Commissioner of the Australian Federal Police v Smith & Anor [2014] QDC 171

DISTRICT COURT OF QUEENSLAND CITATION: Commissioner of the Australian Federal Police v Smith & Anor [2014] QDC 171 PARTIES: COMMISSIONER OF THE AUSTRALIAN FEDERAL POLICE (applicant) v PAUL DAVID SMITH (first respondent) and P.S. PROPERTY HOLDINGS PTY LTD (ACN 098882261) (second respondent) FILE NO/S: 4305/13 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: District Court at Brisbane DELIVERED ON: 14 August 2014 DELIVERED AT: Brisbane HEARING DATE: 8 May 2014 JUDGE: Reid DCJ ORDER: 1. Pursuant to section 180A of the Act, the following persons: a. Paul David Smith (First Respondent); b. Marie Catherine-Anne Smith; c. Peter John Balnaves; d. Naresh Serai; and e. Orlando Alberto Avendano be examined about the affairs of the First Respondent and the Second Respondent. 2. Such further orders as the Court considers necessary. 3. The costs of this application be reserved. -- 1 of 17 -- 2 CATCHWORDS: Examination of persons – where respondents have not been convicted of a relevant indictable offence – where restraining orders have been made – where respondents have been charged with a serious offence – examination about affairs of person claiming interest in restrained property – discretion – meaning of “affairs” in s. 338 – relevant circumstances Anti-Money Laundering and Counter Terrorism Financing Act 2006 (Cth) s. 142 Criminal Code Act 1995 (Cth) s. 400.9 Proceeds of Crime Act 2002 (Cth) ss. 5, 18, 18(3), 47, 47(1)(b), 49(1)(b), 73, 73(1)(c), 76, 180A, 182(2), 338 Dpp v Chan (2004) 150 A Crim R 163 applied. Meredith v State of Queensland [2007] 1 Qd R 334 considered. NSWCC v Murchie [2000] NSWSC 519; (2000) 49 NSWLR 465 considered. COUNSEL: Mr L. Crowley for the Applicant Mr P. Mylne for the Respondent SOLICITORS: Commissioner of Australian Federal Police for the Applicant Collas Moro Ross Lawyers for the Respondent INTRODUCTION [1] This is an application by the Commissioner of the Australian Federal Police (“the applicant”) for an order for the examination of various named persons pursuant to the provisions of s. 180A of the Proceeds of Crime Act 2002 (Cth) (“the Act”). An unusual feature of this case is that neither of the respondents to the restraining orders which have been made earlier has been convicted of a relevant indictable offence. They have however been the subject of charges under s. 142 of the Anti-Money Laundering and Counter- Terrorism Financing Act 2006 (Cth) and s. 400.9 of the Commonwealth Criminal Code Act 1995 (Cth). Each of those offences is a serious offence as defined in s. 338 of the Act. -- 2 of 17 -- 3 [2] The applicant has previously obtained restraining orders under s. 18 of the Act. Where, as here, a person has not been convicted of an indictable offence, forfeiture orders can then only be made if a restraining order has been in place for at least six months (see s. 47(1)(b) and s. 49(1)(b) of the Act). Pursuant to the scheme established by the Act, such property is forfeited unless the persons whose property is restrained are successful with an application to have particular property excluded from forfeiture. That application is to be made within the six month period after the making of a restraining order. Such an application for exclusion of property pursuant to s. 73 of the Act was filed by the respondents Paul Smith and P.S. Property Holdings Pty Ltd, on 6 February 2014. [3] The applicant now applies pursuant to s. 180A of the Act for examination of the following: i. Paul David Smith; ii. Maree Catherine-Ann Smith; iii. Peter John Balnaves; iv. Naresh Serai; and v. Orlando Alberto Avendano. [4] Whilst Paul Smith (who is the first respondent in the proceedings) and the second respondent have been served with this application, the persons identified in sub-paragraph (ii) to (v) above have not been served. Section 182(2) of the Act provides that the court must consider the application for examination orders without notice having been given to any person if the responsible authority requests the court to do so. Pursuant to s. 338 of the -- 3 of 17 -- 4 Act, the applicant is a responsible authority and makes such a request. It is appropriate the court considers the application having heard only from the applicant and the respondents in circumstances where those persons referred to in sub-paragraphs (ii) to (v) are not parties to these proceedings. LEGISLATIVE FRAMEWORK [5] Section 180A of the Act provides as follows: “Examination orders relating to applications for exclusion from forfeiture (1) If an application for an order under section 73 or 94 for an interest in property to be excluded from forfeiture is made, the court to which the application is made may make an order (an examination order) for the examination of any person including: (a) a person who has or claims an interest in the property; or (b) the spouse or de facto partner of a person referred to in paragraph (a); about the affairs of a person referred to in paragraph (a) or (b). (2) The