New South Wales Crime Commission v Sun

[2015] NSWSC 1178

Supreme Court

New South Wales

Medium Neutral Citation:	New South Wales Crime Commission v Sun [2015] NSWSC 1178
Hearing dates:	10-13 August 2015 and 2 October 2015
Date of orders:	12 October 2015
Decision date:	12 October 2015
Jurisdiction:	Common Law
Before:	Fagan J
Decision:	(1) Pursuant to s 22, Criminal Assets Recovery Act 1990 the interest of Xiao Yan Xu, the Second Defendant, in the property comprised in Lot 6 in Deposited Plan 872204 known as 14 Wondabah Place, Carlingford, New South Wales be forfeited to and vest in the Crown. (2) Pursuant to ss 27 and 28(3) of the Criminal Assets Recovery Act the Second Defendant pay to the Treasurer the amount of $1,136,707.57. (3) The Notice of Motion filed by the Second Defendant on 3 February 2014 is dismissed. (4) The Second Defendant pay the Plaintiff’s costs of the proceedings insofar as they relate to the Second Defendant.
Catchwords:	CRIMINAL LAW – proceeds of crime – application for assets forfeiture order – application for proceeds assessment order under – Criminal Assets Recovery Act 1990 (NSW), ss 22, 27– whether Defendant had engaged in serious crime related activity – obtaining financial advantage by false or misleading statement – Crimes Act 1900 (NSW), s 178BB – provision of false documents in support of loan application – evidence of expenditure – whether expenditure funded from sources unrelated to illegal activity
Legislation Cited:	Crimes Act 1900 (NSW) Criminal Assets Recovery Act 1990 (NSW) Evidence Act 1995 (NSW)
Cases Cited:	Briginshaw v Briginshaw (1938) 60 CLR 336 Elias v Director of Public Prosecutions (NSW) [2012] NSWCA 302 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) ALJR 170 New South Wales Crime Commission v Elie Akiki (Supreme Court of NSW, Greg James J, 3 December 2002, unreported) New South Wales Crime Commission v Kelaita [2008] NSWCA 284; (2008) 75 NSWLR 564 New South Wales Crime Commission v Shamaileh [2013] NSWSC 258 R v Maslen and Shaw (1995) 79 A Crim R 199 R v Walsh (1990) 52 A Crim R 80
Category:	Principal judgment
Parties:	New South Wales Crime Commission (Plaintiff) Andrew Sun (First Defendant) Xiao Yan Xu (Second Defendant)
Representation:	Counsel: C Dobraszczyk (Plaintiff) GD Wendler (Second Defendant)   Solicitors: New South Wales Crime Commission (Plaintiff) Audix Legal (Second Defendant)
File Number(s):	2009/291949
Publication restriction:	None

Judgment

1. By its Second Amended Summons the Plaintiff seeks two orders against the Second Defendant, Xiao Yan Xu, also known as Susan Xu. First, the Plaintiff seeks under s 22 of the Criminal Assets Recovery Act 1990 (NSW) (“the Act”) an assets forfeiture order in respect of the Second Defendant’s interest in a house and land at 14 Wondabah Place, Carlingford, New South Wales (“the Carlingford property”). The property was purchased by the Second Defendant under a contract dated 10 February 2008. The purchase was completed on 19 March 2008 and the Second Defendant has been registered as proprietor since that date.

2. The price of the property was $880,000 of which slightly less than $500,000 was advanced to the Second Defendant by St George Bank on security of a first mortgage. The deposit of $88,000 was paid as to $2,200 in cash and the balance by bank cheque (which had been purchased for cash). Most of the remainder of the purchase price came from an account at HSBC Bank, Burwood (New South Wales) branch in the name of the Second Defendant’s ex-husband Ling Rong Sun also known as James Sun.

3. After the St George Bank loan had been drawn down to complete the purchase on 19 March 2008, the loan account was debited each month with an interest charge, commencing at 8.24% pa and varying to as low as 5.76% pa by early 2009. Regular payments were made by or on behalf of the Second Defendant to keep pace with the interest charges. In addition substantial payments were made in reduction of principal. The total of all payments to the credit of this home loan in the period from when it was drawn down until 15 April 2009 (being the end of the period in respect of which the proceeds assessment order is sought) was $283,758.65. At that time the balance of the home loan owing to the bank was $240,224.48.

4. The latest date for which the evidence provides a balance of this home loan, secured by the mortgage over the Carlingford property, is 30 June 2009. At that date the amount owing was $238,632.26. Thus the value of the Second Defendant’s equity in the Carlingford property, which the Plaintiff seeks to forfeit, is the current value less the loan balance. There is no evidence of current value but it would likely be well in excess of the $880,000 paid nine years ago so that the equity must exceed $640,000.

5. Secondly, the Plaintiff seeks a proceeds assessment order pursuant to s 27 of the Act. That is, an order that the Second Defendant “pay to the Treasurer an amount assessed by the Court as the value of the proceeds derived by [the Second Defendant] from an illegal activity, or illegal activities, of [the Second Defendant] or another person that took place not more than six years before the making of the application for the order” (s 27(1)).

6. The application for this order was first made by the filing of an Amended Summons on 15 April 2009. The period to be examined as to whether illegal activities may have taken place is therefore 15 April 2003 to 15 April 2009.

7. If this order is to be made the Court will also be required to assess the value of the proceeds of illegal activity which have been derived by the Second Defendant. Under s 28 of the Act that is to be done in this case by treating all of the Second Defendant’s expenditure during the six year period as proceeds derived from illegal activity, subject only to deduction of expenditures which are proved to have been “funded from income, or money from other sources, unrelated to an illegal activity or activities” (s 28(3)).

Legal basis of s 22 forfeiture order: “serious crime related activity”

8. The Plaintiff’s claim for forfeiture of the Carlingford property pursuant to s 22 of the Act was first made by way of a second amendment to its Summons. The Second Amended Summons was filed on 17 December 2013. Forfeiture is sought in reliance upon subs (1A) (a) and sub s (2) of s 22 of the Act. The relevant provisions are as follows:

“22 Making of assets forfeiture order

(1) The Commission may apply to the Supreme Court for an order forfeiting to, and vesting in, the Crown specified interests, a specified class of interests or all the interests, in property of a person (an assets forfeiture order).

(1A) The application must specify that the interest in property is an interest in property of any one or more of the following kinds:

(a) an interest in property of a person suspected by an authorised officer, at the time of the application, of having engaged in a serious crime related activity or serious crime related activities,

(b) an interest in property suspected by an authorised officer, at the time of the application, of being serious crime derived property because of a serious crime related activity or serious crime related activities of a person,

(c) an interest in property held in a false name that is suspected by an authorised officer, at the time of the application, to be fraudulently acquired property that is illegally acquired property.

(1B) An assets forfeiture order may be made whether or not an application for a restraining order relating to the interests in property the subject of the application for the assets forfeiture order has been made or granted.

(2) The Supreme Court must make an assets forfeiture order in respect of an interest in property referred to in subsection (1A) (a) or (b) if the Court finds it to be more probable than not that the person whose suspected serious crime related activity, or serious crime related activities, formed the basis of the application for the assets forfeiture order was, at any time not more than 6 years before the making of the application, engaged in:

(a) a serious crime related activity involving an indictable quantity, or

(b) a serious crime related activity involving an offence punishable by imprisonment for 5 years or more.

(2A) The Supreme Court must make an assets forfeiture order if the Court finds it more probable than not that interests in property subject to an application are fraudulently acquired property that is also illegally acquired property.”

9. To succeed on this part of its case the Plaintiff must show, first that an authorised officer suspects the Second Defendant of “having engaged in a serious crime related activity” (subs (1A)(a)). Mr Spark, the Assistant Director, Financial Investigations, of the Plaintiff is an “authorised officer” as defined in s 4(1) of the Act, by virtue of a written general authorisation given to him by the Commission.

10. In an affidavit sworn 15 April 2009 he deposed that he then suspected the Second Defendant had falsely represented, amongst other things, her taxable income for the 2006 and 2007 financial years, in connection with her application for the $500,000 loan from St George Bank in February 2008. On that basis Mr Spark deposed to a further suspicion that the Second Defendant “had engaged in a serious crime related activity” in that she had offended against s 178BB(1), Crimes Act 1900 (NSW). In an affidavit sworn 7 November 2013 filed in connection with the Plaintiff’s application to re-amend its summons to claim the forfeiture order under s 22, Mr Sparke re-stated these suspicions.

11. Until its repeal with effect from 22 February 2010 s 178BB(1), Crimes Act was in the following terms:

“178BB Obtaining money etc by false or misleading statements

(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 5 years.”

12. The definition of “serious crime related activity” in the Act, so far as relevant for present purposes, is contained in the following parts of s 6:

“6 Meaning of “serious crime related activity”

(1) In this Act, a reference to a serious crime related activity of a person is a reference to anything done by the person that was at the time a serious criminal offence, whether or not the person has been charged with the offence or, if charged:

(a) has been tried, or

(b) has been tried and acquitted, or

(c) has been convicted (even if the conviction has been quashed or set aside).

(2) In this section, a reference to a serious criminal offence is a reference to:

…

(d) an offence that is punishable by imprisonment for 5 years or more and involves theft, fraud, obtaining financial benefit from the crime of another, money laundering, extortion, violence, bribery, corruption, harbouring criminals, blackmail, obtaining or offering a secret commission, perverting the course of justice, tax or revenue evasion, illegal gambling, forgery or homicide, or …”

13. An offence against s 178BB, Crimes Act as in force in February and March 2008 certainly would constitute “serious crime related activity” according to that definition. Mr Spark’s affidavits of 15 April 2009 and 7 November 2013 are thus sufficient to establish that the Second Defendant’s interest in the Carlingford property is an interest to which subs (1A)(a) of s 22 applies. It follows that under sub (2) the Court “must make an assets forfeiture order … if the Court finds it to be more probable than not that [the Second Defendant] was at any time not more than six years before the making of the application [that is, before 17 December 2013], engaged in … (b) a serious crime related activity involving an offence punishable by imprisonment for five years or more”.

14. Therefore, the sole issue with respect to the forfeiture order is whether the Court should be satisfied on the balance of probabilities that the Second Defendant committed an offence against s 178BB(1), Crimes Act in making her St George Bank loan application in February and March 2008. By the operation of s 28C(5) there is no reason why the Court should not make both the forfeiture order and the proceeds assessment order, as sought by the Plaintiff, if the statutory prerequisites for both are established. Nor would the making of the forfeiture order be required to be taken into account in assessing the amount to be paid under the s 22 proceeds assessment order: New South Wales Crime Commission v Kelaita [2008] NSWCA 284; (2008) 75 NSWLR 564. At the time of that decision the substance of s 28C(5) was enacted as s 27(6).

Legal basis of s 27 proceeds assessment order

15. So far as relevant to the present case s 27 of the Act provides:

“27 Making of proceeds assessment order

(1) The Commission may apply to the Supreme Court for a proceeds assessment order requiring a person to pay to the Treasurer an amount assessed by the Court as the value of the proceeds derived by the person from an illegal activity, or illegal activities, of the person or another person that took place not more than 6 years before the making of the application for the order, whether or not any such activity is an activity on which the application is based as required by subsection (2) or (2A).

(2) The Supreme Court must make a proceeds assessment order if the Court finds it to be more probable than not that the person against whom the order is sought was, at any time not more than 6 years before the making of the application for the order, engaged in:

(a) a serious crime related activity involving an indictable quantity, or

(b) a serious crime related activity involving an offence punishable by imprisonment for 5 years or more.”

