Commissioner of the Australian Federal Police v Hart & Ors; Commonwealth of Australia v Yak 3 Investments & Ors; Commonwealth of Australia & Anor v Flying Fighters & Ors [2017] HCATrans 155 (15 August 2017)

Last Updated: 16 August 2017

[2017] HCATrans 155

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Brisbane No B21 of 2017

B e t w e e n -

COMMISSIONER OF THE AUSTRALIAN FEDERAL POLICE

Appellant

and

STEVEN IRVINE HART

First Respondent

FLYING FIGHTERS PTY LTD AS TRUSTEE FOR FLYING FIGHTERS DISCRETIONARY TRUST

Second Respondent

NEMESIS AUSTRALIA PTY LTD

Third Respondent

YAK 3 INVESTMENTS PTY LTD AS TRUSTEE FOR YAK 3 DISCRETIONARY TRUST

Fourth Respondent

BUBBLING SPRINGS OLIVE GROVE PTY LTD AS TRUSTEE FOR BUBBLING SPRINGS DISCRETIONARY TRUST

Fifth Respondent

Office of the Registry
Brisbane No B22 of 2017

B e t w e e n -

COMMONWEALTH OF AUSTRALIA

Appellant

and

YAK 3 INVESTMENTS PTY LTD AS TRUSTEE FOR YAK 3 DISCRETIONARY TRUST

First Respondent

BUBBLING SPRINGS OLIVE GROVE PTY LTD AS TRUSTEE FOR BUBBLING SPRINGS DISCRETIONARY TRUST

Second Respondent

NEMESIS AUSTRALIA PTY LTD

Third Respondent

FLYING FIGHTERS PTY LTD (ACN 067 895 005) AS TRUSTEE FOR FLYING FIGHTERS DISCRETIONARY TRUST

Fourth Respondent

ALFREDTON PTY LTD AS TRUSTEE FOR NEMESIS GROUP SUPERANNUATION FUND

Fifth Respondent

Office of the Registry
Brisbane No B23 of 2017

B e t w e e n -

COMMONWEALTH OF AUSTRALIA

First Appellant

COMMISSIONER OF THE AUSTRALIAN FEDERAL POLICE

Second Appellant

and

FLYING FIGHTERS PTY LTD ACN 067 895 005

First Respondent

YAK 3 INVESTMENTS PTY LTD ACN 010 623 560

Second Respondent

BUBBLING SPRINGS OLIVE GROVE PTY LTD ACN 010 281 866

Third Respondent

NEMESIS AUSTRALIA PTY LTD ACN 010 255 537

Fourth Respondent

KIEFEL CJ
BELL J
GAGELER J
GORDON J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON TUESDAY, 15 AUGUST 2017, AT 10.14 AM

(Continued from 14/8/17)

Copyright in the High Court of Australia

____________________

KIEFEL CJ: Yes, Mr Donaghue.

MR DONAGHUE: Your Honours, just by way of a road map as to what we propose to address this morning, I will complete the submissions on the burden of proof starting with taking your Honours to an illustration from the points of claim and I will address the construction of section 141 of the Act. With the Court’s permission I propose simply to adopt our written submissions on the discretion as to sections 102 and 141 so that Mr del Villar can then address your Honours on the specific - - -

GORDON J: Mr Solicitor, could I ask you to speak up, please. I could not quite hear what you were saying.

MR DONAGHUE: I am sorry, your Honour.

GORDON J: That is all right; I will catch up.

MR DONAGHUE: Your Honours, can you start with volume 1 of the appeal book, and the illustration from the pleadings to show your Honours how the burden of proof issue arises in the context of the asset to which the point remains most relevant. In appeal book 1, if your Honours could turn to page 46 – this is in the points of claim filed by the present respondents – you will see the pleading in relation to the Hawker Sea Fury. This structure of the pleading is common to all of the assets, so if your Honours look at paragraph 40 there is a pleading:

The funds used for the purchase of the Sea Fury . . . were derived from the fourth applicant’s resources.

No more detail than that, though there are particulars by reference to an affidavit. In 41:

At all material times, the Sea Fury . . . was used for the purposes of restoration and flying for hire and was not used in any unlawful activity.

Again, a very general pleading. Then in 42:

By virtue of the matters pleaded . . . the Sea Fury . . . was acquired lawfully.

The defence to that plea your Honours will see at 97, in the same volume where, in relation to the derivation point, there is a denial. There are some specific bases given for the denial in relation to two particular payments that were made with respect to the Sea Fury, which you have been referred to in the written submissions as Merrell payments. That specific plea was accepted by the primary judge and not challenged. So in relation to about $185,000 of the payment made to the Sea Fury the specific claim was accepted. In relation to the use claim - - -

KIEFEL CJ: Was there no reply, Mr Solicitor?

MR DONAGHUE: Well, what effectively happened was that there were two aspects to the way the respondent met that plea. They specifically said, “ Well, the Merrell payments came from this source”, but they also said, “Your claim that this money comes from your own assets does not really stack up on an analysis”, and that was an analysis undertaken by Mr Vincent in the affidavit referred to there. There was then an attempt to answer that by evidence from the appellant and that attempt failed as to a further $300,000.

The reason we are using this as the illustration is that one of the points raised against us in the notice of contention filed by the respondents is that the Court of Appeal erred in its finding in relation to that extra $300,000, because it had not been pleaded. Now, we say that is completely wrong in point of principle because that was just a failure by the appellant to make good their assertion that - their plea that you have seen in paragraph 40, that the asset was derived from their own resources.

We, in effect, made an affirmative case and we challenged the evidence that they filed in support of their affirmative case and their evidence did not come up to proof in respect of part of the claim. So that is how this point assumes some practical significance.

GAGELER J: Mr Solicitor, how are we to read the statement “The basis of the denial is that”?

MR DONAGHUE: Your Honour, I accept on the face of it that that is capable of being interpreted as exhaustive but the entire paragraph is denied in the opening part of paragraph 40. In our submission, your Honour should not read it as meaning that, notwithstanding that issue was joined on the evidence as to the adequacy of things that had been filed by the applicant to make good their claim that the asset was derived from their own resources, that any deficiencies in that evidence could be put to one side. They still had to make good the claim that they had.

KIEFEL CJ: These are just particulars of the denial?

MR DONAGHUE: In effect, your Honour, yes.

GORDON J: Well, is that right, because paragraphs 11.12 to 11.18, in the Vincent affidavit only deal with those two Merrell payments, do they not?

MR DONAGHUE: Yes, they do. So, insofar as an affirmative case was made that we knew where some of the money came from, it was only the two Merrell payments. But my submission is that while there was not an affirmative plea that the money came from an unlawful source, there was a defensive argument, if you like, that the explanation that had been put forward by the applicants did not stack up and it was held not to stack up to the point necessary to persuade the judge that $300,000 other than the Merrell payments, or additional to the Merrell payments, had not been derived from an unlawful source.

In circumstances where the applicant had the burden if they attempted to explain where the money came from and they failed to do so because their evidence was not sufficient to persuade the judge, in our submission, they are correctly held not to have discharged the burden that the Act places upon them. It is not to the point that the respondents were not in a position to say where all of that money came from. Insofar as they were in a position to say, they pleaded it, as they did with the Merrell payments but not otherwise.

Now, your Honours will see much the same approach in relation to the other two pleas. So, 41 and 42 from the points of claim were very general. There was just an assertion that the property was not used for unlawful activity and that it was acquired lawfully and that as to use in paragraph 41(b) it was not admitted that it was used for the asserted purpose all the time because despite inquiries the respondent remained uncertain, and in paragraph 41(c) it was denied that Sea Fury “was not used in, or in connection with unlawful activity” and some details were given, again to the extent that the respondent was in a position to do so.

But, in our submission, again the point remains good that a very general plea to the effect that the plea in paragraph 41, we did not use it unlawfully, does not reverse the onus of proof so that the respondent suddenly needs to be able to exhaustively identify every unlawful activity. The burden remains on the applicant to do what the statute says that they have to do which is to exclude unlawful uses. In 42 it is perhaps even clearer because in 42 the respondent simply denied that the matters that had been pleaded were sufficient to establish lawful acquisition.

Now, your Honours, can I take you briefly to two cases that we submit correctly identify the approach to the burden of proof in this area of law? The first is DPP v Brauer which is at tab 17 in the bundle. This is a case concerning the previous version of the Proceeds of Crime Act, the Proceeds of Crime Act 1987. In the middle of the headnote on the first page you can see the relevant statutory provision extracted. It was section 48(4). If your Honours look at 48(4)(e), you will see a provision that very closely resembles 102(3). So there is the use “in or in connection with unlawful activity” and not derived directly or indirectly from unlawful activity, and where those things were established the court could declare that the restraining order should be disregarded. So it was a provision dealing with excluding property from restraining orders. I do not need to take your Honours into the facts. Your Honours will see the issue from the bottom of page 267 in Justice Thomas’ judgment, where his Honour records, in the last four lines :

The principal submission on behalf of Brauer is that in an application of this kind there is an evidential onus upon the Commonwealth to suggest some unlawful activity.

So that was the main point that was being argued and all members of the court rejected that submission. The leading judgment is Justice Connolly with whom Justice Derrington agreed and the relevant part of his Honour’s judgment is from 264 through to 265. At 264, about line 34:

That provision requires the court to be affirmatively satisfied that the property was not used in or in connection with any unlawful activity. It is apparent that the burden of proof is extremely onerous and it requires no great imagination to give examples of situations in which it could simply never be discharged although no unlawful activity might have occurred at all.

Then, having noted the potential harshness of that, on 265 in the middle of the page about line 18:

It was no doubt with these thoughts in mind that the learned chamber judge concluded that in applying the provision there must be some evidence from which it might be inferred that the vessel was being used for the proscribed purpose and that it was only if there was such evidence that the onus of demonstrating that it was not so used fell upon the applicant. With some regret, I am unable to persuade myself that the language of the statute is open to this view. The position to which it leads is neatly illustrated –

and then there is a quote:

This is simply to say that the absence of evidence of illegal activity is the same as positive proof of legal activity.

His Honour rejected that idea that one can equate the absence of evidence of illegal activity with positive proof of legal activity. Justice Thomas ultimately reached the same conclusion. In page 268 of his judgment there is a discussion of evidential burdens of proof. That discussion contains the passages that our friends have quoted in their written submissions, but having discussed the concept and the law in relation to evidential burdens, his Honour comes to the conclusion at the end of that discussion on 269, line 14:

In the end, it is plain that there is no evidentiary principle which can convert the initial evidential burden which lies on the defendant into one which lies on the Commonwealth.

So, in our submission, that case unanimously and correctly decides that in the context of a materially indistinguishable provision, notwithstanding the potentially harsh operation of the provision, an applicant simply cannot discharge the burden simply by responding to, or by requiring the Commonwealth to identify unlawful activity and then confining themselves to disproving the allegations made by the respondent.

That approach, we submit, is completely consistent with what your Honours held in Henderson v Queensland, which is the second case I will go to briefly. It is tab 30 in the bundle. The provision in issue in Henderson, section 68(2) of the Criminal Proceeds Confiscation Act (Qld), is set out by Chief Justice French on page 5 of the report in the Commonwealth Law Reports, near the top. It relevantly provided that:

“The Supreme Court must, and may only, make an exclusion order if it is satisfied –

So this is excluding property from forfeiture:

(b) it is more probable than not that the property to which the application relates is not illegally acquired property.”

The factual background in which the issue fell to be decided is summarised by Chief Justice French in paragraph 3 and the important four points are the last two on that page. So:

The account given to the appellant and his siblings of the provenance of the jewellery was untrue. The jewellery had in fact been made some time after 1950.

So it was not the family heirloom; and the last bullet point:

It was not known how the appellant’s father had come into the possession of the jewellery.

So there was no plea by the Commonwealth parties in this case that was able to explain, or to suggest, where the jewellery had come from. It was just said “Your explanation of where the jewellery came from is wrong” and this Court held that once the Court was satisfied that the explanation given by the appellant was wrong, the appellant lost. They had failed to discharge their burden of proof.

That finding is not consistent with the idea that in relation to a provision of this kind all you have to do is respond to an identified illegality by the Commonwealth parties and your Honour Justice Bell, with whom your Honour Chief Justice Kiefel agreed, at paragraph 33 of the report, put the point:

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. The primary judge found that the father’s account of the provenance of the jewellery could not be true.

Then, at the end of that paragraph:

It was not an error to conclude that, in the absence of some evidence as to how the father came to be in possession of jewellery worth a very substantial sum, Mr Henderson had failed to discharge the onus –

So, in our submission, the approach that the majority of the Court took in Henderson is quite inconsistent with there being a burden on the Commonwealth to identify the unlawful activity that must then be negatived.

GAGELER J: What if the Commonwealth had admitted paragraph 40 of the statement of claim?

MR DONAGHUE: Your Honour, if the Commonwealth had admitted that the Sea Fury was derived from the fourth applicant’s own resources, it is difficult to see how there would then thereafter have been any issue about whether that element of the burden of proof had been discharged.

GAGELER J: So this all comes down to what is to be made of the pleadings and the course of the trial, does it not? It depends on what is truly an issue, does it not?

MR DONAGHUE: Well, only in this sense, your Honour. One cannot identify what is truly in issue by looking at the defence.

GAGELER J: Well, that is the traditional purpose of a defence.

MR DONAGHUE: But, your Honour, in the context where the burden of proof is on a party to exclude all unlawful activity, to allow that burden to be discharged simply by saying, “Well, I got this property lawfully; you show that I didn’t. You identify in the defence how I didn’t” just flips around the way that the statute has cast responsibility for discharging proof in an application of this kind.

GAGELER J: You could have pleaded the general issue in a sense. You could have simply denied. It is really a question, is it not, of what is to be made of the particular form of your pleading in the context of the trial?

MR DONAGHUE: Well, your Honour, in my submission, it should be read as a general denial and then a specific denial in addition. But the respondent denies paragraph 40 of the points of claim, and the same point arises in relation to 41 and 42 as well - 40 is a derivation – but the same point in relation to burden of proof arises in relation to unlawful use. They just pleaded it was not used unlawfully, we have denied that, and in those circumstances we did not need to say anything further.

The fact that we did say something further should not as a matter of substance mean that somehow the applicant needs to prove less because as a matter of fairness insofar as we were able to identify specific things that we said were wrong, we did that, but that did not change the overarching obligation on the applicant to do what they would have had to do if we had given a bare denial and done no more.

If the law is otherwise, then the very strong incentive is on defendants in this area to simply plead completely bare denials and give no particulars as to information that they might rely upon a trial to cast doubt upon the explanation that the applicant has given. That would seem an undesirable endpoint to discourage respondents from being as fulsome as they can be.

KIEFEL CJ: Do you need to distinguish the ultimate onus and the evidentiary onus which shifts just as a matter of – as a matter of creation of issues on pleadings?

MR DONAGHUE: You do need to distinguish them. The debate seems to be about whether there is an evidential onus on the Commonwealth to identify the sources of unlawful activity that there is then a legal onus on the applicant under 102 to exclude, and that is the proposition that we dispute.

GORDON J: The question about that arises in the context of your pleading and this is the point I think Justice Gageler is making. If you look at the way in which you have pleaded 40 and distinguish it from other ones, the amendments – the strike-throughs make it clear. It starts off as a general denial and says – if you read the strike-through, is not derived in general terms and not derived directly - in effect you fail the ultimate question. That is struck through and then it has become particularised, and so the question becomes a very narrow question, does it not?

MR DONAGHUE: Well, your Honour, in my submission - - -

GORDON J: You can see the distinction when you get to 41 it does not admit, and denies in (c), that it “was not used in, or in connection with”, again on the basis that they are much more general.

MR DONAGHUE: Yes.

GORDON J: The problem with 40 is it is specific.

MR DONAGHUE: It is specific as to - in my submission, it does need to take account of the way it plays out at the trial. The plea is in relation – the plea to which 40 responds is a plea that the Sea Fury was derived from the fourth applicant’s resources, so the whole plane presumably is derived from the applicant’s resources. They put on an account – put on some evidence that they say shows that that is so. We put on some responsive evidence that says that your evidence actually does not show that that is so in various respects. They attempt to meet that at the trial and the trial judge says, “Your attempt to meet that is insufficient. You haven’t got me over the line”, in relation to showing that the evidence was derived from unlawful resources.

If the trial judge is in that state of satisfaction, having heard the evidence at the trial, in my submission, the applicant should lose. That is so quite independently of the fact that another issue in the trial was that we were able to show quite specifically that $180,000, the purchase price, came from somewhere that was obviously connected to unlawful activity. But the fact that we could prove that in relation to the $180,000 does not change the fact that the evidence that the applicant relied upon to make good their plea at paragraph 40 did not get them over the line. That is not, in my submission, a pleading point. That is just that their evidence did not establish the case that they put forward. Your Honours, that is all I sought to say on burden of proof.

Can I return to the questions a number of your Honours put to me yesterday about security interests and how they work in relation to the forfeiture regime and ask your Honours to turn back to the Act? At the outset, I must acknowledge that there is some apparent inconsistency of usage and drafting throughout these provisions, so they cannot be made to align perfectly, but our submission is that the way that the regime is properly understood and working is as follows.

Because we end up forfeiting property that is the subject of a restraining order, I need to start back at the restraining order provisions. So, if your Honours go to section 17, you will see in section 17 that there the language that the Act used is “property”. It does not refer to a person’s interests in property, but we do of course accept that “property” is defined in a way that includes interests and so it is then capable of including interests in property as well as property as the thing itself.

There was an argument made in fact by Mr Hart in an earlier version of this litigation, and your Honours have the case, if you could open it, behind tab 25. It is a decision in the Court of Appeal of Justice – or the Court of Appeal; the relevant judgment is Justice of Appeal McPherson’s - where the argument that Mr Hart made - - -

GORDON J: What is the citation of that case, please?

MR DONAGHUE: Sorry, your Honour, it is [2005] QCA 51; [2005] 2 Qd R 246 and I am taking your Honours to paragraphs [18] through to [21].

KIEFEL CJ: I am sorry, which tab was it?

MR DONAGHUE: It is tab 25, your Honour.

KIEFEL CJ: Thank you - and paragraph?

