The Commissioner of the Australian Federal Police v Chen

Reasons

1. Restraining orders under ss 18 and 19 of the Proceeds of Crime Act 2002 (Cth) ("the Act"), covering certain specified property of the three defendants were made by this Court, relevantly, on 15 September 2020 and 20 November 2020. By Notice of Motion dated 20 January 2022 the Second Defendant, Baijing Hu, and the Third Defendant, TJ International Trading Pty Ltd ("TJIT") claim exclusion orders in respect of their respective interests in some of the property affected under s 29 of the Act (see amended notice of motion filed in court on 7 September 2022, Court Book ("CB") tab 6). The Notice of Motion was filed in the proceedings as constituted by the amended summons filed on 10 December 2020 (CB tab 5) by the Commissioner of the Australian Federal Police ("the Commissioner"). By way of principal relief, the Commissioner sought forfeiture orders under ss 47 and 49 of the Act.
2. The relevant property the subject of the exclusion application is that specified in schedules 1, 2, 3, and 7 of the amended summons being, respectively: 1. Ms Hu's right, title and interest in the property known as X XXXX XXXXXX NSW XXXX ("the Chatswood Property"), registered in her name; 2. The enforceable chose in action in respect of a bank account with National Australia Bank ("NAB"), in Ms Hu's name ("the Offset Account"); 3. A Mercedes Benz GLE station wagon, registered in the name of TJIT ("the Mercedes"); and 4. $500,000 deposited by Ms Hu with the Local Court as bail surety for the first defendant, Bob Chen ("the bail security").
3. The factual basis underpinning the first restraining orders is contained in the Affidavit of Mark Voetterl sworn 15 September 2020 (CB tab 9), reproduced at [19] of the Commissioner's Written Submissions filed 31 August 2022 (CB tab 30), being: "Mr Chen committed an offence contrary to s 233BABAD(1) of the Customs Act 1901 (Cth), namely importing tobacco products with the intention of defrauding the revenue; Mr Chen and Ms Hu committed an offence contrary to s 400.9(1) of the Criminal Code, namely dealing with money reasonably suspected to be proceeds of crime, of at least $100,000; The Chatswood Property, Offset Account and Mercedes were under the "effective control" of Mr Chen (s 18(2)(c)); The Chatswood Property and Offset Account were property of Ms Hu (s 18(2)(a)); The Mercedes was under the "effective control" of Ms Hu (s 18(2)(c)). Under the Act, property may be subject to the "effective control" of more than one person (s 337(7)); and The Chatswood Property, Offset Account and Mercedes were proceeds of an indictable offence and/or instruments of a serious offence (s 19)."
4. The basis for the second restraining orders, restraining the sum of $500,000 that Ms Hu had withdrawn by cheque from the Offset Account for the bail security to secure Mr Chen's bail ("the bail security") is contained in the Affidavit of Mark Voetterl sworn 19 November 2020, and is reproduced at [21] of the Commissioner's Written Submissions filed 31 August 2022, being: "… the suspicion that the Bail Security was property of Ms Hu (s 18(2)(a)), was under the effective control of Mr Chen (s 18(2)(c)) and was proceeds and/or an instrument of a money laundering offence (s 19)."

Background

1. The First Defendant, Mr Bob Chen and the Second Defendant, Ms Hu, were married in China on 18 February 2011, and say they separated in 2016 while resident in Australia albeit co-habiting under the same roof. Ms Hu and Mr Chen's divorce was finalised in November 2019.
2. On 11 September 2012, while married, Mr Chen and Ms Hu became the registered proprietors as joint tenants of the real property at XXX XXXXX XXXX, Cheltenham NSW ("the Cheltenham Property"), purchased for $880,000, partly financed by a loan dated 7 May 2012 from Westpac Banking Corporation ("WBC") for $704,000, secured by a mortgage against the Cheltenham Property.
3. The Cheltenham Property was then sold on 11 May 2016 for $1,675,000, with the net proceeds being approximately $1,025,401.15. Most of these proceeds went to Ms Hu's purchase as sole registered proprietor of the Chatswood Property, on 11 May 2016, for a purchase price of $2,315,000. This purchase was financed in part under a loan agreement dated 24 March 2016 with National Australia Bank Limited ("NAB") advancing the sum of $1,852,000, secured by a registered first mortgage over the Chatswood Property. The defendants say that Mr Chen rented a room at the Chatswood Property from Ms Hu, however no rent was actually paid by Mr Chen until November 2018. The Commissioner disputes that Mr Chen was a mere tenant of a single room and maintains, as I have said, the property was under the effective control of Mr Chen at all material times.
4. The Chatswood Property was sold on about 29 September 2020, the proceeds being subject to the restraining order. Ms Hu then rented a property at XXX XXXXXX XXXX XXXXXX NSW ("the St Ives Property"), where she says she again allowed Mr Chen to rent a room.
5. The Third Defendant, TJIT, was registered on 21 February 2015, with Ms Hu being, upon registration, and continuing to be, the sole director and shareholder. The registered address of TJIT is the Chatswood Property. Between 2015 and 2017 TJIT operated two gift shops in Chatswood, in the name of "Da Niu Gift".
6. TJIT purchased the Mercedes Car in May 2017, which Mr Chen was using on 19 May 2020, the day of his arrest.
7. Mr Chen was later convicted, on 5 August 2021, of importing tobacco products, reckless as to whether he would be defrauding the revenue, contrary to s 233BABAD(2A) of the Customs Act 1901 (Cth). This offending is said to have occurred between 16 and 20 May 2020. Ms Hu and TJIT were not charged with any offences, nor was there any evidence in the material served by the Commissioner suggesting there was any involvement on the part of Ms Hu and TJIT in the criminal activities of Mr Chen.

