Commissioner of the Australian Federal Police v Hart

HIGH COURT OF AUSTRALIA

KIEFEL CJ,
BELL, GAGELER, GORDON AND EDELMAN JJ

Matter No B21/2017

COMMISSIONER OF THE AUSTRALIAN
FEDERAL POLICE  APPELLANT

AND

STEVEN IRVINE HART & ORS  RESPONDENTS

Matter No B22/2017

COMMONWEALTH OF AUSTRALIA   APPELLANT

AND

YAK 3 INVESTMENTS PTY LTD AS TRUSTEE
FOR YAK 3 DISCRETIONARY TRUST & ORS               RESPONDENTS

Matter No B23/2017

COMMONWEALTH OF AUSTRALIA & ANOR                 APPELLANTS

AND

FLYING FIGHTERS PTY LTD & ORS  RESPONDENTS

Commissioner of the Australian Federal Police v Hart
Commonwealth of Australia v Yak 3 Investments Pty Ltd
Commonwealth of Australia v Flying Fighters Pty Ltd

[2018] HCA 1

7 February 2018

B21/2017, B22/2017 & B23/2017

ORDER

Matter No B21/2017

Appeal dismissed with costs.

Matter No B22/2017 and Matter No B23/2017

1.Appeal in Matter No B22/2017 allowed in part.

2.Appeal in Matter No B23/2017 allowed.

3.Set aside the orders of the Court of Appeal of the Supreme Court of Queensland made in Appeal No 4987/13 on 29 August 2016 and 8 November 2016, and orders 1, 4(a), (b), (e) and (f), 5, 7 to 9, and 11 to 18 of that Court made in Appeal No 3908/13 on 8 November 2016, and in their place make the following orders and declarations:

(a)each appeal be allowed in part;

(b)in Appeal No 3908/13, declare that:

(i)Nemesis Australia Pty Ltd had legal ownership of Lot 56 on Registered Plan 188161, also known as 6 Merriwa Street, subject to the rights of the mortgagee under the mortgage in favour of Countrywide Co‑operative Housing Society Ltd and the chargee under a mortgage debenture in favour of Merrell Associates Ltd, immediately prior to its forfeiture to the Commonwealth on 18 April 2006; and

(ii)upon satisfaction of the mortgage in favour of Countrywide Co‑operative Housing Society Ltd and upon satisfaction of the amount of $1.6 million secured by the mortgage debenture in par (i), if any part of the proceeds of sale of 6 Merriwa Street has not been applied to meet that liability, the balance of proceeds then remaining (if any), together with interest on that balance, is payable by the Commonwealth to Nemesis Australia Pty Ltd; and

(c)in each of Appeal No 3908/13 and Appeal No 4987/13, each party bear its own costs.

On appeal from the Supreme Court of Queensland

Representation

S P Donaghue QC, Solicitor-General of the Commonwealth and G J D del Villar with J Freidgeim for the appellants (instructed by Commissioner of the Australian Federal Police, Criminal Assets Litigation)

B W Walker SC with A J Greinke and G C Dempsey for the respondents (instructed by James Conomos Lawyers)

Notice:  This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Commissioner of the Australian Federal Police v Hart
Commonwealth of Australia v Yak 3 Investments Pty Ltd
Commonwealth of Australia v Flying Fighters Pty Ltd

Criminal law – Forfeiture of property – Where restraining orders made in respect of certain property suspected of being under effective control of person suspected of certain offences – Where person convicted of offences – Where property automatically forfeited to Commonwealth under s 92 of Proceeds of CrimeAct 2002 (Cth) – Where companies associated with convicted person applied for orders under s 102 of Proceeds of Crime Act for recovery of interests, or amounts equal to value of interests, in forfeited property – Whether forfeited property "not used in, or in connection with, any unlawful activity" within s 102(3)(a) of Proceeds of Crime Act – Whether "use" requires that property be necessary for or have made unique contribution to unlawful activity – Whether degree of use must be proportionate to forfeiture of property – Whether forfeited property "not derived or realised, directly or indirectly, by any person from any unlawful activity" within s 102(3)(a) of Proceeds of Crime Act – Whether property "derived" if wholly or partly derived from unlawful activity – Whether degree of derivation must be substantial – Whether forfeited property "acquired ... lawfully" within s 102(3)(b) of Proceeds of Crime Act – Whether applicant must prove each step in process of acquisition lawful – Whether applicant must prove all consideration paid for property lawfully acquired.

Criminal law – Forfeiture of property – Application under s 141 of Proceeds of Crime Act 2002 (Cth) for order that forfeited property be available to satisfy pecuniary penalty order against convicted person – Where court must be satisfied property subject to effective control of convicted person – Whether effective control determined as at date of restraining order in respect of property or as at date of determination of application under s 141.

Words and phrases – "acquired the property lawfully", "derived", "directly or indirectly", "effective control", "forfeiture", "interest", "lawfully acquired", "partly derived", "proceeds of an offence", "proceeds of crime", "realised", "unlawful activity", "used in, or in connection with", "wholly derived".

Proceeds of Crime Act 2002 (Cth), ss 5, 6, 16, 17, 18, 24, 24A, 25, 26(4), 29, 42, 44, 66, 67, 92, 102, 104, 116, 141, 314, 315, 317, 329, 330, 337, 338.

1. KIEFEL CJ, BELL, GAGELER AND EDELMAN JJ.   Three appeals are brought from a decision of the Court of Appeal of the Supreme Court of Queensland[1] on appeal by way of rehearing from the decision of the District Court of Queensland[2] in a matter arising under the Proceeds of Crime Act 2002 (Cth) ("the POCA"). Two of the appeals turn on the construction and application of s 102(3) of the POCA, in the form in which that section existed in 2006 before it was substantially amended in 2010[3]. The third of the appeals turns on the construction and application of s 141 of the POCA, in the form in which it existed in 2006 and continues to exist.

   [1]Commissioner of the Australian Federal Police v Hart (2016) 336 ALR 492.

   [2]Commonwealth Director of Public Prosecutions v Hart [2013] QDC 60.

   [3]Crimes Legislation Amendment (Serious and Organised Crime) Act (No 2) 2010 (Cth).

2. The procedural history of the appeals and the relevant provisions of the POCA are comprehensively set out in the reasons for judgment of Gordon J, with whose factual analysis and legal conclusions we agree. On the construction and application of s 141 of the POCA, we have nothing to add to what her Honour has written. It is necessary only to mention a few matters of fact by way of background to the issues which arise as to the construction of s 102(3) of the POCA.

3. Mr Steven Hart was an accountant who operated tax minimisation schemes. He was convicted of nine offences of defrauding the Commonwealth in contravention of s 29D of the Crimes Act 1914 (Cth). Pursuant to s 92 of the POCA property, including that of companies with which he was associated ("the Companies") and which had previously been the subject of a restraining order, was automatically forfeited to the Commonwealth.

4. The Companies filed an application under s 102 of the POCA seeking orders for recovery of their interests in certain of the forfeited property, or the payment by the Commonwealth of an amount equal to the value of their interests. The Commonwealth Director of Public Prosecutions applied under s 141 for a declaration that the property the subject of the s 102 application was available to satisfy any pecuniary penalty order made against Mr Hart. A pecuniary penalty order was subsequently made. It required Mr Hart to pay $14,757,287.35 to the Commonwealth.

   Construction of s 102(3) of the POCA

5. Section 102(1) provides that where property is forfeited to the Commonwealth under s 92, the court that made the restraining order may, on the application of a person who claims an interest in the property, make an order declaring the "nature, extent and value" of the applicant's interest in the property. The court may make further orders directing the Commonwealth to transfer the interest to the applicant or declaring that there is payable by the Commonwealth to the applicant an amount equal to that value.

6. An order under s 102(1) can only be made if the court is satisfied as to the grounds set out in s 102(2) and (3). The focus in these appeals is on the conditions stated in s 102(3). Those conditions, which the applicant by force of s 317 bears the onus of proving on the balance of probabilities, include that:

   ."the property was not used in, or in connection with, any unlawful activity" ("the use condition");

   ."the property ... was not derived or realised, directly or indirectly, by any person from any unlawful activity" ("the derivation condition"); and

   ."the applicant acquired the property lawfully" ("the acquisition condition").

7. Proof of those conditions is proof in a State or Territory court invested with jurisdiction under s 314 of the POCA in a matter arising under the POCA and in a proceeding which by force of s 315 is civil to which the Commonwealth is a necessary party. It is proof in an adversarial proceeding conducted in accordance with the civil procedure of that court[4], including such procedure as exists in that court for the definition of issues between parties.  The primary judge and the Court of Appeal were correct in taking the view that, where an application for orders under s 102 proceeds on pleadings, an applicant need not negative possibilities which the Commonwealth does not raise in its defence[5].  

   [4]Cf Mansfield v Director of Public Prosecutions (WA) (2006) 226 CLR 486 at 491 [7]; [2006] HCA 38, citing Electric Light and Power Supply Corporation Ltd v Electricity Commission of NSW (1956) 94 CLR 554 at 560; [1956] HCA 22.

   [5]Commissioner of the Australian Federal Police v Hart (2016) 336 ALR 492 at 678-679 [935]. See also Director of Public Prosecutions (Cth) v Jeffery (1992) 58 A Crim R 310 at 313-314.

8. "[T]he property" referred to in the use condition and in the derivation condition is the property once the subject of the restraining order that has been forfeited to the Commonwealth under s 92. The property, ordinarily the "thing"[6], is that which at the time of the application has vested absolutely in the Commonwealth under s 96 by reason of the forfeiture that has occurred, in which the applicant claims to have had an interest at the time of forfeiture that the applicant would have retained had forfeiture not occurred. Read with the definitions of "property" and of "interest" in s 338, the reference to "the property" in the use condition and in the derivation condition extends also to any legal or equitable estate or interest in the forfeited thing and any right, power or privilege in connection with that thing.

   [6]Cf Director of Public Prosecutions (Cth) v Hart (No 2) [2005] 2 Qd R 246 at 257 [20].

9. "[U]nlawful activity", referred to in the use condition and in the derivation condition, is defined in s 338 to mean an act or omission that constitutes an offence against a law of the Commonwealth or against a law of a foreign country or an indictable offence against a law of a State or Territory.

10. Satisfaction of the use condition requires proof by an applicant on the balance of probabilities that the thing forfeited was not used in, or in connection with, an act or omission that constituted a relevant offence, and that no legal or equitable estate or interest in that thing and no right, power or privilege in connection with that thing was used in, or in connection with, an act or omission that constituted a relevant offence.  Consistently with the construction of equivalent language adopted by the Full Court of the Supreme Court of South Australia in Director of Public Prosecutions v George[7], use in or in connection with an act or omission that constituted a relevant offence is a broad conception involving practical considerations which do not readily admit of detailed exposition in the abstract.  The conception requires neither a causal link between the property and the offence nor that the property was necessary for the commission of the offence or made a unique contribution to the commission of the offence.  Implicit in the expression of the condition is that the use can be by any person.  Implicit also is that the degree of use need not be proportionate to the forfeiture that has occurred.

    [7](2008) 102 SASR 246.