MR DONAGHUE: Paragraph [18]. So Mr Hart advanced an argument recorded in paragraph [19] of the judgment that the court below had:

erred in approaching the “property” . . . as being the thing or object itself - the individual aircraft or allotments of land . . . rather than the particular legal or beneficial interest –

in the property. So it was said that what is the subject of restraint is just the interests rather than the property itself. His Honour gave the definitions that you can see there in paragraph [18] of “property” and “interest” which your Honours have already seen. There is then the reference to Yanner v Eaton, noting that the word “property” can be used in both senses to refer either to the item or thing or to the relationship or interest. Then, under that quote:

It followed, or so the appellants said, that the word “property” as defined in s. 338 of the Act means not the aircraft or land or “thing” itself but some right or interest in it over which Hart, if at all, exercised effective control –

because, of course, if one is talking here at the restraining order stage about the interest rather than the property itself, one could only restrain the interest on the effective control ground if it was shown that Mr Hart had effective control of the particular interest, rather than the effective control of the thing itself in which somebody held the interest. That was presumably the purpose of Mr Hart advancing this argument, so as to confine the matters over which the restraining order would be issued. Justice McPherson said:

I am, however, quite unable to accept this proposition. The word “property” is plainly capable of meaning either or both of the thing owned or ownership of the thing; as when one says of something that “that property is my property” . . . It is plainly not in this sense, but in the sense of a thing or object (or res as the Roman lawyers would have called it) that the word “property” is used in s. 338 . . . Indeed, s. 29(4) speaks of “property” that is “owned” or “not owned”; and one does not naturally speak of ownership being owned. Taken together, the statutory meaning of “property” and “interest” are perhaps capable of referring to either or both the object owned or the ownership and interest or an interest in it. But the primary meaning of “property” in s. 338(1) is the thing itself.

Our submission is that at the 17 stage, the Act using “property” rather than “interest”, as it does use later, but at least the primary meaning of what is restrained is the thing itself, the property and all of the interests in it.

At the next step one then comes to section 29 where someone can come to the court and seek to have what the Act calls “specified property” excluded from the restraining order and there, bearing in mind again the definition of “property”, we submit that the Act is properly construed as meaning either the property as the thing itself or any individual person’s interest in it.

So if, for example, a house is restrained over which Westpac hold a mortgage, Westpac could come to the court under section 29 and say, “I have an interest in this property which I would like to have excluded from the restraining order” and going down to section 29(2)(a), one would expect that when one focuses on the interest that is Westpac’s mortgage they would be able to demonstrate that that interest is neither the proceeds of crime nor interests of the crime. They may well be able to satisfy the statutory criteria for the exclusion of that interest and therefore to take it outside the restraining order regime. If they can do that, no issue of forfeiture of that interest will arise because once we get to the forfeiture stage it is only property that is actually subject to the restraining order that would be forfeit to the Commonwealth.

GAGELER J: That is subject to subsection (4) though, is it?

MR DONAGHUE: It is subject to subsection (4) but if the property that the court is being asked to exclude is the relevant interest, then at that point it would be relevant to ask is that interest under the effective control of the subject. So the property at (4) is referring back to the property in (1), so that it may well be that even if the person is in effective control of the house, the mortgage still gets excluded.

If that does not occur, then assuming conviction of a serious offence and one is then into the automatic forfeiture regime in Part 2-3, we have in section 92 a reference to again the property being forfeit to the Commonwealth and in our submission your Honours should understand the word “property” there as meaning all the legal interests in the thing that is the subject of the restraining order that are still restrained.

So whatever was restrained under section 17, minus anything that is being excluded prior to the conviction occurring is what is forfeited to the Commonwealth under section 92. That forfeiture occurring pursuant to section 96, which again uses the word “property” in the same meaning, in the Commonwealth, save that, as one can see from section 97 all of the interests may not vest at once in the Commonwealth.

The equitable interests should vest immediately but if the property is a registrable property being “property” defined in 338 as property to which title is transferred by registration, then the legal interest will only vest in the Commonwealth as at the time the registration occurs.

GORDON J: Did that happen in relation to the assets in dispute here because we have aircraft, we have land, we have cars?

MR DONAGHUE: Your Honour, I think the answer is yes. I will defer to Mr del Villar on that.

GORDON J: Otherwise 102 would not have operation in relation to the whole of the interest; it would only apply in relation to - - -

MR DONAGHUE: It would only be in part, yes.

GORDON J: In relation to the equitable interest.

MR DONAGHUE: Section 97 makes it clear in our submission that the whole – and certainly there is no language to suggest otherwise than that the whole of the equitable interest in the property would vest immediately and the whole of the legal interests would vest immediately once the steps had been taken to register.

What then happens to people who hold interest in the property that is then being forfeited to the Commonwealth, well, those people and, indeed, the whole premise of Division 3 of Part 2-3 is that their interests have vested in the Commonwealth pursuant to the forfeiture and 102, 103, 105 and 106 are a mechanism for getting back particular interests out of that forfeiture to the Commonwealth to the people who previously held it. As your Honours noted yesterday, 102 in particular is replete with references to interest in the property rather than the property itself. So in (1)(a) if:

a person who claims an interest in the property applies under section 104 for an order . . .

(b) the court is satisfied that the grounds set out in subsection (2) or (3) exist;

make an order:

(c) declaring the nature, extent and value of the applicant’s interest in the property –

and can then require a transfer of that interest in the property. One sees the same concepts in 103 in relation to buyback.

GORDON J: Before you get there, when you look at 102(3)(b), it talks about:

the applicant acquired the property –

which is the one oddity about the reference, by reference to interest. When I went back and looked at the EM, I noted that in describing that very provision it refers to the “applicant’s interest”. Is that how you are supposed to read it? It is the one oddity if you are right about your construction.

MR DONAGHUE: I accept that and it is difficult, particularly when one looks at the paragraph your Honour has mentioned, (3)(b) and compares it to 94(1)(f), which is the equivalent for the applicant. There it is:

the defendant’s interest in the property was lawfully acquired -

whereas in 102(3)(b) it is avowedly not that. So one has throughout 102 reference to interest and then in the whole of (3), not just in (3)(b), what appears to be a quite deliberate reference not to the interests but to the property as a whole.

GORDON J: I wonder if that is right in the sense that – I do not know. If you read (3)(a) as being focused on the property as the whole because what you are concerned to make sure is that in respect of someone involved in an offence but not convicted that the property regardless of the underlying offence that was the subject of a forfeiture order – means that the property cannot be in any way connected with any unlawful activity.

MR DONAGHUE: Yes.

GORDON J: So it is much broader and much more draconian on that person but then when you get to (b):

the applicant acquired the property lawfully –

as I said, the EM for that bit talks about the applicant’s interest, which seemed, in a sense, to make it more workable.

MR DONAGHUE: I do not disagree with that, your Honour. It would make more sense if that was what the provision said and certainly we entirely agree with what your Honour just put to me in relation to (3)(a), the property there being all of the interest in the property in that wider sense, which does, on the face of it, appear draconian, except when one goes back to (2).

Bearing in mind that this provision is about recovering interests, where a person has an interest in the property, if the person is in no way connected with the offence, so say an innocent security holder, they should be able to get themselves within (2) and recover their security interest in that way. So we are only dealing in (3) with a person who cannot jump that hurdle and a more onerous operation of subsection (3) in that circumstance does seem to accord with the policy underlining it.

EDELMAN J: In what sense does anyone ever acquire anything other than the rights or, more broadly, an interest?

MR DONAGHUE: I do not think I submitted, your Honour, that they did. I am conscious of the difficulty of talking about the property itself, for example, being forfeited to the Commonwealth as distinct from all of the interests in the property being forfeited to the Commonwealth. It probably is more technically correct to say all of the interests in the property including the right to possession are forfeited to the Commonwealth and then one can worry about dividing up those interests in applications that are made pursuant to 102, 103 and 105. I am not sure if that answers your Honour’s question. I was not intending to suggest that there was a distinction between - - -

EDELMAN J: Well, it may just be that in 3(b) the use of “property” really only operates in relation to the narrower part of the definition of “property” being the interest.

MR DONAGHUE: The interest that the applicant, in fact, acquired, yes. Again, the reason I answered Justice Gordon’s as I did is that that makes sense and that is consistent with how the concept is used elsewhere in the Act. It is just not what Parliament actually said in that paragraph but I do appreciate the force of what your Honours are putting to me.

We submit that that – I do not mean to take your Honours through it but the same basic structure is found in 103 through to 105 allowing an applicant to purchase particular interests back again and then to purchase the interests of other people who held interests in the property under 106. So, that is our submission about how the Act works in relation to particular interests.

Can I turn then to 141 of the Act or more correctly to the submissions concerning 141 which, in fact, need to start with 115 and 116 which is the commencement of Part 2-4 concerning pecuniary penalty orders? One of the features of this part as opposed to the forfeiture provisions is that one does not find in relation to pecuniary penalty orders any requirement that the property – that the order is connected with proceeds of offences or with instruments of offences, there is no requirement for derivation, there is no requirement for unlawful use, the focus of the part is on benefits that a person derived from their unlawful – from the commission of an offence. So, in 116(1):

(a) the DPP applies for the order; and

(b) the court is satisfied of either or both of the following:

(i) the person has been convicted of an indictable offence, and has derived benefits from the commission of the offence;

(ii) subject to subsection (2), the person has committed a serious offence –

as here, then the order can be made. In (3) one sees:

In determining whether a person has derived a benefit, the court may treat as property of the person any property that, in the court’s opinion, is subject to the person’s effective control.

So that the Act from the outset treats property under effective control as a benefit of the offending to which the pecuniary penalty regime is directed thereby suggesting, in our submission, an intention that the benefit having been calculated by reference to such property that property of that kind should be available to satisfy any pecuniary or penalty order that is ultimately made but I will endeavour to make that good shortly. Now, in 116(3) you will note that the word “is” is used:

property that, in the court’s opinion, is subject to the person’s effective control.

Again, through the provisions your Honour has already seen in section 17 one would expect that very commonly property of that kind would be the subject of a restraining order so the use of the present tense would make little sense in relation to property of that kind if the existence of the restraining order takes the property outside the scope of that provision. That is another illustration as in 102 of the point we will ultimately come to in 141. You will also note in subsection 116(4) the Parliament expressly stating that the power:

to make a pecuniary penalty order in relation to an offence is not affected by the existence of another confiscation order –

defined to include forfeiture. So that whether or not there are forfeiture orders in place one can still have a pecuniary penalty order and that is made even more explicit in section 134(5), just to jump forward, which is talking about applications and provides that:

An application may be made for a pecuniary penalty order in relation to an offence even if:

(a) a forfeiture order in relation to the offence . . . has been made; or

(b) Part 2-3 (forfeiture on conviction of a serious offence) applies to the offence.

I emphasise that because our friends appear to submit that if property is excluded under 102 so you can take it out of the forfeiture regime, there is somehow something wrong with covering it by 141 order to put it back into the pecuniary penalty order regime. In our submission, that is not consistent with the structure of the Act. The Act makes it clear that whether or not you have forfeiture there may be pecuniary penalty orders sought with respect to the benefits of the offence.

Overlap is dealt with in some specific provisions I am about to come to. So you do not get double counting but there is no difficulty conceptually with property that is under effective control being excluded from forfeiture but then captured by a pecuniary penalty order. In our submission, the Act contemplates that very thing.

Now, when one comes to determining how much a pecuniary – or the amount of the pecuniary penalty order – that is 121 of the Act and the model, in effect, is revealed by subsection (3) that one assesses the benefits derived from the commission of the offence and from the commission of any other offence that constitutes unlawful activity so it does not all have to be the offence that was the subject of conviction and here, I think, your Honours, the offences that were the subject of conviction, the total benefit was something less than a million dollars. The pecuniary penalty was 18 million.

So a lot of it came from offending that was not limited just to the particular offending that was the subject of the convictions in 2005. But basically what you do is you identify the benefits derived and then you subtract the value of all of the reductions, if any, to the penalty under Subdivision C in order to assess the amount of the – or the value of the benefits, that is 128 of the Act. Section 128 of the Act makes it clear that the value of the benefits includes property that is subject to effective control. So, again, the amount of the pecuniary penalty order will include the value of property under effective control.

But then one gets in 130 the reductions which creates a mechanism by which, having assessed the total benefits of the offending, one reduces the pecuniary penalty that is imposed to take account of any forfeiture that has occurred under the Act. So that to the extent that property has been forfeited under Part 2-3, the pecuniary penalty order will be reduced by that amount which is, in effect, its substance, the same as applying the forfeited property to meet the pecuniary penalty order. That is not the legal form the Act adopts but it reduces the amount so as to ensure that one is not – the property is not both subject to forfeiture and then counted again for the purpose of the pecuniary penalty order.

The intention that the amount of the order vary depending on the effect of the forfeiture regime is even further underlined by 133 of the Act because 133 demonstrates that if the amount is reduced under 130 but then the property that was thought to be forfeit is not forfeit because an appeal against forfeiture has been allowed then the amount of the pecuniary penalty order goes up again to take account of the fact that the property has then been excluded.

One wrinkle in the operation of the Act is that that does not seem to capture what happened here under 102 because 102 is not an appeal against the forfeiture order. It is an exclusion from forfeiture under the automatic forfeiture regime. So it does not seem that the Act easily accounts or allows the amount of the pecuniary penalty order to be varied in response to a 102 application. Then when one gets to 140, which is enforcement:

An amount payable by a person to the Commonwealth under a pecuniary penalty order is a civil debt due by the person to the Commonwealth-

and 141. Now, the import of 141 and 142 is that a pecuniary penalty order having been made and a civil debt due to the Commonwealth thereby having been created, in order to satisfy that debt out of property one needs to go through the pathways specified in 141 or 142. Our friends, as we understand their submissions, suggest that 142 just deals with this topic and so there is no need for our submission about 141 to be accepted because they say, well, 142 creates a charge and that gives you all that you need in order to properly satisfy the debt created by the pecuniary penalty order.

Our answer to that is that if your Honours look at 142(b)(ii) you will see that in situations where the property in question is another person’s property – that is, property under effective control – you cannot get a charge under section 142 unless there is an order under 141. If our friends are right that you cannot get an order under 141 in relation to property that has been the subject of a restraining order then you just can never apply that property to satisfy the pecuniary penalty order.

The point that I am about to come to in relation to the construction of 141 is very significant to the operation of the regime in relation to property under the effective control of a third party because it really determines whether any of the property subject to the wide restraining order at the start of the process is or is not to be available to satisfy the pecuniary penalty order. The issue, as your Honours will have seen from the material, in 141(1)(c), when Parliament says:

the court is satisfied that particular property is subject to the effective control -

and the property is property that was the subject of effective control until the Act descended upon it to suspend that effective control by restraining orders and then forfeiture, can that condition be satisfied, which ultimately turns on does “is” mean is it under the effective control as at the date of the application for an order under 141 or should the “is” be read consistently with its usage in a number of other parts of the Act as not important a temporal dimension at all.

EDELMAN J: Why could not “is” be read as “is” but carving out from that the effect of the restraining order, so that, for example, if property that were the subject of a restraining order but between the time of the restraining order and the time of the section 141 application, the controlling interest were transferred, then it might be said that the property is no longer subject to the person’s control even without the effect of the restraining order.

MR DONAGHUE: Your Honour, if that was able to happen, our submission is that, with respect to property that is not - effective control of which is not suspended by a mechanism under the Act then the “is” means is as at the date of application. So that if property has been released from the restraining order regime by exclusion, for example, or by buyback or by any of the mechanisms by which the property can be released, then I would accept what your Honour puts to me.

If none of those steps have happened then, in my submission, there cannot have been a change of that kind because the interest in the property will be frozen by the restraining order, subject to an exclusion order, and then they will be forfeited to the Commonwealth.

EDELMAN J: Does the freezing of the interest in the property necessarily freeze the ability to dispose of any control?

MR DONAGHUE: Yes, without there being an exception to allow that to occur. If, for example, in my house with a Westpac mortgage situation, Westpac wish to recover their interest in the property, they need to have their mortgage excluded from the restraining order and then they can sell the property and the remaining money would be held pursuant to regimes created by the Act.

The reason that we say the Act is properly understood as looking back to the point pre-suspension of effective control is that that will be the last accurate point by which a sensible judgment can be made about effective control because post the.....of the mechanisms in the Act it will be the Commonwealth that has effective control of the property.

KIEFEL CJ: Do you read it then as “is or would be but for the restraining order, subject to the effective control”?

MR DONAGHUE: Yes, that is effectively how it should be read. That is how Justice of Appeal Morrison read it, and there are other cases that I will take your Honours to quickly that have read the words in that way. I am conscious of the time so I will do this very quickly. There are really four main matters we rely on. The first is the scheme of the Act. I have already taken your Honours through most of the provisions, but particularly if you note 29(4), 45(3) and 282.

Those are provisions that in our submission – 29(4) is probably the clearest – clearly contemplate a nexus between ensuring that a restraining order is in place and the satisfaction of a PPO - a pecuniary penalty order. To hold therefore that the making of the restraining order prevents the use of the very restrained property to satisfy the PPO does, in our submission, contradict that fairly apparent step. The authorities I mentioned – the clearest is - - -

BELL J: Just before you go to the authorities, in addition to the four matters that you identify in your submissions, do I understand that you contend, when one has regard to the scheme, that 142(1)(b)(ii) can only be understood as having effective operation if one reads 141 in the way for which you contend?

MR DONAGHUE: Yes. Your Honours, could you go to Logan Park Investments Pty Ltd v DPP (Cth) (1944) 122 FLR 1, which is behind tab 33 in the bundle. It is a brief decision of the New South Wales Court of Appeal concerning again the old Proceeds of Crime Act. Unfortunately the statutory provision in issue is not reproduced in the report. It is in the bundle of materials we have given your Honours behind tab 8, but I do not need to take your Honours to it. It is very closely equivalent to 102 in its language. In effect, what was in issue in this application was whether or not properties should be excluded from a restraining order. If you go to page 3, at about point 6 on the page, you will see the reference to 48(3)(fa) which:

requires the court to grant an application for variation of a restraining order where the court “is satisfied” that the appellant’s interest in the property is not subject to the effective control of the defendant”.

So is not subject to effective control. It was put, in effect, that once the restraining order was in place then the property was no longer subject to the effective control of the original defendant.

The judge held, following Gray . . . that the applications before him could not succeed simply on the ground that the defendant now “has now no effective control because he is in prison and because of the existence of the restraining orders . . . Section 48(3)(fa) can only be given practical effect if the word ‘is’ in subpar (iii) is read as ‘was at the date of the restraining order’”.

This construction was challenged by Mr Hughes –

but upheld on the basis that their Honours referred to substantial authority supporting that construction and:

a substantial body of earlier authority supporting such a construction where it is apparent from the context and purpose of the statute that the words in the present tense are being used without any temporal connotation -

There is a reference to a collection of the authorities. That case was followed by DPP v Hart, to which I put your Honours earlier – I will not take you back to you – but Justice McPherson, with whom Justice of Appeal Williams agreed, followed Logan Park at paragraphs 2 and 9.

Our friends criticised Logan Park as dealing with a false issue or suggesting that the problem was more imagined than real - was, I think, the expression that they used because, as we understand it, they say, “Because you normally would deal with exclusion from a restraining order at the same time as the application for the restraining order, there is no problem with the ‘is’ because everything will be being looked at at once”. We submit that that is clearly not right, both under the Act as it then stood and the Act now and I showed your Honours 29(1), which says an exclusion application can be made at the time of the restraining order or at any time thereafter.

