COMMISSIONER OF NEW ZEALAND POLICE v LOWEN [2018] NZHC 3226

COMMISSIONER OF NEW ZEALAND POLICE v LOWEN [2018] NZHC 3226 [7 December 2018]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2018-409-52[2018] NZHC 3226UNDER the Criminal Proceeds (Recovery) Act 2009BETWEEN COMMISSIONER OF NEW ZEALANDPOLICEApplicantAND PAULINE URANA LOWENFirst RespondentGRAHAM DAVID LOWENSecond RespondentLOWMUN INVESTMENTS LIMITEDThird RespondentAND ANZ BANK NEW ZEALAND LIMITEDInterested PartyHearing: 4 December 2018Appearances: H McKenzie for ApplicantK Chalmers for First RespondentG Tyrrell for Second RespondentNo appearance by or for Third RespondentNo appearance by or for Interested PartyJudgment: 7 December 2018JUDGMENT OF MANDER J[1] In February 2018, the Commissioner of Police (the Commissioner) filedwithout notice and on notice applications that two residential properties situated at1 Heathridge Place, Lincoln, and 501 Bower Avenue, Parklands, (the properties) bemade the subject of a restraining order under the Criminal Proceeds (Recovery) Act2009 (the Act).1[2] The Heathridge Place property was owned and occupied by the first and secondrespondents, Ms Pauline Lowen nee Munday and Mr Graham Lowen. The BowerAvenue property was a rental property owned by the third respondent, LowmunInvestments Limited, of which Mr and Ms Lowen are the directors and shareholders.After the making of a without notice restraining order, and with the consent of theparties, both properties were sold by the Official Assignee. Net proceeds of the saleamounted to $154,530.18.[3] The without notice restraining order was varied to replace the propertiesdescribed in the order with the net proceeds of the sale of those properties. Theoriginal on notice application for a restraining order was not amended. However, Iproceed on the basis that the Commissioner's application now relates to the proceedsof the sale which is the basis upon which I heard argument.Background[4] In early 2017, the Ministry of Social Development (MSD) commenced abenefit fraud investigation into the activities of Mr and Ms Lowen. This resulted inMs Lowen being charged with benefit fraud. In August 2018, she pleaded guilty tothe following offending:(a) Failing to disclose she was living with her husband, Mr Lowen, andfailing to disclose her income from employment whilst receiving a fullrate of benefit in breach of s 240 of the Crimes Act 1961.(b) Dishonestly using eight Work and Income New Zealand documentsbetween August 1997 and August 2003 in breach of s 229A of theCrimes Act.1 The properties were originally restrained on a without notice basis pursuant to an order made byNation J on 5 February 2018.(c) Dishonestly using 41 Work and Income New Zealand documents fromNovember 2003 to April 2017 in breach of s 228 of the Crimes Act.(d) Using a forged document in breach of s 257 of the Crimes Act.[5] Ms Lowen has been remanded for sentencing on 19 December 2018. Theoverpayment relating to the criminal offending amounts to $347,408.77.[6] Mr Lowen has not been charged with any criminal offending. However, theCommissioner's position is that he was fully aware of the offending and benefittedfrom it.The application[7] Under the Act, if a Court is satisfied there are reasonable grounds to believethat any property is tainted property or that a respondent has unlawfully benefittedfrom significant criminal activity, it may order that the property sought to be restrainednot be disposed of, or dealt with, and that it be placed under the Official Assignee'scustody and control.2[8] Ms Lowen, who opposes the making of a restraining order, does not contestthat the statutory grounds for the making of an order have been satisfied. She hasconceded in an affidavit filed in support of her opposition that the money fraudulentlyobtained from MSD was for the purpose of acquiring, improving, and maintainingrelationship property. This includes the properties that were the subject of the originalapplication.[9] The offending to which Ms Lowen has pleaded guilty constitutes significantcriminal activity, involving as it does the commission of criminal offences punishableby a maximum term of imprisonment of five years or more, or from which property,proceeds or benefits of a value of $30,000 or more have been acquired.3 There istherefore no issue that Ms Lowen has unlawfully benefitted from significant criminal2 Criminal Proceeds (Recovery) Act 2009, ss 24 and 25.3 Section 6(1).activity, nor that the two properties were acquired as a result of that significant criminalactivity and constitute tainted property.4[10] Ms Lowen's opposition is based on a submission that it would not be in theinterests of justice for the Court to exercise its discretion to restrain the funds becauseMs Lowen's interest in that property should be available to her to pay reparation toMSD when she is sentenced in the District Court for her fraud offending.[11] Mr Lowen takes a neutral stance on the Commissioner's application andessentially abides the decision of the Court. He intends to oppose forfeiture of hisshare of the relationship assets.[12] Mr and Ms Lowen are now separated. The properties constituted relationshipproperty, and Mr Lowen claims that he is entitled to at least half of the funds generatedfrom the sale of the properties. While there appears to be some consensus betweenMr Lowen and Ms Lowen that they have an equal share in the pool of relationshipproperty, Mr Lowen claims he is entitled to recover post-separation contributions in asum not likely to exceed $20,000.5 For her part, Ms Lowen asserts that the debt arisingfrom her offending is relationship debt which Mr Lowen must share. Mr Lowendenies such a liability.