R v Harris
[2018] NZHC 273
•28 February 2018
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI TERENGA PARĀOA ROHE
CRI-2014-029-000961
[2018] NZHC 273
BETWEEN THE QUEEN
Plaintiff
AND
MICHAEL HARRIS
First Defendant
MAINSTREET LODGE HOLDINGS LIMITED
Second DefendantMAINSTREET LODGE KAITAIA LIMITED
Third Defendant
Hearing: 8 February 2018 Appearances:
B M O’Connor for Plaintiff N E Town for Defendants
Judgment:
28 February 2018
JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie On 28 February 2018 at 3.00pm
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
Solicitors/counsel:
Marsden Woods Inskip Smith, Whangarei
Webb Ross McNab Kilpatrick Ltd, Whangarei
R v HARRIS [2018] NZHC 273 [28 February 2018]
Introduction
[1] The Crown seeks forfeiture of the net proceeds of sale of a property in Kaitaia known as the Mainstreet Lodge (the Lodge). The property formerly belonged to the second defendant – Mainstreet Lodge Holdings Limited. The third defendant, Mainstreet Lodge Kaitaia Limited, ran a lodge/backpacker’s business from the property. The first defendant, Mr Harris, was at all material times, and still is, the sole director of and shareholder in both companies.
[2] In late 2014, Mr Harris was charged with a large number of offences, namely disabling (x 12),1 attempting to disable,2 indecent assault (x 15),3 making intimate visual recordings (x 7)4 and possession of those recordings (x 7).5 In late July 2016, Mr Harris pleaded guilty to a number of the charges. He pleaded guilty to the balance in September 2016.
[3] The offences of indecent assault and disabling are punishable by a maximum term of imprisonment of five years or more.6 They are qualifying instrument forfeiture offences.7
[4] Prior to the pleas being entered, the Commissioner of Police applied, both without notice and on notice, for a restraining order under the provisions of the Criminal Proceeds (Recovery) Act 2009 over the Lodge, situated at 235 Commerce Street, Kaitaia. The without notice application was granted by Judge McDonald in the District Court at Whangarei in July 2015.8 The on notice application was opposed – primarily on the ground that the accommodation business operated from the property by Mainstreet Lodge Kaitaia Limited should be able to continue. Mr Harris was concerned that the business would be adversely affected if the Lodge was placed under the control of the Official Assignee. The opposition recorded that the restraining order would not be opposed if the Official Assignee did not interfere with the day-to-day
1 Crimes Act 1961, s 197(1).
2 Sections 72, 197(1) and 311(1).
3 Section 135.
4 Section 216H.
5 Section 216I(1).
6 Sections 135 and 197(1).
7 Sentencing Act 2002, s 4(1).
8 New Zealand Police v Harris [2015] NZDC 13655.
operation of the accommodation business. This was accepted by the Commissioner and orders were made accordingly.
[5] At much the same time, the Commissioner made an on notice application for further orders. He sought to restrain other assets of Mainstreet Lodge Holdings Limited and Mainstreet Lodge Kaitaia Limited. This further application was opposed because it would extend to a property at 237A Commerce Street, Kaitaia, which was also owned by Mainstreet Lodge Holdings Limited, but was not associated with the Lodge at 235 Commerce Street. In the event, a further order was made by Judge McDonald by consent. The property at 237A Commerce Street was excluded from the order, the parties having agreed that the property was unlikely to become subject to an instrument forfeiture order.
[6]The restraining orders have since been extended.
[7] On 9 November 2016, the Crown filed and gave notice pursuant to s 142B of the Sentencing Act 2002 asking the Court to consider whether to make an instrument forfeiture order in respect of the restrained property, which then comprised:
(a)the Lodge at 235 Commerce Street, Kaitaia;
(b)the shares held by Mr Harris in Mainstreet Lodge Holdings Limited;
(c)the assets of Mainstreet Lodge Holdings Limited (other than the property at 237A Commerce Street);
(d)the shares held by Mr Harris in Mainstreet Lodge Kaitaia Limited; and
(e)the assets of Mainstreet Lodge Kaitaia Limited.
[8] In December 2016, the Crown was directed to issue and serve notice on those parties who had an interest in the restrained property. The parties served were Mr Harris, Mainstreet Lodge Holdings Limited, Mainstreet Lodge Kaitaia Limited and the ASB Bank.
[9] Mainstreet Lodge Holdings Limited and Mainstreet Lodge Kaitaia Limited both filed applications for relief pursuant to s 142J(1) of the Sentencing Act. So did the ASB Bank. The ASB Bank held first mortgages over both properties and it had issued default notices under s 119 of the Property Law Act 2007.
