LIU Zhong Bao v NEW SOUTH WALES CRIME COMMISSION [2007] NSWCA 347 | Case summary

6 December 2007 LIU ZHONG BAO v NEW SOUTH WALES CRIME COMMISSION Judgment 1 MASON P: I agree with Basten JA. 2 TOBIAS JA: I agree with Basten JA. 3 BASTEN JA: On 12 December 2001 police belonging to an interagency taskforce, which included the New South Wales Crime Commission ("the Commission"), executed a search warrant at premises known as 12/90 Mount Street, Coogee in the south-eastern suburbs of Sydney. The apartment was let to a Ms Shi Wei and a Mr Guo Qi Guang. Various valuables on the premises were seized by the police, together with a suitcase full of Australian currency totalling $769,300. Prohibited drugs were also found on the premises. 4 Ms Shi Wei was charged with two offences, one being supply of a commercial quantity of a prohibited drug, contrary to s 25(1) of the Drug Misuse and Trafficking Act 1985 (NSW) and having goods in custody contrary to s 527C of the Crimes Act 1900 (NSW). 5 On 15 April 2002 a restraining order was made by the Court in relation to the money, pursuant to s 10 of the Criminal Assets Recovery Act 1990 (NSW) ("the Act"). 6 Having obtained a "restraining order" the Commission was entitled to an "assets forfeiture order" pursuant to s 22 of the Act. Such an order is frequently sought in the application for the restraining order, though not made at the same time as the restraining order. The parties agreed that, subject to an application under s 25 of the Act by the Appellant (Mr Liu), the Commission was entitled to the forfeiture order. The application by Mr Liu was for "an exclusion order" which, if made, would exclude Mr Liu's interest in the money from the forfeiture order and from the restraining order. The respective applications of the Commission and Mr Liu came before Mathews AJ who, on 24 April 2007, rejected Mr Liu's application for an exclusion order and made the assets forfeiture order sought by the Commission. The present appeal is brought by Mr Liu from that decision. 7 In broad terms, the matters were run before her Honour on the basis that Mr Liu needed to establish on the balance of probabilities that the money was his and had been lawfully acquired by him. (It was common ground that the money was all his, or none was; the evidence did not permit a division.) To that end, he called evidence from a number of witnesses, including some who gave evidence by video-link from Hong Kong. Issues of credibility loomed large in her Honour's assessment of the evidence, and particularly that of Mr Liu himself. It was accepted by both parties that if the Appellant established error in her Honour's judgment, occasioning some substantial wrong or miscarriage, the matter would need to go back to the Common Law Division for a retrial. In my view, although error was demonstrated in relation to findings that an intended purchase of a poultry farm had been abandoned, her Honour's conclusion was independently supported. The appeal should therefore be dismissed. The statutory scheme 8 The power of the Supreme Court to make an assets forfeiture order under s 22 of the Act is dependent upon the relevant interests in property being subject to a restraining order. (The language of the Act differs from similar legislation in other jurisdictions, particularly in its focus on "interests in property" as opposed to "property": c.f. Proceeds of Crime Act 2002 (Cth) discussed in Commonwealth Director of Public Prosecutions v Hart [2007] QCA 184 (Keane JA, Williams JA agreeing, and Philippides J) and Confiscation Act 1987 (Vic) discussed in Director of Public Prosecutions (Vic) v Le [2007] HCA 52.) A restraining order is made under s 10 of the Act, on the application of the Commission. It is an order which restrains all persons from disposing of or dealing with an interest in property. The application may be made on one of two bases (or on both) as provided in sub-s (2): "(2) The Commission may apply to the Supreme Court, ex parte, for a restraining order in respect of: (a) specified interests, a specified class of interests or all the interests, in property of a person suspected of having engaged in a serious crime related activity or serious crime related activities, … or (b) specified interests, or a specified class of interests, in property that are interests of any other person, or (c) interests referred to in both paragraph (a) and (b)." 9 Read in isolation, the scope of this provision is not easy to discern. In relation to an application under paragraph (a), it would appear that an application may be made in relation to any property of a person suspected of having engaged in an activity of the kind described, without the need for any connection between the activity and the property. In relation to paragraph (b), it would appear that an application could be made in relation to any property of any person. In order to make sense of these provisions, it is necessary to read them with sub-s 10(3) which confers power (and indeed an obligation) on the Supreme Court to make the order applied for in specified circumstances. "(3) The Supreme Court must make the order applied for under subsection (2) if the application is supported by an affidavit of an authorised officer stating that: (a) in the case of an application in respect of an interest referred to in subsection (2)(a) - the authorised officer suspects that the person has engaged in a serious crime related activity or serious crime related activities and stating the grounds on which that suspicion is based, and (b) in the case of an application in respect of any other interest - the authorised officer suspects that the interest is serious crime derived property because of a serious crime related activity or serious crime related activities of a person and stating the grounds on which that suspicion is based, and the Court considers that having regard to the matters contained in any such affidavit there are reasonable grounds for any such suspicion." 10 With respect to the first category of interest, the element which is the subject of the affidavit is the officer's suspicion that the person has engaged in a relevant serious crime related activity. What remains obscure is whether the officer or the Court is to be satisfied of a particular relationship between the property and the person. Nor is it clear how the interests are identified or indeed how the property is to be identified. In practice, the physical chattel, land or money is described, as it was in the present case, in a schedule to the draft orders accompanying the summons commencing proceedings in the Court. Relevantly, the schedule in the present case was in the following terms: "$769,300 cash located in a maroon coloured Samsonite travel suitcase which was seized by police pursuant to a search warrant from Shi Wei's bedroom at Unit A12, 90 Mount Street, Coogee." 