Commissioner of Police v Bracken

[2020] NZHC 3246

IN THE HIGH COURT OF NEW ZEALAND GISBORNE REGISTRY

I TE KŌTI MATUA O AOTEAROA TŪRANGANUI-A-KIWA ROHE

CIV-2018-416-44

[2020] NZHC 3246

UNDER

the Criminal Proceeds (Recovery) Act 2009

IN THE MATTER OF

an application under ss 21 and 25 of the Criminal Proceeds (Recovery) Act 2009

BETWEEN

THE COMMISSIONER OF POLICE

Applicant

AND

JOHN RICHARD BRACKEN

First Respondent

MARGARET ALEXANDRIA BRACKEN
Second Respondent

BRACKEN ENTERPRISES LIMITED
Third Respondent

THE BRACKEN FAMILY TRUST
Fourth Respondent

AND

ANZ BANK NEW ZEALAND LIMITED
First Interested Party

RICHARD THOMAS BRACKEN
Second Interested Party

SHIRLEY LESLEY BRACKEN
Third Interested Party

ROBERT RICHARD BRACKEN

Fourth Interested Party

Hearing:

30 November 2020

Appearances:

M J M Mitchell for applicant

First and second respondents in person

Judgment:

9 December 2020

THE COMMISSIONER OF POLICE v BRACKEN [2020] NZHC 3246 [9 December 2020]

RESERVED JUDGMENT OF DOBSON J

Introduction

[1]                   This judgment deals with three aspects of on-going proceedings under the Criminal Proceeds (Recovery) Act 2009 (the Act) in which the applicant (the Commissioner) seeks a range of orders to advance attempts to secure assets contended to be the proceeds of crime.

[2]                   The first respondent (Mr Bracken) is facing 38 charges of dishonest use of a document under s 228(1)(b) of the Crimes Act 1961, which are alleged to reflect significant GST-related fraud involving unjustified claims for refunds of GST between

$16-17 million.   His trial on those charges is presently scheduled to commence on   8 March 2021.

[3]                   The Court has previously made on-notice restraining orders in respect of two motor vehicles that are registered in the names of Mr Bracken and the second respondent (Mrs Bracken), namely a Dodge Ram vehicle (KYM340) and a Holden Commodore (HJA659). They have been under the control of the Official Assignee for a substantial period and are continuing to incur storage costs, as well as projected significant levels of depreciation.

[4]                   An on-notice restraining order has been obtained in respect of a 2018 Extreme 645 Game King boat and the trailer on which it is transported. Investigations have revealed that the trailer is registered in the name of the fourth interested party (Robert Bracken) who is Mr Bracken’s son. The case for the Commissioner is that despite nominal ownership in Robert Bracken’s name, the trailer, as with the boat, is in fact an asset of Mr Bracken. On the present applications, the Commissioner seeks an order that the boat  and  trailer  be  treated  as  under  the  effective  control  of  Mr Bracken.

[5]                   Because they are wasting assets, the Commissioner also seeks an order for sale of both vehicles and the boat and trailer.

[6]                   Subsequent to restraining orders in relation to those and other assets, investigations on behalf of the Commissioner identified a number of transfers by way of bank cheque from Mr Bracken or entities under his control to his parents, the second and third interested parties (Richard and Shirley Bracken). Those transfers totalled

$1,094,000. A without notice restraining order in respect of those amounts was granted on 14 May 2020 and the parties have now been served with an on-notice application to restrain those funds, which was also to be determined at the present hearing.

[7]I address each of the applications separately.

On-notice restraint for the cash

[8]                   The test for a restraining order requires the Court to be satisfied that there are reasonable grounds to believe the property is tainted property, with that concept meaning property that has been acquired wholly or in part as the result of significant criminal activity or directly or indirectly derived from such activity.1 The Court must also be satisfied that there are reasonable grounds to believe that a respondent whose property is the subject of an application for a restraining order has unlawfully benefited from significant criminal activity.2

[9]                   The payments in question were funded as bank cheques drawn on the account of the third respondent company (BEL) and paid into the accounts of Richard and Shirley Bracken. The account on which those cheques were drawn is the same one as the Commissioner alleges was used to receive and circulate fraudulently obtained GST refunds.

[10]               To negate any suggestion that these payments reflected consideration for the farm at Matawhai which Mr Bracken had purchased from his parents in May 2013, research on behalf of the Commissioner has been undertaken with the Gisborne

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

2      Section 25.

solicitors for Richard and Shirley. Documents were sighted recording the sale and purchase transaction in May 2013, and deeds of forgiveness of the debt by Richard Bracken for the purchase price, executed in favour of Mr Bracken. The Commissioner’s case is that the more recent transfers were not in discharge of debts owing, but represented Mr Bracken “parking” parts of the proceeds of alleged GST fraud.