11. Satisfaction of the derivation condition requires proof by an applicant on the balance of probabilities that the thing forfeited (and every legal or equitable estate or interest in that thing, and every right, power or privilege in connection with that thing) was not "derived or realised", directly or indirectly, by any person from an act or omission that constituted a relevant offence.  The term "realised" in this context adds nothing of significance to the term "derived".  There is a definition of "derived" in s 336, but because that definition is limited to "[a] reference to a person having derived proceeds, a benefit or literary proceeds", that definition has no application to the derivation condition.  The definition, in any event, is inclusive rather than explicatory. 

12. Section 329, defining when property is "proceeds of an offence", and s 330, defining when property becomes, remains and ceases to be "proceeds of an offence", are nevertheless instructive because they indicate the sense in which "derived" is used in the POCA. Absent any contrary indication in s 102, the sense in which the term is used in those sections can accordingly be taken to indicate the sense in which the term is used in the derivation condition.

13. One of the principal issues on appeal to this Court concerns the approach of the Court of Appeal to the derivation condition.  The majority considered that the condition would be satisfied where an asset was derived from a combination of sources of funds, some of which were not tainted as proceeds of the commission of an offence.  In their Honours' view, the only circumstance in which the condition would not be satisfied was where the asset was "wholly derived" from the commission of an offence[8].

    [8](2016) 336 ALR 492 at 654-655 [832], 675 [921], 676 [923], 700 [1027].

14. Contrary to the conclusion of the majority of the Court of Appeal, s 329(1) and (4) indicate that property can be derived from an act or omission that constitutes a relevant offence even if the property is not "wholly derived" from that act or omission. In that respect, the juxtaposition of s 329(1)(a) and s 329(1)(b) makes clear that property is sufficiently derived from the act or omission that constitutes the relevant offence if the property is either "wholly derived" or "partly derived" from the act or omission. In either case, the property is "derived". The difference between the two cases is one of degree. Property would not answer the description of being "partly derived" from an act or omission if the degree of derivation were no more than trivial[9].  Beyond that, however, there is no requirement that the degree of derivation must be substantial.  And there is no requirement that the degree of derivation must be proportionate to the forfeiture that has occurred.

    [9]Cf Williams v The Queen (1978) 140 CLR 591 at 602; [1978] HCA 49.

15. Section 330(1) is also important in indicating that property can be derived from an act or omission that constitutes a relevant offence by reason of being wholly or partly derived from a disposal of, or other dealing with, other property that has been derived from that act or omission.

16. Conformably with the question of whether property has been used in or in connection with a relevant offence, the question of whether property has been derived by a person from an act or omission that constitutes a relevant offence turns on considerations of substance and economic reality which can be expected to vary in different factual settings.  Derivation might in one factual setting be constituted by a non-trivial causal connection between the relevant act or omission and the acquisition or continued holding by the person of the thing forfeited (or a legal or equitable estate or interest in that thing, or a right, power or privilege in connection with that thing).  Derivation might in another factual setting be constituted by the act or omission resulting in money or some other property being disposed of or otherwise dealt with so as to make a non-trivial contribution to payment for the thing forfeited (or a legal or equitable estate or interest in that thing, or a right, power or privilege in connection with that thing).  Those examples are not exhaustive.  As with the use condition, the derivation condition does not lend itself to detailed exposition in the abstract.

17. Contrasting with the same term in the use condition and in the derivation condition, "property" in the acquisition condition can only refer to the interest in the thing forfeited that is claimed by the applicant.  The focus of the acquisition condition is on the process by which the applicant came to hold that interest.  The applicant must prove that each step in that process was lawful.  Where the applicant purchased the property, to prove that the applicant acquired the property lawfully the applicant must prove that all of the consideration for the acquisition was lawfully acquired. 

    Application of s 102(3) of the POCA

18. Against the background of the factual analysis undertaken by Gordon J, application of the three critical conditions imposed by s 102(3) for the making of an order under s 102(1) is perhaps best illustrated by reference to four items of forfeited property.

19. Two of those items are the aircraft referred to as "the T-28" and "the North American Trojan" in each of which Flying Fighters Pty Ltd ("Fighters"), as registered owner at the time of forfeiture, claimed an interest.  The other two are the items of real property respectively referred to as Doonan's Road, Grandchester ("Doonan's Road"), of which Bubbling Springs Pty Ltd ("Bubbling") was registered owner at the time of forfeiture and in which it claimed an interest, and 6 Merriwa Street, Sunnybank Hills ("Merriwa Street"), of which Nemesis Australia Pty Ltd ("Nemesis") was registered owner at the time of forfeiture and in which it claimed an interest.

    The T-28 and the North American Trojan

20. Fighters purchased a 50 per cent interest in the T-28 for $133,000 and later purchased the remaining 50 per cent interest in the T-28 for a further $149,100.  There was no dispute between Fighters and the Commonwealth that $83,100 of that further $149,100, amounting to approximately 29 per cent of the total purchase price of the T-28, was paid from a trust account out of an amount of $100,000 paid into that trust account by Merrell Associates Ltd ("Merrell") from an amount of $300,000 paid to Merrell by United Overseas Credit Ltd ("UOCL").  No issue was joined between Fighters and the Commonwealth as to the use condition.  The principal issues joined between Fighters and the Commonwealth were as to the derivation condition and the acquisition condition.

21. One of the unchallenged findings of the primary judge was that he was not satisfied on the balance of probabilities that funds sourced by Fighters from Merrell or UOCL did not result from actions of Merrell and UOCL which constituted offences against s 29D of the Crimes Act 1914 (Cth) or s 135.1(5) of the Criminal Code (Cth). That conclusion alone was sufficient to mean that Fighters failed to prove on the balance of probabilities that the T-28 was not derived, partly and indirectly, from unlawful activity of Merrell and UOCL. Fighters for that reason failed to establish the derivation condition.

22. Another of the unchallenged findings of the primary judge was that he was not satisfied on the balance of probabilities that receipt, possession and disposal by Fighters of money paid directly or indirectly by Merrell or UOCL to Fighters did not constitute offences against s 82(1) of the Proceeds of Crime Act 1987 (Cth) or s 400.9 of the Criminal Code (Cth) ("the money laundering offences"). That further finding was also sufficient to mean that Fighters failed to prove on the balance of probabilities that the T-28 was not derived, partly and indirectly, from unlawful activity of Fighters. Fighters for that additional reason failed to establish the derivation condition.

23. The finding of the primary judge concerning the money laundering offences was also sufficient to mean that Fighters failed to prove on the balance of probabilities that each step in the process by which it came to acquire its interest in the T-28 was lawful.  Fighters for that reason failed to establish the acquisition condition.

24. Fighters purchased the North American Trojan for $228,500.  The Commonwealth did not put in issue the source of the funds used by Fighters to pay that purchase price and no issue was joined as to the acquisition condition.  Issue was joined as to the use condition and as to the derivation condition by reference solely to an amount of $50,000 which Fighters later sourced from UOCL and spent on repairs.

25. There is nothing to suggest that undertaking the repairs contributed to Fighters continuing to own the North American Trojan at the time of forfeiture.  There is in the circumstances no other basis for considering that Fighters failed to establish the derivation condition.   

26. The primary judge's finding as to the money laundering offences makes the position in relation to the use condition different.  Given that the amount of money which Fighters spent on the repairs was not trivial and that it was sourced from UOCL, Fighters failed to prove on the balance of probabilities that the North American Trojan was not used in, or in connection with, the unlawful activity of disposing by Fighters of that amount which Fighters received from UOCL.

    Doonan's Road and Merriwa Street

27. The main issue concerning Doonan's Road is whether Bubbling succeeded in establishing the use condition given the finding of the primary judge that he was unable to be satisfied that Perpetual Nominees Ltd ("Perpetual") was not induced to lend to Bubbling and to Yak 3 Investments Pty Ltd ("Yak 3") by the making of a loan application which contained a fraudulent representation in contravention of s 408C(1)(f) of the Criminal Code (Q) ("the Perpetual offences") and by the proffering of Doonan's Road as security. The proffering of Doonan's Road as security for the Perpetual loans was a use of Doonan's Road. That use was not a use in the fraudulent act that constituted the Perpetual offences. But it was a use in connection with that fraudulent act: both formed material parts of a single proposal which was directed to and which resulted in Perpetual making the loans. Bubbling for that reason failed to establish the use condition.

28. Unlike Doonan's Road, Merriwa Street was not proffered as security for the Perpetual loans. Merriwa Street was not otherwise referred to in the transaction documents for the Perpetual loans. Nemesis did not by reason of the Perpetual offences fail to establish the use condition.

29. The main issue concerning Merriwa Street is whether Nemesis succeeded in establishing the derivation condition given the finding of the primary judge that the moneys loaned by Perpetual to Bubbling and to Yak 3 were sought and were used to repay part of a loan to Nemesis from the National Australia Bank ("NAB") in respect of which NAB had a mortgage over Merriwa Street. As explained by Gordon J, the primary judge did not find, and the evidence did not justify a finding, that repayment to NAB of the amounts of the loans made by Perpetual to Bubbling and to Yak 3 prevented NAB from exercising its rights over Merriwa Street so as to have been a cause of Nemesis continuing to have its interest in Merriwa Street at the time of forfeiture; indeed, the bulk of the funding used to repay NAB came from loans to Nemesis by Equititrust Ltd ("Equititrust"). Absent a basis for inferring such a causal connection to have existed, Nemesis did not by reason of the Perpetual offences fail to establish the derivation condition.

30. The final issue is whether Nemesis failed to establish the derivation condition in respect of Merriwa Street against the background of the finding of the primary judge that some of the moneys used to repay loans to Nemesis by Equititrust were sourced from UOCL.  As Gordon J explains, the amounts sourced from UOCL on which the Commonwealth relies in raising this issue were found by the primary judge to have amounted to no more than five per cent of the total repayments to Equititrust.  There is no basis for inferring those amounts may have been a cause of Nemesis continuing to have its interest in Merriwa Street at the time of forfeiture.

    Orders

31. We agree with the orders proposed by Gordon J.

32. GORDON J.   The Proceeds of Crime Act 2002 (Cth)[10] ("the POCA") is intended to, and does, prevent criminals from enjoying the fruits of their crimes, deprive them of the proceeds of and benefits derived from criminal conduct, prevent the reinvestment of those proceeds and benefits in further criminal activities, punish and deter breaches of laws, and enable law enforcement authorities to trace the fruits of offences[11]. 

    [10]The applicable version of the POCA for the purposes of these appeals is the POCA as at 13 July 2006, taking into account amendments up to the Law Enforcement Integrity Commissioner (Consequential Amendments) Act 2006 (Cth). The POCA, including s 102, was amended in 2010: see generally Crimes Legislation Amendment (Serious and Organised Crime) Act (No 2) 2010 (Cth). Whether, and to what extent, the changes would lead to a different outcome in these appeals is, of course, not decided.

    [11]s 5 of the POCA; Australia, House of Representatives, Proceeds of Crime Bill 2002, Explanatory Memorandum at 1-2.

33. It achieves these objects through a confiscation scheme[12] which provides for orders restraining persons from disposing of or otherwise dealing with particular property[13], forfeiture orders[14], automatic forfeiture of property following conviction of a serious offence[15] and pecuniary penalty orders[16]. 

