Commissioner of Police v Cheng

[2023] NZHC 606

IN THE HIGH COURT OF NEW ZEALAND GISBORNE REGISTRY

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

CIV-2016-416-12 CIV-2016-416-46

CIV-2019-416-4 [2023] NZHC 606

UNDER

the Criminal Proceeds (Recovery) Act 2009

BETWEEN

THE COMMISSIONER, NEW ZEALAND POLICE

Applicant

AND

THOMAS CHENG

First Respondent

MASONIC LIMITED

Second Respondent

REDOUBT HOUSE LIMITED

Third Respondent

ACTION INVESTMENTS LIMITED

Fourth Respondent

ACTION INVESTMENT LLP

Fifth Respondent

HARVEST PROPERTY LLP

Sixth Respondent

MORTGAGE INTERNATIONAL LLP

Seventh Respondent

EXPRESS FACTORING LLP

Eighth Respondent

WORLDWIDE MODELS LIMITED

Ninth Respondent

CML BUILDING LIMITED

Tenth Respondent

STARDUST BUILDING LIMITED

Eleventh Respondent

THE COMMISSIONER, NEW ZEALAND POLICE v CHENG [2023] NZHC 606 [24 March 2023]

BAYWIDE CREDIT LIMITED

Twelfth Respondent

ANDERSONS BUILDING LIMITED

Thirteenth Respondent

UNITEC INVESTMENT LIMITED

Fourteenth Respondent

KFC LIMITED

Fifteenth Respondent

WILLIAM CHENG LIMITED

Sixteenth Respondent

QUEENS HOTEL LIMITED

Seventeenth Respondent

WILLIAM CHENG

Eighteenth Respondent

NYIOH CHEW HONG

Nineteenth Respondent

EMILY CHENG aka JOANNE MCKAY

Twentieth Respondent

WINSTON GEORGE MAURICE RAYMOND FRANKLIN

Twenty first Respondent

UNITEC INVESTMENTS LLP

Twenty second Respondent

HARVEST FACTORING LLP

Twenty third Respondent

AND

WARREN JAMES BORRIE

First Interested Party

Hearing:

13 February – 24 February 2023

Appearances:

F E Cleary and V M Rea for the Applicant

L C Ord and E T Blincoe for the First Respondent M T Lennard counsel assisting the Court

Judgment:

24 March 2023

Reissued: 8 May 2023

JUDGMENT OF COOKE J

[Publicly available version] (Profit forfeiture applications)

Table of Contents

Background[6]

Preliminary issues[13]

Stance of Mr William Cheng and Ms Nyioh Hong[14]

Appointment of counsel assisting[24]

Nature of Commissioner’s case[28]

Claims against Mr Thomas Cheng[39]

Methamphetamine offending[45]

Statutory presumption[49]

Assessment[54]

Money laundering[67]

Claims against Mr William Cheng and Ms Nyioh Hong[74]

Tax evasion[81]

Money laundering[88]

Benefit from tax evasion[111]

The relevant figure[113]

The double recovery concern[118]

Undertakings[125]

Tax Administration Act prevails[133]

Property subject to orders[147]

Interest through power of attorney[149]

Effective control[152]

Conclusion[157]

[1]                  These proceedings under the Criminal Proceeds (Recovery) Act 2009 (the Act) were first commenced by a without notice application for restraining orders made and granted in April 2016. By application dated 16 October 2020 the Commissioner now seeks profit forfeiture orders under s 55 of the Act in the amount of $20,102,053.22 to be enforced against the property that has been earlier restrained in these proceedings.

[2]                  The primary respondents to the application are Mr Thomas Cheng, who is presently serving a lengthy sentence for drug dealing, his father Mr William Cheng and Mr William Cheng’s spouse Ms Nyioh Chew Hong.  All three are citizens of

Singapore. They are not citizens or residents of New Zealand. All other respondents are persons and entities associated with these three persons. Following the completion of his sentence Mr Thomas Cheng will likely be deported back to Singapore.

[3]                  Mr William Cheng and Ms Nyioh Hong live in Singapore. They have extensive commercial property holdings in New Zealand involving 13 buildings which have generated leasehold income. They also have substantial funds in bank accounts that are associated with these activities. At one point they made an application to become New Zealand residents but this was declined.

[4]                  The property that is currently restrained, and which is the target of the profit forfeiture applications, falls into  three  main  categories.  The  first  is  money  in  Mr Thomas Cheng’s bank accounts and the cash he had at the time of restraint which involves just over $40,000. The second is money in Mr William Cheng’s bank accounts, amounting to approximately $10.4 million at the time of restraint. The final category is the properties that Mr William Cheng and Ms Nyioh Hong own through other entities said to be worth approximately $10.2 million at the time of restraint.

[5]                  As will be explained Mr Thomas Cheng has engaged in significant drug dealing in New Zealand. It is not alleged that Mr William Cheng or Ms Nyioh Hong were involved with that. The case against them, and the application for the forfeiture of their assets, is based on allegations of unrelated tax evasion and money laundering.

Background

[6]                  Mr William Cheng purchased his first commercial building in New Zealand in 1997. This was the Tangata Rite building in Gisborne. Of the properties owned by his entities in New Zealand this is the most valuable. It has had a number of government related tenants including Oranga Tamariki and the New Zealand Police. At the time of this first purchase Mr Thomas Cheng would have been only about 14 years old.

[7]                  Mr Thomas Cheng had a very troubled childhood. His mother and father are separated. Ms Nyioh Hong is Mr William Cheng’s second spouse.

[8]                  In August 2013 Ms Nyioh Hong applied on behalf of herself, Mr William Cheng and their three young children for New Zealand residency. That was declined in March 2014, and their appeal to the Immigration and Protection Tribunal was dismissed  in  May  2015.  Over the same period of time Mr William  Cheng  and  Ms Nyioh Hong acquired further properties in New Zealand. This began in September 2012 through to January 2016 leading to a total portfolio of 13 properties. These properties can be thought of as largely lower grade commercial properties, with some of the buildings having deferred maintenance requirements. One such acquisition was the Masonic Hotel in Gisborne which was once a significant hotel, and a building which still holds heritage value. As will be explained in greater detail below each of the properties acquired was owned by a special purpose holding company associated with Mr William Cheng and Ms Nyioh Hong.

[9]                  Mr Thomas Cheng came to New Zealand in 2015 at the suggestion of his father. It was arranged that he would manage the Masonic Hotel. It operated as a place for short term tenancies more than a hotel. The arrangement was that Thomas would be entitled to half the rent from any new tenants that he could find. He arrived in New Zealand in September 2015, but was arrested on 1 April 2016 for methamphetamine dealing in New Zealand. He pleaded guilty to representative charges of importing and supplying methamphetamine and was sentenced in the Gisborne District Court to 10 years nine months’ imprisonment on 22 February 2018. His evidence at the hearing before me was by way of AVL from Tongariro Prison.

[10]              The applications under the Act  followed  promptly  after Thomas’ arrest  on 1 April 2016. The without notice restraining orders were made by Wylie J on 4 April 2016. From the outset the allegations have not only encompassed the alleged methamphetamine dealing by Mr Thomas Cheng but also alleged tax evasion and associated offending by his father and stepmother. By judgment dated 28 September 2016 Simon France J dismissed an application for restrained funds belonging to his father to be released.1 Simon France J noted the allegations of tax evasion, and the basis for that contention.2 He recorded that Ms Nyioh Hong had attempted to provide

1      Commissioner of Police v Cheng [2016] NZHC 2304.

2 At [5].

some explanation for the business arrangements in evidence given by AVL from overseas, but that he did not find her to be a satisfactory witness.3

[11]              Simon France J also effectively upheld the restraining orders on notice in his judgment. The Commissioner made a further application without notice in December 2016 to cover nine further properties and nine further bank accounts. They were granted on notice by Williams J on 1 May 2017. Extensions of the period of restraint were then granted in 2017 and 2018. On 30 April 2019 the Commissioner made applications to extend both orders which were opposed by Mr Thomas Cheng and also by Mr William Cheng and Ms Nyioh Hong. This opposition was dismissed by Grice J by judgment dated 6 November 2019.4

[12]              At the hearing of the present application the Commissioner applied to extend the restraining orders and I granted that further extension until 2 June 2023 or earlier order of the Court.

Preliminary issues

[13]              There are preliminary issues that need to be addressed, some of which are of importance to the outcome of the application. To some extent they are interrelated, although I address each in turn.

Stance of Mr William Cheng and Ms Nyioh Hong

[14]              Mr William Cheng is the fifteenth respondent, and Ms Nyioh Hong is the sixteenth respondent. As indicated a sizeable part of the property that is subject to the forfeiture application is beneficially owned by them, including through other entities. It is not alleged that they were involved in, or benefitted from Thomas’ drug dealing. Rather it is alleged that they have been involved in their own tax evasion and associated offending.

[15]              The involvement of Mr William Cheng and Ms Nyioh Hong, and the question whether they were formally opposing the orders has been a matter of ongoing

3 At [9].

4      Commissioner of Police v Cheng [2019] NZHC 2888.

consideration during the course of the proceedings. When the restraint applications were first made and served on them they were represented by counsel. Counsel appeared on their behalf before Simon France J in September 2016,5 and again when the application for an extension of restraint was granted by Grice J in November 2019.6

[16]              The Commissioner’s forfeiture application was then made, and was served on counsel acting for them. It was set down for a two week hearing on 2 May 2022. Their counsel was granted leave to withdraw on 6 October 2021, however.   On     11 April 2022 they personally applied for the fixture to be adjourned to allow them to instruct new counsel. That adjournment was granted and a new fixture set down to commence on 13 February 2023. A case management conference was then held on 18 July 2022. Mallon J heard from Mr William Cheng and Ms Nyioh Hong in light of their obligation under the timetable to file their evidence by 19 September 2022. Mallon J decided that this still provided them ample time to instruct a lawyer and file their opposition. She recorded that counsel then acting for Thomas, Ms Blincoe had offered to assist them to find a lawyer.

[17]              The proceedings were then called again before Gwyn J on 3 October 2022. Mr William Cheng and Ms Nyioh Hong again appeared remotely. They said that they had not been served with the forfeiture application. The Commissioner explained that the forfeiture application had been served on their previous counsel. Gwyn J accepted the application had been properly served but said that “… to avoid any doubt that the parties have received all material, Ms Cleary confirms that she will effect electronic service of all relevant documents on the fifteenth and sixteenth respondents.”

[18]              The proceedings were then called before Isac J on 25 October 2022. He noted that notwithstanding the further service on Mr William Cheng and Ms Nyioh Hong they were still unrepresented. He gave further directions to ensure the February fixture was maintained.

[19]              I was  scheduled  to  hear the  fixture  commencing  13 February  2023.  On  3 January 2023 Mr William Cheng and Ms Nyioh Hong filed a memorandum applying

5      Commissioner of Police v Cheng, above n 1.

6      Commissioner of Police v Cheng, above n 4.

again for the fixture to be adjourned. I convened a telephone conference and heard from each of them at some length. They again claimed not to have been provided with the relevant documents. But I accepted the Commissioner’s contention that the forfeiture application had been served again on the sixteenth respondent at an address that they had advised, although there was no one present at the address they had advised for the fifteenth respondent. I saw no significance in this not only because they had already been properly served, but because they both had received the relevant documents a second time. They appeared together at the telephone conference. At the February hearing they subsequently watched the proceedings remotely by AVL sitting alongside one another. It is clear that they have received proper service of, and been further provided with the relevant documents.

[20]              At the telephone conference Mr Lennard, who I subsequently appointed as counsel assisting, also explained that he had indicated that he was available to be instructed by Mr William Cheng and Ms Nyioh Hong at an earlier point but that they had not done so. I was and am satisfied based on all the information before the Court that they have had ample opportunity to instruct counsel, and to comply with the timetable to allow them to participate at the hearing. I declined the application for an adjournment in these circumstances.

