Cheah v Commissioner of Police
[2020] NZCA 253
•24 June 2020 at 11.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA254/2019 [2020] NZCA 253 |
| BETWEEN | BOON HOOI CHEAH |
| AND | COMMISSIONER OF POLICE |
| Hearing: | 25 February 2020 |
Court: | Miller, Dobson and Moore JJ |
Counsel: | W D McKean and N J Hartwell for Appellant |
Judgment: | 24 June 2020 at 11.30 am |
JUDGMENT OF THE COURT
Appeal dismissed.
____________________________________________________________________
REASONS OF THE COURT
(Given by Moore J)
Introduction
Boon Hooi Cheah is serving a term of six years’ imprisonment having pleaded guilty to charges of supplying methamphetamine.[1]
[1]He pleaded guilty to one charge of possession of methamphetamine for supply and one representative charge of supplying methamphetamine. On 10 February 2017 he was sentenced to six years’ imprisonment from an eight and a half year starting point.
On 31 October 2018 Grice J made civil forfeiture orders in favour of the Commissioner of Police (“the Commissioner”) under the Criminal Proceeds (Recovery) Act 2009 (“the Act”).[2] These included a profit forfeiture order and an assets forfeiture order. The Judge dismissed Mr Cheah’s application for an order excluding his half share in a residential property on the basis of undue hardship.
[2]Commissioner of Police v Cheah [2018] NZHC 2825 [High Court decision].
Mr Cheah appeals the profit forfeiture order on the basis that the quantum was not correctly valued and, to the extent the first ground of appeal is unsuccessful, that the Judge erred in finding that Mr Cheah had not established undue hardship.
Background facts
Mr Cheah is a 59-year-old Malaysian man who has been living in New Zealand for nearly 30 years. For 15 years, until 2012, he worked in sales at Duty Free Galleria, first as an employee and later as an agent for Yves St Laurent.
In 2001, with a friend, he purchased a half share in a property on Great North Road, Avondale. This was where he was living at the time of his arrest.
In June 2012 his employment was terminated as a consequence of mental health issues connected to his methamphetamine use. According to Mr Cheah he turned to the drug for relief from the stress of his job and to keep him awake and energetic. He claimed that for a number of years he purchased methamphetamine for personal use, but in or around 2014 he started to buy from a Mr Wagener. In 2015 he said he met another supplier. The tables turned and he began to supply Mr Wagener. He claimed this was initially in small amounts which Mr Cheah divided in half; half for himself and the other half for Mr Wagener. Towards the second half of 2015 he said the quantities increased and he was buying in one-gram amounts with the sales covering the cost of the drugs he consumed. The amount traded and consumed continued to increase into late 2015 and early 2016. He said that when he could, he stockpiled the drug for his own future use. He claimed that the time of his arrest coincided with the peak of his supplying.
The charges on which Mr Cheah was convicted relate to four separate incidents of supplying Mr Wagener between 31 May 2016 and 31 June 2016.
In mid-2016 the police commenced a covert operation using an undercover police officer to target the activities of Mr Wagener. On four occasions Mr Wagener sold the undercover officer a total of eight grams of methamphetamine. An analysis of telephone records identified Mr Cheah as Mr Wagener’s supplier. As a result, on 29 July 2016, the police executed a search warrant at Mr Cheah’s Great North Road property. They located 293.8 grams of methamphetamine (valued at $132,000), electronic scales and numerous ziplock bags. Cash totalling $70,520 was also found.
Amongst the items of interest, the police also located a diary. It recorded Mr Cheah’s methamphetamine dealing over the 10-week period between 16 May 2016 and 28 July 2016.[3] Transactions totalling $99,450 were recorded.
The applications and the hearing
[3]This period included the time span of the criminal charges.
The Commissioner’s case before Grice J was that after Mr Cheah’s employment ended with his dismissal in June 2012, he began to deal in methamphetamine to fund his living expenses and to support his heavy methamphetamine habit. Until his arrest on the day of the search four years later, he did not declare any income.
As noted, the Commissioner sought both an assets forfeiture order and a profit forfeiture order.
Assets forfeiture order
The assets forfeiture order was made in respect of the $70,520 of cash found at his home and the contents of an ASB account containing $50,000.14. This order is not subject to appeal.
Profit forfeiture order
The profit forfeiture order of $2,102,179 was made up of four components.[4] These were set out in a schedule produced by the Commissioner at the hearing. It is reproduced in full below:
[4]Initially the Commissioner nominated an unlawful benefit value of $2,178,103 but this was reduced at the hearing before Grice J.
