Commissioner of the Australian Federal Police v Zhang (Ruling No 1)

[2015] VSC 390

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

S CI 2013 02407

THE COMMISSIONER OF THE AUSTRALIAN FEDERAL POLICE	Applicant (Respondent by Cross Application)
v
HENG JIE ZHANG	First Respondent (Applicant by Cross Application)
and
YING SHEN	Second Respondent (Applicant by Cross Application)

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JUDGE:	T FORREST J
WHERE HELD:	Melbourne
DATE OF HEARING:	3 August 2015
DATE OF RULING:	4 August 2015
CASE MAY BE CITED AS:	Commissioner of the Australian Federal Police v Zhang & Anor (Ruling No 1)
MEDIUM NEUTRAL CITATION:	[2015] VSC 390

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PROCEEDS OF CRIME – Application for forfeiture of property order – Application for Exclusion from restraining order – Property subject to restraining order – Respondents not convicted of an offence - Determination of order of proceedings -  Proceeds of Crime Act 2002 (Cth) sections 19, 29, 31, 45, 49, 59, 73, 74.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Ms R Burton	Australian Federal Police
For the Respondents	Mr N J Clelland QC Mr C G Juebner	Tony Hargreaves & Partners

HIS HONOUR:

Introduction

1. I have before me the following applications:

(a) Applications made by the Commissioner of the Australian Federal Police (‘the Commissioner’) made under s 59(1) of the Proceeds of Crime Act 2002 (‘the Act’) for forfeiture orders. It is common ground that these applications are to be determined under s 49 of the Act. The applications are in respect of two residential properties (‘the Canterbury property’ and ‘the Ashwood property’) and a Mercedes-Benz motor car. This property is currently subject to restraining orders.

(b)   Separate applications made by Ying Shen (‘Ying’) and Heng Jie Zhang (‘Heng Jie’) in respect of the three items of property identified above.  These applications are for:

(i) exclusion from an existing extant restraining order (s 31(1); s 29);

(ii) exclusion from any forfeiture order (s 74(1); s 73) that may be made; and

(iii)             for compensation (s 78(1); s 7).

1. For present purposes the application for compensation can be ignored.

1. I may, from time to time, refer to ‘the respondents’ in these proceedings. In these instances I refer to Ying and Heng Jie, who are respondents to the forfeiture applications, but the applicants in the exclusion applications.

1. A question has arisen as to the order of proceedings.  Counsel for Ying and Heng Jie submit that I ought determine the three forfeiture applications (i.e. those in Category A above) before I consider the exclusion applications brought by their clients (i.e. those in Category B above).  Counsel for the Commissioner submits that all the applications ought be heard together.  It is necessary to say something of the history of these matters and the legislative scheme before the merits of the respective submissions can be evaluated.

The forfeiture applications

1. In May 2013, the Canterbury property and the Mercedes Benz were the subject of separate restraining orders sought by the Commissioner and granted by Hargrave J. In June 2013, Ginnane J made the Ashwood property the subject of a similar order. These orders were each made pursuant to s 19(1) of the Act, which obliges a court[1] to restrain property[2] upon the application of a proceeds of crime authority if there are reasonable grounds to suspect that the property is inter alia the proceeds of specified types of crime or an instrument of a serious offence.[3]

   [1]A court with proceeds jurisdiction (s 19(1)).

   [2]By prohibiting its disposition or being otherwise dealt with (s 19(1)(a) and (b)).

   [3]Each of the terms is defined in the Dictionary to the Act (Chapter 6).

1. It follows that in May and June 2013, two judges of this Court were satisfied that there were reasonable grounds to suspect that the relevant property was either the proceeds of some type of specified criminal conduct or an instrument of some other type of specified criminal conduct.

1. Neither Ying nor Heng Jie have been convicted of, or charged with, any criminal offences.

1. Within 28 days[4] of each restraining order being made, the Commissioner applied for forfeiture orders.[5] Section 45(2) of the Act provides that a restraining order made under s 19(1) of the Act ‘ceases to be in force’ if ‘there is no…application for a confiscation[6] order that relates to the offence’ made within 28 days of the restraining order being made.

