Commissioner of New Zealand Police v Lowen

[2018] NZHC 3226

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2018-409-52

[2018] NZHC 3226

UNDER

the Criminal Proceeds (Recovery) Act 2009

BETWEEN

COMMISSIONER OF NEW ZEALAND POLICE

Applicant

AND

PAULINE URANA LOWEN

First Respondent

GRAHAM DAVID LOWEN
Second Respondent

LOWMUN INVESTMENTS LIMITED
Third Respondent

AND

ANZ BANK NEW ZEALAND LIMITED

Interested Party

Hearing:

4 December 2018

Appearances:

H McKenzie for Applicant

K Chalmers for First Respondent G Tyrrell for Second Respondent

No appearance by or for Third Respondent No appearance by or for Interested Party

Judgment:

7 December 2018

JUDGMENT OF MANDER J

[1]                  In February 2018, the Commissioner of Police (the Commissioner) filed without notice and on notice applications that two residential properties situated at   1 Heathridge Place, Lincoln, and 501 Bower Avenue, Parklands, (the properties) be

COMMISSIONER OF NEW ZEALAND POLICE v LOWEN [2018] NZHC 3226 [7 December 2018]

made the subject of a restraining order under the Criminal Proceeds (Recovery) Act 2009 (the Act).1

[2]                  The Heathridge Place property was owned and occupied by the first and second respondents, Ms Pauline Lowen nee Munday and Mr Graham Lowen. The Bower Avenue property was a rental property owned by the third respondent, Lowmun Investments Limited, of which Mr and Ms Lowen are the directors and shareholders. After the making of a without notice restraining order, and with the consent of the parties, both properties were sold by the Official Assignee. Net proceeds of the sale amounted to $154,530.18.

[3]                  The without notice restraining order was varied to replace the properties described in the order with the net proceeds of the sale of those properties. The original on notice application for a restraining order was not amended. However, I proceed on the basis that the Commissioner’s application now relates to the proceeds of the sale which is the basis upon which I heard argument.

Background

[4]                  In early 2017, the Ministry of Social Development (MSD) commenced a benefit fraud investigation into the activities of Mr and Ms Lowen. This resulted in Ms Lowen being charged with benefit fraud. In August 2018, she pleaded guilty to the following offending:

(a)Failing to disclose she was living with her husband, Mr Lowen, and failing to disclose her income from employment whilst receiving a full rate of benefit in breach of s 240 of the Crimes Act 1961.

(b)Dishonestly using eight Work and Income New Zealand documents between August 1997 and August 2003 in breach of s 229A of the Crimes Act.

1      The properties were originally restrained on a without notice basis pursuant to an order made by Nation J on 5 February 2018.

(c)Dishonestly using 41 Work and Income New Zealand documents from November 2003 to April 2017 in breach of s 228 of the Crimes Act.

(d)Using a forged document in breach of s 257 of the Crimes Act.

[5]                  Ms Lowen has been remanded for sentencing on 19 December 2018. The overpayment relating to the criminal offending amounts to $347,408.77.

[6]                  Mr Lowen has not been charged with any criminal offending. However, the Commissioner’s position is that he was fully aware of the offending and benefitted from it.

The application

[7]                  Under the Act, if a Court is satisfied there are reasonable grounds to believe that any property is tainted property or that a respondent has unlawfully benefitted from significant criminal activity, it may order that the property sought to be restrained not be disposed of, or dealt with, and that it be placed under the Official Assignee’s custody and control.2

[8]                  Ms Lowen, who opposes the making of a restraining order, does not contest that the statutory grounds for the making of an order have been satisfied. She has conceded in an affidavit filed in support of her opposition that the money fraudulently obtained from MSD was for the purpose of acquiring, improving, and maintaining relationship property. This includes the properties that were the subject of the original application.

[9]                  The offending to which Ms Lowen has pleaded guilty constitutes significant criminal activity, involving as it does the commission of criminal offences punishable by a maximum term of imprisonment of five years or more, or from which property, proceeds or benefits of a value of $30,000 or more have been acquired.3 There is therefore no issue that Ms Lowen has unlawfully benefitted from significant criminal

2      Criminal Proceeds (Recovery) Act 2009, ss 24 and 25.

3      Section 6(1).

activity, nor that the two properties were acquired as a result of that significant criminal activity and constitute tainted property.4

[10]              Ms Lowen’s opposition is based on a submission that it would not be in the interests of justice for the Court to exercise its discretion to restrain the funds because Ms Lowen’s interest in that property should be available to her to pay reparation to MSD when she is sentenced in the District Court for her fraud offending.

[11]              Mr Lowen takes a neutral stance on the Commissioner’s application and essentially abides the decision of the Court. He intends to oppose forfeiture of his share of the relationship assets.