(a)$132,000, being the value of the 293.88 grams of methamphetamine located at 2147 Great North Road;
(b)$94,350, being the total value of Mr Cheah's earnings from his drug dealing activities in a 10-week period between May and July 2016, as recorded in the diary located at 2147 Great North Road;
(c)$1,843,856, being an estimate of the total value of Mr Cheah's earnings from the sale of methamphetamine (extrapolated from the diary), during the 196-week period that he was not in receipt of any known income, excluding the time period at (b) above:
(i)Mr Cheah recorded earnings of $99,450 in the diary over a 74-day period;
(ii)$99,450 divided by 74 provides Mr Cheah's average daily income of $1,343.91;
(iii)Mr Cheah's weekly average income is calculated by multiplying the daily rate of $1,343.91 by seven, which equals $9,407.43:
(iv)To assess Mr Cheah's earnings from the sale of methamphetamine, the weekly rate of $9,407.43 is multiplied by 196, (being the time period that Mr Cheah was not in receipt of income from his employer and excluding the ten‑week period recorded in the diary) which equals $1,843,856.
(d)$31,973, being the value of unknown deposits received into Mr Cheah's bank accounts:
(i)$10,290 cash on 15 August 2011;
(ii)$11,170 cash on 4 January 2012; and
(iii)$10,458 unidentified deposits to ASB accounts and 55$ to the Westpac accounts.
$132,000 + $94,350 + $1,843,856 + $31,973 = $2,102,179
Mr Cheah accepted he had received unlawful benefits, but placed the value of those at $170,000, a figure derived from a combination of both the revenue recorded in his diary and the value of the cash seized by the police.
Furthermore, he did not accept that extrapolating the diary’s sales figures out over the 196 weeks provided a sound basis on which to calculate his income from the point when he lost his employment. Instead, he claimed he only started supplying methamphetamine from 2015. After his job finished he said he lived off two sources of income. The first was in the form of cash earnings from the sale of perfume and cosmetic products which he had received from his employer as a performance bonus. He claimed he accumulated these products over time. He sold them to Asian contacts at duty free prices. The second income source was the interest earned from his Westpac and ASB term deposits. Together these income sources allowed him to live reasonably comfortably.
As for undue hardship he pointed out that the Great North Road property was purchased by him in 2001 well before any offending. He owns a half share. It is his only remaining asset. It will be difficult for him to extract his share from the other party’s interest to obtain fair value. Given his personal circumstances he is unlikely to be re-employed and will be forced to apply for the unemployment benefit.
High Court judgment
The Judge found that under s 53 of the Act the onus was on Mr Cheah to disprove the Commissioner’s claim of benefit as specified in the application. She held that a simple critique of the Commissioner’s calculation methods was insufficient to discharge that onus. She determined that Mr Cheah was required to prove on the balance of probabilities that the true benefit was less than that claimed by the Commissioner, noting that in order to rebut the statutory presumption he must provide evidence as to what the actual quantum of the benefit is. She found that the figures provided by Mr Cheah were implausible. She thus determined that Mr Cheah had not rebutted the presumption that the value of the unlawful benefit was the figure as stated by the Commissioner.
Mr Cheah applied under s 56 of the Act for an order excluding his half share in the Great North Road Property from the profit forfeiture order on the basis of undue hardship. On his behalf it was submitted that the house was purchased well before Mr Cheah became involved in the supply of methamphetamine, he had no previous convictions prior to the present offending and he had not lived extravagantly or accumulated substantial assets. It was also noted that he is a mature man who now has to restart his life and has a history of mental illness related to his methamphetamine use.
The Judge found that Mr Cheah had not established undue hardship. She observed that any hardship he will suffer is not disproportionate to the extent and seriousness of his offending. While he might lose ownership of his house, he is not disabled to the extent of being unable to work. Furthermore, he has access to funds both in the form of a State benefit and debts of approximately $40,000 owed to him by his father. She pointed out that Mr Cheah knowingly participated in the supply of controlled drugs and ran a significant drug business.
The Judge ordered that Mr Cheah pay the Commissioner the value of the unlawful benefit derived using his share of the Great North Road property to meet the order.
Discussion
Mr McKean, for Mr Cheah, submitted that the Judge erred in her interpretation of s 53. He argued that the onus imposed on Mr Cheah under that provision simply required him to rebut the value nominated by the Commissioner and that once the presumption is rebutted, the Court should undertake its own “rough and ready” assessment of the evidence to determine the actual unlawful benefit. Had the Court followed this approach it would have put Mr Cheah’s unlawful benefit at $272,450, an amount which would be satisfied without the need to realise Mr Cheah’s half share in the Great North Road property.
Mr McKean also submitted that the Judge applied the “undue hardship” test under s 56 too strictly. He submitted there is no requirement that the hardship be either severe or gross and that in all the circumstances, the loss of Mr Cheah’s last remaining asset, his home, constituted “undue hardship”.
We turn to consider both of these points in more detail.
Did the Judge err in her interpretation of the requirements of s 53?
