Caruana v Director of Public Prosecutions
[2011] VSC 658
•19 December 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION S CI 2010 00734
IN THE MATTER of applications under section 20 of the Confiscation Act 1997 (Vic)
IN THE MATTER of an offender, SHARON LOUISE CARUANA
| SHARON LOUISE CARUANA and ATTILA GAL | Applicants |
| v | |
| DIRECTOR OF PUBLIC PROSECUTIONS FOR VICTORIA | Respondent |
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JUDGE: | KYROU J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 November, 8 and 9 December 2011 | |
DATE OF JUDGMENT: | 19 December 2011 | |
CASE MAY BE CITED AS: | Caruana v DPP | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 658 | |
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CONFISCATION – Exclusion application – Fraud offences – The offender’s partner, who was not involved in the offences, provided funds to the offender to hold for the partner – The offender’s bank account in which the partner’s funds were deposited became subject to a restraining order – Whether the partner has an interest in the funds – Whether the funds are held on trust – Principles for distinguishing an amount owed as a debt and an amount held on trust – Whether the offender has effective control of the funds – Meaning of ‘effective control’ – Whether the funds are tainted property or derived property – Whether the offender’s interest in the funds was lawfully acquired – Whether the funds are required to satisfy a compensation order – Applications dismissed – Confiscation Act 1997 (Vic) ss 3, 9, 20, 22, 23, 35, 132, sch 2.
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| APPEARANCES: | Counsel | Solicitors |
| For the Firstnamed Applicant | Ms M Wilkening-Le Brun | Le Brun Glezakos Lawyers |
| For the Secondnamed Applicant | Mr P G Adami | Stynes Dixon Lawyers |
| For the Respondent | Ms R Sofroniou | Office of Public Prosecutions |
TABLE OF CONTENTS
Introduction and summary........................................................................................................... 1
Facts that are not in dispute......................................................................................................... 2
General comments on evidence and credit................................................................................ 4
Relevant statutory provisions...................................................................................................... 5
Facts that are in dispute................................................................................................................ 8
How much money did Mr Gal provide to Ms Caruana?....................................................... 8
What was the purpose of the payment of $60,000?............................................................... 9
Mr Gal’s application................................................................................................................... 13
Matters that Mr Gal must establish....................................................................................... 13
Does Mr Gal have an interest in the $60,000?...................................................................... 14
Principles for distinguishing an amount owed as a debt and an amount held on trust 14
Did Mr Gal transfer the $60,000 to Ms Caruana to hold on trust for him?.................. 16
Is the $60,000 tainted property?............................................................................................ 19
Is the $60,000 derived property?........................................................................................... 20
Was the $60,000 in the effective control of Ms Caruana?.................................................... 22
Outcome of Mr Gal’s application........................................................................................... 23
Ms Caruana’s application........................................................................................................... 23
Matters that Ms Caruana must establish.............................................................................. 23
Does Ms Caruana have an interest in the $60,000?............................................................. 23
Did Ms Caruana lawfully acquire the $60,000?................................................................... 24
Is the $60,000 tainted property or derived property?.......................................................... 25
Is the $60,000 required to satisfy the Compensation Order?............................................... 25
Outcome of Ms Caruana’s application.................................................................................. 25
Proposed order............................................................................................................................. 25
HIS HONOUR:
Introduction and summary
This proceeding involves two applications under s 20 of the Confiscation Act 1997 (‘Act’) for exclusion orders in relation to a sum of $70,000 held in a Commonwealth Bank NetBank Saver account in the name of Sharon Caruana (‘CBA Account’).
The first application is made by Ms Caruana and the second application is made by her former partner, Attila Gal.
The applications arise out of the making of a restraining order by this Court on 16 February 2010 under s 18 of the Act (‘Restraining Order’) in relation to the CBA Account which currently has a credit balance of $121,980 (‘Restrained Property’).[1] The Restraining Order was made on the day after criminal charges were filed against Ms Caruana relating to the misappropriation of $374,711 from her former employer, CSL, in the period from 29 May 2003 until 21 November 2007.
[1]The order that was made on 16 February 2010 was an interim order which also applied to another bank account in the name of Ms Caruana. A permanent order was made on 2 March 2010 which was confined to the CBA Account.
On 6 August 2010, in the County Court, Ms Caruana pleaded guilty and was convicted on five counts of obtaining financial advantage by deception and three counts of theft. On the same day, the County Court made a compensation order under s 86 of the Sentencing Act 1991 requiring Ms Caruana to pay the sum of $374,711 to CSL (‘Compensation Order’).
The Restraining Order was made for the purposes, among others, of satisfying any forfeiture that may occur under the Act or any compensation order that may be made under the Sentencing Act. The Restrained Property is liable to be automatically forfeited under s 35 of the Act unless an exclusion order is made under s 22 of the Act.
The key issues in Mr Gal’s application are whether he has a proprietary interest in the sum of $70,000 and whether any such interest was subject to the effective control of Ms Caruana at the time that she was charged. For the reasons set out below, I have concluded that Mr Gal did not have an interest in the sum of $70,000 and that his application must fail.
The key issues in Ms Caruana’s application are whether her interest in the sum of $70,000 was lawfully acquired and whether that interest is required to satisfy the Compensation Order. For the reasons set out below, I have concluded that, although Ms Caruana’s interest in the sum of $70,000 was lawfully acquired, her application must fail because that sum is required to satisfy the Compensation Order.
Facts that are not in dispute
The facts set out at [9] to [24] below were either not in dispute or were not seriously contested. In so far as the facts were contested, I find that they were established on the balance of probabilities.
