Solicitor-General v Wikitera HC Auckland CIV 2008-404-946

[2010] NZHC 908

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2008-404-000946

BETWEEN  SOLICITOR-GENERAL OF NEW ZEALAND

Applicant

ANDANTHONY WIKITERA Respondent

ANDCOLLEEN PALMER Third Party

Hearing:         6 May 2010

Appearances: B Finn for Applicant

M S Gibson for Respondent
J Munro for Third Party

Judgment:      12 May 2010 at 4:00pm

(RESERVED) JUDGMENT OF ANDREWS J

This judgment is delivered by me on 12 May 2010 at 4:00pm pursuant to r 11.5 of the High Court Rules.

...........................................

Registrar / Deputy Registrar

Solicitors:           Meredith Connell, PO Box 2213, Auckland

J Munro, PO Box 7140, Wellesley Street, Auckland

Counsel:            Murray S Gibson, 34 London Street, St Marys Bay, Auckland 1011

SOLICITOR-GENERAL OF NZ V WIKITERA HC AK CIV 2008-404-000946  12 May 2010

Introduction

[1] The Solicitor-General has applied for a forfeiture order against the respondent, Mr Wikitera, in respect of the property at 537B State Highway 2, Mangatawhiri (“the property”), pursuant to s 15 of the Proceeds of Crime Act 1991 (“the Act”). In the alternative, the Solicitor-General seeks a pecuniary penalty order against Mr Wikitera, pursuant to s 25 of the Act.

[2] Mr Wikitera opposes the making of a forfeiture order, but does not oppose a pecuniary penalty order. Mr Wikitera’s former partner Colleen Palmer has applied for third party relief under s 17 of the Act.

[3]      I am therefore required to determine whether a forfeiture order should be made and, in the event that such an order is made, whether Ms Palmer is entitled to relief.

Background

[4]      On 17 December 2008  Mr Wikitera pleaded guilty to one representative charge  of  manufacturing  methamphetamine  between  1  January  2007  and  4

December 2007.  He was sentenced by Duffy J in the High Court at Auckland on 24

February 2009 to imprisonment for three years and four months.

[5]      Ms Palmer pleaded guilty to charges of supplying pseudoephedrine for the manufacture of methamphetamine, and of permitting premises (the property) to be used for manufacturing methamphetamine.  She was sentenced in the District Court at Auckland on 2 October 2008 to nine months home detention.

[6]      Mr Wikitera’s and Ms Palmer’s offending occurred at the property.   The Police executed a search warrant on 4 December 2007.  They found a clandestine drug laboratory for manufacturing methamphetamine, chemicals and equipment, and both empty and unused packets of pseudoephedrine-based medicines.   The Police found empty blister strips which would, if full, have contained 420 pseudoephedrine tablets, each yielding 30 mg of pseudoephedrine hydrochloride.  They also found an unused packet of pseudoephedrine-based medicine, containing 48 tablets each of

which would have yielded 30 mg of pseudoephedrine hydrochloride.   It was calculated that the total amount of pseudoephedrine hydrochloride (that is, the 420 used tablets and the 48 unused tablets) was capable of being converted into 12.93 g of methamphetamine, with a street value of between $9,000 and $12,000.   It was accepted that the manufacture of methamphetamine had occurred mostly between October and December 2007.

[7]   Mr  Wikitera  has  one  previous  conviction  for  manufacturing methamphetamine.  He was sentenced for that, and other charges, on 27 May 2005 by Venning J.   On the manufacturing charge he was sentenced to three years and three months imprisonment.  That offending had also occurred at the property.  The amount of pseudoephedrine hydrochloride located was sufficient to manufacture 12 to 19 g of methamphetamine, worth approximately $19,000.

[8] Restraining orders have been in place with respect to the property, under s 42 of the Act, since 22 February 2008.

The property

[9]      The property is a 4.59 ha “lifestyle” block, being the property described in Certificate of Title NA118C/930 (North Auckland Registry) as Lot 4 on Deposited Plan 188683.  A valuation dated 1 April 2008 assessed the value of the property at between $420,000 (under a forced sale) and $440,000 (for a sale under normal market conditions).  A further valuation dated 24 April 2010 assessed the value of the property as being between $218,000–$247,000 (forced sale) and $290,000 (normal sale conditions).

