accepted as relevant, by the manner in which the case was conducted, or which might for proper reason otherwise be determined as a matter which the Hart companies could reasonably be expected to deal with[^953]. In my view the learned primary Judge was right not to consider the possibility that property, the subject of the application under s 102, was relevantly associated with some form of illegal activity other than that raised by the Commonwealth parties, in their points of defence, or otherwise properly in issue in the proceedings before him.

One of the passages relied upon by the Commonwealth parties in this context is the statement by the learned primary Judge to the effect that, for “each activity whose lawfulness is suspect”, there is an issue as to whether “the Companies could prove that an asset was not derived directly or indirectly from money derived from the unlawful activity”[^954]. The passage itself demonstrates the correct application of the onus of proof. To confine the application of that onus to matters relating to activities fairly raised by the Commonwealth parties is, in my view, simply an incident of the fact that the legislature has committed to a Court the task of determining whether the conditions stated in s 102(3) had been established.

The other passage relied upon by the Commonwealth parties in this context related to the determination of the learned primary Judge that the interest of Yak in the lease of Hangar 101 was not derived from unlawful activity. The passage from the reasons for judgment[^955] noted that the Commonwealth parties did not, in their submissions, refer to any specified unlawful activity which might have been the source of funds for the purchase of shares, sold to fund the purchase of the lease. The statement is followed by a reference to the matters raised by the Commonwealth parties in their pleadings. The learned primary Judge was doing no more than identifying the issues which had been fairly raised for determination. In doing so, and deciding the question accordingly, his Honour committed no error.

The submission that the learned primary Judge erred in considering that the Hart companies had satisfied the relevant onus, if the Commonwealth had not raised a reasonable suspicion that unlawful activity occurred, refers to a passage from his Honour’s reasons dealing with the property at Doonan’s Road, Grandchester[^956]. The relevant part of the passage is as follows (HAL being a reference to Harts Australia Ltd),

“The Commonwealth submitted that the Companies have not explained why Nemesis was receiving funds from HAL. That lack of explanation does not raise a suspicion that the money paid by HAL to Nemesis was derived from unlawful activity.”

In my view, the passage is to be read in light of his Honour’s earlier findings about the role of Nemesis, in providing financial assistance to the Hart companies[^957]. In that context, his Honour examined funds which came to HAL, and which then went from HAL to Nemesis, including the sum of $400,000 relevant to cash flow 3 for Doonan’s Road. In the passage just quoted, his Honour was doing no more than saying that an absence of explanation about a particular payment by HAL to Nemesis did not affect his previous conclusions.

In support of the submission that the learned primary Judge was mistaken to assume that the Hart companies engaged generally in lawful activity, and to infer the lawfulness of particular transactions on which they had called no evidence, the Commonwealth parties provided, as an example, a reference to paragraph 55 from the reasons for judgment of the learned primary judge. In that paragraph, his Honour adopted a statement from Cross on Evidence that “people are less likely to be fraudulent than to be negligent”, which, his Honour said, he would apply when considering whether the Hart companies had established that there was no dishonest conduct. The questions to be determined under s 102(3) had to be determined in light of all of the evidence before the learned primary Judge, including evidence which might suggest some form of misconduct (whether that be criminal misconduct, or a failure to comply with proper standards, in a way which was not criminal). His Honour’s adoption of the proposition from Cross is not the subject of any specific submission, and I do not consider it to be erroneous, as a general proposition. It is not however correct to say that in adopting that proposition, his Honour was assuming conduct to be lawful; rather, his Honour was indicating that in a case where it was possible to infer the conduct was lawful or unlawful, it was, as a matter of principle, easier to infer that it was lawful. It is apparent from the paragraph referred to that his Honour remained mindful of the fact the onus of proof lay on the Hart companies.

The passage relied upon in the submission made on behalf of the Commonwealth parties about Hangar 400 and the property at Doonan’s Road, Grandchester, was said to reflect a transposition of the onus of proof, and the application of a higher test when considering how the Commonwealth parties satisfied that onus. Neither proposition is reflected in the passage from the judgment of the learned primary Judge[^958], on which the submission is based. The passage simply reflects his Honour’s weighing of the evidence, and whether a conclusion could be drawn in favour of the Hart companies in light of it. In my view, his Honour’s approach reflects no error.

The Hendon arrangement

Mr Robert Adcock took up a position with Harts Accountants and Auditors (HAA) in May 1993[^959]. Together with Mr Hart, he developed a tax minimisation scheme, referred to as the Hendon arrangement[^960]. Mr Adcock was also a registered liquidator[^961]. Tinkadale was the trustee of Mr Adcock’s trading trust, or practice trust. As such, it may have received income from insolvency work done by Mr Adcock[^962].

Astion Pty Ltd was a company associated with HAA[^963]. It received the bulk of the commissions or fees generated for the Hart Group from the Hendon arrangement[^964].

In 1993, Westside Commerce Centre Pty Ltd as trustee of the Hendon Unit Trust (WCC) owned a real estate development in South Australia known as Westside Commerce Centre[^965]. By that time, WCC had accrued substantial losses. A tax minimisation proposal was developed by Mr Hart and Mr Adcock in relation to this development. It involved a joint venture; with Astion taking over as trustee from WCC, and acquiring the real estate development. Astion became the trustee of the Hendon Unit Trust on 30 June 1995[^966].

