State Trustees Limited (as administrators of the estate of Ioannis Zegas) v Director of Public Prosecutions
[2024] VSC 284
•3 June 2024 (First Revision 19 June 2024)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
CONFISCATION AND PROCEEDS OF CRIME LIST
S CI 2017 01095
| STATE TRUSTEES LIMITED (ACN 064 593 148) AS THE ADMINISTRATORS OF THE ESTATE OF IOANNIS ZEGAS | Applicant |
| v | |
| DIRECTOR OF PUBLIC PROSECUTIONS FOR VICTORIA | First Respondent |
| ROCCO ARICO | Second Respondent |
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JUDGE: | Gorton J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 31 May 2024 |
DATE OF RULING: | 3 June 2024 (First Revision 19 June 2024) |
CASE MAY BE CITED AS: | State Trustees Limited (as administrators of the estate of Ioannis Zegas) v DPP |
MEDIUM NEUTRAL CITATION: | [2024] VSC 284 |
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CONFISCATION AND PROCEEDS OF CRIME - Application for extension of time for administrator of deceased’s estate to bring an application for an exclusion order – Where deceased loaned monies used to purchase restrained property – Whether deceased has an interest under the Confiscation Act 1997 (Vic) in the property – No legal or equitable estate or interest or right, power or privilege in connection with the property – Application for exclusion order has no real prospects of success – Not in interests of justice to grant extension of time – Taleb v Director of Public Prosecutions [2014] VSC 285 – Confiscation Act 1997 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr T Snowden | Christopher James Lawyers |
| For the First Respondent | Ms A Singh | Director of Public Prosecutions |
| For the Second Respondent | N/A | Condello Lawyers |
HIS HONOUR:
State Trustees, in the capacity as administrator of the estate of Mr Ioannis Zegas, sought an extension of time to bring an application for an exclusion order under the Confiscation Act 1997 (Vic). On 31 May 2024, I dismissed that application with costs. These are my reasons for so doing.
On 31 March 2017, an ‘unexplained wealth restraining order’ was made over, among other things, a residential property in Moonee Ponds. An unexplained wealth restraining order is an order made under div 1 of pt 4A of the Confiscation Act 1997 (Vic). It has the effect of restraining any dealings in relation to the property with a view to ensuring that the property is available for ‘unexplained wealth forfeiture’.[1] Under the legislative regime, a property that is the subject of an unexplained wealth restraining order is forfeited to the Minister on the expiry of six months after the making of that order.[2]
[1]Confiscation Act 1997 (Vic) s 40C.
[2]Ibid s 40ZA.
The process is not, however, inevitable. A person claiming an interest in the restrained property may apply to the Court for an ‘exclusion order’. An exclusion order is an order that excludes that applicant’s interest from the operation of the unexplained wealth restraining order.[3] An application for an exclusion order must be made within 90 days after service of notice of the making of the unexplained wealth restraining order (if notice was required to be given) or otherwise within 90 days after the making of the unexplained wealth restraining order. The Court may extend this period ‘if it is in the interests of justice to do so’, so long as the property has not already been forfeited.[4] If such an application is pending, the restrained property does not automatically forfeit on the expiring of six months after the making of that order.[5]
[3]Ibid s 40S.
[4]Ibid s 40(3)-(4).
[5]Ibid s 40ZA(2).
On 14 March 2017, Mr Zegas’ solicitors emailed the Principal Solicitor at the Office of Public Prosecutions, who acted for the Director of Public Prosecutions, the first respondent. That email establishes that Mr Zegas was aware, by this time, that a restraining order of some form had been or might be made. The email sought details so that, among other things, they could advise Mr Zegas on ‘whether he should apply for an exclusion order’. The Office of Public Prosecutions advised that it could not assist due to privacy obligations. On 2 August 2017, Mr Zegas’s solicitors asked for the proceeding number. This the Office of Public Prosecutions could and did supply and did so on 16 August 2017. At some stage, an unsuccessful attempt was made to search the relevant Court files. On 11 October 2017, Mr Zegas’s solicitors emailed the relevant judge and sought, and was given the same day, permission to search the court file.
Before he died on 10 May 2021, Mr Zegas applied for an extension of the statutory time limit to allow him to bring an application for an exclusion order. The summons applying for the extension of time was filed on 6 March 2020. Mr Zegas contended that he had an interest in the property in Moonee Ponds, which had been restrained, and wished to apply for an order that excluded his interest in that property from the operation of the restraining order. On 16 November 2023, State Trustees as the administrators of the estate of Mr Zegas was substituted for Mr Zegas as a party and now has the carriage of the application for an extension of time. There have been delays between March 2017 when Mr Zegas became aware that there was or might be a restraining order and the filing of his summons on 6 March 2020, and there have been delays between the filing of that summons and the application’s being heard on 31 May 2024.
