Commissioner of the AFP v Hart & Ors; Commonwealth of Australia v Yak 3 Investments & Ors; Commonwealth of Australia & Anor v Flying Fighters & Ors [2017] HCATrans 156 (17 August 2017)

Last Updated: 17 August 2017

[2017] HCATrans 156

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 THURSDAY, 17 AUGUST 2017, AT 10.53 AM

(Continued from 15/8/17)

Copyright in the High Court of Australia

____________________

KIEFEL CJ: Yes, Mr Walker.

MR WALKER: Your Honours, with your agreement, I intend to proceed today intending to meet the estimate of time that I gave the Chief Justice at the end of proceedings the day before yesterday by concluding what we want to say about section 102 which, in particular, will resume the argument about propositions 2, 3, 4 and 5 and also 7 in our outline for address, then move to the question arising about section 141 - proposition 6 in our outline.

In relation to what I am going to call “factual matters” – now, that is a terse way of describing the application of the tests properly understood to the findings of fact, both primary and conclusory, but which straddle both notice of contention and our answers to appeal points - those are points 9 to 15 under the heading of “Notice of contention points and disputed assets” in our outline for address. We have prepared what I will call speaking notes in an attempt to compress matters which really involve some supply to your Honours of references to make good propositions that are otherwise merely adequately done in our written submissions. So I will be dealing with that in a rather more compressed form.

Could I then turn back to section 102, please? Your Honours, there are two matters in particular that I need to go back to. I was asked some questions by your Honours about the nature of the discretion and your Honours will particularly recall our argument that the nature of any judicial discretion is such that conditions can be expressed so as to achieve what the court thinks is a just outcome.

In our submission that is an intended purpose by this stage in our jurisprudence of the grant of a discretion to a judge. Calling that, for shorthand, the power to make conditional orders – it is really conditioning the exercise of a discretion to withhold relief, for example, upon a state of affairs with which the petitioning party can engage - there had been an argument below that the statute did not permit that. I do not need to take you to it but I will give you the reference - in volume 7 of our appeal book. That is to be found in our friend’s notice of appeal at 2934.

It was held by the court in paragraphs [210] to [212] of Justice Morrison, which is at volume 7, page 3010, and by Justice Lyons at paragraph [925], volume 7, page 3156, that that discretion could be exercised in the manner for which we argued and in our submission that is an orthodox reading of a power which it would require plain words to constrict in some particular fashion.

Next, may I turn to a matter where your Honours may recall I gave an answer in two parts to a question of Justice Gordon’s where the first part avowedly did not engage with what I will call the merits but rather with the way in which the issues have been litigated.

My point is simply this, that the jurisdiction on a strict appeal to this Court, is a jurisdiction in error and that it is not right; certainly in this case, it would not be right, bearing in mind the nature of the issues in this case, quasi or actually penal, for there to be an appeal allowed where it cannot be said in any sense that the Court of Appeal erred because the Court of Appeal had not been asked to proceed as the Commonwealth is now asking this Court to proceed.

Now, this involves a combination of factors, obviously. May I sweep one aside immediately? In appeals by way of rehearing, appeals below this Court, the principles pronounced by this Court in Suttor v Gundowda are clear. If, as they probably do, they apply with adaptation to strict appeals in this Court, as Suttor v Gundowda stands for, then the point in question, which is the lawful acquisition point about the aircraft in particular, is not one where more evidence could have been deployed than them not taking a Suttor v Gundowda point.

I hope your Honours will forgive the use of slogans but we are taking a Coulton v Holcombe point, of course, particularly with respect to the Commonwealth in a jurisdiction of the character I have already referred to and may we say, to continue the case name slogans, this is not a Moustakas v Water Board Case.

There is no suggestion that there was a course of forensic dealing between the parties below that permits the Commonwealth to say, well, in fact, the point was fairly before the courts below. There cannot, of course, be an amendment of the pleadings in this Court, but there was not either an attempt to amend pleadings in the Court of Appeal because this point was simply not ventilated at all.

GAGELER J: It is a Metwally (No 2) point, is it?

MR WALKER: It is sort of, yes, to add to the eponymous arguments. Yes, your Honour. It is for those reasons that, in our submission, there should be no entertainment by this Court of an argument that the Court of Appeal was in error for not deciding a point never before it and we add, for good measure, not before the trial judge either, being the decision and reasons which were before the Court of Appeal in their jurisdiction in error.

The only pleading which you will find in the points of defence, volume 7 of the appeal book, pages 93 to 103, we think is to be seen in paragraphs 37(c), 38 and 41(c) and that was that the aircraft had been used in connection with unlawful activity about which issue has been joined.

The next point concerning the argument, to which I was making reference in answer to Justice Gordon’s question, does turn to what I will call its merits. There were, in terms of lawful acquisition - as we apprehend the case sought to be put against us here, it is a kind of tracing exercise. I say kind of tracing because it is not done in any strict either common law or equitable sense so far as we can see. That is not a criticism; it is just to observe that the statute does not call for it in that fashion.

It seems to be the proposition that I sought to engage with at the end of proceedings the day before yesterday, namely, what I was saying about common law illegality when the payment of the money is an element in an offence and the payment of the money is the sign of automatic obligation that entitles you to get the title which constitutes the acquisition of property.

Now, in such a case, in our submission, precisely because one is focused upon that virtually instantaneous legal dealing, it will be probably impossible, certainly not available in this case, to speak about acquisition having been unlawful by reason of payments made a considerable time later, whether for fuelling or repairing or refurbishing the acquired property and, in our submission, there should not be conflation of what may be relevant in a derivation case where facts may well, particularly if the conduct in question closely follows the legal acquisition, it may well be that a court could, looking at the matter in the jury question style that I have urged, say the property is derived from unlawful activity by reason of the unlawful activity generating funds which everybody knew would soon after its acquisition be necessary in order to retain the property. That was conveyed by concessions I think I made at the outset.

This is not a derivation question. This is lawful acquisition and the difference of expression or the use of a word which is, or involves strictly legal concepts is, in our submission, very important and it certainly means that in the case, for example, of the aeroplane that has been called the Trojan, that is VHAVC, there were no tainted funds involved in its acquisition in the sense as I have explained it. The funds in question seem to be only for repairs and restoration. You will see that at volume 7, page 3197, in the Court of Appeal’s reasons, 1094 to 1095. The same is true but for different reasons – that is, there are no tainted funds with respect to the proposition that:

Fighters did not derive its interests in the aircraft from an offence –

That is paragraph [1115] at volume 7, page 3195.

Now, as to another of the aircraft, the T28 VH-SHT, as your Honours will see at the foot of the document called “Additional References to our Submissions” that we have handed up this morning – you will see without me perhaps reading them onto the record, the references to the acquisition of two one-half interests at different times and by dint of course of the definition of “property” in this Act, about which I have already said enough, it is clear that what I will call the “initial half interest” is a matter which is eligible for section 102 restitution, notwithstanding the second one-half interest may not be, but the second does not taint the first. The first is a discrete interest as to which it can be said as to its whole it was acquired without any taint. That is a finding, as we pointed out, of the primary judge there.

