Commissioner of Police v James
[2020] NZHC 3075
•20 November 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-2236
[2020] NZHC 3075
UNDER the Criminal Proceeds (Recovery) Act 2009 BETWEEN
COMMISSIONER OF POLICE
Applicant
AND
BRETT WALLACE JAMES
Respondent
Hearing: 12-14 October 2020 Appearances:
M Harborow and A Masters for the Applicant Respondent on own behalf
Interested Party, Wilson Chee, on own behalf
Judgment:
20 November 2020
JUDGMENT OF GORDON J
This judgment was delivered by me
on 20 November 2020 at 3 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Crown Solicitor, Auckland
COMMISSIONER OF POLICE v JAMES [2020] NZHC 3075 [20 November 2020]
Introduction
[1] The Commissioner of Police (the Commissioner) applies for civil forfeiture orders under ss 50 and 55 of the Criminal Proceeds (Recovery) Act 2009 (the Act) against the respondent, Brett James. Mr James was convicted of drugs and firearms offences in August 2018. He was sentenced in the District Court to three years and seven months’ imprisonment in October 2018.1 The Commissioner of Police says Mr James engaged in significant criminal activity, being the manufacture and sale of methamphetamine.2
[2] The assets forfeiture order sought against Mr James under s 50 of the Act is in respect of property presently subject to restraining orders (the property):
(a)All interests in the property at 158B Sunset Road, Unsworth Heights, Auckland (Sunset Road) (excluding the interest of the ASB Bank Ltd as mortgagee); and
(b)The sum of $400,000 cash (the cash) seized by Police from a storage unit on 27 August 2015.
[3] The total value of the property is approximately $787,311.46 (after making the necessary deduction for the ASB’s interest).
[4]The profit forfeiture order sought under s 55 of the Act is in the sum of
$776,948.09,3 with orders that the property be realised to satisfy that order. The profit forfeiture order is sought only in the event that not all of the property is made subject to an assets forfeiture order.
[5] The Commissioner also seeks ancillary orders under the Act in connection with the profit forfeiture order: an effective control order under s 58 of the Act in relation
1 R v James [2018] NZDC 21999. An appeal against his conviction and sentence was abandoned.
2 In his application the Commissioner also relied on tax offences but that was not pursued by counsel for the Commissioner in his closing submissions.
3 The application as filed stated a value of $844,327. The Commissioner has since accepted that Mr James likely received $52,379 from his grandmother and $15,000 from the sale of a Mercedes car. The amount is therefore reduced by the total of those two sums.
to the cash; and a direction under s 59(1)(b) of the Act for the purposes of the sale of Sunset Road.
[6] Mr James opposes the application. He says neither Sunset Road nor the cash seized is, on the balance of probabilities, tainted property. Further, he says he has not derived an unlawful benefit from significant criminal activity and the value of any unlawful benefit derived from significant criminal activity is not that specified by the Commissioner. (His position in fact is that he did not engage in any significant criminal activity). Mr James also says the Court cannot be satisfied he has effective control of the cash. There is an affidavit from Mr James and another from a private investigator in opposition to the application.
[7] Mr Chee, an interested party, claims the cash belongs to him. He filed an affidavit annexing his evidence from Mr James’ District Court trial. His evidence was that he acquired the funds through gambling.
[8] At the hearing Mr James cross-examined two of the Commissioner’s witnesses and Mr Harborow, counsel for the Commissioner, cross-examined Mr James and Mr Chee.
Offending
[9] On 20 August 2018, Mr James was found guilty, following a jury trial in the District Court at Auckland, and convicted of eleven charges, nine related to drug offending and two firearms offences. They were:
(a)three charges of possession of equipment capable of being used to produce or manufacture methamphetamine;
(b)three charges of possession of materials capable of being used to produce or manufacture methamphetamine;
(c)two charges of possessing precursor substances with the intention of using them to manufacture methamphetamine;
(d)one charge of possession of a utensil; and
(e)two charges of possession of a military style semi-automatic firearm.
[10] At his trial, Mr James gave evidence, and called evidence from Mr Chee, that the cash found by Police in the storage unit was given to him by Mr Chee for a proposed joint property development involving land adjacent to Sunset Road.
[11] Mr James was not charged with the manufacture and supply of methamphetamine. This likely reflects the events which led to the detection of his offending. There were three searches in August and September 2015. First, Police were contacted by the operators of a storage company after chemicals were found leaking from a unit connected with Mr James. He was a regular user of the unit and paid for its rent. The cash, in four vacuum packed bundles, and equipment used in the manufacture of methamphetamine were located. Forensic testing established that some of the equipment found had been used to produce methamphetamine.
[12] Second, a search warrant was obtained and executed at Sunset Road, Mr James’ home. A small amount of methamphetamine (2.7 grams) was located along with other equipment commonly used for the manufacture of methamphetamine. Third, a search warrant was obtained and executed at another storage unit rented by Mr James in the same complex as the first unit where more equipment for manufacturing methamphetamine was found. Forensic testing established some of the equipment had been used to extract pseudoephedrine (a precursor substance).
[13] In total Police found two Parr bombs, a hotplate, two steam distillers, Buchner funnels, Buchner flasks, reaction flasks, a glass condenser, distillation apparatus, two deep fryers, a metal pot, baking dishes and pH probes or meters. Also located were two containers of caustic soda, two containers of phosphorus acid and iodine. Precursor substances included hydrochloric acid, sulphuric acid and methyl ethyl ketone. A recipe for the manufacture of methamphetamine and a manual on chemical extraction methods, along with electronic scales, were found at Sunset Road.
Issues for determination
[14]The following issues require determination:
(a)Asset forfeiture: on the balance of probabilities, is the property tainted for the purposes of s 50(1) of the Act;
(b)Profit forfeiture:
(i)On the balance of probabilities, did Mr James unlawfully benefit from significant criminal activity; and
(ii)If so, what is the value of the benefit, in terms of s 53 of the Act; what is the maximum recoverable amount, in terms of s 54 of the Act; and what property may be realised to meet the profit forfeiture order.
Criminal Proceeds (Recovery) Act 2009: scheme and relevant provisions
[15] The Act establishes a regime providing for the forfeiture of: property acquired or derived, either directly or indirectly, from significant criminal activity; or, property representing the value of the benefit obtained from significant criminal activity.
Significant criminal activity
[16]Significant criminal activity is defined in s 6 in the following terms:
6 Meaning of significant criminal activity
(1)In this Act, unless the context otherwise requires, significant criminal activity means an activity engaged in by a person that if proceeded against as a criminal offence would amount to offending—
(a)that consists of, or includes, 1 or more offences punishable by a maximum term of imprisonment of 5 years or more; or
(b)from which property, proceeds, or benefits of a value of
$30,000 or more have, directly or indirectly, been acquired or derived.
(2)A person is undertaking an activity of the kind described in subsection
(1) whether or not—
(a)the person has been charged with or convicted of an offence in connection with the activity; or
(b)the person has been acquitted of an offence in connection with the activity; or
(c)the person’s conviction for an offence in connection with the activity has been quashed or set aside.
(3)Any expenses or outgoings used in connection with an activity of the kind described in subsection (1) must be disregarded for the purposes of calculating the value of any property, proceeds, or benefits under subsection (1)(b).
[17] It is clear that an “activity” Mr James engaged in was to have in his possession equipment and materials which could be used for the manufacture of methamphetamine and precursor substances with the intention of using them to manufacture methamphetamine. He was charged with and convicted of offences relating to that activity.4 The maximum penalty for possessing equipment or precursor substances is a term of imprisonment not exceeding five years.5 He has therefore engaged in significant criminal activity for the purposes of s 6.
[18] However, the Commissioner’s case is that Mr James’ convictions and evidence located are indicative of further offending: the manufacture and sale of methamphetamine. As s 6(2) makes clear, Mr James need not be convicted of these offences, the Commissioner merely needs to prove on the balance of probabilities that Mr James engaged in that activity. Offences under s 6 of the Misuse of Drugs Act 1975 including manufacturing and selling methamphetamine attract a maximum penalty of more than five years’ imprisonment.
