Director of Public Prosecutions v Xiao Xuan Xu

[2010] NSWSC 842

Reported Decision: 202 A Crim R 279

New South Wales

Supreme Court

CITATION:	Director of Public Prosecutions v Xiao Xuan Xu & Anor [2010] NSWSC 842
HEARING DATE(S):	29 June 2010, 30 June 2010, 1 July 2010
JUDGMENT DATE :	30 July 2010
JURISDICTION:	Common Law
JUDGMENT OF:	Garling J
DECISION:	Commonwealth DPP's application for forfeiture of property is dismissed. The CDPP is to pay the defendants' costs.
CATCHWORDS:	CRIMINAL ASSETS – Commonwealth legislation – Confiscation of criminal proceeds – Application for forfeiture of property – First defendant imprisoned in China for Chinese offence of smuggling common goods – Second defendant is the presently registered proprietor of the relevant property in Australia – Whether sufficient evidence to establish that the property is proceeds of crime – Whether sufficient evidence that the proved conduct in China would, if it had occurred in Australia, have constituted an indictable offence – Application for forfeiture dismissed.
LEGISLATION CITED:	The Constitution Corporations Law Corporations Act 1989 Crimes Act 1900 Crimes Act 1914 (Cth) Evidence Act 1995 Foreign Evidence Act 2004 (Cth) Proceeds of Crime Act 1987 (Cth) Proceeds of Crime Act 2002 (Cth) Uniform Civil Procedure Rules 2005 Part 11 r 11.4
CATEGORY:	Principal judgment
CASES CITED:	Briginshaw v Briginshaw (1938) 60 CLR 336 Burton v Honan (1952) 86 CLR 169 Corporate Affairs Commission v Papoulias (1989) 20 NSWLR 503 Habib v Nationwide News Pty Ltd [2010] NSWCA 34 Ho & Szeto v The Queen (1989) 39 A Crim R 145 Jones v Dunkel (1959) 101 CLR 298 Lee v Director of Public Prosecutions (Cth) [2009] NSWCA 347 Lee v Director of Public Prosecutions (Cth) [2009] NSWCA 347 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 NSW Crime Commission v Kelaita [2008] NSWCA 284 Studman v Director of Prosecutions (Cth) [2007] NSWCA 285 The Queen v Byrnes (1995) 183 CLR 501
PARTIES:	Director of Public Prosecutions (P) Xian Xuan Xu (D1) Li Yi Wang Ng (D2)
FILE NUMBER(S):	SC 2004/177629
COUNSEL:	P. Neil SC (P) No appearance (D1) R. J. Bromwich SC with B. Hatfield (D2)
SOLICITORS:	Commonwealth Director of Public Prosecutions (P) No appearance (D1) Koffels Pty Limited (D2)

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

GARLING J

FRIDAY, 30 JULY 2010

2004/177629 DIRECTOR OF PUBLIC PROSECUTIONS v XIAO XUAN XU & ANOR

JUDGMENT

1 HIS HONOUR: By an amended summons filed on 8 September 2009, the Commonwealth Director of Public Prosecutions (“DPP”) claims an order under s 47 of the Proceeds of Crime Act 2002 (Cth) (“the 2002 Act”) for the forfeiture to him of a property at 25/20-34 Albert Street, Strathfield (“the Strathfield property”).

2 The first defendant to the proceedings is Mr Xiao Xuan Xu. He is also known as Tsui Hui Hin. He is presently serving a 15 year term of imprisonment in China.

3 The second defendant, Li Yi Wang Ng, was joined as a party to the proceedings by order of the Court on 29 June 2010. She is also known as Lily Yi Li Wang Ng. She had been aware of, and had appeared in, the proceedings for a number of years before she became a party.

4 On 19 November 2004 Hislop J, ex parte, made under s 18 of the 2002 Act a restraining order against the second defendant in respect of the Strathfield property. He also made ancillary orders.

5 The second defendant is presently the registered proprietor of the Strathfield property which is the subject of the restraining orders. It is not encumbered.

6 It is the case of the DPP that the Strathfield property is the product of proceeds of crime and therefore the court must make a forfeiture order.

7 For the reasons which appear below, the evidence does not enable me to be satisfied that the DPP is entitled to the forfeiture of the property. I dismiss the DPP’s application.

Procedural Background

8 Although the DPP presently proceeds on an amended summons which was filed on 8 September 2009, the proceedings were originally commenced on 19 November 2004. At that time, as I have indicated above, a restraining order was made under s 18 of the 2002 Act against the second defendant. That restraining order precluded her from dealing, in any way, with the Strathfield property.

9 Ancillary orders were made including one which required the second defendant to provide a sworn statement setting out the particulars of dealings with the Strathfield property. That order was made pursuant to s 39 of the 2002 Act. As well, an order was made for the compulsory examination of the second defendant about her affairs insofar as the Strathfield property was concerned and her dealings with the first defendant. That order was made under s 180 of the 2002 Act.

10 Although the original summons sought an order for forfeiture, it was not determined at the time and it is that order which the DPP now seeks.

11 On 6 April 2010, the matter was fixed for hearing for a period of three days commencing on 29 June 2010.

12 On that day, when the matter was called on for hearing before me, I made orders, upon the application of the second defendant, that she be joined to the proceedings and I also made an order that the DPP have leave pursuant to Part 11, r 11.4 of the Uniform Civil Procedure Rules 2005 (“the UCPR”) to proceed against the first defendant.

13 Late on the first day, an application was made by the DPP for an adjournment of the proceedings for a period sufficient to enable him to take steps to meet the minimum requirements of the Foreign Evidence Act 2004 (Cth) with respect to the evidence which he wished to adduce in the proceedings. That application was opposed by the second defendant. On 30 June 2010, I delivered a judgment in which I refused that application.

14 The matter then proceeded until the end of 1 July 2010. Directions were then given to enable the parties to file further written submissions over a period of 21 days.