[10]     ASB Bank Limited holds a mortgage over the property.  As at 3 May 2010 the outstanding amount owing to the ASB Bank was $120,028.64.   The available equity in the property is, as at the date of this hearing, in the range of $98,000 to

$170,000.

[11]     Mr Wikitera is the sole registered owner of the property.  He and Ms Palmer had been in a relationship for approximately 14 years before his arrest in December

2007, and they have two children.  Mr Wikitera, Ms Palmer, and their children have lived in the property since 1998.  Ms Palmer and the children continue to do so.  It was not disputed that she has a valid interest in the property.

[12]     On 11 February 2009 Mr Wikitera and Ms Palmer entered into a Relationship Property Agreement.  The agreement recorded that they had agreed to live separate and apart.  It also recorded their agreement that the property was to be placed on the market for sale, and that the net proceeds of sale were to be divided equally between them.   I was advised during the hearing that although extensive efforts had been made to sell the property, they had not to date been successful.

[13]     It is appropriate to consider, first, the application for forfeiture.

Application for forfeiture

Relevant statutory provisions

[14]    The Proceeds of Crime Act 1991 applies in this case, as the forfeiture proceeding   was   commenced   under   that   Act,   before   the   Criminal   Proceeds (Recovery) Act 2009 came into force.[1]

[1] See s 172 Criminal Proceeds (Recovery) Act 2009.

[15] Section 8 of the Act allows the Solicitor-General to apply for a confiscation order, which may be either a forfeiture order or a pecuniary penalty order:

8        Application for confiscation order

(1)Where a person is convicted on indictment of a serious offence, the Solicitor-General may, at any time before the expiration of the relevant application period, apply to the appropriate Court for one or both of the following orders:

(a)       A  forfeiture  order  against  the  property  that  is  tainted property in respect of the offence:

(b)A pecuniary penalty order against the person in respect of benefits derived by the person from the commission of the offence.

...

[16]     It was not disputed that, having been convicted on a charge of manufacturing methamphetamine, Mr Wikitera had been convicted of a “serious offence” (it being punishable by life imprisonment) or that the property is “tainted property”, as the offence had been committed at the property.[2]

[2] See Proceeds of Crime Act, s 2, definition of “Serious offence” and “Tainted property”.

[17] Section 15 of the Act governs forfeiture orders. As relevant to the present application s 15 provides:

15       Forfeiture orders

(1)On the hearing of an application for a forfeiture order in respect of a person’s conviction of a serious offence, 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 other matter relating to the nature and circumstances of the offence or the offender, including the gravity of the offence.

(3)       A Court that makes a forfeiture order against property may, if it considers that it is appropriate to do so, by order, —

(a)Declare the nature, extent, and value of any person’s interest in the property; and

(b)       Declare that the forfeiture order may, to the extent to which it relates to the interest, be discharged pursuant to section 22 of this Act.

(4)Where the Court orders that property (other than money) is forfeited to the Crown, the Court shall specify in the order the amount that it considers to be the value of the property at the time the order is made.

(5)       Where a Court makes a forfeiture order, the Court may give such directions as are necessary and convenient for giving effect to the order.

...

(Section 14(1)(b) is not applicable in the present case.)

The s 15(2) factors

[18] As there is no dispute that Mr Wikitera has been convicted of a “serious offence”, and that the property is “tainted property”, it is necessary to consider the factors set out in s 15(2)(a)–(d). The s 15(2) factors have been discussed in many judgments on forfeiture applications.[3]   A helpful summary of the principles that may be gleaned from the authorities is contained in the judgment of White J in Solicitor- General v Moss.[4]   Those principles are:

[3] See,  for  example,  Solicitor-General  v  Sanders  (1994) 2 HRNZ 24 (HC) at 30–32; R v Dunsmuir [1996] 2 NZLR 1 (CA); Lyall v Solicitor-General [1997] 2 NZLR 641 (CA); Solicitor-General v  Loftus  HC  Auckland  CIV-2003-404-3085, 5  May  2005;  Cooksley- Mellish v Solicitor-General CA209/05, 27 March 2006.