[11]               More recently,  in their memorandum in opposition to the application dated   6 November  2020,  Mr and  Mrs Bracken  have  characterised  the  payments  to   Mr Bracken’s parents as a “gesture of goodwill”. In Court, Mr Bracken said that the payments were “for sheep”.

[12]               The application has been served on Richard and Shirley Bracken and they have not taken any steps to oppose. Mrs Bracken advised that her mother-in-law has recently died, and that her father-in-law has been focusing on that, to the exclusion of other matters. She claimed that the restraining order in respect of the $1 million would add to her father-in-law’s stress.

[13]               I took Mr Bracken’s notice of opposition to contend that the without notice restraining order in respect of this money had lapsed, so that arguably it could not be extended by way of the on-notice restraining order application. That is factually incorrect.  The without notice restraining order was granted on 14 May 2020.  On   19 May 2020, the Commissioner filed the on-notice application and is entitled to rely on s 39(2) of the Act for the without notice restraint to continue in force until the on- notice application has been determined.

[14]               These proceedings were initiated partly in reliance on a search warrant issued in Hamilton on 14 December 2018, some days before it was executed at the Brackens’ Matawhai property. A ground of opposition which I took to be raised in all three of the present applications was that the search warrant was deficient. Arguably it followed that all evidence obtained in executing the warrant could not be relied on in bringing civil proceedings under the Act. Mr and Mrs Bracken criticised the inability to identify the signature of the officer authorising the issue of the warrant, and argued that it was ineffective without a court seal on it.

[15]               In responding to this criticism, Ms Mitchell made the point that the proceedings did not depend solely on the information gathered in executing the warrant, and that it had only been sought after an extensive investigation by Inland Revenue and the Police. The status of the investigation had to be disclosed in the application for the warrant and be found by the issuing officer as sufficient to justify the issue of the warrant.

[16]               Ms Mitchell undertook to identify the authorised issuing officer who has signed the warrant and to provide that advice to the Brackens. The warrant does not require the affixing of a court seal for it to have validity.

[17]               The deposits into Richard and Shirley Bracken’s accounts occurred between August 2015 and August 2018, with the last two of the eight deposits amounting to

$800,000 occurring in December 2017 and August 2018. There is no evidence that, having sold the property to Mr Bracken in 2013, either of his parents were trading in stock, for instance in the 2017 and 2018 years to the value of $800,000.

[18]               As to the prospect of adverse financial impact on Richard Bracken, the investigating detective, Paul Camplin, deposed in May 2020 to the extent of financial resources he had observed as being available to Mr Bracken’s parents. This led him to believe that this restraint would not impact adversely on Mr Bracken’s parents’ ability to sustain a comfortable standard of living and he provided details which justify that opinion.

[19]               Mr and Mrs Bracken believed on their own understanding of the law that beneficiaries of a trust, and in particular they and their children as beneficiaries of their family trust, could resist any dealings with trust assets, irrespective of the conduct of the trustees as legal owners of the property. On their understanding, this extended to the beneficiaries being able to deny the enforcement, for example of contractual security obligations assumed by the trustees in respect of trust property, or steps taken pursuant to legal procedures such as the Commissioner’s initiatives under the Act. I took them to be arguing that any third party seeking to deal with trust assets had to obtain the prior consent of the beneficiaries before such third parties could take any steps inconsistent with the interests of the beneficiaries.

[20]               It was not clear whether this argument applied to the amounts transferred to Richard and Shirley Bracken, but was certainly advanced in respect of the other two applications.

[21]               Mr and Mrs Bracken also treated the initiatives that have been undertaken by the Commissioner in respect of the various assets that are the subject of restraining orders as necessarily involving an assignment. They asked for the Court to identify who were the assignors and assignees under the deeds of assignment they contemplated had to have been undertaken to get matters to the position where, for example, their vehicles could be restrained or sold. Arguably, the absence of any assignments in respect of the assets meant that there could not be valid orders made by the Court in respect of their restraint or sale.

[22]               These concepts cannot apply to prevent orders for dealing with property that is the subject of these proceedings. To the extent that any of the assets to which the Commissioner’s applications relate are owned by the Brackens as trustees, the discretionary beneficiaries’ unascertained interests in the trust assets are subject to lawful claims against those assets by third parties. In circumstances such as the present, the beneficiaries cannot claim any greater rights in trust assets than the trustees as legal owners.3

[23]               In Solicitor-General v Monk,4 which concerned a civil forfeiture order under the preceding Proceeds of Crime Act 1991, Venning J applied Hunt v Muollo, where the Court of Appeal held that a discretionary beneficiary has no interest, legal or equitable, in the assets of the trust.5 The discretionary beneficiary only acquires an interest in the property on the making of the distribution and then only to the extent of that distribution.