The scheme plainly envisages exclusion applications at a subsequent time to the restraining order. So the problem was a real one and it was correctly answered, in our submission, by the Court of Appeal and correctly followed by the Court of Appeal in Queensland in Hart. I have already addressed your Honours about 142, so I will not go back there. The same submission applies to 282, which is the other provision our friends rely on.

The other structural point that we make is that if it be the case that 102 of the Act operates widely to create the potential for property to be returned to an applicant, even if some significant part of the applicant’s interests was derived from unlawful activity; that is, if the majority below were to be right about the wholly or partly derived or wholly derived criteria, then that creates greater potential for the exclusion of property from the forfeiture regime, even in circumstances where the property returned includes unlawfully derived benefits.

In that situation, the potential operation section 141 becomes even more significant because 141 as, I think, your Honour the Chief Justice put to me yesterday, recognises in the words following paragraph (c):

the court may make an order declaring that the whole, or a specified part, of that property is available to satisfy the pecuniary penalty order.

So 141 is a mechanism that would allow the court in circumstances where somebody has a beneficial interest in property that was, say, half lawfully derived and half unlawfully derived; to say, with respect to the half that was unlawfully derived, that should be applied to meet the pecuniary penalty order.

That capacity is not there in relation to 102 and so we submit that the coherent operation of the Act to achieve a result where people do not benefit from their unlawful activity is consistent with the construction that we urge upon your Honours. I should also note that the reading it is that we seek is the same reading as all members of the Court of Appeal accepted in relation to the equivalent word in 102(2)(b). So, in 102(2)(b), one of the criteria is:

the applicant’s interest in the property is not subject to the effective control of the person –

and the court recognised that if that meant literally what it says, it would by definition always be satisfied because the property has always been forfeited to the Commonwealth before you get to a 102 application and they said it cannot sensibly mean that and the references to that are 1217 to 1218 and 240. Your Honours, unless the Court has any other questions, we

otherwise rely on our written submissions on the parts of the case that I am addressing and I would ask Mr del Villar to address the remaining parts of the case.

MR DEL VILLAR: Your Honours, I will be addressing the eight assets which are in dispute in this matter and then dealing with the issues of valuation errors made by the Court of Appeal. Before doing so, however, given the importance of the money-laundering offences to a number of these assets, I thought it important to take the Court briefly to the money-laundering offences and the findings of fact that were made in relation to those.

Your Honours will see from volume 7 of the appeal book at page 3194 and at paragraph [1111], there his Honour Justice Peter Lyons sets out the relevant money-laundering provisions, in that case section 82 of the Proceeds of Crime Act 1987, together with the relevant definitions which are found in section 4.

Your Honours, there were a number of findings made in relation to the money-laundering offences and I will just give your Honours the references to those for convenience, except for one point where I will take the Court to the relevant paragraph.

The primary judge made these findings and these were not challenged. The first was that the UOCL offences that Mr Hart was found to have committed were indictable offences. One can see a reference to that at paragraph [287 ]of the primary judge’s judgment which your Honours can find in volume 6 of the appeal book at page 2729. His Honour found at paragraph [77] of his judgment, which you will find at page 2687 of the appeal book, that practically all of Merrell’s funds were:

derived or realised directly or indirectly from UOCL.

At paragraph [62] of the appeal book, his Honour found:

that all of UOCL income was derived or realised from unlawful activity.

That is at page 2684 of volume 6 of the appeal book. At volume 6 of the appeal book at page 2731, paragraph [294], his Honour makes it clear that Mr Hart knew that his actions were dishonest - this is in relation to the UOCL offences - and:

that money received by UOCL was proceeds of crime.

His Honour indicated that:

Mr Hart also exercised a high degree of control over the day to day operations of UOCL and Merrell -

such that he suspected that Mr Hart:

could determine whether Merrell made loans to the –

respondents:

or demanded repayment -

as well as:

the conditions of the loans.

Your Honours will see that again at paragraph [77] at page 2687 of volume 6. His Honour indicated Mr Hart was aware of whatever funds were paid by either UOCL or Merrell to the respondents or other companies in the Hart group of companies. More importantly, his Honour found at paragraphs [292] to [294], volume 6, and these are at pages 2730 and 2731:

Mr Hart was in effective control -

of Flying Fighters and the other respondents during the period of the UOCL offences and can I ask your Honours to turn to page 2731 in volume 6 of the appeal book and can I invite your Honours to read paragraph [296].

Now, in light of those findings, your Honours, I will now turn to the first asset where the money laundering is directly relevant to the issues that your Honours have to determine, and that is the Hawker Sydney Sea Fury. The discussion of this commences at pages 2791 of volume 6 of the appeal book and could I ask your Honours to turn to that page.

At paragraph [609] on that page, your Honours, you will see a summary of what Mrs Hart’s evidence was in relation to the acquisition of the aircraft. Cash Flows 2 and 4 are listed as Merrell loans to Fighters. That was the $185,000 my learned leader referred to earlier.

Cash Flow 5 refers to a loan from Unlimited Aero Maintenance for $382,000. Now, what is important is that his Honour found in relation to cash flows 2 and 4, he found that they were from Merrell. He was not satisfied that they were not tainted and the consequence of that, in my submission, is that having made those findings which are not disputed here and were not disputed in the Court of Appeal, it would follow that acquisition of this aircraft cannot be lawful.

That is because, having regard to the findings made by the primary judge about the commission of proceeds of crime offences, Merrell, under Mr Hart’s control, disposes of or brings into Australia – disposes of certain funds in order to acquire this aircraft on behalf of Flying Fighters. They had to negative that being an offence for money-laundering purposes and, in my submission, they cannot do so, it being not disputed that Merrell made the payments and the consequence is that they cannot meet the requirement about acquiring the property lawfully for the purposes of section 102(3)(b).

The other payment, which your Honours will find – that is the Unlimited Aero Maintenance payment – was the subject of findings by his Honour. His Honour found that $300,000 of that amount was – he was not satisfied it was derived from lawful activity. Your Honours will see the relevant findings at paragraph [615] of his Honour’s judgment, which is at page 2792.

I will come back to the findings in that respect, but I will just note for the moment, your Honours, that the Court of Appeal did not disturb his Honour’s findings on this point and that the consequence was that, according to the Court of Appeal, the respondent companies had failed to demonstrate that some $485,000 out of a total of $644,000 – that is, about 72 per cent of the sum used to purchase the aircraft – was not derived from unlawful activity.

In my submission, if that finding is maintained – and I will be coming to reasons why it should be maintained – the consequence is that the aircraft cannot be demonstrated to have not been derived from unlawful activity. I say it that way simply because they have the onus of proving that it was not derived from unlawful activity.

Can I add this as well, that even if the notice of contention were to be upheld – and as I have indicated I will be indicating why it should not be – it is the respondent’s case that 28 per cent of the funds that went into acquiring this aircraft were derived from the Merrell payments and derived from unlawful activity, I would submit. Even on that basis, the court should conclude this aircraft was derived from unlawful activity. So, even if one were to accept their notice of contention, they would still fail.

Can I deal then with the notice of contention and I will try and deal with it reasonably briefly. Your Honours will see at paragraph [615] that the explanation provided by Mrs Hart was to the effect that there was an agreement to invest $1 million – Nemesis invested $1 million with Watson Benefit Services and in one month made a $300,000 return on that.

As his Honour points out there in that paragraph there is evidence of a transfer of $1 million, but there is no evidence of the alleged written agreement. There is no evidence from Mrs Hart that she had made the agreement. There is no evidence from Mrs Hart as to whether she had read the agreement or how she learnt of its terms.

Now, on that basis alone, there was a sufficient basis for his Honour to have rejected the contention that this was lawfully derived. It has been said against us and my learned leader has already covered the pleading point that we did not plead that this was from UOCL funds. That has already been dealt with and I need not come back to that.

It is also asserted that not sufficient notice was given that this point was going to be raised. We have dealt with that in our reply submissions and, in my submission, we there indicate by reference to the affidavits of Mr Vincent of 2 September 2009, Mrs Hart’s affidavit of 21 September 2010 and Mr Vincent’s subsequent affidavit on 21 October 2010, that the issue of where this $1.3 million, its original source, had come from was always in dispute. In fact, Mrs Hart’s affidavit – and I will give your Honours the reference; it is at volume 3 of the appeal book at page 1158 – she in fact tried to explain the source of the $1.3 million by reference to this alleged agreement. So the suggestion that they were not on notice about this is very hard to credit. They were aware of it, they tried to address it, but they simply did not convince the judge that their story was plausible.

It is said in the respondent’s submissions at paragraph 224 that Ms Lalor, who was an officer with the NAB, had not traced the funds in respect of this payment from Blackshort. The short answer to that is simply that it was not up to Ms Lalor or the appellants to do the tracing. The onus of proof lying on the respondents, they had to do the relevant work to convince the judge this was from lawful sources.

Finally, it is said that the relevant bank statements – let me take a step back. There was no other explanation – finally it is said the relevant bank statements demonstrate that UOCL money could not have been the money that went into this relevant cash flow. Now, that is dealt with, in my submission – I will just give your Honours the reference rather than taking you through the detail of the bank statements, but can I refer your Honours to the statements for UOCL, which your Honour will find in volume 5 of the appeal book at pages 2299 to 2300.

Your Honours will see at page 2299, just before the entry for 5 October, which has “CALTEMP”, there is a reference to “WATSON BENEFIT SERVICES”, $1.5 million. So UOCL transfers money into the account of Watson Benefit Services and there is a $1.5 million transfer there. If your Honours turn over the page, corresponding to the date of 12 October, your Honours will see there is another transfer to Watson Benefit of half a million dollars.

Now, my learned friend’s argument seems to be yes, that money was transferred. Yes, Mrs Hart could not explain in cross-examination why UOCL was transferring that money. But, nonetheless, when one had a look at the particular bank statements from Watson Benefit Services in October 2000 and Blackshort’s account statement in November then, somehow, the UOCL money could not have ended up with Watson Benefit Services and then Blackshort and then gone back to Nemesis. Can I ask your Honours to turn to volume 3 of the appeal book, at page 1193.

GORDON J: What was that reference, please.

MR DEL VILLAR: Volume 3, 1193.

GORDON J: Thank you.

MR DEL VILLAR: Your Honours will there see, right near the bottom of the page, under the date of 4 October 2000, a reference to “Proceeds of overseas inward transfer” in an amount that is almost $1.5 million. That is the amount from UOCL. Can I ask your Honours to turn over the page and one will see next to the date of 12 October 2000 there is “Proceeds of overseas inward transfer” – about two-thirds of the way down the page – that is the $500,000 from UOCL.

When one goes through the statement there are payments being made to Watson Benefit, there are payments being made to Mr Hamish Watson and there are payments to other entities which are not identified. The point that his Honour Justice Morrison made at page 3095 in volume 7 of the appeal book - and that is at paragraph [617] - was that one could not simply rely on the fact - could not safely rely on the fact that certain payments had been indicated as going to Blackshort because there were a whole host of undesignated payments and other sums going to Mr Watson. That, in my submission, makes it difficult to see what support the bank account or the bank statement from Watson’s Benefit Services gives to the respondents.

The respondents next say, well, what about the Blackshort bank statements and your Honours will find this in volume 4 of the appeal book at page 1574. If your Honours turn towards the bottom of that page where the date says 6 November 2000, there is a reference – sorry, 3 November 2000, there is a reference to 1,300,000.00. That is the relevant amount that gets transferred from Blackshort and which Mrs Hart says was part of the agreement.

But, when one turns to 6 November 2000 one sees references to a half a million dollar payments and $1.3 million payments and as his Honour Justice Peter Lyons said in the Court of Appeal - and this is at volume 7 of the appeal book at page 3178, paragraph [1024] - these deposits are just unexplained.

In fact, there are many things about this whole business which are unexplained. You have UOCL making unexplained transfers to Watson Benefits. You have unexplained moneys being paid into Blackshort account in large sums and it is in that context that his Honour is simply not satisfied that this is untainted money.

So, in my submission, the notice of contention with respect to the Sea Fury needs to be dismissed and as a result 72 per cent of the funds that go towards the acquisition of the Sea Fury have not been demonstrated to be not from unlawful activity and as a result it is derived from unlawful activity. Irrespective of that, as I indicated earlier, it is not acquired lawfully given the money-laundering offences were committed in the process of acquiring them. The next aircraft to which the money-laundering offences are relevant is the North American - - -

GORDON J: Is that your last submission on Sea Fury?

MR DEL VILLAR: Yes, your Honour.

GORDON J: Because you did have a ground of appeal in relation to use, did you not?

MR DEL VILLAR: Yes, and I am content to rely on my written submissions.

GORDON J: I understand. I just want to make sure that you are still pursuing it.

MR DEL VILLAR: We do not resile from it but I do not want to elaborate on it.

GORDON J: I see. Thank you.

MR DEL VILLAR: Can I deal next with the North American T-28 VH-SHT? I should just interpolate, there is another North American T-28 but I will just refer to this as the T-28 and I will refer to the other one by a different name for convenience. His Honour’s findings about this and his discussion commence at paragraph [482] of volume 6 of his judgment which is found in 2776 of the appeal book.

Can I ask your Honours to turn to page 2778? At paragraph [487] – sorry page 2777, his Honour is there referring to cash flow 5 and if your Honours look up at the table, cash flow 5 is identified as a payment from Merrell to Geoff Klooger and it is in the sum of $83,100. As the reasons of paragraph [487] indicate Mrs Hart did not disagree that the funds from Merrell were from UOCL. So his Honour found the companies had not established that that cash flow was not derived or realised from unlawful activity.

In my submission, two things can be said about that. Let me deal briefly with the derivation point. The majority of the Court of Appeal - and you will find this at paragraph [1017] at page 3176 of the appeal book indicates that because only this amount comes from unlawful activity then that is not sufficient. But it is fairly clear in my submission that the reason that his Honour Justice Lyons came to that conclusion was that his Honour was influenced by his construction of “derived” as meaning wholly derived.

If one does not accept that construction but accepts the construction that we have been putting forward then the fact that the sum of $83,000 representing some 29 per cent of the funds used to acquire the property is demonstrated to be from unlawful activity should be enough to preclude the property from being claimed to be from lawful activity.

KIEFEL CJ: What is the relevance of the finding at paragraph [488]?

MR DEL VILLAR: That relates to cash flow 6, your Honour, which is on the previous page and we are not – the primary judge found that cash flow 6 was also tainted. The Court of Appeal disagreed. We are not contending anything in relation to cash flow 6 in this Court.

KIEFEL CJ: I see.

EDELMAN J: Is your argument just that 29 per cent in relation to the North American T-28 only based upon the derivation construction which is concerned to say that it is sufficiently substantial, to use one expression, or is there any emphasis placed on the “but for” or the causative analysis in relation to that?

MR DEL VILLAR: For the purpose of answering whether or not it is derived from unlawful activity in this particular factual situation they both lead to the same result, in my submission. An amount that large obviously intended to pay for the aircraft just has the result that it cannot be said it is not from unlawful activity.

Can I then turn to the money-laundering offence which I submit was committed and that is once it is accepted that the $83,100 was from Merrell, once it is accepted that Merrell is under Mr Hart’s control and likewise that the respondents are under Mr Hart’s control and that all of Merrell’s funds from UOCL and all of that is unlawful then it follows that when Merrell provides the funds to Mr Klooger it commits a money-laundering offence.

Now, it is said that there is a different result here because - the respondent’s submissions say this at paragraphs 133 to 134 - it is suggested that somehow the fact they paid Mr Klooger makes a big difference. In my submission, that is not the case. Can I ask your Honours to turn to volume 7 of the appeal book at page 3173 and can your Honours see at paragraph [1001] his Honour Justice Peter Lyons points out that the 83,000 is not an issue in the appeal and then he refers at paragraph [1002] to the fact that Geoff Klooger & Associates are the solicitors for the respondents.

So, the argument really seems to be that even though money goes from Merrell to the respondent’s solicitors and then the respondents then use that money to pay the aircraft somehow that breaks the nexus such that even though both Merrell and the respondents are under Mr Hart’s control and obviously know that this is from unlawful activity or it can be – or they have not demonstrated that at any rate that they did not know, then somehow that prevents a money-laundering offence from being committed. In my submission, that submission is just not tenable.

Can I refer your Honours to volume 2 of the appeal book just to illustrate this point – that is, volume 2 of the appeal book, page 736. This is Mrs Hart’s affidavit sworn on 23 July 2010. Your Honours will see towards the bottom of that page next to paragraph (b) it refers to:

a further payment of $100,000 was paid by Merrell as a loan to FF, by telegraphic transfer –

If your Honours can then turn to page 739 of the appeal book, your Honours will there see in the table the second entry is 27 October 1998 - it says “Merrell to Trust Klooger” – “100,000”. That is the reference earlier. At paragraph (g) in the table there, can I ask your Honours just to read that? So where it says “$100,000” $83,100 is split and paid for the T28 and then the other amount is paid for another aircraft which is not in dispute in this matter.

In my submission, given those facts, the court should not have found that there was no money-laundering offence and this Court should find that the aircraft was not acquired lawfully because an offence was committed in the process of acquiring it.

GAGELER J: What, relevantly, were the steps in the acquisition for the purpose of that submission?

MR DEL VILLAR: The relevant steps in the acquisition, your Honour, are set out at paragraph 482 – sorry, paragraph 482, page 2776 and 2777 of the primary judge’s judgment. He refers to the cash flows. What happened was half the plane was purchased in 1996, and your Honours can see that from the table, and then other payments for the other half of the plane were made in 1998.

In my submission, what happened was Merrell pays – Merrell, intending it to be a loan to Flying Fighters, one of the respondents, sends money to the trust account of Mr Klooger - who are Flying Fighters’ solicitors. Flying Fighters then applies that amount to pay for the aircraft, $83,100, and in that situation there is a money-laundering offence that has been committed in the process of actually paying for the aircraft.

EDELMAN J: Short point is that section 82 encompasses indirect transfers as well as direct transfers.

MR DEL VILLAR: Precisely. It talks about proceeds of crime and talks about derived directly or indirectly and it makes it an offence to receive or dispose of the proceeds of crime as well as to bring it into Australia. Your Honours, I will not say any more orally with regard to this aircraft but can I then turn to the proceeds of 27 Samara Street, Sunnybank Hills? We have attempted at paragraphs 98 to 103 of our submissions to summarise the key findings that his Honour made in relation to this, and some of those findings concern the Hendon arrangement. I will just give your Honours references to the primary judgment and the Court of Appeal for your Honours’ convenience.

The features of the arrangement are also summarised by his Honour Justice Morrison at paragraph [483] of the Court of Appeal’s judgment at pages 3065 to 3066 of the appeal book, and paragraphs [942] to [947] in his Honour Justice Peter Lyons’ judgment. Your Honours, the bottom line is – and I will deal with the Hendon arrangement in more detail in a moment because of the notice of contention, but the primary judge finds that 27 Samara Street is purchased with a sum of $45,000 that comes from Astion, and a sum of $100,000 that is borrowed from the ANZ. Your Honours can see that at paragraphs [799] to [801] in volume 6 of the appeal book at page 2823. There does not seem to be any dispute that $45,000 came from Astion.

