a = "JUDGMENT No. ss8.f81 CATCHWORDS NARCOTICS DEALINGS - property of dealers ~- order that Official Trustee take control under Customs Act 1901 (s 243E) - application to vary order (s 243F) - application to revoke (s 243H) ~— meaning of "in relation to proceedings for a pecuniary penalty" (s 243H). Customs Act 1901: ss 243E, 243F and 243H Commissioner of Australian Federal Police - v - Bruce Richard Cornwell and Barry Richard Bull G 489 of 1986 Einfeld J. / ny Sydney t { 2 00CT 1987 \ \ FEDERAL COURT OF 20 October 1987 \ AUSTRALIA PRINCIPAL REGISTRY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G 489 of 1986 www ww GENERAL DIVISION Between: COMMISSIONER OF AUSTRALIAN FEDERAL POLICE Applicant B BRUCE RICHARD CORNWELL First Defendant and BARRY RICHARD BULL Second Defendant CORAM: Einfeld J. DATE: 20 October 1987 PLACE: Sydney MINUTE OF ORDERS (1) Motion dismissed. (2) Mr. McGregor to pay the costs of the original and amended notices of motion. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G 489 of 1986 we wwe we GENERAL DIVISION Between: COMMISSIONER OF AUSTRALIAN FEDERAL POLICE Applicant BRUCE RICHARD CORNWELL First Defendant and BARRY RICHARD BULL Second Defendant CORAM: Einfeld J. DATE: 20 October 1987 PLACE: Sydney REASONS FOR JUDGMENT On 31 October 1986, there was pronounced by Mr. Justice Sheppard, and on 4 November 1986 there was entered, an ex parte order that "The Official Trustee in Bankruptcy take control of the following property of the Defendant, Bruce Richard Cornwell - (i) seven year old bay mare named "Singing Our Song" (NZ) ("SOS") by "Sir Tristram" out of "Sovereign's Song" registered with the Australian Jockey Club, No 91202, branded PC (nearside), 7 over 9 (off side); (il) a yearling chestnut colt by "True Blood out of "Singing Our Song" (NZ) branded JT over 2 (nearside), 28 over 5 (off side); (111) a foal by "Salieri" out of "Singing Our Song" (NZ) By notice of motion dated 8 December 1986, Robert Douglas McGregor sought leave to apply for a variation of that order, together with a declaration that these horses were not the property of the defendant Cornwell and a variation of the order by deleting any reference to the horses, thus denuding it of any substance. The order of Mr. Justice Sheppard was made pursuant to section 243E of the Customs Act 1901. By section 243F(1) the Court may, inter alia, vary, and by section 243H may revoke, certain orders made under section 243E of the Act. By section 243F(2) a person in the position of Mr. McGregor must seek the leave of the Court to make either application. By the time this notice of motion came on for hearing, however, Mr. McGregor had filed an amended notice of motion. The first order sought by this amended notice was, in the same terms as in the original notice of motion, for leave to apply for a variation order. The parties informed me of their belief that leave was granted to Mr. McGregor by Mr. Justice Sheppard for the original notice of motion on either i12 December 1986 or 5 February 1987 but no one could produce a copy of the order, the transcript or even a solicitor's file note. Orders made by his Honour on those dates are in the Court file, no doubt as_ submitted by the party preparing them, but neither of them makes reference to the grant of leave to Mr. McGregor to pursue these applications. At the hearing of this matter, therefore, to the extent to which it was necessary, I gave leave by consent to Mr. McGregor to pursue his applications for the orders which he was seeking. Other than for the leave, the applications were resisted by the Commissioner of the Australian Federal Police ("the Police Commissioner"). The amended notice of motion also sought two declarations -— one that a one-half interest in each of these horses was not the property of the defendant Cornwell, and as a corollary, a declaration that a one-half interest in the horses was the property of Mr. McGregor. The amended notice of motion therefore sought a variation of Mr. Justice Sheppard's order so as to give the Official Trustee in bankruptcy the intriguing task of taking control of only Mr. Cornwell's half share of the three horses. As an alternative, the amended notice of motion sought' the revocation of the order of Mr. Justice Sheppard. Section 243H creates a most unusual statutory situation. It provides as follows: "(1) Where, after an order under section 243E has been made in relation to a proceeding for the recovery of a pecuniary penalty - (a) no pecuniary penalty 1s imposed upon the determination of that proceeding; (b) the pecuniary penalty imposed upon. the determination of that proceeding 1s paid; or (c) the Court 1s satisfied that it is, in all the circumstances, proper to do so, the Court may, upon application being made to 1t bya person authorized to make an application under section 243E, revoke that order (2) The revocation of an order under section 243E that was made in relation to a proceeding for the recovery of a pecuniary penalty does not prevent the Court from making a further order under section 243E in relation to that proceeding (3) Without limiting the powers of the Court to make an order under sub-section (1), the Court may revoke an order under section 243E upon the applicant - (a) giving security satisfactory to the Court for the payment of any pecuniary penalty that may be imposed on him in the relevant proceeding; or (b) giving undertakings satisfactory to the Court concerning the property of the applicant (4) Where the Court revokes, or has revoked, an order under section 243E, the Court may make such order or orders as 1t deems proper for or in relation to the discharge of the Official Trustee concerned from all liability in respect of the exercise by it of the powers conferred on it, and the performance by 1t of the duties imposed on it, under this Division in respect of the property of the person to whom the order under section 243E related " The necessary prerequisite of this section (which in the printed statute is headed 'Revocation of Order under Section 243E'), 1s therefore an order under section 243E, only, however, if made "in relation to a proceeding for a pecuniary penalty". Section 243E itself provides not for the recovery of a pecuniary penalty, but for applications by the Minister, police or Customs officers for orders that the Official Trustee take control of property of narcotics offenders. its prerequisite is the institution of a proceeding under section 243B that a person pay a pecuniary penalty in relation to her/his narcotics dealings. Part XIII Division 3 of the Customs Act provides for pecuniary penalties on narcotics offenders recovered following assessment and, where possible, by official seizure of the offenders' property. Yet section 243H implies that some;243E orders are, and some are not, made "in relation to" proceedings for these pecuniary penalties. Section 243H seems to say that if the section 243E order which is sought to be revoked was not made "in relation to" such a proceeding, a revocation is not possible, even if the Court is satisfied in accordance, for example, with sub-section (1)(c) that in all the circumstances it is proper to revoke the order. This implication is re-inforced by the fact that variation and other orders under section 243F are not so limited. Precisely why this should be so is not at all clear. In this case, the order made by Mr. Justice Sheppard was not on its face made "in relation to a proceeding for the recovery of a pecuniary penalty", although according to the Court file it followed in time the filing of an application under section 243B for such a penalty. This was presumably the reason why the parties proceeded on this amended notice of motion on the basis that I have the power under section 243H(1) to revoke Mr. Justice Sheppard's order of 31 October 1986; "in relation to" meaning something like "in association with" or more simply "following". The relevant facts of this matter commence in April 1981 when the defendant Cornwell purchased SOS through Anthony Wildman, a racehorse trainer. Shortly after her purchase, the mare was given to another trainer, Harold Riley, where she remained for the rest of her racing life. Some time later, she was registered in the names of Simon Peterson, David William Bedford and Robert John Harris ("the Peterson group"), but early in 1982, Custom Lease Pty. Limited made claim to the ownership of the mare. This claim was denied by the Peterson group and litigation ensued. At one stage, a settlement was proposed which would have valued SOS at $210,000, but this settlement fell through, and ultimately a company called Roblee Investments Pty. Limited ("Roblee"") is said to have purchased the mare for $70,000. The Peterson group transferred ownership to Roblee on 21 March 1983. On 5 September 1983, the Deputy Commissioner of Taxation assessed Roblee for income tax in excess of one million dollars. None of the Peterson group gave evidence, but there seems no doubt on the evidence that Peterson was an associate of the defendant Cornwell. Peterson's partners have never been identified, other than by name, and there is no evidence that anyone has ever seen them. There is reason to conclude that these two persons, Bedford and Harris, were either aliases of Cornwell or associated with him in some reasonably close commercial sense. Mr. McGregor describes himself as an international financial consultant. With one exception to which I shall come, it is not clear what financial consulting he has done internationally in recent years, as he appears to have been closely associated with the horse racing industry in Australia. It was in that capacity that he first became associated with SOS through his ownership of another horse trained by Mr. Riley. As I understand the evidence, the mare commenced her racing career early in 1983. For the previous year or thereabouts, Mr. McGregor had been advising Roblee in some capacity and had some dealings with its funds. One of the activities in which he was engaged on behalf of Roblee was to find and purchase a horse stud farm for the company not far from Sydney. In association with a man named Thomas Wayne Butterfield, who did not give evidence or even provide an affidavit in these proceedings because he is said to be living in unknown places overseas, Mr. McGregor appears to have looked after the Australian affairs of Roblee. This company, the ownership of which is clearly closely associated with the defendant Cornwell, appears