Commissioner of Police v Harrison
[2017] NZHC 3140
•14 December 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2016-485-543 [2017] NZHC 3140
BETWEEN THE COMMISSIONER, THE NEW
ZEALAND POLICE Applicant
AND
JOANNE HARRISON First Respondent
AND
PATRICK FREDERICK SHARP Second Respondent
Hearing: 18 August 2017 Counsel:
E M Light for Applicant
N Bourke for First RespondentJudgment:
14 December 2017
JUDGMENT OF ELLIS J
[1] Can this Court make civil forfeiture orders under the Criminal Proceeds (Recovery) Act 2009 (the CPRA) in relation to KiwiSaver funds? That is the sole question with which this judgment is concerned.
Background
[2] As is tolerably well known, Ms Harrison was employed by the Ministry of Transport (the Ministry) as a General Manager. In that role, she was part of the Ministry’s Management Leadership Team and reported to the Chief Executive. She had responsibility for three cost centres and authority over the budgets relating to
those cost centres.
POLICE v HARRISON [2017] NZHC 3140 [14 December 2017]
[3] During an interim audit of the Ministry in April 2016 Audit New Zealand identified four Ministry vendors who appeared either to be illegitimate vendors or not to be providing legitimate services.1 Further inquiries established the bona fides of one of them, with question marks remaining over that other three. The payments made to all three of these vendors were authorised by Ms Harrison.
[4] On 27 April 2016 Deloittes were engaged to undertake a forensic investigation into the payments. Subsequently the matter was referred to the Serious Fraud Office.
[5] The Serious Fraud Office conducted a criminal investigation which established that Ms Harrison had misappropriated $726,836.07 of Ministry funds. She later pleaded guilty to three representative charges of dishonestly using a document under s 228 of the Crimes Act 1961. The charges related to 83 invoices she had submitted to the Ministry in the name of Mazarine, EJW and Sharp Design. Ms Harrison was sentenced to three years and seven months’ imprisonment in February this year.
The forfeiture application
[6] On 30 June 2017, the Commissioner filed applications for profit and forfeiture orders (the forfeiture applications) under the Criminal Proceeds (Recovery) Act 2009 (the CPRA). The application relates to interests in property which is owned or controlled either by Ms Harrison or Mr Sharp, who is Ms Harrison’s partner. The property concerned is already the subject of restraining orders.
[7] The Commissioner seeks forfeiture of the following property:
(a) all interests in the property at 5 Waikuku Road, Waimate North, Far
North District registered in the name of Patrick Frederick Sharp, described in certificate of title NA117B/467, legal description Lot 3
1 At the time of the audit, Ms Harrison was on study leave.
Deposited Plan 187149 (the Waikuku Road property). The Waikuku
Road property has a recent valuation of $530,000;
(b)all funds formerly held in the ASB bank account 12 3140 0097629 50 in the name of the second respondent, namely approximately
$75,977.35, plus accrued interest;
(c) all funds formerly held in the ASB bank account 12 3136 0121198 00 in the name of the second respondent, namely approximately
$5,105.62, plus accrued interest;
(d) a grey BMW 1201 Hatchback, registration PAT999 and ignition keys; (e) NZ$1,440 in cash which was located at Auckland Airport on
22 July 2016 plus accrued interest;
(f) €1600, (converted to NZ$2,345.70) plus accrued interest; (g) £585 (converted to NZ$1,029.57) plus accrued interest; (h) a Rolex watch and box;
(i) a Breitling watch and box; (j) a Tagheuer watch and box;
(k) a gold chain necklace with purple stones; (l) a Chopard Geneve silver ring;
(m) a Tiffany and Co box containing a sliver ring and gold bracelet;
(n) a women’s Rolex Watch purchased in April 2015 for $10,400; and
(o)the contents of KiwiSaver account number KWK102501 in the name of the first respondent, with a current balance of approximately
$109,211.98 (KiwiSaver funds).
[8] The women’s Rolex, the KiwiSaver funds and the Waikuku Road property are sought for forfeiture on an assets basis (ie on the basis that they are tainted property). Additionally, and, insofar as the property alleged to be tainted is concerned, in the alternative, all of the property is sought on a profit forfeiture basis.2
[9] The alleged unlawful benefit is $784,172.16.3 At the time of the hearing before me, the property restrained or subject to forfeiture application (including the KiwiSaver account) had a total value of approximately $757,500. So, while there would be a slight shortfall even if the KiwiSaver is included, if the KiwiSaver funds are not able to be forfeited there would be a shortfall of approximately $136,000.