Broadly speaking, the Hendon arrangement involved a participant, being the trustee of a discretionary trust, making a distribution of income in favour of WCC, in a way that protected that income from the creditors of WCC; and which did not involve a payment of the income to WCC. Rather, the distribution was treated as creating a loan from WCC to the participant. The resulting loans were not repayable for some years. By that time there was some anticipation that as a result of the associated joint venture agreement, profits generated by the development would be available to the scheme participants[^967].

Late in 1995, Mr Hart took steps to find an alternative property in relation to the Hendon arrangement. A property was located at Nicolson Street, Whyalla, and was acquired by Astion. The participants were requested to commence regular reduction of their loan accounts in about June 1996, just prior to the settlement of the purchase of the Whyalla property[^968].

Under the Hendon arrangement, fees were payable to Astion and Tinkadale, as discussed elsewhere in these reasons.

HAA obtained advice from Cleary & Hoare, solicitors, on 24 June 1993, about this arrangement. The advice noted that the relevant joint venture agreement required a participant to cause WCC to become a beneficiary of the trust of which the participant was trustee[^969]. The advice also pointed out that the transfer to WCC of tax liability for the appointed income was dependent on the appointments of income by the participants being effective and valid; and that the requirements of the Trust Deed for each trust would need to be met. It would accordingly be necessary for the solicitors to review each Trust Deed, and to ensure that appropriate steps were taken to cause WCC to become a beneficiary of each of those trusts[^970].

The Commissioner of Taxation decided, in some cases, that WCC was not properly nominated as a beneficiary of the relevant participant’s trust; and in other cases that the associated joint venture agreement was a reimbursement agreement. The result was that the income purportedly distributed to WCC was income to which no beneficiary was presently entitled; resulting in an assessment of primary tax payable by the participants in respect of the purported distributions, together with penalty tax[^971].

In his affidavit, Mr Young referred to the decision of Cooper J in BRK (Bris) Pty Ltd v Commissioner of Taxation[^972] (BRK) with reference to the disallowance by the Commissioner of Notices of Objection to the Commissioner’s decisions just mentioned. He also deposed that the penalty tax had been imposed “on the basis of recklessness of … HAL” as the tax agent of the relevant participants in the Hendon arrangement[^973].

In his reasons for judgment, the learned primary Judge quoted, relatively extensively, from the reasons for judgment of Cooper J in BRK[^974]. That was a case where the Commissioner determined that the appointment of WCC as a beneficiary was not valid. Cooper J found that Harts Pty Ltd (Harts) had made no attempt to ascertain whether or not WCC was in fact and law beneficially entitled to income in each relevant year, by reference to the Trust Deed, and a consideration of the trustee’s power of appointment under the trust[^975]. Accordingly, Harts had no basis for relying upon the pro forma documentation executed by the participant in preparing the income tax returns, because it knew, as a result of the advice from Cleary & Hoare, that there was a real risk that the resolutions recorded in the pro forma documentation may not have been effective under the terms of the trust to create a present entitlement to the relevant income in WCC[^976]. His Honour concluded that Mr Hart and Mr Adcock, when the income tax returns were prepared and lodged, were indifferent as to whether or not the statements as to the distribution of income contained in the returns were correct; and accordingly that the lodgement of the returns in the form in which they were lodged, containing the statement as to the distribution of income to WCC, was reckless[^977].

The Commonwealth had pleaded that Mr Hart and others, in relation to the Hendon arrangement, had recklessly caused statements to be made to a taxation officer that were false or misleading in a material particular, contrary to s 8N of the Taxation Administration Act 1953 (Cth) (TAA). The learned primary Judge recorded that the submissions of the Hart companies “did not expressly take issue with the Commonwealth’s argument that there was recklessness in breach of s 8N of the TAA, in relation to the Hendon arrangement”[^978]. His Honour concluded that there were reasonable grounds to suspect recklessness in breach of s 8N of the TAA in relation to this arrangement[^979].

As mentioned elsewhere, fees were payable to Astion and Tinkadale in relation to the Hendon arrangement. The fees were a percentage of the income intended to be appointed to WCC[^980]. The learned primary Judge concluded that each receipt by Astion of its fee, being a part payment of a purported distribution, was directly related to the reckless representation, because the representation was about the payment’s propriety; and accordingly he was not satisfied that such payments were not substantially derived or realised from unlawful activity[^981]. It is at least implicit in his Honour’s reasons that a similar finding applied to the fees paid to Tinkadale[^982].

Astion as trustee of the Hendon Unit Trust received rent from the Whyalla property[^983]. The learned primary Judge considered that it was a reasonable inference that the rent was “indirectly derived from Astion’s use of the distributions” it received (by way of fee) from the unlawful activity constituted by the reckless representations[^984]. Accordingly, his Honour was not satisfied that the rent was “not substantially, indirectly derived from the unlawful activity of reckless representations from which the distributions were more directly derived”[^985].