11 Paragraph 3(b), in referring to an application "in respect of any other interest" is to be understood as referring to an application under sub-s (2)(b). The use of the phrase "any other person", in par (2)(b), to identify the owner of the property must be a reference to a person other than the suspect. In this case it is necessary that the officer hold a suspicion that "the interest is serious crime derived property because of a serious crime related activity". The phrase "serious crime derived property" in this context is defined in s 9(1) as follows: "(1) An interest in property is serious crime derived property if: (a) it is all or part of the proceeds of a serious crime related activity, or (b) it is all or part of the proceeds of the disposal or other dealing in serious crime derived property, or (c) it was wholly or partly acquired using serious crime derived property." 12 The language of paragraph (3)(b) appears to adopt only the first limb of the definition in sub-s 9(1), unless the words "because of" are sufficiently broad to incorporate the other two limbs. That matter need not be determined for present purposes; what is notable, however, is again the absence of any requirement to state a basis for believing that a particular person has an interest in the property. 13 The phrase "interest in property" is defined in s 7 and, relevantly for present purposes, includes a reference to "the person's money": s 7(2)(a). Further, although no reliance was placed upon the provision in argument, where one person has an interest in property which is "subject to the effective control of another person", the interest is deemed to be that of the person having control and not of the 'owner': s 7(3). Because the matter was not discussed, the potential ramifications of this provision must be put to one side, despite the fact that this case involved cash arguably the property of Mr Liu, but found in premises which he did not occupy and to which he appears to have had no means of access. 14 The effect of these two provisions appears to be that a restraining order can be obtained by an authorised officer on the basis of a reasonable suspicion in relation to any property of a person suspected of having engaged in a serious crime related activity (under par (a)) and in relation to any serious crime derived property, whoever the owner may be (under par (b)). There is obvious opportunity for the property of an innocent person to become subject to a restraining order. Assuming, in the case of the suspected criminal that the authorised officer has some reasonable grounds for suspecting that the property belongs to the criminal, the order will be made ex parte under par (a) and without hearing from others who may have a claim to ownership. In a case falling under par (b), it is likely that the officer will need to have grounds to connect the property with the suspect or else there would be no basis for concluding that it was serious crime derived property. But it will not be the property of the suspect. 15 Whether there is any scope for the innocent owner to recover his or her property absent an application under s 25 (discussed below), was the subject of consideration in New South Wales Crime Commission v Ollis (2006) 65 NSWLR 478, which rejected the availability of such a process: at [35] (Giles JA, Mason P agreeing). The procedural issue does not arise in the present case. However, the substantive issue of ownership does. Thus, Mr Liu was not a person suspected of a serious crime related activity: Ms Shi was. For the purposes of s 10(3)(b), if Mr Liu owned the cash, it should not have been the subject of a restraining order and should therefore not become the subject of an assets forfeiture order. However, to recover his cash, Mr Liu had to establish that he was entitled to an exclusion order under s 25 and thus prove, not merely that s 10(3)(b) did not apply, but that the money was not "illegally acquired property" in any relevant sense. The Commission contended that even if he did establish the money was his, he nevertheless failed because Mr Liu had, on his own evidence, brought at least part of the money into the country without making the relevant report of a transfer of currency under s 15 of the Financial Transaction Reports Act 1988 (Cth). The correctness of this contention is not self-evident but, because the judgment below must stand, need not be determined. 16 The opportunity to apply for an exclusion order arises under s 25(1) of the Act which reads as follows: "(1) If an assets forfeiture order: (a) has been applied for but not made - a person whose interest in property might be subject to the order if made, or (b) has been made - a person whose interest in property was forfeited by the order, may apply to the Supreme Court for an order (in this section called an exclusion order ) excluding the interest from the operation of the assets forfeiture order or any relevant restraining order." 17 The present case fell within the first limb, in that the exclusion order was applied for before the assets forfeiture order had been made. The power of the Court to make an exclusion order arises by implication from the terms of s 25. Although sub-s 25(2) is stated in the form of a prohibition, it is clearly intended that an order should be made if the negative factors are excluded. Section 25(2) thus provides: "(2) The Supreme Court must not make the exclusion order applied for unless it is proved that it is more probable than not that: (a) in the case of an order relating to fraudulently acquired property - the interest in property to which the application relates is not fraudulently acquired property or is not illegally acquired property, or (b) in any other case - the interest in property to which the application relates is not illegally acquired property." 