Commissioner of New Zealand Police v Rae
[2021] NZHC 2766
•15 October 2021
ORDER PROHIBITING PUBLICATION OF NAMES, ADDRESSES OR IDENTIFYING PARTICULARS OF SECOND AND THIRD INTERESTED PARTIES AND PERSONS CONNECTED WITH THEM. IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2020-485-43
[2021] NZHC 2766
UNDER the Criminal Proceeds (Recovery) Act 2009 IN THE MATTER OF
an application under s 28
BETWEEN
COMMISSIONER OF NEW ZEALAND POLICE
Applicant
AND
DAVID CHARLES RAE
Respondent
SARAH LOUISE RAE
First Interested PartyS LTD
Second Interested PartyR LP
Third Interested PartyAVA CONSULTING LTD
Fourth Interested Party
Hearing: 4-5 October 2021 Counsel:
A Britton and S McCusker for Applicant
Y Mortimer-Wang and R Langdana for Respondent
Judgment:
15 October 2021
JUDGMENT OF CHURCHMAN J
COMMISSIONER OF NEW ZEALAND POLICE v RAE [2021] NZHC 2766 [15 October 2021]
TABLE OF CONTENTS
Factual background [3]
Position of the parties on s 28 application [16]
Mr Rae [16]
The Commissioner of Police [23]
Relevant law and analysis [30]
Evidence [38]
Standard of proof [43]
Alleged deliberate delays by Commissioner [75]
Effective control [87]
Woodlands Grove [96]
Availability of other unrestrained assets [114]
The Australian and Hong Kong bank accounts [122]
Payments sought [134]
The house at 1 Roshaw [135]
Motor vehicle [145]
Backdating [146]
Purpose for which s 28 payments are sought [151]
Business expenses [155]
Other claimed debts [168]
True Matrix Ltd invoices [177]
R Ltd invoices [183]
Outcome [190]
[1] Mr Rae is the respondent in substantive restraint and forfeiture proceedings brought by the Commissioner of Police under the Criminal Proceeds (Recovery) Act 2009 (CPRA). The total value of the restrained funds is around NZ$10.074 million.
[2] By an application filed on 2 February 2021, Mr Rae applies for a variation of the restraining order and release of funds under ss 28 and 35 of the CPRA. In short, he seeks the release of:
(a)living costs plus expenses claimed to have been incurred in good faith, totalling around $529,000 (5.25 per cent of the restrained funds); and
(b)an ongoing $8,955 per month to pay his monthly living costs in Preston, England.
Factual background
[3] The factual background to this proceeding is convoluted and it is necessary to set it out in some detail.
[4] The Commissioner alleges that Mr Rae has used entities to launder in New Zealand money obtained through fraudulent schemes in the Unites States.1 The Commissioner asserts that the money held in New Zealand bank accounts controlled by Mr Rae are the proceeds of those frauds and is therefore tainted property.
[5] In the United States District Court on 19 December 2019, Mr Rae pleaded guilty to one count of conspiracy to commit international money laundering. He was sentenced to 10 months’ imprisonment on 7 February 2020 and he was released on time served.
[6] The Commissioner alleges that Mr Rae was involved in two schemes designed to exploit the United States Medicare system for medical insurance – the first being a durable medical equipment (DME) scheme, and the second being a cancer screening scheme.
[7] The DME scheme allegedly exploited Medicare insurance benefits for disabled persons aged 65 and over. Under these benefits, cover is provided for equipment such as arm, leg, back and neck braces. The Commissioner says that telemarketers would
1 An offence against the Crimes Act 1961, s 243(2).
persuade eligible patients to obtain the equipment irrespective of medical need. The patients would be referred to a doctor, who would then write prescriptions for the patients for a flat fee (without proper patient interaction or assessment). Companies would supply the equipment to the patients and then submit (fraudulent) claims to Medicare for payment. Those companies would then pay fees – “kickbacks” – to the telemarketers. It is alleged that this scheme was set up by the beneficial owners of at least 22 equipment supply companies.
[8] The cancer screening scheme allegedly exploited Medicare insurance cover for genetic cancer screening in a similar way. Telemarketers would persuade patients to undertake genetic cancer screening irrespective of medical need. A clinical laboratory would screen the patients and file fraudulent claims to Medicare or to private insurers; they would then pay kickbacks to the telemarketers.
[9] Not only do the allegations involve a violation of a Federal “anti-kickback statute”,2 but they also go further because the claims were made without genuine need (and so were dishonest claims for medical services). The loss to Medicare is said to be some USD$212 million. The alleged principals of the two United Stated schemes are Mr Aaron Williamsky and Ms Nadia Levit.
[10] On 18 September 2019 in the US District Court in the State of New Jersey, Mr Williamsky pleaded guilty to one count each of:
(a)conspiracy to violate the Federal anti-kickback statute;
(b)conspiracy to commit healthcare fraud;
(c)conspiracy to commit wire fraud; and
(d)conspiracy to commit money laundering.
[11]Ms Levit pleaded guilty to similar charges.
2 Public Health and Welfare Act 42 USC § 1320a, s7b(b).
[12] Mr Rae is involved in offering international business structures via vehicles incorporated in various jurisdictions. Those structures are said to be then used to launder funds obtained from fraudulent activities, such as the two schemes referred to above. Mr Rae performs this service for a fee. Sometimes that fee is expressed as a percentage of the money so laundered. There was evidence that, for the transactions involving Mr Williamsky and Ms Levit, the fee was 21 per cent.
[13] The majority of the funds held in the New Zealand bank accounts are in the name of the second interested party, S Ltd. Funds obtained from both fraudulent schemes were ultimately transferred to an S Ltd account. While the Commissioner alleges that Mr Williamsky is the true owner of the funds, Mr Rae is entitled to some of the proceeds in his capacity as a money launderer. Mr Williamsky and Ms Levit have disclaimed any interest in the restrained funds.
[14] Cooke J, on 26 November 2020, heard the on-notice application for a restraining order.3 While he found that the grounds were met, he held that the Commissioner had failed to satisfy the mandatory service requirements for the on- notice application. So Cooke J dismissed Mr Rae’s opposition to the on-notice restraining order, but declined to make the order, instead adjourning the application until service was properly given. The without notice restraining orders continued in effect, pending formal determination of the on-notice application.
[15] As Mr Rae has claimed that the Commissioner has dragged these proceedings out in order to put pressure on him, it is useful to set out the sequence of events which occurred from 26 November 2020:
(a)9 December 2020: Counsel for Mr Rae requests a teleconference at the earliest opportunity. Counsel notes Mr Rae’s intention to appeal the judgment of Cooke J but needs to wait to see if a s 21 issue is resolved;
3 Commissioner of Police v Rae [2020] NZHC 3132. In an earlier minute, Cooke J had varied the without notice restraining order to allow funds of R Ltd held in a NZ dollar account totalling
$50,520.70 to be released from restraint and disbursed to Mr Rae. See minute of Cooke J, CIV-2020-485-43, 23 June 2020.
(b)14 December 2020: The Commissioner responds to the 9 December memorandum. Notes that service on Mr Williamsky and Ms Levit is underway, but Mr Vaughan (another interested party) is yet to be located;
(c)18 December 2020: Minute of Cooke J following a teleconference notes progress on service and deals with suppression order matter. Further teleconference scheduled for early 2021;
(d)22 January 2021: Notice of opposition from Mr Vaughan to the Commissioner’s application. Mr Vaughan denies all criminal conduct;
(e)26 January 2021: Memorandum from Commissioner in advance of the teleconference. Records that service effected on all three interested parties but awaiting confirmation of their respective positions;
(f)27 January 2021: Minute of Cooke J following the teleconference notes that Mr Williamsky and Ms Levit claim no interest in the restrained funds and do not intend to participate in the proceedings. Mr Vaughan needed time to seek legal advice. Timetable and deadlines set for release of funds application. Timetable and deadlines set for forfeiture application (the latest being the Commissioner’s reply, to be served by 10 September 2021);
(g)2 February 2021: Mr Rae’s notice of application for variation of restraining order and release of funds;
(h)18 March 2021: Commissioner’s notice of opposition to that application;
(i)19 March 2021: Commissioner’s memorandum in advance of 22 March teleconference;
(j)22 March 2021: Minute of Grice J with timetabling orders, including case management conference to be convened after 19 April 2021 in
order to set a hearing date. It notes that Mr Vaughan did not appear to be provided with details of the conference because he was not able to appear (providing contact details for a teleconference is the responsibility of the registry rather than the Commissioner);
(k)3 May 2021: Memorandum from counsel for Mr Rae apologising for missing deadline and explaining that Mr Rae was delayed by COVID- 19 circumstances in the UK arising from COVID issues at his son’s school;
(l)10 May 2021: Memorandum from Commissioner agreeing with Mr Rae’s proposed timetabling for the s 28 application; and
(m)11 May 2021: Minute of Campbell J. Records that Mr Vaughan decided not to oppose the restraining order but wanted to seek legal advice as to whether to oppose the forfeiture order.
(n)21 May 2021: The Commissioner files a forfeiture application.
(o)16 June 2021: Counsel file a joint memorandum seeking a two-week extension for Mr Rae to file and serve his notice of opposition and affidavits to the Commissioner’s forfeiture application.
(p)17 June 2021: Grice J issues a minute allowing the extension.
(q)28 June: 2021: Counsel for Mr Rae file a memorandum updating the Court and seeking a final two-week extension to file his notice of opposition. On the same day, the extension is granted by Grice J.
(r)14 July 2021: Counsel for Mr Rae file a memorandum requiring that Detective Sergeant MacDonald be produced as a witness at the upcoming hearing.
(s)19 July 2021: Counsel for Mr Rae file his notice of opposition to the 21 May 2021 forfeiture application.
(t)21 July 2021: The Commissioner files a memorandum seeking an adjournment of the s 28 hearing due to the filing of an affidavit by H on 19 July 2021, due to the issues of fact arising from that affidavit and the need to properly respond to it.