The principles relevant to the making of a profit forfeiture order are found in ss 53 to 58 of the Act. We begin by observing that the term “profit forfeiture order” is something of a misnomer, because what is forfeited under s 55 of the Act is the value of an unlawful “benefit”. The Act defines benefit as including “proceeds and property” and specifies that any “expenses or outgoings used in connection with” qualifying significant criminal activity must be disregarded when calculating the value of any qualifying property, proceeds or benefits.[5] In R v Pedersen this Court observed that the predecessor Act, the Proceeds of Crime Act 1991 (“the 1991 Act”), was “not an income tax statute, nor is it one concerned with lawful commercial operations”.[6] In other words, “benefit” means gross receipts rather than profits.[7]
[5]Criminal Proceeds (Recovery) Act 2009, ss 5(1) and 6(3).
[6]R v Pedersen [1995] 2 NZLR 386 (CA) at 390.
[7]At 391.
Unlike the 1991 Act, the new legislation does not prescribe how the amount of any unlawful benefit is to be assessed by the Court.[8] Instead, the criteria under the 1991 Act have been replaced by a statutory presumption. This is found in s 53 which provides:
53 Value of benefit presumed to be value in application
(1) If the Commissioner proves, on the balance of probabilities, that the respondent has, in the relevant period of criminal activity, unlawfully benefited from significant criminal activity, the value of that benefit is presumed to be the value stated in—
(a) the application under section 52(c); or
(b) if the case requires, the amended application.
(2) The presumption stated in subsection (1) may be rebutted by the respondent on the balance of probabilities.
[8]See Proceeds of Crime Act 1991, ss 27 and 28.
Thus, under s 53(1) the Commissioner carries the initial burden of proving on the balance of probabilities that Mr Cheah unlawfully benefitted from significant criminal activity.[9] It is then for Mr Cheah to rebut the statutory presumption that he benefitted to the value claimed by the Commissioner, that is $2,102,179.
[9]Criminal Proceeds (Recovery) Act, s 53(1).
One of the questions raised on this appeal is: what is required of him to rebut the presumption? Is it sufficient for him to critique the Commissioner’s method of calculation, or is something more required, such as adducing evidence that the true value is less than that nominated or, as the Judge determined, proving the value of the actual benefit received? To answer that question, it is necessary to review the legislative background.
The purpose of the reverse onus was discussed in the Explanatory Note to the Criminal Proceeds (Recovery) Bill 2007 in the following way:[10]
The Crown will not be required to establish the value of the profit derived from significant criminal activity, as this would be too onerous a test. Rather, the onus will be on the respondent to an order to establish, on the balance of probabilities, that the value specified in the application is too great.
The justification for this reverse onus is the difficulty of obtaining evidence showing the unlawful origins of property, as against the expectation that if property is derived from lawful activity the owner should be able to establish that.
[10]Criminal Proceeds (Recovery) Bill 2007 (81-1) (explanatory note) at 3.
The legislative intentions behind the new Act were helpfully discussed by Katz J in Commissioner of Police v Tang.[11] She said:
[21] The Explanatory Note to the Criminal Proceeds Recovery Bill noted that civil forfeiture regimes in overseas jurisdictions were proving considerably more effective than previous laws “in terms of the value of the criminal proceeds (confiscated)”. The Note recorded that “this Bill will introduce a similar approach in New Zealand”. The new legislation was clearly intended to make proceeds of crime recovery more effective, rather than less so …
[22] I note the observations of Cooke P in Pedersen that [the Proceeds of Crime Act] 1991 was intended to deter serious crime by demonstrating emphatically that it does not pay. “It should therefore be judicially administered in that spirit”. The general tenor of the Explanatory Note and the Parliamentary debates which preceded the passage of the [Criminal Proceeds (Recovery) Act] suggest that Cooke P’s observations apply equally to the interpretation of the [Criminal Proceeds (Recovery) Act], arguably even more so.
[11]Commissioner of Police v Tang [2013] NZHC 1750 (footnotes omitted).
Some interpretative assistance may also be found in s 3 which sets out the Act’s purpose. Stated as primary under s 3(1)(b), is the establishment of a regime to forfeit property which represents the value of a person’s unlawfully derived income. Mr Wiseman, for the Commissioner, also drew our attention to s 3(2)(a) which provides that the proceeds and forfeiture regime established under the Act proposes to “eliminate the chance” for persons to profit from undertaking significant criminal activity and that s 53 should be interpreted in that light; language which the Supreme Court recently described as “aspirational’, giving a “clear and emphatic signal as to the legislative purpose”.[12]
[12]Marwood v Commissioner of Police [2016] NZSC 139, [2017] 1 NZLR 260 at [12].
However, the Act is all but silent on what, in practice, is required of a respondent to rebut the presumption. The High Court has considered this issue in two cases. There is no appellate authority directly on point.
