Re Sections 14 and 26(1) of the Proceeds of Crime Act 1987 and Re An Application By the Director of Public Prosecutions of A Pecuniary Penalty Order In Respect of Andrew Laurence James Mcdermott [1990] ACTSC 8 (9 March 1990)

SUPREME COURT OF THE ACT

IN THE MATTER OF SECTIONS 14 AND 26(1) OF THE PROCEEDS OF CRIME ACT
1987
AND IN THE MATTER OF AN APPLICATION BY THE DIRECTOR OF PUBLIC
PROSECUTIONS FOR A PECUNIARY PENALTY ORDER IN RESPECT OF ANDREW
LAURENCE JAMES McDERMOTT
S.C. No. 114 of 1990
Proceeds of Crime Act 1987

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Miles C.J.(1)

CATCHWORDS

Proceeds of Crime Act 1987 - pecuniary penalty order - operation as a judgment debt - assessment of value of benefits derived under s.27(2) - provisions of Act to be given ordinary and natural meaning - relevance of s.28 to assessment of value of benefits - need for offences from which proceeds derive to be identified - meaning of "transcript" in s.18(1).

Saffron v. Director of Public Prosecutions (Cth) (1989) 87 ALR 151

R v. Bolger (New South Wales Court of Criminal Appeal, 27 April 1989, unreported)

Director of Public Prosecutions v. Walsh and Others (1990) WAR 25

HEARING

CANBERRA
9:3:1990

Counsel for the applicant Mr. S. Madden

Solicitors for the applicant Director of Public

Prosecutions

Counsel for the respondent Mr. B. Salmon, QC with
Mr. B. Hull

Solicitor for the respondent Allan R. Nelson & Co.

ORDER

The defendant pay to the Commonwealth a pecuniary penalty in the sum of $22,330.19.

Each party bear his own costs.

DECISION

This is an application by the Director of Public Prosecutions (the DPP) commenced by Notice of Motion dated 26 February 1990 seeking orders under the Proceeds of Crime Act 1987 (the Act) and in particular an order that Andrew Laurence James McDermott pay a pecuniary penalty to the Commonwealth of Australia. The Act sometimes refers to a person against whom such as order is sought as "the defendant" (for example s.27(2)) and I shall use that term.

2. The defendant was found guilty on 23 February 1990 after a trial of the following offences:
1. (Second count on the indictment) - Between

20 February 1987 and 15 September 1987 did make a
false entry in a record fraudulently and in breach of
his duty as a Commonwealth officer, contrary to s.72A
of the Crimes Act 1914.

2. (Fourth count) - Between 30 June 1986 and 2 October

1987 did corruptly agree to receive property on the
understanding that the exercise by him of his duties
as a Commonwealth officer would be influenced contrary
to s.73 of the Crimes Act 1914.

3. (Fifth count) - On or about 24 December 1986, being an

agent of the Crown and without the full knowledge and
consent of the Crown, indirectly obtaining a
consideration in the sum of $2,617.50 as a reward for
acts done in relation to the affairs of the Crown.

4. (Sixth count) - On or about 27 February 1987, being an

agent of the Crown and without the full knowledge and
consent of the Crown, indirectly obtaining for himself
a consideration in the sum of $4,865.55 as a reward
for acts done in relation to the affairs of the Crown.

5. (Seventh count) - On or about 26 May 1987, being an

agent of the Crown and without the full knowledge and
consent of the Crown as principal indirectly obtaining
for himself a consideration in the sum of $5,380.14 as
a reward for acts done in relation to the affairs of
the Crown.

6. (Eighth count) - On or about 25 September 1987, being

an agent of the Crown and without the full knowledge
and consent of the Crown indirectly obtaining for
himself a consideration in the sum of $9,467 as a
reward for acts done in relation to the affairs of the
Crown. The last four offences were contrary to the
Secret Commissions Act 1905, s.4(1).

