Taleb v Director of Public Prosecutions
[2014] VSC 285
•18 June 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 6974 of 2011
Between:
| SAMIRA TALEB | Applicant |
| and | |
| DIRECTOR OF PUBLIC PROSECUTIONS | Respondent |
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JUDGE: | Croucher J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13 August 2013 | |
DATE OF JUDGMENT: | 18 June 2014 | |
CASE MAY BE CITED AS: | Taleb v DPP | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 285 | |
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CONFISCATION – Application for exclusion of interest from operation of restraining order – Applicant advanced $150,000 to brother-in-law (AT) acting on behalf of his company for purposes of completing development of four units owned by company – Unbeknown to applicant, AT involved in drug-trafficking – AT charged and units restrained – Restraining order varied to allow sale of units – Net proceeds of sale held by Assets Confiscation Office – Rudimentary hand-written agreements drawn by non-lawyer – Unchallenged affidavit evidence as to terms of agreements – Whether funds to be returned upon sale of units or from proceeds of sale or both – Whether Court entitled to have regard to affidavit evidence – Parol evidence rule – Whether agreements wholly written or partly written and partly oral – Whether applicant has an equitable interest in units or proceeds of sale – Whether applicant has a right over or in connection with units or proceeds of sale – Meaning of “right, power or privilege over, or in connection, with property” – Whether applicant entitled to order for payment from net proceeds of sale on basis that it would be “just” – Confiscation Act 1997 (Vic), ss 3, 18, 20, 22, 26.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr A Buckland | Millens Solicitors |
| For the Respondent | Ms R Sofroniou | Office of Public Prosecutions |
HIS HONOUR:
Introduction
Over a period of six months until January 2012, Samira Taleb advanced three cheques totalling $150,000 to her brother-in-law Ahmed Taleb, who was acting on behalf of Melville Property Developments Pty Ltd (“Melville”), a company he wholly owned and controlled.[1] The funds were advanced for the purpose of completing construction of four units at 1-3 Rose Street, Coburg, which properties were owned by Melville. The funds were so applied.
[1]To avoid confusion, on occasions, I shall refer to Samira Taleb, Ahmed Taleb and Mohamed Taleb by their first names. Otherwise, I shall refer to Samira Taleb as the applicant.
Three rudimentary hand-written documents, each written by Ahmad on or after each occasion the funds were advanced, provided that “[u]pon the sales of properties being sold subject to sales campaign commencing funds shall be returned”. Unchallenged affidavit evidence from Ahmad, Samira and her husband Mohamed Taleb is to the effect that the funds were to be repaid from the proceeds of sale of the Rose Street units.
Subsequently, the units were sold. Understandably, Samira wants her money back. All of it. But there is a difficulty. Whilst the development was legitimate, unbeknown to Samira, her brother-in-law was up to no good. Ahmad had been trafficking in drugs. On 22 December 2011, after Ahmad was charged with drug trafficking and before the units were sold, the Director of Public Prosecutions applied for, and this Court granted, pursuant to s 18 of the Confiscation Act 1997 (Vic) (“the Act”), a restraining order in respect of nine properties in which Ahmed had an interest. Four of those properties were the Rose Street units.
Subsequently, the restraining order was varied so as to permit the sale of those four units. After loans (and associated mortgages) were discharged and selling expenses were paid, the net proceeds of sale were held by the Assets Confiscation Office (“the ACO”). As at 16 April 2012, the amount held was about $617,000. Thereafter, this Court made orders under s 26 of the Act releasing funds to pay outstanding debts of Melville, at least some of which concerned work done previously on the Rose Street units. I was informed that, as at the date of hearing, the ACO held about $583,000.
Samira now applies for an order under s 22(1) of the Act excluding from the operation of the restraining order her “interest”, to the extent of $150,000, in the proceeds of sale of the units. In particular, in reliance on the definition of “interest” in s 3, it is submitted that her interest is either an “equitable … interest in the property” – arising from a Quistclose trust or a constructive trust – or a “right … over, or in connection with, the property”. In the alternative, Samira seeks leave, under s 26(2)(e) of the Act, to apply for an order under s 26(1) that the sum of $150,000 be paid to her from the proceeds of sale on the basis that it would be “just” to do so.
The Director submits that Samira has no equitable interest in, and no right over or in connection with, the restrained property, and that the application under s 26 is misconceived. The Director also submits that the parol evidence rule precludes the Court from going beyond the hand-written agreements and considering the unchallenged affidavit material.
In short, I have reached the following conclusions: First, the Court is entitled to have regard to the affidavit evidence to determine whether or not the agreements are wholly in writing. The parol evidence rule is inapplicable. The agreements are in fact partly written and partly oral. A term of each agreement is that the applicant is to be repaid from the proceeds of sale of the Rose Street units.
Secondly, however, the evidence does not disclose a Quistclose trust.
Thirdly, whilst there was no common intention constructive trust over the units, there is such a trust over the proceeds of sale to the extent of $150,000 and therefore the applicant has an equitable interest in those proceeds. Since none of the other requirements for exclusion are disputed, the exclusion application succeeds.
Fourthly, if I am wrong in concluding the applicant has an equitable interest in the restrained property, she nevertheless has an interest in that property in that she at least has a right in connection with the units or the proceeds of sale or a right over those proceeds. In each case, her interest is a right – whether it be based in contract or in equity or both – to recover $150,000 from the proceeds of sale of the units.