at the relevant time to have been based either in the United Kingdom or Jersey. When Roblee bought SOS, Messrs. Butterfield and McGregor became the lessees of the mare because, the evidence says, the Australian Jockey Club does not allow a company to race horses. Mr. McGregor says that all the expenses in relation to SOS were nevertheless met by Roblee and all her prizemoney went to the company. Shortly after the Deputy Commissioner for Taxation served on Roblee the taxation assessments to which I have referred, it appears that Mr. Butterfield in his capacity as the Australian manager for Roblee discussed with Mr. McGregor the sale of SOS, but due to a congenital problem in the mare's legs, she appeared to have difficulty satisfying veterinary surgeons that she was a safe and healthy proposition as a racehorse. There are a number of strange circumstances surrounding the fitness of SOS to race and thus her value. The evidence discloses that a number of well-known racing writers for Sydney metropolitan newspapers regarded the horse as valuable both in a racing and a breeding capacity. She had some considerable success in her racing career, and her trainer, Mr. Riley, regarded her as a possible winner of a Melbourne Cup which, somewhat surprisingly to me, he said in evidence was not a difficult race to win. In April 1983, she was certified by a prominent veterinary surgeon for insurance purposes as "being healthy and free from injury" on the basis of a very meagre examination which the evidence discloses was deliberately stage-managed by Mr. Riley to mask the horse's true condition so that the value of the mare would be kept high and so that he would not lose her from his stable. This veterinary surgeon, Mr. Crowley, said that at this time, that is about one month after the purchase from the Peterson group by Roblee, the horse appeared to him to be sound. She was insured for $150,000. However, later in 1983, Mr. Crowley noticed that the horse was having trouble with her front fetlock joints due, he said, both to wear and tear and to arthritic changes. His evidence was that these were insidious conditions which were likely to worsen every time the mare galloped, especially in races. Mr. Crowley's view was that at the end of 1983 the value of this mare was of the order of $50,000, but that if she had been fully fit she might have been worth up to about $120,000. A stock and station agent suggested that her value as a fit mare was of the order of $150,000, but in her unfit state, her worth was about $100,000. Despite this, the insurance coverage was maintained at the same $150,000. Without this evidence, I should have thought that, if the mare hada serious condition capable of being passed on to progeny, her value as a breeder would have been very little. If her condition at the end of 1983 was worsening with each gallop, it is also difficult to see how she had much value as a racehorse. The evidence discloses that in December 1983, SOS was either very valuable indeed in the sense that she was worth considerably more than $100,000, or she was worth next to nothing. In fact it was almost certainly the latter, but in case it was the former, or for other reasons, I believe that the defendant Cornwell wanted to keep control of the horse. As it happens, the horse broke down completely in February 1984 and did not race again after that time, although she has produced the offspring involved in this case. With no one apparently willing to buy SOS at any price at the end of 1983, Mr. McGregor on 20 December offered in writing to buy the mare from Roblee for $40,000. On 23 December, Mr. Butterfield communicated to Mr. McGregor that Roblee had accepted the offer, as a result of which Mr. McGregor paid a depost of $2,000 into Roblee's bank account, drawing a cheque on his own personal company. Mr. McGregor says that on the same day, he took $38,000 in cash from his own safe at his home and Placed it into a safe or file in his office in Bligh Street, Sydney, where he kept other moneys belonging to Roblee. Mr. McGregor says that, also on the same day, he sold a half interest in this mare to Mr. Butterfield, who then paid him $20,000 in cash. There is little to corroborate these supposed financial transactions, and I doubt that they all took place, at any rate as or for the purposes alleged. However, the transfer of registration of the horse was transmitted to the Australian Jockey Club with Mr. Butterfield signing both on behalf of Roblee as vendor and on his own behalf as_part- purchaser. Mr. McGregor's amended notice of motion is based upon this transaction, which constituted him, he says, a half owner of SOS and its progeny. Mr. McGregor says that all the cash moneys held in his office safe on behalf of Roblee were in due course either paid by him into the bank account of Roblee or handed tn cash to Mr. Butterfield. Again there is virtually nothing to corroborate these assertions, but even if true, they add nothing to the establishment of the case advanced by Mr. McGregor. If these transactions otherwise appear as not genuine, as the Police Commissioner contends, such cash movements would not help in establishing their genuineness. Mr. McGregor's submission that these ownership changes