Statutory requirements

1. Section 29(1) relevantly provides: The court to which an application for a restraining order under section 17, 18 and 19 was made must, when the order is made or at a later time, exclude a specified interest in property from the order if: an application is made under section 30 and 31; and the court is satisfied that the relevant reason under subsection (2) or (3) for excluding the interest from the order exists. Note: Section 32 may prevent the court from hearing the application until the responsible authority has had a reasonable opportunity to conduct an examination of the applicant.
2. Given the relevant restraining orders were made under ss 18 and 19 of the Act, the reasons prescribed by s 29 for the exclusion of a specified property from a restraining order are contained in subs s 29(2)(c) and (d): … for a restraining order under section 18 - the interest is neither: in any case - proceeds of unlawful activity; nor if an offence to which the order relates is a serious offence - an instrument of any serious offence; or for a restraining order under section 19 - the interest is neither: in any case - proceeds of an indictable offence, a foreign indictable offence or an indictable offence of Commonwealth concern; nor if an offence to which the order relates is a serious offence - an instrument of any serious offence. Note: One of the circumstances in which property ceases to be proceeds of an offence or unlawful activity involves acquisition of the property by an innocent third party for sufficient consideration: see paragraph 330(4)(a).
3. For the purposes of s 29, s 329 defines the meaning of proceeds and instrument: Property is proceeds of an offence if: It is wholly derived or realised, whether directly or indirectly, from the commission of the offence; or It is partly derived or realised, whether directly or indirectly, from the commission of the offence; whether the property is situated within or outside Australia. Property is an instrument of an offence if: The property is used in, or in connection with, the commission of an offence; or The property is intended to be used in, or in connection with, the commission of an offence; whether the property is situated within or outside Australia. Property can be proceeds of an offence or an instrument of an offence even if no person has been convicted of the offence. Proceeds or an instrument of an unlawful activity means proceeds or an instrument of the offence constituted by the act or omission that constitutes the unlawful activity.
4. All of the provisions of s 330 may be important: When property becomes, remains and ceases to be proceeds or an instrument Property becomes proceeds of an offence if: the property is wholly or partly derived or realised from a disposal or other dealing with * proceeds of the offence; or the property is wholly or partly acquired using proceeds of the offence; or an * encumbrance or a security on, or a liability incurred to acquire, retain, maintain or make * improvements to, the property is wholly or partly discharged using proceeds of the offence; or the costs of retaining, maintaining or making improvements to the property are wholly or partly met using proceeds of the offence; or the property is improved using proceeds of the offence; including because of one or more previous applications of this section. Property becomes an instrument of an offence if: the property is wholly or partly derived or realised from the disposal or other dealing with an * instrument of the offence; or the property is wholly or partly acquired using an instrument of the offence; or an * encumbrance or a security on, or a liability incurred to acquire, retain, maintain or make * improvements to, the property is wholly or partly discharged using an instrument of the offence; or the costs of retaining, maintaining or making improvements to the property are wholly or partly met using an instrument of the offence; or the property is improved using an instrument of the offence; including because of one or more previous applications of this section. Property remains proceeds of an offence or an instrument of an offence even if: it is credited to an * account; or it is disposed of or otherwise dealt with. Property only ceases to be proceeds of an offence or an instrument of an offence: if it is acquired by a third party for * sufficient consideration without the third party knowing, and in circumstances that would not arouse a reasonable suspicion, that the property was proceeds of an offence or an instrument of an offence (as the case requires); or if the property vests in a person from the distribution of the estate of a deceased person, having been previously vested in a person from the distribution of the estate of another deceased person while the property was still proceeds of an offence or an instrument of an offence (as the case requires); or if the property has been distributed in accordance with: an order in proceedings under the Family Law Act 1975 with respect to the property of the parties to a marriage or either of them; or an order in proceedings under the Family Law Act 1975 with respect to the property of the parties to a de facto relationship (within the meaning of that Act) or either of them; or a financial agreement, or Part VIIIAB financial agreement, within the meaning of that Act or a superannuation agreement within the meaning of Part VIIIC of that Act; and 6 years have elapsed since that distribution; or if the property is acquired by a person as payment for reasonable legal expenses incurred in connection with an application under this Act or defending a criminal * charge; or if a * forfeiture order in respect of the property is satisfied; or if the property is forfeited, confiscated or otherwise disposed of under a * corresponding law (whether or not because of an order made under that law); or if the property is otherwise sold or disposed of under this Act; or in any other circumstances specified in the regulations. However, if: a person once owned property that was * proceeds of an offence or an * instrument of an offence; and the person ceased to be the owner of the property and (at that time or a later time) the property stopped being proceeds of an offence or an instrument of the offence under subsection (4) (other than under paragraph (4)(d)); and the person acquires the property again; then the property becomes proceeds of an offence or an instrument of the offence again (as the case requires). Paragraph (4)(ba) does not apply if, despite the distribution referred to in that paragraph, the property is still subject to the * effective control of a person who: has been convicted of; or has been charged with, or who is proposed to be charged with; or has committed, or is suspected of having committed; the offence in question. Property becomes, remains or ceases to be proceeds of an * unlawful activity, or an instrument of an unlawful activity, if the property becomes, remains or ceases to be proceeds of the offence, or an instrument of the offence, constituted by the act or omission that constitutes the unlawful activity. Paragraphs (1)(a) to (e) and (2)(a) to (e) do not limit each other. This section does not limit section 329.
5. Section 94 concerns the exclusion of property from forfeiture, requiring: The court that made a restraining order referred to in paragraph 92(1)(b) must make an order excluding particular property from forfeiture under this Part if: a person (the applicant) has applied for an order under this section; and the court is satisfied that the applicant has an interest in property covered by the restraining order; and … a person has been convicted of a serious offence to which the restraining order relates; and the court is satisfied that the applicant's interest in the property is neither proceeds of unlawful activity nor an instrument of unlawful activity; and the court is satisfied that the applicant's interest in the property was lawfully acquired.
6. Section 317 of the Act concerning the onus and standard of proof is of some importance in the determination of the present proceedings. It provides as follows. The applicant in any proceedings under this Act bears the onus of proving the matters necessary to establish the grounds for making the order applied for; Subject to ss 52 and 118, any question of fact to be decided by a Court on an application under this Act is to be decided on the balance of probabilities. Neither s 52 nor s 118 have any application to the present application.

Some pertinent caselaw

1. In Henderson v Queensland (2014) 255 CLR 1; [2014] HCA 52, the High Court of Australia was concerned with the provisions of the Criminal Proceeds Confiscation Act 2002 (Qld). However, the purposes and objects of that Act are largely the same as the Act and the Commissioner relied in particular upon observations made by the Justices in relation to the burden of proof. The person claiming an interest in the property affected by that legislation bore the onus of proof. Section 68(2)(b) of the Queensland legislation provided that an exclusion order from forfeiture could not be made unless the Court was satisfied that "it is more probable than not that the property to which the application relates is not illegally acquired property". French CJ (at p. 9 [15]) observed: "The placement of the burden of proof is uncompromising and unable to be ameliorated by any "conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct".
2. In the same case Bell J said (at pp. 12-13 [28]): "It may be accepted that the fact that a witness is disbelieved does not prove the opposite of that which is asserted. However, this is not to say that the primary judge was precluded from drawing any inference from the fact that the father's account of the provenance of the jewellery was false. In some circumstances, a court may infer from the telling of a false story that the truth would harm the witness's interests. It was not a question of making a finding that Mr Henderson's father came into possession of the jewellery as the result of criminal activity. Mr Henderson bore the onus and it would have been open to the primary judge to consider the fact that the father gave a false account of the provenance of the jewellery as a circumstance telling against satisfaction that it was discharged." (Footnotes omitted) Bell J also pointed out (at p. 14 [31]) that it would be "wrong to approach the determination of an exclusion application under [the Queensland Act] upon a presumption that individuals ordinarily did not engage in criminal activity. Such a presumption is inconsistent with the allocation of the burden of proof …".
3. Her Honour also said at p. 14 [33]: "Mr Henderson was required to prove a negative. It was necessary for Mr Henderson to point to evidence of facts and circumstances supporting the conclusion that, according to the course of common experience, it was probable that the jewellery was not illegally acquired property. Discharge of the onus was not a mechanical exercise; it required that the primary judge be actually persuaded as a matter of probability that the jewellery was not illegally acquired property."
4. It should be borne in mind that proceedings under the Act are civil proceedings: s 315. In Commissioner of the Australian Federal Police v Hart (2018) 262 CLR 76; [2018] HCA 1 ("AFP v Hart"), the plurality of Kiefel CJ, Bell, Gageler and Edelman JJ, while observing that the applicant for exclusion from forfeiture bears the onus, said (at p. 83 [7]): "Proof of those conditions is proof in a State or Territory court invested with jurisdiction under s 314 of the POCA in a matter arising under the POCA and in a proceeding which by force of s 315 is civil to which the Commonwealth is a necessary party. It is proof in an adversarial proceeding conducted in accordance with the civil procedure of that court, including such procedure as exists in that court for the definition of issues between parties. The primary judge and the Court of Appeal were correct in taking the view that, where an application for orders under s 102 proceeds on pleadings, an applicant need not negative possibilities which the Commonwealth does not raise in its defence". (Footnotes omitted)

The Chatswood property

1. I decided that Ms Hu had a 14 percent equity in the Chatswood property (Order 1) so far as s 29(2)(c) of the Act applies. That interest is neither the proceeds of unlawful activity nor an instrument of a serious offence. There is no doubt that the offence to which the restraining order relates, that is Mr Chen's offending contrary to s 233BABAD(2A) of the Customs Act, is a serious offence. I accept that the expression "a serious offence" in s 29 is not a reference only to the relevant offending for the purpose of the proceedings under the Act.
2. So far as s 29(2)(d) of the Act is concerned, I am satisfied on the balance of probabilities that the interest I have assessed is neither an indictable offence falling into any of the categories specified in sub-paragraph (i) of paragraph (d) nor an instrument of any serious offence.
3. To the extent to which it may be necessary, at least in the alternative, to deal with the provisions of s 94 concerning the exclusion of property from forfeiture, Ms Hu is a person who has applied for an order under s 94 and I am satisfied that she has an interest in property covered by a restraining order and Mr Chen has been convicted of a serious offence to which the restraining order relates. However, I am satisfied on the balance of probabilities that Ms Hu's interest in the property that I have assessed is neither the proceeds of unlawful activity nor an instrument of unlawful activity and, rather, that specified interest was unlawfully acquired.
4. In reaching these conclusions, I accept that part of Ms Hu's evidence about her financial position in China before migrating to Australia on or about 21 December 2011 (Affidavit 22 December 2020, [9]; Affidavit 20 January 2022, [57], [60], [63]). This evidence demonstrates that Ms Hu brought the total sum of $209,850 into Australia from The Peoples Republic of China. These transfers of funds are corroborated by the statements issued by the Commonwealth Bank of Australia (CBA) in respect of an account in Ms Hu's name ending in the numbers 2316. The dates of the transfers are set out in [59] of Ms Hu's second affidavit, corroborated by the Bank statements at CB pp. 2362 and 2367. I also accept the evidence in Ms Hu's affidavit affirmed on 16 April 2022 that the source of these funds is lawful, consisting mainly of the proceeds of her divorce in China from Zhong Xin Li (at [5] - [14]). While much of that evidence relates to loans which she allegedly made to Mr Chen early in their relationship, a matter to which I will return, these basic facts which I have accepted, in my judgment, are corroborated by the annexures to Ms Hu's third affidavit of her divorce certificate from Mr Li and other financial records including translations, being annexures A to G to that affidavit. I have also inspected the originals of these documents which were tendered separately (Exhibits D, E, F and G) and I am satisfied on balance that they are authentic (see The Commissioner of the Australian Federal Police v Chen (No 2) unreported 30 September 2022).
5. While Ms Hu's evidence involves larger sums of money than those I have accepted as lawfully acquired funds, the balance of the funds is put forward as being part of the chain of events leading to the receipt by Ms Hu of substantial sums from Mr Chen from about September 2017 to February 2019 which were re-directed to reducing the mortgage on the Chatswood property. While the evidence supports a number of transactions passing between Ms Hu and Mr Chen, I am not satisfied that the alleged repayments emanating from Mr Chen were in fact either repayment of a loan advanced by Ms Hu in 2011 or the belated payment of rent on a room occupied by Mr Chen at the Chatswood property. As I have already said, I will return to these matters and expand upon them in my reasons.