So returning, if I may, to the section 102 argument to complete what I had almost finished, the proposition that we need to make out is concerning the way in which the terms operate in subsection (3). I have said enough about “used”. I will come back to some factual matters about that later. But, with respect to “derivation”, all I want to do to complete our address on the point, in supplement of our note and written submissions, is to stress that it is not necessary for the Act to be glossed in the overt way of saying that it should be read as if the word “substantially” appeared before the expression “derived or realised”.

I interpolate that “derived” and “realised” are not easy, equivalent concepts working perhaps in different directions, going in and coming out. The notion of something being substantially realised is quite difficult, really, whereas the notion in ordinary English of something being substantially derived is very straightforward. That is one reason why, textually, simply inserting “substantially” is a bit odd because it might suggest that you have to say “substantially derived or realised” without the “substantially” modifier. That would be a very odd textual way to approach the interpretation.

But it does not mean that the laws concerned with matters of substance and materiality or reality, commercial, practical or otherwise, is absent from the proper understanding of what is called for by the conclusory judgment, which involves evaluative assessment, we urge, that a court makes when considering whether or not property was not derived directly or indirectly by any person from any unlawful activity.

We call in aid the intended breadth of the expression “directly or indirectly” and in particular what must be apparent to your Honours from consideration of those words, “directly or indirectly”, in so many areas of the law. The distinction between that which is direct and indirect is, if I may say so, classically fuzzy. It does not mean there are not clear cases where that can only be direct and that could only be indirect. But it does mean that there is a very large borderland where respectable views could be held as to one or the other, which is one of the purposes of having a phrase that means you do not need to distinguish. “Directly or indirectly” means it does not matter whether it is direct or indirect; the same effect in law will follow. In other words, these words do not import sharp distinction. Well, that indicates that sharp distinctions in terms of the manner of derivation and therefore the fact of derivation are, in our submission, part and parcel of the way in which these words operate as a matter of law.

That is why, with respect, the Court of Appeal was correct, particularly in their invocation of the case law to which we have made sufficient reference in our written submissions, that there is, as it were, a decision to be made which might sensibly employ words like “material” or “substantially” or “really” or “as a matter of practical reality”, et cetera, et cetera, et cetera.

At the end of the day, however, glosses in any formal sense are unnecessary. Interpolations that apply generally to every case, as it were, of words into the enacted text is unnecessary and to be avoided, with respect. Rather, it is to be understood that the nature of this factual decision-making calls up, case by case, a factual determination of something which does not lend itself to bright-line determinations.

Bright-line determination would, however, be the hallmark of the arguments from extremes that, if I may say so, both sides could be regarded at some stages of conciliation of having been guilty of, that is, our friends say, the scintilla - I will call it, for ease of reference, 1 per cent but it might be 0.00 of 1 per cent; for our argument, which has a corresponding weakness about it, the 99 or 99.99 per cent, the “all or nothing” artificiality by which, at times, in this litigation we have tested each other’s arguments.

It follows, I hope your Honours appreciate from the way in which we have prefaced our written submissions and we have argued the case in address, that we urge that that is an entirely artificial and wrong approach to how a court would direct itself and apply the test of whether or not the court is satisfied that the property was not derived directly or indirectly by any person from any unlawful activity.

Now, it follows from us eschewing the tiny amount or the nearly-all amount as a sensible test of how this derivation applies – it follows as well that we urge on your Honours that the equal artificiality, because it is equally arithmetic, of our friend’s most – that is, 50 per cent – really should also be rejected.

With respect, some of the arguments that your Honours have heard from our friend concerning the facts of some of these items of property where the proportion of what might be called tainted is considerably less than 50 per cent but still appreciable - take the 30 per cent which coincidentally seems to be about right or some or all of these assets relevantly depending upon the outcome of the notice of contention.

We understand that our learned friends are not tying themselves to 49 losses and 51 wins. I do not know what it means about 50, which is not on any view of it most, at least arithmetically. It only illustrates that this is not an exercise that can appropriately be required to be performed by measuring out in coffee spoons.

Your Honours, it is for that reason that when one comes to finish off some of the factual matters, if I may return to our additional references document, could I note at the top of its page 2 that we have lent some references to an argument that I want to make about the other way in which, in this Court, our learned friends sought to explain how derivation operates.

It does not matter whether you use the Latin sine qua non or the English “but for”; it is a causative link that your Honours will recall our learned friend has put. It is causative, as I say in that strong sense of “but for”. It is about a narrative. One of the difficulties about a narrative concerning the obtaining of property and the use of what I am going to call tainted funds is that in order to understand whether “but for” the use of tainted funds it would have been acquired, you have to ask the counterfactual. That is what “but for” means. So if I had not had those moneys, would I have had other moneys? Would I have acquired without it?

Now, at this point a matter that your Honour the Chief Justice drew to my friend’s attention in a slightly different context is important; money in the sense of cash, by which I include also cash at bank – the right unconditionally to require a bank to give you the money or extend the credit – that is a fungible for all relevant purposes. That is the significance lurking behind all of these provisions of the jurisprudence of tracing.

In our submission, if the “but for” test – and we do not suggest it is right but if a “but for” test has some relevance to play in derivation, and as a matter of common sense it does, it will always involve an investigation of what would have happened but for the use said to have been traced of the tainted funds.

The argument was simply not put this way at trial and that is why you will not find a complete statement of the relevant finding of fact. But what has been seized upon is his Honour’s finding, to which attention has been drawn, concerning the bank would not have extended finance, et cetera. That is only half the story of the narrative but for. Had the bank not supplied the money, would the money have been otherwise available?

We have drawn to attention – this is a Suttor v Gundowda point – that which could have been, had this ever been factually litigated at trial, our answer. In any event, stepping back from the factual application of the so-called “but for” test, may we put this, that investigations in a narrative sense of what would have happened but for access to tainted property is a sensible, with respect, unremarkable aspect of the factual investigation that will be involved in many derivation arguments. We accept that.

It is, after all, a way in which black-letter tracing could be used to make out a convincing case of derivation. However, in our submission, it is dangerous to propose it as a loss – that is, that it may stand in place of the statutory wording – and it is simply an approach which as a matter of factual reasoning may inform an answer to the question which really does not ever need to be expressed in other than the statutory term.

While on this aspect of section 102 and only by way of supplementing what we have already written about the matters, at the foot of page 2 of our additional references document may I ask your Honours to read under the heading “Blackshort payment” not the commencement of what is there written with an admission. It should, of course, mean the only putative unlawful source because what follows – and I do not wish to take your Honours to the reference material – is in what I might call orthodox and common sense tracing terms a simple refutation of the argument against us.

In relation to the use limb of 102(3)(a) as it applies factually, could I ask your Honours to note that in relation on page 3 of the additional references document to 6 Merriwa Street, that it should also be understood to be answered in the same way as Doonan’s Road and Hangar 400 are answered in the last sentence of each of those notes – that is, the asset was not used in connection with the Perpetual offences. That is also true for 6 Merriwa Street. Your Honours, I think have already - - -

GORDON J: Is that based upon the contention that it was used in relation to the loan and not in relation to the inducement?

MR WALKER: In effect, yes.

GORDON J: Thank you.

