Commonwealth Director of Public Prosecutions v Queensland Jewellery and Gift Company Pty Ltd & Ors [2006] QDC 373

1 DISTRICT COURT OF QUEENSLAND CITATION: CDPP v Queensland Jewellery and Gift Company Pty Ltd & Ors [2006] QDC 373 PARTIES: COMMONWEALTH DIRECTOR OF PUBLIC PROSECUTIONS Applicant V QUEENSLAND JEWELLERY AND GIFT COMPANY PTY LTD ACN 070 716 175 TRADING AS QUEENSLAND DUTY FREE First Respondent AND SEN-HUNG CHEN Second Respondent AND CHIU-YUAN HSIAO Third Respondent AND TAI XING INVESTMENT PTY LTD ACN 096 384 191 Fourth Respondent AND YING-JU CHEN Fifth Respondent FILE NO: BD4090 of 2004 DIVISION: Civil Jurisdiction PROCEEDING: Application for Stay ORIGINATING COURT: District Court, Brisbane DELIVERED ON: 26 October 2006 DELIVERED AT: Brisbane HEARING DATE: 17 October 2006 JUDGE: Kingham DCJ ORDERS: 1. The applications for forfeiture and pecuniary penalty -- 1 of 10 -- 2 orders against the first, second and third respondents and their application for exclusion orders are stayed until the criminal proceedings against the second and third respondents are concluded, or further order. CATCHWORDS: CONFISCATION OF PROPERTY – Proceeds of Crime Act 2002 (Cth) - Restraining Orders – Application for Forfeiture – Application for Pecuniary Penalty Order – Application for Exclusion Order . STAY OF PROCEEDINGS – Residual discretion – Real danger of injustice – Same or substantially similar issues – Quantum – Criminal Responsibility – Penalty – Other Prejudice Proceeds of Crime Act 2002 (Cth), ss 5, 73, 74, 121, 196, 198, 319 Criminal Code Act 1995 (Cth), ss 135.4(5), 400.3(1) Financial Transactions Report Act 1988 (Cth) s 31 Black & White Cab Co Pty Limited v Kelk [1983] 2 Qd R 484 cited Elliot v Australian Prudential Regulation Authority (2004) FCA 586 followed McMahon v Gould [1982] 7 ACLR 202 followed Mule v State of Western Australia [2002] WADC 103 followed Olbers Co Limited v Commonwealth (No 2 ) [2003] FCA 177 followed Queensland v Cannon [2003] QSC 459 cited State of Queensland v Bush [2003] QSC 375 applied State of Queensland v Henderson (2002) QSC 16/5/03 applied State of Queensland v O’Brien & Falzon (2006) QSC 22/6/06 followed State of Queensland v Shaw [2003] QSC 436 applied Stevens v Trewin & anor [1968] Qd R 411 applied The Director of Public Prosecutions for Western Australia v Mansfield and Ors [2006] WASC 72 followed COUNSEL: R Devlin SC & N Martin for the First, Second & Third Respondents P Flanagan SC for the Applicant SOLICITORS: Gabriel Ruddy & Garrett for the First, Second & Third Respondents Commonwealth Director of Public Prosecutions for the Applicant -- 2 of 10 -- 3 [1] The Commonwealth Director of Public Prosecutions (CDPP) has commenced both civil and criminal proceedings arising from allegations of large scale evasion of duty payable to the Commonwealth for the sale of tobacco products. In essence, it alleged two duty free outlets, Queensland Duty Free and Queen St Mall Duty Free, sold tobacco in Australia without paying duty on those sales. The CDPP alleged a scheme of sham duty free sales to crew members of commercial transport container ships which visited the Port of Brisbane, and subsequent sale of the tobacco in the domestic market without duty being paid. [2] In November 2004, the civil proceedings were commenced under the Proceeds of Crime Act 2002. The CDPP obtained restraining orders over assets of three individuals: Sen-Hung Chen, Chui-Yuan Hsiao, Ying-Ju Chen and two corporations: Queensland Jewellery and Gift Company Pty Ltd, trading as Queensland Duty Free and Tai Xing Investment Pty Ltd. The CDPP has applied for those assets to be forfeited and for other pecuniary penalty orders. The respondents have applied to exclude from the forfeiture orders property which they say is not the proceeds of unlawful activity. The CDPP has filed all its material and is ready to proceed. [3] In June and July 2006, Sen-Hung Chen and Chui-Yuan Hsiao (the Defendants) were charged with conspiracy and money laundering under the Commonwealth Criminal Code Act 1995 (ss 135.4(5) & 400.3(1)) and structuring transactions to avoid reporting requirements under the Commonwealth Financial Reports Act 1988 (s31). The CDPP’s case against the Defendants is that they conspired to effect the sham transactions through both duty free outlets and that they dealt with the unlawful proceeds of those transactions. The committal hearing is expected to occur in late March 2007 and the trial in the District Court in November 2007. [4] The Defendants and Queensland Duty Free have applied to stay the applications against them for forfeiture and pecuniary penalty orders until the criminal proceedings are concluded. The District Court has an inherent jurisdiction to stay proceedings to prevent an abuse of process. (Stevens v Trewin & Anor) The fact criminal proceedings have commenced is not a ground on which a court can stay non criminal proceedings under the Proceeds of Crime Act (Section 319). Equivalent provisions in confiscation Acts in Queensland and Western Australia have not removed the