His Honour was not satisfied that the $45,000 did not come from the Hendon arrangement. This was a tax-minimisation scheme which the Commonwealth alleged involved breaches of section 8N of the Taxation Administration Act which involved recklessly making statements about the operation of tax laws.

So his Honour finds the $45,000 comes from Astion which is one of the entities involved in the Hendon arrangement. He is not satisfied it comes from the Hendon arrangement. He is not satisfied that funds from the Hendon arrangement are not derived or realised from unlawful activity, and his Honour’s findings to that effect are found at pages 2740 and 2742 of his Honour’s judgment at paragraphs [336] and [346]. I need not take your Honours to that for the moment.

But more importantly, at paragraph [807], his Honour finds that it would be unlikely that the ANZ would have lent 100 per cent of the purchase price and therefore that the property was being purchased without the contribution lent by Astion. That is at paragraph [807] of page 2825.

GORDON J: Just so I am clear, there are two aspects to this - you have the $45,000 coming from the Hendon arrangement because there was the finding that it was the principal recipient of all of the fees and commissions generated from the tax-minimisation scheme.

MR DEL VILLAR: Yes.

GORDON J: Then the second is this finding that but for the $45,000 ANZ would not have lent the $100,000.

MR DEL VILLAR: That is the essence of it.

GORDON J: I see.

MR DEL VILLAR: The Court of Appeal does not disturb his Honour’s findings, and your Honours will see that at paragraphs [968] and [1165] in the judgment of his Honour Justice Peter Lyons, and likewise at paragraphs [509] and [721] in the judgment of his Honour Justice of Appeal Morrison. So the findings about the Hendon arrangement and about this particular property were upheld by the Court of Appeal and, in my submission, assuming that the Court of Appeal’s findings and primary judge’s findings in these matters are correct – in other words, leaving the notice of contention to one side for the moment – it must follow that this property is derived from unlawful activity because there is a finding that ANZ would not have provided the amount but for the amount that comes from the Hendon arrangement.

KIEFEL CJ: What were the findings in the Court of Appeal about Bubbling at paragraph [1172], page 3204? What does that mean in the context of what you have told us about this transaction?

MR DEL VILLAR: As I understand that, your Honour, that is a reference to the fact that the Court of Appeal took the view that property had to be 100 per cent derived from unlawful activity and it clearly was not given that ANZ had provided a $100,000 loan and it is partly on that basis that the Court of Appeal says “Very well, it is not derived from unlawful activity”.

Can I deal next with the notice of contention in relation to this aspect? Your Honours will find the relevant submissions of the respondents at paragraphs 235 to 242 and - - -

EDELMAN J: Just before you move on, again your two arguments on the derived point are that the 30 per cent from Astion is sufficient and the “but for” analysis. Did the “but for” point run in the Court of Appeal?

MR DEL VILLAR: Yes.

EDELMAN J: It was not actually addressed.

MR DEL VILLAR: I think it is addressed, your Honour. Can I just take your Honour to paragraph [1168] of the judgment of his Honour Justice Peter Lyons. It is right near the bottom of page 3203 of the appeal book, the last sentence beginning:

As the learned primary Judge found, it seems likely that ANZ would not have lent the balance of the purchase price, but for the fact that Astion had provided the sum of $45,000.

EDELMAN J: Why was that not sufficient for a conclusion that it was derived or that it was not shown not to be derived?

MR DEL VILLAR: Because the majority took the view it had to be 100 per cent derived, and there does seem to be some suggestion, although it is a little bit hard to understand, at paragraph [1171], that there may have been other sources of income - - -

EDELMAN J: The point I am asking is slightly different. The 100 per cent is the transactional basis upon which you put the derived argument. What I was just asking was whether there was any reflection upon the “but for” basis which applies irrespective of the percentage.

MR DEL VILLAR: That is the sum total of the majority’s reflection on it. Can I deal next with the notice of contention, your Honours? I have indicated that the respondent’s submissions on that were at paragraph 235. Our reply deals with that, at paragraphs 65 to 68. I do not want to simply repeat myself but can I make three points in relation to this.

First, there seems to be a general submission that there was no admissible evidence for the judge’s suspicion that the Hendon arrangement contravened section 8N of the Taxation Administration Act. In my submission, that simply misconceives the onus of proof and how it applies in these proceedings. It was up to them, the respondents, to demonstrate there was no relevant recklessness by Mr Hart and others. We had pleaded the point about recklessness of Mr Hart and others. I will give your Honours the reference; I will not take you to it: volume 1 of the appeal book, page 137, paragraph 99(c), where we refer to Samara Street and the Hendon arrangement.

Our point is simply this. It was up to them to demonstrate there was no recklessness; it was not up to us to demonstrate there was recklessness. The appellants put forward evidence, which was not objected to, from Mr Stevens, who had worked in the Harts Australasia Ltd Group, and from Mr Young of the Australian Tax Office. They set out their understanding of the Hendon arrangement. Mr Young gave evidence about the Commissioner of Taxation assessing primary tax and imposing penalty tax on the basis of recklessness, and he referred to two Federal Court cases, one of which was, in short, BRK. As I have indicated, there was no objection to the reading of those affidavits.

The complaint seems to be that his Honour the primary judge simply said well, because BRK finds recklessness against Mr Hart and others, the primary judge just applied that finding in this case, but there are a couple of difficulties with that. First, can I ask your Honours to turn to volume 6 of the appeal book, at page 2735. Your Honours will see in that paragraph - - -

GORDON J: This is paragraph [318], is it?

MR DEL VILLAR: Yes, it is, your Honour. The second sentence makes it quite clear:

The Companies did not contend that the reasons in –

BRK:

misstated the operation of the scheme.

In other words, they implicitly agreed that the description was correct. In those circumstances, as his Honour Justice Peter Lyons indicated, the primary judge was entitled to rely upon BRK at least for its description. But as I have already indicated, there was other evidence about the Hendon arrangement in the form of affidavits from Mr Young and Mr Stevens.

Can I ask your Honours to turn to paragraph [325] of the primary judge’s judgment. There is a reference there, at page 2736, to advice that was provided to Harts Accountants and Auditors from Cleary and Hoare. The import of the advice was it was absolutely vital that these trust documents be cleared with the lawyers in order to ensure that they were effective to appoint the relevant trustees. That is not what happened. In fact, can I ask your Honours to turn to paragraph [948] of volume 7 – I am sorry - - -

GORDON J: Have you dealt with paragraph [324] on that page, where the finding was made that, but for 12 per cent of the money appointed, it had been retained by the applicant taxpayer and spent in various ways unrelated to the development?

MR DEL VILLAR: Yes.

GORDON J: Is not that the problem?

MR DEL VILLAR: I do not think the problem is that particular paragraph. The problem seems to be that with a finding of recklessness in relation to BRK – perhaps I misunderstood your Honour’s question.

GORDON J: We are trying to work out, in a sense, are we not - putting aside the recklessness, I thought that the reference to BRK was to explain two things: one, that there was at least some acknowledgement that the scheme outlined itself was the scheme; and, secondly, what were the facts underpinning the scheme.

MR DEL VILLAR: Yes.

GORDON J: Here it is, you have funds which should have gone to a particular source being diverted to another source and used for other means.

MR DEL VILLAR: That is right, your Honour, but I think the principal problem with the scheme, if I can call it that, was that it was a tax-minimisation scheme and it simply could not work given the actions of the Hart companies. They were representing to people that if you do this your tax will be minimised, but in order to do that they actually had to comply with legal requirements for the appointment of the trustees and they had to make sure, according to the advice provided by their lawyers, that the lawyers reviewed the relevant trust documents before they were put in place. They did not do that. There is no dispute that they did not do that. That gives rise to the possibility that they were reckless – in fact, more than the possibility that they were reckless.

I was taking your Honours to paragraph [948] in the Court of Appeal’s judgment, to page 3161 of volume 7 of the appeal book. Can I ask your Honours to read that, because it conveniently summarises the advice from Cleary and Hoare. The actual advice, your Honours, you will find begins – it is quite a lengthy one and I will not take you to it but I will give your Honours the reference. It is at volume 4 of the appeal book. It begins at page 1842, and at page 1922 is where you will find the reference to the necessity for the lawyers to review each of the relevant documents.

It is in that context, where the advice is before the primary judge and it is clear that there has been a failure to follow it, to put it mildly, that a real issue arises about whether or not Mr Hart and others who worked with him were reckless. No evidence is called by the respondents from Mr Hart, Mr Adcock, who was the other individual who helped form this scheme. They did not call advice from Cleary and Hoare.

They did not run a positive case, and that leads inevitably, in my submission, to the conclusion that it is not the obvious inference, as my learned friends for the respondent contend that the primary judge should have found negligence instead of recklessness. Their failure to actually put any evidence about Mr Hart and the states of mind of the relevant people made it inevitable that they were going to fail to discharge their onus of proof.

There is another argument that is raised in relation to the Hendon arrangement, and that is the primary judge should have found that the $45,000 was not derived from Hendon because it was borrowed in 1997 and the Hendon arrangements were from the 1993, 1994 and 1995 financial years. In other words, it was too late. His Honour dealt with this at paragraphs [343] to [345] of his judgment.

BELL J: Do you have a page reference?

MR DEL VILLAR: Yes, your Honour, it is at 2741.

BELL J: Thank you.

MR DEL VILLAR: He is considering that in the context of the onus of proof and that is where he makes findings about the amounts. Then, at paragraph [344] his Honour finds that this rent account that Astion had because Astion brought a property – he was not satisfied that the moneys from this were not indirectly derived from the reckless representations.

His Honour’s finding in that respect was upheld by the Court of Appeal and in my submission that was correct. One reason it was correct is because there is evidence from Mr Stevens, who was the relevant employee of Harts at the time, suggesting that it was the clients in the Hendon arrangement who were asked to provide guarantees for the buying of this particular rental property.

Can I ask your Honours to turn to volume 4 of the appeal book, page 1840. So one sees at paragraph 13 Mr Stevens is talking about a number of things that would need to be done and he refers towards the end of that paragraph to “provide a bank guarantee”. At paragraph 19 he indicates:

The acquisition of the Whyalla Property –

which is this property from which this rent was supposedly derived, depends on:

the provision of $1,339,000 (in value) of Bank Guarantees –

and he refers to the earlier paragraph in this affidavit. So, the bank guarantees that helped the property to be bought which produce rent are all clearly derived from the Hendon arrangement. There is no doubt of that, in my submission. That is another reason why the primary judge’s findings on this point should not be set aside.

Your Honours, can I take your Honours briefly to the Mercedes Benz? The facts of this are complicated but they are best summarised at pages 3208 to 3209 of volume 7 of the appeal book, especially paragraph [1196]. In essence, what happened was a receiver gets appointed and in order to buy back assets the receiver holds they take out a loan from Dr Fleming. Dr Fleming does not give the loan unless the Sea Fury is included as a security for the loan, and the primary judge - and I will give your Honours the reference - volume 6, page 2833 – he finds that Dr Fleming at paragraphs [844] and [845] – would not have made the loan absent the Sea Fury being a security. As the primary judge puts it at page 2833 at paragraph [845]:

I am not satisfied that Dr Fleming’s loan would have been made without the security of the charge over the Sea Fury aircraft. Accordingly, I am not satisfied that the car was not derived or realised, indirectly from unlawful activity.

So, the Court of Appeal sets aside the primary judge’s judgment on the basis that they find that the Sea Fury is not derived from unlawful activity. One can see that in the Court of Appeal’s judgment at paragraph [1199], and that is the only reason they set it aside. So, their findings there are directly dependent on their findings about the Sea Fury and, in my submission, if, as I have submitted, the Sea Fury is regarded as being derived from unlawful activity, then it must follow that the Court of Appeal’s reasons with respect to the Mercedes Benz have to be set aside.

It has been suggested in the notice of contention that there is an error in the primary judge’s judgment because it is not a case - as a matter of principle one cannot say that something has been derived from unlawful activity where you have a general security placed over an asset that coincidentally happens to cover a tainted asset.

That is dealt with, in my submission, at paragraphs [641] to [643] of his Honour Justice Morrison’s judgment. Your Honours will find that at pages 3099 to 3100. At paragraph [641] his Honour points out there was a considerable amount of evidence to support the proposition that the security over the Sea Fury was of cardinal importance to Dr Fleming in making the loan.

EDELMAN J: This submission really just rises and falls on acceptance of the “but for” test or the causative approach to “derived”, does it not?

MR DEL VILLAR: Yes, it does. I will not take your Honours further, but we commend that analysis and we submit that it is correct, and the conclusion must be that the Mercedes Benz should be found to have been derived from unlawful activity.

Your Honours, that takes me to the next property, which is the North American Trojan, also a T28, but this one is a VH-AVC. The relevant facts are well-summarised at paragraphs [1094] of his Honour Justice Peter Lyons’ judgment, [1094] to [1096]. My learned leader has already covered this to the extent that it deals with moneys expended on an aircraft for repairs and restoration and I will not be repeating what the learned Solicitor-General said about that.

I would simply make this point in addition to the points made in our written submission, and that is it is suggested at paragraph [1108] in addition to his Honour Justice Peter Lyons’ general difficulties with derivation after there has been an acquisition he says – there he says:

money spent on restoration and repair would (at least ordinarily) not be taken into consideration.

In the following paragraph he says, well, if I am wrong about that:

I would nevertheless conclude that Fighters has shown that its interest in this aircraft was not derived –

because he refers to the:

relatively small amount spent on repairs and restoration, when compared to the purchase price.

That is at paragraph [1109]. In my submission, when one compares the $50,000 spent on repairs and the purchase price of $228,500, that is approximately 22 per cent of the purchase price, it is a sufficiently large amount to say that his Honour’s conclusion is incorrect. Can I pass from there? I will not say any more about that aircraft. The issue of derivation after acquisition has already been covered by the learned Solicitor.

May I turn next to the perpetual offences? These affect the last three properties but in slightly different ways. Now, the properties in question are: Hangar 400, Doonan’s Road, Grandchester – or the proceeds of Doonan’s Road, Grandchester – and 6 Merriwa Street, Sunnybank Hills.

The relevant facts are summarised in our submissions at paragraphs 113 to 118. There is a lengthier summary in aspects of the Court of Appeal at paragraph [978] of Justice Peter Lyons’ judgment and [434] to [554] in his Honour Justice Morrison’s judgment. The primary judge’s discussion is found at paragraph [198] onwards, at page 2713 of volume 6 of the appeal book.

Relevantly, what had occurred was this. The NAB issues a notice that demands immediate payment of approximately $3.5 million, which Nemesis owes to it. It issues a notice of a power of sale. The respondents then seek to obtain funds to allow that entity - facility to be paid off. In doing so, they sign loan documents for Perpetual, which contains a clause with a representation. Now, that representation is extracted at paragraph [984] of the Court of Appeal’s judgment, at page 3169.

Now, the Commonwealth’s case with respect to this was that the representations were false and knowingly false and they involved contraventions of section 408C(1)(f) of the Criminal Code (Qld). That provision is extracted at paragraph 115 of our submissions and it involves:

A person who dishonestly-

. . .

(f) induces any person to do any act which the person is lawfully entitled to abstain from doing;

. . .

commits the crime of fraud.

The argument was – and this was pleaded – that because they were indemnifying the doctors and because they were under Mr Hart’s effective control and they knew that the representations were false because they were providing the indemnities, even though they represented they were not, then they committed the offence or at least the respondents had to prove that they did not commit the offence.

Now, the findings of the primary judge are set out at paragraphs [279] to [280] of his Honour’s judgment at page 2727. Sorry, your Honours, it should be paragraphs [275] to [276]. The basis upon which his Honour reached that conclusion begins at paragraph [243], which is at page 2720, where his Honour considers whether an indemnity was in fact provided. He finds, at paragraphs [244] to [245] that indemnity was provided and that particular point does not seem to be contested, that there was in fact an indemnity. That does not appear to be contested by my learned friends in their submissions - and their written submissions. That was an important aspect of his Honour’s finding.

Another important aspect of his Honour’s finding was the fact that he found that these companies were in Mr Hart’s effective control at the relevant times. The Commonwealth had pleaded that the fact that they were in Mr Hart’s effective control and the fact that these options agreements which comprised indemnities were being provided were some of the factors that indicated that these representations were false. As I have indicated the Court of Appeal did not disturb these findings.

Leaving aside the notice of contention for a moment that has the consequence, in my submission, that the Court of Appeal should have applied the test as to whether or not these properties, Hangar 400 and Doonan’s Road, were used as securities in the loan process. In my submission, when one asks whether or not they were used in connection with these offences - which I will call the Perpetual offences - the answer should have been yes, for these reasons.

The words used in connection with unlawful activity are of a wide scope and they will capture a relationship between the use of the property and unlawful activity that is not remote or tenuous. Your Honours may recall that my learned leader took your Honours to the case of the Director of Public Prosecutions (SA) v George in which his Honour Chief Justice Doyle said a causal relationship is not required and also indicated that one does not have to say that it is essential for the commission of the offence and so on.

EDELMAN J: Is the question not about connection; it is about use?

MR DEL VILLAR: They were certainly used. They were used as security, so there is no doubt there was a use, in my submission. The real question is was that use in connection with the offences which the judge was satisfied they had not disproved? In my submission, the answer should be yes, contrary to the Court of Appeal, because the dishonest representations were made to induce the loans from Perpetual and they simply could not have achieved that effect unless Hangar 400 and Doonan’s Road were used as securities.

It is relevant in this connection when one considers whether there is a sufficient link that the option agreements were options to purchase Hangar 400 and Doonan’s Road and yet the representations were – and these amounted to indemnities, as his Honour found – “We’re not making any, we’re not providing an indemnity in favour of the relevant persons, Drs Ambler and Fleming”.

So there is a connection on two levels. The dishonest representation could not have achieved the outcome unless these properties were used as security and moreover the very subject, the very indemnities concerned the options granted over Hangar 400 and Doonan’s Road, and those factors, in my submission, should have led the Court of Appeal to find that these properties were used in connection with the relevant offences under section 408C of the Criminal Code.

KIEFEL CJ: Did the primary judge find that the connection with respect to Hangar 400 was too tenuous?

MR DEL VILLAR: Yes, his Honour did. His Honour found they were too tenuous. His Honour deals with that at paragraph [781] of his Honour’s judgment. That is at page 2819. Can I make a couple of points in relation to these findings. They were clearly based on his view that one had to have the substantial connection between the use of the property and the unlawful activity in question. One can see that at paragraphs [278] of his judgment, which is at page 2727. One also sees that at paragraph [282] of his judgment, which is at page 2728.

So he is expressly applying the wrong test, in my submission. He reaches the conclusion in [781] that the connection was “too tenuous”, partly by applying the wrong tests but partly also because he says, in the third line from the bottom of page 2819:

The representations were not the sole cause for Perpetual’s advances of money.