MR WALKER: I was about to say - and, with respect, Justice Gordon makes this good - I think your Honours already have the point. These were properties which are not being regarded as ineligible under 102(3)(a) because of tainted acquisition but because of use in connection with any activity, unlawful activity. The putative unlawful activity is the conduct of, we think, four people, maybe two, but I think it is four people in the clause 16 so-called misrepresentation, the victim of which was the lender.

The references to which we have drawn attention and to which our written submissions draw attention show, of course, that the clause 16 representation and this, in particular, is made good by the – your Honours will have seen what I hope was not a puzzling reference to so-called Appendix 61 to the appeal book. We have handed it up with our friend’s consent. It is material from the record which I am afraid was not in the appeal book, for which I apologise.

I do not want to take your Honours to it. That is the source of materials to which we refer in paragraph 216 of our written submissions. The risk assessment antecedent to the extension of this credit included a concern about advances to Mr Hart for his purposes discharging his debts. After what I might call the commercial decision was made to advance the funds, there was the subsequent and added stipulation that it would only be advanced on terms that clause 16 would be acceded to with its representation.

The package of security which included these properties was, of course, what I will call a “commercial inducement”. None of them – these properties had anything to do with adding any colour or substance to the two propositions with which we are taxed concerning clause 16 but the advance was being sought on behalf of Mr Hart - I will come back to that - and perhaps more significantly that there was an indemnity. Your Honours will recall the way our learned friends put it.

The provision of those security properties had nothing to do with the making of that representation or the subject matter of that representation or any inducement by reason of that and nor did their existence as profit and security or grant of security have anything to do with the state of mind of the putative offenders. It is for those reasons that the Court of Appeal was surely correct in saying that the merely historical narrative capacity to express in the same sentence the offering of those as security for a loan, the making of which was induced by misrepresentation, does not suffice to show that they were used in or in connection with the offending. It is for those reasons, in our submission, that factually the Court of Appeal was correct in that regard.

You have also drawn to attention in relation to Merriwa Street that if it matters, and it should not, but if it matters narratively it was mortgaged to Equity Trust not to Perpetual. Sure, that is part of the same commercial deal and can be talked about sensibly in the same narrative but it really highlights that this is not the kind of connective use or use in connection with, I should say, to which these provisions are directed.

Could I complete what I wanted to say factually then about the Perpetual offence – I can be brief. It is not obvious how there could be regarded as an unexcluded possibility with respect to this loan, bearing in mind what we draw to attention in our written submissions about what the funds sought and how they were used – not at all easy to see how there remained an unexcluded possibility that this was money being sought on behalf of Mr Hart as opposed to on behalf of the borrower who used it for the borrower’s purposes. That is the first thing.

I will come back in a different connection to the effective control point. It appears there has been an elision of the difference between the statutory concepts here. We simply assert categorically as follows that it is to be hoped that in a well-run corporation, this is hypothetical your Honours appreciate – that in a well-run corporation the board, perhaps one person but I will call it the board, is in effective control of the affairs of the corporation including disposition of its property including the contracting of obligations. That is, after all, the intention of corp company law in that regard.

But no one would say that because they are in effective control of the corporation or its property that things done by them or at their instance in the name of and by the corporation are therefore done for them or on their behalf so that effective control – it needs to be understood as not necessarily indicating the kind of nefarious ignoring of the distinction between personal and company property that Justice McPherson referred to in the passage to which my learned friend drew attention about Mr Hart himself.

So, being in effective control does not equate to that which you do by exercise of that effective control being done on your behalf or for you. That, with corporations, is utterly opposite to the way in which both factually and legally the matters fall out. It is not, in our submission, otherwise available to say that this was – there is no other means by which it is said to have been on behalf of. So that is one part of the Perpetual offending that, in our submission, shows error.

Of course, it is not good enough for us to knock out the disproof by us of one element, we have to knock out the disproof by us of all elements, and we accept that. In relation to the possibility of there being the requisite state of mind, the dishonesty necessary to comprise an offence, we rely upon what has been said in the written submissions.

In particular, apropos a matter that some of your Honours raised with my learned friend, we are not embracing with respect to the state of mind of the two ladies, Mrs Hart and Ms Petersen. We are not relying upon the false equivalence between a judge not specifically referring to evidence and a judge not taking evidence into account. This case does not raise that at all.

Your Honours will have seen from our written submission that rather we rely on the proposition that the trial judge specifically found that they had not given evidence about the subject matter but they had. That is a totally different kettle of fish and the Court of Appeal erred in not responding to our argument in that regard.

That leaves, in relation to section 102 a discrete topic concerning discretion and it is adequately stated, I hope, in the way we have put the matter concerning it in our outline for address - this is in proposition 7. This also is a complaint, if you like, about a discrepancy between the way in which things have been done below and the way in which things have been attempted in a strict appeal to this Court now to be ventilated. I do not need to elaborate the point.

Could I come back then to – I am sorry, before I leave 102 may I add a reference – I think your Honours have this in our written submissions but I want to highlight it - on onus.

I have said everything I want to say about onus of principle but the forensic setting in this case lends particular weight to what emerges from a proper understanding of why Henderson was decided as it was and give support in particular to the way Justice Hunt has dealt with the matter in Chifley (No. 1), to which enough reference has already been made.

That is in volume 6 of the appeal book at page 2680 in paragraph [50]. I am not going to read it – it is a long passage. The rather tremendous dimensions of the matter at trial can be observed in the way in which, in our submission, makes good the proposition that it really does require assumed application of issues being joined between adversarial parties in order to make these practicable and truly available provisions of the remedial kind.

I am now moving to section 141. Plainly enough, there are, as it were, some transitional matters I need to deal with as I move to 141 from 102. I am going to, first of all, try and put in perspective what was going on in these proceedings, why does 141, which is an order to render available for execution property in the effective control of the relevant wrongdoer, why does 141 - how is it connected with 102?

It is not obvious on the face why that would be so. We invite your Honours to view the stance of our opponents as follows. If you, the applicants, succeed in persuading, and ex hypothesi correctly persuading, a court in the exercise of its discretion under section 102 to order restitution of certain forfeited property - and that restitution, I interpolate, could be in specie, it could be still in kind available, or would otherwise be in the money following the required liquidation.

If you manage to get back by a correct exercise of judicial discretion any such property we will, there and then – we would do it in the same proceedings – say, we want that to be available because it is in the effective control - and your Honours will notice that I have just slipped in the present tense, because it is in the effective control - of the wrongdoer, for our - that is, the Commonwealth’s – execution against property to enforce the pecuniary penalty order. That is the way in which it arises.

GORDON J: Does it arise under (2) – if you have made an order under subsection (2) of - - -

MR WALKER: Section 102.

GORDON J: Yes, because you already have the same requirement of effective control so it cannot arise in that instance, can it?

MR WALKER: Your Honour anticipates one of my first points.

GORDON J: Sorry.

MR WALKER: This is an old conjunction of the forensic attention in the same proceeding between the same parties on the same facts at 102 and 141 because the first of the limbs – and, I agree, this is just one of the two alternatives – 102, expressly means that you never have a discretion if it was – there is the present tense I have already said enough about in 102(2) – in the effective control. So 141 cannot sensibly go to be deployed there.