3. The offender has been convicted and sentenced today on all counts.

4. The basic facts upon which the DPP relies for the orders sought emerged in the trial and may be briefly stated. In the latter half of 1986 the defendant, an officer in the Australian Fisheries Service, corruptly agreed with one Timothy Alan Roberts to carry on consultancy work for a company, Rigil Kent Limited (Rigil Kent). The consultancy work related in particular to development of fishing in the South East Trawl, an area managed by the Australian Fisheries Service. For the purpose of the agreement, the defendant was party to the incorporation in Tasmania of a company, Marintech Nominees Pty. Ltd. (Marintech), which carried on business as Marintech Fisheries Consultants. The defendant became a director of Marintech on 20 January 1987. In accordance with the agreement, the defendant performed consultancy services and rendered invoices or statements for such services in the name of Marintech to Rigil Kent. Rigil Kent paid the amounts claimed on the invoices on or about the dates alleged in the 5th, 6th, 7th and 8th counts on the indictment. All such payments were by cheque and were credited to the bank account of Marintech in Hobart. On 14 September 1987 in pursuance of the agreement the defendant fraudulently made a false entry in a computer data base of the Australian Fisheries Service by creating a file in the name of T. Roberts and purporting to transfer to that file a number of boat units to which Roberts was not entitled. The payment for the invoices rendered on behalf of Marintech for services performed in March, April, May and June was not made until 25 September 1987.

5. The Act came into effect on 5 June 1987. According to s.3(1), the principal objects of the Act are:

"(a) to deprive persons of the proceeds of, and
benefits derived from, the commission of
offences against the laws of the
Commonwealth or the Territories.
(b) to provide for the forfeiture of property
used in or in connection with the commission
of such offences, and
(c) to enable law enforcement authorities
effectively to trace such proceeds, benefits
and property."

6. The Act has proved controversial. It has had its champions.

7. In his second reading speech, the Honourable Lionel Bowen, Deputy Prime Minister and Attorney-General said:

"This Bill provides some of the most effective
weaponry against major crime ever introduced into
the Parliament. Its purpose is to strike at the
heart of major organized crime by depriving
persons involved of the profits and instruments
of their crimes. By so doing, it will supress
criminal activity by attacking the primary motive
- profit - and prevent the reinvestment of that
profit in further criminal activity."

8. Mr. Ian Temby QC, Director of Public Prosecutions, as he then was, wrote in (1989) 13 Crim L J 24 that the Act "represents the most recent and most innovative initiative to attack the profit motive in relation to Commonwealth crime", and that the Act is "a far reaching but poorly understood piece of legislation".

9. The Act has also had its critics, particularly in New South Wales. In Saffron v. Director of Public Prosecutions (Cth) (1989) 87 ALR 151, Kirby P. alerted the Court to "the novel and drastic nature of the legislation" and thought some of its language "laconic". The drafting of the Act has been criticised as "lamentable" by Allen J. in R v. Bolger (New South Wales Court of Criminal Appeal, 27 April 1989, unreported). Professor Fisse in (1989) 13 Crim L J 5, sees the Act as part of "a new despotism in Commonwealth criminal law".

10. Still, as Kirby P. conceded, "a Court will give effect to the will of Parliament", and the present application is simply for an order for the payment of money in order to recover what has been quaintly termed the defendant's "ill-gotten gains". This hardly seems to involve any violation of "time honoured civic rights" which requires the provisions of the Act to be given other than their ordinary and natural meaning.

11. For the purposes of the present case, the key provisions of the Act are to be found in Division 3. Some of the more generally applicable provisions also deserve mention. Because of the time of the events under consideration and the date on which the Act came into effect, it is as well to refer to s.24(b) which provides that Division 3 applies to "benefits that are provided to a person either within or outside Australia and either before or after the commencement of this Act".

