Supreme Court of WA|2002-02-14|Before: Kechnie J

Permanent Trustee Co Ltd v The State of Western Australia & Anor [2002] WASC 22 (14 February 2002)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : PERMANENT TRUSTEE CO LTD -v- THE STATE OF WESTERN AUSTRALIA & ANOR [2002] WASC 22

BETWEEN : PERMANENT TRUSTEE CO LTD (ACN 000 000 993)

Criminal property confiscation - Property frozen under a freezing notice - Application to sell property by mortgagee - No final determination of rights - Application to use rent to pay mortgage - Dealing with frozen property - Legal limbus created - Duties of DPP - Principles to be followed

First Respondent : State Director of Public Prosecutions

Bropho v State of Western Australia & Anor [1990] HCA 24; (1990) 171 CLR 1

Commonwealth Bank of Australia v Butterell (1994) 12 ACLC 727

1 These summonses, one bought by a mortgagee in respect of property frozen under the Criminal Property Confiscation Act 2000 (WA) ("the CPCA"), the other by an innocent joint proprietor, highlight the potential for injustice that may be created by the operation of that Act.

2 On 23 January 2000, the second respondent Colin James Ritchie and Margaret Elizabeth Ritchie, his wife, decided to borrow $200,000 from Permanent Trustee Co Ltd. For this purpose they entered into a written Loan Agreement.

3 On 3 February 2000, the Ritchies became the joint registered proprietors of the land comprised in Certificate of Title Volume 1487 folio 502, commonly known as 213 Riseley Street, Booragoon. At the same time as the transfer, mortgage No H 353853M was lodged by Permanent Trustee Co Ltd to secure its loan. The Memorandum of Mortgage provided for the event of possible default by the mortgagors by Part 4.1(h): "The land is resumed or taken out of Your control in any way." When that event occurs, the mortgagee may decide default has occurred.

4 In September 2001, Mrs Ritchie was charged with an offence contrary to the Misuse of Drugs Act 1981 s 7(1) in circumstances which the DPP assert could render her liable to being declared a drug trafficker under the Misuse of Drugs Act s 32A if she is eventually convicted.

5 On 18 September 2001, a freezing notice was issued under the provisions of the CPCA, s 34. The affected property is described in a schedule to the freezing notice and includes the Riseley Street property.

6 The mortgagee, Permanent Trustee Co Ltd, contends that the issuance of the freezing notice is an event of default under Part 4.1(h) of the mortgage. Upon default Permanent Trustee Co Ltd is entitled to "Demand and require immediate payment of the Debt": Part 4.2(a).

7 Under the Loan Agreement, the lender may give notice by personal delivery, pre-paid ordinary post or facsimile sent to the address shown on the Loan Agreement or sent to the last address known to the lender. The Loan Agreement provided:

"... The notice will be deemed to be validly served even if not received by You."

8 The mortgage, by Part 6.11, reproduces in substance the terms of the Loan Agreement as to how notices may be given by the mortgagee to the mortgagors.

9 On 25 October 2001, a Demand for immediate payment of all principal, interest, fees and charges outstanding to the bank was said to have been served on Mr and Mrs Ritchie at 134 Hebble Loop, Banjup, WA, which had been their address as shown in the Loan Agreement. The Demand delivered to 134 Hebble Loop, Banjup, correctly referred to the mortgage number and the date, but incorrectly referred to the mortgagors as Colin James Ritchie and Elizabeth Ann Ritchie, not Colin James Ritchie and Margaret Elizabeth Ritchie. Mr Ritchie says that this is a significant defect. He asserts the mortgagee has not complied strictly with requirements of the mortgage as to notice. He also complains that the nature of the default is not specified in the notice. It is unnecessary for me to resolve these issues. In any event, I doubt that these are the appropriate proceedings in which to resolve them. The fact that they are raised however does highlight the problems likely to occur when mortgagees seek to enforce their rights under a mortgage by using the provision of the CPCA to sell property.

10 Also on 25 October 2001, a process server employed by Permanent Trustee Co Ltd, Mr Gracie, attended at the Riseley Street property to serve the Demand. On approaching the property he noticed the letterbox was stuffed full of letters and was overflowing. The correspondence in the letterbox was addressed to approximately eight different people. The front garden was unkempt, overgrown and unwatered. Through the front windows of the house he observed that the premises appeared to have been vacated as there was no furniture in view. He went around the back and observed that the backyard was unkempt and unwatered, as was the front yard. The pool was black with fungus. He observed through the windows of the house facing onto the backyard that the back rooms of the house were also empty. The house itself appeared in reasonable condition. However, it was in need of a paint job and minor maintenance which had obviously not taken place for some time. He left the Demand at the front door.

11 Mr Ritchie has deposed that, since Mr Gracie's visit, the lawns have been cut, the gardens have been weeded and tidied and both the lawns and garden have been watered and the house has been repaired. The pool has been cleaned. He disputes that the property was left abandoned. It was left in a state of disrepair after the execution of a police warrant against his wife. Mr Ritchie has had a serious illness which has delayed, to a degree, any action by him in respect of the property.