16. The Plaintiff relies upon par (b) of subsection (2) of s 27. Again for the purposes of this section the Plaintiff’s case rests upon the provision of the false tax returns to St George Bank in February 2008 as constituting a breach of s 178BB(1) and therefore a “serious crime related activity”. This raises for decision the same issue as that identified in [14] above in connection with the forfeiture order which the Plaintiff seeks under s 22.

17. Section 28 provides for alternative ways in which the Court must assess the quantum of a proceeds assessment order under s 27. The Plaintiff has invoked subs (3), as follows:

“(3) If evidence is given at the hearing of an application for a proceeds assessment order of the amount of the defendant’s expenditure during the period of 6 years before the making of the application for the order, the Supreme Court is to treat any such amount as proceeds derived by the defendant from an illegal activity or activities, except to the extent (if any) that the Supreme Court is satisfied the expenditure was funded from income, or money from other sources, unrelated to an illegal activity or activities.”

18. The expression “illegal activity” in the closing words of s 28(3) has the following meaning by definition in s 4(1):

“illegal activity means:

(a) a serious crime related activity, or

(b) an act or omission that constitutes an offence (including a common law offence) against the laws of New South Wales or the Commonwealth, or

(c) an act or omission that occurs outside New South Wales, is an offence against the law of the place where it occurs and is of a kind that, if it had occurred in New South Wales, would have been an offence referred to in paragraph (b).”

19. If the question whether the Second Defendant committed an offence against s 178BB(1) is determined in favour of the Plaintiff then a s 27 proceeds assessment order will follow and it will be necessary to determine the amount of expenditure undertaken by the Second Defendant in the period of six years prior to 15 April 2009 (being the date upon which the summons was amended to claim the s 27 order). It will also be necessary to determine whether any of that expenditure was funded from legitimate sources.

Second Defendant’s application for exclusion of property from forfeiture

20. Also before the Court is a Notice of Motion filed by the Second Defendant on 3 February 2014 seeking an order under s 25(1)(a) excluding her interest in the Carlingford property from the operation of the assets forfeiture order which the Plaintiff seeks. Section 25 relevantly provides as follows:

“25 Exclusion of property from restraining order and assets forfeiture order

(1) If an assets forfeiture order:

(a) has been applied for but not made—a person whose interest in property might be subject to the order if made, or

(b) has been made—a person whose interest in property was forfeited by the order,

may apply to the Supreme Court for an order (in this section called an exclusion order) excluding the interest from the operation of the assets forfeiture order or any relevant restraining order.

(2) The Supreme Court must not make the exclusion order applied for unless it is proved that it is more probable than not that:

(a) in the case of an order relating to fraudulently acquired property—the interest in property to which the application relates is not fraudulently acquired property or is not illegally acquired property, or

(b) in any other case—the interest in property to which the application relates is not illegally acquired property.” [Emphasis added].

21. The Second Defendant relies upon subs (1)(a) and (2)(b). That is, she asserts her interest in the Carlingford property “is not illegally acquired property”. The meaning of that concept is given in s 9 of the Act. Subsections (1) to (3) of s 9 define “serious crime derived property”. Subsection (4) then provides that the meaning of “illegally acquired property” is to be ascertained by the substitution of certain expressions in subsections (1) to (3). The result of carrying out these substitutions is that, for present purposes, the applicable subsections of s 9 are to be read as follows. The phrases which have been substituted are highlighted.

“(1) An interest in property is illegally acquired property if:

(a) it is all or part of the proceeds of an illegal activity, or

(b) it is all or part of the proceeds of the disposal of or other dealing in illegally acquired property, or

(c) it was wholly or partly acquired using illegally acquired property.

(2) The references in subsection (1) (b) and (c) to illegally acquired property are not limited to illegally acquired property described in subsection (1) (a) but also include interests in property that are illegally acquired property because of a previous operation or previous operations of subsection (1) (b) or (c) or their combined operation.

(2A) Without limiting subsection (1), an interest in property is taken to be wholly or partly acquired using illegally acquired property if it is, or has been, subject to a mortgage, lien, charge, security or other encumbrance wholly or partly discharged using all or part of the proceeds of an illegal activity or illegally acquired property.

(3) Once an interest in property becomes illegally acquired property it remains illegally acquired property even if the interest is disposed of or otherwise dealt with (including by being used to acquire an interest in property), but this is qualified by subsection (5).”

22. The Court will not have power to exclude the Carlingford property from the assets forfeiture order sought by the Plaintiff unless the Second Defendant has proved it more probable than not that her interest in that property “is not illegally acquired property” within the above definition. This burden of proof will not have been discharged if the Plaintiff should prove that provision of the false tax returns to the St George Bank in February 2008 constituted an offence by the Second Defendant against s 178BB(1). That is for two reasons. First, if that offence occurred it was an “illegal activity” within the definition of that term quoted from s 4(1) at [18] above.

22. Secondly, if the offence was committed then the Second Defendant’s interest in the Carlingford property must be regarded as “proceeds” of that illegal activity”. “Proceeds” is defined in s 4(1) as follows:

“proceeds, in relation to an activity, includes any interest in property, and any service, advantage or benefit (including, without limitation, an increase in the value of an interest in property), that is derived or realised, directly or indirectly, as a result of the activity:

(a) by the person engaged in the activity, or

(b) by another person if the person engaged in the activity:

(i) intended for the other person to derive or realise (whether directly or indirectly) the interest, service, advantage or benefit, or

(ii) knew, or ought reasonably to have known, that the other person would be likely to derive or realise (whether directly or indirectly) the interest, service, advantage or benefit.”

Applying that definition, if the alleged offence against s 178BB(1) occurred then the Second Defendant’s interest in the Carlingford property was “derived …, directly or indirectly, as a result of the [illegal] activity: (a) by the person engaged in the activity …”.

24. Therefore, the outcome of the Second Defendant’s s 25 exclusion application again turns on the question whether the Court is satisfied that it is more probable than not that she committed the offence. If she did, the property is “illegally acquired” within the definition in s 9(1)(a) and the Court “must not” exclude it.

25. The Second Defendant’s Notice of Motion also seeks a declaration that she is not liable to pay to the Treasurer under a s 27 proceeds assessment order “any monies assessed as the value of proceeds derived from any alleged illegal activities of [the Second Defendant] that took place more than six years before the making of the application by the Plaintiff”. That is, illegal activities that took place earlier than 15 April 2003.

26. There is no legal basis for the Court to make a declaration in those terms or to similar effect. The necessary and sufficient condition for the Court to make a proceeds assessment order is a finding that the Second Defendant “engaged in … a serious crime related activity involving an offence punishable by imprisonment for five years or more” within the period of six years dating from 15 April 2003. If that finding should be made and if a proceeds assessment order should therefore follow, the terms of s 28(3) do not restrict the assessment to amounts derived from illegal activities undertaken during the six year assessment period. If money expended during the six year period cannot be shown to have been unrelated to illegal activity then it is to be counted, albeit that some or all of the illegal activity may have taken place prior to commencement of the six years.

Issues

27. From the above and from the way in which the case has been conducted the contested issues in the proceedings may be stated as follows:

1. whether the Second Defendant committed an offence against s 178BB(1) in February/March 2008;

2. the quantum of expenditure by the Second Defendant during the six years from 15 April 2003 to 15 April 2009 and

3. the proportion if any of that expenditure which was funded from income or from sources unrelated to illegal activity.

Background and activities of the Second Defendant and her family

28. The drawing of inferences relevant to each of the live issues will be affected by findings regarding the background and activities of the Second Defendant, her ex-husband James Sun, their son Andrew Sun and other persons with whom they have had relationships and dealings.

29. James Sun was born 7 September 1946 and is therefore now 69 years old. The Second Defendant was born 21 May 1949 and is approximately 2½ years his junior. They were married in Shanghai, China at some time in the period 1974 to 1976. Their child, Andrew Sun, was born 2 March 1976 and is therefore now aged 39 years.

30. James Sun gave evidence that he first came to Australia in February 1988, before the Second Defendant. His visa expired after six months but he did not depart voluntarily. He was deported to China in October 1988.

31. The Second Defendant arrived in Australia in about 1989. She has resided here since. She was not accompanied by her then husband when she commenced to live in Australia in 1989. He remained in China at that time. The evidence does not show whether their son remained with his father in China or came to Australia with the Second Defendant. He would have been only about thirteen years old when she arrived here. From 1989 the Second Defendant was employed in fairly low skilled capacities, for example as a sewing machine operator and painting T-shirts in clothing factories, over a period which she has variously said was the next nine years or the next fifteen years following her arrival. During those years there was a short interval, in the 1990s, when the Second Defendant lived in Samoa.

32. The Second Defendant has given evidence that in the mid-1990s for one and a half years she lived with her then husband and her son in Fiji and (for the greater proportion of this period) in Samoa. She said that in Samoa the family ran a takeaway food shop. According to the Second Defendant’s evidence they returned from Samoa to Australia in about 1997 and she and James Sun were divorced at about this time. She said that he remarried but subsequently divorced his second wife. Records from the Department of Immigration and Border Protection (“Border Protection”) show no movements through Australian ports for either the Second Defendant or James Sun between April 1995 and January 1998.

33. According to James Sun he went to live first in Fiji in 1990 and then in Samoa in 1991. He says that his wife spent only about ten months with him in Samoa on a Tourist Visa, whilst he was living there running the takeaway food business. He asserts that this was in the early 1990s.

34. James Sun claims that his wife subsequently sponsored him to come to Australia, in 1994. It is difficult to see how she could have done this as she apparently did not gain citizenship until 20 August 1997. That appears from a citizenship certificate. The Second Defendant asserts she became a citizen of Australia in 1992. I find that she is wrong about this significant event. James Sun’s recollection of when he separated from and divorced his wife was about 2001.

35. The Second Defendant has lived in Australia from January 1998 through to the present time, with the exception of calendar years 1999 and 2002, for most of which she was in China.

36. After her factory work in Australia the Second Defendant ceased all employment and commenced to receive Commonwealth benefits from Centrelink. She has said that this was from 1998 but, by reference to Centrelink records, it was actually from 2001. In the three calendar years 2001 to 2003 she received over $10,000 per annum from Centrelink. In 2004 and 2005 it was over $12,000 per annum. In 2006 she received $6,826 up until she commenced to operate a brothel in about the middle of 2006.

37. The Second Defendant continued to carry on the brothel business from mid 2006 until 30 May 2009. In it she employed two and sometimes three girls. She gave evidence that the licence for the brothel “was in some other people’s name and I was just doing it in their name”. However it is clear from her personal income tax returns for financial years 2007 and 2008 that she was the proprietor. Those returns attached profit and loss accounts for the business and the Second Defendant returned the profit as her personal income.

38. The returns were prepared by the Second Defendant’s accountant Lei Xu, known as Esther Xu. They were signed by the Second Defendant. The Second Defendant declared her income, being predominantly the profits of her brothel together with some small amounts of interest, at $27,566 for financial year 2007 and $31,092 for financial year 2008. The Second Defendant acted in the capacity of manager, answering the telephone, greeting patrons, obtaining payment in cash or on credit card, keeping the records of the business and cleaning. At times her ex-husband James Sun performed these duties in her place. The brothel was conducted at 327 Belmore Road, Riverwood.

39. The Second Defendant and James Sun resumed cohabitation as man and wife from about 2004 or 2005 and have remained in that relationship to the present. The cohabitation must have been very much intermittent until 22 November 2007 because for most of the time between 2004 and that date James Sun was out of Australia, living in China.

40. Border Protection records show that apart from short visits, apparently to China, James Sun resided in Australia continuously from January 1998 to 29 September 2002. From the latter date he spent substantial periods of time, in blocks of between three months and eighteen months, in China, until 22 November 2007. Since then he has lived in Australia at least up to March 2009, with only short trips to China.

