The issues as to whether the Property should be excluded pursuant to ss 29 and 31 and whether the funds were acquired pursuant to loans
- There was an issue in the proceedings as to whether the funds advanced by Pharmacy Depot to the applicants were an "instrument" of an offence. [39] Nothing practical turns on this because the applicants' contention remains the same; s 330(4)(a) would operate to cease any such characterisation. [40]
- The applicants accept that the funds were proceeds or an instrument of an offence, but contend they ceased to have that character on the basis that each of the four elements in s 330(4)(a) of the Act are made out:
1. the funds were acquired by a third party;
2. for sufficient consideration;
3. without the third party knowing that the funds were proceeds or an instrument of an offence; and
4. in circumstances that would not arouse a reasonable suspicion that the funds were proceeds or an instrument of an offence.
- It is common ground that the applicants "acquired" the funds. They submit that they were in the category of being a "third party", wholly removed from the transaction by which the funds earlier became proceeds or an instrument of an offence: Lordianto v Commissioner of the Australian Federal Police [2018] NSWCA 199 at [101]-[106]. [41]
- The applicants' submit that the funds were acquired for consideration, namely the obligations (whether written or oral) to repay the amounts of loans, with interest, which was sufficient and reflected the value of the funds, having regard solely to commercial considerations: s 338 of the Act. [42]
- The applicants also contend that they did not know, or suspect, that the loan funds were proceeds of crime and there was nothing in the circumstances that would have aroused a reasonable suspicion that the funds were proceeds or an instrument of an offence. [43]
- The applicants' case is very much dependent upon the Court's acceptance of their evidence that they received the funds pursuant to loans. The AFP submitted that their evidence could only be accepted where it is supported by contemporaneous records or is against interest. [44]
- A number of matters arising from the evidence provide a hurdle to the Court's acceptance of the applicants' case on this issue.
- First, and significantly, the applicants were not always impressive witnesses. It must be acknowledged that they are relatively unsophisticated people, Mr Haidar more so than his wife, and also that Mr Haidar was giving evidence through an interpreter. Allowance must also be made for the possibility that a witness may think that a short direct answer to a question will not adequately explain the matter and so proceed to provide additional contextual information.
- Demeanour was not a reliable indicator of credibility or reliability in relation to both applicants and I have disregarded it. There are important matters at stake for them in these proceedings and it may well be that the occasions when they became emotional in their responses were simply a product of the understandable anxiety they would be experiencing.
- Having said that, it was a feature of both applicants' evidence that they resorted to, on quite a number of occasions, giving answers which were unresponsive or where they volunteered extraneous information, or both, and thereby gave the appearance of evasiveness. [45] One particular aspect of the cross-examination of Ms Haidar diminished her credibility considerably. [46] As counsel for the applicants submitted, it was in relation to a document "completely unrelated to the subject matter of the case". [47] It related to her advising the Pharmacy Depot accountant of information that had been provided to a financial institution in support of an application by her brother for a credit card. [48] It included the false information that her brother was single when in fact he was married. Nothing turns on this except that instead of acknowledging the incorrectness of the information, Ms Haidar elected to prevaricate to a rather extraordinary degree.
- Overall, the applicants' evidence did not imbue confidence that they could be taken on their word alone. Acceptance of their case turns very much on the extent to which their testimony was supported by documentary material.
- The most prominent document in terms of what might have been expected to be produced in order to confirm the applicants' claim that funds were received by way of legitimate loans from Pharmacy Depot is a written signed loan agreement. The applicants claim in their affidavits that two such agreements were brought into existence but they have been unable to produce either.
- Neither of the directors of Pharmacy Depot were called to support the applicants' assertion that there were loans. Ms Haidar specifically agreed that she had not sought her brother's assistance in this respect. [49]
- Mr Haidar said in his affidavit that he could not recall any specific terms of the loan agreement his wife showed him, "except for the no repayments for 12 months". [50] He was asked about this in cross-examination: [51]
"Q. Was it your understanding that there were no repayments at all or only no payments of interest?
