Commissioner of Police v Drake
[2017] NZHC 2919
•27 November 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2015-409-000284 [2017] NZHC 2919
BETWEEN THE COMMISSIONER OF THE NEW
ZEALAND POLICE Applicant
AND
LETICIA MARGARET DRAKE First Respondent
AND
GAVIN JOHN STEWART Second Respondent
Hearing: 2-3 and 5-6 October 2017
Closing submissions:
Applicant: 20 October 2017
Respondents: 6 November 2017
Applicant in reply: 6 November 2017Appearances:
K A South for the Crown
M Starling for RespondentsJudgment:
27 November 2017
JUDGMENT OF DUNNINGHAM J
THE COMMISSIONER OF THE NEW ZEALAND POLICE v DRAKE AND ANOR [2017] NZHC 2919 [27 November 2017]
Contents
Introduction ........................................................................................................... [1] The Criminal Proceeds (Recovery) Act 2009 ....................................................... [6] Assets forfeiture orders [9] Profit forfeiture orders [13] The applications .................................................................................................. [18] Assets forfeiture order [18] Profit forfeiture orders [22] Events leading to this application ....................................................................... [29] The respondents’ challenges to the admissibility of certain evidence ................ [45] Should any evidence be excluded as hearsay evidence?..................................... [46] The respondents’ submissions [49] The applicant’s submissions [51] Discussion [55]
Should any of the evidence be excluded on the basis it has been improperly obtained? ............................................................................................................. [61] The credibility of the witnesses........................................................................... [66]
Ms Drake [69] Mr Stewart [73] Ms Marshall [76] The issues ............................................................................................................ [79] What was the extent of Ms Drake’s significant criminal activity? ..................... [81] Did Mr Stewart engage in significant criminal activity? .................................... [85] Is the property tainted? ...................................................................................... [100] The applicant’s submissions [101] The respondents’ submissions [104] Discussion [105] Do they each have an interest in the tainted property? ..................................... [120] Should any property be excluded from the asset forfeiture orders because of undue hardship? ........................................................................................................... [122] The respondents’ submissions [122] The applicant’s submissions [124] Discussion [129] Conclusions on application for asset forfeiture orders...................................... [138] Profit forfeiture orders....................................................................................... [139] Did Mr Stewart knowingly benefit from Ms Drake’s benefit payments? ......... [141] The applicant’s submissions [141] The respondents’ submissions [145] Discussion [147]
Has the Commissioner correctly calculated the amount of the welfare benefit?
........................................................................................................................... [153] The respondents’ submissions [156] The applicant’s submissions [160] Discussion [161] Orders ................................................................................................................ [162] Costs .................................................................................................................. [166]
Introduction
[1] The respondents, Leticia Drake and Gavin Stewart, are the joint owners of a property at 142 Emmett Street, Christchurch, and have received EQC and earthquake insurance payments which relate to this property. Mr Stewart also has nearly $70,000 in savings.
[2] These assets are currently subject to restraining orders under the Criminal Proceeds (Recovery) Act 2009 (the Act) on the basis that the Court has grounds to believe that the respondents have unlawfully benefitted from significant criminal activity, they have an interest in this property, and the property is “tainted” by such offending.
[3] The applicant now seeks civil forfeiture orders under the Act. He seeks both asset forfeiture orders in respect of the respondents’ property and a profit forfeiture order in the sum of $158,635.03, being the amount the respondents are claimed to have received as unlawful benefits from their offending in the seven year period prior to the application being made. That amount comprises money Ms Drake received by fraudulently claiming a benefit from the Ministry of Social Development (“MSD”) when she was living in a de facto relationship, as well as Working for Families tax credits she received. It also includes the amount Mr Stewart is alleged to have benefited from through tax evasion, in that he failed to pay income tax on all of his earnings between 1 April 2010 and 1 July 2016 as an electrician.
[4] In addition to benefitting from their own offending, both Mr Stewart and
Ms Drake are alleged to have knowingly, directly or indirectly, benefitted from the other’s significant criminal activity.
[5] The applications are opposed on a number of fronts. The allegations of tax evasion by Mr Stewart are denied. He also denies having knowledge of Ms Drake’s significant criminal offending or that he benefitted from it, whether directly or indirectly. The respondents both deny that the property identified for the purpose of assets forfeiture orders is tainted. They also say that, in calculating the amount of the
unlawful benefit for the purpose of a profit forfeiture order, the applicant should have taken into account the respondents’ “notional entitlement” to other MSD benefits and tax credits.1 Finally, it is alleged that the making of the assets and profit forfeiture orders would result in undue hardship to the second respondent and the respondents’ children and, in the circumstances, the orders should not be made.
The Criminal Proceeds (Recovery) Act 2009
[6] The applications for civil forfeiture orders are brought under the Act. The purpose of the Act is to establish a regime for the forfeiture of property that:
(a) has been derived directly or indirectly from significant criminal activity; or
(b) represents the value of a person’s unlawfully derived income.2
[7] The objective of the regime is to:
(a) eliminate the chance for persons to profit from undertaking or being associated with significant criminal activity; and
(b) deter significant criminal activity; and
(c) reduce the ability of criminals and persons associated with crime or significant criminal activity to continue or expand criminal enterprise.3
[8] The Act provides for the restraint and forfeiture of property without the need for a conviction in relation to the alleged criminal activity.4 Furthermore, s 10 expressly provides that applications under the Act for an assets forfeiture order or
profit forfeiture order are civil proceedings.
1 Notional entitlement in respect of benefit fraud is a calculation of what benefit a fraudulent beneficiary would have been legitimately entitled to.
2 Section 3(1).
3 Section 3(2).
4 Section 4(1)(a).
Assets forfeiture orders
[9] Section 50 of the Act provides that if the High Court is satisfied on the balance of probabilities that specific property is “tainted property” the Court must make an assets forfeiture order in respect of that specific property.
[10] “Tainted property” is defined in s 5 of the Act to include property that has, wholly or in part, been acquired as a result of significant criminal activity or directly or indirectly derived from significant criminal activity.
[11] “Significant criminal activity” is defined in s 6 of the Act to mean activity that, if proceeded against as criminal offending, would consist of or include:
(a) one or more offences punishable by a maximum term of five years’
imprisonment or more; or
(b) an offence from which property, proceeds, or benefits of a value of
$30,000 or more have, directly or indirectly, been acquired or derived.
[12] Under s 51, the Court may exclude certain property from an assets forfeiture order if it considers that, having regard to all of the circumstances, undue hardship is reasonably likely to be caused to the respondent if the property is included in the assets forfeiture order.
Profit forfeiture orders
[13] Section 55 of the Act provides that if the High Court is satisfied, on the balance of probabilities, that the respondent:
(a) has unlawfully benefited from significant criminal activity within the
“relevant period of criminal activity”;5 and
(b) has interests in property
5 That is, within seven years of the date the application is made.
then the Court must make a profit forfeiture order in respect of that property.
[14] The term “unlawfully benefitted from significant criminal activity” means the person has “knowingly directly or indirectly derived a benefit from significant criminal activity (whether or not that person undertook, or was involved in, that activity).6
[15] Section 53 provides that the value of that benefit is presumed to be the value stated in the application if the Commissioner proves, on the balance of probabilities, that the respondent has, in the relevant period of criminal activity, unlawfully benefited from significant criminal activity. The respondent, however, can rebut that presumption on the balance of probabilities.7
[16] Section 54 provides that the maximum recoverable amount is the value of the benefit under s 53, less the value of any property forfeited to the Crown as a result of an assets forfeiture order made in relation to the same significant criminal activity. Thus, if an assets forfeiture order is made, the terms of the profit forfeiture order must be adjusted to reflect that.
[17] Just as s 51 of the Act allows the Court to exclude property from an assets forfeiture order if it considers that undue hardship is likely to be caused to the respondent, an equivalent provision is contained in s 56 of the Act in relation to profit forfeiture orders.
The applications
Assets forfeiture order
[18] The Commissioner alleges that the following property is “tainted property”:
(a) the property at 142 Emmett Street, Shirley, Christchurch (excluding any interest of ANZ Bank New Zealand Limited under its registered mortgage). It has a current market value of $358,000 and the parties
have equity in the property of $229,597.25;8
6 Section 7.
7 Section 53(2).
8 As at 20 April 2017.
(b)the EQC and earthquake insurance payments connected with the residential property at 142 Emmett Street being:
(i) a payment from the Earthquake Commission of $9,974.40; and
(ii) a payment by Vero Insurance totalling $13,119.30; and
(c) funds held in the custody of the Official Assignee in the name of the first and second respondents which, at 31 August 2017, totalled
$69,951.52 including interest.
[19] The significant criminal activity alleged is:
(a) obtaining by deception between 31 January 2005 and April 2015 from the Ministry of Social Development (s 240 Crimes Act 1961, maximum penalty seven years’ imprisonment);
(b)using a document to obtain a pecuniary advantage from the Ministry of Social Development (x 14) between 1 October 2003 and 5 April 2015 (ss 229A and 228(b) Crimes Act 1961, maximum penalty seven years’ imprisonment); and
(c) tax evasion (s 143B of the Tax Administration Act 1994 maximum penalty five years’ imprisonment).
[20] The respondents are alleged to have an interest in the property as:
(a) they are the joint registered proprietors of the property at
142 Emmett Street;
(b)the EQC and earthquake insurance payments relate to the jointly owned property at 142 Emmett Street, and the claims were made in joint names; and
(c) the funds held in the custody of the Official Assignee came from bank accounts belonging to the second respondent, but the first respondent also has an interest in this property in the form of a relationship property claim.
[21] The applicant claims that the property in respect of which these orders are sought is tainted because significant criminal activity enabled the accumulation of equity in the Emmett Street property and the savings identified in [18](c) above. The savings were also contributed to by Ms Drake from the account her benefit was paid into. In addition, cash earnings in respect of which no tax has been paid were used to improve the Emmett Street property. Because the insurance premiums were paid with Ms Drake’s unlawfully obtained benefit payments, the insurance and EQC payments are also claimed to be tainted property.
