Lordianto & Anor v Commissioner of the Australian Federal Police; Kalimuthu & Anor v The Commissioner of the Australian Federal Police

[2019] HCATrans 150

[2019] HCATrans 150

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S110 of 2019

B e t w e e n -

SANKO LORDIANTO

First Appellant

INDRIANA KOERNIA

Second Appellant

and

COMMISSIONER OF THE AUSTRALIAN FEDERAL POLICE

Respondent

Office of the Registry
  Perth  No P17 of 2019

B e t w e e n -

GANESH KALIMUTHU

First Appellant

MACQUELENE PATRICIA MICHAEL DASS

Second Appellant

and

THE COMMISSIONER OF THE AUSTRALIAN FEDERAL POLICE

Respondent

KIEFEL CJ
BELL J
KEANE J
GORDON J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 7 AUGUST 2019, AT 3.01 PM

Copyright in the High Court of Australia

____________________

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR T.P. MITCHELL, for the Lordianto appellants.  (instructed by Lincolns Lawyers & Consultants)

MR H.K. DHANJI, SC:   May it please the Court, I appear with my learned friend, MR E.W.L. GREAVES, in relation to the Kalimuthu matter.  (instructed by Putt Legal Migration)

MR S.P. DONAGHUE, QC, Solicitor‑General of the Commonwealth of Australia:   May it please the Court, I appear with my learned friends, MR L.T. LIVINGSTON and MS C. ERNST, for the respondent in both matters.  (instructed by Criminal Assets Litigation - Australian Federal Police)

KIEFEL CJ:   Yes, Mr Walker.

MR WALKER: If it please the Court. Your Honours, as you are aware from the reasons at both levels below in our case and from the exchange of written submissions, at the heart of the matter is the meaning to be given to critical expressions in section 330 of the Proceeds of Crime Act 2002 and in particular in the application of those understood terms to the facts of our case. 

As Justice McColl, with great respect, in the Court of Appeal took pains to emphasise it is, as always, a contextual exercise and with this statute, together with the statutes that are incorporated by reference, in provisions to which I will come, it happens that there are networks of provisions that need to be gone to in the Russian doll way that we have become used to in drafting in order to understand the provisions.

So with some trepidation as to whether there is any one right starting point in such an exercise, may I start at that point in order to try and make good the first of our propositions concerning the purpose of the particular subsection which is at the heart of the argument, which is section 330(4). Of course, section 330 is in danger, not least because of its prominence in this case, of assuming a false prominence in the provisions in question.

To anticipate a point to which I will come a bit later, we submit, we think contrary to the Commonwealth, that section 330 is quite misunderstood were it to be seen as what I will call a comprehensive or exhaustive exposition of how property becomes the proceeds of an offence or an instrument of an offence, et cetera. Rather, it complements section 329 and your Honours will be aware that Chapter 6 has that rather cosy title, “Interpreting this Act”, and Part 6-1, in which the provisions in question appear, blandly assures the reader that here you will find the meaning of some important concepts.

One of the difficulties, of course, is that the exercise involves words and their meaning and “concept” is perhaps a little elusive.  Your Honours will also appreciate that when it comes to the understanding of 329 and 330 together, it has embedded within it a number of defined terms to which I will come.

Section 336 specifically claims to explain the meaning of the word “derived”, to which I am about to come, in section 329.  It does not add a great deal, to put it mildly.  So in section 329, one is told primarily, we submit, that property is proceeds of an offence if it is – and I paraphrase – wholly or partly derived, et cetera, including indirectly, from the commission of the offence in question.

Subsection (2), the companion provision says that property is an instrument of an offence if the property in paragraph (a) is used in, et cetera, the commission of the offence.  Then, importantly, paragraph (b), importantly for our case, bearing in mind the cash that was of course intended to be used as it was used before each of the so‑called cuckoo smurfing deposits.  So, property is an instrument if the property is intended to be used in the commission of an offence as well as if it is used in.  

One, as I say, has the important concept of “derived”, to which I have already made some reference.  Could I remind your Honours that in relation to “proceeds” itself, we are told by section 338 that “proceeds” has the meaning given by sections 329 and 330.  So, section 338 regards sections 329 and 330 as, in a sense, definitional provisions.  Justice McColl’s reasons, as your Honours know, pay some regard to that functional character of these provisions.

We then have, of course, what might be the cardinal concept at play, which is property.  Unfortunately, if I may say so, the spirit of Professors Grey and Grey does not pervade the drafting of these provisions. 
From time to time, including, oddly, where the expression is used, “property or thing”, you can be forgiven for thinking that nonetheless “property” might be used from time to time sometimes to mean thing and sometimes to mean a legal relation to something, either concrete or abstract, capable of being, for example, owned.

Suffice it to say that the definition of “property” has its own quirks which probably do not ultimately embarrass the reasoning in this case.  In section 338, you will see the definition couched as if it were prescriptive – that is, exhaustive:

property means real or personal property of every description, whether situated in Australia or elsewhere and whether tangible or intangible, and includes an interest in any such real or personal property. 