(u)22 July 2021: Counsel for Mr Rae file a memorandum expressing their consent to adjourning the s 28 hearing.
(v)23 July 2021: Cooke J adjourns the s 28 hearing and sets down new timetable orders.
(w)23 August 2021: Counsel for the Commissioner file submissions on the s 28 application.
(x)24 August 2021: Counsel file a joint memorandum seeking adjournment due to COVID-19 alert levels and difficulties with VMR.
(y)17 September 2021: Counsel file a joint memorandum seeking adjournment of a case management conference until 27 September 2021. This is granted by the registrar.
(z)27 September 2021: Following the case management conference, Cooke J issues a minute setting down the s 28 application for hearing
Position of the parties on s 28 application
Mr Rae
[16] Counsel’s overall position was that the well-established principles of s 28 of the CPRA make clear that Mr Rae’s interests must be balanced against the need to avoid the dissipation of assets. Mr Rae is seeking what are said to be reasonable living expenses, and other expenses for debts incurred in good faith, with the amount being sought reflecting his personal circumstances.
[17] Section 28 requires that the Court have regard to the ability of a respondent to meet their reasonable living costs, expenses, or debts out of property that is not
restrained property. Counsel submitted that Mr Rae was unable to meet any of the costs or expenses sought out of any unrestrained property. He currently lived with his parents, and had no savings, with a poor credit rating.
[18] While he did own a house at 1 Roshaw, Preston, this property was subject to a mortgage of £87,697.27 (approximately NZ$170,000), and Mr Rae’s wife had a second charge over that property.4 The Roshaw property was purchased by Mr Rae on 30 May 2007 for £249,000. No current valuation of the property was provided to the Court. Mr Rae conceded that it would have increased in value since 2007.
[19] A property at 7 Woodlands Grove is owned by R LP, a limited partnership incorporated in New Zealand, which Mr Rae says he has no legal or beneficial interest in, and therefore no legal claim to the property at 7 Woodlands Grove or any other of its assets. His position is that Sarah Rae and his children are the beneficiaries.
[20] Counsel disputed the contention of the Commissioner that Mr Rae has effective control over the property via a trust structure, and submitted that it was wrong to equate the assessment of whether a person has lawful access to unrestrained property with the concept of “effective control”, because the latter is a creature of statute (s 58 of the CPRA). It was designed specifically to ensure that the respondents’ properties concealed under another’s name do not escape restraint or forfeiture. In contrast, the question of whether an applicant “has the ability … to meet” the various costs “out of” unrestrained assets should be considered under ordinary civil principles of ownership interests. It was submitted that R LP was set up legitimately and independently for the benefit of Ms Rae, who was the sole beneficiary.
[21] In terms of Mr Rae’s mortgage accounts, counsel noted that he made two separate repayments each month and was currently borrowing from his parents to do so. In terms of his overseas bank accounts, Mr Rae said that he did not have access to any accounts that contained funds he could use to meet his living costs, and counsel disputed the Commissioner’s assertion that he was concealing funds in a Hong Kong account, or in an Australian account, stating that neither appeared to have any funds, or in fact were still open. Counsel initially argued that some of the evidence of the
4 This is related to a matrimonial property claim of interest.
Commissioner in relation to the Australian bank account should be ruled inadmissible, because it was not limited to new matters raised in Mr Rae’s affidavit, and gave him no opportunity to respond. That argument was not pursued.
[22] In his affidavit of 1 February 2021, Mr Rae set out the amounts he sought and the reasons for seeking each item:
(a)Monthly living costs totalling £4,516:5 The living costs were said to be:
(i)mortgage repayment on 1 Roshaw - £700;
(ii)rent payable to parents - £500;
(iii)lease payments to rent a car - £350;
(iv)Sky/TV/licence/broadband/phone - £150;
(v)electricity/gas/water - £160;
(vi)food - £600;
(vii)car insurance/life insurance - £196;
(viii)school expenses/bus/lunches - £105;
(ix)clothing (children) - £150;
(x)clothing (self) - £100;
(xi)council tax - £204;
(xii)child maintenance (post-divorce) - £500;
(xiii)fuel/car maintenance/road tax - £150;
(xiv)credit card repayments - £300;
(xv)savings towards holiday - £250;
(xvi) house insurance - £75; Total: £4,516.
(b)Backdated living costs: $152,235. Mr Rae sought to have the above living costs backdated to February 2020 to enable him to repay various debts he said that he had incurred since then, including to his parents, and he said that he needed a lump sum of £49,500 in order to give a significant bond for renting an apartment or small house. Counsel
5 In Mr Rae’s affidavit, this was said to equate to NZ$8,200. In counsel’s submission, this was said to equate to $8,955 per month.
submitted that the Court has discretion to pay these costs, as s 28 does not impose any temporal limit to these payments, and clearly contemplates past business expenses and/or debts.
(c)Business expenses: $17,780.65. This figure comprised airfares, accommodation, administration fees, and visa costs that Mr Rae incurred in international travel to Thailand and Hong Kong while maintaining his businesses there. Mr Rae says that his international business interests have been “destabilised” by his incarceration in the USA and proceedings in New Zealand, meaning he was presently unable to earn anything from these interests.
(d)Thomas Ashley fees: $72,000. This is to repay what was said to be a loan to Ms Rae, who he claimed lent him funds by paying his first attorney in the USA, Mr Thomas Ashley, on Mr Rae’s behalf, and was incurred in good faith.
(e)David Trouger fees: $43,200. Mr Rae seeks the release of this money to enable him to repay his parents, who he says that he borrowed money from to obtain his second attorney in USA. None of that money was used to obtain legal assistance in relation to the current proceedings against him in New Zealand. This was another debt he says was incurred in good faith.
(f)True Matrix Ltd fees: $103,770.68. True Matrix Ltd is a legal consultancy operated by Howard Young. Mr Young is shown on the UK Solicitors Regulation Authority website as having been struck off on 14 May 2013 and being prohibited from practising as a solicitor. However, notwithstanding this status, he is said to have acted as legal consultant to Mr Rae in relation to matters relating to Mr Rae’s prosecution in the United States. Mr Rae seeks the release of this money to enable him to pay True Matrix Ltd for its fees and disbursements between October 2019 and February 2020, relating solely to the USA proceedings and consultancy fees and disbursements.
It includes travel costs incurred by True Matrix Ltd’s director, Mr Howard Young, who travelled to the USA several times while Mr Rae was in custody, including for Court hearings and sentencing.
(g)R Ltd fees: $139,320. Mr Rae seeks the release of these funds to allow him to repay outstanding amounts owed to R Ltd. It was submitted that these fees were incurred in the management by R Ltd’s director (who has obtained confidentiality orders) of entities set up by Mr Rae and were claimed to have been properly incurred in good faith for legitimate purposes.
The Commissioner of Police
[23] The Commissioner of Police opposes Mr Rae’s application for variation of the restraining order and release of funds. The Commissioner’s position is, in essence:
(a)Mr Rae has not exhausted all avenues in relation to dealing with his debts via unrestrained property available to him;
(b)the funds sought for release by Mr Rae are excessive; and
(c)Mr Rae has brought the application for an ulterior purpose, namely to advance his own private business interests by way of setting up an offshore structure.
[24] Firstly, in relation to assets that are still available to Mr Rae, counsel for the Commissioner submitted that as a general principle, where there are unrestrained and unencumbered assets sufficient to meet expenses, the Court will expect evidence that the applicant has explored all avenues to liquidate those assets before exercising its discretion under s 28(1), and Mr Rae had not done so here.
[25] It was submitted that two assets belonging to R Ltd ought to be realised by Mr Rae before seeking recourse from the Court under s 28(1), namely the Woodlands Property, and the repayment of a £200,000 loan to R Ltd from a Mr Philip Holt. The Commissioner’s position was that these assets were under the effective control of
Mr Rae and should be exhausted first, before Mr Rae claims for any alleged living costs or debts. It was also argued that Mr Rae should not be seeking relief from fraudulently obtained funds which he has never had any legitimate claim to in the first place, as this would be plainly contrary to the statutory purposes of the CPRA.
[26]In relation to R Ltd, counsel submitted:
(a)that Mr Rae has effective control over R Ltd and while he was not the nominal owner, its assets were under his effective control in terms of s 58 of the CPRA. Effective control arises where an offender can control, use or treat the property as their own, or influence a family member in connection with the use of the property. There was evidence from Detective Sergeant MacDonald indicating Mr Rae’s involvement with R Ltd, such as negotiating and making financial decisions in relation to it;
(b)that property under a respondent’s effective control is an asset that can be realised for the purpose of s 28(1). It was submitted that counsel for Mr Rae’s submission that it was wrong to equate lawful access to unrestrained property with the concept of effective control under s 58, was incorrect. If Mr Rae has effective control over an unrestrained asset, then it is property which he can use to meet his reasonable living costs, expenses, or debts. The s 28(3) inquiry is a broad one – with the Court being required to have regard to the ability of the respondents to meet costs and expenses out of unrestrained property;
(c)that Mr Rae has a history of using trust devices to obscure his true ownership of entities. Counsel referred to the fact that on 7 August 2018, Mr Rae was fined £200,000 and made the subject of an order barring him from being employed by a legal practice by the UK Solicitors Disciplinary Tribunal.
(d)Mr Rae was not a solicitor but had acquired an interest in a law firm with a lawyer holding shares in the firm on trust for him with Mr Rae
being remunerated by way of consultancy fees. Axiom Fund, a Cayman Islands-based litigation financing fund had had some £29.5 million misappropriated from it. Mr Rae and his companies had received some
£590,940.24 in Axiom derived funds. The decision of the Disciplinary Tribunal in that case6 was provided to the Court and it indicated that Mr Rae had claimed he was just a consultant with no influence or control over the firm. The Tribunal rejected this claim on the basis that was inconsistent with the documentary records;
(e)that Mr Rae’s position on R Ltd is inconsistent and contradictory. While he sought to distance himself from R Ltd, the documentary evidence indicated his close connection to the organisation – with his evidence before the Court prior to this application being that he was personally reliant on R Ltd assets for his and his family’s living expenses; and
(f)that there is reason to suspect that Mr Rae has not provided full disclosure of his asset base. Counsel in particular pointed to the alleged failure of Mr Rae to disclose the Woodlands property, and that he may have other assets under his control, referring to an email from Mr Young, advising H that the true purpose of the application was to free up money to enable Mr Rae to spend on some tax advice in the UK and an offshore structure to replace the New Zealand structures set up for him by R Ltd. Counsel also referred to rental income from the Woodlands Property, and a Commonwealth Bank of Australia account as other potential sources of assets.
