The Queen v Ryan

[2006] NZCA 362

IN THE COURT OF APPEAL OF NEW ZEALAND

514/05

THE QUEEN

v

ADRIAN JOSEPH RYAN

Hearing:28 August 2006

Court:William Young P, John Hansen and Ronald Young JJ

Counsel:Appellant in Person

B M Stanaway and C E Butchard for Crown

Judgment:18 December 2006 at 2.15 pm

JUDGMENT OF THE COURT

The appeal is allowed and the forfeiture order is modified so that it applies to $200,000 of the proceeds currently available for distribution (with any apportionment of interest to run from the date of release of this judgment).

REASONS

(Given by William Young P)

Introduction

[1]       Between May 1999 and the end of October 2004, the appellant grew cannabis hydroponically in his home in Christchurch.  As a result, he was prosecuted for the cultivation, sale and possession for supply of cannabis.  On 29 September 2005 he was sentenced by Panckhurst J to three years imprisonment.  On 17 November 2005 Chisholm J made an order forfeiting the appellant’s interest in his home. 

[2]       The issue for us on this appeal is whether Chisholm J was wrong to do so.

[3]       Before addressing this issue we will discuss:

(a)The procedural history of the appeal;

(b)The factual background;

(c)The relevant legal principles; and

(d)The approach in the High Court.

The procedural history of the appeal

[4]       Mr Ryan was not granted legal aid and he appeared in person at the hearing of the appeal.  After the hearing of the appeal was concluded, but before judgment was released, Mr Ryan wrote to the Court indicating that there were other issues which he wished to raise associated particularly with the inferences which were drawn from two notebooks which were seized from him by the police.

[5]       Accordingly, we made arrangements for copies of the notebooks to be made available to Mr Ryan and for the originals to be submitted to this Court.  We gave Mr Ryan leave to file further submissions and for the Crown to respond.  We have now received both sets of submissions.  To the extent to which it is necessary to do so, we will refer to the submissions later in this judgment. 

The factual background

[6]       The appellant converted an area in the roof space of his house for the purposes of growing cannabis.  This area was in three parts.  In the first he maintained mother plants from which cuttings were taken.  There was then a cloning area where the cuttings were struck.  The third area was the main growing room into which the plants would be taken once they had reached a suitable stage of maturity. 

[7]       When the police searched the premises on 1 November 1999 they found over 500 plants in total, in various stages of maturity.  There were also some twenty-three grams of dry cannabis and six harvested plants which were hanging up to dry.

[8]       The police also found two notebooks, one blue and the other red.  They made it clear that the cannabis growing operation started in May 1999.  This is apparent from the blue notebook.  It records some 56 crops which are numbered 1-53, 54(A), 54(B) and 55.  In relation to many of the crops, the appellant recorded in circled figures the ounces of cannabis harvested.  Our calculations in relation to these crops suggest that the appellant was harvesting of approximately 21 ounces of cannabis per rotation.  The last crop recorded in the blue notebook as having been “pulled” was number 53.  It seems reasonable to assume that crops numbered 54(A), 54(B) and 55 were what were located by the police when they searched the appellant’s premises on 1 November 2004.  If the 21 ounce average is applied to 53 crops, the total cannabis produced would have been approximately 1,110 ounces. 

[9]       Tick sheet details were recorded in the red notebook and these were analysed by the police.  A number of the entries in this notebook correlate to particular numbered crops referred to in the blue notebook.  The red notebook records were not kept systematically in relation to the earliest crops.  The notebook is full and the records in it would appear to have stopped probably around the time of the fortieth crop.  The police analysis of this book suggested that it recorded sales of cannabis of approximately $124,000.  Mr Ryan, in his submissions lodged after the hearing, went through the entries systematically and maintained that the receipts recorded total approximately $112,000.  The differences between his exercise and that carried out by the police are associated with the police not allowing for what he claims were bad debts (i.e. amounts recorded as owing but not as paid), some double counting and some arithmetical errors.  The Crown submissions did not engage with the appellant’s analysis.  For present purposes we are inclined to accept it as broadly correct.  This analysis, however, has the difficulty that the records are plainly not complete (as the red note book does not cover all the cannabis which was harvested).  As well, it is not necessarily the case that all cash sales were recorded.

[10]     Our inspection of the blue notebook reveals that in the second half of it there are a number of other entries that appear to be in the nature of tick sheet records.  These were not analysed by the police and were not referred to by Mr Ryan in his submissions following the hearing (although it may be that the copied material he received did not encompass these pages).  Drawing some sensible inferences from the records Mr Ryan kept as a whole, the blue notebook tick sheet records appear to relate to around another eleven crops.  We have considered whether we should refer the relevant pages to Mr Ryan and the Crown but, in the context of the case as whole and the exercise which we carry out later in the judgment, they do not add to the overall picture.

[11]     Up until about the twenty-first rotation, the appellant was selling cannabis at varying prices, sometimes as low as $120 an ounce and sometimes as high as $250 an ounce but predominantly for $150 an ounce.  From that time on, sales would appear to have been all (or almost all) at $200 an ounce.

