Commissioner of Police v Venkatnaidu
[2013] NZHC 3424
•17 December 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-574 [2013] NZHC 3424
BETWEEN COMMISSIONER OF POLICE Applicant
ANDVARUN VIKASH VENKATNAIDU Respondent
Hearing: 20 June 2013
Appearances: M R Harborow for Applicant
S N B Wimsett for Respondent
Judgment: 17 December 2013
JUDGMENT OF KEANE J
This judgment was delivered by on 17 December 2013 at 3pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
Solicitors:
Crown Solicitor, Auckland
COMMISSIONER OF POLICE v VENKATNAIDU [2013] NZHC 3424 [17 December 2013]
[1] On 21 February 2013 Varun Venkatnaidu was sentenced in the District Court, Auckland, to imprisonment for two years, seven months, for 19 dishonesty offences between May 2009 – March 2012: 12 of altering a document, five of using a forged document, and two of obtaining by deception.
[2] This offending related primarily to the purchase of two properties, 24 Kaseng Place, Dannemora, and 3 Coolaghy Drive, Flatbush, Manukau. Almost all of Mr Venkatnaidu’s offences sprang from his attempt to obtain finance to purchase these two properties, relying on fabricated and forged documents.
[3] Mr Venkatnaidu did not obtain finance for the Kaseng Place purchase and that agreement was cancelled. He did obtain finance for the Coolaghy Drive purchase, which he completed, only to sell that property on 21 December 2012. Between 2009 – 2012 Mr Venkatnaidu also obtained a Visa gold master card from Westpac with a $15,000 limit and later a personal loan and Visa card from the Bank of New Zealand. At the date of sentence he owed the two banks $16,563.
[4] By the date of sentence, 21 February 2013, the police had already obtained from Mr Venkatnaidu’s solicitors his $33,410 profit on the Coolaghy Drive sale. After they executed a search warrant at his solicitors’ offices on 18 December 2012, three days before the date of settlement, the solicitors transferred those proceeds to them on 14 January 2013.
[5] On sentence, Judge Harvey (on whose sentence indication Mr Venkatnaidu relied when pleading on the date it was given, 12 November 2012) assumed that the solicitors still held those proceeds. As well as imprisoning Mr Venkatnaidu, he required him to pay out of them within 56 days $16,563 reparation, but subject to any direction of this Court.
[6] In entering that proviso to the order he made, the Judge allowed for this present application for restraining and forfeiture orders, relating to the proceeds. That application had been made by the Commissioner of Police on 7 February 2013, but at the date of sentence had still to be called in this Court. It was first called on 20
March 2013, when Andrews J made the restraining order applied for unopposed. The sale proceeds have since been held by the Official Assignee.
[7] The forfeiture application remains formally opposed. But the status of the proceeds is not presently in issue. They were acquired or derived from admitted
‘significant criminal activity’, for which Mr Venkatnaidu is serving the sentence imposed: offending attracting a maximum sentence of imprisonment of five years or more.1 On the face of it they constitute ‘tainted property’.2
[8] The question presently is rather whether Mr Venkatnaidu is entitled to two variations to the restraining order to enable him to rely on the proceeds now restrained, first to meet the reparation payments ordered and, secondly, his counsel’s fee in respect of services from the time he was charged until he was sentenced,
$12,391. That involves two issues.
[9] One is whether one of the two payments may be made out of restrained property. There is no issue that the reparation ordered may be. But, the Commissioner contends, the legal fees may not be. That is expressly prohibited. The other is whether Mr Venkatnaidu has the ability to make those payments out of independent means. The Commissioner contends that he has, and that has to be fatal.
Restraint regime
[10] The restraining order in question was made under s 24(1) of the Criminal
Proceeds (Recovery) Act 2009, which says this:
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.
1 Criminal Proceeds (Recovery) Act 2009, s 6.
2 Section 5.
[11] Section 28 prescribes the categories of condition to which a restraining order may be made subject and it says this:
(1) A court may make a restraining order subject to any conditions the court thinks fit including, without limitation, conditions that provide for the following to be met out of a respondent's restrained property:
(a) the reasonable living costs of the respondent and any of his or her dependants:
(b) the reasonable business expenses of the respondent:
(c) the payment of any specified debt incurred by the respondent in good faith:
(d) any other expenses allowed by the court.
(2) Despite subsection (1)(d), a court may not allow any legal expenses to be met out of a respondent's restrained property.
(3) In determining whether or not to make a restraining order subject to a condition, the Court must have regard to the ability of a respondent to meet the reasonable living costs, expenses, or debt concerned out of property that is not restrained property.
