THE COMMISSIONER, THE NEW ZEALAND POLICE v BLANCE [2018] NZHC 108

THE COMMISSIONER, THE NEW ZEALAND POLICE v BLANCE [2018] NZHC 108 [12 February 2018]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-Ā-TARA ROHECIV-2017-485-197[2018] NZHC 108UNDER the Criminal Proceeds (Recovery) Act 2009IN THE MATTER OF applications pursuant to sections 21, 25, 33and 35BETWEEN THE COMMISSIONER, THENEW ZEALAND POLICEApplicantAND STEVEN ALBERT BLANCEFirst RespondentJASON LANCE WALKERSecond RespondentAND TRACEY MELANIE SNOOKFirst Interested PartyTHE CO-OPERATIVE BANK LIMITEDSecond Interested PartyHAYLEY KINI-WAI KIRWANThird Interested PartyTANYA MICHELLE GRACEFifth Interested PartyROBERT SHANE BROMLEYSixth Interested PartyKARL WILLIAM GRUEBNERSeventh Interested PartyDAVID ALASTAIR MINKEEighth Interested PartyWIREMU HAMILTON WORKMANNinth Interested PartyHearing: 5 February 2018Counsel: E M Light for applicantE A Hall for first respondentK I Jefferies for second respondentJudgment: 12 February 2018RESERVED JUDGMENT OF DOBSON J[1] These civil proceedings arise out of a criminal investigation by Police in theWellington Region into methamphetamine dealing under the name Operation Walnut.The first respondent, Mr Blance, and one of his co-defendants, William Berkland, arealleged by the Crown to be the major participants in relatively large-scalemethamphetamine dealing. Numerous other alleged participants are co-defendants incharges presently set down for an 11 week trial commencing on 16 July 2018.[2] Covert surveillance pursuant to warrants commenced in February 2017 andcontinued for a period of some 53 days. That surveillance resulted in some 18,500intercepted communications focusing on the dealings of Messrs Blance and Berkland.The Crown case will be that they procured approximately 20 kilograms ofmethamphetamine.[3] The Commissioner of Police (the Commissioner) has commenced proceedingsseeking restraining orders over numerous items of property, prior to pursuit ofapplications for civil forfeiture orders in relation to the property. So far as thoseapplications relate to certain motor vehicles, they are opposed, in some cases byMr Blance and in other cases by others who claim to be adversely affected.[4] The Commissioner has also sought orders pursuant to s 35(e)(v) of theCriminal Proceeds (Recovery) Act 2009 (the Act), to authorise sale of the relevantvehicles so that the proceeds of sale might be held by the Official Assignee pendingdetermination of subsequent forfeiture applications under the Act.[5] This judgment deals with the opposed applications for restraint and sale ofthree vehicles.2003 Ford Falcon[6] This vehicle has, throughout the relevant period, been registered in the nameof the second respondent, Mr Walker. Mr Walker was originally included as aninterested party because of his status as registered owner, but has subsequently beenjoined as a respondent given a change to the basis of the Commissioner's claim inrespect of the Falcon. The Commissioner's initial claim was that Mr Blance was thebeneficial owner or possessor and controller of the Falcon, contending that Mr Blancehad arranged for it to be registered in Mr Walker's name, allegedly to avoid theprospect of seizure as tainted property.[7] After Mr Walker had challenged that contention, and after further analysis ofevidence gathered in the course of Operation Walnut, the Commissioner has amendedthe basis of the restraint application. The Commissioner now contends that the Falconis tainted property in Mr Walker's hands, given evidence of his alleged involvementas a dealer in methamphetamine sourced from Mr Blance. Mr Walker is not facingany charges in relation to his alleged involvement in the conduct observed by thePolice during Operation Walnut.[8] The Police observed Mr Blance driving the Falcon on five occasions between8 February and 20 March 2017. The Falcon was also observed on a number ofoccasions parked outside Mr Blance's residence during the course of OperationWalnut.[9] Mr Walker accepts that Mr Blance had possession of the Falcon for a period ofup to three months in early 2017. His explanation for that is that his driver licencewas suspended for a three-month period and he gave the Falcon to Mr Blance who isan acquaintance of his. He claims he did this to avoid the temptation of driving itwhilst prohibited from legally doing so.[10] Mr Walker has adduced affidavits from Mr Tuhaka confirming the validity ofhis purchase of the Falcon from Mr Tuhaka. He has also adduced an affidavit fromMr Barclay who accompanied Mr Walker to uplift the vehicle from Mr Blance onceMr Walker's driver licence was reinstated.[11] The Commissioner rejects that explanation for Mr Blance having possessionof the Falcon. He contends that Mr Blance took possession of the Falcon as a form ofcollateral because Mr Walker had not paid significant debts he owed to Mr Blance formethamphetamine supplied. On the Commissioner's analysis, Mr Walker wasallowed to re-take possession only after paying $20,000 off the amount outstandingfor supplies of methamphetamine.[12] Paul Brown is the detective who has investigated the circumstances ofpotentially tainted property implicated in the conduct giving rise to the charges inOperation Walnut. He has analysed a number of intercepted communications that tendto support this reconstruction of events.