Commissioner of the Australian Federal Police v Xin

[2024] NSWSC 891

Supreme Court

New South Wales

Medium Neutral Citation:

Commissioner of the Australian Federal Police v Xin [2024] NSWSC 891

Hearing dates:

16 October 2023

Date of orders:

24 July 2024

Decision date:

24 July 2024

Jurisdiction:

Common Law

Before:

Rothman J

Decision:

(1)   The Motion of Tara Global Pty Ltd, notice of which was filed on 3 July 2023, is dismissed.

(2)   The Motion of Tara Global Pty Ltd, notice of which was filed on 13 July 2023, is dismissed.

(3)   The Motion of MX Seven Investments Pty Ltd and Wisdom AWCS International Pty Ltd, relating to variation of the Restraining Orders (hereinafter the “Restraining Orders”) in paragraphs [113] and [119] of the Restraining Orders made 31 January 2023, is dismissed.

(4) Pursuant to ss 29 and 31(1) of the Proceeds of Crime Act 2002 (Cth), the interests of Perpetual Corporate Trust Ltd (ACN 000 341 533) (hereinafter “Perpetual”) as registered mortgagee of the real property located at 119 King Street, Sydney in the State of New South Wales being Lot 2 in Deposited Plan 1 104058 (hereinafter the “King Street Property”) be excluded from the Orders made by the Court on 31 January 2023.

(5) Pursuant to s 39(1)(b) of the Proceeds of Crime Act, notwithstanding the Restraining Orders, Perpetual, and persons acting on behalf of Perpetual, may deal with the King Street Property in accordance with the terms of the registered mortgage AS437510.

(6) Pursuant to s 39(1)(b) of the Proceeds of Crime Act, the Restraining Orders in respect of the King Street Property be varied in accordance with the following:

(a)   In respect of any sale of the King Street Property by or on behalf of Perpetual pursuant to the terms of its registered mortgage AS437510, Perpetual is to use all reasonable endeavours to provide to the plaintiff, by email to his legal representatives and Tara Global Pty Ltd, by email to its representatives, copies of all documentation associated with any sale of the King Street Property including the following documents, by no later than 48 hours prior to completion of the sale, but in any event prior to completion:

(i)   settlement sheet;

(ii)   tax invoices for any agent’s commission payable on the sale;

(iii)   the memorandum of fees for the solicitor acting for Perpetual on the conveyance; and

(iv)   any other documents evidencing the disbursements of the sale price reasonably requested by the plaintiff and Tara Global.

(b) On completion of any sale of the King Street Property envisaged by the above Order, the “net proceeds of sale” (as defined below) shall continue to be subject to the terms of the Restraining Orders until further Order of the Court (subject to Part 2-1 Division 6 of the Proceeds of Crime Act).

(c)   On completion of any sale of the King Street Property, the seller will direct the buyer to pay to the Official Trustee’s nominated account the “net proceeds of sale” remaining (if any).

(d) On completion of any sale of the King Street Property, pursuant to s 38 of the Proceeds of Crime Act, the Official Trustee is to take custody and control of the net proceeds of sale (as defined below) pending further Order of this Court.

(e)   The net proceeds of sale referred to in these Orders means the sale price of the King Street Property less the following;

(i)   the amount of principal owing under the registered mortgage AS437510;

(ii)   any amounts payable on account of any outstanding rates due to the relevant Council, Sydney Water, and Revenue NSW in respect of land tax;

(iii)   reasonable legal fees and disbursements payable to the solicitor acting for Perpetual;

(iv)   reasonable real estate agent’s fees and commission in respect of the sale (as agreed in writing by the Plaintiff); and

(v)   any other reasonable expenses in connection with the sale with the written consent of the Plaintiff; provided that Perpetual has provided to the Plaintiff written evidence in support of those amounts prior to completion.

(7)   The amount of interest and/or penalties payable under registered mortgage AS437510 is to be the subject of an account and/or agreement between the Plaintiff, Tara Global Pty Ltd and Perpetual Corporate Trust Pty Ltd and/or subject to an Order of the Court.

(8)   The defendants shall pay the costs of Perpetual in relation to its Motion and the Motions of any one of the defendants in which Perpetual had an interest and appeared and shall pay the costs of the Commissioner of the Australian Federal Police and the Official Trustee.

Catchwords:

CRIME — proceeds of crime — Proceeds of Crime Act 2002 (Cth) — application to exclude property from restraining orders — whether Official Trustee was negligent in the management of the property

Legislation Cited:

Proceeds of Crime Act 2002 (Cth), ss 29, 31, 38, 39(1)(b), 76, Part 2-1 Div 6, 190, 191

Civil Liability Act 2002 (NSW), Part 5

Contracts Review Act 1980 (NSW)

Category:

Principal judgment

Parties:

Commissioner of the Australian Federal Police (Plaintiff)
Steven Hoitou Xin (First Defendant)
Yi Ming Wang (Second Defendant)
MX Investments Pty Ltd (Third Defendant)
MX Seven Investments Pty Ltd (Fourth Defendant)
Tara Global Pty Ltd (Fifth Defendant)
Wisdom AWCS International Pty Ltd (Sixth Defendant)

Representation:

Counsel:
A Moses SC with W Liu (Plaintiff)
M W Young (Fourth and Sixth Defendants)
J Yu (Second Defendant)
J Foley (Third Respondent)
Solicitors:
Criminal Assets Litigation, Australian Federal Police (Plaintiff)
Dixon Holmes (Defendants)

File Number(s):

2023/32255

Publication restriction:

Nil.

