Commissioner of Police v Farmer

[2022] NZHC 965

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1946

[2022] NZHC 965

UNDER

The Criminal Proceeds (Recovery) Act 2009

BETWEEN

COMMISSIONER OF POLICE

Applicant

AND

JENNIE DIANA FARMER

First Respondent

… Continued

Hearing:	5 May 2022
Appearances:	A Harborow and A Mackenzie for Applicant M A Keil for Third and Fifth Respondents
Judgment:	9 May 2022

JUDGMENT OF LANG J

[on application for restraining order]

This judgment was delivered by me on 9 May 2022 at 2 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

Solicitors:

Crown Solicitor, Auckland

COMMISSIONER OF POLICE v FARMER [2022] NZHC 965 [9 May 2022]

WILLIAM ROBERT FARMER

Second Respondent

PAUL ANDREW KNIGHTS
Third Respondent

MARK VINCENT HUBBLE
Fourth Respondent

4 CORNERS INVESTMENT LIMITED
Fifth Respondent

STANDALONE INVESTMENTS LIMITED

Sixth Respondent

[1]    The Commissioner of Police (the Commissioner) seeks a restraining order under s 25 of the Criminal Proceeds (Recovery) Act 2009 (the Act) over a property described as Unit D, 1/22 Maich Road, Manurewa (the property). The fifth respondent, 4 Corners Investment Limited (4 Corners) is the registered owner of the property.

[2]    The third respondent, Mr Knights, is the sole shareholder and director of 4 Corners. He and his family live on the property in an apartment located on a mezzanine floor. Mr Knights and 4 Corners oppose the restraining order being made.

Background

[3]    The Commissioner alleges that the respondents set up a scheme by which foreign workers were brought to New Zealand to work in the South Auckland area. Whilst in New Zealand they were housed in the property owned by 4 Corners. The property was originally a warehouse but has now been altered to provide 23 separate bedrooms, a kitchen and bathroom facilities for the workers. The Commissioner contends the first, second , fourth and sixth respondents were largely responsible for making these arrangements. They have reached a settlement with the Commissioner and will play no further part in the proceeding.

[4]    The Commissioner alleges that Mr Knights’ role in the scheme was to arrange for 4 Corners to make the premises available for use as an accommodation facility and to carry out the electrical work on the project.

[5]    The foreign workers began using the property for residential purposes in December 2017. Thereafter 4 Corners received a share of the weekly rental they paid. Each worker paid the sum of $200 per week to reside at the address. 4 Corners received $130 of this sum. It also received rental from persons who stayed at the address through an arrangement with Work and Income New Zealand (WINZ). This arrangement had been in place before 4 Corners acquired the property in 2015.

[6]    4 Corners acknowledges it received the sum of at least $343,000 in this way between December 2017 and May 2019. Of this sum, 4 Corners paid the sum of approximately $28,000 to the Inland Revenue Department by way of GST input tax.

A significant proportion of the funds that 4 Corners received by way of rental income was subsequently transferred into bank accounts operated by Mr Knights.

[7]    The Commissioner contends the funds that 4 Corners and Mr Knights received from both these sources constituted the proceeds of significant criminal activity. This is because the funds were derived from the use of the property for residential rental accommodation when the relevant zoning for the area only permitted land to be used for light industrial purposes. Because residential accommodation was not a permitted use of land in that area it was necessary for the Auckland Council (the Council) to issue a land use resource consent. In August 2017 the second respondent, Mr Farmer, applied for a land use resource consent permitting the land to be used for the purpose of residential accommodation. After much correspondence with the Council he ultimately withdrew the application in April 2018. As a result, 4 Corners was acting in breach of the zoning provisions of the Resource Management Act 1991 when it allowed the property to be used for residential purposes.

[8] In addition, no building consent was obtained for the work that was carried out to convert the property into residential accommodation. The Commissioner contends that the modifications to the building were therefore carried out in breach of s 40 of the Building Act 2004, which prohibits building work being carried out otherwise than in accordance with the provisions of a building consent.

[9] After the Council discovered that 4 Corners was using the property for residential purposes it issued criminal proceedings in the District Court against several of the respondents, including Mr Knights and 4 Corners. They are charged with breaching several provisions of the Resource Management Act and the Building Act. 4 Corners and Mr Knights have denied the charges, and they are to be the subject of a defended hearing of five days duration during August 2022.

