The Director of Public Prosecutions v Luigi Vitale - [2019] SADC 167

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Application for Stay of Proceedings)
THE DIRECTOR OF PUBLIC PROSECUTIONS v LUIGI VITALE AND ANOR
[2019] SADC 167
Decision of Her Honour Judge Deuter
6 November 2019
CRIMINAL LAW - PROCEDURE - CONFISCATION OF PROCEEDS OF CRIME AND RELATED MATTERS - RESTRAINING OR FREEZING ORDER - VARIATION GENERALLY
- APPEAL OF MASTERS ORDER TO VARY RESTRAINING ORDER - APPLICATION FOR STAY OF ORDER
Director of Public Prosecutions instituted proceedings pursuant to Criminal Assets Confiscation Act 2005 restraining the defendant's interest in three properties, subject to the rights of the registered mortgages. An order was made in the terms sought by the Court.
The third party, CEG Direct Securities Pty Ltd ('CEG') thereafter made an application to vary the restraining order by excluding unregistered mortgages held over two of the properties, and for them to be able to register and enforce those mortgages. An Order to vary the restraining order in the terms sought was made by a Master, and the Director of Public Prosecutions subsequently appealed that decision.
The Director of Public Prosecutions also sought a stay of the Master's Order to vary, to prevent sale of the properties before the defendant's criminal proceedings were finalised, and an order for forfeiture of the properties could be obtained. It was argued that this would cause significant prejudice to the public. CEG opposed the grant of a stay, arguing that their rights as mortgagee over the properties should be preserved pending the appeal, as prejudice was being suffered due to lack of equity in the properties.
Consideration of principles governing an application for a stay.
HELD:
1. That the issues on the appeal are complex and involve considerations regarding the statutory scheme for confiscation of assets that have not yet been considered.
2. The appeal raises serious issues to be determined.
3. That there would be serious prejudice to the Director of Public Prosecutions and the public of South Australia if a stay was not granted and the properties were sold, as there is no mechanism in the Criminal Assets Confiscation Act for property to be recovered from a third party.
4. The balance of convenience favoured a stay being granted.
Criminal Assets Confiscation Act 2005 (SA) s 3, s 24, s25(1)(a), s 26, s 34, s 36 and s 40.; District Court Rules 2006 (SA); District Court Civil Rules 2006 (SA); Real Property Act 1886 (SA); Australian Securities and Investment Commission Act 2001 (Cth), referred to.
Playford Vineyard Pty Ltd v WIshford Nominees Pty Ltd (NO 2) [2018] SASC 152; North Flinders Mines v Hartogen Energy Ltd (NO 2) (1988) 52 SASR 14; Ian Rodda Pty Ltd v Rodda [2015] SASC 149; PSAL Lyd v Kellas-Sharpe [2012] QSC 31; Thomas A Edison Ltd v Bullock (1912) 15 CLR 679, considered.

THE DIRECTOR OF PUBLIC PROSECUTIONS v LUIGI VITALE AND ANOR
[2019] SADC 167

This is an application by the Director of Public Prosecutions (‘DPP’) for a stay pending appeal from a decision of a Master in the District Court of 9 September 2019, in relation to a restraining order made pursuant to s 40 of the Criminal Assets Confiscation Act 2005 (SA) (‘the Act’).
The effect of the decision was to vary Order two of a restraining order made on 12 June 2019 on application of the DPP, over real estate property owned by the defendant, Luigi Vitale at Henley Beach South and Glenelg North (‘the properties’) by excluding unregistered mortgages dated 27 November 2013 over the Henley Beach South property, and dated 8 June 2018 over the Henley Beach South and Glenelg North properties. These unregistered mortgages are in favour of the respondent, CEG Direct Securities Pty Ltd (‘CEG’).
The Master also made an Order pursuant to s 40 of the Act that CEG be at liberty to register and enforce the mortgages over the properties.
On 30 September 2019, the DPP filed an appeal seeking to set aside the Master’s Orders, and on the same date lodged an application seeking a stay of the Orders pending the appeal. It was submitted that there was a risk that if the mortgages were lodged that the properties would then be sold. If this was to occur there would be significant prejudice to the public interest in respect of the potential future forfeiture of the properties.
