The Queen v Anthony Ronald Spellacey

IN THE COURT OF APPEAL OF NEW ZEALAND

CA128/00
CA133/00
CA134/00

THE QUEEN

ANTHONY RONALD SPELLACEY
SHIRLEY ANNE SPELLACEY
KATHRYN MARGARET WAGSTAFF

Hearing:	29 June 2000
Coram:	Tipping J Heron J Williams J
Appearances:	I M Antunovic for Appellant A R Spellacey R J Stevens for Appellants S A Spellacey and K M Wagstaff C L Mander for Crown
Judgment:	10 August 2000

JUDGMENT OF THE COURT DELIVERED BY WILLIAMS J

Appeals

In a reserved judgment delivered on 10 April 2000, Keane DCJ granted the Crown’s application under the Proceeds of Crime Act 1991 to forfeit the 4.8220 ha property owned by the first appellant, Mr Spellacey situated at Kaitoke Upper Hutt and disallowed applications by Mr Spellacey’s mother and his de facto wife, the second and third appellants respectively, for orders granting them relief as third parties. There were also orders dismissing the Crown’s forfeiture application as it related to Mr Spellacey’s motor cycle. Without opposition, there was an order granting relief to the Southland Building Society, Mr Spellacey’s mortgagee.
All three of the appellants appeal to this Court against the orders affecting their interests.

Background

The factual background is that on 1 December 1995 Mr Spellacey entered into a contract to purchase the Kaitoke property for $165,000. Possession was due to be taken on 15 December. There was no provision for a deposit. Mr Spellacey said that he financed the purchase by providing $6500 in cash and borrowing $175,000 from the Southland Building Society over the security of the Kaitoke farmlet and Flat 3, 5 Scarborough Terrace, Wellington, which he and his deceased father owned. The title to the Scarborough Terrace property was transferred into the Spellaceys’ names as tenants in common in equal shares on 21 November 1989 but the father’s share was transferred to Mrs Spellacey by transmission registered on 14 December 1995 and her half share passed to Mr Spellacey by transfer registered on 23 January 1996, the same day the Kaitoke land was transferred into his name. A third property, a house at 126 Glenmore Street, Thorndon, Wellington, was also dealt with in evidence. It was jointly owned by Mr Spellacey and his former wife and was on the market in late 1995-early 1996. The background to the transactions relating to those three properties was one of the principal issues in contention before the District Court and again on appeal.
The critical question concerns the genuineness of a document in the form of acknowledgement of debt and agreement to mortgage, bearing date 10 December 1995 which reads:
I, ANTHONY RONALD SPELLACEY, HEREBY ACKNOWLEDGE that I am indebted to SHIRLEY ANN ROSE SPELLACEY in the sum of $100,000 (one hundred thousand dollars) and agree to execute a registerable memorandum of mortgage in the said sum, together with interest thereon at the rate of 8% per annum if called upon to do so over my property situate at State Highway 2, Kaitoke, pending subdivision.
Signed by the said A R Spellacey: “A R Spellacey”
Mrs Spellacey said that the acknowledgment was prepared by a friend after she had spoken to the Citizen’s Advice Bureau and a local lawyer in Palmerston North. The lawyer did not give evidence.
That document requires to be seen in the light of a letter handwritten by Mrs Spellacey and bearing date 6 December 1995 which reads:
Dear Tony,
As you know, I am not really in a position to help you without making for sure (sic) that other members are protected, of The Family. I have sought advice, and was told you will have to make an acknowledgement of the debt, so that if anything happens to me, the money that I am going to lend you will be taken into account when settling my affairs, as that money will be left to the grandchildren.
I am prepared to lend you $100,000, at 8%, and understand if not paid back for any reason, I will put a caveat on the property on State Highway 2, Kaitoke.
“S R Spellacey”
Mum.
Mr Spellacey was a national champion hairdresser for a number of years up until the late 1980s but then suffered accidents which mean he is unable to work. He has been on Accident Compensation ever since and acknowledged that for a number of years leading up to his arrest in December 1997 on charges which led to the matters before us, he was a heavy user of drugs, especially cannabis, and was dependent on them, he said for pain relief.
