Federal Court of Australia|1991-05-01|Before: Heerey J, Ryan J

Re Norman John Gray v Official Trustee In Bankruptcy; Jeffrey Norman Gray and Commissioner of the Australian Federal Police [1991] FCA 176; 216 Customs 21 Atr 1658 29 FCR 166 (1 May 1991)

And: OFFICIAL TRUSTEE IN BANKRUPTCY; JEFFREY NORMAN GRAY and

Customs - application pursuant to s.243F(2A) of the Customs Act 1981 - intervention of Deputy Commissioner of Taxation - whether applicant owner of property - whether applicant had de facto or legal possession of property - whether possession of property amounts to an "interest" for the purpose of s.243F(2A) - whether property is not subject to the "effective control" of the "defendant" - affidavit evidence not challenged by cross-examination.

Elwes v Brigg Gas Co (1866) 33 Ch D 562

South Staffordshire Water Co v Sharman (1896) 2 QB 44

Bridges v Hawkesworth (1851) 21 LJQB 75

Sorby v The Commonwealth [1983] HCA 10; (1983) 152 CLR 281

Precision Plastics Pty Ltd v Demir [1975] HCA 27; (1975) 132 CLR 362

Solicitors for the Second

Respondent: No appearance

Solicitors for the Third

Respondent: Department of Public Prosecutions

Counsel for the Deputy

Commissioner of Taxation: Mr T.J. Ginnane

Solicitors for the Deputy

Commissioner of Taxation: Australian Government Solicitor

1. The notice of motion dated 25 February 1991 be dismissed.

On 19 February 1988 police members of a Commonwealth State Joint Task Force arrested Jeffrey Norman Gray ("Mr Gray Jnr") and charged him with heroin trafficking. On 19 July 1990 he was convicted in the County Court at Melbourne of two offences under the Drugs, Poisons and Controlled Substances Act 1981 (Vic). He is presently serving a prison sentence in H.M. Prison Barwon at Lara.

2. On the day of the arrest, members of the Task Force went to the home of Norman John Gray ("Mr Gray Snr") at 68 Botha Avenue, Reservoir. Mr Gray Snr is the father of Mr Gray Jnr who was then aged 30, unmarried and living at the premises with his parents. The police officers conducted a search of the premises and took possession of a sum of $16,500 in cash ("the money") which they located in some drawers which were outside a garden shed in the back yard of the premises. On 20 February 1988 Ryan J. made an order under s.243E of the Customs Act 1981 ("the Act") directing the Official Trustee in Bankruptcy to take control of all the property of Mr Gray Jnr. The money was subsequently passed to the Official Trustee pursuant to that order and has been held along with other property belonging to Mr Gray Jnr or the proceeds of sale thereof.

3. On 25 February 1991 Mr Gray Snr filed a notice of motion seeking an order that the money be paid to him. That application was made under s.243F(2A) of the Act which provides as follows:

"Where:

(a) the Court made the original order against the property in

reliance on the engaging by a person (in this subsection

called the "defendant") in a prescribed narcotics dealing or

prescribed narcotics dealings during a particular period;

and

(b) another person having an interest in the property applies to

the Court for a variation of the order to exclude the

interest from the order;

the Court shall grant the application if satisfied that the

interest is not subject to the effective control of the

defendant."

4. In the present case the "original order" is Ryan J's order of 20 February 1988. Mr Gray Jnr is "the defendant" referred to in subsection (2A) and it is common ground that he engaged in "prescribed narcotics dealings".

5. On 28 February 1991 I made an order by consent which disposed of the property of Mr Gray Jnr held by the Official Trustee pursuant to the order of 20 February 1988 save for the sum of $21,500 which was to be held pending the resolution of the notice of motion of Mr Gray Snr.

6. The application of Mr Gray Snr came on for hearing before me on 28 March 1991. Counsel on behalf of the Deputy Commissioner of Taxation sought leave to intervene on the ground that the Deputy Commissioner had issued a notice under s.218 of the Income Tax Assessment Act 1936 to the Official Trustee in respect of tax due by Mr Gray Jnr and therefore had an interest in the nature of a charge. This application was opposed by counsel for Mr Gray Snr but I granted leave to intervene and the matter proceeded as a contest between the Deputy Commissioner and Mr Gray Snr. The Official Trustee and the Commissioner of the Australian Federal Police were represented by solicitors but took no active part in the hearing.