   [4]Under s 59 of the Act.

   [5]Under s 59 of the Act.

   [6]The term ’confiscation order’ means a forfeiture order, a pecuniary penalty order, a literary proceeds order or an unexplained wealth order (see s 338 ‘Dictionary’ of the Act).

The exclusion and compensation applications

1. On 3 October 2013, Ying and Heng Jie made the exclusion applications that I have referred to in paragraph 1 of these reasons.  These applications are obviously responsive to the restraint orders and forfeiture applications. 

The relevant structure of the Act

1. I do not propose to reproduce large slabs of an extremely complicated piece of legislation. I will endeavour to explain how the Act operates in circumstances where the Commissioner seeks to restrain property which is suspected of being the proceeds of crime. As I have indicated in this case, the Commissioner sought and received three restraining orders made pursuant to s 19(1) of the Act. Under that section, if certain preconditions are met[7] the Court must make a restraining order if:

   [7]The court must have proceeds jurisdiction (s 19(1)) and a proceeds of crime authority must apply for the order (s 19(1)(c)). It is undisputed that these preconditions have been met.

(d)      there are reasonable grounds to suspect that the property is:

(i)the proceeds of a terrorism offence or any other indictable offence or an indictable offence of Commonwealth concern (whether or not the identity of the person who committed the offence is known); or

(ii)       an instrument of a serious offence.

1. For convenience I shall describe s 19(1) as requiring reasonable grounds to suspect that the property is the proceeds of or an instrument of crime.

1. Sections 29 and 31 provide that a person may apply to the court for exclusion of their interest in the restrained property. That person must satisfy the court that his or her interest is neither the proceeds of an indictable offence, a foreign indictable offence of Commonwealth concern, nor the instrument of any serious offence.

1. A restraining order ceases to be in force in respect of property if the court refuses an application for forfeiture that would have covered the property (s 45(3)(a)(i)).

1. It can be seen that the primary function of restraining orders is to preserve the status quo of property until such time as the issue of whether it is forfeit to the Commonwealth can be determined.

1. Section 49(1)(c) provides relevantly that a court must order that property restrained under s 19(1) is forfeited to the Commonwealth if the court is satisfied of one or more of the following:

(a)   the property is proceeds of one or more indictable offences;

(b)   the property is proceeds of one or more foreign indictable offences;

(c)    the property is proceeds of one or more indictable offences of Commonwealth concern;

(d)  the property is an instrument of one or more serious offences.

1. For convenience I shall describe s 49(1)(c) as requiring proof that the property is the proceeds of or an instrument of crime.

1. Section 49(3) relieves the Commissioner of the burden of proving the property is the proceeds of, or an instrument of, crime in a s 49 forfeiture proceeding if the court is satisfied:

(a) that no application has been made under Division 3 of Part 2 – 1 for property to be excluded from the restraining order (s 29 and s 31 of the Act are within this Division); or

(b)   any such application that has been made has been withdrawn.

1. Section 73 and s 74 provide the mechanism by which a person can apply for and receive an exclusion from a forfeiture order. Section 73(1)(c) provides inter alia that if a forfeiture order was (or the forfeiture order applied for would be) made under s 49 (as in this case) the court must make an order excluding a specified interest in the property from forfeiture if the court is satisfied that the applicant’s interest in the property is neither (i) the proceeds of unlawful activity; nor (ii) an instrument of any serious offence.[8]

   [8]Provided the offence on which the order was (or would be) based is a serious offence as defined in the Act.

1. The Act also provides for ‘automatic’ forfeiture. Section 92 allows for the ‘automatic’ forfeiture of property restrained by either s 17 or s 18 where the person originally suspected is convicted of a relevant offence. In this event, the property is forfeited unless the property is the subject of an exclusion order. Property restrained by a s 19 order cannot be the subject of automatic forfeiture under s 92. Proof under s 49(1)(c) is required unless s 49(3) applies.