JUDGMENT

1. HIS HONOUR: On 31 January 2023, the Court (Hamill J) issued restraining orders on the application of the Commissioner of the Australian Federal Police (hereinafter “the Commissioner” and the “AFP” respectively) against property of the first, fourth, fifth and sixth defendants, who are Steven Xin, MX Seven Investments Pty Ltd, Tara Global Pty Ltd and Wisdom AWCS International Pty Ltd (hereinafter, collectively referred to as “the defendants”, except where necessary to distinguish). One of the properties restrained is a building at 119 King Street, Sydney, the registered proprietor of which is Tara Global Pty Ltd (hereinafter “Tara Global”).

2. Other property restrained, which was mentioned in the course of the proceedings before the Court and with which the Court, as presently constituted, is required to deal, is property at Double Bay and St Leonards, the registered proprietors of which are Wisdom AWCS International Pty Ltd and MX Seven Investments Pty Ltd respectively. Otherwise, relevant to the motions with which the Court is currently concerned, various bank accounts with ANZ and NAB, the chose in action for which is possessed by Steven Xin (the first defendant) and others, have been restrained.

3. The property at 119 King Street, Sydney (hereinafter “the King Street Property”) was, at the time of the restraining order, leased to a tenant who was paying rent and continued to pay rent for the property. The King Street Property was the subject of a mortgage in which the mortgagee was Perpetual Corporate Trust Pty Ltd (hereinafter “Perpetual”).

4. The mortgage had been executed approximately five months prior to the Court issuing any restraining orders, namely, on 29 August 2022. The mortgage is for a sum of $11 million. As earlier stated, the King Street Property was owned by Tara Global and was the subject of a registered mortgage to secure the loan sum from Perpetual.

5. On 31 January 2023, the Official Trustee in Bankruptcy (hereinafter “Official Trustee”) was appointed as the controller of the King Street Property pursuant to the restraining orders made by the Court. Accordingly, the mortgagee alleges that an event of default arose under the mortgage, which defines an event of default to include a change in the control of the Property.

6. On 20 February 2023, Perpetual issued a Notice of Default. On 1 March 2023, Perpetual made a demand for the full loan amount. The default has not been remedied and Tara Global (or the Official Trustee) has also failed to service the loan through monthly repayments.

7. As a result of the default and failure to remedy it, Perpetual moved by motion on notice for an exclusion of the interest of Perpetual as registered mortgagee of the King Street Property from the restraining orders; leave, notwithstanding the restraining orders, for Perpetual or persons on its behalf to deal with the King Street Property in accordance with the terms of the registered mortgage; and ancillary orders.

8. The orders sought in the Perpetual motion were agreed by the Commissioner and opposed by the defendants. While there has been significant affidavit evidence relating to the issues between Perpetual and the defendants, the circumstances giving rise to default can be easily and briefly summarised.

9. The lessee of the King Street Property paid rent into an account that was the subject of a restraining order and under the control of the Official Trustee. One or more of the accounts under restraint, pursuant to the orders of the Court, was an amount with significant cash deposits. The rent paid by the lessee was insufficient to meet the payments of Tara Global under the mortgage, but the rent payments, supplemented by the cash payments standing to the credit of Tara Global, would, at least for a significant period, have satisfied any obligations under the mortgage.

10. The rental monies paid to the Official Trustee were allegedly not received by the mortgagee. The non-payment of the mortgage obligations of the mortgagor was alleged to be another default justifying orders for possession and mortgagee sale.

11. The complication associated with the non-payment of the rental to the mortgagee was that, at one stage, the mortgagee requested the Official Trustee to pay the amounts into a particular NAB account. The Official Trustee paid the amounts into that NAB account. NAB declined or refused to allow the monies to be forwarded to the mortgagee on the basis that the account was the subject of a restraining order and NAB took the view that the restraining order prevented them from allowing access to the amounts.

12. When the matter first came before the Court, it seemed that the non-payment of the mortgage was an unintended and unexpected consequence of the restraining order. In that regard, it seemed to the Court that it was unintended by both the AFP and the Court. The parties were directed to confer to see if the matter could be resolved. The parties were unable to resolve the matter.

13. As a result of the inability of the parties to resolve the impasse, various motions have been filed and certain motions have been filed in relation to other properties. These reasons deal only with some of the issues between the parties.

14. On 21 June 2023, the Court dealt with a motion by Tara Global which sought that the Official Trustee apply rental income for the King Street Property to the loan and/or mortgage. The motion was finalised on 23 June 2023 by the Court, as presently constituted, with orders being made that the funds be so paid. The motion was later otherwise dismissed with costs reserved.

15. Nevertheless, the rental income, which the Court now assumes has been paid to the mortgagee, is insufficient, as earlier stated, to meet the payments due under the mortgage.

16. On 3 July 2023, Tara Global, the fifth defendant, sought orders by motion on notice declaring that the Official Trustee had been “guilty of negligence” within the meaning of s 290 of the Proceeds of Crime Act 2002 (Cth) (hereinafter referred to as “the Act”) in its management of the property the subject of Schedule 16 of the restraining order issued on 31 January 2023, between the period 31 January 2023 to 23 June 2023 by reason of its failure to make payments to Perpetual.