[27] Counsel then turned to the specific expenses sought by Mr Rae under his application. It was submitted that the CPRA does not allow for the provision of backdated living costs. The suggestion ran headlong into s 28(3) of the Act. There was no evidence of “personal debts” owed by Mr Rae to his parents, as he had provided
6 Solicitors Regulation Authority v Emmett et al (2018) 11659-2017.
no evidence as to the amount claimed to have been borrowed, any loan documentation, or any terms – no affidavit evidence had been filed referring to this type of evidence.
[28] In terms of provision for ongoing expenses, counsel questioned the amount of expenses required by Mr Rae, particularly in relation to his allegedly ulterior motive for making the s 28 claims. In terms of his business expenses, counsel submitted that there was limited evidence before the Court as to what these international “business interests” entailed, and that Mr Rae had not provided the Court with any evidence that would establish that they were legitimate.
[29] Finally, in relation to Mr Rae’s other specified debts, counsel submitted that it was unclear as to how Ms Rae paying Mr Ashley amounted to a debt owed by Mr Rae, and that his claims that he needed to pay her back were incorrect, with there being no evidence of a loan agreement. There was also very little evidence for the loan relating to Mr Touger, and that the amount claimed by Mr Young from True Matrix Ltd for the USA criminal proceeding was questionable, given it was more than double the amount incurred by both Mr Rae’s attorneys. In relation to the debts to R Ltd, the Commissioner’s position was that its services were used by Mr Rae to facilitate the commission of his money laundering activities in New Zealand, and incurred by him to allow him to profit from undertaking significant criminal activity, and to facilitate a criminal enterprise contrary to the statutory purposes of the CPRA.
Relevant law and analysis
[30]Section 28 of the CPRA provides:
28 Conditions on restraining order
(1)A court may make a restraining order subject to any conditions the court thinks fit including, without limitation, conditions that provide for the following to be met out of a respondent’s restrained property:
(a)the reasonable living costs of the respondent and any of his or her dependants:
(b)the reasonable business expenses of the respondent:
(c)the payment of any specified debt incurred by the respondent in good faith:
(d)any other expenses allowed by the court.
(2)Despite subsection (1)(d), a court may not allow any legal expenses to be met out of a respondent’s restrained property.
(3)In determining whether or not to make a restraining order subject to a condition, the court must have regard to the ability of a respondent to meet the reasonable living costs, expenses, or debt concerned out of property that is not restrained property.
(4)In this section a dependant is a person who is dependent on the respondent and who is either or both—
(a)a child of the respondent:
(b)a member of the household of the respondent.
[31] In Commissioner of Police v Dotcom, Courtney J summarised the following about reasonable living expenses:7
[9] Living expenses are, however, required to be reasonable. The Act does not specify any mechanism for determining what are reasonable living expenses. Reasonableness is an objective standard but the assessment of what is reasonable cannot be conducted in a vacuum; it requires context. In this regard I agree with the observations that Heath J made in Solicitor-General v Darwish in relation to the predecessor of s 28(1)(a):
That provision recognises the underlying reality of the situation, namely that accused are entitled to the presumption of innocence, but that society ought not to be prejudiced by the use of restrained funds if, ultimately, it is proved that those funds were acquired through criminal activity.
[10] I note also that in Darwish Heath J took into account information derived from Statistics New Zealand regarding household expenses, which gave average weekly expenses by reference to different income brackets. The Judge made assessment of what were reasonable living expenses taking into account both that information and “the assets seized and the lifestyle expectations” of the family.
[11] Mr Boldt, for the Commissioner, relied on Venning J’s decision in Commissioner v Yan, in which the Judge made an assessment of what he considered to be reasonable with less regard for the family's previous standard of living, including declining to allow funds to meet private school fees and high accommodation costs.
[12] I consider that the correct approach is to make an assessment of what is reasonable having regard to the factors referred to by Heath J and the circumstances in which the family were living prior to the assets being restrained. This is not to suggest that a defendant whose assets are restrained can generally expect access to funds sufficient to maintain his or her previous
7 Commissioner of Police v Dotcom [2015] NZHC 820 (footnotes omitted).
lifestyle. However, a family's financial and other commitments must be considered.
[32] In Dotcom, the Court held the monthly living costs, which included costs related to children, accommodation, security ($15,000), staff ($35,000) and general household expenses ($20,000), were not unreasonable. This totalled some
$186,864.84. The Judge noted that the expenses for five children, two of whom were autistic and required additional care, including with staff, meant that although the claim was “very high”, it was not unreasonable. The house Mr Dotcom occupied was leased, which was a debt, and therefore in the particular circumstances, the $80,000 per month was reasonable for the accommodation. The remaining costs were allowed in the “rather unusual circumstances”.8 The Judge concluded a reasonable figure for living expenses to be $170,000 per month.
[33] In Commissioner of Police v Burgess, reasonable living expenses were granted for the first stage of a surgery as a matter of urgency. This was subject to two conditions: first, that one of the defendants answer the allegations against her and secondly, as the Court found some deficiencies in the information as to the costs, that the payment of these expenses were to be made on the basis of invoices presented to the Court for approval.9 As to the business expenses sought, the Judge noted that further analysis was required to address its viability, and that “if it is losing money on an ongoing basis, the continued funding of the business might not be a reasonable business expense”. That being said, Thomas J noted that the surgery would require a recovery period for Mrs Burgess, and therefore making a living expenses award to alleviate that stress “is just and will not undermine the Act”.10
[34] In Commissioner of Police v Zhang, Hinton J declined the defendant’s application for release of reasonable living expenses which included mortgage payments, university tuition fees, purchase of a vehicle, and a lump sum to repay debts, particularly private school and tuition fees for children.11 Her Honour held that the living costs sought were unreasonable, noting that the accommodation costs could be
8 At [27].
9 Commissioner of Police v Burgess [2014] NZHC 3183 at [43]–[49].
10 At [51].
11 Commissioner of Police v Zhang [2020] NZHC 2914.
reduced, and that no reason was given as to why the children had to attend private schools. Furthermore, it was apparent on the evidence that the defendant had the ability to pay for their own reasonable living costs via unrestrained assets, and support from their parents.
[35] What are “reasonable” expenses should be objectively assessed in the context of the living circumstances of the defendant prior to the restraint of assets.12 The financial and other commitments of the defendant need to be taken into account, but that does not mean that he or she can generally expect access to funds sufficient to meet a previous lavish lifestyle. Reference points for reasonable living costs have included:
(a)the tables of household expenditure compiled by Statistics New Zealand;13 and
(b)the annual rate of child support as prescribed by the Child Support Act 1991 in relation to the living expenses of dependent children;14
[36]Adams notes that in terms of business expenses:15
There is no judicial guidance as to what may constitute a respondent’s business expenses for the purposes of this paragraph. But it is unlikely that expenses incurred in committing a qualifying offence undertaken in the course of a criminal enterprise would be treated as “reasonable” business expenses.
[37] Finally, in relation to debts incurred in good faith, the defendant must have obtained that debt for a purpose that is not contrary to the purposes of the Act. In Commissioner of Police v Taylor, Lang J gave the following guidance on the term:16
A preliminary issue arises as to the perspective from which the issue of good faith must be judged. On one view, the section is designed to enable the Court to ensure that bone fide creditors who have no notice of a debtor’s criminal activity are not unfairly penalised by the legislation. Another view, however, is that the debtor should not be permitted to repay a debt where it has been incurred for a purpose that runs counter to the purposes of the Act. On this
12 Simon France (ed) Adams on Criminal Law – Criminal Proceeds (online ed, LexisNexis) at CP28.02.
13 Solicitor-General v Darwish HC Auckland CIV-2004-404-1603, 24 November 2004.
14 Solicitor-General v Panzer [2001] 1 NZLR 224 (HC).
15 At CPA28.03.
16 Commissioner of Police v Taylor [2013] NZHC 3226 at [19]-[20] (footnotes omitted).
issue Parliament appears to have favoured the latter point of view. The words “incurred by the respondent in good faith” make it clear that the issue of good faith must be determined from the perspective of the respondent. Whether or not the creditor advanced funds or provided services in good faith is therefore not an issue that the Court is required to determine. In this respect the legislation differs significantly from the approach taken in the Insolvency Act 2006, in which the issue of good faith must be determined from the perspective of the creditor. For that reason, I do not find the cases cited by counsel in respect of the approach taken under the insolvency legislation to be of any real assistance.
It is neither necessary nor desirable for present purposes to attempt to provide an all-encompassing definition of when a debt will be incurred in good faith for the purposes of s 28(1)(c). In general terms, however, I consider that a debt will be incurred in good faith for the purposes of the section where the debtor obtains it for a purpose that is not contrary to the purposes of the Act. This means that most debts genuinely incurred for personal or domestic purposes will be incurred in good faith for the purposes of s 28(1)(c).
Evidence
[38] One of the striking features of this case is the lack of affidavit evidence on important issues where evidence would be expected. The first interested party to these proceedings is Mr Rae’s former wife, Ms Sarah Louise Rae. She is the beneficial owner of R Ltd and a person from whom Mr Rae says he had entered into loan agreements which he now seeks to claim monies to pay pursuant to s 28 application. Her evidence would also be relevant to the “effective control” issue regarding R Ltd’s assets, particularly the Woodlands Grove property.