12. Under s.4(1) the word "benefit" includes service or advantage, and s.4(3) provides that a reference in the Act to a benefit derived by a person includes a reference to:

"(a) a benefit derived, directly or indirectly by
the person; and
(b) a benefit derived, directly or indirectly by
another person at the request or direction
of the first person."

13. Section 14(1) provides as follows:

"14.(1) Where a person is convicted of an indictable
offence, the DPP may, subject to subsections
(2), (3) and (4) apply to an appropriate court
for one or both of the following orders:
(a) a forfeiture order against property that is
tainted property in respect of the offence;
(b) a pecuniary penalty order against the person
in respect of benefits derived by the person
from the commission of the offence."

14. Under s.98 jurisdiction is vested in the several courts of the States and Territories with respect to matters arising under the Act, although by virtue of sub-s.98(6) jurisdiction is vested in a court of a Territory (including the Northern Territory) so far only as the Constitution permits. Sub-s. 18(1) provides that a court in determining an application for a confiscation order may have regard to the transcript of any proceeding against the person for the offence. Sub-s.18(2) provides that the court may defer passing sentence until it has determined an application for a confiscation order. Sub-ss. 26(1) and s.26(2) are in the following terms:

"26.(1) Where -
(a) an application is made to a court for an
order under this section in respect of
benefits derived by a person from the
commission of an offence; and
(b) the court is satisfied that the person derived
benefits from the commission of the offence:
the court may, if it considers it appropriate:
(c) assess, in accordance with section 27, the
value of the benefits so derived; and
(d) order the person to pay to the Commonwealth
a pecuniary penalty equal to the penalty amount.
(2) Subject to subsections (3) and (4), the
penalty amount is the value of the benefits as
assessed under paragraph (1)(c)."

15. Sub.s 27(2) is in the following terms:

"27.(2) For the purposes of an application for a
pecuniary penalty order against a person (in this
subsection called the "defendant"), the value of
the benefits derived by the defendant from the
commission of an offence or offences shall be
assessed by the court having regard to the
evidence before it concerning all or any of the
following:
(a) the money, or the value of the property
other than money, that came into the
possession or under the control of:
(i) the defendant, or
(ii) another person at the request or direction
of the defendant;
by reason of the commission of the offence
or any of the offences;
(b) the value of any other benefit provided to:
(i) the defendant; or
(ii) another person at the request or
direction of the defendant;
by reason of the commission of the offence
or any of the offences;
(c) if the offence or any of the offences
consisted of the doing of an act or thing in
relation to a narcotic substance;
(i) the market value, at the time of the
offence, of similar or substantially
similar narcotic substances; and
(ii) the amount that was, or the range of
amounts that were, ordinarily paid for
the doing of a similar or substantially
similar act or thing;
(d) the value of the defendant's property:
(i) where the application relates to a
single offence - before and after the
commission of the offence; or
(ii) where the application relates to 2 or
more offences - before, during and
after the offence period;
(e) the defendant's income and expenditure:
(i) where the application relates to a
single offence - before and after the
commission of the offence; or
(ii) where the application relates to 2 or
more offences - before, during and
after the offence period."

16. Sub-s.27(8) provides as follows:

"27.(8) In calculating for the purposes of an
application for a pecuniary penalty order, the
value of benefits derived by a person from the
commission of an offence or offences, any
expenses or outgoings of the person in connection
with the commission of the offence or offences
shall be disregarded."

17. Sub-ss.28(1) and (2) provide as follows:

"28.(1) In assessing the value of benefits
derived by a person from the commission of an
offence or offences, the court may treat as
property of the person any property that, in the
opinion of the court, is subject to the effective
control of the person whether or not the person
has:
(a) any legal or equitable estate or interest in
the property; or
(b) any right, power or privilege in connection
with the property.
(2) Without limiting the generality of
subsection (1), the court may have regard to:
(a) shareholdings in, debentures over or
directorships of any company that has an
interest (whether direct or indirect) in the
property;
(b) any trust that has a relationship to the
property; and
(c) family, domestic and business relationships
between persons having an interest in the
property, or in companies of the kind
referred to in paragraph (a) or trusts of
the kind referred to in paragaraph (b), and
any other persons."