A. INTERPRETER: Interest only. I believe only interest, not payment for interest.
Q. What was your understanding about repayment of principal during the first 12 months?
A. INTERPRETER: For this part which is I believe is legal things, my wife knows it better than me and I approved as my wife approved.
Q. I'm asking you about what your understanding was about the loan agreement you say you had with Pharmacy Depot?
A. INTERPRETER: I understood that the first year I don't pay. If was interest or the principals I wouldn't differentiate, but was encouraged because I know there is no payment first 12 months. I believe so.
Q. Did interest accrue on the loan during the first 12 months but did not have to be paid until after 12 months?
A. INTERPRETER: Yes I believe, yeah that could be correct.
Q. So interest was incurred during the first 12 months but you and your wife did not have to pay it until after 12 months had past?
A. INTERPRETER: Yes - was I think was attracted to me because I want to buy the unit, it was cheap from my cousin, so I was more in a hurry to get it because it was cheap.
Q. Can you answer the question I asked you?
A. INTERPRETER: Yes I'm answering.
Q. Did you understand that you would have to pay interest for the first 12 months of the loan but that payment would be after 12 months had elapsed?
A. INTERPRETER: Yes it's correct.
Q. What was your understanding about the amount of repayments that you would have to make after 12 months had elapsed?
A. INTERPRETER: What do you mean the amount?
Q. Your evidence is that you had to pay nothing for the first 12 months, correct?
A. INTERPRETER: Yes it's been translated for me.
Q. In the second year you would have to start making repayments, correct?
A. INTERPRETER: Well I had to pay amount, it will be very close to the rent I used to pay because there is no interest that's the way I took the loan from Pharmacy Depot. I believe so.
Q. So you are now saying that you understood that when repayments started they would be in the same amount as your rent, is that correct?
A. INTERPRETER: My wife was a lady who understand all of this and I was comfortable with this and I followed my wife what she admit on.
Q. I suggest to you that you have no recollection or understanding at all of the terms of the loan agreement that you say you have with Pharmacy Depot, do you agree with that?
A. INTERPRETER: What do you mean, is my wife deceiving me in this or trying to confuse me?
Q. Can you tell his Honour what the term of the loan was, when did it ultimately have to be paid back?
A. INTERPRETER: So first year I will have no payment, and the second year I will have to start payment. That's what I understood.
HIS HONOUR
Q. How much?
A. INTERPRETER: Look, I believe my wife knows about it but I believe somehow it's equal to the rent I used to pay at the place I was renting.
Q. When did it have to be all paid back by?
A. INTERPRETER: Well was about five, six months my wife was having baby, everything went fast. Well my cousin who is a developer, he was putting pressure on me and was pushing me to buy it before the prices goes up, so I was going to buy the unit and that's what happened.
Q. That's not my question. My question was, when did you have to pay all the loan back by?
INTERPRETER: Your Honour do you mind if I explain to him in a simpler word?
HIS HONOUR: Sure.
INTERPRETER: The home loan to be paid your Honour?
HIS HONOUR: Yes.
INTERPRETER: I can't recall the agreement with my wife."
- Mr Haidar's evidence about the repayments being "very close to the rent I used to pay" needs to be read with his evidence to the effect that he did not know the exact amount of rent he had been paying. He said, variously, "well 400, 420"; his wife looked after that; "would have been more than 460"; "it's under $500"; he attached no significance to the amount of rent he was paying in August 2014 because "my wife does this". [52] Ms Haidar thought they had been paying a little under $500. [53]
- Ms Haidar's ability to recall the terms of the loan agreement was not greatly different. She said in her affidavit that she explained the agreement to her husband because he did not read English. She recalled it had a 12 month no repayment period as a clause and that she and her husband were happy with it. She recalled the agreement signed by her husband provided for an advance to him of $250,000. Shortly before settlement, she signed "a copy of the loan agreement" which was "different from that signed by my husband". She did not "recall any differences in wording save as to the amount". [54] Aside from these matters, there was nothing in her affidavits about the terms of the agreement.
