New South Wales Crime Commission v Kelaita

CATCHWORDS : COMMON LAW - Criminal Assets Recovery Act ss 25 & 26 - statutory construction - confiscation - assets forfeiture order - proceeds assessment order

Crimes Act 1900 LEGISLATION CITED : Criminal Assets Recovery Act 1990 Drug Misuse and Trafficking Act 1985

CASES CITED : Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (Cth) (1981) 147 CLR 297 Studman v DPP [2007] NSWCA 285

PARTIES : New South Wales Crime Commission (Plaintiff) Volkard Kelaita (Defendant)

COUNSEL : Mr I Temby QC (Plaintiff) Mr M Bowe (Solicitor) (Defendant)

SOLICITORS : New South Wales Crime Commission (Plaintiff) Michael Bowe (Defendant)

• 16 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

13603/05 The Application of the New South Wales Crime Commission v Volkard Kelaita

JUDGMENT 1 HER HONOUR: These are proceedings under the Criminal Assets Recovery Act 1990 (the Act). On 11 August 2005, the Court made a restraining order under s 10 of the Act on the basis of the events of 10 August 2005, when the defendant was arrested in possession of an amount of cannabis and charged with supply of that drug under s 25 of the Drug Misuse and Trafficking Act 1985. 2 On 21 September 2006, the Court made an assets forfeiture order under s 22 of the Act in respect of the defendant's interest in the following property:

"1. Funds in St George Bank Limited account number 000 0146656601 in the name of Volkard Kelaita.

2002 Land Rover Freelander 4x4 Panel Van, registration number AMM 49V and registered in the name of Volkard Kelaita.

2002 Suzuki VL250 motorcycle, registration number WAQ 78 and registered in the name of Volkard Kelaita.

Approximately $1,060 cash seized by the New South Wales Police on 10 August 2005 from Volkard Kelatia at the time of his arrest.

Star Casino Chips worth approximately $6,250 seized by the New South Wales Police on 12 August 2005 during the execution of a search warrant on premises at 291 Beauchamp Street, Matraville New South Wales.

STW Communications Group Limited shares held in the name of Volkard Kelaita.

Baycorp Advantage Limited shares held in the name of Volkard Kelaita.

AXA Asia Pacific Holdings Limited shares held in the name of Volkard Kelaita.

Qantas Airways shares held in the name of Volkard Kelaita." 3 The assets forfeiture order was based, not on the cannabis arrest in 2005, but on a finding as to the defendant's use in September 2002 of a false letter in support of an application for a loan to buy a Land Rover. That is presumably because the drug conviction would not have sustained an order under either s 22 or s 27 since the amount of cannabis involved was not the indictable quantity specified in schedule 1 of the Drug Misuse and Trafficking Act: cf s 22(2)(a) and s 27(2)(a). 4 On the same date that the assets forfeiture order was made, and on the strength of the same evidence, the Court also made a proceeds assessment order under s 27 of the Act for an amount to be assessed by the Court. 5 There are two applications now before the Court. By Notice of Motion dated 20 March 2007, the defendant has applied for an exclusion order under s 25 of the Act in respect of all of his interests in the property the subject of the assets forfeiture order. An order under s 26 for the exclusion of "a specified proportion" of the value of an interest in the forfeited property is also sought, but the motion does not identify the so-called specified proportion. 6 The second application is the Crime Commission's application for an assessment under s 27 of the amount in which judgment should be entered pursuant to the proceeds assessment order previously made. In respect of that application, no issue arises as to whether the Court should make a proceeds assessment order, Justice Latham having already done so on 21 September 2006. The present task is to assess the amount that the defendant is required to pay to the Treasurer pursuant to that order. No Notice of Motion has been filed in respect of the second application but it was common ground at the hearing that the parties had prepared on the basis that the Court would proceed to make that assessment.