18 Subsection (3) requires that an exclusion order must "declare the nature and extent of the interest in property to which it relates". Before the hearing of the application, the applicant is required to give the Commission "notice of the grounds on which the exclusion order is sought": s 25(6). If the Commission intends to contest the application, it must give the applicant "notice of the grounds on which the application is to be contested": s 25(7). However, that need not be done until the Commission has had an opportunity to examine the applicant, presumably as the owner of an interest in property, "concerning the affairs of the owner, including the nature and location of any property in which the owner has an interest": s 12(1)(b). 19 Finally, in terms of the structure of the legislation, it is necessary to refer to the definition of "illegally acquired property", being that which must be disproved by an applicant for an exclusion order under s 25(2). The term is defined by replacing the phrase "serious crime derived property" and substituting the phrase "illegally acquired property" and the phrase "illegal activity" for "serious crime related activity" in s 9: sub-s 9(4). As a result, s 9(1) would provide: "(1) An interest in property is illegally acquired property if: (a) it is all or part of the proceeds of a [sic] illegal activity, or (b) it is all or part of the proceeds of the disposal of or other dealing in illegally acquired property, or (c) it was wholly or partly acquired using illegally acquired property." 20 The term "illegal activity" is itself defined, relevantly, to mean "an act or omission that constitutes an offence (including a common law offence) against the laws of New South Wales or the Commonwealth": s 4(1) illegal activity, (b). Commission's application 21 Before turning to the judgment the subject of this appeal, further reference is required in relation to the form of the application by the Commission for an assets forfeiture order. The summons of 15 April 2002 sought operative orders which fell within three categories. The first group sought separately in relation to each of Mr Liu, Ms Shi and Mr Guo restraining orders with respect to "the interest in property" held by each in the money. The second group constituted orders sought pursuant to s 10(4) that the Public Trustee take control of "all the interest of" each of the three persons in the money. The third sought asset forfeiture orders, again by reference to all the interests of each of the persons in the money. The formulation of orders in this form was somewhat curious: it was the Commission's case that Mr Liu had no interest in the cash, but that if he did in fact own the cash it was not suspected on reasonable grounds of being serious crime derived property. For the money to satisfy that test, in the circumstances, it would have been the property of Ms Shi or, possibly, Mr Guo, but not Mr Liu. Those basic propositions were reflected in the notice of grounds filed by both Mr Liu and the Commission prior to the trial. 22 Because the affidavit in support of the s 10 application was not before this Court, it is not possible to know on what basis (if at all) an authorised officer asserted a suspicion on reasonable grounds that Mr Liu had an interest in the money the subject of the application. In any event, the restraining order was made on the basis that he did have such an interest. The Commission then maintained a somewhat ambivalent position by continuing to seek an assets forfeiture order in which it nominated Mr Liu as having an interest in the money and at the same time resisting his own attempt to obtain an exclusion order based on his interest in the money, the Commission arguing that he had none. Pursuant to s 22(2), the Court was required to make an assets forfeiture order if satisfied on the balance of probabilities that the person (Ms Shi) whose suspected serious crime related activity formed the basis of the restraining order was, at any time not more than six years before the making of the application for the assets forfeiture order, engaged in a serious crime related activity, relevantly, involving an indictable quantity of prohibited drugs. 23 In substance what happened in the present case at trial was that Mr Liu failed to establish his interest in the money and the money itself became the subject of an assets forfeiture order, despite some ambivalence as to who was the proper owner of it. Nevertheless, none of these matters was the basis of challenge to the order made on this appeal. Rather, the challenges were concerned entirely with the fact-finding exercise undertaken by Mathews AJ and in particular the failure to deal with particular evidence given by Mr Liu and the rejection of other parts of his evidence which were not challenged in cross-examination. Material factual findings 24 Briefly stated, Mr Liu's account of the circumstances in which the money came to be in Ms Shi's and Mr Guo's apartment was that he had left it there on 25 October 2001, shortly prior to departing on a trip to China. The money had been acquired by him, in part from his legitimate business activities involving processing chicken meat in Australia, but mainly as a result of loans obtained from family and friends in China to invest in his business interests in Australia: Tcpt, 19/03/07, pp 14-15. 25 The particular purpose for which the money had been earmarked was the purchase of a chicken farm from a Mr Caruana at Redland Bay, in Queensland. A price had been fixed in July 2001 and Mr Liu said that he expected Mr Caruana to press for completion of the sale whilst he was overseas and hence left the matter, including the money, with Mr Guo to attend to in his absence. Mr Liu was in China between 25 October and 7 December 2001. During that time Mr Guo telephoned him and told him that he had been unable to sign the contract because he did not have, in effect, a power of attorney to act for Mr Liu. The chronology of events was concisely set out by her Honour in the following terms: "[90] On 30 October 2001 Mr Liu left for China. He returned to Australia on 7 December 2001. At that time, on his own version, he knew that the contract had not been signed in his absence and therefore that the full $770,000 should still be at the Mount Street apartment. Mr Liu said that he tried to contact Mr Guo by telephone but was unable to get through to him. Mr Liu also said that on about 11 December he went to see his solicitor, Equiton, and signed the contract for the purchase of the Queensland poultry farm. For reasons I will mention later, I have real reservations as to whether it was on 11 December or later that Mr Liu signed this contract. [91] Mr Liu said that on 14 December 2001 he read in a Chinese newspaper that Mr Guo had been arrested and was being held at an immigration detention centre. That day, 14 December, he went to see Mr Guo at the Villawood Immigration Detention Centre. It was then that he discovered that the $770,000 had been seized by police two days earlier. [92] The same day, 14 December, he went to the solicitor who was representing Mr Guo, Rutland Cheung and made a statement setting out the history of the matter and claiming the $770,000 as his own money. [93] On 19 December Mr Liu's solicitor, Equiton, wrote to Mr Caruana's solicitor enclosing a contract signed by Shi Wei and Mr Liu. The purchase price was $500,000 with a deposit of $25,000." 