At the risk of spelling out the bleeding obvious, can I make this clear about 141 as well? The pecuniary penalty order is an order which, as to its amount, will take account of forfeited proceeds. Can I show your Honour the provisions – I can do this quickly. You can start in many places but I propose to start at section 116, it is the duty to make such an order. In this case it was posited on 116(1)(b)(ii).

Now, there was a conviction of course available. The advantage - if I can use that word with slight disapprobation – to the Commonwealth of going under the second limb – that is, subparagraph 116(1)(b)(ii) – was that there were a broader range of offences to be posited as the source of the benefit which might, of course, broaden the benefit, increase the amount of the pecuniary order. That is of no moment, I think, to the interpretative questions that I need to draw to attention.

Under subsection (3) of section 116 - another of these uses of language which may or may not have a particular temporal meaning, again not critical to the argument here – you will see that:

the court may treat as property of the person –

property of the kind that we are interested in in our argument, namely:

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

That is in relation to whether the person has derived a benefit. Let me make it clear that in the context of determining whether a person has derived a benefit and purposively for the granting of a pecuniary penalty order, the critical matter surely is that the person has derived a benefit. You do not defeat a PPO by gleefully pointing to your subsequent dissipation of the benefit, for example. So the historical as derived is very important. That casts light, of course, on what it means when it says that the Court forms an opinion that property:

is subject to the person’s effective control.

It certainly includes at the time the Court is thinking about it. There is a question, does not arise in this case? Well, does it refer to property that once was as a derived benefit within effective control but is no longer? That does not arise in this case but I draw it to attention because there are a number of these questions about temporality conveyed by use of the word “is”.

You will see in subsection (4) of section 116 the power to make an order – I stress, the power to make an order – is unaffected:

by the existence of another confiscation order –

a genus which includes, of course, forfeiture. When we come to the content of such an order, section 121 governs. My friend has already drawn these to attention. It introduces the concept of a penalty amount. Section 122 governs the way - your Honours will see the words “the court is to have regard” – in which that amount is determined. And your Honours see that it refers to historical advents of advantage. And by the way, “benefit” is defined in 338 to include “advantage”, a very, very broad term. In any event, you will see that:

the money, or the value of the property other than money . . . because of the illegal activity –

there is a causal link:

came into the possession or under the control of –

et cetera, and you will see that includes, looking forward to effective control, the notion of coming into the possession or under the control of another person at the person’s request or direction. So there is an evident concern cognate with the effective control provisions elsewhere. There is an evident concern to cast the net appropriately widely in light of the way in which malefactors may organise their affairs.

The same thing can be seen in the succeeding provisions of section 122, and you see some temporality expressly stipulated; thus, for example, in 122(1)(c)(i). Section 122(1)(d) makes it clear that the value, which notoriously may fluctuate of any kind of property, is a value which can be taken into account at what I might call a high point; so:

value . . . before, during and after the illegal activity -

Now, all of that rather indicates that when considering the penalty amount a sum could be reached which, as it were, is no longer in the hands of – perhaps never was at one time all in the hands of – the wrongdoer, and a good thing too when one considers the section 5 objects. The fact that dissipation subsequent to first obtaining of a benefit is not to the point is also, one would have thought, explicit in the reference to expenditure, “income and expenditure”, in paragraph 122(1)(e).

The problem of value at the times at which values are to ascertained can be seen to be the express and specific concern of section 125. Then we come, in this part of the scheme of the Act, which is setting the value – the penalty amount for a pecuniary penalty order - we see section 128, yet another provision, mercifully not in itself in question in our case but which uses language that may pose temporal questions:

In assessing the value of benefits that a person has derived –

I have said all I need to say about that, it is a broad concept which refers to everything of which that is said are true:

the court may –

and it is an interesting discretion because it suggests again that these things do not lend themselves to exactness:

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

Question, I hope not for this case, what does that mean? Must it be true, that is, subject to the person’s effective control, at the time the court is considering whether to treat it as property of a person or will it suffice if during the relevant period to which the words “has derived” surely go, and will it be enough? Now, it may well be that the answer to that is yes. It is not going to affect the outcome of our case and it does not, in our submission, for the reasons I am about to come to, cast any light on the interpretative question.

GAGELER J: The word “may” does not necessarily connote a discretion in section 128, does it?

MR WALKER: No, that is correct. This may be - - -

GAGELER J: It would be an odd reading of it.

MR WALKER: I was about to say this “may” may be a “must”, that is, if you are satisfied of the thing it is - - -

GAGELER J: Well, if it arises on the facts.

MR WALKER: If it arises on the facts. It may well be it is one of those cases where it is impossible to understand how judicially you can proceed otherwise. I accept that, with respect. On the other hand, “may” usually means discretion. Now, it may be that discretion is a difficult word. It may be that it – I call it in aid for what I am calling the evaluative assessment level of non-exactness in the decision-making. I accept entirely, as Justice Gageler has raised with me, that perhaps it could be read simply as what I will call granting permission, giving power, enabling.

GORDON J: I mean, in a number of these instances, of which 121 is an example, it is in a sense the creation of a fiction.

MR WALKER: Yes, and 141 is all about that. It all culminates, in our case, in 141. Now, being fiction, of course, is almost de rigueur with a lot of the statutes, there would be some fiction somewhere, if only in the definition provisions. But when it is a fiction about property, the canons of interpretation to which we have sufficiently referred are relevant.

Section 130 is important to the framework in which we seek to interpret 141. Section 130 says of proceeds – now, that is the section 329 proceeds as defined, so it is derivation in whole or in part, it is very broad – it says, proceeds that have been forfeited, that they are taken into account in fixing the amount, as you would expect; so I want to say, as you would expect.

Given what the scheme is trying to do in terms of fixing the penalty amount commensurately to the benefit, and bearing in mind that the pecuniary penalty order has to be paid to the Commonwealth, property which would otherwise be within benefit that has already been given to the Commonwealth manifestly might sensibly be taken into account, and section 130 says it is if it is proceeds. Now, that is defined proceeds. It is not the 102(3) derivation, which as we have already drawn to attention is not the section 329 whole or in part. It is, this is section 329 proceeds, the broad proceeds.

Now, section 133 is of some moment incidentally; that is the penalty amount can be adjusted if forfeitures are reversed, et cetera. So one can note that the making of the forfeiture, for obvious reasons, is not a bar against seeking a PPO – that is 134(5) – but I have already drawn to attention how forfeited proceeds under section 130 will be taken into account.

Then we come to Division 4 of Part 2-4 which is the enforcement of these orders that have been made with a penalty amount stipulated in accordance with the provisions to which I have just been referring. Section 140 is obviously a critical provision because in the way familiar, say, from tax, it renders the amount payable under these purely statutory provisions, purely statutory law – it renders them the common law concept of a debt owed to the Commonwealth.

Furthermore, it calls in aid using terms of legal art in section 140(4), the possibility – not the possibility - the character of that as a “judgment debt”. Of course, the point about a judgment debt is that it is something for the satisfaction of which there may be levied in accordance with available procedures from time to time and place to place – see the Judiciary Act – execution, among other things.

Of course, it is execution against the property of a person liable for the debt, and the matching of the property to the debtor is obviously the hallmark of any civilised legal system. We do not rob the village to pay one of the villager’s debts. We take that in our society to the point of observing the individual legal personality of individual persons.