Court’s power to prevent an abuse of its process. (State of Queensland v Henderson; DPP V Mansfield) The parties agreed the Court retains the discretion to stay the proceedings despite s319. The onus is on the Defendants to justify the stay. [5] The parties agree the ultimate issue is whether there the Defendants face a real danger of injustice in the criminal proceedings, if the stay is not granted. (McMahon v Gould) This must arise from the circumstances of the particular case and the Defendants must descend to specifics to demonstrate prejudice. (State of Queensland v Henderson; State of Queensland v Bush; Elliot v Australian Prudential Regulation Authority) [6] The contests between the parties in relation to the stay application can be summarised as follows: -- 3 of 10 -- 4 • Whether the issues raised in the civil proceedings are the same or substantially similar to those in the criminal proceedings. • Whether the civil proceedings can be conducted before the criminal proceedings in such a way that the Defendants will not suffer a real danger of injustice. • Whether other factors support the grant of a stay. Are the issues raised by the civil proceedings the same or substantially similar to those in the criminal proceedings? [7] The Defendants and Queensland Duty Free point to two issues which they assert are the same or substantially similar to issues raised by the criminal proceedings: • The number and value of the transactions which are illegitimate; and • The role of the Defendants in relation to Queen St Mall Duty Free. [8] The issue of quantum is somewhat confused in the way the case was argued as there are two relevant aspects: the quantum of the duty evaded and the quantum of the proceeds of illegal activity. The CDPP argued a distinction needs to be drawn between the two in determining the nature of the factual enquiries in the civil and criminal proceedings. Is the distinction between quantum of duty evaded and quantum of the proceeds of unlawful activity relevant to the stay application? [9] I accept that the quantum of duty evaded and the quantum of proceeds of unlawful activity are not necessarily the same. The proceeds may be more or less than the duty evaded. I also accept that, in order to establish the quantum of the proceeds, it may be necessary to go further than to identify which transactions are illegitimate and to rely on other evidence of income earned from the transaction. However at the heart of both enquiries as to quantum are the individual transactions. Given this, I do not consider the distinction between the two aspects of quantum is of any practical significance in considering whether, in the particular circumstances of this case and given the nature of the factual enquiries involved in the proceedings, the Defendants will suffer prejudice if a stay is not granted. [10] The allegation that the Defendants were instrumental in sham transactions is the foundation of both the criminal charges and the civil proceedings. This necessarily involves the two issues the Defendants wish to contest, the illegitimacy of the transactions and the Defendants’ responsibility for them. Establishing the illegitimacy of the transactions is a necessary precondition to establishing both that duty was evaded and that the Defendants derived proceeds from unlawful activity. To fix either aspect of quantum, the number and value of illegitimate transactions and the Defendants’ responsibility for them must be established. The two aspects of quantum, therefore, are linked inextricably to the same factual enquiries. [11] If I am wrong and the distinction is of relevance, it is clear from the analysis of the way in which quantum issues arise in the two proceedings set out in paragraphs [17] and [18] of these reasons, that the quantum of the proceeds of unlawful activity are raised in both the civil and criminal proceedings. -- 4 of 10 -- 5 The number and value of illegitimate transactions [12] The CDPP investigated a large number of individual transactions and, in so doing, examined the invoices said to document sham transactions. They analysed the signatures of the purchasers on a random sample of invoices and compared them with original signatures said to be authentic. They examined the ships seals and compared them with seals, said to be fake, which were used on the invoices. They spoke to a random sample of crew members named as purchasers on the invoices to ascertain whether they recalled particular transactions. They analysed the duty paid in relation to tobacco sales against the totality of the tobacco transactions by the duty free outlets during the relevant period. [13] It is evident from this material, and the CDPP do not contest, that in both the criminal and civil proceedings the Court will be invited to conclude all identified transactions through both duty free outlets during the relevant period were sham transactions. On the other hand, during his examination in the civil proceedings, Mr Chen asserted that some 80% of the transactions were legitimate. The Defendants’ responsibility for transactions through Queen St Mall Duty Free [14] The CDPP contended that: • The Defendants are responsible for sham transactions through Queen St Mall Duty Free; • They were carried out on their behalf and at their instigation; and • The Defendants received payments that represented the proceeds of those transactions. As well as analysing the transactions put through Queen St Mall Duty Free, the CDPP traced payments from that operation through accounts operated by the Defendants or their associates. The CDPP rely on these payments, in part, as evidence of the Defendants’ role in those transactions. Some of the property subject to restraining orders is said to represent those payments. [15] During his examination, Mr Chen asserted the payments from Queen St Mall Duty Free were lawful contractual payments, not the proceeds of illegitimate transactions undertaken on their behalf and at their direction. He asserted the operators of that outlet operated independently. This argument goes directly to the Defendants’ criminal responsibility for illegitimate transactions effected by the operators of Queen St Mall Duty Free. Tobacco transactions to the value of $2,299,669.45 are involved. Do both proceedings involve the same or substantially similar questions? [16] The nature of the questions the Court will be asked to decide in both proceedings is clear. I do not consider it necessary for the Defendants to precisely articulate the evidence that may be called in support of their contentions, if the nature of the enquiry in the two proceedings is sufficiently similar. Indeed to do so could be prejudicial to the Defendants. It seems to me that the Defendants wish to raise in the exclusion application issues that are the same or substantially similar to issues that will necessarily be raised in the criminal proceedings. (State of Queensland v Shaw) The Defendants have the same interest in both, that being to limit the number and value of transactions which the court finds to be illegitimate and to -- 5 of 10 -- 6 deny responsibility for any illegitimate transactions undertaken by the operators of Queen St Mall Duty Free. [17] The relevance of those issues to the criminal proceedings is: • Quantum and role relates to the overall criminality of offending behaviour and, therefore, to sentence – This is conceded by the CDPP in so far as it accepted the quantum of duty evaded is relevant to sentencing on the conspiracy charge. It is likely that the quantum of proceeds of unlawful activity will also be advanced as a factor relevant to sentence. The CDPP did not argue to the contrary and the statement “Facts for Court” produced by the Australian Federal Police clearly alleges the financial advantage in relation to the fraudulent activity is two fold: the evasion of duty payable and the receipt of money from sale of diverted tobacco. As well as the quantum issues, the role played by the Defendants in relation to Queen St Mall Duty Free is relevant to whether they are the prime movers in a large scale conspiracy or whether the operators of that outlet operated independently. • The quantum of proceeds of unlawful activity is a material fact for the money laundering charge – The money laundering charge is that the Defendants dealt in proceeds of illegal activity in excess of $1 million. The burden of establishing quantum in excess of that figure rests on the CDPP and to the criminal standard. The offence of money laundering has penalties tiered according to quantum, with the highest penalty, 25 years imprisonment, applying if the quantum exceeds $1 million (s400.3(1) Criminal Code Act). [18] The relevance of those issues to the civil proceedings is: • The quantum of proceeds of unlawful activity is relevant to the application for pecuniary penalty orders – To obtain pecuniary penalty orders, the CDPP must establish, on the balance of probabilities, that the benefits derived from unlawful activity exceed the value of the property forfeited (s121 Proceeds of Crime Act). • The quantum of proceeds of unlawful activity is relevant to the application for exclusion orders – In the exclusion application, the Defendants bear the onus, to the civil standard, of establishing the property it seeks to exclude from the forfeiture order is not proceeds of unlawful activity (s73 Proceeds of Crime Act). [19] The CDPP argues that determining the quantum of proceeds of unlawful activity is a different factual enquiry to determining whether the property sought to be excluded is or is not proceeds of unlawful activity. That may be true in the particular circumstances of another case. In this case, it is not. [20] The property restrained includes bank accounts of and property registered in the name of the company trading as Queensland Duty Free. The exclusion application necessarily requires consideration of whether all or any of that property is derived -- 6 of 10 -- 7 from legitimate trading through the duty free outlet. In his examination, Mr Chen asserted some 80% of the tobacco transactions were legitimate