In May 2001, Ms Caruana commenced employment in CSL’s accounts receivable department in Melbourne. Her criminal conduct commenced on 29 May 2003 and consisted of the transfer of CSL funds to credit cards of three of her associates (including Mr Gal) who were not aware that the funds were illegally obtained. A total amount of $356,120 was misappropriated in this manner. This amount was the subject of the obtaining financial advantage by deception offences (‘OFAD Offences’). Ms Caruana also stole $18,591 from CSL’s foreign exchange account. This amount was the subject of the theft offences (‘Theft Offences’).
Mr Gal and his wife – who resided in Bundaberg, Queensland with their two young sons – obtained orders for property settlement in 2002 and divorced in August 2003. In 2002, following the property settlement, Mr Gal purchased a house in Bundaberg (‘Bundaberg House’). At this time, Mr Gal was making child support payments.
In April 2005, Mr Gal met Ms Caruana in Queensland. In September 2005, Mr Gal accepted a voluntary redundancy payment of $67,021 and used most of the money to discharge the mortgage on the Bundaberg House.
In December 2005, Mr Gal moved to Melbourne to live with Ms Caruana in a townhouse that she was renting. He was unable to find a job. For several months, he worked without pay in a business conducted by Ms Caruana’s parents.
Between 16 December 2005 and 21 November 2007, Ms Caruana made 136 transfers of CSL funds totalling $119,593 into Mr Gal’s credit card account. Funds in this account were used by Mr Gal to pay for his personal expenses, expenses relating to his children and household expenses. As Ms Caruana was authorised to operate the account, she used the funds in it to pay for her personal expenses, rent and household expenses.
On 13 July 2006, Mr Gal’s former wife applied to the Child Support Agency (‘CSA’) for an increase in his child support payments. On 7 September 2006, the CSA determined that, for the period from 30 September 2005 until 30 November 2007, Mr Gal’s child support payments be calculated on deemed income of $42,037.
On 16 April 2007, Mr Gal sold the Bundaberg House for $216,000, of which he received the net amount of $206,056 (‘Bundaberg House Proceeds’).
On 16 May 2007, Mr Gal gave to Ms Caruana a bank cheque for $60,000 which she deposited in the CBA Account on 31 May 2007. The source of the funds for the cheque was the Bundaberg House Proceeds.
On 30 July 2007, Mr Gal purchased a bank cheque for $10,000 payable to Ms Caruana. There is a dispute about whether Ms Caruana deposited the cheque in the CBA Account.
On 20 October 2007, Mr Gal completed a CSA application form seeking a reassessment of his child support payments on the basis that he was incurring increased costs to have contact with his children (‘CSA Application Form’). In the CSA Application Form, Mr Gal declared the Bundaberg House Proceeds in the amount of $213,000 and stated that the balance in his bank account from those proceeds was $140,000.
In October or November 2007, CSL discovered Ms Caruana’s fraudulent conduct. CSL terminated Ms Caruana’s employment in late November 2007 and informed her that her conduct would be reported to the police.
Mr Gal and Ms Caruana ceased their relationship as a couple in December 2007. At that time, Mr Gal returned to Queensland. He and Ms Caruana have remained friends.
The police interviewed Ms Caruana on 22 January 2010. The record of interview contains the following questions and answers relating to Mr Gal:
Q183 And then, … as your wage is sort of building up, you then transfer it into a savings account.
AYeah, yes. That’s right, we were trying to save to buy – so I would try as much as I could to save my money.
Q184 Yep.
ATo put it – Attila also gave me some money to hold for him as well.
Q185 Yep.
AAnd we were trying to buy a house, really, for the kids.
On 15 February 2010, the criminal charges were filed against Ms Caruana. On 16 February 2010, detective senior constable Christine Stafford met Ms Caruana at the Altona North Police Station and served her with the criminal charges and the Restraining Order.
As discussed at [4] above, on 6 August 2010, Ms Caruana was convicted of the OFAD Offences and the Theft Offences and the County Court made the Compensation Order.
Since March 2007, the balance of the CBA Account has always exceeded $70,000.
General comments on evidence and credit
Ms Caruana was an unreliable witness. She tailored her evidence to suit her case and that of Mr Gal rather than to assist the Court. Her oral evidence was contradictory at times and was inconsistent with her affidavit evidence. Part of Ms Caruana’s oral evidence consisted of recent invention. I am not prepared to accept Ms Caruana’s evidence on critical issues unless it is inherently plausible or supported by objective evidence.
Mr Gal was also an unreliable witness. He gave evidence in an evasive and defensive manner. In cross-examination, he often paused and reflected on the purpose of a question before answering it, and he hesitated in answering even the most innocuous questions. Mr Gal feigned ignorance about obvious matters. Some of his answers were contradictory and defied logic. As with Ms Caruana, I am not prepared to accept Mr Gal’s evidence on critical issues unless it is inherently plausible or supported by objective evidence.
Ms Stafford was an honest and reliable witness who answered all questions objectively and impartially. I have no hesitation in accepting her evidence in preference to the evidence of Ms Caruana and Mr Gal.
Relevant statutory provisions
The provisions of the Act that are relevant to this proceeding are ss 9, 20, 22, 23, 35, 132, sch 2 and a number of definitions in s 3(1).
Section 3(1) of the Act contains the following relevant definitions:
derived property means property—
…
(b)derived or realised, or substantially derived or realised, directly or indirectly, from any unlawful activity by—
(i)the accused; or
(ii)the person who is suspected of having committed a Schedule 2 offence; or
(iii)the applicant for an exclusion order …
interest, in relation to property, means—
(a) a legal or equitable estate or interest in the property; or
(b) a right, power or privilege over, or in connection with, the property;
property means real or personal property of every description … whether tangible or intangible, and includes any interest in any such real or personal property;
Schedule 2 offence means an offence referred to in Schedule 2…
tainted property, in relation to an offence, means property that—
…
(c)was derived or realised, or substantially derived or realised, directly or indirectly, by any person from the commission of the offence; …
unlawful activity means an act or omission that constitutes an offence against a law in force in the Commonwealth, Victoria or another State, a Territory or a foreign country punishable by imprisonment.