The Hart companies contended that the learned primary Judge should not have had regard to BRK[^986]. The evidence and the conclusions as to reckless conduct were said to be “inadmissible hearsay”. Moreover, the decision was not directed to whether an offence had been committed under s 8N; rather it determined an appeal against the imposition of penalty tax, the section under which the penalty was imposed being s 226H of the TAA, permitting that to occur where a tax shortfall “was caused by the recklessness of the taxpayer or of a registered tax agent with regard to the correct operation of this Act”. For an offence under s 8N, it was necessary to establish that the person making the representation was “indifferent as to whether a representation is true or false knowing that, more probably than not, it is false”. The Hart companies submitted that the element of knowledge was lacking, citing Mattingley v Tuckwood[^987] (Mattingley). The learned primary Judge erred in disregarding the inherent likelihood of negligence, rather than recklessness, the former being the obvious inference, on the balance of probabilities[^988]. Because the conduct of the accountants was a failure to act, that constituted negligence, not recklessness, and accordingly did not come within s 8N. It was submitted that the learned primary Judge had found[^989] that the clients were reckless in making representations to the effect that Astion (and it would seem, in earlier years, WCC) was a beneficiary to whom a distribution was properly made; and this finding was in error.

The Commonwealth parties contended that the onus lay on the Hart companies to establish that no offence had been committed under s 8N of the TAA[^990]. The companies failed to discharge that onus, not adducing any evidence from persons involved in the Hendon arrangement; and negligence, rather than recklessness, was not an obvious inference. Further, no objection was raised by the Hart companies to the use of BRK at the hearing before the learned primary Judge [^991] In any event, the case simply showed there was a basis for suspecting that there might have been recklessness.

As I read the reasons of the learned primary Judge, his Honour did not make a finding that the participants in the Hendon arrangement (clients of HAA) may have breached s 8N of the TAA. Because of the view which I take about his Honour’s findings in relation to the conduct of Harts[^992], it is unnecessary to consider the position of the participants further.

The main features of the Hendon arrangement were described in the affidavits of Mr Stevens and Mr Young. Mr Young, in this context, referred to the BRK decision. No objection was taken to this. The decision provided a fuller description of some aspects of the Hendon arrangement. It is correct to say that this is hearsay evidence of those facts. However, the case was referred to by Mr Young, as part of the description of the arrangement. It was admitted without objection. The learned primary Judge recorded that the Hart companies did not contend that the reasons of Cooper J misstated the operation of this scheme[^993]. In those circumstances, the reasons could be used as evidence describing the arrangement as recorded in those reasons, on the basis that this description was implicitly accepted as correct. The same may be said of other factual matters, such as the provision of advice by Cleary & Hoare.

It seems to me correct to say that the finding of recklessness by Cooper J is in a different category. It is a conclusion reached by his Honour as the result of the application of a standard specified by statute, rather than a fact directly proven by evidence. To admit the reasons as part of the description of the Hendon arrangement is not the same as admitting his Honour’s findings as proof of recklessness. Ordinarily, the finding would not be admissible to establish recklessness on the part of anyone, whether for the purpose of s 226H or s 8N of the TAA[^994]. Nevertheless, there is a substantial argument that, by not contending in the proceedings before the learned primary Judge that the reason in BRK could not be relied upon for a finding of recklessness, the Hart companies accepted the finding. However, it is unnecessary to come to a conclusion on this point.

The reference to the decision by Mr Young in his affidavit, together with the fact that penalty income was imposed on the basis of the recklessness of HAL was, in my view, sufficient at least to place the Hart companies on notice that recklessness in relation to the Hendon arrangement was a live issue. It seems to me that the fact Cooper J made the finding previously referred to is relevant to the question whether it was necessary for the Hart companies to deal with the question of recklessness, in relation to the Hendon arrangement.

By the Further Further Amended Points of Defence of 27 October 2010[^995] the Commonwealth parties pleaded that Mr Hart and others committed offences relating to the Hendon arrangement, by recklessly causing statements to be made to a taxation officer that were false or misleading, contrary to s 8N of the TAA, particularised by reference to the relevant paragraphs of the affidavits of Mr Young and Mr Stevens[^996]. The Hart companies submitted that the learned primary Judge was wrong to permit the Commonwealth parties to raise this issue in their amended pleadings, three weeks before the trial, because of the irreparable prejudice which that caused them[^997]. The reasons of the learned primary Judge recognised that the late amendment caused prejudice to the Hart companies[^998] but concluded that the primary cause of that prejudice was the late identification by the Hart companies of sources of funds in relation to the derivation of their interests in properties, to which his Honour found the Commonwealth parties had responded “in a timely way”. His Honour also noted prejudice to the Commonwealth, had the adjournment been granted. In my view, it has not been established that his Honour erred in permitting the amendments, and not granting an adjournment.

It follows that it was relevant for the Hart companies to establish that funds associated with the derivation of a relevant interest in property, to the extent that such funds might have come from the Hendon arrangement, were not derived or realised from unlawful activity.

The Hart companies could not do this without some evidence of the arrangement, and of the facts referred to in the judgment of Cooper J. This may well explain the lack of objection to the admission of his Honour’s reasons.