[21]              I also note that Mr William Cheng and Ms Nyioh Hong asked me to appoint an interpreter to assist them at this time. I declined this for two interrelated reasons. First, my interaction with them at the telephone conference, and then again when I heard from them at the hearing by AVL, demonstrated to me that they had a sufficient grasp of English to follow and participate in the proceedings. Secondly, this was not a situation where it was appropriate for the Court to appoint an interpreter, and there is no provision for this in the High Court Rules 2016. That does not prevent interpreters being used under s 80 of the Evidence Act 2006, but that will usually be arranged by the party involved. Here Mr William Cheng and Ms Nyioh Hong were not actively opposing the applications as they had not filed and served any notice of opposition or other documents in opposition.

[22]              As explained, they made no formal appearance at the hearing, but they both actively watched the proceeding by AVL, and filed further memoranda as matters

arose. I have granted leave for the memoranda to be considered when I have considered it appropriate to do so. But I am satisfied that they have made a decision not to actively participate in these proceedings. When Mr Thomas Cheng gave evidence he was asked by the Commissioner’s counsel why they had not done so, and he explained that it was due to cultural reasons, including the scepticism that they have of authorities. That may well be the case, at least in part. But they have nevertheless been given a fair and complete opportunity to participate, and have previously participated in the proceedings.

[23]              Their approach has given rise to the surprising situation where a substantial part of an application worth in excess of $20 million is not actively opposed by the parties who are the beneficial owners of that property. The Court will obviously act with care in assessing the application in those circumstances, but I am satisfied that Mr William Cheng and Ms Nyioh Hong have been given a full and fair opportunity to advance any opposition that they wanted to advance to the Commissioner’s applications.

Appointment of counsel assisting

[24]              The second matter is related. At the telephone conference on 1 February 2023 I also considered a suggestion made by counsel for Mr Thomas Cheng that the Court appoint counsel to assist the Court given the lack of representation from Mr William Cheng and Ms Nyioh Hong, and the issues of principle involved. That suggestion was opposed by the Commissioner. I asked Mr Lennard, who was suggested as counsel assisting, to attend the conference as a consequence.

[25]              After hearing from counsel and understanding a little more about the case, including that Mr William Cheng and Ms Nyioh Hong were not actively participating, I appointed Mr Lennard as counsel assisting the Court under r 10.22 of the High Court Rules. This course was opposed by the Commissioner on the basis that it was inappropriate make such an appointment given that Mr William Cheng and Ms Nyioh Hong had elected not to oppose the Commissioner’s applications, and that the Act had certain presumptions and other implications in relation to parties who elect not to oppose. I agreed that those considerations were relevant. I address them more fully

below. But there were two related reasons why the appointment was appropriate notwithstanding this:

(a)First, counsel assisting was not appointed to represent the interests of Mr William Cheng and Ms Nyioh Hong. Rather he was appointed to assist the Court with the issues of principle involved in the application.

(b)Furthermore, these issues were of some complexity. I did not accept that the submissions from the Commissioner would provide the Court with all the assistance that was needed. Whilst there are expectations in relation to the manner in which the Commissioner pursues litigation, the complexities caused me some concern. I wanted to ensure that the Court had all the assistance it needed to make appropriate decisions.

[26]              As it transpired there are a number of issues, particularly in relation to the interaction between applications by the Commissioner under the Act and the role the Commissioner of Inland Revenue, where Mr Lennard provided substantial assistance, including by providing alternative perspectives that were not put forward by the Commissioner. I have no doubt the appointment of counsel assisting was appropriate in this case in accordance with the principles summarised in Erwood v Holmes.7

[27]              One of the Commissioner’s main concerns was that appointing counsel assisting would create a precedent for appointing such persons in future cases. I should make it clear that the appointment was only made in the present case because of its particular circumstances. A profit forfeiture application was being made in relation to property worth more than $20 million restrained in New Zealand when the beneficial owners were not opposing the application. Those owners were overseas persons. The Inland Revenue Department in New Zealand already had taken significant steps to identify tax liabilities arising from these amounts. There were complex issues involving the interaction between the profit forfeiture application, and the application of the revenue statutes. In those circumstances the Court was applying a conventional approach to the appointment of counsel to assist the Court.

7      Erwood v Holmes [2017] NZHC 1278, [2017] NZAR 971 at [31]–[38].

Nature of Commissioner’s case

[28]              A third preliminary issue arises from the nature of the case advanced by the Commissioner in support of his applications, and the evidence filed in support of it.

[29]              The Commissioner filed two lengthy affidavits. The first was from Warren Jonson, formerly a Detective in the New Zealand Police, and now Investigator in the Asset Recovery Unit. The second was from Barrie Vevers a chartered accountant in the Asset Recovery Unit. Neither of them were involved in a way that made them witnesses to the alleged offending that is subject to the profit forfeiture applications. They are employees in the Asset Recovery Unit of the New Zealand Police. Their affidavits described the conclusions they had reached as a consequence of the investigations, and the basis upon which they believed the profit forfeiture applications should be granted as sought. Mr Jonson’s affidavit was 284 pages long and then appended lengthy exhibits. Mr Vevers was 104 pages long, again with lengthy exhibits. The application was also said to rely on a large number of affidavits filed in support of the earlier restraint applications.

[30]              Much of this evidence appeared inadmissible, or if admissible it was material of little assistance to the Court. It was in the nature of submission or argument based on underlying facts that the deponents said were established by underlying events or documentation. The underlying material included facts of evidential value, but the commentary and submission was generally not. Separating out what was evidence of fact from submission was not easy, particularly as the witnesses advanced their arguments at some length, and with some repetition. Neither witness purported to give expert evidence, and the Commissioner confirmed that their opinions were not being provided to the Court as expert evidence.

[31]              The response of the Commissioner to these criticisms was twofold. First the Commissioner argued that in Vincent v Commissioner of Police the Court of Appeal held that latitude was appropriate with the admissibility of evidence filed in support of applications under the Act, including by allowing police officers and others to set out the results of the investigations in opinion form.8 This involves a

8      Vincent v Commissioner of Police [2013] NZCA 412.

misunderstanding of what the Court of Appeal held. The Court explained that applications under the Act were originating applications under Part 19 of the High Court Rules, and that r 19.10(1) provided that rr 7.29 and 7.30 applied.9 Rule 7.29 brought across rr 9.75–9.88 governing affidavits. Rule 7.30 then provides:

7.30     Statements of belief in affidavits

(1)A Judge may accept statements of belief in an affidavit in which the grounds for the belief are given if—

(a)the interests of no other party can be affected by the application; or

(b)the application concerns a routine matter; or

(c)it is in the interests of justice.

…

[32]              The Court held that the admissibility of police officer opinion evidence fell to be determined under this rule in the manner contemplated by s 20 of the Evidence Act 2006. The Court said:10

By way of explanation, restraining orders will often need to be obtained in situations of urgency, as is illustrated by the provision for “without notice” applications. They are, as we have said, temporary orders, which give the police time to gather further evidence, and may lead to forfeiture but only on the completion of further processes. Restraining orders are issued on the basis of reasonable grounds to believe, rather than proof, that the target has unlawfully benefitted from significant criminal activity. This means, in our view, that affidavits such as those filed by the two police officers are admissible, without the need for a formal application under s 19 of the Evidence Act. Rather, they fall within r 7.30 of the High Court Rules and s 20 of the Evidence Act. The alternative to allowing what are, technically at least, hearsay statements in affidavits such as those at issue would be to require a very elaborate evidentiary basis for the issue of restraining orders, which would be impractical and inconsistent with the approach taken in other contexts. We note that the same approach has been taken in other jurisdictions which have legislation similar to the Act.

[33]              But as the Court said, and as subsequent decisions of this Court have also explained,11 that is because at the restraint stage the question for the Court is whether

9      At [45](c).

10 At [47] (footnotes omitted).

11 Commissioner of Police v Smith [2017] NZHC 10 at [10]; Commissioner of Police v Irwin [2020] NZHC 1370 at [49]–[50]; Commissioner of Police v Rae [2020] NZHC 3132 at [24]–[25]; Commissioner of Police v Clarke [2021] NZHC 1981 at [4].

there are reasonable grounds to believe that the basis to make restraining orders exist. Proof of the allegations is not required. They are interim orders. For that reason the opinions of the investigating officers are not only admissible, but directly relevant to what  the  Court  must  decide.   Such  evidence  is  admissible  in  accordance  with  r 7.30(1)(c) of the High Court Rules and s 20(2) of the Evidence Act.

[34]              But that is not so at the forfeiture stage. At the forfeiture stage the Commissioner must prove the elements that must be established for forfeiture, albeit on the civil standard of the balance of probabilities. Under s 55 of the Act the Commissioner must satisfy the Court, on the balance of probabilities, that the respondent has unlawfully benefitted from significant criminal activity, and the respondent has interests in the property subject to the application. There are requirements under other provisions. At the restraint stage the Commissioner does not need to prove this, he only needs to establish that there are reasonable grounds to believe that the basis to make restraining orders exists. This is an important distinction that needs to be understood by the Commissioner when pursuing forfeiture applications. The kind of evidence in support of a forfeiture application will likely be of a different kind from the evidence filed in support of restraint applications. This forfeiture application is a civil proceeding in which the Commissioner is effectively seeking judgment for over $20 million. The kind of evidence one might expect to support such a claim in civil proceedings needs to be presented.

[35]              If a respondent has pleaded guilty to charges that amount to significant criminal activity the records of that conviction are admissible under s 47(3)(b) of the Evidence Act. The summary of facts agreed to between the prosecution and defence can be received in evidence in proceedings under the Act.12 The Commissioner may not need to lead other evidence proving the offending in those circumstances. The position will be more complex when a respondent has been found guilty of the offending at a trial.13 Here Mr Thomas Cheng pleaded guilty to offending, and within the Commissioner’s voluminous evidence were documents providing evidence of this. He also accepted this when he gave evidence and when submissions were advanced on his behalf. The

12     See Commissioner of Police v McLean [2022] NZHC 2634 at [15]; Commissioner of Police v Wisely [2020] NZHC 2941 at [34]; Commissioner of Police v Slessor [2022] NZHC 3511 at [35].

13     The conviction would still be admissible under s 47(3) and it has been held that findings made at sentencing are also admissible – Police v Filer [2013] NZHC 3111 at [30]–[31].

position is more difficult for the  allegations  concerning  Mr William  Cheng  and Ms Nyioh Hong as no charges have been brought, so the Commissioner needs to prove the significant criminal activity by other admissible evidence. For the reasons outlined below I accept that there is documentation in the exhibits that does so.

[36]              The Commissioner’s second response to the criticism of the evidence filed was that no objection to the Commissioner’s evidence on the basis of hearsay had been taken as required by r 9.11 of the High Court Rules. Reference was made to Commissioner of New Zealand Police v Drake where the Court noted the importance of identifying admissibility issues well in advance of hearings so that parties could be prepared for such matters and appropriate steps could be taken.14

[37]              The short point response to this argument is that r 9.11 of the High Court Rules does not apply to evidence filed in support of originating applications under Part 19. Rule 19.10 specifies what other rules apply to originating applications. Rule 19.10(1)(i)  provides that the rules  governing affidavits in r 7.9,  and  accordingly   rr 9.75–9.88 are applicable. That does not include r 9.11. That is not to say that parties should not signal well in advance of a hearing any admissibility concerns in a Part 19 proceeding as the Court said in Drake. A party taking the other by surprise at the hearing is unlikely to be treated sympathetically. But the Commissioner has an obligation to file only admissible evidence in support of an application in accordance with r 9.76(1)(d)(i) which does expressly apply to Part 19 applications. The admissibility issue here was also not a confined one. It affected much of the evidence which had been provided in support of the application.

[38]              In any event the issue was not one of formal admissibility, but what evidence was substantially helpful to the Court. No formal objection to admissibility was taken, and I have not made a ruling in that respect.

Claims against Mr Thomas Cheng

[39]              I begin with the application against Mr Thomas Cheng, involving his offending and his property. The applications are for profit forfeiture orders under s 55 of the Act.