of this mare were transactions at arm's length from the defendant Cornwell is challenged by the Police Commissioner who submits that the defendant Cornwell has at all relevant times been either the true sole or principal owner of SOS. Mr. McGregor, on the other hand, argues that his association with SOS has always been by entirely independent genuine dealings and that although he has some knowledge of the defendant Cornwell, their association is comparatively remote. The evidence which he himself gave in the witness box, as well as in his affidavits and the documentary material which was produced in his case, sought to support this assertion. -10- One part of this evidence revealed an extraordinary but undoubtedly true account of Mr. McGregor suddenly packing up in December 1983 and flying, initially at his own expense, all the way to Zurich for an eight-hour meeting on Roblee's Australian taxation travails with a Swiss lawyer, after which he returned to Australia immediately. The only stated result of this cruel itinerary, apart one assumes from giving Mr. McGregor a considerable dose of jetlag, was to equip him with the heavy armoury of Swiss legal advice that the whole matter be placed in the very capable hands of Mr. Conti QC of the Sydney Bar. However, as eventuated on Mr. McGregor's return, Mr. Conti was available on a telephone call from Roblee's Sydney solicitor to Phillip Street, Sydney or Bendemeer on the New South Wales Northern Tablelands. It 15s impossible to accept that a 24-48 hour journey would be made all the way to Zurich and back if it were only for the purpose of obtaining a Swiss lawyer's insights and perceptions into an Australian taxation problem. The evidence does not permit a comparison of the fees of the respective counsel, but the other costs and agonies involved lead me to _ the conclusion that whilst the evidence concerning the journey itself is true, its true purposes have been concealed. The inference is_ that these included some dealings with or for the defendant Cornwell concerning SOS and other assets which might otherwise be accessible to the Deputy Commissioner of Taxation. This event, like many pieces of evidence, suggest to me that by reason of Roblee's taxation problems and their possible effect on the defendant Cornwell's finances, as well as other reasons at which I can only speculate, there was an elaborate cover-up of the ownership of SOS at the time it was purportedly transferred out of Roblee's ownership to Mr. McGregor, and probably earlier. It offends commonsense that the amount paid by Mr. McGregor and ultimately halved with Mr. Butterworth was an attempt to put ao real value on the horse. The background to the sale was that no one else would pay anything for her. She was insured for a substantial sum on the basis of a veterinary report which was quite inaccurate. Yet Mr. McGregor undoubtedly knew the truth about her condition. How then would he be able to value the mare at $40,000? If this was a bargain, why would he sell a half share to Mr. Butterfield? And 1f Mr. Butterfield became a half owner by this mechanism, how did Mr. McGregor know that Mr. Butterfield's share was truly his own, as suggested here, and was not held for Roblee, the defendant Cornwell, or someone else? The amended notice of motion asks in effect for an express finding - or would result in an implied finding - that Mr. Butterfield's supposed share was in fact not his own or even Roblee's asset, but Mr. Cornwell's. Despite this, Mr. McGregor gave or produced no evidence to support such a contention; and it is quite inconsistent with the case he presented. In other words, how did the amended notice of motion come to be in its distinctly different factual form to the original notice of motion, the latter claiming full ownership for Mr. McGregor, the former providing for half ownership for Mr. McGregor and half ownership not for Mr. Butterfield but for the defendant Cornwell? In my view, the answers to these questions are that these transactions were not genuine contractual activity at all but, at least in part, attempts to alienate an asset of Roblee and ultimately the defendant Cornwell away from the Deputy Commissioner of Taxation and his outstanding unpaid assessments. I believe that the December 1983 attempt to establish a bona fide transfer of SOS from Roblee to Mr. -12- McGregor and then to Mr. Butterfield and Mr. McGregor, was and remains a thinly disguised facade. I find, consistent with the ex parte order of Sheppard J of 31 October 1986, that the mare SOS and its two offspring are and at all relevant times have always been the property of the defendant Cornwell and have never been the property of Mr. McGregor. I therefore dismiss the applications for declarations and orders and order that Mr. McGregor pay the Police Commissioner's costs of the original and amended notices of motion. Counsel and Solicitors for Robert Douglas McGregor Counsel and Solicitors for the Commissioner of the Australian Federal Police Dates of Hearing Date of Judgment Mr. M. Cashion instructed by Messrs. R. Thornton & Son 1ncorporating Rex Reynolds, Baker & Co. Mr. B.A. Coles instructed by The Director of Public Prosecutions 4, 5, 24 and 25 August 1987 20 October 1987