HAYWARD v COMMISSIONER OF POLICE CA464/2013 [2014] NZCA 625

HAYWARD v COMMISSIONER OF POLICE CA464/2013 [2014] NZCA 625 [18 December 2014]IN THE COURT OF APPEAL OF NEW ZEALANDCA464/2013[2014] NZCA 625BETWEEN MARIANA NATALIA CRISTEAHAYWARDAppellantAND COMMISSIONER OF POLICERespondentHearing: 20 November 2014Court: Randerson, White and Courtney JJCounsel: D R I Gay for AppellantM R Harborow and R K Thomson for RespondentJudgment: 18 December 2014 at 1.30 pmJUDGMENT OF THE COURTA The appeal against the order requiring the Crown to pay the appellant the sum of $52,000 is allowed and the order is set aside.B The amount payable by the Crown to the appellant under s 66 of the Criminal Proceeds (Recovery) Act 2009 is to be 50 per cent of the net equity of the untainted share of the family home. If the parties are unable to reach agreement on the calculation, the amount is to be determined by the High Court in accordance with this judgment.C In all other respects the appeal is dismissed.D The respondent is to pay the appellant's costs for a standard appeal on aband A basis together with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by White J)Introduction[1] The appellant, Mrs Hayward, appeals against the judgment of Venning J in the High Court at Auckland under the Criminal Proceeds (Recovery) Act 2009 (the CPRA) in which the Judge:(a) made asset and profit forfeiture orders in respect of property owned by her husband, Mr Hayward;(b) fixed the Crown's maximum recoverable amount at $382,259;(c) ordered the sale of Mr and Mrs Hayward's family home to meet themaximum recoverable amount;(d) ordered the Crown to pay Mrs Hayward by way of relief from the net proceeds of the sale of the family home the sum of $52,000 before applying the balance to recovery of the maximum recoverable amount; and(e) declined to order relief for undue hardship.1[2] For the reasons given in our judgment on the appeal by Mr Hayward, Mrs Hayward's appeal in respect of (a), (b) and (c) above is dismissed.2[3] This judgment is concerned only with the propriety of the orders made in (d) and declined in (e) above.[4] The principal issue is whether the relief granted to Mrs Hayward under s 66 of the CPRA should be limited to 20 per cent of Mr Hayward's notional legitimate1 Commissioner of Police v Hayward [2013] NZHC 1358 [High Court judgment] at [89], [91], [97] and [117]–[119].2 Hayward v Commissioner of Police [2014] NZCA 624.equity in the family home (equating to approximately $52,000), as the Judge held,3or whether it should be 50 per cent on the basis of her entitlement under the Property (Relationships) Act 1976 (PRA), as Mr Gay submitted for her.Factual background[5] As the factual background is set out in our judgment in Mr Hayward's appeal,it is unnecessary for us to repeat it here.[6] For the purposes of Mrs Hayward's appeal, the essential facts, which areundisputed, may be summarised as follows:(a) Mr and Mrs Hayward were married in May 2004.(b) The property which became the family home was purchased for $375,000 in 2007.4 It was bought in Mr Hayward's sole name andremains in his sole name.5(c) The property ultimately became the family home for Mr and Mrs Hayward and their daughter.6(d) Mrs Hayward directly contributed to the family home by paying part of the mortgage payments.7 By making those payments she assisted in maintaining the property.(e) Mrs Hayward was unaware of her husband's criminal activity and did not knowingly derive any benefit from it.8[7] There is also no dispute that Mrs Hayward would be entitled to share equally with Mr Hayward in the net equity in the family home if the property was divided as3 High Court judgment, above n 1, at [114].4 At [109]–[110].5 At [107].6 At [110].7 At [108].8 At [100]–[101].relationship property under the PRA.9The High Court judgment[8] In the High Court it appears that Mr Gay may have accepted that the PRA was not applicable.10 On that basis, Venning J decided that, in the absence of any order or matrimonial agreement under the PRA, it was necessary for Mrs Hayward to rely on the general equitable principles established in Lankow v Rose11 to make out her interest in the property.12[9] The Judge pointed out that in accordance with those principles it was necessary for Mrs Hayward to show:13(a) contributions, direct or indirect to the property;(b) the expectation of an interest in the property;(c) that her expectation of an interest is a reasonable one; and(d) that Mr Hayward should reasonably expect to yield her an interest in the property.[10] Venning J was satisfied that Mrs Hayward had made out her case for aninterest in Mr Hayward's equity in the family home.14 That left the issue of the quantification of her interest.