Director of Public Prosecutions (Cth) v Studman

Supreme Court of NSW|2008-02-22|Before: Fullerton J

Background to the offences 4 The offences were committed over a period between 1996 and 2003 whilst the defendant was a senior officer of the Estates Administration Section of the Insolvency and Trustee Services Australia (ITSA) and later, after taking a voluntary redundancy from ITSA in July 2001, as a senior employee of Sims Partners, a corporation which operated as a registered trustee in bankruptcy. His employment at Sims Partners was terminated in July 2004 when he was arrested and charged with the offences that are the subject of these proceedings and the subject of the proceedings on indictment in the District Court. The Commonwealth offences related to his conduct whilst at ITSA whereas the State offences related to his conduct at Sims Partners. 5 The first group of offences to which I shall refer concern the lodgement of fraudulent proof of debt forms. By 2001 the defendant had progressed in seniority within ITSA to the position of senior assistant official receiver. He was responsible for a team of estate administration officers and support staff. In this position the defendant had delegated power to admit proof of debt forms associated with claims made by creditors against bankrupt estates; to record on ITSA's database that a particular proof of debt had been admitted and, ultimately, to authorise the issue of cheques to creditors. A creditor who is entitled to claim against an estate is required to lodge a proof of debt form together with supporting documentation with the trustee in bankruptcy. The trustee can then admit the debt by confirming that a creditor's claim is provable in bankruptcy and to pay dividends by way of cheque. The offences in counts 2, 3, 4, 5, 6, 7, 8, 11, 14 and 15 on the indictment were committed between April 1996 and September 2002 and involved the defendant lodging fraudulent proof of debt forms against bankrupt estates using false identities and in some cases fictitious business entities. The offences in counts 2, 3, 4, 5, 6, 7, 8 and 11 were committed whilst the defendant was at ITSA (s 71(1) of the Crimes Act 1914 (Cth) (since repealed)), whereas the offences contained in counts 14 and 15 were committed whilst the defendant was under the employ of Sims Partners (s 178BA of the Crimes Act 1900 (NSW)). 6 The offence in count 1, also laid contrary to s 71(1) of the Crimes Act (Cth), was committed in November 1999 and involved a much more complex fraud. In that instance, the defendant in his official capacity in ITSA, contrived a settlement with a bankrupt wherein the bankrupt paid $15,000 to the Official Receiver in exchange for a caveat being removed from one of the bankrupt's properties. The cheque was falsely recorded as a payment of composition monies by another unrelated bankrupt. The defendant falsely created various documents recording meetings of creditors to consider proposals for composition and their rejection of such proposals. This fraud resulted in the $15,000 being refunded to a false identity used by the defendant. 7 The offence in count 10 involved the defendant directing into bank accounts that he controlled cheques that should have been paid into bankrupt estates. 8 The offences contained in counts 12 and 13 were committed between April 1999 and September 1999 whilst the defendant was still in the employ of ITSA. Each was laid contrary to s 29D of the Crimes Act 1914 (Cth) (since repealed). These offences were committed in circumstances where, together with another person, false compensation claims were made to the Stevedoring Industry Reform Small Business Compensation Fund to which ITSA was appointed as trustee. This fund was set up to compensate small businesses that had suffered losses during the waterfront dispute involving Patrick Stevedores and the Maritime Union of Australia. The defendant was one of several staff at ITSA who assessed claims for compensation submitted by small businesses. The defendant approved the fraudulent claims and his co-offender banked the cheques into accounts set up under false names. 9 The offences contained in counts 16, 17 and 18 were committed between December 2002 and September 2003 when the defendant was employed at Sims Partners. Between these dates the defendant appropriated cheques drawn from bankrupt estates in favour of ITSA for statutory "realisation charges" under the Bankruptcy (Estate Charges) Act 1997 (Cth). These cheques were then presented by him as being payable to "CITSA", the defendant simply adding a "C" to the cheques drawn in favour of "ITSA". The cheques were then deposited into an account in the name of Michael Simpson trading as CITSA. Michael Simpson was an alias the defendant adopted and utilised in perpetrating these frauds. 10 Count 9 involved similar conduct on the part of the defendant but between September 1998 and June 1999 whilst he was still under the employ of ITSA. 11 The defendant was arrested, charged and granted bail on 8 July 2004. He was offered an opportunity at that time to participate in an electronically recorded interview. He declined the offer at that time but some weeks late, on 29 July 2004, he voluntarily attended the Sydney branch of the Australian Federal Police where he provided a written statement and participated in an interview. During this interview he made full admissions to the course of conduct that was ultimately reflected in the charges on indictment.