Finally, in those circumstances, it is unnecessary to determine the application under s 26.
My reasons for those conclusions follow.
The evidence
Unchallenged affidavit evidence
Five affidavits were filed on behalf of the applicant – two from Mohamed (sworn 4 March and 12 August 2013), two from Ahmad (affirmed 29 May and 12 August 2013) and one from Samira herself (sworn 4 March 2013). The Director neither objected to my receiving the affidavits nor required the deponents for cross-examination. Thus, this evidence went in unchallenged. In summary, the evidence is as follows:
Mohamed Taleb
Mohamed and Samira Taleb were born in Lebanon. Mohamed migrated to Australia at age 10 in 1977. Samira migrated at age 16 in 1989. Their marriage, which occurred in Australia soon after Samira’s arrival, was arranged according to Lebanese custom. They now have eight children aged between 22 and one. Mohamed operates his own business as an electrician, from home. He says he reads and writes English well. Samira, he says, has a poor command of English in both its written and spoken forms.
Mohamed and Samira have undertaken some minor property developments in the past. In about June 2011, with Mohamed’s assistance, Samira obtained a line of credit to enable them to develop a property in Broadmeadows. The bank took a mortgage over the family home, which is in Samira’s name, to secure the debt. The development was completed but was not financially successful.
At about the same time, Ahmad, through Melville, was developing the Rose Street units. Ahmad asked his older brother Mohamed to persuade Samira to advance him funds because he was in need of money to pay various costs and expenses associated with the Rose Street development. On each occasion, Mohamed discussed Ahmed’s request with his wife, and she agreed to make the advance sought but on the condition that Ahmad agreed to repay the amount of each advance from the proceeds of the sale of the properties that formed the Rose Street development. Mohamed communicated that condition to Ahmad on each occasion when he sought an advance, and he agreed to it.
Samira drew three cheques. First, on 6 July 2011, she wrote a cheque for $100,000 payable to “Ahmad Taleb or bearer”. Second, on 16 August 2011, she wrote a cheque for $30,000 payable to “Melville Property Developments or bearer”. Third, on 4 January 2012, she wrote a cheque for $20,000 payable to “Ahmad Taleb or bearer”. Mohamed produced copies of the cheques and Samira’s bank statement showing the corresponding funds had been debited from her account.
On or soon after each occasion an advance was made, Ahmad signed a hand-written document he had drawn up and entitled “loan agreement”. The three hand-written documents read as follows:
Loan Agreement Between Mohammed & Samira And Ahmad Taleb
On the 6/7/2011 a total of 100,000 was borrowed by Ahmad Taleb from both Mohammed & Samira Taleb in due course of completion of the construction of 1-3 Rose Street, Coburg. Upon the sales of properties being sold subject to sale campagn [sic] commencing funds shall be returned.
Sign: [Ahmed Taleb]
6/7/2011
Loan Agreement between Mohammed & Samira & Ahmad Taleb
On the 16/8/2011 Melville property developments borrowed a total of 30,000 from both Mohammed & Samira Taleb towards paying tradesman [sic] for the construction of 1-3 Rose Street Coburg. Upon the sales of properties properties [sic] being sold subject to sale campagn [sic] commencing funds shall be returned.
Sign: [Ahmed Taleb]
date: 16/8/2011
Loan Agreement between Mohammed & Samira & Ahmad Taleb
On the 4/1/2012 a total of 20,000 was borrowed from the above mention [sic] parties to pay off tradesman for 1–3 Rose St Coburg. Upon the sales of properties being sold subject to sales campagn [sic] commencing funds shall be returned.
Sign: [Ahmed Taleb]
Date: 4/2/2012
Soon after the third cheque was issued, Ahmad told Mohamed that the Court had made a restraining order on 22 December 2011 and that he had been charged with drug offences. Mohamed asked Ahmad to make sure that his wife was repaid the $150,000 that had been lent to enable him and his company to undertake and complete the Rose Street development. Ahmed promised he would do so.
Neither Mohamed nor his wife had any involvement in any alleged drug offending.
At some point, Ahmad told Mohamed that he was going to court to obtain an order releasing $250,000, and that he would use that money to repay the amount owing to Samira.
Subsequently, Mohamed met Ahmad’s solicitor and counsel. Mohamed was advised that they could not act for Samira. Mohamed then engaged solicitors, apparently for himself and Samira. Mohamed annexed to his first affidavit email correspondence between these solicitors and the Office of Public Prosecutions (“the OPP”). In an email of 15 October 2012 to the OPP, the solicitors wrote the following:
We are instructed that:
· In July 2011 Mr Ahmad Taleb in his capacity as Director of Melville Property Developments Pty Ltd approach[ed] our clients seeking a loan to assist in completion of construction of units at 1-3 Rose Street, Coburg. As our clients had an undrawn capacity on an existing Facility with Bank of Queensland they advanced an amount of $100,000 on 6 July 2011 but on the terms of a handwritten loan agreement which provided that the funds were to be used in connection with the completion of construction at Rose Street and that upon those properties being sold the loan funds were to be repaid.
· In August 2011 Mr Ahmed Taleb requested a further advance of $30,000 and this was made by our clients on 16 August 2011 on the same basis as set out above.
· On 4 January 2012 a further advance of $20,000 was made on the same basis.
· In total our clients have advanced $150,000 all on the basis that this total amount was to be spent on the development of the Rose Street units and that it would be repaid out of the sale proceeds.
