Commissioner of the Australian Federal Police v P [No 2] - [2018] WASC 2

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: COMMISSIONER OF THE AUSTRALIAN FEDERAL POLICE -v- P [No 2] [2018] WASC 2

CORAM: BANKS-SMITH J

HEARD: ON THE PAPERS

DELIVERED : 3 JANUARY 2018

FILE NO/S: CIV 1350 of 2017

BETWEEN: COMMISSIONER OF THE AUSTRALIAN FEDERAL POLICE
Applicant
AND
P
First Respondent
N
Second Respondent

Catchwords:

Costs - No determination of issues - Indemnity costs

Legislation:

Nil

Result:

No order as to costs

Category: B

Representation:

Counsel:

Applicant:     No appearance
First Respondent           :     No appearance
Second Respondent      :     No appearance

Solicitors:

Applicant:     Criminal Assets Litigation, Australian Federal Police
First Respondent           :     Hager Grubb & Partners
Second Respondent      :     Hager Grubb & Partners

Case(s) referred to in judgment(s):

Commissioner of the Australian Federal Police v Kalimuthu [No 2] [2015] WASC 376
Lafferty v Waterton [2016] WASCA 183
Re Application Under Section 20A of the Proceeds of Crime Act 2002 (Cth); Ex Parte Commissioner of the Australian Federal Police [2017] WASC 114
Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S)
BANKS-SMITH J:

Introduction

The applicant seeks costs on an indemnity basis of the respondents' application to revoke restraining and preliminary unexplained wealth orders made under the Proceeds of Crime Act 2002 (Cth) (Act). Those orders were included within a number of orders made on 8 March 2017 and were made ex parte.
According to the applicant, its application was the first in Western Australia for preliminary unexplained wealth orders and only the second in Australia. The application for those orders was supported by an affidavit of Federal Agent Reilly, which including annexures ran to almost 2000 pages.
On 19 April 2017 I published reasons with respect to the ex parte orders.[1]
[1] Re Application Under Section 20A of the Proceeds of Crime Act 2002 (Cth); Ex Parte Commissioner of the Australian Federal Police [2017] WASC 114.

Grounds for revoking orders

Under s 179C of the Act, the court may revoke a preliminary unexplained wealth order if satisfied that:
(a)there are no grounds on which to make the order at the time of considering the application to revoke the order; or
(b)it is in the public interest to do so; or
(c)it is otherwise in the interests of justice to do so.
Under s 42(5) of the Act, the court may revoke a restraining order if satisfied that:
(a)there are no grounds on which to make the order at the time of considering the application to revoke the order; or
(b)it is otherwise in the interests of justice to do so.