The history of proceedings 12 On 20 July 2004, the Commonwealth Director of Public Prosecutions (CDPP) commenced proceedings under the Act by the filing of a summons. On the same day, Kirby J made a restraining order under s 18 of the Act in respect of all of the defendant's property, and other nominated property over which he exercised control, namely funds held on account and shares held in the name of his alias, Michael Simpson. 13 On 15 February 2005, the defendant entered pleas of guilty in the Local Court in relation to the above offences. He appeared in the District Court on 25 February 2005 when his matter was listed for sentence. This is taken to be the date of conviction for the purpose of these proceedings. 14 On 8 April 2005, before sentence was passed, the defendant sought orders pursuant to s 31 and s 94 of the Act for the exclusion of certain property from restraint and the exclusion of such property from automatic forfeiture six months after the date of conviction as provided for in s 92. The motion was heard and dismissed by Hulme J on 18 August 2005 (see DPP v Studman [2005] NSWSC 824). An appeal to the Court of Appeal was also dismissed (see Studman v Commonwealth Director of Public Prosecutions [2007] NSWCA 285). Accordingly, on 24 August 2005, by operation of s 92 of the Act, all of the defendant's property that was restrained by Kirby J on 20 July 2004, inclusive of that over which he exercised effective control though use of an alias, was automatically forfeited to the Commonwealth. 15 On 26 August 2005, Nicholson DCJ, sentenced the defendant to a period of four years and six months with a non-parole period of three years and six months. The defendant appealed against that sentence to the Court of Criminal Appeal. The appeal was dismissed on 10 September 2007 (see Studman v Regina [2007] NSWCCA 263). The defendant is eligible for release on 24 February 2009.

The application for a pecuniary penalty order 16 A pecuniary penalty order is an order calculated by reference to the benefits a person has derived from an offence. It can be either the direct amount derived or that amount plus any additional benefit that accrues from receiving that amount. Section 5(a) of the Act states that one of the principal objects of the Act is: "to deprive persons of the proceeds of offences, the instruments of offences and benefits derived from offences, against the laws of the Commonwealth or the non-governing Territories…". 17 The CDPP is entitled under s 134 of the Act to make application for a pecuniary penalty order. Such an order is defined under s 338 to mean an order under s 116. Section 116 provides: (1) A court with proceeds jurisdiction must make an order requiring a person to pay an amount to the Commonwealth if: (a) the DPP applies for the order; and (b) the court is satisfied of either or both of the following: (i) the person has been convicted of an indictable offence, and has derived benefits from the commission of the offence;(ii) subject to subsection (2), the person has committed a serious offence. (2) Subparagraph (1)(b)(ii) does not apply in relation to a serious offence that is not a terrorism offence unless the court is satisfied that the offence was committed: (a) within the 6 years preceding the application (or, if some or all of the person's property is already covered by a restraining order, preceding the application for the restraining order); or (b) since the application was made. The period of 6 years may be a period that began before the commencement of this Act. (3) In determining whether a person has derived a benefit, the court may treat as property of the person any property that, in the court's opinion, is subject to the person's effective control. (4) The court's power to make a pecuniary penalty order in relation to an offence is not affected by the existence of another confiscation order in relation to that offence." (emphasis added) 18 In contradistinction to s 27 of the Proceeds of Crimes Act 1987 (Cth) (since repealed) which vested discretion in the Court to refuse an application made by the Director having regard to the defendant's circumstances, in particular a defendant's ability to satisfy any order made, s 116 is in mandatory terms. 19 The defendant submitted that I should nevertheless take a discretionary approach to the orders sought by the plaintiff in the present proceedings. In support of this submission he referred me to the Tasmanian decision of Director of Public Prosecutions v Delaney (1998) 7 TASR 383. That decision concerned the operation of s 21 of the Crime (Confiscation of Profits) Act 1993 (Tas) which is still in force in that state today. That section provides that upon conviction of a serious offence, the court may, upon application, assess the value of benefits derived by the commission of the offence and order the person to pay a pecuniary penalty equal to the value assessed. This is in direct contrast to the plain language in s 116 of the Act where, as I have observed, the making of a pecuniary penalty order is mandatory if the statutory preconditions for its issue are made out, that is, where the defendant has been convicted of an indictable offence and where he has derived a benefit from the commission of that offence. The fact that the defendant has no reasonable prospects of satisfying a pecuniary penalty order is irrelevant to the exercise of jurisdiction under the section. At best these are considerations to which the Director may have regard in determining whether or not, in the given circumstances, to make an application for a pecuniary penalty order.

