R v E HC Gisborne CRI 2009-016-3799
[2010] NZHC 1409
•19 August 2010
This case has been anonymized
IN THE HIGH COURT OF NEW ZEALAND GISBORNE REGISTRY
CRI 2009-016-03799
THEQUEEN V
E
CIV 2010-416-0065
AND BETWEEN THE COMMISSIONER OF POLICE Applicant
ANDE
First Respondent
ANDBANK OF NEW ZEALAND Second Respondent
ANDKAY ELIZABETH CHRISTIE Interested Person
Hearing: 5 and 6 August 2010
Counsel: R J Collins and J D Lucas for Crown and Commissioner of Police
A J S Snell for R G E
No apperance by, or on behalf of, Bank of New Zealand and K E Christie
Judgment: 19 August 2010
JUDGMENT OF HEATH J
This judgment was delivered by me on 19 August 2010 at 4.30pm pursuant to Rule 11.5 of the High
Court Rules
Registrar/Deputy Registrar
R V E HC GIS CRI 2009-016-03799 [19 August 2010]
CONTENTS
The questions for determination [1] The offending [3] The disputed facts: the cannabis growing operation
(a) Introductory comment [8] (b) The Crown’s evidence [10] (c) Mr E ’s evidence [16] Findings of fact [24] The forfeiture application
(a) The new regime [36] (b) The scheme of the sentencing Act forfeiture regime [41] (c) Competing submissions [60] (d) Applications for relief by third parties [64] (e) Should a forfeiture order be made? [69] Conclusion [76]
The questions for determination
[1] Mr E is before the Court for sentence, having pleaded guilty to charges relating to the cultivation and sale of the Class C controlled drug cannabis. Mr E disputes material facts on which the Crown rely for sentencing purposes. Following Mr E ’s conviction, the Commissioner of Police (the Commissioner) made an application for forfeiture of the property from which the cultivation offending was undertaken.
[2] In this judgment, having heard evidence, I make findings of fact for the purposes of both sentencing and the forfeiture application. I also indicate the orders I intend to make on the forfeiture application, which now has relevance for sentencing purposes.1
The offending
[3] On termination of a covert investigation, known as Operation Rattle, police officers executed a search warrant at 42 Moana Road, near Wainui Beach, north of Gisborne, on 10 December 2009. During the course of the search they located, at the
rear of a garage on the property, an indoor (hydroponic) cannabis growing area. This
1 Sentencing Act 2002, s 10B(1), introduced by s 7 of the Sentencing Amendment Act 2009.
area was divided into two separate rooms. One was for plants in the process of growing, while the other was used to facilitate the process of flowering. Police took the view that the set-up was well constructed and had the hallmarks of being operated by an experienced grower.
[4] Mr E was the owner of the property. When interviewed by Police, he acknowledged that he was responsible for the indoor growing operation, stating that he had been growing cannabis in the garage for some four or five years. From the information conveyed to Police during interview, the growing could have begun sometime during either 2005 or 2006.
[5] Mr E entered pleas of guilty to the charges on 5 February 2010, in the District Court at Gisborne. The District Court Judge declined jurisdiction. Mr E was remanded for sentence in this Court.
[6] Others arrested and charged on termination of Operation Rattle have already been sentenced.2 Mr E ’s sentencing was deferred for two reasons. First, he disagreed with the Crown’s view about the sophistication of the growing operation and its estimated yield. That necessitated a disputed fact hearing.3 The second was the need for the Court to rule, before sentence was passed, on the Commissioner’s application to forfeit the Moana Road property.4
[7] I heard evidence relevant both to sentencing and forfeiture issues on 5 and 6
August 2010. After hearing from counsel for the Crown5 and Mr E , I reserved judgment and adjourned sentencing until midday on 27 August 2010. I indicated that a judgment would be given in sufficient time for counsel to consider my
findings, before making submissions on the sentence to be imposed.
2 R v Clare and Ors HC Gisborne CRI 2009-016-3790, 4 March 2010.
3 Sentencing Act 2002, s 24. See also the power to adjourn the sentencing hearing to determine whether a forfeiture order should be made: s 25(1)(aa) Sentencing Act 2002.
4 See ss 142A-142Q of the Sentencing Act 2002, introduced by s 10 of the Sentencing Amendment Act 2009, with effect from 1 December 2009: s 2 of the 2009 Amendment. These amendments form part of a package of new forfeiture provisions: see also Criminal Proceeds (Recovery) Act 2009
(subpart 4 of Part 2), which came into force on the same day: see s 2 of that Act.
5 For the purpose of this judgment, I use the expression “Crown” to include the Commissioner of
Police for the purpose of his forfeiture application.
The disputed facts: the cannabis growing operation
(a) Introductory comment
[8] Mr E disputes the Crown’s assessment of the size and profitability of the cannabis cultivation operation. Detective Eric Hunter, of the Gisborne Police, and Mr E gave evidence about the level of sophistication of the hydroponic operation, the growing cycle, the potential yield and the frequency and number of sales or supplies, while the cultivation continued.
[9] Those are issues on which findings are required, both for sentencing purposes and the forfeiture application.
(b) The Crown’s evidence
[10] I accept Detective Hunter’s qualifications to give expert evidence about the investigation of crime involving illicit drugs. He has spent time receiving and assessing police intelligence about criminal activity involving controlled drugs and has also had involvement in the planning and subsequent execution of police operations designed to arrest persons alleged to be involved in (for example) the cultivation and distribution of cannabis.
[11] Detective Hunter described the cannabis growing operation:
22.In one room of the garage were five large cannabis plants known as mother plants. These plants had a large growing lamp over them which was on a timer set to run for 18 hours per day. The walls were painted white and were covered with sheets of tin foil to reflect the light.
