CDPP v Hart; Yak 3 Investments Pty Ltd as t/tee for Yak 3 Discretionary Trust v Commonwealth of Australia [2013] QDC 60

DISTRICT COURT OF QUEENSLAND CITATION: CDPP v Hart & Ors; Yak 3 Investments P/L as t/tee for Yak 3 Discretionary Trust & Ors v Commonwealth of Australia [2013] QDC 60 FILE NO: PARTIES: FILE NO: PARTIES: BD 1416 of 2003 COMMONWEALTH DIRECTOR OF PUBLIC PROSECUTIONS Applicant and STEVEN IRVINE HART First respondent and FLYING FIGHTERS PTY LTD as trustee for FLYING FIGHTERS DISCETIONARY TRUST Second respondent and MERRELL ASSOCIATES LIMITED HK Third respondent and NEMESIS AUSTRALIA PTY LTD Fourth respondent and MERRELL ASSOCIATES (AUSTRALIA) PTY LTD Fifth respondent and YAK 3 INVESTMENTS PTY LTD as trustee for YAK 3 DISCRETIONARY TRUST Sixth respondent and BUBBLING SPRINGS OLIVE GROVE PTY LTD as trustee for BUBBLING SPRINGS DISCRETIONARY TRUST Seventh respondent BD 3068 of 2006 YAK 3 INVESTMENTS PTY LTD as trustee for YAK 3 DISCRETIONARY TRUST First applicant and BUBBLING SPRINGS PTY LTD as trustee for BUBBLING SPRINGS DISCRETIONARY TRUST Second applicant and NEMESIS AUSTRALIA PTY LTD Third applicant -- 1 of 229 -- 2 and FLYING FIGHTERS PTY LTD as trustee for FLYING FIGHTERS DISCRETIONARY TRUST Fourth applicant and ALFREDTON PTY LTD as trustee for NEMESIS GROUP SUPERANNUATION FUND Fifth applicant and COMMONWEALTH OF AUSTRALIA Respondent DIVISION: Civil Trial Division PROCEEDING: Trial ORIGINATING COURT: District Court, Brisbane DELIVERED ON: 02/04/13 DELIVERED AT: Brisbane HEARING DATE: 23, 24, 25, 26, 29, 30 November, 1 and 2 December 2010 and 8 and 9 March 2011, further written submissions to 21 March 2011 JUDGE: Andrews SC DCJ ORDER: IN BD 1416 OF 2003 THE APPLICATION OF THE COMMONWEALTH DIRECTOR OF PUBLIC PROSECUTIONS IS DISMISSED IN BD 3008 OF 2006 THE ORDERS SOUGHT BY THE APPLICANT COMPANIES ARE REFUSED. THE APPLICANT COMPANIES HAVE LIBERTY WITHIN 7 DAYS TO APPLY FOR ORDERS IN ACCORDANCE WITH THESE REASONS AT PARAGRAPHS [854]- [856] COSTS RESERVED CATCHWORDS: CRIMINAL LAW – JURISDICTION, PRACTICE AND PROCEDURE – FORFEITURE – Interpretation of Proceeds of Crime Act s 102(3)(a) – where property forfeited to Commonwealth – where application under Proceeds of Crime Act 2002 (Cth) s 102(1)(c) by former owners for a declaration of their interests in the property and for transfer of the property to them – where applicants rely only on Proceeds of Crime Act s 102(3)(a) – where property when restrained was under effective control of a person later convicted of a serious offence – whether that effective control is decisive or relevant CRIMINAL LAW – JURISDICTION, PRACTICE AND PROCEDURE – FORFEITURE – Onus of proof – Interpretation of Proceeds of Crime Act s 102(3)(a) – where -- 2 of 229 -- 3 property forfeited to Commonwealth – where application under Proceeds of Crime Act 2002 (Cth) s 102(1)(c) by former owners for a declaration of their interests in the property and for transfer of the property to them – where difficult for applicants to satisfy onus of proof of matters under s 102(3)(a) – whether evidential burden reduced – evidential burden of proof that property was not used in connection with unlawful activity – evidential burden of proof that property was not derived directly or indirectly from unlawful activity – evidential burden of disproof of fraud CRIMINAL LAW – JURISDICTION, PRACTICE AND PROCEDURE – FORFEITURE – Interpretation of Proceeds of Crime Act s 102(3)(a) – whether it should be interpreted to mean ―not substantially used…‖ and ―not substantially derived or realised‖ – whether property is derived directly or indirectly from unlawful activity if unlawful activity was the source of funds used to pay rates, insurance, repairs or maintenance for property or interest on loans for purchase of property CRIMINAL LAW – JURISDICTION, PRACTICE AND PROCEDURE – FORFEITURE – whether property was not derived directly or indirectly from unlawful activity – whether property was not used in connection with unlawful activity – whether false representations to lender – whether fraud offence against Criminal Code (Qld) s 408C(1)(f) – where applicants failed to establish that loan not induced by fraud – whether property mortgaged to secure loan was thereby used directly or indirectly in connection with unlawful activity – whether mortgage of property not sufficient connection with unlawful activity – whether property derived from money lent pursuant to loan induced by fraud was derived from unlawful activity CRIMINAL LAW – JURISDICTION, PRACTICE AND PROCEDURE – FORFEITURE – whether denial of natural justice for Commonwealth to plead events from 1993 to 1996 as possible offences against s 8N of the Taxation Administration Act 1953 (Cth) arising from tax minimisation schemes – whether offences committed against s 8N of the Taxation Administration Act 1953 (Cth) – where mental element of offence is recklessness but not dishonesty – whether dishonesty required for ―unlawful activity‖ under Proceeds of Crime Act 2002 (Cth) – whether commission fees earned by tax minimisation scheme promoters were not derived from ―unlawful activity‖ – whether rent earned from real property investment used in tax minimisation scheme was indirectly derived from unlawful activity – whether a subsequent tax minimisation scheme involved recklessness or only lack of reasonable care – where established that no recklessness – whether commission fees earned by subsequent tax minimisation scheme promoters were not -- 3 of 229 -- 4 derived from unlawful activity CRIMINAL LAW – JURISDICTION, PRACTICE AND PROCEDURE – FORFEITURE – whether money laundering offences committed – whether property derived from money laundering – whether property used in connection with money laundering CRIMINAL LAW – JURISDICTION, PRACTICE AND PROCEDURE – FORFEITURE – Interpretation of Proceeds of Crime Act 2002 (Cth) s 102(1)(c) and (d) – where applicant‘s property forfeited to Commonwealth – where charges over applicant‘s property at forfeiture – whether value of applicant‘s interest in property at forfeiture reduced by amount of debt secured by charges over the property – where applicant‘s creditor‘s charges over applicant‘s property were also forfeited to the Commonwealth – whether the Commonwealth became a chargee – whether court may order transfer of property to applicant subject to a charge to the Commonwealth – whether the applicants proved the value of the creditor‘s charges – whether the applicants proved the value of their interests in the forfeited property CRIMINAL LAW – JURISDICTION, PRACTICE AND PROCEDURE – FORFEITURE – where application under Proceeds of Crime Act 2002 (Cth) s 141 – where property in effective control of accountant subject to pecuniary penalty order – where property was owned by others – where owners received some funds derived from unlawful activity – where owners‘ receipt of some funds from unlawful activity was the basis for the Commonwealth‘s successfully resisting application under Proceeds of Crime Act 2002 (Cth) s102(1)(c) by owners for a transfer of property to them– whether the accountant effectively controls the owners – where the Commonwealth agreed with the accountant to reduce its claim for a pecuniary penalty order by the property‘s value – where the owners not party to the agreement – whether unjust to order property recovered by its owners from forfeiture to the Commonwealth to be available to satisfy a pecuniary penalty order against the accountant in favour of the Commonwealth Director of Public Prosecutions Acts Interpretation Act 1901 (Cth) s 33 (2A) Proceeds of Crime Act 1987 (Cth) (repealed) s 82, Proceeds of Crime Act 2002 (Cth) s 102(1)(c), s 102(3)(a), s 141 Criminal Code Act 1995 (Cth) Section 400.9 Briginshaw v Briginshaw[1938] HCA 34; (1938) 60 CLR 336 Capershaw and Federal Commissioner of Taxation(2004) 57 ATR 1263; [2004] AATA 1179; BC200410773 Cth DPP v Hart & Ors [2004] QDC 121 Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457 -- 4 of 229 -- 5 Director of Public Prosecutions v Diez [2003] NSWSC 238 Director of Public Prosecutions v Brauer [1991] 2 Qd R 261 Director of Public Prosecutions v Ferguson [2006] VSC 484 Director of Public Prosecutions (DPP) v George (2008) 251 ALR 658 Director of Public Prosecutions v Jeffrey (1992) 58 A Crim R 310, BC9202106 Hart v Commissioner of Taxation [2003] FCAFC 105 Jeffrey v Director of Public Prosecutions (1995) 121 FLR 16; (1995) 79 A Crim R 514; BC 9505150 Maurice Hannan Nominees Pty Ltd as Trustee for Maurice Hannan Family Trust and Ors and Commissioner of Taxation [2004] AATA 1180 Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24, distinguished Murdoch v Simmonds [1971] VR 887 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 cited R v Hadad (1989) 16 NSWLR 476 R v Ward, Marles and Graham (1987) 33 A Crim R 60 Re Drugs Misuse Act 1986 [1988] 2 Qd R 506 Re George [1992] 2 Qd R 351; (1991) 57 A Crim R 356; BC9102462 State of Queensland v Brooks [2005] QSC 390 COUNSEL: Flanagan SC with del Villar for the Commonwealth and the Commonwealth Director of Public Prosecutions The companies Yak 3 Investments Pty Ltd as trustee for Yak 3 Discretionary Trust, Nemesis Australia Pty Ltd, Bubbling Springs Pty Ltd as trustee for Bubbling Springs Discretionary Trust, Flying Fighters as trustee for the Flying Fighters Discretionary Trust and Alfredton as trustee for Nemesis Group Superannuation Fund appeared by their directors Ms S Petersen and Ms L Hart in both proceedings Mr SI Hart appeared for himself in BD 1416 of 2003 and as spokesperson for the directors of the companies appearing in both proceedings SOLICITORS: Commonwealth Director of Public Prosecutions for the Applicant/Respondent -- 5 of 229 -- 6 Index Page number Introduction .............................................................................................................................. 7 An overview of the issues ......................................................................................................... 8 Appearances for the Companies ........................................................................................... 11 Section 102 (1) (c) application ............................................................................................... 12 Onus and standard of proof of matters in s 102(3) ............................................................. 12 The statutory context for a POCA s 102(3) application ..................................................... 13 Is the Companies‟ evidential burden reduced in the circumstances of this case? ........... 13 Were funds from UOCL lawfully derived? ......................................................................... 21 Were funds from Merrell lawfully derived? ....................................................................... 24 Is an asset derived or realised by payments for rates, insurance, repairs, maintenance or interest on loans borrowed for their purchase? .................................................................. 28 Should POCA s 102(3)(a) be interpreted to mean “not substantially used…” and “not substantially derived or realised…”? .................................................................................... 30 Is there an estoppel against the Commonwealth for the s 102(3) application .................. 41 Was Mr Hart‟s Effective Control on 8 May 2003 relevant and decisive for POCA s 102(3)? ..................................................................................................................................... 42 Credit of Mrs Hart ................................................................................................................. 46 Credit of Mrs Petersen .......................................................................................................... 49 Jones v Dunkel inferences ..................................................................................................... 50 The Alleged Unlawful Conduct............................................................................................. 52 UOCL offences ....................................................................................................................... 52 The Perpetual Offences ......................................................................................................... 52 Money Laundering Offences ................................................................................................. 67 Offences against the Taxation Administration Act............................................................. 72 The Hendon Arrangement .................................................................................................... 74 The Northbourne Arrangement ........................................................................................... 83 Reliability of the Commonwealth‟s Chronology ................................................................. 90 Limitations on relief under POCA s102 (1) ......................................................................... 93 88 Brandon Road ................................................................................................................... 93 3 Woff Street ........................................................................................................................... 94 Finance Facilities and the role of Nemesis ........................................................................... 94 Consequences of Charges granted to Merrell and forfeited to the Commonwealth ..... 105 North American T-28 VH-SHT .......................................................................................... 115 de Havilland Tiger Moth ..................................................................................................... 118 50 VH-YAX, Yak 3 Fighter, American Champion Decathlon......................................... 120 Sources of income of the companies ................................................................................... 127 North American T-6 ............................................................................................................ 128 Sea Fury VH-SHF ................................................................................................................ 130 Yak 50 VH-YAY .................................................................................................................. 132 Aerovod L-39C ..................................................................................................................... 135 Akrotech CAP 232 ............................................................................................................... 140 North American Trojan T-28 VH-AVC ............................................................................ 144 Hangar 101 ........................................................................................................................... 146 Hangar 607 ........................................................................................................................... 149 Hangar 400 ........................................................................................................................... 152 6 Merriwa Street, Sunnybank Hills .................................................................................... 159 27 Samara Street, Sunnybank ............................................................................................ 161 Doonan‟s Road, Grandchester ............................................................................................ 165 -- 6 of 229 -- 7 1983 Mercedes Benz 380SL ................................................................................................. 169 Conclusions on the companies‟ application ....................................................................... 172 S 141 Application ................................................................................................................. 174 Annexure 1 ............................................................................................................................ 179 Annexure 2 ............................................................................................................................ 221 Introduction [1] An accountant, Steven Irvine Hart (―Mr Hart‖), promoted tax minimisation schemes for many years. His schemes became popular, saving taxpayers large amounts of tax. Mr Hart used various companies over the years to operate the schemes. Taxpayers paid fees to some of those companies to participate. In 2003, the Commonwealth Director of Public Prosecutions (―CDPP‖), suspecting Mr Hart of crimes in the way he operated some schemes, obtained orders restraining numerous assets controlled by Mr Hart. On 8 May and 19 December 2003 the CDPP obtained restraining orders. Mr Hart was later convicted of criminal offences relating to some schemes. In 2006, eighteen of the restrained assets: aeroplanes, aeroplane hangar leases, land and a car were forfeited to the Commonwealth by operation of Proceeds of Crime Act 2002 (Cth) (―POCA‖) s 92. [2] Five companies had collectively paid about $5.5M between 1991 and 2003 to buy, maintain or improve the eighteen assets. The assets were not owned by Mr Hart. Each of the five companies claims to have been the owner, at the time of forfeiture, of one or more assets. Each of the five companies applies to get its asset or assets back, or their value. [3] This dispute involves an originating application1 by the five companies (―the Companies‖) pursuant to POCA s102(1)(c) to transfer to them their interests in the property or the value of their interests.2 The Companies can enliven the court‘s discretion (to order the property to be restored to them or to order that the Commonwealth pay them the value of their interests) by proving3 that the property was not used in connection with unlawful activity and was not derived from the proceeds of unlawful activity. The Commonwealth opposes that originating application. [4] In the event that the Companies successfully enliven the court‘s discretion to restore property to them or the value of their interest, and satisfy the court that the Companies have established a right to their remedy, the dispute continues into a second phase. If the court determines that any of the property should be recovered by the Companies, the CDPP claims,4pursuant to POCA s141, that the property be made available to satisfy a pecuniary penalty order made in its favour against Mr Hart, because Mr Hart was in effective control of the property when it was restrained. 1 Filed 17 October 2006 in BD3068/06 2 The terms of orders sought are set out at [5] herein 3 Among other things set out in POCA s102(3) 4 BD 1416 of 2003 -- 7 of 229 -- 8 [5] By a pecuniary penalty order, Mr Hart was ordered to pay to the CDPP $14,757,287.35.5 Mr Hart‘s appeals against the order were exhausted in June 2012, unsuccessfully. [6] The seven respondents to the CDPP‘s POCA s141 application include three of the five companies. Yak 3 Investments Pty Ltd (―Yak‖) as trustee for Yak 3 Discretionary Trust and Nemesis Australia Pty Ltd (―Nemesis‖) are two. The seventh respondent to the CDPP‘s application, Bubbling Springs Olive Grove Pty Ltd as trustee for Bubbling Springs Discretionary Trust is one and the same as the second applicant among the Companies, Bubbling Springs Pty Ltd as trustee for Bubbling Springs Discretionary Trust (―Bubbling‖). Its name was shortened on 23 July 2003. [7] The contested orders which the Companies seek6 against the Commonwealth are:- (1) Pursuant to s 102 (1)(c) of the Proceeds of Crime Act 2002, an order declaring the nature, extent and value of the applicants‘ interest in the property described in the affidavit of Laura Elizabeth Hart sworn 17 October 2006. (2) Further to (1), either: (a) An order directing the Commonwealth to transfer the applicants‘ interests in the property described in the affidavit of Laura Elizabeth Hart sworn 17 October 2006 to the applicants; or (b) An order declaring that there is payable by the Commonwealth to the applicants an amount equal to the value declared pursuant to paragraph (1) hereof. [8] There is, theoretically, no need to consider the application by the CDPP for a declaration under POCA s 141 unless the Companies succeed in their originating application pursuant to POCA s 102(1)(c). The CDPP requests that I determine it anyway. An overview of the issues [9] An overview of the issues in the two proceedings must simplify them and arguably past the point of inaccuracy. Essentially, assets ostensibly owned by the Companies were seized by the Commonwealth, forfeited to the Commonwealth and are liable to remain forfeited to the Commonwealth. For the Companies to recover them or the value of their interest in them, the Companies must win their application and then resist the CDPP‘s application. [10] The Companies‘ application requires the Companies to firstly prove that the numerous assets seized were the property of any one of the Companies. There is an issue about whether some of the aeroplanes were owned by a third party, Merrell Associates Limited (―Merrell‖). I found against the Companies in respect of several assets. 5 Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457 6 By originating application filed 17 October 2006 in BD3068/06 -- 8 of 229 -- 9 [11] For most of the assets, the second issue is whether the Companies can prove that the asset was not derived from unlawful activity: essentially whether the money that was used in the 1980s, 1990s, or 2000s to pay for it or to pay the interest on a loan used to buy it, or to repay the loan which had originally been used to buy it, or to pay the rates, insurance, maintenance, repair, transport or storage costs of the asset, or to repay a loan secured by a mortgage over the asset was money unconnected with unlawful activity – so that the asset was not derived or realised directly or indirectly from unlawful activity. [12] The Commonwealth raised the question of the lawfulness of certain activities over the years. The first issue in relation to the activities is whether the Companies can establish that the activities were not unlawful. Some of the suspect activity has been found to be unlawful in two earlier civil proceedings.7 Some other activity identified by the Commonwealth has not been the subject of any finding about lawfulness and no person has been convicted in respect of it. [13] Two activities in the 1990s, the ―Hendon arrangement‖ and the ―Northbourne arrangement‖, were alleged to involve recklessly causing statements to be made to a taxation officer that were false or misleading in a material particular contrary to s 8N of the Taxation Administration Act. A third activity, ―the Perpetual offence‖, was alleged to involve fraud in about December 2001. I have found, for reasons which follow, that the Companies have failed to satisfy me that there was no unlawful activity involved with the ―Hendon arrangement‖ and the ―Perpetual offence‖ but that I am satisfied there was no unlawful activity involved in the ―Northbourne arrangement‖. [14] The ―Hendon arrangement‖ was a scheme promoted by advisers to taxpayers for its potential for investment and income tax minimisation. Part of the investment scheme involved a scheme trustee as lessor letting commercial real estate for rental returns. It was an issue whether the rent was derived from unlawful activity. I found against the Companies on this issue. [15] For each activity whose lawfulness is suspect, there is an issue as to the amount of money that was derived from it, and whether the Companies could prove that an asset was not derived directly or indirectly from money derived from the unlawful activity. [16] The Companies raise an issue of law that they are denied natural justice by the Commonwealth‘s conduct in raising such old episodes and putting the Companies to proof that there was no unlawful activity, when the delay in raising an issue about the episodes makes more difficult the rebuttal of unlawful activity. I have found against the Companies that they are not denied natural justice. Reasons follow. [17] The degree of connection required between an unlawful activity and the use of an asset is in issue as a matter of law and requires a finding about the interpretation of POCA. I have found against the Commonwealth by finding that a substantial connection is required between an unlawful activity and the use of an asset. 7 Maurice Hannan Nominees Pty Ltd as Trustee for Maurice Hannan Family Trust and Ors and Commissioner of Taxation [2004] AATA 1180; Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457 -- 9 of 229 -- 10 [18] Among the assets in contention is land. For some land there is an issue about whether there was a fraud (the alleged Perpetual offence) and whether the land was used in connection with it: it involves considering whether the Companies can prove there was no fraudulent misrepresentation made to induce a loan by Perpetual Nominees Limited (―Perpetual‖) and, if the Companies cannot prove there was no fraud, whether the land mortgaged to Perpetual as security for the loan was used in connection with the fraud. The degree of connection between the fraud and the use of the land, as a matter of fact, is also in issue. For reasons which follow I found that the Companies have failed to satisfy me that there was no unlawful activity involved with the alleged Perpetual offence but that I am satisfied the land mortgaged to Perpetual as security for repayment of the loan induced by the alleged fraud was not substantially used in connection with the alleged fraud. [19] The degree of connection required between unlawful activity and an asset allegedly derived from the activity is in issue as a matter of law and requires a finding about the interpretation of POCA. I have found against the Commonwealth‘s submitted interpretation by finding that a substantial connection is required. [20] The Companies argue that money used to pay interest, rates, insurance, transport, repairs and maintenance should be ignored because the assets are not derived or realised by those payments. I found against the Companies. [21] As the Companies have many practical obstacles to proof of the source of monies up to twenty years before trial and where there is a reasonable explanation for the Companies‘ inability to find evidence, for instance because records are lost, the Companies argue that the court should be lenient about finding whether the standard of proof was reached. I found that the standard of proof remains proof on the balance of probabilities. [22] Where any one of the Companies has used money from two particular companies based in Hong Kong8 there is an issue as to how much of the money was derived by the two companies from unlawful activity. I found that the Companies failed to establish that any of the two companies‘ funds were not derived or realised, directly or indirectly from unlawful activity. The next three related issues are whether Mr Hart knew that the moneys paid by those two Hong Kong based companies to or for the Companies were proceeds of unlawful activity, whether Mr Hart was in effective control of the Companies when the Companies received or transferred the money and whether the Companies themselves committed money laundering offences when receiving or transferring such money. It is thus an issue whether Mr Hart was in effective control of the Companies at all material times from 1997 to April 2003. I found against the Companies on these issues for reasons that follow. [23] If the Companies can prove that any asset was owned by one of the Companies, that it was not used in connection with unlawful activity, that it was not derived directly or indirectly from unlawful activity, there is an issue about whether the companies can prove the value of the relevant company‘s interest in the asset. The issue was complicated because that value is arguably diminished by the value of charges over the assets to secure payment by the Companies of amounts due to Merrell. The quantum of the amounts secured against the assets is in issue with the Commonwealth arguing that 8 United Overseas Credit Limited and Merrell Associates Limited -- 10 of 229 -- 11 the Companies cannot prove how much was charged against the assets. I found against the Commonwealth by finding the value of the debt secured by charges to be $1.6M. There remains an issue as to whether the Companies can prove the value of the former owner‘s interest in a charged asset where there is no evidence of the value of any individual asset. I found against the Companies on this issue. Reasons follow. [24] The charges which were granted over the assets to secure payment to Merrell have been forfeited to the Commonwealth. The Companies argue that the Commonwealth became a chargee when the charges were forfeited to the Commonwealth. I found against the Companies by finding that the Commonwealth is not a chargee. The Companies argued that an asset that was charged with payment of an obligation by the Companies can be ordered to be returned to the Companies with an order that the Commonwealth be at liberty to enforce its chargee‘s rights against the Companies. That raises an interpretation issue as to whether POCA permits it. I found against the Companies. [25] Ultimately, for each asset it becomes necessary to consider what money was used over the fourteen years or so that the assets were collectively acquired, to buy the asset, or maintain it, or pay off the loan which was used to buy it or to pay off a later loan secured by a mortgage over the asset and then to consider whether that money was not derived directly or indirectly from unlawful activity. For each asset those issues are relevant to the factual issue of whether the asset was derived from unlawful activity. [26] For several assets there was an issue whether an asset, not derived from unlawful activity, was used in connection with unlawful activity. I found against the Commonwealth where this issue arose. [27] The Commonwealth argued as a matter of statutory interpretation, the significance of Mr Hart‘s effective control of the assets when the assets were made the subject of restraining orders. Because Mr Hart was convicted of serious offences, the Commonwealth submits his effective control of assets in 2003 is relevant to and decisive on the issue of whether a court may grant the companies relief where the Companies raise the grounds under POCA s 102(3). The Commonwealth submits relief cannot be granted even though effective control is not expressly set out in POCA s 102(3) as a relevant matter. I found against the Commonwealth on this issue. [28] If an asset is liable to be ordered to be returned to a relevant company, the Companies have a further obstacle which is the cross application of the CDPP. If a forfeited asset was lawfully acquired by a company, not used in unlawful activity, not realised or derived from unlawful activity and the company has a prima facie argument for it to be transferred to the company, the CDPP claims pursuant to POCA s 141 that the asset should be available to satisfy the $14,757,287.35 pecuniary penalty order against Mr Hart unless there would be injustice caused to the relevant respondents and if there would be injustice that the court would exempt some or all of the assets from satisfying that order, depending on the circumstances. On the hypothesis that an asset is liable to be ordered to be returned, I found against the CDPP. Appearances for the Companies [29] The Companies were not legally represented in these two proceedings. In theory, they appeared by their directors, Ms S Petersen and Mrs L Hart. However, the directors used -- 11 of 229 -- 12 as their spokesperson in court, Mr Hart who acted as a McKenzie friend. It was Mr Hart who, for the directors, made oral submissions, examined and cross-examined witnesses, made and responded to objections to evidence. Mr Hart as a respondent to the application of the CDPP appeared for himself and acted as McKenzie friend for the other six respondents. Mr Hart has no legal qualification. Section 102 (1) (c) application [30] At material times POCA s 102 provided: (emphasis added) 102 Court may make orders relating to transfer of forfeited property etc. (1) If property is forfeited to the Commonwealth under section 92, the court that made the restraining order referred to in paragraph 92(1) (b) may, if: (a) a person who claims an interest in the property applies under section 104 for an order under this section; and (b) the court is satisfied that the grounds set out in subsection (2) or (3) exist; make an order: (c) declaring the nature, extent and value of the applicant‟s interest in the property; and (d) either: (i) if the interest is still vested in the Commonwealth—directing the Commonwealth to transfer the interest to the applicant; or (ii) declaring that there is payable by the Commonwealth to the applicant an amount equal to the value declared under paragraph (c). (2) An order under this section may be made if: (a) the applicant was not, in any way, involved in the commission of the offence to which the forfeiture relates; and (b) the applicant‘s interest in the property is not subject to the effective control of the person whose conviction caused the forfeiture; and (c) the applicant‘s interest in the property is not proceeds of the offence or an instrument of the offence. (3) An order under this section may also be made if: (a) the property was not used in, or in connection with, any unlawful activity and was not derived or realised, directly or indirectly, by any person from any unlawful activity; and (b) the applicant acquired the property lawfully; and (c) the applicant is not the person convicted of the offence to which the forfeiture relates. Onus and standard of proof of matters in s 102(3) [31] POCA s 102 provides two alternative bases which allow for a court to make an order under s 102. The Companies rely on only the alternative in s 102 (3). The Companies bear the onus of proving the matters necessary to establish the basis for making an -- 12 of 229 -- 13 order under POCA s 102.9 Thus the Companies bear the onus of proving the matters in s102 (3). [32] An order under POCA s 102(1) cannot be made unless the court is satisfied of four matters found in POCA s102(3), namely that: (a) that the property was not ―used in‖ any unlawful activity; (b) that the property was not used ―in connection with‖ any unlawful activity; (c) that the property was not ―derived, directly or indirectly‖, by any person from any unlawful activity; and (d) that the property was not ―realised, directly or indirectly‖, by any person from any unlawful activity. [33] The burden of proof is deceptively simple. Any question of fact to be decided on this application is to be decided on the balance of probabilities.10 The statutory context for a POCA s 102(3) application [34] I bear in mind the context in which POCA s 102(3) operates. If there are reasonable grounds to suspect that property owned by A is under the effective control of H and H has committed a serious offence within six years before, the court must order that the property must not be disposed of or otherwise dealt with.11 If H is convicted of a serious offence, the property which is the subject of the restraining order is forfeited to the Commonwealth unless A proves the four matters found in POCA s 102(3).12 But, if A proves those four matters then on an application by the CDPP13 if the court is satisfied that A‘s property was subject to H‘s effective control at the date of the restraining order, the court may declare the whole or part of A‘s property available to satisfy the pecuniary penalty order made against H. [35] Two notable features of that context are that in POCA:  no section expressly provides that the court may take account hardship or unfairness to a person whose property is liable to be forfeited;  an owner‘s liability to forfeiture of property may arise from allowing property to be under the effective control of a person who has committed a serious offence within six years before. Is the Companies’ evidential burden reduced in the circumstances of this case? [36] The Companies submit, in effect, that their evidential burden is reduced as:  the Commonwealth is in a better position to know and prove the essential facts relating to the sources of income that the Companies received over the past 25 years. For the reasons which follow I reject this submission. 9 POCA s 317 (1) 10 POCA s 317 (2) 11 POCA s 18 12 POCA s 92 13 Under POCA s 141 -- 13 of 229 -- 14  the Commonwealth is better placed to trace the ultimate sources of funds used to acquire, directly or indirectly, any of their assets. For the reasons which follow I reject this submission.  because of those features, the amount and quality of evidence required from the Companies to discharge their burden of proof should be lessened so that slender evidence will suffice. For the reasons which follow, I do not make general findings about how much evidence is required as suspicions move further from remote possibilities and closer to probabilities. [37] The first two components of that submission are matters of fact. To establish those facts, the Companies rely on some particular matters. The Companies submit, in effect, that I should find the following facts: (a) The Australian Taxation Office (―ATO‖) initially conducted an audit on the third applicant, Nemesis Australia Pty Ltd (―Nemesis‖) for the period 1981 to 1987. For this proposition they refer to Hart v Commissioner of Taxation [2003] FCAFC 105. My reading of that case reveals that the ATO in late 1987 or early 1988 conducted an audit in respect of the affairs of Nemesis for the period from 1981 to 1987.14I accept this proposition of fact. (b) The ATO conducted further audits from 1990 to 2001 perusing and copying all financial records of each of the applicants, Harts Consulting P/L (―Consulting‖) and all companies in the Harts Australasia Limited (―HAL‖) Group (―HAL group‖) including Bomilsco Pty Ltd (―Bomilsco‖) and investigated financial transactions undertaken by them during that period. Evidence shows that on 3 April 1997 the ATO requested Mr Hart to provide copious documents for the period 1990 to 3 April 1997. Those documents were copies of annual reports, a full set of group accounts, including reconciliations, general ledger, trial balance and general journals in respect of each member of the HAL Group and each of the five applicants. Additionally, Consulting has been subject to yearly audits by the ATO from about 1986 to 2001.15 I find it is likely that the ATO received significant quantities of documents as a result. I find it is likely that the ATO asked Mr Hart and the companies associated with him for copies of contracts for the purchase and sale of properties.16 It is likely that the ATO received many documents as a result. (c) In or around September 1996 the ATO and the Australian Federal Police (―AFP‖) executed search warrants on the premises of the five applicants, the companies in the Harts Group of Companies, the residential premises of Mr and Mrs Hart and the residential premises of Ms Peterson. I find financial records including banking records, contracts and correspondence for the period 1990 to 1996 were seized. (d) In about February 2001 the AFP and officers of the Australian Securities and Investment Commission (―ASIC‖) executed search warrants on the Companies, companies in the Harts Group and other companies and trusts in the family group seizing records from office 14 Par [9] 15 Affidavit L Hart Q00064341, par 2(d)(i) 16 T8-5, L19 -- 14 of 229 -- 15 premises and the residential address of Mr and Mrs Hart. I so find. The records included banking records, contracts and correspondence for the period 2000 to 2001. (e) On 9 May 2003 the AFP took financial records including banking records, contracts and correspondence for the period 1997 to 2003 from the various work premises of the Companies and other companies in the family group. I so find. (f) The CDPP examined persons pursuant to the Proceeds of Crime Act 2002 including Ms Peterson, Mrs Hart, and Mr Arnot. The CDPP also examined Mr James Sutherland who at some material time owned the issued capital of United Overseas Credit Limited (―UOCL‖) and at some material time was intimately involved with the operation of Merrell Associates Limited (―Merrell‖). I so find. (g) The AFP assisted in the execution of search warrants which led to obtaining over 100,000 documents from UOCL, Merrell, European Grand Assurance Ltd (―EGA‖), the banks of UOCL, Merrell and EGA, the auditors of UOCL and Merrell and a trustee in New Zealand. I so find. (h) The AFP issued production notices to every bank with which the applicants had financial arrangements. I so find. (i) The Commonwealth appointed a forensic accountant, Mr Vincent and offered to assist him to find and access such records as he required including but not limited to the records of the applicants, UOCL, Merrell, Consulting and all companies in the HAL group. Mr Vincent was at liberty to request the AFP to obtain documents. I so find. (j) Because of the execution of search warrants many records were removed from the control of the applicants. Aside from that, the passage of time from 1983, means that many records are no longer in the custody, possession or control of the applicants according to their submission. I accept that this would be so. [38] The Companies submit that the Commonwealth was in a strong position through their expert witness, the forensic accountant Mr Vincent, the officers of the AFP, the ATO and ASIC to enable a full tracing of the ultimate source of income for each applicant company that was used directly or indirectly to acquire any asset, to pay costs associated with an asset, to pay interest on funds borrowed to acquire an asset, or to repay funds borrowed to acquire an asset. It is the case that the Commonwealth had records seized from relevant entities by the AFP, the ATO or by ASIC. I make no finding about whether the Commonwealth had sufficient records to ―enable a full tracing‖. The Commonwealth engaged a forensic accountant, Mr Vincent in 2006. One of his tasks was to ―Where possible, by reference to the affidavit of Laura Hart and Lisa Bundesen and the additional records supplied, identify the source of funds used to purchase the assets, repay the loans, meet interest repayments and other costs associated with borrowings and to release securities.‖ [39] While I accept that the Commonwealth had power to search for documents not in its possession and the opportunity to search through documents in its possession, I make no finding about whether the Commonwealth could have achieved ―a full tracing of the ultimate source of income for each applicant to see whether it was used directly or indirectly to purchase or acquire any asset‖. Its forensic accountant did not try to do a -- 15 of 229 -- 16 full tracing of the ultimate source of funds. I bear in mind that the Commonwealth does not bear an onus of disproof under POCA s 102(3). I accept the opinion of the Commonwealth‘s forensic accountant that the operations that Mr Hart conducted through the Hart group and the Companies together with the assistance of UOCL and Merrell were interwoven in such a way as to make it extremely difficult to follow thoroughly even the simplest of transactions.17 I am not persuaded that the Commonwealth is in a better position to know and prove the essential facts relating to the sources of income that the Companies received over the past 25 years. [40] There are no relevant decisions on the evidential burden upon a party seeking to establish the basis in POCA s 102(3). There are decisions considering s 48(4)(e) of the Proceeds of Crime Act 1987 (Cth) (repealed) (―POCA 1987 (repealed)‖). The wording of that repealed clause is very similar to the wording of POCA s 102(3). [41] POCA 1987 (repealed) s 48(4) provided: (4) Where: (a) a person (in this subsection called the ‗defendant‘) has been convicted of, or has been charged or is about to be charged with, a serious offence; (b) a court, in reliance on the conviction, charging or proposed charging, makes a restraining order against property; (c) the defendant has an interest in the property; (d) the defendant applies to the court for a declaration under this subsection in relation to the interest; and (e) the court is satisfied that: (i) the property was not used in, or in connection with, any unlawful activity and was not derived, directly or indirectly, by any person from any unlawful activity; and (ii) the defendant‟s interest in the property was lawfully acquired; the court may, by order, declare that the restraining order, to the extent to which it relates to the property, shall be disregarded for the purposes of section 30.(emphasis added) [42] In Director of Public Prosecutions v Brauer18 the Full Court of the Supreme Court of Queensland considered s 48(4) of POCA 1987 (repealed). The facts were that Mr Brauer had pleaded guilty to an offence under the Customs Act of importing cannabis in a yacht named the ―Lady V‖. His property had been made subject to a restraining order. He applied under s 48(4) of the repealed Act to have the restraining order disregarded to the extent that it related to another yacht of his called ―Blue Jacket‖. The primary judge was not prepared to infer that this yacht was used in connection with the unlawful importation of drugs. He therefore made the order under s 48 (4) of the repealed Act. 17 Report Mr Vincent21/10/10 Q00064393 at 2.1 18 [1991] 2 Qd R 261 -- 16 of 229 -- 17 [43] In Brauer, in the Full Court, Thomas J observed:19 ―All evidence is to be weighed according to the proof which it was in the power of one side to produce, and in the power of the other to have contradicted. That is a maxim expressed by Mansfield C.J. in Blatch v Archer (1774) 1 Cowp. 63, 65; 98E.R. 969, 970. but it applies to the weighing process, not to a determination of the burden of proof. The starting point here depends upon which party has the evidential burden. The amount and quality of evidence required to discharge it may be lessened when it may reasonably be supposed that the adversary is in a better position to know and prove the essential facts…20 However, as the learned authors of Cross on Evidence (3rd Aust. ed) para 4.33, N.126 have observed, this does not mean that the peculiar means of knowledge of one party spares the other the burden of adducing evidence on the issue, although very slight evidence will often suffice. This particularly true when a party has the burden of proof of a negative…21 These are perhaps mere robust examples of the proposition that slender evidence may suffice to satisfy an evidential burden in relation to a negative state of affairs. The suggestion has been made that where one party bears the burden of proving a negative proposition, and where the other party has the greater means to produce evidence contradicting it, it is enough for the plaintiff to establish ‗sufficient evidence‘ (which must be more than a mere scintilla) upon which there is cast upon the other party an evidential burden to advance evidence as to the particular matters that could defeat the discharge of that proof.22 Such a proposition is hardly novel and is an application of Purkess v Crittenden (1965) 115 CLR 164. However it should not be assumed that the Commonwealth is in a superior position to the defendant to lead proof of some connection between the property and illegal activity. The inherent difficulty under s 48(4)(e)(i) lies in the absence of any joinder of issue upon the use of the property at a specified time or times. In the end it is plain that there is no evidentiary principle which can convert the initial evidential burden which lies on the defendant into one which lies on the Commonwealth. I am however fortified, by reference to the above cases, in concluding that there is no requirement that a defendant account for every minute of the use of the property from the moment he acquired it, and that where a defendant is able to satisfy a court that he personally is unaware of any unlawful use of that property, and is able to demonstrate its lawful use from time to time in circumstances where it may reasonably be inferred that lawful use continued, a court may be generous in applying the presumption of continuance and in drawing appropriate inferences in favour of the absence of unlawful use.‖(emphasis added) [44] Though Brauer concerns the repealed statute, these general propositions seem to be similarly applicable to POCA s102(3) applications. Because the Companies relied heavily on many of those passages I highlighted some parts to demonstrate two things. Firstly, the slenderness of evidence required from an applicant varies with the issue. Secondly, the large volume of documentary material in the Commonwealth‘s possession and the capacity of the Commonwealth to search for more documents does not inevitably mean the Commonwealth was in a better position than the Companies to lead proof of an issue in this factually complex matter. [45] On the first issue in Brauer, namely whether the property was used in connection with unlawful activity, Thomas J was attracted to the proposition that slender evidence may suffice to satisfy an evidential burden where the evidential burden was to prove that property was not used in connection with unlawful activity. Thomas J wrote of a court 19 [1991] 2 QdR 261 at 268 from L 11 20 Citations omitted 21 Citations and examples omitted 22 Citations omitted… -- 17 of 229 -- 18 being ―generous‖, but the hypothesis his Honour was considering required no generosity: under his Honour‘s hypothesis there were ―circumstances where it may reasonably be inferred that lawful use continued‖. His Honour‘s hypothesis implied that it was reasonable to infer that lawful use continued because the hypothetical director could persuade a court that the director was unaware of any unlawful use for the periods of time when the director was aware of its use and could persuade a court that the periods when the director was unaware of its use were so short and infrequent and unsuspicious that it was reasonable to infer no unlawful activity occurred. I contrast a case where the issue is whether an asset was derived directly or indirectly from unlawful activity. A director‘s evidence about that issue might require much more complex evidence than for an issue about unlawful use of property: for example it might require evidence of all sources of a company‘s income for years to determine what sources were used to maintain an asset or to repay interest or capital on a loan for its purchase price. A director‘s ability to know and reliably say whether assets have been unlawfully used is quite different from a director‘s ability to know and reliably say whether a company‘s assets have been derived directly or indirectly by any person from any unlawful activity. [46] On the second issue which the Companies must persuade this court of, namely that any asset in question was not derived or realised, directly or indirectly, from any unlawful activity, one cannot assume the Commonwealth was in a better position to know and trace the ultimate source of funds for each of the Companies during the long relevant periods. Even if, for a particular asset, the Commonwealth was better placed to know and trace the ultimate source of funds, it is clear from the judgment of Thomas J that the onus remains on the Companies. In the same case Derrington J observed:23 ―…the court will take into account any difficulty which may exist in some cases in the proof of a negative and in other appropriate cases any difficulty in the person‘s capacity to lead suitable evidence to discharge his onus of proof. In the absence of any evidence or any suggestion that the property is so tainted, that court may well find that the onus is discharged by even slight evidence.‖ [47] The Commonwealth submitted that the implication from those remarks of Derrington J is that if there is any evidence or any suggestion that the property is tainted, slight evidence will not be sufficient to discharge the onus. The Commonwealth submitted that Brauer itself illustrates this. In Brauer the fact that Mr Brauer had left his yacht for several weeks in the hands of a man who was more deeply involved in illegal drug activity than Mr Brauer, meant that there was a possibility that the yacht was used in connection with unlawful activity. That resulted in the court holding that the court could not infer innocent use or presume continuity of innocent use and that Mr Brauer had not discharged his onus. The court did not go so far as to find that the vessel Blue Jacket was involved in unlawful activity, but the possibility of that involvement meant that Mr Brauer‘s evidence of unawareness of unlawful use, was not enough to satisfy his onus that the vessel was not used in unlawful activity. [48] It is unhelpful to make general findings about how much evidence is required as suspicions move further from remote possibilities and closer to probabilities. I accept that in an application brought by a convicted person under s 48(4) of POCA 1987 23 [1991] 2 Qd R 261 at 271 L 51 -- 18 of 229 -- 19 (repealed) some possibilities required more evidence from the convicted person to satisfy the convicted person‘s onus than other possibilities. [49] It is also unhelpful to make general findings about how much evidence is required from the Companies where the Commonwealth has much relevant evidence in its possession. In this case, tracing funds was a critical issue. Tracing depends very much on documentary evidence. In theory, disclosure meant that the access to relevant documents was similar for all parties. The Commonwealth had a duty to disclose documents in its possession or control which were directly relevant to a matter in issue. The Companies were at liberty to apply pursuant to UCPR rule 223, for orders for disclosure of a document or class of documents, for instance if the Companies could establish an objective likelihood that the Commonwealth‘s duty to disclose had not been complied with. [50] The task facing the Companies to satisfy their onus was formidable. They have been attempting to trace funds over about 25 years from about 1983 and from records mostly in the possession or control of the Commonwealth. Fortunately, electronic copies were made and provided of directly relevant documents. Some relevant records may have been lost or destroyed before documents were taken under the Commonwealth‘s possession or control and some may have been lost since. Most of the Companies‘ efforts to prepare for trial appear to have been put into tracing sources of funds. The Commonwealth‘s control of seized documents and the enormous volume of documents held by the Commonwealth have made tracing difficult and potentially more difficult for the Companies than if they and related Companies had retained continuous control of their own documents. The limits upon the Commonwealth‘s duty of disclosure to, generally, the documents which were perceived by the Commonwealth to be directly relevant may have made the problem of tracing more difficult for the Companies. The numerous sources of funds received by Companies in the Harts group and the long period during which assets were acquired, maintained or paid off made tracing very complex. The unlawful activities which have been identified by the Commonwealth to the Companies as possible sources of some funds from which assets were indirectly derived have grown in number since these proceedings commenced. The last was identified in October 2010. An unlawful activity might have generated income many times and over a long period coinciding with a period when an asset was being derived. The evidential burden the Companies have attempted has been to try to trace funds used to indirectly derive an asset and to try to exclude the possibility that unlawfully derived funds were used to derive an asset. [51] Mr Hart assisted with the settling of some affidavits, explaining the significance of some documents when affidavits were prepared, acted as Mackenzie friend, energetically took an advocate‘s role in the trial and in interlocutory skirmishes in these proceedings. I infer that he identified to the Companies funds he would have argued came from lawful activities. Such help would have been useful in identifying supporting documents. He would have reduced any disadvantage the Companies had in their tracing tasks. [52] If the Commonwealth had sought to trace the source of all funds from which assets were derived, the task for the Commonwealth would have been formidable. It did not have an onus of proof of such matters. It has not been an issue in the trial whether the Commonwealth could have done a full tracing if it had so chosen or whether the Commonwealth could have determined the source of all funds from which any relevant -- 19 of 229 -- 20 asset was derived. I am not satisfied that the Commonwealth could have done a full tracing with a reasonable allocation of resources to the task. The enormity of the tracing task facing the Companies may or may not have been greater than the task facing the Commonwealth if it had chosen to trace. The Companies had the advantage of the knowledge of Mrs Hart, Ms Petersen and Mr Hart. I am not satisfied that the Commonwealth had an advantage over the Companies for proving essential facts. However, the Commonwealth‘s instructions to its forensic accountant did limit the accountant‘s duties to an extent which was sometimes unhelpful for the court. For example, Mr Vincent‘s task 4 report24set out that his instructions were, in effect to determine if funds from unlawful activity were used, but his instructions were not to determine the proportion of unlawful funds. The onus of proof being upon the Companies to establish that an asset was not derived from unlawful activity, the Commonwealth‘s instructions to its expert were justifiable. In effect, the Commonwealth‘s expert looked only deep enough to opine whether some unlawfully derived money was directly or indirectly used to derive an asset and the Commonwealth left it to the Companies to show that the amount of unlawfully derived money was so little as to mean the asset was not derived from unlawful activity. [53] With respect to the evidence required of the Companies to satisfy their onus, there is a matter in their favour relating to alleged unlawful behaviour involving fraud or moral delinquency which was not the subject of any submission. [54] In Briginshaw v Briginshaw25it was observed by Dixon J: Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences. Everyone must feel that, when, for instance, the issue is on which of two dates an admitted occurrence took place, a satisfactory conclusion may be reached on materials of a kind that would not satisfy any sound and prudent judgment if the question was whether some act had been done involving grave moral delinquency. Thus, Mellish L.J. says: "No doubt the court is bound to see that a case of fraud is clearly proved, but on the question at what time the persons who have been guilty of that fraud commenced it, the court is to draw reasonable inferences from their conduct" (Panama and South Pacific Telegraph Co. v. India Rubber, Gutta Percha, and Telegraph Works Co.[39]). In the same way, in dealing with the question in what county the publication of a criminal libel had taken place, Best J. said: "I admit, where presumption is attempted to be raised, as to the corpus delicti, that it ought to be strong and cogent; but in a part of the case relating merely to the question of venue, leaving the body of the offence untouched, I would act on as slight grounds of presumption as would satisfy me in the most trifling cause that can be tried in Westminster Hall" (R. v. Burdett[40]). It is often said that such an issue as fraud must be proved "clearly", "unequivocally", "strictly" or "with certainty" (Cf. Mowatt v. Blake[41]; Kisch v. Central Railway Co. of Venezuela Ltd.[42]; Lumley v. Desborough[43]). This does not mean that some standard of persuasion is fixed intermediate between the satisfaction beyond reasonable doubt required upon a criminal inquest and the reasonable satisfaction which in a civil issue may, not must, be based on a preponderance of probability. It means that the nature of the issue necessarily affects the process by 24 Q00060117 eg at 2.14 25 [1938] HCA 34; (1938) 60 CLR 336 at 361.10 -- 20 of 229 -- 21 which reasonable satisfaction is attained. When, in a civil proceeding, a question arises whether a crime has been committed, the standard of persuasion is, according to the better opinion, the same as upon other civil issues (Doe d. Devine v. Wilson[44]; Boyce v. Chapman[45]; Vaughton v. London and North Western Railway Co.[46]; Hurst v. Evans[47]; Brown v. McGrath[48]; Motchall v. Massoud[49]; Nelson v. Mutton[50]; Gerder v. Evans[51]; sed quœre as to the statement of Swift J. in Herbert v. Poland[52]; see, further, Wigmore on Evidence, 2nd ed. (1923), vol. v., p. 472, par. 2498 (2) (1)). But, consistently with this opinion, weight is given to the presumption of innocence and exactness of proof is expected. [55] Where the Companies bear the onus of disproof of fraud or recklessness, it may be that a court can conclude that the onus is satisfied by less exact proofs than would be required to establish fraud or recklessness on the balance of probabilities. Generally, ―people are less likely to be fraudulent than to be negligent‖.26 That is the approach I will take when considering the particular issue of whether the Companies have established that there was no dishonest conduct, for example, in the case of the alleged ―Perpetual offences‖ with which I must deal or no reckless conduct in the case of the Hendon and Northbourne arrangements. Were funds from UOCL lawfully derived? [56] United Overseas Credit Limited (―UOCL‖) transferred some funds directly to some of the Companies or their bank accounts. UOCL transferred some funds to creditors of some of the Companies. UOCL transferred some funds to Merrell or to other companies which subsequently provided funds to some of the Companies or for the benefit of some of the Companies. An issue is whether the funds UOCL transferred were derived from unlawful activity. The Companies contend that a portion of funds transferred by UOCL were not derived from unlawful activity. The Companies accept that UOCL did not supply funds as a gift. The Companies‘ implied argument is that any funds sourced directly or indirectly from UOCL were earned or borrowed by the recipients. [57] The Companies argue that, in accordance with Brauer, they can discharge their onus with slight evidence because, among other things, the Commonwealth did not instruct Mr Vincent to and did not provide him with the necessary information to properly trace all the funds received by UOCL. They claim that the exhibit to Mr Vincent‘s report made it clear that UOCL had made payments of $24,292,523.31, whereas UOCL received only $19,168,097.77 from participants in the UOCL offences. They submit that the court should infer that the difference of $5,124,425 was a sum of money which was not derived from unlawful activity. The submission was: The Commonwealth in the PPO trial did not lead any evidence and therefore failed to prove that the $5,124,425 of the UOCL income Mr Vincent did not/could not trace27 was from unlawful activity and therefore, the Applicants should be able to rely upon that fact in these proceedings and it should be accepted that the money was from lawful activity. [58] There is, however, no evidence that $5,124,425 was derived from lawful activity. 26 Cross on Evidence Australian Edition [9010] 27 XXN Mr Vincent T D10 P5 L20-21 -- 21 of 229 -- 22 [59] The financial statements and documentation of UOCL demonstrate that it had no significant sources of income apart from the schemes that were considered in the pecuniary penalty order proceedings Commonwealth Director of Public Prosecutions v Hart.28 UOCL‘s Directors‘ Report and Financial Statements from 26 June 1997 to 30 June 2000 describe the company‘s principal activity as lending money to overseas borrowers.29 The same document listed: 1. ―turnover‖ between 26 June 1997 and 30 June 2000 as $12,579,645. This comprised $5,771,586 in ―loan interest income‖ and ―application fees‖ of $6,808,059;30 2. ―other revenue‖ as $40,205; 3. the value of the issued promissory notes on 30 June 2000 as $98,684,000; and 4. long-term loans receivables as $98,684,000.31 [60] UOCL‘s Directors‘ Reports and Financial Statements for the years ending 30 June 2001, 30 June 2002 and 30 June 2003 also describe the principal activity of the company as money lending to overseas borrowers32 and listed the turnover for those years as consisting of ―loan interest income‖ and ―application fees‖.33 Although the detailed profit and loss accounts for these years identify some other revenue, this also appears to have been connected with the schemes: the report for 30 June 2001, for example, shows that the bulk of ―other revenue‖ consisted of ―marketing and promotion‖, ―bank interest income‖, and ―cancellation charges‖.34 All of these documents are consistent with UOCL‘s business revolving around the unlawful schemes considered in the pecuniary penalty order proceedings. [61] The letter of 24 June 2002 approved by UOCL for sending to the Internal Revenue Department in Hong Kong35 reinforces this conclusion. It described the nature of UOCL‘s business and identified no other source of income apart from the schemes. Indeed, under ―Loan interest income‖, the letter stated:36 All of the Company‘s borrowers are Australian residents and their Loan Agreements entered into with the Company, together with their companies‘ employee welfare or superannuation fund arrangements funded by their loans, as described hereafter, are, to the knowledge of the Company‘s directors, structured solely to take advantage of Australian taxation benefits available to them under existing Australian legislation. [62] Accordingly, this is not a case where ―slight evidence‖ by the Companies may suffice to discharge the onus of proving the matters in s 102(3) of the Act. The documentary evidence suggests that UOCL‘s income came from the schemes that were considered in 28 [2010] QDC 457 29 Q00011639 at p 2. 30 Q00011639 at p 8. 31 Q00011639 at p 4. 32 Q00011474 at pp 2, 7 (report for year ending 30 June 2001); Q00011556 at p 2 (report for year ending 30 June 2002); Q00011671 at p 2 (report for year ending 30 June 2003). 33 Q00011474 at p 10; Q00011556 at p 10; Q00011671 at p 10. 34 See also Q00011556 at p 10 (showing the ‗other revenue‘ for the year ending 30 June 2002 consisted of ‗bank interest‘ and ‗early loan cancellation charges‘ of $39,295); Q00011671 at p 10 (showing the ‗other revenue‘ for the year ending 30 June 2003 consisted of ‗bank interest‘ and ‗early loan cancellation charges‘ of $36,351). 35 Q00011739. 36 Q00011739 at p 2 (D(iii)). -- 22 of 229 -- 23 the pecuniary penalty order proceedings. A reasonable inference is that all UOCL income was derived or realised from unlawful activity. Bank interest earned by UOCL on funds derived from unlawful activity would itself be indirectly derived or realised from unlawful activity. The Companies have produced no evidence to rebut the inference that all UOCL income was derived or realised from unlawful activity. [63] There is no basis for considering that $5,124,425 of UOCL‘s income was attributable to lawful activity. That figure is the difference between $24,292,523.31 that Mr Vincent found that UOCL had paid and the $19,168,097.77 that he recorded UOCL as having received from participants. Yet, as Mr Vincent made plain, the $19,168,097.77 represented only the ―minimum amount‖ that UOCL received into its bank account from participants in the schemes.37 It did not represent a maximum. [64] So much has been accepted in an earlier proceeding. In Commonwealth Director of Public Prosecutions v Hart,38 the court rejected a challenge to the use of the figure of $19,168,097.77 as a starting point for quantifying the benefits derived from the UOCL offences. The court did so on the following terms:39 Mr Hart raises a challenge to a further $1,974,165.75 which he submits should be deducted from the amount of the $19,168,097.77 which was recorded by UOCL in the client files of the participants as having been paid to UOCL. In Mr. Vincent's report at paragraph 2.4 (ii) he stated: I have identified additional deposits totalling $1,974,165.75 were recorded in the banking records of UOCL from participants who had an alleged loan from UOCL, but were not recorded in the database. Based on my review, I was unable to identify any record of these amounts in the client files of those participants. For this reason, I am unable to positively ascertain whether such payments were made to UOCL in relation to the schemes, or for another reason. The flaw in the challenge is that Mr Vincent‘s figure of the $19,168,097.77 which was recorded by UOCL in the client files of the participants does not include the ―additional deposits totalling $1,974,165.75 were recorded in the banking records of UOCL from participants who had an alleged loan from UOCL, but were not recorded in the database‖. It is clear to me that Mr Vincent declined to include the $1,974,165.75. This figure may represent further amounts received by UOCL from participants. They are amounts which were not recorded in client files or the AFP database but were nonetheless recorded in the banking records of UOCL. They should perhaps have been included as further benefits derived. [65] As these remarks acknowledge, there are substantial grounds for suspecting that the extra $1,974,165.75 that was recorded in the banking records of UOCL was derived from scheme participants and thus from unlawful activity. The Companies have presented no evidence that such amounts were derived from lawful activity. [66] The Companies submitted:40 23 The Commonwealth concede that there is a difference of $5,124,425 not accounted for from the participants that UOCL had banked through its accounts. However, what the Commonwealth now want to do is state that the Applicants should prove that was from lawful means irrespective of the fact they failed to prove it was from unlawful means in the PPO trial. 37 Q00060293 at p 5, pars 2.1 and 2.4. 38 [2010] QDC 457. 39 [2010] QDC 457 at [549]-[550] (emphasis added). 40 APPLICANTS‘ S102 ADDENDUM SUBMISSION p5 -- 23 of 229 -- 24 24 As there is an estoppel against the Applicants re-litigating the PPO trial the Commonwealth must also be estopped from making allegations that they could not prove in the PPO trial now against the Applicants. 25 [Para 7.8 (ii)] Mr Vincent also stated that there are a number of deposits of significant value that were not consistent with regular payments made by participants to the scheme. He stated: "a number of deposits of significant value (i.e. in excess of $100,000) were not consistent with regular payments made by participants in the scheme." 26 Para 7.12 (ii) (c )] FURTHER Mr Vincent states that there was “significant deposits from entities whom I was able to identify were clearly not participants of the scheme”. 27 As the only allegation of wrongdoing by UOCL raised by the Commonwealth and found by His Honour as a "serious offence" related to the participants in the scheme paying fees and interest to UOCL, then the balance of these funds should be deemed to be from lawful activity of UOCL. [67] The submission seems to be, essentially, that in Commonwealth Director of Public Prosecutions v Hart, 41 there was some income received by UOCL which the CDPP failed to prove was derived unlawfully and that the court should infer in this proceeding that it was derived lawfully. The submission ignores the features relating to these funds that there are reasonable grounds to suspect that UOCL‘s income was earned from unlawful activity, that the Companies bear an onus of proof that the income was not derived or realised, directly or indirectly from unlawful activity, that there is no evidence to remove that reasonable suspicion, that the Commonwealth bears no onus and I am not satisfied that the Commonwealth was in a better position than the Companies to prove the source of those further funds. [68] I am not satisfied that those funds of $5,124,425 from UOCL were probably derived from lawful activity. Were funds from Merrell lawfully derived? [69] With respect to the issue of funds from Merrell, the Companies argue that in accordance with Brauer that they can discharge their onus with only slight evidence because, among other things, the Commonwealth did not fully instruct Mr Vincent and provide him with the necessary information to properly trace all the funds received by Merrell. The Commonwealth did not instruct Mr Vincent for these proceedings to trace the source of all funds received by Merrell and I make no finding as to whether Mr Vincent could have achieved the exercise if he had those instructions. I do not find that the Commonwealth was in a better position than the Companies to trace the source of these funds. [70] The Companies submit that, according to Mr Vincent, Merrell only received $5,264,170 from UOCL but paid out a total of $7,826,287.02. They submit that the court should infer that the difference of $2,562,108, to 24 February 2004, was not derived from unlawful activity.42 41 [2010] QDC 457. 42 Applicants‘ closing submissions, par 21(j). -- 24 of 229 -- 25 [71] Mr Vincent‘s reports do not reveal any significant difference between the amount that Merrell received from UOCL and the amount that Merrell paid out. His report of 21 October 2010 makes it clear that the $7,826,287.02 represented the amount paid out by Merrell between July 1998 and February 2004.43 The $5,264,170, however, only represented the amount paid by UOCL to Merrell between July 1998 and 15 May 2001.44 Mr Vincent found $7,564,670.18 was paid by UOCL to Merrell between 7 July 1998 and 27 February 2004.45 Furthermore, Mr Vincent found that during this period Merrell received some funds from European Grande Assurance SA ("EGA"), which in turn received $797,859.61 from UOCL46 and there were some repayments from Sea Fury Investments Pty Ltd. These sources would more than cover the difference between $7,564,670.18 and $7,826,287.02. It follows that the difference upon which the Companies rely to claim that Merrell must have had other, lawful sources of funds diminishes to insignificance. [72] The documentary evidence suggests that Merrell‘s income and assets were almost entirely derived or realised from UOCL. The list of debts owing to UOCL as at 30 June 2000 shows that Merrell owed UOCL $4,061,334, while EGA owed UOCL $537,850.47 The balance sheet for Merrell as at 7 September 2000 showed Merrell‘s total assets at $4,766,000.48 Loans from UOCL, however, were listed as $4,316,000, and loans from EGA were listed as $330,000. The amounts owed to UOCL and EGA, recorded in Merrell‘s own balance sheet, were thus almost equivalent to all of Merrell‘s assets. While the balance sheet listed other investments of Merrell, including a $507,000 investment in Federal Financial Group USA, some of these investments also appear to have been derived from UOCL funds, as the list of outstanding loans as at June 2003 indicated. [73] Merrell‘s list of outstanding loans as at June 2003 identified UOCL as the source of nearly all loans. It also identified many investments in Federal Financial Group Incorporated, totalling $733,106.29 and dating back to 18 December 1998, as sourced from UOCL funds.49 This list suggests that Merrell did not have a significant source of income or assets derived from lawful activity, even from its investments in Federal Financial Group. [74] The balance sheet and the profit and loss statement for the year ending 30 June 200350 confirm that UOCL provided the great bulk of Merrell‘s funds and assets either directly or indirectly. The profit and loss statement showed income of only $28,333.05 and expenses of $110,272.04. The balance sheet disclosed debts of $3,222,071.39 to UOCL and $725,000.00 to EGA. It also disclosed a debt of $1,755,000 to Grade Investments.51 However, this debt was annotated in Merrell‘s list of outstanding loans as ―Allan Stewart Trust amount taken over by Grade then sold to and guaranteed by Merrell.‖52 It therefore appears to have been a debt assigned to Merrell rather than a 43 Q00064393 at par 7.9, p 20. 44 Q00064393 at par 7.8, p 19. 45 Q00015677 at p 5. 46 Q00015677 at p 5. 47 Q00045463. 48 Q00040065. 49 Q00045408 at p 1. 50 Q00011730. 51 Q00011730 at p 1. 52 Q00045408 at p 2. -- 25 of 229 -- 26 source of funds used by Merrell for lending or acquiring assets. In that respect, it differed from Merrell‘s debts to UOCL. [75] The balance sheet of Merrell as at 12 August 2004 leads to similar inferences.53 It disclosed an increased debt to UOCL of $4,116,000 and the debt of $1,755,000 to Grade Investments. [76] As this survey of the documentary material shows, there is nothing to support the Companies54submission that 33% of Merrell‘s income was derived or realised from lawful activity. On the contrary, the inference is that practically all of Merrell‘s funds were derived or realised, directly or indirectly, from UOCL. The Companies have presented no evidence to rebut that inference. The Companies point to entries in the accounts which satisfy me that Merrell received $60,000 from Mr Coad in September 1999, that in 2003 it owed $67,500 to Dreambay, that it may have invested $207,000 in about 2000 in Elsway and K2000. The Companies did not call evidence to explain these amounts. The fact that Merrell made investments does not assist me to determine that the investments were not made with funds derived or realised directly or indirectly from UOCL. The fact that Merrell may have received some unexplained amounts not directly from UOCL raises the possibility that a small proportion of funds held by Merrell at one time were not funds derived directly or indirectly from unlawful activity. However the probability is that any of Merrell‘s earnings were directly or indirectly derived from investment of money Merrell received from UOCL. [77] A related but different issue arises in respect of Merrell‘s loans to the Companies. Merrell paid significant amounts of money used for deriving assets the Companies apply to recover. Money has been treated in accounts as a loan by Merrell and its repayment has been secured by charges. The Companies have not proved that the loans by Merrell were on usual terms offered by lenders. Inadmissible opinion evidence that the loans were on usual commercial terms was objected to and was excluded. As POCA s102(3) requires findings expressed in double negatives, I am not satisfied that money advanced by Merrell to the Companies was not advanced on conditions more favourable to the Companies than usual commercial terms. I am suspicious that, and the Companies have not satisfied me that Mr Hart was not in effective control of the Companies when the UOCL offences were committed. I give reasons for this below. Mr Hart also exercised a high degree of control over the day to day operations of UOCL and Merrell.55It was not an issue in the earlier proceeding whether Mr Hart had effective control of Merrell and it was not necessary to decide that fact. I am suspicious that Mr Hart‘s influence over Merrell was such that he could determine whether Merrell made loans to the Companies or demanded repayment and could determine the conditions of the loans. The Companies have not satisfied me that this suspicion is improbable. [78] Merrell‘s balance sheet revealed that as at 30 June 200356 its assets included: Investments Bubbling $330,010 53 Q00049128. 54 Applicants‘ closing submissions, par 21(k). 55 Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457 at [443]. 56 Q00011730 -- 26 of 229 -- 27 Fighters $733,106.29 Harts Consulting (FFMR) $177,600 Yak $21,100 [79] Merrell‘s balance sheet revealed that as at 12 August 200457 the investments included: Loans: Bubbling $330,000 Fighters $1,059,000 Flying Fighters Maintenance & Restoration $178,000 Yak $21,000 [80] Notably, the amount of the loans did not increase except in the case of the loan to Fighters. It is possible that the Companies which received Merrell‘s money or assets or services paid for with Merrell‘s money have repaid Merrell interest on the money in that period to August 2004. If Merrell received interest income it would be a source of funds which did not come directly from UOCL. If Merrell received interest income, I am not satisfied that it was not indirectly derived from unlawful activity. [81] I am not satisfied that any funds Merrell has provided in relation to the assets the subject of these proceedings were not derived from unlawful activity. Further, on a related issue, I am satisfied that any funds Merrell or UOCL has provided in relation to the assets the subject of these proceedings “may reasonably be suspected of being proceeds of crime‖ within the meaning of those words in section 82(1) of POCA 1987 (repealed). [82] Where the evidence was that funds from Merrell were used in respect of a payment related to individual assets, for any such asset the Commonwealth would typically make a general submission that ―Because funds from Merrell...were used to acquire the property, (the relevant former owner has) not satisfied the court that the property was not derived or realised, directly or indirectly from unlawful activity…‖ Typically, the submission would not say what proportion of the funds which derived the asset came from Merrell. The Commonwealth supplemented written submissions with a flow chart, exhibit 10; a mixture of words, colours and arrows. Each picture was left for the court to infer a thousand words. For any asset, the chart was intended to reflect conclusions that Mr Vincent drew from reading documents in evidence and within the electronic records. The flow chart would, for example in the case of the Cap 232 aeroplane, reveal that on 22.08.03 Merrell paid $350,000 to Sea Fury; that on 27.08.03 Sea Fury paid $349,460 to Spider Tracks Pty Ltd (―Spider‖); that on 28.08.03 Spider paid $200,000 to Fighters; that on 28.08.03 Fighters paid $200,000 to Ultimate Aerobatics; that seven months earlier, on 30.01.03 Unlimited Aerobatics paid $144,000 to Fighters; that on 03.02.03 Fighters paid $46,665 to FFMR for repairs done on an aircraft whose acquisition cost Mr Vincent set out in the chart as $244,133.58 (as repayment of a loan used for repairs and maintenance of various aircraft). One could 57 Q00049128 -- 27 of 229 -- 28 then infer that the Commonwealth submitted that $46,665 was the quantum of one fund which was used to derive the Cap 232 and that the $46,665 was derived from unlawful activity and accordingly the Commonwealth submitted in ―Annexure 2 Summary of Assets‖: ―Because funds from Merrell...were used to acquire the property, Fighters have not satisfied the court that the property was not derived or realised, directly or indirectly from unlawful activity…‖. [83] The typical submission from the Commonwealth did not go further, to consider whether the funds from Merrell were repaid or whether the proportion of funds used to derive the asset was from Merrell. Both are relevant to whether property was derived from unlawful activity. If Merrell‘s money was lent not given, repaid not retained, the extent to which an asset was derived from it would differ. Submissions by the Companies asserted that money was borrowed from Merrell. The Commonwealth‘s submissions relating to the forfeited Merrell charges were premised on money from Merrell being borrowed. Neither side touched upon how that affected the issue of whether an asset was derived from borrowed funds. [84] The advances by Merrell were commonly not repaid by the time assets were forfeited. The funds advanced by Merrell are liable to be repaid. The Commonwealth has forfeited the charges granted to Merrell securing repayment. [85] If an advance by Merrell was used to derive an asset, and was repaid, with funds not derived from unlawful activity, the fact of repayment would arguably lessen the extent to which the asset was derived from unlawful activity. Some funds were repaid to Merrell. For example, Sea Fury borrowed $500,000 from Merrell and repaid it with interest.58 Neither side expressly considered the significance of repayment of money derived from unlawful activity upon the extent to which an asset derived from that money remains derived from unlawful activity. Is an asset derived or realised by payments for rates, insurance, repairs, maintenance or interest on loans borrowed for their purchase? [86] The Companies rely on the decision of McMurdo J in State of Queensland v Brooks59 to submit60 these propositions: 1. McMurdo J ruled property is not acquired simply by interest payments; 2. the definition of ―acquired‖ in the Queensland Proceeds of Crime Act (sic) before McMurdo J and the definition of ―derived‖ in POCA are the same; 3. It follows from the ruling that payments for rates, insurance, repairs and maintenance will not be an acquisition of property; 4. the source of funds used to make interest payments is thus irrelevant; 5. the source of funds used to pay rates, insurance, repairs and maintenance is irrelevant. [87] In Brooks, McMurdo J considered the meaning of ―illegally acquired property‖ in s 22 of the Criminal Proceeds Confiscation Act 2002 (Qld) (―CPCAQ‖). [88] Section 18 of the CPCAQ defines the term "proceeds" as follows: 58 Q00064036 par 8 59 [2005] QSC 390. 60 Applicants‘ closing submissions, par 50(a)-(d). -- 28 of 229 -- 29 Proceeds, in relation to an activity, includes property and another benefit derived because of the activity - (a) by the person who engaged in the activity; or (b) by another person at the direction or request, directly or indirectly, of the person who engaged in the activity. [89] By virtue of Sch 6 to the CPCAQ, the term "derived" is defined to include: (a) directly or indirectly derived; and (b) realised. [90] Section 21 of the CPCAQ defines the expressions "benefit" and "benefit derived" as follows: (1) Benefit includes service and advantage. (2) A benefit derived by a person includes a benefit derived by someone else at the person‘s request or direction. [91] The term "illegally acquired property" is defined by s 22 of the CPCAQ as follows: (1) Property is illegally acquired property if it is all or part of the proceeds of an illegal activity. (2) Property is also illegally acquired property if - (a) it is all or part of the proceeds of dealing with illegally acquired property; or (b) all or part of it was acquired using illegally acquired property. (3) For subsection (2), it does not matter whether the property dealt with or used in the acquisition became illegally acquired property because of subsection (1) or subsection (2). (4) Subsections (1) and (2) apply whether or not the activity, dealing or acquisition because of which the property became illegally acquired property happened before the commencement of this section. (5) Also, if the proceeds of dealing with illegally acquired property are credited to or placed in an account, the proceeds do not lose their identity as proceeds because they are credited to or placed in an account. [92] As to the Companies‘ first submission: His Honour found: ―As there was no acquisition of property by interest payments, the source of the interest payments is irrelevant‖.61 I note that ruling was consistent with the Companies‘ submission about it but was obiter as his Honour was satisfied that the interest was paid from rental.62The Companies‘ second submission is misconceived: There was no definition of ―acquired‖ in the statute considered. More importantly, ―illegally acquired property‖ in the CPCAQ is not defined as property ―derived or realised, directly or indirectly, by any person from any unlawful activity‖. His Honour was not concerned with the issue posed by POCA s 102(3)(a); namely, whether property is ―derived or realised, directly or indirectly, by any person from any unlawful activity‖. 61 At [55] 62 See [55] -- 29 of 229 -- 30 [93] There is more similarity between POCA s102(3) and POCA 1987 (repealed) s48(4)(e). In both sections the words ―acquired‖ and ―derived‖ are used which suggests that each word has a discrete meaning. [94] In Jeffrey v DPP (Cth),63 the New South Wales Court of Appeal indicated that ―derived‖ in POCA 1987 (repealed) s48(4)(e)(i) extended beyond the specific considerations involved in an acquisition. Cole JA, with whose reasons Handley JA agreed, wrote:64 The trial judge found that the Glebe and Nundle properties were substantially acquired with borrowed moneys. It was argued that funds available as a result of non-payment of tax flowing from non-lodgment of returns could only have been used towards liquidation of the loans. Liquidating loans which had been used to acquire the properties was said not to constitute those properties being ―derived, directly or indirectly‖ from the unlawful activity. It was contended that derived referred to the source or origin of the property, and that was the borrowed funds. Within s 48(4)(e), distinction is drawn between a lawfully ―acquired‖ interest in property and property ―derived‖ directly or indirectly from an unlawful activity. ―Derived‖ is thus different to ―acquired‖. Derived involves a wider consideration than merely the specific circumstances involved in an acquisition. Whether property is ―derived‖, directly or indirectly, from any unlawful activity is a question of fact. There is no basis for disturbing the trial judge‘s finding of fact that the appellant had not satisfied him that the property was not derived, directly or indirectly, from any unlawful activity. [95] I reject the Companies‘ submissions that the source of funds used to pay rates, insurance, repairs and maintenance and interest is irrelevant. They may be irrelevant to the acquisition of an asset, depending on the circumstances, but they may be relevant to the different issues of whether property was ―derived or realised, directly or indirectly ... from any unlawful activity‖. Should POCA s 102(3)(a) be interpreted to mean “not substantially used…” and “not substantially derived or realised…”? [96] The Companies65 relied on extracts from Director of Public Prosecutions v Diez [2003] NSWSC 238, a decision of Greg James J. The submission extracted numerous passages from the case. The extract from Diez contains a long extract from Jeffrey v DPP.66 In Jeffrey Hunt CJ at CL at first instance suggested that the words ―in connection with any unlawful activity‖ within the meaning of s 48(4) of POCA 1987 (repealed) required a ―substantial connection between the activity in question and the use of the property‖. Greg James J in Diez considered he should apply a similar approach to the derivation of an asset by requiring that there be no substantial contribution, to its derivation, from unlawful activity. [97] The Companies did not indicate what principles the extract stood for, other than to conclude by submitting that the Companies could fulfil their onus with slender evidence.67I reject that as a general principle. It may apply in some circumstances. The extract stands for other things of more benefit to the Companies. It seems appropriate for this court to extrapolate relevant principles from the extract. Diez and Jeffrey each 63 (1995) 121 FLR 16; (1995) 79 A Crim R 514 64 (1995) 79 A Crim R 514 at 523. 