Commissioner of Police v Johnson
[2020] NZHC 1317
•12 June 2020
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2019-404-1509
[2020] NZHC 1317
BETWEEN COMMISSIONER OF POLICE
Applicant
AND
SHANE PETER JOHNSON
Respondent
WILLIAM and SHERYL JOHNSON
Interested Parties
Hearing: 8 June 2020 Appearances:
D M A Wiseman and H E MacDonald for Applicant W McKean for Respondent
K Hogan for Interested Parties
Judgment:
12 June 2020
JUDGMENT OF LANG J
[on application for restraining order]
This judgment was delivered by me on 12 June 2020 at 3 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
Solicitors:
Crown Solicitor, Auckland
Webb Ross McNab Kilpatrick Limited, Whangarei Counsel:
K Hogan, Auckland
COMMISSIONER OF POLICE v JOHNSON [2020] NZHC 1317 [12 June 2020]
[1] Mr Shane Johnson came to the attention of the police when they executed a search warrant at a residential address in Onehunga early on the morning of 29 November 2018. Mr Johnson did not live at the address but was present when the police arrived. When they searched the vehicle in which he had travelled to the address the police found $110,100 in cash (the cash) hidden inside an LPG canister on the rear tray of the vehicle.
[2] A subsequent investigation into Mr Johnson’s affairs revealed that in March 2017 he had withdrawn the sum of approximately $160,000 from online gambling accounts and given it to his parents. They used this money to repay a loan secured by a mortgage over their property situated at 1415 State Highway 1 in Whangarei (the property). Mr Johnson and his children live at that address with Mr Johnson’s parents.
[3] The Commissioner of Police (the Commissioner) believes Mr Johnson acquired both the cash and the funds used to repay the mortgage from illegal activity in the form of dealing in methamphetamine. The Commissioner also contends he has evaded taxes through earning undeclared income. The Commissioner has already obtained a restraining order under ss 24 and 25 of the Criminal Proceeds (Recovery) Act 2009 (the Act) over the cash. He now seeks the same order in relation to the property owned by Mr Johnson’s parents.
[4] Although Mr Johnson initially filed affidavits in opposition to the application he now abides the decision of the Court in relation to that issue.1 Mr Johnson’s parents, Mr William Johnson and Mrs Cheryl Johnson, oppose any restraining order being made in relation to their property. In addition, they seek an order under s 30 of the Criminal Proceeds (Recovery) Act 2009 (the Act) excluding their interest in the property from any restraining orders the Court might make.
The legislative regime
[5] The Act establishes a regime that enables the Commissioner of Police to apply for the forfeiture of property where it has been acquired or derived, whether directly
1 Mr Johnson failed to appear for cross-examination at the hearing. As a result, his affidavits may not be used as evidence for present purposes: High Court Rules 2016, r 9.74(3).
or indirectly, from significant criminal activity or property that represents the value of a person’s unlawfully derived income.2
[6] The Court may make an assets forfeiture order in relation to tainted property.3 Section 5 of the Act defines tainted property as follows:
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.
[7]Section 6 of the Act defines “significant criminal activity” 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
2 Criminal Proceeds (Recovery) Act 2009, s 3(1).
3 Section 49.
of calculating the value of any property, proceeds, or benefits under subsection (1)(b).
[8] The Commissioner contends the property is tainted property because the proceeds of significant criminal activity were used to repay the mortgage and therefore increase the equity available to Mr Johnson’s parents as the owners of the property.
[9] The Court may also make a profit forfeiture order in the circumstances prescribed by s 55 of the Act:
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.
(3)Subsections (1) and (2) are subject to section 56.
(4)A profit forfeiture order is enforceable as an order made as a result of civil proceedings instituted by the Crown against the person to recover a debt due to it, and the maximum recoverable amount is recoverable from the respondent by the Official Assignee on behalf of the Crown as a debt due to the Crown.
[10]Section 5 of the Act defines an “interest” in property as follows:
interest, in relation to property of any kind (including, without limitation, restrained property or forfeited property), means—
(a)a legal or equitable estate or interest in the property; or
(b)a right, power, or privilege in connection with the property
[11] The Commissioner will apply for a profit forfeiture order on the basis that Mr Johnson has unlawfully benefited from significant criminal activity and has an equitable interest in his parents’ property.
[12] The Court may make restraining orders in the circumstances set out in ss 24 and 25 of the Act. These provide as follows:
24Making 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.
(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.
25Making 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.
