OFFICIAL ASSIGNEE OF NEW ZEALAND V BHANABHAI AND ANOR HC AK CIV-2009-404-001890

OFFICIAL ASSIGNEE OF NEW ZEALAND V BHANABHAI AND ANOR HC AK CIV-2009-404-001890 1 November 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2009-404-001890BETWEEN OFFICIAL ASSIGNEE OF NEW ZEALAND Plaintiff AND MANU CHHOTUBHAI BHANABHAI AND DOUGLAS MARK ANDREW BURGESS Defendant Hearing: 29 October 2010 Appearances: Mr D G Johnstone for Official Assignee Mr R R Ladd for Defendants Judgment: 1 November 2010 at 4 pmJUDGMENT OF LANG J [on application for order that funds be paid out]This judgment was delivered by me on 1 November 2010 at 4 pm, pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy Registrar DateSolicitors/Counsel: Meredith Connell, Auckland Mr D M A Burgess, Auckland Mr R R Ladd, Auckland Ms S Abdale, Auckland[1] Robert Charles De Bruin was charged with serious offences under the provisions of the Misuse of Drugs Act 1991. He was convicted after having stood trial on four occasions. The first two trials were aborted before the jury returned verdicts. He was convicted following his third trial, but the Court of Appeal quashed those convictions and directed that he stand trial again. The orders that have given rise to the present application were made at the conclusion of his fourth trial. [2] On 9 August 2006 Cooper J sentenced Mr de Bruin to 12 years imprisonment. In a judgment that he delivered on the same date, Cooper J ordered Mr de Bruin to pay a pecuniary penalty under the Proceeds of Crime Act 1991 ("the Act") in the sum of $1 million: Solicitor-General v de Bruin HC Auckland CIV- 2002-404-3302. Although the Court of Appeal subsequently reduced the sentence of imprisonment, it upheld the imposition and quantum of the pecuniary penalty order:De Bruin v The Queen [2007] NZCA 600. [3] Throughout the duration of the criminal proceedings Mr De Bruin was the owner of a house property situated at 90 Riddell Road, Glendowie. Prior to the first of Mr de Bruin's trials, that property was the subject of restraining orders made and extended from time to time by this Court. The Court also made and extended restraining orders in respect of cash totalling $379,240 that the police found when they searched the Riddell Road property. Once the restraining orders were made, the Official Assignee took control of both the cash and the Riddell Road property. The amount of cash that the Official Assignee held under the restraining orders was gradually diminished as this Court authorised the release of restrained funds from time to time for the purpose of meeting Mr de Bruin's legal costs in relation to the criminal proceedings. [4] After Mr de Bruin was convicted at his third trial, the Judge who sentenced Mr de Bruin made an order under the Act that the Riddell Road property was to be forfeited to the Crown. That order terminated by operation of law when the Court of Appeal quashed his convictions, but in the judgment that he delivered on 9 August 2006, Cooper J made an order (at [61]) declaring that the Riddell Road property was to be available to meet the pecuniary penalty order that he imposed on Mr de Bruin.[5] Mr Robert Weir acted as Mr De Bruin's senior counsel throughout the criminal proceedings. On 9 March 2005, after the Court of Appeal had quashed Mr de Bruin's first conviction and before new restraining orders had been made, Mr De Bruin signed a contract of retainer by which he agreed to pay the fees rendered by his counsel. Mr de Bruin also agreed in the contract of retainer to provide security for those fees by way of a registrable mortgage over the Riddell Road property in favour of Mr Weir's instructing solicitors. They are the defendants in this proceeding. [6] Acting in reliance on the contract of retainer, the defendants registered a caveat against the title of the Riddell Road property on 22 March 2005. They advised the Official Assignee of the fact that they had lodged the caveat on the same date. [7] Prior to Mr De Bruin's fourth trial, Mr Weir sought an order authorising his reasonable fees to be paid from the restrained funds. By that stage Mr Weir had rendered invoices totalling $84,326.75. On 22 July 2005 Venning J directed that the Official Assignee was to pay Mr Weir the sum of $28,552.50 (including GST) from the restrained funds for work that he had carried out on Mr De Bruin's behalf up to and including 14 July 2005. This left a shortfall of approximately $55,000 owing to Mr Weir in respect of the invoices that he had issued for work carried out during this period. [8] After Mr de Bruin's fourth trial, Cooper J heard another application by Mr Weir seeking authorisation for a further payment in respect of Mr De Bruin's legal expenses to be made from the restrained funds. In a judgment delivered on 14 August 2006, Cooper J authorised the payment of the further sum of $60,894.25 from the restrained funds to Mr de Bruin's counsel: Solicitor-General v de Bruin HC Auckland CIV 2002 404 3302. [9] The Riddell Road property has now been sold and the Official Assignee has paid to Mr de Bruin's counsel the sums that Venning J and Cooper J authorised. Over and above those sums, however, Mr de Bruin still owes Mr Weir the sum of $64,717.25. For the most part this represents the balance outstanding in respect ofthe invoices that Mr Weir rendered to Mr de Bruin in respect of his attendances up to and including 14 July 2005. The defendants agreed to withdraw their caveat to enable the property to be sold because the Official Assignee agreed to pay that sum into Court pending resolution of Mr Weir's entitlement to those monies. [10] Mr Weir now seeks an order that the funds held in Court be paid out to him.The argument[11] Counsel for