7 Sub-section 25(4) of the Act provides that an application for an exclusion order may not be made after an assets forfeiture order has been made unless, in the case of a person who was given notice of the proceedings that led to the assets forfeiture order, it is made within six months after that order took effect and leave to apply has been granted by this Court. At the outset of the hearing, I inquired whether leave had been granted by the Court to the defendant to make his application. Mr Temby of Queen's Counsel, who appears for the Crime Commission, informed me that leave had not been granted but that the Commission did not oppose the granting of such leave, since the application was made within time and raised issues that ought to be ventilated. Accordingly, I granted retrospective leave to the defendant to make his application.

Overview of the legislation 8 The principal objects of the Act set out in s 3 relevantly include: (a) to provide for the confiscation, without requiring a conviction, of property of a person if the Court finds it to be more probable than not that the person has engaged in serious crime related activities and (b) to enable the proceeds of serious crime related activities to be recovered as a debt due to the Crown. Nothing in the objects clause discloses a punitive purpose. The clear purpose of the statute is to eliminate the proceeds of criminal activity. It is not necessary to resort to the secondary materials to discern that purpose but I note that the then Premier, Mr Greiner, stated at the second reading of the bill that it was analogous to the imposition of a tax of 100% on the profits of those engaged in the drug trade. The proceedings are civil proceedings and the rules of construction that apply only in relation to the criminal law do not apply in the interpretation of the Act: s 5.

9 Section 10 provides that the Commission may apply to the Court for a restraining order in respect of the interests in property of a person suspected of having engaged in a "serious crime related activity", a term defined in s 6. 10 Pursuant to subs 10(3) the Court must make the order if the application is supported by an affidavit of an authorised officer stating that he suspects that the person has engaged in a serious crime related activity and the Court considers that there are reasonable grounds for any such suspicion. Thus, the Court's task under s 10 is primarily a fact-finding exercise. Once satisfied as to the existence of the relevant suspicion and its objective reasonableness, the exercise of the Court's power is mandatory. 11 Once a restraining order has been granted, the Crime Commission may apply to the Court for a confiscation order under Part 3 of the Act. There are two kinds of confiscation order: assets forfeiture orders under Division 1 of Part 3 and proceeds assessment orders under Division 2 of Part 3. An application for an assets forfeiture order may be made under s 22 for an order forfeiting to, and vesting in, the Crown all or any of the interests in the property the subject of the restraining order. As with s 10, the exercise of the power under s 22 is mandatory upon the Court's making the relevant finding as to the defendant's engagement in serious crime related activity of a nominated character.

12 At no stage in the process of obtaining either a restraining order under s 10 or an assets forfeiture order under s 22 is the Commission required to establish any connection between the serious crime related activity involved and the assets the subject of the application to the Court. That is consistent with the purpose of eliminating the proceeds of all criminal activity, not simply the proceeds of the act relied on to found the application. However, a person can apply under s 25 for an order excluding an interest in property from the operation of a forfeiture order on the basis that the property is not illegally acquired property within the meaning of the Act. 13 The combined operation of ss 22 and 25 discloses that it was not the intention of the legislature that all assets be forfeited regardless of their means of acquisition. However, the legislation creates an evidentiary presumption, once the Court has made the relevant finding as to serious crime related activity, that all identified gains were ill-gotten and the onus falls on the defendant to rebut that presumption if he is to obtain relief against the forfeiture of all of his identified estate. Subsection 25(2) prohibits the making of an exclusion order unless that onus is discharged. 14 In addition to applying for a forfeiture order, the Crime Commission may apply for a proceeds assessment order under s 27 of the Act and, as with ss 10 and 22, the exercise of the Court's power is mandatory if the Court makes the relevant finding of fact as to the defendant's engagement in serious crime related activity. The process for quantifying the amount to be paid is governed by s 28. 15 The Commissioner does not have to elect between assets forfeiture and proceeds assessment as mutually exclusive orders: s 22(8) and s 27(6) provide that the making of one kind of order does not prevent the making of the other based on the same activity. The legislation is otherwise silent as to the interaction between the two kinds of order. Mr Temby submits that s 28 does not permit the Court to offset the value of any assets forfeited under Division 1 of Part 3 when undertaking the assessment of proceeds under Division 2. That submission is considered below. 16 In the present case, the Court (per Latham J) found, on 21 September 2006, that the defendant was engaged in serious crime related activity in September 2002 involving an offence punishable by imprisonment for five years or more, namely, the offence of obtaining money by false statements under s 178BB of the Crimes Act 1900. The basis of that finding was the defendant's use of a letter falsely stating that he had been employed by SSS Discount Tobacconists and Video Rentals for a three-year period earning $600 per week. The letter was produced by the defendant in support of his application for a loan to purchase a Land Rover from Trivett Classic Cars. 17 Having made that finding, Latham J made orders pursuant to both s 22(2) and s 27(2) of the Act, as Her Honour was required to do by the terms of those sections.

