The Commissioner of New Zealand Police v Kluger

[2024] NZHC 854

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE

CIV-2021-454-64

[2024] NZHC 854

UNDER

the Criminal Proceeds Act 2009

IN THE MATTER OF

an application under ss 17A, 33, 34, 35 and

80

BETWEEN

THE COMMISSIONER OF NEW ZEALAND POLICE

Applicant

AND

DAVID LEO KLUGER

Respondent

AND

ADAM KLUGER

First Interested Party

AND

ROLF RAFAEL KLUGER

Second Interested Party

Continued…

Hearing:

15 April 2024

Appearances:

G L Duncan for the Applicant

C W J Stevenson for the Eighth Interested Party

Judgment:

18 April 2024

Reissued:

17 May 2024

JUDGMENT OF PALMER J

Solicitors

BVA The Practice, Palmerston North

C W J Stevenson, Barrister, Wellington

MICHAEL LEWIS WOODLEY
Third Interested Party

POLICE v KLUGER [2024] NZHC 854 [18 April 2024]

JACQUELINE MARIE WOODLEY

Fourth Interested Party

IAN ROBERT SCOTT
Fifth Interested Party

TSB BANK LIMITED
Sixth Interested Party

HIMATANGI MOTORS LIMITED
Seventh Interested Party

THE COMPANY LIMITED
Eighth Interested Party

What happened?

[1]                 In  October  2021,  the  Police  terminated   two   operations   investigating Mr David Kluger’s alleged drug dealing and his assets. He was then charged with 47 offences relating to methamphetamine, firearms, and money-laundering. He has pleaded guilty to some charges but not guilty to others. He awaits trial, which has not yet been allocated a date. Others are also proceeding to trial on other charges, including for money-laundering. Amongst them is Mr Scott, shareholder of the Company Ltd (the Company), the eighth interested party in these proceedings.1

[2]                 In October 2021, the High Court granted a without notice application by the Commissioner of Police (the Commissioner) to restrain a range of property owned, or effectively controlled by, Mr Kluger under the Criminal Proceeds (Recovery) Act 2009.2 In November 2023, the Commissioner applied for early sale orders in relation to some of the restrained property, including over a 2009 Power Catamaran Wave Piercer 14 metre launch, the Ally Maid. The Police allege Mr Scott used tainted funds from Mr Kluger to purchase the Ally Maid through the Company.

[3]                 The Commissioner commissioned a valuation on 13 December 2021, valid for 12 months, which estimated the value of the Ally Maid at between $225,000 and

$280,000. The Ally Maid has been dry-docked since it was seized on 20 October 2021. The Inland Revenue depreciation rate for the Ally Maid would be 21 per cent

— between $47,250 and $58,800 — per annum. The storage costs as at 23 January 2023 were $22,165 and are currently running at $118 per day. If the early sale order is granted in relation to the Ally Maid, the Commissioner says the Official Assignee will mostly likely advertise with a boat trader broker, using either an auction, enquiry over, tender, or fixed price sales process.

[4]                 Mr Kluger does not oppose the sale orders. The only opposition to the application for early sale is from the Company. Mr Scott says the Company is really the owner of the Ally Maid, purchasing her in June 2021 for $400,000. The

1      Mr Scott and the Company Ltd are pseudonyms consistent with suppression orders in the District Court. The judgment was reissued accordingly.

2      The Commissioner of Police v Kluger HC Palmerston North CIV-2021-454-64, 19 October 2021 (Minute of Edwards J).

Commissioner says Mr Kluger gave cash to Mr Scott in June 2021 which was transferred to the Company and used as the deposit for the purchase. The Company says it intended to lease the Ally Maid to Mr Kluger. Mr Scott thinks the Ally Maid is now worth close to $500,000. But the Company has offered no evidence in support of its opposition to the application. The hearing was set down to be argued on points of law.