[13] In three recorded discussions that occurred at Mr Blance's home on 20 and30 March, and 2 April 2017, a person or persons referred to as "Jase", "Jason" and"Jason Walker" is named as a person who travelled to Rotorua at the same time asMr Blance, a person who received "20 Os" (interpreted as referring to 20 ounces ofmethamphetamine) from Mr Blance, and as a person who was very slow in payingamounts owed to Mr Blance.[14] In one conversation, which the Commissioner contends was betweenMr Blance and Mr Walker's former partner, Deborah Hospoda, Ms Hospoda isinterpreted as commenting that methamphetamine in "Jason's" possession was of poorquality, implicitly when it was sourced from someone other than Mr Blance. Further,that Mr Blance charged "Jason" more than other purchasers for methamphetaminesupplied because he was so slow in paying.[15] The last conversation on 2 April 2017 included Mr Blance commenting that"Jason" had only paid him $20,000 so that he could get his car back. That conversationoccurred some days before the date, in Mr Barclay's recollection, on which he andMr Walker uplifted the Falcon from Mr Blance's property.[16] Mr Walker denies that he has been involved in dealing methamphetaminereceived from Mr Blance. He argues that the person referred to in the relevantrecorded conversations is likely to be another Jason, or another Jason Walker. Heclaims that when in prison for previous offending, he received mail intended foranother Jason Walker. He has had a mutual friend, Mr McGoldrick, confirm that hisformer partner, Ms Hospoda, has a step-brother who is also called Jason. On cross-examination of Mr McGoldrick, it transpired that Ms Hospoda's step-brother, who iscalled Jason Smith, has lived in Australia in recent years, although he has returned onsome occasions for visits to New Zealand.[17] Further inquiries by Detective Brown reveal that the other Jason Walker whohas been a sentenced prisoner was released approximately two weeks beforeMr Walker was incarcerated in 2009. No links could be found between the other JasonWalker and any of the defendants or others involved in the present charges. In contrast,Mr Walker acknowledges that he is an acquaintance of Mr Blance and dealingsbetween them included (on Mr Walker's evidence) Mr Walker trusting Mr Blance withthe Falcon vehicle to avoid the temptation that Mr Walker would drive the car whilsthis driver licence was suspended. The relationship between the two is such, onMr Walker's evidence, that he was able to tell Mr Blance that he was not to use theFalcon for any criminal activity.[18] I am readily satisfied on the balance of probabilities that each of theconversations relied on by the Commissioner implicate Mr Walker in receipt ofmethamphetamine from Mr Blance and tardy payment of amounts owing for thepurchase of methamphetamine.[19] Mr Jefferies submitted that none of the voluminous recorded communicationsincludes any participation by Mr Walker. In the criminal context, unless he wascharged as a co-conspirator, those conversations would be inadmissible against him.Further, the extent to which the Crown reconstruction of his involvement wasunreliable and speculative is underscored by the absence of any charges againstMr Walker.[20] The absence of charges is not decisive. Nor is absence of direct contributionsby Mr Walker to the conversations implicating him in methamphetamine dealing. Thetiming of Mr Blance having possession of the Falcon tends to corroborate thereconstruction that it was with him as security for a significant debt, and was releasedback to Mr Walker once the debt had been reduced. Ms Hospoda's description of herdealings with "Jason" are consistent with him possessing methamphetamine sourcedboth from Mr Blance and from elsewhere. Mr Walker has served two terms of threeyears' imprisonment each for methamphetamine dealing in 2010 and 2006. Theexplanations he has offered fall substantially short of challenging the Commissioner'sanalysis on the basis of the evidence adduced.[21] At this stage of the proceedings, the Commissioner is required to havereasonable grounds for a belief that Mr Walker has unlawfully benefited fromsignificant criminal activity. The scale of the methamphetamine dealing in which heis implicated certainly qualifies as such. The more precise analysis as to whether thevehicle constitutes tainted property is to be addressed when a forfeiture order is sought.[22] I am accordingly satisfied that the Commissioner is entitled to a restrainingorder in respect of the Falcon.1984 Pontiac Firebird[23] Mr Blance has been registered as the owner of this Pontiac vehicle sinceFebruary 2017. During the criminal investigation he was observed driving it morethan 20 times and it was regularly observed being parked in the vicinity of hisresidence. No one else was observed driving the vehicle in the period of covertsurveillance in Operation Walnut.[24] On the basis of registered ownership and possession, the Commissionercontends that there are reasonable grounds to believe that Mr Blance has effectivecontrol over the Pontiac, and that a restraining order is appropriate on that ground.