Solicitor-General of New Zealand v Graham HC Auckland M1628-Im01

[2001] NZHC 1254

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY M1628-IM01

IN THE MATTER of an application under the Proceeds of Crime Act 1991

BETWEEN THE SOLICITOR-GENERAL OF NEW ZEALAND
Applicant

AND PAUL JOSEPH GRAHAM
Respondent

Hearing: 13 December 2001

Counsel: A Puata for Applicant
G M Illingworth for Respondent

Judgment: 13 December 2001

JUDGMENT OF HARRISON J

Solicitors:
Crown Law Office (Wellington) for Applicant
P J McDonald (Auckland) for Respondent

Introduction

[1] On 24 October 2001 the Solicitor-General through Mr A R Burns, a partner in the Auckland office of Meredith Connell, Crown Solicitor, filed an application for an order under s 42(1)(a) of the Proceeds of Crime Act 1991 (“the Act”) directing that the respondent’s interest in a residential property at 12A Oteha Valley Road, Browns Bay is not to be disposed of or otherwise dealt with by any person.

[2] The grounds given in support of the application are that Mr Graham:

[a] has been convicted on indictment of three charges of corruptly accepting a bribe;

[b] has benefited from the commission of those crimes; and

[c] has a registered interest in the property.

In addition, the Solicitor-General relies on the ground that on 12 March 2001, in the District Court at Auckland, he obtained a pecuniary penalty order against Mr Graham to pay $57,000.

[3] It is also noteworthy, for reasons which will appear later, that the application relies on the ground that:-

“Under s 25(3) of the Proceeds of Crime Act 1991, a pecuniary penalty order against a person may be enforced as if it were an order made in civil proceedings instituted by the Crown against the person to recover a debt due by that person to the Crown.”

[4] Mr Graham opposes the application. His notice of opposition dated 20 November 2001, signed by Mr Grant Illingworth who appears as counsel today, succinctly summarises his grounds of opposition as follows:-

1. On 12 March 2001 the parties by their counsel entered into a binding agreement under which (inter alia) the applicant agreed to withdraw an application for a restraining order which was then before the Court.

2. The respondent has complied and stands ready to continue to comply with his obligations under the agreement.

3. By applying again for a restraining order the applicant has acted and is acting in breach of the agreement.

4. In the circumstances there is no proper basis upon which the Court could properly grant the discretionary relief sought by the applicant.

5. The application is vexatious and constitutes an abuse of the process of the Court.

Facts

[5] The material facts are not in dispute. The circumstances leading up to 12 March 2001 are summarised by Ms Aroha Puata who appears today for the Solicitor-General. I refer particularly to these concise extracts from her written synopsis of submissions:-

“8. On 19 July 2000, the respondent pleaded guilty to three charges of corruptly accepting bribes, totalling $57000, contrary to s 105(1) of the Crimes Act. Those convictions triggered the confiscation jurisdiction of the Act (see s 8(1) of the Act).

9. On 18 December 2000 the Solicitor General instructed the Auckland Crown Solicitor, as his agent, to seek a PPO and the necessary restraining order.

10. On 19 December 2000, the Crown Solicitor for Auckland, applied to the Auckland District Court for a PPO of $57000, pursuant to s 25 of the Act. At the same time, application was made to the High Court pursuant to s 39 of the Act for an order restraining the house (Court filing No M 2053-IM00). In anticipation of the restraining order, the District Court application for a PPO also sought an order directing the Official Assignee a (sic) pay to the Crown a sum equal to the PPO out of the proceeds of the sale of the house. Copies of that application for a restraining order and the affidavit filed in support are attached.”

[6] On 12 March 2001 Mr Burns, in his expressly stated capacity as counsel for the Solicitor-General, and Mr Illingworth, as counsel for Mr Graham, signed a consent memorandum filed in the District Court at Auckland. The terms of the memorandum are as follows:-

1. The Respondent has agreed that he is liable to a pecuniary penalty in the sum of $57,000.00.

2. He has agreed to pay that sum of money to the Crown 18 months from the date of the making of this order.

3. The sum of money will be secured by way of registered mortgage over his residential property at 12A Oteha Valley Road, Browns Bay comprised in CT79D/776.

4. That property is currently the subject of an application for restraining order before the High Court. Once the Court has made the order sought in this memorandum the application for restraining order will be withdrawn.

5. By consent this Court may make the following order:

“That the defendant pay to the Crown a pecuniary penalty in the sum of $57,000.00. This order is to lie in the Court until 13 September 2002.”

[7] Mr Peter McDonald, an Auckland solicitor, acts for Mr Graham. On 19 November 2001 he swore an affidavit in opposition to the Solicitor-General’s application. The affidavit annexes his exchange of correspondence with Meredith Connell commencing with Mr McDonald’s letter dated 28 March 2001. The essence of Mr McDonald’s unchallenged evidence is that Mr Graham has taken all steps necessary to perform his obligations under the agreement referred to in paragraph 3 of the joint memorandum dated 12 March 3001. In particular, on 7 June 2001 Mr McDonald sent Meredith Connell a copy of the mortgage executed by Mr Graham and his wife on 6 April 2001 and confirmed that the Bank of New Zealand as first mortgagee had produced the title to the subject property to enable registration of Mr Graham’s mortgage to the Crown.