The defendant's application 18 The application for an exclusion order is based on the defendant's contention that he is a lucky gambler, not in all of his areas of gambling but specifically when he gambles at the casino known as Star City in Sydney and there, only when he gambles anonymously: records of his gambling as a registered patron disclose net losses. 19 Much of the evidence as to the defendant's financial position was not in dispute, although I am mindful of the fact that the Commission's evidence addressed only the six-year period prior to the making of the restraining order, which is the relevant period for the purpose of the assessment under s 28. 20 After his arrival in Australia at the age of seventeen, the defendant worked in modestly paid jobs for about twenty years. Since about 1990, he has received social security payments of one kind or another. He is now on a disability pension from which, at its highest, he has received about $240 per week. 21 He received a gift of $15,000 from his mother in April 2005 and claims to have received other amounts from her from insurance claims, the sum of which appears to be $9,929. He says that in 2000, he won approximately $29,000 in a bet placed with the TAB. There is no financial record pertaining to that amount. The Commission's evidence discloses that the defendant has also received dividends on shares in the sum of $11,616 and interest payments in the sum of $15,640. Otherwise, the only additional funds identified in the evidence do not amount to income from an external source; his sister returned $42,000 to him of an amount of $45,000 that he asked her to mind in about 1995; he received a cheque from the Rental Bond Board for $1,255.70 and a cheque from the Australian Taxation Office for $2,777, presumably not gifts. 22 The evidence of Mark Seagrave, a forensic accountant employed by the Crime Commission, was that the defendant's known expenditure in the six-year period prior to the making of the restraining order was in the order of $578,000. That evidence was not disputed. On any view, there is a substantial discrepancy between expenditure and income (leaving aside gambling) for that six-year period. The defendant may have carried funds into that period but, if he did, the source of such funds is not disclosed in the evidence. It is unlikely that he was able to save on the disability pension. 23 The defendant stated that he has been a gambler since he was a young boy. The forms of gambling in which he has participated are placing bets at the TAB, playing private card games, playing poker machines and playing at casinos, specifically, Crown Casino in Melbourne and Star City in Sydney. 24 As to his placing bets at the TAB, the defendant said that he was an overall winner but not a big winner. He was unable to explain how he knows that he was an overall winner at the TAB. He did not quantify the supposed excess. No records were produced such as to establish a net profit in the defendant's betting at the TAB. The cross-examination established that he placed bets on a variety of animals at a variety of tracks. He did not claim to follow the form of the animals or to rely on racing tips but said that his system was to go by "fluctuations". The evidence of the defendant's other witnesses did not corroborate his evidence. The defendant's girlfriend, Ms Dragojevic did not observe his punting at the TAB; a friend, Mr Said, purported to have observed that the defendant was an overall winner at the TAB but his evidence did not establish a reliable foundation for that observation. I am not satisfied that it is more probable than not that the defendant made any profit from his punting at the TAB. 25 As to his card games, the defendant did not specifically state whether he was behind or ahead. Mr Said frankly stated that he did not have the impression the defendant was an overall winner at card games. There was an issue as to the legality of such games but I do not have to determine that question, since I am not satisfied that the defendant had net winnings from card games. 26 As to playing poker machines, the defendant acknowledged that he had always lost. The evidence of Paul Muir relied on by the Crime Commission established that the records of South Sydney Junior Rugby League Club disclosed net losses to the defendant as a member of that club of around $50,000. 27 As to gambling at casinos, the records of Crown Casino in Melbourne show that the defendant lost about $176,000 when gambling there using his identification as a registered patron. The defendant acknowledged that his net position as a result of gambling at Crown Casino was a loss but contended the loss was in the order of about $80,000, rather than $176,000. In either event, the defendant does not contend that he derived any net income from his gambling at Crown Casino. However, he stated that overall the proceeds of his gambling were about $300,000 to $400,000 as a result of his good fortune over the period from about 1997 to 2005 at Star City. 28 On 10 April 1999, the defendant was excluded from Star City because he had entered the casino in possession of some cannabis and a knife. When I asked the defendant why he had been banned from the casino, he stated that it was "for a silly reason" and referred only to his possession of a knife. It was only upon prompting by Mr Temby that he also acknowledged his possession of cannabis on that occasion. Pursuant to a Notice to Admit served on the defendant by the Crime Commission, the defendant admits that he has been convicted and fined in relation to the possession of both the cannabis and the knife. His evidence on that issue reflected poorly on his credit. The defendant entered Star City several times in late 1999 and in 2000 and on each occasion was asked to leave. In July 2004, he began using the patron registration of Hermis Towma and gambled regularly after then until he was approached again in November 2005 and asked to leave. 29 The casino's records in relation to the defendant record net losses of $41,453. The records in relation to Mr Towma during the period when the defendant acknowledges he was using Mr Towma's card record net losses of $33,560. The defendant does not dispute those records but says that his winnings from gambling anonymously or without the use of a patron registration document resulted in a net profit in the order of $300,000 to $400,000. That entails the unlikely proposition that his fortunes whilst gambling anonymously were consistently good over a seven-year period whilst those of which there is a record were consistently bad. Further, to achieve a net profit in the amount stated, the defendant would have had to have higher total winnings such as to off-set the losses as a registered patron. In my view, that is extremely unlikely.