[19] Finally, it is not necessary for the Commissioner to prove financial benefits to Mr James from either of these activities exceeds $30,000 for the purposes of satisfying this definition; the nature of the alleged activities are sufficient without regard to the extent of any benefit.
4 Mr James’ convictions are conclusive evidence that he committed the offences: Evidence Act 2006, s 47.
5 Misuse of Drugs Act 1975, s 12A.
[20] At this point, then, it can be said that Mr James has engaged in significant criminal activity (at least) because he has been convicted of offences punishable by a maximum term of imprisonment of five years.
Civil forfeiture orders
[21]The Act provides for two types of civil forfeiture orders:
(a)Assets forfeiture orders; and
(b)Profit forfeiture orders.
[22] Section 50(1) requires this Court to make an assets forfeiture order if satisfied on the balance of probabilities that specified property is “tainted property”:
50 Making assets forfeiture order
(1) If, on an application for an assets forfeiture order, the High Court is satisfied on the balance of probabilities that specific property is tainted property, the Court must make an assets forfeiture order in respect of that specific property.
…
[23]Tainted property has a broad definition in s 5:
(a)means any property that has, wholly or in part, been—
(i)acquired as a result of significant criminal activity; or
(ii)directly or indirectly derived from significant criminal activity; and
(b)includes any property that has been acquired as a result of, or directly or indirectly derived from, more than 1 activity if at least 1 of those activities is a significant criminal activity
[24] Mortgage payments, either of principal or interest, using funds earned through significant criminal activity, taint real estate.6 This Court has also held that the deposit of such funds into a bank account will taint the entirety of the funds in the bank account.7
6 Doorman v Commissioner of Police [2013] NZCA 476, [2014] 2 NZLR 173 at [32]-[36].
7 Commissioner of Police v Cheah [2018] NZHC 2825 at [25]-[26].
[25] Profit forfeiture orders rest on the concept of unlawful benefit. They require a person who has engaged in significant criminal activity to disgorge any unlawful benefit obtained from that activity. Property owned or controlled by the person can be realised to satisfy the value of the unlawful benefit. The property itself does not need to have been paid for using funds derived from significant criminal activity and the respondent does not need to have undertaken that activity. The person must only have knowingly unlawfully benefited from significant criminal activity and have interests in property.8
[26]A profit forfeiture order is made under s 55, which provides in part:
55 Making profit forfeiture order
(1)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.
(2)The order must specify—
(a)the value of the benefit determined in accordance with section 53; and
(b)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.
…
[27] As is apparent, if the requirements of s 55(1) are established on the balance of probabilities, the Court must make the order (subject to s 54 referred to below).
[28] Section 53 presumes the value of the benefit to be that specified in the application if the Commissioner proves on the balance of probabilities that a person
8 Section 7. Knowledge under s 7 includes wilful blindness: Vincent v Commissioner of Police
[2013] NZCA 42.
has unlawfully benefitted from significant criminal activity. It is for that person to disprove that presumption on the balance of probabilities.
[29] Before making a profit forfeiture order, s 54 requires this Court to determine the maximum recoverable amount. This is calculated by taking the value of the benefit as determined in terms of s 53 and deducting from it the value of any property forfeited to the Crown as a result of any assets forfeiture order made in relation to the same significant criminal activity.
[30] If the only identifiable property to satisfy a profit forfeiture order has been the subject of an assets forfeiture order, no profit forfeiture order can be made.9
[31] In addressing the matters set out in ss 53 to 55, inferences can be drawn from proven criminal activity, disparities between assets and spending and legitimate sources of income and the absence of a credible explanation for any disparity.10 Courts have readily inferred that criminal activity took place over a greater period of time than that proved beyond reasonable doubt in a criminal proceeding.11
[32] Section 55(2)(c) requires that the profit forfeiture order “specify” the property that is to be disposed of in accordance with s 83(1), being property in which the respondent has, or is treated as having, interests. “Property” is defined in s 5(1) as including “an interest in real or personal property”. “Interest” is defined as meaning a legal or equitable estate or interest in the property; or a right, power or privilege in connection with the property.
[33] Pursuant to s 58, the Court can treat effective control over property as an interest in property. The Court is thus enabled to look beyond e.g. a trust (relevant in this case) which disguises the true and effective control of property, and to consider the real position of the respondent in relation to the property.12
9 Doorman v Commissioner of Police, above n 6.
10 Hayward v Commissioner of Police [2014] NZCA 624 at [41]-[42]; Commissioner of Police v Dryland [2013] NZCA 247 at [34]-[39]; Commissioner of Police v de Wys [2016] NZCA 634 at [71].
11 Hayward v Commissioner of Police, above n 10, at [41]-[42].
12 Solicitor-General v Bartlett [2007] 1 NZLR 87 (HC).
[34] Finally, both an assets forfeiture order and a profit forfeiture order are subject to undue hardship exceptions in ss 51 and 56. In both cases, an application from the respondent is required before orders are made. No such applications were made by Mr James in this case.
Wilson Chee’s claim
[35] I will deal with the question of the $400,000 cash first. As noted, the cash was found in one of the storage units along with equipment and chemicals for manufacturing methamphetamine. The presence of the cash with the equipment is an essential feature of the Commissioner’s case: manufacture and dealing in methamphetamine produce substantial sums of money, usually in the form of cash. If the cash does belong to Mr Chee, in other words it was not the product of serious criminal offending by Mr James, then the Commissioner’s case is without an important foundation. It is logical to deal with the cash first in consequence.
Background
[36] The storage unit in which the cash was found was not leased to Mr James but he paid the rental and was the only visitor to it. The cash was found vacuum-packed in four bundles along with chemicals, precursor substances and equipment used in the manufacture of methamphetamine. Testing established the equipment had been used to produce methamphetamine and swabs indicated traces of methamphetamine in the storage unit. As noted, at trial, Mr James called evidence from Mr Chee that the cash belonged to him and was given to Mr James in pursuit of a joint property development. In his affidavit Mr James refers to Mr Chee’s trial evidence. He says that the issue as to who is the owner of the cash was not decided at the criminal trial.
[37] Mr James is correct that the ownership of the cash was not decided at the trial in the sense that its ownership did not form part of the charges. However, in her sentencing remarks Judge Sinclair said that she did not find the explanation for the
$400,000 being stored in the storage unit plausible.13 (The explanation given was the same as the explanation advanced in this Court). The Judge drew the inference that
13 At [10].
Mr James was deriving money from the possession of the items in the storage units and Sunset Road and that Mr James was profiting from the offending.14
[38] I simply note those findings as part of the background. I do not admit them as evidence in this proceeding.15
Mr James’ evidence
[39] Mr James continues to maintain that the cash is not his. He denies the cash was obtained through serious criminal offending. Mr James says Mr Chee gave him the cash in pursuit of a joint venture between them to develop a property immediately adjacent to Sunset Road.
[40] Mr James’ evidence is that he met Mr Chee at a night club in 1999. Mr James recalled that he was providing security at the venue at the time. He also described Mr Chee as a “very good customer” when he was working at a company which provided car audio services. He acknowledged they saw little of each other from 2010 until 2014 (the Commissioner’s evidence was that Mr Chee was absent from New Zealand for long periods from 2010, returning to visit his children from time to time).
[41] Immigration records establish Mr Chee visited New Zealand in December 2014. He arrived on 6 December and departed on 30 December. Mr James could not remember when he met with Mr Chee to receive the cash but thought it was the day before Mr Chee left to travel overseas. Mr James says Mr Chee came to his home at Sunset Road and, in Mr James’ bedroom, handed over the cash. Mr James says it was delivered by Mr Chee in a single bag.