Section 9 of the Act provides as follows in relation to the expression ‘effective control’:
9 Effective control of property
(1)For the purposes of this Act, property may be subject to the effective control of a person whether or not the person has an interest in it.
(2)In determining whether or not property is subject to the effective control of a person …, regard may be had to—
…
(b) a trust that has a relationship to the property; and
(c)family, domestic, business or other relationships between persons having an interest in the property, … or trusts of the kind referred to in paragraph (b), and other persons.
Section 20 of the Act provides that if a court makes a restraining order against property under s 18, ‘any person claiming an interest in the property (including the accused) may apply to that court for an order under section 21, 22 or 24’.
Section 22 of the Act relevantly provides:
22Determination of exclusion application – restraining order – automatic forfeiture
(1)On an application made under section 20, where the restraining order has been made in relation to a Schedule 2 offence for the purposes of automatic forfeiture—
(a)the court may make an order excluding the applicant’s interest in the property from the operation of the restraining order if the court is satisfied that—
(i)the property in which the applicant claims an interest was lawfully acquired by the applicant; and
(ii) the property is not tainted property; and
(iia)the property is not derived property; and
(iii)the property will not be required to satisfy any pecuniary penalty order or an order for restitution or compensation under the Sentencing Act 1991; or
(b)where the application is made by a person other than the accused, the court may make an order excluding the applicant’s interest in the property from the operation of the restraining order—
(i)if the court is not satisfied that the property in which the person claims an interest is not tainted property or derived property but is satisfied that—
…
(D) the applicant’s interest in the property was not subject to the effective control of the accused on the earlier of the date that the accused was charged with the Schedule 2 offence or the date that the restraining order was made in relation to the property …
…
(ii)if the court is satisfied that the property is not tainted property or derived property and that—
(A)the applicant’s interest in the property was not subject to the effective control of the accused on the earlier of the date that the accused was charged with the Schedule 2 offence or the date that the restraining order was made in relation to the property …
Section 23 of the Act provides that, in the determination of an exclusion application under s 22(1)(a), if the Court is satisfied that the property was lawfully acquired and that it is not tainted property or derived property, the Court may declare that the applicant’s interest in the property shall not be restrained for the purposes of automatic forfeiture. The note to s 23 makes it clear that, notwithstanding such a declaration, if the property was restrained for other purposes, it continues to be restrained for those purposes.
As the OFAD Offences fall within the offences listed in sch 2 of the Act,[2] they constitute Schedule 2 offences.
[2]Confiscation Act 1997 sch 2 cl 2(g)(ii).
Section 132 of the Act provides that any question of fact to be decided by a court on an application under the Act is to be decided on the balance of probabilities.
Facts that are in dispute
How much money did Mr Gal provide to Ms Caruana?
It is common ground that Ms Caruana deposited the bank cheque for $60,000 in the CBA Account. However, there is a dispute about whether the bank cheque for $10,000 was deposited in the CBA Account.
In his affidavit of 25 November 2011, Mr Gal stated that he gave Ms Caruana the amount of $10,000 by way of bank cheque in July 2007. In his oral evidence, Mr Gal said that he purchased the bank cheque for $10,000 and that he may have posted it to Ms Caruana. A photocopy of the cheque is in evidence.
In her affidavit of 24 March 2010, Ms Caruana stated that Mr Gal ‘transferred’ the sum of $10,000 to the CBA Account on 30 July 2007. In her affidavit of 29 November 2011, Ms Caruana said that, in July 2007, Mr Gal gave her a bank cheque for $10,000 which she ‘paid … into [the CBA Account]’. In her affidavit of 5 December 2011, Ms Caruana described the CBA Account as ‘the bank account into which Mr Gal paid to me the $70,000’.
The bank statements for the CBA Account for the period from 30 July 2007 until 5 October 2010 disclose only one credit entry for $10,000, namely, a ‘Netbank Transfer’ on 8 November 2007. However, there is nothing to link this transfer to the bank cheque for $10,000 that was purchased by Mr Gal over three months before that date. By contrast, the amount of $60,000 was deposited in the CBA Account within 15 days after the cheque for that amount was purchased and the notation for that deposit was ‘MIS’. Ms Caruana gave evidence that this meant ‘Miscellaneous’.
The cheque for $10,000 was purchased on 30 July 2007 from a bank branch located in Melbourne. At that time, Mr Gal was living with Ms Caruana in Melbourne. In these circumstances, it is unlikely that Mr Gal would have posted the cheque to Ms Caruana. It is possible that Mr Gal did not give the cheque to Ms Caruana at all. His bank statements show that on 30 July 2007, he transferred $10,000 from his NetBank Saver account to his Streamline account, that on the same day he withdrew $10,000 from the Streamline account and that on 2 August 2007, he deposited $10,000 in the Streamline account.
It is also possible that, as Ms Caruana had other bank accounts, she deposited the cheque for $10,000 in one of her other accounts. She gave oral evidence that she would have deposited the cheque in her Streamline account rather than in the CBA Account and that she cannot recall if she transferred the amount out of the Streamline account.
In these circumstances, I am not satisfied that the bank cheque for $10,000 that Mr Gal purchased on 30 July 2007 was deposited in the CBA Account. Accordingly, only the amount of $60,000 may be the subject of an exclusion order.
What was the purpose of the payment of $60,000?
Mr Gal and Ms Caruana gave contradictory evidence about the purpose for which he gave the $60,000 to her.