30 Mr Temby noted that the evidence in support of the proposition that the defendant was a very large overall winner at Star City came not from any documents but principally from the defendant himself. I have considerable doubts as to the veracity of the defendant's evidence. He did not strike me as a frank or careful witness. As noted in Mr Temby's submissions, the defendant behaved deceitfully when borrowing money to buy the Land Rover (by using the false certificate of employment) and when he was stopped by police on the occasion of his arrest on 10 August 2005 for possession of cannabis. On that occasion, when first stopped by police, he identified himself as Hermis Towma, the gentleman in whose name he lost $33,560 at Star City. The defendant gave evidence that he only used Mr Towma's card at the casino as a favour to Mr Towma, so as to earn him privileges such as free drinks. I find that evidence difficult to believe in the face of the fact that he was then banned from that establishment. More alarming was his preparedness to borrow Mr Towma's identity when stopped in possession of cannabis. As noted above, his equivocation on the issue of his reason for being excluded from the casino reflects poorly on his credit. 31 Mr Temby also relied on the defendant's drug convictions on the issue of credit but I do not place any weight on those matters. I am not persuaded that there is necessarily a link between drug convictions and truthfulness on oath. Nonetheless, I do not accept the defendant as a credible witness and I do not accept his evidence as to the proceeds of his gambling.

32 Even if I were to accept the defendant's assessment of his winnings as being an honest estimate, in my view it was not reliable. The defendant did not establish that he had any consistent system for keeping track of his gambling expenditure and proceeds. He referred to making notes but the only record produced by him in the hearing was a couple of scraps of paper, which were not tendered. He maintained that, when you are a gambler, you know whether you are ahead or behind. I do not accept that as a universal proposition.

33 Accordingly, I am not satisfied that it is more probable than not that the defendant made any profit from his gambling at Star City or, indeed, from any of his gambling. It follows from s 25(2) that I have no power to make the exclusion order. There is no basis in the evidence for an order under s 26 in respect of any specified portion of the estate.