[39] There was also no affidavit evidence from Mr Rae’s parents, Mr Charles and Mrs Carol Rae. Mr Rae claims to have borrowed various sums of money from them which he seeks to recover as part of this application, but no confirmatory documentation or affidavit evidence from them has been provided. Mr Rae has extensively referred to his living arrangements (he has been residing with his parents for some time), and gives his need to provide some domestic assistance to his mother as a reason why he cannot return to the now vacant former matrimonial home at 1 Roshaw. One might have expected affidavit evidence from Mr Rae’s parents confirming the various claims that he has made about them in relation to these proceedings.
[40] The other evidence that one might have expected is evidence about two bank accounts. One with the HSBC Bank in Hong Kong in the name of a company controlled by Mr Rae called Fu Lei Yan Ltd, and the other with the Commonwealth Bank of Australia (CBA). There is evidence of both accounts having received substantial funds at the direction of Mr Rae.
[41] In relation to the CBA account, there is evidence that in five transactions between 12 February 2016 and 24 April 2018, it received a total of £152,242.80 from a GB£ R Ltd account.
[42] In relation to the HSBC account, there is evidence before the Court relating to an FBI undercover operation undertaken in the United States. Mr Rae has been recorded advising an informant of his intention to transfer the funds from the healthcare fraud scheme to a Hong Kong HSBC bank account in the name of Fu Lei Yan Ltd which he would “live off” and be “invisible ever-after”.
Standard of proof
[43] These are civil proceedings where the standard of proof is the balance of probabilities rather than beyond reasonable doubt. However, Mr Rae is seeking the release of sums in excess of NZ$500,000, and needs to establish the evidential basis justifying his claim.
[44] Where there is evidence relevant to the s 28 application that might have been expected to be called but has not been, the Court may draw an adverse inference if there is no adequate explanation for the absence of that evidence, it is therefore necessary to examine the reasons given by Mr Rae for not calling the evidence.
[45] In order to explain why there was no affidavit evidence from Sarah Rae, or his parents, Mr Rae advanced claims that the Commissioner had embarked upon a deliberate course of harassment and intimidation of Sarah Rae and bullying of him and that this was the reason why she and his parents had not filed affidavits. Mr Rae also propounded a theory that the Commissioner had deliberately delayed these proceedings making claims such as:
…the Commissioner continues to make [these proceedings] as difficult and drawn out as possible thereby making it more expensive …
[46] From Mr Rae’s affidavit evidence and his answers to questions during cross- examination, the components of his intimidation and harassment claims seem to be:
(a)that the Commissioner used the Lancashire Police Force to arrange service of the restraint application and the forfeiture application;
(b)that the same police officer, Detective Constable Copely of the Lancashire Police Force attended to both matters;
(c)that Detective Constable Copely also contacted his son’s school to question whether a letter from the school which Mr Rae had provided as evidence in those proceedings was genuine; and
(d)that Detective Constable Copely had asked Sarah Rae some questions and got her to sign a statement.
[47] Mr Rae’s claims are repeated in various parts of his evidence but a typical example is found in his affidavit of 30 September 2021, filed immediately prior the s 28 hearing.
[48] After noting that, at the time of his proceedings in the USA District Court, he and Sarah were married, at [14] of the affidavit, Mr Rae deposes:
That position has since changed and as I highlight below has markedly deteriorated as a result of the way the Commissioner has instigated the actions which I highlight below against her. I believe those to be a deliberate attempt to destabilise her and the s 28 application and the substantive forfeiture proceedings. I explain why below.
[49] In terms of the deterioration in his matrimonial relationship, it seems unrealistic for Mr Rae to blame it on anything that the Commissioner did. His evidence was that the divorce took place in July 2020. Sarah Rae was served with a copy of the Commissioner’s on-notice application for restraining orders on 15 September 2020. By that time the parties were already divorced. The service of
the proceedings, or the manner in which it was carried out, can therefore not have been the catalyst for the deterioration in their relationship.
[50] The evidence of Detective Sergeant Macdonald was that the Commissioner had requested the assistance of the Lancashire Constabulary in serving the on-notice application and subsequent documents. The evidence was that Detective Constable Copely was the Interpol Liaison Officer at the local police station. He also carried out the service of the forfeiture application on Sarah Rae on 23 July 2021 and made enquiries at Mr Rae’s son’s school about the COVID letter.
[51] There was no evidence that Detective Sergeant Macdonald had any influence over who the Lancashire Police Force assigned to serve the documents, or how that was undertaken. Detective Constable Copely seems to have got the role simply because of his position as the local Interpol Liaison Officer.
[52] When the restraining order was served on 15 September 2020, he asked Sarah Rae seven questions from a list provided by Detective Sergeant Macdonald. Her response is summarised in a statement that was signed by her and was in the evidence before the Court. It was contained in 19 lines of handwriting. It recorded Sarah Rae’s statement that she was unable to answer any of the questions and unaware of what the exact nature of R Ltd’s business in New Zealand was, and that Mr Rae had dealt with all the finances and business transactions.
[53] Mr Rae complains about this, saying that Sarah Rae was not given an opportunity to seek legal advice before she signed the statement, that her answers were only partially recorded, and the questions posed were not revealed. He claims, “she considers her words were manipulated”. A claim that a police officer has deliberately manipulated a statement taken in the course of his duties is a serious matter. It is also the sort of allegation that one would expect to be supported by an affidavit from the person whose words are alleged to have been manipulated. The Court would also expect to be pointed to some evidence as to why Detective Constable Copely might have wanted to manipulate what Sarah Rae told him. Such evidence is absent here.
[54] Given that Sarah Rae was claimed by Mr Rae to be the beneficial owner of R Ltd and the first interested party in the proceedings, it is unsurprising that the New Zealand Police would want to ask her questions as to what she knew about R Ltd’s business. There is no evidence that, at the time, she was unhappy about any aspect of the statement which she signed. Mr Rae could have no first-hand knowledge of these matters as he was not present when the statement was taken.
[55] The background to the checking of the COVID letter from the school is that Mr Rae had failed to comply with a deadline in these proceedings for providing information. By way of excuse, he had forwarded to his New Zealand counsel, who had forwarded it onto the Commissioner’s lawyers, a copy of a letter received from his son’s school which advised that his son was a close contact of a COVID case. The letter recommended that his son stayed at home and self-isolated for 10 days after contact.
[56] Mr Rae’s affidavit of 30 April 2021 referred to the letter and said that it demonstrated:
…that my son’s school was affected by COVID-19 which in turn led to me having to observe a period of self-isolation. That caused an inevitable delay because I was not able to meet my UK legal consultants and work through the information being requested. Furthermore I had to look after my son who was also at home for that period. That was the first issue that caused some delay.
[57] Mr Rae makes some extravagant claims about the Commissioner’s request to verify his excuse for failing to provide the information. In his affidavit of 30 April 2021 at [5], Mr Rae said:
…on 15 April 2021 I was made aware that a police officer had been in contact with my son’s school. This meant I had to go into school immediately. I was told that a Detective Constable Copely from Lancashire Police had been in touch with the School to check up on the legitimacy of the letters I had sent to my Counsel. What that did was to highlight to the school that I remained embroiled in foreign litigation, of sufficient gravity that the New Zealand Police would involve the UK Police especially where the officer introduced himself as the Interpol Liaison Officer. That inquiry suggested that I might be someone who would be prone to submitting false documentation.
[58] No explanation is given as to why the fact that Mr Rae learnt that the police were checking the genuineness of the letter necessitated him having to “go into school
immediately”. It is also difficult to understand the claim that “That inquiry suggested that I might be someone who would be prone to submitting false documentation”.
[59] As Mr Rae acknowledged in cross-examination, the news of his conviction in the United States and imprisonment there for money laundering had been big news in the area where he lived, having made the front page of the local newspaper. The publicity about Mr Rae’s conviction and imprisonment on the money laundering charge is likely to have had a far greater impact on his reputation as someone who might submit false documentation than a simple inquiry about whether a letter he had proffered was genuine. As discussed above, on 2 July 2018 the Solicitors Disciplinary Tribunal had fined Mr Rae £200,000 and ordered him to pay £50,000 in costs in relation to what it held was his dishonest involvement with the activities of a local Preston law firm. That fact is also likely to have had a significantly greater impact on any reputation Mr Rae might have had as to whether he was prone to submitting false documentation than the inquiry made by Detective Constable Copely.
[60] In the same paragraph of that affidavit, Mr Rae further embellishes his claim by saying:
It caused distress to me but mainly to my son, as I had to explain to him why I was having to attend his school. In addition, it caused further delay and me to divert my focus from this case, because I had to deal with the questions the school had and the further questions it inevitably prompted from the school.
[61] There is no indication that the school ever requested Mr Rae to attend there nor evidence that they asked him any questions. There is no explanation as to why they could conceivably have wanted to do so. Neither is it obvious how having to attend at the school and answer any such questions could have delayed his provision of information or diverted his focus from this case. The delays in Mr Rae meeting the directions as to the provision of information had already long since occurred.
[62] In his affidavit of 30 September 2021, Mr Rae expands further on the same incident saying:
When I produced evidence of a COVID-19 issue at our son’s school, the Commissioner asked Interpol to check the legitimacy of that, directly with the school hierarchy. This is out of proportion to what was a simple request and
I believe this was done to intimidate [Sarah Rae]. Both Sarah Rae and my son were distressed by this approach.
[63]In the 30 September 2021 affidavit, Mr Rae goes on to say:
The same constabulary [sic] has asked the school if my son is attending and trying to engineer [sic] information about [Sarah Rae’s] whereabouts.
Neighbours had reported “burly men” in pairs constantly at 1 Roshaw on numerous occasions, trying to establish her whereabouts.
I have only recently been made aware that they attended 7 Woodlands Grove, which the tenants found intimidating.
The police have followed me and my sons on our way to school.
[64]After setting these matters out, Mr Rae concludes:
The pressure being brought to bear upon her, forced her out of the family home. She has moved somewhere that cannot accommodate my sons.
