Commissioner of Police v Feleti
[2022] NZHC 2051
•18 August 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-002318
[2022] NZHC 2051
BETWEEN COMMISSIONER OF POLICE
Applicant
AND
AISAKE FELETI
First Respondent
FERN CUSHLA HOUSTON
Second RespondentSESE VIMAHI
Third RespondentMARTIN JULIAN PRITCHARD
Fourth RespondentANGELINA BANTI JEET SINGH
Fifth Respondent…………………………./Continued over
Hearing: 9 August 2022 Appearances:
S M Earl and L Lai for Applicant
L M Herbke for Seventh Respondent
No appearance for or by First, Second, Third, Fourth, Fifth, Eighth, Ninth and Tenth RespondentsJudgment:
18 August 2022
Reissued:
8 September 2022
JUDGMENT OF WYLIE J
(Application for sale of restrained asset)
This judgment was delivered by Justice Wylie
On 18 August 2022 at 2.30 pm Pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:…………………………
COMMISSIONER OF POLICE v FELETI [2022] NZHC 2051 [18 August 2022]
MATANGIKOLO PIUKANA
Sixth Respondent
RONNIE KIVALU
Seventh Respondent
JESSIE ELIZABETH FORBES
Eighth Respondent
TONY IUVALE
Ninth Respondent
SANLOLAN PIUKANA
Tenth Respondent
Solicitors/counsel:
Meredith Connell, Auckland S R Lack, Auckland
J W Wall, Auckland
Tucker & Co/J D Munro/J N Olsen, Auckland K E Hogan, Auckland
Albany Legal, Albany, Auckland T M Cooper, Auckland
D J Dufty, Auckland
Introduction
[1] The Commissioner of Police (the Commissioner) seeks an order permitting the sale of a 1994 Toyota Land Cruiser, MCG390 (the Land Cruiser) owned by the seventh respondent, Ronnie Kivalu (Mr Kivalu). The vehicle is subject to a restraining order made under the Criminal Proceeds (Recovery) Act 2009 (the Act).
[2]Mr Kivalu opposes the Commissioner’s application.
Background
[3] In mid-2021, the police and the New Zealand Customs Service began an investigation into the importation of methamphetamine into New Zealand by various criminal syndicates. One syndicate was identified as having imported methamphetamine from Tonga. One of the persons the police allege was involved in this importation is Mr Kivalu. He has been charged together with a number of others with importing methamphetamine, possession of the drug for supply and its supply.
[4] On 6 December 2021, the Commissioner applied, without notice, for restraining and further orders over various items of property said to be associated with the respondents to this proceeding including the Land Cruiser. A restraining order was made by Katz J on 7 December 2021.
[5] On 13 December 2021, the Commissioner applied, on notice, for a restraining and further orders over largely the same property as had been included in the without notice application as well as over further property owned by other respondents. On 2 May 2022, Edwards J made a restraining order by consent. The order restrained the Land Cruiser as well as various other items of property.
[6] The Commissioner also sought a further order that the Official Assignee sell the Land Cruiser and various other vehicles that had been restrained. On 7 April 2022, Mr Kivalu filed and served a notice of opposition to this application and filed an affidavit in support. The Commissioner has subsequently filed evidence in reply.
Submissions
[7] Mr Kivalu, through his counsel, Mr Herbke, argued that it is likely that the Land Cruiser will either hold or increase its value, due to its particular characteristics. It was further submitted that the holding costs that will be incurred are irrelevant and that, on balance, relevant factors suggest that an immediate sale is inappropriate.
[8] The Commissioner in response, through his counsel, Ms Earl, argued that the Official Assignee has a duty to preserve the value of restrained property in his custody and control and that the Land Cruiser is depreciating in value, albeit at a modest rate. It was submitted that the Land Cruiser has no special features that prevent it from depreciating. It was noted that the underlying criminal proceedings will not be disposed of for some time and that any forfeiture application will not be dealt with until sometime thereafter. It was said that depreciation pending the final resolution of any forfeiture application is likely to reduce the Land Cruiser’s value. It was further argued that holding costs are significant and that they are likely to erode any value the Land Cruiser may have over time.
Analysis
[9] The Land Cruiser is restrained pursuant to a restraining order made under ss 24 and 25 of the Act. It is in the custody and control of the Official Assignee and the Act permits the Official Assignee to do anything reasonably necessary to preserve its value.1
[10] The Commissioner’s application for an order for sale is brought pursuant to ss 33 to 35 of the Act.