65 Applicants Closing Submission par 23 66 (1992) 58 A Crim R 310, BC9202106 67 Applicants Closing Submission par 23 (e) (vi) -- 30 of 229 -- 31 involved a consideration of POCA 1987 (repealed). For the Companies, I regard the reliance on the extract from Diez as, essentially, a submission of five propositions: Firstly, that a general denial by a party can put an evidentiary onus on the Commonwealth. Depending on the facts which are generally denied in evidence and other circumstances of a case, I accept that result is possible; Secondly, that ―not derived‖ from illegal activity meant, under the repealed act, ―not substantially derived‖ from illegal activity; thirdly, that ―not used in, or in connection with unlawful activity‖ meant, under the repealed act, ―not substantially used, in or in connection with unlawful activity‖; fourthly, that under POCA s 102(3)(a) ―not used in, or in connection with any unlawful activity‖ means ―not substantially used in, or in connection with any unlawful activity‖; fifthly, that under POCA s 102(3)(a) ―derived or realised, directly or indirectly, by any person from any unlawful activity‖ means ―substantially derived or realised, directly or indirectly, by any person from any unlawful activity‖. [98] Those fourth and fifth propositions, if accepted, would be important in the Companies‘ application. They would significantly lessen the evidential burden for the Companies. The first category of property arising for consideration in POCA s102(3)(a), namely property ―used in, or in connection with any unlawful activity‖ would expand as the connection with unlawful activity became more remote. If a remote connection with unlawful activity sufficed, more property would be caught than if a close connection was required. The second category of property arising for consideration in POCA s102(3)(a), namely property ―derived or realised, directly or indirectly, by any person from any unlawful activity‖ would capture least property if the property was required to be ―wholly derived or realised‖ from unlawful activity, would capture more if the property was required to be ―substantially derived or realised‖ from unlawful activity and would capture most property if the property was to be ―partly derived or realised‖ from unlawful activity. [99] It is sensible to consider POCA s 102(3)(a) and its elements and its context in POCA before determining whether to read ―substantially‖ or any word into it. I have referred above to the statutory context for a POCA s 102(3) application. A feature of an application under POCA s 102(3) is that the applicant can be, as the Companies are in this proceeding, an owner of property who has not been convicted of unlawful activity. Such an applicant is to be contrasted with the applicants considered in the cases concerned with s 48(4) of POCA 1987 (repealed). A condition for being an applicant under s 48(4) of POCA 1987 (repealed) was that the person was convicted of, or charged with, or about to be charged with unlawful activity. Any concern to interpret general words to avoid penalising an applicant under POCA 1987 (repealed) would be at least as great under POCA where an applicant is not a convicted person or corporation. [100] POCA s102(3)(a) provides: (3) An order under this section may also be made if: (a) the property was not used in, or in connection with, any unlawful activity and was not derived or realised, directly or indirectly, by any person from any unlawful activity [101] I will now consider the first issue in the section being the meaning of property “used in, or in connection with any unlawful activity” in POCA s 102(3)(a) and whether it -- 31 of 229 -- 32 should be interpreted as Hunt CJ interpreted s 48(4) of POCA 1987 (repealed): that is by reading the words of POCA s102(3) ―the property was not used in, or in connection with, any unlawful activity‖ as if they too required a ―substantial connection between the activity in question and the use of the property‖. [102] At the core of the judgment of Hunt CJ at CL in Jeffery68was his Honour‘s finding that the context in which the phrase ―used in connection with‖ was used affects its meaning and that in the context of a penal statute there must be ―in a very real sense‖ a link in the sense of a substantial connection between the property and the criminal activity. [103] It is sensible to begin with a consideration of Re Drugs Misuse Act 1986 [1988] 2 Qd R 506. [104] Hunt CJ at CL followed69 the approach of Carter J in Re Drugs Misuse Act 1986 [1988] 2 Qd R 506 at 510-512. Carter J and Hunt CJ at CL each followed the approach of Adam J in Murdoch v Simmonds [1971] VR 887 at 889. In Murdoch, Adam J had before him a charge of assault. After a traffic accident, the driver of one vehicle assaulted the driver of the other. It was submitted that the offender‘s driver‘s licence should be cancelled because he had been convicted of an offence ―in connection with the driving of a motor vehicle‖. Adam J said: ―The cancelling of a licence ... is of a penal nature and, in accordance with the well settled rules of construction where the language is vague or general, the onus does lie on the informant seeking to obtain the penalty to show that the defendant was clearly intended to come within the scope of the legislation. So one is more disposed to give the words ‗offence in connection with the driving of a motor car‘ a meaning which indicates that in a very real sense the offence in question is related to the driving of a motor car. As it is put in one case in another action by, I think, Kitto J, ‗substantial connection‘ is required to answer the expression.‖ [105] In the case70 before Carter J, the offender had placed some garbage bags containing cannabis in his truck and had driven them to his home. He intended to sell some of it at a hotel and would have used a taxi or his truck to travel to the hotel. An issue arose with respect to the Drugs Misuse Act 1986 s 33. It provided: ―Property ... is liable to forfeiture ... if the property is – ... (b) used in connexion with the commission of such an offence ...‖ It was submitted in that case that the house property was ―used in connexion with the commission‖ of the offence because a small quantity of cannabis was found in the house and a larger quantity was found under the house. It was submitted that the truck was also property ―used in connexion with the commission‖ of the offence because the offender took the cannabis to his home in the truck and might have transported it in the truck to the hotel if he had come to sell it. Carter J at 511 observed: ―In the view of Adam J the phrase ―in connexion with‖ in the context of a criminal statute requires ―a substantial connexion‖ and accordingly there should be in the circumstances of the case ―in a very real sense‖ a substantial connection between the use of the house and truck and the offences of possession and supplying cannabis ... the criteria defined by Adam J, although somewhat vague and uncertain if considered literally, nevertheless express adequately the relevant test… One must look ... for a 68 op.cit (1992) 58 A Crim R 310, BC9202106 at 10 69 At p316 70 Re drugs Misuse Act 1986 [1988] 2 Qd R 506 -- 32 of 229 -- 33 substantial connection between the use of the property and the commission of the offence – not a mere accidental or incidental connection with the commission of that offence. There must therefore be in a very real sense a substantial connection between the use of the property and the actual commission of the offence in the sense that the commission of the offence is related to or is dependant upon or could not have been committed without or resulted directly from the use of the property ...‖ [106] Carter J was not persuaded that the property was used in connection with the commission of the offence. That decision was made on circuit and without the benefit of full argument or materials for research.71 An argument not considered by his Honour was available and may have affected his Honour‘s approach. The Drugs Misuse Act 1986 s 34 (3) reposed a very wide discretion in the court to determine whether or not a forfeiture order should be made. One basis for refusal of forfeiture was to prevent hardship to any person. Where such hardship can be avoided then words such as ―used in connection with the commission of‖ can more readily be given their ordinary grammatical meaning. This result follows because there is less opportunity to doubt the legislature‘s intention because the legislature there provided a means to ensure that in cases of hardship the penalty could be ameliorated or waived. [107] In R v Hadad72 the Court of Criminal Appeal in New South Wales was considering the Crimes (Confiscation of Profits) Act 1985 s 3(1) and 5(1). Under s 3(1), ―Tainted property‖ was defined to mean property that: ―(a) was used in, or in connection with, the commission of a serious offence.‖ Under s 5(1), in certain circumstances where the court was satisfied that property ―is tainted property in relation to the offence‖ in respect of which a person had been convicted, the court might order that the property be forfeited to the State. Mr Hadad owned a Holden Calais motor vehicle. He transported a quantity of heroin in the car. He parked the vehicle. He carried the heroin in the vehicle so that, after exiting the vehicle he could supply it to someone. A Judge at first instance found that in order to satisfy the definition of ―tainted property‖ in s 3(1) there had to be more than an incidental connection and that a substantial connection was necessary between the use of the property and the crime in question and held that the use was not a substantial connection. The findings were based on the facts that the amount of material was small; the car was not necessary to conceal the small amount; it could have been concealed by being placed on the person; the car was not used to carry out the transaction as the material had been taken from it and concealed in bushes before the material was carried to the place where supply was to occur; and the only use of the car was to convey the offender from his home to where the car was parked. A special feature of the legislation was the very wide discretion given by s 5(1) to a Court about whether to make a forfeiture order. The Court was entitled to consider the use that was ordinarily made of property and any hardship likely to arise following the making of a forfeiture order. Because of the wide discretion, it was held that the legislature intended this section to have its ordinary grammatical meaning73 and the court did not accept that the legislature intended the courts to construe this section by requiring a substantial connection between the commission of the crime and the alleged tainted property.74 71 This was explained in R v Ward, Marles and Graham (1987) 33 A Crim R 60 72 (1989) 16 NSWLR 476 73 482 A-B per McInerney J with Enderby J agreeing at 477 and Allen JJ agreeing at 484 74 At 482 per McInerney J at line E with Enderby and Allen JJ agreeing -- 33 of 229 -- 34 [108] The feature of the legislation considered in Hadad and which gave a court a very wide discretion to prevent forfeiture of property after considering the use ordinarily made of property and whether hardship was reasonably be likely to arise, is not in every statute dealing with forfeiture of assets. The feature is not in POCA. [109] In POCA there is no express provision creating a wide discretion allowing the court to consider hardship to an owner, including an owner other than the offender or to consider whether property is used ordinarily for lawful activities. That is an important feature of the context in which the words ―used in, or in connection with, unlawful activity‖ in POCA s102(3)(a) must be interpreted. [110] In R v Ward, Marles and Graham (1987) 33 A Crim R 60 the Queensland Court of Criminal Appeal was considering forfeiture orders made against motor vehicles used ―in connection with‖ offences for which the appellants were convicted. The appellant Marles drove his Toyota utility to a location to buy cannabis. Ms Ward was a go- between between the vendor‘s agent and Marles. Ms Ward was driven to the location by Graham in Graham‘s vehicle. Graham knew of the arrangement. At the scene, police officers intercepted those present and took possession of the motor vehicles of Marles and Graham. Pursuant to the Drugs Misuse Act 1986 (Qld) s 33, property was liable to forfeiture if ―used in connection with the commission of‖ the relevant offence. A court considering whether to make a forfeiture order was given a discretion under s 34(3) which provided: ―34(3) In considering whether it is appropriate to make a forfeiture order under ss (1) or (2) the Court may have regard to – (a) any extreme hardship that may be likely to be caused to any person by the operation of such an order; and (b) the use that is ordinarily made of the property.‖ [111] Carter J gave the judgment and Kneipp and Demack JJ concurred. It is apparent from page 6675that his Honour did not decide the question whether the vehicles were ―used …in connection with the commission of‖ the offence. I infer that the appeal was allowed in respect of the forfeiture orders as a result of the Court‘s reliance on the wide discretion at section 34(3) of the Drugs Misuse Act. While Carter J referred to what he had said earlier the same year in re Drugs Misuse Act 1986, neither he nor the other members of the Court expressed a view about its correctness. His Honour did not advert to the argument which surfaced two years later in New South Wales in the Court of Criminal Appeal in Hadad. [112] The decision of Hunt CJ at CL in Jeffery,76 insofar as it held that POCA 1987 (repealed) s 48(4) required a ―substantial connection between the activity in question and the use of the property‖ was not the subject of consideration in the appeal77 from the decision of Hunt CJ at CL. The decision by Hunt CJ at CL seems to have been based upon the absence from POCA 1987 (repealed) of any provision which would allow the court to take into account unfairness to innocent parties when considering whether to forfeit property. The ratio was not expressly set out. His Honour adopted 75 at about .1 on page 66 76 (1992) 58 A Crim R 310, BC9202106 77 Jeffrey v Director of Public Prosecutions (1995) 121 FLR 16; (1995) 79 A Crim R 514; BC 9505150 -- 34 of 229 -- 35 the statements by Adam J in Murdoch v Simmonds [1971] VR 887 at 889, that the particular context in which the phrase (―in connection with‖) is used is important in determining its interpretation. That ratio in Murdoch v Simmonds was that in the case of a statute ―of a penal nature and, in accordance with the well settled rules of construction where the language is vague or general, the onus does lie on the informant seeking to obtain the penalty to show that the defendant was clearly intended to come within the scope of the legislation‖. Hunt CJ at CL wrote: S48(4) of the Proceeds of Crime Act does not itself permit hardship to be taken into account in determining whether relief should be granted to have property disregarded for the purposes of the automatic forfeiture provisions of s30. It was argued by the Director that, because a person convicted of any offence may seek pursuant to s48(3) to have his interest excluded from any restraining order upon his property, and because in relation to that particular application his financial hardship may be taken into account, the approach adopted in Regina v Hadad should similarly be adopted in relation to s48(4). I am not persuaded that the relevance of hardship to an application that property be excluded from a restraining order, but which hardship is irrelevant to an application for a declaration that that property should be disregarded for the purposes of the automatic forfeiture of that property, should require such an approach to be adopted to the proper interpretation of the statutory provisions relating to the latter. The property with which s48(4) deals includes property in which innocent parties may well also have an interest - even a significant interest. Accordingly, in my view, the distinction made in Regina v Hadad does not apply to the meaning of the phrase as used in s48(4).78 [113] That reasoning is at least as attractive in this case if the Companies interested in the property liable to be forfeited were not participants in Mr Hart‘s serious offences and where POCA makes no express provision for taking the Companies‘ hardship into account. [114] The approach of Hunt CJ at CL was approved by Vanstone J in Director of Public Prosecutions (DPP) v George79at [167] though the approval was obiter. Vanstone J wrote in respect of the Criminal Assets Confiscation Act 2005 (SA): [167] …Having regard to the fact that the Act is penal in its operation and that consequences out of all proportion to the gravity of the crime could flow from a wide interpretation of the word ―instrument‖, for this and other serious offences (as defined), I would be prepared, if necessary, to find that a substantial connection is required between the property and the commission of the crime under consideration before it is found to be an instrument of that crime. I would require that the property was put to use in a positive sense; that it was a means through which the crime was effected; and that the property was used as a tool in the commission of the crime, or in connection with its commission. I would be content to approach the matter in much the same way as did Hunt CJ in Jeffrey, remembering always that the expression being construed there was ―tainted property‖ rather than ―instrument‖. Such an interpretation would largely conform with the aims of the CAC Act as expressed in the legislation itself and as outlined by the Attorney-General in the second reading speech referred to earlier. Absent any curial discretion in s 95, a more wide-ranging interpretation of instrument would result in manifest injustice in imposing a penalty bearing no relationship to the crime committed, not just in the present case, but also in cases of the nature described in the earlier part of these reasons. I do not consider that parliament could have intended such a result. [168] Upon this approach, what would amount to a sufficient connection in any particular case would depend upon the circumstances of that matter. 78 BC9202106 at 12 79 (2008) 102 SASR 246; (2008) 251 ALR 658; (2008) 224 FLR 269; (2008) 191 A Crim R 95; [2008] SASC 330. -- 35 of 229 -- 36 [115] In Jeffrey, a Rolls Royce was used as part of the security for a loan that was probably intended to pay for the expenses involved in preparing for an unlawful importation of cannabis. In the circumstances, Hunt CJ at CL was not satisfied that a Rolls Royce had not been used ―in connection with‖ the unlawful activity of cannabis importation. [116] The ―substantial connection‖ gloss which Carter J introduced in re Drugs Misuse Act 1986 and which was referred to by Carter J in Ward, Marles and Graham was considered in George.80Lee J was there concerned with the Crimes (Confiscation of Profits) Act 1989 (Qld). Section 3 defined ―tainted property‖ in relation to a serious offence as: ―(1) Property used or intended to be used in, or in connexion with, the commission of the offence‖. An offender had been growing cannabis on lot 6 which was not owned by him. In issue was whether lot 5 was tainted property. Lot 5 was vacant unimproved virgin bush land. Lee J was not required to determine whether it was appropriate to apply ―the test of a substantial and real connexion laid down by Carter J in Ward, Marles and Graham‖81 because Lee J found on the facts of the case that the land was used in the commission of the offence of possession or at least it was used ―in connexion with‖ that offence even applying the test of a substantial and real connexion. Relevantly, lot 5 was the base camp from which and through which the unlawful activity on lot 6 was facilitated and carried out. The only access to lot 6 was a track through lot 5. All equipment passed onto and through lot 5 to lot 6 and the harvested cannabis was taken from lot 6 to lot 5. The offender camped on lot 5 and used it to proceed to and from lot 6. [117] The Commonwealth‘s submission was guarded. The Commonwealth did not submit that the approach of Hunt CJ at CL was wrong, or should not be applied similarly under POCA. The submission, at its highest, was that I should treat his Honour‘s requirement of a ―substantial‖ connection with great caution.82 The Commonwealth submitted that: given the juxtaposition with the words ‗used in…any unlawful activity‘, there is no compelling reason, or indeed any reason, to read the phrase down. To the extent that Hunt CJ suggested otherwise, it is submitted that his Honour‘s statement does not accord with the ordinary and natural meaning of the words ‗in connection with any unlawful activity‘ in s 102(3)(a). I accept that the ordinary and natural meaning of the words ―in connection with any unlawful activity‖ do not involve the meaning which arises from the addition of ―substantially‖. The submission fails to note that Hunt CJ at CL did not suggest that he was applying the ordinary and natural meaning of the words, but interpreted the words to include ―substantially‖ because he was interpreting in the context of a penal statute. [118] It was not submitted by either side that in considering whether to exercise the discretion to make an order under s 102(1)(c) the court is permitted to consider the degree to which property was used in connection with unlawful activity or the degree to which it was derived or realised from unlawful activity and take that degree into account when declaring the applicant‘s interest. Such a power would permit fairer 80 [1992] 2 Qd R 351; (1991) 57 A Crim R 356; BC9102462 81 At 371.7 82 S102 Submissions of the Respondent (Commonwealth) [16] -- 36 of 229 -- 37 outcomes. POCA allows for forfeiture of property owned by persons who have not been convicted of unlawful activity or found to have been involved in unlawful activity. POCA makes no express provision permitting a court to take into account the usual use of the property or hardship to the owner or just terms for the forfeiture or the relative proportions of lawfully and unlawfully acquired funds that derived the property. I consider the operation of POCA through sections 18, 92, 102 and 141 to be penal. [119] In these circumstances I consider that the intent of the words ―the property was not used in, or in connection with, any unlawful activity‖ in POCA s102(3)(a) is that they require, in the words of Hunt CJ at CL, a ―substantial connection between the activity in question and the use of the property‖. [120] I will now consider the second issue in the section, the meaning of the words “derived or realized, directly or indirectly…from any unlawful activity” in POCA s 102(3)(a) and whether they should be interpreted as Greg James J interpreted somewhat similar words in s 48(4) of POCA 1987 (repealed) in Diez: that is by reading the words of POCA s102(3)(a) as if the word ―substantially‖ was inserted before the word ―derived‖. [121] For easier reading, where I can, I use the words ―tainted funds‖ as a short form for the words ―funds from unlawful activity‖ and the words ―derived from tainted funds‖ as a short form for the words ―derived or realised, directly or indirectly from unlawful activity‖. [122] The word ―derived‖ is not relevantly defined in POCA.83The word ―realised‖ is not defined in POCA. POCA s102(3)(a) does not expressly state whether an applicant must prove that property was not wholly derived, not substantially derived, or not partly derived from unlawful activity. The reference to ―directly or indirectly‖ in POCA s102(3)(a) does not help to reveal the legislative intent on that issue. The Commonwealth submitted:84 …the concept of ‗realised directly or indirectly‘ has significantly expanded the reach of s 102(3)(a) of the Act. Subsection 48(4) of the Proceeds of Crime Act 1987 (Cth), which was considered in Blake and Diez, did not contain these words. As a matter of ordinary language, property can be ‗realised‘, or gained, directly or indirectly from unlawful activity even if the unlawful activity plays only a minor role in bringing the property into existence. [123] If that submission equates ―gained indirectly‖ from unlawful activity with unlawful activity‘s playing ―a minor role in bringing the property into‖ one‘s ownership, I reject it. ―Indirectly‖ and ―minor‖ are concerned with different concepts. The words ―directly or indirectly‖ concern the remoteness of the connection between the means of deriving ownership of property and the unlawful activity. The words do not concern the relative size of the contribution of tainted funds. [124] In POCA s 102(3)(a) ―substantially‖ has not been inserted to qualify the words ―derived or realised‖ and there are no qualifying words used to reveal how significant a contribution the legislature had in mind. [125] POCA provides a definition of ―property‖: 83 except in an unrelated context in POCA s 336 and s 338 84 Section 102 Submissions of the Commonwealth [32] -- 37 of 229 -- 38 property means real or personal property of every description, whether situated in Australia or elsewhere and whether tangible or intangible, and includes an interest in any such real or personal property. [126] POCA provides a definition of ―interest‖: interest, in relation to property or a thing, means: (a) a legal or equitable estate in the property or things; or (b) a right, power or privilege in connection with the property or thing; whether present or future or whether vested or contingent. [127] The Commonwealth submitted the meaning of ―realised‖ in s 102(3)(a) is close to ―gained‖. I accept that. [128] The Commonwealth submitted that POCA s 102(3)(a) does not qualify ―derived or realised‖ with words such as ―wholly‖, ―largely‖ or even ―substantially‖ and that consequently, if a court were satisfied that the majority of property was derived or realised from lawful activity but a significant, although perhaps small, portion was not, that would be sufficient to preclude the making of an order. The submission helpfully directed attention to the possibly contrary authority of Blake v R.85In that case Loveday J of the New South Wales Supreme Court found that the major part of one piece of real property was not derived from any unlawful activity and implied a finding that the property was therefore ―not derived, directly or indirectly by any person from unlawful activity‖ within the meaning of s 48(4) of POCA 1987 (repealed). [129] In Director of Public Prosecutions v Diez86 Greg James J adopted a slightly different position by requiring proof that there was no substantial contribution from tainted funds. He referred to the judgment of Hunt CJ at CL at first instance in Jeffery and stated:87 ―When referring to ―use in connection with any unlawful activity within the meaning of s.48(4) [of the Proceeds of Crime Act 1987 (Cth)]‖ [Hunt CJ] held that the subsection:- ―therefore requires a substantial connection between the activity in question and the use of the property; it is not sufficient for there to be a mere accidental or incidental connection. The unlawful activity must be related to, or dependent upon, or could not have been committed without, or have resulted directly from, the use of the property.‖ I consider I should apply to the concept of derivation a similar test and require that I be satisfied that there is no substantial contribution from illegal activity.‖ [130] The Commonwealth submitted these authorities overstate the degree to which unlawful activity must contribute to the property. The Commonwealth gave three reasons. [131] The Commonwealth‘s first reason was: the language of s 102(3)(a) does not contain words such as ―wholly‖ or ―substantially‖ and there is no warrant for the suggestion in Blake that if less than 50% of property is derived from unlawful activity, the court should be satisfied that the property is not ―derived from‖ any unlawful activity. [132] It seems to me they are separate propositions. I accept that if less than 50% of a property is derived from tainted funds it may still be ―derived or realised…from unlawful activity‖ and substantially so. 85 (1992) 60 A Crim R 257 at 261 ; BC9201846 86 [2003] NSWSC 238. 87 [2003] NSWSC 238 at [42]-[44]. -- 38 of 229 -- 39 [133] The Commonwealth‘s second reason was: Blake is inconsistent with the way courts approached the issue of derivation in Jeffery and in Director of Public Prosecutions v Ferguson (―Ferguson‖).88 In Jeffery89Hunt CJ at CL found that the appellant had not discharged the onus of showing that two properties substantially acquired with borrowed moneys, where funds from undeclared taxation income had allowed the appellant to liquidate the debts, were not derived indirectly from unlawful activity. The New South Wales Court of Appeal dismissed an appeal by the appellant against those findings.90 In Ferguson, a case decided under the Confiscation Act 1997 (Vic), a property purchased wholly with borrowed funds was found to have been derived from unlawful activity where tainted funds were used to pay out a mortgage over another property which was then used as security to obtain the loan to purchase the first- mentioned property.91 In neither Jeffery nor Ferguson did the courts determine the proportion of funds which were tainted. Blake was a case where the major contribution to derivation of an asset was from lawful funds and Loveday J held the onus discharged. [134] The Commonwealth‘s third reason was: that the reliance of Greg James J in Diez on Hunt CJ‘s judgment in Jeffery appears to be unwarranted as those views cannot be used to inform the meaning of the words ―derived…directly or indirectly‖ in POCA s 102(3)(a); that it cannot be assumed that similar words in the same provision are meant to have a similar scope or application. I do not accept that Greg James J based his finding on that alone. [135] The reason for interpreting the section as requiring property to be ―substantially‖ derived from unlawful activity, is because POCA by sections 18, 92, 102 and 141 is penal and allows for forfeiture of property owned by persons who have not been convicted of unlawful activity or found to have been involved in unlawful activity and in circumstances where there is no express provision permitting a court to take into account the size of the contribution, hardship to the owner or just terms for the forfeiture. [136] The intent of POCA s 102(3)(a) is that an applicant must prove that property was not substantially derived or realized from unlawful activity. [137] The Companies often demonstrated that tainted funds paid expenses unrelated to a relevant asset. [138] The facts and the approach of the courts in Jeffery and in Ferguson show that funds which pay general expenses may indirectly derive or realise an asset. [139] In Jeffery the principal factual dispute92 was whether property was indirectly derived from failing to furnish income tax returns. Because Mr Jeffrey failed to furnish income tax returns for many years he had not been paying income tax. Hunt CJ at CL found that the failure to furnish returns led directly to the availability to Mr Jeffrey of the funds which would otherwise have been used to pay tax if returns had been furnished and found that property acquired with those funds was indirectly derived from the 88 [2006] VSC 484. 89 (1992) 58 A Crim R 310, BC9202106 90 (1995) 79 A Crim R 514 at 523 (Cole JA), 526 (Giles AJA). 91 [2006] VSC 484 at [31] to [33]. 92 (1992) 58 A Crim R 310 at 320.7 -- 39 of 229 -- 40 offences of failure to furnish returns.93A relevant feature of Jeffery is the indirect derivation of an asset from unlawful activity notwithstanding that the funds used to buy an asset may have been lawfully acquired. In the case before me, it may be the case that an asset has been directly acquired, derived or realized from funds lawfully acquired and still there remains the issue of whether the asset has been indirectly derived or realized from unlawful activity. [140] In Ferguson,94 Kaye J found that Mr Ferguson‘s ability to buy a property called Bambra with $353,000 borrowed from the CBA was as a result of moneys derived from conspiracy to traffic heroin because he used about $200,000 of tainted funds to pay off the mortgage debt on another property, Lara, and used Lara as part of the security for the loan of $353,000. That was not the contentious issue in that case. However, it seems to me, with respect, that his Honour‘s approach was correct in looking past the lawful and direct source of funds from the CBA and considering whether the asset was indirectly derived from an unlawful source. 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. [141] The Commonwealth argued, for example, that: UOCL moneys went to paying the ordinary running expenses of the applicants. Some of the assets … may be considered to be indirectly realised…where moneys having been spent on other expenses of the applicants freed up lawful funds to acquire the assets. 95 [142] I accept that where tainted funds spent on an applicant‘s ordinary running expenses, enable 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. This is so even though the ordinary running expenses do not directly acquire, derive or realise an asset. Tainted funds spent on a company‘s ordinary running expenses may indirectly derive or realise an asset. It will depend on the circumstances. Obviously relevant are: the relative proportions of tainted and untainted funds used to derive the property; the dates of the use of tainted funds and of the length of the period during which the asset was derived or realised. 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 from tainted funds. That seems consistent with the Commonwealth‘s hypothesis in its submission in the paragraph above, namely that the use of tainted funds ―freed up lawful funds to acquire the assets‖. I contrast the Commonwealth‘s hypothesis with a case where tainted funds are an insignificant proportion of the total funds received into an account and the recipient can establish that the tainted funds did not enable the recipient to use untainted funds to derive property; where the tainted funds were not the essential condition for the derivation of property. The Companies have the onus of proof in respect of any asset held at the time of forfeiture that it was not substantially derived or realised, directly or indirectly, by any person from any unlawful activity. The practical consequence is that where tainted money paid an applicant‘s ordinary running expenses 93 (1992) 58 A Crim R 310 at 321.9 94 [2006] VSC 484. 95 T13-42 -- 40 of 229 -- 41 it is in the Companies‘ interest to prove that this has not enabled an applicant to derive or realise a relevant asset with lawful funds. [143] The allegedly tainted funds were considerable for the Commonwealth submitted at least four sources or episodes of allegedly unlawful conduct which allegedly yielded tainted funds and over long periods. In this respect, the Commonwealth submitted: it's not just UOCL funds we are talking about. We are also talking about the funds obtained from Perpetual Nominees of 1.3 million and we are also talking about the funds from Northbourne and Hendon… 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 interest they held in the assets as at forfeiture.96 For reasons which follow, I find that funds borrowed from Perpetual Nominees were not sufficiently derived from the relevant allegedly unlawful activity to have practical significance, and that funds from the Northbourne arrangement were not tainted. Is there an estoppel against the Commonwealth for the s 102(3) application [144] The Companies make no submission that they have the advantage of an estoppel. As their points of claim suggest otherwise, I will deal with the topic. [145] Paragraph 3A of the Companies‘ Points of Claim pleads: At all material times prior to forfeiture of the applicants‘ property, the Commonwealth Director of Public Prosecutions conceded that the applicants‘ property (the subject of the application, which was the subject of earlier applications under section 29 of the Proceeds of Crime Act 2002), was not the proceeds of crime or an instrument of any relevant offence. Particulars (a) In Cth DPP v Hart & Ors [2003] QCA 495 (1 November 2003). McMurdo P, with whom other members of the court agreed, said at [10]: "The respondent's primary contention turns on the words of s29 of the Act. It is common ground that, for the purposes of s29(2)(a) of the Act, the offences to which the order relates are serious offences and the property sought to be excluded from the restraining order is neither proceeds nor an instrument of unlawful activity and that, for the purposes of s 29(4)(a) of the Act, no literary proceeds order could be made against any party and no pecuniary penalty order could be made against the appellants who owned the property but a pecuniary penalty order could be made against Mr Hart.” (b) In Director of Public Prosecutions (Cth) v Hart (No 2) [2005] QCA 51 (5 November 2005), Chesterman J said at [40]: ''None of the property to which the application and the appeal relate is alleged to be the proceeds of crime or an instrument of any relevant offence ....” [146] From that paragraph of the points of claim the Commonwealth inferred that it was to meet a claim of estoppel of some kind. Reference to the cases in the particulars reveals that there was no decision made by the court in either case that the Companies‘ property was not the proceeds of crime or that the property was not an instrument of 96 T13-41 ll 35-49 -- 41 of 229 -- 42 any relevant offence. Thus, res judicata is out of the question. The factual bases for estoppel of other kinds were not pleaded or proved. [147] The Commonwealth Director of Public Prosecutions did not concede that the Companies‘ property was not the proceeds of crime or an instrument of any relevant offence. The Companies‘ estoppel plea is not established. Was Mr Hart’s Effective Control on 8 May 2003 relevant and decisive for POCA s 102(3)? [148] The Companies concede the court found effective control of the property by Mr Hart as at the date of a restraining order made after a contested hearing before Brabazon QC DCJ in 2003. The finding that Mr Hart then had effective control of the property was upheld by the Court of Appeal. The Companies have accepted the ruling for the purposes of their application under section 102 and the Commonwealth‘s application under section 141 and have not sought to re-litigate the issue in these proceedings. The Companies ―consent‖ to my reliance upon that ruling in these proceedings.97 [149] The Commonwealth submits the finding that Mr Hart had effective control of the property is decisive against the Companies. A finding for the Commonwealth that this ground is decisive would be the end of the proceeding. The Companies respond that they rely on the grounds in s 102(3) and that Mr Hart‘s control is irrelevant to proof of those grounds. [150] To make an order pursuant to POCA s 102(1) the court must be ―satisfied that the grounds set out in subsection (2) or (3) exist.‖98 In this case the Companies rely upon s 102(3) only. The Companies submit they prove the existence of the grounds in s 102(3) and that the court should exercise its discretion to make an order under s 102 (1)(c). [151] S 102(3) requires that the court be satisfied of the following six matters: (a) that the property was not used in any unlawful activity; (b) that the property was not used in connection with any unlawful activity; (c) that the property was not derived, directly or indirectly, by any person from any unlawful activity; (d) that the property was not realised, directly or indirectly, by any person from any unlawful activity; (e) that the Companies acquired the property lawfully; and (f) that the Companies are not the person convicted of the offence to which the forfeiture relates. [152] Had the Companies relied upon POCA s 102(2) they would have had to satisfy the court of the existence of other matters including that ―the applicant‘s interest in the property is not subject to the effective control of the person whose conviction caused the forfeiture‖. Mr Hart‘s conviction caused the forfeiture. [153] Although not an explicit requirement of POCA s 102(3), the Commonwealth argues99 that the subject matter, scope and purpose of POCA imply that the court in deciding 97 T12-46 98 POCA s 102(1)(b). 99 S 102 submissions par 36 -- 42 of 229 -- 43 whether to make an order under POCA s 102(1) must consider whether the property was in a person‘s effective control and particularly, in Mr Hart‘s effective control when the restraining order was made. [154] In support of its argument the Commonwealth cites Mason J, as his Honour then was in Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 39-40. The following passages from those pages appear best capable of supporting the Commonwealth‘s argument: If the statute expressly states the considerations to be taken into account, it will often be necessary for the court to decide whether those enumerated factors are exhaustive or merely inclusive. If the relevant factors – and in this context I use this expression to refer to the facts which the decision maker is bound to consider – are not expressly stated, they must be determined by implication from the subject-matter, scope and purpose of the Act. … this Court has held that, where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject- matter, scope and purpose of the statute some implied limitation on the facts to which the decision-maker may legitimately have regard. [155] The relevant factors for the court‘s consideration are expressly stipulated in s 102(3). Thus, there is no need to ascertain them by implication from the subject-matter, scope and purpose of the Act unless the factors expressly stipulated in s 102(3) are ―merely inclusive‖. Nothing within the words of s 102 suggests that the factors stipulated in s 102(3) are merely inclusive. Further, the discretion conferred upon the court by s 102 is not ―unconfined‖. Rather, the words of s 102 make clear that there are preconditions for the exercise of the discretion: if the court is satisfied that the factual grounds in s 102(2) or s 102(3) exist, it may make an order under s 102(1). The pages to which the Commonwealth referred in Minister for Aboriginal Affairs v Peko-Wallsend Ltd do not support the Commonwealth‘s argument. I am not persuaded that s 102 (3) is a statutory provision of the type considered in those passages of the judgment relied upon by the Commonwealth. [156] The Commonwealth orally submitted:100 The question here is: is there anything in the wording of section 102 (2) and (3) that would prevent your Honour taking effective control into account in exercising the discretion. We would say not. We would say that if you are to exercise a discretion, in accordance with the objects and purposes of the Act, then effective control is a relevant consideration. [157] The Commonwealth invoked the ―objects and purposes‖ argument generally, failing to refer to any particular object. To reduce the prospects of an idiosyncratic interpretation of the statute I take the precaution of referring to its specific provisions. POCA does not expressly set out or collate its ―purposes‖. The principal ―objects‖ of POCA are set out in s 5. They are: a) to deprive persons of the proceeds of offences, the instruments of offences, and benefits derived from offences, against the laws of the Commonwealth or the non-governing Territories; and b) to deprive persons of literary proceeds derived from the commercial exploitation of their notoriety from having committed offences; and to deprive persons of unexplained wealth amounts that the person cannot satisfy a court were not derived from certain offences; and 100 T13-45 -- 43 of 229 -- 44 c) to punish and deter persons from breaching laws of the Commonwealth or the non-governing Territories; and d) to prevent the reinvestment of proceeds, instruments, benefits, literary proceeds and unexplained wealth amounts in further criminal activities; and e) to enable law enforcement authorities effectively to trace proceeds, instruments, benefits, literary proceeds and unexplained wealth amounts; and f) to give effect to Australia‘s obligations under the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, and other international agreements relating to proceeds of crime; and g) to provide for confiscation orders and restraining orders made in respect of offences against the laws of the States or the self-governing Territories to be enforced in the other Territories. [158] Those principal objects do not include any reference to ―effective control‖. No object is consistent with retention of one person‘s property because it was under the effective control of a convicted person when it was restrained. Such an object would jeopardise the interest of any person innocent of crime who proposed to settle property on trust or who was the beneficiary of a trust, or who granted a power of attorney to another which enabled the attorney to have effective control of property, or who bailed a chattel, or who appointed a real estate agent to collect rent, hold a deposit or manage property. [159] The strongest source of an argument that property might be retained by the Commonwealth even if the property was lawfully acquired, derived and used appears to be the object at POCA s 5 (c). One can reasonably argue that the objects of punishment and deterrence of criminals contained in s 5 (c) are consistent with permitting the property of a criminal to be forfeited to the Commonwealth even if the property was lawfully acquired, derived and used. That object would be achieved because the criminal would be punished and deterred by loss of the criminal‘s property. But a criminal is not so obviously punished or deterred by seizure from the criminal of another person‘s property. The fact that a criminal controls property when it is seized raises suspicions about its ownership and how it was obtained. But proof of control is not proof of its use for unlawful activity, or of its legal or beneficial ownership or proof of how the asset was acquired or proof of the source of the funds which allowed it to be acquired and retained. There is no reasonable basis for inferring from any of the principal objects in POCA s 5 an intention to prevent a person, ―A‖, from recovering A‘s property, lawfully acquired, derived, realised and used by A, but forfeited to the Commonwealth because it had come under the effective control of a convicted person ―B‖. There is no reasonable basis for inferring from any of the principal objects in POCA s 5 an intent to deprive persons of property only because it is under the effective control of a convicted person. [160] The Commonwealth further submitted orally, so far as is relevant:101 The first point we make in that regard is that section 102(1) itself creates a wide discretion to be exercised for the purposes and objects of the proceeds of Crimes Act and I have already referred...to section 5(a) which is one of the principal objects. [161] Section 5(a) does not suggest an object of depriving persons of property only because it came under the effective control of a convicted person. [162] The Commonwealth‘s oral submission continued: 101 T14-45 -- 44 of 229 -- 45 Secondly, section 29(4) of the Act…evinces an intention that property under Mr Hart's effective control should be available to satisfy a pecuniary penalty order. Your Honour, here, if the property had not been automatically forfeited upon Mr Hart's conviction, and it was automatically forfeited under section 92 of the Act, it would still be restrained and would still be available to satisfy PPO. It's a relevant consideration to the exercise of discretion that a PPO has been made, that the property under the effective control of Mr Hart would otherwise have been available but for forfeiture to satisfy that PPO. Section 102 should not operate in a way that a person who would have effective control of property upon release and who has a PPO outstanding should obtain the benefit. That would not be in accordance with the intention of section 29(4) nor with the general purposes and objects of the Act. [163] POCA s 29(4) provides: (4) However, the court must not exclude a specified interest in property from a restraining order under section 17 or 18 unless it is also satisfied that neither a pecuniary penalty order nor a literary proceeds order could be made against: (a) the person who has the interest; or (b) if the interest is not held by the suspect but is under his or her effective control—the suspect. [164] Within that oral submission the second argument of the Commonwealth is that POCA s 29(4) evinces an intention that property under Mr Hart's effective control should be available to satisfy a pecuniary penalty order. If it was intended as a submission that the intention of s 29(4) is that the property restrained should be permanently available to satisfy a pecuniary penalty order in spite of s102 then I reject it. That interpretation would allow the Commonwealth to appropriate a blameless person‘s property without fair compensation notwithstanding that the property was lawfully acquired, derived and used and merely because the property was, at the time of the restraining order, under the effective control of a convicted person. If the legislature had such an intention, it would be more clearly expressed. [165] The Commonwealth submitted that given the purpose of POCA and the provisions at sections 5(a), 17(2)(c), 18(2)(c), 29(4) and 102(2)(b), the court must consider effective control in exercising its discretion under s 102, even if it is satisfied of the matters in s 102(3). [166] In Jeffrey v DPP (Cth)102 it was observed103: (citations omitted) when construing the provisions of a statute which purports to effect confiscation or derogation from property rights, the following principles of construction are applicable: 1. An intention to abrogate or curtail fundamental property rights will not be imputed by the courts. It must be "clearly manifested by unmistakable and unambiguous language. General words will rarely be sufficient for that purpose if they do not specifically deal with the question because, in the context in which they appear, they will often be ambiguous on the aspect of interference with fundamental rights". 2. A legislative intention to take away property without compensation requires expression of that intention with "irresistible clearness" because it is presumed that the legislature would not "overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness. [167] I respectfully accept that approach as appropriate when interpreting POCA s 102. I do not accept that those sections referred to by the Commonwealth reveal an intention that POCA s 102(3) should be interpreted as including a further fact about which the court must be satisfied, namely ―the property is not or at the time of the restraining order was 102 (1995) 121 FLR 16; (1995) 79 A Crim R 514 103 By Cole JA with Handley JA agreeing -- 45 of 229 -- 46 not subject to the effective control of the person whose conviction caused the forfeiture‖. [168] Another part of the Commonwealth‘s oral submission was that: ―Section 102 should not operate in a way that a person who would have effective control of property upon release and who has a PPO outstanding should obtain the benefit.‖ There was no issue litigated in these proceedings about whether Mr Hart would have or would be given effective control of property if the Commonwealth is directed to transfer property to the Companies or to pay the value of property to them. There was no issue litigated about whether Mr Hart will benefit or be given a benefit if the Companies succeed. [169] The Commonwealth‘s written and oral arguments contending that Mr Hart‘s effective control of the property at the date the restraining order was made is a decisive consideration under POCA s 102(3) are rejected. Mr Hart‘s effective control was neither decisive nor relevant. The exercise of the court‘s discretion under POCA s 102(3) would miscarry if it found against the Companies on a basis which included Mr Hart‘s effective control of an asset at the date the restraining order was made. Credit of Mrs Hart [170] The Commonwealth submits that Mrs Hart was not a witness of credit. In some respects I accept that Mrs Hart was not fully frank and I have reservations about her reliability as a historian when the history is dependant on memory unsupported by documents. [171] When asked why she did not ask Mr Hart about Merrell‘s source of funds, Mrs Hart responded, ―How would he know?‖104 Mrs Hart denied ever making a single inquiry of Mr Hart as to the ultimate source of Merrell‘s funds.105 Mrs Hart had, however, sent instructions to Peggy Chan of UOCL for the transfer of funds from UOCL to various entities, including Merrell, at Mr Hart‘s direction. She did so more than once.106 The documents with these instructions establish that Mr Hart must have known that some funds went from UOCL to Merrell,107 and they establish that Mrs Hart probably knew this at the time and when she prepared her affidavits and when she was cross- examined. During cross-examination, Mrs Hart denied knowing that if moneys came from Merrell they also came from UOCL to start with.108 She explained that it was not necessarily true as Merrell had sources of income other than UOCL.109 By asserting that, Mrs Hart implied that she knew Merrell‘s sources of funds. The source of Merrell‘s funds was primarily UOCL. Other sources were few, anomalous and unexplained. Knowledge that there were other sources required Mrs Hart to have personal knowledge, or an intimate familiarity with the documents or an explanation from someone who knew the facts. When asked why she did not identify in her affidavit that a possible source of the Merrell funds was UOCL, she answered that this would have called for ―speculation‖.110 The Companies have been in possession of the 104 Transcript, 5-49, l 25. 105 Transcript, 5-49, l 40. 106 Q00001956; Q00005503;Q00026224; Q0002955. 107 Transcript, 5-49, ll 31-34. 108 Transcript, 5-48, ll 21-27. 109 Transcript, 5-48, ll 21-27. 110 Transcript, 5-49, l 21. -- 46 of 229 -- 47 bank statements and correspondence from UOCL and Merrell for some time;111and Mr Hart‘s control of Merrell and UOCL was a salient issue in the pecuniary penalty order proceedings. Further, Mrs Hart had earlier sought to support the appointment of Mr Hart as a McKenzie friend for the reason that:112 [He] has a better understanding of the matters facts and circumstances in relation to the serious offences as alleged than either Ms Petersen or myself. [172] In these circumstances, Mrs Hart‘s responses about her knowledge of Merrell‘s source of funds, and the lack of inquiries that she made of Mr Hart, are not credible. Mr Hart is likely to have known the source of Merrell‘s funds and Mrs Hart is likely to have known that. [173] Nevertheless, there are some inconsistencies in Mrs Hart‘s evidence which were identified by the Commonwealth, which do not specifically cause me to doubt Mrs Hart‘s credit. Inconsistencies in affidavit evidence were partly explicable as correction of errors found as more historical documents were considered by Mrs Hart during the protracted preparation for trial. [174] As to the North American T-6 aircraft, Mrs Hart in her affidavit of 17 October 2006113 claimed that $50,000 was paid by Harts Pty Ltd direct to Mr Rolph-Smith in reduction of monies owed by Harts to Flying Fighters Pty Ltd (―Fighters‖).114 That explanation suggested the money came from the ostensibly lawful activities of Harts Pty Ltd. After Mr Vincent demonstrated that the amount was paid directly by UOCL to Mr Rolph- Smith, Mrs Hart‘s explanation for the source of funds changed. In her affidavit of 23 July 2010, she explained that at the time she prepared her earlier affidavit she had not been privy to the records which she had for the later affidavit. I accept that. It does not assist me to determine whether she had been deliberately evasive in her earlier affidavit. It shows that she swore to the truth of an incorrect historical fact. It does assist me to determine that Mrs Hart‘s revised evidence on this issue is based upon documents and what she was told by Mr Hart. By July 2010 she claimed that the $50,000 was owed by UOCL to HAL for fees and in turn was paid by UOCL to Fighters in reduction of Harts Australasia Limited‘s debt to Nemesis.115 She supported this by reference to the notation ―Amount paid by Harts Director to Kim in reduction of Loan Account‖. She explained and I accept that ―Director‖ was a typographical error for ―direct‖. [175] In cross-examination, however, Mrs Hart did not explain how she had discovered that UOCL had owed HAL $50,000.116 She said, in effect, that if Fighters, to buy the plane, had obtained the money from UOCL on another basis, it would have appeared in books as a loan from UOCL.117 She admitted that the notation (which had been available to her when she swore her 17 October 2006 affidavit) in the Fighters general journal for 111 The financial records and correspondence of UOCL and Merrell were exhibited to the affidavits of Choi Gin (Q00044736, Q00046479), Michael Hawthorn (Q00012151), Tang Tin Sek (Q00001957), Chan Chor Chu (Q00043001, Q00053043) and Peggy Chan (Q00012116). 112 Affidavit sw 7 October 2010, par 4(ii) (Q00064679 at p 5). 113 Q00060221 114 Q00060221 at p 13, par 86(a). 115 Q00064089 at par p 22, 39(ii). 116 T5-40, ll 22-36. 117 T5-41, ll 1-6. -- 47 of 229 -- 48 15/10/98 ―Amount paid by Harts Director to Kim118in reduction of Loan Account‖ did not say what loan account had been reduced.119 She explained that Nemesis was the company that lent money to HAL. She did explain that she asked Mr Hart if the email ―is in relation to that 50‖ and he said it was. The Commonwealth submitted that her complex explanation in the affidavit of 23 July 2010 should not be accepted. The documents are consistent with but do not independently confirm Mrs Hart‘s explanation. The premise that UOCL owed $50,000 to HAL was not itself explored. HAL did provide services for UOCL. I am satisfied that the $50,000 was UOCL‘s payment but am not persuaded that it was for a debt to HAL or Harts for fees charged to UOCL on a commercial basis. [176] As to the Akrotech Cap 232 aircraft, Mrs Hart in her affidavit of 23 July 2010 identified one payment for the purchase of the aircraft as ―Payment to Rob Bowyer – customs duty‖ for $1,928.24.120 Appendix 37 to this affidavit, however, revealed that the $1,928.24 was for ―Rob Bowyer Custom Duty Wine.‖121 When Mrs Hart was asked why she did not include the full entry in her affidavit, she said, ―Didn‘t have a lot of room. It was customs duty.‖122 After further questioning, however, Mrs Hart admitted that there had been room to insert the word ―wine‖ in the description.123 I was satisfied by Mrs Hart‘s answer that the omission was not made with a view to deceive. That omission did not impugn Mrs Hart‘s credibility. [177] Mrs Hart in her affidavit of 23 July 2010 said that the Yak 50 VH-YAH was purchased from Gunther Mayr. She said that Gunther Mayr traded it in on a Yak 52 VH-YAA. She also said that the VH-YAA was purchased from Nigel Arnot on 1 August 2000.124 She attached a CASA record that showed that the VH-YAA was first registered in Australia on 29 August 1996 to support an argument that it could not be the Yak 52 purchased with Merrell funds as 29 August 1996 predated any involvement of the Companies with UOCL and Merrell.125 Mrs Hart said that the Merrell plane had been sold at an earlier time to a person by the name of Edwards, that $90,000 of the sale price was sent directly to Merrell, and that $20,000 was paid to Fighters. The evidence produced in support of this was the cash at bank book and bank statement showing the receipt of money from Edward Services Pty Ltd.126 [178] These claims are inconsistent with other evidence. The Aircraft History Report for VH- YAA shows that Unlimited Aerobatics Pty Ltd, Fighters and Gunther Mayr have never been registered as the owners of the VH-YAA.127 Mr Mayr has also deposed that the aircraft he purchased from Unlimited Aerobatics Pty Ltd (now Flying Fighters Pty Ltd) was a Yak 52 VH-YEY. He deposed that he traded in the VH-YAA and paid $45,000.128 CASA records show that the VH-YEY was first registered in Australia on 31 January 2001,129 a date which is consistent with it being the Yak 52 purchased by 118 Mr Rolph-Smith, the vendor of the plane 119 T5-40, ll 22-36. 120 Q00064089 at par 57, p 58. 121 Q00064131 at p 3 of 8. 122 T6-15, ll 9-10. 123 T6-15, ll 9-53. 124 Q00064089 at par (48) 15.8.3: 1V and V, p 36 125 Q00064110 at p 3. 126 Q00064111 at pp 4 and 5. 127 Q00064220. 128 Affdt Gunther Mayr Q00064429 at pars 5 and 7, p 2. 129 Q00064180. -- 48 of 229 -- 49 Merrell. Mr Edwards says that the $10,000 he paid to Unlimited Aerobatics Pty Ltd on 12 December 2000130 was for a replacement engine for a Yak 55 which he had purchased from Mr Arnot‘s company Ultimate Aerobatics Pty Ltd in about 1997. This is consistent with the details recorded on the deposit slip relied on by Mrs Hart: ―Edward Services P/L ½ Price Motor Yak52‖.131 Mr Edwards deposed that he has no knowledge of money being sent to Hong Kong.132 Mrs Hart‘s only explanation for these errors in her affidavit is that this is what she was told by Mr Arnot133 and that if the Merrell plane was not sold to Mr Edwards it must have been stolen. She has not attempted to explain how the Companies came to own the VH-YEY which was sold to Mr Mayr. In respect of this aircraft, the unsatisfactory state of the evidence does cause me to draw adverse inferences about Mrs Hart‘s credibility. Credit of Mrs Petersen [179] Ms Petersen‘s tracing exercises were logically performed and I find them helpful and generally accurate. Insofar as they are based upon records and do not require reliance on memory, I accept them. In some respects, I accept the Commonwealth‘s submission that her evidence was not fully frank. Except on the important issue of Mr Hart‘s effective control, the concern about frankness is not significant and it does not impeach the tracing exercises. The following are examples of why I accept the Commonwealth‘s submission. [180] The Companies maintained that Mr Hart was not in effective control of the Companies at material times in late 2001 when funds were borrowed from Perpetual Nominees. Ms Petersen was asked in cross-examination whether Mr Hart had discussed resigning from Bubbling after a finance application to Perpetual Nominees had been refused. She claimed that he did not discuss it.134 She emphasised rather that she and Mrs Hart requested Mr Hart to step down as a director of Bubbling.135 These answers suggest that Ms Petersen and Mrs Hart took the initiative to safeguard the interests of the applicant Companies. This is difficult to reconcile with the findings in the exclusion order proceedings that Mr Hart was in effective control of the Companies, including Bubbling Springs, at the date of the restraining order on 8 May 2003. It is also difficult to reconcile with Ms Petersen‘s later admissions that Mr Hart could have caused Dr Fleming and Dr Ambler to be appointed as directors of Bubbling,136 and that Mr Hart probably did most of the talking in the meetings with Dr Fleming and Dr Ambler about their guarantees.137 [181] Mrs Petersen signed charges on 8 January 2002 for Yak and Bubbling as chargors in favour of Merrell as chargee. The consequence was to charge their assets to secure repayment to Merrell of no less than $592,070, to the prejudice of Drs Fleming and Ambler, when those doctors were directors of Yak and Bubbling respectively at the time, without the knowledge of either doctor at the time, and in performance of a 130 Q00064291. 131 Q00064111 at p 4. 132 Q00064291 at par 11. 133 T5-70, l 55 to p 5-74. 134 T3-69, ll 26-30. 135 T3-69, ll 29-44. 136 T3-73, ll 3-9. 137 T3-74, ll 50-56; p 3-75, ll 14-16. -- 49 of 229 -- 50 proposal made by Mr Hart to the solicitor for Merrell on 3 December 2001. It is conduct consistent with Mr Hart‘s having effective control at the time, with Ms Petersen then knowing that the effective control was with Mr Hart and with Ms Petersen doing his bidding. [182] Ms Petersen‘s affidavit of 16 July 2010 originally included a hearsay statement138 from Mr Hart about how quickly funds received by Bomilsco were dissipated across the Hart group of Companies.139 Subsequently Ms Petersen testified, in response to leading questions,140 that she knew this personally.141 There is no adequate explanation for Ms Petersen‘s earlier reliance on Mr Hart‘s hearsay statement if her oral evidence is correct. [183] Ms Petersen denied that she was involved in the management of Merrell142or was intimately acquainted with the operations of UOCL and Merrell.143 Yet she had urgently requested the bank balances of both these companies in US and Australian dollars.144 Her various explanations for doing so, including a suggestion that Merrell was looking to buy shares in Australia145and the claim that she often requested bank details from her bookkeeping clients,146are unpersuasive. [184] Ms Petersen made the following claim in her affidavit of 17 November 2010 with regard to a loan by Mr Arnot for the L-39C aircraft:147 In the week or 2 previous to FF making the payment, I am aware that Mr Arnot, through Mr Hart, personally arranged to borrow $418,000 from Merrell as FF was late in making its payment to Mr Arnot of the invoice. [185] Yet in an earlier affidavit of 17 October 2003, Ms Petersen had said nothing about such a loan.148 When asked about this discrepancy, Ms Petersen replied, ―I don‘t believe I had to tell [the court] because Mr Arnot would have told them.‖149 This is not a plausible explanation for the omission. Jones v Dunkel inferences [186] The rule in Jones v Dunkel150 provides that the weight of a party‘s case may be enhanced if an opponent fails, without due explanation, to call a material witness who is more readily available to the opponent. The two rationales151 for the rule are that: 138 Objections to this material were successfully made by the Commonwealth. 139 Pargraph 85(f)(i) (Q00064036 at p 35). It was submitted that Ms Petersen‘s subsequent oral evidence that she understood Bomilsco‘s method as a matter of personal knowledge (Transcript, pp 3-58-59) is difficult to reconcile with these hearsay statements and was prompted by leading questions. 140 See, for example, T3-59, ll 3-6: ‗MR HART: And to your knowledge did the money ever sit for any length of time in the accounts of HAL before being spent? — No. No money actually ever stayed within the accounts for long at all.‘ 141 Transcript, pp 3-58-3-59. 142 T4-9, ll 28-35. 143 T4-12, ll 23-29. 144 Q00041456; T4-12, ll 23-29. 145 T4-12,ll 1-7. 146 T4-12, ll 23-29. 147 Q00064696 at par 2(c), p 2. 148 Q00064549 at p 2. 149 T4-44, ll 36-42. 150 (1959) 101 CLR 298. 151 Unilever Australia Ltd v Karounas [2001] FCA 1717. -- 50 of 229 -- 51 1. an unexplained failure to call a material witness warrants an inference that the witness in question would not have assisted the party concerned;152 and 2. the omission entitles a court to find, more confidently, that a disputed fact exists. [187] The rule applies where a party is ―required to explain or contradict‖ something.153 The significance to be attributed to the fact that a witness did not give evidence will depend upon whether, in the circumstances, it can be inferred that the reason why the witness was not called was because the party expected to call the witness feared to do so.154 [188] The Commonwealth submits that the Court should draw Jones v Dunkel inferences from the failure of the Companies to call Mr Hart. There are many matters that the Companies have been required to explain or contradict. Ms Petersen and Mrs Hart, for example, have accepted that the Companies are not in a position to dispute Mr Vincent‘s conclusion that funds obtained from Merrell that were used in the acquisition of the aircraft in turn had been sourced from UOCL. The Companies have nonetheless submitted that the court should infer that $5,124,425 of UOCL funds were from lawful activity and that $2,562,108 of Merrell‘s income was also from lawful activity. [189] No witness could shed more light on these issues than Mr Hart. In the pecuniary penalty proceedings this court found that the evidence was consistent with Mr Hart‘s exercising ―a high level of control over the day to day operations of UOCL, EGA and Merrell and having detailed knowledge of the operations of these companies‖.155 [190] Furthermore, Mr Hart established the Hendon, Tinkadale, Astion and Northbourne taxation schemes. He was in a far better position to explain how they operated than Ms Petersen and Mrs Hart, as Mrs Hart has acknowledged.156 [191] The explanation provided by the Companies for not calling Mr Hart as a material witness is that he has informed them that his previous legal advisers have advised him not to give evidence. They assert that there would be ―no utility‖ in attempting to force him to answer questions, because he would refuse to do so.157 [192] The Commonwealth submits this is not a reasonable explanation. There was no evidence in these proceedings that Mr Hart would refuse to give evidence if called by the Companies. The Commonwealth submits that nothing can be deduced from his refusal to give evidence on his own behalf in the pecuniary penalty proceeding. The Commonwealth submits it should be inferred that the Companies failed to call Mr Hart not because he would refuse to give evidence, but because he could not assist their case. [193] I do infer from his refusal to give evidence in the pecuniary penalty proceeding that Mr Hart would have again refused to give evidence on the ground that it would have the tendency to incriminate him. Accordingly, I do not draw Jones v Dunkel inferences from the Companies‘ failure to call him. 152 Brandi v Mingot (1976) 12 ALR 551 at 559. 153 Jones v Dunkel (1959) 101 CLR 298 at 321. 154 Fabre v Arenales (1992) 27 NSWLR 437 at 449 (Mahoney JA). 155 Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457 at [443]. 156 Affdt Mrs Hart sw 7 October 2010, par 4(ii) (Q00064679 at p 5). 157 Applicants‘ closing submissions, par [ 81]. -- 51 of 229 -- 52 The Alleged Unlawful Conduct [194] The Further Further Amended Points of Defence refer to several types of unlawful conduct involving Mr Hart and the Companies: a. the UOCL offences; b. the Perpetual offence; c. the money laundering offences; and d. the Taxation Administration Act offences; e. the Hendon Arrangement f. the Northbourne Arrangement It is necessary to deal with each. [195] In its defence, the Commonwealth alleged that certain funds may have been derived or realised, directly or indirectly from offences.158By alleging that the funds may have been realised the Commonwealth signaled that it regarded the onus as upon the Companies to disprove that funds may have been derived or realised, directly or indirectly from offences. [196] The Commonwealth contends that the Companies have the onus of disproving that the offences occurred.159I accept that reversal of the usual onus of proof of unlawful activity is correct. It was a similar reversal of onus in Brauer.160 There, the court did not go so far as to find that Mr Brauer‘s vessel Blue Jacket was involved in unlawful activity, but the possibility of that involvement meant that Mr Brauer‘s evidence of unawareness of unlawful use, was not enough to satisfy his onus that the vessel was not used in unlawful activity. UOCL offences [197] The court found that Mr Hart committed the offences alleged by the CDPP in its pecuniary penalty order application. It found that, in relation to various UOCL schemes, Mr Hart had defrauded the Commonwealth contrary to s 29D of the Crimes Act 1914 (Cth), had attempted to defraud the Commonwealth contrary to ss 7 and 29D of the Crimes Act 1914 (Cth) and had dishonestly caused a risk of loss to the Commonwealth contrary to s 135.1(5) of the Criminal Code (Cth). The court in making these findings held that Mr Hart‘s means were dishonest according to the standards of ordinary people and that he knew that.161 The Perpetual Offences [198] The Commonwealth alleges two offences of fraud pursuant to Criminal Code (Qld) s408C(1)(f). In short, the Commonwealth alleged that each of Yak and Bubbling made fraudulent representations to Perpetual Nominees Limited (―Perpetual‖) to induce Perpetual to lend to them. The commission of the two offences becomes relevant to land now known as the Hangar 400 sublease. 158 Further further amended points of defence of the Commonwealth pargraph 9(d) pg 4 159 See eg Section 102 Submissions of the Commonwealth pars [128], [135], [141], [146] and [147] 160 Op cit 161 Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457 at [376], [462], [499]. -- 52 of 229 -- 53 [199] On 28 July 2000, Yak signed a sublease of certain land now known as Hangar 400 and described as part of the land known as AFDJJ on SP129269 in the County of Stanley Parish of Yeerongpilly contained in title reference 16735170 ("Hangar 400 Sublease"). The Hangar 400 sublease was: (a) signed by the sublessor, Archerfield Airport Corporation Pty Ltd on 14 August 2000; (b) registered in the Department of Natural Resources on 8 December 2000; (c) allocated dealing number 703146442; and (d) is for a term of twenty years commencing on 1 July 2000 to 30 June 2020. [200] Yak caused a Hangar to be built on the land in about 2000. Yak and Nemesis paid for construction between 16 May 2000 and 27 July 2001 a total of $1,039,972.56.162Yak was the owner of the Hangar 400 Sublease until it was forfeited to the Commonwealth on 18 April 2006. The hangar was used to house aircraft and aircraft parts. [201] Steve Hart Family Holdings Pty Ltd changed its name to Nemesis Australia Pty Ltd (―Nemesis‖). It was trustee for the Steve Hart Family Trust. Nemesis, Bubbling, Yak and Fighters are each trustees of discretionary trusts. Mr Hart was at relevant times listed as a beneficiary of the trusts of which Nemesis and Bubbling are trustees. [202] Prior to 1 July 2002, Nemesis was the service company for the following companies: Fighters, Nemesis, Yak, Bubbling, Flying Fighter Adventures Pty Ltd, Flying Fighters Maintenance and Restoration Pty Ltd (―FFMR‖) and Unlimited Business Consultants (Qld) Pty Ltd (―UBC") ("the family group"). Nemesis would pay the wages for all of the companies in the family group. Each company would pay its own bills, but Nemesis would lend any funds needed if a company‘s income was insufficient. In approximately the second week of July 2002 Spider became the service company for companies in the family group. [203] In about February 2001 the AFP and officers of ASIC executed search warrants on the Companies, companies in the Harts Group and other companies and trusts in the family group seizing records from office premises and the residential address of Mr and Mrs Hart. [204] On 11 May 2001 National Australia Bank (―NAB‖) issued a Notice of Termination of a Bill Facility because of Nemesis's failure to pay the face value of a bill on its maturity date. NAB demanded immediate payment of $2.3m and $1.05m. On 15 May 2001 NAB issued a demand for Nemesis's commercial bill facility of $1,109,079.33 and $2,429,411.90. On about 15 May 2001 Nemesis received a notice of default and demand from the NAB claiming that $57,752.89 was owing on an overdraft account. [205] On 29 May 2001, NAB issued a notice of exercise of power of sale over all the assets of Nemesis in its own capacity and as trustee for the Steve Hart Family Trust and demanding $3,621,035.21 in 30 days. [206] On 14 September 2001 Harts Australasia Limited announced a consolidated net loss after tax of $92.8 million for the year ended 30 June 2001. 162 Q00060221 pg 2 -- 53 of 229 -- 54 [207] On a date before 25 September 2001, Nemesis and Sea Fury Investments Pty Ltd applied to McLaughlin Financial Services (―MFS‖) for loans. On 25 September 2001, Mr Michael King of MFS advised that he would not proceed with those loans because of ―further searches, media coverage and information further revealed‖. It seems that a practice of MFS was to consider approval of applications for loans which might then be lent by Perpetual. [208] On 30 September 2001 Bomilsco Pty Ltd went into external administration. [209] There was bad publicity at the time for Harts Australasia Limited and any company obviously connected with it. Harts Australasia Limited was easily perceived to be associated with companies in which Mr Hart‘s family had an interest. In an effort to prevent that real or perceived association from adversely affecting companies in which his family had an interest, Mr Hart resigned his directorship of several companies. [210] The companies Bubbling and Yak knew by 1 October that MFS would not be likely to approve loans to companies associated with Mr Hart. This was the obvious inference from the rejection of loan applications made by Nemesis and Sea Fury Investments Pty Ltd and from adverse publicity at the time arising from ASIC proceeding against Harts Australasia Limited and some subsidiary companies. On 1 October 2001, Mr Hart resigned as a director of Bubbling and as a director and secretary of Nemesis. [211] Dr Ambler was wealthy and used the accounting services of Harts Accounting Group. Dr Ambler met Mr and Mrs Hart in the mid nineties and they shared a mutual interest in flying. In about October 2001, Mr and Mrs Hart informed Dr Ambler that the NAB wanted all their loans paid out. Mr and Mrs Hart asked Dr Ambler if he would be prepared to offer a guarantee to Perpetual so that Yak could secure a loan. Dr Ambler believed that because of adverse publicity relating to Hart‘s Australasia Ltd, Yak would be liable to pay a higher interest rate unless it could obtain a high net worth individual like him to act as a guarantor. Dr Ambler agreed, as a friend, to offer his guarantee so long as he was adequately protected against the risk of being called upon pursuant to his guarantee. [212] Mrs Hart says that she approached Dr Ambler and that Mr Hart approached Dr Fleming.163 However, Dr Ambler swore to a conversation with Mr Hart in which Mr Hart asked him to guarantee the loan from Perpetual.164In an earlier affidavit by the doctor, he recalled the approach to have been by both. Whether or not Mrs Hart approached Dr Ambler, I accept that Mr Hart asked Dr Ambler if he was willing to guarantee a loan on the terms described by the doctor. [213] Dr Ambler also provided the guarantee for commercial reasons: Mr Hart‘s promise of a block of land from a development at Moggill which Dr Ambler believed was worth $80,000, and a conditional option to buy the hangar sublease. [214] At the time Dr Ambler signed the guarantee he was told that the valuation report prepared for the financier had the 400 Wirraway Avenue property valued at approximately $1,000,000.00. Because of that, he believed he was properly secured for his exposure to risk. He believed that the lender wanted him to be a director. Having decided to offer his guarantee, he personally wanted to be a director so he could be 163 T6-25, ll 45-49 164 Q00064670 at p 2, pars 9, 10 & 12. -- 54 of 229 -- 55 kept informed of the repayments until his guarantee was released. He was not paid as a director. He was aware that Yak did not trade on a day to day basis. It held assets. [215] Dr Ambler deposed, and I accept his evidence that:165 12. Steve Hart also approached me with a similar problem he was having, which arose from adverse publicity in respect to the refinancing of an aeroplane hangar sublease, which was then mortgaged to the National Australia Bank… 13. Steve Hart informed me that he was unable to refinance the debt because of his adverse circumstances, however a mortgage company called Perpetual Nominees Limited had agreed to refinance the mortgage but they would require a personal guarantee from myself. Steve Hart asked me if I would be willing to give the personal guarantee. 14. By way of consideration for the guarantee Steve Hart offered me the following: 14.1. A block of land to come from the development being undertaken in Moggill; 14.2. An option to purchase the hangar sublease for an amount equal to the mortgage payout in the event that the mortgage I was guaranteeing was defaulted on. [216] After giving his guarantee, Dr Ambler spoke periodically to Ms Petersen to check that payments on the loan were up to date. [217] Dr Fleming was also approached by Mr Hart to provide a guarantee for the loan from Perpetual Nominees.166 He deposed, and I accept:167 29. Sometime in late 2001, Steve Hart approached me and informed me that the Seventh Respondent (Bubbling Springs) was having difficulty refinancing a mortgage over a property consisting of several lots set out in the Proposed Statement of Claim, which I will refer to as the "Bubbling Springs Land". 30. Steve Hart informed me that Bubbling Springs could refinance through Perpetual Nominees Limited, but they required a personal guarantee from myself, as I was a high income earner and a person upon whom they could rely to pay the debt, having regard to the Harts‘ adverse circumstances. 31. Steve Hart further informed me that if I was willing to give the guarantee: 31.1. He would give me a block of land out of the subdivision one of the Hart companies was conducting at Moggill; 31.2. I would be given an option to purchase the Bubbling Springs Land in the event of default on the proposed Perpetual Nominees mortgage. [218] Mr Hart also told Dr Fleming that it was the requirement of the proposed mortgagee that Dr Fleming become a director of Bubbling. [219] On 2 October 2001 provisional liquidators were appointed to Harts Australasia Limited. [220] On 23 October 2001: Dr Ambler was appointed as a director of Yak; Dr Fleming was appointed Director of Bubbling; Mr Nigel Arnot was appointed Director of Nemesis. [221] On 1 November 2001 NAB appointed a controller of Nemesis. [222] Before 3 December 2001, Bubbling had applied to MFS for a loan facility for $1,000,000 from Perpetual Nominees Limited (―Perpetual‖) and Yak had applied to MFS for a loan facility for $650,000 from Perpetual. 165 Q00064471 at p 2, pars 12-14. 166 Q00064510 at pp 2-3, pars 5,7, 8 & 9. 167 Q00064530 p 4 pars 29-31. -- 55 of 229 -- 56 [223] The credit analysis done by MFS for at least one of the loan applications noted that the directors of the company were the relevant doctor, Ms Petersen and Mrs Hart and that the original loan application was declined for various reasons. However it noted that since that time, the director of the company, Mr Hart, was no longer with the subject ―property‖ now being owned by the ―above company and directors‖. MFS by their letter of offer168 required a guarantee from each relevant doctor. A special condition noted in the credit analysis was that MFS would require the ―borrower‖ to sign an acknowledgement that they are entering into a loan agreement on their own behalf and are not doing so on behalf of Steven Hart or any of his associated companies. [224] Mr Adams of MFS wrote to Bubbling and to Yak on 3 December 2001 to advise that the loan facility applications were conditionally approved. One condition which was required in each case was a written representation from the borrower and guarantor. [225] In response to that condition, it is not disputed that Yak, Ms Petersen, Mrs Hart and Dr Ambler signed a document entitled Loan Facility Terms and Conditions which included a representation (―the clause 16 representation‖) that: The borrower and guarantor represent and acknowledge that they are entering into this agreement of their own volition and are not doing so on behalf of Steven Irvine Hart nor any associated company with which he is associated. Neither Steven Irvine Hart nor any associated company is indemnifying us as to the repayment of the loan. We make this representation acknowledging that the lender is relying upon this representation in approving the loan facility. [226] It is not disputed that Bubbling, Ms Petersen, Mrs Hart, Mr Arnot and Dr Fleming signed a document entitled Loan Facility Terms and Conditions which included the same representation.169 [227] The documents were signed to induce MFS and or Perpetual to approve loans and to lend. The loans applied for by Yak and by Bubbling were approved by MFS. Two amounts of $650,000 were then lent, one to Yak and one to Bubbling and the borrowed funds were then used to partly repay monies owed to NAB.170It is possible that the approval was by MFS and that the loan was by Perpetual. Mrs Hart‘s evidence was that the loans were loans by MFS on behalf of Perpetual.171Whether Mrs Hart is more correct about the identity of the lender is not an issue. There is no issue that the documents including those representations were signed to induce the loan facility and the loans. The representations induced, in each case, the approval of the loan facility and the loan. [228] Mrs Hart says that at the time of executing the terms and conditions of loan she was aware of negotiations with Dr Fleming and Dr Ambler about options if their guarantees were called upon. In cross-examination, she said:172 Yes, an option that they could on paying out all moneys owing to MFS purchase the properties for a dollar. [229] Yak granted an option over Hangar 400 to Dr Ambler173 on 10 December 2001. 168 For example Q00060150 169 Q00060150 at p 7 clause 16; T6-26, ll38-44. 170 Applicants‘ closing submission, par (53)(b) (p 105). 171 Mrs Hart‘s affidavit 23/7/2010 [Q00064089] par 68 172 Q00060150 at p 20; T6-26, ll 38-44. -- 56 of 229 -- 57 [230] On 19 December 2001: Perpetual or MFS lent Bubbling $650,000; Property at Doonan‘s Road was provided as security;174Perpetual or MFS lent Yak $650,000; Hangar 400 was provided as security to Perpetual.175 [231] On 8 January 2002, Ms Petersen in her capacity as a director of Bubbling signed and created a fixed and floating charge over Bubbling in favour of Merrell to secure a minimum liability for $280,010 and interest present and prospective and also to secure all moneys owing by the company to Merrell on any account whatsoever. Dr Fleming, a director, was not consulted or advised of the creation of the charge. The all moneys clauses in the charge had the effect of increasing the debts secured to at least $592,000 and interest when the charge was registered a month later. [232] On 23 July 2002, Bubbling granted by deed an option over Doonan‘s Road Grandchester to Dr Fleming. [233] Dr Fleming could exercise the option only if a ―triggering event‖ as defined in the option agreement occurred. The Companies‘ submission acknowledges that the triggering event relates to Bubbling ―being in default of its obligations to MFS/Perpetual‖.176 The consideration for granting the option was Dr Fleming‘s agreement to be a director of Bubbling and agreement to provide the guarantee.177 To exercise the option to purchase the 13 parcels of land described in the option, the doctor was obliged to pay all moneys outstanding to Perpetual by Bubbling pursuant to the loan as at the date of settlement of the agreement between Dr Fleming and Bubbling to purchase the 13 parcels of land.178Effectively, if Bubbling was in default in its loan repayments to Perpetual for 3 months, or if Perpetual demanded payment from Dr Fleming pursuant to his guarantee or if 30 days elapsed after Perpetual gave notice to Bubbling of intention to exercise a power of sale, then Dr Fleming had the option to purchase the 13 parcels of land for the amount owing to Perpetual at the date he settled his purchase of the parcels. [234] Dr Ambler could exercise his option only in the event of a default as defined in his option agreement. Upon such default, Perpetual as mortgagee could exercise a power of sale. It is not disputed by the Companies that this default related to Yak ―being in default of its obligations to MFS/Perpetual‖.179 The purchase price for Dr Ambler was to be the amount required to be paid to Perpetual to obtain a release of the mortgage. [235] Mrs Hart says that it was Dr Fleming that raised the options.180 But she agrees that this was in the context of the guarantees being called up, as the following excerpt from her cross-examination demonstrates:181 And do you agree that it was raised in the context of what can you offer us in case the guarantees are called up? --Can I say that, yes, that‘s basically what it was, but I‘m not sure if all the legal terminology is correct and if by saying yes there‘s a different legal meaning it creates a problem, but...... 173 Applicants‘ closing submission, par (53)(B) (p 106). 