He said that he purchased the Kaitoke farmlet as a home and lifestyle block. He intended to improve it by milling trees, building farm buildings, fencing and ultimately building a house. Buying Kaitoke left him without cash or income other than from ACC and he therefore said, in an affidavit sworn in opposition to the forfeiture application, that he “borrowed $100,000 from my mother” to buy milling and farm equipment and to meet living expenses. In his evidence at the forfeiture hearing, however, he enlarged on that statement by saying that he went to see his mother who was then living at her motel in Palmerston North on 6 December 1995 and during that visit she counted out $100,000 in cash and gave it to him in the presence of Ms Wagstaff and a friend, a Mr Chan. He said it was “tax free” money which his father, an inveterate gambler, had accumulated.
Mrs Spellacey confirmed lending her son the $100,000 on 6 December, “to complete the purchase of the property and mill some of the trees”, saying that she counted out the money from the safe in the motel she owned. She said that at the time Mr Spellacey Snr died on 19 July 1995 his gambling had been so successful that he had about $185,000 in cash in the safe. In another passage in her evidence she said there was over $200,000 cash in the safe at her husband’s death. That amount passed to her and she kept it to distribute to her children and grandchildren as and when she chose.
Mrs Spellacey said that she told her son that he had to pay interest annually but could repay the principal on the sale of Kaitoke or when he could afford. She said she did not have a mortgage prepared at that stage because she knew of the Building Society advance and because her son did not want a second mortgage and she did not want to add to his legal fees.
In evidence, Mrs Spellacey said she lent the money until Scarborough Terrace sold and that her intention in writing the letter was that “if I die tomorrow it’s not to come back into my estate”.
Ms Wagstaff did not mention the $100,000 loan in her affidavit (although she mentioned Mrs Spellacey’s later mortgage), but in her evidence said she saw money being handed over after counting.
Mr Chan, a long time friend of Mr Spellacey, said that he was at the motel on 6 December 1995 and saw a large amount of cash on a bed. He was unaware of the amount.
Returning to the Scarborough Terrace property, on 4 December 1995, Mr Spellacey applied to borrow $175,000 offering Kaitoke and 3/5 Scarborough Terrace as security. The purpose of the application was said to be to refinance Scarborough Terrace and to enable him to purchase Kaitoke. Other contemporary mortgage applications noted that Mr Spellacey Snr’s interest in Scarborough Terrace had been transferred to Mrs Spellacey and said that “she has agreed to gift her interest” to Mr Spellacey and “Mum has agreed to give full title” to Mr Spellacey although they had an “understanding that if and when Scarborough Terrace was sold that 50% of the equity is split”.
What actually occurred in that regard was that on 14 December 1995 Mr Spellacey signed a document entitled “Declaration of Trust and Acknowledgement of Debt” addressed to his mother and relevantly saying:
“To: Shirley Anne Rose Spellacey
I want to thank you for transferring to me your half share in the cross lease residential property at 5 Scarborough Terrace Mt Victoria so that I can use it as collateral security for the finance I am raising from Southland Building Society to purchase a farm at Kaitoke.
You have signed the transfer without receiving any payment from me.
I have already listed the property for sale through a real estate agent and will actively pursue a sale in consultation with you.
In the meantime pending sale I hold a half share in the property in trust for you. I will account to you for your half share of the rent on the property in the same way as has been done up till now.
Upon settlement of the sale of property half of the net proceeds will be held in trust for you and I undertake to pay this half share to you immediately the sale is settled. This is a debt personally owed by me to you.
Dated at Wellington this 14^th day of December 1995.
Signed by
ANTHONY RONALD SPELLACEY “A R Spellacey”