Ms Harrison’s opposition
[10] Ms Harrison opposes the forfeiture of the KiwiSaver funds on the grounds that:
(a) they are not tainted property (relevant only to the assets forfeiture application);
(b)in any event, s 127 of the KiwiSaver Act 2006 (the KSA) is effective to prevent the KiwiSaver funds being transferred into the Official Assignee’s custody and control; and
(c) in terms of s 51 or s 56 of the CPRA, undue hardship is reasonably likely to be caused to Ms Harrison if the KiwiSaver funds are forfeit.
2 If any specific assets are forfeit on the basis that they are tainted, their value would be subtracted from the amount calculated as owing under a profits forfeiture order.
3 This comprises the sum of $726,836.07 which Ms Harrison accepted (by her gulity plea) that she had obtained through her criminal activity, together with the second respondent’s gross salary of
$57,336.09. I make no comment in this judgment as to whether that latter sum is capable of constituting an unlawful benefit.
[11] By agreement, it is only the second of these issues that is to be determined in this judgment, although the outcome may, necessarily, have an impact on the first and third.
[12] Before turning to consider that issue, however, it is necessary to say something about the relevant statutory provisions (both the KSA and the CPRA) and also about the relevant authorities.
The KiwiSaver Act 2006
[13] Section 3 of the KSA sets out the purpose of the Act and provides for the establishment of KiwiSaver schemes:
3 Purpose
(1) The purpose of this Act is to encourage a long-term savings habit and asset accumulation by individuals who are not in a position to enjoy standards of living in retirement similar to those in pre- retirement. The Act aims to increase individuals’ well-being and financial independence, particularly in retirement, and to provide retirement benefits.
(2) To that end, this Act provides for schemes (KiwiSaver schemes) to
facilitate individuals’ savings, principally through the workplace.
[14] Members are automatically enrolled in a KiwiSaver scheme on commencing new employment or may opt in at any time. Minimum contribution rates are required for employees and their employers. The “member’s interest” comprises three elements:4
(a) the member’s own financial contributions;
(b) the employer’s financial contribution where applicable; and
(c) any initial “kick-start” payment by the Crown of $1,000 and fees subsidies.
4 Section 4, definition of “member’s interest”.
[15] A member’s KiwiSaver interest is effectively “locked-in” to the KiwiSaver scheme. Subject to specific exceptions discussed below, it is not accessible until members reach the KiwiSaver “end payment date”. For most purposes this will be when the member turns 65. In the event of the member’s death, the value of the member’s interest is payable to his or her personal representative.
[16] Importantly for the purposes of this application, s 127 provides:
127 Member’s interest in KiwiSaver scheme not assignable
(1) Except as expressly provided in this Act, a member’s interest or any future benefits that will or may become payable to a member under the KiwiSaver scheme must not be assigned or charged or passed to any other person whether by way of security, operation of law, or any other means.
(2) However, subsection (1) does not prevent a member’s interest or any future benefits that will or may become payable to a member under the KiwiSaver scheme from being released, assigned, or charged, or from passing to any other person if it is required by the provisions of any enactment, including a requirement by order of the court under any enactment (including an order made under section 31 of the Property (Relationships) Act 1976).5
5 Section 31 of the Property (Relationships) Act is headed “Orders in relation to
superannuation rights” and provides:
(1) Where the relationship property to which any application under this Act relates includes … [any superannuation scheme entitlements], the Court may make any order under this Act, or any provision of any such order, conditional on either spouse or partner entering into an arrangement or deed of covenant designed to ensure that the other spouse or partner receives his or her appropriate share of that property, and every arrangement or deed entered into pursuant to any such condition shall have effect according to its tenor.
(2) A copy of any arrangement or deed entered into pursuant to subsection (1) of this section may be served on the manager of the superannuation scheme from which the entitlement is derived.
(3) Where a copy of any such arrangement or deed is served on any such manager he or she shall, notwithstanding the provisions of any Act, deed, or rules governing the scheme, be bound by the provisions of the arrangement or deed.
Permitted withdrawals
[17] The rules governing the limited circumstances in which manager of a KiwiSaver may permit early withdrawals may be made are set out in the first schedule to the KSA.
