Property of de facto parties affected by proceeds of crime orders: disclosure obligations and the recognition of a party’s interest

The Family Law Act 1975 (Cth) (‘the Act’) imposes a mandatory disclosure obligation where an applicant in de facto financial proceedings knows that the relevant property is affected by criminal asset recovery processes.

By s 90VA(1), where a person applies for an order with respect to the property of the parties to a de facto relationship (or either of them), or with respect to the maintenance of a party to such a relationship, and the person knows that the property is covered by a proceeds of crime order or a forfeiture application, the person must both disclose the order or application in the application, and provide the court with a sealed copy of it.

Non-compliance is an offence. Section 90VA(2) provides that a person who fails to comply commits an offence punishable, on conviction, by a fine not exceeding 50 penalty units. At the time of writing this article, s 4AA of the Crimes Act 1914 (Cth) provides that a penalty unit is currently $330.00. The maximum fine is therefore 50 x $330.00 = $16,500.00.

The disclosure obligation is reinforced by a mandatory stay. Section 90VB(1) provides that a court in which property settlement or maintenance proceedings are pending must stay those proceedings if it is notified under s 90VA in relation to them.

The effect is that the family law jurisdiction yields, at least temporarily, to the criminal asset recovery process once the court is on notice of it.

Distinct questions arise where a party to the de facto relationship asserts an interest in property that has already been seized or forfeited.

In New South Wales, upon taking possession of forfeited property the NSW Trustee becomes the registered proprietor: Criminal Assets Recovery Act 1990 (NSW) (‘Criminal Assets Recovery Act’) s 23(1)(b); Real Property Act 1900 (NSW) (‘RPA’) s 32.

The consequences of that vesting were considered in NSW Trustee and Guardian (No 2) [2022] NSWSC 1117 (‘NSW Trustee (No 2)’). There, the Court emphasised that the Trustee had received title as a result of orders made under the Criminal Assets Recovery Act, rather than through any breach of trust; however, the Court acknowledged that an innocent party may nonetheless become a constructive trustee obliged to restore the asset ([91]).

Critically, the indefeasibility of the Trustee's registered title cannot itself be impugned. Adopting the reasoning in Sze Tu v Lowe (2014) 89 NSWLR 317, the Court accepted that where notice of a competing equity comes only after a volunteer recipient has acquired an indefeasible title, the notice is too late to impose on the recipient, as constructive trustee, an obligation to restore the property (NSW Trustee (No 2), [92]-[93]). The Trustee's title, in other words, stands.

That does not, however, exhaust the claimant's options. Indefeasibility under s 42 of the Real Property Act does not preclude the pursuit of an in personam claim against the registered proprietor ([93]).

This series of articles examines the means by which a party's interest in forfeited property may be recognised. The present article addresses the first such method, the in personam claim.

The in personam exception to indefeasibility permits a claim founded on a recognised legal or equitable cause of action enforceable against the registered proprietor personally, without disturbing the integrity of the register itself.

While the precise question in NSW Trustee (No 2) differed, the court considered it arguable that where, unbeknownst to the Trustee, a person held an equitable interest in property that subsequently became the subject of a forfeiture order, as a result of which the Trustee became registered proprietor, and that interest later came to the Trustee's attention, an in personam claim could be pursued against the Trustee ([97]).

The in personam (or ‘personal equity’) exception extends to rights enforceable in equity and to rights enforceable at law. Its basis lies in the enforcement of personal claims against the registered proprietor arising out of the proprietor's own conduct, the vindication of which may result in an order binding the proprietor to surrender the whole or part of a registered interest: Breskvar v Wall (1971) 126 CLR 376 at 384-385.

The right in personam may arise either from the conduct of the registered proprietor personally, or from the conduct of those for whose acts the proprietor is responsible, such as agents or employees, and the relevant conduct may pre-date or post-date registration: Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537 at 563; Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 613, 618; Jamino Pty Ltd v Whitehall Investments Pty Ltd (1986) NSW Conv R 55-297 at 56,771; Coles KMA Ltd v Sword Nominees Pty Ltd (1986) 44 SASR 120; Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32 at 42, 46 per Mahoney JA; Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202 at 222-223; Body Corporate No 12870 v Aldal Pty Ltd (2010) 29 VR 81 at [108].