17. The motion also seeks an order from the Court that the Official Trustee pay to Perpetual all accrued interest, fees, charges, costs and disbursements. Further, the motion seeks orders that the Official Trustee return control of the King Street Property to the applicant, Tara Global, and that Perpetual be restrained from enforcing the mortgage on the basis of a change in the ownership or control of the King Street Property and/or the Official Trustee taking control of the Property.

18. On 13 July 2023, Tara Global sought further orders excluding the King Street Property from the restraining order made on 31 January 2023 and vacating the relevant provision in the restraining order.

19. Further orders were sought by MX Seven Investments Pty Ltd (the fourth defendant) and by Wisdom AWCS International Pty Ltd (the sixth defendant) each of whom are represented by the same solicitor as represents Tara Global. Those orders sought exclusion from the restraining orders of the Double Bay Property and the St Leonards Property respectively.

20. It is necessary to be more particular in relation to the motions that are now before the Court. Before doing so, it is necessary to reiterate that on 23 June 2023, the Court dealt with and finalised the motion of Tara Global, notice of which was filed on 21 June 2023 and which sought the application of the rental income from the King Street Property to meet the costs and expenses relating to the Property and any overdue mortgage repayments on the King Street Property.

21. The motion also sought orders that the Official Trustee take all reasonable steps to ensure that outgoings and mortgage repayment obligations were paid by the due date, to the extent that funds were available from rental income received from the Property.

22. The applicant on the motion relied upon two affidavits, being the affidavits of Donald Junn sworn, respectively, 21 and 22 June 2023. The matter came before the Court on 23 June 2023 and was dealt with instanter and orders were made in or to the effect that the Official Trustee should utilise the rental payments for the expenses of the Property as detailed.

23. Prior to the motion of Tara Global of 21 June 2023, there was a motion of Perpetual, notice of which was filed on 16 March 2023. The Court was provided with “draft consent orders”, being orders to which each of Perpetual and the Commissioner agreed. The defendants did not agree to the orders.

24. Perpetual relied upon the affidavit of Michael Mazniovski affirmed 16 March 2023 and two affidavits of Joanna Yu, affirmed 21 April and 14 June 2023, and an affidavit of Mitchell Buchanan affirmed 21 June 2023. There were extensive exhibits to the second Yu affidavit and the affidavit of Mitchell Buchanan. The motion sought orders excluding the King Street Property from the original orders of 31 January 2023. It also sought a dealing order, namely an order of the Court that, pursuant to s 39(1)(b) of the Act, Perpetual could deal with the King Street Property in accordance with the mortgage for which it was mortgagee.

25. Those requested orders included detailed orders relating to the sale of the King Street Property in circumstances where documentation would be provided to the Commissioner prior to the completion of the sale, where documentation would include the settlement sheets; the tax invoices for agent’s commission; fees from solicitors acting for Perpetual; and any other documents evidencing disbursements. Further, if there were any equity over and above the satisfaction of the mortgage, such monies be paid to the Official Trustee.

26. The affidavits upon which Perpetual relied, in summary, testified to that which has already been summarised. However, further material became available to the Court in the course of the proceedings.

27. First, as earlier stated, Perpetual requested the Official Trustee to pay the amounts received in rent for the King Street Property into a particular NAB account. The monies were paid into the identified account. NAB declined to release the monies because of its understanding of the restraining orders issued by the Court.

28. Nevertheless, the Official Trustee paid the monies into an account that had been nominated by the mortgagee. Nice questions arise as to whether, in those circumstances, the monies have been dealt with in accordance with the direction of the mortgagee and cannot be treated as not paid to the mortgagee. Whether or not that is the case, at least since the Court issued the orders in June 2023, those monies have been paid to the mortgagee.

29. The next motion, which it is necessary to detail, is the motion notice of which was filed on 3 July 2023, by which motion Tara Global (the fifth defendant) sought declarations from the Court that the Official Trustee had been “guilty of negligence” within the meaning of s 290 of the Act in its management of the King Street Property. It also sought further orders requiring the Official Trustee to pay to Perpetual all accrued interest, fees, charges, costs and disbursements arising from the late payment event, being the non-payment by the Official Trustee to Perpetual of the rent and other monies restrained by order of the Court.

30. The motion of 3 July 2023 also requested the Court to make orders that the Commissioner pay Tara Global all damages arising from the non-payment of the mortgage payments as, it seems, an enforcement of the general undertaking as to damages which was provided at the time that the restraining orders were sought and issued. Further again, the motion of 3 July 2023 sought orders that the Official Trustee return control of the property to Tara Global and that Perpetual be restrained from enforcing the mortgage.

31. On 13 July 2023, a Notice of Motion was filed and served seeking orders pursuant to ss 29 and 31 of the Act excluding Tara Global’s interest as registered proprietor in the King Street Property from the restraining orders made on 31 January 2023. The 13 July 2023 motion sought other orders in or to the same effect including the vacation of Order [116] of the restraining orders of 31 January 2023.

32. No further affidavits were filed in support of the motion of 13 July 2023 by Tara Global but an affidavit was filed and served by the Official Trustee, being a person affected by the orders sought on 13 July 2023. That affidavit was the affidavit of Meghan Sullivan dated 19 July 2023.