In Tang, Katz J, in discussing the Commissioner’s presumed value of unlawful benefit, approached the question in the following way:
[33] The Commissioner is not required to prove the extent to which Mr Tang has benefited from significant criminal activity. It is for Mr Tang to rebut the statutory presumption that the amount of benefit he received was $360,000, by providing evidence as to what he says the actual amount of benefit he received was.
…
[39] How the Commissioner calculated the $360,000 figure is strictly irrelevant. It is the figure itself that is important. It is not for the Commissioner to prove, on the balance of probabilities or otherwise, the amount of benefit Mr Tang received or to justify how the benefit amount he relied on was calculated. The figure of $360,000 is presumed to be the correct benefit amount unless and until Mr Tang proves otherwise. Mr Tang cannot do this by simply “critiquing” aspects of the Commissioner’s methodology as, ultimately, precisely how the Commissioner calculated his benefit figure is irrelevant. Mr Tang must adduce his own evidence to establish, on the balance of probabilities, that the true benefit figure was less than $360,000.
Katz J determined that Mr Tang had not discharged the onus. His evidence did not credibly establish what the total benefit received was; it was thus not possible to determine whether it was $360,000 or a greater or lesser sum.[13]
[13]Commissioner of Police v Tang, above n 11, at [52].
Mr McKean submitted that these comments are not authority for the proposition the Commissioner contends. He accepted that a respondent must do more than merely critique the Commissioner’s methodology. A respondent must adduce evidence that the amount of the unlawful benefit claimed by the Commissioner is greater than that actually received. However, he considered that proof the Commissioner’s methodology was flawed would go some considerable way towards rebutting the presumption.
In Commissioner of Police v Filer, Gilbert J observed that the statutory presumption means it does not matter how the Commissioner assesses the benefit.[14] He said:
[13] Section 53(2) of the Act does not make clear whether the respondent has to go further than show that the Commissioner’s assessment is wrong and prove what the actual benefit was. However, in my view, this is the correct interpretation. Once the Commissioner discharges the initial onus under s 53(1), the onus of proving the correct figures rests with the respondent under s 53(2) and does not pass back to the Commissioner. This interpretation serves the purposes of the forfeiture regime which include eliminating the chance for persons to profit from undertaking or being associated with significant criminal activity and deterring such activity. These objectives could be frustrated if the legislation is interpreted so as to require the Commissioner to prove the benefit in all cases where a respondent can establish some error in the Commissioner’s assessment. The respondent will know what the benefit was and will have access to the witnesses and records that may be needed to prove this, whereas the Commissioner does not. I conclude that if the respondent fails to prove the benefit on the balance of probabilities, the amounts stated in the Commissioner’s application must stand, even if the correctness of the underlying assessment is questionable.
[14]Commissioner of Police v Filer [2013] NZHC 3111 at [5].
Mr McKean submitted that this approach is simply wrong. Given the potentially dire consequences for a respondent, the nature and extent of the onus must be clear on the face of the section. It is not appropriate to read into the provision words which are not there. To adopt the Judge’s interpretation can impose an insuperable burden on a respondent. The practical difficulties for someone in Mr Cheah’s position are so formidable and unfair that a less stringent test must be favoured. Judicial and parliamentary observations that respondents are best placed to prove the source of acquired assets assume situations where a respondent has accumulated identifiable property such as land, a house or a car. In those circumstances it is self-evident that the respondent will be better placed than the Commissioner to explain the provenance of the property. But in Mr Cheah’s case there is no such property. He has virtually no assets. He operated in a cash economy, with minimal accounting records and was often under the influence of methamphetamine. The values recorded in the diary were used to estimate the presumed figure on what Mr McKean described was an entirely “speculative basis”. All Mr Cheah could say in rebuttal was, “I did not make $1.8 million in benefits from drug dealing”. He could go no further.
Mr McKean also submitted that the less onerous interpretation he favours is consistent with observations of this Court in Nicholas v Commissioner of Police and Doorman v Commissioner of Police.[15]
[15]Nicholas v Commissioner of Police [2017] NZCA 473, [2017] NZAR 172; and Doorman v Commissioner of Police [2013] NZCA 476, [2014] 2 NZLR 173.
In our view neither of these decisions provides the support which Mr McKean claims. In the passage relied on from Nicholas, this Court described the onus, commenting that the starting point will be the value of the unlawful benefit calculated by the Commissioner with the respondent being required to prove that the Commissioner’s figure “is wrong”.[16] Contrary to Mr McKean’s submission, that statement is not one of interpretive principle. It goes no further than paraphrasing s 53. The same point may be made in respect of Doorman, where this Court stated that the onus was to prove that the value in the Commissioner’s application was “not correct”.[17] The appellant in that case had suggested a portion of the figure proposed by the Commissioner was actually from money “recycled” through different bank accounts. The Court held that this was not a plausible suggestion, noting that the appellants had provided no evidence to support it.[18] Clearly, this case does not support Mr McKean’s submission either.