14     Commissioner of New Zealand Police v Drake [2017] NZHC 2919.

They do not involve any application for assets forfeiture of tainted property under s 49, or instrument forfeiture order in accordance with s 70.

[40]A profit forfeiture order under s 55 involves the following elements:

(a)The Commissioner must prove that significant criminal activity (as defined by s 6) took place in the specified period.

(b)The Commissioner must prove that the respondent unlawfully benefitted, directly or indirectly, from that significant criminal activity.

(c)The value of that benefit must be determined in accordance with ss 52– 53.

(d)The Commissioner must prove that the respondent has interests in property to be disposed of under s 83 to satisfy the order.

[41]              The standard of proof on the Commissioner is the balance of probabilities. There are other steps that may arise in relation to relief against forfeiture, but they do not arise in the present case.15 There is no application for relief against forfeiture. I address below the requirement that the order identify the property against which the order is to be executed.16

[42]              I accept that the Commissioner has satisfied the burden in relation to the first two elements here. I note that the Commissioner’s application did not particularise the relevant allegations, however. The application simply identified a relevant period, and a total benefit of $20,102,053.22 applicable to all the respondents, alleging that the significant criminal activity was “… the sale and supply of the Class A controlled drug methamphetamine, money laundering, tax evasion and criminal deception”. During the hearing the Commissioner confirmed that no allegation of “criminal deception” was maintained. In any event this is not an offence. The allegation of tax evasion was not advanced in relation to Mr Thomas Cheng. Similarly the allegations

15     See Pulman v Commissioner of Police HC Auckland CIV-2010-404-5666, 27 May 2011 at [10]– [13].

16 See [147] to [156] below.

involving sale and supply of methamphetamine were not advanced against Mr William Cheng and Ms Nyioh Hong. Allegations of money laundering were made against all of them but in relation to separate alleged activities.

[43]              So the Commissioner’s allegations were grouped together without particularity. Neither was there any identification of what methamphetamine offending was alleged to have occurred in the notice of application. An application for a profit forfeiture order under Part 19 of the High Court Rules does not require a statement of claim, but the application should particularise each of the matters that establish the elements that entitle the Commissioner to the orders against each relevant respondent. That was not done in the present case.

[44]              In opening the Commissioner identified that of the amounts subject to the allegations in relation to Mr Thomas Cheng’s drug offending was $512,852, and that this benefit arose from two police operations, Operation Province and Operation Joust. It also identified that the Commissioner’s money laundering allegation against Thomas Cheng involving “structured cash deposits” of $98,520. Separate money laundering allegations are made in relation to Mr William Cheng, Ms Nyioh Hong and the entities with whom they are related. They will be addressed below.

Methamphetamine offending

[45]              I deal first with the forfeiture arising from the alleged methamphetamine offending. I accept that Mr Thomas Cheng unlawfully benefitted from significant criminal offending as defined by s 6, namely the importation and supply of methamphetamine. He was convicted of one representative charge of importing methamphetamine, and one representative charge of supplying methamphetamine. He was sentenced to 10 years nine months’ imprisonment on 22 February 2018.17 He unsuccessfully appealed that sentence.18 The summary of facts which was agreed to by both the Crown and Mr Thomas Cheng for the purpose of the guilty plea and the subsequent sentencing stated as follows:

17     R v Cheng [2018] NZDC 3344.

18     Cheng v R [2021] NZCA 68.

On 5 December 2015 the defendant, who is a Singaporean national, arrived in New Zealand and moved into the Masonic Building in Gisborne.

The defendant arranged for an associate, Mohamed Faizal Bin Abdul Hamed, to  import  methamphetamine  into  New  Zealand.  Hamed  arrived  into New Zealand from Singapore on 24 December 2015 with six ounces (168 grams) of methamphetamine. The defendant picked him up from the Auckland International Airport and the two travelled to Gisborne with the methamphetamine.

The defendant subsequently sold the six ounces of methamphetamine to retail purchasers in Gisborne.

Included in these sales were three sales to an undercover officer. The first sale to the undercover officer was of 0.67 grams for $600 on 3 February 2016. The second sale was of 1.15 grams for $1,000 on 4 February 2016. The third sale was of 1.09 grams for $1,000, also on 4 February 2016. That last payment was later made to the defendant’s bank account.

The following day, on 5 February 2016, the defendant returned to Singapore. While in Singapore he arranged for another associate, Joo Cher Suriya Sim, to bring methamphetamine into New Zealand. Sim was to carry the methamphetamine and the defendant was to accompany him on the flight.

Sim and the defendant travelled to New Zealand on 19 March 2016. Sim was carrying 306 grams (10.9 ounces) of methamphetamine. Sim was searched at the airport and the methamphetamine was located. Sim was arrested. The defendant was not stopped and travelled to Rotorua.

While staying in Rotorua the defendant arranged for two Singaporean nationals, Denise Ryan and Mohamad’Nazjib Abdul-Majit, to import further methamphetamine into New Zealand. The defendant agreed to pay each of them $5,000 for their roles.

On 1 April 2016 Ryan and Abdul-Majit travelled to New Zealand from Singapore. They were searched and Abdul-Majit was found to be carrying 100 grams (3.5 ounces) of methamphetamine.

The defendant had travelled to Auckland International Airport to meet them and he was arrested by the Police. The defendant was interviewed by the Police and admitted the offending.

In total the defendant imported  574  grams  of  methamphetamine  into  New Zealand of which 168 grams were distributed into the market and 406 grams were intercepted.

[46]              The summary of facts is a reliable record, agreed to by both the prosecution and the defendant, in relation to this offending.   It amounts to  an  admission by    Mr Thomas Cheng. I accept the facts as described.

[47]              In terms of quantifying Mr Thomas Cheng’s unlawful benefit the Commissioner’s case was straightforward. The total benefit derived from the unlawful

importation of 574 grams of methamphetamine was calculated by reference to the average price of the sales to undercover police officers, being $893.47 per gram as described in the summary of facts, resulting in a total of $512,852.

[48]              Counsel for Mr Thomas Cheng criticised this calculation in two main ways. First it was said that this average price of the sale to undercover officers was not the appropriate price to use given other evidence, including evidence given by Mr Thomas Cheng himself on what the sale value of methamphetamine per gram was. Second, the agreed summary of facts recorded 406 grams of the drugs so imported were intercepted at the border, and only 168 grams was actually received by Mr Cheng and able to be sold by him. Mr Cheng could not have profited from drugs that were intercepted. Even using the Commissioner’s average price the benefit could be no more than $150,102.96.

Statutory presumption

[49]              Both points raise an issue about the calculation of the benefit derived from significant criminal activity under the provisions of the Act. Section 52 requires the Commissioner to calculate and state the benefit from the significant criminal activity from which a respondent has unlawfully benefitted. Section 53 then provides that when the Commissioner proves on the balance of probabilities that the respondent has so benefitted, the value of the benefit is presumed to be as alleged, but that the presumption may be rebutted by the respondent on the balance of probabilities. These statutory provisions recognise that it will frequently be difficult for the Commissioner to know precisely what benefit is derived by a person from significant criminal activity. The provisions allow the Commissioner to identify the proposed benefit with the burden then shifting onto the respondent to prove some other benefit. As the Court of Appeal explained in Cheah v Commissioner of Police:19

The purpose of the reverse onus was discussed in the Explanatory Note to the Criminal Proceeds (Recovery) Bill 2007 in the following way:20

The Crown will not be required to establish the value of the profit derived from significant criminal activity, as this would be too onerous a test. Rather, the onus will be on the respondent to an order

19     Cheah v Commissioner of Police [2020] NZCA 253 at [28].

20     Criminal Proceeds (Recovery) Bill 2007 (81-1) (explanatory note) at 3.

to establish, on the balance of probabilities, that the value specified in the application is too great.

The justification for this reverse onus is the difficulty of obtaining evidence showing the unlawful origins of property, as against the expectation that if property is derived from lawful activity the owner should be able to establish that.

[50]              In interpreting and applying these provisions the Court will wish to see that the purpose of the provisions is fulfilled. As Cooke P said of the Act’s legislative predecessor, such legislation is intended to deter serious crime by demonstrating emphatically that it does not pay.21 At the same time, however, its purpose is not to punish offenders a second time. That would be particularly so given s 26(2) of the New Zealand Bill of Rights Act 1990. The presumption should only be interpreted and applied in a way that ensures the respondent has not benefitted from the activity, not to punish them. The exclusion of the ability to rely on any costs incurred in the criminal enterprise under s 56(3) has a similar objective. The provisions should be interpreted and applied in that spirit.22

[51]              For that reason a respondent cannot simply critique aspects of the Commissioner’s calculation methodology.23 The respondent will know what the benefit was and have access to witnesses and records that may be needed to provide this whereas the Commissioner does not.24 It is reasonable to expect the respondent to establish that a lower figure is more accurate.

[52]              The ability of the respondent to prove some other benefit gives protection against the application going beyond a reasonable calculation of the benefit obtained by a respondent by the offending. In addition the fact that the Commissioner is required to prove, on the balance of probabilities, that the respondent has unlawfully benefitted is a significant evidential hurdle.25 Moreover as Ellis J said in Commissioner of Police v Keen, the Commissioner is not permitted to choose a random figure in the application as this would be an arbitrary and wrongful exercise of

21     R v Pedersen [1995] 2 NZLR 386 at 391.

22     Cheah v Commissioner of Police, above n 19, at [24]–[35].

23     Commissioner of Police v Tang [2013] NZHC 1750 at [39].

24     Commissioner of Police v Filer, above n 13, at [13].

25     Cheah v Commissioner of Police, above n 19, at [44].

statutory power.26 The Court has the power under s 47 to amend the application for a civil forfeiture order, and “whether the Court then deals with the matter by amending the application under s 47 (as suggested by the Court in Cheah) or by making its own assessment based on the evidence as a whole, will depend on the circumstances of the case”.27 I agree that these are important safeguards against executive overreach.28

[53]I will assess the two areas of dispute against the above background.

Assessment

[54]              First, Mr Thomas Cheng did not accept the prices that were used in the Commissioner’s calculations. He gave evidence that he normally sold methamphetamine for between $400 and $600 per gram. There is some evidence of other transactions, or proposed transactions at this kind of price. He said that the undercover police officers simply proposed a price higher than his market price.

[55]              I do not accept Mr Cheng’s evidence proves a lower value is appropriate. The sales to the undercover police officers did in fact occur at these prices. Moreover the Commissioner produced national market data on the prices per gram at the time. Between November 2015 and January 2016 a typical price was identified as between

$650 and $850 per gram, with a lower limit of $350 and an upper limit of $1,200. Between February 2016 and August 2016 the typical price was $600 per gram, the lower limit $400 per gram and the upper limit of $1,200 per gram. This data demonstrates that the prices for the sale to the undercover officers were within the typical ranges of sale price.

[56]              Moreover Mr Cheng’s evidence was reasonably carefully presented, and involved a focus on a criticism of the Commissioner’s calculations. He did not purport to give detailed evidence of the methamphetamine sales he had actually engaged in. I accept that one of the reasons he could not do so is that information of his sales was potentially on his cell phones, and that these were seized by the police and subsequently lost by them. But Mr Cheng nevertheless was not able to, or did not give

26     Commissioner of Police v Keen [2020] NZHC 3365 at [13].

27 At [13].

28     Snowden v Commissioner of Police [2021] NZCA 336 at [49].

detailed evidence of his actual sales. The fact that he would depend so heavily on his cell phones for information is a reflection of the nature of drug dealing operations. The fact the police lost his phones does not mean that he has satisfied the burden.

[57]              For these reasons I accept that the presumption has not been displaced in relation to the price to be used in assessing the benefit Mr Thomas Cheng derived.

