COMMISSIONER OF POLICE AND KHANH HOI PHAN

[2024] NZHC 2952

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-1884

[2024] NZHC 2952

UNDER

the Criminal Proceeds (Recovery) Act 2009

BETWEEN

COMMISSIONER OF POLICE

Applicant

AND

KHANH HOI PHAN

Respondent

Hearing:

on the papers

Counsel:

M R Harborow and A J H Wilson for applicant

C S Fredric for respondent and interested party Ms Nguyen

Judgment:

11 October 2024

JUDGMENT OF JOHNSTONE J

(approval of settlement)

This judgment was delivered by me on 11 October 2024 at 3.30 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors: MC, Auckland

COMMISSIONER OF POLICE v PHAN [2024] NZHC 2952 [11 October 2024]

[1]                  The Commissioner of Police, the respondent, Khanh Hoi Phan, and Mr Phan’s partner, Ly Thi Nguyen, seek this Court’s approval under s 95(2) of the Criminal Proceeds (Recovery) Act 2009 of their settlement in this proceeding.

[2]                  I am required to approve the settlement if I am satisfied that it is consistent with the purposes of the Act and the overall interests of justice.1

Overview of the Commissioner’s case

[3]                  When executing a search warrant on 12 August 2020, the police found a house Mr Phan owned in Clover Park to have been modified for the purpose of commercial-scale cannabis cultivation. The four bedrooms were all fitted with heat lamps, irrigation and air ventilation systems. The floors and walls were covered in plastic sheeting. The windows were closed shut, taped over the edges and covered in plastic sheeting. Several containers of liquid plant fertiliser were in the bathroom, other growing items such as soil were located in the lounge and conservatory, and there were 129 cannabis plants.

[4]                  Mr Phan was charged with cultivating cannabis at the Clover Park house. He pleaded guilty and was sentenced on 4 August 2021.

[5]                  When framing his profit forfeiture application, the Commissioner stated the value of Mr Phan’s benefit from significant criminal activity to be $1,209,375, calculated by reference to:

(a)evidence suggesting the cultivating activity at the Clover Park house commenced on 1 November 2018; and

(b)his assumptions that crops cultivated prior to the one found  in  August 2020 would have been of similar size, would have required around 60 to 90 days to mature, and would have yielded around three ounces of cannabis head material per plant, at a street price of $2,500 per half-pound.

1      Section 95(3).

[6]                  Also, the Commissioner noted that, in the period between 1 November 2018 and 12 August 2020, Mr Phan’s bank accounts received a total of $188,270 in cash deposits and a further $41,480 in other unexplained deposits. There were cash and unexplained deposits made into the joint account of Mr Phan and Ms Nguyen. And yet, in the 2016 to 2021 tax years, Mr Phan declared to Inland Revenue a total of only

$287,474.25 in gross income, averaging $47,912.38 per annum.

[7]                  The Clover Park house was disposed of following the police search in  August 2020, but some of the above deposits enabled payment of the respondent’s indebtedness relating to another property — a home in the joint ownership of Mr Phan and Ms Nguyen on Forrest Hill Road, Forrest Hill.

[8]The Commissioner therefore filed an application for forfeiture orders seeking:

(a)a profit forfeiture order against Mr Phan in the sum of $1,209,375, to be satisfied from Mr Phan’s interests in the Forrest Hill property; or

(b)if a profit forfeiture order were not made, a type 1 assets forfeiture order against the Forrest Hill property.

Substance and merits of settlement

[9]The substance of the settlement the parties have reached is as follows:

(a)Mr Phan should be ordered to meet a forfeiture order imposed under the Act.

(b)However, rather than requiring payment in the sum of $1,209,375 or the forfeiture of the Forrest Hill property, the order to be imposed should require payment in the sum of $672,000.

(c)Mr Phan should be permitted an opportunity to raise the sum of

$672,000 from legitimate sources, by borrowing against the Forrest Hill property.

