COMMISSIONER OF POLICE v ROSS [2022] NZHC 1757

COMMISSIONER OF POLICE v ROSS [2022] NZHC 1757 [21 July 2022]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2018-409-688[2022] NZHC 1757IN THE MATTER of an appeal under the Criminal Proceeds(Recovery) Act 2009BETWEEN COMMISSIONER OF POLICEApplicantAND CONNIE ELIZABETH ROSS (aka SMITH)Second RespondentAND RICHARD WILLIAM ROSSThird RespondentAND BANK OF NEW ZEALANDFirst Interested PartyHearing: 7, 8 June 2022Appearances: C C White for ApplicantP J Kaye for Second and Third RespondentsJudgment: 21 July 2022JUDGMENT OF OSBORNE JThis judgment was delivered by me on 21 July 2022 at 2.30 pm pursuant to Rule 11.5of the High Court RulesRegistrar/Deputy RegistrarDate:Introduction[1] The Commissioner of Police applies for civil forfeiture orders against ConnieRoss (also known as Connie Smith) and her husband, Richard Ross. He seeks eithera profit forfeiture order pursuant to s 55 Criminal Proceeds (Recovery) Act 2009 (theAct) or an assets forfeiture order pursuant to s 50 of the Act.[2] The application is made as an outcome of a criminal investigation namedOperation Volcano conducted into sales of the Class A controlled drug,methamphetamine, by members and associates of the Tribesmen Motorcycle Gang(Tribesmen). A number of convictions were secured before trial.[3] Mrs Ross's son, Andrew Smith, pleaded guilty to four offences, including twoof supplying methamphetamine and two of possessing methamphetamine for supply.Mr Smith was sentenced to five years and nine months' imprisonment.[4] Mrs Ross, as a co-offender, pleaded guilty in November 2019 and wassentenced to two years and nine months' imprisonment on five offences:(a) unlawful possession of a firearm;(b) obstructing or perverting the course of justice;(c) breach of the Passports Act 1992;(d) selling methamphetamine; and(e) possessing methamphetamine for supply.[5] Mr Ross did not face any charges in relation to the offending. His being a partyto this proceeding comes about because of transactions involving the bank accountsof him and his wife and their ownership of a property at 751 Lower Sefton Road,Sefton, Waimakariri (comprising four hectares) (the Sefton property). Mr and MrsRoss own the Sefton property as tenants-in-common in equal shares. Its rateablevaluation in mid-2021 was $290,000. The Bank of New Zealand (an interested partyin this proceeding) has a debt secured by mortgage over the Sefton property in theorder of $118,000. Mr and Mrs Ross's net equity in the Sefton property isapproximately $172,000.[6] The Commissioner seeks forfeiture orders not only in relation to the Seftonproperty but also in relation to a sum of $2,800 cash seized from the property by Policein the course of Operation Volcano.[7] The Commissioner previously obtained a restraining order in relation to boththe Sefton property and the $2,800 cash.The issuesProfit forfeiture order[8] Under s 55(1) of the Act, the first questions are whether:(a) each respondent has unlawfully benefited from significant criminalactivity within the relevant period of criminal activity, namely 25November 2012 to 28 November 2017; and(b) that each respondent has interests in property.[9] If those tests are satisfied, the Court must make a profit forfeiture order unlessundue hardship is reasonably likely to be caused to the respondent.1[10] If the test for a profit forfeiture order is satisfied, the value of the "benefit" therelevant respondent must forfeit is presumed to be the value stated in theCommissioner's application ("at least $350,000") unless that is rebutted by therespondents on the balance of probabilities.2 The Commissioner's preferred form ofrelief in this proceeding is a profit forfeiture order.1 Criminal Proceeds (Recovery) Act 2009 [CPRA], ss 55(1), 55(3) and 56.2 CPRA, s 53.Assets forfeiture order[11] The Commissioner here focuses on the Sefton property and the $2,800 cash asspecific property under s 50 of the Act. To obtain orders against those two items ofproperty, the Commissioner must establish that each is "tainted property" as that termis defined in the Act.3 Unless undue hardship is reasonably likely to be caused, theCourt must make an assets forfeiture order in respect of specific property that is taintedproperty.4Exclusion of respondent's property from orders — undue hardship[12] Shortly before the hearing, Mr Ross filed applications under ss 51(1) and 56(1)of the Act for his interests in the Sefton property and the $2,800 cash to be excludedfrom the operation of any civil forfeiture orders because of undue hardship.5 The issuefor the Court to determine on those applications