That drives one off to the definition of “interest”.  Some verbal, maybe even conceptual, circulatory appears at this point but, again, it has to be rendered workable.  The definition of “interest” in relation to and it says “property or thing”.  It may be there that “property” seems to being used as if it were an object rather than a legal relation.  In any event, it means:

(a)a legal or equitable estate or interest in the property or thing; or

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

and then in ways that are rather difficult ultimately to understand, that is, said to be:

whether present or future and whether vested or contingent –

Now, in this case, the right in connection with the property or thing is deployed, we think, in the reasoning below which is not the subject of contest in this Court because at this point may I remind you of the way in which the section 19 restraint was sought and imitatively the section 29 exclusion was sought.  It was by reference to funds standing to the credit of our clients’ designated account with the designated bank.  So, the words in the orders are “funds standing to the credit”.

GORDON J:   Is that any more than a chose in action? 

MR WALKER:   No.  It is, I think, common ground, at least at the Bar table, that it will do for all purposes in this litigation to treat the property described in the orders as funds standing to the credit of, et cetera, as describing tolerably well what as a matter of technical law could be described as the inchoate chose in action being the, as it happens, unproved but securely inferred contracts between banker and customer. 

The right that we pick up from paragraph 320 – sorry, from the definition of “interest” – the right in question comes to land with respect to each iterative deposit because in the Court of Appeal it is reasoned that each of those – my words, not theirs – added to or changed the state of affairs concerning how much money you could require by right under that inchoate chose in action once you put it in train by making your demand.  There are difficulties and, perhaps, artificialities involved in the way in which that is reasoned and expressed but is not a contest between the parties here.

EDELMAN J:   So you effectively accept that an increase in the value of an unchanged right is capable of amounting to property.

MR WALKER:   It has to be something that can be acquired.  I have not yet come to that very important thing.  May I say, no – I think in order to be safe to that last question.  The increase in value is a very problematic part of the reasoning.  Property notoriously increases in value without changing – either factually or in the eyes of the law – any of its nature as property.  That is why young Sydneysiders are told get on the real estate ladder because the value is going to change.  The property does not.

EDELMAN J:   Neither does the contract between the bank and the customer.

MR WALKER:   Exactly, your Honour.  That is why I say it is problematic for me to accept that it is because of a change in value.  With respect, that appears to be shorthand that does not survive scrutiny.  It could not be literally correct.

GORDON J:   Is it an interest?

MR WALKER:   It is an interest because of the definition I have taken you to.

GORDON J:   So, the adjustment in value is the interest point.

MR WALKER:   It is the enhancement.  “Value” is a loaded word.  After all, at the end of the day a chose in action against a bank is only as good as the capacity of the bank to pay the judgment.

GORDON J:   So, in a previous case they talk about it being either distinguished or increased or decreased according to deposit or withdrawal.

MR WALKER:   Yes, that is right.

GORDON J:   That bit satisfies a definition of “interest” for the purposes of the Act?

MR WALKER:   That is correct.  That is how we are content.  The record, in effect, shows the case was conducted and decided and we take no issue with it and neither, of course, do our friends.  I am simply drawing to attention something which, I suppose, is basal to all such cases, namely, could you please identify the property in question so that we may know whether it is the proceeds or an instrument.  In this case, the words chosen by the parties in their forensic dealings with each other, that is, section 19, section 29, was “funds standing to the credit of”.

The legal characterisation of that is the inchoate chose in action with the amount that may be demanded varying, going up every time there is a deposit, that last iterative exercise – it is repeated and repeated and repeated – coming into existence of a right – it is a different right from the previous right because it is a different amount – it is a bigger amount. 

Whether that reasoning only works when you are depositing and has no application where there is withdrawal is something we mercifully do not have to worry about.  But it is one of the reasons why the reasoning is strained.  However, as I say, the provisions do have to be made to work. 

EDELMAN J:   The relevant property prior to the deposits is the title to the notes, is it?

MR WALKER:   No, the notes were never ours.

EDELMAN J:   The relevant property from which the chose in action is derived is the title held by the smurfs to the notes when they are deposited in the bank.

MR WALKER:   The notes are an instrument when they are clutched by the smurf for deposit and they are part of, not the only, proceeds when they are held and owned by the bank.  They are never held or owned by my clients, but there is other property.  So there is the chose in action which came into existence once only, that is, upon the opening of each account.  There is the, I am going to call it enhanced right, enhanced by reference to the amount of money that can be demanded, which comes from each deposit as a result of the contract which gives rise to that chose in action. 

So each deposit conveys a different, a better right in terms of the aggrandisement of the sum that can be demanded from the bank under the contract.  Neither of those was the bank notes, but their derivation from the bank notes is self‑evident.  We do not merely, as it were, concede that.  We have to embrace that.  That is how it works.  The bank notes is what brought about the alteration upwards in the credit in the accounts.  That is what brought about the enhanced right and it is in that sense that there is a derivation.

EDELMAN J:   It also brings the bank directly into the picture.

MR WALKER:   Yes, your Honour.

EDELMAN J:   Because the bank gets title to the notes.