On 1 October 2019, Acting Chief Judge Rice granted an interim stay of the proceedings until 15 October 2019 to allow argument on the issue. On 14 October 2019 Judge Stretton extended that stay until further Order (‘the stay’).
The respondent to the appeal, CEG, is opposed to the continuation of the stay. Their position is that their rights as mortgagee over the properties should be preserved pending the appeal, and that they are prejudiced by the stay as there is not sufficient equity in the properties to pay the debt owned by the defendant to CEG. This further diminishes their equity.
Background
The proceedings in this matter were commenced by the DPP pursuant to the provisions of the Act, following the defendant’s arrest on 9 May 2018 in relation to approximately 10 to 15 litres of fantasy found by police at the Henley Beach South property, together with items consistent with the recent manufacture of a controlled substance.
On 24 May 2018, the DPP instituted proceedings seeking an order pursuant to the Act that the defendant’s interest in the properties, and also a third property at Normanville, be restrained pursuant to s 24(1)(a) and (c) of the Act. The restraining order sought was to be subject to the rights of a registered mortgagee, AFSH Nominee Pty Ltd (‘AFSH’), in relation to the Henley Beach South and Glenelg North properties, by reference to their mortgage numbers.
On 1 June 2018, the DPP filed an interlocutory application seeking that the restraining orders be made as soon as possible pursuant to ss 24 and 40 of the Act and Rule 131 of the District Court Rules 2006 (SA). The usual undertaking as to damages was provided by the DPP pursuant to s 26 of the Act.
On 12 June 2018, Judge Millsteed made the restraining orders sought by the DPP, subject to the rights of the registered mortgagee AFSH, in relation to the properties.
On 24 May 2019, CEG made an application pursuant to s 40 of the Act to vary the restraining order by excluding from its terms CEG’s unregistered mortgages over the properties. CEG also sought liberty to register and enforce their mortgages over the properties.
The application by CEG was supported by an affidavit of Vincent Ventrice dated 24 May 2019,[1] whereby he testified that CEG held registered caveats on the properties in relation to equitable mortgages which secured advances made to the defendant. Mr Ventrice testified that he is a director of CEG and by his affidavit annexed a number of documents in relation to financial sums which had been advanced to the defendant by CEG from about 27 November 2013 by way of a line of credit. That line of credit was increased from $100,000 to $300,000 between 7 March 2017 and 4 May 2018, with seven variation agreements having been signed by the defendant. The repayment date was extended to 26 July 2018 and the interest rate increased from a minimum of 3.00% to 10.00% per month.
[1] FDN 10.
Mr Ventrice testified that the defendant had executed mortgages over the properties in relation to the last variations on 8 June 2018, having signed an initial mortgage over the Henley Beach South property on 27 November 2013. Although the mortgages were not registered, CEG registered caveats on the titles of the properties to protect their financial interest. These were registered on 13 April 2017 over the Henley Beach South property, and on 24 April 2018 over the Glenelg North property.
Mr Ventrice further testified that the DPP had not given notice to CEG of the summons and supporting affidavit seeking the restraining orders. He testified that on 8 June 2018, CEG lodged its mortgage to secure the debt owing under the latest loan agreement entered into with the defendant. The mortgage remains unregistered as a result of the DPP’s application having been filed. This was when CEG became aware of the DPP’s application. The mortgages remained unregistered at the time that the restraining order was granted on 13 June 2018.
On 14 June 2018, the DPP lodged the restraining order over each of the properties and CEG has continued to be unable to register the mortgages on the titles of the properties.
Mr Ventrice testified in his affidavit that at 24 May 2019, the debt owed by the defendant to CEG was $869,300.99. In addition, as the defendant had failed to repay the debt by the repayment date, interest had continued to accrue and the loan balance, including interest, was $1,061,648.13. Mr Ventrice testified that the latest mortgage secured a loan advance to the defendant which was now overdue for repayment, and that the inability of CEG to register the mortgage was causing significant prejudice in its ability to recover those monies.
In a further affidavit dated 19 August 2019 Mr Ventrice testified that there had been some negotiations with AFSH in June 2019, whereby CEG sought to repay the amounts owing to AFSH under the registered mortgages and thereby take over the whole debt on the properties. To do this, CEG required a transfer of the mortgages held by AFSH so that it could exercise the rights of AFSH under those mortgages. However, CEG could not proceed to register the transfer of the mortgages whilst the restraining order held by the DPP remained on the titles.