Background to revocation application

On 5 April 2017 the respondents indicated they were considering bringing an application to revoke the restraining and preliminary unexplained wealth orders and sought an extension of time in which to bring such application. Ordinarily such application must be brought within 28 days of the order being made, although the court may extend that period to a maximum of three months.
I add that during this period the parties also dealt with issues as to staying examinations of certain persons. On 19 April 2017 the applicant filed a second affidavit of Federal Agent Reilly relating primarily to the proposed examinations.
On 12 May 2107 the respondents' application for an extension of time was granted (by consent). On 15 May 2017 the respondents filed an application to revoke the restraining and preliminary unexplained wealth orders. The revocation application was programmed, including as to expert evidence. The application was listed for a hearing due to commence on 30 August 2017.
The revocation application attached a 13 page notice of grounds (Grounds). The Grounds included a section alleging non‑disclosure and pointing to information that the applicant allegedly had in its possession itemising certain receipts of income and other funds that they say were not disclosed to the court. It is alleged that there was information as to the income of a legitimate business that was not disclosed. It is also alleged in the Grounds that the applicant failed to state that the respondents had fully particularised and identified payments, including utilities payments and tax payments, and so portrayed a narrative of wealth being unexplained or unlawful.
A second section deals with alleged misstatements by way of failure to properly compare personal and corporate income and expenses. Other sections raise issues as to non‑disclosure of alleged errors in asset values, non‑disclosure of inquiries (including that the applicant had received information from Pascoes Partners Accountants some nine months before the ex parte hearing), Federal Agent Reilly's level of expertise in preparing calculations of trust and other financial statements, the lack of any balance sheet reconciliation, failure to properly disclose arguments to the effect that the respondents' gambling income is not taxable and generally perpetuating a narrative of unlawfully obtained wealth without properly disclosing counter arguments.
The respondents filed two affidavits in support. A solicitor for the respondents, Chrisafina Tsolakis, swore both and attached various email chains passing between the solicitors for the applicant and the respondents. Relevantly, the affidavit of Ms Tsolakis filed 15 May 2017 attaches an email request of 30 March 2017 from the respondents' solicitors seeking further and better particulars relating to source banking entries for various calculations in Federal Agent Reilly's first affidavit. Initially, the applicant resisted production, stating the matter was not proceeding by pleading and a request for further and better particulars was not appropriate. That response rather missed the point that the respondents were clearly seeking to better understand matters in the affidavit, matters they had not had the opportunity to address in light of the ex parte nature of the original application. Following a further request, on 20 April 2017 the applicant provided a spread sheet together with a summary of bank transactions.
The second affidavit of Ms Tsolakis filed 13 June 2017 attached a report prepared by Brenton Siviour dated 12 June 2017. It is apparent that Mr Siviour was retained soon after service of the orders on the respondents in March 2017 (the first communication between the respondents' solicitors and Mr Siviour was 10 March 2017). Mr Siviour is a chartered accountant. He attached to his report a summary of his qualifications and experience as a forensic and expert accountant. Mr Siviour was retained by the respondents' solicitors to provide an independent expert's report and was provided with copies of the initial application and Federal Agent Reilly's first affidavit.
Mr Siviour stated in his report that in his opinion, on the basis of the documents in Federal Agent Reilly's affidavit there were no reasonable grounds to suspect the respondents' wealth exceeded lawfully acquired wealth and he provided eight reasons for that conclusion:[2]
[2] Affidavit of Christina Tsolakis filed 13 June 2017, CET6.
•Not disclosing information in the [Australian Federal Police] spreadsheet;
•Having a flawed methodology in comparing personal taxable income to total wealth;
•Not making sufficient inquiries of financial information available;
•Confusing cash transactions and values of property (real and personal);
•Not understanding the difference in historic cost accounting and valuations;
•Having inconsistent date ranges leading to a gap in the [approximately] seven years of information;
•Having no reference to or computation of opening balances; and
•Not reconciling cash transactions to balance sheets and profit and loss information.
Mr Siviour provided details and examples which accord with the matters raised and addressed in the Grounds.
The applicant refers to the two affidavits of Federal Agent Reilly already referred to and also a third affidavit filed 18 July 2017 (primarily in support of an application for further orders with respect to cash said to be held in Vietnam) and a fourth affidavit filed 1 August 2017 (1,749 pages including annexures). The applicant also relied on an independent forensic accounting report prepared by Martin Langridge (filed 1 August 2017). Mr Langridge's report did not address Mr Siviour's report and based on the list of source materials referred to by Mr Langridge, it does not appear that he was provided with a copy of it. In summary, Mr Langridge reported that having reconciled income and expenditure and having examined the acquisition of assets during the relevant period, there was a shortfall in moneys expended on the acquisition of assets as against moneys received and recorded in relevant bank accounts of some $1,008,285. The report provided, in effect, a shoring up of the grounds upon which Federal Agent Reilly had formed his views.
On 15 August 2017 the respondents filed an outline of submissions. In summary, they alleged that it was in the interests of justice that the orders be set aside because there had been a failure by the applicant, as a model litigant, to comply with his duty of disclosure at the original ex parte hearing. The respondents submitted that the revocation order should be made because the applicant:
(a)made multiple significant misstatements as to the respondents' financial affairs;
(b)failed to disclose or produce significant financial information that demonstrates material facts which the absent respondents would have brought forward in their defence of the application and despite that information being known to the applicant;
(c)failed to conduct proper inquiries to obtain all relevant facts and materials for disclosure or production at the ex parte hearing resulting in further non‑disclosure of material facts that favour the respondents;
(d)confused standard accounting and taxation concepts and, as a consequence, either misstated or failed to disclose material facts which the absent respondents would have brought forward in their defence of the application; and
(e)in doing the above, perpetuated a narrative that the wealth of the respondents was suspected as being unlawfully obtained, without ever directing the court to material facts and disclosures which could undermine such a narrative.
On 23 August 2017, the applicant filed a 'notice of grounds contesting the respondents' chamber summons' (Notice). In the Notice, Mr Siviour's report is addressed and the applicant identifies certain issues with it (whilst alleging it was inadmissible as it was not verified by the expert). The applicant also refutes that the respondents have identified any material non‑disclosure or that they have given any explanation for the unidentified wealth as ascertained by the applicant.
Shortly before the hearing the respondents informed the applicant that they would not be relying on Ms Tsolakis' affidavits but that they would be seeking to rely on Mr Siviour's report and would seek to file a further affidavit so that it was produced to the court in admissible form.
On 25 August 2017 the respondents informed the applicant and the court that they would not be proceeding with the revocation application. Accordingly, the hearing was vacated. The applicant subsequently brought this application for indemnity costs.