The Cheltenham property

1. As I have made clear in my introductory remarks, Ms Hu claims that she has an interest in the whole of the net proceeds of sale of the Chatswood property. Her case relies upon a chain of circumstances commencing with the transfer of funds into Australia, utilised to buy the Cheltenham property, which was then sold, with the net proceeds being turned over into the Chatswood property, which like the Cheltenham property was acquired subject to a mortgage and which was eventually very substantially reduced by her own income earning efforts, payment of rent by Mr Chen and repayment of the loan by him. I am not satisfied on the balance of probabilities that the funds received from Mr Chen, if I may use shorthand by which I mean to incorporate the legal considerations I have referred arising under s 29 and where applicable s 94, were lawfully acquired funds. Nor am I satisfied that s 330(4)(a) has been engaged in respect of them from Ms Hu's standpoint. That is not to say, that the Commissioner has proved that they were either the proceeds or an instrument of crime. The Commissioner carries no onus of proof, and as I have sought to emphasise the onus of proving the negative lies squarely on Ms Hu.
2. The path of reasoning I have followed to calculate a 14 percent interest in the Chatswood property involves effectively tracing the lawfully acquired funds put into the Cheltenham property through its sale and into the Chatswood property disregarding all other sources of funds used for each purpose, being in the first instance bank loans and the funds used to repay those loans as required.
3. The purchase price for the Cheltenham property which was acquired by real property settlement on 11 September 2012 was $880,000. Of this $794,000 was provided by way of a loan agreement secured by a registered first mortgage advanced by WBC in the sum of $704,000. The difference between the purchase price and the mortgage funds was $176,000 which I am persuaded came from the $209,850 transferred from China that I have referred to already. From those funds, a balance of $33,850 was left. This may have gone into the payment of stamp duty, but even if it did, the payment of stamp duty represented a tax on the transaction and adds nothing to what might be Ms Hu's otherwise lawfully acquired interest in the Cheltenham property. Her contribution was equivalent to a 20 percent interest in the Cheltenham property.
4. As I have said, the use of the lawfully acquired funds toward the purchase of the Cheltenham property gave Ms Hu a 20 percent equity in that property in her own right. The Cheltenham property was sold on 11 May 2016. The sale price was $1,675,000. By then the net proceeds of sale exceeded the value of Ms Hu's 20 percent lawful interest as assessed by me. But the value of her original interest when sold on 11 May 2016 was $335,000.
5. I interpolate that the Cheltenham property was acquired by Ms Hu and Mr Chen as joint tenants. However, I am satisfied that Mr Chen did not make any contribution toward the 20 percent equity that I have identified by reference to Ms Hu's lawful funds. I am satisfied that notwithstanding the legal position in relation to title, Ms Hu was the sole contributor towards the net equity at acquisition and that there is no presumption of advancement in favour of Mr Chen. It follows that there was a resulting trust in respect of the 20 percent interest in the Cheltenham property in her favour. Although Ms Hu and Mr Chen were the mortgagors, Ms Hu was described as the primary applicant for the loan, and she provided details of employment with a Chinese Company. Mr Chen's occupational details were "home duties" and his previous occupation was that of cab driver (CB pp. 459 - 460). There was nothing in the evidence to suggest that the balance of the purchase price over and above the amount of the loan was provided by Mr Chen. From his gambling activities described below, he may have contributed to mortgage repayments.
6. The Chatswood property was acquired on 11 May 2016 by Ms Hu in her own name as the sole registered proprietor. She was the sole successful applicant for the loan from NAB which was approved, as I have said, in the sum of $1,852,000 secured by a registered first mortgage showing Ms Hu as the sole mortgagor. The purchase price of $2,315,000 was therefore financed by the NAB loan and a contribution by Ms Hu from the proceeds of the Cheltenham sale of $463,000. As I have said, her lawfully acquired 20 percent equity in the Cheltenham property as a proportion of the proceeds of its sale was $335,000. I am satisfied on the balance of probabilities that this amount was rolled over into the Chatswood property. But in this more valuable property her net interest referrable to those lawful funds was 14 percent.

Rejection of Ms Hu's claim for the whole of the net proceeds of the sale of the Chatswood property

1. I have rejected Ms Hu's claim of an interest equivalent to the whole of the net proceeds of the sale of the Chatswood property because I am not persuaded that she has discharged the burden of proof in relation to the matters required of her under subss 29(2)(c) and (d), or alternatively s 94, in respect of such an interest. Largely I have rejected all of the rest of her evidence over and above her evidence about the lawful source of the funds transferred from China, as evidence which is probably true. There are many aspects to my reasoning in this regard.
2. First, she has not satisfied me that the statements or representations made to WBC in her loan application to enable her to purchase the Cheltenham property are true and correct. At a basal level this means that I cannot be satisfied on the balance of probabilities that to the extent to which the Cheltenham property was acquired by use of those loan funds, representing 80 percent of the purchase price, that those funds themselves were not either the proceeds of crime or an instrument of a serious offence. The Commissioner pointed to the possibility that the loan funds represented the obtaining of a financial benefit by deception, which I am not satisfied on balance that Ms Hu has excluded. I am not suggesting that I am satisfied that she has committed a crime. That would be to reverse the onus of proof which lies upon her. I am simply not satisfied that she has proved that those funds were lawfully acquired by her.
3. In her application to WBC in March 2012, Ms Hu represented that she had been in full time employment since 1 February 2007 with a company in China named Beijing Tescide Science and Technology. She described her occupation as "engineer-industrial/method/safety/design" and gave her annual before tax income as $103,458. This is different from the information she provided to NAB when she applied for the loan for the Chatswood property. In that application, she identified her employer as Beijing Dong Feng Honda Co. Limited saying that she had been with them for 3 years and 7 months which would of course cover the period of the WBC application. She described her position with that company as Vice General Manager. Of interest, although she apparently had been resident in Australia since at least 2011, Ms Hu also gave her home address as being in Beijing. She asserted that her employment was full-time and had been living with parents/relatives. She also represented that she had a gross monthly income of $23,940, $14,212.95 net (CB p. 49). In addition, she represented that she enjoyed "total new rental income" of $6,711.50.
4. Quite apart from the inconsistency between the applications for finance with WBC and NAB, there is no contemporaneous documentary evidence of the actual receipt of the income she represented in each application. In particular, her tax returns which are summarised in various places in the Court Book and are conveniently set out at paragraph 20 of the Commissioner's closing submissions do not disclose either income from personal exertion or by way of rent generated by Australian properties until at least 30 June 2017. Her evidence was that she had been advised that the tax return was not necessary until the financial year ending 30 June 2017. I did not find her evidence in this regard satisfactory and there was no evidence from the accountant who apparently proffered that advice to corroborate Ms Hu's account.
5. The first personal income tax return filed on behalf of Ms Hu in Australia for the 2017 financial year showed earnings of $40,397 from TJIT's business activities in the gift shop. However, in its first year, TJIT is said to have made a loss of in excess of $40,000, in its second year a profit of $94,399 and in the third and final year a profit of only $7,205.
6. A Business Activity Statement for the first quarter of 2017 is in evidence (CB p. 2401). It showed sales including "GST - free sales" totalled $222,880 while purchases were in the sum of $232,984. However, the company did seem to be a genuine trading concern and its bank statement for the period 25 May 2017 to 23 June 2017 showed an opening balance of $127,000 with a closing balance of $231,000. Credits total $199,000 and debits, $94,000. From this I would infer that there was a certain amount of cash available. Financial records for the whole financial year ending 30 June 2017 (CB pp. 2395 - 2400) show the gross profit of $246,791 and the profit after tax of $107,302, which after taking account of the trading loss for the previous year left "retained profits" of $66,610. Moreover, the business of TJIT was sold by contract dated 15 May 2017 (Exhibit C). The original contract was written in the Mandarin language. An English translation was also tendered. The purchase price was an agreed sum of $95,000 in addition to "shop inventory" to be agreed after a stock take, to be carried out on 15 June 2017. Somewhat confusingly in the translation of paragraph 12 of the contract there was a reference to the buyer paying $75,000 on 22 May 2017 and the seller continuing the business. The better view is that the seller continued the business until the payment for the shop inventory after the issue of an invoice in that regard following the stocktake (Clause 6). All of this rather indicates that, as I have said, at least for a period TJIT was carrying on a legitimate business, making a profit, and I so find on the balance of probabilities.
7. This also indicates that Ms Hu would have had lawfully acquired funds available to her from which the ordinary expenses of daily life could be met. However, it is difficult to trace these funds directly into mortgage repayments. Having said that, the increase in her interest in the Chatswood property attributable to those specific payments would not be entirely lawful having regard to her failure to prove that neither the WBC loan nor the NAB loan were lawfully obtained in the first place in as much as misrepresentations appear to have been made to the respective bank to secure the loans.

