Commissioner of the Australian Federal Police v Hart & Ors; Commonwealth of Australia v Yak 3 Investments & Ors; Commonwealth of Australia & Anor v Flying Fighters

[2017] HCATrans 153

[2017] HCATrans 153

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B21 of 2017

B e t w e e n -

COMMISSIONER OF THE AUSTRALIAN FEDERAL POLICE

Appellant

and

STEVEN IRVINE HART

First Respondent

FLYING FIGHTERS PTY LTD AS TRUSTEE FOR FLYING FIGHTERS DISCRETIONARY TRUST

Second Respondent

NEMESIS AUSTRALIA PTY LTD

Third Respondent

YAK 3 INVESTMENTS PTY LTD AS TRUSTEE FOR YAK 3 DISCRETIONARY TRUST

Fourth Respondent

BUBBLING SPRINGS OLIVE GROVE PTY LTD AS TRUSTEE FOR BUBBLING SPRINGS DISCRETIONARY TRUST

Fifth Respondent

Office of the Registry
  Brisbane  No B22 of 2017

B e t w e e n -

COMMONWEALTH OF AUSTRALIA

Appellant

and

YAK 3 INVESTMENTS PTY LTD AS TRUSTEE FOR YAK 3 DISCRETIONARY TRUST

First Respondent

BUBBLING SPRINGS OLIVE GROVE PTY LTD AS TRUSTEE FOR BUBBLING SPRINGS DISCRETIONARY TRUST

Second Respondent

NEMESIS AUSTRALIA PTY LTD

Third Respondent

FLYING FIGHTERS PTY LTD (ACN 067 895 005) AS TRUSTEE FOR FLYING FIGHTERS DISCRETIONARY TRUST

Fourth Respondent

ALFREDTON PTY LTD AS TRUSTEE FOR NEMESIS GROUP SUPERANNUATION FUND

Fifth Respondent

Office of the Registry
  Brisbane  No B23 of 2017

B e t w e e n -

COMMONWEALTH OF AUSTRALIA

First Appellant

COMMISSIONER OF THE AUSTRALIAN FEDERAL POLICE

Second Appellant

and

FLYING FIGHTERS PTY LTD ACN 067 895 005

First Respondent

YAK 3 INVESTMENTS PTY LTD ACN 010 623 560

Second Respondent

BUBBLING SPRINGS OLIVE GROVE PTY LTD ACN 010 281 866

Third Respondent

NEMESIS AUSTRALIA PTY LTD ACN 010 255 537

Fourth Respondent

KIEFEL CJ
BELL J
GAGELER J
GORDON J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON MONDAY, 14 AUGUST 2017, AT 2.15 PM

Copyright in the High Court of Australia

____________________

MR S.P. DONAGHUE, QC, Solicitor‑General of the Commonwealth of Australia:   May it please the Court, I appear with my learned friends, MR G.J.D. DEL VILLAR and MS J. FREIDGEIM, for the appellant in matters B21 and B22 and the appellants in matter B23.  (instructed by Commissioner of the Australian Federal Police, Criminal Assets Litigation)

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friends, MR A.J. GREINKE and MR G.C. DEMPSEY, for the respondents in those matters.  (instructed by James Conomos Lawyers)

KIEFEL CJ:   Yes, Mr Solicitor.

MR DONAGHUE:   Your Honours, there are summons filed in each of matters B22 and B23 on 11 August to make very minor amendments to the notices of appeal in those matters.  Those amendments are not opposed by my friend and I seek leave to amend ‑ ‑ ‑

KIEFEL CJ:   In relation to the amendments to B22 ‑ in addition to deleting the words there identified and the sublease of Hangar 607, would it be necessary to actually put in a reference to Hangar 400 or is it sufficient simply to delete those words?

MR DONAGHUE:   I think it is sufficient – there is a reference to Hangar 400 in paragraph 4, for example, of that notice of appeal ‑ ‑ ‑

KIEFEL CJ:   I see.

MR DONAGHUE:   ‑ ‑ ‑ so I think, your Honour, it is sufficient just to delete the words “obstruct ‑ ‑ ‑

KIEFEL CJ:   Yes.  You have leave.  Thank you, Mr Solicitor.

MR DONAGHUE:   Thank you, your Honour.

Your Honours, the background to these appeals goes back over 14 years when restraining orders were made in 2003 over property that was under the effective control of Mr Hart.  The property that was the subject of those restraining orders includes all of the property that is in issue in the appeals before the Court today.

In May 2005, Mr Hart was convicted of nine offences of defrauding the Commonwealth for which he was sentenced to seven years for each offence to be served concurrently and, as a result of those convictions by automatic operation of section 92 of the Act, on 18 April 2006 the property that was the subject of the restraining orders made back in 2003 was forfeited to the Commonwealth.

These appeals concern two applications that were made in response to that automatic forfeiture.  The first was an application that was made by the respondents on 17 October 2006 under section 102 of the Act seeking to recover several items that had been forfeited under section 92, and the second application was made by the Commonwealth Director of Public Prosecutions under section 141 of the Act which was contingent upon the success of the respondent’s application under section 102 and it sought that if any property was recovered by the respondents under section 102 that order should be made under section 141 to make that property available to satisfy a pecuniary penalty order that had been made against Mr Hart.  That was an order that had been made back in November 2010 for the total amount of $14.75 million. 

The issues raised by these proceedings can be broken down between some constructional issues, particularly in relation to section 102 and section 141 on the one hand, and then questions as to how those provisions once properly construed apply to a number of discrete items of property. 

If your Honours could turn to the appellants’ written submissions, you will see in paragraph 3 of those submissions that we attempted to isolate the questions of construction that were raised and the way in which we contend that those questions should be answered.  One striking feature of these appeals, as matters have developed, is that the respondents make no attempt to defend certain aspects of the Court of Appeal’s reasoning in relation to some of those questions.  So your Honours will see question 3(a) we ask:

In s 102(3)(a) of the Act, do the words ‘derived or realised…by any person from any unlawful activity’ mean wholly derived or realised from any unlawful activity?

We submit the answer is no; the respondents agree, as you can see earlier in their written submissions.  Similarly, with 3(b):

Are payments made after the initial acquisition relevant to determining whether property is ‘derived’ from unlawful activity . . . such as payments for restoration and repairs –

We say yes.  The respondents say the question does not arise but, if it does arise, they agree that post‑acquisition payments are relevant to the derivation concept.

The other questions that we identify there are in issue to various degrees in ways that I will develop as I continue our submissions.  If your Honours have the three‑page outline that we have prepared, we attempted there to set out the way that the oral submissions will be structured.  I will be dealing with the points identified in that outcome, from 1 through to 7, and Mr del Villar will be dealing with the balance of the points identified there.

So given that your Honours have the structure in writing, I will not flag it orally and I will move, if I may, immediately to the point identified at point 2 on that outline, which is the overview of the statutory scheme.  Your Honours have the relevant version of the legislation behind tab 1 in the book of materials that has been given to your Honours – it is the Proceeds of Crime Act 2002 as in force in July 2006. It was agreed between the parties that that is the relevant version, as it was similarly agreed in the Court of Appeal.

If I could ask your Honours to turn in that Act, starting at section 5, where the principal objects of the Act are set out.  In section 5, paragraph (a), the first principal object is:

(a)       to deprive persons of –

and there are then three concepts used:  “the proceeds of offences”, a defined term; “instruments of offences”, a defined term; and “benefits derived from offences”, a defined term.  Now, I will come to the detail of what those terms mean shortly but, to put it very briefly, “the proceeds of offences” refers to property that is derived from criminal activity, “instruments of offences” refers to property that is used in connection with the criminal activity, and “benefits derived from offences” is a wider concept that does not depend on there being identifiable property, but extends to any benefit derived from the criminal activity in question.

So if, for example, the property has been frittered away on expenditure of various kinds that has delivered benefits that would be included within the concept.  If property has been purchased with the proceeds of crime and it has been appreciated markedly in value that would be a benefit of the offending.  If the offender has not paid particular tax debts on matters of that kind they would have derived a benefit in that way.

So the Act does not confine itself, as is apparent from the principal objects, just to recovering proceeds or instruments, actual property, involved in the offending.  Its object is wider to extend to depriving offenders of any of the benefits of their offending.

Now, how did the Act do that? Section 6 sets out in very summary terms the general approach of the Act.  Chapter 2 deals with confiscation, how confiscation can occur, and there are a number of different ways which I will come to, and then there are information gathering and administrative provisions dealt with.

The confiscation scheme is summarised in section 7 of the Act, and particularly relevant to these appeals are 7(a):

restraining orders prohibiting disposal of or dealing with property ‑

and 7(c):

forfeiture of property to the Commonwealth on conviction of a serious offence ‑

That is under Part 2‑3.  Also in paragraph (d) there is the reference to the pecuniary penalty order regime, which is the regime defined for the purpose as identified in 7(d) of:

requiring payment of amounts based on benefits derived from committing offences ‑

So the forfeiture regime focuses on proceeds and instruments; the pecuniary penalty regime goes wider, to benefits of offending. 

If your Honours then turn to section 11 you will see that it directs attention to the dictionary at the back of the Act and also sets out the meaning of some important concepts.  If your Honours could then turn towards the back of the Act to section 329, you will see the definitions of proceeds and instrument of an offence. 

(1)      Property is proceeds of an offence if:

(a)it is wholly derived or realised, whether directly or indirectly, from the commission of the offence; or

(b)it is partly derived or realised, whether directly or indirectly, from the commission of the offence ‑

If your Honours then jump down to subsection (4) in 329, you will see that that definition is extended so that proceeds of unlawful activity constitutes, in effect, the same thing as proceeds of an offence, and the same extension occurs to an instrument of an offence.  That is the concept defined in sub (2):

(a)the property is used in, or in connection with, the offence; or

(b)the property is intended to be used in, or in connection with, the commission of an offence ‑

So those definitions are at the heart of the forfeiture regime that the Act creates.