Profit forfeiture orders
[22] The applicant relies on the same benefit fraud offending in relation to its application for profit forfeiture orders. It notes that Ms Drake was convicted of the offences listed in [19] above and is currently serving a two year and nine month sentence of imprisonment. Ms Drake is also alleged to have unlawfully benefited by fraudulently obtaining Working for Families tax credits during the period 1 April 2005 to April 2015, which is an offence against s 240 Crimes Act 1961 (carrying a maximum penalty of seven years’ imprisonment), although Ms Drake was not prosecuted in relation to this offending.
[23] While the value of the unlawful benefit from the benefit fraud totals $252,953 over a 15 year period, under s 54 of the Act, the maximum amount recoverable is limited to the “relevant period of criminal activity”, being seven years prior to the filing of the restraint application.
[24] The value of the unlawful benefit Ms Drake is alleged to have obtained in the
relevant period of criminal activity is $136,526.31 calculated as follows:
MSD benefits $91,256.33 Working for Families Tax Credits $ 45,269.98 Total $136,526.31
[25] The Commissioner also seeks a profit forfeiture order in relation to alleged tax evasion by Mr Stewart, saying that he has deliberately under-reported his taxable earnings for the purpose of reducing the tax payable by him on his earnings as a self-employed electrician between 1 April 2010 and 1 July 2016.
[26] Mr Stewart has recently filed tax returns claiming his taxable earnings were as follows:
(a) year ending 31 March 2011 - $0;
(b) year ending 31 March 2012 - $0;
(c) year ending 31 March 2013 - $7,379.74;
(d) year ending 31 March 2014 - $5,100.25;
(e) year ending 31 March 2015 - $15,885.25; and
(f) year ending 31 March 2016 - $7,820.
[27] Mr Stewart has therefore been assessed for and has paid income tax in the amount of $3,931.28 for the period 1 April 2010 to 31 March 2016. However, the Commissioner estimates that Mr Stewart has earned at least $30,000 per annum between those dates. If so, he would have been liable to pay $26,040 in income tax. It is therefore alleged that he has unlawfully benefited from tax evasion to the value of at least $22,108.72.
[28] These sums are sought to be recovered through the making of a profit forfeiture order under s 55 of the Act, which would allow the disposal of some or all of the property listed in [18] above, in order to recover the value of the unlawful benefit received.
Events leading to this application
[29] Ms Drake had a son to Mr Stewart on 22 October 1997. In 1999 she was investigated for benefit fraud commencing on the date of her son’s birth. She was subsequently convicted and sentenced on four counts of using a document for pecuniary advantage and one count of misleading a social welfare officer, on the basis that she had been claiming a domestic purposes benefit from October 1997 to December 1999 while living with her de facto partner, Mr Stewart.
[30] During the investigation of that offending, evidence was obtained from neighbours and the respondents’ landlord that the couple had been living together for that two year period. Ms Drake eventually conceded that was correct. Mr Stewart, however, only ever admitted living with the first respondent for one year, from
1 November 1998 to December 1999. He said that, before this, he lived somewhere else as he knew she was on a benefit and that if they were living together “you can get done for fraud”.
[31] Despite having been convicted of benefit fraud, in early 2000, Ms Drake again applied for the domestic purposes benefit, saying that she had separated from Mr Stewart on 23 January 2000. The benefit was granted from 31 January 2000. However, shortly afterwards, on 10 February 2000, Mr Stewart was added as an additional tenant to the property she leased from Housing New Zealand, at
142 Emmett Street, Christchurch.
[32] Over the intervening years, Ms Drake completed annual Work and Income review forms and on each occasion declared that she was not married or living with a person in a relationship in the nature of marriage. She also confirmed that she would advise MSD if her circumstances changed.
[33] During this period Mr Stewart worked as an employed electrician at Casa Electrical Limited. He said in evidence that he worked extremely hard, sometimes putting in 12 or 14 hour days, in order to build up savings “for a decent future”.
[34] Ms Drake also undertook part-time work. Most of this was in rest homes and then, from 2008 onwards, she worked at Countdown supermarkets where she was earning between $12,000 and $21,500 annually. She did not advise the Ministry of the extent of her work and earnings while she was claiming the benefit.
[35] On 9 March 2010, Ms Drake and Mr Stewart purchased the property at Emmett Street. The deposit was paid from a savings account in Mr Stewart’s name, but the property was registered in their joint names.
[36] Very shortly afterwards, Mr Stewart was made redundant when his employer, Casa Electrical Limited, shut down. However, Mr Stewart purchased his employer’s work van along with the electrical equipment it contained. He claims he then had no paid employment at all for two and a half years until he commenced doing some part- time work for a registered electrician, Ambika Prasad, and which he acknowledges was paid for entirely in cash at the rate of $25-30 per hour. After these proceedings convened, Mr Stewart filed tax returns declaring that over the six year period from 1
April 2010 to 31 March 2016 he earnt $60,534.25.
[37] On 11 June 2011, Ms Drake and Mr Stewart unexpectedly had another child, a daughter. Notwithstanding that, Ms Drake’s part-time employment with Countdown continued, albeit at slightly lower levels than before her daughter’s birth. Her net earnings in the year following her daughter’s birth were just over $12,000, but built up to just over $18,000 in the financial year ending 31 March 2015.
[38] After purchasing the Emmett Street property, the respondents embarked on an extensive programme of home renovation. The bathroom and kitchen were renovated, new stainless steel appliances were installed in the kitchen and new whiteware in the laundry. The house was re-carpeted, new curtains were purchased for the lounge and a new front door was installed. Outside, a 53 square metre garage/workshop was built
and converted to a sleep-out with its own ensuite. At the rear of the property a new deck was added with suspending awnings over it. To the front of the property a new wood and corrugated iron fence was built.
[39] In 2015, as a result of a complaint made to MSD, an investigation was initiated into Ms Drake’s affairs. A search warrant was obtained and taken to the Emmett Street property on 13 April 2015. An MSD investigator, Mr Darran Toner, met Mr Stewart at the property, cautioned him, and then took notes of the discussion which followed, as Mr Stewart refused to have the conversation recorded. Mr Stewart called Ms Drake on his cell-phone, telling her to come home because police and a “WINZ fraud investigator” had arrived and she was “going to jail”.
[40] Ms Drake did return to the property shortly afterwards and agreed to be interviewed by Mr Toner. In her interview she acknowledged the following:
(a) she did not believe she was entitled to any of the benefits she had claimed over the years 2000 to 2015;
(b)she and Mr Stewart had had a loving relationship, but it went downhill when the earthquake struck;
(c) that there were problems because she would “go out and spend money on anything just to feel good” and the bills were not getting paid;
(d)she had had a gambling problem but got it under control about seven years earlier;
(e) although she and Mr Stewart had had fights, he would only have left for a night here and there and he never moved his belongings out of the house before returning;
(f) Mr Stewart was the father of their daughter, even though she told Work and Income that someone else was;
(g)the motor vehicles they owned were all registered to her but she drove the Mazda Familia car and he drove the Toyota Hi-Ace van, although he did not have a licence; and
(h)they purchased the house with money he had saved in his bank account and he paid the mortgage and telephone account out of his account while she paid the power, the rates, the insurance and the groceries.
[41] In light of evidence obtained through interviews of the respondents and other persons with knowledge of their relationship, Ms Drake was charged with obtaining by deception and 14 charges of using a document on 3 May 2016.9 Judge Neave sentenced her to two years and nine months’ imprisonment on these charges.
[42] While the investigation of the respondents’ affairs continued, an application for restraining orders was made. This was granted on 12 May 2015. The substantive application for civil forfeiture orders was filed in August 2016. On 28 July 2016,
Mr Stewart engaged the services of an accounting firm to lodge tax returns for the period of his self-employment. Those returns form the basis of the claimed income earned which is set out at [26] above.
[43] Shortly after the search warrant was exercised in May 2015, Mr Stewart transferred ownership of the Toyota Hi-Ace van to his 68 year old mother. He explained that he sold the van as he needed money and his mother “held it for my nephew who paid it off”.
[44] The current circumstances of the respondents are that Ms Drake is still serving her jail term for benefit fraud. Mr Stewart continues to work as a self-employed
electrician, and he looks after the couple’s daughter who is now six years old.
9 R v Drake [2016] NZDC 7545.
The respondents’ challenges to the admissibility of certain evidence
[45] At the hearing, the respondents raised a number of challenges as to the admissibility of the applicant’s evidence. These were confined, in closing submissions, to the following objections:
(a) the statements made by the following individuals, which were referred to in the affidavits of witnesses, are said to be inadmissible hearsay evidence: Richard Diver, Ambika Prasad and Patrick Drury;
(b)the evidence of Sergeant Rose regarding visual surveillance carried out on the second respondent by police is said to be admissible as it is irrelevant and hearsay; and
(c) the evidence obtained by Mr Darran Toner from the interview undertaken in the course of executing a search warrant on
142 Emmett Street was improperly obtained because it was obtained in breach of the Bill of Rights Act 1990. Although s 30 of the Evidence Act 2006 only applies to criminal proceedings, the Court is not precluded from excluding evidence in civil proceedings on the grounds it was improperly obtained and, in this case, this evidence should be excluded.
Should any evidence be excluded as hearsay evidence?
[46] Despite the general rule in s 17 Evidence Act 2006, excluding hearsay evidence s 18 of that Act provides:
18 General admissibility of hearsay
(1) A hearsay statement is admissible in any proceeding if—
(a) the circumstances relating to the statement provide reasonable assurance that the statement is reliable; and
(b) either—
(i) the maker of the statement is unavailable as a witness;
or
(ii) the Judge considers that undue expense or delay would be caused if the maker of the statement were required to be a witness.