18. Pursuant to sub-s.26(1)(b) the Court must be satisfied that the person derived benefits from the commission of the offence before it proceeds to exercise the power, first, to assess the value of the benefits (which it can do only in accordance with s.27) and, secondly, to order the person to pay to the Commonwealth the value of the benefits so assessed. Whilst the Court has a discretion whether it will proceed to assess the value of the benefits derived and further whether it will order the person to pay a pecuniary penalty equivalent to that value, there is nothing discretionary about the method of assessing the value, or, once the value is assessed, about what amount may be ordered to be paid. The method of assessment is laid down in mandatory terms by s.27, and if an order is to be made, it can only be for an amount equivalent to the value of the benefits assessed in accordance with s.27.

19. Sub-s.27(2) provides that the value of the benefits shall be assessed by the Court having regard to the evidence before it concerning all or any of the factors identified or described in sub-paragraphs (a) to (e) inclusive. The submission was made on behalf of the DPP that the Court in this case need have regard to none of those factors apart from that in paragraph (a). It is submitted that the evidence in the trial establishes that the total sum of $22,330.19 credited to the Marintech accounts was money, or the value of property other than money, that came into or under the control of Marintech at the request or direction of the defendant.

20. It was further submitted, as I understand it, that the case for the DPP was strengthened by the provisions of s.28. I find it difficult to see the relevance of s.28 in the circumstances of the present case. The heading of that section, with its reference to lifting the "corporate veil etc." and the provisions of sub-s.28(2) suggest that the section is intended to go behind any corporate structure, trust, family relationship or the like which tends to disguise the true and effective control of property by a particular person. In such situations the Court may, in accordance with the provisions of the section, treat property as the property of the person who has the effective control, regardless of legal and equitable rights and the interposition of artificial disguises. The scope of this sort of deeming provision is restricted by sub-s.28(1): the Court may treat property in the way authorised only "in assessing the value of benefits derived by a person from the commission of an offence or offences" and only when the evidence otherwise establishes that the person has the effective control of the property. However, insofar as the DPP relies only on paragraph (a) of sub-s.27(2), which is not concerned with what constitutes the "property of the person", s.28 does not seem to me to be to the point.

21. In any event, as a matter of law, the Court cannot be constrained by the argument put on behalf of the DPP. The terms of sub-s.27(2) cast an inescapable statutory duty on the Court to have regard to whatever evidence there is concerning all or any, that is to say, any one or more, of the factors set out in paragraphs (a) to (e). The Court has no discretionary power to pick and choose which of those factors it will take into account. The extent to which any particular factor, of which there is evidence, is taken into account, and the weight which is to be given to such evidence is a different matter. Neither in s.27 nor elsewhere in the Act, as far as I can see, is there any guidance to the Court on how this is to be done.

22. Nevertheless, I can state now and without further reference to the evidence that my findings in relation to s.27(2)(a) are that the total sum of $22,330.19 which was credited to the Marintech account was money or the value of property other than money, that that sum came under the control of Marintech by virtue of being credited to the Marintech account and that it came under the control of Marintech by the request and direction of the defendant insofar as the defendant rendered invoices in the name of Marintech, which invoices contained the implied request and direction that the sums appearing on the invoices be paid to Marintech.

23. Although there was mention from the Bar table on behalf of the DPP of an intention to tender documents to show payments from the Marintech account into various other accounts with which the defendant was said to be connected, no such tender was pressed, so that the evidence to support the DPP case was restricted to what emerged from the transcript in the trial. I add here that I construe the word "transcript" in sub-s.18(1) to include documentary evidence admitted in the form of exhibits during the trial.

