Commissioner of Police v Heron
[2024] NZHC 2497
•2 September 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-000170
[2024] NZHC 2497
UNDER The Criminal Proceeds (Recovery) Act 2009 IN THE MATTER
of an application pursuant to sections 22, 24 and 25 of the Act
BETWEEN
COMMISSIONER OF POLICE
Applicant
AND
MICHAEL JOHN HERON
First Respondent
AND
HAYLEY CECELIA LEWIS
Second Respondent
AND
ASB BANK LIMITED
Interested Party
Hearing: 1, 2 & 5 February 2024 Appearances:
K South and K A Courtney for the Applicant A J McKenzie for the First Respondent
P N Allan for the Second Respondent
Judgment:
2 September 2024
JUDGMENT OF PRESTON J
This judgment was delivered by me on 2 September 2024 at 4.00 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date……………
COMMISSIONER OF POLICE v HERON [2024] NZHC 2497 [2 September 2024]
[1] In 2021 the first respondent, Mr Michael Heron, pleaded guilty to cannabis cultivation, supply and manufacturing charges. Police had discovered an extensive and sophisticated hydroponic operation at the home he shared with his long-term partner, the second respondent Ms Hayley Lewis.
[2] The Commissioner of Police (Commissioner) now seeks to recover proceeds of that criminal activity and applies for civil forfeiture orders under the Criminal Proceeds (Recovery) Act 2009 (CPRA).
[3] The respondents accept that a significant amount of cash seized by police should be forfeit as proceeds of Mr Heron’s offending, but otherwise oppose the orders. In the event the Court orders forfeiture they seek relief, claiming they will suffer undue hardship if forfeiture is granted.
Background in overview
[4]The respondents met in 2004.
[5] In 2002, Mr Heron was convicted of possession of cannabis for supply, receiving a $200.00 fine. Although this occurred before he met Ms Lewis, it is nonetheless relevant, as will be seen.
[6] In 2014, the couple purchased a property at 1409 Main North Road, Waikuku (Main North Road). That property had a double garage. It was bought, the Commissioner accepts, with legitimately sourced funds.
[7] However, the Commissioner contends Mr Heron began cultivating cannabis at Main North Road about two years later, sometime after leaving paid employment and winding down a lawn mowing business, Milo’s Mowing, which his father had previously owned. It is the Commissioner’s case that from at least this time both Mr Heron and Ms Lewis benefited from cash and electronic payments derived from his cannabis dealing. The funds were applied to their living costs. They were also used to invest in an investment fund and to pay the mortgage on the Main North Road home.
[8] Then, in late 2019 the respondents bought a second property at 443 Johns Road, Fernside (Johns Road). They shifted in, retaining Main North Road as an investment property.
[9] Mr Heron immediately set about fitting out the five bay garage next to the house at Johns Road to accommodate a sophisticated and well-informed hydroponic cannabis cultivation operation on a commercial scale. Tradesmen Mr Heron employed to assist were paid at least in part in cash. The work was undertaken within one month of purchase, from mid-January 2020.
[10] The rental income from the Main North Road property assisted the couple to live and to service the mortgages on both properties. Cash and electronic funds derived from Mr Heron’s criminal activity were regularly paid into the couple’s joint bank account, used to pay the mortgages.
[11] On 15 September 2020 police searched Johns Road. They found the extensive cannabis cultivation operation. There were 331 plants in four different stages of cultivation housed in four grow rooms or tents. Growing equipment included heat pumps/air conditioners, water and nutrients supply and a carbon dioxide pump. In the walk-in wardrobe of the couple’s bedroom police found $153,860 in cash, bundled neatly in two lock boxes on a shelf.
[12] Mr Heron claimed initially to police that he had undertaken only one successful grow prior to the one discovered, and the operation was to supply cannabis oil for medicinal purposes in anticipation of legislative change to permit this. On the day of the search, Ms Lewis told police that she “knew something was going on, but not the extent”.
[13] Ms Lewis has no previous convictions. She was not charged in relation to Mr Heron’s cannabis dealing.
The applications
[14] It is the Commissioner’s case that over several years prior to the search on 15 September 2020 Mr Heron and Ms Lewis profited from the significant criminal activity of Mr Heron’s cultivation and supply of cannabis.1
[15]The value of the unlawful benefit is said to be $1,277,966.85.
[16] The Commissioner seeks, in the alternative, asset and profit forfeiture orders in respect of the following property (the property):
(a)$153,860 in cash (plus any interest accrued) located in a walk-in wardrobe at 443 Johns Road, Fernside, Waimakariri by police on 15 September 2020 (cash);
(b)the real estate property at 443 Johns Road, Fernside, Waimakariri with a legal description of LOT 2 DP 362142 and title order number of 253637, excluding any interest secured by mortgage to ASB Bank owing under registered mortgage 11641370.3 (Johns Road); and
(c)the real estate property at 1409 Main North Road, Waikuku with a legal description of Lot 2 DP 15930 BLK VIII RANGIORA S D and title order number of CB561/20, excluding any interest secured by mortgage to ASB Bank owing under registered mortgage 9651975.2 (Main North Road).
[17] There is no dispute that Mr Heron and Ms Lewis have interests in all the identified property. The cash was located in their walk-in wardrobe at Johns Road. They are the registered owners of the two real estate properties.