41. Some evidence with respect to the marital relationship of the Second Defendant and James Sun and regarding the dates between which they have lived in Australia or China or the South Pacific has come from examinations of them by a legal representative of the Plaintiff, before a Registrar, pursuant to the Act. The Second Defendant was examined on 23 February 2012 and James Sun on 7 June 2012. Evidence on the abovementioned subjects has also been given by their affidavits filed and read in these proceedings and orally, in cross-examination. Their evidence displays extraordinary variability and inconsistency.

42. From the manner in which the Second Defendant and James Sun were able to give responsive answers, mostly through an interpreter of the Mandarin language but with some short answers in English, I take both of them to be of reasonable intelligence. Such witnesses would be expected to be able to remember, at least to the year, when they were divorced, when they resumed cohabitation, when they ran a business together in the South Pacific, when James Sun remarried, when he divorced his second wife and so on. However the information on these subjects provided on the various occasions referred to above shows significant self contradiction by both witnesses. It also shows marked differences between the recollections of each of them as compared to the other. This is indicative of what I have found to be the high degree of unreliability of both the Second Defendant and James Sun. Even in relation to matters which are uncontroversial from the point of view of the Plaintiff and which have no direct impact upon the issues being litigated, neither the Second Defendant nor her ex-husband appears to have any capacity for accuracy in the recall of events and sequences.

The purchase and mortgage of the Carlingford property, February 2008

43. The Second Defendant has given evidence that in February 2008 she was living with James Sun and their son Andrew in rented accommodation in Canterbury Road, Campsie. At that date she wished to purchase a home and the lease of the Canterbury Road property was to be terminated. It was a lease for which Andrew Sun was the named tenant.

44. The Second Defendant inspected the Carlingford property first. James Sun then also inspected it. According to the Second Defendant’s accountant, Esther Xu, on 20 February 2008 the Second Defendant attended her office in Marrickville and sought her assistance in obtaining a loan for the purchase. In the course of their dealings Esther Xu and the Second Defendant spoke to each other in Mandarin. Esther Xu did not work as a mortgage broker but her accounting and tax agent business had an association with a Mr Frank Chen. He was a mortgage broker with whom Ms Xu shared clients. Mr Chen carried on his business at Kogarah.

45. Having considered the purchase price of the Carlingford property and the size of the home loan which the Second Defendant wished to obtain ($500,000), Esther Xu made a calculation of what income level would have to be demonstrated in order to satisfy the lending requirements of St George Bank. Esther Xu calculated that earnings in excess of $60,000 per annum for the previous two financial years would have to be shown. She was aware, from having prepared in October 2007 the Second Defendant’s tax return for the 2007 financial year, that this requirement could not be met. Taxable income of only $27,566 had been declared.

46. According to Esther Xu, she told the Second Defendant that her income was very low and that she would not, on the basis of it, be able to obtain the loan she sought. After discussion of “the various options”, the Second Defendant agreed that Esther Xu should prepare two false income tax returns, one for each of the 2006 and 2007 years, showing purported earnings sufficient to support the loan application.

47. Immediately following this discussion on 20 February 2008 Esther Xu printed a St George Bank loan application from an electronic form held on her computer. She then wrote in the Second Defendant’s particulars from information provided to her. This included showing the following assets:

Savings ANZ $100,993

Gift funds $247,000

Deposit paid $88,000

48. On the final pages of the application the Second Defendant’s full name and the date, 20 February 2008, were written in. The Second Defendant signed. Esther Xu then requested the Second Defendant to bring to her some additional documents which would be required in connection with the application.

49. The next day Esther Xu prepared false tax returns for the 2006 and 2007 years showing the Second Defendant’s taxable income as $60,449 and $63,895, respectively. The Second Defendant returned on 21 February and signed and dated each of these false returns. On this occasion either the Second Defendant or James Sun provided to Esther Xu the additional documents which she had requested. These included the following:

• Statement of account of the Second Defendant’s ANZ, Box Hill (Victoria) branch, Access Advantage Account showing a credit balance of $100,993.

• Two receipts from the sales agent of the Carlingford property showing that the deposit of $88,000 had been paid.

• A letter from the sales agent stating that rental return from the Carlingford property would be approximately $680 per week.

• A statement of an account in the name of James Sun at HSBC Burwood branch showing credits of $245,747.83 and US$2,436.45.

• A statutory declaration purporting to be signed by James Sun stating that he had given “my wife Mrs Xiao Yan Xu $248,000 in cash as an unconditional gift to go towards the purchase of the investment property at Carlingford”.

50. The document from the vendor’s agent concerning rental return on the Carlingford property was required because the loan application had been completed with a box checked to indicate that the usage would be “investment”. This was untrue. As the Second Defendant stated in evidence, the house was being purchased for her and her ex-husband and son to live in. She said it was her intention that her son’s wife would also live there. The misrepresentation about use and occupation of the property was material as the purported projection of rental income would be significant to the borrower’s capacity to service the loan.

51. By affidavit, verifying an annexed statement made to police assigned to the Crime Commission, Esther Xu gave the following evidence:

“Both of the incorrect income tax returns for 2006 and 2007 were prepared in my office with [the Second Defendant] present on 21 February 2008. Both tax returns were backdated to show St George Bank that they were prepared in the year they were due to be lodged. I signed and backdated both tax returns. [The Second Defendant] also signed and backdated both returns.

At all times [the Second Defendant] was aware that the 2006 and 2007 income tax returns that supported the home loan application were incorrect, because I had fully explained to her what was happening and she had to agree for the application to proceed.

I prepared and lodged Xu’s genuine 2005, 2006, 2007 and 2008 income tax returns [2005 and 2006 on 18 June 2008; 2007 on 2 October 2007 and 2008 on a date not disclosed in the evidence]. These taxation returns were prepared with [the Second Defendant’s] knowledge based on [her] business records. I had also explained them fully to her. [The Second Defendant] signed a declaration prior to me lodging the income tax returns with the Australian Taxation Office.”

52. On being called for cross examination on her affidavit Esther Xu objected to answering questions on the ground that the answers might incriminate her. The procedure in s 128, Evidence Act 1995 (NSW) was followed and the witness was informed she would be granted a certificate under s 128(7). Under cross examination she said that she had expected to receive commission in respect of the loan if it was approved. Her understanding was that St George Bank would pay Mr Chen commission of 0.7% of the principal amount loaned ($3,500) plus GST (a total of $3,850). She expected to (and did) receive from Mr Chen 80% of the amount obtained by him. That is $2,800 plus $280 GST, a total of $3,080.

53. In addition Esther Xu understood that Mr Chen would receive a trailing commission of a certain percentage calculated on the outstanding balance from time to time during the life of the loan. Again GST would be added to this and Esther Xu would receive from Mr Chen 80% of the trailing commission. Esther Xu thought the trailing rate was 0.25% but the St George Bank commission record suggests that the rate actually paid was 0.20%. Trailing commission was paid monthly.

54. After the false tax returns had been prepared and the other documents had been received from the Second Defendant or her husband, Esther Xu took all of this material to Mr Chen. On page 2 of the application he wrote in against the label “base income” the figure of $63,895. He took this from the false return prepared by Esther Xu in respect of the 2007 year. In relation to the Second Defendant’s statement of assets in the form, Mr Chen wrote in against the item “gift funds $247,000” the additional description “from husband”.

55. Mr Chen said, without challenge, that he did not know the income tax returns were false. The evidence did not show whether he knew that other particulars in the application were untrue, such as the ownership of two motor vehicles (which were misrepresented on the document as owned by the Second Defendant) and the purpose for which the house was being purchased (falsely represented as “investment”). No suggestion was put to him in cross-examination that he knew these particulars to be false.

56. Mr Chen lodged the application and supporting documents with St George Bank on 22 February 2008 under cover of a letter from his own office and a checklist. He had not met the Second Defendant or James Sun. He had only dealt with Esther Xu. Before passing on to the St George Bank the loan application and its supporting documents, Mr Chen observed that the statutory declaration of James Sun concerning his purported gift to the Second Defendant of $248,000 was signed but not witnessed. He is a justice of the peace. He completed the document as witness to the signature, although he had not in fact witnessed it.

57. In Esther Xu’s first statement to the Plaintiff’s officers dated 27 April 2009 she did not in terms assert that the Second Defendant was aware of and agreed to the preparation of the false returns for financial years 2006 and 2007. She stated this in a subsequent statement dated 16 June 2010, from which I have quoted at [51] above. The witness’ explanation of this was that what went into each of her statements consisted of answers she gave to the investigators’ questions. She said "If he didn't ask me, I didn't answer". After the witness responded to that effect the subject was taken no further in cross-examination.

58. I accept her explanation. The investigators taking Esther Xu's statement were obtaining evidence for their purposes, not hers. It is not uncommon in this situation that investigators may fail to ask a witness a question, the answer to which they subsequently perceive as important. In this case, they returned to the witness to supplement her statement more than a year later. The omission from the first statement of the passages quoted at [51] does not of itself give rise to any doubt about the truthfulness or reliability of that evidence.

52. Esther Xu said in cross examination that she was apprehensive when the investigators came to speak to her. She did not deny her involvement in helping the Second Defendant obtain the loan upon the basis of false information. It is apparent from her evidence that she was aware of her wrongdoing from the outset and was fearful when investigators arrived at her office and questioned her on the subject. I find it quite natural that she should have provided information only in answer to questions asked. The sequence in which material aspects of her evidence have been incorporated in successive statements is no reflection at all on her credibility generally.

53. In the witness box Esther Xu was evidently still nervous and uncomfortable about the fact that her evidence concerned an instance of serious dishonesty on her own part in the course of her professional work. But she was forthright and responsive to the questions. There is no inherent improbability about any of her evidence. She has not materially contradicted herself in any relevant particular in the two witness statements prepared by investigators, in her affidavit in these proceedings or in her oral evidence.

54. In cross-examination it was put to Esther Xu that she had falsified the two tax returns on her own initiative and without informing the Second Defendant. The motive suggested for this was the derivation of her commission. This is an unlikely scenario. It would have been self-evident to Esther Xu that the loan application and its supporting documents would pass out of her control once they were given to Mr Chen for submission to St George Bank. She could have no way of knowing whether the bank’s loan approval officers might communicate directly with the loan applicant, the Second Defendant, in the course of the approval process. Such communications might include a phone call or a face-to-face meeting with the Second Defendant, either alone or together with the broker, Mr Chen.

55. If the serious misrepresentations in the false tax returns were put forward without the Second Defendant's knowledge, exposure of the fraud would be a very high risk should the bank contact the Second Defendant. Esther Xu would have to have been extremely brazen, foolhardy or desperate to have issued the false returns without the Second Defendant's collaboration. From the content of her evidence, from her manifest appreciation of the seriousness of the issues and from her serious and earnest manner in answering questions she did not give me the impression of being a person who would have been so cavalier as to have taken such an obvious risk of exposure, primarily for the benefit of the Second Defendant, by acting without the Second Defendant's knowledge and agreement.

56. The Second Defendant's evidence was that her first contact with Esther Xu came about not by her attending Esther Xu's office to seek assistance with raising a loan, but by Esther Xu attending at the Second Defendant’s brothel in Riverwood. She said this attendance was unsolicited and that Esther Xu claimed to have heard through Xiang Ying Yu, also known as Annie Yu, that the Second Defendant “was seeking to raise a mortgage". She deposed that Esther Xu arrived at the brothel and “informed (sic) she could assist me in applying for and raising a mortgage".

57. According to the Second Defendant, Esther Xu asked many questions during this discussion. She was heavily pregnant at the time. She remained for over an hour. She wrote down the answers to the questions. The Second Defendant was unable to say on what paper or document these answers were written.