    [12]See s 6 of the POCA.

    [13]Pt 2-1 of the POCA.

    [14]Pt 2-2 of the POCA.

    [15]Pt 2-3 of the POCA.

    [16]Pt 2-4 of the POCA.

34. These appeals raise issues about the construction and application of the provisions of the POCA allowing a court to make orders relating to the transfer of forfeited property. In particular, the appeals require consideration of s 102(3), which provides that the court that made a restraining order may make orders excluding particular property from automatic forfeiture to the Commonwealth if a number of grounds are established. Those grounds require the applicant to establish, in effect, that there is nothing unlawful about the property, in the sense that the property was not used in, or in connection with, any unlawful activity; that the property was not derived, directly or indirectly, from unlawful activity; and, finally, that the applicant acquired the property lawfully.

35. Although the immediate focus of these appeals is the construction and application of s 102, the determination of those issues requires close examination of the overall scheme of the POCA and separate consideration of each of the various items of property in issue[17]. There is also an issue about the construction and application of another provision of the POCA (s 141), which deals with enforcement of a pecuniary penalty order.

    [17]Hawker Sea Fury FB11 (registration VH-SHF) ("the Sea Fury"); 1983 Mercedes Benz 380SL ("the Mercedes"); North American Aviation T-28 Trojan (registration VH-SHT) ("the T-28"); North American Aviation T-28 Trojan (registration VH‑AVC) ("the North American Trojan"); 27 Samara Street, Sunnybank ("Samara Street"); 6 Merriwa Street, Sunnybank Hills ("Merriwa Street"); Archerfield Airport lease 703146442 sublease 70447517 ("Hangar 400"); and Doonan's Road, Grandchester ("Doonan's Road").

36. Hence, the balance of these reasons is organised as follows:

A.	Proceedings below	[37]-[45]
B.	These appeals	[46]-[55]
C.	The POCA	[56]-[106]
(1) Restraining orders under Pt 2-1	[58]-[66]
(2)      Conviction forfeiture	[67]-[71]
(3) Application by convicted person for exclusion under s 94	[72]-[73]
(4)      Application by third party for exclusion under s 102	[74]-[103]
(5) Order under s 102(1)	[104]-[106]
D.	Section 102(3) appeals	[107]-[272]
(1)      Tax minimisation schemes and money laundering – UOCL and Merrell	[107]-[110]
(2)      Structure of this part of the reasons	[111]
(3)      Sea Fury	[112]-[131]
(4)      Mercedes	[132]-[148]
(5)      T-28	[149]-[161]
(6)      North American Trojan	[162]-[176]
(7)      Samara Street	[177]-[198]
(8)      The Perpetual Offences	[199]-[216]
(a)      Doonan's Road	[217]-[225]
(b)      Hangar 400	[226]-[235]
(c)      Merriwa Street	[236]-[250]
(9) Section 102(1) – order declaring the nature, extent and value of an interest and the Merrell Charges	[251]-[272]
E.	Section 141 appeal	[273]-[292]
F.	Conclusion and orders	[293]

A.       Proceedings below

37. In May 2003, the Commonwealth Director of Public Prosecutions ("the CDPP") suspected that Mr Steven Irvine Hart had committed indictable offences in operating tax minimisation schemes. The CDPP sought, and subsequently obtained, restraining orders under the POCA prohibiting disposal of, or dealing with, specific property that was suspected of being under Mr Hart's effective control.

38. On 26 May 2005, Mr Hart was found guilty of nine offences of defrauding the Commonwealth in contravention of s 29D of the Crimes Act 1914 (Cth). He was sentenced to seven years' imprisonment for each offence, with the sentences to be served concurrently. On 18 April 2006, the property that was subject to the restraining orders was automatically forfeited to the Commonwealth under s 92 of the POCA.

39. Following the automatic forfeiture of the restrained property to the Commonwealth, two applications were filed in the District Court of Queensland. First, an application was made by a number of companies with which Mr Hart was affiliated: relevantly, Flying Fighters Pty Ltd as trustee for Flying Fighters Discretionary Trust ("Fighters"), Bubbling Springs Pty Ltd as trustee for Bubbling Springs Discretionary Trust ("Bubbling"), Nemesis Australia Pty Ltd ("Nemesis") and Yak 3 Investments Pty Ltd as trustee for Yak 3 Discretionary Trust ("Yak 3") (together, "the Companies"). That application was made for orders under s 102 of the POCA to recover their respective interests, or an amount equal to the value of their interests, in some of the forfeited property ("the s 102 application"). In respect of each item of property, the Companies contended that the property was not used in, or in connection with, any unlawful activity[18]; the property was not derived or realised, directly or indirectly, by any person from any unlawful activity[19]; and the relevant Company had acquired the property lawfully[20].

    [18]s 102(3)(a) of the POCA.

    [19]s 102(3)(a) of the POCA.

    [20]s 102(3)(b) of the POCA.

40. Second, the CDPP applied under s 141 of the POCA for a declaration that any property recovered by the Companies pursuant to the s 102 application was available to satisfy any pecuniary penalty order made against Mr Hart ("the s 141 application"). The CDPP alleged that although the property was not owned by Mr Hart, it was subject to his effective control.

41. On 19 November 2010, pursuant to s 116 of the POCA, a pecuniary penalty order was made against Mr Hart ordering him to pay $14,757,287.35 to the Commonwealth. In determining the amount of that penalty, the value of the property automatically forfeited in 2006, following Mr Hart's convictions, was taken into account to reduce the amount of the pecuniary penalty order[21]. 

    [21]Commonwealth Director of Public Prosecutions v Hart (2010) 81 ATR 471 at 477‑478 [5], 598 [558]. See also CommonwealthDirector of Public Prosecutions v Hart [2013] QDC 60 at [877]‑[879].

42. The primary judge initially refused to make the orders sought in the s 102 application because he found that the Companies had failed to prove the value of their interest in specific assets at the time of the forfeiture[22].  However, his Honour indicated that he would grant the Companies relief in respect of those assets, on condition that the Companies paid the Commonwealth $1.6 million[23]. Orders were made in those terms on 6 May 2013. The $1.6 million represented an amount owed under a number of fixed and floating charges which had been granted by each of the Companies over their assets to Merrell Associates Ltd ("Merrell")[24]. The charges to Merrell had been forfeited to the Commonwealth. The primary judge dismissed the s 141 application on discretionary grounds[25].

    [22]Hart [2013] QDC 60 at [852]-[853]. See also Commissioner of the Australian Federal Police v Hart (2016) 336 ALR 492 at 654 [828]-[830], 741 [1247], 746 [1272]-[1273].

    [23]Hart [2013] QDC 60 at [852]-[855].

    [24]See Hart [2013] QDC 60 at [472].

    [25]Hart [2013] QDC 60 at [867]-[885].

43. The Commonwealth[26] appealed to the Court of Appeal of the Supreme Court of Queensland against the dismissal of the s 141 application and, separately, against the 6 May 2013 orders in relation to the s 102 application. The Companies appealed against the primary judge's refusal to make the orders they had sought under s 102 and against the 6 May 2013 orders (including the requirement that they pay $1.6 million).

    [26]In the Court of Appeal, the appellant in the s 141 appeal was the Commissioner of the Australian Federal Police. The appellant in the s 102 appeal was the Commonwealth. In the Companies' appeal, both the Commonwealth and the Commissioner of the Australian Federal Police were named as respondents. The appeals to this Court were brought respectively by each of the Commissioner of the Australian Federal Police, the Commonwealth, and the Commonwealth and the Commissioner of the Australian Federal Police. It is not necessary for the purposes of these reasons to distinguish between the Commonwealth and the Commissioner of the Australian Federal Police as parties. It will be convenient to refer to both as "the Commonwealth".

44. The Court of Appeal, by majority (Peter Lyons J, Douglas J agreeing; Morrison JA dissenting), dismissed the two appeals by the Commonwealth and allowed the Companies' appeal[27].  In the Companies' appeal and the Commonwealth's s 102 appeal, the majority held that none of the assets in the proceedings was used in, or in connection with, any unlawful activity or was derived or realised, directly or indirectly, by any person from any unlawful activity[28]. An important step in the majority's reasoning was its approach to the phrase "derived or realised" in s 102(3)(a), which it construed as meaning "wholly derived" or "wholly realised"[29]. In the Commonwealth's s 141 appeal, the majority held that effective control was to be assessed at the date of the determination of an application under s 141[30] and that, in this case, the Commonwealth could not establish that Mr Hart had effective control of the assets at that date[31].

    [27]Hart (2016) 336 ALR 492 at 654 [828]-[830], 741 [1247], 746 [1272]-[1273].

    [28]Hart (2016) 336 ALR 492 at 697-698 [1017] (the T-28), 700 [1027] (the Sea Fury), 717 [1115] (the North American Trojan), 723 [1144] (Hangar 400), 724 [1158] (Merriwa Street), 727 [1172] (Samara Street), 731 [1194] (Doonan's Road), 732 [1199] (the Mercedes).

    [29]Hart (2016) 336 ALR 492 at 675-676 [918]-[923] per Peter Lyons J, 654‑655 [831]-[833] per Douglas J; cf at 521 [123], 523-524 [138] per Morrison JA.

    [30]Hart (2016) 336 ALR 492 at 745-746 [1268].

    [31]Hart (2016) 336 ALR 492 at 743 [1256].

45. The Court of Appeal made orders declaring the value of the Companies' interests in certain assets immediately before forfeiture and requiring the Commonwealth to pay the Companies that value, with interest.  It also ordered the transfer of certain assets and interests in property to the Companies with the result that those assets and interests would not be available to be applied towards the pecuniary penalty order.

    B.       These appeals

46. These appeals concern the following assets automatically forfeited to the Commonwealth on 18 April 2006:  three aircraft (the Sea Fury, the T-28 and the North American Trojan) and a motor vehicle (the Mercedes), all owned by Fighters; and four pieces of real property (Samara Street and Doonan's Road, owned by Bubbling; Merriwa Street, owned by Nemesis; and Hangar 400, a sublease over Commonwealth land, registered in the name of Yak 3).

47. Fixed and floating charges, described as mortgage debentures, were granted by each of Fighters, Bubbling, Nemesis and Yak 3 over their respective assets to Merrell ("the Merrell Charges").  As has already been mentioned, these were also automatically forfeited to the Commonwealth.  As will be seen, Merrell was a central participant in the unlawful activity undertaken as part of Mr Hart's tax minimisation schemes.  It was common ground before the Court of Appeal, and before this Court, that at the date of forfeiture the value of the debt owed to Merrell under each charge was $1.6 million and remained unsatisfied.

48. As noted at the outset, questions about the construction of s 102(3) of the POCA and its application to the assets in issue in these appeals require consideration of each limb of s 102(3) and an understanding of the framework erected by the POCA, being the statutory context in which the provision sits.

49. It is against that framework that an applicant for an order under s 102(3), in relation to specific "property"[32] that has been forfeited to the Commonwealth, must establish on the balance of probabilities[33] that:

    "(a)the property was not used in, or in connection with, any *unlawful activity and was not derived or realised, directly or indirectly, by any person from any unlawful activity; and

    (b)the applicant acquired the property lawfully; and

    (c)the applicant is not the person convicted of the offence to which the forfeiture relates."