[58]              There is an issue arising from the second point raised by Mr Thomas Cheng. The Commissioner’s calculations of the quantities of methamphetamine used for the calculation of the benefit include methamphetamine that Mr Cheng never received. The summary of facts was not just agreed to by Mr Thomas Cheng, but it was also agreed to by the Crown. It unambiguously records that 406 grams of the 574 were intercepted. The benefit that Mr Cheng derived from his drug dealing cannot include drugs he never had.29

[59]              But the Commissioner’s evidence was that Mr Cheng’s drug dealing involved additional quantities of methamphetamine. I discount some of the evidence relied upon by the Commissioner, such as what Mr Thomas Cheng said in interviews and conversations which are filled with exaggeration and are otherwise unreliable. But his first convictions involved representative charges. Moreover the evidence proves that Mr Thomas Cheng engaged in yet further drug dealing from prison after he had been convicted and imprisoned. This was the further offending identified by Operation Dory. This operation led to Mr Thomas Cheng pleading guilty to a further eight charges on 17 June 2022. He was sentenced to a further two years and nine months’ imprisonment after benefiting from a series of discounts.30

[60]              I gave leave for the Commissioner to produce the summary of facts and related documents leading to those convictions. It had not been included in the Commissioner’s lengthy affidavits. This second summary of facts is itself lengthy. The Crown’s sentencing submissions summarised the drug offences agreed to in the following terms:

29     See Commissioner of Police v McDonald [2019] NZHC 1089 at [46]–[47].

30     R v Cheng [2022] NZDC 11309.

(a)Importing — six occasions, 282.5 grams quantified (on two occasions) and unknown quantities involving the overseas transfer of NZD 42,777.61 (on four occasions).

(b)Possession for supply — two occasions, 85.5 grams.

(c)Offering to supply — two occasions, 91 grams.

(d)Supplying — 11 occasions, 156 grams (on nine occasions) and unknown quantities on two occasions.

[61]              In closing the parties advanced argument on what conclusions on the quantities and prices could be drawn from the summary of facts. There is uncertainty about the particular quantities involved. It is not clear whether the quantities involved in the importing and supplying involve the same drugs, or how various quantities involved in importing, possession, offering and supplying related to each other. The summary of facts is also not clear on the price that would be applicable to particular quantities. It referred to some occasions where prices were involved, but that there is no comprehensive recording of what the quantities and price of quantities actually were.

[62]              In those circumstances it would be an artificial exercise for the Court to reach conclusions from the summary as to quantities, and the prices to be used for those quantities, for the purposes of an alternative calculation of the benefit derived by   Mr Thomas Cheng. The summary of facts is just that — a summary. The actual facts are known to Mr Thomas Cheng. He disagreed with the summary in evidence, but he did not give evidence in detail explaining the details of his further offending to establish an alternative basis to calculate his benefit. To some extent that may be because the Commissioner’s application was initially not clearly based upon it. But such evidence could still have been given.

[63]              The Commissioner did not apply to amend the forfeiture application based on the further evidence that I allowed him to produce. So the Court must deal with the application as it stands. I have no basis upon which to direct an amended application. As the authorities make clear, when it is established that a respondent has benefitted

from significant criminal offending the respondent cannot simply sit back and critique the Commissioner’s calculation of that benefit. It is presumed to be as the Commissioner has alleged unless and until the respondent rebuts the presumption, subject only to situations where the Court can, and should require an amended application to be filed and served. I conclude that the evidence of this further offending means that Mr Thomas Cheng has not rebutted the presumption that the value of his benefit is as stated in the Commissioner’s application in accordance with s 53 of the Act. A potential problem with the Commissioner’s calculation arises from the fact that the Crown and Mr Cheng agreed that 406 grams of the 574 grams subject to the first offending was intercepted. But the evidence shows there was additional offending, including as evidenced by the summary of facts agreed between the Crown and Mr Thomas Cheng for the subsequent charges involves a further (at least) 615 grams. The gap is filled.

[64]              In the absence of clear evidence rebutting the presumption the amount stated in the Commissioner’s application must be accepted in those circumstances. The prices received for this further offending might possibly have been lower, and not all of this volume of methamphetamine may have been sold by Mr Thomas Cheng. In the absence of detailed and persuasive evidence from him outlining his offending I accept the figure in the Commissioner’s application. It may be that this amount is unlikely to be the actual amount of the benefit derived by Mr Thomas Cheng, but he has failed to displace the presumed benefit. The statutory response to the inherent difficulty for the Crown in calculating the benefit offenders actually receive for offending such as significant drug dealing must be applied.

[65]For these reasons I uphold the Commissioner’s application in the amount of

$512,852.

[66]              I note at this point that the disputes I have just addressed may turn out to be moot. The value of Mr Thomas Cheng’s property that has been restrained and available to meet any forfeiture order is only just over $40,000. On his release from prison he will likely be deported so his life in New Zealand will be over. So a forfeiture order for a higher amount will only be of significance if the Commissioner

persuades me that the order can be enforced against the property of his father, stepmother and their entities, a matter I address below.

Money laundering

[67]              A second part of the Commissioner’s allegations against Mr Thomas Cheng is that he has engaged in money laundering. The Commissioner seeks forfeiture of a calculated benefit of $98,520 attributed to what is described as “structured cash deposits”. The Commissioner alleges that this amount is forfeit because it involved the offence of money laundering in contravention of s 243 of the Crimes Act 1961.

[68]              Mr Thomas Cheng was not convicted of money laundering. But the Commissioner  produced  evidence  that  a  total  of  $98,520  was  deposited  by   Mr Thomas Cheng into his bank account. That involved 52 cash deposits of amounts involving $2,500 or less, with the majority being deposits of $1,000. There were one or two higher amounts deposited. In addition the Commissioner refers to the fact that some funds from this account were transferred by Mr Thomas Cheng into a savings account (approximately $30,000) and in amounts totalling approximately $40,000 were also transferred by Mr Thomas Cheng out  of this account to the accounts of  Mr William Cheng.

[69]              I explain the elements of money laundering in greater detail below at [89]– [91]. I accept that the Commissioner may be able to establish an offence of money laundering in relation to these deposits and transfers. But I make no finding to that effect given my ultimate conclusion, explained below, that there was no benefit derived from any money laundering.

[70]              I accept that, on the balance of probabilities, a substantial source of the deposits was Mr Cheng’s methamphetamine dealing even if some of those deposits occurred before the alleged drug dealing. Mr Cheng explained that he also received small amounts by way of cash for his business operations in connection with the Masonic Hotel, but I nevertheless accept that the banking of small cash amounts of this kind is likely to have been substantially contributed to by his drug dealing operation. It is then a question of fact whether the dealings with that money involve concealment satisfying the further elements for money laundering. Sometimes the simple act of

converting cash into a balance in a bank account could amount to money laundering.31 That is because it converts cash obtained from drug dealing transactions into an apparently legitimate form involving a balance in a bank account. Drug dealers often need to find ways of converting large quantities of cash received from sales into a more legitimate form. And here the cash received was combined with other sources of legitimate income, and then the funds went through additional transactions in the financial system involving transfers into another account, and transfers to another person’s account (in this case that of his father, Mr William Cheng).

[71]              But even accepting that such steps satisfy the concealment element of money laundering offending I do not accept that the Commissioner has proved, even on the balance of probabilities, that Mr Thomas Cheng unlawfully benefitted from such offending in accordance with the broad definition contained in s 7. I have already accepted the Commissioner’s application in relation to the benefit derived from the drug dealing offending itself. I have upheld the Commissioner’s application for a profit forfeiture order in the amount of $512,852. The deposits in issue here are the deposits of the money derived from the sale of those drugs. Even allowing for some spending of cash by Mr Thomas Cheng, which is reflected in the $11,542.84 cash seized from him on arrest, the fact that the Commissioner’s analysis of Mr Thomas Cheng’s bank accounts shows that he banked only $98,520 suggests that the award of

$512,852 already strips Mr Cheng of any benefit derived from his offending. The Commissioner’s application should not double-count a benefit that has already been identified and made subject to an order.

[72]              Furthermore I do not accept  that  the  Commissioner  has  established  that Mr Cheng benefitted from any such money laundering by itself. He plainly benefitted from the drug dealing that generated the funds, but he did not additionally benefit from any concealment involved in the alleged laundering of those funds.

[73]              For these reasons I decline the Commissioner’s application in relation to the structured deposits.

31     R v Wilson [2022] NZHC 1901 at [13]–[15].

Claims against Mr William Cheng and Ms Nyioh Hong

[74]              The more significant part of the Commissioner’s forfeiture application seeks orders against Mr William Cheng, Ms Nyioh Hong, and the entities with which they are associated. As I have already explained none of these respondents appeared to defend the Commissioner’s application, although Mr Cheng and Ms Nyioh Hong observed the hearing and they filed memoranda responding to issues that arose.

[75]              I have already commented on the way in which the Commissioner’s allegations were grouped together in an unclear way. The Commissioner’s allegations were sweeping, and suggested overall offending committed by “the Cheng group”. For the reasons that will be explained in greater detail below, there is ultimately only two categories of offending relevantly involved, however — drug dealing by Mr Thomas Cheng, and tax evasion by Mr William Cheng and Ms Nyioh Hong.

[76]              The application in relation to Thomas Cheng’s drug offending, and alleged money laundering sought profit forfeiture orders of $512,852 and $98,520. The balance of the Commissioner’s contention for profit forfeiture orders, totalling over

$20 million, relates to Mr William Cheng, Ms Nyioh Hong and the entities with which they are associated. This was broken down to comprise claims in relation to undeclared commercial rental income totalling $5,721,145.98, off-shore remittances into New Zealand totalling $13,249,330.08 and interest earned on New Zealand facilities of $520,205.16.

[77]              The notice of application, evidence and opening submissions of the Commissioner referred to “… money laundering, tax evasion and criminal deception”. As the hearing progressed, however, it was accepted by counsel for the Commissioner that “criminal deception” was not significant criminal activity as defined by s 6 of the Act. Indeed it was accepted that no offence of this general description was alleged as part of the application. It was explained that the reference to criminal deception was provided by way of context for the Commissioner’s overall case.

[78]              It follows that the analysis for the Commissioner’s somewhat loosely identified case against Mr William Cheng, Ms Nyioh Hong, and their entities is based on allegations of tax evasion and money laundering. I am unable to identify any other

significant criminal offending that could be relevant to the application as it affects them.   I do not apprehend the Commissioner alleges that Mr William Cheng and   Ms Nyioh Hong were in any way involved in Mr Thomas Cheng’s drug offending, and in any case there is no basis for the allegation.

[79]              The factual basis for the Commissioner’s claims in this respect arise from the fact that entities associated with Mr William Cheng first acquired a commercial property in New Zealand in 1997. A further 12 commercial properties were acquired over the years, with the last property so acquired in January 2016. Money was remitted from Singapore into New Zealand bank accounts for the purpose of the property acquisitions. Leasehold income was earned from  the properties  and  banked  into Mr William Cheng’s bank accounts in New Zealand. Money was then remitted offshore, and remitted into New Zealand from and to that account in the period between 2012 and 2016. A total of $13,249,330.08 was sent inwards, and a total of

$2,447,165 was remitted outwards. A total of $9,838,000 was used to purchase the 13 properties. The balance in Mr William Cheng’s bank account at the time of restraint was just over $10 million. These essential facts are the starting point for the Commissioner’s contentions that an amount of $20 million is forfeit to the Crown as a benefit derived from its substantial criminal offending.

[80]I deal with each of the categories of alleged significant criminal activity in turn.

Tax evasion

[81]              Pursuant to s 143(1)(b) of the Tax Administration Act 1994 a person commits an offence if they do not provide information, including tax returns, when required to do so by tax law. Under ss 143A(1)(b) and 143B(1)(b) it is an offence to knowingly not provide such information.

[82]              In terms of the rental income that is at the centre of the Commissioner’s allegations, the commercial properties beneficially owned by Mr William Cheng (and Ms Nyioh Hong) were each held by a separate legal entity. Leases were not always entered in relation to this rental income earned from such properties, but it would be the legal owner of the property who would be obliged to pay both income tax, and goods and services tax on the rental income and file the relevant returns. Having said

that it is apparent that each of these legal entities were vehicles for Mr William Cheng and Ms Nyioh Hong, and that these entities were operated and controlled by them.