7. Affidavits were filed on behalf of Mr Gray Snr sworn by himself, his wife and Mr Gray Jnr. Counsel for the Deputy Commissioner cross-examined the first two deponents but did not seek to cross-examine Mr Gray Jnr. The case advanced in the affidavits was that Mr Gray Snr was the owner of the money. I shall deal with this claim shortly. However, in the course of final submissions it was also put on behalf of Mr Gray Snr that if he was not the owner he was nevertheless in possession of the money at the time of its seizure and therefore had an "interest" in relation to it for the purposes of s.243F(2A), giving that term the meaning specified in s.243A(1) of the Act, viz:

"interest", in relation to property, means:

(a) a legal or equitable estate or interest in the property; or

(b) a right, power or privilege in connection with the property;

whether present or future and whether vested or contingent;"

8. It was put on this alternative basis that Mr Gray Snr was the last person in possession of the money and that at common law he had a right against all the world except the true owner. In the course of discussion I indicated to counsel for the Deputy Commissioner that I thought it was, and always had been, open to counsel for Mr Gray Snr to put an alternative claim in that way. He then asked for the matter to be stood down and upon resumption of the hearing sought an adjournment so that Mr Gray Jnr could be brought to the court for the purposes of cross-examination. I should say that the affidavit sworn by Mr Gray Jnr was to the effect that he was unaware of the existence of the money and could positively say that it did not belong to him. When the arresting police were conducting an interview with him on 19 February 1991 (sic - presumably 1988) he was shown the money. It was in two bundles of notes of various denominations. He was asked, "What can you tell me about this money?" and replied "Never seen it before in my life". He swears this was a truthful response because he had no knowledge of the source of the money.

9. I refused the application of counsel for the Deputy Commissioner. It seemed to be unfair to allow a change of course at this late stage after a deliberate choice had been taken not to challenge Mr Gray Jnr's evidence by cross-examination, particularly given that the question of any "effective control" by Mr Gray Jnr was squarely raised at the outset by s.243F(2A). It will be seen that Mr Gray Jnr's affidavit was in substance negative. It was not put to me in support of the application for adjournment and leave to cross-examine him that counsel wished to put to him some positive matters such as forensic evidence or admissions to police which might amount to proof of his ownership or control of the money. However I did accede to counsel's request that he have leave to file written submissions on the issue of possession and I gave appropriate directions. Both counsel subsequently filed written submissions which I have found of great assistance.

10. The evidence of Mr Gray Snr as to the money was that prior to mid 1987 he had conducted business as a sub-contract carrier of supermarket groceries. For this purpose he had a truck. When he retired he sold the truck, on 28 August 1987, to one R.M. Davies. The sale price was $13,000. Davies paid him with two bank cheques, one for $8,000 and one for $5,000. Mr Gray Snr placed the $5,000 cheque in his bank account and gave the $8,000 cheque by way of loan to a family friend, a Mr Peter Manis, the loan being made at the request of Mr Gray Jnr. That loan was, he says, repaid between late August 1987 and January 1988 in cash and he kept that money at home. The remaining $8,500 of the sum seized by the police was partly made up of money which he had saved during his lifetime and partly money which he received for the sale of numerous parts for his truck for which he had no need after it was sold.

11. He says he had in mind buying a taxi truck which would enable him to do much lighter work than he had done with the former truck. He kept the cash at home because he could "do a better deal with cash". He says the cash was kept in a wardrobe in his bedroom in the inside pocket of one of his suit coats but that on the day of the arrest of Mr Gray Jnr, having heard of that arrest in a telephone call from (in his wife's words) "somebody from the football club", he moved the money out to the drawers in the back yard. He was asked about this:

Q. "Why did you then go and try and hide the money?"

A. "Well, if they take money or any valuables whatsoever, I

don't know the police. I don't know what they are or what

they're going to do and then I've got to explain it, they

take it and then I'm without any money."

Q. "Why did you think they'd take it?"

A. "Well, it's possible. It has been known to happen."

Q. "Well, you knew they'd take it because it was your son,

Jeffrey's, money, didn't you?"