58. On the Second Defendant's version of events, she then attended Esther Xu's office the following day and signed a number of documents in a number of places, as directed by Esther Xu. She did not read the documents and was not aware that any of them was a false tax return. The Second Defendant disputed that she had been asked to bring to Esther Xu additional documents. However she accepted that she had been asked to bring and did bring a copy of her driver licence, certificate of citizenship and statement of her Access Advantage Account at the ANZ Bank.

59. The Second Defendant disputed that she had brought to Esther Xu’s office the statutory declaration purporting to be signed by James Sun, stating that he had given to the Second Defendant the sum of $248,000. She admitted that she had provided to Esther Xu the statement of James Sun’s account with HSBC Bank at Burwood (which showed a credit sufficient to cover a gift of $248,000). Despite the Second Defendant’s denials it seems highly likely that Esther Xu would have required the statutory declaration. Her understanding was that where funds were held in the name of another party, if the loan applicant wished to demonstrate that those funds were available to her she needed to prove a gift of them, to the Bank’s satisfaction.

60. The Second Defendant denied that Esther Xu even told her that she needed to demonstrate an earning capacity in excess of $60,000 per annum over the previous two years in order to satisfy St George Bank of her capacity to service and repay the loan. I prefer the evidence of Esther Xu on this. The Second Defendant was questioned about the fact that at a rate of anything over 7% per annum the interest on the proposed borrowing of $500,000, alone, would exceed $35,000, more than the whole of her taxable income as declared for the 2007 financial year. When asked on two occasions how she thought it would be possible to persuade the bank to lend $500,000 in those circumstances she had no satisfactory explanation. She suggested that she had expected her son and ex-husband would “help to pay off the loan as well” but gave no evidence of having understood that that was being communicated to the lender.

61. Esther Xu rejected the assertions that she had found out the Second Defendant was purchasing the property from a third party and that she had attended upon the Second Defendant unsolicited. I do not accept the Second Defendant’s evidence in this regard. She gave no evidence of any prior phone call from Esther Xu to arrange a meeting at the brothel concerning a possible loan application. It would have been a most unbusinesslike approach for Esther Xu to proceed from Marrickville to Riverwood, unannounced, in the hope of confirming that the Second Defendant was indeed the purchaser of a property and that she needed a loan and was willing to have Esther Xu prepare the application. I conclude that the Second Defendant has fabricated this description of the initial contact in order to bolster her account that every aspect of the loan application was undertaken on the initiative of Esther Xu. In that respect, the Second Defendant was at pains to emphasise, repeatedly, in her affidavit and in her oral evidence that she left the whole matter of the loan to Esther Xu and that Esther Xu invited her to do so and said “I’ll arrange everything for you”.

62. For the purposes of s 22(2) and s 27(2) I am comfortably satisfied that it is more probable than not that the Second Defendant concurred in Esther Xu and Frank Chen publishing to St George Bank the tax returns for financial years 2006 and 2007 which she knew to be false in the material particular that they grossly overstated her actual income in those years. I have had regard to s 140(2), Evidence Act 1995 and Briginshaw v Briginshaw (1938) 60 CLR 336 and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170 in applying the civil standard of proof for the purpose of making findings on this aspect of the case, in particular the findings in this paragraph and the next. I am similarly satisfied that the Second Defendant’s intent with respect to the publication of these false tax returns was to obtain for herself a financial advantage. Namely, the advantage of an advance of $500,000 from St George Bank. The obtaining of a loan constitutes a financial advantage for the purpose of this and similar sections: Elias v Director of Public Prosecutions (NSW) [2012] NSWCA 302 at [38]-[48].

63. I reject the Second Defendant’s denials of having knowingly authorised submission of the false tax returns in connection with the loan application. She is a witness unworthy of credit generally (see [42], [74]-[76], [129]-[133] and [135]-[145]) including in relation to this subject. Despite the Second Defendant’s submissions to the contrary I find that the representations about her declared taxable income were self evidently material to the lender, as having a bearing upon capacity to service the loan. The test of materiality is objective and does not depend upon evidence being called from the representee: R vMaslen and Shaw (1995) 79 A Crim R 199. I find that the materiality was well understood by the Second Defendant, upon the basis of Esther Xu’s evidence of conversations with the Second Defendant (which I accept) and on the basis of an inference as to what would be obvious to a businesswoman of reasonable intelligence and common sense in the Second Defendant’s position. The loan appears to have been adequately serviced. No evidence has been led to suggest that St George Bank suffered any disadvantage in consequence of the transaction. The commission of the offence does not depend upon proof of any financial or other loss to the victim: R v Walsh (1990) 52 A Crim R 80. I am satisfied that it is more probable than not that the Second Defendant committed an offence against s 178BB(1) by causing the false tax returns to be submitted to the Bank in support of her loan application.

Assessment of proceeds under s 28

71. The Plaintiff has sought to prove the following amounts of expenditure by the Second Defendant:

(1) Deposit paid on the Carlingford property - $88,000.

(2) Funds provided from the James Sun HSBC account for completion of the purchase of the Carlingford property - $292,229.93.

(3) Advance by St George Bank under the mortgage loan and applied to completion of the purchase of the Carlingford property – two bank cheques totalling $497,648.

(4) Stamp duty on purchase of the Carlingford property - $35,094.

(5) Conveyancing costs of the purchase of the Carlingford property - $1,480.

(6) Home loan repayments made between 4 April 2008 and 15 April 2009 - $283,758.65.

(7) Amount loaned by James Sun to Zhen Jia Yu (also known as Jack Yu) around January 2008 - $100,000.

(8) Two years rent in advance paid from the account of James Sun at HSBC in respect of a proposed new brothel at 15 Bearing Road, Seven Hills, on 11 June 2008 - $193,561.

(9) Contribution paid by the Second Defendant towards development of the proposed new brothel at Bearing Road, Seven Hills, in about June 2008 - $5,000.

(10) Balance of the excess of debits to the St George Bank home loan account, less credits, in the period April 2008 to 15 April 2009 - $1,455.14.

(11) Debits to the Second Defendant’s ANZ Access Advantage Account in the period 19 August 2003 to 9 April 2009 - $56,203.84.

(12) Debits to a Bank of China account in the name of the Second Defendant, between 12 August 2005 and 12 August 2009 - $134.50.

(13) Overseas money transfers effected by the Second Defendant between 16 August 2004 and 25 November 2005 - $13,100.

Total - $1,567,665.06

72. With respect to each of these items I will consider, first, whether there is sufficient evidence to establish that it constituted “expenditure” by the Second Defendant. In relation to the further issue, whether the source of the funds for each item lay in “income, or money from other sources, unrelated to an illegal activity or activities” (s 28(3)), the Second Defendant’s case is that many of her expenditures were funded from cash earned by James Sun in China or obtained by him from the sale of property there and physically carried into Australia. I will consider the sources of funds separately later in these reasons; the first question is whether the Second Defendant expended them.

Item (1): Deposit of $88,000

73. Receipts from the vendor’s agent showed that $2,200 of the deposit was paid in cash on 11 February 2008. The balance of $85,800 was paid by cheque on 15 February 2008. With respect to the first $2,200, the Second Defendant has deposed in her affidavit sworn for the purpose of these proceedings that she gave the real estate agent the money. She has not offered any explanation of the derivation of this sum, specifically. She previously said in her examination of 23 February 2012 that it was her husband who had taken the $2,200 to the agent. I reject that and rely upon the affidavit, which I take as a considered admission for the purposes of these proceedings. In the examination she could not recall where the $2,200 came from to pay the sales agent.

74. With respect to the balance of $85,800, this was given to the agent in the form of a bank cheque issued by St George Bank, Riverwood branch, on 14 February 2008. The bank record of the issue of the cheque shows that it was purchased with cash comprising a large number of, mostly, $100 dollar and $50 notes. In her examination on 23 February 2012 the Second Defendant said that this cash had been stored in a safety deposit box at the Bank of China, Haymarket branch. Her claim that she retrieved it from the safety deposit box on 14 February 2008 was refuted by an officer of the Bank of China. The officer deposed that although the Second Defendant had a safety deposit box there was no record of access having been given to it at any date between 26 March 2006 and 25 February 2008.

75. In these proceedings the Second Defendant deposed that she had reviewed the transcript of her examination by the Crime Commission with the assistance of an interpreter and, subject to two corrections not relevant to the $85,800 bank cheque, the transcript was correct. The Second Defendant’s affidavit was sworn on 14 May 2014. The affidavit of the officer from the Bank of China was sworn on 7 July 2014. When cross examined in this Court regarding the purchase of the bank cheque the Second Defendant said she took the cash from her home, which at that time was the rented property in Canterbury Road, Campsie, to purchase the bank cheque at the Riverwood branch of St George Bank.

76. I infer that the Second Defendant gave deliberately false evidence during her examination about withdrawing cash from the deposit box and that she has fabricated this alternative account of where the cash was stored in an effort to overcome the evidence from the bank officer. These are not matters which a person of the Second Defendant’s reasonable intelligence and understanding would forget or about which she would make an innocent mistake. She would remember where she had $85,800 stored in cash and where she had to transport it from and to, in order to buy a bank cheque to pay the deposit for her first and only purchase of a home.

77. On the above evidence I find that the $88,000 is an element of the Second Defendant’s expenditure during the relevant six year period. I cannot be satisfied on the balance of probabilities where the cash came from or was stored, only that the Second Defendant had it on 14 February 2008 and expended it on a bank cheque that day.

Item (2): $292,229.93 applied to settle purchase of the Carlingford property

78. Almost the entirety of Item (2), namely $292,024.09, was drawn from the HSBC (Burwood) account in the name of James Sun on 18 March 2008 and was used to purchase a bank cheque which was applied to the settlement of the contract for the Carlingford property. The bank cheque was in favour of ING Bank (Australia) Ltd, which I infer to have been the vendor’s outgoing mortgage lender. The settlement adjustment sheet for completion of the sale on 19 March 2008 shows that a larger sum was paid on behalf of the purchaser to ING Bank (Australia) Ltd. Namely, $676,693.09. The $292,024.09 was evidently part of this. The balance of the payout to the outgoing mortgagee was by way of cheque from St George Bank drawn down on the Second Defendant’s loan.

79. The payment of $292,024.09 would properly be characterised as expenditure of James Sun rather than of the Second Defendant but for the fact that James Sun gave this sum to the Second Defendant. $248,000 of it was made “an unconditional gift to go towards the purchase of the investment property at Carlingford”, by the terms of the statutory declaration which was provided to Esther Xu on 21 February 2008 and which she forwarded to Mr Chen for provision to St George Bank as part of the supporting documentation for the loan application: see [49], [54].

80. I accept Esther Xu’s evidence that this document, bearing the purported signature of James Sun, was provided to her by the Second Defendant on 21 February 2008. No competing explanation for how this document came into existence and came to be annexed to the loan application has been advanced in the course of evidence. The Second Defendant denied that she provided the document to Esther Xu and claimed she had never seen it until it was shown to her by her solicitors in connection with the present proceedings. I do not accept this. The Second Defendant is a highly unreliable witness and in contrast the manner of delivery and consistency of Esther Xu’s evidence made it entirely credible.

81. In an affidavit sworn for the purpose of these proceedings James Sun has said that he does not recall signing the statutory declaration and that it does not contain his writing. Nevertheless he deposed: “I give my wife all of my money because in Shanghai culture the wife takes care of the household including looking after all of the money”.

82. In oral evidence in this Court James Sun was more definite in denying that he signed the declaration. He produced his New South Wales driver licence (a copy of which became Exhibit A) in an endeavour to show that the signature on the disputed statutory declaration was dissimilar to his genuine signature. In fact, the comparison is not definitive and, on the other hand, the signature on the statutory declaration appears quite similar to his signatures on his affidavit.

