STUDMAN v COMMONWEALTH DIRECTOR OF PUBLIC PROSECUTIONS

Proceeds of Crime Act 2002 (Cth) Crimes Act 1914 (Cth) LEGISLATION CITED: Crimes (Confiscation of Profits) Act 1985 (NSW) Financial Transaction Reports Act 1988 (Cth) Taxation Administration Act 1953 (Cth) Supreme Court Act 1970 (NSW)

Diez v DPP (Cth) (2004) 62 NSWLR 1 DPP (Cth) v Jeffrey (1992) 58 A Crim R 310 DPP v Saxon (1992) 28 NSWLR 263 Hadad (1989) 16 NSWLR 476 CASES CITED: Jeffrey v DPP (Cth) (1995) 79 A Crim R 514 King v DPP (2000) 114 A Crim R 14 Rintel (1991) 52 A Crim R 209 Saffron v DPP (Cth) (1989) 87 ALR 151 Taylor v Attorney-General (SA) (1991) 53 A Crim R 166 Woodcroft & Ors v Director of Public Prosecutions & Anor (2000) 174 ALR 60

PARTIES: Michael Simon Studman (Appl) Commonwealth DPP (Resp)

COUNSEL: S Odgers SC (Appl) I Temby QC/T Muir (Resp)

SOLICITORS: Randle Lawyers (Appl) Commonwealth DPP (Resp)

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT DATE OF DECISION: 18 August 2005

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40178/06 12262/04

SPIGELMAN CJ McCLELLAN CJ at CL HANDLEY AJA

WEDNESDAY 17 OCTOBER 2007 STUDMAN v COMMONWEALTH DIRECTOR OF PUBLIC PROSECTIONS Judgment 1 SPIGELMAN CJ: I agree with McClellan CJ at CL. 2 McCLELLAN CJ at CL: This is an appeal from the judgment of Hulme J dismissing the appellant's Notice of Motion seeking orders under the Proceeds of Crime Act 2002 (Cth) ("the Act") with respect to funds in a bank account and various shares. The matter comes before the court pursuant to an order for leave made on 20 October 2006. Leave was necessary as the appeal was out of time. 3 The appellant pleaded guilty to a number of offences of stealing property from the Commonwealth contrary to s 71 Crimes Act 1914 (Cth) and defrauding the Commonwealth contrary to s 29D Crimes Act 1914 (Cth). The total amount unlawfully obtained by the appellant was in the order of $365,000. 4 On 20 July 2004 Kirby J made an order pursuant to s 18 of the Act restraining the disposition of the appellant's property. The relevant property was held in the name of Michael Simpson, a pseudonym which the appellant used. The property was described in the order as follows:

1. Funds standing to the credit of the Australia and New Zealand Banking Group Ltd cash management account number 012-0031088-89972 in the name of Michael Simpson ("89972");

2. Commonwealth Bank of Australia shares held in the name of Michael Simpson;

3. Burns Philp shares held in the name of Michael Simpson; and

4. Highland Pacific shares held in the name of Michael Simpson. 5 By Notice of Motion dated 8 April 2005 the appellant applied for orders, inter alia,

"1. Pursuant to s 31 of the Proceeds of Crime Act 2002 ("the Act"), the balance of the property detailed and restrained in accordance with Part One of the Schedule of the Orders of this Court dated 20 July 2004 ("the Orders") be transferred to the defendant.

2. In the alternative, pursuant to s 94 of the Act the balance of the property detailed and restrained in accordance with Part One of the Schedule of the Orders be transferred to the defendant.

3. Pursuant to s 39 of the Act, the plaintiff and/or the Official Trustee take all necessary steps to facilitate transfer of the balance of the restrained property to the defendant forthwith."