15 The period between when the original summons was filed on 19 November 2004 and when the matter came on for hearing on 29 June 2010 was a very long one. As my judgment of 30 June 2010 shows, over that period the matter came before the court on 31 occasions for directions when, on most if not all such occasions, the DPP sought further adjournments for one reason or another. This unfortunate procedural history has not been the subject of any detailed, much less satisfactory, explanation to the Court by the DPP.

16 It is to be regretted that this matter has taken so long to come on for hearing.

Statutory Basis for Relief

17 The power of the court to make an order for forfeiture is to be found in s 47(1) of the 2002 Act. It is in the following terms:

“47 Forfeiture orders—conduct constituting serious offences
(1) A court with proceeds jurisdiction must make an order that property specified in the order is forfeited to the Commonwealth if:
(a) the DPP applies for the order; and
(b) the property to be specified in the order is covered by a restraining order under section 18 that has been in force for at least 6 months; and
(c) the court is satisfied that a person whose conduct or suspected conduct formed the basis of the restraining order engaged in conduct constituting one or more serious offences.”

18 This power is attended by other relevant statutory provisions. They are:

“(2) A finding of the court for the purposes of paragraph (1)(c) need not be based on a finding as to the commission of a particular offence, and can be based on a finding that some serious offence or other was committed.

(3) The raising of a doubt as to whether a person engaged in conduct constituting a serious offence is not of itself sufficient to avoid a finding by the court under paragraph (1)(c).”

19 The Supreme Court of New South Wales is a court with proceeds jurisdiction: s 335 of the 2002 Act. Accordingly, it has the power to grant the relief sought. No submission is made by the second defendant to the contrary.

20 The term “serious offence” in s 47(1) of the 2002 Act is defined in s 338 relevantly as an indictable offence punishable by imprisonment for 3 or more years. The relevant offence alleged in this matter is a breach of s 18 of the Proceeds of Crime Act 1987 (Cth) (“the 1987 Act”). It is an indictable offence which carries a penalty of up to 20 years imprisonment. A breach of s 81 of the 1987 Act amounts to a serious offence.

21 It is necessary to examine the terms of s 81 of the 1987 Act. Section 81 of the 1987 Act (as at the relevant period) provided:

“(1) In this section ‘transaction’ includes the receiving or making of a gift.

(2) A person who, after the commencement of this Act, engages in money laundering is guilty of an offence against the section …

(3) A person shall be taken to engage in money laundering if, and only if:
(a) the person engages, directly or indirectly, in a transaction that involves money, or other property, that is proceeds of crime; or
(b) the person receives, possesses, conceals, disposes of or brings into Australia any money, or other property, that is proceeds of crime,
and the person knows, or ought reasonably to know, that the money or other property is derived or realised, directly or indirectly, from some form of unlawful activity.”

22 A central feature of this offence is that there has been a dealing of one kind or another with “proceeds of crime”. This calls up the definition of the term “proceeds of crime” in the 1987 Act which is to be found in s 4:

“(a) proceeds of an indictable offence; or
(b) any property that is derived or realised, directly or indirectly, by any person from acts or omissions that:
(i) occurred outside Australia; and
(ii) would, if they had occurred in Australia, have constituted an indictable offence or a State indictable offence;”

23 Within that definition is the phrase “indictable offence” and the phrase “State indictable offence”. Elsewhere in s 4 they are defined as meaning:

“’Indictable offence’ means an offence against the law of the Commonwealth, …, that may be dealt with as an indictable offence (even if it may, in some circumstances, be dealt with as a summary offence).

‘State indictable offence’ means an offence against the law of a State that may be dealt with as an indictable offence (even if it may, in some circumstances, be dealt with as a summary offence).”

24 Commonwealth legislation which provides for the acquisition of property must ordinarily provide that such acquisition occurs on just terms: The Constitution, s 51(xxxi). Legislation providing for compulsory forfeiture is not authorised by the power under s 51(xxxi), but rather arises under some other head of power, or else a part of an incidental power for the purpose of vindicating other laws: Burton v Honan (1952) 86 CLR 169 at 180-181 per Dixon CJ.

25 The 2002 Act manifests a clear intention to effect the confiscation of property without any compensation: Lee v Director of Public Prosecutions (Cth) [2009] NSWCA 347 at [20]. The taking of property in the prescribed circumstances is the primary purpose of the legislation: s 5 of the 2002 Act. The 2002 Act constitutes an accepted exception to the requirement that compensation on just terms is necessary: Lee at [21].

26 The provisions of a statute which provide for the confiscation of property or derogation from property rights must be strictly construed: Studman v Director of Prosecutions (Cth) [2007] NSWCA 285 at [35] per McClellan J (Spigelman CJ and Handley AJA agreeing).

27 This does not mean that the Court undertakes anything other than the usual contextual (rather than textual) approach to the process of statutory interpretation. The correct approach is to use the ordinary rules of statutory construction and interpretation. If an ambiguity or doubt remains at the end of such an exercise, that should be resolved in favour of the retention of the right to property: NSW Crime Commission v Kelaita [2008] NSWCA 284 at [15]-[17] per Allsop P.

28 The provisions of s 315(2)(a) of the 2002 Act do not stand in the way of such an approach to the construction and interpretation of the Act because this approach is not a rule of construction “… applicable only in relation to the criminal law …”: Lee v Director of Public Prosecutions (Cth) [2009] NSWCA 347 at [17]-[18]. These proceedings are not criminal in nature nor is the principle referred to in Studman one of application only to the criminal law. Its genesis is the application of the principle of legality to statutory construction, and the recognition that:

“… the need for clarity in the confiscation of property rights is rooted in the importance of such rights and their legitimate protection in civil society, free from the exercise of arbitrary power, in particular the use of the prerogative power, or in today’s political framework, Executive power”: NSW Crime Commission v Kelaita [2008] NSWCA 284 at [15] per Allsop P.

Obtaining a Forfeiture Order

29 In this matter, the effect of the legislation is that the Court must make a forfeiture order where it is satisfied about these matters:

the applicant for the orders is the DPP; and

the Strathfield property has been the subject of a s 18 restraining order for a period of at least 6 months; and

the first defendant engaged in conduct which constituted one or more breaches of s 81 of the 1987 Act.