174 Mrs Hart‘s affidavit 23/7/2010 [Q00064089] par 68 (b), Appendix 57 [Q00064151] 175 Mrs Hart‘s affidavit 23/7/2010 [Q00064089] par 68(a), Appendix 57 [Q00064151] pp. 500-501 176 Applicants‘ closing submission, par (53)(B)1.1(aa) (p 107); Q00010602 at p 3. 177 Q00010602 at cl 2. 178 Q00010602 at p 3. 179 Applicants‘ closing submission, par (53)(B)1.2(aa)p107; Q00010554. 180 T6-25, ll 54-59. 181 T6-26, ll 1-8. -- 57 of 229 -- 58 [236] One effect of the options is clear. If Yak or Bubbling defaulted under the terms of the loans from Perpetual and Dr Ambler‘s or Dr Fleming‘s guarantees were called on, the relevant doctor would be able to obtain the relevant property (Hangar 400 and Doonan‘s Road parcels of land respectively) by paying the amount of all moneys outstanding to the lender pursuant to the relevant loan. [237] The Companies allege that at all material times, the Hangar 400 sublease was not used in any unlawful activity and that it was acquired lawfully.182 The Commonwealth pleaded various responses. The plea raising the Perpetual Offences is that Yak183 and Bubbling184 have each engaged in unlawful activity, namely fraud, pursuant to the Criminal Code (Qld) s408C(1)(f). The Commonwealth alleged, in summary:185 That they each respectively induced Perpetual to approve a loan facility to Yak and Bubbling; by misrepresenting the true nature of the arrangements between Mr Hart and Dr Ambler and Dr Fleming and between Mr Hart and Bubbling and Mr Hart and Yak; that Yak and Bubbling did so by the clause 16 representations; that Yak186 and the two doctors knew the representations were false because: Yak and Bubbling were under Mr Hart‘s effective control; because part of the consideration offered by Mr Hart to Dr Ambler for the doctor‘s guarantee to the lender was an option dated 10 December 2001 to buy the Hangar 400 sublease; because part of the consideration Mr Hart offered to Dr Fleming in consideration for the doctor‘s guarantee to the lender, was an option dated 23 July 2002 to buy a property at Doonan‘s Rd Grandchester. These allegations are made, in part, to deny that the Hangar 400 sublease was not used in connection with any unlawful activity. It is that issue I will deal with here. [238] The present issue is more correctly described in terms of POCA s 102(3): have the Companies proved on the balance of probabilities that the Hangar 400 sublease was not used in, or in connection with, any unlawful activity, namely the alleged Perpetual offences. The Companies might satisfy that onus in either or both of two ways: by proof that the representations by Yak and Bubbling to Perpetual were not offences against Criminal Code (Qld) s 408C, or, if they cannot prove that, by proof that the Hangar 400 sublease was not used in connection with the alleged Perpetual offences. Significantly, I am not required to decide that the Perpetual offences were committed. If the Companies cannot prove that the Perpetual offences were not committed, it does not mean that it has been found that they were committed. [239] Section 408C of the Criminal Code (Qld) provides, so far as is relevant: (1) A person who dishonestly— … (f) induces any person to do any act which the person is lawfully entitled to abstain from doing; … commits the crime of fraud. … (3) For the purposes of this section— (a) property, without limiting the definition of property in section 1, includes credit, service, any benefit or advantage, anything 182 Points of Claim pars 9 and 10 183 Yak 3 Investments Pty Ltd as trustee for Yak 3 Discretionary Trust 184 Bubbling Springs Pty Ltd as trustee for Bubbling Springs Discretionary Trust 185 Updated further further amended points of defence of the Commonwealth pargraph 9(d)(3)(a) pg 10 186 The pleading omitted reference to Bubbling Spring‘s knowledge but that was obviously an oversight -- 58 of 229 -- 59 evidencing a right to incur a debt or to recover or receive a benefit, and releases of obligations; and (b) a person's act or omission in relation to property may be dishonest even though— (i) he or she is willing to pay for the property; or (ii) he or she intends to afterwards restore the property or to make restitution for the property or to afterwards fulfil his or her obligations or to make good any detriment; or (iii) an owner or other person consents to doing any act or to making any omission; or (iv) a mistake is made by another person; … [240] The person inducing must have done so dishonestly. This means that what the person did was dishonest by the standards of ordinary honest people and that the person realised that what he or she did was dishonest by those standards. [241] The Companies essentially made five major submissions of fact about the alleged Perpetual offences. The five were: there was no indemnity; the borrowing was not on behalf of Mr Hart; Mr Hart was not in effective control of Yak 3 and Bubbling in December 2001; MFS and or Perpetual knew Mr Hart was ―an associated person under the definitions of the Corporations Act with all the applicants including Nemesis, Yak and Bubbling‖; if there was a misrepresentation made, it was not dishonestly made. [242] The Companies submit that the options do not constitute indemnities: because it was not a full indemnity and did not apply to Mrs Hart and Ms Petersen as well as to Dr Ambler and Dr Fleming.187 It is correct that no indemnity was offered to the borrowers Yak and Bubbling or to the signatories and directors Mrs Hart and Ms Petersen. The first issue is whether an indemnity was offered to each doctor. [243] ―Indemnity‖ is defined in the Macquarie dictionary as: 1. protection or security, as by insurance, against damage or loss. 2. compensation for damage or loss sustained. 3. something paid by way of such compensation. In the Oxford English Dictionary ―indemnify‖ is defined as: 1. trans. To preserve, protect, or keep free from, secure against (any hurt, harm, or loss); to secure against legal responsibility for past or future actions or events; to give an indemnity to. In the Oxford English Dictionary ―indemnity‖ is defined as: 1. Security or protection against contingent hurt, damage, or loss; safety. 2. a. A legal exemption from the penalties or liabilities incurred by any course of action. b… 3. a. Compensation for loss or damage incurred; indemnification. b. A sum paid by way of compensation. 187 Applicants‘ closing submission, pp 105 &106; p 108(af). -- 59 of 229 -- 60 [244] In some circumstances the price for the exercise of the option could conceivably have been greater than the market value of the relevant property. In other circumstances, if a doctor failed to exercise the option, he could expect to be sued for any shortfall after the lender exercised its power of sale. Despite these possibilities, the options were intended to provide Dr Ambler and Dr Fleming with some protection or security if their guarantees were called on or were in jeopardy of being called on. [245] I conclude that one can be indemnified by less than full compensation and that the doctors were each indemnified by the options each received. Dr Fleming was indemnified by Bubbling and Dr Ambler by Yak. I am satisfied that Yak and Bubbling and the four registered directors knew that each doctor was offered protection or security in consideration for his guarantee. I am not satisfied by the Companies that Yak and Bubbling and their directors were unaware that the protection or security offered was an indemnity. However, that finding is not the one which is prejudicial to the Companies. The submissions for the Companies ignored a more significant point. [246] The representation was not that there was no indemnity offered. It was that there was no indemnity offered by Mr Hart or an associated company. [247] The issue is whether the Companies have satisfied their onus of proof that no offence was committed by the representation: ―Neither Steven Irvine Hart nor any associated company is indemnifying us as to the repayment of the loan.‖ That issue does not depend only on the question of whether the options given or offered to the doctors were indemnities, or on whether all relevant persons knew they were indemnities. That issue depends also and more fundamentally on whether the relevant persons knew Steven Irvine Hart or any associated company was indemnifying the doctors. [248] The representation ―Neither Steven Irvine Hart nor any associated company is indemnifying us‖ was signed by all. The representation‘s use of ―us‖ is ambiguous. The indemnities were offered only the doctors and in their personal capacities, not as directors. I am satisfied that it would not have been dishonest for Yak, Bubbling, Mrs Hart or Ms Petersen to represent that each of them was not personally receiving indemnities. There was no analysis or submission by the parties of whether the word ―us‖ in the representation ―Neither Steven Irvine Hart nor any associated company is indemnifying us‖ meant or was understood by the signatories to mean ―all of us‖, or ―any of us‖ or ―me‖. I am satisfied that in considering whether an offence was committed, the objective meaning of ―us‖ would be of marginal relevance. More critical would be what the signatory believed the representation was and whether the signatory was dishonest by representing it. [249] As one clause 16 representation was made by the directors of Yak and the other by the directors of Bubbling, it was possible for Yak and Bubbling to dishonestly represent ―Neither Steven Irvine Hart nor any associated company is indemnifying us‖ even though Yak and Bubbling were not being indemnified. [250] When making the representations, the doctors would not have possessed the same knowledge as Mrs Hart and Ms Petersen of the level of control that Mr Hart had exercised and was likely to exercise over Yak and Bubbling. Each doctor knew that Mr Hart had resigned as a director. A representation by the doctor that ―Neither Steven Irvine Hart nor any associated company is indemnifying us‖ would be dishonest only if the doctor knew that the company whose debt he was guaranteeing was ―any associated -- 60 of 229 -- 61 company‖ within the meaning of that term in the representation. The Commonwealth produced affidavit evidence from the doctors. Their belief about whether it was correct to give the representation was not explored in the affidavits and they were not cross- examined. The Commonwealth makes no express submission that the doctors were dishonest by their representations. The nearest the Commonwealth came was the submission that the doctors knew that Yak and Bubbling were under Mr Hart‘s effective control.188That is an available inference. The Commonwealth submitted in support of this that the doctors must have known Mr Hart approached them to provide the guarantees. I accept that each doctor for his own part must have known Mr Hart had approached him, but Mr Hart‘s approach would have seemed as consistent with a concern to help a company whose control he had just relinquished as it was consistent with an intention to continue controlling it. Mrs Hart and Mr Hart had together approached Dr Ambler. Mrs Petersen was the point of contact for Dr Ambler after the loan was made, when he wanted to check that repayments were made. The Companies submit that there was no dishonesty in signing the Loan Facility Terms and Conditions.189However, not one signatory to the representations explained in evidence what he or she believed was the meaning of the clause 16 representations and whether the representation was true or honestly made. The Companies refer to the option agreements having been prepared by lawyers for Dr Fleming and Dr Ambler. There is, however, no evidence about the legal advice that may have been given in relation to the Loan Facility Terms and Conditions. There is no evidence from which it can be inferred that all parties to the Loan Facility Terms and Conditions received legal advice that the representation contained in the special condition was not false or that they relied on that advice. [251] Each company‘s onus is to prove that the relevant company was not dishonest by the standards of ordinary honest people and that the person making the representation for the company did not realise that what he or she represented was dishonest by those standards. [252] The Companies submitted there was no evidence advanced by the Commonwealth that the directors and others realised that what they did was dishonest by the standards of ordinary honest people. I reject that. The Commonwealth advanced much circumstantial evidence to suggest that. There was evidence tending to prove that: Mrs Hart, Ms Petersen, the doctors and Mr Hart knew and believed the doctors were being given an indemnity by Yak or Bubbling; Mrs Hart read the loan documentation; Ms Petersen and the doctors signed it and should have read it; the terms included the clause 16 representation; Mr Hart was in effective control of the Companies including Yak and Bubbling and in effective control of the Companies‘ assets in May and December 2003; Mr Hart was in effective control of Yak and Bubbling and their assets in January 2002; Mr Hart was in effective control of Yak and Bubbling and their assets in December 2001. [253] The second major submission of the Companies on the issue of the alleged Perpetual offence was that the companies borrowed the funds on behalf of themselves and not for or on behalf of Mr Hart.190The submission misunderstands the Commonwealth‘s argument. The Commonwealth did not expressly contend that the funds were borrowed 188 Section 102 Submissions of the Commonwealth [122] 189 Applicants‘ closing submission, p 112. 190 Applicants‘ closing submission, pp 108 to 110 at 1.11 -- 61 of 229 -- 62 for Mr Hart. Instead, the Commonwealth submitted that Mr Hart was in effective control of the two companies. To this, the Companies submitted, in effect, that the date of Mr Hart‘s effective control of the assets and entities was on 8 May 2003 but not earlier and not when the representations were made. [254] Mr Hart‘s control of Yak and of Bubbling when the representations were made is relevant to the correctness and honesty of the representations that the borrower was entering into the loan agreement of its own volition and was ―not doing so on behalf of Steven Irvine Hart nor any associated company with which he is associated‖ and ―Neither Steven Irvine Hart nor any associated company is indemnifying us‖. [255] Was Mr Hart in effective control of the Companies when the representations were made in December 2001? In his oral address Mr Hart made the following concession: ―The applicants concede there was a finding of effective control as at date of restraining order in 2003 after a contested hearing before his Honour Brabazon. This finding was upheld by the Court of Appeal in Queensland. The applicants have accepted the ruling for the purposes of the section 102, section 141 applications, and have not sought to relitigate the issue in these proceedings. The applicants/respondents consent that his Honour can rely upon that ruling in these proceedings.‖191 [256] To understand the breadth of the concession one refers to the judgment from the Court of Appeal192 where McPherson JA, with whose reasons Williams JA and Chesterman J agreed, stated: ―[T]he evidence leaves no doubt that [Mr Hart] was in effective control of the property as well as the affairs of the corporate appellants. His attitude and his behaviour towards them is reminiscent of many others who persist in treating the business and assets of companies as if they were their own, with scant regard for the legal boundaries dividing personal and corporate powers and ownership.‖193 [257] The ―corporate appellants‖ included Yak and Bubbling Springs. Thus, the Companies accept that Yak and Bubbling Springs were under Mr Hart‘s effective control on 8 May and 19 December 2003. There was no express concession that either of those companies were under Mr Hart‘s control at the date or dates the representations were made to MFS and Perpetual in about December 2001. [258] The evidence relied upon by the CDPP before Brabazon QC DCJ and to which their Honours referred in the Court of Appeal became evidence before me.194 It is referred to in annexure 2 to these reasons. It has particular relevance to the issue of whether Mr Hart‘s control of Yak and Bubbling was effective control when the representations were made to MFS and Perpetual in December 2001. [259] The Commonwealth draws attention to the following matters. A loan was offered by MFS to Nemesis but the offer was subsequently withdrawn.195 Following advice from MFS that the offer had been withdrawn, Mr Hart resigned as a director of Bubbling196 191 T12-46 l 24 192 Director of Public Prosecutions (Cth) v Hart (No. 2) [2005] 2 Qd R 246 193 At 261 [31] 194 as a result of an order made on 24 November 2010 195 T3-67, l 50-p 3-68; Q00060901. 196 Q00060018. -- 62 of 229 -- 63 and Dr Fleming was appointed. Dr Ambler, a friend of Mr and Mrs Hart,197 was appointed as a director of Yak. Neither Dr Ambler nor Dr Fleming had any involvement in the running of the companies prior to their appointment.198 Ms Petersen did not arrange the appointments.199 Mrs Hart says that she signed the option agreements as a director of Yak and Bubbling.200 [260] The Commonwealth submitted: Yak and Bubbling were under Mr Hart‘s effective control; Ms Petersen, Mrs Hart, Dr Ambler, Dr Fleming and Mr Arnot knew that Yak and Bubbling were under Mr Hart‘s effective control; Dr Ambler, Dr Fleming, Yak and Bubbling must also have known that Mr Hart had approached Dr Ambler and Dr Fleming to provide the guarantees and that Yak and Bubbling had provided or agreed to provide options to Dr Ambler and Dr Fleming to provide them with some protection or security if the options were called up. [261] The following issues were not raised by the Companies, but they are relevant for a proper consideration of control in December 2001 and dishonesty when making representations in about December 2001: Control by Mr Hart in 2003 does not inevitably mean there was control by him in 2001 when the representations were made; Mr Hart‘s active concern with the capacity of Yak and Bubbling to secure loans, his personal requests to Drs Fleming and Ambler to act as guarantors and his letter afterwards to thank MFS do not conclusively establish that he controlled Yak and Bubbling. His behaviour is consistent with a desire to help the trustee companies for the sake of those whose beneficial interests were affected by the fate of the companies in the family group. It is also consistent with his seeking to control and controlling the companies. Mr Hart‘s involvement in the affairs of Yak and Bubbling and his influence over their directors was such that by May and December 2003 he was in effective control of their assets and of the two companies. However, I am required to consider whether that effective control may have been absent at the date of the representations in December 2001. As importantly, I am required to consider whether Mr Hart‘s control was obvious to or anticipated by all directors when they made representations. Whether Mr Hart was in effective control of the companies at the date of the representations is not decisive for establishing dishonesty by Yak or Bubbling or their authorised directors. The registered directors at the time were supposed to be the controlling mind of the company. The issue of the honesty of Yak or Bubbling and of their directors in representing that they were entering into the loan agreement of their own volition and were not doing so on behalf of Steven Irvine Hart nor any ―associated company with which he is associated‖ is partly dependant on whether the registered directors were, at that date in about late December 2001, aware that Mr Hart was in effective control of Yak and Bubbling. [262] Ms Petersen deposed on 7 October 2003:201 The duties of Mr Hart are many and varied. He acts as our chief negotiator in relation to the buying, and selling of assets, in some instances he also negotiates borrowings on our behalf. He also will attend meetings for us where we need his experience and expertise. He also advises other clients of our various companies in relation to all the beforementioned as well… He acts as a financial consultant to us in that I will regularly ask for his opinion on our trading position on all companies that I are a 197 T3-69, l 57. 198 T3-71 l 6, l 22. 199 T3-71, l 37. 200 T6-26, l 12 & l 17. 201 Q00064535 -- 63 of 229 -- 64 director of. This function he also performs on behalf of clients of companies I am involved with and for which those companies receive payment… While we often ask Mr Hart for his opinion and advice, we don't always take it. At no time does he make the final decision nor is he in effective control of any Company for which I am a director or in effective control of any asset legally owned by any company for which I am a director. [263] I accept that Mr Hart performed such functions as Ms Petersen described. Notwithstanding Ms Petersen‘s alleged opinion in October 2003 that he was not in effective control, it is not contested by the Companies that Mr Hart was in effective control of Yak and Bubbling and of their assets at dates in May and December of 2003. The Companies made no attempt to call evidence to establish that the situation in December 2001 was somehow different or that, if Mr Hart was in effective control of the companies and their assets in December 2001, the companies‘ directors were unaware of it. [264] The charge given to Merrell on 8 January 2002 over Bubbling‘s assets was without any notice or advice to the director, Dr Fleming. Dr. Ambler did not know that a similar charge was granted over Yak‘s assets to Merrell on 8th January, 2002,202 though he was a director of Yak at the time. The charge secured repayment of $21,100 and interest present and prospective but also secured all moneys owing by the company to Merrell on any account whatsoever. The all moneys clauses in the charge had the effect of increasing the debts secured to at least $592,000 and interest when the charge was registered a month later. [265] Mr Hart had exercised a high degree of control over the day to day operations of Merrell.203The grant of the charges is consistent with Mr Hart‘s being in control of the grantors on 8 January 2000. A consequence of the charges, and Mr Hart‘s high degree of control of Merrell, would have been that Mr Hart could prevent a sale of assets of Yak and Bubbling without his consent. The circumstances raise the suspicion Mr Hart was in effective control of Yak and Bubbling in January 2002 and when representations were given the month before. The charges of 8 January 2002 simply add to the suspicion that Mr Hart was then in effective control. The minutes of Yak and of Bubbling give no explanation and contain no record of a resolution to grant a charge.204 [266] I am satisfied that Mr Hart was in effective control of Yak and Bubbling on 8 January 2002 and in December 2001. [267] Relevant findings for POCA must be expressed with double negatives. I am not satisfied that the doctors were not dishonest when each, for his own part and as a director of the relevant company represented, ―Neither Steven Irvine Hart nor any associated company is indemnifying us‖. [268] Ms Petersen and Mrs Hart are not in the same situation as the doctors. Their knowledge of Mr Hart‘s past control and continuing involvement makes it even more plausible to suspect that they knew whether or not Mr Hart was in effective control of Bubbling, Yak and Nemesis in December 2001. I am not satisfied Yak and Bubbling were not, by their directors Ms Petersen and Mrs Hart and the respective doctor dishonest when 202 Transcript P258 L 44 - P259 L13 (Q00003943 at p.91). 203 Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457 at [443]. 204 Affidavit S Petersen sw 10/02/04 SAP-21 Q 00064631 and SAP-22 Q00064632 -- 64 of 229 -- 65 their directors signed the representation, ―Neither Steven Irvine Hart nor any associated company is indemnifying us‖. [269] The Companies do not contend that Yak and Bubbling were not each an ―associated company‖. The Companies submit that the lender knew of the association. The Companies‘ third major submission is that MFS and Perpetual Nominees knew that Yak and Bubbling were associated with Mr Hart. The Companies have not called any evidence from representatives of either MFS or Perpetual Nominees who were involved in approving the loan. No explanation has been given by MFS for why MFS required as a special condition of the Loan Facility Terms and Conditions that Yak and Bubbling, Ms Petersen, Mrs Hart, Mr Arnot, Dr Ambler and Dr Fleming represent and acknowledge that they were not entering into the agreement on behalf of Mr Hart nor any associated company and that no company associated with Mr Hart was indemnifying them. [270] If, as the Companies submitted,205 the only concern that MFS and Perpetual Nominees had was that Yak and Bubbling Springs were not parties to the proceedings commenced by ASIC against Harts Australasia Limited, the Commonwealth submits it would not have been necessary to include this condition. I accept that. The Companies rely on a letter sent by Mr Hart to Mr Adams of MFS on 21 December 2001 as confirming that MFS were aware of the relationship between Yak and Bubbling and Mr Hart. But, this was dated three days after the drawdown of the loan facility. Without evidence from Mr Adams, the Commonwealth submits it is not possible to know what his knowledge was at the time the loan was advanced. More importantly, it is not possible to conclude that Mr Adams was not induced by the representation to believe that the relevant persons and companies were not entering into the agreement on behalf of Mr Hart nor any associated company and that no company associated with Mr Hart was indemnifying them. [271] I am not satisfied as to the state of Mr Adam‘s knowledge. I am not satisfied that MFS and Perpetual Nominees did not require and rely on the representations they requested and received. [272] The Companies submit that there was no dishonesty in signing the Loan Facility Terms and Conditions.206In tandem with that, the Companies submit there was no evidence advanced by the Commonwealth that the directors and others realised that what they did was dishonest by the standards of ordinary honest people.207 The submission may be based on a misapprehension about the party bearing the onus. It is not necessary in resolving the relevant issues to find dishonesty. There is not an onus on the Commonwealth to prove dishonesty. In practical terms, the Companies must prove an absence of dishonesty, and if they fail to prove that absence of dishonesty, it does not mean that the court finds dishonesty. [273] There is ample basis to suspect that the directors and Yak and Bubbling were committing offences in making the clause 16 representations. I am suspicious that offences were committed. 205 Applicants‘ closing submission, p 111. 206 Applicants‘ closing submission, p 112. 207 Applicants‘ closing submission, p 114 (x) -- 65 of 229 -- 66 [274] POCA s 102(3)(a) in effect places the onus upon the Companies to prove the absence of an offence. [275] I am not satisfied that the Companies have shown that no offence was committed. I am not satisfied that Bubbling and Yak did not each dishonestly represent that it was not entering into the agreement ―on behalf of Mr Hart nor any associated company with which he was associated‖. I am not satisfied that Bubbling and Yak by Mrs Hart and Ms Petersen, and by Dr Ambler or Dr Fleming did not dishonestly represent that no ―associated company‖ was indemnifying the relevant doctor as to the repayment of the loan. If the representations were dishonestly made, I am satisfied that the dishonesty would have been dishonest by the standards of ordinary honest people and that the maker of the representation would have realised that what he or she represented was dishonest by those standards. [276] The Companies have not shown that an offence against section 408C(1)(f) of the Criminal Code (Qld) has not been committed. [277] The Commonwealth submits that if an offence against section 408C(1)(f) was committed when the loans were obtained, the properties provided as security for those loans have been used in connection with that unlawful activity.208 The properties provided as security were Hangar 400 and property at Doonan‘s Rd Grandchester. Accordingly, the Commonwealth submits the Companies have not shown that Hangar 400 and the property at Doonan‘s Road have not been used in connection with unlawful activity. [278] Having determined that the intent of the words ―the property was not used in, or in connection with, any unlawful activity‖ in POCA s102(3)(a) is that there must be a ―substantial connection between the activity in question and the use of the property‖ I must consider the extent of the connection between the use of each property and the making of alleged fraudulent representations to induce the two loans of $650,000 each. [279] There were no submissions from the Companies related specifically to the degree of connection between these assets and possible unlawful activity. The Commonwealth‘s position was implied from its general submissions: a mere accidental or incidental connection between the unlawful activity and the property would not be sufficient but a substantial connection is not difficult to establish as Re George209 and Jeffrey210 show. [280] The connection between the property and the crime in Re George211was more direct and substantial. An offender had been growing cannabis on lot 6 which was not owned by him. In issue was whether lot 5 was tainted property. Lot 5 was vacant unimproved virgin bush land and used as the base camp from which and through which the unlawful activity on lot 6 was facilitated and carried out. The only access to lot 6 was a track through lot 5. All equipment passed onto and through lot 5 to lot 6 and the harvested cannabis was taken from lot 6 to lot 5. The offender camped on lot 5 and 208 S102 submissions of the respondent (Commonwealth) page 48 par 128 209 (1991) 57 A Crim R 356 210 211 (1991) 57 A Crim R 356 -- 66 of 229 -- 67 used it to proceed to and from lot 6. When considering the suffiency of connection generally Vanstone J wrote:212 I would require that the property was put to use in a positive sense; that it was a means through which the crime was effected; and that the property was used as a tool in the commission of the crime, or in connection with its commission. One sees that level of connection in the facts of Re George. [281] In Jeffrey, a Rolls Royce purchased years earlier was used as part of the security for a loan. There was nothing unlawful about borrowing funds and using the Rolls Royce as security. The loan was probably taken with the intention of using the funds to pay for the expenses involved in preparing for an unlawful importation of cannabis. Hunt CJ at CL, while interpreting the statute in that case as requiring a substantial connection between the use of property and the unlawful activity, was not satisfied that the Rolls Royce had not been used ―in connection with‖ the unlawful activity of cannabis importation. The property was offered for security for a loan for the sole purpose of funding an unlawful cannabis importation. In this case before me, the loan was primarily for the lawful purpose of reducing amounts owing to the NAB. The elements of dishonesty in the alleged offences, if there was dishonesty, were in misrepresenting the degree of association between Mr Hart and Yak, Bubbling and possibly Nemesis. The wording of Perpetual‘s required representation does not reveal a concern about whether the guarantors were being indemnified by options from Yak and Bubbling to buy the secured properties. The wording suggests a concern by Perpetual that neither Mr Hart nor any company associated with him was indemnifying the guarantors. It is not as if the properties were used in a ruse to create sham securities. To exercise the doctors‘ options to buy the secured properties the doctors would have been required to pay out Yak‘s and Bubbling‘s indebtedness to Perpetual. The options were to protect the doctors from Yak‘s and Bubbling‘s financial vicissitudes. The options to buy the secured properties did not jeopardise the value of Perpetual‘s security. [282] For reasons developed above, I found that the intent of the words ―the property was not used in, or in connection with, any unlawful activity‖ in POCA s102(3)(a) is that they require a ―substantial connection between the activity in question and the use of the property‖. I am satisfied that there is no sufficient connection with unlawful activity in the case of the Hanger 400 and the Doonan‘s Rd properties arising from the provision of the properties as security for a loan arguably induced by the fraudulent representation. Hanger 400 and the Doonan‘s Rd properties were ―not used in, or in connection with‖, the alleged fraudulent representations by reason of having been used as security for repayment of the loan that was induced by the representations. [283] The money borrowed from Perpetual was used by Yak and Bubbling to lend to Nemesis to repay the NAB. It was not submitted that assets derived from that repayment of the NAB were derived from unlawful activity because of the fraud allegedly committed to induce the Perpetual advance. The only assets in respect of which the Commonwealth relied upon the Perpetual advance, in its submissions, were Hangar 400 and Doonan‘s Road. Money Laundering Offences 212 Director of Public Prosecutions (DPP) v George (2008) 102 SASR 246; (2008) 251 ALR 658; (2008) 224 FLR 269; (2008) 191 A Crim R 95; [2008] SASC 330. -- 67 of 229 -- 68 [284] The Commonwealth submits that the Companies, by Mr Hart, committed money laundering offences. The legislation it relied upon changed during the relevant period from s 82(1) of POCA 1987 (repealed) to the Criminal Code 1995 (Cth) Section 400.9. The offences it alleges are more conveniently described by the headings given to them in the relevant sections 82 and 400.9 set out below. [285] Section 82(1) of POCA 1987 (repealed) was in force until 1 January 2003. It provided: 82 Possession etc. of property suspected of being proceeds of crime (1) A person who, after the commencement of this Act, receives, possesses, conceals, disposes of or brings into Australia any money, or other property, that may reasonably be suspected of being proceeds of crime is guilty of an offence against the section punishable, upon conviction, by: (a) if the offender is a natural person—a fine not exceeding $5,000 or imprisonment for a period not exceeding 2 years, or both; or (b) if the offender is a body corporate—a fine not exceeding $15,000. (2) Where a person is charged with an offence against this section it is a defence to the charge if the person satisfies the court that he or she had no reasonable grounds for suspecting that the property referred to in the charge was derived or realised, directly or indirectly from some form of unlawful activity” (emphasis supplied) [286] ―Proceeds‖, ―proceeds of crime‖ and ―indictable offence‖ were each defined in POCA 1987 (repealed) s 4 as follows: proceeds, in relation to an offence, means any property that is derived or realised, directly or indirectly, by any person from the commission of the offence. … proceeds of crime means: (a) proceeds of an indictable offence; or (b) any property that is derived or realised, directly or indirectly, by any person from acts or omissions that: (i) occurred outside Australia; and (iii) would, if they had occurred in Australia, have constituted an indictable offence or a State indictable offence. … indictable offence means an offence against a law of the Commonwealth, or a law of a Territory, that may be dealt with as an indictable offence (even if it may, in some circumstances, be dealt with as a summary offence). [287] The UOCL offences committed by Mr Hart are indictable offences.213 Money received by UOCL from the Australian participants in the tax minimization schemes promoted by Mr Hart constitutes proceeds of those offences and was ―proceeds of crime‖. Money paid by UOCL to Merrell, Harts Consulting, HAL, the Companies or other companies associated with Mr Hart is money ―derived from the commission of‖ those indictable offences and constitutes ―proceeds of crime‖. Where money paid by UOCL to Merrell, Harts Consulting, HAL, the Companies or other companies associated with Mr Hart was used to derive or realise a relevant asset the Commonwealth submits the asset was indirectly derived from the UOCL offences. I accept that argument (subject to the requirement that it be substantially derived or realised by the use of that money). [288] The Commonwealth has a second submission: the asset was directly derived from the offence of dealing with the proceeds of the UOCL offences under s 82(1) POCA 1987 (repealed) if the person dealing with the proceeds knew or had reasonable grounds to suspect that the money was proceeds of the offences. The test under s 82(1) POCA 213 Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457. -- 68 of 229 -- 69 1987 (repealed) for determining whether ―money or property may reasonably be suspected of being proceeds of crime‖ is objective. [289] POCA 1987 (repealed), s 85 provided at material times: 85 Conduct by directors, servants or agents (1) Where it is necessary, for the purposes of this Act, to establish the state of mind of a body corporate in respect of conduct engaged in, or deemed by subsection (2) to have been engaged in, by the body corporate, it is sufficient to show that a director, servant or agent of the body corporate, being a director, servant or agent by whom the conduct was engaged in within the scope of his or her actual or apparent authority, had that state of mind. (emphasis added) (2) Any conduct engaged in on behalf of a body corporate by a director, servant or agent of the body corporate within the scope of his or her actual or apparent authority is taken, for the purposes of a prosecution for an offence against this Act, to have been engaged in also by the body corporate, unless it establishes that it took reasonable precautions and exercised due diligence to avoid the conduct. [290] The Commonwealth does not allege that either Ms Petersen or Mrs Hart had the relevant knowledge. The Commonwealth submits Mr Hart was in effective control of the Companies and is the person with the relevant knowledge that the proceeds from UOCL may reasonably be suspected of being proceeds of crime.214 Mr Hart exercised a high degree of control over Merrell and UOCL at all material times. Mr Hart was in effective control of the Companies at least from December 2001. [291] The Commonwealth did not refer to any specific evidence to support its submission that Mr Hart was in effective control of the Companies at all material times before April 2003. It made no argument to support its submission. The Commonwealth obtained a concession from the Companies about Mr Hart‘s effective control at two crucial dates in 2003 and for support made passing reference to the evidence to be found in Annexure 2 to these reasons. Otherwise, the Commonwealth was silent about the basis for its submission. [292] The Companies submitted that there was no evidence led at the hearing before Brabazon QC DCJ in relation to effective control as at December 2001.215The material incorporated by reference in Annexure 2 and within the electronic record of evidence in this proceeding includes a transcript of the 10 day hearing and thousands of pages of documents. There was evidence of events before December 2001. I reject the submission for the Companies that there was no such evidence. Further, I respectfully accept as correct the approach of his Honour in that case216 that when considering whether there was effective control of one company by Mr Hart: it was proper to consider the evidence as a whole and not to keep separate the evidence relating to each of the Companies; the evidence of family and personal relationships was very relevant to the issue. The Companies concession that Mr Hart was in effective control at two dates in 2003 is circumstantial evidence of his control at earlier dates than 2003. I note that the conduct of the proceedings before me by Mr Hart as advocate and McKenzie friend for the Companies was consistent with his being the dominant and controlling figure at the time of the hearings. There was ample evidence to support his Honour‘s findings that Mr Hart, despite never being a director of Fighters, was always its dominant and controlling figure and that his resignation, on 1 October 2001, from the 214 T 13-7 ll 47-51 215 T 13-31 l 31 216 Cth DPP v Hart & Ors [2004] QDC 121 [160] -- 69 of 229 -- 70 directorships of Yak, Bubbling and Nemesis made no difference to his role as the controlling figure of each and that his resignation was only a formal one and with no practical consequences.217 [293] For reasons given in relation to the Perpetual offences there are reasonable grounds to suspect that Mr Hart was in effective control of the Companies in and from December 2001. There are reasonable grounds to suspect that he was in effective control at all material times, including the dates before December 2001. Significantly, there are reasonable grounds to suspect Mr Hart was in effective control of the Companies when funds from UOCL and Merrell were received by the Companies. Those funds were received as early as 1997. [294] Mr Hart knew that his conduct in relation to UOCL was dishonest and that the money received by UOCL was proceeds of crime. [295] At all material times Mr Hart was aware of whatever funds were paid by UOCL to Merrell and by either UOCL or Merrell to the Companies or to UBC or other companies in the Harts group of companies. Mr Hart had reasonable grounds for suspecting that UOCL funds or Merrell funds brought into Australia and used to acquire assets or for other purposes, were funds derived or realised, directly or indirectly from some form of unlawful activity. [296] Where UOCL funds or Merrell funds were received by the Companies, Harts Consulting, HAL or other companies of which Mr Hart was in effective control or an agent I am suspicious that an offence against s 82(1) of POCA 1987 or Criminal Code 1995 (Cth) Section 400.9 was committed by the recipient. Where those proceeds were then applied to deriving or realizing a relevant asset I am not satisfied that such asset was not also directly derived from an offence against s 82(1) of POCA 1987 or Criminal Code 1995 (Cth) Section 400.9 (in addition to being indirectly derived or realised from the unlawful activity constituted by the UOCL offences). I am satisfied that where UOCL funds or Merrell funds were received, possessed or disposed of, by the Companies, the company which received, possessed or disposed of the funds had Mr Hart‘s state of mind.218 [297] The significance, in terms of POCA s 102(3), is that whenever an asset has been derived or realised from funds from UOCL or from Merrell that were paid by either of them to the Companies, or to others with the result of assisting any of the Companies to derive the asset, the Companies have not satisfied me that the asset was not derived or realised from a crime against s 82(1) of POCA 1987 repealed or Criminal Code 1995 (Cth) Section 400.9. Whether it was substantially so derived or realised, is another question. [298] S 400.9 as in force between 1 January 2003 and 12 December 2006 relevantly provided: 400.9 Dealing with property reasonably suspected of being proceeds of crime etc (1) A person is guilty of an offence if: (a) the person: (i) receives, possesses, conceals or disposes of money or other property; or 217 Cth DPP v Hart & Ors [2004] QDC 121 [162] 218 POCA 1987, s 85(1). Criminal Code 1995 (Cth) s 12.3 (2)(b) -- 70 of 229 -- 71 (ii) imports money or other property into, or exports money or other property from, Australia; and (b) it is reasonable to suspect either or both of the following: (i) the money or property is proceeds of crime in relation to a Commonwealth indictable offence or a foreign indictable offence; (ii) the money or property is proceeds of crime, and the person‘s conduct referred to in paragraph (a) takes place in circumstances referred to in subsection (3). … (4) Absolute liability applies to paragraph (1)(b). (5) This section does not apply if the defendant proves that he or she had no reasonable grounds for suspecting that the money or property was derived or realised, directly or indirectly, from some form of unlawful activity. [299] 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. The Companies instead disputed the factual premise that Mr Hart was in effective control of the Companies before April 2003. I describe that as the Commonwealth‘s express submission because I infer that it must have had another submission. [300] 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 of POCA s 102(3)(b). [301] 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. Nowhere did it submit that unlawful ―possession‖ of the asset meant it was not acquired lawfully. To acquire and to possess are theoretically different though they may occur simultaneously. [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. The Companies made no submission about money laundering offences or about whether they acquired assets lawfully. [303] No party made a submission on the meaning of ―acquired the property lawfully” in POCA s102(3)(b). No party made a submission on the relationship between possible money laundering offences and POCA s102(3)(b). No party made a submission on whether the findings about whether property was not derived from unlawful activity should be different from the findings about whether the property was not lawfully acquired. [304] The proper interpretation of ―acquired the property lawfully” in POCA s102(3)(b) is ―substantially acquired the property lawfully‖. I make that finding for the same reasons as I relied upon above, when interpreting POCA s102(3)(a). -- 71 of 229 -- 72 [305] The failure by the Companies to prove that there was no money laundering offence committed when Merrell‘s or UOCL‘s funds were used to derive or realise an asset does not have a practical effect on the resolution of the disputes about assets on the facts of this proceeding. If the contribution of some tainted money was sufficiently insignificant to allow a finding that the asset was not derived from unlawful activity, the commission of a money laundering offence by using that tainted money to derive the asset is similarly sufficiently insignificant to allow a finding that the asset was not acquired unlawfully. [306] In respect of each asset where an issue is whether the Companies have proved that it was not derived or realised from unlawful activity because of the use of funds from UOCL or from Merrell, if the Companies have so satisfied me, they have also satisfied me the asset was not used in connection with unlawful activity, in spite of the suspicion that a money laundering offence occurred by that use of the funds. The converse applies. Where the Companies failed to show that an asset was not derived or realised from unlawful activity because of the use of funds from UOCL or from Merrell, the Companies have failed to show that the use of the funds was not the use of an asset in connection with unlawful activity, namely the money laundering offence. Offences against the Taxation Administration Act [307] The Commonwealth put the Companies on notice that they are required to satisfy the court that Hangar 400, Hangar 101, Hangar 607, L-39C, T-28 VH-SHT, Arkotech Cap 232 VH-SHI, 27 Samara Street and Doonan‘s Road Grandchester, were not derived or realised directly or indirectly from unlawful activity - offences under s 8N of the Taxation Administration Act 1953 (Cth) (―TAA‖) arising out of two tax minimisation arrangements known as the Hendon arrangement and the Northbourne arrangement. Entities involved in these arrangements included: Astion Pty Ltd (―Astion‖), Tinkadale Pty Ltd (―Tinkadale‖), Harts Consulting Pty Ltd and No 2 Pitt Street Pty Ltd. [308] I infer neither Mr Hart nor any other relevant entity has been convicted of an offence under s 8N of the TAA in relation to the Hendon arrangement or the Northbourne arrangement. I infer that an aspect of the Commonwealth‘s defence is that the facts relating to the Hendon arrangement and the Northbourne arrangement each create reasonable grounds to suspect: that there was unlawful activity; that funds received by and from the entities involved in the Hendon arrangement and the Northbourne arrangement were derived or realised directly or indirectly from that unlawful activity; that the Companies have an onus to show that any asset was not derived or realised directly or indirectly from that unlawful activity as a result of the use of funds which came directly or indirectly from the entities involved in the Hendon arrangement or the Northbourne arrangement. [309] At relevant times s 8N of the TAA provided: A person who recklessly: (a) makes a statement to a taxation officer that is false or misleading in a material particular; or (b) omits from a statement made to a taxation officer any matter or thing without which the statement is misleading in a material particular; is guilty of an offence. [310] Subsection 8J(9) of the TAA provided: -- 72 of 229 -- 73 A reference in the Subdivision to a statement made to a taxation officer includes a reference to a statement made to a person other than a taxation officer for a purpose in connection with the operation of a taxation law. [311] The Commonwealth submits that if Mr Hart, Harts Australia Limited, employees of Harts Australia Limited or client trustees of Harts Australia Limited, recklessly made false or misleading statements to clients or beneficiaries in relation to the operation of the taxation law or in connection with the operation of a taxation law, an offence against s 8N of the Taxation Administration Act would have been committed and would have been relevant ―unlawful activity‖ for POCA s 102(3)(a). [312] Three things are notable about the alleged offences against s 8N. Firstly, dishonesty is not included as a mental element of the offence, though recklessness is. ―Recklessness‖ has been described as: ―indifference as to whether a representation is true or false knowing that, more probably than not, it is false‖.219 Secondly, the offending is allegedly relevant irrespective of whether it was by Mr Hart, or the Companies or someone else. Thirdly, the conduct raised for scrutiny, relating to what are known as the Hendon and Northbourne arrangements, was conduct occurring 15 to 20 years ago. [313] The Companies submit it is too late for the Commonwealth to raise offences under s 8N of the Taxation Administration Act relating to the promotion of the Hendon and Northbourne arrangements as possible unlawful activity from which property was derived directly or indirectly.220 They submit natural justice is denied as the conduct occurred 15 to 20 years ago and that if it had been raised 15 to 20 years ago HAL and Mr Hart would have been able to defend the allegations through access to documents and with the help of staff. The allegations were raised by the Commonwealth in late 2010, shortly after the Companies identified to the Commonwealth that some funds used to acquire assets came from the promoters of the Hendon and Northbourne arrangements. The allegations were raised by the Commonwealth before the hearing commenced. [314] The Companies also submit that dishonesty must be an element of ―unlawful activity‖.221 The Companies implied that: ―unlawful activity‖ in POCA generally or in POCA s102(3)(1) in particular, means ―unlawful activity which involves a mental element of dishonesty‖. The Companies‘ implied argument is that there is no element of dishonesty involved in offences under s 8N of the Taxation Administration Act and funds earned, realised or derived from those offences are not funds from ―unlawful activity‖. [315] Section 102(3)(1) refers to ―unlawful activity‖. The expression is relevantly defined in POCA s 338 as: an act or omission that constitutes: (a) an offence against a law of the Commonwealth… [316] There is no ambiguity in that definition and no proper basis to read into it a limitation that there has been timely notice of an allegation of unlawful conduct, or words to the effect that the act or omission must be dishonest, or that the offence must have an 219 Mattingley v Tuckwood (1989) 43 A Crim R 111 at 121. 220 Applicants‘ closing submission, par 34 pg 46 221 Applicants‘ closing submission, par 35 pg 53 -- 73 of 229 -- 74 element of dishonesty. In a related submission, the Companies argued that the long title of POCA, by incorporating the words ―Crime, and related purposes‖, revealed a legislative intent that the purpose of the Act must be related to crime and that crime requires dishonesty. A flaw in that submission is that crime does not require dishonesty. Terrorism offences are an example of criminal offences which need not involve dishonesty. [317] I reject the submissions of the Companies that it is a denial of natural justice to raise such issues for determination in this proceeding; that it is too late for the Commonwealth to raise these issues; and that ―unlawful activity‖ in POCA s 102(3)(1) means unlawful activity involving dishonesty. The Hendon Arrangement [318] For an explanation of the facts relating to the tax minimisation scheme involving the Hendon arrangement the Commonwealth referred to the reasons for judgment in BRK (Bris) P/L v Commissioner of Taxation [2001] FCA 164 at [56]-[60], [73]-[76] and [80]. The Companies did not contend that the reasons in that case, together with other evidence relied upon by the Commonwealth in its submissions, misstated the operation of the scheme. [319] Westside Commerce Centre was a real estate development in South Australia. In 1993 it was owned by Westside Commerce Centre Pty Ltd, as trustee of the Hendon Unit Trust ("WCC"). WCC had substantial accrued losses recorded in its 1993 tax return - $5,472,742 at 30 June 1993. There is other evidence that the losses were about $40,000,000. It was in default with its financier, had external creditors, and was unable to borrow to complete the development. Robert Adcock was aware of the Westside Commerce Centre development and the position of WCC and other associated companies and trusts prior to taking up employment with Harts Accountants and Auditors in May 1993. Mr Hart and Mr Adcock developed a tax minimisation proposal that was to take the form of a joint venture between the loss laden WCC on the one hand and Hendon Unit Trust on the other. Mr Hart established Astion to take over as trustee from WCC and to acquire the real estate development. On 30 June 1995 the trustee of the Hendon Unit Trust was changed from WCC to Astion. [320] In these proceedings Mr Stevens said, and I accept:222 In or about early 1993, Mr Hart told me that he had been introduced to loss trust scenarios by Mr Adcock. This scenario as explained by Mr Hart involved loss trusts (i.e. trusts that had previously operated and now held large tax losses) receiving distributions of profit from clients trusts thereby reducing the client's tax liability. Mr Hart explained that he and Mr Adcock had devised a method to use this structure to assist in financing property acquisition and development. [321] During cross examination Mr Stevens said, and I accept:223 Hendon Unit Trust would enter into a joint venture agreement with a number of trusts called the HPM Trusts... the unit holders of those HPM trusts would be the client trusts or clients, and then because of that arrangement it was the advice of the lawyers involved that the client trusts could then make distributions from their family discretionary trusts to Hendon ....so any profit – profits from the client trusts were distributed to Hendon Unit Trust… Part of the arrangement was that the clients…at 222 Affidavit Ian Roland Stevens sw 25 October 2010 (Q00064652, par 5). 223 T6-60, ll 12-21, 24-30. -- 74 of 229 -- 75 some point in the future ...would be called upon to make repayments of what in effect was a beneficiary loan account and also a requirement to provide a bank guarantee for security for that loan account at some point. [322] The details of the proposal were put by Harts Accountants and Auditors to its clients. One object of the proposal was to take advantage of the accumulated tax losses of WCC by: appointing the income of trusts to WCC, isolating that income from the secured creditor and general creditors of WCC by providing that the appointed income was only to be paid over to the project manager provided under the joint venture when called for, and that the income was only to be used for development purposes as defined. [323] The trustee clients would appoint income of their trusts to WCC. Out of the appointed income, 12% was to be paid to Astion and Tinkadale - companies associated with Harts Accountants and Auditors. If paid, the money was split 10% to Astion and 2% to Tinkadale. [324] Save for the 12% of the money appointed to WCC, the income appointed by the applicant taxpayer in the BRK (Bris) case in 1993, 1994 and 1995 was retained by that applicant taxpayer and spent in various ways unrelated to the Westside Commerce Centre development. [325] In putting together the proposal, Harts Accountants and Auditors sought the professional advice of Cleary & Hoare Solicitors. That firm drew up the joint venture documentation and also provided proforma documentation for use by the clients of Harts Accountants and Auditors to give effect to the arrangement. [326] Mr Young deposed:224 20. A total of fifty-two trustees participated in the scheme. Total distributions of $12,031,072 were purportedly made to WCC (trustee of the Hendon Unit Trust). Astion would have received $1,203,107.20. 21. The clients as Trustees failed to declare appointed income to WCC for the 1993, 1994 and 1995 tax years. 22. The Commissioner assessed primary tax as payable by the clients and imposed penalty tax under Part VII of the Income Tax Assessment Act 1936 (Cth) on the basis of recklessness of their tax agent, HAL. [327] Mr Young‘s evidence about payments was based upon a hypothesis that each participant paid 12% of the distributions with 10% going to Astion. Mr Stevens, in cross examination, agreed that some participants paid less than the 12% commission. I accept that. However, I am not satisfied that this made any material difference to the figure of about $1.2M retained by Astion. Mr Stevens agreed that a commission was paid to referring accountants and that it was one or two percent of the distributions. Mr Stevens did not concede that it was 2% as the Companies submitted. The Companies submitted that, based upon the cross-examination of Mr Stevens,225there were legal fees and other fees paid in relation to the Hendon arrangement and that all fees and commissions were paid by Astion prior to funds being distributed by Astion to the HAL group and that the HAL group would have received only $200,000 to $300,000. I reject the submission that Mr Stevens accepted that the Harts Australia Limited group received only $200,000 to $300,000. 224 Affdt I Young Q00064218 225 At T 6-64 and T 6-65 -- 75 of 229 -- 76 [328] Reference to Mr Steven‘s affidavit226 reveals that Astion paid commissions to accountants who promoted the Hendon arrangement. I infer that before Astion‘s trusteeship, WCC had done the same. Astion (and I infer WCC) paid fees to Steve Hart Family Holdings or Harts Consulting Pty Ltd. I infer this payment by Astion of 10% of the distribution figure was made after payment of commissions to accountants of 1% to 2% of the distribution figure. That would leave in Astion‘s account, 8% to 9% of the distribution figure of $12M. At most, Astion and WCC could have passed on 80% to 90% of about $1.2M. I accept that Astion (or WCC) paid other costs associated with the Hendon arrangement, out of the $1.2M commission it received. Payments were made to: R.D. Moore, Mr Don Fleming, Cleary and Hoare solicitors and Comlaw Consultants. The Companies put to Mr Stevens that $700,000 was paid for those costs before net fees were paid to Steve Hart Family Holdings or Harts Consulting. The amount was not accepted by Mr Stevens and there is no evidence of the $700,000 amount put to Mr Stevens. I reject it. Mr Fleming was an accountant in South Australia involved with tax minimisation advice and schemes. I infer that some costs were paid by Astion for legal advice and costs, taxation and accounting advice and that the costs were disproportionately high and unrelated to the time taken to render services or the inherent worth or complexity of the advice. Even on this inflationary premise for the costs, I am unable to accept that they would leave only $200,000 to $300,000 for distribution to Steve Hart Family Holdings or Harts Consulting Pty Ltd. I am not satisfied by the Companies that less than 60% of $1.2M ($720,000) was paid to Steve Hart Family Holdings or Harts Consulting Pty Ltd. [329] I infer from the Companies‘ submissions, that the amount of net commissions paid by Astion was relevant for two reasons. One reason is that the larger net amount, the more that could arguably have been used to derive or realise assets. The second was to do with the possibility that the net commissions may have been mixed with lawfully acquired funds before the mixed funds were used to derive or realise assets. Arguably, the smaller the proportion of net commissions in the mixed funds, the less substantial was the contribution from unlawful activity to the derivation or realisation of assets. The smaller the relative concentration of unlawfully derived funds in the mixture, the less likely it is to conclude that an asset derived from the mixture was derived from unlawful activity. Such an argument has more force if one interprets POCA s102(3)(a) as if it read ―not substantially derived or realised, directly or indirectly from unlawful activity‖, as I interpret it. [330] The Companies submitted that the HAL group received only $200,000 to $300,000 and that half was received in FYE 1993 and half in FYE 1994. There was no evidence referenced to substantiate these matters. It seems likely that scheme participants joined and paid in respect of those two financial years but that payments were received from participants between June and September in the calendar years 1993 and 1994. The Companies argued that the funds paid by the trustees (WCC and Astion) to the HAL group was a very small percentage of the group‘s cash flow and was insignificant. [331] To calculate the percentage of the HAL Group‘s cash flow that came from net commissions paid to Astion one starts with the net commissions from Astion which the HAL Group received. I am not satisfied that it was less than $720,000, for reasons I explained above. The next step is to consider the cash flow of the HAL Group at about 226 Q00064652 -- 76 of 229 -- 77 the time the commissions were received. The companies‘ submission is that the money paid by Astion to the HAL Group would have been paid in about June, July and August.227 It seems likely that most commission fees would have been paid by Astion in that period. The companies‘ submission is that Astion would have paid the fees over ―the two years that the arrangement was in place‖.228I accept that. It follows that about $360,000 would have been received by the HAL Group from Astion for commissions in the period June, July and August 1993 and again in the same months of 1994. Reference to the Hart‘s Australia Limited statement of cash flows for the 1993 and 1994 financial years suggests that the HAL Group had a cash flow of about $400,000 per month in those two financial years. Applying these figures, the contribution to cash flow from net commissions passed on by Astion would have been about 7.5 per cent per annum for two years. For the three months June to August, $120,000 per month in commissions from Astion would have been about 30 per cent of the cash flow of $400,000 per month. [332] In some cases the appointment of WCC (and presumably Astion after it took over as trustee) as a beneficiary of the client trust was found not to be a valid appointment, and consequently that income could not be offset against WCC‘s accrued losses. [333] In cases where the appointment was validly made, the present entitlement of WCC to the income arose out of a reimbursement agreement or in connection with a reimbursement agreement and WCC was deemed by s 100A of the Income Tax Assessment Act 1936229 for the purposes of that Act, not to be entitled to the income with the consequence that the income could not be offset against WCC‘s accrued losses. [334] In the BRK (Bris) case the appointment of WCC as a beneficiary was found not to be valid. Cooper J said in relation to the appointment of WCC as a beneficiary in that case: 73 I am satisfied that no one at Harts read the proforma documentation produced by Cleary & Hoare for use in the joint venture to see whether it was appropriate to the circumstances of the Trust. Anyone reading the documentation could not fail to recognise that the documents were prepared with reference to a particular form of trust deed. Unless the trust deed of the Trust was in the same form, the documentation was meaningless. I am satisfied that the only matters of concern to Harts in the last days of June 1993 were to ensure that the proforma documentation was executed, and in particular that there were resolutions appointing WCC as a beneficiary of the Trust, and appointing income of the Trust to it before 30 June 1993. 74 It was not a matter of concern to Harts whether or not the applicant had power under the terms of the Trust to pass the resolutions or make the appointments as beneficiaries or of income. It was not, as senior counsel for the applicant submits, merely a case of sloppy paperwork and mere oversight on the part of the applicant and Harts that the applicant had no power to appoint WCC as a beneficiary of the Trust or to appoint income of the Trust to WCC. 75 I am also satisfied that in June 1994 and June 1995 when the applicant became a party to further joint ventures which required the applicant to appoint further income to WCC, no consideration was given to whether or not the applicant was empowered under the terms of the Trust to make the appointments. Rather, I am satisfied the only concern of Harts was to obtain from the applicant and its other clients participating in the joint ventures duly executed 227 Applicant‘s closing submission, p 58, par (37)(b)(iii). 228 Applicant‘s closing submission p 57, par (37)(b)(i)(E). 229 Affdt Mr Young Q00064218, par 18; Idlecroft Pty Ltd v Commissioner of Taxation [2005] FCAFC 141 at [45], [48] & [49]. -- 77 of 229 -- 78 proforma documentation which contained, amongst other things, the executed minutes of a resolution appointing income to WCC. 76 Harts, as accountants and tax agents for the applicant, prepared the income tax returns for the years 1993, 1994 and 1995. Those returns recorded that the income of the Trust in 1993 was $123,189, which was distributed wholly to the WCC, that in 1994 it was $306,758, and was distributed wholly to WCC, and that in 1995 it was $311,388, which was distributed as to $220,053 to WCC and as to $91,335 to the Northbourne Rural Property Trust. I infer that the tax returns were prepared on the basis of the proforma documentation executed by the applicant in each of the relevant years. There can have been no attempt made to ascertain whether or not WCC was in fact and law beneficially entitled in each income year by reference to the Deed and a consideration of the applicant's powers of appointment under the Trust. Such an investigation would have revealed that WCC was not presently entitled to the income, as was discovered when belatedly such an investigation was undertaken. … 79 This case is different to one where a tax agent prepares an income tax return on the basis of material provided by the taxpayer. Harts was so intimately involved with the promotion of the Westside Commerce Centre Joint Venture that it was in a better position than the taxpayer to know the true facts. Harts knew from Cleary & Hoare Solicitors that the effectiveness of the resolutions appointing the additional beneficiaries and the appointment of income to WCC depended entirely upon the terms of the Trust authorising such a course to be followed. Harts failed in June 1993, and at all times thereafter, to make the necessary investigation to enable it to advise the applicant to take the steps provided for in the proforma documentation and to execute the same, and to enable Harts to act upon the basis that the actions of the applicant and the executed documentation were effective to create in WCC a present entitlement to the income of the Trust in the 1993, 1994 and 1995 income years. Harts had no basis to rely upon the proforma documentation executed by the applicant in preparing the income tax returns because it knew there was a real risk, in the sense that it was not a fanciful risk, that the resolutions recorded therein may not have been effective under the terms of the Trust to create a present entitlement to the income in WCC. 80 I am satisfied that Steven Hart and Robert Adcock in June 1993 determined to rely upon the proforma documentation to be executed by the applicant, and the steps to be taken by it as recorded in the documentation, as being effective to appoint WCC as a beneficiary of the Trust and to appoint income of the Trust to it. They took the risk that any existing trust deed may not have empowered the applicant to effectively pass the resolutions or appoint the income. They conducted themselves on that basis at all times thereafter in the conduct of the applicant's taxation affairs and continued to take the risk that no effective appointment of beneficiaries or of income had been made in each relevant income year. I am satisfied that Steven Hart and Robert Adcock, when the income tax returns were prepared and lodged, were indifferent as to whether or not the statements as to the distribution of income contained in the returns were correct. It was reasonably foreseeable to a person in their position that to allow the preparation and lodgment of the tax returns on that basis would cause the Act to operate so as to bring the income of the Trust to account under s 97 of the Act rather than s 99A(4), when there was a real risk that that was not the correct basis on which the income ought to be assessed. In my judgment, to lodge the returns in the form in which they were lodged containing the statement as to the distribution to WCC was reckless. (emphasis added) [335] The Companies‘ submissions did not expressly take issue with the Commonwealth‘s argument that there was recklessness in breach of s 8N of the TAA, in relation to the Hendon arrangement. Reference to the matters set out in the BRK (Bris) case above, reveals that, with Hendon, Harts had legal advice that the effectiveness of the clients‘ resolutions appointing WCC would depend on the terms of the clients‘ trust deeds and whether the terms authorised the appointments. Harts knew that if the terms did not -- 78 of 229 -- 79 authorise such an appointment, Harts could advise the client how to take steps provided for in proforma documents and execute them so as to make subsequent appointments of income to WCC valid. If the accountants had ensured that the process had been followed, the distributions of income would have been valid. The accountants‘ fault was inaction when they were forewarned by lawyers that action by the accountants was required. With respect, the finding of recklessness was based on a strong footing. [336] There are reasonable grounds to suspect recklessness in breach of s 8N of the TAA in relation to the Hendon arrangement. There are reasonable grounds to regard the net commissions paid by Astion to Steve Hart Family Holdings or Harts Consulting Pty Ltd as derived from unlawful activity. [337] Mr Stevens deposed, and I accept, that in 1993 and 1994, Mr Hart promoted the Hendon arrangement to accountants working for the Harts Australia Limited Group who then promoted it to clients of the Harts Group and that Mr Hart promoted the arrangement to his suite of clients within the Harts Group. The precise meaning of ―Harts Australia Limited Group‖ was not explained by him. If Mr Hart, Harts Australia Limited, employees of Harts Australia Limited or client trustees of Harts Australia Limited, recklessly made false or misleading statements to clients or beneficiaries in relation to the operation of the taxation law or in connection with the operation of a taxation law, an offence against s8N of the Taxation Administration Act would have been committed. I note that in the BRK (Bris) case Cooper J referred to Harts Auditors and Accountants rather than Harts Australia Limited. The identity of the employer does not affect the probability that offences were committed. The Companies have not shown that such offences have not been committed. [338] In late 1995 another property at Whyalla, a government office building, was acquired by Astion as trustee as part of the Hendon arrangement. That investment resulted in rental income being paid to Astion. The Commonwealth argued that the Companies have not established that the rents were not indirectly derived from unlawful activity. The Companies submit that the Commonwealth has not pleaded that the rents received were derived from unlawful activity. The Commonwealth made no submission in rebuttal about the failure to raise the issue in the pleadings. Before considering the merits of the Commonwealth‘s argument, I must consider the Companies‘ pleading argument. [339] The Commonwealth, by its Further Further Amended Points of Defence at page 11 paragraph 9(d)(4)(a)a provided particulars of the allegation that Mr Hart and others, in relation to the Hendon arrangement, had recklessly caused statements to be made to a taxation officer that were false or misleading in a material particular contrary to s 8N of the Taxation Administration Act. The particulars were the matters set out in the affidavit of IRC Young sworn 27 September 2010 at paragraphs 16 to 23 and the affidavit of IR Stevens230at paragraphs 5 to 25. There is no affidavit by Mr Young sworn 27 September 2010 that I can find in the electronic record. The only affidavit of Mr Young in the electronic record that I can find was sworn 23 November;231 paragraphs 16 to 23 relate specifically to the Hendon arrangement. I assume a misdescription of the swearing date was given in the particulars. The misdescription of the swearing date is not the Companies‘ complaint. 230 Q00064652 231 Q00064218 -- 79 of 229 -- 80 [340] Paragraph 13 of the affidavit of Mr Stevens232was within the particulars provided. He deposed: 13. Each client agreed to make monthly repayments toward the balance of the distribution which was to be paid on an ―as called‖ basis. In effect the client trusts were to pay off the outstanding amounts of the distributions over a period of time. I recall the payments were based on a 10 year repayment period. The clients were advised that they would need to make regular payments and that in the future they would need to provide a bank guarantee. They were further advised that they would eventually receive a distribution from the unit trust from rental income. This then generated a cash flow that assisted Hendon later to meet repayments on its loan. Further each client trust advised that it was required to provide a bank guarantee. This guarantee was later used to assist in the financing of property by Hendon. At all times these funds were quarantined from other income received by Hendon, for example rental income. [341] During argument about the Companies‘ request for an adjournment on the first day of trial, the amendments to the Commonwealth‘s pleading were raised by the Companies as a source of prejudicial surprise. In the course of argument the relevance of the Hendon and Northbourne arrangements was emphasised in the following exchange:233 HIS HONOUR: So the defence has really put the applicants on notice that if they identify Tinkadale and Astion as a source of funds, they should beware that they will be probed as to whether Northbourne and Hendon activity created the funds that Tinkadale and Astion supply. MR FLANAGAN: Exactly. [342] As to the Companies‘ submission that the Commonwealth has not pleaded that the rents received were derived from unlawful activity: I find that the Commonwealth has adequately raised the issue that the Companies bear the onus of proof that the rents were not indirectly derived from offences against s 8N of the Taxation Administration Act. [343] I now consider whether the Companies have satisfied that onus. Paragraph 13 of Mr Steven‘s affidavit is relied upon by the Commonwealth. The Commonwealth submits that the Companies have not shown that payments sourced from the Astion rent account were not indirectly derived from unlawful activity including the Hendon arrangement. No analysis was made by the Commonwealth or the Companies to show the closeness or lack of closeness of the connection between the unlawful activity and the payment of rent to Astion. It seems likely that taxpayer clients made regular payments to Astion of the purported distribution. Each payment gave the appearance of a deduction from a client‘s taxable income. The reckless representations were to the effect that Astion was a beneficiary to whom each distribution was properly made or could be properly made. Each receipt by Astion of a part payment of a purported distribution was directly related to the reckless representation, because the representation was about the payment‘s propriety. I am not satisfied that payments Astion received as purported distributions were not substantially derived or realised from unlawful activity. It seems that after a payment of 2% of the distributions to Tinkadale, and 10% to Astion, 88% remained. It is probable that the 88% was mostly used for the purpose described by Mr Stevens, namely to assist ―Hendon‖ (by which Stevens must have meant the trustee Astion) to meet loan repayments. It is a reasonable inference that the distributions were used to pay interest and possibly capital in relation 232 Q00064652 233 T 1-53 l 27 -- 80 of 229 -- 81 to the loan borrowed to acquire the Whyalla property. If the distributions had not been used to meet loan repayments, it is a reasonable inference that the rents received would have been used to meet loan repayments. [344] If rents Astion received were accumulated and used to derive any restrained assets, it is a reasonable inference that the rents were indirectly derived from Astion‘s use of the distributions it directly derived from unlawful activity, being the reckless representations. I am not satisfied that the rent Astion lawfully earned from the Whyalla property was not substantially, indirectly derived from the unlawful activity of reckless representations from which the distributions were more directly derived. [345] Put simply, the Companies have not proved that but for the distributions derived from unlawful activity, Astion would have been able to save the rent it earned lawfully. The Companies did not prove that tainted funds from distributions are an insignificant proportion of the total funds received into Astion‘s account and that the tainted funds did not enable Astion to use rent receipts to derive property. The Companies have the onus of proof that this is not so. They have not satisfied the onus. [346] On 3 March 1998 Astion paid $45,000. Mrs Hart deposed that the payment was from ―rent account‖. On the assumption that the source of the money was accumulated rent earned lawfully, it may have been derived indirectly from unlawful activity for the reasons explained above. I am not satisfied that it was not derived indirectly from unlawful activity. The derivation of that sum has particular relevance when considering the asset 27 Samara Street Sunnybank. [347] Tinkadale Pty Ltd was the trustee of Mr Adcock‘s trading trust. It may have received income earned from insolvency work done by Mr Adcock who was a registered liquidator. On 21 October 1994, Tinkadale received $100,000 from Harts Pty Ltd trust account. The Companies argue that the timing of the payment is not consistent with its being money from Hendon scheme participants who mainly paid from June to September. I accept that is so. On 24 October 1994 Tinkadale paid $50,000 to Steve Hart Family Holdings Pty Ltd aka Nemesis. The Companies submit that the evidence is that participants paid Tinkadale‘s 2% fee ―directly…to Tinkadale‖ and referred to affidavits of Mr Young and Mr Stevens in support. Reference to the affidavits reveals that the submission has inaccurately added the crucial word ―directly‖. Neither deponent has used the word. There is no evidence to suggest that all participants in the Hendon arrangement paid funds directly to Tinkadale or to Harts Pty Ltd. However, recalling that: Tinkadale earned 2% of fees; the fees it earned can have been no more than about $120,000 for each of the two years; the fees were mainly received from June to September; reference to exhibit 11 becomes instructive. It shows Tinkadale‘s receipts. Sums consistent with 2% of participant‘s fees appear to have been received in small amounts of less than $12,500, and mainly in June, July and August. Exhibit 11 begins recording from 28 June 1993. It shows that from then until 6 September 1993, Tinkadale received about $102,800 in amounts less than $12,000 with the exception of a payment of $20,000 from Astion. There were other and much larger payments, generally inconsistent with amounts from participants. In the period 8 June1995 to the end of August 1995 the receipts of payments in similarly sized amounts total about $136,000. It assists me to accept that the payment to Tinkadale made on 21 October 1994 of 100,000 was not in respect of the Hendon arrangement. It would have inflated Tinkadale‘s earning from Hendon well beyond the $240,000 maximum to be expected. It was well out of time. I am satisfied that the $100,000 Tinkadale received on 21 -- 81 of 229 -- 82 October 1994 was not from the unlawful activity of the Hendon arrangement and that the payment of $50,000 by Tinkadale to Nemesis on 24 October 1994 was derived from that money and was not unlawfully derived. [348] The companies submitted that according to the testimony of Mr Stevens, fees to enter the Hendon arrangement were received only in the period from June to August each year. I reject that submission. Reference to Mr Stevens‘ oral evidence shows that the funds were received by the HAL Group from Astion in the period ―mainly June through – sometimes a bit later, but through to August, September‖.234 The companies referred to payments, other than rent, made to and by Astion at times of the year which were outside the period from June to August and submitted that such funds would not have been from unlawful activity. Considering that Tinkadale seems to have received its fees from the Hendon arrangement primarily in the months of June to August, it seems probable that Astion received its fees in the same months, though fees received in early September are consistent with the evidence of Mr Stevens. The companies argue that a payment by Astion on 9 September 1994 of $25,000 which assisted to derive the Doonan‘s Rd properties was not from unlawful activity.235 The evidence referred to as justifying the submission is evidence that Astion received payment of $40,000 six months earlier, on 8 March 1994 from Tinkadale236and $35,000 almost six months earlier from Tinkadale and that Tinkadale did not directly receive the $40,000 or the $35,000 from the Hendon arrangement. [349] Astion received $40,000 on 8 March 1994 from Tinkadale which had been put in funds on 7 March 1994 by Bomilsco and on 25 March 1994 Astion received $35,000 from Tinkadale which had been put in funds partly with a payment of $50,000 from an unnamed source. The Companies impliedly submitted that they satisfied the onus of proof that these two payments of $40,000 and $35,000 were from lawful activity. There is no explanation for the payments from Tinkadale. There is no explanation for why Tinkadale received the funds from which it paid Astion. Because of the dates and because Tinkadale‘s fees from the Hendon arrangement appear to have been paid at other times, I am satisfied that these two payments to Astion by Tinkadale did not come from funds which were directly from the unlawful activity connected with the Hendon arrangement. I must consider whether the funds came indirectly from unlawful activity. [350] Between 28 June 1993 and 8 March 1994 Tinkadale had received about $102,800 in fees from the Hendon arrangement, the last of which was probably in early September 1993 and about $980,000 from other sources.237 All Hendon fees appear to have been paid away by Tinkadale by the end of September 1993.238 Between 8 March 1994 and 25 March 1994, no further fees were received from the Hendon arrangement but Tinkadale received a further $200,000. It means that by the time it paid Astion another $35,000 on 25 March 1994, Tinkadale had received about $102,800 in fees from the Hendon arrangement, the last of which was probably received and paid away in September 1993 and about $1,180,000 from other sources. I am satisfied that Tinkadale‘s capacity to make payments in March 1994 of $40,000 and $35,000 was not based upon its earlier receipt of fees from the Hendon arrangement. I am satisfied that 234 T6-56, ll 33-38. 235 Applicants‘ Closing Submission pg 58 par37(c)(i) 236 Applicants‘ Closing Submission pg 58-59 237 Ex 11 238 Ex 11 -- 82 of 229 -- 83 the monies Tinkadale paid Astion in March 1994 of $40,000 and $35,000 were not derived directly or indirectly from unlawful activity. It is possible that there were fees from the Hendon arrangement of about another $18,000 received before 28 June 1993 taking total fees to about $120,000. That possibility does not alter these findings. [351] These findings have also been required to consider whether $25,000 paid by Astion on 9 September 1994 was derived from unlawful activity. The fact that Astion received $75,000 in March 1994 which was not from unlawful activity, is overshadowed by the fact that it received fees from the Hendon arrangement in June, July and August 1994 of about $600,000. If it paid commissions to referring agents and other fees, that figure may have fallen to $360,000 for reasons set out above. Astion may have been receiving rent as well. I am not satisfied that $25,000 paid by Astion on 9 September 1994 was not derived from unlawful activity. The Northbourne Arrangement [352] As with the Hendon arrangement, for the Northbourne arrangement, the Commonwealth put the Companies on notice that they are required to satisfy the court that Hangar 400, Hangar 101, Hangar 607, L-39C, T-28 VH-SHT, Arkotech Cap 232 VH-SHI, 27 Samara Street and Doonan‘s Road Grandchester were not derived or realised directly or indirectly from unlawful activity being offences under s 8N of the TAA. The Companies‘ first argument was, in effect, that there was no offence under s 8N of the TAA. [353] The Commonwealth‘s 8 page submission was essentially: the Northbourne arrangement was later in time than the Hendon arrangement and a different building was used for the investment, but the schemes had a similar aim to appoint income from client trustees to an entity which carried significant losses and which would use 88% of the appointed funds to service an investment in real estate; rather like the Hendon arrangement, with the Northbourne arrangement the taxpayers‘ deductions for distributions to Northbourne were disallowed because Northbourne was not a beneficiary of the clients‘ trusts as Northbourne did not fall within the definition of ―general beneficiary‖; recklessness by advisers had been found by the court when considering the Hendon arrangement; similar recklessness must have existed in the Northbourne arrangement. [354] The Companies‘ 4 page submission in support is most easily understood from the following selected extracts: (38) The ATO initially issued assessments to all participants in the Northbourne arrangement in accordance with the operation of section 226H for recklessness239. However the penalty was reduced by the Administrative Appeals Tribunal (―AAT‖) to "lack of reasonable care"240 in accordance with section 226G. There was no finding of recklessness in accordance with section 8N of the Taxation Administration Act. 108. For these reasons the Tribunal makes decisions to the effect that: (a) the objection decisions assessing the Trustee under sections 169 as liable under section 99A be set aside, and decides in each application that the applicant‘s objection be allowed in full; (b) the objection decisions relating to assessment of income tax payable by the beneficiaries will be set aside and each matter is remitted to the respondent with a direction that each of the individual Applicants was presently entitled 239 Capersaw and Federal Commissioner of Taxation [2004] AATA 1179 [101] 240 Q00064218 affidavit Mr Young. Pargraph 39 -- 83 of 229 -- 84 to an equal share of the net income said to have been appointed to Northbourne as takers in default; (c) the objection decisions relating to assessment of penalty tax payable by the beneficiaries will be set aside and decisions substituted that penalty tax be assessed in accordance with section 226G of the Act; (d) there is no basis for exercising the discretion in sub-section 227(3) of the Act; and (e) these proceedings have terminated in a manner favourable to the Applicants. … (d) The AAT obviously agreed there were major differences as the Northbourne decision was handed down in 2004 but the initial case with Hendon, BRK241, was handed down in 2001. The evidence of the AAT's Judgment clearly states that there was no finding of recklessness in any form and therefore this allegation of the Commonwealth does not stand scrutiny. The Northbourne arrangement, according to the Commonwealth's own evidence, cannot be considered unlawful activity. [355] The extract footnoted a reference to paragraph 39 of the affidavit242 of Mr Young, a Senior Director in the Serious Non Compliance Branch of the Australian Taxation Office, (―ATO‖). Mr Young explained the Northbourne arrangement in paragraphs 37 and 38 and explained findings of the Administrative Appeals Tribunal in paragraph 39 as follows: 37. Northbourne Holdings Unit Trust (Northbourne) was established by deed in 1989 for the purpose of acquiring and redeveloping real property known as No 2 Pitt Street Sydney No 22 Pitt Street Pty Ltd was the Trustee. The investment was unsuccessful and Northbourne incurred substantial losses. In or about 1995 Harts Consulting Pty Ltd acquired units in Northbourne and the two shares issued in No 2 Pitt Street Pty Ltd for the purpose of getting access to approximately $13.5 million in accumulated losses. 