The relevant legislation 6 Section 18 of the Act provides that upon application by the Director of Public Prosecutions a court must order that property of a person must not be disposed of or dealt with if there are "reasonable grounds to suspect that a person has committed a serious offence" (s 18(1)(d)(i)). A serious offence includes unlawful conduct that is intended to cause a loss to the Commonwealth of at least $10,000. The offences with which the appellant was charged and to which he pleaded guilty were serious offences. 7 Section 29 of the Act provides that if an application is made under s 30 or s 31 the court making the restraining order under s 18 may at the time of making the order, or at a later time, exclude specified property from the order where the property is not the "proceeds of unlawful activity" (s 29(2)(c)). "Unlawful activity" is defined and includes an offence against a law of the Commonwealth or an indictable offence against a State law. Section 29(4) provides that before excluding property from a restraining order the court must be satisfied that "a pecuniary penalty order could not be made against the person who owns or controls the relevant property." A pecuniary penalty order can be made pursuant to s 116 of the Act where the court is satisfied of either or both the following: "(i) the person has been convicted of an indictable offence, and has derived benefits from the commission of the offence; (ii) … the person has committed a serious offence." 8 Section 91 of the Act provides that if a person is convicted of a serious offence property that is subject to a restraining order is forfeited unless it has been excluded. 9 Apart from any exclusion of property from the original restraining order, s 94 of the Act provides that, where a restraining order has been made, the court that made the original order may make an order excluding particular property from forfeiture if, inter alia: "(e) the court is satisfied that the property is neither proceeds of unlawful activity nor an instrument of unlawful activity; and (f) the court is satisfied that the defendant's interest in the property was lawfully acquired." 10 In the present case the Director of Public Prosecutions identified the "unlawful activity" of the appellant as arising from a breach of two Commonwealth Acts. 11 Firstly, the Director of Public Prosecutions relied upon a breach of s 24(1) of the Financial Transaction Reports Act 1988 (Cth) which provides that "a person shall not open an account with a cash dealer in a false name." Subsection (2) further provides that "a person shall not operate an account with a cash dealer in a false name". A person opens an account in a false name if the person "in opening the account, or becoming a signatory to the account, uses a name other than a name by which the person is commonly known" (s 24(7)(a)). A person operates an account in a false name if the person "does any act or thing in relation to the account (whether by way of making a deposit or withdrawal or by way of communicating with the cash dealer concerned or otherwise) and in so doing uses a name other than that by which the person is commonly known" (s 24(7)(b)).

12 The Director of Public Prosecutions also relied on a breach of s 8U of the Taxation Administration Act 1953 (Cth). That section provides that a person who: (a) engages in conduct that results in the falsification or concealing of the identity of, or the address or location of a place of residence or business of, the person or another person; or

(b) does or omits to do any act or thing the doing or omission of which facilitates the falsification or concealment of the identity of, or the address or location of a place of residence or business of, the person or another person;

(c) deceiving or misleading the Commissioner or a particular taxation officer; ………

(f) hindering, obstructing or defeating the administration, execution or enforcement of a taxation law; or

(whether or not the person had any other intention) is guilty of an offence."

Futility of the appeal 13 On the hearing of the appeal the court raised with the parties whether, having regard to the relevant provisions of the Act in the events that have happened the appeal was now futile. The difficulty arises from the operation of s 91, 92 and 93 of the Act. 14 Section 91 of the Act provides that property the subject of a restraining order is forfeited to the Commonwealth unless it has been excluded from forfeiture. As I have indicated an order for exclusion can be made pursuant to s 94. The time at which forfeiture occurs is provided by s 92. Section 92(3) provides that property is forfeited at the end of the period of six months, starting at the day of conviction, or at the end of the period provided in any extension order. 15 An extension order can be made pursuant to s 93. However, the application for the extension order must be made within six months of the day of conviction. If an extension order is made the extended period specified must end no later than 15 months from the day of conviction (s 93(1)). 16 In the present case, together with his application for an exclusion order under s 31 and his application for an order excluding his property from forfeiture under s 94, the appellant made an application for an extension order pursuant to s 93(1). The primary judge did not deal with the latter application. Because his Honour had determined that the "exclusion order" under s 31 should not be made, he concluded that there would be no point in considering the possibility of an extension order (s 93(2)). 17 No appeal was made to this Court in respect of his Honour's failure to make an extension order. Accordingly, by the operation of s 91 and s 92(3) the relevant property has been forfeited to the Commonwealth and has vested absolutely (s 96). The consequence is that the present proceedings are devoid of utility. There is no order which could now be made which would have any practical effect. 18 The powers of the Court of Appeal in dealing with matters before it include the powers provided by s 75A of the Supreme Court Act 1970 (NSW). Section 75A(10) of the Act provides: "The Court may make any finding, give any judgment, make any order or give any direction which ought to have been given or made or which the nature of the case requires." 19 Section 75A(10) does not give the Court of Appeal a "free hand" (see Woodcroft & Ors v Director of Public Prosecutions & Anor (2000) 174 ALR 60 at [54]. Because s 93(1) confines the period of an extension order so that it must end no later than 15 months from the day of conviction any order which this Court was minded to make could have no practical effect. Furthermore, an order excluding property from forfeiture cannot be made when property has already been forfeited (s 94(2)). 20 The appropriate course for the appellant to have taken upon receiving the judgment of Hulme J was to appeal to this Court and seek an expedited hearing. If so persuaded, this Court could have made an extension order and provided for the appeal to be heard and determined within an appropriate period. However, as that course was not taken the situation is now irretrievable. 21 The consequence is that in my judgment this Court should revoke the order for leave to appeal. However, although these difficulties were raised at the hearing the matter was fully argued and it may be useful if I briefly state my reasons for concluding that in any event the appeal should be dismissed.