examination order ceases to have effect when: (a) the application is withdrawn; or (b) the court makes a decision on the application.” [6] Section 76 of the Act provides that an application for an exclusion order must not be heard until the responsible authority, in this case the applicant, has had a reasonable opportunity to conduct examinations in relation to the application. -- 4 of 17 -- 5 [7] Section 47 of the Act mandates that a forfeiture order be made on the application of a “responsible authority”, such as the applicant has, if: (i) the restraining order has been in force for at least six months; and (ii) the court is satisfied that a person whose conduct or suspected conduct form the basis of the restraining order engaged in conduct constituting one or more serious offences. [8] The applicant’s submissions emphasise the use of the term “examination of any person” in s. 180A and the fact that the list of persons set out in sub- section (1) thereof is not an exclusive list. It also submits that under an order for examination of any person can be made allowing examination “about the affairs of any of those people.” (see paragraph 20 of the Applicant’s written submission). [9] The examination is however to be an examination not of the affairs of the person being examined, but “about the affairs of a person referred to in paragraph (a) or (b)” of s. 180A, i.e. about the affairs of a person who has or claims an interest in the property or a spouse or de facto partner of such person. [10] The legislation does not allow the examination of the persons being examined about their own affairs, (unless they have or were to claim an interest in the restrained property). Their examination is limited to the -- 5 of 17 -- 6 “affairs” of either of the respondents, as the term “affairs” is used in the Act, or of the spouse or de facto partner of Mr Smith. [11] “Affairs” is defined in s. 338 of the Act as follows: “Affairs of a person includes but is not limited to – (a) the nature and location of property of the person or property in which the person has an interest; and (b) any activities of the person that are, or may be, relevant to whether or not the person has engaged in unlawful activity of a kind relevant to the making of an order under this Act.” [12] Before making an order for examination it is accepted by the Applicant that I must, consistently with DPP v Chan (2004) 150 A Crim R 163 find such an order is necessary and that there are adequate grounds for the order to be granted. It is also accepted by the applicant that the examination should be limited to circumstances where there are real questions as to the source and ownership of property the subject of a restraining order or of other property which might be the proceeds of crime. [13] In considering the discretionary power to make an order for examination, Crispin J in DPP v Chan (supra) said at [26] and [27], in a case in which he dismissed such an application: “However, the affidavits of Ms Barnicoat, apart from adverting to the payments overseas, do not seem to substantially address the question of why an examination of this particular person is necessary. The material in the affidavits does not suggest any money laundering activity or an involved series of trusts or complicated transfers of monies from one account to another in an apparent attempt to conceal the true position from investigating authorities, and it is not easy to see what issue arises from the affairs of the first respondent that need to be investigated. -- 6 of 17 -- 7 It should be noted that the provisions governing an examination of that kind enable the person to be asked questions to which he or she may not be entitled to decline to answer on the ground of self-incrimination, and that such an investigation may therefore place that person in a position of considerable prejudice. It seems to me that it is incumbent upon the Director seeking an order of this kind to establish that there are adequate grounds for the order to be granted, and that those grounds should be established by sworn evidence. In the present case I am not satisfied that the evidence does disclose such grounds, and accordingly dismiss that application.” [14] The power under s. 73(1)(c) of the Act to exclude specified property from forfeiture must be exercised, inter alia, if the court is satisfied that the applicant’s interest in the property is neither proceeds of unlawful activity or, if the offence on which the order was made or would be based is a serious offence, an instrument of any serious offence. CONSIDERATION [15] In this matter Judge Robin QC and Judge Griffin SC made restraining orders pursuant to s. 18 of the Act over a wide range of property, namely: i. real property situated at Molendinar registered in the name of P.S. Property Holdings as trustee for the Smith Family Trust; ii. real property situated at Lucas Street, Southport, registered in the name of P.S. Property Holdings; iii. real property situated at Ferry Road, Southport, registered in