MR WALKER:   Your Honour anticipates me in some matters that I will come to a bit later but the position of any bank in a case of this kind is remarkable in the sense that the, what I will call primary manifestation of the instrument and the proceeds are the bank notes that the bank takes as its property.  As we understand this Act, the bank could as well be asked to pay an equivalent sum because it will not matter what the bank does with those bank notes, for example, by reason of provisions to which I will come, but has not been in this case.

Could I then complete for the time being some of the important definition provisions.  The expression “sufficient consideration” to which I will be coming in paragraph 334(a) also highlights the need to understand what the property is because “sufficient consideration” is defined as follows – this is in 338:

an acquisition or disposal of property is for sufficient consideration if it is for a consideration that is sufficient –

which is a remarkably useful thing to be told:

and that reflects the value of the property –

and that reflects the value of the property:

having regard solely to commercial considerations.

Fortunately, this is not a case where the adequacy of that drafting needs to be tested, but it emphasises significantly that you do need to identify the property and there has to be an understanding of what I might call the commercial quid pro quo. 

To jump ahead, your Honours appreciate that the way we put consideration is quite simple.  In return for us depositing money in Indonesia in amounts ultimately selected by us but then designated as to destination by the remitter in Indonesia, the remitter in Indonesia undertook to arrange for commensurate deposits, at least in aggregate, in our designated accounts in Australia, thereby shifting monetary worth or wealth from Indonesia to Australia.  It does not involve the shipping of bullion physically, does not involve the postage of bank notes physically, and it does not even have to involve interbank transfers.  It involves the arrangements that the remittance provider has with what might be called correspondents in Australia. 

One can see how that rather ancient form of proto‑banking - international banking - still very current in much of the world, how it opens itself up to cuckoo smurfing.  Your Honours have seen the descriptions in the judgments and the AUSTRAC document adopted by the so‑called expert that we called which describes how that becomes a means of so‑called laundering the proceeds of crime.

BELL J:   Does this submission respecting sufficiency of consideration depend on the persons – the lackeys who do the depositing being the agents of the Indonesian remitter?

MR WALKER:   No, though in what might be called a paradigm case without sinister aspects, they no doubt would be in some sense an agent, a ministerial agent.  What we get is the promise to procure our accounts aggrandised by the amount equivalent after exchange to that which we give the remittance people in Indonesia.  How they procure that is a matter for them.  It may well involve very often agency, but equally it may involve putting in train other arrangements that fall short of what I might call the granting of authority. 

It is a very familiar proposition that you can have a promise which is good consideration for the money you have given over by which somebody promises to procure an outcome that they do not have anything themselves actually to do with.  It is a bit like the apartment builder who promises that the apartments will be painted - the builder does not have to paint them – and subcontract and the apartment owner need have no privity whatever with the painter.  The notion that there has not been consideration by the promise to pay for a painted apartment - for the painting is neither here nor there.  The fact is the owner has given sufficient consideration obviously for the painted apartment.

GORDON J:   So will you come to Justice Beazley and Justice Hayne’s treatment of that question?

MR WALKER:   Yes.  May I anticipate I will not ‑ ‑ ‑

GORDON J:   You do not have to answer it now, because it seems to me that that proceeded on an entirely different approach to ‑ ‑ ‑

MR WALKER:   It certainly does.  It proceeds on an approach, in our submission, illogically imposing some bilateral requirement of privity on the exercise, which is irrelevant.

GORDON J:   Was it that or that the property itself was not properly identified?

MR WALKER:   No.

GORDON J:   They seem to suggest that it was an acquisition from unnamed depositors.  They describe the property as being an acquisition for sufficient consideration from unnamed depositors where, if you are right about the property, the acquisition of the right is from the bank.

MR WALKER:   That is exactly right.  It is the bank that owes obligations under the inchoate chose in action.  It is the bank who is subject to our right to call for the newly increased sum upon the deposits being made, yes.  It is the remittance provider who has agreed with us to make whatever arrangements the remittance provider wants to do ‑ it had nothing to do with us – to produce the outcome which is the one I have just described, the aggrandised credit. 

I have several times referred to 19 and 29.  They are of course fundamental, although I think not ultimately textually critical, but I do need to notice what I might call the syntax of them.  In section 19, the duty to make a restraining order – it is not a discretion – the duty to make it arises when, upon application by the proceeds of crime authority and supported by an officer’s affidavit which is accepted as sincere, there are made to appear to the court what are called reasonable grounds to suspect.

I interpolate, in other words, very decidedly not talking about the fact, not requiring the facts to be proved, just there are reasonable grounds to suspect that the property – hence the need to define the property – is - note the indicative mood and the present continuing tense - that the property is – that must mean at the time of the decision – the proceeds of, skipping along, an indictable offence.  “Indictable offence” is a defined term but in ways that will not surprise you, relevantly.  An alternative ‑ and it may be that both alternatives apply in this case – is the instrument.  So 19(1)(d)(ii), if:

there are reasonable grounds to suspect that the property is:

. . . 