- In cross-examination, Ms Haidar said that apart from the "no repayments term period", she read "the fine writing, the little conditions, it's not that I didn't read them, I didn't pay much attention to them". She understood that repayments would commence 12 months later, in August 2015. [55] She was asked what the payments would be once they commenced: [56]
"Q. What would those payments comprise?
A. My understanding of the time, it wasn't going to be any more than what I was currently paying for rent, but I didn't know the dollar figure, exact figure. I would have worried about it when the time got closer and organised the repayment amount.
Q. So you understood you were going to be paying something under $500?
A. I knew it was with - in line of my rental, current rental. It may have varied a little bit, a bit above, but I knew it wasn't something excessive or out of, out of our, our capabilities.
Q. You understood it wasn't going to be interest free so you knew you would have to--
A. Yes, yes.
Q. --pay from the August 2014 date?
A. Yes.
Q. In August 2015 you would have to pay--
A. Start paying the interest.
Q. --first up, one year's accrued interest on 250,000?
A. Okay.
Q. Yes?
A. I don't know if I remember of it in - think of it that way, but I knew there was going to be interest on the period that we had no repayments term on. I knew that, but exactly the dollar figure and how it worked when I started to - when the time came to repay, I didn't understand or didn't really know exact dollar, but I knew it was going to be no more than my current rent, it was similar to my current rent, a bit above, and there was going to be interest on the previous term. But I knew that also I was going to be starting off as an interest only term I think in the first 12 months after that, so I knew that it was going to be still at an ease for us.
Q. You've just remembered have you that the second year of the loan would be interest only, by which you mean no repayment of principal, and only payment of interest on the balance outstanding?
A. No, I knew I could pay the 12 months interest, the 12 months that passed. I knew that we would have to pay that 12 months interest when we started to make our repayments. So I understood that, that it, that it wasn't an interest free 12 months no repayments, no interest. I knew it wasn't that. I knew it was only 12 months no repayments and the interest will take effect after we started to pay, make payments.
Q. What payments would you have to make in the second year?
A. Our loan repayments, whatever they would have given me to pay I would have done.
Q. So that--
A. So basically whatever calculations they would have given me, interest, principal, I would have repaid and I always understood it was manageable based on no more than your current rent.
Q. So your understanding was that after 12 months had elapsed you would first up have to pay 12 months' worth of interest on 250,000?
A. I didn't know if I have to pay it first up. I knew that interest will start taking effect from, from 2014, though I didn't know if they - I don't remember if they wanted it in a lump sum. I don't recall that being the case either.
Q. In addition to paying the interest that had accrued over the period August 2014 to August 2015, you would then have to start making repayments of principal and interest?
A. Pretty much, yes, I think so, yes.
Q. You had no understanding of what the interest rate would be?
A. At the time yes, and it was an average rate, it was like the banks, 4, 5, a 6 or a 7. It was around what the banks - maybe a bit more than the banks but it didn't worry me because I had 12 months no repayments. I would have worried about everything else when the time came.
Q. But it could have been anywhere between 4, 5, 6, 7% based on that answer?
A. Well it wasn't, it wasn't 12, I knew it wasn't that high. It wasn't something excessive or out of the ordinary of what the banks currently have."
- Ms Haidar was asked about the term of the loan. She said she thought it was about seven years; she knew that this was the period in the draft unsigned loan agreement annexed to her affidavit; and she agreed to having previously said that she thought the term might be 25 or 30 years. [57]
- Mr Haidar effectively conceded that he and his wife had no way of paying back the loan on the income he and his wife were receiving in 2014. That proposition was put to him in cross-examination and he conceded it was correct: [58]
"Q. You knew that you and your wife had no way of paying back the loan on the income that you were jointly receiving at that point in time.