Mr Ventrice testified that the amount owed to AFSH by the defendant, as at 13 June 2019 was $1,064,961.40. The total amount owed by the defendant to CEG as at 16 August 2019 was $1,197,683.03. The total indebtedness under the mortgages was therefore $2,262,644.43.
In relation to the market value of the properties, Mr Ventrice testified that CEG had assessed the value of the Henley Beach South property at $1,500,000.00 and the Glenelg North property at $600,000.00 and that the total market value for both properties was assessed at $2,100,000.00.
CEG claimed that as they had been prevented from registering its mortgages over the properties and thereby enforcing those mortgages, it had suffered significant prejudice and loss. Interest continued to accrue on the outstanding debt, and the equity in the properties diminished as interest accrued on the AFSH debts that took priority for repayment.
The Master’s Reasons for Decision
In determining the application brought by CEG for exclusion of its interests in the properties from the restraining order, the Master considered the provisions of the Act. He noted that by s 25(1)(a), the DPP must give written notice of an application for a restraining order to the owner of the property in dispute, and ‘any other person the DPP reasonably believes may have an interest in the property’.
Section 3 of the Act defines ‘property’ as including both an interest in property and ‘a chose in action’. An ‘interest in relation to property or a thing’ is defined as,
(a) a legal or equitable estate or interest in the property or thing; or
(b) a right, power or privilege in connection with the property or thing
whether present or future and whether vested or contingent.
The Master concluded that having regard to the provisions of ss 25 and 3 of the Act, CEG as holder of unregistered mortgages over the properties had an ownership interest in them within the definitions set out in s 3. He also found that the caveats lodged by CEG in consequence of these mortgages, brought them within the definition of ‘any other person the DPP reasonably believes may have an interest’ regarding notice to be provided under s 25(1)(a).
The Master found that the DPP was aware of CEG’s interest in the properties at the time the application for the restraining order was filed, as the caveats had been registered and appeared on the titles at the Lands Titles Office at that date. In coming to this conclusion, the Master relied upon an affidavit of Detective Brevet Sergeant Michael Wilson of SA Police sworn on 12 May 2018.[2] The Master noted that at paragraphs 9.4 and 10.4 of Mr Wilson’s affidavit, he had confirmed knowledge of CEG’s caveats. He had testified however that it had been his opinion that the caveats were not relevant to the restraining order application in respect of the properties. As a result, CEG was not served with the DPP’s application for a restraining order.
[2] FDN 2.
The Master found that contrary to the opinion of Mr Wilson, CEG had clearly established ownership of its mortgages and in those circumstances the caveats were in fact relevant. He also noted that, at the hearing before him, counsel for the DPP in her submissions, acknowledged that Mr Wilson’s statement regarding the relevance of the caveats may not have been correct.[3]
[3] T19.34.
The Master then relied upon ss 36 and 40 of the Act to support his conclusion that the restraining order should be varied to include the unregistered mortgages held by CEG over the properties.
Section 36 of the Act provides that:
(1)   A person may apply to the Court to exclude specified property from a restraining order at any time after being notified of the order;
(2)   However, unless the Court gives permission, the person cannot apply if the person
(a)   appeared at the hearing of the application for the restraining order; or
(b)was notified of the application for the restraining order but did not appear at the hearing of the application;
(3)   The Court may give the person permission to apply if the Court is satisfied that:
(c)If subsection (2)(a) applies, the person now has evidence relevant to the person’s application that was not available to the person at the time of the hearing; or
(d)If subsection (2)(b) applies, the person had a good reason for not appearing; or
(e)In any case, there are special grounds for giving the permission.
The Master found that CEG was not notified of the hearing of the initial application for restraining order and that this explained their non-attendance at the first hearing before Judge Millsteed. CEG was not seeking to have the properties themselves excluded from the orders. Their application was confined to having the mortgages excluded, as was the case with the registered mortgages on the properties. The Master also found that the delay in registration of CEG’s mortgages was occasioned by the restraining order. This meant that it could not enforce its mortgages which caused significant prejudice and loss. The Master found that those matters constituted special grounds for giving permission to CEG to apply to vary the order pursuant to sub-section (3)(c).