    [32]"[P]roperty" is defined in s 338 of the POCA and, by reference to the definition of "interest" in s 338, includes any present, future, vested or contingent legal or equitable estate or interest in the property or thing as well as any right, power or privilege in connection with the property or thing.

    [33]s 317 of the POCA.

50. Paragraphs (a) and (b) provide, in effect, for three criteria or "limbs" that the applicant must address.  The first is that the property was not used in, or in connection with, any unlawful activity (the "use limb").  The second is that the property was not derived or realised, directly or indirectly, by any person from any unlawful activity (the "source limb").  The third is that the applicant acquired the property lawfully (the "lawfully acquired limb"). 

51. The use limb and the source limb are negative – the applicant must establish that the property was not used in, or in connection with, any unlawful activity and the property was not derived or realised, directly or indirectly, by any person from any unlawful activity.  The lawfully acquired limb is positive – the applicant must establish that they acquired the property (or their interest in the property) lawfully.  Each limb presents a fact‑specific and often fact‑intensive inquiry.  In each case, whether the criteria of the relevant limb are established will be a matter of fact and degree. 

52. As these reasons will explain:

    (1)the use limb seeks to identify a connection between the use of the property and unlawful activity.  It may, and commonly will, require consideration of one or more of the following questions:  how the property was used in or in connection with unlawful activity; the extent to which the property was so used; and how much or what part of the property was used in that unlawful activity;

    (2)the source limb seeks to identify a connection between the derivation of the property and unlawful activity.  The inquiry may differ depending on the relevant derivation; but it may be appropriate to ask whether the extent and nature of the connection between the unlawful activity and the derivation is not insubstantial; and

    (3)the lawfully acquired limb asks whether there was unlawful activity in the process of acquisition of the applicant's interest in the property or whether the funds used to acquire that interest in the property were unlawfully acquired.  The question, simply, is whether the applicant acquired the property (or the applicant's interest in the property) lawfully, other than in respects which would be considered de minimis. 

53. On the proper construction of s 102(3), the Commonwealth's appeal in relation to the s 102 application should be allowed in part, on the basis that:

    (1)in relation to the Sea Fury, the Mercedes, the T-28 and Samara Street, the relevant Company failed to establish the source limb;

    (2)in relation to the Sea Fury and the T-28, the relevant Company also failed to establish the lawfully acquired limb; and

    (3)in relation to the North American Trojan, Hangar 400 and Doonan's Road, the relevant Company failed to establish the use limb.

54. In relation to Merriwa Street, although Nemesis satisfied each limb of s 102(3), the orders and declarations made by the Court of Appeal failed to properly address the nature, extent and value of Nemesis' interest in Merriwa Street and, in particular, failed to address the fact that the assets of Nemesis, and therefore Merriwa Street, were subject to one of the Merrell Charges at the date of forfeiture. Accordingly, the orders made by the Court of Appeal should be set aside and, in their place, orders should be made which address the existence of the Merrell Charge granted by Nemesis, the owner of Merriwa Street.

55. Finally, for the reasons explained in Part E below, the Commonwealth's appeal in relation to the dismissal of the s 141 application should be dismissed.

    C. The POCA

56. Chapter 2 of the POCA contains a scheme comprising interlocking parts: Pt 2-1 deals with restraining orders, Pt 2-2 deals with forfeiture orders, Pt 2-3 deals with automatic forfeiture following conviction of a serious offence and Pt 2-4 deals with pecuniary penalty orders[34]. 

    [34]Part 2-5 of the POCA, dealing with literary proceeds, is not relevant to these appeals and may be put to one side.

57. Three elements of that statutory framework – (1) restraining orders; (2) forfeiture; and (3) exclusion from forfeiture – are considered in turn in this part of the reasons. Aspects of the POCA that relate to pecuniary penalty orders and enforcement will be considered in Part E of these reasons, which addresses the s 141 appeal.

    (1)      Restraining orders under Pt 2-1

58. A restraining order is a critical part of the scheme:  it restrains the disposal of, or other dealing with, particular property that is, or might be, the subject of future forfeiture in relation to certain offences[35].  It is the mechanism that ensures property is not dissipated before it is able to be confiscated.  The CDPP, as the applicant[36], must establish certain pre-conditions, on the balance of probabilities[37].  The application can be made ex parte[38]. 

    [35]s 16 of the POCA.

    [36]s 25 of the POCA.

    [37]s 317 of the POCA.

    [38]See s 26(4) of the POCA.

59. The pre-conditions to the court making a restraining order vary according to the seriousness of the offence. For present purposes, it is sufficient to refer to s 18 (dealing with restraining orders for persons suspected of committing serious offences) and then, by way of contrast, s 17 (dealing with restraining orders for persons convicted of, or charged with, other indictable offences). The offences to which these appeals relate were serious offences.

60. Section 18 enables a court to make a restraining order where there are reasonable grounds to suspect that a person has committed a serious offence[39], within the six years preceding the application for the restraining order or since the application was made.  It is not necessary for the reasonable grounds to be based on a finding as to the commission of a particular serious offence[40]. 

    [39]A "serious offence" is relevantly defined to mean an indictable offence punishable by imprisonment for three or more years involving, among other things, unlawful conduct constituted by or relating to a breach of s 81 of the Proceeds of Crime Act 1987 (Cth) or Pt 10.2 of the Criminal Code (Cth) (money laundering) and unlawful conduct by a person that causes, or is intended to cause, a loss to the Commonwealth or another person of at least $10,000: par (a)(ii) and (iv) of the definition of "serious offence" in s 338 of the POCA.

    [40]s 18(4) of the POCA.

61. The restraining order may prohibit specific property from being disposed of, or otherwise dealt with, by any person, or prescribe that property is only to be disposed of or dealt with in a specified manner or in specified circumstances[41]. 

    [41]s 18(1)(a) and (b) of the POCA.

62. A restraining order may cover property where the court is satisfied that there are reasonable grounds to suspect that the property is:

    (1)all or specified property of the suspect[42], including bankruptcy property of the suspect[43]; or

    (2)specified property of another person (regardless of whether that other person's identity is known) that is subject to the effective control of the suspect or is proceeds of the offence or offences which form the basis of the restraining order[44]. 

    [42]s 18(2)(a) and (b) of the POCA.

    [43]s 18(2)(aa) and (ba) of the POCA.

    [44]s 18(2)(c) and (d)(i) of the POCA.

63. "[E]ffective control" is defined broadly under the POCA[45].  The definition seeks to capture aspects of control that might not otherwise be caught.  For example, property may be subject to the effective control of a person whether or not the person has a legal or equitable estate or interest in the property or a right, power or privilege in connection with the property[46]; and property held on trust for the ultimate benefit of a person is taken to be under the effective control of the person[47].  The broad definition of effective control provides that a court may consider property without the CDPP needing to show that it is in fact under the effective control of the suspect.  So, property disposed of to another person without sufficient consideration, within six years before or after an application for a restraining order, a forfeiture order or a pecuniary penalty order, is deemed to be under the effective control of the person who disposed of the property[48]. 

    [45]s 337 of the POCA.

    [46]s 337(1) of the POCA.

    [47]s 337(2) of the POCA.

    [48]s 337(4) of the POCA.

64. The intended reach of s 18 of the POCA is made clear from the outset: if there are reasonable grounds to suspect that a person has committed a serious offence, a court is able to prohibit the disposal of, and other dealing with, all of that suspect's property (together with property subject to their effective control) irrespective of its connection with the alleged serious offence. The court must make the restraining order even if there is no risk of the property being disposed of or otherwise dealt with[49] and the court may specify that the restraining order covers property that is acquired by the suspect after the court makes the order[50].  After the order is made, it is up to the suspect to establish that the specified property should not be subject to restraint[51]. 

    [49]s 18(5) of the POCA. See also s 17(5) of the POCA.

    [50]s 18(6) of the POCA. See also s 17(6) of the POCA.

    [51]Div 3 of Pt 2-1 of the POCA.

65. By way of contrast, s 17 applies where a person has been convicted of, has been charged with, or is proposed to be charged with, an indictable offence[52], which need not be a serious offence within the meaning of the POCA. If the person has not been convicted, the court must be satisfied that there are reasonable grounds to suspect that the person committed an indictable offence[53].  If the application is to restrain property of a person other than the suspect, the court must be satisfied that there are reasonable grounds to suspect that the property is subject to the effective control of the suspect or is proceeds or an instrument of the offence[54]. If these pre‑conditions are met, the court must make an order that identified property must not be disposed of or otherwise dealt with by any person, or dealt with by any person except in the manner and circumstances specified in the order. Section 17 thereby sets a higher bar for the CDPP: there is no equivalent of s 18(4) (that the reasonable grounds need not be based on a finding as to the commission of a particular offence) and it provides that a court may refuse to make a restraining order in relation to an indictable offence that is not a serious offence if the court is satisfied that it is not in the public interest to make the order[55].

    [52]s 17(1)(d) of the POCA. An "indictable offence" includes an offence against a law of the Commonwealth that may be dealt with as an indictable offence even if it may also be dealt with as a summary offence in some circumstances: s 338 of the POCA.

    [53]s 17(1)(e)-(f) and (3)(a) of the POCA.

    [54]s 17(1)(e)-(f) and (3)(b) of the POCA.

    [55]s 17(4) of the POCA.

66. The POCA contains procedures for property to be excluded from a restraining order and for a restraining order to be revoked[56]. Consistent with the intended reach of the POCA, the circumstances are limited and the conditions strict[57].  These exclusion and revocation procedures are not directly in issue in these proceedings. 

    (2)      Conviction forfeiture

    [56]See, eg, in Pt 2-1 of the POCA, s 24 (allowance for expenses), s 24A (excluding property when expenses are not allowed), s 29 (excluding specified property for certain reasons), s 42 (application to revoke a restraining order) and s 44 (security to revoke a restraining order).

    [57]For example, a court must not exclude property from a restraining order under s 29 of the POCA unless the court is satisfied that a pecuniary penalty order could not be made against the person who owns the property or, if the property is not owned by the suspect but is under the suspect's effective control, against the suspect: s 29(4) of the POCA.

67. The making of a restraining order against property in relation to certain offences is a step to possible forfeiture of that property. Under the POCA, property may be forfeited to the Commonwealth where there is a conviction for an indictable offence ("conviction forfeiture") but also where there is no conviction ("civil forfeiture"). A distinction is also drawn by reference to the seriousness of the offence.

68. Following the conviction of a person of a serious offence, any property the subject of a restraining order that relates to that offence is automatically forfeited to the Commonwealth[58].  The automatic forfeiture occurs six months after the date of the conviction (or at the end of an extended period specified in an extension order).  The restraining order does not in fact have to relate to the specific offence of which the person was convicted:  it is deemed sufficient if the restraining order was in relation to a related offence[59] of which the person had been, or was proposed to be, charged at the time of the making of the restraining order.  

    [58]Div 1 of Pt 2-3 of the POCA and, in particular, s 92.

    [59]An offence is a "related offence" of another offence if the physical elements of the two offences are substantially the same acts or omissions: s 338 of the POCA.