A. INTERPRETER: Yes that's correct, was very attractive, and the main things I decide my wife and I to buy, because we thought we'll buy it, one year we don't pay any repayment, and then we may sell it later on and make some money, because that unit is very hard for my young kids to go up and down top level, and I think it's a big risk for my kids.
Q. You had no idea how much your repayments would be after the 12 month holiday, did you?
A. INTERPRETER: Well was mainly job of my wife who was looking after this and she knew the agreement. In my main, my main attractive things to this deal was the price and the key point one year no payment.
Q. You yourself gave no regard to how you and your wife would go about repaying an amount of $558,000 did you?
A. INTERPRETER: Yes, true, but the turning point was the 12 months no payment and my wife fell pregnant that year.
Q. Your wife was already pregnant by the time, and you knew she was pregnant, by the time you agreed to take money from Pharmacy Depot, correct?
A. INTERPRETER: Yes. For the fourth child, yeah I knew she was pregnant.
Q. You gave no consideration or thought as to how you and your wife would make repayments after 12 months did you?
A. INTERPRETER: I never thought about that. All was too fast, too fast, under pressure."
- This evidence of Mr Haidar was to the effect that repaying the loan was not an issue because they would sell the unit and buy something more appropriate for their family. Ms Haidar, on the other hand, seemingly had a contrary view. Although there was no mention of it in her affidavits, she purported in cross-examination to "distinctly" recall quite specific conversations with her husband about them being diligent in making repayments: [59]
"Q. … What I want to suggest to you is that you knew based on the role you played in the pharmacy and what you saw coming out of the business account, and how much money was being chalked up to personal use of the directors, you knew that Pharmacy Depot giving you and your husband the entirety of the purchase price for the property was too good to be true, didn't you?
A. I knew it was great. Not too good to - I knew it was great and I knew they were capable. A bank wouldn't do it cause they don't know me personally. My brother knows me, Hamza knew me. They were being nice. I accepted that. But I also knew, because I was borrowing from my brother and Hamza, that I distinctly talking to - remember talking to my husband telling him "Because we know of these people we need to make sure we're always on top of the repayments and we're never late", because a bank if you don't - they don't know you individually, they'll send you a letter if you're late, or you know, if something's gone wrong in your repayments.
But these guys I have to deal with every day and I remember clearly telling my husband, "We make sure we're on top of it, we pay extra when we can because these are people we know." That's my brother, I don't want to be embarrassed in front of him, and that's his partner as well. So that's a distinct conversation I remember at the time because we took the loan from someone we know, not a bank that doesn't know you individually."
- I note that if the overall amount of the two asserted loans ($558,000) was to be repaid at the rate of $500 per week it would take over 21 years just to repay the principal. Yet the term of the loans was said to be seven years. (This is putting aside the asserted repayment holiday for the first 12 months.) Repayment of just the principal in seven years would require payment of around about the entirety of the applicants' taxable income. Repayment over six years after a repayment-free first 12 months would require more than they were then earning.
- Perhaps the agreed position of Pharmacy Depot and the applicants was not that the loan would be repaid over that term but that they would pay what they could during the seven years and then obtain refinancing to pay out the balance owing. This is, however, based more upon speculation than evidence.
- How many loan agreements there were was also the subject of imprecision in the applicants' evidence. They were consistent in their affidavits in saying there was one for $250,000 and another for $308,000. In a statement of the grounds upon which exclusion from the restraining order was being sought (pursuant to s 30(2) of the Act), there was repeated reference to a single "loan agreement". [60] At one point in his cross-examination, Mr Haidar spoke of a loan for $558,000 for which both he and his wife were the borrowers, which was contained in a written agreement which he and his wife signed. [61] Both applicants had given prior testimony about a single loan, or both of them having signed the first loan agreement. [62]
- There was no explanation as to why the company supposedly lent $250,000 to the applicants in August 2014. At that point, assuming they had a particular property in mind to purchase (and there is doubt about this given contracts were not exchanged for the purchase of the Property until two months later), all the applicants required were sufficient funds to pay a deposit.