is whether undue hardship isreasonably likely to be caused to Mr Ross if those interests are included in theforfeiture orders.Profit forfeiture orderThe regime[13] The Court, in making a profit forfeiture order, assesses the benefits therespondent derived from significant criminal activity. Once the figure is identified,the respondent stands to forfeit any property in which they have an interest up to thatvalue. Rather than tracing tainted property (as occurs on an assets forfeiture order), aprofit forfeiture order involves an equivalent value regime.63 CPRA, s 5.4 CPRA, ss 50 and 51.5 At the same time, Mr Ross purported to file an application for relief under s 67 CPRA — thatapplication was misconceived and was not pursued because the right of application does not applyto respondents (see CPRA, ss 61–62).6 Commissioner of Police v Whakatihi [2014] NZHC 1774 at [18].Significant criminal activity — Mrs Ross[14] Mrs Ross's convictions for possession of methamphetamine for supply andsupplying methamphetamine constitute conclusive proof that she has so offended.7[15] The nature and scale of Mrs Ross's offending was reflected in the summary offacts which she (and co-offenders) accepted for the purpose of their sentenceindication hearing and subsequent sentencing.8 As described by Judge Neave atsentencing, Mr Smith was at the helm of the drug dealing operation, ably assisted byMrs Ross.9[16] Mr Smith would often sell drugs on credit, having considerable sums owing tohim, at times in excess of $372,000. Ms Ross assisted by procuring places to hidemethamphetamine, cash and assets and organising Mr Smith's finances. She stored atthe Sefton property and disbursed from there large amounts of cash which she recordedin a ledger book. She arranged payment and organisation of tradesmen to conductrenovations of the Tribesmen's gang pad in Ohoka.[17] Judge Neave described her role in the offending thus:10 she clearly had an operational or management function. She wasessentially the treasurer or the bookkeeper, even if she did not have a hands-on role in the distribution of the drugs, she was an essential lynchpin to theoperation. [18] In summary, Mrs Ross engaged in "significant criminal activity" as that termis used in the Act.11An unlawful benefit from significant criminal activity — Mrs Ross[19] Jennifer McCone is a forensic accountant attached to the Southern AssetRecovery Unit (SARU) of the Police Financial Crime Group at Christchurch. The7 Evidence Act 2006, s 47(1).8 R v Smith [2020] NZDC 3140 at [2].9 At [2].10 R v Smith, above n 8, at [9].11 CPRA, s 6(1) — that includes offences punishable by a maximum term of imprisonment of fiveyears or more.SARU investigates persons who appear to have accumulated wealth or assets as aresult of involvement in significant criminal activity.[20] Ms McCone provided extensive affidavit evidence in relation to herinvestigation of Mr and Mrs Ross and others arising out of Operation Volcano. Therespondents did not adduce any expert evidence in response.[21] Ms McCone had comprehensive access to the financial records of Mr and MrsRoss, including Inland Revenue records and bank details. Those included details inrelation to a farming-related partnership conducted by Mr and Mrs Ross under thename "C & R Ross Partnership".[22] For the seven-year period over which Ms McCone analysed the Rosses' InlandRevenue records,12 she found the following:(a) Mr Ross had an annual net income of $56,020.86, totalling$368,803.97;(b) Mrs Ross had an average annual net income of $7,337.57 totalling$50,140.05; and(c) the partnership had losses totalling $87,268 (arising in the years ending31 March 2014 to 31 March 2017, representing income of $9,124 offsetby expenses of $96,392).[23] Ms McCone analysed Mr and Mrs Ross's banking transactions. A particularfocus was on cash transactions, having regard to the fact that drug offenders often havesignificant amounts of cash at their disposal. Ms McCone, after accounting forexplained deposits, identified during the analysis period unexplained deposits of$386,876.39, comprising $351,378.20 in cash deposits and $35,498.19 in electronicdeposits (in all, 470 deposits).12 Between the tax years ended 31 March 2012 and 31 March 2018.[24] Of the 370 cash deposits, 287 (representing $254,344.99) did not have anyreference included in the bank data, contrary to what would be expected in relation toa business transaction which would typically require some type of invoice number toassist with book-keeping.[25] From the unexplained cash deposits, Ms McCone set aside deposits whichcould potentially relate to legitimate business activities of the Partnership (such asdog-breeding and firewood or silage sales).