[18] Clause 7 of sch 1 reflects s 127 and provides:
7 Release of funds required under other enactments
(1) The manager must comply with the provisions of any enactment that requires the manager to release funds from the KiwiSaver scheme in accordance with that enactment.
(2) A requirement to release funds from the KiwiSaver scheme under any enactment includes a requirement by order of any court under any enactment (including an order made under section 31 of the Property (Relationships) Act 1976).
[19] Clauses 10–13 govern applications for withdrawal in the case of significant financial hardship and serious illness. Of note is that:
(a) the definition of “significant financial hardship” in cl 11 and the
requirement for proof in cl 10 suggests that the threshold is high;
(b)the amount of that significant financial hardship withdrawal may, subject to the manager’s approval be “up to the value of the member’s accumulation less the amount of the Crown contribution (disregarding any positive or negative returns for the purpose of calculating the amount of the Crown contribution) on the date of withdrawal”;6
(c) before permitting any such withdrawal the manager:7
(i)must be reasonably satisfied that reasonable alternative sources of funding have been explored and have been
exhausted; and
6 Cl 10(2).
7 Cl 10(3).
(ii)may limit the amount withdrawn be limited to an amount that, in the opinion of the manager, is required to alleviate the particular hardship.
[20] Because Ms Harrison has made it known that she intends to leave New Zealand upon her release from jail, cl 14, which permits withdrawals by members who permanently emigrate from New Zealand, is also relevant. It provides:
(1) Unless clause 14B applies, a member may, on application to the manager, and no earlier than 1 year after the member’s permanent emigration from New Zealand, withdraw an amount equal to the member's accumulation, at the time of the withdrawal, less the total of the following 2 amounts:
(a) the amount of the Crown contribution arising from a tax credit under section MK 1 of the Income Tax Act 2007 (disregarding any positive or negative returns for the purpose of calculating the amount of the Crown contribution):
(b) the amount that was transferred from an Australian complying superannuation scheme (disregarding any positive or negative returns for the purpose of calculating that amount).
[21] Clause 14(2) permits a member who has permanently emigrated to apply to transfer the same amounts to a foreign superannuation scheme.
[22] Subclause (3) requires any application to be in a form which includes —
(a) a completed statutory declaration in respect of the member to the effect that the member has permanently emigrated from New Zealand; and
(b) proof to the satisfaction of the manager—
(i) of the member's departure from New Zealand (for example, evidence of confirmed travel arrangements, passport evidence, and evidence of any necessary visas); and
(ii) that the member has resided at an overseas address at some time during the year following the member's departure from New Zealand.
[23] Subclause (4) permits a manager to require any documents, things, or information produced in an application to be verified by oath, statutory declaration, or otherwise.
The CPRA
[24] Section 3(1) of the CPRA provides that the primary purpose of this Act is to establish a regime for the forfeiture of property—
(a) that has been derived directly or indirectly from significant criminal activity; or
(b) that represents the value of a person's unlawfully derived income.
[25] And subs (2) states that:
The criminal proceeds and instruments forfeiture regime established under this Act proposes 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[.]
[26] As s 3(1) indicates, the CPRA provides for two forms of civil forfeiture order. The first (assets forfeiture) involves the forfeiture of specific property on the grounds that the property is tainted, as defined.8 The second (profits forfeiture) involves the forfeiture of any property in which a respondent has an interest in order that the Crown may realise that property in order to recover an amount equal to the value of the proceeds of his or her unlawful activity. Because counsel have agreed that the question whether KiwiSaver funds could be said to be “tainted” is for another day, it
is the second of these types of order with which this judgment is primarily
8 The phrase “tainted property” is defined in s 5(1) as meaning any property that has, wholly or in part, been either acquired as a result of significant criminal activity; or directly or indirectly derived from significant criminal activity; or directly or indirectly derived from, more than one activity if at least one of those activities is a significant criminal activity.
concerned.9 It is necessary to set out the relevant statutory provisions governing those in a little more detail.
Profit forfeiture orders
[27] Section 52 requires that an application for a profit forfeiture order must:
(a) name the respondent; and
(b) describe the significant criminal activity within the relevant period of criminal activity from which the respondent is alleged to have unlawfully benefited; and
(c) state the value of that benefit; and
(d) identify the property in which the respondent holds interests and the nature of those interests.