[65] Mr Rae’s evidence under cross-examination was that Sarah Rae had “…disappeared in late March [2021] leaving the sons with me”. He claimed not to know where she had gone and not to be in contact with her. At [33] of his affidavit of 30 September 2021, he even went as far as claiming that Sarah Rae’s claimed “disappearance” was caused by the Commissioner alleging that her “most recent disengagement [was] because of the actions of the Commissioner and UK police”.
[66] Detective Sergeant Macdonald gave evidence and was questioned about enlisting the assistance of the UK Police to serve documents on Sarah Rae, to ask her some questions and to verify the letter from the school. No allegations about attempting to “engineer information” about Sarah Rae’s whereabouts, burly men trying to establish her whereabouts, police visiting 7 Woodlands Grove, or following Mr Rae and his son to school were put to Detective Sergeant Macdonald. Neither was it put to him that such activities were done at the request or instigation of the Commissioner. Given Mr Rae’s serious claims about intimidation and bullying by the Commissioner, it would have been expected that such matters would have been put to Detective Sergeant Macdonald.
[67] Mr Rae has also claimed that the reason that there is no affidavit evidence from his parents is because of what he says is the intimidation of Sarah Rae by the Commissioner.
[68] In his affidavit of 30 April 2021 at [27(b)], he gives, as the reason why his parents have not filed an affidavit:
The reason for this is that they are very reluctant to become embroiled in these proceedings. It is very scary for normal people to watch police officers in New Zealand use Interpol Liaison to serve my ex-wife with papers when it is not involvement [sic] in the alleged criminality. This is exacerbated by sending the same officer to my son’s school. It appears to me and to them to be designed to intimidate and it does.
[69] There is no evidence that Mr Rae’s parents “watched” Detective Constable Copely serve the proceedings on Sarah Rae. Neither is there any evidence that they were in any way involved in Detective Constable Copely checking with the school. Indeed, it is not clear that Detective Constable Copely ever actually visited the school as, at various occasions Mr Rae describes Detective Constable Copely as having emailed the school to clarify the COVID letter, and on other occasions claims he visited the school.
[70] It is also difficult to understand what might be “scary” about Sarah Rae being served with copies of the proceedings or asked to make a statement. By this time, Mr Rae’s parents would have been well aware that their son had been charged with, pleaded guilty to, and imprisoned in the United States for money laundering. They would also have known of the findings of the Solicitors Disciplinary Tribunal in relation to the Preston law firm. These are likely to have been much “scarier” matters than learning that a local detective constable had served some documents on Sarah Rae and taken a statement from her.
[71] The claims that the Commissioner somehow attempted to intimidate Sarah Rae are entirely baseless. There is nothing unusual, let alone intimidatory, about the Commissioner enlisting the assistance of the Lancashire Police Force to serve copies of the restraining order and forfeiture application on Sarah Rae. As Mr Rae was claiming that Sarah Rae was the beneficial owner of R Ltd, she was an interested party
who they had to serve. Neither is there anything unusual about the Commissioner requesting the officer who served the notice to ask some questions of Sarah Rae.
[72] Equally, there is nothing inappropriate about the Commissioner requesting the Lancashire Police to make inquiries as to the genuineness of a letter from the school which Mr Rae had relied on as excusing his failure to comply with timetable directions.
[73] Mr Rae also confuses the actions of the Lancashire Police with the Commissioner in relation to things such as his allegation of “two burly men” visiting the house at 1 Roshaw. Mr Rae’s evidence was that Sarah Rae had “disappeared” and he did not know where she was. The Lancashire Police therefore would have needed to locate her to serve her. There is no evidence that they were given any instructions by the Commissioner as to how to go about doing that.
[74] Mr Rae’s claims of intimidation and harassment are far-fetched. They are not credible explanations as to why there is an absence of affidavit evidence from Sarah Rae or his parents. I therefore draw an inference that the absence of such affidavit evidence is because any affidavit they might file would not assist Mr Rae.
Alleged deliberate delays by Commissioner
[75] In his updating affidavit of 30 September 2021, Mr Rae at [26], continued his allegations of improper activity by the Commissioner saying that the Commissioner was making the litigation as difficult and drawn out as possible.
[76] I have already set out the chronology of the restraint and forfeiture proceedings at [15] above. It is apparent from this timeline that the Commissioner has not been responsible for any delays. Likewise, there is no basis for asserting that the Commissioner has delayed the s 28 application. The delays that have occurred in respect of that application have all been of Mr Rae’s making.
[77] The evidence was that as early as 30 April 2020, Mr Rae’s UK “legal consultant” Howard Young, informally contacted the Commissioner about the possibility of a release of some of the restrained funds to meet living expenses.
[78] The Commissioner, through Mr McCusker, promptly and helpfully replied to that email and, by email of 4 May 2020, Mr McCusker explained the legal requirements for such an application and also attached a copy of a relevant case that he thought would be of assistance to Mr Rae.
[79] Nothing further was heard from Mr Rae or his advisors about an s 28 application for the rest of that year.
[80] The next thing that happened in relation to the s 28 application was that, some nine months later, on 2 February 2021, Mr Rae filed his s 28 application and a supporting affidavit.
[81] On 17 and 23 February 2021, the Commissioner made requests for a further information.
[82] On 18 March 2021, the Commissioner filed and served his notice of opposition to the s 28 application accompanied by an extensive affidavit from Detective Sergeant Macdonald.
[83] On 22 March 2021, there was a teleconference before Grice J which set timetabling orders requiring Mr Rae to file further evidence on or before 29 March 2021 and for the Commissioner to respond on or before 19 April 2021, with the next case management conference to be convened following 19 April 2021 for a hearing date to be set.
[84] It was these timetable directions that Mr Rae failed to comply with as discussed above.
[85] In a memorandum to the Court dated 3 May 2021, Mr Rae’s counsel sought to excuse the failure of Mr Rae by stating:
…the Commissioner has not been prejudiced by this delay as Mr Rae is the party seeking a variation to the extant restraining orders.
[86] There were no delays that were the fault of the Commissioner at any stage of the proceedings relating to the s 28 application, and the claim that the Commissioner
has delayed matters or is trying to make these proceedings as difficult as possible for Mr Rae is baseless.
Effective control
[87] Before addressing the issue of whether or not Mr Rae has unrestrained assets from which to meet his expenses, it is necessary to consider whether he has effective control over the R Ltd assets, in particular, the property at Woodlands Grove and the debt owed by Philip Holt of £200,000.
[88] Whether or not Mr Rae has effective control of these assets is a question of fact. It is a different question to who may have legal title to, beneficial ownership of, or possession of, these assets.
[89] The Commissioner relies on a number of pieces of evidence to establish that although the legal and beneficial owner of R Ltd and its assets was Sarah Rae, the person in effective control was Mr Rae.
[90] Detective Sergeant Macdonald had analysed all the R Ltd bank transactions between 2013 and 2020. His affidavit of 21 May 2021 confirms that he was unable to identify any payments over that period generated by Sarah Rae or any withdrawal from R Ltd accounts directly made by Sarah Rae.
[91] In contrast, between 21 April 2015 and 8 January 2019, Detective Sergeant Macdonald identified £313,318.89 of payments from R Ltd’s bank accounts to accounts controlled by Mr Rae. All of the payments were made by H at the direction of Mr Rae, not Sarah Rae. A striking feature of the payments is that the amount and timing of the payments does not reflect the provision of services by Mr Rae to R Ltd but reflects the need by Mr Rae to pay various personal debts, often credit card debts. The situation seems to have changed in February 2016 with Mr Rae and H realising that there needed to be some connection between the pay-outs and the consultancy services said to have been provided by Mr Rae.
[92] On 11 February 2016, Mr Rae emailed H requesting him to set up a “monthly payment of 2K GBP to my accounts so I can keep the fires burning as per the
consultancy agreement”. On 12 February 2016, H responded telling Mr Rae that he would set up a regular payment of £2,000 and asked him to “send me an invoice for
$2K with the narration monthly retainer until further notice”.
[93] On 17 February 2016, Mr Rae provided H with invoices for February, March and April and requested that all three be paid by 5 April 2016 for tax purposes.
[94] On 2 October 2016, Mr Rae emailed H and requested that he pay £40,500 to the Commonwealth Bank account. Mr Rae told H that he “had prepared the file and paper expenses which I will get to your office” but “I need to settle some bills and don’t want to get caught short once you are on the road”.
[95] On 11 January 2018, Mr Rae emailed H saying that he was “fairly needy of some payments for various reasons”. Mr Rae requested that H pay £6,900 off his American Express card, and £19,300 off his MBNA credit card. The timing and nature of these payments indicates that they had nothing to do with consultancy services rendered by Mr Rae but were an example of him using the funds as if they were his own to pay his personal debts.
Woodlands Grove
[96] The Woodlands Grove property was purchased in October 2016 by R Ltd. The evidence was that Mr Rae gave H all of the instructions regarding the purchase and as to the legal structure which was to purchase the property. Mr Rae directed H to make contact with a real estate agent and a firm of solicitors advising him that R Ltd had a bid of £150,000 accepted for the Woodlands property.
[97] On 21 October 2016, H sought instructions from Mr Rae as to which structure should own the property. There is no evidence that Sarah Rae gave any instructions to H at all.
[98] The Commissioner also refers to the fact that, notwithstanding Mr Rae’s repeated claims that he did not have effective control over the Woodlands property and that Sarah Rae did, there was evidence that from late 2000, Mr Rae, and his advisors, H and Mr Young, were contemplating raising funds by selling the Woodlands property.
They refer to an email of 4 November 2020 from H to Mr Young where he recommended that Woodlands:
…be put on the market and sold allowing the HMRC taxes & fines to be paid and freeing up some cash …
[99] On 10 December 2020, Mr Young email H advising them of Mr Rae and Sarah Rae’s intention to raise finance against the property through it being sold and the funds distributed to the beneficiaries. On 17 December 2020, Mr Young emailed H stating:
I’ve spoken to David and Sarah about the property and the plan is to either sell the property or move it into an alternative structure, both accepting that the [R Ltd] and [S Ltd] trusts have been tainted and will need to be closed down.