[83]              There have been no charges of tax evasion in contravention of these provisions against Mr William Cheng, Ms Nyioh Hong or any of the entities. But I accept that the Commissioner has proved, on the balance of probabilities, that there has been tax evasion committed in relation to the entities associated with each of the properties through a knowing failure to pay income tax, and goods and services tax on the rental income, and in the failure to file income tax returns and goods and services tax returns in that connection.

[84]              Under s 143A(8) as well as s 143B(4) such offending involves a maximum penalty of imprisonment for a term not exceeding five years, a fine not exceeding

$50,000, or both. So such offending constitutes a significant criminal activity for the purposes of the Act.32

[85]              The Commissioner produced in evidence the Inland Revenue Department (IRD) default assessments in relation to undeclared income tax and GST tax arising from the rental income, and GST obligations involving a tax liability of $1,679,246.33 An IRD memorandum accompanying the assessment states:

Mr Cheng appears to have intentionally filed nil returns for some periods. He failed to return rental income for GST and INC tax for a span of approximately 10 years to date.

Mr Cheng’s failure to return and pay tax on the rental income appears to be deliberate and a wilful attempt to evade tax.

The rental properties are registered under Mr Cheng’s various entities however the bank account where the rental income is deposited is not in any of the entities’ names. The set-up appears to be for the purposes of concealment of the rental income to evade the assessment of tax.

[86]              I accept that these documents are admissible under s 18 of the Evidence Act notwithstanding that they are hearsay. As a formal record the statement provides a reasonable assurance that it is reliable. The maker of the statement is unavailable as a witness given the confidentiality provisions of the Tax Administration Act.

32     Commissioner of Police v Drake, above n 14, [86]; Commissioner of Police v Nabawi [2021] NZHC 2413.

[87]              For these reasons I accept that the Commissioner has proved that there was significant criminal activity arising by a failure to declare income tax and goods and services tax lawfully.33

Money laundering

[88]              The Commissioner’s allegations of money laundering are more complex. The Commissioner’s money laundering allegations are of real practical significance. As identified above the established tax evasion involves evading tax in the amount of approximately $1.6 million. Yet the Commissioner seeks forfeiture of amounts exceeding $20 million. The Commissioner argues that this much higher amount is subject to forfeiture because of the alleged money laundering.

[89]Section 243 of the Crimes Act relevantly provides:

243     Money laundering

(1)For the purposes of this section and sections 243A, 244 and 245,—

…

conceal, in relation to property, means to conceal or disguise the property; and includes, without limitation,—

(a)to convert the property from one form to another:

(b)to conceal or disguise the nature, source, location, disposition, or ownership of the property or of any interest in the property

deal with, in relation to property, means to deal with the property in any manner and by any means; and includes, without limitation,—

(a)to dispose of the property, whether by way of sale, purchase, gift, or otherwise:

(b)to transfer possession of the property:

(c)to bring the property into New Zealand:

(d)to remove the property from New Zealand

…

offence means an offence (or any offence described as a crime) that is punishable under New Zealand law, including any act, wherever

33     Two of Mr William Cheng’s entities were also apparently prosecuted by IRD in 2006 and fined

$5,200, albeit that the records of this offending were not made available.

committed, that would be an offence in New Zealand if committed in New Zealand

proceeds, in relation to an offence, means any property that is derived or realised, directly or indirectly, by any person from the commission of the offence

…

(2)Subject to sections 244 and 245, every one is liable to imprisonment for a term not exceeding 7 years who, in respect of any property that is the proceeds of an offence, engages in a money laundering transaction, knowing or believing that all or part of the property is the proceeds of an offence, or being reckless as to whether or not the property is the proceeds of an offence.

(3)Subject to sections 244 and 245, every one is liable to imprisonment for a term not exceeding 5 years who obtains or has in his or her possession any property (being property that is the proceeds of an offence committed by another person)—

(a)with intent to engage in a money laundering transaction in respect of that property; and

(b)knowing or believing that all or part of the property is the proceeds of an offence, or being reckless as to whether or not the property is the proceeds of an offence.

(4)For the purposes of this section, a person engages in a money laundering transaction if, in concealing any property or by enabling any person to conceal any property, that person—

(a)deals with that property; or

(b)assists any other person, whether directly or indirectly, to deal with that property.

(4A)Despite anything in subsection (4), the prosecution is not required to prove that the defendant had an intent to—

(a)conceal any property; or

(b)enable any person to conceal any property.

(5)In any prosecution for an offence against subsection (2) or subsection (3),—

(a)it is not necessary for the prosecution to prove that the defendant knew or believed that the property was the proceeds of a particular offence or a particular class of offence:

(b)it is no defence that the defendant believed any property to be the proceeds of a particular offence when in fact the property was the proceeds of another offence.

…

[90]In the current circumstances the relevant elements of money laundering are:34

(a)There must be  conduct  that  is  recognised  as  offending  under  New Zealand law. That does not require proof of a particular offence, or that the respondent was the offender.

(b)There must be proceeds of such offending.35

(c)The defendant must know, believe or be reckless as to whether the proceeds are proceeds of offending.

(d)The person must deal, or assist a person dealing with the proceeds by concealing, or enabling a person to conceal them as defined.

[91]              These requirements should be addressed with the purposes of making money laundering an offence in mind, including that overseas persons  should  not  see  New Zealand as a haven to deposit the proceeds of crime.36

[92]              There was considerable uncertainty arising from the Commissioner’s case on the first two elements. The Commissioner’s case was very broadly based. He contended that all of the inwards remissions of funds into New Zealand by Mr William Cheng were the proceeds of offending. Ultimately, however, the only offending that the Commissioner actually identified was the New Zealand tax evasion referred to above. There was more general reference to wrongdoing in Singapore.  For example a judgment of the Singaporean High Court,37 and then the Singaporean Court of Appeal38 was referred to where Mr William Cheng was found liable for misrepresentation in relation to a property sale in Singapore in 2011. This resulted in judgment against him in the amount of S$179,410.89. The two Singaporean

34     R v Allison [2006] 1 NZLR 721 (CA) at [28]; Rodriguez v Commissioner of Police [2020] NZCA 589 at [24]; Commissioner of Police v Rae, above n 11, at [29].

35     The provision refers to “property” as defined, but under s 243(2) and (3) the property must be “proceeds of an offence”.

36     Rodriguez v Commissioner of Police, above n 34, at [26].

37     Su Ah Tee and others v Allister Lim and Thrumurgan and another [2014] SGHC 159.

38     Cheng William v Allister Lim and Thrumurgan and another [2015] SGCA 15.

judgments were exhibits to the affidavit of Mr Jonson. The Commissioner argued that under ss 256, 257 and 228 of the Crimes Act 1961 the use of forged documents was an offence, and that the judgments evidenced such offending.

[93]              Overseas offending can qualify if the conduct is an offence in New Zealand, and the conduct is an offence at the place it took place.39 But it was not established that the funds remitted inwards into New Zealand were the proceeds of this wrongdoing. In any event the findings of the Singaporean Courts were simply that Mr William Cheng was involved in misrepresentation, not an offence. Moreover, whether such judgments could be admitted to establish the proof of the findings may not be clear given s 50 of the Evidence Act.

[94]              No other clear evidence of offending in Singapore, or elsewhere, was put forward by the Commissioner to form the basis for a contention that the inward remittances of funds were the proceeds of such offending. The Commissioner referred to some “circumstantial evidence” to suggest other offending in Singapore, particularly tax evasion,40 but this material could not be taken to have proved any such offending, or that the inwards remission of funds were the proceeds of such offending. The Commissioner relied on Immigration New Zealand’s “finding” that the funds nominated for the residence application had been earned or acquired legally, but that does not prove either offending, or proceeds of offending even if the “findings” were admissible evidence on such matters. Neither was it suggested that the inwards flow of funds could be said to have been the proceeds of the New Zealand tax evasion.

[95]              I also note that there was also some evidence led that Mr William Cheng was not honest in his dealings with other people. It is notable that his email address was “[email protected]”. Mr Cheng does not have a knighthood. Mr Jonson also gave evidence that Mr William Cheng told him that he had been a High Court Judge in Singapore. That is something that might have been remarked upon by the Chief Justice of Singapore when increasing the civil judgment against Mr Cheng for misrepresentation had it been true.41 This kind of evidence, whilst intriguing, does not

39     See s 245 and Rae v Commissioner of Police, above n 11 at [28]–[29].

40     One document suggests that Mr William Cheng had low taxable income in Singapore in 2010 was referred to, but it was unclear what, if anything, could be drawn from that.

41     Cheng William v Allister Lim and Thrumurgan and another, above n 38.

establish any elements of the offence of money laundering. Equally the Commissioner’s allegation that statements made to Immigration New Zealand on a residency application were dishonest does not advance the case for orders under the Act.

[96]              Under cross-examination both Mr Jonson and Mr Vevers repeatedly referred to the suspicious nature of the dealings by what they described as the Cheng group, and that Mr William Cheng and Ms Nyioh Hong had failed to provide any explanation or information to dispel the suspicions. I accept that adverse inferences can be drawn, particularly when a respondent does not provide such information, or defend the application.42 But it is still necessary for the Commissioner to prove, albeit only on the balance of probabilities, the elements required for a forfeiture order, including that there has been significant criminal activity from which the respondent has benefitted, and for the offence of money laundering that there were proceeds of offending that were then laundered.

[97]              For these reasons the only relevant offending that has been established for the purpose of the alleged money laundering offence is tax evasion in New Zealand.

[98]              It must then be proved that there were “proceeds” of tax evasion that were laundered. Here I do not accept that the Commissioner has proved that any amounts in Mr William Cheng’s accounts were the “proceeds” of the commission of that offence. There is no money that is “property that is derived or realised, directly or indirectly, by any person from the commission of the offence”.43 The gross rental payments were not the proceeds of tax evasion. The obligation to pay income tax, and to pay GST, arose subsequently, and consequentially when the income was so received. It is then a legal obligation to file returns in relation to that income, and to pay the tax assessed on it that is independent of those proceeds. None of the proceeds are themselves derived from such evasion.

42     Commissioner of Police v de Wys [2016] NZCA 634 at [9]–[10] and [71].

43     Crimes Act, s 243(1).

[99]              For that reason I do not accept that this element of the money laundering offence is established. The Commissioner’s contention that there was money laundering in contravention of s 243 of the Crimes Act accordingly fails.

[100]          In any event, even if I had accepted that the gross rental income was, at least in part, the proceeds of offending I do not accept that the Commissioner has established that Mr William Cheng concealed those proceeds in the manner defined in s 243(1). I accept that even quite ordinary transactions can qualify as concealment. When drug dealers use cash received to buy items of property that can qualify.44 But all that happened here was that Mr William Cheng received the proceeds into his bank account where they largely accumulated. Some funds were transferred out of that account, but much larger amounts were transferred into it. At the time when the accounts were restrained the balance of that account exceeded $10 million, well in excess of the unpaid tax liability.

[101]          The Commissioner contended that there was nevertheless concealment as defined. First, the money was paid into Mr William Cheng’s personal bank account, and not to the legal entities who owned the buildings, and who therefore had the tax liability. But I do not accept that this would conceal or disguise the nature, source, location, disposition or ownership of the property, or convert it from one form to another in accordance with the definition of “conceal”. Mr William Cheng was the real beneficiary of this income, and the payment of the income into his personal account in a New Zealand bank exposed rather than concealed this.

[102]          The Commissioner relied on a number of other steps taken in relation to the money in this account. Money was paid out to Mr Thomas Cheng as part of an allowance, money was remitted to and from Singapore, payments were made for purchases of property and other similar transactions took place. Engaging in such transactions can involve a concealment that is part of money laundering particularly when funds are combined with other legitimate sources of income. But given that the funds in this account largely accumulated, that the Singapore transfers increased rather than decreased the amounts in the account, and that the other transactions did not

44     See R v Wilson, above n 31, at [13]–[15].

involve any dissipation of funds in any meaningful sense, I do not accept that this involves action that objectively amounts to concealment.