and, accordingly the proceeds of those transactions are not derived from unlawful activity. [21] This is not a different factual enquiry. It rests directly on findings about transactions the CDPP contends are illegitimate. The Defendants, in their exclusion application and the CDPP, in its pecuniary penalty application, will ask the Court to draw different conclusions about the number and value of illegitimate transactions. [22] Likewise, in relation to the payments made by Queen St Mall Duty Free, in their respective applications, the Defendants and the CDPP will ask the Court to draw different conclusions about whether or not they were the proceeds of unlawful activity. Can the civil proceedings be conducted in a way that the Defendants will not suffer a real danger of injustice? [23] The CDPP argued the civil proceedings could be conducted in a way that the Defendants will not suffer a real danger of injustice because it is a matter of choice for the Defendants whether they wish to lead evidence to defend the civil proceedings. The Defendants’ choice to lead evidence to defend the civil proceedings [24] Because the Defendants filed an exclusion application, Mr Chen was examined under the Proceeds of Crime Act and was unable to claim privilege against self-incrimination (s196). The matters the Defendants wish to raise in relation to the exclusion application are revealed in that examination. The examinations are admissible in the civil but not in the criminal proceedings (s198). If either of the Defendants gives evidence in the civil proceedings, that evidence is admissible against them in the criminal proceedings. This leaves open the potential for derivative use to be made in the criminal proceedings of information obtained from the examinations. For example, cross-examination of Mr Chen in the civil proceedings about a “prior inconsistent statement” made during the examination. [25] The CDPP asserted it is a matter of choice for the Defendants whether they give evidence. The Defendants could choose to establish the propositions on which they seek to rely through cross-examination of the CDPP’s witnesses and Mr Chen is not required to go on the record. This would have to be considered to be a high risk strategy for the Defendants, particularly when they bear the onus of establishing their case on the exclusion application. [26] The essential finding for an exclusion order is that it is more probable than not that the property is not illegally obtained. The nature and scope of the evidence produced by the CDPP will demand an alternative explanation. Raising a doubt will not be sufficient. It is almost inevitable that the Defendants will have to go into evidence if they are to discharge their onus. The question is not whether the Defendants can choose to defend the forfeiture application. Rather the question is, if they make that choice, it would result in them being prejudiced in the criminal proceedings. -- 7 of 10 -- 8 Will the Defendants be prejudiced in the criminal proceedings if they choose to defend the civil proceedings? [27] In State of Queensland v Henderson, Justice Fryberg rejected an application for a stay because the applicant had not demonstrated that he wished to raise a matter either in the forfeiture or the exclusion proceedings which, if raised, would prejudice the criminal proceedings. It is clear here what matters the Defendants wish to raise in the civil proceedings. Their relevance to the criminal proceedings has been established in relation to: • The Defendants’ criminal responsibility for the Defendant’s actions of the operators of Queen St Mall Duty Free; and • The penalty to which they are exposed: o in terms of the overall criminality of the offending on the Defendant’s conspiracy charge; and o the tiered penalty on the money laundering charge. The Defendants have demonstrated that fundamental questions in both the criminal and civil proceedings are the same or substantially similar. (State of Queensland v Shaw) [28] This is not a case of a general fear of an adverse consequence. Nor is the Court merely preserving the tactical status quo. (Olbers v Commonwealth) There is something more than a generally held fear that something might come out which may help the prosecution in a derivative sense. (State of Queensland v Cannon) There is a well defined and real disadvantage to the Defendants. The choice they are being asked to make if the civil proceedings are not stayed is between forgoing their right to resist forfeiture of property they say is not the proceeds of crime and forgoing their right to maintain silence in relation to serious criminal charges. (DPP(WA) v Mansfield; State of Queensland v O’Brien & Falzon) [29] If the Defendants choose to resist forfeiture, the CDPP gains the opportunity to test the Defendants’ evidence on these matters before the criminal proceedings commence and in circumstances where it is the Defendants who bear the onus of proof. (State of Queensland v Shaw) Further, there will be an imputation of guilt in relation to those