It seems likely that that document was prepared by the solicitor then acting for them both. He did not give evidence.

On 8 February 1996, the solicitor reported to Mr Spellacey that Kaitoke had been transferred into his sole name subject to the mortgage and the transfer to him of his mother’s half share of Scarborough Terrace had also been registered. The accompanying statement confirmed the receipt of $6500 in cash from Mr Spellacey and $175,000 from the Building Society.
Scarborough Terrace sold soon afterwards and on 18 March 1996 the solicitor wrote to Mr Spellacey saying that from the net proceeds of sale amounting to $194,700.16 Mrs Spellacey had been paid her half share of $97,350.08 and $80,079.60 had been paid to the Building Society in reduction of principal. No.126 Glenmore Street sold at much the same time for $220,000. The net proceeds were divided equally - $76,545.01 – to each of Mr Spellacey and his former wife and that sum, together with $17,059.23, the balance of Mr Spellacey’s half share of Scarborough Terrace after the loan reduction and costs, was sufficient to pay a further $93,000 to the Building Society on account of principal. The Building Society initially had divided the $175,000 advance into $79,000 and $96,000 in respect of 3/5 Scarborough Terrace and Kaitoke respectively but the former loan was entirely paid off in March 1996 and the latter reduced to $4488.13 on 10 April.
On 12 December 1997 the Police searched the Kaitoke property under the Misuse of Drugs Act 1979 and found cannabis in the bedroom in the cottage, 33 oz in seven plastic bags concealed in a haystack in an implement shed, 75 grams in five bags in a safe in an old Post Office building on the property together with two containers of cannabis oil and a total of 67 cannabis plants hidden about the rest of the property, many in pots. The maximum value of the cannabis material and oil found was some $74,000, although that was dependent on the unlikely possibility that all plants would survive to maturity. Mr Spellacey admitted harvesting a crop of cannabis the previous year. He asserted that it was all for his own use.
He was charged with possession of cannabis oil and cannabis for supply, producing cannabis oil, cultivation of cannabis and other offences. He pleaded guilty to the cultivation charge at the commencement of trial on 15 March 1999 and guilty to the possession of the cannabis oil for supply at the conclusion of the Crown case. The jury found him guilty of possessing cannabis plant for sale and of being a party to the production of cannabis oil. On 14 April 1999 he was sentenced to 13 months imprisonment. He served some 4-5 months.
In the period between taking possession of Kaitoke and the arrest, Mr Spellacey had undertaken some milling of timber on the property and certain other development work such as fencing, either doing the work himself or hiring casual labour. In the same period, the principal under the Building Society mortgage had grown steadily from a low of $3607.57 on 30 April 1996 to $31,497.92 at the date of his arrest. It remained relatively constant until 1 November 1999, the last date shown in the evidence in the District Court, when the debit was $31,528,68. Mr Spellacey said that the increase in principal to December 1997 was partly due to the cost of the property developments but principally resulted from drug addiction. He also claimed that he put his mother’s $100,000 in the safe in the old Post Office on the property but that that, too, was largely used up during this period to satisfy his addiction. He claimed that for most of 1996 and part of 1997 when he was admitted to the methadone programme he was spending up to $100.00 per day on drugs.
When Mrs Spellacey learned of her son’s arrest she consulted her solicitor. On 23 January 1998 a caveat was registered claiming an interest in the Kaitoke land pursuant to an “agreement to mortgage dated 10 December 1995”. On 5 February 1998 Mr Spellacey signed a memorandum or mortgage in his mother’s favour for $100,000, repayable on demand with interest at the ordinary rate of 8%. It is to be noted that the interest commencement date was listed as 10 December 1995 with a first payment due on 10 December 1996. There was no entry of that mortgage on the title on the search copy before the Court dated 2 June 1999, no doubt in part because on 24 March 1998 the Crown registered a restraining order against the title which it had apparently obtained from the District Court under the Proceeds of Crime Act 1991 s 42.
After Mr Spellacey’s arrest, the police conducted an analysis of his financial affairs, concluding that there was no evidence to show what became of Mrs Spellacey’s suggested $100,000. In particular, there was no evidence to suggest that any part of that sum ever went into Mr Spellacey’s property transactions (other, perhaps, than the $6,500).
As far as Ms Wagstaff’s claim was concerned, she said that she and Mr Spellacey commenced living together in 1991. They remained together until after Mr Spellacey’s arrest but had parted at the time of the District Court hearing in February 2000. Mr Spellacey said they remained friendly. His view was that the relationship might revive.
Ms Wagstaff said that Kaitoke was intended to be their joint home and that they agreed that if they separated Mr Spellacey would pay her half the equity.
Although she was on the unemployment benefit when they commenced living together, she obtained employment as a florist in August 1996 at about $440 per week. During the period that they were at the property together she said they shared the household expenses and during the period that Mr Spellacey was in prison, she also paid the mortgage payments. She also claimed that she made occasional lump sum payments to even their contributions towards the household. She claimed to have spent “many hours” cleaning and painting the property, clearing scrub and gorse, and doing general farm work, thus contributing “both financially and physically to the property for nearly four years”. She said that she does not smoke cannabis “and although I was aware that the respondent was growing cannabis for his own use I had no idea how many plants he was growing, nor where they were being grown.”. She denied she had ever assisted in Mr Spellacey’s cannabis cultivation.
It remains to note a number of other matters. The first is that the government valuation of Kaitoke in June 1999 was only $143,000, while the principal and interest owing to Mrs Spellacey, if her claim were admitted, was $131,320.55 as at 5 November 1999.
The second is that both Mr Spellacey and his mother acknowledged that they did not tell their solicitor about the $100,000 cash loan which they say was made on 6 December 1995 even though he was involved in acting for them both at the time concerning Scarborough Terrace and for Mr Spellacey concerning Glenmore Street and Kaitoke. They said they saw no need. But they did say it was the solicitor’s idea to transfer Mrs Spellacey’s half of Scarborough Terrace to Mr Spellacey on trust to give him sufficient equity to borrow the $175,000 from the Building Society to meet the $165,000 purchase price for Kaitoke. Mr Spellacey also accepted that he did not mention the suggested loan by his mother in any of the financial details he furnished to the Building Society. The list of his assets in the mortgage application form included the whole value of both Glenmore Street and Scarborough Terrace but the list of liabilities referred only to the mortgages on those properties despite his certifying that the particulars in the application “are true and that there are no omissions”.
A third matter is that Mr Spellacey produced no financial data relating to any of his expenditure in Kaitoke other than a payment of some $7500 for two bulldozers and $5000 for a farm bike, plus a few amounts to top up his cheque account which he said came from the $100,000.