Relevant principles

[10]Section 25 of the Criminal Proceeds (Recovery) Act 2009 provides as follows:

25       Making restraining order relating to all or part of respondent's property

(1)A court hearing an application for a restraining order relating to all or part of a respondent's property may, if the court is satisfied it has reasonable grounds to believe that the respondent has unlawfully benefited from significant criminal activity, make an order that the property it specifies in the order (“restrained property”)—

(a)is not to be disposed of, or dealt with, other than is provided for in the restraining order; and

(b)is to be under the Official Assignee's custody and control.

(2)A restraining order made under subsection (1) may relate to any of the following:

(a)all of a respondent's property (including property acquired after the making of the order):

(b)specified parts of a respondent's property:

(c)all of a respondent's property (including property acquired after the making of the order) other than specifically excluded property.

(Emphasis added)

[11]   As s 25(1) makes clear, the court has jurisdiction to make a restraining order when it is satisfied there are reasonable grounds to believe that the respondent has unlawfully benefited from significant criminal activity. Jurisdiction arises because of the benefit received. At the restraining order stage the court does not need to be satisfied that the respondent did in fact unlawfully benefit from significant criminal activity.1 It must only be satisfied there are reasonable grounds to believe this is the case. This Court has observed that the threshold for making restraining orders is therefore relatively low, consistent with the function of such orders as temporary or “holding” measures.2

[12]Section 6 of the Act defines the term “significant criminal activity” as follows:

6Meaning of significant criminal activity

(1)In this Act, unless the context otherwise requires, significant criminal activity means an activity engaged in by a person that if proceeded against as a criminal offence would amount to offending—

1      Vincent v Commissioner of Police [2013] NZCA 412 at [45].

2      Commissioner of Police v Lee [2014] NZHC 479 at [8]; Commissioner of Police v Antolik [2016] NZHC 2649 at [33].

(a)that consists of, or includes, 1 or more offences punishable by a maximum term of imprisonment of 5 years or more; or

(b)from which property, proceeds, or benefits of a value of

$30,000 or more have, directly or indirectly, been acquired or derived.

(2)A person is undertaking an activity of the kind described in subsection

(1) whether or not—

(a)the person has been charged with or convicted of an offence in connection with the activity; or

(b)the person has been acquitted of an offence in connection with the activity; or

(c)the person's conviction for an offence in connection with the activity has been quashed or set aside.

(3)Any expenses or outgoings used in connection with an activity of the kind described in subsection (1) must be disregarded for the purposes of calculating the value of any property, proceeds, or benefits under subsection (1)(b).

[13]   As will be evident, s 6(1) defines the phrase “significant criminal activity” in two ways. First, it constitutes activity which, if charged as an offence, would be punishable by imprisonment for five years or more. Alternatively, it constitutes activity from which benefits amounting to at least $30,000 in value have been directly or indirectly derived. In the present case the charges laid in the District Court carry a maximum penalty of less than five years imprisonment. The Commissioner therefore relies upon the definition contained in the second limb.

[14]   Section 7 of the Act defines the phrase “unlawfully benefited from significant criminal activity” as follows:

7           Meaning of unlawfully benefited from significant criminal activity

In this Act, unless the context otherwise requires, a person has unlawfully benefited from significant criminal activity if the person has knowingly, directly or indirectly, derived a benefit from significant criminal activity (whether or not that person undertook or was involved in the significant criminal activity).

[15]   The wording used in s 7 means that it is not necessary for the property subject to the application to have been derived from the offending or for the respondent to have engaged in the criminal activity. What matters is the knowing receipt of benefits

from  significant  criminal  activity.     Knowledge in this context includes wilful blindness.3

[16]   An issue arises as to the requisite extent of knowledge. The Commissioner purports to rely on Commissioner of Police v Rewita to contend that the respondent needs only know the source and nature of the benefit in question.4 In that case Wylie J observed that knowledge relates to both the benefit and its origins.5 In the present case Mr Harborow points out that Mr Knights was plainly aware he and 4 Corners were receiving funds by way of rental from the use of the building as a residence for the foreign workers. He submits this is all the Commissioner is required to demonstrate.

[17]   Ms Keil submits that the Commissioner must also show there are reasonable grounds to believe Mr Knights knew the funds were derived from unlawful criminal activity. She relies for this submission on observations made by Rodney Hansen J in Commissioner of Police v Know-All Group Ltd6 and by Priestley J in Commissioner of Police v Singh.7 Adopting the approach taken by Rodney Hansen J in the Know- All Group case, Priestley J concluded that the definition in s 7 requires proof on the balance of probabilities of knowledge that a direct or indirect benefit has been derived from a significant criminal activity.8

[18]   I do not view Commissioner of Police v Rewita as authority for the proposition for which the Commissioner contends. After noting that knowledge under s 7 relates to both the benefit and its origins Wylie J went on to observe:9

[40] Here, I am satisfied on the balance of probabilities that Mr Rewita knowingly derived the unlawful benefit. It seems to me that he was both aware of, and indeed involved in, the sale and supply of methamphetamine. Significant sums in cash were found in his possession, or in premises occupied by him. So was the drug methamphetamine.