33. Ms Sullivan is the solicitor for the Official Trustee and the affidavit testifies to the fact that the Official Trustee is affected by the orders and informs the Court that the Official Trustee was seeking for the 13 July 2023 motion to be stood over for final determination on a later date in order for the Official Trustee to consider the allegations and any defence in relation to the allegations.

34. The solicitor for Tara Global (and Mr Xin) was content not to move on the motion at the listing and Tara Global issued a Notice to Produce to the Official Trustee about which there was some contention.

35. The matter was listed for directions on 16 October 2023 and on 12 October 2023 an affidavit was affirmed by Michael Mazniovski on behalf of Perpetual. Mr Mazniovski, who had also affirmed an affidavit of 16 March 2023, and is the loan officer with the day to day carriage of the file, set out the amounts owing and the calculations based upon the amount necessary to satisfy the mortgage; the amount paid in rent for the King Street Property (after the deduction of agent’s fees); and annexed a Loan Activity Statement which, on its face, credits the amounts received, net, in rent to the loan account.

36. The affidavit also testifies that on 9 October 2023, the solicitors for Perpetual wrote to the solicitors acting for Tara Global indicating that the monthly rental income was insufficient to pay the minimum monthly repayments for the loan and requesting that Tara Global address how it intended to deal with the shortfall.

37. As earlier stated, the motion, notice of which was filed on 3 July 2023, sought declarations from the Court to the effect that the Official Trustee had been “guilty of negligence” within the meaning of s 290 of the Act. It sought orders restraining Perpetual from taking any steps to enforce the Notice of Default and that the Official Trustee would return control of the King Street Property to the defendants, or more particularly, the fifth defendant, Tara Global. I have already recited the evidence upon which Tara Global relied for this purpose.

1. At the hearing relating to directions for this motion, it became obvious that the defendants were seeking to proceed as if s 290 of the Act provided to the defendants a right of action against the Official Trustee. The provisions of s 290 of the Act do not provide for a cause of action or right of action against the Official Trustee. Rather, s 290 of the Act precludes, with an exception, an action that may otherwise be available under the law, or more probably, in equity. The terms of s 290 of the Act are as follows:

290 Official Trustee is not personally liable

(1)  The * Official Trustee is not personally liable for:

(a)  any loss or damage, sustained by a person claiming an * interest in all or part of the * controlled property, arising from the Official Trustee taking custody and control of the property; or

(b)  the cost of proceedings taken to establish an interest in the property; unless the court is satisfied that the Official Trustee is guilty of negligence in respect of taking custody and control of the property.

Note:  See also section   267AB, which extends the meaning of controlled property for the purposes of this section.

(2)  The * Official Trustee is not personally liable for:

(a)  any rates, land tax or municipal or statutory charges imposed under a law of the Commonwealth, a State or a Territory in respect of the * controlled property, except out of any rents or profits that the Official Trustee receives from the property; and

(b)  if, in taking custody and control of the property, the Official Trustee carries on a business -- any payment in respect of long service leave or extended leave:

(i)  for which the person who carried on the business before the Official Trustee was liable; or

(ii)  to which an employee of the Official Trustee in its capacity as custodian and controller of the business, or a legal representative of such an employee, becomes entitled after the * restraining order covering the property was made; and

(c) any other expenses in respect of the property.

291 Indemnification of Official Trustee

(1)  The Commonwealth must indemnify the * Official Trustee against any personal liability (including any personal liability as to costs) incurred by it for any act done, or omitted to be done, by it in the exercise, or purported exercise, of its powers and duties under this Act.

(2)  The Commonwealth has the same right of reimbursement in respect of a payment made under this indemnity as the * Official Trustee would have if the Official Trustee had made the payment.

(3)  This same right of reimbursement includes reimbursement under another indemnity given to the * Official Trustee.

(4)  Nothing in subsection (1) affects:

(a)  any other right the * Official Trustee has to be indemnified in respect of any personal liability referred to in that subsection; or

(b)  any other indemnity given to the Official Trustee in respect of any such personal liability.

39. As can be seen from the foregoing provisions, to the extent that the Official Trustee is liable in negligence (or in relation to costs), it is to be indemnified by the Commonwealth. ^[1] There are some aspects of ss 290 and 291 that require comment.

    1. Proceeds of Crime Act 2002 (Cth), s 291.

40. The term “personal liability” is used in the provisions of s 291. However, the term does not apply to a liability beyond that which is incurred in the position as Official Trustee. Instead, it refers to the Official Trustee being liable in that capacity or as such for those acts performed as a consequence of the duties imposed upon the Official Trustee under the Act.

41. The exemption in s 290 renders the Official Trustee not personally liable for any loss or damage sustained by any person claiming an interest in property that has been dealt with by the Official Trustee under the Act or the cost of proceedings to establish an interest, unless the Court is satisfied that the Official Trustee is “guilty” of negligence “in respect of taking custody and control of the property”. It is not absolutely clear whether the last extracted phrase is an additional restriction on the capacity to render the Official Trustee liable or whether it is a description of the duties to be undertaken by the Official Trustee under the Act.

42. In other words, is the term “in respect of taking custody and control of the property” a necessary aspect of the negligence for which the Official Trustee is liable or is it merely a reference to the previously used term in s 290(1)(a) of the Act, used, it seems, to describe the totality of the functions of the Official Trustee under the Act?