[28] There are statutory definitions of “significant criminal activity” and “relevant period of criminal activity”, although these do not need to be considered further in the present context. There is no issue that Ms Harrison has unlawfully benefitted from significant criminal activity,10 which occurred during a specified period. The ambit of the word “property”, however, is potentially relevant. The s 5 definition provides that, unless the context otherwise requires, it:
(a) means real or personal property of any kind—
(i) whether situated in New Zealand or a foreign country; and
(ii) whether tangible or intangible; and
(iii) whether movable or immovable; and
(b) includes an interest in real or personal property[.]
[29] Once the Commissioner proves on the balance of probabilities that a respondent has unlawfully benefitted from significant criminal activity, s 53 places the onus on the respondent to disprove the level of that benefit. Again, I do not need to be concerned with that here – it may be assumed that the level of benefit can be
precisely quantified and is in the vicinity of $727,000.
9 As will become evident, however, my conclusion that KiwiSaver funds cannot be the subject of an profit forfeiture order necessarily also apply equally to assets forfeiture orders.
10 Dishonestly using a document carries a maximum penalty of seven years’ imprisonment, so falls
within the definition in s 6 of the CPRA.
[30] Section 54 requires that, before making a profit forfeiture order, the Court must determine the maximum recoverable amount by:
(a) taking the value of the benefit determined in accordance with section
53; and
(b)deducting from that 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 to which the profit forfeiture order relates.
[31] Next, s 55(1) provides that the High Court must make a profit forfeiture order:
… if it is satisfied on the balance of probabilities that—
(a) the respondent has unlawfully benefited from significant criminal activity within the relevant period of criminal activity; and
(b) the respondent has interests in property.
[32] Section 55(2) requires that the order specify the value of the benefit determined in accordance with section 53, the maximum recoverable amount determined in accordance with section 54 and:
(c) the property that is to be disposed of in accordance with section
83(1), being property in which the respondent has, or is treated as having, interests.
[33] And s 55(4) provides that a profit forfeiture order is enforceable as if it were an order made against the respondent in debt proceedings and that the maximum recoverable amount is recoverable by the Official Assignee on behalf of the Crown as a debt due to the Crown.
[34] Section 58 empowers the High Court to order that particular property is to be treated as if a respondent has an interest in it, if satisfied that he or she has effective control over that property. The section makes it clear that such an order may:
(a) be made even if the respondent has no interest in the property; and
(b)specify an interest that differs from the interest that the respondent has in the property.
[35] Subsection (3) provides that (without limiting the generality of the power)
that the Court may have regard to—
(a) shareholdings in, debentures over, or directorships of, any company that has an interest (whether direct or indirect) in the property; and
(b) any trust that has a relationship to the property; and
(c) family, domestic, and business relationships between persons having an interest in the property or in companies of the kind referred to in paragraph (a) or in trusts of the kind referred to in paragraph (b), and any other persons.
[36] Property that is subject to an “effective control” order under s 58(1) may be included in any profit forfeiture order and in any restraining order that is made against the respondent.11
[37] Section 59(1) confers further powers on the Court making a civil forfeiture order. Thus, the Court may:
(a) declare the nature, extent, and value of any person’s interest in property specified in the civil forfeiture order: [and/or]
(b) give any directions that may be necessary and convenient for giving effect to the civil forfeiture order.
[38] And, without limiting the generality of subsection (1)(b), subs (2) provides that:
… if a Court makes a civil forfeiture order against any property the title to which is passed by registration on a register maintained under any New Zealand enactment, the Court may direct an officer of the Court to do anything reasonably necessary to obtain possession of any document required to effect the transfer of the property and for that purpose may, by warrant, authorise an officer to enter and search any place or thing and seize any document.
11 Subsection (5) imposes notice requirements on the Commissioner and gives the respondent and others claiming an interest in the property a right to be heard and to adduce evidence.
