Reported Decision : 142 A Crim R 108 New South Wales Supreme Court CITATION : NSW CRIME COMMISSION v FARAH [2003] NSWSC 1026 revised - 10/11/2003 HEARING DATE(S) : 26 March 2003, 27 March 2003, 24 October 2003 JUDGMENT DATE : 24 October 2003 JURISDICTION: Common Law JUDGMENT OF : Adams J at 1 DECISION : Judgment against the defendant in the sum of $32,200 payable to the Treasurer of the State of New South Wales; no order as to costs; pursuant to s27(12) judgment not to be enforced before Tuesday 23 December 2003 CATCHWORDS : Proceeds of crime - intermediary sells drugs to undercover policemen - passes funds to supplier - whether funds "derived" by intermediary - whether acting as "agent" within s28(4)(b) Criminal Assets Recovery Act 1990 LEGISLATION CITED : ss4, 6, 27, 28 Criminal Assets Recovery Act 1990 Briginshaw v Briginshaw (1938) 60 CLR 336 CASES CITED : Commissioner of Taxation v Kirk [1900] AC 588 Kaddour & Anor (unreported, 20 February 1992, NSWSC, Studdert J Kalache (2000) 111 ACrimR 152 PARTIES : New South Wales Crime Commission (Plaintiff) Michel Farah (Defendant) FILE NUMBER(S) : SC 13372/00 COUNSEL : Mr I D Temby QC (Plaintiff) Mr Greg Jones with Mr Murray (Defendant) SOLICITORS : Mr M J Giorgiutti (Plaintiff) Defendant in person Ex tempore - Revised THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ADAMS J FRIDAY 24 OCTOBER 2003 13372/00- NEW SOUTH WALES CRIME COMMISSION v MICHEL FARAH JUDGMENT 1 HIS HONOUR: The factual context in which this matter comes to be decided has been usefully summarised in the submissions of counsel for both sides. There is no substantial controversy about those facts and the following factual account is taken from the submissions. 2 About 22 December 2000 the New South Wales Crime Commission (the Commission) applied for and obtained a proceeds assessment order pursuant to s27 of the Criminal Assets Recovery Act 1990 (the Act) in respect of alleged criminal activities of the defendant restraining the defendant's assets under the Act. 3 In May 2001 the defendant's affidavit, filed in Court pursuant to the procedure under the Act, disclosed that his major asset was the interest as a joint tenant with his wife of a property at Merrylands estimated to be worth slightly over $125,000. Other assets in which his wife also to a greater or lesser extent had an interest amounted to about $30,000. His liabilities amounted to about $100,000. It is not alleged by the Commission that any of these assets comprises the proceeds of crime. 4 On 16 December 2002 this Court ordered under s27 of the Act that the defendant pay to the Treasurer an amount assessed by the Court as the value of the proceeds derived from the defendant's criminal activities occurring not more than six years before the proceeds assessment order was made. In late March 2003 the proceedings came before me to determine what amount should be assessed as payable to the Treasurer. The Commission was represented by Mr Ian Temby QC and the defendant was unrepresented. Although the facts were relevantly undisputed, in particular that the defendant had obtained possession of $32,200 (the only claim made by the Commission), the circumstances in which he obtained possession of that sum and what he did with it raised, as it seemed to me, difficult questions of the application of the Act. Using the Court's procedures, contact was made with the New South Wales Bar Association for the purpose of endeavouring to procure for the defendant pro bono legal assistance. In truth, the purpose of obtaining counsel (as is almost invariably the case) was to assist the Court at least as much as the defendant. Mr Jones of counsel, appearing with Mr Murray, were good enough to accept briefs to appear pro bono on the defendant's behalf and I wish to express the thanks of the Court to those counsel for so doing. 5 The Commission's case is that pursuant to arrangements made between an undercover agent (Nik) and the defendant the former paid the defendant three amounts of money for drugs supplied or, it may be, to be supplied by the defendant following receipt of the sums. In the result, those amounts are alleged to have been $4,300 on 18 September 2000, $12,900 on 5 October 2000 and $15,000 on 17 October 2000. Shortly after the moneys were, one way or another, handed over to the defendant, he supplied agreed quantities of drugs to Nik. It is unnecessary for me to say more about the circumstances except that it is probable that the defendant had obtained the drugs from a Mr Sipka and a Mr George. The defendant claimed, and it is conceded by the Commission that the probabilities support this claim, that all or most of the money provided by Nik was given to Sipka and George. 6 There are a number of ways in which the relationship between the four protagonists can be described. Mr Temby QC described Nik as customer, the defendant as retailer, and Sipka and George as wholesalers. I think that, in substance, this description of their relationship is probably correct, but these should be regarded as broad categories and not nicely distinguished. It is not unreasonable, however, also to consider that the defendant was in some respects Sipka's and George's employee and, if the distinction between his position as employee and his position as retailer is important, the evidence would not permit a determination adverse to the defendant to a level of certainty that would satisfy the test propounded in Briginshaw v Briginshaw (1938) 60 CLR 336, although I think the probabilities favour the latter description. As has been said on a number of occasions by this Court dealing with these applications, the facts are rarely known with certainty. The participants in criminal activities of the kind with which the defendant involved himself are rarely the subject of partnership agreements or other specific legal arrangements and they do not litigate disputes about their mutual rights and obligations, which are settled in more robust and less public ways. 7 The precise character of the function undertaken by the defendant vis-à-vis Sipka and George is incapable of satisfactory resolution. The crucial question, however, is whether the moneys that passed through the defendant's hands in the way that I have briefly described are proceeds entitling the Commission to an order against his assets for a sum equivalent to the face value of the money, that is to say, whether the prerequisites of the Act are satisfied. 