[11] On this issue the Judge said:15[112] The issue is the quantification of that interest. Arithmetical precision is unnecessary, and analogy with the Property (Relationships) Act 1976 regime is not appropriate. Nevertheless, the Court must do its best to reflect the value of the contributions.9 Property (Relationships) Act 1976 [PRA], s 11(1)(a).10 High Court judgment, above n 1, at [103].11 Lankow v Rose [1995] 1 NZLR 277 (CA).12 High Court judgment, above n 1, at [105].13 At [105].14 At [106]–[111].15 Footnote omitted.[113] On the evidence, Mr Hayward's initial contribution of approximately$70,000 was untainted . The reduction in the mortgage by a further $62,000 by January 2008 was also likely to have been from a legitimatesource, given the $56,000 in Mr Hayward's bank account in 2006. Further, Ihave accepted his explanation for the $62,085 from [Mrs Hayward's homecountry of Romania] and also that the $63,613 from the sale of the [Café Mr Hayward owned] was legitimate. In round figures, approximately $260,000 of the money applied towards increasing his equity in the [family home] can be seen as coming from legitimate sources. Given that approximately $10,000 remains owing to the bank, that leaves $100,000 (approximately) as unexplained and, I infer, sourced from unlawful activity.[114] On the evidence before the Court, Mrs Hayward's interest in the [family property], taking the value of her contributions (both direct and indirect) from its purchase in late 2007 could not be put at higher than 20 percent of Mr Hayward's notional legitimate equity in the property. She cannotclaim an interest in the equity which Mr Hayward gained from unlawfulmeans. Mrs Hayward's interest accordingly equates to approximately$52,000. The practical effect of that is addressed below.[12] The Judge then addressed Mrs Hayward's application for relief under s 67(2) of the CPRA on the grounds that undue hardship would be likely to be caused to her if relief were not granted. The Judge said:[116] As noted, something more than ordinary hardship arising as a consequence of the execution of a forfeiture order is required. Given thatMrs Hayward's interest in the property has been recognised and can beprovided for, it cannot be undue hardship if the property is required to besold to meet Mr Hayward's obligations to the Crown arising from theunlawful benefits he has obtained from his criminal activity.[13] No order was therefore made under s 67.The Criminal Proceeds (Recovery) Act 2009[14] The CPRA was enacted for the following purpose:3 Purpose(1) The primary purpose of this Act is to establish a regime for the forfeiture of property—(a) that has been derived directly or indirectly from significant criminal activity; or(b) that represents the value of a person's unlawfully derivedincome.(2) The criminal proceeds and instruments forfeiture regime established under this Act proposes to—(a) eliminate the chance for persons to profit from undertaking or being associated with significant criminal activity; and(b) deter significant criminal activity; and(c) reduce the ability of criminals and persons associated with crime or significant criminal activity to continue or expand criminal enterprise; and(d) deal with matters associated with foreign restraining orders and foreign forfeiture orders that arise in New Zealand.[15] The provisions of the CPRA which are relevant in this case are ss 66 and 67 which provide:66 Making order for relief from civil forfeiture order where person has interest and was not involved in significant criminal activity(1) On receipt of an application for an order for relief from a civil forfeiture order under section 61 or 62, the High Court must grant the relief that the Court considers appropriate if the applicant proves on the balance of probabilities that the applicant—(a) has an interest, or would but for any civil forfeiture order have an interest, in the property to which the application relates; and(b) has not unlawfully benefited from the significant criminal activity to which the application relates.(2) The High Court may make an order for relief under this section at or after the time the associated civil forfeiture order is made.67 Making order for relief from civil forfeiture order on grounds of undue hardship(1) On an application for an order for relief from a civil forfeiture order under section 61 or 62, the High Court may grant the application if it considers that, having regard to all of the circumstances, undue hardship is reasonably likely to be caused to the applicant if relief is not granted.