83. I found James Sun a highly unreliable witness, for the reasons expressed in [42] and for the further reason of his giving quite unbelievable evidence with respect to his employment and earnings in China between 2002 and 2007 (see [146] to [156] below) and regarding the transport of those earnings, in funds converted to Australian currency, to Australia (see [157] to [168] below).

84. I find that the statutory declaration was drawn up by the Second Defendant, by her ex-husband or by someone else on their behalf and that the figure of $248,000 was written on it because that was approximately the credit balance of James Sun’s HSBC’s (Burwood) account at the date the document was presented to Esther Xu. I also find that James Sun gave to the Second Defendant the whole amount of the cheque which, at settlement, was drawn upon the HSBC (Burwood) account, namely, $292,024.09. In oral evidence in this Court the Second Defendant said, when asked where this sum came from to complete the purchase, “My husband gave it to me”. She went on to assert that the money had been at her home in cash. This latter assertion is not correct. The way in which credits to the HSBC (Burwood) account accumulated, to a sufficient credit balance to fund the settlement bank cheque, is described later in these reasons: [123]. The accumulation of the credit balance clearly did not involve a deposit into the HSBC account of cash, from a stockpile at the Second Defendant’s house or from anywhere else.

85. When James Sun was examined on behalf of the Plaintiff before the Registrar on 7 June 2012 he said that he gave the entire amount of $292,024.09 to his ex-wife to enable her to complete the purchase. He said he gave her “about $300,000”. I do not accept his evidence that the source of this money was earnings which he derived in China and which he carried back in cash, with the assistance of others, over numerous trips. However there is no reason to reject his assertion that he gave the money, whatever its true source may have been, to his former wife.

78. In oral testimony in this Court he gave the following answers:

“Q. … at page 44 of your examination … at the top of the page, there was a question ‘did you contribute any money to the purchase of that house?’ And your answer was ‘yes’.

A. Interpreter: Basically it’s all my money.

Q. All your money went to purchase the house. Is that right?

A. Interpreter: Yes.

Q. In your examination you said ‘Up to now, I think I’ve given to my current wife about $300,000. Actually, over $200,000’.

A. Interpreter: I never said its $300,000 or $200,000. All money that came here went to her.

…

Q. You are saying you gave all your money to your wife to purchase the Carlingford property.

A. Witness: yeah.

A. Interpreter: yes.

Q. How much do you say that is?

A. Interpreter: All money was mine. The loan was half a million.

…

Q. How much do you now say you gave to your wife in 2008 in connection with the buying of the house?

A. Interpreter: All the money I brought in here put at hers.

Q. How much was it?

A. Interpreter: Around $400,000.

…

Q. Can you just confirm how much you contributed to the purchase of that property?

A. Interpreter: All the money before settlement comes from me.

Q. Are you saying the amount that was paid on settlement, all of that amount came from you?

A. Interpreter: Yes.

Q. The evidence shows that just over $292,000 was paid on settlement for the purchase of that property. Do you understand?

A. Witness: mmm mmm.

A. Interpreter: yes.”

87. On the basis of these clear acknowledgements from both the Second Defendant and her ex-husband that the sum of $292,824.09 was a gift from him to her for completion of the house purchase, I find that the direct payment of the bank cheque drawn on the HSBC account in James Sun’s name in favour of the vendor’s outgoing mortgagee is properly to be characterised as an expenditure by the Second Defendant of money which had been given to her.

Item (3): $497,648 loaned by St George Bank, applied to purchase

88. The advance of $497,648 to the Second Defendant took place by way of St George Bank making payments at settlement at the direction of the Second Defendant as purchaser and borrower. A cheque for $384,669 went to the vendor’s outgoing mortgage lender, ING Bank (Australia) Ltd. Another cheque for $112,979 went to the vendor. According to ordinary legal concepts this is properly characterised as an advance of the whole $497,648 to the Second Defendant and expenditure on her part by way of the payments which were necessary to complete her purchase.

Item (4): Stamp duty of $35,094

89. $35,094 for stamp duty was paid directly out of James Sun’s HSBC Burwood bank account. He signed a request for a bank cheque to be drawn on that account on 7 March 2008. I will refer later in more detail to the evidence concerning this account but it is sufficient for present purposes to note James Sun’s evidence that the account “contains money my wife gave to my son to pay for stamp duty”. On that basis, it was James Sun who caused the bank cheque to be drawn, the funds upon which it was drawn were the Second Defendant’s and therefore it is an amount of expenditure by her and should be included in the quantification of the proceeds assessment order against the Second Defendant.

Item (5): Conveyancing costs, $1,480

90. The evidence includes a memorandum of costs and disbursements from the Second Defendant’s solicitors in relation to completing the purchase. The amount charged was $1,480 and it may be inferred that this was paid. However there is no evidence to establish by whom or in what manner it was paid. I therefore cannot be satisfied that this amount should be included in the quantification of the proceeds assessment order.

Item (6): Home loan repayments, $283,758.65

91. The total of $283,758.65 has been added up by the Plaintiff’s forensic accountant, Mr Seagrave, from all of the credits shown in statements issued by St George Bank to the Second Defendant concerning her home loan account. The account commenced with a debit balance of $500,000 on 23 March 2008. Presumably the difference between that figure and the sum which had been paid out at settlement on 19 March 2008, a difference of $2,352, was applied to loan fees or other expenses. The Plaintiff has not sought to bring that balancing figure into the summation of the Second Defendant’s total expenditure for the purpose of calculating the amount of a proceeds assessment order.

92. The earliest credit to the Second Defendant’s Home Loan Account at St George Bank was $100,000 paid on 4 April 2008. This sum was transferred from her ANZ (Box Hill) Access Advantage Account. Given that immediate source, the $100,000 must be regarded as expenditure made by the Second Defendant, for the purposes of s 28(3), at the time of it being credited to the St George Home Loan Account.

93. Many other credits to the St George Bank Home Loan Account can be matched to corresponding debits to a Freedom Offset Account in the name of the Second Defendant at St George Bank, Kogarah branch. The total of credits which can be traced to that source is $48,048. I find that credits in that total sum also constitute expenditure by the Second Defendant in the relevant period, as they have been transferred out of a bank account which was in her name and, so far as the evidence shows, under her control and they have been applied in reduction of a debt owed by her.

94. Taking together the two figures referred to in [92] and [93] above, the total of expenditure by the Plaintiff under this heading, which is to be brought to account in quantifying the proceeds assessment order, is $148,048.

95. The following credits to the St George Bank Home Loan Account during the period relevant for quantification of the Second Defendant’s expenditure are not traceable to any bank account or other source under the control of the Second Defendant:

20 Jun 2008 TELEGRAPH TFR - 15,975.00

20 Jun 2008 TELEGRAPH TFR - 12,995.00

20 Jun 2008 LOAN REPAYMENT - 21,030.00

13 Aug 2008 LOAN REPAYMENT - 42,210.65

20 Aug 2008 BACKDATE 21/08/2008 INWARD D/E - 3,500.00

13 Oct 2008 LOAN REPAYMENT - 40,000.00

Total - 135,710.65

96. In her examination on 23 February 2012 the Second Defendant was asked to explain these deposits. She asserted that one Li Tong sent the first of them, from China. She could not say why. She had no idea about the others (pp 57-58). In her affidavit read in the present proceedings the Second Defendant deposed that the first two deposits were from Li Tong and that the money “belongs to” James Sun. His affidavit is to the same effect. In oral evidence before me the Second Defendant said the third, fourth and sixth of these transfers came from James Sun. In the absence of bank transfer records, these various assertions are not sufficient for an affirmative finding of where or whom the money came from.

97. The credit of $21,030 on 20 June 2008 was a cash deposit directly to St George Bank. For this and the other credits listed in [95] there is no satisfactory evidence of who may have caused each deposit or transfer to be made. In particular there is no evidence that the Second Defendant was responsible or that the transfers came from a bank account or other funds owned by her or under her control.

98. I cannot be satisfied that any of these credits constituted expenditure by the Second Defendant herself, for the purpose of applying s 28(3). It follows that the only amount of expenditure to be brought into account in relation to credits to the St George home loan is the amount of $148,008 referred to at [94].

Item (7): Loan by James Sun to Jack Yu, $100,000

99. Annie Yu gave evidence on affidavit in the Plaintiff’s case to the effect that she has known the Second Defendant for fourteen years. They first met when the Second Defendant sought a position as receptionist in Ms Yu’s “massage shop” at Ryde. Having regard to the witnesses’ consistent usage of this expression, I infer that the massage shop was in fact a brothel. Annie Yu deposed that in January or February 2008 her brother Zhen Jia Yu, known as Jack Yu, requested a loan of $100,000. Annie Yu says that she contacted the Second Defendant about this and the Second Defendant agreed to lend and did in fact lend “a sum in the vicinity of $100,000”. Annie Yu was cross examined on behalf of the Second Defendant but she was not challenged about this aspect of her evidence.

100. An affidavit of Jack Yu was read by the Plaintiff and he was not cross examined upon it. He annexed to the affidavit a police statement in which he said that in about January 2008 he needed to borrow money to buy a house in Auburn. He said that his sister, Annie Yu “made arrangements for me to borrow some money” and that he thereafter met “a man who was a similar age to myself around Eastwood”. This man gave him $100,000 in cash. Mr Yu claimed to be unable to identify this person. He said that he spent some of the $100,000 on living expenses including rent and that he banked some of it into his ANZ Bank account.

101. I do not accept on the balance of probabilities that any of what Jack Yu has described, as set out in the preceding paragraph, ever occurred. Inherently it is highly improbable that one would borrow $100,000 from a man without ever finding out who he was. Jack Yu has given no evidence of any terms discussed with the man as to when the money was to be repaid or whether it was to bear interest. A borrowing from an unknown stranger with no discussion about such matters is highly improbable.

102. Further, the statement issued by the ANZ Bank in respect of the account into which Mr Yu says he deposited part of the $100,000 does not corroborate his assertions. Between 1 January 2008 and 19 February 2008 the following credits to that account are recorded:

01 Jan    Interest - 225.77

29 Jan    Deposit - 6,495.59

15 Feb    Card entry at Eastwood - 25,000.00

15 Feb    Card entry at Eastwood - 647,642.01

103. There is no evidence to suggest that a deposit of cash would be recorded by the Bank as a “card entry”. The only deposit which could have been in cash is that of $6,495.59 on 29 January 2008. This provides no support for the highly improbable transaction of an unsecured cash loan of $100,000 from an unidentified stranger.

104. The Plaintiff has relied upon the evidence of Annie Yu and Jack Yu as proving that this supposed $100,000 loan came from the Second Defendant and constituted an additional item of expenditure by her which should be added to the quantification of the proceeds assessment order. Apart from the fact that I am not satisfied that $100,000 was ever received into the hands of Jack Yu in January or February 2008, there are two further reasons why I would not add this sum to the quantification. First, if Jack Yu got this money there is not the slightest evidence to show that it came from the Second Defendant. Even if one were to assume that “the man” in Eastwood was either the Second Defendant’s ex-husband or her son, neither that nor any other evidence would show that the money came from the Second Defendant herself.

105. Secondly, the Plaintiff has adduced evidence to show that this sum of $100,000 was repaid. According to Jack Yu’s verified police statement he met “the man” again in Eastwood on 19 February 2008 and with him attended a branch of the ANZ Bank. There, Jack Yu effected a transfer to an account which “the man” nominated. The statement of Jack Yu’s ANZ bank account shows a “card entry at Eastwood” on 19 February 2008 for a debit of $100,000. This appears to correspond with a credit to the ANZ (Box Hill) Access Advantage Account of the Second Defendant on the same day.