[103]          I accept that there was artificiality, and therefore potential deception involved in the legal structure that had been created. Each of the commercial properties was owned by a separate legal entity, and there was then a separate mortgage registered against the titles of the properties in favour of a further legal entity associated with Mr William Cheng. This was usually Mortgage International LLP. The fact that both the property owning entity and the mortgagees were associated with Mr William Cheng was apparent from a search of the publicly available registers, however. Nevertheless the use of these entities assisted Mr William Cheng and Ms Nyioh Hong to assert (falsely) that any tax liability was offset by costs of financing by finance companies, including the restraint stage before Simon France J.45

[104]          But this artificial legal structure, which has the hallmarks of tax evasion, was not deployed to conceal or disguise the nature, source, location, disposition or ownership of any proceeds which is the essence of money laundering. The artificial structure was not used for any money flows. The proceeds simply sat in Mr William Cheng’s personal bank account where they largely accumulated. I do not accept that this involved concealment.

[105]          Part of the concept involved in money laundering is reflected in the definition of “conceal”. In paragraph (a) it refers to converting property from one form to another. In paragraph (b) it refers to a number of steps that “conceal or disguise” true ownership or interest in the property. Although not expressly referred to, one of the concepts inherent in these definitions, and of the offence, is the dissipation of the funds. Money laundering involves concealing the illegitimate source of funds through various steps that disguise where it has come from, to allow the offender(s) to reap the rewards of the initial offending. If funds simply sit in the personal bank account of the principal offender, at a trading bank, in an account in his own name, it is very difficult to see that he is engaging in money laundering.

45     Above n 1.

[106]          For these reasons, even  if I had accepted that  the money transferred into   Mr William Cheng’s bank account were the proceeds of an offence, I would not have accepted that there was any concealing of the proceeds to satisfy the requirements of the money laundering offence under s 243. For that additional reason the Commissioner’s allegations of money laundering fail.

[107]          Although it is not necessary to go further, it is appropriate to address a further significant aspect of the Commissioner’s case. The Commissioner argued that, whilst the tax evasion benefit was only approximately $1.6 million, the alleged money laundering would involve a benefit of over $20 million to be made subject of the forfeiture order. On the face of it that is a surprising contention. The Commissioner argued, however, that where money laundering was involved the benefit to the offender is the availability of the funds laundered, even when no material increase in wealth occurs. In Rodriguez v Commissioner of Police the Court of Appeal referred to the words “directly or indirectly” in s 7 of the Act, and said that this was indicative of a need to take a “broad and robust approach” to fulfilling the statutory purpose.46 The Court agreed with the approach of Toogood J in Solicitor-General v Beckham where he held:47

… When an offender launders the proceeds of his or her crime, he or she receives a benefit through the concealment of the source of the proceeds in order to make it seem that those proceeds were derived from a legitimate source. Such a benefit accrues each time that money is laundered, even if the same sum is processed a number of times. That benefit can be quantified as the value of the proceeds laundered at each stage; the laundering enables the offender to use those proceeds freely without arousing suspicion, which would not otherwise have been possible. While this conclusion may appear to produce a harsh outcome, I am satisfied the Solicitor-General’s approach is the one that is the most consistent with the punitive nature of the pecuniary penalty orders under the legislation.

[108]          This judgment was under the preceding legislation, the Proceeds of Crime Act 1991. That Act had more of a punitive aspect as Toogood J expressly stated.48 I accept that the provisions of the present Act, and the establishment of the elements of money laundering can lead to this result — in the words of the Court of Appeal in Rodriguez

46     Rodriguez v Commissioner of Police, above n 34, at [49].

47     Solicitor-General v Beckham [2015] NZHC 2816 at [61].

48     Also stating at [11] that that Act was “… designed to serve the purposes of punishment and deterrence, and should be applied as a penal statute”.

“… the availability of funds without any increase could be classified as a benefit”.49 But that does not mean that this is always so as a matter of law. Whether that benefit is derived in any particular case is still a matter of fact to be assessed in light of the circumstances.

[109]          Here I do not accept that, even if $1.6 million was the proceeds of unlawful activity within the meaning of s 243 of the Crimes Act, and those funds had been concealed by being banked into Mr William Cheng’s bank account, that this means that the full amount of approximately $10 million in that account is forfeit, let alone the further properties worth  approximately  $10  million  that  were  acquired  by  Mr William Cheng from funds in that account. As a matter of fact that benefit would not have been derived from the receipt of unlawful proceeds, and the concealing of those proceeds. The Commissioner’s magic result would not arise as a matter of fact. The benefit derived from the tax evasion would still simply be from the unpaid tax of

$1.6 million, together with any interest to reflect the time value of money, even if it was concealed and therefore the detection of the offending impeded.

[110]          The above findings mean that the only relevant offending proved by the Commissioner in relation to Mr William Cheng and Ms Nyioh Hong is tax evasion.

Benefit from tax evasion

[111]          To obtain a profit forfeiture order under s 55 of the Act the Commissioner must prove the respondent unlawfully benefitted from significant criminal activity. The value of that benefit must then be determined in accordance with ss 52 and 53. The Commissioner has established that Mr William Cheng, Ms Nyioh Hong and/or the entities with which they are associated committed tax evasion. What benefit from tax evasion has the Commissioner then proved?

[112]          On the face of it the answer seems obvious. The benefit is the $1.6 million tax that was not paid. It would not be the Commissioner’s figure in the application in excess of $20 million. On that basis this would be a case where the Court would be obliged to exercise its power to require the Commissioner’s application to be amended

49     At [49], emphasis added.

to the lower figure.50 But there were a series of issues that emerged during the hearing in relation to this suggested benefit, and the calculation of the benefit which necessitate further consideration.

The relevant figure

[113]          The first point was that I questioned Ms Cleary on whether the $1.6 million would understate the benefit derived from the significant criminal activity. That is because the tax liabilities would have arisen some time ago, and Mr William Cheng/Ms Nyioh Hong/their entities would have had the benefit of the unpaid tax during that period. Normally one might address this by including an award of interest in the calculation of the benefit to reflect the time value of money. But Ms Cleary indicated that the Commissioner did not wish to include any such calculation as part of the profit forfeiture application.

[114]          The next point was that it emerged during the questioning of the Commissioner’s witnesses that there had been some engagement between Mr William Cheng/Ms Nyioh Hong/their entities and the IRD, and some arrangements entered for the payment of tax. This caused me some concern, particularly if such arrangements involved payments to address the arrears. For that reason I invited the Commissioner to seek documentation from the IRD under s 98 of the Act — a provision that applies notwithstanding the secrecy normally arising under s 18 of the Tax Administration Act

— so that the position could be clarified.

[115]          The Commissioner then filed a second supplementary affidavit of Mr Jonson sworn 16 February 2023 in accordance with leave that I gave. In it Mr Jonson advised that IRD had told him that the entities that had not paid tax had not made any payments on tax owed up to 31 March 2017, although no documents to show that were produced. Mr Jonson also said that the entities were now making payments towards their tax obligations from 31 March 2017. Mr Jonson’s affidavit also explained what the current tax liability arising from the unpaid $1.6 million now was. The total liability is now said to be $11,443,457.37. The ballooning out of the amount due is a consequence of the penalty and default interest provisions under the Tax

50 See [52] above.

Administration Act. They are well-known to have a swinging effect when tax is not paid when due, particularly if no steps are taken to address that liability, as appears to be the case. I accept this evidence under s 18 of the Evidence Act given that direct evidence from the IRD is not available given the effect of s 18 of the Tax Administration Act.

[116]          When this affidavit was filed the Commissioner confirmed that he was not seeking to claim that the benefit from the tax evasion subject to the application was now $11,443,457.37. The Commissioner still maintained the benefit from the tax evasion was $1.6 million, with no increase for interest. I accept that that is an appropriate stance. The difference between the $1.6 million and the $11.4 million is a consequence of what can be described as penalties, albeit that it includes an interest component. It is not a benefit derived from the offending itself. It is a penalty faced by the offender for their tax evasion.

[117]          What these developments illustrated, however, was a difficulty, or mismatch between the Commissioner’s application for a profit forfeiture order based on tax evasion, and the Commissioner of Inland Revenue’s processes for recovering the tax not due. The issue for the Court then became how to reconcile these inconsistencies. This gives rise to the further points of principle which were addressed by counsel assisting.

The double recovery concern

[118]          The essential issue these points raise is that there are two parallel processes for recovery of unpaid tax — profit forfeiture by the police, and enforcement by the IRD. On the face of it both apply, and there is a risk of double recovery.

[119]          This problem has been addressed by two previous High Court decisions. In Commissioner of Police v Nabawi, Duffy J confirmed that tax evasion could be a significant criminal activity for the purposes of forfeiture applications under the Act.51

51     Commissioner of Police v Nabawi, above n 32.

But she also addressed factors which she observed had not been directly touched on by the parties before her. She said:52

… tax evasion does not cause the tax liability under the [Tax Administration Act] to evaporate; it merely avoids it. A tax evader will only profit from the offence if he or she is successful in avoiding detection. Once the offence is detected, absent any statutory bar against recovery, the benefits derived from the offending may be cancelled out by actions taken by the IRD under the [Tax Administration Act]. The existence of live tax liabilities may mean that profits derived from tax evasion are more notional than real. Whilst a tax evader may have enjoyed the extra disposable income tax evasion has brought him or her, such profits will sit alongside the tax liability he or she continues to owe. When the tax liability is enforced it may expunge what appeared beforehand to be profits from tax evasion. On the other hand, if the additional disposable income derived from tax evasion is used to acquire assets that rapidly inflate in value, the resulting profits may survive the effect of any tax recovery by the IRD.

I was not informed regarding Mr Nabawi’s tax situation with the IRD and whether the IRD was taking steps to recover unpaid tax that he may owe. I consider it would have been helpful if the Commissioner had obtained evidence from the IRD on those matters. If the IRD takes no steps, then for the reasons I have already given I consider there are reasonable grounds to believe Mr Nabawi has profited from tax evasion. On the other hand, recovery action by the IRD may wipe out any profits the evasion has provided.

[120]          The issues were then further addressed in Li v Commissioner of Police.53 This case included allegations of tax evasion. After initial restraint orders were made the Court subsequently approved a settlement under s 95 of the Act. An issue then emerged over whether the amount agreed to be paid under the settlement should have been applied to the outstanding tax liability. Proceedings were then brought under the Declaratory Judgments Act 1908 to deal with that issue. Wylie J resolved the question by interpreting the settlement agreement, and finding that the parties to it did not intend the funds to be forfeited would be applied to tax liabilities.54 Wylie J went on to say, however:55

I am alive to the overarching concerns expressed by Ms Lanham. While I do not accept her argument that the property forfeited in this case was based on any agreement as to the quantum of the unlawful benefit, or that the unlawful benefit related primarily to unpaid tax, I am more sympathetic to her submission that there is a fundamental unfairness. As a result of what has occurred, Mr Li has been denied the benefit of either paying the tax and offsetting the amount against the benefit said to have been derived from

52     At [53]–[54].

53     Li v Commissioner of Police [2022] NZHC 514.

54 At [80].

55 At [104].

significant criminal activity for the purposes of the CPRA proceedings, or having the funds the subject of the assets forfeiture order credited against his subsequent assessed tax liability.

[121]Wylie J then set out the observations of Duffy J and said:56

Ms Lanham’s concerns, and those expressed by Duffy J, are implicitly founded in the doctrine that the Crown is a single entity, that the various government departments comprising the Crown are but elements of that entity, and that the Crown is one and indivisible.57 This doctrine, it seems to me, is relevant to the issue of double recovery. The Crown is the ultimate beneficiary of any monies disgorged by Mr Li, Ms Wang and AA Taxation, whether by way of forfeiture under the CPRA or by way of the payment of tax under the various Inland Revenue Acts.