30 This proceeding is a civil matter: s 315(1) of the 2002 Act. The onus of proof is the civil one, ie any question of fact is to be decided on the balance of probabilities: s 317(2) of the 2002 Act. In this case, this is emphasised by the provisions of s 47(3) of the 2002 Act, which provides that the raising of a doubt is not sufficient to avoid a finding about the existence of a serious offence.

31 The second defendant submits having regard to the nature of the subject matter of the proceedings and the seriousness of the allegations in the matter, that clear and cogent proof is required before the DPP discharges the onus of proof: Habib v Nationwide News Pty Ltd [2010] NSWCA 34 at [337]-[340]; Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-2.

32 Any analysis of this question must begin with s 140 of the Evidence Act 1995 which deals with civil proceedings. Section 140(1) requires the Court to find the case of a party proved if it is satisfied on the balance of probabilities. Section 140(2) preserves the Briginshaw doctrine: Habib at [338].

33 Whilst adhering to s 140(1) of the Evidence Act, it is nevertheless appropriate to keep in mind that “… the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove …”: Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450 per Mason CJ, Brennan, Deane and Gaudron JJ.

Non-controversial elements

34 There is no issue between the parties that the first two elements referred to in para 28 above are satisfied.

35 The DPP is the applicant in the proceedings. As well, the restraining order was made over the Strathfield property in November 2004. It has continued ever since.

36 I am therefore satisfied that these two elements have been established.

The Central Controversy: The facts

37 It is necessary for the DPP to establish that the first defendant has been in breach of s 81 of the 1987 Act. The second defendant disputes that the evidence tendered by the DPP is sufficient to establish the breach.

38 The evidence upon which the DPP relies consists of the facts established principally by two documentary exhibits (Ex F and Admission 1), and the record of the compulsory examination of the second defendant on 19 March 2007 (Ex G).

39 The first document, which is Ex F, contains some limited parts of the Court Decision on Criminal Case (ie the judgment) of the Fuzhou Municipal People’s Court, Fujian Province, in the People’s Republic of China. The DPP accepted that, in light of the provisions of s 91 of the Evidence Act , this judgment could not be relied upon to establish any controversial facts.

40 Exhibit F established the following facts with respect to the first defendant:

he was the General Manager of Fujian Bamin Communication Electrical Equipment Company Ltd;
he was the General Manager of the Tianli Technical Trading Company Ltd;
he was sentenced to 15 years imprisonment for the crime of smuggling common goods;
he was ordered “ … to continue to pay his illegal income of $US2,216,270” . The only source identified for this “illegal” income is the crime of smuggling common goods;
his conviction was based on Articles 153, 25, 30, 31 and 64 of the Criminal Law of the People’s Republic of China and some further Articles which seemingly deal with matters of interpretation and precedent.

41 It is clear that his conviction was in respect of a criminal offence which carried a penalty of no less than 15 years, and perhaps had a greater maximum sentence. It was a decision of a court comprised of three judges. An appeal lay from the judgment to the People’s High Court of Fujian Province. Both the prosecution and the defendant were represented by lawyers.

42 None of the relevant articles of the Criminal Law of the People’s Republic of China were adduced in evidence. Accordingly, it is not possible to know what the constituent elements were, of the crime for which the first defendant was convicted.

43 The second document marked “Admission 1” is entitled Interrogation Record (The Eighth). It is the record of an interrogation which took place over a period of a little over two hours on 24 June 2002. It occurred before the court proceedings to which Ex F relates.

44 The second defendant admitted for the purpose of these proceedings certain of the facts contained in the document, being those consisting of the first question and answer on p 47, and the facts referred to on pp 48 and 49 of the document.

45 At the start of this document, the first defendant admits that the “entire process” of the commercial transaction commenced in the second half of 1991. Later in the document he admits that he received money in the latter half of 1997 and 1998 as I describe in more detail later.

46 The DPP submits that the Court should disregard the date of 1991 because:

“On the evidence contained in Admission 1, the reference to ‘1991’ is, to the extent of a high probability, either a translation or a typographical error, and the relevant year is, properly, 1997.”

47 Upon the initial examination, there seems to be some force in this submission. However, the second defendant submits that to interpret the words in this way would be impermissible because it is not open to the Court to change an admission of one fact (ie, that conduct occurred in 1991) to an admission of another and different fact (ie, that conduct occurred in 1997).

48 As well, given that the admission document was annexed to an affidavit of Mr Albert Au sworn 2 October 2009, which was filed and read by the DPP, and in which Mr Au swore that he had accurately translated the documents with which he was provided, I would in the absence of any further evidence be reluctant to accede to the DPP’s submission.

49 That reluctance is magnified in this case because the date, 1991, does not on its face appear to be inherently improbable. Clearly, negotiations for an entry into the commercial agreement would necessarily precede the receipt of monies from goods sold under the agreement. Whilst a period of six years between initial negotiations and the receipt of payment may seem rather long, it is not beyond the realm of rational dealing. I could not find it to be inherently improbable.

50 In summary, the approach which I will take is to reject the DPP’s submission that I should substitute 1997 for the date 1991 in the first defendant’s admissions, and to regard the particular admission of the first defendant as being limited to the year recorded, namely 1991.

51 The following facts all of which occurred in 1997 and 1998 (unless otherwise noted) emerge from Admission 1:

the first defendant gained more than $US9million as an agent in the importation of digital mobile communication equipments for the Provincial Administrative Bureau of Post and Telecommunications (“the Bureau”);

the first defendant, in the second half of 1991, negotiated and reached an agreement for the sale, at a fixed exchange rate, of communication equipment with two company purchasers.

the Bureau allowed to the Bamin Mechanical and Electrical Company (“Bamin”), a 20% agency fee as its profit on the importation and sale of the mobile communications equipment. I note that the name of this company and that given in Ex F, namely the Fujian Bamin Communication Electrical Equipment Company Ltd, are different, although they have some similarity. I would be prepared to infer that they are the same corporate entities, or else part of the same corporate group.

the purchasers of the equipment were two companies, Fu Min Company (“Fu Min”) and the Xin Zhing Sheng Company (“XZS”). It is not clear what quantities of equipment were purchased by each of these two companies.

