Commissioner of Police v Jiang
[2016] NZHC 2782
•21 November 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-298 [2016] NZHC 2782
IN THE MATTER of an application pursuant to ss 22, 24 and
25 of the Criminal Proceeds (Recovery) Act 2009
BETWEEN
COMMISSIONER OF NEW ZEALAND POLICE
Applicant
AND
FAN JIANG Respondent
AND
ANZ BANK NEW ZEALAND LIMITED Interested Party
Hearing: 25 October 2016 Appearances:
M Starling for Applicant
H McKenzie for RespondentJudgment:
21 November 2016
JUDGMENT OF MANDER J
Background
[1] Ms Jiang applies for an order striking out proceedings brought by the Commissioner of the New Zealand Police (the Commissioner) for restraining orders over her property under the Criminal Proceeds (Recovery) Act 2009 (the CPRA).
[2] Ms Jiang’s significant criminal activity, the basis for the restraining orders sought, is as follows. On 11 December 2015, Ms Jiang was convicted of offences against the Resource Management Act 1991 (the RMA), namely, breach of
restrictions on land use and contravention of an abatement notice.1 These offences
1 Christchurch City Council v Jiang DC Christchurch CRI-2014-009-005546, 11 December 2015.
The offences were brought under s 338(1)(a) and (c) of the Resource Management Act 1991. On
COMMISSIONER OF NEW ZEALAND POLICE v FAN JIANG [2016] NZHC 2782 [21 November 2016]
are both related to her operation, or permitted operation, of a brothel at 10A England
Street, Christchurch.
[3] Ms Jiang is also being investigated under the Tax Administration Act 1994 (the TAA), relating to undeclared cash and/or rental income. She has not been charged with any offences under the TAA.
[4] A suspicious transaction report forms part of the investigation, this report being subject to strict non-disclosure rules under ss 46 and 47 of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.
The applications for restraining orders
[5] On 29 April 2016, the Commissioner made a without notice application for a restraining order that specified property not be disposed of, or dealt with other than as provided for in the restraining order, and that such property be in the Official Assignee’s custody and control.2
[6] This property consists of:
(a) $71,610.40 cash seized on 4 April 2014 from 10A England Street, Christchurch, pursuant to the Search and Surveillance Act 2012 (these funds being held in the New Zealand Police Trust Account);
(b)the residential property situated at 3 Regalwood Close, Christchurch (CB27B/403 Lot 41 Deposited Plan 48016), other than any interests of ANZ National Bank Limited under registered mortgage 8027494.3;
(c) the residential property at 8/126 Nursery Road, Christchurch (568719, Principal Unit 8 and Accessory Unit 19, 19A Deposited Plan 449066), other than any interests of ANZ National Bank Limited under
registered mortgage 9138091.3;
29 January 2016, in relation to those two offences, Ms Jiang was fined $10,000 and ordered to
pay solicitor’s fees of $2,542.
2 Criminal Proceeds (Recovery) Act 2009, ss 22, 24 and 25.
(d)the residential property at 114A Nursery Road, Christchurch (585442, Lot 1 Deposited Plan 455243), other than any interests of ANZ National Bank Limited under registered mortgage 9185052.3;
(e) the residential property at 114B Nursery Road, Christchurch (585443, Lot 2 Deposited Plan 455243), other than any interests of ANZ National Bank Limited under registered mortgage 9185052.4; and
(f) the residential property at 10A England Street, Christchurch (615339, Lot 2 Deposited Plan 463548), other than any interests of ANZ National Bank Limited under registered mortgage 9408954.3.
[7] An application on notice was filed on the same date.3
[8] Supported by the affidavits of Detective Howe and Ms van der Pol, a financial analyst, these applications were made on the basis there were reasonable grounds to believe:
(a) the property is “tainted”; and
(b)Ms Jiang has unlawfully benefited from significant criminal activity, namely offences under the RMA from which she acquired or derived, directly or indirectly, property, proceeds, or benefits of a value of
$30,000 or more and/or tax evasion in contravention of the TAA
which has a maximum penalty of five years’ imprisonment.
[9] In support of the application being without notice, it was submitted there was a risk of the proposed restrained property being destroyed, disposed of, altered, or concealed if notice were given to Ms Jiang. The Commissioner submitted that this risk was due, among other factors, to the ability to erode equity in property by drawing down personal or bank loans. Although the $71,610.40 cash is currently in the Police Trust Account and cannot be disposed of, the Commissioner submitted
that a without notice restraining order was necessary to protect those funds pending determination of the on notice application.
