Director of Public Prosecutions v Xiao Xuan Xu & Anor

Director of Public Prosecutions v Xiao Xuan Xu & Anor - [2010] NSWSC 842 - NSWSC 2010 case summary — Zoe

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Procedural Background 8 Although the DPP presently proceeds on an amended summons which was filed on 8 September 2009, the proceedings were originally commenced on 19 November 2004. At that time, as I have indicated above, a restraining order was made under s 18 of the 2002 Act against the second defendant. That restraining order precluded her from dealing, in any way, with the Strathfield property. 9 Ancillary orders were made including one which required the second defendant to provide a sworn statement setting out the particulars of dealings with the Strathfield property. That order was made pursuant to s 39 of the 2002 Act. As well, an order was made for the compulsory examination of the second defendant about her affairs insofar as the Strathfield property was concerned and her dealings with the first defendant. That order was made under s 180 of the 2002 Act. 10 Although the original summons sought an order for forfeiture, it was not determined at the time and it is that order which the DPP now seeks. 11 On 6 April 2010, the matter was fixed for hearing for a period of three days commencing on 29 June 2010. 12 On that day, when the matter was called on for hearing before me, I made orders, upon the application of the second defendant, that she be joined to the proceedings and I also made an order that the DPP have leave pursuant to Part 11, r 11.4 of the Uniform Civil Procedure Rules 2005 ("the UCPR") to proceed against the first defendant. 13 Late on the first day, an application was made by the DPP for an adjournment of the proceedings for a period sufficient to enable him to take steps to meet the minimum requirements of the Foreign Evidence Act 2004 (Cth) with respect to the evidence which he wished to adduce in the proceedings. That application was opposed by the second defendant. On 30 June 2010, I delivered a judgment in which I refused that application. 14 The matter then proceeded until the end of 1 July 2010. Directions were then given to enable the parties to file further written submissions over a period of 21 days. 15 The period between when the original summons was filed on 19 November 2004 and when the matter came on for hearing on 29 June 2010 was a very long one. As my judgment of 30 June 2010 shows, over that period the matter came before the court on 31 occasions for directions when, on most if not all such occasions, the DPP sought further adjournments for one reason or another. This unfortunate procedural history has not been the subject of any detailed, much less satisfactory, explanation to the Court by the DPP. 16 It is to be regretted that this matter has taken so long to come on for hearing.

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'State indictable offence' means an offence against the law of a State that may be dealt with as an indictable offence (even if it may, in some circumstances, be dealt with as a summary offence)." 24 Commonwealth legislation which provides for the acquisition of property must ordinarily provide that such acquisition occurs on just terms: The Constitution, s 51(xxxi). Legislation providing for compulsory forfeiture is not authorised by the power under s 51(xxxi), but rather arises under some other head of power, or else a part of an incidental power for the purpose of vindicating other laws: Burton v Honan (1952) 86 CLR 169 at 180-181 per Dixon CJ. 25 The 2002 Act manifests a clear intention to effect the confiscation of property without any compensation: Lee v Director of Public Prosecutions (Cth) [2009] NSWCA 347 at [20]. The taking of property in the prescribed circumstances is the primary purpose of the legislation: s 5 of the 2002 Act. The 2002 Act constitutes an accepted exception to the requirement that compensation on just terms is necessary: Lee at [21]. 26 The provisions of a statute which provide for the confiscation of property or derogation from property rights must be strictly construed: Studman v Director of Prosecutions (Cth) [2007] NSWCA 285 at [35] per McClellan J (Spigelman CJ and Handley AJA agreeing). 27 This does not mean that the Court undertakes anything other than the usual contextual (rather than textual) approach to the process of statutory interpretation. The correct approach is to use the ordinary rules of statutory construction and interpretation. If an ambiguity or doubt remains at the end of such an exercise, that should be resolved in favour of the retention of the right to property: NSW Crime Commission v Kelaita [2008] NSWCA 284 at [15]-[17] per Allsop P. 28 The provisions of s 315(2)(a) of the 2002 Act do not stand in the way of such an approach to the construction and interpretation of the Act because this approach is not a rule of construction "… applicable only in relation to the criminal law …": Lee v Director of Public Prosecutions (Cth) [2009] NSWCA 347 at [17]-[18]. These proceedings are not criminal in nature nor is the principle referred to in Studman one of application only to the criminal law. Its genesis is the application of the principle of legality to statutory construction, and the recognition that: "… the need for clarity in the confiscation of property rights is rooted in the importance of such rights and their legitimate protection in civil society, free from the exercise of arbitrary power, in particular the use of the prerogative power, or in today's political framework, Executive power": NSW Crime Commission v Kelaita [2008] NSWCA 284 at [15] per Allsop P. Obtaining a Forfeiture Order 29 In this matter, the effect of the legislation is that the Court must make a forfeiture order where it is satisfied about these matters:

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he was the General Manager of Fujian Bamin Communication Electrical Equipment Company Ltd; he was the General Manager of the Tianli Technical Trading Company Ltd; he was sentenced to 15 years imprisonment for the crime of smuggling common goods; he was ordered " … to continue to pay his illegal income of $US2,216,270" . The only source identified for this "illegal" income is the crime of smuggling common goods; his conviction was based on Articles 153, 25, 30, 31 and 64 of the Criminal Law of the People's Republic of China and some further Articles which seemingly deal with matters of interpretation and precedent. 41 It is clear that his conviction was in respect of a criminal offence which carried a penalty of no less than 15 years, and perhaps had a greater maximum sentence. It was a decision of a court comprised of three judges. An appeal lay from the judgment to the People's High Court of Fujian Province. Both the prosecution and the defendant were represented by lawyers. 42 None of the relevant articles of the Criminal Law of the People's Republic of China were adduced in evidence. Accordingly, it is not possible to know what the constituent elements were, of the crime for which the first defendant was convicted. 43 The second document marked "Admission 1" is entitled Interrogation Record (The Eighth). It is the record of an interrogation which took place over a period of a little over two hours on 24 June 2002. It occurred before the court proceedings to which Ex F relates. 44 The second defendant admitted for the purpose of these proceedings certain of the facts contained in the document, being those consisting of the first question and answer on p 47, and the facts referred to on pp 48 and 49 of the document. 45 At the start of this document, the first defendant admits that the "entire process" of the commercial transaction commenced in the second half of 1991. Later in the document he admits that he received money in the latter half of 1997 and 1998 as I describe in more detail later. 46 The DPP submits that the Court should disregard the date of 1991 because: "On the evidence contained in Admission 1, the reference to '1991' is, to the extent of a high probability, either a translation or a typographical error, and the relevant year is, properly, 1997." 47 Upon the initial examination, there seems to be some force in this submission. However, the second defendant submits that to interpret the words in this way would be impermissible because it is not open to the Court to change an admission of one fact (ie, that conduct occurred in 1991) to an admission of another and different fact (ie, that conduct occurred in 1997). 48 As well, given that the admission document was annexed to an affidavit of Mr Albert Au sworn 2 October 2009, which was filed and read by the DPP, and in which Mr Au swore that he had accurately translated the documents with which he was provided, I would in the absence of any further evidence be reluctant to accede to the DPP's submission. 49 That reluctance is magnified in this case because the date, 1991, does not on its face appear to be inherently improbable. Clearly, negotiations for an entry into the commercial agreement would necessarily precede the receipt of monies from goods sold under the agreement. Whilst a period of six years between initial negotiations and the receipt of payment may seem rather long, it is not beyond the realm of rational dealing. I could not find it to be inherently improbable. 50 In summary, the approach which I will take is to reject the DPP's submission that I should substitute 1997 for the date 1991 in the first defendant's admissions, and to regard the particular admission of the first defendant as being limited to the year recorded, namely 1991. 51 The following facts all of which occurred in 1997 and 1998 (unless otherwise noted) emerge from Admission 1:

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part of the amount of $US9million, namely $US500,000, was transferred from a Citibank account to an account in the name of the first defendant with the Commonwealth Bank of Australia. 52 The evidence (Ex A) established that the sum of $US500,000 was transferred into Australia on 20 November 1998. That sum was in an account in Citibank NA in Hong Kong. At the direction of the first defendant, it was transferred to a cheque account which he had established with the Commonwealth Bank of Australia, Martin Place, Sydney. 53 The first defendant arrived in Australia on 27 October 1998. He remained in Australia until deported to China on 4 June 2002. For a period of 10 days in January 1999, the first defendant left Australia, and apparently went on a trip to New Zealand. 54 The DPP has also established that the first defendant purchased the Strathfield property on 1 June 1999. He paid the purchase price of $A305,000 from the monies deposited in the Commonwealth Bank account. In addition the first defendant paid stamp duty on the contract for sale. The amount of stamp duty paid is not in evidence. 55 On 22 February 2002, the second defendant took a transfer of the Strathfield property for $A1. The stamp duty of $A12,365 was paid by the second defendant. 56 In her compulsory examination which occurred on 19 March 2007, the second defendant gave this explanation of the circumstances giving rise to her holding of the Strathfield property. At p 70 of Ex G, she said: "I don't know whether I'm holding for him but when he bought the property at the time and he had it his mind that he wants his child to study in Australia. So, to come to study in Australia I don't know whether you need to have a certain amount of deposited sitting in the bank and you need to have a sponsor to the, because the child, especially for a child under 18 years of age. So he bought that unit at beginning for the purpose of, for his son later on to study in Australia and appoint me at the time, so, and if I can look after him while he's coming." 57 She was asked with respect to some funds other than the transfer used to purchase the Strathfield property whether she was aware how the first defendant derived that money, which totalled $A1.3million. She said at p 74 of Ex G: "He told us - because when he came here he was asked business visa and he also told us he was a businessman and he was communication and business as well so, you know, he did a lot of share trading business, share trading in China and his wife as well, that's the share trading as well. We know he's very successful because to get us at the time on '98, not many Chinese man can come to Australia on business visa. People only come here, basically it was Hong Kong or Singapore or these kind of places." 58 During the examination, the question of the purchase and various payments with respect to the Strathfield property were again dealt with. It is most convenient if I set out the entirety of that evidence. It appears on p 90 and in part on p 91 of Ex G. "MS DiGREGORIO: I will give you a copy of the transfer in relation to the unit at Albert Street.

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MS NG: Yes, I it as - I wouldn't think it's come from him. It must be from some sort of Government force him to do something like that. So I showed my solicitor. My concern is my family, whether they're coming to here to do some harmful things to my family and the solicitor said, no, you're in Australia not in China. Don't forget it, you know, don't worry about it. They can't come, just grab you - kidnap me." 61 Importantly with respect to the letter (which was not in evidence before me), she later said in her examination that although the document was signed by the first defendant, when she received it, she did not believe that it had been sent by the first defendant of his own free will or else it did not come from him, because the story in it was totally different from previous stories. 62 Later she described taking the letter to the solicitors because she thought: "It's something terrible. It not right." She said she had not heard from the first defendant since. 63 If I were to summarise the evidence of the second defendant, she accepts that she holds the Strathfield property, in circumstances where she has paid no money for it, on trust for, or else in her capacity as a power of attorney for, the first defendant or his eldest son. She was at all times unaware of any suggestion that the money used for the purchase of the Strathfield property was allegedly obtained unlawfully or else the proceeds of crime. 64 In the course of his interview, part of which is contained in Admission 1, the first defendant said that, the second defendant did not pay any cash to him for his sale of the Strathfield property to her, but "instead, her debt was paid in kind as my attorney fees in Australia…". 65 In her compulsory examination, at p 91.28ff, the second defendant said that she had paid the legal fees of Mr Andrew Lui, a solicitor, who acted on the transfer of the Strathfield property from the first defendant to the second defendant. Mr Lui seems to have acted for both defendants. The value of the Strathfield property at the time of transfer (at least for the purposes of stamp duty) was $375,000. There is no reason to think that this is not an accurate market value. 66 There is no evidence which suggested that the first defendant had retained lawyers, and incurred legal fees, in any such which was anywhere near capable of approaching the value of the property. Such a suggestion is also contrary to the admission by the first defendant that whilst in Australia, he had spent $100,000 (in addition to investing in real estate). 67 Such a proposition as is asserted by the first defendant above in para 63 is also inconsistent with the evidence of the second defendant about how she acquired the property. 68 I do not regard myself as being able to place any weight on such an assertion, and accordingly, I reject the submission advanced by senior counsel for the second defendant that I should find that the consideration for the transfer was the reimbursement of legal fees. 69 The second defendant gave no evidence before me. The absence of any evidence from the second defendant asserting that positively to be the fact, makes my task of rejecting it the more rational: Jones v Dunkel (1959) 101 CLR 298 at 312 (per Menzies J), at 320-321 (per Windeyer J). 70 In the examination, the second defendant makes no claim to be entitled to the Strathfield property absolutely. Equally, however, she denies that at any time she knew that it was the product of any unlawful venture or enterprise in which she or the first defendant engaged. She deposes that at all times her belief was that the first defendant was engaged in lawful, successful, business dealings.