3      See, for example, Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [3.1.2]. The trustee has legal title to, and control over, trust property.

4      Solicitor-General v Monk (2011) 3 NZTR 21-026 at [31].

5      Hunt v Muollo [2003] 2 NZLR 322.

[24]               If the trustees’ conduct has rendered the trust assets vulnerable to claims by third parties, then the beneficiaries cannot prevent such dealings taking their course. In Equity and Trusts in New Zealand, the learned authors observed:6

The trust is constituted by the rights and obligations in relation to the trust property attaching to the trustee in a personal capacity. Liabilities to third parties who are not beneficiaries can be incurred by the trustee because of the nature of the property the trustee holds.

[25]               If the trustees’ conduct has harmed trust assets, then the beneficiaries may have a claim against the trustees for breach of their duties. However, such complaints do not give the beneficiaries standing to oppose dealings with the assets by third parties occurring as if the trustees were both legal and beneficial owners.

[26]               If the Commissioner makes out grounds for the various orders that are sought under the Act, then the Court’s orders, on whatever terms they are made, authorise dealings with the assets, even if that is contrary to the beneficiaries’ interests in maintaining the value of trust assets for their benefit. The basis for such orders is that the assets are tainted property in terms of the Act. Placing them in a family trust does not necessarily put them beyond the Commissioner’s reach, if grounds for orders under the Act are made out.7

[27]               Similarly, the process for private law dealings with assets, such as pursuant to contractual rights which involve documented assignments, has no application in the present circumstances. Instead, the Act authorises the Commissioner to apply to the Court for orders which, if the statutory grounds for such orders are made out, the Court may grant. Such orders are then enforceable to compel the dealings, irrespective of the wishes of those claiming interests in the assets.

[28]               After numerous exchanges about the respective priorities of these interests, Mr and Mrs Bracken requested an adjournment to reconsider their position.

6      Equity and Trusts in New Zealand at [5.3.4]. See also The Laws of New Zealand – Trusts

(online ed, LexisNexis) at [100] and [430].

7      Solicitor-General v Monk, above n 4, at [15]. See also Criminal Proceeds (Recovery) Act 2009,  s 58(3)(b).

[29]               After they returned to court, Mr and Mrs Bracken still adhered to their views, which appeared to be the major plank of their opposition, in that they believed the absence of consent by the beneficiaries prevented the Commissioner from getting orders from the Court to deal with the assets in question. As a matter of trust law, their propositions were not tenable.

[30]               The remainder of their concerns sought to challenge the adequacy of the evidence relied on. Without providing any specific examples, they contended that all the evidence for the investigator’s beliefs that the assets, the subject of the applications, were tainted property was hearsay and, again, that any evidence the Police had gathered was improperly obtained during the warranted search because the warrant was in some way improper.

[31]               I accept Ms Mitchell’s submission that substantial evidence had been gathered before the warrant was executed on 18 December 2018, and I am also not persuaded that Mr and Mrs Bracken have raised a tenable ground for challenging the legitimacy of the warrant and, as a consequence, the admissibility of evidence gathered when it was executed. My view in this regard is not intended to affect any challenge that may be pursued to the admissibility of evidence in the criminal proceeding.

[32]               I am accordingly satisfied that grounds for an on-notice restraining order in respect of the amounts of $1,094,000 are made out, and I make that order on the terms sought.

Effective control of the trailer and boat

[33]               There is no independent register of ownership of pleasure boats of the size of the boat in issue here, such as occurs with motor vehicles. Initiatives to restrain the boat have proceeded on the basis of several indications that it is owned by Mr Bracken. The company that supplied it advised the investigating officer that it had been commissioned by and paid for by Mr Bracken, and the insurance in place over both the boat  and  its  trailer  are  in  his  name.  In  an  exchange  with  Mr Bracken  on 18 December 2018, he acknowledged to an investigator that he owned a boat that was currently having work done in a boat builder’s yard in Whakatane, which is where the

boat in issue was then located. Additional work being done at the time had been paid for using funds in a bank account previously linked to Mr Bracken.

[34]               However, the trailer is registered in Robert Bracken’s name and, given the prospect that this indication of legal ownership applies to the trailer and the boat that is carried on it, the Commissioner has applied for an order under s 58 of the Act for an order that both items of property be treated as though they are assets under the control of Mr Bracken. The terms of that section are as follows:

58 Court may treat effective control over property as interest in property

(1)If the High Court is satisfied that a  respondent has effective control  over property, the Court may, on an application made by the Commissioner, order that the property is to be treated as though the respondent had an interest in the property specified by the Court.