Determination of the without notice application
[10] Following a teleconference with counsel for the Commissioner, Davidson J made the without notice orders sought on 2 May 2016.4 His Honour observed that these orders were not determinative of forfeiture, but allowed preservation of the property pending disposition of the on notice application.
The on notice application
[11] The on notice application was due to be called on 13 June 2016, but on 9
June 2016 counsel filed a joint consent memorandum requesting a half-day hearing on a preliminary legal issue. Ms Jiang queried the basis of the application and whether the court could consider an application brought on the grounds set out.
Restraining order as interim relief: the legal framework
Section 24: restraining orders in relation to tainted property
[12] Section 24 concerns “tainted property” and does not require either that the respondent has an interest in the property restrained or has benefited from significant criminal activity. It states:
24 Making restraining order relating to specific property
(1) A court hearing an application for a restraining order relating to specific property may, if the court is satisfied it has reasonable grounds to believe that any property is tainted property, make an order that the property (restrained property)—
(a) is not to be disposed of, or dealt with, other than is provided for in the restraining order; and
(b) is to be under the Official Assignee’s custody and control.
4 The Commissioner of the New Zealand Police v Jiang HC Christchurch CIV-2016-409-298, 2
May 2016.
(2) A restraining order may be made under subsection (1) whether or not there is a respondent in relation to whom the restraining order relates.
[13] “Tainted property” is defined as follows:5
Tainted property–
(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
Section 25: restraining orders in relation to all or part of a respondent’s property
[14] Section 25 of the CPRA empowers the court to make a restraining order relating to all or part of a respondent’s property if satisfied it has reasonable grounds to believe that the respondent has unlawfully benefited from significant criminal activity. It provides:
25 Making restraining order relating to all or part of respondent’s
property
(1) A court hearing an application for a restraining order relating to all or part of a respondent’s property may, if the court is satisfied it has reasonable grounds to believe that the respondent has unlawfully benefited from significant criminal activity, make an order that the property it specifies in the order (restrained property)—
(a) is not to be disposed of, or dealt with, other than is provided for in the restraining order; and
(b) is to be under the Official Assignee’s custody and control.
(2) A restraining order made under subsection (1) may relate to any of the following:
(a) all of a respondent’s property (including property acquired
after the making of the order):
(b) specified parts of a respondent’s property:
(c) all of a respondent’s property (including property acquired after the making of the order) other than specifically excluded property.
[15] Section 7 defines “unlawfully benefited from significant criminal activity”
for the purposes of the CPRA as follows:
In this Act, unless the context otherwise requires, a person has unlawfully benefited from significant criminal activity if the person has knowingly, directly or indirectly, derived a benefit from significant criminal activity (whether or not that person undertook or was involved in the significant criminal activity).
[16] In addition to the express wording of s 25(1), the court must also have reasonable grounds to believe that the respondent has an interest in, or effective control over, property identified in the application.
The nature of restraining orders
[17] Restraining orders are temporary measures. They are “interim orders of limited duration”, intended “to preserve property while the Crown is gathering evidence to support an application for forfeiture”.6 They may lead to forfeiture orders, but only on the completion of further processes.7 Often sought in situations of urgency, such protective property orders require “reasonable grounds to believe,
rather than proof, that the target has unlawfully benefited from significant criminal
activity”.8
[18] As the Commissioner clarified in submissions, an important dynamic of the temporary nature of restraining orders is that the court is not making final determinations. The court is not required to make a finding that the relevant property is tainted property (s 24) or that the respondent did in fact unlawfully benefit from significant criminal activity (s 25). It must simply be satisfied that there are
“reasonable grounds to believe” either basis is made out.9
6 Vincent v Commissioner of Police [2013] NZCA 412 at [45], referring to the Criminal Proceeds (Recovery) Act 2009, ss 37–42; and Criminal Proceeds (Recovery) Bill 2007 (81-1) (explanatory note) at 2.
7 At [45]-[47].
8 At [47].
9 Criminal Proceeds (Recovery) Act 2009, ss 24 and 25. The ultimate determinations are made under ss 50 (making assets forfeiture order) and 55 (making profit forfeiture order).
[19] Unlike their forfeiture counterparts, restraining orders are discretionary where the statutory threshold is met. Given the breadth of these protective orders, a greater amount of property may be restrained than is ultimately forfeited.10 In Commissioner of Police v Doorman, Miller J noted that an entire house may be tainted even though it was only partially acquired from significant criminal activity.11 Property may be forfeited on different grounds to those on which the restraining order was made.12
[20] The significant criminal activity on which a civil forfeiture order is based does not need to be, or to have been, the subject of any criminal proceedings in New Zealand or a foreign country.13
Strike-out application
[21] On 7 October 2016, Ms Jiang applied for an order striking out the
Commissioner’s on notice application on the grounds that the pleading:
(a) discloses no reasonably arguable cause of action, or case appropriate to the nature of the pleading; and
(b) is otherwise an abuse of the process of the court.