[16]At [24].
[17]At [48].
[18]At [46].
Mr McKean submitted that once a respondent has proved the Commissioner’s assessment of presumed value is wrong, the Court would be required to make its own “rough and ready assessment on the basis of all the evidence of what the benefit from criminal offending was”. He said that such an approach is fair given the practical impossibility of proof.
There are, however, a number of difficulties with that submission. First, it invites a return to the law as it was under the 1991 Act. That was a conviction-based regime which required the Court to assess the value of benefits derived from the commission of a serious offence.[19] Unlike its predecessor, the present Act is silent on the matters the Court is to have regard to in assessing the amount of any benefit received. Instead, the previous criteria under the 1991 Act have been replaced with the presumption in s 53.[20] The obvious perils of the Court embarking on an accounting audit of criminal activity, even a rough and ready one, were commented on by this Court while the 1991 Act was still in force.[21]
[19]Proceeds of Crime Act, s 25(1)(a).
[20]Commissioner of Police v Tang, above n Error! Bookmark not defined., at [9].
[21]R v Pedersen, above n 6, at 392.
Secondly, no justification for that course is to be found anywhere in the Act. Mr McKean’s submission would require us to read into the Act a reasonably complex procedural mechanism.
Thirdly, Mr McKean’s submission implies a distinction should be made between those cases which involve identifiable and real assets and those such as Mr Cheah’s, which do not. Nowhere in the Act is there any justification for such a distinction.
Another factor Mr McKean submitted operates in favour of his interpretation is that otherwise there is no fetter or control over what figure the Commissioner might nominate in his s 52 assessment. With an onus on the respondent which is effectively impossible to answer, the Commissioner will be “encouraged” to nominate inflated figures in the knowledge of how difficult it is for a respondent to rebut them.
While we accept there is a potential for harshness, there are two aspects of the legislation which provide some comfort against an unfair or oppressive result. The first is s 53(1) which deals with the value of the benefit being presumed in the Commissioner’s application. Before that figure may be presumed the Commissioner is required to prove, on the balance of probabilities, that the respondent has unlawfully benefitted from significant criminal activity during the relevant period. This is a not insignificant evidential hurdle. It requires the Commissioner to specifically turn his mind to quantifying the level of value of the unlawful benefit.
The second is s 47(1) which permits the High Court to amend an application for a civil forfeiture order either on its own initiative or on the application of the Commissioner. Section 47(2) prohibits any amendment to include additional property, proceeds or benefits unless the Court is satisfied the additional assets were not reasonably identifiable when the application was made or the evidence to support the application in relation to the additional assets only became available after the order was made. This suggests that s 47(1) contemplates a situation where the Court elects to reduce the value of the benefit claimed in the application. A similarly worded provision was contained in the 1991 Act.[22] It would seem that neither s 47 nor its predecessor has yet been used to amend an application to reduce the Commissioner’s claim to proceeds, property or benefits. Presumably the power to do so would be exercised in accordance with the Act’s purpose of permitting forfeiture of the direct or indirect proceeds of significant criminal activity.
[22]Proceeds of Crime Act, s 12.
We accept that for respondents such as Mr Cheah, who have accumulated few, if any, identifiable assets, the task of displacing the statutory presumption in s 53 may prove challenging. Mr McKean referred to it as proving the counterfactual; namely that Mr Cheah was not involved in drug dealing to the extent claimed. But we do not accept it is as onerous or impossible a task as Mr McKean submitted. The respondent will always be best placed to explain not only in what respects the Commissioner’s assessment is wrong, but also what the correct figure should be. If believed, this will usually result in a successful rebutting of the onus. In this case Mr Cheah filed affidavit evidence. He gave oral testimony at the hearing. He disclosed the existence of offshore funds which had not, until that point, been known to the Commissioner. As is discussed in more detail below he gave explanations for his sources of legitimate income and what his expenses were. This body of evidence went well beyond a bald denial that he received $1.8 million in benefits from his drug dealing.
Under s 53 there are only two possible outcomes. The first is that the Commissioner enjoys the benefit of the presumption and the respondent fails to rebut the presumption. In that case the presumed value stands. The second is where the respondent succeeds in rebutting the presumption. As for the latter, by necessary construction, it follows that the respondent must prove a different value. Under s 53 the Court’s role is limited to deciding on the balance of probabilities whether the Commissioner has proved that the respondent unlawfully benefitted, during the relevant period of criminal activity, from significant criminal activity, and whether the respondent has rebutted the presumption that the value of that benefit is correctly stated in the application. That may be contrasted with s 54, where the High Court is specifically tasked with determining the maximum recoverable amount by taking the value determined under s 53 and deducting from it the value of any property forfeited to the Crown as a result of the assets forfeiture order. In other words, the Act draws a distinction between values which are for the Court to assess and others which are for others to prove.