(ii)      an instrument of a serious offence –

“Serious offence” is defined in section 338.  I will not take you to it but the specific items in (a)(ii) and in (ec) pick up matters which are involved in our case by reason of the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006, to which I will shortly come.  There is a serious offence in consideration in this case, just as there is an indictable offence.  In a section 19 restraining order, the only exception to the duty to make the order upon those matters appearing to the court is to be found in subsection (3), where one sees that for a subset – that is, indictable offences that are not serious offences:

the court is to be satisfied that it is not in the public interest to make the order. 

Section 29 is the jurisdiction which was invoked and is in question in this case.  It is an application brought by my clients.  It is an application under section 31 because it is made after a restraining order has been made.  Section 29 uses different language for a different approach to the – what I might call the criteria in question.  You see in subsection (1)(b) that the duty to make an excluding order for what is called a “specified interest in property” is if the court is satisfied that what is called:

the relevant reason under subsection (2) or (3) for excluding the interest from the order exists.

So, the court has to determine that one of those reasons, a sufficient one of those reasons exists which presumably means is true and applies.  Under section 29(2) those reasons are specified in a list and the relevant one is paragraph (d) because that is:

for a restraining order under section 19 –

which is our case and then the language is “the interest is neither” (i) or (ii).  So, a court has to be satisfied that the reason, namely, that the interest is neither (i) or (ii) exists, that is, is true or applicable.  Again, the word “is” stresses that we are now talking about moving on from the section 19 reasonable grounds, et cetera, to now the fact.  The question then under (i) or (ii) is proceeds of an indictable offence that is neither, in any case, proceeds of an indictable offence.  One can put to one side the other species of indictable offences in our case, or (ii) you must also be able to show it is neither “proceeds of an indictable offence” nor, and this is a serious offence case, an instrument of any serious offence.

KIEFEL CJ:   I think your clients accepted before Justice Simpson that they were proceeds.

MR WALKER:   Yes, and in the way I have already answered here, instrument also follows.  I am not quite sure ‑ ‑ ‑

KIEFEL CJ:   I think that was the Commissioner’s position, it was an instrument.

MR WALKER:   I was about to say I am not sure to what extent we are exactly coincident as for the reasons or grounds or way in which it becomes or is an instrument but I think we are agreed that it is. Perhaps I should come back to that later. One can see, therefore, the way in which section 329 and section 330, in particular, operates is against the background whereby there are these comprehensive provisions whereby, in particular, interests in property may be proceeds of an offence regardless of the state of mind or what I will call the innocence or the remoteness from any offending of the person whose property it is, the person whose property is about to be taken, not by way of tax or execution of a judgment but taken as part of the legislation concerning so‑called proceeds of crime.

That is the importance obviously of trying to give an understanding to section 330 which would allow some what I might call “tempering” of what is otherwise on the face of it an astonishingly drastic scheme, particularly, as there are, in respects to which I will come in a moment, what might be called statutory tracing provisions which ensure not always in technically artful language but, I think, with respect, effectively ensure that money in and out of banks, money in and out of purchase of property, et cetera, will do nothing but for the important provisions, will do nothing to alter the character of the proceeds as proceeds.

Indeed, as you know from the example of how the provisions were intended to work – to which everyone has made reference in writing – it is possible that, as it were, the proceeds multiply.  So that insofar as you can actually identify the possibility of the original proceeds still existing after they have been expended, they are still proceeds and so is the thing which was bought with them.  Even better – if one wants to reach a rapid fiscal surplus – even better, any account into which the money goes, the whole of the account if the money is above de minimis will become proceeds. 

So, proceeds can actually swell and multiply and, of course, still be proceeds and, therefore, mandatorily to be restrained and mandatorily – or not permitted to be excluded, notwithstanding the innocence totally of anything to do with crime or, indeed, notwithstanding any investigation of the state of mind of a person without the possibility of anterior crime. That would have been an odd scheme and it is not the scheme because section 330 operates powerfully, we submit, to attend to the plight of such people – in which category we include our clients.

Section 31 has two important provisions which work to alleviate what would otherwise be the probably intolerable task of proving a negative with respect to offences which are not only all Australian offences but many State offences and some foreign offences.  All of that is alleviated by, as it were, the pleading – see subsection (4). 

We have to nominate grounds and our grounds are to be found in our book of further materials, pages 3 and 4.  Then, subsection (6), perhaps more significantly for the current contest, the responsible authority – the respondent to the motion – the plaintiff for the restraining order – has to give us notice of any grounds on which it proposes to contest the application so long as they have had a reasonable chance to conduct examinations.  You will find that in the same book of further materials at pages 6 to 8.

Could I take you briefly to that reference in order to introduce the next provisions?  So, at page 7 of that book of further materials of the appellants, in describing the funds standing to the credit, et cetera, being the property, as being:

wholly or partly the proceeds and/or instrument –

One sees the interchangeability:

of an indictable and serious offence . . . the offence being dealing with money that is reasonably suspected of being the proceeds of crime and at the time of dealing the value of the money is AUD100,000 or more, contrary to section 400.9(1) of the CriminalCode -

Your Honours know of the facts in this case that no one is saying – I would like to put it this way – of course, no one is saying that our clients committed any such offence.  It is not obvious that it is said that anybody has been designated as having been those who had committed that offence.  It is an anterior state of affairs in order for them to be proceeds to be dealt with.