Then we come to the special provisions which tend against that civilised expectation which lies beneath the statutory canon of interpretation of requiring plain words before fundamental rights with respect to property are abrogated or altered. Section 140 simply sets the scene in which execution against property is envisaged.

Then we come to the provision about which I am arguing, section 141. There is a special kind of order that can be made. It captures some concepts that have already been considered in the argument of this case, but the statute has already schematised, for example, in 102(2), to which attention has been made; that is, this notion of effective control.

As your Honours have seen from our written submission that deserves, with respect, emphasis, the expression of subsection (1) of section 141 is quite different and distinct from all the other provisions that we have at least drawn to attention which raise these temporal questions about the use of the word “is”. Here we have an explicit staging of the matter – prerequisites, if you like or conditions – in an explicitly temporal fashion.

Why do I say “explicitly temporal”? It is surely true that there is no power for the DPP to apply under paragraph 141(1)(b) unless at the time of the application it is then true that a person is subject to a pecuniary penalty order. That is surely an uncontroversial reading of it. First you must have the pecuniary penalty order, then you may have in his or her administrative discretion an application by the DPP. That must happen. The court cannot move of its own motion is one thing that that means.

If those two things ever happen, the event of a pecuniary penalty order, the event of the DPP’s application, then the court exercising its judicial power determines whether it is satisfied of the matter that follows. So there is an explicit temporal quality to the condition of this power which is expressed in paragraph 141(1)(c), namely, that the court is satisfied of something. The plain words is that at the time the court answers that question the issue for it is whether particular property is subject to the effective control of the person.

Now, at this point, may I go back to what I said I was going to try and show? It is too silly for words, with respect, to suggest that that could be true of forfeited property. It just cannot be true. Forfeited property, after all, has already been taken off the penalty amount – taken off the benefit in order to reach the penalty amount. The Commonwealth already has it. The deployment of that property – forfeited property – for the purposes of meeting an order under section 140 is absurd. Section 141 cannot speak to it.

Now, that is enough at least to show that it cannot be true abstractly or generally that 141 applies if there has been historically a state of affairs where property was subject to the effective control of the person because that is the very state of affairs which could have led to a restraining order which could have produced a forfeiture. So it cannot be true that the mere historical fact is enough because we know that what I will call the paradigm case of that historical fact being true – namely, accomplished forfeiture – would remove such property from the scope of 141 altogether.

Rather, in our submission, 141 ancillary to serving the object’s informed purpose of section 140 is to make something available for enforcement. You only make something available for enforcement if it meets the stipulated character at the time that enforcement is in question – that will be after the making of a PPO. That goes back to the beginning of 141(1), there first has to be a PPO. Then you ask yourself the question: what is the kind of property that a court may, by order, declare available to satisfy the pecuniary penalty order?

If it is a person’s property, a person having nothing to do with the offending or the offence but which was once – that is, in the history of that property under the effective control of the wrongdoer but not forfeited, not restrained, not forfeited, it is now with a third party, it is, in our submission, beyond tolerable strain to regard the Commonwealth Parliament as having said that that is a kind of property about which a court may make such an order.

GORDON J: Does that work though in relation to subsection (3) of section 102? I can understand the argument in relation to section - - -

MR WALKER: Would your Honour mind if I defer grappling with that?

GORDON J: Sorry.

MR WALKER: No, no. One thing does not work, let me make this clear. I think your Honours may have gathered this already. With 102(2), I have, as it were, an easy point. There is no 102(2) power if there is this special meaning of is subject to effective control that has already been sufficiently debated. So that is my easy answer to – well, 141 obviously cannot pick up 102(2) property. I do not have that same point with 102(3) and so may I defer, however, a more complete answer about 102(3) as it relates to 141?

Our submission at this point is that the ordinary meaning of the word “is” in 141(1)(c) is exactly what you would expect from the context, the purpose and the policy of such a provision. Why would as a matter of civilised public policy the property of someone completely unconnected with the offending who has acquired the property – and property can mean thing as well as interest – the thing or the interest by dealings which have as their history former unconnected, factually unconnected effective control by the wrongdoer, why would Parliament say that is property that ought to be available?

Because, as I stress, the provisions I have referred to earlier concerning PPOs would sensibly be understood to apply in relation to the benefit and its amount, notwithstanding that there has been either dissipation or disposal of the property which first manifested the acquired or obtained benefit. So the Parliament contemplates that one of the things people do with property is to sell it. Indeed, money laundering is very much concerned with just that, the removal from its primary or immediate form of ill-gotten gains.

Persons who down the track have obtained such property may be quite incapable of contesting the proposition that this was formerly within the effective control of a wrongdoer. My vendor’s vendor, for example, was controlled by that very person. Those are considerations which, in our submission, comfortably would satisfy this Court that the ordinary meaning of “is” which is present tense speaking at a time which we know is in a temporal sequence – PPO, application, court satisfied. The court cannot be satisfied before there is an application, so we know that satisfaction follows application and we know application follows PPO. Why would we not then construe “is subject to” as being a state of affairs which is a matter of policy and then in judicial discretion could justify saying to a stranger that property is now subject to the effective control of the wrongdoer? Your innocence notwithstanding, it is available to satisfy that wrongdoer’s pecuniary penalty order.

That, in our submission, is the way in which both text, context, purpose, policy combine to justify the position which we urge in relation to that provision. It would be an error – is an error to disregard the textual differences between these provisions and the other provisions to which we have drawn attention involving temporal questions when the word “is” is used, including in relation to effective control, to which we have drawn attention and the argument against us, in our submission, does not adequately explain how those differences do not matter. Subsection (2) in its expression – that is of section 141 – certainly corroborates, though it obviously does not compel, the reading we have offered.

The notion of “The order . . . may be enforced against the property as if the property were the person’s property” is one which ceases to have the affront to private property rights if it can be said that, at the time in question of the order being made as to availability, the property was under the effective control of the person bound by the pecuniary penalty order.

The same thing, surely, is true of subsection (3). It would be, in our submission, an unexplained and a textually unnecessary infringement of private property rights for that restraining order jurisdiction to be available to property that was no longer under the effective control of the wrongdoer.

Everything in section 142 is consistent with the reading which we have suggested. In particular, the language of “is, or has been” that you find in section 142(1)(b), including in subparagraph (1)(b)(ii), needs to be understood in the context of the provision about what I will call the currency of a PPO or a restraining order, the negative condition that you see in paragraph 142(2)(b) and 142(2)(a). So that currency, temporal simultaneity of the relevant states of affairs, is supported by a reading of section 142. And the temporal nature of the matter can be seen again in subsection (3) of section 142, which orders priorities as they may otherwise have been affected by reference to encumbrances in existence before the charge et cetera. It is for those reasons, in our submission, that the provisions of section 141 could not apply to property which, by dint of restraining order or forfeiture, particularly forfeiture, were not in effective control.

And then we come back to the setting. This was, as it were, the 141 application that is wielded, if we win section 102. It is waiting for us at the court door, as it were. No attempt has been made – none has been made – to show that, at that juncture where we have rightfully got a 102 restitution, the property in question was under the effective control of the relevant wrongdoer. Simply reaching back into history – history, by the way, which would have been canvassed, must have been canvassed, both as to prerequisite if subsection (2) were in question and as to discretion and probably also derivation, clearly, under subsection (3) – I am now turning to sections 102 and 103 – for the order which was, ex hypothesi, correct.

