Solicitor-General v Monk HC Whangarei CIV-2011-488-000010

[2011] NZHC 1211

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2011-488-000010

IN THE MATTER OF     an Application under the Proceeds of Crime

Act 1991

BETWEEN  THE SOLICITOR-GENERAL Applicant

ANDCLINTON BRIAN MONK First Respondent

ANDBRIAN DONALD MONK Second Respondent

Hearing:         29 September 2011

Appearances: M B Smith for Applicant

J Anderson for the Respondent Trustees and the Discretionary
Beneficiaries

Judgment:      11 October 2011 at 3:00 PM

JUDGMENT OF VENNING J

This judgment was delivered by me on 11 October 2011 at 3.00pm, pursuant to Rule 11.5 of the High

Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Crown Solicitor, Whangarei

Price Baker Berridge, Henderson

Copy to:            J Anderson, Auckland

THE SOLICITOR-GENERAL V MONK HC WHA CIV-2011-488-000010 11 October 2011

[1]      On 23 July 2010 Clinton Monk was sentenced to imprisonment for five years four months on a number of counts of manufacturing methamphetamine, supplying methamphetamine and related offending.  The offending was carried out at 2 Hall Road, Tinopai, a property occupied by Mr Monk and his partner Tania Penerata.

[2]      The Solicitor-General seeks an order forfeiting the property to the Crown.

The property

[3]      The property at 2 Hall Road is a rural lifestyle block.  Its legal description is:

An estate in fee simple in all that parcel of land containing 4.0614 hectares more or less being Lot 1 Deposited Plan 193305 and being all of the land contained in Certificate of Title NZ1223D/162 (North Auckland Registry).

[4]      The property is owned by the Monk Family Trust, the trustees of which are

Clinton Monk and his father Brian Monk.

The offending

[5]      On 24 March 2009 the police executed a search warrant at 2 Hall Road.  In the main dwelling on the property the police found methamphetamine and assorted equipment,   materials   and   pre-cursor   substances   capable   of   being   used   to manufacture  methamphetamine.    In  a  large  garage/workshop  the  police  located further equipment, materials and pre-cursor substances capable of being used to manufacture methamphetamine.

[6]      The scene was examined by a police clandestine laboratory team.   They confirmed that there was a clandestine methamphetamine laboratory at the property that had been in operation for a period of time.  The quantity of equipment, materials and substances indicated that methamphetamine had been manufactured in commercial quantities.

[7]      On 20 July 2009 Clinton Monk pleaded guilty to:

a  representative  count  of  manufacturing  methamphetamine  between  1

September 2007 and 22 March 2009;

one charge of manufacturing methamphetamine on or about 24 March 2009;

possession of equipment;

possession of materials;

possession of pre-cursor substances.

[8]      Some nine months later on 23 March 2010 he pleaded guilty to the following

additional charges:

a representative count of supplying methamphetamine between 1 September

2007 and 22 March 2009;

possession of methamphetamine for supply;

possession of a firearm except for some lawful, proper and sufficient purpose

(x 2);  and

possession  of  explosives  except  for  some  lawful,  proper  and  sufficient

purposes.

[9]      Although  Clinton  Monk’s  partner,  Ms  Penerata,  was  also  charged  and pleaded guilty to a number of drug related offences, the sentencing Judge accepted that she had made extensive efforts to rehabilitate herself.  He sentenced her to six months’ home detention to be served at the residential treatment centre she was attending.

[10] As the original application was made in July 2009 the application is to be determined under the Proceeds of Crime Act 1991.1

[11]     Under s 8 of the Act the Solicitor-General may apply for a forfeiture order against tainted property. Tainted property is defined in s 2(1) of the Act to include:

(a)       in relation to a serious offence, means—

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

[12]     Serious offence is defined as:

an offence punishable by imprisonment for a term of 5 years or more.

[13]     The charges Clinton Monk pleaded guilty to include serious offences.  The maximum penalty for manufacturing methamphetamine, possession of methamphetamine for supply and for supply of methamphetamine is life imprisonment.2

[14]     Under s 15, if the Court is satisfied the property specified in the application for the forfeiture order is tainted property in respect of the offence then the Court may order the property be forfeited to the Crown.  In this case it is accepted that the property is tainted property.  It was used to commit and facilitate the commission of the manufacture and possession and supply of methamphetamine by Clinton Monk.