[10] Both properties have since been sold by mortgagee’s sale. The Lodge at 235 Commerce Street sold for $600,000 and the property at 237A Commerce Street for
$350,000. Following repayment of the mortgages and other associated costs, the net proceeds of sale were paid into Court. The amount paid into Court was $112,485.
[11] The Crown’s application for forfeiture initially sought the net proceeds of sale in their totality. In the course of the hearing:
(a)Counsel for the Crown, Ms O’Connor, acknowledged that part of the net proceeds of sale came from the sale of the property at 237A Commerce Street. She accepted that apportionment is appropriate. The portion of the net proceeds of sale attributable to the sale of 235 Commerce Street is 63 per cent of the amount paid into Court, or
$70,865.55. The balance – namely $41,619.45, or 37 per cent of the amount paid into Court – was derived from the sale of the property at 237A Commerce Street. This judgment is confined to that part of the net proceeds of sale as is attributable to the sale of the property at 235 Commerce Street, Kaitaia.
(b)Ms Town accepted, for the defendants, first, that all required procedural steps have properly been taken and, secondly, that Mr Harris has effective control of both Mainstreet Lodge Holdings Limited and Mainstreet Lodge Kaitaia Limited. Both companies will at some stage either be placed into liquidation or struck off for failing to file returns. Mr Harris is the only party with any interest in the net proceeds of sale.
Mr Harris’ offending
[12] Mr Harris pleaded guilty to 42 charges, involving 18 victims. As already noted, 27 of his offences were qualifying instrument forfeiture offences, as defined in s 4(1) of the Sentencing Act.
[13] All but one of the offences were committed against young men who were travelling in New Zealand, and who happened to stay at the Lodge. The only exception was the first victim, also a young man, who was known to Mr Harris through his parents.
[14] As was noted by Fogarty J in sentencing Mr Harris,9 there was a pattern to much of the offending that occurred at the Lodge. Mr Harris would first obtain the confidence of the victim. He then invited the victim to move into his manager’s residence in the Lodge. He would offer the victim free accommodation and food in exchange for cleaning and caretaking. Mr Harris’ modus operandi was to then stupefy the victim by giving him temazepam, a drug which Mr Harris had previously been prescribed. The temazepam was given to the victim without his knowledge, either in food or in drinks such as orange juice, alcohol, or the like. Once the victim had been stupefied, Mr Harris would photograph him, or get into bed with the victim and “spoon” (or cuddle) him from behind. When he photographed the victim, he would at times move the victim’s clothing, bed cover or the position of his hands, in order to photograph his genitals unobstructed.
[15] Mr Harris’ offending was discovered when the final victim, in a semi-stupefied state, went to a friend’s bedroom, and told his friend that he was feeling unwell. The friend became suspicious and went to stay in the victim’s room. During the night, Mr Harris came into the room and touched the victim’s face. This woke the victim’s friend. The following day, the victim had no recollection of what had occurred. The victim’s friend thought that this was unusual, and the two young men went to Kaitaia Hospital. A urine sample was taken from the victim. It was subsequently analysed by ESR and both temazepam and oxazepam were found to be present in the sample.
9 R v Harris [2017] NZHC 1519 at [4].
[16] Police officers searched the Lodge. They found a large number of photographs in Mr Harris’ possession. The photographs were of young males. All were asleep. There were a number of close-up photographs of their genital regions. In many of the photographs the young men were not wearing singlets or pyjama jackets. They were sleeping in their boxer shorts. Some photographs focused on the victims’ backs, necks, arms and upper torsos or bottoms.
[17]On 30 June 2017, Fogarty J sentenced Mr Harris.10 He considered that:
[24] … the sheer volume [of] this offending, 19 [18?] victims, 42 offences, conducted in secret, largely achieved by first stupefying the victims with a drug is altogether … such seriously culpable conduct that it requires a significant sentence.
He accepted the Crown’s proposed starting point of nine to 12 years’ imprisonment,11 and he adopted a starting point at “the lower end of the Crown range”.12 He noted that Mr Harris had expressed remorse for the offending, and he allowed a discount of 10 per cent for his guilty pleas.13 He sentenced Mr Harris to eight years’ imprisonment.14 The Judge then commented as follows:
[29] … I reserve leave for Mr Harris to apply to the Court for a variation of sentence depending on the outcome of the forfeiture proceedings in respect of the backpackers’ hostel and the ability or not for there to be some reparation of the proceeds of the disposal of the hostel to the victims. The Crown will be seeking reparation to be determined as part of the forfeiture procedure.