In my submission, they did not have to be the sole cause of Perpetual’s advances of money. That just seems, with respect, that his Honour just miscarried in the analysis that he undertook there. In effect, he was saying they would have lent the money regardless, but that is not the situation. The representations were clearly important to lending the money and that is why they were demanded by the lender.

It is suggested by the respondents in their written submissions that the Court should not disturb the primary judge’s findings because this was a question of judgment involving matters of assessment of evidence and so on. In my submission, the facts are clear about the Perpetual offences. We are not seeking to contravene those or to contradict them in any way; we are relying on them. The documents are clear and in that situation the Court can readily determine for itself whether these assets were used in or in connection with unlawful activity by reason of the primary judge’s undisturbed findings.

GORDON J: So in that respect, do you rely upon, in a sense, the evidence that was set out upon which the primary judge made those findings including the evidence given by those who signed it at paragraphs [224] and onwards?

MR DEL VILLAR: We do rely on the primary judge’s findings and those paragraphs. I will be coming back to that in the context of notice of contention because there is a suggestion that the primary judge’s findings were wrong, but my limb of the argument at this point is, if one accepts the primary judge’s findings, as the Court of Appeal did, then the conclusion should be the property was used in or in connection with unlawful activity.

EDELMAN J: Does that mean that a representation about any property or subject matter always involves a use of that subject matter?

MR DEL VILLAR: The relevant use here, your Honour, is the use of the properties as securities and that, in my submission, is connected with the false representation because it ensures that the false representation, that its purpose is achieved. It ensures that they can get the loan.

GORDON J: So if you are stepping through it, as I read it you have an application for finance. The financier says, “I’m prepared to give A and B the loan but on certain conditions. Those conditions are that they - conditionally approved on the relevant people giving the representations”.

MR DEL VILLAR: Yes.

GORDON J: That condition is met by them giving the representation and the properties are security for that loan.

MR DEL VILLAR: The loan requires the properties to be secured. The loan also says you have to give representations that no indemnities are being provided by any company associated with Mr Hart. They secure the properties. It so happens that the properties secured are also the very subject of the indemnities which they are providing. It is clear or at least it is not asserted to the contrary that the actual representations are false. The question is, are they knowingly false?

The primary judge says, “I am not satisfied that they are not false and therefore I am not satisfied that the offences were not committed”. Once that conclusion is reached, in my submission the Court of Appeal was simply wrong to say that there was no relevant connection between the use of the property and the unlawful activity.

EDELMAN J: The syllogism is that the properties are used in connection with the loan as security, but the loan is connected to the offence. Therefore, the properties are used in connection with the offence. That is effectively your reasoning, is it?

MR DEL VILLAR: That is basically it but it is more than - the loan process by virtue of this representation which is false is a fraudulent loan process and that is why there is that connection. Your Honours, can I deal with Doonan’s Road and 6 Merriwa Street again on the basis that for the present the primary judge’s findings are to be taken as undisturbed. Given those findings about the commission of the Perpetual offences or more accurately the respondents have failed to prove that they were not committed, the majority of the Court of Appeal should have held that the respondents have also failed to demonstrate that the proceeds of their sales from Doonan’s Road, as well as 6 Merriwa Street, were not derived from unlawful activity.

We have set out our reasons at paragraphs 121 to 123 of our submissions and in our reply at paragraphs 45 to 46. Can I simply take your Honours to the judgment of his Honour Justice Peter Lyons at paragraph [1145], just to demonstrate a couple of points that have been foreshadowed by some of the arguments made by my learned leader yesterday?

BELL J: Again, do you have a page number?

MR DEL VILLAR: Yes. It is page 3200, volume 7. This is in relation to 6 Merriwa Street, Sunnybank. I will deal with that very briefly here.

GORDON J: So we are dealing with Merriwa Street, not Doonan’s Road? Is that the position now?

MR DEL VILLAR: Yes, there are commonalities about the reasoning of each.

GORDON J: I accept that. I just want to make sure what - - -

MR DEL VILLAR: I will deal with Sunnybank here. At paragraph [1145], his Honour sets out:

This property was purchased . . . The learned primary Judge found that by 1993 the purchase monies had been paid, and any debt secured by mortgage over this property had been repaid, so that the property was then unencumbered -

At paragraph 1153 on the following page, his Honour expresses the view that:

the fact that by 1993 Nemesis owned the property unencumbered, and that it had paid for it . . . has the consequence that it has demonstrated that its interest is not derived from unlawful activity.

In other words, some 13 years before forfeiture, notwithstanding the Perpetual loans which were used to pay off this property later, it is to be concluded simply because by 1993 it was unencumbered, then it just could not have been derived from unlawful activity and, in my submission, that analysis is simply mistaken.

Can I add these points as well, your Honour, and that is important not just in relation to 6 Merriwa Street but also Doonan’s Road, Grandchester, and I will take your Honours to the relevant paragraphs. There is no dispute that the funds from these loans from Perpetual were used together with funds from another entity called Equity Trust to pay out mortgages over both these properties and they were used in circumstances where the NAB had demanded immediate payment of some $3.4 or $3.5 million from Nemesis and had issued a notice of exercise of its power of sale over all the assets of Nemesis. I will give your Honours the reference and I will not - - -

GORDON J: Can I just walk through this. I misunderstood this argument, I think. I thought the Court of Appeal found that it was remortgaged to Equity Trust and therefore not to Perpetual. So is this a “but for” analysis?

MR DEL VILLAR: This is a “but for” argument.

GORDON J: In other words, it is not so much that Perpetual – this is, in a sense, another step back from that which we were talking about in relation to the earlier property? It is a cascading down.

MR DEL VILLAR: Can I put it this way? It is Nemesis’ property.

GORDON J: Yes.

MR DEL VILLAR: Then by 1993, according to his Honour, Nemesis is unencumbered, but later on what happened - - -

GORDON J: It is remortgaged to NAB as part of the arrangement you took us through in relation to the Perpetual offences.

MR DEL VILLAR: Exactly.

GORDON J: But it is not a Perpetual loan funded – it is remortgaged to Equity Trust to provide funding for the stream from Equity Trust.

MR DEL VILLAR: But our point is that without the Perpetual loans having been made, it does not get released from NAB. That is the critical factor. Equity Trust provides $1.75 million.

GORDON J: So it is purely a “but for”?

MR DEL VILLAR: Yes, your Honour. Equity Trust provides $1.75 million, Equity Trust provides 1.22 roughly. These properties - Doonan’s Road, as well as 6 Merriwa Street do not get released from the NAB mortgage unless the Perpetual loans are used. In my submission, that is reasonably clear although subject to one point that I will make in a moment. In other words, the Perpetual loans and their role in obtaining the release of these properties, which are interests of Nemesis, is critical. Therefore, one cannot say, as his Honour Justice Peter Lyons does here and says later in relation to Doonan’s Road, that it just does not really matter about the Perpetual loans.

EDELMAN J: Is that because what you say the property is that is being derived or realised is the unencumbered interest as opposed to the previously encumbered interest? If not, what is the property you say that has been derived?

MR DEL VILLAR: The property – well, can I put it this way, your Honours? I will do it chronologically, if I might. In 1993 they have an unencumbered legal interest in 6 Merriwa Street. It is then encumbered again. That is in favour of the NAB. NAB is about to exercise power of sale, or at least it has indicated it will, and it only is released from NAB and then mortgaged in the case of 6 Merriwa Street to Equity Trust, in the case of Doonan’s Road to Perpetual - that only occurs because of the Perpetual loans being used to pay out NAB. That is why we say it is derived because what one ends up with – the encumbered interest – is critically causally related to these Perpetual loans being made and providing the funds to release them from NAB.

Can I take your Honours to paragraph [1193] which is at page 3208? Your Honours, this is the series of conclusions with regard to Doonan’s Road, Granchester, and the reasoning is fairly similar in that it said:

I do not consider that this property was used in connection with unlawful activity –

So that was the link that I have already dealt with:

nor do I consider that the monies borrowed from Perpetual were relevant to the derivation or realisation of Bubbling’s interest in this property, which was paid for as I have earlier described.

That I take to be a reference to the matters which are set out at paragraphs [1177] to [1179] of the judgment – sorry, if I can just go back to [1193], his Honour says:

should it be relevant to consider the interest of Bubbling subject to mortgage, that interest does not seem to me to have been materially different before and after the loan by Perpetual.

Now, in my submission, that cannot be accepted because it is a different mortgage to a different entity for a different amount. So there seems to be a difficulty in the reasoning here, in my submission, in saying well, we are just looking at the extent. There is an encumbered interest, it is encumbered. It does not matter to whom it is encumbered, it does not matter about the value. Therefore, one cannot say that the release of the property from the NAB is somehow relevant to derivation, even though the Perpetual loans are the very thing that allow it to be released, or one of the very things that allow it to be released from the NAB.

So really, your Honours, just to recap, we are arguing for a “but for” test in this case, given the facts, given the financial difficulties here, the Perpetual loans and the role they play are critical, and it is that which, in our submission, founds the arguments for derivation from unlawful activity.

GORDON J: So can I just make it clear that in relation to Justice Morrison’s analysis about the source of repayment of the Equity Trust loan, you do not rely upon those facts?

MR DEL VILLAR: No, your Honour. He is talking about UOCL.

GORDON J: He is, and that is why we have dealt with UOCL.

MR DEL VILLAR: And we are talking about Perpetual.

GORDON J: So you do not rely upon that source of funds to make the repayments on the derivation or source question?

MR DEL VILLAR: Not on this issue.

GORDON J: Okay.

MR DEL VILLAR: Your Honours, can I deal next with the notice of contention? Can I point out that we dealt with this in our reply at paragraphs 51 to 59. The gravamen of the notice of contention is to the effect that his Honour should not have found that the Perpetual offences – or he should have been satisfied they were not committed. That is the essence of the notice of contention. It is said firstly that the knowledge of the relevant doctors who were guarantors in this arrangement – Drs Fleming and Ambler – was irrelevant because they were not the relevant actors for Yak and Bubbling.

Our pleadings and the case we ran below and which is reflected in his Honour’s reasons, makes it fairly clear that the knowledge of those doctors was part of the case that the respondents had to address. The fact that they failed to address it, in my submission, leads to the conclusion that the notice of contention fails. We have set that out, as I have said, in our reply. There is no question, in my submission, that we pleaded the case in relation to effective control and both Dr Fleming and Dr Ambler were identified in the pleadings as being relevant to that.

I will give your Honours the page references. For Hangar 400, the relevant part of the pleading is found at paragraph 9(d)(3)which is at volume 1 of the appeal book at pages 71 to 73, and for Doonan’s Road the equivalent is at paragraph 104(b)(iii) and one will find that at pages 142 to 144 of the appeal book.

The next point seems to be that the evidence of Mrs Hart and Ms Peterson was more than sufficient to discharge the onus of proof that no fraud had occurred and that the primary judge failed to consider any of their evidence and the Court of Appeal should have held that the onus had been discharged.

There are a number of problems with that, in my submission. The first, as his Honour Justice Morrison observes at paragraph [461], is that these submissions wrongly assume that if the primary judge does not expressly refer to evidence he did not have regard to it. You will find that paragraph at page 3060 of volume 7.

But they also fail, more importantly, to have regard to the structure of his Honour’s reasons and the findings that he made which amounted to a clear rejection of the respondent’s case. His Honour found, first of all, that the representations were objectively false because Drs Ambler and Fleming were provided with indemnities. One can see that at paragraphs [242] to [245] of his Honour’s judgment which are at pages 2720 and 2721 of volume 6 of the appeal book, and as I have indicated, the written submissions of the respondents do not seem to take issue with the fact that the representations were in fact objectively false in that respect.

The next point is the primary judge considered, in accordance with the submissions made by the Commonwealth, that whether or not the companies Yak and Bubbling were honest depended partly on whether the directors were aware that Mr Hart was in effective control of the companies at the relevant time. Your Honours will see that at paragraph [261] in volume 6 of the appeal book at page 2724, the sentence beginning:

The issue of the honesty of Yak or Bubbling and of their directors –

and it goes on. Now, the evidence from the respondents amounted to a denial that Mr Hart was in effective control. Mrs Hart stated in her affidavit of 23 July 2010 that at no time did she believe Mr Hart was in effective control partly because the Proceeds of Crime Act had not been passed and so on. The relevant references are in our reply. It is at page 803 of volume 2 of the appeal book.

Ms Petersen in her cross-examination gave evidence to the same effect and that is recorded at paragraph [180] of the primary judge’s judgment, page 2710 of the appeal book, volume 6 and the transcript references are volume 1 of the appeal book at page 187. Can I ask your Honours just to turn to volume 1 of the appeal book because Ms Petersen then denies a whole series of questions that are put to her based on the idea of effective control. Can I ask your Honours to turn to page 196 in volume 1 of the appeal book and about line 13 the question begins:

Miss Peterson, you’re, no doubt, painfully aware –

et cetera, and then the question begins:

In making the representation to Perpetual Nominees that you were not seeking this loan at the behest of Mr Hart that to your knowledge was false at the time, wasn’t it?—No.

Then it goes on to suggest because it was Mr Hart who caused Dr Fleming to become the director. These are all issues about effective control and then it goes on to say:

you wouldn’t have been seeking this finance from Perpetual Nominees unless Mr Hart had instructed you to do so, would you?—Instructed me?

And so on and then on the following page, this is page 379 – page 197 of the appeal book, page 3-79 of the transcript, about line 42. You can see it is put to Miss Petersen in cross-examination - and she was one of the people who signed these representations that:

It was false in that you sought the loan as a director of YAK3 at the instigation of Mr Hart?—No, we [sought] the loan to pay out the bank.

Now, the primary judge makes findings about effective control and Ms Peterson’s credit. He does so at paragraphs [180] to [181] of his Honour’s judgment which are found at page 2710, but just before your Honours read those you will notice at paragraph [179], about midway through, he says:

Except on the important issue of Mr Hart’s effective control, the concern about frankness is not significant –

So he does regard Ms Petersen’s credit in relation to effective control as significant. He then goes on to state at [180] and [181] why he rejects her evidence on that and he goes on to say he finds that the companies were in Mr Hart’s effective control and one can see that at paragraph [266] of his Honour’s judgment at page 2725. That is the conclusion but what flows before it is the other evidence and he says at paragraph [268]:

Ms Petersen and Mrs Hart are not in the same situation as the doctors.

His Honour was not satisfied that the doctors were honest but he said the situation with Mrs Hart and Ms Petersen was even worse. Why? Because:

Their knowledge of Mr Hart’s past control and continuing involvement –

made it even less plausible, in effect, for them to claim that they did not know Mr Hart was in effective control. Now, in so doing, his Honour must, in my submission, have rejected the evidence of Mrs Hart and Ms Petersen. His Honour also, in my submission, must have rejected their evidence in a number of different respects and I will just mention a few of those.

His Honour accepted a submission by the appellants - this is at paragraph [270] - about the meaning of the relevant clause in these loan documents. Can I ask your Honours just to turn to paragraph [270]. It was submitted by the companies or the respondents that the sole concern of Perpetual was:

that Yak and Bubbling Springs were not parties to the proceedings commenced by ASIC against Harts Australasia –

Now, first of all, one finds no reflection of that in the relevant clause. Secondly, as his Honour indicated, he accepted the Commonwealth’s submission that if that had been the case, why would the condition have been necessary? After all, they were either parties to the proceedings or they were not and that could have been established very easily indeed and that acceptance, in my submission, is simply irreconcilable with Mrs Hart’s professed understanding of the clause in her affidavit.

His Honour also accepts that – he refers to evidence given by Dr Fleming and Dr Ambler - and this is at page 2716 of the appeal book where he quotes excerpts from affidavits provided by Dr Ambler and Dr Fleming and it is suggestive that they knew they were being given protection or security, that is the relevant indemnity by Yak and Bubbling, and his acceptance of that evidence suggests that the representation was false and known to be so by the relevant doctors.

At paragraph [252] of his Honour’s judgment, which your Honours will find at page 2722, his Honour then sets out a number of matters to suggest why it was that he thought the relevant directors were dishonest – the directors and others were dishonest.

Now, in my submission, these findings amply support the findings made by his Honour which were upheld by the Court of Appeal. Given that these findings were based partly on the credit of Ms Petersen, if no one else, and she was one of the relevant signatories, they should not be set aside unless one can be satisfied of the relevant Fox v Percy-type matters.

None of those matters apply here. It is significant, in my submission, that the respondents failed to call evidence from Dr Ambler and Dr Fleming that would have allowed them to indicate that they had a different understanding of the arrangements. They did not call evidence from Mr Hart and they asserted that these documents had been prepared by lawyers but they did not call any evidence from the lawyers. They did not call any evidence from anyone in Perpetual or MFS who had been involved in approving the loan. In those circumstances, in my submission, the primary judge’s findings were amply justified. I only have one matter to deal with, your Honours. I do not think I will be more than about five minutes.

KIEFEL CJ: How are we travelling in terms of the allocation of time that the parties have made as between themselves?

MR WALKER: Not well, I am afraid, your Honour. I did not think it appropriate for me, as it were, to interrupt. I do not say this with any criticism at all in any of my motes and beams but the four hours estimated by our friends has been exceeded by more than half an hour. We had estimated three hours. I cannot conscientiously say it is likely to be considerably less than that. I am very sorry. So I think that means a rather negative answer to your Honour’s question as far as we are concerned.

KIEFEL CJ: On that note, I think we will adjourn until 2.15 and consider the position then.

AT 12.47 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

KIEFEL CJ: I believe that the parties have been advised that the matter will continue to Thursday morning, commencing at 10.45 am.

MR DONAGHUE: If it please the Court. Thank you.

KIEFEL CJ: Mr Walker, might I ask you, how much of the morning do you think you would need.

MR WALKER: An hour.

KIEFEL CJ: The reply, Mr Solicitor?

MR DONAGHUE: I anticipate, very short, less than 10 minutes.

KIEFEL CJ: Yes, thank you. Yes, Mr del Villar.

MR DEL VILLAR: Your Honours, I will move on to the next part of my submissions which deal with the valuation errors that we assert were made by the Court of Appeal. Can I ask your Honours to turn to the orders that were made by the Court of Appeal which your Honours will find in volume 7 of the appeal book at page 3242.

This branch of our argument, your Honours, relates to three of the assets: 6 Merriwa Street, Sunnybank Hills, 27 Samara Street and the proceeds of Doonan’s Road, Grandchester. Your Honours will see from the orders, particularly orders 12, 14 and 16, that the Court of Appeal purported to place the value on the interests that were possessed immediately before forfeiture. If your Honours turn to the reasons accompanying these orders, and those reasons are found at page 3240 at paragraph [13], it is apparent from the bottom third of that paragraph, it is asserted that:

The Commonwealth parties did not submit that some allowance should be made by reason of the Merrell charge.