Principles

I agreed to determine the costs application on the papers but asked that the parties ensure they address the difficulties of hypothetical trials of issues as identified by the High Court in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin.[3]
[3] Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, 624.
The Court of Appeal addressed those issues in Lafferty v Waterton, as follows:[4]
It is trite law that the court has a very wide discretion as to costs, limited only by the requirement that it be exercised judicially. The general rule is that the successful party is entitled to an order for its costs. That is because ordinarily fairness requires that a party who has unjustifiably brought the other party before the court, or who has unjustifiably resisted a claim to which the other party is entitled, should have to meet the costs that have been incurred by the other party.
The general rule, however, is based upon the identification of the successful party by a hearing on the merits. In cases where the matter is settled without a determination on the merits the court is deprived of the factor that will usually determine how the discretion as to costs is to be exercised. As McHugh J pointed out in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, 624, the court cannot try a hypothetical action between the parties and burden the parties with the costs which by their settlement they had avoided.
There may, however, be cases where despite the lack of a final determination the court is able to find that the settlement was in fact simply a capitulation by one party in the face of probable defeat, where an order for costs may be appropriate. There may also be cases where the court is able to conclude that one party has acted so unreasonably that the other party should be entitled to an order for costs. But where it appears that both parties have acted reasonably in commencing and defending the proceedings, and their conduct continued to be reasonable until the proceedings came to an end, the proper exercise of the costs discretion will usually mean that the court will make no order as to costs: Ex parte Lai Qin, 625.
[4] Lafferty v Waterton [2016] WASCA 183 [16] ‑ [18].
In this case, the applicant does not seek only an order that the respondents pay his costs, but that it do so on an indemnity basis.
The principles applicable to indemnity costs were summarised in Swansdale Pty Ltd v Whitcrest Pty Ltd.[5] I do not need to repeat them, but in short, an indemnity costs order will constitute an appropriate sanction marking the disapproval of improper or unreasonable conduct by a party or its advisers.
[5] Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) [10].