The value of money – $100,000 or more – we are left to wonder.  There is no specification of how that comes about.  Is it aggregating smurf amounts?  It is not clear.  In relation to them being reasonably suspected of being the proceeds of crime, there is a very important – what I will call deeming provision in section 400.9 – I will not go to it now – which evidently seeks to advance the proper legislative purpose obviously of discouraging attempts to evade the tracing of cash amounts. 

Why I will not go to that in detail now is I draw to attention that you find that provision on page 7, but you will not find it talked about in the Court of Appeal and you will not find it subject of any submissions by our friends in this Court.  Now, I get no point by saying it has been abandoned.  All I can say is there does not seem to have been any argument that has been arrayed against us, notwithstanding this notice, that turns on any particular aspect of section 400.9.  That does not matter, so long as ‑ ‑ ‑

GORDON J:   They have 43.

MR WALKER:   I was about to say they have the next one.  It is not so much 43 as 142.  It is really 142 which turns on 43.  So the Anti‑Money Laundering and Counter‑Terrorism Act 2006 is the next one.  It is said that the restrained property, that is the money standing to the accounts:

is wholly or partly the proceeds and/or instrument –

again interchangeable:

of an indictable and serious offence or offences . . . the offence being the depositing of money into bank accounts –

and then comes the language of section 142:

for the sole or dominant purpose ‑

So we are now talking about an actual psychological state of affairs:

the depositing of money into bank accounts for the sole or dominant purpose of ensuring, or attempting to ensure, that the money involved in the transaction was deposited in a manner and form that would not give rise to a threshold transaction that would have been required to have been report under section 43 . . . contrary to section 142 - 

I will go to those provisions in just a moment  So there the case is narrowed or focused to the offence, what I will call the predicate offence being the depositing of money with a nefarious purpose and by reference to manner and form.  As you will see, the provisions in question look to patterns of conduct not to isolated episodes.

May I then take you to, I think it is volume 1 of the joint book at tab 6, to the extracts from the Anti‑Money Laundering and Counter‑Terrorism Financing Act.  Section 43 imposes a reporting obligation on a so –called reporting entity, for the present purpose treated as the bank, which turns on what is called the provision of the service involving a threshold transaction.  One can treat that for present purposes as a cash deposit of 10,000 and then there are obligations concerning notification to AUSTRAC.

Section 142 is, I suppose, what a Parliament has to do once you have set up a system whereby not all transactions have to be reported.  Section 142 uses the concept of non‑reportable transactions, which is defined in section 5 – I do not need to take you to it.  It actually means what you might imagine – namely, a transaction which, by reason of its amount, is not required to be reported under section 43.

In order to deal with the fact that you have said that some do not have to be reported and it is still legal to make such deposits – it is not illegal to deposit cash in a bank account – in order to deal with the obvious possibilities that arise, one has an offence created by reference to what might be called the style of the conduct.

These provisions employ one of the drafting techniques that your Honours will have seen.  It posits a so‑called first person.  Frustratingly, there is no second person named and there is not even a third party.  There really is only a person.  A person commits an offence if the person is, or causes another person to become, a party.  That presumably means that there is some other party or parties – a party to two or more non‑reportable transactions.

I think one can take it as common ground that one is, or causes another person to become, a party to a non‑reportable transaction if one deposits money of that amount in the other party’s account.  That will be a non‑reportable transaction.  As well, one would have thought, if the account is a bank account, the bank becomes a party as well.  There are probably always three parties. 

Then comes the gravamen of the offending.  Having regard to the manner and form in which the transactions were conducted, including – so it is a broad inquiry – the subsection (3) matters ‑ and dropping down to subsection (3), one sees:

(a)the value of the money or property involved in each transaction;

(b)the total value of the transactions –

plural, so we are talking about a pattern:

(c)the period of time over which the transactions took place –

There have to be two or more:

(d)the interval of time between any of the transactions;

(e)the locations at which the transactions took place.

Your Honours will recall the scatter of bank branches referred to in the facts in our case.  Having regard to the manner and form and any explanation made by the person as to the manner and form:

it would be reasonable to conclude –

another of those grabbed passive voices:

that the first person conducted, or caused the transactions to be conducted, in that manner or form for the sole or dominant purpose - 

So you are talking about an explicit or conscious state of mind.  Somebody caused this to happen.  They were not, as it were, accidents or the outcome of other people’s decisions.  Someone caused them to happen for a purpose.  It is all actual state of mind:

of ensuring, or attempting to ensure –

This is now the content of the purpose:

that the money or property involved in the transactions was transferred in a manner and form that would not give rise to a threshold transaction that would have been required to have been reported under section 43.

It is our submission, as your Honours appreciate of course – and this is serving a double purpose for some of our other points as well – it is, we submit, plain to demonstration that that could only be true if you were aware of the requirement.  How else could you ever form a state of mind which includes a purpose of evading that requirement?  One sees the relative seriousness of the offence, hence the epithet “serious”, serious is the threshold three years.