Attached to the letter were copies of the cheques, the relevant parts of Samira’s bank statement and the three hand-written documents.
Mohamed also deposes that he was advised by the solicitor handling the matter that, on 26 October 2012, a solicitor from the OPP told him that Samira should make an application under s 26 of the Act for a variation of the restraining order to enable her to recover the sum of $150,000 from the funds now held by the ACO.
Mohamed and Samira are suffering financial hardship as a result of the funds not being repaid. Samira is indebted to the bank in a sum exceeding $230,000 and the bank has a mortgage over their house to secure that debt.
Ahmed Taleb
Ahmed agreed with the contents of his brother Mohamed’s affidavits.
Ahmed added that he asked Mohamed to lend him some money to pay tradesmen to finish the Rose Street development. He confirmed that Mohamed told him that his wife could lend him the money but that he was to repay the amount from the money he got once he had sold the Rose Street development.
Samira Taleb
Samira agreed with the contents of her husband’s affidavit, which was translated to her.
When she agreed to lend her brother-in-law a total of $150,000, she did so on the condition that he repay that amount to her from the sale of the properties that he and a company controlled by him were then developing.
Ahmad has told her that he knows he is obliged to repay the money and that he wants to do so. He says he cannot do so because the funds have been restrained by order of this Court.
Samira confirmed she is undergoing financial hardship as a result of not being repaid the funds and that she owes that money to the bank, which has a mortgage over her family home.
Other evidence
The Director tendered an ASIC current and historical extract in respect of Melville showing that Ahmad has been the sole shareholder, director and secretary of that company during the relevant period.
The Director also tendered a title search showing that Melville was the registered proprietor of the four units at Rose Street each of which was encumbered by a mortgage as at 20 December 2011. As indicated earlier, each loan and associated mortgage was discharged when the units were sold.
The terms of the agreements
Introduction
In order to resolve these applications, I must determine first the parties to and terms of the agreements. This in turn requires a consideration of whether the parol evidence rule precludes reliance on the unchallenged affidavit evidence.
The hand-written documents
Ms Sofroniou, who appeared for the Director, submitted that, on its face, each hand-written document discloses no more than an agreement that the borrower is obliged to repay the lender the monies loaned, but only upon the sale of the Rose Street properties. Thus, she submitted, the borrower must repay the loans when the units are sold. There is no requirement that the repayment is to come from the proceeds of sale of the units.
Ms Sofroniou also noted that the documents were not signed by Samira or purportedly on behalf of Melville. Nor was Melville named as a party in any of the headings to the documents. She submitted that, other than Melville being mentioned in the second document and as the payee of the related cheque for $30,000, there is nothing written to suggest that Melville was a party to any of the agreements.
Mr Buckland, who appeared for the applicant, submitted that each agreement included terms that the funds were to be repaid upon the sale of the Rose Street units and from the proceeds of sale. He also submitted that it is plain that the lender was Samira and the borrower in each case was Melville. He relied on all of the evidence, including the affidavits, to support those submissions.
The parol evidence rule
Whilst there was no objection to my receiving the affidavits and no request that the deponents be called for cross-examination, later in the hearing and in a note provided subsequently, Ms Sofroniou submitted that the parol evidence rule precluded the Court from “construing the terms of the agreement by reference to the intentions set out in the affidavit evidence”.[2] She submitted that “[e]vidence of the actual, subjective intentions of the parties is not admissible to construe a written contract”. In support of that submission, she referred to Life Insurance Co of Australia v Phillips (1925) 36 CLR 60 at 71, where Knox CJ said this:
But the general rule is that extrinsic evidence is not admissible in order to prove that the intention of the parties was other than that appearing on the face of the instrument. And the fact that the words of the instrument are capable of more than one meaning is not sufficient to justify the admission of extrinsic evidence of the meaning intended by either party.
[2]The parol evidence rule is regarded as a rule of substantive law, and not a rule of evidence; and it is not affected by the enactment of the Evidence Act 1995 (Cth): Owens v Lofthouse [2007] FCA 1968 at [62] per Weinberg J. The same must be true in Victoria despite the passage of the Evidence Act 2008 (Vic).
Ms Sofroniou also referred to Byrnes v Kendle (2011) 243 CLR 253 at 285[99]-[100], where Heydon and Crennan JJ said this:
[99] … The argument purported to accept that contractual construction was an objective process, and that evidence of what one party intended should not be admissible. But other parts of the argument undercut that approach. Mr Christopher Nugee QC submitted: “The question is not what the words meant but what these parties meant. ... Letting in the negotiations gives the court the best chance of ascertaining what the parties meant.” It would have been revolutionary to have accepted that argument.
[100] These conclusions flow from the objective theory of contractual obligation. Contractual obligation does not depend on actual mental agreement. …
Mr Buckland submitted that, if the parol evidence rule had any application at all in a case where, as here, the parties to each agreement were not in dispute about its terms, the rule could be applicable only if the Court were satisfied that the hand-written documents constituted the entirety of the agreements. He submitted that, for the purposes of determining whether an agreement is wholly in writing or partly written and partly oral, the Court is permitted to examine the affidavit evidence. In support of that submission, he referred to State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 171 (“Heath Outdoor”) at 191-192, where McHugh JA said this:[3]
[3]See also, e.g., Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at 505[277]-507[281] per Allsop J (with whom Drummond and Mansfield JJ agreed); and Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 at 401-403[90] per Campbell JA (with whom Allsop P and Basten JA agreed).