12 Mr Ritchie denies receiving the Demand personally, by registered post, or otherwise. He asserts that has brought all payments due under the mortgage up to date and has made payments in excess of those currently required. He has deposed that he will maintain this position by way of periodical payments which he has authorised his bank to make and which are in excess of those required per month pursuant to the mortgage.

13 On 25 October 2001 the Permanent Trustee Company Ltd commenced proceedings against the State of Western Australia in CIV No 2669 of 2001 by notice of originating motion for orders that:

"1. Freezing Notice No. AISFN010088 be deferred pending the hearing of the substantial criminal charges that are currently pending against the Application (sic)."

14 Filed on the same day was a notice of objection by Permanent Trustee Co Ltd as follows:

"TAKE NOTICE that the Applicant hereby objects pursuant to Section 79 of the Criminal Property Confiscation Act 2000 to Freezing Notice No AISFN010088."

15 On 7 November 2001 the Permanent Trustee Co Ltd took out a chamber summons for sale of the property. The full text of the summons is set out later in these reasons.

16 This summons was adjourned for a special appointment subsequently heard on 29 January 2002.

17 On 16 October 2001, Mr Ritchie commenced proceedings in CIV No 2602/01 by way of notice of originating motion seeking inter alia to set aside the freezing notice over the Riseley Street property. He also filed an objection to the freezing notice.

18 On 29 January 2002 he sought to be joined as a party to these proceedings. I so ordered. He also brought a chamber summons in proceedings CIV No 2602/01 for orders inter alia:

"(1) Colin James Ritchie be given control and management of the property situate at and known as 213 Riseley Street Booragoon."

19 This application was heard in conjunction with the chamber summons for the sale of the Riseley Street property brought by Permanent Trustee Co Ltd.

20 Mr Ritchie opposes the application of the Permanent Trustee Co Ltd and seeks instead orders that he be given control and management of the Riseley Street property.

21 The DPP, through counsel, does not object to the making either of an order in favour of the Permanent Trustee Co Ltd for sale of the land in terms of the application or an order in favour of Mr Ritchie to control and manage the property.

22 In 1998 Australia formally acceded to the 1988 United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and subsequently to the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of Proceeds from Crime. These Conventions imposed on Australia certain obligations to make laws dealing with money laundering and forfeiture of the proceeds of crime.

23 Australia has met this obligation. In 1987 the Commonwealth Parliament passed the Proceeds of Crime Act 1987 (Cth). In 1988 Western Australia enacted the Crimes (Confiscation of Profits) Act 1988. Other States enacted similar legislation. The Proceeds of Crime Act 1987 (Cth) and the former Crimes (Confiscation of Profits) Act 1988 (WA) are conviction-based. In order to trigger confiscation of criminal proceeds, or crime-derived property, under each Act, there first must be recorded a conviction against a person. Each Act contained safeguards in respect of the property of innocent persons.

24 The Australian Law Reform Commission in its 1999 report "Confiscation that counts - A review of the Proceeds of Crime Act 1987" concluded that conviction-based schemes had generally not delivered the objectives which had been set. It recommended a non-conviction based regime for Commonwealth offences. Some States (the New South Wales Criminal Assets Recovery Act 1999 is an example) have moved to a non-conviction based regime. The CPCA establishes a non-conviction based regime different from other jurisdictions, although there are some similarities. The administration of the CPCA is entrusted to the prosecuting authority, the DPP, not to a separate commission.

25 The conviction-based regimes represented a return in part to an ancient legal right of the Crown. Under the common law, conviction for a felony meant that in addition to any sentence passed, the goods of the felon were forfeit to the Crown. In times past, the distinction between a felony and a misdemeanour was crucial. Conviction for a misdemeanour did not involve forfeiture. In Western Australia, the Criminal Code does not provide for felonies. Offences are classified as crimes, misdemeanours and simple offences. The difference between crimes and misdemeanours is immaterial. The Crimes (Confiscation of Profits) Act 1988 defined a serious offence as an indictable offence, that is a crime or misdemeanour.

26 The CPCA represents a fundamental departure because it is not necessary for the Crown to establish proof of any offence beyond reasonable doubt before a person's property may be confiscated. Mere unexplained wealth may, in certain circumstances, trigger confiscation. A person may be declared a drug trafficker under the Misuse of Drugs Act, s 159. A declaration as a drug trafficker requires a conviction. If a person is so declared, the State can extend its reach over the drug trafficker's property under the CPCA beyond crime-used or crime-derived property.

27 In respect of conviction-based regimes, in DPP for the Commonwealth v Saxon (1992) 28 NSWLR 263, Kirby P remarked at 265:

"In virtually every jurisdiction in which such legislation has been enacted it has given rise to difficulties of construction and application. Those difficulties appear to be virtually inescapable because of the clash between the objectives of the new legislation and the basic principles of the accusatorial procedure of the criminal justice system in common law countries."

28 The difficulties are enhanced with a non-conviction based regime, such as the CPCA, when innocent owners of property can find their rights to that property curtailed or extinguished without regard to the basic principles referred to by Kirby P. Indeed the onus of proof is reversed.