106. The fact that this sum was transferred by Jack Yu to the Second Defendant’s ANZ account on 19 February 2008 provides no evidence that the equivalent sum had been advanced from the Second Defendant to Jack Yu at any earlier time. Even if it did, that would deny the characterisation of the original payment as “expenditure”. A short term loan does not fall within the meaning of “expenditure” according to the ordinary usage of the word or its meaning as it appears in the Act.

Item (8): Two years rent in advance for a new brothel, $193,561

107. Shao Ling Wang, known as Linda Wang, is another associate of the Second Defendant who also operated a brothel in 2008. The Plaintiff read her affidavit, wherein Linda Wang deposed that in 2008 she discussed with the Second Defendant taking a lease of a factory unit in Bearing Road, Seven Hills for the purpose of establishing yet another brothel. According to Linda Wang the Second Defendant agreed to provide funds for two years rent in advance on the Bearing Road premises and to incorporate a vehicle, AWX Trading Pty Ltd, to be the lessee and to apply to Blacktown Council for planning approval to conduct a brothel in the leased premises.

108. AWX Trading Pty Ltd was incorporated on 6 June 2008 with Linda Wang and the Second Defendant as equal shareholders in the whole of the issued capital. Linda Wang produced a two page Lease Advice from Bawdens Industrial (whom I take to be the lessor’s agents) in respect of a property at 15 Bearing Road, Seven Hills. This document is undated but it purports to set out particulars of a lease of the property to Linda Wang (not AWX Trading Pty Ltd) for two years commencing 14 June 2008. The use designated for the leased premises is “brothel”.

109. The annual rent stipulated in this Lease Advice is $67,575. A special condition is included, to the effect that the whole two years rent, including GST, plus $38,000 for outgoings (said to be a total of $193,561) must be “paid up-front”. This conflicts with other terms of the Lease Advice such as that a rental deposit of $7,845 is receipted as having been already paid, that one month’s rent is to be paid as bond and that “upon occupying premises after DA approval, Unconditional Bank Guarantee [must be provided] for four month’s gross rental + GST ($31,380)”. It also conflicts with a purported invoice from Bawdens Industrial, produced by Linda Wang and dated 14 June 2008, which breaks up the $193,561 somewhat differently.

110. Linda Wang also produced a lease, stamped and numbered as having been registered, from Whitmoro (Aust) Pty Ltd as lessor to AWX Trading Pty Ltd as lessee. The lease is dated 13 June 2008 and is for a term of two years from 14 June 2008. There is no satisfactory evidence to establish the street address to which this lease relates.

111. Linda Wang deposed that “Susan gave me a cheque for the rent in advance in the sum of $193,561. Susan told me the money had come from her son”. Statements of James Sun’s HSBC (Burwood) Account show that on 11 June 2008 $193,561 was withdrawn and applied to the purchase of a bank cheque in favour of Whitmoro (Aust) Pty Ltd. On Ms Wang’s affidavit evidence, planning approval for the proposed brothel was refused, appeals to the Land and Environment Court and to the Court of Appeal failed and in mid 2010 the lease was terminated. AWX Trading Pty Ltd was then deregistered. The $193,561 paid to Whitmoro (Aust) Pty Ltd would appear to have been lost without benefit to Linda Wang or the Second Defendant, on this evidence.

112. This payment of $193,561 was not expenditure by the Second Defendant but by her husband, James Sun, albeit that he apparently paid the money in the Second Defendant’s interests. It is not to be brought to account in quantifying the proceeds assessment order. Unlike the $292,229.93 considered at [78]-[87], there is no evidence that the payment of $193,561 from James Sun’s account was a gift from him to the Second Defendant.

Item (9): Contribution to development of new brothel, $5,000

113. When examined by counsel on behalf of the Plaintiff before a Registrar on 23 February 2012, the Second Defendant said that her son, Andrew Sun, had paid the $193,561 to Linda Wang for the rental of the premises at Bearing Road, Seven Hills intended to be a new brothel and that in addition the Second Defendant herself had paid $5,000 for some of the expenses of the proposed development. The Second Defendant said that she lost this $5,000, from which I infer that it was not repaid to her in any manner when the new business venture failed.

114. On the basis of these admissions by the Second Defendant I find that she expended the amount of $5,000 in or about June 2008 and that this amount should be included in the quantification of the proceeds assessment.

Item (10): Excess debits to St George Bank home loan account, $1,455.14

115. The Plaintiff’s forensic accountant, Mr Seagrave, has added up all the debits to the Second Defendant’s St George Bank Freedom Offset Account from its inception on 26 February 2008 to 15 April 2009 (ie, to the end of the six year period within which quantification is required to be made for the purposes of a proceeds assessment). The total of those debits is $49,503.14. In respect of the same period Mr Seagrave has added up all credits to the account, which total $48,048. The difference, being $1,455.14 is alleged by the Plaintiff to represent additional expenditure by the Second Defendant out of this account and the Plaintiff seeks to add it to the quantification.

116. This Freedom Offset Account appears to have been used for the sole purpose of making payments to the Second Defendant’s Loan Account in respect of the Carlingford property. The total of the credits, $48,048, is exactly matched by the total of the transfers from this account to the Loan Account, which have been counted as an element of expenditure by the Second Defendant as part of item (6) (see [93] and [94] above). The additional debits to this account, totalling $1,455.14 as calculated by Mr Seagrave, represent, for the most part, periodic service fees payable to the Bank. The amounts constitute expenditures by the Second Defendant and the $1,455.14 should therefore be counted in the quantification of the proceeds assessment order.

Item (11): Debits to Second Defendant’s ANZ Account, $56,203.84

117. Mr Seagrave has analysed the statements for the Second Defendant’s ANZ (Box Hill) Access Advantage Account from 8 August 2003 (after commencement of the six year proceeds assessment period) up to 15 April 2009 (the end of the six year period). All of the debits to that account in the six year period may be taken as expenditures by the Second Defendant, except to the extent that the debits may have been (a) already counted elsewhere or (b) merely transfers to other accounts in her own name. There are two such amounts: the $100,000 transferred to the St George Bank Loan Account on 4 April 2008 (already counted on the basis explained at [92]) and a further $10,020, also withdrawn on 4 April 2008, deposited to another St George Bank account in the Second Defendant’s name.

118. When allowance is made for those two transactions, the remaining total of debits during the six year period, which must be added in to the quantification of the proceeds assessment order, is $56,203.84.

Item (12): Debits to Second Defendant’s Bank of China account, $134.50

119. In relation to an account of the Second Defendant at Bank of China, Mr Seagrave has carried out an exercise similar to that referred to in relation to item (11) above. The figures are much smaller. Within the six year quantification period there were $234.50 of debits to this account, of which $95 was transferred to another account in the Second Defendant’s name and another $5 was subsequently reversed. The balance of debits, $134.50, is properly to be regarded as expenditure by the Second Defendant and included in the quantification.

Item (13): Overseas money transfers, $13,100

120. Within the six year quantification period, on six separate occasions overseas transfers of funds were made in favour of the Second Defendant’s ex-husband. The transfers were to China and the ordering customer was in each case the Second Defendant. These transfers were proved by the tender of a series of reports from AUSTRAC, the Commonwealth agency responsible for monitoring funds flows into and out of Australia. The total of these transfers is $13,100. These are properly characterised as expenditures by the Second Defendant and their total must be included in the quantum of the assessment order.

Origins of the expended funds

121. On the basis of the above findings the amounts expended by the Second Defendant during the six year period which is relevant to the proceeds assessment order are as follows:

(1) Deposit. The source of this was cash - $88,000.

(2) James Sun’s contribution at settlement of the purchase of the Carlingford property, from his HSBC (Burwood) account - $292,024.09.

(3) Loan funds applied to completion of purchase of the Carlingford property. The source was the St George Bank mortgage loan - $497,648.

(4) Stamp duty - $35,094.

(6) Repayments by the Second Defendant of the St George Bank Home Loan. Of this total the source of $100,000 was a transfer from the ANZ Bank (Eastwood) Account of Jack Yu of $100,000 on 19 February 2008. The source of the balance of $48,048 was the Second Defendant’s St George Freedom Offset Account, which in turn was funded by credits of an unknown source - $148,048.

(9) The Second Defendant’s contribution to the new brothel project at Bearing Road, Seven Hills. The source of this is not explained on the evidence - $5,000.

(10) Excess debits to the Second Defendant’s St George Freedom Offset Account - $1,455.14.

(11) Debits to the Second Defendant’s ANZ Access Advantage Account - $56,203.94.

(12) Debits to the Second Defendant’s Bank of China Account - $134.50.

(13) Transfers of funds overseas by the Second Defendant to James Sun - $13,100.

Total - $1,136,707.67

122. It is necessary to determine whether any of the above amounts were “funded from income, or money from other sources, unrelated to an illegal activity or activities”, so as to be excluded from the quantification of the proceeds assessment under s 28(3). I will consider first the items in respect of which there was specific evidence of a source, leaving until last a consideration of the residue of items which the Second Defendant has claimed were funded from a general pool of Australian currency, said to have been physically carried into Australia from China over several years.

123. With respect to item (2), (the $292,024.09 from James Sun’s HSBC account), when the bank cheque for that amount was drawn on 18 March 2008 there was a credit balance of $299,900.72 in the account. Mr Seagrave has analysed the statements of this account on a “first in first out” basis with the following results. First, on 13 February 2008 $150,000 was deposited to the account from PayPal Australia. Various drawings on the account between 13 February 2008 and 18 March 2008 left a remnant of that deposit, namely $78,516.13, as a constituent element of the credit balance of the account as at 18 March 2008. Secondly, $801.95 for interest was credited to the account on 28 February 2008. Thirdly, on 12 March 2008 $9,000 was transferred to the account from Hao Pu. Fourthly, a further deposit of $150,000 from PayPal was recorded on 14 March 2008. Fifthly, numerous deposits from eBay sales between 14 February 2008 and 17 March 2008 contributed another $53,706.01 to the credit balance standing at 18 March 2008.

124. James Sun has given evidence that although this account was in his name it was actually operated and controlled by his son Andrew. Neither party has adduced evidence from Andrew Sun. The Plaintiff has tendered evidence, admitted without objection, to show that in late 2008 and early 2009 Andrew Sun committed six offences of recklessly dealing with proceeds of crime. A Statement of Facts to which he agreed for the purposes of sentence in January 2011 recorded that he had acquired a large number of Myer Stores gift cards purchased by the fraudulent use of credit cards. The credit cards were tracked to overseas locations including in Turkey and Brazil. The agreed facts showed that Andrew Sun had used the gift cards to purchase multiple units of laptop computers, iPhones, iPads and other goods which he then sold on eBay.

125. When his rented residence at Unit 2, 371 Canterbury Road, Campsie was searched in connection with the investigation of the above mentioned offences, he was found in possession of 240 Myer gift cards with a face value of $14,450, all of which had been purchased using fraudulent credit cards. Eleven notebook computers with a value of $12,375 were also found in the house, these having been stolen on 7 January 2009, two days before the search warrant was executed, from an unattended delivery truck in the Haymarket area.

126. Against this background and in the absence of any evidence from Andrew Sun or from any other person who could explain the credits to the HSBC Burwood Account which funded the bank cheque for $292,024.09 purchased from that account, I am unable to conclude that any part of that sum came “from income, or money from other sources, unrelated to an illegal activity”. Consequently this amount cannot be excluded from the quantification of the proceeds assessment order under those concluding words of s 28(3). The whole of item (2), $292,024.09, is to be included in the proceeds assessment order.

127. The Plaintiff submits that item (3) (the mortgage loan of $497,648 from St George Bank) cannot be excluded as having been funded from a source unrelated to illegal activity because its source was in fact directly related to the Second Defendant making false representations to St George Bank, in contravention of s 178BB(1), Crimes Act 1900.