We are satisfied that the Judge was correct to determine that it was for Mr Cheah to rebut the statutory presumption by adducing evidence as to what the actual amount of his benefit was.[23] As discussed, this approach reflects the legislative purpose and is consistent with the statutory scheme and the wording of s 53.
[23]High Court decision, above n 2, at [84].
We acknowledge that the result in this case is severe. The Commissioner’s projection of profits fails to make a reasonable concession for the fact that Mr Cheah was probably not supplying on the same scale over the 196 weeks. The vast majority of dealing cases which come before the Court involve dealing which increases incrementally over time. Nevertheless, this is what is required by the statutory onus on a defendant in such proceedings. Section 53 would not result in such a tough outcome if the figures put forward by the Commissioner had been credibly challenged.
This finding leads to the next question and that is whether the Judge was correct in determining that Mr Cheah had not rebutted the presumption. It is to that issue we next turn.
Was the Judge correct to find that Mr Cheah had not rebutted the presumption?
As earlier noted, the Commissioner’s assessment was made up of four component parts; first, $132,000 being the value of the methamphetamine found at Mr Cheah’s address, secondly, $94,350 being the total receipts recorded in the diary, thirdly, $31,973 being the total of unexplained cash deposits into his bank accounts and $1,843,856 being the estimated total receipts earned from drug dealing after he was dismissed from his job. For the purposes of this appeal it is only the last amount which is challenged.
The Judge summarised Mr Cheah’s rebuttal evidence in relation to the value of his unlawful benefit in the following way:[24]
[68] Mr Cheah’s rebuttal amounts to the following. Mr Cheah said in his affidavit that the total income from his drug dealing was $100,000 (the value of the methamphetamine found) together with the cash. Therefore, his total is $170,000. He said that is what he received from drug dealing over a one year period. He claims the figure produced by the Commissioner of $1,843,856 as an estimated value of Mr Cheah’s profit from the sale of methamphetamine is far too high. This number was calculated using the monetary amounts recorded in Mr Cheah’s diary from a 74-day period extrapolated out over the 196 weeks Mr Cheah was not receiving income. Mr Cheah argues the diary was kept at the height of his methamphetamine dealing and to extrapolate this over a long period is inaccurate.
[69] Mr Cheah says his methamphetamine sales did not begin until 2015, and that there is no evidence to show otherwise. He had admitted using methamphetamine before that, and was able to sustain both his own supply of methamphetamine and living expenses largely out of his bank accounts and the sales of the luxury perfume and cosmetic products he had stock piled from his previous employment. Mr Cheah claims that as was typical he progressed to dealing over time.
[24]At [68] and [69].
In finding that Mr Cheah had failed to rebut the presumption in favour of the Commissioner’s figure, the Judge made adverse credibility findings against him. She dismissed Mr Cheah’s account of his income and expenditure as implausible. Her findings on that conclusion are reproduced, in part, below:
[74] In my view Mr Cheah was not slow to lie about matters when they did not suit his interests. He lied about his involvement in the drug dealing when he was initially arrested. He said he did that because he was so shocked at being arrested. At that stage, he blamed all the dealing on his associate. He now accepted he was guilty of supplying, albeit he said he was only supplying his associate Mr Wagener. He maintained he had weaned himself off methamphetamine after he became unemployed but had been lured back by Mr Wagener sometime in 2014 and started selling in 2015. I find it is unlikely he stopped using methamphetamine when he left his employment. He was clearly in a bad state in the period leading to his dismissal and it is unlikely he changed his behaviour. He failed to mention that he stopped using methamphetamine to the probation officer but instead had gone into some detail about his reliance on methamphetamine and the mental health issues that flowed from that. Further Mr Cheah also initially said that only part of the $70,520 cash found in his wardrobe was from his drug supplying activities. He said some was from product sales. However, he agreed at the hearing the cash was from drug sales.
[75] I am of the view that while he did concede a number of matters in the witness box, he was not generally a credible witness.
The evidence of unlawful benefit came from Mr Cheah’s claim he was Mr Wagener’s drug supplier for modest amounts for just two months before his arrest, the methamphetamine (valued at $132,000), $70,520 in cash found on his arrest and the diary showing sales of $99,450 of methamphetamine sales over the 10-week period prior to his arrest. He admitted to the author of the pre-sentence report that he had been a heavy user of methamphetamine. He had not been employed since June 2012 and had spent $155,000 through his bank for living expenses. Statistically, an average New Zealander would have needed $205,000 to $296,000 in living expenses over the period. Thus, Mr McKean submitted that Mr Cheah, compared to the average New Zealander, spent just $50,000 less on living expenses over the relevant period.[25] Furthermore, Mr McKean submitted there was no evidence of drug dealing beyond the 10-week period or that he was selling to anyone other than Mr Wagener. Significantly, he acquired no assets over the period in question.