The relevant assets were covered by fixed charges in favour of Merrell. No deduction whatever was made for the valuation. No deduction was made for the Merrell charge in the valuation and part of the reason, in my submission, is apparent when one turns to page 3217 in this volume and could I draw your Honours’ attention to two points: at paragraph [1240] the majority accepts and in this respect, we submit, that they and Justice Morrison are at one, the relevant value and the relevant declaration has to be that:

of the applicant’s interest immediately prior to forfeiture.

Yet, the majority seems to say, and this is apparent at paragraph [1238], that because forfeiture made the narrow charges empty, then in effect, they are saying the Merrell charges were worthless and should not be taken into account in determining the value immediately before forfeiture and, in my submission, there is a clear mistake when their Honours do so. If one is dealing with the nature of the property immediately before forfeiture, events that occur after forfeiture should not, as it were, retrospectively be used to backdate and reduce, or increase in fact, the value of the properties.

EDELMAN J: What do you say about the statement at paragraph [13] on 3240:

The Commonwealth parties did not submit that some allowance should be made by reason of the Merrell charge.

MR DEL VILLAR: That is not an accurate reflection, in my submission, of our point. We said that the Merrell charge should be taken in account. In fact, our pleadings indicated that the court should not grant a declaration because it could not be sure what the value of the Merrell charge was, and his Honour the primary judge - and I will give your Honour the paragraph reference - it is from paragraph [477] to paragraph [479] in volume 6 at page 2776. Can I ask your Honours just to turn that briefly. It is apparent there that his Honour is recording the fact that the companies or the respondents did not provide evidence of the value of any individual asset and at [479] they:

made no submission as to:

• the value of any company’s interest in any asset which was charged at the time of its forfeiture with payment of money to Merrell -
  

and so forth. The approach that his Honour took was that the Merrell charge actually would reduce the value and his Honour, in my submission, to that extent, was correct because the only explanation given by the majority for saying the charge would not reduce it boils down to events that occur on or after forfeiture and also what is said at [1242]. Can I just ask your Honours to turn to that briefly; that is at page 3217 in volume 7. So, what is said there is that despite the fact the assets are subject to the charge, you cannot:

affect the nature of the interest –

Here we are dealing with the value of the interest, and the value can be affected by fixed charges over an asset, in my submission. So, that does not really represent a basis upon which the value of the asset of the charge can be ignored in determining the valuation.

GAGELER J: Is the value of the charge affected by the imminence of forfeiture?

MR DEL VILLAR: Your Honour, I am not sure that one can give a straight answer to that because the imminence of forfeiture would depend on a range of possibilities such as pursuing appeal mechanisms and exclusion applications and so on. Now, some of those were unsuccessful, that is true, with the exclusion from the restraining orders but, in my submission, there is certainly no attempt to, as it were, determine that the value of the charge should be reduced to zero by virtue of the imminence of forfeiture.

GORDON J: Did Merrell apply to exclude its interest from it?

MR DEL VILLAR: Initially, but then it abandoned the application in the District Court of Queensland.

GORDON J: In relation to each of these assets.

MR DEL VILLAR: In relation to the charges it held, yes.

GORDON J: Yes.

MR DEL VILLAR: Sorry, your Honours, I may not be entirely correct, in which case I will clarify that. But our basic point, your Honours, is this: it is accepted by the majority and all members of the Court of Appeal that one is looking at the asset immediately before forfeiture. The majority then looks at events that occur on or after forfeiture. There is a logical problem. The correct analysis, we say, is what is put forward by his Honour Justice of Appeal Morrison at page 3014 of volume 7 in the Court of Appeal’s reasons at paragraph – sorry, your Honours, it is page 3014, where his Honour deals with the contention which was accepted by the majority in this case and at paragraph [241], his Honour says:

The Hart Companies’ interests . . . were, immediately before the forfeiture, subject to the Merrell charges, which were fixed and floating charges over all assets -

Then his Honour goes on to say, at paragraph [243]:

For those reasons whether the charge ceased to exist upon forfeiture was not relevant to any issue.

In relation to the point that your Honour Justice Gordon raised about Merrell’s application, Merrell applied to exclude the planes from the restraining order, not the charges. I will simply give your Honours references to the charges in the appeal books. Can I give your Honours just these references: in volume 5 of the appeal book your Honours will find Merrell’s charges in relation to Nemesis. The relevant clauses, in my submission, are found at page 2352, which describes the assets and the property that were subject to the charge. That is clause 3(a). Clause 27(e) is found on page 2375. That is in relation to Nemesis’ assets. Then there is Bubbling Springs. You will find relevant parts at volume 6 of the appeal book, page 2481 and then also at page 2504. Then there is a guarantee given by Bubbling Springs in its capacity as trustee, which your Honours can find at volume 6 at page 2593. In relation to Yak 3, the relevant charges can be found at page 2407, volume 6, on page 2428.

GORDON J: Would you explain to me why Yak is relevant? I understand that Merriwa Street was owned by Nemesis, so that explains the Nemesis charge. I thought Doonan’s Road was Bubbling, and I also thought that Samara Street was Bubbling.

MR DEL VILLAR: Doonan’s Road was certainly Bubbling. Samara Street - - -

GORDON J: I got this off the flow chart at 2262 as being the registered proprietor.

MR DEL VILLAR: 2262, your Honour?

GORDON J: Yes. I am sure there are findings of fact - but I thought that Bubbling was the registered proprietor of Samara Street.

MR DEL VILLAR: I would accept that, your Honour.

GORDON J: I would not accept it from me. I just do not understand why we are referring to Yak charge if we have got assets owned by two other entities.

MR DEL VILLAR: Can I just step back, your Honours. The relevant properties are three – the declarations that were made with respect to those properties identify who was the owner of them. Our point is simply that I have dealt with the fact that Bubbling Springs is declared to be the owner of Doonan’s Road. Bubbling Springs is also the owner of 27 Samara Street, and Nemesis is the owner of 6 Merriwa Street. That is what the declarations are. I can only say, your Honour, the Yak 3 charge is simply there for completeness. I will not give your Honours the reference to it.

I have made my points in relation to the valuation errors. We also added in our written submissions, and we have elaborated on this, that there is no actual evidence that was put forward about the value of these assets and the value of the charge. His Honour found that the charge was worth $1.6 million but, as his Honour indicated in those passages to which I took the Court, there is no real evidence that was presented by the companies or the respondents about this. We have dealt with the affidavits of Vanessa Goodey and Mr Hobson in our written submissions. I do not intend to repeat what is said there. Unless your Honours require further assistance, those are our submissions.

KIEFEL CJ: Yes, Mr Walker.

MR WALKER: If it please the Court. Your Honours, if I may move away from the subject matter of the last few hours, back to the statutory provisions which raise the interpretative issues which of course inform what in due course, on Thursday, we will reach about the subject matter of the last few hours.

I want to start, if I may, with section 92. At the outset, as your Honours appreciate, the scheme - which is sometimes just a tendentious word used by counsel, at least – could be explained with a number of different starting points. The reason I am starting with section 92 is that the first of the differences between us and the Commonwealth parties concerns, of course, section 102. It is, to borrow and cheerfully use an expression my friend used yesterday, premised on forfeiture. We do not have enough time in this case, and maybe not in this life, to completely survey and review in all detail all aspects of the various schemes in the statute.

Your Honours will appreciate that, much as my friend did, I will be confining myself in particular to those provisions which relate to our case, which is the serious offences case and, more particularly, conviction for serious offences. As I do so, there is of course a danger that there will be left out of consideration some of the text of what I will call cognate provisions dealing with different cases. I am going to try and deal with the ones that we think might be useful to your Honours, but I do accept, as my friend put slightly differently, that the use of language in this Act is not always pellucid and, in particular, does not always show complete consistency, regardless of whether the submissions against us or by us be accepted. So there is a little bit of awkwardness at least, on any view, of some of these matters.

Can I, bearing in mind that the first word of section 92(1) is “Property”, just start with that. It is not unique to this statute that, by what might be called a conveyancing informed definition of “property”, there is introduced some verbal infelicity. In particular, when one considers the way in which the definition section deals with both interest and property – can I take your Honours to those provisions – you will appreciate that there is what might be called a double interest:

“property” means real or personal property of every description –

this is section 338:

and includes an interest in any such real or person property.

. . .

“interest”, in relation to property or a thing, means:

(a) . . . estate or interest in the property or thing; or

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

So it extends not only to a familiar conveyancing sense but also to a broader sense, “whether vested or contingent”. When one reads those defining terms in the place of the defined terms in provisions such as 92, you have some possibility of what I might call doubling-up or duplication of the notional interest.

That is of no particular concern so long as care is taken, when the word “property” is found in one of these critical provisions, to understand whether one is talking about the “thing” – we do not need to use the Latin res but that is the concept I mean by the word “thing” – or whether we are talking about the legal relationship, which is the other view of property when it is used in our statutes.

Plainly enough, in many important parts of this scheme, the word “property” will be used simultaneously in both senses, and thus the opening words of subsection 92(1), “Property is forfeited to the Commonwealth”, does not really raise much of a concern about whether one is talking about the thing or whether one is talking about the legal relationship which is the property.

Similarly, because of the definition and because of the nature of property, both as general law and as covered in section 338, there will be no difficulty in subsection 92(1) in reading its first word as referring to interests of the extended kind that section 338 contemplates in things. So interest in things means it is proprietary by interests by the definition section beyond what would be a proprietary interest perhaps at general law is all within the definition of that which may be forfeited.

The next thing I want to say about section 92 as it attends to the premise of section 102, is that, of course, we are scarcely in a position to describe section 92 as beneficial or remedial legislation in the sense that we have invoked it as well as a reference to penal statutes as one of the canons of statutory interpretation that your Honours may find helpful.

But I want to emphasise that the provisions we are looking at do form part of a scheme by which a person who is not the convict may lose their property to the Commonwealth by way of forfeiture, and as soon as one expresses that – let me call it in loose terms “penal” - as soon as one mentions that kind of character to section 92, any provision which either by definition limits its application or by other procedures such as section 102 tempers its operation in particular cases, is part of a scheme which can be seen simultaneously to define a power which may be drastic, some may say harsh in its application, and simultaneously, of course, has aspects of that scheme which are beneficial or remedial in the sense that they overtly demonstrate a legislative intention to provide benefit to people by way of alleviation of statutory burden by losing their property in the circumstances contemplated.

It is in that sense, in our submission, that we are at odds with the Commonwealth strictures against our calling in aid those familiar canons of statutory interpretation. Of course, it is basic purposive interpretation to appreciate not only what section 5 says about ensuring in the stipulated sense that crime does not pay, but also what the particular provisions for the scheme we are looking at say concerning the limit of the taking, the forfeiture, and the case by case possible alleviation of that.

It is to be recalled, of course, that in the case we are contemplating which is not the convict, and section 102 makes it plain as well nor a co-offender, it is to be recalled that when it comes to describing the kind of payments that may flow under section 102 upon the successful application, the Parliament actually described them in stipulating for the disposition of the fund into which money from forfeiture goes, it is described in paragraph 297(1)(a) as “restitution”.

So, textually as well as schematically, it can be seen that the provisions we are addressing on concern the taking of property which is really the property of the person taken, effective control notwithstanding, I am going to come back to that, and as one might expect in a polity with a provision such as 51(xxxi), turns to ensure that forfeiture does not lose its true character by what might be called an overreach into the property of others.

It is for those reasons, in our submission, that the majority in the Court of Appeal were, with respect, entirely correct to inform their reading of these not straightforward provisions by appreciating the significance of what might be called the real substance, the useful application in real life of the provisions of section 102. So the premise which is set by section 92 is one which has one of the many phrases that as my friend has pointed out may or may not require to be read as having temporal significance.

As you know, at the heart of our argument is whether in section 102, one of the uses of the word “is” is to be regarded as not just grammatically present tense but also substantively requiring present tense. Well, in section 92 itself in a rather significant way for the scheme in question, one sees in subparagraph 92(1)(b)(i) one of those phrases, a requirement added to the conviction that at the end of the period in question following the conviction “the property is covered by a restraining order”. In our submission, the phrase “is covered by a restraining order” and the time stipulation “at the end of that period” beyond any possibility of contrary argument means that the property must be covered by the restraining order at that time and not merely at some former time.

I am not suggesting anyone has argued or would argue the contrary to that, not least because one can see in section 92(1)(a)(ii) that there is a case contemplated of a former covering by a restraining order which has been ceased to operate by reason of section 44 which, to remind your Honours, is a means by which at the restraining order stage a person may – including a suspect – have a restraining order revoked or the property excluded from it upon giving respectively either security satisfactory to the court to meet any liability that might be imposed on the suspect under the Act, that will include possibly, of course, pecuniary penalty orders, or under subsection (2) of section 44 an undertaking being given by a person who is not a suspect such as a person whose property has been regarded as reasonably suspected by a deponent of being under the effective control of a suspect.

So there is care taken at this fundamental first step of section 102, namely, the section 92 forfeiture which is its premise. There is care taken to stipulate the category of property that may be forfeited by reference to its current status or a particular form of history as being covered by a restraining order. The temporal importance is rather emphasised by the express removal of one consideration of temporality in subsection (2) of section 92.

The next point about temporality and the scheme that is a minor point is convenient to note now, in section 94, one sees that the restraining order court – and that is the restraining order about which I have been speaking which must precede forfeiture - the restraining order court may make an exclusion order and one can see that there cannot be such an order made – subsection (2) – “if the property has already been forfeited”. So there is a temporal sequence which is critical to jurisdiction of the power.

Can I come back then briefly to provisions that my learned friend has already, with respect, well expounded, and they are the provisions of which section 18 is the particular provision of relevance to our case. This is in Part 2-1 and your Honours appreciate there are changes rung by the legislature on the ways in which restraining orders may be available. So, there is section 17, “convicted of or charged with indictable offences”, section 18 which is ours, “suspected of committing serious offences”, section 19, suspected of committing indictable offences, section 20, “suspected of deriving literary proceeds”. I do stress, I hope I am not failing to give appropriate attention to the others of those cognate provisions that we think, like our friends, that section 18 is an appropriate focus for this case.

Your Honours have already had it noted that by contrast with section 102, the alleviating provision, and by contrast with the automatic forfeiture that one observes in section 92, section 18 requires a court – that is, there is nothing automatic, but eliminates any discretion, and my learned friend drew that to attention, “A court . . . must order”. What follows in subsection (1) of course is the content of the order, which is usefully and accurately described by the statutory expression “a restraining order”.

As my friend has pointed out, but it is significant to emphasise, the decision to make a restraining order or not decides nothing about the commission of an offence. It decides only whether there are reasonable grounds for a suspicion which is actually held. That comes from paragraph 18(1)(d) and in particular 18(1)(f). One does not find everything about whether a restraining order must be made in subsection (1) because you need to go to the affidavit requirements which are set out in subsection (3). I will not go through them. But can I draw to attention some of the temporality matters that your Honours may find of assistance. In paragraph (3)(b):

if the application is to restrain property of a person other than the suspect –

which is our kind of case, the deponent must swear or affirm that he or she suspects that:

the property is subject to the effective control of the suspect –

and, in our submission, it really is impossible at that, what I will call first stage, to contemplate “is” meaning anything other than “is”. Indeed, one could go this far, particularly if it was an ex parte application, if things have changed according to the understanding and belief of the deponent between the day on which he or she made the affidavit and when the application was made, one assumes that would be part of the duty to draw to the court’s attention that things have changed.

All of this, in our submission, is part of a scheme in which both sections 17 and 18 operate in exactly the same manner. In particular, one sees in section 17(3) the same expression in paragraph (b):

application is to restrain property of a person other than the suspect . . . authorised officer suspects that:

(i) the property is subject to the effective control –

et cetera. While in section 17, can I turn to the grounds which, as my learned friend said, are the grounds for persons charged with indictable offences, that were relied upon in this case although in due course, of course, this became a serious offences case. In subsection (2) I think attention has been drawn to paragraphs (a), (c) and (d). I wish to emphasise that again the making of the restraining order decides nothing concerning that fact but, as with the commission of an offence, it decides only whether there are reasonable grounds for a suspicion which is actually held concerning one or more of that kind of property.

Could I then draw to attention in case your Honours find it useful – we found it difficult to fit it within the scheme particularly – the significance of section 17(4) which has no analogue in section 18. Discrimination is made there for indictable offences that are not serious offences, and there the discrimination enables the court to take into account, despite the mandatory words of subsection (1) and in fact disapplying that mandatory requirement, what is called the public interest in respect to making the order.

It is, we think, an indication that this is a statute that is at some pains to provide for occasions – 102 is one of them, we say – to provide for occasions where the harshness or drastic consequences of provisions such as the otherwise mandatory terms of section 17 in this case would visit upon affected individuals. It is, in our submission, an indication that it is appropriate to look for wording here which will provide for a recognition of the property interests of persons who are not suspects or not convicts when it comes to section 102.

Could I then go forward, please, to section 96 which, as has already been observed to your Honours, alters the ownership of the property in question - it will not matter whether you are talking about thing or interest – by the forfeiture. One of the important things about section 96 is that it means that the premise of section 102 is that the person in question of course will have no dominion in terms of legal ownership over the property. It raises questions, to which I am going to come, concerning the effective control point.

Following on section 96, it is proper to note what section 100 requires. Section 100 itself notes the statutory delay or deferral required by section 99 and it has to do with what might be called possibilities or reversing the conviction – see 99(1). After “99(1) no longer prevents disposal”, then there is a requirement that:

the Official Trustee must, on the Commonwealth’s behalf and as soon as practicable:

(a) dispose of any of the forfeited property that is not money –

So that there is a statutory requirement of prompt realisation into money, which explains, as I shall come to, some of the terms of section 102 itself.

It then goes into the confiscated assets account, under section 296, to which your Honours see reference in paragraph 100(1)(c). Section 102, to which I now come, is therefore expressed, as will be seen, aptly to mark its function as a possible alleviation of this scheme after these steps have been taken, including forfeiture. And, in our submission, the first important element of section 102 that, as your Honours have seen in the exchanged written submissions gets much more prominence in our argument than in our friends’, is that 102 is discretionary.

Now, to go back to some of the questioning of my learned friend yesterday, we submit, as your Honours may have read, that one of the means by which section 102 can alleviate harshness is to permit by terms, on the exercise of the discretion, what might be called partial restitution. And in concrete terms that allows, in our submission, the sensible and as an alleviating provision the purposeful drafting of orders such as requiring payment by an applicant to the Commonwealth of an amount equivalent to a tainted contribution to acquisition, for example, before there will be a discretion exercised in favour of the applicant to order restitution in money terms or return in in specie terms of the property in question.

If we are right that that is in the very nature of a discretion, bestowed by the word “may” and to be determined after a factual finding concerning the particular case, then it goes a long way, in our submission, to alleviating a concern either that our argument or, more usefully, these provisions are somehow to be construed against the possibility of extremeness. And here I need to make an observation about the manner in which our learned friend started his submission by reference to our written submissions’ acceptance in a qualified sense the answer to the first question posed as an issue by the appellants. I am not complaining about any unfairness in my learned friend’s references, but I need to emphasise that ours is not an all or nothing position. Neither do we submit that this statute calls for the interpolation by judicial interpretation that qualifies or modifies, such as the words “substantial” or “substantially”.