[39] As indicated in s 55(2)(c), s 83 governs how a profit forfeiture order is to be discharged by the Official Assignee. It states:
(1) If the High Court makes a profit forfeiture order, the Official Assignee must, as soon as practicable after the expiry of the specified period (as described in subsection (2)), dispose of the property specified in the order and apply the money resulting from the disposal as follows:
(a) first, by paying the costs recoverable by the Official
Assignee under section 87:
(b) secondly, by paying to the Secretary for Justice the amount (if any) payable by way of legal aid granted to the former interest holder (less any contributions paid by the former interest holder):
(c) thirdly, by paying, in the order of priority set out in section
86E of the Summary Proceedings Act 1957, any of the following amounts imposed on the former interest holder:
(i) any amount of reparation (as defined in section 79 of the Summary Proceedings Act 1957):
(ii) any offender levy (as defined in section 79 of the
Summary Proceedings Act 1957):
(iii) any other type of fine (as defined in section 79 of the
Summary Proceedings Act 1957):]
(d) fourthly, by paying to the Crown the following amount, less the sum of the payments made under paragraphs (a) to (c),—
(i) if the sum resulting from realising the property is equal to, or more than, the maximum recoverable amount specified by the Court under section 55, the maximum recoverable amount:
(ii) if the sum resulting from realising the property is less than the maximum recoverable amount, the sum resulting from realising the property:
(e) fifthly, by paying any remaining money to the former interest holder.
(2) The specified period expires—
(a) on the date that is 6 months after the time for bringing any appeal against the profit forfeiture order expires, if no appeal has been filed; or
(b) on the date that is 6 months after all appeals in respect of the profit forfeiture order have been withdrawn or finally determined, if an appeal or any appeals have been filed.
(3) Despite subsections (1) and (2), if the period for bringing an appeal against the profit forfeiture order has expired and no appeal has been filed or all appeals have been withdrawn or finally determined, the Official Assignee—
(a) may realise any asset that makes up the property that is the subject of the profit forfeiture order; but
(b) must, if he or she does so, hold the proceeds of realising those assets until the expiry of the specified period.
(4) Subsection (1)(d)(ii) does not prevent the Official Assignee from recovering, by any lawful means, the balance of the maximum recoverable amount that remains due to the Crown, after the Crown is paid a sum less than the maximum recoverable amount under the provision.
(5) This section is subject to section 84 and any regulations made under section 173(d).
[40] For reasons that will become obvious later it is necessary also to note that s 84 (to which s 83 is subject) deals with the relationship between the Insolvency Act 2006 (the IA) and the forfeiture regime. It provides:
(1) If, after a profit forfeiture order is made, the Official Assignee is given notice in writing of the filing of a creditor's application in respect of the person under section 13 of the Insolvency Act 2006, the Official Assignee must, until the petition has been withdrawn or been disposed of, refrain from taking, or continuing to take, any of the following actions:
(a) selling or disposing of the property specified in the order: (b) paying the amounts specified in section 83.
(2) If a person whose property is the subject of a profit forfeiture order becomes bankrupt, the property that is the subject of the profit forfeiture order, if it has not yet been disposed of, ceases to be in the custody and control of the Official Assignee and is deemed to be vested in the Assignee of the bankrupt's property under section 101 of the Insolvency Act 2006.
(3) A profit forfeiture order made against a person is provable in the bankruptcy of that person.
(4) To avoid doubt, subsection (3) applies despite anything in section
232(2) of the Insolvency Act 2006.
[41] There is no equivalent provision in relation to asset forfeiture orders, presumably reflecting a policy that tainted assets (ie assets that can be traced directly or indirectly to criminal proceeds) should not be available to meet debts owed to a respondent’s creditors.
Trustees Executors
[42] In Trustees Executors Ltd v Official Assignee the Court of Appeal was required to consider whether s 127 of the KSA operated to prevent the KiwiSaver interests of a person who is adjudicated bankrupt vests in the Official Assignee under the Insolvency Act 2006 (the IA).12
[43] The Court proceeded on the basis that the parties accepted the finding in the High Court that a member’s KiwiSaver interests constituted a chose in action rather than a mere expectancy and were, accordingly, within the definition of “property” under the IA.13
[44] The critical provisions were, ss 101, 102 and 105 of the IA. These relevantly provide:14
101 Status of bankrupt's property on adjudication
(1) On adjudication,—
(a) all property (whether in or outside New Zealand) belonging to the bankrupt or vested in the bankrupt vests in the Assignee without the Assignee having to intervene or take any other step in relation to the property, and any rights of the bankrupt in the property are extinguished; and
(b) the powers that the bankrupt could have exercised in, over, or in respect of any property (whether in or outside New Zealand) for the bankrupt's own benefit vest in the Assignee.