26 Despite the seeming implausibility of the account, there were a number of aspects of the evidence which were supportive of its truth. If all had been accepted, an apparently implausible account would have been rendered persuasive and would probably have been accepted by the trial judge. However, each was attended by its own element of doubt which required, so far as the evidence permitted, to be resolved. In order to understand how her Honour assessed the evidence, it is necessary to outline briefly its key features. First, when the police searched the Mount Street premises and discovered the suitcase, Mr Guo indicated there was money in it but denied knowing the combination for the lock. He stated, as recorded in the taped record of conversation between Federal Agent Lisa Goodhand and the occupants of the premises (p 13): "All this stuff definitely is not ours, its just sitting in the corner, so the number we don't know, we haven't written it down." 27 After a further conversation, apparently in Mandarin, which Ms Goodhand spoke, she recorded the following statement (p 14): "Mr Guo has indicated that there is an amount of money in these bags, we previously asked him if there was any other money in the house and he said yes in these suitcases. He said that the suitcase [sic] aren't his, so we are going to take them into the lounge room and we are going to open them by force because we don't have a lock number." 28 Although Mr Guo immediately and consistently denied ownership of the money, it was said that he failed, until some time later, to disclose to whom it belonged. This, it might be inferred, followed his conversation with Mr Liu on 14 December 2001 whilst he was in immigration detention. On the other hand, the record of conversation between the police officers and Mr Guo and Ms Shi at the Mount Street apartment do not disclose any questioning as to the identity of the owner. 29 A second element which supported the account given by Mr Liu and Mr Guo as to the purpose for which the money was being held was the location in the apartment of at least the first page of a contract for the Redland Bay poultry farm, including a purchase price of $500,000 and details of the land, the solicitors for both parties and the identity of the purchaser, namely a company known as S&L International Enterprises Pty Ltd. Although there was no company search in evidence, it appears to have been common ground that the directors and shareholders of the company were Ms Shi and Mr Liu, although Mr Liu asserted that the share held by Ms Shi was held on trust for him. 30 There were a number of aspects of the search of the premises which might have been of assistance, but were simply unknown. Although Mr Guo gave evidence that Mr Liu counted the money in his presence when he delivered it, there was no information as to whether any attempt had been made to fingerprint the money. Further, although it was accepted that a copy of the contract was found in the apartment, it is not clear where it was found and no federal or state police officers engaged in the search gave evidence. 31 The fact that such a large sum of money was found in cash might be thought far more consistent with the money having been acquired though an illegal activity than with its presence for the purchase of a property in the ordinary course of lawful business dealings. However, her Honour referred to evidence that Mr Liu had borrowed an amount of approximately A$1.345 million in 2000 and 2001. Her Honour continued (at [17] and [18]): "Virtually the whole of this money, he said, was kept in cash in his home. In China, he said, it is normal for people to keep their cash savings at home rather than in a bank. China is very much a cash economy and there is a reluctance to trust the banking system. There is also a strong desire for privacy concerning the level of savings which one holds. Virtually all the Chinese witnesses in this case gave evidence to similar effect, and I do not understand it to be disputed by the Commission."

Accordingly, her Honour drew no adverse inference from this circumstance. 32 There were, understandably, numerous subsidiary issues which arose in the course of the proceedings, including questions as to Mr Liu's credibility. This was not assisted by the fact that he conceded, willingly it would appear, that most of the critical material in his protection visa application, going to establish his status as a person in Australia in need of protection under the Refugee Convention, was false. Similarly, on his own account, much of the money raised in China and brought back to Australia was not declared on entering Australia, although some amounts were declared. 33 The case, as her Honour dealt with it, turned on two issues. As her Honour stated at [18]: "The real question is how much cash Mr Liu had in October 2001, this being relevant to (although not decisive of) the central issue in this case, namely whether the $769,300 seized on 12 December 2001 was in fact Mr Liu's money." 