[4] Solicitor-General v Moss HC Tauranga CIV-2009-470-320, 5 May 2010 at [52] (citations omitted).

a)A forfeiture order is an additional penalty provided by Parliament as a deterrent.  The offender is sentenced for his crime, and in addition any of his property used to commit or to facilitate the crime is liable to forfeiture.  If this is draconian, that appears to be the intention of the legislation.

b)Those who commit serious drug related offences in or from their properties can normally expect to lose them unless there is gross or severe disproportion between the gravity of the offending and the value of the property sought to be forfeited coupled with the other punishment inflicted on the offender.

c)The fact that the property had been acquired by previous honest endeavours  and  that  the  offences  were  discovered  before  the criminal had enjoyed much of their intended fruits is not a sufficient reason why forfeiture should not be ordered.

d)When considering the “use” of the property under s 15(2)(a), the focus should be on the “predominant” or “significant” use of the property.

e)In considering “hardship” under s 15(2)(b), it needs to be recognised that there will always be some hardship to an offender and sometimes to a third party when a forfeiture order is made. It stems

from the operation of the Act and is disregarded. The question is whether that hardship is “undue”.

f)       The issues of forfeiture may give rise to the question of disproportionality under s 9 of the New Zealand Bill of Rights Act.

g) There is always an overlap between disproportionality and undue hardship under s 15(2)(b). ... A useful nonexclusive list of factors that would weigh include—

i)        the value of the property;

ii)       the nature of the offender’s interest;

iii)      the value of the drugs involved;

iv)      whether the property was acquired with the proceeds of sale of drugs;

v)       the utility of the property to the offender;

vi)      the length of ownership;

vii)     the  extent  to  which  the  property  is  connected  with  the commission of the offence;

viii)     the  fact  that  the  forfeiture  provisions  are  intended  as  a deterrent to drug dealers; and

ix)      the interests of innocent third parties.

h)The question the judge should ask is whether the forfeiture of the present equity in the property is disproportionate to the appellant’s offending.

i)The property does not have to be purchased for the purpose of the offending.

j)        The reasons for committing the crime are ordinarily immaterial.

k)        To determine the economic benefits derived by the offender as a result of the offending, it is necessary to assess the value and scale of [the offending] and the ultimate yield of [the offending].

Submissions

[19]     On behalf of the Crown, Mr Finn submitted that on the current value of the property, as set out in the valuation dated 24 April 2010, the net equity available (after payment of the ASB mortgage) is between $100,000 and $170,000.  Against that, he submitted, it would not be disproportionate to order forfeiture.

[20]     Mr Finn acknowledged that it had been accepted by Duffy J in her sentencing judgment that Mr Wikitera’s offending was at the lower end of the Fatu[5] Band Two class of offending.  Nonetheless, he submitted, being in Band Two indicates that the manufacture was considered to have a commercial element to it.  Accordingly, Mr Wikitera’s offending could not be characterised as anything less than serious. He submitted that forfeiture would not be grossly disproportionate to the offending.

[5] R v Fatu [2006] 2 NZLR 72 (CA).

[21]   Mr Finn submitted that deterrence is a significant factor in considering forfeiture.   While the application for forfeiture was founded on Mr Wikitera’s conviction on 17 December 2008 only, it is relevant that this was Mr Wikitera’s second conviction for manufacturing methamphetamine.   His earlier conviction related to offending in late 2004; the later conviction arose out of offending almost exactly three years later, in late 2007.   Thus Mr Wikitera had two convictions for offending within a period of three years.  In both cases, the offending had occurred at the property.   Mr Finn submitted that forfeiture is appropriate to serve the need for deterrence of serious drug offending.  It is also appropriate, he submitted, because the  sentence  imposed  on  the  earlier  offending  had  clearly not  had  the  required deterrent effect.

[22]     While acknowledging that there are factors that point against forfeiture, Mr Finn submitted that the unusual features of this case — in particular the fact that Mr Wikitera had been convicted on two occasions for manufacturing methamphetamine at the property, and the fact that the first sentence imposed on him had failed to achieve a deterrent effect — could lead the Court to conclude that forfeiture would not be a grossly disproportionate response, and would not cause undue hardship to Mr Wikitera, or Ms Palmer.

[23]     Mr Gibson submitted that a forfeiture order would not be appropriate, but accepted that a pecuniary penalty order could be made.  Mr Gibson’s submissions were, in the main, to the effect that a forfeiture order would be grossly disproportionate.