38. In the 1995 to 1999 tax years Harts Consulting Pty Ltd promoted a scheme whereby trustees, of family trusts were invited to acquire units in Northbourne on the basis of one unit for each $1,000 of net income of the family trust appointed to Northbourne. Fees at 12% were payable to Harts Consulting Pty Ltd. Pursuant to the scheme the trustees nominated Northbourne as General Beneficiary of the Trust. There was no intention that the family trusts would be required to repay the acknowledged debts being the unpaid distributions in favour of Northbourne. Northbourne had limited recourse. Most appointments of Northbourne as a general beneficiary were not valid. Northbourne purported to enter into contracts for the purpose of the Biralee Shopping Centre in stages between July 1996 and December 1997…. 39. The Administrative Appeals Tribunal was satisfied that the avoidance of tax was due to evasion. When considering penalty the Tribunal drew a distinction between the conduct of the beneficiaries and the conduct of the trustee. The Tribunal was unable to come to a fair view of the conduct of Mr Hart and Harts Consulting Pty Ltd in the context of his clients' financial affairs on the one hand and his clients' income tax affairs on the other hand. For this reason, the Tribunal could not be satisfied that there was relevant conduct which could be described as reckless. However, the Tribunal was satisfied that there was a lack of reasonable care by both the beneficiaries and the tax agent in relation to the beneficiaries' income tax returns. (emphasis added) [356] Mr Young continued: 40. Seventy-three trustees participated in the scheme. Distributions totalling $14,112,476 were made to Northbourne. Harts Consulting Pty Ltd would have received fees of $1,693,497.12. [357] I accept Mr Young‘s explanations and evidence above. 241 BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCR 118 242 Affidavit I Young Q00064218 -- 84 of 229 -- 85 [358] The Northbourne arrangement was described in an appeal against amended assessments issued by the Commissioner of Taxation. I accept the description as accurate. It follows:243 37 The Northbourne Holdings Unit Trust (―Northbourne‖) was established by deed in 1989 (Exhibit F) for the purpose of acquiring and redeveloping real property known as No 22 Pitt Street, Sydney. 38 For reasons not apparent to us and not relevant to these proceedings, the investment was unsuccessful and Northbourne incurred substantial losses. The 20 issued units were held for the benefit of Northbourne Rural Property Trust. 39 At all relevant times No 2 Pitt Street Pty Ltd was the Trustee (initially the company was known as Northbourne Holdings Pty Ltd but nothing turns on the change of name). 40 In or about 1995 (probably March 1995), Harts Consulting Pty Ltd (―Harts‖), a company controlled by Steven Irvine Hart, acquired the units in Northbourne and the two shares issued in No 2 Pitt Street Pty Ltd. It is reasonable to infer, and we do, that the purchase of Northbourne was for the purpose of getting access to approximately $13.5 million in accumulated losses resulting from the unsuccessful Pitt Street development. Northbourne does not appear to have had any commercial value at March 1995 or at any time immediately thereafter except for any value of tax losses. 41 While the evidence of Mr Stevens made it apparent to us that proper process was not a strong point of Harts so that it could be said that the share transfer was not properly executed, we accept that the company controlled No 2 Pitt Street Pty Ltd effectively from probably March 1995. 42 In the years of income ended 30 June 1995 through to 30 June 1999, Harts promoted a scheme whereby Trustees of family trusts were invited to acquire units in Northbourne on the basis of one unit for each $1,000 of net income of the family trust appointed to Northbourne. Essential to this arrangement was the need for the Trustees of the family trusts to add Northbourne as a general beneficiary of the family trust. Fees at 12% were payable to Harts. 43 As already noted, the Trustee nominated Northbourne as a General Beneficiary of the Trust by resolution dated 27 June 1995. 44 In pursuance of the scheme, the Trustee appointed income to Northbourne as set out above. 45 On the basis of the evidence of Mr Stevens, Ms Campbell and Exhibit G, we are satisfied that there was no intention that the family trusts would be required to repay the acknowledged debts, being the unpaid distributions in favour of Northbourne. Northbourne had limited recourse only for unpaid amounts, being the right to redeem the units issued to the family trusts by Northbourne. 46 Northbourne, guided by Harts, purported to enter into contracts for the purchase of the Birralee Shopping Centre. The respondent initially contested that the shopping centre was never purchased. Certainly Harts represented that the purchase had taken place in stages with completion by December 1997 (Exhibit F). The documents before the Tribunal are not complete as to purchase of the shopping centre and shops but we are satisfied that it is more likely than not that Northbourne had contracted to purchase the centre. We are uncertain as to actual dates of purchase but note that the report in Exhibit H by Ms Muller indicates date of purchase as 5 July 1996 for $2.8 million. We are satisfied that is in relation to the Centre but does not include the purchase of some strata title shops. It is apparent, however, that final settlement in the purchase of the shopping centre and shops did not occur until February 1998 with a payment of $4.2 million funded by borrowing from Metway Bank. 47 The borrowing by Northbourne from Metway Bank was secured by bank guarantees to be provided by the unit holders in Northbourne, that is the respective Trustees of the family trusts including the present applicant Trustee. The Trustee provided a guarantee on or about 11 July 1997 for an amount of $100,000. 243 Maurice Hannan Nominees Pty Ltd as Trustee for Maurice Hannan Family Trust and Ors and Commissioner of Taxation [2004] AATA 1180 at [37]-[55]. -- 85 of 229 -- 86 48 Northbourne instituted proceedings in the Supreme Court of Victoria regarding matters arising out of the Birralee project. Copies of two judgments by Balmford J are part of Exhibit B. We have read the judgments but nothing arises from them in the context of this matter other than to explain one of the factors delaying the Birralee development. 49 The investment scheme for the Birralee Shopping Centre did not promise any profit to the unit holders in Northbourne until the tenth year of the scheme. It is apparent to us from the material before us that any ultimate return to unit holders depended on a successful sale of the shopping centre after, it may be assumed, ten years. 50 We are satisfied that the applicant Trustee was motivated by two factors when entering into the arrangements proposed by Harts, namely: (a) the projected ultimate return; and (b) the understanding that income tax payments would be deferred for up to ten years. 51 In the ultimate, the development of the shopping centre failed and the company is in liquidation. Northbourne‘s investment in the development appears to be worthless. That is not to say that the shopping centre was other than a reality – it was probably overly ambitious in its concept but we accept that the proposal put to the Trustee was such that it could not be foretold to be a failure. In deciding to go into the scheme the applicant Trustee made decisions which included the investment in the shopping centre. We accept that the investment decision followed the decision to appoint the net income to Northbourne and, we infer, it is unlikely the investment decision was made independently from the decision to appoint the net income to Northbourne. We have come to that conclusion after taking into account the evidence of Mr Hannan in particular. In Exhibit AF, Mr Hannan said at paragraphs 34 and 35: ―...we understood that there was a tax advantage, as we saw it, similar to a negative gearing situation, because of the way in which matters were arranged. ...we saw this as a short term benefit, which would be offset once the property was fully developed because we would be receiving rental income and when the sale was completed and a taxable profit generated.‖ [sic] 52 In his oral evidence Mr Hannan referred to paragraph 4 of Exhibit AG where he said: ―At no stage did Hart represent to me or to my wife that (the Trust) could participate in the transaction in a manner that sheltered the income of the (Trust) from Taxation liabilities.‖ 53 In his oral evidence Mr Hannan said in reference to paragraph 4: ―...I suppose, it probably would have been more correct to say, ‗sheltered the income forever‘, because it was always acknowledged by myself and known by myself that income tax would be payable sometime ... there was never any issue of it not being paid at all.‖ 54 We are satisfied that Mr Hannan was not there referring to the distributions from the Trust in favour of Northbourne but was referring to the income and capital gains to be generated by the shopping centre development, that is, assessable income expected to be derived in future years of income from the shopping centre development. We are also satisfied, from answers given in cross-examination, that Mr Hannan had not investigated the investment as to its potential profitability and had relied, blindly it seems to us, on advice from Harts. 55 The arrangements entered into by the Trustee have their genesis in advice to the directors of the Trustee by Steven Irvine Hart. Mr Hart was called to give evidence. He answered formal questions but refused to answer questions relevant to the arrangements in question on the grounds that he claimed the privilege against self- incrimination. The basis for this claim is set out in Exhibit 2. The Tribunal accepted that he was not required to answer questions where the privilege was claimed. The Tribunal does not draw any inferences from the fact that Mr Hart claimed the privilege.‖ [359] Is there a difference between the accountants‘ errors with the Hendon and Northbourne arrangements? The error in Hendon was the accountants‘ inaction when the accountants were forewarned by lawyers that they should ensure trust deeds included a -- 86 of 229 -- 87 power of appointment or to ensure that the deeds were amended to include one. The error in Northbourne is not the same. To understand the advisers‘ error, I set out from Capershaw and Federal Commissioner of Taxation244the tribunal‘s reasons at [47] to [51] (emphasis added): [47] We understand, as a question of law, that where a Trustee exercising its discretion decides to distribute the net income of the trust, the Trustee must ensure that a proposed appointee is within the range of beneficiaries (in this case general beneficiaries as defined), that the quantum of the distribution is appropriate and takes into account the interests, including needs, of all beneficiaries. [48] In McPhail v Doulton [1971] AC 424 at 449 Lord Wilberforce expressed the law as follows: Any Trustee would surely make it his duty to know what is the permissible area of selection and then consider responsibly, in individual cases, whether a contemplated beneficiary was within the power and whether, in relation to other possible claimants, the particular grant was appropriate. [49] In this case the Trustee clearly failed Lord Wilberforce‘s test. Northbourne was clearly not a general beneficiary and therefore it was not within the Trustee‘s power to appoint income to it. We have come to that conclusion because we are satisfied that Northbourne was not an entity contemplated by the definition of ―general beneficiary‖. [50] That definition reads as follows: 1(b) The „General Beneficiaries‟ means: (i) the Specified Beneficiary and the Specified Beneficiaries; (ii) the brothers and sisters, spouses, children and grandchildren of the Specified Beneficiary or Specified Beneficiaries and the spouses children and grandchildren of such brothers and sisters, spouse, children and grandchildren; and (iii) any of the following entities whether formed in Australia or elsewhere which the Trustees may from time to time in writing nominate as a General Beneficiary (subject to Clause 10 hereof) namely: A the Trustees (in their Capacity as such) of any trust or settlement (called an eligible Trust) under which any General Beneficiary hereinbefore referred to is a beneficiary whether present or contingent; B any corporation (called an eligible corporation) at least one share in which is owned by any General Beneficiary hereinbefore referred to or by the Trustees of an eligible Trust; C any other legal entity at least one share or other interest (whether present or contingent) in which is owned or held by any General Beneficiary hereinbefore referred to or by the Trustee of an eligible Trust or by any eligible corporation; (iv) such additional persons corporations and Trusts (if any) as are named and described or defined in the Schedule as additions to the class of General beneficiaries; PROVIDED HOWEVER that: (1) Any person from time to time being the Settlor the Guardian the Appointor or the Trustee or Trustees hereof or any other person or corporation settling property on the Trusts of the Settlement (herein called ―an excluded person‖) and also (2) Any corporation in which and the Trustees of any Trust in or under which and any other legal entity in which any excluded person has any actual or contingent beneficial interest so long as such interest continues are excluded from the class of general beneficiaries — A unless specifically included in the Schedule as a Specified Beneficiary; or 244 Capershaw and Federal Commissioner of Taxation (2004) 57 ATR 1263; [2004] AATA 1179; BC200410773 -- 87 of 229 -- 88 B for all purposes except as an Additional Income Beneficiary if specifically included as such in the Schedule; PROVIDED FURTHER that the Trustees at any time and from time to time may declare in writing (subject to Clause 10 hereof and not otherwise) that any person who would otherwise be a General Beneficiary under paragraphs (i), (ii), (iii) or (iv) of this sub clause (b) shall be excluded from the class of General Beneficiaries and shall as from the date of making each declaration be modified accordingly but so that this power shall not be capable of being exercised so as to derogate from any interest to which such General Beneficiary has previously become indefeasibly entitled whether in possession or reversion or otherwise; [51] Insofar as it may be said that the Trustee was a beneficiary of Northbourne, we are satisfied that the Trustee itself is not within the defined meaning of General Beneficiary so that the fact of it being a beneficiary in Northbourne does not thereby make the Trustee a General Beneficiary as defined. Whatever doubts may exist as to the certainty of the definition should be resolved on the basis that there is a clear intention that the Trustee would not be a General Beneficiary as defined. That intention is evident from construction of the definition itself. [360] The accounting adviser‘s error appears to have been a failure to interpret the definition in the client‘s trust deed as revealing that the client trustee‘s power to appoint a new beneficiary did not extend to a power to appoint No 2 Pitt Street Pty Ltd in its capacity as trustee of the Northbourne Holdings Unit Trust as a beneficiary of the client‘s family trust. There is no indication from the reasons that the accountant advisers were forewarned by lawyers that the deed should be interpreted with this limitation. There is no indication in the reasons that the lawyers warned that there were procedural matters to comply with. A misinterpretation of the deed could have been negligent rather than reckless. [361] The Northbourne scheme was different from Hendon‘s as there was no joint venture contemplated. It may be that the legal advice, if any, received by the accountants before offering the Northbourne arrangement to clients omitted the caution that had been given by the lawyers advising on the Hendon arrangement. Cooper J found in the BRK (Bris) case at [79]: Harts knew from Cleary & Hoare Solicitors that the effectiveness of the resolutions appointing the additional beneficiaries and the appointment of income to WCC depended entirely upon the terms of the Trust authorising such a course to be followed. [362] The tribunal in Capershaw found on the issue of recklessness: [101] Section 226H of the Act provides, subject to Part VII, that if a taxpayer has a tax shortfall for a year and the shortfall, or part of it, was caused by the recklessness of the taxpayer or of a registered tax agent with regard to the correct operation of the Act or Regulations then the taxpayer is liable to pay, by way of penalty, additional tax equal to 50% of the amount of the shortfall or part of it. [102] Subsection 227(3) of the Act provides for a discretion to remit the whole or any part of additional tax payable under a provision in Part VII. [103] The respondent submits that the required recklessness arose from the recklessness of Mr Hart (and it might be added — his organisation) as tax agent for the Trustee (and the other applicants). The respondent submitted that Mr Hart was reckless as to the tax consequences of the scheme. [104] It is also submitted that the applicant beneficiaries were personally reckless in accepting the advice of Mr Hart to whom they were giving 12% of the distributions for entry into the scheme. The respondent also made other submissions about the applicants being grossly careless. [105] In the context of the beneficiaries we are of the view that their conduct must be considered separately to the conduct of the Trustee when considering the individual tax returns lodged by the beneficiaries. While the conduct of the tax agent may be -- 88 of 229 -- 89 relevant we are unable in these cases to come to a fair view of the conduct of Mr Hart and his organisation. In particular, we are unable to come to any view as to the conduct of Mr Hart in the context of his clients‘ financial affairs on the one hand and his clients‘ income tax affairs on the other hand. We are therefore unable to be satisfied that there was relevant conduct that could be described as reckless in the terms of section 226H. [106] We are satisfied, however, that there was a lack of reasonable care by both the beneficiaries and the tax agent in relation to the beneficiaries‘ income tax returns. This is because both seem to have disregarded the effect of the Trust Deed in preparing the relevant income tax returns and, in particular, failed to recognise that the appointment of net income to Northbourne had not been made in accordance with the Trust Deed. [107] In our view the beneficiaries and the tax agent displayed a lack of reasonable care in lodging the income tax returns so that there was a resulting tax shortfall in relation to the beneficiaries. [363] The tribunal in the related case of Maurice Hannan Nominees245made identical findings when failing to conclude recklessness246by Mr Hart, his organisation or the clients. [364] The Commonwealth rightly submitted that the failure to find recklessness was not a finding of no recklessness. It is for the Companies to persuade me that there was no recklessness amounting to an offence against s 8N of the TAA in respect of this arrangement about 15 years ago. Where there is such scant evidence I am informed by the observations extracted in these reasons from Briginshaw.247Just as people are less likely to be fraudulent than negligent, people are less likely to be reckless than negligent. The Companies have satisfied their onus. I proceed as if the funds realised from the Northbourne arrangement were not unlawfully derived. [365] The companies had other submissions on the premise that they failed to satisfy their onus. I will consider them in case of an appeal against my finding. [366] Total purported distributions pursuant to the Northbourne arrangement were $12M or $13M and as Harts Consulting Pty Ltd would ordinarily receive 12 per cent of the distributions as a commission it could have received between about $1.4 and $1.6 million according to the evidence of Mr Stevens.248 The companies argued that it was a lesser sum that was received and that it was less than 1 per cent of the cash flow of the HAL Group for a two year period and was insignificant. [367] Some clients may have paid less than 12%. I am not satisfied that the commissions were less than $1.4M. There were fees and costs to be paid out of the $1.4M. The Companies submitted: Based on the cross-examination of Mr Stevens mentioned above, the HAL group would only have received between $250-$350,000 in fees from Northbourne over the two years that the arrangement was in place (approximately $125,000-$175,000 per year). Reference to the transcript of Mr Steven‘s ―cross-examination… mentioned above‖ is obscure. The cross-examination provides no foundation for this calculation. Mr Hart put a figure for fees to lawyers and others of $700,000 when asking about the Hendon arrangement. Mr Stevens steadfastly refused to accept the accuracy of Mr Hart‘s 245 Op cit 246 At [110] to [115] 247 Op Cit 248 Q00064652, par 36. -- 89 of 229 -- 90 proposition.249He later denied knowing whether legal fees were incurred or knowing what was paid to acquire the ―loss trust‖. The only precise figure he accepted was that referring accountants were paid 2 of the 12 per cent paid to Harts Consulting Pty Ltd. I reject the submission that the HAL group would have received between $250,000 and $350,000. Absent any evidence, I am not satisfied that the HAL group received less than $900,000 after Harts Consulting Pty Ltd had paid referring accountants and legal and other costs. [368] The HAL group appears to have received cash inflows of about $390,000 per month in those two years.250 $900,000 would have been about 9.6% of the total cash inflows for two years and about 38% of the total cash inflows for June July and August 1995 and 1996. Reliability of the Commonwealth’s Chronology [369] The Commonwealth submitted a chronology of events spanning 26 years which I hoped to incorporate in the reasons as agreed facts. For the companies, Mr Hart indicated that he would review the chronology and advise whether the companies accepted it. On 18 March 2011 Mr Hart submitted that there were too many errors and omissions in the document for it to be uncontentious or to be relied upon. He supplied a list of items he submitted were errors. He submitted the list was a small, though not comprehensive sample. He submitted that a comprehensive list would require too many pages of corrections. [370] Mr Hart directed attention to nine paragraphs from the chronology in his sample list. [371] Firstly, he directed attention to chronology paragraph 54. It provided: 54. On 20 January 1995 Shirley Petersen appointed a director of Flying Fighters P/L ([Q00060025]). On 13 February 1995 Steve Hart Family Holdings Pty Ltd purchased 2300 Westpac shares for $11,013.22 (Vincent‘s report dated 12 October 2010 [Q00064393] page 28 para 8.3, [Q00064326]) Mr Hart submitted about it: ―Refer to Mr Vincent‘s report whereas he states at (ii) and (iii)(b) that Mrs Hart has not proved the ultimate source of funds to purchase the shares but not linked to Mrs Hart‘s affidavit Q00064697, paragraph 7 & 8 commencing page 9 in which Mrs Hart traced the ultimate source or to Mr Vincent‘s concession that she did in fact trace it TD11 P12 L27.‖ [372] Mr Vincent‘s report251at paragraph 8.3(i) asserts that 2,300 Westpac shares were purchased on 13.02.95. The other document referred to in the chronology252 shows that $11,013.22 was the purchase price of 2,300 banking shares on 13.02.95. Mr Hart‘s submission that Mr Vincent stated that Mrs Hart ―has not proved the ultimate source of funds to purchase the shares‖ is really a criticism of Mr Vincent‘s opinion about a matter not stated in the chronology. Mr Hart identified a contentious statement in Mr Vincent‘s report but has incorrectly submitted that paragraph 54 of the chronology is in error. When one turns to the passages to which Mr Hart directs attention in Mrs Hart‘s affidavit253 at paragraphs 7 & 8 commencing on page 9, one 249 T 6-65 ll45-55 250 Q00064715 251 Q00064393, p 28, par 8.3 252 Q00064326, a broker‘s document addressed to Steve Hart Family Holdings Pty Ltd 253 Q00064697 -- 90 of 229 -- 91 reads at paragraph 7(v)(a)(i) that Mrs Hart confirms that on 13 February 1995 the super fund purchased shares in Westpac for $11,013.22. Chronology paragraph 54 is not inconsistent with the evidence of Mrs Hart. It is supported by the evidence of Mrs Hart and by the documents referred to in chronology paragraph 54 and I accept it. [373] Mr Hart criticised paragraph 63 of the chronology.254 The chronology item ended with the words ―no mention in Laura Hart‘s affidavit‖. Mr Hart‘s criticism was not a criticism of the facts set out in paragraph 63 in other respects. Rather, it was a criticism of the author‘s submission that it was not mentioned in Mrs Hart‘s affidavit. Mr Hart correctly refers in his criticism to Mrs Hart‘s affidavit255 where Mrs Hart did refer to Quickbooks accounts for Fighters showing a $3,000 payment and expressing her opinion that the record is the correct account of the full purchase price of the half share of the aircraft mentioned at paragraph 63 of the chronology. Mrs Hart‘s affidavit is consistent with the chronological facts set out at paragraph 63. I accept them. Mr Hart‘s criticism, correct though it may be, does not impugn the chronological facts set out in paragraph 63. I accept them. [374] Paragraph 84 of the chronology provided: August 1998 - the NAB Commercial Bill facility is shown as dating back to this date (Vincent‘s Report 2 September 2009 5.9.1 and 21.2.2.(i)(a) [Q00060117], Appendix 8 PJV 2 [Q00047005] p 331). [375] Mr Hart submitted that the facility did not date back to August 1998 but to November 1997. In fact the facility is shown to have dated back to both dates. He provided a reference to an affidavit of Mrs Hart sworn in September 2010. That affidavit and the supporting material showed that a National Australia Bank commercial bill facility dated back to November 1997. The chronology could have been more informative. The bill facility did date back to August 1998 but it dated back even further by nine months to November 1997. The documents referred to in the chronology showed that the facility existed in August 1998 but did not suggest that it was created on that date and did not reveal how much earlier it had been created. Paragraph 84 would have been more informative if it had provided ―is shown as existing at this date‖ instead of ―is shown as dating back to this date‖. [376] Paragraph 268 of the chronology asserts: On 30 June 2000 Yak 52 is not recorded as an asset of Flying Fighters even though supposedly owned by the Co at this time. It also supplied references. Mr Hart submitted: ―Yak 52 aircraft was not purchased until August 2000 and therefore would not appear on the June 2000 balance sheet.‖ He supplied references. In reality, Mr Hart‘s submission is that the chronology is factually correct in asserting that the Yak 52 was not recorded as an asset on 30 June 2000. His real complaint must be about the unsubstantiated submission ―even though supposedly owned by the Co at this time.‖ No reference is given for that submission. [377] Where the author or authors of the chronology have included subjective comments or submissions they are irrelevant and inadmissible as evidence against the companies. 254 See chronology annexure 1, par 63 255 Q00064089, p 20, par 37(m)(vi) -- 91 of 229 -- 92 That is part of the reason why I specifically asked the Commonwealth to ensure that they were removed before the document was presented to the companies for their consideration and why the Commonwealth‘s counsel agreed that they should be removed. Notwithstanding the vestiges of such material, the chronology is a generally accurate collation of some relevant information which appears in the documents supplied as the source reference. [378] Paragraph 338 of the chronology provides: On 26 October 2000 $263,922.69 was transferred to National Australia Bank from Geoff Klooger‘s trust account for Merrell… Mr Hart‘s submission complains that the companies at the time had a facility with the NAB and that the chronology fails to add that ―this was transferred to Mr Arnott‘s house mortgage see Q00064696, paragraph 2(g)(i).‖ [379] The complaint seems not to be about the accuracy of what appears but about the fact that the chronology could have included more. I do not regard the entry as misleading or incorrect. The chronology does not purport to include all relevant facts. [380] The chronology at paragraph 392 asserts: As at 19 June 2001 the Yak 50 VH-YAY was not recorded as an asset of Flying Fighters even though purchased in December 2000… It supplies references. Mr Hart complained that the chronology did not refer to Mrs Hart‘s affidavit in reply and submitted ―that it was not on the 19 June (prior to year end). Mrs Hart explained the reason at Q00064089, pg 38, para 48(d)(ii).‖ The submission is expressed so incompletely that it makes no sense. If one goes to the document to which Mr Hart referred one can deduce what Mr Hart intended. One sees that Mr Hart has mistakenly referred to paragraph 48(d)(ii). He meant para 49(d) sub- paragraph ll. Mr Hart‘s submission does not appear to dispute that as at 19 June 2001 the aircraft was not recorded as an asset of Fighters. He does not submit that it was recorded as an asset. The submission he probably intended is that there is evidence to explain why it was not recorded as an asset and that there is evidence of its purchase in the books of Fighters nonetheless. [381] The final submission of complaint was with respect to paragraphs 440, 441 and 442 of the chronology. Those paragraphs referred to three dates in November 2001 and asserted that on those dates three sums were deposited into the Alfredton account by J P Morgan Private Financial Services. The chronology provides references. Mr Hart‘s complaint was that there was no reference to Mrs Hart‘s affidavit where she traced the source of funds. By that submission, I infer that Mr Hart intended to submit that the chronology was accurate about what occurred in November 2001, but that the funds came from the sale of 3 parcels of shares bought some years before and that Mrs Hart in her affidavit gave evidence of when they were bought and the source of the funds which paid for them. Those matters to which Mrs Hart‘s affidavit alludes do not impeach the accuracy of chronology relating to the events of November 2001. They relate to earlier events. [382] The statements of events in the chronology are sometimes unreliable. An example at par 470 asserts that ―On 21 December 2001 Steve Hart thanked Phil Adams…‖ It should have more reliably asserted that ―a letter bearing this date was sent expressing thanks from Steve Hart to Phil Adams‖. Par 445 asserts that ―On 3 December 2001 an agreement was entered into between Harts Consulting and Merrell Associates.‖ It -- 92 of 229 -- 93 should have more reliably asserted that ―Mr Hart by facsimile bearing this date to Merrell‘s solicitor offered terms for an agreement between Harts Consulting and Merrell‖. Subsequent events show that an agreement was reached. The date of the agreement was not necessarily the date asserted. Those examples of unreliability have no practical consequence for any other finding. [383] I reject the thrust of Mr Hart‘s submission that there are too many errors in the chronology. His audit of supposed errors in the chronology was unpersuasive. I accept Mr Hart‘s submission that there are many relevant matters omitted from the document. The chronology is a generally accurate collation of much relevant information with references to the electronic copies of source documents from which the information was extracted and against which the chronology can be compared. On that basis I incorporate it as ―Annexure 1‖ to these reasons. Limitations on relief under POCA s102 (1) [384] Pursuant to POCA s 102(1) the court may grant the relief set out in that subsection. So far as is relevant to analyse the next submissions, the subsection provides: (1) If property is forfeited to the Commonwealth under section 92, the court that made the restraining order may … make an order: (c) declaring the nature, extent and value of the applicant‘s interest in the property; and (d) either: (i) if the interest is still vested in the Commonwealth—directing the Commonwealth to transfer the interest to the applicant; or (ii) declaring that there is payable by the Commonwealth to the applicant an amount equal to the value declared under paragraph (c). It is a precondition for making an order under the subsection, that property is forfeited to the Commonwealth under POCA s 92. [385] That precondition is relevant for considering the Companies‘ claims in relation to properties at 88 Brandon Road and 3 Woff Street. 88 Brandon Road [386] Nemesis once owned a property at 88 Brandon Road Runcorn. It purchased it in 1988 for $103,668.53. I am satisfied that in 1988 it was not derived from unlawful activity. The property was sold on 26 April 2004, two years before the first restraining order. Sale proceeds were applied with the consent of the Commonwealth to 1. Pay Equititrust $244,936.42; 2. Reduce the mortgage by $300,000; 3. Repay Dr Fleming $500,000; and 4. Repay Dr Ambler $260,000. The property was not owned by any of the Companies at the dates of the making of restraining orders in 2006 and was not the subject of either restraining order. The Companies submit that an appropriate order in respect of this property is that the Commonwealth pay the Companies $1,470,000.00 unless certain other assets are returned by the Commonwealth to the Companies. The Companies‘ submissions appear at pages 156 to 160 of the Companies‘ closing Submission. The Companies do not ask for an order declaring the nature and extent and value of their interest in the property. They have no interest in the property. At the dates when the restraining orders were made the Companies had no interest in the property. The Commonwealth submitted that Nemesis had no identifiable interest in -- 93 of 229 -- 94 88 Brandon Road at the date of forfeiture.256 I infer that the Commonwealth refers to the date of forfeiture of other properties. There was no restraining order made in respect of 88 Brandon Road and no forfeiture of 88 Brandon Road occurred under POCA s 92. [387] I prefer to base my reason for declining to make an order under POCA s 102(1)(d) on the fact that the property was not forfeited to the Commonwealth under POCA s 92. The precondition for making an order, namely that ―property is forfeited to the Commonwealth‖ is not established in the case of property which was not forfeited to the Commonwealth. I decline to make the orders sought by the Companies. [388] The Commonwealth did not make submissions about whether Brandon Rd had been derived from unlawful activity. However, the issue of whether it was derived from unlawful activity and the extent are relevant despite the fact that it was not forfeited. This property was used in deriving other property. Examples are that it was used as security for borrowings from Equititrust in December 2001 which were used to pay out indebtedness to the NAB. When it was sold its proceeds were used to repay the sums described above, which sums were at least indirectly relevant to derivation of assets. Nemesis owned Brandon Road since 1985. It was unencumbered in 1993. It was later used as security for a loan used in relation to Doonan‘s Road and the Hangar 400. The Commonwealth did not expressly submit that this use of Brandon Road was an issue for the Companies. [389] I am satisfied that when Brandon Road was offered as security to Equititrust in 2001, it had not then been derived from unlawful activity. I am satisfied that the use of Brandon Road as security for borrowings and the use of its proceeds of sale for repayments did not result in assets being derived from unlawful activity. 3 Woff Street [390] This property was sold on 13 March 2003. It was not forfeited to the Commonwealth under POCA s 92. That precondition for making an order under POCA s 102(1)(d) is not established. I decline to make the orders sought by the Companies for a payment of $130,000. Finance Facilities and the role of Nemesis [391] Nemesis was integral to the business affairs of the Hart group. Nemesis would lend to related entities for running expenses and investment. Nemesis provided financial assistance to the wider Hart group and played an essential role in the funding of all companies in the Hart group.257 The companies in the Hart group pooled company and individual assets.258 The Hart group received funds from UOCL and Merrell.259 The degree of reliance is a matter not fully explored in submissions by the Commonwealth. [392] UOCL funds totalling $10,376,976 were paid to Merrell, Harts Consulting, Harts Australia, Unlimited Business Consultants and Nemesis. Those total funds were 256 T13-56, LL22-35 257 Vincent‘s Report dated 21 October 2010 Q00064393 p 17 para 7.5 & 7.6; 7.43(iv) & (v) 258 Vincent‘s Report dated 21 October 2010 Q00064393 p 26 para 7.43(ii) 259 Vincent‘s Report dated 21 October 2010 Q00064393 p 27 para 7.43 (vi) -- 94 of 229 -- 95 provided at various times from July 1998. Nemesis received only $230,000 directly from UOCL. From July 1988 to 15 May 2001 the amounts received from UOCL by three of the other companies were: Harts Australia Ltd $1,170,000; Harts Consulting $2,674,565-97; and Merrell $5,264,170-18. Recall that these other companies are not among the relevant Companies. However, it is not possible to draw a general conclusion about how substantial was the impact of money from UOCL. The Harts Australasia Limited group of companies, including Harts Australia and its subsidiaries received $38.5M from all sources, excluding bank overdrafts and inter- company loans between members of the group. [393] Except for Nemesis, the Companies did not receive funds directly from UOCL. However the Companies received funds directly or indirectly from Merrell which were tainted and received funds from Harts Consulting, Harts Australia, Unlimited Business Consultants or Nemesis whose accounts had received tainted and untainted funds. The complex way in which Mr Hart structured the relations between companies in the Hart group makes complex any investigation of the extent to which tainted funds assisted in deriving assets. [394] To the extent that any of Merrell, Harts Consulting, Harts Australia, Unlimited Business Consultants and Nemesis received funds directly or indirectly from UOCL, it meant they were better able to meet required repayments.260That general proposition was made by Mr Vincent. I accept it. However, I regard the proportion of tainted funds used to make payments as a relevant matter. I do not accept that if tainted funds paid to an account with a lender are a small proportion of the funds paid to that account that it has the inevitable consequence that any asset derived with funds drawn from the account will have been derived from unlawful activity. Mrs Petersen traced funds from UOCL to show how few of them could be traced into an asset or into interest or principal paid to lenders.261 Useful as that exercise is, it does not address the issue of whether funds from UOCL which are not traceable to reduction of principal or interest, have nevertheless assisted Nemesis to repay principal or interest due to a lender, or the issue of whether that assistance means that an asset was indirectly substantially derived as a result. [395] A further level of complexity arises because assets were often derived with funds borrowed from banks or other lenders by being drawn from an account with the lender into which tainted and untainted funds were deposited. [396] Where lawfully derived, borrowed money is used to derive an asset but funds derived from unlawful activity are used to pay interest due on the borrowings, or any expenses of the holding the asset (such as rates for land, or repairs for aircraft) complex factual issue arise in determining whether the asset is substantially derived from unlawful activity. The first issue seems to be: if funds derived from unlawful activity (for example, funds paid by UOCL) are received into an account (for example received by Nemesis into its account) into which funds derived from lawful activity are also received and if the accountholder borrows money and uses the borrowings to buy an asset, and if the accountholder repays interest on the loan or the expenses of the asset by transfers from its account, is the asset derived directly or indirectly from unlawful activity? The general answer, consistently with my earlier findings, is that it depends 260 Vincent‘s Report dated 21 October 2010 Q00064393 p 27 para 7.43 (vii)(a) & (b) 261 Q00064036 pg 36 par 88 -- 95 of 229 -- 96 upon whether the asset was substantially derived, directly or indirectly from unlawful activity (the funds paid by UOCL). The fact that interest on a loan is partly repaid with funds derived from unlawful activity can be sufficient connection with the unlawful activity to conclude that the asset bought with the borrowed funds was derived indirectly from the unlawful activity. Whether the connection is sufficient to mean the asset was substantially derived from the unlawful activity will depend on the facts, including the degree to which the funds derived from unlawful activity were used. I do not propose to set out a list of the relevant factual issues which may be relevant in any case but the proportion which the tainted payments towards interest payments and expenses bear to all other lawfully derived sums paid to derive the asset would be relevant. [397] Generally, when borrowings were used to partly derive an asset, the parties‘ analyses of financial data omitted conclusions about the ratio of tainted and untainted funds from which assets were derived. [398] The Commonwealth‘s expert‘s evidence about assets derived from funds borrowed from the financiers the National Australia Bank (―NAB‖), Perpetual and Equititrust follows a recognisable pattern and the Commonwealth‘s submissions follow the same pattern. The Commonwealth has established that in the period that each finance facility was used, the borrower received to its main bank account some tainted funds from UOCL or from a company (for example UBC or Spider) which had previously received funds from either UOCL or from Merrell. The Commonwealth has thus proved that the borrower‘s funds in the account were mixed with some unlawfully derived funds from UOCL or with some funds that were themselves from an account which had received some lawfully and some unlawfully derived funds. The proportion of contamination is ignored in the submission. The Commonwealth submits that any drawings from that account, whether used to buy an asset or repay borrowings used to buy an asset, or to pay any interest on such borrowings, or any running costs of an asset were paid with partly tainted funds. The Commonwealth then submits that the court could not be satisfied that the asset was not derived from unlawful activity or that the property was acquired lawfully. As the Companies carry the onus of proof, the Commonwealth‘s approach is practical for the Commonwealth. Unhappily for the tribunal of fact, the Commonwealth‘s expert witness expresses no opinion about the proportion of tainted funds which were mixed with other funds in a borrower‘s account and neither did the Companies‘ witnesses. The Commonwealth‘s submissions do not attempt an analysis of the evidence to establish proportions of tainted, untainted and borrowed funds. The Commonwealth relied upon appendices 20 to 24 in exhibit 10 to demonstrate diagrammatically certain raw data showing funds passing from UOCL or Merrell directly to one of the Companies or via an intermediate company to one of the Companies and then to a lender. The appendices are helpful, but apt to mislead unless properly understood. Despite appearances, they do not reveal the ratio of tainted and untainted funds used to derive an asset acquired with borrowed funds. [399] Because of the integral role of Nemesis as the service company for the family group until July 2002, it would be useful to establish the proportions of funds Nemesis received which were likely to have been tainted. To illustrate the practical benefit of such an analysis I examine the period between 14/07/98 and 15/05/01 when Nemesis had arrangements with the NAB allowing Nemesis to borrow. About that 34 month period the Commonwealth submits: -- 96 of 229 -- 97 During the period Nemesis had a commercial bill facility with the NAB, in addition to receiving funds from other sources, they received funds direct from UOCL and received funds from other entities that also received monies from UOCL262. [400] The submission is notable for revealing reliance on some mixture of tainted funds but not relying upon any identified proportion. The Companies accept that there were funds received by Nemesis from UOCL directly and indirectly but in relatively small amounts. Mr Hart‘s submissions for the Companies about these financial matters are more than difficult to follow. In part, that is because the submissions related to this topic seem more concerned to establish misconduct by Mr Vincent in the content of his reports. I am not satisfied that there was misconduct by Mr Vincent. [401] The diagrammatical representation of Mr Vincent‘s report on this issue is appendix 20 of exhibit 10. It portrays about $10M passing from UOCL to 3 companies and about $1.63M passing from the 3 companies to Nemesis as if this was a closed system and as if the UOCL money was properly traced through the companies and into the account of Nemesis. It was not a closed system. Money from other sources was ignored in the diagram. It was not a tracing. Mr Vincent did not opine that the $1.63M was effectively from UOCL and did not opine that it was traced from UOCL to through the accounts of the companies to Nemesis. [402] Mr Vincent‘s analyses suggest that between 14/07/98 and 15/05/01 Nemesis received $230,000 directly from UOCL and $100,000 from Merrell. I so find. That was as much as Mr Vincent usefully opined on this issue. So, Mr Vincent failed to include in his report that this was 3.7% of the recorded receipts by Nemesis during the period from all sources. His analyses suggest that Nemesis also received about $1.532M from two companies whose funds were tainted by some funds received from UOCL: from Harts Consulting, Nemesis received about $410,000; from Harts Australia Ltd, Nemesis received about $1,122,050. It follows that in 34 months Nemesis received $1,862,000 which, to some extent, was derived, directly or indirectly, from UOCL‘s funds. Analysis of the evidence shows the quantity of unlawfully derived funds to be much less than the entire $1,862,000 received from UOCL, Merrell, Harts Consulting and Harts Australia Ltd. This is because the $1.532M received from Harts Consulting and Harts Australia Ltd was paid from funds which were mostly lawfully derived. [403] In FYE 1999, Harts Australia Ltd received $1.07M from UOCL. The last occasion UOCL paid Harts Australia Ltd was in September 1998. The $1.07M was 13.8% of the $7,763,794 received in FYE 1999 by Harts Australia Ltd from all sources.263 In other words, Harts Australia Ltd‘s cash flow in FYE 1999 included 13.8% of tainted funds. But no funds were paid to Nemesis by Harts Australia Ltd in FYE 1999. In other relevant financial years, the percentage of cash received by Harts Australia Ltd from UOCL was zero or was negligible. If one treated the tainted funds from Harts Australia Ltd as received by Nemesis over the whole 34 months of the period of the NAB facility, the % of the funds of Harts Australia Ltd constituted by UOCL‘s funds would be much less than 13.8%. Harts Australia Ltd paid $1,222,050 to Nemesis between May and June 2000.264None of it came directly from UOCL. If it was tainted at all, it 262 Mr Vincent‘s Report dated 2 September 2009 Q00060117 p 18 para 5.17.1 to 5.18; Mr Vincent‘s Report dated 21 October 2010 Q00064393 p 18 para 7.7 to p 19 para 7.9 263 Afft Mrs Hart 17/11/10 pg 33 (10) g and appendix 18 Q00064715 pg19 of 19 264 Ex 10 appendix 20. -- 97 of 229 -- 98 was because of the funds received into the Harts Australia Ltd account at least 20 months before. [404] To some extent the $1.532M paid to Nemesis by Harts Consulting and Harts Australia Ltd came from accounts which received a small proportion of tainted UOCL funds and a large proportion of untainted funds acquired lawfully from other sources. When the $1.532M of only partly tainted funds was paid to Nemesis it was mixed with another $6,355,034 Nemesis received265from other sources in the period between 14/07/98 and 15/05/01. The Commonwealth made no submission about the proportion of the $1.532M which was tainted and made no submission about the proportion which may have been tainted of the $6,355,034 Nemesis received from other sources. [405] Mr Vincent accepted that at least $285,000 of the $410,000 paid to Nemesis by Harts Consulting was not from UOCL or from Merrell. $135,000, at most, may have been tainted funds. If I assume for the sake of this calculation that $135,000 received by Nemesis from Harts Consulting was tainted and treat 13.8% of funds Nemesis received from Harts Australia Ltd of $1,222,050 (being $168,642) as tainted and add to those amounts $230,000 that Nemesis received directly from UOCL and $100,000 that Nemesis received from Merrell, the total of tainted funds Nemesis received from Harts Consulting and Harts Australia Ltd and UOCL and Merrell would be $633,642. That is marginally more than a third of the funds identified by Mr Vincent and relied upon by the Commonwealth as derived or partly derived from unlawful activity. The total funds Nemesis received from all sources in the period between 14/07/98 and 15/05/01 was $8.317M. Part of the money received into Nemesis‘s account was $1.3M from Blackshort Pty Ltd. For reasons which follow in the discussion relating to the Sea Fury VH-SHF aircraft, an absence of satisfactory evidence meant that I am not satisfied that $300,000 of the $1.3M from Blackshort was not derived from unlawful activity. I am satisfied that the balance of $1M was not derived from unlawful activity as it was a return of capital invested by Nemesis. The total sum received by Nemesis which the Companies have failed to prove was not derived from unlawful activity is $933,000. The Companies have proved that the money Nemesis received into its bank account with NAB or which it paid to NAB in the period from 14/07/98 to 15/05/01 included no more than 11.25% which was derived from unlawful sources. [406] Knowledge of the percentage alone does not reveal whether the 11.25% was an amount which has been significant or not significant for the acquisition of an asset. It is useful for rebutting the implication in the Commonwealth submissions that any asset partly derived with money drawn from the account of Nemesis with the NAB was prima facie derived from unlawful activity. [407] There were four relevant finance facilities with three relevant lenders. The exercise above and concerning the lender NAB demonstrates that the raw data in the useful exhibit 10 appendices 20, 21, 22 and 23 about finance facilities repaid by a Company which received funds from an intermediate company which had received funds from Merrell or from UOCL creates an inflated impression of the proportion of tainted funds which were used to repay a lender. The appendices do not show what lawfully acquired funds of the intermediary were mixed with the tainted funds from Merrell or UOCL before a payment was made to a Company by the intermediary. The appendices do not show what lawfully acquired funds of the Company were mixed with the tainted or 265 Mr Vincent‘s Report dated 2 September 2009 Q00060117 p 19 table 3 -- 98 of 229 -- 99 partly tainted funds it received before the Company made a payment to its account with a lender. [408] While the lack of submissions about the proportion of tainted funds in the various accounts is unfortunate, the evidence as to amounts and timing of deposits from Merrell or UOCL sometimes suggests that payments were made for a particular purpose, as opposed to assisting the recipient with general expenses. Where that is the case, it is possible to draw conclusions about the extent to which tainted funds were for a particular purpose. NAB Facility [409] Nemesis obtained from National Australia Bank (―NAB‖) an overdraft facility with a $100,000 limit in May 1993.266The overdraft limit was increased to $145,000 in October 1993 with various mortgages provided as security,267including mortgages over 6 Merriwa Street Sunnybank Hills (forfeited on 18 April 2006 but sold by the Official Trustee with the consent of Nemesis on 8 January 2007),26888 Brandon Street Runcorn (restrained but sold prior to forfeiture with the approval of the Official Trustee),2693 Woff Street Sunnybank (not restrained or forfeited) and 52 Pinecone Street Sunnybank (excluded from the restraining order by order dated 19 December 2003).270In June 2000, the borrowing limit was increased by $2,700,000 to $3,350,000.271Nemesis appears to have obtained a commercial bill facility. Interest was charged monthly and paid at each rollover. The NAB facility was paid out on 21 December 2001 with $2,993,619.34, comprised of a payment of $1,757,715.80 borrowed from Equititrust, a payment of $1,223,783.01 borrowed from Perpetual and $2,120.56 received from UBC.272 [410] While Nemesis had a borrowing facility with NAB, it received $230,000 direct from UOCL and $100,000 from Merrell. I regard those as tainted funds. Those funds were deposited to its NAB account. It received some funds from other entities that also received monies from UOCL.273 For the reasons set out in the section above, the Companies have proved that the money Nemesis received into its bank account with NAB or which it paid to NAB in the period from 14/07/98 to 15/05/01 included at least 88.25% which was derived from lawful sources. [411] The Commonwealth relies upon the fact that in the period from August 1998 to May 2001, Nemesis paid to the NAB $105,441 interest on commercial bills.274Of the $105,441, at least 88.25% was derived from lawful sources. I am satisfied that the 266 Mr Vincent‘s Report dated 21 October 2010 Q00064393 p 10 para 7.1(i); Affidavit of Laura Hart sworn 21 September 2010 Q00064341 p 27 para 10(a) 267 Mr Vincent‘s Report dated 21 October 2010 Q00064393 p 10 para 7.1(ii); Affidavit of Laura Hart sworn 21 September 2010 Q00064341 p 28 para 10(b) 268 Affidavit of Ty Maher sworn 24 November 2010 Q00064186 p 5 para 13 269 Affidavit of Ty Maher sworn 24 November 2010 Q00064186 p 3 para 8 270 Affidavit of Ty Maher sworn 24 November 2010 Q00064186 p 3 para 7 271 Mr Vincent‘s Report dated 21 October 2010 Q00064393 p 13 para 7.1 (xix) 272 Mr Vincent‘s Report dated 21 October 2010 Q00064393 p 16 para 7.1 (xxxvi); Affidavit of Laura Hart sworn 21 September 2010 Q00064341 p 37 para 10(m) 273 Mr Vincent‘s Report dated 2 September 2009 Q00060117 p 18 para 5.17.1 to 5.18; Mr Vincent‘s Report dated 21 October 2010 Q00064393 p 18 para 7.7 to p 19 para 7.9 274 Exhibit 10 appendix 20 -- 99 of 229 -- 100 contribution of $105,441 of partly tainted funds to the payment of interest on borrowings of $2,993,619.34 was not sufficient of itself to mean that assets were indirectly derived from unlawful activity because they were bought or their running costs or repairs were paid for with some portion of $2,993,619.34 in borrowings from the NAB. Equititrust Facility [412] On 20/12/01 Equititrust lent Nemesis $1,825,000 to assist Nemesis to repay NAB.275 The net proceeds of that advance were $1,757,715.80 and were paid to NAB on 21/12/01.276 On 20/12/01 Equititrust lent a further $1,100,000 to Nemesis which Nemesis lent to Sea Fury Investments Pty Ltd for a residential development at 3324 Moggill Road, Moggill (this property was not restrained).277The Equititrust loan statements show that interest only was required to be repaid monthly. Nemesis made payments to Equititrust of $473,385 between 20/12/01 and June 2004. The repayments made were interest only.278To an extent, the payments Nemesis made were comprised of funds which were from accounts of UBC and Spider which had received funds from UOCL. [413] While Nemesis had a finance facility with Equititrust, Nemesis received funds from UBC which received funds from UOCL and Nemesis received funds from Spider which received funds from UBC. In that period between 20/12/01 and June 2004, Nemesis received funds from other sources. The Commonwealth made no submission about proportions of tainted money received by UBC, Spider or by Nemesis during the period. It relied upon exhibit 10 appendix 21. [414] Nemesis received $1.1M from UBC (between November 2001 and January 2003). UBC, between 31/10/01 and 30/06/04, received regular deposits from UOCL totalling $1.14M. Nemesis received $0.49M from Spider (between November 2002 and June 2003). Spider received $1.24M from UBC (between October 2002 and June 2004). [415] Neither the Commonwealth‘s submissions, nor exhibit 10 appendix 21 nor the Companies submissions consider whether the funds Nemesis received from UBC and Spider was a large or small portion of its receipts in the period or whether the UOCL funds received by UBC and Spider were a large or small proportion of the receipts of UBC and Spider. [416] The Commonwealth did not submit that the facts establish that most money received by Nemesis, during the period it used this finance facility, was tainted or even that a substantial proportion was. Mr Vincent did not report that either. In effect the Commonwealth identified some receipts from UOCL or companies which had received funds from UOCL and rested on the Companies‘ onus. 275 Vincent‘s Report dated 21 October 2010 Q00064393 p 20 para 7.10 276 Vincent‘s Report dated 21 October 2010 Q00064393 p 20 para 7.10 277 Vincent‘s Report dated 21 October 2010 Q00064393 p 20 para 7.11; Affidavit of Laura Hart sworn 23 July 2010 p 42 para 52 to p 47 para 52(j) 278 Q00064116 and Q00064117 -- 100 of 229 -- 101 [417] $751,000 was repaid to Equititrust on 18/12/02 with lawfully acquired funds.279The balance was paid from the proceeds of the residential development. [418] An issue is whether, because of: firstly, tainted funds received by UBC and Spider, and secondly, payments by UBC and Spider to Nemesis which may have contributed to the liquidity of Nemesis; and thirdly, interest payments of $473,385 by Nemesis to Equititrust between 20/12/01 and June 2004, the Companies have proved that property derived partly from funds borrowed from Equititrust is not property derived from unlawful activity. [419] Bearing in mind that by the end of 2001 the Harts group was in serious financial difficulty, and had received much adverse publicity, I infer that Nemesis was not receiving lawfully derived funds from the Harts group‘s accounting businesses at the same rate as had been the case before 15/05/01. In mid July 2002, Spider took over the role which Nemesis had filled as the service company for companies in the family group. I am not able to determine with any precision what proportions of funds paid to the Nemesis accounts with Equititrust were tainted. UBC must have received at least the $2,342,019 it paid out. Mr Vincent accepted and I find that UBC received funds from sources other than UOCL. The funds from other sources would have been at least substantially derived from lawful sources. The amount of funds UBC received from UOCL was equivalent to about 49% of the amount UBC paid to Nemesis and Spider. It does not follow that the funds UBC received from UOCL were traced directly to or otherwise paid directly to Nemesis. If the funds Spider received from UBC between October 2002 and June 2004 were tainted those tainted funds mixed with some amount of other funds received by Spider in that period. [420] Equititrust‘s two loans made in 2001 were for a total of about $2,925,000. The total interest repaid from December 2001 to June 2004 was $473,385.280Of that interest repaid Mr Vincent identified that between 21/01/02 and 19/06/03 $304,110.84 was paid by Nemesis.281 Of the $3,398,385 in principal and interest repaid to Equititrust in respect of these loans, the contribution which is arguably comprised of a component of funds indirectly derived from unlawful activity is the $304,110.84 interest paid to 19/06/03. It is not the case that the whole $304,110.84 was comprised wholly of funds derived from unlawful activity. The proportion is not established. The argument against the Companies, at its highest, (and best followed with the aid of Exhibit 10 appendix 21) seems to be that firstly, $1.14M derived from UOCL (unlawful activity) was mixed with funds derived from lawful activity of an unknown amount in the accounts of UBC and Spider. Secondly, $1.6M was paid by UBC and Spider to Nemesis and it contained some unknown proportion, less than 50%, of funds derived from UOCL. Thirdly that $1.6M (of less than 50% funds from unlawful activity) mixed in the bank accounts of Nemesis with lawfully derived funds of an unknown amount. Thus, in the bank accounts of Nemesis the proportion of funds derived from unlawful activity diluted further. Fourthly, from those funds in the bank accounts of Nemesis $304,110.84 was drawn to pay interest to Equititrust.282 As the $304,110.84 was less than 10% of the principal and interest repaid to Equititrust, and as the proportion of funds derived from unlawful activity within the $304,110.84 was likely to have been substantially less than 279 Q00064089 par 56(e) 280 Ex 10 appendix 21 281 Mr Vincent‘s report 2/09/09 Q00060117 at p 21-22 par 5.22 282 Mr Vincent‘s report 2/09/09 Q00060117 at par 5.22.2 -- 101 of 229 -- 102 50% it follows that the UOCL funds represented substantially less than 5% of the funds used to pay repay Equititrust. [421] I am satisfied that the payments by UOCL to UBC283have not, of themselves, caused assets partly derived from borrowings from Equititrust in December 2001 to have been substantially derived from unlawful activity. Perpetual Facility [422] On 21 December 2001 Yak and Bubbling obtained a borrowing facility from Perpetual. Perpetual lent Yak and Bubbling $650,000 each to lend to Nemesis so Nemesis could repay its outstanding debt to NAB. The net proceeds of these loans from Perpetual were $1,223,783.01.284These funds were used on 21 December 2001 to reduce the amount owed by Nemesis to NAB under the NAB facility. As security, Perpetual took mortgages285over Hangar 400 (forfeited on 18 April 2006) and the property at Doonan‘s Road Grandchester (forfeited on 18 April 2006; sold on 18 September 2006 by Equititrust as mortgagee in possession with the net proceeds of sale paid to the Official Trustee).286During the period that Yak and Bubbling had a finance facility with Perpetual, in addition to receiving funds from other sources, they received funds from Nemesis and Spider which each received funds from UBC, which in turn received monies from UOCL.287The Commonwealth did not submit that the funds from Nemesis and Spider or paid by UBC to Nemesis and Spider were substantially tainted or submit what proportion was tainted. On 21 September 2004 the Perpetual facilities were repaid in full $1,475,696.98.288 The debt to Perpetual was largely settled by Equititrust providing new loans of $550,000 to each of Yak and Bubbling (the second Equititrust facility). Mrs Hart deposed289 that one of the sources of funds used to repay the MFS (Perpetual) facilities on 21 September 2004 was a $143,385.55 payment by Bowsprit Mortgage and Finance Limited. On 20 September 2004 (i.e. one day before the payout of the facility), UOCL made a payment of $75,000 to Bowsprit Mortgage and Finance Limited.290 [423] The Commonwealth did not submit that the facts establish that most money received by Yak and Bubbling during the period they used this finance facility was tainted or even that a substantial proportion was. Mr Vincent did not report that either. In effect Mr Vincent identified payments from UOCL to UBC and the Commonwealth relied upon that evidence and rested on the Companies‘ onus. [424] Until the Perpetual loan was paid out, repayments had been interest only and were $363,654 in total and paid from December 2001 to April 2004.291 The issue in respect 283 As depicted in Ex 10 appendix 21 284 Vincent‘s Report dated 21 October 2010 Q00064393 p 23 para 7.23; Affidavit of Laura Hart sworn 23 July 2010 Q00064089 p 49 para 68 285 Vincent‘s Report dated 21 October 2010 Q00064393 p 24 para 7.26; Affidavit of Laura Hart sworn 23 July 2010 Q00064089 p 83 para 68(c) 286 Affidavit of Ty Maher sworn 24 November 2010 Q00064186 p 4 para 11 287 Vincent‘s Report dated 2 September 2009 Q00060117 p 25 paras 5.27.4 to 5.28 288 Vincent‘s Report dated 21 October 2010 Q00064393 p 23 para 7.26; 289 Affidavit of Laura Hart sworn 23 July 2010 Q00064089 p 84 para 68(c)II; Mr Vincent's Report dated 16 November 2010 Q00064718 p 3 para 3.1 290 Mr Vincent's Report dated 16 November 2010 Q0006471 p 3 para 3.1, Appendix 11 Q00064729 291 Ex 10 appendix 22 -- 102 of 229 -- 103 of the interest payments, which one must infer from the diagram in Exhibit 10 appendix 22, is whether payments from Nemesis and Spider to Bubbling were so tainted that payments of interest by Bubbling were also so tainted as to mean assets derived from payments drawn from funds lent by Perpetual were derived from unlawful activity. The payments from Nemesis were $95,500 between February and October 2002. The payments from Spider between November 2002 and July 2003 were $78,900. I am satisfied that the proportion of unlawfully derived funds in funds of Spider and of Nemesis were significantly diluted by lawfully derived funds, that when received by Bubbling they were further significantly diluted by lawfully derived funds before being paid to Perpetual. [425] I am satisfied that the payments by UOCL to UBC292 and then from UBC to Nemesis and Spider and then from Spider to Nemesis and from Nemesis and Spider to Bubbling and then from Bubbling to Perpetual for interest have not, of themselves, caused assets partly derived from borrowings from Perpetual to have been substantially derived from unlawful activity. [426] I am satisfied that the 20 September 2004 payment by UOCL to Bowsprit is relevant and that $75,000 of the $143,385.55 paid by Bowsprit should be treated as money derived from unlawful activity. [427] As a consequence, the Companies have satisfied me that the failed to satisfy me that interest costs and principal repaid to Perpetual was ($363,654 + $1,475,696.98) about $1.84M and that $75,000 of the final principal repayment was unlawfully derived and that some small component of the interest was unlawfully derived. $75,000 was 4% of the total repayments. [428] I am not satisfied that the use of funds lent by Perpetual has the consequence that assets partly derived by those funds are derived from unlawful activity because of payments by UOCL to UBC or to Bowsprit. Second Equititrust Facility [429] On about 21/09/04 Equititrust provided loans of $550,000 to each of Yak and Bubbling which amounted to $1,079,905.11 net.293 Equititrust secured repayment against Hangar 400 and Doonan‘s Road Grandchester294 (forfeited on 18 April 2006 and sold on 18 September 2006 by Equititrust as mortgagee in possession295). The net sale proceeds of Doonan‘s Road Grandchester repaid the Equititrust loan and the mortgage on Hangar 400 was released.296 [430] The Commonwealth did not submit that the facts establish that any money received by Yak or Bubbling during the period they used this finance facility was tainted. Mr Vincent did not report that either. I am satisfied that the use of Hangar 400 and Doonan‘s Road Grandchester as security for repayment was not, of itself, sufficient to 292 As depicted in Ex 10 appendix 22 293 Mr Vincent‘s Report dated 21 October 2010 Q00064393 p 23 para 7.27 294 Mr Vincent‘s Report dated 21 October 2010 Q00064393 p 23 para 7.27 to 7.29 295 Affidavit of Ty Maher sworn 24 November 2010 Q00064186 p 4 para 11 296 Mr Vincent‘s Report dated 21 October 2010 Q00064393 p 24 para 7.34 -- 103 of 229 -- 104 mean that assets derived directly or indirectly with funds lent by Equititrust pursuant to this second facility were tainted. Sunshine Cooperative Housing Society Limited Facility [431] On 18 December 2002 Mrs Hart and Ms Petersen personally borrowed $275,528.64 from Sunshine Co-operative Housing Society Ltd (―Sunshine‖) to partly repay the loan from Equititrust.297 Mortgages over 3 Woff Street Sunnybank (not restrained) and 27 Samara Street Sunnybank (forfeited on 18 April 2006 and sold by the Official Trustee on 20 April 2007 with the consent of Bubbling)298were released by Equititrust and Sunshine took mortgages over those two properties.299 The Sunshine debt was reduced in 2003 when $130,000 from the sale of 3 Woff Street was paid off the debt.300 The Sunshine debt was paid out in 2007 with the net sale proceeds of 27 Samara Street.301 The Commonwealth did not submit that the borrowers serviced this loan with tainted funds. I am satisfied that the use of the two properties as security for repayment was not, of itself, sufficient to mean that assets derived directly or indirectly with funds lent by Sunshine were tainted. Countrywide Co-Operative Housing Society Limited Facility [432] On 18 December 2002 Mrs Hart and Ms Petersen personally borrowed $320,471.36 from Countrywide Co-operative Housing Society Ltd (―Countrywide‖) to partly repay a loan from Equititrust.302 Mortgages over 1 Samara Street Sunnybank (not restrained) and 6 Merriwa Street Sunnybank (forfeited on 18 April 2006 and sold by the Official Trustee on 8 January 2007 with the consent of Nemesis)303were released by Equititrust and offered as security to Countrywide.304 The Countrywide debt was paid out in 2007 with the net sale proceeds of 6 Merriwa Street.305 The Commonwealth did not submit that the borrowers serviced this loan with tainted funds. The Commonwealth did not submit that the use of the two properties as security for the loan or that the use of the sale proceeds of Merriwa Street meant that the use of funds borrowed from Countrywide meant that assets derived with those funds were derived from unlawful activity. I am satisfied that the use of the two properties as security for repayment was not, of itself, sufficient to mean that assets derived directly or indirectly with funds lent 297 Mr Vincent‘s Report dated 21 October 2010 Q00064393 p 25 para 7.35; Affidavit of Laura Hart sworn 17 October 2006 Q00060221 p 19 para 129 298 Affidavit of Ty Maher sworn 24 November 2010 Q00064186 p 5 para 14 299 Mr Vincent‘s Report dated 21 October 2010 Q00064393 p 25 para 7.36; Affidavit of Laura Hart sworn 23 July 2010 Q00064089 p 55 para 56(e)(iii); Affidavit of Shirley Petersen sworn 16 July 2010 Q00064036 p 4 para 9 300 Mr Vincent‘s Report dated 21 October 2010 Q00064393 p 25 para 7.37; Affidavit of Laura Hart sworn 17 October 2006 Q00060221 p 19 para 130; Affidavit of Laura Hart sworn 23 July 2010 Q00064089 p 57 para 56(j); Affidavit of Shirley Petersen sworn 16 July 2010 Q00064036 p 5 para 11 301 Vincent‘s Report dated 21 October 2010 Q00064393 p 25 para 7.38; Affidavit of Laura Hart sworn 23 July 2010 Q00064089 p 80 para 64(p) 302 Vincent‘s Report dated 21 October 2010 Q00064393 p 25 para 7.39 303 Affidavit of Ty Maher sworn 24 November 2010 Q00064186 p 5 para 13 304 Vincent‘s Report dated 21 October 2010 Q00064393 p 25 para 7.40; Affidavit of Laura Hart sworn 23 July 2010 Q00064089 p 56 para 56(e)(iv) 305 Vincent‘s Report dated 21 October 2010 Q00064393 p 25 para 7.41; Affidavit of Laura Hart sworn 23 July 2010 Q00064089 p 57 paras 56(k) to (l) -- 104 of 229 -- 105 by Countrywide were tainted. I am satisfied that the payout of the loan with proceeds of the sale of 6 Merriwa Street did not, of itself, mean that the use of funds borrowed from Countrywide meant that assets derived with those funds were derived from unlawful activity. Consequences of Charges granted to Merrell and forfeited to the Commonwealth [433] Certain assets of the Companies and certain property of Merrell were forfeited to the Commonwealth on 18 April 2006. Charges granted by the Companies to Merrell were among the property forfeited to the Commonwealth. Those charges were clumsily described in an affidavit306but seem to have included five fixed and floating charges granted to Merrell by Yak, Bubbling, Nemesis and Fighters. Merrell applied to exclude the charges from forfeiture307 but discontinued that application.308 [434] An ASIC record309suggests that a fixed charge was granted to Merrell by Fighters on 30 October 1998 and registered on 16 November 1998. Fighters acquired some assets after that charge was lodged. Though the ASIC record notes a fixed charge, the charge may have been in fact, or in effect, a fixed and floating charge. A charge styled as a fixed charge may relate to a fluctuating class of assets or allow for replacement of assets.310The Commonwealth submitted Merrell‘s charges were fixed and floating. The Companies did not dispute the Commonwealth‘s submission about the nature of the charges and similarly submitted that Merrell‘s ―loans were fully secured by fixed charges over the specific assets and by fixed and floating charges over the companies‖.311 Further, the Companies relied on the accuracy of a Merrell document312which asserts that Merrell lent money secured by a fixed and floating charge ―against‖ Fighters. Further, Mrs Hart gave evidence:313 Merrell holds a fixed and floating charge over Flying Fighters Pty Ltd that's registered with ASIC, so an ASIC search, and we would have one on file, would show that. And that's a general charge held by Merrell over all the assets of Flying Fighters and other entities in the family companies, isn't it?-- There is one over Flying Fighters and other entities, yes, but they are all separate documents filed with ASIC. [435] The reason for this examination is the fact that Fighters acquired some assets after lodgment with ASIC of the charge noted by ASIC as fixed. The conditions of a fixed charge may limit the charge‘s application to assets owned when the charge is granted and exclude its application to assets acquired after the charge is granted. A mortgage debenture granted by Unlimited Aerobatics (the earlier name of Fighters) on 30.10.98314 appears to be the charge designated in the ASIC record as the ―fixed charge‖. By clause 3, Fighters agreed to charge ―all aircraft and spare parts relating to same in which the company has an interest from time to time…‖ I find that the mortgage debenture operated as a fixed and floating charge. Notwithstanding the ASIC record of a fixed charge, the charge applied to some future assets. 306 Affidavit T Maher Q00064186 par 4 307 Q00064183 p 4 308 Q00064183 p 8 309 Q00060025 310 LexisNexis Halsbury’s Laws of Australia 295 (at 15 July 2009) Mortgages and Securities [295-6295] 311 Applicants‘ Closing Submission pg 86 312 Q00018143 ―Merrell Associates Outstanding Loans‖ 313 T5-30 314 Ex MJX-05 electronic record no. Q00059268 to the affidavit of MJ Xavier Q00059262 -- 105 of 229 -- 106 [436] Notwithstanding that Fighters acquired some relevant assets after 30.10.98, I accept the basis on which the parties proceeded and find that Fighters‘ assets forfeited to the Commonwealth, like the assets of the others of the Companies, were the subject of charges to Merrell. Merrell applied to court to exclude its charges from forfeiture315but discontinued.316 [437] The Commonwealth submitted, in effect, that the existence of the charges meant that the Companies could not prove an essential element of their case and must fail. Yet the consequences of a forfeited charge received no analysis in submissions for either side. No party referred to the terms of any charge. The Commonwealth‘s argument was typified by its written submission:317 80. Because Merrell had a fixed and floating charge over the assets of Fighters of an unknown amount immediately prior to forfeiture, Fighters have not established the nature, extent and value of any interest which they claim to have in the property. The written submission was repeated with minor variations for each asset. No analysis accompanied any variant. [438] Mr Hart may have misunderstood the Commonwealth‘s argument. He submitted that the Commonwealth is the ―owner‖ of a ―fixed and floating charge‖ over the assets of the Companies.318 Mr Hart also submitted: The nature of the charge to Merrell is a charge that Merrell has which now is not Merrell any more. It is the Commonwealth. So, the extent of the interest that the applicants seek to have excluded, obviously, is the assets which then places the charge still in place for the Commonwealth as a secured creditor to then collect upon. [439] Mr Hart‘s submission appears to assume that the Commonwealth is asserting a chargee‘s rights over the assets. Further, it seems to concede that the Commonwealth has a chargee‘s rights against the assets, in addition to having the assets. The Commonwealth did not respond to this part of Mr Hart‘s submission. So the Commonwealth did not respond to the proposition that it is a secured creditor and can enforce the charges. [440] It is appropriate to determine whether the Commonwealth impliedly submitted that Merrell‘s property forfeited to the Commonwealth included Merrell‘s rights against the Companies to seek repayment of debts due by the Companies to Merrell. The Commonwealth did not expressly so submit. [441] The Commonwealth‘s oral submission referred the court to its pleading in respect of the charges, without identifying the paragraphs of the pleading. I trust I have identified the relevant part.319 The Commonwealth pleaded, in effect, that the Companies failed to establish the nature, extent and value of their interest in 14 of the assets. The Commonwealth provided as particulars of that pleading that all property of Yak, Bubbling, Nemesis and Fighters ―is otherwise subject to a charge to Merrell in an amount not known‖. The Commonwealth pleaded that the property ―is‖ subject to a charge to Merrell. I regard the pleader‘s use of the present tense as an error because Merrell forfeited its chargee‘s rights in April 2006. Significantly, the Commonwealth did not plead that Merrell‘s rights to seek repayment from the Companies were 315 Q00064183 p 4 316 Q00064183 p 8 317 Annexure 2 to Commonwealth‘s s102 submissions ―Summary of Assets‖ pg 22 par 80 318 T12-79 l 52 319 Further further amended points of defence pp 87-88 -- 106 of 229 -- 107 forfeited; or that debts payable by the Companies to Merrell became debts payable to the Commonwealth; or that the Commonwealth became chargor or had a right to enforce Merrell‘s charges. [442] The Commonwealth, to explain its argument about the charge, used an example in oral submissions about an aircraft called a North American T-6. The Commonwealth submitted orally:320 …I then move to the North American T-6 …Why I want to spend some time on this is because this is an asset over which Merrell had a fixed and floating charge. That charge was automatically forfeited to the Commonwealth in April 2006. Merrell brought an application to have that charge released from forfeiture but discontinued that application. So, that charge at the time of forfeiture existed over all the assets of the companies including all the assets that are sought to be recovered from forfeiture here. Now, the question is: what is the interest of the companies in those assets when one has a fixed and floating charge? But, more importantly, for your Honour's purposes, what is the value of that interest when there is a fixed and floating charge? And what is the amount that is charged? It's not for the Commonwealth to establish these things. It's for the applicants to establish these things. The Commonwealth concluded:321 The point is this, your Honour: unless the applicants were able to tell your Honour what was owed to Merrell under these fixed and floating charges at the time of forfeiture, they must fail in terms of establishing what is the value of the interest in these assets. It simply goes this way: take it as an ordinary mortgage. If one of the properties we are talking about was real property worth $300,000 and I had a mortgage of $290,000 to the Commonwealth Bank, the value of my interest would be the remaining equity, namely $10,000. Here Mr Hart's own trustee in bankruptcy estimates that Merrell is owed by the company something in the order of $4.3 million, which of course is close to the value of the assets as at time of forfeiture. So it is difficult for the applicants to establish, in light of the Merrell charge, what interest they do have, but whatever interest they have is subject to the Merrell charge, but more importantly, what is the value of that interest. That would be sufficient to dismiss the application in relation to all assets except, as I say, in relation to hangar 101, which I will come to shortly. Now, one solution I think Mr Hart came up with orally was that, well, release the assets to the applicants and then the Commonwealth who holds now the Merrell charge can seek to enforce the charge, but that's not the test under section 102(3). The test is should your Honour be declaring as a matter of discretion the value of their interest when your Honour has not got the necessary empirical evidence before your Honour as to the----- HIS HONOUR: Value of their interest. MR FLANAGAN: Yes. Your Honour, that submission concerning Merrell deals with every asset, as I say, except for hangar 101. [443] I do not interpret the Commonwealth‘s pleading as asserting that the Commonwealth has a chargee‘s rights over the assets or that it has Merrell‘s rights to payment of the Companies‘ obligations to Merrell. The submission of Flanagan SC for the Commonwealth that: 320 T13-58 ll 32-54 321 T13-62 l 32 -- 107 of 229 -- 108 one solution I think Mr Hart came up with orally was that, well, release the assets to the applicants and then the Commonwealth who holds now the Merrell charge can seek to enforce the charge does seem consistent with the Commonwealth‘s asserting that it has a chargee‘s rights over the assets and Merrell‘s rights to payment. But the Commonwealth did not plead the forfeiture of charges as a material fact or that Merrell‘s rights to repayment by the Companies were forfeited or that debts payable by the Companies to Merrell became debts payable to the Commonwealth. The Commonwealth did not expressly submit that it has a chargee‘s rights or Merrell‘s rights as a creditor to seek repayment of the Companies‘ debts to Merrell. It is not likely, that by his oral submission, Flanagan SC meant to suggest that the Commonwealth had or asserted ownership of Merrell‘s rights against the Companies to seek repayment of advances Merrell made to the Companies. I interpret that submission of Flanagan SC as a restatement of Mr Hart‘s misconceived proposition that the Commonwealth holds Merrell‘s charges as if the Commonwealth became a secured creditor entitled to enforce the charges to recover the amounts due to Merrell. [444] If I have misinterpreted the Commonwealth‘s argument, if the Commonwealth intended to submit that it has, by forfeiture of Merrell‘s charges, received Merrell‘s choses in action for the recovery of advances Merrell made to the Companies I would reject the submission. Merrell‘s rights as creditor and its rights as chargee are separate rights. Merrell‘s loss of a charge over an aircraft owned by a company does not result in the loss of Merrell‘s right to sue the company for payment of debts due. Reference to the mortgage debenture granted to Merrell by Fighters on 30.10.98322exemplifies this. The mortgage debenture is a deed which recites that there was another deed being a deed of loan between Merrell and Fighters of the same date. The rights Merrell acquired under the independent loan agreement were not forfeited to the Commonwealth with Merrell‘s charge. The forfeiture of the mortgage debenture containing the charging agreement did not invest the Commonwealth with Merrell‘s rights against Fighters for payment of money. The forfeiture of the charge deprived Merrell of its chargee‘s rights over Fighter‘s aircraft and parts. Merrell lost its security, not its rights as a creditor. [445] The Commonwealth‘s sketch of a submission is likely to be based on at least these components: (1) immediately before Merrell‘s five charges were forfeited, the value of an interest of any of the Companies in an asset was diminished by any amount whose repayment to Merrell was secured against the asset at the time; (2) to determine the value of a company‘s interest in a charged asset one needs to know the amount payable by the company and which is secured against the asset and one needs to know the value of the asset (2) the amount so payable by the company to Merrell is significant but unknown; (3) POCA s 102(1)(d)(ii) permits an order declaring that there is payable by the Commonwealth to the company an amount equal to the value (of the company‘s interest in the asset at the time of forfeiture); (4) because the amount so payable by the company to Merrell is unknown, the value of the company‘s interest in the asset at the time of forfeiture is not established; (5) the company fails to satisfy the requirements for an order under POCA s102(1)(d)(ii); (6) it is inappropriate to make an order under POCA s 102(1)(d)(i) if the interest of the company is diminished by obligations under a charge. 