[25]The evidence was that the average New Zealander spends $564 per week on living expenses. An analysis of his bank account revealed that Mr Cheah spent $427 per week on living expenses.
Mr McKean also placed considerable emphasis on the Commissioner’s proposition that in the four-year period after Mr Cheah left his employment he earned $1.8 million and spent that sum on purchasing methamphetamine to feed his habit. That assumption rests on the contents of the diary which indicated Mr Cheah was receiving approximately $9,400 per week from drug dealing and he was using those funds to purchase his drugs. In the absence of acquiring any other property, the Commissioner assumed the funds were spent on drugs. Mr McKean was particularly critical that no allowance was made for any variation in Mr Cheah’s rate of earning, noting that the progression of addiction to methamphetamine and thence to dealing typically starts off in small amounts before growing incrementally. Mr McKean illustrated this point by observing that if Mr Cheah was earning about $9,400 per week from drug dealing and was using that money to spend on drugs for both personal use and sale it meant he was consuming approximately four grams of methamphetamine a day for four years. That amount, by any measure, would be a phenomenal quantity of drugs.[26] There was no evidence to contradict Mr Cheah’s evidence that he stopped taking drugs in 2012 and only recommenced once he met Mr Wagener online.
[26]This was on the basis that $9,400 is approximately what would be paid for an ounce of methamphetamine, that is, 28 grams which equates to four grams of methamphetamine a day.
However, as Mr Wiseman pointed out, the unlawful benefit figure must also include the expenses of Mr Cheah’s drug dealing operation which included purchasing the product he was on-selling. It also funded his living expenses. Viewed that way, Mr Cheah’s personal methamphetamine consumption would have been considerably less than Mr McKean’s figure, which we agree suggested extremely high volumes.
Mr McKean was also critical that insufficient weight was given to the evidence Mr Cheah received considerable income from the private sale of cosmetic products he had acquired during the course of his employment. We do not agree. The Judge reasoned that these sales would not have been sufficient to generate the funds necessary for Mr Cheah to purchase drugs not only for his own use and also for dealing, noting that his tax records revealed substantially declining earnings in the years preceding his employment termination.[27]
[27]This was explored in Mr Cheah’s cross-examination which revealed he declared $53,683 for the year ending 31 March 2011, $29,000 in 2012 and $6,635 for 2013 (which covered three months of his employment from April to June 2013).
Nor is it correct to say that the Commissioner’s assessment was entirely arbitrary and unfair. An example is the criticism that the Commissioner assumed that Mr Cheah’s drug dealing activity was constant throughout the four years when, in fact, the figures relied on related to the final phases of his offending over the last 10 weeks. The criticism is that no allowance was made for the likely scenario that the level of his trading increased incrementally from a relatively low base. There is, however, force in Mr Wiseman’s contrary submission that it is plain Mr Cheah was addicted and was dealing to support his habit for some time, from at least 2011, before his behavioural issues led his employers to terminate his employment. Mr Cheah was unable to explain the origin of two substantial cash deposits paid into his accounts in August and November 2011 before his termination. These suggest that he was a substantial dealer for some time before he left his work, a period which the Commissioner has not included in the retrospective extrapolation.
Mr McKean was also critical of the Judge’s rejection of Mr Cheah’s claim that he stopped taking drugs in 2012 and only recommenced once he met Mr Wagener online. In our view this was a factual finding which was open to the Judge and for which she gave reasons. These included Mr Cheah’s evidence relating to his methamphetamine use and addiction which led him to lose his job. It also included his omission to mention to the probation officer that his methamphetamine consumption had abated until 2014 or 2015. Given the Judge’s strong credibility findings against Mr Cheah, her rejection of his account is understandable.
For these reasons we are unable to conclude the Judge erred in finding Mr Cheah had not rebutted the Commissioner’s presumption.
Was the Judge wrong not to make a finding of undue hardship?
Because we have decided that the Judge was correct in her interpretation and application of s 53 it is necessary to consider the second ground of appeal, namely whether the Judge applied the undue hardship test under s 56 too strictly and failed to take into account Mr Cheah’s personal circumstances in the event he was to lose his part interest in the Great North Road property.
Mr McKean’s criticism is that the Judge elevated the relevant test to one requiring severe or gross hardship, rather than applying the statutory wording.
Under s 56 the Court may exclude certain property from a profit forfeiture order if it considers that, having regard to all the circumstances, undue hardship is reasonably likely to be caused to the respondent if property was realised. Section 56 provides:
56 Exclusion of respondent’s property from profit forfeiture order because of undue hardship
(1) The High Court may, on an application made by the respondent before a profit forfeiture order is made, exclude certain property from being able to be realised under section 55(2) (c) if it considers that, having regard to all of the circumstances, undue hardship is reasonably likely to be caused to the respondent if the property were realised.