The parties’ arguments

1. Mr Clelland QC who appeared with Mr Juebner for Ying and Heng Jie submitted that the structure of the Act only provides for automatic forfeiture in certain very clearly identified circumstances, and the instant circumstances are not within that category of circumstance. In this case, the respondents to the forfeiture application have not been charged with any criminal offence, and thus for the application to succeed, it is incumbent on the Commissioner to prove that the relevant property is either the proceeds of or an instrument of crime as defined in the Act.

1. Assuming this to be correct, the respondents then submit that to hear the s 31 exclusion applications at the same time as the forfeiture applications would be to gift to the Commissioner a potentially unfair advantage. Mr Clelland submits that the Commissioner says that the matters ought be heard together so that if the s 31 exclusion application is dismissed the Commissioner can rely on s 49(3) to avoid the evidentiary burden placed on him by s 49(1). The respondents argue that if this approach were taken, property restrained under s 19 could be forfeited on the basis of the low suspicion threshold contained within that section, despite the fact that no person has been charged or convicted of relevant criminal offending. This, the respondents contend, is contrary to the whole structure of the Act. It also, they submit, ignores the text of s 49(3) which upon its plain meaning would not apply in this case even if the matters were heard together. The respondents directed me to Commissioner of the Australian Federal Police v Zhao,[9] and argued that the High Court countenanced with approval the very proposition for which the respondents contend – namely that a forfeiture application is the first step in confiscation proceedings and if it is unsuccessful the restrained property would be released without recourse to prosecution of the exclusion proceedings.

   [9](2015) 316 ALR 378 (‘Zhao’).

1. Ms Burton of counsel for the Commissioner contended in written submissions that I ought deal with both the forfeiture applications and the exclusion applications in the one hearing. She contended that the matters in issue in the two types of application were not identical. She said that it is arguable that what the Commissioner needs to prove in a s 49 forfeiture application will vary depending upon the existence and status of any exclusion applications made in the proceedings. The submission contended that if I determined the exclusion application to the restraining order before the forfeiture application and adversely to Ying and Heng Jie then it was at least arguable that s 49(3) could operate to relieve the Commissioner of the burden of proving that the property was the proceeds of crime or an instrument of crime as countenanced by s 49(1)(c).

1. Ms Burton developed her written submissions in oral argument. She argued that the respondents had misunderstood her written submissions. The Commissioner was not seeking to have the case heard on a s 49(3) basis. The Commissioner’s position was simply that the case should not be split. All the evidence in both the exclusion applications and the forfeiture applications ought be heard unless the respondents withdrew their exclusion applications. Section 49(3) could not assist the Commissioner now, but if the exclusion applications failed, and if I accepted that s 49(3) ought be interpreted as hypothesised by Edelmen J in Commissioner of Australian Federal Police v Courtenay Investments Ltd (No 4),[10] then it may assist the Commissioner in the future. Ms Burton then submitted that after hearing all the evidence on all the applications I ought determine firstly the restraining order exclusion applications, then if necessary the forfeiture application and finally if necessary the forfeiture exclusion applications. Ms Burton went on to submit that there were six reasons why I ought not adopt a ‘reductionist approach’:

   [10][2015] WASC 101 (‘Courtenay’).

(a)   The status of the restrained property should be ascertained as a foundation matter because forfeiture only applies to restrained property.

(b)   The court ought not ‘pick and choose’ which disputes to consider. It ought deal with all controversies. Ms Burton likened it to inviting a court in a negligence action to determine causation before breach of duty.

(c)    If the court decided that the forfeiture application were successful (in the event of it being heard first) then the respondents would press their exclusion applications. If I were to decide that on the basis of evidence called on the exclusion application that the property was not ‘tainted’ at all then the finding would be inconsistent with my earlier decision to allow the forfeiture application. This was said to be an ‘illogical loop’.