34 The second important issue was the purpose for which the money was said to be in Mr Guo's Mount Street apartment on 12 December. Because there was no doubt that Mr Liu had an interest in purchasing the poultry farm at Redland Bay, prior to October 2001, and because Mr Guo also had some involvement in the proposed dealing, it was clear that the proposed dealing was genuine in many respects. Again, that was not in contention, the Commission having obtained a statement from Mr Caruana confirming that he had decided early in 2001 to sell the farm and that in both May and June he had conversations with Mr Liu in relation to the purchase. On one occasion in June 2001 he flew Mr Liu to Queensland to look at the property and on a later occasion in July 2001 Mr Caruana flew to Queensland and Mr Liu drove with others to meet him at Redland Bay. On his return to Sydney, Mr Caruana instructed his solicitor to prepare a contract for sale of the farm. 35 The issue which became critical in her Honour's assessment of the proposed purchase was settling the date on which Mr Liu signed the contract. He gave evidence that he signed the contract at his solicitor's office on 11 December 2001. Her Honour found it "most likely that it was not until 14 December or later that this in fact took place": at [116]. Critically, the later time was after Mr Liu had spoken with Mr Guo and knew of the seizure of the money. Thus at [117] her Honour stated: "In my view the bulk of the evidence supports the proposition that, when Mr Liu signed this contract, he had already been told by Mr Guo about the seizure of the $769,300. Given the other evidence in the case, an inference can readily be drawn that he was signing the contract for the purpose of bolstering his claim to the seized money." 36 Her Honour returned to that theme at [121] concluding: "It is difficult to escape the conclusion that the purchase of the poultry farm was thereafter resurrected for the purpose of providing an explanation as to why Mr Liu would leave such a large amount of money with Mr Guo." Findings in relation to Mr Liu's financial resources 37 Before considering the challenges made to the finding concerning the 'resurrection' of the poultry farm purchase, it is convenient to deal with her Honour's factual findings in relation to Mr Liu's financial resources. 38 Her Honour gave careful consideration to Mr Liu's own evidence of his financial dealings, and particularly his borrowings in China, together with the supporting evidence of a number of the Chinese lenders: at [29]-[42]. Her Honour concluded "many if not all of these loans were in fact made to Mr Liu": at [42]. In reaching that conclusion, she expressed doubts in respect of some of the evidence, but those doubts appear to have been resolved in favour of Mr Liu's case and need not be revisited. Her Honour continued at [43]: "[43] However, that is by no means the end of the matter. For there is a real question, assuming that these moneys were in fact received by him, as to how much he brought back into Australia. … [45] Mr Temby submits that I should not accept that all Mr Liu's Chinese borrowings were brought back to Australia. In this regard he relies upon three separate matters, namely: o Mr Liu's failure to make a custom's declaration for most of these moneys o The inconsistencies in Mr Liu's evidence relating to the dates and amounts which he says he brought into Australia o The evidence relating to Mr Liu's business activities in China." 39 In relation to the first two matters, her Honour set out briefly the evidence at [47]-[49] and [50], respectively. No specific findings were made in respect of these matters and they may therefore be put to one side. 40 The third matter was addressed in more detail as it involved evidence of the purchase of a factory near Shanghai. This was a matter of some significance, because the borrowings in China amounted to some $950,000, whereas the moneys available to Mr Liu, on his evidence, in Australia (other than the Chinese borrowings) could not have exceeded $833,000: see judgment below at [75]-[76]. As Mr Liu had outgoings in Australia in the order of $1 million, in relation to the purchase of property, plant and equipment, the expenditure of any significant sum on the purchase and establishment of a factory in Shanghai would cast doubt on the suggestion that sufficient Chinese borrowings were available to him in Australia in October 2001. Given that on the most generous arithmetical view, Mr Liu's Australian borrowings (not being moneys brought in by him or his family between 1990 and 1999) amounted to $383,000, there would be serious doubt as to whether the evidence demonstrated that Mr Liu had cash resources in an amount of $770,000 as at October 2001. 41 It may be noted that although the figures which formed the basis of her Honour's calculations at [75]-[79] resolved a number of doubts in favour of Mr Liu's case, she did not take into account any moneys available to Mr Liu at that time from his businesses. However, his evidence was that although in October 2001 he had cash available from his businesses, the bulk of the $770,000 came from borrowings. Both he and his wife gave evidence that, in addition to the $770,000, there was an additional amount of cash in their home to cover the expenses of the businesses, in an amount probably between $30,000 and $50,000: Tcpt, 26/03/07, pp 281-282. 42 A letter from Mr Liu's then solicitors dated 7 February 2002 seeking return of the cash from the Commission, evidence Mr Liu gave before the Registrar on 21 June 2002 pursuant to an examination ordered by the Court under s 12 of the Act, and affidavits filed in support of the claim in these proceedings, all stated that Mr Liu (with the assistance of his extended family) had established a substantial factory in Shanghai for which, it appeared, he had paid at least RMB1.5 million. (The solicitor's letter stated a far higher figure.) At the accepted exchange rate, RMB1.5 million would have been equivalent to A$250,000. There was contrary evidence from Mr Liu before the Court to the effect that the cost of the factory had been met by the Chinese government and, although repayment might be needed from the profits of the business in due course, there had been no cash outlay by him. Her Honour dealt with this evidence at [65] in the following terms: "The evidence about the purported factory near Shanghai is relevant to this case in two respects. First, it is relevant to the question of whether Mr Liu brought back to Australia all of the moneys he borrowed in China. If, as the earlier evidence appeared to indicate, Mr Liu had major outgoings in relation to the purchase and operation of the Shanghai factory, then it would make it much more likely that a significant portion of the Chinese borrowings remained in that country. The second matter of relevance is that it goes to Mr Liu's credibility. Given the strength of the earlier assertions, made by his solicitors, his sister and his brother-in-law, amongst others, to the effect that Mr Liu had in fact purchased a factory in or near Shanghai, it is very difficult to escape the conclusion that either the original assertion was false, and was designed to bolster Mr Liu's apparent wealth by falsely claiming that he owned the Shanghai factory; or alternatively , that it was true, but he later wanted to distance himself from this evidence because of the likelihood that, if the Shanghai factory existed, some of the Chinese borrowings would probably have remained in that country." 