43. Reading the Act as a whole, as one is required to do, and bearing in mind that s 290(2)(b) uses the term as one which encompasses the capacity of the Official Trustee to carry on business, it would seem that the term is used for all of the functions of the Official Trustee in holding and taking property reposed in the Official Trustee under the Act.

44. The provisions of ss 290 and 291 of the Act provide to the Official Trustee an indemnity for all of the functions undertaken by the Official Trustee under the Act, unless the Official Trustee is negligent in exercising such functions, in which case the Official Trustee is to be indemnified by the Commonwealth. Nevertheless, s 290 of the Act does not give a right of action against the Official Trustee. The provisions of s 290 of the Act preclude an action other than one in negligence.

45. The Court pointed out to the fifth defendant and the other parties that it took the view that it was necessary for anyone seeking damages or compensation for loss, as a result of the conduct of the Official Trustee under the Act, to commence proceedings in negligence in the ordinary way and a putative claimant could not commence proceedings under any other cause of action. As a result of the discussion during the course of those proceedings to which reference is made above, the fifth defendant, Tara Global, commenced proceedings by way of a Statement of Claim filed 18 August 2023 against the Official Trustee and Perpetual, which proceedings recited the restraining orders of 31 January 2023, the fact of the mortgage and the alleged events leading to defaults under the mortgage as a consequence of which, it is alleged, Tara Global incurred default penalty charges.

46. The Statement of Claim also relies upon the availability of funds in the NAB account to pay the Perpetual mortgage and to avoid default under the mortgage or to avoid it to some extent. The plaintiff in those proceedings then claims against the Official Trustee in negligence purportedly under the general law, Part 5 of the Civil Liability Act 2002 (NSW) and s 290 of the Act.

47. The Statement of Claim also raises claims for which the plaintiff in those proceedings alleges liability on the part of Perpetual under both contract and tort. It also seeks alternative remedies against Perpetual under the Contracts Review Act 1980 (NSW).

48. On 14 September 2023, Perpetual filed a Defence to the proceedings and on 21 September 2023 the Official Trustee filed a Defence to the proceedings. The proceedings commenced by the Statement of Claim are not before the Court as presently constituted.

49. Nevertheless, as a consequence of the view taken by the Court as to the effect of ss 290 and 291 of the Act, the Court declined to proceed with a declaration that the Official Trustee was negligent, deferring any such finding to the substantive proceedings that may be commenced by a Statement of Claim.

50. Lastly, the fourth and sixth defendants, being MX Seven Investments Pty Ltd and Wisdom AWCS International Pty Ltd by motion, notice of which was signed on 12 October 2023, and supported by an affidavit of 13 October 2023, which affidavit was filed also, according to its terms on behalf of the fifth defendant, Tara Global, sought that the Court issue orders vacating orders [113] and [119] of the restraining orders of 31 January 2023 and returning control over the property in schedules 13 and 19 of the aforesaid restraining order to the fourth defendant and sixth defendant respectively.

51. The October motion also sought orders restraining NAB from taking steps to enforce a default notice in relation to the relevant mortgage for the property described in schedule 13 and the property described in schedule 19. The property described in schedule 13 of the restraining orders will hereinafter be referred to as the “Double Bay Property” and the property described in schedule 19 of the restraining orders will be described as the “St Leonards Property”.

52. The applicants in the 12 October 2023 motion rely, as earlier stated, on the affidavit of Mr Junn of 13 October 2023. The “affidavit” is neither sworn nor affirmed, but has been treated in the proceedings as an affidavit. It is so described in its coversheet. The witness certified to seeing the face of the deponent and having known the deponent for at least 12 months but does not assert that the truth of the contents of the affidavit has been sworn or affirmed. The Court will treat the affidavit as having been affirmed.

53. The affidavit deposes that the Official Trustee has failed to perform duties with respect to the properties at St Leonards and Double Bay. This arises from what is alleged to have been a refusal by the Official Trustee to allow marketing of the St Leonards property, despite it becoming vacant following the end of a commercial lease in early 2024. Correspondence is attached to the affidavit of Mr Junn.

54. The affidavit asserts that the Official Trustee failed to lodge a fire safety statement in respect of the Double Bay property during the time it had that property in its control and a penalty has been incurred and a fee for that failure, which it refuses to pay.

55. A further affidavit of Mr Junn of 20 October 2023 annexes the relevant correspondence between the parties, including the default notices issued by NAB in respect of each property, copies of the mortgages for each property and default demands issued by NAB in respect of each of the properties.

56. The applicants also rely upon the affidavit of Mr Junn of 21 June 2023 which related to the King Street Property and is summarised above and the affidavit of Mr Junn of 22 June 2023 relating to the same property and is also summarised above.

57. The applicants rely upon a tender bundle by Tara Global which was tendered during the hearing on 16 October 2023 and was marked as exhibit 1. In particular, it relies on paragraphs 982 and 983 of the affidavit of Mr Matthews dated 24 January 2023, volume 1 behind tab 6, exhibit JY1; tab 8 to the same bundle being exhibit MB1 of Mitchell Buchanan of 21 June 2023 and tab 16 of exhibit MM1 to the affidavit of Michael Maziovski of 12 October 2023. The applicants also rely on the affidavit of Ms Wang filed 31 October 2023 and an email of 6 June 2023 from Mitchell Buchanan.

58. NAB also filed evidence, which was not read in the proceedings. The issues between NAB and the defendants resolved and no issues were pursued at the hearing.