23.A mother plan is a female cannabis plant from which cuttings are taken that inherit the characteristics of the parent plant including the gender. This ensures that the cuttings are female only which will produce the flowering head of the cannabis plant which is the most valuable part.
24.On a table in that room were two small nursery boxes, one of which contained six cuttings in seedling planter containers. The trays were capable of holding 22 seedling containers and were set up for
hydroponics use with a water pump on a timer. There were fluorescent growing lights directly above the trays.
25.In the second room in the garage were two saw horses with four hydroponics plant trays on them. In the trays were 15 cannabis plants that were between 50 and 100 centimetres tall. All were in a healthy condition. Again the trays were set up for hydroponics use with a water pump on a timer.
26.The walls were lined with reflective foil with a fan circulating air around the room and a large air filter. The windows of the room were covered with particle board. There was a large growing light and 2m white shield above the plants on an electronic timer set to run for 12 hours per day. This encourages the cannabis plant to start flowering or budding as the reduction of light provides an environment that recreates autumn when in the natural environment.
27.Located in both rooms were numerous chemicals used to assist in the hydroponics growing technique.
28.Located in a chilly bin on the floor of the prisoner’s bedroom were two ounce bags of cannabis head. Also located in a bedroom drawer of the room was [$660.00] in cash.
[12] Detective Hunter recorded, in a job sheet, details of informal discussions with Mr E , at the time the search warrant was executed. At the conclusion of that discussion, Mr E had not been arrested. By 8am he was at the Gisborne police station. An interview took place from 8.10am, at the conclusion of which Mr E signed a written statement. At 11.50am, Mr E was arrested and processed.
[13] For the purposes of both sentencing and the forfeiture application, I regard the evidence of potential yield as most significant. On the day of his arrest, Mr E admitted a growing cycle of four to five months with a yield, at best, of two pounds of cannabis and, at worst, just under one pound, an average of three crops per year. He said that he had been selling cannabis in either ounce bags (for $250) or a filter bag size (for $50). Mr E asserted that he had made something in the vicinity of
$14,000 from cannabis sales, over a period of 18 months. While saying that he had started out on a small scale, he accepted that he had subsequently “got greedy”.
[14] Detective Hunter did not accept that explanation. His position is:
34.The growing operation was of a high standard and had the hallmarks of being operated by an experienced grower. The equipment used was well set up, maintained and kept clean. The operation was geared to growing of consecutive crops of cannabis.
35.There would have been considerable expense in setting up this operation, however, gauging that expense is difficult. The use of items such as multiple electrical timers, irrigation systems and fittings, large air filters, fans, silver reflective foil, lights, hydroponic gully’s and a significant amount of nutrients in labelled bottles suggest the initial setup and ongoing running costs would run well into the thousands of dollars.
36.The prisoner’s comments of making $7000 - $8000 per year would appear extremely conservative. Analysis of the information supplied would indicate that if the plants yielded between one and two pounds of cannabis every three months, this would equate to between four to eight pounds per year. If each pound of cannabis was then broken down into ounce bags which were sold at $250 per ounce, this would equate to an annual profit of between $16,000 and $32,000.
37.On his own admission of supply to his nephew (ounces several times per week) the yield is conservative. Cannabis grown in this environment could return an average yield of 6 ounces of cannabis head per plant per crop of three month period.
38.I am aware that indoor grown cannabis plans can yield significantly more than six ounces of cannabis head as well as less depending on a number of factors.
[15] From known street values, Detective Hunter extrapolated the following annual figures, on the basis of saleable cannabis being obtained from 15 plants, every three months:
a) Six ounces per plant: $90,000 per annum b) Four ounces per plant: $60,000 per annum c) Two ounces per plant: $30,000 per annum d) One ounce per plant: $15,000 per annum
(c) Mr E ’s evidence
[16] In his affidavit evidence, Mr E deposed as to his family background and acquisition of the Moana Road property. He says (and I accept) that the property was purchased by himself and his then wife, in 1988, for $76,000. He describes the house as one containing three bedrooms of “modest proportions”. The Crown has
obtained two independent valuations of the property, in May and June 2010 respectively. They reveal a value of $490,000 and $480,000 respectively. Proximity to Wainui Beach is a factor in those valuations.
[17] Mr E says he has been a cannabis user since the age of 15 years. During his marriage his wife disapproved of his habit and never used the drug herself. Mr E says he is someone who has “always been generous and shared [his cannabis] with friends who use it socially”.
[18] Because of his wife’s view about use of the drug, he did not grow cannabis at home during the marriage. Mr E says that the house was purchased solely as a family home.
[19] In June 1993, Mr E and his wife separated. She received a matrimonial property settlement. Mr E refinanced the property through a mortgage with the Bank of New Zealand. After Mr E ’s parents died in 2001, he received a sum of
$65,000 as an inheritance, which he used to freehold the property. The Bank of New Zealand debt that is presently secured over the property represents the amount owing on an overdraft facility, taken out to enable a former partner to “resurrect her business”.
[20] After he and his wife separated, Mr E formed a relationship with another woman. Mr E deposes that she was “an extremely heavy cannabis user”. Because they could not afford sufficient cannabis to support her habit, equipment was purchased, for $1200, to set up a growing room. While the growing area was “tidy”, Mr E says it was “a very basic set-up”, obtained as a “starter kit” from a company called Switched On Gardener. Mr E ’s evidence was that the equipment was installed some time in 2006. A useful reference point for determining that time is his separation from his partner in December 2006, or a month or so either side of that.