[122]          Wylie J also then referred to the authorities from England and Wales which had also addressed this point which I will briefly refer to below.

[123]          The present case squarely raises these questions. That is because the only significant criminal activity involved  in  the  claim  against  Mr  William  Cheng,  Ms Nyioh Hong and their entities is tax evasion. There is no other offending involved. There are  substantial  assets  in  New Zealand,  including  over  $10  million  in  New Zealand trading bank accounts available to the IRD to satisfy the unpaid tax liability. Default assessments have been issued. The Commissioner seeks profit forfeiture of $1.6 million for the alleged benefit from the evasion in reliance on the default assessment, but the Commissioner of Inland Revenue presently seeks over

$11.4 million for the same tax evasion. As will be explained below the Commissioner of Inland Revenue has extensive powers to effectively confiscate the monies in the New Zealand bank accounts to recover what is due. The question of double recovery is plainly a live one.

[124]          In the course of the hearing two solutions were raised to the double recovery issue, the first raised by the Court, and the second raised by counsel assisting. I will address each in turn.

56 At [108].

57 Town Investments Ltd v Department of the Environment [1978] AC 359 (HL) at 400; Commissioner of Inland Revenue v Medical Council of New Zealand [1997] 2 NZLR 297 (CA) at 327; and Ministry of Fisheries v Vu [2010] NZCA 469, [2011] NZAR 114 at [38].

Undertakings

[125]          The first approach arose at the Court’s suggestion, and has been adopted by the Commissioner. When this issue emerged at the hearing I raised the possibility of the Commissioner of Police and the Commissioner of Inland Revenue filing a joint memorandum to the effect that the amount that would be forfeit in these proceedings would be applied to the outstanding tax liability.

[126]          After I had raised that possibility I heard from counsel assisting who suggested that this approach would not be consistent with the provisions in the Act. Having considered his points in a preliminary way I could see that that might be the case, but I still gave leave to the Commissioner to file a joint memorandum with the Commissioner of Inland Revenue along the above lines.  Mr William Cheng and   Ms Nyioh Hong filed a further memorandum objecting to this approach which I have taken into account.

[127]          The joint memorandum then filed recorded that the IRD had taken no recovery action in respect of the unpaid tax, and that it was considered that the current restraining orders prevented such steps being taken. It advised that if forfeiture was not ordered the Commissioner of Inland Revenue would consider the recovery powers under Part 10 of the Tax Administration Act, which will include the powers I refer to below. The joint memorandum further advised that the Commissioner of Police would consent to the Official Assignee making payment to the Commissioner of Inland Revenue in accordance with the operation of s 83 of the Act. The joint memorandum also said that, should payment be made to the Commissioner of Inland Revenue, the Commissioner would apply that sum to reduce the outstanding tax owed.

[128]          The potential problem with this approach was identified by counsel assisting. Profit forfeiture orders are made under s 55. That section is prescriptive. The order must specify the value of the benefit to be obtained under s 53, the maximum recoverable amount under s 54, and the property that is to be disposed of under s 83. Under s 55(4) the order is enforceable as an order made as a result of civil proceedings instituted by the Crown against the person to recover a debt due to it, with the maximum recoverable amount recoverable from the respondent by the Official

Assignee on behalf of the Crown as a debt due to the Crown. Then under s 83 the Official Assignee is directed to take steps with the forfeit property in accordance with that section, including by making the priority payments under s 83(1) such as the payment of the Official Assignee’s costs, and the repayment of any legal aid payments made for the respondent.

[129]          The difficulty is that these provisions do not contemplate the Official Assignee providing funds to the Commissioner of Inland Revenue to meet the respondent’s tax liabilities. Neither is there any clear power of the Court to direct the Official Assignee to do so. Such a direction would effectively be that the Official Assignee must pay amounts to the Commissioner of Inland Revenue, who is to receive and apply the funds for the benefit of the relevant respondent. Whilst the Commissioner of Police has indicated he consents to the Official Assignee making a payment to the Commissioner of Inland Revenue, and the Commissioner of Inland Revenue has indicated that if it receives such funds it will apply it against the tax due, there is no express statutory machinery that provides for this.

[130]          The Commissioner argued that such a direction would fall within s 59(1)(b) as a direction that is necessary or convenient for giving effect to the civil forfeiture order. But I have some doubts about that. Section 55(4) makes it plain that the Court’s order creates a new debt. Section 83 dictates how forfeit funds are to be dealt with. I question whether the power to give directions under s 59(1)(b) can be utilised to effectively override the effect of these provisions.

[131]          I refrain from concluding, however, that this avenue could never be applied. The risk of double recovery is a significant one, in the absence of any other technique to interpret or apply the Act in a manner that avoids that risk, this route may be necessary. The circumstances of future cases may mean that this would be an appropriate way forward.

[132]          I have given consideration to the point made by Wylie J in Li that the Crown is a single entity.58 But that concept does not avoid the fact that legislative provisions create separate requirements that must be adhered to by the different representatives

58     Li v Commissioner of Police, above n 53, at [108].

of the Crown involved. Sections 55 and 83 prescribe what must happen to the property that is subject to the order, and the fact that the Crown is notionally a single entity does not avoid the impact of these provisions.

Tax Administration Act prevails

[133]          The alternative approach was advanced by counsel assisting. It has two relevant aspects. The first is that in cases where the Commissioner of Inland Revenue remains able to recover the unpaid tax, and clearly has the ability to do so in relation to New Zealand assets, as a matter of fact the respondent has not benefitted from the tax evasion. Indeed, given the extensive powers the Commissioner of Inland Revenue, including the penalty provisions, such a respondent is in a “world of grief”.59 Secondly, the provisions of the Act allow the Commissioner of Inland Revenue to apply for relief against restraint, and relief against forfeiture, to allow for recovery of the tax due. That approach would be most appropriate in more borderline cases.

[134]          Under s 157 of the Tax Administration Act the Commissioner of Inland Revenue has a power to issue a notice to require any person to deduct or extract a sum that is equal to the amount payable by the taxpayer from any funds, and pay the sum to the Commissioner. That means, for example, that the Commissioner can direct a bank to pay it money from an account of a defaulting taxpayer to meet the amount of tax due. That power could be exercised here in relation to the more than $10 million in Mr William Cheng’s bank accounts. The Commissioner has not yet exercised such powers. The joint memorandum explains that that has not occurred because of the restraint orders made by the Court under the Act. But even if the judgment is released dismissing the Commissioner’s application for  a  profit  forfeiture  order  against  Mr William Cheng, Ms Nyioh Hong and their entities, the Commissioner of Inland Revenue remains able to exercise such powers. The judgment dismissing the application will not dismiss the orders restraining those accounts. Under s 38 the restraining orders remain in place for seven working days from the date of the decision, and if an appeal is lodged the restraint remains in place until the withdrawal or determination of that appeal.

59     Commissioner of Police v Snook [2018] NZHC 2537 at [59].

[135]          I am satisfied, therefore, that the Commissioner of Inland Revenue retains an effective ability to recover the outstanding tax debt as well as the penalties from    Mr William Cheng’s account.

[136]          In those circumstances it seems to me that the Court is in the situation described by Duffy J in Nabawi where “… recovery action by the IRD may wipe out any profits the evasion has provided”.60 As Ellis J said in Commissioner of Police v Snook in similar circumstances:61

… as the term suggests, profit forfeiture orders are concerned with “profit” which, like “benefit”, connotes a gain or surplus. The purpose of such an order is to ensure that a respondent is not better off as a result of the relevant offending than he or she was before. It seems to me that the word “benefit” must also be interpreted in that context and in that light.

[137]          I accept  Mr Lennard’s  arguments  in  this  respect.  Mr  William  Cheng,  Ms Nyioh Hong and the entities are not better off as a result of their tax evasion. They are, in Ellis J’s words, in a “world of grief”. The allegation that they have benefitted is not established as a matter of fact. The Commissioner of Inland Revenue is now seeking $11.4 million arising from the initial $1.6 million unpaid, and has access to bank accounts holding over $10 million which are presently restrained, but which will be available to the IRD as soon as this judgment is released.

[138]          It may be observed that the wrongdoing of Mr William Cheng, Ms Nyioh Hong and their entities is ultimately naïve. Their tenants were paying rent, and were no doubt declaring that they were doing so in their own income tax and GST returns. Those proceeds were then simply going into Mr William Cheng’s New Zealand bank account over a period of some 10 years where they sat largely accumulating in the account. It is close to inevitable that the authorities would catch up with the failure to file returns and pay tax in those circumstances. The fact that the proceeds remained available for recovery by the authorities ultimately demonstrates that Mr William Cheng and Ms Nyioh Hong are not sophisticated wrongdoers. In any event, in the circumstances of this case, the IRD should now simply be allowed to take enforcement action to regularise the position.

60     Commissioner of Police v Nabawi, above n 32, at [54].

61     Commissioner of Police v Snook, above n 59, at [63], emphasis added in original..

[139]          I am not suggesting that the above approach will be appropriate in all cases which have elements of tax evasion. But in the present case where the only substantiated allegation against these respondents is tax evasion, and the Commissioner of Inland Revenue is now perfectly placed to take effective enforcement action, I do not accept that it has been proved that on the balance of probabilities that the respondents have benefitted from the significant criminal activities.

[140]          There may be cases where the issue is more complex, and where tax evasion is mixed in with other serious offending. But in those situations I accept Mr Lennard’s submissions that the provisions of the Act can be interpreted and administered in a way that makes this Act, and the Tax Administration Act work in the way that Parliament must have intended. That is generally the approach that should be adopted in the interpretation of overlapping statutes.62 Mr Lennard argued that the Commissioner of Inland Revenue could apply for relief against forfeiture under s 61 of the Act so that certain funds are not subject to forfeiture. The Commissioner of Inland Revenue could also apply at the restraint stage for a variation of the restraint orders under s 35 to allow funds to be released to meet tax payable. Mr Lennard argued that the Commissioner should be served in accordance with s 21 in s 45 in cases where the Commissioner of Inland Revenue has an interest in the property subject to proposed orders. That approach to the above provisions also has the advantage that the Commissioner of Inland Revenue’s applications would involve carrying into effect the revenue laws in accordance with the exceptions to the secrecy provided by the Tax Administration Act under s 18B. So the Commissioner could fully explain the position and affidavit evidence before the Court as Duffy J identified was appropriate in Nabawi.63

[141]          The Commissioner argued that the statute did not work in this way because the Commissioner of Inland Revenue would not have an “interest in the property” subject to the applications for restraint and forfeiture as required. I do not accept that. The definition of interest in s 5 is:

62     See Burrows and Carter Statute Law in New Zealand (6th ed, LexisNexis, Wellington, 2021) at  p 613.

63     Commissioner of Police v Nabawi, above n 32, at [54].

interest, in relation to property of any kind (including, without limitation, restrained property or forfeited property), means—

(a)a legal or equitable estate or interest in the property; or

(b)a right, power, or privilege in connection with the property

[142]          The powers that the Commissioner has to direct that funds in an account be separated from that account and paid to the Commissioner to meet a taxpayer’s tax liability under s 157 of the Tax Administration Act falls within the definition of a “right or power” in connection with that property under paragraph (b) of the definition. If the power had actually been exercised it would be clear that an interest had arisen, and it may be that the power could be exercised at the same time as the relief application, or that the IRD could explain its proposal to exercise the power so that its interest in the property could be identified.

[143]          The use of provisions in this way may well be appropriate in more complex cases where the alleged significant criminal activity encompasses other offending as well as tax offending, including applications in relation to tainted property. They then allow the procedures of the Act to work, and the Court to make judicial decisions on what property, if any, is to be separated out to meet taxation liabilities.