[15]     Although the property is owned by trustees the fact the property is not owned by Clinton  Monk  does not  exclude  the  application  of the Act  to it:   Tahera  v Solicitor-General;3   Solicitor-General v Wong.4

[16]     There is jurisdiction to forfeit the property to the Crown.  The two issues for the Court on this application are first, whether in the circumstances of this case an

1      Section 172, Criminal Proceeds (Recovery) Act 2009.  The proceeding was initially filed in the criminal jurisdiction of the Court and subsequently transferred to the correct, civil, jurisdiction.

2      Section 6(2)(a), Misuse of Drugs Act 1975.

3      Tahera v Solicitor-General (1996) 13 CRNZ 487 (CA).

4      Solicitor-General v Wong (1997) 14 CRNZ 624 (HC) at 628.

order for forfeiture should be made and secondly what, if any, relief should be provided to take account of any third party’s interest in the property.

The respondents’ position/representation

[17]     Mr Anderson advised that he was acting for the respondents as trustees but not for Clinton Monk in his personal capacity.  Mr Anderson also sought to represent the interests of the beneficiaries (of which Clinton Monk was one).  He submitted that relief should be granted under the provisions of ss 15(2) and 17 of the Act.

[18]     Mr Smith took the point in advance of the hearing that there had been no application by the beneficiaries for relief.  In an attempt to address that Mr Anderson arranged  for  notices  of  opposition  to  be  filed  by  the  various  discretionary beneficiaries under the trust (apart from Clinton Monk).   In the particular circumstances of this case, I allowed Mr Anderson to address submissions on behalf of the discretionary beneficiaries as well as the trustees, reserving the position of the beneficiaries’ standing.

Parties’ respective interests in the property

[19]     There are three sections of the Act applicable to the issues the Court must consider – s 15 which sets out the matters the Court may have regard to when considering whether to make an order for forfeiture or not, and ss 17 and 18 which provide for relief to a third party.

[20]     The  first  matter  to  consider  is  whether  an  order  should  be  made  under subs (1)  of  s 15  for  forfeiture  of  the  property.    Section  15(2)  provides  that  in considering that issue, the Court may have regard to:5

(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

5      Section 15(2).

(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 other matter relating to the nature and circumstances of the offence or the offender, including the gravity of the offence.

The use ordinarily made of the property

[21]     Mr Anderson submitted that the home, whilst strictly tainted property for the purposes  of the Act,  was  the family home for  Mr Monk,  his  partner  and  their children.  He submitted the trust became the legal owner of the property well before the offending and the property was bought using funds from legitimate sources.

[22]     Mr Monk deposed that for a year after it was bought (in mid 2005), the property was unliveable as it required substantial work.  The property was then more recently used as the family home.  Mr Monk says that since his arrest (but before sentence), his children Samantha (22), Natasha (20), Jacob (14) and Claudia (9) had been living at the property.  Following his imprisonment they are now living with their mother.

[23]     For a period of just over a year then, the property was used by the family before Mr Monk’s offending began.  However, as the Crown submit, for at least 18 months thereafter it was used as a base for the commercial manufacture of methamphetamine.   The manufacturing operation in the home and garage and workshop must have been known to at least the older members of the family.  The job sheets attached to Constable Iosefa’s evidence suggest that is the case.

Undue hardship

[24]     The next consideration is whether there would be undue hardship caused to any person by forfeiture of the property.   In this context, for undue hardship, something more than the ordinary hardship arising as a consequence of the execution

of the forfeiture order is required:  Lyall v Solicitor-General.6

6      Lyall v Solicitor-General [1997] 2 NZLR 641.

[25]     Mr Monk has no personal interest in the property.  An order for forfeiture could result in no hardship to him on that basis.  He would lose the use of property he has had as his home, but that could not be said to be an undue hardship given his other use of the property.   His children would also lose their home, although as noted, the younger children are currently able to live with their mother. Their mother and Mr Monk have apparently been separated for some time.

[26]     Mr Anderson submitted that forfeiture of the property would cause undue hardship to the beneficiaries of the trust who had had no involvement with Mr Monk’s offending.  He submitted that to forfeit the property in those circumstances would be disproportionately harsh to those beneficiaries.  However, even given the extended definition of interest in the Act, the beneficiaries’ ―interest‖ in the property can only arise through their interest in the trust, and for the reasons that follow, the trust’s interest in the property under ss 17 and 18 is limited and can be recognised in any event.