69. Central to the POCA scheme is the way it defines "unlawful activity" and the way that definition feeds into, and affects, the construction and operation of a number of other definitions[60]. 

    [60]See ss 329 and 330 of the POCA.

70. "[U]nlawful activity" is defined to mean an act or omission that constitutes an offence against a law of the Commonwealth, an offence against a law of a State or Territory that may be dealt with on indictment, or an offence against a law of a foreign country[61].  Unsurprisingly, "proceeds of an unlawful activity" means proceeds of the offence constituted by the act or omission that constitutes the unlawful activity[62].  Next, property is "proceeds of an offence" if it is wholly or partly derived or realised, whether directly or indirectly, from the commission of the offence[63].  And property can be proceeds of an offence even if no person has been convicted of the offence[64] and whether the property is situated within or outside Australia[65]. 

    [61]s 338 of the POCA.

    [62]s 329(4) of the POCA.

    [63]s 329(1) of the POCA.

    [64]s 329(3) of the POCA.

    [65]s 329(1) of the POCA.

71. Moreover, the scope of "proceeds of an offence" is extended by s 330, which provides that property becomes proceeds of an offence if it is wholly or partly derived or realised from a disposal of or other dealing with proceeds of the offence or wholly or partly acquired using proceeds of the offence, including because of a previous application of s 330[66].  And property remains proceeds of an offence even if it is credited to an account or it is disposed of or otherwise dealt with[67]. There is no need to adopt or meet equitable tracing principles. Indeed, s 330(5) provides that if a person once owned property that was proceeds of an offence but the person ceased to be the owner of the property and (at that time or a later time) the property stopped being proceeds of an offence or an instrument of the offence[68] and the person subsequently acquires the property again, then the property becomes proceeds of an offence again. This broad definition of "proceeds" is central to the confiscation scheme in the POCA.

    (3)      Application by convicted person for exclusion under s 94

    [66]s 330(1) of the POCA.

    [67]s 330(3) of the POCA.

    [68]For example, because it was acquired by a third party for sufficient consideration without the third party knowing, and in circumstances that would not arouse a reasonable suspicion, that the property was proceeds of an offence: see s 330(4)(a) of the POCA.

72. If a person convicted of a serious offence wishes to have property excluded from automatic forfeiture, that person must apply after conviction of the serious offence to which the restraining order relates but before the restrained property is automatically forfeited[69] – that is, usually within six months after conviction.  The person convicted of the serious offence must own the property and the court must be satisfied that (1) the property is neither proceeds of unlawful activity nor an instrument of unlawful activity and (2) the person's interest in the property was lawfully acquired[70].

    [69]s 94 of the POCA.

    [70]s 94(1)(c), (e) and (f) of the POCA.

73. As is apparent, the person convicted of the serious offence must satisfy the court that the property was not the proceeds of any unlawful activity, not just of the serious offence of which the person was convicted. 

    (4)      Application by third party for exclusion under s 102

74. In the proceedings giving rise to these appeals, Mr Hart did not apply for an exclusion order.  Instead, as noted earlier, when Mr Hart was convicted and the restrained property was automatically forfeited to the Commonwealth, the Companies applied for an order under s 102 declaring the nature, extent and value of their interests in some of the forfeited property and a further order that their interests in that specific property be transferred to them or that an amount equal to the value of their interests in that property was payable by the Commonwealth to them[71]. 

    [71]s 102(1) of the POCA.

75. Before a court may make such an order, it must be satisfied that the grounds set out in s 102(2) or (3) exist. Those sub-sections provide:

    "(2)     An order under this section may be made if:

    (a)the applicant was not, in any way, involved in the commission of the offence to which the forfeiture relates; and

    (b)the applicant's *interest in the property is not subject to the *effective control of the person whose conviction caused the forfeiture; and

    (c)the applicant's interest in the property is not *proceeds of the offence or an *instrument of the offence.

    (3)      An order under this section may also be made if:

    (a)the property was not used in, or in connection with, any *unlawful activity and was not derived or realised, directly or indirectly, by any person from any unlawful activity; and

    (b)the applicant acquired the property lawfully; and

    (c)the applicant is not the person convicted of the offence to which the forfeiture relates."  (emphasis added)

76. Sections 102(2) and 102(3) deal with different categories of applicant. Section 102(2) only avails an applicant who was not, in any way, involved in the commission of the offence to which the forfeiture relates. Section 102(3), unlike s 102(2), may also avail an applicant who was involved in, but not convicted of, the offence to which the forfeiture relates.

    (a) Innocent third party – s 102(2)

77. Although these appeals are directly concerned with s 102(3), it is necessary to start with s 102(2). Under s 102(2), if an applicant is not, in any way, involved in the commission of the offence to which the forfeiture relates, they are entitled to an order excluding the property from forfeiture if they can satisfy the court of two matters: first, that their interest in the forfeited property is not subject to the effective control of the person whose conviction caused the forfeiture; and second, that their interest in the forfeited property is, relevantly, not "proceeds of the offence".

78. For the purposes of s 102(2)(c), it is for the innocent third party applicant to establish, on the balance of probabilities[72], that the applicant's interest in the forfeited property was not "proceeds of the offence" (emphasis added).  That is, notwithstanding that the applicant was not in any way involved in the commission of the offence to which the forfeiture relates, the applicant must establish that their interest in the property was not wholly or partly derived or realised from the commission of the offence or from a disposal or other dealing with proceeds of the offence and was not wholly or partly acquired using proceeds of the offence, in the broad sense discussed earlier[73]. And of course, if the applicant once owned but ceased to own property that was proceeds of the offence and the property stopped being proceeds of the offence, the property again becomes proceeds of the offence if the applicant reacquires it. Section 102(2) sets a high bar.

    (b) Other situations – s 102(3)

    [72]s 317 of the POCA.

    [73]See Part C(2) above.

79. Section 102(3), unlike s 102(2), permits an application by a person who is involved in, but is not the person convicted of, the offence to which the forfeiture relates. The provision focuses on the "property" that was automatically forfeited. The pre-conditions for making the order under s 102(3) are cumulative and, unsurprisingly, more stringent than s 102(2). An applicant may be entitled to an order under s 102(3) only if they can satisfy the court of three limbs – the use limb, the source limb and the lawfully acquired limb.

    (i)       Use limb – par (a)

80. First, in relation to the use limb, the applicant must establish, on the balance of probabilities[74], that the property was not used in, or in connection with, any unlawful activity. 

    [74]s 317 of the POCA.

81. The inquiry that must be made is necessarily broad.  Under this limb, "the property" is not expressed to be limited to the applicant's interest in the forfeited property.  It refers to the property itself, including any interest in the property[75].  Moreover, not only does the use limb extend to any unlawful activity – not just the unlawful activity giving rise to the restraining order and the forfeiture – but the addition of the words "in connection with" reinforces the breadth of the inquiry.  It is an inquiry which seeks to identify a connection between the use of the property and unlawful activity. 

    [75]See the definitions of "property" and "interest" in s 338 of the POCA.

82. Identifying that relationship or connection may, and commonly will, direct attention to, and require consideration of, one or more of the following questions:  how the property was used in or in connection with unlawful activity; the extent to which the property was so used; and how much or what part of the property was used in that unlawful activity[76].

    [76]cf Director of Public Prosecutions v George (2008) 102 SASR 246 at 261 [60].

83. Further, because the use limb is cast in negative and broad terms, it is not necessarily decisive for an applicant to show that:

    (a)there is no causal link between the property and unlawful activity – something less than a causal link may result in the use limb not being established;

    (b)the property was not essential or necessary for the commission of an offence;

    (c)the property did not make a unique contribution to the commission of an offence; or

    (d)the use in the unlawful activity was not the sole or dominant use of the property.

84. Some facts and circumstances will be more straightforward. If a house is used as the place to manufacture drugs, or a car is used to distribute drugs, the asset will be caught by s 102(3)(a) and the applicant will not be entitled to an order under s 102(3). Other facts and circumstances will be more complicated. If, for example, the unlawful activity is money laundering proceeds of crime through the sale or purchase of assets (or both), a question may arise whether a particular asset in that series of transactions was used in, or in connection with, the unlawful activity of money laundering. That conduct may, in certain circumstances, support a finding that a court cannot be satisfied that the property was not used in, or in connection with, any unlawful activity.

85. Each inquiry will be fact-specific and often fact-intensive. It is a question of fact and degree. But the onus is on, and remains on, an applicant for an order under s 102(3) to establish on the balance of probabilities that the property was not used in, or in connection with, any unlawful activity. How an applicant discharges that onus will vary between applications. However, an applicant is not required to consider or negative all possibilities irrespective of whether they are raised by the CDPP[77]. If the CDPP intends to rely upon facts and circumstances which it contends establish that a trial judge should not be satisfied that the use limb is established (or, for that matter, the source limb or the lawfully acquired limb), the CDPP should identify those facts and matters as early as possible in its defence or other pleading in response to any s 102(3) application.

    (ii)      Source limb – par (a)

    [77]Hart (2016) 336 ALR 492 at 678-679 [935]. See also Director of Public Prosecutions (Cth) v Jeffery (1992) 58 A Crim R 310 at 313-314.

86. Under the source limb the applicant must establish, on the balance of probabilities[78], that the property was not derived or realised, directly or indirectly, by any person from any unlawful activity.  As with the use limb, "the property" to which the source limb refers is not limited to the applicant's interest in the forfeited property.  The focus is on how the property, including any interest in the property, was derived or realised.  Further, the inclusion of the phrases "directly or indirectly", "by any person" (not limited to the applicant or the person convicted of the offence to which the forfeiture relates) and "from any unlawful activity" (not limited to the offence to which the forfeiture relates) is intended to, and does, broaden the circumstances which are excluded from s 102(3).

    [78]s 317 of the POCA.

87. Put in different terms, the source limb significantly narrows the scope of the property that can be the subject of an exclusion order under s 102(3). Together with the other limbs, it sets a high bar for recovery of forfeited property: a higher bar than that in s 102(2).

88. In this Court, a central issue about the source limb was whether, as the majority of the Court of Appeal held, the source limb would be satisfied if an applicant showed that the property was not wholly derived (or realised) from unlawful activity[79].  It was not suggested that "realised" relevantly added to the concept of derivation for the purposes of the present appeals.

    [79]Hart (2016) 336 ALR 492 at 654-655 [832], 675-676 [920]‑[923].

89. The majority of the Court of Appeal relied by way of comparison on how "proceeds of an offence" is defined in s 329, which relevantly provides that property is proceeds of an offence if it is "wholly" or "partly" derived or realised from the commission of the offence. First, the inclusion of "partly" in s 329 (and s 330) was said to reflect a recognition by the drafters that the ordinary meaning of "derived" was "wholly derived". Second, the majority concluded that this ordinary meaning should be applied to "derived" in s 102(3)(a), given that the phrase was not preceded by "wholly or partly".

90. The Companies' submission in this Court was, in short, that this approach was correct:  if the Parliament had intended that an applicant should have to satisfy the court that property was not partly derived from unlawful activity, s 102(3)(a) would have either used the defined term "proceeds" or included the phrase "wholly or partly" before "derived". As will become apparent, that submission should be rejected.