322 Ex MJX-05 electronic record no. Q00059268 to the affidavit of MJ Xavier Q00059262 -- 108 of 229 -- 109 [446] The Commonwealth in its pleaded particulars stressed only that the amount owing to Merrell at the time of forfeiture was unknown. The Commonwealth repeated by its oral submission that the amount owing was unknown but obliquely noted that the value of the asset was also relevant. I reject the Commonwealth‘s submission that the amount owing to Merrell in 2006 is unknown as I regard it as capable of assessment. But the amount whose repayment was secured against a company‘s asset was not the only relevant figure required to determine the value of the owner‘s interest in a charged asset. Also relevant are the values of the asset charged and the values of other assets charged with payment of the same amount. Without knowing the value of one or all assets forfeited and subject to a charge, it is not possible to determine whether the subtraction of $1.6M from the value leaves a positive balance. It is not possible to determine what balance applies in respect of any asset. [447] Where property subject to a charge was forfeited to the Commonwealth, the Commonwealth has ownership of the property, subject to the Companies‘ remedy under POCA s 102(1). As I interpret the Commonwealth‘s pleading and submissions, the Commonwealth does not assert a chargee‘s right to the property to satisfy the liabilities which the chargor owed to Merrell at the date of forfeiture. Each of the Companies has a statutory right to apply for orders under POCA s 102(1) for a declaration of the nature, extent and value of that company‘s interest and a consequential order for transfer of the interest or payment of money to that company. [448] For example, if a forfeited aeroplane was the subject of a charge to Merrell and that charge was also forfeited, the Commonwealth would now own the aeroplane subject only to the former owner‘s remedy under POCA s 102(1). Merrell‘s interest as chargee was forfeited. Merrell‘s former interest as chargee does not diminish the Commonwealth‘s rights to the aeroplane. If one of the Companies can establish that the aeroplane was not used in, or in connection with, any unlawful activity and was not derived or realised, directly or indirectly, by any person from any unlawful activity and that the company acquired the aeroplane lawfully the company would prima facie be entitled to an order under POCA s102(1), if the company can establish the ―nature, extent and value of its interest‖ in the aeroplane. If the aeroplane was charged with payment of money at the time of forfeiture, the company‘s interest at forfeiture would have been less than a 100% interest in the plane. If it can establish the value of its interest, the company can prima facie obtain an order for payment of that value. To establish value of the interest, the Commonwealth submitted, in effect, the company might subtract the amount payable which was secured against the asset from the value of the asset. The Companies suggested no alternative method. The exercise requires, at least, evidence of the value of the plane and evidence of the amount by which Merrell‘s charge reduced the value of the owner‘s interest in the plane. [449] What was owing to Merrell and secured by the charges at the date of forfeiture in April 2006? [450] On 3 December 2001, Mr Hart proposed323to Merrell‘s solicitor, an agreement with Merrell under which each of Nemesis, Bubbling, Yak and ―Flying Fighters Maintenance and Flying Fighters Air Shows‖ (as distinct from Fighters) would grant Merrell fixed and floating charges to secure a total of about $592,670 and interest at five per cent per annum and would provide a cross guarantee for the obligations of the 323 Q00042116 -- 109 of 229 -- 110 other three companies so as to effectively guarantee the entire debt. Mr Hart also proposed that the interest would be paid yearly in arrears and principal would be due in 5 years. [451] On 8 January 2002, consistently with Mr Hart‘s proposal, charges were granted to Merrell by Bubbling, Yak and Nemesis. The terms of the charges given by Bubbling and Yak are entirely consistent with Mr Hart‘s proposal even to the date for repayment of principal being 5 years from 3 December 2001. An ―all moneys clause‖ was included in the charges with the consequence that the charges secured not just the grantor‘s debts to Merrell but any amounts guaranteed by the grantor, and the amount of any further or future indebtedness to Merrell.324 The charges were over all of the grantor‘s assets. For example, Yak granted Merrell a charge over all of Yak‘s assets to secure repayment of Yak‘s indebtedness of about $21,000 and interest. The terms of the charge meant that the charge then secured no less than repayment of $592,000 with interest. The maximum which might be secured was unlimited and would depend upon the amount owed to Merrell by the chargor as a principal debtor or as guarantor of the debts of another company. [452] On or before 8 February 2002 FFMR (not Fighters) and Nemesis, Bubbling and Yak collectively acknowledged their indebtedness to Merrell for about $592,070 with interest at five per cent per year and agreed to guarantee payment to Merrell of the amounts owed by the other borrowers to be secured by fixed and floating mortgage debenture charge. The acknowledgement was not dated but was stamped on 8 February 2002.325 [453] On 12 February 2002 Merrell lodged fixed and floating charges over Yak, Nemesis and Bubbling, securing moneys owed by those companies individually and all moneys payable by those companies to Merrell on any account whatsoever. The charges granted by each of those companies to Merrell had a joint and several effect of a promise to repay no less than $592,070 and interest at five per cent per year. When the charges were forfeited to the Commonwealth in 2006 one would anticipate that none of the $592,070 had been repaid to Merrell because the arrangement with Merrell was that none of the principal was repayable before 3 December 2006. Reference to the balance sheets of Yak, Merrell and Nemesis as at FYE 2005 showed ―non-current‖ or ―interest bearing‖ liabilities to Merrell of $593,100 for Yak, $512,010 for Bubbling and $38,654.46 for Nemesis. [454] Because Yak, Bubbling and Nemesis each agreed to guarantee payment to Merrell of the amounts owed by the other two and by FFMR, it is relevant to each to establish how much the four owed Merrell when the property was forfeited in 2006. [455] On 8 April 2002, Mr Hart‘s trustee in bankruptcy reported to creditors in relation to Mr Hart‘s statement of affairs.326The trustee reported that six companies, Bubbling, Fighters, Nemesis, Yak, FFMR and Unlimited Business Consultants (Qld) Pty Ltd, had net assets of minus $117,748; that a feature of the six trusts was the substantial funding Merrell had provided, totaling almost $4.3 million; that Merrell had been granted a fixed and floating charge over the assets of a number of the trustee companies on 8 324 Eg Q00060191 325 Q00010083 326 Q00060031 -- 110 of 229 -- 111 February 2002 and that each trustee cross-guaranteed the obligations of the other trustees to Merrell with the collective view disclosing no net worth in any of the trusts. [456] I have not been referred to the evidence which establishes that each of those six companies cross-guaranteed the obligations of the other trustees to Merrell. However, there is evidence that, and I find that Yak, Bubbling, Nemesis and FFMR agreed to guarantee payment to Merrell of the amounts owed by the others of those four. It is relevant to consider what indebtedness each of the four was said by Mr Hart‘s trustee to owe to Merrell. The amounts reported in April 2002 were: Yak $21,100; Bubbling $280,010; Nemesis $2,503,360; FFMR $172,600. The total is $2,977,070. [457] Notably, when Nemesis acknowledged indebtedness to Merrell on 8 February 2002 it acknowledged $118,360. Two months later, when Mr Hart‘s trustee in bankruptcy reported, he attached an analysis of the balance sheets of the related trusts. It showed the liability of Nemesis to Merrell as $2,503,360. [458] The balance sheets of Nemesis which Mrs Hart annexed to her affidavit showed the debts owed by Nemesis to Merrell for seven financial years as follows: 1999 $630,000; 2000 $630,000; 2001 $630,000; 2002 $2,643,360; 2003 and 2004 $2,712,654; 2005 $38,564.46. No party made submissions as to how Nemesis reduced its indebtedness to Merrell in FYE 2005. The Commonwealth did not positively challenge the figures. I accept that the figure of $38,564.46 correctly shows the only current or non-current liability of Nemesis to Merrell on 30 June 2005. The figure would not include the liability of Nemesis as a result of cross guarantees. [459] Mrs Hart deposed327 that while she had not done a full reconciliation ―of our loans with Merrell, I believe that the amount outstanding to them will be somewhere between $1,300,000 and $1,600,000 … I will be conducting a full audit of this account at a later date…‖ Mrs Hart did not do a subsequent audit by the time of trial. She did not explain her reconciliation, provide her working notes or identify the documents on which her opinion was based. Perhaps Mrs Hart‘s reconciliation took account of the reduced liability recorded as owed by Nemesis to Merrell. If one treated the Nemesis debt to Merrell as only $38,564.46 in FYE 2005 instead of $2,712,654 in FYE 2004 then a combined debt of the six companies to which Mr Hart‘s trustee in bankruptcy referred in 2002 of $4,288,711 would reduce to an amount of $1,576,057. Mrs Hart has the competence to perform a reconciliation of accounts. She was not challenged as to the accuracy of her range. I note that the indebtedness of Fighters to Merrell in April 2002 was reported as $1,311,640 but that Merrell‘s books for 2003 show the debt in 2003 was about $1,058,000. Thus, if Fighters‘ debt remained similar in 2006, the combined indebtedness of the six companies might have been about $1.326M without the addition of interest. This rough calculation is no more than a guide for comparison with Mrs Hart‘s opinion. [460] The Commonwealth submitted328 that the companies bear the onus of proof of the amount that was owed to Merrell and secured by the charges at the time of forfeiture. The Commonwealth further submitted that if the companies were unable to establish the amount, the Companies must fail to satisfy their onus of proof of the value of their interest in the assets forfeited to the Commonwealth. The Commonwealth did not 327 Q00064089 par (80) pg 98 on 23 July 2010 328 T13-62 -- 111 of 229 -- 112 submit what the debt to Merrell was, but pointed to the fact that Mr Hart‘s trustee in bankruptcy had estimated that Merrell had advanced amounts in the order of $4.3 million. The exact amount was $4,288,711. The Commonwealth submitted: whatever interest the Companies establish that they have in any asset, it is subject to the Merrell charge and the court cannot be satisfied of the value of the interest. [461] In response, the Companies submitted that where the court finds that one of the Companies has an interest in an asset subject to the Commonwealth‘s charge, the value of a company‘s interest in the asset is ―the value of the interest less the charge‖ and the court should order the transfer of the asset to the Companies, subject to the charge.329 The Companies submitted that they would still be bound by the charges so that the Commonwealth would retain the benefit of its charges and can seek to enforce them. [462] For reasons given above, I do not accept that the Commonwealth has become a chargee as a result of the forfeiture of Merrell‘s five charges, or that it has received Merrell‘s right to sue for the amounts owed by the Companies to Merrell. [463] In response to the Companies‘ submission, the Commonwealth orally submitted that the Companies‘ solution was not ―the test under s 102(3)‖.330 I do not understand that submission. The Commonwealth also argued that the court should not make a declaration without empirical evidence of the value. I accept that submission by the Commonwealth in the case of any asset where the company‘s interest is less than the whole of the asset or is not a specific share of the asset. [464] POCA s 102(1)(c) expresses a limitation on the courts discretion to provide a remedy. The discretion is not to make such order as the court thinks fit. Under POCA s 102(1)(c) and (d) the court may only make an order: (c) declaring the nature, extent and value of the applicant‘s interest in the property; and (d) either: (i) if the interest is still vested in the Commonwealth—directing the Commonwealth to transfer the interest to the applicant; or (ii) declaring that there is payable by the Commonwealth to the applicant an amount equal to the value declared under paragraph (c). [465] The court‘s power to make a declaration under POCA s 102(1)(c) is conditional upon the declaration including a declaration of value. Whether value be measured in terms of money or as a proportion of the whole of a property I need not decide. On either basis, if a court declares the value of an applicant‘s interest it obviates the need for another proceeding to finally determine the parties‘ rights in respect of property. [466] I interpret POCA s 102(1)(c) as not permitting an order of the sort the companies seek: namely, a transfer of the property to the relevant company with the Commonwealth at liberty to establish the amount owing to Merrell at the date of forfeiture and to exercise a chargee‘s rights over the asset to secure payment to the Commonwealth of that amount. [467] The charges may affect every asset with the exception of hangar 101. 329 T13-70 330 T13-63 -- 112 of 229 -- 113 [468] The parties have treated all Companies as if they are cross-guarantors for one another‘s debts to Merrell. That is consistent with Merrell‘s records.331 If that is a correct basis then it is appropriate to add the debts of Fighters to the amounts secured by the charges granted by Yak, Bubbling and Nemesis. The indebtedness of Fighters to Merrell in June 2003 appears to have been $1,058,687.332 [469] What is the amount owed to Merrell and secured by the forfeited charges? The Commonwealth, arguing that the Companies bear an onus of establishing the value of their interest in property, did little more than cite the figures for April 2002 contained in the report of Mr Hart‘s trustee in bankruptcy, to which I refer above. That level of debt changed. I am satisfied that by June 2003 the indebtedness of Fighters to Merrell had reduced by about $250,000 from the amount reported in April 2002. The interest rate acknowledged to Merrell on 8 February 2002 by Yak, Bubbling and Nemesis was 5%pa. [470] I am satisfied that when Merrell‘s charges were forfeited to the Commonwealth in FYE 2006, the debt owed by Nemesis when Mr Hart‘s trustee in bankruptcy reported had reduced by more than $2.6M. [471] For the Companies, Mrs Hart did no more than give evidence of her incomplete and unexplained reconciliation in 2010 which led her to opine indebtedness to Merrell of ―somewhere between $1,300,000 and $1,600,000‖ subject to the need to conduct an audit. No other amount was suggested to her by the Commonwealth. Having observed consistency between Mrs Hart‘s opinion and the figures I have set out above in this section, I accept her opinion. [472] To calculate the value of a company‘s interest in an asset at the date of forfeiture the total indebtedness of the Companies to Merrell in April 2006 is relevant. I reject the Commonwealth‘s reliance on the indebtedness in 2002. I proceed on the basis that the Companies have established in July 2010 that $1,300,000 to $1,600,000 was owed to Merrell but that the Companies failed to establish whether it was the amount owing in July 2010 or at the date of forfeiture. Mrs Hart gave no explanation of whether she included interest. As I accept the range of figures given by Mrs Hart as accurate, but because of the uncertainties it is appropriate to make assumptions least favorable to the Companies but consistent with the range stated by Mrs Hart and which I have accepted. I am satisfied that the indebtedness of the companies to Merrell at the date of forfeiture in 2006 was no more than $1,600,000. [473] There was no evidence given at trial of the market value of the property, collectively or individually, which is the subject of the charges. The Commonwealth submitted, without referring to evidence, that $4.3M was close to the value of the assets at the time of forfeiture in 2006.333The Commonwealth submitted that the value agreed during the earlier proceeding334 for the value of the assets at the time of forfeiture was $4.8M.335The CDPP submitted in its written outline336 that $4.8M represented the agreed value of assets forfeited to and held by the Commonwealth. The Companies 331 Eg Q00018143 332 Q00018143 333 T13-62 334 Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457 335 T12-17 336 S141 submissions of the applicant (DPP) pg 15 [35] -- 113 of 229 -- 114 submitted337 that they do not accept the figure agreed between the parties to that earlier proceeding. As the Companies bear the onus of proof of the value of their interest in any property, it is in the interest of the Companies to establish the value of the property collectively and of the individual assets (and the amount which was owed to Merrell) so as to establish that the relevant former owner‘s interest in an asset has a value after subtracting either the whole of the value of Merrell‘s charges or some lesser amount to take into account that the charges securing repayment of $1.6M applied to several assets. [474] I infer that the Commonwealth accepts its own submission about value as an admission against the Commonwealth‘s interest in this proceeding and that I may treat the figure of $4.8M as the value of the property forfeited at the time of forfeiture in FYE 2006 if that is against the interest of the Commonwealth and at the time of trial if that is against the interest of the Commonwealth. It would be inappropriate for me to use that figure against the Companies as they refused to admit it. I infer that $4.8M was the market value agreed for all forfeited property other than property constituted by the Merrell charges and was the market value of such property rather than the value after subtracting from market value the amount of indebtedness to Merrell. There is no evidence of whether the market values of individual assets changed between the date of forfeiture and the date of trial. The value of a former owner‘s interest in an asset which was charged is diminished by an amount which is as much as $1,600,000. If the court could treat the diminution in the value of the Companies‘ interests at forfeiture as applying to the extent of one third to each asset, the court would still be unable to assess the value of the former owner‘s interest without evidence of the value of the asset at the relevant date. [475] Market value of a charged asset at the date of forfeiture seems prima facie relevant to measuring the proportion of the owner‘s interest at the time of forfeiture. There was no issue expressly raised in the pleadings about dates when the value of any company‘s interest in an asset should be valued. The Companies did not call evidence of value. It was implied in the Commonwealth‘s submissions that the date of forfeiture was the relevant date for determining the effect of charges upon the value of an owner‘s interest in an asset and the value of an applicant‘s interest in an asset for the purpose of making an order that the Commonwealth make a payment under POCA s 102(1). [476] I note that $1.6M is 33.3% of $4.8M. The prospect of treating the charges as diminishing the Companies interests in assets by 33.3% would be plausible if the assets charged were valued at $4.8M. Regrettably, even inferring that the Commonwealth accepts that $4.8M is the value of the property forfeited, I may not find that $4.8M is the value of the assets formerly owned by the Companies and forfeited because I find (for reasons below) that three forfeited aeroplanes, namely the 50 VH-YAX, the Yak 3 Fighter and the American Decathlon, have not been established as having been owned by the Companies or any of them at the date of forfeiture. The value of those three assets is unknown but would have been included in the Commonwealth‘s valuation $4.8M for forfeited assets. It follows that $1.6M is more than 33.3% of any hypothetical valuation of the Companies forfeited assets. It is plausible that $1.6M is up to 100% of the value of the forfeited assets. 337 T12-35 -- 114 of 229 -- 115 [477] There was no attempt by the parties to produce evidence of the value of any individual asset at the date of forfeiture or trial. [478] In oral submissions the Companies argument remained obscure, as the following exchange demonstrates: HIS HONOUR: Are you submitting that I can value the interest of the applicant companies? MR HART: Yes, I am, your Honour. HIS HONOUR: Thank you. MR HART: Because I'm saying that the value of the interest in the relevant assets is the value of the interest less the charge and the charge is there. The charge is just a secured creditor, same as it was the Commonwealth Bank, just happens now to be the Commonwealth Government; so the interest is there for the applicants. [479] The Companies made no submission as to:  the value of any company‘s interest in any asset which was charged at the time of its forfeiture with payment of money to Merrell; or  the value of all the assets charged and forfeited;  how the court could value a company‘s interest in its forfeited asset. NORTH AMERICAN T-28 VH-SHT [480] The North American T-28 VH-SHT is an aeroplane which was forfeited to the Commonwealth on 18 April 2006.338 Immediately prior to forfeiture, the plane was registered in the name of Fighters. Merrell then had a charge over all of Fighters assets339to secure an obligation to pay an amount I have found to be $1,600,000. The charge lodged on 16 November 1998340 was forfeited to the Commonwealth on 18 April 2006.341 [481] Funds from Merrell, UOCL and Northbourne were used to acquire the T-28. For reasons given above I found that funds from the Northbourne arrangement were not tainted. The Commonwealth made no submission about the amount or proportion of tainted funds used. [482] Mrs Hart maintains that Fighters purchased a half share of the T-28 from Kim Rolph Smith in 1996 (by 3 transactions). The remaining half share was purchased from Kim Rolph-Smith in 1998 (by 3 transactions), summarised by Mr Vincent as follows:342 Cash Flow Date Payer Payee Amount 1 22.01.96 Fighters Kim Rolph-Smith $ 20,000 2 23.02.96 Fighters Kim Rolph-Smith $ 30,000 338 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 339 T5-30; l 33 340 B00040367 p 4 341 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 342 Report of Mr Vincent dated 2 September 2009 Q00060117 p 57 par 10.1.2 -- 115 of 229 -- 116 3 03.06.96 Nemesis AGC & Kim Rolph- Smith (via Klooger Trust Account) $ 80,000 4 1996 Fighters Unknown $ 3,000 5 23.10.98 Merrell Geoff Klooger $ 83,100 6 07.12.98 Fighters AGC & MP Rolph-Smith (via Klooger Trust Account) $ 64,000 7 14.04.99 Fighters Kim Rolph-Smith $ 2,000 $ 282,100 [483] In relation to cash flow 1, on 22 January 1996 Nemesis transferred $20,000 to Fighters.343 On 22 January 1996, No. 2 Pitt Street Pty Ltd transferred $122,559.45 to Nemesis.344 No.2 Pitt Street Pty Ltd was trustee of the Northbourne Holdings Unit Trust.345The issue is whether funds derived from the Northbourne arrangement were derived from unlawful activity. I am satisfied that those funds from No 2 Pitt Street Pty Ltd and Nemesis were not derived or realised, directly or indirectly from unlawful activity. The Companies have established that Fighter‘s first payment was not derived or realised, directly or indirectly from unlawful activity. [484] In relation to cash flow 2, Mrs Hart's flowchart indicates that the payment of $30,000 from Fighters to Kim Rolph-Smith on 23 February 1996,346was sourced from the transfer of $122,559.45 from Northbourne to Nemesis on 22 January 1996. The Companies have established that Fighter‘s second payment was not tainted. [485] In relation to cashflow 3, the Commonwealth made no specific submission and there is no issue in respect of it. I accept Mrs Hart‘s evidence about it and the Companies‘ submission.347The Companies have established that all $80,000 of cashflow 3 was not derived or realised, directly or indirectly from unlawful activity. [486] In relation to cashflow 4 the Commonwealth made no specific submission. The Companies have established that Fighter‘s third payment, $3,000, was derived from fees and charges and was not derived or realised, directly or indirectly from unlawful activity. [487] In relation to cash flow 5, Mrs Hart asserts that a payment of $83,100 was paid by Merrell out of a transfer of $100,000 to the Geoff Klooger trust account on 23 October 1998.348Mrs Hart accepts that the original source of the Geoff Klooger trust account 343 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 17 par 37(b) and (d) Appendix 11Q00064100 p 80 344 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 17 par 37(e)-(f) Appendix 11 Q00064100 p 81 345 Affdt Ian Stevens sw 25 October 2010 Q00064652 p 7 par 27 346 Vincent‘s Supplementary Report dated 21 October 2010 Q00064393 par 11.3(ii); Affdt Mrs Hart sw 23 July 2010 Q00064089 p 17 par 37(g), Appendix 11 Q00064100 pp 79 and 84 347 Pg 215 par (80) 1.2 348 T5-53, l 50; Report of Mr Vincent dated 2 September 2009 Q00060117 p 62 pars 10.15 to10.16 -- 116 of 229 -- 117 cheque was $100,000 paid into the Geoff Klooger trust account from Merrell on 23 October 1998.349 Mrs Hart agrees that she is not in a position to dispute that the original source of funds for that amount was $300,000 paid by UOCL on 7 October 1998.350 Mrs Hart is not in a position to dispute that the original source of funds for the $83,100 came from UOCL.351 The Companies have not established that $83,100 of this cash flow was not derived or realised, directly or indirectly from unlawful activity. [488] In relation to cash flow 6, the payment by Fighters to the Geoff Klooger trust account of $64,000 was sourced from a loan from NAB to Fighters obtained on 26 November 1998.352 As at 24 March 1999 the account stayed in deficit to the amount of $41,927.29.353 Mrs Hart was unable to identify the ultimate source of an amount of $59,995 which was deposited into the account from overseas on 24 March 1999 and put the account back into credit.354 Mr Vincent identifies the ultimate source of this payment as UOCL.355 On 24 March 1999 Merrell transferred $60,000 to Unlimited Aerobatics (now Fighters).356 On 23 March 1999 (i.e. one day prior to the transfer to Fighters) UOCL made a deposit of $60,000 to Merrell.357I am satisfied that money derived from unlawful activity which is then used to reduce the balance of a loan account from which drawings have been made to derive or realise an asset is money properly to be considered as money from which the asset has been derived or realised. [489] Fighters received untainted funds to the account before and after receipt of Merrell‘s $60,000. Fighters made repayments of principal and interest to NAB before 24 March 1999 with untainted funds. After 24 March 1999 untainted funds were received to the account and mixed with the tainted funds from Merrell. The issue is whether the aeroplane was also indirectly derived by the $60,000 of tainted funds. The Companies‘ written submission does not consider the issue. The tainted payment is unexplained, is similar in size to cashflow 6, was received only 14 weeks after the loan from NAB, took Fighters‘ overdrawn account from about $42,000 in debit to about $18,000 in debit and better equipped Fighters to continue repaying NAB its monthly instalments of principal and interest on the $64,000 loan. A charge over this plane was granted by Fighters to Merrell on 30 October 1998 and registered on 16 November 1998. It secured repayment of cashflow 5 and the $60,000 and interest, among other things. [490] The Companies have not established that this plane was not also indirectly derived by the $60,000 of tainted funds. As a rough guide when considering the relative proportions of tainted and untainted contributions, I treat the aeroplane as also derived directly from $4,000 of the $64,000 in untainted cash flow 6. [491] In relation to cash flow 7, on 1 April 1999 No 2 Pitt Street Pty Ltd deposited $2,378 to Fighters.358 That deposit was the source of cash flow 7. The Companies have 349 T5-54, l 3 350 T5-54, l 7; Q00018143 351 T5-54; l 7 352 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 8, par 41(a); T5-54 l 18;PSNB00173 p 1; Report of Mr Vincent dated 2 September 2009 Q00060117 p 63 par 10.18 353 PSNB00173 p 4 354 T5-55 355 Report of Mr Vincent dated 2 September 2009 Q00060117 p 63 par 10.20 356 Q00014011; Q00047148 357 Q00047150; Q00045285 358 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 24 par 39(d), Appendix 14 Q00064103 p 120 -- 117 of 229 -- 118 established that $2,000, being cash flow 7, was not derived or realised, directly or indirectly from unlawful activity. [492] The Companies submit that 29% of the funds used to acquire this aeroplane were from unlawful activity. That understates matters by ignoring the $60,000 from Merrell paid to Fighter‘s bank account with NAB. [493] The Companies have established that $139,000 was not derived or realised, directly or indirectly from unlawful activity. The Companies failed to establish that the American T28 VH-SHT was not derived from $143,100 of tainted funds. I am not satisfied that the North American T28 VH-SHT was not substantially derived or realised directly or indirectly from unlawful activity or that Fighters acquired it lawfully. [494] The Companies primary submission was that the aeroplane be released from forfeiture, which I treat as a submission for an order directing that the Commonwealth transfer the aeroplane to Fighters, being its owner at the date of forfeiture. The Companies‘ alternative submission is that the aeroplane be transferred and that the Companies pay $83,100 (being the equivalent of tainted cashflow 5) to the Commonwealth. Having regard to my findings that the Companies failed to prove that the asset was not derived from $143,100 of tainted funds, I consider that the Companies would have submitted that the court should order that the aeroplane be transferred to Fighters and that the Companies pay $143,100 to the Commonwealth. [495] Neither party made submissions about the ability of the court to make such an order or the appropriateness of such an order in the circumstances of the particular asset. [496] POCA s102 does not permit such an order. It permits orders declaring that an amount is payable by the Commonwealth to an applicant. It does not permit an applicant to recover an asset by paying the Commonwealth the equivalent of the tainted funds used to derive that asset. [497] As I am not satisfied that the North American T28 VH-SHT was not substantially derived or realised directly or indirectly from unlawful activity or that Fighters acquired it lawfully. I may not make an order under POCA s102(1) in respect of it. [498] The Commonwealth had a further submission about the charge Fighters granted to Merrell: Because Merrell had a fixed and floating charge over the assets of Fighters of an unknown amount immediately prior to forfeiture, Fighters have not established the nature, extent and value of the any interest which they claim to have in the property. Pursuant to POCA s102(1), the issue of the value of an applicant‘s interest in property would arise only if the applicant first proved the matters in POCA s 102(3)(a). As the Companies have failed to prove those matters, I need not consider this submission in respect of this plane. [499] If I could make an order, I note there is no proof of the plane‘s market value at forfeiture or at trial. I am satisfied that the value of Fighter‘s interest in this asset at the time of forfeiture was diminished by Merrell‘s charge securing payment of $1,600,000. The Companies have not proved the value of Fighter‘s interest. DE HAVILLAND TIGER MOTH -- 118 of 229 -- 119 [500] The de Havilland DH82 Tiger Moth aeroplane was forfeited to the Commonwealth as a result of the restraining order made in April 2006. The Companies concede that: it was bought by Fighters on 11 August 1998 for $37,000; that money came from $68,000 which Nemesis paid Fighters on 5 August 1998; Nemesis received $200,000 on 6 August 1998 from UOCL. The Companies claim that it was owned by Fighters. Merrell‘s charge over Fighter‘s assets was forfeited to the Commonwealth. The charge secured an obligation to pay an amount I have found to be $1,600,000. [501] I am not satisfied that the UOCL funds were lawfully derived or that the $37,000 was not indirectly derived from unlawful activity. [502] The Companies submit that Fighters incurred an expense of $60,000 by placing the aircraft on the CASA register and paying FFMR to restore it in FYE 2003. The Companies submit, in effect, that the aeroplane was derived from that expense too and that amounts to 65% of the cost of the aeroplane. Examination of the evidence does not support the submission. Mr Hart explained in submissions: Fighters paid FFMR $60,000 by way of loan account. It seems that Fighters owes FFMR for the work. Mr Hart submitted the work was done in the 2003 financial year.359Inconsistently with that submission, Mrs Hart deposed in 2006:360 A further $60,000.00 was spent on restoring VH-WEM to flying condition in the years 1999 to 2003 [503] Restoration can be a capital expense while ―repairs and maintenance‖ are generally used to describe a running cost. Which was this alleged expense? In 2006 Mrs Hart‘s affidavit referred to a QuickReport entry which suggested $60,000 was incurred in 2003 as ―restoration cost‖. The entry had no date to show when it was generated. The transaction journal for Fighters for 2003 recorded $60,000 as restoration cost and an associated notation treated it as increasing the value. [504] In an affidavit deposed in July 2010361, Mrs Hart she refers to another QuickReport entry. A date suggests this QuickReport was generated on April 17, 2005.362 It describes the $60,000 as ―restoration cost‖ but also as ―repairs and maintenance‖. There is no explanation for why the later report includes ―repairs and maintenance‖ when the earlier did not. Mrs Hart was not the author of either QuickReport. [505] Because Mrs Hart deposed the work was done over several years I doubt the reliability of the 2003 records relating to this aeroplane and suggesting all work was done in FYE 2003. That causes me doubt the figure of $60,000 recorded as the cost of work done that year. If I accepted the Companies‘ submissions that six years after purchase the plane was the subject of unspecified renovation works, performed by a related company which was paid by a book entry for $60,000 I would still have doubt about the extent to which the plane was derived by the restoration expense. There was no evidence of the market value of the plane before or after the alleged work was done. [506] The Companies have failed to satisfy me that the works done to the aeroplane after 1998 have so diluted the contribution of the initial purchase of the aeroplane in 1998 as 359 Applicants Closing Submissions pg 179. 360 Q00060221 par 60 361 Q00064089 pg 28 362 Pg 7 of 9 of Q00064104 appendix 15 to the Affdt L Hart Q00064089 -- 119 of 229 -- 120 to mean the aeroplane has not continued to be substantially derived from tainted funds. I may not make an order under POCA s102(1) in respect of the Tiger Moth. [507] If I could make an order, I note there is no proof of the plane‘s market value at forfeiture or at trial. I am satisfied that the value of Fighter‘s interest in this asset at the time of forfeiture was diminished by the value of Merrell‘s charge securing payment of $1,600,000. The Companies have not proved the value of Fighter‘s interest. 50 VH-YAX, YAK 3 FIGHTER, AMERICAN CHAMPION DECATHLON [508] The 50 VH-YAX, the Yak 3 Fighter and the American Decathlon are each aeroplanes which were forfeited to the Commonwealth on 18 April 2006.363 They are dealt with together because they have two things in common. Immediately prior to forfeiture, these planes were registered in the name of Merrell Associates Limited. In October 2006 Merrell applied to court for a transfer of these planes to it364but later discontinued.365 The Companies submit that these planes were lawfully owned by Fighters, but were registered in the name of Merrell as security for loans that were made to Fighters.366 Ms Petersen described the arrangement as an ―old style mortgage‖.367 Mrs Hart stated that there was an old form security in relation to the planes such that once the loan was repaid the planes would be reregistered in the name of Fighters.368Re-registration did not occur. Ownership is in issue. [509] The Companies369 and Mr Vincent agree that some Merrell funds were used to acquire these planes. Mr Vincent‘s evidence is that Merrell sourced these funds from UOCL. Mrs Hart and Ms Petersen accept that they are not in a position to dispute the findings of Mr Vincent that the funds Merrell used to acquire the planes came from UOCL.370 Consistently, the Commonwealth made no submission about the amount or proportion of tainted funds used. Yak 50 VH-YAX [510] In relation to the Yak 50 VH-YAX, Mrs Hart maintains that Fighters purchased the plane in 1999 from GA & SK Davis at a total cost of $95,000371 by way of the following transactions: [511] Cash Flow [512] Date [513] Payer [514] Payee [515] Amoun t [516] 1 [517] 28.10.99[518] Merrell (by loan) [519] [520] $55,00 363 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 364 Q00064183 p 4 365 Q00064183 p 8 366 Affdt Mrs Hart Q00060221 p 11 par 65, p 12 par 70, p 14 par 91 367 T 4-19, l 1 368 T5-29, l 25 369 T4-19, l 3; T5-29, l 10 370 T4-20, l 10; T5-29, l15 371 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 12 par 72 -- 120 of 229 -- 121 to GA& SK Davis 0 [521] 2 [522] 19.11.99[523] Merrell (by loan) to GA& SK Davis [524] [525] $40,00 0 [526] [527] $95,00 0 [528] In relation to cash flow 1, on 28 October 1999 $55,000 was telegraphically transferred from Merrell to the account of GA & SK Davis.372 On 26 October 1999 (i.e. 2 days prior to the purchase) UOCL made a deposit of $200,000 to Merrell.373 A document titled ―Merrell Associates Limited Outstanding Loans‖, details the source of funds for the payment to GA & SK Davis on 28 October 1999 as being from ―UOC‖.374The abbreviation ―UOC‖ in various company records refers to UOCL. Before that deposit was made by UOCL, the bank balance of Merrell was only $4,181.62. Mr Vincent concludes that the source of the funds used in cash flow 1 was the deposit by UOCL on 26 October 1999.375I accept that conclusion. [529] In relation to cash flow 2, on 19 November 1999 $40,000 was telegraphically transferred from Merrell to the account of GA & SK Davis.376 On 11 November 1999 (i.e. 8 days prior to the purchase) UOCL made a deposit of $90,000 to Merrell.377 The document titled ―Merrell Associates Limited Outstanding Loans‖ details the source of funds for the payment recorded as ―Balance of Yak 50 purchase‖ as being from ―UOC‖.378 Before that deposit was made by UOCL, the bank balance of Merrell was only $4,184.99. Mr Vincent concludes that the source of funds used in cash flow 2 was the deposit by UOCL on 11 November 1999,379 and he maintains that conclusion in his report of 21 October 2010.380I accept his conclusion. [530] I infer that the issues are: whether the Merrell funds were tainted; and if so, whether they were loans; whether Merrell or Fighters is the owner; whether the loans were repaid; whether the loans were on commercial terms; whether the plane was derived with tainted funds; and ultimately, whether the Companies have satisfied their onus of proof that the plane was not derived from unlawful activity. Yak 3 Fighter 372 Q00021103; Affdt Mrs Hart sw 23 July 2010 Q00064089 pp 35 par 47Appendix 20 Q00064109 pp 2 & 4; Report of Mr Vincent dated 2 September 2009 Q00060117 p 92 par 14.12 373 Q00047227; Report of Mr Vincent dated 2 September 2009 Q00060117 p 92 par 14.13 374 Q00018143; Report of Mr Vincent dated 2 September 2009 Q00060117 p 92 par 14.14 375 Report of Mr Vincent dated 2 September 2009 Q00060117 p 92 par 14.15 376 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 35 par 18 Appendix 20 Q000064109 pp 2 & 4; Report of Mr Vincent dated 2 September 2009 Q00060117 p 92 par 14.16 377 Q00047230; Q00021222; Report of Mr Vincent dated 2 September 2009 Q00060117 p 93 par 14.17 378 Q00018143; Report of Mr Vincent dated 2 September 2009 Q00060117 p 93 par 14.18 379 Report of Mr Vincent dated 2 September 2009 Q00060117 p 93 par 14.19 380 Report of Mr Vincent dated 21 October 2010 Q00064393 p 48 par 14.2 -- 121 of 229 -- 122 [531] In relation to the Yak 3 Fighter, Mrs Hart maintains that Fighters purchased the plane in 1999 from Alpine at a total cost of $490,000,381that a further $55,493.12 was spent after the date of the restraining order to overhaul the engine and a further cost was paid or incurred for labour to restore the plane to flying condition.382 Mrs Hart says that the aircraft was purchased by way of the following transactions: [532] Cash Flow [533] Date [534] Payer [535] Payee [536] Amount [537] 1 [538] 25.05.99[539] Merrell (by loan to Fighters) [540] Alpine [541] $ 150,000.00 [542] 2 [543] 23.06.99[544] Merrell (by loan to Fighters) [545] Alpine [546] $ 155,000.00 [547] 3 [548] 02.07.99[549] Merrell (by loan to Fighters) [550] Alpine [551] $ 185,000.00 [552] 4 Subsequent to Restraining Order [553] Companies [554] Unknow n [555] $ 55,493.12 [556] $545,493.1 2 [557] In relation to cash flow 1, on 21 May 1999 (i.e. 3 days prior to the purchase) UOCL made a deposit of $140,000 to Merrell383. Before that deposit was made by UOCL, the bank balance of Merrell was $17,223.98. A document which appears to have been prepared in or after June 2003 and which is titled ―Merrell Associates Limited Outstanding Loans‖ records the source of funds for the payment of the first instalment for aircraft ZK-YAK (i.e. the Yak 3 Fighter) on 24 May 1999 as being from ―UOC‖.384 Mr Vincent concludes that the funds used in cash flow 1 were sourced from the deposit by UOCL on 21 May 1999.385I accept that conclusion. [558] In relation to cash flow 2, on 23 June 1999 $155,000 was transferred from Merrell to the account of Alpine.386 On 22 June 1999 (i.e. 1 day prior to the purchase) UOCL made a deposit of $144,000 to Merrell.387 Before that deposit was made by UOCL, the bank balance of Merrell was only $11,535.34. The document titled ―Merrell Associates Limited Outstanding Loans‖ details the source of funds for the payment of the second instalment for aircraft ZK-YAK (i.e. the Yak 3 Fighter) on 23 June 1999 as 381 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 11 par 67; Report of Mr Vincent dated 2 September 2009 Q00060117 p 80 par 13.1.2 382 Affdt Mrs Hart sw 24 August 2009 Q00014030 p 3 par 10(b) and 10(c); Report of Mr Vincent dated 2 September 2009 Q00060117 p 80 par 13.1.2 383 Q00047211; Report of Mr Vincent dated 2 September 2009 Q00060117 p 85 par 13.13 384 Q00018143; Report of Mr Vincent dated 2 September 2009 Q00060117 p 85 par 13.15 385 Report of Mr Vincent dated 2 September 2009 Q00060117 p 85 par 13.14 386 Q00010712; Affdt Mrs Hart sw 23 July 2010 Q00064089 p 30 par 41 Appendix 16 Q00064105 pp 3 & 4; Report of Mr Vincent dated 2 September 2009 Q00060117 p 85 par 13.16 387 Q00047214; Q00045290; Report of Mr Vincent dated 2 September 2009 Q00060117 p 85 par 13.17 -- 122 of 229 -- 123 being from ―UOC‖.388 Mr Vincent concludes that the funds used in cash flow 2 were sourced from the deposit by UOCL on 22 June 1999.389I accept that conclusion. [559] In relation to cash flow 3, on 02 July 1999 $185,000 was transferred from Merrell to the account of Alpine.390 On 30 June 1999 (i.e. 2 days prior to the purchase) UOCL made a deposit of $185,000 to Merrell.391 Before the above deposit was made by UOCL, the bank balance of Merrell was only $431.80. The document titled ―Merrell Associates Limited Outstanding Loans‖ details the source of funds for the payment of the final instalment for aircraft ZK-YAK (i.e. the Yak 3 Fighter) on 02 July 1999 as being $150,000 from ―UOC‖.392 Mr Vincent concludes that the funds used in cash flow 3 were sourced from the deposit by UOCL on 30 June 1999.393I accept that conclusion. [560] In relation to amounts spent on labour involved in restoration of the plane, on 25 September 2002 Fighters paid $55,493.12 to Allison Competition Engines in part payment of the Yak 3394. That payment of $55,493.12 was sourced from a deposit of $86,200 into the Fighters account, which was, in turn, sourced from the sale of a de Havilland Chipmunk DHC, VH SHX, by way of 2 installments of $30,000 on 19 December 1997 and $35,000 on 12 March 1998.395 [561] Mrs Hart maintains that the amount of $30,000 deposited on 19 December 1997 was sourced from Nemesis Australia Pty Ltd (Nemesis), which sourced the funds from the National Australia Bank (NAB) commercial bill facility.396 Mrs Hart also maintains that the amount of $35,000 deposited on 12 March 1998 was sourced from Nemesis.397 Mr Vincent concludes that there is insufficient evidence from which to ascertain the ultimate source of the funds for that deposit.398I am satisfied that neither of these were tainted funds. [562] Mrs Hart maintains that a further $46,665 was provided by FFMR on 31 January 2003 to acquire the Yak 3; that the source was a loan from Nigel Arnot of $300,000 on 30 January 2003.399 Mr Vincent concludes that the funds used to repay that loan were ultimately sourced from UOCL.400 388 Q00018143; Report of Mr Vincent dated 2 September 2009 Q00060117 p 86 par 13.19 389 Report of Mr Vincent dated 2 September 2009 Q00060117 p 86 par 13.18 390 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 30 par 41 Appendix 16 Q00064105 pp 3 & 4; Report of Mr Vincent dated 2 September 2009 Q00060117 p 86 par 13.20 391 Q00047217; Report of Mr Vincent dated 2 September 2009 Q00060117 p 86 par 13.21 392 Q00018143; Report of Mr Vincent dated 2 September 2009 Q00060117 p 86 par 13.23 393 Report of Mr Vincent dated 2 September 2009 Q00060117 p 86 par 13.22 394 Mrs Hart‘s affidavit 23 July 2010 Q00064089 p 30 par 41(c); Appendix 16 Q00064105 pp. 139-140 395 Mrs Hart‘s affidavit 23 July 2010 Q00064089 p 31 par 41(c)(v); Report of Mr Vincent dated 21 October 2010 Q00064393 p 43 par 13.7; Appendix 15 to the Report of Mr Vincent dated 21October 2010 Q00064408 p 3 396 Mrs Hart‘s affidavit 23 July 2010 Q00064089 p 31 par 41(c)(v)(3); Affdt Mr Vincent dated 21 October 2010 Q00064393 p 26 397 Mrs Hart‘s affidavit 23 July 2010 Q00064089 p 32 par 41(c)(v)(7) 398 Report of Mr Vincent dated 21 October 2010 Q00064393 p 43 par 13.9 399 Mrs Hart‘s affidavit 23 July 2010 Q00064089 p 33 par 41(d) 400 Report of Mr Vincent dated 21 October 2010 Q00064393 p 44 par 13.14; Appendix 16 to the Report of Mr Vincent dated 21 October 2010 Q00064409 -- 123 of 229 -- 124 [563] Mrs Hart further identifies an additional $40,000 of work performed by FFMR on behalf of Fighters for which no payment of monies were made.401 [564] I infer that the issues are: whether the 3 large Merrell payments were tainted funds; and if so, whether they were loans; whether Merrell or Fighters is owner; whether the loans have been repaid; whether the loans were on commercial terms; whether the other payments of $30k, $35k and $46,665 and $40k were untainted; whether any tainted funds from which the plane was derived were such a proportion of the total funds that the plane was derived from tainted funds; ultimately, whether the Companies have satisfied their onus of proof that the plane was not derived from unlawful activity. Decathlon [565] In relation to the American Decathlon, the Companies and Mr Vincent agree that Merrell funds were used to acquire the Red Yak 50 used as a trade-in. [566] Mrs Hart maintains that Fighters acquired the Decathlon as a "trade-in" when Fighters sold another asset, being a Red Yak 50 aeroplane, to Mr Michael Coad in 1999. The price of the Red Yak 50 was $60,000 and transfer of ownership of the Decathlon. Curiously, the $60,000 and the transfer of ownership were each provided to Merrell (according to Mrs Hart as security for the loan).402 On 9 September 1999 Mr Coad remitted $10,000 through Suncorp to Merrell re Yak 50403 and on 10 September 1999 $50,000 finance obtained by Mr Coad was remitted by AGC to Merrell re Yak 50.404 [575] Mrs Hart maintains that the Red Yak 50 had previously been purchased for US$51,250 by Merrell in February 1999 as a loan to Fighters.405 [576] On 5 February 1999 $78,966.20 (US$51,250) was transferred from Merrell to the account of Richard Goode T/A Sukhoi Technologies.406 A copy of the letter dated 20 May 2003 from Merrell to Mr Hart confirms the above payment by Merrell in respect 401 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 30 par 41(b); Vincent Report dated 21 October 2010 Q00064393 p 36 par 10.16; Transcript, 6-20, l 30 402 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 14 par 93 & 94; Report of Mr Vincent dated 2 September 2009 Q00060117 p 106 par 17.1.2 403 Afft Michael Coad Q00060147 p 2 par 7; Afft Mrs Hart Q00064089 par 51(e), Appendix 24 Q00064113 p 191 404 Q00015768; Mr Vincent's Report 2/9/2009 Q00060117 p 106 par 17.2; Affdt M Coad Q00060147 p 3 par 8; Affdt Mrs Hart sw 23 July 2010 Q00064089 par 51(e), Appendix 24 Q00064113 p 192; Appendix 158 to Report of Mr Vincent 2/9/2009 Q00047274 405 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 14 par 96 406 Q00047278; Q00021187; Affdt Mrs Hart sw 23 July 2010 Q00064089 p 42 par 51(e) Appendix 16 Q00064105 p 2; Report of Mr Vincent dated 2 September 2009 Q00060117 p 108 par 17.20 [567] Description [568] Amount [569] Trade-in value of Decathlon [570] $ 65,000 [571] Amount paid to Merrell [572] $ -60,000 [573] Price of Red Yak 50 sold to Michael Coad [574] $125,000 -- 124 of 229 -- 125 of the Red Yak.407 On 4 February 1999 (i.e. 1 day prior to the purchase of the Red Yak) UOCL made a deposit of $100,000 to Merrell408. The document titled ―Merrell Associates Limited Outstanding Loans‖, details the source of funds for the payment of the Red Yak on 05 February 1999 as being from ―UOC‖409. [577] Mr Vincent concludes that the funds used by Merrell to purchase the Red Yak 50, which were subsequently used in connection with the purchase of the American Decathlon, were sourced directly or indirectly from UOCL.410 [578] I infer that the issues are: whether the Red Yak 50 that was purchased by Merrell was owned by Fighters; when the Red Yak 50 was traded to Mr Coad as part of the price of the Decathlon whether the Red Yak 50 was owned by Fighters or by Merrell; when the Decathlon was transferred to Merrell by Mr Coad, whether Fighters and Merrell had agreed that the owner was Fighters but that the Decathlon should be transferred to Merrell as security for Fighter‘s repayment of what was owed by Fighters for the Red Yak 50; whether Merrell‘s provision of the Red Yak 50 as a trade-in on the Decathlon was the provision of an asset derived from unlawful activity; and if so, whether there was an agreement between Merrell and Fighters for a loan of an amount which represented a price agreed between Merrell and Fighters for the Red Yak 50; whether Merrell or Fighters is the owner of the Decathlon; whether the loan by Merrell to Fighters was repaid; whether the loan was on commercial terms; whether the Decathlon was derived with tainted funds; and ultimately, whether Fighters has satisfied its onus of proof that the plane was not derived from unlawful activity. [579] It became obvious during Mrs Hart‘s evidence that her opinion about Fighter‘s ownership of the Decathlon was based primarily upon what Mr Hart told her and upon two documents created after the first restraining order was made. Mr Hart‘s advices to Mrs Hart and Ms Petersen are not evidence of the correctness of the facts he advised. [580] In relation to the assertion by the Companies that the three planes were registered in the name of Merrell but only as security for loans that were made to Fighters, the opinions of Ms Petersen and Mrs Hart are not evidence of the facts. They may honestly hold the opinions but that does not make them evidence of the fact. The opinions are partly based on a letter from Merrell.411 The best evidence of such an arrangement between Fighters and Merrell in relation to these planes is the secondary evidence of it in a letter from Merrell.412 The letter is addressed to "Mr Steve Hart, Nemesis Australia Pty Ltd, 1 Samara Street, Sunnybank". Mrs Hart stated that the letter was addressed to Steve Hart because he requested the letter.413 The letter is dated 20 May 2003, after a restraining order was made on 8 May 2003. It is written consistently with Merrell‘s having only a chargee‘s interest in the planes. But the Yak 50 VH-YAX was purchased in October 1999;414the Yak 3 fighter was purchased in May 1999;415 and the American 407 B00040415 408 Q00047281; Q00047283; Q00045284; Report of Mr Vincent dated 2 September 2009 Q00060117 p 109 par 17.22 409 Q00018143; Report of Mr Vincent dated 2 September 2009 Q00060117 p 190 par 17.23 410 Report of Mr Vincent dated 2 September 2009 Q00060117 p 109 par 17.24.2; Report of Mr Vincent dated 21 October 2010 Q00064393 p 57 par 16.1 411 Q00064109, p 3 412 Q00064109, p 3 413 T5-29, l 45 414 T5-30, l 17 415 T5-30, l 11 -- 125 of 229 -- 126 Decathlon was purchased in September 1999.416There is no document contemporaneous with the purchase of any of the three planes, or the purchase of the Red Yak 50, which suggests agreement between Merrell and Fighters that the planes belong or would eventually belong to Fighters. The letter is secondary evidence of charges in favour of Merrell in respect of the three planes. [581] The document titled ―Merrell Associates Limited Outstanding Loans‖417 details for June 2003 the source of funds for the payment of the first three instalments for the Yak 3 Fighter and the first two payments for the Yak 50 (not the Red Yak 50) under a heading ―Outstanding Loans.‖ It is consistent with Fighters being owner and Merrell being chargee of those two planes. But, like the letter, it was obviously created after 30 June 2003 and after the first restraining order. [582] There are two agreements dated 29 October 1999, between Merrell as owner and Fighters as renter under which Fighters leased the Yak 3 fighter418 and the Decathlon.419They are inconsistent with an old style security. No document records an agreement for an old style security. [583] I am not satisfied that Fighters has an interest as owner in any of the three planes being the 50 VH-YAX, the Yak 3 Fighter and the American Decathlon. [584] Mrs Hart and Ms Petersen‘s explanation for not being in a position to dispute the findings of Mr Vincent that the source of funds Merrell used to acquire the planes was UOCL, was that they did not have access to the books for Merrell or UOCL.420 However, Ms Petersen stated that she often requested bank balances and other information from UOCL as they were clients to whom she provided bookkeeping services but she denied that she was intimately acquainted with the operations of UOCL and Merrell.421 Mrs Hart denied that she could direct payments being made from Merrell and UOCL even though she had given such instructions on a number of occasions.422 Furthermore, Mrs Hart and Ms Petersen had copies of bank statements for both UOCL and Merrell and copies of correspondence.423 [585] UOCL‘s primary source of income was the payment of establishment fees by participants in the schemes.424 [586] I am satisfied that the funds from Merrell and paid in respect of these planes were tainted funds. 416 T5-30, l 19 417 Q00018143 418 B00040436 dated 29 Oct 1999 419 B00040453 420 T4-20, l 12; T5-29, l 15 421 T4-12, l 23 422 e.g. Q00001956, Q00005503, Q00026224 and Q00029551 423 The financial records and correspondence of UOCL and Merrell were exhibited to the affidavits of Choi Gin (Q00044736, Q00046479), Michael Hawthorn (Q00012151), Tang Tin Sek (Q00001957), Chan Chor Chu (Q00043001, Q00053043) and Peggy Chan (Q00012116). These affidavits were read by the Commonwealth DPP in the PPO application and served on the Applicant companies in these proceedings. 424 Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457 p 81 par 301 -- 126 of 229 -- 127 [587] Because these planes were registered in the name of Merrell, Fighters has not proved that it had an owner‘s interest in the planes. I need not consider what lesser interest, for example as lessee that it may have had as that is not the interest it seeks to recover. [588] If Fighters had proved that it had an interest in the property immediately prior to forfeiture, it derived that interest from tainted funds. In the case of each plane the proportion of tainted funds was such that it was all or the majority of the cost of deriving the plane. I am not satisfied that there was a loan or a loan on commercial terms, in respect of the purchase of any of the planes. Fighters has not established the nature, extent and value of any such interest in the property. [589] Fighters has not proved that any of the three planes was not derived or realised, directly or indirectly from unlawful activity or that Fighters acquired any of the three planes lawfully. [590] I may not make an order under POCA s102(1) in respect of the three planes. [591] If I were wrong about ownership it would be necessary to consider the hypothesis that the three planes were owned by Fighters rather than by Merrell when forfeited and that the court could make an order in favour of Fighters. On that hypothesis I note that Merrell had a charge over Fighter‘s assets to secure an obligation to pay an amount I have found to be $1,600,000. There is no proof of the three planes‘ market values collectively or individually and either at the date of forfeiture or at trial. On this hypothesis, I am satisfied that the value of Fighter‘s interest in any one of the three planes at the time of forfeiture was diminished by the value of Merrell‘s charge securing payment of $1,600,000. The Companies have not proved the value of Fighter‘s interest in any of the three planes. SOURCES OF INCOME OF THE COMPANIES [592] The Companies accumulated assets over the years. Some were owned from dates before activity alleged to have been unlawful. It is instructive to recall that the proceeds from the unlawful activity which was related to the Hendon arrangement were received, primarily, in FYE 1993 and FYE 1994; the proceeds of the unlawful activity related to UOCL were received by UOCL from about June 1997. A residential house at 3 Woff St Sunnybank was owned by Nemesis since 1979. A residential house at 6 Merriwa Street Sunnybank was owned by Nemesis since on about 1982. Land at Brandon Rd Runcorn was owned by Nemesis since 1988. A residential house at 1 Samara St Sunnybank was owned by Yak since 1993. Money from which these acquisitions were initially derived is not alleged in the Commonwealth‘s pleading to have been tainted. Funds for these acquisitions came from loans, fee income and trading in assets.425The lawfulness of the source of the funds to derive these assets was not raised as a specific issue. I conclude that the original owners of these real property assets were able to derive them initially with funds from lawful activities. [593] A separate issue, raised by the Commonwealth in its pleadings, is whether the Companies can establish that funds from the Hendon arrangement and from UOCL have not been used (in the years after the assets were first acquired) in a way that ―derived‖ these assets. An example is the use of tainted funds to pay a lender money 425 Q00064697 Mrs Hart Par 13(b)&(c) and Q00064036 affidavit Ms Petersen re tracing -- 127 of 229 -- 128 due under the terms of a loan (made years after the property was lawfully acquired) secured by mortgage over one of the properties. That issue is considered separately in respect of the individual assets. [594] During and after the influx of tainted funds from the Hendon arrangement and from UOCL the Hart group was deriving funds from lawful sources too and so were the Companies. For example, the Hart group‘s cash flow in 1993 and 1994 was about $400,000 per month when that cash flow was partly made up of tainted funds from the Hendon arrangement. The Companies established that the tainted component from the Hendon arrangement was no more than 7.5% of that cash flow.426 NORTH AMERICAN T-6 [595] The North American T-6 is an aeroplane forfeited to the Commonwealth on 18 April 2006.427 Prior to forfeiture, it was registered in Fighters‘ name. Until forfeiture, Merrell had a charge over assets of Fighters to secure repayment of an amount I have found to be $1,600,000. The charge was lodged on 16 November 1998.428Lodgement was after some Merrell funds were used for the purchase of this plane. The charge was also forfeited to the Commonwealth on 18 April 2006.429 [596] The Commonwealth submits that Merrell and UOCL funds were used to derive the plane. Consistently, the Commonwealth makes no submission about how much the contribution was or what proportion. [597] Mrs Hart‘s evidence is that Fighters purchased a half share of the T-6 from Noel Noteley with Kim Rolph-Smith purchasing the other half in 1996 (by 2 transactions)430 and that Fighters purchased the remaining half share from Kim Rolph-Smith in 1998 (by 3 transactions).431The transactions are summarised as follows: Cash Flow Date Payer Payee Amount 1 08.08.96 Fighters Noel Noteley Aircraft $ 10,000 2 23.08.96 Nemesis (as a loan to Fighters) Noel Noteley Aircraft $ 57,500 3 15.09.98 UOCL Kim Rolph- Smith $ 50,000 4 23.10.98 Merrell Kim Rolph- Smith (via $ 16,900 426 See reasons above: The Hendon Arrangement 427 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 428 B00040367 p 4 429 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2par 4 430 Affidavit Mrs Hart sw 17 October 2006 Q00060221 p 13 par 85; Report of Mr Vincent dated 2 September 2009 Q00060117 p 99 par 16.1.2 431 Affidavit Mrs Hart sw 17 October 2006 Q00060221 p 13 par 86 -- 128 of 229 -- 129 Klooger Trust Account) 5 02.09.99 Fighters Kim Rolph- Smith $ 1,300 $135,700 [598] In relation to cashflow 1, that $10,000 was drawn by Nemesis against its overdraft and paid to Fighters on 8.8.96 and paid by Fighters to the vendor the same day. The Commonwealth made no specific submission that it was tainted. It was not tainted. [599] In relation to cashflow 2, the Commonwealth made no specific submission that it was tainted. It was not tainted. [600] In relation to cash flow 3, Mrs Hart accepted that the payment of $50,000 on 15 September 1998 was paid by UOCL in reduction of a Hart's Australasia Limited debt to Nemesis. Mrs Hart alleged it was owed by UOCL to Hart's Australasia Limited for fees. The Companies made no submission about the services rendered to earn the fees or the commerciality of the amount paid and no exploration of the consequences or otherwise of Fighters‘ commission of a money laundering offence by possession of the plane after 15.09.08. The Companies failed to establish that cash flow 3 was not tainted. [601] In relation to cash flow 4, Mrs Hart accepts that the payment of $16,900 by Merrell on 23 October 1998 was made from the Geoff Klooger trust account and that the $16,900 was originally sourced from a payment of $100,000 from Merrell to the Geoff Klooger trust account.432Mrs Hart described it as a loan from Merrell to Fighters. There was no submission by the Companies that this fact made any difference. Mrs Hart could not dispute that the original source of $100,000 from Merrell was a payment of $300,000 from UOCL on 7 October 1998.433 The Companies failed to establish that cash flow 4 was not tainted. [602] In relation to cash flow 5, the Commonwealth made no specific submission that the $1,300 was tainted. It was not tainted. [603] The Companies argument was: the evidence is that UOCL funded $66,900 of the second half; the Companies concede the ultimate source of the $66,900 was unlawful activity; however $68,800 of purchase money was untainted, being 50.7%. [604] I infer the legislative intent of POCA s 102(3) is to consider whether an asset was substantially derived from tainted funds rather than whether more than 50% was derived from tainted funds. There was no evidence led about whether Fighters had the financial capacity to purchase the plane without the assistance of funds from UOCL. Even when interpreting POCA s 102(3) as meaning ―substantially derived or realised‖, I do not interpret it to mean that where more than 50% of the funds used to derive property were not tainted that it must follow that the property was not substantially 432 T5-46, l 8; Affdt L Hart sw 17 October 2006 Q00060221 p 13 par 86(c); Affdt L Hart sw 23 July 2010 Q00064089 p 22 par 39(b), Appendix 14 Q00064103 pp 108 to110 433 T5-46, l 24 -- 129 of 229 -- 130 derived from unlawful activity. Fighters has not proved that the plane was not derived or realised, directly or indirectly from unlawful activity. [605] I may not make an order under POCA s102(1) in respect of the plane. [606] If I could make an order, I note there is no proof of the plane‘s market value at forfeiture or at trial. I am satisfied that the value of Fighter‘s interest in this asset at the time of forfeiture was diminished by the value of Merrell‘s charge securing payment of $1,600,000. The Companies have not proved the value of Fighter‘s interest. SEA FURY VH-SHF [607] The Hawker Sea Fury VH-SHF is an aeroplane forfeited to the Commonwealth on 18 April 2006.434 Prior to forfeiture, the plane was registered in Fighters‘ name. Until forfeiture, Merrell had a charge over assets of Fighters securing repayment of an unspecified amount. The charge was lodged on 16 November 1998.435 The charge was also forfeited to the Commonwealth on 18 April 2006.436 [608] The Commonwealth submits Merrell funds were used to acquire this aircraft. Some were. In addition, the Commonwealth submits that this aircraft has been acquired with funds from UOCL but, consistently, makes no submission about how much the contribution was or what proportion. [609] Mrs Hart deposed that this aircraft was acquired by the following transactions:437 Cash Flow Date Payer Amount 1 17.12.1999 Nemesis (as a loan to Fighters) $ 58,600.45 2 14.02.2000 Merrell (as a loan to Fighters) $ 20,161.00 4 16.10.2000 Merrell (as a loan to Fighters) $165,405.00 5 16.10.2000 Unlimited Aero Maintenance (as a loan to Fighters) $382,141.93 6 19.10.2000 Unlimited Aero Maintenance (as a loan to Fighters) $ 38,027.44 [610] Mrs Hart deposed in 2006438that Fighters purchased this aircraft from Rural Aviation 1963 Limited in New Zealand by negotiations commencing in or about December 1999 by the 6 transactions which included the following cash flow: Cash Flow Date Payer Payee Amount 434 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 435 B00040367 p 4 436 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2par 4 437 Report of Mr Vincent dated 2 September 2009 Q00060117 p 65 par 11.1.2 438 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 9 par 51 -- 130 of 229 -- 131 3 17.07.2000 Fighters Rural Aviation $109,560.08 [611] By reference to the manual cashbook produced by Mrs Hart, the sale and purchase agreement for the Sea Fury,439a fax from Nigel Arnot to Ms Petersen regarding the final payment of the L39 aircraft440 and an Austrac Report for that amount,441Mr Vincent opined that cash flow 3 did not relate to the Sea Fury but rather to the L39. 442 Mrs Hart in 2010 agreed with Mr Vincent.443 [612] Mrs Hart was not personally involved in the negotiations. The purchase was negotiated by Nigel Arnot.444 [613] In relation to cashflow 1, the Commonwealth made no specific submission that it was tainted. It was not tainted. [614] Mrs Hart accepts that the funds from cash flow 2 of $20,161 and cash flow 4 of $165,405 were paid by Merrell.445 In relation to cash flow 2, Mrs Hart cannot dispute that prior to Merrell making that payment, UOCL paid to Merrell the amount of $19,790.15.446 Mr Vincent reaches the same conclusion.447 In relation to cash flow 4, Mrs Hart cannot dispute that on the same day UOCL deposited US$90,000 into Merrell's account.448I am not satisfied that the funds of cash flows 2 and 4 were not tainted. [615] Mrs Hart accepts that the funds from cash flow 5 of $382,141.93 on 16 October 2000 and from cash flow 6 of $38,027.44 on 19 October 2000 were paid to the vendor by Unlimited Aero Maintenance Pty Ltd (now FFMR). The account of FFMR was brought back to a credit balance by a payment of $20,000 by Nemesis on 18 October 2000, a payment of $144,000 by Yak 3 on 27 October 2000 and a payment of $361,000 by Nemesis on 6 November 2000.449The $361,000 from Nemesis was sourced by a deposit to Nemesis of $1.3 million from Blackshort Proprietary Limited. Mr Hamish Watson was a former director of this company.450Mr Watson was an investment shares trader in Sydney451and a business associate of Mr Hart.452Mrs Hart asserts that Nemesis invested $1 million dollars with Watson Benefit Services Proprietary Limited (―WBS‖) and in one month a return of $300,000 was made on that amount.453 There is evidence of the transfer of $1M but no primary evidence of the alleged written agreement with WBS relating to the investment of those funds. There was secondary evidence from 439 Q00010149 440 Q00010170 441 Q00014007 442 Vincent Report dated 2 September 2009 Q00060117 p 68 par 11.7.3 443 Affidavit sw 21 October 2010 Q00064341 p 24 par 9 444 T6-5, l 55 445 Affdt Mrs Hart sw 21 August 2010 Q00064341 p 25 pars 9(b) and 9(c); T6-6, l 2 446 T6-6, l 43 447 Report of Mr Vincent dated 2 September 2009 Q00060117 p 71 par 11.13 448 T6-6, l 31; Report of Mr Vincent dated 2 September 2009 Q00060117 p 72 par 11.16 449 Appendix 96 Vincent's Report 2 September 2009 PSNB00103; Affdt Mrs Hart sw 21 August 2010 Q00064341 p 26 par 9(f) 450 T6-8, l 15, Q00047171 p 3 451 T6-8, l 20 452 T6-8, l 23 453 Affdt Mrs Hart sw 21 September 2010 Q00064341 p 17 par 7(b)(iv) -- 131 of 229 -- 132 Mrs Hart of an agreement that the profit was to be $300,000. There was no evidence from Mrs Hart that she made the agreement. It was allegedly in writing. There was no evidence from Mrs Hart as to whether she read the agreement or how she learned of its terms. On 6 October 2000 SHFH (now Nemesis) transferred $1 million to WBS.454 On 4 October 2000 UOCL transferred $1.5 million to WBS455 and on 12 October 2000 a further $500,000 was deposited by UOCL into the bank account of WBS.456The possibility exists that UOCL used its investment to transfer funds via WBS to Nemesis or to permit Nemesis to receive an agreed profit from investments made by UOCL and Nemesis. The reasons for a simultaneous investment by UOCL were not explored. Mrs Hart could not assist with evidence about UOCL‘s simultaneous investment. I am not satisfied that $300,000 of the $361,000 paid by Nemesis on 6 November 2000 was untainted money. [616] The Companies have not established that $300,000 of cash flows 5 and 6 were not tainted. I am satisfied that $120,169.37 of cash flows 5 and 6 was untainted. [617] With $178,769.82 of untainted funds and $485,566 of funds not shown to be untainted, Fighters has not proved that the plane was not derived or realised, directly or indirectly from unlawful activity or that Fighters acquired the property lawfully. [618] I may not make an order under POCA s102(1) in respect of the plane. [619] If I could make an order, I note there is no proof of the plane‘s market value at forfeiture or at trial. I am satisfied that the value of Fighter‘s interest in this asset at the time of forfeiture was diminished by the value of Merrell‘s charge securing payment of $1,600,000. The Companies have not proved the value of Fighter‘s interest. . YAK 50 VH-YAY [620] A Yak 50 VH-YAY was forfeited to the Commonwealth on 18 April 2006.457 Immediately prior to forfeiture, the plane was registered in the name of Fighters, according to the Commonwealth. It remained in Merrell‘s name according to the Companies‘ submission. Neither side‘s submission about this asset was clear. If the Yak 50 VH-YAY was Fighter‘s, Merrell had its charge over the assets of Fighters.458 If the Yak 50 VH-YAY was Merrell‘s the Companies may not recover it. [621] Neither side‘s submission sets out the issues of fact to be determined. [622] This Yak 50 VH-YAY was acquired from a Gunther Mayr as a trade-in when Mayr purchased another plane from Fighters. I infer that from the Commonwealth‘s perspective, and assuming the plane to have been Fighter‘s when forfeited, there is an issue as to the identity of the plane that Fighters sold to Mayr and the source of funds used to acquire the plane sold to Mayr; that if it was Merrell‘s plane that was sold to Mayr then the Yak 50 VH-YAY acquired from Mayr was acquired by trading Merrell‘s property; that buying a plane with Merrell‘s property raises the same suspicions as buying a plane with Merrell‘s money; that if the Yak 50 VH-YAY was bought with 454 Q00064356 p 8 455 Q00043011, p 122 456 Q00043011, p 123 457 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 458 T5-30, l 33 -- 132 of 229 -- 133 Merrell‘s plane the Companies will not satisfy their onus of proof that it was not derived from unlawful activity. [623] The Companies‘ submit that the Yak 50 VH-YAY ―while remaining in Merrell‘s name became the property of Flying Fighters with a loan being entered into with Merrell‖. If that was the case, I am not satisfied that the loan was on commercial terms, am not satisfied that there has been any repayment of the loan and am not satisfied that the plane was not derived from unlawful activity. [624] The Commonwealth rely on establishing that the plane traded to Mayr was Merrell‘s to reach the same conclusion as the companies concede, namely that the Yak 50 VH- YAY was acquired with Merrell‘s funds. Because of the risk that I have misunderstood the issue I propose to examine facts relating to the plane traded by Fighters to Mayr and the evidence of Mrs Hart purporting to establish that Fighters owned the Yak 50 VH-YAY without using Merrell as a source of funds or any plane of Merrell‘s as a trade-in. [625] Mrs Hart asserted that the Yak 50 VH-YAY was acquired on about 11 December 2000 by Fighters as a trade-in on the sale to Mayr of another plane previously owned by Fighters, namely a Yakovlev Yak 52 registration VH-YAA.459 The first issue is whether Fighters owned the plane sold to Mayr. Mrs Hart asserted that Fighters sold Mayr the Yakovlev Yak 52 registration VH-YAA. If Fighters did not own a Yakovlev Yak 52 registration VH-YAA and did sell it to Mayr, then there is a reasonable basis to suspect that the plane sold to Mayr was a different Yak 52 which belonged to Merrell. [626] A copy of the balance sheet of Fighters as at 30 June 2000460 did not record the Yakovlev Yak 52 registration VH-YAA as an asset in that financial year. That was the financial year before the Yakovlev Yak 52 registration VH-YAA was allegedly traded in for the Yak 50.461 [627] A transaction detail account of Fighters as at 30 June 2002 records liabilities owing to Merrell Associates.462It records a description against a transaction recorded on 12 November 1998 as "USD$51250 Funded direct by Merrell…709-7…Yak 52 $81,605.81". A copy of a telegraphic transfer confirmation records a payment by Merrell for $81,605.61 (USD 51,250.00) on 12 November 1998.463This evidence suggests that Fighters received a Yak 52 on 12/11/98, paid for by Merrell. On 11 November 1998 (i.e. one day prior to the purchase of that Yak 52) UOCL made a deposit of $90,000 to Merrell.464 [628] An agreement dated 1 October 1999 between Merrell and Fighters recited that Merrell owns or intends to own disassembled aeroplanes including a Yak 50 and Yak 52 and described Fighters as the ―contractor‖ engaged by Merrell to assemble and sell the two aeroplanes on behalf of Merrell.465 It follows from the terms of the agreement that on 1/10/99, Fighters would assemble and eventually possess an assembled YAK 52 on a 459 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 12 par 76; Affdt Mrs Hart sw 23 July 2010 Q00064089 p 38 par 49; T5-62, l 55 460 Q00064108 461 Report of Mr Vincent dated 2 September 2009 Q00060117 p 96 par 15.8.3 462 Q00045486 463 Q00021214 464 Q00040034 465 Q00010038; Report of Mr Vincent dated 2 September 2009 Q00060117 p 96 par 15.8.4 -- 133 of 229 -- 134 date after 1/10/99. Other terms reveal that for Fighters‘ services, Merrell would incur a liability to Fighters for assembly costs, out of pocket expenses and a 15% sale commission. [629] Mrs Hart asserted that the Yak 52 previously purchased by Merrell for $51,250 was not the plane that was traded to Mayr but that it was sold to a Mr Edwards in about December 2000 for $110,000 with $90,000 being sent to Merrell or a bank account at Merrell's direction and $20,000 being paid to Fighters.466 Fighters has no record that refers to a sale by Fighters to Edwards of a Yak 52. Edwards stated that he did not purchase an aircraft from Fighters. [630] Mayr467deposed that the aircraft he purchased from Unlimited Aerobatics (Fighters) was a Yak 52 registration VH-YEY, as opposed to a Yak 52 registration VH-YAA and that he has never owned or heard of a Yak 52 with the registration VH-YAA. Mayr deposed that he traded in his previously owned Yak 50 VH-YAY (along with a payment of $45,000 consisting of a payment of $5,000 on 14 December 2000 and a payment of $40,000 on 9 March 2001468) to acquire the Yak 52 VH-YEY. [631] Mrs Hart was questioned in relation to a cash book entry noted "December 22, $10,000" in which the 12th is crossed out, the 22nd inserted and the initials ―SHFH‖ (now Nemesis) inserted.469The cash book entries were usually done twice each week and so were not done contemporaneously with a transaction. Mrs Hart was questioned in relation to the notation in the books beside the entry of a deposit of $10,000 on 12th December "Edward Services P/L ½ price motor Yak 52‖ in Ms Petersen's writing.470 Mrs Hart stated that she did not consider that this payment was half payment for a motor rather than half payment for an aircraft because she was told by Nigel Arnot that they were expecting a payment of $20,000 for the aircraft. Mr Arnot did all the negotiations for the aircraft on behalf of Fighters.471 Mrs Hart‘s belief that a Yak 52 aircraft was sold to Edwards is partly based upon what she was told by a Mr Arnot. Whether correct or not, Mr Arnot‘s advice to her is not evidence of the truth of the advice. [632] Mrs Hart accepted that the records of CASA472 indicate that a Yak-52 VH-YAA (the plane Mrs Hart asserted was sold to Mayr) had never been registered to Fighters and that the records did not confirm that Fighters sold the VH-YAA to Mayr either by way of a trade-in or otherwise.473 Mrs Hart has given no explanation for her belief as to when or how the Yak 52 VH-YEY which was sold to Mayr was acquired. [633] Mrs Hart was not personally involved in this transaction with Mayr but has attempted to reconstruct this transaction using the cash at bank book and the quick books of Fighters.474 466 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 40 pars 50(c) -(g) 467 Affdt Gunther Mayr sw 21 October 2010 Q00064429 468 Q00064111 p 6 469 Q00064112, p 5; T5-68, l 52 470 Q00064111, p 4 of 8; T5-69, l 48 471 T5-70, l 55 472 Q00064219 473 T5-64, l 13 474 T5-65, l 15 -- 134 of 229 -- 135 [634] Mrs Hart maintains that Fighters may be the victim of a possible fraud in relation to this asset.475 That is, Mrs Hart maintains that "our records show that we were issued an invoice from Mr Arnot in August 2000 for that aircraft so we've paid him for the aircraft and then according to the CASA records, it has been sold to somebody else". Mr Vincent noted that that document476 does not look like an invoice. It is not dated and simply refers to apparent monies owing to Ultimate Aerobatics "as at 1 August 2000".477 [635] I am not satisfied that the Yak 52 sold to Mr Mayr was not owned by Merrell and paid for by Merrell. As for the Yak 50 VH-YAY received from Mayr and forfeited to the Commonwealth: I am not satisfied that it was not derived substantially from the trade of Merrell‘s Yak 52 which was itself derived from Merrell‘s funds. [636] Fighters has not established that this plane was not derived or realised, directly or indirectly from unlawful activity or that Fighters acquired it lawfully. [637] I may not make an order under POCA s102(1) in respect of the plane. [638] If I could make an order, I note there is no proof of the plane‘s market value at forfeiture or at trial. I am satisfied that the value of Fighter‘s interest in this asset at the time of forfeiture was diminished by the value of Merrell‘s charge securing payment of $1,600,000. The Companies have not proved the value of Fighter‘s interest. AEROVOD L-39C [639] This plane, called the L39 VH-SIC by the Companies in submissions, Aerovod L-39C by the Commonwealth in submissions and VH-SIC Aero Vodochody L-39C or L-39 C Albatross Aircraft Registration VH-SIC by Mrs Hart in evidence was forfeited to the Commonwealth on 18 April 2006.478 I will describe it as the L39. Immediately prior to forfeiture, the L39 was registered in the name of Fighters and Merrell had its charge over the assets of Fighters.479 [640] The Companies maintain that the L39 was originally acquired with funds from the NAB commercial bill and from part of $457,301.70 from the sale of HAL shares issued to Yak as part of the initial public offering of HAL shares. [641] The Commonwealth submits there is insufficient information provided by Fighters to explain the ultimate source of funds used to acquire the property. There were some curious payments at the time of this acquisition. An example was the apparent payment of the purchase price ($418,000) by the plane‘s vendor (Mr Goode) to UOCL. Another was the apparent account statement from Mr Arnot to Fighters suggesting more funds were payable after the last instalment of $65,000 was paid. The Commonwealth helpfully drew my attention in written submissions to some of the curious parts of the evidence relating to the L39. There was no submission from either side as to why the monies were paid. 475 T5-75, l 9 476 Q00064416 477 Report of Mr Vincent dated 21 October 2010 Q00064393 p 49 par 15.6 478 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 479 T5-30, l 33 -- 135 of 229 -- 136 [642] When considering the facts relating to this acquisition, it is important to distinguish between Ultimate Aerobatics Pty Ltd, the name of a company described as Mr Nigel Arnot‘s company and Unlimited Aerobatics Pty Ltd, the former name of Fighters. [643] Mrs Hart initially deposed that Fighters purchased the asset in 2000 from Richard Goode by 2 payments totalling $398,228.39,480that a further $80,000 was spent by Fighters during the period from 2000 to 2003 on restoration costs481and an additional $51,892.50 was spent on parts and labour subsequent to the date of the restraining order.482The evidence of the history of payments for the purchase of the L39 and parts and interest is primarily based upon the interpretation of documents. [644] Mrs Hart later had the benefit of documents attached to Mr Vincent‘s report and deposed that Fighters paid a total of $537,101.22 in respect of the L39, comprised of the following payments:483 CaCash Flow [645] Date[646] Payer [647] Payee[648] Amount [649] 1 [650] 10.04.00 [651] Fighters Ri Richard Goode T/ [652] $ 39,107.99 [653] 2 [654] 17.07.00 [655] FFMR Richard Goode [656] $109,56 1.08 [657] 3 [658] 28.09.00 [659] Nemesis for Fighters Richard Goode [660] $279,12 0.40 [661] 4 [662] 28.09.00N( Nemesis for Fighters (in (interest) [663] [664] $ 11,241.09 [665] 5 28.09.00 [666] Nemesis for Fighters (parts) [667] Unknown [668] $ 76,645.00 [669] 6 [670] [671] Fighters (parts) [672] [673] $ 17,422.73 [674] 7 ReAfter restraining or order [675] Fighters [676] Unknown [677] $ 3,355.00 [678] [679] $537,10 1.22 [680] Mr Vincent opined that the asset was acquired by 5 payments, totalling AU$427,890 or US$255,000 and made by Ultimate Aerobatics Pty Ltd, Fighters, and Unlimited Aero 480 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 6 pars 30 & 31 481 AffdtMrs Hart sw 17 October 2006 Q00060221 p 6 par 31(c) 482 Affdt Mrs Hart sw 24 August 2009 Q00014030 p 3 par 6(b); Report of Mr Vincent dated 2 September 2009 Q00060117 p 50 par 9.1.2 483 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 16 par 36 -- 136 of 229 -- 137 Maintenance Pty Ltd. The difference in their totals is not of immediate concern, as Mrs Hart has included costs after the original purchase, for instance for parts. [681] On 21 February 2000, Unlimited Aero Maintenance, by Mr Arnot, sent a letter to Mr Hart advising that the aircraft had been packed in a container ready for shipment, that 50% of the payment was due on order, a further 25% was due on shipment and a further 25% was due when the container arrived and the aircraft was seen to be as represented.484 The price Mr Goode asked for by invoice on 12 April 2000 was US$255,000 which was then AU$418,000.485 [682] Mr Vincent relied on the following 5 transactions, which total US$255,000, as being related to the purchase of the L39: (a) Austrac report number 44587615 showing a deposit on 06 March 2000 by Ultimate Aerobatics to Richard Goode - Sukhoi Technologies. The amount is for $55,644 (US$33,560)486 (b) Austrac report number 44619894 showing a deposit on 07 March 2000 by Ultimate Aerobatics to Richard Goode - Sukhoi Technologies. The amount is for $166,687 (US$100,530)487 (c) Austrac report number 45119192 showing a deposit on 30 March 2000 by Ultimate Aerobatics to Richard Goode - Sukhoi Technologies. The amount is for $56,242 (US$33,953)488 (d) Austrac report number 45365369 showing a deposit on 10 April 2000 by Unlimited Aerobatics (now Fighters) to Richard Goode - Sukhoi Technologies. The amount is for $39,194 (US$23,207)489 (e) Austrac report number 47261879 showing a deposit on 17 July 2000 by Unlimited Aero Maintenance (now FFMR) to Richard Goode - Sukhoi Technologies. The amount is for $110,123 (US$63,750)490 [683] Those last two payments roughly correspond in amount with Mrs Hart‘s cashflows 1 and 2 and the differences are not relevant. The significance is that Mrs Hart and Mr Vincent are agreed about where two sources of funds arose. Mrs Hart‘s cashflow 1 was borrowed from the NAB by Fighters overdrawing its account and the account was restored to credit next day by Nemesis drawing on its commercial bill facility with NAB. Mrs Hart‘s cashflow 2 was paid by FFMR which withdrew it from its bank account and by Nemesis paying $109,000 to the FFMR bank account. The overdraft of Nemesis was $463,356.57 as a result. On 24 July 2000, that overdraft was restored to a credit balance by deposits of $300,000 from Fighters and $413,000 from Yak. Each deposit was financed by the proceeds of sale of HAL shares owned by Fighters and Yak when HAL was listed as a public company. 