[8] By letter dated 13 July 2001 Meredith Connell advised Mr McDonald that:-

“I now understand that the Solicitor-General is reluctant to sign the mortgage.”

The letter then indicated that the Crown Solicitor, presumably on behalf of the Solicitor-General, intended applying for a charging order. The letter enclosed an ex parte application for that purpose together with a copy of a supporting affidavit. It sought Mr McDonald’s consent to the application; if such consent was not forthcoming Meredith Connell advised that proceedings would be filed by 18 July 2001.

[9] In a letter to Meredith Connell dated 31 July 2001 Mr McDonald advised as follows:-

“As indicated earlier, I have considered the matter afresh and confirm my original view, that an Application for a Charging Order is completely inappropriate. The agreement was that the amount would be secured by a mortgage. If your client does not wish to implement that agreement, that is over to it. I cannot see any reason why the Solicitor-General would not sign the Deed of Priority. Other mortgagees do so as a matter of course. The document is in entirely standard form.

If the Crown does not wish to sign the Deed of Priority, the only sensible course is for the Crown to hold the second mortgage unregistered, and to lodge a caveat to protect that unregistered interest.

If you would confirm agreement to this course, I will let you have the executed mortgage in duplicate, and can return the title to the BNZ as first mortgagee.”

[10] A further but inconclusive exchange of correspondence followed. Finally, as noted, the Solicitor-General filed this application on 24 October 2001.

Decision

[11] The Solicitor-General’s application is made in reliance on s 39 of the Act. There is no dispute that I have jurisdiction to hear and determine the application. The evidence confirms that Mr Graham has been convicted on indictment of a serious offence in terms of s 39(1)(a). Accordingly, the Solicitor-General is entitled to apply to the High Court for a restraining order.

[12] The Court’s power to grant the application is found in s 42(1) which vests a discretion subject only to the fetters imposed by ss 43 and 44. Those provisions are not relevant to this application.

[13] The Solicitor-General’s case is summarised in these sections from Ms Puata’s synopsis of submissions:-

“11. The Crown Solicitor and the respondent’s solicitor, Mr MacDonald, entered into “without prejudice” negotiations. The final agreement was reached without the knowledge or instructions of the Solicitor-General. The Crown Solicitor’s belief that he was authorised to enter into such an agreement was mistaken, and reflected a misunderstanding both as to the scope of his instructions and the Solicitor-General’s ability, in law, to assume the role of mortgagee.

. . .

15. As soon as the Solicitor-General was advised of the fact and terms of the agreement, he advised that he would not accept a mortgage as security because there was no jurisdiction to do so; the only appropriate security was the statutory charge provided for in s 55 of the Act, which should have been triggered by the making of the PPO or the restraining order, whichever was later made. Having ascertained that the High Court application for a restraining order had been withdrawn, the Solicitor-General instructed the Crown Solicitor to make a fresh application.”

[14] I invited Ms Puata in opening to identify the evidence admissibly before the Court to support these submissions. She was unable to assist. The only affidavit filed in support of the application is from Mr R I MacMillan, an Auckland policeman. He simply sets out the background facts summarised above. He deposes without explanation that “the [Solicitor-General] has not executed the agreed mortgage.” Otherwise the Solicitor-General’s argument is devoid of an evidentiary basis.

[15] In particular:-

[1] The Solicitor-General has not adduced any evidence that the agreement with Mr Graham was signed without his knowledge or instructions. This is a serious allegation. It reflects adversely and, in the absence of evidence, unfairly on Mr Burns. I note again that Mr Burns signed the consent memorandum dated 12 March 2001 in his express capacity as “counsel for [the Solicitor-General]”;

[2] The Solicitor-General has not adduced any evidence that Mr Burns was mistaken in believing that he was authorised to enter into the agreement. Again this allegation is serious. Again it is unsupported by the facts;

[3] The Solicitor-General has not adduced any evidence that he advised Mr Graham that he would not accept a mortgage as security for want of jurisdiction. There is simply Meredith Connell’s advice to Mr McDonald that the Solicitor-General was “reluctant” to sign the mortgage. Subsequent correspondence from Meredith Connell was neither enlightening nor elaborative on this point. In a letter dated 27 August 2001 the firm, without any further explanation, advised that accepting an interest in land as security for a monetary order under the Act “is an administrative task which the Solicitor-General wishes to avoid wherever possible”.

[16] During the hearing this morning I offered Ms Puata the opportunity of an adjournment to take instructions from the Solicitor-General. This offer followed my preliminary indication, having read the pleadings, affidavits and her written submissions, that I could not see a proper basis for exercising my discretion in the applicant’s favour. Ms Puata then submitted orally that the Solicitor-General would be acting unlawfully in accepting Mr Graham’s mortgage as agreed or executing it as mortgagee for the reason that he had no lawful powers or rights of enforcement under the Act.