Law of early sale

[5]                 The Ally Maid is restrained under ss 24 and 25 of the Criminal Proceeds Act. It is in the custody and control of the Official Assignee.3 Section 80(1)(a) permits the Official Assignee to do anything reasonably necessary to preserve the value of the restrained property.4

[6]  Section 34 of the Act provides that the Court can make further orders in relation to restrained property “if it considers it appropriate”. Under s 35(e)(v), that includes an order to direct the Official Assignee “to sell restrained property . . . in order to preserve the value of the restrained property”. The Commissioner does not have to prove that a sale is required.5 Rather, the Commissioner must persuade the Court that an order is appropriate.6 In McQuade v Commissioner of Police, which concerned early sale orders, the Court of Appeal stated:

[21] The effect of a restraining order is to preserve the property itself and not its value. Sale orders can be sought by the Commissioner in relation to restrained assets that are eroding in value. There will often be a financial benefit in the sale of an asset otherwise eroding in value prior to any forfeiture order being made because, once the asset is sold, the proceeds of sale, whilst still restrained property, can be placed in an interest-bearing account by the Official Assignee.

[7]                 In relation to early sale orders, in Commissioner of Police v Drummond, Lang J stated:7

3      Criminal Proceeds (Recovery) Act 2009, ss 24(1)(b) and ss 25(1)(b).

4      Section 80(1)(a).

5      Commissioner of Police v Parker [2019] NZHC 1506 at [13].

6      McQuade v Commissioner of Police [2024] NZCA 46.

7      Commissioner of Police v Drummond [2018] NZHC 1730 cited with approval in McQuade v Commissioner of Police, above n 5, at [25].

[15] … Factors that will need to be taken into account include the nature and value of the asset, the length of time before the substantive proceeding will be determined, the extent to which the asset may depreciate during that period and the wishes of the owner of the assets and/or those who may have an interest in it.

[8]                 The Court of Appeal in McQuade considered the appropriate approach to holding costs is as follows:8

[27] … Woolford J suggested that a reduction in the eventual return caused by holding costs will not be sufficient of itself to warrant an order for sale. We broadly agree, but note that s 35 of the Act confers a discretion on the court. The fact that holding costs are being incurred is, in our view, a factor which can be considered in the exercise of the discretion, providing a sale order is otherwise appropriate in order to preserve the value of the restrained property.

Submissions

[9]                 Ms Duncan, for the Commissioner, submits that the application for early sale should be granted so that the value of the unlawful benefit the Commissioner anticipates recovering is not eroding. That would occur through depreciation of the value and equity in the restrained property and incurring costs of insurance, maintenance, and storage. The storage costs alone over the next year would amount to $43,000. On top of the $50,000 to date, that is a good proportion of the Ally Maid’s estimated value. The lack of service records will also impact its value. If an early sale order is granted, the Official Assignee will hold the proceeds in an interest-bearing account.

[10]              Mr Stevenson, for the Company, says, without evidential support, that Mr Scott is a well-established businessman and multi-millionaire with a long history of buying and selling luxury boats and a nose for their value. He submits the Company has a very strong case and it is unfair that the Ally Maid will be sold without clarity around the state of the boat and process of sale. Sale in a rush by a disinterested vendor will not realise its full value. He seeks deferral of sale until after trial.

8      McQuade v Commissioner of Police, above n 5.

Should sale orders be made?

[11]              The Company acknowledges there is no sentimental value to the launch. Mr Scott intended to lease it to Mr Kluger. The Company’s primary concern is financial: not to lose the value of the Ally Maid. But that is not inconsistent with early sale as long as the sales process realises market value. Mr Stephenson suggests a disinterested seller would not be able to realise as much value as Mr Scott. But he has provided no evidence in support of that position, including in relation to any defects in the proposed sales process. There was no response by Mr Scott to an invitation by the Official Assignee in December 2023 to suggest an appropriate sales process.

[12]              There is no doubt that the value of the Ally Maid will continue depreciating, and expenses will continue to be incurred, while it is held. Counsel agreed with my description of a boat, as a hole in the sea into which money is poured. Counsel also agreed that trial is at least a year away. The best means of preserving the value of the asset for the purposes of either return to the Company or forfeiture to the Commissioner is by realising its market value. No evidence has been provided to support the propositions that the Official Assignee’s sales process will not realise the market value or that there is any reason to doubt the valuation provided to the Official Assignee.

[13]              I am persuaded that it is appropriate in these circumstances that the Ally Maid, and the other restrained assets that are the subject of the application, should be sold.

Result

[14]              I grant the application for early sale orders, including in relation to the early sale of the Ally Maid, as sought.

Palmer J