The Master found that by s 36, a procedural provision of the Act, the application for exclusion of the mortgages could be brought by CEG.
The Master then relied upon s 40 of the Act to vary the restraining order noting that this provision gave the Court broad powers. Section 40 provides that:
(1)   The court that made a restraining order, or any other court that could have made the restraining order, may make any ancillary orders that the court considers appropriate including (without limiting the generality of this subsection) any of the following orders—
(a)   an order varying the property covered by the restraining order;
(b)   an order varying a condition to which the restraining order is subject;
(2)   The court may only make an ancillary order on the application of—
(a)   the DPP; or
(b)   the owner of the property covered by the order; or
(c)   if the Administrator was ordered to take custody and control of the property—the Administrator; or
(d)   any other person who has the permission of the court.
(5)   An ancillary order may be made—
(a)   if made by the court that made the restraining order—when making the restraining order; or
(b)   in any case—at any time after the restraining order is made.
The Master found that the application by CEG came within s 40 as it was the owner of mortgages relating to the property, and this brought them within the definition of ‘owner’ as set out in s 3. He found in the alternative that the application made by CEG could be made on the basis of it being brought by any other person who had the permission of the Court (sub-section (2)(d)).
The Master found that s 40 gave the Court a wide discretion, and that it was appropriate that permission be granted. In particular, the Master found that by s 74 of the Act the properties would be forfeited to the Crown upon conviction of the defendant, after payment of the amounts owing to AFSH, if the mortgages held by CEG were not excluded.
The DPP submitted that CEG could bring application once there had been a conviction pursuant to Division 2(2) of the Act, and that in any event by s 74, there was a six-month grace period after conviction before forfeiture could occur. Counsel for CEG however observed that the defendant’s arraignment was to occur on 20 September 2019 and if there was a not guilty plea, then his trial might not occur for a significant period of time. In the meantime, CEG would be holding a negative equity in the properties, which would increase with time and they would suffer ongoing prejudice. It was submitted that with significant delay CEG might not even recover its principal (before interest), as AFSH’s debt (including interest payable to them) would be paid first from any sale of the properties.
The Master accepted that the delay in CEG’s ability to register its mortgages and enforce them was causing it significant prejudice and loss, with interest continuing to accrue on the outstanding debt and the equity in the properties diminishing. In all the circumstances, he found that the orders sought by CEG to vary the restraining order by excluding the unregistered mortgages should be made.
Principles governing the Stay Application
The application for a stay is made by interlocutory application pursuant to rule 300 of the District Court Civil Rules 2006 (SA).
There is no dispute between the parties that when considering whether a stay should be ordered pending appeal, the primary issue is whether the justice of the case warrants a stay being ordered, it being accepted that an appeal does not operate as a stay in its own right. As set out by Kelly J in Ian Rodda Pty Ltd v Rodda,[4] there are three factors which an applicant seeking a stay must discharge for a court to be satisfied that a stay should be ordered. These are at [5] of the decision:
1.    that the appeal raises a serious issue for determination by an appellate court;
2.    that there is a real risk that the appellant will suffer prejudice or damage of some significance if the stay is not granted, which prejudice or damage could not be redressed by a successful appeal; and
3.    that the balance of convenience favours the granting of a stay.
[4] [2015] SASC 149.
In relation to the balance of convenience, Kelly J stated that for a stay to be granted: ‘the potential detriment to the applicant if the stay is refused and the appeal is successful, will outweigh the potential detriment to the respondent if the stay is granted and the appeal is dismissed’.[5]
[5] Ibid at [5].
It was noted by Stanley J in Playford Vineyard Pty Ltd v Wishford Nominees Pty Ltd (No 2)[6] that the Court on a stay application generally proceeds from a starting point that the decision below was correct and that the party that had been successful at trial is entitled to the benefit of the judgment obtained. He also noted that an important consideration is that a successful appellant should not be deprived of the fruits of a successful appeal by lack of funds, as set out in North Flinders Mines v Hartogen Energy Ltd (No 2).[7]
[6] [2018] SASC 152 at [22].
[7] (1988) 52 SASR 14 at 16.