[22] Ms Jiang contended that the proceeding did not disclose an arguable cause of action because the Commissioner sought to rely on evidence of unverified deposits alone as evidence of significant criminal activity. She submitted the supporting affidavits did not quantify the amount of property, proceeds, or benefits that she allegedly acquired or derived, directly or indirectly, from operating an illegal brothel as opposed to the alleged tax evasion. The allegation of an abuse of process rested
on an argument that the Commissioner had brought the proceeding for an improper
10 Commissioner of Police v Singh [2012] NZHC 344 at [46].
11 Commissioner of Police v Doorman HC Nelson CIV-2010-442-169, 15 December 2011; upheld in Doorman v Commissioner of New Zealand Police [2013] NZCA 476, [2014] 2 NZLR 173 at [36].
12 Criminal Proceeds (Recovery) Act 2009, s 14.
13 Section 15.
purpose, to force Ms Jiang to make full disclosure without ascertaining whether the unexplained income is linked to significant criminal activity.
[23] Both parties filed written submissions addressing the grounds articulated in Ms Jiang’s application. The Commissioner opposed the strike-out application. He rejected Ms Jiang’s submissions as being misconceived and sought costs on the application.
Principles of strike-out
[24] Rule 15.1 of the High Court Rules makes provision for orders striking out all or part of a pleading. It provides:
15.1 Dismissing or staying all or part of proceeding
(1) The court may strike out all or part of a pleading if it—
(a) discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b) is likely to cause prejudice or delay; or
(c) is frivolous or vexatious; or
(d) is otherwise an abuse of the process of the court.
[25] The general principles governing strike out applications are not in dispute. They are as stated by the Court of Appeal in Attorney-General v Prince14 and approved by the Supreme Court in Couch v Attorney-General:15
(a) Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.
(b)The jurisdiction to strike out is to be exercised sparingly and only in clear cases. This reflects the Court’s reluctance to terminate a claim or defence short of the trial.
(c) The cause of action or defence must be clearly untenable, and it may be appropriate to give the opportunity to amend where a claim can be saved.
(d)The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.
(e) The Court should be particularly slow to strike out a claim in any developing area of the law, perhaps particularly where a duty of care is alleged in new situations. In Couch v Attorney-General Elias CJ put the matter as follows:16
It is often not easy to decide whether a duty of care not previously recognised by authority is owed to the plaintiff, as Woodhouse J in Takaro acknowledged and as is amply demonstrated on the authorities. It may be unrealistic to expect that the pleadings and arguments to support a claim will always be adequate at an early stage of the proceedings. Caution in disposing of such cases on a summary basis is necessary both to prevent injustice to claimants and to avoid skewing the law with confident propositions of legal principle or assumptions about policy considerations, undisciplined by facts.
Nevertheless, as observed by William Young J in Attorney-General v
Body Corporate 200200:17
On the one hand, the Court should not lightly deny the plaintiffs the opportunity to proceed to trial on novel issues of law. Moreover, a trial will present a more favourable forum to assess the issues involved in establishing a duty of care. On the other hand, however, defendants ought not to be subjected to the substantial costs, much of which is usually unrecoverable, in defending untenable claims.
Otherwise an abuse of process
[26] Regarding abuse of process, this criterion extends beyond the other grounds
and captures all other instances of misuse of the court’s processes, such as a
proceeding that has been brought with an improper motive or is an attempt to obtain a collateral advantage beyond that legitimately gained from a court proceeding.18
[27] In Moevao v Department of Labour, Richardson P held:19
The concern is with conduct on the part of a litigant in relation to the case which unchecked would strike at the public confidence in the Courts processes and so diminish the Court’s ability to fulfil its function as a Court of law.
[28] Stay on the grounds of abuse of process has been considered more frequently in criminal prosecutions, but the policy considerations apply equally to civil cases (although perhaps with different weighting of the considerations).20 In Air National Corporate Ltd v Aiveo Holdings Ltd, Abbott J listed the relevant policy considerations:21
(a) In general, the Courts should exercise their jurisdiction on matters properly brought before them.
(b) It is important to preserve freedom of access to the Courts.
(c) The Courts need to be vigilant that abuse of process claims are not advanced other then in clear and appropriate cases, and are not brought for tactical reasons.
(d) Equally fundamentally, however, the Court should be alert to misuse of its processes, and be prepared to exercise its power to stay where the interests of justice demand it.