Mr Weir points out that the judgments that Venning J and Cooper J delivered when they authorised the release of restrained funds cannot determine the quantum of legal fees that Mr De Bruin owes to Mr Weir. That is a matter between Mr Weir and Mr de Bruin, and Mr de Bruin has never complained about the fees that Mr Weir charged. Counsel submits that the Judges' orders went no further than to direct the extent to which Mr Weir's fees could be paid from restrained funds. [12] Counsel also emphasises that Mr Weir has always maintained that his fees were secured by the mortgage provisions in the contract of retainer. Venning J was clearly aware of Mr Weir's claim, because he referred to the caveat in his judgment (at [10]) and noted that it was to secure the payment of legal fees. Venning J also went on to say:[33] I appreciate the effect of this decision will be that a balance of legal fees already rendered to Mr de Bruin will not be paid from the restrained funds and will remain owing. There may be an issue as to whether, as that obligation has been incurred, albeit not paid, prior to the issue of the restraining order it should in any event take priority over property forfeited to the Crown in the event of a conviction of Mr de Bruin. I have not had argument on that issue. It is appropriate that the matter be resolved at the forfeiture stage, if necessary. I reserve both parties' positions in relation to it. In the event that Mr de Bruin is acquitted at trial then of course the matter will not be an issue and property will be available to meet the balance of the account. In the event that Mr de Bruin is convicted and the Crown seeks forfeiture then the issue of the balance of the account can be determined at that time when counsel have considered the issue and full submissions have been addressed to the issue.(Emphasis added)[13] Counsel points out that the orders that Venning J made also reflect the fact that he expressly left open the position so far as the balance of Mr Weir's costs were was concerned. His orders included the following paragraph:(iii) The applicant and Mr de Bruin's position is reserved in relation to the balance of the legal account rendered in the sum of $84,326.75.[14] Counsel for Mr De Bruin argues that the contract of retainer created an equitable interest in the Riddell Road property in favour of the defendants, and that the orders that Cooper J made on 9 August 2006 did not extinguish that interest. The Judge's orders took effect subject to that equitable interest, and Mr Weir must be paid in priority to the Crown.Decision[15] I consider that the orders that Cooper J and the Court of Appeal have already made are determinative of the present application. [16] In the judgment that he delivered on 9 August 2006 (at [61]) Cooper J made an order under s 29(3) of the Act "declaring that the [Riddell Road] property [was] available to satisfy the pecuniary penalty order". [17] The sealed order records that "all interests" in the property other than that held by Ms Delany were to be available to meet the pecuniary penalty order. That wording reflects the fact that the Solicitor-General's application sought an order that all interests in the property be available to meet any pecuniary penalty order that the Court might impose. The only exception was to be the costs that the Judge authorised and the amount required to satisfied Ms Delaney's interest in the property. [18] I do not accept the submission of counsel for the defendants that the term "all interests" in the sealed order should be given the meaning "all interests currently or then held by Mr de Bruin and which then remained available". The words of the sealed order mean what they say. They make it clear that the pecuniary penaltyorder has priority over all interests in the property other than Ms Delaney's interest and the costs that the Court authorised to be paid from the restrained funds. [19] The manner in which the Court of Appeal concluded its judgment also confirms that fact. The Court said:(a) The appeal of Mr de Bruin against his conviction is dismissed. (b) The appeal of Mr de Bruin against his sentence is allowed and a sentence of 11 years imprisonment substituted. (c) The appeal of Mr de Bruin against the pecuniary penalty imposed under the Proceeds of Crime Act is dismissed. (d) The appeal of Ms Delaney is allowed and her interest in the property at 90 Riddell Road, Glendowie, Auckland is fixed at 3.5 per cent of the value of that property from time to time.(e) Upon the sale of the property, Ms Delaney is entitled to 3.5 per cent of the net proceeds of sale, together with interest at the Judicature Act rate if that sum is not paid to her immediately upon settlement of the sale and 3.5 per cent of any net income generated from the property while it was subject to restraint. The pecuniary penalty order is to be a first charge on the balance of the net proceeds of sale.(f) Ms Abdale is to be paid the sum of $3,440, as costs on the appeal, from Ms Delaney's share of the proceeds of any sale of 90 Riddell Road.