DPP v Herring & Anor [2012] NTSC 19

 

PARTIES:                                         IN THE MATTER OF

                                                         the Criminal Property Forfeiture Act

                                                        

                                                         AND:

                                                         IN THE MATTER OF

                                                         RIVKA HERRING and RICHARD CLEMENTS

 

                                                         BETWEEN:

                                                         THE DIRECTOR OF PUBLIC PROSECUTIONS

 

                                                         v

 

                                                         HERRING, Rivka

                                                        

                                                         and

                                                         CLEMENTS, Richard

 

                                                         AND

                                                         IN THE MATTER OF THE OBJECTION PROCEEDINGS PURSUANT TO SECTION 63 of the Criminal Property Forfeiture Act

                                                        

                                                         BETWEEN:

                                                        

                                                         CLEMENTS, Clive Cecil

 

                                                         and

                                                         CLEMENTS, Inge Merete

 

                                                         and

                                                         C & I CLEMENTS NT PTY LTD

 

                                                         v

                                                         NORTHERN TERRITORY OF AUSTRALIA

TITLE OF COURT:                           SUPREME COURT OF THE NORTHERN TERRITORY

 

JURISDICTION:                               SUPREME COURT OF THE TERRITORY EXERCISING TERRITORY JURISDICTION

 

FILE NO:                                          No. 49 of 2011 (21114132)

 

DELIVERED:                                   22 MARCH 2012

 

HEARING DATES:                           28 & 29 NOVEMBER 2011

 

JUDGMENT OF:                              KELLY J

 

CATCHWORDS:

 

        CRIMINAL LAW – Criminal Property Forfeiture Act – Restrained property on the basis of suspecting the property was crime-used – Mortgagees under a registered mortgage over the restrained property –Innocent parties – Order made when property sold after forfeiture the objector paid an amount equivalent to share of the property

 

        Criminal Property Forfeiture Act, s 11, s 43, s 63(2)(a)

        Land Title Act, s 39, s 74, s 76, s 188, s 188(3)(b), s 189

 

REPRESENTATION:

 

Counsel:

    Applicant:                                     R Murphy

    Respondents:                                J Tippett QC

 

Solicitors:

    Applicant:                                     Solicitor for the Northern Territory

    Respondent:                                  Maleys

 

Judgment category classification:    B

Judgment ID Number:                       KEL12009

Number of pages:                             8


IN THE SUPREME COURT

OF THE NORTHERN TERRITORY

OF AUSTRALIA

AT DARWIN

 

DPP v Herring & Anor [2012] NTSC 19

No. 49 of 2011 (21114132)

 

 

                                                         IN THE MATTER OF

                                                         the Criminal Property Forfeiture Act

                                                        

                                                         AND:

 

                                                         IN THE MATTER OF

                                                         RIVKA HERRING and RICHARD CLEMENTS

 

                                                         BETWEEN:

                                                         THE DIRECTOR OF PUBLIC PROSECUTIONS

                                                                                        Applicant

                                                         v

 

                                                         RIVKA HERRING

                                                                                        First Respondent

                                                         and

 

                                                         RICHARD CLEMENTS

                                                                                        Second Respondent

                                                         AND

 

                                                         IN THE MATTER OF THE OBJECTION PROCEEDINGS PURSUANT TO SECTION 63 of the Criminal Property Forfeiture Act

                                                        

                                                         BETWEEN:

                                                        

                                                         CLIVE CECIL CLEMENTS

                                                                                        First Objector

 

                                                         and

 

                                                         INGE MERETE CLEMENTS

                                                                                        Second Objector

 

                                                         and

 

                                                         C & I CLEMENTS NT PTY LTD

                                                                                        Third Objector

                                                         v

 

                                                         NORTHERN TERRITORY OF AUSTRALIA

                                                                                        Respondent

 

CORAM:     KELLY J

 

REASONS FOR JUDGMENT

 

(Delivered 22 March 2012)

 

[1]       Rivka Herring and Richard Clements, the first and second respondents to this proceeding, are the registered proprietors of Lot 8271 Farrar, Northern Territory (“the restrained property”). 

[2]       In August 2008, Richard Clements and Rivka Herring were convicted of various drug offences and on 26 May 2011, this Court granted a restraining order over the restrained property pursuant to s 43 of the Criminal Property Forfeiture Act (“the Act”), on the basis that there were reasonable grounds for suspecting that the property was crime-used within the meaning of s 11 of the Act.

[3]       The first and second objectors, Mr and Mrs Clements, are the parents of the second respondent and the directors of the third objector C & I Clements NT Pty Ltd formally known as Hawkins & Clements Pty Ltd.  They are the mortgagees under a registered second mortgage over the restrained property.  The first mortgagee is the ANZ Bank.

[4]       A notice of the restraining order was served on the first and second objectors on 27 May 2011.  On 7 June 2011 Mr and Mrs Clements filed an objection to the restraining order and on 18 November 2011 the third objector was granted leave to be joined as an objector.

[5]       Mr and Mrs Clements assert a legal interest in the restrained property, namely a registered mortgage which they claim secures a debt of $476,500.00 owing to them by their son and daughter-in-law.

[6]       In the alternative the third objector asserts an equitable interest in the restrained property as security for the sum of $469,520.00.