In his affidavit of 22 February 2010, Mr Gal relevantly stated:
On the 16th May 2007 I provided a Bank Cheque for $60,000 to … Sharon Caruana … to hold on my behalf as I wanted to keep this money from my divorced wife who was causing me problems and fighting me for the money after I sold my home. …
…
I have entrusted Sharon Caruana to hold this money on my behalf and to transfer it back to my account as and when I instruct her so that I am able to buy a home for my children to live in.
In his affidavit of 25 November 2011, Mr Gal relevantly stated:
The $70,000.00 … was paid by me to [Ms Caruana] to be held by her on my behalf repayable on my request.
…
I included in the October Application [to the CSA] that I had $140,000.00 in cash because I felt it was in the best interest of my sons that I give $60,000.00 to Sharon which I did in May 2007 so I could use this money at a later stage to put it towards the purchase of a new house. I did this by way of bank cheque made out to her to hold on my behalf for me and my sons’ futures.
…
I only paid the money to Sharon to reassure myself that I could provide a home and something for our sons’ future if [my former wife] sought to get more maintenance from me. I was fearful that anything she got which was meant to go to our sons would be wasted and wouldn’t be used to help them at all.
In his oral evidence, Mr Gal stated that he gave the $60,000 to Ms Caruana to hold for him temporarily while he ‘sorted … some issues out’ and that it was his intention to use the money to provide a home for himself and his children. Mr Gal emphasised that he did not intend to mislead the CSA and that the non-disclosure of his arrangement with Ms Caruana in the CSA Application Form was inconsequential because he was subject to a fixed child support assessment at that time.
In her affidavit of 24 March 2010, Ms Caruana relevantly stated:
In my [CBA Account], I hold the sum of $70,000.00 which does not properly belong to me. These monies in fact belong to … Mr Attila Gal, who deposited monies into my account from his own Commonwealth Bank Account …
…
I have held these funds in my account on behalf of my former partner as he has sought my assistance in this regard to enable him to apply his funds to purchase a family home for himself and his children. These monies do not belong to me, and I have no legal or beneficial interest in same.
In her affidavit of 21 October 2010, Ms Caruana relevantly stated:
As previously attested by me, these monies were provided to me by Mr Gal to hold on his behalf on Trust, as these funds related to matters pertaining to a Family Law settlement which he was undertaking.
I am obliged to return these monies to Mr Gal as these monies do not properly belong to me, and these are monies simply held in Trust for his benefit.
In her affidavit of 29 November 2011, Ms Caruana relevantly stated:
Before he sold his house, Attila told me that he wanted to give to me $60,000 to put into my bank account to hold for him and his children until the review with the CSA was completed. He said to me that he wanted to buy a home for his children because if he did not look after them and provide for them no one else would. … He also felt frustrated because every time his [former wife] rang he felt guilty and sad that his children were going without, … so he would provide his children with what ever monies she was requesting and he was afraid that by doing this every time she rang the money would diminish and he would not have money to provide for them in the future.
Attila gave me a bank cheque … in the amount of $60,000 on 16 May 2007. I paid this into [the CBA Account]. At no point did Attila say that I could have this money or that it was a gift as a repayment for living off me. I never treated this money as my own nor did I ever believe that it was mine… I understood that once CSA completed its investigations Attila would [ask] me to pay it back. I had told Attila that I would return the money whenever he was ready to buy a house.
In her affidavit of 13 April 2011, Ms Stafford relevantly stated:
On the 16 February 2010 I served CARUANA with her Charge and Summons for Fraud matters and a restraining order relating to funds in her account. … She asked about the money Attila Gal … gave her and I asked what was that for and she advised that he originally gave it to her after a property settlement and to hide it from his ex-wife.
In her affidavit of 29 November 2011, Ms Caruana disputed the contents of Ms Stafford’s affidavit. Ms Caruana relevantly stated:
During this conversation [Ms Stafford] said to me: ‘You are not going to like what I am about to tell you. Your bank accounts have been frozen.’ I then immediately said: ‘But what about the money I owe to Attila’. She then said to me: ‘What did he give you that money for?’ I then said …: ‘He was having trouble with his ex-wife and that he was keeping the money from her for his children.’
In her oral evidence, Ms Caruana denied that the purpose of Mr Gal’s payment of $60,000 to her was to mislead the CSA. She described the purpose as ‘[b]asically so that he just wouldn’t spend it’. She went on to explain that she had told Mr Gal that, if he continued spending money on the children, ‘he would just dwindle this money away and when it came time to fight for custody of his children, he wouldn't have anything to put down on a deposit or to buy something for the children’.
In my opinion, the affidavits sworn by Ms Caruana and Mr Gal are more reliable than their oral evidence about the purpose of the payment of $60,000. It is readily apparent from the affidavits that the purpose was to enable Mr Gal to represent to the CSA and to his former wife that only the amount of $140,000 remained from the Bundaberg House Proceeds.
For the reasons set out at [25] and [27] above, I accept Ms Stafford’s evidence in preference to Ms Caruana’s evidence. Accordingly, I find that, on 16 February 2010, Ms Caruana told Ms Stafford that Mr Gal gave her money in order to hide it from his former wife. That statement supports my conclusion at [53] above.
In cross-examination, Ms Caruana and Mr Gal sought to resile from their affidavit evidence when it was put to them that the arrangement relating to the $60,000 was intended to mislead the CSA. Mr Gal said that the purpose of the payment was to ensure that it was available when he required it to purchase a home for himself and his children. Ms Caruana said that the purpose of the payment was to protect Mr Gal from the temptation of using the money to make additional payments for his children and thereby leaving insufficient funds to purchase a house.
The attempts by Ms Caruana and Mr Gal to change their evidence were unconvincing. It appears that their attempts arose from the suggestions during cross-examination that the arrangement relating to the $60,000 was legally improper. Both were at pains to emphasise that the CSA had verbally advised them that the assets that Mr Gal disclosed in the CSA Application Form could not affect his child support obligations, as those obligations were subject to a fixed assessment. I do not accept that the CSA gave any such advice. In any event, the above explanation is nonsensical, as the purpose of the CSA Application Form was to alter the fixed assessment.