[13] The Commissioner's position is that he would resist any claim for relief byMr Lowen based on a claimed share in the properties should there be an applicationfor a civil forfeiture order. The Commissioner maintains Mr Lowen was aware of hiswife's offending and benefitted from it.[14] Lowen Investments Limited has no position independent of Mr and Ms Lowen.It has been agreed by the parties and previously accepted by this Court that thecompany does not require representation beyond the joint instructions of the parties.64 Section 5.5 Property (Relationships) Act 1976, s 18.6 By minute of Dunningham J, dated 28 May 2018.Ms Lowen's opposition[15] Ms Lowen's opposition distils to an argument that her share of the proceeds ofthe sale of the properties ought to be available to her to make reparation to MSD. Sheacknowledges that the proceeds of her offending were applied to the properties, butargues that it would be wrong for this Court to make a restraining order which maylead to the Commissioner recovering the proceeds of the sale of that property whenMSD, as the victim of her offending, has a specific interest in recovering those monies.[16] In written submissions filed in support of that argument, an attempt was madeto draw an analogy with a constructive trust, whereby Ms Lowen's share in theproperties, as a matter of equity, was held by her for the benefit of her victim and thatit would be unjust or inequitable for the Commissioner to rely upon his legal rightsunder the Act to divert those monies and prevent her from making a payment to MSD.[17] Ms Chalmers, who appeared on behalf of Ms Lowen on the hearing of theCommissioner's application, presented a variation of that argument by reference to thepurpose of the Act. In general terms, the Act is described as providing for the restraintand forfeiture of property derived as a result of significant criminal activity, withoutthe need for a conviction.7 Ms Chalmers submitted that the statute contemplates orpresumes that the Act will have application to offending which would otherwise be thesubject of a police prosecution. In the present case, MSD has laid the charge, andwhen regard is had to the competing interests of the Commissioner and MSD, thelatter, which counsel identified as the victim, should have the benefit of recovering theproceeds of offending against it.[18] Leaving to one side the fact that the ultimate victim of Ms Lowen's offendingis the taxpayer and that both MSD and the Commissioner collectively represent theinterests of the Crown, this part of Ms Lowen's argument effectively collapsed as aresult of MSD formally disavowing any conflict with the Commissioner's prospectiveproceedings to recover the proceeds of the offending under the Act.7 Section 4(1)(a).[19] MSD advised that it is not currently seeking to recover the overpayment causedby Ms Lowen's offending from either her or Mr Lowen.8 MSD will advise thesentencing Court that it does not seek a reparation order because recovery is beingpursued by the Commissioner. However, the Ministry does reserve its right to use itsrecovery powers under the Social Security Act 1964 to recover any balance of themoney still owing after any criminal proceeds proceedings have concluded.[20] With MSD having declared itself content to allow the Commissioner to pursuerecovery under the Act rather than seek reparation for itself, there is no competingcontest for the funds, at least as between the Commissioner and MSD.[21] The better argument open to Ms Lowen is a submission that she wishes to beable at sentencing to offer reparation, as a demonstration of her remorse and as a meansof making amends for her offending.9 As was acknowledged by Mr Tyrrell on behalfof Mr Lowen, notwithstanding any claim his client may seek to make under theProperty (Relationships) Act, Ms Lowen would have been able to call upon her shareof the relationship property, some $67,500 of the total sum currently held by theOfficial Assignee. Ms Lowen wishes to be in a position to be able to offer (as aminimum) such a figure as reparation at sentencing before the District Court.Decision[22] I do not consider that the making of a restraining order precludes Ms Lowenfrom making an offer of reparation, nor is the sentencing Court estopped by arestraining order from taking into account such an offer. The Act contemplates thesituation where property the subject of a civil forfeiture order may be required to berealised to pay an outstanding reparation order. Sections 82 and 83 of the Act givepriority to the payment of reparation. The Official Assignee is directed whendisposing of forfeited property to apply money resulting from its sale to satisfy8 Under s 86AA of the Social Security Act 1964, the Ministry can apportion joint and severalliability on a partner/spouse to repay any debt accrued by a beneficiary from the day following thedate that the provision was inserted into the Act (8 July 2014). Mr Lowen is potentially jointlyand severally liable with Ms Lowen to repay $25,144.01 of the total overpayment.9 Sentencing Act 2002, ss 9(2)(f) and 10.reparation ordered to be paid by the Court after payment of associated costs, includingamounts owed for legal aid.10[23] A concern was expressed on behalf of Ms Lowen that a sentencing Court maybe reluctant to make a reparation order or to take into account an offer of reparationwhere the funds from which such a payment is sourced are subject to a restrainingorder. As observed, there is no legal impediment for such an order being made in thosecircumstances, nor is a sentencing Court prevented from taking into account an offerof reparation. However, I accept there may be reservations as to the efficacy of areparation order proposed to be sourced from property already the subject of arestraining order. Nevertheless, payment of reparation to the victims is prioritisedunder the Act over the Crown's interest.