[18]Mr Harris has appealed this sentence. This appeal is yet to be heard.
The application for an instrument forfeiture order
[19] The Crown’s application is made pursuant to the Sentencing Act, although it sought the initial restraining order under the Criminal Proceeds (Recovery) Act. Both the Criminal Proceeds (Recovery) Act and ss 142A-142Q of the Sentencing Act15
10 R v Harris, above n 9.
11 At [25].
12 At [26].
13 At [26].
14 At [26]-[28].
15 See s 10 of the Sentencing Amendment Act 2009.
replaced the Proceeds of Crime Act 1991.16 The Court of Appeal in Elliot v R
explained the difference between the two statutory regimes as follows:17
[34] … The Criminal Proceeds (Recovery) Act deals with cases in which no conviction has yet been entered while the Sentencing Act provisions are triggered on conviction and apply as part of the sentencing process …
[20] Unfortunately, in this case, the forfeiture application has not been dealt with as part of the sentencing process.
[21] Under the Sentencing Act, where an offender is convicted of an offence carrying a maximum penalty of five years’ imprisonment or more, the Crown can apply to the Court for the forfeiture of property used by the offender to commit or facilitate the offending.18 The Court is given extensive powers to deal with any such application.19
[22] Before it can exercise the discretion conferred on it to make an order, the Court must be satisfied that the property sought to be forfeited is an “instrument of crime”.20
[23] In considering whether or not to make an order, the Court can have regard to the following matters:21
(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
(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)the matters referred to in section 77(1) of the Criminal Proceeds (Recovery) Act 2009, any other matter relating to the nature and
16 Section 171 of the Criminal Proceeds (Recovery) Act 2009 repealed the Proceeds of Crime Act 1991.
17 Elliot v R [2011] NZCA 386, [2011] 3 NZLR 811.
18 Section 142B.
19 Sections 142C – 142P.
20 Section 142N(1).
21 Section 142N(2).
circumstances of the qualifying instrument forfeiture offence or the offender, including the gravity of the qualifying instrument forfeiture offence.
[24] Allan J, in Crown Solicitor of Auckland v Crawford-Flett, noted several other factors that have been taken into account in such cases:22
(a)whether the applicant(s) for relief owns any other property;
(b)the age of the parties and whether they are able to build up sufficient capital to purchase another property or to purchase part of the subject property;
(c)evidence of sentimental value; and
(d)how the property was acquired.
[25] Any person, other than the offender, may make an application for relief from an instrument forfeiture order.23 The Court may grant relief if the person has an interest in the property24 or would suffer undue hardship.25
[26] If the Court orders that property 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.26
Analysis
[27] I start by considering whether or not the Lodge was an instrument of crime as defined.27
22 Crown Solicitor of Auckland v Crawford-Flett [2012] NZHC 963 at [46]-[49].
23 Section 142J(1).
24 The term “interest” is defined widely in s 5(1) of the Criminal Proceeds (Recovery) Act.
25 Sections 142L and 142M.
26 Section 142N(4).
27 Following the approach discussed in R v Van de Ven [2013] NZHC 479 at [36].
[28] An instrument of crime is defined in the Sentencing Act as “property used (wholly or in part) to commit, or to facilitate the commission of, a qualifying instrument forfeiture offence”.28
[29] Even if the property has only been used in part to commit or facilitate the commission of the crime, the entire property is an instrument of crime and it can be subject to forfeiture.29 It is, however, open to the Court to make an order for partial forfeiture.30
[30] The word “facilitate” has been held, in a related context, to mean make easy or easier, promote, help, or forward.31
[31] Here, it was the Crown’s argument that the Lodge was used by Mr Harris to facilitate the majority of his offending. It submitted that he used the Lodge to gain access to his young male victims, and that the offending against 17 of the 18 victims would not have happened but for Mr Harris’ ownership of the Lodge.
[32] Ms Town argued that the Lodge was not used either to commit or to facilitate the offending, and that it was incidental to what occurred. She submitted that the Lodge was merely the place where much of the offending took place. She also observed that the offending occurred in the manager’s residence, which was a relatively small part of the Lodge.
[33]I am not persuaded by Ms Town’s argument.
[34] First, it is clear that Mr Harris selected his victims from the pool of visitors who came to the Lodge. Mr Harris relied on the Lodge to draw in potential victims.