The nature and extent of the offender’s interest in the property

[27]     Clinton Monk and his father Brian Monk have given evidence as to the circumstances in which the property at 2 Hall Road was purchased and the trust’s interest in the property.  Clinton Monk formerly owned a property at Routley Drive, Glen Eden.  About the same time he sold that property he sold a number of other assets as well and applied the proceeds of sale to the Monk Family Trust to enable it to purchase the Hall Road property.   The Hall Road property was purchased for

$155,000 in May 2005.  Clinton Monk provided all the funds to the Monk Family

Trust to enable it to purchase the property.

[28]     To  acknowledge  the  advances  Clinton  Monk  had  made  to  the  trust,  the trustees completed an acknowledgement of debt of $155,000 in his favour.  As well as the acknowledgement of debt the trust agreed to provide a mortgage if called upon to do so.  The acknowledgement satisfies the requirements of an equitable mortgage in favour of Clinton Monk.  At about the same time, Clinton Monk gifted $27,000 to the Monk Family Trust.  While it may have been intended to carry out further gifting as part of a gifting programme, it appears no further gifting has taken place.

[29]     As a result, the position is that the property is owned by the Monk Family Trust.  It is held by the trustees for the beneficiaries.  I understand the property is the sole asset of the trust. A Government valuation report as at 1 September 2008 values the property at $170,000.   Given the acknowledgement of debt and the gifting of

$27,000 the trust owes Clinton Monk a balance of $128,000.  On the basis of those figures, the net assets of the trust are approximately $42,000.

[30]     It is agreed that, at present, the beneficiaries of the trust are Clinton Monk and his children, Samantha, Natasha, Jacob, and Claudia.   In addition, the trust document  provides  that  discretionary beneficiaries  may also  include  any further children and grandchildren of Clinton Monk born before the date of distribution, any trust in which the settlor or their children have a beneficial interest and such other person or persons or charities as the settlor (Clinton Monk) shall, before the date of distribution, either revocably or irrevocably appoint.   The class of discretionary beneficiaries is not closed.

[31]     Even given the extended definition of ―interest‖ under the Act, the individual discretionary beneficiaries  do  not  have  individual  interests  in  the  property.   As discretionary beneficiaries they may have certain expectations but in Hunt v Muollo7 the Court of Appeal confirmed that a discretionary beneficiary has no interest, legal or equitable, in the assets of the trust.  The discretionary beneficiary only acquires an interest in the property on the making of the distribution and then only to the extent of the distribution.

Other matters

[32]     The offending was serious.  This was a commercial manufacturing operation carried out over a long period of time.   The Court must recognise Parliament’s intention that the forfeiture of tainted property is an important part of the deterrent aspect of drug offending:   Solicitor-General v Wong;8    R v Dunsmuir.9    Where, as here,   the   property   was   substantially   given   over   to   the   manufacture   of

methamphetamine,  it  cannot  be  said  that  forfeiture  is  disproportionably  severe

7      Hunt v Muollo [2003] 2 NZLR 322.

8      Solicitor-General v Wong, above n 4.

9      R v Dunsmuir [1996] 2 NZLR 1 at 6.

punishment in terms of s 9 of the New Zealand Bill of Rights Act:  Lyall v Solicitor- General.10

[33]     I conclude that, on balance, after taking account of the considerations in s 15, forfeiture of the property is justified.

Third party interests

[34]     Section 17(1) provides for a person claiming an interest in any of the property to apply for an order under s 18 of the Act recognising that interest and granting relief.

[35]     Under s 18 of the Act if an application is made and the Court is satisfied that the applicant’s claim to the interest is valid then the Court shall, subject to the limited circumstances in s 18(2), make an order:

(c)       Declaring the nature, extent, and value of the applicant's interest in the property; and

(d)      Either—

(i)       Directing the Crown to transfer the interest to the applicant;

or

(ii)      Declaring that there is payable by the Crown to the applicant an amount equal to the value of the interest declared by the Court; or

(iii)      In the case of an application under section 17(1) of this Act, directing that the interest shall not be included in a forfeiture order made in respect of the proceedings that gave rise to the application.