Ms Caruana’s statement that the purpose of the arrangement relating to the $60,000 was, in effect, to protect Mr Gal from himself, was a recent invention. In her affidavit of 29 November 2011, Ms Caruana said that Mr Gal sometimes made additional payments for his children which had the effect of eroding his savings. However, in the same affidavit, she said that she understood that Mr Gal would seek repayment of the $60,000 once the CSA review was completed.
For the above reasons, I find that Mr Gal provided the $60,000 to Ms Caruana so that he could be in a position to disclose to the CSA savings of $140,000 rather than $200,000 to support any application that he might make to the CSA to reduce his child support payments and to oppose any application that his former wife might make to increase those payments.
Mr Gal’s application
Matters that Mr Gal must establish
Mr Gal’s application is governed by s 22(1)(b) of the Act.
Ms Rena Sofroniou, who appeared for the Director of Public Prosecutions (‘DPP’), conceded that sub-paras (A), (B), (C) and (E) of s 22(1)(b)(i) and para (B) of s 22(1)(b)(ii) are inapplicable.
In relation to s 22(1)(b)(ii), the effect of the above concessions is that, in order to satisfy that provision, Mr Gal must establish that:
(a)he has an interest in the $60,000;
(b)the $60,000 is not tainted property;
(c)the $60,000 is not derived property; and
(d)his interest in the $60,000 was not subject to the effective control of Ms Caruana at the time that she was charged on 15 February 2010.
In relation to s 22(1)(b)(i), the effect of the above concessions is that, in order to satisfy that provision, Mr Gal must establish that he has an interest in the $60,000 and that his interest was not subject to the effective control of Ms Caruana at the time that she was charged on 15 February 2010.
Does Mr Gal have an interest in the $60,000?
The ‘property’ that is in issue in this proceeding is a chose in action, namely, the contractual right to direct the Commonwealth Bank as to the disposition of the amount of $60,000 in the CBA Account. Ms Caruana is the legal owner of the chose in action, as the CBA Account is in her name. The only interest that Mr Gal has claimed in the chose in action is an equitable interest pursuant to a trust.
Principles for distinguishing an amount owed as a debt and an amount held on trust
Where an amount of money is paid by one person (‘payer’) to another person (‘payee’), it is possible that the amount was paid:
(a)as a gift;
(b)as a bailment;
(c)as a loan, so as to make the payee a debtor and the payer a creditor; or
(d)to establish a trust, so that the payee is to hold the money on trust for the payer or another nominated beneficiary.
The categories of debt and trust are not mutually exclusive; that is, the payer may enjoy the rights of both a beneficiary and a creditor.
A validly created trust requires a trustee, who holds a legal interest in the trust property; identifiable property capable of being held on trust; one or more beneficiaries, in whom an equitable interest in the trust property is vested; and a personal obligation imposed on the trustee to deal with the trust property for the benefit of the beneficiaries.
Under a trust, the beneficiary has an equitable proprietary interest in specific trust property, or the right to have specific trust property administered according to the terms of the trust. The trustee is accountable to the beneficiary for the trust property. By contrast, a debtor is not a trustee for the creditor, as there is no identifiable fund that the creditor is entitled to require the debtor to apply for the creditor’s benefit.[3] An unsecured creditor merely has a personal right against the debtor to be repaid an amount of money owing, unconnected with any particular property held by the debtor.
[3]Fitzgerald v Fitzgerald (1910) 10 SR (NSW) 488; Cohen v Cohen (1929) 42 CLR 91, cited in John Dyson Heydon and Mark James Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 7th ed, 2006) [213].
In the absence of an express agreement between the parties, the question of whether an amount of money is owed as a debt or whether it is held on trust will depend upon the intention of the parties as inferred from the nature of the transaction, the statements and actions of the parties, and any special relationship between them associated with the payment of the money.[4] According to Palmer J in McManus RE Pty Ltd v Ward:[5]
In cases where no express or clearly implicit intention to create a trust is shown, such as where the parties give no actual thought to the matter, whether or not there was an intention that the subject monies be kept separate from the other general monies of the recipient is often decisive of the question whether the recipient is a trustee or merely a debtor.[6]
[4]See Morgan v Lariviere (1875) LR 7 HL 423; Re Tidd [1893] 3 Ch 154, cited in John Dyson Heydon and Mark James Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 7th ed, 2006) [213]; Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491, 502-3.
[5](2009) 74 NSWLR 662 (‘McManus’).
[6]McManus (2009) 74 NSWLR 662, 667 [25].
The indicators that may be taken into account in distinguishing between an amount owed as a debt and an amount held on trust include the following:
(a)If it is proved on the facts that the parties’ intention was that the payee was entitled to use the money as his or her own, and was only under an obligation to repay the same amount of money either on demand or at a specified time in the future, then there is no trust and the amount owed is a debt.[7]
(b)If it is proved on the facts that the parties’ intention was that the payee would hold the money for the benefit of the payer, would deal with the money as a separate fund on behalf of the payer and would not be free to use the money as his or her own, then a trust will arise.[8]
(c)The absence of a prohibition on the payee depositing the money into a general account (or the absence of a requirement that the payee deposit the money into a separate account) is significant[9] but not determinative in distinguishing between an amount owed as a debt and an amount held on trust. Where the intention to create a trust emerges from other facts, the payee can still be a trustee.[10]
(d)A requirement that the payee is to keep the money received from the payer separate from the payee’s own funds is generally indicative of a trust. However, the fact that the payee deposits the money into a separate bank account is not conclusive of an intention to establish a trust.[11]
(e)If the trustee and the beneficiary agree that the money can be paid into a general account maintained by the trustee, then the trustee must retain sufficient funds in that account to fulfil his or her obligations as trustee.[12]
[7]Re Broad; Ex parte Neck (1884) 13 QBD 740, 746.