The first defendant distributed the 20% fee in a way which, at least as he describes it, is somewhat confusing. As best as I can understand it, it appears that 1% of the 20% allowed profit went to Bamin. The balance of 19% was split between the purchasers of the equipment and two other companies, MinLi Company (“MinLi) and TianLi Company (“TianLi”).

in the case of Fu Min, it received 10.84% and MinLi and TianLi 8.16% of the remaining 19% of the profit. In the case of XZS, it received 12.05% and MinLi and TianLi received 6.95% of the remaining 19% of the profit.

the monies being paid to MinLi and TianLi were described by the first defendant as personal gains.

the first defendant concealed the distribution of the monies to MinLi and TianLi from the accountants and other employees of Bamin by telling them that the whole of the 19% was being paid to Fu Min and XZS.

from the monies paid to MinLi and TianLi, the first defendant by agreement with Shi Hong, who I am prepared to infer was a principal of Bamin, received a one half share which was paid to a bank account which he established in Hong Kong.

the sum of $US9million, was paid to the first defendant by instalments from the second half of 1997 through to the northern hemisphere summer of 1998, that is a period of probably around nine months or so.

part of the amount of $US9million, namely $US500,000, was transferred from a Citibank account to an account in the name of the first defendant with the Commonwealth Bank of Australia.

52 The evidence (Ex A) established that the sum of $US500,000 was transferred into Australia on 20 November 1998. That sum was in an account in Citibank NA in Hong Kong. At the direction of the first defendant, it was transferred to a cheque account which he had established with the Commonwealth Bank of Australia, Martin Place, Sydney.

53 The first defendant arrived in Australia on 27 October 1998. He remained in Australia until deported to China on 4 June 2002. For a period of 10 days in January 1999, the first defendant left Australia, and apparently went on a trip to New Zealand.

54 The DPP has also established that the first defendant purchased the Strathfield property on 1 June 1999. He paid the purchase price of $A305,000 from the monies deposited in the Commonwealth Bank account. In addition the first defendant paid stamp duty on the contract for sale. The amount of stamp duty paid is not in evidence.

55 On 22 February 2002, the second defendant took a transfer of the Strathfield property for $A1. The stamp duty of $A12,365 was paid by the second defendant.

56 In her compulsory examination which occurred on 19 March 2007, the second defendant gave this explanation of the circumstances giving rise to her holding of the Strathfield property. At p 70 of Ex G, she said:

“I don’t know whether I’m holding for him but when he bought the property at the time and he had it his mind that he wants his child to study in Australia. So, to come to study in Australia I don’t know whether you need to have a certain amount of deposited sitting in the bank and you need to have a sponsor to the, because the child, especially for a child under 18 years of age. So he bought that unit at beginning for the purpose of, for his son later on to study in Australia and appoint me at the time, so, and if I can look after him while he’s coming.”

57 She was asked with respect to some funds other than the transfer used to purchase the Strathfield property whether she was aware how the first defendant derived that money, which totalled $A1.3million. She said at p 74 of Ex G:

“He told us – because when he came here he was asked business visa and he also told us he was a businessman and he was communication and business as well so, you know, he did a lot of share trading business, share trading in China and his wife as well, that’s the share trading as well. We know he’s very successful because to get us at the time on ’98, not many Chinese man can come to Australia on business visa. People only come here, basically it was Hong Kong or Singapore or these kind of places.”

58 During the examination, the question of the purchase and various payments with respect to the Strathfield property were again dealt with. It is most convenient if I set out the entirety of that evidence. It appears on p 90 and in part on p 91 of Ex G.

“MS DiGREGORIO: I will give you a copy of the transfer in relation to the unit at Albert Street.

MS NG: Thank you.

MS DiGREGORIO: This is the unit that Mr Xu purchased for his son with the intention that his son would study in Australia and use this unit or live in this unit during his studies during the course of his studies?

MS NG: Yes.

MS DiGREGORIO: And on the top right-hand corner you can see typed New South Wales duty?

MS NG: Yes.

MS DiGREGORIO: And that's where this transfer has been stamped for the purposes of paying stamp duty?

MS NG: Yes.

MS DiGREGORIO: Although the amount is cut off by a box on the document it says: Duty $12,365?

MS NG: Yes.

MS DiGREGORIO: And that duty was paid by yourself?

MS NG: Yes. We had a valuer because we had a valuer to value the property and that's the 375 given by the valuer to Andrew and Andrew said to us, $375,000 and that's - you have to pay the stamp duty on it.

MS DiGREGORIO: And that valuation was obtained because the transfer from Mr Xu to yourself was only at the consideration of one dollar?

MS NG: That's right. Actually, basically it was given to me as well because he is going and he got rejected from Federal Court - sorry - MRT finished, Federal Court and finished the hearing and he at the time he wanted to leave, either leave the country. Basically DIMIA told him he can go to another country because he was holding Hong Kong passport, not Chinese passport, he can go to another country if he wants to go. So he, yes, he just transferred this unit to me but somehow it didn't happen, they didn’t promise he can go to another country because he was applying to go to Indonesia I think it was, or some other countries.

MS DiGREGORIO: Instead he was returned to the Peoples Republic of China.

MS NG: They deported him straight to China. He was holding Hong Kong passport not Chinese passport.

MS DiGREGORIO: And he was deported to China.

MS NG: To China, yes.

MS DiGREGORIO: The transfer here is signed by Mr Xu, isn't it?

MS NG: That's right and he changed in the centre.

MS DiGREGORIO: In the detention centre?

MS NG: Yes, Mr Andrew Lloyd went to detention centre a few times and, yes.

