Solicitor-General v Bartlett HC Auckland CIV 2006-485-2334

[2007] NZHC 684

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2006-485-2334

IN THE MATTER OF an application by the Bartlett Family Trust to discharge restraining orders under the Proceeds of Crime Act 1991

BETWEEN  SOLICITOR-GENERAL OF NEW ZEALAND

Applicant

ANDBROOKE WILLIAM BARTLETT Respondent

Hearing:         28 June 2007

Appearances: K Hogan for the applicant

P Craighead for the respondent

Judgment:      19 July 2007

JUDGMENT OF STEVENS J

This judgment was delivered by me on Thursday, 19 July 2007, at 4pm pursuant to r 540(4) of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Crown Solicitor, PO Box 2213, Auckland

P Craighead, PO Box 6444, Wellesley Street, Auckland

SOLICITOR-GENERAL V BARTLETT HC AK CIV 2006-485-2334  19 July 2007

Table of Contents

Para No

Introduction  [1] The evidence relied on  [5] Factual background  [9] Statutory provisions  [15] Facts to be proved by Trust  [19] Effective control of trust property

Meaning of effective control  [24]

Factual considerations  [28]

Conclusion on effective control  [60] Public interest  [62] Hardship     [64] Submissions for Trust  [69] Discussion     [72] Conclusion             [82] Result  [83]

Introduction

[1] This is an application by the trustee of the Bartlett Family Trust (the Trust) to discharge restraining orders made against property owned by the Trust under the Proceeds of Crime Act 1991 (the Act). On 13 February 2007, restraining orders were made by Harrison J in respect of all interests other than those of the mortgagee of the property situated at 5811 Pouto Road, Kaipara (the property): see Solicitor General v Bartlett HC WHA CIV 2006-485-2334 13 February 2007.

[2]      The Solicitor-General had filed the application for restraining orders after the Crown had charged Mr Brooke Bartlett, the respondent, with 34 counts of using forged birth certificates and using applications for sickness or domestic purposes benefits with intent to defraud:  ss 229A(b) and 257 of the Crimes Act 1961.  The Solicitor-General’s application was unopposed.   That was because the respondent had not engaged counsel to take any steps in opposition and neither he nor a lawyer on his behalf appeared at the hearing.

[3]      The primary grounds upon which the restraining orders were made were that the respondent derived a benefit from his offending and that the property was under his effective control.  Harrison J had also been satisfied, on the evidence, that there were  reasonable  grounds  for  believing  that  the  respondent  had  committed  the

offences with which he had been charged and had secured benefits of some $571,488 by virtue of his offending.  In ruling that the property was under the effective control of the respondent, Harrison J found that the ownership structure did not protect the respondent  or  preclude  the  Court  from  inquiring  into  the  question  of  effective control.  Accordingly, Harrison J exercised his discretion to issue restraining orders over the property.

[4]      In order to succeed in the application to discharge the restraining orders, the

Trust is required to establish that either:

a)        The property is not in the effective control of the respondent; or

b)It is in the public interest to discharge or vary the restraining orders having regard to all the circumstances.

The evidence relied on

[5]      When the matter came before Harrison J, the Solicitor-General relied on three affidavits.  The first was from a Ms Sandra Rogers, an investigation manager with the  Ministry  of  Social  Development  in  Whangarei.    There  was  also  a  detailed affidavit from the sole surviving trustee, Mr Donald McMillan, which described the background, the settlement of the Trust, the property and the factual basis upon which the Crown relied to establish that the respondent was in effective control of the property.  Finally, there was an affidavit of Mr Trevor Shaw of Simpson Shaw Surveyors who described the history of the property, the involvement of the respondent with the property, particularly his involvement in the construction of a house on lot 9 and the steps that he had taken in relation to that, including the payment of fees to the Kaipara District Council and the payment of fees of Simpson Shaw.

[6]      The Trust filed seven affidavits in support of the application to discharge the restraining orders.  These comprised two further affidavits from Mr McMillan, two affidavits from the respondent, an affidavit from Mr Roy Stanaway, a blocklayer, an

affidavit from Mr David Batchelor, a builder, and one from Mr Joseph Skudder, the proposed purchaser of the property.

[7]      At the hearing of the application for discharge the Solicitor-General relied on the three affidavits filed with the original application for restraining orders.  There was also a second affidavit by Ms Rogers, together with affidavits from Mr Michael Manning,  an architect, Mr Russell Garton,  a valuer,  and  Mr  James  Vallance,  a building services officer with the Kaipara District Council.

[8]      Both Mr McMillan and the respondent were required by the Crown to attend the hearing for cross-examination.  Their evidence by way of cross-examination was heard and is considered in relation to the application.  Counsel for the Trust did not require any of the Solicitor-General’s witnesses to attend to be cross-examined.

Factual background

[9]      The property already mentioned at [1] is lot 2 DP 156185, Certificate of Title

93B/432 and is registered in the names of Mr McMillan and Mr Raymond Bartlett. Mr Raymond Bartlett is the father of the respondent.  The property was originally part  of  a  block  of  300  acres  of  Maori  land  gifted  to  the  respondent’s  mother, Mrs Hazel Ashby, as a wedding present.  Over time the property was subdivided and sold, leaving about 11 hectares.  There are two dwellings on the property and one partially  completed  dwelling.    While  the  property  has  views  over  the  Kaipara harbour, it is difficult to access.  The current market value of the property is difficult to assess.  In May 2007, it was valued at $550,000.

[10]     In  2003,  the  property  was  sold  at  a  mortgagee  sale.    There  is  some uncertainty in the evidence provided in different affidavits of Mr McMillan, but it seems that Mr Raymond Bartlett paid a deposit of $22,000 (some of which may have been loaned by Mr McMillan), but was only able to get the necessary loan of about

$200,000  through  Mr  McMillan  and  his  banking  facilities.     As  a  condition, Mr McMillan   specified   that   he   be   the   registered   owner   of   the   property. Mr Raymond Bartlett’s name appears on the title as he claimed GST on the sale,

which will have to be paid when the property is sold.  The mortgage was to be paid by the Bartletts and was initially paid via Mr Raymond Bartlett’s business.

