COMMISSIONER OF POLICE v HE [2021] NZHC 1653

COMMISSIONER OF POLICE v HE [2021] NZHC 1653 [6 July 2021]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2020-409-000005[2021] NZHC 1653UNDER the Criminal Proceeds (Recovery) Act 2009IN THE MATTER of an application pursuant to ss 43, 44, 49,52 and 55 of the ActBETWEEN COMMISSIONER OF POLICEApplicantAND FEI HEFirst RespondentAND FEI HE and RICHARD YAU as trustees ofthe Leo Family TrustSecond RespondentsAND RICHARD YAU (AKA YUCONG QIU)Third RespondentAND SUI JUN ZHOUFourth RespondentAND LEVONZ INVESTMENTS LIMITEDFifth RespondentAND XIWEN MIAOSixth RespondentAND MIAOLU YANSeventh RespondentAND TONG LIUEighth RespondentAND MENG XIAO GUANNinth RespondentAND NATASHA GILLFirst Interested PartyAND CAIQIONG HUANGSecond Interested PartyAND ANZ BANK NEW ZEALAND LIMITEDThird Interested PartyHearing: 27 May 2021Appearances: K South for ApplicantC M Ruane for First Respondent, Second Respondent and SeventhRespondentJudgment: 6 July 2021JUDGMENT OF DOOGUE JThis judgment was delivered by me on 6 July 2021 at 3.00 pm.Registrar/Deputy RegistrarDate:Introduction[1] Following public concern regarding the adverse health impacts of syntheticcannabis, Parliament passed legislation regulating the possession and supply of allpsychoactive substances effective from 8 May 2014.1[2] Operation Sin, which resulted in the convictions of the first, fourth and sixthrespondents, was an investigation into the illegal sale and supply of psychoactivesubstances in breach of s 70 of the Psychoactive Substances Act 2013.[3] The Commissioner applies for a profit forfeiture order against the firstrespondent, Ms Fei He, in her personal capacity and also in her capacity as trustee ofthe Leo Family Trust. This application is made following Ms He's conviction forselling or supplying non-approved psychoactive substances (representative) andpossession for supply of a non-approved psychoactive substance (representative).Ms He was sentenced to imprisonment for these offences.[4] The Commissioner also applies for a profit forfeiture order against the sixthand seventh respondents, Mr Xiwen Miao and Ms Miaolu Yan. Mr Miao has beendeported from New Zealand and Ms Yan accompanied him. Mr Miao was convictedof selling or supplying non-approved psychoactive substances and possession forsupply of a non-approved psychoactive substance.Facts relied upon by the Commissioner[5] Prior to May 2014 Ms He owned and operated a dairy on Main South Road,Sockburn and had done for several years. Before the Psychoactive SubstancesAmendment Act came into force on 8 May 2014, Ms He legally sold syntheticcannabis from the dairy. Mr Miao had worked at the dairy during this period.[6] In October 2014 the Christchurch Police began investigating the now illegalsale and supply of synthetic cannabis in Christchurch and surrounding areas.1 Psychoactive Substances Amendment Act 2014.[7] Ms He and Mr Miao, among others, became targets of the investigation. Theinvestigation terminated on 11 May 2016, with up to 173 kilograms of syntheticcannabis being found under the joint control of the respondents. The 173-kilogramseizure on 11 May 2016 was by far the biggest seizure in New Zealand history, thesecond largest being only 2.5 kilograms.2[8] On 13 June 2019 Ms He pleaded guilty to:(a) selling or supplying non-approved psychoactive substances between26 October 2014 and 11 May 2016; and(b) possession for supply of non-approved psychoactive substances tocover four occasions on which Ms He was found to be in possession ofpsychoactive substances, namely:(i) 16 June 2015 at the Sockburn Dairy – up to 1 kilogram;(ii) 30 December 2015 at the Sockburn Dairy – 402 grams;(iii) 11 May 2016 at the storage unit on Blenheim Road and19 Yardley Street up to 173 kilograms; and(iv) 10 August 2016 at the Sockburn Dairy – 90 grams.Possession of psychoactive substances for sale[9] On both 16 June 2015 and 30 December 2015 the police executed searchwarrants at the Sockburn Dairy. During these searches the police located significantamounts of banned psychoactive substances, much of it wrapped in snaplock bags.2 Zhou v R [2020] NZCA 278 at [1].Selling or supplying psychoactive substances[10] Between April 2014 and May 2016, Ms He and her co-defendants - includingMr Miao, Mr Zhou and Mr Fu - engaged in a sophisticated psychoactive substancessupply operation. Their roles within the operation were as follows:(a) Ms He would message Mr Miao and organise weights and