1 Misuse of Drugs Act 1975, ss 9(1), maximum penalty seven years imprisonment and s 6(1)(f), maximum penalty eight years imprisonment. See also Criminal Proceeds (Recovery) Act 2009, s 6(1)(a) and (b). The relevant period, in accordance with the Commissioner’s amended application for civil forfeiture orders, is between 5 May 2014 and 5 May 2021.
[18] The Commissioner’s application is supported by the evidence of former Detective Christopher Maitland, Detective Tracey Bruce and the expert evidence of Detective Sergeant Christopher Power. Further, and central to the Commissioner’s case is the evidence of forensic accountant Chelsea Aisthorpe-Kennedy. Ms Aisthorpe-Kennedy is attached to the Southern Asset Recovery Unit. She analysed the financial affairs of Mr Heron and Ms Lewis over the seven-year period ending 15 September 2020.
The contested hearing and the issues
[19] Mr Heron and Ms Lewis have accepted from outset that the $153,860 cash is tainted as derived from Mr Heron’s cannabis offending, and subject to forfeiture. Prior to the hearing they denied that either of the real properties was tainted to any degree and resisted profit forfeiture, contesting the extent to which they unlawfully benefitted from the criminal enterprise.
[20] At a defended hearing on 1, 2 and 5 February 2024 all of the Commissioner’s witnesses were called to give evidence and were cross-examined. Mr Heron and Ms Lewis also gave evidence and were cross-examined. In closing submissions, counsel for the Commissioner invited the Court to deal with the case on the basis the evidence establishes an unanswerable case for an asset forfeiture order, both respondents having accepted in evidence that tainted funds derived from cannabis sales were paid towards the real properties. While neither conceded the application, counsel for both Mr Heron and Ms Lewis accepted that if the Court is satisfied all the property is tainted the application for profit forfeiture is otiose, as all property sought to meet that order will be realised under the assets forfeiture.
[21] However, both respondents seek relief from forfeiture on grounds they will suffer undue hardship if forfeiture is granted.
[22] Mr Heron asks that the Johns Rd property be excluded from forfeiture: it is currently being used for a nascent and promising microgreens business he has started since serving his sentence of home detention for the criminal offending. Ms Lewis, who has been independently employed throughout in a responsible position, seeks that her half share in both the unencumbered properties under the Property (Relationships)
Act 1976 be excluded. Her case for relief relies heavily on the respondents’ challenge to the Commissioner’s assessment of their unlawful benefit, asserting legitimate alternative sources of cash income and that she was almost entirely unaware of her partner’s drug dealing activities.
Issues in dispute
[23]Against that background, the issues for determination are:
(a)What was the unlawful benefit from Mr Heron’s cannabis offending?
(b)Is (all) the property tainted?
(c)Is it reasonably likely that undue hardship will result from forfeiture?
What was the unlawful benefit?
[24] Notwithstanding their counsel’s realistic concession of the evidence supporting tainting which supports an assets forfeiture order, the extent of the respondents’ unlawful benefit and in particular Ms Lewis’ knowledge remains a central assessment in this case, including to inform the respondents’ applications for relief.
The parties’ positions
[25] The Commissioner relies on multiple strands of evidence to prove on the balance of probabilities that the respondents unlawfully benefitted from Mr Heron’s drug offending in the amount of $1,277,966.85, including the amount of capital gains accrued on the two properties Johns Rd and Main North Road in the relevant period. Mr Heron admitted the offending. The $153,860 cash found by police supports much more extensive prior cultivation than admitted, as do excessively high power bills over a period of years occurring at both properties. The Commissioner says the sophisticated high-yield commercial cannabis grow set up at Johns Road was the culmination of a period of extensive cannabis dealing and growing, beginning at least from 2016 when extensive amounts of unexplained cash income said to be the profits of cannabis dealing were being paid into various of the couple’s accounts. There were substantial supplies of cannabis to three associates, David Franich, Shannon Gregory
and Rhys Idiens. Much of the cash income was transmitted into and through an investment portfolio and the couple’s joint account, including to assist in the purchase of Johns Road and pay down the mortgages on both properties.
[26] The respondents dispute the extent of their unlawful benefit. Both Mr Heron and Ms Lewis gave affidavit evidence and when cross-examined at length at the hearing.
[27] In essence, and consistent with their claims to police under examination, they assert Mr Heron had multiple sources of cash income during the period of interest: he continued to earn considerable amounts in cash income from lawnmowing after the Milo’s Mowing business changed to a cash model in 2015. As well, they say, he had an extensive and lucrative cash firewood business and earnt cash from avocado sales and by prospecting for gold on the West Coast.
[28] For her part, Ms Lewis contends she had little if any real knowledge of the extent of Mr Heron’s cannabis offending or the profits it was generating. She was working full time at a stressful job and for this reason and as she was pregnant during part of this period she had little ability to object to or control Mr Heron’s decision to offend. Further, the respondents suggest there was only limited cannabis cultivation at the Main North Road property and nowhere near the scale or sophistication of that discovered at the Johns Road home. The grow was in three tents and contained about ten plants in total. Ms Lewis asserts earlier cannabis supplies were likely to have been sourced “from one of several contacts”. Further, although she prepared the worksheets for the couple’s accountants to support their tax returns each year, in reporting cash sales and income she relied entirely on Mr Heron’s assertions of the source, nature and extent of that income.