If your Honours could then turn forward to section 337, you will see there is a definition of “effective control”.  The concept is a wide one; it does not require:

(a)      a legal or equitable . . . interest in the property; or

(b)      a right, power or privilege in connection with the property.

There is a list of the kinds of matters to be taken into account in subsection (5) in deciding whether or not effective control exists.

It is not now an issue in this appeal that Mr Hart had effective control over the property that was the subject of the restraining orders.  That was a matter that was litigated in earlier litigation between the parties and it was found that Mr Hart did have effective control.  We have included in footnote 9 of our written submissions on page 3 a quote from Justice of Appeal McPherson in the relevant proceeding, where his Honour said:

[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.

So while it is the case that the property in question in these appeals is not owned by Mr Hart, it is property that, it is not now contested, was under his effective control at the time that the mechanisms of the Act engaged to restrain any dealings with that property. 

If your Honours could then turn over to 338 – this is the main definitional provision in the Act.  Can your Honours note the definition of “confiscation order”, which is defined in terms that pick up:

a forfeiture order –

that is Parts 2‑2 and 2‑3:

a pecuniary penalty order –

which is Part 2‑4, and:

a literary proceeds order ‑

that your Honours do not need to be concerned with.  But the point for present purposes is that it means both forfeiture and pecuniary penalties.

More importantly, your Honours, there is the definition of “serious offence”:

serious offence means:

(a)an indictable offence punishable by imprisonment for 3 or more years involving ‑

and then there is a number of different kinds of offences that will fall within the concept:

(iii)unlawful conduct by a person that causes, or is intended to cause, a benefit to the value of at least $10,000 ‑

Now, there is no dispute in this matter that the offences of which Mr Hart was convicted are serious offences within the meaning of that term.  That has a number of quite important ramifications for the way that the Act applies.  It means that the forfeiture regime in Part 2‑3 of the Act applied, that is the regime that applies to serious offences. 

That is important because in relation to indictable offences that are not serious offences, if forfeiture is going to occur it can only occur if the Director of Public Prosecution makes an application in which the Director bears the burden of proof in relation to proving that things are proceeds or instruments of crime.  In respect of serious offences, there is no need of an application of that kind - forfeiture follows automatically on conviction 6 months after the conviction occurs unless the time is extended and to remove property from that automatic forfeiture the burden is on the person who seeks to exclude the property rather than on the Director.

The Act contains, as should be apparent from that short summary, different regimes dealing with restraining orders, forfeiture, exclusion and pecuniary penalty orders and in order to situate the constructional issues I need to take your Honours quite quickly through those different regimes.  If I could start with the restraining order regime and invite your Honours to turn to section 17.  This is the provision pursuant to which the restraining order was made back in 2003 and your Honours will see in 17(1):

A court with proceeds jurisdiction must order that:

(a)property must not be disposed of or otherwise dealt with by any person; or

(b)property must not be disposed of or otherwise dealt with by any person except in the manner and circumstances specified in the order;

if:

(c) the DPP applies for the order; and

(d)a person has been convicted of, or has been charged with, an indictable offence, or it is proposed that he or she be charged with an indictable offence; and

(e)any affidavit requirements in subsection (3) for the application have been met –

The most important point for present purposes being identified in (f) - the restraining order made on the court’s satisfaction that the deponent in the affidavit holds the specified suspicions on reasonable grounds.  So you get the restraining order based on suspicion.

There are a number of ways in which property can fall within this regime which are set out in subsection (2) and relevantly – so, it can be all of the property of the suspect but in (c):

specified property of another person –

not the suspect:

that is subject to the effective control of the suspect;

(d)specified property of another person . . . that is proceeds of the offence or an instrument of the offence. 

So that a restraining order may or may not require the court to which the application is made to reach a conclusion about effective control.  It does if the application is made under 2(c) but it does not necessarily require a judgment about effective control either if the property belongs to the suspect or if it is proceeds or instruments as defined back in 329.

There is a limited discretion in subsection (4) to refuse to make a restraining order if the court is satisfied that it would not be in the public interest to make the order but that discretion does not apply where the offence in question is a serious offence, as it was here.  So the restraining order had to be made once the court was satisfied that there was effective control over the property and it duly was made. 

The application for such an order is made by the DPP under section 26 of the Act.  It is ordinarily made on notice but it can be made ex parte as is confirmed by 26(4).  Of course, if it is made ex parte there will be no opportunity for someone at the time that the order is made to seek to have any property excluded from the restraining order.  Any questions of exclusion from the restraining order logically would have to come later.

I emphasise that point because one of the respondent’s contentions in respect of the section 141 part of the case is that they assert that the regime that the Act creates is a regime where restraining orders and exclusion will normally happen simultaneously.

While they may sometimes happen simultaneously, that clearly will not occur when the application is made ex parte but also will not occur in other cases and the Act contemplates that sequence of events might be restraining order and then at some subsequent point in time an application for exclusion and if there be any doubt about that it is resolved by 29(1) which is the provision governing the exclusion which expressly states that:

The court to which an application for a restraining order . . . was made may, when the order is made or at a later time, exclude specified property –

There are a number of conditions specified for when property can be excluded from the restraining order in subsection (2)(a).  One is where the court is satisfied that the property:

to which the order relates . . . is neither proceeds nor an instrument ‑

of crime.  So if the court can be satisfied that the property does not fall into one of those categories, then it can be taken out of the reach of the restraining order.  But, in subsection (4), and this is a provision of some importance to the construction of questions in the case, the Act provides:

the court must not exclude property from a restraining order under section 17 . . . unless it is also satisfied that neither a pecuniary penalty order nor a literary proceeds order could be made against:

(a)the person who owns the property; or

(b)if the property is not owned by the suspect but is under his or her effective control‑‑the suspect.

That provision is important, we submit, because it, in our submission, plainly contemplates that one of the reasons that a restraining order might be made and the property must stay within the restraining order regime is where a pecuniary penalty might be sought in order to recover the benefits of the offence.

So there is an express nexus there between restraining order on the one hand and the availability of property to satisfy the pecuniary penalty order on the other, even when the property in question is not property belonging to the suspect.  Provided it is under the suspect’s effective control it must stay within the restraining order when a pecuniary penalty order is on the cards.  I will develop the significance of that later in the context of the 141 submissions.  Your Honours, that is all I need to say for the moment about the restraining order regime. 

When one comes to forfeiture, I have already shadowed that for offences that are not serious offences, the relevant provisions are those found in Part 2‑2 of the Act and the main operative provision there is section 48 and it places the onus on the DPP, if a forfeiture order is to be made.  Your Honours can pass over that because that regime is not relevant here, the offence in question being a serious offence.  So, if your Honours could turn to Part 2‑3 which commences with section 91 and the simplified outline of the Part.  You see that:

If a person is convicted of a serious offence, property that is subject to a restringing order relating to the offence is forfeited to the Commonwealth unless the property is excluded from forfeiture.

That accurately captures the legal effect of the provisions that follow, in particular section 92 which simply specifies that:

at the end of the period applying under subsection (3) –

which is normally six months but which can be extended:

if:

(a)the person is convicted of a serious offence; and -

in effect the property has not been excluded under one of the provisions we will come to shortly, then the property is forfeited to the Commonwealth and in subsection (2), it is expressly provided that:

It does not matter whether:

. . . 

(b)immediately before forfeiture, the property is the person’s property or another person’s property.

So it is expressly provided that even if the property was restrained on the basis that it was under the effective control of the suspect it is nevertheless automatically forfeited pursuant to this regime.

There is then capacity in section 94 for an application to be made to exclude property from the forfeiture before it occurs but that section is limited to applications by the suspect, so it had no application here.  You see that because of paragraph (a), a person referred to in paragraph 92(1)(a), which is the person who is convicted of the offence.  So there is no capacity for a third person whose property is subject to effective control to exclude the property at that point under section 94.  One then gets to section 96 which provides:

Property forfeited under section 92 vests absolutely in the Commonwealth at the time of the forfeiture.

The sequence of events is ordinarily restraining order under section 17, if conviction of a serious offence six months later automatic forfeiture of property vested in the Commonwealth.  That is the way the regime ordinarily operates.  The suspect can try to exclude their own property under section 94.  The third party has no such option.  Their property automatically vests in the Commonwealth pursuant to section 96. 

It is at that point in the statutory journey that one reaches section 102, the first of the two main provisions in issue on the appeal, which creates an opportunity for a person to seek to have property returned to them, which has been forfeited pursuant to the provisions to which I just took your Honours.  If your Honours could turn to 102 which, from subsection (1) applies where:

property is forfeited to the Commonwealth under section 92, the court that made the restraining order . . . may, if:

(a)a person who claims an interest in the property applies . . . and

(b)the court is satisfied that the grounds set out in subsection (2) or (3) exist –

So subsections (2) and (3) are alternative routes by which property can be returned.  If either one of those subsections is satisfied, the court 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 ‑ ‑ ‑

back again, or declaring that there is an amount payable by the Commonwealth to the applicant equal to the value so declared.  So it is, in effect, a mechanism for having the forfeited property returned if either of the two preconditions can be met.  Obviously enough this provision applies only in circumstances where the property has already been forfeited to the Commonwealth and accordingly when the section talks about property being – and here I am referring your Honours to section (2)(b) which says:

the applicant’s interest in the property is not subject to the effective control of the person whose conviction caused the forfeiture.

