Solicitor-General v Loftus HC Auckland CIV 2003-404-3085

[2005] NZHC 1692

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2003-404-3085

BETWEEN

THE SOLICITOR-GENERAL OF NEW

ZEALAND

Applicant

AND

PETER LOFTUS

Respondent

Hearing:         2 May 2005

Appearances: D Johnstone for the Applicant

K Harding for the Respondent N Tuck for the ASB Bank

Judgment:      5 May 2005

JUDGMENT OF ELLEN FRANCE J

Solicitors:

Crown Solicitor, PO Box 2213, Auckland

Simpson Grierson, Private Bag 92518, Wellesley Street, Auckland Counsel:

K Harding, PO Box 1205590, Auckland

THE SOLICITOR-GENERAL OF NEW ZEALAND V LOFTUS HC AK CIV 2003-404-3085 [5 May 2005]

[1]    The Solicitor-General seeks forfeiture of the respondent’s property, Unit  1, 68 Hain Avenue, Mangere, Auckland. The application is opposed. The respondent has also made an application to vary the current restraining orders to allow for the payment of various debts and for his legal fees. That  application is opposed in part by the Solicitor-General. The ASB Bank Ltd, as mortgagee, does not oppose either the Solicitor-General’s application for forfeiture or the respondent’s application provided that ASB continues to have all its rights under its mortgage preserved on the same terms as the current restraining orders.

Facts

[2]    The offending came to light when, on 3 February 2003, the Police executed a search warrant under the Misuse of Drugs Act 1975 at the respondent’s address in Hain Avenue. At that time the respondent and three others were at the house. The respondent was in the lounge. One of the other three, Jeffrey Dann, was in  a bedroom that contained a functional clandestine laboratory.

[3]    During the search, Police found a number of items indicating that Methamphetamine manufacturing was taking place. The items found included equipment used in the manufacture of Methamphetamine, a large quantity of pills removed from their packaging, a pH testing kit and various chemicals.

[4]    The respondent subsequently pleaded guilty to a charge of permitting the property to be used for the manufacture of a what was then a Class B controlled drug, Methamphetamine, and another charge of supplying a precursor substance, Acetone.

[5]    The charge in relation to Acetone arose out of the respondent’s awareness that his co-offender was in need of Acetone to use in the manufacturing process. He told the co-offender that he could get Acetone from his workplace, which he did, obtaining some 12 litres.

[6]    The summary of facts on which the respondent was sentenced stated that the respondent admitted knowing the manufacturing was taking place in his spare bedroom. He told Police that an associate had approached him in early December 2002 and offered him Methamphetamine in exchange for allowing him to use the spare bedroom to manufacture the drug.

[7]    The respondent was aware of his co-offender completing four or five manufactures of Methamphetamine at the address over a period of about two months. In payment he received a total of around 4.5 grams of pure Methamphetamine. A pure gram of Methamphetamine has a street value of between

$600 and $1000. The respondent said that he had only made around $600 from the Methamphetamine he received as he had used the majority of the Methamphetamine himself.

[8]    The respondent was sentenced on 13 June 2003 to six months imprisonment. He was given leave to apply for home detention but home detention was not granted and so he has served a custodial sentence.

[9]    Mr Dann pleaded guilty to the following offences relating to the manufacture of Methamphetamine at the property:

a)Between 1 November 2002 and 3 November 2003 manufactured Methamphetamine (s 6(1)(b) Misuse of Drugs Act 1975);

b)Between 1 November 2002 and 3 February 2003 had in his possession equipment or material for the purpose of manufacturing Methamphetamine (s 12A(2) Misuse of Drugs Act 1975);

c)Between 1 November 2002 and 3 February 2003 had in his possession precursor substances with the intention that they be used to manufacture Methamphetamine (s 12A(2) Misuse of Drugs Act  1975); and

d)On 3 February 2003 attempted to manufacture Methamphetamine (s 6(1)(b) Misuse of Drugs Act 1975 and s 72 Crimes Act 1961).

[10]   Mr Dann was sentenced on 15 June 2004 to a term of 5½ years imprisonment.

[11]   Orders were made restraining the property by consent and have been extended pending final resolution of the forfeiture application.

[12] The application for forfeiture is made in reliance on Mr Dann’s convictions which are for serious offences as defined in the Proceeds of Crime Act 1991.