[26] Mr and Mrs Ross filed joint affidavits in opposition to the application. Theygave background evidence as to their relationship and their income. That included inthe case of Mr Ross a lengthy period of employment reflected in Ms McCone'sanalysis. They referred also to activities such as dog-breeding and firewood sales, butwithout providing any detail as to the extent of income from such activities.[27] In their affidavit they repeatedly rejected assertions that either of them hadbeen involved in handling cash or banking transactions in relation to the Tribesmen orthat either of them took part in any drug dealing. The tenor of their relatively shortaffidavit is that they were putting the Commissioner to proof, as reflected in thisstatement:We believe that there is absolutely no proof that any of this money came fromany significant criminal activity such as the supply of methamphetamine andwe deny the connection entirely.[28] Both Mr and Mrs Ross were cross-examined. In the course of her evidence,Mrs Ross elaborated as to her dealings with her son, Mr Smith. This arose particularlyin relation to evidence the Police had obtained through intercepted conversationsbetween the pair. Ms Ross explained some methamphetamine involvement with herson on the basis that she personally had a methamphetamine habit and from time-to-time stole methamphetamine from her son's supply. She also stated that bank accountsin her name had been used and operated by others in the family, including her son,who needed access to bank accounts.[29] In his cross-examination, Mr Ross denied knowledge of any involvement withthe drug offending that was the subject of Operation Volcano or earlier criminalinvolvement of Mrs Ross. In relation to their joint denial that she had been involvedin drug offending, Mr Ross repeated his belief that she had no involvement, statingthat she was "falsely charged" and that she pleaded guilty as the only way she couldget out of it.[30] Accordingly, the respondents' approach to any benefit obtained fromsignificant criminal activity was, first, to deny that Mrs Ross had been so involvedand, secondly, to put the Commissioner to proof in relation to the deriving of anybenefit.[31] The first ground of opposition fails for the reason that Mrs Ross standsconvicted of the drug offending. The nature of her involvement is reflected in thesummary of facts which she accepted and it is amply evidenced in the affidavits filedfor the Commissioner.[32] On the second issue, the Commissioner has clearly proved on the balance ofprobabilities that the respondents benefited from that significant criminal activity.There is no reasonable explanation for the very substantial cash dealings which tookplace through the respondents' bank accounts other than that the vast majority of itderived from drug dealing. The benefit was received into and utilised through thebank accounts of both respondents (including the Partnership account).Value of benefits[33] The Commissioner, by his application for civil forfeiture orders, stated that thevalue of the benefit obtained by the respondents from significant criminal activity wasat least $350,000. That figure is accordingly presumed to be the benefit unless therespondents have rebutted that figure on the balance of probabilities.13[34] The figure of at least $350,000 was fully explained in the evidence of MsMcCone. The evidence adduced by the respondents did not weaken the overallconclusions reached by Ms McCone or the detail underlying those conclusions. Whatwas arguably most notable about the evidence of the respondents was their failure to13 CPRA, s 53(2).engage with the detail of Ms McCone's analysis. Their evidence was structured so asto point to other possibilities, such as that the persons who benefited from money inthe respondents' bank accounts may have been other family members or that there mayhave been further (unidentified) particular receipts coming into the bank accountsfrom legitimate activities such as dog-breeding. But in relation to all thosesuggestions, the respondents failed to identify with any specificity what particulartransactions and sums might have been involved and what particular financial impactthey might have had on Ms McCone's analysis. The respondents failed to establishon the balance of probabilities that the figure of at least $350,000 was overstated.[35] The Commissioner has therefore established that the respondents in therelevant period of criminal activity unlawfully benefitted from significant criminalactivity to the extent of at least $350,000.Exclusion of respondents' property from profit forfeiture order?