[8] Cohen v Cohen (1929) 42 CLR 91, 101.
[9]Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491, 498.
[10]Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588, 604 [31].
[11]Re Kayford Ltd (in liq) [1975] 1 WLR 279, 282.
[12]Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331, 348-9.
Did Mr Gal transfer the $60,000 to Ms Caruana to hold on trust for him?
In my opinion, the $60,000 was never the subject of a trust in favour of Mr Gal. The arrangement between Mr Gal and Ms Caruana simply involved the provision of a bank cheque for $60,000 to her to deposit in one of her bank accounts and the repayment of an amount of $60,000 on demand. It was not part of the arrangement that Ms Caruana would establish a separate bank account for the $60,000. Rather, it was intended that the $60,000 be intermingled with Ms Caruana’s savings so as to give the appearance that the money belonged to her. That intention was effected by the deposit of the $60,000 in the CBA Account. That deposit was indistinguishable from other deposits to the account and it became part of the running balance of the account. It did not remain an identifiable item of property to which trust obligations attached.
When Mr Gal provided the bank cheque to Ms Caruana, he did not specify that the cheque be deposited in any particular bank account or that Ms Caruana maintain a minimum amount of $60,000 in any bank account. Ms Caruana’s obligation was to repay the $60,000 on demand without any specification about how the repayment was to be funded. Further, Ms Caruana was not required to pass on to Mr Gal any part of the interest that was credited to the bank account into which the $60,000 was deposited.
As the beneficiaries of a trust must be identifiable, the conflicting evidence about whether Ms Caruana was required to hold the $60,000 for the benefit of Mr Gal or for Mr Gal and his sons[13] also militates against the existence of a trust.
[13]Compare Mr Gal’s affidavit evidence above at [44] and [45] and Ms Caruana’s affidavit evidence above at [48] and [49].
Given that the purpose of the provision of $60,000 by Mr Gal to Ms Caruana was to conceal that amount,[14] it is not surprising that the transaction did not have any of the attributes of a trust. Clothing the $60,000 with the attributes of a trust would have been inconsistent with that purpose.
[14]See above [58].
In her affidavit of 24 March 2010, Ms Caruana stated that she had no legal or beneficial interest in the $60,000[15] and in her affidavit of 21 October 2010, she said that Mr Gal provided that amount to her to hold on trust for him.[16] In cross-examination, Ms Caruana stated that she used the expression ‘beneficial interest’ in the sense of ‘benefit’ and the expression ‘on trust’ in the sense of trust between two people. I reject Ms Caruana’s evidence. These expressions are legal terms which her lawyers inserted in the affidavit in a misguided attempt to support Ms Caruana’s application. Conclusions of law in affidavits sworn by lay people do not assist the Court.
[15]See above [47].
[16]See above [48].
For completeness, I note that Ms Sofroniou did not submit that, if Mr Gal and Ms Caruana had intended to create a trust, then that trust was unenforceable because it was established for an illegal purpose.
The provision of the $60,000 by Mr Gal to Ms Caruana gave rise to a creditor and debtor relationship between Mr Gal and Ms Caruana pursuant to which Ms Caruana was obliged to repay the $60,000 on demand. Ms Caruana’s obligation to repay the amount was supported by valuable consideration, namely, the use of the money until repayment and retention of the interest earned on it in the meantime. The oral evidence of Mr Gal and Ms Caruana made it clear that they did not intend either a gift or a bailment in relation to the bank cheque.
My conclusion that a creditor and debtor relationship arose between Mr Gal and Ms Caruana in May 2007 in relation to the amount of $60,000 does not assist Mr Gal’s application. This is because Mr Gal’s status as a creditor does not give him an interest of the type set out in the definition of ‘interest’ in s 3(1) of the Act in any of Ms Caruana’s assets, including any part of the balance of the CBA Account. As Mr Gal has failed to establish that he has a relevant interest in the $60,000, his application for an exclusion order in relation to that amount must fail.
A large part of the cross-examination of Mr Gal, Ms Caruana and Ms Stafford was devoted to the question of whether, when Ms Caruana and Mr Gal ceased cohabiting in December 2007, Mr Gal said to Ms Caruana that she could keep the $60,000 as partial reimbursement for the money she had made available to him in the past. In the light of my conclusion at [77] above, it is not necessary for me to decide whether Mr Gal made this statement or whether Ms Caruana mentioned the alleged statement to Ms Stafford.[17] In any event, I doubt whether such a statement, if made, would have had the effect of releasing Ms Caruana from her obligation to repay the $60,000. This is because it appears that Ms Caruana did not provide any valuable consideration for any such purported release.
[17]For the same reason, it is not necessary for me to decide whether Mr Gal said to Ms Stafford on 12 February 2010 that, in 2006 and 2007, he was unemployed and living off Ms Caruana.
In the light of my conclusion at [77] above, it is not necessary for me to deal with the other matters set out at [61] and [62] above. However, as the parties made submissions on those matters, I will briefly deal with them.
Is the $60,000 tainted property?
It was common ground that the only paragraph of the definition of ‘tainted property’ in s 3(1) of the Act that potentially applied was para (c). Under that paragraph, the question is whether the $60,000 was derived, or substantially derived, directly or indirectly, by any person from the commission of Ms Caruana’s offences.