[29] The respondents assert that Mr Heron provided money and cannabis to Mr Franich simply to help him and not in return for work done around the properties and that when cash was provided it was from the Milo’s Mowing business, which was running through to mid-2019. In her affidavit evidence Ms Lewis stated and both respondents maintained under cross examination that the Milo’s Mowing business continued to operate after the shift to Johns Road. The change to casual contracts on
a cash only basis was due to distance from their regular customers. Further, all of the couple’s records of legitimate cash jobs — on the basis of which Ms Lewis accepts she completed entries for the accountant for annual tax returns — was recorded in notebooks which were later destroyed by rats and mice when stored in a storage facility. In evidence, Ms Lewis produced a text exchange on 23 July 2020 with the storage facility owner in which she complained “a third of our stuff went to the dump because it had been chewed by mice”. Ms Lewis maintains that she did not have any “in depth knowledge” of the cannabis operation or the cash located at the Johns Road home but acknowledges that a trip to Brisbane in May 2019 was partially funded by cannabis sales. Ms Lewis asserts this was the only travel which was illegally funded.
Financial analysis: unlawful benefit
[30] The essential planks of the Commissioner’s case were set out in the evidence of the forensic accountant Ms Aisthorpe-Kennedy.
[31] She analysed a wide range of financial information including all of the respondents’ known bank accounts, accounting information, IRD returns and reports and investment information. Her analysis also examined Mr Heron and Ms Lewis’ travel history between 2010 and 2020 and the respondents’ claims in examination as to the sources of cash income, and amplified in their affidavits opposing forfeiture.
[32] In summary, the forensic accountant’s evidence is that during the period from 15 September 2013 to 15 September 2020 the couple unlawfully benefitted from Mr Heron’s offending in the sum of $1,277,966.85. This comprises the $153,860 cash located at Johns Road, payments attributed to cannabis sales totalling $73,294.50 in electronic deposits into Mr Heron and Ms Lewis’ accounts and $271,656 in unexplained cash deposits.2 Of these, over the period analysed $62,310 in cash was deposited directly onto the couple’s credit card accounts, the significant majority directly onto their joint credit card and including $4,203 directly onto Ms Lewis’s personal credit card. A further $38,245.50 in cash spending identified outside the banking system and attributed to being funded by cannabis sales, together with capital
2 The latter figure ($271,656) in the Commissioner’s amended application is sought reduced by
$400, being unexplained cash deposits received prior to the amended relevant period which commences on 5 May 2014.
gains on both the real properties. The forensic accountant found that cash deposits were made regularly from 2015 onwards. Increasingly from this time, multiple cash deposits were made on the same day consistent with money laundering techniques so as to avoid bank reporting requirements in respect of suspicious transactions.
[33] The Johns Road property, purchased for $700,000 in December 2019, using tainted funds, accrued a $340,000 capital gain thereafter. The Main North Road property accrued a capital gain of $335,000 after it became tainted. The value of Mr Heron’s Craigs investment portfolio, established in 2015, grew by $27,747 after it was tainted by the investment of cannabis profits and, additionally $38,223.85 of rental income from Main North Road was derived after the property became tainted.
Search warrant 15 September 2020
[34] The search warrant at the Johns Road home on 15 September 2020 revealed a sophisticated cannabis growing operation, inside a five-bay garage complex on the property, adjacent to the main house. There were four growing bays, a seedling room, a cannabis oil press and bottled cannabis oil. The property was monitored via multiple CCTV cameras. The operation within the garage included four separate areas:
(a)a germination area with 88 seedling plants and five mature plants;
(b)a grow tent with 73 juvenile plants;
(c)a larger grow room containing 74 mature plants; and
(d)a small grow room with 66 mature plants. The main grow areas as seen from photographs of the search were tidy, well organised and sophisticated including heat pumps, heat lamps, irrigation systems, fans and a carbon dioxide production unit.
[35] The $153,860 cash police located was in bundles of $10,000 stored in two lock boxes in view on a high shelf in the walk-in-wardrobe of the couple’s bedroom. It comprised 138 x $100 dollar notes, 2,600 x $50 dollar notes and 500 x $20 notes. On a shelf in the kitchen sat six bottles of CBD oil, with specially printed labels.
Drug dealing conversations
[36] Mr Heron’s messaging disclosed messages showing his drug dealing and supporting other evidence of cultivation over a lengthy period of time.
[37] Analysis of Mr Heron’s messaging between 2019 and 2020 included a conversation with Mr Franich on 15 October 2019 with specific directions for various cultivation tasks including referring to the tents by code ‘T1’, ‘T2’, ‘T3’ and to fertiliser and a clean-up procedure. Further references indicated travel to Tekapo to sell what the Commissioner infers were cannabis or cannabis related products on 14 December 2019. A particular conversation occurred on 18 and 19 February 2020. Mr Heron discussed the referendum on the issue of legalising cannabis with his cousin, Tayte Cozens. Mr Cozens is apparently a purveyor of hydroponic supplies based in the North Island. In the conversation which spans several messages Mr Heron commented “… I believe make the dollars now because if it goes legal the corporate’s (sic) will take over and that will be end of home growers. … I am already putting some of the small growers out of business.” In relation to the referendum Mr Heron opined that:
“a no vote (which is what I will be voting for) is going to more profitable [sic] than a yes vote to me and you, if cannabis goes recreationally legal the only people that will profit will be the large corporate companies and the government. The best would be soften laws on smaller amounts like decriminalisation. …. Me nor any of my guys want to give the government more taxes. I am more than happy doing what I am currently doing … And have been doing for the last 20 years …”
[38] In another conversation, with a buyer “Anthony” on 13 and 14 June 2020, Mr Heron recites CBD oil prices and ‘Bud’ prices “O” with identifiers, varying in price, as “Fruit blast” and “Orange Kush” and offers larger amounts and prices “on demand”. The Commissioner submits and I accept these are references to cannabis including the bud, a highly sought after part of the cannabis plant with high concentrations of THC, and sales in ounce quantities. The list includes pricing for “trimmings” which the Commissioner infers as lower value extraneous leaves of the cannabis plant sometimes referred to as cabbage being sold by the plastic supermarket bag lot, at $150 a bag.
