Commissioner of Police v Warner

[2012] NZHC 3584

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2012-404-3665 [2012] NZHC 3584

BETWEEN  THE COMMISSIONER OF POLICE Applicant

ANDGARTH RAYMOND WARNER First Respondent

ANDLUKE MANKELOW Second Respondent

Hearing:         8 November 2012

Appearances: M Harborow for applicant

P J Kaye for first respondent and for Mr N Forman (applicant for relief)

No appearance for second respondent

Judgment:      20 December 2012

JUDGMENT OF ALLAN J

In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 4.30 pm on Thursday 20 December 2012

Solicitors/counsel :

Crown Solicitor Auckland [email protected]

S R Anderson, Auckland  [email protected]

P J Kaye, Auckland  [email protected]

THE COMMISSIONER OF POLICE V WARNER HC AK CIV2012-404-3665 [20 December 2012]

Introduction

[1]      On 3 May 2012, a motor vehicle in which Mr Warner was a passenger was stopped by police in Newmarket, Auckland. A subsequent search of the car revealed bundles of cash totalling $90,490 in value, packed inside a sports bag in the boot of the car.  The applicant claims that the cash is tainted property for the purposes of the Criminal Proceeds (Recovery) Act 2009 (the Act), and seeks an order forfeiting the cash to the Crown.

[2]      The applicant applies in the alternative for a profit forfeiture order, but in all the circumstances it is unnecessary to consider that alternative.

[3]      Mr Warner says that the cash belongs to him, and that it was borrowed from Mr Forman, who seeks relief from forfeiture under s 61 of the Act in the form of an order directing that the cash be paid to him.

Background

[4]      Mr Warner and Mr Mankelow had first attracted attention when they were in a Newmarket store, on the morning of 3 May.  At the time, a cash delivery security van was at the premises.  The respondents were thought to be taking particular notice of the security van crew, the rear exit door and the security surveillance system within  the  store.    Shop  staff  called  the  police,  but  prior  to  their  arrival,  the respondents left the store.   They were apprehended a short time later in a Subaru motor vehicle, registration CZR102.  Mr Mankelow was driving, and Mr Warner was a passenger.

[5]      Sergeant Hoeft, who attended the scene, detected the smell of cannabis in the vehicle, and invoked s 18(2) of the Misuse of Drugs Act 1975.  The motor vehicle was removed to the Mt Wellington Police station where a thorough search was conducted. The following items were located during the search:

(b)      In the front seat area:

(i)       Mr Warner’s passport, driver’s licence and Mastercard;

(ii)      numerous cell phones

(c)       In the back seat area: (i) a flick knife;

(ii)      a black extendable baton similar to a police issue baton; (iii)   four used needles;

(iv)two plastic cable ties which are able to be used to restrain people;

(v)various    electronic    goods   including    an    ipad,   a    laptop, microscopes and camera equipment;

(d)      In the boot, in a black backpack a glass pipe: (e)         In the boot, in an Adidas bag:

(i)       a surveillance camera; (ii)         a knuckle duster;

(iii)     a slingshot with 9 ball bearings;

(iv)     a Visa card in the name of P Tonge; (v) tax return in the name of Mr Warner;

(i)       a glass pipe;

(ii)a  small  jar  containing  white  powder  (tested  positive  for methamphetamine);

(g)      In the boot, in a Lowepro sports bag:

(i)       a bag with the words “Potato Bag” on it, which was found to

contain a large amount of cash;

(ii)a second bag labelled “Figos”, which contained another large amount of cash.

(h)      Upon Mr Warner, $720 cash.

[6]      The cash from the “Potato Bag” was wrapped in cloth and consisted of eight bundles of $20 bills.   Six of these bundles were wrapped in plastic film.   Each bundle had a rubber band around it, and when removed, there were ten smaller bundles of $20 bills, each with a rubber band around it.

[7]      The cash from the “Figos” bag consisted of a bundle of $50 bills with blue tape around it, eight bundles of $20 bills and a quantity of loose $20 bills.  One of the bundles of $20 bills had blue tape around it, the second had blue tape partially around it and two other bundles had a $20 bill around them.  The other four bundles had rubber bands around them. The bundle of $50 bills had a rubber band around it.

[8]      The cash totalled $90,490 in value.

[9]      At interview that day, Mr Warner said that the Lowepro sports bag containing the cash belonged to him.  He also accepted that the flick knife and baton were his property.  Mr Mankelow accepted that he owned the glass pipes.