[21] Mr E continued to cultivate cannabis after his former partner left. He found he had too much for his own use and “was giving most of it away”.
[22] Mr E ’s evidence about his employment in the period between 2006 and
2008 was confusing and unsatisfactory. I do not regard that evidence as reliable.
[23] Mr E believes it was not until late 2008 that he was approached to see if he would sell cannabis to others. The first sale, he deposed, was to a nephew, in November 2008. The nephew was one of those apprehended as a result of Operation Rattle. Mr E says that he continued to gift cannabis to others.
Findings of fact
[24] My assessment of the competing evidence of Detective Hunter and Mr E is aided by photographs taken at the time the search warrant was executed and text messages to which Mr E was a party that were intercepted in the course of Operation Rattle.
[25] The photographic evidence reveals a tidy and functional cannabis growing operation. I accept Detective Hunter’s evidence that there were five mother plants.6
The use of a hydroponic system to grow the plants is strongly suggestive of an attempt to grow quantities of cannabis for commercial purposes. The amount of cannabis plant found at Moana Road, coupled with the efficient systems available to clone the mother plants for regular harvesting, supports that view.
[26] The two rooms in which cannabis was cultivated appear, from the photographic evidence, to be used for different purposes. The photographs support Detective Hunter’s view that one room was used to grow the mother plants, to take cuttings from which the mother plants could be cloned and to grow further plants. On the other hand, the second room is bathed in greater light, in a manner consistent with the need to provide a suitable environment for the cannabis plants to flower.
[27] On Mr E ’s evidence, the second room was developed some time during
2007, after his separation from his former partner. He suggested that had occurred some 12 months after the separation, taking it through to the end of 2007. Mr E did not accept that he had made a deliberate decision to grow more cannabis through
using the two rooms, rather he described it as a “hobby [that] developed into an interesting past time as such”, to see whether he could separate the crop into two cycles.
[28] I reject that evidence. I find that the addition of the second room and the more sophisticated cannabis growing operation that stemmed from it was instituted in early 2007. That is consistent with the absence of any satisfactory evidence from Mr E to explain fully his employment position in 2007 and 2008. Mr E ’s statement to the Police suggests that he regained full-time employment in mid 2008, though under cross-examination he said it was “more like ten months” back from the date of his arrest. On the basis of the latter explanation, I find that Mr E returned to full-time paid employment in about February 2009.
[29] The casual nature of the work undertaken by Mr E and the absence of any evidence of significant legitimate income during the calendar years 2007 and 2008 suggests that he was engaged for a meaningful amount of that time, though not necessarily exclusively, in the cultivation of cannabis from his property. Having regard to the evidence contained in the text communications, I consider that Mr E seeks to minimise the extent to which he was involved in selling cannabis. I do not accept that the first sale was in November 2008. Nor do I accept that on
earlier occasions cannabis was only gifted to others.7
[30] Overall, I find Mr E ’s evidence on the scale of the cannabis operation, its sophistication and yield to be unreliable. Therefore, in finding relevant facts for the purposes of sentencing and the forfeiture application, I consider whether Detective Hunter’s opinions have a sufficient foundation in fact to justify acceptance of them in full.
[31] I accept the general description of what was found on execution of the search warrant on 10 December 2009.8 I also accept Detective Hunter’s evidence that the growing operation “was of a high standard and had the hallmarks of being operated
by an experienced grower”. As Detective Hunter said, the equipment was well
6 See para 22 of Detective Hunter’s affidavit, set out at para [11] above.
7 See para [21] and [23] above.
maintained and the operation was geared to growing consecutive crops of cannabis in different cycles.9
[32] I have some doubts about the yield and profitability of the crop. It seems to me that I need to make some allowance for the likelihood that not insignificant quantities of cannabis were gifted to others, particularly members of Mr E ’s family. On the other hand, Mr E ’s evidence that only $14,000 was yielded during the course of the growing operation grossly under-estimates the financial return.
[33] At best, for Mr E , my finding that he was growing commercial quantities of cannabis for a period of almost three years (from early 2007 until the end of 2009) would suggest that at least $28,000 was returned, based on his own figures. It is more likely, as Detective Hunter deposed, that there was a three monthly growing cycle which, at commercial rates, was likely to yield between $16,000 and $32,000
per annum.10 That finding is supported by the risk that Mr E was prepared to run
in carrying on the operation from a location next door to the home of a senior police officer.
[34] In making factual findings on disputed aggravating facts11 on sentencing, I am obliged to find such factors proved beyond reasonable doubt.12 Therefore, I take a conservative approach to that fact-finding process.
[35] The absence of lifestyle trappings that one would expect from a major cannabis cultivator and the fact that no significant sums of money were located on execution of the search warrant, suggests to me that Mr E was making a profit at the lower end of the range of $15,000 per annum to $90,000 per annum, suggested
by Detective Hunter.13 For the purposes of sentencing and the forfeiture application,
I find the annual yield to be $30,000 per annum, a total of something in the vicinity of $90,000.
8 See para [11] above.
9 See para 34 of Detective Hunter’s affidavit, set out at para [14] above.
10 See para 36 of Detective Hunter’s affidavit at para [14] above.
11 Sentencing Act 2002, s 24(3), definition of “aggravating facts”.
12 Ibid, s 24(2)(c).
13 See para [15] above.
(a) The new regime
[36] The Criminal Proceeds (Recovery) Act 2009 (the 2009 Act) and ss 142A-
142Q of the Sentencing Act both came into force on 1 December 2009, replacing the Proceeds of Crime Act 1991 (the 1991 Act). They are complementary statutes that, read together, create a new regime for the forfeiture of proceeds of crime and property used to facilitate criminal activity. While the 2009 Act is designed to deal with cases in which no conviction has yet been entered, the Sentencing Act provisions are triggered on conviction and apply as part of the sentencing process.14
Because Mr E ’s offending was detected after 1 December 2009, he is subject to
the new forfeiture regime.