Power Consumption
[39] It will be recalled Mr Heron initially asserted to police that the $153,860 cash located in the wardrobe was the proceeds of a single grow at Johns Road, prior to the cultivation the police discovered and represented his first foray into CBD oil manufacture. He later admitted to one half size grow and four full grows at that property. Power consumption records for 443 Johns Road were obtained from the electricity provider over the period 17 December 2019 to 20 August 2020. These show a significantly higher than average daily electricity consumption and two periods of exceptionally high daily usage of approximately a month at a time in May/June and July/August 2020.
[40] Police also obtained power consumption records for the Main North Road property prior to the respondents’ shift to Johns Road. Mr Heron held two accounts during that period, between March 2014 and February 2020 and November 2021 and March 2022 (after it was rented). Analysis of the power consumption shows a significantly higher than (national) average daily electricity consumption, which the Commissioner contends shows Mr Heron was also cultivating cannabis at that property. Notably, over a four-month period in spring/summer of 2015, 18 September to 22 December the power usage totalled $3,483.09. From 28 June 2016 to 23 January 2020, the daily average power use was at least four times average, at over 100 kWh (units) per day.
Electronic deposits from associated: Messrs Idiens, Gregory and Franich
[41] A vast majority of the electronic deposits attributed to cannabis sales made into Mr Heron and Ms Lewis’s bank accounts were from three associates and totalled
$66,730. An associate of Mr Heron, Rhys Idiens, between June 2016 and May 2020 transferred a total of $43,510. A second associate Shannon Gregory, between August 2018 and September 2020 transferred a total of $19,520 across 90 transactions. The third associate, David Franich transferred a total of $3,700 across six transactions between March 2015 and September 2020. Both Mr Gregory and Mr Franich were located and subject to examination. Each confirmed the majority of the electronic transfers were for cannabis they have bought from Mr Heron and both confirmed they also bought further amounts for cash. These transactions further demonstrate
Mr Heron was supplying cannabis whilst the couple lived at the Main North Road property, and Mr Franich admitted he assisted Mr Heron from 2018 with his cannabis grow and sales. While police were unable to examine Mr Idiens in relation to his electronic payments, made in 28 transactions over the period of interest the electronic messaging analysed strongly suggests those amounts also reflect cannabis Mr Heron was supplying to Mr Idiens, dating back to June 2016 and long before the couple purchased and moved to the Johns Road property.
Were the couple knowingly unlawfully benefiting?
[42] I consider the inescapable conclusion is that from at least 2015 Mr Heron and Ms Lewis were knowingly unlawfully benefitting from his cannabis dealing.
[43] First, from at least October 2016 onwards the power usage billed to the couple at Main North Road was regularly extraordinarily high, consistent with cannabis cultivation at the property from that time. By comparison with average power consumption on a family household, the couple used in excess of five times the average family consumption of 22 units of electricity per day. Strikingly, and in contrast to their own evidence of self-sufficiency and frugal habits, there was no complaint or enquiry to the electricity provider in respect of power bills which ranged between $1,200 and $3,600 over the period from October 2016 to January 2022, an account of $2,033.38 on 25 October 2016 an early example of the consistently high spend.3 As Mr Heron acknowledged, indoor cannabis cultivation under lights involved heavy power usage.
[44] Second, Mr Heron asserts he first sold cannabis he had not grown himself and later engaged in hydroponic cultivation in the couple’s garage at the Main North Road property. Having regard to the power usage that must have been from at least October 2016 if not from mid-2015. The couple continued to live in that property for three further years before the purchase of Johns Road. Notwithstanding the fact of her full- time employment, I find Ms Lewis’ evidence that she had no need nor any time to go
3 The evidence for the Commissioner also identified earlier periods of sustained high spending on power including during summer months which also went without remark, on the evidence.
inside the double garage at Main North Road after going in there “probably twice in the first month” lacks credibility.
[45] Similarly, and strikingly, at Johns Road Ms Lewis acknowledged she did initially go into the five-bay garage, noting there was “like a bar or something in there, we might have hung out in there in the first month” but denied ever going into the garage thereafter, noting she worked 16-hour days. The garage is located immediately adjacent to the house. Given the building’s sheer scale, its smartness and the intensive work undertaken to fit it out as soon as they moved in, I am similarly unable to accept this assertion as plausible.
[46] Pressed on her initial comment to police that she knew her husband was “up to something” Ms Lewis denied he was a large-scale cannabis cultivator but claimed that the thought that he was growing cannabis “crossed [her] mind” more than once. She has subsequently admitted she knew that one of the couple’s nine overseas holidays to Australia and South East Asia between 2014 and 2019, a May 2019 trip to Brisbane, was part-funded by Mr Heron’s cannabis sales. Mr Heron in evidence also downplayed Ms Lewis’ knowledge or involvement in his cannabis cultivation or activities, emphasising her work responsibilities and that they kept work discussions separate from their personal lives. He described Ms Lewis was not “interested” in what he was doing, although noted that she did once comment about the smell (I infer, of cannabis) at the Johns Road property.