[10]     Neither of the respondents owned the vehicle.  It had been borrowed from an associate who had recently purchased it from the registered owner.

[11]     Mr Warner was subsequently charged with possession of an offensive weapon

(in respect of the flick knife and baton) and possession of methamphetamine.

[12]     Mr Mankelow faces three charges of possession of an offensive weapon, and with possession of glass pipes.

[13]     Mr Warner made no claim for the cash (which was retained by the police) until 11 June 2012, when he telephoned the police to advise that the cash belonged to a business associate who intended to use it in the prostitution business, and who could provide paperwork to prove its source.

[14]     On 14 June 2012, Mr Warner attended the Glen Innes police station to uplift certain items, excluding the cash. At that time he did not refer to the cash.

[15]     On 25 June 2012, Mr Warner’s lawyer e-mailed the police, formally seeking the return of the seized cash.

[16]     The explanation now provided by Mr Warner for the cash in the Subaru is that it represents the balance of a cash loan of $95,000 made to him by Mr Forman, who  lives  in  Tauranga.    Their  evidence  is  that  Mr Warner  was  interested  in purchasing a brothel business in Auckland but, having no assets, he needed a loan. Mr Forman carries on his business activities largely on a cash basis, and has made a number of loans to various borrowers in recent years.  The two had been associates for about six years.

[17]     They say that Mr Forman advanced $95,000 in cash to Mr Warner in April. Mr Warner kept the cash readily at hand, because it would assist him to make an advantageous purchase if a suitable one could be made.   Mr Kaye argues that the cash therefore cannot be tainted property, and that the Court ought to order that it be returned to Mr Warner.  Alternatively, Mr Forman, as lender, has a proper interest in

the cash, and so ought to be granted relief to the extent of the whole of the sum held on behalf of the applicant

The law

Forfeiture

[18]     The purpose of the Criminal Proceeds regime, established under the Act, is described in s 3(2)(a) as being to “eliminate the chance” for persons to profit from undertaking or being associated with significant criminal activity.  The regime is also designed to deter such activity.[1]   The fact that the respondent has not been criminally charged with dealing in drugs is irrelevant.[2]

[1] Criminal Proceeds (Recovery) Act 2009, s 3(2)(b).

[2] The Act, ss 15 and 16.

[19]     As was explained in Elliot v R:[3]

[3] Elliot v R [2011] NZCA 386 at [35].

[35]      The explanatory note to the Bill identified its policy objectives as the confiscation of property from persons who had engaged in or profited from significant criminal activity, reduction of the rewards from crime for the person concerned, reduction of the attraction of crime for potential offenders and the reduction of resources that could potentially be used for criminal activity.

(footnotes omitted)

[20]     Section 50(1) of the Act provides for the making of assets forfeiture orders:

(1)       If, on an application for an assets forfeiture order, the High Court is satisfied on the balance of probabilities that specific property is tainted property, the Court must make an assets forfeiture order in respect of that specific property.

[21]     The expression “tainted property” is defined 5(1) of the Act as meaning any

property that has, wholly or in part, been either:

(a)      acquired as a result of significant criminal activity;  or

(b)      directly or indirectly derived from significant criminal activity.

[22]     The term includes any property that has been acquired as a result of, or directly or indirectly derived from more than one activity, if at least one of those activities is a significant criminal activity.

[23]     The  term  “significant  criminal  activity”  is  defined  in  s  6  as  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 one or more offences punishable by a maximum term of imprisonment of five years or more;  or

(b)from which property, proceeds or benefits of a value of $30,000 or more had directly or indirectly been acquired or derived.

[24]     Section 51 of the Act confers on the Court a discretion to exclude certain property from an assets forfeiture order if the Court considers that undue hardship is reasonably likely to be caused to the respondent if the property is included in the assets forfeiture order.

[25]     Section 55 empowers the Court to make a profit forfeiture order where the Court is satisfied on the balance of probabilities that the respondent has unlawfully benefited from significant criminal activity within the relevant period, and that the respondent has interests in property.

[26]     I return to s 50(1) in order to note two important features.  First, the burden of proof resting on the applicant is a requirement to satisfy the Court on the balance of probabilities that the property concerned is tainted property.   In other words, the Court must be satisfied that it is more likely than not that the property is so tainted. Second, if the Court is so satisfied, then it must make an assets forfeiture order.  It has no discretion to do otherwise, subject to ss 51 and 61-69.