91. Section 102(3)(a) speaks expressly of "property … derived … directly or indirectly". Whether property has been derived directly or indirectly by any person from any unlawful activity is not further defined[80].  The statutory question may be one of fact and degree.  It will be fact-specific and often fact-intensive.  It may involve practical considerations. 

    [80]Section 336 is directed to deriving "proceeds", not deriving property.  It provides: 

    "A reference to a person having derived *proceeds [or] a *benefit … includes a reference to: 

    (a)        the person; or

    (b)another person at the request or direction of the first person;

    having derived the proceeds [or] benefit … directly or indirectly."

92. The word "derived" directs attention to whether there is a relevant connection between the property, its derivation and a relevant activity.  Obviously, the nature of the connection may differ according to what is said to be the relevant form of derivation.  Where the deriving is the original acquisition of the property, the relationship sought is a connection between unlawful activity and acquisition.  In turn, that directs attention to how the unlawful activity caused or contributed to the occurrence of the derivation.  The extent and nature of the connection is not unimportant:  if the overall assessment is that the extent and nature of the connection is de minimis, then there is no relevant connection that could lead to a finding of derivation.  Putting the matter in different terms, it may be appropriate to ask whether the extent and nature of the connection between the unlawful activity and the derivation is not insubstantial. 

93. Where the unlawful activity in issue is a cause (not the cause) of the derivation – as it will be when a not insignificant part of the funds for acquisition directly or indirectly comes from unlawful activity – the property will be derived directly or indirectly from the unlawful activity. 

94. Hence, it is too broad to say that "derived" in its ordinary sense means "wholly" derived and that this is how the source limb should be understood. The word, like any word in a statute, must be read in context. The context includes the surrounding words in s 102(3)(a), the purpose of s 102(3), the place of s 102(3) within s 102 and the overall statutory scheme.

95. Section 102(3) provides a mechanism for persons, including a person involved in the commission of a serious offence (but not convicted of that offence), to seek to recover property already automatically forfeited to the Commonwealth. But that mechanism is limited. And the focus of s 102(3) is not limited to proceeds of crime. Thus, the source limb is directed to ensuring that property that was derived by any person from any unlawful activity is not able to be transferred to a person who, potentially, was involved in the commission of the offence to which the forfeiture relates. It is stringent in its scope and intended reach. And consistent with that objective, the balance of s 102(3)(a) uses words of generality – the use limb requires the applicant to establish that "the property was not used in, or in connection with, any unlawful activity". To read "derived" in s 102(3)(a) as "wholly derived" would be directly contrary to the purpose of s 102(3).

96. Further, s 102(3) is clearly intended to impose a higher bar for recovery than that provided under s 102(2) to a third party who was not involved in the commission of the offence to which the forfeiture relates. To read "derived" as "wholly derived" in s 102(3)(a) would place an applicant who may have been involved in the commission of the offence in a more advantageous position than an innocent third party under s 102(2). That cannot be the intended result.

97. Next, the Companies' contention that the separate use of "wholly" and "partly" in the definition of "proceeds" in s 329 of the POCA means that Parliament was assuming or accepting that "derived" ordinarily means "wholly derived", and that it therefore bears that meaning in s 102(3)(a), is misplaced. First, it is not necessarily the case that "derived" is ordinarily understood as meaning "wholly derived". As just explained, the word takes its meaning from its context, and the context includes the fact that s 102(3) does not allow property to be recovered just because it is not proceeds of crime: it is more stringent. Second, sub‑ss (1) and (4) of s 329, in their terms, indicate that derivation can include partial derivation. They provide that property can be proceeds of an offence even if the property is only partly derived from the commission of that offence. It is not necessary that the property be wholly derived from the commission of that offence. Section 330(1) also provides that property can be proceeds of a relevant offence if the property is partly derived from a disposal of, or other dealing with, other property that is derived from the commission of that offence. Again, it is not necessary that the property be wholly derived from the commission of that offence. These sections are entirely consistent with the conclusion that, in the context of the POCA, "derived" includes both "wholly" and "partly" derived. They confirm that, unless the derivation is de minimis, it is sufficient for the purposes of s 102(3)(a) if the property is partly derived from any unlawful activity.

98. During the course of oral submissions about the proper construction of the source limb, possible tests for determining whether property was "derived" from unlawful activity, including proportional tests – for example, whether most or a substantial proportion of the funds used have come from unlawful activity – or a "but for" test – whether the property would not have been obtained or retained but for the use of tainted funds – were discussed.  As the preceding analysis demonstrates, the statutory question is one of fact and degree, and will be fact‑specific and often fact-intensive.  In considering the application of the source limb to the facts and circumstances of a specific asset, including, in particular, the extent and nature of the connection between the unlawful activity and the derivation, a proportional test, or a "but for" test, may be of assistance.  However, the answer provided by either test will not be decisive because, consistent with the broad construction of the source limb explained earlier, the statutory question is better approached by asking whether the extent and nature of the connection between the unlawful activity and the derivation is not insubstantial. 

99. Finally, contrary to the view expressed by the majority of the Court of Appeal, the decision of the Supreme Court of Victoria in Director of Public Prosecutions v Allen[81] does not assist in the application of the source limb.  Although Allen correctly recognised that property may be acquired using funds from a number of sources, some of which may be lawful and others of which might be unlawful, it did not purport to lay down a general test for when property would be derived or realised from the commission of an offence[82].  And that is unsurprising.  Not only was the legislative framework in Allen different, but it was simply not necessary for the judge in Allen to consider the outer reaches of "derived" given his finding that virtually all the property to be forfeited in that case was derived from the commission of offences.

    (iii)     Lawfully acquired limb – par (b)

    [81]Unreported, Supreme Court of Victoria, 12 December 1988.

    [82]See also Director of Public Prosecutions (Cth) v Corby [2007] 2 Qd R 318 at 321.

100. Finally, the lawfully acquired limb requires the applicant to establish, on the balance of probabilities[83], that they acquired the property lawfully[84].  Unlike the other limbs, it is framed in positive terms.  Moreover, given that the focus is on acquisition by the applicant, the reference to "the property" in this limb must be read as a reference to the applicant's interest in the property[85]. But, as with the other limbs of s 102(3), the inquiry involves a question of fact and degree. It too will be fact-specific and often fact-intensive.

     [83]s 317 of the POCA.

     [84]s 102(3)(b) of the POCA.

     [85]See the definitions of "property" and "interest" in s 338 of the POCA.

101. Under this limb, the initial focus shifts from the property to the applicant.  Property will not be lawfully acquired if an offence is committed in the process of acquisition or if the funds used to acquire the property were not lawfully acquired[86].  In other cases, consideration will need to be given to the source of the funds used in the acquisition and its effect upon the lawfulness of the transaction. 

     [86]See Markovski v Director of Public Prosecutions (2014) 41 VR 548 at 563 [76], 564 [83], 567 [94]-[95], [97].

102. So, for example, property is unlikely to be lawfully acquired if:

     (1)the applicant acquired the property with the proceeds of crime or as a result of some other form of illegality (which it is presently unnecessary and inappropriate to define);

     (2)the funds the applicant used to purchase the property were not themselves lawfully acquired; or

     (3)the funds the applicant used to purchase the property were provided by a third party who had acquired them unlawfully.

103. Under this limb, proportional tests – for example, whether most or a substantial proportion of the asset was acquired lawfully – and a "but for" test – whether the property would not have been acquired but for the unlawful activity or tainted funds – are also unlikely to be determinative.  For example, if an offence has been committed in the process of acquisition, the extent to which that unlawful activity contributed to the acquisition of the asset will usually be irrelevant because the limb will not be satisfied.  For those reasons, the statutory question under this limb is better approached by asking whether the asset was acquired lawfully, other than in respects which would be considered de minimis. 

     (5)      Order under s 102(1)

104. As the application of s 102(3) to the assets in issue in these appeals will demonstrate, assessing an application for an order from a court under s 102 is a process which requires the exercise of judgment. That is why the court "may" make the order. As has been recognised, in a statutory provision which confers a power, the word "may" can be used in more than one sense[87].  It may be used to indicate that a court or other decision‑maker has a discretion.  Alternatively, it may be used to indicate that a decision‑maker has authority to exercise a power, which they are obliged to exercise if statutory criteria are met. In the present case, "may" in s 102(3) falls in the latter category. The criteria specified in s 102(3) are stringent; but their stringency also demonstrates that they are intended to be exhaustive. If the court is satisfied that the applicant has established that those criteria are met, an order must be made.

     [87]See Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106 at 128, 133-135, 138-139; [1971] HCA 12.

105. Section 102(1) provides that the court may make an order:

     "(c)declaring the nature, extent and value of the applicant's interest in the property; and

     (d)      either:

     (i)if the interest is still vested in the Commonwealth—directing the Commonwealth to transfer the interest to the applicant; or

     (ii)declaring that there is payable by the Commonwealth to the applicant an amount equal to the value declared under paragraph (c)."

106. The form of the order made is important.  In the context of these appeals, it will be considered in Part D(9) below.

     D. Section 102(3) appeals

     (1)Tax minimisation schemes and money laundering – UOCL and Merrell

107. Mr Hart used various companies to operate the tax minimisation schemes that led to his convictions.  His clients, participants in the schemes, paid fees to some of these companies, including Merrell and United Overseas Credit Ltd ("UOCL"). 

108. For example, in relation to UOCL, after the CDPP applied for the pecuniary penalty order against Mr Hart, the District Court found that Mr Hart had defrauded the Commonwealth contrary to s 29D of the Crimes Act 1914 (Cth)[88] and had dishonestly caused a loss or a risk of loss to the Commonwealth contrary to s 135.1(5) of the Criminal Code (Cth)[89].  In making those findings, the District Court held that Mr Hart's means were dishonest according to the standards of ordinary people and that he knew that those means were dishonest[90].  Each offence was an indictable offence.  The courts below in the current proceedings referred to these as the "UOCL Offences".  It is appropriate to adopt the same terminology.

     [88]These offences were in addition to the nine offences of defrauding the Commonwealth contrary to s 29D of the Crimes Act 1914 (Cth) of which Mr Hart had been convicted in 2005.

     [89]Hart (2010) 81 ATR 471.

     [90]Hart (2010) 81 ATR 471 at 558-559 [373], [376], 581 [462], 587 [499].

109. With respect to the UOCL Offences, there is now no dispute that the primary judge was satisfied that any funds UOCL provided to Merrell[91] (which were then provided to the Companies) "may reasonably be suspected of being proceeds of crime" within the meaning of s 82(1) of the Proceeds of Crime Act 1987 (Cth) ("the POCA 1987") or fell within the equivalent terms of its successor provision, s 400.9 of the Criminal Code (Cth)[92]. 

     [91]Hart [2013] QDC 60 at [72].

     [92]   Hart [2013] QDC 60 at [81]; see also at [284]. Section 82(1) of the POCA 1987 was superseded by s 400.9 of the Criminal Code (Cth) from 1 January 2003: see s 2 of the Proceeds of Crime (Consequential Amendments and Transitional Provisions) Act 2002 (Cth). The provisions were framed in different terms but are not relevantly different for present purposes.