Did the defendant receive a benefit? 20 It was not in dispute that the defendant committed 18 indictable offences, some of which also met the definition of a serious offence under the Act. A serious offence is defined as an indictable offence that causes a loss to the Commonwealth or another person of at least $10,000. The defendant did submit however that he had not derived any benefit in consequence of his offending since all the money he misappropriated was squandered in the course of funding his gambling addiction. A benefit is defined under s 338 of the Act to include a service or advantage. 21 In the related proceedings of DPP v Studman [2005] NSWSC 824, Hulme J made the following observations: "…the benefits of which the Act speaks are to be assessed by reference to what proceeds were received and by disregarding the expenditure of them. On the completion of each offence Mr Studman had received the proceeds of it. At that time he had the benefit of the use of the funds involved and the fact that subsequently he used them as he did is no more to be taken account of than if he had spent them on alcohol, heroin or any other addiction. While I accept that addictions are commonly regarded as compulsive, in fact addicts generally and perhaps invariably spend some of the money they acquire on matters other than their addiction, e.g. food. The fact that from time to time there were significant sums of money in accounts to which Mr Studman had access demonstrates that he did exercise a degree of choice in what he did with money coming into his hands or under his control." 22 Although his Honour was not required in the proceedings before him to determine the issue of whether a pecuniary penalty order should be made, I am in express agreement with his analysis of what is comprehended by a benefit and, accordingly, I reject the defendant's submission that his squandering of the monies did not result in a benefit to him. I note in that connection that the defendant admitted under examination that he obtained or derived a benefit from the offences that are the subject of these proceedings. 23 The defendant also advanced a submission before his Honour that the amount of any pecuniary penalty order must be reduced by an amount of superannuation he would stand to lose by virtue of his offending conduct. Neither the plaintiff nor the defendant were in a position at that stage to address this issue and it was for that reason that the matter was left unresolved. It is to that question that I will presently turn since the defendant submitted before me that I should reduce the amount the plaintiff seeks by that same calculation.