[24]     Mr Gibson submitted, first, that the Court should consider proportionality against the value of the property as at April 2008 ($420,000–$440,000) rather than the updated valuation as at April 2010.   He submitted that when the scale of the offending (measured by the sentencing Judge’s assessment of methamphetamine to the value of $9,000–$12,000 having been manufactured) is considered against the earlier valuation, forfeiture would clearly be grossly disproportionate.

[25]     Mr  Gibson  submitted  that  it  is  appropriate  to  use  the  earlier  valuation, because it is closer to the offending, and it would be unfair for the Crown to call in aid the valuation of the property derived from the current depressed property market.

[26] Mr Gibson also submitted that many of the s 15(2) factors pointed against forfeiture. In particular, he submitted:

a)       Only the garage had been used for manufacture, not the rest of the house. The primary purpose of the property was as a family home.

b)The  property had  not  been  purchased  from  any proceeds  of drug dealing.  It had a substantial mortgage on it, and Mr Wikitera had used his savings to renovate what was formerly a shed into a family home.

c)       Mr  Wikitera  had  owned  the  property  since  1998,  whereas  the offending had been relatively recent.

d)A forfeiture order would cause undue hardship both to Mr Wikitera and to Ms Palmer.  Mr Wikitera would be deprived of the security of the availability of the home (or his share of the proceeds of sale, if sold in the meantime) when he is released after serving his term of imprisonment.  Ms Palmer and the children would be deprived of their family home.

[27] Mr Munro echoed Mr Gibson’s submissions as to forfeiture. He submitted that if forfeiture is ordered, then the Court should grant Ms Palmer relief under ss 17 and 18 of the Act. He submitted that Ms Palmer would suffer undue hardship if

forfeiture were ordered and she thereby lost her interest in the property. He also referred to the s 15(2) factors stressed by Mr Gibson.

Discussion

(i)       Deterrence

[28] It can be accepted that deterrence, of the particular offender and of offending generally, is an important purpose of sentencing. It can also be accepted that deterrence is at least in part the purpose of the Court’s having been given the power to impose a confiscation order (whether forfeiture or a pecuniary penalty order) under the Act, by way of an additional penalty. Nonetheless, I do not accept that forfeiture is necessarily required to achieve the purpose of deterrence. A pecuniary penalty order may also achieve that purpose.

(ii)      The value of the property

[29] I do not accept Mr Gibson’s submission (which was supported by Mr Munro) that I should consider proportionality by assessing the offending as against the valuation of the property as at the time of the offending. In my view s 15(4) of the Act suggests that the value of the property should be assessed as at the time of the hearing, by providing that:

Where the Court orders that property (other than money) is forfeited to the Crown, the Court shall specify in the order the amount that it considers to be the value of the property at the time the order is made. (emphasis added)

[30]     I  note  that  in  Solicitor-General  v  Moss  (at  [32])  White  J  referred  to  a valuation prepared some nine months before the hearing of the forfeiture application was used.  In Stanton v Solicitor-General the Court of Appeal (at [23]) referred to the “present equity” in the property when considering whether forfeiture was disproportionate to Mr Stanton’s offending.

[31]     I have, therefore, assessed the scale of Mr Wikitera’s offending (lower end of Fatu Band Two, some commercial element, yield approximately $9,000–$12,000) against the total equity of $100,000–$170,000.

(iii)     Use of the property

[32]     I also consider proportionality by considering the extent of the property used for the offending.  The manufacture was confined to the garage of the property.  It cannot be said that the manufacture of methamphetamine was the “predominant” or even a “significant” use of the property.  The predominant use of the property was as a family home and lifestyle block.

(iv)      Undue hardship

[33] A forfeiture order is likely to cause hardship to any person affected by it. Section 15(2)(b) of the Act provides that the Court may have regard to any undue hardship caused. This means a level of hardship above that ordinarily contemplated.[6]   If forfeiture is ordered, Mr Wikitera will lose his share of the equity in the property, as will Ms Palmer (unless she is granted relief).

[6] See Solicitor-General v Sanders at 30.

[34]     With respect to Ms Palmer, it is necessary to take into account the fact that she,   too,   was   convicted   of   offences   relating   to   Mr   Wikitera’s   offending. Consideration of whether any hardship caused is “undue” must be tempered by that factor.

[35]     However, it is in my view significant that Ms Palmer has paid the mortgage, insurance and rates on the property, and continues to live in the property with the two children.   The two children attend the local school and are involved in the community.  Forfeiture would not just mean the loss of a financial interest for Mr Wikitera and Ms Palmer, it would mean that their children would be deprived of a place to live.