484 Q00010172 485 Q00010173; Q00064182 pp 6 to 7 486 Q00014003 487 Q00014004 488 Q00014005 489 Q00014006 490 Q00014007 -- 137 of 229 -- 138 [684] In relation to the last of the 5 payments referred to by Mr Vincent, on 15 June 2000 Nigel Arnot sent a facsimile transmission to Ms Petersen asking for the ―final payment‖ of US$63,750 for the L39 to the account of Richard Goode.491 On 10 July 2000 Arnot sent a facsimile transmission to Steve Hart stating "On a separate note, I sent a fax to Shirley on the 15th of last month requesting that the final payment of the L-39 be made‖.492 Ms Petersen paid this amount (US$63,750 converted to AUD$109,569.08) from funds of Unlimited Aero Maintenance (now Fighters) on 17 July 2000.493 [685] One would infer from the five payments Mr Vincent relied on that the last instalment of the purchase price was paid on 17 July 2000 and that Mr Arnot‘s company Ultimate Aerobatics had paid US$168,043 of the full price of US$255,000. [686] Ms Petersen did not deal personally with the vendor, Richard Goode, in relation to the purchase of the L39.494 Richard Goode is stationed in the UK and buys and sells aircraft on behalf of others.495Mr Arnot and Mr Goode had a business relationship and Ms Petersen described the two men as partners. [687] Ms Petersen stated that Fighters had to pay Richard Goode money for the L39 but Fighters did not have the money so Nigel Arnot paid it on Fighter's behalf and then Fighters owed this money to Ultimate Aerobatics Pty Ltd, which was Nigel Arnot's company.496 That evidence is consistent with the five payments Mr Vincent relied on. [688] Mrs Hart stated that Fighters owed Arnot $631,000 for aircraft, plural, including the L39. Mrs Hart‘s evidence was that Arnot made a payment to Richard Goode on behalf of Fighters because Fighters did not have the funds at the time.497 That evidence is consistent with the five payments. I accept that Fighters was also acquiring possession or ownership of things unrelated to the L39. [689] Although the final payment to Goode for the L39 appears to have been made on 17 July 2000, on 1 August 2000 a letter was sent from Ultimate Aerobatics (Arnot‘s company) to Mr Hart stating "As requested this is a breakdown of the monies owing to Ultimate Aerobatics as at 1 August 2000". The letter indicated that there was a loan by Ultimate Aerobatics to Fighters for the purchase of the L39 and that there was owing AU$279,120.40 with interest on that sum of $11,241.09 to that day.498Ms Petersen stated she believed that this was Fighter's loan from Mr Arnot for amounts paid by Arnot to Mr Goode.499That letter is capable of being reconciled with the request by Arnot for US$63,750 as a final payment to Goode: it may be that Arnot had made interim payments on behalf of Fighters, was keeping a running account of those and had not make the final payment of 25%. [690] On 28 September 2000 $418,000 was withdrawn from UOCL‘s bank account. On 29 September $418,000 was deposited into the Geoff Klooger trust account under the 491 Q00010170 492 Q00010430, p 2 493 see notation on Q00010170; T4-27, l 40 T4-30, l 49 494 T4-21, l 22 495 T4-21, l 14 496 T4-21, l 36; T4-33, l 21 497 T5-58, l 17 498 Q00064182, p 15 499 T4-30, l 19 -- 138 of 229 -- 139 name of Merrell.500Ms Petersen stated that Nigel Arnot borrowed the money from Merrell Associates501but could not explain why Richard Goode caused AU$418,000 to be paid to the bank account of UOCL on 3 October 2000.502 [691] On 28 September 2000 Unlimited Aerobatics (now Fighters) transferred $418,000 to Richard Goode.503 Ms Petersen arranged that transfer. That amount was the same as the price which Mr Goode had requested for the L39. [692] On 28 September 2000 Ms Petersen provided UOCL‘s bank account details to Nigel Arnot to pass on to Richard Goode by a facsimile she sent to Nigel Arnot.504 Ms Petersen identified the handwritten notation "where and when" on a copy of that facsimile505 as her own and identified the handwritten notation "AU$418,000" as Mr Hart's writing.506 [693] On 3 October 2000 Nigel Arnot sent a facsimile transmission to Ms Petersen attaching a copy of the invoice for the L39 dated 12 April 2000.507 The total cost of the L39C is detailed as US$255,000 or AU$418,000. [694] On 3 October 2000 Richard Goode requested his bank to transfer $418,000 from his trading account to UOCL‘s bank account.508 [695] On 4 October 2000 UOCL received to its bank account $417,902 from Richard Goode.509 [696] On 6 December 2002 Mr Hart sent an email to Michael Horne providing answers in respect of audit queries relating to Merrell for the year ended 30 June 2001. At point 7 of the email, Mr Hart provided the following response: "Richard Goode T/A Sukhoi Technologies was part of the 4 b) answer. It was a repayment of a loan of $418,000 made on the 28/09/00 to Geoff Klooger trust account‖.510 [697] The transmissions from Hong Kong to Australia of $418,000 on 3 October 2000 and from England to Hong Kong on 4 October 2000 are suspicious. Neither party proffered a submission about them. A 24 hour loan is not consistent with UOCL‘s funds substantially deriving the plane. The circumstances are not consistent with a bridging loan. The two transactions raise the suspicion that UOCL and Merrel were substantially under Mr Hart‘s control and that there was some advantage to be gained from the strategy but the transactions do not appear to have been required for the plane to be acquired. [698] Besides disclosing those anomalous transactions, Mr Vincent‘s report about the L39 usefully showed that Mrs Hart‘s first hypothesis for the source of funds was flawed and 500 see Trust Ledger for Merrell Associates from Geoff Klooger's office is exhibited to Affdt Shirley Petersen Q00064696 p 7 501 T4-42, l 3; Q00064696 p 2 par 2(d) 502 T4-44, l 44 503 Q00064182, p 9 504 Q00064721 p 2 505 Q00064182, p 10 506 T4-34, l 4 507 Q00064182, p 6-7 508 Q00064182, p 8 509 Q00064720 p 2 510 Q00064722 p 3 -- 139 of 229 -- 140 Mr Vincent opined that Mr Arnot‘s company appeared to have made some payments and Fighters appeared to become indebted to Mr Arnot‘s company. That opinion is not inconsistent with the Companies‘ providing funds to derive the L39. Otherwise, Mr Vincent concluded that there was insufficient evidence to draw a conclusion as to the original source of funds used to acquire the L39. [699] Cashflow 3 as described by Mrs Hart, was $279,120.40. That was misleading. It was not a discrete payment of $279,120.40. That was the amount which Mrs Hart attributes to the repayment of amounts owing on the L39 because of the invoice Arnot sent on 1 August 2000. Mrs Hart treats that as paid out of two payments made by Fighters on 28 September 2000. One payment was the $418,025 to Goode and the other was $213,252.77 paid to Ultimate Aerobatics. Mrs Hart similarly attributes the interest demanded by Arnot as cash flow 4 and as having been paid out of the same 2 payments made on 28 September 2000. I accept that the outstanding amounts due on the L39 were paid from those payments. [700] The funds for cashflow 3, 4 and 5 were paid by Nemesis which was partly enabled by the receipt the month before of the $713,000 proceeds of the sales of HAL shares by Yak and Fighters and otherwise enabled by the NAB facility it maintained. [701] There were later amounts which Mrs Hart alleges were spent in respect of the plane of about $20,700. [702] Despite the use of Nemesis funds, I am satisfied that they were not substantially tainted during the period it used the NAB facility (for reasons above).511I am satisfied the L39 was not substantially derived from tainted funds and was not substantially derived from unlawful activity. [703] The value of the plane is not the subject of evidence. I infer that the number of hours the plane has flown affects price. Purchased overseas and compared with a plane advertised in the USA at the time of purchase, its market value may depend on a local market or on an international market. I do not infer that its value is the equivalent of the Australian dollars invested in it. One reason is the substantial increase in the value of the Australian dollar since the plane was sold for US$255,000. Another is the unknown condition of the aircraft. A third is the possibility of a change in demand since the global financial crisis. [704] I am satisfied that the value of Fighter‘s interest in this asset at the time of forfeiture was diminished by the value of Merrell‘s charge securing payment of $1,600,000. The Companies have not proved the value of Fighter‘s interest. AKROTECH CAP 232 [705] This plane was forfeited to the Commonwealth on 18 April 2006.512 Immediately prior to forfeiture, the plane was registered in the name of Fighters and Merrell had its charge over the assets of Fighters.513 511 See Finance facilities and the role of Nemesis 512 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 513 T5-30, l 33 -- 140 of 229 -- 141 [706] The Commonwealth submits that the Companies ―and Mr Vincent agree that funds from Tinkadale (Hendon arrangement) were used to acquire this asset‖. That submission misleads in three ways. Firstly, the Companies did accept that funds from Tinkadale were used but the Companies did not accept the funds were from the Hendon arrangement. Secondly, the evidence was not to the effect that all funds from Tinkadale related to the Hendon arrangement. Thirdly, the Companies accepted that some funds came from Tinkadale. The Commonwealth submits that funds from Maurice Hannan, a participant in the Hendon and Northbourne arrangements, were also used to acquire the property but, consistently, makes no submission as to whether it is unlawfully acquired money. [707] The Commonwealth submits that Mr Vincent has also identified that funds sourced from UOCL were used to repay a loan from Nigel Arnot which was used to pay for repairs to the asset but, consistently, the Commonwealth made no submission about the amount or proportion of tainted funds used. [708] Mrs Hart maintained that this asset was acquired by Fighters for a total purchase price of $244,133.58, comprised of the following:514 Cash Flow Date Payer Payee Amount 1 01.07.95 Nemesis (as loan to Fighters) Various $ 232,579.99 2 05.10.95 Fighters Brambles International $ 690.47 3 09.10.95 Fighters Brambles International $ 1,110.00 4 19.10.95 Fighters Brambles International $ 9,343.34 6 05.01.96 Fighters Brambles International $ 409.78 $244.133.58 [709] In relation to cash flow 1, Mrs Hart stated that part of the acquisition cost of this aircraft amounting to $232,579.99 was funded by loan by Nemesis to Fighters. I accept this evidence. In her supplementary affidavit, Mrs Hart sets out the following further details of the loan and the manner in which the loan funds were applied: 515 Date Ref Payment Details Amount 24.10.1994 000610 Avions Mudry deposit $16,173.36 24.10.1994 000664 Rob Bowyer Custom Duty $1,928.24 16.12.1994 000530 Fixed deposit paid out of for part $35,000.00 514 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 15 par 103; Report of Mr Vincent dated 2 September 2009 Q00060117 p 110 par 18.1.2 515 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 58 par 57 -- 141 of 229 -- 142 payment on CAP 232 18.01.1995 Tfr Avions Mudry $142,428.39 31.01.1995 Payment for motor $2,050.00 17.02.1995 000693 Payment $30,000.00 19.04.1995 000797 S & L Hart travel expenses $5,000.00 $232,579.99 [710] The Commonwealth challenged Entry 306 for $1,928.24 "Rob Bower Custom Duty Wine" and Entry 646 for $5,000 "Steve and Laura Hart - Travel".516 Mrs Hart did not accept the proposition put to her in cross-examination that the payment of $1,928.24 described as ―Rob Bowyer Custom Duty Wine‖ in the Steve Hart Family Holdings Bank Statement Entry List517 was duty payable on wine she and Mr Hart brought back from France, but maintained that entry was duty payable on the purchase of the this plane.518 I am not persuaded that Mrs Hart‘s recollection is correct about the source of the duty. I am satisfied that the travel expense was related to the acquisition. I accept that the other payments of about $230,000 were paid to derive the plane. [711] Mrs Hart stated that all the funds she listed in respect of the above 7 entries were paid to Fighters by Nemesis from the operating account of Nemesis from funds available in that account on the day.519 The source of funds Nemesis received which Mrs Hart identified as being the source of the funds for the purchase are as follows: Date Ref Details Amount 24.10.94 234 Income from Tinkadale Pty Ltd - fees received $ 50,000.00 25.11.94 307 Income from Bomilsco Pty Ltd - fees received $ 6,000.00 16.12.94 349 Income from fixed deposit $ 35,369.53 16.12.94 385 Income from sale of Pitts and Laser $161,422.90 17.02.95 485 Dep-Maurice Hannan - Bal plane purchase $ 30,000.00 18.04.95 644 Income from Ord Minnett - sale of Yardmin shares $ 32,300.70 516 Report of Mr Vincent dated 21 October 2010 Q00064393 p 58 par 17.4(ii) 517 Q00064131 p 3 518 T6 -15, l 35 519 T6-16, l 20; Report of Mr Vincent dated 21 October 2010 Q00064393 p 107 par 17.5 -- 142 of 229 -- 143 [712] Tinkadale Pty Ltd was an entity involved in the Hendon Arrangement.520It was also the trustee of Mr Adcock‘s practice trust. Maurice Hannan Nominees Pty Ltd was a participant in the Hendon and Northbourne arrangements.521It was also an income earner. The Commonwealth, consistently, rested on the Companies‘ onus and left unexplored the issue of whether these two payments were unlawfully derived. The payment from Tinkadale was not derived from the Hendon arrangement or unlawfully derived.522 [713] As for Maurice Hannan Nominees Pty Ltd: the payment was not of a size and was not paid at a date consistent with commissions paid by participants in the Hendon arrangement. It was not tainted. [714] In relation to cash flows 2, 3, 4 and 6, (less than $12,000) the payments to Brambles were all made by Fighters out of its own bank account. Mrs Hart identifies a deposit to Fighters on 29 September 1995 from Steve Hart personally just prior to the payment of these sums to Brambles. This $6,000 was banked to the Fighters account and would have added to the account balance of Fighters from which these Brambles payments were made. The Commonwealth submits accurately that the source of the $6,000 to Mr Hart has not been identified. The Commonwealth did not submit that it was derived or probably derived from unlawful activity. At that date, the proportion of Mr Hart‘s income derived from the Hendon arrangement was very small. This payment was not tainted. [715] The Commonwealth drew attention in submissions to contents of emails from Mr Arnot to Mr Hart, dated 16 December 2002 and 18 December 2002 and submit that they show that further costs were incurred in respect of this aircraft (i.e. wing, prop, parts etc), subsequent to the initial acquisition.523 An email dated 12 January 2003 from Mr Hart to Nigel Arnot appears to confirm that additional costs were in fact incurred in respect of this asset.524The Commonwealth submits that Mrs Hart did not initially provide details of how such costs were paid, whether the apparent loan obtained from Nigel Arnot was repaid, and if so, the source of funds used, and the dates the loan repayments were made. The Commonwealth omitted to submit what that cost was. The maximum cost was about US$14,590. Mrs Hart later stated that the funds provided to Fighters to enable the payments of $15,000 (Brisbane Aero Engines)525 and $13,902.78 (Richard Goode),526were sourced from a loan of $300,000 provided by Nigel Arnot / Ultimate Aerobatics.527 The Commonwealth did not submit this was false. The Commonwealth submitted that ―Mr Vincent concludes that the ultimate source of funds for this loan repayment (via Spider / Sea Fury / Merrell) was from UOCL.‖528The Commonwealth made no submission about the amount or proportion of tainted funds used. The Commonwealth did not explain that the reference to Mr Vincent‘s opinion concealed the primary issue of fact and the Commonwealth‘s 520 Affdt lain Robertson Calder Young sw 23 November 2010 Q00064218 521 Q00064748 ; B00022933 pp 3, 5 Q00064218 Affdt Ian Roland Stevens sw 25 October 2010 Q00064652 p 9 par 35 522 For reasons above: The Hendon Arrangement at [347] 523 Q00010467; Q00010465 524 Q00010468; 525 Q00064135 pp 2, 5; Q00064139 p 3 526 Q00064137; 527 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 52 pargraphs 54 (e)(I) and (IV); Q00064125 p 2 528 Vincent's report dated 21 October 2010 Q00064393 pp 44 to 45 pars 13.10 to 13.19 -- 143 of 229 -- 144 implied submission: when Arnot‘s $300,000 loan was repaid, $200,000 of tainted funds were used to repay it and so any parts or repairs that had been paid for with the untainted funds from Arnot then changed character to parts or repairs derived indirectly with tainted funds and the airplane into which the parts were incorporated became indirectly derived from tainted funds. Unsurprisingly, Mr Hart‘s submission was unresponsive to the implied submission of the Commonwealth. [716] $200,000 repaid to Arnot on 28 August 2003 in reduction of the loan from Arnot of $300,000 was substantially from tainted funds. I am satisfied that the parts derived for US$14,590 were incorporated into the plane and that the parts were not initially derived from tainted funds but by virtue of a loan repayment to Mr Arnot became partly derived from unlawful activity. As the parts represent about 5% of the funds used to derive the plane and as the parts became tainted to the extent of about two thirds of their acquisition cost, I am satisfied that they do not result in the plane being substantially derived from unlawful activity. [717] I am satisfied that the CAP 232 was not substantially derived from tainted funds and that it was derived lawfully. [718] There is no evidence of the market value of the plane. [719] I am satisfied that the value of Fighter‘s interest in this asset at the time of forfeiture was diminished by the value of Merrell‘s charge securing payment of $1,600,000. The Companies have not proved the value of Fighter‘s interest. NORTH AMERICAN TROJAN T-28 VH-AVC [720] The North American Trojan T-28 VH-AVC is a plane forfeited to the Commonwealth on 18 April 2006.529 Immediately prior to forfeiture, the plane was registered in the name of Fighters and Merrell had its charge over the assets of Fighters530 securing the obligation to pay an amount I found to be $1,600,000. [721] Fighters bought this plane in 2001 for $228,500 lent by Dr Ambler.531 By consent of the parties, the loan from Dr Ambler was repaid by Fighters giving authority to ITSA on or around December 2004 to pay it from the proceeds of the sale of the property Nemesis held at Brandon Road, Runcorn.532 Nemesis owned Brandon Road since 1985. It was unencumbered in 1993. It was later used as security for a loan used in relation to Doonan‘s Road and the hangar at 400 Wirraway Drive. [722] Mrs Hart deposed that Fighters spent $75,800 in part restoration of this aircraft in the years 2003 to 2005.533She deposed that $50,000 was the amount recorded for work done in FYE 2003. I accept that work was done on the plane by FFMR in FYE 2003 which was recorded in books as a debt due by Fighters to FFMR. Mrs Hart uses the word ―spent‖ where the facts are that book entries recorded a liability. I do not find that the value of the plane increased by the $50,000 recorded in the books of Fighters. 529 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 530 T5-30, l 33 531 Mrs Hart‘s affidavit sw 17 October 2006 Q00060221 p 16 par 110; T6-17, l 30 532 Mrs Hart‘s affidavit sw 17 October 2006 Q00060221 p 16 par 110(f) 533 Mrs Hart‘s affidavit sw 17 October 2006 Q00060221 p 16 pargraph 110(g); Report of Mr Vincent dated 2 September 2009 Q00060117 p 113 par 19.2.1 -- 144 of 229 -- 145 [723] The Commonwealth submits that Mr Vincent identified the source of funds used to repay the loans as ultimately being sourced from UOCL. Consistently, the Commonwealth made no submission about the amount or proportion of tainted funds used. It compounded matters by refraining to identify the loans sourced from UOCL or how it could be that Ambler was repaid by ITSA and by money sourced from UOCL. I infer that the Commonwealth‘s submission was intended to be to the effect that Fighters borrowed a second amount from Ambler being $300,000 to pay FFMR for aircraft restoration and maintenance work, that some of that paid for the $50,000 recorded in the books of Fighters for FYE 2003; that Fighters repaid the $300,000 to Ambler with funds two thirds tainted because $200,000 of the funds can be traced from Spider and then from Sea Fury Investments and then from Merrell. I accept that $200,000 can be so traced. If I am correct, the Commonwealth does not impugn the original purchase in 2001 for $228,500, but only the $75,800 ―spent‖ subsequently paying for restoration and maintenance work. With that factual issue so concealed within the Commonwealth‘s submission, it is unsurprising that Mr Hart‘s submission did not respond to the issue. [724] Fighter‘s general ledger records a restoration, repairs and maintenance cost for the plane of $50,000 as at 30 June 2003. A handwritten notation on the extracts reads, ―These figures do not include GST‖.534The general ledger does not identify the remaining $25,800.535The Commonwealth submits that the Companies have not produced any documentary evidence to support the further $25,800 that they originally claimed as restoration cost for the North American Trojan.536 I accept that submission and decline to find that another $28,500 cost was incurred. That finding does not damage the Companies‘ claim. Mrs Hart stated if FFMR did work for Fighters, Fighters did not in fact pay any money to FFMR but would record in its own books that it had been paid and Fighters would record in its own books that it had paid FFMR.537 [725] Between 30 January 2003 and 3 February 2003 Fighters transferred $159,500 to FFMR in three payments, with the largest payment being on 3 February 2003.538The funds Fighters used to make these payments were part of $300,000 Fighters borrowed from Mr Arnot‘s company Ultimate Aerobatics. Fighters repaid the loan in three instalments: $200,000, $10,000 and $90,000. Fighters sourced the money from Spider. Spider sourced the money from Sea Fury Investments and Sea Fury Investments sourced the money from Merrell. Mrs Hart did not dispute Mr Vincent's conclusions that the ultimate source of these funds for the $300,000 loan repayment is UOCL.539 [726] The issue is whether the plane was derived from tainted funds. By paying for restoration and repairs with substantially tainted funds of $50,000 the total cost of derivation of the plane was $278,500. About 18% of the funds used were substantially tainted and were used for restoration and maintenance after the plain was purchased with untainted funds. I am satisfied that the plane was not substantially derived from tainted funds and that it was derived lawfully. 534 Q00047291; Vincent‘s report dated 2 September 2009 Q00060117 p 114 par 19.2.2 535 Report of Mr Vincent dated 2 September 2009 Q00060117 p 114 par 19.2.2 536 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 66, par 59(b); T6-19, l 40; Report of Mr Vincent dated 2 September 2009 Q00060117 p 114 par 19.2.2 537 T6-20, l 10 538 Mrs Harts affidavit sw 23 July 2010 Q00064089 p 50 par 54(c); T6-22, l 11 539 Report of Mr Vincent dated 21 October 2010 Q00064393 p 44 par 13.10 and 13.19; T6-23, l 1 -- 145 of 229 -- 146 [727] There is no evidence of the market value of the plane at forfeiture or at trial. I am satisfied that the value of Fighter‘s interest in this asset at the time of forfeiture was diminished by the value of Merrell‘s charge securing payment of $1,600,000. The Companies have not proved the value of Fighter‘s interest in the Trojan. HANGAR 101 [728] The Commonwealth submitted in writing that Hangar 101 was forfeited to the Commonwealth on 18 April 2006. That is misleading. The forfeited piece of property was described as Archerfield Airport Lease 700515084 by the Commonwealth‘s witness540 and in the Companies‘ application. The Commonwealth submitted that immediately prior to forfeiture, the hangar was registered in the name of Yak. I infer that to be a submission that a lease was registered in the name of Yak. The Commonwealth‘s submission in writing can be better understood with reference to its oral submission.541Mrs Hart referred the court to ―details of the sublease for Hangar 101‖ in a title search. The title search did not refer to a sublease. It refers to ―Lease No 700515084‖ registered in Yak‘s name. Merrell had a charge over the assets of Yak. The charge which was lodged on 13 February 2002542 was also forfeited to the Commonwealth on 18 April 2006.543 [729] The land on which hangar 101 is located is leased by Yak from the Archerfield Airport Corporation Pty Ltd (AAC). The term of the lease is 20 years from 14 November 1994 to 13 November 2014.544The Companies‘ submission is that the hangar was sold by Yak, in December 2001, to Alfredton Pty Ltd as trustee for the Nemesis Group Superannuation Fund (―Alfredton‖). The sale is evidenced by a declaration of trust dated 1 November 2001 which refers to a different title reference and a different lease number. I accept that Yak purported to sell its interest in the hangar to Alfredton in about December 2001 for $150,000. The failure to refer to the correct title and correct lease is consistent with complacency with detail evident from many of the Companies‘ documents in evidence and oral and written submissions. The Companies submit that the hangar should be returned to the Companies. I infer that the Companies submit it should be transferred to Alfredton. [730] The Commonwealth‘s primary submission was that Alfredton‘s sublease was not valid because consent required from the AAC and was not shown to have been obtained. Mr Hart‘s submission in reply was: ―its not in their pleadings‖. It was not submitted for the Companies that there was evidence of consent to the declaration of trust that the Companies could have led if they had appreciated that this was to be raised against them. The material relied upon by the Commonwealth included an affidavit deposing that there was no record of an assignment of the lease.545I find that Alfredton did not have a sublease from Yak. I assume that this finding enlivens an issue whether an order should be made in favour of Yak. 540 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 541 At T13-66 and following 542 B00040370 p 5 543 Affdt Ty Maher sw 24 November 2010 Q00064186 par 4 544 Exhibit ‗LEH-1‘ to the Affdt Mrs Hart sw 17 October 2006 Q00060222 pp 91 to 153; Mr Hart provided a guarantee for the lease (Exhibit "LEH-1" to Affdt Mrs Hart sw 17 October 2006 Q00060222 p 154) 545 Aff R Kent pg 5 par 33 Q00059234 -- 146 of 229 -- 147 [731] The Commonwealth also submitted that Mr Vincent‘s opinion was that insufficient evidence has been provided by the Companies to demonstrate the source of funds used by Alfredton to purchase shares Alfredton sold to buy its interest. [732] Mrs Hart stated that in about 1994, Yak acquired the lease to Hangar 101 from Kelly‘s Aviation Welding Pty Ltd for $100,000.00,546 that the funds for this purchase were sourced from the proceeds of the sale of the properties at Spine St and Neon St, Sumner Park, Albert St, Brisbane and East St, Ipswich in 1993 and that Yak did not use any finance for the purchase.547 I accept that evidence. Mrs Hart also stated that in November and December 2001, Yak received 3 payments from Alfredton for the purchase of the lease paid from an account in the name of ―Bubbling Springs Olive Grove P/L‖ as trustee for the Nemesis Group Superannuation Fund detailed as follows:548 Cash Flow Date Payer Payee Amount 1 03.12.01 Alfredton ATF Nemesis Group Superannuation Fund Yak $ 85,000 2 05.12.01 Alfredton ATF Nemesis Group Superannuation Fund Yak $ 25,000 3 20.12.01 Alfredton ATF Nemesis Group Superannuation Fund Yak $ 40,000 $150,000 [733] At the time, the declaration of trust was made between Yak and Alfredton (i.e. 1 November 2001) for a consideration of $150,000, Alfredton‘s bank balance was only $4,109.57.549 When the three payments were made, the account balance was $150,629.19. The deposits which gave rise to that balance were as follows: $134,307.57 on 23.11.01; $9,772.06 on 29.11.01; $1,911.99 on 30.11.01. These 3 deposits were proceeds received from the sale of the following shares:550 Cash Flow Date Payer Amount 546 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 4 par 16(a) 547 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 5 par 17 548 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 4 par 16(d); Report of Mr Vincent dated 2 September 2009 Q00060117 p 44 par 7.9 549 Q00047091 550 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 9 par 18 -- 147 of 229 -- 148 1 23.11.2001 Cheque from JP Morgan Private Financial Services Limited representing the proceeds from the sale of shares in various public companies. $134,307.57 2 29.11.2001 Cheque from JP Morgan Private Financial Services Limited representing the proceeds from the sale of shares in Techstar Ltd. $9,772.06 3 30.11.2001 Cheque from JP Morgan Private Financial Services Limited representing the proceeds from the sale of shares and options in Techstar Ltd. $1,911.99 [734] Mr Vincent has reviewed the available evidence551 and expressed his opinion552 that the following shares were sold to fund the Hangar 101 purchase:  Westpac – 2300 shares purchased on 13 February 1995;  Coles Myer – 2200 shares purchased on 16 December 1996;  TAB Ltd – 2000 shares purchased on 17 August 1998; and,  Woolworths – 2000 purchased on 17 August 1998. [735] Ultimately, Mr Vincent concludes that Mrs Hart has not identified the source of funds used to purchase these shares553and has not identified the source of funds used to purchase the Techstar funds shares.554The Commonwealth does not, in submissions, refer to any specific unlawful activity which may have been producing cashflow at the time these shares were bought. Its pleading raised only offences involving UOCL, offences relating to the Hendon arrangement, alleged offences relating to the Northbourne arrangement, alleged fraudulent misrepresentation to Perpetual. [736] The Hendon arrangement is one activity which generated tainted cashflow at a sufficiently early period to have possibly been the source of funds from which the shares were acquired. While it is possible that unlawfully derived funds from the Hendon arrangement may have found their way into Alfredton‘s or Yak‘s funds in the years from 1994, there were other sources of lawful funds which were greater in amount than the earnings from the Hendon arrangement. Recalling that the tainted contribution from the Hendon arrangement was no more than 7.5% of the Hart group‘s cash flow in 1993 and 1994, the probabilities are that the shares were not substantially acquired from that unlawful activity. Conduct involving UOCL created a source of funds from about 1 June 1997. The proceeds from the sale of TAB and Woolworths shares purchased on 17 August 1998 would have been relatively small. Even if sourced 551 Appendix 2 to the Affdt Mrs Hart sw 23 July 2010 Q00064091; Affdt Mrs Hart sw 23 July 2010 Q00064089 p 9 par 18; Q00064326; Q00064326 p 2 (Affdt Thomas Abraham sw 24 September 2010 Q00064283 p 2 par 4) 552 Vincent‘s report dated 21 October 2010 Q00064393 p 28 par 8.3 553 Vincent‘s report dated 21 October 2010 Q00064393 p 29 par 8.4 554 Vincent‘s report dated 2 September 2009 Q00064393 p 29 par 8.3 (iii) -- 148 of 229 -- 149 from tainted funds, the contribution from those proceeds would not result in the asset‘s derivation by Alfredton from unlawful activity. [737] The source of Alfredton‘s funds paid to buy Yak‘s interest in Hangar 101 was not substantially from unlawful activity. However, Alfredton had no sublease from Yak and no interest in the forfeited lease. I am satisfied that Yak had a lessee‘s interest in Hangar 101 at the time of forfeiture. Yak acquired its interest in the lease in 1994 with funds which were not obtained from unlawful activity. [738] There is no evidence of the market value of Yak‘s interest as lessee at forfeiture or at trial. I am satisfied that the value of Yak‘s interest in this asset at the time of forfeiture was diminished by the value of Merrell‘s charge securing payment of $1,600,000. The Companies have not proved the value of Yak‘s interest as lessee in hangar 101. HANGAR 607 [739] Archerfield Airport Lease 700706560 was forfeited to the Commonwealth on 18 April 2006.555 Hangar 607 is built on the land the subject of the lease. Immediately prior to forfeiture, Nemesis was the registered lessee and Merrell had a fixed and floating charge over the assets of Nemesis securing the obligation to pay an amount I found to be $1,600,000. The charge, which was lodged on 13 February 2002,556was also forfeited to the Commonwealth on 18 April 2006.557 [740] The lease commenced on 1 September 1991.558Its term ended on 31 August 2011. The Hangar was built for Nemesis in or from about September 1991. The Companies submit that Hangar 607 should be returned to them. I infer the hangar is affixed to the land and that the application is for a transfer of the lease. As the lease‘s term has ended, the lease cannot be transferred to Nemesis. I infer that the application is alternatively one for a payment of the value of the lease at the time of forfeiture. [741] Nemesis paid for construction of an aircraft hangar on the Hangar 607 site and the building was constructed by Big Country Equipment in or from September 1991 by the following payments totalling $35,000:559 Date Amount 6.09.1991 $ 1,500.00 27.09.1991 $10,000.00 11.10.1991 $ 3,500.00 18.10.1991 $ 5,000.00 25.10.1991 $ 5,000.00 555 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 556 Q00060024 p 9 557 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 558 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 5 par 20(c) 559 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 6 par 26; Affdt Mrs Hart sw 23 July 2010 Q00064089 p 11 par 25 -- 149 of 229 -- 150 01.11.1991 $ 5,000.00 12.03.1992 $ 5,000.00 [742] Mrs Hart maintained that the source of funds used by Nemesis to enable the acquisition of the Hangar was a payment of $19,000 from Esanda Limited from the sale of a motor vehicle on 5 September 1991.560I accept that evidence. [743] An overdraft facility was operated by Nemesis in 1991 and 1992. Mr Vincent noted that during the period the payments to Big Country Equipment were made (totalling $35,000), Nemesis received (among other deposits) deposits from Bomilsco Pty Ltd (Bomilsco) totalling $58,350.561 The Commonwealth submission observed accurately that Mrs Hart does not provide any information regarding the source of the monies used by Bomilsco to make these payments to Nemesis. The Commonwealth‘s observation implies that this omission was relevant to an issue. But reference to the Commonwealth‘s pleading reveals that funds from activity prior to 1994 were not in issue for Hangar 607. [744] The Commonwealth did not plead or expressly submit that the court should infer that the funds used in 1991 and 1992 were derived from unlawful activity. [745] The Commonwealth‘s pleading about hangar 607562 raised issues about the lawfulness of funds from the Hendon arrangement, from the allegedly unlawful Northbourne arrangement and from certain unlawful conduct ―involving UOCL‖ and gave as particulars a reference to the particulars set out in its pleading in proceeding BD1416/03. That proceeding related to unlawful conduct involving UOCL. Conduct involving UOCL created a source of funds from about 1 June 1997. That proceeding also concerned nine other offences of defrauding the Commonwealth contrary to section 29D of the Crimes Act 1914 (Cth) and committed by Mr Hart between 1 June 1990 and 30 June 1991. Those nine offences were not related to UOCL in any way. By pleading referring to the earlier pleading and limiting the reference to conduct ―involving UOCL‖, the Commonwealth appears, to have deliberately elected not to plead an issue about whether there were moneys derived from the nine offences in 1990 and 1991 and whether any such moneys were used to derive assets the subject of this proceeding. The Commonwealth did not expressly submit in relation to this asset or any other asset that there was any issue related to the other nine offences. There may be sensible reasons for that. There may have been little or no money derived from the unlawful activity involved in those offences. The money may not have been derived by any company in the Hart group or by any of the Companies. If money was derived from the companies in the Hart group from the activities, the amount may have been so diluted by money from other activities that it could not have made any relevant contribution to the derivation of an asset. Having regard to the pleadings and the absence of express submissions relating to the relevance of unlawful activity prior to the Hendon arrangement it would be unfair to the Companies to draw adverse inferences from the failure to provide evidence of their sources of income before 1994. Accordingly, I need not consider what amounts of money, if any, may have become 560 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 12 par 26; Appendix 4 Q00064093 pp 2, 3 & 8 561 Vincent's report dated 21 October 2010 Q00064393 p 31 par 9.1(iii)(c) 562 Further further amended points of defence pages 19-23 -- 150 of 229 -- 151 available to Nemesis as a result of the commission of those offences and whether it could have been used in deriving this asset. The Hendon arrangement was the earliest of the unlawful activities raised as an issue. It began in FYE 1994. [746] Mrs Hart stated that the overdraft facility operated by Nemesis was paid out on 30 December 1992 by the receipt of an amount of $180,000 from the sale of an industrial property at Spine Street Sumner Park that was owned by Bubbling.563I accept that evidence. [747] Mrs Hart provided bank statements to evidence payments made to Big Country Equipment to build the hangar and the ultimate payout of the loan facility but Mr Vincent noted that they do not record all the interest payments charged to the account or a complete listing of the deposits made to the account to enable the servicing of the interest payments.564As these were payments made before 1994, I regard them as not in issue. [748] I accept Mrs Hart‘s evidence as to the source of funds used in 1991 to acquire the lease and build the hangar. No borrowings, except for withdrawals from an overdraft facility, were used for that acquisition and construction. [749] The Commonwealth also referred in written submissions to Mr Vincent‘s comment that no evidence was provided to show how Nemesis obtained its funding in order to be in a position to make the acquisition payments at the time they occurred in 1991 and 1992.565The comment by Mr Vincent predated Mrs Hart‘s later affidavit which gave more detail.566 [750] I am satisfied that the payments used to derive the asset before 1994 were not derived from unlawful activity. [751] The property was mortgaged to the NAB on 19 June 1995.567 Mrs Hart initially deposed that the hangar was mortgaged to secure the finance facility with NAB for funds borrowed to enable construction of Hangar 400 (owned by Yak 3) and the purchase of Doonan‘s Rd Grandchester (owned by Bubbling).568 I accept that this was an error. Mrs Hart later deposed that Hangar 607 was in fact used as 3rd party security for a loan by the NAB to Reginald Hart and Aviation Welding Australia Pty Ltd taken or around 21 February 1995.569 I accept this evidence. Mrs Hart stated that no funds from any of the Companies paid any interest or repayment of the debt as these were met by AWA or Reginald Philip Hart as the borrower of the facility.570I accept this evidence. [752] Mr Vincent noted that the available bank statements indicate that Nemesis had a commercial bill facility with the NAB from August 1998 to May 2001571 and that the 563 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 12 par 28 564 Vincent's report dated 21 October 2010 Q00064393 p 31 par 9.1 (ii)(b) 565 Vincent's report dated 2 September 2009 Q00060117 p 47 par 8.4 566 Q00064089 paragraphs 20-29 567 Q00047098 568 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 6 par 27; Affdt Mrs Hart sw 23 July 2009 Q00064089 p 11 par 20. 569 Affdt Mrs Hart sw 23 July 2009 Q00064089 p 11 par 21 570 Affdt Mrs Hart sw 23 July 2010 Q0006408 p 11 par 23 571 Vincent's report dated 2 September 2009 Q00060117 p 49 par 8.6.3 -- 151 of 229 -- 152 combination of all deposits to the Nemesis bank account during this period facilitated the servicing of the effective interest charged on the commercial bills.572 Mr Vincent also noted that during the period that Nemesis had a commercial bill facility it received funds direct from UOCL and received funds from other entities, namely Harts Australia, Harts Consulting and Merrell, who also received monies from UOCL.573 [753] The Commonwealth submitted that Mr Vincent concluded that insufficient evidence has been provided by the Companies to demonstrate the source of funds used to service ―the loan facility‖.574Reference to the passage in Mr Vincent‘s report reveals that his conclusion was not about a loan facility. It was about the ―original source of funds used to acquire the asset‖. He appears to have been considering events in 1991 and 1992 and not been considering loan facilities in 1995 and 1998 when expressing the conclusion. [754] I am satisfied that Nemesis acquired the asset lawfully and that it was not derived from unlawful activity. [755] As Merrell had a fixed and floating charge over the assets of Nemesis to secure repayment of an amount I have found to be $1,600,000, Nemesis has not established the value of the its former interest in the lease. HANGAR 400 [756] Archerfield Airport lease 703146442 sub lease 70447517 (―Hangar 400‖) was forfeited to the Commonwealth on 18 April 2006.575 [757] The sublease from AAC had a 20 year term with options to renew for 2 further periods of 10 years each and 1 further period of 8 years with the result that if all options were exercised the total lease period would be 48 years.576Pursuant to the terms of its sublease Yak could build a hangar on the land. It did. Construction took about three months with the work substantially complete in October 2000. [758] Immediately prior to forfeiture, Hangar 400 was registered in the name of Nemesis. [759] An interest of Equititrust Ltd as registered mortgagee of Hangar 400, was excluded from forfeiture by order of his Honour Judge Brabazon QC made 18 April 2006 in proceeding BD 1416/03.577 [760] Immediately prior to forfeiture, Merrell had its charge over the assets of Nemesis to secure an obligation to pay an amount I have found to be $1,600,000. The charge, which was lodged on 13 February 2002,578 was forfeited to the Commonwealth on 18 April 2006.579 572 Vincent's report dated 2 September 2009 Q00060117 p 49 par 8.6.4 573 Vincent's report dated 2 September 2009 Q00060117 p 49 par 8.5.1(ii)(e) 574 Report of Mr Vincent dated 2 September 2009 Q00060117 p 49 par 8.6.1 575 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 576 Affdt Mrs Hart sw 17 October 2006 Q00060221 pp 1 to 2 par 2; Q00060222 pp 2, 17; Q00060222 p 19 577 Affdt Ty Maher sw 24 November 2010 Q00064186 par 5; Court Doc No 240 578 Q 0060024 p 9 579 Affdt Ty Maher sw 24 November 2010 Q00064186 par 4 -- 152 of 229 -- 153 [761] The Commonwealth‘s makes five submissions about this asset. Firstly,580 reliance on Mr Vincent‘s purported opinion that UOCL funds were used to acquire this asset and that it was thus derived from unlawful activity. Reference to exhibit 10 persuades me that Mr Vincent does not identify evidence of funds from UOCL being used directly to acquire the asset. For reasons following, I conclude that it was not derived indirectly from UOCL funds. Secondly, an argument that it was derived from other unlawful activity because it was used as security for the Perpetual facility, that is to say it was security for repayment of funds borrowed from Perpetual and Perpetual had agreed to lend after receipt of an allegedly fraudulent representation. For reasons above581 I conclude Hanger 400 was ―not used in, or in connection with‖ the alleged Perpetual offences. Thirdly, that the discretion under POCA s 102 should not be exercised as Hangar 400 was under the effective control of Mr Hart. I reject the argument that this is relevant for considering the exercise of the discretion under s 102 for reasons developed above.582 Fourthly, the Commonwealth submits that the Companies have not proved the value of the interest of Nemesis in the asset, having regard to the fact that it was charged to Merrell when it was forfeited. I accept this submission because the value of Hangar 400 is not established. Fifthly, that because funds borrowed from Perpetual, (after an arguably fraudulent representation induced the loan) were used to pay out a loan from NAB which was lent on the security of Hangar 400, Nemesis has not established that its interest was not derived from unlawful activity.583 For reasons following, I reject that submission. [762] Mrs Hart initially maintained that the funds used for the construction of the building were paid from a loan facility with the NAB and that the hangar construction was paid for by the following 11 transactions totalling $1,039,972.56:584 Cash Flow Date Amount Details Page 1 16/5/2000 $94,633 Manual cash book of Nemesis shows a payment of this amount to FE&R Construction Solutions. 76 2 31/5/2000 $163,887 The manual cash book of Nemesis shows a payment of this amount to FE&R Construction Solutions (―FE&R‖) 76 3 26/6/2000 $7,600 The manual cash book of Nemesis shows a payment of this amount to Whybird Farr Engineers. 77 4 28/7/2000 $23,505 The NAB statement of account number 60-873- 2664 of Yak lists cheque number 000390 for this amount being presented on 14 August 2000. An extract from the general ledger account of Yak lists cheque number 000390 being paid to AAC for this amount. 78 79 580 Commonwealth‘s s 102 submissions Annexure 2, Summary of Assets [170] & [189] 581 See ―Perpetual Offences‖ 582 See ―Was Mr Hart‘s Effective Control on 8 May 2003 relevant and decisive for POCA s 102(3)?‖ 583 Commonwealth‘s s 102 submissions Annexure 2, Summary of Assets [190] 584 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 2 par 7; Report of Mr Vincent dated 2 September 2009 Q00060117 p 27 par 6.1.1 -- 153 of 229 -- 154 5 17/7/2000 $172,010 NAB statement of account number 60 873-2664 of Yak lists cheque number 000386 for this amount being presented on the 19 July 2000. An extract from the general ledger for Yak 3 lists this cheque number being paid to FE&R. 80 6 9/8/2000 $204,036 NAB statement of account number 60 873-2664 of Yak lists cheque number 000396 for this amount being presented on the 10 August 2000. An extract from the general ledger for Yak lists this cheque number being paid to FE&R. 81 & 79 7 6/9/2000 $169,995 NAB statement of account number 60 873-2664 of Yak lists cheque number 000398 for this amount being presented on the 12 September 2000. An extract from the general ledger for Yak 3 lists this cheque number being paid to FE&R. 82 &79 8 13/10/2000 $70,027 NAB statement of account number 60 873-2664 of Yak lists cheque number 000410 for this amount being presented on the 17 October 2000. An extract from the general ledger for Yak lists this cheque number being paid to FE&R. 84-79 9 15/5/2001 ($6,000) An extract from the general ledger lists a reimbursement of taxiway costs as a reduction of the costs of construction of the hangar. 79 10 30/6/2001 $139,279 An extract from the general ledger account for Hangar 400 in the accounts of Yak lists a number of payments made by FFMR totalling $139,279.56 for fixtures and fittings for Hangar 400. 79 11 20/7/2001 $1,000 An extract of the general ledger account for hangar 400 in the accounts of Yak lists a payment made by FFMR for $1,000 for fixtures and fittings for Hangar 400. 79 [763] In August 2000 Nemesis, on behalf of itself, Bubbling and Yak, obtained finance facilities from the NAB to permit borrowings up to about $3,000,000. The finance facilities were an overdraft facility and a bill facility. Mrs Hart deposed that that the finance facility was obtained from NAB in August 2000.585However, 5 payments totalling $461,635 and representing over 44% of the total construction cost were paid prior to August 2000.586A further initial inconsistency was that the NAB finance facility was obtained by Nemesis, but the records (i.e., manual cash books, general ledgers, bank statements etc) provided by Mrs Hart were Yak‘s.587Further, the records did not indicate the ultimate source of funds obtained by Yak or support Mrs Hart's claim that the ultimate source of funds was the NAB finance facility.588 The notes on the general ledger in respect of the payment on 09/08/2000 which lists ―sale of listed 585 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 22 par 152 586 Vincent‘s Report dated 2 September 2009 Q00060117 p 28 par 6.4.1 587 Vincent‘s Report dated 2 September 2009 Q00060117 p 29 par 6.4.3 588 Vincent‘s Report dated 2 September 2009 Q00060117 p 28 par 6.4.2 -- 154 of 229 -- 155 shares $492,624 on the 24/07/2000‖ as the apparent source of funds are inconsistent with Mrs Hart's assertion that ―all funds were paid using the loan facility with the NAB, and no other source of funds were used‖.589 Mrs Hart later conceded that her assertion was not correct.590 [764] In relation to cash flow 1, the payment of $94,633 was made by Yak to FE&R on 31 May 2000 from Yak‘s bank account balance of $94,743.28. The deposit for $94,700 which put Yak in funds was made by Nemesis on 16 May 2000.591 On 17 May 2000 (i.e. the day after the deposit to Yak was made), proceeds of a commercial bill for $95,723.90 were deposited into the Nemesis account. The Commonwealth relies on Mr Vincent‘s analysis which indicates that during the period when Nemesis had a commercial bill facility with the NAB, in addition to receiving funds from other sources, Nemesis received funds directly from UOCL and received funds from other entities (i.e. Merrell, Harts Australia and Harts Consulting) which also received monies from UOCL.592I am satisfied for reasons above593that money borrowed by Nemesis from the NAB was not tainted and that this payment from Nemesis was not tainted. A deposit was also received by Nemesis from Harts Consulting for $20,000 on 26 May 2000.594I find the connection between cash flow 1 and money borrowed from NAB so direct and substantial and the connection between cash flow 1 and the improved liquidity of Nemesis due to the funds it received directly and indirectly from UOCL so insubstantial that I am satisfied that cash flow 1 was not tainted. [765] In relation to cash flow 2, the payment of $163,887.00 to FE&R was made from Yak‘s bank account whose credit balance was $166,750.18.595 The deposit which funded the credit balance was from Nemesis for $165,000 on 31 May 2000.596 The deposit from Nemesis was not tainted. On 31 May 2000 (i.e. the same day the deposit to Yak was made), Nemesis received proceeds of a commercial bill of $591,842.96 and a cash/ cheques deposit for $749,723.92,597comprised of $722,050 from Harts Australasia and $27,673.92 from Bomilsco.598 I am satisfied that cash flow 2 was not tainted. [766] In relation to cash flow 3, before the payment of $7,600.00 to the engineers was made by Yak, Yak‘s bank account balance was $9,093.18.599 The deposit which gave rise to most of that balance was from Nemesis for $6,000 on 26 June 2000.600 On 26 June 2000 (i.e. the same day the deposit to Yak was made), a deposit was received for $19,722 from Bomilsco.601 I am satisfied that cash flow 3 was not tainted. 589 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 2 par 6; Vincent‘s report dated 2 September 2009 Q00060117 p 31 par 6.8.4(ii) 590 T6-35, l 47 591 PSNB00144; Report of Mr Vincent dated 2 September 2009 Q00060117 p 32 par 6.13 592 Vincent‘s report dated 2 September 2009 Q00060117 p 32 par 6.15 593 Reasons re Finance Facilities and the role of Nemesis 594 Vincent‘s report dated 2 September 2009 Q00060117 p 32 par 6.16 595 PSNB00144 596 Report of Mr Vincent dated 2 September 2009 Q00060117 p 33 par 6.18 597 PSNB00034 598 Q00007318; Report of Mr Vincent dated 2 September 2009 Q00060117 p 33 par 6.19.2 599 PSNB00145 600 Report of Mr Vincent dated 2 September 2009 Q00060117 p 34 par 6.22 601 Q00007292 & Q00062108 -- 155 of 229 -- 156 [767] In relation to cash flows 1 to 3, Mrs Hart agreed that the payments totalling $266,120 were constituted by deposits from Nemesis to Yak on 16 May 2000 ($94,700), 31 May 2000 ($165,000) and 26 June 2000 ($6,000).602 [768] In relation to cash flow 4, before the payment of $23,505.00 to FE&R was made, the account balance was $174,160.57.603The deposit which funded that balance was from Nemesis for $172,000 on 18 July 2000.604At the time that deposit to Yak was made, the bank account of Nemesis was overdrawn by $463,356.57.605Nemesis‘s account was brought back into credit by 4 deposits received on 24 July 2000 as follows:606  deposit of $300,000 from Fighters607  deposit of $413,000 from Yak608  deposit of $21,694.20 from Bomilsco609  deposit of $126,792.32 from BNP Equities610 On the day those four deposits were made to Nemesis‘s account Fighters received to its account $457,301.70611 from Hartley Poynton612and Yak received to its account $493,168.50613 from Hartley Poynton.614 I am satisfied that cash flow 4 was not tainted. [769] In relation to cash flow 5, before the payment of $23,505 to ACC was made on 14 July 2000, Yak‘s account was overdrawn by $178,317.28.615 The general ledger extract for Hangar 400 records that the source of these funds was a deposit from Nemesis of $26,000 on 28 July 2000.616 Nemesis‘s account was brought back into credit by the 4 deposits referred to in the paragraph above. I am satisfied that cash flow 5 was not tainted. [770] In relation to cash flow 6, before $204,036 was paid by Yak to FE&R on 10 August 2000, Yak‘s account balance was $53,050.20.617The general ledger extract for Hangar 400 records the source of funds used for this transaction as the sale of listed shares $492,624 on 24 July 2000.618 On 24 July 2000 Yak‘s account received $493,168.50 from stockbroking firm, Hartley Poynton.619 I am satisfied that cash flow 6 was not tainted. 602 Affdt Mrs Hart sw 21 September 2010 Q00064341 p 20 par 8 & Q00064358 603 PSNB00146 604 PSNB00037; Report of Mr Vincent dated 2 September 2009 Q00060117 p 35 par 6.25 605 PSNB00037; Report of Mr Vincent dated 2 September 2009 Q00060117 p 35 par 6.26 606 Report of Mr Vincent dated 2 September 2009 Q00060117 p 35 par 6.28 607 PSNB00185; Vincent's report dated 21 October 2010 Q00064393 p 68 par 24.2 (i) & (ii) 608 PSNB00146 609 Q00007335 610 Q00007340 611 PSNB00185 612 Q00007497 613 PSNB00146 614 Q00007449; Report of Mr Vincent dated 2 September 2009 Q00060117 p 35 par 6.29 615 PSNB00147; Report of Mr Vincent dated 2 September 2009 Q00060117 p 36 par 6.32 616 PSNB00038 ; PSNB00146 617 PSNB00146; Report of Mr Vincent dated 2 September 2009 Q00060117 p 37 par 6.37 618 Q00047055; Report of Mr Vincent dated 2 September 2009 Q00060117 p 37 par 6.38 619 Q00007449 -- 156 of 229 -- 157 [771] In relation to cash flow 7, before the payment of $169,995 was paid by Yak to FE&R on 12 September 2000, Yak‘s bank account balance was $201,947.09.620 The general ledger for Hangar 400 records that the source of funds621for this transaction was Nemesis‘s bank account on 18 September 2000. On the same day, Nemesis received a deposit of $225,000.00 from Fighters622and Fighters received $224,896.90 from BNP Equities Australia Ltd, a stockbroking firm.623 I am satisfied that cash flow 7 was not tainted. [772] In relation to cash flow 8, before the payment of $70,027 was paid by Yak to FE&R on 17 October 2000, Yak‘s bank account balance was $4,506.61.624 The general ledger of Hangar 400625 records that the source of funds used for this transaction was from ―Nemesis $66,000 on the 18/10/2000‖. On 18 October 2000 (i.e. the day after the deposit was made), Nemesis‘s account received a deposit of $90,000 from Fighters.626 On 17 October 2000 (i.e. the day before) Fighters received $85,816 to its account from BNP Equities.627 I am satisfied that cash flow 8 was not tainted. [773] In relation to cash flows 5 to 8 totalling $639,573, Mrs Hart agreed that the funds were sourced from deposits by Nemesis to Yak‘s bank account on 18 July 2000 ($172,000), 8 August 2000 ($25,000), 18 September 2000 ($285,000), 27 September 2000 ($380,000), 3 October 2000 ($33,000) and 18 October 2000 ($66,000).628 [774] In relation to cash flows 10 and 11, Mrs Hart initially deposed that FFMR paid on behalf of Yak a further $139,279.56 in expenses between 18 July 2000 and 29 March 2001.629 Mr Vincent noted that he is unable to comment on the ultimate source of funds used by FFMR to make the payments because he has not had access to the records of FFMR.630Mrs Hart provides details of the source of funds used by Nemesis to make the transfer to FFMR.631 In particular, Mrs Hart stated that Nemesis made payments of $10,000 on 20 July 2000, $20,000 on 14 August 2000 (funded by $22,659.77 from Bomilsco on the same day), $25,000 on 13 September 2000, $100,000 on 27 September 2000 and $361,000 on 6 November 2000 (funded by $1,300,000 return on investment in Watson Benefit Trust). I made findings with respect to that $1.3M to the effect that $1M was not tainted but that I was not so satisfied about the $300,000 profit.632I attributed that sum to the fifth payment made towards the acquisition of the Sea Fury VH-SHF on 16 October 2000. It is inappropriate to attribute it again as the source of cash flows 10 and 11 paid by Nemesis in June and July 2001 and I am 620 PSNB00148; Report of Mr Vincent dated 2 September 2009 Q00060117 p 37 par 6.40 621 PSNB00038; PSNB00146 622 PSNB00041 623 PSNB00187; Q00007506; Report of Mr Vincent dated 2 September 2009 Q00060117 p 38 pars 6.41 and 6.42 624 PSNB00149 625 Q00047055 626 PSNB00044 627 PSNB00188; Q00007492 628 Affdt Mrs Hart sw 21 September 2010 Q00064341 p 20 par 8(c); Q00064358; Report of Mr Vincent dated 2 September 2009 Q00060117 p 38 par 6.45 629 Affdt Mrs Hart sw 21 September 2010 Q00064341 p 20 par 8(d); Q00064359; Report of Mr Vincent dated 2 September 2009 Q00060117 p 39 par 6.48 630 Report of Mr Vincent dated 2 September 2009 Q00060117 p 39 par 6.49 631 Affdt Mrs Hart sw 17 November 2010 Q00064697 p 29 par 8(e)(iii) 632 See above ―Finance Facilities and the role of Nemesis‖ -- 157 of 229 -- 158 satisfied that cash flows 10 and 11 were not derived from the $300,000 or from unlawful activity. [775] The cash flows from which Hangar 400 was derived until 20 July 2001 were not derived from unlawful activity. [776] On 20 December 2001 Hangar 400 was mortgaged to Perpetual Nominees Limited. [777] The Commonwealth submitted that during the period that Yak had a commercial facility with the NAB and during the period that Yak had a finance facility with Perpetual, both entities received monies via other entities633 who in turn had received monies from UOCL.634The purpose of the submission was not explained and the relevance of Yak‘s borrowings from NAB and Perpetual in relation to this asset of Nemesis was not clear. [778] Mrs Hart conceded that she had not analysed whether Merrell had made payments to companies that had ultimately put funds towards the construction of Hangar 400.635 [779] Merrell‘s charge over Nemesis‘s assets secured payment of $1,600,000 immediately prior to forfeiture. Nemesis has not established the nature, extent and value of the any interest which it had in the property. [780] Because funds borrowed from Perpetual Nominees were used to pay out the NAB loan secured over the property, the Commonwealth submits that Nemesis has not satisfied the court that its interest in the property was not derived or realised, directly or indirectly from unlawful activity. This is the first occasion which calls for consideration of the issue of whether the Companies have discharged their onus of proof that property derived with borrowings from Perpetual is property not derived from unlawful activity. I have found above636that I am not satisfied that Bubbling and Yak did not each dishonestly represent that it was not entering into the agreement to borrow from Perpetual ―on behalf of Mr Hart nor any associated company with which he was associated‖ and that I am not satisfied that Bubbling and Yak by Mrs Hart and Ms Petersen, and by Dr Ambler or Dr Fleming did not dishonestly represent that no ―associated company‖ was indemnifying the relevant doctor as to the repayment of the loan and that the Companies have not shown that an offence against section 408C(1)(f) of the Criminal Code (Qld) has not been committed. [781] The simplified question is whether assets derived with money borrowed from Perpetual after such (arguably) dishonest representations are derived from unlawful activity There was no submission from either side about the degree of connection between the unlawful activity and the derivation of property with funds borrowed from Perpetual. I assume that the Commonwealth‘s best argument would have been that without the representations, there would have been no advance by Perpetual and that fact makes the connection substantial. I regard the connection as too tenuous on the present facts. The representations were not the sole cause for Perpetual‘s advances of money. Consider firstly, Perpetual‘s agreement to lend. I infer that other causes of Perpetual‘s agreement were Perpetual‘s opinion of the capacity of the borrowers to repay, its 633 Q00047016 or Ex 10 tab 20; Q00047035 pp 2, 3 or Ex 10 tab 23 634 Vincent's report dated 2 September 2009 Q00060117 p 5 par 5.24, p 25 par 5.28 635 T6-37, l 15; T6-39, l 25 636 See The Perpetual Offences -- 158 of 229 -- 159 opinion of the potential for profit from interest, its satisfaction with the security offered by way of mortgage and guarantee. Consider secondly, Perpetual‘s advances of funds pursuant to the agreement. I infer that Perpetual continued to advance funds and refrained from demanding repayment because of Perpetual‘s satisfaction that the borrower was adequately continuing to comply with the terms of the agreement. I regard the degree of connection between the allegedly fraudulent representations to Perpetual and derivation of property with money lent by Perpetual as less substantial than the connection in Jeffery637 where two properties were substantially acquired with borrowed moneys, but funds from years of undeclared taxation income had allowed the appellant to repay the borrowings with funds that should otherwise have been paid to the commissioner of taxation. The borrowings were repaid by Mr Jeffrey with proceeds of his crimes. That hypothesis differs from one where money borrowed from Perpetual is repaid with proceeds of lawful activity. Ferguson638 is also distinguishable on its facts. Mr Ferguson‘s ability to buy a property with $353,000 borrowed from the CBA was indirectly as a result of $200,000 he derived from conspiracy to traffic heroin and paid to increase his equity in another property which he used as security for the loan of $353,000. [782] The Companies have established that Hangar 400 was not derived from unlawful activity and was not used in connection with unlawful activity. The Companies have failed to prove the value of the interest of Nemesis in the asset. 6 MERRIWA ST, SUNNYBANK HILLS [783] 6 Merriwa Street Sunnybank Hills was forfeited to the Commonwealth on 18 April 2006.639 Immediately prior to forfeiture, the property was registered in the name of Nemesis. Merrell had its charge over the assets of Nemesis to secure an obligation to pay an amount I have found to be $1,600,000. The charge which was lodged on 13 February 2002640 was forfeited to the Commonwealth on 18 April 2006.641 [784] On 8 January 2007, this property was sold by the Official Trustee for $293,000 with the consent of Nemesis. The mortgagee, Countrywide, was paid out of the proceeds of sale and the net proceeds of sale of $40,252.07 were banked and are still held by the Official Trustee.642 [785] This property was purchased by Nemesis in the FYE 1986 for $69,470.72.643 I am satisfied that it was not then derived from unlawful activity. The property was initially used by Ms Petersen as her residence, and then as an investment by renting until forfeiture.644 Any mortgage on title was released in 1993 with the use of the proceeds of the sale of four properties being: Spine Street and Neon Street, Sumner Park, Albert Street, Brisbane and East Street, Ipswich and these properties were purchased in or 637 (1992) 58 A Crim R 310, BC9202106 638 [2006] VSC 484. 639 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 640 Q00060024 p 9 641 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 642 Affdt Ty Maher sw 24 November 2010 Q00064186 p 5 par 13 643 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 18 par 122 644 Affdt Mrs Hart sw 24 August 2009 Q00014030 p 5 par 18(a) -- 159 of 229 -- 160 around the years 1983 to 1986.645 I am satisfied that in 1993 the unencumbered property was not derived from unlawful activity. [786] The property was later mortgaged to secure repayment to the NAB of borrowings used to assist with the purchase of the property at Doonan's Road, Grandchester by Bubbling, the construction of hangar 400 by Yak 3 and various aircraft purchases by Fighters.646 In December 2001 Nemesis borrowed $1,750,000 from Equititrust which it used to repay the NAB. [787] The loan by Equititrust was secured by a mortgage over this property in or around December 2001. Nemesis made repayments to Equititrust of at least $304,111 from 21 January 2002 to 4 June 2003.647 The Commonwealth correctly submits that Mr Vincent also noted that (between November 2001 and June 2003) Nemesis received funds from a number of different sources, including UBC and Spider648 and that Spider received funds directly from UBC649 which in turn received monies from UOCL.650 The submission does not assert whether funds from UOCL and received by Nemesis were a small or large proportion of total funds Nemesis received in the period. [788] The Commonwealth submits, without reference to evidence, that Mr Vincent claims that UOCL funds were used to acquire this asset. I infer the basis to be the matters to which I refer in the preceding paragraph. It is not correct to say that UOCL funds were used to acquire the asset. It is arguable that funds from UOCL, paid to Spider and UBC enabled Spider and UBC to make the payments they each made to Nemesis and that those payments to Nemesis enabled Nemesis to make $304,111 worth of payments to Equititrust and those payments enabled Nemesis to retain ownership of Merriwa Street and that Merriwa Street thus became derived from UOCL funds. [789] I infer that the primary issue related to the use of funds from UOCL is: whether the $304,111 paid by Nemesis to Equititrust over 16 months and two weeks to 4 June 2004 was tainted by money from UOCL because of the money Nemesis received from Spider and UBC, and if so, whether that has the consequence that the property, having been used as security for repayment to Equititrust, has prima facie become indirectly derived from unlawful activity and that the Companies have failed to establish that the property was not derived from unlawful activity. In their submissions on Merriwa Street, the Companies addressed various other matters but not this issue.651 [790] The property was later used as security for a loan from Countrywide in November or December 2002.652The money borrowed from Countrywide was borrowed by Mrs Hart and Ms Petersen. The sum borrowed may have been as much as $360,000 and $320,471.36 of it was used to reduce the borrowing under the initial facility with Equititrust.653 The Commonwealth submitted that Mrs Hart has not provided any further evidence in respect of this facility in order to ascertain whether the loan to 645 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 18 par 123 646 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 18 par 123 647 Vincent‘s report dated 3 September 2010 Q00060117 p 21 section 5.22.2 648 Vincent‘s report dated 3 September 2010 Q00060117 p 22 section 5.22.3 649 Vincent‘s report dated 3 September 2010 Q00060117 p 22 section 5.22.4 650 Vincent's report dated 3 September 2010 Q00060117 p 23 section 5.23 651 Applicant‘s closing submission pages 160-166 652 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 18 par 123 and Q00064089 p 75 par 63 (c) 653 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 75 par 63(c); Appendix 35 to the Affdt Mrs Hart sw 23 July 2010 Q00064129 p 10 -- 160 of 229 -- 161 Countrywide Co-Operative was repaid and the source of funds used to repay the principal and interest repayments on the facility.654 That Commonwealth submission, like several others, appears to have been drafted well in advance of the trial and to have been based upon affidavit evidence which had been filed well in advance of the trial. Several affidavits by the major deponents, Mr Vincent, Mrs Hart and Ms Petersen were superseded by later evidence from the same deponents. The Commonwealth submission overlooks another Commonwealth submission that the Countrywide debt was paid out in 2007 with the net sale proceeds of 6 Merriwa Street.655 This property was sold by the Official Trustee with the consent of Nemesis on 8 January 2007. The Commonwealth did not submit that the borrowers serviced the Countrywide loan with tainted funds and I am satisfied that they did not. [791] For reasons above,656I am satisfied that UOCL funds represented substantially less than 5% of the funds used to pay repay Equititrust the principal and interest due on the two loans borrowed from Equititrust in December 2001. [792] The connection between UOCL‘s funds and the derivation of the asset was not sufficient. I am satisfied that 6 Merriwa Street was not derived from unlawful activity or that it was not acquired unlawfully. [793] Merrell had its charge over the assets of Nemesis immediately prior to forfeiture. There is proof of the value of the Commonwealth‘s charge at $1,600,000. Neither side made submissions about the value of this property at any material time or about the date when its value was relevant. The Commonwealth had possibly acted under a misapprehension that values were agreed because of an alleged agreement with Mr Hart in the earlier proceeding. The Commonwealth‘s particular submission relating to this property at Merriwa Street and value and the effect of the charge was: Because Merrell had a fixed and floating charge over the assets of Nemesis of an unknown amount immediately prior to forfeiture, Nemesis have not established the nature, extent and value of the any interest which they claim to have in the property. I reject the submission because I have found the value of the charge is $1.6M. About this asset, unlike most others, there is some evidence of value in that it was sold on 8 January 2007 for $293,000. That was about 9 months after the date of forfeiture. [794] There being no issue taken by either side about the proper date for valuation of assets, I find that the value of this asset at material times was $293,000. [795] As I have found that the charges over all the relevant assets (save for 3 aeroplanes not shown to have been owned by any of the Companies) secured repayment of $1.6M and have found that I cannot be satisfied of the value of the assets which were charged I am unable to determine whether the interest of Nemesis in the property had a value at the date of forfeiture. I am unable to declare the value of the interest of Nemesis in the property at the time of forfeiture, despite valuing the property itself at $293,000. 27 SAMARA STREET, SUNNYBANK 654 Mr Vincent's report dated 2 September 2009 Q00060117 p 125 par 21.2.2(v) 655 Vincent‘s Report dated 21 October 2010 Q00064393 p 25 para 7.41; Affidavit of Laura Hart sworn 23 July 2010 Q00064089 p 57 paras 56(k) to (l) 656 See: ―Finance Facilities and the role of Nemesis‖ and within it the section ―Equititrust Facility‖ -- 161 of 229 -- 162 [796] 27 Samara Street Sunnybank was forfeited to the Commonwealth on 18 April 2006.657 Immediately prior to forfeiture, the property was registered in the name of Bubbling. The interest of Sunshine Co-operative Housing Society Ltd, as the registered mortgagee for 27 Samara Street was excluded from forfeiture by order of his Honour Judge Brabazon QC made 18 April 2006 in proceeding BD 1416/03.658 [797] Immediately prior to forfeiture, Merrell had a fixed and floating charge over the assets of Bubbling to secure an obligation to pay an amount I have found to be $1,600,000. The charge which was lodged on 13 February 2002659 was also forfeited to the Commonwealth on 18 April 2006.660 [798] On 20 April 2007, Samara Street was sold by the Official Trustee with the consent of Bubbling and the net proceeds of sale after the mortgage was paid out of $181,042.71 were banked and are still held by the Official Trustee.661 [799] The Companies and Mr Vincent both agree that $45,000 in funds from Astion were used to acquire this asset. [800] Mrs Hart stated662 that the property was originally purchased by Bubbling on 3 March 1998 for a total cost of $150,571.12663 with $100,000 of the purchase price was financed by a loan from ANZ Bank, and the balance paid from the cash flow and overdraft of Bubbling664 with the following payments: Date Ref Details Amount 05.01.98 00051 Deposit on contract paid to Schroder Real Estate $100.00 09.01.1998 00052 Deposit on contract paid to Schroder Real Estate $1,000.00 17.02.1998 00056 Geoff Klooger & Assoc. – Stamp Duty $3,812.50 14.04.1998 00057 Geoff Klooger & Assoc. – Legal Fees $823.95 03.03.1998 Transfer Settlement $44,834.67 [801] Mrs Hart identifies $45,000 of $50,571.12 as being by Astion Unit Trust. Astion was an entity involved in the Hendon Arrangement.665For reasons explained above,666 I am not satisfied that the $45,000 was not derived from unlawful activity. 657 Affdt Ty Maher sw 24 November 2010 Q00064186 par 4 658 Affdt Ty Maher sw 24 November 2010 Q00064186 par 6; Court Doc No 240 659 Q00060018 p 6 660 Affdt Ty Maher sw 24 November 2010 Q00064186 par 4 661 Affdt Ty Maher sw 24 November 2010 Q00064186 par 14 662 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 19 par 129; Exhibit "LEH-1" (Part 2) to the Affdt Mrs Hart sw 17 October 2006 Q00060223 p 111 663 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 18 par 128(a) 664 Affdt Mrs Hart sw 17 October 2006 Q00060221 pp 18 to 19 pars 128(b) & (c) 665 Affdt lain Robertson Calder Young sw 23 November 2010 Q00064218; Affdt Ian Roland Stevens sw 25 October 2010 Q00064655 666 See reasons re the Hendon Arrangement at [346] -- 162 of 229 -- 163 [802] The property was refinanced by Sunshine Co-Operative Housing Society Limited on 18 December 2002 for $280,000 667 and the loan from Sunshine was reduced by $130,000 from the proceeds of the sale of a property at 556 Beenleigh Road, Sunnybank.668 The Beenleigh Road property was free of debt and was mortgaged to support the NAB finance facility which was obtained in 2000 to assist in the purchase of the properties at Doonan‘s Road, the construction of the Hangar 400 and the purchase of various aircraft.669 [803] In relation to the ANZ bank loan, the loan repayments were serviced by periodic transfers to Bubbling from Bomilsco. Initially, no explanation or evidence was provided to show how Bomilsco obtained its funding in order to be in a position to make the loan repayments/transfers.670 Mrs Hart later stated that the interest from 3 July 1998 to 3 March 1999 was paid by Bubbling and was funded by payments of rent by Tamara Hart which were notated as ―pay/salary from Bomilsco‖. She noted this period coincides with the time in which three payments were received by HAL from UOCL, namely $650,000 on 31 July 1998, $120,000 on 20 August 1998 and $300,000 on 24 September 1998 but maintains that the rent was being paid by Tamara Hart who was paying a portion of her salary from Bomilsco to Bubbling.671 I accept this evidence. Mrs Hart also stated that in September 2000, Phillip Hart moved in as the tenant of Samara Street and took over paying the rent in the sum of $340 per fortnight to Bubbling (paid by his employer, Bomilsco) until 2004 when Troy Hart took over the payments and that Troy Hart rented the premises until the property was forfeited in 2006.672 I accept this evidence. [804] The Commonwealth submitted the following further matters: Mrs Hart stated that Bomilsco made payments to this account on a monthly basis from 6 April 1999 until the account was paid out by the NAB on 9 October 2000.673 She indicates the reason for these payments is that Bomilsco, by agreement, was paying interest on a loan that Bubbling made to HAL in the amount of $837,922.21. She notes that neither Bomilsco nor HAL received any funds from UOCL during ―this time‖.674 Mrs Hart does not explain where Bubbling obtained the funds to lend to HAL. Mrs Hart notes that the affidavit of Ms Petersen stated that HAL earned approximately $30 million between 1 July 1999 and 30 June 2000.675 It can therefore be inferred that these payments were from the normal trading income of the HAL business.676 The financial report for HAL shows that its net income for the relevant period was $2,522,000.677 Mr Vincent stated that HAL received $1,170,000 from UOCL in the relevant period,678 with which Ms Petersen agrees.679 667 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 19 par 129 668 Affdt Mrs Hart sw 17 October 2006 Q00060221 p19 par 130; Report of Mr Vincent dated 2 September 2009 Q00060117 p 130 par 22.4.3 669 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 19 par 130 670 Vincent‘s Report dated 2 September 2009 Q00060117 p 129 par 22.4 671 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 78 pars 64(c) & (d); Appendix ‗52‘ to the Affdt Mrs Hart sw 23 July 2010 Q00064146 672 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 78 pars 64(j) & (k). 673 Q00064145 674 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 78 pars 64(e) & (f); Appendix ‗52‘ to the Affdt Mrs Hart sw 23 July 2010 Q00064146 675 Affdt Shirley Petersen sw 16 July 2010 Q00064036 p 35 par 85(g) 676 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 79 par 64(h) 677 B00063731 p 11 678 Annexure 10 to Vincent‘s Supplementary Task 3 Report dated 2 September 2009 Q00015677 p 5 679 Affdt Shirley Petersen sw 16 July 2010 Q00064036 p 35 par 85(g) -- 163 of 229 -- 164 In relation to the subsequent re-financing with Sunshine Co-operative Housing Limited, no explanation was given or evidence provided to show how the funding used to pay the entire principal and interest repayments on this facility (obtained in the names of Ms Petersen and Mrs Hart) was derived or obtained. Mr Vincent expresses the opinion that there is insufficient evidence to ascertain how Bubbling, Bomilsco, Ms Petersen and Mrs Hart obtained or generated the funds used to purchase the asset and service the loan repayments on the ANZ and Sunshine facilities680. The ANZ facility was repaid by the NAB facility. [805] Those matters do not, of themselves, cause me sufficient doubt that the property was lawfully derived. [806] Because funds from Astion were used to acquire the property, the Commonwealth submits Bubbling has not satisfied the court that the property was not derived or realised, directly or indirectly from unlawful activity or that Bubbling acquired the property lawfully. [807] $45,000 obtained from Astion appears was combined with the $100,000 borrowed from a commercial lender and used to settle the purchase. The sum from Astion was 30% of the purchase price. I am doubtful that ANZ Bank or any other commercial lender would have lent 100% of the purchase price and doubtful that the property would have been purchased without that contribution lent by Astion. I am not satisfied that the property was not substantially derived from the proceeds of unlawful activity because of that $45,000 from Astion. The fact that the property was later refinanced and Astion may have then been repaid is relevant to the extent to which the Astion funds derived the property but does not alter my conclusion because the refinancing did not occur for four years and 9 months. The Companies have not established that the Astion funds did not substantially derive the property. The Companies have not established that the property was not derived or realised directly or indirectly from unlawful activity. [808] Further, Merrell had its charge over the assets of Nemesis immediately prior to forfeiture. There is proof of the value of the Commonwealth‘s charge at $1,600,000. Neither side made submissions about the value of this property at any material time or about the date when its value was relevant. The Commonwealth had possibly acted The Commonwealth‘s particular submission relating to this property at Samara Street and value and the effect of the charge was: Because Merrell had a fixed and floating charge over the assets of Nemesis of an unknown amount immediately prior to forfeiture, Nemesis have not established the nature, extent and value of the any interest which they claim to have in the property. I reject the submission because I have found the value of the charge is $1.6M. About this asset, unlike most others, there is some evidence of value in that it was sold on 20 April 2007 and the net proceeds were $181,042.71 after the mortgagee was paid. [809] There being no issue taken by either side about the proper date for valuation of assets, I find that the value of Bubbling‘s interest in this asset, before considering the effect on that value of Merrell‘s charge, was $181,042.71. [810] As I have found that the charges over all the relevant assets save for 3 aeroplanes secured repayment of $1.6M and have found that I cannot be satisfied of the total value of all the assets which were charged I am unable to determine whether the interest of 680 Mr Vincent‘s Report dated 2 September 2009 Q00060117 p 131 par 22.5 -- 164 of 229 -- 165 Bubbling in the property had a value at the date of forfeiture. I am unable to declare the value of the interest of Bubbling in the property at the time of forfeiture, despite valuing Bubbling‘s interest in the property at $181,042.71 before considering the effect on that value of Merrell‘s charge. [811] The Companies application fails in respect of this asset and the money held as the net proceeds of its sale. DOONAN’S ROAD, GRANDCHESTER [812] This property was forfeited to the Commonwealth on 18 April 2006.681 Immediately prior to forfeiture, the property was registered in the name of Bubbling. The interest of Equititrust Ltd, as the registered mortgagee for Doonan's Road was excluded from forfeiture by order of his Honour Judge Brabazon QC made 18 April 2006 in proceeding BD 1416/03.682Immediately prior to forfeiture, Merrell had its charge over Bubbling‘s assets to secure an obligation to pay an amount I have found to be $1,600,000. The charge, lodged on 13 February 2002,683 was forfeited to the Commonwealth on 18 April 2006.684 [813] On 18 August 2006 Doonan‘s Road was sold by Equititrust Ltd as mortgagee in possession. After the mortgagee was paid, the net proceeds of sale of $650,580.53 were banked by the Official Trustee. Subsequently, the mortgagee indicated it had inadvertently failed to take into account $149,000 that should have been remitted to the ATO in respect of GST on the sale. This amount was remitted to the ATO by the Official Trustee. The balance $501,580.53 is held by the Official Trustee.685 [814] Doonan‘s Road was purchased by Bubbling pursuant to a contract dated 15 March 2000 for $550,000 plus costs of $19,560.98 including stamp duty and legal fees.686 [815] Mrs Hart deposed that for Doonan‘s Road the purchase price, costs and subsequent earthworks, were paid by the following payments:687 Cash Flow Date Payer Payee Amount 1 26.04.00 Bubbling Elders Real Estate $ 1,000.00688 2 25.05.00 Nemesis (as loan to Bubbling) Elders Real Estate $ 45,000.00689 681 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 682 Affdt Ty Maher sw 24 November 2010 Q00064186 par 5; Court Doc No 240 683 Q00060018 p 6 684 Affdt Ty Maher sw 24 November 2010 Q00064186 par 4 685 Affdt Ty Maher sw 24 November 2010 Q00064186 par 11 686 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 20 Par 135; Report of Mr Vincent dated 2 September 2009 Q00060117 p 133 par 23.1.2 687 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 20 par 137; Report of Mr Vincent dated 2 September 2009 Q00060117 p 133 par 23.1.4 688 Q00060223 p 130 689 Q00060223 p 132 -- 165 of 229 -- 166 3 14.06.00 Nemesis (on behalf of Bubbling) Bank Chq - Settlement $443,560.98690 4 Unknown Bubbling Land swap – Ford‘s Road $ 80,000.00691 5 2001 Bubbling Hope Civil & Pastoral $283,747.09692 $853,308.07 [816] Mrs Hart deposed that the NAB overdraft facility obtained by Nemesis (on behalf of Bubbling) was secured by a mortgage over Doonan‘s Road693 and that after the NAB cancelled its facility,694 Bubbling assisted Nemesis by refinancing Doonan‘s Road with Perpetual.695 Mrs Hart deposed that, in or around September 2004, the mortgage debt owed to Perpetual was reduced by $100,000 with funding coming from a second mortgage over a property situated at Pinecone Street, Sunnybank and funds borrowed through Spider. Mrs Hart deposed that these funds were repaid from the sale of the property at Brandon Road, Runcorn in October 2004.696 I accept this evidence. [817] In relation to cash flow 2, before the payment of $45,000 was paid by Bubbling to Elders real Estate on 26 May 2000 697 the account balance was $46,330.18.698 The deposit which gave rise to that balance was from Nemesis for $45,000 on 25 May 2000.699 At the time Nemesis made this deposit, its bank account was overdrawn by $70,697.58. The bank account was brought into credit by deposits of $20,000 by Harts Consulting on 26 May 2000,700 proceeds of a commercial bill of $591,723.92 on 31 May 2000701 comprising $722,050 from Harts Australasia and $27,673.92 from Bomilsco.702 [818] The Commonwealth submitted that: during the period that Nemesis had a commercial bill facility with the NAB, in addition to receiving funds from other sources, it received funds direct from UOCL and received funds from other entities (i.e. Merrell, Harts Australia and Harts Consulting) that also received monies from UOCL.703 I have determined above704 that the use of some UOCL funds in paying for borrowings from NAB was not sufficient, of itself, to mean that assets were indirectly derived 690 Q00060223 p 134 691 Q00060223 p 136 692 Q00060223 p 145 693 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 20 par137(e) 694 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 22 par 155 695 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 23 par 156; Report of Mr Vincent dated 2 September 2009 Q00060117 p 134 par 23.1.7 696 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 21 par 138; Q00060223 p 146 697 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 20 par 137(c) 698 Q00047314; Report of Mr Vincent dated 2 September 2009 Q00060117 p 139 par 23.14 699 PSNB00033; Report of Mr Vincent dated 2 September 2009 Q00060117 p 139 par 23.14 700 PSNB00033 701 PSNB00034 702 Q00007318; Report of Mr Vincent dated 2 September 2009 Q00060117 p 140 par 23.15 703 Vincent‘s report dated 2 September 2009 Q00060117 p 18 par 5.13 to p 20 par 5.18, p 140 par 23.16 704 In the section: Finance Facilities and the role of Nemesis -- 166 of 229 -- 167 from unlawful activity because they were bought or their running costs or repairs were paid for with some portion of $2,993,619.34 in borrowings from the NAB. The Companies have proved that cash flow two was not derived from unlawful activity. In relation to cash flow 3, before the payment of $443,560.98 was paid by Nemesis from its overdraft facility on 14 June 2000, the account balance was $129,717.50 and following the cheque being drawn against the account, the balance was $315,541.21 in debit until a deposit of $400,000 was made into the account from HAL on 22 June 2000.705The Commonwealth submitted that the Companies have not explained why Nemesis was receiving funds from HAL. That lack of explanation does not raise a suspicion that the money paid by HAL to Nemesis was derived from unlawful activity. The Companies have proved that cash flow 3 was not derived from unlawful activity. [819] In about September 1994, Bubbling purchased a block of land at 78 Ford‘s Road Gatton for $74,545.81.706 The payment was partly funded by $24,544.81 paid by Nemesis on Bubbling‘s behalf. Nemesis made the payment of $24,544.81 from $25,000 it received for ―fees‖ from Astion on 9 September 1994. The receipt was described in the books of Nemesis as "fees". The balance $50,000 of the purchase price was lent by Challenge Bank.707 The loan was paid out on 5 August 1998 with a final payment of $4,566.80 sourced from a payment by UOCL on 6 August 1998.708 The land at Ford‘s Road Gatton was sold for $80,000 to the vendor of Doonan‘s Road and was settled simultaneously with the $80,000 treated as part payment for the purchase of Doonan‘s Road.709This is the source of cash flow 4. [820] I am not satisfied that the fees paid by Astion to Nemesis were not derived from unlawful activity.710The proceeds of $80,000 were derived partly by about $29,000 of unlawfully derived funds and $50,000 of lawfully derived funds. I treat the contribution of Ford‘s Road as equivalent to about $30,000 of unlawfully derived funds and about $50,000 of lawfully derived funds. [821] With respect to cashflow 4 the Companies have proved that about $50,000 worth was not derived from unlawful activity and failed to prove that about $30,000 was not derived from unlawful activity. A further $283,747.09 was paid for earthworks on the Doonan's Road property in 2001, funded mainly by the sale of an aircraft VH-SDL Baron which was purchased in 1990 and was unencumbered by 1995.711I am satisfied that the sum paid for earthworks was not derived from unlawful activity and that it is part of the funds used to derive the property. It is cash flow 5. The Companies have proved that cash flow 5 was not derived from unlawful activity. [822] The Commonwealth also submitted: Because funds from UOCL and Astion were used to acquire the property, Bubbling have not satisfied the court that the property was not derived or realised, directly or indirectly from unlawful activity or that Bubbling acquired the property lawfully. 705 Affdt Mrs Hart sw 21 September 2010 Q00064341 p 11 par 4(e) 706 Affdt Mrs Hart sw 21 September 2010 Q00064341 p 6 par 3 707 Affdt Mrs Hart sw 21 September 2010 Q00064341 p 7 par 3(b) & 3(c)(iii); Report of Mr Vincent dated 21 October 2010 Q00064393 p 69 par 25.2(i) 708 Affdt Mrs Hart sw 21 September 2010 Q00064341 p 8 par 3(d)(v) 709 Affdt Mrs Hart sw 21 September 2010 Q00064341 p 11 par 4(d) 710 See findings above re Hendon arrangement at [347] 711 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 21 par 137(i); Report of Mr Vincent dated 2 September 2009 Q00060117 p 133 par 23.1.3 -- 167 of 229 -- 168 Typically, the Commonwealth‘s submission does not assert the proportion of unlawfully derived funds that were used. [823] Of the 5 cash flows totalling $853,308.07, I calculate that the Companies have proved that all but $30,000 was not derived from unlawful activity. I do not regard that contribution of 3.5% as sufficient to mean that the property was derived from unlawful activity. [824] The Commonwealth further submitted: Because funds from Perpetual Nominees were used to pay out the NAB loan secured over the property, Bubbling has not satisfied the court that its interest in the property was not derived, directly or indirectly, from unlawful activity. [825] This sketch of a submission may be reliant upon the fact that (a) some unlawfully derived funds were arguably mixed with lawfully derived funds and used to repay part of a loan from Perpetual or (b) that Perpetual‘s loan was arguably induced by fraud, or upon both arguments. The Commonwealth added a further submission consistent with alternative (a): During the period that Nemesis had a commercial facility with the NAB and during the period that Bubbling had a finance facility with Perpetual, both entities received monies via other entities712 who in turn had received other monies from UOCL.713 [826] As to alternative meaning (a), I have found above714 that the payments by UOCL to UBC which were mixed with lawfully derived funds and which, after a series a series of transfers mixed with more lawfully derived funds before being paid to the NAB and to Perpetual for interest have not, of themselves, caused assets partly derived from borrowings from the NAB or Perpetual to have been substantially derived from unlawful activity. I am not satisfied that the use of funds lent by Perpetual has the consequence that assets partly derived by those funds are derived from unlawful activity because of payments by UOCL to UBC or to Bowsprit. [827] As to alternative meaning (b), I have found above715 there is no sufficient connection with unlawful activity in the case of the Doonan‘s Rd properties arising from the provision of the property as security for a loan arguably induced by the fraudulent representation. [828] The Commonwealth further submitted: Because Merrell had a fixed and floating charge over the assets of Bubbling of an unknown amount immediately prior to forfeiture, Bubbling have not established the nature, extent and value of the any interest which they claim to have in the property. [829] As I have found that the charges over all the relevant assets, save for 3 aeroplanes, secured repayment of $1.6M and have found that I cannot be satisfied of the total value of all the assets which were charged I am unable to determine whether the interest of Bubbling in the property had a value at the date of forfeiture. I am unable to declare the value of the interest of Bubbling in the property at the time of forfeiture, despite valuing Bubbling‘s interest in the property at $501,580.53 before considering the effect on that value of Merrell‘s charge. 