IOU document
[42] A document not produced at the District Court trial, Mr James alleges due to trial counsel error, was produced in evidence at this hearing by Mr Chee. It is headed “IOU Form”. The form appears to have been produced using word processing
14 At [11].
15 See discussion in Police v Filer [2013] NZHC 3111 at [24]-[31] on the admission of factual findings in a sentencing decision as evidence.
software and a standard printer but spaces have been left in the body of the form for certain details to be completed. Those spaces have been completed by writing Mr James’s name and Mr Chee’s name in the relevant spaces and the amount in both words and numbers. It is signed by both and their names have been written below their signatures. Mr Chee is described as the “Debt Holder” (a term not used of the text of the agreement) and Mr James as the “Debtor”. Under their names, they each dated it 13 December 2014. The terms of the IOU are (errors are in the original):
I, the undersigned Brett James (Name of Debtor) hereby confirm and acknowledge to WILSON CHEE (Name of Creditor), hereinafter called Creditor, that I am indebted to said Creditor in the amount of FOUR HUNDRED THOUSAND DOLLARS ($400,000) dollars as of the date set forth below. The amount includes any and all legally permitted charges, such as accrued interest, up to the dated set forth below. I acknowledge and agree that I incurred said Debt and I am solely responsible for repayment of it to Creditor. I also agree and acknowledge that I have no defense should the Creditor use this document in a court of laws as a confession of judgment on my part (where legally permissible).
[43] When cross-examined by Mr Harborow on this document, Mr James insisted it was given to his trial counsel by another lawyer who, while in Hong Kong in 2016, visited Mr Chee at Mr James’ trial counsel’s request and took an affidavit from him (Mr Chee gave evidence by audio visual link from Hong Kong at the trial). When challenged on the timing of the creation of the document and the failure to adduce the document at the District Court trial, Mr James resolutely blamed trial counsel.
[44] There are three problems with this explanation. First, it is not consistent with Mr Chee’s evidence. He says the document never left New Zealand but was stored with his personal belongings in two houses where his former wife or his parents lived. If that is the case, the lawyer could not have collected it from Hong Kong as Mr James alleges.
[45] Second, Mr Chee gave viva voce evidence during the District Court trial. The transcript shows he did not mention any document was signed by he and Mr James. If Mr Chee had given the IOU to the lawyer who visited him in Hong Kong, then it seems very unlikely he would not have mentioned such a crucial detail in either the affidavit or during his evidence in the District Court trial. Similarly, Mr James did not mention it while giving evidence in chief or when cross-examined.
[46] For completeness, I add that in a letter to the Court from the lawyer who went to Hong Kong, dated 13 October 2020 (the day after the hearing commenced), he confirmed he assisted with the preparation of Mr Chee’s affidavit in Hong Kong. The lawyer also offered a credibility assessment of Mr Chee. That assessment is not admissible evidence and I put it to one side.
[47] Third, Mr James dismissed his trial counsel, who was representing him in this proceeding, shortly before the hearing was due to commence. Mr James denied knowing that the IOU had not been produced at the trial and insisted he discovered this only recently. This discovery caused him to dismiss his counsel. It is simply not credible for Mr James to have participated, as he did, in his criminal trial and to not know that the IOU had not been produced.
[48] I am satisfied that this document has been created after the fact of the alleged loan and after the District Court trial. The only reasonable conclusion I can reach given this finding is that the IOU has been produced at this hearing to support Mr Chee’s claim to the cash.
Progress on property development and storage of the cash
[49] An effort to falsify evidence creates doubts about the validity of the arrangement that evidence is designed to support. But there are other serious difficulties. When questioned on the terms of the loan, Mr James was particularly vague. He suggested there would “probably” be an equal division of any profits. The IOU is strangely silent on this point. The nature of any security for Mr Chee was apparently Mr James’ house. Mr James could also not point to any expertise or experience as a property developer.
[50] Mr James says the proposed property development was something he had been considering for six or seven years, though he had not previously discussed it with Mr Chee. Mr James says steps were taken to proceed with the joint venture. He informed his neighbour that the development could proceed and apparently his neighbour took steps to obtain the council consent required to subdivide the land. No evidence of these actions was adduced.
[51] Mr Chee is said to have given Mr James a very large sum of money in pursuit of a joint venture property development. Beyond Mr James’ say so, no apparent effort was made to commence that property development and to make use of the funds. Instead, on receiving the cash from Mr Chee, Mr James packaged it into the four bundles in which it was found by Police, vacuum sealed the bundles and placed them in a storage unit. Rather than deposit the funds in a trading bank so that some interest would be earned, Mr James instead admits to placing the cash in a storage unit.
[52] Not only is a storage unit a particularly insecure location for such a large sum of cash, it earned no income at all. The suggestion that the storage unit was a secure place to store the cash is hardly credible and the unwillingness to use a trading bank in what is alleged to be a commercial property development is notable. Mr James admitted as much. He agreed with Mr Harborow that “if you’d taken that quantity of cash to a trading bank … a normal bank that would’ve raised alarm bells at the bank
… [b]ecause it was a large amount of cash in $50 and $100 denominations”.
Alleged transcription error
[53] Moreover, Mr James and Mr Chee gave inconsistent evidence on the manner in which the cash was delivered. Mr James’ evidence was that the cash arrived in one bag. The proposition that the cash arrived in Mr James’ bedroom in two black bags was put to him by Mr Harborow and Mr James responded that there was only one black bag. However, Mr Chee told the District Court trial that he put the cash in two backpacks. When this was put to Mr James, he was unable to recall but raised the matter again during re-examination. At this point, in Mr Chee’s presence, Mr James suggested a transcription error in the evidence which records Mr Chee saying: “I put in two backpacks and I think it’s black one”.
[54] Mr Chee later, during his own re-examination, purported to explain what he said was a transcription error. He suggested the notes of evidence should read: “I put into backpacks and I think it’s black one”. This amendment, as I understand it, renders Mr Chee’s evidence consistent with Mr James that the cash arrived in a single bag.
[55] The difficulty with this is that Mr Chee’s proposed amendment is at odds with his other evidence during the District Court trial. In particular, I note that he agreed
with the question which followed immediately after this statement that the cash was packed “in each bag” (suggesting more than one bag) and he agreed with a subsequent question which referred to “two black backpacks” containing the cash. It does appear that Mr Chee’s position was that he took the cash to Mr James’ house in two bags and Mr James’ position is that the cash arrived at this house in a single bag.
[56] It is a minor detail in this proceeding and nothing particularly turns on the accuracy of the evidence. What is more significant is how Mr James and Mr Chee responded when challenged on an apparent inconsistency in their accounts of the cash being handed by Mr Chee to Mr James. Concerned that such an inconsistency might undermine Mr Chee’s claim to the cash, the two attempted to rewrite the transcript of the evidence given by Mr Chee at the District Court so that their evidence might be seen to be consistent on this issue. Unfortunately their effort ignored other parts of the evidence which clearly demonstrate the inconsistency.
Mr Chee’s evidence on the source of the funds
[57] Another issue is the source of the funds. Mr Chee gave evidence on this point at the District Court trial. He said that he earned the money over a ten-year period between 2000 and 2010 by gambling at Sky City and privately. In around 2005, he placed $200,000 in cash in a safety deposit box. The balance he kept in the ceiling of his home. He did not bank any of the money as he did not want his wife to know of the funds and because he considered cash was safe. He added further funds to the amount in the safety deposit box and estimated it contained $260,000 in 2014. There was no change to the balance after 2010 because he was no longer living in New Zealand and returned only for visits. Another $140,000, Mr Chee said, was hidden at his former wife’s home. That amount was previously loaned to an unidentified associate who repaid the loan in two payments, one of about $80,000 in 2012 and another of $60,000 in 2014. In summary, Mr Chee’s evidence was that there were two separate amounts totalling $400,000. The larger sum was in his safety deposit box and the balance hidden in the ceiling of his former wife’s house.
[58] Mr Harborow cross-examined Mr Chee in some detail on his capacity to gamble and his success as a gambler. This followed questions on Mr Chee’s prior
convictions, including for unlawful gambling. The last conviction, in 2006, arose from Mr Chee’s involvement in an unlicensed casino operation in Newmarket in 2005. In consequence of this conviction, the Department of Internal Affairs banned Mr Chee from Sky City Casino in August 2006 for two years. Mr Chee was also banned for two years in 2003. So his opportunity to gamble at Sky City Casino was limited to a period from 2000 to 2003, 2005 and 2008 to 2010.