8 The principal objects of the Act are stated in s3 as providing for the confiscation of a person's property where that person, more probably than not, has engaged in serious crime related activities, to enable the proceeds of such activities to be recovered as a debt due to the Crown and the law enforcement authorities effectively to identify and recover it. In relation to any relevant activity its proceeds "includes any interest in property, and any service, advantage or benefit, that is derived or realised directly or indirectly, as a result of the activity": section 4(1). 9 There is no doubt that the crimes admittedly committed by the defendant, which I have described briefly above, amount to "serious crime related activity" within the meaning of s6 of the Act. Following the preliminary procedures prescribed by the Act, s27 requires the Court to make an assessment of the "value of the proceeds derived from" the illegal activity. Section 28 requires the Court to have regard to, amongst other things, "the money...directly or indirectly acquired by...the defendant...because of the illegal activities or activities..." (subs28(1)) and not to subtract certain "expenses or outgoings incurred by the defendant" (par28(4)(a)) or "the value of proceeds derived as an agent" (par28(4)(b)). The application of s27 and the last paragraph to this case is controversial. 10 Section 28 provides as follows – " Assessment of proceeds of serious crime related activity (1) For the purpose of making an assessment under section 27 in relation to an illegal activity, or illegal activities, of a person (in this section called the defendant ) the Supreme Court is to have regard to the following matters: (a) the money, or the value of any interest in property other than money, directly or indirectly acquired by: (i) the defendant, or (ii) another person at the request, or by the direction, of the defendant, because of the illegal activity or activities, (b) the value of any service, benefit or advantage provided for: (i) the defendant, or (ii) another person at the request, or by the direction, of the defendant, because of the illegal activity or activities, (c) the market value, at the time of the illegal activity or of each illegal activity, of a plant or drug similar, or substantially similar, to any involved in the illegal activity or each illegal activity, and the amount that was, or the range of amounts that were, ordinarily paid for an act similar, or substantially similar, to the illegal activity or each illegal activity, (d) the value of the defendant's property before and after the illegal activity or each illegal activity, (e) the defendant's income and expenditure before and after the illegal activity or activities. (2) If evidence is given at the hearing of an application for a proceeds assessment order that the value of the defendant's property after an illegal activity or illegal activities exceeded the value of the defendant's property before the activity or activities, the Supreme Court is to treat the excess as proceeds derived by the defendant from the activity or activities, except to the extent (if any) that the Supreme Court is satisfied the excess was due to causes unrelated to an illegal activity or activities. (3) If evidence is given at the hearing of an application for a proceeds assessment order of the amount of the defendant's expenditure during the period of 6 years before the making of the application for the order, the Supreme Court is to treat any such amount as proceeds derived by the defendant from an illegal activity or activities, except to the extent (if any) that the Supreme Court is satisfied the expenditure was funded from income, or money from other sources, unrelated to an illegal activity or activities. (3A) The Supreme Court is not to take expenditure into account under subsection (3) to the extent that the Court is satisfied that it resulted in the acquisition of property the value of which is taken into account under subsection (2). (4) In making an assessment as provided by this section, none of the following amounts are to be subtracted: (a) expenses or outgoings incurred by the defendant in relation to the illegal activity or activities, Note. For example, in the case of an illegal activity involving the sale of drugs, in determining the value of the proceeds derived by the defendant from the sale of drugs there is to be no reduction on account of any expenditure by the defendant in acquiring the drugs. (b) the value of any proceeds derived as agent for or otherwise on behalf of some other person (whether or not any of the proceeds are received by that other person). Note. For example, where the defendant is paid money for drugs in the course of a "controlled buy" but was acting merely as an agent or messenger for some other person (and gives the money to the other person), in calculating the proceeds derived by the defendant the amount given to the other person is not to be subtracted and the full amount is considered to have been derived by the defendant. (5) This section applies to, and in relation to: (a) property that comes into the possession, or under the effective control, of a person either within or outside New South Wales, and (b) proceeds acquired either within or outside New