the name of P.S. Property Holdings; iv. real property (unit) situated at Nerang registered in the name of P.S. Property Holdings as trustee for the Smith Family Trust; -- 7 of 17 -- 8 v. real property (unit) situated at Burleigh Heads registered in the name of P.S. Property Holdings as trustee for the Smith Family Trust; vi. Suncorp Bank Account #1, in the name of P.S. Property Holdings holding a balance of $538.38 as at 4 November 2013; vii. Suncorp Bank Account #2, in the name of P.S. Property Holdings holding a balance of $418,951.26 as at 4 November 2013; viii. Australian Investment Exchange Limited Account held in the name of P.S. Property Holdings holding a balance of $130,622.46 as at 30 October 2013; ix. 1999 Porsche 911 Carrera Coupe Sedan, bearing Queensland Number Plate PORSH, currently unregistered; x. 2006 Holden Crewman Utility, Registration No. 029SRJ; xi. 2012 Mitsubishi Fighter Fuso tow-truck, Registration No. 952TAS; xii. funds standing to the value of $26,500.00 in cash seized by Officers of the AFP on 12 November 2013 at 6/8 Activity Crescent, Molendinar, Qld, 4214 also described as Lot 465, WD5658, County of Ward, Parish of Nerang; and xiii. funds standing to the value of $35,780.00 in cash seized by Officers of the AFP on 12 November 2013 at Unit 2A, 238 The Esplanade, Miami (Burleigh Heads), Qld, 4220 also described as Lot 9 BUP 9683, County of Ward, Parish of Gilston. [16] The respondents’ counsel identified four issues for determination, namely: -- 8 of 17 -- 9 i. Is the nature of the power to make an examination order under s. 180A of the Act discretionary? ii. If discretionary, what are the relevant matters for consideration in respect of the exercise of the discretion as to whether to grant? iii. Should the court exercise its discretion in favour of the applicant so as to make an examination order? iv. If an examination is ordered, should the extent of the examination be limited? [17] It is undoubted that the making of an order is discretionary. The use of the phrase “the court … may make an order … for the examination of any person” in s. 180A is strongly supportive of that view. In DPP v Chan (supra) Crispin J, in considering the terms of s. 180, which is similar to s. 180A, of the Act said at paragraph 24 of his judgment: “It is, I think, clear from the use of the verb "may make" that this is a discretionary power. That impression is confirmed by the fact that elsewhere in the Act language is employed which commands the court is to make orders when certain conditions are fulfilled.” [18] Before me both parties accept that the making of such an order involved the exercise of a discretion. I accept that it does. [19] The respondent’s counsel submitted that the wording of ss. 180A and 47 of the Act means that a court should be wary of extending the right of an applicant to examine a person under s. 180A. This is confirmed by the passage at paragraphs 26 and 27 of Chan’s case (supra) which I have earlier set out. In particular, it is important to bear in mind the unusual nature of the remedy and the potential prejudice to a respondent. -- 9 of 17 -- 10 [20] Consideration of s 180A indicates it does not restrict the examination just to the affairs of the respondents, but to the affairs of a person who has or claims an interest in the property. No doubt in this case the submission by the respondent’s counsel that any examination should be confined to the affairs of the respondent is made because no other person has claimed any such interest, but if, in giving evidence, any of the persons being examined claims such an interest in the property the subject of the application under s. 73 to have such property excluded from forfeiture, then that person’s “affairs” could also be the subject of examination. [21] Clause (b) of the definition of “affairs” in s. 338, despite the fact the definition is not an exclusive definition, focuses attention on the fact that an examination pursuant to an order under s. 180A is directed to activities relevant to whether either of the respondents has engaged in unlawful activity of a kind relevant to the making of an order under the Act. [22] The Act establishes a scheme to confiscate the proceeds of crime. The objects of the Act set out in s. 5 thereof are also of relevance in consideration of the question of whether examination of the five persons, or any of them, is justified. [23] It is notable also that the definition of “affairs” was added to the Act by Amendment Act No 4 of 2010. The explanatory note makes clear that this was designed to overcome what were seen to be inconsistencies between the decisions in Meredith v State of Queensland [2007] 1 Qd R 334 and NSWCC v Murchie [2000] NSWSC 591; (2000) 49 NSWLR 465. -- 10 of 17 -- 11 [24] The definition of affairs added to the Act, consistently with NSWCC v Murchie (supra), allows questioning of matters relevant to the existence of serious crime related activity or illegal activity of a person who claim an interest in the property, such as the first and