Relief from forfeiture

[27]     Sections 61-69 of the Act provide for persons other than a respondent who claim an interest in property sought to be forfeited, to apply for relief.  Section 66 provides for relief “that the Court considers appropriate” to be granted if, on the balance of probabilities, the applicant for relief proves:

(a)       he or she has an interest in the property;  and

(b)he or she has not unlawfully benefited from the significant criminal activity in question.

[28]     Section 67 provides for relief to be granted to an applicant for relief on the basis of undue hardship.

The Warner/Forman explanation

[29]     Both  Mr Warner  and  Mr  Forman  filed  affidavits,  upon  which  they were extensively cross-examined.   As earlier outlined, Mr Warner says that, despite his acknowledged impecuniosity, he was keen to buy a brothel.   He had previous experience in brothel management in the United Kingdom.   For several years he had been friendly with Mr Forman who, to Mr Warner’s knowledge, had made a number of cash loans to approved associates.

[30]     Mr Forman agreed to provide $95,000 by way of a loan.  He prepared a form of loan agreement which both he and Mr Warner signed.  It is dated 1 April 2012. Each says he signed the agreement in the presence of the other.   Although the agreement was prepared without legal advice and is a little difficult to construe, it appears that the intention was that if Mr Warner’s business venture was successful, Mr Forman would be repaid a total of $150,000 spread over three years.  There is provision for repayment of the loan in full, should Mr Warner’s proposed business acquisition not eventuate within 12 months.

[31]     Both Messrs Warner and Forman said that the loan agreement was signed a few days before any cash became available from Mr Forman, and that the loans would actually be advanced as and when he had gathered together sufficient cash. Mr Forman said he carried on business largely on a cash basis, and that at times he kept significant quantities in his safe at his home.   He provided certain heavily redacted materials in order to show that he had had dealings involving substantial sums of money at times.

[32]     Each  of the witnesses  said  that  the cash  was  advanced  in  two  tranches. Mr Forman thought that the first was $50,000 and the second $45,000.   Both said that the notes were conveniently bundled up, held together with rubber bands.  The two tranches were separated by some days, but everything had been advanced by late April.

[33]     At  the  conclusion  of  his  evidence,  I  asked  Mr  Forman  some  detailed questions about the way in which the cash was assembled and made available to Mr Warner. The following passage appears in the notes of evidence:[4]

[4] Notes of Evidence pp 79-83.

QUESTIONS FROM THE COURT:

Q.        Going to the time at which you actually made the cash available to

Mr Warner.… ...Yes.

So on your evidence I think you signed that agreement and then a couple of days later you got some cash? … I wanted it to be in an even sum because then its, in a head, and I think I was a day away from –

That is the reason for the slight delay? … Yeah, it was a day or two days.

On your evidence then you got to the point where you, it was an even sum, possibly $50,000? … It was $50,000 and I think It’s evident in the statement that I actually received one, maybe on the 2nd, or it would’ve been the first Monday of the month I received a payment.

Yes.  Now, did – when you – and so you retrieved that sum or those notes from the safe, and brought them out, put them on the table in the office is that - … Yeah basically yes, I would’ve counted it out prior to it being in front of him.

Yeah sure, all right.   When he arrived, as I understand it the cash was bundled up, I think you told us that the larger denominations were at the bottom? …Knowing me they would’ve been at the bottom and all heads up

and all tails up and every note would’ve been tails up or heads up, you know

– one of those things – yeah sorry.

And then they were, it was not just $50,000 in a single bundle, they were bundled up presumably were they? … Yeah it would have been, I think it might have been, four all up together.

Four - … And once again, I’d tail them pretty evenly, sorry –

So you had, what you were saying is that – I wouldn’t have had a bundle this thick and a bundle this thick, I would’ve had two bundles the same, yeah sorry –

So you are saying that there were perhaps four roughly even bundles, each would have had $10,000 in it? … It would have been half the amount each roughly. As in half the $50,000 and half the $45,000.  I gave it to him in two lots.

Yeah I’m just talking about the first occasion... Yeah sorry $50,000 yes it would’ve been roughly $25,000 in each bundle, yes.

So they were just two bundles were they? … the first lot were I believe two

bundles yeah. I’m pretty sure it was two bundles as far as I know.

So they were presumably made – mostly high denomination notes? … they

would have been the highest I had available working down from there.

And what would they have been? … There would have been hundreds, there would have been 50s, there would have been 20s, the 100s might have been from a bank but some machines would give 50 and ANZ would give 50 which was down the road or the National Bank would give 20s in the highest denomination of notes.

But some of the withdrawals that you have made according to the statement, bank statements, they’re mostly redacted but we’ve got some information, a lot of them are quite high amounts, 6000, 2000 - …They would’ve been from the bank.