Quantification of the proceeds assessment order 34 For the purpose of quantifying the amount that the defendant should be ordered to pay to the Treasurer pursuant to the order of Latham J made 21 September 2006, Mr Temby submitted that I could proceed one of two ways, either by assessing the value of the loan obtained as a result of the false statement (presumably invoking s 28(1)(b)) or by considering the defendant's income and expenditure before and after the illegal activity or activities (invoking s 28 (1)(e)). In my view, s 28 (3) requires me to adopt the second approach. That section states that if evidence is given at the hearing of the amount of the defendant's expenditure during the six-year period before the making of the application for the order, the Court is to treat any such amount as proceeds derived by the defendant from illegal activity except to the extent that the Court is satisfied the expenditure was funded from sources unrelated to illegal activity. 35 There is no requirement that the proceeds so assessed be derived from the serious crime related activity on which the application is based. As in the case of ss 22 and 25 in Division 1 discussed above, ss 27 and 28 operate so as to create a statutory presumption as to the defendant's sources of income and the onus is on the defendant to establish sources unrelated to any illegal activity, not only the illegal activity that formed the basis of the application. 36 In these proceedings evidence was given, as contemplated by s 28(3), of the amount of the defendant's expenditure during the period of six years before the making of the application for the order and that evidence was not disputed. The total expenditure identified by the Commission's forensic accountant, Mr Seagrave, was $578,719. It included an amount of $61,303 for living expenses. Mr Temby very fairly pointed out that there was no direct evidence as to the quantum of living expenses and that the amount had simply been taken as the quantum of the social security cheques received. The calculation thus implicitly assumed that the cost of living equals or exceeds the disability pension. Mr Bowe, who appeared for the defendant, did not take issue with that assumption. Accordingly, I find that the amount of the defendant's expenditure during the relevant period as established by the evidence is $578,719. 37 Although it is not a requirement of s 28(3), Mr Seagrave also prepared a table setting out what he described as the defendant's legitimate income which amounted to $162,363. To that must be added the amount of $15,000, which was established to have been given to the defendant by his mother from a source conceded by Mr Temby to be unrelated to any illegal activity. The defendant contended that I should also add an amount of $29,000 he says he won in a trifecta bet placed with the TAB but there was no documentary record of that winning. For the reasons set out above as to the defendant's credit, I place no reliance on his evidence on that issue and I am not satisfied that was income from a source unrelated to illegal activities. 38 Accordingly, I am satisfied that the defendant's expenditure during the relevant period was $578,719.00, as to which Mr Temby conceded funding from sources unrelated to illegal activity in the sum of $177,363, giving an excess of $401,356. On the assumption that I would proceed under s 28(3), and leaving aside the issue addressed below, that figure was undisputed by Mr Bowe.

Complementary operation of the two kinds of confiscation order 39 Mr Temby submitted that the effect of s 28(3) is that the Court must make an order requiring the defendant to pay to the Treasurer the whole amount assessed as proceeds in accordance with that section and that the legislation does not permit me to reduce that sum on account of the forfeited assets, regardless of whether there may be overlap between the two. He noted the mandatory terms of both s 22(2) and s 27(2) and submitted that the operation of those provisions is that, if the respective cases are proved, both orders must be made without reducing either on account of the other. He submitted that there is nothing in the statute which permits any such reduction, or stipulates how a reduction process would be worked out and applied. 40 It is likely, or there is at least a risk, that there is overlap between the two orders in that assets the subject of the forfeiture order may represent part of the proceeds assessed by the mechanism in s 28(3). The value of the assets already forfeited to the Crown is assessed by Mr Seagrave to be approximately $254,653. If the Court were to order payment of the whole amount assessed under s 28(3), without regard to the value of the forfeited assets, the Crown may well recover more than an account of the profits of illegal activity, in which event the effect of the order would be punitive. To adopt Mr Greiner's analogy, there would be a "tax" of more than 100%. 41 Mr Temby acknowledged that the approach for which he contended required the defendant to "pay twice", but maintained that that is the statutory scheme. I do not accept that submission. The intention expressed by the words used in the Act is not to impose a civil penalty but to facilitate the confiscation of ill-gotten gains. A construction of the statute that results in a person's being required to "pay twice" is inimical to that intention. 42 Mr Temby accepted that the provisions of the Act, being a statute which provides for the confiscation of property and derogation from property rights, must be strictly construed. The intention to take away property must be expressed with "irresistible clearness" before it may be applied: Studman v DPP [2007] NSWCA 285 at [35]. In my opinion, the statute does not express with irresistible clearness an intention to require the Court, after making an order forfeiting all identified assets, also to order payment of the whole of the amount calculated under s 28 as a debt due to the Crown. Examining the language of the statute as a whole, I am led to the conclusion that the two kinds of confiscation order were intended to operate so as to complement rather than to duplicate each other. 43 First, there is no clear statement in the statute that both orders must be made without reducing either on account of the other. It is clear that a purpose of the statute is to facilitate the recovery of assets and profit. That is achieved, in several instances, by the mechanism of creating a presumption that assets are liable to be forfeited or money due to be paid unless the defendant can discharge the relevant onus.