[36]     Clinton Monk is not personally entitled to apply for relief under ss 17 and

18.11   For the reasons given above the individual interests (or expectation of interest)

of the discretionary beneficiaries cannot provide a basis for orders under ss 17 and

18.  The individual discretionary beneficiaries have no present enforceable right or interest in the property itself.

10     Lyall v Solicitor-General [1997] 2 NZLR 641.

11     Section 17(3).

[37]     However, the trustees do have an interest in the property on behalf of the trust they represent.  The trustees have an interest in the property, which, while subject to the equitable mortgage in favour of Mr Monk, is a valid interest for the purposes of the Act.12

[38]     The  issue  is  the  nature,  extent  and  value  of  the  trustees’  interest  in  the

property in the particular circumstances of this case.

[39]     In that regard I derive some assistance from the approach taken by the Court of Appeal in Lyall.   In Lyall the Solicitor-General had applied for forfeiture of a property at Winston Avenue, Christchurch.   There were three parties potentially interested in the property – Mr Glover, a Christchurch accountant in whose name the property was  registered  (the  legal  owner  of  the  property);    Mr  Lyall  who  was effectively beneficially interested in the property together with Mr Black (the offender) as to a two-thirds interest;  and a solicitor’s nominee company.  There was no issue about recognising the interest of the solicitor’s nominee company.

[40]     Importantly for present purposes, while the legal title was held in the name of Mr Glover, the Court was prepared to recognise the beneficial interest of Mr Lyall in the property and to grant relief to him.  It did so by declaring that Mr Lyall had an interest in the fee simple estate as to an undivided two-thirds share, which it valued at two-thirds ($160,000 (being the value of the property) – M (where M was the amount of the mortgagee’s interest)).  The Court then directed that the Crown was to pay to Mr Lyall an amount equal to the value of his equitable interest, with the expenses of sale to be met out of the one-third interest of the offender.  The Court could equally have recognised that Mr Glover held the property on trust and directed that the payment be made to him, leaving him to account to Mr Lyall in accordance with the trust of which Mr Glover was trustee.

[41]     In the present case, the property is the only asset of the trust.  The offender, Mr  Clinton  Monk,  has  an  equitable  mortgage  over  the  property.     In  the circumstances the trust’s effective equitable interest in the property (which it holds

for  all  ultimate  discretionary  beneficiaries)  is  $170,000  less  the  debt  owing  to

12     Section 18(1)(b).

Clinton Monk of $128,000, which equals $42,000, or approximately 25 per cent of the property.  The trust has an equitable interest in the property of 25 per cent.

[42]     The trust’s 25 per cent equitable interest in the property can be recognised by requiring the Crown to pay one quarter of the net proceeds of sale of the forfeited property to the trustees for the trust.

[43]     I am aware that Mr Clinton Monk has a potential interest as a discretionary beneficiary  under  the  trust  but  am  satisfied  that,  in  the  circumstances,  it  is appropriate to make such an order for relief notwithstanding the provisions of s 18(2) of the Act.  The bulk of the value of the property will be forfeited to the Crown.

Result/orders

[44]     The property is forfeited to the Crown.   The Official Assignee is to take custody and control of the property.

[45]     I  make  an  order  under  s  18  that  the  trustees  hold  an  equitable  interest equivalent to a 25 per cent interest in the property for the benefit of the ultimate beneficiaries of the trust.

[46]     From the proceeds of sale of the property the Crown is to pay to the trustees an amount equal to the value of that interest (i.e. quarter of the ultimate sale price of the property whatever that may be).

[47]     The expenses of sale are to be paid out of the Crown’s share of the property.

Costs

[48]     I make no order for costs in the circumstances.

[49]     Mr Anderson sought an order in relation to his costs.   That is a matter for counsel and his instructing solicitors.   However, I direct that the trust’s share of

proceeds of sale are to be paid by the Official Assignee to the solicitors for the

trustees, Price Baker Berridge.

Venning J

Addendum

[50]     After  completion  of  the  judgment  but  before  delivery  the  Registrar  at Whangarei referred a memorandum from counsel Mr Anderson relating to his costs to the Court.

[51]     I have considered the memorandum.  I do not consider it necessary to make any further order.

[52]     As matters lie the entire costs of the sale proceeds will be paid from the

Crown’s interest in the forfeited property.

[53]     I have not made any order for costs against the respondents or the trust.  The

trust should bear Mr Anderson’s costs from its share of the proceeds.

Venning J