The District Court Judgment

The learned District Court Judge first noted that Mr Spellacey accepted that the counts to which he had pleaded guilty or on which he had been convicted were “serious offences” as that phrase is defined in the Proceeds of Crime Act 1991, s 2 and that the Kaitoke land was accordingly “tainted property” within the definition of that phrase.
Dealing first with Mrs Spellacey’s claim, the Judge first noted that the claim, if admitted, (p.4), “could effectively pre-empt the Crown’s application, whatever its merit, and indirectly afford relief to Anthony [Spellacey] and Kathryn Wagstaff”. The Judge noted that Mrs Spellacey’s claim was one where credibility was critical, with all matters to be decided on the balance of probabilities under s 85.
After a brief résumé of the facts, the learned District Court Judge then held that Mrs Spellacey’s claim was “unconvincing despite the concurrence of evidence on which it rests and the absence of anything directly contradictory” for the reasons that those who gave evidence on the topic were interested in the result, it was improbable that Mrs Spellacey kept such a large sum in a personal safe, the informal way in which the suggested loan was documented by contrast with the formal documentation in relation to Scarborough Terrace, coupled with the lack of any urgency as to why the funds were said to have been advanced on 6 December 1995 when the Kaitoke purchase was still conditional on finance until 8 December, possession was a week later and the acknowledgement and declaration of trust was not signed until 14 December. That last fact prompted the Judge to comment that that “in itself raises another question which neither [witness] answered: why was not this loan wrapped in?” The Judge then found it “unsurprising” that Mr Spellacey was unable to identify any part of the loan in the development of the property, noting the building of the shed, the casual work, the purchase of two bulldozers and some amounts in his 1996 bank account totalling some $26,000 which may have reflected the loan, despite his assertion the money was spent on drugs. From all of that the Judge concluded (p.7-8) :
It seems to me no accident that the first time the loan surfaced in any conventional sense, two years after it was said to be made, on 5 February 1998 in the memorandum of mortgage, was after Anthony Spellacey had been charged. The memorandum itself is no doubt genuine; the loan transaction on which it is said to be based, by contrast, is I consider no more than an easily concocted, convenient, fiction.
The Judge then considered factors influencing the exercise of discretion as far as Mr Spellacey’s opposition to forfeiture was concerned. After noting his offending, his interest in the property, the scale and manner of the cultivation, the value of the harvest and whether he might suffer “undue hardship” (s 15(2)(b)) by the deprivation of his one substantial asset and authorities on the topic, the learned District Court Judge concluded (p.8) : “.. every discretionary consideration suggests that … an order [under s 15(2)] ought not to be denied.”
The Judge then considered Ms Wagstaff’s claim in accordance with the principles set out in Lankow v Rose [1995] 1 NZLR 277, but found the claim “too general to be sustainable”. He could not “begin to quantify it on the evidence and I doubt that it is readily quantifiable” because there was no evidence as to the parties’ respective income, expenses or relative contributions to maintaining or improving the property. In particular, the Judge was critical of the lack of evidence as to the reason for the increase in the Building Society mortgage or any evidence as to the detail of the contributions Ms Wagstaff claimed to have made.

In the light of that finding, the Judge found no need to consider expressly whether Ms Wagstaff’s claim should be refused because she was not in any respect “involved” in the commission of the offence in respect of which forfeiture of the property” was sought (s 18(2)(a)) but went on to hold that he was:
... highly sceptical about her claim that she knew nothing about the plants under cultivation. She must have known that Anthony Spellacey was using heavily, and been aware that he had his own source. Also, if she ranged across the property as freely as apparently she did, she must surely have stumbled across the odd plant. The motorcycle tracks led nowhere else. Though not charged herself as a principal or party, she may still have been sufficiently entangled to be disqualified: Solicitor-General v Sanders (1994) 2 HRNZ 24‘

Policy of the Proceeds of Crime Act 1991

The relevant provisions of the Proceeds of Crime Act 1991 read as follows :
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. ….
18.      COURT MAY GRANT RELIEF TO THIRD PARTY--
(1)      Where--
(a) A person applies to the Court under subsection (1) or subsection (2) of section 17 of this Act in respect of an interest in property; and
(b) The Court is satisfied that the applicant's claim to that interest is valid,--
the Court shall, subject to subsection (2) of this section, make an order--
(c) Declaring the nature, extent, and value of the applicant's interest in the property; …
(2) The Court may refuse to make an order under subsection (1) of this section if it is satisfied that--
(a) The applicant was, in any respect, involved in the commission of the offence in respect of which forfeiture of the property is or was sought; …
As should by now be well understood, the Proceeds of Crime Act 1991 was intended by Parliament to ensure, as far as possible, that criminals who use their property to commit offences will forfeit that property. Orders for forfeiture under the Act are made without especial regard to taxing or accounting niceties (R v Pedersen [1995] 2 NZLR 286; (1995) 13 CRNZ 34). Taking account of third party interests in the property is a matter of granting relief under ss 17 and 18 rather than refusing forfeiture (R v Brough [1995] 1 NZLR 419; Lyall v Solicitor-General [1997] 2 NZLR 641). It is the whole of the property or the whole of the criminal’s interest in that property which is forfeited, not merely part (R v Dunsmuir [1996] 2 NZLR 1, 3-6). The policy of the Act was described in Dunsmuir in the following terms in a passage which has some relevance to this application (supra at 6-7) :
Where a forfeiture order is made in respect of property representing the proceeds of crime, it merely takes from the criminal his ill-gotten gains. There can be no complaint as to that. A forfeiture order in respect of property used for the commission of a crime goes further. It is an additional penalty provided by Parliament as a deterrent. The criminal is sentenced for his crime, and in addition any of his property used to commit or facilitate the crime is liable to forfeiture. If this is Draconian, that appears to be the intention of the legislation. Innocent third parties who have an interest in the property are protected under ss 17 and 18. The offender who puts his property at risk by using it for criminal purposes must face the consequences. No doubt there will be cases where separate items of property are involved, and the Judge may, having regard to the considerations set out in subs (2) of s 15, order that some only of the tainted items be forfeited.