South Wales in relation to an illegal activity. (6) Despite any rule of law, or any practice, relating to hearsay evidence, the Supreme Court may, for the purposes of this section, receive evidence of the opinion of: (a) a member of the Police Force, or (b) a member of the Australian Federal Police, or (c) an officer of Customs within the meaning of the Customs Act 1901 of the Commonwealth, or (d) a member or officer of the Commission, who is experienced in the investigation of illegal activities involving plants or drugs, being an opinion with respect to: (e) the amount that was the market value at a particular time of a particular kind of plant or drug, or (f) the amount, or range of amounts, ordinarily paid at a particular time for the doing of anything in relation to a particular kind of plant or drug." 11 Although para28(4)(b) refers to "proceeds derived as agent", the note talks about a defendant "acting merely as an agent or messenger"; an obvious extension of the section and one which seems to me to go beyond mere interpretation: there is no reason why the words "or messenger" could not have been part of the substantive provision if it was indeed intended to make a distinction between an agent and a messenger and to extend the provision to the latter. Again, the paragraph explicitly states that it is immaterial if the principal actually receives the proceeds, whilst the note seems only to apply where the money is handed over to the principal. If the note is clear, there is no reason why the substantive provision itself could not have been made clear and the note thus rendered unnecessary. This is especially so as the section has been the subject of comment in a number of decisions of this Court to which para28(4)(b) was inserted as a response. However, I must deal as best I can with the provisions as they stand with all their difficulties. I simply enter a plea, as it were, for s28 of the Act to be reconsidered and redrafted to place the legislative intent beyond controversy. 12 The strongest argument available to the defendant is that it would have been simple to state specifically that the "proceeds" of the offence includes all money or the value of any property that came into the possession or control of the offender and that not using unambiguous language of this kind demonstrated the intention not to attack such money as merely came into possession of the offender, without more. In the result, however, I have concluded that ss27 and 28 must be read together as a scheme, so that s27(1) must be considered in light of s28(4)(b), which prohibits subtraction of sums that would otherwise be deducted if the ordinary meaning of "proceeds" in s27(1) were applied. As a matter of clear drafting, it would have been preferable to have categorised precisely the "proceeds" intended to be mulcted – that is, to state what was included – rather than assume the possibility of inclusion of particular unspecified elements and refuse subtraction of them. The substantive result of para28(4)(b) appears to be that the "account" of the proceeds is not to be subject to subtraction of the amount held (to attempt neutrality) as an agent as distinct from that held as a principal. 13 In this case, even if the arrangement between the defendant and Sipka involved the sharing of the proceeds (cf State Drug Crime Commission v Kaddour & Anor (unreported, 20 February 1992, NSWSC, Studdert J at 17), the defendant was acting as Sipka's agent in respect of Sipka's share and (subject to the meaning of "derived") this sum is not to be subtracted. In this case, however, it could not be doubted that the defendant on his own account was acting either as the partner of or as agent for Sipka and thus, at the least, that he received the sums which I have mentioned as "agent for" Sipka in return for which he delivered a quantity of drugs. (The position of a messenger who is not an agent, assuming the distinction to be a real one, can be fortunately left to another case.) Is there any relevant distinction between "receiving", that is to say obtaining possession of, and "deriving" the funds? Mr Temby QC submits in part, relying on the note to the subsection, that if there is a distinction it is a distinction without a difference. Mr Jones submits for the defendant that derived means more than mere receipt or possessory title but involves the acquisition of some proprietary interest separate from any interests which the principal might have. 14 If Mr Temby's submission be right, a person present at a transaction between a supplier and a buyer who simply passes money from one to the other, having the property in his or her possession for a few moments, would come within the application of the Act and be subject to expropriation of any property to the face value of the amount so handled, although that property may have been acquired lawfully. Though the money was in that person's hands, in no sense could it be said that he or she had any proprietary interest of any kind in the money. Nor could it be said, in any sensible way, that he or she to had "derived" anything. One mode of dealing with this situation might be to focus on the precise meaning of "value", as distinct from face "'value' of any proceeds". However, that was not the situation here. It seems to me that both Sipka and the defendant were unconcerned with whether the specie delivered by Nik was handed over. Indeed, on the defendant's account, the money was handed over to Sipka before the drugs were supplied to him. Neither Sipka nor George was concerned with the source of the money; their transaction was not with Nik but with the defendant. As it happened, the money used by the defendant to purchase the drugs was that originally given by Nik, but that was the defendant's choice. It seems to me, therefore, that the defendant had on his own account both the legal and beneficial ownership of the money until he used it to pay for the drugs. 