[36] Mrs Ross has not applied for an order excluding the Sefton property or the$2,800 cash from being able to be realised on the grounds of undue hardship — it istherefore unnecessary to consider any matters of undue hardship that might have beenasserted by Mrs Ross.14[37] Mr Ross, on the other hand, applied for an order excluding the Sefton propertyand the $2,800 cash from the profit forfeiture order because of undue hardship. Hisapplication was filed on the eve of hearing, 6 June 2021. Unsatisfactorily, theapplication was not supported by specific affidavit evidence. That left, as the onlyaffidavit evidence from the respondents, their earlier joint affidavits setting out thebackground of their personal circumstances, which was not focused on issues ofhardship.[38] Section 56 of the Act provides for the making of such applications when aprofit forfeiture order is being considered:14 CPRA, s 56(1).56 Exclusion of respondent's property from profit forfeiture orderbecause of undue hardship(1) The High Court may, on an application made by the respondent beforea profit forfeiture order is made, exclude certain property from beingable to be realised under section 55(2)(c) if it considers that, havingregard to all of the circumstances, undue hardship is reasonably likelyto be caused to the respondent if the property were realised.(2) The circumstances the Court may have regard to under subsection (1)include, without limitation,—(a) the use that is ordinarily made, or was intended to be made,of the property that is, or is proposed to be, the subject of theprofit forfeiture order; and(b) the nature and extent of the respondent's interest in theproperty; and(c) the circumstances of the significant criminal activity to whichthe profit forfeiture order relates.(3) After a profit forfeiture order is made, nothing in this section prohibitsa respondent from realising the property that was excluded from beingable to be realised under section 55(2)(c) if—(a) after realising other property under that section there is still adebt owed to the Crown under section 55(4); and(b) the respondent agrees to realise the excluded property in orderto pay all or part of that debt.[39] Under the provisions of s 56 (and the parallel provision, s 51, in relation toassets forfeiture orders), there is an evidential onus on a respondent to place before theCourt evidence of hardship — a failure to do so will mean there is no evidence thatwould allow the Court to be satisfied that undue hardship is reasonably likely.15[40] Shortly before the hearing, counsel for the respondents, Mr Kaye filed asynopsis of opening submissions. In that synopsis he indicated it would be Mr Ross'scase that (however the financial details are considered) he had minimal involvementand that it would be appropriate that his interests be identified and excluded from anycivil forfeiture orders.15 R v Thompson CA404/04, 19 October 2005 at [15]. See Simon France (ed) Adams on CriminalLaw (online ed, Thomson Reuters) at [CP51.02].[41] Notwithstanding Mr Ross's failure before the hearing to file evidence focusedon his assertion of undue hardship, evidence emerged at the hearing as to hiscircumstances:(a) Mr and Mrs Ross around March 2022 moved from the Sefton propertyto live with Mrs Ross's son and daughter-in-law at a Rangiora addressrent-free. Mr Ross said he and Mrs Ross were living "in a sleepout";(b) Mr Ross, apart from his interest in the Sefton property and in the $2,800cash, has no assets apart from a vehicle and furniture worthapproximately $30,000;(c) Mr Ross is retired and his income is from government superannuation;and(d) Mr Ross is 65 years of age.[42] Towards the end of his evidence, I offered Mr Ross the opportunity to explainhis state of belief in relation to the amount of money that came through his bankaccounts in cash. (Ms McCone's analysis showed 147 unexplained cash depositsthrough Mr Ross's bank accounts totalling $120,110 and 34 transactions through thepartnership accounts, totalling $22,065). The cash deposits through those accountsaccounted for approximately 40 percent of the couple's total cash deposits of some$350,000 as calculated by Ms McCone. The notes of evidence record:Q. What do you think I should take from your evidence, you werethinking about that money coming through?A. That I would have been personally seeing that amount of money, Iwould have been showing naiveté because I honestly didn't thinkthere – that would ever have happened you know.