deliveries ofproduct. Mr Miao responded with quantities of the product and whatneeded restocking. Ms He advised him of the arrangements forresupply;(b) Mr Miao messaged Mr Fu requesting types and quantities ofingredients used to prepare the psychoactive substances;(c) Mr Zhou was Ms He's primary dealer. Mr Zhou was in frequent contactwith Mr Miao, who requested quantities of various types/flavours ofsynthetic cannabis as well as packing instructions, such as bag weights,from Mr Zhou;(d) Mr Miao would pack the bags at the weights requested and they wouldbe picked up by Mr Zhou;(e) Ms He passed on phone numbers to Mr Zhou for customers she wasreferring to him, many of whom were regular and/or bulk purchasers;(f) Mr Zhou sold the pre-packaged bags of synthetics for prices rangingfrom $50 for 5 grams ($10 a gram) to $5,000 for 600 grams ($8.33 agram). Mr Zhou would contact buyers and drive to locations aroundthe city and exchange pre-packaged snaplock bags filled with syntheticcannabis for cash. Buyers would then sell the product for marked-upstreet prices of $20 per gram.[11] Mr Zhou provided a delivery service seven days a week, meeting on average20 and 30 customers each day. He met some key customers as much as several timesa day. On the evidence it is clear Mr Zhou was supplying bulk quantities to thesecustomers who would then on-sell the drugs. This conclusion is supported by WeChatmessages sent by Ms He to Mr Zhou, including statements like, "if you guys want todo wholesale, you guys just do wholesale directly" and, "he 800 every day" alongsidediscussions of 1 and 2 kilogram deals.[12] On 11 May 2016 police executed a search warrant at 19 Yardley Street,Avonhead, Christchurch. This was Mr Miao's home address, where he resided withMs Yan. Immediately prior to termination of the investigation, police conductedsurveillance on the address and observed Mr Miao loading his VW Passat vehicle withboxes. The police covertly followed him to a storage unit on Blenheim Road,Sockburn. Mr Miao was the primary contact on the lease of the storage unit, Ms Hefunded the rental payments.[13] At the storage unit police found very large quantities of synthetic cannabis,some of which was packaged in snaplock bags and ready for sale. Further syntheticcannabis was found in Mr Miao's vehicle.[14] A search of 19 Yardley Street revealed cash totalling $42,695, deal bags, aseries of blenders, a desk that had been used for packaging product, used gloves andmasks, a racking machine used to measure granular product into gram weights, largequantities of unused snaplock bags matching those found in the possession of Mr Zhouand Ms He and, finally, large quantities of synthetic cannabis.[15] In total the police seized 173 kilograms of synthetic cannabis across the storageunit, Mr Miao's car and 19 Yardley Street.[16] Mr Fu was identified as being the driver or deliverer of bulk psychoactivesubstances from an unidentified bulk warehouse supply (not the storage unit) toMr Miao at 19 Yardley Street for packaging. For the five-month period between3 October 2015 and 21 March 2016 Mr Fu delivered at least 170 kilograms of productto Mr Miao for packaging for sale.[17] Mr Miao was reordering supplies from Mr Fu on average every three weeks,at an average of 20 kilograms a time. This equates to approximately 1 kilogram ofproduct per day over a period from at least 13 October 2014 until 11 May 2016 (aperiod of 19 months).[18] Following the arrest of Mr Zhou, WeChat messages found on his phonedisclosed Ms He instructing Mr Miao that: the search warrant will take at least a day, and can only be issued by firstgoing to the court. Therefore, the one day, there is one day's time to wait forall the stuff to be cleared.[19] On 10 August 2016 Ms He had two bags of synthetic cannabis located in hertrackpants, weighing 51.48 grams and 45.87 grams respectively.[20] This was clearly a substantial operation amounting to significant criminalactivity.Fei He[21] Ms He accepts that she has unlawfully benefitted from significant criminalactivity and that she has interests in property. I am therefore obliged to make a profitforfeiture order pursuant to the Criminal Proceedings (Recovery) Act 2009 (the Act).Unlawful benefit calculations[22] The detective in charge of Operation Sin, Detective Scott, adduced evidencethat Ms He was the leader of an organised network of people who assisted her inselling very large quantities of synthetic cannabis.