[47] I accept the couple described a somewhat frugal approach in their lifestyle. However, it was clear from their evidence that Ms Lewis was closely involved in aspects of Mr Heron’s business ventures. She prepared the excel spreadsheets for the accountants which claimed diverse cash income streams which were his sole source of claimed income from 2016 onwards. Mr Heron testified that Ms Lewis set his work schedule effectively. While Ms Lewis appeared to downplay that involvement, she maintained that the couple retained ‘five or six’ corporate clients in the lawnmowing business after it moved a cash model and that the majority of their cash business, a big part of Mr Heron’s income, was mowing empty sections in Pegasus. Yet, as I discuss further at [51] below that claimed income stream was nowhere near as successful as the other various sources of income including avocado sales, gold prospecting, casual
truck driving and, in particular the apparently thriving firewood business from 2016 through to 2019. Additionally, as Ms Lewis accepted in cross-examination over the review period in fact an additional $130,000 in cash was deposited into the couple’s various bank accounts over and above what she had recorded in the work papers for the accountants.
[48] They had been together since 2004. I find it beggars belief to suggest Ms Lewis was unaware of the nature or extent of the cannabis cultivation at Johns Road, or indeed what must have been the extent of the operation being run from the garage at Main North Road by the time the couple left that home in late 2019 given the power consumption evidence at both properties and the messaging indicating both wholesale and retail supplies by Mr Heron.
[49] Third, as Mr Heron himself described the establishment of the cultivation installation at Johns Road was an “industrial” build for which he engaged certified tradespeople to undertake some of the work, including a power unit and an air conditioning unit. That work commenced as soon the tradespersons were available after the Christmas break in January. Even allowing Ms Lewis the benefit of the doubt that the first month in which she enjoyed time in the bar within the five-bay garage had ended before the tradesman commenced within a month of buying the property, it is not credible that she would not have inquired as to the extensive work being undertaken by those tradesmen in the 5-bay garage.
[50] Fourth, there was also the cannabis paraphernalia and cash found in the home. I do not find credible Ms Lewis’s claim that the lock boxes on an open shelf in the wardrobe were too high for her to know they were there. Ms Lewis said the loose cannabis oil vials in a box lower in the wardrobe looked almost like essential oil and that she had not seen six labelled identical vials which were in plain view on a glass shelf in the open plan kitchen nor a collection of cannabis oil labels. Yet, at the same time, it seems Ms Lewis was integral in the preparation of the application to the Ministry of Health to be accredited as a producer of medicinal cannabis. The application included a section addressing security arrangements for the proposed location, which Ms Lewis completed as follows: “rural undisclosed location. cultivation facility under heavy lock and key. On-site security cameras, licenced holder
lives on-site. security lighting, vehicle access only by PIN. At main gate”. It beggars belief that Ms Lewis assisted as she claimed only as she was adept with computers and on the basis of Mr Heron’s advices without any appreciation of the scale and extent of the operation he was already running and had been running, I find, for at least four years prior.
[51] Fifth, after operating the Milo’s Lawnmowing business in 2015 and 2016 before closing the associated bank account and moving to a cash model and despite Ms Lewis’ evidence that the cash lawnmowing business was a “big part” of Mr Heron’s income, no lawnmowing income was recorded at all by her in the March 2017 tax year. Ms Aisthorpe-Kennedy found not a single invoice on other source documentation to support the claimed continuing cash business. Notably, many of the former customers of the business had been corporate clients. The respondents did not identify a single such client, nor a client list, no texts or emails in relation to any such work. Their respective explanations of an unidentified gentleman, the single liaison person at an unidentified location in North Canterbury at which Mr Heron did substantial lawnmowing work was unconvincing at best. Even on the face of the working papers Ms Lewis prepared, the cash lawnmowing business represents a meagre proportion of the overall cash returned as income and Ms Lewis’ suggestion otherwise is wholly unconvincing. Nor is Mr Heron’s suggestion that all their corporate clients transitioned without question to the cash model, without invoicing and paid thereafter by recourse to the businesses’ petty cash.
[52] Sixth, the respondents were unable to provide any evidence whatsoever in support of their claim that over a three-year period from 2016 to 2019 Mr Heron sold 374 loads of firewood. Their evidence was this firewood was sourced from a paddock in North Canterbury which belonged to a friend — whose name they cannot recall or were unwilling to provide — with whom they have since “lost contact”. They said they cannot recall the location of the paddock. No legitimate buyer of firewood was proved in evidence. Mr Franich under examination referred to a ruse during the national COVID19 lockdown in March 2020 when Mr Heron came up with a plan to obtain a travel exemption on the guise of working for a firewood merchant, which Mr Franich admitted was untrue. Further, I accept as the Commissioner submits the scale and physical nature of that claimed work also appears inconsistent with
Mr Heron’s health condition which he indicated had caused him to end his paid employment with Speedy Signs in 2016.
[53] Weighing these matters together, the evidence satisfies me the couple unlawfully benefited in the amount the Commissioner asserts, and further that Ms Lewis must have been well aware that the substantial cash profits of Mr Heron’s offending were supporting their lifestyle and asset base.
Is the property tainted?