Ms Sofroniou submitted that the $60,000 is tainted property because it was indirectly derived by Ms Caruana from the commission of her offences. This was because, so it was said, in December 2007, Mr Gal told Ms Caruana that she could keep the $60,000 as partial reimbursement for the money that she had made available to him in the past. According to Ms Sofroniou, Mr Gal’s statement meant that Ms Caruana became entitled to keep the $60,000 because she had given to Mr Gal part of the proceeds of her offences and this, in turn, meant that the $60,000 was indirectly derived by her from the commission of the offences.
As the source of the $60,000 was the Bundaberg House Proceeds, it was derived from those proceeds. Even if it is assumed that Mr Gal told Ms Caruana that she could keep the $60,000 as alleged and that this statement released Ms Caruana from her obligation as a debtor to repay that amount, the misappropriated CSL funds did not replace the Bundaberg House Proceeds as the source of the $60,000. In these circumstances, the $60,000 was not initially derived, either directly or indirectly, from the misappropriated CSL funds. The statement that Mr Gal allegedly made to Ms Caruana in December 2007 could not change that.
In my opinion, the position would have been the same if Ms Caruana had initially held the $60,000 on trust for Mr Gal and, as a result of his alleged statement in December 2007, she acquired a full beneficial interest in the $60,000 at that time. That interest would have been derived by way of gift from Mr Gal and the funds for that gift would have been derived from the Bundaberg House Proceeds. Mr Gal’s past receipt of misappropriated funds would have been no more than the motive for the gift.
It follows that the $60,000 is not tainted property.
Is the $60,000 derived property?
It was common ground that the only paragraph of the definition of ‘derived property’ in s 3(1) of the Act that potentially applied was para (b). Under that paragraph, the question is whether the $60,000 was derived, or substantially derived, directly or indirectly, from any unlawful activity by Ms Caruana or by Mr Gal.
Ms Sofroniou submitted that, as a result of Mr Gal’s statement to Ms Caruana that she could keep the $60,000 as partial reimbursement for the money she had made available to him in the past, that amount was indirectly derived from Ms Caruana’s unlawful activity, namely, the misappropriation of CSL’s funds. According to Ms Sofroniou, but for the fact that Ms Caruana had provided to Mr Gal misappropriated funds, Mr Gal would not have told her to keep the $60,000. This was said to be a sufficient connection between the $60,000 and Ms Caruana’s unlawful activity.
In support of her submission, Ms Sofroniou relied upon Jeffrey v Director of Public Prosecutions (Cth)[18] and Studman v Director of Public Prosecutions (Cth).[19]
[18](1995) 79 A Crim R 514 (‘Jeffrey’).
[19](2007) 177 A Crim R 34 (‘Studman’).
In Jeffrey, one of the unlawful acts alleged was the purchase by the appellant of United States currency in excess of $10,000 in four separate transactions, contrary to s 31 of the Cash Transaction Reports Act 1988 (Cth). The New South Wales Court of Appeal held that, even though the Australian funds to purchase the United States dollars may have been lawfully obtained, the United States dollars were derived by the appellant in consequence of the unlawful activity. The Court emphasised that whether property is derived, directly or indirectly, from unlawful activity is a question of fact.[20]
[20]Jeffrey (1995) 79 A Crim R 514, 523, 526.
In Studman, the appellant deposited legitimately acquired funds in a bank account that he opened in a false name. Section 24(1) of the Financial Transaction Reports Act 1988 (Cth) made it an offence to open an account in a false name. The New South Wales Court of Appeal held that the appellant’s right to deal with the monies in the account was derived directly from the commission of that offence.[21]
[21]Studman (2007) 177 A Crim R 34, 40-41 [40]-[43].
In my opinion, neither Jeffrey nor Studman has any application to the facts of this case. In both of those cases, the appellant engaged in the impugned transactions and also committed the relevant offences, and this infected the transactions with illegality. In the present case, the offences were committed by Ms Caruana and the DPP has accepted that Mr Gal was not in any way involved in the commission of those offences. For the reasons set out at [82] to [83] above, in so far as there is any connection between Mr Gal’s involvement in the transaction concerning the $60,000 and Ms Caruana’s unlawful activity, that connection is insufficient to support a finding that the $60,000 was indirectly derived from that unlawful activity.
For the reasons set out at [82] to [83] above and at [103] to [106] below, even if it is assumed that Mr Gal engaged in unlawful activity when he lodged the CSA Application Form on 20 October 2007, it cannot be sensibly said that the $60,000 was directly or indirectly derived from that unlawful activity.
It follows that the $60,000 is not derived property.
Was the $60,000 in the effective control of Ms Caruana?
The expression ‘effective control’ in s 22(1)(b) of the Act means control which is practically effective, in the sense that the person concerned has in fact, while not necessarily in law, the ability to control the property.[22] This control need not be supported by any proprietary interest or legally enforceable power,[23] and it is not denied by the existence of trust arrangements that would ordinarily give the trustee a bare legal interest in property.[24]
[22]DPP (Vic) v Twenty Fourth Trengganu Pty Ltd [2011] VSCA 92 (12 April 2011) [37] (‘Trengganu’); DPP v Ferguson [2006] VSC 484 (15 December 2006) [52]-[54] (‘Ferguson’); Rizzo v DPP (Vic) [2009] VSC 525 (18 November 2009) [43]; DPP (Vic) v Loo (2002) 130 A Crim R 452, 457 [30] (‘Loo’); Loo v DPP (Vic) [2005] VSCA 161 (29 June 2005) n 11 (the Court of Appeal reversed Loo on other grounds).
[23]Confiscation Act 1997, s 9(1); Loo (2002) 130 A Crim R 452, 457 [30].
[24]Loo (2002) 130 A Crim R 452, 457 [30].
Whether a person has the effective control of property involves an examination of that person’s actual practical exercise, or capacity to exercise, rights over the property, such as the right to possess, use, sell, lease, mortgage, make fundamental improvements to, and exclude others from the possession of, the property in question.[25]
[25]Ferguson [2006] VSC 484 (15 December 2006) [49], [52], [54].