Lyall held (supra at 647) :

The policy of the Act is to strip an offender of his or her interests in the property used to commit the crime. The reason for committing those crimes will ordinarily be immaterial. The property was not bought using tainted money but it was largely dedicated by its owners to drug dealing. Those who establish drug houses and commit serious offences in or from them can normally expect to lose them unless there is gross or severe disproportion between the gravity of offending and the value of the property sought to be forfeited coupled with the other punishment inflicted on the offender.

Mrs Spellacey’s appeal

Mrs Spellacey’s application was, of course, brought under s 17 which empowers third parties with an interest in tainted property to apply for relief. Under s 18 once the Court is “satisfied that the applicant’s claim to that interest is valid” the Court is required to make an order declaring the nature and extent and value of that interest and consequential orders.
Mrs Spellacey said that she kept a considerable sum of money in cash in her motel safe and counted out $100,000 of that cash and gave it to her son. Mr Spellacey confirmed his mother’s evidence. Ms Wagstaff and Mr Chan confirmed that some money was handed over, even if they were unsure of the amount. Mrs Spellacey and the other witnesses said in evidence that she was in the habit of making cash gifts to her children and grandchildren from the fund left by her late husband. There may accordingly have been little difficulty in the Judge accepting that she made gifts in cash, even if he did not accept the suggested loan of $100,000 in cash on 6 December 1995.
But that does not directly confront what is, in our view, the main finding against Mrs Spellacey and the other witnesses, namely the implausibility of her making a loan of $100,000 in cash to her son at the time she says it was made.
Mr Spellacey was obviously keen to buy the Kaitoke property. But, apart from some $6,500, he had no cash to put towards the purchase although he had assets in the form of his half shares of Scarborough Terrace and Glenmore Street. That notwithstanding, on 1 December 1995 he entered into the contract to buy the Kaitoke land for $165,000. Unusually, there was no deposit payable and, unusually, the contact was conditional on Mr Spellacey raising the whole of the purchase price on mortgage within the short period of eight days. He and his solicitor must have decided that the equity in Kaitoke and Mr Spellacey’s half share of Scarborough Terrace would not provide sufficient security for the mortgagee. Mr Spellacey’s half share in Glenmore Street was not offered as security, presumably because he and his former wife were joint tenants of that property and she would not co-operate. Mr Spellacey and the solicitor acting for his mother and himself therefore conceived of the elaborate arrangement whereby she would transfer her half share as a tenant in common in Scarborough Terrace to Mr Spellacey on trust to provide him with sufficient security for the loan to buy Kaitoke but on the basis that he would repay that half share when Scarborough Terrace was sold. There was nothing sinister about this because the mortgagee was advised. The stratagem was successful. The loan was made. Mr Spellacey was able to settle the Kaitoke purchase. Then, when Scarborough Terrace and Glenmore Street were each sold about three months later, the realisation of Mr Spellacey’s half shares in each provided sufficient in cash to enable him to repay all but $4,488.13 of the principal.
However, Mrs Spellacey and her son would have it that alongside this reasonably elaborate scheme and contemporaneous with it, Mrs Spellacey lent her son $100,000 in cash but that, although they documented the loan in the relatively informal way earlier described, neither of the parties thought it appropriate to advise their joint solicitor of the loan at the time when he was undertaking these detailed measures to provide Mr Spellacey with sufficient security for the mortgage. If Mr Spellacey and his mother were correct, there would have been no need for him to have offered his half share of Scarborough Terrace as security and no need for him to have obtained a transfer of his mother’s half share on trust. He had $100,000 in cash and the Kaitoke land would have provided ample security for the purchase over and above Mr Spellacey’s cash contribution of that $100,000 (or $106,500).
Further, in our view the Judge was entitled to be sceptical about the date the loan was said to have been made and its amount. According to Mr Spellacey and his mother, he received $100,000 in cash from her on either 6 or 10 December, depending on whether the date of the letter or the earlier acknowledgement is taken. That was either just before or just after the date for satisfaction of the finance condition in the Kaitoke contract. The evidence is silent as to why, when Mr Spellacey was borrowing $10,000 more than the purchase price of $165,000, neither his mother nor he made any mention of the loan to the solicitor or anyone else until after his arrest, and this at a time when the solicitor was, as we have said, having to undertake unusual arrangements to gather together sufficient security to support the mortgage advance required.
Further again, it is understandable that the Judge found it difficult to accept that Mr Spellacey signed two acknowledgements of debt only four days apart and failed to mention the earlier to the solicitor who in all probability prepared the later. Even if Mr and Mrs Spellacey felt that the $100,000 was in some way tainted by its provenance – not an assertion they made in evidence – there still could have been no reason for them not to advise the solicitor to whom the disclosure would have come as privileged information.
Although Mrs Spellacey and Mr Spellacey both said that he borrowed the money to assist him in development of the property, the Judge was equally entitled to be sceptical of this assertion as supporting the suggested loan. Mr Spellacey did not need the funds to develop the property at the time the loan was made because development would obviously take time. Further, Scarborough Terrace and Glenmore Street were then on the market and when sold, as they were some three months later, would provide more than sufficient cash to enable Mr Spellacey to complete his development plans (and feed his drug habit). The evidence showed that Mr Spellacey in fact spent only a comparatively modest amount on development since 1995.
Apart from the evidence, the document around which this aspect of the matter revolved was the acknowledgement of debt of 10 December 1995. The Judge was clearly sceptical that it was signed on the date it bears, not least because of the neatness of the fit between the suggested loan and interest of $131,320.55 on the one hand and the approximate equity in the property in December 1997 on the other.