[11]     In  July 2003,  Mr  Raymond  Bartlett  established  the  Trust.    The  original trustees were Mr Raymond Bartlett, his son Mr Scott Bartlett and Mr McMillan. The discretionary beneficiaries of the Trust were the Bartlett parents, their children, grandchildren or remoter issue or stepchild or foster child of Mr Raymond Bartlett. Mr McMillan deposed at 3.3 of his first affidavit sworn on 1 December 2006 that:

Because I regarded the property as Ray’s, the Trust acquired the property through his settling that to the Trust.

[12]     Mr Scott Bartlett was removed as a trustee in January 2004.  In March 2005, Mr Raymond Bartlett died intestate.  The plan had been to divide the land into nine lots, develop it and sell it.  However, consent had proved difficult to come by.  After Mr Raymond Bartlett’s death, Mr McMillan continued to permit the rest of the family to pay the mortgage, rather than selling the property.   The respondent, his mother and his sister Ms Jonette Bartlett all appear to have contributed towards the mortgage since Mr Raymond Bartlett’s death.

[13]     The respondent started living on the property full time after his father’s death. His girlfriend and son lived with him for some time.  While he was living there, he paid  Mr  McMillan  regular  fortnightly  amounts  of  up  to  $310,  which  money Mr McMillan considered mortgage payments.  He ceased to live there on his arrest and has since been bailed to his mother’s address in Dargaville.

[14]     The property is now subject to a sale agreement.  The purchaser, Mr Skudder, is  a  developer  from  Auckland  who  has  apparently  been  meeting  some  of  the mortgage payments in the interim.  Mr Skudder has sworn an affidavit stating that he did not know the respondent, Mr McMillan or their families prior to the respondent’s response to an advertisement that Mr Skudder had placed.  He deposed that there is no side deal with the respondent.  The arrangement is that the purchaser will buy the whole property and sell back to the Trust an unencumbered subdivided section.

Statutory provisions

[15]     The granting of restraining orders is governed by ss 42 to 46 of the Act.  To obtain a restraining order, the Court must be satisfied that there are reasonable grounds for believing that:

a)       Either the property is tainted or the respondent derived a benefit from his offending (s 43(1)).  Regarding the latter, if the Court finds that the property belongs to someone other than the respondent, the Court must additionally be satisfied that there are reasonable grounds for believing that the property is subject to the effective control of the respondent (s 43(3)(b)); and

b)       The respondent committed the serious offences in question (s 44(1)).

[16]     With respect to the present application, s 43 of the Act relevantly provides:

Grounds for making restraining order

(1)   Where an application under section 39 of this Act seeks a restraining order against specified property of the defendant, the Court shall not make an order against the property unless the Court is satisfied that there are reasonable grounds for believing that—

(a)   The property is tainted property in relation to the relevant serious offence; or

(b)   The defendant derived a benefit, directly or indirectly, from the commission of the offence.

…

(3)   Where an application under section 39 of this Act seeks a restraining order against specified property of a person other than the defendant, the Court  shall  not  make  an  order  against  the  property  unless  the  Court  is satisfied that there are reasonable grounds for believing that—

(a)   The property is tainted property in relation to the relevant serious offence; or

(b)   The property is subject to the effective control of the defendant, and the defendant derived a benefit, directly or indirectly, from the commission of the offence.

(4)   In determining, for the purposes of subsection (3)(b) of this section, whether there are reasonable grounds to believe that property is subject to the effective control of the defendant, the Court may have regard to the matters referred to in section 29(2) of this Act.

…

[17]     Section 29 of the Act relevantly provides:

Court may lift corporate veil, etc.

(1)   In  assessing  the  value  of  benefits  derived  by  a  person  from  the commission of an offence or offences, the Court may treat as property of that person any property that the Court is satisfied is subject to the effective control of the person whether or not the person has—

(a)   Any legal or equitable estate or interest in the property; or

(b)   Any right, power, or privilege in connection with the property.

(2)   Without limiting the generality of subsection (1) of this section, the

Court may have regard to—

(a)   Shareholdings   in,   debentures   over,   or   directorships   of,   any company that has an interest (whether direct or indirect) in the property; and

(b)   Any trust that has a relationship to the property; and

(c)   Family,  domestic,  and  business  relationships  between  persons having an interest in the property, or in companies of the kind referred to in paragraph (a) of this subsection or trusts of the kind referred to in paragraph (b) of this subsection, and any other persons.

…

[18]     The application by the Trust for discharge is made under ss 47 and 48 of the Act.  The types of orders which a Court may make under those sections include a range of variation orders.  The sections provide:

47   Further orders

(1)   Where the Court makes a restraining order against any property, the Court may, at the time it makes the order or at any later time, make such ancillary orders in relation to the property as the Court considers appropriate.

(2)   Without limiting the generality of subsection (1) of this section, the Court may, under that subsection, make any one or more of the following orders:

(a)   An  order  varying  the  property  to  which  the  restraining  order relates:

(b)   An order varying any condition to which the restraining order is subject:

(c)   An order for the examination of—

(i)   Any person whose property is subject to the restraining order;

or

(ii)  Any other person,—

before the Court or the Registrar of the Court concerning the nature and location of any property to which the restraining order relates:

(d)   An order with respect to the carrying out of any undertaking given by the Crown under section 45 of this Act:

(e)   Where the restraining order directs the Official Assignee to take custody and control of property,—

(i)   An order regulating the manner in which the Official Assignee may exercise his or her powers or perform his or her duties under the restraining order:

(ii)  An order determining any question relating to the property, including any question relating to the liabilities of the owner of the property or the exercise of the powers, or the performance of the duties, of the Official Assignee:

(iii) An order for the examination, before the Official Assignee, of any person whose property is subject to the restraining order, or any  other  person,  concerning  the  nature  and  location  of  the property:

(iv) An order directing the owner of the property to furnish to the Official  Assignee,  within  the  time  specified  in  the  order,  a statement on oath setting out such particulars of the property of that person as the Court thinks fit.