Recapitulation of Ms Hu's case in relation to the mortgages

1. Ms Hu's evidence in relation to her repayment of the respective mortgages of the Cheltenham property and the Chatswood property may be summarised as follows (Affidavit 16 April 2022 (CB pp. 2514 - 2518)): 1. in respect of the Cheltenham property, she said she received between $30,000 and $40,000 per annum from her parents in China from 2012 to 2016. These payments ceased due to a breakdown in the relationship; and 2. monies obtained through a refinancing which exceeded $300,000. It is notable that she does not purport to rely on the receipt of any salary from either of the employments she represented to WBC and NAB respectively at the time of the application for each loan. Nor is there any contemporaneous evidence, such as bank statements, detailing these transfers from China to a bank account controlled by Ms Hu in Australia. There is no suggestion of any refinance of the Cheltenham property by way of any registered mortgage at any rate in the title documents appearing at tab 39 of the Exhibit to the Affidavit of Federal Agent Mark Hubert Voetterl sworn on 15 September 2022 (CB p. 441ff).
2. While I am prepared to accept that Ms Hu is of a wealthy or affluent family in business in China, in the absence of financial records recording the transfer of the proceeds from Ms Hu's parents to an account controlled by her here, I am not prepared to accept that those funds were received as she states or that they were used by her to acquire a greater interest in the Cheltenham property than I have calculated by reason of repayment of the loan, as I have previously said, even if the impression of taint from the misrepresentations apparently made to WBC could be dispelled. I reiterate it's not said that salary earned in China was used to repay the loan.
3. There is no evidence supporting refinancing. Given the circumstances of the original loan to acquire the Cheltenham property, one would need to see contemporaneous documentation before one could infer that the loan funds were lawfully acquired and applied to the stated purpose. But if this involved paying down the WBC loan, which is the necessary implication, a question for Ms Hu to dispel would remain about the means by which the original loan was obtained. But perhaps more importantly, the assertion of refinancing simply begs the question: How was the refinanced loan repaid? This question is not answered at all and certainly not in a manner helpful to Mr Hu's case.
4. Ms Hu's evidence concerning the repayments of the NAB mortgage over the Chatswood property may be summarised as follows: 1. income generated by TJIT's business. I have already evaluated this evidence to some extent above. Ms Hu states that she had leant TJIT "approximately $200,000 in February 2015" following the refinance of the Cheltenham property. There is no attempt to reconcile this amount with the amount already referred to; 2. a gift from her brother, Bai Shun Hu and her sister-in-law, Shu Zhen Li, paid in two instalments on 17 and 20 November 2017 totalling $119,965; 3. the late payment of rent by Mr Chen in two tranches totalling $30,000 in September 2018; and 4. the repayment by Mr Chen of the asserted loan to him through the NAB offset account.
5. As stated, I have already referred to the unsatisfactory nature of the evidence that profits from the business of TJIT were used to repay the NAB loan on the Chatswood property. So far as the suggestion of a loan of $200,000 in February 2015 is concerned, the financial records of TJIT to which I have already referred (CB pp. 2395 - 2400) do make reference in the balance sheet as at 30 June 2017 to "loan from owner". Regrettably there are no other financial records available. The balance sheet for 2016 refers to a loan from the owner in the sum of $42,394. The only asset for that year is cash at bank in the sum of $1,703. It is the deduction of the cash from the loan which seems to have produced the trading loss of $40,692, notwithstanding gross sales of slightly in excess of $750,000.
6. The "loan from owner" seems to have been extended in the 2016 financial year, rather than in February 2015. It also appears from the same balance sheet that a further loan from owner under the heading "non-current liabilities" in the sum of $142,924 was made in the 2017 financial year. The aggregate of the two loans, I suppose, is near enough to that figure of "approximately $200,000" mentioned by Ms Hu. However, the lion's share seems to have been advanced during the 2017 financial year and there is absolutely no evidence about the source of those funds. I would not infer that they were produced by TJIT's business activities. Were that so they would hardly be styled "loan from owner". In the absence of evidence affirmatively establishing on the probabilities that those funds were innocently acquired, this evidence hardly weighs in Ms Hu's favour. I should also say as the better documented evidence seems to be that the larger loan was advanced in 2017, it could hardly be referrable to the refinancing of the Cheltenham property in February 2015. If there was a refinancing of that property, a matter about which I am not persuaded, the probabilities would suggest this did not occur twice, and one and the same refinancing transaction is being referred to.
7. The transfers from Ms Hu's brother and sister-in-law appear to be confirmed by entries in her personal CBA bank account (CB p. 2542). On 17 November, as she states, her brother transferred $59,982 and on 20 November, her sister-in-law transferred the same amount. The same record (CB p. 2543) shows that on 22 November 2017, from the same account, the sum of $120,000 was transferred to an account ending in the numbers 9351. That account is not otherwise identified. It is neither the NAB offset account nor the home loan account. The former, as I have said, ends in 8563 and the latter in 9489. The November statement for the offset account is reproduced at CB pp. 542 - 544. There is no corresponding credit of $120,000 for 22 November 2017. The home loan account statement for November 2017 is reproduced at CB p. 508. It does not record any corresponding transfer. While I am satisfied that the transfers from her brother and sister-in-law were made and for a lawful, purpose, I am not satisfied on the balance of probabilities that those funds were directed towards reducing the outstanding balance on the home loan on the Chatswood property, thereby increasing Ms Hu's interest.
8. It is convenient here to say that the loan application to NAB was supported by a letter, in English, not Mandarin, dated 1 March 2016 under the hand of Shuzhen Li describing himself as HR Manager and purporting to confirm the details about Ms Hu's earnings included in the loan application (Exhibit MB-2; tab 16.6, CB pp. 1398 - 1401) and what purports to be a pay slip for Ms Hu. That Ms Hu does not rely upon her "employment" to justify loan repayments is of itself perplexing and casts doubt upon the authenticity of these documents, which admittedly form part of the Commissioner's case, not Ms Hu's case. There is also a market appraisal by a real estate agent dated 10 March 2016 assessing market rent for the Cheltenham property as in the range of $1,550 to $1,600 per week (Tab 16.10 Exhibit MV2 CB p. 1408). The inference is that this document was provided to NAB in support of the income representations to justify serviceability of the loan sought by Ms Hu. It goes without saying that the Cheltenham property was not let on the open market and was never going to be let on the open market because it was to be sold and at least a large part of the net proceeds used to purchase the Chatswood property.
9. Ms Hu entirely resiled from the proposition that her earnings from her personal exertion with the Chinese company and rental income were to be used to service the NAB loan. Rather, she put forward the contention that she was paid an allowance to cover her living expenses while resident in Sydney. This is of course entirely inconsistent with what the bank was told. Moreover, there has been no attempt to justify receipt of a regular or ongoing payment of an allowance from China by reference to bank records. I am not satisfied that Ms Hu was in receipt of any such regular allowance.