The next submission of the plaintiff was that the 1981 contract was partly oral and partly written. The plaintiff submitted that it is always open to a party to show that a written document is not the binding record of their contract: Gordon v Macgregor (1909) 8 CLR 316 at 323; Hoyt's Pty Ltd v (1919) 27 CLR 133 at 143-144; J Evans & Son (Portsmouth) Ltd v [1976] 1 WLR 1078; [1976] 2 All ER 930. It is then said that the statements by Mr Giles about condition 6 were part of the
contractual terms between the parties.A preliminary question which arises is whether the so called parol evidence rule prevents reliance on the oral assurances of Mr Giles. Under that rule parol evidence is not admissible to contradict or vary the terms of a written agreement. But it is a rule whose scope and rationale is often misunderstood. It has no operation until it is first determined that the terms of the agreement are wholly contained in writing. The tendering of oral evidence to prove a contractual term, therefore, cannot be excluded until it is determined that any terms in writing record the whole of the parties’ agreement: Corbin on (1960) vol 3 at 385; Air Great Lakes Pty Ltd v K S Easter (1985) 2 NSWLR 309 at 337.
When a person alleges that an agreement was partly oral and partly written, it is not always easy to determine whether the writing is the exclusive repository of the bargain. Williston claims that, when a document appears on its face to be a complete record of the parties’ contract, it is conclusively presumed to be the contract: Williston on Contracts, 3rd edn (1961), s 633. However, Corbin takes a different view and says that the issue is whether the parties assented to a particular writing as the complete and accurate “integration” of the contract: Corbin on Contracts (1960) vol 3 at 358-359. Support for Williston’s approach is to be found in the judgment of Street CJ in L G Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/asia) Ltd (1956) 56 SR (NSW) 81 at 88; 73 WN (NSW) 9 at 14. But in my opinion the correct rule is that the existence of writing which appears to represent a written contract between the parties is no more than an evidentiary foundation for a conclusion that their agreement is wholly in writing: Gillespie Brothers & Cov Cheney, Eggar & Co [1896] 2 QB 59 at 62; Turner v Forwood [1951] 1 All ER 746 at 749; J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd at 1083; 935. In my opinion the English Law Commission correctly stated the law when it said:
“… the mere production of a contractual document, however complete it may look, cannot as a matter of law exclude evidence of oral terms if the other party asserts that such terms were agreed. If that assertion is proved, evidence of the oral terms cannot be excluded because the court will, by definition, have found that the contractual terms are partly to be found in what was agreed orally as well as the document in question. No parol evidence rule could apply. On the other hand, if that assertion is not proved, there can be no place for a parol evidence rule because the court will have found that all the terms of the contract were set out in the document in question and, by implication, will thereby have excluded evidence of terms being found elsewhere.”
(The Law Commission, Law of Contract, The Parol Evidence Rule (January 1986) Cmnd 9700, par 2.12 at 11.)
Mr Buckland submitted that, having regard to the whole of the (uncontested) evidence, the Court could not conclude that the agreements were contained wholly in the hand-written documents. Rather, the only reasonable conclusion open is that the agreements were partly written and partly oral. He gave several reasons: First, Samira had performed her part of the agreement (advancing funds) on each occasion before the hand-written document was even signed. Secondly, the documents were written and signed only by Ahmad, making them more akin to receipts. Thirdly, the documents are ambiguous. For example, the words “funds shall be returned” were also included in the same sentence that contained the word “[u]pon”. Usually a debt is repaid whereas property is held and returned. Fourthly, the documents, whilst evidencing in part the agreement for the return of the funds, are also vague and uncertain in other respects, including the parties and precisely what some of the expressions used were intended to convey. Fifthly, the affidavit evidence makes plain that there was an additional term that Samira was to be repaid from the proceeds of sale of the units.
Conclusions
The hand-written documents might not amount to the clearest pieces of legal drafting ever attempted. But that is not surprising. They were written by a non-lawyer in a family context. There is no evidence that the parties took legal advice. Further, one of the parties, Samira, has a poor command of English. These factors cannot be ignored when considering this matter.
In my view, by application of the principles accepted by McHugh JA in Heath Outdoor, the Court is not only entitled to consider, but must consider, the affidavit evidence to determine whether the agreements contained oral terms beyond those contained in the hand-written documents. I would reach the same conclusion if either the Williston or the Corbin approach were applied. Applying the Williston approach, the hand-written documents do not appear to be a complete record of the parties’ contracts. Applying the Corbin approach, the parties did not assent to the hand-written documents as the complete and accurate “integration” of the contracts.
None of this is inconsistent with the authorities to which Ms Sofroniou referred. Indeed, in one of those cases, Life Insurance Co of Australia v Phillips (1925) 36 CLR 60, in a passage on the same page just preceding the passage to which I was referred and which is extracted above, Knox CJ said, “No doubt it is open to a party to an alleged agreement to establish by evidence, if he can, … that the document was not intended to contain all the terms of the agreement …”.