It cannot be talking about the position as at the moment when the application is made under section 102 because at that point in time the property will never be subject to the effective control of the person who is convicted because by definition if one has reached this point in the statutory regime it has been vested in the Commonwealth.  I flag that at this point just because that is an example of the Act using the word “is” in a context which is obviously not temporarily significant.  One sees another example of that in section 141 when we get there.

All members of the Court of Appeal in this case – I will not take your Honours to it but the paragraph references in the judgment are 1 to 40 and 668, accepted that in this section the words “is not subject to the effective control” are not talking about the position as at the time that the application was made under 102.

EDELMAN J:   Could it not be at the time the application is made but considering whether interest in the property is subject to effective control absent the restraining order?

MR DONAGHUE:   Your Honour, we submit that that in effect requires one to look back at the position as at the time the restraining order was made.  That is how you would answer the question that your Honour ‑ ‑ ‑

EDELMAN J:   Usually.

MR DONAGHUE:   Usually at least, and to foreshadow the submission I will ultimately make on 141, our submission is that where effective control has been suspended under one of the mechanisms in the Act and has remained suspended ever since, when the Act talks about “are subject to effective control” it is looking at the pre‑suspension position.

So, your Honours, there are two gateways into the operation of 102, subsections (2) and (3).  The relevant provision here is (3), but (2) informs the construction of (3).  So, starting there, subsection (2) is satisfied only where:

(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 . . . and

(c)the applicant’s interests in the property is not proceeds of the offence or an instrument of the offence.

Now, the first of those conditions – “not, in any way, involved” – caused the Court of Appeal below to characterise this gateway as a cleanskin application.  It is effectively an application that can only be made by a person who is completely divorced from any suggested involvement in the offending and if there is any connection with the offending then this gateway is unavailable.

But even if the person who owns the property, subject to the effective control of the offender is in no way involved in the offending, they still have to jump some very high hurdles.  In particular, they have to jump the hurdle that the interest in the property is not proceeds of the offence.  Now, your Honours may recall from section 329, proceeds of the offence is defined as property that is both not:

wholly derived or realised, whether directly or indirectly, from the commission of the offence –

but also –

is partly derived or realised, whether directly or indirectly, from the commission of the offence.

So, the wholly innocent applicant whose property has been forfeit cannot get it back under subsection (2) unless they are able to discharge the burden of showing that the property in question was not even partly derived, directly or indirectly, and, absent capacity to show that, that gateway is unavailable.

We submit that that is important because when one then comes to subsection (3) and the constructional debates that arise between the parties in relation to that, it would, we submit, be more than a little surprising if a person who was not able to satisfy the cleanskin‑type criteria – they have been in some way involved in the offending – was nevertheless able to recover property, even if almost the entirety of the interest in the property had been derived from unlawful activity, when the wholly innocent applicant has to show that none of the property at all was derived from the unlawful activity.

It would be odd for the derivation criteria to be lower in subsection (3) – very dramatically lower if the Court of Appeal are right – than it is in relation to subsection (2), and one would question what possible policy rationale there would be for that distinction.  So, within subsection (3) there are, in our submission, four conditions, although two of them are found in the one paragraph, in paragraph (a), and all four conditions need to be satisfied before the provision can be engaged in.  So, the first condition is the use condition:

the property was not used in, or in connection with, any unlawful activity –

The second is:

the property . . . was not derived or realised, directly or indirectly . . . from any unlawful activity –

The third:

the applicant acquired the property lawfully –

And the fourth, which is not in issue here, that:

the applicant is not a person convicted of the offence –

So, the convicted person cannot use either of the gateways in 102.  There are issues between the parties in relation to the first three of those four conditions that I just identified, although in respect of the first of them, the use condition, the debate is more about the application of the condition than about what it actually means as a question of law.  All the members of the Court of Appeal agreed as to what the applicable authorities were and the parties before your Honours now also agree as to what the relevant authorities are.

The disagreement is about application.  Because there is a disagreement about application, I might spend about a minute or two to identify to your Honours what the agreed legal principles are.  Can I take your Honours very quickly to two cases?  The first is the DPP of South Australia v George.  If your Honours are working from the joint bundle, it is tab 29.  If you have got hard copies, it should be in volume 4, I believe.  The relevant principles are set out in the judgment of Chief Justice Doyle with whom Justice White relevantly agreed.  If I could ask your Honours to turn to page 262 – the discussion from paragraph 62 through to 65 is the relevant part of the judgment.  In 62 his Honour says:

There is one thing which I consider to be clear.  It is that there is no basis for qualifying the statutory definition by requiring that any connection be a “substantial connection”.  To take that approach is to introduce an expression which the draftsman has not used. 

That is relevant here in part because the primary judge in this case had read the section as requiring a substantial connection but the Court of Appeal all agreed that that was not correct, and again I will not take your Honours to it.  The references are at 901 in the judgment of Justice Peter Lyons and at 102 in the judgment of Justice of Appeal Morrison.  In paragraph 63, Chief Justice Doyle emphasises that the definition – the use criteria likewise:

should not be read as referring to or requiring a causal link . . . Nor is it necessary that the property be something that is essential or necessary for the commission of the offence, or something that makes a unique contribution to the commission of the offence.

Then in 65 and very conscious of the fact that his Honour was not offering a definition or trying to supplant the statutory words, his Honour says in the third line down:

As a matter of ordinary language, and bearing in mind that the word defined is “instrument”, I consider that the definition refers to a use of property that facilitates, assists or contributes to the commission of an offence.

So that is the kind of question:

This invites attention to the role that the property plays in the commission of the offence, to the extent to which the property is so used, and to how much of the property, or what part of it, is used.  I doubt whether one can usefully go any further than that.

The other useful collection of what I understand to be the agreed principles is in Chalmers v The Queen (2011) 37 VR 464 which is in tab 13 of the joint bundle, and without spending more time on it than necessary, in paragraph 77 the Court of Appeal collect what they understand to be the principles from a number of other intermediate court decisions as to the meaning of the words “used”, “in connection with” and their Honours emphasise:

The word “used” should be given its ordinary meaning –

It is a wide phrase, the words “in connection with” extend it and that ultimately the question is one of “fact and degree”.  So I do not propose to say anything more about that save to say on those agreed principles there is a debate between the parties as to whether certain of the items of property satisfy the test and that is a matter that Mr del Villar will take up in relation to the items of property to which it applies.

Could I turn back then to 102 and to the second of the preconditions, the derived or realised condition.  The primary judge held that those words should be construed as meaning not substantially derived or realised, and just as we submit his Honour erred in adding that word into the use test, his Honour similarly erred in adding it into the derivation test.  It is a word that the drafter has not used, and as Chief Justice Doyle put it, it simply adds language that is not there.

The Court of Appeal did not agree with the primary judge’s reason.  They did not read the provision as meaning substantially derived or realised.  They went a step further and held that the provision meant “wholly derived or realised”.  As I indicated in opening, we do not understand our friends to support the Court of Appeal in that reading although certain aspects of their written submission do support certain aspects of the court’s reasoning.

If I could take your Honours to the Court of Appeal’s judgment, which is in volume 7 of the appeal book, because it strikes us that it is possible that there might be a plank between the parties as to what the Court of Appeal actually did in respect of this definition – or what they held.  So in volume 7 at page 3155, paragraph [921], this is in the judgment of his Honour Peter Lyons with whom Justice Douglas relevantly agreed, in paragraph [921] from three lines down his Honour said:

The fact that s 102(3) does not use the defined term “proceeds”, nor the drafting approach adopted in s 329 and s 330, seems to me to be of some significance.

I will come back to that point:

It points rather strongly to the conclusion that the condition was not intended to specify that an applicant under s 102(3) must demonstrate that the property was not partly derived, nor partly realised, from unlawful activity.

Then going down to [923]:

The considerations set out above have led me to conclude that the source test is not satisfied simply because a person’s interest in property is a consequence of the combined effect of unlawful activity, and other matters which do not involve unlawful activity.  It seems to me the best guidance for the application of the source test is to be found in Allen and Lynch.

That reference to Allen and Lynch is a reference back two pages in the judgment to 3153, paragraphs [907] through to [911], where his Honour discusses those two cases and, without taking your Honours right through it, if you go to paragraph [910] – this is discussing Justice McGarvie’s conclusion in Allen, it is said that:

These considerations led McGarvie J to “apply the test of deciding whether a practical person, as a practical matter of fact, would regard the item of property as acquired by money, all of which, or all but an insignificant part of which, should be treated as originating from or traceable to moneys’ received in the commission of the relevant offences.

So we submit that a fair reading of [921] and [923] particularly with the endorsement of Allen and the reference in Allen to “all of which, or all but an insignificant part of which” makes it tolerably clear that perhaps with the de minimis exception aside, their Honours were saying this condition directs attention to whether the whole of the property was unlawfully sourced, and if it was not, the whole of the property was not unlawfully derived, then their Honours say that condition was met.

That is even more clearly expressed in Justice Douglas’ reasons.  Justice Douglas’ judgment is about a page in length.  He substantially agreed with Justice Peter Lyons but one of the points that he did make it that short judgment in paragraph [832] on page 3133, the last sentence of that paragraph, his Honour says:

The absence of an equivalent from s 102(3) supports the more confined interpretation of “derived” or “realised” in that subsection as meaning “wholly derived” or “wholly realised”.

So in both of the majority judgments we submit that it is clear enough that their Honours situated the meaning of those words at one end of the spectrum of their possible meanings and said once there is any – leaving de minimis aside, once there is any lawful contribution to an asset the asset is not unlawfully derived.