A. "No, I didn't. It was mine. It was in my own wardrobe."

12. His tax return for the year ended 30 June 1988 was put to him and in a depreciation schedule it was stated that a truck and tailgate had been sold during the year for a consideration of $5,100. He claimed that he did not put in the full sale price of the truck (ie. $13,000) because by the end of that tax year he only had $5,000 of it, the balance having been taken by the police.

13. He agreed that he had a bank account in the suburb where he lived, the bank being about 10 minutes drive from his house, and that he was not working during the latter part of 1987 and early 1988 and therefore would have been able at any time during the day to withdraw money in cash from his bank account should a suitable taxi truck have become available. He does not seem to have any distrust of or unfamiliarity with banks, since the cheque for $5,000 was placed in a bank account.

14. Neither Mr Manis nor Mr Davies were called as witnesses and no explanation was given for their non-appearance.

15. I find his story of the source of the money not persuasive. The inherent improbabilities in his account I think appear sufficiently and do not need elaboration. I am not prepared to find, on the balance of probabilities, that he became the owner of the money in the way he alleged.

16. In their celebrated "Essay on Possession in the Common Law" (1888) Pollock and Wright postulated a number of rules. Relevant to the present case these included the following (at p 20):

"1. Possession in fact is prima facie evidence of possession in

law....

2. Possession in fact, with the manifest intent of sole and

exclusive dominion, always imports possession in law.

It is not material whether physical control or apparent

dominion be acquired with or without a good title, or, if

without a good title, whether innocently under colour of a

supposed title, or with wrongful knowledge and intent. A

possessor may be a mere wrongdoer against the true owner,

and a wrongdoer for the very reason that he has got

possession; while yet his possession is not only legal but,

as against all third persons not claiming under the true

owner, fully protected by the law....

3. ....

4. ....

5. ....

6. As against strangers, the right founded on possession has

the incidents of ownership and is transmissible according to

the nature of the subject-matter: we may say compendiously

that Possession is a root of title."

(Authors' emphasis)

17. Later the learned authors discuss (at p 26) the distinction between de facto and legal possession and the right to possession:

"Throughout our inquiry we have to bear in mind that the following

elements are quite distinct in conception, and, though very often

found in combination, are also separable and often separated in

practice. They are

i. Physical control, detention, or de facto possession. This,

as an actual relation between a person and a thing, is

matter of fact. Nevertheless questions which the Court must

decide as matter of law arise as to the proof of the facts.

ii. Legal possession, the state of being a possessor in the eye

of the law.

This is a definite legal relation of the possessor to the

thing possessed. In its most normal and obvious form, it

coexists with the fact of physical control, and with other

facts making the exercise of that control rightful. But it

may exist either with or without detention, and either with

or without a rightful origin.

A tailor sends to J.S.'s house a coat which J.S. has

ordered. J.S. puts on the coat, and then has both physical

control and rightful possession in law.

J.S. takes off the coat and gives it to a servant to take

back to the tailor for some alterations. Now the servant

has physical control (in this connexion generally called

'custody' by our authorities) and J.S. still has the

possession in law.

While the servant is going on his errand, Z. assaults him

and robs him of the coat. Z. is not only physically master

of the coat, but, so soon as he has complete control of it,

he has possession in law, though a wrongful possession. To

see what is left to J.S. we must look to the next head.

iii. Right to possess or to have legal possession. This includes

the right to physical possession. It can exist apart from

both physical and legal possession; it is, for example, that

which remains to a rightful possessor immediately after he

has been wrongfully dispossessed. It is a normal incident

of ownership or property, and the name of 'property' is

often given to it. Unlike possession itself, it is not

necessarily exclusive. A. may have the right to possess a

thing as against B. and everyone else, while B. has at the

same time a right to possess it as against everyone except

A. So joint tenants have both single possession and a

single joint right to possess, but tenants in common have a

single possession with several rights to possess. When a

person having right to possess a thing acquires the physical

control of it, he necessarily acquires legal possession

also."

18. In the present case, Mr Gray Snr had both de facto possession and possession in law of the money. The money was on a property of which he was the occupier. He knew of its existence. He was able to deal with it according to its nature and in fact did so by removing it from his bedroom to the drawers in the back yard. None of this evidence is challenged.