15 To some degree, the agreement by the parties as to the facts has complicated what I suspect was a very much more simple factual situation, namely, that the defendant was a partner with George and Sipka with an agreement between them as to how the receipts of their joint enterprise were to be divided between them. So considered, it seems to me clear that the defendant's acquisition of the money must satisfy the definition of proceeds in the Act. 16 Taking the view of the facts that might be thought most favourable to the defendant, namely that he was Sipka's and George's employee, in all the circumstances I am satisfied that, even so, he indeed derived those funds "as agent for" Sipka and George and that the value of those funds was equal to the face value of the notes, that is to say, his receipt of the money arose from his agency for Sipka and George. If, on the other hand, the defendant was not an employee, the money that he received before obtaining the drugs and which he then used to purchase the drugs, was his as a principal and para28(4)(b) does not need to be considered, whilst para28(4)(a) precludes deduction of the purchase cost. In either case, the whole of the money received by the defendant from Nik constitutes "proceeds" in respect of which the equivalent amount can be expropriated from his assets. 17 I have not overlooked the argument put by Mr Jones based on the Commissioner of Taxation v Kirk [1900] AC 588 but I have not found the brief mention of the meaning of "derived" as contained in the relevant Taxation Act useful in the present context. 18 It cannot, I think, reasonably be controverted that the applicant gave, if not all, at least most of the moneys provided by Nik to Sipka and George, and the Commission, for its part, did not seek to argue otherwise. It follows that the defendant is to pay to the Treasurer a sum which in all probability he never actually received, that is to say, benefited from. Mr Temby QC rightly concedes that this amounts to the imposition of a civil penalty, pointing out frankly that that is one of the very purposes of the Act. 19 The significance of the imposition of such a penalty when it comes to sentencing the defendant for the substantive crimes is that he has already to some degree been punished by virtue of these proceedings. Although, of course, he will be sentenced in another Court which is not bound by these observations, yet I feel obliged to make them as an answer at least in part to Mr Jones' submissions that I should not interpret the Act as contended for by the Commission because of the hardship or injustice which would thereby be inflicted on his client. If the civil penalty is acknowledged and taken into account in fixing the defendant's sentence then it seems to me that the force of Mr Jones' submission is much reduced. 20 Mr Jones, however, argued that the penalty could not be taken into account, citing in particular Kalache (2000) 111 ACrimR 152, especially the judgment of Sully J at [77]. However, his Honour was dealing with a situation where the proceeds orders required no more than the "disgorgement of [the respondent's] ill-gotten gains". It was not contended in the Court of Criminal Appeal that the amounts so disgorged represented more than his criminal profits, although the particular property in question may have been acquired by apparently lawful betting transactions. I do not think, with respect, that his Honour's judgment should be read as suggesting that a requirement to pay more than was actually obtained by way of profit or advantage ought not to be taken into account on sentencing. The criminal law does not deal in fiction: a punishment is a punishment. 21 It seems to me that the consequence of the order that I make, which should fairly be regarded as taking from the defendant considerably more than the financial benefit he obtained from his crime, is not a mere expropriation of his ill-gotten gains but is a penalty visited upon him for engaging in criminal activity. In short, it is part of his punishment. The mere fact that the proceedings are stated to be civil proceedings is a description of their procedural character. That they are aimed at punishing and deterring criminals is clear beyond question and that they are part of the structure for enforcing the criminal law of the State is not to be disguised by procedural trappings. Accordingly, the penalty in this case should be taken into account in measuring the level of the additional punishment to which the defendant will be liable when he is sentenced for the crimes that produced the proceeds referred to in the present order. 22 Accordingly, there should be judgment against the defendant in the sum of $32,200 payable to the Treasurer of the State of New South Wales. 23 There can be no doubt that the Commission is entitled to its costs of the proceedings and on the first day of hearing. A difficulty occurs to my mind as to the justice of making an order for costs for today which was, in essence, occasioned by my requiring, if it could be arranged, a contradictor to enable full argument in relation to the interpretation of what I regarded as a difficult provision. I have already said that this Act is procedurally civil in character but substantively in this case deals with the expropriation of property and the imposition of a civil penalty. This is not an action in the ordinary course but, even if it were, I consider that the circumstances here comprise the rare situation in which the winning party ought not to have costs. 24 Accordingly, I decline to make an order for the costs of today. 25 Pursuant to s27(12) by consent I order the judgment not be enforced before Tuesday 23 December 2003. ********** Last Modified: 11/10/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.