(d) The proof required of the Commissioner may vary on the forfeiture application depending upon whether s 49(3) can be relied upon to relieve the Commissioner of compliance with s 49(1)(c). Thus the existence and status of the exclusion from restraining order application would need to be determined first.

(e)   This case raises a separate issue in the restraining order exclusion applications as compared to the forfeiture order. This was said to arise because there was a dispute as to whether Ying (Mr Zhang’s wife) had a genuine interest in any of the property. This was said to be a distinguishing factor to Courtenay in which the exclusion and forfeiture applications raised identical issues.

(f)     Good public policy requires that any decision be made in line with the apparent intention of the legislature.

Analysis/conclusions

1. It is clear enough that a person who claims an interest in restrained property (under s 19(1)) must make and persist with an application for exclusion. If this does not occur and that person simply elects to contest the forfeiture application he or she will be confronted with s 49(3). The Commissioner, as a responsible authority, will be relieved of the obligation to prove that the property is ‘tainted’[11] property and his application for forfeiture will be immeasurably improved.  In my view, a person claiming an interest in restrained property has no practical option but to seek exclusion from the restraining order.  Does his mean that a respondent to a forfeiture application must have this application for exclusion from the restraining order determined before the forfeiture order is determined?

   [11]I use this term to describe property that in one way or more comes within the descriptions of property contained in s 49(1)(c).

1. The Commissioner says that he does not seek that the forfeiture order be heard on a s 49(3) basis. He submits that the status of the restrained property needs to be determined before the forfeiture applications can proceed. Only then can it be ascertained whether s 49(3) has application. I accept that there is some attraction to this argument. The Act certainly countenances restraining orders as steps along the path to forfeiture. Whether the resolution of exclusions from those restraining orders ought necessarily be steps along the path to forfeiture is, in my view, a different question.

1. I have endeavoured to set out the relevant structure of the Act. In my view the rationale for the operation of the restraint/exclusion/forfeiture provisions is straightforward. If a person has been convicted of a relevant offence, that conviction will only follow upon either a guilty plea or a jury finding of guilt. Either way, each element of the relevant offending will be proven beyond reasonable doubt. Property restrained under ss 17 or 18 will be automatically forfeited unless excluded. Where, however, the Commissioner seeks forfeiture without relying on a conviction, forfeiture can only proceed where the Commissioner proves that the property is ‘tainted’ in the manner countenanced by s 49(1)(c). Section 49(1)(c) exists, in my view, to ensure that property is not forfeited on the basis of a mere s 19(1)(d) suspicion. I do not understand it to be disputed that ‘suspicion is a state of mind well short of belief’,[12] and certainly quite insufficient, by itself, to found positive proof that property is in some way the proceeds of crime or an instrument thereof.

   [12]See McMunn v DPP [2010] VSCA 330; George v Rockett (1990) 170 CLR 104.

1. I have summarised the able submissions made on behalf of the Commissioner. Ms Burton pressed that this Court ought hear the exclusion and forfeiture applications together.  Then once all the evidence was ‘on the table’ she submitted that I should determine the issues before me in this order:

(a) the s 31 exclusion applications for the restraining orders;

(b) the forfeiture applications under s 49; and

(c) the s 73 exclusion applications for the forfeiture orders.

1. In written submissions, Ms Burton contended that I ought determine the s 31 exclusion applications before the forfeiture applications because ‘if they are unsuccessful and the applications are dismissed then it may be argued that s 49(3) will then apply. In this event, the Commissioner would not ‘be avoid[ing] his obligation to establish’ the matters referred to in s 49(1)(c)…rather, pursuant to s 49(3) the Commissioner would have no such obligation.’ I was referred to Courtenay.

1. In that case, Edelman J hypothesised in the absence of any considered submissions that it was arguable, if an exclusion application was dismissed, that the Commissioner would not be required to prove the s 49(1)(c) elements. His Honour considered that a respectable argument could be mounted that the words in s 49(3)(a) ‘no application has been made…for the property to be excluded from the restraining order’ could be construed to mean ‘no extant application has been made…for the property to be excluded from the restraining order.’  His Honour concluded, ‘… I do not need to decide it, and I do not decide it.’[13]

   [13]Courtenay [2015] WASC 101, [117]-]118].