Grounds of opposition

[13]The respondent opposes the application on a number of grounds, namely:

a)The ordinary use of the property is as a residential home.

b)The property did not come into the respondent’s possession or control as a result of committing criminal offences. The property was not funded as a result of committing criminal offences. The property was purchased from legitimate funds obtained from employment and a mortgage obtained from the ASB Bank.

c)The respondent did not profit financially from the offending and has received no “ill-gotten gains”.

d)A forfeiture order will cause undue hardship to the respondent and his family, outside of the hardship which inevitably arises out of any forfeiture.

[14]   In addition, the respondent filed an application for the variation of the restraining orders currently in place to enable the payment of his counsel’s legal fees for the period June 2003 to 3 November 2004 ($13,523.76) and the following debts:

a)Mortgage to ASB Bank;

b)ASB Bank legal costs of $2153.38 as per Simpson Grierson’s tax invoice dated 25 August 2004;

c)An outstanding loan of $5000 to Simon Penny;

d)An outstanding loan of $7000 to David O’Leary; and

e)An outstanding Court fine ($370) owed to the Ministry of Justice Collections Business Unit fine.

[15]There have been further legal fees incurred after November 2004.

First issue – tainted property?

[16]The power to make a forfeiture order arises in relation to “tainted property”.

[17]“Tainted property” is defined in relation to a serious offence as:

(i)     property used to commit, or to facilitate the commission of, the offence; or

(ii)proceeds of the offence; and

(b)      when used without reference to a particular offence, means tainted property in relation to any serious offence; and ..

[18]   The applicant submits that the manufacturing that formed the basis of the serious offences took place in the kitchen and spare bedroom at the property. The relevant equipment and precursor substances were also found there. Hence, the applicant submits, the property was used to commit or facilitate the commission of those serious offences and so, the Solicitor-General submits, the property is  tainted in relation to the serious offending of Mr Dann.

[19]   The respondent rightly concedes the property is “tainted”. There is no doubt the property was used to commit the serious offences.

[20]   Once it is established the property is tainted, the second issue is whether or not the Court should exercise the discretion to forfeit the property.

Second issue – exercise of discretion to forfeit

[21]   Section 15 provides that on the hearing of an application for forfeiture following conviction of a serious offence,

(1)         .. the Court may, if it is satisfied that property specified in the application is tainted property in respect of the offence, order that such of the property as is specified by the Court is forfeited to the Crown.

(2)     In considering whether or not to make an order under subsection (1) of this section in respect of particular property, the Court may have regard to—

(a)     The use that is ordinarily made, or was intended to be made, of the property; and

(b)      Any undue hardship that is reasonably likely to be caused to any person by the operation of such an order; and

(c)     The nature and extent of the offender's interest in the property (if any), and the nature and extent of any other person's interest in it (if any); and

(d)      In addition to the matter referred to in section 14(1)(b) of this Act [any pecuniary sanction imposed on conviction], any other matter relating to the nature and circumstances of the offence or the offender, including the gravity of the offence. ..

[22]I turn then to consider the factors listed in s 15(2).

(i)   Ordinary use of the property (s 15(2)(a))

[23]   This section necessitates consideration of the extent to which the property was used for the offending as opposed to its other uses.

[24]   The applicant seeks to put this case in the same category as Lyall v Solicitor- General [1997] 2 NZLR 641 and R v Law [2000] 3 NZLR 163. The thrust of those two cases is that where property is used primarily for the purposes of offending a forfeiture order will generally be appropriate. The Solicitor-General emphasises that the respondent has allowed his home to be used in this way.

[25]   Ms Harding for the applicant submits the illegal use was not the ordinary use of the property. Rather, it was a home into which the manufacturing of Methamphetamine was a recent introduction for a relatively short period especially when contrasted to the length of time the house was owned by the respondent.

[26]   As Mr Johnstone put it, there will be a spectrum of ordinary use. At one end, there may be a warehouse used solely for the manufacture of cannabis. At the other end, a family home with a small amount of cannabis growing in the backyard.

[27]   Here, there was some suggestion in the respondent’s video interview with the Police of an attempt at “cooking” in the kitchen. But, in his affidavit the respondent says the manufacturing was confined to a bedroom. The summary of facts similarly refers only to the spare bedroom. Whatever the real position is, it is clear  the  use was minimal.