29 I have briefly set out the history of confiscation legislation to explain the approach to interpretation of the CPCA which I adopt. Although the CPCA is a new regime, which has the potential to cause injustice to some people who are unconvicted of any crime, a court must give effect to the clear will of Parliament in interpreting the terms of the CPCA. However, where there is ambiguity or doubt about any of its provisions, the court should construe the CPCA in a way which has the least intrusion into the rights of citizens. Parliament cannot intend to derogate from property rights except by clear and express language. Any derogation of rights should be evidenced by an express or necessarily implied intention. There is a further observation. The CPCA must be read as a whole. Each section is part of an overall and comprehensive regime to deal with confiscation of property as a result of criminal activity and the scheme by which that is achieved must be kept in mind when construing particular sections.

"An Act to provide for the confiscation in certain circumstances of property acquired as a result of criminal activity and property used for criminal activity, to provide for the reciprocal enforcement of certain Australian legislation relating to the confiscation of profits of crime and the confiscation of other property, and for connected purposes."

31 Before going to specific provisions, I set out the scheme of the CPCA insofar as is relevant for present purposes.

32 Where a police officer suspects that particular property has been used in a crime or has been obtained from the proceeds of crime, the officer applies to a Justice of the Peace or Magistrate for a freezing notice. A police officer may also make application if a person may subsequently be declared to be a drug trafficker.

33 If the Justice of the Peace or Magistrate is satisfied that reasonable grounds exist that property falls into one of those categories or that a person may be so declared, a freezing notice is issued.

34 The freezing notice must be served personally on any person affected: Skaljac; Ex parte Director of Public Prosecutions for Western Australia [2002] WASC 7 by analogy with freezing orders.

35 There is a mechanism for obtaining information about possible affected persons. A statutory declaration must be made at a police station by anyone served with a freezing notice giving details of any other interests in the frozen property.

36 Objections to the freezing notice are made by affected persons lodging an objection at court. If no objection is lodged, property the subject of a freezing notice is automatically confiscated 28 days after service of the freezing notice.

37 If objection is lodged, then in due course the court determines the objection. Until the objection is finally determined, the property remains under the control and management of the DPP who is required to take reasonable care of it. The DPP may use the Public Trustee to manage the property or may appoint an owner to manage the property. Owners may be appointed by the court to have the control and management of the property.

38 Although the general scheme is to retain the property pending judicial determination, there is power in the court to order property to be sold or destroyed in certain circumstances. It is these circumstances which are in controversy in the present case.

39 Once property is frozen, any owner who thereafter deals with it in any way, except by order of the court granting them control and management over the property, or the right to sell or destroy the property, commits a very serious offence.

40 The DPP or a police officer must cancel a freezing notice if the grounds for suspecting that the property is crime-used or crime-derived no longer exist.

41 From this concise overview, I now turn to the specific provisions of the CPCA.

42 The CPCA is divided into 12 parts. Part 4 is entitled "Preventing dealings in confiscable property." Part 4 Division 1 deals with "Seizure of crime-used and crime-derived property" and is not presently relevant. Definitions are important and provided in Part 12: "Interpretation".

43 "Crime-used" property under is defined by s 146:

"(a) the property is or was used, or intended for use, directly or indirectly, in or in connection with the commission of a confiscation offence, or in or in connection with facilitating the commission of a confiscation offence;

(b) the property is or was used for storing property that was acquired unlawfully in the course of the commission of a confiscation offence; or

(c) any act or omission was done, omitted to be done or facilitated in or on the property in connection with the commission of a confiscation offence."

"(1) Property that is wholly or partly derived or realised, directly or indirectly, from the commission of a confiscation offence is crime-derived, whether or not -

(a) anyone has been charged with or convicted of the offence;

(b) anyone who directly or indirectly derived or realised the property from the commission of the offence has been identified; or

(c) anyone who directly or indirectly derived or realised the property from the commission of the offence was involved in the commission of the offence."

45 Other paragraphs of s 148 expand on this basic definition.

"Property owned by 2 or more people, whether jointly or as tenants in common, is crime-derived if any part of the share of any of the owners is crime-derived, whether or not any of the owners is an innocent party in relation to the share or part-share that is crime-derived."

47 Therefore if, in due course, it is established that Mrs Ritchie's joint interest in the property was derived from criminal activity or, more correctly, if she or Mr Ritchie fail to prove the contrary, then the whole of Riseley Street property will be regarded as crime-derived property even if Mr Ritchie and Permanent Trustees Co Ltd are innocent parties.

48 Part 4 Division 2 is entitled "Freezing notices for crime-used and crime-derived property". Section 34(2) and s 34(3) provide:

"(2) A Justice of the Peace may issue a freezing notice for any property if there are reasonable grounds for suspecting that the property is crime-used or crime-derived.

(3) A Justice of the Peace may issue a freezing notice for all or any property that is owned or effectively controlled by a person, or that the person has at any time given away if-

(a) the person has been charged with an offence, or the applicant for the notice advises the Justice of the Peace that the person is likely to be charged with an offence within 21 days after the day on which the freezing notice is issued; and

(b) the person could be declared to be a drug trafficker under section 32A(1) of the Misuse of Drugs Act 1981 if he or she is convicted of the offence."