Foreign witnesses

1. To corroborate Ms Hu's evidence about being paid an allowance to cover her living expenses while resident in Australia, she proposed to read the affidavit of Ying Xue Chen affirmed on 20 April 2022 (CB, tab 23, p. 2560) and of Shuzhen Li affirmed on 10 August 2022 (CB, tab 26, p. 2587ff). The latter is Ms Hu's sister-in-law to whom reference has already been made. Both witnesses were required for cross-examination, and it was proposed that their evidence would be given by audio visual link.
2. I raised with counsel the issues dealt with by Basten AJ in Wang Chunfeng v Law Society of New South Wales [2022] NSWSC 986 ("Wang"): see also, in the federal sphere, Joyce v Sunland Waterfront (BVI) Limited (2011) 195 FCR 213; [2011] FCAFC 95; Auken Animal Husbandry Pty Ltd v 3RD Solution Investment Pty Ltd [2020] FCA 1153 ("Auken Animal Husbandry"); and Liu v Option Funds Management Limited [2022] FCA 444 ("Liu v Option Funds"). These Federal Court cases arise under s 47A(1) Federal Court of Australia Act 1976 (Cth). Obviously, the present proceedings involve the exercise of this Court's federal jurisdiction. However, the source of the power to take evidence by audio visual link is s 5B Evidence (Audio and Audio Visual Links) Act 1998 (NSW). There is no doubt therefore that I had power to direct that the witnesses give evidence by audio visual link. The issue relates rather to the proper exercise of that power in respect of witnesses overseas.
3. In Auken Animal Husbandry and in Liu v Option Funds there was expert evidence led in each case to somewhat differing effect as to the content of relevant Chinese law being the Civil Procedure Law of the Peoples Republic of China ("PRC") (1991). The evidence before Stewart J in the Auken Animal Husbandry case established that Article 263 of the Chinese law prohibited a foreign agency or individual from undertaking the investigation and collection of evidence in the PRC without the consent of the relevant governmental authority. There was evidence that the relevant consent or approval had been given and his Honour duly made an AVL order.
4. The expert evidence accepted by Wigney J in Liu v Option Funds focused on Article 284 of the Chinese law, which was in substantially the same terms (at least in translation) as Article 263 considered by Stewart J. It too required the consent of competent government authorities for a foreign agency or individual to carry out an investigation or collect evidence. However, the expert evidence before Wigney J was to the effect that taking evidence by AVL "would not be considered to constitute 'evidence collection' for the purpose of Article 284": at [34]. Wigney J's decision was not drawn to my attention at the time I ruled on this question at the hearing.
5. However, I have not had the benefit of any expert evidence in relation to the meaning of any applicable Chinese law. Moreover, as Basten AJ pointed out in Wang, the considerations informing the legal effect of a law of the Commonwealth Parliament may well be different from those informing the legal effect and operation of the law of a "sub-national legislature" like the Parliament of New South Wales: Wang at [28].
6. As Basten AJ was dealing with an application to adjourn the hearing, his Honour did not make a final ruling either way on the effect of the absence of consent or approval upon the exercise of the Court's power to take evidence by AVL from the PRC. In Wang steps were being taking to obtain the necessary consent or approval.
7. When I raised these considerations with the parties, Mr Norrie of Counsel, appearing for Ms Hu and TJIT argued that I should permit the evidence to be taken by AVL under s 5B regardless of the terms of the Chinese law about which I was only informed by reference to the text of Stewart J's decision in Auken Animal Husbandry. Dr O'Mahoney of counsel for the Commissioner joined issue. I indicated I was rather of the view that given my understanding of the observations of Basten AJ in Wang about the differences between a Federal statute and a State statute that steps should be taken to obtain consent and that I would not admit the evidence at that stage. It was obvious that the matter would not complete on the allocated two days and that an adjournment would be necessary.
8. When the hearing resumed before me, the affidavit of Ms Hu's solicitor, Mr Shu Bo Huang was read documenting steps taken in the meantime to attempt to obtain the relevant approval or consent. Some efforts were made through contact with the Consul-General in Sydney to obtain the necessary consent. It was obvious to me that, at best, the information forthcoming from the Consul-General was inconclusive and the matter was not advanced. I understood the affidavit was being read to explain why the application to take the evidence of the foreign witnesses by AVL was not being renewed in the light of my previous ruling.
9. Obviously, I cannot take into account evidence which has not been read. But given the unusual circumstances of the case, I would not regard the failure to read the affidavits, or the absence of greater efforts to obtain permission to take the evidence from the PRC by AVL as founding a Jones v Dunkel (1959) 101 CLR 298 inference that the evidence of the witnesses would not advance Ms Hu's case. However, as I have said, even were I to take Ms Hu's evidence at face value that she received an allowance for a period of time to cover her living expenses in Sydney, which was not income by personal exertion, it does not follow that that evidence alone demonstrates that those funds, lawfully obtained from China were used to repay the mortgage on either property with the result that her lawfully acquired interest was thereby increased proportionately. Nor does it overcome the difficulty that misrepresentations were made to both WBC and NAB to obtain the respective loans. Evidence which corroborated Ms Hu's account that she was paid a living allowance gratuitously would not materially advance her case unless it consisted of accurate evidence demonstrating on the probabilities that the allowance covered, and was used for, the monthly repayment for the loan on the Chatswood property of $8,944.24, or $107,930.88 pa.

Mr Chen's liability for rent and repayment of a loan

Mr Chen's gambling

1. It is to be recalled that Ms Hu attributed part of her ability to repay the mortgage on the Chatswood property to the payment to her by Mr Chen of rent on the accommodation she provided him at the Chatswood property and the repayment of a loan said to have been made by her to him in an amount or amounts totalling around $1 million. Before evaluating this evidence in detail it is relevant to provide context by reference to the evidence concerning Mr Chen's gambling. This evidence consists of documents attached to the affidavits of Federal Agent Voetterl and the evidence of Ms Kiah Hill, including her affidavit affirmed on 6 September 2022. Ms Hill was an officer of the Star Casino working in investigations and security. There is no real dispute about what that evidence demonstrates, and I will summarise it. However, an attempt was made to prove that whatever may be made of the pattern of Mr Chen's gambling at various casinos, the repayment of the alleged loan resulted from a particular period of gambling which I was asked to infer was completely above board in the sense that the stakes gambled by Mr Chen were lawfully acquired as was, therefore, his winnings. I will deal with the general pattern first.
2. It will be recalled that in the application WBC loan, Mr Chen gave his current occupation as "home duties" and his previous occupation as a "full-time cab driver". His tax returns declared relatively modest earnings for each of the 2013, 2014, 2019, 2020 and 2021 financial years. Returns were said not to be necessary for the 2015, 2016, 2017 and 2018 financial years. Of those years where income was declared, the greatest income was for the financial year ending 30 June 2021 of $28,812. Notwithstanding these apparently objective facts, in cross-examination Mr Chen accepted that since he had been in Australia, he had been "responsible for tens and tens of millions of dollars of gaming activity" at various casinos (155.8 - .11T).
3. Casino records disclosed the following activity attributable to Mr Chen, which he accepted were true: 1. The Star Casino, Sydney: 1. Between 6 April 2012 and 19 September 2017, Mr Chen put $3,331,811.16 through poker machines and made a net loss of ($264,666.26); 2. Between 5 September 2010 and 19 September 2017, Mr Chen bet $135,286,635 at gaming tables, winning $132,563,844 for a net loss of ($2,722,791) (Ms Hill's affidavit 6 September 2022, Exhibit KH-1, Tab 7, p. 241); 3. Between 9 October 2014 and 29 February 2022, a series of gambling transactions each involving more than $10,000 in Mr Chen's name totalled $7,358,200 in credits and $3,976,554.92 in debits; 4. Between 4 May 2017 and 27 February 2020, Mr Chen's cash account, referred to as a "front money account", recorded deposits totalling $44,083,311.58 and withdrawals in the same amount. The front money account made relevant transfers to Mr Chen's CBA account of some significance in relation to the argument that payments made by him to the credit of Ms Hu in the period December 2018 and March 2019 were loan repayments. 1. Melbourne Crown Casino: the evidence indicated that Mr Chen had gambled at this establishment in 2011, 2013, 2015, 2019 and 2020. The total amount gambled was $7,991,035. From this activity he made a net loss of ($14,830). 2. Brisbane Treasury Casino: Mr Chen gamed at this establishment in August 2015 and again in September 2017, making losses of $3,828 and $10,576.52 respectively.
4. Mr Chen also accepted that he was found to have been in possession of luxury items of personal property, which were not explained by the income in his tax returns (161.14 - .21T). These items included a Roger Dubuis watch valued at $100,000; a gold bullion bar; a Patek Phillipe watch valued at $104,989; and cash in the sum of $15,000 in $100 notes all seized by police when a search warrant was executed around the time of his arrest. Additionally, he appeared to have the use of a Maserati motor vehicle and the Mercedes GLE, the subject of these proceedings.
5. Notwithstanding these valuable personal assets, it is clear from the aforegoing analysis that Mr Chen's extensive gambling was on balance largely unsuccessful. Given the magnitude of the sums involved, it must be said, from undisclosed sources, this does not gainsay the prospect that he was able to syphon off even, what most people would regard as, large sums of money from time to time to enable him to acquire something of value or to direct money into Ms Hu's offset account for payment down of the NAB mortgage. Given that the Chatswood property was in Ms Hu's name alone and they are said to have divorced, it is difficult to understand why. The fact of divorce is supported by the existence of a decree nisi and also by the social circumstance that Mr Chen is said to have formed a new attachment with whom he has had children.
6. As I have said already, Mr Chen was convicted of the illegal importation of cigarettes in May 2020 contrary to the provisions of the Customs Act. The consignment was said to have a street value of at least $15,000,000 (CB 3; tab 15; p. 1963) and involved the attempt to evade customs duties of approximately $9.5 million. It should also be pointed out that there is evidence giving rise to a strong suspicion that Mr Chen may be implicated in five previous importations (CB pp. 1013 - 1023) between 12 December 2019 and 23 February 2022. These importations were shown to employ the same methodology as the May 2020 importation for which Mr Chen pleaded guilty. When asked about these matters, he invoked the privilege against self-incrimination, as he did with other questions in relation to the pattern of his gambling activity. Obviously, I draw no adverse inference against him from that circumstance. I was of the opinion that there were reasonable grounds for his objection. However, it means the evidence giving rise to suspicions about the source of the funds used for gambling is unexplained by exculpatory evidence. I am conscious that the evidence of other consignments postdates the chronology of large payments to the offset account. I am not satisfied on the balance of probabilities that there is an innocent explanation for Mr Chen's unexplained wealth.
7. As I have said, Mr Chen was unable to give evidence that the, frankly, huge amounts gambled in his name were not the proceeds of crime, an instrument of a serious criminal offence or otherwise unlawfully obtained funds. The pattern of gambling has about it, to say the least, the colour or feel of extensive money laundering. That real possibility, which to my mind appears from the objective evidence, has not been dispelled on the balance of probabilities by any persuasive contrary evidence.