(2) This section is subject to sections 20 and 22.
[47] Section 19(1) also regulates the admissibility of hearsay statements and provides for the admission of business records where:
(a) the person who supplied the information used for the composition of the record is unavailable as a witness; or
(b) the Judge considers no useful purpose would be served by requiring that person to be a witness as that person can not reasonably be expected (having regard to the time that has elapsed since he or she supplied the information and to all the other circumstances of the case) to recollect the matters dealt with in the information he or she supplied; or
(c) the Judge considers that undue expense or delay would be caused if that person were required to be a witness.
[48] There is no obligation on a party adducing a hearsay statement in a civil proceeding to file an application to admit it. However, High Court r 9.11 requires that any challenge to the admissibility of a brief, in whole or in part, be notified within 20 working days after receipt of the brief. If the issue is not resolved between counsel in a further 10 working days, notice must be given to the Court by the challenging party that there is an admissibility issue. No challenges regarding admissibility were made prior to hearing.
The respondents’ submissions
[49] Notwithstanding r 9.11, the respondents point to r 9.14 which states that, among other things, nothing in that subpart of the High Court Rules “changes inadmissible evidence into admissible evidence”. Relying on this, the respondents still challenge the following evidence as inadmissible hearsay:
(a) the evidence of Wendy Susan Riach, the investigating police officer of what she was told by a commercial property developer, Richard Diver, about Mr Stewart’s former employment as an electrician with Steve Winter, his current work for Ambika Prasad on Mr Diver’s
property development projects and the current hourly going rate for an electrician;
(b)her evidence of a conversation with the branch manager of Radcliffe Electrical, Patrick Drury, in which he outlines Gavin Stewart’s employment history with Mr Winter and then Mr Prasad, his belief as to the number of hours Mr Stewart is working, and his understanding of the going hourly rate for an unregistered electrician in Christchurch;
(c) her evidence of her interview with Mr Ambika Prasad, Mr Stewart’s current employer, which also discusses his employment history and the fact that he pays Mr Stewart in cash by way of withdrawals from ATM machines; and
(d)Sergeant Rose’s evidence about the results of visual surveillance carried out by police in August 2017 on Mr Stewart when the Sergeant did not personally conduct all the surveillance.
[50] Mr Starling submitted that this evidence should not be admitted because the statements were relied on as proof of the truth of their contents. The circumstances relating to the statements in Ms Riach’s evidence did not provide reasonable assurance that they were reliable and, in particular, Mr Prasad’s veracity was in question. The evidence of Sergeant Rose was also irrelevant.
The applicant’s submissions
[51] In response, the applicant notes that, in Vincent v Commissioner of Police, the Court of Appeal allowed some latitude in this sort of investigation where evidence was given from a police officer setting out the background and the results of the police
investigation.10
10 Vincent v Commissioner of Police [2013] NZCA 412.
[52] In any event, the applicant says that, to the extent the comments from Mr Diver are relied upon, Mr Stewart confirmed their reliability. He accepted that he had worked at various of Mr Diver’s sites as an electrician contracting to Ambika Prasad. The applicant also did not rely upon the going rate of $40 to $50 per hour given by Mr Diver, but had calculated Mr Stewart’s earnings on the much lower rate of $25 per hour.
[53] Similarly, in relation to the reputed statements of Mr Prasad, he merely confirms Mr Stewart’s evidence which is that he worked as a cash paid electrician for Mr Prasad. The applicant also notes that he does not rely on Mr Prasad’s business records as he considers those are unreliable.
[54] Finally, in relation to the statements attributed to Mr Drury of Radcliffe Electrical, the applicant says that he does not rely on these. He accepts that the opinion evidence of Mr Drury about the number of hours Mr Stewart works is of little weight and the Court will need to determine the true number of hours Mr Stewart worked from other evidence.
Discussion
[55] It is regrettable that the respondents did not comply with the requirement in the High Court Rules to notify challenges to admissibility in advance of the hearing. The purpose of this rule is to identify such disputes well in advance of the hearing so if the party adducing the evidence accepts the concerns about its admissibility, it may take such steps as it thinks appropriate to adduce the evidence in admissible form before the hearing is underway. It avoids the possibility of parties deferring a challenge to admissibility until the hearing is underway in order to gain some form of strategic advantage for the party challenging the evidence.
[56] In this case, I accept that the statements of persons which are relayed through Ms Riach’s evidence are, prima facie, hearsay statements. However, to the extent that Mr Diver and Mr Prasad’s evidence is confirmed by Mr Stewart himself, this provides reasonable assurance that the statement is reliable and I consider it would cause undue expense or delay if they had been required to be brought to Court (presumably, under subpoena) to confirm what they had said to Ms Riach. Thus, I consider that their
evidence is admissible to the extent that Mr Stewart has confirmed that evidence in his own evidence.
[57] In relation to the statements by Mr Drury, I accept that these, too, are hearsay statements as they are adduced for the purpose of relying on the truth of their contents. As I have no way of assessing that, I accept that they are inadmissible and my decision is made without any reliance being placed on them.
[58] The evidence of Sergeant Rose regarding visual surveillance carried out on the second respondent by police in August 2017 is challenged as being at least, in part, hearsay, and as failing to meet the requirement of relevance under s 7 of the Evidence Act 2006.
[59] However, the applicant explains that the purpose of this evidence was to demonstrate that, despite Mr Stewart’s claim he had sold his van to his mother on
19 May 2015, Mr Stewart in fact continued to have the daily use of the van, he kept it at his house at 142 Emmett Street, and was seen driving it on every occasion police observed it. The evidence went to Mr Stewart’s credibility, and to his willingness to arrange his affairs in order to defeat a possible claim to his assets. I accept it was therefore relevant evidence.
[60] The respondents concede that the evidence of Sergeant Rose is reliable and furthermore, Mr Stewart accepted under cross-examination that the police observations of him using the van regularly after its purported sale were correct. There would, therefore, have been no utility in calling each individual officer who made the observations to attend personally, as the accuracy of the surveillance records was not in doubt. I therefore conclude that this evidence is admissible under s 18 of the Evidence Act.
Should any of the evidence be excluded on the basis it has been improperly obtained?
[61] The respondents challenge the admissibility of the evidence obtained by
Mr Toner, the investigator who interviewed the respondents during the course of executing a search warrant at 142 Emmett Street. One of the key statements relied
upon by the applicant was a statement that Mr Stewart was said to have made to
Mr Toner during his interview about the number of hours he worked as an electrician.
[62] The respondents’ submission is that any evidence obtained by Mr Toner from these interviews was improperly obtained because the respondents had been cautioned using a standard client caution script and that did not offer the opportunity to speak to a lawyer. The text of the caution was produced in evidence and it read as follows:
This is a voluntary interview, you are not being detained and you are free to leave at any time. You do not have to answer my questions; however, anything you do say may be given in evidence.
[63] I was therefore invited to exclude the evidence given in the interviews applying the approach in Marwood v Commissioner of New Zealand Police, where evidence which was ruled inadmissible in criminal proceedings on the basis it was improperly obtained, was also held to be inadmissible in subsequent civil proceedings.11
[64] Mr Starling did not specify why he considered this evidence was obtained in breach of the New Zealand Bill of Rights Act 1990, but I infer he was referring to s 23(1) which provides as follows:
23 Rights of persons arrested or detained
(1) Everyone who is arrested or who is detained under any enactment— (a) shall be informed at the time of the arrest or detention of the
reason for it; and
(b) shall have the right to consult and instruct a lawyer without delay and to be informed of that right; and
(c) shall have the right to have the validity of the arrest or detention determined without delay by way of habeas corpus and to be released if the arrest or detention is not lawful.
[65] The only concern raised about the caution given was the failure to offer the interviewee the opportunity to speak to a lawyer. However, that is only required where someone is arrested or detained. In this case, the respondents were advised that the interview was voluntary, that they were not being detained and that they did not have
to answer Mr Toner’s questions. Section 23 therefore did not apply. As there was no
11 Marwood v Commissioner of New Zealand Police [2016] NZSC 139.
breach of the New Zealand Bill of Rights Act, I do not have to go on to consider the issues which arose in Marwood v Commissioner of New Zealand Police regarding the admission of improperly obtained evidence in civil proceedings. The evidence given in the interviews is admissible.
The credibility of the witnesses
[66] In this case, it was not in contention that Ms Drake had committed benefit fraud. She acknowledged, at the very least, that she had been working while she had been claiming a benefit and the receipt of those funds could be tracked through bank account records. What was more contentious was whether Mr Stewart knowingly benefitted from her benefit fraud, and whether Mr Stewart’s assertions as to his earnings over the period 2010 to 2015 were truthful. Both depended very much on the credibility of the witnesses.
[67] In closing, Mr Starling submitted that the evidence of the respondents should be believed, particularly as Ms Drake and Mr Stewart had been unable to communicate privately before the case, and they had voluntarily excluded themselves from the Courtroom when the other was giving evidence. Despite being unable to collude on their answers, he said, they gave answers that were “almost identical on matters that indicated they were being truthful”. For example, he noted that they both gave the same evidence about how they came to own a framed Crusaders jersey and about how the renovations to the house involved Mr Stewart making use of second-hand and free demolition materials. He also said when questioned about how they could afford to purchase the decking timber for the new deck, they independently gave an answer which set out how Mr Drake got timber from free roadside timber bins and, over time, got enough to complete the deck. Consequently, he submitted, they should be believed when their evidence was that Mr Stewart did not know that Ms Drake was receiving a benefit and she hid this from him. This was consistent with Mr Stewart being “a proud man who did not want to accept any government help because he did not believe that he needed it”.
[68] Given these submissions, and the significance of credibility to my findings, it is appropriate to make some general observations on the credibility of the respondents,
and on a key fact witness for the applicant, before turning to the evidence on the relevant issues.