(3)   An  order  under  subsection  (1)  of  this  section  may  be  made  on application by—

(a)   The Solicitor-General; or

(b)   The person whose property is subject to the restraining order; or

(c)   Where the restraining order directs the Official Assignee to take custody and control of property, the Official Assignee; or

(d)   With the leave of the Court, any other person.

(4)   A person who makes an application under subsection (3) of this section in relation to a restraining order shall serve notice of that application on each other person who is entitled, by virtue of that subsection, to make an application under this section in relation to the restraining order.

(5)   No person shall be excused from answering any question, or furnishing any information, when required to do so pursuant to an order made pursuant to paragraph (c) or paragraph (e)(iii) or paragraph (e)(iv) of subsection (2) of this section, on the ground that compliance with that requirement could or would tend to incriminate that person or subject that person to any penalty or forfeiture.

(6)   Every examination by the Official Assignee pursuant to an order made pursuant to  subsection (2)(e)(iii)  of  this section  is  a  judicial  proceeding within the meaning of section 108 of the Crimes Act 1961 (which relates to perjury).

48   Application for exclusion of interest from restraining order

Where a person having an interest in property that is subject to a restraining order applies to the Court under section 47 of this Act for variation of the order to exclude the person’s interest from the order, the Court shall grant the application if,—

(a)   Where the applicant is not the defendant, and the restraining order was made pursuant to section 43(3) of this Act, the Court is satisfied that—

(i)    The interest is not tainted property; and

(ii)  Either—

(A)    The applicant's interest in the property is not subject to the effective control of the defendant; or

(B)    A pecuniary penalty order cannot be made against the defendant:

(b)   In any other case where the applicant is not the defendant, the

Court is satisfied that the interest is not tainted property:

(c)Where the applicant is the defendant, the Court is satisfied that— (i)       The interest is not tainted property; and

(ii)  A  pecuniary  penalty  order  cannot  be  made  against  the defendant:

(d)   In any case, the Court is satisfied that it is in the public interest to do so, having regard to all the circumstances, including,—

(i)    Any hardship that is reasonably likely to be caused to any person if the interest remains subject to the restraining order:

(ii)  The gravity of the offence:

(iii) The likelihood that the interest will be subject to a forfeiture order or be required to satisfy a pecuniary penalty order.

(emphasis added)

[19]   At the outset of the hearing, Mr Craighead, appearing for the Trust, acknowledged that the Trust was not challenging that reasonable grounds exist for believing that the respondent committed the offences alleged and received proceeds from those offences amounting to $571,488.  Further, it was accepted that the finding of Harrison J that reasonable grounds for believing that the respondent derived a benefit from such offending (s 43(1)(b)) could not be challenged.  Accordingly, there was no need for the Crown to deal with either of these aspects in the evidence or submissions.

[20]     Accordingly, under s 48 of the Act, to succeed the Trust must satisfy the

Court that:

a)        it has an interest in the property; and b)           that interest is not “tainted”; and

c)        either:

i)that  interest  is  not  subject  to  the  effective  control  of  the respondent; or

ii)a   pecuniary  penalty  order   cannot   be   made   against   the respondent.

Alternatively, under s 48(d) the Trust must satisfy the Court that it is in the public interest  to  exclude  the  Trust’s  interest  in  the  property having  regard  to  all  the circumstances.

[21]     The Crown position on these issues is:

a)        It is conceded that the Trust has an interest in the property.

b)However, it is submitted that the interest is tainted to the extent that fraudulently obtained funds were applied to the mortgage over the property:  s 48(a)(i) of the Act.

c)        It is also submitted that:

i)the Trust’s interest is subject to the effective control of the respondent:  s 48(a)(ii)(A) of the Act; and

ii)       a pecuniary penalty order can be made against the respondent:

s 48(a)(ii)(B) of the Act.

It is further submitted that under s 48(d) of the Act it is not in the public interest to exclude the Trust’s interest in the property.

[22]     As to the question whether the Trust’s interest in the property was tainted, Harrison J seemed to infer at [8] of his judgment that the property was tainted in relation  to  the  respondent’s  offending,  by  virtue  of  the  fact  that,  after  the respondent’s father died, the respondent “contributed significantly to payment of the mortgage outgoings over the property”.   In his thorough written submissions on behalf of the Trust, Mr Craighead argued that the property was not tainted.

[23]     However, I have concluded that it is not necessary for me to resolve this point finally in this judgment.  Under s 48 of the Act, where an application for discharge or variation is made under s 47 of the Act, it is necessary for the Trust to establish cumulatively that the interest is not tainted property and either (a) the applicant’s interest in the property is not subject to the effective control of the respondent; or (b) a pecuniary penalty order cannot be made against the respondent.  Even if the Trust were to establish on the evidence available to the Court thus far that the interest is not tainted property, that would not be enough if  either of  the requirements  in s 48(a)(ii) could not be established.  It was for this reason that, at the conclusion of the hearing, counsel acknowledged that the key issues for determination are first, whether the property is not subject to the effective control of the respondent, and second, whether it is in the public interest to discharge the restraining order.

Meaning of effective control

[24]     With  respect  to  the  concept  of  effective  control,  the  legislative  intent expressed in s 43(3) and (4) and s 29 of the Act suggests that the Court is not to be limited in its inquiries by legal or equitable rights of ownership.  This proposition derives support from the commentary on s 29 of the Act in Adams on Criminal Law - Sentencing  (looseleaf ed) which states at PC29.01 that:

This section is intended to enable the Court to go behind any corporate structure, trust, family relationship, or the like disguising the true and effective control of property by a particular person.  In such situations, the Court is to determine whether particular property is to be treated as the property of offenders not by reference to their legal or equitable rights, but by reference to the degree to which they are able to treat the property as their own:  DPP v Walsh [1990] WAR 25; (1990) 43 Crim R 266. In other words, as expressed in Connell  v  Lavender  (1991) 7 WAR 9, the question is whether the defendant in fact has the power to regulate possession, use, or disposition of the property in question (that is, the de facto power to give or refuse consent to a proposed course of action in relation to it).