110. The primary judge stated that:

     (1)Mr Hart exercised a "high degree of control" over UOCL and Merrell at all material times[93] including over their day to day operations[94];

     (2)the Companies had not satisfied his Honour that Mr Hart was not in effective control of the Companies when the UOCL Offences were committed[95];

     (3)practically all of Merrell's funds were derived or realised, directly or indirectly, from UOCL[96];

     (4)money paid by UOCL to Merrell and to the Companies was money "derived from the commission of" the UOCL Offences and constituted "proceeds of crime"[97];

     (5)where UOCL funds or Merrell funds were received by companies of which Mr Hart was in effective control or an agent, his Honour was "suspicious" that an offence against s 82(1) of the POCA 1987 or s 400.9 of the Criminal Code (Cth) was committed by the recipient and was satisfied that the recipient had Mr Hart's state of mind[98];

     (6)any funds Merrell or UOCL provided in relation to the assets in issue in the proceedings before his Honour "may reasonably be suspected of being proceeds of crime" within the meaning of those words in s 82(1) of the POCA 1987 or fell within the equivalent terms of s 400.9 of the Criminal Code (Cth)[99]; and

     (7)where money was paid by UOCL or Merrell to one of the Companies and was used to derive or realise a relevant asset, the primary judge was not satisfied that such an asset was not also directly derived from an offence against s 82(1) of the POCA 1987 or s 400.9 of the Criminal Code (Cth), in addition to being indirectly derived from the unlawful activity constituting the UOCL Offences[100].

     These unchallenged findings of the primary judge are important because funds sourced from one or both of UOCL and Merrell were provided in relation to some of the assets in issue in these appeals – the Sea Fury, the T-28 and the North American Trojan.

     (2)      Structure of this part of the reasons

     [93]   Hart [2013] QDC 60 at [290].

     [94]Hart [2013] QDC 60 at [77], [265].

     [95]Hart [2013] QDC 60 at [77].

     [96]Hart [2013] QDC 60 at [72]-[76].

     [97]Hart [2013] QDC 60 at [287].

     [98]   Hart [2013] QDC 60 at [296].

     [99]See Hart [2013] QDC 60 at [81].

     [100]See Hart [2013] QDC 60 at [81].

252. As has been seen, s 102(1) provides:

     "If property is forfeited to the Commonwealth under section 92, the court that made the *restraining order referred to in paragraph 92(1)(b) may, if:

     (a)a person who claims an *interest in the property applies under section 104 for an order under this section; and

     (b)the court is satisfied that the grounds set out in subsection (2) or (3) exist;

     make an order:

     (c)declaring the nature, extent and value of the applicant's interest in the property; and

     (d)      either:

     (i)if the interest is still vested in the Commonwealth—directing the Commonwealth to transfer the interest to the applicant; or

     (ii)declaring that there is payable by the Commonwealth to the applicant an amount equal to the value declared under paragraph (c)."

253. In drafting an order under s 102(1), s 102(1)(c) and (d) must be addressed. In these appeals, one issue is how a court is to address the nature, extent and value of an applicant's interest in property where the property is subject to a security interest, and where both the property and the security interest have been automatically forfeited to the Commonwealth.

254. In these appeals, the Merrell Charges were a form of security interest comprising a fixed and floating charge, described as a mortgage debenture, granted by each of Fighters, Bubbling, Nemesis and Yak 3 over their respective assets to Merrell.  The Merrell Charges were subject to a restraining order and, on Mr Hart's conviction, were automatically forfeited to the Commonwealth. 

     (a)      Primary judge

255. The proceedings were conducted on the basis that the assets forfeited on 18 April 2006 were (until forfeiture) subject to the Merrell Charges and that each charge provided security for the total amount of the debt owed to Merrell[278].  Indeed, Merrell had applied to exclude the Merrell Charges from automatic forfeiture but discontinued that application[279].  

     [278]Hart [2013] QDC 60 at [436], [468].

     [279]Hart [2013] QDC 60 at [433].

256. The primary judge concluded that Merrell's rights as creditor and its rights as chargee were separate rights; and that its loss of a charge over an asset owned by one of the Companies did not result in the loss of its right to sue the relevant Company for payment of the debt secured by that charge[280].  His Honour also concluded, in respect of the charge granted by Fighters to Merrell, that its forfeiture did not invest the Commonwealth with Merrell's rights against Fighters for the payment of money[281].  Further, his Honour did not accept that the Commonwealth had "received Merrell's right to sue for the amounts owed by the Companies to Merrell"[282].

     [280]Hart [2013] QDC 60 at [444].

     [281]Hart [2013] QDC 60 at [444].

     [282]Hart [2013] QDC 60 at [462].

257. The primary judge concluded that the nature and extent of the collective interests of Fighters, Yak 3, Nemesis and Bubbling in the relevant assets and proceeds (relevantly Hangar 400, the Sea Fury, the North American Trojan and the T-28, and the proceeds of sale of Doonan's Road, Merriwa Street and Samara Street retained by the Official Trustee) was that they were interests in the whole of those assets and those proceeds then retained, less $1.6 million being the equivalent of the amount the repayment of which was secured by the Merrell Charges at the date of forfeiture against all relevant assets[283]. 

     [283]Hart [2013] QDC 60 at [849], [853].

258. Hence, on 6 May 2013, the primary judge relevantly ordered that:

     "1.Within 60 days of this order, [the Companies] pay to the Commonwealth … the sum of $1,600,000.00 less those funds held by the Insolvency and Trustee Service of Australia ('ITSA') in respect of: 

     a.the sale proceeds of [Merriwa Street] and [Doonan's Road].

     …

     3.Upon the payment by [the Companies] of the funds specified in paragraph 1 of this Order and notification to the Commonwealth by its banker that the funds have been cleared:

     a.ITSA has 60 days in which to vacate Hangar 400;

     b.The Commonwealth is to remove the caveats lodged with respect to [the sublease of Hangar 400] and to provide notice to the parties of that removal; and

     c.The aircraft, namely … [the North American Trojan] be transferred to [Fighters].

     …"

259. The order for payment of $1.6 million reflected the primary judge's finding that, on 18 April 2006, the Companies were indebted to Merrell in an amount of "no more than $1,600,000"[284]. 

     (b)      Court of Appeal

     [284]Hart [2013] QDC 60 at [472].

260. None of the findings concerning the Merrell Charges was challenged on appeal to the Court of Appeal[285]. 

     [285]Hart (2016) 336 ALR 492 at 738 [1230], [1232].

261. However, neither the Commonwealth nor the Companies sought to uphold the orders dealing with the Merrell Charges. The Commonwealth contended that the primary judge should not have made the orders because he was unable to declare the monetary value of the Companies' interest in the assets in accordance with s 102(1)[286].  The Companies contended that the primary judge was wrong to treat the value of the assets the subject of his Honour's 6 May 2013 orders as reduced by the Merrell Charges because when the charges were forfeited they "became empty"[287] and ceased to have any effect on the Companies.  In their submission, the Merrell Charges did not diminish the value of the assets which were forfeited.

     [286]Hart (2016) 336 ALR 492 at 739 [1237].

     [287]Hart (2016) 336 ALR 492 at 739 [1238].

262. The majority of the Court of Appeal found that while each asset was subject to a charge, that did not affect the nature of the Companies' interests in the assets; and, further, that until the secured creditor exercised its rights of sale, the rights of the owner of the asset were generally "not affected"[288].  Peter Lyons J concluded[289]:

     "since Merrell no longer held the charges, and the Commonwealth did not have any assignment of the debts which would entitle it to enforce them, the charges had no practical effect [and it] would follow that the determination of the nature and extent of the interest of [the Companies] as being diminished by $1.6 million … was erroneous; and so were orders made to give effect to such a determination".

     [288]Hart (2016) 336 ALR 492 at 740 [1242]-[1243].

     [289]Hart (2016) 336 ALR 492 at 740 [1243].

263. The Court of Appeal set aside pars 1 and 3 of the orders made by the primary judge and then adopted a formula along the following lines, as has been seen in the discussion of each of the relevant assets in the earlier parts of these reasons:

     (1)a declaration that [X] had legal ownership of the [named asset], subject to the charge in favour of Merrell, immediately prior to the forfeiture to the Commonwealth on 18 April 2006; and

     (2)in the case of Samara Street, Doonan's Road and Merriwa Street, declarations as to the value of [X]'s interest immediately prior to forfeiture and that a corresponding sum was payable to [X] by the Commonwealth; and in each other case, an order directing the Commonwealth, within 21 days, to transfer its interest in the [named asset] to [X] and to deliver possession of the [named asset] to [X].

     (c) Section 102(1) order

264. The primary judge[290] and the Court of Appeal[291] considered par 1 of the primary judge's orders to be a "conditional" order. The Court of Appeal concluded that the power to make orders under s 102(1) included a power to make orders which are subject to conditions[292].  That conclusion is misplaced and may be put to one side. 

     [290]Hart [2013] QDC 60 at [465], [854].

     [291]See Hart (2016) 336 ALR 492 at 530 [170]-[171], 534 [196]-[197], 538-540 [230]‑[243], 676-678 [924]-[932], 737 [1228].

     [292]Hart (2016) 336 ALR 492 at 538 [228], 676 [925].

265. First, in drafting an order under s 102(1), s 102(1)(c) and (d) must be addressed. An applicant must establish, on the balance of probabilities, the nature, extent and value of their interest in the property. That inquiry must consider whether the property is subject to a security interest and, if so, the nature, extent and value of that security interest.

266. Here, each security interest, one of the Merrell Charges, was described as a mortgage debenture which secured an agreed amount of $1.6 million and was duly registered under the Corporations Act 2001 (Cth). Each was a fixed charge over certain assets (including all of the assets, or proceeds of assets, in issue in these proceedings) and a floating charge over all other assets.

267. The essence of a fixed charge is that property is "appropriated" or "made available as security" for the payment of a debt.  Once property is appropriated in this manner, the charge is said to "fix".  Where, as here, the subject property is appropriated immediately to the chargee upon the chargor acquiring an interest, the charge is thereupon "fixed"[293]. 

     [293]Illingworth v Houldsworth [1904] AC 355 at 358; Luckins v Highway Motel (Carnarvon) Pty Ltd (1975) 133 CLR 164 at 173; [1975] HCA 50; United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673 at 686; [1980] HCA 43. See also National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 at 449-450; Gough, Company Charges, 2nd ed (1996) at 17, 20. 

268. Further, under the terms of each charge, the monies owing under the charge became immediately payable, and the security enforceable by the chargee, if, amongst other things, any part of the relevant Company's assets, interests or property was confiscated or forfeited.  There was no lacuna[294].

     [294]See generally Barba v Gas & Fuel Corporation (Vict) (1976) 136 CLR 120 at 137; [1976] HCA 60.

269. Accordingly, from the time of execution of each of the Merrell Charges, Merrell at least had an equitable interest in part of the assets of the chargor (including all of the assets, or proceeds of the assets, in issue in these proceedings) and, on forfeiture, an equitable interest in all of the assets of the chargor[295].  Put in other terms, at all times Merrell had a right in equity to restrain the legal owner of the asset from dealing with the asset contrary to the terms of the mortgage debenture.

     [295]See, eg, Barba (1976) 136 CLR 120 at 137; Gough, Company Charges, 2nd ed (1996) at 17, 20, 69.  The parties did not address the implications, if any, of the Personal Property Securities Act 2009 (Cth).