[100] Mr Young then refers to some difficulties selling the property immediately including:
There is a logistical difficulty to having recently granted a new two year assured short hold tenancy to the current tenant. That effectively guarantees them uninterrupted tenancy for that period.
[101]Mr Young further said:
That means we have to, at least for now, go back to the fallback position of raising finance against it.
[102]H responded to that email the same day and the email included statements that:
I can understand the issues around the sale of the property and I am wondering whether a sale to an appropriate “family nominee” could be considered and then finance raised to allow the sitting tenant to remain and the best possible time determined to sell. The untainted funds held within [R Ltd] have been fully disbursed to DR’s benefit which I don’t have any issue with as DR was a contracted consultant to [R Ltd] at the time and meeting these expenses would be seen as a reasonable and expected obligation of [R Ltd]. However, the property is a different matter and I have fiducial [sic] duties to both DR & sarah now complicated further by their Divorce.
[103] H noted in this email, as he had in his email of 4 November 2020, that David Rae could also be added as a beneficiary of the trust along with Sarah Rae and their children. If he was added as a beneficiary, then the trustee (H) could make a distribution to him.
[104] On 15 January 2021, Mr Young emailed H again in relation to the prospect of either selling or raising finance against Woodlands. The relevant passages in his email say:
We have given careful thought as to trying to sell the property now, whether that is done by [R Ltd] or transferred to a.n.other [sic] and then sold. There are two practical problems that make that nigh on impossible. The first is, is the fact that there is now a renewed two year guaranteed tenancy and so only a purchaser on a buy to let would be attracted to that. Secondly, you will perhaps have seen that the UK has entered into a further severely restricted lockdown process, with every indication that it is likely to get worse in terms of restrictions before it gets better. Any potential house sale of any sort before April/May this year seems on [sic] workable.
The reason that the sale/refinancing was being looked at, was because there are proceedings in New Zealand, the re-engagement required in the US, the negligence claim against David’s first attorney in the US and the potential expansion of these proceedings into the UK. That all comes at a cost and the realistic sole way of dealing with that is to raise finance against the property at 7 Woodlands Grove.
I can get formal authority from Sarah that she is happy for that to take place, and then the property transferred at a later date to coincide with the closure of the [R Ltd] and [S Ltd] Trust. The suggestion is that because David is [sic] undertaken work for [R Ltd] for a period of six years 6+ years, that the transfer of the property can be made to him in lieu of an annual consultancy fee and thereafter [R Ltd] is divested of any interest in that property and its HMRC liabilities transferred to the UK.
[105] On 6 March 2021, H emailed Mr Young noting what was said to be the high costs of a proposed loan against the Woodlands property and that the annual interest cost of the loan appears to be greater than the annual income from the property. He also discussed the problems with paying the proceeds of the loan to David Rae and concluded:
If it’s to the various advisors assisting DR through this legal quagmire then that needs to be made clear and direct so that [R Ltd] can show a clear link to it being a business expense and not simply a payment to DR.
[106] These various passages were put to Mr Rae in cross-examination. He accepted that he and his advisors were actively exploring options to deal with this property and that the reason for this was because he needed funds to pay various debts including those referred to in his s 28 application.
[107] Under cross-examination, Mr Rae confirmed that, notwithstanding the fact that the tenants had only executed a new two-year lease in November 2020, the tenants had suddenly and mysteriously vacated the property. By way of explanation for this, Mr Rae said, “I’d understood the police had been round and they’d got scared”.
[108] No explanation was given as to why a claimed visit from the police could have so scared the tenants that they would have suddenly abandoned the property without letting anyone know in spite of recently having signed a new two-year lease.
[109] However, one consequence of the property now being unexpectedly vacant, is that it would now be able to be sold. There is no up-to-date valuation of it but it is unmortgaged and was purchased for £150,000 in 2017. Mr Rae accepted that it would have increased in value subsequently.
[110] Although the rent from Woodlands Grove was being paid into a bank account in the name of Sarah Rae, notwithstanding the family’s claimed dire financial needs, it had simply been accumulating and, as at 16 September 2020, had a balance of
£9,567.80.
[111] A further argument advanced by the Commissioner in support of the proposition that Mr Rae had effective control over the R Ltd assets is that Sarah Rae had never asserted any ownership entitlement either to the restrained funds or any other trust property. This was said to support an inference that Sarah Rae did not see herself as having an interest in these assets.
[112]The evidence establishes that it was David Rae, not Sarah Rae:
(a)that caused the establishment of the various structures that own the Woodlands Grove property and other R Ltd assets;
(b)who directed H as trustee as to where payments generated by the assets went;
(c)who received payments that were not genuinely related to the services he provided but to his needs; and
(d)that with his advisors, in actively making plans to sell or mortgage Woodlands Grove in order to provide him with cash to meet his expenses, were effectively treating it as his property.
[113] These factors have led me to the conclusion that, notwithstanding the elaborate structures which David Rae created to hold assets such as the Woodlands Grove property, it was he, and not Sarah Rae, who retained effective control of them.
Availability of other unrestrained assets
[114] Neither Woodlands Grove nor the loan from Mr Holt of £200,000 are restrained. The findings I have made in relation to “effective control” mean that these assets are available to Mr Rae to meet his needs. It is therefore necessary to try and ascertain how much these assets might be realised for.
[115] It seems that there are outstanding taxes in relation to Woodlands Grove. However, no detail as to what these might amount to was provided. Given that it is untenanted, there is no impediment to it being sold immediately. The bank account where the rental from Woodlands Grove was paid would also seem to be available immediately. It is less clear what value the loan from Philip Holt actually has.
[116] In oral evidence, H claimed that there was “good security” for the loan but, upon being questioned, he confirmed that the only “security” was the personal guarantee of Mr Holt.
[117] Mr Holt filed an affidavit in these proceedings dated 15 July 2021. In that affidavit he confirms that he owes R Ltd £200,000. His affidavit does not address whether interest is accruing on that loan or at what rate that might be.
[118] He also deposes to owning “a substantial villa in Portugal”. The evidence was that he purchased the villa for €1.5 million, and as at December 2016, there was approximately €517,000 outstanding on the mortgage. The property therefore has equity far greater than the £200,000 loan. He concludes by saying:
I am not presently in a position to repay the loan given the above but I have every intention of so doing and my present expectation is to be able to do so within a few months’ time.
[119] In addition to his interest in the Portuguese villa, documents attached to Mr Holt’s affidavit also referred to him being owed money in excess of £1 million which he said was being recovered for him by SQN Global Ltd which is another company controlled by Howard Young, Mr Rae’s “legal consultant”.
[120] If Mr Holt’s affidavit is taken at face value, he is a man of substance and anticipated that he would be able to repay the £200,000 within a few months of 15 July 2021. The loan would therefore seem to have some value.
[121] As Mr Rae’s advisors adverted to in the evidence noted above, the loan from Mr Holt could be assigned. There is no reason why the assignee need simply to be a “family nominee” as was discussed by Mr Rae’s advisors. Therefore, I conclude that value could be extracted from the loan either by way of assigning it for value to a third party or taking action to enforce it. There is no reason why, for example, Mr Holt could not mortgage his substantial villa in Portugal and repay the loan. I therefore conclude that Mr Rae does have potentially substantial sources of unrestrained funds available to him to meet the sort of expenses that he has claimed in his s 28 application.
The Australian and Hong Kong bank accounts
[122] There were two other assets of Mr Rae that the Commissioner alleged were available for him to meet his debts and living expenses. These were the Fu Lei Yan HSBC bank account in Hong Kong and the Commonwealth Bank of Australia account. Although Mr Rae claims that both accounts were closed and had no funds, he provided no evidence from either bank to support that. Copies of bank statements in respect of the two accounts would have been readily obtainable as would formal confirmation from the banks by way of letter.
[123] Detective Sergeant Macdonald deposed that Mr Rae has failed to comply with a request that he provide the bank statements.
[124] Mr Rae was cross-examined about both the CBA and HSBC accounts. He said he had to close the CBA account because he was not living in Australia and that he did not have access to it for the purposes of an s 28 application. He did not explain why he could not produce his final bank statement or have asked the bank for a copy of it.
[125] He was cross-examined about the HSBC account and, in particular, about a conversation with an undercover FBI agent in the United States. Mr Rae told the undercover agent of his intention to transfer his share of the proceeds from the healthcare fraud scheme to the Fu Lei Yan account and offers use of the account to the undercover agent.
[126] The transcript of conversation with the FBI agent contains the following extracts each attributed to Mr Rae:
What I’m saying to you is there’s no reason why I can’t give you, it’s called Fu Lei Yan, it’s a Chinese company that’s been trading for 6, 7 years. I bought it off these guys for a fee ‘cause I wanted an existing account that was open that had a history …
That costs me money so I literally have to go to Hong Kong to find a load of money in my hole in the wall that I have in Hong Kong, pay them some cash. David’s appears that he’s left, I then put my KYC into the bank, so HSBC’s got my passport not my utility bill. I am the ultimate beneficial owner of it.
…
But then I have a nominee in place. So I’ve got a German guy who fronts it for me but he does what I tell him so long as I’m doing everything legal. …
Right? So I’m a supplier to the New Zealand company, and the profits of the New Zealand company, 10% of them come to Fu Lei Yan, and then I live off that and then I’m invisible ever after. I can easily make you the 20%, so it’s Dave plus Herb, 20% …
[127] Under cross-examination, Mr Rae did not deny that this is what he had said to the undercover agent.
[128] Mr Rae also accepted that NZ$122,000 that had been in the HSBC account had been returned to S Ltd by Alex Caymar, who was the nominee director of Fu Lei Yan. He claimed that Mr Caymar had done this without his knowledge and without any instructions from him. However, he did not deny that he was the beneficial owner of the funds.