From the bank counter? … From a bank counter, yes.

And in such circumstances can one assume that you would have got mostly

100s?… When they would give them to me I would always go with 100s,

exactly.

Otherwise you’ve got a great pile to carry out - …Well yes but they didn’t

always have 100s.

No I understand.  So is it your evidence really that quite – the large bulk of this first payment, would have been 100 dollar notes? … Okay to the best of my knowledge there would’ve been, there would’ve been, moneywise I’m unsure and – but would’ve been 25mm of 100 dollar notes if I remember rightly.

So about half - … Um, maybe yeah sorry, the bundles were about this big. I’m just confused as – the bundles are about this big each bundle, roughly - .

You’re showing what? 4cm... Roughly 40 to 50mm yeah roughly in height if I recall properly and the first bundle would’ve had basically all 100s in it I would believe. When I got it into the safe it would’ve been bundled –

I’m not too worried about what it looks like in the safe, I’m talking about here, what Mr Warner would’ve got it and when he arrived, were these bundles flat on the table, I mean were most of these notes new or newish? … Some of them were new, but smaller denominations, more likely the 100s were new, sometimes, especially the ones I got from the bank and I would’ve left them packed probably as I got them to a degree.

But the point is that new notes are much more compressed than  - . …

Definitely yes, definitely.

So each bundle would’ve been reasonably neat and tidy - … Definitely, that’s what I was trying to come across, that’s what I’m sometimes like with money.

Sort of like bricks if you like - … Yes exactly and I don’t like the tuft edges, it’s just something and that’s hence the flatness of the rubber bands.

And so – each of these bundles which you think might have been 40 or

50mm high would have had several rubber bands around them? … That’s me

yeah.  I have a bag of rubber bands that I would just – round them, yep sorry.

And - … Sorry.

Sorry… They were likely stacked in – I might be shooting myself, I would store them I think in generally twos or bundles and then I would get them to pack the whole lot of them together -.

Twos, I’m, sorry - … Well a couple of thousand dollars at a time and then I would pack them together on top of that, whether I took the original, if you like rubber bands off the – yeah sorry –

But in these bundles of about $25,000 there were some bundles if you like of perhaps $2000, is that what you’re saying? … Yeah depending on the denomination.  And if there was 20 $100 and $20 notes I would give them

$22,000 worth and not the 100.

Yep, yes.   All right.   And now, we have these groups or piles of notes, bundles of notes and then was there some sort of restraint rubber bands or something like that around the whole package? … I generally do that yep, but once again being me, I didn’t like to go like that where the rubber bands were in the middle so if they got out of control, I mean sorry it’s just something that’s me you know –

Do you remember how Mr Warner took away the notes, what receptacle did he use? … Okay um, at the time I – I wouldn’t have saw them – I wouldn’t – say in a plastic bag, I would put them in something that’s not visible through the bag but I would’ve kept that because it would’ve been one of the old banking bags, the canvas ones which I keep and I would’ve put it – if put into plastic it would’ve been put into a Trigonny plastic bag or the like which

–

A  paper  bag  which  you  couldn’t  see  through?  …It  may  have  been  a

Foodtown bag, depends on what was at the time, yep sorry.

And that’s the first occasion, was the second occasion pretty much the same in terms of the denominations and the way in which you prepared the bundles? … Very much.  It would’ve – it may have consisted of just slightly lesser denomination in notes. Yeah.

What – just overall, can you indicate what proportion of all of these notes you think would’ve been new or almost new? … I don’t know.  I mean at times I just do – the bill – I was also paying on average 14 to $100,000 a month to builders which were on site – well previous, I would sometimes give them, yeah as I got them from the bank I’m sorry I just couldn’t – I couldn’t indicate that exactly -

All right you can’t answer that, that’s fair enough.… It was as the bank came, it came, packed in their little, as they packed in there quite flat and they’re all a bit like that, new notes were –

Yeah thank you... Maybe two in 10 times you go into the bank you would get

new notes.  I mean it wasn’t common, you know.

[34]     From Mr Forman’s evidence it will be seen that a significant proportion of the cash advance made to Mr Warner consisted of $100 bills, at least some of them new bills obtained from the bank.  Mr Forman confirmed that on several occasions during his evidence.

[35]     The police evidence is that not a single $100 bill was contained in the various bundles which made up the figure of $90,490 located in the Subaru.  Mr Warner’s evidence was that the bundles of cash represented the residue of the actual bank notes handed over to him by Mr Forman.