712 Q00047016 and Q00047035 pp 2 & 3 713 Vincent's report dated 2 September 2009 Q00060117 p 23 par 5.24 and p 25 par 5.28 714 ―Finance Facilities and the role of Nemesis‖ 715 ―Perpetual Offences‖ -- 168 of 229 -- 169 [830] But for my inability to declare the value of the interest of Bubbling in the property at the time of forfeiture, the Companies may have been entitled to seek a payment from the Commonwealth. For some reason not developed in submissions, the Companies submitted they are entitled to ―restitution … for $388,292.52 plus the return of GST $149,000 that was not payable by the Applicants‖. The Commonwealth made no submission about a claim for return of GST. I infer that there may be a dispute as to the amount held by the official trustee in respect of the sale of Doonan‘s Road. [831] I find that POCA s 102(1) does not enable the court to declare that the Commonwealth make a payment of GST. 1983 Mercedes Benz 380SL [832] This car was forfeited to the Commonwealth on 18 April 2006.716 Immediately prior to forfeiture, this asset was registered in the name of Fighters.717 Immediately prior to forfeiture, Merrell had its charge over the assets of Fighters to secure an obligation to pay an amount I have found to be $1,600,000. [833] Mr Vincent says that the Sea Fury was used as security for funds advanced by Dr Fleming to Fighters to enable the payout to NAB for assets taken by the Receiver and Manager. [834] The original lease plan for the Mercedes in June 1989 was a 4-year term with a residual payment of $59,400.00.718 The residual on the lease was refinanced through Esanda on 29 June 1993 for the purchase price of $59,400.00.719 SHFH (now called Nemesis) made monthly payments of $2,746.75 to Esanda from 29 June 1993 until the loan was paid out on or about 22 June 1995720 and the funds used to make the repayments were sourced from the ―normal trading income‖ of Nemesis.721 I am satisfied that to that date, the vehicle was not derived from unlawful activity. [835] A receiver and manager was appointed for Nemesis on 4 September 2001 to administer the assets of the trust including the Mercedes.722 Fighters purchased the Mercedes from the receiver and manager of Nemesis on or about 20 September 2001. This purchase was effected using funds borrowed from Doctor Daniel Fleming pursuant to a Deed of Loan dated 20 September 2001.723 Mrs Hart stated that the funds borrowed from Fleming were paid into the trust account of Hawthorn Cuppaidge and Badgery (―HCB‖) by Dr Fleming in September of 2001 and were paid from HCB to the receivers and managers (Arthur Anderson Chartered Accountants) on 20 September 2001.724 The loan was for the amount of $400,000.00 and a fixed charge was then 716 Affdt Ty Maher sw 24 November 2010 Q00064186 p 2 par 4 717 Affdt Mrs Hart sw 17 October 2006 Part 2 Q00060223 p 87 718 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 68 par 61(a); Q00064140 p 2 719 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 68 par 61(b)(i); Q00064140 p 6 720 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 68 par 61(b)(ii); Q00064140 pp 7 to 8 721 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 68 par 61(b)(iii) 722 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 17 par 114(c); Exhibit "LEH1" to the Affdt Mrs Hart sw 17 October 2006 Part 2 Q00060223 p 92 723 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 17 par 114(d); Q00060223 Exhibit "LEH1" p 95; Report of Mr Vincent dated 2 September 2009 Q00060117 p 116 par 20.1.2 724 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 17 par 117 -- 169 of 229 -- 170 placed over some assets of Fighters in favour of Fleming on 20 September 2001.725 Ms Petersen deposed that $400,000.00 was provided by Fleming as a loan to Nemesis and the assets (including the Mercedes) were transferred from Nemesis to Fighters.726 Significantly, Ms Petersen notes that Mrs Hart was not present at the time the transaction documents had to be signed, so Steven Hart signed the documents as a director, notwithstanding the fact that he was not a director of Nemesis at that time.727 [836] Mr Vincent noted that on 20 September 2001 SHFH entered into an asset sale agreement with Dr Fleming which purported to sell various goods from SHFH to Dr Fleming including the entry ―Mercedes Benz 380SL Registration No. 992-AMG‖.728 The agreement evidences the sale of the Mercedes to Dr Fleming (not Fighters)729and lists the owner and seller of the assets as Nemesis (not the receiver and manager with the sale funds being paid to Arthur Anderson Chartered Accountants).730 Mr Vincent also noted that the Deed of Loan between Fleming and Fighters731 is dated 20 September 2001, the same day the receiver and manager of Nemesis was discharged.732 Dr Fleming stated that he purchased the Mercedes as nominee for Fighters.733 [837] Mrs Hart later qualified her earlier evidence by stating that the transactions that ultimately result in Fighters becoming the owner of the assets of Nemesis, including the Mercedes, were as follows: A loan from Fleming was arranged by Fighters ―with the approval of Merrell‖ in the amount of $400,000.00, offering the Sea Fury aircraft as security;734 The loan was to pay out NAB (under whose authority the receiver and manager was appointed);735 Fleming was to act as ―agent for Fighters‖ in the transaction;736 The receiver and manager agreed to accept $350,000.00 for the assets, though given it could not directly sell the assets to Dr Fleming, the directors of Nemesis would agree to the terms of sale themselves and the receiver would simply resign contemporaneously with the presentation of a cheque for $350,000.00;737 The sale to Dr Fleming ―on trust for Fighters‖ was effected on 20 September.738 However the confirmation letter from the receiver‘s solicitors is addressed only to the solicitors of Nemesis, and does not refer to the sale as being to Fleming on trust for Fighters.739 725 The ASIC search does not record such a charge (Exhibit ‗LEH1‘ to the Affdt Mrs Hart sw 17 October 2006 Part 2 Q00060223 p 91). 726 Affdt Shirley Petersen sw 7 July 2003 Q00010826 p 9 par 20. 727 Affdt Shirley Petersen sw 7 July 2003 Q00010826 p 9 par 21 728 Q00010808 p 12; Report of Mr Vincent dated 2 September 2009 Q00060117 p 118 par 20.4 729 Q00060117 p 118 par 20.4.1. 730 Q00060117 p 118 par 20.4.2; Affdt Mrs Hart sw 17 October 2006 Q00060221 p 17 pars 115 to117 731 Q00060223 p 95 732 Q00060117 p 118 par 20.5.1. 733 Q00003944 p 100 734 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 69 par 61(c)(i) 735 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 68 par 61(c)(i) 736 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 69 par 61(c)(i) 737 Q00064141 p 22 738 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 69 par 61(c)(iii) 739 Q00064141 p 24 -- 170 of 229 -- 171 The balance of the loan ($50,000.00) was paid to the solicitors of Nemesis (Hawthorn Cuppaidge and Badgery) for legal fees ―for and on behalf of Fighters and Dr Daniel Fleming‖.740 [838] A printout of the transactions register for Fighters dated 20 September 2001 shows a credit of $400,000.00 as a ―loan for receivership‖ from Danmere Pty Ltd on 20 September 2001 and an output of $20,000.00 for the Mercedes.741 Danmere Pty Ltd is a company associated with Fleming.742 Further, the balance sheet of Fighters for the year ending 30 June 2002 shows the Mercedes as a fixed asset with a value of $20,000.00 and the debt to Danmere Pty Ltd as a current liability.743 [839] Mrs Hart stated that the loan was repaid to Dr Fleming by Fighters by authority of ITSA in or around December 2004 from the proceeds of the sale of a property on Brandon Road, Runcorn which had been owned by Nemesis since 1988744and that Dr Fleming received $500,000.00 in satisfaction of the loan in or around January 2005 from the sale proceeds of the Brandon Road property.745 The Brandon Road property was not forfeited to the Commonwealth because Fighters sold the property with the approval of the Official Trustee prior to forfeiture746 and the proceedings of sale were used to pay debts of the Companies. [840] The Commonwealth relied upon Mr Vincent‘s opinion that the collateral security for the $400,000.00 loan was a first registered company charge over the Sea Fury aircraft VH-SHF747and the funds used to purchase the Sea Fury aircraft were ultimately sourced from UOCL.748 [841] Initially, Mrs Hart did not provide any documentary evidence to explain how Nemesis obtained the funds to service the hire-purchase payments during the period from June 1993 to May 1995.749 Nor did Mrs Hart present any documentary evidence to explain how Fleming obtained the funds to loan Fighters.750 However, UOCL lent Dr Fleming $400,000 on 10 February 1999.751 [842] The Commonwealth submitted: Because funds from UOCL may have been indirectly used to acquire the property, Fighters have not satisfied the court that the property was not derived or realised, directly or indirectly from unlawful activity or that Fighters acquired the property lawfully. [843] The submission was not elaborated upon. Reference to Exhibit 10 appendix19 suggests that the Commonwealth‘s points may be two: firstly that the $400,000 lent by Dr Fleming which allowed Fighters to purchase the vehicle in September 2001 was secured by a charge over the Sea Fury aircraft and secondly that Dr Fleming was repaid from the proceeds of sale of Brandon Road. 740 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 69 par 61(c)(v) 741 Q00064141 p 25 742 Q00003944 p 100 743 Q00064141 p 26; Affdt Mrs Hart sw 23 July 2010 Q00064089 p 70 par 61(c)(vii) 744 Affdt Mrs Hart sw 17 October 2006 Q00060221 p 17 par 114(f) 745 Affdt Mrs Hart sw 23 July 2010 Q00064089 p 70 par 61(d); Q00064139 p 2 746 Affdt Ty Maher sw 24 November 2011 Q00064186 p 3 par 8 747 Q00060117 p 119 par 20.7.2 748 Q00060117 p 73 par 11.19.2; Q00060117 p 120 par 20.8.1 749 Q00060117 p 117 par 20.3.2; Affdt Mrs Hart sw 17 October 2006 Q00060221 p 17 par 114(a) 750 Q00060117 p 117 par 20.3.3; Affdt Mrs Hart sw 17 October 2006 Q00060221 p 17 par 114(b) 751 Q00026325; Q00026306; Q00026247; Q00043011 pp 34 to 35 -- 171 of 229 -- 172 [844] I found above that the use of Brandon Road as security for borrowings and the use of its proceeds of sale for repayments did not result in assets being derived from unlawful activity. I found above that Fighters has not proved that the Sea Fury aircraft was not derived or realised, directly or indirectly from unlawful activity or that Fighters acquired the property lawfully. [845] I am not satisfied that Dr Fleming‘s loan would have been made without the security of the charge over the Sea Fury aircraft. Accordingly, I am not satisfied that the car was not derived or realised, indirectly from unlawful activity. I may not make an order in respect of it. [846] As I have found that the charges over all the relevant assets, save for 3 aeroplanes, secured repayment of $1.6M and have found that I cannot be satisfied of the total value of all the assets which were charged I am unable to determine whether the interest of Fighters in the property had a value at the date of forfeiture. CONCLUSIONS ON THE COMPANIES’ APPLICATION [847] I am not satisfied that the Companies collectively or any one of them is presently entitled to the relief they seek in their submissions or in their originating application. Four of the Companies would become entitled to relief subject to conditions to which I refer below. [848] In eight instances the Companies established that an asset was owned by one of Fighters, Yak, Nemesis or Bubbling at the date of forfeiture and that it was not used in, or in connection with, any unlawful activity and was not derived or realised, directly or indirectly, by any person from unlawful activity. There was insufficient evidence of the value of any particular asset. It was not possible to assess the ―value of the applicant‘s interest in the property‖ within the meaning of POCA s 102(1)(c) and not possible to assess that there was any value after taking account a charge in favour of Merrell securing repayment of $1.6M. In those eight instances the Companies failed to prove the value of the owner‘s interest at the time of forfeiture. But for that failure Fighters, Yak, Nemesis and Bubbling would each have been entitled to relief. [849] The eight assets to which I refer are: 1. The plane, called the L39 VH-SIC by the Companies in submissions, the Aerovod L-39C by the Commonwealth in submissions and VH-SIC Aero Vodochody L-39C or L-39 C Albatross Aircraft Registration VH-SIC by Mrs Hart in evidence which was owned at the date of forfeiture by Fighters; 2. The Akrotech CAP 232 plane which was owned at the date of forfeiture by Fighters; 3. The North American Trojan T-28 VH-AVC plane owned at the date of forfeiture by Fighters; 4. Hangar 101 owned at the date of forfeiture by Yak; 5. Hangar 607 which I found to be an interest in a lease which has since expired, 6. ―Hangar 400‖ being Archerfield Airport lease 703146442 sub lease 70447517. Immediately prior to forfeiture, Hangar 400 was registered in the name of Nemesis. 7. The property at 6 Merriwa Street owned by Nemesis at the date of forfeiture has since been sold. The Official Trustee retains some proceeds of sale; -- 172 of 229 -- 173 8. The property at Doonan‘s Road owned by Bubbling at the date of forfeiture has since been sold. The Official Trustee retains some proceeds of sale. [850] I am unable to determine or declare the monetary value of the interest of any individual former owner in its asset at the date of forfeiture. [851] In respect of property at 6 Merriwa Street, property at 27 Samara Street and property at Doonan‘s Road, the proceeds of sale of those assets are held by the Official Trustee, and may exceed $720,000. There seems from the submissions to be a difference between the parties‘ beliefs as to the amount held in respect of Doonan‘s Road. This was not a disputed issue and it seems unnecessary to resolve it. [852] However, I am satisfied that the collective value of the interests of Fighters, Yak, Nemesis and Bubbling in the 9 assets can be valued, although not in dollars because there is no evidence of the value in dollar terms. Whether the collective interests‘ value is positive or negative after taking account of the charges securing repayment of $1.6M is something I cannot determine. It is not appropriate to order the Commonwealth to make payment to the Companies or any of them in respect of an asset where it cannot be determined that the asset‘s value is positive. [853] I determine that the nature and extent of the collective interests of interests of Fighters, Yak, Nemesis and Bubbling in the three relevant aircraft, in Hangar 101, and ―Hangar 400‖ and in the proceeds of sale of the 3 properties retained by the Official Trustee is an interest in the whole of those assets and those proceeds currently retained, less $1,600,000 being the equivalent of the amount whose repayment was secured by charges in favour of Merrell at the date of forfeiture against all relevant assets. [854] It seems to me that it is within the power given to a court making orders under POCA s 102(1) in these particular circumstances to allow the Companies or any of them to pay to the Commonwealth $1,600,000 and that if the Companies or any of them make such payment to the Commonwealth it is within the power of the court to make the appropriate declarations and orders for transfer. It seems to me that the appropriate declarations, subject to submissions as to the wording, would be to the effect that:  Fighters is the owner of the L-39 C Albatross Aircraft Registration VH-SIC, the Akrotech CAP 232 plane and the North American Trojan T-28 VH-AVC plane;  Yak is lessee of ―Hangar 101‖;  Yak is sublessee of Hangar 400 and owner of the proceeds of sale of 6 Merriwa Street retained by the Official Trustee; [855] Upon making such declarations it seems to me that it would be appropriate that the Commonwealth be directed, subject to submissions as to the proper wording, to transfer the three relevant aircraft, Hangar 101 and ―Hangar 400‖ to the respective former owners and to authorise the Official Trustee to release the proceeds of sale retained in respect of properties at 6 Merriwa Street and at Doonan‘s Road to the respective former owners, Nemesis and Bubbling. [856] Alternatively, it is within the power given to a court making orders under POCA s 102(1) in these particular circumstances, subject to submissions as to the appropriate form of orders and directions, to give the Companies or any of them liberty to pay to -- 173 of 229 -- 174 the Commonwealth an amount which represents $1,600,000 less the proceeds of sale retained by the Official Trustee in respect of the sale of properties at 6 Merriwa Street and at Doonan‘s Road and upon payment of that sum to the Commonwealth and upon release to the Commonwealth of the proceeds retained by the Official Trustee to direct the Commonwealth to transfer the three relevant aircraft, Hangar 101, and ―Hangar 400‖ to the respective former owners and for the Official Trustee to release the retained proceeds of sale to the Commonwealth. In either case it would be appropriate to allow the Companies reasonable time to make the appropriate payment. Subject to submissions, I expect that would be within 28 days of making orders upon an application by the Companies or any of them for liberty to pay the Commonwealth. [857] I refuse the particular orders sought by the Companies and give the Companies liberty within 7 days to apply for orders in accordance with the two paragraphs immediately above. [858] I propose to reserve the costs of this proceeding to permit the parties to read the reasons before determining whether to apply for costs. S 141 Application [859] If the court determines that any of the property should be recovered by the Companies, the CDPP claims752pursuant to POCA s141 that the property be made available to satisfy a pecuniary penalty order made in its favour against Mr Hart, because Mr Hart was in effective control of the property when it was restrained. By a pecuniary penalty order, Mr Hart was ordered to pay to the CDPP $14,757,287.35.753 [860] POCA s 141 provides: 141 Property subject to a person‟s effective control (1) If: a) a person is subject to a pecuniary penalty order; and b) the DPP applies to the court for an order under this section; and c) the court is satisfied that particular property is subject to the effective control of the person; the court may make an order declaring that the whole, or a specified part, of that property is available to satisfy the pecuniary penalty order. (2) The order under subsection (1) may be enforced against the property as if the property were the person‘s property. (3) A restraining order may be made in respect of the property as if: (a) the property were the person‘s property; and (b) the person had committed a serious offence. (4) If the DPP applies for an order under subsection (1) relating to particular property, the DPP must give written notice of the application to: (a) the person who is subject to the pecuniary penalty order; and (b) any person whom the DPP has reason to believe may have an interest in the property. 752 BD 1416 of 2003 753 Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457 -- 174 of 229 -- 175 (5) The person who is subject to the pecuniary penalty order, and any person who claims an interest in the property, may appear and adduce evidence at the hearing of the application. [861] When interpreting POCA s 141(1)(c) the word ―is‖ in the phrase ―is subject to the effective control of the person‖ creates an issue as to the date on which effective control is to be determined. [862] The CDPP submitted that for POCA s 141(1)(c) the relevant date at which the court is to determine whether particular property ―is subject to the effective control‖ of Mr Hart is the date of the making of a restraining order in respect of the property.754 There were two dates when restraining orders were made. On 8 May and 19 December 2003 Brabazon QC DCJ made restraining orders with respect to the assets which are the subject of this application. The respondents to the s 141 application then applied under POCA s 29 to have the assets excluded from the operation of the restraining orders. In dismissing that application, Brabazon QC DCJ found that Mr Hart was in effective control of the assets755 and dismissed the application by those respondents. The Court of Appeal dismissed an appeal by Mr Hart and those respondents.756 McPherson JA, with whose reasons Williams JA and Chesterman J agreed, stated: ―[T]he evidence leaves no doubt that [Mr Hart] was in effective control of the property as well as the affairs of the corporate appellants. His attitude and his behaviour towards them is reminiscent of many others who persist in treating the business and assets of companies as if they were their own, with scant regard for the legal boundaries dividing personal and corporate powers and ownership.‖757 [863] After receipt of the CDPP‘s written submissions on the meaning of ―is‖ in POCA s 141(1)(c), Mr Hart made oral submissions. [864] Mr Hart in his oral address sometimes referred to the Companies which are respondents to the POCA s 141 application as ―applicants‖. Mr Hart orally conceded: 1. ―The applicants concede there was a finding of effective control as at date of restraining order in 2003 after a contested hearing before his Honour Brabazon. This finding was upheld by the Court of Appeal in Queensland. The applicants have accepted the ruling for the purposes of the section 102, section 141 applications, and have not sought to relitigate the issue in these proceedings. The applicants/respondents consent that his Honour can rely upon that ruling in these proceedings.‖758 2. ―in relation to the "is" in section 141, the respondents concede that that is past tense, at the date of the restraining order.‖ 759 [865] By referring to ―the purposes of the section 102, section 141 applications‖ Mr Hart unequivocally conceded that the ruling of effective control at the date of the (sic) restraining order was something which could be relied upon in both proceedings. The effective control of which the Court of Appeal wrote was ―of the property and the affairs of the corporate appellants‖. Those corporate appellants included Yak and 754 Section 141 submissions of the applicant (DPP) Pt III, pars 6-21 755 Cth DPP v Hart & Ors [2004] QDC 121 [166] 756 Director of Public Prosecutions (Cth) v Hart (No. 2) [2005] 2 Qd R 246 757 At 261 [31] 758 T12-46 l 24 759 T12-28 l 5 -- 175 of 229 -- 176 Bubbling Springs. That control was conceded for the dates 8 May and 19 December 2003. As a result of the concession I find that on the relevant dates in 2003 Mr Hart had effective control of the Companies and their assets.760 [866] Having regard to the concessions made by the respondents to the s 141 application, when considering the elements of s 141(1) I am satisfied that Mr Hart is subject to a pecuniary penalty order, that the CDPP has applied for an order under POCA s 141 and that the property was at the material dates in 2003 subject to the effective control of Mr Hart and am satisfied that the court may make an order declaring that the whole, or a specified part, of that property is available to satisfy the pecuniary penalty order. [867] The Acts Interpretation Act 1901 (Cth) s 33 (2A) provides: Where an Act assented to after the commencement of this subsection provides that a person, court or body may do a particular act or thing, and the word may is used, the act or thing may be done at the discretion of the person, court or body. It follows that the court‘s power under POCA s 141(1)(c) to ―make an order declaring that the whole, or a specified part, of (the) property is available to satisfy the pecuniary penalty order‖ is a power to be exercised at the discretion of the court.761 [868] The matters which a court must or may consider when exercising the discretion are not expressly set out in POCA. [869] The CDPP submitted:762 If … there would be injustice caused to third parties by ordering that the whole of the property should be available to satisfy the pecuniary penalty order … against Mr Hart, then that would be a good reason to exercise the discretion in favour of those third parties, … being those applicants in the 102 who claim an interest in the property either as the registered legal owner or as some other interest. [870] Nemesis, Bubbling, Yak and Fighters are each trustees of discretionary trusts. Mr Hart is a beneficiary of the trusts of Nemesis and Bubbling. In addition to Mr Hart, others have worked to contribute to the growth of the Companies: since 1981 Ms Petersen and Mrs Hart; since 1998 Mr PA Hart and Mr TB Hart; since 1995 Ms TA Hart. Children of Mr Hart and Ms Petersen have worked for the family companies since they were 11 years old. [871] The CDPP submits that no injustice would result from the making of the order it seeks. [872] The CDPP submitted that the Companies and their directors have individually and collectively benefitted from Mr Hart‘s commission of serious offences. There is no dispute that some funds from UOCL formed part of the funds used to acquire three aircraft: the De Havilland DH82 Tiger Moth, the North American T-6 and the North American T-28 VH-SHT. Nemesis received $229,920 from UOCL in 1998. Funds from UOCL were used by the companies to pay running expenses and to service loans for other assets. Funds from UOCL, directly or indirectly, were used to pay rates on the property at 27 Samara Street, Sunnybank and to pay for the insurance on that property and to pay rates on the property at Doonan‘s Road. UOCL funds were used to pay some credit card expenses of Ms Petersen and Mrs Hart. The Commonwealth 760 Eg T 13-31 ll 40-50 761 Cf Director of Public Prosecutions v Ferguson … [81] where Kaye J considered the meaning of the similarly worded Confiscation Act 1997 (Vic) s 70 and the similarly worded Interpretation of Legislation Act 1984 (Vic) s 45(1) 762 T12-7 and T12-8 -- 176 of 229 -- 177 submits that these matters are relevant and the fact that the companies and their directors have benefitted from unlawful activity in these ways makes it just that the assets should be available to satisfy the pecuniary penalty order against Mr Hart. [873] If an asset was directly or indirectly derived substantially from funds from UOCL then it would not be ordered to be transferred to a company. Some other funds from UOCL have tainted the cash flow of the service companies, Nemesis and Spider, but in small amounts proportionately. The CDPP‘s submission does not give particulars of the proportions of expenses and loans which were tainted. The amounts and proportions of benefits received by Companies and their directors personally may be relevant. The Companies, because of their use of tainted sums, have failed to recover from forfeiture assets partly derived from the proceeds of lawful activity. The Commonwealth has retained those assets without the need to account for the lawfully derived inputs. Any sums the Companies derived from unlawful activity are more than adequately taken into account by the Commonwealth‘s remedies in the s102 (1) application, without the need to order transfer of further assets proved not to have been used in connection with unlawful activity, or derived from unlawful activity. [874] As to the credit card expenses, Mr Hart advised in submissions: it's conceded that UOCL paid credit card bills, but the evidence is the credit card bills were paid, paying expenses incurred for UOCL in running the business that they wanted the various applicants to do. [875] Such personal benefit as the directors may have derived from the payment of limited credit card expenses does not render it just to deprive the Companies of any of the property shown by the Companies in the POCA s 102 application to have been not substantially derived from unlawful activity. [876] The CDPP submits that it is relevant that the assets are not residences for Ms Petersen or Mrs Hart or their families but that they comprise aircraft, hangars and a car. The CDPP submits that an order relating to these assets is not comparable with an order taking away a family home or imposing some similar hardship on a family. [877] The CDPP submitted that the penalty amount that Mr Hart has been ordered to pay to the Commonwealth has already been reduced by an amount representing the value of the assets. The CDPP submitted that Mr Hart had agreed that any pecuniary penalty order should be reduced by $4.8 million and that that figure represents the agreed value of the assets forfeited to and held by the Commonwealth. The CDPP argues that it would be unjust if Mr Hart could have the benefit of the reduction in his penalty while the Companies retained the assets. [878] The respondents do not admit or deny that there was such an agreement between Mr Hart and the CDPP. Instead, Mrs Hart deposed that she knows of no agreement between the Commonwealth of Australia and the Companies with respect to the values of the assets or the ability to pay any amount due by Mr Hart pursuant to the pecuniary penalty order. Ms Petersen adopts the same position as Mrs Hart. [879] Mr Hart‘s agreement with the Commonwealth in an earlier proceeding does not bind the Companies. It would be relevant if the Companies were party to the agreement. I -- 177 of 229 -- 178 am not referred to evidence to suggest that an agreement reached with Mr Hart with respect to the earlier proceeding763 was made by him as agent for the Companies. [880] The CDPP submits that Mr Hart remains in effective control of the Companies. There has been no issue raised in pleadings about whether Mr Hart continued in effective control of the Companies at the time of trial or about whether Mr Hart controls the exercise of the discretion as trustees of Yak, Bubbling, Flying or Alfredton. It is possible that Mr Hart remains in effective control of the Companies. The issue about his current control has not been adequately explored in evidence. The CDPP bears the onus. I am not persuaded that Mr Hart is currently more than the trusted adviser to the directors. [881] I reject the submission of the CDPP that it would be unjust if Mr Hart could have the benefit of the reduction in his penalty by $4.8M while the Companies retained assets. Mr Hart and the Companies are not identical. The CDPP as a litigant negotiating with Mr Hart was able to protect its interests by the terms of any agreement it reached. [882] It is unjust to deprive the Companies of assets because of an agreement between Mr Hart and the CDPP to which the Companies were not made a party. If Mr Hart was in effective control of the Companies in the same period that he negotiated an agreement with the CDPP, it does not follow that he did so as agent for the Companies. [883] The CDPP does not submit that Mr Hart is the beneficial owner of the Companies‘ assets or that Mr Hart or the Companies propose to use the Companies‘ assets for unlawful activity. While there is evidence that Mr Hart is a beneficiary in whose favour trustees may exercise a discretion pursuant to two of the discretionary trusts, it is not submitted for the CDPP that Mr Hart is a beneficial owner of any asset. [884] If an asset, or its value, is to be transferred to the Companies as a consequence of the POCA s 102 application, it is on the basis that, in spite of Mr Hart‘s effective control of the asset, it was not derived from or used in connection with unlawful activity. [885] I dismiss the application of the CDPP brought pursuant to POCA s 141. [886] I propose to reserve the costs of this proceeding to permit the parties to read the reasons before determining whether to apply for costs. 763 Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457 -- 178 of 229 -- ANNEXURE 1 Chronology 1. On 28 April 1981 Laura Hart was appointed as a director of Nemesis Australia Pty Ltd ([Q00060024]). 2. On 1 August 1982 Mr Hart was appointed director of Bubbling Springs Pty Ltd ([Q00060018]). 3. On 20 May 1983 Laura Hart was appointed director of Bubbling Springs Pty Ltd ([Q00060018]). 4. Also, on 20 May 1983 Mr. Hart was appointed principal executive officer of Bubbling Springs P/L ([Q00060018]). 5. On 10 October 1983 Shirley Petersen was appointed director of Nemesis Australia P/L ([Q00060024]). 6. On 21 October 1983 Shirley Petersen was appointed Director of Bubbling Springs P/L ([Q00060018]). 7. On 6 September 1985 Pitts aircraft VH-SIS was purchased with a loan facility from NatWest (Laura Hart‘s affidavit 23/7/2010, [Q00064089] para 57(a)(vi)(aa), Appendix 38 [Q00064132]; and Cap 232, TAB 10). 8. The property known as 6 Merriwa Street was purchased in the 1986 financial year for $69,470.72. The mortgage over that property was paid out in 1993 (Vincent‘s Report 2 September 2009 21.1.1, [Q00060117]; Laura Hart‘s affidavit 17/10/2006, [Q00060221] para 122, Annexure LEH 1 [Q0060223] pp. 325-326; and Laura Hart‘s affidavit 23/7/2010, [Q00064089] para 63, Appendix 48 [Q00064142]; and 6 Merriwa Street, TAB 15) 9. In February 1988 the Laser aircraft VH-KGZ was purchased with a loan facility from NatWest (Laura Hart‘s affidavit 23/7/2010, [Q00064089] para 57(a)(vi)(bb), Appendix 39 [Q00064133] and [Q00064163]; and Cap 232, TAB 10). 10. Between July 1987 and June 1988 the property located at 88 Brandon Rd, Runcorn was acquired by Nemesis Australia P/L for $103,668.58 (Vincent‘s Report 2 September 2009 24.1.1, [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 145, Annexure LEH 1 [Q00060223] pp. 373-375). 11. Between 30 June 1990 and 30 June 1991 Mr. Hart committed nine offences of defrauding the Commonwealth contrary to section 29D of the Crimes Act 194 (Cth) (the Mevton offences). He was convicted of these offences on 25 May 2005. He derived $706,402.93 from the commission of those offences (CDPP v Hart [2010] QDC 457 at [557]). 12. In about 1990 the VH-SDL Baron aircraft was purchased. The mortgage over that aircraft was paid out in 1995 (Vincent‘s Report 2 September 2009 23.1.3 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 137(i); and Doonan‘s Road Grandchester, TAB 17). 13. On 29 August 1990 Laura Hart was appointed a director of Yak 3 Investments P/L ([Q00060019]). 14. On 29 August 1990 Shirley Petersen was appointed a director of Yak 3 Investments P/L ([Q00060019]). 15. In November 1990 funds from the Mevton arrangement were used to pay wages that Harts Australia Group was unable to pay (Ian Stevens cross-examination T6-71, L13&14). -- 179 of 229 -- 180 16. On 1 September 1991 Nemesis Australia P/L entered into a 20 year sublease of the land known as Hangar 607 (Vincent‘s Report 2 September 2009 8.1.1 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 20(c)), Annexure LEH 1 [Q00060223] pp. 1-17). 17. In September 1991 Big Country Equipment constructed a shed on land known as Hangar 607 on behalf of Nemesis Australia P/L (Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 20(d)). 18. On 5 September 1991 $19,000 is deposited into Nemesis Australia P/L‘s Commonwealth Bank overdraft facility. Laura Hart states that this is proceeds from the sale of a Nissan motor vehicle (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 26, Appendix 4 [Q00064093] p. 29). 19. On 6 September 1991 $1,500 was paid by Nemesis Australia P/L to Big Country Equipment (Vincent‘s Report 2 September 2009 8.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 26, Annexure LEH 1 [Q00060222] pp. 217-223; and Hangar 607, TAB 13). On 27 September 1991 $10,000 was paid by Nemesis Australia P/L to Big Country Equipment (Vincent‘s Report 2 September 2009 8.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 26, Annexure LEH 1 [Q00060222] pp. 217-223; and Hangar 607, TAB 13). 20. On 11 October 1991 $3,500 was paid by Nemesis Australia P/L to Big Country Equipment (Vincent‘s Report 2 September 2009 8.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 26, Annexure LEH 1 [Q00060222] pp. 217-223; and Hangar 607, TAB 13). 21. On 18 October 1991 $5,000 was paid by Nemesis Australia P/L to Big Country Equipment (Vincent‘s Report 2 September 2009 8.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 26, Annexure LEH 1 [Q00060222] pp. 217-223; and Hangar 607, TAB 13).. 22. On 25 October 1991 $5,000 was paid by Nemesis Australia P/L to Big Country Equipment for construction of Hangar 607 (Vincent‘s Report 2 September 2009 8.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 26, Annexure LEH 1 [Q00060222] pp. 217-223; and Hangar 607, TAB 13). 23. On 1 November 1991 $5,000 was paid by Nemesis Australia P/L to Big Country Equipment for construction of Hangar 607 (Vincent‘s Report 2 September 2009 8.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 26, Annexure LEH 1 [Q00060222] pp. 217-223; and Hangar 607, TAB 13). On 12 March 1992 $5,000 was paid by Nemesis Australia P/L to Big Country Equipment for the construction of Hangar 607 (Vincent‘s Report 2 September 2009 8.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 26, Annexure LEH 1 [Q00060222] pp. 217-223; and Hangar 607, TAB 13).. 24. On 30 December 1992 $180,000 was deposited to Nemesis Australia P/L‘s Commonwealth Bank overdraft facility. Laura Hart states that this was the proceeds from the sale of property at Spine Street, Sumner Park (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 28, Appendix 5 [Q00064094]). 25. In 1993 Nemesis Australia P/L sold properties at Spine Street Sumner Park, East Street Ipswich and Albert Street Brisbane as part of an arrangement for the purchase of Jindalee Allsports Shopping Centre by Radfont Pty Ltd. Nemesis Australia P/L held shares in Radfont Pty Ltd through a limited partnership (T7-72, 73). In March or May 1993 Nemesis Australia P/L had no debt (T7-73, L31- 33). Nemesis Australia P/L provided a bank guarantee for Radfont. -- 180 of 229 -- 181 26. On 7 April 1993 Ian Stevens was appointed a director of Bubbling Springs P/L ([Q00060018]). 27. On 7 April 1993 Shirley Petersen was appointed a principal executive officer and secretary of Bubbling Springs P/L ([Q00060018]). 28. On 16 April 1993 Shirley Petersen resigns as secretary of Bubbling Springs P/L ([Q00060018]). 29. On 22 April 1993 $826,350 is deposited into the Nemesis Australia P/L‘s NAB account (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 62(d), Appendix 48 [Q00064142] p. 442). 30. On 22 April 1993 $854,716.25 was transferred out of Nemesis Australia P/L‘s NAB account (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 62(d), Appendix 48 [Q00064142] p. 442). 31. In 1993 the four properties Brandon Road, Woff Street, Merriwa Street and 52 Pinecone Street then owned by Nemesis and/or Mrs Hart were debt free. From that time onwards they were used as security for Nemesis Australia P/L to borrow funds to buy other assets (T7-73, L51 to T7-74, L8). 32. On 18 May 1993 Nemesis Australia P/L arranged with the NAB an overdraft facility and bank guarantee and a mortgage was registered in favour of NAB over 88 Brandon Road (Q00047330); Vincent‘s Report 2 September 2009 24.2.3 [Q00060117], Appendix 186 PJV2 p896 (title doc) [Q00047330]; and Laura Hart‘s affidavit 23/7/2010 [Q00064089], para 65(b)). 33. Between June 1993 and September 1993 the promotion of Hendon arrangements involving Astion commenced. Astion and Tinkadale started receiving fees (Stevens‘ affidavit 25/10/2010 [Q00064652] para 12; Transcript 6-53 L43-46; Transcript 6-56 L20-38; and Doonan‘s Road Grandchester, TAB 17). 34. On 29 June 1993 Nemesis Australia P/L entered into a hire purchase agreement with Esanda Finance for a total amount of $65,922 ($59,400 plus fees and interest) to fund the residual payment due on the lease for the Mercedes Benz 380SL (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 61(b), Appendix 46 [Q00064140] pp. 403-407). 35. On 28 August 1993 Mr. Hart resigned as principal executive officer and Secretary of Bubbling Springs P/L ([Q00060018]). 36. On 28 August 1993 Mr Hart resigned as Director and Secretary of Yak 3 Investments P/L ([Q00060019]). 37. On 28 August 1993 Shirley Petersen was appointed a secretary of Yak 3 Investments P/L ([Q00060019]). 38. On 17 December 1993 Shirley Petersen was appointed secretary of Nemesis Australia P/L ([Q00060024]). 39. In and around 1993 to 1994 various properties were purchased by trusts that Harts‘ clients participated in (T7-74, L30-40). 40. Between June and September 1994 the promotion of the Hendon arrangement continued and Astion and Tinkadale started receiving fees (Stevens‘ affidavit 25/10/2010 [Q00064652] para 8; and T6-56, L20-38 & T6-66, L31-38). 41. Astion, as trustee for the Hendon Unit Trust, would have received 10% as the client trusts‘ payment of the distribution being $1,203,107.20 under theHendon arrangement (Stevens‘ affidavit 25/10/2010 [Q00064652] para 12 and Iain Young‘s Affidavit 23/11/2010 [Q00064218]). -- 181 of 229 -- 182 42. On 9 September 1994 the property at Fords Rd was purchased by Bubbling Springs P/L (Laura Hart affidavit 21/9/2010 [Q00064341], para (3), Appendix 1 [Q00064342]). 43. On 9 September 1994 Nemesis Australia P/L received $25,000 from Astion (Laura Hart‘s affidavit 21/9/10 [Q00064341], para (3)(c)), Appendix 2 [Q00064343]. 44. On 9 September 1994 Nemesis Australia P/L paid $22,938.31 to Geoff Klooger‘s trust account for the purchase of 78 Ford‘s Road Gatton (Laura Hart‘s affidavit 21/9/2010 [Q00064341], para (3)(c)(ii) and Appendix 2 [Q00064343] p.3). On 9 September 1994 Bubbling Springs P/L borrowed $50,000 from the Westpac Bank (formerly Challenge Bank) for the purchase of 78 Ford‘s Rd Gatton (Laura Hart‘s affidavit 21/9/2010 [Q00064341], para (3)(d), Appendix 3 [Q00064344]). 45. Between 24 October 1994 and a date in 1996 the Cap 232 was acquired for a total purchase price of $244,133.58 (Vincent‘s Report 2 September 2009 18.2.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221], paras 103 & 104, Annexure LEH 1 [Q00060223], p. 297; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 57). 46. On 24 October 1994 $50,000 was deposited to Nemesis Australia P/L by Tinkadale Pty Ltd (Laura Hart‘s affidavit 23/7/2010 [Q00064089], para 57, Appendix 37 [Q00064131] p. 339). 47. On 24 October 1994 $16,173.36 was paid to Avions Mudry as deposit on Cap 232 (Laura Hart‘s affidavit 23/7/2010 [Q00064089], para 57, Appendix 37 [Q00064131] p. 339). On 14 November 1994 Yak‘s sublease of Hangar 101, sublease numbered 700515084 for a term of 20 years commenced (cease date 13/11/2013) (Vincent‘s Report 2 September 2009 7.1.1 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221], para 12(b) and para 16(a), Annexure LEH 1 [Q00060222], p. 154). 48. On 24 November 1994 $1,928.24 was paid by Nemesis Australia P/L for customs duty. In the cash book [Q00064131] bottom of page 3 of 8 this is described as ‗Rob Bowyer custom duty wine‘ (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 57, Appendix 37 [Q00064131]; and cross examination T6-14 to T6-15; and Vincent‘s Supplementary Report 21/10/2010, 17.0(ii)(a) [Q00064393] p. 340). 49. On 25 November 1994 Nemesis Australia P/L received $6,000 from Bomilsco described as fees (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 57, Appendix 37 [Q00064131] p. 341; and Vincent‘s Supplementary Report 21/10/2010, 17.5 (iii)(b) [Q00064393]). 50. On 16 December 1994 Nemesis Australia P/L received $35,369.53 income from NAB fixed deposit (Laura Hart‘s affidavit 23/7/2010 [Q00064089] par 57, Appendix 37 [Q00064131] p. 341; and Vincent‘s supplementary report 21/10/2010, 17.0 [Q00064393]; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 57, Appendix 37 [Q00064131], p. 341). 51. On 16 December 1994 Nemesis Australia P/L received $161,422.90 from the sale of Pitts and Laser (Laura Hart‘s affidavit 23/7/2010 [Q00064089] par 57vi, Appendix 37 [Q00064131] p. 342; and Vincent‘s Supplementary Report 21/10/2010, 17. [Q00064393] p. 342; and Cap 232, TAB 10). In 1995 the VH-SDL Baron aircraft became unencumbered (Vincent‘s Report 2 September 2009 23.1.3; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 137(i)). 52. On 18 January 1995 $142,428.39 was paid to Avions Mudry as part payment of CAP 232 (Laura Hart affidavit 23/7/2010 [Q00064089] par 57, Appendix 37 [Q00064131]; and -- 182 of 229 -- 183 53. On 20 January 1995 Laura Hart was appointed director of Flying Fighters P/L ([Q00060025]). 54. On 20 January 1995 Shirley Petersen appointed a director of Flying Fighters P/L ([Q00060025]). On 13 February 1995 Steve Hart Family Holdings Pty Ltd purchased 2300 Westpac shares for $11,013.22 (Vincent‘s report dated 12 October 2010 [Q00064393] page 28 para 8.3, [Q00064326]) 55. On 17 February 1995 $30,000 was deposited to Nemesis Australia P/L from Maurice Hannan from the sale of a Pitts and a Laser aircraft (Laura Hart‘s affidavit 23/7/2010 [Q00064089] par 57, Appendix 37 [Q00064131] p. 344; and Vincent‘s supplementary report 21/10/2010, 17.5(iii)(d) [Q00064393]). 56. On 21 February 1995 Hangar 101 was mortgaged to the NAB (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 19, Appendix 3 [Q00064092] p. 13-14). 57. On 8 March 1995 Ian Stevens was appointed director of Bubbling Springs P/L (Q00060018). 58. On 18 April 1995 Nemesis Australia P/L receives $32,300.70 from Ord Minnett proceeds from the sale of Yardmin shares (Laura Hart‘s affidavit 23/7/2010 [Q00064089] par 57, Appendix 37 [Q00064131] p. 345). 59. In or about May 1995 the Mercedes Benz became unencumbered (Vincent‘s Report 2 September 2009 20.1.1 [Q00060117]; and Laura Hart‘s affidavit 17/10/20006 [Q00060221] para 114 (a) and (b)). 60. Between June and September 1995 the promotion of the Northbourne arrangement commenced with Hart‘s Consulting being paid fees (Stevens‘ affidavit 25/10/2010 [Q00064652]; and Transcript 6-53 L50, 6-68). Stevens estimated that Harts Consulting would have received between $1.4m and $1.6m from the promotion of the Northbourne arrangement in 1995 and 1996. 61. On 19 June 1995 Hangar 607 was mortgaged to the NAB (Vincent‘s Report 2 September 2009 8.5.1(i) [Q00060117], Appendix 61 PJV2 [000047098] p 525; and Vincent‘s Supplementary Report 21/10/2010, 9.0 [Q00064393]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 27; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] paras 20, Appendix 3 [Q00064092]).On 5 October 1995 a payment of $690.47 was made by Flying Fighters P/L to Brambles International re Akrotech Cap 232 (Vincent‘s Report 2 September 2009 18.1.2 [Q00060117]; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] paras 57 and 57(b), Appendix 40 [Q00064134] p. 360). 62. On 11 October 1995 a payment of $1,110 was made by Flying Fighters P/L to Brambles International re Akrotech Cap 232 (Vincent‘s Report 2 September 2009 18.1.2 [Q00060117]; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] paras 57 and 57(b), Appendix 40 [Q00064134) p. 360). On 20 October 1995 a Payment of $9,343.34 by Flying Fighters P/L to Brambles International re Akrotech Cap 232 (Vincent‘s Report 2 September 2009 18.1.2 [Q00060117]; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 57 and 57(b), Appendix 40 [Q00064134] p. 360). 63. In 1996 a payment of $3,000 was made to an unknown person/entity in relation to the VH-SHT North American T28 Serial No 138259 (Vincent‘s Report 2 September 2009 10.1.2 [Q00060117], Annexure LEH 1 p. 250 [Q00060223], General Ledger account of Flying Fighters; no mention in Laura Hart‘s affidavit). 64. On 8 January 1996 a payment of $409.78 was made by Flying Fighters P/L to Brambles International re Akrotech Cap 232 (Vincent‘s Report 2 September 2009 18.1.2 [Q00060117]; and -- 183 of 229 -- 184 Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 57 and 57(b), Appendix 40 [ Q00064134]) p. 361). 65. On 22 January 1996 $122,559.45 appeared in account no. 52 518-2767 of Steve Hart Family Holdings Pty Ltd. Laura Hart states that this amount was a transfer from Northbourne to Nemesis Australia P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 37(e)-(f), Appendix 11 [Q00064100] pp. 81 and 83). 66. On 22 January 1996 $20,000 appeared in ANZ account no. 9001-23292 of Unlimited Aerobatics Pty Ltd. Laura Hart states that this was a transfer from Nemesis Australia P/L to Flying Fighters P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 37(b) and (d), appendix 11 [Q00064100] pp. 80, 82 and 88). On 22 January 1996 Nemesis Australia P/L placed $80,000 into a NAB term deposit account. The investment was to mature on 2 February 1996 (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 37(k), Appendix 11 [Q00046100] p. 89). Note that Hart‘s ledger and Laura H affidavit says that this was returned to Nemesis on 12/2/1996. 67. On 22 January 1996 Flying Fighters P/L paid $20,000 to Kim-Rolph-Smith in relation to the VH- SHT North American T28 Serial No 138259 (Vincent‘s Supplementary Report 21/10/2010 [Q00064393] 11.3(i); and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 37(a), Appendix 11 [Q000641000] p. 80, 82 and 88). 68. On 12 February 1996 Laura Hart states that Nemesis Australia P/L transferred $80,000 to Harts Australasia Ltd (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 37(k)ii, Appendix 11 [Q00064100] p. 87). 69. On 15 February 1996 $80,000 was transferred to account no. 52 518-2767 of Steve Hart Family Holdings Pty Ltd. Laura Hart states the $80,000 was from Harts Australasia Ltd to Nemesis Australia P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 37(k)iii, Appendix 11 [Q00064100] pp. 85 and 87). 70. On 23 February 1996 $40,000 was transferred to account no. 9001-23292 of Unlimited Aerobatics Pty Ltd. Laura Hart states that the $40,000 was from Nemesis Australia P/L to Flying Fighters P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 37(h)-(j), Appendix 11 [Q00064100] pp. 79, 84 and 86). 71. On 23 February 1996 Flying Fighters P/L paid $30,000 to Kim-Rolph-Smith in relation to the VH- SHT North American T28 Serial No 138259 (Vincent‘s Supplementary Report 21/10/2010 [Q00064393] 11.3(ii); and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 37(g), Appendix 11 [Q00064100] [p. 79 and 84). 72. On 3 June 1996 Main North Property Trust deposited $75,000 into Nemesis Australia P/L‘s NAB account (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 37(m)iv, Appendix 12 [Q00064101] pp. 91-92). 73. On 3 June 1996 Nemesis Australia P/L paid AGC and Kim Rolph-Smith $80,000 in relation to the VH-SHT North American T28 Serial No 138259 (Vincent‘s Supplementary Report 21/10/2010 [Q00064393] 11.3(iii); and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para (37(m), Appendix 12 [Q00064101], pp. 91 and 93). 74. In or about June 1996 the Whyalla property was purchased by the Hendon Unit Trust. Participants in -- 184 of 229 -- 185 the Hendon arrangement commenced making loan repayments to HPM trusts. Rents were received and expenses and outgoings were paid from rent from the Whyalla property (Stevens‘ affidavit 25/10/2010 [Q00064652] paras 18-20; and T6-56, L40 to T6-57, L11). 75. Between June and September 1996 promotion of the Northbourne arrangement continued. Harts Consulting were paid fees (Stevens‘ affidavit 25/10/2010 [Q00064652] par 28; and T6-53 L50, T6- 66 and T6-68). 76. On 8 August 1996 a payment of $10,000 was made from Flying Fighters P/L to Noel Noteley Aircraft re the purchase of T-6 North American (Vincent‘s Report 2 September 2009 16.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/06 [Q00060221] para 85(a), Annexure LEH 1 [Q00060223] p. 289; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 38(a), Appendix 13 [Q00064102] p. 96). Funds were sourced from Nemesis Australia P/L which drew the funds from its overdraft account (Vincent‘s Supplementary Report 21/10/2010 11.5(i) [Q00064393]; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 38(a), Appendix 13 [Q00064102] pp. 97-98). 77. On 23 August 1996 a payment of $57,500 from Nemesis Australia P/L (as loan to Flying Fighters) was made to Noel Noteley Aircraft re purchase of T-6 North American (Vincent‘s Report 2 September 2009 16.1.2 [Q00060117]; Laura Hart‘s affidavit 17/10/06 [Q00060221] para 85, Annexure LEH 1 [Q00060223] p. 290; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 38(b), Appendix 13 [Q00064102] p. 99-101). Laura Hart states that $40,000 of this amount was sourced from deposits by Bomilsco ($20,000) and Radfont ($20,000) into the Nemesis Australia P/L‘s NAB overdraft facility on 23 August 2006 (Laura Hart‘s affidavit 23/10/2010 [Q00064089] para 38(b)(ii), Appendix 13 [Q00064102] pp. 99-101; and Vincent‘s Supplementary Report 21/7/2010 11.5(ii) [Q00064393]). 78. On 16 December 1996 Steve Hart Family Holdings Pty Ltd purchased 2200 Coles Myer shares for $10,879.57 (Vincent‘s report dated 12 October 2010 [Q00064393] page 28 para 8.3, [Q00064326]). 79. On 17 November 1997 Nemesis Australia P/L transferred $65,000 to Flying Fighters P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 41(c)V(3)-(4), Appendix 17 [Q00064106] pp. 143, 146 and 147). 80. On the 19 December 1997 Nemesis Australia P/L transferred $30,000 to Flying Fighters P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 41(c)V(6)-(7); Appendix 17 [Q00064106] pp. 143 and 152). 81. Between 1 January 1998 and 30 June 1999 Mr. Hart committed an offence contrary to section 29D of the Crimes Act 1914 as amended of defrauding the Commonwealth. This offence involved UOCL (CDPP v Hart [2010] QDC 457 at [378], [462]). 82. On 3 March 1998 the property located at 27 Samara Street, Sunnybank was purchased by Bubbling Springs P/L for $150,571.12 of which $100,000 was financed by an ANZ loan and the balance from cash flow and $45,000 loan from Astion (Vincent‘s Report 2 September 2009 22.1.2 [Q00060117], Appendix 172 PJV2 [Q00047309] p. 858; and Vincent‘s Supplementary Report 21/10/2010 21.0 [Q00064393]; and Laura Hart‘s affidavit 23/7/10 [Q00064089] para 64; TAB 16). 83. On 12 March 1998 Nemesis Australia P/L transferred $35,000 to Flying Fighters P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 41(c)V(6)-(7); Appendix 17 [Q00064106] pp. 143 and 152). -- 185 of 229 -- 186 On 31 July 1998 $650,000 was paid by UOCL to Harts Australia Limited (T9-43 L19; and Vincents‘ Supplementary Report 7.8 [Q00064393] p. 19, Appendix 3 [Q00064396] p. 79). 84. August 1998 - the NAB Commercial Bill facility is shown as dating back to this date (Vincent‘s Report 2 September 2009 5.9.1 and 21.2.2.(i)(a) [Q00060117], Appendix 8 PJV 2 [Q00047005] p 331). 85. On 4 August 1998 UOCL requests Standard Chartered Bank transfer $200,000 to Steve Hart Family Trust (Nemesis) ([Q00039587]; and Vincent‘s Report 2 September 2009 12.14.2 [Q00060117], Appendix 112 PJV2 [Q00039587] p. 703). 86. Flying Fighters P/L General Ledger records a liability to Nemesis Australia P/L arising from deposit of $64,000 on 4 August 1998 ([Q00047193]; and Vincent‘s Report 2 September 2009 12.13.1 [Q00060117], Appendix 110 PJV2 [Q00047193] pp. 697-698). 87. On 5 August 1998 $200,000 is withdrawn from the UOCL account and paid to Steve Hart Family Trust (Nemesis) ([Q00047199]; and Vincent‘s Report 2 September 2009 12.14.3 [Q00060117], Appendix 113 PJV2 [00047199] p. 705; and [Q00014012]; Vincents Report 2 September 2009 12.14.4 [Q00060117], Appendix 114 PJV2 [Q00014012] pp. 707- 708). 88. On 5 August 1998 a UOCL Deposit of $199,995 was paid to Nemesis Australia P/L ([PSNB00013]; and Vincent‘s Report 2 September 2009 12.14 [Q00060117], Appendix 111 PJV2 [Q00047195] pp. 700-701). 89. On 5 August 1998 the following withdrawals totaling $64,000 were made from the Nemesis Australia P/L Account: Chq 002148 for $29,000; Chq 002151 for 35,000 ([PSNB00013]; and Vincent‘s Report 2 September 2009 12.13.2 [Q00060117], Appendix 111 PJV 2 [Q00047195] pp. 700-701). 90. On 5 August 1998 a deposit of $64,000 was made by Nemesis Australia P/L to Flying Fighters P/L ([Q00047187]; and Vincent‘s Report 2 September 2009 12.13 [Q00060117] Appendix 107 PJV2, [Q00047186] p. 690 and [Q00047187] p. 691; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 40(a)III-IV, Appendix 15 [Q00064104] p. 128). 91. On 5 August 1998 the last payment of $4,566.80 was made to Westpac on the loan secured over 78 Fords Rd Gatton. Mrs. Hart says that this payment is sourced from a payment received from UOCL (Laura Hart‘s affidavit 21/9/10 [Q00064341] para (3)(d)(v)-(vi), Appendix 3 [Q00064344] p. 14). 92. On 6 August 1998 Nemesis Australia P/L‘s overdraft is repaid from a deposit made by UOCL in the amount of $200,000 (T5-35, L49 to T5-36, L8; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 40(a)VI, Appendix 15 [Q00064104] pp. 130-131). 93. On 13 August 1998 Flying Fighters P/L purchased the De Havilland Tiger Moth in an unflyable condition for $37,000 (Vincent‘s Report 2 September 2009 12.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 57 & 59, Annexure LEH 1 [Q00060223] pp. 263-265). 94. On 13 August 1998 Flying Fighters P/L pays Steve Manchetty $37,000 for the Tiger Moth (Laura Hart‘s affidavit 17/10/2006 [Q00060221] paras 59-60, Annexure LEH 1 [Q00060223] pp. 264-266; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 40(a)I-II, Appendix 15 [Q00064104] pp. 127-132) . 95. On the 17th August 1998, Steve Hart Family Holdings Pty Ltd purchased 2000 TAB Ltd shares for -- 186 of 229 -- 187 $5336.80 (Vincent‘s report dated 12 October 2010 [Q00064393] page 28 para 8.3 [Q00064326]). 96. On the 17th August 1998, Steve Hart Family Holdings Pty Ltd purchased 2000 Woolworths shares for $10,339.80 (Vincent‘s report dated 12 October 2010 [Q00064393] page 28 para 8.3, [Q00064326]). 97. On 20 August 1998 $120,000 was paid by UOCL to Harts Australia Limited (T9-43L19). 98. On 22 August 1998 Mr. Hart emailed Peggy Chan requesting that she arrange commission cheques for AIM Group ($AUD14,000), Pheonix Group P/L ($AUD38,000), Kevin Pardella ($AUD10,000) and Mike Vitobello ($AUD8,150) ([Q00029338]; and Commonwealth Director v Hart [2010] QDC 457 at pp. 116-117, para 454). 99. On 14 September 1998 Mr. Hart emailed Peggy Chan at UOCL asking her to organize a bank transfer ‗for me‘ in the amount of $50,000 to account of M Rolph-Smith (Q00029365); and Vincent‘s Report 2 September 2009 16.13.1 [Q00060117], Appendix 148 PJV2 [Q00029365] p. 786). 100. On 15 September 1998 $50,000 was transferred from UOCL to M Rolph-Smith (Q00047260); and Vincents‘ Report 2 September 2009 16.13.2 [Q00060117], Appendix 149 PJV2 [Q00047260] p. 788; and Vincent‘s Report 2 September 2009 16.13.3 [Q00060117], Appendix 150 PJV2 [Q00014015] p. 791; and Vincent‘s Supplementary Report 21 October 2010 11.6 [Q00064393]; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] par 39(a), Appendix 14 [Q00064108]). This is part of the purchase price for the T-6 (T5-36, L21 to T5-37, L22). . 101. On 24 September 1998 $300,000 was paid by UOCL to Harts Australia Limited (T9-43, L21). 102. On 6 October 1998 Mrs. Hart sent a facsimile to Peggy Chan stating that Mr. Hart requests that she transfer $102,000 to Geoff Klooger & Associates Trust Account (CDPP v Hart [2010] QDC 457 at [454]). 103. On 7 October 1998 $300,000 was transferred from UOCL to Merrell ([Q00047270]; and Vincent‘s Report 2 September 2009 16.18 [Q00060117], Appendix 156 PJV2 [Q00047270] p. 805 (see also Appendix 83 [Q00047144]); and Vincent‘s Report 2 September 2009 10.16.1 [Q00060117], Appendix 82 PJV2 [Q00045282] p. 589; and Vincent‘s Report 2 September 2009 16.18 [Q00060117], Appendix 155 PJV 2 [Q00045282] p. 803). 104. On 8 October 1998 Merrell transferred $102,000 to Geoff Klooger‘s Trust Account. [Q00043033] p2 105. On 12 October 1998 Merrell Associates (Aust) P/L was registered. Geoff Klooger is appointed a director and secretary [Q00060020] 106. On 13 October 1998 Merrell transfers $100,000 to Geoff Klooger‘s trust account [Q00043033] p2.On 16 October 1998 Merrell Associates Limited registered a charge over Merrell Associates (Aust) P/L ([Q00060020]). 107. On 23 October 1998 Merrell transferred $100,000 to Geoff Klooger‘s trust account [Q00043033] p2 [Q00047128] [Q00047267]. 108. On 23 October 1998 a payment of $16,900 is made from Geoff Klooger‘s trust account for Merrell to Kim Rolph-Smith (via Klooger Trust Account) re T-6 North American (Vincent‘s Report 2 September 2009 16.1.2 [Q00060117]; Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 86(c); -- 187 of 229 -- 188 and Vincent‘s Supplementary Report 21 October 2010 11.3(v) [Q00064393]). 109. On 23 October 1998 a payment of $83,100 is made from Geoff Klooger‘s trust account for Merrell in relation to the VH-SHT North American T28 Serial No 138259 Q00060223 p24 110. On 2 November 1998 a trust account entry in the name of Merrell records payment of $100,000 to M Rolph-Smith ([Q00047267]); 111. On 6 November 1998 Malcolm Rolph-Smith and Flying Fighters P/L entered into an agreement re half share sale of the VH-SHT North American T28 Serial No 138259 and sale of the T6 for $163,200 ([Q00010023]. 112. On 11 November 1998 UOCL made a $90,000 deposit to Merrell [Q00040034]. 113. On 12 November 1998 Merrell transferred $81,605.61 ($USD51,250) to Richard Goode (Q00021214) and Q00043033 p3. 114. On 12 November 1998 Mrs. Hart sent a letter to Peggy Chan stating ―As per Mr. Hart‘s service agreement, clause 3.2 you have to meet the attached costs‖ and asking for $25,585.97 to be telegraphically transferred to the account of Harts Consulting Pty Ltd [Q00010559]. 115. On 16 November 1998 Merrell Associates Ltd lodged a charged over Flying Fighters P/L ([Q00060025] at p. 4 of 7). 116. On 17 November 1998 UOCL transferred $25,585.97 to Harts Consulting Pty Ltd. Q00043011 p20 117. In December 1998 the Fords Rd property was unencumbered (Vincent‘s Report 2 September 2009 23.1.4 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 137). 118. On 3 December 1998 UOCL withdrew $200,000 and Merrell deposited $200,000. Q00043011 p22, Q00043033 p4 119. On 4 December 1998 Merrell transferred $100,000 to Nemesis Australia P/L ([Q00043033] p. 4). 120. On 4 December 1998 an NAB loan for $64,000 was credited to Flying Fighters P/L NAB account. Laura Hart states that the loan was obtained on the 26th November 1998. (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 39(c)v and vi, Appendix 14 [Q00064103] pp. 111-112 and 114-115) 121. On 7 December 1998 a payment of $64,000 was made from Flying Fighters P/L to Geoff Klooger & Associates to pay AGC & MP Rolph-Smith in relation to the VH-SHT North American T28 Serial No 138259 (Vincent‘s Report 2 September 2009 10.1.2 [Q00060117], Appendix 74 [Q00047118]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 41, Annexure LEH 1 [Q00060223] pp. 240-244; and Vincent‘s Supplementary Report 21 October 2010 11.0 [Q00064393]; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 39(c)). 122. On 18 December 1998 Merrell transferred $193,499.37 to Federal Financial Group. ([Q00043033] p. 4). 123. Between 1 January 1999 and 30 June 2000 Steven Hart committed an offence contrary to section 29 D of the Crimes Act 1914 as amended of defrauding the Commonwealth. This offence involved UOCL (CDPP v Hart [2010] QDC 457). 124. On 7 January 1999 an NAB charge was lodged over Flying Fighters P/L ([Q00060025] p. 4 of 7). 125. Laura Hart asserts that in February 1999 the Red Yak 50 was purchased by Merrell for US$51,250 -- 188 of 229 -- 189 as a loan to Fighters (Vincent‘s Report 2 September 2009 17.1.3 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 96, Annexure LEH 1 [Q00060223] pp. 294-295). 126. On 4 February 1999 UOCL deposited $100,000 to Merrell ([Q00045284]; and Vincents‘ Report 2 September 2009 17.22 [Q00060117], Appendix 162 PJV2 [Q00045284] p. 824 and [Q00047283] p. 825). 127. On 5 February 1999 Merrell transferred $78,966.20 ($US51,250) to Richard Goode T/a Sukhoi Technologies ([Q00047278] and [Q00047279]; and Vincent‘s Report 2 September 2009 17.20 [Q00060117], Appendix 160 PJV2 [Q00047278] p. 819 and [Q00047279] p. 820; and LEH1 [Q00060223] pp. 294-295; and Laura Hart‘s affidavit 23/7/2010 [Q00064089], para 50(h), Appendix 23 [Q00064112] p. 183). 128. On 4 February 1999 UOCL withdrew $100,000 and Merrell deposited $100,000. [Q00043011] p 31 [Q00043033] p6 129. On 5 February 1999 Merrell transferred $92,448.24 to Federal Financial Group ([Q00043033] p. 6). 130. On 10 February 1999 Mr Hart advised Michael Allardice that ‗I will have to on send the $400,000 to the Australian client who now wishes to borrow it‘ ([Q00026325]). 131. On 11 February 1999 Mr Hart emailed Michael Allardice advising him that the money was to be transferred from Le Grande to European Grande to United Overseas and then a loan of $400,000 to ―Freedom man‖ at 5% ([Q00026306]). 132. On 19 February 1999 $400,000 was deposited to UOCL by EGA. [Q00043011] p34 133. On 22 February 1999 Mr Hart emailed United Overseas Credit Limited saying that the amount of AUD339,946.12 was to go to the trust account of Ward & Partners (Part of a loan of $400,000) and asking for a loan agreement for Daniel Fleming ([Q00026247]). 134. On 23 February 1999 AUD$340,187.08 was transferred from United Overseas Credit Limited to Ward and Partners. ([Q00043011] p. 35). 135. On 20 March 1999 Mr. Hart emailed Peggy Chan saying that UOCL must pay Harts Consulting Pty Ltd $200,000 by telegraphic transfer. The amount must go today (CDPP v Hart [2010] QDC 457 at [454]). 136. On 23 March 1999 UOCL transferred $60,000 to Merrell [Q00045285]. 137. On 24 March 1999 $60,000 was transferred from Merrell to Flying Fighters P/L ([Q00014011]; 138. On 24 March 1999 $200,000 was transferred by UOCL to Harts Consulting Pty Ltd. [Q0043011] p39 139. On 1 April 1999 Pitt Street Pty Ltd deposited $2,378 to Flying Fighters P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 39(d), Appendix 14 [Q00064103] p. 120). 140. On 14th April 1999 Merrell transferred $80,000 to Elsway Pty Ltd [Q00043033] p.8. 141. On 14 April 1999 a payment of $2,000 was made from Flying Fighters P/L to Kim Rolph-Smith in relation to the VH-SHT North American sourced by Flying Fighters Pty Ltd from No.2 Pitt Street Pty Ltd claimed to be income for hire of aircraft VH-SDL T28 Serial No 138259 (Vincent‘s Report 2 September 2009 10.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 39)(d), Annexure LEH 1 [Q00060223] p. 250; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 39(d); and Vincent‘s Supplementary Report 21/10/2010 11.3(vii) [Q00064393]). -- 189 of 229 -- 190 142. On 27 April 1999 Shirley Petersen emailed Peggy Chan stating that Mr. Hart has asked that commission be paid to Ross William McSwain in the amount of $2,000 ([Q00039549]; and Commonwealth Director v Hart [2010] QDC 457 at p. 117, para 5(b)). 143. On 28 April 1999 Mrs. Hart sent a facsimile to Peggy Chan requesting that she transfer $30,000 from UOCL to Merrell and $30,000 from Merrell to Bickfords Trust Account ([Q00029186]). 144. On 29 April 1999 $30,000 was withdrawn from UOCL and deposited to Merrell. [Q00043011 p44 and Q00043033 p8 145. On 29 April 1999 $30,000 was transferred from Merrell to Bickfords Trust Account. Q00043033 p8 146. On 7 May 1999 Mr. Hart emailed Peggy Chan requesting the telegraphic transfer of USD$16,698 to Federal Financial Group Inc Holding Account ([Q00029717]). 147. On 10 May 1999 UOCL transferred $25,086.81 to Federal Financial Group ([Q00043033] p. 9). 148. On 14 May 1999 Shirley Petersen sent a facsimile to Peggy Chan requesting that she pay commissions to Ross McSwain ($4,000), Venmore No9 Pty Ltd ($1,000) and Lymkiss Pty Ltd ($1,000) ([Q00027243];. 149. On 14 May 1999 Shirley Petersen sent a facsimile to Peggy Chan requesting that she pay commission to Ross McSwain in the amount of $2,000 ([Q00027241];. 150. On 14 May 1999 UOCL transferred $250,000 to Harts Consulting Pty Ltd. [Q00043011] p46 151. On 17 May 1999 withdrawals of $1,000, $1,000 and $6,000 are made from UOCL. [Q00043011] p47. On 21 May 1999 UOCL withdrew and Merrell deposited $140,000[Q000430011] p 47 [Q00043033] p9, . 152. On 21 May 1999, UOCL made a deposit of $140,000 to Merrell Associates Ltd. (Vincent‘s Report 2 September 2009 page 85 para 13.13 [Q00060117]; Appendix 121 [Q00047211]) 153. On 25 May 1999 Merrell (as a loan to Flying Fighter P/L) transferred $150,000 to the Alpine Deer Group as payment for the Yak 3 (([Q00010709]; [Q00010710]; and Vincent‘s Report 2 September 2009 13.1.1, 13.1.2 and 13.12 [Q00060117]; and Laura Hart Affidavit 17/10/2006 [Q00060221] para 67, Annexure LEH 1 [Q00060223] p. 268-269 and 274; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 41(a), Appendix 16 [Q00064105]; and YAK 3, TAB3). 154. On 28 May 1999 Shirley Petersen emailed Peggy Chan requesting that commissions be paid to Ross McSwain ($4,000) and Shaheda Ismail ($1,000) ([Q00027397]; and Commonwealth Director v Hart [2010] QDC 457 at p. 117, para 5(e)). 155. On 9 June 1999 UOCL transferred $115,000 to Geoff Klooger. [Q00043011] p50 156. On 21 June 1999 UOCL transferred $125,000 to Harts Consulting Pty Ltd [Q00043011] p52 157. On 22 June 1999 UOCL deposited $144,000 to Merrell (Vincent‘s Report 2 September 2009 13.17 [Q00060117], Appendix 122 PJV [Q00047214] p. 726; and Vincent‘s Report 2 September 2009 13.17 Appendix 123 PJV [Q00045290] p. 728). 158. On 23 June 1999 Mr. Hart emailed Peggy Chan requesting payment of commission to Sophie Treloar ($AUD50,000) ([Q00026007]; and Commonwealth Director v Hart [2010] QDC 457 at p. 117, para 5(f)). 159. On 23 June 1999 $50,000 was withdrawn from UOCL. [Q00043011] p52. -- 190 of 229 -- 191 160. On 23 June 1999 a payment of $155,000 was made from Merrell (as a loan to Flying Fighters) to Alpine Deer as part payment for the Yak 3 (Vincent‘s Report 2 September 2009 13.1.1, 13.1.2 and 13.16 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 67, Annexure LEH 1 [Q00060223] pp. 270-271; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 41(a), Appendix 16 [Q00064105]). 161. On 24 June 1999 UOCL withdrew and Merrell deposited $US45,000. [Q00043011] p52, [Q00043034] p8 162. On 30 June 1999 UOCL deposited $185,000 to Merrell ([Q00045292]; Vincent‘s Report 2 September 2009 13.21 [Q00060117], Appendix 124, [Q0047217] and [Q00047218], and Appendix 125 PJV2 [Q00045292] p. 733). 163. On 30 June 1999 Merrell transferred $US45,000 to Federal Financial Group ([Q00043034] p. 8). 164. End of June 1999 Harts Australia Limited owed Nemesis $990,838.79 (T7-7, L38 to T-8; and Laura Hart‘s affidavit 23/7/2010 [Q00064089], Appendix 69 [Q00064163] p51 p. 697 of 782). 165. On 2 July 1999 a payment of $185,000 was made from Merrell (as loan to Flying Fighters) to Alpine Deer as part payment for the Yak 3 (Vincents‘ Report 2 September 2009 13.1.1 and 13.1.2 [Q00060117]; Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 67(c), Annexure LEH 1 [Q00060223] pp. 272-273; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 41(a), Appendix 16 [Q00064105]). 166. On 19 July 1999 $737,850 was transferred from UOCL to EGA. [Q00043011] p57 167. On 21 July 1999 Mr. Hart emailed Peggy Chan requesting that $250,000 be transferred to Harts Consulting by telegraphic transfer today (CDPP v Hart [2010] QDC 457 at [454 (o)]). 168. On 21 July 1999 UOCL transferred $250,000 to Harts Consulting. [Q00043011] p57. 169. On the 22nd July 1999 Merrell Associates Ltd transferred $30,000 to Elsway Pty Ltd. [Q00043033] p11. 170. On 6 August 1999 UOCL transferred $800,000 to Harts Consulting. [Q00043011] p60. 171. On the 18th August 1999 Merrell Associates Ltd transferred $22,000 to Bayview Consulting [Q00043033] p12. 172. In September 1999 the Yak 50 was sold to Michael Coad as a trade in on the Decathlon (Vincent‘s Report 2 September 2009 17.1 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] paras 91-97; and Coad affidavit 20/8/2009 [Q00060147] para 4, Annexure 1 [Q00015767]). 173. On 2 September 1999 a Payment of $1,300 was made from Flying Fighters to Kim Rolph-Smith re T-6 North American (Vincent‘s Report 2 September 2009 16.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 86(b); and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 39(e), Appendix 14 [Q00064103] pp.121; and Vincents‘ Supplementary Report 21 October 2010 11.5(iii) [Q00064393]). Laura Hart states that these funds were sourced from the Nemesis NAB overdraft facility on 6 September 1999 (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 39(e)(ii), Appendix 14 [Q00064103] pp. 121). 174. On 3 September 1999 a letter of intention to purchase the Yak 50 was sent by Michael Coad to Unlimited Aero Maintenance ([Q00015767]; and Vincents‘ Report 2 September 2009 17 [Q00060117]; and Michael Coad‘s affidavit 20/8/2008 [Q00060147] para4, Annexure 1 -- 191 of 229 -- 192 [Q00015767]). 175. On 9 September 1999 Arnot instructed Coad to remit the $10,000 deposit for the Yak 50 (Michael Coad‘s affidavit 20/8/2008 [Q00060147] para 6). 176. On 9 September 1999 Michael Coad remitted $10,000 through Suncorp to Merrell re: Yak 50 ([Q00015769]; and Michael Coad‘s affidavit 20/8/2008 [Q00060147] para 7; Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 51(e), Appendix 24 [Q00064113] p. 191). 177. On 10th September 1999 $37,000 was withdrawn from UOCL [Q00043011] p64. 178. On 13th September 1999 $150,000 was withdrawn from UOCL to Harts Consulting [Q00043011] p65. 179. On 10 September 1999 $50,000 was remitted by AGC on behalf of Michael Coad to Merrell re Yak 50 ([Q00015768]; Vincent‘s Report 2 September 2009 17 [Q00060117]; and Affidavit of Michael Coad 20/8/2008 [Q00060147] para 8; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 51(e), Appendix 24 [Q00064113] p. 192). 180. On 13 September 1999 UOCL transfers $150,000 to Harts Consulting. [Q00043011] p65 181. On 22 September 1999 UOCL withdrew and Merrell deposited $100,000. [Q00043011] p65 [Q00043033] p13 182. On 17th September 1999 Merrell transferred $40,000 to Bickford Solicitors [Q00043033] p13. 183. On 23 September 1999 Mrs. Hart sent a facsimile to Peggy Chan asking her to transfer $750,000 to the CPA Trust Account for Birralee Plaza Shopping Centre (CDPP v Hart [2010] QDC 457 at [454]). 184. On 23 September 1999 Merrell transferred $104,800 to European Grand Assurance (E.G.A) 185. On 27 September 1999 authority is given for the transfer of $750,000 from UOCL‘s account to Merrell ([Q00053138]). 186. On 29th September 1999 $750,000 was withdrawn from Merrell Associates to CPA Trust Account [Q00043033] p13. 187. On 29 September 1999 a fax was sent from Nigel Arnot (Ultimate Aerobatics) to S Hart re Yak 3 Invoice listing the total amount due as $9,330.05 ([Q00010428]; and Vincent‘s Report 2 September 2009 13.7.4 [Q00060117], Appendix 118 [Q00010428]). 188. On 1 October 1999 Merrell Associates Ltd entered into an agreement with Unlimited Aerobatics (Flying Fighters) for the use of the Yak 50 & 52 ([Q00010604]). 189. On 5 October 1999 Merrell transferred $15,000 to Elsway Pty Ltd [Q00047227] 190. On 8 October 1999 Merrell transferred $15,551.25 to Unlimited Aerobatics Pty Ltd [Q00047227]. 191. On 11 October 1999 Mr. Hart emailed Peggy Chan requesting that she deposit $350,000 into Harts Consulting Pty Ltd bank account as soon as possible ([Q00005439]). He emailed that the money must come from Merrell not UOCL ([Q00005440]). 192. On 12 October 1999 UOCL withdrew $350,000 [Q00043011] p70. 193. On 12 October 1999 Merrell Associates received a deposit of $350,000 [Q00047227] p1 194. On 13 October 1999 Merrell transferred $15,000 to Ultimate Aerobatics [Q00047227] 195. On 14 October Merrell Associates transferred $350,000 to Harts Consulting [Q00047227] p1. -- 192 of 229 -- 193 196. On 26 October 1999 UOCL transferred a deposit of $200,000 to Merrell ([Q00047227]; and [Q00045302]; and Vincent‘s Report 2 September 2009 14.13 [Q00060117], Appendix 129 PJV2 [Q00047227] p. 741, and Appendix 130 PJV2 [Q00045302] p. 743). 197. On 28 October 1999 a payment of $55,000 was made by Merrell (by loan to Flying Fighters) to GA & SK Davis re purchase of VH-YAX Yak 50 (Vincent‘s Report 2 September 2009 14.1.2 and 14.12 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 72(a), Annexure LEH 1 [Q00060223] pp. 276- 277); and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 47). 198. On the 28 October 1999 Merrell Associates transferred $55,000 to Geoff Klooger [Q00047227]. 199. On 28 October 1999 Merrell transferred $250,000 to the CPA Trust Account [Q00047227]. 200. On 28 October 1999 Merrell transferred $275,000 to Harts Group Financial [Q00047227]. 201. On 11 November 1999 UOCL deposited $90,000 to Merrell (Vincents‘ Report 2 September 2009 14.17 and 14.19 [Q00060117], Appendix 131 PJV2 [Q00047230] p. 745, and Appendix 132 PJV2 [Q00021222] p 747). 202. On 12 November 1999 instructions were given for the transfer of $2,500 from UOCL to Merrell on the first business day of each month ([Q00053045]). 203. On 12 November 1999 authorisation is given for debit from account 447-1-110253-0 to Merrell Associates on the first working day of every succeeding month [Q00053045]. 204. On 15 November 1999 Merrell transferred $40,000 to G.A. & S.K. Davis [Q00043033] p.15. 205. On 15 November 1999 Merrell transferred $50,000 to Geoff Klooger [Q00043033] p.15. 206. On 19 November 1999 a payment of $40,000 was made by Merrell (by loan to Flying Fighters) to GA & SK Davis re purchase of VH-YAX Yak 50 ([Q00047230]; Vincent‘s Report 2 September 2009 14.1.2 and 14.16 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 72(b), Annexure LEH 1 [Q00060223] pp. 278-279; and 23/7/2010 [Q00064089] 47). 207. On 25 November 1999 RetinaCorp transferred $150,000 to Nemesis (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 9(a)(iii), Appendix 21 [Q00064362] p. 105). 208. In December 1999 the initial deposit of UD$37,500 was paid for the purchase of the Sea Fury ([Q00010447]). 209. Between the 1 January 2000 and the 24 May 2001 Steven Hart committed an offence contrary to section 29D Crimes Act 1914 of defrauding the Commonwealth. This offence involved UOCL (CDPP v Hart [2010] QDC 457). 210. On 30 November 1999 Nemesis‘ Commercial bill for $250,000 was rolled over ([Q00064081] p. 781). 211. On 17 December 1999 Nemesis (as a loan to Flying Fighters) paid $58,600.45 to Rural Aviation as an installment on the Sea Fury (Vincent‘s Report 2 September 2009 11.1.2 [Q00060117]; Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 51; Vincent‘s Supplementary Report 21 October 2010 19.2 [Q00064393]; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 9(a), Appendix 21 [Q00064362] p. 108). 212. In 2000 Flying Fighters purchased the L39C from Richard Goode of Sukhoi Technologies (Vincent‘s Report 2 September 2009 9.1 [Q00060117]; Laura Hart‘s affidavit 17/10/2006 -- 193 of 229 -- 194 [Q00060221] par 31, Annexure LEH 1 [Q00060223], pp. 224-228; and Vincent‘s Supplementary Report 21 October 2010 10.0 [Q00064393]; and Vincent‘s Addendum Report 16/11/2010 [Q00064718). 213. In February 2000 Harts Australasia Limited was formed for the purposes of listing the businesses of the Harts Group on the ASX ([Q00062104] p. 1) 214. On 2 February 2000 Merrell transferred $60,000 to Geoff Klooger [Q00043033]. 215. On 7 February 2000 the VH-DEC was registered in the name of Merrell Associates Ltd ([Q00064242]). 216. On 9 February 2000 UOCL requested Standard Chartered Bank Hong Kong to transfer $US12,500 Merrell ([Q00045310]; and Vincent‘s Report 2 September 2009 11.13.1 [Q00060117] Appendix 102 PJV2 [Q00045310] p 680). 217. On 10 February 2000 a deposit of $US12,500 was made to Merrell from UOCL ([Q00047175]; and [Q00047178]; and Vincent‘s Report 2 September 2009 11.13 Appendix 101 PJV2 [Q00047175] p. 678 and Appendix 103 PJV 2 [Q00047178] p. 682). 218. On 14 February 2000 $US12,500 was paid by Merrell to Rural Aviation as an installment on the Sea Fury (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 9(b), Appendix 22 [Q00064363] p. 111; and Vincent‘s Supplementary Report 21/10/2010 19.5 [Q00064393]; and [Q00010447]). 219. On 14 February 2000 Merrell transferred $82,220.44 to K2000 Airlines [Q00043033] p.18. 220. On 16 February 2000 Mr. Hart was appointed director of Bubbling Springs P/L ([Q00060018]). 221. A letter dated 21 February 2000 from Nigel Arnot to Mr. Hart provides details of the L-39 deal with purchase price of $US255,000 (Aus $427,890) (50% on confirmation, 25% on shipment and 25% on arrival) ([Q00010172]). 222. In March 2000 negotiations commenced with Archerfield Airport Corporation to lease site 400 (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8). 223. As at 3 March 2000 the balance of the ANZ loan obtained by Shirley Petersen and Laura Hart on behalf of Nemesis in the amount of $100,000 in relation to 27 Samara St Sunnybank was $97,098.94 (Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 128, Annexure LEH 1 [Q00060223] pp 329- 332). 224. On 6 March 2000 $55,644 ($US33,560) was transferred by Ultimate Aerobatics P/L to Richard Goode – Sukhoi Technologies ([Q00014003]; and Vincent‘s Report 2 September 2009 9.8.5(i) [Q00060117] Appendix 66 PJV2 [Q00014003] p. 539-540). 225. On 7 March 2000 $166,687 ($US100,530) was transferred by Ultimate Aerobatics P/L to Richard Goode – Sukhoi Technologies ([Q00014004]; Vincent‘s Report 2 September 2009 9.8.5(ii) [Q00060117] Appendix 67 PJV2 [Q00014004] p. 542-543). 226. On 14 March 2000 a written agreement for the purchase of the business of Sea Fury including the Sea Fury aircraft and spare parts from Rural Aviation (1963) Limited and Flight Watch Services Limited for $US350,000 by Flying Fighters is dated ([Q00010149]). 227. On 14 March 2000 the Yak 50 VH-YAX was registered in the name of Merrell Associates Ltd ([Q00064240]). 228. On 15 March Bubbling Springs purchased a property at Doonans Rd Grandchester for $550,000 plus -- 194 of 229 -- 195 $19,560.98 in stamp duty and legal fees (Laura Hart‘s Affidavit sworn 17 October 2006 [Q00060221] para 135 Exhibit LEH-1 [Q00060223] pp126 – 129 and Paul Vincent‘s Report 3 September 2009 23.1.2 [Q00060117] ). 229. Between 24 March 2000 and 19 April 2000 5 deposits totaling $1020 were made to Bubbling Springs account. This included 3 deposits of $300, $100 and $300 by Tamara Ramsden receipted as loan repayment and 2 amounts of $160 from Bomilsco with the notation pay/salary (Laura Hart‘s affidavit 21 September 2010 [Q00064341] para (4)(a), Appendix 5 [Q00064346] pp. 23-25). 230. On 30 March 2000 $56,242 ($US33,953) was transferred by Ultimate Aerobatics P/L to Richard Goode – Sukhoi Technologies ([Q00014005]). 231. On 6 April 2000 UOCL made a payment of $700,000 to Merrell (Vincent‘s Addendum Report 16 November 2010 2.1.1 [Q00064718], Appendix 5 [Q00064723] p. 15). 232. On 7 April 2000 Tamara Hart paid $160 to Bubbling Springs P/L (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 4(a), Appendix 5 [Q00064346] pp. 23-24). 233. On 10 April 2000 Nemesis transferred $39,107 to Flying Fighters P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 32, Appendix 7 [Q00064096] pp. 51 and 54). 234. On 10 April 2000 a deposit of $39,194 ($US23,207) was made by Unlimited Aerobatics P/L (Flying Fighters) to Richard Goode – Sukhoi Technologies ([Q00014006]; Vincent‘s Report 2 September 2009 9.8.9(i) [Q00060117] Appendix 70 PJV2 [Q00014006] pp. 550-551); and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 32 (a)-(c), Appendix 7 [Q00064096]). 235. On 10 April 2000 $700,000 was transferred by Merrell to Geoff Klooger‘s Trust Account ([Q00064398] p. 216; and Vincent‘s Addendum Report 16 November 2010 2.1.2 [Q00064718] Appendix 6 [Q00064724] p. 17; and T6-37 L40). Of this $300,000 was lent to Harts Consulting Ltd and $400,000 to No2 Pitt St ([Q00045668] para (4)(b)). 236. On 19 April 2000 Tamara Hart paid $160 to Bubbling Springs P/L (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 4(a), Appendix 5 [Q00064346] pp. 23-24). 237. On 20 April 2000 the VH-YZK was registered in the name of Merrell Associates Ltd ([Q00064244]). 238. On 26 April 2000 $300,000 was transferred from Geoff Klooger‘s Trust Account on behalf of Merrell to Harts Consulting Ltd ([Q00060142] p. 4) 239. On 26 April 2000 a payment of $1,000 was made to Elders Real Estate by Bubbling Springs P/L re Doonan‘s Rd, Grandchester (Vincents‘ Report 2 September 2009 23.1.4 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 137, Annexure LEH 1 [Q00060223] pp. 352-353). Bubbling Springs signed a contract to purchase Doonan‘s Road Grandchester for $550,000 (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 4). 240. Between May 2000 and 30 March 2001 $1,038,972.56 was spent on hangar 400 (T6-37, L7-10). All bar $20,000 was paid by 4 November 2000 (T6-45, L48). 241. In May 2000 Harts Australasia Limited was floated on the Australian Stock Exchange. The float raised $30 million in capital ([Q00062104] p. 1). 242. On 15 May 2000 $376,683.43 was transferred out of Geoff Klooger‘s Trust Account for Merrell Associates Ltd to Conway MacCallum Trust Account ([Q00060142] p. 4). -- 195 of 229 -- 196 243. On 16 May 2000 Nemesis Australia P/L deposited $94,700 to the Yak 3 Investments P/L bank account (Vincent‘s Report 2 September 2009 6.13 [Q00060117] Appendices 32 [PSNB00144] and 33 [PSNB00033] PJV 2 at p. 452 and pp. 454-455). 244. On 16 May 2000 $94,633 was paid by Yak to FE&R construction re Hangar 400 (Vincent‘s Report 2 September 2009 6.12 [Q00060117]; and Laura Hart‘s affidavit 21 September 2010 [Q00064341] para (8), Appendix 17 [Q00064358] p. 82 and p. 87; and [PSNB00144]). 245. On 17 May 2000 $95,723.90, being the proceeds of the commercial bill, was deposited to Nemesis Australia P/L (Vincent‘s Report 2 September 2009 6.14 [Q00060117] Appendix 33 [PSNB00033]). 246. On 20 May 2000 $280,000 was withdrawn from UOCL‘s account ([Q00043011]). 247. On 20 May 2000 $280,000 was deposited to Merrell‘s account ([Q00043033]). 248. Between 24 May 2001 and 30 June 2003 Steven Hart dishonestly caused a risk of loss to a Commonwealth entity namely the Australian Taxation Office, knowing or believing that there was a substantial risk of loss occurring contrary to section 135.1(5) of the Criminal Code (Commonwealth). This offence involved UOCL (CDPP v Hart [2010] QDC 457). 249. On 25 May 2000 a deposit of $45,000 was made from Nemesis to Bubbling Springs ([Q00047314]; and Vincent‘s Report 2 September 2009 23.14 [Q00060117] Appendix 179 PJV 2 [Q00047314] p. 876 [Q00047315] p. 877, and Appendix 33 PJV2 [PSNB00033] pp. 454-455). 250. On 25 May 2000 a payment of $45,000 was made by Bubbling Springs to Elders Real Estate in relation to Doonans Rd Grandchester (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 4(b), Appendix 6 [Q00064347] p. 27). 251. On 26 May 2000 a $20,000 deposit was made to the Nemesis Account by Harts Consulting (Vincent‘s Report 2 September 2009 23.15 [Q00060117] Appendix 33 [PSNB00033]). 252. On 26 June 2000 $7,600 was paid by Yak 3 Investments P/L to FE & R constructions for Hangar 400 (Vincent‘s Report 2 September 2009 6.21 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 7, Annexure LEH 1 [Q00060222] p. 77). 253. On 29 May 2000 $243,436.17 was sent by Merrell to BNP Equities (Vincent‘s Supplementary Report 21 October 2010 7.9 [Q00064393] Appendix 5 [Q00064398] p. 93; and [Q00043033]). 254. On 31 May 2000 Nemesis Australia P/L made a deposit of $165,000 to Yak 3 Investments P/L (Vincent‘s Report 2 September 2009 6.18 [Q00060117] Appendix 32 PJV2 [PSNB00144] p. 452; and Laura Hart‘s affidavit 21/9/2010, para 8(b)(ii), Appendix 17 [Q00064058] p. 87). 255. On 31 May 2000 Nemesis Australia P/L received proceeds of a commercial bill in the amount of $591,842.96 and cash/cheques deposit of $749,723.92 comprised of $722,050 from Harts Australasia and $27,673.92 from Bomilsco P/L (Vincent‘s Report 2 September 2009 6.19.1 and 6.19.2; 23.15.2; 23.15.3; 23.18.2; 23.18.3 [Q00060117] Appendices 34 [PSNB00034] and 35 [Q00007318] PJV pp. 460-461; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para (4)(c)(ii), Appendix 7 [Q00064348] p. 30). 256. On 31 May 2000 $163,887 was paid by Yak 3 to FE & R constructions re Hangar 400 (Vincent‘s Report 2 September 2009 6.17 [Q00060117]; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8(b)(ii), Appendix 17 [Q00064358] p. 82). 257. In June 2000, the NAB bank bill facility was increased by a further $2,700,000 to $3,350,000 -- 196 of 229 -- 197 (Vincent‘s Report 20 October 2010 7.1 (xix) [Q00064393]) 258. On 7 June 2000 $19,722 was deposited to Nemesis from Bomilsco ([Q00007320]; and Vincent‘s Report 2 September 2009 23.18.1 [Q00060117] Appendix 184 PJV2 [Q0007320] pp. 889-892). 259. On 13 June 2000 a deposit of $19,722 was made to Nemesis from Bomilsco ([Q00007319]; Vincent‘s Report 2 September 2009 23.18.1 [Q00060117] Appendix 184 PJV2 [Q0007319] pp. 889 to 892). 260. On 14 June 2000 $443,560.98 was paid by Nemesis (on behalf of Bubbling Springs) for Doonans Rd Grandchester (Vincent‘s Report 2 September 2009 23.1.4; 23.17 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 137(e); and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 4(e), Appendix 8 [Q00064349] p. 35 and 37; and [PSNB00035]). 261. On 14 June 2000 the balance owing on Doonans Rd Grandchester was satisfied by transferring the Fords Rd property to Mr. Doonan (Vincent‘s Report 2 September 2009 23.1.4 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 137(g)). 262. On 15 June 2000 Nigel Arnot sent a fax to Shirley Petersen advising that the final payment on L-39 Aerovod in amount of $US63,750 was due and should be paid to Richard Goode of Sukhoi Technologies ([Q00010430]; [Q00010170]; and Vincent‘s Report 2 September 2009 9.8.10 [Q00060117] Appendix 72 PJV 2 [Q00010170] p. 556). 263. On 19 June 2000 $19,722 was deposited to Nemesis ([PSNB00035]). 264. On 22 June 2000 $400,000 was deposited to Nemesis ([PSNB00035]). Mrs. Hart says that this was a cheque from Harts Australasia Limited. The manual cash book has a notation ―Harts Aust Lit Loan‖ (Laura Hart‘s affidavit 21 September 2010 [Q00064341] para (4)(e), Appendix 8 [Q0006349] p. 36). 265. On 26 June 2000 $19,722 was deposited to Nemesis Australia P/L from Bomilsco P/L (Vincent‘s Report 2 September 2009 6.23 [Q00060117] Appendix 38 PJV 2 [Q00007292] and [Q00062108] pp. 467-469). 266. On 26 June 2000 a deposit of $6,000 was made to Yak 3 Investments P/L from Nemesis Australia P/L (Vincent‘s Report 2 September 2009 6.22 [Q00060117] Appendices 36 [PSNB00145] and 37 [PSNB00035] PJV p. 463 and p. 465). 