POLICE V DRYLAND HC AK CIV-2012-419-000242

POLICE V DRYLAND HC AK CIV-2012-419-000242 [30 August 2012]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2012-419-000242[2012] NZHC 2231IN THE MATTER OF of an application pursuant to sections 43,44 and 49 of the Criminal Proceeds(Recovery) Act 2009BETWEEN COMMISSIONER OF POLICEApplicantAND TIMOTHY ROSS DRYLANDRespondentHearing: 17 August 2012Appearances: S N Cameron for the ApplicantA J Hamblett for the RespondentJudgment: 30 August 2012JUDGMENT OF GILBERT JThis judgment was delivered by me on 30 August 2012 at 3.30 pmPursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:.Solicitors: S N Cameron, Hamilton: snc@almaodouch.co.nzA J Hamblett, Hamilton: hamblett@xtra.co.nz[1] On 15 April 2010, Mr Dryland was found in possession of $104,620 in cash in nine plastic packages that had been sealed using a heat sealing machine. Each of these packages contained $5000 or $10,000 in bundles of $50 and $20 notes held together with rubber bands. The sealed plastic packages were in a plastic Billabong bag concealed under the spare wheel of the car Mr Dryland was driving. Mr Dryland says that the money was his and that he had it with him because he was considering making a cash offer on a property.[2] The Commissioner does not accept Mr Dryland's explanation and applies foran order forfeiting the money under the Criminal Proceeds (Recovery) Act 2009 on the basis that it is tainted property having been wholly or partly acquired as a result of significant criminal activity or directly or indirectly derived from such activity. The Commissioner alleges that Mr Dryland is a drug dealer and that the money is the proceeds of the sale of drugs.[3] Mr Dryland opposes the application. He says that he acquired this money legitimately, primarily by selling firewood and slabs of kauri and macrocarpa. He also says that part of the money is the proceeds of sale of capital items including a sawmill. Alternatively, if his explanation is not accepted and the Court finds that the money is tainted property, he seeks an order under s 51 of the Act excluding all or part of the money from any assets forfeiture order on that basis that he will suffer undue hardship if the money is forfeited.[4] The Commissioner disputes Mr Dryland's claim that he earned the moneyfrom selling firewood, timber slabs and capital items. However, the Commissioner argues that even if the money was earned legitimately, it is nonetheless tainted property because Mr Dryland has knowingly failed to pay tax of no less than $30,000 due in respect of his earnings. Tax evasion is significant criminal activity for the purposes of s 6 of the Act because it is punishable by imprisonment for a term not exceeding five years.[5] The issues are:(a) Did Mr Dryland acquire the money wholly or in part through dealing in illicit drugs?(b) Did Mr Dryland partly acquire the money through tax evasion?(c) Would Mr Dryland suffer undue hardship unless all or part of the money is excluded from any assets forfeiture order?Did Mr Dryland acquire the money wholly or in part through dealing in illicit drugs?[6] The Commissioner has the onus of establishing this on the balance of probabilities.[7] The police asked Mr Dryland what work he was engaged in and how he had obtained the money when they spoke to him on 15 April 2010. Mr Dryland said"I've come off recovering from a motorbike accident, I am just starting back out, self-employed doing milling". His only comment about the money was that it wasnot "drug money" and that he had "worked hard for every dollar I have".[8] Mr Dryland clarified these statements at the hearing. He explained that whenhe told the police that he was "just starting back" milling he meant that he had beendoing this for slightly more than a year. He said that the motorbike accident he had just finished recovering from occurred seven years earlier, in 2003, and that therewere no "leg issues" until May 2010, a month or so after he first spoke to the police.[9] Mr Dryland was examined on 29 March 2011 following an order made under the Act. During the course of this examination he said that he had saved $80,000 to $100,000 in cash over the past two and a half to three years, mainly through selling firewood and slabs of timber.[10] However, at the hearing, Mr Dryland said that he had saved this money as a result of these activities during the 12 month period prior to 15 April 2010. Heestimated that he had earned gross income of "upwards of $150,000" during thisperiod and that all of his business had been conducted in cash with people paying only in $20 and $50 notes. He claimed that these were the notes that he had bundled up into lots of $5000 and $10,000 and then sealed in the plastic bags. He said that he had sealed the money in the bags to protect it from moisture. Mr Dryland said that he hid the money outside under piles of firewood, or under the house.[11] Mr Dryland acknowledged that he had not placed any advertisements for his firewood business since June 2009 but explained that he had regular customers who referred others by word of mouth. He was only able to name a few customers who had purchased firewood from him. He said that the people he sold the timber slabsto have "moved on" and that he can no longer contact them. Mr Dryland advised that he sold a sawmill to a man in Rotorua for $45,000 but he cannot remember his name and does not know how to contact him. He said that he was not good at keeping records and that such records as he did have were stolen from a car in November 2010. However, Mr Dryland did produce a number of exercise books containing handwritten notes of daily events and tasks including references to firewood sales and deliveries.[12] Mr Vevers, a senior forensic accountant employed by the Hamilton AssetRecovery Unit of the New Zealand Police, investigated Mr Dryland's explanationsby analysing his financial affairs over the three year period prior to April 2010. Mr Vevers took into account living expenses, operating expenses and other capital expenditure, as advised by Mr Dryland. Mr Dryland's acknowledged expensestotalled approximately $90,000 over the three year period. His only declared income over this period comprised benefit payments of approximately $10,600 between April 2007 and May 2008.