The DPP as appellant contends that if the stay is not granted, then any interest that CEG has in respect of the properties will not be covered by the restraining orders. This means that CEG is at liberty to register the mortgage document of 8 June 2018 and in due course proceed to sell the properties. If sale was to take place, then the total amount owed pursuant to the mortgage would not be covered by the terms of the restraining order.
Merits of the proposed appeal
The DPP relies upon the public interest elements of the Act being interpreted correctly to ensure that the purpose of the Act is not circumvented. The Act was enacted to provide for the confiscation of proceeds and instruments of crime as well as the forfeiture of property used to facilitate crime. By s 24, the court must make a restraining order with respect to specified property, once satisfied that a person has been charged with a serious offence, and when there are reasonable grounds to suspect that specified property is either the proceeds of or an instrument used in the commission of a serious offence.
The defendant in this matter, Mr Vitale, was arrested on 9 May 2018 in respect of alleged offending relating to possession of approximately 10 to15 litres of the drug known as Fantasy. He is a suspect to which the provisions of the Act apply. The DPP submits that the confiscation of Mr Vitale’s property should not be frustrated by the Master’s orders. The DPP’s submission is that the Master has incorrectly applied the procedural provisions of the Act.
The DPP argues that the Master’s decision is based on an error of law in relation to his construction of ss 36 and 40 of the Act. Applying principles of statutory interpretation, the DPP’s argument is that both ss 36 and 40 are procedural provisions which allow persons in the position of CEG to bring an application to exclude property from a restraining order and to allow the Master to make ancillary orders in relation thereto. However, there are matters that the Court must be satisfied of before granting orders under ss 36 or 40. They are set out in s 34 of the Act. The DPP argues that the Master did not turn his attention to the provisions of s 34, which contain the conditions to be met before an order can be made for exclusion of a property interest from a restraining order.
Section 34 provides that a court may exclude property from a restraining order as follows:
(1) The court to which an application for a restraining order under section 24(1)(a) or (b) was made may, when the order is made or at a later time, exclude specified property from the order if—
(a)   an application is made under section 35 or 36; and
(b)   the court is satisfied that—
(i)the property is neither proceeds nor an instrument of unlawful activity; and
(ia)—
(A) if the suspect has been convicted of the serious offence to which the restraining order relates … or
(B) if the suspect has not been convicted of the serious offence to which the restraining order relates—
•the suspect would not become a prescribed drug offender if convicted of the offence; or
•the suspect would become a prescribed drug offender if convicted of the offence, but the property is not owned by or subject to the effective control of the suspect or is property that should not be subject to the restraining order in accordance with section 24(5a); and
(ii)the owner's interest in the property was lawfully acquired; and
(iii)it would not be contrary to the public interest for the property to be excluded from the order.
(2)   However—
(a)the court must not exclude property from a restraining order unless satisfied that neither a pecuniary penalty order nor a literary proceeds order could be made against—
(i)the person who owns the property; or
(ii)if the property is not owned by the suspect but is subject to his or her effective control—the suspect; and
(b)the court must not exclude property from a restraining order unless satisfied that the property could not be subject to an instrument substitution declaration if the suspect were convicted of the offence.
(3)   Despite any other provision of this section, if a court has, in determining sentence in respect of a person's conviction of a serious offence, taken into account any forfeiture of property under this Act that might result from conviction for the offence, the property cannot be excluded from a restraining order relating to the offence on application made by the convicted person.
The DPP submits that s 34 grants the power to the court to exclude specified property from a restraining order and that the Master did not consider this section in his reasons. They say that s 34(1)(a) makes it clear that the application seeking exercise of the power to exclude is to be made under either s 35 or s 36. That is the procedural section.
The DPP argues that s 34(1)(b) mandates a number of conditions that the court must be satisfied of before an order excluding specified property is made and that properly construed, the power in s 40 to make ancillary orders, including an order varying the property covered by a restraining order, cannot be used so as to circumvent the limited and conditional avenues for exclusion expressly prescribed for in s 34 of the Act. That is, that ss 36 and 40 are the statutory vehicles by which an application is brought, and the orders sought pursuant to s 34. However, they do not remove the requirement for the conditions set out in s 34 to be satisfied.
The DPP submits that the Master has failed to consider the requirements to be met in s 34 instead erroneously using s 40 of the Act as the basis for the exclusion order granted to CEG.