19. Counsel for the Deputy Commissioner accepted that possession was an interest within the definition of that term in s.243A(1) but argued that it was not established that Mr Gray Snr had an interest in the money against the whole world except the rightful owner. In his written submission it was said:

"Such an interest is obtained by a finder of a lost chattel (see

Halsbury 4th Ed, Vol 35, Para 1120 and the cases cited in footnote

1 thereto). Clearly (Mr Gray Snr) was not, and was not asserted

to be, a finder of the property."

20. I think this argument confuses a particular category of cases dealing with possession with the underlying concept itself. Generations of law students have wrestled with the famous cases which concern disputes between the finder of a chattel and the owner of land on which the chattel is found (Armory v Delamerie (1722) 1 Stra 505, Elwes v Brigg Gas Co (1866) 33 Ch D 562, South Staffordshire Water Co v Sharman (1896) 2 QB 44, Bridges v Hawkesworth (1851) 21 LJQB 75) or between the finder and his employer (Dowell v Ulster Bank (1899) 33 Ir LT Jo 23, Willey v Synan [1936] HCA 78; (1937) 57 CLR 200). But no such contests are involved in the present case. Mr Gray Snr certainly had de facto possession of the money. There is no competition between him and an owner or occupier of the premises or with an employer. A finder of a lost or hidden chattel may have to establish possession as against some competing claimant, but that does not mean that a person who is not a finder cannot have possession.

21. Counsel for the Deputy Commissioner also argued that in the absence of satisfactory proof that Mr Gray Snr was the legal and equitable owner of the money it could not be satisfied that he held any interest in it. For instance, it was said Mr Gray Snr may have held the money as a bailee or trustee or stakeholder or it may have found its way into his house in some other circumstances or pursuant to some other obligation.

22. However that argument overlooks the fact that possession itself is the right which the law protects (Pollock and Wright, supra). If the indicia of possession exist at the relevant time, that is enough. The matter may be tested this way. Suppose that there had been no arrest and police raid but a burglar found the money and stole it. Clearly Mr Gray Snr would have, on the facts disclosed in the present case, possession sufficient to support a charge of theft against the burglar. Such charge could not be defended by an argument that it was not known whether Mr Gray Snr was a bailee, trustee, stakeholder etc.

23. It was further put that the words "right, power and/or privilege" in s.243A should be read as "lawful (legal or equitable), right, power and/or privilege". Since a right, power or privilege is something conferred by the law itself, it may be said that the use of the adjective "lawful" in this context is something of a tautology. Moreover, it is plain that the law does in certain circumstances protect possession which is wrongful, as in the example from Pollock and Wright already referred to. If Parliament intended to displace such a well established rule of common law it might have been expected to do so clearly: Sorby v The Commonwealth [1983] HCA 10; (1983) 152 CLR 281.

24. In any case, Parliament has here clearly directed its attention towards one possible competing claim, that is a claim by the person referred to in s.243F(2A) as "the defendant". It is a necessary element of the procedural right given by the subsection that "the defendant" has no "effective control" in respect of the property. If it were established that no such "effective control" existed, I see no reason why the general law should not operate with the result that the person having "an interest in the property" should succeed even though it might appear that his claim might be inferior to that of some third person (ie. a person other than "the defendant") who had not intervened in the s.243F(2A) proceeding and was based on, for example, possession that was wrongful as against that third person. In that event, rights as between claimant and third person would remain to be worked out according to general principles in an appropriate court.

25. I therefore find that Mr Gray Snr had both de facto and legal possession of the money and had "an interest" in it for the purposes of s.243F(2A).

26. S.243AB of the Act contains the following provision relating to "effective control":

"(1) Property, or an interest in property, may be subject to the

effective control of a person within the meaning of this

Division whether or not the person has:

(a) a legal or equitable estate or interest in the

property; or

(b) a right, power or privilege in connection with the

property.

(2) Without limiting the generality of any other provision of

this Division, in determining:

(a) whether or not property, or an interest in property,

is subject to the effective control of a person; or

(b) whether or not there are reasonable grounds to believe

that property, or an interest in property, is subject

to the effective control of a person;

regard may be had to:

(c) shareholdings in, debentures over or directorships of

a company that has an interest (whether direct or

indirect) in the property;

(d) a trust that has a relationship to the property; and

(e) family, domestic and business relationships between

persons having an interest in the property, or in

companies of the kind referred to in paragraph (c) or

trusts of the kind referred to in paragraph (d), and

other persons."