[25]     DPP  v  Walsh  involved  a  doctor  who  fraudulently  forged  his  patients’ signatures to vouchers that he then billed to, inter alios, the Australian Health Insurance Commission.   As part of his sentence, the Judge ordered that he pay

$303,423.78 in reparation to the Commonwealth. He did not make this reparation and, as a result, the Director of Public Prosecutions applied under the Proceeds of Crime Act 1987 (Cth) to obtain a declaration that properties owned by the defendant be made available to satisfy that order. That Act required under s 28(3) that the properties be under the effective control of the defendant for such an order to be made. Seaman J, giving the judgment of the Supreme Court of Western Australia, accepted at 34 the submission that effective control:

…means that degree of control which results in Walsh being able to treat these properties as his own at the date on which an order under s 28(3) might be made.

[26]     In  Connell  v  Lavender  the Supreme Court of Western Australia again considered the issue of effective control. That case involved a search warrant pursuant to the Crimes (Confiscation of Profits) Act 1988, seeking to gather

information with a view to an application for a confiscation order or a restraining order.  A specific definition of effective control was provided in that Act.  However, the  Court  first  considered  the  general  meaning  of  effective  control,  Rowland  J finding at 22:

In my opinion, the ordinary meaning of “control” is de facto control or control  in  fact.    The  question  then  is:  what  effect  does  the  adjective “effective” have upon the meaning? …In my opinion, “effective control” in the context of the statute means de facto control.   The expression contemplates control that is practically effective, in the sense that the person concerned  has  in  fact  the  capacity  to  control  the  possession,  use,  or disposition of the property.

The   definition   of   effective   control   contained   in   the   relevant   legislation   in

Connell v Lavender was wider than that expressed at 22.

[27]     These  cases  support  the  proposition  that,  when  considering  the  issue  of tracing the proceeds of crime, the Court is entitled to consider the real, de facto position  of  the  respondent  in  relation  to  the  property.    The  intent  is  that  the respondent should not profit from his crime purely because of the legal structure by which  he  chooses  to  organise  his  assets.    In  order  to  determine  whether  the respondent had effective control of the property, the Court must ask whether in fact the respondent had the capacity to control, use, dispose of or otherwise treat the property as his own.

Factual considerations

[28]     The  starting  point  is  that  Mr  McMillan  as  the  sole  trustee  was  never personally interested in the property.  In Mr McMillan’s first affidavit, he noted that Mr Raymond Bartlett had applied to have the land subdivided into nine lots which were to be sold.   Mr McMillan said that he regarded the land as Mr Raymond Bartlett’s and had nothing to do with the children, Brad, Scott, Jonette or the respondent, until Mr Raymond Bartlett died.

[29]     In Mr McMillan’s first affidavit, he deposed that the respondent’s control over the property was such that without him the property would have gone under. Mr McMillan elaborated that the respondent went back to live on the property full

time after Mr Raymond Bartlett’s death and had been there a while just before he died.  He said that when he was residing there he also had his girlfriend and his son with him.  Mr McMillan confirmed that the respondent was paying at least $310 a fortnight into his bank account for the mortgage and that, although the bank called it tenancy payments, he regarded it as mortgage payments.  Hence, he had no concerns about the respondent living there because it meant the mortgage would be paid.

[30]     Mr  McMillan  stated  that,  if  the  respondent  had  continued  to  stay,  he eventually would have signed everything over to him.  He added that Mr Raymond Bartlett wanted to give the respondent “that second section” and the respondent was going to build on it.   I find that this was  a reference to lot 9.   Mr  McMillan confirmed  that  he  was  never  consulted  about  the  2004  application  for  building consent in respect of the building on lot 9.   He accepted that it was “Brooke’s development”.

[31]     Mr  McMillan  said  that  Mrs  Ashby  left  the  property  about  June  2005. Ms Jonette Bartlett also contributed payments to the mortgage for a period before she  “just  walk[ed]  away  from  it”.    Once  that  occurred,  the  respondent  often consulted him on ways to pay off the mortgage.  Mr McMillan gave him advice as to how this could be achieved.  Finally, Mr McMillan deposed that if the property was sold “then Hazel and Brooke get everything”.

[32]     When Mr McMillan swore his second affidavit, he said that the first affidavit “contained misconceptions” and required clarification because he did not believe that the earlier affidavit reflected the actual situation concerning the ownership of the property and the workings of the Trust.  He even went so far as to suggest that the first affidavit was “a sham”.   However, to the extent that the second and third affidavits sworn by Mr McMillan, or his evidence at the hearing, attempted to cast doubt on the statements in the first affidavit, I prefer to accept what Mr McMillan said in his first affidavit.  Mr McMillan described how the first affidavit was created by him answering questions from Ms Rogers from the Ministry of Social Development.   He was taken to an independent solicitor who was involved in finalising the contents of it.  Mr McMillan agreed that he swore the document as true and correct.

[33]     Ms Hogan for the Solicitor-General submitted that there was evidence, even prior to Mr Raymond Bartlett’s death on 3 March 2005, which showed that the respondent was carrying out a development on the property.  This is confirmed by the  saved  photographs  of  the  development  on  the  respondent’s  computer  dated August 2004 and the fact that the respondent obtained a valuation for the property in February 2005.  The respondent acknowledged under cross-examination that he had received that valuation and was present when the valuer made a site visit.