However, despite those comments, before deciding on the merits of Mrs Spellacey’s appeal a procedural question requires to be addressed. The appellant submitted that it was not open to the Crown to dispute Mrs Spellacey’s application because the Crown failed to challenge her evidence and that of other witnesses who gave evidence on the topic at the hearing.
The Judge dealt with this aspect of the matter in the following way :
At the hearing Mr Mander elected for the Crown not to examine Shirley Spellacey, either on her affidavit evidence, or on her evidence in chief. All that she had to face was … benign cross-examination on behalf of Anthony Spellacey, and some questions I asked her. Mr Stevens submits that this election must mean that the Crown cannot dispute her evidence, or her claim: see, for example, Police v Main, High Court Wellington Registry, M20/86, 28 August 1986, Heron J.
Mr Mander’s response is that he saw nothing to be gained in challenging Shirley Spellacey directly. On her account only those who gave evidence consistent with her knew of the loan and could speak of it; only they were present when it was made. Rather, he said, the Crown put her claim in issue in the only way open. Detective Constable Keogh, in his answering affidavit evidence, traced how it was Anthony Spellacey acquired the property, and notes that there is no sign of the loan claimed, or any part of it, in contemporary or later legal or financial records.
That I think is a sufficient response to the objection. This is not a criminal prosecution, of which Police v Main is an example, where whether a charge is found proved depends on what one makes of the evidence which the defendant elects to give, and where a failure to examine leaves the explanation undisturbed. It is enough that the Crown, as it did, threw Shirley Spellacey’s claim into critical relief.
Had Mr Mander challenged Shirley Spellacey directly he would have achieved nothing. When he questioned Kathryn Wagstaff and Anthony Spellacey about the claimed circumstances of the loan, he achieved little beyond detail. His better course was to cross-examine Anthony Spellacey, as he did, about why it was that he needed the loan, and why it was not treated conventionally as part of the purchase transaction; and why it was not plainly reflected in expenditure afterwards.
With respect, the Judge was in error in saying that Mrs Spellacey was not cross-examined by the Crown at the hearing - Mr Mander’s cross-examination covers some four and a half pages of the transcript – but even so there is force in Mr Stevens’ submission that the mode of cross-examination chosen challenged matters collateral to Mrs Spellacey’s evidence that she had advanced $100,000 in cash to Mr Spellacey on 6 December 1995 rather than challenging the assertion itself.
The leading decision on whether one party can ask a Court to find against a witness on credibility if they do not put the contrary case to that witness in cross-examination is the decision of this Court in Gutierrez v R [1997] 1 NZLR 192. There Neazor J, speaking for the Court, first identified two views taken by Courts in this country in relation to that question. Police v Main (supra) was said to represent one stream. The Court then referred to the leading case in this area, Browne v Dunn (1893) 6R 76 where Lord Herschell LC, held (at 70-71):
". . . it seems to me to be absolutely essential to the proper conduct of a case, where it is intended to suggest that a witness is not speaking the truth on a particular point, to direct his attention to the fact by some questions put in cross-examination showing that that imputation is intended to be made, and not to take his evidence and pass it by as a matter altogether unchallenged, and then, when it is impossible for him to explain, as perhaps he might have been able to do if such questions had been put to him, the circumstances which it is suggested indicate that the story he tells ought not to be believed, to argue that he is a witness unworthy of credit. My Lords, I have always understood that if you intend to impeach a witness you are bound, whilst he is in the box, to give him an opportunity of making any explanation which is open to him; and, as it seems to me, that is not only a rule of professional practice in the conduct of a case, but is essential to fair play and fair dealing with witnesses.”
“I mean upon a point on which it is not otherwise perfectly clear that he has had full notice beforehand that there is an intention to impeach the credibility of the story which he is telling. Of course I do not deny for a moment that there are cases in which that notice has been so distinctly and unmistakably given, and the point upon which he is impeached, and is to be impeached, is so manifest, that it is not necessary to waste time in putting questions to him upon it. All I am saying is that it will not do to impeach the credibility of a witness upon a matter on which he has not had any opportunity of giving an explanation by reason of there having been no suggestion whatever in the course of the case that his story is not accepted."
After noting that the rule was not inflexible, the Court in Gutierrez concluded (at 199):
“The rule is simply one of fairness. Has a reasonable opportunity been given to enable the evidence in question to be properly assessed? It is the responsibility of prosecuting counsel or a prosecutor who proposes to attack the credibility of defence witnesses, including the defendant, to cross-examine in a way which makes it plain that the relevant evidence is challenged and gives the witness a fair opportunity to answer the challenge. Such cross-examination however may not be necessary if from what has gone before or from the circumstances of the case it is fairly made plain that the truthfulness of particular facts given in evidence is not accepted, and an adequate opportunity to meet the challenge has otherwise been afforded.”
The difficulty confronting the Crown on this issue is that although Mrs Spellacey was cross-examined as to her version of collateral events, the central point - the implausibility of a loan of that amount being made on the date it was said to be made - was never directly raised in cross-examination. Although Mr Spellacey, Ms Wagstaff and Mr Chan were cross-examined on their versions of the events, the pivotal aspect on which the Crown was asking the Court to disbelieve Mrs Spellacey was simply not put to her despite the fact that she was, of course, the applicant. In those circumstances, we conclude that having regard to the principles set out in the authorities earlier discussed, the cross-examination of Mrs Spellacey was unfair to her in that it gave her no real opportunity to answer the matters on which she was being challenged. In those circumstances, Mrs Spellacey’s appeal must be allowed and her application under s 18 remitted to the District Court for rehearing.