(2) The circumstances the Court may have regard to under subsection (1) include, without limitation,—
(a) the use that is ordinarily made, or was intended to be made, of the property that is, or is proposed to be, the subject of the profit forfeiture order; and
(b) the nature and extent of the respondent’s interest in the property; and
(c) the circumstances of the significant criminal activity to which the profit forfeiture order relates…
The threshold for relief under s 56 is high. Hardship for offenders and third parties is to be expected. For the Court to grant relief an applicant must show not merely inconvenience or difficulty, but that any hardship will be so disproportionate as to require the objectives of recovery and deterrence to be subordinated to the particular needs of the wrongdoer.[28]
[28]Nicholas v Commissioner of Police, above n 15, at [57]; and Lyall v Solicitor-General [1997] 2 NZLR 641 (CA) at 646 and 647.
The loss of equity in a home acquired from legitimate sources before the criminal activity, and the consequent prospect the respondent will need to rely on State assistance for housing, has been held not to constitute undue hardship; the risk of losing a home ought to have been contemplated at the time the respondent embarked on the criminal activity.[29]
[29]Commissioner of Police v Ranga [2013] NZHC 745 at [45].
On the question of undue hardship and Mr Cheah’s application, this is what the Judge said:[30]
[96] In my assessment, the hardship Mr Cheah will suffer is not disproportionate to the extent and seriousness of his offending. While he might lose ownership of his house, he is not disabled to the extent of being unable to work. He may be eligible for a state benefit and he has funds which he has lent to his father from advances made in the vicinity of $40,000 which are outside this jurisdiction. It is unclear what the returns are on this money but there is at least part remains outstanding. Mr Cheah knowingly participated in the supply of controlled drugs. He had a significant drug business operating at the time he was arrested. While the home was derived from legitimate sources that in itself does not constitute undue hardship.
[30]High Court judgment, above n 2, at [96].
Mr McKean’s criticisms are several. First, he submits the Judge read into s 56 the requirement that the hardship must be severe or gross. He also submitted the Judge failed to take into account or give sufficient weight to Mr Cheah’s personal circumstances; his age, his history of mental illness, that he has no family in New Zealand and has just completed a lengthy term of imprisonment. Given his circumstances, his chances of getting back on his feet are limited. He is likely to have to apply for a State benefit and, if he loses his home, seek State housing assistance. His home is his sole remaining asset and it will be difficult to extract his share from that of his co-owner to receive fair value. Furthermore, given the absence of concrete evidence supporting the profit forfeiture order, its severity may be taken into account as part of the “all of the circumstances” evaluation under s 56.
We cannot agree with these points. Read in context, the Judge was not saying that Mr Cheah must suffer extreme or gross hardship before the relief under s 56 is available. What the Judge was correctly focusing on was the disproportion between Mr Cheah’s offending and the value of his half share in the Great North Road property. In doing so she applied the law reflected by this Court in Lyall and Nicholas. We agree that forfeiture in this case will not lead Mr Cheah to suffer undue hardship in the correct legal sense, having regard to both the severity of the offending and Mr Cheah’s personal circumstances. Our reasons follow.
First, the offending was extremely serious. Both charges carry life imprisonment and the sentence imposed on Mr Cheah reflects that seriousness.
Secondly, although the property was acquired well before Mr Cheah’s offending commenced, it was used by Mr Cheah to facilitate the commission of the crimes he was convicted of. Found at the property was a substantial quantity of methamphetamine, items associated with drug dealing, a large quantity of cash and the diary recording substantial sales. Furthermore, the modus operandi involved Mr Wagener meeting his purchaser near Mr Cheah’s home, taking the order, obtaining the drugs from Mr Cheah and then delivering them to the waiting purchaser. This is not a case where the asset at risk has no connection to the index offending.
Thirdly, the loss of Mr Cheah’s interest in the property is tempered by other assets he will have available to him which have not been forfeited. These were referred to by the Judge who in our view correctly summarised the relevant factors when making the proportionality assessment.
Fourthly, Mr Cheah’s mental health issues need to be viewed in context. He lost his job due to performance issues related to his drug use, including bizarre conduct. However, the assessment of undue hardship is to be made at the time the application is judicially considered. It is relevant the pre-sentence report recorded Mr Cheah is no longer addicted and no longer suffers from suicidal ideation.
Finally, we do not overlook the various other personal factors advanced by Mr McKean. There is little doubt that the loss of equity in the Great North Road property will cause hardship to Mr Cheah. He will lose his home. While there is no direct evidence on this point, it seems reasonable to infer he will struggle to secure employment given his age and circumstances. He will likely be reliant on financial support from the State. But these factors, taken singly or in combination do not persuade us that he will suffer undue hardship for the purposes of s 56.
Result
The appeal is dismissed.
Solicitors:
WRMK Lawyers, Whangarei for Appellant
Meredith Connell, Auckland for Respondent
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