[23] Detective Scott makes a conservative estimate that Ms He, over a 26-monthperiod between May 2014 and August 2016, turned over at least 5 kilograms ofsynthetic cannabis on average per week. She would derive approximately $6 to $8 pergram, resulting in a gross turnover of $30,000 to $40,000 each week.[24] Taking the lower of these figures and multiplying it by 117 weeks results in anunlawful benefit of $3,510,000. The higher figure would result in an unlawful benefitof $4,680,000.[25] I take the conservative estimate of valuing the unlawful benefit at $3,510,000,the value stated in the Commissioner's application.Interests in property[26] Ms He acknowledges she is the owner of, and does not oppose a profitforfeiture order being made in respect of, the following property:(a) 67 English Street, Sockburn, Christchurch;(b) 42 Gibbons Street, Sydenham, Christchurch; and(c) a Mini Cooper Countryman HLS712.[27] The property at 67 English Street was valued at $575,000 as at May 2021 withlending in the range of $480,000 attributed to ANZ Bank on a cross-collateral lendingfacility.[28] Ms He also had effective control of the property situated at 42 Gibbons Street,Sydenham, Christchurch. The property was previously owned by Hope PropertyInvestments Limited of which Ms He was the sole director and shareholder, until thecompany was removed from the Companies Register causing the property to vest inthe Crown. The property is valued at approximately $410,000 and is mortgage free.[29] Ms He also accepts that she had effective control of the Mini CooperCountryman, registration number HLS712, previously registered to Eversky Trade &Consultants Limited of which Ms He was the sole director and shareholder, until thecompany was removed from the Companies Register causing the property to vest inthe Crown. This was sold by the Official Assignee and realised $18,080.78.[30] Ms He does, however, oppose a profit forfeiture order in respect of the propertyat 50A Brodie Street, Ilam, Christchurch. She says her only interest in the property at50A Brodie Street was as trustee for the benefit of her teenage son.50A Brodie Street, Ilam, Christchurch[31] This property is owned by Ms He and Richard Yau as trustees of the LeoFamily Trust. It is valued at approximately $700,000 and is subject to lending at theANZ Bank in the sum of $308,105.35.[32] The Commissioner submits that 50A Brodie Street is under the effectivecontrol of Ms He and should be treated as though the property is hers. They say thefollowing circumstances demonstrated that Ms He was in effective control of all trustproperty, including 50A Brodie Street:(a) when examined she confirmed she controlled the trust and the accountsrelating to the trust;(b) she described Mr Yau as a trustee in name only;(c) Mr Yau had resigned as a trustee of the trust;(d) Ms He had exclusive power of appointment and removal of trustees;(e) she rented the property out to one of her co-offenders; and(f) she controlled the account which rental income was paid into.[33] Ms He disputes that she has effective control of the property.[34] Section 58 of the Act provides:Court may treat effective control over property as interest in property(1) If the High Court is satisfied that a respondent has effective controlover property, the Court may, on an application made by theCommissioner, order that the property is to be treated as though therespondent had an interest in the property specified by the Court.(2) An order under subsection (1) may—(a) be made even if the respondent has no interest in the property;and(b) specify an interest that differs from the interest that therespondent has in the property.(3) Without limiting the generality of subsections (1) and (2), the Courtmay have regard to—(a) shareholdings in, debentures over, or directorships of, anycompany that has an interest (whether direct or indirect) in theproperty; and(b) any trust that has a relationship to the property; and(c) family, domestic, and business relationships between personshaving an interest in the property or in companies of the kindreferred to in paragraph (a) or in trusts of the kind referred toin paragraph (b), and any other persons.(4) Property that is subject to an order under subsection (1) may beincluded in any profit forfeiture order and in any restraining order thatis made against the respondent.