[28]   For the sorts of factors identified by Ms Harding, I do not consider the ordinary use of this property was manufacturing Methamphetamine. This was, essentially, the respondent’s home for the 12 year period he owned the house but which, for a short period, he also allowed his co-offender to use for manufacture of Methamphetamine. The portability of clandestine laboratories may mean of course that only a small part of what is otherwise a home can be used for illegal purposes. Depending on factors such as the scale and duration of manufacture, the illegal use may well become the ordinary use. However, what marks out this case is the short duration of offending.

[29]   Mr Johnstone submits the ordinary use cannot be given as much weight as might usually be the case because the respondent will not be able to keep his home anyway. He will have to sell it, or the ASB Bank will sell it, because he can no longer pay his mortgage. There is some merit in this argument but it does not make this factor completely irrelevant.

(ii)   Undue hardship (s15(2)(b))

[30]   The thrust of the respondent’s case is that forfeiture will be unduly hard. The applicant maintains the hardship is no more than that which commonly features in forfeiture cases.  The Solicitor-General refers to Solicitor-General v Sanders [1994] 2 HRNZ 24 at 30, where Williamson J stated that the word “undue” indicates,

“a level of hardship above that ordinarily contemplated when a person is convicted of serious cannabis related offences .. A severe penalty imposed upon conviction can bear on the gravity of the hardship but it is not itself a hardship arising from the forfeiture order.”

[31]   A number of factors were considered in Sanders, adapting and considering the factors listed in Taylor v Attorney-General of South Australia (1991) 55 SASR 462 at 474. Those factors are as follows:

a)The value of the property to be forfeited.

b)The value of the drugs or the size of the crop.

c)Whether the property was acquired with the proceeds of the offending.

d)The extent of the offender’s interest in the property.

e)The utility of the property to the offender.

f)The length of ownership of the property.

g)The extent to which the property is connected with the commission of the offence.

h)The fact that forfeiture is intended as a deterrent.

i)The likely consequences of the forfeiture on third parties.

[32]In the present case, the property has a current market value of $180,000-

$200,000 (as at 2 November 2004). As at 2 May 2005, the total amount required to settle with the ASB is $71,115.62. That figure, helpfully provided to the Court by  Mr Tuck for the ASB, excludes any auction costs and any legal costs incurred by the Bank in relation to settlement.

[33]   It is clear that the property was not acquired with the proceeds of the offending and that the respondent has held the sole interest in the property for over 12 years. The co-offender, Mr Dann, has no interest in the property.

[34]   The Solicitor-General makes something of the respondent’s comment in his video interview with the Police that part of his motivation for allowing this use of his property was to help with the mortgage. I do not attach much weight to that “off the cuff” comment in a situation where the ultimate benefit to the respondent was minimal. The respondent was employed by the one employer for 15 years, he progressed in that job, and the evidence suggests he maintained his mortgage payments through legitimate endeavours.

[35]   The applicant submits that it is relevant to consider the value of the drugs and the value of the property to be forfeited, not the actual profit. Here, the applicant submits the respondent admitted that the property had been used to manufacture Methamphetamine on five previous occasions. Additionally, the Solicitor-General submits the property had been “elaborately set up and equipped for an ongoing Methamphetamine manufacturing operation” which had the potential to yield significant profit.

[36]   The evidence before the Court is that 0.45-0.675 grams of Methamphetamine can be produced from a packet of 30 pills. The street value of 0.1 grams of Methamphetamine is $100. Accordingly, it is submitted that a packet of 30 pills has the potential to yield $450-$675. The 1800-odd pills the applicant says were discovered on the search of the property had the potential to yield between $27,000-

$40,500. (I note that the affidavit of Constable Craig in support of the application  for a restraining order deposes that the $450-$675 figure is reduced by the $100 owed to the pill buyer.)

[37]   Hence, it is submitted taking into account the potential yield from those pills, the yield from the previous four or five “cooks” and those that would have been obtained in the future, the value of Methamphetamine produced would have exceeded the value of the property.

[38]   Hence, the Solicitor-General says this case is similar to R v Dunsmuir [1996] 2 NZLR 1 where the Court of Appeal said it was appropriate to refer to the value of the ultimate yield of the cannabis plants found. The Court there concluded that,

“The elaborate set-up and sophisticated apparatus did not suggest that the operation was intended to be of only short-term duration, and that it would be brought to an end before the plants reached maturity.” (at 6)

[39]   The applicant also emphasises the deterrent aspect of the Proceeds of Crime legislation. Recognising that objective, in Dunsmuir the Court of Appeal said:

“The fact that the house had been acquired by previous honest endeavours, and that the offences were discovered before he had enjoyed much of their intended fruits, is not sufficient reason why forfeiture should not  be ordered.” (at 7)

[40]   In developing her submission that forfeiture will cause undue hardship, Ms Harding for the respondent emphasises, first, that the respondent has no other assets. His time in prison has left him with health problems, a lack of self-confidence, and real difficulties in finding employment.