49 The Misuse of Drugs Act s 32A provides:

(a) a serious drug offence and has, during the period of 10 years ending on the day, or the first of the days, as the case requires, on which the serious drug offence was committed, been convicted of 2 or more -

(i) serious drug offences;

(ii) external serious drug offences; or

(iii) offences, one or more of which are serious drug offences and one or more of which are external serious drug offences;

or

(b) a serious drug offence in respect of -

(i) a prohibited drug in a quantity which is not less than the quantity specified in Schedule VII in relation to the prohibited drug; or

(ii) prohibited plants in a number which is not less than the number specified in Schedule VIII in relation to the particular species or genus to which those prohibited plants belong,

the court convicting the person of the serious drug offence first referred to in paragraph (a), or the serious drug offence referred to in paragraph (b), as the case requires, shall on the application of the Director of Public Prosecutions or a police prosecutor declare the person to be a drug trafficker.

(2) An application for a declaration under subsection (1) may be made at the time of the conviction giving rise to that application or at any time within 6 months from the day of that conviction, and more than one such application may be made in respect of that conviction. ..."

50 Confiscation of property is dealt with in Part 2. Section 7 deals with "automatic confiscation of certain property" and s 8 deals with the confiscation of a drug trafficker's property. By s 7(1) "frozen property is confiscated if an objection to the confiscation of the property is not filed on or before 28th day after the service cut-off date for the property." This is the fundamental difference between the CPCA and other criminal confiscation statutes. The DPP or a police officer has only to satisfy a Justice of the Peace or a Magistrate that there are reasonable grounds for issuing a freezing notice. If a freezing notice is issued and a person fails to object within 28 days after the last day on which a copy of the freezing notice was served on anyone with an interest in the property (see s 36(4), s 37, s 150) then the property is confiscated by operation of law without any further judicial or administrative intervention. Under s 8:

"(1) When a person is declared to be a drug trafficker under section 32A(1) of the Misuse of Drugs Act 1981 as a result of being convicted of a confiscation offence that was committed after the commencement of this Act, the following property is confiscated -

(a) all the property that the person owns or effectively controls at the time the declaration is made;

(b) all property that the person gave away at any time before the declaration was made, whether the gift was made before or after the commencement of this Act.

..."

51 A "confiscation offence" means an offence against a law in force anywhere in Australia that is punishable by imprisonment for 2 years or more: CPCA s 141. The charges against Mrs Ritchie under the Misuse of Drugs Act 1981 are such offences.

52 It follows that once a freezing order is issued, property is in peril of being confiscated by operation of law unless positive steps are taken forthwith to object to the confiscation.

53 Objections to confiscation are dealt with in Part 6. "A person may file an objection to the confiscation of frozen property": s 79(1).

54 The immediate effect of an objection to a freezing notice is to suspend the confiscation process until the court determines the objection.

55 The court may order the release of crime-used property if the objector establishes that it is more likely than not that the property is not crime-used: s 82(1). The court may set aside a freezing notice for crime derived property if the objector establishes that it is more likely than not that the property is not crime derived: s 83(1). While such objections may often not be able to be determined until after a criminal trial, in some cases early determination will occur.

56 Where a freezing notice is issued on the basis that a person could be declared a drug trafficker, there appears to be no way in which any objection can be determined prior to the criminal trial of the alleged offender because, until the result of that trial is known, it cannot be ascertained whether the court will make a declaration that the person is a drug trafficker. There may be a further delay, of up to six months, before application for a declaration is made.

57 Part 6 also deals with the release of confiscated property. Such a situation might occur where no objection has been filed. Section 87 provides for orders to release confiscated property:

(1) On hearing an application under section 85, the court may order the release of any property if it is more likely than not that -

(a) immediately before the confiscation of the property, the applicant owned the property, or was one of 2 or more owners of the property;

(b) the property is not effectively controlled by a person who made criminal use of the property, or by a person who wholly or partly derived or realised the property, directly or indirectly, from the commission of a confiscation offence;

(c) the applicant did not become aware, and can not reasonably be expected to have become aware, until after the property was confiscated, that the property was liable to confiscation under section 6 or 7;

(d) the applicant is or was an innocent party in relation to the property; and

(e) each other owner (if there are more than one) is or was an innocent party in relation to the property.

(2) If the court orders the release of the property -

(a) if the property is money - an amount equal to the amount of the money is to be paid to the objector from the Confiscation Proceeds Account;

(b) if the property is not money, and has not been disposed of - the property is to be given to the objector; and

(c) if the property is not money, and has been sold - an amount equal to the value of the property is to be paid to the objector from the Confiscation Proceeds Account.

(3) If the objector establishes the matters set out in subsection (1)(a), (b), (c) and (d), but fails to establish the matter set out in subsection (1)(e), the court may order the release of the objector's share of the property.

(4) In an order under subsection (3) the court is to specify the proportion that it finds to be the objector's share of the property.