128. I accept the Plaintiff’s submission. This involves a straightforward application of the concluding words of s 28(3) to these facts. Greg James J held to this effect when ordering summary judgment on this issue in a similar case: New South Wales Crime Commission v Elie Akiki (Supreme Court of NSW, Greg James J, 3 December 2002, unreported). Latham J took the same view in New South Wales Crime Commission v Shamaileh [2013] NSWSC 258 at [9]. The whole of item (3), $497,648, is to be counted in the order.

129. With respect to item (6), the first component (being $100,000 from Jack Yu) cannot be excluded under the exempting words at the end of s 28(3). For reasons given at [99] to [106] I am not satisfied that this money represented a sum which had been earlier loaned from the Second Defendant to Jack Yu. That is to say, I reject the only purported explanation suggested on the evidence given in this Court for the source of the $100,000. This sum is therefore unexplained in any way which could bring it within the words of exclusion in s 28(3).

130. In her examination on 23 February 2012 the Second Defendant claimed that this $100,000 had been loaned to her, by a person whose name she could not remember but whose sister was known to her (p 44). She said the loan was arranged by her husband and was paid into her ANZ Access Advantage Account by way of a cheque issued by the lender, drawn on that person’s account with the ANZ Bank (pp 44-47). This appears to be a claim that the $100,000 was loaned to her by Jack Yu, whose sister Annie was known to the Second Defendant as recounted at [99]. The Second Defendant later said expressly that Jack Yu was the lender (p 52).

131. However this contention is not supported by the evidence of either Jack Yu or Annie Yu, both of whom said (equally unconvincingly) that in fact Jack Yu borrowed this sum from an unidentified man connected with the Second Defendant. I reject the Second Defendant’s evidence concerning the $100,000, as given during her examination and summarised in the preceding paragraph. The halting and fragmented course of her evidence on this subject, as seen in the examination transcript, coupled with the inherent improbability of a person whose name she could not initially remember having loaned her $100,000 unsecured to buy her own home, shows this to be another instance of the unreliability of the Second Defendant as a witness.

132. Apart from the $100,000 from Jack Yu already referred to, the source of the other $48,048 of item (6) (being credits to the St George Bank Home Loan Account which can be traced to the Second Defendant’s St George Bank Freedom Offset Account), is identified only by the descriptions of credits to the latter account in the bank statements. They show that deposits were made to it from time to time in round amounts of $5,000. There was also one deposit of $10,000, one of $500 and one of $220. The statements include narrations for some of these deposits suggesting that they came from either James Sun or from Andrew Sun. The deposits were mostly by internet transfer.

133. In her examination on 23 February 2012 the Second Defendant asserted that these deposits to the Freedom Offset Account, in round amounts, were made by either her son or her ex-husband. She said that in each case before Andrew Sun made a deposit to the Freedom Offset Account he was given cash by the Second Defendant, drawn from a stockpile of cash which she accumulated as a result of her husband and others physically moving currency into the country from China (pp 53-56). I reject this evidence. The absurdity and improbability of it is self evident. There could be no reason for a person in the Second Defendant’s position to hoard cash, hand it over to her son from time to time in amounts of $5,000 or $10,000, have him then bank the money to an account under his control and transfer it into her Freedom Offset Account, for the purpose of funding repayment to the St George Bank Home Loan Account. There could be no coherent reason why the Second Defendant would not herself deposit the cash, if she really held any, directly to her Freedom Offset Account or directly to the St George Loan Account.

134. In the absence of any other explanation of the credits to the Freedom Offset Account, I find that their source is simply unexplained. There is therefore no basis for excluding from the quantification of the proceeds assessment order the $48,048 which was drawn out of this account and applied in reduction of the Home Loan Account. The whole of item (6) as quantified in [121], $148,048, is to be included in the amount of the order.

Cash carried in from China – the Second Defendant’s evidence

135. As for the remaining items listed in [121], numbered (1), (4), (9), (10), (11), (12) and (13), the Second Defendant has purported to explain the source of funds for these expenditures only by a generalised claim that large amounts of cash were brought into Australia from China by James Sun, by the Second Defendant herself, by Andrew Sun and by others at James Sun’s direction. So far as it has been contended by the Second Defendant that some of this money was from James Sun’s lawful earnings in China, in [146] to [156] below I state my reasons for not being satisfied on the balance of probabilities that significant earnings were ever derived by James Sun in China. But further, the evidence given by the Second Defendant and James Sun that large sums – from any source – were accumulated in cash in Shanghai and then transported to Australia, leaving no record or trace, is inherently highly improbable (for reasons given at [157]-[168]). It is a claim entirely dependent on uncorroborated evidence of the Second Defendant and of James Sun. At every point where their evidence on this topic may be tested against objectively established facts and the probabilities flowing from surrounding circumstances, it is shown to lack credibility.

136. In the examination of 23 February 2012 the Second Defendant gave evidence that some of the cash used to pay the deposit on the Carlingford property in February 2008 was brought in from China by James Sun, in quantities of $10,000 at a time (p 30). Also, James Sun’s mother, father and uncle were said to have travelled to Australia in about 1998 bringing $10,000 each (p 31). The Second Defendant said that a female cousin of her ex-husband, Li Tong, and the cousin’s husband, Lei Chen, brought Australian currency from China in an amount exceeding $30,000 (pp 32-34). Again this was said to have occurred in 1998.

137. The Second Defendant said that some of this cash was derived from her ex-husband “doing business in China, mainly during that period of time” (p 33; see also p 34). Neither the Second Defendant nor James Sun gave evidence to substantiate or particularise any such business. Clearly this could not have been the alleged business of introducing parties to construction projects (see [44]-[49]) because that business is claimed to have been conducted later than 1998. Namely, between late 2002 and late 2007. Between April 1995 and September 2002 James Sun was almost continuously in Australia.

138. Later in the examination the Second Defendant said that some of the money brought in from China in cash had been derived from the sale in about 2002 of a property at Hong Qiao Road, Shanghai, which had been left to James Sun by his father (p 35). The sale price was said to have been “about 400 to 500,000 Chinese Yuan” (p 37). At that time this sum would have converted to about $110,000. The Second Defendant said that this was brought into Australia in cash, $10,000 at a time, by a number of family members, friends and associates (pp 37-39 and 41-42). The money was used, according to the Second Defendant in a “container business” conducted by James Sun (pp 37-38).

139. This evidence even if accepted would contribute nothing towards identifying a legitimate source for the substantial amounts of expenditure during 2008 and 2009 which must be included in the proceeds assessment order unless legal derivation can be demonstrated. The Second Defendant’s examination evidence ends at the point of currency imported from China having been put into the supposed “container business”, without any evidence having been adduced to show that there was such a business or that it generated profits and drawings which could, in turn, explain the expenditure identified in the Plaintiff’s evidence.

140. In her examination the Second Defendant also claimed that James Sun had received money in China from the sale of a property in Kang Ding Road, Shanghai in about 2011 (pp 35-36 and p 49). This does not require further consideration as the point of alleged derivation is too late to provide any explanation for expenditures in the six year period which ended 15 April 2009.

141. In the Second Defendant’s affidavit which was read on the hearing in this Court she deposed that between 12 February 1995 and 11 September 2008 she personally brought cash into Australia from China in a total amount of $67,900. She said that this belonged to James Sun. The dates she quoted are evidently taken from either her passport or the records of Border Protection. The latter show that she entered Australia on 12 February 1995 and on five further occasions after that, before 11 September 2008. The latter was a date of departure from Australia. On this evidence she would have brought in, on average, over $11,000 on each visit.

142. I infer that in deposing to this range of dates the Second Defendant mistakenly thought that 11 September 2008 was another arrival and that she had made seven flights from China to Australia in the period nominated, enabling her to propound the figure of $67,900 as representing an average of under $10,000 each trip. When cross examined she had no satisfactory explanation for how she was able to recall that $67,900 was the amount she brought in, in cash, on a series of flights spread over 13½ years. She had no contemporaneous record of any amount carried on any occasion. She gave evidence of being aware that amounts of currency of under $10,000 did not have to be declared to Customs whereas larger amounts did have to be declared.

143. In cross examination the witness was taken back to an assertion she had made during her examination on 23 February 2012, to the effect that amounts carried by both herself and other family members and associates were brought into Australia “in different batches to avoid paying tax”. On being reminded of this evidence the Second Defendant denied that tax avoidance was a purpose and said that the small individual quantities were “just for convenience”. When asked again about the earlier answer she said that she did not know what tax she had referred to or even which country’s tax. Her prevarication upon these points contributes to my conclusion that her evidence concerning such cash imports cannot be relied upon.

144. The fact that funds were transferred out of Australia to James Sun, upon instructions of the Second Defendant as “ordering customer”, in a total amount of $13,100 in six separate amounts between 16 August 2004 and 25 November 2005 (item (13), considered at [120] above) again makes it highly improbable that over the same period significant amounts of cash would have been carried into Australia, at the behest of James Sun, in amounts calculated to avoid the necessity for declaration. The height of the absurdity of the Second Defendant’s case in this respect was James Sun’s evidence that he carried $9,800 in cash into Australia on 30 November 2005 (undeclared and undocumented). The AUSTRAC records show that the Second Defendant had transferred $4,500 out of Australia to James Sun in China, only five days earlier. The outflow is officially recorded and clearly occurred. It makes the subsequent import of $9,800, supported only by James Sun’s uncorroborated evidence, most improbable.

145. When cross-examined during the hearing in this Court about the contradiction between documented outflows by bank transfer and asserted imports of cash over the same time frame, the Second Defendant said she sent money to China to pay medical expenses for James Sun’s parents, burial expenses for her own mother and wage expenses incurred by James Sun in a construction business. She could offer no explanation why James Sun would not have paid for these things directly himself out of money which both of them claimed he held in China, rather than having cash carried to Australia only to be sent back by telegraphic transfer. The Second Defendant’s inability to reconcile this tension in the evidence is a further reason for rejecting her account of cash having been carried in to Australia.

Cash from China – James Sun’s claimed employment in Shanghai

146. In his affidavit sworn 3 March 2009 James Sun deposed that he studied construction engineering in Shanghai between 1981 and 1984 and received the “Chinese equivalent of a diploma in engineering about 1984”. He deposed that whilst studying for this qualification he worked “as a designer/engineer” with the “Marine and Transportation Bureau of Shanghai”. He continued to work for that employer until he first came to Australia in 1988. His only evidence about what he did between his deportation from Australia in October 1988 and his return here in 1994 is the conduct of the takeaway food business in Samoa.

147. Under examination James Sun said that commencing with his arrival in Australia in 1994 he worked at “dishwashing, cleaning and cooking” for about eight months. After that he was a cleaner for a Chinese airline. Next he worked as a gyprock fixer, in construction. Later again he acted as a “receptionist” in a brothel at Five Dock. Reading the transcript of his examination on 7 June 2012 together with the Border Protection records, it appears that these are the descriptions of work in which he claims to have been engaged between about April 1995 and September 2002.

148. In his affidavit of 3 March 2009 James Sun deposed that after 1999 he returned to work in China as an engineer and that he continued to work there in that capacity up to the date of the affidavit. He deposed that he earns approximately $600,000 Chinese Yuan per annum which on his calculation equates to approximately $150,000.

149. In evidence in this Court James Sun claimed that he worked in Shanghai during the years 2000 to 2006. When the Border Protection records were put to him, he said that in fact he had only commenced working in China from September 2002. From those records, the period in which he could possibly have been working in China would have been 29 September 2002 to 22 November 2007, with some interruptions of up to three months at a time when he was back in Australia.