Subsection (2) is one that Justice Simpson referred to at trial, making the remark it was curious or significant – it did not really go anywhere in her Honour’s reasons – that we had not undertaken to discharge the subsection (2) onus. 

KIEFEL CJ:   Mr Walker, you are not contending that her Honour was wrong to hold that there was the relevant ground for the section 19(1) order, namely that section 142 might be engaged?

MR WALKER:   No, but not against us.  We are not 142.

KIEFEL CJ:   No.

MR WALKER:   That is why I am remarking – it is not to the point that we did not set out to, as it were, exculpate ourselves under section 142(2).  We were never in the gun for 142.  It is not suggested that we are the people who have committed a 142 contravention.  It is the cuckoo smurfs who did that.

BELL J:   You are taking us to this in relation to the question that is alive concerning reasonable suspicion.

MR WALKER:   That is right, it is going to give meaning to 330(4)(a) and that includes within it very importantly the question of reasonable suspicion, yes, your Honour.  What I am pointing out is what the offence was of which the property was said to be proceeds or instrument – proceeds and/or instrument, they said - the offence that was argued, the offence which was the subject of holdings which, as the Chief Justice points out, we do not cavil with, was an offence under section 142, not by us; by others. 

Now, why I observe that of course you would need to know of the requirement in order to have a purpose to evade it is that there is an echo of that importantly in the reasonable suspicion provisions which apply differently to us with respect to the possibility of there having been the relevant anterior offending, to which I will be coming.

EDELMAN J:   In both cases there may be questions of – what do you mean by “know of it”?  Do you mean that they need to know of the section number and the precise wording of the section or an offence of that nature, or the existence of some form of requirement that is intended to be evaded?

MR WALKER:   It will not be the first of those.  It may be the last and the second last of those.  But I will certainly not agree to the first of those.  That would be impossible.  But can I hold back at the moment on developing my attack on the ignorance of the law as no defence line of reasoning.  I hope that is not a travesty of what I am going to criticise. 

Could I come back then to 330, please, in order to focus on amidst all of these nested definitions, including by words that themselves have defined terms, to draw to your attention the notorious expression that is not defined unless it is, as we submit in reality – it should be regarded as being understood by the words in the provision, and that is of course “third party”. Under section 330(4)(a), property only ceases to be proceeds or an instrument if it – that is, the property – is acquired by a third party. Then:

for sufficient consideration without the third party knowing, and in circumstances that would not arouse a reasonable suspicion, that the property was proceeds of an offence or an instrument of an offence –

In this case, I suppose we have to deal with both.  That is why it is significant given section 31(6), that is why it is significant to know what are the offences that were said to be setting the issues for the section 29 argument and that is why it is significant to point out, we think, that there is only one that really was assisted in and that is the structured transactions offence. 

Now, I have drawn to attention the limited way in which the compulsion to make a restraining order might not attach – I should complete that by reference as well to – without taking any time about it, section 72, which has nothing to say about a case like ours but does say something by way of alleviation of harshness and, in particular, section 77 but it is to be recalled that section 77 which is the so‑called compensation order, getting back I will called the untainted proportion of the property, that does not apply if it is an instrument and as I understand it, the claim is this is an instrument. 

So by the time we get to section 330 which is, we are told, by 338 with 329 where you find the meaning of “proceeds” and “instrument”, and we know that the character of property as such is the key requirement for getting an exclusion order, then, in our submission, one would expect to find in a provision like 330(4) cases that Parliament says ought not to be the subject of these virtually mandatory takings.

I have not gone to the forfeiture provisions but your Honours know how the scheme operates.  Ultimately there can be forfeiture and if somebody has not applied to exclude, then forfeiture, as it were, precedes a bit of a sleigh ride otherwise there has to be actual proof of that which had only once been the subject of reasons to conclude.  So, subsection (4) has at its very opening, we accept, the word that divides the members of the Court of Appeal and upon which we lost, that is, “ceases”. 

The argument which is, we accept, linguistically attractive at first reading is that something can only be said to cease if it previously existed.  So, a state of affairs ceases is an irresistible implication that the state of affairs previously did exist.  However, in our submission, that temporality requirement which is ultimately partially accepted and partially not accepted by the majority in the Court of Appeal is one which is capable, of course, of producing extraordinary harshness of a kind that makes one wonder which is, of course, the gravamen of Justice McColl’s contextual and purposive reasoning which we, with great respect, adopt and urge as being correct on this point.

That is why the majority was driven, with respect, to a gloss which is non‑textual.  I do not know that I could call it anti‑textual, but certainly there are no words to justify the notion of asking the relevant question about the occasional means by which the property first became tainted.  One would expect in an act which, as I shall show, is at pains to point out successive evolutions in the property and how it is dealt with in order that it retain, as it were, its character of, ultimately, forfeitable proceeds, it is striking that one does not find any words that attaches anything special to the first time something becomes proceeds.