It is for those reasons, in our submission, that the attempted use of section 141 in those circumstances by the Commonwealth turns on a reading of the important words of “prerequisite” which cannot be satisfied by dint of the anachronism of their application: because it was once under the effective control it is available to be regarded as, is subject to effective control upon you getting it back under 102. That is the important point, it is only upon restitution.

Now, restitution can be in two forms, in specie if it is still available or otherwise money. With respect to money, this becomes very difficult. But if it is to be supposed that money, of which restitution is given under section 102, might be available under section 141 there is every reason to require, as the words suggest on their ordinary meaning, that the Commonwealth show that that money is, at the time the 141 decision is sought, under the effective control of the wrongdoer. And, by the way, if that could be made out there is every reason for a 141 order to be made. But that would have involved, perhaps – and this I put diffidently – a rather odd revisiting by the very same court on the very same material of the discretion enlivened by a 102(3) determination.

Because it is difficult to understand that if a court, under 102(3), is satisfied that those provisions were made out, therefore a discretion enlivened, but knowing that the money - learning that the money would thereby come under the control, effectively, of the wrongdoer, who is of course at the heart of some of the requirements under 102(3), including the need not to have connections of the wrongdoing kind, it would be odd if that was irrelevant to the exercise of the discretion enlivened by 102(3).

GORDON J: Just so I understand the submission, is your proposition that the inquiries that are required under 141(1), including effective control, are inquiries that would have to be made under 102(3)?

MR WALKER: No, no. The connection of 102 and 141, we think, is unique to this case. It does not matter. I cannot find anything in case law. But it is certainly very odd on the face of things because 102 is about restitution. If I may say so, a discretionary restitution, surely, is something that the Court deems ought to happen. This is a case where the Commonwealth is saying, right, we accept as a premise that the restitution ought to happen but some of it should now be reversed by the property being available for execution to satisfy the PPO.

BELL J: How does your argument accommodate the Commonwealth parties’ reliance on 29(4)?

MR WALKER: The first is to say that 29(4) is concerned with a markedly anterior stage – markedly anterior. This is exclusion from a restraining order. My argument is about property, not the wrongdoer’s – a third party’s property to be made available for the levy of execution.

BELL J: Again, one comes to - when one is looking at exclusion from the restraining order, one has to see whatever policy is embodied in sub (4)(b) which precludes exclusion in those circumstances.

MR WALKER: Of course.

BELL J: I understand your argument about discordance with 102 and it is just, in a sense, one can see it here, too.

MR WALKER: Can I explain. When I say at an anterior stage, I mean the premise of 29 is that there is about to be made - or has been made because as my friend correctly points out, it can be made after the event – a restraining order. And we know from the scheme that a restraining order can lead, will lead in due course, to forfeiture – it is headed to the Commonwealth. Under subsection(4) that status – I do not mean this cruelly – the Commonwealth has its hooks into it. It will remain hooked and available in the public interest to deny people ill-gotten gains so long as the possibility exists with respect to property not owned by the suspect but that is at the time of this consideration under his effective control, which, as we have already debated, must mean but for the restraining order which you are seeking to have it excluded from, so long as there is a possibility of a PPO being made against the person with respect to which that may be property under their effective control.

Because if we – and I think that means both parties – are right about how one reads “is” when you are talking about the existence of a restraining order, which cannot literally be correct because the restraining order removes effective control, but it means really but for that restraining order, then that is what I called yesterday, or the day before yesterday, a present state of affairs which, as it were, will manifest itself as soon as the legal position is altered – that is, no restraining order or no forfeiture – that is a state of affairs which usually will exist for a long period. But in the nature of things, effective control will be given by what I will call relationships and relationships are, of their nature, likely to be – go for a period.

So, 29(4), very sensibly, with great respect to those who devised it, ensures that that which was ex hypothesi properly caught by restraining order, but for the considerations in 21, will remain so if this enacted nexus of, is under effective control, meaning “is” but for the restraining control, under effective control, is true at the time the exclusion is sought. So, that

is that from an anterior period. By the time one is talking about section 140, such property either has or has not been forfeited.

If it has been forfeited, then 140 and 141 have nothing to do with it. If it has not then be forfeited, such property will have been taken into account if the court is satisfied, in determining the penalty amount; that is, both the derivation of the benefit and the penalty amount. That then produces the content of the PPO, under 140; that is then able to be subject to 141 and if the state of affairs which meant that 29(4) operated to prevent exclusion, is still existing, then everything I have said about the present tense will be true but, in our submission, that does not deny the temporal conclusion which we urge, it supports it. It is all about phases of restraint for future realisation in favour of the public, of somebody else’s property, other than the wrongdoers. May it please the Court. May it please your Honours.

KIEFEL CJ: Mr Solicitor.

MR DONAGHUE: Your Honours, can I start in relation to the burden onus point and simply say this: your Honour Justice Bell yesterday afternoon put your understanding of the Commonwealth’s position to Mr Walker, it is at page 123 of the transcript, lines 5190 to 5195, and Mr Walker said he did not understand that to be what we were putting and everybody said they would need to check. Your Honour correctly summarised the Commonwealth case on that point and I do not therefore seek to go back into it.

The other contextual point that might bear on the infinite regression-type arguments that were being discussed yesterday afternoon is that section 330 of the Act has a set of provisions that are concerned with the circumstances in which property ceases to be proceeds or an instrument of an offence. Now, those provisions are not directly in play here because we are dealing with section 102(3) rather than subsection (2) but nevertheless they do reflect, in our submission, the policy of the Act as to the kinds of temporal limits that Parliament had in mind in relation to concepts of derivation.

In relation to conditional orders, I was in fact going to take your Honours to the same paragraphs in the Court of Appeal’s judgment that have been referred to in the note that Mr Walker handed up. All three members of the Court of Appeal found that it was possible to make a conditional order under section 102. We submit that the very examples that Mr Walker gave as to the kinds of circumstances in which you might make such an order - and I have in mind particularly the posited example that it might be said by a judge exercising his discretion, it is only if you pay to the Commonwealth the parts of this property that were derived from unlawful funds, that I will be prepared to exercise my discretion to make an order under 102, goes a considerable distance towards demonstrating the correctness of our submissions as to the exercise of the discretion.

One of the issues in play between the parties is whether or not the extent to which an asset was derived from unlawful funds is something that is required to be taken into account in deciding how to exercise the discretion under 102 and if it be the case that a condition can be imposed by reference to that kind of factor, it rather underlines the central significance of that matter in the exercise of discretion.

In relation to the meaning of derived, your Honours will recall my friend’s submissions yesterday afternoon - and the relevant part of the transcript is pages 110 through to 111 - where Mr Walker said, we do not call for words like substantial or substantially. It is really like a jury question and it is an assessment that requires a qualitative and quantitative assessment on the facts of every case. That, of course, is not what the Court of Appeal did. The Court of Appeal said “derive” means “wholly derived”. It did not say that there was this nuanced fact-intensive inquiry that needed to be undertaken. So, that form of analysis is not consistent with the judgment that is being defended.