The extent to which the learned primary Judge made reference to the decision of Cooper J may suggest that his Honour placed some reliance on the finding of recklessness. Although, as mentioned, his Honour immediately thereafter noted that the Hart companies did not expressly take issue with the argument by the Commonwealth parties that there was recklessness in breach of s 8N of the TAA in relation to the Hendon arrangement[^999]; his Honour did no more than conclude that there were “reasonable grounds to suspect recklessness in breach of s 8N of the TAA in relation to the Hendon arrangement”[^1000]. That is to be read with his Honour’s acceptance that the Hart companies had the onus of disproving the commission of offences[^1001]; and his Honour’s conclusion that he was not satisfied that payments of fees to Astion were not substantially derived or realised from unlawful activity[^1002]. In my view, his Honour has not relied upon the correctness of the findings of Cooper J as to recklessness for his conclusions. It seems to me that his Honour’s reference to those reasons is not a breach of the rule in Hollington v Hewthorn[^1003].

In the unusual context provided by s 102 of the POCA, it seems to me there is an additional basis which supports the reference by the learned primary Judge to the finding of recklessness in BRK. The finding is itself a fact, representing the opinion reached by a judicial officer at the conclusion of a hearing. It was relevant to the question whether the Hart companies could establish that the relevant provisions of the TAA had not been breached, in the absence of some positive evidence that there was no recklessness on the part of Mr Hart and Mr Adcock in relation to the preparation and lodgement of the income tax returns.

The Hart companies have not sought to establish positively that there had been no relevant breach of s 8N of the TAA. They submitted that the element of knowledge referred to in Mattingley was lacking; but that submission is inconsistent with the onus which fell on them to demonstrate that no offence had been committed, as a way of demonstrating that relevant monies were not derived from unlawful activity. The advice from Cleary & Hoare showed that there was a real question about the knowledge of Mr Hart and Mr Adcock.

The submission by the Hart companies that the alleged conduct was negligent because it involved a failure to act, fails to appreciate the issue raised by the Commonwealth parties. That was that representations had been made recklessly, in effect, as to the distribution of income by the participants to the trustee of the Hendon Unit Trust. That was an allegation of a positive act; with a particular character. As Cooper J made clear in BRK[^1004], a representation will be made recklessly, if the maker is indifferent as to whether it is true; and that indifference may be demonstrated by a failure to enquire, when the maker has been told that enquiry is necessary. Accordingly, a failure to act may have the consequence that conduct is reckless.

No submission has been made to the effect that fees derived from the Hendon arrangement were not derived from a reckless representation made in breach of s 8N; but were paid for some other reason. It is therefore unnecessary to consider that question in these appeals. With that reservation, I have concluded that the learned primary Judge was correct to find that the Hart companies failed to establish that fees derived from the Hendon arrangement were not derived or realised from unlawful activity.

The Northbourne arrangement

In their Further Further Amended Points of Defence, the Commonwealth parties contended (in respect of Hangar 400) that contraventions of s 82(1) of the POCA and s 400.9 of the Criminal Code 1995 (Cth) (Commonwealth Code) may have occurred because of (amongst other things) what was alleged to be an offence relating to the Northbourne arrangement[^1005]. That offence was that Mr Hart and others recklessly caused statements to be made to a taxation officer that were false and misleading in a material particular, contrary to s 8N of the TAA[^1006]. The offence against s 8N of the TAA was particularised by reference to paragraphs 37-41 of the affidavit of Mr Young, and paragraphs 26-38 of the affidavit of Mr Stevens, previously referred to.

Mr Young’s affidavit[^1007] described the arrangement, and referred to the finding by the Administrative Appeals Tribunal that there was a lack of reasonable care by the tax agent in relation to tax returns by participants in this scheme; the Tribunal having recorded that it could not be satisfied that the conduct of the tax agent was reckless. Mr Young’s affidavit referred to decisions relating to the scheme, namely Capersaw Pty Ltd v FCT[^1008] (Capersaw) and Maurice Hannan Nominees Pty Ltd v FCT[^1009] (Hannan case). The affidavit of Mr Stevens[^1010] was, broadly speaking, to similar effect, but provided greater detail. It also recorded that Mr Stevens was a director of No 2 Pitt Street, the trustee of the trust at the centre of the arrangement, from 20 December 1996 until 3 June 2007. He was plainly familiar with its operation from about the time of its commencement. He was also a director of many companies within the Hart group, and the company secretary of HAL.

The learned primary Judge again referred extensively to the decisions identified in the affidavit of Mr Young. There has been no objection by any party to his doing so. He found that the description of the Northbourne arrangement in the Hannan case was accurate[^1011], and accepted Mr Young’s explanation of the decision in Capersaw[^1012]. He then identified a difference between the relevant conduct of the taxation agent in the Hendon arrangement, and the agent’s conduct in the Northbourne arrangement. In the former, the accountants were forewarned by lawyers to ensure that the Trust Deeds of the participants included a power of appointment, and to ensure that the Deeds were amended to include such a power (it is unnecessary to consider whether this finding is completely accurate)[^1013]. In the Northbourne arrangement, the error of the advisor was identified as being a failure correctly to interpret the participant’s Trust Deed, and to recognise that it did not permit the trustee to nominate No 2 Pitt Street as a beneficiary of the trust[^1014]. Reaching that conclusion, his Honour relied upon the relevant provisions of the participant’s Trust Deed, and the Tribunal’s statement that the error related to the construction of those provisions, set out in Capersaw[^1015].