transactions for which specific evidence as to their legitimacy is not led in the civil proceedings (Black & White Cab Co v Kelk). [30] Given the significant penalties involved, the prejudice to the Defendants is substantial and the risk of injustice is a real danger. Do other factors support the grant of a stay? [31] The other matters which I have considered in exercising my discretion also support the grant of a stay. -- 8 of 10 -- 9 [32] The interests of the CDPP are secure. A Plaintiff is entitled to have his action tried in the ordinary course of the procedure and business of the court (McMahon v Gould). It is a grave matter to interfere with this entitlement and it must be justified on proper grounds. However, the CDPP is not in the position of the usual civil Plaintiff (Mule v WA). The property is restrained and the interests of justice issues are “of a different nature or colour”. The CDPP’s interests are fully secured by the restraining orders which will remain in place. (DPP(WA) v Mansfield) The CDPP will suffer no particular prejudice if the Court grants the stay application. [33] The object of the Proceeds of Crime Act is not compromised by the grant of a stay. There is a public interest in furthering the object of depriving those suspected of being involved in illegal activity of the proceeds or benefit derived from that activity. (s5) That is assured by the restraining orders. It will not be compromised by the grant of a stay. [34] The public interest in the most efficient use of court resources will be furthered by the criminal trial preceding the civil applications. Acquittals may result in the civil proceedings being abandoned. Convictions would facilitate proof and reduce the scope for argument in the civil proceedings. (DPP(WA) v Mansfield) [35] The alternative scenario floated by the CDPP of splitting the civil case so as to defer only the exclusion application until after the criminal proceedings have concluded is an inefficient option. Splitting related applications which involve the same factual enquiries could result in the same issues being considered by the court in three rather than two proceedings. An exclusion application is akin to a counterclaim and a preference for the two to be dealt with at the same time can be inferred from the terms of s74 of the Proceeds of Crime Act. [36] The possibility of allowing the civil action to proceed to the point of readiness for trial before granting a stay was identified as a relevant consideration in McMahon v Gould. However, in this case the civil proceedings have virtually reached that point. The CDPP has filed all its material and is ready to proceed to hearing. Mr Chen’s examination has revealed matters the Defendants wish to rely on in the civil proceedings. This is, I consider, the appropriate juncture to assess prejudice. [37] The Defendants may suffer other disadvantages if the stay is not granted. The Defendants have significant property subject to restraining orders. They will have to prepare for two hearings, both likely to be extremely complex given the particular circumstances of this case. This is a significant issue for a private litigant. (DPP(WA) v Mansfield) Further, there is some potential, although it is not urged by the Defendants as significant, for publicity from the civil proceedings to influence jurors in the criminal proceedings. [38] The delay is not a significant factor. The property has been restrained since late 2004. There is no particular urgency in concluding the forfeiture proceedings. The criminal proceedings are expected to conclude in a little over a year. The CDPP asserts no particular prejudice as a result of delay. [39] Balancing justice between the parties favours the grant of a stay. Taking into account all the relevant factors and the particular circumstances of the case, the effect of a stay on the CDPP, must be weighed against the effect on the -- 9 of 10 -- 10 Defendants. (McMahon v Gould) There is a real danger of injustice to the Defendants if the stay is not granted. Against that, if it is granted, the CDPP will suffer no particular prejudice and its interests are fully secured by the restraining orders. The exclusion application [40] The CDPP noted the Defendants’ application was to stay the forfeiture and pecuniary penalty applications and not the exclusion application. The applications are related and are all filed in the one proceedings. The Defendants’ evident intention was to effectively stay the civil proceedings in its entirety. I do not consider it necessary for the Defendants to formally amend their application to make that explicit. They have sought such further or other orders as the Court deems appropriate. The orders [41] I order that the applications for forfeiture and pecuniary penalty orders against the first, second and third respondents and their application for exclusion orders are stayed until the criminal proceedings against the second and third respondents are concluded, or further order. [42] I will here from counsel as to costs. -- 10 of 10 --