[12]     The appellant’s equity in the house was assessed at approximately $202,000 at the time of the hearing before Chisholm J.  It was sold (at the insistence of the mortgagee) in August this year.  After allowing for all expenses of sale and the discharge of all debts secured over it, there is a balance of $242,000 available for distribution.

The relevant legal principles

[13]     The Proceeds of Crimes Act 1991 provides for the forfeiture of the proceeds of offending and the imposition of pecuniary penalties which have a similar function or effect.  As well, and more relevantly for present purposes, it provides for the forfeiture of property which has been used in connection with the commission of the underlying offending and is thus “tainted”.  It is common ground that the appellant’s house is tainted property for these purposes.

[14]     Section 15 of the Act 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.

…

[15]     The Courts have not been troubled about making forfeiture orders or the imposing of pecuniary penalties which serve to strip from offenders the benefits derived from their offending.  We note in passing that, for these purposes, benefits are assessed on a gross basis.  Potentially more problematic is the forfeiture of property which is used in the commission of offending.  Such property may be of very substantial value but may have been utilised in the commission of offending of limited gravity.  Alternatively, the property may have played merely an incidental part in the offending so that its forfeiture may seem disproportionate.  When considering forfeiture applications in relation to property which has been utilised for offending, Courts sometimes use estimates of the proceeds of the offending as a check when determining whether forfeiture would be unduly harsh.  As will become apparent, that was the approach taken by Chisholm J in this case.

[16]     It is, however, right to recognise that there are cogent policy factors which favour forfeiture of property utilised in the commission of offending which go beyond the stripping away of the proceeds of the offending.  This is apparent from the judgment of this Court in Lyall v Solicitor-General [1997] 2 NZLR 641 at 647:

We see nothing excessive in the forfeiture. It is not disproportionately severe treatment or punishment in terms of s 9 of the New Zealand Bill of Rights Act 1990. Black had for a long period chosen to trade in drugs from his property frequently and in a quite substantial way. He may, as is submitted, have been primarily motivated by a need to feed his homebake addiction and may have in that manner parted with his cannabis dealing profits but that cannot excuse his deliberate participation in the distribution of an addictive substance. Other choices were open to him. 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. We have obtained some guidance on this question from the decision of the Court of Appeals for the Ninth Circuit in United States v Washer 817 F 2d 1409 (1987) in which it was held that only those forfeitures that in light of all the circumstances are grossly disproportionate to the offence committed are prohibited by the Eighth Amendment's ban on cruel and unusual punishment.

Accordingly, we are of the view that the Crown was not under an obligation to prove that the benefits derived by the appellant from his offending were equivalent to the value of the interest which was forfeited.

The approach in the High Court

[17]     In assessing the gains made by the appellant,  Chisholm J effectively adopted the approach taken by Panckhurst J when he sentenced the appellant.

[18]     In his sentencing remarks Panckhurst J proceeded on the basis that the hydroponics growing operation involved 256 plants producing, for each rotation, 64 ounces, with four rotations a year and likely receipts of around $200 an ounce.  On this basis he assessed the gross return from the operation as being approximately $50,000 per annum.

[19]     At the hearing before Chisholm J the appellant offered to submit to a pecuniary penalty of $126,000 (payment of which was to be funded with family assistance).

[20]     In his judgment Chisholm J reviewed the s 15(2) criteria.  He noted that the property was primarily a residential home for the appellant and his son but that the alterations made to facilitate the cannabis growing operation were significant.  As to all of this he observed:

While the primary purpose of the home was undoubtedly residential, the use for growing cannabis certainly appears to have been close behind. 

[21]     He was not prepared to regard any hardship either to the appellant or his son as being “beyond that frequently suffered by families when a member of the family has offended in this way”. 

[22]     Having assessed the equity in the house at around $202,000, Chisholm J then identified the key issue, “Given that equity and the level of offending, [would it] be unreasonable for the Court to make a forfeiture order”?  As to this, he adopted Panckhurst J’s assessment of the scale of the appellant’s operation.  On that basis, he had no difficulty in concluding that forfeiture would not be unreasonable.

[23]     He then concluded his judgment in these terms:

[13]   The remaining matter referred to in s15(2) is other circumstances. When the offending is taken as a whole it is clearly serious offending as was reflected by the sentence imposed. It extended over a period of four and a half years and, according to the broad terms that I have adopted, it produced in the region of $225,000. While some of the profits may have been given away by Mr Ryan that can have no direct bearing on the analysis that I am required to undertake.

[14]   On my analysis the profit from the offending exceeds the respondent’s equity in the property. Unfortunately for Mr Ryan this, coupled with the other factors that I have discussed, means that the Solicitor-General’s case for a forfeiture order has been made out, with the result that Mr Ryan’s alternative proposal must be rejected.

[15]   An order for forfeiture is made accordingly.

Was the Judge wrong to make a forfeiture order?