[13] As will be evident from the wording used in the two sections, each has a different focus. Under s 24 the focus is on the unlawful source or derivation of the
property. Under s 25 the focus is on the existence of a relationship between the relevant property and the respondent.4
[14] The threshold for making a restraining order is relatively low, consistent with the fact that a restraining order is merely a holding measure to ensure assets are not disposed of or dissipated before the Commissioner has an opportunity to apply for a forfeiture order.5
Alleged tax offending
[15] This is a comparatively new allegation and was only made by the Commissioner after Mr Johnson filed and served his affidavits in opposition to the present application. It appears to be made in response to Mr Johnson’s explanation for the manner in which he has derived income during the period relevant to the application. That evidence cannot be taken into account for present purposes because of Mr Johnson’s failure to appear for cross-examination at the hearing.
[16] The Commissioner’s argument on this point is still far from developed. His counsel advise me that investigations into the allegations of tax offending are still ongoing. As a result, I do not propose to consider this aspect of the Commissioner’s argument in relation to the present application. It remains open to the Commissioner to develop it further if he applies for forfeiture orders in relation to the property.
Are there reasonable grounds to believe the property is tainted property?
[17] There is no dispute that the funds used to repay the mortgage came from accounts held by Mr Johnson with an online gambling facility called Spin Palace. Mr Johnson used these to conduct online gambling activities. Between October 2015 and March 2017 funds totalling $7,022 were deposited into these accounts from a variety of sources. By March and April 2017 Mr Johnson’s gambling activities had increased the amount held in the accounts to the point where he was able to withdraw the sum of $288,500. He used part of this sum to repay his parents’ mortgage.
4 Commissioner of Police v Briggs [2012] NZHC 2324.
5 Commissioner of Police v Li [2014] NZHC 479 at [8], citing Vincent v Commissioner of Police
[2013] NZCA 412 at [47].
[18] The Commissioner submits that several factors establish there are reasonable grounds to believe the funds deposited into the accounts between October 2015 and March 2017 were acquired through significant criminal activity by Mr Johnson. This took the form of dealing in methamphetamine.
Previous convictions
[19] Mr Johnson was convicted of being in possession of methamphetamine in 2005, 2006 and 2007. He was then convicted of being in possession of methamphetamine utensils in 2014. On 3 February 2018 he was found in possession of both utensils and methamphetamine. On 16 April 2018 he was again found in possession of methamphetamine.
[20] The Commissioner says these convictions demonstrate a long-standing and persistent association with methamphetamine. I accept this submission, but I also note that Mr Johnson has never been convicted of supplying methamphetamine or being in possession of methamphetamine for supply. Furthermore, on each occasion the offending has resulted in a sentence of community work being imposed. The offending was therefore towards the lower end of the scale in terms of culpability.
The incident on 29 November 2018
[21] On 29 November 2018 the police executed a search warrant at a residential address in Onehunga. When they arrived, they found several persons present. Those persons had extensive criminal histories, including convictions for drug offending.
[22] When the police spoke to Mr Johnson, he said he had travelled to the address with an associate that morning, and that he did not know anybody at the address. When the police searched the motor vehicle in which he had travelled to the address they found a modified LPG gas bottle on the rear tray of the vehicle. The cash was found inside the gas bottle. It had been vacuum-packed and fastened with rubber bands. An empty point bag was located in the gas bottle beside the cash.
[23] In the centre console of the vehicle the police found approximately 10.9 grams of methamphetamine and a wallet. Mr Johnson acknowledged the cash and the wallet
belonged to him, but he denied any knowledge of the methamphetamine. He said he had been on the way to purchase a vehicle and intended to use the cash for this purpose. He was unable to name the person from which he proposed to buy this vehicle, and said he was relying on his associate for this. When the police questioned Mr Johnson’s associate, he was unable to assist. He said only that he went where Mr Johnson went.
[24] Inside the address the police found a military style belt that had pockets attached to it. Inside one of the pockets the police found approximately 10.5 grams of a substance believed to be methamphetamine.6 In another pocket the police found a packet of Nurofen tablets. These had been prescribed to Mr Johnson’s partner and dispensed the previous day by a pharmacy in Whangarei. Mr Johnson’s partner was not present at the address. The Commissioner contends the belt and methamphetamine are likely to belong to Mr Johnson because it held the medication prescribed to his partner.
[25] The police also found a cellphone in the toilet bowl of the address. This was still in working order and the police were able to find a photograph of Mr Johnson’s parents on it. The Commissioner contends the device belonged to Mr Johnson and that he endeavoured to flush it down the toilet because it contained incriminating material.