24. Accordingly, in the case for the DPP there was no reliance on or evidence of the factors set out in paragraphs (b), (c), (d) and (e) of sub-s.27(2).

25. The defendant gave evidence and called his father as a witness. The evidence of both witnesses was somewhat vague but it did relate to paragraphs (d) and (e) of sub-s.27(2). According to the father, an amount of about $500 or $600 dollars odd was debited to the Marintech account by the bank and credited to another account or accounts which had something to do with a mortgage over the home of the father and the mother of the defendant. The effect of crediting that other account or those other accounts was to reduce the amount outstanding on that mortgage. Mr. McDermott senior said that this occurred by mistake and he thought these amounts had come from a private account of the defendant not from the Marintech account. Mr. McDermott senior said that "half a dozen amounts came out when we detected it". He also said that when the mistake was discovered, the defendant paid $5,000 odd back into the Marintech account. (Marintech lent the defendant $4,682 and it is not clear whether he repaid the loan: see below.)

26. The defendant gave evidence similar to that of his father. The evidence of neither was supported by copies of any bank statements or the like. I approach the oral evidence with caution, but Mr. McDermott senior was not cross-examined at all and the defendant was not cross-examined on these particular aspects. I see no reason why I should reject their evidence.

27. Income tax returns and some other documents were admitted into evidence in the defendant's case. The tax returns relate to tax years ended 30 June 1987 and 30 June 1988 respectively. Hence the first four payments made by Rigil Kent to Marintech and amounting to $12,863.19 should have been included in the return for the earlier tax year. In fact, the tax return for the earlier tax year showed income from consultancy fees of $15,858.19 and expenditure of $4,005.14, including travelling fees expenses of $1,998.39. The tax return for the later financial year should have included the payment from Rigil Kent to Marintech of $9,467 on 25 September 1987. The tax return for the later financial year shows income for that exact amount, and expenditure of $9,914.88, including travelling and accommodation expenses of $7,501.50. I find it difficult to accept that Marintech incurred travelling and accommodation expenses for such an amount after June 1987 as the invoices rendered to Rigil Kent did not claim consultancy fees for any work done beyond June 1987. However, the defendant swore that the tax returns were correct, and he was not cross-examined on that aspect. I act upon his sworn evidence. The balance sheet of Marintech at 30 June 1988 showed net assets of $10,345 partly represented by $5,000 on deposit and partly by $4,682 on loan to the defendant. A bank statement dated 15 December 1989 shows a credit balance of $11.12 only. No explanation was offered of what had happened to the net assets between 30 June 1988 and the hearing. Whether or not the defendant repaid the loan cannot be decided.

28. As I understand the submission of senior counsel who appeared for the defendant in the application, it was put that the Act was never intended to apply to the sort of situation shown on the evidence in this case, that the payments by Rigil Kent to Marintech in pursuance of the corrupt agreement with the defendant were not in the terms of s.4 of the Act, "derived or realised directly or indirectly by any person for the commission of the offence". I accept that the particular offence or offences from which the proceeds are alleged to have been derived or realised should be identified. In this respect it could not be said, for instance, that the receipt by Marintech of $2,617 on 24 December 1986 was derived from the fraudulent entry on the computer data base on 17 September 1987. However, it is beyond argument, in my view, that all payments by Rigil Kent to Marintech derived from the agreement alleged in the fourth count, and that each of the payments by Rigil Kent to the Marintech account constitute the very receipts of secret commissions alleged in the fifth, sixth, seventh and eighth counts. It is unnecessary to discuss at length whether the final payment of $9,467 on 25 September 1987 was derived or realised also from the fraudulent entry in the computer data base, although I think that it probably was.