(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 the civil forfeiture order; and(b) the nature and extent of any person's interest in the property; and(c) the degree, if any, to which the person had knowledge of the significant criminal activity to which the property relates; and(d) the circumstances of the significant criminal activity to which the property or order relates[16] The expression "interest" is defined in s 5(1):interest, in relation to property of any kind (including, without limitation, restrained property or forfeited property), means—(a) a legal or equitable estate or interest in the property; or(b) a right, power, or privilege in connection with the propertyThe Property (Relationships) Act 1976[17] The PRA was enacted for the purpose of introducing an equal sharing relationship property regime based on recognition of contributions to the marriage or partnership rather than of contributions to specific items of property.16[18] The provisions of the PRA which are relevant in this case are ss 4, 4A and 25 which provide:4 Act a code(1) This Act applies instead of the rules and presumptions of the common law and of equity to the extent that they apply—(a) to transactions between spouses or partners in respect of property; and(b) in cases for which this Act provides, to transactions—(i) between both spouses or partners and third persons; and(ii) between either spouse or partner and third persons.(2) Subsection (1) does not apply where this Act expressly provides to the contrary (such as in subsection (5)).(3) Without limiting the generality of subsection (1),—16 PRA, ss 1M and 1N; Clark v Clark [1987] 2 NZLR 385 (CA) at 386; GFM v JAM [2013] NZCA 660, [2014] NZFLR 418 and see Robert Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [10.9]–[10.14].(a) the presumption of advancement does not apply between husband and wife:(b) the presumption of resulting trust does not apply between spouses, civil union partners, or de facto partners:(c) the presumption that the use of a wife's income by her husband with her consent during the marriage is a gift does not apply between husband and wife.(4) Where, in proceedings that are not proceedings under this Act, any question relating to relationship property arises between spouses or partners, or between either or both of them and any other person, the question must be decided as if it had been raised in proceedings under this Act.(5) This section does not apply if the de facto partners have lived in a de facto relationship for less than 3 years.(6) However, if the court makes an order under section 25(1)(a) in respect of any relationship property of de facto partners to whom subsection (5) applies, and any question relating to relationship property arises between those de facto partners in any subsequent proceedings that are not proceedings under this Act, then—(a) subsection (5) does not apply; and(b) the question must be decided as if it had been raised in proceedings under this Act.4A Other enactments to be read subject to this ActEvery enactment must be read subject to this Act, unless this Act or the other enactment expressly provides to the contrary.25 When court may make orders(1) On an application under section 23, the court may—(a) make any order it considers just—(i) determining the respective shares of each spouse or partner in the relationship property or any part of that property; or(ii) dividing the relationship property or any part of that property between the spouses or partners:(b) make any other order that it is empowered to make by any provision of this Act.(2) The court may not make an order under subsection (1) unless it is satisfied,—(a) in the case of a marriage or civil union,—(i) that the spouses or civil union partners are living apart (whether or not they have continued to live in the same residence) or are separated; or(ii) that the marriage or civil union has been dissolved; or(b) in the case of a de facto relationship, that the de facto partners no longer have a de facto relationship with each other; or(c) that one spouse or partner is endangering the relationship property or seriously diminishing its value, by gross mismanagement or by wilful or reckless dissipation of property or earnings; or(d) that either spouse or partner is an undischarged bankrupt.(3) Regardless of subsection (2), the court may at any time make any order or declaration relating to the status, ownership, vesting, or possession of any specific property as it considers just.(4) To avoid any doubt, but without limiting subsection (3), if proceedings under this Act are pending, the court, if it considers it appropriate in the circumstances, may make an interim order under that subsection for the sale of any relationship property, and may give any directions it thinks fit with respect to the proceeds.(5) This section is subject to the other provisions of this Act.(6) In proceedings commenced after the death of one of the spouses or partners, this section is modified by section 91.Analysis[19] The starting point is s 66(1) of the CPRA which makes it clear that the Court"must grant the relief [it] considers appropriate" if the applicant proves on thebalance of probabilities that he or she:(a) has an interest in the relevant property (or would but for any civil forfeiture order); and(b) has not unlawfully benefited from the relevant significant criminal activity.