[11] Section 33(1) provides that an application for a further order may be made by the Commissioner as the applicant for the initial restraining order and s 34 permits the Court, on an application made under s 33(1), to make further orders in relation to restrained property if it considers it appropriate to do so. Any further orders can be made either at the same time as the associated restraining order is made or at any later time before the expiry of the restraining order.2 Any further order may, but need not,
1 Criminal Proceeds (Recovery) Act 2009, s 80(1).
2 Section 33(2).
be an order of one or more of the types referred to in s 35. Relevantly, s 35 provides as follows:
35 Types of further order
Without limiting the generality of section 34(1), a court may, on an application under section 33(1), make 1 or more of the following further orders in relation to restrained property:
…
(e) an order relating to the Official Assignee that—
…
(v) directs the Official Assignee to sell restrained property (including, without limitation, a business) in order to preserve the value of the restrained property:
[12] Sale orders are typically sought by the Commissioner in relation to restrained assets that have high depreciation rates and/or that incur ongoing storage, insurance and maintenance costs.3 Both depreciation and holding costs can decrease the potential return to the Commissioner and/or the parties who claim an interest in the restrained asset. There can be an additional benefit in a sale prior to any forfeiture order being made because, once the asset is sold, the proceeds of sale, while still restrained property,4 can be placed in an interest-bearing account by the Official Assignee.
[13] The Commissioner does not have to prove on the balance of probabilities that a sale is required.5 Rather, he must persuade the Court that such an order is appropriate6 and, where an order of the type set out in s 35(e)(v) is sought, that the order is necessary to preserve the value of the restrained property. A variety of factors can be relevant. As noted by Lang J in Commissioner of Police v Drummond:7
Factors that will need to be taken into account include the nature and value of the asset, the length of time before the substantive proceeding will be determined, the extent to which the asset may depreciate during that period
3 Commissioner of Police v Cavanagh [2014] NZHC 2978 at [7].
4 Criminal Proceeds (Recovery) Act, s 36(4).
5 Commissioner of Police v Parker [2019] NZHC 1506 at [31].
6 Criminal Proceeds (Recovery) Act, s 34(1).
7 Commissioner of Police v Drummond [2018] NZHC 1730 at [15]; and see Commissioner of Police v Milosevic [2019] NZHC 202 at [95].
and the wishes of the owner of the assets and/or those who may have an interest in it.
[14]Against this background, I turn to consider the application in this case.
The Land Cruiser – its value?
[15] In his affidavit in support of his notice of opposition, Mr Kivalu asserted that the Land Cruiser was advertised for sale for $10,000 on Facebook Marketplace and that his wife withdrew $10,000 from her account and gave it to him so that he could purchase the vehicle. He stated that he made some modifications to the vehicle – installing bull bars, lights, roof racks and off-road tyres. He asserted that he plans further modifications which, he said, will make it more valuable. He claimed that the Land Cruiser is currently valued at approximately $17,000 and that it increased in value after he bought it because the manufacturer – Toyota – announced that it was stopping production of such vehicles.
[16] In an affidavit in reply, Detective Aaron Morris recorded that he has spoken to the previous registered owner of the Land Cruiser and obtained a formal statement from him. The former owner has stated that he modified the vehicle, adding both front and rear bull bars, that he lifted the suspension and that he put 35 inch tyres and spotlights on it. He said that he advertised the vehicle for sale on Trade Me and that he sold it in or about March/April 2019. He said that the purchaser made five to six offers, and that eventually they agreed on a purchase price of $13,500. He said that the purchase price was paid in cash.
[17] There is a discrepancy of $3,500 between the price Mr Kivalu claims to have paid for the vehicle and the price for which the seller claims to have sold it. I do not however consider that this is particularly relevant. Nor are further modifications that Mr Kivalu wishes to make to the Land Cruiser. What is relevant is the current market value of the Land Cruiser and, in terms of s 35(e)(v) of the Act, whether a sale is necessary to preserve that value.
[18] It is Mr Kivalu’s evidence that the Land Cruiser is currently worth $17,000. He has obtained a valuation from a director of Central Car Company Ltd who also valued the vehicle at $17,000, excluding GST (if any). The police have obtained an
affidavit from Ben Nicholson, who is a fleet consultant in the sales team at Turners Cars. Mr Nicholson also valued the Land Cruiser at $17,000. I accept this evidence.
Will the Land Cruiser hold or increase in value – depreciation?
[19] It was Mr Nicholson’s evidence that the Land Cruiser appreciated in value shortly after Mr Kivalu purchased it, because the manufacturer announced that it would no longer be producing similar vehicles. Mr Nicholson told me that, by 2021, the Land Cruiser was valued at some $21,000. There was then a demand for four-wheel drive diesel vehicles, even those with a high mileage. Mr Nicholson told me that this demand has since dropped off. He did not consider that the Land Cruiser will hold its value (or that its value will increase); rather it will depreciate.