[26] The police also located further drugs, drug-related paraphernalia, cellphones and ammunition at the address. No charges were laid against either Mr Johnson or any of the occupants at the address as a result of the items the police found.
[27] The police subsequently executed a search warrant at Mr Johnson’s home address on 6 December 2018. There they found a methamphetamine pipe in a sleepout occupied by Mr Johnson. Mr Johnson was charged with, and convicted of, possessing utensils for the consumption of methamphetamine.
6 The substance has not yet been analysed.
Financial analysis
[28] This is the most important aspect of the case for the Commissioner. The Commissioner has been able to ascertain that Mr Johnson was employed as a digger driver until 23 June 2015. Thereafter he ceased to receive any discernible income.
[29] Mr Johnson withdrew the sum of $4,900 from his Spin Palace accounts between 1 January and 13 May 2015. He did not withdraw any further funds from those accounts until 3 March 2017.
[30] On 28 June 2015 Mr Johnson deposited the sum of $40 into his Spin Palace accounts and spent that sum gambling the same day. The closing balance on that date was $0.06. This was the last deposit that could be traced back to Mr Johnson. Thereafter a total of 198 deposits were made into the account up until 21 January 2017. The deposits were made by third parties and by means of payments made from Paysafe cards. These are debit cards that can be purchased and used to make online payments. The identity of the person using the card cannot be traced.
[31] During the same period there was little discernible activity in any of his bank accounts. The Commissioner has therefore been unable to ascertain how Mr Johnson funded his living expenses between June 2015 and March 2017.
[32] After Mr Johnson withdrew the sum of $280,500 in March and April 2017 he did not make any further withdrawals from the Spin Palace accounts until December 2017. During that period 356 deposits totalling $28,744 were made to those accounts. These were usually in the sum of $20, $50 or $100 and several deposits were often made on the same day. The deposits were made using Paysafe cards and by third parties. In addition, Mr Johnson transferred funds into the accounts from an online Skrill account formerly known as Moneybookers. Money can be paid into a Moneybookers account using a debit or credit card or via an online payment site such as Paypal.
[33] During 2018 funds totalling $23,557 were paid into the Spin Palace accounts by means of 487 deposits. Of these, 380 deposits (totalling $17,266) were made by third parties and using Paysafe cards. Most deposits were in the sum of $50 and, as in
2017, there were numerous instances of several deposits being made on the same day. Only two withdrawals were made from the Spin Palace accounts during 2018. The sum of $5,000 was withdrawn on 11 October 2018 and paid into Mr Johnson’s bank account. A further sum of $700 was withdrawn on 11 December 2018.
[34] Mr Johnson only operated one bank account during 2018. This was the subject of deposits totalling $13,750. Of this sum, $8,750 were cash deposits and the balance comprised the deposit in the sum of $5,000 from the Spin Palace accounts. Approximately half of the funds deposited into the bank account were subsequently transferred to the Spin Palace accounts. The bank account was closed on 26 June 2018 with a debit balance of $105.87. Thereafter Mr Johnson did not operate any further bank accounts. The Commissioner has been unable to ascertain how Mr Johnson funded his living costs during 2018, and particularly during the latter part of the year when he did not operate any bank account.
[35] When the police searched Mr Johnson’s address on 6 December 2018 he told them that part of the cash found on 29 November 2018 came from the sale of motor vehicles. Enquiries made by the police with the New Zealand Transport Agency show that in the 12 months preceding the search of his address Mr Johnson only had two vehicles registered in his name. He became registered as the owner of one of these on 18 December 2018, twelve days after he spoke to the police. The other vehicle was a 2003 Harley-Davidson FXSTB motorcycle. Enquiries by the police have established that Mr Johnson sold this in early 2018 for between $17,000 and $18,000 in cash.
[36] The police have also ascertained that Mr Johnson listed two motor vehicles for sale on Trade Me in November and December 2017 with asking prices of $19,000 and
$17,000 respectively. There is no evidence to suggest these were subsequently sold.
Conclusion
[37] Taken as a whole, I consider there are reasonable grounds to believe Mr Johnson was involved in selling drugs, likely to be methamphetamine, during the period between June 2015 and March 2017. He appears to have derived no income from legitimate sources during that period and the numerous deposits into the Spin Palace accounts bear the hallmarks of regular payments for small quantities of drugs.