…
12 Trustees Executors Ltd v Official Assignee [2015] NZCA 118, [2015] 3 NZLR 224.
13 At [5]. See the lengthy discussion of the issue by the High Court in Official Assignee v Trustees
Executors Ltd [2014] NZHC 345 at [23] – [53].
14 Section 127 of the KSA is set out at [17] above.
102 Status of property acquired during bankruptcy
(1) Between the commencement of bankruptcy and discharge of the bankrupt,—
(a) all property (whether in or outside New Zealand) that the bankrupt acquires or that passes to the bankrupt vests in the Assignee without the Assignee having to intervene or take any other step in relation to the property, and any rights of the bankrupt in the property are extinguished; and
(b) the powers that the bankrupt could have exercised in, over, or in respect of that property for the bankrupt's own benefit vest in the Assignee.
…
105 Effect of other laws
(1) Nothing in the Land Transfer Act 1952 restricts the operation of sections 101 to 104.
(2) Sections 101 to 104 do not affect the operation of any other law that prevents any property from vesting in the Assignee.
[45] In the High Court, Ronald Young J had found that the balances in the bankrupt’s KiwiSaver account at the date of adjudication and any further funds accruing subsequently during their bankruptcy vested in the OA. However, he also held that because the OA could only stand in the shoes of the bankrupt KiwiSaver member, the funds were locked in and so could not be accessed by the OA until the relevant interests crystallized – either by virtue of one of the early withdrawal provisions or, ordinarily, when the bankrupt turned 65. He rejected the proposition that the interests had already crystallized because bankruptcy would invariably trigger the “significant financial hardship” ground for early withdrawal.
[46] TEL (the bankrupt’s KiwiSaver fund manager) appealed, submitting that s 127 of the KSA meant that the funds do not vest in the OA at all. The OA cross-appealed, arguing she could automatically access the funds under the “significant financial hardship” early access provisions.
[47] After discussing the relevant provisions of the two Acts in detail, the Court of
Appeal disagreed with the High Court on the s 127 issue, saying:15
Given the strong language of s 127(1), we consider that divestment of a member’s KiwiSaver interest is not “required by the provisions of any enactment” in terms of s 127(2) unless the enactment expressly provides for the vesting in a third party of the member’s interest in a KiwiSaver scheme.
[48] The Court then found that ss 101 and 102 of the IA “are stated in general terms and do not expressly require the vesting of the member’s interest in a KiwiSaver scheme”.16 Therefore the interest is not “required” by the enactment to pass to the OA in terms of s 127(2), so s 127(1) prevents the interest from vesting in the OA.
[49] The Court found support for this analysis in:
(a) the reference in s 127(2) to s 31 of the Property (Relationships) Act 1976 (the PRA), which specifically refers to superannuation schemes;
(b)the express purpose of the KSA, namely encouraging long-term savings and the accumulation of funds for the member. The Court noted that there was nothing to suggest that the accumulation of funds for the benefit of creditors in the case of bankruptcy was also such a purpose;
(c) s 105(2) of the IA which recognises that other enactments might prevent the vesting that would otherwise occur; and
(d)(to a limited extent) the specific focus and purpose of the KSA as compared with the more general purpose of the IA.
15 At [52] (emphasis added).
[50] The Court then went on to consider the second and alternative question, namely whether, if the funds did vest in the OA, they could be accessed immediately by her using the early withdrawal provisions in sch 1 of the KSA. It held that they could not. The Court agreed with the High Court that the early withdrawal provisions are directed to the personal circumstances of members. More specifically, and in terms early withdrawal for significant financial hardship, the Court noted that the (non-exclusive) listed grounds are largely compassionate, and directed at basic needs of the member. Those grounds were not capable of being extended to include hardship arising from a bankrupt’s need to pay his creditors. The Court also found that using a bankrupt’s KiwiSaver interest to pay general creditors would not ordinarily alleviate the bankrupt’s financial hardship.