[144]          The double recovery issue has arisen in other jurisdictions which have regimes for criminal profit forfeiture. In R v Waya the United Kingdom Supreme Court addressed the double recovery issue.64 In delivering the majority judgment (with which the minority did not disagree on this point) Lord Walker and Hughes LJ said:65

… HM Revenue and Customs does not as a matter of practice seek double recovery by way of both the payment of the unpaid duty and a confiscation order in the same sum: see R v Edwards [200] 2 Cr App Rep (S) 160, paras 24–25, where the existence of this practice was the reason why no breach of A1P1 was argued. This practice is to be followed, it appears, because such double recovery is recognised to be disproportionate and wrong. On the principle explained … above, the argument may need in the future to be considered that a disproportionate result should not be left to be achieved by way of Executive concession but rather should be the responsibility of the Court to which an application for a confiscation order is made.

64     R v Waya [2012] UKSC 51, [2013] 1 AC 294.

65 At [33].

[145]          The provisions in the UK legislation are different. But the point still applies. It is more appropriate that there be judicial determination of any double recovery question, rather than the matter being resolved by executive agreement, and the filing of a joint memorandum by counsel for the Commissioner of Police, and counsel for the Commissioner of Inland Revenue.

[146]          For all the above reasons I accept that this is a better approach to addressing the double recovery issue.

Property subject to orders

[147]          Once the Commissioner has proved significant criminal activity, that the respondent benefitted from it, and the value of that benefit has been calculated under ss 52 and 53 there are further steps. The Court must determine the maximum recoverable amount under s 54. This involves deducting the value of any assets forfeited by an assets forfeiture order. No such assets were forfeited in the present case. Then under s 55 the Court must make a profit forfeiture order by specifying the relevant amounts, and then specify the property in which the respondent has, or is treated as having, an interest, which is to be disposed of to meet the amount to be forfeit. The Official Assignee then disposes of that property in accordance with s 83.

[148]          On the face of it there is limited property of Mr Thomas Cheng to meet the profit forfeiture order in the amount of $512,852. The value of the funds in the bank accounts which were subject to restraint are a little over $40,000 together with any interest that has been earnt on  those  amounts  since restraint.  He has  no  other  New Zealand assets, he is presently in prison, and will no doubt be deported to Singapore once released. But the Commissioner alleges that the forfeiture order can be satisfied from the substantial assets of Mr William Cheng, Ms Nyioh Hong, and their entities. The Commissioner advances that argument in two ways.

Interest through power of attorney

[149]          The Commissioner must prove, on the balance of probabilities, that the relevant respondent has an interest in the relevant property under s 55(1)(b). The Commissioner contends that Mr Thomas Cheng has an interest in the property in

accordance with the definition of “interest” set out at paragraph [141] above because he held a power of attorney for Mr William Cheng, to be exercised when Mr William Cheng did not have capacity.

[150]          I do not accept this argument establishes an interest for two reasons. First, I do not accept that Mr William Cheng lacked capacity such that the power of attorney was activated. The condition required for the interest  to  arise was  not  satisfied.  Mr William Cheng apparently has health issues, and there have been statements from Mr William Cheng, and Ms Nyioh Hong to the effect that Mr William Cheng suffers from conditions that affect his capacity. This included Ms Nyioh Hong producing a medical report in April 2013 saying that Mr William Cheng was “dysfunctioning”. But I am not satisfied that he was incapacitated so that Mr Thomas Cheng’s authority arose. When Ms Nyioh Hong and Mr William Cheng participated in telephone conferences and by way of AVL before me, Mr William Cheng spoke and advanced articulate submissions. His submissions, and the manner in which they were delivered, did not suggest a lack of mental capacity of a kind that would suggest he did not have capacity to deal with his personal affairs. Mr Thomas Cheng gave evidence about the circumstances leading to him holding the power of attorney. I treat his evidence with some care — Thomas is an intelligent and articulate person with a degree of personal charisma, but he is not reliable. I nevertheless accept he gave truthful evidence about this matter. He has had a very troubled life, and a troubled relationship with his father. He became overcome with emotion when giving evidence describing his reaction to his father’s health concerns at the time, and the request that he be his attorney. I accept his evidence about this power of attorney, including that he never utilised it. I am not satisfied that Mr Thomas Cheng had interests in the property for that reason.

[151]          Secondly, the definition of “interest” does not contemplate a situation when a person is exercising a role under a power of attorney because the property owning donor is incapacitated. The definition of “interest” captures situations where the person has a form of beneficial interest such that the property is to be treated as their own, or partly their own. For an attorney to treat the property of the incapacitated person for their own benefit would be a flagrant breach of their obligations. To say a

trustee has an interest in the property of the beneficiaries would be clearly unjust.66 That is not to suggest that a person who is a trustee of property may not be found to have an interest in that property for the purposes of the Act. Each case will depend on its circumstances. But I do not accept that a person holding a power of attorney, enabling them to step in when a person who has become mentally or physically incapacitated and cannot manage their affairs, obtains a personal interest in that person’s property so that it is liable to be forfeit for the wrongdoing of the attorney.

Effective control

[152]          The second argument for the Commissioner was based on a broader review of the circumstances. The Commissioner contended that Mr Thomas Cheng had effective control of the property of his father, stepmother and their entities. That was not initially advanced as part of the application, but I gave leave to the Commissioner to file an application for effective control order under s 58 of the Act. Whether it was effectively served on Mr William Cheng and Ms Nyioh Hong may be an open question. Under s 58(1) if the Court is satisfied that a respondent has effective control over property it may be treated as though the respondent has an interest in the property. The general approach under this provision involves the Court considering the practical reality of ownership rather than being limited to legal form.67 The fundamental question is whether, as a matter of fact, the respondent had the capacity to control, use, dispose of, or otherwise treat the property as his or her own.68 Unlike other provisions in the Act the burden of proof is not specified — the Court just needs to be so “satisfied”. But it seems clear that this will be the same standard as referred to elsewhere. The Commissioner would need to establish this on the balance of probabilities. If granted this would mean that Mr Thomas Cheng would be treated as having an interest in this property allowing a forfeiture order to be made against him in relation to it.

[153]          I do not accept that the evidence shows that Mr Thomas Cheng had effective control of this property, or any material part of it. It is true that he was appointed

66     Commissioner of Police v Briggs [2012] NZHC 2324 at [68].

67     Commissioner of Police v Read [2015] NZHC 2055 at [60]; Solicitor-General v Bartlett [2008] 1 NZLR 87 (HC) at [27].

68     Commissioner of Police v Jiang [2020] NZHC 695, [2021] 2 NZLR 272 at [43].

partner of some of the entities, and that he also acted as the property manager of the Masonic Hotel and the nearby Redoubt building. He performed other tasks for his parents when they needed to be done by someone in New Zealand. For example he negotiated the purchase of another property in Gisborne. There is other more circumstantial, or peripheral evidence the Commissioner relied upon. These matters do not establish that he had any control, or interest in a real or beneficial sense, however. I do not accept that some of the things Mr Thomas Cheng said about what he owned is reliable. I am satisfied from the evidence that the true position is that  Mr William Cheng and Ms Nyioh Hong kept their property separate from Mr Thomas Cheng, and that they were quite careful in relation to what they allocated to him. For example I accept Mr Thomas Cheng’s evidence that they paid him an allowance for a period.

[154]          Thomas Cheng's family life was plainly not straightforward, and the relationship with his father and stepmother has been difficult. I accept that Mr William Cheng would have liked his son to become involved in his business activities, and ultimately take them over. But it simply did not work out that way. His father arranged for him to come to New Zealand and made an arrangement with him in relation to new tenants at the Masonic Hotel. But Thomas gave evidence that he did not think he was being given enough, and he started not only deriving additional amounts from this arrangement behind his father’s back, but also resumed drug dealing. He was arrested within a year of coming to New Zealand. The risk of this kind of behaviour was what led his parents to be careful with what they gave him. He plainly did not have effective control of his father and stepmother’s wealth.

[155]          The Commissioner relied on the earlier decision of Grice J in support of their arguments in this respect. But all that Grice J found was that, at the restraint stage, given that Thomas held his father’s power of attorney and had connections with the restrained property there was sufficient evidence that he had an interest in or right of privilege in connection with the property.69 She did no more than identify an arguable case for the purposes of restraint. Having now considered the more comprehensive

69     Commissioner of Police v Cheng, above n 4, at [51].

evidence I am satisfied that he did not have an interest as defined, or as contemplated by s 58.

[156]Given the above findings I make the following formal orders:

(a)The value of the benefit determined under s 53, and the maximum recoverable amount under s 54 against Mr Thomas Cheng is $512,852.

(b)The property that is to be disposed of in accordance with s 83(1) is:

(i)All the funds contained in the Westpac bank account in the name of Mr Thomas Cheng.

(ii)All the funds contained in the Westpac bank account in the name of Mr Thomas Cheng.

(iii)All the money held in the account in the name of Mr Thomas Cheng and the interested party Grace Yei Huey Fan.

(iv)All the money in the Westpac Bank New Zealand Police Trust Account deposit Eastern Account representing cash seized from Mr Thomas Cheng at the time of his arrest, plus any interest earned on that amount.

Conclusion

[157]          For the above reasons  I uphold the profit forfeiture orders in relation  to     Mr Thomas Cheng, and make the order referred to in [156] above. I otherwise dismiss the applications.

[158]          This means that applications seeking profit forfeiture orders over property worth in excess of $20 million has resulted in an order in relation to only one of the respondents for $512,852 where there appears to be property worth only a little over

$40,000 to satisfy the order.

[159]          Much of the Commissioner’s application was based on grouping together a number of matters concerning Mr Thomas Cheng, Mr William Cheng, and Ms Nyioh Hong. Mr  Thomas  Cheng  engaged  in  significant  drug  dealing  activities,  and  Mr William Cheng and Ms Nyioh Hong also engaged in tax evasion. This is significant offending reflected in Mr Thomas Cheng’s lengthy prison sentences, and sizeable tax liability now faced by Mr William Cheng, Ms Nyioh Hong and their entities. But I have rejected the idea that there was a much greater criminal enterprise involving what the Commissioner has described as the Cheng Group. Moreover none of the offending the Commissioner has identified is  sophisticated.  In  the case of  Mr William Cheng and Ms Nyioh Hong their blatant failure to file income tax or GST returns, and to pay income tax and GST, was always likely to be detected. The fact that the gross revenues they earned remained available in their New Zealand bank accounts when restraining orders were made demonstrates that they were naïve. They are now in a world of trouble with the IRD.

[160]          This tax evasion provided a potential basis for a profit forfeiture application for the unpaid tax, which totalled $1.6 million. But there is no basis for profit forfeiture of over $20 million. In any event, for the reasons I have explained above, the application for profit forfeiture in the amount of $1.6 million is declined because the IRD are now in a position to recover all the unpaid tax, as well as significant penalties and interest in a way that eliminates any benefit from this offending.

[161]          I reserve leave on the question of costs, both in respect of the position of the first respondent, and in relation to the costs of counsel assisting. Whilst the Commissioner has succeeded in the application in relation to the first respondent it is for much less than claimed. I do not know whether the first respondent offered to consent to orders for lesser amounts. In relation to the costs of counsel assisting, it seems to me that his role was necessary for the Court to properly understand the Commissioner’s applications, and that this may be a case where the Commissioner would be directed to meet the costs under s 178 of the Senior Courts Act 2016.

[162]          Against that background I invite the parties and counsel assisting to seek to agree costs. If costs cannot be agreed I would invite the parties and counsel assisting to seek to agree to the order in which memoranda are to be filed. The memoranda

should be no longer than 10 pages plus a schedule and should be filed within 10 days of the release of this judgment, to be responded to within five working days thereafter.

[163]          This judgment was originally issued on 24 March 2023 to the parties only to give an opportunity to make application that any part of it should be suppressed. Such an application was then made, and I have granted it in relation to limited matters. This re-issued judgment effectively redacts those matters.

[164]          Finally I am conscious that this judgment deals with a number of matters of some detail. I reserve leave to apply in relation to any errors, or matters that have been overlooked or misunderstood.

Cooke J

Solicitors:

Luke Cunningham Clere, Wellington for the Applicant Ord Legal, Wellington for the First Respondent