(5) If the Commissioner applies for an order under subsection (1),—(a) the Commissioner must, so far as it is practicable to do so,serve notice of the application on the respondent and on anyperson who, to the knowledge of the Commissioner, has aninterest in the property; and(b) the respondent and any other person who claims an interest inthe property are entitled to appear and to adduce evidence atthe hearing of the application.[35] In relation to effective control, the fundamental question is whether, in fact, therespondent had the capacity to control, use, dispose of, or otherwise treat the propertyas his or her own.3 This is a discretionary remedy.[36] 50A Brodie Street is owned by the Leo Family Trust. The trust deed is notsigned or dated. For the purposes of this argument counsel for Ms He accepts thistrust deed was executed by the trustees in March 2015 or thereabouts.[37] The trustees are recorded as (Susan) Fei He and Richard Yau.[38] When she was examined Ms He accepted she had controlled the trust and theaccounts relating to the trust. She admitted Richard Yau was trustee in name only and3 Commissioner of Police v Jiang [2020] NZHC 695 at [43]; Commissioner of Police v Read [2015]NZHC 2055 at [60]; Solicitor General v Bartlett [2008] 1 NZLR 87 (HC) at [27].that he had resigned as a trustee. It is not clear from the evidence filed when RichardYau resigned as trustee. Ms He acknowledged that as sole trustee she had de factocontrol over the trust.[39] Ms He also accepted that when Richard Yau resigned another trustee shouldhave been appointed. The deed itself provides that:8.2 no power or discretion conferred on the Trustees by law or by thisDeed, other than that of appointing a new Trustee, will be exercisedby the sole Trustee until such time as an additional Trustee has beenappointed.[40] The trust deed notes that the final beneficiary of the trust is (Leo) Deheng Zou.Ms He is named as a discretionary beneficiary. Clause 4 of the trust deed providesthat distributions may be made of capital and/or income to one or more of thediscretionary beneficiaries in equal or unequal terms.[41] It follows that, upon the appointment of a new trustee to replace Richard Yau,the trustees would have been entitled to make a distribution to Ms He. Ms He couldpotentially appoint a trustee and then, together, the trustees could distribute all the trustproperty to her.[42] Crucially, Ms He also exercised an unfiltered power of appointment andremoval of trustees. If a trustee she appointed did not adhere to her wishes she couldunilaterally remove them and appoint another with no consultation required.[43] Unilateral power or appointment and removal was a pivotal consideration inCommissioner of Police v Jiang.4 It, alongside status as a beneficiary, was decisive inCommissioner of Police v Burgess and Commissioner of Police v Filer.5[44] I am satisfied Ms He has effective control of the property of the Leo FamilyTrust, including 50A Brodie Street.4 Commissioner of Police v Jiang, above n 2 at [47].5 Commissioner of Police v Burgess [2016] NZHC 2629 at [98]; Commissioner of Police v Filer[2017] NZHC 3111 at [43].Value of the property which it is sought to realise[45] The values of the property which the Commissioner seeks to have forfeitedare:(a) 67 English Street, Sockburn, Christchurch - $575,000;(b) 50A Brodie Street, Ilam, Christchurch - $700,000;(c) 42 Gibbons Street, Sydenham, Christchurch - $410,000;(d) Mini Cooper Countryman registration number HLS712, which wassold for $18,080.78.[46] The total equity in the property held by Ms He amounts to approximately$914,975.41.[47] The total loans on the properties have increased from $798,907.37 to thecurrent figure of $834,997.08.[48] Even accounting for a generous increase in the values of the properties overthe previous 12 months, I find the level of unlawful benefit far exceeds the value ofthe known and restrained property to be realised.[49] Ms He does not claim hardship in relation to the profit forfeiture order.Profit forfeiture order[50] In accordance with s 55 of the Act I make a profit forfeiture order specifying:(a) that the value of the unlawful benefit determined in accordance withs 53 of the Act is $3,510,000;(b) the maximum recoverable amount determined in accordance with s 54is $3,510,000; and(c) the following property is to be realised:(i) 67 English Street, Sockburn, Christchurch;(ii) 50A Brodie Street, Ilam, Christchurch;(iii) 42 Gibbons Street, Sydenham, Christchurch; and(iv) the proceeds of the early sale of the Mini Cooper Countryman,namely $18,080.78.Xiwen Miao and Miaolu Yan[51] Neither Mr Miao nor Ms Yan have taken any recent part in these proceedingsas Mr Miao was deported to China and Ms Yan accompanied him.