(5) If the court makes an order under subsection (3), the objector is to be paid out of the Confiscation Proceeds Account -

(a) if the property is money - an amount equal to the objector's share of the money; and

(b) if the property is not money - an amount equal to the amount that bears to the value of the property the same proportion as the objector's share of the property bears to the whole property.

(6) The court may make any necessary or convenient ancillary orders."

58 This would appear to be the only mechanism by which an innocent mortgagee may recover the value of its security if property is confiscated because the property owner was a declared drug dealer or the property was crime-used or crime-derived.

59 Section 52 permits certain dealings in respect of mortgaged property. It provides:

"52 Permitted dealings in mortgaged property

If a mortgaged property is frozen, nothing in this Act-

(a) prevents the mortgagor from making payments to the mortgagee in accordance with the mortgage if the payments are made with money that has not been seized or frozen; or

(b) prevent the mortgagee from accepting payments from the mortgagor in accordance with the mortgage."

60 The section is suggestive of an expectation by Parliament that mortgages can continue in operation during the period when property is frozen. The section appears to be designed to prevent default on the basis of non-payment under the mortgage. It is silent as to the effect of other types of default on a mortgagee's powers.

61 This section might give only limited practical assistance to a mortgagee. If a mortgagor forms the view that the property will be confiscated, there may be little incentive in continuing to make mortgage payments. Therefore, a mortgagee may face a real prospect of a delay of months, or years, before it can recoup outstanding moneys.

The control and management of frozen properties

62 The freezing notice issued against Mrs Ritchie states there are reasonable grounds for suspecting that the Riseley Street, Booragoon property is crime-used, is crime-derived, and that Mrs Ritchie could be declared to be a drug trafficker under s 32A(1) of the Misuse of Drugs Act. In other words, all three possible bases for confiscation are asserted. The evidence put before the Magistrate must have satisfied him that there were reasonable grounds for suspecting the property was in each of the three categories.

63 It is likely that under the CPCA, there will be many freezing notices issued. It is also reasonable to expect that there will be many objections to freezing notices lodged with the court. Real property is often subject to mortgage and a mortgagee will usually be an innocent party. Property is often jointly owned by a person suspected of using property for criminal purposes, or purchasing an interest in property from criminal proceeds, and someone not so suspected. A considerable amount of property, both real and personal, will be in the possession of the State at any time in a legal limbus until objections are resolved. The CPCA requires that when property is frozen, the DPP has control and management of the property unless the court appoints an owner to have control and management. No-one else can deal with frozen property in any way: s 50.

64 "Dealing with property" is defined by s 151 as follows:

"A reference in this Act to dealing with property includes a reference to doing or attempting to do any of the following-

(a) sell the property or give it away;

(b) dispose of the property in any other way;

(c) move or use the property;

(d) accept the property as a gift;

(e) take any profit, benefit or proceeds from the property;

(f) create, increase or alter any legal or equitable right or obligation in relation to the property;

(g) effect a change in the effective control of the property."

65 Even a person who continues to reside in a house the subject of a freezing notice may be using the property and thus dealing with it.

Control and management of frozen property: specific provisions

66 The CPCA makes provision for the control and management of frozen property until objections are determined, in Part 7 - "Management of seized, frozen and confiscated property". Part 7 Division 1 is entitled "Control and management of property." Part 7 Division 2 is entitled "Disposal of deteriorating or undesirable property." Part 7 Division 3 is entitled "Management of property by Public Trustee."

67 In the first instance, under s 89, the DPP has responsibility for the control and management of frozen property unless the court otherwise orders by appointing another person with those powers. The DPP may appoint the Public Trustee, the Commissioner of Police or, in the case of frozen property, a person who owns the property to manage the property. Control of the property does not pass to the Public Trustee or an owner in these circumstances but remains with the DPP. The DPP, or any person who may be appointed in place of the DPP to control and manage the property, has an obligation and must take reasonable steps to ensure that property is appropriately managed and maintained until the property is disposed of: s 92.

68 If the DPP appoints an owner to manage the property, the duty of care in s 92 would appear to be a concurrent duty owed by the DPP as the person in control of the property and the owner as the manager of the property.

69 An owner of frozen property is given a right to apply to the court for orders. An "'owner' in relation to property means a person who has a legal or equitable interest in the property." It is not in issue that both Permanent Trustee Co Ltd and Mr Ritchie are both owners of the property as defined.

"91. Applications by owner for control and management

(1) An owner of frozen property may apply to the court for an order under subsection (2) in relation to the property.

(2) On hearing an application, the court may, if it thinks fit, by order appoint the person-

(a) to control and manage the property while the freezing notice or freezing order is in force; or

(b) to sell or destroy the property."

70 The application by Permanent Trustee Co Ltd is made under s 91(2)(b). The application by Mr Ritchie is made under s 91(2)(a).

71 Under Part 7 Division 2 the court is given powers to make orders in respect of the disposal of deteriorating or undesirable property. In respect of the sale of deteriorating property, s 94 provides:

"(1) A person who has responsibility for the control or management of frozen property may apply to the court for an order under subsection (2).