The second submission of the DPP is that the evidence filed in support of CEG’s application did not provide a sufficient basis for the Master to be satisfied that the mandatory conditions prescribed for exclusion as set out in s 34(1)(b)(ii) and (iii) had been met by CEG.
It is not my role to hear the substantive merits of the appeal by this application for a stay, however, I note that the DPP contends that the documents relied upon by CEG that are said to evidence equitable interests in the properties were first created on 8 June 2018.[8] This was after the DPP’s application for a restraining order had been made and served on the defendant, and only a few days prior to the restraining order being made. The DPP submits that no evidence had been led in respect of the circumstances surrounding the execution of the mortgage document on 8 June 2018, which was at a time when the defendant was on home detention bail, had been served with the restraining order application, and when the mortgage purported to secure lending incurred a compounding obligation to pay interest at somewhere between 3% to 10% per month. The defendant was aware of the application for the restraining order over his properties by 30 May 2019 as testified by Mr Wilson in his second affidavit sworn on 31 May 2019.[9] All documents were served upon his solicitor by email on 31 May 2019.[10]
[8] Affidavit of Vincent Ventrice sworn 23 May 2019 at paragraph 7(FDN 10).
[9] FDN 4 Paragraph 5.
[10] FDN 4 Paragraph 8.
The DPP’s position is that the Master could not be satisfied in those circumstances that it was not contrary to public interest for CEG’s unregistered mortgage(s) to be excluded from the restraining order.
Finally, it was argued that there was a serious issue to be tried as to whether the mortgage of 8 June 2018 over the properties was contrary to public interest by reason of s 12(c)(b) of the Australian Securities and Investment Commission Act 2001 (Cth). That section deals with unconscionable conduct in connection with the supply of financial services. The DPP submitted that it was unconscionable for CEG to take new security over the properties in circumstances where the defendant had been charged with serious criminal offending and was on home detention bail, while also subject to an application for restraining order under the Act, and where there was at least a substantial risk the defendant would default on the loan. It was also submitted that it was unconscionable to enter into a loan which would likely continue for a long period of time in the context of very high compounding interest obligations.[11] It could not be said that it was in the defendant’s objective interests to execute a new mortgage at that time in respect of loan monies already advanced.
[11] Relying on PSAL Lyd v Kellas-Sharpe [2012] QSC 31 at [115]-[120].
The respondents to the appeal argue that it has no reasonable prospects of success, as it is clear CEG has an equitable interest in the properties and a right to register its mortgages pursuant to the definition of ‘property’ and ‘interest in property’ contained within s 3 of the Act. CEG argue that their equitable interest in the properties first arose in November 2013 pursuant to a loan agreement that specifically stated that the Henley Beach South property was given as security. A Memorandum of Mortgage was signed on 27 November 2013 whereby the defendant charged that property to secure the outstanding balance owing under the loan contract from time to time. CEG then later registered a caveat over the Henley Beach South property on 20 April 2017 and over the Glenelg North property on 30 April 2018 claiming an interest under the loan agreement of 27 November 2013. There were deeds of variation in May 2018 which confirmed the security over the properties.
CEG’s position is that the defendant executed a further mortgage over the properties on 4 May 2018. I discuss below that the evidence is not clear as to whether this is in fact the date that the mortgage was executed. However, CEG argue, in any event, an agreement to give a mortgage amounts to an equitable mortgage, and therefore they had ‘interest in property’ relative to the properties to be restrained, for the purposes of the Act, even before any mortgage was signed. This was by way of the terms of the loan agreements signed between 7 March 2017 and 4 May 2017.[12] This interest in the properties was therefore held by CEG before the DPP’s application for a restraining order was filed on 1 June 2018 and before the restraining order was made on 12 June 2018. The argument is that CEG’s equitable interest predated the application and the restraining order. CEG submit that in the circumstances, they have an interest in the properties that should be excluded from the restraining order in the same way the registered mortgages have been excluded. CEG’s case is that the DPP is wrong in its position that the mortgage post-dated the defendant’s arrest on 9 May 2018 and the post-dated the DPP’s application for a restraining order. Although the later mortgages were dated 8 June 2018, they were executed by the defendant on 4 May 2018.[13]
[12] Affidavit of Vincent Ventrice sworn 23 May 2019 at paragraphs 5 – 7 and at pages 30-61 of exhibit VV-1 (FDN 10).