Determining the penalty amount 24 The determination of the amount of the pecuniary penalty (the penalty amount) must accord with Division 2 of Part 2.4 of the Act. Section 121 provides: "(1) The amount that a person is ordered to pay to the Commonwealth under a pecuniary penalty order (the penalty amount) is the amount the court determines under this Division.(2) If the offence to which the order relates is not a serious offence, the penalty amount is determined by: (a) assessing under Subdivision B the value of the benefits the person derived from the commission of the offence; and(b) subtracting from that value the sum of all the reductions (if any) in the penalty amount under Subdivision C. (3) If the offence to which the order relates is a serious offence, the penalty amount is determined by: (a) assessing under Subdivision B the value of the benefits the person derived from: (i) the commission of that offence; and (ii) subject to subsection (4), the commission of any other offence that constitutes * unlawful activity; and (b) subtracting from that value the sum of all the reductions (if any) in the penalty amount under Subdivision C. (4) Subparagraph (3)(a)(ii) does not apply in relation to an offence that is not a terrorism offence unless the offence was committed: (a) within: (i) if some or all of the person's property is covered by a restraining order - the period of 6 years preceding the application for the restraining order; or (ii) otherwise - the period of 6 years preceding the application for the pecuniary penalty order; or(b) during the period since that application for the restraining order or the pecuniary penalty order was made." 25 Although the plaintiff has, both in written submissions and a spreadsheet provided to me in the course of oral submissions, differentiated between those counts of the indictment that are indictable offences, those that are serious offences and those that qualify as other unlawful activity, it has not done so accurately or consistently (see pars 11 and 17). In the result, however, this had no impact at all on the calculation of the penalty amount since all 18 offences are indictable and, by operation of s 116, upon my being satisfied that the defendant has committed an indictable offence from which he derived benefits or he has committed a serious offence or both, I am obliged to make an order. 26 The plaintiff did not submit that the defendant derived a benefit from the commission of any offence other than the offences to which he has been convicted. Thus, it was submitted a total amount of $381,749.95 (representing the total of monies misappropriated or otherwise obtained by the defendant in the course of the 18 indictable offences) should be the amount contained in the penalty order.

Should the penalty amount be reduced? 27 Subdivision C, Division 2 of Part 2.4 of the Act makes allowance for various reductions to apply in determining the penalty amount. Section 130 provides that: "The penalty amount under a pecuniary penalty order against a person is reduced by an amount equal to the value, as at the time of the making of the order, of any property that is proceeds of the offence to which the order relates if: (a) the property has been forfeited, under this Act or another law of the Commonwealth or under a law of a non-governing Territory, in relation to the offence to which the order relates; or(b) an application has been made for a forfeiture order that would cover the property." 28 In reliance upon s 130, the defendant submitted that the value of the restrained property already forfeited to the Commonwealth should be deducted from the penalty amount sought by the plaintiff in these proceedings. The plaintiff submitted that there was no evidence that the property restrained and forfeited was the proceeds of any of the offences to which the pecuniary penalty order relates, namely the 18 offences on indictment. The plaintiff also referred me to the judgment of Hulme J where it is apparent that in seeking to have the restraint imposed by Kirby J lifted the defendant submitted precisely the opposite of what he now wishes to advance. The defendant submitted before his Honour that the funds on deposit and other securities held by him were lawfully acquired. While his Honour accepted that was likely to be the case, he nevertheless refused to exclude the property from restraint being satisfied that unlawfulness in opening and operating the bank account and in acquiring the shares permitted the conclusion to be safely drawn that the defendant's interest in the subject property was not lawfully acquired. The Court of Appeal found no error in his Honour's approach or the conclusions he reached. In all the circumstances, I am not satisfied that s 130 has any operation in the proceedings before me. 29 Section 131 of the Act provides for a reduction in the amount of the pecuniary penalty order by an amount which represents the tax paid on any benefits received. The defendant did not submit that this provision had any application to this case. 30 Section 132 of the Act provides: "The court may, if it considers it appropriate to do so, reduce the penalty amount under a pecuniary penalty order against a person by an amount equal to the amount payable by the person by way of fine, restitution, compensation or damages in relation to an offence to which the order relates."