[37] Some assistance can be gained, in identifying the policy underlining the new forfeiture regime, from the report of the Law and Order Committee on the Criminal Proceeds (Recovery) Bill and the Explanatory Note to that Bill. In the former, the major change proposed was described as being “that a criminal conviction would no longer be required for property representing the proceeds of crime or the value of unlawfully derived income to be confiscated”. In the latter, policy objectives were identified as the confiscation of property from persons who had engaged in or profited from significant criminal activity, reduction of the rewards of crime for the person concerned, reduction of the attraction of crime for potential offenders and reduction of resources that could potentially be used for criminal activity.
[38] The Explanatory Note went on to explain the interrelationship between those parts of the intended legislation that were to apply to people who had not been convicted of any offence (on the one hand) and those who were being sentenced following conviction (on the other). In relation to the sentencing regime, the Explanatory Note states:
As such property may have been lawfully acquired, instrument forfeiture is limited to situations where there has been a conviction and will be
14 Compare the 2009 Act and s 4 of the Sentencing Amendment Act 2009.
considered by the court as part of the sentencing process. This avoids the possibility of someone being, in effect, more severely punished for an offence simply because he or she owns a substantial asset that was used to facilitate the offending.15
[39] The 1991 Act was designed to deal with “tainted property”, in relation to a “serious offence”.16 The concept of “tainted property” was two-fold: namely, property used to commit or to facilitate commission of a serious offence or the proceeds of an offence of that type. An offence was a “serious offence” if punishable by imprisonment for a term of five years or more. The Court had jurisdiction to forfeit tainted property but was permitted to have regard to “any
undue hardship that [was] reasonably likely to be caused to any person by the operation of such an order, in deciding the extent to which the property was forfeited to the Crown”.17
[40] In R v Dunsmuir,18 the Court of Appeal drew a distinction between the two types of “tainted property”, saying that a forfeiture order in respect of the proceeds of crime “merely takes from the criminal his [or her] ill-gotten gains”, while such an order in respect of property used for the commission of a crime went further and ought to be regarded as “an additional penalty provided by Parliament as a deterrent”. McKay J, for the Court, added:19
... If this is Draconian, that appears to be the intention of the legislation. Innocent third parties who have an interest in the property are protected under ss 17 and 18. The offender who puts his property at risk by using it for criminal purposes must face the consequences. No doubt there will be cases where separate items of property are involved, and the Judge may, having regard to the considerations set out in subs (2) of s 15, order that some only of the tainted items be forfeited. Here the only item is the house, the upper portion of which had been elaborately set up and equipped for a large-scale cannabis operation. The fact that the house had been acquired by previous honest endeavours, and that the offences were discovered before he had enjoyed much of their intended fruits, is not a sufficient reason why forfeiture should not be ordered. (my emphasis)
15 Compare with the observations of the Court of Appeal in R v Dunsmuir [1996] 2 NZLR 1 (CA) at
6-7 and Lyall v Solicitor-General [1997] 2 NZLR 641 (CA) at [to be inserted], set out at paras [40]
and [49] below.
16 See the definitions of “serious offence” and “tainted property” in s 2(1) of the Proceeds of Crime
Act 1991.
17 Proceeds of Crime Act 1991, s 15(1) and (2)(b). See also 16(1).
18 R v Dunsmuir [1996] 2 NZLR 1 (CA).
19 Ibid at 6-7.
[41] The Sentencing Act forfeiture provisions recognise the punitive element of an order forfeiting property used to facilitate an offence punishable by a maximum term of imprisonment of five years or more.20 That is done, in respect of an “instrument forfeiture order”21 by allowing the Court to take that order into account when fixing
the sentence to be imposed.22 As the Explanatory Note to the Bill made clear, it was
intended that forfeiture of a property not acquired out of the proceeds of crime (but used to commit an offence) would be tempered by an adjustment to the sentence to be imposed.23
[42] An instrument forfeiture order may only be made in respect of an “instrument of crime”, defined as property used (wholly or in part) to commit or to facilitate the commission of a qualifying instrument forfeiture offence.24 A “qualifying instrument forfeiture offence” includes an offence punishable by a maximum term of imprisonment of five years or more.25
[43] Once a person has been convicted of a “qualifying instrument forfeiture offence” the prosecutor has an obligation to inform the Court whether it should consider making an “instrument forfeiture order”. In doing so, the prosecutor is required to notify the Court, in writing, of the details of the subject property and the name and identifying particulars of any person, other than the offender, who the prosecutor knows may have an interest in the property.26
[44] On notification, the Court determines whether it should consider making such an order and, if so, must give directions to enable the process to be undertaken.27
The Court has power to direct the prosecutor to issue and serve a notice advising
20 See Criminal Proceeds (Recovery) Act 2009, s 4(1), definition of “qualifying instrument forfeiture offence”.
21 The term “instrument forfeiture order” is defined by s 4(1) as one made under s 142N of the
Sentencing Act 2002.
22 Sentencing Act 2002, s 10B.
23 See para [38] above.
24 The definition of “instrument of crime” is contained in s 4(1) of the Sentencing Act 2002.25 The term “qualifying instrument forfeiture offence” is defined by s 4(1) of the Sentencing Act
2002.