The learned primary Judge then acknowledged that a failure to find recklessness was not itself a finding of no recklessness; and that it was for the Hart companies to persuade him that there was no recklessness which would constitute an element of an offence under s 8N of the TAA in respect of the Northbourne arrangement[^1016]. His Honour referred to the proposition that people are less likely to be fraudulent than negligent, which led him to conclude that people are less likely to be reckless than negligent; and on that basis he found that the Hart companies had satisfied the onus of establishing that funds from the Northbourne arrangement were not unlawfully derived[^1017].

On the appeal, the Commonwealth parties contended that a proper analysis should have lead the learned primary Judge to conclude that the Hart companies had not discharged the onus. Reference was made to the fact that there was no evidence from Mr Hart, Maurice Hannan Nominees Pty Ltd (Hannan), and No 2 Pitt Street[^1018]. For the Hart companies it was submitted that the evidence was sufficient to support the finding[^1019].

Mr Stevens was a director of No 2 Pitt Street for a lengthy period. He knew of the arrangement from its inception, was responsible for day to day management issues, and prepared materials to assist with explaining the arrangement to clients. Given that the Commonwealth parties called him, their submissions on the failure to call evidence from that company appear to be without substance. Mr Young was also able to give evidence about this arrangement. I have elsewhere dealt with the fact that Mr Hart did not give evidence, when discussing the Akrotech CAP 232. I would come to a similar conclusion in relation to the Northbourne arrangement. I refer, when dealing with that aircraft, to the limited nature of an inference to be drawn from the failure to call a witness, a limitation particularly appropriate in relation to Hannan.

The potential offence identified by the Commonwealth parties was a breach of s 8N of the TAA. As previously mentioned, that section made it an offence for a person recklessly to cause statements to be made to a taxation officer that were false or misleading in a material particular. The relevant question, on the basis of the way the proceedings have been conducted, was whether the Hart companies had demonstrated that whoever was responsible for the income tax returns of the participants in the Northbourne arrangement had not recklessly caused representations to be made in relation to purported distributions of income by the participants to No 2 Pitt Street.

The learned primary judge referred to the terms of the Trust Deed of the participants. It has not been submitted that he was wrong to do so. The relevant provisions are not straightforward, and of themselves raise the real possibility of a mistake in their interpretation if sufficient care is not exercised.

The particulars relied on by the Commonwealth parties incorporated references to Capersaw and the Hannan case. In contrast with the Hendon arrangement, those cases do not raise any suggestion of the receipt of legal advice in relation to the Northbourne arrangement pointing to the need for investigations, which was not acted on. The Commonwealth parties have not identified anything in their case in relation to the Northbourne arrangement, as advanced before the learned primary Judge, beyond the matters which he considered. No specific fact was identified which might be regarded as raising a question of recklessness, other than the matters referred to in the particulars. In essence, the question which the learned primary Judge had to decide, therefore, was whether he could be satisfied that the more probable explanation for the conduct on which the Commonwealth parties relied was negligence, rather than recklessness. On the basis of the evidence before him, in my view, the learned primary Judge came to the correct conclusion.

Perpetual Offences

It is convenient at this point to say something about the alleged Perpetual offences. The learned primary Judge found that, prior to 1 July 2002, Nemesis was the service company for Fighters, Nemesis, Yak, Bubbling, Flying Fighter Adventures Pty Ltd, FFMR, and Unlimited Business Consultants (Qld) Pty Ltd (UBC), which his Honour referred to as “the family group”. His Honour found that Nemesis would pay the wages for all of these companies, though each would otherwise pay its own bills; and Nemesis would lend funds when needed. In approximately the second week of July 2002 Spider became the service company for the companies in the family group[^1020].

Nemesis had substantial borrowings from NAB. On 11 May 2001, NAB demanded the payment of amounts of $2.3 million and $1.05 million; and subsequently made demands for larger amounts and an additional amount in respect of an overdraft account[^1021].

Not surprisingly, Nemesis sought an alternative source of finance. One such source was Perpetual, which Nemesis approached through McLaughlin Financial Services (MFS).

By September 2001, there had been bad publicity for HAL, and companies connected with it[^1022]. As a result of this publicity, Mr Hart resigned his directorship of several companies[^1023].

In about October 2001, Mr Hart asked Dr Ambler if he would provide a guarantee to support a loan from Perpetual. Dr Ambler agreed[^1024]. Mr Hart promised Dr Ambler a block of land from a development at Moggill, which Dr Ambler believed to be worth $80,000; and also promised a conditional option to buy the hangar sublease (for Hangar 400)[^1025]. Dr Ambler wished to become a director of Yak, and was appointed to that position on 23 October 2001[^1026].

Mr Hart, on behalf of Bubbling, also approached Dr Fleming to provide a guarantee. He too was promised a block of land out of the subdivision at Moggill, and that he would be given an option to purchase several lots referred to as the “Bubbling Springs Land”. He became a director of Bubbling[^1027]. The application for finance from Perpetual was made through MFS[^1028]. Bubbling and Yak knew by 1 October 2001 that MFS would not be likely to approve loans to companies associated with Mr Hart[^1029]. MFS made known that a guarantee would be required from each of the doctors. A special condition was that the “borrower” would sign an acknowledgement that, “they are entering into a loan agreement on their own behalf and are not doing so on behalf of Steven Hart or any of his associated companies”[^1030]. This requirement was a condition of the conditional approval of the loan facility given on 3 December 2001[^1031].