(2) The court may order that the property is to be sold if it is more likely than not that-

(a) the property is or will be subject to substantial waste or loss of value if it is retained until it is dealt with under another provision of this Act; or

(b) the cost of managing or protecting the property will exceed the value of the property if it is retained until it is dealt with under another provision of this Act.

(3) ...

(4) When frozen property is sold under an order under subsection (1), or under subsection (2), the net proceeds of the sale are taken to be frozen property that is subject to the freezing notice or freezing order made in respect of the sold property."

72 I turn now to the applications by each of the parties.

73 The terms of the chamber summons for orders for possession and sale by Permanent Trustee Co Ltd are important and I set them out in full:

"1. Pursuant to s 91(2) of the Criminal Property Confiscation Act 2000 and subject to these orders the Applicant be authorised to take possession of the property and be appointed to sell the estate in fee simple in portion of Cockburn Sound Location 356 and being Lot 229 on Plan 12242, Certificate of Title Volume 1487 Folio 502 ('the Property') if entitled to do so pursuant to its rights under mortgage number H 353853 dated 3 February 2000 ('the Mortgage').

2. (a) Prior to the sale of the Property the Applicant is to obtain a valuation report in relation to the Property and provide a copy to the Director of Public Prosecutions ('the DPP') not less than 7 days prior to offering the Property for sale.

(b) At any sale of the Property by auction or otherwise a reserve price shall be set by agreement between the Applicant and the DPP, and if no agreement is able to be reached, a reserved price is to set at 80% of the value of the Property as determined by the valuation referred to in paragraph 2(a) hereof.

(c) Should the property fail to sell at the reserve price referred to in paragraph 2(b) hereof, then the Applicant shall sell the Property at the best price reasonably obtainable.

3. Upon receipt of the proceeds of the sale of the Property the Applicant shall apply the same in the following orders:

(a) the amount owing to the Applicant by the Mortgagor pursuant to the Mortgage at time of settlement.

(b) reasonable expenses incurred by the Applicant in enforcing the Mortgage and retaking possession of the Property.

(c) the costs and expenses in relation to the sale of the Property including:

(i) agents commission;

(ii) any fees charged by the Department of Land Administration of Western Australia incurred by the Applicant in the course of dealing with the Property;

(iii) settlement costs; and

(iv) outstanding land and water rates relating to the Property.

(d) the costs of this application be taxed or agreed.

(e) payment of the balance of the proceeds of sale, if any, after payment of the amounts referred to in paragraphs 4(a) to 4(d) inclusive hereof ('the Surplus') to the DPP.

4. Payment of the Surplus to the DPP be effected by delivery of a bank cheque made payable to the Public Trustee within 3 days of the settlement of the sale of the Property.

5. The DPP pay the Surplus into an interest bearing account with the Public Trustee in the name of the DPP and Margaret Elizabeth Ritchie.

6. The expense of the Public Trustee and all other expenses associated with the investment of the Surplus by the Public Trustee are to be met out of the interest earned thereon, and if that amount is insufficient, out of the Surplus.

7. In any application made pursuant to the Criminal Property Confiscation Act 2000 the Surplus shall be deemed to be and shall be dealt with as if it was the Property.

8. The parties have liberty to apply on 48 hours written notice."

74 It is unsurprising that a mortgagee in the position of Permanent Trustee Co Ltd would wish to take action to limit its exposure as soon as possible after what it perceives to be a default in the mortgage.

75 Permanent Trustee Co Ltd contends that the Ritchies, as registered proprietors of the property, are in default of the mortgage, particularly Part 4.1(h). The land has been taken out of their control. Under CPCA s 50(2) the Permanent Trustee Co Ltd is permitted to act in accordance with an order under s 91(2) or 93(2), so it is contended the only manner in which it can exercise its rights under the mortgage is to obtain an order from this Court to sell the property.

76 I observe that the summons goes well beyond a simple order to sell. It seeks the court's power to enter the property for the purpose of a valuation and seeks the court's sanction to a reserve price being set at 80 per cent of the valuation in the absence of agreement between Permanent Trustee Co Ltd and the DPP. This is notwithstanding possible fiduciary duties owed by the mortgagee to the mortgagor on sale. In advance of any determination of property rights under the CPCA Part 6, the effect of the Permanent Trustee Co Ltd's application, if granted, is to circumvent the effect of the freezing notice so far as it is applicable to Permanent Trustee Co Ltd's interest in the Riseley Street property.

77 In my judgment s 91 does not permit the making of the order sought by the Permanent Trustee Co Ltd. Section 91 must be read in context within the scheme as I have outlined. The CPCA provides for automatic confiscation within a short period unless objection is lodged. When an objection is lodged, the CPCA provides a complete mechanism for the release of crime-used property and crime-derived property prior to a criminal trial. It does not provide any mechanism for the early release of the property of a drug trafficker, notwithstanding the fact that the objector is innocent as most mortgagees are likely to be.

78 When an objection is raised to confiscation, the matter must wait for criminal proceedings or proceedings under the Misuse of Drugs Act and the CPCA to be concluded. The legal limbus to which I have referred descends on the property. The status quo ante is maintained until a resolution of the legal questions as to the confiscation and the value of any innocent person's share in confiscated property.