- There is no reason to doubt that there were two provisions of funds by Pharmacy Depot to the applicants; $250,000 in August 2014 and $308,000 in December 2014. The financial records make this plain. But what is not explained is why there were (on the applicants' case) two loan agreements. In the normal course of events, if a loan is provided for the purchase of a home there would be one agreement, albeit funds may be drawn down at different times if required. So in this case, why was there not a single loan agreement and a drawing down of $55,000 for the deposit at around the time contracts were exchanged in October with the balance drawn down in December at the time of settlement? Moreover, in the usual course if a loan for a home purchase is made to a married couple, both would be signatories to a written agreement with the lender, not the husband being the borrower in one agreement for part of the funds and the wife the borrower in a separate agreement for the other part.
- Counsel sought to respond to these questions by submitting that it was a matter that supported their credibility. If the applicants were fabricating their evidence of the existence of loans, they would be more likely to put forward a simpler version. [63] However, it seems more likely that they tailored their account of the loan agreements to match the indisputable evidence of two large sums of money being provided to them four months apart.
- When the applicants applied for a loan with Westpac in May 2015, they did not disclose the existence any loans with Pharmacy Depot. There has been previous mention of a number of anomalous items of information in that loan application form, but this is particularly curious given that the applicants both assert that the purpose of seeking the loan from Westpac was to repay Pharmacy Depot. The stated reason for the loan, according to the application, was to purchase another property. [64] Mr Haidar said that he did not tell Westpac about the loan from Pharmacy Depot because "I wasn't asked by the bank". [65]
- It may be assumed that if there was a loan, or loans, from Pharmacy Depot to the applicants, the company had an interest in the loan being repaid. The fact that the directors required the applicants to formally sign written loan agreements (on the applicants' case) is indicative of that. If the directors were in fact interested in having the company's funds returned, with interest, it would be expected that some inquiries would have been made about the applicants' assets, liabilities, and ability to repay. However, the applicants' evidence (Ms Haidar) is to the effect that the only verification sought was for them to provide the Westpac document indicating that prior to that bank carrying out any verification of the applicants' financial means, it had approved an "in principle" loan of $520,000. This pre-approval was valid for 90 days, and had been issued on 28 October 2013. [66]
- The apparent implausibility of the directors of Pharmacy Depot proceeding with such a lackadaisical attitude to the company's finances is not assuaged by the fact that one of the directors was Ms Haidar's brother. The other director did not know Mr Haidar at all, and there is no suggestion that the company even considered obtaining a security or charge over the Property the applicants purchased.
- Pharmacy Depot used MYOB software for maintaining its financial records. An MYOB card was produced by Ms Haidar at an examination last November. [67] It contained her husband's name and date of birth as well as the address of the rental accommodation where they lived prior to moving to the Property in February 2015. No data had been entered in any of the other fields; there is no record of an amount owing or when it was due. There was handwriting on the document, which was not hers: "27.08.14 $250,000". Ms Haidar denied having created the card (although it is unlikely that it was created by the directors and she said the accountant would not have). She was asked if it was a document given to her by Pharmacy Depot to prove the loan of $250,000. She said, "This is part of the documents, yes, they would have given me this". [68] (The only other document she was given was a blank loan agreement.)