146. During the examination he described his work in China as: “I’m an engineer. Project management. I was a manger in projects. …the largest project was 32 levels”. In oral evidence given on the hearing of the summons in this court James Sun asserted that his work in China was in the nature of introducing parties who would be involved in infrastructure and building projects, for commission. He claimed that the projects had included renovation of a restaurant and the construction of 30 kilometres of freeway. He said the projects in relation to which he had made introductions in most cases had capital value in the range $1 million to $1.5 million in Australian currency but one project had had a value of $37 million. The commission he received was said to have been 3% or 5% of the capital value in each case.

147. With respect to this employment history, particularly the period of about five years when he was mostly in China (late 2002 to late 2007), James Sun’s conflicting and variable evidence demonstrated his significant unreliability as a witness. The nature of his employment has a bearing upon whether some of the funds which found their way into the Second Defendant’s hands and were expended by her in the period relevant to this case were sourced from his earnings. His inconsistencies about the nature, commencement and duration of his employment coupled with the objective improbability of his account of his work in China leads me to the conclusion that his evidence on this subject is not merely afflicted by poor recollection but involves fabrication.

148. No documentary evidence has been tendered of any tertiary, professional, business or trade qualifications which would suggest that James Sun has any credentials as a project engineer. It is not apparent how he could have taken up such a role in China in 2000, after more than a decade absent from the country and working in unskilled capacities in Samoa and in Australia. No documents have been tendered relating to any of the purported projects to which he refers, such as to demonstrate the nature of them or that they were ever actually undertaken or that he was in any way involved. No documentary evidence nor any affidavit or oral evidence from any independent witness has been provided to confirm that James Sun worked in China in any of the roles which he has nominated. He has no documentary record of any payment received from any third party for working in any such role.

149. He claims to have converted substantial amounts of Chinese currency, which were paid to him for working in the asserted capacities in the period 2002 to 2007, into Australian dollars. But he has not produced a single document recording such an exchange transaction. No evidence has been called from any person who collaborated with him or was associated with him or was introduced by him in connection with any of the projects for which he claims to have derived commission for acting in the nature of broker or introducer. If any of his conflicting accounts of the work that he performed in China in 2002 to 2007 were true, it would be possible for him to obtain an affidavit or call a witness, perhaps by video link from Shanghai, or tender a document to prove that he was engaged as claimed.

150. In order to have acted as an intermediary earning commission from the introduction of principals to carry out substantial building or infrastructure projects, it may be inferred that James Sun would have needed contacts in the relevant industries and that he would have to have been known to operators in those fields who might have used his services for introductions. No evidence has been called to establish that he had any profile in this respect which could possibly have been put to use in deriving commissions in the way he asserts. As a former emigrant returning to China in 2002 after many years’ absence working in unskilled capacities he would not likely have been able to establish himself in this line of work. In view of James Sun’s unreliability as a witness generally I cannot be satisfied of this improbable account in the absence of corroboration.

151. After a full day and part of a second day of cross examination James Sun conferred with the Second Defendant’s counsel over a short adjournment before being re-examined. On returning to the witness box he gave a quite different description of the nature of the work that he had performed in Shanghai, as follows:

“Q. … when you say that you were working on commission, can you just explain how the business, the construction business, was operating from your point of view around about that time? How would a project commence and how would you obtain commission in relation to your involvement in a project?

A. Interpreter: My friend’s company, they took on a project and because he is short of staff, so he asked me to look after the project. We agreed that, for example, the total cost – the total amount of the project is $1.5 million, for example, and he would take 10% of that. All the money would be given to me to organise everything in the project such as labour, materials and all the related costs. I look after that. Whatever money was left, that belongs to me. When the project finishes, if there’s leftover money, that belongs to me. The materials, regarding the materials, I would get commission on that, for example, marble, gyprock, not much, lights, everything contains commission, glass walls, everything contains commission and that commission is mine.”

156. This description of the basis of his remuneration is entirely at odds with that of receiving 3% to 5% on the capital cost of projects, in consideration for having effected introductions. The fact that James Sun has given these two radically different accounts of the one mode of work in which he claims to have been engaged makes it impossible to be satisfied of either of them on the balance of probabilities.

Cash from China – James Sun’s alleged transport of cash income

157. James Sun’s affidavit filed in these proceedings had attached to it a schedule setting out all of the dates on which he entered Australia, between 12 February 1995 and 17 September 2008, with an amount of cash nominated against each date as the amount which he claimed to have carried into Australia on that date. He had no written record of the dates and amounts and purported to nominate the amounts from memory. According to the schedule, only on 22 November 2007 and 16 May 2008 did he bring in an amount in excess of $10,000 and he said that on each of these occasions he declared that amount. However Customs records show that in fact the dates on which cash in excess of $10,000 was declared were 14 June 2008 ($21,000) and 17 September 2008 ($30,000). His purported recollection of amounts carried in, on dates extending back nineteen years before the date of his affidavit, cannot be relied upon.

158. The schedule to James Sun’s affidavit also lists alleged dates of entry into Australia of his former wife, the Second Defendant, nominating amounts which she carried on each occasion. The dates of entry that he has given prove, in each case, actually to have been dates of departure from Australia, according to Border Protection records (with the exception of the first date and one other which is neither a date of arrival nor departure).

159. James Sun’s schedule continues in a similar vein nominating dates of entry of his son, his father, mother, uncle and numerous friends. Given the demonstrable errors of his assertions about arrival dates with respect to his wife and the lack of any record of any sum of money brought in on any occasion other than the two instances when a declaration was made to Customs, these bald assertions in James Sun’s affidavit cannot be given any weight.

160. In oral evidence in this Court James Sun asserted that during the period after 2000 when he worked in China (originally said to have been 2000 to 2006, then September 2002 to November 2007: see [44] and [149]), he received all payments by way of commission in cash in Chinese currency. He said that in Shanghai he converted the currency to Australian dollars from time to time when the rate was favourable, using a private foreign exchange dealer who operated outside the banking system and who visited James Sun by appointment to effect the exchanges.

161. James Sun claimed that the Chinese currency in which he was paid and the Australian currency to which he converted it, over time, was kept at the home in Shanghai of his elderly parents. He said he did not know whereabouts in his parents’ house it was held and did not enquire. From 2006 to 2010 James Sun asserted that he also performed some work for which he received “work payment”, which in the context of the answers clearly refers to wages or salary. He said that he banked his receipts of that nature, in China, but not his commissions.

162. James Sun’s claims that he stored large amounts of cash at his parents’ home and brought from China a significant amount of Australian currency to Australia “in batches” of under $10,000, with the help of family and friends, appears highly unlikely in view of the physical insecurity and the inconvenience involved. He was well aware of the availability of bank telegraphic transfers, of which he availed himself from time to time both for transfers from China to Australia and for transfers in the reverse direction.

163. When asked for an explanation why he had not used the banking system both for holding his funds in China and for moving to Australia the sums which he and others allegedly carried in cash, he gave the following answers:

“A. Interpreter: I won’t put it in a bank account.

Q. Why not, Mr Sun?

A. Witness: I don’t know but I still don’t want any – don’t want them anybody know I have -

A. Interpreter: I don’t want people to know I have money.

Q. Why not?

…

A. Interpreter: I want people to think I have a simple life, like an average people’s life. In China if you’ve got lots of money you’ve got trouble.

Q. Who would know that you had your money if you had it in the bank?

A. I said I don’t like it.

Q. But how would anybody know that you had money in the bank if it was your private bank account?

A. Interpreter: Like same thing here. Money are brought in here, I put at home, not in the bank.

Q. You haven’t answered my question. If you put money in the bank in China, how would anybody know that you had it there?

A. Interpreter: There are too many crooks in China. I was tricked into losing money when I tried to exchange money in China.

Q. When.

A. Interpreter: I don’t remember, but it happened.

Q. Why would you be worried about crooks in China if you were bringing it to Australia and could simply take it into the Bank in China and have is transferred by wire to Australia, away from the crooks?

A. Interpreter: What crooks in China?

Q. The crooks you mentioned, Mr Sun.

A. Interpreter: There are too many crooks in China and it’s a personal preference that I don’t like banks. That’s that simple.”

164. The upshot of these answers is that there was no rational explanation given by James Sun for the way he claims to have dealt with the supposed pool of money. When it was sought to probe his assertion about wishing to maintain privacy, he initially evaded the questions and then contradicted himself.

165. Further, his claim to have been avoiding use of the banking system in China in order to maintain privacy is falsified by other conduct on his part. Between May 2005 and February 2007 he caused to be transferred from the HSBC (Burwood) account in his name to an account at the Bank of China, in China (also in his name), a total of $140,988 over 12 transactions, ranging in size from $37,000 to $1,800. He transferred another $5,000 to the same Chinese account from an unknown source in Australia.

166. In an endeavour to reconcile these transfers with his evidence that he did not like to use the banking system in China, James Sun asserted the HSBC (Burwood) account in his name contained his son’s money and was used for his son’s purposes. He said that his son carried on business in China and needed funds there to purchase goods. As his son did not maintain a bank account in China James Sun transferred the required funds to his own account in China. This purported explanation provides no reconciliation of the contradictions in the evidence. Far from being concerned that “crooks” in China might know how much money he had and might cause trouble for him, he was prepared to transfer substantial money from Australia into an account in his own name in China at a time when he was living and working there. Andrew Sun was present at the hearing in this Court from time to time but he was not called to confirm James Sun’s purported explanation of the transfers from Australia back to China through the banking system.

167. A general consideration tending to contradict James Sun’s claim to have imported into Australia large amounts of cash (the total on the schedule to his affidavit is $504,700 over thirteen years up to 2008) is that a significant purpose of his evidence in this respect was to explain innocently the derivation of his gift of over $300,000 to the Second Defendant towards purchase of the Carlingford property: see [84]-[86]. But $292,024.09 of that gift came from his HSBC (Burwood) Account, the credit balance of which was built up by receipts from PayPal, Hao Pu and Ebay (see [136]) – not from cash deposits flown in from China.

168. I have found James Sun’s entire account of receiving substantial cash payments in China, storing them at his parents’ home, exchanging Chinese for Australian currency by undocumented private foreign exchange dealings and bringing the cash to Australia in amounts of under $10,000, with the assistance of family and friends, incredible. I am not satisfied that any of the items listed in [121] numbered (1), (4), (9), (10), (11), (12) and (13) had their source in legitimate income earnings of James Sun in China or in proceeds of the sale of property in China or that any such earnings or proceeds found their way to Australia in the manner he has described. Accordingly, none of these items can be excluded from the quantification of the proceeds assessment order.

Conclusion and orders

169. I have resolved the issues stated at [27] as follows:

1. I am comfortably satisfied that the Second Defendant committed an offence against s 178BB(1), Crimes Act in or about February or March 2008, as particularised at [69] and [70].

2. The amount of expenditure by the Second Defendant during the six years from 15 April 2003 to 15 April 2009 was $1,136,707.67 made up of the components listed at [121].

3. I am not satisfied that any part of the said amount expended was funded from income or from sources unrelated to illegal activity, within the meaning of the concluding words of s 28(3).

170. In accordance with these reasons the orders of the Court are:

1. Pursuant to s 22, Criminal Assets Recovery Act 1990 the interest of Xiao Yan Xu, the Second Defendant, in the property comprised in Lot 6 in Deposited Plan 872204 known as 14 Wondabah Place, Carlingford, New South Wales be forfeited to and vest in the Crown.

2. Pursuant to ss 27 and 28(3) of the Criminal Assets Recovery Act the Second Defendant pay to the Treasurer the amount of $1,136,707.57.

3. The Notice of Motion filed by the Second Defendant on 3 February 2014 is dismissed.

4. The Second Defendant pay the Plaintiff’s costs of the proceedings insofar as they relate to the Second Defendant.

**********

Decision last updated: 12 October 2015