One sees, for example, in section 330(1) – which I stress cannot be exhaustive – we know it is describing something subsequent because it talks about property becoming proceeds if it is derived from a disposal of proceeds so it is obviously subsequent. It is including, or extending, the definition in 329(1) which is the primary substantive definition of what proceeds are. Then you see the kicker at the end of subsection (1) – including because of the previous application of this section - in other words it goes on and on and on. It rolls over through as many disposals or other dealings with proceeds of the offence as might have happened and partial derivation, leaving aside de minimis contribution to an item of property, partial derivation means that the proceeds can, as it were, snowball.

Subsection (2) has a similar pattern for instruments.  Again, it is obviously not exhaustive of how property becomes an instrument.  The primary provision is section 329(2) but this is an extender.  It becomes an instrument if it is derived from the disposal of an instrument.  So, you can become an instrument after the offence which, in our submission, is an example of the capacity of Parliament to perform the impossible.  But it is defined, obviously so as to ensure that something in the nature of tracing will continue and there is no suggestion here that there is any special consideration being given to the initial occasion.

Again, subsection (2) ends with the reminder that this can go on and on and on, including because of a previous application of this section.  That is not just one previous application, it is as many as you need.  Then, subsection (3) – in case derivation, in case partial, in case indirectly had not done the trick subsection (3) insists that property remains proceeds or an instrument even if it is credited to an account.

Now, that might be shorthand.  That might be quite difficult.  In one sense the only property that lends itself to being credited to an account will be something that in colloquial terms we would call money.  But, in any event, one then collapses into complete generality.  It remains proceeds even if it is disposed of or otherwise dealt with.  Again, there are borderline absurdities in that because if it is physical property and it is dealt with by complete destruction it is impossible to know what Parliament intended by the notion of it remaining proceeds or an instrument.

In any event, one can see that these are perhaps over‑anxious legislative attempts to ensure that there can be tracing and that the ingenuity or busy‑ness of the commercial or other dealings with property will not defeat the evident public good of ensuring that nobody profits from their crime.  It is in that context that one sees in subsection (4) a collection, well named, a miscellany of cases not intended to be caught by what would otherwise obvious be over‑inclusive comprehensive tracing provisions. 

It is for those reasons, in our submission, and for the reasons that Justice McColl has identified, the word “ceases” really needs to be read as conveying, and conveying only, that a state of affairs does not exist, the state of affairs being property having the character of proceeds of an offence or an instrument of an offence.

When one looks at the substantive provisions of paragraph (a), so “acquired by a third party for sufficient consideration”, et cetera, et cetera, it is impossible to understand the purpose of excluding an acquisition by reference to whether or not it was the transaction by which the property first became tainted, that is, the merits in what I will call social terms of removing from the ultimate forfeiture in the public interest of somebody’s property would appear to be indifferent for a person who fits within paragraph (a) regardless of when in the sequence of dealings by the offenders that person’s property first became tainted.

Rather, one can see that the other and more difficult linguistic reasoning held against us says, “In any event, you can’t be a third party”, and if that be true for the reasons that we understand it to have been held against us, then one can say that paragraph (a) is an extremely pale statutory limitation of the equitable concept of a bona fide purchase of a value without notice.  That is for these reasons. 

If, in order to be a third party, you must not be party to any relevant transaction, that is, a transaction which renders something proceeds by being an offence, for example, by another person, then regardless of your innocence and regardless of the fact that you had no control over the conduct in question - you cannot stop somebody from depositing money in your account – you will never get the benefit of what Justice McColl calls this carve‑out.

Now, obviously it is within power for Parliament, deliberately or otherwise, to enact a very harsh regime but, in our submission, when one sees the evident intent of section 4(a) for a carve‑out for a class described in an expression that starts with the undefined term “third party”, one would question, with respect, any, what we would call, circular reasoning by which “third party” is understood to mean somebody who will rarely fit what might be called a paradigm case. 

The idea of third party has produced, as your Honours have seen in the writing in this case, two principal what I will call paraphrases or explanations.  The first has to do with arm’s‑length.  We would, with respect, doubt whether third party has anything to do with arm’s‑length.  If anything, arm’s‑length is a quality of the dealings between two parties, what might be called the first and second party, the party and the counterparty. 

A third party ordinarily conveys a relation to other parties which is not so direct but does have a connection either affecting or affected by the relation of those other parties, the classic case being in ordinary colloquial language the state of affairs that exists when you have two parties, insured/insurer, and a third party, the person who makes a claim on the insured.

GORDON J:   Do you accept that the provision here was intended to deal with someone who sells the family home to a person and in exchange receives what that person does not know to be funds which have been laundered?

MR WALKER:   One hopes so, yes, but not confined to that.

GORDON J:   No, no, not confined but it is in a sense what, back when the Act was drafted, people may have been thinking about.

MR WALKER:   There may be an assumption there, your Honour.

GORDON J:   At least one category of conduct.

MR WALKER:   Yes.

GORDON J:   If you apply the construction that you are now putting on this section, in the context of that person’s relationship to the transaction, does not it require you to think about what it is is the relevant thing that you are comparing it to – in other words, it is dealing with property.

MR WALKER:   Yes.

GORDON J:   The proceeds themselves are, on the face of it, proceeds of crime even though the innocent party has received them.  It is debited to a bank account; they are caught.