44 The evidentiary presumptions in favour of the Crown, and the defendant's opportunity to rebut them, are expressed in clear language, stating in each case that an order "must" be made upon proof of specified matters (s 22(2) and s 27(2)). There are provisions clearly identifying the matters that must be proved by the defendant to avoid the operation of those presumptions (eg s 25(2), s 26(1) and s 28(2)). By contrast, there is no such express provision in respect of the relationship between the two kinds of confiscation orders. The statute could have provided in clear language that both orders must be made without deduction except to the extent that the Court is satisfied that the forfeited assets represent the proceeds assessed under s 28. In the absence of a clear provision to that effect, I am led to the conclusion that the intention was that the two kinds of order should complement each other in their operation but not operate so as to risk requiring the defendant to pay twice. 45 Secondly, although the requirement to make the proceeds assessment order itself is expressed in mandatory terms, the provisions that deal with its quantification are expressed with relative flexibility. Whereas s 27(2) states that the Court must make an order in specified circumstances, s 28(3) states that the Court "is to treat" the outcome of the calculation as proceeds but not that it "must" order payment in that amount. The task under s 27(1) is to assess the "value" of the proceeds derived by the person from illegal activity. As a matter of fairness and common sense one would think that the value of assets already forfeited would be excluded, or at least be liable to be excluded from that calculation to avoid double recovery, but the statute is silent on that issue. This is, in my opinion, a situation where the choice is between two strongly competing interpretations and that which produces the fairer and more convenient operation should prevail so long as it conforms to the legislative intention: Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 at 321 per Mason and Wilson JJ. 46 In my view, it does no injury to the language of s 28(3), and best serves a purposive construction of the statute, to construe s 27(1) according to the fairer interpretation so as to permit the Court to have regard to the value of any assets forfeited pursuant to an order under s 22 when assessing the value of the proceeds derived by the person from illegal activity for the purpose of s 27(1).

47 Mr Temby submitted that it is necessary to give ss 22(8) and 27(6) work to do, and that is done by interpreting the statute so as to require both orders to be made without reducing either on account of the other. However that is not the only interpretation that gives those provisions work to do. Sections 22(8) and 27(6) provide only that the making of one kind of order "does not prevent" the making of the other based on the same criminal conduct. In my view, the work done by those provisions is to make it clear that the two kinds of confiscation order are not mutually exclusive. Without those provisions, it might well have been open to construe the statute as requiring the Commission to make an election.

48 Mr Temby has correctly observed that the statute does not stipulate how a "reduction" process would be applied. In my view it is wrong to conclude on that basis that Parliament must have intended to permit double recovery. The position will differ from case to case, as acknowledged by the variety of methods of quantifying proceeds provided for in s 28. In the present case, I am satisfied that I should simply deduct the value of the forfeited assets ($254,653) from the proceeds ($401,356). 49 For the foregoing reasons, I make the following orders:

1. The defendant's application by Notice of Motion dated 20 March 2007 is dismissed.

2. I order the defendant to pay to the Treasurer the sum of $146,703. **********

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