Having considered all of the evidence, including the circumstances surrounding the making of each agreement individually and all three collectively, I am satisfied of the following: First, the parties to each agreement are Samira and Melville. Samira advanced the funds from her own account drawn on her line of credit with the bank, which facility was secured against her home. Each hand-written document referred to the construction of 1-3 Rose Street. Whilst each document expressed the idea differently (“in due course of completion of the construction of”; “towards paying tradesmen for the construction of”; and “to pay off tradesmen for”), it is clear enough that in each case the funds were advanced for the completion of the Rose Street development. Melville owned the property which was being developed. The second hand-written document expressly referred to Melville and the resulting cheque was made out to Melville. That the first and third hand-written documents did not refer to Melville expressly and that the related cheques were made out to Ahmad is neither here nor there. It is plain that Ahmad, as sole director and shareholder, was, at all relevant times, acting on behalf of Melville and that all involved appreciated this fact and acted on this basis.
Secondly, the terms of each agreement included (a) that the funds were to be repaid upon the sale of the units (which was imminent) and (b) that the funds were to be repaid from the proceeds of sale of those units. The first term is in writing and the second is oral. They are different, but related, terms. The first relates to timing of the obligation to pay; the second relates to the source of the funds from which repayment was to be made.
The application for exclusion
Introduction
The more difficult question, to which I now turn, is whether that second term of each agreement, when considered in light of all of the circumstances, means that the applicant has a relevant “interest”, within the meaning of that term in the Act, in the restrained property (i.e. the proceeds of sale), which in turn will determine whether or not her application for exclusion succeeds.
Restraining order and proceeds of sale
The restraining order made on 22 December 2011 provided inter alia that “[n]o person shall dispose of or otherwise deal with the property specified below or any interest in that property”, and then listed several pieces of property, including the four units at 1-3 Rose Street.
Orders made on 18 January and 1 February 2012 varied the original restraining order to allow for the sale and settlement of the four units and for the disbursement of the proceeds of sale thereof to discharge the loans and associated mortgages and to pay selling expenses, with any residue to be held by the ACO pending the final determination of this matter or further order.
On 16 April 2012, a further variation order declared that the ACO “presently holds the sum of approximately $617,000, being proceeds of sale of [the Rose Street units]”. That order varied the restraining order so as to direct the ACO to pay about $38,000 to the solicitors for Melville and Ahmad, and in turn directed the solicitors to use those funds to make payments of expenses listed in a schedule to the order that were marked “agreed” by the Director. Among those “agreed” expenses was an amount of $15,000 claimed by a plumbing company for its “[f]ees for work rendered on [the Rose Street units]”. There were other expenses listed in the schedule that were not at that point agreed. The variation order also directed the ACO to pay the solicitors any of those other expenses if they were subsequently agreed by the Director. As indicated earlier, Ms Sofroniou was instructed that, as at the date of the hearing, the amount held by the ACO was about $583,000.
Legislative provisions
The key provisions of the Act for the purposes of the exclusion application are ss 20 and 22, and also s 3, which contains the definitions of “property” and “interest”.
Sections 20, 21 and 22 deal with applications for exclusion of interests from the operation of restraining orders. Section 20(1) provides that, “[i]f a court makes a restraining order against property under section 18, any person claiming an interest in the property (including the accused) may apply to that court for an order under section 21 or 22”.
Relevantly, s 22 provides as follows:
22Determination of exclusion application – restraining order – automatic forfeiture
(1)On an application made under section 20, where the restraining order has been made in relation to a Schedule 2 offence for the purposes of automatic forfeiture—
…
(b) where the application is made by a person other than the accused, the court may make an order excluding the applicant's interest in the property from the operation of the restraining order—
(i)if the court is not satisfied that the property in which the person claims an interest is not tainted property or derived property but is satisfied that –
(A)the applicant was not, in any way, involved in the commission of the Schedule 2 offence; and
(B)where the applicant acquired the interest before the commission, or alleged commission, of the Schedule 2 offence, the applicant did not know that the accused would use, or intended to use, the property in, or in connection with, the commission of the Schedule 2 offence; and
(C)where the applicant acquired the interest at the time of or after the commission, or alleged commission, of the Schedule 2 offence, the applicant acquired the interest without knowing, and in circumstances such as not to arouse a reasonable suspicion, that the property was tainted property or derived property; and
(D)the applicant’s interest in the property was not subject to the effective control of the accused on the earlier of the date that the accused was charged with the Schedule 2 offence or the date that the restraining order was made in relation to the property; and
(E)where the applicant acquired the interest from the accused, directly or indirectly, that it was acquired for sufficient consideration; or
(ii)if the court is satisfied that the property is not tainted property or derived property and that –
(A)the applicant’s interest in the property was not subject to the effective control of the accused on the earlier of the date that the accused was charged with the Schedule 2 offence or the date that the restraining order was made in relation to the property; and
(B)where the applicant acquired the interest from the accused, directly or indirectly, that it was acquired for sufficient consideration; or
…
(2) If the court makes an order under subsection (1), the court may also make an order declaring the nature, extent and value of the applicant's interest in the property.
Ahmad was charged with trafficking in a commercial quantity of a drug of dependence, which is a Schedule 2 offence. Further, in the restraining order, it was declared that the property the subject of the order was restrained for the purposes of, inter alia, “satisfy[ing] any automatic forfeiture of property that may occur under Division 2 of Part 3 of the Confiscation Act 1997”. Thus, s 22(1)(b) is the provision under which the exclusion application must be considered.
Section 3 provides inter alia that “property means real or personal property of every description, whether situated within or outside Victoria and whether tangible or intangible, and includes any interest in any such real or personal property”.
Section 3 also provides that “interest, in relation to property, means … (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”.