26 Sentencing Act 2002, s 142B.
27 Ibid, s 142C.
third parties of his or her intention to seek an instrument forfeiture order or may require further information.28 For the purpose of determining the value of an “instrument of crime”, the Court has power to seek an independent valuation of the subject property or any interest in it.29 The Court may also order that a declaration of ownership be made, either by the offender or by some person having an interest in the property.30 If the Court is satisfied that an offender has effective control over the subject property, on application made by the Commissioner, the Court may order property to be treated as though the offender had an interest in it.31
[45] The form of application32 and the hearing33 are specified in the Sentencing Act. At the hearing, the Court may grant or refuse an instrument forfeiture order34 or grant relief to a third party, other than the offender, from the operation of such an order.35
[46] Section 142N of the Sentencing Act identifies the Court’s powers:
142N Instrument forfeiture orders
(1) Following a hearing under section 142K, the court may, if it is satisfied that the property described in the notice given under section 142B is an instrument of crime, order that the instrument of crime or any part of it specified by the court be forfeited to the Crown.
(2) In considering whether or not to make an instrument forfeiture order under subsection (1) in respect of particular property, the court may have regard to—
(a) any matter raised in an application for relief under section 142J;
and
(b) the use that is ordinarily made, or was intended to be made, of the instrument of crime; and
(c) any undue hardship that is reasonably likely to be caused to any person by the operation of such an order; and
28 Ibid, ss 142E and 142F.
29 Ibid, s 142G.
30 Ibid, s 142H.31 Section 58 of the Criminal Proceeds (Recovery) Act 2009, incorporated into the sentencing regime by s 142I of the Sentencing Act 2002.
32 Sentencing Act 2002, s 142J.
33 Ibid, at s 142K.
34 Ibid, s 142N.
35 Ibid, ss 142J, 142L and 142M.
(d) the nature and extent of the offender's interest in the instrument of crime (if any), and the nature and extent of any other person's interest in it (if any); and
(e) in addition to the matters referred to in section 77(1) of the Criminal Proceeds (Recovery) Act 2009, any other matter relating to the nature and circumstances of the qualifying instrument forfeiture offence or the offender, including the gravity of the qualifying instrument forfeiture offence.
(3) A court that makes an instrument forfeiture order may, if it considers that it is appropriate to do so, by order,—
(a) declare the nature, extent, and value of any person's interest in an instrument of crime; and
(b) declare that the instrument forfeiture order may, to the extent to which it relates to the interest, be discharged under section 85 of the Criminal Proceeds (Recovery) Act 2009.
(4) If the court orders that property (other than money) be forfeited to the Crown, the court must specify in the order the amount that it considers to be the value of the property at the time the order is made.
(5) If a court makes an instrument forfeiture order, the court may give any directions that are necessary or convenient for giving effect to the order. (my emphasis)
[47] Section 77 of the 2009 Act, to which s 142N(2)(e) refers, states:
77 Applications for relief from instrument forfeiture order
(1) A person (other than a person referred to in subsection (2)) may make an application for relief from an instrument forfeiture order under section
142J of the Sentencing Act 2002—
(a) if the person claims an interest in property described in a notice issued under section 142B of the Sentencing Act 2002; or
(b) on the ground that, having regard to all of the circumstances, undue hardship is reasonably likely to be caused to the person making the application or another person (other than a person referred to in subsection (2)) by the operation of an instrument forfeiture order.
(2) A person who has been convicted of the qualifying instrument forfeiture offence to which a notice issued under section 142B of the Sentencing Act
2002 relates may not make an application for relief under section 142J of
that Act in respect of any interest in property described in that notice.
Section 77(2) makes it clear that the offender is barred from seeking relief under s 142J of the Sentencing Act.
[48] The effect of an instrument forfeiture order made under s 142N of the Sentencing Act is set out in s 70 of the 2009 Act. The Court must specify that the forfeited property vests in the Crown absolutely and is in the custody and control of the Official Assignee.36 If land were vested in the Crown absolutely, as a consequence of an instrument forfeiture order, “an interest recorded on the title to the land that is not affected by the instrument forfeiture order is not extinguished”.37
[49] In making an instrument forfeiture order, the Court is empowered to declare the nature, extent and value of any person’s interest in property specified in the order and to give any directions that may be necessary and convenient for giving effect to the order.38
[50] While the Court’s ability to take account of “any undue hardship that is reasonably likely to be caused to any person by the operation of” an instrument forfeiture order39 is expressed in the same way as the comparator provision in the
1991 Act,40 there is an important distinction to be drawn between the jurisdictional
aspects of the new sentencing forfeiture regime and the 1991 Act.
[51] Section 142N(1) empowers the Court to “order that the instrument of crime or any part of it specified by the Court be forfeited to the Crown”. But its language does not permit an interpretation enabling a specified monetary interest to be retained by the offender. The Court must decide whether or not to make an order for forfeiture; it is a case of all or nothing.
[52] To emphasise that point, s 70(1) of the 2009 Act provides that an instrument forfeiture order made under s 142N of the Sentencing Act must specify the property to which that order relates, with the consequence that that property vests in the Crown absolutely. On the other hand, s 16(1) of the 1991 Act provided that forfeited property “shall vest absolutely in the Crown to the extent of the interest specified in
the order”.