[12] The two issues now to be resolved arise under s 28. That under s 28(3) as to whether Mr Venkatnaidu has independent means is an issue of fact. That as to his legal expenses is an issue of law, and comes down to this: can legal expenses only ever be ‘other expenses allowed’ under s 28(1)(d) to which the s 28(2) bar applies; or can they, if incurred before the order was made, be a ‘specified debt incurred ... in good faith’?
[13] That question arises directly. Mr Venkatnaidu’s liability to Mr Mansfield and his instructing solicitor crystallised before Andrews J made the restraining order unopposed on 20 March 2013. I begin there.
Reach of restraint
[14] Section 28 clearly contemplates that, where fees are rendered for legal services provided after property is restrained, they may not be met out of restrained property. In this it stands in stark contrast in two ways to s 42 of the Proceeds of Crime Act 1991, its lineal predecessor. Section 42(2) said this:
A restraining order against a person's property may be made subject to such conditions as the Court thinks fit, which conditions may include, but are not limited to, conditions which make provision for meeting, out of the property included in the order, all or any of the following:
(a) The reasonable living expenses of the person and the person's dependants, if any:
(b) The person's reasonable business expenses:
(c) The person's reasonable expenses in defending any criminal proceedings (including any proceedings under this Act):
(d) Any specified debt incurred by the person in good faith: (e) Any other expense allowed by the Court.
[15] The first difference between the two sections is that s 42(2)(c) expressly allowed legal expenses to be deducted from restrained property; not just those in any cognate criminal proceeding, but those in the forfeiture proceeding itself. That has gone. The other is that s 28(2) positively bars ‘legal expenses’, in any shape or form, from being deducted from restrained property as ‘other expenses’ under s 28(1)(d).
[16] The two sections have this in common, however. Both distinguish between
‘expenses’, whether ‘living’ or ‘business’ or ‘legal’ or ‘other’ expenses, and ‘debts incurred ... in good faith’. And that suggests that, when they speak of ‘expenses’ they are speaking of future liabilities; expenses incurred after the property is restrained. Whereas, when they speak of ‘specified debts’, they are speaking of liabilities existing at the date of restraint.
[17] If that were not so, the distinction both make between ‘debts’ and ‘expenses’ that s 28(1) relies on would cease to be coherent. ‘Debts’ at the date of restraint would be past ‘expenses’ by another name. ‘Expenses’ incurred after the date of restraint would be future ‘debts’ by another name. A ‘specified debt’, which neither Act defines, might then need also to be a permissible ‘expense’. A permissible
‘expense’ might then need to be ‘incurred in good faith’. That incoherence cannot have been intended. When s 28(1) speaks of ‘expenses’, I conclude, it is speaking only of any liabilities incurred after the date of restraint, including ‘legal expenses’.
[18] Conversely, s 28(2) does not, as it so easily could have, bar debts for legal services, existing at the date of restraint, from being deemed ‘specified debts ... incurred in good faith’ under s 28(1)(c); a category previously to be found in s 42(2)(d). The legislature, I conclude, must have intended to allow such debts to be deducted from restrained property, like all other debts existing at the date of restraint, as long as they passed the ‘good faith’ threshold.
[19] This interpretation does not appear to me to be inconsistent with one of the two apparent purposes of s 28: to prevent the holder of arguably tainted property from funding from restrained funds their defence to forfeiture, or to any then continuing cognate criminal proceeding. Section 28 also sets out, as a second purpose, to protect creditors, who have provided services in good faith before the date of restraint; a safeguard to which lawyers owed legal fees are as much entitled as any other creditor.
[20] My interpretation is, I am conscious, inconsistent with that of Heath J in R v Elliott; Commissioner of Police v Elliott.3 However, Heath J was invited to accept, and accepted, that s 28(2) was an absolute bar to the payment out of ‘legal expenses’. He was not asked to consider, as I have been, whether expenses crystallised as a debt at the date of restraint stand in a different category.
[21] The related issue, to which I now turn, is whether Mr Venkatnaidu’s debt to
Mr Mansfield was a debt incurred in good faith.
Services in good faith
[22] On 11 April 2012, the day after his arrest for the Kaseng Place offending, Mr Venkatnaidu engaged Mr Mansfield by private retainer because he was then ineligible for legal aid. He was employed fulltime earning $75,000 annually and owned Coolaghy Drive. That, I understand, remained his position when he was
charged with the Coolaghy Drive and personal loans offending on 28 June 2012.
3 R v Elliott; Commissioner of Police v Elliott HC Gisborne CRI-2009-016-03799, 8 November
2010.
[23] On 12 November 2012 Mr Venkatnaidu obtained a sentence indication from Judge Harvey and pleaded that day, on the express basis that he would pay the reparation ordered out of the Coolaghy Drive sale proceeds; and that day, indeed, he says, the officer in charge of his case told him that it would look better for him if he completed that sale before sentence. By 12 November, he contends also, his only way of meeting Mr Mansfield’s fee was out of those sale proceeds.