[59] However, the Casino’s records suggest Mr Chee’s gambling at this venue was even more constrained. A report from 1 September 2000 to 12 October 2020 indicates he first gambled on 23 July 2002. He continued to gamble regularly until 4 September 2003. He also gambled using gaming machines during this period. He returned on 5 April 2006 and gambled on a number of occasions until 15 August 2006. He did not use gaming machines during this period. He did not gamble again until September 2020.
[60] When this report was put to Mr Chee, he challenged its accuracy. He insisted he had gambled at the casino in 2008 and 2009 (but not 2010). However, he agreed that he swiped or presented his loyalty card on each occasion he visited the casino. He did not suggest that he used other identities, and cards associated with them, to gamble at this time. Moreover, when questioned on the further period of absence after 2006, Mr Chee acknowledged he signed a document recording a self-imposed ban on gambling at the casino for two years. There is no other evidence to suggest Mr Chee gambled at Sky City in 2008 and 2009.
[61] Moreover, the casino report suggests Mr Chee’s gambling activities were far from successful. Indeed, for the period in question (that is, excluding the visit to the casino this year), his aggregate losses were $156,110 at the gaming tables and $13,396 at the gaming machines. It is not entirely clear from the notes of evidence whether Mr Chee accepted Mr Harborow’s contention that the records showed Mr Chee did not earn a profit from gambling at Sky City Casino let alone the sum of $400,000. It appears that he did. However, Mr Chee also responded that his gambling activities were not limited to the casino and included private gambling with friends. Mr Chee provided no other evidence to demonstrate the nature and extent of his private gambling or his success or otherwise.
[62] The Sky City gaming report indicates Mr Chee was not a successful gambler and that he did not gamble regularly over the ten-year period. In his private gambling, Mr Chee would not only have to generate the $400,000 he says he loaned to Mr James but also the approximately $165,000 he lost at Sky City. This seems most unlikely given his lack of success at Sky City. It seems a reasonable inference to draw, in the absence of any other evidence, that since Mr Chee was not a successful gambler at Sky City, it is unlikely he would have been any more successful at an alternative venue.
Summary of the evidence
[63] In summary, the evidence indicates the alleged transaction in which Mr Chee gave Mr James the $400,000 cash to pursue a joint venture property development was particularly unusual. First, Mr Chee is said to have raised the funds from private gambling. His explanation was narrowed to private gambling in the course of cross- examination because Sky City records indicate his gambling at the casino was more limited in scope than he had previously indicated and his activities there caused substantial losses. There is nothing to indicate he would have been any more successful in his private gambling. It is most unlikely that Mr Chee had $400,000 in cash to lend to Mr James in 2014.
[64] Second, Mr Chee loaned a large sum of money without a proper record of the debt and without any security (I will address the IOU document below). Third, Mr James had no experience or expertise in property development. Fourth, little action was ever taken to implement the proposed joint venture.
[65]Overall, I am satisfied that there was no joint venture arrangement.
[66] Three other factors already referred to support this finding. First, Mr James is said to have received a large sum of money from Mr Chee. Rather than depositing the funds with a trading bank, Mr James placed the cash to a storage unit. In a commercial joint venture, such a step appears remarkable. The cash was in a much less secure location and did not earn any interest. But, as I understood Mr James to accept, the deposit of such a large sum of money with a trading bank would generate questions about the source of the cash.
[67] Second, there is the IOU document. As I have already found, I am satisfied that this document was created after the District Court trial. It was not mentioned by Mr Chee while giving evidence at that trial even though he addressed giving the money to Mr James for the purposes of the alleged joint venture. Mr James did not refer to it either. Mr James’ allegation that it was given to trial counsel is not credible.
[68] Finally, there is the attempt to explain away inconsistencies in the accounts given by the two men of the circumstances in which the money was given by Mr Chee to Mr James. The question of whether it was delivered in one or two bags is a minor detail. However, it has assumed much greater significance because of efforts by them to improve the consistency of their accounts by questioning the accuracy of the transcript of the District Court trial. This effort goes to their credibility as witnesses.
Credibility findings
[69] Mr Harborow invited me to make adverse credibility findings against Mr James and Mr Chee.16 I consider that is necessary given the matters I have traversed above. Both gave evidence in pursuit of a particular objective rather than giving evidence which was necessarily accurate and true. That objective was to establish the cash belonged to Mr Chee. Their efforts to explain away inconsistencies in their accounts – such as the number of bags in which the cash was said to be delivered – is one manifestation of this objective.17
[70] There are two other matters which go to Mr James’ credibility. First, there is his evidence on methamphetamine use. In cross-examination, Mr James consistently and repeatedly denied ever using methamphetamine. However, the pre-sentence report, prepared for his sentencing in the District Court, records that he admitted using
16 Mr Harborow also questioned Mr Chee on other convictions before 2000 but Mr Chee’s response was that the offending occurred before he was married in 2001 and had a family. The only conviction he was asked about after 2000 related to unlawful gambling. I consider, given the age of the earlier convictions, that they can be characterised as historic in nature and I do not give them any weight in addressing Mr Chee’s honesty.
17 Mr Harborow drew attention to another contradiction relating to the manner in which the cash was counted and whether Mr Chee remained while this was done. Mr Chee’s evidence at the District Court trial was that he remained while Mr James counted the cash. Mr James’ evidence at this hearing was that he counted it after Mr Chee left. When challenged, Mr James said he started to count and continued to do so after Mr Chee left. This is a relatively minor point on which I place little weight.
methamphetamine following the death of his mother. Mr James now says that admission was untrue. He responds that his mother passed away long before the events which gave rise to the charges. The admission arose in circumstances, he says, where the advice from his lawyer was that a commitment to drug rehabilitation would avoid a sentence of imprisonment for the possession convictions. Mr James’ evidence is that he was struggling to deal with prison life and under pressure at the time. He says his statement to the pre-sentence report writer must be seen in that light.
[71] Against that, there is the evidence of Detective Senior Sergeant Farrant. She was involved in the search of Sunset Road on 31 August 2015 and arrested Mr James. She recorded that Mr James:
… appeared under the influence of a drug. His pupils appeared dilated and his eyes wide. His responses were slow. A cursory reconnaissance of the address located numerous equipment in the bath consistent with clandestine activities. There was also a very strong chemical smell.
[72] Detective Senior Sergeant Farrant is an experienced officer who has been involved in investigating large scale methamphetamine production in the past. Mr James admits taking a substance which, he says, caused the symptoms identified by the officer. However, he insists it was not methamphetamine (though 2.7 grams of methamphetamine was found during the Police search of Sunset Road) but rather strong pain medication prescribed to deal with a longstanding back injury. Mr James does not provide any medical records to support this assertion.
[73] The second matter which goes to Mr James’ credibility arose during the course of his closing submissions when he referred to the absence of certain chemicals required for the manufacture of methamphetamine. While he was asked by Mr Harborow in cross-examination about pseudoephedrine and ephedrine (and denied anything other than general public knowledge of either or that there was a difference between the two), he also mentioned in closing the absence of a significant amount of iodine. Mr Harborow drew attention to this submission in his reply given Mr James’ statements at the opening of the hearing. On the first day, Mr James stated:
I don’t know who to ask what questions and I look at this and it’s – I really don’t understand any of it. Like, they’ve got experts. I mean I just don’t understand what, like I’ve said, it’s really relate … Little bit different from
asking Paul [the builder] before about the house because I mean I live there and knew about that, but it’s just stuff I don’t understand.
[74]And, at the start of the hearing on the second day, Mr James said:
The more I tried to read through that stuff, to understand it, the more I just got lost, and there’s so much of it, I didn’t know what to do. I’d like to make a note that I am so far out of my own depth here. I don’t understand any of this stuff that’s going on and why some of the submissions I gave to my lawyer are not there I notice. I’m just panicking, trying to understand a boxful of paperwork. I’ve got no idea what is going on.