MS DiGREGORIO: At the bottom of the transfer it has signatory, a signature, the name of Andrew Lui and signatories capacity listed as transferee's solicitor. So Mr Lui was acting for - I withdraw that. Was Mr Lui acting for you and for Mr Xu at the time of that transfer

MS NG: Yes.

MS DiGREGORIO: And did you or did Mr Xu settle the account with Andrew Lui, lawyers?

MS NG: I settled, yes. You mean paying Andrew's fee, yes, I paid Andrew's fee, yes.

MS DiGREGORIO: And what about when you were appointed as Mr Xu's attorney, the general power of attorney, they were also prepared by and signed at the hand of Andrew Lui?

MS NG: Yes.”

59 During the course of the examination, the second defendant gave evidence that she received a telephone call on the evening of 6 June 2002 from the first defendant who told her that he was in China and asked her to deposit money into a Chinese bank account. The second defendant said that she asked the first defendant why and she was told that the money belonged to the Chinese government. She hung up.

60 She said that about a week later she received a handwritten letter from the first defendant. She described the letter and what she did with it in this way:

“MS NG: That must be the one I referred to, with some sentence saying that, you know, I’m back in China and the Chinese Government has been very nice to me, and – something like that – and China is a big country, it’s a very powerful country now and you’re living in Australia and you have been, had a peaceful life there and you don’t want to be disturbed or something like that.

MS DiGREGORIO: Okay.

MS NG: Yes, I it as – I wouldn’t think it’s come from him. It must be from some sort of Government force him to do something like that. So I showed my solicitor. My concern is my family, whether they’re coming to here to do some harmful things to my family and the solicitor said, no, you’re in Australia not in China. Don’t forget it, you know, don’t worry about it. They can’t come, just grab you – kidnap me.”

61 Importantly with respect to the letter (which was not in evidence before me), she later said in her examination that although the document was signed by the first defendant, when she received it, she did not believe that it had been sent by the first defendant of his own free will or else it did not come from him, because the story in it was totally different from previous stories.

62 Later she described taking the letter to the solicitors because she thought: “It’s something terrible. It not right.” She said she had not heard from the first defendant since.

63 If I were to summarise the evidence of the second defendant, she accepts that she holds the Strathfield property, in circumstances where she has paid no money for it, on trust for, or else in her capacity as a power of attorney for, the first defendant or his eldest son. She was at all times unaware of any suggestion that the money used for the purchase of the Strathfield property was allegedly obtained unlawfully or else the proceeds of crime.

64 In the course of his interview, part of which is contained in Admission 1, the first defendant said that, the second defendant did not pay any cash to him for his sale of the Strathfield property to her, but “instead, her debt was paid in kind as my attorney fees in Australia…”.

65 In her compulsory examination, at p 91.28ff, the second defendant said that she had paid the legal fees of Mr Andrew Lui, a solicitor, who acted on the transfer of the Strathfield property from the first defendant to the second defendant. Mr Lui seems to have acted for both defendants. The value of the Strathfield property at the time of transfer (at least for the purposes of stamp duty) was $375,000. There is no reason to think that this is not an accurate market value.

66 There is no evidence which suggested that the first defendant had retained lawyers, and incurred legal fees, in any such which was anywhere near capable of approaching the value of the property. Such a suggestion is also contrary to the admission by the first defendant that whilst in Australia, he had spent $100,000 (in addition to investing in real estate).

67 Such a proposition as is asserted by the first defendant above in para 63 is also inconsistent with the evidence of the second defendant about how she acquired the property.

68 I do not regard myself as being able to place any weight on such an assertion, and accordingly, I reject the submission advanced by senior counsel for the second defendant that I should find that the consideration for the transfer was the reimbursement of legal fees.

69 The second defendant gave no evidence before me. The absence of any evidence from the second defendant asserting that positively to be the fact, makes my task of rejecting it the more rational: Jones v Dunkel (1959) 101 CLR 298 at 312 (per Menzies J), at 320-321 (per Windeyer J).

70 In the examination, the second defendant makes no claim to be entitled to the Strathfield property absolutely. Equally, however, she denies that at any time she knew that it was the product of any unlawful venture or enterprise in which she or the first defendant engaged. She deposes that at all times her belief was that the first defendant was engaged in lawful, successful, business dealings.

Proceeds of Crime?

71 I have earlier set out, and referred to, the words of s 81 of the 1987 Act.

72 The DPP submits that the first defendant by purchasing the Strathfield property on 1 June 1999 engaged in a transaction which involved money that was the proceeds of crime and therefore contrary to the provisions of s 81(3)(a) of the 1987 Act.

73 It is not in dispute that the first defendant, as I have set out earlier, used money derived from the Citibank account in Hong Kong to purchase the Strathfield property. Nor is it in dispute that the evidence establishes that the sum of $US500,000 part of which funded the purchase of the property was a part of the $US9million sum paid to the benefit of the first defendant in Hong Kong. What is in dispute is whether that money was the proceeds of crime within the definition in s 4 of the 1987 Act.

74 The first possible basis for a finding that the sum of $US9million was the proceeds of crime is that, as set out in s 4(a) of the definition in the 1987 Act, it was the proceeds of an indictable offence, ie, an offence against a law of the Commonwealth.

75 It is not submitted by the DPP that it was. On any view of the facts, the money in Hong Kong had been derived, whether legally or illegally, from a commercial transaction for the importation of mobile communication technology equipment into China. That commercial transaction seems to have occurred wholly in China, and to have had no relationship with any act, omission or person in Australia. I do not see how that could constitute an indictable offence against a law of the Commonwealth.

76 The second possible basis for a finding that the sum of $US9million was the proceeds of crime is that it is derived from conduct which occurred outside Australia and, had the conduct occurred in Australia, it would have constituted an indictable offence, of either the Commonwealth or the State: s 4(b) of the definition in the 1987 Act.

77 It is therefore necessary for the DPP to first identify the facts which have been established and then identify which indictable offence would have been committed if the conduct occurred in Australia (“the hypothetical offence”).