267. On 26 June 2000 Yak 3 paid Whybird Farr Engineering $7,600 (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8(b)(iii), Appendix 17 [Q00064358] p. 88). 268. On 30 June 2000 Yak 52 is not recorded as an asset of Flying Fighters even though supposedly owned by the co at this time (Vincent‘s Report 2 September 2009 15.8.3 [Q00060117] Appendix 137 PJV 2 [Q00010130] p.759-761). 269. End of June 2000 Harts Australia Limited owed Nemesis $268,788.79 (T7-7 L43; and [Q00064163] p. 53). 270. On 17 July 2000 a deposit $110,123 ($US63,750) was made by Unlimited Aero Maintenance Pty Ltd (Flying Fighters Maintenance and Restoration Pty Ltd) to Richard Goode – Sukhoi Technologies ([Q00064749]; Vincent‘s Report 2 September 2009 9.8.9 (ii) [Q00060117] Appendix 71 PJV2 [Q00014007] p. 553-554); and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 33, Appendix 8 [Q00064097]. A notation dated 17 July 2000 ‗DONE $109,561.08 paid from UAM‘ – -- 197 of 229 -- 198 was made on fax from Nigel Arnot of 15/6/00 advising that the final payment on the L39 was due ([Q00010170] Appendix 72); and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 33, Appendix 8 [Q00064097] p. 56). This was the final payment for the L39 (T4-41 L49, [Q00010170], [Q00010430], [Q00064749]). 271. On 18 July 2000 Nemesis transferred $109,000 to Flying Fighters Maintenance and Restoration ([PSNB00037]; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 33(d), Appendix 8 [Q00064097] pp. 56 and 59). 272. On 18 July 2000 Nemesis deposited $172,000 to Yak 3 (Vincent‘s Report 2 September 2009 6.25 Appendices 39 [PSNB00146] and 40 [PSNB00037] PJV 2 pp. 471-472 and pp. 474-475; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8(c)(i), Appendix 17 [Q00064358] pp. 84 and 89). 273. On 19 July 2000 $172,010 was paid by Yak to FE&R Constructions re Hangar 400 (Vincent‘s Report 2 September 2009 6.24 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 7, Annexure LEH 1 [Q00060222] p. 80). 274. On 20 July 2000 Nemesis P/L transferred $10,000 to Flying Fighters Maintenance and Restoration (Laura Hart‘s affidavit 27/11/2010 [Q00064697] para 8(e)(iii)5, Appendix 15 [Q00064712] p. 178 and 16 [Q00064713] p. 253). On 24 July 2000 $457,301.70 was deposited to Flying Fighters from Hartley Poynton (Vincent‘s Report 2 September 2009 6.29 [Q00060117] Appendix 44 PJV2 [Q0007497] pp. 485-486; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 34(e)-(f), Appendix 9 [Q00064098] pp. 66-67). 275. On 24 July 2000 $493,168.50 was deposited to Yak 3 from Hartley Poynton (Vincent‘s Report 2 September 2009 6.30 [Q00060117] Appendix 45 PJV2 [Q0007449] pp. 488-489; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 34(b)-(d), Appendix 9 [Q00064098] pp. 62-64). 276. On 24 July 2000 $300,000 was deposited to Nemesis from Flying Fighters (Vincent‘s Report 2 September 2009 6.28.1 [Q00060117] Appendix 41 PJV2 [PSNB00185]; Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 34(a), Appendix 9 [Q00064098] pp. 61 and 66; and Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 8(a)(iv)(c), Appendix 15 [Q00064712] p. 178). 277. On 24 July 2000 $413,000 was deposited to Nemesis from Yak 3 (Vincent‘s Report 2 September 2009 6.28.2 [Q00060117] Appendix 39 PJV2 [PSNB00146]; Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 34(a), Appendix 9 [Q00064098] pp. 61-62; and Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 8(a)(iv)(c)(2), Appendix 15 [Q00064712] p. 178). 278. On 24 July 2000 $21,694.20 was deposited to Nemesis from Bomilsco (Vincent‘s Report 2 September 2009 6.28.3 [Q00060117] Appendix 42 PJV2 [Q0000735]; and Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 8(a)(iv)(c)(3), Appendix 15 [Q00064712] p. 178). 279. On 24 July 2000 $126,792.32 was deposit to Nemesis from BNP Equities (Vincent‘s Report 2 September 2009 6.28.4 [Q00060117] Appendices 39 [PSNB00146] 40 [PSNB00037] 41 [PSNB00185] PJV2 471-472, 477, 479-480 and 43 [Q00007340] pp. 482-483; and Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 8(a)(v), Appendix 15 [Q00064712] p. 178). 280. On 28 July 2000 Nemesis deposited $26,000 to Yak 3 (Vincent‘s Report 2 September 2009 6.33 [Q00060117] Appendices 47 [PSNB00038] PJV2 p. 493 and 39 [PSNB00146] PJV2 pp. 474-475). 281. In August 2000 Nemesis, on behalf of Bubbling, obtained a financed facility from the NAB. -- 198 of 229 -- 199 (Vincent‘s Report 2 September 2009 23.1.5 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 137). 282. In August 2000 Nemesis Australia P/L‗s NAB Commercial Bill facility was at $650,000 (Vincent‘s Report 2 September 2009 5.9.2 [Q00060117]). 283. A letter dated 1 August 2000 from Ultimate aerobatics P/L to Steven Hart of Harts Flying Fighters re breakdown of monies owing to Ultimate Aerobatics P/L as at 1 August 2000 and mentioning loan for purchase of L-39 as $279,120.40 with interest from 6.3.00 to 1.8.00 @ 10% = $11,241.09 ([Q00010175]). 284. On 4 August 2000 Mr. Hart agreed with Merrell that a repayment of $700,000 due to Merrell that day ‗part of our second mortgage loan to No 2 Pitt Street Pty Ltd – could be redirected to Moruma Pty Ltd, on the understanding that these funds would be lent to Steve Hart Family Holdings No 3 Pty Ltd, which would assume the responsibility for repayment‘ ([Q00045381] and [Q00042613]; Vincent‘s Addendum Report 16 November 2010 2.0 [Q00064718]). 285. Around 4 August 2000 a cheque was drawn by No 2 Pitt Street Pty Ltd payable to Moruma Pty Ltd to pay Badge Constructions Pty Ltd ([Q00064727]; Vincent‘s Addendum Report 16 November 2010 2.1.5 [Q00064718] Appendix 9 [Q00064727]). 286. On 5 August 2000 $300,000 is withdrawn from UOCL ([Q00043011] p. 114). 287. On 5 August 2000 $300,000 is deposited to Merrell ([Q00043033] p. 24). 288. On 8 August 200 Merrell sent $300,000 to Hartley Poynton ([T6-38 L43-52]; and [Q00064398]). 289. On 8 August 2000 Nemesis transferred $25,000 to Yak 3 (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8(c)(ii), Appendix 17 [Q00064358] p. 89). 290. On 10 August 2000 Yak 3 Investments P/L paid $204,036 to FE&R Constructions (Vincent‘s Report 2 September 2009 6.36 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 7, Annexure LEH 1 [Q00060222] p. 81; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8(c)(iii), Appendix 17 [Q00064358] p. 90). 291. On 10 August 2000 Nemesis P/L transferred $48,000 to Bubbling Springs P/L (Doonan Road Improvements) (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 286). 292. On 10 August 2000 Hart‘s Consulting deposited $50,000 to Nemesis P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 286). 293. On 11 August 2000 $256,283.78 was deposited to Geoff Klooger‘s Trust Account for Merrell by BNP Equities (Australia) Limited notation ―proceeds of shares‖ ([Q00060142] p. 4). 294. On 14 August 2000 $23,505was paid by Yak to Archerfield Airport Corporations part of Hangar 400 acquisition (Vincent‘s Report 2 September 2009 6.32 [Q00060117]; Laura Hart‘s affidavit [Q00060221] para 7, Annexure LEH 1 [Q00060222] p. 78; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8(c)(ii), Appendix 17 [Q00064358] p. 91). 295. On 14 August 2000 Bomilsco deposited $22,659.77 to Nemesis P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 8(e)(iii)5, Appendix 15 [Q00064712] p. 181). 296. On 14 August 2000 Nemesis P/L transferred $5,000 to Bubbling Springs P/L (Doonan Rd improvements) (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] -- 199 of 229 -- 200 p. 286). 297. On 14 August 2000 Nemesis P/L paid Flying Fighters Maintenance and Restoration $20,000 (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 8(e)(iii)5, Appendix 15 [Q00064712] p. 181). 298. On 17 August 2000 $263,036.42 was transferred from Geoff Klooger‘s Trust Account for Merrell to BNP Equities (Australia) Ltd ([Q00060142] p. 4). 299. On 6 September 2000 Nemesis P/L transferred $1,000 to Bubbling Springs P/L (Doonan Rd improvements) (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 287). 300. On 7 September 2000 a cheque payable to Ian Bocholz for $8,175.50 was included as an expense paid by FFMR for Hangar 400 ([Q00047055]). 301. On 8 September 2000 Nemesis P/L transferred $3,000 to Bubbling Springs P/L (Doonan Rd improvements) (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 287). 302. On 11 September 2000 Bomilsco P/L deposited $21,694.20 to Nemesis P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 287). 303. On 12 September 2000 Yak paid $169,995 to FE&R Constructions (Vincent‘s Report 2 September 2009 6.39 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 7, Annexure LEH 1 [Q00060222] pp. 79-82; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8(c)(iv), Appendix 17 [Q00064358] p. 92). 304. On 13 September 2000 Nemesis P/L transferred $25,000 to Flying Fighters Maintenance and Restoration (Laura Hart‘s affidavit 27/11/2010 [Q00064697] para 8(e)(iii)5, Appendices 15 [Q00064712] p. 185 and 16 [Q00064713] p. 257). 305. On 18 September 2000 Flying Fighters P/L deposited $225,000 to the Nemesis account (Vincent‘s Report 2 September 2009 6.41 [Q00060117] Appendix 49 PJV2 [PSNB00041] pp. 497-498; and Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 8(a)(vi), Appendix 15 [Q00064712] p. 185). 306. On 18 September 2000 BNP Equities deposited to Flying Fighters P/L an amount of $224,896.90 (Vincent‘s Report 2 September 2009 6.42 [Q00060117] Appendices 50 [PSNB00187] and 51 [Q00007506] PJV2 pp. 500-502), Appendix 38 PJV2 [Q0007292] pp. 467-469). 307. On 18 September 2000 BNP Equities deposited to Steve Hart Family Holdings No2 ANZ account $5,336.90 from the sale of shares in Techstar (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9(f), Appendix 17 [Q00064714] pp. 25-28). 308. On 18 September 2000 Nemesis transferred $285,000 to Yak 3 (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8(c)(iii), Appendix 17 [Q00064358] p. 92). 309. On 22 September 2000 a cheque for $11,920 to Bucholz Landscaping is included as an expense for Hangar 400 paid by FFMR ([Q00047055]). 310. On 27 September 2000 Flying Fighters P/L received a transfer from Nemesis Australia P/L in the amount of $630,000 (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 35(f), Appendix 10 [Q00064099] pp. 70 and 74). 311. On 27 September 2000 Nemesis Australia P/L transferred $380,000 to Yak 3 P/L (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8(c)(iv), Appendix 17 [Q00064358] p. 92). . -- 200 of 229 -- 201 312. On 27 September 2000 Nemesis Australia P/L transferred $100,000 to Unlimited Aero Maintenance P/L (Laura Hart‘s affidavit 27/11/2010 [Q00064697] para 8(e)(iii)5, Appendices 15 [Q00064712] p. 188 and 16 [Q00064713] p. 258). 313. On 28 September 2000 $213,252.77 was paid by Flying Fighters P/L to Mr. Arnot‘s company Ultimate Aerobatics (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 35(c) and (e), Appendix 10 [Q00064099] pp. 70 and 72). Ms Petersen says that this was a payment for the L 39 (T4-79 L40- 51). 314. On 28 September 2000 $418,025 was transferred by Flying Fighters P/L to Richard Goode ([Q00043011] p. 121 of 309). Ms Petersen says that this was a payment for the L 39 (T4-70 L40- 51). . 315. On 28 September 2000 $418,000 was withdrawn from UOCL‘s account ([Q00043011] p. 121 of 309). 316. On 28 September 2000 Ms Petersen sent a facsimile to Nigel Arnot giving him the account number for Richard Goode. The account is the UOCL account in Hong Kong ([Q00007709]). 317. On 29 September 2000 $418,000 is deposited by Merrell to Geoff Klooger‘s Trust Account ([Q00064405] p. 5). 318. On 3 October 2000 $33,000 was deposited to Yak 3 P/L from Nemesis Australia P/L (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8(c)(v), Appendix 17 [Q00064358] p. 93). 319. On 3 October 2000 Nemesis P/L transferred $10,000. Laura Hart states this was deposited to Bubbling Springs P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 289). 320. On 4 October 2000 $417,902 was deposited to UOCL by Richard Goode t/a Sukhoi ([Q00064720]; Vincent‘s Addendum Report 16 November 2010 1.0 [Q00064718]). 321. On 4 October 2000 UOCL deposited approximately $1.5m to Watson Benefits Services account (Laura Hart‘s affidavit 21/9/2010 [Q00064341] Appendix 15 [Q00064356] p. 75). 322. On 5 October 2000 Nemesis borrowed $1m from NAB ([Q00064356] pp. 70-71). 323. A letter dated 5 October 2000 from Arnot to Gunther Mayer re Yak 52 proposal: cost $145,000, Trade for Yak 50 $95,000, Balance payable $50,000. The ledger shows $27,950.41 attributable ([Q00047233]; and [Q00047237]; and Vincent‘s Report 2 September 2009 15.2 [Q00060117], Annexure 133 PJV2 [Q00047233] and Exhibit LEH1 [Q00060223] p. 282; and Vincent‘s Report 2 September 2009 15.9 [Q00060117], Appendix 135 PJV2 [Q00047237] p. 754; and YAK-50 VH- YAA, TAB 8). 324. On 6 October 2000 Nemesis Australia deposited $1m to Watson Benefit Services account (Laura Hart‘s affidavit 21/9/2010 [Q00064341] Appendix 15 [Q00064356] pp. 71 and 76). 325. On 9 October 2000 $95,625.21 was transferred from Steve Hart Family Holdings NAB account to the Steve Hart Holdings No2 ANZ Loan account (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 64(l), Appendices 51 [Q00064145] p. 468 and 53 [Q00064147] p. 479). 326. On 12 October 2000 UOCL deposited approximately $500,000 to Watson Benefits Services account (Laura Hart‘s affidavit 21/9/2010 [Q00064341] Appendix 15 [Q00064356] p. 76), 327. On 16 October 2000 UOCL deposited $US90,000 to Merrell (equating to $171,294.09) (Vincent‘s -- 201 of 229 -- 202 Report 2 September 2009 11.16 [Q00060117], Appendix 104 PJV 2 [Q00047180] p. 684 and Appendix 105 PJV2 [Q00047182] p. 686). 328. On 16 October 2000 Merrell (as a loan to Flying Fighters) paid $165,405 to Rural Aviation as an installment on the Sea Fury (Vincent‘s Report 2 September 2009 11.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 51(d); and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 9(c), Appendix 22 [Q00064363]). 329. On 16 October 2000 Unlimited Aero Maintenance (as a loan to Flying Fighters) paid $382,141.93 to Rural Aviation as an installment on the Sea Fury (Vincent‘s Report 2 September 2009 11.1.2 [Q00060117]; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 9(d), Appendix 24 [Q00064365] p. 119; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 51(e)). 330. On 17 October 2000 BNP Equities Australia Ltd deposited $85,816 to Flying Fighters (Vincent‘s Report 2 September 2009 6.47 [Q00060117], Appendix 54 PJV 2 [PSNB00188] p. 508 and Appendix 55 PJV2 [Q00007492] pp. 510-511). 331. On 17 October 2000 $70,027 was paid by Yak 3 P/L to FE&R Constructions (Vincent‘s Report 2 September 2009 6.44 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 7, Annexure LEH 1 [Q00060222] pp. 79 and 84; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8(c)(v), Appendix 17 [Q00064358] p. 94). 332. On 18 October 2000 the Hangar 400 General ledger identified funds of $66,000 as being from Nemesis Australia P/L (Vincent‘s Report 2 September 2009 6.45 [Q00060117], Appendix 30 PJV2 [Q00047055] p. 445). 333. On 18 October 2000 $66,000 was deposited to Yak 3 P/L (Vincent‘s Report 2 September 2009 6.45 [Q00060117], Appendix 52 PJV2 [PSNB00149] p. 504; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 8(c)(vi), Appendix 17 [Q00064358] p. 94). 334. On 18 October 2000 Flying Fighters P/L (Unlimited Aerobatics) deposited $90,000 to Nemesis Australia P/L (Vincent‘s Report 2 September 2009 6.46 [Q00060117], Appendix 53 PJV2 [PSNB00044] p. 506; and Vincent‘s Report 2 September 2009 11.7.4 (iii) [Q00060117], Appendix 97 PJV 2 [PSNB00044] pp. 669-674; and Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 8(a)(ix), Appendix 15 [Q00064712] p. 191). 335. On 18 October 2000 Nemesis deposited $20,000 to the account of Unlimited Aero Maintenance (Flying Fighters Maintenance and Restoration) ([PSNB00103]). 336. On 19 October 2000 Unlimited Aero Maintenance paid (as a loan to Flying Fighters P/L) $38,027.44 to Australian Customs in relation to the Sea Fury (Vincent‘s Report 2 September 2009 11.1.2 [Q00060117]; Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 9(e), Appendix 24 [Q00064365] p. 120; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 51(f)). 337. On 23 October 2000 Nemesis Australia P/L transferred $5,000. Laura Hart states this was deposited to Bubbling Springs P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 290). . 338. On 26 October 2000 $263,922.69 was transferred to National Australia Bank from Geoff Klooger‘s Trust Account for Merrell ([Q00060142] p. 4). 339. On 26 October 2000 UOCL withdrew by transfer $178,705.91 ([Q00043011] p. 125). -- 202 of 229 -- 203 340. On 26 October 2000 a transfer deposit is made to Merrell of $178,705.91 ([Q00043033] p. 26). 341. On 26 October 2000 BNP Pariba Equities deposited $142,591.21 to Yak 3 P/L (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 9(g), Appendix 25 [Q00064366] pp. 125-125). 342. On 27 October 2000 Yak 3 P/L transferred $144,000 to Flying Fighters P/L (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 9(f), Appendices 24 [Q00064365] p. 121 and 25 [Q00064366] p. 124). 343. On 27 October 2000 Merrell sent $192,429.57 to Federal Financial Group (T6-38 L19-21; [Q00064398]; [Q00043033] p. 26). 344. On 27 October 2000 $10,000 was transferred to I&J Bucholz from Geoff Kloogers Trust Account for Merrell. Particulars for the transaction ―Merrell Associates – funding further advance N Arnott‖ ([Q00060142] p. 4). 345. On 27 October 2000 a cheque for $500,000 from Badge Constructions Pty Ltd was deposited to the Nemesis Australia P/L account (Vincent‘s Addendum Report 16 November 2010 2.1.7 [Q00064718] Appendix 10 [Q00064728]). 346. On 30 October 2000 $90,000 was transferred from Geoff Klooger‘s Trust Account for Merrell to Bowenbrae Pty Ltd. Notation in Particulars states ‗Merrell Associates- funding further advance – N Arnot‘ ([Q00060142] p. 4). 347. On 30 October 2000 $1,540 was transferred to Yak 3 P/L as Telstra share dividends (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 9(g)(ii), Appendix 25 [Q00064366] pp. 124 and 126-135). . 348. On 2 November 2000 $50,809.31 was transferred from Geoff Klooger‘s Trust Account for Merrell to Ultimate Aerobatics. Notation in Particulars states ‗Merrell Associates – Funding-Arnot- further advance‘ ([Q00060142] p. 4). 349. On 3 November 2000 a cheque from Blackshort P/L (Hamish Watson) in the amount of $1,300,000 was deposited to Nemesis (Vincents‘ Supplementary Report 21 October 2010 19.8(iii) [Q00064393] Appendix 33 [Q00064426] pp. 3-4; and [Q00064356] p. 72). 350. On 6 November 2000 Nemesis Australia P/L transferred $361,000 to Unlimited Aero Maintenance P/L (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 9(f)(ii), Appendix 24 [Q00064365] p. 121; and Laura Hart‘s affidavit 27/11/2010 [Q00064697] para 8(e)(iii)5, Appendices 15 [Q00064712] p. 194 and 16 [00064713] p. 261). 351. On 15 November 2000 Nemesis Australia P/L transferred $62,000. Laura Hart states this was deposited to Bubbling Springs P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 291). . 352. On 17 November 2000 Flying Fighters P/L was advised by the Civil Aviation Authority in New Zealand that the transfer of possession of the Sea Fury has been registered ([Q00010148]). 353. In December 2000 the Yak 52 VH-YAA was sold to Gunther Mayr who traded the Yak 50 VH- YAY to Flying Fighters P/L as part payment ([Q00047233]; and Vincents‘ Report 2 September 2009 15.2 [Q00060117], Exhibit LEH 1 [Q00060223] at p. 282 and Appendix 133 PJV2 [Q00047233] pp. 749-750); and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 49; Appendix 22 [Q00064111] p. 173). 354. On 5 December 2000 Nemesis Australia P/L transferred $130,000. Laura Hart states this was deposited to Bubbling Springs P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, -- 203 of 229 -- 204 Appendix 17 [Q00064714] p. 292). . 355. On 11 December 2000 Nemesis Australia P/L transferred $11,000. Laura Hart states this was deposited to Bubbling Springs P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 292). 356. On 14 December 2000 Gunther Mayr deposited $5,000 deposit to Flying Fighters P/L for the purchase of the Yak 52 (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 49(b); Appendix 22 [Q00064111] pp. 174-175). 357. On 14 December 2000 Ian Stevens resigned as director of Bubbling Springs P/L ([Q00060018]). 358. On 14 December 2000 Nigel Arnot was appointed Director of Bubbling Springs P/L ([Q00060018]). 359. On 14 December 2000 Unlimited Aerobatics P/L changed its name to Harts Flying Fighters P/L ([Q00060025]). 360. On 14 December 2000 Arnot was appointed Director of Flying Fighters P/L (Q00060025). 361. On 15 December 2000 Steve Hart Family Holdings No. 2 P/L changed its name to Bubbling Springs Olive Grove P/L ([Q00060018]). 362. On 27 December 2000 Nemesis Australia P/L transferred $22,000. Laura Hart states this was deposited to Bubbling Springs P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 293). . 363. In January 2001 Nemesis Australia P/L's NAB commercial Bills totaled $3.355 million (Vincent‘s Report 2 September 2009 5.7.1(ii) [Q00060117], Appendix 5 PJV2 [Q00060137] p. 134). 364. On 29 January 2001 $200,000 is transferred out of UOCL‘s account (transfer to Geoff Klooger) ([Q00043011] p. 139). 365. On 30 January 2001 $199,994 is deposited to Geoff Klooger‘s Trust Account for Merrell ([Q00060142] p. 4). 366. On 30 January 2001 Nemesis Australia P/L transferred $50,000. Laura Hart states this was deposited to Bubbling Springs P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 294). . 367. On 31 January 2001 $200,000 was transferred from Geoff Klooger‘s Trust Account for Merrell to Suncorp-Metway. Notation in Particulars ―Merrell Assoc Ltd –funding- fur adv No2 Pitt St‖ ([Q00060142] p. 4). 368. On 6 February 2001 BNP Paribas Equities (Australia) Ltd registered a charge over Merrell Associates (Aust) P/L ([Q00060020]). 369. On 15 February 2001 Nemesis Australia P/L transferred $56,000. Laura Hart states this was deposited to Bubbling Springs P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 295). . 370. On 20 February 2001 $50,000 was withdrawn from UOCL‘s account ([Q00043011] p. 142). 371. On 20 February 2001 $50,000 was deposited to Merrell‘s account ([Q00043033] p.30). 372. On 20 February 2001 $50,000 was transferred from Merrell‘s account to account 454965384 ([Q00043033] p. 30). 373. On 23 February 2001 Arnot sent a fax to Archerfield Airport Corporation saying T28 and T6 are two -- 204 of 229 -- 205 of Mr. Hart‘s aircraft ([Q00010431]). 374. On 7 March 2001 $50,000 was deposited to Nemesis Australia P/L. Laura Hart states this was deposited by Jobera P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 296). . 375. On 7 March 2001 Nemesis Australia P/L transferred $50,000. Laura Hart states this was deposited to Bubbling Springs P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 296). 376. On 9 March 2001 Gunther Mayr paid $40,000 to Flying Fighters P/L as the balance for the purchase of the Yak 52 (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 49(c), Appendix 22 [Q00064111] pp. 177-178). 377. On 18 April 2001 $100,000 was withdrawn from UOCL‘s account ([Q00043011] p. 150). 378. On 18 April 2001 $100,000 was deposited to Merrell‘s account ([Q00043033] p. 32). 379. On 19 April 2001 Bomilsco receives $100,000 from Merrell (T6-39 l1; [Q00064398] and [Q00043033] p. 32). 380. In May 2001 NAB Account 53 034-3094 was opened and Nemesis Australia P/L's commercial bill was debited for $3.35 million (Vincent‘s Report 2 September 2009 5.7.1(iii) Appendix 8 PJV2 [Q00047005] p. 331). 381. On 11 May 2001 NAB issued a Notice of Termination of the Bill Facility because of Nemesis Australia P/L's failure to pay the face value of a Bill on the Maturity Date. NAB demanded immediate payment of $2.3m and $1.05m. (Laura Hart‘s affidavit of 23/7/2010 [Q00064089] para 74, Appendix 66 [Q00064160] pp. 47 & 48). 382. On 15 May 2001 NAB issued a demand for Nemesis Australia P/L's commercial bill facility $1,109,079.33 and $2,429,411.90 (Vincent‘s Report 2 September 2009 5.10 and 21.3.3 [Q00060117]; and Laura Hart‘s affidavit of 23/7/2010 [Q00064089] para 74 Appendix 66 [Q00064160] pp. 49 & 50). 383. On 15 May 2001 the NAB issued a Default Notice and Demand for Nemesis Australia P/L's overdraft facility $57,752.89 owing (Laura Hart‘s affidavit of 23/7/2010 [Q00064089] para 74, Appendix 66 [Q00064160] p. 51). 384. On 29 May 2001 the NAB issued a Notice of Exercise of Power of Sale in relation to all assets and undertakings of Nemesis Australia P/L in its own right and as trustee for $3.62m (Laura Hart‘s affidavit of 23/7/2010 [Q00064089] para 74, Appendix 66 [Q00064160] p. 52). 385. On 31 May 2001 Flying Fighters Pty Ltd was registered as owner of Sea Fury ([Q00064230]; Sea Fury TAB 8). 386. On 31 May 2001 Qld Mushroom Growers made a deposit into Nemesis Australia P/L's account 52 518-2767 in the sum of $396,000 (Vincent‘s Report 2 September 2009 5.8.1.(i) [Q00060117], Appendix 5 PJV2 [Q00060137] p. 273; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 10(k)(iii), Appendix 37 [Q00064378] p. 219). 387. On 1 June 2001 $187,000 was transferred from Nemesis Australia P/L account 52 518-2767 to the NAB bill facility (Vincent‘s Report 2 September 2009 5.8.1.(i) [Q00060117] Annexure 5 PJV2 [Q00060137] p. 273). -- 205 of 229 -- 206 388. On 1 June 2001 $12,160 was deposited to Nemesis Australia P/L. Laura Hart states this was deposited by Bubbling Springs P/L (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 10(k)(iii)(3), Appendix 37 [Q00064378] p. 219) . 389. On 4 June 2001 $13,000 was transferred from Nemesis Australia P/L's account 52 518-2767 to the NAB bill facility (Vincent‘s Report 2 September 2009 5.8.1.(i) [Q00060117], Appendix 5 PJV2 [Q00060137] p. 273; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 10(k)(iii)(3), Appendix 37 [Q00064378] p. 219). 390. On 19 June 2001 Nemesis Australia P/L's NAB Account 52 518-2767 had a balance of $515.74 (Vincent‘s Report 2 September 2009 5.6 [Q00060117], Appendix 7 PJV2 [Q00047003] p. 327 to 329). 391. On 19 June 2001 Nemesis Australia P/L's NAB Account 53 034-3094 had a balance of ($3,150,000) (Vincent‘s Report 2 September 2009 5.6 [Q00060117], Appendix 7 PJV2 [Q00047003] p 327 to 329). 392. As at 19 June 2001 the Yak 50 VH-YAY was not recorded as an asset of Flying Fighters even though purchased in December 2000 (Vincent‘s Report 2 September 2009 15.8.2 [Q00060117], Appendix 136 PJV2 [Q00010019] pp. 756-757). 393. On 29 June 2001 Hart‘s Property Management deposited $10,000 to Nemesis Australia P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 297). 394. On 29 June 2001 Nemesis Australia P/L transferred $10,000. Laura Hart states this was deposited to Bubbling Springs P/L (Laura Hart‘s affidavit 17/11/2010 [Q00064697] para 9, Appendix 17 [Q00064714] p. 297). 395. On 3 July 2001 Shirley Petersen signed a tax return for the year ending 30 June 2001 describing her occupation as Secretary (PJS 92 D213). 396. On 10 July 2001 $396,000 was deposited to AMG Brisbane Bayside by the Willemse Group P/L (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 10(l)(ii), Appendix 38 [Q00064379] p. 222). 397. On 11 July 2001 $327,841.29 was transferred from AMG Brisbane Bayside to Nemesis Australia P/L‘s NAB Bill Facility (Vincent‘s Report 2 September 2009 5.8.1.(ii) [Q00060117], Appendix 9 PJV2 [Q00047006] p 333-334; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 10(l)(iii), Appendix 38 [Q00064379] p. 223). 398. On 20 July 2001 Flying fighters Maintenance and Restoration paid $1,000 for the fittings and fixtures for Hangar 400 (Vincent‘s Report 2 September 2009 6.48 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 7, Annexure LEH 1 [Q00060222] p.79). 399. On 4 September 2001 John Georgakis was appointed Receiver of Nemesis Australia P/L ([Q00060024] p. 6). 400. On 10 September 2001 Laura Perry was appointed director Harts Consulting P/L (ASIC Current Personal Name Extract ([B00040365] Note: Image not available) 401. On 10 September 2001 Shirley Petersen was appointed a director of Harts Consulting P/L (ASIC Current Personal Name Extract ([B00040365] Note: Image not available).. 402. On 10 September 2001 Shirley Petersen was appointed a secretary of Harts Consulting P/L (ASIC Current Personal Name Extract ([B00040365] Note: Image not available). -- 206 of 229 -- 207 403. On 12 September 2001 $75,000 was transferred by UOCL to Harts Consulting ([Q00043011] p. 171). 404. On 14 September 2001 $200,000 was withdrawn from UOCL‘s account ([Q00043011] p. 171). 405. On 14 September 2001 $200,000 was deposited to Merrell‘s account ([Q00043033] p. 37). 406. On 14 September 2001 the NAB charge over Flying Fighters P/L was discharged ([Q00060025] p. 4 of 7). 407. On 14 September 2001 Harts Australasia Limited announced a consolidated net loss after tax of $92.8 million for the year ended 30 June2001 ([Q00062104] p. 2). 408. On 20 September 2001 Flying Fighters purchased the Mercedes Benz from the receiver and manager of Nemesis using funds borrowed from Dr Fleming. Fleming paid loan money into the trust account of Hawthorne Cuppaige and Badgery prior to payment to the receiver (as asserted by Laura Hart) (Vincent‘s Report 2 September 2009 20.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 117). 409. On 20 September 2001 Dr Fleming purchased as nominee for Flying Fighter assets totaling $350,000 from the receiver appointed to Nemesis, including office equipment, cars and artwork ([Q00010808]; Vincents‘ Report 2 September 2009 20.5.2 [Q00060117] Appendix 169 PJV2 [Q00010808] p. 840-846; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 10(i)(v)). 410. On 20 September 2001 Dr Fleming provided a loan in the sum of $400,000 to Flying Fighters. The deed of loan shows the interest payable was 50,000 HAL shares. HAL went into provisional liquidation 12 days later ([Q0047296]; Vincent‘s Report 2 September 2009 20.5.2(ii) and 20.7 [Q00060117], Appendix 170 PJV2 [Q00047296] pp. 848-854; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 116, Annexure LEH 1 [Q00060223] pp. 317-323 especially 318). 411. On 20 September 2001 Merrell Associates Limited agreed to purchase Mr. Hart‘s loan of $440,000 from BNP Paribas. Shares were to be transferred to Merrell on full settlement ([Q00042631]). 412. On 20 September 2001 the receiver of Nemesis Australia ceased to act ([Q00060024] p. 11 of 12). 413. On 20 September 2001 $50,000 was withdrawn from UOCL‘s account ([Q00043011] p. 172). 414. On 20 September 2001 $50,000 was deposited to Merrell‘s account ([Q00043033] p. 37). 415. On 21 September 2001 the Fleming charge over Flying Fighters P/L was signed by Hart ([B00040368]). 416. On 25 September 2001 MFS decided not to proceed with loans to Nemesis and Sea Fury Investments Pty Ltd because of ‗further searches, media coverage and information further revealed‘ ([Q00060902]). 417. On 30 September 2001 Bomilsco went into external administration (Vincent‘s Report 2 September 2009 22.4.1(iii) [Q00060117], Appendix 1 PJV2 [Q00060120] p. 2). 418. On 1 October 2001 Mr. Hart resigned as Director and Secretary of Nemesis ([Q00060024] p. 5 of 12). 419. On 1 October 2001 Mr. Hart resigned as a director of Bubbling Springs P/L ([Q00060018] p. 4 of 9). 420. On 1 October 2001 Harts Flying Fighters P/L changed its name to Flying Fighters P/L ([Q00060025] p. 1 of 7). -- 207 of 229 -- 208 421. On 1 October 2001 Shirley Petersen was appointed secretary of Flying Fighters Maintenance & Restoration P/L (Q00060025, p 3 of 7). 422. On 2 October 2001 provisional liquidators were appointed to Harts Australasia ([Q00062104] p. 1). 423. On 4 October 2001 $300,000 was withdrawn from UOCL‘s account ([Q00043011] 424. p. 174). 425. On 4 October 2001 $300,000 was deposited to Merrell‘s account ([Q00043033] p. 38). 426. Laura Hart states that on 8 October 2001 Flying Fighters paid $228,500 for the Trojan T-28; Commission for Brookfield Agencies and GST inclusive (Laura Hart‘s affidavit 17/10/06 [Q00060221] paras 108-110, Exhibit LEH 1 [Q00060223] pp. 300-303. Laura Hart states that the funds used for the purchase were a loan from Dr Ambler for the entire amount, which were paid to directly Brookfield Agencies (Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 110). 427. On 8 October 2001 $500,000 was withdrawn from Merrell‘s account ([Q00043033] P.. 38). 428. On 8 October 2001 $500,000 was deposited to the UOCL account ([Q00043011] p. 175). 429. On 15 October 2001 Equititrust approved a loan to Steve Hart Family Holdings P/L (Nemesis) for a total amount of $2,925,000 (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 56(a), Appendix 26 [Q00064115]). . 430. On 23 October 2001 John Ambler was appointed a director Yak 3 Investments P/L ([Q00060019] p. 3 of 8). 431. On 23 October 2001 Nigel Arnot was appointed Director of Nemesis Australia ([Q00060024] p. 5 of 12). 432. On 23 October 2001 Daniel Fleming was appointed Director of Bubbling Springs P/L ([Q00060018] p. 4 of 9). 433. On 29 October 2001 $50,000 was transferred by UOCL to Bubbling Springs ([Q00043011] p. 178). 434. On 29 October 2001 $700,000 was transferred by UOCL to Hawthorn Cuppaidge and Badgery ([Q00043011] p. 178). 435. On 31 October 2001 liquidators were appointed to Harts Australasia Limited ([Q00062104] p. 1). 436. On 1 November 2001 NAB appointed a controller of Nemesis Australia Pty Ltd ([Q00060024] p. 10 of 12). 437. On 1 November 2001 the Hangar 101 sublease sold to Alfredton P/L for $150,000 via declaration of trust (Vincent‘s Report 2 September 2009 7.1.2 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 16(b), Annexure LEH 1 [Q00060222] pp. 155-156). 438. On 15 November 2001 $327,105.02 was transferred to Nemesis Australia P/L's NAB bill facility from a suspense account (Vincent‘s Report 2 September 2009 5.8.1.(iii) [Q00060117] Appendix 10 PJV2 [Q00047007] pp. 335-336; and Vincents‘ Supplementary Report 21 October 2010 7.1(xxxiii) [Q00064393]). 439. On 21 November 2001 Merrell transferred $10,000 to Geoff Klooger ([Q00043033] p39). 440. On 23 November 2001 $134,307.57 was deposited into the Alfredton account by JP Morgan Private Financial Services (Vincent‘s Report 2 September 2009 7.11 [Q00060117], Appendix 58 PJV2 [Q00047091] p 518; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 18, Appendix 2 -- 208 of 229 -- 209 [Q00064091] pp. 5 and 10). 441. On 29 November 2001 $9,772.06 was deposited into to the Alfredton account by JP Morgan Private Financial Services (Vincents‘ Report 2 September 2009 7.11 [Q00060117], Appendix 58 PJV2 [Q00047092] p 518; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 18, Appendix 2 [Q00064091] pp. 7 and 9). 442. On 30 November 2001 $1,911.99 was deposited into the Alfredton account by JP Morgan Private Financial Services (Vincents‘ Report 2 September 2009 7.11 [Q00060117], Appendix 58 PJV2 [Q00047901] p. 518; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 18, Appendix 2 [Q00064091] pp. 6 and 10). 443. In early December 2001 Steve Hart approached Modini & Smith about development of Brandon Rd (Affidavit of Kevin Smith 11/8/2003 [Q00010839] para 8). 444. On 3 December 2001 Alfredton atf Nemesis Group Superannuation Fund paid Yak $85,000 (part payment for the Hangar 101 sublease) (Vincent‘s Report 2 September 2009 7.1.3 and 7.9 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 16(d), Annexure LEH 1 [Q00060222] p. 157; and Laura Hart‘s affidavit 23/10/2010 [Q00064089] para 17, Appendix 2 [Q00064091] p. 10). 445. On 3 December 2001 an agreement was entered into between Harts Consulting and Merrell Associates. Under the agreement, Harts Consulting Pty Ltd acknowledged that it owed $1,061,842.47 to Merrell Associates. As part payment for this debt, debts owed by the Hart family companies (Nemesis & Bubbling Springs Olive Grove P/L) to Harts Consulting Pty Ltd were assigned to Merrell Associates. The companies gave a cross guarantee and the companies granted a fixed and floating charge ([Q00042116]). 446. On 5 December 2001 Alfredton atf Nemesis Group Superannuation Fund paid Yak $25,000 (part payment for the Hangar 101 sublease) (Vincent‘s Report 2 September 2009 7.1.3 and 7.9 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 16(d), Annexure LEH 1 [Q00060222] p. 157; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 17, Appendix 2 [Q00064091] p. 10). 447. On 10 December 2001 an option was granted to Ambler to purchase 400 Wirraway ([Q00010554]). 448. On 10 December 2001 Shirley Petersen signed a statutory declaration saying that Yak 3 Investments P/L had not created any unregistered or equitable interests in property ([Q00010380] p. 132). 449. On 10 December 2001 Shirley Petersen signed a statutory declaration saying that Bubbling Springs Olive Grove P/L had not created any unregistered or equitable interests in property (Phillip Shipton affidavit 12/8/2003 [Q00010864] exhibit PJS4 [Q00010398] p. 172). 450. On 11 December 2001 $15,484.50 was deposited to UBC (Qld). Laura Hart states this was deposited by Federal Financial Group Inc (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 10(m)(iii), Appendix 39 [Q00064380] pp. 227-228). . 451. On 18 December 2001 Laura Perry was appointed director of Unlimited Business Consultants (Qld) (ASIC Current Personal Name Extract P/L ([B00040365] Note; Image not available). 452. On 19 December 2001 a cheque for $12,127.03 was debited from UBC (Qld). Laura Hart states that this was deposited to Nemesis Australia with $12,120.56 being allocated to paying out the NAB -- 209 of 229 -- 210 finance facility (Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 10(m), Appendix 39 [Q00064380] pp. 225-226). . 453. On 19 December 2001 Perpetual Nominees advanced Bubbling Springs Olive Grove Pty Ltd $650,000. The property at Doonan‘s Road was provided as security (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 68 (b), Appendix 57 [Q00064151]). 454. On 19 December 2001 Equititrust Ltd lodged a charge over Bubbling Springs Olive Grove P/L ([Q00060018]). 455. On 19 December 2001 the NAB ceased to be controller of Nemesis Australia ([Q00060024]). 456. On 19 December 2001 Hangar 400 was provided as security to Perpetual Nominees re $650,000 advanced to Yak 3 Investments P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 68(a), Appendix 57 [Q00064151] pp. 500-501). 457. On 19 December 2001 Equititrust Ltd lodged a charge over Yak 3 Investments P/L ([Q00060019]). 458. Laura Hart states that on 19 December 2001, Nemesis Australia P/L, via its Equititrust Ltd mezzanine loan account, transferred $200,000 to Seafury Investments P/L (Laura Hart‘s affidavit 21/9/2010 [Q00064089] para 52(g), Appendix 26(a) [Q00064116]). 459. Laura Hart suggests that on 19 December 2001 Nemesis Australia P/L, via its Equititrust Ltd loan account, transferred $1,557,715.80 to Seafury Investments P/L (Laura Hart‘s affidavit 21/9/2010 [Q00064089] para 52(g), Appendix 26(b) [Q00064117]). 460. On 20 December 2001 Hangar 400 was mortgaged to Perpetual. . 461. On 20 December 2001 Doonan‘s Rd, Grandchester was mortgaged to Perpetual (Vincent‘s Report 2 September 2009 23.20 [Q00060117], Appendix 12 PJV2 [Q00047010] p. 339-341). 462. On 20 December 2001 Equititrust Ltd lodged a charge over Nemesis Australia ([Q00060024]). 463. On 20 December 2001 Alfredton atf Nemesis Group Superannuation Fund paid Yak $40,000 (part payment for purchase of Hangar 101 sublease) (Vincent‘s Report 2 September 2009 7.1.3 and 7.9 [Q00060117]; and Laura Hart‘s affidavit 17/102006 [Q00060221] para 16(d), Annexure LEH 1 [Q00060222] p. 158; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 17, Appendix 2 [Q00064091] p. 11). 464. On 20 December 2001 the mortgage over 88 Brandon Rd was transferred to Equititrust (Vincents‘ Report 2 September 2009 24.2.3 [Q00060117], Appendix 186 PJV2 [Q00047330]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 123). 465. On 20 December 2001 27 Samara St was mortgaged to Equititrust to secure a loan of $1,825,000 to assist Nemesis to settle the NAB debt (T5-32, 33). 466. On 21 December 2001 Perpetual Nominees advanced Yak 3 Investments $650,000 and Bubbling Springs Pty Ltd $650,000 ( Laura Hart‘s Affidavit 23 July 2010 [Q00064089] para (68) Appendix 57 [Q00064151]). 467. On 21 December 2001 Nemesis borrowed $1,750,000 from Equititrust and repaid this amount to NAB facility (asserted by Laura Hart) (Vincent‘s Report 2 September 2009 24.2.4(ii) [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 159). 468. On 21 December 2001 Hangar 400 was mortgaged to Perpetual Nominees Limited (Vincent‘s Report 2 September 2009 5.8.1(iv)(a) [Q00060117], Appendix 12 PJV2 [Q00047010] p. 339-340). -- 210 of 229 -- 211 469. On 21 December 2001 Bubbling Springs P/L mortgaged the land at Doonan‘s Rd Grandchester to Perpetual Nominees Ltd (Vincent‘s Report 2 September 2009 5.8.1(iv)(a) [Q00060117] Appendix 12 PJV2 [Q00047011] p 341). 470. On 21 December 2001 Steve Hart thanked Phil Adams for refinancing Yak 3 Investments P/L and Bubbling Springs Olive Grove P/L's NAB loans (Andrew Harris‘s affidavit 12/8/2003 [Q00060070], exhibit ACH2 [Q00010088] p. 50; D84). 471. On 21 December 2001 the NAB facility was paid out by (a) EquitiTrust Finance Facility $1,757,715.80 (b) Perpetual Finance Facility $1,223,783.01 (c) Ultimate Business Consultants (Vincent‘s Supplementary Report 21/10/2010 7.1(xxxvi) [Q00064392]; and Laura Hart‘s affidavit 21/9/2010 [Q00064341] para 10(m)–(r)). $2,705,413.33 was deposited to Nemesis (Vincent‘s Report 2 September 2009 5.8.1(iv) [Q00060117] Appendix 11 PJV 2 [Q00047008] p. 337). 472. On 22 December 2001 Equititrust commenced holding charges over Nemesis Australia P/L, Bubbling Springs P/L and Yak 3 Investments P/L (Vincent‘s Report 2 September 2009 5.8.1(iv)(b) [Q00060117], Appendix 13 PJV2 [Q00047012] p. 343-383). 473. On 8 January 2002 Bubbling Springs granted Merrell a charge over all its assets rights and property ([Q00060191]). 474. On 8 January 2002 Yak 3 granted Merrell a charge over all its assets rights and property ([Q00060193]). 475. On 10 January 2002 UBC (QLD) Pty Ltd transferred $1,500 to Nemesis ([Q00064041] p. 2). 476. On 11 January 2002 Federal Financial Group transferred $15,224.85 to Unlimited Business Consultants (Qld) Pty Ltd. (UBC (QLD) Pty Ltd) ([Q00064041] p. 2).. 477. On 15 January 2002 UBC (QLD) Pty Ltd transferred $10,000 to Nemesis ([Q00064041] p. 2 and 3). 478. On 16 January 2002 UBC (QLD) Pty Ltd transferred $2,000 to Bubbling Springs ([Q00064041] p. 2 and 3). 479. On 16 January 2002 UOCL transferred $30,000 to UBC (QLD) Pty Ltd ([Q00064041] p. 1, 2 and 3). 480. On 18 January 2002 UBC (QLD) Pty Ltd transferred $11,000 to Nemesis ([Q00064041] p. 1, 2 and 3). 481. On 18 January 2002 UBC (QLD) Pty Ltd transferred $12,000 to Bubbling Springs. ([Q00064041] p. 3). 482. On 21 January 2002 $15,572.92 was paid by Nemesis to Equititrust as a loan payment ([Q00064041] p. 2, 7 and 9). 483. Between 21 January 2002 and 19 June 2003 Nemesis Australia P/L made repayments to Equititrust totaling $304,110.84 (Vincent‘s Report 2 September 2009 5.22.2 [Q00060117], Appendix 19 PJV2 [Q00047026] p. 404-405). 484. On 22 January 2002 Bubbling Springs transferred $6,000 to UBC (QLD) Pty Ltd ([Q00064041] p. 2, 3 and 5). 485. On 22 January 2002 UBC (QLD) Pty Ltd transferred $12,000 to Nemesis ([Q00064041] p. 2, 3 and 5). 486. On 23 January 2002 Nemesis transferred $12,228.37 for payroll ([Q00064041] p. 2 and 9). -- 211 of 229 -- 212 487. On 28 January 2002 Laura Perry signed a tax return for the year ending 30/6/01 saying she was paid by Steve Hart Family Holdings P/L and her occupation was Personal Assistant. Steven Hart signed as tax agent (PJS 84 D211). 488. On 1 February 2002 a letter from Archerfield Aiport Corporation indicated that Steve Hart met with AAC directors during January 2002 in relation to lease of site 400 by Yak 3 Investments P/L (Andrew Harris‘s affidavit 12/8/2003 [Q00060070], exhibit ACH2 [Q00010052] p. 19; D66). 489. On 8 February 2002 an undated Deed of Acknowledgement of Debt and Undertaking to Pay between Nemesis, Bubbling Springs, Yak 3 and Flying Fighters Maintenance and Restoration as borrowers and Merrell as lender was stamped. The deed acknowledged that debts previously owed to Harts Consulting had been assigned to Merrell. The borrowers agreed to grant Merrell a fixed and floating over their assets to secure the debt in consideration for Merrell agreeing to forego immediate repayment ([Q00010083]). 490. On 12 February 2002 Merrell Associates lodged a charge over Yak 3 Investments P/L (Melinda Xavier‘s affidavit 17/7/2008 [Q00060189], Annexure MJX4 [Q00060193] p. 41). 491. On 12 February 2002 Merrell Associates Ltd lodged a charge over Nemesis Australia ([Q00060024] p. 9 of 12). 492. On 12 February 2002 Merrell Associates Ltd lodged a charged over Bubbling Springs Olive Grove P/L (Melinda Xavier‘s affidavit 17/7/2008 [Q00060189] Annexure MJX2 [Q00060191] p. 2). 493. On 18 February 2002 UOCL transferred $29,994 to UBC (QLD) Pty Ltd ([Q00064042] p. 5.) 494. On 18 February 2002 UBC (QLD) Pty Ltd transferred $29,000 to Nemesis ([Q00064042] p. 5.) 495. On 19 February 2002 Nemesis paid Equititrust $15,572.92 ([Q00064042] p. 2 and 7; T5-34 L1-9). 496. On 19 February 2002 Hart signed a trust account disbursement re Harts Flying Fighters P/L 's loan from Fleming (Affidavit of Phillip Shipton 12/8/2003 [Q00010864] exhibit PJS2 [Q00010487] p. 199). 497. On 4 March 2002 Steve Hart attended meeting with Ipswich City Council - Bubbling Springs Olive Grove P/L (Affidavit of John Venn 11/8/2003 [Q00010859] JNV3 [Q00010662] p. 4). 498. On 5 March 2002 the VH-WEM was registered in the name of Flying Fighters P/L (Lisa Bundensen‘s affidavit 20/6/2003 [B00040350] exhibit LMB Vol. 2 [B00040429] p. 724). 499. On 8 March 2002 Declaration of Trust – Ambler (Bearcat Enterprises) buys 28 Crestwood Pl Moggill ([Q00010917]). 500. On 11 March 2002 a Statement of Affairs signed by Mr. Hart listed Merrell as unsecured creditor for $900,000 pursuant to a guarantee given for Harts Australasia Limited and $479, 563 pursuant to a guarantee given for Harts Consulting ([Q00060030] p. 29). 501. On 18 March 2002 Mr. Hart authorized a registered trustee to call a meeting of his creditors for the purpose of Part X of the Bankruptcy Act 1966 ([Q00060029]). 502. On 18 March 2002 Bearcat Enterprises commenced the building on 28 Crestwood Place (Bubbling Springs Olive Grove P/L). 503. On 21 March 2002 an Administrator was appointed to Harts Consulting. 504. On 8 April 2002 Mr. Hart‘s trustee reported to creditors that a summary of the balance sheets for the -- 212 of 229 -- 213 Hart Family Trusts showed ‗an excess of liabilities over assets of $204,475‘ and that ‗A feature of the six trusts is the substantial amount of funding provided by Merrell Associates Limited (A.C.N. 084 788 750). In total that funding amounts to almost $4.3 million‘ ([Q00060031] p. 4). The report goes on to say ―We have spoken to the solicitor from Merrell Associates Limited who has advised us that Mr. Hart has not guaranteed the advances from Merrell Associates Limited. That solicitor has also advised that each of the trustees cross guarantees the obligations of the other trustee to Merrell Associates Limited. The practical effect of the cross guarantees is to make available the assets in the various trust to make good any shortfall that would accrue to Merrell Associates Limited on the loan to the Nemesis trust being called up. This is turn means that the trusts can be viewed collectively. That collective view discloses no net worth being captured in the trusts‖ ([Q00060031] p. 9). 505. On 17 April 2002 Nemesis Australia sent a letter to Fleming re Brandon Rd ([Q00010915]). 506. On 19 April 2002 a Pt X meeting was held in relation to Hart ([Q00060331]). 507. On 22 April 2002 Hart was declared bankrupt (ITSA Report). 508. On 30 April 2002 Civic Steel Homes asked Hart for a deposit for 28 Crestwood Place (Andrew Harris‘s affidavit 12/8/2003 [Q00060070] exhibit [Q00010552] p. 185). 509. On 3 May 2002 Nemesis Australia P/L's NAB Commercial Facility was closed (Vincent‘s Report 2 September 2009 5.8.2 [Q00060117]). 510. On 14 May 2002 Shirley Petersen was appointed a director of Brandon Road Developments P/L (ASIC Current Personal Name Extract ([B00040365]; Note: Image not available) . 511. On 24 May 2002 Shirley Petersen was appointed a director of American Loans Co P/L (ASIC Current Personal Name Extract ([B00040365]; Note Image not available). . 512. On 17 June 2002 UOCL transferred $29,994 to UBC (QLD) Pty Ltd ([Q00064048] p. 2, 3 and 4). 513. On 17 June 2002 Nemesis transferred $4,500 to UBC (QLD) Pty Ltd ([Q00064048] p. 3 and 4). 514. On 18 June 2002 Nemesis transferred $1,000 to UBC (QLD) Pty Ltd ([Q00064048] p. 3 and 4). 515. On 18 June 2002 UBC (QLD) Pty Ltd transferred $30,000 to Nemesis ([Q00064048] 516. p. 2, 3 and 4). 517. On 19 June 2002 Nemesis paid $3,333.33 and $15,572.92 to Equititrust ([Q00064048] 518. p. 2, 5 and 6). 519. On 19 June 2002 Nemesis transferred $7,000 to Bubbling Springs ([Q00064048] p. 2, 5 and 7). 520. On 27 June 2002 Merrell transferred $12,249.98 to Worrells ([Q00043033] p. 46). 521. On 28 June 2002 Shirley Petersen was appointed a director and secretary of Spider Tracks P/L (ASIC Current Personal Name Extract ([B00040365]; Note: Image not available). 522. On 2 July 2002 Merrell Associates Ltd transferred $10,000 to Merrell Associates (Australia) Pty Ltd [Q00043033] p. 47). 523. On 23 July 2002 Bubbling Springs Olive Grove P/L granted Daniel Fleming an option to purchase Doonan Rd Grandchester in the event of the occurrence of a ―triggering event‖ as described in the deed (Andrew Harris‘s affidavit 12/8/2003 [Q00060070] exhibit ACH2 [Q00010602] p. 248). 524. On 15 August 2002 Merrell transferred $8,407.76 to Worrells ([Q00043033] p. 46). 525. On 5 September 2002 Laura Hart left a message with Modini & Smith (Affidavit of Kevin Smith -- 213 of 229 -- 214 11/8/2003 [Q00010839] exhibit KRS 13 [Q00010854]). 526. On 18 September 2002 Shirley Petersen was appointed a director of Jobera P/L (ASIC Current Personal Name Extract [B00040365]; Note: Image not available). 527. On 20 September 2002 $86,200 was deposited into Flying Fighter‘s NAB account. Laura Hart states that this was the proceeds from the sale of the Dehavilland Chipmunk aircraft (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 41(c)III-IV, Appendix 16 [Q00064105] pp. 140-141). 528. On 25 September 2002 Flying Fighters paid $55,493.12 to Allison Competition Engines (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 41(c); Appendix 16 [Q00064105] pp. 139-140). 529. On 9 October 2002 Merrell transferred $10,000 to Davies Law New ([Q00043033] p. 50). 530. On 17 October 2002 Merrell transferred $30,000 to Unlimited Business Consultants ([Q00043033] p. 50). 531. On 30 October 2002 Merrell transferred $30,000 to Accounting Overflow Australia ([Q00043033] p. 50). 532. On 27 November 2002 Steve Hart emailed Mark McIvor asking him to finance the Moggill subdivision and saying he will have Brandon Rd refinanced by 15th and that he hopes to have 4 of the houses refinanced by 15th and hopefully also 52 Pinecone St so Equititrust is partially repaid (Affidavit of Andrew Harris 12/8/2003 [Q00060070] exhibit ACH2 [Q00010117] p88; D102). 533. In December 2002 Nemesis requested Laura Hart and Shirley Petersen to borrow $330,000 on its behalf with all proceeds from the finance being paid to Nemesis to reduce indebtedness to Equititrust (Vincent‘s Report 2 September 2009 21.2.2(iv) [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 162). 534. On 5 December 2002 Merrell transferred $2,746.05 to Bernard Ponting ([Q00043033] p. 52). 535. On 16 December 2002 Nigel Arnot sent an email to Steve Hart re Cap 232 re further costs incurred in respect of aircraft subsequent to initial acquisition (Vincent‘s Report 2 September 2009 18.2.2 [Q00060117], Appendix 164 PJV2 [Q00010465] p. 829-830). 536. On 12 December 2002 $28,294.88 was transferred to UBC (Qld). Laura Hart states this was transferred by Federal Financial Group). (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(c)III(dd), Appendix 44 [Q00064138] p. 393). 537. On 16 December 2002 UBC (Qld) transferred $26,000 to Spider Tracks (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(c)III(bb), Appendix 44 [Q00064138] pp. 389 and 394). 538. On 18 December 2002 6 Merriwa Street was remortgaged from Equititrust Limited to Countrywide Co-operative Housing Society Limited for $360,000 (Vincent‘s Report 2 September 2009 21.1.4 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 123; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 56(e)(iv), Appendix 35 [Q00064089]). 539. On 18 December 2002 27 Samara Street was refinanced by Sunshine Co-operative Housing Society Limited for $280,000 (Vincent‘s Report 2 September 2009 22.1.4 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 129, Annexure LEH 1 [Q00060223] pp. 333-334; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 56(e)(iii), Appendix 35 [Q00064129]). 540. On 18 December 2002 52 Pinecone Street was refinanced by Westpac Bank for $155,000 (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 56(e)(ii), Appendix 35 [Q00064129]. -- 214 of 229 -- 215 541. On 18 December 2002 $751,000 was repaid to Equititrust (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 56(e), Appendix 35 [Q00064129]). 542. On 19 December 2002 Spider Tracks transferred $7,000 to Flying Fighters P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(c)III(bb), Appendix 44 [Q00064138] pp. 397 and 390). 543. On 19 December 2002 Flying Fighters P/L transferred $7,000 to Flying Fighters Maintenance and Restoration P/L [Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(c)III(aa), Appendix 44 [Q00064138] pp. 385 and 387). 544. On 19 December 2002 Flying Fighters Maintenance and Restoration paid Aerostructures $6,875 (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(c), Appendix 44 [Q00064138] pp. 383-385). 545. Between 2003 and 2005 Laura Hart asserts $75,800 was sent by Flying Fighters in part restoration of the VH-AVC North American Tojan T-28). Only $55,000 was reflected in General Ledger ([Q00047291]; and Vincent‘s Report 2 September 2009 19.1.3 and 19.2.2 [Q00060117] Appendix 167 PJV2 [Q00047291] p. 836; and Laura Hart‘s affidavit 17/10/2006 [Q00064089] para 110(g)). Annexure LEH 1 [Q00060223] p. 308). 546. On 12 January 2003 Steve Hart sent an email to Nigel Arnot confirming that additional costs were incurred in respect of Cap 232. Arnot appeared to lend Hart $300,000. Hart was grateful to Arnot because without the loan he would have had to stand staff down. ([Q00010468]; Affidavit of Peter Saultry 12/8/2003 [Q00060152] exhibit PBS2 [Q00010468] p. 61; and Vincent‘s Report 2 September 2009 18.2.3 [Q00060117] Appendix 165 PJV2 [Q00010468] p. 832; and 19.2.3 and 19.2.4). 547. On 14 January 2003 Arnot sent an email to Hart in relation to the proposed sale of the Harvard by Flying Fighters P/L (Affidavit of Peter Saultry 12/8/2003 [Q00060152] exhibit PBS2 [Q00010469] p. 62; D199) 548. On 31 January 2003 Flying Fighters Maintenance and Restoration withdrew $15,000. Laura Hart states this was paid to Brisbane Aero Engines (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(a), Appendix 41 [Q00064135] pp. 364-365 and 367). 549. On 30 January 2003 $300,000 was deposited to Flying Fighters P/L. Laura hart states that this was a loan from Ultimate Aerobatics (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 40(d)VI, Appendix 18 [Q00064107] pp. 158-160). 550. On 31 January 2003 Flying Fighters Maintenance and Restoration P/L withdrew $46,664. Laura Hart states that this was paid to Alison Competition Engines (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 41(d), Appendix 18 [Q00064107] pp. 154-156). 551. On 3 February 2003 Flying Fighters P/L transferred $46,664.52 to Flying Fighters Maintenance and Restoration P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 41(d), Appendix 18 [Q00064107] pp. 157, 159 and 160). 552. On 3 February 2003 $144,000 was deposited to Flying Fighters Maintenance and Restoration. Laura Hart states this was deposited by Flying Fighters P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(a)I, Appendix 41 [Q00064135] pp. 366-367). 553. On 5 February 2003 $3,000 was deposited to Flying Fighters P/L by Spider Tracks P/L ([Q00064125]) pp. 300-301). . -- 215 of 229 -- 216 554. On 5 Flying Fighters P/L transferred $17,000 to Flying Fighters Maintenance and Restoration (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(b) III and IV, Appendix 31 [Q00064125] pp. 300 and 304). 555. On 5 February 2003 $13,902.78 was withdrawn from Flying Fighters Maintenance and Restoration P/L. Laura Hart states this was paid to Richard Goode (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(b), Appendices 41 [Q00064135] pp. 355-356 and 43 [Q00064137]). 556. On 11 February 2003 Merrell transferred $20,000 to Nemesis Australia ([Q00043033] p. 54). 557. On 25 February 2003 Merrell transferred $30,000 to Nemesis Australia ([Q00043033] p. 54). 558. On 13 March 2003 the property located at 556 Beenleigh Rd, Sunnybank was sold. 559. On 14 March 2003 a repayment of $130,000 of the loan with Sunshine co-operative Housing Limited was made for 27 Samara Street, Sunnybank from the proceeds of sale of a property at 556 Beenleigh Rd, Sunnybank ([Q00047309]; [Q00047302]; [Q00010735]; and Vincent‘s Report 2 September 2009 22.1.5 [Q00060117] Appendix 172 PJV [Q00047309] p. 858, and Appendix 174 PJV2 [Q00047302], and Appendix 187 PJV2 [Q00010735]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 130, Annexure LEH 1 [Q00060223] p. 335; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 64(o), Appendix 54 [Q00064148] p. 484). 560. On 17 March 2003 a letter from Connor O‘Meara Solicitors was sent to Steve Hart, requesting he confirm the drawing is acceptable (Andrew Harris‘s affidavit 12/8/2003 [Q00060070] exhibit ACH2 [Q00010471] p. 144, D201). 561. On 8 May 2003 a restraining order is made by His Honour Judge Brabazon QC in BD1416 of 2003. 562. On 13 May 2003 $200,000 was transferred to UBC (Qld). Laura Hart states that this was deposited by AOA (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(a)II(dd), Appendix 42 [Q00064136] pp. 375-376). 563. On 13 May 2003 UBC (Qld) transferred $200,000 to Spider Tracks (Laura Hart‘s affidavit 23/7/2010 [Q00064089] 58(a)II(cc), Appendix 42 [Q00064136] pp. 373-376). 564. On 13 May 2003 Spider Tracks transferred $94,000 to Flying Fighters P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(a)II(bb), Appendix 42 [Q00064136] pp. 372-373). 565. On 13 May 2003 Flying Fighters P/L transferred $74,000 to Flying Fighters Maintenance and Restoration (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(a)II(aa), Appendix 42 [Q00064136] p. 370). 566. On 14 May 2003 $35,421.05 was withdrawn from Flying Fighters Maintenance and Restoration P/L. Laura Hart states this was paid to Brisbane Aero Engines (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 58(a)II, Appendix 42 [Q00064136] pp. 369-370). 567. On 20 May 2003 a letter was sent from Merrell to Steve Hart acknowledging $100,000 was remitted to Geoffrey Kloogers Trust Account on 23/10/98 out of which $16,900 was expended in payment for the T6. (B00040415; Vincent‘s Report 2 September 2009 16.17.2 [Q00060117], Appendix 153 PJV2 [B00040415] p. 798-799). 568. On 27 May 2003 Merrell transferred $20,000 to Gilshenan & Louton [Q00043033] p57. 569. On 10 June 2003 Merrell transferred $150,000 to Geoff Klooger [Q00043033] p58. -- 216 of 229 -- 217 570. On 1 July 2003 Laura Hart was appointed a director of Trojan Services P/L (ASIC Current Personal Name Extract [B00040365]; Note: Image not available). 571. On 1 July 2003 Shirley Petersen appointed a director and secretary of Trojan Services P/L (ASIC Current Personal Name Extract [B00040365]; Note: Image not available).. 572. On 3 July 2003 Merrell transferred $37,500 to Geoff Klooger ([Q00043033] p 59). 573. On 21 July Merrell transferred $10,000 to Geoff Klooger ([Q00043033] p. 60.). 574. On 23 July 2003 ASIC notified of resolution changing name of Bubbling Springs Olive Grove P/L to Bubbling Springs P/L ([Q00060018]. 575. On 1 August 2003 Merrell transferred $37,500 to Geoff Klooger ([Q00043033] p. 60). 576. On 8 August 2003 Merrell transferred $620,000 to European Grand Assurance ([Q00043033] p. 60). 577. On 15 August 2003 UOCL transfers $29,992 to UBC (QLD) Pty Ltd ([Q00064068] p. 2 and 3). 578. On 15 August 2003 UBC (QLD) Pty Ltd transferred $29,000 to Spider Tracks ([Q00064068] p. 2, 3, 4, 5 and 6). 579. On 18 August 2003 Spider Tracks transferred $20,000 to Nemesis (Q00064068 p. 2, 5, 6, 10 and 12). 580. On 18 August 2003 Spider Tracks paid Countrywide $2,661.56 ([Q00064068] p. 475). 581. On 18 August 2003 Spider Tracks paid Sunshine $1,091.22 ([Q00064068] p. 2 and 5). 582. On 19 August 2003 Nemesis made loan repayments to Equititrust $3,333.33 and $15,109.97 ([Q00064068] p. 2, 10 and 12); T5-34 L10-21). 583. On 20 August 2003 Merrell transferred $350,000 to Bernard Ponting ([Q00043033] p. 60). 584. On 22 August 2003 $349,994 was deposited to Seafury Investments. Laura Hart states this was a deposit of made by Merrell (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 53(b), Appendix 27 [Q00064121] p. 278). 585. On 27 August 2003 Seafury Investments transferred $349,460 to Spider Tracks ([Q00064121] p. 278; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 55(a)(VI)-(VII), Appendix 32 [Q00064126] p. 311). 586. On 28 August 2003 Spider Tracks transferred $200,000 to Flying Fighters P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 55(a)(III)-(V), Appendix 32 [Q00064126] pp. 308 and 310). 587. On 28 August 2003 Flying Fighters P/L transferred $200,000 to Ultimate Aerobatics (Arnot $300,000 loan) (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 55(a)(I)-(II), Appendix 32 [Q00064126] pp. 307-308). 588. On 2 September 2003 Merrell transferred $11,365.00 to Bernard Ponting ([Q00043033] p. 61). 589. On 29 September 2003 $103,857.19 was deposited to Nemesis‘s Equititrust mezzanine loan facility from the sale of lot 31 (Laura Hart‘s affidavit 21/9/2010 [Q00064089] para 52(g)iii, Appendix 26(a) [Q00064116] p. 214). 590. On 30 September 2003 Merrell transferred $75,000 to Geoff Klooger ([Q00043033] p. 61). 591. On 2 October 2003 $96,142.91 was deposited to Nemesis‘s Equititrust mezzanine loan facility from the sale of lot 11 (Laura Hart‘s affidavit 21/9/2010 [Q00064089] para 52(g)iii, Appendix 26(a) [Q00064116] p. 214). -- 217 of 229 -- 218 592. On 17 November 2003 Equititrust (via Nemesis) loaned Seafury Investments $600,000 (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 52(g)(vi), Appendix 26(c) [Q00064118] pp. 227-229 and 233). 593. On 18 November 2003 Seafury Investments transferred $250,000 to Spider Tracks (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 52(g)(VI)(dd), Appendix 26(c) [Q00064118] p. 231). 594. On 18 November 2003 Spider Tracks transferred $100,000 to Flying Fighters P/L (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 52(g)(VI)(dd), Appendix 26(c) [Q00064118] p. 232). 595. On 18 November 2003 Flying Fighters transferred $10,000 and $90,000 to Ultimate Aerobatics (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 55(b), Appendix 33 [Q00064127] p. 316). 596. On 8 December 2003 Nigel Arnot resigned as director of Bubbling Springs P/L ([Q00060018] p. 4 of 9). 597. On 16 December 2003 Merrell transferred $29,730.10 to Bernard Ponting ([Q00043033] p. 65). 598. On 8 January 2004 Merrell transferred $4519.92 to Bernard Ponting ([Q00043033] p. 66). 599. On 21 January 2004 $69,992 was deposited to Seafury Investments P/L by Merrell (Laura Hart‘s affidavit 21/9/2010 [Q00064089] para 53(c), Appendix 28 [Q00064122] p . 280). 600. On 22 January 2004 $29,992 was deposited to Seafury Investments by Merrell (Laura Hart‘s affidavit 21/9/2010 [Q00064089] para 53(c), Appendix 28 [Q00064122] p. 280). 601. On 24 January 2004 $99,992 was deposited to Seafury Investments P/L by Merrell (Laura Hart‘s affidavit 21/9/2010 [Q00064089] para 53(d), Appendix 29 [Q00064123]). 602. On 21 May 2004 $200,000 was deposited to Seafury Investments P/L. These funds were transferred by Nemesis Australia P/L, via its Equititrust Ltd loan account (Laura Hart‘s affidavit 21/9/2010 [Q00064089] para 52(g)viii, Appendix 26(d) [Q00064119] p. 237). 603. On 17 June 2004 $240,000 was deposited to Seafury Investments P/L. These funds were deposited by Nemesis via its Equititrust Ltd loan account (Laura Hart‘s affidavit 21/9/2010 [Q00064089] para 52(g)viii, Appendix 26(d) [Q00064119] p. 238). 604. On 26 July 2004 the property located at 88 Brandon Rd, Runcorn was sold with consent of the Official Trustee with sale proceeds being as follows: $244,936.42 paid out Equititrust mortgage (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 56(h), Appendix 36 [Q00064130]; $300,000 paid in reduction of mortgage over Hangar 400; $500,000 paid to Dr Fleming as payout of the loan and release of security over the Sea Fury; $260,000 paid to Dr Ambler in payment of the loan for the aircraft VH-AVC. 605. In September 2004 $100,000 was paid to reduce the mortgage with Perpetual Nominees. This amount was funded by a second mortgage over Pinecone Street, Sunnybank and funds borrowed through Spider Tracks P/L (Vincents‘ Report 2 September 2009 23.1.8 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 138). 606. On 14 September 2004 Daniel Fleming resigned as director of Bubbling Springs P/L ([Q00060018]). 607. On 20 September 2004 UOCL paid $75,000 to Bowsprit Mortgage and Finance Ltd (Vincent‘s Report 16 November 2010 para 3.1 [Q00064718] Appendix 11 [Q00064729]. -- 218 of 229 -- 219 608. On 21 September 2004 Equititrust loaned Yak 3 Investments P/L $550,000 and Bubbling Springs P/L $550,000. Laura Hart states that these loans were secured by the properties at Doonan Road and Hangar 400 (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 68(c)III, Appendix 58 [Q00064152] pp. 515-517). . 609. Laura Hart states that on 21 September 2004 $1,079,905.11 of the $1.1m loaned by Equititrust on 21 September 2004 was paid to Perpetual Nominees (MFS) (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 68(c)II and III, Appendix 58 [Q00064152] p. 510). 610. Laura Hart states that on 21 September 2004 Bowsprit Mortgage and Finance Ltd paid Perpetual Nominees (MFS) $143,385.55. This amount was loaned to Laura Hart and secured by 52 Pinecone Street (Laura Hart‘s affidavit 23/7/2010 [Q0064089] para 68(c)II and IV, Appendix 58 [Q00064152] p. 511). . 611. On 21 September 2004 Spider Tracks paid Perpetual Nominees (MFS) $234,406.32 (3 cheques) (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 68(c)II and VIII, Appendix 58 [Q00064152] pp. 506-509). 612. On 21 September 2004 Beryl Hart paid $13,000 to Perpetual Nominees (MFS) (2 cheques). Laura Hart states this was as a personal loan to her (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 68(c)II and VI, Appendix 58 [Q00064152] pp. 512-513). . 613. On 21 September 2004 Reg Hart paid $5,000 to Perpetual Nominees (MFS). Laura Hart states that this was a personal loan to her (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 68(c)II and V, Appendix 58 [Q00064152] p.514). 614. On 22 September 2004 authorisation was given to cancel monthly standing instruction to debit account 447-1-110253-0 an amount of $2,500 paid to Merrell Associates Ltd [Q00053046]. 615. In October 2004 the mortgage over Pinecone Street, Sunnybank and the funds borrowed through Spider Tracks P/L was repaid from the sale of Brandon Rd Runcorn (Vincent‘s Report 2 September 2009 23.1.9 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 para 138). 616. In December 2004 funds borrowed from Dr Fleming in respect of the Mercedes were repaid by Fighters by authority to ITSA from the sale of the Brandon Rd property which was owned by Nemesis (Vincent‘s Report 2 September 2009 21.1.3 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] para 114(f)). 617. On or about 4 January 2005 ITSA paid Bowsprit Mortgage and Finance Ltd $150,000 from the sale of the property at Brandon Road (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 68(c)II and IV, Appendix 56 [Q00064150] p. 497). 618. On or about 4 January 2005 ITSA paid Dr Ambler $260,000 from the sale of the property at Brandon Road (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 59(c), Appendix 45 [Q00064139] p. 398). 619. On or about 4 January 2005 ITSA paid Spider Tracks P/L $285,000 from the sale of the property at Brandon Road (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 65(e), Appendix 56 [Q00064150] p. 497). 620. On 18 April 2006 the assets subject to this application were forfeited to the Commonwealth pursuant to the Proceeds of Crime Act 2002 (Cth) (Ty Maher‘s affidavit 24/11/2010 [Q00064186] para 4. -- 219 of 229 -- 220 621. On 18 August 2006 the property located at Doonans Rd, Granchester was sold (settlement date 18 September 2006) for $1,490,013.25. The proceeds were paid to Equititrust ($947,167.98); Australian Taxation Office (GST) ($149,000); Fees and Rates ($5,550.75). The remaining net proceeds of $388,294.52 were paid to ITSA (Vincent‘s Report 2 September 2009 23.1.7 [Q00060117]; and Laura Hart‘s affidavit 17/10/2006 [Q00060221] paras 140; and Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 68(c)III, Appendix 58 [Q00064152] p. 517). 622. On 25 September 2006 Shirley Petersen resigned as director and secretary of Bubbling Springs P/L ([Q00060018] p. 3-4 of 9). 623. On 25 September 2006 Laura Hart was appointed secretary of Bubbling Springs P/L ([Q00060018] p. 4 of 9). 624. On 2 October 2006 Shirley Petersen was appointed director and secretary of Bubbling Springs P/L ([Q00060018] p. 4 of 9). 625. On 8 January 2007 6 Merriwa Street was sold by the Commonwealth of Australia (i.e. ITSA) for $293,000. The proceeds were used to pay Countrywide Co-Operative Housing Society $243,221.74 and Brisbane City Council $1,645.50. The remaining net proceeds of $34,154.57 were paid to the Official Trustee in Bankruptcy (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 63(e), Appendix 50 [Q00064144] p. 458). 626. On 23 April 2007 27 Samara Street was sold for $339,300. Part of the proceeds were used to pay Sunshine Co-Operative Housing Society $146,975.22 (Laura Hart‘s affidavit 23/7/2010 [Q00064089] para 64(p), Appendix 55 [Q00064149]. -- 220 of 229 -- 221 ANNEXURE 2 EVIDENCE OF MR HART‟S EFFECTIVE CONTROL Flying Fighters Pty. Ltd. (a) The property, the subject of this application is eight planes and a motor vehicle, all of which are registered in the name of the First Applicant. (b) Mr. Arnot, the Managing Director: (i) was not aware of significant financial transactions which have occurred in respect of the company (such as charges and loans)764; (ii) referred to two of the subject aircraft in correspondence with the Archerfield Airport Corporation as ―Mr. Hart‘s aircraft‖765. (iii) confirmed major decisions with Mr. Hart766. (iv) reported to Mr. Hart in relation to the assets of the company and acted at Hart‘s direction in relation to such assets767. (v) requested Hart to organise the final payment for an aircraft being purchased by the First Applicant768 and sought funds for spare parts.769 (c) In January 2003 Mr. Arnot lent $300,000.00 to the First Applicant. This financial arrangement was discussed between the three directors and Mr. Hart. Mr. Hart subsequently wrote to Mr. Arnot thanking him for the loan. He said “Your offer to lend the money for a period means an enormous amount to me” and “The YAK engine, the CAP repairs and the T-28 engine have really set me back” and later “Thank you for the help and I will be in your debt”.770 (d) In an email in January, 2003 to Mr. Arnot, Hart referred to the potential of standing people down and the cost impact to him of aircraft parts and repairs771. 764 Transcripts P411 L20-30 (Q00003945 at p.26); P333 L20-30 (Q00003944 at p.61); P207 L21-24 (Q00003943 at p.39); P315 L 4-20 (Q00003944 at p.42); Transcript P207 L34-50 (Q00003943 at p.39). 765 Affdt Kent of 11th December 2003 Ex RCK 14 (Q00060177). 766 Affdt Harris of 12th August 2003 Ex ACH 2 p.22 (Q00010054); Part of Ex 18 (Q00010054); Affdt Saultry of 12th August 2003 Ex PBS2 p.27 (Q00010429); Affdt Saultry of 12th August 2003 Ex PBS2 p.58 & 60 (Q00010465 & Q00010467); Exhibit 13 (Q00064189). 767 See Footnote 3. 768 Affdt Saultry of 12th August 2003 Ex PBS2 pg 27 (Q00010429); Exhibit 13 (Q00064189); Transcript pg 164-168 (Q00003942 at p.79) 769 Affdt Saultry of 12th August 2003 Ex PBS2 pg 27 (Q00010429); Exhibit 13 (Q00064189); Transcript pg 164-168 (Q00003942 at p.79) 770 Affdt Saultry of 12th August 2003 Ex PBS2 pg 61 (Q00010468) 771 Affdt Saultry of 12th August 2003 Ex PBS2 pg 61 (Q00010468) -- 221 of 229 -- 222 (e) In meetings with the Ipswich City Council, Hart referred to having ―seventeen planes‖772. (f) Hart has signed documents in an official capacity (on occasions as Director) such as a loan agreement, charge, contract and trust account authorities773. (g) In correspondence with the Archerfield Airport Corporation (―AAC‖), Hart has referred to six planes as being owned by him774. (h) Many of the planes have registration numbers which include Hart‘s initials775: (i) Hart was involved in leasing arrangements, he flew planes and negotiated for the purchase of aircraft on behalf of the company776. (j) The Mercedes motor vehicle was driven by Hart. When receivers were appointed to Nemesis Australia Pty. Ltd, Hart arranged for Dr. Fleming to enter into a contract with the receivers as nominee for Flying Fighters Pty., Ltd so that the vehicle was taken out of the control of the receiver and remained available for Hart‘s personal use777. (k) The planes and motor vehicle were listed as assets in the document entitled ―Statement of Position Steven Irvine Hart as at 4/12/2000 which was provided to McLaughlins Financial Services on 7/9/2001‖778. (l) Flying Fighters agreed to buy an aircraft called a T-28. When financial difficulties were encountered Mr. Hart approached his friend Dr. Ambler for a loan of $228,000.00. (This is later referred to in paragraph 30 of the Outline). (m) The registered office for the company is 400 Wirraway Avenue, Archerfield. (Hart‘s office had been located at this address until it moved to 404 Wirraway Avenue). (n) The company was previously called Hart‘s Flying Fighters Pty. Ltd. (o) A fixed and floating charge over the assets of this Applicant in favour of 772 Affdt Bell sw 13th October 2003 Ex TAB 1 (Q00060104); Transcript p. 682 & p.686 (Q00011388 at p.80 & p.84) 773 Trust account authorities Ex 27 (Q00064200); Charge and Contract Ex 19 (Q00064194 at pp.21-52 & Q00010149); Affdt Fleming of 4th July 2003 Ex DVF-6 (Loan Agreement), (Q00064495 at p.2) 774 Ex 30 (Q00064203) 775 Ex 18 – Fax Arnot to Hart 25/5/01 (Q00010054), and Transcript pg 339-341 (Q00003944 at p.67-69) 776 Affdt Fleming of 4th July 2003 Exhibits DVF 4 (Q00064493 at p.2); DVF 6 (Q00064495 at p.2); DVF 7 (Q00064496 at p.2); Affdt Harris of 12th August 2003 Ex ACH2 pp.130, 133, 135 and 136 (Q00010146, Q00010149, Q00010150 & Q00010151); Part of Ex 19 (Q00010149 & Q00010146). 777 Affdt Fleming of 4th July 2003 Ex DVF 4 (Q00064493). 778 Affdt Stride of 24th February 2004 Ex B (Q00060035); Ex 24 (Q00010400) -- 222 of 229 -- 223 Merrell Associates Ltd. was registered on 12 December, 2002. Mr. Hart is thus in a position to ensure that the property the subject to this application cannot be sold without his consent. Nemesis Australia Pty. Ltd. (a) The property, the subject of this application is land at 88 Brandon Road, Runcorn and at 6 Merriwa Street, Sunnybank Hills and the Archerfield Airport Lease 700706560 being the lease of Hanger 607779. All property is registered in the name of this Applicant. (b) The registered office of this Applicant is also 400 Wirraway Avenue. (c) The Applicant was previously named Steve Hart Family Holdings Pty. Ltd. The name changed to Nemesis on 1st October, 2001. (d) In December, 2001 Mr. Hart requested a Kevin Smith to do a fee estimate for the design of units in a proposed development at 88 Brandon Road, Runcorn. After the fee estimate was provided, Mr. Hart then instructed Mr. Smith to proceed with the project. Following further meetings and revisions of the scope of the work and fees, a revised estimate was issued and on 5th September, 2002 Mrs. Hart phoned Mr. Smith and left a message for him saying: ―...... Steve says to go ahead”780. (e) A contract between Nemesis Pty. Ltd and Brandon Road Developments Pty. Ltd relating to 88 Brandon Road had a covering letter marked to Mr. Hart‘s attention. That contract is undated and unstamped and was subject to finance within fourteen days. There is however no evidence that finance was obtained on the date that the contract was completed. (f) In a later joint venture agreement, that same land is referred to as owned by Sea Fury Enterprises Pty. Ltd, although there is no evidence of an agreement or transfer of the property to that company. (NOTE: Mrs. Shirley Peterson is a Director of Sea Fury Enterprises Pty. Ltd - ―Sea Fury‖ is a type of aircraft and is one of the aircraft being restrained). (g) That joint venture agreement (which makes no mention of Nemesis Pty. Ltd) is not stamped and is different to the unstamped and unsigned joint venture agreement referred to by a Lisa Bundesen (forensic accountant) and produced as an Exhibit to her report781. (h) In November, 2002 Mr. Hart sent an email to Mark McIvor at Equitrust saying: 779 Affdt Kent of 11th December 2003 pargraph 31 (Q00059234 at p.5). 780 Affdt Smith of 15th October 2003 pargraphs 8 - 14 (Q00010839 at p.3-4) & Ex KRS 13 (Q00010854)). 781 Affdt Bundesen of 23rd June 2003 p.86 (Q00010833 at p.91) and Exhibit 148 to that Affidavit p.905-915. (B00040497) -- 223 of 229 -- 224 “I will have the Brandon Road property refinanced prior to the 15th”. (i) In that same email, Mr. Hart goes on to say: “I hope to have four of the houses also refinanced prior to the 15th.” (j) The property at 6 Merriwa Street is one of those properties782. (k) Mr. Hart‘s son, Troy, lives in 6 Merriwa Street. (l) Hanger 607 is leased from Archerfield Airport Corporation (AAC) and Mr. Hart represented Nemesis Pty. Ltd in dealings with that corporation. (m) The property, the subject of this application, is included on a list of assets headed: “Statement of Position Steven Irvine Hart and Related Entities as at 4/12/00”. (Ex 24, p.5061 Appeal Record Book) (n) Mr. Hart made financial arrangements with a Dr. Ambler and a Dr. Fleming such that they were each offered a one-third share in the Brandon Road property in lieu of the repayment of outstanding loans to Flying Fighters Pty Ltd. (o) In February 2003 Hart attempted to raise $500,000.00 finance on behalf of Nemesis.783 (p) There is a charge over the property the subject of this application to Merrell Associates Pty. Ltd. Mr. Hart is again thus in a position to ensure that the subject property cannot be sold without his consent. (q) Mr. Arnot, although a director, was not involved with any discussions to do with the land at Brandon Road. YAK 3 Investment Pty. Ltd. (a) The property, the subject of this application is two hangers at Archerfield Airport. (b) The first is Lease No. 700515084 - this is workshop building 101. The building is occupied by Aviation Welding Australia Pty. Ltd, a company operated by Mr. Hart‘s brother and his wife784. (c) The second is Lease No. 703146442 Sub-lease 70447517 which relates to 404 Wirraway Avenue. 782 Exhibit 24 (Q00064197). 783 Transcript p 508 L34-60 (Q00003946 at p.17) 784 Affdt Kent of 11th December 2003 pars 32–35 (Q00059234 at p.5-6). -- 224 of 229 -- 225 (d) The registered office address for this company is 400 Wirraway Avenue. (e) This company was previously called Steve Hart Family Holdings No. 3 Pty. Ltd. The change of name occurred on 1st October, 2001. (f) Despite Mr. Hart having resigned as director in 1993, he: (i) negotiated the lease of 400 Wirraway Avenue; (ii) advised the architect in relation to plans for the hanger; and (iii) settled the contract price with the builder and organised finance. (g) Back on 24th March, 1999 Mr. Hart wrote to Mr. Kent, the Managing Director of the AAC under the letterhead of this Applicant asking for a reduction in the rent for the land. He said, “You are aware that I wish to have a privately owned museum for aircraft.”785 (h) In meetings with Mr. Leach (the builder who constructed the hanger at 400 Wirraway Avenue), Mr. Arnot referred to needing to talk to Mr. Hart before approving major issues786 and a fax to that effect is in evidence787. (i) Mr. Leach says that he met with Mr. Hart who told him the price that he wanted the hanger built for. He submitted a revised quote by fax and was then advised that it had been accepted788. (j) Mr. Hart reviewed the plans for the construction at 400 Wirraway Avenue789. (k) Ms. Petersen wrote to solicitors, Geoff Klooger & Associates and said: “Mr. Hart has asked me to forward to you a copy of a letter that we received today from Lowes & Co., Solicitors in regard to the above”790 and later, “As per your telephone conversation with Steve Hart would you transfer the following as requested”791. (l) In a letter from Geoff Klooger & Associates to the solicitors for the AAC they say: “We advise that Mr. Hart is currently reorganizing his affairs and wishes to assign the lease from Steve Hart 785 Exhibit 30 (Q00064203). 786 Affdt Leach of 15th October 2003 pargraph 5, (Q00010856 at p.2). 787 Fax of 5th July, 2000 which is part of Ex 18 (Q00010059 & Q00010061). 788 Transcript p.714 L10-30 (Q00011388 at p.111). 789 Affdt Smith of 15th October 2003 pargraph 5, (Q00010839 at p.2). 790 Exhibit 28 (Q00064201). 791 Affdt Hawthorn of 12th August 2003 Ex MJH2 p.161 (Q00010249). -- 225 of 229 -- 226 Family Holdings No. 3 Pty. Ltd to Harts Flying Fighters Pty. Ltd”792. (m) Mr. Arnot refers to the hanger as Mr. Hart‘s hanger in a fax to AAC793. (NOTE: Arnot said that this was a reference to Hanger 405 but Mr. Kent states that it is a reference to Hanger 400). (n) Mr. Hart thanked Phil Adams in writing for refinancing the loan794. (o) Dr. Ambler was approached by and then received advice from Hart in relation to providing a guarantee and in fact did so in favour of Perpetual Nominees Limited in support of a $650,000.00 loan. In return, he received an option to purchase the hanger at 400 Wirraway Avenue795. (p) Dr. Ambler did not know that a charge was registered over the Applicant‘s assets by Merrell Associates Limited on 8th January, 2002796, though he was a director at the time. (q) On 1st November, 2001 Hanger 101 was allegedly transferred to Bubbling Springs Pty. Ltd as trustee of the Nemesis Group Superannuation Fund. It is further alleged that the trustee of this fund has been changed to Alfredton Pty. Ltd. This transfer has not however been approved by the AAC, was not registered and the documents are unstamped797. The beneficiaries of the Nemesis Group Superannuation Fund are Hart, Mrs. Hart and Ms. Petersen798. (r) The charge mentioned in (n) above ensures that the subject property cannot be sold without Hart‘s consent. Bubbling Springs Pty. Ltd. (a) The property the subject of this application is a house at 27 Samara Street, Sunnybank and several lots at Doonan Road, Grandchester. (b) This Applicant was previously called Steve Hart Family Holdings No. 2 Pty. Ltd. The name changed to Bubbling Springs Olive Grove Pty. Ltd. on 15 December, 2000 and then to Bubbling Springs Pty. Ltd. (c) In correspondence to Mr. Klooger on 13 December, 2000 Ms. Petersen says - 792 Affdt Kent of 11th December 2003 Ex RCK 10 (Q00059234). 793 Fax of 23rd February, 2001 Part of Ex 18 (Q00010431) and Affdt Kent of 23rd February, 2004 Ex A (Q00060141 at p.6) and pargraph 4 (Q00060141 at p.2). 794 Ex 42 (Q00064212). 795 Transcript p.258 L2-11 (Q00003943 at p.91); Ambler Affdt 8th July 2003 par. 7 (Q00010830 at p.3). 796 Transcript P258 L 44 - P259 L13 (Q00003943 at p.91). 797 Affdt Bundesen of 23rd June 2003 Ex 52 pp.659-660. (B00040402) 798 Transcript P563 L21-22 (Q00003946 at p.72). -- 226 of 229 -- 227 “As per your telephone conversation with Steve Hart would you transfer the following as requested” enclosing documents and requesting that the property at 27 Samara Street be transferred from this Applicant to YAK 3 Investments Pty. Ltd.799 (d) Mr. Hart wrote to the National Australia Bank on 29 May, 2001 and offered security over the property at 27 Samara Street, Sunnybank.800 (e) On 27 November, 2002 Hart wrote to Equitiloan saying - ―I hope to have 4 of the houses refinanced prior to the 15th.‖ The property at 27 Samara Street is one of those four houses.801 (f) The Samara Street property also appears on the ―Statement of Position Steven Irvine Hart and Related Entities as at 4 December, 2000‖. (g) Mr. Hart wrote to Phil Adams thanking him for refinancing the loan.802 (h) Mr. Hart attended and participated in meetings with the Ipswich City Council and Powerlink in relation to the Doonan Road, Grandchester property.803 (i) An Application for ―airsports‖ to be conducted at the Grandchester site was refused. A subsequent meeting between Bubbling Springs, the Ipswich City Council and the objector, Powerlink, was held on 4 April, 2002.804. Despite the fact that Hart was no longer a director, he did most of the talking and negotiating. (j) Mr. Arnot is asked by Hart to report to Hart in relation to debt collectors being appointed by a Nigel Venn to collect fees incurred by this Applicant in relation to the Doonan Road property. (k) Hart approves the drawings which are attached to a letter of 17 March, 2003.805 Mrs. Hart has written on the letter “Ring and make sure it is lodged. Steve has said it is okay”. (l) Both Dr. Fleming and Mr. Arnot were directors at the relevant time, but neither was advised of a sale of real property from this Applicant to Dr. 799 Affdt Hawthorn of 12th August 2003 Ex MJH 2 p.164 (This document is not available on the etrial system) 800 Affdt Hawthorn of 12th August 2003 Ex MJH 2 pp.161-162 (Q00010249) 801 Exhibit 24 (Q00064197). 802 Ex 42 (Q00064212) 803 Affdt Bell of 13th October 2003 (Q00060103). Affdt Ellery of 12th August 2003 pargraph 14 (Q00010812 at p.3), and Ex MTE2 (Q00060111), Affdt Venn of 2nd April 2004 pargraph 8 (Q00010859 at p.3), and Exhibits JNV1, JNV2, JNV3 (Q00010860, Q00010861 & Q00010862). 804 Exhibit 21 (Q00064195 at p. 3-5) 805 Exhibit 21 (Q00064195 at p. 6-7) -- 227 of 229 -- 228 Ambler.806 (m) Sometime after Dr. Fleming makes a $650,000.00 loan he was offered an option to purchase land at Doonan Road, Grandchester by Hart. (n) Dr. Fleming, although a director at the time, was not aware of the proposal for an airstrip on the land at Doonan Road, Grandchester or of the negotiations with the Ipswich City Council.807 (o) Mr. Arnot, although a director at the time, was not aware of the option given to Dr. Fleming over the land at Grandchester.808 (p) A fixed and floating charge over the assets of the Applicants in favour of Merrell Associates Limited was registered on 12 February, 2002. Mr. Hart is in a position to ensure that such assets cannot be sold without his consent. General Evidence (a) Although available to give evidence, Mr. Hart did not do so809 - thus allowing the Court to draw an adverse inference to the Applicants‘ cases (Jones -v- Dunkel (1959) 101 CLR 298); (b) Mr. Hart‘s office is a large, well furnished, private office at 404 Wirraway Avenue. Mrs. Hart and Ms. Petersen however have small work stations positioned outside his office.810 (c) Comments made and the demeanour of Mr. Hart, Mrs. Hart and Ms. Petersen during the search are suggestive of Mr. Hart being ―in charge‖.811 (d) The directors of the Applicants at no time make any attempt to stop Hart from referring to the assets as his. (e) During the execution of the search warrant, Hart says he “wants his guys climbing in and out of the planes, not the police.”812 (f) Mr. Arnot stated under cross-examination “Mr. Hart seems to have influence with Shirley and with Laura and by applying pressure they - we can hopefully get the bills paid.” 813 806 Transcript P371 L2-15 (Q00003944 at p.99) Transcript P410 L19-33 (Q00003945 at p.25) 807 Transcript P371 L18-36 (Q00003944 at p.99) 808 Transcript P410 L34-60 (Q00003945 at p.25) 809 Transcript P185 L54 - p.186 L8 (Q00003943 at p.18 & 19) 810 Video of search Ex32 (available from Registry); Transcript P589, 597, 599 & 602 (Q00003946 p. 99, 107, 109 & 112) 811 See footnote 42 812 Video of search Ex32 (available from Registry); Transcript P589, 597, 599 & 602 (Q00003946 p. 99, 107, 109 & 112) 813 Transcript P169, L37-41 (Q00003942 at p.84) -- 228 of 229 -- 229 (g) Ms. Petersen agreed in cross-examination that there is nothing independent to show that there was discussion amongst the directors about a particular issue.814 (h) Mr. Hart assisted in the preparation of some of the Applicants‘ Affidavits.815 (i) Each of the four Applicants is the trustee of a discretionary trust. The beneficiaries are set out in Exhibit 25 (the flow chart) and include relatives of Ms. Petersen, Mr. Hart‘s parents and his children. All beneficiaries are linked to him by personal or family relationships. (j) Mr Hart deals with the assets of the different companies without regard to the different corporate entities or trusts. (k) Mrs Laura Hart and Ms Petersen describe themselves as follows in their income tax returns : (i) ―personal assistant‖ in respect of Mrs Hart816 (ii) ―secretary‖ in respect of Ms Petersen 817 (l) In a fax addressed to Mr Ivan Sandrici (NAB), Mr Arnot refers to Ms Petersen as ‖Shirley from Mr Hart‘s office‖ 818. 814 Transcript P464 L59 - P466 L3 (Q00003945 at p. 79 & 81) 815 Transcript P124 L30-31 (Q00003942 at p.37) 816 Exhibit 40 (Q00010366) 817 Exhibit 23 (Q00010368) 818 Fax dated 16/10/00 from Nigel Arnot – part of Exhibit 19 (Q00010449) -- 229 of 229 --