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Proceeds of Crime? 71 I have earlier set out, and referred to, the words of s 81 of the 1987 Act. 72 The DPP submits that the first defendant by purchasing the Strathfield property on 1 June 1999 engaged in a transaction which involved money that was the proceeds of crime and therefore contrary to the provisions of s 81(3)(a) of the 1987 Act. 73 It is not in dispute that the first defendant, as I have set out earlier, used money derived from the Citibank account in Hong Kong to purchase the Strathfield property. Nor is it in dispute that the evidence establishes that the sum of $US500,000 part of which funded the purchase of the property was a part of the $US9million sum paid to the benefit of the first defendant in Hong Kong. What is in dispute is whether that money was the proceeds of crime within the definition in s 4 of the 1987 Act. 74 The first possible basis for a finding that the sum of $US9million was the proceeds of crime is that, as set out in s 4(a) of the definition in the 1987 Act, it was the proceeds of an indictable offence, ie, an offence against a law of the Commonwealth. 75 It is not submitted by the DPP that it was. On any view of the facts, the money in Hong Kong had been derived, whether legally or illegally, from a commercial transaction for the importation of mobile communication technology equipment into China. That commercial transaction seems to have occurred wholly in China, and to have had no relationship with any act, omission or person in Australia. I do not see how that could constitute an indictable offence against a law of the Commonwealth. 76 The second possible basis for a finding that the sum of $US9million was the proceeds of crime is that it is derived from conduct which occurred outside Australia and, had the conduct occurred in Australia, it would have constituted an indictable offence, of either the Commonwealth or the State: s 4(b) of the definition in the 1987 Act. 77 It is therefore necessary for the DPP to first identify the facts which have been established and then identify which indictable offence would have been committed if the conduct occurred in Australia ("the hypothetical offence"). 78 Initially, the DPP argued that the hypothetical offence was one which amounted to an imposition on the Commonwealth, or alternatively some form of a fraud on the revenue offence. As well, the DPP sought to argue that there was an equivalent "smuggling" type offence. 79 Those submissions were met in oral argument by the second defendant. The DPP sought and was granted leave to put in written submissions which addressed in detail which hypothetical offences it submitted were proved on the facts. 80 In its written submissions, the DPP contended that the hypothetical offences which had, on the evidence, been proved were:

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Specific Corporations Law offences 99 Although, in light of my conclusion in para 98 above, I am unable to be satisfied that the requisite mental element existed as the Law requires, it is strictly unnecessary to consider the other elements of the hypothetical offences against the Law, it is appropriate so to do, in case my earlier conclusion is erroneous. 100 Section 232(5) of the Law obliges an officer of a corporation not to "… make improper use of information acquired by virtue of his position …". With respect to this hypothetical offence, the DPP did not specifically articulate what the "information" was that the first defendant acquired "… by virtue of his position …". Nor did he articulate what improper use was made of that information. 101 I am not satisfied that this hypothetical offence has been proved. 102 Section 232(6) of the Law requires that an officer of a corporation not "… make improper use of his position …". The DPP has not identified what use was made by the first defendant of his position which was improper. It may be implied in the DPP's submissions that money was transferred from Bamin to the first defendant personally or else for his own benefit at his direction and that this was improper. But more is required. 103 Impropriety is determined objectively. It consists in a breach of the standards of conduct that would be expected of a person in the position of the officer by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case: The Queen v Byrnes (1995) 183 CLR 501 at 514-515. 104 If the impropriety consists in an abuse of power, the state of mind of the officer, as well as his purpose or intention in exercising the power are important factors: Byrne at 515. 105 The evidence adduced by the plaintiff is quite insufficient to enable the court to determine what all of the circumstances of the case are. As well, without any knowledge of the duties, powers and authority of the first defendant or any position which he occupied, it is impossible to derive what an objective standard of conduct may be. That objective standard is the touchstone for judging impropriety. 106 I am not satisfied that any breach of the provisions of s 232(6) of the Law has been demonstrated and that any hypothetical offence has been committed. 107 There is no need for me to separately consider the submissions about s 1317FA of the Law because I have elsewhere considered whether the necessary requisite mental element existed. 108 The DPP also submits that the first defendant was in breach of the provisions of s 596(b) of the Law because, whilst an officer of the company: "With intent to defraud the company he made or caused to be made a transfer of the property of the company." 109 A breach of this provision was punishable at the relevant time, by a fine of $A10,000 or imprisonment for two years or both. It was therefore an indictable offence for the purpose of s 4 of the 1987 Act. 110 It is clear that, for the DPP to prove a hypothetical offence consisting of a breach of this section, he must prove that the first defendant's intention was to defraud Bamin or its creditors or shareholders. Another element which the DPP must prove is that at the time of the transfer of the monies, Bamin had the ownership of, or the legal right to, the monies, and that the first defendant had no legal right or entitlement to the monies. 111 The totality of the evidence does not enable me to be satisfied that, at the time the transfer of money took place to MinLi and TianLi, the transfer was done with the requisite fraudulent intent. An essential issue is who had the legal right to the monies. It is necessary for the DPP to prove, at a minimum, that the first defendant had no legal right to the monies, and that the monies were the property of Bamin. 112 The only facts which could enable this conclusion to be drawn are that the first defendant was convicted of the crime of smuggling common goods, the part of the monies ($US9million), the concealment of that path from various employees of Bamin, and the sending of the monies outside the People's Republic of China. Except for the first fact, the others on their own and without more do not intrinsically speak of dishonesty or fraud. They are at best equivocal. 113 Accordingly, I cannot be satisfied that the DPP has established a breach of an offence. 114 The final provision of the Law to which the DPP points as a potential hypothetical offence is s 1309(1). A breach of that provision would amount to an indictable offence for the purpose of s 4 of the 198 Act because the maximum penalty for a breach is a fine of $A10,000 or imprisonment for two years or both. 115 The DPP submits that the first defendant was in breach of s 1309(1) because "the lie he told as to the true commission owing to Bamin [meant that], the company's members including the accountant, the employees and other people in our company" were misled in a material respect. 116 The DPP submitted that the true amount of commission was plainly of materiality to the company having regard to the large amount of money which the first defendant gained, ie, $US9million. 117 There is a fundamental difficulty with accepting the DPP's submission. In the absence of any specific evidence that they were shareholders, it is not correct to classify the company's accountant and employees as members of the company. In s 1309(1), and throughout the Law, the term "member" refers to, and mean, the shareholders of the company. The shareholders are the owners of the company. 118 The DPP tendered no evidence at all about the nature of Bamin or its ownership. No register of members (if one were to exist) was tendered. It is simply not possible to hold the accountant and other employees of the company were members. 119 The DPP has not demonstrated any breach of s 1309(1) as a hypothetical offence.