[29] Case law identifies the following factors as guiding the court’s approach:22
(a) The improper purpose need not be the sole purpose, as long as it is the predominant purpose.23
18 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013]
2 NZLR 679 at [89].
19 Moevao v Department of Labour [1980] 1 NZLR 464 (CA) at 482.
20 Air National Corporate Ltd v Aiveo Holdings Ltd [2011] NZHC 602 at [31].
21 At [31], adopting those set out in Williams v Spautz [1992] HCA 32, (1992) 174 CLR 509 at 519.
22 Andrew Beck (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at
[HR15.1.05(4)].
23 Goldsmith v Sperrings Ltd [1977] 1 WLR 478 (CA) at 496; Williams v Spautz, above n 21, at
529.
(b)A stay will not be granted to debar a litigant from pursuing a genuine cause of action that is to be pursued in any event because there is an ulterior purpose as a desired by-product.24
(c) The onus is on the party alleging abuse of process to show that the proceeding was brought for an improper purpose. It is “a heavy onus”, and the power to grant a permanent stay is to be exercised only in the most exceptional circumstances.25
(d)It is unnecessary to prove commission of an improper act to justify exercise of the power to stay. However, save in the clearest of cases, it will be necessary to point to some separate manifestation of the defendant’s intent in the form of an overt act such as a demand which
identifies the true collateral purpose.26
The argument
No reasonable cause of action
[30] Ms Jiang contended that because of the Commissioner’s reliance on “evidence of unverified deposits alone as evidence of significant criminal activity”, the proceeding fails to disclose an arguable cause of action or case “appropriate to the nature of the pleading”.
[31] Ms Jiang cited Commissioner of Police v He to support her submission that the court “must be satisfied that the evidence of the applicant for forfeiture orders under the [CPRA] is clear and cogent before it will grant an order”.27 In that case, however, Ellis J was assessing the forensic deficiencies in the Commissioner’s
applications for assets and profit forfeiture orders, not temporary restraining orders.
24 Goldsmith v Sperrings Ltd, above n 23, at 503; Williams v Spautz, above n 21, at 522, followed in Solicitor-General of New Zealand v Siemer HC Wellington CIV-2010-404-8559, 13 May
2011 at [60]–[64] and [70].
25 Williams v Spautz, above n 21, at 529; Goldsmith v Sperrings, above n 23, at 498.
26 Williams v Spautz, above n 21, at 527–529.
27 Commissioner of Police v He [2015] NZHC 777 at [43].
[32] Ms Jiang submitted that the Commissioner bears:28
... the onus of establishing facts which enable the inference to be drawn, as a logical and reasonable conclusion from facts proven to the civil standard, that the deposits are the fruits of criminal activity.
[33] As the Commissioner has focused on unexplained credits to bank accounts, and not provided a full picture of her financial affairs, Ms Jiang submitted the Commissioner has not satisfied this onus.
[34] In response, the Commissioner submitted that his application disclosed an arguable “cause of action and case” appropriate to the nature of the pleading, and that Davidson J’s granting of the without notice order clearly demonstrates that position. Ms Jiang’s focus on the unspecified and untraced nature of the assets sought to be restrained does not derogate from the Commissioner’s application. It is that very nature of the assets which supports them being restrained.
[35] The Commissioner submitted the “cause of action” was extensively detailed in the supporting affidavits and submissions put before Davidson J which resulted in the granting of the without notice restraining order pending full argument of the on notice application. He referred the Court to the substance of those documents, and summarised his previous submissions in support of the making of without notice orders as to why the court can be satisfied that it has reasonable grounds to believe that the property is tainted and/or that Ms Jiang has unlawfully benefited from significant criminal activity.
[36] In summary, the Commissioner submitted that the Court can be satisfied there are reasonable grounds to believe that the property was tainted because:
(a) it has been acquired or derived, directly or indirectly, from significant criminal activity, namely offences against the RMA and the TAA (tax evasion) from which property, proceeds, or benefits of a value of
$30,000 or more have, directly or indirectly, been acquired or derived.