In order to obtain an exclusion order, State Trustees would have to establish that Mr Zegas had an ‘interest’ in the Moonee Ponds property. The word ‘interest’, in relation to property, is defined to mean:
(a) a legal or equitable estate or interest in the property; or
(b) a right, power or privilege over, or in connection with, the property;[6]
[6]Ibid s 3.
On 14 November 2017, Mr Zegas swore an affidavit in which he deposed that he lent Mr Rocco Arico, the second respondent, $300,000 in February 2017 and that, despite his making demands, that loan has not been repaid.[7] This is what Mr Zegas swore to in relation to the loan:
On or about 20 February 2015, Rocco requested from me a loan for two to three months to assist him to settle on a property transaction. I was not aware of the particular property transaction. Rocco required $300,000. I agreed to lend Rocco $300,000. This loan was pursuant to a separate agreement between myself and Rocco and [I] understood the agreement was to be prepared by Natoli Howell. On 25 February 2015, I advanced $300,000 to Rocco in two separate instalments: $50,000 by telegraphic transfer to [a] bank account … held in the name of Franki Arico and $250,000 by telegraphic transfer to the trust account of Natoli Howell…
[7]The affidavit was not filed until 6 March 2020.
Natoli Howell Lawyers were Mr Arico’s solicitors. Mr Zegas produced documents establishing that he made the two advances he referred to, and two communications from his lawyers to Natoli Howell. In the first communication, dated 7 March 2017, his lawyers sought a copy of the agreement. In the second, dated 10 April 2017, they demanded ‘repayment in full’.
On 15 March 2018, Mr Rocco Arico swore an affidavit in which he deposed to the source of funds used for the purchase of various properties in support of his own applications. In that affidavit, he deposed as to the circumstances in which the Moonee Ponds property was bought. What he had to say was broadly consistent with Mr Zegas’ affidavit. Mr Arico deposed that:
The balance [of the purchase price for the Moonee Ponds property] (which I calculate to be $246,011.23) came from a $300,000 loan made to me by a friend, Ioannis Zegas. Of that $300,000, $250,000 was received by Franki’s solicitors, Natoli Howell, on 25 February 2015…. The remaining $50,000 was paid directly into the Franki … account on 25 February 2015…. I had agreed to repay Ioannis Zegas within six months. I intended to repay him either from further borrowings against [another] property, which was nearing completion, or the sale of the townhouses.
Franki is Mr Arico’s wife. The title search reveals that the property was transferred to Franki Arico as sole proprietor on 16 March 2015. There is nothing on the title that indicates that Mr Arico or Mr Zegas had an interest in the property.
No further affidavits have been filed. On 29 April 2024, a document headed ‘Submission for Ioannis Zegas’ dated 9 December 2020 was filed that had been prepared by the solicitors who then acted for Mr Zegas. The submissions contended that Mr Zegas would acquire ‘a proprietary, alternatively, an equitable interest or an equitable charge’ in the property if it could be shown that but for his loan Mr Arico would not have been able to purchase the property.
On 28 May 2024, State Trustees filed a written submission. It pointed out that the word ‘interest’ was defined in the Confiscation Act 1997 to include not only ‘a legal or equitable estate or interest in’ a property but also ‘a right, power or privilege over, or in connection with’ the property.[8] State Trustees did not identify in its written submission what ‘right, power or privilege’ Mr Zegas enjoyed over the Moonee Ponds property. Instead, it contended that:
As a matter of fact the moneys advanced were applied towards the purchase of the [Moonee Ponds] property. The Applicant says that this gives rise to an equitable interest in the nature of a resulting trust beyond that of a debtor/creditor relationship.
[8]Confiscation Act 1997 (Vic) s 3.
In oral argument, counsel for the State Trustees submitted that Mr Zegas potentially had, under sub-s (b) of the definition of interest, ‘a power to insist on repayment’ out of the property or its proceeds.
I disagree. In my view, neither Mr Zegas nor Mr Arico deposed to any arrangement that could give Mr Zegas an interest in the Moonee Ponds property or a right to be repaid out of it or the proceeds of any sale. Indeed, Mr Zegas deposed that he was ‘not aware of the particular property transaction’ for which the loan was being made, which goes against any conclusion that he was intending to purchase an interest in the Moonee Ponds property or was intending to obtain some form of security over or right in relation to that property. Neither communication from his lawyers to Natoli Howell said anything to suggest that the loan was to be secured, let alone that it was to be secured over the Moonee Ponds property. Mr Zegas’s affidavit was prepared with the assistance of lawyers. If there were some arrangement whereby the loan was to be secured by the property in Moonee Ponds or in some way a promise was made that the loan would be repaid from the proceeds of its sale, it is inconceivable that that would not have been mentioned in Mr Zegas’ affidavit or in his solicitors’ correspondence.