In our submission, that meaning is wrong and it may be, as I say, that no serious effort is being made to defend it.  Instead, what our friends have done in their written submissions, and your Honours will see this in paragraph 29 of their submissions, is that they postulate the reverse extreme, so that their submissions say that at the heart of the issue is the meaning of the expression “derived or realised” where property is being derived from both lawful and unlawful sources.  That is true.  Then they say:

Must an application for the recovery of property pursuant to s 102(3) be refused if the source of any part of the funds to acquire the property was unlawful activity?

So at one extreme, the Court of Appeal says if there is any lawful money you cannot satisfy the definition.  Our friends here, as we read that submission, suggest that the issue is whether one should go to the other extreme and say that if any part was unlawful then the property is unlawfully derived.  We submit that neither extreme accurately captures the meaning of the words, the ordinary meaning of the words.  So the issue is not whether any part of the funds was either lawful or unlawful. 

We submit that in this case your Honours do not need to attempt to chart the outer boundaries of what the ordinary meaning of the words are.  As we have said in paragraph 3 of our reply, in our submission it is sufficient for the purposes of this case to find that the words “derived and realised” from unlawful activity at least include – so I am not offering a definition but at least include a situation where most of the funds used have come from unlawful activity or a situation where the property would not have been obtained or retained but for the use of unlawful funds. 

So if the use of unlawful funds was causally critical, then that is enough, we submit, to say that the property was derived or realised or if a majority of the funds were used.  Now, it may be ‑ ‑ ‑

KIEFEL CJ:   What is the difference, then, between most or majority and substantial?  What is the difference between most and majority or substantial?

MR DONAGHUE:   Your Honour, as the Court of Appeal pointed out, “substantial” can mean lots of different things.  It sometimes means most, it sometimes means less.  It may well be the case that the ordinary meaning of “derive” would extend to something that is considerably less than a majority.  But on the facts of this case a majority is enough and the “but for” test is enough and we submit that those matters are clearly within the meaning of the word so that your Honours do not need to enter the debate about whether a 20 per cent or a 10 per cent unlawful contribution would be enough.

We say that for three main reasons.  The first is simply the matter of ordinary language.  Derivation – there is a definition in the material, so I will not take your Honours to it, but it is in tab 11 of the bundle, if your Honours wish to see it.  “Derive” means to receive or obtain from a source or origin, to trace as from a source or origin.  It is not referable, as a matter of language, to the source of origin or to a sole source and that is a point picked up in a case I will come to shortly.  One also has the surrounding words “direct” or “indirect” derivation, which suggests a width to the concept that is being addressed. 

Indeed, the case that I have mentioned, which I will just touch on, is in the bundle at tab 32, volume 5, Jeffrey v The Director of Public Prosecutions (No 2), a decision of the New South Wales Court of Appeal.  The relevant topic is touched on by both Justice of Appeal Cole and Acting Justice of Appeal Giles.  In Justice Giles” judgment at page 526 under the heading “Derived” there is a reference to an earlier judgment of Chief Justice Hunt who took the view that:

the ordinary meaning of the word to refer to the origin or source of the thing said to have been derived –

His Honour then agrees with Justice Cole that:

whether the property is “derived”, directly or indirectly, from unlawful activity is a question of fact.  While the concept of derivation has regard to the origin or source of the thing said to have been derived, I see no point in substituting for the legislature’s words the collection of other words; in particular, I consider that the reference to the origin or the source may unduly restrict the fact‑finding exercise.

That judgment and Justice of Appeal Cole’s judgment at 523 is to similar effect.  It recognises that it confines the ordinary meaning of the words to a single origin in asking whether something is derived, directly or indirectly.

GAGELER J:   What does “realised” mean?

MR DONAGHUE:   Your Honours, the authorities suggest and we are content with this meaning that it refers to converting the property into money so that it adds little to the concept of derivation.  That was certainly the approach of the Court of Appeal.

GAGELER J:   So that the word “realised” only applies where the property is money?

MR DONAGHUE:   Yes, so where the property is converted into money and the property therefore is money, as your Honour puts to me then that property will have been realised from the unlawful activity.  I accept it does not add a great deal in that context, but that is why the authorities, in our submission, all focus on derivation.

One of the reasons, as we understand the judgment below for adopting the “wholly derived or realised” approach was because their Honours took the view that section 102 should be understood as a beneficial provision and should therefore be interpreted as widely as possible in favour of the person who was seeking relief from the forfeiture of their property.  In the event of doubt, their Honours said it should be interpreted as widely as possible.

In our submission, that approach to the interpretation of this Act involves error because, while the existence of the general principle is – well, this is an Act that exists for the very purpose of depriving people of their property, when that property is either proceeds of an offence, instruments of an offence or reflects the benefits of offending.  In the context of an Act the very purpose of which is to have that operation the proper operation of the Act is distorted by the adoption of a presumption that seeks to widen the exclusions, even when such a widening comes at the cost of the capacity to achieve its identified statutory objectives.

Undoubtedly, section 102 is a provision that operates to the benefit of third parties, if I can call them that, whose property has been forfeit.  But it operates to the benefits of those parties only if they can prove that the preconditions apply.  To widen the preconditions in order to widen the benefit is, in our submission, to distort the scheme where Parliament has quite carefully defined the circumstances in which it seeks to accord the benefit of the provision to those third parties.

That submission, we suggest, is supported by the approach taken by several members of this Court in Henderson v Queensland, which I will ask your Honours to go to.  It is at tab 30 of the bundle, volume 5.  Your Honours may recall a few years ago this matter came to this Court on appeal from Queensland.  It concerns the Criminal Proceeds Confiscation Act (Qld).

The application was an application for exclusion from forfeiture.  So it is close to the section 94 provision in this but relevantly section 94 being where the exclusion is sought by the suspect him or herself, but the criteria being very similar to those with which your Honours are now concerned in section 102.  Your Honours might recall that the question was the operation of the forfeiture regime in respect of some jewellery in circumstances where the jewellery itself was not said to be unlawfully derived.  There was an account given of the provenance of the jewellery in the hands of the suspect that was rejected by the trial judge and the question then was how did the exclusion regime operate with respect to that property?

There was an argument about presumptions of beneficial effects and there being a presumption that people ordinarily act lawfully and, therefore, the Act should be construed in that context or against that presumption.  Chief Justice French dealt with that argument in paragraph 14 of his Honour’s judgment on page 9.  His Honour said:

It may be argued that the construction adopted by the primary judge and the Court of Appeal is in tension with the protective objectives of the Act because the applicant for an exclusion order may have to prove not only that the property was ultimately acquired by him or her . . . but also that it is not tainted by its ancestry.  The primary judge observed:

“it would appear to be anomalous that property may be confiscated, because the ultimate origin of the property is beyond the knowledge of, and the means of proof available to, a prescribed respondent.  Such a case would appear to be well outside the intended scope of the legislation, as identified in section 13 -

That argument did not succeed in this Court.  As his Honour indicated:

The tension thus indicated cannot be resolved by widening the scope of the protection effected by exclusion orders beyond the limits imposed by the text of the Act.

We say the same is precisely true of this Act.  One cannot achieve the beneficial purpose by widening the meaning of 102(2) or (3).  One needs to interpret those provisions in the ordinary way and, having done so, the beneficial effect of the regime is accurately identified.  Justice Keane’s judgment ‑ ‑ ‑

GAGELER J:   His Honour there was referring to the object of the Act.  You took us to section 5, do you invoke section 5 in some way in support of your construction of section 102(3)(a) in this respect?

MR DONAGHUE:   We do, your Honour, in that this is an Act where, we submit, there is a tension between two principles.  There is the tension that the Act should be interpreted in pursuit of its purposes, or to give effect to its purposes on the one hand, and there, it might be said, is a presumption that a beneficial provision should be interpreted widely in favour of the beneficiary.  Those principles pull against each other in the context of this Act because to the extent that 102 is widened, property is not available to – or property might be returned to a person even in circumstances where that property was, at least in part, derived from unlawful activity and that, we say, is intention with the object in section 5 of the Act. 

So, if the Court of Appeal arrived in their wholly derived analysis, it would be possible for property that is say 80 or 90 per cent the proceeds of criminal activity to be returned under section 102 just because 10 or 20 per cent of it came from lawful funds we submit that that flies directly in the face of the object in section 5(a) because it means that a person has benefited or that the benefits of criminal activity are not taken away and they are returned to a person who had at least at the time of the restraining order allowed them to be under the effective control of the offender.  So, it ‑ ‑ ‑

GORDON J:   Do you only rely on 5(a)?

MR DONAGHUE:   I rely particularly on 5(a) but not only on 5(a), your Honour.  Certainly, 5(c) and 5(d) are potentially relevant.

GORDON J:   I mean, the reason why I ask is because it seems to me in subsection (3) of 102 it is dealing with any unlawful activity.  It is not limited to the offence the subject of the original order of the offence for which the person was convicted.

MR DONAGHUE:   That is so, your Honour.

GORDON J:   Is that why (c) and (d) dealing with reinvestment and then tracing in terms of (e) are picked up?

MR DONAGHUE:   That is one of the reasons.  Although, they are also picked up by (a) because proceeds of an offence do not have to be immediate proceeds of an offence, that can also pick up as property is derived from unlawful means is reinvested or transmuted into a new form of property, then the definitions continue to apply to it.  In effect, we submit that this is – there is some analogy with the point that your Honour Justice Gageler in a joint judgment with Justice Keane made in the Lee (No. 2) Case about the principle of legality in the context of legislation that is avowedly intended to restrict rights.  The presumption does not help particularly in the context of legislation of that kind because the question is where is the balance – where was Parliament drawing the balance between the avowed purpose of the legislation and the respect for rights, and to assume the balance one way or the other is not to undertake the task that is required of ascertaining where Parliament intended that balance to lie.