The penalty for tax evasion is five years’ imprisonment;
(b) the $71,610.40 cash has been derived from Ms Jiang’s unlawful
operation of a brothel; and
(c)
Ms Jiang has unlawfully benefited directly or indirectly by not less than $799,200.55, and these funds taint the property sought to be
restrained, either directly or indirectly. [37]
On
the evidence detailed in the affidavits of Detective Howe and
Ms van der Pol, the Commissioner submitted there is a sufficient basis to conclude there are reasonable grounds to believe that Ms Jiang has unlawfully benefited from significant criminal activity and has interests in the property the subject of the application. In particular that:
(a) Ms Jiang has unlawfully benefited directly or indirectly by not less than $799,200.55 through income derived from offending against the RMA: Ms Jiang has been convicted of breaching land use restrictions and contravening an abatement notice. These offences relate to the brothel operated out of 10A England Street, Christchurch;
(b)Ms Jiang may also have engaged in tax evasion in relation to earnings from the brothel and/or to undeclared rental income, contrary to s
143B of the TAA. With a maximum penalty of five years’
imprisonment, this also qualifies as significant criminal activity;29 and
(c) Ms Jiang owns or co-owns the residential addresses, and the cash was seized from a property of which she is the sole owner (10A England Street, Christchurch). Although on other occasions she has sought to distance herself from the cash, Ms Jiang asked for its return.
[38] Davidson J granted the current orders on the basis of being satisfied that these prerequisites had been established. Ms Jiang will have an opportunity on the hearing of the Commissioner’s on notice application for restraining orders to contest the material upon which the current orders are based, but on her strike out application
she may not present contestable material which engages in the merits of the substance of the Commissioner’s application. Ms Jiang’s application for strikeout must be dealt with on the basis of the Commissioner’s pleaded allegations.
Abuse of process
[39] Related to the first ground for strike-out, Ms Jiang further submitted that the Commissioner has failed to investigate the full picture of her financial affairs, and gave a simplified view of her financial situation in order to present a skewed impression of it. Ms Jiang argued that the Commissioner supported his application with evidence dealing mainly with bank account deposits and residential property ownership, but not all of the accounts or properties are owned solely by her. In her submission, the Commissioner has wilfully ignored exculpatory evidence to justify bringing proceedings which would force her to disclose her full affairs in order to defend herself.
[40] Ms Jiang submitted the Commissioner had failed to link any particular benefits with her convictions for breaches of the RMA, and failed to pinpoint which portion of the unverified income is derived from potential offences against the TAA. Mr Starling noted that “[i]t is for the Commissioner to nominate a figure in the application as the value of the benefit presumed”.30 She submitted that although the Commissioner has nominated a total figure as the value of the benefit presumed, he is required to nominate figures of the value of the presumed benefit of each separate type of significant criminal activity that is alleged.
[41] Ms Jiang categorised the proceeding as an abuse of process because she claims the Commissioner brought it dishonestly, “with the improper purpose of gaining information that the [Commissioner] could otherwise have obtained if it existed”. She also submitted the Commissioner knowingly made the application without ascertaining whether the unexplained income was linked to significant criminal activity.
[42] In reply the Commissioner submitted that, despite Davidson J’s specific clarification that the restraining orders were for the limited purpose of preserving the property when making the without notice orders,31 Ms Jiang appears to have conflated the current proceedings (an on notice application for temporary restraining orders) with final forfeiture orders. The Commissioner noted that the cases cited by Ms Jiang concerned applications for forfeiture, not restraining orders, and that the issues for the Court’s determination were quite different.32
[43] The CPRA carefully and deliberately distinguishes between restraint and forfeiture, with each order requiring different legal thresholds and standards of evidence. In explaining this distinction, the Commissioner reiterated his submissions in support of the original application for restraining orders summarised at [36]–[37]. Even if Ms Jiang was permitted for the purpose of a strikeout application to contest the merits of the application, she has not engaged with or contested the material contained in the supporting affidavits to the Commissioner’s application, nor demonstrated why that evidence would be insufficient to support the making of restraining orders upon the hearing of the application by the Court.
[44] The Commissioner submitted that restraint proceedings are a conventional step taken pursuant to the CPRA while further investigations are undertaken. The Commissioner is not expected to have finalised investigations at the preliminary stage of applying for restraining orders,33 which have been described as “interim orders of limited duration”.34 The Commissioner does not need restraint proceedings afoot to exercise his investigative powers and will often exercise those powers to assess whether proceedings are appropriate.35 There is no nexus between the restraint of property and the Commissioner being able to exercise his powers of investigation. However, subject to the statutory criteria being made out, one of the
purposes of restraining orders is to allow investigations to be carried out using those powers without risk that the assets the subject of investigation will be disposed of or
concealed.
31 The Commissioner of the New Zealand Police v Jiang, above n 4, at [8].
32 Commissioner of Police v He, above n 27; Commissioner of Police v Zhu, above n 28.
33 Commissioner of Police v Li [2014] NZHC 479 at [33].
34 Vincent v Commissioner of Police, above n 6, at [45]–[47].
35 Commissioner of Police v He, above n 27, at [37]. Examples of investigative powers include examination and production orders: Criminal Proceeds (Recovery) Act 2009, ss 102–106.