In response, Yak, Ms Petersen, Mrs Hart and Dr Ambler signed a document entitled Loan Facility Terms and Conditions which included a representation referred to as “the clause 16 representation” as follows[^1032],

“The borrower and guarantor represent and acknowledge that they are entering into this agreement of their own volition and are not doing so on behalf of Steven Irvine Hart nor any associated company with which he is associated. Neither Steven Irvine Hart nor any associated company is indemnifying us as to the repayment of the loan. We make this representation acknowledging that the lender is relying upon this representation in approving the loan facility.”

Another similar document including the same representation was signed by Bubbling, Ms Petersen, Mrs Hart, Mr Arnot and Dr Fleming[^1033].

The learned primary Judge found that the cl 16 representations by these persons and entities induced a loan by Perpetual to Yak of $650,000, and a loan by Perpetual to Bubbling of $650,000, which were applied to the repayment of the monies owed by Nemesis to NAB[^1034]. A number of securities were provided, which it is not necessary to set out.

On 23 July 2002, Bubbling granted by deed an option over a property at Doonan’s Road, Grandchester to Dr Fleming. The option required Dr Fleming to pay all monies outstanding to Perpetual by Bubbling, for the purchase of the land[^1035]. A conditional option was also granted to Dr Ambler over Hangar 400. The purchase price was the amount required to be paid to Perpetual (apparently by Yak) to obtain a release of a mortgage, it would appear, over Hangar 400 in favour of Perpetual[^1036]. The learned primary Judge found that the result of the options was that if Yak or Bubbling defaulted under the terms of the loans from Perpetual, and the guarantee of either doctor was called on, that doctor would be able to purchase the property the subject of the option, by paying the amount of all monies outstanding to the lender pursuant to the loan[^1037]. His Honour found that the options were intended to provide each of the doctors with “some protection or security if their guarantees were called upon or were in jeopardy of being called upon”[^1038], and thus Dr Fleming was indemnified by Bubbling and Dr Ambler by Yak[^1039]. The learned primary Judge concluded that he was not satisfied that the doctors were not dishonest when making the cl 16 representations; and he reached a similar conclusion as to Yak and Bubbling, by their directors Ms Petersen and Mrs Hart[^1040]. Nor was he satisfied that MFS and Perpetual did not require and rely on the representations[^1041]. He thus concluded that the Hart companies had not shown that no offence was committed in relation to obtaining these loans, the potential offence being fraud, under s 408C of the Criminal Code 1899 (Qld) (Queensland Criminal Code)[^1042].

The learned primary Judge then considered whether, because security for the Perpetual loans was provided over Hangar 400 and the Doonan’s Road property, these properties were used in connection with the Perpetual offences[^1043]. His Honour found that there was no sufficient connection between the provision of these properties as security, and the alleged fraudulent inducement of the loans; so that it had been shown that they were not used in these offences[^1044].

The Hart companies contended that the learned primary Judge erred in finding that the doctors had been granted an indemnity[^1045]. They also contended that the learned primary Judge did not accept that either doctor was dishonest in relation to the representation that no indemnity had been provided; and that the evidence of Mrs Hart and Ms Petersen that they believed no indemnity was being provided, should have been accepted.

It was also submitted that the learned primary Judge should have found that Ms Petersen and Mrs Hart were not dishonest in representing that the agreement with Perpetual was not entered into on behalf of a company with which Mr Hart was associated[^1046].

It was also submitted that the cl 16 representations did not induce the loan. The loan offer was made before the representations, and accordingly it could not be said that they induced the loans. In any event, Perpetual knew, or should have known, of Mr Hart’s association with Yak and Bubbling[^1047]. The Commonwealth read an affidavit from Mr Stride, the Chief Legal Officer of Perpetual, but did not call him. An inference under the principle in Jones v Dunkel[^1048] (Jones principle) therefore should be drawn against the Commonwealth[^1049]. The learned primary Judge wrongly ruled a letter from Mr Hart to MFS to be inadmissible, that letter demonstrating that he was associated with Yak and Bubbling. MFS also knew that Mr Hart was a beneficiary of the trusts of which these companies were each a trustee[^1050].

For the Commonwealth parties, it was submitted that the learned primary Judge had correctly found that the Hart companies had failed to establish that the alleged Perpetual offences were not committed. Both Mrs Hart and Ms Petersen were found by his Honour to be less than fully frank witnesses. A finding that they were not dishonest in relation to these alleged offences could not be reconciled with the reasons of the learned primary Judge. The learned primary Judge suggested that Mrs Hart and Ms Petersen dishonestly believed the options were indemnities[^1051]. There was no evidence about the legal advice that may have been given in relation to the terms and conditions of the loan facility from Perpetual. The letter relied upon by the Hart companies for the proposition that MFS and Perpetual knew of the relationship between Mr Hart on the one hand, and Yak and Bubbling on the other, was dated three days after the loans were drawn down. The learned primary Judge was correct not to be satisfied about the state of knowledge of MFS and Perpetual at the time of the loans[^1052]. The affidavit of Mr Stride was read by the Commonwealth parties, but he was not required for cross-examination[^1053].