Rather, we say that when we come to the critical wording for that part of the argument, it will be “derived”. In our submission, it is a word that calls for something in the nature of a jury decision, like the word “negligent” for example, or like the word “guilty” in terms of what it means concerning the elimination of reasonable hypothesis consistent with innocence.

But the conclusion is appropriate and described in a term which will then lend itself to case by case factual determination, which will always involve both qualitative and quantitative assessment. Hence, the wisdom, with respect, of the authorities to which we have drawn attention in our written submissions that are said to assume qualifiers or modifiers like “substantial” or “substantially” not because it introduces the wrong part of discourse but because it is unnecessary to understand the task. The task will be, in a particular case, to say whether, for example, the ownership of that aeroplane derives from specified unlawful activity, to frame the question without currently dealing with the question of onus.

And, in our submission, that will always call up the possibility of matters which are, to use the language which has been used over and over, too tenuous or remote to constitute such a derivation.

KIEFEL CJ: Mr Walker, how does that work with the approach that you have just discussed in connection with the discretionary aspect of the provision?

MR WALKER: In this manner. Putting it, I think, a little crudely our friends’ argue could be seen as a complaint that the Court of Appeal and we, to the extent we support that reasoning, do violence to the language so as to make it too easy to get through the gateway.

Your Honours appreciate that that is put most colourfully by what we respectfully submit are unhelpful hypotheses such as the 99, not 100, per cent tainted purchase moneys, to which an answer can be made that your argument seems to have raised the idea of one per cent, not zero per cent, tainted purchase moneys.

In answer to the Chief Justice, in our submission, if the language of the critical provisions, which are in subsections (2) and (3) – (3) for us, but (2) and (3) have to be read together – if they are interpreted as we argue, without violence to the language, as we submit is clearly possible, then it is a positively good and purposive thing that a discretion is there then enlivened, particularly if it is a discretion which can deal appropriately with what might be called the questions of degree that are thrown up by rival arguments about one per cent tainted funds or 99 per cent tainted funds.

All we would say, anticipating an argument in reply to which I am going to come, the difference is between 49 and 51 per cent, for the test my learned friend advanced at one stage concerning the idea of a majority or most of the purchase moneys being tainted.

KIEFEL CJ: How would you describe the nature of the discretion then?

MR WALKER: I do not mean the first way in which I answered that flippantly when I say, well, it is a judicial discretion, the “may”. Because it is judicial, one looks to the purpose, including what can be got from express objects in the Act. There is, in our submission, the nature of the discretion is one which recognising the public interest in denying – I will simply call it profit from crime in the extended way in which the defined terms do so – nonetheless, also recognising that a concept of forfeiture, particularly in taking the property of people not involved in crime, is one which has to have some alleviating characters, lest it be pushed beyond that which could be validly enacted.

KIEFEL CJ: Does it operate directly upon the inquiry – the inquiries in subsections (3)(a) and (b)?

MR WALKER: No, no.

KIEFEL CJ: It is something that occurs afterwards?

MR WALKER: Yes, it is enlivened – I have used the metaphor “gateway” just now. It is only if the gateway is open that there is a discretion. That comes obviously enough from the language at the beginning of each of subsections (2) and (3) an order may be made if – an order may also be made if – so that they lay down the prerequisites. In another context, one might say they are the jurisdictional facts. The power which is discretionary in subsection (1) is available to the Court, is exercisable by the Court only if one or other of subsections (2) and (3) are made out, are satisfied.

GAGELER J: What would be an example of a case where an appropriate exercise of discretion under subsection (1) would be not to make an order in circumstances where (2) or (3) were fulfilled.

MR WALKER: I am thinking about a possible answer to that question. I have already referred to what we submit is perhaps a straightforward or mundane approach and that is a conditional one. I will not make an order unless you pay to the Commonwealth money equivalent to the five per cent tainted contribution to its purchase price. So, that would be refusal to exercise the discretion favourably, notwithstanding one or other of (2) or (3) have been set out. That is because the five per cent is not such as to enable the assessment to be made that the property, for example, is derived from unlawful activity but unlawful activity did play the part of producing the five per cent contribution to its purchase price and it is a judicial exercise in discretion that should not be enjoyed by anyone.

EDELMAN J: That is building in to the discretion, not merely a discretion as to make the order or not make the order but, in your language, a discretion to effectively require restitution on terms.

MR WALKER: Unquestionably, I think I volunteered that when I first talked about the discretion. It is in the nature of judicial discretions that they can be exercised or not conditionally.

GORDON J: Is that consistent with the language of (1)(d) which says, in a sense, the orders that the Court can make in substance?

MR WALKER: No, that is the outcome if there is a discretion exercise.

GORDON J: But how does that sit with – I would not make an order unless you have made a payment consistent with the tainted amount to the Commonwealth.

MR WALKER: It is more readily available in relation to 102(d)(i) than 102(d)(ii) but, in our submission, it would also apply with (d)(ii). The order, in our submission, could certainly be conditioned upon there being, as it were, counter-restitution.

GAGELER J: Mr Walker, is there any case law that bears on that?

MR WALKER: None at all.

KIEFEL CJ: Is this essential to your argument?

MR WALKER: No, it is not – it is part of my argument about the purposive reading of 102 as an alleviating provision.

KIEFEL CJ: It does not affect your construction of subsection (3) provision?

MR WALKER: No, it is not a textual argument. It is an argument concerning – it is an attempt, in particular, to attend to the matter your Honours raised with my friend yesterday concerning what can be done about what I will call “partial interests”.

EDELMAN J: It deals with the oddity of forfeiting the whole of an interest where there is a - - -

MR WALKER: A miniscule contribution from the bank robbery – yes, that is right. That is exactly it. It also deals with cases that test the notion of derivation to or perhaps beyond its limit, namely, payments many, many years after an acquisition – payments of a relatively small sum such as one month’s rent or one year’s rates.

Now, I am going to come to an argument about subsequent payments, the receipts, expenditures and derivation later, but if they are within derivation, it is difficult to say they are utterly irrelevant. If they are within derivation then the kind of discretion with its implicit, inherent conditionality to which I have been referring enables attention to be paid in such cases.

Could I complete what I wanted to say about those matters that your Honours raised with my friend yesterday? Part interest is a familiar concept in property law. It need not be, of course, an interest of the same quality as those who hold other interests but one example is the interests of these co-owners. Another example are what are sometimes called “carved-out interests”. A classic one being, of course, a leasehold from a freehold or the hypothecation represented by a charge or mortgage with respect to certain kinds of property.

As I understood the questions yesterday of the issues that are raised concerning the deployment of section 102 yesterday, however, the concern is as well with cases where it can be seen that the means of property being obtained – I will just use that as the simplest example at the moment, required as it is called in the Act - are mixed as they are in many cases, one’s own funds and funds that are one’s own only because you have borrowed them from a bank. That does not produce an interest which is of the same kind of the bank in relation to, say, the 75 per cent which their loan represents of the purchase price. Their interest is quite different than the hypothecation interest which in terms of the value of the property will depend from time to time on (a) the market value of the property and (b) that which is necessary to discharge the mortgage.

The value of the discretion has been a fundamental character of section 102 is that it enables not just specific interests to be dealt with – you do not need a discretion for that, there has to be a declaration of the nature, extent and value of the interest in the property under paragraph 102(1)(c) anyhow - but it enables it to deal with circumstances which are relevant to the objects of this statute in such a way that restitution does not exceed that which is, to the judicial mind, appropriate in light of the particular circumstances of the case.

Now, against that or following from that general reference to the discretion, could I while still in subsection (1) on the temporality point, remind your Honours that the last word of paragraph 102(1)(b) is “exist”. I am not really relying upon grammar in the sense of accidents here; I am relying upon the meaning of the word “exist”, and it must, with respect, refer to a state of affairs which is present or current at the time the Court decides whether it is satisfied or not. That, in our submission, is a clue on the way to the temporality that we submit will be relevant both in section 102 and in section 141.

Can I then come to what my learned friend usefully called “the cleanskin provision”, subsection (2). Dealing with my learned friend’s argument assigns a different degree of stringency to subsection (2) compared with subsection (3), but the first element of subsection (2), conveniently, indicates the ways in which that is not so straightforward. They are dealing with different cases which are not necessarily easily seen as more or less stringent. Aspects of them, yes, lend themselves to that kind of comparison but not overall.

Thus, for example, compare paragraph (2)(a) with paragraph (3)(c), in relation to the commission “to which the forfeiture relates” is the subject matter of each of them. In subsection (2)(a):

the applicant was not, in any way, involved in the commission of the offence –

and in paragraph (3)(c), the applicant is merely:

not the person convicted of the offence –

much less stringent from the point of view of the property holder because it does not require that you not have been in any way involved in the commission of the offence.

Then we come in subsection (2) to paragraph (b) which, we submit, even if not confined to this topic, is pretty obviously on its face directed to circumstances to which the figure of speech “the corporate veil” might be attached. The negative requirement that the applicant’s interest in the property is not subject to the effective control of the person whose conviction caused the forfeiture is, of course, for the reasons I pointed out earlier, to be construed against the premise which is explicit in section 102. The premise is forfeiture under section 92 and we know that forfeiture under section 92 comes after a restraining order, section 17 or section 18 for a serious offence.

So against that explicit premise and bearing in mind that this is a negative condition – that is, Parliament is here announcing a reason why the discretion will not be available – and trying to construe it purposively against the evident policy of the Act – see section 5 – in our submission, it is the concern of paragraph (b) to ensure that, if an order is made under section 102, it will not permit the convict to have effective control of the relevant interest in property - that is, a state of affairs presently exists which would subject to the effective control of the convict that property if it is the subject of restitution..

Now, for the reasons we have already pointed out, the restraining order no longer applies. The property has been forfeited. Restraining orders expire upon forfeiture. It is probably impossible to conceive of a situation where forfeited property is under the effective control of anyone other than officers of the Commonwealth.

So we accept that when one is construing the words “is not subject to the effective control of the person”, the explicit premise of 102 is referring to a present state of affairs which will produce an outcome if restitution is given.

GAGELER J: So is this to be read as meaning “would” or “is not” is to be read as “would not be”?

MR WALKER: In a sense; that is perhaps a little compressed. The phrase is “is not subject to” and the subjecting, in our submission, is by reference to a present state of affairs which, if restitution is given, will show or permit that effective control to be exercised.

There is another reason of sound policy against the objects in section 5 - of the public interest involved, that crime not pay - there is another reason why the word “is” extends beyond the instant before the initial restraining order was made because that must be the argument that my learned friend is putting, and that is, as this case sadly demonstrates, many years can ensue between a restraining order and the decision of a section 102 application.

Many things can happen within, in particular, corporate groups and business organisations, indeed even family enjoyment of property and, in our submission, there is every reason to require the wording of 102(2)(b) to prevent the availability of an order based on subsection (2) if property can be shown to be the kind of property which, upon restitution, will be under the effective control of the convict by reason, normally, of what might be called a relationship, a kind of deference or subservience, between the convict and the applicant.

GORDON J: Just to test that proposition for the moment, what material or materials would the Court use in making that assessment other than by reference to the history?

MR WALKER: Other than by reference to?

GORDON J: To the history, what pertained up to the restraining order being made?

MR WALKER: The history after that as well, your Honour.

GORDON J: We would take a forward looking sort of guess at what happened.

MR WALKER: Not a guess, but if there was no material - - -

GORDON J: The property will have been forfeited to the Commonwealth.

MR WALKER: Yes.

GORDON J: What other facts and matters could be relevant to that inquiry other than the state of affairs immediately preceding the making of the restraining order?

MR WALKER: The most obvious would be that there is a pattern of conduct in relation to property of the same or similar kind between the applicant and the convict which produces the finding that there is a present state of affairs whereby the applicant’s interest in the property is subject to the effective control of the convict.

KIEFEL CJ: Is there really a difference in approach in this sense? On your argument, the Court is to consider the position if the property potentially could revert to the control of the convict.

MR WALKER: Would revert, yes.

KIEFEL CJ: Would revert. Is that very much different from viewing the property as if the provisions for restraining orders and forfeiture had not taken place?

MR WALKER: It may not be when one looks at factual reasoning such as is grandiosely called presumptions of continuance, for example, but when the years have intervened there is every reason to extend the control in negative provision in 102(2)(b), to up-to-date states of affairs that did not exist at the time of the initial restraining order. But, yes, is the answer to the Chief Justice’s question. It may be that there will rarely be any real difference because it will be the same factors which provided reasonable grounds for a suspicion under sections 17 or 18 and the factual position that must be negatived under section 102(2).

GORDON J: Is this the way your client ran the matter at trial because you would lead different evidence. You would cross-examine and ask different questions if you were taking to account, which you describe as in effect post-restraining order and forfeiture conduct?

MR WALKER: I do not think it would be us, your Honour. We certainly were not at pains to, because ours is a subsection (3) case, but we were not at pains to show anything to our detriment, even if we did from time to time, but that was not our object. Now, the next point which can be made quickly – I would argue it is probably the most important textual point from subsection (2) for our argument is, of course, in paragraph (c) as your Honours have read because in paragraph (c), the negative condition for subsection (2) is expressed by enlisting the terms defined in the Act, particularly in section 329 and the term “proceeds”.

That is a term which, as your Honours know, in subsection (1)(b), expressly comprehends the case where property is partly derived from the commission of the offence which, in our submission, is a different question from whether it is derived from the commission of the offence, just as whether something is wholly derived is a different question from whether something is derived for the reasons we have put in explaining our qualified acceptance of the proper one-word answer to the first of the questions our friends propose in their written submissions as the issues.

In our submission, the majority in the Court of Appeal were surely applying in an entirely proper and persuasive way, a completely orthodox approach to a complex piece of legislation, observing differences in drafting in what might be called relevant different topics being dealt with in order to see whether there are comparisons and contrasts that throw light on the meaning of words in the particular provisions and it can hardly be said that there is any accident or infelicity involved in the failure to enlist the wholly or partly provisions of section 329(1) in the relevant provisions of subsection (3) to which we are about to come and upon which the first part of the case turns.

BELL J: But does not that overlook - in (2) one is looking at the applicant’s interest in the property not being proceeds of an offence or instrument of the offence - - -

MR WALKER: Yes.

BELL J: - - - as defined and then when one moves to (3) one has the broader ambit because the applicant in such a case has to establish, relevantly, absence of derivation or realisation from an unlawful activity, as defined.

MR WALKER: Yes, is the answer, your Honour.

BELL J: So - - -

MR WALKER: It is a difference that needs then to be traced through with the sparkling prose of these definitions, the last of the definitions in section 338 is a definition of “unlawful activity” - - -

BELL J: Yes.

MR WALKER: - - - and they are all offences.

BELL J: So that it picks up - one is no longer concerned with the offence. One is concerned with - - -

MR WALKER: No, but it is still offences.

BELL J: Indeed.

MR WALKER: That is the first part of my answer to your Honour.

BELL J: Yes.

MR WALKER: I accept entirely that, and this is one of the reasons why these are – (2) and (3) are dealing with different provisions. It is a bit more stringent in some respects, a bit less stringent in others but continuing my answer to Justice Bell yes, it is true that one of the compare and contrast between subsections (2) and (3) is to compare paragraph (2)(c) with paragraph (3)(a) – do not ask me why the orders change, sequence changes – but it is not the case that by the use of the defined term “unlawful activity” we have moved beyond the notion of offence. All we have done is expand beyond “the offence” and - - -

BELL J: I suppose the matter I am taking up with you, Mr Walker, is given that the definition in 329 is tied to “the offence”, that to - - -

MR WALKER: No, your Honour.

BELL J: I am sorry.

MR WALKER: No, it is:

Property is proceeds of an offence - - -

BELL J: Yes.

MR WALKER:

Property is an instrument of an offence –

and then subsection (4):

Proceeds or an instrument of an unlawful activity –

and we know that they are all offences, unlawful activities are always offences so - - -

BELL J: I see, yes, I understand.

MR WALKER: We cannot say of 329 it is deployable only where the definite article appears.

BELL J: But it is proceeds of an offence:

wholly derived or realised, whether directly or indirectly, from the commission of the offence - - -

MR WALKER: The offence, that is right.

BELL J: Yes.

GORDON J: That is picked up in (2)(c) when it is talking about the applicant’s interest.

MR WALKER: Absolutely, absolutely.

BELL J: Yes.

GORDON J: The inquiry is narrower.

BELL J: Yes.

MR WALKER: Exactly so. Subsection (2)(c) is narrower. It casts – it is a less demanding onus for the applicant than is (3)(a), so (2)(c), all you have to be concerned is, disprove the proceeds or instrument of the offence to which the forfeiture relates.

BELL J: Yes.

MR WALKER: The phrase in paragraph (a) which is picked up obviously by the use of the definite article in subsection (2)(c).

EDELMAN J: Narrower in respect of the subject matter, too.

MR WALKER: Exactly, exactly. Now, the point I am trying to make is that in subsection (3), paragraph (a) is still concerned with a relationship connection, nexus between the property and an offence or offences but the defined term “unlawful activity” mercifully confines itself to crime even if not only of this country.

Now, it is for that reason that their Honours below were surely justified in noticing as they did, that there is some but not all of the language of section 329’s definition of proceeds used in paragraph 102(3)(a) and when you see some but not all of the definition being used in the very next provision, substantive provision of the statute, one thing is clear that a choice has been made not to employ the words that have been omitted. So, the wholly or partly, and it is the partly one that matters for us, was obviously available to be used because 329 can be turned to account for unlawful activity and is not used in paragraph (a).

In our submission, it is the kind of trade-off that you can see as a pattern of policy in subsections (2) and (3). Just as you cannot neatly say that (2) is more or less stringent than (3) as a whole, the trade-off here is that it is more onerous – (3)(a) is more onerous than (2)(c) by expanding the universe of putative offences but it is less onerous by requiring simply derived directly or indirectly – I have to come to the rest later, rather than not partly derived.

EDELMAN J: It is even stronger than that, is it not? Subsection (3)(a) has a broader subject matter and broader consequences but a narrower link and (2) has a narrower subject matter interest – narrower consequences but a narrower link.

MR WALKER: That is right. It is a complex of comparisons, it does not lend itself to a simple one. Now, one then has to look to the real breadth of the subject matter by the last words of paragraph 102(3)(a) “by any person from any unlawful activity”. As I say, it is the universe of possible offences that are thereby caught up but it is also the universe of any possible offender. Now, at first sight that raises a number of questions of a kind that the Court of Appeal has decided, we submit, strongly supported by powerful authorities to which they and we have made reference for what might be called a procedural answer to a state of impossibility. Let me explain.