[51] The Court also noted the practical difficulties that would arise if the interests vested but the OA had to wait until the member turned 65 before realising them:
(a) the trustees would have to run two sets of accounts, one for the OA’s interest in the account and one for the member’s contribution after discharge from bankruptcy, and would potentially have to accept separate instructions from each;
(b)the bankrupt would lose the right to apply, during the bankruptcy, for the early withdrawal of funds in the case of serious illness. Even if the money had not already been withdrawn to pay creditors, the bankrupt would be dependent on the goodwill of the OA to apply;
(c) the Crown contribution to KiwiSaver would vest in the OA, when the statute is clear that the Crown contribution is to remain for the benefit of the member in retirement (it is, for example, excluded from early withdrawal);
(d) creditors may no longer exist/be alive when the member turns 65;
(e) the other long term assets administered by the OA are very different in nature to KiwiSaver; and
(f) the value of the assets represented by the KiwiSaver fund might be significantly diminished, both in terms of real purchasing power and due to the impact of administrative costs and investment risks.
[52] The Court found that the fact that the early withdrawal provisions did not apply, together with these practical difficulties underscored its view that s 127 of the KSA prevented the vesting of KiwiSaver funds in the OA. It said that its conclusion on that issue was partly based on:17
… the inherent unlikelihood that Parliament would have intended the vesting of the bankrupt’s interest in a KiwiSaver scheme to result in the OA being left with an impractical and ineffective remedy. Unless the legislation compels no other alternative, Parliament should not be taken to have intended that the OA and creditors would in most cases have to wait as long as 15 years before being able to access a bankrupt’s KiwiSaver funds …
This case
[53] As noted earlier, Ronald Young J in the High Court Trustees Executors decision considered whether a member’s KiwiSaver funds constitute a chose in action and can therefore be said to be the “property” of that member at some length. His conclusion that they can was accepted by the parties on appeal and the Court of Appeal’s judgment is predicated on that finding. Given the breadth of the definition in the CPRA, and in the absence of any real argument to the contrary, I proceed on the same basis here.
[54] Rather, the central question in the present case is whether the statutory powers conferred on the Court to make civil forfeiture orders, together with the ancillary power to make any directions necessary to give effect to such orders, fall within the s 127(2) exception to s 127(1) of the KSA.
[55] The following points appear to me to be material to that question. I list them in no particular order.
[56] First, and like the IA, there is no specific provision in the CPRA that provides that civil forfeiture orders may be made in relation to monies or interests held in superannuation schemes generally (as in the PRA) or in relation to KiwiSaver funds in particular. Thus, the Court of Appeal’s stipulation in TEL that “the enactment expressly provides for the vesting in a third party of the member’s interest in a KiwiSaver scheme” is prima facie not satisfied.
[57] That said, however (and unlike the IA) the CPRA contains no equivalent to s
105 of the IA. There is, accordingly, no express statutory recognition that the forfeiture provisions of the CPRA might be overridden by another statute.
[58] Next, and in terms of the respective legislative purposes:
(a) the IA is, in part, concerned with protecting or furthering the interests of individual creditors who are in jeopardy of having all or part of the debts owed to them by the bankrupt unpaid. As Ronald Young J said in Trustees Executors:18
… the Insolvency Act 2006 is designed to ensure that creditors are entitled to the maximum return from a bankrupt’s estate, so that all assets of the bankrupt can be used to pay the highest possible percentage of their debts before discharge.
(b)the CPRA forfeiture provisions are primarily concerned with deterring criminal activity by preventing criminals from profiting from such activity.
[59] So, although the CPRA is partly remedial in focus it does not purport to vindicate individual rights or provide specific redress to the victims of the relevant criminal activity. By contrast, the IA has a more specific remedial purpose of rectifying (so far as possible) civil wrongs done to individuals (unpaid creditors). On that analysis, it is difficult to see why the important policy purposes underlying the KSA should yield to the CPRA when they do not yield to the IA.
[60] The proposition that the interests protected by the IA can be seen as relatively more important than the interests protected by the CPRA gains further support from the fact that the OA’s powers to dispose of property which is the subject of a profit forfeiture order under s 83 of the CPRA are (under s 84) subject to creditors’ rights under the IA. In particular:
(a) if the OA becomes aware of a creditor’s application under the IA in relation to a person whose property is the subject of a profit forfeiture order he must refrain from selling or disposing of the forfeited property or paying out any proceeds in accordance with s 83; and
(b)if a person whose property is the subject of a profit forfeiture order becomes bankrupt, the property that is the subject of the profit forfeiture order, if it has not yet been disposed of, is deemed to be vested in the Assignee of the bankrupt’s property under section 101 of the Insolvency Act 2006.
[61] And as s 84(3) goes on to makes clear, the debt arising as a result of the profit forfeiture order then simply becomes provable in the bankruptcy of the person who is the subject of the profit forfeiture order.