[45] For the avoidance of doubt, the Commissioner recorded that he is not purporting to force Ms Jiang to make full disclosure through bringing the proceeding. The Commissioner simultaneously filed without notice and on notice applications for restraint. The Commissioner submitted that Ms Jiang has not yet disclosed anything to the Commissioner parasitic to these High Court proceedings. Instead, the Commissioner has used standard investigative powers and techniques to gain information that was referred to in the affidavits filed in support of the restraint applications.
Decision
[46] This review of the parties respective arguments demonstrates that Ms Jiang’s challenge falls well short of the threshold for strikeout. Ms Jiang appeared to be labouring under the misapprehension that applications for forfeiture had been filed by the Commissioner rather than an application to restrain property. Her written submissions were focussed more on the sufficiency of meeting the necessary threshold for a successful application for forfeiture, rather than the requirements of ss 24 and 25. Illustrative of that was the submission that the Commissioner had made the application without assessing whether the unexplained assts were linked to significant criminal activity. The statutory criteria for making orders is that the Court is required to be satisfied there are reasonable grounds to believe the respondent has unlawfully benefitted from significant criminal activity or that property is tainted. The Commissioner does not have to positively satisfy the Court that is the case.
[47] In order to succeed on a strikeout application, Ms Jiang would need to show that the Commissioner’s on notice application, which is the only extant proceeding presently before the Court, is clearly untenable. Ms Jiang did not address the established principles governing strikeout applications in her submissions and clearly fell well short of meeting the necessary test. Ms Jiang is entitled to dispute the sufficiency of the evidential foundation relied upon by the Commissioner to meet the statutory threshold for a restraining order. That may be the subject of some focus at the hearing of the Commissioner’s on notice application, however, it is not an issue which is engaged on a strikeout application.
[48] The cogency or quality of the material contained in the affidavit evidence filed in support of the Commissioner’s application similarly is simply not an issue to be assessed on a strikeout application. Unless taken at its fullest on an undisputed basis, what is being contended for by the Commissioner is insufficient to obtain orders from the Court, the obligation on the applicant to show the application is untenable will remain undischarged. Clearly, on the present material filed by the Commissioner and the argument contained in the written submissions, Ms Jiang’s application to strikeout the Commissioner’s application for restraining orders fails.
[49] The Commissioner is not expected to have completed his investigations at the time of applying for restraint. The Commissioner has available to him various investigative powers which can be deployed whether or not property has been restrained. In Commissioner of Police v He, Ellis J referred to those powers when considering an application for forfeiture:36
[37] It seems to me that the obvious and preferable course is for the Commissioner to use his considerable investigative powers under the Act and, in particular, to examine the respondents about their financial affairs, prior to presenting his case in Court. One might expect those examination powers to be routinely used, given that those who are the subject of them are not entitled to claim the privilege against self-incrimination. …
[50] The purpose of utilising those powers will be to ascertain whether forfeiture proceedings should be brought. In the meantime, it will generally be necessary to ensure the status quo is maintained and the assets the subject of investigation preserved. Accordingly, a restraining order is often referred to as a “holding device” of limited duration. In Commissioner of Police v Vincent, Priestley J observed:37
A restraining order does not result in the forfeiture of property. Rather it is designed, as the name suggests, to ensure that the owner of the targeted property does not dispose of it until any outstanding forfeiture issues are finally determined. Effectively a restraining order is a holding device. Its duration is limited.
[51] Ms Jiang appears to have based her submissions, or at least those filed before the hearing, on the erroneous assumption that substantive applications for forfeiture
of assets were before the Court. Because there is no linkage between the
36 Commissioner of Police v He, above n 27.
37 Commissioner of Police v Vincent [2012] NZHC 2581 at [37].
investigative powers under the Act and the restraint of property, Ms Jiang’s claim of
abuse of process is without foundation.
[52] The Commissioner’s case for restraint is founded on the assets the subject of his application not being able to be accounted for from identified legitimate sources of income. Ms Jiang appears to argue that is a feature which counts against the Commissioner’s application. To the contrary, the Commissioner’s case is that Ms Jiang’s access to substantial funds from unknown sources, particularly in the context of very modest income having been declared to the Commissioner of Inland Revenue, and engagement in business activities that were conducted unlawfully, provides reasonable grounds to believe the property is tainted or derived from significant criminal activity. Whatever the merits of those respective positions, the implications of what appears to be a contested factual circumstance is one to be determined on the substantive hearing of the Commissioner’s on notice application when it can be fully ventilated.