[52] They have few assets left in New Zealand, but the Commissioner applies for aprofit forfeiture order in respect of:(a) the sale proceeds of a 2006 Volkswagen Passat HWS369 registered toXiwen Miao, being $3,666.17;(b) $42,695 in cash (plus any accrued interest) which was located atMr Miao and Ms Yan's home address of 19 Yardley Street on11 May 2016 when the investigation into the respondents' activity wasterminated by the police;(c) foreign currency located at 19 Yardley Street on 11 May 2016 which,when converted to New Zealand dollars, equated to approximately$1,450 (plus any accrued interest); and(d) $24,093.75 (plus accrued interest) being funds in Ms Yan's ANZ bankaccount.Mr Miao[53] Search warrants were executed on money remitters MSI and Golden Mountain,which were mentioned in the WeChats, following the termination of Operation Sin.The transfer of $30,000 to Mr Miao on 6 May 2016 was identified.[54] On 16 May 2016, five days after termination of the investigation, $90,000 wastransferred via Golden Mountain to Ms Yan's Chinese bank account. WeChatmessages and the subsequent examination of Ms He and Mr Miao confirm thatMr Miao in fact transferred the $90,000 to China using Ms Yan's Chinese bankaccount on Ms He's instructions.[55] Mr Ping Kang (the then operator of Golden Mountain) was examined pursuantto an examination order on 1 March 2019 and provided police receipts which showedtransfers by Mr Miao and Ms Yan as follows:(a) 2 June 2016 - $20,000 from Mr Miao to the Bank of China account inthe name of Hui Li Wang; and(b) 16 March 2016 - $90,000 from Mr Miao to the Commercial Bank ofShanghai account held in the name of Ms Yan.[56] Therefore at least $110,000 was transferred to China via Golden Mountain byMr Miao, $90,000 of which has gone into a Chinese bank account in the name ofMs Yan.[57] The examination of the manager of MSI also revealed dealings with Mr Miao,with Mr Miao remitting back to China a sum exceeding $40,000 across multipletransactions. One of the transfers was referenced "Yumeng Bai" in a transfer. Thiscoincides with the name of a reference Ms He told Mr Zhou to use when depositingfunds into her lawyer's trust account.[58] Mr Miao's interaction with such large volumes of cash and remissions can onlybe explained by the significant criminal activity he was involved in. He received nolegitimate wage payments throughout the period, other than wages from a cafétotalling $2,000. Mr Miao was unable to offer a satisfactory explanation for any ofthese transactions.[59] While it appears Mr Miao was supported by his parents for his study andcourse-related costs, he received over $50,000 in international money transfersattributed by the investigators as being derived from the proceeds of crime.[60] It seems these international transfers were funded by money Mr Miao hadreceived from Ms He. Ms He left a voice message for Mr Miao: the accountant is gonna pay me back directly from China, I told he/her topay straight into your account. For your house deposit, there'll be $30k extraI'll give you $100k altogether, I've already paid you $50k, plus this $30k, Iwill give you another $20k to make up the $100k.[61] Additional deposits, totalling $74,919, were received to his bank accounts fromthird parties which funded living costs and savings, including the $30,000 paymentmade from Ms He's accountant to Mr Miao's account. Further unexplained cashdeposits totalling $93,380 were paid into Mr Miao's bank accounts during the reviewperiod.[62] Identification documents relating to Mr Miao were also located at GoldenMountain and house plans located at 19 Yardley Street show he was planning to investin real estate in New Zealand, despite having no legitimate income.[63] I am satisfied on the balance of probabilities that Mr Miao has engaged insignificant criminal activity and has derived an unlawful benefit of at least $300,000.A profit forfeiture order should be made in that amount. Mr Miao's unlawful benefitplainly exceeds the available assets.Ms Yan[64] While Ms Yan was not charged with significant criminal activity, theCommissioner contends that there is proof, on the balance of probabilities at least,Ms Yan knew about Mr Miao's activities and knowingly unlawfully benefitted fromthem.[65] Ms Yan confirmed she uses the name Lulu, her boyfriend is Mr Miao and thatthey lived together fulltime at 19 Yardley Street.