[36]     Given Mr Forman’s evidence about the presence of $100 bills in the cash advances he made, it is a logical conclusion that, contrary to Mr Warner’s evidence, the cash in the boot of the Subaru did not represent the proceeds of any loan made to him by Mr Forman.

[37]     Moreover, I consider that there is substance in Mr Harborow’s submission that on the balance of probabilities, the appropriate conclusion is that Mr Forman and Mr Warner have colluded for the purpose of establishing a legitimate claim to the money in order to defeat the present application.  I am satisfied that it is more likely than not that no loan was ever made by Mr Forman to Mr Warner.  In my view

it is just not possible for Mr Forman to be mistaken about the inclusion of $100 bills, given the detail of the evidence reproduced above.

[38]     Because  I  do  not  accept  that  a  loan  was  ever  made  by  Mr  Forman  to Mr Warner as claimed, or that even if it was, the cash in the boot of the Subaru was the same cash as was advanced by Mr Forman, it follows that Mr Forman’s claim to an interest in the cash must fail.

[39]     His application for relief must accordingly be dismissed.

[40]     In reaching that conclusion, I have not overlooked the evidence of Ms Renee Baker, who swore an affidavit on behalf of the respondents and was cross-examined. Her mother is part owner of an Auckland brothel, in which Mr Warner had displayed some interest.  She had preliminary discussions with Mr Warner about the possibility of him purchasing the brothel.  Ms Baker also has some experience in decorating, furnishing and running massage parlours and brothels, and was able to provide some advice as to the range of chattels which might be needed.

[41]     I  accept  Ms  Baker’s  evidence,  but  it  goes  no  further  than  supporting Mr Warner’s claim to have an interest in future brothel ownership and management. Mr Warner might well have such an interest, but that is of limited significance given the serious discrepancies in the evidence about the loan.

The applicant’s case

[42]     Although  I  have  rejected  the  explanation  advanced  by  Mr Warner  and Mr Forman for the cash in the Subaru, I may make an assets forfeiture order only if I am satisfied that the applicant’s evidence justifies that course.

[43]     Detective Constable Davenport filed two detailed affidavits in support of the application, and was also briefly cross-examined.   His evidence establishes that Mr Warner had minimal sources of income over the past six years or so, and that in total, he earned far less than the sum of money found in the car.   That is freely

conceded by Mr Warner, who relies principally on the loan explanation which I have rejected.

[44]     The  possession  of  very  large  amounts  of  cash  is  unusual  and  risky, particularly when packaged in an insecure manner and simply kept in the boot of a motor car.   Business deals involving such sums are not normally settled in cash, although I accept it is not unknown for such transactions to occur.

[45]     Criminal activities, and in particular drug dealing activities, do however often involve dealings with large cash sums.  This provides the recipient of the cash with certainty.  Further, cash transactions are difficult if not impossible to detect and trace.

[46]     The cash comprised chiefly bundles of $20 and $50 notes.  While of course not of itself determinative, that is a circumstance that is consistent with the cash representing the product of a number of smaller transactions.

[47]     Also located in the car were numerous cell phones, a surveillance camera, and certain weapons. They are all consistent with commercial drug related activities.

[48]     Finally, there is Mr Warner’s acknowledgement that a receptacle containing traces of methamphetamine belonged to him.   Although he has few previous convictions and nothing at all that is drug related, the finding of methamphetamine (albeit in very small quantities) among his belongings, adds substantial weight to the applicant’s claim that the cash was derived from significant criminal activity, and it therefore constituted tainted property.

[49]     In my opinion, the cash itself, the cell phones and camera, the weapons, and the methamphetamine, considered together, establish on the balance of probabilities the  applicant’s  claim  that  Mr Warner  is  involved  in  commercial  drug-related activities and that the cash constitutes tainted property for the purposes of s 5(1) of

the Act.  I am therefore obliged to make an assets forfeiture order accordingly.[5]

Result

[5] See s 50(1).

[50]     For the foregoing reasons I am satisfied on the balance of probabilities that the cash found in the Subaru on 3 May 2012 was tainted property.  I therefore make an assets forfeiture order pursuant to s 50(1) of the Act, in respect of the whole of the sum of $90,490 found in the Subaru motor vehicle registration CZR102.  Such sum is hereby vested in the Crown absolutely and is to be held in the custody and control of the Official Assignee.

[51]     Mr Forman’s claim for relief is dismissed.

[52]     The applicant is entitled to costs.  Counsel may file memoranda if they are unable to agree.

C J Allan J