""effective control", in relation to property, or an interest in

property, has the meaning given by s.243AB."

it will be seen that the last mentioned section does not really provide a definition of "effective control" but rather is directed towards giving the ordinary meaning of that expression, which is not a term of art, a wide scope unrestricted by any requirement to show a traditional legal or equitable interest in the property. The expression "effective control" is one that is readily comprehensible and I do not think any purpose is served by paraphrasing or redefining it.

27. Although Mr Gray Snr has established that he has an interest in the money, before I can vary the order of 20 February 1988 so as to exclude that interest from the order I have to be satisfied that the interest is not subject to the effective control of Mr Gray Jnr.

28. Although this requirement of s.243F(2A) is expressed in the present tense, I take it that to give practical effect to the section it must be taken as raising the question as at the time immediately before the seizure. In other words, it is no answer I think to say that Mr Gray Jnr now has no effective control because he is in H.M. Prison Barwon and the money is with the Official Trustee.

29. As a further preliminary matter, I note that the appropriate degree of satisfaction seems to be that which would accord with the civil burden of proof on the balance of probabilities.

30. If the statute provided for the court to be satisfied that Mr Gray Snr's interest is subject to the effective control of Mr Gray Jnr, I think I would have some difficulty in holding that that onus was satisfied. In particular, although I am not prepared to accept Mr Gray Snr as a credible witness, it does not follow that I could make a positive finding that a fact put to him in cross-examination, which he denied, was the truth. There is the unchallenged affidavit of Mr Gray Jnr asserting that he had no knowledge of the money. Again, the rejection of that evidence does not establish that the contrary proportion is true. The mere fact that a person lives in a house as a member of a family, occupying one room and paying board, does not give him de facto or legal possession or "effective control" of money found elsewhere on the premises.

31. However, the statute requires me to be satisfied that the money is not subject to the effective control of Mr Gray Jnr. I do not think I could reach that conclusion with the required degree of satisfaction. There are to my mind doubts which arise from some of the circumstances of this matter.

32. Mr Gray Jnr has been convicted of trafficking in narcotics, a crime which notoriously generates large amounts of money which are often held in cash or some other untraceable form. The property in question here is a substantial amount of cash. There is no satisfactory explanation on the evidence for it being held on the premises at which Mr Gray Jnr lived. Perhaps most importantly at all, it does not seem to be unchallenged that the money was moved on the day of Mr Gray Jnr's arrest on narcotics trafficking charges as a result of a telephone call which it seems likely was made on his behalf or at least with his knowledge.

33. For the reasons I have mentioned, there are to my mind sufficient doubts about the proposition that Mr Gray Jnr does not have effective control over the money for me to find that I am not satisfied that this is the case.

34. I should add that I have treated Mr Gray Jnr's affidavit as unchallenged in the sense that it has not been subject to cross-examination.

35. In Precision Plastics Pty Ltd v Demir [1975] HCA 27; (1975) 132 CLR 362 Gibbs J. (with whom Stephen J. agreed) was dealing with a personal injuries case where the plaintiff had given evidence that she intended to work until the age of 55. His Honour said (at pp 370-371):

"If it had been intended to suggest that she was not speaking the

truth she would have been cross-examined on this matter so that

she might have had an opportunity of explanation (cf. Browne v

Dunn), but she was not in fact cross-examined on her answer. The

respondent's evidence that she intended to work until she reached

the age of 55 was not inherently incredible. She had in fact been

engaged in employment for most of the time during which she had

been in Australia before the accident, and had only given up

employment when it was necessary to care for her child. In these

circumstances, in my opinion, the jury, acting reasonably, were

bound to accept her evidence, uncontradicted and unchallenged in

cross-examination, that she had the present intention of working

until she reached the age of 55."

36. I do not think this passage supports any proposition that, as a matter of law, evidence which is not challenged in cross-examination must be accepted. It is plain that Gibbs J. relied on other circumstances which pointed to the evidence in question being credible or, at least, not inherently incredible. In the present case the surrounding circumstances do not point in favour of the acceptance of the evidence in Mr Gray Jnr's affidavit; they point in the opposite direction.