Similarly, Mr Arico’s affidavit indicates no more than that the money was borrowed by him and used to pay part of the purchase price for the Moonee Ponds property (which was bought by his wife). There is no suggestion that there was any intention that Mr Zegas was to have an interest in that property. Any form of long-term resulting trust would be in conflict with the expressed intention that Mr Zegas was to be repaid within six months. Also, significantly in light of the way in which counsel put the case in oral argument, Mr Arico in fact deposed to an intention to repay the loan not out of the proceeds from a sale of the Moonee Ponds property but from further borrowings or from the sale of other properties.
There is also the difficulty that the property was purchased by Mr Arico’s wife and so Mr Arico himself could have no more than an equitable interest in the property.
The mere fact that someone uses borrowed funds to purchase a property (or on-lends borrowed funds to their spouse to purchase a property) does not give the initial lender an interest in that property or any right to be repaid out of the proceeds of its sale. In my view it is clear that, even accepting that Mr Zegas lent Mr Arico the money and Mr Arico applied that money towards the purchase of the property in Moonee Ponds by his wife, that, alone, could only make Mr Zegas an unsecured creditor of Mr Arico.
State Trustees relied on the decision of Taleb v Director of Public Prosecutions.[9] In that case, the evidence was of a specific agreement that funds were to be lent for the purchase of a particular development and were to be repaid from the proceeds of the sale of units at that development.[10] The units had been sold and the proceeds had not been spent. Croucher J found, in those circumstances, that the proceeds were held on trust to the extent of the borrowed amount or, at least, the lender had a ‘right in connection with’ that fund. As I understand his Honour’s reasoning, the trust or ‘right’ arose because of the promise made by the borrower to repay the loan out of that particular fund: either that promise was capable of being specifically enforced,[11] or it was the ‘common intention’ of both borrower and lender that those proceeds would be applied in that way and it would be unconscionable for the borrower to deny the lender’s interest in those funds.[12] The evidence here is not capable of supporting such a conclusion. Further, I note that Croucher J would not have found that the lender had an interest in the property itself prior to its being sold,[13] and also observed that a ‘mere contractual right … to sue … for the repayment of funds advanced to buy property’ would not amount to a right ‘in connection with’ that property.[14]
[9][2014] VSC 285 (Croucher J).
[10]Ibid [46].
[11]Ibid [46], [69]-[70], [83].
[12]Ibid [65], [71].
[13]Ibid [69].
[14]Ibid [81].
I am also satisfied, putting equitable interests to one side, that the fact that Mr Zegas lent money that was used by Mr Arico in the purchase of the Moonee Ponds property does not mean that Mr Zegas has a ‘right, power or privilege over, or in connection with, the property’ (being the extended definition of ‘interest’ in sub-s (b) of the definition).[15] In its written submission, the State Trustees submitted that the ‘critical issue’ is whether Mr Zegas can ‘demonstrate a connection with the property in question’. This, however, is a misstatement of the definition of interest, as was, I believe, tacitly acknowledged in oral argument. The issue is whether Mr Zegas might establish a ‘right, power or privilege ... in connection with the property’, not simply a ‘connection’ with the property. Someone may, in ordinary usage, have a ‘connection’ with a property: they may regularly use it as a guest, or have been a prior owner, or have facilitated its purchase, or it may be owned by their wife. But that would not be sufficient to establish a ‘right, power or privilege’.
[15]Cf [81].
Sub-section (b) of the definition may have a role to play with easements or leaseholds or licences or other interests of that type, but it is difficult to see how it might apply in a situation like the present when no equitable interest in or contractual right over the property or any part of it or its proceeds may be established. It is difficult to see what could be ‘excluded’ from the operation of the restraining order or, in due course, forfeiture.
For the above reasons, I am satisfied that Mr Zegas could not establish that he had a ‘legal or equitable estate or interest in the property or a ‘right, power or privilege over, or in connection with, the property.’ In these circumstances, I am not satisfied that it is in the interests of justice to grant an extension of time. This is not a situation where facts have been deposed to that establish a case but do not go into detail;[16] this is a situation where, on the material to hand, and without any indication that any further relevant material is able to be filed, there is no real case. It cannot be in the interests of justice to grant an extension of time to bring an application when there is no reason to think that the application has a realistic prospect of success.[17]
[16]Cf Director of Prosecutions v (Property) Aziz (Ruling) [2020] VCC 214, [43] (Misso J).
[17]Cf Finn v Director of Public Prosecutions [2011] VSC 234, [17] (John Dixon J).
It is not necessary to consider whether the State Trustee has adequately justified Mr Zegas’ delays or the extent to which Mr Zegas’ death means that the delay has caused prejudice to the Director of Public Prosecutions due to its inability now to cross-examine him.
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