The findings of the primary judge 22 Many of the relevant facts are not in dispute. 23 The appellant opened a cash deposit account, no 89972 in the name of Michael Simpson with the Australia and New Zealand Banking Group Ltd. It was opened on 3 June 2003 with a deposit of $148,305.08 and it was closed on 27 July 2004, at which stage the balance was $121,308.28. Interest accumulated in the account and was paid monthly. There were two debits, $13,000 was withdrawn on 10 May 2004 and $20,000 on 2 July 2004. 24 The initial deposit of $148,305.08 was transferred from another account, (no 27825), which was also in the name of Michael Simpson. The records of the account show a variety of deposits, one debit and interest payments totalling in the order of $10,000. 25 The appellant had been in a domestic relationship with Ms O'Malley and the primary judge concluded that she was the source of a significant portion of the appellant's monies. This was apparent from a reconciliation of the cash movements from her account to the appellant's account. On 11 March 2005 the court ordered that a payment of $90,070.66 be made from the appellant's account in full satisfaction of Ms O'Malley's entitlements. His Honour was satisfied that Ms O'Malley had provided the appellant with other monies which may have been borrowed or obtained from her by fraud. However, his Honour was unable to conclude whether any of these monies had found their way into the property, the subject of the restraining order. 26 The primary judge found that the shares which were the subject of the restraining order, were acquired by the appellant through T D Waterhouse Stockbrokers. The account was in the name of Michael Simpson. T D Waterhouse was taken over by Commsec in July 2003. Although the appellant maintained that the shares were purchased with monies from account no. 27825 and withdrawn on 6 June 2002 the primary judge was satisfied that they were in fact purchased from deposits made to the account with T D Waterhouse on other occasions. 27 The appellant gave evidence that he had not informed the ANZ Bank, T D Waterhouse, Commsec or the Adelaide Bank (into which some of the monies given to T D Waterhouse may have been deposited) that, apart from the name Michael Simpson, he was known as Michael Studman. 28 The primary judge concluded that by using the name Michael Simpson the appellant had used a false name within the meaning of that expression in the Financial Transaction Reports Act 1988. By so doing he breached s 24 of that Act. The appellant conceded before the primary judge that the interest earned on the bank accounts had not been declared to the Commissioner of Taxation for the years 2002, 2003 and 2004. A return was filed for Michael Simpson for the year ended 30 June 2001 and interest was declared in that return. The tax payable was $21.42. 29 The primary judge found that the appellant had breached s 24 of the Financial Transaction Reports Act. His Honour concluded that, although the original order was justified by the charges of stealing and fraud, the breaches of the Financial Transaction Reports Act were relevant to the question of whether property should be excluded pursuant to s 29 and s 94. His Honour concluded that a bank account is "a bundle of contractual rights and obligations or choses in action which exists between a bank and one of its customers." By using the name Michael Simpson the appellant had used a false name and accordingly when opening the account he breached s 24(1) and engaged in "unlawful activity." His Honour inclined to the view that the rights and obligations comprising the bank account were derived wholly or partly from this activity. Although his Honour did not finally determine that issue he concluded that "there can be no doubt that the account or the bundle or rights and obligations encompassed by the term 'bank account' was 'used in', or in connection with, the commission of an offence' viz operating the account in a false name." 30 His Honour also determined that by using the name Michael Simpson for the purpose of the account with T D Waterhouse the shares purchased through that account were derived from the illegal use of a false name. 31 His Honour determined that because the appellant's rights "in relation to the bank account were the proceeds of his unlawful activity in opening it in a false name, similar considerations applying to the shares, he could not be satisfied that the property the subject of the restraining order was not "proceeds of unlawful activity" and accordingly declined the application pursuant to s 31 of the Act. 32 With respect to the taxation offence his Honour was satisfied that the appellant had breached s 8U of the Taxation Administration Act 1953. However, his Honour did not proceed to determine whether the funds or shares the subject of the restraining order are in whole or in part the product of this illegality.