36 Criminal Proceeds (Recovery) Act 2009, s 70. The comparator provision, in s 16(1) of the Proceeds of Crime Act 1991, provided that, where a forfeiture order was made, “the property shall vest absolutely in the Crown to the extent of the interest specified in the order”. (my emphasis)
37 Ibid, s 70(2). See also s 72 of that Act.
38 Ibid, s 71(1).
39 Sentencing Act 2002, s 142N(2)(c).
[53] Although the “undue hardship” provisions are expressed in the same terms,41 it is necessary to consider whether a finding of “undue hardship” requires the Court to decide whether the hardship is sufficiently severe to justify refusal of an instrument forfeiture order.42
[54] In Lyall v Solicitor-General,43 the Court of Appeal equated “undue hardship” with disproportionately severe treatment. Delivering the judgment of the Court, Blanchard J said:
... Section 15(2) refers to undue hardship. Here there can be no undue hardship to anyone other than Black in the making of a forfeiture order because the other interests (those of Lyall and the mortgagee) are able to be addressed under ss 17 and 18. This was not a case, for example, of the use of a family home for drug dealing when special hardship might be suffered by innocent members of the family, having no interest in the property and therefore no ability to apply under s 17, if the home were to be forfeited.
Mr Atkinson placed emphasis on the Court's discretion under subs (1) and on the reference in subs (2) to any other matter relating to the nature and circumstances of the offence or the offender, including the gravity of the offence. He argued that forfeiture would be a disproportionate hardship and penalty for Black who would suffer loss of his one-third of the equity of the property. That equity seems to be about $130,000 (the mortgagee being entitled to some interest and perhaps reimbursement of expenses as well as the outstanding principal sum of $30,000).
We see nothing excessive in the forfeiture. It is not disproportionately severe treatment or punishment in terms of s 9 of the New Zealand Bill of Rights Act
1990. Black had for a long period chosen to trade in drugs from his property
frequently and in a quite substantial way. He may, as is submitted, have been primarily motivated by a need to feed his homebake addiction and may have in that manner parted with his cannabis dealing profits but that cannot excuse his deliberate participation in the distribution of an addictive substance. Other choices were open to him. The policy of the Act is to strip an offender of his or her interests in the property used to commit the crime. The reason for committing those crimes will ordinarily be immaterial. The property was not bought using tainted money but it was largely dedicated by its owners to drug dealing. Those who establish drug houses and commit serious offences in or from them can normally expect to lose them unless there is gross or severe disproportion between the gravity of offending and the value of the property sought to be forfeited coupled with the other punishment inflicted on the offender. We have obtained some guidance on this question from the decision of the Court of Appeals for the Ninth Circuit in United States v Washer 817 F 2d 1409 (1987) in which it was held that only those forfeitures that in light of all the circumstances are grossly
40 Compare s 142N(1) and (2)(c) and Proceeds of Crime Act 1991, s 15(1) and (2)(b).
41 Ibid.
42 Sentencing Act 2002, s 142N(1) and (2)(c).
43 Lyall v Solicitor-General [1997] 2 NZLR 641 (CA) at 646-647.
disproportionate to the offence committed are prohibited by the Eighth Amendment's ban on cruel and unusual punishment. Black's appeal against the forfeiture order is dismissed. (my emphasis)
[55] The highlighted extract from Lyall assists in determining the consequences of a finding of “undue hardship” under the new forfeiture regime. Blanchard J, for the Court of Appeal, made it clear that those who use property to deal in drugs could “normally expect to lose” the property “unless there is gross or severe disproportion between the gravity of offending and the value of the property” otherwise to be forfeited. But, importantly, the Court added that “other punishment inflicted on the offender” should be brought to account in determining whether forfeiture was “gross or severe”. The same principle must apply equally to those who cultivate or manufacture controlled drugs.
[56] In Stanton v Solicitor-General,44 the Court of Appeal again discussed the linked concepts of disproportionality and undue hardship, saying:
[16] There is always an overlap between disproportionality and undue hardship under subs (2)(b). In terms of undue hardship a useful non- exclusive list of factors that would weigh can be found in Taylor v Attorney- General for the State of South Australia (1991) 55 SASR 462 at 474 (SCCCA). This case has been cited with approval in New Zealand (Solicitor- General v Sanders (1994) 2 HRNZ 24 at 31 (HC); Solicitor-General v Wong (1997) 14 CRNZ 624 at 633 (HC)). Those factors include the value of the property; the nature of the offender’s interest; the value of the drugs involved; whether the property was acquired with the proceeds of sale of drugs; the utility of the property to the offender; length of ownership; the extent to which the property is connected with the commission of the offence; and the fact that the forfeiture provisions are intended as a deterrent to drug dealers; and the interests of innocent third parties. A number of these factors are relevant in this case.
[57] In Solicitor-General v Anaru,45 the Court of Appeal held that loss of a family home on the making of a forfeiture order would not, of itself, amount to undue hardship.46
[58] The charges of cultivation and sale each carry a maximum penalty of eight years imprisonment.47 The property at Moana Road is clearly an “instrument of
crime” for the purposes of the forfeiture regime on sentencing.48
44 Stanton v Solicitor-General [2007] NZCA 434.
45 Solicitor-General v Anaru CA52/06, 16 August 2006.
[59] If an instrument forfeiture order were made, s 10B of the Sentencing Act applies. It explains the way in which the forfeiture order must be taken into account when the offender is sentenced:
10B Court must take into account instrument forfeiture order or successful application for relief
(1) In sentencing or otherwise dealing with an offender convicted of a qualifying instrument forfeiture offence, the court must take into account—
(a) any instrument forfeiture order made, or to be made, in respect of property used to commit, or to facilitate the commission of, the qualifying instrument forfeiture offence:
(b) any forfeiture of that property by any other order or means arising from the offender's conviction:
(c) any order for relief made under section 142L or 142M in favour of another person in respect of property used to commit, or to facilitate the commission of, the qualifying instrument forfeiture offence:
(d) the nature of the relationship between that person and the offender:
(e) the likely benefit to the offender of any order referred to in paragraph (c).