[129] The evidence establishes that Mr Rae effectively controlled the HSBC account and that the nominal owner of that account was controlled by him. Mr Rae’s statement to the FBI undercover officer confirmed that he used the account to hide money derived from schemes that he had been involved in. Given this situation, it is understandable why Mr Rae would not wish to provide full details of this account to Detective Sergeant Macdonald when requested. His refusal to obtain and provide documentary evidence which would support his claims reflects poorly on his credibility. However, I am not in a position to come to a conclusion that funds remain in either of the bank accounts which could be utilised by Mr Rae.
[130] Detective Sergeant Macdonald also referred to a bank account of Mr Rae’s at Lloyds Bank. Between 26 July 2019 and 21 January 2021, S Rae deposited a total of
$12,330 into that account. Detective Sergeant Macdonald deposed that on 23 February 2021, the Commissioner requested an explanation from Mr Rae for the source and nature of these funds along with supporting information but that no response has been received from Mr Rae.
[131] The Commissioner also noted that between 20 February 2020 and 27 November 2020, approximately $15,140.74 were transferred into the Lloyds Bank account from an account in the name of D Rae.
[132] On 23 February 2021, the Commissioner requested an explanation for the source and nature of these funds along with supporting information but no response has been received.
[133] Mr Rae’s failure to provide the information requested by the Commissioner about this account is concerning. It would support an inference that there is something about the account that he does not want the Commissioner to know. However, given the presently incomplete information in relation to that account, I am unable to come to a view that it presently contains funds available to Mr Rae.
Payments sought
[134] Although my finding that Mr Rae effectively controls other assets not subject to restraint from which he could meet his reasonable needs disposes of the s 28
application, I will now address the sums sought as a number that are clearly not recoverable under s 28.
The house at 1 Roshaw
[135] In his affidavit of 1 February 2021, Mr Rae sought payment of a number of expenses in relation to the former matrimonial home at 1 Roshaw. These are set out in full at [22] above, and included monthly mortgage payment of £700, house insurance of £75 per month, electricity/gas/water payments of £160 per month, and Sky/TV/licence/broadband/phone of £150 per month. At that stage, Sarah Rae was living in the house with the parties’ two younger children.
[136] Mr Rae also sought a lump sum payment of £49,500. His explanation for seeking this was that he wished to rent an apartment or small house for himself and this:
…will require 1-2 months deposit to be paid in advance. Given my adverse credit rating, I may be asked to pay the whole rental upfront; the rental would be for either 6 or 12 months and that is why I need access to some form of lump sum to enable me to pay that.
[137]Mr Rae also sought the sum of £500 per month being “rent payable to parents”.
[138] It appears that the former matrimonial home has been vacant since Sarah Rae “disappeared” in March 2021. Mr Rae’s evidence was that the parties’ two younger sons had been residing with him at his parents’ place. Nobody has been living at 1 Roshaw. The mortgage and other costs continue to be paid by, Mr Rae says, his parents.
[139] In his updating affidavit of 30 September 2021, Mr Rae acknowledges that an obvious way of reducing his expenditure would be for him to move back into 1 Roshaw. He resists that suggestion saying, amongst other things, that no great reduction in expenses would be achieved other than the potential savings of him not needing to rent somewhere else. I do not accept that contention. Not only would he save on the rental, he would eliminate the need to pay two sets of utility charges and avoid paying things like council tax (£204 per month), and house insurance (£75 per
month) on an empty house. He would also avoid the need to obtain the lump sum payment of £49,500.
[140]Mr Rae also said that:
…Sarah Rae moving out may not be a permanent state of affairs. The actions of the Commissioner and the intimidatory tactics deployed via the local police precipitated that. Once these proceedings conclude, it may be that she returns. In that event, I still need to find somewhere to rent and live.
[141] I have already rejected Mr Rae’s claims that the Commissioner has attempted to intimidate or bully either him or Sarah Rae. Sarah Rae has now been gone for some seven months with Mr Rae claiming not to know where she is. It would be irresponsible to leave the house sitting vacant against the possibility she might one day come back.
[142]Mr Rae also says:
I cannot move, even on temporary basis to 1 Roshaw. My mother’s injury and her arm being incapacitated means she needs someone around to help her at home and to drive her to appointments. My father still works full-time to support us all at this difficult time. It will be 10 weeks from 10 August until she can drive and regain the proper mobility in her arm.
[143] Mr Rae’s evidence was that his parents’ house was “just up the road from 1 Roshaw”. If Mr Rae was living at 1 Roshaw, there is no reason why he could not assist his mother with whatever tasks need to be done around the house, or drive her to her appointments.
[144] If Mr Rae does not wish to move back to 1 Roshaw, then there would seem to be no reason why the house should not be sold and the substantial equity in it realised. No doubt Sarah Rae would be entitled to a share of the equity by way of a matrimonial property claim, but that would still leave a substantial amount to meet Mr Rae’s immediate living expenses.
Motor vehicle
[145] Mr Rae has claimed £350 monthly as “lease payments to rent a car”. He has also claimed monthly payments of £196 for car insurance/life insurance (no
breakdown as between the two), and fuel/car maintenance/road tax of £150. There seems to be some duplication in these sums. It also seems that Mr Rae does not actually have a car lease.
Backdating
[146] Mr Rae has asked for a backdating of the claimed £4,516 per month living expenses to February 2020. His counsel’s submissions quantified the backdating amount as being £76,500 or NZ$152,235. The reason set out by Mr Rae in his affidavit for the backdating was that it”…would enable me to pay off the personal debts I have borrowed from family members …”.
[147]There are a number of problems with a claim for backdating of expenses.
[148] All of the expenses that Mr Rae seeks the backdating payment for have been met. By way of example, the mortgage payments on the former family home were met throughout 2020 and indeed are still being met. There is no evidence as to exactly who met each component of Mr Rae’s claimed living expenses although he generally claims that his parents have supported him. There is no evidence that he has actually paid £500 per month rent to his parents, either in the past or currently, nor any evidence that he has paid his parents £600 per month for food.
[149] There is no evidence of any demand having been made by his parents (or Sarah Rae) for any sum that he may have borrowed from them. There is no evidence of any loan agreement and critically, there is no affidavit from his parents (or Sarah Rae) confirming the details of any loan. As discussed above, there is no credible explanation for the failure by Mr Rae to submit such affidavit evidence.
[150] Some of the expenses claimed by Mr Rae are also clearly no longer expenses. For example, he refers to a child maintenance cost (post-divorce) of £500 per month. Given that he has had the children since March this year, that sum would no longer be payable by him, and indeed it may be that Sarah Rae has an obligation to make a contribution to children maintenance. Beyond acknowledging, in his 30 September 2021 affidavit, that Sarah Rae had transferred to him “the family allowance … via the
local authority” called the HMRC benefit, amounting to £140.60 per calendar month, he is silent as to any child support he might be receiving from her.
Purpose for which s 28 payments are sought
[151] The Commissioner claims that the ongoing payments sought by Mr Rae have nothing to do with meeting his living expenses but in reality are designed to obtain funds that he can use to replace the structures in New Zealand through which he channelled the funds generated by his activities because those structures had now become tainted. There is a clear evidential basis for this submission.
[152] In his supplementary affidavit of 23 August 2021, Detective Sergeant Macdonald refers to an email exchange between Mr Rae’s advisors, Mr Young and H, on 21 April 2021 where Mr Young said to H:
We also took on board your comments about the collapsing of the NZ structures as soon as circumstances in NZ resolve. David needs to have an alternative offshore structure in place and we are in the process of looking at that. It requires expenditure and travel in order to be able to achieve that and hence the desire to conclude the s 28 application in NZ as it frees up money for David to spend on some tax advice in the UK and an offshore structure to replace NZ. I will keep you advised but wanted you to know that is very much in hand and a work in process [sic].
[153] Mr Rae was cross-examined about this evidence. He did not deny that he and his advisors were looking to replace the New Zealand structures with other similar structures in another country.
[154] I infer from this evidence that, although Mr Rae has characterised his s 28 claim as being to fund current living expenses and pay debts, he actually intends to use some or all of any funds made available for completely unconnected purposes relating to further unspecified business activities in other countries. That is not what s 28 is for.
Business expenses
[155]Mr Rae makes a claim under s 28(1)(b) for “business expenses” totalling
£8,935 (said to be NZ$17,718). The submissions in support of this say:
This figures comprises air fares, accommodation, administration fees, and Visa costs that Mr Rae incurred in international travel to Thailand and Hong Kong when maintaining his business interests there.
[156] The business expenses relate to a trip that Mr Rae made to Bangkok in 2020 shortly after his release from prison in the United States. Mr Rae has been reluctant to provide any details as to the nature of any business he had in Thailand. In his affidavit in support of the s 28 application, he says:
I have incurred the business expenses set out below following travelling to Thailand and ultimately being stranded there. Prior to my incarceration I had other business interests in Thailand and Hong Kong that were unrelated to the present proceedings. My intention was to stop off briefly in both Thailand and Hong Kong to deal with those matters and then travel onto New Zealand.
[157] Nowhere in the evidence before the Court is there anything which describes any legitimate business activity in neither Thailand nor Hong Kong. The only evidence about the Hong Kong business is the evidence discussed above obtained through the taped conversation with FBI undercover agent. Business activities of that type are not legitimate. There is no evidence that Mr Rae generated any income from either Thailand or Hong Kong in 2020, let alone any profit. The Court in Commissioner of Police v Burgess indicated that it was not appropriate to apply for funds by way of a s 28 application to prop up a business that was not making a profit.17
[158] There is little evidence of any legitimate business activity having been undertaken by Mr Rae over the past decade. We know from the decision of the Solicitors Disciplinary Tribunal that Mr Rae’s involvement with the law firm originally known as Emmett Solicitors, began in 2011 when a company associated with him purchased shares in the firm. We know from that decision that thereafter Mr Rae provided what was said to be consultancy services to the firm, but was in effect carrying out the job of Chief Executive Officer.
[159] We know that Emmett Solicitors was engaged in wholesale fraud in respect of a litigation funder known as Axiom. The model seem to be that a call centre was used to call people who may potentially have valid litigation claims, often in the consumer area. Emmetts Solicitors was an agent of Axiom and, for each claim it opened, it
17 Commissioner of Polilce v Burgess, above n 9.
received a retainer from Axiom. The retainer was meant to cover the cost of pursuing litigation in respect of the clients whose files were opened but those funds were used by those controlling the firm (including Mr Rae) for other purposes. This ultimately resulted in the insolvency of the firm and losses of some £29 million to Axiom.