Parties' submissions

The applicant submits he is entitled to costs on an indemnity basis because:
(a)the application was hopeless from its inception;
(b)the nature of the allegations against the applicant in alleging non‑disclosure was serious but no evidence was provided to support the allegations;
(c)the respondents made generalised allegations;
(d)the respondents originally sought to rely on the affidavits of Ms Tsolakis but then changed their position and chose not to;
(e)each allegation had to be addressed in detail by the applicant;
(f)the applicant was obliged to undertake work it otherwise would not have undertaken (for example, the report of Mr Langridge);
(g)the fourth affidavit of Federal Agent Reilly addressed many of the allegations made by the respondents;
(h)the revocation application is novel and there is little precedent to assist the court;
(i)the revocation application was of importance and significance to the applicant;
(j)the allegations were not pursued after the applicant addressed each of the allegations made; and
(k)the costs incurred by the applicant are not costs that would be incurred in any event.
The respondents submit that:
(a)there should be no order for costs;
(b)even if there were to be a costs order it should not be on an indemnity basis; and
(c)if there is to be an order as to costs, then it is appropriate to order that the costs of the revocation application be reserved to the hearing of the applications of unexplained wealth declarations.

Determination

This matter has required careful consideration, taking into account that undoubtedly the applicant has been put to expense by the withdrawn revocation application but also taking into account the nature of the original orders and the regime under which the revocation application was brought.
I have determined that there should be no order as to costs, for the following reasons.

Not satisfied that the respondents acted unreasonably

It is important to bear in mind that the initial orders were made on an urgent ex parte basis. Those orders were of a serious and significant nature.
The respondents, having been served with the relevant papers after the orders were made, were required to act quickly to retain solicitors and consider whether or not to bring a revocation application. During the relevant period they were obliged to consider the scope and timing of certain proposed examination orders and they provided written submissions on relevant case law. They were also required to consider the application with respect to the cash disclosed as held in Vietnam. They were also required to comply with orders included in the original orders that required the filing of affidavits disclosing their assets.
The affidavit evidence of Federal Agent Reilly was extensive. It raised questions for the respondents. As noted above, the respondents' solicitors asked the applicant's solicitors certain questions (some of which led to the applicant providing further information) and the respondents retained a forensic accountant. I do not ignore the question as to the admissibility of Mr Siviour's report, but the fact is the respondents made it known they intended to rely on the report and cure the issue of form. I have no reason to doubt they would have done so had the hearing proceeded. The applicant addressed the content of the report in its Notice. For the purpose of assessing the reasonableness of the respondents' conduct in the context of costs, the existence of the report is relevant. The fact that the respondents then no longer sought to rely on the affidavits of Ms Tsolakis is not to the point. Questions raised in correspondence were to some extent answered or no longer relied upon as the matter progressed, and it was intended that Mr Siviour's report be tendered other than through Ms Tsolakis.
After the revocation application was filed (and within the time constraints of the legislation and court orders), the applicant filed a further two affidavits of Federal Agent Reilly. Importantly, the applicant also filed Mr Langridge's report and the Notice. Those documents were filed after the preparation of Mr Siviour's report.
It was not until after those documents were received that the respondents withdrew their application. The application was withdrawn two days after the Notice addressing Mr Siviour's report was filed.
Presumably, the reason for withdrawing the application is the subject of legal professional privilege. The reason was not disclosed. However, it seems to me to be entirely appropriate that once additional information (including an expert's report) is received and considered, the party seeking relief may decide to discontinue and so avoid the costs to both sides of a hearing and the cost of utilisation of court resources. Indeed, parties are to be encouraged to undertake such an assessment.
The applicant contends that the respondents should have known it was open to the applicant to put on further evidence and that the further evidence discloses that their allegations were (he contends) unreasonable and unfounded. The applicant points to the respondents' conduct being unreasonable because of that additional evidence.
Even assuming that the additional evidence meets all the matters raised by the respondents and that the Langridge report and the Notice played a role in persuading the respondents that they ought not proceed with their application, at the time they filed their application they were not to know what additional information may be provided.