[35] Secondly, there is a temporal connection between the majority of the offending and the purchase of the Lodge. Mr Harris first offended in 2005. There was no offending thereafter until Mr Harris purchased the Lodge in early 2012. The offending
28 Section 4(1).
29 Elliot v R, above n 17, at [38]; and see R v Van de Ven, above n 27, at [37].
30 Elliot v R, above n 17, at [41]. Where forfeiture of part of the restrained property is ordered, ss 70 and 85 of the Criminal Proceeds (Recovery) Act and s 142N(3) and (5) of the Sentencing Act provide practical mechanisms by which effect can be given to such order.
31 Solicitor-General v Fitzgerald HC Christchurch M329/92, 4 April 2003 at [17].
resumed almost immediately thereafter, commencing in March/April 2012, and then occurring on a regular basis thereafter. Mr Harris offended in April 2012, in November/December 2012, in December 2012/January 2013, in February 2013, between April and December 2013, in May 2013, in June/July 2013, in September 2013, in October 2013, in January 2014, in June 2014, in July 2014 and in September
2014.
[36] Thirdly, while the majority of the offending took place in the manager’s residence, it was an integral part of the Lodge. The manager’s residence simply provided a private place within the Lodge in which the offending could take place.
[37] Fourthly, Mr Harris offered a benefit to the victims – free accommodation and food in exchange for cleaning and caretaking. The operation of the Lodge offered the opportunity for the offending which occurred.
[38] Finally, the Lodge offered particularly vulnerable victims. All but one were international travellers. They were in New Zealand for only a short time. They did not have familial support, or support from friends. Often they had difficulties with English. As a result, they were less likely to report or question what was occurring, even when they were aware, albeit vaguely, of what had happened.
[39] This case has similarities to the decision in R v King.32 In that case, the offender operated for several decades what in effect became a night shelter for homeless street kids. The offender had modified his property to provide a sleeping area, and he provided mattresses and pillows for use in that area. He left the key in a hiding place known to many so that they could freely come and go. Toogood J took the view that the modifications, and the provision of food, shelter and money, were designed to provide the offender with a regular supply of vulnerable girls and young women whom he could then exploit for his own sexual gratification.33 He considered that the use made of the residence was far more instrumental in the offending than the use made of houses in those cases where the house simply provides a venue for the offending.34
32 R v King [2012] NZHC 3296.
33 At [18].
34 At [18].
[40] Here, there were no modifications as such, but the matters I have set out above satisfy me that the Lodge was used to facilitate the offending. It was not simply the place where Mr Harris offended.35 The Lodge and its operation was an integral part of Mr Harris’ modus operandi and it gave him access to all but one of his victims. Notwithstanding that the offending only took place in part of the Lodge, in my judgment, the Lodge was an instrument of crime.
[41] I now turn to consider Mr Harris’ interest in the net proceeds of sale, and the interests of other parties in that pool of money.
[42] The word “interest” is defined in s 5(1) of the Criminal Proceeds (Recovery) Act as follows:
interest, in relation to property of any kind (including, without limitation, restrained property or forfeited property), means—
(a)a legal or equitable estate or interest in the property; or
(b)a right, power, or privilege in connection with the property
[43] In this case, the interest of each of the parties seeking relief against forfeiture has either gone, or is no longer relevant.
(a)The ASB Bank has been paid out. It has no ongoing interest in the restrained property.
(b)Both Mainstreet Lodge Holdings Limited and Mainstreet Lodge Kaitaia Limited are under the control of Mr Harris. It has been acknowledged by his counsel that he is the only party with an interest in the proceeds of sale.
(c)The application no longer extends to the property at 237A Commerce Street, Kaitaia.
[44] Although Mr Harris had no direct legal or equitable interest in the Lodge property, s 142I of the Sentencing Act provides that the Court can apply s 58 of the
35 See, for example, R v Campbell [2013] NZHC 835 at [58].
Criminal Proceeds (Recovery) Act to determine his interest. Section 58(1) states that the Court can treat a respondent as having an interest in property if the Court is satisfied that the respondent had effective control of that property. Here, counsel has conceded, and I am satisfied, that Mr Harris had effective control over the Lodge property. As director and sole shareholder of the two companies, he could treat the property as his own. He is the ultimate recipient of the proceeds of sale, and he is the only person adversely affected by the Crown’s application.
[45] I now turn to consider whether or not to order forfeiture, by reference to the various statutory provisions set out above at [23], and to the matters discussed in other cases noted at [24] above.
[46]I note as follows:
(a)The matters raised in the three applications for relief are no longer relevant, for the reasons set out above.