[41]   Second, the respondent has no savings or other money and is now living on a benefit.

[42]   Third, forfeiture, which would result in his losing his equity in his house, will lead to extreme financial hardship. He will not be able to recover from that given his age (48) and his circumstances.

[43]   Fourth, he and his daughter live at the property and forfeiture will deprive her of any inheritance.

[44]   Finally, the respondent relies on Solicitor-General v Wong (1997) 14 CRNZ 624 and Solicitor-General v Fisher (HC WHG, M44/02, 27 June 2003, Harrison J) as illustrative of the approach to be taken in this case.

[45]   Obviously, the Court can consider the prospective yield Mr Dann would expect to reap from the offending. However, the reality for the respondent was a little different. In considering the level of hardship for the respondent, what the offending might yield him must also be a factor. It did not appear that  the  respondent had the sort of arrangement with the co-offenders from which he was ever going to get much more than Methamphetamine for his personal use and perhaps a little for on-sale. There is some suggestion in the video interview of a

$5,000 payment but that never eventuated. Further, the respondent was getting a  little nervous, it appeared, about the arrangement and so it may be questionable for how long the operation may have continued. As Gendall J in sentencing Mr Dann noted, the laboratory was well organised. However, it was also described by Constable Craig as “makeshift” and it did not appear to be hugely sophisticated. The respondent refers to the fact that the “cooks” did not appear to be on top of the processing. There were some apparent failures or less than complete successes. The figures about yield have to be considered in light of those sorts of factors as well.

[46]   Undoubtedly, forfeiture will cause the respondent financial hardship. Whether or not that is undue, is less clear cut. As the Court of Appeal stated in Dunsmuir, “The offender who puts his property at risk by using it for criminal purposes must face the consequences.” (At 6). Further, while the respondent’s daughter will be affected in some way, it is not the case of a very young or growing family who are deprived of a place to live. I do not see the possible loss of inheritance in this context as comprising the sort of hardship to which s15(2)(b) is directed. On balance, however, I find the hardship would be undue. In reaching that conclusion, I place weight on the brief period of the offending and on the minimal use made in that brief period.

(iii)     Nature and extent of offender’s and other person’s interests in the  property  (s 15(2)(c))

[47]   The Crown says that if forfeiture of the property is granted, it will discharge the mortgage to the ASB Bank following the property’s sale.

(iv)    Any other matter relating to the nature and circumstances of the offence or the offender (s 15(2)(d))

[48]   The applicant submits that the forfeiture order when combined with the respondent’s earlier sentence would not have a disproportionate impact on the offender beyond the deterrent element contemplated by the legislation itself (R v Dunsmuir and Lyall v Solicitor-General, above).

[49]   The applicant submits that the respondent’s personal circumstances are no excuse for his offending and can have no bearing on the application for forfeiture.

[50]   The respondent submits that the punitive impact of a forfeiture order on him would be grossly disproportionate to the circumstances surrounding him allowing  Mr Dann to use his property to commit the offending.

[51]   Ms Harding points to the respondent’s personal circumstances prior to offending. The respondent had suffered following the death of two very close  friends and, in about the same timeframe, had news of his then partner’s very ill health. In these circumstances, Ms Harding says the respondent chose to self- medicate and turned to drugs. However, she emphasises that subsequent to the offending, the respondent has undertaken counselling for alcohol and drug  issues. He has acknowledged this was a serious error of judgment and is shamed by what has occurred. Finally, Ms Harding again refers to the financial difficulties in which the respondent now finds himself.

[52]   Hence, it is submitted that forfeiture does not fit with the extent of the respondent’s crimes.

[53]   It is appropriate here to consider the two cases relied on by the respondent, namely, Wong and Fisher.

[54]   I agree with the applicant that there are some differences between this case and that of Wong. The offending in Wong arose in part at least out of Ms Wong’s relationship with her co-offender. However, the case is helpful as to the various issues to be considered here.