[38] The circumstances surrounding the incident that occurred on 29 November 2018 are also relevant. Although the incident occurred after Mr Johnson gave the funds to his parents it suggests strongly that Mr Johnson was engaged in the sale of methamphetamine in a substantial way. It is difficult to see how he could have accumulated the sum of approximately $110,000 in cash from any legitimate means. His obvious and lengthy association with methamphetamine suggests the sale of that drug was also the source of funds paid into the Spin Palace accounts during the period leading up to the withdrawal of funds in March and April 2017.
[39] There is no dispute that winnings derived from gambling using money derived from criminal activity will be tainted property. Similarly, I did not take Ms Hogan to dispute the Commissioner’s argument that the use of such funds to repay a mortgage will result in the property over which the mortgage is registered becoming tainted property.7 The Commissioner has therefore succeeded in establishing the necessary threshold for the Court to make a restraining order in relation to the property owned by Mr Johnson’s parents.
[40] In case I am wrong on this point I will briefly address the Commissioner’s alternative argument under s 25 of the Act. This depends on the proposition that Mr Johnson has an equitable interest in his parents’ property by virtue of the fact that he repaid the amount owing under the mortgage.
Does Mr Johnson have an equitable interest in his parents’ property so as to enable a restraining order to be made under s 25 of the Act?
[41] During oral argument Ms Macdonald submitted on the Commissioner’s behalf that when Mr Johnson repaid the amount owing under the mortgage he acquired an equitable interest in the property as the beneficiary of a constructive trust of the type discussed in cases such as Gillies v Keogh8 and Lankow v Rose.9 Those cases establish that, where one party to a relationship contributes materially to the relationship, equity will intervene by imposing a constructive trust on assets existing at the end of the
7 Doorman v Commissioner of Police [2013] NZCA 476, [2014] 2 NZLR 173 at [32]; Commissioner of Police v Duncan [2013] NZCA 477, (2013) 26 CRNZ 796 at [18]–[27].
8 Gillies v Keogh [1989] 2 NZLR 327 (CA).
9 Lankow v Rose [1995] 1 NZLR 277 (CA).
relationship where it would be unconscionable for the owner of those assets to assert strict legal rights.
[42] In Lankow v Rose Hardie Boys J observed that there were two essential requirements for a constructive trust in this context.10 First, the plaintiff must have contributed in more than a minor way to the acquisition, preservation or enhancement of the defendant’s assets. Secondly, the parties must be taken reasonably to have expected that the plaintiff would share in the assets as a result of those contributions.
[43] The difficulty for the Commissioner is that there is no evidence to support his contention that both Mr Johnson and his parents reasonably expected Mr Johnson would have any interest in the property because he repaid the amount owing under the mortgage. Mr Johnson’s father was steadfast in his evidence that he did not consider Mr Johnson had any interest in the property regardless of the fact that he repaid the mortgage. His evidence was to the effect that he and his wife will own the property until they die, and it will then be shared between their children. Although Mr Johnson has not provided evidence on the point I have little doubt he would side with his parents on the issue.
[44] I therefore see no evidential basis for the Commissioner’s submission that Mr Johnson holds an equitable interest in the property of the type referred to in the cases cited above.
[45] I also reject the Commissioner’s argument based on s 58 of the Act. This provides that the Court may treat a person as having an interest in property where that person has effective control over property. Under s 58(3) the Court may have regard in this context to the family and domestic relationships between persons who have an interest in the property and any other persons. During cross-examination of Mr Johnson’s father Ms Macdonald endeavoured to obtain concessions from him to the effect that Mr Johnson had a degree of control over his parents’ property. Mr Johnson’s father emphatically denied this and stated that his son lives at the property at the pleasure of himself and his wife. He also said that if they asked their son to leave the property he would have no option but to obey that request. In the
10 At 282.
absence of evidence from Mr Johnson to contradict this there is no evidential basis for the Commissioner’s assertion that Mr Johnson has effective control over his parents’ property.
[46]I would therefore decline to make a restraining order under s 25 of the Act.
Should the interest held by Mr Johnson’s parents in the property be excluded from the restraining order?
[47]Section 30 of the Act provides:
30 Excluding severable interest from restrained property
(1)A person (other than the respondent) who has a severable interest in proposed restrained property or restrained property may apply to the court that is to consider, or has considered, the application for a restraining order to have that person's severable interest excluded from—
(a)a restraining order that the court may make; or
(b)a restraining order the court has made.