second respondents here. Such questions, as the explanatory note to the amending act says, can encompass the asking of questions relevant to the criminal conduct of a person if that conduct was potentially relevant to the confiscation or the forfeiture of property under the Act. That means that a question on such an examination can be directed beyond the mere financial affairs of a person claiming an interest in the property and can be directed specifically to the person’s criminal conduct provided it is criminal conduct “of a kind relevant to” an order under the Act i.e of a kind relevant to forfeiture or exclusion of property of the applicant’s, or other person claiming an interest in the property. [25] It is not however necessary that a court concludes the property is the proceeds of criminal activity when making a forfeiture order. Such a requirement arises only upon a person bringing an application under s. 73(1) for an exclusion order. Subsection (1) of s. 73 provides as follows: “Making exclusion orders (1) A court that made a forfeiture order, or that is hearing, or is to hear, an application (a forfeiture application ) for a forfeiture order, must make an order excluding a specified interest in property from forfeiture (an exclusion order ) if: (a) a person applies for the exclusion order; and (b) the forfeiture order, or the forfeiture application, specifies property in which the applicant has an interest; and (c) if the forfeiture order was (or the forfeiture order applied for would be) made under section 47 or 49--the court is satisfied that the -- 11 of 17 -- 12 applicant's interest in the property is neither of the following: (i) proceeds of unlawful activity; (ii) if an offence on which the order was (or would be) based is a serious offence--an instrument of any serious offence; and (d) if the forfeiture order was (or the forfeiture order applied for would be) made under section 48--the court is satisfied that the applicant's interest in the property is neither proceeds nor an instrument of any of the offences to which the forfeiture order or forfeiture application relates.” [26] By contrast, a forfeiture order under s. 47 must be made in the instances outlined in paragraph 7 hereof. [27] Counsel for the respondents submitted that because of the breadth of the process established by ss 18 and 47 of the Act it is necessary to be wary of extending the right of the applicant to examine persons under s 180A. He submitted it was incorrect to construe the phrase “of a kind relevant to the making of an order under this Act” in the definition of “affairs” to an exclusion order, as the applicants have here sought by their application under s 73. He submitted that the term as there used should be confined to a forfeiture order. [28] It must however, be remembered that under the scheme a restraining order was first made by Robin DCJ and Griffin DCJ under s 18 of the Act. Property thus restrained, in circumstances where a person had not been convicted of an indictable offence, is then forfeited under s. 47 if the provisions of the section are not met, i.e. the restraining order has been in place for six months and the court is satisfied that a person whose conduct or suspected conduct form the basis of the restraining order engaged in conduct -- 12 of 17 -- 13 constituting one or more “serious offences”. There is under s. 47 no requirement for a court to find the property was acquired or retained by use of the proceeds of any crime. Furthermore, under s 18 it was not necessary that such a finding be made. A restraining order is made if there is reasonable grounds to suspect that a person has committed a “serious offence”, the requirements of s. 18(3) are met and the court is satisfied that the authorised officer who made the affidavit “holds the …. suspicions stated in the affidavit on reasonable grounds”. The term “affairs” is relevant to the examination of a person under s. 180A, and that examination follows a forfeiture order, and is used to enable the gathering of evidence relevant in an application for exclusion under s. 73. [29] In my view, and contrary to the respondent’s submission, the phrase “of a kind relevant to the making of an order under this Act” in the definition of “affairs” in s. 338 of the Act clearly refers to an exclusion order rather than a forfeiture order. In determining whether to make an exclusion order under s. 73 of the Act a court must have regard to whether unlawful activity has or has not been undertaken to justify the making, or refusing to make, an exclusion order. Such consideration is central to that question because if a judge is drawn to a conclusion the property was acquired or retained by the use of assets acquired through unlawful activity, no exclusion order would be made. [30] I then turn to each of the persons that the applicant seeks to examine. Paul Smith -- 13 of 17 -- 14 [31] Mr Smith claims to have an interest in all of the property, or at least most of it. Much of it is held in the name of the Smith Family