[24] On settlement date, 21 December 2012, Mr Venkatnaidu says, and it appears undisputed, he was first told by the officer responsible that this present application for restraint and forfeiture was to be made; though by then, presumably, he must have known that the police had executed the search warrant at his solicitors’ offices three days before.
[25] What is clear is that Mr Mansfield’s legal services continued until, and only ended on, the date of sentence, 21 February 2013; that on the day before sentence Mr Venkatnaidu had entered into a related security agreement in favour of Mr Mansfield and his instructing solicitor; and that, on the day of sentence itself, Mr Mansfield invoiced Mr Venkatnaidu for his services since 10 April 2012, $10,775 excluding GST. The restraining order was not made until a month later.
[26] At the date of the restraining order, I am satisfied, Mr Venkatnaidu’s debt to Mr Mansfield was a debt incurred in good faith for services over the preceding year, a good part of which were provided before there was any prospect of the Coolaghy Drive sale proceeds becoming restrained. This debt may properly be met from the funds restrained under s 28(1)(c), subject to this.
Independent financial means
[27] Before I may make an order under s 35(a) varying the existing order as Mr Venkatnaidu wishes, I must take into account under s 28(3) whether he has any independent ‘ability’ to meet these liabilities out of unrestrained property; a factor to be given effect consistent with the purposes of the Act, one of which is to ‘eliminate
the chance for persons to profit from undertaking or being associated with significant
criminal activity’.4
[28] Where the respondent does have independent means, that must stand against any payment from restrained property. Were that not so Mr Venkatnaidu would be able to preserve any independent property he has, at the expense of the restrained property. Section 28(3), however, is not absolute. Much will depend on how clear it is that he does have independent means, and their extent. As to that issue there is no formal onus either way. I must resolve it as a matter of discretion.
[29] At the very least, as Adams on Criminal Law says, speaking of s 42(3) of the
Proceeds of Crime Act 1991, from which s 28(3) derives:5
Where there are unrestrained and unencumbered assets sufficient to meet expenses, the Court will usually expect evidence that the applicant has explored all avenues to liquidate those assets before making provision to meet expenses out of property included in the ‘restraining order’.
[30] The Commissioner contends that Mr Venkatnaidu can meet his liabilities from two sources independent of the restrained funds. His de facto partner since at least 2009, Thi Huong Giang Dao, is his principal source. He also has recourse to funds held in other accounts or held by defunct companies which he apparently set up.
Evidence as to assets
[31] In June 2013 Ms Dao owned 4 Lansdown Avenue, Papatoetoe which she purchased on 7 November 2012 for $470,000. The mortgage balance was $317,563. It has an equity of at least $152,436. She also then held $49,000 in four BNZ accounts, and $7,644 in two ASB bank accounts. The issue is whether Mr Venkatnaidu has any enforceable interest.
[32] On 10 April 2012, when he and Ms Dao were stopped at Auckland Airport, Mr Venkatnaidu said that they had first been engaged for a while, then that they had
married overseas, seemingly in 2010, and then that Ms Dao had kept her last name.
4 Section 3(2)(a).
5 Bruce Robertson (ed) Adams on Criminal Law (looseleaf ed, Brookers) at [CP28.01].
She said that they were in a de facto relationship and had never married. On the evidence the status of their relationship is unverifiable.
[33] Moreover, during the years 2011 – 2013 Ms Dao was employed at a gross income in the range $44,728 - $64,640 and what her circumstances were before then are apparently unverifiable. It is not possible to say, therefore, that the assets she has could only have been derived from Mr Venkatnaidu.
[34] So while there is evidence suggesting that they lived together during much of the period in which Mr Venkatnaidu offended, that does not seem to me to be a sufficient basis to conclude that she has assets and funds deriving from that offending or that he has enforceable recourse to those assets and funds.
[35] Mr Venkatnaidu has a TSB bank account with an undisclosed balance and accounts in other names. In one there is a balance of $113. There are also two Christchurch companies, now struck off, of which he was sole director. One still has
$5,326, the other $2,939, to each of which he appears entitled to access. He may then have the ability to meet his liabilities as to $8,379.10. To the extent that he can he is not entitled to recourse to the funds restrained.
Conclusion
[36] Mr Venkatnaidu’s application for an order varying the restraining order dated
20 March 2013 is granted to this extent. He is to be entitled to recourse to the funds restrained to meet the reparation order made on sentence on 21 February 2013,
$16,563, and to meet his legal fee to Mr Mansfield, $12,391, subject to his ability to
meet those liabilities, potentially to the extent of $8,379, from the sources identified.
P.J. Keane J
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