Overview

[24]     The primary arguments advanced by the appellant challenged the Judge’s conclusions as to:

(a)The extent of the proceeds of the offending; and

(b)The level of hardship likely to be caused by the forfeiture.

The extent of the proceeds of the offending

[25]     In his submissions to us the appellant maintained that the assessment by Panckhurst J (and thus by Chisholm J) as to the extent of the harvestable crop was well adrift of the reality.  He referred to the circled figures in the blue notebook as indicating that the cannabis he harvested on each cropping exercise was far less than the amount assessed against him.  In the submissions which he lodged after hearing, he went in detail through the police analysis of the tick sheet entries in the red notebook and, as already mentioned, indicated that those entries established receipts of approximately $112,000 as opposed to $124,000 as alleged by the police. 

[26]     Having analysed the blue and red notebooks, we are satisfied that the appellant’s harvesting practices were not as postulated by the two High Court Judges (ie four large harvests a year).  But, if the arithmetic is extrapolated out, the total volume of cannabis produced on our analysis of the appellant’s actual harvesting practices does not differ significantly from that assessed by Panckhurst J.  On the approach adopted by Panckhurst J the total cannabis produced by the appellant over approximately four and a half years would have been around 1,150 ounces (less presumably an allowance for the cannabis which was growing at the time of the police search).  On our analysis the total produced would have been in the order of 1,110 ounces.  Since both figures are necessarily estimates, the difference between them is not material. 

[27]     More significant in the present context, is an assessment of the proceeds of the offending.

[28]     The appellant maintained before us, as he did before Panckhurst and Chisholm JJ that a significant quantity of the drugs produced were given away.  We have endeavoured to check this proposition as best we can by comparing tick sheet entries in the red notebook which can be correlated to particular crops identified in the blue notebook where the cannabis harvested is recorded.  The comparisons we made suggested that any discrepancies between the cannabis harvested and the cannabis recorded as sold are comparatively limited.  Such discrepancies could reflect gifts of cannabis by the appellant or perhaps some self use.  They could likewise be accommodated by cash sales which may not have been recorded. 

[29]     An associated point made by the appellant is that some of the sales made resulted in debts owed to him which were not paid.  This is supported by his own analysis of the red notebook tick sheet entries – an analysis with which the Crown did not engage. 

[30]     Some cannabis was seized by the police and some presumably was smoked or given away.  So it seems reasonable to proceed on the basis that not every ounce of cannabis produced by the appellant was sold.  It is likewise reasonable to assume that not every drug debt owed to the appellant was paid.  An assessment of his gross proceeds must therefore allow for those factors.

[31]     The other figure which is relevant to that assessment is the appellant’s selling price.  At least up until the time of the twenty-first crop (or thereabouts) he would appear to have been selling cannabis in the main for $150 per ounce rather than the $200 per ounce allowed for by Panckhurst J and adopted by Chisholm J. 

[32]     On that basis, we assess the appellant’s gross proceeds associated with drug dealing as being broadly as follows:

(a) cannabis produced which was sold (after allowance for cannabis seized by the police and cannabis smoked and/or given away) – say 1,000 ounces;

(b)average selling price, say, $180 per ounce

(c) allowance for bad debts – say 5%

On this basis we assess the gross benefits associated with the appellant’s offending as being in the order of $170,000.

The level of hardship likely to be caused by the forfeiture

[33]     In the written material which the appellant made available to us, he stressed the difficult circumstances which he has faced throughout his life and will face on his release from prison.  He will be in his late 50s when this occurs.  The house was not acquired with proceeds of crime but rather has served as a home for the appellant for many years. 

[34]     We recognise these difficulties.  But the reality is that the hardship which the appellant and his son now face is what might be expected where offending of this sort occurs and forfeiture follows. 

Evaluation

[35]     It will be recalled that Chisholm J estimated the gross benefits of the appellant’s drug dealing at $225,000 and ordered forfeiture on the basis that the equity in the house was $202,000.  On our findings and on the basis of what the sale of the house actually produced, the relevant comparison is between gross proceeds of drug dealing of $170,000 and an equity of $242,000.

[36]      As we have noted, the justification for a forfeiture order does not depend upon a precise equating of the gross benefits derived by an offender with the value of the property forfeited.  But it is clear from Chisholm J’s judgment that the decisive consideration was that the gross proceeds of the offending exceeded the value of the property to forfeited. As the relevant  arithmetic is now very different from the way it appeared to Chisholm J, we consider that we must re-address the exercise of discretion.

[37]     We think it right to mark the fact that the gross proceeds of offending do not provide a cap on the extent to which forfeiture can be imposed.  On the other hand we do not ignore the reality that we are acting on the basis of gross and not net benefits of offending.  A reasonable sense of proportion must be maintained. In those circumstances we propose to allow the appeal to the extent specified below.

Conclusion

[38]     For those reasons the appeal is allowed and the forfeiture order is modified so that it applies to $200,000 of the proceeds currently available for distribution (with any apportionment of interest to run from the date of release of this judgment).

Solicitors:
Raymond Donnelly & Co, Christchurch