…

[35]               Detective Camplin has deposed in his 29 October 2020 affidavit to an interview he conducted with Robert Bracken on 18 December 2018. In those exchanges, Robert explained that he had collected the boat from the manufacturer and the trailer had to be registered before he could take the boat and trailer away. As he was the person doing that, the trailer was registered in his name. There has been no change of ownership registered since then, even though the boat and trailer belonged to whoever had paid for it, being – on his then understanding – either his father or the family trust. That explanation tends to corroborate Detective Camplin’s understanding from Mr Bracken and is sufficient, given the other pieces of evidence attributing either or both of effective control and legal ownership to Mr Bracken, to justify an order under s 58 declaring that the boat and trailer are indeed under the effective control of Mr Bracken. I so order.

Orders for sale of assets by the Official Assignee

[36]               Section 35 of the Act provides for a range of further types of order. The relevant application here is brought under s 35(e)(v), which provides:

35       Types of further order

Without limiting the generality of section 34(1), a court may, on an application under section 33(1), make 1 or more of the following further orders in relation to restrained property:

…

(e)       an order relating to the Official Assignee that—

…

(v) directs the Official Assignee to sell restrained property (including, without limitation, a business) in order to preserve the value of the restrained property:

…

[37]               The Court has recognised that such orders may be made at any time. As Venning J observed in Commissioner of Police v Cavanagh:8

… Typically sale orders are pursued by the Commissioner where the restrained assets in relation to which the sale orders are sought have high depreciation rates combined with additional costs of storage and insurance which ultimately decrease the potential return to the Commissioner and/or be parties who claim an interest in the assets. There is a further additional benefit in the sale in that, once the assets are sold, the Official Assignee is able to hold the funds in an interest bearing account.

[38]               The Commissioner claims that relevant concerns about reducing value apply in the present case to the two vehicles and the boat and trailer. With respect, the last item acknowledged in the extract from Police v Cavanagh about earning interest can hardly add compelling weight, given the current low interest rate regime, but the application may still be considered on the basis of sales to avoid further diminution in the value, especially where delayed realisation would be further diminished by storage costs.

[39]               The two motor vehicles were valued for the Official Assignee in January 2019 at $85,000 for the Dodge Ram and $58,000 for the Holden Commodore. The boat and trailer were at that time valued at $105,000. Mr and Mrs Bracken did not adduce any evidence that unusual features about them mean that they do not depreciate in the same way motor vehicles generally do.

8      Commissioner of Police v Cavanagh [2014] NZHC 2978 at [7].

[40]               The storage costs up to 29 October 2020 for the three items were $27,983.70, with combined storage costs being incurred at the rate of $42.30 per day.

[41]               The Commissioner bases his concern at the rapidly depreciating value of these assets partly on Mr Bracken’s own adoption of the 20 per cent rate for depreciation for motor vehicles, which is the rate adopted in financial statements prepared for tax purposes on his behalf. I would not be inclined to rely solely on that factor as making out the proposition that the vehicles will inevitably be depreciating to that extent. There are other considerations motivating the depreciation rate nominated for vehicles held as business assets.

[42]               However, I can take judicial notice of the extent to which motor vehicles in general suffer depreciation and consider that concern, together with the on-going storage costs which would thereafter be avoided, are sufficient to justify an order authorising the Official Assignee to proceed with their sale. That obviously is to occur on terms that the amount is held, for the mutual interests of the Commissioner and the Brackens, until the resolution of the criminal proceedings.

[43]               There is no separate evidence on the extent to which pleasure craft such as the boat in issue depreciate in value. Detective Camplin deposed in general terms in  May 2020 that:9

The current realisable market value of the property is most likely to be greater than the market value obtainable at the conclusion of these proceedings, due to the erosion of that value over time.

[44]               The only comment Mrs Bracken made about value was that a sale would never realise as much as the assets (I took her to include the boat in this) meant to the beneficiaries.

[45]               Nor is there any evidence of a seasonality about the market for pleasure craft, but it is safe to assume that if there is, then the beginning of the summer season, when pleasure boating activities are likely to be more popular, is the time at which demand might be higher than at other times of the year. Given the general position with

9 Affidavit of Paul Gregory Camplin, 19 May 2020 at [42].

depreciation of assets used for leisure, and the on-going need to maintain items like larger outboard motors such as the one described as being fitted to this boat, I consider the Commissioner is entitled to advance the proposition that material depreciation should be arrested by realising the asset at this time.

[46]               I am accordingly satisfied that the Commissioner has made out the case for sale by the Official Assignee of the vehicles, the boat and its trailer pursuant to s 35 of the Act and I so order.

[47]There will be no separate order as to costs on these applications.

Dobson J

Solicitors:

Crown Solicitor, Gisborne for applicant

Copy to:
The first and second respondent