t /SUDGMENT No. 943/31. Banking (Foreign Exchange) Regulations - Meaning of "forfeiture" CATCHWORDS under regulation 42(2) - Whether a Judge could validly order "the forfeiture of bank drafts (there being a large number of drafts in more than one currency) in the amount of $10,000" - Meaning and possible operation of such an order in respect of the exchange of currencies - Appropriate order where purported forfeiture of drafts seized from the bankrupt was held invalid. Banking Act 1959, s.39 Banking (Foreign Exchange) Regulations, reg.42 PETER WILLIAM GOTTSCHALD AS TRUSTEE OF THE BANKRUPT ESTATE OF AFIF SARKIS -V- THE COMMONWEALTH OF AUSTRALIA & ORS. W.573 of 1984 Burchett J. Sydney 12 October 1987 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY REASONS FOR JUDGMENT wee No. W.573 of 1984 BETWEEN: lz a i] AND: BURCHETT J. PETER WILLIAM GOTTSCHALD as trustee of the bankrupt estate of AFIF SARKIS Applicant THE COMMONWEALTH OF AUSTRALIA First Respondent THE COMMONWEALTH BANK OF AUSTRALIA Second Respondent THE AUSTRALIAN FEDERAL POLICE Third Respondent This 1S an application and cross-application in respect of the administration of an estate of a bankrupt. The issue arises under the Banking Act 1959 and the Banking (Foreign Exchange) Regulations made pursuant to that Act, particularly regulation 42(2) which provides: 2. "Subject to sub-regulations (3) and (4) [which are designed to exclude the case of an innocent owner and to ensure that such a person has an opportunity to demonstrate his innocence] where a person has been convicted by a court of an offence against' these Regulations, the court may, 1f it thinks fit, order the forfeiture of all or any of the articles in respect of which the offence was committed." The circumstances out of which the present questions arise may be briefly recounted. Mr. Sarkis was made a bankrupt on 22 June 1984, when the applicant became his trustee. Prior to his bankruptcy, Mr. Sarkis was (on 10 February 1984) convicted in the District Court of New South Wales, in its_ criminal jurisdiction, of a number of offences against the Banking (Foreign Exchange) Regulations. Those offences involved attempts to evade the then operative foreign exchange controls in respect of a number of bank drafts, all but one of which purported to belong to various other individuals but in fact (according to the prosecution case) belonged to Mr. Sarkis. One of these drafts was for 2,375.60 pounds sterling, and thirteen were for sums of pounds sterling ranging from 801.90 to 898.50. There was also one draft for 3,600 pounds sterling in the name A. Sarkis. The total of pounds sterling drafts was 17,468.90. There was also one draft for 1,500 Australian dollars, and there were four drafts for United States dollars, of which one was in the sum of U.S.$1,667.85 and each of the other three was for U.S.$1,674.00. The total of the drafts in United States dollars was therefore U.S.$6,689.85. The District Court Judge imposed fines totalling $5,050.00 in respect of the various offences, and announced the 3. following order in respect of the bank drafts: "I order the forfeiture of bank drafts ... in the amount of $10,000 and I make no further order with the intention that the remaining money represented by the remainder of the bank drafts may be returned to you." No step has been taken with a view to carrying out the forfeiture order in respect of any particular draft or drafts. All of the drafts remain in the custody either of the Australian Federal Police or of the Commonwealth Bank of Australia, except in so far as certain action has been taken in purported pursuance of the provisions of the Fines and Forfeited Recognizances Act 1954 (NSW). That action related to the fines imposed, and not to the order in respect of forfeiture. It was taken in respect of the draft in the name of A. Sarkis for 3,600 pounds sterling. When this draft was cashed, the amount of the fines totalling $5,050.00 was deducted, and a balance of $2,166.56 was forwarded to the trustee. It is now conceded by counsel for the Commonwealth that the attempt to obtain payment of the fines, which was made after the bankruptcy, was not valid. The applicant's primary contention is that the power of the District Court to "order the forfeiture of all or any of the articles in respect of which the offence was committed" did not extend to enable the District Court Judge to order a forfeiture of unspecified bank drafts "in the amount of $10,000.00". Such an order, it was said, gave no indication which drafts were intended to be forfeited. If valid, 1t would involve the taking of the sum of $10,000.00 out of the proceeds of conversion to cash in Australian dollars of one or more of the bank drafts with 4. a return to the owner, almost certainly, of some amount not required in order to make up the $10,000.00. Assuming, as the parties assert, that all the drafts, though made out in different names, did belong to Mr. Sarkis and do now belong to his trustee, subject to the true effect of the order of forfeiture, it might still make ae considerable difference whether a draft converted to cash at a particular time was a draft for pounds sterling or United States dollars. But the order leaves the selection at large. If, on the other hand, the possibility be contemplated that some of the drafts may belong to different persons, the consequences of an order in the form chosen by the District Court Judge are even more starkly apparent. The regulation plainly envisages that things may be forfeited which do not belong to the offender convicted, though sub-regulation (3) enables an innocent owner to appear