[10]              Since reading the parties’ first memorandum, dated 25 July 2024, seeking approval of their settlement, I have always considered the substance of the settlement to be satisfactory. This is because:

(a)The Commissioner fairly accepts that his calculation of the value of cannabis cultivated, and sold, in the period from 1 November 2018 prior to the search on 2 August 2020 might have been based on alternative assumptions. Assuming crop cycles of 90 days rather than 60 days, and a sale price of $2,000 per half-pound bag, the cannabis would have fetched $672,000. These assumptions, upon which the settlement amount has been calculated, are reasonably available, if a little conservative.

(b)There is thus a realistic prospect of Mr Phan reducing the Commissioner’s stated benefit value of $1,209,375, should the Commissioner’s claim for a profit forfeiture order need to go to trial, to around $672,000.

(c)While I do not give much weight to Mr Phan’s claim that the equity in the Forrest Hill property, calculated after deduction of existing borrowings secured by mortgage, would be little more than around

$600,000 — if Mr Phan is correct, he will have little prospect of borrowing a further $672,000 against the property — the Commissioner’s alternative claim, to type 1 forfeiture of the entire Forrest Hill property would nevertheless be subject to opposition or a claim for relief against forfeiture by Ms Nguyen.

(d)Further, when the Court considers the “overall interests of justice” as part of its review function relating to settlements of this kind, it is “important that the Court carry out a broad inquiry and acknowledge, where appropriate, that settlements can be in the interests of justice,

bearing in mind the savings of time and cost and the litigation risk to the parties”.2

(e)Given the reasonable availability of calculation supporting the settlement figure, and the desirability of litigation cost-savings and certainty, I consider approval of the settlement so that it becomes binding to be consistent with the purposes of the Act and the overall interests of justice.

[11]              However, the mechanics of the settlement have required attention. I turn to them now.

25 July 2024 memorandum seeking approval of settlement

[12]              The mechanics of settlement, set out in the parties’ first memorandum, were, in essence, that the parties would jointly seek a type 1 assets forfeiture order in the sum of $672,000, which would be met by either:

(a)Mr Phan borrowing that sum from a “legitimate lender”, including if necessary by borrowing against the Forrest Hill property; or

(b)the Official Assignee selling the Forrest Hill Road property, and meeting the asset forfeiture order from the net proceeds of sale, with any balance to be returned to Mr Phan.

[13]              I declined to approve the settlement, because the sum of $672,000 — property in respect of which it was proposed the Court would proceed immediately to make a type 1 asset forfeiture order — would not then have been in existence. I did not consider the Court to have jurisdiction to make a forfeiture order in respect of non-existent property.

2      Commissioner of Police v Zhang [2016] NZHC 90 at [8]. See similarly Commissioner of Police v Kree [2013] NZHC 2972 at [11].

30 August 2024 memorandum

[14]              The parties responded by memorandum dated 30 August 2024, proposing that the sum be made the subject of a $672,000 profit forfeiture order, but that the property to be disposed of should be described as either that amount, once borrowed by      Mr Phan, or that amount, once realised by the Official Assignee from the sale of the Forrest Hill property.

[15]              The proposal suffered from the same deficiency: the Court cannot make a profit forfeiture order, specifying (as required by s 55(2)) the property to be disposed of, in which the respondent “has, or is treated as having, interests”, if the property is stated conditionally and in part non-existent.

1 October 2024 memorandum

[16]              Following a teleconference that I convened on 19 September 2024, the parties have filed a further memorandum, dated 1 October 2024, proposing a further mechanism for implementation of their settlement. The parties propose that:

(a)First, the current restraining orders over the Forrest Hill property are extended (as otherwise they will expire on 27 October 2024), and varied:

(i)to allow Mr Phan to borrow against that property from legitimate sources, so as to enable him to raise the sum of

$672,000; and

(ii)to require the Official Assignee to sell the Forrest Hill property and hold the $672,000 sum as restrained property, in the event Mr Phan does not himself raise and pay it to the Official Assignee by 5pm on 15 November 2024.