[43] Following Mr Ross's late reference to "living in a sleepout", the Crown soughtleave to refer the Court to evidence of the residential arrangements at the addresswhere Mr and Mrs Ross now live. For the Crown, Mr White understandably referredto the property as a "somewhat palatial five-hectare lifestyle block". The mainresidence used by the primary occupiers is a 246 m2 four-bedroom home. The"sleepout" to which Mr Ross referred is a self-contained one-bedroom dwelling witha kitchen and ensuite.[44] As the evidence stands, Mr Ross has not satisfied me that undue hardship islikely to be caused to him if the Sefton property and/or the $2,800 cash are forfeited.[45] The starting point is that, having regard to the cash sums which flowed intoand through Mr Ross's own bank accounts over the analysis period, there was wilfulblindness in the way Mr Ross facilitated the very arrangements by which Mrs Rosswas enabled to perform her operational role "as an essential lynchpin" in the drugdealing enterprise. On the evidence, Mr Ross's now self-recognised "naivety" can beequally described as wilful blindness.[46] Because he and his wife were co-mortgagors of the Sefton property, with equalliability for making principal and interest repayments on their mortgage debt, thebenefits that accrued from the money that came into their bank accounts through MrsRoss's offending were, at least in part, benefits enjoyed by the two of them.[47] The extent to which Mr Ross permitted his bank accounts to be utilised as partof the significant criminal activity must impact upon the assessment of whether anyhardship resulting from a civil forfeiture order is "undue".[48] The matters of hardship Mr Ross would have the Court take into account inrelation to his personal circumstances are those he came to in the course of his oralevidence (summarised at [41] above). In short, if civil forfeiture orders are made soas to deprive him of his interest in the Sefton property and the $2,800 cash he will, at65 years of age, have few assets and his income will be entirely derived fromsuperannuation.[49] As a tenant-in-common of the Sefton property in equal shares, the value of hislost equitable interest would be in the order of $86,000. That would be the extent ofthe combined equity of himself and Mrs Ross as Mrs Ross's share in the equity will inany event be forfeited.[50] Mr Ross has not established that the loss of his equity will alter the livingcircumstances that he (and Mrs Ross) might reasonably anticipate in the future. I mustalso have regard to the fact that, without any qualification in the evidence, it appearsthat Mr and Mrs Ross have at least for the time being the benefit of rent-freeaccommodation on a family property.[51] Nothing in the circumstances now confronting Mr Ross amounts to a gross orsevere disproportion between the events in which Mr Ross was involved and the valueof the property sought to be forfeited.16[52] Mr Ross's application to have his property excluded from being realised willbe dismissed.Assets forfeiture order[53] As the Commissioner's preferred order will be granted, it is unnecessary todetermine whether the Commissioner would equally have obtained on assets forfeitureorder.[54] Having regard to Ms McCone's analysis of the way in which funds receivedinto Mr and Mrs Ross's bank accounts were then used to sustain mortgage debt overthe Sefton property, I would have concluded that the Commissioner was also entitledto an assets forfeiture order. Mr Ross's application for exclusion of his property froman assets forfeiture order would have failed for the same reasons as did his applicationin relation to the profit forfeiture order.Orders[55] I order:(a) the value of the benefit determined in accordance with s 53 CriminalProceeds (Recovery) Act 2009 is, as the case requires, at least$350,000;16 Lyall v Solicitor-General [1977] 2 NZLR 641 (CA) at 647; Cheah v Commissioner of Police[2020] NZCA 253 at [64].(b) the maximum recoverable amount is $350,000;(c) the following property has to be realised:(i) 751 Lower Sefton Road, Sefton, Waimakariri (identifier625165, being an estate in fee simple of an area 4.0000 ha moreor less, Lot 3, Deposited Plan 444619), other than any interestsof the Bank of New Zealand under registered mortgage9648390.3;(ii) $2,800 cash seized by Police from 751 Lower Sefton Road,Sefton, Waimakariri on 28 November 2017, which is currentlyin the possession of New Zealand Police; and(d) the applications of the third respondent for exclusion of certain propertyfrom being realised are dismissed.Osborne JSolicitors:Crown Solicitor, ChristchurchJennifer Connell, Newmarket, AucklandCounsel: P J Kaye, Barrister, Auckland