The issue:Whether the applicant has an interest in the restrained property
The parties conducted the exclusion application on the basis that, if the applicant has an “interest” in the restrained property, her application for exclusion should succeed. The Director does not contest that the other requirements for exclusion under s 22(1)(b) are met. In those circumstances, I accept that those other requirements are established.
Is there a Quistclose trust?
Mr Buckland submitted that, by application of the principles discussed by the House of Lords in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 (“Quistclose”), Melville, as legal owner of the proceeds of sale of the units, held those proceeds, to the extent of $150,000, on trust for the applicant, such that she has an equitable interest in the restrained property.
Lord Wilberforce delivered the leading speech in Quistclose. His Lordship said inter alia (at 581-582):
… There is surely no difficulty in recognising the co-existence in one transaction of legal and equitable rights and remedies: when the money is advanced, the lender acquires an equitable right to see that it is applied for the primary designated purpose … : when the purpose has been carried out (i.e. the debt paid) the lender has his remedy against the borrower in debt: if the primary purpose cannot be carried out, the question arises if a secondary purpose (i.e. repayment to the lender) has been agreed, expressly or by implication: if it has, the remedies of equity may be invoked to give effect to it, if it has not (and the money is intended to fall within the general fund of the debtor’s assets) then there is the appropriate remedy for recovery of a loan. … [References omitted.]
There were, Mr Buckland submitted, two purposes for each of the loans in the present case. The first was to apply the funds to complete the Rose Street development. The second was to repay the loan from the proceeds of sale of that development. Although Melville did use the funds lent by Samira for the first purpose, it did not apply the proceeds of sale to the second purpose. Accordingly, said Mr Buckland, in each case, a purpose failed; Melville holds the total sum of $150,000 on trust for Samira; and she has an equitable interest in those funds to that extent. Thus, he said, Samira’s interest falls within paragraph (a) of the definition of “interest” in s 3 – i.e. an “equitable … interest in the property” – and, accordingly, should be excluded from the operation of the restraining order.
Ms Sofroniou submitted that, while the principles in Quistclose allow that rights in debt and in equity may co-exist, this was no more than an arrangement of debtor and creditor, and no Quistclose trust was created. There were at least two reasons. First, the purpose for which the funds were advanced – the completion of the Rose Street development – did not fail. Rather, the funds were applied for that purpose. Second, there is no evidence that the funds advanced were to be held separately from Melville’s other monies until the purposes of the loans were achieved, or that they would be returnable if they were not so applied. Ms Sofroniou relied on a passage in the judgment of Dixon J in Cohen v Cohen (1929) 42 CLR 91 at 101, where his Honour in turn accepted as correct the following passage from Channell J’s judgment in Henry v Hammond [1913] 2 KB 515 at 512:
We must apply that principle to a case where the property is a sum of money. It is clear that if the terms upon which the person receives the money are that he is bound to keep it separate, either in a bank or elsewhere, and to hand that money so kept as a separate fund to the person entitled to it, then he is a trustee of that money and must hand it over to the person who is his cestui que trust. If, on the other hand, he is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon to hand over an equivalent sum of money, then, in my opinion, he is not a trustee … but a mere debtor. All authorities seem to me to be consistent with that statement of the law.
In my view, essentially for the reasons argued by Ms Sofroniou, a Quistclose trust was not created. First, in no case did the primary purpose for which the funds were advanced fail. The funds were applied to the completion of the Rose Street units. The failure of the so-called secondary purpose, if a purpose it be, does not attract the principle in Quistclose. Secondly, there was no term of any agreement requiring the funds to be held separately from Melville’s other monies until the purposes of the loans were achieved. Whilst there was no express term that the funds would be returnable if they were not applied to the Rose Street development, such a term might be implied. But that need not be determined, as it would not deny the correctness of Ms Sofroniou’s other arguments as to why a Quistclose trust was not created.
Is there a constructive trust?
Mr Buckland submitted in the alternative that the Court should recognize a common intention constructive trust over the units, and/or over the proceeds of sale, to the extent of $150,000, in favour of the applicant.
A common intention constructive trust will arise where there is an actual or inferred common intention of the parties as to their entitlements to the beneficial interest in the property, and there has been a detrimental reliance on that common intention by the claimant such that it would be an equitable fraud on the claimant to deny his or her interest in the property.[4]
[4]See Sivritas v Sivritas (2008) 23 VR 349 at 375[134] per Kyrou J and the cases his Honour cited.
Mr Buckland submitted that those requirements were met in the present case. First, the evidence shows that there was a common intention between the parties to the agreements that the proceeds of sale would be used to repay the monies advanced. Secondly, the applicant acted to her detriment by advancing the funds. Thirdly, she has suffered a wrong by reason of the failure to repay the funds when the net proceeds of sale of the units are more than adequate to meet the repayment of the monies advanced. Fourthly, in those circumstances, it would be unconscionable for Melville to deny the applicant’s interest in the proceeds of sale and decline to repay her $150,000 from those proceeds. Accordingly, the applicant’s equitable interest in the units or in the proceeds of sale, in the amount of $150,000, should be excluded from the operation of the restraining order.
Ms Sofroniou submitted that, for several reasons, the Court should not find a constructive trust. First, the evidence did not disclose a common intention that the applicant would obtain a proprietary interest in any property. Second, there was no nexus between advancing funds to complete construction of the units and an interest in those units. Third, there was no unconscionability by Melville in failing to repay the funds because the units (and subsequently the proceeds of sale) were restrained beyond its control.