The point has been made in the context of this kind of legislation – I was taking your Honours to Justice Keane in Henderson before I leave it.  It is paragraph 161, 162 and 166 but his Honour, in effect, said that – this is 162:

But, in a legislative scheme which expressly contemplates the forfeiture of all the property of a person found to have engaged in serious crime related activity, however that person may have come by that property, it is hardly anomalous that the person should be required to prove that a particular piece of property does not bear the character of illegally acquired property . . . The operation of the Act in this way is in accord with the objective of the Act ‑

The same kind of point has been made in numerous other authorities and I do not think I need to take your Honours to all of them.  One is DPP v Brauer that I will come to shortly in a different context, but in that case Justice Derrington effectively recognised that because legislation of this kind, proceeds of crime legislation was deliberately and dramatically intended to confiscate the property of the persons, even persons potentially innocent of criminal wrongdoing, one should not be easily moved by the usual principle of construction concerning the beneficial effects of legislation. 

I will take your Honours to just one other reference in the appeal book itself in Justice Morrison’s judgment on page 2973, and without reading it to your Honours, I just note that the extracts in paragraphs 49 through to 51 as to the history – the legislative history and purpose of proceeds of crime legislation of this kind and its avowed purpose of – arising from the Royal Commissions in the early 1980s of widely depriving people of the benefit of their criminal activity.

I have gone through that because our friends in their written submissions have referred to a number of authorities that we accept do suggest that a wide approach should be taken to beneficial provisions such as section 102.  Those authorities – so, our friends put against us that it is a completely conventional thing to do to construe a provision such as 102 as widely as possible.  In our submission, while those authorities say that there are equally authorities, including the ones that I have referred to, that point in the opposite direction and, ultimately, we submit that your Honours will not be much assisted by presumptions one way or the other.  Your Honours should focus on interpreting the words that the Parliament has used within the scheme of the Act and not stretch in favour of the widest operation of 102 that is available on the words used.

GAGELER J:   Or the narrowest.

MR DONAGHUE:   Or the narrowest ‑ either one. 

GAGELER J:   Then what are the factors within the Act that get you to your preferred construction, as set out in paragraph 3 of your reply, which seems to be alternative ways of demonstrating derivation?  One is a “but for” test and the other is, I think, a “majority of funds” test.  What is it that you can point to within the scheme of the Act that indicates that that is the preferable approach?

MR DONAGHUE:   Your Honour, the answer to that is that one has, flowing through from the objects and then through the restraining order provisions, a very wide net, we submit, deliberately being cast to capture property at the restraining order stage just by reference to a suspicion of effective control, and then a reverse onus for forfeiture of property of that kind in respect of particular serious offences.  That is a backdrop, we submit, to 102 that suggests that, not that Parliament is seeking to narrow the reach of the operation of this Act, it is a backdrop that suggests that the default position, the starting position, is that where a person who commits a serious offence is convicted, all of the property under their control goes to the Commonwealth. 

We accept then that that is qualified by section 102, but when one looks at 102 one sees, both in 102(2), which uses the defined term “proceeds of the offence”, but also if one goes to the equivalent provision that applies where the suspect themselves seeks exclusion in section 94, 94 (1)(e), which is generally speaking quite closely equivalent to 102, you also see an exclusion criteria that uses the words “proceeds of the offence” ‑ or “proceeds of [the] unlawful activity”, that being the defined term, wholly or partially derived.

Generally speaking, what one has is a default position for wide forfeiture and most of the exclusion provisions then prevent recovery of property that was even partially derived from unlawful activity.

GAGELER J:   We have the same language, of course, in the definition of “proceeds”.

MR DONAGHUE:   Yes.

GAGELER J:   Section 329.

MR DONAGHUE:   We do.

GAGELER J:   Is the word “derived” there capable of bearing the same meaning as you say it has in section 102(3)(a)?

MR DONAGHUE:   Yes.  That is our submission. 

GAGELER J:   So a “but for” test somehow gets in there?

MR DONAGHUE:   Well, your Honour, we are not seeking to substitute the language of our reply 3 for the legislative test.  What we were attempting to do was to explicate what we submit is the ordinary meaning of the words.  The submission effectively is that in circumstances where a person would not have the property if not for the contribution of the unlawful funds, it is an ordinary use of language to say that the property that they have is derived from it, because they only have it because of the contributions that the unlawful funds made to it. 

If your Honours do not accept that as a matter of the ordinary meaning of the words then the “but for” test does not have a place within the scheme of the Act, but that is why we offer that as a partial explanation of the meaning of it.

EDELMAN J:   Your focus on that point is primarily in the context of improvements and renovations, is it?

MR DONAGHUE:   It certainly includes that situation, yes, so that the property bought cheaply with insignificant funds expended on it, but I do not think that we are limited to that, your Honour.

GORDON J:   Does it extend to part of the acquisition costs?

MR DONAGHUE:   Yes, it does.  We would say, for example, your Honours, that in circumstances where, say, a third of the value of an asset comes from unlawful funds but the evidence reveals that the owner of the asset could not have acquired the property but for that contribution from the unlawful funds, that that without more is enough to demonstrate that the property is derived from unlawful activity.

EDELMAN J:   But why would you need the “but for” test there?

MR DONAGHUE:   You do not.

EDELMAN J:   On your approach you are there already with the traceable contribution from the unlawful funds.

MR DONAGHUE:   Your Honour, again emphasising I am not seeking to set out outer boundaries, what we say in paragraph 3 is where most of the funds come from unlawful means all but for, so in my 30 per cent example, I do need “but for”.  If I had offered a 50 per cent example or 60 per cent example I would not, but the alternative means of explicating the ordinary meaning of the words, in our submission.

It is an ordinary meaning that has to be ascertained in a context where this is an Act that starts from the proposition that property under the effective control of serious offenders is forfeit and normally does not allow any departure from that position.  If any part of the property is partly derived, we then come to sub (3) of 102, which we acknowledge does not use the defined term that your Honour Justice Gageler pointed to, and this was essentially the reason that we lost in the Court of Appeal. 

The Court of Appeal said, you have got the defined term used in (2), you do not have the defined term used in (3), so you do not have Parliament expressly saying “partly derived”, and because you do not have them expressly saying “partly derived” we are going to find it means wholly derived.  That was the essence of the reasoning instance.

Our answer to that is that when one looks at the definition in 329 we say it does not really help in ascertaining the meaning of the word “derived” alone because, in its terms, it applies both the word “wholly” and the word “partly”.  So Parliament thought it was necessary to explain that the word meant both of those things and it therefore does not tell us what it would have meant shorn of either of those statutory expansions or confinements.

GAGELER J:   What was wrong with the primary judge’s approach – “substantially derived”?

MR DONAGHUE:   Much, I think, your Honour, would depend on what that means – what the word “substantial” meant.  If “substantial” meant more than 50 per cent then we submit it would miss the “but for” kind of concept.  If it does not mean that, if it means substantial in the sense of something less than a majority but nevertheless something more than de minimis, some considerable or significant contribution to be made, then that would come closer to the submission that we are putting to your Honours.

We are reluctant to urge that approach because, consistently with the many authorities in the use context, it is said, well, there is no warrant for adding words into the Act and to say, well, “derived” means substantially derived we think would be open to that criticism.  But we do accept that ultimately one needs to find the meaning of the words that have been used.

GORDON J:   Really, you have two aspects to your test, do you not?  You have what I will call the transactional prism through which you look, which is the “but for” question without reference to value, possibly, and then you have the assessment on cash on tracing proceeds in terms of dollars.

MR DONAGHUE:   That is right, and both of them, we say, are ordinary ways of explaining it.  What it means to say is that the property is derived from a particular source.

GORDON J:   I cannot think of them but are there any other mechanisms by which you could look at a transaction in terms of derivation other than a transactional flow of funds?

MR DONAGHUE:   We have not thought of any, your Honour.  One of the reasons I am emphasising that we are not seeking to define outer boundaries is that maybe there are.  There may be other ways that one could properly say that the property was derived, but if your Honours accept the two that we have offered that will be enough for us to succeed on the appeal.

GAGELER J:   If we just take an assumed case of the property being a bank account with $100 in it, I can understand the criticisms of saying, well, something turns on whether $10 is or is not tainted, but do you not get to the same sorts of criticisms when you say, well, it all depends, leaving a “but for” scenario aside, on whether $51 or $49 is tainted?  That is where you are driven, I think.

MR DONAGHUE:   Well, I am resisting being driven there because I – well, I am resisting to being driven to it all depending on that.  I am submitting that as a matter of ordinary language is that if it is the 51 – so if most of it is derived unlawfully, then that falls naturally enough within the meaning of the words.  But what I am resisting is the idea that 49 necessarily does not.  It may well be that one could go considerably lower than 49 and still say, well, there is enough illegality, enough illegal funds in here, for it to be properly said to be derived.  But I agree that the line‑drawing exercise is open to criticism and difficult in terms of – because it ultimately leads one down the path of substituting some sort of qualifier into the test that Parliament has posed.

EDELMAN J:   Well, on your “but for” test you could get there with 2 per cent if ‑ ‑ ‑

MR DONAGHUE:   Conceivably you could if the 2 per cent was critical.  It seems that it would be a rare factual scenario where that would be so, but conceivable.

KIEFEL CJ:   But it is hard to apply that idea of criticality in a causal sense to money where money is the property acquired through the criminal activity.