Ms Drake
[69] Unfortunately, I formed the clear view that Ms Drake was not a truthful witness. She would alternate between telling the truth and then fabricating evidence, without hesitating, depending on what seemed most advantageous to her at the time. There were numerous inconsistencies between the evidence she gave in interviews to
Mr Toner, her evidence provided in her affidavit, her evidence given in this Court, and the statements she made in other recorded conversations. For example, her description of her relationship with Mr Stewart varied from asserting they had lived together since
2000 and had had a “loving relationship” until the stress of the Canterbury earthquakes, to they lived together “for small amounts of time”, to simply asserting she did not live with Mr Stewart and she was only guilty of benefit fraud because she failed to declare she was also working.
[70] The fabricated evidence related to both significant and insignificant matters. By way of example, she explained in her interview with Mr Toner that some of the friction in her relationship with Mr Stewart arose because she would go out and spend money on items for their new baby “like clothing, nappies, wet wipes and baby products”, to the point that bills were not getting paid. However, when cross-examined she denied that having their daughter put any additional strain on their finances, saying:
I had a lot of agencies help me out, I had family come from Australia, they helped me out, I had friends help me out, I didn’t have to buy clothing for the first two years of my daughter’s life. I got given baby formula from people when they had kids and the kids didn’t like it, because I could not breastfeed my child. I was given wet wipes, I was given anything through the midwife who helped me.
[71] Similarly, when being questioned how the family survived on the modest declared income, Ms Drake was asked, flippantly, whether she and Mr Stewart were vegetarians, to which she said that she was, both now and “back then”. However, when Mr Stewart was questioned as to whether either of them were vegetarians, he responded with puzzlement and confirmed that they were not and had never been
vegetarians. Even one of the examples used by Mr Starling in submissions to support the respondents’ credibility, which was that they both agreed the deck was built from wood salvaged from free firewood bins actually pointed against their credibility. When questioned on the source of the decking timber, Mr Stewart made no reference to the wood coming from free firewood bins as Ms Drake had said, and he accepted that some of the decking timber was purchased new.
[72] Having heard Ms Drake’s evidence, I consider much greater weight could be placed on her statements made at the beginning of the investigation, when she was not aware that she was at risk of a civil forfeiture order. At that time, I consider she was aware, from her earlier conviction, that she would be penalised for her benefit fraud, and the most advantageous position was to be as frank and helpful as possible to minimise that penalty. However, once she realised there could be further consequences for the family, including forfeiting the family home, she retracted earlier admissions and started fabricating explanations for the evidence being relied on by the Commissioner.
Mr Stewart
[73] Mr Stewart was a more careful witness than Ms Drake and I assessed him to be the more focused and level-headed of the two respondents. He was clearly hardworking and goal-oriented and it was through his efforts and planning that the couple had managed to save a deposit for the house. Indeed, my impression was that he found Ms Drake’s lack of financial discipline frustrating.
[74] That said, I am satisfied that he, too, was not truthful on key matters. He openly resiled from his affidavit evidence where he had said that he had not lived with Ms Drake for half the relevant period, acknowledging that was not true. However, he maintained that his declared income from 2000 onwards was no more than shown in his recently filed tax returns, despite compelling evidence to the contrary, which is discussed further below.
[75] He also denied knowing that Ms Drake was receiving a benefit when I am satisfied from the evidence, including in particular the statements he made in telephone calls with Ms Drake, that he knew she was in receipt of a benefit in addition
to her part-time wages. My reasons for reaching these conclusions are set out more fully below.
Ms Marshall
[76] The applicant called Julie Marshall, an ex-work colleague of Ms Drake, as a witness to give evidence which supported the applicant’s position that Mr Stewart knowingly benefitting from Ms Drake’s benefit fraud.
[77] Ms Marshall worked with Ms Drake at Countdown for between 18 months to two years around 2011 to 2013. She gave evidence that Ms Drake said Mr Stewart:
was earning money but he would only pay for their mortgage and some of their food and so she had to be on the benefit to afford to be able to pay for the kids’ clothes and then they’d go out at the weekends and that was when they actually got along was when they were out shopping for things for the house or the kids….
She also said that Ms Drake said she had told Mr Stewart that she should not have to be on the benefit while he was working and earning money, and he had responded with words to the effect “well if you can be on the benefit then why should I give you any money? You are getting your own money”.
[78] Ms Marshall explained that she was motivated to make a call to MSD about this because she and some of her colleagues got tired of hearing Ms Drake boasting about how much money they had and she found it grating to hear Ms Drake talking about buying new beds, new clothes and couches. My clear impression was that
Ms Marshall was a truthful and straightforward witness who was motivated to give this evidence by an understandable sense of resentment that Ms Drake was claiming a benefit unlawfully, while she and her colleagues were trying to make ends meet on their modest legitimate incomes.
The issues
[79] There are a number of disputed issues in this case. In relation to the asset forfeiture orders sought, the following issues arise:
(a) What was the extent of Ms Drake’s significant criminal activity?
(b) Did Mr Stewart engage in significant criminal activity?
(c) Does Ms Drake have an interest in the proceeds of Mr Stewart’s bank accounts?12
(d)Was the identified property “tainted”, that is, was it acquired as a result of significant criminal activity or directly or indirectly derived from significant criminal activity?
(e) Are there grounds for excluding any of the respondents’ property from such an order because of undue hardship?
[80] In relation to the profit forfeiture orders the disputed issues are:
(a) Has each respondent unlawfully benefitted from significant criminal activity within the relevant period?
(b) Can the applicant rely on its calculations of unlawful benefit in light of:
(i) Mr Stewart’s recently filed tax returns; and
(ii)the respondents’ claim to “notional entitlements” (that is, deductions to take account of such MSD benefits and Working for Families tax credits that the respondents would have been legally entitled to)?
(c) Are there grounds for excluding any of the respondents’ property from such an order because of undue hardship?
12 It is clear that both respondents have an interest in the jointly owned Emmett Street property and the EQC and insurance payments made in respect of the property.
What was the extent of Ms Drake’s significant criminal activity?
[81] Significant criminal activity is defined in the Act to include an activity engaged in by a person that, if proceeded against as a criminal offence, would be punishable by a maximum term of imprisonment of five years or more.13
[82] The applicant relies on the conviction of Ms Drake on one charge of obtaining by deception between 31 January 2005 – April 2015, and on 14 charges of using a document to obtain a pecuniary advantage from the Ministry of Social Development. All these charges carry a maximum penalty of seven years’ imprisonment. Those convictions are conclusive against Ms Drake. The applicant also says that the evidence she has fraudulently obtained $45,269.98 in Working for Families Tax Credits during the relevant period of criminal activity is evidence that she has committed a further crime of obtaining by deception under s 240 Crimes Act 1961, which also has a maximum penalty of seven years’ imprisonment.
[83] The respondents concede that the first respondent has committed significant criminal offending in relation to the convictions for dishonestly using a document. However, they say that her other convictions are for a charge of obtaining by deception which has a sliding scale of maximum penalty dependent on the value of the loss caused, or benefit obtained, which ranges from three months’ imprisonment to seven years.14 They submit that the applicant did not apportion the unlawful benefit derived to the individual charges.15
[84] However, I accept, as the applicant submitted, that s 47 of the Evidence Act provides that in civil proceedings proof of conviction is conclusive proof that the person committed the offence. No leave was sought to go behind that evidence by the respondents. Furthermore, the sliding scale which applies to the current version of s 241 of the Crimes Act 1961 does not apply to the obtaining by deception charge
Ms Drake pleaded guilty to. That charge under s 240 Crimes Act covered the loss of
over $180,000 and the charge list specifically particularised s 241(a), being a
13 Section 6(1).
14 Crimes Act 1961, s 241.
15 It appears the respondents mistakenly understood that there was more than one charge of obtaining by deception.
seven year maximum penalty. Similarly, the historic charges under s 229A of the Crimes Act 1961, which applied to offending between 2000 and 2003, and the charges under s 228 of the Crimes Act 1961, all carried seven year maximum penalties. This also disposes of the argument that there should have been an apportionment of the unlawful benefit between individual charges. The applicant has therefore correctly identified Ms Drake’s significant criminal offending.
Did Mr Stewart engage in significant criminal activity?
[85] The applicant alleges that Mr Stewart engaged in tax evasion during the period
2010 to 2016 and that the tax returns belatedly filed by Mr Stewart for this period are incorrect and understate his actual income.
[86] A person who is convicted of tax evasion is liable to imprisonment for a term not exceeding five years,16 so this offending constitutes significant criminal activity for the purpose of the civil forfeiture order regime.
[87] The Commissioner estimates that Mr Stewart has earned at least $30,000 per annum between 1 April 2010 and 31 March 2016, and was thus liable to pay a total of
$26,040 in income tax. In contrast, Mr Stewart claims he earned nothing in the financial years ending 2011 and 2012, and for the years 2013 to 2016 he earned
$36,185.24 and he has been assessed for and paid income tax in the amount of
$3,931.28 on those earnings. The Commissioner claims the difference between
Mr Stewart’s calculated tax debt and the tax he has paid is $22,108.72, which is the amount of his unlawful benefit from tax evasion.
[88] The Commissioner’s assessment that Mr Stewart was a self-employed electrician earning an estimated income of $30,000 per year relies on a number of strands of evidence. He points to Ms Drake initially acknowledging in evidence that, after 2010, Mr Stewart always earnt more than she did and he was the main breadwinner. This was supported by statements made during prison telephone calls
between the two, where Ms Drake acknowledged to Mr Stewart that:
16 Tax Administration Act 1994, s 143B.
you have been supporting me, through and through, given me money whenever I needed it, getting me anything I wanted, you even went and bought me a new car. I didn’t pay for it.