[13] Page 61 of Affidavit of Vincent Ventrice sworn 23 May 2019 (FDN 10).
That argument is not supported by the affidavit of Vincent Ventrice. At paragraph 7 he specifically states that the second mortgage, being the one over both properties was executed by the defendant on 8 June 2018.[14] This is an important factual issue to be determined on appeal.
[14] FDN 10.
CEG’s very clear position, as put to the Master, is that the restraining order was made in breach of s 25 of the Act as the DPP failed to serve the application seeking the restraining order, as it was clearly required to do under the mandatory terms of s 25(1)(a)(ii) of the Act. By failing to notify CEG of the application, and the restraining order being granted, they were prevented from registering their mortgage and enforcing their security. CEG argues that natural justice required that it should have been heard on the application, particularly given that Officer Wilson in his affidavit deposed to knowledge of the caveats held by CEG and specifically stated that the caveats were not relevant to the application for a restraining order.[15]
[15] FDN 2 paras 9.4 and 10.4.
CEG argue that an applicant for an injunction (or in this case a restraining order) has a duty of candour to the court relying upon the decision of Isaacs J in Thomas A Edison Ltd v Bullock.[16]There is a duty owed by a party asking for an injunction ex-parte to bring to the notice of the court all facts material to the determination of the right to that injunction. It is not an excuse to say that they were not aware of their importance. Unless the party seeking the injunction places all facts before the court, then the implied understanding upon which the court acts in forming its judgment can be incorrect. Any order so obtained should fail. It is argued that in this case, as the application was not served on CEG when it should have been, there is an irregularity in the order and it should not be allowed to stand.[17]
[16] (1912) 15 CLR 679 at 681-682.
[17] Relying on Victoria Teachers Credit Union v KPMG [2000] 1 VR 654 at 655.
It should be noted however that this was not strictly an ex-parte application. The DPP had served the application and supporting documents upon the defendant vis his solicitor. The defendant could have disclosed the existence of the loan agreements and any mortgages to the court of to the DPP.
It is the position of CEG that due to material non-disclosure to the court by the DPP, the original restraining order had to be amended to exclude the equitable mortgages held by them. It is argued by CEG, that pursuant to s 40 of the Act the court has power to vary the order and correctly did so, as that order against CEG should never have been made in the first place. CEG argues that the position taken by the DPP does not address the court’s inherent power to set aside an order that was improperly obtained, and therefore the appeal has no reasonable prospect of success.
CEG argues that their position is no different to the position of the holders of the registered mortgages, AFSH. As holders of an equitable mortgage, they are to be treated in the same way as holders of other mortgages. There is no evidence that, due to the timing of when the monies were advanced to the defendant in May 2018, the security held by CEG would be set aside, or that the defendant did not have to repay the monies owed pursuant to the loan agreements.
Having reviewed the Act and heard submissions from both parties, it is clear that there are complex issues to be determined in relation to the statutory construction of the Criminal Assets Confiscation Act 2005 (SA). Those issues have not previously been determined and it is a matter of statutory interpretation that may have consequences on how the scheme under the Act is to be applied in the future.
It is also not clear on the evidence when the second mortgage was executed by the defendant and this could be an issue on appeal if this was in fact after the defendant was arrested and used by him to frustrate the application of the Act.
While the issue of the DPP’s failure to give notice to CEG of the application seeking the restraining order when they had knowledge of the caveats CEG held over the properties, is a compelling one against the appeal succeeding, I cannot find that the grounds of appeal are completely without merit.
In reviewing the Act and the interplay between ss 34, 36 and 40, I find that there is an arguable case that the Master has relied upon procedural sections in coming to his conclusion, and that he has not considered whether the conditions set out in s 34 have been satisfied. I find that the appeal does raise a serious legal issue to be determined. I note that, although relying upon the court’s power in s 40 (as used by the Master for his decision) as reason why the appeal should fail, CEG’s counsel did concede that there was an arguable point in relation to the use of s 36 and its relationship to s 34.[18]
[18] T30.34 -38.
Given the legal technicalities to be argued and determined in relation to the Act, and the entire statutory scheme in relation to confiscation of assets of crime, I find that the appeal raises a serious issue to be determined.