[66] Ms Yan cannot have been ignorant to the activities of Mr Miao. The policeexhibits officer deposed it would have been "impossible" for Ms Yan not to haveknown because of the extremely strong smell of the synthetic cannabis, the factmultiple rooms contained equipment related to its packaging, and given the volume ofequipment dedicated to the task of mixing and packaging product.[67] Ms Yan was also identified as having repeatedly remitted money back to Chinausing MSI across three transactions, totalling $29,500.[68] When Ms Yan was examined, she was required to provide bank statementsfrom accounts held with Chinese banks as specified in the examination order. Sheproduced a partial bank statement from 10 to 26 January 2016 from a bank in China.The bank account number was the same number as the account into which Mr Miaotransferred $90,000 on 16 May 2016. She stated that these were the only bankstatements she could obtain without going to China and that it was not possible toobtain other statements as the bank could not provide them via internet banking.[69] This bank statement, sighted by Detective Bull, confirmed Ms Yan receivedinto her bank account in China (being an account that is not restrained) $90,000 on16 May 2016 that was remitted by Mr Miao and is consistent with the instructionsMs He had given him. That was five days after the termination of the investigation.Ms Yan has therefore benefitted to the sum of at least $90,000 in funds that are inChina, in a bank account in her name and which are not restrained.[70] Ms Yan was not able to recall or explain the other transactions in which shewas identified as remitting money back to China. She has no known legitimate sourcefor these funds.[71] Ms Yan confirmed that the cash located in a wardrobe at the property belongedto her and Mr Miao but was unable to provide a source for the cash.[72] When asked questions as to her involvement in the transfer of $90,000 to herChinese bank account, she could not remember the source of funds and gave a vaguedescription that she was given cash by her parents in China. When asked to identifythe sources of money she stated there were too many members of her family to name.[73] Ms Yan also denied that the photographs taken at 19 Yardley Street werephotographs of psychoactive substances, despite testing revealing otherwise.[74] Ms Yan's explanations are implausible. She clearly received $90,000 into herChinese bank account immediately following termination of the investigation, a factboth she and Mr Miao have accepted at their investigations.[75] I am satisfied on the balance of probabilities that Ms Yan has unlawfullybenefitted from significant criminal activity within the relevant period.[76] Pursuant to s 53 of the Act, the value of the benefit is presumed to be the valuestated in the application if the Commissioner proves on the balance of probabilitiesthat the respondent has, in the relevant period of criminal activity, unlawfullybenefitted from significant criminal activity.[77] A respondent can rebut the presumption on the balance of probabilities. In thiscase neither Mr Miao nor Ms Yan have attempted to rebut the presumption. The valueis therefore assessed at $300,000.[78] There has been no application to exclude certain property from the profitforfeiture order on the basis of hardship.Profit forfeiture order[79] In accordance with s 55 I make the following profit forfeiture order:(a) that the value of the unlawful benefit determined in accordance withs 53 of the Act is $300,000 in relation to Mr Miao and Ms Yan;(b) the maximum recoverable amount determined in accordance with s 54is $300,000 in relation to Mr Miao and Ms Yan;(c) the following property is to be realised:(i) the sale proceeds of a 2006 Volkswagen Passat HWS369registered to Xiwen Miao, being $3,666.17;(ii) $42,695 in cash (plus any accrued interest) which was locatedat Mr Miao and Ms Yan's home address of 19 Yardley Street on11 May 2016 when the investigation into the respondents'activity was terminated by the police;(iii) foreign currency located at 19 Yardley Street on 11 May 2016which, when converted to New Zealand dollars, equated toapproximately $1,450 (plus any accrued interest); and(iv) $24,093.75 (plus accrued interest) being funds in Ms Yan'sANZ bank account.Result[80] The Commissioner's application is successful and the orders at [50] and [79]are made.Doogue JSolicitors:Raymond Donnelly, ChristchurchCC:Craig Ruane, Christchurch