[55]   Ms Wong pleaded guilty to a charge of knowingly permitting her house to be used for the commission of an offence against the Misuse of Drugs Act 1975. She was discharged without conviction. The offending involved was that of a Mr Haussman. He was a younger man with whom Ms Wong had a de facto relationship. The two lived in her house which he used to undertake a sophisticated cannabis growing operation. There was another property involved and another co-offender. The other offender together with Ms Wong’s partner ran the cannabis growing operations at the two homes.

[56]   Gendall J concluded that Ms Wong would suffer severe hardship because she would lose her home. He was not satisfied Ms Wong was as ignorant of the circumstances of her partner’s offending as she claimed. She was, rather, “naive in the extreme and to a large extent turned a blind eye to what her younger lover was up to.” His Honour in that case took a “global approach” noting that  the  deterrent aspect of the legislation cannot be overlooked. But, Gendall J stated,

“in the end the Court has to determine whether the punishment to be imposed on a third party, not the serious offender, is of such a nature and degree as to fit the “crime”, in the sense of the extent of involvement of the third party.” (at 634)

[57]   In that case, weighing up all the matters surrounding the use of the property by Mr Haussman, Ms Wong’s involvement or knowledge, the substantial value of the property and the obvious hardship that a forfeiture order would bring to her which the Judge found undue in all the circumstances, the conclusion was that it was not appropriate or just for the Court to exercise its discretion and order forfeiture of the respondent’s home.

[58]   The Fisher case also has some distinguishing features, particularly the effect of forfeiture on Mrs Fisher as it would involve the loss of the matrimonial home. Again, however, the balancing exercise undertaken is of relevance to the present case.

[59]   Mr and Mrs Fisher had a family home which was also the site of legitimate commercial activity. They leased two chalets and used the property as a basis for a fishing business. The property had been acquired with savings  from  legitimate work. Both Mr and Mrs Fisher pleaded guilty to cannabis charges. Mr  Fisher pleaded guilty to seven charges of cultivating, possessing for supply and selling cannabis. Mrs Fisher pleaded guilty to one charge of permitting premises to be used for growing cannabis.

[60]   The Judge found that the total earnings from the cannabis growing operation were in the region of $50,000 to $75,000. His Honour concluded that the illegal purposes were not the predominant use of the property. He found there would be undue hardship to both Mr and Mrs Fisher but more importantly Mrs Fisher, if the property was forfeited. In that context, Harrison J observed that while Mr Fisher’s offences were serious offences, it was not offending of the most serious kind. His Honour placed some weight on the fact that Mr Fisher would be,

“left destitute upon release from prison (increasing the risk that, in time, he may become a social and economic charge upon the State). In my judgment forfeiture would constitute a gross disproportion between the gravity of Mr Fisher’s offending and the value of his interest, especially when considered in conjunction with the punishment of imprisonment imposed upon him and the hardship to Mrs Fisher caused by sale of the matrimonial home. This result crystallises the very risk identified by Blanchard J in Lyall as a consequence of the decision in Dunsmuir.” (at para [27])

[61]   The deterrent aspect is important here. While the respondent’s involvement was very much at the lower end of the scale, the reality is that more serious offenders can continue to offend in that way whilst people like the respondent are willing to help by whatever means. In that sense, the respondent’s personal circumstances and his motivation for offending are less relevant. Indeed, in Lyall, the Court of Appeal suggested that the reason for committing the crimes will “ordinarily” be immaterial (at 647).

[62]   However, considering the use of the home that was actually made, the hardship to the appellant which I conclude was undue, and the gravity of the offending, forfeiture would be disproportionate. That is particularly so because the offending was for such a short duration.

Result

[63]   Accordingly, I decline to make the forfeiture order sought. The restraining orders therefore lapse.

Other matters

[64]   I do not need to deal then with the respondent’s application to vary. For completeness, I note that I would have declared an interest in the legal fees up to a maximum of $25,000 subject to sighting further invoices. As the matter developed, the Crown would not have opposed that aspect of the respondent’s application if a forfeiture order was made.

[65]   In order to ensure that the message of deterrence is not lost, I do see merit in following the approach taken by Harrison J in Fisher. That is, while declining to make a forfeiture order, His Honour did impose a pecuniary penalty. This aspect  was touched on briefly at the hearing but I consider it proper that I gave the parties and the Bank the opportunity to make written submissions on the matter. I do not want extensive repetition of arguments already made. Any submissions on this point are to be filed and served by 5pm on Friday 13 May 2005.

[66]   If there is any question as to costs, memoranda are to be filed by 5pm on Friday 27 May 2005.

Ellen France J

Delivered at 3.45pm 5 May 2005