But perhaps more to the point, it is not a construction of the provision that is supported in any way by the fact that sub (2) uses the defined term “proceeds of an offence” and sub (3) does not. That is a distinction that helps support the Court of Appeal’s argument because, in effect, the argument is, well, the defined term says, partly. If you do not use the defined, you do not get the benefit of the “partly” in the definition and that gets us to “wholly”. But unless the end point is to argue that derivation means wholly derived, the failure to use the definition does not assist at all. One is confronted with the question, what does “derived” mean, as a matter of ordinary language and really that is what both parties before your Honours are saying.

We have not offered our “more than half” idea or the “but for” idea as substitute tests for derivation. We have offered them as ways in which one can grapple towards the ordinary meaning of the statutory term that is being used. So, we have said, if you have that, then that is enough.

Now, it has been put against us that we did not run that “but for” idea below and, indeed, as I understood him this morning, Mr Walker accepted that as a matter of commonsense, causal ideas do play a part in the ordinary meaning of whether property is derived or not from unlawful sources. So, there does not seem to be a debate between us about that.

KIEFEL CJ: Well, as I understood Mr Walker’s position, that was relevant but that you are not entitled to take advantage of it.

MR DONAGHUE: Indeed. Well, that is what I understood the answer to be as well. Now, we submit, that it is relatively plain from the way the case was run below, that we did say that causal ideas were part of the inquiry that was required. If your Honours could go to volume 6 of the appeal book; this is the primary judge, page 2701, paragraph [140]. So, if your Honours look at the end of paragraph [140], it says:

In the case before me, it may be the case that an asset has been directly acquired, derived or realised from funds lawfully borrowed and still there remains the issue of whether the asset has been indirectly derived or realized from unlawful activity if the borrower’s ability to borrow or service the loan has arisen because it has received funds derived or realized from unlawful activity.

Then in [142] it is accepted:

that where tainted funds spent on an applicant’s ordinary running expenses, enable –

that is causal:

an applicant to directly derive or realise an asset with lawfully acquired funds, the asset is also indirectly derived or realised by the tainted funds.

And then about five or six lines further down in the middle of the paragraph:

If a company had sufficient untainted funds to derive an asset without the need to resort to tainted funds then the fact that tainted funds were used for unrelated running expenses might mean that the asset was not derived –

that is all causal reasoning.

GORDON J: That is not the complaint. Is not the complaint that the inquiry about the counterfactual only went halfway and did not go the, in a sense, second step; i.e but for the provision of his asset as a security, I would not have been able to obtain a loan, not putting in issue that question, deprived them of an opportunity to lead additional evidence of that alternative sources of funds.

MR DONAGHUE: Your Honour, if you turn over the page to [143] there is actually a quote from the Commonwealth’s submissions below and in the last half of that quote:

it’s submitted that the applicants have failed to satisfy the Court that without funds, directly or indirectly from UOCL, Perpetual Nominees, Northbourne and Hendon, the applicants could have otherwise realised the . . . assets –

So, we put that in order to discharge their onus they needed to show that they could have acquired these assets otherwise and that they had failed to discharge that burden. So, our submission is that it is just not right to say that this was not squarely an issue as a matter that had to be met as part of what it now seems to be agreed between the parties is part of a common sense understanding of what “derivation” means.

GORDON J: Was that in the pleadings?

MR DONAGHUE: Your Honour, the pleading is more general in that it puts in issue the – it does not plead it that specifically I think is the answer to your Honour. But the question of whether or not the applicants had discharged their burdens in relation to derivation and in relation to lawful acquisition was pleaded and in part of the way the case was run was that they had not discharged the burden for that reason. So that, we submit, was in play at least in relation to Samara Street, the Mercedes, the Perpetual offences; there were causal elements in relation to all of them.

Moving from derivation to acquired, your Honour Justice Gordon asked my friend near the end of the hearing on Tuesday about what I call the first limb of our acquisition case. So we had the committing an offence limb and the analysis of the source of funds limb and you asked Mr Walker did he accept the first limb and he said the short answer is yes, and then there was a longer answer given that ended with the statement on page 131 at lines 5568:

I think it follows from that that if a payment is an element of an offence, and it is an element of 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).

That is our point; that is our legal point. So we are again not disagreeing about that, and the argument against us seems to be the argument you did not run your case that way below, rather than that we are wrong as a matter of law, and again we submit we did run the case that way below. Now, again the pleadings are general in that there is the plea that your Honours have seen in volume 1 at page 46, the plea in the points of claim was just – paragraph 42:

By virtue of the matters pleaded . . . the fourth applicant acquired the Sea Fury . . . lawfully -

it was said. We responded to that plea with an equally general denial at 103. Page 103 of the book, paragraph 42, denied paragraph 42:

none of the matters pleaded . . . establish that the Fourth Applicant acquired the Hawker Sea Fury lawfully.

But one then finds in the primary judge’s judgement, volume 6, page 2732 – and, your Honours, this page does suggest that perhaps there was not a total meeting of minds and that the trial judge had some difficulty understanding exactly how the Commonwealth had put the case - but from paragraph [299] it is recorded:

The Commonwealth’s express submission was put on a narrow basis, namely that any property derived directly or indirectly from the UOCL offences constitutes proceeds of crime and the “possession” of it by the Companies is also an offence. The Companies did not dispute the Commonwealth’s submission.

Then – and we are not entirely certain what the primary judge meant here – he said:

The Commonwealth, in the section of its submissions about money laundering offences, did not argue that the occurrence of money laundering offences meant that where an asset was acquired with UOCL funds the Companies failed to prove that it was acquired lawfully in accordance with the condition –

But that then needs to be qualified by the next paragraph:

However the Commonwealth when making submissions about individual assets, would repeat for most assets a submission that the asset was acquired with funds from UOCL and or Merrell and would conclude with a refrain that because funds from Merrell and UOCL were used to acquire the property the company had not satisfied the court that the company acquired the property lawfully. Other variants led to the same submission that the company had not satisfied the court that the company acquired the property lawfully.

In [302]:

The Commonwealth did not expressly explain why it would submit that the company had not satisfied the court that the company acquired the property lawfully. I infer that it was a submission based upon the premise that the Companies would fail to satisfy the court that a money laundering offence did not occur when each asset was acquired.

So, notwithstanding that there does appear to have been some confusion, his Honour did understand the case that the Commonwealth was running before him as being a case that it was not lawful acquisition because money-laundering offences had occurred. There was then a notice of contention. The Commonwealth ultimately won on the derivation point before the primary judge. On appeal, the point was repeated in the notice of contention, which I will not take your Honours to, but it is found at paragraph 5 on page 2910.

In the Court of Appeal in volume 7, your Honours find at page 3194 the section of the judgment that you have already seen dealing with the money-laundering offences and ending with the Court of Appeal at paragraph [1115], rejecting the Commonwealth’s arguments following a discussion of those offences on the basis that it had – in effect, on the failure of the wholly derived reasoning. With respect, we are not totally sure what our friends say the Court of Appeal was dealing with in these pages of its judgment if the money-laundering offences were not in play in the court below.