MR WALKER: And one expects - that is why we say section 330 is not some small, incidental provision. Subsection (4) contains carve‑outs that would render that extraordinarily drastic regime perhaps more tolerable.

EDELMAN J:   It becomes almost intolerable, does it not, unless you take the approach, contrary to the way you opened your submissions, of saying that there is only one transaction rather than two relevant transactions here.  In other words, is not it the case that when the smurfs deposit money in the bank that is one relevant transaction which I understood your submissions to begin with?

MR WALKER:   Yes.

EDELMAN J:   There is title to the notes that pass to the bank.

MR WALKER:   Yes.

EDELMAN J:   Then there is a second transaction by which the bank, which receives ownership and title to those notes, then credits the accounts of your clients, in which case, if one is speaking about transactions, the bank is not a third party.  The bank is a party to the transaction.  It might be a third party to the offence if it has no notice.

MR WALKER:   That is one of the reasons why, as your Honours know, we argue that the only sensible way to make sense of this – sorry, that is an overstatement.  A far preferable way of interpreting these words that present constructional choices is ultimately to understand “third party” as somebody not party to the offending.

EDELMAN J:   But it would mean, would it not, that unless one construed it that way ‑ ‑ ‑

MR WALKER:   Yes, the bank ‑ ‑ ‑

EDELMAN J:   ‑ ‑ ‑ the bank would have no defence, no matter how innocent or how many precautions the bank had put into place.

MR WALKER:   And could be asked for all of its property.  Well, certainly the whole of the account into which banknotes went, depending on how the bank actually deals, internally or externally, with its funds.

EDELMAN J:   Or the whole of the value of the notes that it deposited with it.

MR WALKER:   And if it is deposited into an account, and that is a very large account ‑ ‑ ‑

GORDON J:   It is tainted.

MR WALKER:   The whole account is tainted.

KIEFEL CJ:   But even if one accepted that one might construe a “third party” to mean a third party to the offences the question would remain whether that is sufficient. 

MR WALKER:   You still have to get a tick in every box – yes, yes, yes, yes.

BELL J:   The difficulty, I think, that troubled Justice Simpson and the majority in the Court of Appeal was, given the requirements both for sufficiency of consideration and absence of basis for reasonable suspicion, what work on your interpretation is “third party” doing there?

MR WALKER:   That is one of the reasons why, as your Honours know, we have offered, tentatively, the explanation of this undefined term, as one the meaning of which actually appears from the particular provisions of paragraph (a).

GORDON J:   That is why I was trying to, I think not very well, put to you in a sense if one starts with the opening words of 330(4) the answer to what is a third party and the relevant identification of the property being acquired, as Justice Bell says, sufficient consideration in circumstances that would not arouse a reasonable suspicion may itself identify whether or not that person is a third party.

MR WALKER:   Yes, and that is one of the ways in which, among other things, you come up with the conclusion that well, one thing it for sure is a third party cannot be party to the offending because if you are party to the offending you are going to get big Xs in two boxes.

GORDON J:   It is not a complete answer.

MR WALKER:   No, it is not a complete answer.  I have to face the fact that that is an argument that involves, as it were, inserting the phrase after a “third party” “being a person who” or, perhaps giving into my prejudice to get rid of legislative words rather than add them, if you simply changed “a third party” to “a person”.

GORDON J:   Which, I think, is the proposition I have put to you.  One could, in effect, substitute the language and achieve the same objective.

EDELMAN J:   Descriptive.

GORDON J:   The descriptor.

MR WALKER:   It is, as it were, a phrase in apposition after the expression “third party”.  Perhaps you could just put it in shorthand, namely, “a person who”.  But, in our submission, whichever route you go, that is, whether you simply say well “third party” just means not party to the offending or whether you say that “third party” is a person who can satisfy what follows introduced by the word “for”, that is, looking to the circumstances of the acquisition, you get to the same desirable state of affairs read purposively, namely, that people who could do nothing about the circumstances in which they came to acquire property having been previously tainted or – and, in this case, they were instruments before the deposit - in such a case there will be with these rather strict safeguards that paragraph (a) imposes a capacity to prevent what would otherwise be a revolting prospect of forfeitures left, right and centre, even more revolting when one understands that none of this will happen unless there is an application made by an executive officer.  So this is not a machine that grinds people up, which would be awful enough.  This is a machine that selectively grinds people up, which has its own horrors, with respect.

EDELMAN J:   In a sense, your submission does not leave much for “third party” to do, but the contrary submission gives it so much to do that it just overwhelms the rest of the provision and in the one circumstance where it might really matter.

MR WALKER:   Yes.

EDELMAN J:   For example, in relation to banks.  It provides banks with no defence.

MR WALKER:   That is right.

EDELMAN J:   Even without any reasonable suspicion.

MR WALKER:   Yes.  So that banks would be left to depend upon the charitable disposition of those in authority in relation to banks.  Is that a convenient time, your Honour?

KIEFEL CJ:   Yes, thank you, Mr Walker.  The Court adjourns till 10.00 am tomorrow.

AT 4.15 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 8 AUGUST 2019