[34]     After the death of Mr Raymond Bartlett, there is considerable evidence apart from that given in Mr McMillan’s first affidavit, that the respondent was carrying out a development on the property.    First,  there  are  the  further  photographs  of  the property on the respondent’s his computer in April 2005, one of which is identified under the name “brooke’s place april 2005”.  Next, there is the evidence of an on-site meeting with Mr Shaw in May 2005 to discuss progressing the development on lot 9. That  meeting  involved  a  decision  in  which  the  respondent  and  his  mother participated to “go with a variation to the previous proposal”.  Mr Shaw deposed that the respondent regarded it as a matter of importance and some urgency to obtain title to the land on which he was building and to secure equity in his asset.  This led to a resource consent application dated September 2005 being prepared and advice to the Kaipara District Council of completion of the foundation in June 2005 signed by the respondent as “agent”.   Mr Shaw deposed that the respondent and his mother “continuously referred to this house as being Brooke’s”.

[35]     There is also evidence from Mr Stanaway, the blocklayer.  He noted that the respondent assisted him to lay the blocks and paid him for the balance due for his labour.  The affidavit does not make clear whether this occurred before or after the death of Mr Raymond Bartlett.

[36]     The respondent confirmed the variation to the surveyor’s plans in August

2005 from nine to two lots.  This caused Mr Shaw to send an amended application to the Kaipara District Council.  In his letter dated 22 September 2005 he stated:

There is some urgency in obtaining a separate Title for the new lot 1 which contains the new house, which belongs to Mr Brooke Bartlett.   With this urgency  driving  the  Application  we  have  reduced  the  proposal  from  9 sections to 2 sections – one for each of the existing houses.

[37]     This change, which was on the respondent’s instructions, is consistent with the statement in Mr McMillan’s first affidavit that “if Pouto is sold then Hazel and Brooke get everything”.

[38]     The respondent was the only person to have contact with Mr Vallance at the Kaipara District Council.  The respondent provided documentation and was involved in various attendances regarding the development.   Mr Vallance deposed that the respondent was the only person he dealt with from the time of his father’s death. There were no dealings with Mr McMillan, even though he was listed on the certificate of title for the property.  Mr Vallance also deposed that in early October

2005 the respondent had been in touch but had yet to obtain the amended plans. With respect to the building consent and other fees, the respondent paid an outstanding amount of $1817.35 in cash on 9 November 2005.   The respondent admitted in cross-examination that this was correct.  The respondent, as agent for the Trust, signed the building consent application form of June 2005 that requested the consent for the completion of the three-storied dwelling, involving a total floor area of 403.6 square metres.  The market value of the project was said to be $280,000. The respondent accepted that to build a house such as that set out in the plans could cost in that vicinity.

[39]     With respect to the plans for the dwelling house, these had been altered by insertion of a new legal description and the words “Bartlett Family Trust”, which were in the respondent’s handwriting.

[40]     With respect to the question of control of this property and control of the Trust, the respondent accepted in cross-examination that it was “partially correct”. He acknowledged that after his father died he stepped into his shoes to get things tidied up.  To the extent that the respondent denied that the property was under his effective control and that this was a normal family trust where the trustee had full discretionary  powers,  I  do  not  accept  his  evidence.    I  found  the  respondent’s evidence to be lacking in credibility and reliability.  As I will detail later, some of his answers involved outright untruths.

[41]     Ms Hogan submitted that the lot that now has the foundation for the proposed dwelling was earmarked for the respondent.  I find, on the evidence, that this was the case.  Mr Shaw, the surveyor, deposed that in 2000 he was engaged by Mr Raymond Bartlett to survey 11.455 hectares at the property for the purpose of subdivision.  He said that Mr Raymond Bartlett told him that “the land was to be subdivided into two lots and the new lot 1 would be owned by Brooke Bartlett.”  While the intention may have changed in 2003, meaning that the property was to be subdivided into nine lots, it  was  nevertheless  intended  by Mr  Raymond  Bartlett  and  Mrs  Ashby  that  the respondent would own the proposed lot 9.  This was the understanding of Mr Shaw who also confirmed that some of the other lots would be sold to meet the cost of the subdivision.   The position seems to have again reverted to a two lot proposal in August 2005.  Even under that proposal, the respondent was to have title to the new lot 1, being the property that, according to Mr Shaw’s letter to the Kaipara District Council  dated  22  September  2005,  “contains  the  new  house,  which  belongs  to Mr Brooke Bartlett”.

[42]     Ms Hogan also submitted that the proposed dwelling on the new lot 1 was being built at the behest of the respondent.  I find on the evidence that this was the case.   The evidence in support again comes from Mr Shaw’s affidavit.   But it is further supported by a statement from Mr McMillan in evidence that Mr Raymond Bartlett wanted to give the respondent a section and the respondent was going to build on it.  Mr McMillan identified that as “section 9 if I remember rightly.  Again Brooke was going to build on it under Ray’s authority and backing.”

[43]     As noted earlier, it was the respondent who made the handwritten changes to the plans for the dwelling submitted to the Kaipara District Council.  This was for a dwelling that comprised three levels, five bedrooms, three bathrooms, games room, penthouse and double garage at a cost of $280,000.  The income and assets of other members  of  the  Bartlett  family  were,  according  to  information  presented  by Mr McMillan in paragraph 3 of his second affidavit (that I accept), indicate that none of them could have funded the construction of the dwelling.  I find as a fact that the respondent was planning to fund the development of the dwelling house.  I also find as wholly lacking in credibility the suggestion by the respondent that the proceeds from the sale of Mr Raymond Bartlett’s business totalling $45,000 were going to be

used to fund the development.   Some $20,000 of this amount was applied to the mortgage and the remainder was used to pay outgoings and accounts relating to the foundation.    Yet,  the  cost  of  the  foundation  was  estimated  at  $20,000.    The respondent sought to ascribe portions of the $45,000 to further mortgage payments, the payment of the fees to the Kaipara District Council and the funding for the development of the proposed dwelling.  I do not accept such evidence.