[54] The issue whether contested property is tainted is a simple question of fact. Knowledge of taint is not a prerequisite under the CPRA. Tainted property means any property that has wholly or in part been acquired as a result of or directly or indirectly derived from significant criminal activity.4 Tainted cash will also taint real property when it is used as part of the purchase price, if it is used to renovate or add value to the property, or when it is used to pay off any part of the mortgage balance owed on the property.
[55] Further, the introduction of tainted funds into a mortgage account over real property taints the whole of that property. This is as it is well established that the deposit of funds into a bank account creates a singular chose in action: a debt owed by the bank to the account holder. Accordingly, as Doogue J noted in Commissioner of Police v He:5
… once tainted funds enter a bank account the entire account becomes tainted as each portion (legitimate or illegitimate) forms an indistinguishable part of the singular chose in action.
[56] The Commissioner seeks an assets forfeiture order on the basis all the property is tainted. He contends the cash is proceeds of Mr Heron’s cannabis dealing (accepted) and further criminal proceeds were used to pay the mortgages on both the real estate properties.
4 Criminal Proceeds (Recovery) Act 2009, s 5(1).
5 Commissioner of Police v Fei He & Ors [2022] NZHC 533 at [126].
[57] For the reasons discussed above I am satisfied on the balance of probabilities that all the property in question is tainted property, in terms of s 50(1) of the CPRA.
[58] Plainly, and as reflected in his guilty pleas and convictions, Mr Heron was engaged in significant criminal activity.6 The respondents accept the $153,860 in cash was the proceeds of cannabis sales. Having heard the evidence and noting it is unchallenged in this regard, I am also satisfied that the proceeds of cannabis offending were applied to pay down the mortgages on both houses over an extended period of time, which proceeds can be traced back to payments of cash and electronic deposits derived from Mr Heron’s cannabis sales and made into various of the respondents’ bank accounts.
[59] The Commissioner accepts the Main North Road property was purchased using legitimate funds. However, subsequently cash and electronic cannabis profits were deposited into the couple’s joint bank account throughout the period 2015 to 2020 and used to pay down the mortgage. The majority of the electronic transfers during this time were deposited into one of Mr Heron’s accounts from which he made regular transfers into the joint account.
[60] Further, the Johns Road property is similarly tainted, but from outset and in multiple ways. The Craig’s investment fund, itself tainted by application of cannabis profits, was used to pay the deposit upon the property, again via the tainted joint account in a $70,000 draw down. The balance of the tainted investment funds ($150,558.58) was then applied to the purchase price together with a mortgage draw down on settlement. As with the Main North Road property, thereafter all mortgage payments on Johns Road were met from the tainted joint account.
6 Criminal Proceeds (Recovery) Act, s 6(1).
[61] If the court is satisfied on the balance of probabilities that each property is separately tainted — as the respondents now accept — the court must order forfeiture, subject to any application for relief.7 Accordingly, I must make an order that the tainted property vests in the Crown absolutely and is in the custody and control of the Official Assignee.
[62]I so order.
Should the Court grant relief from forfeiture?
[63] Section 51 of the CPRA provides the court with a discretion to grant relief from an asset forfeiture order if it considers that, having regard to all of the circumstances, undue hardship is reasonably likely to be caused to an applicant if the property is included in the order. The circumstances the court may have regard to include:
(a)the use that is ordinarily made of the property;
(b)the nature and extent of the applicant’s interest;
(c)the degree to which the applicant had knowledge of the significant criminal activity; and
(d)the circumstances of the significant criminal activity.
[64] Whether undue hardship arises is a matter of fact and degree in each case, which will be informed by the purposes of the CPRA generally and the particular considerations under s 51.8 Undue hardship must entail more than simply the hardship inherent in forfeiture.9 As the Court of Appeal observed in context of a profit forfeiture order in Cheah v Commissioner of Police, the threshold for relief is high:10
7 Section 50. The Court must specify the property to which an asset forfeiture order applies and that the property vests in the Crown absolutely and is in the custody and control of the Official Assignee: s 50(3).
8 Duncan v Commissioner of Police [2013] NZCA 477, (2013) 26 CRNZ 796 at [57]-[58].
9 Zhou v Commissioner of Police [2023] NZCA 137 at [64].
10 Cheah v Commissioner of Police [2020] NZCA 253.
[64] … Hardship for offenders and third parties is to be expected. For the Court to grant relief an applicant must show not merely inconvenience or difficulty, but that any hardship will be so disproportionate as to require the objectives of recovery and deterrence to be subordinated to the particular needs of the wrongdoer.
[65] The loss of equity in a home acquired from legitimate sources before the criminal activity, and the consequent prospect the respondent will need to rely on State assistance for housing, has been held not to constitute undue hardship; the risk of losing a home ought to have been contemplated at the time the respondent embarked on the criminal activity.
(footnotes omitted)
[65] The analysis engages the concept of disproportionality; the court must consider whether forfeiture would result in a gross or severe disproportion between the gravity of offending and the value of the property sought to be forfeited. Where forfeiture involves a family home, undue hardship for a child may be relevant to the Court’s assessment.11 There is precedent for relief granted to a partner or spouse with nil or limited involvement in the offending, although each case turns on its particular features.12
Mr Heron’s application for relief: Johns Road
[66] Mr Heron seeks relief against the forfeiture of the Johns Road property on the basis it is the family home and is now being used for Mr Heron’s nascent and promising microgreens business. Mr Heron began that business during or after serving his sentence of home detention. Mr McKenzie argues that penalty suggests the offending itself was not serious, such that forfeiture would be disproportionate.