59. The Commissioner and/or the AFP relied upon the following evidence:

1. the affidavit of Mitchell Buchanan of 24 October 2023; and

2. the affidavit of Scott Michael Matthews of 24 October 2023.

60. Mr Buchanan is the delegate of the Official Trustee. His affidavit explains the history of the management of the St Leonards Property and deposes that the Official Trustee’s position is that, while it is not opposed to leasing the property, consent cannot be given because now that the interest of NAB is excluded, NAB is required to consent to any future leases and NAB has not confirmed it would stop its current debt recovery proceedings.

61. Further, the affidavit testifies to the fact that the property manager believes it will take 12 months to lease the property, probably to multiple tenants, and there will be no rental income after the current lease expires in January with which the Official Trustee would be able to fund a lengthy marketing campaign. In addition, on Mr Buchanan’s assessment of the base figures, it would not be profitable as a proposition, more broadly.

62. In respect of the Double Bay Property, Mr Buchanan states that the fire safety certificate penalty notice was issued on 2 May 2023. Mr Buchanan annexes the penalty notice and states that the notice was incurred because the sixth defendant failed to lodge the fire safety certificate in time, which could and should have been done before 25 January 2023. The fire safety certificate was required to be filed before the restraining orders were issued and the notice was issued prior to the Official Trustee taking custody and control of the Double Bay Property. Further, the notice of penalty was issued to the sixth defendant directly and not filed against the actual property.

63. As such, Mr Buchanan considered that the restraining orders do not empower the Official Trustee to pay the penalty notice from the rental income, as it was a penalty issued to the sixth defendant prior to the restraining orders coming into effect.

64. The effect of the foregoing is that Mr Buchanan testifies that he is of the view that Mr Junn has, in his affidavits and statements to the Court, misrepresented the way the Official Trustee has conducted itself in relation to these matters. Further again, Mr Buchanan states that the Official Trustee has become aware that the Double Bay Property was not being optimally managed prior to the restraining orders, such that he is concerned that if the Official Trustee’s appointment is revoked, the property will lose value. The conduct is particularised in Mr Buchanan’s affidavit.

65. The affidavit of Scott Michael Matthews details the suspicions of Mr Matthews at the time when the restraining orders were made. Further, more suspicions have been enlivened as a result of the conduct of the money laundering operation at the heart of the proceedings and which gave rise to the restraining orders initially.

66. In short, Mr Matthews deposes that he has reason to believe the defendant entities have engaged in serious crimes of fraud and that he is concerned with those entities regaining control over any of the restrained assets as it would create a risk of further illegal transactions taking place.

Consideration

67. The mortgage under which Tara Global has mortgaged the King Street Property to Perpetual has a number of relevant clauses. Those clauses are in typical terms and define events of default to include: non-compliance with any clause of the mortgage; the land being taken out of the control of the mortgagor in any way; any Court order enforced against the mortgagor or against the land; and, in the case of a company, a change in ownership or control of the company or any company of which the mortgagor is a subsidiary, or a receiver, manager, receiver and manager, administrator, controller, provisional liquidator, or liquidator is appointed to any part of the mortgagor’s assets.

68. During the course of proceedings, when first before the Court, the Court expressed the view that, given the necessarily temporary nature of a restraining order and the basis upon which a restraining order may be obtained, it does not seem consistent with the legislative intention that, prior to a forfeiture order or a permanent resolution of the issues associated with the property restrained, the mere issuing of a restraining order under the Act would be intended to create a situation where the defendant to such an order was, by that order alone, in default of a mortgage associated with the property. On the contrary, under the provisions of the Act, the Official Trustee is required to continue to satisfy, to the extent possible, the terms of any mortgage that existed at the time that the restraining order was made.

69. If a restraining order, issued against property, lapses or ceases to operate, the property is required to be returned to the owner. Further, the Official Trustee, in relation to controlled property (which term includes property the subject of a restraining order), in its conduct, and subject to any restraining order and, in relation to property, is required to preserve the property. The provisions of s 276 of the Act permit the Official Trustee to do anything that is reasonably necessary for the purpose of preserving the controlled property, including, in the case of a business, employing or terminating staff and doing anything necessary or convenient to carry on the business.

70. If the defendants were carrying on the business of investing in property, then the Official Trustee is at least permitted to do all things convenient to carry on the business on a sound commercial basis.

71. Given the function of the Official Trustee to preserve the property that has been restrained, the concept that the mere issuing of a restraining order and the control by the Official Trustee of property so restrained would, itself, amount to a default in the mortgage, creates a significant tension between the intended temporary nature of a restraining order and the preservation of the property under the restraining order, on the one hand, and the circumstance that the making of that order and its consequences itself amounts to a basis upon which a mortgagee may elect to sell the property.

72. Of course, if the mortgagee were to force the sale of the property on the basis of such a default, any equity in the property would be controlled pursuant to the restraining orders and the provisions of the Act prescribing the effect of the sale of any controlled property. Nevertheless, there is a significant tension in such a result.

73. It is unnecessary for the Court, in these proceedings, to determine finally whether that tension should be resolved by a construction of the mortgage that restricted a change in control and the other provisions outlined above to exclude a restraining order under the Act because other defaults are relied upon by the mortgagee, Perpetual. Those other defaults are the non-payment of the amounts required under the mortgage.