[44]   Ms Hogan submitted that the respondent had been making financial contributions to the property since at least his father’s death in March 2005.  I find that it is established on the facts that this was the case.   The evidence in support includes the fact of mortgage payments made by the respondent which is confirmed in Mr McMillan’s first affidavit.  Next, there are the weekly deposits of up to $310 per week referred to as “Brooke’s rent” paid into the account of Mr R Bartlett from May 2005 to October 2006.   These payments coincided with weekly withdrawals said to be “to Don McMillan”.   Such payments were acknowledged by the respondent.

[45]     Ms Hogan also submitted that these mortgage payments by the respondent comprised benefits fraudulently obtained by the respondent from the serious offending with which he was charged.  I accept on the evidence that this is likely to be the case.  I am satisfied on the evidence and find as a fact that the respondent’s outgoings far exceeded his legitimate income.   Various calculations referred to by counsel  for  the  Solicitor-General  confirm  this.    To  this  extent,  the  mortgage payments  by the  respondent  would  comprise  fraudulently  obtained  benefits  and strongly suggest that the property is “tainted property”.

[46]     In addition to the above facts, there was evidence that the respondent made payments for milling timber, these being payments to Oturei Timber, in June and December 2005.  The respondent admitted in evidence that he had paid money on timber previously ordered by his father.   I infer that such timber was used for the purposes of the development on the property.

[47]     The evidence also established that the respondent lived at the property from the death of his father in March 2005.  He was there full time with his girlfriend and

son as confirmed by Mr McMillan’s first affidavit and by the respondent himself. Documents relating to the respondent’s alleged offending located in his vehicle when the property was searched in September 2005 also support this.

[48]     There was further evidence which I accept, that the respondent controlled the actions of the Trust in relation to the property after the death of his father.  This is confirmed by the evidence set out in the first affidavit of Mr McMillan which has been referred to at [29] - [31].  Mr McMillan confirmed under cross-examination, in evidence that I accept, that without the respondent the property would have gone under.

[49]     The respondent held himself out as representing the Trust when he opened a storage unit with Kings Storage in Takapuna.  Moreover, the respondent negotiated the sale of the property to Mr Skudder’s company Best of Luck Ltd.  Mr McMillan seems to have had little, if any, direct involvement in negotiating the sale of the property.

[50]     Ms Hogan submitted that the agreements with the purchaser of the property are a ruse to ensure that the property is unavailable to the Solicitor-General, should the respondent be convicted of the serious offences with which he is charged.  I find that the evidence supports this contention.  It seems that the respondent learned of the  Solicitor-General’s  interest  in  the  property  in  early  December  2006  from Mr McMillan.  The respondent then initiated contact, and negotiated the agreements, with Mr Skudder and Best of Luck Ltd.  It was put to the respondent that in so doing he was trying to hide the property from the state, that he was seeking to preserve it. Although the respondent denied that proposition, I do not accept his answer as truthful.

[51]     It  emerged  in  the  evidence  that  there  is  a  strong  likelihood  that  the agreements will not become unconditional because of issues pertaining to beach access to the retained lot 9.

[52]     It also seems that the respondent was the one who issued instructions to the solicitors Duthie Whyte to reject the Solicitor-General’s proposal that the sale of the

whole of the property to Best of Luck Ltd, with a sell back of lot 9 to the trust plus the  sum  of  $100,000.    Mr  McMillan,  despite  being  the  sole  trustee,  stated  in evidence that he had not previously heard of the Solicitor-General’s proposal.

[53]     Another curious aspect is that the agreements have not been terminated by the Trust, despite the fact that Best of Luck Ltd has not been making the $1600 interim payments required by clause 15(a) of the first agreement for sale and purchase.   Mr McMillan accepted under cross-examination that Mr Skudder had been making some payments in “bits and pieces” and not regularly.  The respondent also acknowledged that he knew that Mr Skudder was in arrears.

[54]     Ms Hogan also submitted that the statements in Mr McMillan’s second and third affidavits that contradict those in his first affidavit can be discounted as unreliable.   I accept this submission.   I find that Mr McMillan demonstrated a significant lack of personal knowledge about many of the statements in his second affidavit, particularly details of the beneficiaries of the Trust, the photographs annexed to his affidavit and who he consulted prior to the signing of the agreements for sale and purchase with Mr Skudder.   Mr McMillan accepted under cross- examination that he had very little personal knowledge of the contents of his second affidavit.   He added rather pointedly that “when things have to be done you do them”.

[55]     After Mr McMillan swore his first affidavit, he spoke  to  a  lawyer  from Duthie Whyte.  He accepted that his second and third affidavits were drafted with the aid of lawyers and were signed in the presence of lawyers and the respondent.  The respondent confirmed that he had spoken to Mr McMillan about swearing further affidavits in support of the application for discharge.   I find as a fact that, to the extent that statements in the second and third affidavits sworn by Mr McMillan vary from statements in his first affidavit, they cannot be accepted as credible.

[56]     I make similar findings in respect of the evidence of the respondent that he was not in effective control of the property.  The respondent said that it was not until after his father’s death that he learned that the Trust owned the property rather than

Mr McMillan.  This is surprising, particularly since part of the property had already been earmarked for him and he had previously obtained a valuation for the property.

[57]     When the respondent said that mortgage payments, council fees and other costs relating to the dwelling were funded from the proceeds of the sale of his father’s business, I find such evidence is not credible.  I also find as a fact that the respondent  lied  when  he  told  the  Constable  at  the  search  of  the  property  in September 2006 that he did not use the vehicle at the property and that the only reason that his belongings were in it was because he had walked past the vehicle and thrown them in.   This was contrary to his evidence in Court in which he acknowledged that he had used the vehicle.   It is also relevant to findings of credibility in respect of the respondent that counsel for the Trust accepted that there are reasonable grounds for believing that he committed the serious offences charged, all of which involved dishonesty.   Moreover, the respondent conceded in cross- examination that he did not disclose income on sales via Trade Me to either the Ministry of Social Development or the Inland Revenue Department.