31 The plaintiff correctly pointed out that the sentencing judge was not asked to make a reparation order and did not impose a fine. The defendant submitted, however, that since he stands to lose his superannuation entitlements under s 16 of the Crimes (Superannuation Benefits) Act 1989 (Cth) the penalty amount sought by the plaintiff should be reduced. That section provides as follows: "Where: (a) a person who is or was (whether before, on or after the commencing day) an employee is convicted of an offence; and (b) the Minister is of the opinion that the offence is a corruption offence; the Minister may, by notice in writing, authorise the DPP to apply to the appropriate court for a superannuation order in respect of the person." 32 The plaintiff informed me that as at the date of hearing the Minister had not authorised the CDPP to commence proceedings and for that reason s 132 of the Act had no application. Accordingly, it was submitted there was no order that might otherwise qualify for consideration under s 132 even if a superannuation order might, by application of the sui generis rule, be caught by the section, a matter about which I express no opinion. I am informed that the Minister is still considering whether he will authorise the CDPP to commence proceedings against the defendant for a superannuation order. Self-evidently, the CDPP cannot initiate proceedings unilaterally. Whether proceedings are to issue at some time in the future cannot however have any relevant bearing on the orders I was asked to make.

Conclusion 33 Having regard to the provisions of the Act to which I have referred and after hearing argument, I concluded that I was obliged to make the orders the plaintiff sought and in the specified amount. I wish only to note that at the time of the hearing the defendant was eligible for C3 Work Release from 25 February 2008 and that he had secured work at Flemington markets earning approximately $280 per week. I accept that these monies will be available to him as a lump sum upon his release on 25 February 2009. I also note that he has no assets and is on a waiting list for accommodation with the Department of Housing. While I fully appreciate that the pecuniary penalty order I have made is enforceable as a civil debt at the instance of the Commonwealth, I am also mindful that one of the purposes of sentencing is the rehabilitation of the offender with the offender's reintroduction to society by application and aptitude for hard work a feature of that objective. It would be regrettable if the defendant's apparent determination to prepare for his release and to live independently of social services is undermined, and one of the purposes of sentencing defeated, by an inflexible approach to enforcing the pecuniary penalty order against the defendant either upon his release from prison or before that time. **********

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Proceeds of Crimes Act 1987(Cth)

CITATION : Director of Public Prosecutions (Cth) v Studman [2008] NSWSC 250

Director of Public Prosecutions v Delaney (1998) 7 TASR 383 CASES CITED : Director of Public Prosecutions v Studman [2005] NSWSC 824 Studman v Commonwealth Director of Public Prosecutions [2007] NSWCA 285 Studman v Regina [2007] NSWCCA 263

JUDGMENT HER HONOUR: 1 On 22 February 2008, I made an order in accordance with a notice of motion filed by the plaintiff on 12 July 2005 that the defendant pay the Commonwealth a pecuniary penalty pursuant to s 116 of the Proceeds of Crime Act 2002 (Cth) (the "Act") being an amount determined in accordance with s 121 of the Act to be the value of benefits derived by him from the commission of a number of offences contrary to the Crimes Act 1914 (Cth) and the Crimes Act 1900 (NSW). The plaintiff assessed that amount at $381,749.95. On the date of the hearing the plaintiff expressly abandoned moving for an order under s 282 of the Act and did not seek an order for costs. What follows are my reasons for ordering that the defendant pay the pecuniary penalty order in the stated amount. 2 In support of the motion, the plaintiff read the affidavit of Michelle Marie Bellamy dated 21 February 2008. Annexed to that affidavit were the following documents: (i) a statement of facts prepared by Federal Agent Mark Atkins of the Australian Federal Police; (ii) a certificate of sentence under the Evidence Act ; (iii) the sentencing remarks of his Honour Judge Nicholson dated 26 August 2005 and 9 December 2005; and, (iv) the decision of the Court of Criminal Appeal in Studman v Regina [2007] NSWCCA 263. The plaintiff also relied upon the affidavit of Shaditara Eha Ehsani and a transcript of evidence the defendant gave under examination pursuant to s 180 of the Act. 3 The defendant, who was unrepresented on the date of the hearing, read his affidavit dated 21 February 2008. The defendant also referred me to other affidavits filed in related proceedings but I did not find them of any relevance to the proceedings before me.

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