[75] At Mr James’ request, and with Mr Harborow’s consent, I permitted Mr James to make a further submission (which I accepted as evidence) after Mr Harborow’s reply. Mr James’ submission was that his knowledge of the manufacturing process was derived entirely from the evidence of the forensic scientist called by the Commissioner.
[76] While Mr James’ initial submissions to the Court are capable of more than one interpretation – in particular, that he either did not understand the evidence and the process or that he did understand the evidence but not the hearing process – I am inclined to the former. This is primarily because he referred directly to the experts giving evidence and the evidence itself as well as the hearing process. In these circumstances, it is difficult to reconcile his statements that he did not understand the evidence, and that he knows nothing about the process for manufacturing methamphetamine, while at the same time able draw from that evidence a specific and technical detail about a particular manufacturing process.
[77] Moreover, I have reviewed the forensic scientist’s evidence. Her written statements do contain several references to the use of iodine in one method of producing methamphetamine. The tests she undertook indicate that method was used and iodine was present in some of the equipment. Where Mr James’ submission departs from this evidence is that he says a significant amount of iodine was required. The forensic scientist’s evidence does not address quantity, only that it is required as part of the manufacturing process. His submission suggests Mr James knows more about the manufacture of methamphetamine than that set out in the evidence in this Court. It contradicts his evidence that he has never been involved in the manufacture
of methamphetamine and that the equipment found at this house and storage units, along with a large sum of cash and firearms, did not belong to him.
[78] These two matters bolster my credibility finding in relation to Mr James. Neither he nor Mr Chee was a credible witness.
Finding on Wilson Chee’s claim
[79] Given all of the matters considered above, I find that the cash was not given to Mr James by Mr Chee for the purposes of pursuing a joint venture property development. Mr Chee has no interest in the cash. The only person it could have belonged to was Mr James. I find on the balance of probabilities that Mr James owned the cash.
Significant criminal activity
What Police found
[80] As noted above, Mr James has been convicted of offences (possession of equipment, materials and precursor substances) which satisfy the definition of significant criminal activity. However, the Commissioner submits the evidence as a whole establishes, on the balance of probabilities that Mr James engaged in the manufacture and supply of methamphetamine.
[81] Police executed searches on Mr James’ house and storage units he rented. They found equipment and chemicals used in the manufacture of methamphetamine. The chemicals found at one of the storage units could produce up to 9.2 kilograms of methamphetamine. They also found a recipe and a manual on chemical extraction methods at Sunset Road. Forensic testing established methamphetamine had been manufactured at Mr James’ house and that the equipment had been used to manufacture methamphetamine. Semi-automatic military style firearms were found at the house. There was the cash too.
Mr James’ explanation for equipment and chemicals found by Police
[82] Mr James says none of the equipment and chemicals used in the manufacture of methamphetamine belonged to him. The house was cleared out in preparation for renovation and he transferred these items to the storage units. He says he did not know what they were. He denies knowing anything about the manufacture of methamphetamine.
[83] Mr James’ evidence at the hearing was that the equipment and documentation, including the recipe for manufacturing methamphetamine and a manual dealing with chemical extraction processes, belonged to a tenant who previously lived in his house. He says the equipment and other items were under the house. They were packed by the builders undertaking renovations, and he then moved them to the storage unit “not knowing what was in there or what it was for”. He insisted he had no reason to think that any of the items he could identify, such as camping cookers, were used in the manufacture of methamphetamine.
[84] The person to whom this property belonged, Mr James said in evidence at this hearing, was a former tenant called “Kurt Heinz”. Mr James said a lot of Mr Heinz’s property remained at the house after he left. This included a car, clothing, office documents and the equipment Mr James took to the storage units. Mr James thought Mr Heinz lived at the property for about a year. The timing of his stay was not specified but the Police search was undertaken at the end of August 2015 so presumably it was some time prior to that.
[85] However, Police investigations found that a Kurt Heinz Kraues made very brief visits to New Zealand for periods in the years prior to August 2015. He was in New Zealand for three days in 2010, eight days in 2013, nine days in 2014 and for six days in 2015 (departing on 31 May 2015). Between 2005 and 2010, Mr Kraues did not visit New Zealand. In response to questions from Mr Harborow, Mr James insisted Mr Kraues operated an immigration business in Queen Street and that his clothing, driver’s licence and other property was left behind when he departed.
[86] There is no evidence that Mr Kraues lived at the house. Detective Senior Sergeant Farrant records in a job sheet that during the search of the house a black
“carry bag” was found in a Portacom at the property. It was said to contain old clothing and “miscellaneous documentation”, including a driver’s licence in the name of “Kurt Kraus”. If this is the extent of Mr Kraues’ property found at the house, it is much more limited in scope than Mr James suggests.18 Further, there is nothing in the presence of the bag, containing the licence and some clothing, to connect Mr Kraues to the other items found at Mr James’ house. Mr James’ attempt to do so strains credibility further when considering his evidence that Mr Kraues was in New Zealand “a lot”. This is simply not consistent with immigration records after 2005.
[87] There is one further feature of Mr James’ evidence which casts doubt on his claim that the items belonged to Mr Kraues. Mr James said that Mr Heinz left in a hurry and departed leaving a large amount of property behind. When asked specifically about a steam distiller found at the house – which had been used in the process of manufacturing methamphetamine – with his fingerprints on it, Mr James responded that it was “filthy” and he had thrown it into a pile of rubbish because he was not going to put it into his car.
[88] However, a large quantity of other used and contaminated items, which he says belonged to Mr Heinz, he not only packed into his car but transferred to the storage units. That equipment, which he says did not belong to him, he did not dispose of but stored at some cost to himself. The evidence is clear that Mr James paid for both the storage units, although one was jointly in the name of Mr James and another person. Given, on Mr James’ own evidence, that Mr Heinz had left and not returned, it is remarkable that Mr James incurred cost for storing the belongings of another person with whom he was apparently not in contact.
18 Mr James’ evidence is that a car abandoned on the property belonged to Mr Kraues. During the Police search of the property, a car was found under a tarpaulin in the driveway. A witness for the Commissioner, Detective Constable Corke, obtained registration details from Land Transport New Zealand (LTNZ). The car was last registered in December 2007 and LTNZ had no record of the owner. As I have noted, between 2005 and 2015, Mr Kraues made short visits to New Zealand in 2010, 2013, 2014 and 2015. In these circumstances, and in the absence of any other evidence connecting Mr Kraues to the car, it is most unlikely the presence of the car at the property is evidence of his occupation of the house. The Commissioner has conceded Mr James received the sum of $15,000 in exchange for the car, but that is a distinct matter.
[89] I find that the equipment used in the manufacture of methamphetamine found at Mr James’ house and in the two storage units did not belong to Mr Kraues. The only person it could have belonged to was Mr James.
Mr James’ financial position
[90] This brings me to Mr James’ financial position. He has not filed a tax return with the Inland Revenue Department since 2001. He has no recorded source of legitimate income. He had in his possession $400,000 in cash. Large cash deposits were made to his bank accounts and applied to repayment of the loan secured by the mortgage on Sunset Road. An extensive renovation was started on the house and labour and materials were paid for in cash. Over a period of about 14 years, Mr James’ accounts record few payments to meet his everyday expenditure.
[91] Mr James’ evidence was that he earned income from importing building supplies and car parts from China and from rent paid by tenants at Sunset Road. He also received gifts by way of money transfers from his grandmother (which have been accepted by the Commissioner). Mr James says all of this income and the gifts were the amounts deposited into his bank account to pay the debt owing on the property. His everyday outgoings were negligible. He did not have to pay for petrol because his back problems confined him to his home. He was taken on a trip out of Auckland in another person’s car. Where possible he lived at his father’s home in West Harbour, apparently at no cost. He spent little on food, buying basics only, and does not drink alcohol.
[92] He says he was also supported by his former partner, though he could not recall with precision the dates she provided him with financial assistance for this type of expenditure and she was not called to give evidence. Mr James and his former partner lived at Sunset Road rather than at his father’s home at West Harbour when they were together so their living costs, though shared, were higher.