The appeal 33 The appellant submitted that the primary judge erred in three respects as follows:

1. In holding that he was not satisfied that the specified property in the bank account and shares were not "proceeds of unlawful activity" for the purposes of s 29(2)(c)(i) and s 94(1)(e) of the Proceeds of Crime Act 2002.

2. In holding that he was not satisfied that the specified property in the bank account and the shares were not "an instrument of unlawful activity" for the purposes of s 94(1)(e) of the Proceeds of Crime Act 2002.

3. In holding that he was not satisfied that the specified property in the bank account and the shares were "lawfully acquired" for the purposes of s 94(1)(f) of the Proceeds of Crime Act 2002. 34 It was further submitted that s 29(4) did not preclude the court from making an order excluding property from the restraining order. However, during the course of the appeal that submission was abandoned. Ultimately the appellant only sought an order pursuant to s 94(1) excluding the property from forfeiture.

Section 94(1)(e) - proceeds of unlawful activity 35 I accept as the appellant submitted that, being provisions of a statute which provides for the confiscation or derogation from property rights, the statute must be strictly construed. The intention to take away property must be expressed with "irresistible clearness" before it may be applied. (Jeffrey v DPP (Cth) (1995) 79 A Crim R 514). Any statutory ambiguity should be interpreted so as to respect a person's property rights (DPP v Saxon (1992) 28 NSWLR 263 at 270; Saffron v DPP (Cth) (1989) 87 ALR 151 at 155; Diez v DPP (Cth) (2004) 62 NSWLR 1 at [42]). 36 Section 24(1) of the Financial Transaction Reports Act makes it an offence to open an account with a cash dealer in a false name. Subsection (2) provides that it is an offence to operate an account with a cash dealer in a false name. There can be no doubt that by opening and operating the relevant accounts in the name of Michael Simpson the appellant breached s 24. The question is whether these breaches have the effect of denying the appellant an exclusion order pursuant to s 94 of the Act. 37 Section 94(1) provides that an order excluding property from forfeiture may be made, inter alia, in the event that each of subsections (e) (neither "proceeds of unlawful activity nor an instrument of unlawful activity") and (f) (the "interest in the property was lawfully acquired") are satisfied. 38 Section 338 defines "unlawful activity" to mean, inter alia, an offence against a law of the Commonwealth. Proceeds of an "unlawful activity" means proceeds of the offence constituted by the act or omission that constitutes the unlawful activity (s 329(1) and (4)). Section 330(1) extends the meaning of proceeds of an offence to include property wholly or partly acquired using proceeds of the offence (s 330(1)(b) and (6)). 39 An account with a cash dealer creates rights and obligations in both the cash dealer and the customer. The customer obtains the right to deposit and withdraw monies together with, in many cases, a right to interest on the monies deposited. Those rights are comprised in a chose in action which is the property obtained by the customer upon opening the account. 40 The appellant submitted that the transaction which comprised the opening of the account should be dissected. Because the opening of an account per se was not an offence, which only occurred if done in a false name, it was submitted that there was not the necessary causal link between the offence and the property. Because the funds which were deposited in his account could not be said to have been unlawfully obtained and it was lawful to open a bank account, the fact that the account was opened in a false name was said to be merely incidental and did not bear on the derivation of the funds. It was submitted that the origin of the appellant's rights to the monies was his original ownership of them and did not stem from his opening of the relevant account. 41 In the present case the relevant property was the chose in action obtained when the relevant account was opened. Pursuant to the arrangement with the bank or the stockbroker the appellant could deposit and withdraw monies or direct that a payment be made to a third party. The fact that the money which the appellant deposited may have been lawfully acquired by him is not to the point. Once deposited the monies become the property of the receiving party. 42 The appellant drew the court's attention to the decision in Jeffrey v DPP (Cth) (1995) 79 A Crim R 514. In that case one of the unlawful acts alleged was the purchase by the appellant of United States currency in excess of $10,000 contrary to the Cash Transaction Reports Act 1988 (Cth). This Court held that even though the Australian funds to purchase the United States dollars may have been lawfully obtained, the United States dollars came to, or was derived by him, in consequence of the relevant illegal activity and were proceeds of that activity. 43 It is true that the opening of a cash account is not an offence. However, it is an offence to do so in a false name. The appellant committed that offence when opening the accounts with the bank and the stockbroker. Accordingly, the right to the monies in the accounts was derived directly from the commission of the offence. Because the shares were obtained from funds deposited with the stockbroker in an account which was opened in breach of the Financial Transaction Reports Act, s 330(1) and s 330(6) of the Act make the shares the proceeds of an unlawful activity. 44 This conclusion would have been sufficient to dispose of the appeal. However, counsel carefully argued some further matters.