79 If any owner is not an innocent party then crime-used or crime-derived property may not be released. The most that can be ordered is the amount of the value of the innocent objector's share of the property after confiscation. The provisions of s 87 cannot be short-circuited by a mortgagee exercising a right of sale under the contractual arrangements existing between it and the mortgagor.

80 Recognising that some time may pass, the CPCA provides for the management and control of frozen property and it is in that context s 91 must be read. The DPP has the general control and management of frozen property although the DPP may appoint others from the defined class to manage property as set out above.

81 This appointment by the DPP of a manager does not extend to the power to relinquish control. Hence under s 92, as I have said, there exist concurrent duties to take reasonable steps to maintain property in both the DPP and any appointed manager.

82 The appointment by the court of an owner to control and manage property is the only way in which an owner can exert control over property after it has been frozen. Having regard to the whole scheme of the CPCA, and in particular the earlier part dealing with objections, s 91(2) cannot be regarded as empowering a court to grant an unrestricted right of sale when such a sale would defeat the other provisions of the CPCA. The power to order destruction or sale must be an adjunct to and read in conjunction with s 93 and s 94. Section 91(2)(b) must be read in the light of s 94, that is, that the property may be sold if it is more likely than not that the property is, or will be subject to substantial waste or loss of value if it is retained, or the cost of managing or protecting the property will exceed the value of the property if it is retained until it is dealt with under another provision of the Act.

83 The fact that the property has deteriorated to the degree described in s 94(2) may not be immediately apparent at the time an appointment is made to control or manage the property. In that case, s 93 and s 94 gives the person appointed under s 91(2)(a) the right to apply subsequently for the destruction or sale of property. The need for destruction or sale might be immediately apparent so that the owner may not wish to control or manage the property but simply dispose of it by way of sale or destruction.

84 The DPP has no right to sell or destroy property but must apply under s 93 or s 94.

85 What cannot be done is use s 91(2)(b) as an artifice to overcome the specific provisions of the CPCA by allowing a sale on terms in a purported exercise of rights under the mortgage.

86 It is significant that under Part 6, s 83, "Release of crime-derived property", s 84, "Setting aside orders: other frozen property", s 85, "Applications for release of confiscated property" and s 87, "Orders to release confiscated property", the court in each case is given express power to make any necessary or convenient ancillary orders: s 87(6). There is no such power given in s 91, s 93 and s 94. I do not think this is a mere oversight. Under s 90, in order to facilitate the destruction, sale or other disposal of property under the Act, the DPP may enter into a contract and may execute a transfer or other instrument. Under s 94(4), when frozen property is sold, the net proceeds of the sale are taken to be frozen property. Therefore the DPP does not require orders of an ancillary nature. The Public Trustee does not need court approval and in consequence needs no orders of an ancillary nature: s 94(3).

87 The value of property sold by the State is taken to be equal to the proceeds of the sale after taking account of the following (s 152):

(a) costs, charges and expenses arising from the sale;

(b) if a freezing notice or freezing order is or was in force for the property - expenses incurred by the State or a person appointed to manage the property while the notice or order was in force;

(c) if the property has been confiscated - any expenses incurred by the State or a person appointed to manage the property after it was confiscated;

(d) any charges on the property."

88 In this context, a mortgage is not a charge: see the definition of "encumbrance" which includes mortgages and charges. The CPCA provides a mechanism for effecting a sale by giving power to the DPP, or Public Trustee, and providing for the disposition of the proceeds. An ancillary power in the court is unnecessary.

89 There is no power for an owner, such as a mortgagee, to appoint a valuer and allow inspection of a property unless that owner has been given power of control and management. Control and management does not equate with vesting of property. It is difficult to construe s 91 as giving the court an unlimited power to order a sale under s 91(2) when there is no power to make ancillary orders of the type proposed in the chamber summons.

90 The present case provides an illustration why a construction of the power to sell under s 91(2) should be construed restrictively by having regard to s 94.

91 The default asserted by Permanent Trustee Co Ltd is that the Ritchies have put the Riseley Street property out of their control. Similar clauses are common in other mortgages.

92 If the act of the State in obtaining a freezing notice triggers a default provision in a mortgage, and the property is sold under s 91, there is potential for irremediable injustice. If the State later fails to establish its criminal case in respect of a drug trafficker, or the person proves that the property was probably not crime-related or crime-derived, then an innocent person will have lost their property through no fault or act of their own. A construction of s 91 which achieves this result should be rejected unless it is compelling. In the present case, I consider there is a better alternative construction which fits within the overall purpose of the CPCA. As I have outlined, that construction is to read s 91 in conjunction with s 93 and s 94. To confirm this construction I conclude that there is no power under CPCA s 91 to make ancillary orders of the type contemplated in the Permanent Trustee Co Ltd chamber summons.