[93] The Commissioner’s witness carefully analysed Mr James’ accounts and found little expenditure to meet daily living costs. Mr James rejected Mr Harborow’s proposition that the reason for little expenditure of this type in his accounts was
because he had access to cash earned from manufacturing and supplying methamphetamine.
[94] Which brings me to the loan repayments and renovation costs on Sunset Road. The BJ Trust was settled in June 2000 by Mr James. It acquired Sunset Road in June 2003 and the transaction was settled in September 2003. The purchase price paid was
$233,000. At the time, Mr James says, his personal situation was quite unsettled. His marriage had recently ended and he had suffered serious injury in an accident. Initially, when he was not receiving any income, his parents helped him with mortgage payments.
[95] In 2004, Mr James refinanced the mortgage with the ASB Bank. The total value of the loan was $251,200. Part was variable and that increased from an initial loan of just under $5,000 to just under $57,000, which exceeded the total value of loan and took the maximum amount borrowed to just over $258,000. Repayment on part of the loan was interest only so the balance owed did not reduce over time. In 2007, the mortgage with the bank was restructured and replaced with a single loan of
$274,000.
[96] Mr James’ evidence was that he was living on the money he borrowed from the bank. He disagreed with Mr Harborow’s suggestion that the restructuring of the loan released only an additional $16,000 in equity and Mr James insisted he received a lump sum of $50,000. However, this appears to confuse part of the loan it replaced and is not consistent with the mortgage documentation.
[97] Moreover, the Commissioner’s witness found limited cash withdrawals from his bank accounts. Mr James could not have used equity from his home because limited funds left the account. He also accepted that gifts from his grandmother were not all withdrawn in cash. The total amount withdrawn from the accounts between 8 September 2009 and 5 October 2018 was $10,512.07.
[98] Indeed, the accounts show the loan was serviced by way of cash deposits going in rather than money coming out. The Commissioner’s witness found loan repayments totalling $220,807 paid between 30 March 2006 and October 2018. Mr James
accepted this evidence. Mr James rejected the suggestion the source of the cash was from manufacturing and supplying methamphetamine. But these deposits cannot be explained by the gifts from Mr James’ grandmother or equity in the property released as a result of refinancing.
[99] Mr James also largely paid for the renovations to the house to Sunset Road using cash. Builders started working on the house in December 2013 and continued until Mr James was arrested in August 2015. Between 2013 and 2014, he paid a total of $117,837.34 on the renovations. Of this, $114,563.57 was paid in cash.
[100] I do not accept Mr James’ explanations, referred to above, as to the source of the cash deposited in his bank accounts, used for renovations and for his living expenses. I find he did not have income from an importing business that could have accounted for his expenditure over this period, including the payments into his bank account and to builders and suppliers connected with the renovation of Sunset Road. There was no documentary evidence to support Mr James’ assertion that he traded in this way. I am left only with his word and I have already made an adverse credibility finding against Mr James. The evidence that he received financial support from his partner and that his living expenses were low was vague at best. Banking records establish that limited equity was released to him by the bank at the time he refinanced Sunset Road. Little cash was withdrawn from his accounts over this time.
[101] Mr James identifies two further sources of money to explain his financial position. They are rent allegedly received from a tenant and what he describes as an inheritance from his father. I address each of these below.
Rent from tenants
[102] Another source of income Mr James says he received was rent paid by a tenant. That tenant is said to be Leighton Smith. Evidence from Mr Smith was not given at the hearing. A statement from Mr Smith, dated 11 July 2019, was attached to an affidavit from a private investigator. That evidence is therefore hearsay. However, Mr Harborow did not challenge its admissibility and his submissions focused on weight. I will therefore consider the content of the statement. Mr James said in
evidence that Mr Smith’s statement contained incorrect dates and an affidavit to correct those details had been prepared but was not filed.
[103] In the statement, Mr Smith says his address is Sunset Road and that he lived at the address between late 2011 and early November 2016 with another person. Mr Smith left the address in 2016 when renovations commenced. After that time he lived in Hamilton before moving back to Sunset Road in June 2019. I infer from Mr Smith’s statement that Mr James was not living at the address during the first period as Mr Smith says Mr James visited the address at least once a week and received rental payments in cash of between $400 and $450 from Mr Smith. Mr Smith’s evidence was that, in the second period, he paid rent of $400 per week into Mr James’ bank account. A second person was living at the house in the second period but Mr Smith did not know how much she was paying in rent.
[104] Mr James accepted Mr Smith was a good friend whom he had known for many years. Mr Smith had worked for Mr James as a teenager in a car audio business. Mr James also accepted that there was no documentation connected with Mr Smith’s tenancy of the house: there was no tenancy agreement or bond lodged with the Tenancy Service. Nor did Mr James declare any rental payments he received from Mr Smith as income. Mr James further explained that Mr Smith did not live at Sunset Road from 2011 to 2016 but from 2011 to 2014.
[105] Reply evidence for the Commissioner established Mr Smith did not give the address to government agencies, including the Ministry of Social Development and the Inland Revenue Department, or to his bank. Mr James accepted this but insisted that one of the addresses was that of Mr Smith’s sister where his mail was sent while he was travelling. Another he speculated was an address connected with Mr Smith’s girlfriend. Bank statements were never sent to Sunset Road but to several other addresses. Mr James said these bank statements would go to addresses associated with Mr Smith’s sister.
[106] The Commissioner also adduced evidence as to Mr Smith’s income during the period in question. In the first period, from 2011 to 2014, Mr Smith did have sufficient declared income to sustain the rental payments alleged by Mr James in the first one to
two years. His declared income in 2011 was $51,220 and in 2012 was $34,565. He certainly could afford the rental alleged in the first year and, with care, possibly in the second. However, his declared income in 2013 was $13,177.12 and in 2014 was
$13,330. He could not afford the rental alleged in the second half of the first period. Even if he had a sufficient income in the first two years of the first period, the evidence of cash withdrawn from Mr Smith's accounts between 2011 and 2014 do not indicate regular withdrawals of sums which would permit the weekly payment of the rental alleged. There were no cash withdrawals in 2011. There were cash withdrawals between January 2012 and April 2013 but the pattern of those withdrawals is not one which would give Mr Smith sufficient cash to make a weekly payment to Mr James of the rental alleged. They are not consistent in amount or timing and only occurred in two years of the alleged tenancy during the first period. And in any event the total cash withdrawn in 2012 and 2013 was only $9,750.00
[107] Mr James’ response to Mr Harborow’s questions on this point was that Mr Smith was working as a DJ during this time. Mr James described Mr Smith as “one of the most sought after DJs on the circuit” (though Mr Smith did not mention this source of income in his statement). Moreover, Mr James said Mr Smith’s girlfriend was living at the house periodically (though Mr Smith did not mention her staying there in his statement). Mr James did not think Mr Smith would have been unable to pay in cash.
[108] Mr James’ evidence was that Mr Smith was living at the house at the time of the hearing, though Mr James acknowledged Mr Smith was living with his sister from time to time so Mr James had seen little of him. More importantly, in this second period of occupation, Mr Smith paid rent electronically into Mr James’ bank account rather than by cash. Mr Harborow suggested this was because Mr Smith had not lived at the house in the first period. Mr James rejected this proposition, insisting he always took payment of rent in cash because of his experience of the unreliability of those who paid electronically (though, as noted, Mr Smith paid electronically during the second period).
[109] The evidence in support of the propositions that Mr Smith did live at Sunset Road and paid Mr James rent in cash during the first period is only that recorded in
Mr Smith’s statement and from Mr James. However, all the contemporary records point the other way. Mr Smith gave multiple alternative addresses to government agencies and his bank despite allegedly living at Sunset Road for an extended period. Mr James’ explanation that these addresses were associated with Mr Smith’s sister and were more secure for sending mail is not credible for two reasons. First, the addresses apparently changed over time while Mr Smith was said to be permanently resident at Sunset Road. Mr Smith’s address would therefore appear to be more stable than his sister’s address. Also, I note that it is usual for such organisations to allow clients to offer different postal and residential addresses. The Commissioner’s evidence does not suggest this occurred. Second, Mr Smith did not mention in his statement that he was travelling frequently as Mr James suggests. There is no other evidence to support Mr James’ assertion on this point.