Mr Spellacey’s appeal

Mr Spellacey’s appeal was argued on the basis that the learned District Court Judge erred in the exercise of discretion in ordering forfeiture and that Mr Spellacey’s offending was insufficiently serious to warrant that step. Mr Spellacey’s personal circumstances, including his heavy use of drugs, was emphasised as was his rehabilitation since his imprisonment, a suggested erroneous finding as to his use of the Kaitoke property and the future interests of Mr Spellacey’s three adult sons.
Although it seized Mr Spellacey’s financial records, the Crown was unable to adduce precise evidence of the quantum of drug sales which Mr Spellacey may have made. He acknowledged a modest level. The Judge who decided the forfeiture applications had been the trial Judge. There is nothing to gainsay his finding that Mr Spellacey’s offending was “far from negligible”.
The Judge took the view that Mr Spellacey’s predominant use of the Kaitoke land was for the cultivation of cannabis. In that, he may perhaps have slightly overstated the position but not in a way which affects the outcome. Mr Spellacey had done some timber milling on the land and at periods used it for hobby style farming of goats and livestock but cannabis cultivation appears to have been the principal use. That is perhaps confirmed by the fact that Mr Spellacey’s intended construction of a house on the land has not proceeded despite what he said was his cash position.

The suggestion that the learned District Court Judge should have taken account of the interests of Mr Spellacey’s sons was not pursued with vigour, in our view rightly so. No application was filed by them or on their behalf. There was no evidence of their having contributed in any significant degree to the land. In any event, Mr Spellacey’s will leaves all his estate to them. If he wished to safeguard their interests he ought not to have jeopardised his continued ownership of the land by using it for cannabis cultivation.
Although perhaps more pertinent to Mrs Spellacey’s appeal, submissions were made on Mr Spellacey’s behalf which suggested that his ability to fund or effect development on the property was affected by the cost of drugs to him whilst he was an addict.
That is plainly not a matter to which any great weight can be given but, as a matter of arithmetic, even if Mr Spellacey is regarded as having spent $100 a day on drugs every day from the beginning of December 1995 to his apprehension in mid-December 1997, that would only account for perhaps $75,000-$80,000 and when that sum is combined with his ACC income of $44,000 pa and the increase in the mortgage over the same period, it becomes clear that, far from a shortfall limiting development, there was a considerable sum in unexplained cash or income available to Mr Spellacey during that period for that purpose if the claimed loan is also added in.
In all events, having regard to the authorities, we are unable to conclude that the learned District Court Judge was in error in holding that the whole of Mr Spellacey’s property should be forfeited. His appeal is accordingly dismissed.