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Crimes Act 1914 (Cth) 120 The DPP submits that the conduct of the first defendant would justify a finding that he had committed either of the hypothetical offences constituted by a breach of s 5 and/or s 86 of the Crimes Act 1914 (Cth). 121 Section 86 relates to conspiracy and requires that the subject of any conspiracy be an offence against a law of the Commonwealth. The offences upon which the DPP relies are the breaches of the various provisions of the Law to which I have earlier referred in this judgment. 122 The DPP submits that the conspiracy was between the first defendant and either or both of Shi Hong and Huang Duchen who appear to be people with whom the first defendant had dealings. 123 Whether or not it is appropriate to regard a breach of the Law as an offence against a law of the Commonwealth, is a nice question. The Law which commenced on 1 January 1991 was part of a scheme by which the Commonwealth and the States co-operatively agreed to pass identical laws. Under that scheme, the Law is contained in an Act of the Commonwealth Parliament, the Corporations Act 1989, and is enacted for the Australian Capital Territory. Laws of each State and the Northern Territory applied the Corporations Law of the ACT as a law of the State or the Northern Territory. The scheme was designed to operate as a single national scheme even though it actually applies in each State and the Northern Territory as a law of the State or Territory. 124 In undertaking an analysis of the hypothetical offence, it seems to me that the correct position is that the Law is a State statute and not a Commonwealth one. Of itself, this would be a complete answer to the DPP's submission on both s 86 and s 5 of the Crimes Act 1914 (Cth). 125 However, in the absence of detailed submissions on the issue from counsel for both parties, I have approached the DPP's submissions without regard to the niceties of whether a breach of the Law would be a Commonwealth or State offence. If a conspiracy to breach the Law existed, then it was either an offence against a Commonwealth law, s 86 of the Crimes Act 1914 (Cth) or else a common law conspiracy with respect to the breach of a State law. 126 But whatever view one takes of the allegation of conspiracy, there needs to be an underlying offence which is the subject of that conspiracy. As I have indicated above, I am not satisfied that there is any underlying offence and accordingly a conspiracy, which has additional elements to it, could not be proved by the DPP on the evidence which it has tendered to me. 127 Section 5 of the Crimes Act 1914 is a deeming offence whereby any person who is knowingly concerned in, or a party to the commission of any offence against any law of the Commonwealth, is regarded as a principal offender. 128 I am not persuaded that it is correct to regard a breach of s 5 as a substantive offence in itself. In order for an individual, here the first defendant, to be knowingly concerned in the commission of an offence, then there needs to be evidence of a principal offence being committed, in which the first defendant is knowingly concerned. 129 For the reasons which I have articulated above, without including the question of whether the Law is a Commonwealth statute, I am not satisfied that there has been any breach of any Commonwealth law, which would be a principal offence.

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Crimes Act 1900 130 The DPP submits that the provisions of s 178BA of the Crimes Act 1900 can be relied upon to demonstrate a hypothetical offence. 131 Relevantly, s 178BA provided: "(1) Whosoever by any deception dishonestly obtains for himself or herself or any other person any money or valuable thing or any financial advantage of any kind whatsoever shall be liable to imprisonment for five years". 132 In the context of this section, deception would be constituted by the intentional inducing in another of a state of mind which the accused knows does not accord with the fact: Corporate Affairs Commission v Papoulias (1989) 20 NSWLR 503 at 506B. It is an essential ingredient of the offence created by this section that the cause of the payment of the money (or the handing over of the valuable thing or the giving of the financial advantage) was the deception used by the accused: Ho & Szeto v The Queen (1989) 39 A Crim R 145 at 147. 133 If it be assumed as argued by the DPP's submissions, that the deception was constituted by the lies told to the accountants and employees of Bamin, there is still no evidence that the deception was the effective cause of obtaining the money. 134 The facts provided do not demonstrate how the money was obtained. They do not demonstrate whether, for example, it was paid directly from the purchaser companies to MinLi or TianLi, or whether it was obtained by payment to MinLi or TianLi from the vendor of the communications equipment to Bamin. It is not even clear if the money was ever in the account of Bamin at any time. In all of those circumstances, the DPP has not adduced any evidence capable of satisfying the causative element of such a hypothetical offence. 135 The DPP also relies upon the provisions of s 178BB of the Crimes Act. 136 The section provided that: "(1) Whosoever with intent to obtain for himself or herself or another person any money or valuable thing or any financial advantage of any kind whatsoever, makes or publishes, or concurs in making or publishing, any statement (whether or not in writing) which he or she knows to be false or misleading in a material particular or which is false or misleading in a material particular and is made with reckless disregard as to whether it is true or is false or misleading in a material particular, shall be liable to imprisonment for five years." 137 The section makes it an offence to make a statement which the accused knows to be false or misleading in a material particular. 138 The offence concentrates on the making of a particular statement, the contents of any such statement and the intention of the maker of the statement. The statement made by the first defendant to the accountants or other employees of Bamin is not in evidence in any direct form. At best, the content of the statement is to be derived from the admissions document, Admission 1. 139 The precise admission in that document is in these terms: "The accountant and other people in our company were not aware of the real motives behind this way of distribution. I told my employees that our company only made 1% out of the 20% commission fee and the remaining 19% goes to Fu Min Company and Xin Zhing Sheng company".

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