[17] Mr Illingworth referred me to s 25(3) of the Act which materially provides:-

“A pecuniary penalty order against a person may be enforced as if it were an order made in civil proceedings instituted by the Crown against the person to recover a debt due by that person to the Crown.”

[18] Mr Illingworth relied on this provision in the context of confirming on instructions that Mr Graham did not and would not take any issue over the lawfulness of the debt or of any security executed for the purpose of enforcing it, i.e. a registered mortgage. Mr Graham’s conduct to date is entirely consistent with these instructions. In accordance with my invitation Ms Puata took instructions from the applicant for the purpose of consenting to a declaration under s 25(3) of the Act.

This step was designed to formally validate the lawfulness of the mortgage and meet Ms Puata’s concerns.

[19] After a short break Ms Puata advised me of the Solicitor-General’s instructions, first, that he did not wish to consent to a validating order and, second, that he was now seeking an adjournment for the purpose of filing additional evidence. Mr Illingworth indicated that he opposed that application. I advised that I would refuse an adjournment.

[20] I then invited Ms Puata to reconsider her position as the effect of her instructions would be that the Crown was declining to accept a security, validated by an order of the Court, for repayment of a debt owing pursuant to the Act in circumstances where I had indicated that I would dismiss the application for a statutory security. Ms Puata then reaffirmed the Solicitor-General’s instructions that he did not wish to take this course or to be a party to a consent declaration.

[21] In these circumstances I am not prepared to exercise my discretion under s 42. Again I acknowledge that the Solicitor-General has established a jurisdictional basis for the application. However, the essence of the evidence admissibly before the Court is that:-

[a] On 12 March 2001 the parties reached a binding agreement to give and take a registered mortgage over Mr Graham’s property to secure a pecuniary penalty fixed in accordance with a consent order for $57,000. As a consequence the Solicitor-General withdrew, also by consent, his application for a restraining order;

[b] Mr Graham has taken all reasonable and proper steps to comply with his obligations under that agreement and has confirmed through Mr Illingworth today that he is ready, willing and able to execute the mortgage to secure payment of $57,000 to the Crown; but

[c] The Solicitor-General refuses to comply with the obligations assumed with apparent authority on his behalf by Mr Burns to execute the mortgage. There is no evidence before me to explain the reason for this extraordinary refusal.

[22] Effectively the Solicitor-General is, without adducing any evidence in support, asserting that a partner in Meredith Connell who signed a consent memorandum in his capacity as the Solicitor-General’s counsel had no authority when so acting. Furthermore, he is advancing this argument to resile from what is a binding agreement forming the basis of an order made by consent in the District Court at Auckland. The Solicitor-General is also declining to accept Mr Graham’s offer of a valid and binding mortgage which would accord him a security as effective as a statutory charge. In my respectful view the comments quoted above from Mr McDonald’s letter to Meredith Connell dated 31 July 2001 are apt and fair.

[23] Ms Puata has repeatedly emphasised that the Solicitor-General is acting in good faith in bringing this application. His good faith and that of Crown Law or Meredith Connell is not in issue. I record my express acknowledgement that the Solicitor-General has acted in good faith throughout and in a genuine belief that he is entitled to apply for this order. However, for the reasons given, I am satisfied that the application is fundamentally misconceived.

[24] As a matter of policy and principle I am not prepared to exercise my discretion in the Solicitor-General’s favour. Accordingly the application is dismissed.

[25] On Mr Graham’s behalf, Mr Illingworth has applied for costs. He has applied for an award of indemnity on the basis that the Solicitor-General’s application was hopelessly misconceived.

[26] Ms Puata has helpfully drawn my attention to s 88 of the Act which materially provides:-

“Where-

(a) A person brings or appears in proceedings under this Act in order-

(i) To prevent a forfeiture order or restraining order being made against property of the person; or

(ii) To have property of the person excluded from a forfeiture order or restraining order; and

(b) The person is successful in the proceedings; and

(c) The Court is satisfied that the person was not involved in the commission of the offence in respect of which the order was sought or made,-

the Court may order the Crown to pay all the costs incurred by the person in connection with the proceedings or such part of those costs as the Court thinks fit.”

[27] On behalf of the Solicitor-General, Ms Puata opposes an application. She accepts, however, that the award is within my discretion.

[28] I agree, for the reasons set out above, with Mr Illingworth’s submission that this was a hopeless application; at the very least it should have been supported by admissible evidence from the principal parties and, if necessary, they would have been available for cross-examination by Mr Graham. This obligation was elementary if the Solicitor-General was to establish a factual basis for granting an order.

[29] Accordingly in terms of s 88 I order the Solicitor-General to pay all of Mr Graham’s reasonable costs incurred in preparation and appearance at this hearing. For the avoidance of doubt I record that those costs include Mr McDonald’s attendances as solicitor in preparing an affidavit and other documents relating to this hearing and, of course, Mr Illingworth’s costs as counsel.