Ms Lewis’ application for relief: half share in both the unencumbered properties
[67] Ms Lewis seeks that her half share in both the unencumbered properties under the Property (Relationships) Act is excluded. Mr Allan emphasises that Ms Lewis has continued to make mortgage payments including interest and capital and reducing the principal on the cross-collateralised properties by $45,039.18 as at February 2024.
11 Duncan v Commissioner of Police, above n 8, at [57].
12 See, for example: Commissioner of Police v Burgess [2016] NZHC 2625; Commissioner of Police v Winsor [2014] NZHC 161; Hayward v Commissioner of Police [2014] NZCA 625; Commissioner of Police v McEnirney [2023] NZHC 2697; Commissioner of Police v SWC [2018] NZHC 3334.
Ms Lewis, he argues, had little ability to object to or control Mr Heron’s decisions to offend as she was pregnant and working full-time in a stressful job. Her greatest involvement with regard to the offending is said to have related to her attempts to legitimise the cultivation by assisting to prepare the application for a Medicinal Cannabis Licence.13
[68] Due to inflationary gains upon the properties, the couple’s net equity as at June 2023 was $1.128 million. This comprised $523,384 in the Main North Road property, by comparison with $129,000 at purchase in 2014 and $604,669 in the Johns Road property, up from $218,000 when purchased in 2019.
The Commissioner’s position
[69] The Commissioner opposes any relief from forfeiture. Ms South points to the passive capital gains which have accrued on each property, noting that of the couple’s joint net equity of approximately $1,130,000 approximately two thirds of that is attributable to entirely passive capital gains accrued. The Johns Road home, funded primarily through drug money has enjoyed a capital gain of $340,000. Capital gain on the Main North Road property is a further $335,000. On the Commissioner’s evidence that property was tainted from 2015 onwards by introduction of unexplained and undeclared cash deposits. Thereafter, the mortgage continued to be serviced from the tainted joint ASB 933-00 account. Similarly, the couple enjoyed the benefits of the $383,196 cash identified as either directly introduced into their bank accounts or used to fund their lifestyle and purchases.
Factors relevant on both applications
[70] The Johns Road property is Mr Heron and Ms Lewis’s home, where they are raising their three-year old daughter. Mr Heron’s mother also resides at the property, which is a large rural site, in a tiny home on-site. This is a relevant factor, but as is clear from the authorities, is not decisive.
13 On 21 September 2020, that is six days after the police discovered Mr Heron's cannabis cultivation operation at Johns Road, the Ministry of Health received an application by post for a medicinal cannabis license from Mr Heron. The application purported to have been signed by Mr Heron some 10 weeks prior, on 13 July 2020.
[71] I accept, as Ms South submits, the circumstances and extent of Mr Heron’s significant criminal activity are particularly relevant, in particular to the applications for relief in relation to Johns Road. Bought in December 2019, it was tainted from outset using the ill-gotten funds of Mr Heron’s cannabis cultivation and dealing.
Should Mr Heron be granted relief?
[72]Mr Heron seeks relief by excluding Johns Road from forfeiture.
[73] I consider the circumstances and extent of the significant criminal activity show his offending was substantial and enduring. In that sense the convictions following discovery of the cannabis operation in 2020, while not necessarily the tip of the iceberg, certainly did not represent in my view the majority of his criminal activity, a factor which tends to blunt Mr McKenzie’s submission as to the seriousness of the offending. That activity produced over $383,000 in cash, or 47% of the couple’s joint income over the relevant period. I accept that figure is conservatively estimated, excluding other cash spending and travel costs.
[74] Materially, as Ms South submits, the Johns Road property was purchased with cannabis cultivation in mind and that is the purpose to which it was immediately put.
[75] Counsel for the Commissioner confirmed at the hearing the Commissioner does not seek forfeiture of the facilities and equipment, originally purchased and used for the cannabis cultivation operation, which Mr Heron and Ms Lewis have now used to establish a promising micro-greens business. Mr Heron, for his part confirmed in evidence that much of that equipment is portable and would be able to be relocated. In that sense, forfeiture will be ameliorated as that equipment will remain available to continue what I accept is a rehabilitative operation and step.
[76] I take into account Mr Heron concedes the forfeiture of the Main North Road property bought in 2014; to which the Commissioner accepts he legitimately contributed $64,500. However, the evidence indicates it was relatively soon after purchase that Mr Heron put that property to illicit purposes. By contrast, Johns Road was tainted from outset, funded by the tainted Craigs investment portfolio. All
improvements and maintenance, together with the mortgage, were funded by Mr Heron’s offending.
[77] In those circumstances, given the extent and sustained nature of Mr Heron’s offending, the substantial benefits he accrued from it and the application of criminal proceeds to taint the purchase of Johns Road and to re-purpose it to facilitate the offending, I cannot conclude undue hardship will result to Mr Heron by forfeiture of the Johns Road property.
Should Ms Lewis be granted relief?
[78] Ms Lewis also seeks relief against forfeiture of her half share in Johns Road, together with her half share in Main North Road. As the Commissioner accepts, Main North Road was bought with legitimate funds in 2014. Ms Lewis’s half share was as to $64,500 of the initial equity of $129,000, which is approximately 16.3% of the purchase price of $395,000.