before the Court in which the conviction is entered to oppose the making of an order on the ground that he "was not, in any way, directly or tndirectly knowingly concerned in, or party to, the commission of the offence." Sub-regulations (4) and (5) provide for the giving of notice in a case "where 1t appears to the court that a person other than the person convicted of the offence is the owner of all or any of the articles in respect of which the offence was committed," or in a case where 1t appears the owner is not known, where notice may be given by advertisement; but it remains possible that some other person may be an owner (and perhaps an innocent owner) of a particular article, though not appearing to the court to be such an owner, or may be an owner whose ownership 1S apparent to the court but who cannot satisfy the court that he 5. was not involved in the commission of the offence. In either of those cases, 1t can hardly have been contemplated by Parliament that whether the true owner is to lose the article should be determined, not by a deliberate decision of the court making the order, but by the chance of selection by some other person, purportedly carrying out the order, of particular drafts rather than other drafts as convenient to convert to cash. Assuming the order operated as at its date, the amount in Australian dollars purportedly forfeited might also vary, depending upon the selection of sterling drafts or United States dollars drafts to meet it, and the fluctuations which thereafter affected exchange rates of those currencies in relation to Australian dollars, until execution of the order was completed. (In fact, nothing has been done to execute the order.) For 1f the order operated at its date in relation to particular sterling or United States dollars drafts, 1t forfeited so many pounds sterling or United States dollars (or a combination of currencies), as the case might be, as were at that date required to make a payment of $10,000.00 under the order. (Cf£. Choice Investments Ltd. v. Jeromnimon - Midland Bank Ltd, Garnishee [1981] 1 Q.B. 149 at 156-8, where Lord Denning M.R. discussed the problems of the operation of a garnishee order in respect of a foreign currency bank account.) It could not have operated to forfeit the Australian dollars into which the foreign currency could have been converted, since those dollars neither existed then nor could be described as "the articles in respect of which the offence was committed". It 1s obvious, looking at the matter at the time of the order, that fluctuations in exchange rates 6. could result in the forfeited foreign currency amounts being more or less than the equivalent of $10,000.00 by the time exchange became possible - and different from what would have resulted if a different selection of drafts had been made. I do not think these difficulties can be avoided by construing a penal order liberally, so as to allow the taking of $10,000.00 from the proceeds of drafts whenever exchanged. That would be to allow a possible enlargement of the forfeiture (measured in the things forfeited, being foreign currency) during the interval between the order and the exchange. In any case, of course, it would not overcome a number of the matters mentioned. The form of the order raises further problems as to whether any particular person can be identified as having authority to carry 1t into effect, and precisely what steps he should take if he 1s able to establish to which of the drafts the order relates. Fortunately, it is not necessary, for the decision of this case, to resolve all of these difficulties. A forfeiture, such as 1s provided for in regulation 42(2), is intended to be by way of a punishment for the offence: R. v. Ansiewiez (1948) 48 S.R.(NSW) 478 at 481, per Jordan C.J. Such a provision 1s "a penal provision and should be construed as such. eee It is not for the Courts to strain the language of the section to cover situations which the draftsman has not. Parliament alone is in a position to enlarge the operation of the (provision) if 1t should think that to be desirable": R. v. McCurdy [1983] N.Z.L.R. 551 at 553-4, a decision of the New Zealand Court of Appeal. At the same time, when Parliament 7. confers such a power on the court which deals with an offender, that construction of the provision 1s to be preferred which does not cause the effects of the exercise of the power to fall capriciously. Sub-regulation (2) of regulation 42, which refers to "the forfeiture of all or any of the articles in respect of which the offence was committed", must be construed in the light of sub-regulation (6) which reads as follows: "In this regulation 'the articles in respect of which the offence was committed' means the goods, Australian currency, foreign currency or securities in respect of which the offence was committed." The Banking (Foreign Exchange) Regulations were made pursuant to s.39 of the Banking Act 1959, sub-s.(2) of which provides relevantly as follows: "The regulations authorized to be made by this section are regulations (being regulations with respect to matters with respect to which the Parliament has power to make laws) making provision for or in relation to - (r) empowering a court to order' the forfeiture, or the disposal in accordance with the directions of the Reserve Bank, of Australian currency, foreign currency, goods or _ other property in respect of which = an offence against the regulations made under this section has been committed." Sub-s.