[24] Often the victim will be a private individual. However, in the present case theostensible victim, at least as nominated by Ms Lowen, MSD, is but another Crownagency. It has advised that it is content to allow the Commissioner to make the runningin terms of recovering the money owed to the taxpayer by Ms Lowen from heroffending, and is prepared to wait upon the outcome of any criminal proceedsproceedings. That is without prejudice to MSD using its own powers to recover thebalance of the outstanding debt.[25] A further relevant factor is that the two properties the subject of the originalapplication for restraint have already been sold and the funds are available to bedisbursed. Should a forfeiture order ultimately be made in favour of theCommissioner, the money is already available to be disbursed to the Crown either insatisfaction (partial or otherwise) of any reparation order the sentencing Court maymake in the exercise of its discretion, or under ss 82(1)(d) and 83(1)(d).[26] Ms Chalmers submitted that a difficulty arising from the making of arestraining order is that the amount available to Ms Lowen to offer as reparation willbe uncertain. However, any uncertainty as to her share of the monies derives from therelationship property dispute between herself and Mr Lowen. In particular, from the10 Criminal Proceeds (Recovery) Act, ss 82(1)(c)(i) and 83(1)(c)(i).claims he may make for an additional share in the property for post-separationcontributions that may entitle him to a greater than equal apportionment.[27] A restraining order has often been characterised as a "holding device",designed to ensure the property subject to the order is not disposed of until the issueof its potential forfeiture is resolved.11 It is effectively an interim order of limitedduration.12 Ms Chalmers sought to submit that because the two properties had beensold, the assets were no longer in a "holding pattern" because the same property couldnot be returned to the respondents. However, I do not consider the fact that the OfficialAssignee, with the consent of the parties, has sold the two properties changes the statusof the funds generated as a result of those sales. The making of a restraining order inrespect of that money would freeze the disposition of those funds and require them tobe held under the Official Assignee's custody and control.[28] The alternative to making a restraining order would be for the funds to bereleased back to Ms Lowen and her estranged husband who would be free to applythose monies as they saw fit and without restraint. Having regard to the nature ofMs Lowen's offending and her admission that the monies represent the gains from herfraudulent conduct, there is no attraction in taking such a risk. There is nothing novelabout restraint proceedings being taken in the present context of benefit fraudoffending, which I accept is a legitimate means by which to ensure that an unlawfullyobtained benefit is preserved.[29] The issue of reparation and how it may bear on sentencing is a matter for theassessment of the sentencing Judge in the exercise of his or her discretion. I do notconsider, with the statutory criteria clearly having been established, that there is anyproper basis upon which I could exercise my discretion to decline to restrain theproceeds of the sales of the properties.[30] While as a general rule civil forfeiture orders do not of themselves warrant adiscount in sentencing, as submitted by Ms McKenzie on behalf of the Commissioner,if Ms Lowen is concerned about being able to demonstrate her remorse at sentencing11 Commissioner of Police v Vincent [2012] NZHC 2581.12 Vincent v Commissioner of Police [2013] NZCA 412 at [45](a).by making a credible or genuine offer to make amends to the taxpayer, she couldformally record her consent to any future forfeiture application and place that beforethe sentencing Court for its consideration.13 In the circumstances, and having regardto MSD's preference to allow civil forfeiture proceedings by the Commissioner tohave priority, it is a concession the sentencing Court may be prepared to take intoaccount.Order[31] Being satisfied that grounds for a restraining order are made out on theCommissioner's application, there will be an order that the net proceeds of the sale ofthe properties described in paragraph 2(a) and (b) of the on notice application for arestraining order, dated 5 February 2018:(a) Is not to be disposed of, or dealt with, other than as is provided for inthe restraining order; and(b) is to be in the Official Assignee's custody and control.[32] Costs are reserved.Solicitors:Raymond Donnelly & Co, ChristchurchRichard Maze Barrister, ChristchurchWeston Ward & Lascelles, Christchurch13 Henderson v R [2017] NZCA 605 at [42].