3      Vincent v Commissioner of Police, above n 1, at [53].

4      Commissioner of Police v Rewita [2012] NZHC 967.

5 At [39].

6      Commissioner of Police v Know-All Group Ltd HC Auckland CIV-2010-404-403, 7 February 2011 at [4].

7      Commissioner of Police v Singh [2012] NZHC 344.

8      At [26]-[27].

9      Commissioner of Police v Rewita, above n 4.

[19]   This passage suggests Wylie J took the same approach as that taken by Rodney Hansen J and Priestley J in Know-All Group and Singh. I therefore proceed on the same basis. Section s 7 requires the Commissioner prove knowledge of, or wilful blindness as to, the fact that the benefits have been derived from unlawful criminal activity.

Grounds of opposition

[20]   Mr Knights and 4 Corners advance the following grounds in opposition to the application:

(1)The evidence derived from searches of the property is inadmissible because the searches were unlawful and unreasonable.

(2)The charges before the District Court are nullities because they are time-barred.

(3)The present proceeding is an abuse of the Court’s process because the Commissioner is endeavouring to use the Act for a purpose not contemplated by Parliament.

(4)4 Corners and Mr Knights did not knowingly derive a benefit from significant criminal activity.

The admissibility of evidence derived from searches of the property

[21]   Ms Keil contends that officers of the Auckland Council unlawfully and unreasonably searched the property, including the area used by Mr Knights and his family as a dwelling, on several occasions. The searches produced evidence on which the police rely in both the criminal proceedings and the present proceeding. She contends that all evidence derived from the searches is inadmissible because it was illegally obtained. She also submits that, if the evidence is inadmissible, the Commissioner has insufficient grounds to establish jurisdiction to make a restraining order.

[22]   I consider the present proceeding to be an inappropriate method by which to determine the lawfulness and reasonableness of the searches carried out by Council officers. If that exercise is to be undertaken it should be done in the context of the criminal proceedings or at the stage in the present proceeding when the Commissioner applies for forfeiture orders. This is because any decision of this Court would necessarily bind the District Court in circumstances where the Crown (as distinct from the Commissioner of Police) would not have had an opportunity to be heard.

[23]   Furthermore, the notice of opposition did not contain this ground of opposition. As a result, the witnesses for the Commissioner did not address it in their evidence and counsel for the Commissioner did not address it in their written submissions. It was raised for the first time in the written submissions filed on behalf of the respondents. I decline to permit Mr Knights and 4 Corners to amend their notice of opposition to include this ground given the very late stage at which it was raised.

The time bar issue

[24]   This issue falls into the same category as the lawfulness and reasonableness of the searches. It will be for the District Court to determine whether the criminal charges were laid out of time. This proceeding cannot determine that issue.

[25]   The argument is misconceived in any event because, as s 6(2) makes clear, the Commissioner may allege the existence of significant criminal activity regardless of whether charges are laid and/or proved in relation to the acts allegedly constituting that activity. It is also noteworthy that s 12(3)(e) of the Limitation Act expressly excludes claims under the Act from its ambit.

Abuse of process

[26]   Ms Keil argues that the Commissioner is attempting to use the Act for a purpose for which it was not intended. She submits it is implicit from s 6 that the alleged activity, if proceeded against as a criminal offence, must include elements of both intention (mens rea) and the act (actus reus). However, the offences with which Mr Knights and 4 Corners have been charged are offences of strict liability and have very limited statutory defences.

[27]   Ms Keil contends that, had strict liability offences been contemplated by Parliament when enacting the Act, s 6 would have been cast in wider terms to include all offences and without the need to prove knowledge (or wilful blindness) that the benefits have been derived from significant criminal activity. She submits that the Act was never intended to extend to persons charged with strict liability regulatory offences. Ms Keil also says that use of the Act for this purpose amounts to an unreasonable limit on the right under s 21 of the New Zealand Bill of Rights Act 1990 to be free from seizure of property by public authorities.