93 Permanent Trustee Co Ltd argues that the principal order it seeks is to sell, only if entitled to do so, pursuant to its rights under mortgage no H 353853M. This is an attempt to overcome the contention of Mr Ritchie that the mortgage is not in default. However, I do not consider that the wording of par 1 of the chamber summons overcomes the fundamental problem. The mortgagee is attempting to sell the Riseley Street property because the property has been taken out of the control of the Ritchies, not because the property is deteriorating. Any sale, whether purportedly under rights in the mortgage or otherwise, will remove the property from the legal limbus imposed under the CPCA and is therefore impermissible.

94 The Riseley Street property is real property. That land is subject to a freezing order. The practical effect of the application, if permitted, would be to convert real property into money. The interest of the mortgagee would be paid out and the State would retain the balance pending the outcome of the criminal trial. While this might be a useful result, from some points of view, I do not consider that such a result is permitted under the CPCA. It is certainly not a result which Mr Ritchie would regard as useful. In Musarri & Anor v State of Western Australia (unreported) 18 December 2001 Hasluck J did make an order in terms similar to that proposed by the plaintiff in this case. However, I consider that case is distinguishable. In Musarri all parties wished the properties to be sold and there was evidence of deterioration. The application by the mortgagee was opposed by the owners on grounds other than those raised in these proceedings and the issues I have discussed did not fall for decision.

Conclusion on the Permanent Trustee Co Ltd application

95 The evidence does not permit a finding that the property is, or will be, subject to substantial waste or loss of value if it is retained until it is dealt with under the CPCA, nor is there any evidence that the cost or managing or protecting the property will exceed the value of the property if it is so retained.

96 In the present case there is evidence that the property was in a dilapidated state, but there is also evidence that it has now been remedied. The DPP has a continuing duty to maintain the property. There is evidence that mortgage payments are being made in excess of the required rate. The plaintiff does not seek to control and manage the property, only to sell it. Therefore there is no evidence sufficient to justify an order for the sale of the Riseley Street property. I dismiss the application.

97 Mr Ritchie seeks an order for the control and management of the property. His reason for seeking the order is expressed by him as follows:

"My request for the control and management of the property is due to the fact that I wish to enter into a tenancy agreement and, if possible, at all times keep the property rented out so that it may earn income to assist me in payment of the Mortgage instalments. Unless I have control and management of the property, I will suffer financial hardship in that it will be more difficult for me to meet the mortgage instalments."

98 Section 91 does not expressly empower the court to make provision for the expenses of managing property. If property is ultimately sold by the State and a freezing notice or order was in force over the property, the expenses incurred by a person appointed to manage the property while the notice or order was in force, appear to be able to be taken into account and presumably reimbursed under s 152. The Public Trustee's position under Part 7 Division 3 may be contrasted. There is express provision for the Public Trustee to receive fees: s 99.

99 There is no power for the court to allow a person in the position of Mr Ritchie to receive rental payments. The CPCA s 151 defines "Dealing with property" as including taking any profit, benefit or proceeds from the property.

100 Under s 50 a person must not deal with seized or frozen property in any way.

101 That section is of general application, save for a person acting under s 91(2) and s 93(2).

102 The concept of "control and management" of the property under s 91 does not extend to taking the profits of the property and applying them to paying a mortgage. Although receipt of rent would ordinarily come under the concept of control and management, the overall purpose of the CPCA would be diminished if control was extended to allow rent receipts to be disbursed to pay the mortgage. This is made explicit by CPCA s 34(7) "Any income or other property derived from the property while the freezing notice is in force is taken to be part of the property."

103 CPCA s 52 "Permitted dealings in mortgaged property" requires mortgage payments to be made with money that has not been seized or frozen. It follows that the fruits of frozen property in the form of rent cannot be used.

104 If the property is ultimately confiscated, it would promote the scheme of the CPCA that any profits derived from the frozen property go to the Crown. If ultimately the property is not forfeited, for whatever reason, then s 82, s 83 and s 87 would seem to allow for appropriate adjustment to be made in respect of rent earned during the period of the freezing order.

105 An owner appointed under s 91(2) to control and manage the property while the freezing notice is in force, is doing so on behalf of the State as well as their own behalf.

106 Although there may be grounds for Mr Ritchie to be appointed to control and manage the Riseley Street property, I am not prepared to make an order on the present evidence and for the express reason he advances in his application.

107 The CPCA effects substantial alteration of property rights. It is the operation of the CPCA upon the rights of Permanent Trustee Co Ltd which impact adversely upon its security, not its rights and responsibilities under the mortgage. The CPCA prevents the exercise of any such rights under the mortgage which involve dealing with the land in any way.

108 So also with Mr Ritchie. It is the impact of the CPCA upon his previous private enjoyment of the Riseley Street property which presently deprives him of income in respect of that land.

109 In the event, on the evidence put before me, each application must be dismissed. However, it is open to the parties to bring fresh applications under s 91 in light of this judgment.

Property Confiscation Act 2000

(Confiscation of Profits) Act 1988

Assets Recovery Act 1999

Permanent Trustee Co Ltd v The State of Western Australia & Anor [2002] WASC 22

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (163 paragraphs)

Permanent Trustee Co Ltd v The State of Western Australia & Anor [2002] WASC 22 (14 February 2002)

Parties

Legislation Cited (5)

Cases Cited (2)