[89] The applicant also points to the implausibility of Mr Stewart incurring the expense of purchasing an electrician’s van and tools on 18 April 2010, immediately after being made redundant and shortly after having bought the house at Emmett Street, and then not using the van for electrical work. Indeed, the fact that he was working as an electrician straight away was reinforced by Ms Drake referring to Mr Stewart doing “cash jobs” in a Facebook messaging thread in April 2010. In cross- examination Ms Drake sought to minimise this statement by saying it referred to no more than helping some elderly neighbours fix a light socket for $5 or $10. However, I do not consider this explanation was plausible in the context of the Facebook exchange where a friend was enquiring whether Mr Stewart had had any luck “job wise” and Ms Drake replied “not yet he has had a few cash jobs though”.
[90] I also accept that it was entirely improbable that Mr Stewart would not work at all for the two years immediately following the house purchase. Mr Stewart was acknowledged in evidence to be a hard worker and a self-reliant man, and it would have been entirely out of character for him to have spent such long periods of time unemployed or doing almost no work at all, when the couple had a mortgage to pay and a child to support, and when he had been earning $36,000 net in the year before he had been made redundant.
[91] In any event, I accept that he admitted to Mr Darran Toner that he worked
20-40 hours per week as an electrician, paid mainly in cash. While Mr Stewart asserted that Mr Toner had misunderstood what he said, and that he had only said that he would “like” to work at that level, this does not sit easily with Mr Toner’s contemporaneously made notes which stated “working 20-40 hours. Weekends included – mainly cash jobs”. It is implausible that an expressed desire to work 20-40 hours would include a reference to working weekends and doing cash jobs. I preferred Mr Toner’s recollection that this was a statement regarding Mr Stewart’s actual hours of work, which included weekends and were paid for in cash.
[92] I also consider that there was clear evidence of a significant cash income coming into the household. Mr Stewart’s bank accounts disclosed negligible expenditure on living costs, which pointed to the high probability of cash spending to cover these. Furthermore, the level of cash deposits banked and home improvements undertaken during this period were impossible on the couple’s earnings unless Mr Stewart had substantial undisclosed cash earnings. Since buying the Emmett Street property in 2010 the couple had:
(a) installed a new bathroom;
(b) installed new curtains and carpets;
(c) installed a new log burner, albeit with an ECan subsidy;
(d) purchased new whiteware;
(e) installed a new kitchen with new stainless steel appliances;
(f) erected a new front fence;
(g) installed a new front door;
(h)built and paid for, in cash, a new 53 square metre garage/sleepout that was fully lined and had an ensuite with heatpump; and
(i) installed new decking and shade sails.
[93] While the couple claimed that many of these items were obtained second-hand or were surplus from jobs Mr Stewart worked on, there were also a number of purchases where it was acknowledged that the items were bought new. Furthermore, I consider the explanations given for how new purchases were funded were not credible. The couple had significant cash deposits going to bank accounts which generally exceeded Mr Stewart’s stated earnings in each financial year. For example, in the financial years from 1 April 2010 to 31 March 2014 cash deposits into Mr
Stewart’s accounts totalled $40,753.77, while his declared income for the same period was just under $12,500.
[94] These discrepancies were explained by Mr Stewart as resulting from his father giving him money “to hold on to”. Thus, the cash deposits which went into his VISA card of $14,915 between 1 April 2012 and 31 March 2014, and which allowed him to spend approximately $8,500 at building supply stores, was explained as being funded from his father. Similarly, the 53 square metre garage and workshop bought from Totalspan, and which was paid for by several cash payments, was said to be from a sum of money that Mr Stewart’s father had saved for his funeral and which he gave to Mr Stewart in cash in amounts of $2,500 or $3,000 at a time. However, when it was put to him in cross-examination that his father’s bank account had been emptied by April 2012, which was long before the garage got built or was paid for, Mr Stewart was unable to explain how his father was in a position to continue to provide him with large cash sums.
[95] I am satisfied that the explanation that the cash deposits which went into bank accounts or the Visa card, or which were used to pay for home improvements, were not funds given or lent by Mr Stewart’s father. This is reinforced by the fact that his father was not called to give evidence to explain how this could be the case, particularly when he had no surplus funds in his bank account from April 2012 onwards.
[96] I also consider that the extracts from Mr Stewart’s partially filled in 2015 diary support the conclusion that he has underreported his earnings in his tax returns. The diary recorded various job locations, including on Mr Diver’s commercial developments in Victoria Street. Each job entry would bracket a time period which was marked in half hour amounts on the left-hand side of the page. There was then a summary of hours set out in a table in the diary. The hours recorded in this diary bore no relation to the sparse record of payments Mr Prasad gave Mr Stewart’s accountant for the purpose of preparing tax returns.
[97] Mr Stewart explained that the diary entries related to jobs he was “quoting for
Mika”. He said that he wrote them in the diary because he had to provide a quote for
the hours, but he maintained that the jobs did not all go through. However, I did not consider Mr Stewart’s explanation of the diary entries was plausible. There would have been no need to mark a start and finish time on a particular day if he was simply quoting for a job. The only plausible explanation of the table was that it summarised the hours he worked for the purpose of claiming payment for those hours from Mr Prasad.
[98] I am therefore satisfied, on the totality of the evidence, that Mr Stewart commenced work as a self-employed electrician shortly after he was made redundant in early 2010. I consider that work continued throughout the six year period from
2010 to 2016, with living expenses and home improvement expenses being paid for with the cash Mr Stewart earned. I am also satisfied that the tax returns filed by
Mr Stewart were not accurate and, in most cases, significantly understated his actual income.
[99] It is clear that evading tax is significant criminal activity.17 Section 143B(2) of the Tax Administration Act 1994 provides that “A person who evades or attempts to evade the assessment or payment of tax by the person … commits an offence under this Act”. It attracts a term of imprisonment not exceeding five years.18 The fact that Mr Stewart has not been charged with this offence is immaterial for the purposes of determining whether a civil forfeiture order can be made.19
Is the property tainted?
[100] Section 5 of the Act defines “tainted property” as follows:
(a) means any property that has, wholly or in part, been—
(i) acquired as a result of significant criminal activity; or
(ii) directly or indirectly derived from significant criminal activity; and
(b) includes any property that has been acquired as a result of, or directly or indirectly derived from, more than 1 activity if at least 1 of those activities is a significant criminal activity unlawfully benefited from significant criminal activity has the meaning given to it in section 7.
17 Commissioner of Police v Li HC Tauranga CIV-2010-470-48, 3 March 2011.
18 Section 143B(4).
19 Criminal Proceeds (Recovery) Act, s 6(2).
The applicant’s submissions
[101] The applicant relies on the Emmett Street house being directly or indirectly derived from significant criminal activity, or “tainted”, because:
(a) Mr Stewart was only able to accumulate the savings which he used to pay the deposit on the house, and from which he funded mortgage payments, because a significant portion of the family’s living expenses were sustained through Ms Drake’s benefit fraud;
(b)in the 18 months before they purchased the house, Ms Drake made direct contributions from her Kiwibank account (into which her benefit was paid) into one of Mr Stewart’s savings account, which was then used to fund the house deposit and mortgage payments; and
(c) significant improvements were made to the property by using the cash earnt (which included the unpaid tax) of Mr Stewart.
[102] The claim that the insurance proceeds are tainted is based on the fact that the AA insurance premiums were paid, by direct credit, from the Kiwibank account in which Ms Drake received her unlawfully obtained benefit payments.
[103] Mr Stewart’s savings are claimed to be tainted property because they were, in part, enabled by the fact Ms Drake’s benefit payments were used to fund household expenses, allowing him to accumulate and retain these savings.
The respondents’ submissions
[104] The respondents submit that none of the property identified is tainted by the first respondent’s benefit fraud. This is because:
(a) the first respondent gave evidence that she has a gambling addiction and she used all the money she obtained from her benefit fraud on gambling;
(b)this was supported by Mr Stewart’s evidence that there was no extra money in the household and they were strained financially;
(c) even if some of the proceeds of the first respondent’s benefit fraud was spent on household expenses, this did not taint the Emmett Street property as there is no evidence that the funds in the second respondent’s savings accounts, or the equity in Emmett Street, were acquired or increased by using those proceeds;
(d)the deposit on the house was paid for by the second respondent from savings he legitimately accumulated over several years;
(e) the mortgage payments on the house were met from Mr Stewart’s individual bank account which was made up of earnings from employment and the proceeds from his share of the sale of a house at Quinns Road that he had owned with his father; and
(f) the improvements to the property were carried out largely by the second respondent with scavenged or salvaged materials.
Discussion
[105] The definition of tainted property is broad and only requires there to have been some contribution from the proceeds of criminal activity to the acquisition of property in order to taint the property. Indeed, a property can be tainted by virtue of the proceeds of criminal activity being used to increase an interest in property, such as paying off a mortgage. This was the outcome in Commissioner of Police v Winsor, where the Court held: 20
The Commissioner asserts that because the criminal activity enabled the trustees to retain the property through the payment of interest on the mortgage, thereby keeping the mortgagee at bay, the capital gain realised on the property meant that it was acquired, in part, as a result of that significant criminal activity. I accept that the payment of interest effectively preserves a mortgaged property both in terms of the existing equity and by allowing the registered proprietor or beneficial owners to increase their equity through capital gain over the period the property is retained. Were it not for the
20 Commissioner of Police v Winsor [2014] NZHC 161 at [33].
ongoing payment of interest on the mortgage the equity would be at risk in a mortgagee sale. As a result, I find that the property is tainted property…
[106] Property can also be tainted through the use of the proceeds of crime to improve a property. In Commissioner of Police v Ranga, renovations paid for by criminal activity were found to have contributed to the property’s value and therefore to have tainted the property.21 There, the renovated property was then sold and the proceeds used to purchase a further property. The new property was also considered to be tainted because the proceeds of crime had contributed to its purchase.