Real risk of prejudice to the applicant and balance of convenience
The DPP’s submissions are that if the Master’s orders are not stayed, then CEG would be at liberty to register the mortgage documents dated 8 June 2018, which would then give them additional rights in relation to the properties, including the ability to sell them. If that was to occur, then as set out above, on information provided by CEG, the value of the properties would not cover the terms of the restraining order once both registered and equitable mortgages were paid out. The DPP submitted that such a result would cause damage to the public interest in the legislative scheme set up by the Act. That result was not what Parliament intended by the statutory scheme, given the interrelationship between ss 34, 36 and 40 of the Act, and the fact that there had not been any proper consideration of whether CEG had satisfied the conditions mandated by s 34 of the Act.
CEG in their submissions confirmed that the amounts owing against all mortgages exceeds the equity in the property, and that the equity was being gradually eroded by additional interest owed by the defendant to both CEG and AFSH.
CEG submitted that it is unlikely that the properties could be sold before the appeal in this matter is determined as the mortgages have not yet been registered (because of the current stay order) and the properties have not been placed on the market for sale. It was submitted that CEG would need to register the mortgages then issue a notice of default. Pursuant to the provisions of the Real Property Act 1886, thirty-one days must then elapse before an order for possession of the properties could be issued. That may require court intervention, and thereafter the properties would have to be marketed. Alternatively, CEG could seek to enforce the equitable mortgage through a default notice and issue an application in the court under the Real Property Act for judicial sale. This again would involve time to market the property and sell it. CEG’s position is that there is little to no risk of imminent sale of the properties. However, by delaying CEG’s ability to start the process, the whole timeframe is delayed further. This prejudices CEG as its return diminishes with any delay given the lack of equity in the properties. Even so, if the stay is lifted, CEG is prepared to provide an undertaking not to sell the properties for thirty days.
The registered mortgages to AFSH are already excluded from the restraining order and they could now take steps to sell the properties. AFSH have not yet done so. However, given that those mortgages are to be paid out first, then even at the 19 August 2019 figures there would only be an amount of $1,035,038.60 left to be recovered by CEG on their debt, which at August totalled $1,197,683.03. This is without taking account of any reduction for expenses of sale, and the increase in the debt to AFSH as interest continues to run.
CEG’s counsel very strongly urged that it would be very unfair, if not unjust, for CEG to have to now wait to action its interest in the properties, given that it has the benefit of an order from the court allowing it to act, and particularly in circumstances where the restraining order should not have been obtained in the first place without notice of the application been given to CEG.
CEG’s case is that if the appeal succeeds, it is in a position to repay any monies to the DPP received from the sale, as CEG is a national financial lender. The submission is that the DPP will not suffer loss if the properties are sold. In addition, as AFSH could take that step now, it is only the balance left and payable to CEG which will be in dispute should the appeal be successful.

The DPP’s response to that submission is that if the properties are sold before the appeal is heard and monies recovered by CEG, then if the appeal is successful, there is no mechanism in the Act for the monies paid to CEG to be reclaimed by the DPP. The Act provides for forfeiture of assets owned by certain offenders, and once the assets have been disposed of, the DPP has no right to reclaim those assets (or the money obtained by their sale) from a third party. That is the whole purpose for obtaining a restraining order at an early stage, and before criminal proceedings are concluded. If the stay is lifted, there will be loss by the public that cannot be remedied.
The DPP indicated that it is prepared to enter into an undertaking that would see them submit to any order made by the Court for payment of compensation to CEG, as assessed by the court, in respect of any loss suffered by CEG as a direct consequence of the stay order in the period between 14 October 2019 and the final determination of the appeal filed on 30 September 2019.
Taking all matters into account, and particularly the lack of mechanism for recovery of funds by the DPP if the appeal is successful after the properties are sold and the factual issue as to when the later mortgage was executed by the defendant, I am satisfied on the balance of convenience that it is appropriate that I do not remove the stay granted by this court on 1 October 2019 and extended until further order on 14 October, upon the undertaking as to compensation provided by the DPP on behalf of the Crown in the order of 14 October 2019.
In relation to the question of costs of the DPP’s application, it has been agreed that the costs of the application for a stay and the argument in relation thereto are to be costs of the appeal. I make no further order as to costs.