MR DONAGHUE:   Well, if one has a factual scenario where the “but for” type test cannot be applied, then it will not be useful, but there are scenarios and I think that are – Mr del Villar will take your Honours to them ‑ but there are some of the items of property in this case where it can be said, well, it was clear enough that I think a particular aircraft would not have been purchased without an influx of funds that were derived from unlawful sources.

KIEFEL CJ:   Well, much might depend upon the financial resources of the offender at the particular time.

MR DONAGHUE:   Absolutely.

KIEFEL CJ:   But in relation to property such as money which is divisible, can the order excepting the property reflect percentages?

MR DONAGHUE:   Where the property in question ‑ ‑ ‑

KIEFEL CJ:   The order made – the orders and declarations made.  That is, the interest is somehow defined only with respect to ‑ ‑ ‑

MR DONAGHUE:   No, in the context of 102 I think the answer, your Honour, is no.  In the context of section 141 the answer might be different ‑ ‑ ‑

KIEFEL CJ:   Yes, I see.

MR DONAGHUE:   ‑ ‑ ‑ because there, there is the capacity to deal with partial interests.

GAGELER J:   So is a bank account treated as a chose in action and an item of property for these purposes?

MR DONAGHUE:   Your Honours, I confess I have not turned my mind specifically to how 102 works in relation to a bank account because a bank account is not one of the relevant assets.

KIEFEL CJ:   I am just looking at 102(1)(c):

declaring the nature, extent and value of the applicant’s interest –

Would you not just narrow the interest in the property to that which is not tainted?  Perhaps we could come back to that and give you an opportunity to ‑ ‑ ‑

MR DONAGHUE:   Thank you, your Honour, I might take that opportunity, if I may.

EDELMAN J:   When you address that, could you also perhaps address the difference in (3)(a) with the reference to “the property”, as opposed to (2)(c), which is concerned with “the applicant’s interest in the property”?  Subsection (2)(c) seems to be concerned with just the legal rights effectively, whereas (3)(a) is concerned with the legal rights and the thing itself.  If one turns to the thing itself, such as I understand your submissions to do when, for example, we are dealing with renovations or improvements, how does that then feed in with 102(1)(c) to declare the nature, extent and value of the applicant’s interest?

MR DONAGHUE:   If I could take that on notice as well, your Honour. 

KIEFEL CJ:   I suppose that points up (2)(c), does it not:

interest in the property is not proceeds of the offence –

which have the whole or partial connotation.

MR DONAGHUE:   I think that part of the difficulty, your Honours, is that while the order can declare the extent and value of the applicant’s interest and while in the context of a bank account, for example, it would be easy enough to see how one can just subdivide the interest in order that the untainted parts be transferred, where one is talking, for example, about a plane or a hangar, it is not really possible to transfer the interest to the applicant separately from the physical asset itself and that, I think, consistently with the approach taken below, would be that the transfer order is an all or nothing order, so that it might not be that ‑ ‑ ‑

EDELMAN J:   Surely it is the transfer of rights that you are talking about.  It is the rights to the plane that you are concerned with when you are talking about the interest in it.

KIEFEL CJ:   What if the person claimed an equitable charge?

MR DONAGHUE:   Well, yes, your Honour, it may be that if the right the person claims is not outright ownership of the plane but an equitable charge of some more limited interest, then it would be possible to deal with that interest separately from the asset itself.

If the interest claimed is ownership and the property is caught up – complete ownership – and the interest is caught up because, for example, a company owns the plane but the company is under the effective control of the applicant, then the only interest that is in play is the full ownership interest of the plane and, as I understand it – and I will come back to your Honours if this is not correct – but there is no suggestion I think that 102 can be used to create new interests in the property by subdividing up the interests that were there.

What is supposed to happen is that the forfeit interest is either returned or it is not returned, whatever it was, in the period immediately before forfeiture.  So the court cannot divvy up a single item of property by saying, well, your interest is partly lawfully derived and partly not lawfully derived and I will give you back the lawfully derived part.  The interest is returned, or not.

GORDON J:   Is that right in relation to section 106 where you can buy out other interests in forfeited property?

MR DONAGHUE:   Well, the buy‑out provisions are different from the 102 provisions and have more potential for more nuanced arrangements.

GORDON J:   Well, they include directions under 102(1)(d).  It is clearly recognising that there are other people with other interests in the one piece of property.

MR DONAGHUE:   That section, your Honour, on its face is dealing with the situation where there is an interest in property that is required to be transferred by a direction under 102(1)(b).  There can be such an interest only if – so it is again, in my submission, not contemplating that 102 might create an interest that is not there.  It is dealing with the situation perhaps like the charge that the Chief Justice puts to me where there is pre‑existing interest of that kind and then that would allow the Commonwealth to be required to pay out the amount secured, for example.

But in this case, as I understand the facts, none of this property was property where there were a range of alternative interests in play and a desire to recover only some part of it.  The debate was about the entirety of each of the relevant items of property.  Sorry, I am corrected.  That is not correct in relation to all of the items of property.  Your Honours, can I perhaps return to this topic, having reflected on some of the questions that your Honours have put to me ‑ ‑ ‑

KIEFEL CJ:   Yes.

MR DONAGHUE:   ‑ ‑ ‑ and turn to the question of expenditure of funds after acquisition?  This is a matter where our friends say the point does not arise but, if it does arise, I do not apprehend that they disagree with the possibility that such expenditure can be relevant to the derivation question.

We submit that the point does arise and if your Honours can go in volume 7 to the reasons of the majority at page 3192 of the appeal book, at paragraph [1099], where his Honour introduces the issue:

As a broader issue in the hearing at first instance, the learned primary Judge considered whether certain classes of payments, including for repairs and maintenance, were relevant to the question whether an asset is derived or realised from unlawful activity.

So this was an issue in debate as a matter of principle, if you like, before the primary judge.  Then moving on to paragraph [1102] at the bottom of that page there is a discussion of an authority decided by Justice Philip McMurdo and it is said on the fourth line down:

It seems to me that his Honour was at least implicitly determining a question of law, namely, the sense in which the term “acquired” was used in the section ‑

So we submit that that discussion suggests that his Honour was characterising this issue as a question of law.  Then passing over the discussion that leads up to the conclusion at [1108], his Honour says:

In my view, however, for the reasons previously expressed, the question is concerned with how a relevant entity acquired its interest in the property.  On that basis, money spent on restoration and repair would (at least ordinarily) not be taken into consideration.  I see no reason to take a different approach to . . . $50,000 . . . in respect of this aircraft.  Accordingly, I consider it to be irrelevant to the question whether this aircraft was derived or realised from unlawful activity.

So in our discussion on a fair reading of those two pages of the judgment from paragraph [1099] through to the conclusion at [1108], the Court was expressing the view that at least ordinarily the expenditure of money post‑acquisition would not be relevant to the question of derivation.  The “at least ordinarily” appears to be a reference back to the discussion of Jeffery which occurs just above paragraph 1108, where his Honour agrees with Justice Cole’s view:

that the source of funds used to repay a loan of monies used to acquire property is relevant.

So his Honour apparently accepted that if a loan was taken out to acquire the property and unlawful funds were used to repay the loan, then that payment post‑acquisition would be relevant to the question of whether or not the asset was derived, but it seems subject to that qualification about loans to acquire ‑ ‑ ‑

EDELMAN J:   That would be so even if the loan were taken out without the intention of subsequently using the funds to repay it.

MR DONAGHUE:  Yes, but, in our submission, that is too limited a qualification on the concept of derivation to focus just on the moment of acquisition, but that seems to be how his Honour approached it.

In our submission, to take that approach is to wrongly equate the meaning of “acquisition” with the meaning of “derivation”.  Derivation is a wider concept and it is a concept that is well capable of capturing the expenditure that has occurred restoring, improving or maintaining the asset as acquired.

One powerful factor in our submission that supports that approach is that to focus just on acquisition in deciding whether a property was derived or not potentially misses the possibility that the property might have been acquired quite a considerable time prior to the forfeiture occurring.  If there is a considerable period of time in that area, then the interest that is forfeit would be an interest that might be quite different from the interest that was originally acquired.

So if, for example, a house is acquired in 2000, there are numerous improvements made to the house over a period of time, extensions made, additions made, repairs made up to the period 2010 and the asset is then forfeit in 2010, to focus in deciding whether or not the asset was derived from unlawful activity or not just on the purchase price in 2000 misses the fact that the interest that has been forfeit is an interest that involves not just the asset as purchased but all of the improvements that were made to it in the meantime.

EDELMAN J:   The interest has not changed.  The interest is the fee simple.  That has remained exactly the same, but the property in the sense of the thing has changed.

MR DONAGHUE:   The point of my submission, your Honour, is that the character of the thing has changed.  So it might obviously have been incorrect to say that the house was derived from unlawful activity at the time that it was purchased but by 2010 in this example it might be, in my submission, a completely fair description of it to say that it was derived from unlawful activity in circumstances where all of that expenditure has occurred post‑acquisition.

EDELMAN J:   The ship of Theseus:  every plank may be replaced and then that thing is a new thing.

MR DONAGHUE:   The thing is a new thing and the acquisition focus just does not capture any of that. 

KIEFEL CJ:   But that would not help you with respect to payments such as rates or interest.

MR DONAGHUE:   No.

KIEFEL CJ:   There you are looking at property and its value, are you not?

MR DONAGHUE:   I accept that, your Honour.  There is a helpful discussion of this – in my submission, it is helpful – in Justice Morrison’s reasons in the appeal book at 3104 and 3105 where his Honour gives the example of a car.  The property in question was a motor vehicle. 