78 Initially, the DPP argued that the hypothetical offence was one which amounted to an imposition on the Commonwealth, or alternatively some form of a fraud on the revenue offence. As well, the DPP sought to argue that there was an equivalent “smuggling” type offence.

79 Those submissions were met in oral argument by the second defendant. The DPP sought and was granted leave to put in written submissions which addressed in detail which hypothetical offences it submitted were proved on the facts.

80 In its written submissions, the DPP contended that the hypothetical offences which had, on the evidence, been proved were:

(a) Corporations Law : ss 232, 596(b), 1309(1) and 1317(FA);
(b) Crimes Act 1914 (Cth): ss 5 and 86;
(c) Crimes Act 1900: ss 178BA and 178BB;
(d) Common law conspiracy.

81 It is necessary to analyse each of these suggested hypothetical offences.

Corporations Law Offences

82 The Corporations Law (“the Law”) was repealed on 15 July 2001. However, the relevant dates for establishing the commission of the hypothetical offence is prior to 20 November 1998, which was the date upon which the funds were transferred into Australia. It is submitted by the DPP, correctly, that it was no later than that point in time when the funds were the proceeds of crime.

83 Having regard to the fact that the first defendant received the monies which are the subject of complaint by the DPP during 1997 and 1998, it is appropriate to consider whether a criminal offence had been committed in that period which ended on 20 November 1998. The earlier negotiations, in 1991, do not seem to be a central, as opposed to a contextual, fact in this analysis.

84 The DPP submits that the first defendant would have committed a hypothetical offence by:

(a) As an officer of a corporation failing to act honestly in the exercise of his powers and the discharge of his duties in office in breach of s 232(2) of the Law;

(b) As an officer of a corporation making improper use of information acquired by virtue of his position to gain directly, or indirectly, an advantage for himself in breach of s 232(5) of the Law; and/or

(c) As an officer of a corporation making improper use of his position as such an officer to gain directly or indirectly or indirectly an advantage for himself in breach of s 232(6) of the Law.

85 In 1997 and 1998 each of these provisions of the Law were civil penalty provisions: s 1317DA. Any such civil penalty provision could constitute a criminal offence if:

“… the person contravenes a civil penalty provision:
(a) knowingly, intentionally or recklessly; and
(b) either:
(i) dishonestly and intending to gain whether directly or indirectly an advantage for that or any other person; or
(ii) intending to deceive or defraud someone.”

s 1317FA of the Law.

86 An offence against s 1317FA of the Law carried a maximum penalty of a fine of $A200,000 or imprisonment for five years or both. Such an offence would be an indictable offence.

87 It is to be observed however that the key difference between a breach of any part of s 232 of the Law, being a civil penalty provision or a criminal offence is that there must be knowledge, intention or recklessness accompanied by some form of dishonest intent, namely, “… dishonestly and intending to gain an advantage …”, or “… intending to deceive or defraud someone …”: s 1317FA of the Law.

88 It is necessary to analyse the proved facts to see if any such mens rea is established.

Do the facts disclose a mens rea ?

89 The written submissions of the DPP are not at all clear as to what evidence there is to support a finding of the requisite mens rea on the part of the first defendant.

90 It seems that the principal matters relied upon by the DPP are:

(a) the first defendant lied to the accountants and employees of the Bamin about the end recipients of the disbursement of the 19% component of the 20% agency fee; and

(b) all monies received by the first defendant should be regarded as illicit gains because they were the consequences of a diversion of funds of Bamin. This is exemplified by the orders of the Fuzhou Municipal People’s Court, Fujian Province, that the first defendant was to “… continue to pay his illegal income …”.

91 The essence of these submissions is that the money in question belonged to Bamin and that the first defendant had no legitimate entitlement to it.

92 Unless the DPP can establish the absence of a legitimate entitlement, then not disclosing the payment to the accountant and employees of Bamin is equivocal and, in my view, without more cannot be indicative of a criminal or dishonest intent, sufficient to establish the necessary mens rea.

93 There are some fundamental difficulties in the way of acceptance of the DPP’s submission. The DPP has not tendered any evidence at all about any of the corporate entities involved on the transaction, in particular Bamin, MinLi and TianLi. The following matters about each of these corporate entities is entirely unknown:

(a) Whether the entity is a public or private company;

(b) Whether the entity is a state owned enterprise or else is privately owned by shareholders;

(c) If there are shareholders, who they are, and whether the first defendant is a majority, or a substantial or else a minority shareholder;

(d) Whether there is any coincidence of shareholders of all these entities, or whether one is a subsidiary of another;

(e) Whether there is a board of directors of each corporate entity, and if so, who the directors were at the relevant time;

(f) Whether any external auditors were appointed and if so who they were;

(g) Who the directing mind of Bamin was, or if there was more than one, who they all were; or

(h) how the companies operated in terms of which officer or employee had authority with respect to any part of the commercial transaction.

94 The absence of information which would meet some or all of the matters described above makes it very hard to impute dishonesty, deception or fraud, and the requisite state of mind which accompanies these descriptions to the first defendant.

95 This court has no material to indicate whether the accountants to whom reference was made were internal employees, which seems most likely having regard to the way the expression is used, or an external firm carrying on some statutory obligation akin to that of an auditor.

96 Whilst it is true that the judgment does have a requirement that the first defendant repay a sum of a little over $US2.2million which it describes as “his illegal income”, it is not clear whether the moneys deposited in Australia are included in that description or not. As well, the description illegal can only be taken to describe the criminality disclosed by the first defendant’s conviction for smuggling common goods.

97 Whilst the sum involved does appear to be large – $US9million, that of itself, even if gained over a period of less than a year would not carry with it an implication of dishonesty, illicitness, or lack of entitlement.

98 I am not able to infer from all of the facts which have been proved that in obtaining the sum of $US9million (of which the $US500,000 transferred to Australia was a part) the first defendant did so with any mens rea or dishonest intention or other mental element of the kind necessary to establish any of the offences against the Law to which the DPP refers.