In Muschinski v Dodds (1985) 160 CLR 583 at 615-616, Deane J sounded this caution to courts considering the possibility of finding constructive trusts:
The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundation of such principles. … Viewed as a remedy, the function of the constructive trust is not to render superfluous, but to reflect and enforce, the principles of the law of equity.
Thus it is that there is no place in the law of this country for the notion of “a constructive trust of a new model” which, “[b]y whatever name it is described, ... is ... imposed by law whenever justice and good conscience” (in the sense of “fairness” or what “was fair”) “require it”. … Under the law of this country – as, I venture to think, under the present law of England … – proprietary rights fall to be governed by principles of law and not by some mix of judicial discretion, subjective views about which party “ought to win” and “the formless void of individual moral opinion”.
While Deane J was there dealing with a different variant of constructive trust, his remarks seem to me to be equally applicable when considering whether there might be a common intention constructive trust.
In my view, neither the evidence nor the law supports the existence of a common intention constructive trust over the units. I accept Ms Sofroniou’s first submission to the extent that the evidence does not show a common intention that the applicant would obtain a proprietary interest in the units. Even a contractual right to payment of a sum of money out of the proceeds of sale of a particular property – which, I find, was a term of each agreement here – would not give rise to an equitable interest in that property.[5] Thus, there was no common intention constructive trust over the units and therefore no equitable interest in favour of the applicant in those units.
[5]Dykstra v Dykstra (1991) 22 NSWLR 556 at 559C per McLelland J. Nor, for that matter, would a Quistclose trust of itself create an equitable interest in land: Smith v The State of Western Australia [2009] WASC 189 at [81] per McKechnie J.
As to Ms Sofroniou’s second point, however, while there may have been no direct nexus between advancing funds to complete construction of the units and an interest in those units, in my view, there was a nexus between the units, the funds advanced and the applicant’s right to recover those funds. That nexus is that the funds were advanced to allow completion of the units for sale and that, upon that sale, the applicant had a right to recover the funds advanced from the proceeds of sale, because, at the very least, that was what the parties had agreed.
A similar type of nexus was created by what I find to be a common intention constructive trust over the proceeds of sale to the extent of $150,000. In particular, I am satisfied that there was a common intention that, when the units were sold, the applicant would have a beneficial interest in the proceeds of sale to the extent of $150,000. It is hard to imagine the parties agreeing to a condition that the applicant was to be repaid from the proceeds of sale unless there was a common intention that Melville would hold those proceeds, to the extent of the amounts advanced, on trust for her. If the relationship were nothing more than debtor and creditor, there would seem to be no need for such a term.
I am also satisfied that the applicant acted to her detriment by advancing the funds and that it would be an equitable fraud on her to deny her interest in the proceeds of sale. I reject Ms Sofroniou’s third submission that it would not be unconscionable for Melville to deny her interest and decline to repay the $150,000 on the basis that its hands are tied by a restraining order. If that argument were accepted, the mere existence of a restraining order could defeat any application for exclusion of an equitable interest from the operation of such an order whenever the existence of such an interest turned on a finding of unconscionability, which could not be right. In my view, that there is a restraining order in place does not render it acceptable for Melville (and the ACO as holder of the funds) to deny the applicant’s interest in the proceeds of sale. As it happens, the evidence is that Melville (through its sole owner and director Ahmad) is desirous of applying the proceeds of sale to repay the applicant. Equity considers as done that which ought to have been done. The ACO, who is effectively standing in Melville’s shoes at present, should be taken as thinking the same way.
Thus, I am satisfied that Melville holds the proceeds of sale of the units on trust for the applicant in the amount of $150,000 and that she has an equitable interest in those proceeds to that extent.
Is there a right in connection with the property?
Mr Buckland’s further alternative submission was that, lest it be found she does not have an equitable interest in the restrained property, the applicant nevertheless has an “interest” within the meaning of paragraph (b) of the definition of that term in s 3. In particular, he submits the applicant at least has “a right … over, or in connection with, the property”. Her interest is a right to recover $150,000 from the proceeds of sale of the Rose Street units. He submitted that, in the circumstances of this case, that right – whether it be a right at law or in equity or both – was properly described as being “in connection with” both the units and the proceeds of sale, and that the right in equity was also “over” the proceeds of sale.
Ms Sofroniou submitted that a contractual right to be repaid from the proceeds of sale of the units would not come within paragraph (b). In her submission, there would need to be something more, such as a lien over the property. She also submitted that the definition in paragraph (b) may be intended to capture other interests such as restrictive covenants, easements or other rights of access, rights to take fruit and so on.
Mr Buckland’s submission to the effect that, if the applicant does not have an equitable interest in the units, she at least has an equitable interest in the proceeds of sale (whether that be based on a Quistclose trust or a constructive trust), or a right in connection with the units or the proceeds of sale or a right over those proceeds, proceeded on the assumption that, despite the fact the units were restrained and then converted into proceeds of sale, any interest in those proceeds was capable of being excluded from the operation of the restraining order. That must be the correct approach, as the proceeds of sale are of course property and must be taken to be the property restrained now. Ms Sofroniou did not dispute that approach. Nor did she take any point that, in order to succeed on the exclusion application, the applicant’s interest had to be in the real estate (i.e. the units), because that was the property restrained initially.