(2) In deciding the weight to be given to any matter referred to in subsection (1)(a), (b), or (d), the court must take into account—
(a) the value of the property that is the subject of the instrument forfeiture order or that is otherwise forfeited:
(b) the nature and extent of the offender's interest in that property. (3) Without limiting any other powers of a court to adjourn, in any case
contemplated by this section a court may adjourn the proceedings until—
(a) any property that is the subject of a forfeiture order has been surrendered to the Official Assignee; or
(b) any appeal or application for relief in relation to an instrument forfeiture order or any other proceeding under the Criminal Proceeds (Recovery) Act 2009 has been determined.
46 Ibid at para [22].
47 Misuse of Drugs Act 1975, s 6(1)(b) and (2)(c).
48 See sub-para (a) of the definition of “instrument of crime” set out in s 4(1) of the Sentencing Act
2002.
(c) Competing submissions
[60] Mr Collins, for the Crown, submitted that a fundamentally new approach was required in cases involving the forfeiture of property for significant criminal activity. Now that s 10B of the Sentencing Act requires a Court to take account of an “instrument forfeiture order”, when sentencing an offender, Mr Collins submits that the general rule should require property to be forfeited, with a credit being given for the value of the property forfeited when determining an end sentence. In short, Mr Collins’ position is that expected forfeiture of property will act as a greater deterrent than an (otherwise) appropriate term of imprisonment; a view given credence by the stance taken by Mr E on the present application.
[61] For example, notwithstanding the appellate guidance contained in R v Terewi,49 Mr Collins submitted that if his application was wholly successful, a sentence short of imprisonment might be appropriate; possibly one involving a community-based sentence. By reference to s 142N of the Sentencing Act,50 Mr Collins submitted that, so far as discretionary considerations were concerned, the only issue was the extent of any hardship that might be suffered by Mr E from forfeiture of the entire property.51
[62] While accepting that the new forfeiture regime was intended to operate as a disincentive for the commission of serious crime, Mr Snell, for Mr E , emphasised potential injustices that might result from too rigid an application of the new statutory provisions. He suggested that type of approach suggested by Mr Collins carried a real risk of prejudice against offenders in lower socio-economic groups where, for example, the use of trusts to shield assets was seldom used. In the context of Mr E , he submitted that, as a man of 53 years involved primarily in manual work, his earning capacity was diminishing, as opposed to a man of the same age working in a profession. Mr Snell submitted that there remained room for
application of a proportionality principle.52
49 R v Terewi [1999] 3 NZLR 62 (CA).
50 See para [46] above.
51 Sentencing Act 2002, s 142N(2)(c).
52 Sentencing Act 2002, s 142N(2)(c) and (e).
[63] Mr Snell submitted that the house was acquired many years ago without the use of proceeds of any criminal offending53 and that Mr E risked being left without means to re-start his life after serving any sentence, through the lack of his capital as a result of forfeiture of the property. Mr Snell submitted that while the undoubted intention of the new legislation was to deter offending of this type, he queried whether this was the type of offending targeted for complete forfeiture.
(d) Applications for relief by third parties
[64] Both the 2009 Act and the new forfeiture provisions of the Sentencing Act make provision for relief to be granted in favour of third parties.54 Without opposition, the interests of two third parties will be protected when final orders are made.
[65] Bank of New Zealand has a mortgage over the Moana Road property. It sought relief from forfeiture in respect of its mortgage debt, on the grounds that it was not involved in the qualifying offending on which the application for forfeiture was made. As at 24 March 2010, the bank’s interest in the property was $66,655.34. The Crown has no opposition to the bank’s application. Although I deferred quantification of the bank’s interest until sentencing, it may be that no specific order
is required.55
[66] An application for relief was also made by Ms Kay Christie.56 At the time the offending was detected, she was living with Mr E at the Moana Road property, as his de facto spouse. She claimed a one half interest in the property under the application of the Property (Relationships) Act 1976, estimating the value of her interest at $310,000.
[67] Mr Philip, counsel for Ms Christie, and counsel for the Crown advised me, on
4 August 2010, that an accommodation had been reached between Ms Christie and the Crown. Having regard to the limited time she had been living with Mr E and
53 See para [16] above.
54 Criminal Proceeds (Recovery) Act 2009, s 77(1) and Sentencing Act 2002, ss 142J and 142M.
55 Criminal Proceeds (Recovery) Act 2009, ss 70(1) and 72, Land Transfer Act 1952, s 99.
her degree of knowledge of the offending, she will receive $20,000 from the sale of
the dwelling, if the Crown’s forfeiture application were successful.
[68] That compromise is not opposed by Mr E . I excused Mr Philip’s attendance at the substantive hearing. An order confirming Ms Christie’s protected interest will also be made at the sentencing hearing.57
(e) Should a forfeiture order be made?
[69] The legal framework against which I decide whether to make a forfeiture order can be summarised as follows:
a) Section 142N(1) of the Sentencing Act does not permit the Court to make a partial forfeiture order, in respect of the Moana Road property. That view is supported by s 142N(2) which specifies factors to be taken into account when the Court considers “whether or not to make an instrument forfeiture order ... in respect of particular property”.
b)The reference to “part of” the property in s 142N(1) does not authorise specification of a monetary interest in the property for an offender. The indivisible nature of the property means that it must be forfeited in full, or not at all.58
c) Section 142N(3) does not provide a jurisdictional basis for relief in favour of an offender, on grounds of (for example) undue hardship. Rather, that provision is directed to declaring the nature, extent and value of (for example) a mortgagee or joint owner of property to be
forfeited.