29. It was further put on behalf of the defendant that as there were no funds left in the Marintech bank account by the time of the convictions, or by the time the notice of motion was filed with the Court, and as it has not been shown that the defendant has withdrawn or dealt with any of the Marintech funds for the purpose of concealing them, then there are no "proceeds" of crime against which a pecuniary penalty order may be made. In my view, however, this submission confuses a forfeiture order with a pecuniary penalty order. A forfeiture order cannot be made unless there is identifiable property which is available to be forfeited, but in contrast a pecuniary penalty order operates as a civil debt enforceable without action as a judgment debt by the Commonwealth: sub-s.26(8) and sub-s.26(9).

30. In Director of Public Prosecutions v. Walsh and Others (1990) WAR 25, Seaman J. held that where a pecuniary penalty order has been made, any particular property subject to the effective control of the defendant is property available to satisfy that order and the property need not be the proceeds of crime. Although his Honour was dealing with the application of s.28(3), it is consistent with the general scheme of the Act in relation to confiscation orders that once the Court is satisfied in accordance with s.26(1)(b) that the defendant derived benefits from the commission of the offence, then, subject to the assessment of value of the benefits so derived, the Court may make a pecuniary penalty order which is not directed at particular property.

31. Lastly, it was submitted on behalf of the defendant that it could not be shown that the defendant had benefited in any real sense because Marintech finished up with next to nothing in its bank account and because it made a loss in the tax year ended 30 June 1988. The short answer to the submission is in the name of the Act itself and the purposes set out in sub-s.3(1). The Act is concerned in part with identifying and realising on behalf of the Commonwealth the proceeds of criminal activity as defined. Section 4 defines "proceeds" as "any property that is derived or realised, directly or indirectly, by any person from the commission of the offence". Furthermore, insofar as the Act is concerned with benefits, s.4(3) provides that "benefit" includes a reference to (a) a benefit derived directly or indirectly by the person; and (b) a benefit derived directly or indirectly by another person at the request or direction of the first person. In this regard the benefit to Marintech at the direction of the defendant has to be considered a benefit to the defendant himself. I am unable to see why the value derived by Marintech is not the value derived by the defendant, that is to say, $22,330.19. Morever, s.27(8) provides that for the purposes of an application for pecuniary penalty order, the value of benefits derived by a person from the commission of an offence or offences, any expenses or outgoings of the person in connection with the commission of the offence or offences shall be disregarded. The evidence of the defendant was silent on how or whether expenditure shown in the tax returns related to activities other than the corrupt consultancy work for which Marintech received payment and from which the benefit to Marintech and thus, according to the terms of the Act, the defendant derived. I find that if the expenditure claimed was incurred, it was incurred in connection with the commission of the offence or offences and is to be disregarded.

32. My findings in relation to paragraphs (b) to (e) of sub-s.27(2) are as follows:

(b) that there was no benefit provided to the
defendant or to another person at his request or
direction apart from the benefit provided by way
of the payments into the Marintech bank account,
which I have already considered under paragraph
(a);
(c) that there is no evidence that any of the
offences relate to a narcotic substance;
(d) that the evidence relating to the defendant's
property is such that it does not enable me to
draw any conclusions as to the value of the
benefits derived by the defendant from the
commission of the offences;
(e) that the evidence relating to the defendant's
income and expenditure is such that it does not
enable me to draw any conclusions as to the
value of the benefits derived by the defendant
from the commission of the offences.

33. Accordingly, I am satisfied, in accordance with sub-s.26(1)(b) that the defendant derived benefits from the commission of the offences of which he was convicted. No reason was advanced why I should not, in accordance with sub-s.26(1)(c), proceed to assess the value of the benefits so derived. Having regard to the purposes of the Act and my findings already referred to, I consider it appropriate to assess the value of the benefits so derived. For reasons already given I assess the value of the benefits so derived at $22,330.19. For reasons already given, I consider it appropriate to order the defendant to pay to the Commonwealth a pecuniary penalty equal to the value of the benefit as assessed, that is $22,330.19 and I so order. In the present case the application has proceeded in many respects as part of the sentencing process, and an order for costs is therefore inappropriate. The parties are each to bear their own costs.