1. I am afraid I am unable to agree with his Honour’s hypothesis which, after all, is only that.  In my view, the ‘ordinary and grammatical sense of the statutory words to be interpreted, having regard to their context and legislative purpose’,[14] does not permit the insertion of the word ‘extant’ which, I consider, dramatically alters the meaning of s 49(3). ‘No application has been made…’ is, in my view, clear and unambiguous. If an application has been made for exclusion then the Commissioner must prove his case. ‘Has been made’ is an example of the use of present perfect tense in the third person singular. The present perfect tense speaks of the past and the present. The insertion of the word ‘extant’ changes the meaning to speak only of the present. If the Act intended to say that s 49(1)(c) did not apply if there were no current exclusion application on foot then, in my view, it would have said precisely that.

   [14]Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27.

1. Numerous authorities set out in various language the same proposition.  Construction of a statute which purports to effect forfeiture of property must be clearly manifested by unmistakeable and unambiguous language.[15] In my view, there is no ambiguity to be interpreted or construed. The text itself is the surest guide to legislative intent and, as I have said, I regard the text as unmistakeable and unambiguous. Should any further guide to legislative intent be necessary, in my view, it can be found in the structure of the Act which I have reviewed at paragraphs [10] to [19] of these reasons. Property is only to be ‘automatically’ forfeited under s 92 if a person has been convicted of a relevant offence. If the Commissioner were not required to prove that the property were ‘tainted’ in the manner countenanced by s 49(1)(c), then the respondent to the forfeiture application, having never been charged or convicted of any crime, would be confronted with the likely forfeiture of their property on the basis of mere s 19(1) suspicion. In my view, Parliament cannot have intended this outcome. Insertion of the word ‘extant’ would virtually assure this outcome[16] and it would make the main battlefield the application for exclusion from restraint, with the subsequent forfeiture application a hollow formality.  In my view, this also cannot have been Parliament’s intention.

   [15]See Jeffrey v DPP (Cth) (1995) 79 A Crim R 514; Markovski v DPP [2014] VSCA 35, [64]; Commissioner of the Australian Federal Police v Halac [2015] NSWSC 520.

   [16]Assuming the respondent was required initially to prosecute the exclusion application and was unsuccessful.

1. It follows that to the extent that the Commissioner relies upon this potential loss of the use of s 49(3) as a disadvantage that flows from determining the forfeiture order before the restraining order exclusion applications, I consider that there is no disadvantage because the statute cannot be interpreted in the manner suggested by the Commissioner.

1. I consider the fairest way to conduct these proceedings, given the two categories of applications that are before me, is to hear and determine the forfeiture application first, and then, if necessary, the exclusion applications.  To the extent that the Commissioner argued that separating the proceedings would create an illogical loop, I do not see that any illogicality is created by this approach.  The restraining order exclusion application turns essentially on similar considerations to the forfeiture exclusion application, and given that the burden in both types of exclusion applications lies with Ying and Heng Jie I can see no reason why those two types of exclusion applications ought not be heard together.  I further consider that the Commissioner who brings the forfeiture applications ought have the carriage of those applications and ought call any evidence upon which he relies.  At the conclusion of the Commissioner’s case Heng Jie and Ying will have the opportunity to call evidence should they wish.  I will then determine the forfeiture application on the basis of the evidence before me.  Should it be successful I will then hear the exclusion applications.  Should it be unsuccessful it will not be necessary to hear those applications.

1. It will have been understood that in ruling that these proceedings ought be conducted in the manner I have just set out, I have rejected the Commissioner’s submission that all the evidence of both parties ought be adduced in effectively a block and that I should then proceed to determine the restraining order exclusion applications first.