74. There is a tension, albeit a lesser one than the previously mentioned tension, in relation to the other defaults. They arise as a consequence of the control by the Official Trustee and the inability of the rental received from the property to satisfy the mortgage payments required under the mortgage. Leaving aside, for present purposes only, the circumstances that monies were paid by the Official Trustee into a NAB account nominated by the mortgagee and were not ultimately obtained by the mortgagee until some significant time later, the amounts received as rent for the King Street Property do not equal, and are not greater than, the payments required under the mortgage.

75. An amount of $179,000 was deposited or credited in the NAB account and was available to the Official Trustee to supplement, were the Official Trustee so to choose, the amounts received by way of rent. The defendants submit that those amounts should have been utilised to ensure that the mortgage payments were satisfied.

76. On the basis of the affidavit of Mr Mazniovski and the exhibit thereto (both the 16 March 2023 affidavit and the 12 October 2023 affidavit, but mainly the 12 October 2023 affidavit) the Court is satisfied that even if the amount standing to the credit of one or other of the defendants in the NAB accounts were to have been utilised by the Official Trustee to supplement or augment the rental income and paid to the mortgagee, the mortgage would still have been in default.

77. I accept the comments, to which the affidavits of Mr Junn go, at least in part, to the effect that if the $179,000 had been utilised to pay to the mortgagee, then the level of penalties and interest would not have been as great, but the amount would still not have satisfied all of the requirements for payment under the mortgage. In those circumstances, it is unnecessary to determine finally whether the effect of the restraining order and the control by the Official Trustee is a change of the kind that amounts to a default under the mortgage in the terms earlier summarised.

67. It is unfortunate, to say the least, that the effect of the restraining order, and the removal of one or other of the defendants from the control of the investment business, was that the full mortgage payments were not effected and the mortgage fell into default. It would seem that such circumstances require some clarification under the Act, at least in relation to the change of ownership or control, and in relation to the function of the Official Trustee in the payment of charges such as a mortgage.

68. Nevertheless, the Court is satisfied that default has been established and, while it would have been better were the defendants and Perpetual able to reach an accommodation by which the mortgage would have continued, in the absence of such an accommodation, the Court has no real alternative other than to grant the orders to Perpetual that they seek on the motion in relation to the protection of their interests under the mortgage and, to the extent necessary, to permit the mortgagee sale of the property.

69. Ultimately, if the Official Trustee has been negligent in the management of the property and the payment of the mortgages, and if the payments of the amounts received as rent into the NAB account specified by the mortgagee, amount, respectively, to a successful claim for damages and/or to a finding that the amounts placed in the specified NAB account were, as a matter of law, received by the mortgagee, these are matters that are necessarily resolved in either the proceedings for negligence or an account at a time when, or if, the restraining orders cease and the property is or is not forfeited. Further, the orders that will be made in relation to the motion by Perpetual will allow an account in relation to any interest or penalty associated with amounts received into the NAB account.

70. To the extent not otherwise already indicated in the course of the proceedings, the Court takes the view that the 3 July 2023 motion by Tara Global is, in relation to s 290 of the Act, misconceived. Whether the Official Trustee has acted in a manner which amounts to negligence is a matter to be determined in the substantive proceedings commenced by the Statement of Claim. If there were negligence under the relevant law then the Official Trustee is liable pursuant to s 290 of the Act and, if the Official Trustee were not negligent, then the proceedings would be dismissed.

71. Further, the claim in negligence will and does depend upon facts, some of which may be in issue, and for which it is necessary to have final proceedings. It is wholly inappropriate for the question of the “negligence” of the Official Trustee, if any, to be determined on a motion. The damages that then arise, if negligence were established, is a matter for the substantive proceedings.

72. Similarly, in relation to the other orders sought in the 3 July 2023 motion, it is a matter of substantive and final hearing as to whether the defendants have suffered damage as a result of the restraining order. In such a proceeding, it would be necessary to establish that the restraining order caused damage.

73. Unless a forfeiture order has been sought and dismissed, it would be impossible to establish that the restraining order has caused damage. It should be stated that on the material before the Court, albeit these are interlocutory proceedings, it is more likely than not, without expressing any final view, that a forfeiture order would eventuate.

74. In those circumstances, any damage that is suffered would be damage suffered by the Commonwealth who, in turn, is required to indemnify the Official Trustee and who is responsible for any damages that may be payable by the Commissioner. For those reasons, such orders as to damages arising from the restraining order pursuant to the usual undertakings cannot be appropriately dealt with until the final resolution of the restraining order and any forfeiture order that may arise.

75. The comment earlier made as to the nature of the suspicion and the evidence, such as it is, in relation to the substantive proceedings, and the conduct of the defendants, also informs the result of any application that the Official Trustee return control of the property to the defendants or any of them. Such orders are, on the evidence before the Court, inappropriate and would be inconsistent with the purpose of the Act. Such application is refused.

76. Turning then to the motion of 13 July 2023, which purports pursuant to ss 29 and 31 of the Act, to seek exclusion of the King Street Property from the restraining orders. For the reasons already given in relation to the 3 July 2023 motion, the Court is of the view that such an order would be inappropriate.

77. Further, the Court’s view of the evidence before it is that whether the Official Trustee has acted optimally does not dictate that the property should be excluded from the control of the Official Trustee. The reasonable suspicion as to criminal activity is well established and the provisions of the Act require that the Court order that the property be restrained, and that dealings in the property be restrained at least by the defendants or any of them.