[107] In the present case, I accept that the deposit for the property was paid from legitimately sourced funds, being savings Mr Stewart had accrued during his employment at Casa Electrical Limited, and which were held in one of two ANZ savings accounts in his name, being the account with the suffix 46 (ANZ 46). However, I consider the property was subsequently tainted because Mr Stewart’s second ANZ savings account, with the suffix 30 (ANZ 30), was always in credit and was used to make weekly automatic payments of between $240 and $280 to the respondents’ joint ANZ mortgage servicing account. In 2008, Ms Drake commenced paying direct debits to Mr Stewart’s ANZ 30 account from her Kiwibank account of
$110. In late 2009 through to early 2010, the payments were increased to $120. While both respondents were questioned about why Ms Drake was paying this money into Ms Stewart’s account, and each gave different explanations for what the money was being transferred for, in the end I consider this does not matter. Money from the account which Ms Drake’s benefit payments were deposited in were paid directly to the account from which mortgage reduction payments commenced being made in early March 2010. While only a modest contribution, I am satisfied that this is evidence of tainted funds being used to acquire the Emmett Street property.
[108] While the above disposes of whether the proceeds of ANZ account suffix 30 and the Emmett Street property are tainted property, the applicant has also claimed that these items of property and the funds in Mr Stewart’s ANZ 46 savings account are tainted because Ms Drake, with agreement from Mr Stewart, used her unlawfully
received benefit income to meet household costs, thus enabling him to accumulate
21 Commissioner of Police v Ranga [2013] NZHC 745 at [29].
these savings and pay the mortgage. He would have been unable to keep and retain the money he was accumulating in the ANZ 30 and 46 savings accounts without the benefit payments being used to fund the household in this way. As a consequence, the unlawful benefit payments indirectly facilitated the accumulation of the savings and the acquisition of the house.
[109] This is a rather different set of circumstances from those which are usually relied on to give rise to tainted property. Essentially the applicant argues that where property is acquired through legitimately earned funds, but that is only possible by using illegitimately obtained funds for day to day living expenses, that property should fall within the definition of tainted property.
[110] While the provisions of the Act are harsh, I do not consider that the definition of tainted property can be read so broadly that it would include property funded entirely from legitimately sourced funds, even where that has been enabled by the offender’s other living costs being met by the proceeds of crime. The word “tainted” is generally understood to mean that something has been touched, tinged or imbued with some bad or undesirable quality.22 Thus, when the definition of tainted property refers to property which is “indirectly derived from significant criminal activity”, I consider there must nevertheless be some traceable connection between the proceeds of crime and the property so acquired or retained.23 If that were not so, it is difficult to see why the Act would also need to provide for the profit forfeiture regime which is able to address cases where the proceeds of crime have not been channelled towards the acquisition of tangible property, but have been used to fund the offender’s lifestyle and where there is other property available to meet the value of the unlawful benefit received.
[111] Limiting the definition of tainted property in this way does not undermine the primary purpose of the Act as the availability of the two types of forfeiture orders still
allows for the forfeiture of property:
22 Borrowing one of the definitions of “taint” from the Shorter Oxford English Dictionary, Third
Edition.
23 As was the case in Commissioner of Police v Ranga, above n 22.
(a) that has been derived indirectly or indirectly from significant criminal activity; or
(b) that represents the value of a person’s unlawfully derived income.24
[112] For these reasons, I do not consider that the funds in ANZ 46 are tainted property. There is no evidence that the funds in this account were contributed to by Ms Drake’s unlawful benefit payments or Mr Stewart’s unpaid tax. The deposits into this account are simply interest earned on the existing balance, as well as a sum which was transferred into this account in November 2010 from another on-call account owned by Mr Stewart which appeared to predate the period of tax evasion. For this reason, unlike the funds in ANZ 30, I do not consider these funds are tainted property.
[113] I accept, however, that the proceeds of the insurance payments are tainted property as the house insurance premiums were paid directly from Ms Drake’s Kiwibank account from her unlawfully obtained benefit payments.
[114] Because I have reached these conclusions, I do not need to go on to consider the balance of the respondents’ arguments which essentially minimise the contribution of unlawfully received payments to the acquisition of these assets. It is clear that as long as it can be shown that any proceeds of significant criminal activity contributed to the acquisition or increase in value of the property, it will become tainted property under the Act.
[115] However, for completeness, I do not accept that all, or even a large part, of Ms Drake’s benefit was gambled away. There was clear evidence in the records of her bank account transactions that most of her benefit went on household expenses rather than gambling.
[116] A further issue which was not addressed head on was whether money retained as a result of tax evasion can taint property. It is clear that tax evasion constitutes significant criminal activity.25 However, there is some uncertainty as to whether it can
taint property. In Commissioner of Police v Dryland, the respondent was guilty of tax evasion as he was paid in cash which he did not declare.26 When considering the implications of this illegal act, Gilbert J held that:
… does not mean that the cash is tainted property. Mr Dryland did not acquire or directly or indirectly derive the money through tax evasion. Rather, he acquired it through his lawful activities but has subsequently evaded tax obligations in respect of the money he has earned. He is vulnerable to penalties and to prosecution under the Tax Administration Act but this does not mean that the money is tainted property.
[117] However, in Commissioner of Police v Winsor, the Commissioner relied on both drug dealing and tax evasion to support an asset forfeiture order. Courtney J held that the asset forfeiture order was successful because the property was tainted through the application of illegal profit from drug dealing and the evasion of tax.27 Thus, she effectively held that the money retained by evading tax can taint subsequently acquired property.
[118] It may be that a distinction can be drawn between a fund of money which is legitimately earned, because that was obtained legally and not as the result of significant criminal activity, and property which is subsequently purchased with those funds. That is because if the respondent retains those funds, it is the retention which is the act of significant criminal activity and the property then acquired has been “acquired as a result of significant criminal activity”. However, in the present case, I do not need to decide whether that distinction is legitimate, as I have already held that the identified items of property are tainted by Ms Drake’s benefit fraud.
Do they each have an interest in the tainted property?
[119] It is a pre-requisite to an order being made against a respondent that the respondent has an interest in the tainted property. That test is readily met in respect of the Emmett Street property and the insurance payments made in relation to it, as both are held in the joint names of Ms Drake and Mr Stewart. Mr Stewart does, however, say that Ms Drake does not have an interest in his bank accounts as they are in his sole name.
[120] For practical purposes this does not matter, as an order sought against him alone is sufficient, and he undoubtedly has an interest in that property. However, I accept the applicant’s submission that, on the balance of probabilities, Ms Drake also has an interest in these accounts as she has the right to bring a relationship property claim in respect of them.28 The bank accounts include a mixture of income earned during the course of the relationship and property which may be separate property, being the proceeds of the sale of Quinns Road. Given the intermingling of such funds and the use to which the accounts have been put, including payment of the jointly owned house deposit and of the mortgage, I consider that both savings accounts are relationship property and therefore both respondents have an interest in them.
Should any property be excluded from the asset forfeiture orders because of undue hardship?
The respondents’ submissions
[121] The respondents have applied to have property excluded from both a profit forfeiture order and an assets forfeiture order, if either or both are made, because of the undue hardship that is likely to result for Mr Stewart and his children. The applications are made in reliance on s 51 and s 56 of the Act, both of which permit exclusion of certain property from a civil forfeiture order if, having regard to all of the circumstances, undue hardship is reasonably likely to be caused to the respondent if the property is included in the order.
[122] In this case Mr Stewart’s application is supported by his affidavit evidence explaining that he lives with his two children, a son who is 19 and a daughter who is five, at their house in Emmett Street, Shirley and he is supporting them both while
Ms Drake serves her prison sentence. In relation to his daughter he says:
Our daughter … has had a lot of difficulties since her mother went to prison. It took her two months to be comfortable around me without her mother … [she] has had to have counselling. … I noticed an improvement after [she] started counselling, but she suffered a big setback when my mother died last year. She has become withdrawn again. … She is in a very fragile state. I don’t want to have to move her from the home she has lived at for three years.
28 Hayward v Commissioner of Police [2014] NZCA 625.
[123] He also deposes to his own limited income of $400 per week and the fact he does not have a family who can support them. He also says that he owes his father
$20,000 which he will be unable to repay if his savings are forfeited. That would mean his father would have to “rely on superannuation alone for the rest of his life”.
The applicant’s submissions
[124] The applicant opposes the application for relief from the civil forfeiture orders in light of the factual circumstances of the case, and having regard to the statutory considerations at ss 56(2) and 67(2). In terms of the matters required to be considered under those sections, the Commissioner places particular weight on the circumstances of the significant criminal activity to which the civil forfeiture orders relate. He asserts that the evidence demonstrates highly premeditated and cynical benefit fraud over a
15 year period which resulted in the respondents’ enrichment by more than $250,000 over the period of their offending. He considers that the structuring of the couple’s financial affairs was the result of conscious decision-making following Ms Drake’s prosecution for benefit fraud in 1999.
[125] It is also submitted that it would be contrary to the purposes of the Act to make a finding of undue hardship which would enable willing participants in systematic benefit fraud to retain equity in property that they have accumulated as a result of that fraud, simply because they now find their financial circumstances constrained and have to live within their legitimate means.
[126] The Commissioner accepts that the couple’s daughter has been badly affected by her mother’s offending and her consequent imprisonment. However, Ms South points out that the evidence submitted relates primarily to the consequences of
Ms Drake’s incarceration on the daughter, rather than on the effect on her daughter should they have to move house. She points out that children frequently have to move house for all manner of reasons, including relationship breakdowns, job loss or parental job transfer. Whether or not hardship results comes down to how the parents or caregivers manage the transition. Thus, the fact of moving alone does not equate to undue hardship and demonstrates hardship no more severe than any person losing their home under the Act would encounter.