Supplementary submission - significant criminal activity
[53] A separate new argument was raised by Ms Jiang on the oral hearing of the application. The Commissioner’s application for restraining orders is reliant on establishing there were reasonable grounds to believe the property the subject of the order is tainted, or alternatively that she has unlawfully benefitted from significant criminal activity. Whether property is tainted property turns on whether it has been acquired as a result of significant criminal activity, or directly or indirectly derived
from significant criminal activity.38 Ms Jiang submitted the application did not
disclose significant criminal activity.
[54] Mr Jiang submitted that neither the offences against the Resource Management Act 1991 (RMA) or the alleged tax evasion as a result of the deliberate non-declaration of income in breach of the Tax Administration Act 1994 were
sufficient to constitute significant criminal activity.
38 Criminal Proceeds (Recovery) Act 2009, s 5.
[55] “Significant criminal activity” is defined in the CPRA as follows:
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).
[56] Ms Jiang submitted the type of regulatory breaches and potential tax offending upon which the Commissioner relies was not intended to permit proceeds of crime proceedings under the CPRA of the type contemplated by the present application for restraining orders. It was submitted that brothel-keeping per se is not a criminal offence and that breaches of bylaws or contravention of planning instruments which resulted in offences being committed under the RMA were not sufficient.
[57] In respect of the allegations of potential tax offending, Ms Jiang submitted the revenue was the responsibility of the Commissioner of Inland Revenue and that investigations into the tax affairs of individuals is governed by the TAA and ought not come under the purview of the Commissioner of Police exercising powers under
the CPRA. She submitted the legislation was not intended to be used in the way it was sought to be applied by the Commissioner in the present case.
[58] It is not disputed that Ms Jiang runs what is defined under the Christchurch City Council Bylaws as a “small owner-operated brothel”. As a result of an investigation into her and her husband’s business operation, Ms Jiang was prosecuted under the RMA. In January 2016, she was convicted on charges of using the property at England Street in a manner which contravened the Christchurch City Plan which was not otherwise authorised by a resource consent, in particular by operating her business at the address outside authorised hours. Ms Jiang was further convicted of contravention of an abatement notice issued under the RMA for operating the business in breach of that notice to desist. Both charges carried a maximum penalty of two years imprisonment and/or a $300,000 fine.
[59] The Commissioner’s case is that Ms Jiang operated her business unlawfully. Analysis of bank accounts showed unknown sources of cash deposits to both Ms Jiang and her now deceased husband’s account which, in the Commissioner’s view, supports his belief that Ms Jiang and her late husband were involved in the operation of an illegal brothel. It is considered that Ms Jiang benefitted directly or indirectly through income obtained of not less than $799,200.55, and that while the maximum penalty for such illegal trading was only a maximum of two years imprisonment, the proceeds or benefits derived directly or indirectly from that illegal activity exceeded
$30,000 and therefore constitutes significant criminal activity.
[60] Evidence filed in support of the Commissioner’s application for restraining orders also sets out inquiries made with the Inland Revenue Department pursuant to s 98(4) of the CPRA and in accordance with a memorandum of understanding between the Commissioner and the Commissioner of Inland Revenue. Those inquiries revealed that for the five tax years beginning 1 April 2009 and ending 31
March 2014 Ms Jiang’s combined declared income averaged only $13,177.89 per year. Her late husband’s combined declared income for that same five year period was averaged at $16,791.13 per year.
[61] Inquiries made by the police have been unable to identify any evidence of disclosures having been made to the Inland Revenue Department by either Ms Jiang or her late husband for any legitimate cash income pertaining to this period. On that basis the Commissioner contends there is sufficient evidence of deliberate non- declaration of income to constitute tax evasion as defined under the TAA. The penalty for tax evasion is five years imprisonment which therefore constitutes significant criminal activity under the CPRA.
[62] In response to Ms Jiang’s argument that the criminal activity relied upon in the evidence filed in support of the application for restraining orders is insufficient to constitute significant criminal activity under the Act, the Commissioner submitted that her submission did not stand scrutiny when compared with the details provided in support of his application. The evidence filed in support of those applications supported the conclusion that the assets sought to be restrained can be traced to unlawful commercial activity or tax evasion which has resulted in the acquiring of proceeds or benefits well in excess of the statutory threshold of $30,000. Ms Jiang has been convicted of two offences relating to the unlawful conduct of her business in breach of the RMA.
[63] The Commissioner rejected Ms Jiang’s argument that the offending concerned minor or technical infringement of bylaws which were merely ancillary to the carrying out of her business. The Commissioner submitted that the offending for which Ms Jiang was convicted amounted to the unlawful operation of the brothel which can be likened, for example, to commercial fishermen fishing illegally, and illicitly obtaining large profits in breach of regulations.