[110] Moreover, Mr Smith specifies in his statement the amount of rent he paid but it is clear his income could not sustain that level of expenditure over the entirety of the rental period. Nor did he withdraw sufficient cash from his account. Mr James says Mr Smith earned cash income from his work as a DJ but Mr Smith does not mention this point in his statement. Finally, Mr James’ evidence is that he preferred payment in cash rather than electronically but was prepared to accept electronic payments from Mr Smith during the second period of occupation of the house at a time when Mr James was apparently living there and could receive cash payments. Mr James’ evidence on this point is contradictory and does not support his assertion that he insisted on payment of the rent in cash.
[111] For all the above reasons, I find that Mr Smith did not live at Sunset Road nor did he pay Mr James rental of $400 to $450 per week in cash.
Inheritance from father
[112] Mr James’ evidence was that $70,000 was paid to him by his father in cash as an inheritance. The terms of the inheritance were recorded in a note, written by his father’s wife, dated 29 March 2012. Mr James denied the letter was written later and backdated to support his claim of an inheritance. The first payment of $20,000, in cash, was said by Mr James to have been received by him at the end of March or the
start of April 2012. However, the Commissioner’s witness could not identify any cash withdrawals of this amount from any bank accounts connected with Mr James’ father. Indeed, between January 2012 and October 2018, the total amount withdrawn from those accounts was only $4,560.
[113] Mr James agreed the money did not come from his father’s accounts. He referred instead to two boats owned by his father. Mr James says his father was no longer permitted to operate them and was required to sell them, though Mr James did not appear to know much about any sales other than that one was paid for by the purchaser in instalments. He apparently continued to receive the balance of the promised inheritance from instalments paid by the purchaser of the boat after his father sold his houses and moved to Australia. The possibility the sale of the boat as the source of his alleged inheritance was not mentioned in Mr James’ affidavit.
[114] In response to further questions, Mr James also mentioned off-shore accounts held by his father and his father’s business activities. However, he could not identify the name of the business and insisted, despite the scale of the business activities he mentioned, that his father conducted his business affairs using cash rather than through banks.
[115] The letter is documentary evidence which records the gift to Mr James but it appears unlikely it is authentic. I reach this conclusion for two reasons. One is that it is not possible to identify where Mr James’ father would have obtained such a large sum of cash to give to his son. The second follows and arises from Mr James’ effort, under cross-examination, to identify a source for the alleged cash. His account, involving the sale of one or two boats, is not credible. As it developed under cross- examination, his evidence about his father’s business activities was far from compelling and he was unable to supply basic information. None of these arrangements was mentioned by Mr James in his affidavit.
[116]I am therefore satisfied that Mr James did not receive a cash inheritance of
$70,000 from his father.
[117] Overall, I do not accept any of Mr James’ explanations for the source of the substantial cash funds deposited in his bank account and used to reduce debt owing on Sunset Road or applied to the renovation of the house.
Finding on significant criminal activity
[118] There is the following circumstantial evidence which supports the Commissioner’s case that Mr James was involved in the significant criminal activity of manufacturing and supplying methamphetamine:
(a)Mr James was convicted of possessing equipment, materials and precursor substances, the latter with the intention to manufacture methamphetamine;
(b)Documentation relating to the manufacture of methamphetamine was found at Sunset Road, Mr James’ house;
(c)Forensic evidence established that:
(i)all of the equipment required for the manufacture of methamphetamine was present and some of that equipment, found in one of the storage units, had been used in the manufacture of methamphetamine;
(ii)the distillation apparatus found in the other storage unit had been used in the extraction of the class B controlled drug pseudoephedrine, a common precursor substance used in the manufacture of methamphetamine;
(iii)all of the equipment required to manufacture methamphetamine was found at Sunset Road and the steam distiller, Parr bomb and two pH meters had been used in the process of manufacturing methamphetamine (Mr James’ fingerprints were on the steam distiller found at Sunset Road);
(iv)manufacture of methamphetamine had taken place at Sunset Road;
(d)Cash in the sum of $400,000 was found at one of the storage units, for which Mr James has provided no credible explanation (I have rejected the evidence of Mr James and Mr Chee that the cash belonged to Mr Chee);
(e)Three military style semi-automatic weapons were found at Sunset Road (Mr James held a firearms licence at the time but it did not extend to possession of these types of firearms); and
(f)Mr James’ financial position:
(i)No declared legitimate income since April 2001;
(ii)Large cash deposits totalling $224,107 to Mr James’ bank accounts;
(iii)Renovation work on Sunset Road paid for in cash totalling
$114,563.57;
(iv)Absence of everyday expenditure.
[119] I have found Mr James’ various explanations to be untrue. In relation to the cash, in the absence of a credible explanation, and recognising that the manufacture and distribution of methamphetamine generates large amounts of which cannot be easily used for lawful purposes, I can only conclude that the cash was earned by Mr James through the manufacture and distribution of methamphetamine.19 That is supported by all of the other circumstantial evidence referred to in [118] above. The Commissioner’s circumstantial case is strong. I am satisfied on the balance of
19 See Commissioner of Police v de Wys, above n 10, at [71] for a discussion on the importance of unidentified income as a strand of circumstantial evidence saying “If the cash sums cannot be adequately explained then this will tend to support an inference that the relevant cash has been sourced from illegitimate or criminal activity”.
probabilities that Mr James engaged in the manufacture and supply of methamphetamine, a significant criminal activity, in addition to the drugs offences for which he was convicted.
Asset forfeiture
Tainted property
[120] Under s 50(1), the Court must make an assets forfeiture order in respect of specific property if satisfied on the balance of probabilities that specific property is tainted property. Tainted property means any property that has, wholly or in part, being acquired as a result of significant criminal activity; or directly or indirectly derived from significant criminal activity.20
[121]There are two items of property to consider.
$400,000 cash
[122] The cash was found with equipment and materials used to manufacture methamphetamine and which testing shows was used to produce methamphetamine. Large sums of cash are the (unfortunate) result of the manufacture of methamphetamine. Mr James’ explanation for the cash is that it belonged to Mr Chee. I have rejected their evidence. In the absence of any alternative credible explanation, and given my finding that Mr James engaged in the manufacture and supply of methamphetamine, I consider the only available inference is that the cash was acquired as a result of significant criminal activity or derived directly or indirectly from significant criminal activity. I find the Commissioner has proved, on the balance of probabilities, that the cash is tainted property.
158B Sunset Road
[123] Mr Harborow relied on three types of payments by Mr James in support of the Commissioner’s submission that Sunset Road was tainted property. First, there were the payments between September 2003 and November 2004 totalling $20,827.80 to
20 Section 5(1), Criminal Proceeds (Recovery) Act 2009.
the then mortgagee following the purchase of the property. Mr Harborow acknowledged little is known about these and, due to the passage of time, there is little evidence about the context in which they were made. However, Mr James had no legitimate declared income at this time.
[124] Second, after transferring his lending to a new bank, there were loan repayments of $220,807 funded using substantial cash deposits to Mr James’ bank accounts. I have already discussed these payments in some detail above.
[125] Third, there is the renovation work on Sunset Road paid for by Mr James largely in cash. The total amount paid in cash was $114,563.57.
[126] I consider that Mr James may have used the proceeds of significant criminal activity to make the loan repayments of $20,827.80 between September 2003 and November 2004. However, given the relatively limited evidence available, I cannot make that finding on the balance of probabilities.