Section 94(1)(e) - an instrument of unlawful activity 45 Section 94(1)(e) of the Act precludes an order excluding property from forfeiture if the property is an "instrument of unlawful activity." Property is an instrument of an offence and accordingly an instrument of an unlawful activity if the property is used in, or in connection with the commission of an offence (s 329(2)(a), 329(4)). 46 Although the words "is used in" suggest a direct relationship between the instrument and the offence, the words "in connection with" are of wide import. (Taylor v Attorney-General (SA) (1991) 53 A Crim R 166 at 175). There has been a disagreement in the authorities as to whether the legislature intended that there be a "substantial connection" before property could be forfeited. The relevant cases are considered in Rintel (1991) 52 A Crim R 209. 47 The meaning of the phrase "used in connection with the commission of a serious offence" was considered by the Court of Criminal Appeal in Hadad (1989) 16 NSWLR 476 in the context of the since repealed Crimes (Confiscation of Profits) Act 1985 (NSW). The court held under that Act that, although there must be a connection between the commission of the offence and the property, it need not be substantial. However, it may not be appropriate to directly apply this decision to the Commonwealth Act. The New South Wales Act contained a wide discretion pursuant to s 5(1)(b)(ii) to consider hardship before property was ordered to be forfeited (see Hadad at 481-482; DPP (Cth) v Jeffery (1992) 58 A Crim R 310 at 316) which may ameliorate the burden of this interpretation in a particular case. The approach favoured to the New South Wales Act in Hadad does not mean that there will not be difficulties when determining whether property has been used in connection with an offence. They were discussed by O'Keefe J in King v DPP (2000) 114 A Crim R 14 at [33]. 48 To my mind there are no difficulties in the resolution of the factual issues in the present case. The chose in action vested in the appellant was the direct result of the offence committed by the appellant when each account was opened. That chose in action was the vehicle by which he operated the relevant accounts under a false name. The property was both used in and in connection with the offences, making the bank accounts and the account with the broker instruments of unlawful activity.

Section 94(1)(f) - "property lawfully acquired" 49 Section 94(1)(f) provides that a court may make an order excluding property from forfeiture if the court is satisfied that the defendant's interest in the property was lawfully acquired. In the present case the chose in action was acquired in breach of the Financial Transaction Reports Act. That transaction was not lawful and the continued operation of the accounts was not lawful. The shares acquired with funds from the stockbroker's account which was acquired in breach of the Financial Transaction Reports Act were also not lawfully acquired. 50 The appellant argued that because the appellant may have lawfully acquired the initial monies his interest in the property was lawfully acquired. That argument fails for the reasons I have already given. The appellant no longer owned the monies but had acquired a chose in action in relation to the relevant accounts.

The breach of s 8U of the Taxation Administration Act 1953 51 The primary judge found a breach of s 8U of the Taxation Administration Act 1953 (Cth) but did not determine the consequences of that breach. His Honour said: "I am satisfied that in placing the funds he did in the name of Michael Simpson, and in either not including the interest earned on those funds in his own tax return or informing Miss O'Malley of the interest earned, Mr Studman breached the terms of this section. It is, of course, a separate question whether the funds the subject of a restraining order are in whole or in part the product of this illegality but in light of the other conclusion at which I have arrived, this is not an issue I need decide." 52 This approach to s 8U emphasises the impact for the revenue when s 8U is breached. However, to my mind, it is arguable the appellant committed a breach of s 8U when he opened the bank account in a false name with the intention of avoiding income tax and thereby intending to defeat the enforcement of a taxation law (s 8U(a) and (f)). In these circumstances the rights acquired upon opening the account would be acquired in breach of the Taxation Administration Act and were the proceeds of unlawful activity. 53 Different questions would arise in relation to the operation of the bank account and any assets acquired using funds from that account. Because the offence depends upon the offender having the requisite intention it would be necessary to give careful consideration to the intention of the offender when operating the account or acquiring the asset. 54 These issues were not fully explored in argument and it is preferable to leave their resolution for a later occasion.

Order 55 In my opinion the appeal is futile and this Court should order that leave to appeal be revoked. The appellant should pay the respondent's costs. 56 HANDLEY AJA: I agree with McClellan CJ at CL. **********

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