Trust of which the second respondent is trustee and of which the first respondent, Mr Smith, is a beneficiary. He is also a shareholder in the second respondent and was until, 8 May 2010, also a director. He also says he is the second respondent’s only employee. [32] The applicant submits it is appropriate that there be an examination order made under s. 180A to test Mr Smith’s assertion that the property was lawfully acquired. Business records have been exhibited to the affidavits before me. Examination of those records does not enable me to conclude how assets owned by the businesses were acquired. It is not possible to readily identify the source of funds used to acquire property. No or little source material has been provided. The fact funds were deposited into accounts of the second respondent does not establish that such funds were derived from legitimate business activities. It says nothing about the source of those funds. The fact that such business records were prepared by an accountant, Mr Belnaves does not overcome that problem. [33] The applicant submits that records prepared for and provided to the accountant reflect only debits and credits to the various bank accounts. That certainly appears to be true. The material leaves open the possibility of a series of transfers of money from one account to another in a possible attempt to conceal the true position. -- 14 of 17 -- 15 [34] In my view, it is appropriate that an examination of Mr Smith be made to enable the applicant to have a proper understanding of the source of those funds. [35] Consideration of whether Mrs Smith, Mr Balnaves, Mr Serai and Mr Avendano should be examined must be considered in circumstances: i. Where the examination is seen not as an examination about their affairs, but as to what they may know of the affairs of the respondents; and ii. Where, as I have said, the source of funds Mr Smith has used to acquire or retain the restrained property is not clear and is not supported by reference to detailed source documentation showing assets were acquired or retained by lawful trading activities. [36] Mrs Smith, who is the first respondent’s mother, was a director of the company P.S Property Holdings Pty Ltd, prior to its deregistration in 2012. She is also the sole director of the second respondent and has been such a director since May 2010. Whilst in her affidavit she denies personal knowledge of the source of funds to acquire the relevant property, it seems to me appropriate that the applicant be entitled to enquire as to her knowledge of the affairs of the respondents and the source of funds used to acquire or retain the restrained property. [37] Similar considerations dictate Mr Balnaves should also be examined. He is the principal of Balnaves and Associates, Accountants and has been the accountant for each of the respondents and the Smith Family Trust for six -- 15 of 17 -- 16 years. He has prepared relevant financial statements and tax returns including BAS statements. In doing so he must, I conclude, have considerable knowledge of the business activities of the respondents including knowledge as to the means of the respondents acquiring or retaining restrained property. The documentation exhibited to his affidavit does not, in my view, establish that funds were necessarily derived from lawful business activities. For example, perusal of the material shows only that funding for a number of restrained properties is said to be “Suncorp account”. This does not establish that the actual source of such funds was from lawful business activities. Whether it in fact was ought be the subject of appropriate examination of Mr Balnaves. [38] Mr Serai appears to be a business associate of the first respondent. He holds a Queensland Motor Vehicle Dealer licence. He operates out of premises at 145 Ferry Road, owned by the second respondent. That property is part of the restrained property. The applicant submits that the material discloses: i. The Australian Federal Police have been informed Mr Serai recently acquired a significant number of motor vehicles (including repair write-off vehicles) from the first respondent. ii. Mr Serai was identified making a delivery of a motor vehicle to the first respondent on 12 November 2013. [39] Mr Avandano was also found to be at the premises at 145 Ferry Road in November 2013. He too is said to have held a Queensland Motor Vehicle Dealer’s Licence. An affidavit of Elizabeth Gaffney filed by the applicant -- 16 of 17 -- 17 deposes to the fact the first respondent is suspected of utilising that licence to sell motor vehicles. [40] Those circumstances cause me to conclude that it is appropriate each of Mr Serai and Mr Avendano should also be examined about the affairs of the respondents. [41] In my view the applicant has established adequate grounds for examining each of the parties identified in the application. I will make orders in terms of paragraph 1 of the application. Costs will be reserved to the judge hearing the examination. -- 17 of 17 --