43 This was a matter to which her Honour did return in her conclusions, stating at [99]: "A further piece of evidence which, in my view, reflected badly on Mr Liu's credibility, related to the purported factory in Shanghai. … In my opinion the move away from the firm assertions that Mr Liu had purchased a factory in Shanghai reflects adversely upon his own credibility as well as that of a number of witnesses called on his behalf. It also supports the likelihood that a significant portion of the Chinese borrowings remained in that country." 44 It appears from this last passage that although the conflicting stories impacted adversely on Mr Liu's credibility, no clear finding could be made as to whether or not money was spent on a factory in Shanghai. Conclusions in relation to financial resources 45 The uncertainties concerning the amount of the loans available from friends and relatives in China, the amount brought back into Australia and the net amount available in Australia after allowing for known expenses, ultimately provided no more than background to the critical conclusion her Honour reached with respect to Mr Liu's financial resources in October 2001. The key findings made by her Honour accepted the fact of the various borrowings, but as evidence of Mr Liu's need for finance, particularly in order to purchase a property at 255 Railway Parade, Cabramatta in June 2000. Her Honour's conclusions in this respect appear from the following paragraphs of her judgment: "[100] There is other evidence which supports the proposition that, at least in June 2000, Mr Liu did not have access to the cash reserves which he claimed. It will be recalled that, on 13 April 2000, Mr Liu and his wife entered into a contract to purchase 250 Railway Parade, Cabramatta for $800,000, of which $400,000 was to be financed by way of mortgage. A deposit of $40,000 had been paid, leaving outstanding an amount of $360,000 which Mr Liu needed to provide upon settlement. By June 2000 the matter had assumed some urgency, as a Notice to Complete was served upon him and his wife on 31 May 2000. The settlement in fact took place on 30 June 2000. Four days earlier, on 26 June, Mr Liu travelled to China where he remained for three days. During that time he made no less than seven borrowings, most of them from Zhang Ming Yuan. On 26 June Mr Liu borrowed RMB150,000 from Mr Zhang. The following day, 27 June, in five separate borrowings, he obtained a total of RMB690,000. Finally, on 28 June, he obtained a further RMB260,000 from Mr Zhang. Accordingly, the total amount borrowed during that brief visit was RMB1.1 million. Mr Zhang said that the reason why he made four separate loans to Mr Liu on 27 June was because Mr Liu kept coming back to him saying that he needed more money because he had not been able to raise enough money from others. I take this as a clear indication that Mr Liu's need for money at that time was urgent. [101] When Mr Liu returned to Australia on 29 June he declared that he was carrying with him $US150,000 ($A252,610). On the same day, 29 June, at Star City Pyrmont, Mr Liu converted foreign currency into A$136,099. The following day, as already mentioned, the purchase of 250 Railway Parade, Cabramatta was completed. [102] The clear inference to be drawn from all this evidence is that Mr Liu had insufficient funds in Australia to enable him to complete the purchase of the Cabramatta property. Hence his trip to China, and his urgent requests to Mr Zhang for more money. This, however, is inconsistent with Mr Liu's description of the cash funds which he had at his home, including the Chinese borrowings he had made before 26 June. Taking into account all the relevant outgoings already incurred by Mr Liu, the amount he would have had at home, if his other evidence were to be accepted, would have significantly exceeded the $360,000 he needed to complete the Cabramatta purchase. … [104] If, as the above analysis suggests, Mr Liu was dependent upon his Chinese borrowings between 26 and 28 June to complete the Cabramatta purchase, it would appear virtually impossible that he could have had an amount in excess of $A770,000 in cash as at October 2001. His only borrowings after June 2000 were RMB500,000 borrowed in China in September 2000, and the Australian borrowings, between May and September 2001, which totalled $130,000 or possibly $230,000 (paras [66]-[75]) above." 46 Four points may be noted in relation to this conclusion. First, the arithmetic is not easy to follow. If the equivalent of the US dollars was A$252,610, that would in turn have amounted to RMB1.5 million, not the RMB1.1 million referred to at [100]. (The difference is A$183,000.) Secondly, in assessing the funds available from Australian borrowings, it appears that her Honour has not accepted that Mr Liu had available to him in October 2001 cash in an amount of $153,000 raised by refinancing his home and the Cabramatta property in September 2000 and January 2001: see [21] and [76], the latter paragraph not being included in the earlier paragraphs cross-referenced at [104]. However, even if this amount were added to the calculation at [104] the total available cash would not exceed $470,000, some $300,000 short of the amount found in the Mount Street apartment. 47 Thirdly, her Honour referred at [103] to other evidence that Mr Liu was short of funds in 2000 and 2001, arising from cheques written in the course of his business which were dishonoured and the suggestion of Mr Caruana in a statement to which further reference will be made below, that Mr Liu was a "bad debtor". This material tended to confirm the calculations undertaken, but the passages set out above would appear to stand on their own, without reliance on the further matters dealt with at [103]. 48 Fourthly, as will be noted shortly, her Honour spent some little time assessing the evidence relating to the purchase of the poultry farm from Mr Caruana. She had, at [79] identified this as "highly significant" and as "a very central issue in this case". Despite this characterisation, her Honour's views in relation to that matter do not appear to have significantly affected the assessment of available funds set out above. Indeed, the assessment of available funds was undertaken before her Honour turned to an assessment of the evidence concerning the purchase of the poultry farm. Accordingly, even if her Honour's assessment of the poultry farm purchase was flawed, the Appellant faces a difficulty in succeeding on the appeal if her Honour's finding at [104] cannot be shown to be erroneous. 