78. In relation to the properties at St Leonards and Double Bay, given the findings already made, the issues can be dealt with very briefly. In effect, the defendants, or more accurately the fourth and sixth defendants, seek orders that the St Leonards and Double Bay properties be excluded from the restraining orders. The basis for such an exclusion is, essentially, that the property is not being managed optimally.

79. Further, the fourth and sixth defendants rely, in effect, on tendency evidence, being the manner in which the Official Trustee has handled the King Street Property, to establish that neither St Leonards nor Double Bay properties will be handled appropriately or accurately. The Court, in dealing with these interlocutory motions, is not bound strictly by the rules of evidence. Nevertheless, there are significant difficulties with relying upon such tendency evidence.

80. First, the Court has already refused the King Street Property orders. If tendency is established, it is unclear how, in those circumstances, the Court would infer that the purposes of the Act and the appropriate resolution of the issues associated with St Leonards and Double Bay, would be dealt with otherwise than by dismissing the motions.

81. I accept the evidence adduced by the Official Trustee and the Commissioner to the effect that the Official Trustee is dealing with the property in the way in which it considers it to be optimal. I also accept that, at the time that the properties were restrained, the properties were not being dealt with optimally and much of the complaint relates back to issues associated with the manner in which the property was managed before the restraining orders took effect. I am not satisfied, given the purposes of the Act and particularly the evidence before the Court, that it is appropriate to exclude either St Leonards or Double Bay properties from the restraining orders.

82. For the foregoing reasons the Court makes the following Orders:

1. The Motion of Tara Global Pty Ltd, notice of which was filed on 3 July 2023, is dismissed.

2. The Motion of Tara Global Pty Ltd, notice of which was filed on 13 July 2023, is dismissed.

3. The Motion of MX Seven Investments Pty Ltd and Wisdom AWCS International Pty Ltd, relating to variation of the Restraining Orders (hereinafter the “Restraining Orders”) in paragraphs [113] and [119] of the Restraining Orders made 31 January 2023, is dismissed.

4. Pursuant to ss 29 and 31(1) of the Proceeds of Crime Act2002 (Cth), the interests of Perpetual Corporate Trust Ltd (ACN 000 341 533) (hereinafter “Perpetual”) as registered mortgagee of the real property located at 119 King Street, Sydney in the State of New South Wales being Lot 2 in Deposited Plan 1 104058 (hereinafter the “King Street Property”) be excluded from the Orders made by the Court on 31 January 2023.

5. Pursuant to s 39(1)(b) of the Proceeds of Crime Act, notwithstanding the Restraining Orders, Perpetual, and persons acting on behalf of Perpetual, may deal with the King Street Property in accordance with the terms of the registered mortgage AS437510.

6. Pursuant to s 39(1)(b) of the Proceeds of Crime Act, the Restraining Orders in respect of the King Street Property be varied in accordance with the following:

1. In respect of any sale of the King Street Property by or on behalf of Perpetual pursuant to the terms of its registered mortgage AS437510, Perpetual is to use all reasonable endeavours to provide to the plaintiff, by email to his legal representatives and Tara Global Pty Ltd, by email to its representatives, copies of all documentation associated with any sale of the King Street Property including the following documents, by no later than 48 hours prior to completion of the sale, but in any event prior to completion:

1. settlement sheet;

2. tax invoices for any agent’s commission payable on the sale;

3. the memorandum of fees for the solicitor acting for Perpetual on the conveyance; and

4. any other documents evidencing the disbursements of the sale price reasonably requested by the plaintiff and Tara Global.

2. On completion of any sale of the King Street Property envisaged by the above Order, the “net proceeds of sale” (as defined below) shall continue to be subject to the terms of the Restraining Orders until further Order of the Court (subject to Part 2-1 Division 6 of the Proceeds of Crime Act).

3. On completion of any sale of the King Street Property, the seller will direct the buyer to pay to the Official Trustee’s nominated account the “net proceeds of sale” remaining (if any).

4. On completion of any sale of the King Street Property, pursuant to s 38 of the Proceeds of Crime Act, the Official Trustee is to take custody and control of the net proceeds of sale (as defined below) pending further Order of this Court.

5. The net proceeds of sale referred to in these Orders means the sale price of the King Street Property less the following;

1. the amount of principal owing under the registered mortgage AS437510;

2. any amounts payable on account of any outstanding rates due to the relevant Council, Sydney Water, and Revenue NSW in respect of land tax;

3. reasonable legal fees and disbursements payable to the solicitor acting for Perpetual;

4. reasonable real estate agent’s fees and commission in respect of the sale (as agreed in writing by the Plaintiff); and

5. any other reasonable expenses in connection with the sale with the written consent of the Plaintiff; provided that Perpetual has provided to the Plaintiff written evidence in support of those amounts prior to completion.

7. The amount of interest and/or penalties payable under registered mortgage AS437510 is to be the subject of an account and/or agreement between the Plaintiff, Tara Global Pty Ltd and Perpetual Corporate Trust Pty Ltd and/or subject to an Order of the Court.

8. The defendants shall pay the costs of Perpetual in relation to its Motion and the Motions of any one of the defendants in which Perpetual had an interest and appeared and shall pay the costs of the Commissioner of the Australian Federal Police and the Official Trustee.

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Endnote

Decision last updated: 25 July 2024