[58]     Mr Craighead referred in his submissions to various aspects of the evidence to endeavour to demonstrate that the respondent was not in effective control of the property.  For example, he submitted that the property was to be subdivided into nine lots and each family member would receive a lot.  I find the evidence to this effect, which was given by the respondent, lacking in credibility.   It conflicts with other evidence, for example in Mr McMillan’s first affidavit and from other witnesses, that I accept.

[59]     Mr Craighead also submitted that Mr McMillan was now taking his position as a trustee seriously, taking legal advice in respect of his obligations and obtaining information about beneficiaries and trust assets when such was needed.  This may well be what Mr McMillan has now been advised to do.   It certainly was not the position, and I so find, when he swore his first affidavit.

Conclusion on effective control

[60]     Despite the careful and comprehensive submissions by Mr Craighead, I find the evidence that the respondent was in fact in effective control of the property to be persuasive.   None of the evidence, or the submissions, advanced on behalf of the Trust to the contrary have merit.

[61]     Accordingly, I conclude that the Trust has not been able to establish that the respondent was not in effective control of the property.  It follows that this ground as a basis for discharge or variation must fail.

Public interest

[62]     The second ground for discharge advanced by the Trust relied on the public interest referred to in s 48(d) of the Act.  In this context, Mr Craighead sought to rely upon the hardship factor and the overall circumstances of the case:  see s 48(d)(i).

[63]     As outlined at [18], s 48 of the Act sets out the grounds on which a third party with an interest in a property that is subject to a restraining order may apply for a variation to exclude such interest.  The Court may make such a variation under s

48(d)  where  it  is  in  the  public  interest  to  do  so,  having  regard  to  all  the circumstances, including:

a)        Any hardship that is reasonably likely to be caused to any person if the interest remains subject to the restraining order;

b)       The gravity of the offence; and

c)        The likelihood that the interest will be subject to a forfeiture order or be required to satisfy a pecuniary penalty order.

Hardship

[64]     A question arises as to the meaning of “any hardship” in s 48(d)(i).  Adams at PC48.03  suggests  that  a  comparison  with  the  meaning  of  undue  hardship  in s 15(2)(b) of the Act is relevant.  That section deals with the grounds for issuing a forfeiture order, stating that in making such an order the Court must consider, inter alia, any undue hardship that might be caused to any person as a result of making a forfeiture order.  At PC15.05(2), the learned authors of Adams discuss the rationale for the undue hardship criterion:

Of course, when a forfeiture order is made there will always be hardship to an offender and sometimes to a third party.  The word “undue” indicates that something more than the ordinary hardship arising in consequence of the execution  of  the  forfeiture  order  is  intended:  Lyall  v  Solicitor-General [1997] 2 NZLR 641; (1997) 15 CRNZ 1 (CA); Solicitor-General v Sanders (1994) 2 HRNZ 24. Indeed, even though the equivalent Australian legislation does not include the word “undue”, Australian Courts have consistently required that hardship beyond that ordinarily contemplated by the operation of the Act is called for, on the basis that otherwise the purpose of the legislation itself would be frustrated: R v Lake (1989) 44 A Crim R 63 (CCA NSW); R v Haddad (1989) 16 NSWLR 476; 42 A Crim R 304 (CCA NSW).

[65]     Having considered the Australian authorities cited, I doubt that it is valid in the context of s 48(d)(i) to require undue hardship to be proved when the legislation refers only to “any hardship”.   Those authorities deal with the issue of forfeiture orders, as does s 15.   That section generally contemplates the hardship to the defendant him or herself, requiring something more than general hardship.   In contrast, s 48 of the Act deals specifically with the interests of third parties, of whom a lesser standard of hardship may be required as that would not involve the defendant benefiting, nor allowing the defendant to benefit, from the proceeds of crime by having their interest recognised in the form of a variation to a restraining order.

[66]     Further, third parties who possess a legal interest in the property that is to be forfeited under s 15 have a right to apply for relief against forfeiture: see ss 17 and

18 of the Act.  Those sections do not require them to prove hardship of any kind. This suggests that the legislature did not intend to impose a requirement of undue hardship across the board.  Where there are different kinds of interest with regard to different  kinds  of  orders,  the  appropriate  standard  must  have  been  specifically

considered.   In s 48(d)(i) the adjective “undue” was not used.   Accordingly, I conclude that there is no basis for adding a gloss to the meaning of “any hardship” in that subparagraph.

[67]     If any descriptor is to be added to the word “hardship”, I prefer to use the notion of materiality.   The need to establish “material hardship” would fit more comfortably with the following qualifier expression of hardship that is reasonably likely to be caused.

[68]     In any event, it is important to recognise that the hardship factor is only one of three non-exhaustive factors which must inform the Court’s decision as to whether it is satisfied that it is “in the public interest” to make an order excluding an interest from a restraining order.

Submissions for Trust

[69]     Mr Craighead submitted that the hardship arising from the restraining orders for the Trust is that the property will no longer be available for the beneficiaries.  In particular, the trustee will no longer be able to proceed with the sale to Mr Skudder’s company, Best of Luck Ltd.  The Crown has signalled that it will require the sale of the property and will additionally require the deletion of any condition in the agreement for sale and purchase (cl 17.4) requiring the purchaser to obtain beach access for lot 9 within twelve months, failing which the repurchase of lot 9 by the Trust will not proceed.  The deletion of such a clause is likely, in Mr Craighead’s submission,  to  put  the  sale  in  jeopardy  because  the  value  of  the  unsubdivided property with only limited access will decrease.  Also, if the sale of the property to Best of Luck Ltd does not proceed, there is a risk that the mortgagee who is excluded from the restraining orders will hold a mortgagee’s sale.  In that event, the property could be sold at an undervalue thereby causing hardship to the Trust.

[70]     Further, Mr Craighead submitted that without the agreement for sale and purchase the mortgagee is likely to force a mortgagee sale, causing considerable loss to the Trust and its beneficiaries who are all in need.  The only way to prevent this would be for Mr McMillan to personally pay off the mortgage, which would lead to

hardship on his part.  Essentially, Mr Craighead submitted that hardship is faced at every turn: whether in respect of the beneficiaries or the trustee, should the Court decline to discharge or vary the restraining orders.