37. For the foregoing reasons I have come to the conclusion that the application of Mr Gray Snr must be dismissed.

38. However, I do not see that I can make any order in favour of the Deputy Commissioner. The only order that the Deputy Commissioner sought in his notice of motion dated 26 March 1991 (apart from the usual "further or other orders as may seem meet") was an order that he be granted the right to intervene or be heard in connection with Mr Gray Snr's application.

39. However, in an affidavit in support of the Deputy Commissioner's application for leave to intervene it was deposed:

"The Deputy Commissioner of Taxation of the Commonwealth of

Australia says that he is entitled to claim the sum of $16,500.00

from the funds that (Mr Gray Snr) claims on the grounds that such

money is the property of (Mr Gray Jnr)."

40. The Deputy Commissioner's claim arises from s.218(1) of the Income Tax Assessment Act which provides as follows:

"The Commissioner may at any time, or from time to time, by notice

in writing (a copy of which shall be forwarded to the taxpayer at

his last place of address known to the Commissioner), require-

(a) any person by whom any money is due or accruing or may

become due to a taxpayer;

(b) any person who holds or may subsequently hold money for or

on account of a taxpayer;

(c) any person who holds or may subsequently hold money on

account of some other person for payment to a taxpayer; or

(d) any person having authority from some other person to pay

money to a taxpayer,

to pay to the Commissioner, either forthwith upon the money

becoming due or being held, or at or within a time specified in

the notice (not being a time before the money becomes due or is

held)-

(e) so much of the money as is sufficient to pay the amount due

by the taxpayer in respect of tax or, if the amount of the

money is equal to or less than the amount due by the

taxpayer in respect of tax, the amount of the money; or

(f) such amount as is specified in the notice out of each

payment that the person so notified becomes liable from time

to time to make to the taxpayer until the amount due by the

taxpayer in respect of tax is satisfied,

and may at any time, or from time to time, amend or revoke any

such notice, or extend the time for making any payment in

pursuance of the notice."

41. It seems to me that the present application under s.243F(2A) does not raise any issue as to whether the money was "the property" of Mr Gray Jnr. I have not been called on to make any such finding. The only issue raised in relation to Mr Gray Jnr is whether or not he has "effective control" of the money or, more correctly, whether the court is satisfied that he does not. "Effective control" is something quite different from the conventional legal and equitable interests and relationships contemplated by s.218(1)(a), (b), (c) and (d) of the Income Tax Assessment Act.

42. It has not been established in these proceedings that Mr Gray Jnr has any right to the money, or that the Deputy Commissioner has a valid claim consequent upon such a right.

43. It is not at all clear what happens now, and no argument was addressed to me as the consequences which should follow if Mr Gray Snr's application were to fail. I note that the apparent purpose of a restraining order under s.243E is that it is a procedure in aid of the recovery of a pecuniary penalty under s.243B and that in the present case such a penalty in the sum of $18,000 has already, by consent, been assessed and ordered to be paid by my order of 28 February 1991. Perhaps the original order of 20 February 1988 should now be revoked under s.243H.

44. I think the proper course therefore is simply to dismiss Mr Gray Snr's application. However I shall reserve liberty to apply.

45. The Deputy Commissioner has succeeded to the extent that by his intervention he has secured the defeat of Mr Gray Snr's application (albeit on a ground that was not argued before me). But he has not obtained any substantive relief. It may be that I should therefore make no order as to costs, but I am prepared to hear further argument on this.

Tax Assessment Act 1936

Poisons and Controlled Substances Act 1981

Tax Assessment Act 1936

Poisons and Controlled Substances Act 1981

Tax Assessment Act 1936

Poisons and Controlled Substances Act 1981

Re Norman John Gray v Official Trustee In Bankruptcy; Jeffrey Norman Gray and Commissioner of the Australian Federal Police [1991] FCA 176; 216 Customs 21 Atr 1658 29 FCR 166

At a glance

Court

Decision date

Before

Source

Judgment (71 paragraphs)

Re Norman John Gray v Official Trustee In Bankruptcy; Jeffrey Norman Gray and Commissioner of the Australian Federal Police [1991] FCA 176; 216 Customs 21 Atr 1658 29 FCR 166 (1 May 1991)

Parties

Legislation Cited (9)

Cases Cited (3)