In DPP v Twenty Fourth Tregganu Pty Ltd (2011) 31 VR 439 at 447[33]-[34], Hargrave AJA (with whom Mandie JA agreed and Nettle JA agreed in part) said this about the definition of “interest” in s 3:
[33] … The definition of ‘interest’ in relation to property directs attention to two alternative forms of interest, separated by the conjunction ‘or’ between paras (a) and (b). First, by para (a) of the definition, an interest in property may be a legal or equitable estate. In my view, if an applicant for an exclusion order has such an interest, then it is that interest which is ‘the applicant’s interest’ for the purposes of s 22(1)(b)(i) of the Act. If the applicant does not have such an interest, then an exclusion application may still be made if the applicant has, in terms of para (b) of the definition, a lesser interest such as a right, power or privilege over, or in connection with, the relevant property.
[34] I accept that the definitions of ‘interest’ and ‘property’, and a reading of the Act as a whole, demonstrates that Parliament has intended to cast its net widely, in defining the concept of interest in property. In my opinion, the width of the defined concept has two purposes. First, a wide definition promotes the ability of the DPP to restrain any form of interest which a defendant who engages in serious criminal activity may have. Secondly, the wide definition also gives persons who have some interest in the property, short of ownership, the right to apply for an exclusion order and thus avoid injustice from the harsh operation of the confiscation provisions of the Act. The width of the concept does not support the DPP’s construction of the words ‘the applicant’s interest’ in s 22(1)(b)(i)(D) of the Act.
Counsel were unable to find any other authorities on the scope of paragraph (b) of the definition of “interest”. Nor were they able to point to any cases in which that part of the definition has been relied on to declare any interest in property, let alone anything like the present case. My researches have had the same result.
It is, however, clear that the words in paragraph (b) are not intended to be epexegetical of the more conventional notion of proprietary interest defined in paragraph (a). Rather, the words in paragraph (b) have their own work to do.
It may well be that the phrase “a right, power or privilege over, or in connection with, the property” is apt to include a wide range of concepts, such as the rights, powers or privileges of, say, settlors and trustees over or in connection with trust property that do not amount to legal or equitable interests in property. The definition may instead or additionally include other concepts such as easements and restrictive covenants in circumstances where (if ever) those rights do not amount to legal or equitable interests in property. I do not need to decide, and do not decide, whether these concepts come within paragraph (b).
Turning back to the present case, I doubt that a mere contractual right of a lender to sue a borrower for the repayment of funds advanced to buy property would amount to a right “in connection with” the property. Rather, I think that the connection between the right and the property must be more than coincidental to come within paragraph (b).
But the present case is different. There is a more substantial connection. Whatever their scope, I am satisfied that the words of paragraph (b) of the definition of “interest” include the applicant’s rights over or in connection with the restrained property. In particular, her right – at law or in equity or both – to recover $150,000 from the proceeds of sale of the Rose Street units amounts to a right over or in connection with the restrained property.
The right to recover the funds arises in either contract or equity or both. The right in contract is the applicant’s right to sue on the term of each agreement that she was to be repaid the funds advanced from the proceeds of sale of the units. The right in equity is the applicant’s right as beneficiary to recover the funds advanced from the proceeds of sale of the units arising out of the common intention constructive trust over those proceeds of sale.
In each case, the right is “in connection with” both the units and the proceeds of sale because the funds were advanced specifically for the purpose of completing the units so that they could be sold, and because it was agreed by the parties, or it was their common intention, or both, that repayment would come from the proceeds of sale of the units. Thus, in each case, the connection between the right and the property that was (or is now) restrained is more than just coincidental; it is substantial.
The right in equity is also “over” the relevant property because the constructive trust is impressed on the proceeds of sale of the units.
Such a construction is consistent with Hargrave AJA’s observation that Parliament has intended to cast its net widely in defining the concept of interest in property.[6] Also consistently with those remarks, this construction not only promotes the ability of the Director to restrain any form of interest which an accused who engages in serious criminal activity may have, but also gives persons, such as the applicant, who have interests in property short of the usual notions of ownership, the right to apply for an exclusion order and thus avoid injustice from the harsh operation of the confiscation provisions of the Act.
[6]Indeed, it is notable that the definition of “interest” in s 3 of the Victorian Act is much broader than the equivalent provision considered by McKechnie J in Smith v The State of Western Australia [2009] WASC 187 at [4], a case on which Ms Sofroniou relied at the hearing.
In my opinion, there would be an injustice in the present case if the exclusion application could not succeed.
Conclusion
Accordingly, on the basis that there is either an equitable interest in the proceeds of sale of the units arising from a common intention constructive trust, or a right in connection with the units or the proceeds of sale or a right over those proceeds, I conclude that the applicant’s interest in the restrained property (namely, the proceeds of sale of the units), in the amount of $150,000, is to be excluded from the operation of the restraining order.
The application under s 26
In those circumstances, it is unnecessary to determine the application under s 26 of the Act.
Proposed orders
Subject to hearing from counsel on their precise form, I propose to make orders:
a) declaring that the applicant has an interest in the proceeds of sale of the Rose Street units in the amount of $150,000;
b) granting the application for exclusion of that interest from the operation of the restraining order; and
c) directing the ACO to pay the applicant $150,000 from the net proceeds of sale of the Rose Street units.
As there was no term in any of the agreements providing for the payment of interest and no claim for interest on this application, I shall make no award for interest.
I would make no order in relation to the application under s 26.
I shall hear counsel on the question of costs.
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