1. I shall endeavour to explain my reasons:

1. There is no disadvantage to the Commissioner from the perspective of s 49(1)(c) and s 49(3). Unless I am wrong in my analysis of the statutory interpretation of s 49(3) the Commissioner will confront s 49(1)(c) regardless of which application is determined first.

1. Hearing the forfeiture application first is consistent with principles of procedural fairness and recent High Court authority.  In Zhao it was held that an applicant for an exclusion order under s 73 (an exclusion order from forfeiture) ‘will effectively be compelled to put on some evidence, at least where the Commissioner’s evidence is sufficient for the making of the order sought’.[17] The order sought was a s 49 forfeiture order. Shortly after this passage the Court summarised the position taken by the Commissioner:

   In aid of his argument that the POC Act may be taken to require that forfeiture proceedings continue regardless of whether criminal proceedings are pending, the Commissioner points to the position in which a person is inevitably put when an application for forfeiture is brought under s 47 or s 49. At least where the Commissioner has satisfied the evidentiary requirements of those provisions, so that the court could be satisfied that a serious offence of some kind has been committed or that the property in question is the proceeds or an instrument of crime, a person with an interest in the property will be faced with the choice of whether to defend the proceedings. This will invariably require that they provide evidence to counter that put forward by the Commissioner. In a sense, then, the POC Act puts the person to their election. So much may be accepted…[18]

   [17]Zhao (2015) 316 ALR 378, [29] [Emphasis added].

   [18]Ibid [37].

2. Whilst these statements were made in the context of an appeal concerning whether to stay forfeiture/exclusion proceedings until the conclusion of a related criminal trial, the operation of s 49 and its relationship to s 73 were spelt out. Where the Commissioner’s evidence is sufficient for the making of a forfeiture order a respondent who is also an applicant for an exclusion order under s 73 will have some hard decisions to make. To have any prospect of success he or she must put on evidence. Where the Commissioner’s evidence is insufficient for the making of a forfeiture order, there will be no need for an applicant in resisting the application for forfeiture or in prosecuting the s 73 exclusion application to put on any evidence. The forfeiture order application will fail and the restrained property will be released. These observations by the full High Court were made in relation to a s 73 application for exclusion from a forfeiture order. I can see no sound reason why they ought not also apply to an application for exclusion from a restraining order under s 29. In both cases the onus is on the applicant to prove that the property is not ‘tainted’ – in s 29(2)(d) by specified criminal activity; in s 73(1)(c)(i) by being the proceeds of unlawful activity; or in both sections by the property being an instrument of any serious offence (s 29(2)(d)(ii); s 73(1)(c)(ii)).

1. I also consider that to require the Commissioner to present his case on forfeiture at the outset is procedurally fair.  The Commissioner has at his disposal an Act which in certain circumstances can operate to forfeit property automatically. The Commissioner cannot rely on those sections because neither applicant for exclusion has been charged with or convicted of any criminal offence.  Zhang is the registered proprietor of two houses and the Mercedes.  The Commissioner wants them to be forfeited to the Commonwealth.  In my view, fundamental notions of fairness dictate that where the state seeks to seize property, the state or its agent ought provide some evidentiary basis for that extraordinary interference with proprietary rights before the proprietor ought be called upon to answer anything at all.

1. From a case management perspective I can see no real disadvantage and some potential advantages in dealing with the forfeiture application at the outset. Should the Commissioner fail to muster sufficient evidence to satisfy s 49(1)(c) then the entire proceedings, including all exclusion applications and compensation applications will cease. Alternatively if the Commissioner is able to satisfy s 49(1)(c) on the forfeiture application, then I doubt that the proceedings would take very much longer than had I heard all the evidence as a block at the outset. The evidence mustered by the respondents in resisting the forfeiture application[19] would be, I suspect, identical to that relied upon in support of the various exclusion applications.

   [19](Should they elect to put on evidence in resistance)

1. It follows that I shall hear and determine the forfeiture application first. Should it then be necessary, I will then hear and determine the exclusion applications.