Specific Corporations Law offences

99 Although, in light of my conclusion in para 98 above, I am unable to be satisfied that the requisite mental element existed as the Law requires, it is strictly unnecessary to consider the other elements of the hypothetical offences against the Law, it is appropriate so to do, in case my earlier conclusion is erroneous.

100 Section 232(5) of the Law obliges an officer of a corporation not to “… make improper use of information acquired by virtue of his position …”. With respect to this hypothetical offence, the DPP did not specifically articulate what the “information” was that the first defendant acquired “… by virtue of his position …”. Nor did he articulate what improper use was made of that information.

101 I am not satisfied that this hypothetical offence has been proved.

102 Section 232(6) of the Law requires that an officer of a corporation not “… make improper use of his position …”. The DPP has not identified what use was made by the first defendant of his position which was improper. It may be implied in the DPP’s submissions that money was transferred from Bamin to the first defendant personally or else for his own benefit at his direction and that this was improper. But more is required.

103 Impropriety is determined objectively. It consists in a breach of the standards of conduct that would be expected of a person in the position of the officer by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case: The Queen v Byrnes (1995) 183 CLR 501 at 514-515.

104 If the impropriety consists in an abuse of power, the state of mind of the officer, as well as his purpose or intention in exercising the power are important factors: Byrne at 515.

105 The evidence adduced by the plaintiff is quite insufficient to enable the court to determine what all of the circumstances of the case are. As well, without any knowledge of the duties, powers and authority of the first defendant or any position which he occupied, it is impossible to derive what an objective standard of conduct may be. That objective standard is the touchstone for judging impropriety.

106 I am not satisfied that any breach of the provisions of s 232(6) of the Law has been demonstrated and that any hypothetical offence has been committed.

107 There is no need for me to separately consider the submissions about s 1317FA of the Law because I have elsewhere considered whether the necessary requisite mental element existed.

108 The DPP also submits that the first defendant was in breach of the provisions of s 596(b) of the Law because, whilst an officer of the company:

“With intent to defraud the company he made or caused to be made a transfer of the property of the company.”

109 A breach of this provision was punishable at the relevant time, by a fine of $A10,000 or imprisonment for two years or both. It was therefore an indictable offence for the purpose of s 4 of the 1987 Act.

110 It is clear that, for the DPP to prove a hypothetical offence consisting of a breach of this section, he must prove that the first defendant’s intention was to defraud Bamin or its creditors or shareholders. Another element which the DPP must prove is that at the time of the transfer of the monies, Bamin had the ownership of, or the legal right to, the monies, and that the first defendant had no legal right or entitlement to the monies.

111 The totality of the evidence does not enable me to be satisfied that, at the time the transfer of money took place to MinLi and TianLi, the transfer was done with the requisite fraudulent intent. An essential issue is who had the legal right to the monies. It is necessary for the DPP to prove, at a minimum, that the first defendant had no legal right to the monies, and that the monies were the property of Bamin.

112 The only facts which could enable this conclusion to be drawn are that the first defendant was convicted of the crime of smuggling common goods, the part of the monies ($US9million), the concealment of that path from various employees of Bamin, and the sending of the monies outside the People’s Republic of China. Except for the first fact, the others on their own and without more do not intrinsically speak of dishonesty or fraud. They are at best equivocal.

113 Accordingly, I cannot be satisfied that the DPP has established a breach of an offence.

114 The final provision of the Law to which the DPP points as a potential hypothetical offence is s 1309(1). A breach of that provision would amount to an indictable offence for the purpose of s 4 of the 198 Act because the maximum penalty for a breach is a fine of $A10,000 or imprisonment for two years or both.

115 The DPP submits that the first defendant was in breach of s 1309(1) because “the lie he told as to the true commission owing to Bamin [meant that], the company’s members including the accountant, the employees and other people in our company” were misled in a material respect.

116 The DPP submitted that the true amount of commission was plainly of materiality to the company having regard to the large amount of money which the first defendant gained, ie, $US9million.

117 There is a fundamental difficulty with accepting the DPP’s submission. In the absence of any specific evidence that they were shareholders, it is not correct to classify the company’s accountant and employees as members of the company. In s 1309(1), and throughout the Law, the term “member” refers to, and mean, the shareholders of the company. The shareholders are the owners of the company.

118 The DPP tendered no evidence at all about the nature of Bamin or its ownership. No register of members (if one were to exist) was tendered. It is simply not possible to hold the accountant and other employees of the company were members.

119 The DPP has not demonstrated any breach of s 1309(1) as a hypothetical offence.

Crimes Act 1914 (Cth)

120 The DPP submits that the conduct of the first defendant would justify a finding that he had committed either of the hypothetical offences constituted by a breach of s 5 and/or s 86 of the Crimes Act 1914 (Cth).

121 Section 86 relates to conspiracy and requires that the subject of any conspiracy be an offence against a law of the Commonwealth. The offences upon which the DPP relies are the breaches of the various provisions of the Law to which I have earlier referred in this judgment.

122 The DPP submits that the conspiracy was between the first defendant and either or both of Shi Hong and Huang Duchen who appear to be people with whom the first defendant had dealings.

123 Whether or not it is appropriate to regard a breach of the Law as an offence against a law of the Commonwealth, is a nice question. The Law which commenced on 1 January 1991 was part of a scheme by which the Commonwealth and the States co-operatively agreed to pass identical laws. Under that scheme, the Law is contained in an Act of the Commonwealth Parliament, the Corporations Act 1989, and is enacted for the Australian Capital Territory. Laws of each State and the Northern Territory applied the Corporations Law of the ACT as a law of the State or the Northern Territory. The scheme was designed to operate as a single national scheme even though it actually applies in each State and the Northern Territory as a law of the State or Territory.

124 In undertaking an analysis of the hypothetical offence, it seems to me that the correct position is that the Law is a State statute and not a Commonwealth one. Of itself, this would be a complete answer to the DPP’s submission on both s 86 and s 5 of the Crimes Act 1914 (Cth).