(b)The Lodge operated as a backpacker’s lodge. It included a manager’s residence. According to an affidavit filed by Mr Harris, the manager’s quarters were not part of the backpacker’s accommodation. They were, however, in the same building. The manager’s quarters were located above the reception area.
(c)In terms of hardship, Mr Harris purchased both the Lodge and the adjoining property at 237A Commerce Street for $1,400,000 in 2012. He put $500,000 of his own money into the venture. The balance of the purchase price was funded by borrowing from the ASB Bank. At that stage, Mr Harris still had about $180,000 in additional funds. However, he had to put this money into the business to keep it afloat, after he was arrested for his offending in September 2014. He has deposed that prior to his arrest, the business ran profitably, and that he was able to make the required mortgage repayments on the due dates.
(d)Mr Harris has now lost the Lodge, and its associated business. He was unable to sell the Lodge after he was arrested, because the restraining
order was in place. The capital he invested in the Lodge and in the associated building at 237A Commerce Street, Kaitaia, represented his life savings. He has no other assets of any significance.
Also relevant to the issue of hardship is the fact that it is only the net proceeds of sale of the Lodge which are now in issue. No order is sought in respect of the net proceeds of sale of the property at 237A Commerce Street, Kaitaia. It follows that Mr Harris will be entitled to retain that part of the net proceeds of sale of 237A Commerce Street, Kaitaia – $41,619.45 – regardless of the outcome of the forfeiture application.
(e)I have discussed above Mr Harris’ interest in the net proceeds of sale. As noted, as he is the sole director and shareholder of the two companies, he is the only person who has an interest in the net proceeds of sale.
(f)The matters set out in s 77(1) of the Criminal Proceeds (Recovery) Act are not relevant in the circumstances of this case. There is no doubt that Mr Harris’ offending was seriously culpable. Fogarty J so found when he sentenced Mr Harris. The victim impact statements have also been made available to me. It is clear that the offending had a significant effect on many of Mr Harris’ victims. In addition, much of the offending was against foreign nationals, visiting this country. There will inevitably have been some impact on New Zealand’s reputation as a safe and pleasant place to visit.
[47]There are other matters to be taken into account in this case:
(a)Mr Harris has already received a significant sentence of imprisonment.
(b)Mr Harris was, as at January 2017, 58 years old. He will now be 59, or perhaps 60, years of age. What he recovers from the net proceeds of sale will be all he has left to live on in his retirement, other than any entitlement he will have to New Zealand superannuation payments.
(c)I take into account that Mr Harris was a first-time offender, and that the offending was not at the highest level. There was no sexual connection between Mr Harris and any of the victims. The photographs were not distributed to others. Mr Harris pleaded guilty and he has expressed remorse for his offending.
(d)I note that no part of the net proceeds of sale available for forfeiture will go to victims by way of reparation. If the Court makes an instrument forfeiture order, the monies resulting from the disposal of property specified in the order must go first towards paying the costs recoverable by the Official Assignee.36 Secondly, they must go to paying the Secretary of Justice the amount (if any) payable by way of legal aid granted to the offender.37 Thirdly, they must go to paying any reparation payments.38
Here, the Official Assignee’s costs to date total $29,084.18. I am advised that Mr Harris has three legal aid files. One file relates to Mr Harris’ trial and sentencing. The amount paid by the legal aid authorities to date is $49,789.94. There is also a civil file, relating to the present forfeiture proceedings. The amount paid to date on this file is $11,178.72. There is also a file relating to Mr Harris’ sentence appeal. No invoices have been received to date on that file, and nothing has yet been paid out. The above figures are not final amounts. Final invoices are yet to be submitted because the proceedings are not yet at an end. Nevertheless, on the information presently available, there will be nothing available to pay by way of reparation for the victims.
[48] Taking all of the above into account, I am satisfied that it is appropriate to direct that 25 per cent of the net proceeds of sale of the property at 235 Commerce Street, Kaitaia should be forfeited to the Crown – namely the sum of $17,716.38. I so order. The balance will be available to Mr Harris. The balance, together with the net proceeds of sale attributable to the sale of 237A Commerce Street, Kaitaia, will assist
36 Criminal Proceeds (Recovery) Act, s 85(a).
37 Section 85(b).
38 Section 85(c).
Mr Harris to make a fresh, albeit modest, start when he is released from custody. To my mind, this is in the public interest, and it does not impose a crushing outcome on Mr Harris, which would be disproportionate to his offending.
Wylie J
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