270. Accordingly, the nature, extent and value of the relevant Company's interest in any asset were to be determined subject to the relevant Merrell Charge, a first ranking fixed charge over that asset securing repayment of $1.6 million.  That liability had to be satisfied before the asset was entitled to be transferred to the relevant Company.  And there were other complications.  The obligation to pay $1.6 million was secured by each of the Merrell Charges and the Merrell Charges were forfeited to the Commonwealth.  Therefore, the declarations and orders made had to take account of (1) the existence of the directly applicable Merrell Charge as well as the interrelationship between the liability for the indebtedness under all of the Merrell Charges and (2) the fact that each of the Merrell Charges vested in the Commonwealth on forfeiture, either absolutely or subject to any registration requirements[296]. 

     [296]ss 66 and 67 of the POCA.

271. Consistent with the wording of s 102(1), the order that the Court of Appeal might have made was in the following terms:

     "(1)Declare that [X] has legal ownership of the [named asset], subject to the rights of the mortgagee under the [named] mortgage;

     (2)Direct that upon satisfaction of the amount of $[Y] secured by that mortgage, if any part of the proceeds of sale of the [named asset] have not been applied to meet that liability, the balance of proceeds then remaining, if any, together with interest on that balance, is payable to [X]."

272. In these appeals, that form of order should be made in relation to the proceeds of Merriwa Street. 

     E. Section 141 appeal

273. Finally, it is necessary to consider Div 4 of Pt 2-4 of the POCA, which deals with enforcement of a pecuniary penalty order.

274. Relevantly, s 141(1) provides that:

     "If:

     (a)a person is subject to a *pecuniary penalty order; and

     (b)the *DPP applies to the court for an order under this section; and

     (c)the court is satisfied that particular property is subject to the *effective control of the person;

     the court may make an order declaring that the whole, or a specified part, of that property is available to satisfy the pecuniary penalty order."  (emphasis added)

275. This appeal is concerned with two questions of construction in relation to s 141(1)(c): first, at what date must the court be satisfied that the particular property is not subject to the effective control of the person subject to the pecuniary penalty order; and second, the court's discretion to make such an order. As will become apparent, the second issue is not reached. Before turning to the construction of s 141, it is necessary to explain in greater detail the background to the s 141 application and the reasoning of the courts below.

     (1)      Date for determining effective control

276. The Companies and the CDPP made separate applications for orders under s 102 and s 141 respectively. The applications were determined on 2 April 2013. Further orders in the s 102 application were made on 6 May 2013.

277. The s 141 application was brought in response to, and was evidently designed to anticipate the outcome of, the s 102 application. The CDPP sought a declaration that any property which had been forfeited to the Commonwealth but was "recovered" as a result of the s 102 application was property that was available to satisfy any pecuniary penalty order made against Mr Hart. Thus, to the extent the Companies established that property was recoverable under s 102, attention turned to whether, for the purposes of the s 141 application, Mr Hart was in effective control of the Companies and (therefore) their assets. The CDPP bore the onus of proof[297].

     [297]s 317 of the POCA.

278. At the hearing of the s 102 and s 141 applications before the primary judge, the CDPP submitted that, on the proper construction of s 141, the relevant time for determining effective control for the purposes of s 141 was the date of the restraining orders[298]. 

     [298]Hart [2013] QDC 60 at [859].

279. Mr Hart, who appeared on his own behalf and on behalf of the Companies, conceded that effective control for the purposes of s 141 had to be determined at the date of the restraining orders[299] and that the District Court had previously found that Mr Hart remained in effective control of the Companies, as well as in effective control of their property, at the date of the restraining orders[300] notwithstanding that he had formally resigned as director of three of those companies[301].

     [299]Hart [2013] QDC 60 at [864]-[865]; see also at [148], [255].

     [300]First made on 8 May 2003 and then varied on 19 December 2003.

     [301]Commonwealth Director of Public Prosecutions v Hart [2004] QDC 121 at [166]. That finding was upheld by the Court of Appeal: Director of Public Prosecutions (Cth) v Hart (No 2) [2005] 2 Qd R 246 at 261 [32].

280. Consistent with those submissions and the concession by the Companies and Mr Hart, the primary judge found that Mr Hart had effective control of the Companies and their assets on 8 May 2003 and 19 December 2003[302].  The primary judge also made findings as to dates before 2003, including that Mr Hart had effective control of the Companies' assets in December 2001[303] and January 2002[304], and that there were "reasonable grounds to suspect that he was in effective control" of the Companies at all material times, before, in and from December 2001[305].

     [302]Hart [2013] QDC 60 at [252], [865].

     [303]Hart [2013] QDC 60 at [252], [266].

     [304]Hart [2013] QDC 60 at [266].

     [305]Hart [2013] QDC 60 at [293].

281. In the Court of Appeal, Mr Hart and the Companies adopted a different stance and submitted that effective control was to be assessed at the date of the determination of the s 141 application rather than the date of any restraining order[306].  That submission was accepted by the majority of the Court of Appeal[307].

     [306]Hart (2016) 336 ALR 492 at 742 [1252].

     [307]Hart (2016) 336 ALR 492 at 745-746 [1268].

282. In this Court, the Commonwealth submitted that the majority of the Court of Appeal erred in holding that effective control was to be assessed at the date of the determination of the s 141 application. That submission should be rejected.

283. Consistent with the statutory language of "is" in s 141(1)(c), the court must be satisfied that the particular property is not subject to the effective control of the person subject to a pecuniary penalty order at the date of the s 141 order.

284. Contrary to the submissions of the Commonwealth, it cannot be the date of the restraining order. There is nothing to suggest that an application under s 141 could not and would not be made by the CDPP in respect of property that is not presently forfeited and perhaps never was forfeited to the Commonwealth or subject to a restraining order. The time at which the court assesses effective control does not and cannot change depending on the property in question. It cannot be the date of the application in some cases, the date of the initial restraining order in others, and the date of the s 141 order in other cases still[308]. Indeed, if "is" in s 141 referred to the time of the s 141 application – as appeared to be suggested at one point in oral argument – then the Commonwealth could not have obtained the order in issue in these appeals because the property was forfeited.

     [308]cf Hart (2016) 336 ALR 492 at 544-545 [268]-[275].

285. The Commonwealth identified other provisions in the POCA which fix on whether property "is" under or subject to the effective control of some person – namely, ss 29(4), 102(2)(b) and 116(3) – and submitted that "is" in those provisions could not be read literally. It was contended that the same logic could and should apply to s 141(1)(c). That contention should be rejected. As the Commonwealth recognised, those other provisions, unlike s 141(1)(c), apply only to property which is presently forfeited or is subject to a restraining order. Thus, the word "is" in s 102(2)(b) must be read as referring to something other than the date of the determination of the application, because s 102 only applies to presently forfeited property. If s 102(2)(b) were read as referring to the time of the application, it would always be satisfied and the provision would be redundant. That is not the case for s 141(1)(c), which is not confined to presently restrained or forfeited property. For the same reason, the decision in Logan Park Investments Pty Ltd v Director of Public Prosecutions (Cth)[309], which concerned a provision of the POCA 1987 that applied only to presently restrained property, takes the matter no further.

     (2)No effective control at date of determination of s 141 application

     [309](1994) 122 FLR 1.

286. Once it is accepted that effective control for the purposes of s 141(1)(c) is to be assessed as at the date of the determination of the application, it follows that, in this case, the condition in s 141(1)(c) could not be satisfied on the evidence at trial.

287. As the primary judge recorded, "[t]here was no issue litigated in these proceedings about whether Mr Hart would have or would be given effective control of property if the Commonwealth is directed to transfer property to the Companies or to pay the value of property to them"[310].

     [310]Hart [2013] QDC 60 at [168].

288. Later in his reasons, the primary judge concluded that[311]:

     (1)no issue had been raised in the pleadings about whether Mr Hart continued to be in effective control of the Companies at the time of the trial;

     (2)it was "possible" that Mr Hart "remain[ed] in effective control of the Companies" but the issue had "not been adequately explored in evidence"; and

     (3)his Honour was "not persuaded that Mr Hart is currently more than the trusted adviser to the directors" of the Companies.

     [311]Hart [2013] QDC 60 at [880].

289. Some matters mentioned in the primary judge's reasons may be considered relevant to effective control as at 2 April 2013 (the date on which the s 141 application was determined) but, as noted above, the evidence is scant and there were no direct findings. Those matters include, for example, that Mr Hart acted as a McKenzie friend for the Companies in the proceedings before the primary judge[312] and that there was evidence before the primary judge that Mr Hart remained a beneficiary of at least two discretionary trusts for which one of the Companies was trustee, although the CDPP did not submit that Mr Hart was thereby (or for any other reason) the "beneficial owner" of the Companies' assets or any particular asset[313].

     [312]Hart [2013] QDC 60 at [29].

     [313]Hart [2013] QDC 60 at [883].

290. Further, in the Court of Appeal, the majority – having concluded, as the Companies contended, that effective control was to be assessed at the date of the determination of the s 141 application rather than the date of any restraining order – stated that "[t]here has been no suggestion that the Commonwealth parties might have led evidence" to address effective control at the date of determination[314].

     [314]Hart (2016) 336 ALR 492 at 743 [1256].

291. That last observation by the majority is important because, by reason of s 317 of the POCA, the CDPP bore the onus of proving the matters necessary to establish the grounds for making the s 141 order for which it applied. The CDPP did not address those matters, and therefore did not discharge that onus.

292. For those reasons, the Commonwealth's appeal in relation to s 141 should be dismissed.

     F.        Conclusion and orders

293. For those reasons, the following orders should be made:

     Matter No B21/2017

     Appeal dismissed with costs. 

     Matter No B22/2017 and Matter No B23/2017

     (1)Appeal in Matter No B22/2017 allowed in part.

     (2)Appeal in Matter No B23/2017 allowed.

     (3)Set aside the orders of the Court of Appeal of the Supreme Court of Queensland made in Appeal No 4987/13 on 29 August 2016 and 8 November 2016, and orders 1, 4(a), (b), (e) and (f), 5, 7 to 9, and 11 to 18 of that Court made in Appeal No 3908/13 on 8 November 2016, and in their place make the following orders and declarations:

     (a)each appeal be allowed in part;

     (b)in Appeal No 3908/13, declare that:

     (i)Nemesis Australia Pty Ltd had legal ownership of Lot 56 on Registered Plan 188161, also known as 6 Merriwa Street, subject to the rights of the mortgagee under the mortgage in favour of Countrywide Co‑operative Housing Society Ltd and the chargee under a mortgage debenture in favour of Merrell Associates Ltd, immediately prior to its forfeiture to the Commonwealth on 18 April 2006; and

     (ii)upon satisfaction of the mortgage in favour of Countrywide Co-operative Housing Society Ltd and upon satisfaction of the amount of $1.6 million secured by the mortgage debenture in par (i), if any part of the proceeds of sale of 6 Merriwa Street has not been applied to meet that liability, the balance of proceeds then remaining (if any), together with interest on that balance, is payable by the Commonwealth to Nemesis Australia Pty Ltd; and

     (c)in each of Appeal No 3908/13 and Appeal No 4987/13, each party bear its own costs.