[12]              Mr and Ms Lowen are now separated. The properties constituted relationship property, and Mr Lowen claims that he is entitled to at least half of the funds generated from the sale of the properties. While there appears to be some consensus between Mr Lowen and Ms Lowen that they have an equal share in the pool of relationship property, Mr Lowen claims he is entitled to recover post-separation contributions in a sum not likely to exceed $20,000.5 For her part, Ms Lowen asserts that the debt arising from her offending is relationship debt which Mr Lowen must share. Mr Lowen denies such a liability.

[13]              The Commissioner’s position is that he would resist any claim for relief by Mr Lowen based on a claimed share in the properties should there be an application for a civil forfeiture order. The Commissioner maintains Mr Lowen was aware of his wife’s offending and benefitted from it.

[14]              Lowen Investments Limited has no position independent of Mr and Ms Lowen. It has been agreed by the parties and previously accepted by this Court that the company does not require representation beyond the joint instructions of the parties.6

4      Section 5.

5      Property (Relationships) Act 1976, s 18.

6      By minute of Dunningham J, dated 28 May 2018.

Ms Lowen’s opposition

[15]              Ms Lowen’s opposition distils to an argument that her share of the proceeds of the sale of the properties ought to be available to her to make reparation to MSD. She acknowledges that the proceeds of her offending were applied to the properties, but argues that it would be wrong for this Court to make a restraining order which may lead to the Commissioner recovering the proceeds of the sale of that property when MSD, as the victim of her offending, has a specific interest in recovering those monies.

[16]              In written submissions filed in support of that argument, an attempt was made to draw an analogy with a constructive trust, whereby Ms Lowen’s share in the properties, as a matter of equity, was held by her for the benefit of her victim and that it would be unjust or inequitable for the Commissioner to rely upon his legal rights under the Act to divert those monies and prevent her from making a payment to MSD.

[17]              Ms Chalmers, who appeared on behalf of Ms Lowen on the hearing of the Commissioner’s application, presented a variation of that argument by reference to the purpose of the Act. In general terms, the Act is described as providing for the restraint and forfeiture of property derived as a result of significant criminal activity, without the need for a conviction.7 Ms Chalmers submitted that the statute contemplates or presumes that the Act will have application to offending which would otherwise be the subject of a police prosecution. In the present case, MSD has laid the charge, and when regard is had to the competing interests of the Commissioner and MSD, the latter, which counsel identified as the victim, should have the benefit of recovering the proceeds of offending against it.

[18]              Leaving to one side the fact that the ultimate victim of Ms Lowen’s offending is the taxpayer and that both MSD and the Commissioner collectively represent the interests of the Crown, this part of Ms Lowen’s argument effectively collapsed as a result of MSD formally disavowing any conflict with the Commissioner’s prospective proceedings to recover the proceeds of the offending under the Act.

7      Section 4(1)(a).

[19]              MSD advised that it is not currently seeking to recover the overpayment caused by Ms Lowen’s offending from either her or Mr Lowen.8 MSD will advise the sentencing Court that it does not seek a reparation order because recovery is being pursued by the Commissioner. However, the Ministry does reserve its right to use its recovery powers under the Social Security Act 1964 to recover any balance of the money still owing after any criminal proceeds proceedings have concluded.

[20]              With MSD having declared itself content to allow the Commissioner to pursue recovery under the Act rather than seek reparation for itself, there is no competing contest for the funds, at least as between the Commissioner and MSD.

[21]              The better argument open to Ms Lowen is a submission that she wishes to be able at sentencing to offer reparation, as a demonstration of her remorse and as a means of making amends for her offending.9 As was acknowledged by Mr Tyrrell on behalf of Mr Lowen, notwithstanding any claim his client may seek to make under the Property (Relationships) Act, Ms Lowen would have been able to call upon her share of the relationship property, some $67,500 of the total sum currently held by the Official Assignee. Ms Lowen wishes to be in a position to be able to offer (as a minimum) such a figure as reparation at sentencing before the District Court.

Decision

[22]              I do not consider that the making of a restraining order precludes Ms Lowen from making an offer of reparation, nor is the sentencing Court estopped by a restraining order from taking into account such an offer. The Act contemplates the situation where property the subject of a civil forfeiture order may be required to be realised to pay an outstanding reparation order. Sections 82 and 83 of the Act give priority to the payment of reparation. The Official Assignee is directed when disposing of forfeited property to apply money resulting from its sale to satisfy

8      Under s 86AA of the Social Security Act 1964, the Ministry can apportion joint and several liability on a partner/spouse to repay any debt accrued by a beneficiary from the day following the date that the provision was inserted into the Act (8 July 2014). Mr Lowen is potentially jointly and severally liable with Ms Lowen to repay $25,144.01 of the total overpayment.