Proffered innocent explanations

1. The "rental agreement" in respect of the Chatswood property and the "loan agreement" between Ms Hu and Mr Chen are proffered as innocent explanations for sizeable transfers of lump sums from Mr Chen's accounts to Ms Hu's offset account and the NAB loan account between late 2017 and 4 February 2019. While it was not articulated this way, there may have been an attempt by Ms Hu to invoke s 330(4)(a). Part of the argument is that whatever one may make of the general pattern of Mr Chen's gambling, these posited agreements provide an innocent explanation for the receipt of the funds by Ms Hu. Indeed, the evidence of Mr Chen was that the gambling activities which produced these payments were separate from the overall pattern of his gambling. That is, it is put that the funds used for the gambling were themselves lawfully obtained.
2. The relevant movement of funds relevant to this issue was summarised in the closing submissions on behalf of the Commissioner (p. 13 [22]) as follows: 1. 12 September 2017 - $300,000 deposited in the Offset Account with a description indicating a transfer from the Star Pty Ltd (CB p. 542). 2. Two transfers on 2 and 5 November 2018 in the respective sums of $10,000 and $20,000, each with the description "rent" "Bob Chen" (CB p. 554). 3. 11 December 2018 - $253,336.80 deposited in Mr Chen's CBA account from the Star P/L (CB p. 435). 4. 13 December 2018 - $200,000 deposited into Mr Chen's CBA account from the Star P/L (CB p. 435). 5. 19 December 2018 - $103,680 deposited into Mr Chen's CBA account from the Star P/L (CB p. 435). 6. 27 December 2018 - $370,000 deposited into the Offset Account transferred from Mr Chen's CBA Account (CB p. 556). An international money transfer form utilised to authorise this transfer described the purpose of the payment as "home loan" (CB p. 318). 8. 30 January 2019 - $1,179,330 deposited into Mr Chen's CBA account from Crown, Melbourne (CB p. 347); (CB p. 413) cheque deposit slip (CB p. 315) record slip (CB p. 317). 9. 4 February 2019 - $1,000,000 transferred from Mr Chen's CBA account to the offset account (CB p. 558). 10. 18 February 2019 - $1,280,000 transferred from the Star to Mr Chen's CBA account (CB p. 437). 11. 4 March 2019 - $200,000 transferred from the Star to Mr Chen's CBA account (CB p. 437). 12. 29 July 2019 - $1,340,000 transferred in four transactions from the Offset Account to the home loan account (CB p. 563).
3. It's quite clear to me that, while there may be no necessary or clear correlation between the large funds received from Mr Chen and repayment of the Chatswood home loan, the large balances in the offset account controlled by Ms Hu were attributable to Mr Chen's gambling activities, but not necessarily exclusively so. For instance, after the sale of TJIT's business $200,000 was deposited into the offset account, bringing its credit balance to a total of $236,758.36. After the 12 September 2017 payment that balance rose to $513,483.08 from which funds the regular monthly payments on the loan account were drawn. On 11 September 2017, Ms Hu re-transferred $300,000 to Mr Chen's Star account (for gambling purposes according to their evidence) reducing the balance to $159,762.86. On 12 December 2017, $100,000 was transferred to another account, not otherwise identified. The offset account was run down to about $12,252.18 by 29 October 2018 until the other large deposits from Mr Chen between then and February 2019 were made. By 12 October 2019, there was an available redraw on the home loan account of in excess of $1 million which in my judgment must have been largely the result of Mr Chen's transfer of the results of syphoned off funds from his gambling activities. At least I am not persuaded on the balance of probabilities that it was not.

Evidence about the rental agreement

1. This then is the background to the "innocent" explanation proffered by Ms Hu and Mr Chen. Although not strictly in chronological order, it is convenient to start with their evidence about the rental agreement. It is the evidence of both that they separated in 2016, and they divorced in November 2019 (CB pp. 2344 - 5). Notwithstanding the ongoing financial relationship between them as evidenced by the transactions I have referred to above, I am prepared to accept that they separated and divorced. For what it's worth, I accept Mr Chen's evidence that he formed a new relationship with another woman with whom he had children. However, I am not of the view that the fact of their divorce lends credibility to the reliability of their evidence about a rental agreement and a loan agreement.
2. Ms Hu's evidence was that after their separation, she and Mr Chen continued to reside under the same roof. Her evidence was that she did so on the basis that he would pay her rent, but she was unable to give any convincing evidence about the amount agreed or the due date for payment. This should have been a simple enough matter as it hardly involved a complex transaction. She was unable to give accurate evidence about the term of the rental agreement. It seems it may have been on a week-to-week basis, but as I have said, she was completely unable to give any persuasive evidence about the amount of rent agreed (78.39 - .48T) and in the end said it was of no fixed amount, but when Mr Chen had money he would give it to her (79.5T). One might say given the amount of money Mr Chen was gambling and his capacity to syphon off a portion of his winnings from time to time for personal expenditure, he ought to have been in the position to pay whatever rent he was required to pay on an ongoing basis.
3. Mr Chen's evidence does not advance the matter. In his affidavit of 16 April 2022, (CB tab 22, p. 2549 [26] - [29]), he states that he entered into an agreement to rent a room from Ms Hu. There was no discussion about the rent he would pay. He said he told Ms Hu, "I want to rent the spare room from you. I can't pay you rent now, but when I have enough money, I will pay you the rent". On his version he honoured this promise by the payments in November 2018. In his affidavit of 14 August 2022, (CB tab 28, p. 2610 [13]) he merely states that the November 2018 payments came from "his casino winnings at Star City Casino". Frankly, this does not help given what I have said about my impressions of the evidence concerning Mr Chen's gambling.
4. I am not satisfied on the balance of probabilities that there was any rental agreement between Ms Hu and Mr Chen. If they had a loose arrangement that Mr Chen would pay something when he felt he could, I am not persuaded that this constitutes a valid rental agreement, which on balance would prove the amount of $30,000 in Ms Hu's hands legitimately and innocently acquired.
5. I should say that in a belated attempt to throw a cloak of legitimacy over the "rental payments", Ms Hu sought to amend her tax return for the financial year ending 30 June 2019 by declaring the amount of $30,000 as rental income (79.30 - .33T, Exhibit A). This was no more than an attempt at self-corroboration. Her explanation that she was not aware that the income had to be declared is to my mind not credible. In truth, the amended tax return was a document prepared for the purpose of the litigation in an attempt to plug a gap in her account that had become obvious through the process of cross-examination. I reject her evidence about a binding rental agreement.
6. A valid rental agreement would not have removed the taint of illegality from those funds in Ms Hu's hands. She has not proved that what she knew of Mr Chen's circumstances would not raise a reasonable suspicion that the funds paid were the proceeds of crime: s 330(4)(a).