49 Various challenges were made to her Honour's assessment of the funds available to Mr Liu in October 2001. Some involved doubts raised by her Honour but not relied upon adversely to Mr Liu. Several seemed to reflect a supposed obligation on her Honour to make the findings most favourable to the Appellant on the available evidence. However, it is clear from reading the statements of witnesses and the transcript of the their oral evidence that locating the kernel of fact amongst numerous inconsistencies and explanations was often a fraught process. That other findings might have been open is insufficient to demonstrate error. More often than not, a reading of the evidence suggests that her Honour's findings were generous to Mr Liu's case. 50 In order to give credibility to his account of the affair, Mr Liu had to explain why the amount left with Mr Guo was $769,300, when the purchase price was $500,000; why, if he were anxious to proceed with the purchase and had the cash available he did not sign the contract himself; why, when the contract had not been signed or exchanged, and he expected to be away for no more than a month, he thought it necessary to leave the full purchase price with Mr Guo; why he did not leave full instructions (and possibly the money) with his solicitor; and why, if he were ready to proceed by way of exchange and immediate settlement, he made no attempt to contact Mr Caruana to advise him of that fact. No adverse findings were made in relation to these matters. 51 Another case of apparently incongruous conduct, which arose in relation to the proposed purchase of the poultry farm, concerned a detailed 'management agreement' entered into by Mr Liu with Mr Guo. One possible explanation for the written agreement was that it was intended to provide a basis for Mr Guo's (and Ms Shi's) involvement in the poultry farm as a counter to any inference that they were the source of part or all of the purchase moneys. That may have been thought important in circumstances where they, rather than Mr Liu, had access to large amounts of cash, but from illicit activities. No adverse finding was made on that basis. 52 One specific complaint which needs to be addressed was her Honour's apparent failure to recognise that Mr Liu and Mr Guo were not the sole witnesses to the supposed transfer of funds from Mr Liu's home to the Mount Street apartment. It was put that Mr Liu's wife, Ms Wei Hou, gave evidence corroborating her husband. Her evidence, contained in an affidavit dated 11 October 2003, was to the following effect (par 8): "Around the time Frank told me about buying the chicken farm he said words to the effect 'I am going to buy the chicken farm with this money'. The money he was referring to was kept in the house in a large red bag made of some kind of fabric. He told me there was $770,000.00 in the bag for the purchase of the chicken farm. Some time later, Frank told me that he had taken the money for the purchase of the farm to Mr Guo's house. He told me that after I learned that the Police had taken the money." 53 Of that evidence, the Appellant complains that it was "highly significant" and was unchallenged. It was, however, not direct evidence of anything that Mr Liu did. It was evidence of what he told his wife he had done. Ms Wei was apparently not told the proposed purchase price for the poultry farm. It is clear that she did not have any direct knowledge of the amount contained in the bag. When asked about it in cross-examination, she said she could not remember the exact amount in the bag in 2001 but she remembered that there were "large amounts": Tcpt, 26/03/07, p 282. 54 The trial judge did refer to the evidence of Ms Wei, but in relation to money said to have been brought to Australia by her from China, in the amount of $A350,000: at [13] and [75]. It is apparent that her Honour did not treat the evidence of her conversations with her husband as significantly advancing his claim. Understandably, her Honour gave more careful consideration to such objective circumstances in relation to Mr Liu's financial resources as could be identified from the evidence. There was no attempt in this Court to suggest that weight had been placed on this particular corroborative statement of Ms Wei in the course of submissions. The fact that her Honour did not refer to it suggests she gave it no significant weight, probably because she was not asked to, an approach which, viewed in the context of the trial, would seem entirely reasonable. 55 Given that Mr Liu had the burden of proving that the cash found in the Mount Street apartment was his, his failure to establish that he had such an amount available to him in October 2001 must, in the absence of alternative evidence that the money could not have come from any other source, be fatal to his claim. In other words, establishing that such an amount was available to him, was a necessary, but not sufficient, condition of success: see [33] above. The poultry farm purchase 56 As noted above, there was uncontroverted evidence that, between approximately May and July 2001 Mr Liu was negotiating with Mr Caruana to purchase the poultry farm at Redland Bay. Further, both Mr Guo and Ms Shi were connected with the project. Mr Guo had visited Queensland with Mr Liu on at least one occasion to see the property. Ms Shi was a director of the company which was to purchase the property, namely S&L International Enterprises Pty Ltd (or possibly S&L Enterprises Pty Ltd). The question was whether any such proposal was still on foot in late October 2001 when Mr Liu was said to have left the money at the Mount Street apartment. 57 There were two aspects of the evidence which her Honour considered highly damaging to the proposition that the proposal was then still on foot. The first was a curiously detailed agreement dated 28 June 2001, purporting to make Mr Guo the manager of the farm and Ms Shi a general sales manager for the company which was to buy the farm. Her Honour thought it curious that, in a case in which significant financial dealings were dealt with on the basis of trust and not written documents, this agreement should have been reduced to writing: at [107]. Secondly, the date was curious because Mr Liu, in a document prepared on 14 December 2001 with Mr Guo's solicitors, stated that he and Mr Guo had met in or around August 2001. Further, she noted that according to Mr Caruana, he and Mr Liu were still negotiating the transfer of the farm in July 2001: at [110]. Accordingly, her Honour held that it had been "drawn up later and deliberately backdated": at [111]. 