Finally, section 141 of course is premised on a rejection of our friend’s submissions about what one would ordinarily expect by way of respect for private property rights. It is a provision that is wholly about taking the property of a person who is not the suspect and using that property to satisfy the pecuniary penalty order that has been made about the suspect. In our submission, there is no tension at all between that provision and 102(2)(b), in particular the reference to “control”, because the reference to “effective control” in 102(2)(b) is a provision that recognises that where the property is under is - leaving aside the temporal question about exactly when; I have already addressed on that.

But the Court of Appeal accepted – all of their Honours accepted – that that “is” did not mean as at the date of the order under 102. It meant at the prior date when effective control existed prior to the suspension of the orders, and 102(2)(b) recognises that property should not be returned under 102 –cannot be returned, not should not be returned – cannot be returned in the circumstance where effective control exists.

So, the policy underlying that provision is that you do not get your property back if it was under the effective control of the criminal. Having not got the property back, it remains forfeit and the pecuniary penalty order is reduced on account of that forfeiture under the provisions your Honours see in section 102. It is reduced in that way because, while the pecuniary penalty order avowedly includes the restrained property on the basis that it is a benefit of the offending within the concept of the way that term is used in this Act in one of its principal objects and in section 116, while the property under the effective control of a third party is part of the benefit of the offending, because it has already been acquired by the Commonwealth pursuant to the forfeiture regime, the pecuniary penalty order does not need to deprive a person of it.

If a person is able to bring themselves under 102, that is because they are able to satisfy the court, using the language loosely, that the property in question is neither the proceeds of an offence nor an instrument of an offence: it has not been used in offending; it has not been derived from offending; it is not acquired unlawfully. If you can prove all of those things then you can enliven the discretion to get your property back. But the court under 102 is not asking a question about the benefit of the offending at all and it is not asking about what is necessary in order to deprive a person of the benefit of their offending. That is the subject matter of a pecuniary penalty regime in 141.

So, the fact that one can escape forfeiture and the constraints of the forfeiture regime which, as Mr Walker mentioned yesterday, are to be understood in a context where there is an acquisition of property guarantees so that there are limits on the concepts where forfeiture can arise, says nothing about whether the Act intends to deprive the person of the benefits of their offending pursuant to the pecuniary penalty regime.

The effect of the submission that was accepted by the Court of Appeal was that “is in the effective control” meaning as at the date the application is made for the order means that – and their Honours said this expressly in paragraph 1268 of their reasons – if property has been the subject of a restraining order you cannot get it under the pecuniary penalty regime because you cannot satisfy the test. So, even though you count the property as a benefit of the offending when setting the amount of the pecuniary penalty order, that very same property cannot be taken into account in satisfying the order.

The submission that Mr Walker made this morning is a little different from what the Court of Appeal did because, as I understood the submission, it was to the effect that if the property would be in the future under the effective control of a person then that was the circumstance to which attention is directed by the “is” in (1)(c).

GAGELER J: Well, I think he is looking to the time of the making of the order sought under section 141.

MR DONAGHUE: Yes.

GAGELER J: And he says, on this hypothesised scenario, that would occur immediately following the making of the order under section 102(3). That is the moment in time. That is what he says.

MR DONAGHUE: Yes. And if that is the moment, it would not be a case, as the Court of Appeal held – that is not the same moment as was the focus in the Court of Appeal’s test, because at that moment it would not be impossible for the property subject to a restraining order ever to be used.

GAGELER J: That may be so but his point is that your application under section 141 did not address that moment in time. You did not seek to persuade the court to be satisfied as to effective control by Mr Hart immediately following the making of the order under 102(3). I think that is his point.

MR DONAGHUE: Yes. The sequence was that at the time before the primary judge, the respondents had actually accepted that the moment in time was the time prior to the restraining order. They then, by notice of contention I think, challenged that in the Court of Appeal and the Court of Appeal came to the moment in time at the date of the order rather than the moment in time immediately thereafter and therefore said you can never get this property. On the argument now put, it would not have quite that extreme, but we still join issue.

But we do not join issue on one important matter. Many of the examples that were put to your Honours this morning in the course of submissions contemplate property in the hands of a third party, but that was at some time in the past subject to effective control being grabbed by the Commonwealth under a section 141 order. That is not our case.

In the context of property that has been released from the strictures of suspension of effective control by reason of a restraining order, I have no disagreement with the submissions that the moment in time is the moment your Honour Justice Gageler puts to me. Our point is that, where property has been restrained under a restraining order and has never left that control, it has been under the Commonwealth’s control ever since, either by reason of the restraining order or by reason of having been forfeit to the Commonwealth. In that scenario, and in that scenario alone, we submit the only meaningful inquiry that can be made – and this is what is supported by Logan Downs and cases along those lines – is an inquiry that looks back to

the point before statutory suspension of control and it says did you control it then?

That, we submit, makes sense, because the reason that property is being included in the pecuniary penalty order is that it is a benefit of the offending. So, it is a benefit of the offending, it has been frozen on that basis, and it should be available to meet the pecuniary penalty order on that basis.

If we are wrong about that, then the offender who puts, for example, a multimillion dollar house in the name of their spouse, it is restrained. They are convicted. They go to gaol for a long time. The marriage breaks down. The multimillion dollar house is a benefit of the offending but, the marriage having broken down, the relationship that caused the offender to have effective control over the property is gone. On our friend’s case, the multimillion dollar mansion goes back to the spouse, notwithstanding the fact that the spouse is benefiting from the offending that occurred prior to the conviction. That, we submit is totally inconsistent with the policy objective underlying the act of depriving the person of the offence.

It means, incidentally, that we do join issue with our friend’s submission about 29(4). Section 29(4) does not mean control – who would have control if you asked yourself now? But for the restraining order, it means who had control at the time this property was restrained so as to make it available to – so as to allow the person to be deprived of the benefit.

EDELMAN J: Your example would apply in the same way if the spouse or a third party under the control of the offender had paid full value for the asset but was at the time of the 141 application no longer under the control of the offender?

MR DONAGHUE: Well, your Honour, if they are paid full value for the asset and they were not in any way involved in the offending, then they may well have been able to extract the property either at the restraining order stage or at the forfeiture stage and, if they have, then once the property is outside of the regime, in my submission, it would not apply to it. If they cannot get through any of those gateways to get it out from under the control of the Act then, yes, my example would apply.

But it certainly opens up the potential, if our friend’s submission is right, to have people who plainly have benefited from the offending that caused the pecuniary penalty order to be able to retain the benefit of their offending in a way that we submit is demonstrably inconsistent with the objects of the Act. If the Court pleases.

MR WALKER: Your Honours, may I crave your indulgence to say one sentence about my friend’s last hypothetical example?

KIEFEL CJ: Yes, Mr Walker.

MR WALKER: If, as my friend puts it, the estranged wife would be in a position in giving her answer in accordance with our argument under 141 of hanging on to a benefit of crime, then an impossible premise emerges. The premise of this is that there has been an order rightly made under 102, relevantly under 102(3). Section 102(3)(a) means that in such a case that property would never be able to satisfy 102(3)(a). It would have been derived from unlawful activity. So the argument does not speak to the question that we have here as to whether, when you have got a rightful 102 order, what does the 141 mean in terms of temporality? If it please the Court.

KIEFEL CJ: The Court reserves its decision in this matter and adjourns until 2.00 pm today.

AT 12.38 PM THE MATTER WAS ADJOURNED