[28]   This argument faces three difficulties. First, the primary purpose of the Act is to establish a regime for the forfeiture of property and benefits derived directly or indirectly from significant criminal activity or from a person’s unlawfully derived income.10 There is nothing in the Act to suggest this purpose should not apply to benefits derived from significant criminal activity in the public welfare regulatory field.

[29]   Secondly, the Act applies to benefits derived from significant criminal activity regardless of whether the respondent is charged with criminal offences.

[30]   Thirdly, the definition of “significant criminal activity” extends to any criminal activity that derives benefits exceeding the sum of $30,000 in value. It is not restricted to serious criminal offending that carries a maximum penalty of five years imprisonment. Given the fact that Parliament has seen fit to define the phrase “significant criminal activity” in this way I do not accept Ms Keil’s argument that the Act cannot apply to public welfare regulatory offending.

Are there reasonable grounds to believe Mr Knights and 4 Corners knowingly derived benefits from significant criminal activity?

[31]   Ms Keil submits that 4 Corners and Mr Knights did not knowingly derive benefits from significant criminal activity. She contends there is nothing in the evidence to suggest Mr Knights knew that the funds he and 4 Corners received by way of rental were derived from significant criminal activity. He was not involved in the

10     Criminal Proceeds (Recovery) Act 2009, s 3(1).

arrangements that were made to house the workers at the property and left these to the other respondents. He presumed it was lawful to use the building for residential purposes because he knew a Building Warrant of Fitness had been issued that confirmed the building could be used for residential accommodation for up to 38 persons.

[32]   I begin by observing that Ms Keil’s argument proceeded on the basis that I could make a determinative finding on this issue. That is not correct because it is neither necessary nor appropriate for me to finally determine whether the respondents knowingly received benefits from significant criminal activity. It is sufficient for me to determine whether there are reasonable grounds to believe they did so.

[33]   The Commissioner contends that Mr Knights knew the property could not legally be used to house the number of persons who were living there. Mr Harborow points out that Mr Knights received copies of numerous emails from Mr Farmer outlining the obstacles his resource consent application had encountered with the Council. He says these would have alerted Mr Knights to the fact that a resource consent was required before the property could be used for residential purposes. Mr Knight’s response is that he never read the emails sent to him by Mr Farmer.

[34]   The Commissioner also relies on the fact that Mr Knights and Mr Farmer attended a meeting with representatives of the Council on 23 November 2017. The purpose of the meeting was to discuss the application Mr Farmer had filed seeking a land use resource consent to allow 4 Corners to develop the property as residential accommodation for foreign workers. During the meeting one of the Council’s representatives, Ms Suzanne Speer, told Mr Knight and Mr Farmer the Council was likely to reject the application. This was because of the issues arising out of the use of land for residential purposes in an area zoned for light industry. As I have already observed, Mr Farmer subsequently withdrew the application for resource consent.

[35]   Wilful blindness will occur where a person has his or her suspicions aroused that a particular state of affairs may exist and then deliberately refrains from making an enquiry so as to avoid learning whether the suspicion is justified.11 In the present

11     Vincent v Commissioner of Police, above n 1, at [52].

case the fact that Mr Knights attended the meeting on 23 November 2017 is significant. It means there are reasonable grounds to believe he knew 4 Corners needed to obtain a resource consent before the property could be used to provide residential accommodation. The existence of the Building Warrant of Fitness was not sufficient to make it lawful for it to be used for residential purposes. He also knew there were likely to be significant difficulties in obtaining that consent. Notwithstanding this knowledge Mr Knights and 4 Corners subsequently derived substantial income knowing that it came from the use of the property to provide accommodation for the workers.

[36]   Mr Knights confirmed in answer to questions from me that he never asked Mr Farmer about the outcome of his application for resource consent. Had he done so prior to 9 April 2018 he would have learned the application had not yet been granted. Had he done so after that date he would have discovered Mr Farmer had withdrawn the application. I therefore consider there are reasonable grounds to believe Mr Knights closed his eyes after the meeting on 23 November 2017 to the possibility that the property was being used for accommodation purposes without a resource consent. This amounts to wilful blindness sufficient to constitute knowledge for the purposes of s 7. It follows that there are reasonable grounds to believe Mr Knights and 4 Corners knowingly derived benefits from the significant criminal activity that the Commissioner relies upon.

Result

[37]   The Commissioner has established sufficient evidence to justify a restraining order being made. I therefore make a restraining order as sought in the Commissioner’s application dated 19 October 2021.

Costs

[38]   The Commissioner is entitled to costs on a category 2B basis together with disbursements as fixed by the Registrar.

Lang J