Ms Wagstaff’s appeal

Ms Wagstaff’s principal ground of appeal was that the Judge was wrong not to make orders declaring in her favour that the Kaitoke land was held on a constructive trust for her and the nature, extent and value of her interest in the property.
As the relevant passage from the judgment shows, although accepting that Ms Wagstaff may have made some contribution to the property, the Judge found that she had not discharged the onus of showing, first, that her contribution was more than de minimus and, secondly, of quantifying its value.
Reference was made to the decision of this Court in Lankow v Rose [1995] 1 NZLR 277 where Tipping J helpfully summarised what a de facto spouse must show in order to succeed in a claim for constructive trust in the following passage (at 294-295) :
Before discussing further the question of contributions, I summarise what the de facto claimant must show:
1.     Contributions, direct or indirect, to the property in question.
2.     The expectation of an interest therein.
3.       That such expectation is a reasonable one.
4.That the defendant should reasonably expect to yield the claimant an interest.
If the claimant can demonstrate each of these four points equity will regard as unconscionable the defendant's denial of the claimant's interest and will impose a constructive trust accordingly.
…
Clearly a direct financial contribution to the acquisition of property will qualify. … There may be greater difficulties of proof and assessment when the contributions are indirect but, once established, they are as real as direct contributions. At the simplest level one partner might have paid for all the groceries with the other servicing and reducing the mortgage. That is an indirect contribution by the former, no less real than if the roles were reversed.
I would allow as a contribution any payment or service by the claimant which either:
(1)of itself assists in the acquisition, improvement or maintenance of the property or its value or
(2)by its provision helps the other party acquire, improve or maintain the property or its value.
To make a rigid cut off at direct contributions … is to ignore the realities of life and to put an unreal premium on the way de facto partners allocate responsibilities, financial and otherwise, in their relationship. On this basis it can be seen that contributions in the home may qualify as contributions to the home.
The first aspect of Ms Wagstaff’s position that requires consideration is her assertion that there was an agreement between Mr Spellacey and herself that if their relationship ended she would be entitled to half the equity in Kaitoke. She said that this was agreed at about the time the property was purchased and had been the position ever since. In that, she was supported by Mr Spellacey although his evidence suggested that his support was somewhat lukewarm.
The learned District Court Judge plainly rejected the suggested agreement and, having carefully considered the evidence and the submissions made on appeal, we see no reason to differ from his view.
By December 1995 the parties had acquired no real property in the 4 years of their relationship. At the time he was purchasing Kaitoke in his sole name, Mr Spellacey was in the throes of concluding the property consequences of the break-up in his marriage. He must have known that Kaitoke was likely to be largely if not wholly unencumbered within a few months. If Mr Wagstaff’s evidence were correct, she and Mr Spellacey entered into an agreement which, if their relationship came to an end within about four months or later, would have entitled her to half the equity, about $80,000, against what could only have been modest contributions. She did not even obtain employment until about eight months after the land had been purchased. In that light, in our view it was open to the Judge to conclude that it was improbable that Mr Spellacey would have entered into the suggested agreement with Ms Wagstaff.
As far as Ms Wagstaff’s contributions to the Kaitoke property are concerned, it needs to be borne in mind that the parties lived there for less than two years prior to Mr Spellacey’s arrest. In that time, Ms Wagstaff’s financial contributions must have been modest alongside Mr Spellacey’s almost total repayment of the mortgage from his own resources within four months of purchase (leaving aside his suggested $100,000 in cash) plus the cost of the modest improvements he effected. Although she may have made financial contributions and may also have made indirect contributions to the property, the onus was on her to adduce evidence satisfying the trial Judge of her contributions to the Kaitoke property and their worth. Although there are obvious difficulties in putting forward what is in effect a property claim arising from a de facto relationship in the context of a Crown application under the Proceeds of Crime Act 1991, it was nonetheless for Ms Wagstaff to produce the evidence to support her claim. Unlike the usual de facto property dispute, Ms Wagstaff’s claim was not actively opposed by Mr Spellacey and if, in those circumstances, the learned District Court Judge concluded that Ms Wagstaff had been unable to quantify her interest in the property, we are not prepared to interfere with that aspect of the judgment.
Further, as the passages early recounted show, the Judge did not find it necessary to decide whether Ms Wagstaff may have been “involved in the commission of the offence in respect of which forfeiture of the property is or was sought” (s 18(2)) thus giving the Court power to refuse to make an order in her favour. That notwithstanding, her circumstances appear to have some similarities with those of the applicant in Solicitor-General v Sanders (supra). There the respondent’s wife was a joint owner of the farm in respect of which forfeiture was sought. Williamson J described her involvement in the following terms (at 33) :
The farm was not a big one and it is reasonable to conclude that she must have been aware of the activity which led to the discarded drums of cannabis preparation and the use of other farm equipment. In these circumstances and in the absence of any evidence to the contrary, I am satisfied that the applicant … has been shown, in some respect, to have been involved in the commission of the offences in respect of which forfeiture is sought.

Mrs Sanders’ application for third party relief was dismissed. Whilst her position was different from Ms Wagstaff’s in that she was found in possession of cannabis and charged with that offence, the level of her involvement with the farm was otherwise not dissimilar to that of the appellant.

The following remarks of this Court in Lyall (at 648) concerning s 18 are also apposite :
We agree that something less than participation as a party may amount to an involvement. If the legislature had intended that only party status gave rise to the Court’s right to refuse relief it would surely have said so by a cross-reference to s 66 of the Crimes Act 1961. We understand the legislature to be saying that a material association with the offending is enough. It may take the form of assistance of a kind which would make the applicant a party to the crime. Or it may simply be a failure to prevent property in which the applicant has an interest being used for criminal purposes which are known to the applicant in circumstances in which the applicant should have taken practical preventative steps.
Having regard to Ms Wagstaff’s awareness of Mr Spellacey’s cannabis growing and the fact that she did nothing to prevent it, Ms Wagstaff may regard herself as perhaps fortunate that an order was not also refused under s 18 (2)(a) in light of the decisions in Sanders and Lyall.
In all the circumstances, however, in our view no reason has been demonstrated to intervene in the learned District Court Judge’s finding as regards Ms Wagstaff.

Conclusion

In the result and for the reasons stated :
[a]The appeals by Mr Spellacey and Ms Wagstaff are dismissed.
[b]The appeal by Mrs Spellacey is allowed and the matter remitted to the District Court for rehearing. The parties should be able to adduce such further evidence as they consider it appropriate. We take the view that, Keane DCJ having expressed a view on the matters which will again be in issue at the rehearing, it would be preferable if another Judge heard the matter.

Solicitors

I M Antunovic, Wellington, for Appellant A R Spellacey
Fanselows, Wellington, for Appellants S A Spellacey and K M Wagstaff
Crown Solicitor, Wellington

[2000] NZCA 157

10 August 2000