[13] Mr Vevers' analysis shows unexplained income over the three year period of some $53,000, or approximately $158,000 if the cash is taken into account. However, in the 12 month period to 31 March 2010, Mr Vevers' analysis shows asurplus of income over expenditure of $77,000. This takes into account the sawmill sale for $45,000.[14] Mr Dryland says that Mr Vevers does not have the "whole picture" and that his calculation of Mr Dryland's net income in this 12 month period understates his actual earnings because not all sales have been taken into account due to the incomplete state of the available records. He maintains that he was extremely busy with his firewood and timber slab business throughout the 12 month period prior to being stopped by the police on 15 April 2010 and that he wore out his chainsaw during this period. He says that he was able to make up to $1000 by morning tea time on some days and that he was delivering truckloads of firewood for $500 per load.[15] Mr Dryland's mother confirmed that Mr Dryland was very busy with his firewood business during this period. She fielded some of the customer enquiries and was occasionally involved in delivering firewood and receiving the cash payments. She passed these payments on to Mr Dryland.[16] The Commissioner's investigation shows that Mr Dryland has not operatedany bank account since November 2008. Mr Dryland has not declared his income or filed any income tax returns. It is clear that he has been involved in selling firewood and timber slabs for many years. This business has been entirely transacted in cash, at least since November 2008. The Commissioner does not dispute this. The real issue is whether Mr Dryland conducted sufficient sales to explain the cash found in his car and, if not, whether the cash was partly or wholly acquired through dealing in illicit drugs.[17] The Commissioner claims that Mr Dryland's unexplained income is likely tohave been acquired from dealing in illicit drugs. Mr Dryland has drug related convictions spanning the period from 1996 to 2009 involving cannabis and methamphetamine. In 1997, Mr Dryland admitted cultivating approximately 40 cannabis plants. Later that year he was convicted of possession of over 500 grams of cannabis. In April 2009, Mr Dryland was found in possession ofcannabis plants that he had cultivated in a building on his parents' farm. He wassentenced to 40 hours of community work for this offence in June 2009. In August 2009, Mr Dryland was found in possession of broken glass methamphetamine pipes. This led to his conviction in June 2011 of possession ofutensils to consume methamphetamine. He was sentenced to two months' homedetention for this offence.[18] In 2009 the police intercepted a number of text communications as part of a police operation code named "Operation Cape". These included communications between two of Mr Dryland's associates in August and September 2009. On the day the police apprehended Mr Dryland there were 23 missed calls on his phone from the telephone number assigned to the property where these two associates were living. These associates were both convicted in 2011 of supplying methamphetamine in May 2009. Mr Dryland was not charged with this offending. However, the intercepted messages suggest that he may have been willing to supply drugs variously referred to in the text messages as "goodness", "wickedness" or a "nice fucken little sack". Mr Dryland was not party to any of these communications and denies being involved in drug dealing. Although there was no objection to the admissibility of this hearsay evidence, it has little probative value and is untested. It may not be admissible at all. I place little weight on it.[19] Mr Vevers' analysis shows that Mr Dryland had surplus income from his legitimate business operations of $77,000 in the 12 month period to 31 March 2010 although Mr Vevers believes that this overstates the position. It is likely that Mr Vevers has not captured all sales in his analysis because Mr Dryland's records arenot complete. Mr Dryland did not deposit any of this money into his bank account. It is reasonable to assume that he maintained it in cash, as he said.[20] The circumstances in which the cash was found are highly suspicious. I amalso sceptical of some of Mr Dryland's evidence. However, the Commissioner has the burden of proving on the balance of probabilities that the money was wholly or partly acquired through dealing in illicit drugs. Mr Dryland does not face any charges for drug dealing. He was convicted of possession of cannabis plants in April 2009 but I am unable to infer from this that he acquired the cash from the sale of illicit drugs. I am not able to place weight on the intercepted text messages for the reasons I have given. While I can understand the Commissioner's position, I am not satisfied that he has proved on the balance of probabilities that this money was wholly or partly acquired by Mr Dryland from the sale of illicit drugs. There issimply not enough evidence to establish this, particularly given that it is clear that Mr Dryland did accumulate significant sums of cash from his lawful business activities.Did Mr Dryland partly acquire the money through tax evasion?[21] Mr Dryland has not filed any tax returns relating to his firewood business activities since 2003. He does not dispute this. He acknowledges that he owes the Commissioner of Inland Revenue at least $30,000 in relation to the 2010 tax year alone. It is likely that Mr Dryland has committed the offence of tax evasion under s 143B of the Tax Administration Act 1994 in that he knowingly did not file income tax returns intending to evade the payment of tax. As noted above, tax evasion is significant criminal activity in terms of s 6 of the Act.[22] However, this does not mean that the cash is tainted property. Mr Dryland did not acquire or directly or indirectly derive the money through tax evasion. Rather, he acquired it through his lawful activities but has subsequently evaded his tax obligations in respect of the money he has earned. He is vulnerable to penalties and to prosecution under the Tax Administration Act but this does not mean that the money is tainted property.Conclusion[23] I conclude that the Commissioner has not proved that the cash is tainted property. His application must therefore be dismissed.Result[24] The Commissioner's application for an assets forfeiture order is dismissed.________________________M A Gilbert J