[64] Having read the evidence filed in support of the Commissioner’s application for restraining orders and reviewed the relevant provisions of the Act, I am satisfied, as was Davidson J, that a foundation has been established by the Commissioner upon which there are reasonable grounds to believe that Ms Jiang has engaged in significant criminal activity. In relation to the alleged offending against the TAA, I do not accept there is any limitation or legal demarcation relating to the protection of the revenue which prevents the Commissioner from exercising his powers under the
CPRA, for the purpose of investigating potential civil recovery action in relation to tax evasion. Such activity constitutes significant criminal activity under the CPRA.
[65] In relation to the Commissioner’s reliance on offences committed against the RMA there may be an issue as to whether such breaches constitute “a criminal offence” as that term is referred to in the statutory definition of significant criminal activity. However, argument on the issue was extremely limited and I, myself, had to refer Ms Jiang’s counsel to the statutory definition of significant criminal activity for the purpose of the issue he was raising. No research had been undertaken by him regarding Parliament’s intention as to the compass of the definition and the issue was only raised in oral argument. My own research tends to support the Commissioner’s position.
[66] In Commissioner of Police v Geddes, Andrews J considered the argument that unlawfully receiving benefit payments was not the type of criminal activity that the Criminal Proceeds (Recovery) Act 2009 was intended to target. Her Honour observed:39
[33] I accept that there is no ambiguity in the Act. The purposes of the Act are clearly stated in s 3. There is patently no limitation of the Act so as to apply only to certain types of significant criminal activity, and not to others.
[67] In the third reading in Parliament, the Honourable Amy Adams stated:40
When we talk about that sort of significant criminal offending, we note in the provisions of the legislation that we are looking at the sort of offending that is subject to a maximum imprisonable term of five or more years, or from which $30,000 or more in value has been derived. We are not talking about the kids who shoplift from the local dairy. We are not talking about minor offending. We are talking about significant offending, for which a serious penalty has been imposed by this house or from which serious money has been made.
[68] In Commissioner of Police v Dryland, the Court of Appeal noted in a footnote to its judgment:41
Tax evasion is significant criminal activity for the purpose of s 6 of the
Criminal Proceeds (Recovery) Act 2009 because it is punishable by
39 Commissioner of Police v Geddes [2013] NZHC 1199.
40 (9 April 2009) 653 NZPD 2603.
41 Commissioner of Police v Dryland [2013] NZCA 247 at footnote 7.
imprisonment for a term not exceeding five years: Tax Administration Act
1994, s 143B.
Conclusion
[69] Ms Jiang’s application to strikeout the Commissioner’s on notice application for restraining orders is dismissed. I am not satisfied that the Commissioner’s application for restraining orders is clearly untenable. I have not conclusively decided the question raised in oral argument by Ms Jiang regarding the ambit of the term “significant criminal activity” as it applies to the breaches of the RMA. However, I am firmly of the view that Ms Jiang’s argument as it relates to the Commissioner’s application for restraining orders based upon reasonable grounds that Ms Jiang has sought to evade tax is without merit, and that the Commissioner’s reliance on such offending for the purposes of his application does not constitute an abuse of process.
[70] This matter will be the subject of an inter partes hearing of the Commissioner’s on notice application for restraining orders. The Commissioner has put forward a good substantive argument in response to Ms Jiang’s challenge as to whether the offences upon which she has been convicted, and in respect of which it is alleged substantial illicit proceeds and benefits were obtained, is capable of constituting significant criminal activity. In the absence of properly researched argument, it is premature to come to any definitive ruling on the issue raised. Ms Jiang failed in presenting her argument to even address the provisions of the CPRA, which is obviously a necessary prerequisite to the Court being satisfied there is any merit in the point she seeks to raise. The Act appears unambiguous in its application and ambit, and the evidence disclosed in the Commissioner’s application clearly concerns proceeds or assets well over the $30,000 threshold.
[71] Having failed to discharge the onus upon her to demonstrate the Commissioner should be prevented from prosecuting his on notice application for restraining orders, and having failed to show the proceeding has been brought for an improper purpose, Ms Jiang’s strikeout application is dismissed.
Costs
[72] The Commissioner sought costs on the application. Ms Jiang, as I understand the position, is in receipt of legal aid, and it may be appropriate for the question of costs to be deferred to the substantive hearing of the Commissioner’s application. If there is no agreement to that course, counsel should consult regarding the issue of costs. In the absence of any consensus leave is granted to file and exchange memoranda (no longer than three pages).
Solicitors:
Raymond Donnelly & Co, Christchurch
Michael Starling Barrister, Christchurch
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