The relevant part of the cl 16 representation was a representation that “neither Steven Irvine Hart nor any associated company is indemnifying us as to the repayment of the loan”[^1054]. A significant aspect of the representation was whether each doctor had been indemnified for repayment of the loan. No submissions have been made about the meaning of the term “indemnifying” in the clause. The context indicates that the term was not used with any particular technical or legal meaning in mind. Dictionary definitions of the word, “indemnify” include “…protect or secure (a person) in respect of a harm, a loss, etc… compensate (a person) for a loss, expenses, etc.”[^1055]. The learned primary Judge also referred to definitions of the term “indemnity”[^1056]. To my mind, such definitions are appropriate to identify the meaning of the term used.

It has not been suggested that the analysis of the Option Agreements by the learned primary Judge contains error. In my view, he was correct to find that the effect of each agreement was to indemnify the relevant doctor, in the event that the doctor were to pay the loan[^1057]. Although the learned primary Judge appears to have considered that it was possible that in some circumstances the value of the benefit one of the doctors might receive would be greater than the amount repaid to Perpetual; and in some circumstances less; nevertheless he was, in my view, correct to characterise the purpose and substantial effect of the arrangements as being to indemnify a doctor who repaid the loan. Accordingly, the cl 16 representations were untrue in fact.

Another significant aspect of the representation was whether the agreement was entered into on behalf of any company with which Mr Hart was associated. The learned primary Judge dealt with that question by considering whether Yak and Bubbling were under the effective control of Mr Hart[^1058] which he concluded they were[^1059]. He also noted that the Hart companies did not contend that each of Yak and Bubbling was not an “associated company” for the purpose of the representation relating to the indemnity[^1060].

The learned primary Judge expressly considered the question whether the representations were made dishonestly[^1061]. His Honour expressly referred to a submission on behalf of the Hart companies that there was no evidence that the directors of Bubbling and Yak and others realised that what they did was dishonest by the standards of ordinary honest people[^1062]. Since his Honour was not satisfied that no offence was committed[^1063], it is clear that he was not satisfied that no dishonesty was involved on the part of those who made the cl 16 representations. He expressly said so, in relation to Dr Ambler and Dr Fleming, and in relation to Ms Petersen and Mrs Hart. To the extent that Mrs Hart and Ms Petersen gave evidence as to their honesty on this question, his Honour’s findings carry a finding that he did not accept this evidence. The nature of the evidence is such that an appellate Court could only come to a different finding where the finding below was “glaringly improbable” or contrary to “compelling inferences”[^1064]. The fact that relevant legal advice may have been obtained does not alter this position. It seems to me that the submissions for the Hart companies as to the failure on the part of the Commonwealth parties to put matters to witnesses, such as the factual untruth of a representation, or dishonesty, are misconceived. The Commonwealth parties were not required to advance a positive case. Their position was that the Hart companies had not shown that the offences were not committed[^1065]. There is no suggestion that the relevant issues were not fairly raised. In those circumstances, the onus lay on the Hart companies to establish the offences were not committed, regardless of the form which cross-examination took.

The submission that there was no inducement because the loan was offered before the cl 16 representations were made is, in my view, without substance. The material referred to by the Hart companies as demonstrating knowledge by Perpetual of Mr Hart’s association with Yak and Bubbling does not achieve that result. The concern of MFS about Mr Hart’s involvement, and the fact that the making of the cl 16 representations was a condition of the loan, are sufficient to demonstrate that it was induced by those representations.

The letter to which the Hart companies referred was admitted as exhibit 3[^1066]. Not surprisingly, the submissions of the Hart companies did not attack the reasons of the learned primary Judge relating to it[^1067]. The fact that documents submitted to MFS showed a relationship between Mr Hart, Yak, and Bubbling does not disprove reliance by Perpetual on the representation that the agreement was not entered into on behalf of a company associated with Mr Hart. As the learned primary Judge recorded, no representative of MFS or Perpetual involved in approving the loans was called to give evidence[^1068]. The question of inducement requires a consideration of what operates on a person’s mind[^1069], and the Hart companies can not rely on some form of constructive knowledge to establish that the loan was not induced by the representation.

Mr Stride’s affidavit was in evidence in the proceedings[^1070]. His name was included in a list of witnesses required for cross-examination, dated 29 October 2010[^1071]; but ultimately he was not required for this purpose. That would make it difficult for the Hart companies to challenge any finding made in reliance on Mr Stride’s evidence. However, the real difficulty for the Hart companies is that the onus lay on them to prove that no offence was committed; and if they wished to do that by proving the loan was not induced by the cl 16 representation, they had to lead evidence to establish that fact, to the satisfaction of the learned primary Judge. The fact is not established by the failure of the Commonwealth to lead evidence from Mr Stride on the question. The absence of such evidence may, perhaps, have been a matter about which the Hart companies could have made submissions at trial; though, since the onus fell on them, their failure to cross-examine Mr Stride on the question of inducement may have been more significant. Given that the onus lay on these companies, and that there was some evidence of inducement, the application of the Jones principle did not require a finding in their favour on the question whether the cl 16 representations induced Perpetual to make the loans. Although the positive finding by the learned primary Judge was more than was necessary, there was evidence to support this finding. Since the Jones principle does not require a party to lead evidence on a question on which the other party bears the onus, but has led no evidence[^1072], the finding was not erroneous.