The $1 million loan

1. The evidence that the larger payments from 12 September 2017 to 29 July 2019 were the repayment of a $1 million loan plus interest is simply not credible and I reject it.
2. There is evidence of the transfer of some funds in four payments by way of bank transfer from Ms Hu to Mr Chen on 17 January 2011, 11 February 2011, 24 February 2011 and 13 April 2011 totalling RMB $3,700,000, which on the only evidence available to me is said to amount to AUD $740,000. Ms Hu also claims to have advanced Mr Chen the equivalent of $80,000 in cash in 2011 (Affidavit 16 April 2022 [15] - [16], Annexure E CB pp. 2529 and 2536). As I have said, I have accepted that the bank records from PRC are authentic business records and that the translation is accurate.
3. I remind myself that according to Ms Hu's evidence, she and Mr Chen met in 2010 and married on 18 February 2011 in China (Affidavit 20 January 2022, [6] and [9], Annexure B, CB p. 2343).
4. It is difficult to regard the transfers on their face as a loan. There are four transfers of different amounts over a period of 3 months covering the date of their marriage. There is no advance of a single amount which on the basis of Ms Hu's Chinese financial records could have been done. While I accept that within a marriage even large financial transactions may be put into effect with a great degree of informality, transactions having those characteristics for that reason may not be entered into with the requisite mutual intention to create legal relations. And the onus is upon Ms Hu to prove that these transactions evidence a binding loan agreement. Like her evidence about the rental arrangement, Ms Hu's evidence about the loan agreement was most imprecise in terms of its exact amount, its terms, the interest rate involved and the due date for repayment. Again, the absence of all of these details may be explained by the informality of an intrafamilial arrangement. I repeat those matters suggest that the arrangement was intended to be informal and not legally binding.
5. However, the real difficulty I have in accepting that these transfers were made under a binding loan agreement is that I do not accept the version given by each of Ms Hu and Mr Chen about the purpose of the loan agreement. In her affidavit of 20 January 2022 (CB p. 2334 [75]), Ms Hu stated that Mr Chen sought a loan from her to finance a business in the cultivation and supply of rare orchid species for formal events in Beijing. He proposed a term of 3 years with an annual interest rate of 15 percent.
6. Mr Chen gave evidence to the same general effect in his affidavit of 16 April 2022 (CB p. 2546 [6], [9]). But on his version, there was no discussion about the term of the loan. Mr Chen went on to say (Affidavit [10] p. 2547) that rather than using the money for the business, he gambled it away in either Beijing or Macau and lost everything. He did not tell Ms Hu about this, but when asked promised he would repay the money if given enough time.
7. There is no objective or independent evidence at all that Mr Chen was ever involved in any rare orchid horticultural enterprise. In his evidence in his compulsory examination (CB pp. 1173 - 1176), he said that Ms Hu lent him the money for the purpose of his gambling activities. There was no mention whatsoever in this evidence at that time of any horticultural enterprise. His evidence then was that the advances were made in cash. He said "that there were no bank transfer in China [sic]. We all dealt with cash" (CB p. 1175, line 10). He said that the $1 million in cash was advanced "at different times". He said that Ms Hu was able to fund the loan because her family was wealthy and her ex-husband "also gave her a lot of money". His evidence was: "At first I used $100,000 or $200,000 or $300,000. If I won money I will pay her back. If I lost money I would come back to her to borrow more. There were several times".
8. In her evidence at the examination, Ms Hu stated that Mr Chen was involved in a horticultural business in China before they migrated to Australia in 2011, but she did not give evidence of making any loan. She said they moved to Australia because the business failed due to the cancellation of contracts following a governmental anticorruption crackdown (CB pp. 1096 - 1097).
9. Mr Chen's account at the examination is just completely at odds with the business loan version given by each of him and Ms Hu in their affidavits. Ms Hu while mentioning the failed horticultural venture says nothing in her examination about the loan. Indeed, on her account the failure of the business in 2011, the year in which the loan was said to be made, I repeat, the business failed due to the cancellation of orders leading to their decision to relocate to Australia.
10. Mr Chen's account in his affidavit that he told Ms Hu he wanted the money for his business, but then gambled it away is to my mind not credible. In some respects, the account he gave at his examination is somewhat more plausible. That is that Ms Hu was comparatively wealthy and that he asked her for money from time to time to pursue his gambling activities which she provided in cash, not by bank transfer in amounts he could not really recall, which in the end totalled in the vicinity of the equivalent of AUD1 million. To my mind, none of that sounds like a binding legal loan agreement.
11. I am not satisfied on the balance of probabilities that there was any loan agreement. Even had there been such an agreement Ms Hu has not proved that the "repayments" from September 2017 to February 2019 were not the proceeds of crime, or that the circumstances did not give rise to a reasonable suspicion about that.
12. Ms Hu sought to circumvent this somewhat obvious issue through evidence given by Mr Chen that the September 2017 payment came from winnings produced by funds obtained when he pawned one of his expensive watches. The difficulty with that account is not only the huge amounts being gambled from unexplained sources, but also the account that he pawned his Patek Phillipe watch (CB 3, tab 22, p. 2548) is contradicted by contemporaneous documentary evidence demonstrating that the pawning of the watch occurred between 6 July 2018 and 4 December 2019 (CB 3, tab 18, pp. 223 - 4). Quite apart from anything else, given that the watch was purchased from syphoned off winnings as part of his general gambling activities, I am not satisfied that the watch itself was not the proceeds of crime.
13. The 11 December to 18 February 2019 payments were also said to be the profit from non-standard gambling. Initially in his affidavit of 23 December 2020 (CB vol 3, tab 18 [16]), Mr Chen simply said the source of those funds was his gambling at the Star and Crown casinos. The latter is a reference to Crown Casino, Melbourne. In his affidavit of 16 April 2022 (CB vol 3, tab 22, p. 2548 [18]), Mr Chen claimed that the $370,000 payment was a result of winnings playing baccarat at Star City Casino. The source of the monies gambled is not stated.
14. Mr Chen said that the other payments resulted from playing a form of poker known as Omaha hold'em in January 2019 with a group of Chinese tourists at a VIP room at Crown Casino in Melbourne. He said he borrowed $200,000 from a junket operator, winning the sum of $1,179,330 over a period of 3 to 5 days. I am asked to draw the inference that this was separate from his usual gambling activities and represented legitimate, as opposed to tainted winnings from which he repaid the loan. The immediate difficulty, of course, is I have not accepted there was any loan to be repaid. Moreover, he changed his story again in his affidavit of 8 August 2022. In that affidavit, Mr Chen asserted that the Omaha hold'em tournament was at both Star City in Sydney and Crown Casino in Melbourne. For the first time he suggested that that particular game is played between casino patrons with winnings coming from the other players rather than the casino. His evidence was that the casino applied an hourly charge to each player for the use of its facilities.
15. Notwithstanding Ms Hill's senior position in security and investigations at Star City, she could not confirm that Omaha hold'em was a game played at Star Casino (204.25T). She was unfamiliar with the rules of the game, other than being aware it was a form of poker (205.1 - .10T). It was not, however, put to her that no records were kept by the casino of gambling transactions in Omaha hold'em or other card games and that the casino simply charged a fee for the use of its facilities.
16. I find it hard to accept, given the heavy regulation of the casino industry in Australia, that a licensed casino would knowingly allow gambling on its premises which it did not regulate or record. I am not suggesting for a moment that Casino operators run their businesses in a manner which is beyond reproach. Even so.
17. When confronted in cross-examination about the differences in his accounts in his affidavits about the Omaha hold'em tournament, Mr Chen acknowledged that they were completely different (164.29 - .31T).
18. To make matters more difficult to follow, Mr Chen changed his story again in a further affidavit affirmed on 14 August 2022 (CB vol 3, tab 28). He said that some of the winnings from which he paid the $370,000 came from Omaha hold'em rather than baccarat, of which records are presumably kept. He also said that he now recalled that the group of Chinese Omaha hold'em players came to Australia in early December 2018, not January 2019, although it seemed that the tournament extended from early December 2018 to late January 2019. He travelled to Melbourne with the Chinese players in a private jet. Moreover, he didn't borrow money from a junket operator, rather he borrowed casino chips in Sydney in December 2018.
19. This chopping and changing makes it impossible for me to accept Mr Chen's evidence about the "innocent" source of the funds paid into the offset account for Ms Hu. In any event, I repeat I have rejected the evidence that there was a legally binding loan agreement.