[20] If the two prerequisites in (a) and (b) are met, the Court is then under amandatory obligation to grant the relief it "considers appropriate".[21] There is no dispute in Mrs Hayward's case that both prerequisites are met inthat:(a) she has "an interest" in the family home; and(b) she did not unlawfully benefit from Mr Hayward's significantcriminal activity.17[22] The questions in Mrs Hayward's case relate to the nature of her interest in thefamily home and its quantification.[23] The expression "interest" is defined widely in s 5(1) of the CPRA. It is clearthat it means not only "a legal or equitable estate or interest in the property" but also extends to "a right, power or privilege in connection with the property".[24] The second limb of the definition is significant because it means that the interest of an applicant for relief under s 66(1) is not limited to an equitable interest of the nature referred to in Lankow v Rose,18 relied on by Venning J in this case.[25] One "right in connection with the property" will be the ability to make aclaim under s 25(1) or (3) of the PRA for a division of property or a declaration as to the status or ownership of property. As s 25(3) makes clear, an order or declaration of that nature may be made whether or not the parties are separated and does not require a division of the property.19 The right to bring the claim is sufficient; it is not necessary actually to have brought a claim. It would be arbitrary to distinguish a case where a claim under the PRA had actually been filed from one in which no claim had been brought. The exercise contemplated by s 25(3) is notional.[26] This means that if an applicant for relief under s 66 of the CPRA has a right17 Above at [6(e)].18 Lankow v Rose, above n 10.19 Wilson v Wilson (1981) 4 MPC 215 (HC); and Fisher, above n 16, at [18.57].to claim under the PRA they will have an "interest" of that nature in relevantproperty under s 66(1)(a).[27] The next question is whether the Court when making an order under s 66(1) in respect of an interest of that nature is bound to apply the provisions of the PRA when assessing the value of the interest. This question arises because of the apparent inconsistency between ss 4(4) and 4A of the PRA, which give paramountcy to the PRA, and s 66(1) of the CPRA, which imposes a mandatory obligation on the Courtto grant the relief that it "considers appropriate".[28] In addressing this apparent inconsistency, we recognise that:(a) it is desirable to find an interpretation that reconciles any apparent inconsistency and enables the provisions to stand together;20(b) the need, if necessary, to read the PRA as being subject to the later CPRA;21 and(c) the Parliamentary Debates on the Criminal Proceeds (Recovery) Bill refer to the purpose of the provisions as protecting the interests of third parties such as the spouse, children, and dependants of criminals who might otherwise become innocent victims of forfeiture orders.22[29] Adopting this approach here, we are satisfied, for the following reasons, that the PRA does not override s 66 of the CPRA and require the discretion to be exercised as if the claim were brought under the PRA:(a) In terms of s 4A of the PRA, s 66 by imposing a mandatory obligationon the Court "expressly provides to the contrary".2320 JF Burrows and RI Carter Statute Law in New Zealand (4th ed, LexisNexis, Wellington, 2009) at 449.21 Burrows and Carter, above n 20, at 453.22 (20 March 2007) 638 NZPD 8121–8122.23 See Trotter v Trotter [2008] NZFLR 286 (HC) at [49]–[50]; SLW v KP [2012] NZFC 3293 at [26]; and Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Brookers) at [PR4A.01]. Compare Poynter v Commerce Commission [2010] NZSC 38, [2010] 3 NZLR 300 at [15] and [78].(b) The mandatory obligation under s 66(1) requires the Court to grant therelief it "considers appropriate" without necessarily being constrainedby the approach required by the PRA.(c) The CPRA is a subsequent enactment with a strongly expressed statutory purpose.(d) There are a range of relevant considerations which the Court might consider appropriate to take into account when making an order under s 66(1), including:(i) the nature and extent of any legal or equitable interest in the property, whether held by the applicant under a constructive trust or otherwise;(ii) the probable outcome of a claim under the PRA;(iii) the hardship considerations under s 67 of the CPRA which overlap with those under s 66 ; and(iv) the statutory purpose of the CPRA.