[62] So, if a person’s KiwiSaver funds could be vested in the OA as a result of an order under the CPRA, but the person then becomes bankrupt, then those funds would become available to satisfy creditors under the IA. That position cuts directly across the decision in Trustees Executors which is that KiwiSaver funds may not be used to pay creditors under the IA. Although as a matter of fact, this is likely to arise in only the rarest of cases, as a matter of statutory interpretation it clearly suggests that the effective hierarchy between the interests protected by the relevant statutes is:
(a) the KSA; then
(b) the IA; then
(c) the CPRA.
[63] Thirdly, to the extent that it might be suggested that permitting the KSA to prevail over the CPRA might lead to a person involved in significant criminal activity to try and avoid civil forfeiture by depositing any surplus funds (whether ill-gotten or not) in a KiwiSaver fund, section 167 of the CPRA is a general anti-avoidance provision which would permit the Court to unwind any arrangement designed to defeat the Act.
[64] Fourthly, there are practical problems of the kind discussed in Trustees Executors.19 In the absence of any specific statutory provisions dealing with the interaction between the two statutes, it is difficult to see how the Court would be able to make workable orders under the CPRA in relation to KiwiSaver accounts or how the OA would practically be able to act upon them.
[65] More particularly, if a civil forfeiture order is made vesting KiwiSaver funds in the OA then Trustees Executors makes it clear that the OA can take no steps to realise the funds, pending either the 65th birthday of the respondent or some other triggering early release event. It may be arguable that the debt due to the Crown that is the result of the making of a profit forfeiture order might, in an individual case, create significant financial hardship such that the early withdrawal rules would apply. But where it does not, all the practical difficulties arising from vesting without the ability to realise noted by the Court of Appeal would still arise.
[66] Moreover, the very possibility that the OA might be required to wait for some considerable time before he is able to realise the funds sits poorly with s 83(1) of the CPRA which contemplates more or less immediate action by the OA to realise any assets that are identified in a profit forfeiture order. It cannot, for example, be right that “as soon as practicable” contemplates that the OA might potentially have to wait for 15 years (in Ms Harrison’s case) or for 35 years (for example, if the respondent
were aged only 30) before realisation.
19 Although not all of these apply; for example, creditors dying or no longer existing is not relevant in the present context. But the issue of how the the Crown contribution is to be dealt with remains particularly problematic.
[67] The only conceivable way in which these practical problems might be avoided is if the power either to make an effective control order under s 58 or ancillary directions under s 59 could somehow be interpreted as permitting the Court to make an order that the funds be immediately released. But I do not think such interpretations are tenable. In particular:
(a) absent some triggering event I do not think it can properly be said that a member has “effective control” over his or her KiwiSaver funds until the occurrence of a triggering event or the member turns 65. Both the terms and the purpose of the KSA make that very clear;
(b)the s 59 powers are clearly intended to be ancillary rather than substantive in nature. Even without the Court of Appeal’s view that express language is required in order to come within the exception contemplated by s 127(2) of the KSA, it would be stretching the capacity of s 59 beyond all reasonable limits to interpret it as authorising the Court to override another statute (ie the KSA).
[68] These practical problems are not, in my view, resolved by the possibility that Ms Harrison may trigger potential release of the funds under cl 14 by moving permanently overseas once she has served her sentence. Notwithstanding that cl 14 has no merits-based requirements and does not involve the exercise of discretion, it would still require the resolution of issues (such as the Crown contribution) which are simply not dealt with by the legislation. Nor does that possibility affect my overall assessment that the language and scheme of the respective statutes are such that the KSA should be interpreted as prevailing over the CPRA.
Conclusion
[69] In my view the matters canvassed above point overwhelmingly against the conclusion that a civil forfeiture order under the CPRA can be made in relation to a respondent’s interest in his or her KiwiSaver funds. For the reasons given I consider that the provisions of the KSA prevail over those of the CPRA; the Court has no power to make a civil forfeiture order in relation to the KiwiSaver funds of a person who has been engaged in significant criminal activity. No doubt it follows that there
is no power to make a restraining order over such funds either, although I heard no argument on the point.
[70] It seems unlikely that the relationship between the two Acts was considered at the time the KSA was enacted. It may well be that legislative amendment is
required.
Rebecca Ellis J
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