[160] When Mr Rae’s involvement in this scam was put to him in cross-examination, with the question: “So the Tribunal found that you had received payments dishonestly, do you deny that?” Mr Rae’s voluble response was, “I absolutely do deny that”. It is therefore helpful to look at exactly what findings the Solicitors Disciplinary Tribunal made against Mr Rae.
[161] The Tribunal made a number of findings of dishonesty. At [44.9.2] of the decision, it said:
[Mr Rae] had a personal stake in the borrowing continuing and this was reflected in the substantial financial benefit he had received. He had been immune from being sacked precisely because of his integral role in the funding arrangements of the Firm. The Tribunal was satisfied beyond reasonable doubt that ordinary decent people would regard it as dishonest for a senior member of a Firm to cause and permit excessive and reckless borrowing of tens of millions of pounds when that individual stood to make a substantial personal gain from that, notwithstanding the dire consequences for the Firm and its clients.
[162]At [59.8], it concluded:
Matters were aggravated by [Mr Rae’s] dishonesty and the fact that his actions were deliberate, calculated and repeated. It continued over a period of time and [Mr Rae] clearly knew that he was in material breach of his obligations, as evidenced by the deed of trust device put in place to get around the restrictions on the ownership of the Firm.
[163] The “trust device” being referred to was the use of the trust to hold shares in a company which in turn held shares in the firm. It was not dissimilar to the sort of trust structure Mr Rae created in New Zealand. A further similarity was the fact that Mr Rae had extracted money from the firm of Emmetts Solicitors by way of a consultancy agreement rather than through the company that held his shares.
[164] After the collapse of Emmetts Solicitors, the next business activity that we have any evidence of relates to his contact with H in 2013 and the establishment of the
complex New Zealand structures. It was those structures that facilitated Mr Rae’s money laundering activities which resulted in him pleading guilty to money laundering and having a sentence of imprisonment imposed. Before he was sentenced in the money laundering case, he was questioned under oath and confirmed that he had committed the offence with which he had been charged and was entering a plea of guilty because he was in fact, guilty.
[165] Surprisingly, in these proceedings, Mr Rae’s position has completely changed. He is now saying that it is “my position that I did not commit the underlying offending” and that he only entered a guilty plea “given the practicality of the circumstances”.18
[166] Accepting that proposition would involve a finding that Mr Rae committed perjury in the United States. It would also involve disregarding the evidence of his taped conversation with the FBI undercover witness and the evidence of Mr Rae’s past dishonest modus operandi. I am not prepared to do that. I therefore draw the inference that Mr Rae’s business activities in the United States were dishonest ones. That supports the inference that the unspecified business activities in Thailand and Hong Kong that he has sought recompense for are unlikely to have been legitimate.
[167] I also note that there is no evidence that any of the £17,000 of claimed business expenses is still an outstanding debt. By whatever means, Mr Rae has been able to pay all the accounts from one source or another. They are not therefore matters properly the subject of an application under s 28.
Other claimed debts
[168] Mr Rae claims a number of payments pursuant to s 28(1)(c) as being a debt incurred by him in good faith. The first of those is the sum of US$50,000 (NZ$72,000) which was paid to his first US attorney in respect of the money laundering proceedings, Thomas Ashley.
[169] In cross-examination, Mr Rae conceded that these funds had been sourced from R Ltd. His evidence was:
18 Affidavit in opposition to a forfeiture application at [95].
So Sarah advanced the money from [R Ltd], and you can see that on the [R Ltd] bank statement, the 50,000, and I had to repay [R Ltd] plus Sarah, that’s what it’s for.
[170] There is no debt owing to Sarah Rae in this regard. The finding I have made as to effective control means that all that happened was that Mr Rae was effectively using funds that he had effective control over to pay his US lawyer in the criminal proceedings.
[171] Mr Rae also applies for the sum of US$30,000 (NZ$43,200) in respect of the fees of his second US attorney, Mr Touger. Mr Touger was paid at the time but Mr Rae says that he borrowed the money from his parents and is obliged to repay them. He further claims, “They are retired and that money was paid from their savings”.
[172] Elsewhere in his evidence, Mr Rae has claimed that his father is continuing to work so that he can provide money to assist him. It is impossible to reconcile the inconsistency between the two claims.
[173] In any event, there is no evidence of any loan agreement or any demand for repayment from Mr Rae’s parents. In support of this claim, Mr Rae filed a screenshot of part of a bank statement. The screenshot did not show the name of account holder and, in cross-examination, Mr Rae conceded that the screenshot did not confirm his claim that the account in question was his mother’s. Mr Rae’s explanation, in cross- examination, as to why a copy of the full account was not provided was:
I asked my mother if I could take a screenshot of her Internet banking to help prove the point and this is what I could get. They are not prepared because of the things I’ve outlined previously to release anything else. But I said it’s really important that I prove it to the Court the best I can and this is what I got.
[174] Mr Rae’s counsel, in written submissions, repeated the claims made by Mr Rae as to why there is no evidence from Mr Rae’s parents supporting the various claims Mr Rae makes about them, saying, “Third parties like Mr Rae’s parents have good reasons for not wanting to become involved in these proceedings”.
[175] As noted above, Mr Rae’s claim that his parents have been affected by “intimidation” by the Commissioner and that this why they will not provide evidence in these proceedings, is simply not credible.
[176] I conclude that the evidence does not establish that there is a debt owed by Mr Rae to his parents in respect of the US$30,000.
True Matrix Ltd invoices
[177] Mr Rae also seeks a total of NZ$103,770.68 (£52,146.07) to pay True Matrix Ltd. This is said to relate to activities by “legal consultant”, Howard Young, on Mr Rae’s behalf in relation to the United States proceedings.
[178] Counsel for the Commissioner challenged this claim on a number of grounds. The first was genuineness. The inconsistency between Mr Young’s original estimate of £30,000 for his services was contrasted with the much higher figure subsequently claimed. It was also noted that the sum claimed appeared out of proportion to the value that Mr Young could have added to the proceedings. The US based lawyers undertook the burden of representing Mr Rae in the US proceedings. Mr Young was not qualified to practice law in the United States, and neither was he qualified to practice law in the UK having been struck off some years previously.
[179] It was also noted that between May 2019 and January 2020 (the period covered by the invoices from True Matrix Ltd) approximately NZ$133,330 (£67,000) was transferred from an account associated with Mr Rae in New Zealand True Matrix.
[180] The response of Mr Rae’s counsel was firstly that previous correspondence between the parties (in relation to the projected costs of Mr Young) “should not be viewed as having been prepared with the same rigour as a formal application like the present one”. It was also claimed that “any previous sums paid to True Matrix are irrelevant for the purposes of Mr Rae’s current request”. It was claimed that the NZ$103,770.68 (£52,146.07) was only the balance of unpaid True Matrix fees and disbursements. If that is so, then the total account for Mr Young’s services through True Matrix in connection with his involvement in the US proceedings is NZ$238,130.88 which is more than double the total fees charged by Mr Rae’s two US
attorneys which together came to NZ$116,729.62. It is not possible to accept that the sums claimed by True Matrix represents reasonable remuneration for the actual services Mr Young provided in relation to Mr Rae’s criminal prosecution in the United States.
[181] However, there is an even more fundamental reason why the accounts from True Matrix Ltd cannot be claimed under s 28. That is because none of them were incurred by Mr Rae.
[182] The exhibits attached to Mr Rae’s affidavit of 1 February 2021 confirm that the invoices from True Matrix Ltd were addressed to R LP.
R Ltd invoices
[183] Mr Rae seeks release of NZ$139,302 (US$96,750) in respect of sums he is said to owe to R Ltd.
[184] The Commissioner disputes that the services in respect of which the fees were rendered could be said to be a specified debt incurred and good faith for the purposes of s 28(1)(b). It was correctly submitted that the issue of whether a debt has occurred in good faith is judged from the vantage point of the respondent (Mr Rae) rather than the creditor.19
[185] It was submitted that a debt will not be incurred in good faith where the debtor obtains it for a purpose that is contrary to the purposes of the CPRA. It was submitted that the establishment and operation of the structures in New Zealand that the invoices related to, facilitated Mr Rae’s criminal activities and included the payment of “kick- backs” out of New Zealand to co-conspirators in New Zealand and Latin America. It was also submitted that some of the payments appear to have been made by R Ltd with limited information about the transactions involved.
[186] In response to this claim, Mr Rae’s counsel noted that the Commissioner has not made allegations of criminal wrongdoing against the director of R Ltd.
19 See Commissioner of Police v Taylor, above n 16, at [19].
[187] That submission is correct, however, for the reasons set out above, that does not resolve the issue of whether the debts could be said to have incurred in good faith.
[188] The focus is on Mr Rae’s purposes and intentions rather than those of the person who provided the services. There is evidence to support the Commissioner’s argument that Mr Rae’s use of structures to which the accounts relate, involved facilitating his criminal activities.
[189] However, just as with the case of the True Matrix invoices, none of the invoices appended as exhibits to Mr Rae’s affidavit of 1 February 2021, are addressed to him personally. The invoices are addressed either to R LP or to S Ltd. On that basis, they could not be said to be debts that Mr Rae has personal liability for and cannot be the subject of an application under s 28.
Outcome
[190] For the reasons detailed above, the application under s 28 of the CPRA is dismissed.
[191] The parties are invited to agree costs between themselves. If such agreement is not forthcoming within 14 days, the applicant will file written submissions as to costs of no greater than three pages, with the respondent to file submissions in reply, again, of no greater than three pages within 14 days of receipt of the applicant’s submissions. I will then address the issue on the papers.
Churchman J
Solicitors:
Crown Solicitor, Wellington for Applicant K3 Legal Limited, Auckland for Respondent
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