[79] Ms Lewis is the mother of the couple’s three-year-old daughter. She suffered the unexpected tragedy of the loss of her son in 2023. She assists in the support of Mr Heron’s senior mother, who lives in her own tiny house upon the Johns Road property. Ms Lewis was employed throughout the period of Mr Heron’s offending. I accept her salary contributed towards mortgage repayment as to principal and interest during that time. But there can be no doubt she unlawfully benefitted from the significant criminal activity of her partner without the proceeds of which the joint account could not have sustained the mortgage outgoings, for example. Ms Lewis lived in both properties after the time at which they became tainted — Johns Road from outset — and as I have found illicit funds were also deployed to improve both properties and otherwise to sustain her and her partner’s lifestyle.
[80] It is true in the months following the shift into Johns Road Ms Lewis was pregnant and continued to work on her evidence, long hours. However, I am satisfied on the balance of probabilities that for at least four years before the police discovered Mr Heron’s cannabis operation the couple enjoyed the benefit of its proceeds and that the only reasonable inference is that Ms Lewis did appreciate the illegitimate character of the significant stream of income this generated.
[81] I accept, as Ms South submits, it could not have escaped Ms Lewis’s attention that such a large proportion of the couple’s joint income — some 47 per cent — was derived from cash proceeds: flowing into their various accounts; through the joint account in particular; or otherwise funding their lifestyle purchases or travel. Further, and relevantly although I accept Ms Lewis worked throughout in a responsible role, her assistance in the preparation of the worksheets to support tax accounting indicates that she must have been aware to at least some degree that the cash sources of income variously claimed by Mr Heron were a sham, in large part if not in entirety.
[82] That said, I am satisfied having heard Ms Lewis’s evidence that her application for relief is of a different character than Mr Heron’s, for two principal reasons. First, I accept she was likely not aware of the true extent of Mr Heron’s offending in terms of the full value or benefit so obtained from the criminal proceeds. In that regard as Mr Allan identifies the evidence does not disclose spendthrift or otherwise profligate spending such as would have put her on greater notice of the extent of profits and there was supporting evidence of her personal frugality, in terms of clothing and baby equipment she purchased for their infant daughter.
[83] Second, since the property was restrained in 2021 Ms Lewis has paid all mortgage outgoings on both properties, including interest and reducing the principal by $45,038.81 as at February 2024. She has for the majority of that period also solely supported the family from her single income, although the evidence is that the microgreens business has recently begun to generate a profit and enabled employment of three other staff part-time. Ms Lewis assists in that business alongside her full-time employment. In those circumstances Ms Lewis has assisted to continue to grow the unencumbered capital value in the properties since the offending, which will benefit the applicant and is a further factor supporting her application for relief.
[84] As to her personal circumstances, outside the properties which are to be forfeit Ms Lewis’s only asset is her Kiwisaver account of approximately $50,000. I accept she is not in the early stages of her working life. She stands to lose the family home and the investment property, initially bought with untainted funds, and has the responsibility of caring for their young daughter.
[85] Weighing all these factors together, I am persuaded that in Ms Lewis’s case forfeiture of the entirety of Ms Lewis’s equity in the properties would be grossly disproportionate and that the balance falls in favour of some limited relief. Relief is appropriate to reflect her legitimate contribution to and therefore interest in the unencumbered value of the Main North Road property and her legitimate contribution to the capital value of the Johns Road property since restraint, absent which there would be a windfall to the Commissioner as to that amount. The relief must be limited; Ms Lewis should not benefit from the large proportion of the capital gains on the properties except as I have explained.
[86] Applying the Commissioner’s figure of capital gains accruing at $37,222 per year across the period 2014 to 2023, in my assessment it is fair Ms Lewis is granted relief as to half the initial equity in the Main North Road property and as to two years’ capital gain on that equity, that is to 2016 following which I am satisfied there is clear evidence of the application of criminal proceeds towards the property. This equates to a figure of approximately $102,000. There being no financial accounts provided in support of the interest — by contrast with principal — paid since restraint, I consider further relief in the amount of $45,000 in respect of the funds applied to reduce the principal since restraint is appropriate. This relief is to be provided against the total assets to be forfeit, the $153,860 cash and the two real properties valued conservatively at $1,770,000 before encumbrances.14
Result
[87]I order, accordingly:
[88] The following assets are subject to an assets forfeiture order and are to vest in the Crown absolutely and be in the custody and control of the Official Assignee:
(a)The $153,860 in cash (plus any interest accrued) located by police on 15 September 2020;
14 Totalling $634,406.18 as at 14 February 2024.
(b)the property at 443 Johns Road, Fernside, Waimakariri and the property at 1409 Main North Road, Waikuku subject only to:
(i)the interest of ASB Bank Limited under its respective registered mortgages over the properties;
(ii)the equipment associated with the microgreens business which is portable and subject to agreement of the Commissioner; and
(iii)the relief ordered to Ms Lewis in the amount of $147,000 as set out at [86] above, payable to the second respondent only after realisation of the properties and payment of expenses.
[89] Leave is reserved to seek further direction or order as necessary to give effect to the assets forfeiture order.
Costs
[90] Costs are reserved. It is unclear whether the parties are legally aided. Ms Lewis has been granted some relief. If costs are sought the Commissioner is to file submissions within 15 working days; all other parties are to respond 10 working days following.
………………………………………
Preston J
Solicitors:
Crown Solicitors, Christchurch for the Applicant
A J McKenzie, Barrister, Christchurch for the First Respondent P N Allan, Barrister, Christchurch for the Second Respondent
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