(8) of that section contains a definition of foreign currency as follows: "'foreign currency' includes notes, coins, postal notes, money orders, bills of exchange, promissory notes, drafts, letters of credit and travellers' cheques payable or expressed otherwise than in Australian money, and also includes rights, and instruments of title, to money other than Australian money;". The language of both s.39 and regulation 42 refers to the forfeiture of particular things. This language does not naturally import the levying of an additional fine out of the proceeds of those things. It signifies something quite different. Forfeiture of goods involves either a transfer of ownership of those goods or the creation of a right to bring about such a transfer by immmediate seizure: Powers v. Maher (1959) 103 C.L.R. 478 at 483. The effect of forfeiture upon the title to the thing itself 1s plainly shown, in the case of forfeitures for breaches of customs and excise laws, by the procedure originally employed to enforce them. In Blackstone Book III Chapter 17 section II(4), 1t 1s stated that the mode of enforcement was by information in rem; and see also Willey v. Synan (1935) 54 C.L.R. 175 at 186, per Dixon J. As was pointed out by Richardson J. in Fisheries Inspector v. Turner [1978] 2 N.Z.L.R. 233 at 238-9, legislatures have dealt with the imposition of forfeitures in a number of different ways - broadly speaking, categories of provisions can be discerned which impose forfeitures as an automatic statutory consequence of involvement 1n a particular unlawful activity, or which make forfeiture a statutory consequence of conviction rather than of the commission of an offence, or which require a 9. court to impose forfeiture upon conviction of a particular offence, or which, as in the case of regulation 42, confer on the court a discretion to impose a forfeiture. But Richardson J.'s analysis does not suggest that, in any of these types of provision, the nature of the forfeiture, once imposed, differs in character from the historical model. In Little's Victory Cab Co. Pty. Ltd. v. Carroll [1948] V.L.R. 249 at 252, Barry J. drew attention to the importance of looking to the words of the statute which provides for a forfeiture, but 1n doing so the court must not lose sight of the implications of Parliament's choice of the word "forfeiture" in s.39(2)(r) to describe what it was empowering the regulations to effect. I have not been referred to any case in which a provision for forfeiture, expressed in terms comparable to those of regulation 42(2), has been construed as permitting an order of the kind with which I am here concerned. Not only is the language of s.39 and regulation 42 not apt to authorize the levying of a further fine out of part of the proceeds of an enforced sale, but regulation 42(2) stands in some contrast to the parallel provision, also made in s.39(2)(r) and in regulation 43, for the disposal, in accordance with the directions of the Reserve Bank of Australia, of Australian or foreign currency, goods or other property in respect of which an offence was committed. No submission was put to me that regulation 43 had any application in the present matter. 10. In my opinion, regulation 42(2) empowers a court to order the forfeiture, in a case of the kind which 1s presented here, of particular drafts. It did not empower the court to make the order that was made. I recognize that, in a situation involving a large draft, this ruling might prevent a forfeiture order being made if the court took the view that the offence did not warrant so great a penalty: see Fisheries Inspector v. Turner (supra). But that would be a consequence of the form of provision chosen by Parliament, which should not be strained to Maximize the penalty for an offence which in any case may incur a fine. As Jordan C.J. said in R. v. Ansiewiez (supra, at 482), of a similar provision for an order imposing a forfeiture, 1t 1S "quite plain that the (provision) requires a court to treat any order which 1t makes thereunder as the imposition of an additional penalty, and therefore to make such an order only when 1t considers that an additional penalty is desirable." It remains to determine whether I should grant the measure of relief sought by the applicant, that 1s to say, orders for the delivery up to him of the various drafts and moneys representing drafts. On the view I have taken, the only difficulty 1s that all but one of the drafts bear names other than the name of Mr. Sarkis. However, 1t has always been the contention of the respondents that the drafts were all in fact, prior to the purported forfeiture, the property of Mr. Sarkis. They were in his possession at his arrest, and no claim has ever been made in respect of them by any of the persons whose names appear on them. In these circumstances, I think Russell v. Wilson (1923) 33 C.L.R. 538 (see especially the views of Isaacs ll. and Rich JJ. at 546-7) 1s authority for the proposition that the title of the bankrupt, who was in possession as being the owner at the time of seizure, prevails against any claim of the respondents to retain the property in question. I do not understand that view of the matter to be disputed. Upon the applicant bringing in appropriate' short Minutes, I shall make orders in accordance with these reasons, including an order that the first respondent pay the applicant's costs. I certify that this and the preceding ten (10) pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Burchett. oa (AG, Associate Dated: 12 October, 1987. Counsel for the Applicant: Mr. D.M. Yates Solicitors for the Applicant: W.L Marler Counsel for the Respondent: Mr. B. Skinner Solicitors for the Respondent: Australian Government Solicitor Date of hearing: 24 June 1987 *