58 There were obvious inconsistencies in the evidence to which her Honour referred; however, they are not satisfactorily resolved by this conclusion. First, there is no doubt that the proposal to purchase the poultry farm was on foot in June 2001. Accordingly, whether the contract was entered into later and backdated to June says nothing, of itself, as to whether the proposal was still on foot in October. Secondly, if Mr Liu did first re-establish his acquaintance with Mr Guo in August 2001, rather than in June, as he said in his affidavit, that would render it more likely, rather than less likely, that the proposal was still on foot in October. Thirdly, it seems unlikely that if the agreement had been prepared later, it was prepared on or about 14 December 2001 when Mr Liu made his statement about meeting Mr Guo in August. If it had been made at that time, the disparity in the dates would probably have been appreciated. If, however, the handwritten agreement was prepared later, to give verisimilitude to the "resurrected" proposal, it would have made much sense to date it 25 October 2001, contemporaneously with the alleged delivery of the money to Mr Guo's apartment, rather than backdate it to 28 June when, for other reasons, there was objective evidence to support the proposed purchase. 59 Whatever the truth of the matter, the existence of the written agreement signed by Mr Liu and Mr Guo says little about the continued intention of Mr Liu to purchase the farm in October 2001. 60 The second matter is more significant and relates to the disparity between the amount of the cash found at the Mount Street apartment ($769,300) and the purchase price of the farm, namely $500,000. Mr Liu sought to explain the disparity by reference to the need for working capital and because he was "boasting my wealth" in leaving the money with Mr Guo. The former explanation had some credibility, because Mr Caruana stated that he had started to run the farm down from March 2001 and that the plant and equipment then on it was not to be part of the sale. The latter explanation her Honour considered to be inconsistent with Chinese custom of protecting one's privacy by not revealing the extent of one's wealth: at [112]. 61 Her Honour's findings in relation to what happened on or about 14 December 2001, at [117] and [121], have been set out at [35] and [36] above. They are, in effect, that, upon learning of the seizure of the money, Mr Liu set about creating a false basis for claiming the money to be his by resurrecting the proposal for the poultry farm which he had earlier abandoned. This he did by taking a number of steps including signing the contract. Although he gave evidence that he had signed the contract at his solicitor's office on 11 December 2001, before the police raid at Mount Street and before he learned, on 14 December, of the seizure of the money, her Honour rejected that evidence. However, on the appeal, Mr Liu challenged those findings. 62 At [116] her Honour stated: "Mr Caruana's account is at odds with Mr Liu's evidence in a number of respects. Mr Liu said that it was on 11 December 2001 that he went to his solicitors, Equiton, and signed the contract for the purchase of the farm. However, I think it most likely that it was not until 14 December or later that this in fact took place. Mr Caruana said that when he met with Mr Liu in December 2001, Mr Liu already knew about the problems with the police. This must have been on or after 14 December. It was on that day that they agreed upon the $25,000 deposit, which was the deposit specified in the contract signed by Mr Liu." 63 The disparities noted depend on two facts. One was that the contract as signed by Mr Liu contained the amount of the deposit which was 5% of the purchase price. The amount was handwritten. 64 Her Honour's conclusion presupposes either that Mr Liu would not have signed the contract unless the deposit were specified, or that he would not have entered an amount for the deposit unless it had been agreed with Mr Caruana. These inferences may be correct, but they are by no means self-evident. Further, Mr Caruana stated that, in effect, it was Mr Liu who had proposed the amount of the deposit: statement at paragraph 29. "About December 2001 I received a phone call from Frank [Mr Liu]. … Frank said words to the effect 'I am back in Australia and I want to meet with you'. I said words to the effect, 'I need money for the deposit otherwise there will be no deal'. Frank said words to the effect 'I want to go ahead with the deal. I will get a deposit for you, I will give you 5%'." 65 The second discrepancy relied upon by her Honour was that Mr Caruana stated that he had met with Mr Liu on the same day as their telephone conversation at which stage Mr Liu was aware of the seizure of the money by the police. 66 Acceptance of Mr Caruana's statement as to the concurrence of the telephone conversation and the meeting on the same day might have been subject to some hesitation. The statement was obtained by Australian Federal Police officers, but the Commission did not seek to call the officers or Mr Caruana, nor rely upon his statement. Mr Liu tendered the statement, but no one called Mr Caruana to test its accuracy. The statement was obtained on 18 September 2002. At that stage he was clearly uncertain as to dates and was unable to date the phone call or the meeting. If he addressed the substance of the statement with care, it was not apparent from the content. For example, he stated at paragraph 32: "I incurred losses given that because I thought Frank was going to purchase the property I ordered that the stock levels be minimised and the winding down of the business. At no time, however, did I consider pursuing legal costs from Frank for losses incurred by the failure of this contract to proceed."

LIU Zhong Bao v NEW SOUTH WALES CRIME COMMISSION

At a glance

Court

Decision date

Before

Source

Judgment (15 paragraphs)

Parties

Legislation Cited (9)

Cases Cited (3)

Cited By (2)