Having discussed the legal issues at [669] and following and saying it would be wrong to focus just on acquisition costs, his Honour then illustrates at [674] and [675] – [674] is examples of situations where it is, as his Honour puts it, reasonably obvious or clear that “the car was derived from unlawful activity”, where the purchase price comes from “tainted funds”, where that funds “were borrowed, and then the loan was repaid from tainted funds”, “leasing instalments were paid with tainted funds”, et cetera.

Then there are the tenuous cases of the kind I think your Honour the Chief Justice is putting to me – “purchasing petrol”, “washing and detailing” and minor things.  Then there are cases in the middle or a more difficult case where registration or repairs without which the car cannot lawfully be driven, matters of that kind.

So, really, the point as a matter of legal principle is that we submit that his Honour is clearly correct in respect of the matters in 374 in saying that they go to the question of whether or not the property was derived or not, notwithstanding that they involve post‑acquisition expenses.  If the point arises, which I think depends on the construction of the paragraphs of the majority reasons that I went to, I do not understand our friends to say otherwise.

GAGELER J:    How do you relate that back to your earlier submission about the “but for” test or the…..funds test?  They have to work in tandem somehow, do they not?

MR DONAGHUE:   The difficulty is that – and this is not a satisfactory answer to your Honour – so much depends on the facts as to how these definitions apply to particular scenarios so that the “but for” test works most readily in the context of acquisition but it might be said, for example, that if a car were bought as a wreck and could not be driven without substantial work being done and a new engine being put in it, matters of that kind, and the person could only get funds in order to make those – the only source of funds to make those repairs was the unlawful activity, then that would point as a matter of facts to the proposition that the property could properly be described as having been derived from unlawful activity because it only has an engine because of the funds derived from unlawful activity and without the engine it would not be able to be used as a car.

In my submission, there is no necessary tension between the test that we have posed but the difficulty is trying to add too much legal refinement to what is essentially a factual question at the end of the day as to how these words apply to particular property.

GAGELER J:   Mr Solicitor, while I have detained you ‑ you might just want to take this on notice – but I would be assisted, I think, in knowing how the forfeiture provisions and section 102, if it is applicable, apply in circumstances where there is a security interest in the property that is forfeited.  On one view, the effect of section 96 is if the car is forfeited, then any security interest is obliterated.  The car itself vests absolutely in the Commonwealth and the holder of any security needs to move the Court under section 102, presumably (2) ‑ ‑ ‑

MR DONAGHUE:   Yes.

GAGELER J:   ‑ ‑ ‑ is there any other way of dealing with it?

MR DONAGHUE:   No, that is the pathway.

EDELMAN J:   But, does not one necessarily have to differentiate between whether one is forfeiting the interest or the thing.  The Act moves between those two different concepts in different places, even crucially in 102(2)(c) which is concerned with the interest and 102(3)(a) which is concerned with either the interests or the thing itself.

MR DONAGHUE:   I accept that, your Honour.

EDELMAN J:   If it is just forfeiture of the interest, there it would be forfeiture of the interest, subject to any charges, mortgages or so on, or other interests, would it not?

MR DONAGHUE:   Yes, I am having notes madly scrawled, your Honours.  Perhaps I will take the question on notice and come back to it, if I might, but I understand what your Honours are putting and will come back with a full answer to your Honours.

GAGELER J:   Related to that, the property referred to in 102(3)(a) can only be, I think, the property that is forfeited to the Commonwealth under section 92; that is the property that is referred to in 102(1).

MR DONAGHUE:   Yes.

GAGELER J:   So, it depends critically on identifying the property, whether it is the thing or the interest.

MR DONAGHUE:   Indeed, as initially forfeited under section 92, yes.

GAGELER J:   Under section 92, yes.

MR DONAGHUE:   The property is defined, I think, in a way that does not add, or does not really help in relation to this particular problem because it can mean both.  It can mean both the physical thing and the ‑ ‑ ‑

GORDON J:   But it is defined to include an interest although it is not ‑ ‑ ‑

MR DONAGHUE:   It is defined to include an interest, exactly, which is why I say I do not think that the definition helps because the property is sometimes the interest and is sometimes clearly the physical thing.  When it talks in (3)(a) about the property being used, that language, in my submission, does not very readily accommodate a reference to the interest.

GAGELER J:   Well, but it might, it might in the case of financial crime of some sort.

MR DONAGHUE:   Well, it can, it can potentially as if an interest is used as a security, for example.  It might, in answer to your Honour.

EDELMAN J:   That is the heart of your section 82 submission, is it not?

MR DONAGHUE: Section 82 submission on the Proceeds of Crime Act?

EDELMAN J:   Yes.

MR DONAGHUE:   Yes, it is in relation to one of the assets, that is so.  Your Honours, can I come to the acquired limb which is (3)(b).  Our submission in relation to this aspect of the test is that that requirement really has two limbs to it.  Property will not be acquired lawfully, in our submission, if either an offence is committed in the process of acquiring the property or if the funds used to acquire the property are proceeds of criminal activity.

Now, I do not apprehend there to be any dispute between the parties in relation to the second of those propositions, the funds proposition, which is historically the more controversial of the two, and I will take your Honours to it but we have included in the materials the Victorian Court of Appeal decision in Markovski v the Director of Public Prosecutions, where the argument advanced by Mr Markovski was that the phrase “lawful acquisition” should be narrowly construed as extending only to the lawfulness of the transaction by which the property was acquired and not as including the source of the funds and the Court of Appeal unanimously rejected that argument.

So, the focus of the decision in that case is about whether or not the concept extends to source of funds.  Our friend’s case, as we understand it, is that this lawful acquisition limb is essentially substantially the same as the derivation limb because they say, well, when one is looking at the source of the funds, one should be making an evaluative judgment based on the relative contribution of lawfully acquired funds on the one hand and unlawfully acquired funds on the other and they say that test is much the same as the derivation test.

In our submission, that may well be so, where the basis for determining whether or not the property was lawfully acquired is whether or not unlawful funds were used but the critical issue, in our submission, in relation to this limb, is not the source of funds aspect but whether or not an offence was committed in the course of acquiring the property and, we submit, it seems to us unlikely that our friends would deny this, but it seems to us impossible to deny that if the acquisition of the property actually involves the commission of an offence, it must be that the property was not lawfully acquired and it would make a nonsense of the language that Parliament has used if it did not mean that.  That makes the proceeds of crime offences quite critical to the application of this particular limb because if the use of funds to acquire particular property is unlawful under the Proceeds of Crime Act offences, then it follows that the property that was acquired in that transaction was not lawfully acquired.

In our submission, that point was not sufficiently appreciated by the Court of Appeal.  So, in the bundle, your Honours ‑ ‑ ‑

EDELMAN J:   Was that point run in the Court of Appeal?

MR DONAGHUE:   Yes, your Honour, as I understand it, it was run in the Court of Appeal, and your Honours see a ‑ in fact you can see it from paragraph [1115] of the appeal book where their Honours effectively collapsed the finding about the proceeds of crime argument.  Paragraph [1115] is on 3195 of the appeal book, and perhaps before going to [1115] I will take your Honours through the reasoning. 

So, if one goes back to the previous page, you will see that the relevant statutory provisions have been reproduced; the conduct in question here spanned both the old Act, the 1987 Act, which at that time contained the relevant proceeds of crime as a defence provision, and then they were shifted into the Criminal Code (Cth), and you see the provision at the top of page 241 but if we just focus on section 82 of the 1987 Act. The offence is described in terms that applies to a person who:

receives, possesses, conceals or 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.  And “proceeds” there is defined to mean:

property that is derived or realised, directly or indirectly, by any person from the commission of an offence ‑

Now, what their Honours did in disposing of this part of the case was say, because ‑ and this is [1115] – because “derived or realised” means wholly derived or realised, once we found that the property did not meet that derivation criteria, it cannot have been an offence under section 82 and therefore that is the end of that in terms of the lawful acquisition argument.

The difficulty with that, we submit, is that it focuses attention just upon the ultimate property that may have been acquired, say an aircraft. Without focusing on steps that might be taken along the way, that could constitute offences against section 82, and to give your Honours a concrete example, one of the items of property in issue in this appeal is a Sea Fury aircraft. That aircraft was acquired using three separate payments of funds, two of which, on the findings of fact, were completely comprised of unlawful funds.

Now, in our submission, at the time ‑ from Merrell and I will not stray too far into the facts, Mr del Villar will take your Honours through this ‑ but if it be the case that all of the Merrell funds were unlawful funds and two of the payments for the Sea Fury aircraft came from Merrell, at the time that Merrell made one of those payments for the aircraft, it was disposing of funds that were the proceeds of crime – all of the funds – so even on the wholly derived analysis, at the time that those funds were used to make the payment, an offence was committed against section 82 of the Act, and because an offence was committed in the course of acquiring the aircraft, the aircraft was not lawfully acquired, in our submission, on the first of my two limbs. One never gets to any relative contributions of lawful or unlawful funds because one just needs to focus on the elements of the offence and the elements of the offence were satisfied in that factual scenario.

So, in our submission ‑ and Mr del Villar will develop this in relation – as it applies to particular items of property, but one needs to address ‑ and we say it was not properly addressed ‑ the operation of those money‑laundering offence provisions in relation to the operation of this limb, and that potential effect of the money‑laundering provisions is something that was accepted by the Court of Appeal in Markovski as relevant to the lawful acquisition limb – I will not take your Honours to it but the references are paragraph 80 in Justice of Appeal Redlich’s judgment and paragraph 85 in Justice of Appeal Whelan’s judgment in Markovski.

Your Honours, could I go from there to make some brief submissions about the onus of proof. 