Not all property to which 102 might apply will be property that has only just come into existence. Much of it, if not most of it, will be property whether it be thing or interest that has existed in somebody’s ownership for a very long time and it is, of course, notoriously difficult, particularly when one talks about use as well as derivation and realisation, ever to be confident outside a courtroom where issues are joined just in ordinary life the notion of being confident about an assertion that this house has never been used in or in connection with any unlawful activity would be absurd, particularly, if I may say so, against myself, certain old houses in older parts of Sydney.

It is possible that a legislature should be regarded as having enacted something cynically, cruelly or in vain but one would strive mightily against any of those. So, the ordinary impossibility of being able, as it were, to disprove that an SP bookie took up occupation in a terrace house in 1902 for three weeks is in our submission not something which on the face of 102, bearing in mind that it is explicitly the subject of adversarial application – litigation by adversarial application, should ever be regarded as having contemplated.

It is for those reasons, in our submission, very literal impossibility in many and perhaps most cases, of seriously contemplating the biography of a house that leads to how their Honours correctly understood the operation of those words by devices which, in the Supreme Court of Queensland, include documents that stand in the place of pleadings, particulars, argument, fair process, et cetera, et cetera.

In our submission, there is absolutely nothing remarkable about those long pre-existing understandings of the way in which a legal onus may be discharged to prove a negative informing an approach to 102(3)(a). Now, in this case, for the reasons that have been, I think, exhaustively set out in written submissions, I may need to check that, there is no way by which the Commonwealth could simply have said “Prove it”. That is because the Queensland Supreme Court has rules which applied at the time which denied simply pleading the general issue in that sense and it is Queensland Uniform Civil Procedure Rules 166.

That explains, by the way, the form of amended pleading to which attention was drawn today, the basis of the denial that comes from that rule and that puts paid to the idea that the impossibly – the impossible negative condition in 3(a) if read in one literal approach can, as it were, stymie every application with respect to property of any longevity or mixed provenance by the Commonwealth simply saying “you prove it”.

BELL J: As I understood the Commonwealth’s position if we come back to the SP bookmaker and the old house in Sydney, it is that one would read (3)(a) as satisfied on establishing that the applicant had paid full value for the property. One would not engage in an inquiry going back two centuries.

MR WALKER: I am not sure, your Honour.

BELL J: I may have misunderstood it.

MR WALKER: I might be able to check that as well but I understood - and I do apologise because it would be my fault not our friends if I got it wrong - I understood that the Commonwealth goes this far that if something is unknown then the application fails.

BELL J: That is different. The matter I am raising with you, I think, on the Commonwealth’s analysis is if you come and provide an explanation of, for example, the source of the funds for the acquisition of the freehold in premises that would suffice for the purposes of (3)(a) without some historic inquiry whether this item of real estate had ever, over the course of occupation since the establishment of the colony, been used by any person for any unlawful activity. It is just - - -

MR WALKER: Your Honour, it would be useful for persons in my client’s position, as it were, to take that as a concession. I am not quite sure whether we can rely on it in all cases but that is not how I understand the Commonwealth to be arguing the position. Certainly, may we make this clear, this is jumping ahead a little but not much. We do not here espouse nor did we at trial or on appeal seek to defend the proposition by which we could make a pleaded assertion in the most general terms, in statutory terms, and thereby shift what we would glibly call that evidentiary burden to the Commonwealth to make a showing to adapt criminal notions – make a showing that there is something to be looked at.

We do not say that. We accept, I think in particular in Logan Downs, the wisdom with respect to common sense, that our onus requires us – we have to prove the negative, notoriously difficult - if it has to do with – first, I will concentrate on derivation – derivation, we would have to say first that in order to avoid absurdities, the property in question is the interest of the applicant. So you do not talk about the fraud practice by someone at the end of the 19th century who misrepresented their eligibility for a grant or whatever.

BELL J: Yes.

MR WALKER: That is easy and that is one of the illustrations of the way in which the word “property” can be used purposively. It would seem absurd in what appears to be an alleviating provision to say, “You’re never going to be able to do this. You can never invoke (3)(a) with any real estate where the subdivision is not brand new”.

GAGELER J: Sorry, Mr Walker, is this a submission of construction that “property” in (3)(a) is to read as limited to the interests of the applicant?

MR WALKER: No, it cannot possibly. It is both and it applies – why it cannot possibly be is the word “used”.

GAGELER J: No, I am just trying to understand the submission. I misunderstood you.

MR WALKER: Yes, and the answer is no, not at all. Your Honour will recall that I said with respect to property that it can be used simultaneously in both senses and that the context will indicate which is the appropriate one. Sometimes both will be appropriate. Take “used” for example, that could be both thing and interest. Mostly it will be thing, but it could be interest.

GAGELER J: It depends on whatever is being forfeited, does it not? That is the starting point. It might be an interest; it might be a thing; but if it is a thing that has been forfeited, then when you get to (3)(a) you are talking about the thing and all interest in the thing.

MR WALKER: Yes. I do not think you can eliminate the idea of interest when you have thing because that which is forfeited is your ownership of the thing. I am sorry.

GAGELER J: The thing and all interests in the thing.

MR WALKER: That is right. This is the point at which, and for good reason, the notion of property is metaphysical. It is not just what you can touch; it is also what the law says about its relationship with a person as recognised by the law in a sense which we sum up by using tendentious expressions like “proprietary”.

When we come to inventions of the law, abstractions like “choses in action”, then “thing”, notwithstanding the law French, becomes a bit difficult. We are talking about intangibles but it is clear that choses in action could easily fall within a case to which 102 might go. A bank account is a most obvious example of that.

Derivation, on the other hand, rather tends – I do not know whether I can say always but it must be pretty close to that – to call up that meaning of property which I have summarised as interest, a legal relationship. Why is that? Because – again, I am trying not to be flippant – unless you are talking about calves from cows, it is difficult to talk about things being derived from conduct.

You derive them in the sense that fits them within the word “property” because they come into a form of ownership when you obtain that interest by dint of the activity and when one looks at the word “realised” it is even more obvious. A thing is not realised; rather, your ownership of it is traded for money, which is what all this is about – see section 100.

For those reasons, in our submission, there is not the difficulty posed in the appellant’s version of the matter from the fact that there are, as it were, some things that were not proved or detail not known. It is absurd, in our submission, to propose that though nobody suggested it was true, the unexcluded possibility that some breach of air navigation regulations had occurred by some former owner of one of these aeroplanes is, in our submission, too silly for words.

For the Commonwealth not to suggest that any such thing had happened for it never to be the object, for example, of the kind of discovery, to which I will draw attention in a moment, would render this a mockery of a provision and the Court would lean very strongly against doing that bearing in mind the drastic, perhaps appropriately drastic, nature of the forfeiture regime.

EDELMAN J: I can see how your approach works in relation to “derived” or “realised” but how does a person in the position of the respondent discharge a positive legal onus in relation to “not used in”?

MR WALKER: They would have to depose to their own conduct which constitutes use. They would have to depose to whatever their inquiries reveal about other use. I think that is all.

EDELMAN J: Then effectively an evidentiary onus shifts.

MR WALKER: Yes. We call it an evidentiary onus or evidentiary burden but as your Honour have yourselves said and your predecessors have said time without number that is not to be regarded as, as it were, conceptually equivalent to a legal onus. It is a useful phrase to describe the to and fro in adversarial litigation or accusatorial litigation, depending upon the nature of the case, without shifting in any way the legal onus away from where the substantive law assigns it.

It recognises, if I may say so, that there has to be an end of litigation and that only things which are real issues should be attended to and that there is a degree of party autonomy – that is, the Court can act and should act for sanity’s and system’s sake on the basis that the parties say you do not have to worry about the years 1930 to 1970. The only issues are what was going on when it was a pub and what was going on when it became a software factory because the Commonwealth has the following contentions and the applicant raises it, et cetera.

In our submission, life really is too short for the excessively literal approach that says well, that means the court does not know about 1920 to 1950. You definitionally could not therefore make out (3)(a) and I stress this is a provision which uses the language of litigation – order, applicant, affidavit, et cetera.

GAGELER J: If the Commonwealth, by its pleading, put 1920 to 1950 in issue, would you as the applicant have to meet that?

MR WALKER: Yes.

GAGELER J: So that deals with the majority approach in Henderson’s Case, for example.

MR WALKER: Yes. Henderson’s Case, to use its facts, nobody thought till they were revealed by political prejudices, to examine the merits of how the tsar or his family got hold of the jewels in the first place because on the story that is where it came from. So the idea that you had to work out how did some Russian prince get control of all these jewels in order to bestow by way of condescending gift on someone who had helped him and that is because again life is too short.

Nobody had a sensible thing to say about it. The possibility that it had been obtained by unlawful pillage just has to be accepted as there and unexcluded. Henderson is just a routine example of how was the case run, what were the issues and how obvious is it that if you say “I got this at the turn of the century – my family got this at the turn of the century from grateful royalty” - you would not want to think too hard about disposition of the case once you accept the evidence that it was made in 1950 – that is, the issue had been confined and there had been a complete rejection of the only offered explanation of its provenance. That, in our submission, is how Parliament must have intended this to operate lest it be otherwise a cruel deception.

GAGELER J: Mr Walker, just so I really understand what your submission is about (3)(a), you are saying the property is the thing and the derivation with which we are concerned can be by any person at any time from any unlawful activity at any point in a chain of title going back ad infinitum. The issue as to what has to be proved practically in a particular case depends on how issue is joined between the parties. Is that the way it goes?

MR WALKER: Leaving aside cavilling about ad infinitum, there will be a beginning, alas yes, the words do say that. We really cannot temper other than by the realities of issues in litigation the repeated word “any”. That certainly means it cannot be confined to the applicant.

GAGELER J: To take your old house – I say nothing about your house but to take an applicant’s old house in Sydney, this is a provision which on your construction really relies on the Commonwealth taking a responsible attitude in pleading. The justice of the provision turns on the attitude of the Commonwealth as a party. That may be - - -

MR WALKER: No, no, no. That “no” is too emphatic. I have said earlier, and that is important, that 102 is about judicial proceedings, conducted judicially. They are also capable of being contested – that is, they are adversarial. One of the parties will be a model litigant, and that is true whether or not there are the formal model litigant provisions that are current. It comes from centuries old propositions.

Furthermore, both parties are required to litigate properly, again, not just by reference to express current provisions to that effect but simply from the nature of litigation that can produce a concept such as abuse of process or professional misconduct, and all statutes lend themselves best to interpretation not on the basis of their abuse but on things operating according to justified expectation, particularly when one is talking about institutions within a court’s daily control such as the Commonwealth or others as litigants.

So yes, the whole of the 102 is posited upon not merely it being litigation and adversarial but that it will be done properly. That is the first limb. As it happens, at the relevant time, not uniquely to Queensland nor only just recently, there were controls on the way in which issue could be joined by a defendant and the former liberty to plea general issue, which has not existed in many places for a long time, did not apply.

Now, I cannot call in aid the Queensland rules to construe the statute but I can point to that as an example of the expectation that litigation will proceed in a particular fashion, and regardless of whether there is a Queensland rule that abolishes general issue, the notion of the Crown ever in a case like this, even without such rules, standing as it were arms akimbo and saying “I’ve got nothing to say, you have got to prove it” would, in my submission, be a state of affairs where the judge would, as well as being entitled to have some harsh words about that attitude, be entitled to say “I have got an applicant here who has proved things which if accepted show an unexceptionable history for this property so far as they can show it”, and you, the Crown, do not point to anything which casts any doubt on that. It follows that the onus has been discharged under subsection (3)(a).

GORDON J: If we step back for a moment and just look at the purpose of (a), I can imagine that given we are dealing with someone who is involved but not convicted in the offence, is not (a) directed at saying you may even be that person and be able to establish, for example, that you lawfully acquired it, but you have used it in another offence for which the person who was convicted was not charged and it should not be let out of the net because of that fact. That is the practical reality of it.

MR WALKER: That is a paradigm case - - -

GORDON J: And the practical reality of what happens. The Commonwealth would then say “Well, that is probably right but we know, for example, from the following evidence that it might have been used or was used in the commission of another offence”.

MR WALKER: It would not happen in this city, your Honours, but in Sydney at least there are houses that have been used to cook illegal precursors.

GORDON J: On your analysis the Commonwealth would have to identify what it was was the unlawful activity, what was the offence.

MR WALKER: Yes, yes, you cannot just say from the Bar table, as it were, I have no idea whether this is the case, your Honours, but we know in Sydney as we speak people are cooking illegal precursors in residences. They have not proved that is not happening here. In our submission, that is an outrageous possibility and no one has ever suggested the Commonwealth would ever act in such a way.

My point is this, that of course paragraph (a) of subsection (3) will cover such a case when that becomes an issue in a case. The applicant acquired the property lawfully, for example, their mother left it to them in her will. The applicant is not the person convicted of the offence which might be a bank robbery but the Commonwealth has, from criminal intelligence, indications that the applicant has used it – does not have to be still using it, has used it in connection with unlawful activity. Furthermore, if the applicant is not the person, it appears that they were suffering or letting somebody else cook on their premises. All of that would mean that that person would not be able to avail themselves of subsection (3). They would have to go, if at all, through subsection (2).

GORDON J: Well, they would not get in under subsection (2), would they, because they would have been involved in “the commission of the offence”?

MR WALKER: No. If the offence is the bank robbery, then the applicant will not have been involved in the bank robbery. That is the contrast between (2)(a) and (3)(c). Subsection (2)(a) still refers to:

the offence to which the forfeiture relates –

So if that is a bank robbery, then cooking the methamphetamine will not disturb you under subsection (2). Your Honours, there is an obvious overlap, at least literally, between paragraphs (a) and (b) of subsection (3). Can I turn to that now? It informs what I have been addressing concerning the expectation manifest from the text of 102 that this will be litigated. The property in (a), selecting the words:

the property was not . . . derived . . . directly or indirectly, by any person from any unlawful activity -

And then paragraph (b):

the applicant acquired the property lawfully;

Now, our case with its facts may not actually test all the matters that we think are thrown up by those different phrases. Why I submit at the outset that there is obviously some possibility of overlap is that the applicant is within the group “any person” and acquiring is within the concept of deriving. Whether “lawfully” is the same as “without unlawful activity” is not clear and in particular the phrase is “acquired lawfully” in contrast with “derived from any unlawful activity”; more importantly, “derived, directly or indirectly, from any unlawful activity”.

One does not need to stay long on a consideration of the common law of illegality, including its subset of statutory interpretation – Project Blue Sky – to appreciate that the indirect derivation of property from any unlawful activity will not necessarily as a matter of ordinary legal English mean that the property was acquired unlawfully. It may, and hence the overlap.

We would rather diffidently offer the notion that the word “acquired” is a much sharper focus than the phrase “derived, directly or indirectly”, but again somewhat diffidently, that the acquisition of property, although it can of course refer to “thing”, more naturally refers to “interest”, mostly – I am not suggesting they are exclusive; far from it.

If you are talking about acquiring an interest, they are of their nature, at least in our system, as contemplated by this statute, achieved in an instant, that is, one instant you have not acquired the property, the next instant you have acquired the property, whether it be by registration being effected or by the handover in a common law sale of goods.

In our submission, once one has that close focus on the thing which is an act in law, the acquisition of an interest, an ownership interest in property or an interest in property, then the requirement that it be achieved lawfully will not necessarily involve disproof by demonstrating that there was in a narrative preceding the acquisition some unlawful activity. It will require closer attention to what is it about the acquisition, which is normally a change of ownership from one to another – what is it about the acquisition which is rendered unlawful by, for example, a lie told to your bank manager five years before in obtaining an overdraft?

GORDON J: Just so I am clear, as I understood the Commonwealth’s submission on this section, there were two aspects to it. There was unlawfulness in the process of acquisition, i.e. giving rise to the proceeds of crimes offences under section 82, and then there was in a sense the derivation point to which we have been having debate about. Do you accept the first limb of that being picked up by this section, that is, the proceeds of crime, that is, in the process of an acquisition an offence was committed?

MR WALKER: I will have to take that in stages. The short answer is yes. Can I explain? Your Honours will first note, I hope, that in paragraphs 118 and 119 of our written submissions we have drawn to attention that the error argued for on this point is, we think, an odd one, because there is a complaint that the Court of Appeal did not consider the alleged money-laundering offences in relation to (3)(b) and (3)(a), and that was neither the subject of their appeal, by reference to their notice of appeal, or argument.

The notice of appeal, we have given you the reference there in volume 7 of the appeal book: 2933 to 2934. We do not think that in that very detailed document there is any such point raised. It was not an issue. That does not go to the merits of what Justice Gordon said, but I do have to preface it with that. It is hard to say this was an error by the Court of Appeal when it was not argued. It is even harder to say they were wrong not to refer to it when it was not argued.

Then could I come to, as it were, unembarrassed by what was a real issue below, the question of construction that Justice Gordon has asked me about. Even with a narrow focus – sharp focus on acquisition, the thing that is accomplished in a legal instrument, when, as is often the case, it is by dint of an executory contract or an exchange of consideration there and then, there will very often be a payment. I would not stand here to argue to your Honours that the payment which is the consideration for a transfer

which effects the acquisition is not sufficiently central to the acquisition to be a candidate for consideration of its character, the payment’s character, in relation to the legality of the acquisition. That would be impossible, I think.

To put it another way, I cannot argue and will not argue that unlawful acquisition is only where a statute prevents certain property being acquired perhaps by certain people under certain circumstances. That would certainly be an obvious example where acquisition in breach of a prohibition of the substantive law would be disproof of acquiring the property lawfully. I accept that. But I also accept that the word “lawfully” is apt to include common law illegality.

There is a question, of course, with common law illegality: what one means by it in relation to the acquisition. I think I have to accept that the statutory expression “acquired lawfully” and its opposite, “unlawfully”, embraces the possibility that an acquisition can be effective although an offence has been committed, for example. It is not every illegality that avoids the transaction. A shorthand illegal transaction is described in a conclusion about that transaction but that illegality avoids it – sometimes renders it void. It is impossible on the face of the statute for me not to accept that that is available as an argument.

I think it follows from that that if a payment is an element in an offence, and it is an element in a money-laundering offence, then if laundered money is paid as the price to achieve the transfer of property which is or constitutes or brings about the acquisition, then that is a case apt for consideration as failing (3)(b).

I am sorry that is so longwinded, your Honours, but in our submission the invocation, the conjuring up of common law illegality by the word “lawfully” in (3)(b) is not easy in terms of ascertaining just what kind of conduct will prevent that from being proved. I do stress it is obviously narrower than (a). It can be derived from unlawful activity, by the example I gave earlier: you would never have had your overdraft if you had not lied about your income or your assets and, using the credit by the overdraft years later, you acquire the property.

In our submission, the lie to the bank manager is not something which affects the acquisition of the property, but it would be a paradigm case of derivation, subject of course to value judgments as evaluative assistance as to quality and quantity of the deception. Is that a convenient time, your Honours?

KIEFEL CJ: Yes, thank you. The Court will adjourn until 10.45 am on Thursday, 17 August.

AT 4.16 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 17 AUGUST 2017