Substantial control of possession may be a relevant factor in determining whether effective control exists in a particular case. However, where the relevant interest is an ownership interest, substantial control of the right to use or possess property, which remains subject to the owner’s right to demand possession and to sell or otherwise dispose of the property for the owner’s own benefit, is insufficient to constitute effective control of that property.[26]
[26]Trengganu [2011] VSCA 92 (12 April 2011) [39].
In my opinion, at all times prior to Ms Caruana being charged on 15 February 2010, all amounts in the CBA Account remained in the effective control of Ms Caruana. She was the only person authorised to deal with the CBA Account and she was able to deposit and withdraw any amount from that account at will.[27] The CBA Account was in the sole name of Ms Caruana and Mr Gal did not have any rights in relation to it. He was not a signatory to the CBA Account, he did not receive any bank statements in relation to it and he did not have any online access to the account.
[27]See above [71].
The above conclusion is supported by the evidence of Ms Caruana and Mr Gal that, in 2008, he requested her to retransfer the $60,000 and she did not comply with the request. Ms Caruana’s conduct demonstrates that she had the practical ability to deal with the $60,000 in disregard of Mr Gal’s wishes.
Outcome of Mr Gal’s application
As I have concluded that the $60,000 is neither tainted property nor derived property, s 22(1)(b)(ii) applies. That section relevantly requires Mr Gal to demonstrate that he has an interest in the $60,000 and that his interest was not subject to the effective control of Ms Caruana when she was charged on 15 February 2010. Mr Gal has not satisfied either of these requirements. Accordingly, Mr Gal’s application will be dismissed.
Ms Caruana’s application
Matters that Ms Caruana must establish
Ms Caruana’s application is governed by s 22(1)(a) of the Act.
In order for her application to succeed, Ms Caruana must establish that:
(a)she has an interest in the $60,000;
(b)the $60,000 was lawfully acquired by her;
(b)the $60,000 is not tainted property;
(c)the $60,000 is not derived property; and
(d)the $60,000 will not be required to satisfy the Compensation Order.
Does Ms Caruana have an interest in the $60,000?
It was common ground that Ms Caruana has a legal interest in the chose in action that is represented by the credit balance of the CBA Account. That interest is sufficient for the purposes of 22(1)(a) of the Act.
For the reasons set out at [70] to [74] above, Ms Caruana does not hold her interest on trust for Mr Gal.
Did Ms Caruana lawfully acquire the $60,000?
Ms Sofroniou submitted that, as the purpose for which Mr Gal provided the $60,000 to Ms Caruana was to enable him to mislead the CSA in breach of s 159 of the Child Support (Assessment) Act 1989 (Cth) (‘CSA Act’), her acquisition of that amount was unlawful.
Section 159 of the CSA Act provides that it is an offence for any person to knowingly make a false or misleading statement to an official exercising powers under the CSA Act. Ms Sofroniou contended that it was open on the evidence for me to conclude that Ms Caruana’s acquisition of the $60,000 in May 2007 was in anticipation of Mr Gal submitting misleading information to the CSA about his income and assets in breach of s 159 and that such a breach rendered the acquisition unlawful. Ms Sofroniou stressed that, for the purposes of concluding that s 22(1)(a)(i) of the Act was not satisfied, it was not necessary for me to make a positive finding that the acquisition was unlawful; it was sufficient if I were not satisfied that the acquisition was lawful.
I reject Ms Sofroniou’s submission. The $60,000 formed part of the Bundaberg House Proceeds which Mr Gal lawfully acquired. Ms Caruana acquired this amount when she deposited the bank cheque from Mr Gal in the CBA Account. There was nothing unlawful about Mr Gal’s purchase of the bank cheque or Ms Caruana’s deposit of the bank cheque in the CBA Account. This is so even if the transfer of the $60,000 was made for the purpose of enabling Mr Gal to mislead the CSA in the future. Section 159 of the CSA Act is only engaged at the time that a knowingly false or misleading statement is made to the CSA. It cannot relate back to an antecedent transaction which was entered into in anticipation of the making of such a statement.
It follows that I am satisfied that Ms Caruana’s interest in the $60,000 was lawfully acquired by her.
Is the $60,000 tainted property or derived property?
For the reasons set out at [80] to [92] above, the $60,000 is neither tainted property nor derived property.
Is the $60,000 required to satisfy the Compensation Order?
Ms Caruana gave evidence that she does not currently have any savings or other assets from which to satisfy the Compensation Order. She said that she intends to satisfy the Compensation Order from income that she will earn once she completes home detention and from funds she expects to receive once her late father’s home is sold and the proceeds are distributed to her and her three siblings. She did not state the amount that she expects to receive or when she expects to receive it.
At [70] above, I concluded that Ms Caruana did not receive the $60,000 subject to a trust in favour of Mr Gal. Ms Wilkening-Le Brun, who appeared for Ms Caruana, properly conceded that, if Ms Caruana is beneficially entitled to the $60,000, then that amount is required to satisfy the Compensation Order for the purposes of s 22(1)(a)(iii) of the Act. It follows that Ms Caruana is unable to establish that the $60,000 is not required to satisfy the Compensation Order. I note that, even though I am satisfied of the matters set out in s 22(1)(a)(i), (ii) and (iia) of the Act, pursuant to s 23 of the Act, the $60,000 will continue to be restrained for the purpose of satisfying the Compensation Order.[28]
[28]See above [33].
Outcome of Ms Caruana’s application
As Ms Caruana has failed to establish that the $60,000 is not required to satisfy the Compensation Order, her application will be dismissed.
Proposed order
I will make an order dismissing both applications. If the parties require a declaration under s 23 of the Act, I will make it. I will hear from the parties on the precise form of the order and on the question of costs.
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