[127] I make a different finding on the later loan repayments totalling $220,807 and cash payments for renovations totalling $114,563.57. Both those sums were earned from significant criminal activity. Using the first amount Mr James increased his equity in Sunset Road and using the second amount enhanced the value of the property through renovations. I am satisfied on the balance of probabilities that Sunset Road has in part been acquired as a result of significant criminal activity or derived directly or indirectly from significant criminal activity. It is tainted property in consequence.21
[128] Having found that the property is tainted, it is mandatory for the Court to make an assets forfeiture order in respect of both Sunset Road and the cash.
21 It is well-established that funding a mortgage (principal or interest) using the proceeds of significant criminal activity will taint real estate. See Doorman v Commissioner of Police, above n 6, at [32]-[36]; Duncan v Commissioner of Police [2013] NZCA 477, (2013) 26 CRNZ 796 at [18]-[27]; Commissioner of Police v Winsor [2014] NZHC 161 at [33]. The total value of both the mortgage repayments and payments made to renovate the house is $356,198.37. The value of the property, as at July 2019, was approximately $600,000. The outstanding loan secured to the bank is $212,688. Mr James’ equity in the property is therefore approximately $387,311.
Profit forfeiture order
[129] As the total value of the property subject to the assets forfeiture order exceeds the amount claimed under the profit forfeiture order, and as the property subject to the assets forfeiture order is the only identifiable property that could satisfy a profit forfeiture order, the Court does not need to make a profit forfeiture order.22 But, for completeness, I go on to briefly consider whether, had I not made an assets forfeiture order, I would have made a profit forfeiture order.
[130] Under s 55 of the Act, the 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 in the relevant period of criminal activity; and
(b)the respondent has interests in property.
Unlawful benefit from significant criminal activity
[131] In this case, the relevant period of criminal activity is from 8 September 2009 to 5 October 2018.23
[132] The following is largely a restatement in summary form of parts of the evidential matters I have discussed when considering the application for an assets forfeiture order.
[133] Mr James did not declare any income to the Inland Revenue Department between 2009 and 2019. Neither did the family trust he settled. The evidence, particularly his bank accounts, discloses no other legitimate form of income during that period. However, substantial cash deposits were paid into his bank account and used largely to pay down his mortgage debt; he paid significant sums for the renovation of his house in cash; and he had a large amount of cash in a storage unit. I
22 Section 54(1)(b), Criminal Proceeds (Recovery) Act 2009.
23 Determined in accordance with the definition of “relevant period of criminal activity” in s 5(1), Criminal Proceedings (Recovery) Act 2009.
have found Mr James has not provided a credible explanation for the source of these funds.
[134] He was also found in possession of equipment and chemicals for manufacturing methamphetamine. Forensic evidence established some of the equipment was used to produce methamphetamine and that his home at Sunset Road was a site where methamphetamine was manufactured.
[135] Given these circumstances, I am satisfied on the balance of probabilities that Mr James has unlawfully benefited from significant criminal activity.
Mr James’ interest
[136] The registered proprietors of Sunset Road are the trustees of the BJ Trust (the trust). They are presently Mr James and GDP Trustee Ltd (GDP). GDP is a bare trustee company associated with an Auckland law firm.24 Where the property concerned is held on trust, the Court will look at the wording of the trust deed and the influence of the respondent in operating the trust.25
[137] Despite Sunset Road being formally vested in the BJ Trust, I accept that, in reality, Mr James owns the property. Mr James has unfettered control of the BJ Trust and, by extension, Sunset Road. Under the trust deed, Mr James is the settlor, a trustee and a discretionary beneficiary; has the power to appoint and remove trustees; and has the power to appoint and remove beneficiaries. He also has the power to determine a deadlock between trustees regarding matters affecting the trust fund or exercise of trustee powers and as a trustee, has the power to alter, vary or revoke any provision of the trust deed.
[138] Mr James lived at Sunset Road for a number of years. He serviced the mortgage and paid any related fees and rates. He organised and paid for the renovation work.
24 As an interested party in this proceeding GDP is entitled to be heard. By memorandum filed prior to the hearing GDP noted it was conscious of its obligation to beneficiaries, in particular in relation to the preservation of the trust fund, insofar as that is possible in the present circumstances. But GDP did not seek to be heard at the hearing.
25 Commissioner of Police v Ranga [2013] NZHC 745.
[139] In 2007, GDP Trustee prepared documents which would remove it as a trustee. No response was received from Mr James. In 2013, GDP Trustee again unsuccessfully attempted to engage Mr James regarding trust matters. GDP Trustee’s remaining interest in the BJ Trust is limited to its outstanding professional fees.
[140] I am satisfied, on the balance of probabilities, that, on the above evidence, Mr James has effective control over Sunset Road. He has the capacity to control, use, dispose of or otherwise treat the property as his own. Accordingly, for the purposes of s 58, Mr James has an interest in that property. Indeed, I find, on the balance of probabilities, that, in reality, Mr James is the owner of Sunset Road. He therefore has interests in that property for the purposes of s 55.
[141] I have already found on the balance of probabilities that the cash belonged to Mr James (at [79]). (It is not necessary to make an effective control order under s 58 in relation to the cash in consequence.) He therefore has interests in that money for the purposes of s 55.
Value of benefit
[142] The Commissioner has the benefit of a presumption that the value of the unlawful benefit is the figure stated in the amended application.26 In this case, the Commissioner has calculated a benefit figure of $776,948.09. It is for the respondent to rebut the statutory presumption on the balance of probabilities.27 Mr James does not offer an alternative unlawful benefit figure to rebut that specified by the Commissioner (as noted he simply denies any unlawful benefit or significant criminal activity).
[143] The Commissioner’s unlawful benefit figure is based on evidence that Mr James benefited to the value of:
(a)cash deposits into his bank accounts: $171,207;
(b)various unexplained deposits into his bank accounts: $6,469.41;
26 Section 53, Criminal Proceeds (Recovery) Act 2009.
27 Section 53(2), Criminal Proceeds (Recovery) Act 2009.
(c)the shortfall in Mr James’ household expenditure within the banking system: $84,708.31;
(d)building costs: $114,563.37; and
(e) the Cash: $400,000.
[144] I have rejected Mr James’ explanations for the source of what the Commissioner describes as unexplained income. There is thus no cogent evidence to rebut the presumptively correct unlawful benefit of $776,948.09.
Maximum recoverable amount determined in accordance with s 54
[145] The maximum recoverable amount is calculated by deducting from the value of the benefit determined under s 53 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.
[146] In this case, the value of the assets subject to the assets forfeiture order I will make exceeds the value of the benefit calculated under s 53. I would not therefore make a profit forfeiture order.
[147] Were I not to make an assets forfeiture order, I would have made a profit forfeiture order specifying $776,948.09 as the value of the benefit determined in accordance with s 53 (s 55(2)(a)); that same sum as the maximum recoverable amount determined in accordance with s 54 (s 55(2)(b)); and, Sunset Road and the cash as the property to be disposed of (s 55(2)(c)).
Orders
[148]I make an assets forfeiture order under s 50.
[149] The following property vests in the Crown absolutely and is in the custody and control of the Official Assignee:
(a)all interests in the property located at 158B Sunset Road, Unsworth Heights, Auckland, record of title unique identifier NA94B/55, the registered proprietors being Mr James and GDP Trustee Ltd, excluding the interest of ASB Bank Ltd as mortgagee (including the proceeds of its sale); and
(b)$400,000 cash seized by Police from storage unit 226, Kiwi Self Storage, 12 Holder Place, Rosedale, Auckland on 27 August 2015.
Costs
[150] The Commissioner seeks costs and asks for the opportunity to place relevant correspondence before the Court before any costs determination is made.
[151]I make the following timetable directions:
(a)In the event that the parties are able to agree costs, a joint memorandum may be filed and served within 20 working days of the date of this judgment;
(b)If costs cannot be agreed, the Commissioner is to file and serve his memorandum within five working days of the date for the joint memorandum;
(c)Mr James may file and serve his memorandum in response within a further five working days; and
(d)In the event the Commissioner seeks costs against Mr Chee, he may file and serve a memorandum in response within five working days after service of the Commissioner’s memorandum.
[152] Memoranda should not exceed five pages, excluding attachments. I will determine costs on the papers.
Gordon J
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