56 Her application was made under s 142L of the Sentencing Act 2002.
57 See para [76] below.
58 R v Dunsmuir [1996] 2 NZLR 1 (CA) at 6-7.
d)An offender is not entitled to seek relief after a forfeiture order has been made, whether on grounds of undue hardship or otherwise.59
e) “Undue hardship” involves consideration of the same factors identified in cases dealing with the 1991 Act.60 However, in determining whether the hardship is disproportionately severe, regard is not had to the sentence imposed because that can now be adjusted to take account of the financial impact of the forfeiture order.
f) In assessing whether a forfeiture order should be made, the Court must balance both Parliament’s intention to regard such an order as part of the sentencing process and the way in which the harshness of any penalty suffered through forfeiture can be ameliorated by
reduction of an otherwise appropriate sentence61 against any undue
hardship that would be suffered by the offender,62 in the context of the overall penalty to be imposed to respond to the offending.
[70] Mr E and Ms Christie have moved to the Bay of Plenty, where they continue to live together. For that reason, the property at 42 Moana Road is no longer their family home. Nevertheless, it constitutes Mr E ’s only asset of any value. Therefore, I must be mindful of the point made by Mr Snell in determining whether complete forfeiture is appropriate.63
[71] In determining whether “undue hardship” has been established, I take the
following factors into account:
a) The property is no longer used as a family home.
59 Criminal Proceeds (Recovery) Act 2009, s 77, read in conjunction with s 142N(2)(e) of the
Sentencing Act 2002.
60 For example Lyall v Solicitor-General [1997] 2 NZLR 641 (CA) and Stanton v Solicitor-General
[2007] NZCA 434.
61 See the Explanatory Note to the Criminal Proceeds (Recovery) Bill, set out at para [38] above.
62 Lyall v Solicitor-General [1997] 2 NZLR 641 (CA): see para [54] above.
63 See para [62] above.
b)The value of the property. The two valuations have reached a similar conclusion; one valuing the property at $490,000 and the other at
$480,000.
c) Mr E is the registered proprietor of the property. The only other interests to be taken into account are those of the Bank of New Zealand and Ms Christie.64
d)The commercial cultivation occurred over a period of three years, with a yield of about $90,000 during that time. The offending took place exclusively from the property. There are also admissions from Mr E of earlier involvement in cultivation of cannabis.
e) Mr E has admitted illegal use of Class C controlled drug cannabis since he was aged 15; a period of some 37 years. Only since he faced the possibility of losing the Moana Road property has he taken any steps to desist from using the drug.
f) The property has been owned by Mr E since 1988, was acquired from legitimate sources, and was refinanced by him to meet a matrimonial property settlement with his ex wife.
g) If forfeiture were not denied, Mr E would be left without capital at the age of 53 years, making it difficult for him to re-establish himself financially.
h)The cultivation operation is a medium size commercial venture. In terms of the gravity of the offending, a starting point of something in the order of three to four years imprisonment would, ordinarily, be
taken.65
64 See paras [65]-[67] above.
65 R v Terewi [1999] 3 NZLR 62 (CA) at para [4].
[72] The factors weighing in favour of Mr E are the financial impact of a forfeiture order66 and the fact the property was acquired from legitimate sources.67
The criminal conduct in which he engaged and the duration of it are to be balanced against those impacts. The question is whether a house property valued at approximately $485,000 (the mean of the two valuations) should be forfeited having regard to the financial position in which that will leave Mr E . In old sentencing terms, having regard to the third party interests, forfeiture of Mr E ’s interest would equate to a fine of about $395,000. However, it is possible to say that at least
$90,000 of any amount forfeited could be treated as a recovery of proceeds of crime no longer traceable.68
[73] Viewed in terms of the policy of the Act, I see no basis on which I can justifiably refuse a forfeiture order, having regard to the factors in favour of making one. While the result is harsh, Mr E will receive the advantage of a benign sentence. Had jurisdiction existed, I would have been minded to grant Mr E a not insignificant monetary interest so that he was not left without capital at his age and likely earning capacity. While the absence of such a jurisdiction reflects Parliament’s intention that the best way to deter crime is to put significant assets at real risk of forfeiture, there are other risks inherent in not granting any relief to someone such as Mr E ; for example, he might become a burden on the State or, worse, be given an incentive to reoffend to restore his capital base.
[74] Using Blanchard J’s words in Lyall v Solicitor-General69 the policy of the Act is to strip an offender of his or her interests in property used to commit the crime. The fact that Mr E made bad life choices does not enable him to avoid the impact of the legislation implementing that policy.
[75] For those reasons, I propose to make a forfeiture order in respect of the
Moana Road property on 27 August 2010.
66 See para [71](g) above.
67 See para [71](f) above.
68 See para [35] above.
69 Lyall v Solicitor-General [1997] 2 NZLR 641 (CA).
Conclusion
[76] I will make an instrument forfeiture order of the type indicated on 27 August
2010. Before that order is finally pronounced, I will require, as at that date, final figures in respect of the Bank of New Zealand’s interest in the property and any other orders required by the Commissioner to give effect to the forfeiture and Ms Christie’s third party interest.70
[77] The effect on sentencing of the order I propose to make will be determined after I hear argument on 27 August 2010.
[78] I thank counsel for their assistance.
P R Heath J
Delivered at 4.30pm on 19 August 2010.
Solicitors:
Crown Solicitor, PO Box 609, Napier
Bate Hallett Lawyers, PO Box 749, Hastings (R B Philip) Counsel:
A J S Snell, PO Box 101, Hastings
Copy to:
Bank of New Zealand, Wellington (S J Pickett) Fax: 04 474 6628
70 See s 142N(4) and (5) Sentencing Act 2002.
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