[20] Mr Nicholson was cross-examined. He confirmed that Toyota announced in March 2021 that it was no longer going to make similar diesel four-wheel drive vehicles and that the Land Cruiser was a very popular model. Toyota’s announcement had a flow-on effect and a number of Land Cruiser owners put their vehicles on the market in early to mid-2021. An oversupply developed. This coincided with a rise in fuel costs. As a result, values dropped. Mr Nicholson also expected that Mr Kivalu’s Land Cruiser would continue to depreciate by some $250 a year. He acknowledged this depreciation was less than that for a normal car. He accepted that, as a result of Toyota’s decision to cease manufacturing Land Cruisers, such vehicles will become rarer, but he did not consider that the vehicle would appreciate in value. He noted the ready availability of similar utility-type vehicles. He did not discount the possibility that the Land Cruiser might appreciate, but he did say that there are a lot of vehicles available that are capable of being used off-road. There was nothing to contradict Mr Nicholson’s evidence and I accept it.
[21] There is nothing to suggest that the Land Cruiser is unique. The vehicle is now almost 30 years old and it has travelled approximately 445,000 kilometres. It has been set up as a four-wheel drive off-road vehicle; it is in comparatively good condition and Toyota are no longer manufacturing similar Land Cruisers. These factors take the vehicle outside the norm but not to the extent that it is now unique. Nor does it have any special value for Mr Kivalu. He explained in his affidavit that he had always
wanted to get into off-roading with his teenage boys and that he was only able to afford to buy a dedicated four-wheel drive vehicle in 2019. There is nothing however to suggest that the vehicle has any particular or sentimental value to Mr Kivalu or to any other member of his family. Nor is it a collector’s vehicle, an investment or the like.
[22] I am satisfied on the evidence that the Land Cruiser is currently worth approximately $17,000. It has no particular value to Mr Kivalu. Depreciation of the Land Cruiser has largely “bottomed out” but it is likely to continue to depreciate, albeit at a modest rate – say by $250 per year.
Delay – preservation of value
[23] Mr Kivalu’s criminal trial is not scheduled to proceed until June 2024. A forfeiture application will not be filed until the criminal proceeding is finalised. The forfeiture application – if defended – could take some time to come to hearing. Ms Earl, for the Crown, speculated that any defended forfeiture application might not come to hearing for some three years or perhaps longer. That estimate is not unreasonable. On the evidence, the vehicle will then have depreciated by approximately $750, or perhaps a bit more. Although the sums involved are modest, in percentage terms they are more significant. On the face of it, an order for sale is necessary to preserve the value of the restrained asset.
Mr Kivalu’s wishes
[24] Mr Kivalu does not want the Land Cruiser sold. He is of course entitled to that view. He is and remains the registered owner of the Land Cruiser.
Holding costs
[25]There was some argument before me as to the relevance of holding costs.
[26] Detective Morris has deposed that storage and insurance costs for the Land Cruiser are $14.30 per day, or $5,219.50 per year. This evidence was not challenged. Obviously if holding costs are taken into account, in three years’ time the net value of the Land Cruiser will be very little.
[27] There has been some disagreement in the case law as to the relevance of holding costs.
(a)In Commissioner of Police v Evans, Brown J was not prepared to order the immediate sale of a vehicle valued in excess of $26,000 where there was a prospect that the vehicle would hold its value.8 In relation to holding costs, he observed as follows:
[33] I am not persuaded that an order for immediate sale is warranted … While I recognise that there will be costs associated with storage, and insurance, such costs are the inevitable by-product of asset seizures. I do not consider that it is appropriate to take such expenditure into account in addressing the question posed by s 35(e)(v). Were it otherwise, then in order to defeat an application for sale an owner would need to demonstrate that the vehicle was likely to appreciate in value at a rate at least equal to the annual cost of storage, maintenance and insurance. I do not consider that the section imposes that obligation.
(b)This observation was cited by Dobson J in Commissioner, the New Zealand Police v Blance.9 He was not prepared to accept it without qualification. Rather, he noted as follows:
[52]With respect, I would not go so far as to disregard the relevance of holding costs in all cases. However, in the case of vehicles that are appropriately treated as investments, or at least where the rate of depreciation has bottomed out, nor can the reduction in the eventual return caused by the holding costs be sufficient of itself to warrant an order for sale.