[127] Ms South also points to other comparable cases where the Court held that the consequences of civil forfeiture orders being made did not result in undue hardship. By way of example, she referred to Commissioner of Police v Duncan, where Andrews J held that undue hardship must be more than hardship inherent in forfeiture, saying:29
[156] In terms of the undue hardship that Ms Duncan says that she will suffer, she has said that if the house and car are forfeited, she will have nothing; her only income is domestic purposes benefit and she has the care of a young child. I am not satisfied that this hardship would be more than most people would suffer if they were to have their home confiscated under the Act.
[128] Finally, the Commissioner points out that the children themselves have no legal or equitable claim or interest in a living parent’s property and therefore could not independently apply for relief on the basis of undue hardship under ss 66 and 67.30
Discussion
[129] Both ss 51 and 56 allow the Court to exclude certain property from an assets forfeiture order or a profit forfeiture order if it considers that, having regard to all of the circumstances, undue hardship is reasonably likely to be caused to the respondent if the property is included in the order.
[130] One of the matters that these sections direct the Court to is the use ordinarily made of the property. Thus, use of the property by the respondent and possibly innocent third parties for legitimate purposes could be a relevant factor. However, where, as here, the equity in the family home has largely, if not entirely, been acquired through benefit fraud and tax evasion, I consider the purpose of the Act must still be considered. The extent of Ms Drake’s benefit fraud alone exceeds the equity in the Emmett Street property, and I am not persuaded that its use as the family house is, in itself, sufficient to trigger considerations of undue hardship.
[131] These sections also direct the Court to consider the nature and extent of the respondents’ interest in the property. Thus, it would be open to the Court to consider that undue hardship would be caused by, for example, making asset forfeiture orders
in respect of items of significant value where only a small portion of their value was
29 Commissioner of Police v Duncan HC Tauranga CIV-2010-470-00933, 11 October 2011.
30 Commissioner of Police v Li, above n 18 at [51].
obtained illegitimately. However, as already explained, the equity in the identified assets was largely, if not entirely, gained by supplementing the family’s income with an unlawfully obtained benefit and tax credits, and by evading tax.
[132] Similarly, I accept the applicant’s submissions that the circumstances of the significant criminal activity to which the orders relate point against an undue hardship order being made, again because the value of the items being forfeited is commensurate with the extent of the benefits gained from significant criminal activity.
[133] That only leaves the question of whether undue hardship arises because of the personal circumstances of the family. Despite a child not having independent status to seek an order for relief on the grounds of undue hardship, the Court of Appeal in Duncan v Commissioner of Police accepted that:31
There may be cases where the forfeiture of the family home, or even an interest in it, could cause undue hardship for a child which ought to be influential in the disposition of an application under s 51 of the Act.
[134] However, the Court went on to say:32
Whether or not undue hardship arises however, must be a matter of fact and degree and an argument that forfeiture of the family home will always result in undue hardship cannot be sustained in the face of the relevant provisions of the Act.
[135] As it was said in Commissioner of Police v Nelson, Williams J noted:33
The statute requires much more than mired inconvenience or difficulty.
Ms King needs to show that forfeiture of AQT455 would, for her, go well beyond those concepts and into privation to be regarded as excessive in the
circumstances for her and her children. She has to show the hardship to her
would be “grossly disproportionate” to the circumstances of acquisition of the vehicle or “extreme want of privation” to which is added the necessity that such privation must be “undue”.
31 Duncan v Commissioner of Police [2013] NZCA 477 at [57].
32 At [57].
33 Commissioner of Police v Nelson HC Auckland CIV-2010-404-989, 30 July 2010 at [75].
[136] In the present circumstances, I accept the Commissioner’s submissions that the evidence does not demonstrate that Mr Stewart and his children will suffer undue hardship as a result of having to relinquish the Emmett Street property. The hardship set out in the evidence is existing hardship as a consequence of Ms Drake’s incarceration, and future hardship which will arise because the family will have to live solely on legitimate sources of income. I do not consider those consequences reach the threshold of being undue hardship caused by the making of the orders, nor do I consider that they outweigh the legislative policy that makes it clear wrongdoers should be stripped of proceeds of crime.34
[137] For all these reasons, I do not consider the threshold for undue hardship has been reached and I am not prepared to exclude property from the assets forfeiture order.
Conclusions on application for asset forfeiture orders
[138] In light of all the matters discussed above, I am satisfied that asset forfeiture orders should be made against both respondents in respect of:
(a) the property at 142 Emmett Street, Shirley, Christchurch (excluding any interest of ANZ Bank New Zealand Limited under its registered mortgage);
(b)the EQC and earthquake insurance payments totalling $23,093.77 (plus any accrued interest); and
(c) the funds held in Mr Stewart’s ANZ 30 account.
Profit forfeiture orders
[139] The applicant seeks a profit forfeiture order against each respondent on the basis that both Ms Drake and Mr Stewart have each, during the relevant period of criminal activity, unlawfully benefitted from significant criminal activity and both
have interests in the property identified in the application. The same criminal activity
34 Lyall v Solicitor-General [1997] 2 NZLR 641 (CA).
is relied on as for the assets forfeiture order, although the profit forfeiture order sought is to recover the sum of $158,635.03. Importantly, the Act provides that property subject to a profit forfeiture order does not need to be tainted by significant criminal activity.
[140] It seems from the respondents’ submissions that the challenges to making a profit forfeiture order which have not already been addressed in the discussion relating to the assets forfeiture order, are:
(a) whether an order for the full amount can be made against each respondent on the basis that they have both unlawfully benefitted from the claimed significant criminal activity; and
(b)whether the amount of the unlawful benefit been appropriately calculated taking into account issues of notional entitlement.
Did Mr Stewart knowingly benefit from Ms Drake’s benefit payments?
The applicant’s submissions
[141] The applicant accepts that for Mr Stewart to have unlawfully benefited from
Ms Drake’s significant criminal activity, s 7 of the Act requires him to have “knowingly, directly or indirectly, derived a benefit from significant criminal activity”. In this case, given the couple were in a long term relationship and given the limited extent of Ms Drake’s legitimate income, the applicant says that Mr Stewart could not have been ignorant of, or must have known about, Ms Drake obtaining benefit payments from MSD.
[142] The relevant facts which the applicant relies on are that:
(a) Mr Stewart admitted to living with Ms Drake while knowing that she was unlawfully claiming a benefit when she was convicted for benefit fraud in the late 1990’s. The applicant says this demonstrates preparedness by Mr Stewart to live with Ms Drake while she committed benefit fraud.
(b) Ms Drake had substantial periods of unemployment between 2000 and
2005, totalling some 16 months, and Mr Stewart could not have missed the fact that Ms Drake had money available to her during these periods of unemployment which clearly pointed to her being in receipt of a benefit during this time. Her evidence that she dressed in a uniform and pretended to go to work during these periods of unemployment was implausible, particularly given the age of their son and the fact that Mr Stewart was working full time.
(c) The evidence supports the fact that, from the early 2000’s onwards, the couple deliberately chose to structure their financial affairs so as to enable Mr Stewart to claim “plausible deniability” of Ms Drake’s benefit fraud. The evidence supporting this included the fact the couple maintained separate bank accounts throughout for no apparent reason. Even after they obtained a mortgage with ANZ and Ms Drake began paying her wages into an ANZ account, she maintained her separate Kiwibank account.
(d) The explanation that they separated their bank accounts because
Ms Drake had stolen from Mr Stewart in the past, was inconsistent with Mr Stewart’s practice of giving her large sums of cash to bank, or to pay for items such as the Totalspan garage/sleepout installed on the property.
(e) Finances were discussed in the household, with Ms Drake admitting that one of the things they argued about was money.
(f) Ms Drake continually had access to funds well in excess of what
Mr Stewart could realistically expect she had earned. Over the years in question, the applicant calculates that between 43 and 72 per cent of her available spending money was received from benefits. Given that a large part of her legitimate income was used to meet automatic payments for power, insurance and the like, the couple simply could not have lived on the balance of her legitimate income and met all living
costs, such as fuel, groceries, household needs and clothing, and that must have been apparent to Mr Stewart.
(g) The evidence of Ms Marshall provided independent support for
Mr Stewart knowing that Ms Drake was in receipt of the benefit.
[143] Finally, the transcripts of telephone calls between them while Ms Drake was in prison contained what the applicant says are clear admissions of Mr Stewart’s prior knowledge of Ms Drake’s receipt of the benefit. For example, in one such call the following exchange occurs:
Mr Stewart What’s the, what’s the life lesson out of this?
MsDrake Life’s lesson is don’t fuck with the government, and listen to your partner when he says so.
(emphasis added)
[144] A similar exchange occurred in another telephone call where the transcript of the call reads as follows:
Ms Drake One good reason, so I can show that I, so I can prove to you guys that I have changed, and show that I have learned my lesson.
Mr Stewart It’s not about learning lessons Letitia, it’s about moving forward in the future, at the end of the day is that, what, you have put our lives on hold for fucken nearly two years Letitia, and it is still going. At the end of the day is that, what, is it really worth the fucking money?
Ms Drake No its not actually. Not it isn’t.
Mr Stewart For the amount of fucking money each week that you were getting, or whatever the fuck it was Letitia, it’s not even worth the fucken hassle. I fucking told you that for years.
(emphasis added)
The respondents’ submissions
[145] The respondents in reply submit that notwithstanding their intermittent admissions that they were in a relationship in the nature of marriage, the Court should accept their evidence that, if the test in Ruka was applied, this was not a relationship in the nature of a marriage as there was no mutual financial commitment and “almost
no intermingling of money”. It followed that neither Ms Drake or Mr Stewart was aware of what the other did in regard to work or other payments.
[146] They also say I should accept Ms Drake’s evidence that she lied to Mr Stewart throughout their relationship about the source of her income. This extended to her pretending to go to work when she was unemployed, or claiming to be in receipt of maternity leave for the period she was not working after her daughter’s birth. Ms Drake also says she was careful to ensure correspondence about her benefit was hidden from Mr Stewart, saying “I hid the mail. I used a PO Box address. I would always make sure I was home when I knew the mail was coming or I had family go and get the mail for me”. I should also take account of the fact that, because they kept separate bank accounts, each was not privy to what the other earned.