- The AFP submitted, and I accept, that this did not provide evidence of there being a loan of $250,000 to Mr Haidar. It pointed out that the card was created on 25 May 2015; eight months after the purported loan had been entered into. This was also after a search warrant had been executed at Pharmacy Depot's premises (26 March 2015); its property had been restrained (17 April 2015); examination orders had been made in respect of the directors and Ms Haidar (17 April 2015); and Jacob Youssef had been examined under s 180 of the Act (4 May 2015). [69] Ms Haidar said she was aware by this time that Pharmacy Depot "had some legal problems". [70] She was aware of the involvement of the AFP. [71] Mr Haidar said that by the time of applying for the loan with Westpac, the application being dated 8 May 2015, he had been asked to return the money to Pharmacy Depot: "Jacob asked me to pay the money by putting pressure on me". [72]
- True it is, as the applicants submitted, that they weren't to know in May 2015 that the AFP would seek a restraining order almost two years later. [73] However, I am satisfied that enough was known for them to be concerned that questions might be asked about $558,000 having been provided by Pharmacy Depot to two relatively impecunious relatives of one of its directors. For example (and in addition to the matters mentioned in the preceding paragraph), Mr Haidar gave evidence to the effect that within a few months of purchasing the Property (settlement was on 16 December 2014), it was the case that "the whole world knows" of the criminal investigation into Pharmacy Depot and its directors. He also became aware, at an early stage, of the proceedings for restraining orders in relation to the property of Pharmacy Depot and its directors. [74]
- Putting aside that MYOB card, there were records of Pharmacy Depot which referred to the existence of loans to the applicants. The liquidators wrote separately to each of the applicants on 13 November 2018 indicating "the books and records of the Company revealed that you have a loan with the Company in the amount of …" A copy of the relevant "loan account in the Company's records" was attached. (The letters then proceed to demand payment with 14 days.) The attached record for Mr Haidar showed an amount of $250,000 as being outstanding since August 2014, and for Ms Haidar, showed an amount of $308,010 as being outstanding since December 2014. [75]
- Counsel for the applicant also referred to other evidence in which reference to loans to the applicants had been made well prior to action being initiated by the AFP against them. [76] It is unnecessary to discuss the actual evidence except to say that the earliest came into existence on 29 May 2015 and is all subject to the same response by the AFP described in the following two paragraphs.
- Mr James Cutler is a Federal Agent with the AFP. His duties encompass the investigation of serious and organised crime matters referred to the Criminal Assets Confiscation Taskforce, Sydney office. [77] Mr Cutler's affidavit dated 25 February 2019 was read by the AFP without objection or requirement for cross-examination. It includes that purported "loans" are often used by criminals to justify unexplained wealth or to disguise suspicious financial transactions. [78] In Mr Cutler's experience, [79] he had encountered a number of common features, such as there being no loan documentation; loan documentation being "back-dated" or created after the transfer of funds; no evidence of the purported lender considering the ability of the purported borrower to repay or service interest instalments, nor evidence of adequacy of security; and the purported loan often being extended to a friend or relative on a non-commercial basis.
- In the present case, Mr Cutler noted that each "loan" was alleged to have been made during the period of the offending; the "borrowers" were related to one of the company's directors; and no copies of executed and/or dated loan agreements had been produced. Mr Cutler also said that having regard to the information gathering powers utilised in the course of the investigation by the Criminal Assets Confiscation Taskforce, he would expect that if such signed and dated loan agreements were in existence they would have been located and produced.
- Ms Haidar said that the loan agreements that she and her husband signed were in accordance with the blank loan agreement she received from her brother in October 2017, "save that there was a clause that there would be no repayments for 12 months". That blank loan agreement [80] has been described earlier (see above at [66]). It departs in so many material respects from the agreement the applicants claimed to have signed, even accounting for their lack of recall of the terms. There are many examples. They did not purport to obtain loans for their "private investment purposes". They made no mention of being able to borrow funds on a "progressive basis". The borrower had not "received information to show the borrower up is able to pay loan payments and interest over the life of the loan". The applicants gave evidence of having obtained a loan from Westpac in 2015 in order to pay back the loans to Pharmacy Depot, but indicated no concern about having to pay an unspecified amount of "break costs" for early repayment or a $5000 "termination fee" where payment in full was made within the first 12 months. The applicants gave no evidence of an "establishment fee" of $500 being added to the loan amount.
- A final point identified by the AFP was that Pharmacy Depot was in the business of operating a pharmacy. It was not in the business of providing loans.