[7]       Mr and Mrs Clements claim that the third objector (their family company) purchased the land at Farrar and later built the house that together with the land comprises the restrained property.  They say that there was an agreement between them and their son and daughter-in-law that the son and daughter-in-law would repay the parents the cost price of purchasing the land and building the house.  The parents arranged for the land to be purchased by the family company and placed in the names of their son and daughter-in-law.  The son and daughter-in-law then used the land as security to borrow money from the ANZ Bank.  The maximum that they were able to borrow was $250,000.00.  The son had managed to save up $50,000.00 and repaid the family company the sum of $300,000.00.  The company invoiced the son for that amount.  The father, through the company (which is a building company), then built a house on the land for the son and daughter-in-law.  The cost of this building was accounted for in the same way as any other job done by the company but instead of being invoiced to a customer, those costs were added to the parents’ loan account with the company as was the balance of the purchase price of the land.  This meant that effectively, the parents had paid for the purchase of the land and the building of the house less the $300,000.00 which was repaid to the company by the son after he had taken out the bank loan.  The agreement was that the parents would not require repayment of the amount outstanding until after the son had finished paying off the loan he had taken out with the bank.  Then he was expected to repay the amount outstanding as and when he could.  There was no firm date for repayment. 

[8]       The parents each gave evidence to this effect and were cross examined in relation to the arrangements.

[9]       The applicant’s position, based on an examination of the documents, was that there was a written building contract entered into between the company and the son specifying a contract price for the building of the house of $248,000.00 with provision for additional charges for variations.  Around three years later, the company built a storeroom on the land at a cost of $52,000.00.  This made the total contract price $300,000.00.  The applicant asserts that it can be inferred that the $300,000.00 paid to the company by the son after he took out the bank loan of $250,000.00 was in full and final payment of the contract price for the building of the house.

[10]     Both Mr and Mrs Clements gave evidence that the written building contract was entered into at a time when they were attempting to encourage their son to get his own finance and finance the building of a home for himself.  They went to a number of project builders looking at house and land packages and found a house that was suitable but there was no land available from that builder so a house and land package was not available.

[11]     The son needed evidence of a building contract in order to obtain finance from the bank.  The father suggested that the family company build the home and they entered into a written contract for the purposes of applying for finance from the bank nominating an estimated price based on the price of the house from the house and land package. 

[12]     Unfortunately the son was unable to obtain finance to a sufficient degree and the verbal arrangement referred to above was entered into.  Thereafter they say that the written building contract was of no effect.

[13]     Both Mr and Mrs Clements were cross examined on their affidavits.  I found them to be honest and forthright.  They were open and frank in explaining the relationship and the arrangement.  They were frank about the nature of the verbal agreement and the fact that the agreement was only ever for the son and daughter-in-law to repay the cost price of the land and building and that they had not intended to seek any profit or other overheads and expenses from their son as this was an agreement to help him into a house.  When asked why they had put in a claim for profits, overheads and margins in the present proceeding, they were frank in saying that once the Crown had put a claim on the property they felt that they should claim what it had actually cost them and what it would have cost a customer had this been a normal arms length negotiation.

[14]     I accept that the agreement with their son was as outlined in the evidence of Mr and Mrs Clements.  There were cost sheets annexed to the affidavit of Mr Clements which established that the actual cost of the building was $533,754.07 and the cost of the land was $100,344.50 bringing the total to $634,098.57.  Deducting the amount of $300,000.00 already repaid by the son the total amount which was owing to Mr and Mrs Clements by their son and daughter-in-law under the verbal agreement was $334,098.57. 

[15]     There is no evidence of any amount owing by the son and daughter-in-law to the third objector and no evidence that the third objector has any legal or equitable interest in the restrained property.

[16]     The son and daughter-in-law executed a mortgage in favour of Mr and Mrs Clements as security for a debt of $334,098.00.  That mortgage was registered on 25 November 2010.  A variation of the mortgage was registered on 25 May 2011 increasing the amount secured by the mortgage to $476,500.00.  This is the amount claimed by the parents including overheads and margins and project management fees.  They had earlier also claimed an amount of additional tax that they had been obliged to pay as a result of this arrangement but withdrew that claim before this matter came on for hearing, on advice from their accountant.

[17]     In summary, the parents claim an interest in the land as mortgagees for a debt of $476,500.00.  I find that the parents do have a legal interest in the land as mortgagees but that the amount owing under the mortgage is in fact $334,098.57. 

[18]     Upon registration of their mortgage, Mr and Mrs Clements obtained the benefit of an indefeasible title to an interest in the restrained property as security for the debt owed to them by their son and daughter-in-law,[1] namely $334,098.57.  This means that they hold their interest under the registered mortgage subject to registered interests affecting the restrained property but free from all other interests.[2]  There has been no suggestion by the applicant that Mr and Mrs Clements’ interest in the land was obtained by fraud and none of the other exceptions to indefeasibility apply.[3]

[19]     It is accepted by the applicant that, if Mr and Mrs Clements can establish that they are owed money by their son and daughter-in-law which is secured by the registered mortgage, they are innocent parties in relation to the property within the meaning of the Act, but the son and daughter-in-law are not innocent parties.  In those circumstances, it seems to me that the most appropriate remedy is:

(a)       a declaration that the first and second objectors, as second mortgagees of the restrained property have a bona fide charge over the restrained property within the meaning of s 103 of the Act; and

(b)            an order that, when the restrained property is sold after forfeiture, the first and second objectors are to be paid the sum of $334,098.57 from the net proceeds of sale, after payment of the amount owing to the first mortgagee (or the balance of the net proceeds if that is less than $334,098.57).



[1]        Land Title Act ss 39, 74 and 76.

 

[2]        Ibid s 188.

 

[3]        Land Title Act ss 188(3)(b) and 189.