North American T-28 VH-SHT

Immediately prior to forfeiture, this aircraft was owned by Fighters. On Mrs Hart’s evidence, Fighters purchased a half-share in this aircraft from Malcolm Peter Rolph-Smith, also known as Kim Rolph-Smith, in 1996, for $133,000[^1073]. The second half-share, and Mr Rolph-Smith’s half interest in another aircraft, the Harvard T-6 VN-USN, were purchased pursuant to an agreement dated 6 November 1998 between Fighters and Mr Rolph-Smith, for a total amount of $217,300, of which $149,100 was apportioned to the purchase of the second half share of the T-28 VH-SHT[^1074]. These matters appear to be uncontentious.

The learned primary Judge found that, of the monies applied to the purchase of T-28 VH-SHT, $83,100 came originally from UOCL, and Fighters had not established that this amount was not derived or realised, directly or indirectly, from unlawful activity[^1075]. This finding is not in issue on the appeal.

On 7 December 1998, Fighters paid the sum of $64,000 to the trust account of its solicitors, Geoff Klooger & Associates (Klooger), the amount in turn being paid in part to AGC apparently in discharge of a debt owed to that company by Mr Rolph-Smith; and the balance to Mr Rolph-Smith[^1076]. In this fashion the obligation to pay $64,000 of the purchase price for the second half-interest in T-28 VH-SHT was discharged.

The amount paid to Klooger was sourced from a loan from NAB to Fighters, on 26 November 1998[^1077]. On 23 March 1999, UOCL made a deposit of $60,000 to Merrell; and on the following day, Merrell transferred $60,000 to Fighters[^1078]. The learned primary Judge accepted Mr Vincent’s identification of the ultimate source of a payment of $59,995 (effectively $60,000) on 24 March 1999 into an account of Fighters, used to make repayments on the loan, as being UOCL[^1079]. By reason of these payments, the learned primary Judge found that Fighters had not established that the plane “was not also indirectly derived by the $60,000 of tainted funds”[^1080]. The transactions relating to this payment were referred to as cash flow 6.

The learned primary Judge then found that, as to the sum of $143,100, Fighters had failed to establish that T-28 VH-SHT was not derived from “tainted funds”. Accordingly he concluded that he was not satisfied that this aircraft “was not substantially derived or realised directly or indirectly from unlawful activity or that Fighters acquired it lawfully”[^1081]. The finding of absence of satisfaction as to the lawful acquisition of the aircraft was not the subject of separate reasons, and appears to be consequential on the absence of satisfaction about the source of the sum of $143,100[^1082].

It might also be noted that the learned primary Judge concluded that Fighters had established that $139,000 applied to the purchase of T-28 VH-SHT was not derived or realised, directly or indirectly, from unlawful activity[^1083].

In Appeal 3908 of 2013, Fighters contended that the learned primary Judge erred in his finding in relation to the sum of $60,000; and accordingly in failing to be satisfied that Fighters’ interest in the aircraft was not derived or realised from unlawful activity.[^1084]

In the same appeal, the Commonwealth parties contended that the fact that Fighters could not establish that the payment of $83,100 was not derived or realised from unlawful activity was sufficient to prevent Fighters establishing that its interest in the aircraft was not so derived. On the test applied by the learned primary Judge, that amount was sufficient to establish that Fighter’s interest in the aircraft was substantially derived from unlawful activity.[^1085] It was also contended that Mr Vincent had concluded that the amount of $64,000 was derived from UOCL, and the appellants had failed to satisfy the learned primary Judge that it was not; with the result that his conclusion was not shown to be in error.[^1086]

The NAB account for the loan to Fighters was Account No. 46 179-3429. The account statements demonstrated the advance on 4 December 1998; with regular repayments approximately monthly of $2,898.93 continuing to 30 November 2000; and the then remaining balance of $728.49 being repaid on 5 December 2000[^1087].

The monthly repayments were paid out of Fighter’s business cheque account, being Account No. 46 154-9813[^1088]. The initial credit balance in this account was substantially established by the advance just mentioned; but almost immediately reduced by the payment of $64,006, made ultimately to Klooger. After the payment to Klooger, the balance in this account fluctuated considerably over time. Thus on 7 December 1998, it was a little under $800 in debit. With fluctuations, that debit amount ultimately increased to $25,585.87 on 2 March 1999, though there were occasions in this period when it was in credit. Thereafter, again with fluctuations, the balance (a debit amount) reduced and then increased to $41,827.29 on 23 March 1999. The amounts paid into this account prior to 24 March, but after the loan, totalled $19,158.30; and the amounts paid out of this account, after the payment to Klooger, totalled $58,750.36, of which $8,696.79 represented repayments of the NAB loan (including interest). On 24 March 1999 the amount ultimately from UOCL changed the balance of the account to a credit of $17,874.61.