Discussion
[147] I do not accept as credible that Mr Stewart did not know that Ms Drake was receiving the benefit for the 15 years they were living together at Emmett Street. The respondents’ evidence on this relies on a combination of a complete lack of communication between each other over their financial affairs and Ms Drake maintaining elaborate and sophisticated lies as to the extent of her employment.
[148] Having heard Ms Drake in the witness box and compared the inconsistency of her statements there with other statements she has made, both formally and informally, I simply do not consider her capable of maintaining a sophisticated double life over that entire period. Furthermore, I accept Ms Marshall’s evidence that Ms Drake disclosed to her and her other work mates that she was on a benefit. Her naivety in doing that accords with my assessment of her and highlights the implausibility of her deceiving her de facto partner for 15 years on the same issue.
[149] Despite the respondents’ submissions that under the Ruka test they were not in a relationship in the nature of marriage, as there was no financial interdependence, Ms Drake pleaded guilty in 2016 on the basis of a summary of facts which made it clear she accepted they were in a relationship in the nature of a marriage throughout the relevant period. Even if this had not been the case, the evidence that they were in such a relationship was compelling. These included both Ms Drake’s and Mr Stewart’s
admissions to Darran Toner, and Mr Stewart’s mother’s statements to Darran Toner, where she confirmed that the respondents had “been together for 20 years” and that she had never known them to break up, nor did she know of any physical violence between them. There is also clear evidence that they did support each other financially, with Ms Drake meeting most of the family’s living costs, and Mr Stewart providing the funding for their jointly owned home.
[150] Furthermore, despite the testy nature of some of the transcribed telephone calls between Ms Drake and Mr Stewart while she was in prison, the exchanges were consistent with there being an ongoing relationship between them. They discussed such things as like what their daughter was doing, how the family was going to survive financially, when their next phone calls will be, and that they loved and missed each other.
[151] In light of all the evidence relied on by the applicant, and my own assessment of the respondents’ credibility, I am satisfied by some margin that the couple shared information about their finances, Mr Stewart knew that Ms Drake was receiving the benefit, and they deliberately maintained a degree of separation in their banking arrangements in an attempt to avoid implicating him in her benefit fraud.
[152] For completeness, although it was not actively denied, I also consider that
Ms Drake knowingly benefitted from Mr Stewart’s tax evasion. Mr Stewart acknowledged Ms Drake knew he was being paid in cash and that she would have no reason to think he was paying tax on those earnings.
Has the Commissioner correctly calculated the amount of the welfare benefit?
[153] In accordance with s 53 of the Act, the value of the benefit is presumed to be the value stated in the application if the Commissioner proves, on the balance of probabilities, that this respondent has, in the relevant period of criminal activity, unlawfully benefitted from significant criminal activity.
[154] The respondent can rebut the presumption. However, the onus then falls on the respondent to prove that a different amount should be taken as the actual benefit. As was said by Gilbert J in Commissioner of Police v Filer:35
Once the Commissioner discharges the initial onus under s 53(1), the onus of proving the correct figure rests with the respondent under s 53(2) and does not pass back to the Commissioner. This interpretation serves the purposes of the forfeiture regime which include eliminating the chance of persons who profit from undertaking or being associated with significant criminal activity and deterring such activity. These objectives could be frustrated if the legislation was interpreted so as to require the Commissioner to prove the benefit in all cases where a respondent can establish some error in the Commissioner’s assessment. The respondent will know what the benefit was and all of the access to the witnesses and records that may be needed to prove this, whereas the Commissioner does not. I conclude that if the respondent fails to prove the benefit, on the balance of probabilities, the amount stated in the Commissioner’s application must stand, even if the correctness of the underlying assessment is questionable.
[155] I have already discussed the Commissioner’s calculation of the unlawful benefit Mr Stewart received from tax evasion.36 He has failed to displace the presumption that the Commissioner’s calculation is correct. The requirement that Ms Drake knew about his tax evasion is also satisfied. She acknowledged on Facebook in 2010 that he was doing “cash jobs”, she received significant cash payments from him to pay into bank accounts or to Totalspan, and she must have been aware of the substantial investment in home improvements over this time.
The respondents’ submissions
[156] In challenging the application for a profit forfeiture order in relation to
Ms Drake’s benefit fraud, the respondents argue that the Commissioner failed to calculate the family’s “notional entitlement” to benefits and tax credits, that is, what they would have been lawfully entitled to if the respondents’ true position was known. If he had done so, the benefit derived from the first respondent’s significant criminal activity was materially less than that calculated by the Commissioner.
[157] In advancing this position, Mr Starling referred to the report by
Frances Joychild which reviewed how the Department of Work and Income had
35 Commissioner of Police v Filer [2013] NZHC 3111 at [13].
36 At [88] to [99] above.
implemented the Court of Appeal decision in Ruka, and which endorsed removing the residual discretion in respect of whether notional entitlement was taken into account.37
He also referred to Ioane v Department of Social Welfare, where Robertson J held that in determining the degree of criminal culpability for the purposes of sentencing for benefit fraud, the Court should have regard to the difference between the sum received and what the appellant would have been legally entitled to in terms of benefits.38
[158] A similar view was expressed in Moody v The Chief Executive of the
Department of Work and Income, where Young J said:39
My instinctive reaction is that the liability of the beneficiary to the Department cannot exceed the extent of the overpayment, that is the difference between what the beneficiary received less the amount that the beneficiary is entitled to.
[159] However, the respondents did not adduce any evidence to quantify what, if any, entitlement they would have had to benefits or tax credits during the period in question. It appears that the suggestion there would have been some entitlement was based on the assertion that Mr Stewart was either unemployed or earning a minimised income for several years, a proposition I have rejected.
The applicant’s submissions
[160] The applicant submitted that there was, in fact, no notional entitlement to any WINZ/MSD benefit and, furthermore, to the extent the respondents asserted that WINZ had an obligation to assess any notional entitlement, it was clear from the re-examination of Mr Toner that this had, in fact, occurred. A letter was sent to
Ms Drake, dated 3 June 2015, which squarely raised the issue of notional entitlement and Ms Drake failed to reply to it. Furthermore, Mr Toner confirmed in re-examination that there was no entitlement to a MSD benefit in Ms Drake’s circumstances where she was living with her partner throughout and earning an
income. Ms Drake has also not demonstrated that she was entitled to any family tax
37 Frances Joychild Review of Department of Work and Income Implementation of the Court of
Appeal decision: Ruka v Department of Social Welfare [1997] 1 NZLR 154 (18 June 2001).
38 Ioane v Department of Social Welfare (1994) 11 CRNZ 489.
39 Moody v The Chief Executive of the Department of Work and Income [2001] NZAR 608 at [10].
credits. In those circumstances, the presumption that the applicant has correctly calculated the value of the benefit received by the respondents must apply.
Discussion
[161] I accept, in principle, that the issue of notional entitlement could reduce the value of the benefit held to have been wrongly received by the respondents for the purposes of a profit forfeiture order. However, in this case, the respondents have not demonstrated, on the balance of probabilities, that they would have been lawfully entitled to benefits or tax credits in the circumstances as I have found them to be. For that reason, they have failed to discharge the onus that falls on them under s 53. I accept the applicant’s quantification of the value of the benefits received by the respondents from significant criminal activity.
Orders
[162] In light of these findings, I now turn to what orders should be made. I address the application for asset forfeiture orders first as s 54(1)(b) requires any profit forfeiture order to take account the value of any property forfeited under an assets forfeiture order.
[163] The Commissioner’s application for asset forfeiture orders is largely successful and I make asset forfeiture orders in respect of the following property:
(a) the residential property at 142 Emmett Street, Shirley, Christchurch comprising 673 square metres more or less, Lot 357 DP 16154 of Canterbury District, Certificate of Title CB8B/1310 (excluding any interest of ANZ Bank New Zealand Limited under its registered mortgage);
(b)EQC and earthquake insurance payments connected with the residential property at 142 Emmett Street, Christchurch, namely a payment by the Earthquake Commission in the sum of $9,974.40, and a payment by Vero Insurance, on behalf of AA Insurance, totalling $13,119.30;
(c) funds held in the custody of the Official Assignee in the names of both respondents that represents the savings from ANZ Bank account number 11-8001-0927859-30 (including interest accrued).
[164] Given I have made an asset forfeiture order, an issue arises as to whether a profit forfeiture order can also be made.40 This is because, before the High Court can make a profit forfeiture order, the Court must determine the maximum recoverable amount. That is done by:
(a) taking the value of the benefit determined in accordance with s 53; and
(b)deducting from that, the value of any profit forfeited to the Crown as a result of an asset forfeiture order made in relation to the same significant criminal activity to which the profit order relates.
[165] I am satisfied that the value of the benefit received by the respondents is
$158,635.03. However, the value of the property forfeited to the Crown as a result of the assets forfeiture orders I have made, as set out above, clearly exceeds the value of the benefit as the assessed joint equity in the property, as at 20 April 2017, is
$229,597.25. In the circumstances, where the maximum recoverable amount would be zero, it is inappropriate to make a profit forfeiture order. Therefore, I decline to make a profit forfeiture order because the value of the unlawful benefit received by the respondents is clearly met as a consequence of the making of the asset forfeiture orders.
Costs
[166] I can see no reason why the Commissioner would not be entitled to costs as the successful party. If costs cannot be agreed, leave is given to the parties to file
memoranda in relation to this issue. If no application for costs is received within
40 Doorman v Commissioner, New Zealand Police [2013] NZCA 476, [2014] 2 NZLR 173 at
[49]-[66].
20 working days of the date of this judgment, I order that costs are to lie where they fall.
Solicitors:
Raymond Donnelly & Co., Christchurch
M Starling, Barrister, Christchurch
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