(Emphasis added)[20] Paragraph (e) expressly states that the pecuniary penalty order is to be a first charge on the balance of the net proceeds of sale. By "net proceeds of sale" the Court was clearly referring to the balance remaining after the payment of the usual costs associated with the sale. This means that the pecuniary penalty order must be paid in priority to any other equitable interest in the property other than that held by Ms Delaney. [21] At any stage up until the point at which the Judge issued his orders it was open to the defendants to seek a similar order to that which Cooper J made in favour of Mr de Bruin's former partner, Ms Delaney. Ms Delaney had contributed the sum of $15,000 towards the purchase price that Mr de Bruin originally paid for the property. The restraining orders that Venning J made on 22 July 2005 expressly excluded Ms Delaney's interest in the property from the operation of the restraining orders that he made. Venning J valued that interest at $20,125, and Cooper Jsubsequently adopted that figure as representing (together with interest) the value of Ms Delaney's entitlement. The Court of Appeal varied the quantum of Ms Delany's equitable interest so that it was fixed at 3.5 per cent of the proceeds of sale of the property rather than the figure that Venning J and Cooper J had identified. The Court did not otherwise did not disturb the orders that the Judge made in relation to Ms Delaney's interest. [22] It is clear from the judgement of Venning J (in the passage set out above at [12]) that he considered that Mr Weir should raise the issue of his outstanding fees if and when the forfeiture of the Riddell Road property came to be considered. Mr Weir and the defendants acted as Mr de Bruin's counsel and solicitors throughout. They must have been aware that the Solicitor-General was seeking an order declaring Mr de Bruin's property to be available to meet any pecuniary penalty order that the Court might impose after Mr de Bruin was convicted at the fourth trial. Mr Weir appeared as counsel in this Court and the Court of Appeal when that very issue was being considered. He and his solicitors therefore had the opportunity to seek an order excluding the defendants' interest under the agreement to mortgage from the operation of the orders that the Court was being asked to make. [23] The defendants rely on the decision of the English Court of Appeal in Irwin Mitchell (a firm), v Director of Revenue and Customs Prosecution Office [2008] EWCA 1714. In that case a firm of solicitors had been instructed to act on behalf of a client who was the subject of an investigation by the Revenue and Customs Prosecution Service ("RCPO"). The client paid the sum of $5,000 into the firm's trust account on account of the legal costs that he would incur. The RCPO obtained a restraint order against the client's assets, and argued that the order prevented the solicitors from having recourse to the funds in their trust account to pay the bills of cost that they proposed to render. The Crown Court found in favour of the RCPO, but the Court of Appeal allowed the solicitors' appeal. It held that the purpose of the legislation under which the RCPO had obtained the restraint order was to preserve the value and accessibility of a defendant's assets, and not to prevent third parties from enforcing civil rights that would not be affected in the event that a confiscation order was made.[24] There are several significant factual distinctions between the circumstances of the Irwin Mitchell case and those of the present case. The critical distinction, however, is that in Irwin Mitchell the court was considering the position of a third party's interest in a defendant's assets prior to the point at which a confiscation order had been made. The Court of Appeal was prepared to hold at that point that the equitable interest that the solicitors held in the funds would not be affected by any confiscation order that the Court might ultimately make against their client. When Venning J made the restraining orders on 22 July 2005, he was not prepared to go that far. He expressly left the issue open for determination at the point at which the Court was asked to make a forfeiture order. [25] As I have already indicated, it was open to the defendants to ask Cooper J to exclude their equitable interest in the property from the orders that the Solicitor- General asked him to make following Mr de Bruin's conviction. They failed to take that step. As a consequence, the equitable interest that they held in the property has now been extinguished by the Judge's orders, confirmed as they are by the judgment of the Court of Appeal. [26] Had the funds now held by the Official Assignee been more than the amount required to meet Ms Delaney's interest in the property, as well as the pecuniary penalty order and the costs authorised by Venning J and Cooper J, Mr Weir would have been able to seek payment of his fees from the resulting surplus. As matters stand, however, the funds that the Official Assignee holds are not sufficient to meet the pecuniary penalty order. For that reason there is no surplus available to enable the balance of Mr Weir's fees to be paid. [27] I take the view that I have no jurisdiction to alter the orders that Cooper J and the Court of Appeal have already made, or to ameliorate their effect.Result[28] The application is dismissed.Costs[29] Counsel for the defendants submitted that I should direct his costs to be paid from the funds held in Court even if his argument failed. [30] I do not see why that should be the case. The guiding principle in civil proceedings is that the unsuccessful party should be required to contribute to the costs of the successful party. The Official Assignee has been the successful party in this proceeding and is entitled to an award of costs in his favour. [31] The Official Assignee is awarded costs on a category 2B basis together with disbursements as fixed by the Registrar.Stay[32] Execution of this judgment is stayed for 21 days from today's date to give the defendants an opportunity to consider their options. In the event that no appeal is lodged within that period, the funds that have been paid into Court are to be paid out to the Official Assignee forthwith so that they can be applied towards satisfaction of the pecuniary penalty order. Lang J