[36]     On  balance,  I  accept  that  making  a  forfeiture  order  would  cause  undue hardship to Ms Palmer and the two children.

(v)      Conclusion

[37]     Taking all of the above matters into account I have concluded that it is not appropriate to make an order for forfeiture of the property, and I decline to do so.  In the circumstances, I am not required to consider Ms Palmer’s application for relief against forfeiture.  I record, however, that had I made an order for forfeiture, I would have granted Ms Palmer relief, on the same grounds as those on which I declined to order forfeiture.

Application for pecuniary penalty order

[38]     As  noted  earlier,  Mr  Gibson  did  not  oppose  the  making  of  a  pecuniary penalty order.   Mr Finn submitted that, if such an order were made, a pecuniary penalty order should be in the order of $9,000 to $12,000.

[39] Section 25 of the Act provides that the Court may make a pecuniary penalty order. As relevant to the present case, s 25 provides:

25       Pecuniary penalty orders

(1)On the hearing of an application for a pecuniary penalty order in respect of benefits derived by a person from the commission of a serious  offence,  the  Court  may,  if  it  is  satisfied  that  the  person derived benefits from the commission of that offence, —

(a)Assess, in accordance with sections 27 and 28 of this Act, the value of the benefits so derived;  and

(b)Order the person to pay to the Crown a pecuniary penalty not greater than the penalty amount.

(2)The  penalty  amount  is  the  value  of  the  benefits  assessed  under sections 27 and 28 of this Act, reduced by —

...

None of the factors set out in s 25(2)(a)–(c) are relevant in this case.

[40]     Section 27 sets out matters relating to the assessment of a pecuniary penalty. It provides that the value of benefits derived by a person from the commission of an offence is to be assessed by having regard to evidence before the Court as to any money, or the value of any property other than money, that came into the possession of the offender by reason of the commission of the offence, or the value of any other benefit provided to the offender by reason of the commission of the offence.

[41]     In this case, Mr Finn submitted that the pecuniary penalty order should be assessed by reference to the value of the methamphetamine manufactured by Mr Wikitera, as assessed by Duffy J in her sentencing judgment.  As noted earlier, she found that, by reference to the total number of used and unused packets of pseudoephedrine-based medicine, a total of 12.93 g of methamphetamine had been, or  could  have  been,  manufactured,  with  a  street  value  of  between  $9,000  and

$12,000.

[42]   In his judgment in Solicitor-General v McDonald,[7] Asher J held that methamphetamine received by an offender, manufactured on the offender’s property, was a quantifiable “benefit” for the purposes of assessing a pecuniary penalty order.

[7] Solicitor-General v McDonald HC Auckland CRI-2005-404-7168, 31 October 2006 at [44]– [45].

[43]     In this case, I am satisfied that it is appropriate to assess the benefit derived by Mr Wikitera from his manufacture of methamphetamine at $12,000.  I therefore conclude that the pecuniary penalty amount should be $12,000.

[44] In his application for forfeiture orders, dated 19 May 2009, the Solicitor- General sought only forfeiture. No specific application was made for a pecuniary penalty order. However, both Mr Finn on behalf of the Crown and Mr Gibson on behalf of Mr Wikitera submitted that I could, as an alternative to forfeiture, make a pecuniary penalty order under the Act. In light of those submissions, I am prepared to amend the Solicitor-General’s application so as to include an application for a pecuniary penalty order. I note that a similar course was taken by Harrison J in

Solicitor-General v Fisher.[8]

[8] Solicitor-General v Fisher HC Whangarei M44/02, 27 June 2003.

[45]     I order that Mr Wikitera is to pay the sum of $12,000 to the Solicitor-General on or before 30 September 2010.  This period is to allow Mr Wikitera sufficient time to make the payment.  If payment is not made by then, the Solicitor-General will be free to enforce payment of the order at any time after 1 October 2010, if necessary by obtaining an order for sale against the property.

Result

[46]     The application for forfeiture is dismissed.

[47]     In  place  of  a  forfeiture  order  I make a  pecuniary penalty order  that  Mr

Wikitera pay the Solicitor-General the sum of $12,000 on or before 30 September

2010.

[48]     I reserve leave for the parties to apply in the event that that is necessary. [49]           There will be no order for costs.

Andrews J