The Mercedes

1. As I have said, I have rejected the claim to exclude the Mercedes from the restraining orders or forfeiture. I accept that the Mercedes was purchased in May 2017 by TJIT. A deposit of $30,000 was paid in May 2017 and the balance was financed through a loan with Mercedes Benz Financial Services. The loan was paid out in July 2020 by payment of the balloon on the commercial loan in the sum of $56,748.13. Contrary to the Commissioner's argument, I am satisfied on the balance of probabilities that the deposit was paid from TJIT's account and that the monthly finance payments were likewise financed from TJIT's business. I accept that the BAS statement for the quarter ending 31 March 2017 shows a net loss of $9,104. However, notwithstanding Ms Hu's difficulty with recalling the details of the financial position of TJIT from 2017 (105.42T - 106.20T), I am satisfied that it was a legitimate business operating as a going concern. The figures I have referred to above justify the conclusion that it was not insolvent. Notwithstanding fluctuations in cash flows, small business operators become accustomed to "juggling".
2. Notwithstanding the criticisms made by the Commissioner of a lack of an explanation of TJIT's full financial position, I am satisfied that the evidence demonstrates it was genuinely in business and it is hardly to be expected that every penny could be accounted for by the business operator some years later.
3. Given that I accept that TJIT's business was sold as a going concern, it is hardly surprising that Ms Hu has been unable to provide contemporaneous records in the nature of customer lists, supplier lists, invoices and the like, even assuming that all documents of that type would be part and parcel of the normal records kept by the small business of a similar type.
4. Rather, my difficulty with accepting on the balance of probabilities that the Mercedes was innocently acquired property, relates to two matters in particular. First, that the final payment of $56,748.13 made on 20 July 2020 did not come from the bank account of TJIT which, I accept by then was not trading. Rather, it came from the offset account (CB p. 2499). Specifically, the bulk of that money viz $50,000 was redrawn from the NAB home loan account. As I have sought to demonstrate already, it appears that the home loan account was in a position to facilitate substantial "redraws" because of the transfer into it of the proceeds of Mr Chen's gambling activity. I am satisfied that his gambling activity is effectively the source of that specific payment out of the balloon. That substantial payment towards the acquisition of the Mercedes, its original purchase price was in the vicinity of $111,000, was significant. I am not satisfied that Ms Hu and TJIT have proven that the acquisition of the property in the Mercedes is not the proceeds of unlawful activity, not the proceeds of an indictable offence, nor an instrument of any serious offence, nor an instrument of unlawful activity and was lawfully acquired.
5. The second reason is that the evidence establishes that Mr Chen used the Mercedes in or in connection with the commission of the serious offence of which he was convicted: s 329(2)(a) of the Act.
6. The provisions of s 329 are set out at paragraph [15] above. Inter alia, for the purpose of s 29, property is an instrument of an offence if the property is used in, or in connection with the commission of the offence.
7. In AFP v Hart (at [10]) the plurality stated: "… use in or in connection with an act or omission that constituted a relevant offence is a broad conception involving practical considerations which do not readily admit of detailed exposition in the abstract. The conception requires neither a causal link between the property and the offence nor that the property was necessary for the commission of the offence or made a unique contribution to the commission of the offence. Implicit in the expression of the condition is that the use can be by any person. Implicit also is that the degree of use need not be proportionate to the forfeiture that has occurred."
8. The evidence in the present case established that at the time of his arrest, Mr Chen was driving the Mercedes for the purpose of maintaining surveillance over what he believed to be the consignment of the illegally imported cigarettes in order that he could take possession of the contraband when the container was delivered to its destination.
9. The agreed facts for Mr Chen's sentencing proceedings are in evidence (CB vol 2, p. 129ff). From this account, Australian Border Force surveillance operatives observed Mr Chen as the driver and sole occupant of the Mercedes in the vicinity of Hutchison Wharf from where a contractor picked up the contraband container on 19 May 2020. He apparently drove in the Mercedes following the container to its destination at Strathfield South. In the meantime, the container had been moved from one truck to another at premises in Revesby. Mr Chen was seen on foot speaking on a mobile phone on a number of occasions in the vicinity of the consignment's destination. The Mercedes was parked near where he was ultimately arrested. It was obviously necessary for him to use a vehicle to keep the consignment under observation to enable possession to be taken of it when it reached its final destination. Taking a broad practical approach, a vehicle was necessary for this purpose and the vehicle in fact used in connection with the offence was the Mercedes.
10. I am not satisfied that Ms Hu and TJIT have discharged the onus of proof in respect of the Mercedes.

The bail security

1. Bail security was lodged by Ms Hu on 29 May 2020 with the Downing Centre Local Court (CB vol 1, p. 647). It was withdrawn from the offset account on that day (CB vol 1, p. 652). However, more significantly that amount was redrawn from the home loan account on the same day in four transactions, totalling $500,000. To my mind, Ms Hu's ability to draw down that sum at that time from the home loan account is directly referable to the transfers made by Mr Chen to the offset account which were used by Ms Hu to pay down the home loan account at the end of 2018 and the beginning of 2019. In this sense, the bail security is directly related to the proceeds of Mr Chen's gambling activity (CB vol 1, p. 651).
2. I am not satisfied that Ms Hu and TJIT have discharged their onus of proving that the bail security is not the proceeds of unlawful activity, not the proceeds of an indictable offence, not an instrument of any serious offence, not an instrument of unlawful activity and was lawfully acquired: ss 29 and 94 of the Act.

The offset account

1. The offset account to which reference has been made repeatedly was opened on 9 March 2016 (CB 1, p. 519). There is no doubt that the account is solely in Ms Hu's name and I am satisfied that she alone was the party able to operate it. I would infer that the account was opened as part of the arrangements between her and the NAB in relation to the Chatswood mortgage.
2. I accept that the total credits paid into the offset account between 9 March 2016 and 11 May 2020, just before Mr Chen was arrested are in the sum of $2,768,278.09. This is a very large sum given Ms Hu's tax records, and those of Mr Chen for that matter. There is no doubt that this sum includes the deposits from Mr Chen totalling around $1.7 million between 12 September 2017 and 4 February 2019 used to pay down in a substantial way the Chatswood mortgage. Moreover, as the Commissioner points out the repayments on that mortgage were in the sum of $8,994.24 per month. As there had been no default on these repayments up until the time of Mr Chen's arrest in May the aggregate of these repayments would have been just under $450,000.
3. On the findings already made, I have made it clear that I am not satisfied that the funds used to pay down the NAB mortgage were not the proceeds of crime.
4. My reason for excluding the offset account from the restraining order as at the date the orders affecting it were made relates to the nature of Ms Hu's property in the bank account. In Lordianto v Commissioner of the Australian Federal Police (2019) 266 CLR 273; [2019] HCA 39 the plurality of Kiefel CJ, Bell, Keane and Gordon JJ (at [5]) pointed out that a customer's property in a bank account is in the nature of a chose in action entitling the customer "to require [the relevant bank] to pay to [her] all or part of what ever amount was credited to the account".
5. Their Honours also described the process of electronic banking practice (at [74] - [78]). In particular for present purposes, their Honour's said at [76]: "There are a number of consequences. First, when an originator instructs a bank to make a transfer from their account, the chose in action representing that credit balance is extinguished or reduced by the amount of the transfer. Second, a fresh chose in action is created, or the value of an existing chose in action is increased, for the beneficiary which entitles them to withdraw an equivalent amount from their bank, subject always to the terms of their contract with their bank. Third, the property the beneficiary acquires is wholly distinct from the property which the originator had before the transfer. Indeed, the POCA recognises the change in the nature of property held by a bank by providing that "property" remains proceeds, or an instrument, of an offence even if credited to an account."
6. The important matter I draw from this is that when Ms Hu transferred the funds deposited by Mr Chen to the home loan account, the chose in action representing the credit balance in the offset account was "extinguished or reduced by the amount of the transfer". To my mind this indicates that the chose in action "owned" by Ms Hu when the restraining order was made was different from the chose in action at the time of the various transfers by Mr Chen into the offset account, all of which can apparently be traced. Although s 330(3)(a) provides that "property" remains proceeds of an offence even if credited to an account, here Mr Chen's transferred funds to the offset account, and those "proceeds" were in turn transferred to the mortgage account. Those transfers increased the equity in the Chatswood property which to that extent was tainted property. I have held, Ms Hu's increased interest in the Chatswood property to that extent may not be excluded from either the restraining order or the effective forfeiture.
7. The evidence also demonstrates that Mr Chen's gambling activities came to an end some time between February 2020 and the date of his arrest on 19 May 2020. I am satisfied that no further deposits were made from that source after his arrest.
8. Likewise, I have held that the redrawn amount from the mortgage account for the purpose of the bail security is liable to forfeiture because it can be traced to the reductions made in the mortgage by transfer of the funds deposited in the offset account by Mr Chen from the offset account.
9. For these reasons, I am satisfied on the balance of probabilities that Ms Hu's property in her chose of action against the bank on the day the restraining order is made is neither the proceeds of crime nor an instrument of crime and not unlawfully obtained given I have accepted that funds were introduced to the offset account by her from the sale of her lawful business activity she conducted through TJIT.

Costs

1. To the extent necessary, I allow liberty to apply in respect of costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 December 2022