(2)The court must exclude a severable interest from proposed restrained property or restrained property at, or after, the time a restraining order is made if the applicant proves on the balance of probabilities—
(a)that the applicant has an interest in the property to which the restraining order relates; and
(b)if the order was or is to be made under section 24 or 25, that the applicant has not unlawfully benefited from the significant criminal activity to which the restraining order relates; and
(c)if the order was or is to be made under section 26, that the applicant was not involved in the qualifying instrument forfeiture offence to which the restraining order relates.
(3)The court may exclude a severable interest from proposed restrained property or restrained property at, or after, the time a restraining order is made if it considers that it is in the public interest to do so, having regard to all the circumstances, including, without limitation,—
(a)any undue hardship that is reasonably likely to be caused to any person by the severable interest in property being made or having been made restrained property:
(b)the gravity of the significant criminal activity or qualifying instrument forfeiture offence with which the property in which the person has a severable interest is associated:
(c)the likelihood that the interest will become subject to a forfeiture order.
[48] Ms Hogan points out that when the Commissioner applies for forfeiture orders third parties who assert an interest in the property in question can apply for relief under ss 61 and 62 of the Act. She contends s 30 is designed to ensure innocent parties such as Mr Johnson’s parents can protect their interests in property that would otherwise be subject to a restraining order.
[49] Ms Hogan acknowledges that jurisdiction to order exclusion under s 30 only exists where the party seeking exclusion has a severable interest in the property in question. She submits that in this context the word “severable” should be interpreted as meaning “realisable” or “quantifiable”. She submits it would be absurd if an innocent party who owns an identified proportionate interest in a property can seek exclusion but a party who owns the whole of a property cannot.
[50] I do not consider there is any justification for placing a gloss on, or ascribing an alternative meaning to, the word “severable”. It is be given its natural and ordinary meaning, which is “able to be severed”. I consider the concept of severance to be entirely distinct from those of quantification and realisation.
[51] Before an interest can be severed it must be affixed to or form part of an existing interest. This principle was applied in Commissioner of Police v Briggs,11 a case I consider to be analogous to the present case. In Briggs, the applicants for exclusion under s 30 were the registered proprietors of a parcel of land on which another member of their family had built a second house. He had paid for the construction of the house using funds derived from criminal offending. This prompted Ellis J to conclude that the new house, and therefore the property as a whole, was partly derived from significant criminal activity.12 The Judge went on to hold that the precise nature of any equitable interest held by the owners of the new house was inchoate and unknown. This meant there was “presently no interest in the property from which the interest held by the [registered proprietors] could be severed”.13
11 Commissioner of Police v Briggs, above n 4.
12 At [38].
13 At [41].
[52] The prospect that innocent parties could not seek exclusion under s 30 clearly concerned Ellis J in Briggs because she went on to say:
[42] The proposition that the position of innocent third parties with such a strong and clear interest in tainted property cannot be protected at the restraining order stage is intuitively unattractive. That unattractiveness might be thought to justify the exercise of the Court’s discretion against granting the order sought.
[43] If, on the other hand, the view I have formed about the property’s tainted status prevails at the asset forfeiture stage (bearing in mind the apparently higher standard of proof) then the Court will have no choice but to order the property forfeit. Because the third parties interests would still not be severable the only relief that could (and must) be ordered is that the Crown is to pay compensation to those third parties in the sum of the value of their interests in the property. As I understand it, there might be at that point scope for arrangements to be made for those third parties effectively to repurchase the property from the Official Assignee.
[44] On balance, it seems to me that I am required to make the restraining order sought. Restraint now does not prevent the issue of whether the property is tainted being revisited at the asset forfeiture stage and, even if its status is maintained, third party interests will be protected in the fashion allowed by the Act. The only real benefit to [the registered proprietors] of a restraining order not being made at this stage is that there would be no impediment in the interim to the sale of the property. But, of course in light of my finding that the property is tainted, restraint would certainly be justified if there was any suggestion that a sale was in prospect.
[53] I take the same view. Any claim for relief by Mr Johnson’s parents must be determined at the point where the Commissioner applies for a forfeiture order in relation to their property.
Result
[54] I make a restraining order under s 24 of the Act in relation to the property at 1415 State Highway 1, Whangārei being the land described in record of title unique identifier NA96A/330 excluding the interest of the Bank of New Zealand as mortgagee.
[55] The restraining order is to remain in place for 12 months from the date of this judgment.
[56] I dismiss the application by the interested parties for an order excluding their interest in the property from the restraining order.
Costs
[57] If the parties cannot reach agreement regarding costs they have leave to file concise submissions and I will determine costs on the papers.
Lang J
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