[71]     With respect to the gravity of the offence(s) referred to in s 48(d)(ii) of the Act, Mr Craighead acknowledged that the  alleged  offending is  grave.    He  also accepted that the likelihood of a pecuniary penalty order being made depends in part upon whether the Court finds that the property is under the respondent’s effective control.    That  is  a  consideration  under  s  48(d)(iii)  of  the  Act.    Mr  Craighead submitted that the arguments as to hardship should also prevent a forfeiture order being made.  However, the submission that it is in the public interest to discharge or vary the restraining order over the property depends generally on the allegations of hardship.

Discussion

[72]     Ms Hogan submitted first that there was no evidence before the Court of hardship reasonably likely to be caused to the Trust.  Moreover, the Trust had not discharged the burden of satisfying the Court that it is in the public interest to exclude the Trust’s interest from the restraining order.

[73]     In considering the latter point, which I regard as the key issue, it is also necessary to consider the factors referred to in s 48(d)(ii) and (iii).  These aspects, relating  to  the  gravity  of  the  offending  and  the  prospects  (“likelihood”)  of  a forfeiture order or pecuniary penalty order, are two factors from a non-exhaustive list which also inform the public interest question.

[74]     With reference to the nature of the offending, it is significant that the Trust did not challenge that reasonable grounds exist for believing that the respondent committed  the  offences  alleged  and  received  proceeds  from  those  offences amounting to $571,488.  The offences are against ss 229A(b) and 257 of the Crimes Act.  In summary, there are 34 offences of using forged birth certificates and using applications for sickness or domestic purposes benefits with intent to defraud.  The Crown says that the respondent created 17 false identities by scanning and altering

birth certificates.  As a result, he was granted sickness benefits with accommodation supplements for each of the separate identities.  By any measure, obtaining a sum in excess of $570,000 is serious.  Indeed, it is above the threshold for which the Serious Fraud Office may consider becoming involved in an investigation:  see for example the Serious Fraud Office Ministerial Briefing Paper 2005 at 4.

[75]     Whether the interest will in the future be subject to a forfeiture order or required to satisfy a pecuniary penalty order is somewhat difficult to predict at this stage.  The Court was told that the charges will be defended and the outcome of the criminal proceedings will not be known until following depositions and a defended hearing.  Given that the Trust has the burden of satisfying the Court that it is in the public interest to make an order, it is relevant that the Trust did not show that there were any other assets of the respondent which might be used to meet a pecuniary penalty order.  But as noted at [71], Mr Craighead acknowledged that there was a likelihood.

[76]     With respect to the question of hardship, I agree with the submission for the Crown that there is no evidence of hardship reasonably likely to be caused to the Trust.    All  Mr  Craighead  could  advance  is  a  general  submission  that,  if  the restraining order remained in place, Mr McMillan as legal owner of the property and the beneficiaries of the Trust would be disadvantaged by their inability to deal with the property and there would be risks from a loss of value from any mortgagee’s sale.

[77]     The reality of the operation of the Trust is, as I have concluded at [60] and [61],  that  the  respondent  was  in  fact  in  effective  control  of  the  property. Mr McMillan  deposed  in  his  first  affidavit  that  if  the  property  were  sold,  then Mrs Ashby and the respondent “get everything”.   The basis of any arrangement supporting such conclusion was not made clear.   That is because, in his second affidavit, Mr McMillan sought to resile from the earlier statement.  At paragraph 9, he stated:

It  is  incorrect to  state that  if  Pouto is  sold then  Hazel  and  Brooke  get everything as I note in paragraph 3.5(h) of my earlier affidavit.  What I mean is that as I have no complete knowledge of the circumstances of the Bartlett family and they will have to assist me in respect of the running of the Trust

and  caring  for  the  property  until  it  sells.   However,  I  will  retain  the responsibilities of the trustee to obey the terms of the Trust.

[78]     Mr McMillan’s lack of knowledge of the circumstances of the Bartlett family was amply demonstrated by this evidence and his answers under cross-examination. He did not have a proper grasp of the names, let alone the details and backgrounds, of the beneficiaries.   Certainly, Mr McMillan was unable to point to any specific requirements or needs which the beneficiaries had, or any particular hardship which they might suffer, if the trust property remained subject to the restraining orders.

[79]     There was no affidavit from Mrs Ashby as to any particular needs she may have or hardship she might suffer.  The same is true of the other beneficiaries named in the Trust Deed and identified in Mr McMillan’s second affidavit.

[80]   The only beneficiary who swore any affidavits was the respondent. Undoubtedly, given the effective control that I have found he has in respect of the property, it was in his interest to support a discharge or variation of the restraining orders.  To the extent that he might suffer a hardship, that is the result of the policy behind the provisions of the legislation permitting the Solicitor-General to apply for restraining orders pending the determination of the serious criminal charges brought against the respondent.

[81]     I consider the submission regarding potential hardship from a loss of value arising from a mortgagee’s sale to be speculative.  There was no evidence produced by the Trust as to what the mortgagee might do and what steps it might take to enforce its security.  I am not satisfied that any such hardship has been established on the facts.

Conclusion

[82]     I find that the Trust has not established that there exists any hardship that is reasonably likely to be  caused to any person (other than the respondent) if the property remains subject to the restraining orders.  Even if the Trust had been able to demonstrate any hardship to the Trust generally or the beneficiaries specifically, I conclude that it would have been more than outweighed by the other factors which

must be balanced under s 48(d) of the Act when considering the public interest question.  Having regard to all the factors in s 48(d)(i) to (iii) (inclusive) of the Act, and having regard to all the circumstances, I am not satisfied that it is in the public interest to make an order discharging or varying the restraining orders made by Harrison J.

Result

[83]     The application for discharge of the restraining orders is dismissed.   The

Solicitor-General is entitled to costs which should be calculated on a category 2B

basis.

Stevens J