(c)In Commissioner of Police v Drummond, Lang J, as noted above, recorded that the Commissioner should not assume that sale orders should automatically be made in relation to restrained assets such as motor vehicles and he listed various factors that can be taken into account by the Court.10 He did not expressly refer to holding costs, but such costs are implicitly included when consideration is given to “the
8 Commissioner of Police v Evans [2015] NZHC 1240.
9 Commissioner, the New Zealand Police v Blance [2018] NZHC 108.
10 Commissioner of Police v Drummond, above n 7.
length of time required for determination”.11 Further, the Judge took holding costs into account when dealing with a low value boat.12
(d)In Commissioner of Police v Parker, Hinton J considered that holding costs are relevant to an application for a sale order.13 She opined that, in some albeit unusual cases, an order for sale could be made on the basis of storage costs where there is no likely depreciation.14 Further, she noted that a sale order is not limited to a sale under s 35(e)(v) and that the Court can order a sale under s 34, where it is necessary to preserve the potential net realisation value (as opposed to the value per se) of the restrained asset, providing sale is otherwise considered appropriate.15
[28]Holding costs have been taken into account in a number of other cases.16
[29]In my judgment, holding costs are not irrelevant.
[30] Under s 35(e)(v), sale can be ordered where it is necessary to preserve the value of the restrained asset. The difficulty with the subsection is that it does not state from whose perspective this falls to be considered. Holding costs are not a cost to the owner of the restrained asset; if a forfeiture order is made he or she will lose the asset; if forfeiture is declined, the asset will be returned and the Commissioner will be left to meet the holding costs. From the Commissioner’s perspective, there is inevitably a loss in the value of the restrained asset if holding costs are not factored in. The significance of that loss in value depends on the value (and perhaps nature) of the restrained asset.
[31] In my view it will often be appropriate to consider holding costs when determining whether or not to order the sale of a restrained asset. While I agree with Brown J in Evans that holding costs are an inevitable by-product of asset seizure, they
11 See Commissioner of Police v Parker, above n 5, at [49].
12 Commissioner of Police v Drummond, above n 7, at [6].
13 Commissioner of Police v Parker, above n 5.
14 At [43].
15 At [51]–[52] and [55].
16 Commissioner of Police v Farrell [2022] NZHC 310 at [11]; Commissioner of Police v Milosevic
[2019] NZHC 1554; and see Commissioner of Police v Milosevic, above n 7, at [95].
are relevant to whether or not to make an order that the asset be sold because sale is necessary to preserve its value. Holding costs decrease the value of the restrained asset (and the return to the community) in the event that the assets are ultimately forfeited. I accept that a reduction in the eventual return resulting from holding costs cannot be sufficient of itself to warrant an order for sale; the Act does not so provide. An asset may be valuable and holding costs may be modest. Nevertheless, when there are other factors (market value, depreciation, long delay) that suggest that a sale is appropriate, holding costs cannot, in my view, be ignored. They necessarily have an impact on the value of the restrained asset.
Balancing the various factors
[32]I am satisfied from the available evidence that:
(a)the Land Cruiser is currently worth $17,000;
(b)it has and will continue to depreciate in value, albeit at a modest rate;
(c)depreciation will reduce its value albeit by a modest amount, given the likely timeframe for the resolution of any forfeiture application;
(d)the Land Cruiser is not in a special category. Nor is it a collector’s piece;
(e)holding costs are likely to significantly reduce the net value of the Land Cruiser to the Commissioner and thus to the community if the Commissioner’s forfeiture application is successful;
(f)notwithstanding Mr Kivalu’s wish that the vehicle not be sold, if the Commissioner’s forfeiture application fails but the vehicle has been sold in the interim, Mr Kivalu will get back the net proceeds of sale, together with accrued interest. On the evidence, he is likely to be better off, at least financially.
[33] In my judgment, the sale of the vehicle, with the sale proceeds being held in an interest-bearing account until final disposition of the matter, will best preserve the value of the restrained asset. An order for sale is appropriate.
[34]Accordingly, I make an order as follows:
The Official Assignee shall sell the 1994 Toyota Land Cruiser MCG390 at its fair market value and hold the proceeds of sale, after paying all associated costs, in accordance with the restraining order.
Costs
[35] The Commissioner has been successful in his application. He is entitled to his reasonable costs and disbursements.
[36] Mr Kivalu was in receipt of legal aid with respect to this matter. Mr Herbke advised that he has a prescribed repayment amount as a condition of his legal aid grant.
[37] The Commissioner sought costs on a 2B basis. It is my preliminary view that that categorisation is appropriate. Nevertheless, given Mr Kivalu’s legal aid status, I direct as follows:
(a)any application for costs is to be advanced by way of memorandum, such memorandum to be filed and served within five working days after the date of this judgment;
(b)any memorandum in response is to be filed and served within a further five working days;
(c)memoranda are not to exceed three pages.
I will then deal with the issue of costs and disbursements on the papers unless I require the assistance of counsel.
Wylie J
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