(b)Second, once the $672,000 sum is in existence (having either been borrowed against or derived from the sale of the Forrest Hill property), the parties will approach the Court, via further joint memorandum,

seeking implementation by asking for what they describe as the settlement being “formally approved” , and for a civil forfeiture order to be made.

[17]              In my view, it is not necessary that formal approval of the parties’ settlement should be deferred until the settlement sum has been raised: it is necessary only that the Court should defer its task of deciding upon (and likely making) orders for the sum’s forfeiture. As Palmer J observed in Commissioner of Police v Marwood:3

There is logic to the general position that a settlement under s 95 does not necessarily result in a forfeiture order made under ss 55 and 83, given the nature of a settlement.

[18]              In other words, I consider the parties’ settlement to exist and to operate independently of the Court’s jurisdiction to make civil forfeiture orders under the Act.

[19]              Be this as it may, the Court’s approval of a settlement which proposes that forfeiture orders are made, whether immediately or at some future point (such as once an agreed settlement sum has been raised), is not likely to be given unless the Court considers the forfeiture orders should be made.

[20]              Here, the sum to be raised and paid to the Official Assignee will then be available for either type 1 asset forfeiture or profit forfeiture order, at the parties’ election, as it will be both tainted property, deriving indirectly from Mr Phan’s significant criminal activity via mortgage payments, and property in which Mr Phan holds an interest (by way of beneficial interest under resulting trust).

Result

[21]              For the above reasons, I approve the parties’ settlement. For the purpose of implementing the parties’ settlement, I make the following orders.

[22]              First, I order that the restraining and further orders made by Powell J in this proceeding on 27 October 2022 are extended for a further period of 12 months, from 27 October 2024 so that they expire on 27 October 2025, unless further extended.

3      Commissioner of Police v Marwood [2019] NZHC 1529 at [9].

[23]              Second, I order that the restraining order over the property described at paragraph 7(a) of the parties’ joint memorandum dated 1 October 2024 (the Forrest Hill property) is varied:

(a)to allow Mr Phan to borrow against it from legitimate sources to the satisfaction of the Commissioner for the exclusive purpose of enabling Mr Phan to raise the settlement sum of $672,000 (Proposed Forfeiture Sum);

(b)to require that, once borrowed, the Proposed Forfeiture Sum must immediately be paid to the Official Assignee to be held as restrained property, pending further Court order; and

(c)to provide that if the Proposed Forfeiture Sum is paid to the Official Assignee by 5pm on 15 November 2024 (Due Date), the Forrest Hill property is no longer subject to restraint, and the Official Assignee must then arrange for the restraining order to be removed from its record of title;

(d)to provide that if the Proposed Forfeiture Sum is not paid to the Official Assignee by 5pm on the Due Date, the Official Assignee shall then, as soon as is reasonably practicable, sell the Forrest Hill property at its fair market value and deal with the proceeds of sale in the following way:

(i)first, deduct the Official Assignee's actual costs in effecting the sale (including any decontamination costs);

(ii)second, repay any borrowings secured against the property;

(iii)third, hold an amount equal to the Proposed Forfeiture Sum as restrained property, pending further Court order;

(iv)finally, return the balance to a  bank  account nominated by  Mr Phan; and

(e)to provide that, for the purposes of effecting a sale of the Forrest Hill property, the Official Assignee, including any person delegated his functions and powers under the Act, shall have the power to execute any deed or instrument in the name of the registered proprietor(s), and to do anything necessary to give validity and operation to the deed or instrument.

[24]              Third, I reserve leave to the parties to apply further. Any such application is, in the first instance, to be brought to my attention for consideration whether it may be dealt with on the papers. I expect at that stage to deal with the issue of costs by consent, in the manner contemplated by the parties’ settlement.

Johnstone J