[30] In our view therefore the application of the PRA is a relevant but not necessarily a determinative consideration under s 66(1). Equal sharing will notnecessarily be the result. It will depend on what is "appropriate" in all thecircumstances of the particular case.Previous authorities[31] In opposing any application of the PRA, Mr Harborow for the Commissionerof Police submitted that Venning J was right to disregard the PRA's equal sharingregime because it does not crystallise until the court makes orders after a couple'sseparation (or another qualifying event). Mr Harborow relied on the decision of thisCourt in de Bruin v R24 where a claim for relief under the Proceeds of Crime Act 1991 by a wholly innocent party in respect of the family home based on the equal division concept of the PRA was rejected and an order for 3.5 per cent of the net proceeds of the sale of the property and any proceeds generated by the property following the time of first restraint based on equitable principles was made.[32] In reaching this decision, the Court said:[109] As Venning J [in the High Court] pointed out, rights under the Property (Relationships) Act only crystallise from the date of the Court order or agreement. Unperfected rights do not constitute existing equitable estates or interests in property: Fisher on Matrimonial Property at [1.27]. The Actis concerned with providing equal shares "on division of relationship property", rather than with establishing the respective interests of the partiesduring the course of the relationship (s 11). In this way, the conventional property law regime can be applied to property owned by relationship partners unaffected by their potential rights under the Property (Relationships) Act.[33] The decision in de Bruin may, however, be distinguished now simply on the basis that we are concerned with the interpretation and application of the relevant provisions of the CPRA which repealed and replaced the Proceeds of Crime Act 1991. The earlier statute did not contain an equivalent definition of "interest". Theview that the second limb of that definition now includes a right to claim under the PRA could not previously arise. Also there was no consideration in de Bruin of the ability to make a claim under s 25(1) or (3) of the PRA whether or not the parties are separated.25[34] We also note that in two subsequent decisions of this Court the possibility of a claim under the PRA in the context of the CPRA has been recognised without argument and without reference to de Bruin.26 In those cases, however, no orders for relief were made because the respective applicants had benefited knowingly from the significant criminal activity.Mrs Hayward's application for relief24 de Bruin v R [2007] NZCA 600.25 Above at [25].26 Doorman v Commissioner of New Zealand Police [2013] NZCA 476, [2014] 2 NZLR 173; andDuncan v Commissioner of Police [2013] NZCA 477.[35] In Mrs Hayward's case the nature of her "interest" in the family hometherefore extended to her "right" to make a claim under the PRA. Her "interest" wasnot limited to her equitable interest as Venning J held. It extended to her right to obtain an order or declaration under s 25(3) of the PRA in respect of her interest in the family home under s 11(1)(a) of the PRA.[36] Once the nature of Mrs Hayward's "interest" is clarified in this way, theCourt ought in our view to have quantified the interest by taking into account her entitlement to a 50 per cent share of the family home. This should have been a relevant, but not determinative, factor in her case.[37] When all the relevant considerations are taken into account, there is no reason in our view why the Court ought not to have made an order under s 66 granting Mrs Hayward relief in respect of 50 per cent of the untainted share of the family home. It was not suggested for the Commissioner that, if the PRA was to be taken into account, there was any reason why Mrs Hayward should receive less than 50 per cent.[38] Once an order of this nature is made under s 66, it is not necessary in this case for an order based on undue hardship to be made under s 67.Result[39] The appeal against the order requiring the Crown to pay Mrs Hayward the sum of $52,000 is allowed and the order is set aside.[40] The amount payable by the Crown to Mrs Hayward under s 66 of the Criminal Proceeds (Recovery) Act 2009 is to be 50 per cent of the net equity of the untainted share of the family home. If the parties are unable to reach agreement on the calculation, the amount is to be determined by the High Court in accordance with this judgment.[41] In all other respects the appeal is dismissed.[42] The Commissioner is to pay Mrs Hayward's costs for a standard appeal on a band A basis together with usual disbursements.Solicitors:Craig Griffin & Lord, Auckland for AppellantMeredith Connell, Auckland for Respondent