125 However, in the absence of detailed submissions on the issue from counsel for both parties, I have approached the DPP’s submissions without regard to the niceties of whether a breach of the Law would be a Commonwealth or State offence. If a conspiracy to breach the Law existed, then it was either an offence against a Commonwealth law, s 86 of the Crimes Act 1914 (Cth) or else a common law conspiracy with respect to the breach of a State law.

126 But whatever view one takes of the allegation of conspiracy, there needs to be an underlying offence which is the subject of that conspiracy. As I have indicated above, I am not satisfied that there is any underlying offence and accordingly a conspiracy, which has additional elements to it, could not be proved by the DPP on the evidence which it has tendered to me.

127 Section 5 of the Crimes Act 1914 is a deeming offence whereby any person who is knowingly concerned in, or a party to the commission of any offence against any law of the Commonwealth, is regarded as a principal offender.

128 I am not persuaded that it is correct to regard a breach of s 5 as a substantive offence in itself. In order for an individual, here the first defendant, to be knowingly concerned in the commission of an offence, then there needs to be evidence of a principal offence being committed, in which the first defendant is knowingly concerned.

129 For the reasons which I have articulated above, without including the question of whether the Law is a Commonwealth statute, I am not satisfied that there has been any breach of any Commonwealth law, which would be a principal offence.

Crimes Act 1900

130 The DPP submits that the provisions of s 178BA of the Crimes Act 1900 can be relied upon to demonstrate a hypothetical offence.

131 Relevantly, s 178BA provided:

“(1) Whosoever by any deception dishonestly obtains for himself or herself or any other person any money or valuable thing or any financial advantage of any kind whatsoever shall be liable to imprisonment for five years”.

132 In the context of this section, deception would be constituted by the intentional inducing in another of a state of mind which the accused knows does not accord with the fact: Corporate Affairs Commission v Papoulias (1989) 20 NSWLR 503 at 506B. It is an essential ingredient of the offence created by this section that the cause of the payment of the money (or the handing over of the valuable thing or the giving of the financial advantage) was the deception used by the accused: Ho & Szeto v The Queen (1989) 39 A Crim R 145 at 147.

133 If it be assumed as argued by the DPP’s submissions, that the deception was constituted by the lies told to the accountants and employees of Bamin, there is still no evidence that the deception was the effective cause of obtaining the money.

134 The facts provided do not demonstrate how the money was obtained. They do not demonstrate whether, for example, it was paid directly from the purchaser companies to MinLi or TianLi, or whether it was obtained by payment to MinLi or TianLi from the vendor of the communications equipment to Bamin. It is not even clear if the money was ever in the account of Bamin at any time. In all of those circumstances, the DPP has not adduced any evidence capable of satisfying the causative element of such a hypothetical offence.

135 The DPP also relies upon the provisions of s 178BB of the Crimes Act.

136 The section provided that:

“(1) Whosoever with intent to obtain for himself or herself or another person any money or valuable thing or any financial advantage of any kind whatsoever, makes or publishes, or concurs in making or publishing, any statement (whether or not in writing) which he or she knows to be false or misleading in a material particular or which is false or misleading in a material particular and is made with reckless disregard as to whether it is true or is false or misleading in a material particular, shall be liable to imprisonment for five years.”

137 The section makes it an offence to make a statement which the accused knows to be false or misleading in a material particular.

138 The offence concentrates on the making of a particular statement, the contents of any such statement and the intention of the maker of the statement. The statement made by the first defendant to the accountants or other employees of Bamin is not in evidence in any direct form. At best, the content of the statement is to be derived from the admissions document, Admission 1.

139 The precise admission in that document is in these terms:

“The accountant and other people in our company were not aware of the real motives behind this way of distribution. I told my employees that our company only made 1% out of the 20% commission fee and the remaining 19% goes to Fu Min Company and Xin Zhing Sheng company”.

140 The making of the false and misleading statement must be accompanied by or else with the intention to obtain the money or financial advantage. A statement made after the money was paid and transferred to Hong Kong could not be made with the intent to obtain the money because the first defendant had already obtained the money. If the statement was made after the money was obtained and sent to Hong Kong, one logical purpose of such a statement might be to mislead the employees so as to deter any further questions or investigation. Equally, it might be to protect those employees from any allegations of complicity in the transfer of the funds if there was a later external investigation.

141 What the first defendant told the accountant and employees about how much money went to Bamin (ie, 1% of the 20% commission fee) was strictly speaking correct. The misleading component or effect of the statement is that, so the DPP submits, that the first defendant told the employees that the remaining 19% went to the purchaser companies Fu Min and Xin Zhing Sheng when it did not.

142 The coincidence of timing, if any, as to when that misleading statement was made in relation to when the money was paid is quite unclear. It is obviously necessary in order for there to be a causal connection between the intention to obtain the money and the making of the statement as s 178BB requires, that the statement is made before or else contemporaneously with the money being obtained.

143 The facts contained in Admission 1 do not address that sequence of events, nor am I able properly to infer from the facts in that Admission what the sequence of events was. I am not able to infer that there was any causal link between the misleading statement and the obtaining of the money.

144 I am not satisfied that the DPP has proved the necessary elements of the hypothetical offence which involves an allegation of a breach of s 178BB of the Crimes Act 1900.

Common law conspiracy

145 The DPP submits that the agreement between the first defendant, Shi Hong and Huang Duchen, or with any of them, to commit the offences against s 178BA and s 178BB of the Crimes Act would constitute a conspiracy at common law.

146 I have found that I am not satisfied that those offences were committed.

147 It follows that there is no basis for a finding of a common law conspiracy to commit those offences. I have earlier dealt with any allegation of common law conspiracy with respect to an offence against the Law.

148 In all of the circumstances I am not satisfied that any of the hypothetical offences for which the DPP contends have been proved.

Summary

149 The evidence adduced is insufficient to satisfy me that the moneys used for the purchase of the Strathfield property constituted proceeds of crime within the meaning of the relevant statute.

Orders

(1) Summons dismissed.

(2) Plaintiff to pay the defendants’ costs.

**********