If the applicant's contention is to be accepted, the fact that questions or allegations are addressed after the application was filed but prior to the hearing would render the bringing of the application unreasonable, in the context of costs. That does not follow. An applicant may well act reasonably in bringing an application based on the information to hand at the time. Whether or not it is reasonable to pursue an application in the face of additional information or clarification is a different question. The fact that the Act permits the applicant to file further materials on the hearing of a revocation application does not alter that position.[6]
[6] Section 42(4), s 179CA(4) of the Act.
Assessing whether a party has acted reasonably for the purposes of a costs application may well involve considering its conduct at different stages of the litigation prior to any discontinuance.
In some cases, that task may be simple. This is not such a case. There is considerable documentary evidence. There is expert evidence. Although as at 25 August 2017 the respondents indicated they did not seek to adduce evidence apart from Mr Siviour's report, it was open to them to make submissions based on the evidence adduced by the applicant, including Mr Langridge's report.
It is no simple task to assess whether the non‑disclosures alleged at the time the revocation application was brought are likely to have been established and if so, whether they are material such that it may be in the interests of justice to revoke the relevant orders. The scope of the expression 'interests of justice' in the context of s 179C has not been confined or applied in relevant case law. In the context of s 42(5), it has been held that material non‑disclosure should be sufficient to justify a restraining order being set aside in the interests of justice.[7] I consider that would also apply with respect to s 179C.
[7] Commissioner of the Australian Federal Police v Kalimuthu [No 2] [2015] WASC 376 [45].
Contrary to the applicant's submissions, I do not accept that the respondents' application was clearly hopeless from the start. The Grounds raised particular questions as to the treatment of income or other funds. It may be that some of those issues were questions of law and capable of determination without additional evidence. But the fact that both parties sought to rely on forensic accounting reports (and the parties agreed deponents of affidavits should be available for cross‑examination) points to the potential for responsible but differing views, including as to the potential relevance of failure to disclose certain specific information.
I am also cognisant of the fact there is not yet a body of useful case law on preliminary unexplained wealth applications.
Many of the other matters raised by the applicant (the novel nature of the application, that costs may not be costs incurred in any event in the application for final orders as to unexplained wealth, the importance of the application, the involvement of senior and junior counsel and the amount of work involved) are matters that would be relevant in any application for taxation of costs without regard to the limitations imposed by the relevant scale of costs. They do not of themselves establish that the respondents have acted unreasonably.
In the time available to them after a hearing in which they were not involved, the respondents considered the lengthy first affidavit of Federal Agent Reilly, asked certain questions about it, drafted detailed Grounds, retained an expert and in due course obtained his report. Further, it withdrew the application shortly after receipt of the Notice. I do not consider the conduct reflected in this timeline can be dismissed as mere capitulation. I do not consider that the respondents acted unreasonably. In my view, this is a case where in accordance with the principles in Ex parte Lai Qin, there should be no order as to costs.

Indemnity costs or whether costs payable forthwith

It follows that I do not need to address the issue of indemnity costs or whether any costs order would be on the basis that the costs be payable forthwith. However, as those issues were the subject of detailed submissions, I note that had I ordered that the respondents pay the applicant's costs of the application, it does not follow automatically that it would have been on an indemnity basis. Whether conduct is such as to justify an indemnity costs order is a question of degree. The egregiousness of the conduct is relevant.
As to whether costs should be payable forthwith, the respondents point to the lack of any evidence as to costs incurred and the difficulty that creates in assessing whether all costs claimed would be thrown away (in effect). Despite the applicant's submissions to the contrary, it is not clear to me that none of the work involved in Mr Langridge's report or as reflected in the fourth affidavit of Federal Agent Reilly would be of assistance in the hearing of an application for final orders under s 179E of the Act. Therefore, the proper exercise of the court's discretion in such a case may justify an order that the respondents pay the applicant's costs of the application in any event (rather than forthwith), such costs to be taxed if not agreed. However, in light of my determination, it is not necessary to formulate any such order further.

Order

There will be no order as to the costs of the respondents' revocation application filed 15 May 2017 and withdrawn or discontinued on 25 August 2017.