GAGELER J:   Mr Solicitor, just before you do, your proposition 3.3 – I am looking at page 1 of your outline of submissions ‑ has the limb that you have been addressing but then there is an additional limb which refers to a significant part of the acquisition funds was unlawfully acquired.  Does that – you say it is an uncontroversial limb but does that come from the reasoning in Markovski?

MR DONAGHUE:   Yes, so in Markovski it was said there was no such limb and the Court held that there was. 

GAGELER J:   What is meant by a “significant part” and where do you get it from?

MR DONAGHUE:   It is a good question, your Honour.  It is said that it is a question of fact and it ends up being much the same ‑ and I think our friends say this and we would agree – much the same as the debate concerning derivation, what one ends up with a ‑ ‑ ‑

GAGELER J:   Exactly, so really my question is if you are accepting it as a meaningful test for that purpose, why do you not adopt the same sort of language ‑ same sort of notion when you are addressing the meaning and application of “derived”?

MR DONAGHUE:   Yes.

GORDON J:   When you answer that, can I just say I could not find the reference to “significant” in Markovski. 

MR DONAGHUE:   It is possible, your Honour, that “significant” ‑ ‑ ‑

GORDON J:   I may have misread it.

MR DONAGHUE:   No, your Honour, I think that was an attempt ‑ and I think this is what Justice Gageler is putting to me ‑ to capture the essence of the reasoning in Markovski because it was not I think said in Markovski that any unlawful funds used would mean that the unlawful acquisition of – that the property was unlawfully acquired.

So, there is again a spectrum from de minimis at one end to all funds at the other and Markovski, as I understand it, does not suggest that the test should be put at either extreme.  Because we do not submit that there is – that anything turns on the second limb here we have perhaps not been as careful in the language of 3.3 as we should have been.  So, while I do not suggest that there is any significant difference between that limb of the test and the derivation test, I would not want to be understood as submitting that your Honours should just ask is a significant contribution made in answering the derivation criteria because in the end everything depends on what the word “significant” means in that context and ‑ ‑ ‑

GORDON J:   Does that mean you accept Justice Gageler’s proposition that that second limb of “acquired lawfully” should be the same as the derivation in whatever the test is?

MR DONAGHUE:   Yes.  With respect to onus of proof, your Honour, the Court of Appeal adequately summarises the approach that the trial judge took at – which the majority upheld at paragraph [395] – sorry, at paragraph [935] on page 3158.  In effect, the reasoning is that notwithstanding the fact that section 102 is a provision that requires an application to be made by a person with an interest in property to have the property returned to them and notwithstanding the fact that the Act expressly states in section 317 that:

The applicant in any proceedings under this Act bears the onus of proving the matters necessary to establish the grounds for making the order applied for.

So, it expressly places the burden on the applicant.  The learned primary judge in the Court of Appeal – the majority in the Court of Appeal said because the proceeding had been committed to a court that onus was sufficiently discharged by meeting any suggested unlawfulness that was raised by the Commonwealth in its points of defence.  So that it was said, in effect, if the Commonwealth only identifies in its defence particular suggested sources, or particular suggested reasons, why property was used in connection with crime or derived from crime, if the applicant can show that those on the balance of probabilities that those unlawful activities did not occur, then the applicant discharges the burden of showing that there was relevantly no unlawful use or unlawful derivation. 

In our submission, that approach is quite wrong because it amounts to a conversion of the relevant burden because in a situation of no knowledge the Commonwealth will not be able to plead the relevant unlawful activity and in that situation the applicant who bears the burden of showing that there was no unlawful use will succeed in the absence of any evidence at all.

KIEFEL CJ:   Is the majority in the Court of Appeal to be taken there to say that the applicant does not have to show, in effect, the source of – the lawful source of the property at the outset?  I wondered whether their Honours were simply saying that in their statement – in a statement in a pleaded case the applicant would have to show, would have to put forward its case of where the property came from effectively.  The Commonwealth then says – puts up different propositions and the applicant then has to discharge another evidentiary onus to meet that case but do you say that the first step is missing?

MR DONAGHUE:   Yes, and the first step – we do say that, and so we say ‑ about halfway down paragraph [935] their Honours say, having said it is implicit ‑ it has been committed to the Court, it is implicit that the “proceedings are to be conducted fairly”, “pleadings are common” so the issues are those on the pleadings and then their Honours say:

In those circumstances, the matters which the Hart companies had to address were those raised by the pleadings, save for any matter which might be regarded as fairly raised and accepted as relevant –

KIEFEL CJ:   But that does not say what the Hart companies would have to say in their pleading.

MR DONAGHUE:   No, but it was then said towards the end of that that “the learned primary Judge was right” to conclude that it was not necessary to consider the possibility of property being:

associated with some form of illegal activity other than that raised by the Commonwealth parties, in their points of defence –

So, it seems to have been assumed that there was no – the case would be decided on the basis that there was no unlawful use of property or unlawful derivation other than any illegality or unlawful use to which the Commonwealth could point.

KIEFEL CJ:   It seems a little arid because it proceeds upon a basis of pleadings being incorrectly approached.  I mean, what is the applicant’s case?  The applicant has to put a case.

MR DONAGHUE:   The applicant has to put a case which should go so far as ‑ ‑ ‑

KIEFEL CJ:   Show where the property came from.

MR DONAGHUE:   Yes, to show where it came from, because if you cannot show where it came from you cannot exclude the possibility that it came from an unlawful source and you have to exclude that, on the balance of probabilities, the possibility it came from an unlawful source.

KIEFEL CJ:   But assuming that the applicant’s case does go that far.

MR DONAGHUE:   But it did not, your Honour.

KIEFEL CJ:   But, hypothetically, assuming that to be the case, if the Commonwealth then raises other allegations to counter the applicant’s case, prima facie case, the evidentiary onus just shifts in the way it normally does, does it not?

MR DONAGHUE:   If there is a pleaded case that says this is where the property came from, the Commonwealth says, no it did not, it came from somewhere else, and the Commonwealth fails in proving that it came from somewhere else ‑ ‑ ‑

KIEFEL CJ:   The applicant wins.

MR DONAGHUE:   ‑ ‑ ‑ the applicant will win if their pleaded case is accepted, that it did come from the relevant source.

KIEFEL CJ:   The applicant has to meet the Commonwealth’s case.

MR DONAGHUE:   Yes.  So if one takes the Henderson example in relation to the derived jewellery, if it had been accepted in that case that the jewellery really was a family heirloom passed down through the generations, then that would have succeeded in establishing that the property did not come from an unlawful source, so it would have operated in the way your Honour puts to me.

What seems to have happened here is it effectively – that the approach taken and, as we understand it, urged by the respondents, is that there is at least an evidentiary onus on the Commonwealth to point to some unlawful activity which is then, I think, said, well, once the Commonwealth discharges the evidential onus of pointing to some unlawful activity then it is accepted that the respondent has to meet that on the balance of probabilities but it is said that that is all they have to do and that is the point where we submit that there is ‑ ‑ ‑

EDELMAN J:   Do you say at the first stage that the applicant in a non‑heirloom case has to trace the provenance of every transaction from which the property is derived back to its manufacture?

MR DONAGHUE:   They may have to do that on particular facts.  They have to discharge on the balance of probabilities the onus of proving that the property was not connected to unlawful activity.

EDELMAN J:   If the property is a sale of a fee simple, the applicant would have to trace the fee simple back to, when, the original registration beyond that old system title?

MR DONAGHUE:   Your Honour, I do not think so.  I think if the applicant could demonstrate how they acquired the property and that they could demonstrate that in acquiring the property there was no hint of unlawfulness in association so that, for example, they acquired the property, having sold their own previous property which they were able to demonstrate that they had paid for by mortgage repayments over a period of 25 years, and here are all bank statements, to demonstrate how they acquired the previous property, that shows how they acquired the funds that they used for the new property, and that would discharge their onus.

The point we make is that this is legislation that recognises that there will often be a lack of knowledge as to where the unlawful proceeds – that people to whom this legislation applies will often have unexplained wealth.  The task of explaining the wealth falls on the person; it does not fall on the Commonwealth.  So in a state of absence of knowledge the applicant for the return of the property loses; they do not win because the Commonwealth cannot point specifically to particular unlawful activity in their pleadings.

As our friends put it in their written submissions, they say, this was all conventional because there is an evidentiary burden on the Commonwealth, and they rely in support of that submission on the decision of the New South Wales Court of Appeal in DPP v Brauer, which I am going to take your Honours to.  I note the time; it will probably take me a couple of minutes so I am in your Honours’ hands.

KIEFEL CJ:   Perhaps if you finish this topic.  Is that where you will finish your topic?

MR DONAGHUE:   I will finish that after that in Henderson, so it will probably take me five minutes to finish the topic.

KIEFEL CJ:   Yes, I think we will proceed.

GAGELER J:   I also wanted to ask about the pleadings.  Do we need to be taken to the pleadings in connection with this topic?

MR DONAGHUE:   I was going to take your Honours to – perhaps it will take me a little longer than five minutes.

GORDON J:   Can I just raise one matter with you, Mr Solicitor, and that is in relation to this earlier question about interest versus property, the point which deals with security.  I think you might also need to look at section 97, dealing with registrable properties, which clearly identifies that there are interests that are not ultimately vested in the Commonwealth, which is picked up again by 45(4), which I think you will have to look at as well.

MR DONAGHUE:   Yes, your Honour, thank you.

KIEFEL CJ:   We might adjourn then, Mr Solicitor.

MR DONAGHUE:   Thank you very much.

KIEFEL CJ:   The Court will adjourn until 9.30 am tomorrow for pronouncement of orders and otherwise until 10.15 am.

AT 4.14 PM THE MATTER WAS ADJOURNED
UNTIL WEDNESDAY, 15 AUGUST 2017