9      Sentencing Act 2002, ss 9(2)(f) and 10.

reparation ordered to be paid by the Court after payment of associated costs, including amounts owed for legal aid.10

[23]              A concern was expressed on behalf of Ms Lowen that a sentencing Court may be reluctant to make a reparation order or to take into account an offer of reparation where the funds from which such a payment is sourced are subject to a restraining order. As observed, there is no legal impediment for such an order being made in those circumstances, nor is a sentencing Court prevented from taking into account an offer of reparation. However, I accept there may be reservations as to the efficacy of a reparation order proposed to be sourced from property already the subject of a restraining order. Nevertheless, payment of reparation to the victims is prioritised under the Act over the Crown’s interest.

[24]              Often the victim will be a private individual. However, in the present case the ostensible victim, at least as nominated by Ms Lowen, MSD, is but another Crown agency. It has advised that it is content to allow the Commissioner to make the running in terms of recovering the money owed to the taxpayer by Ms Lowen from her offending, and is prepared to wait upon the outcome of any criminal proceeds proceedings. That is without prejudice to MSD using its own powers to recover the balance of the outstanding debt.

[25]              A further relevant factor is that the two properties the subject of the original application for restraint have already been sold and the funds are available to be disbursed. Should a forfeiture order ultimately be made in favour of the Commissioner, the money is already available to be disbursed to the Crown either in satisfaction (partial or otherwise) of any reparation order the sentencing Court may make in the exercise of its discretion, or under ss 82(1)(d) and 83(1)(d).

[26]              Ms Chalmers submitted that a difficulty arising from the making of a restraining order is that the amount available to Ms Lowen to offer as reparation will be uncertain. However, any uncertainty as to her share of the monies derives from the relationship property dispute between herself and Mr Lowen. In particular, from the

10     Criminal Proceeds (Recovery) Act, ss 82(1)(c)(i) and 83(1)(c)(i).

claims he may make for an additional share in the property for post-separation contributions that may entitle him to a greater than equal apportionment.

[27]              A restraining order has often been characterised as a “holding device”, designed to ensure the property subject to the order is not disposed of until the issue of its potential forfeiture is resolved.11 It is effectively an interim order of limited duration.12 Ms Chalmers sought to submit that because the two properties had been sold, the assets were no longer in a “holding pattern” because the same property could not be returned to the respondents. However, I do not consider the fact that the Official Assignee, with the consent of the parties, has sold the two properties changes the status of the funds generated as a result of those sales. The making of a restraining order in respect of that money would freeze the disposition of those funds and require them to be held under the Official Assignee’s custody and control.

[28]              The alternative to making a restraining order would be for the funds to be released back to Ms Lowen and her estranged husband who would be free to apply those monies as they saw fit and without restraint.  Having regard to the nature of  Ms Lowen’s offending and her admission that the monies represent the gains from her fraudulent conduct, there is no attraction in taking such a risk. There is nothing novel about restraint proceedings being taken in the present context of benefit fraud offending, which I accept is a legitimate means by which to ensure that an unlawfully obtained benefit is preserved.

[29]              The issue of reparation and how it may bear on sentencing is a matter for the assessment of the sentencing Judge in the exercise of his or her discretion. I do not consider, with the statutory criteria clearly having been established, that there is any proper basis upon which I could exercise my discretion to decline to restrain the proceeds of the sales of the properties.

[30]              While as a general rule civil forfeiture orders do not of themselves warrant a discount in sentencing, as submitted by Ms McKenzie on behalf of the Commissioner, if Ms Lowen is concerned about being able to demonstrate her remorse at sentencing

11     Commissioner of Police v Vincent [2012] NZHC 2581.

12     Vincent v Commissioner of Police [2013] NZCA 412 at [45](a).

by making a credible or genuine offer to make amends to the taxpayer, she could formally record her consent to any future forfeiture application and place that before the sentencing Court for its consideration.13 In the circumstances, and having regard to MSD’s preference to allow civil forfeiture proceedings by the Commissioner to have priority, it is a concession the sentencing Court may be prepared to take into account.

Order

[31]              Being satisfied that grounds for a restraining order are made out on the Commissioner’s application, there will be an order that the net proceeds of the sale of the properties described in paragraph 2(a) and (b) of the on notice application for a restraining order, dated 5 February 2018:

(a)Is not to be disposed of, or dealt with, other than as is provided for in the restraining order; and

(b)is to be in the Official Assignee’s custody and control.

[32]Costs are reserved.

Solicitors:

Raymond Donnelly & Co, Christchurch Richard Maze Barrister, Christchurch Weston Ward & Lascelles, Christchurch

13     Henderson v R [2017] NZCA 605 at [42].