[25] In Mr Blance's opposition to the orders sought in relation to the Pontiac andthe Impala, Ms Hall accepted, solely for the purposes of the present argument, that theCommissioner does have reasonable grounds to believe that Mr Blance was involvedin, and unlawfully benefited from, significant criminal activity.[26] The application in relation to the Pontiac is opposed on the ground thatMr Leonard Allen Fenemor is the beneficial owner and is entitled to possession of it.Mr Fenemor completed an affidavit and was cross-examined. He is a 71 year oldbeneficiary who lives in Porirua. He has deposed that his son (who has subsequentlybeen killed in an accident in the United States) arranged for him to transfer the Pontiacto Mr Blance in return for Mr Blance's promise to strip wallpaper, plaster and re-paintMr Fenemor's bedroom at his Porirua home. Mr Fenemor gave possession of thePontiac to Mr Blance and facilitated registration of the change of ownership,anticipating that the work would be done quite soon after that occurred in January orFebruary 2017. The work has not been done. Mr Fenemor therefore considers that heis entitled to have the vehicle returned because Mr Blance did not perform his part ofthe bargain.[27] Mr Fenemor had wanted to sell the vehicle. He estimates that it might be worth$4,000, but in cross-examination emphasised that there is very little market for suchcars and doubts the ability to find a buyer for what he considers it to be worth. Heexplains transferring ownership before Mr Blance had done the promised workbecause he did not want to be responsible for any traffic offence notices that might beissued whilst others were driving the vehicle.[28] Mr Fenemor had previous experience of Mr Blance as, in his view, a highquality plasterer and painter. He explained the absence of complaint aboutMr Blance's failure to perform on the ground that he did not "want the Mongrel Mobcoming round and hassling me". Mr Blance is a senior patched member of theMongrel Mob.[29] Mr Fenemor was cross-examined about these arrangements. He said thevehicle would fetch very little. He suggested the outcome of ultimate forfeiture wouldbe very unfair when it left him without the vehicle, and without completion of themaintenance work in his home that he claimed was the consideration for the vehicle.Mr Fenemor was less than convincing. Putting the value of the Pontiac at about$4,000, which value presumably took into account the difficulties of sale and restrictednature of the market for such a vehicle, a far more sensible course for him would beto find a cash buyer, and apply part of the proceeds to pay for the maintenance workrequired. No detailed specification of the work was provided, but I accept Ms Light'sproposition that $4,000 was a generous amount for the work as described.[30] Even if the arrangement was made as claimed by Mr Fenemor, sucharrangement would be consistent with a form of credit sale. That is, Mr Fenemoragreed Mr Blance could have the vehicle and transferred ownership to him in relianceon a promise of subsequent performance of Mr Blance's consideration that could bedeferred for an undefined period of time. A variant on that arrangement is a credit salein which Mr Blance had agreed to pay $4,000, but was given time to pay, with changeof registered owner occurring at the time possession passed. In that event,Mr Fenemor would be an unsecured creditor of Mr Blance, for the value of the workMr Blance promised to complete.[31] I am accordingly satisfied that the Commissioner has made out reasonablegrounds for the belief that Mr Blance has effective control over the Pontiac, and arestraining order is justified.1967 Chevrolet Impala[32] Since August 2012, the Impala has been registered in the name of the thirdinterested party, Ms Kirwan, who is the mother of Mr Blance's children. DetectiveBrown deposes that Ms Kirwan resides in Otaki and does not hold a driver licence.[33] Police records include references to the Impala being linked to Mr Blance since2014. When Operation Walnut was terminated, the Impala was located at one of theaddresses with which Mr Blance is linked.[34] The intercepted communications during Operation Walnut included atelephone discussion between Mr Blance and an unknown female discussing theavailability of storage for vehicles. The unknown female told Mr Blance that therewas room to fit the Impala. Detective Brown has deposed to his belief that the Impalawas purchased with proceeds from the sale of methamphetamine and that Mr Blancehas registered it in Ms Kirwan's name to conceal his ownership of it.[35] Mr Blance opposes the application for a restraining order in relation to theImpala in reliance on two affidavits. The first is from Arthur Blance. Although notbiologically connected, Arthur Blance's parents raised Mr Blance and Arthur Blanceregards him as his brother. Arthur Blance deposed that he and his biological brother,Wayne Blance, purchased the Impala from Mr Steve Roberts in about 2012. They areclassic car enthusiasts and have the skills to restore and maintain classic cars. Hedeposed that he and Wayne Blance each provided one half of the $15,000 paid in cashfor the vehicle. Arthur Blance deposed that after the Impala had been in storage for aperiod, there were times when he would let Mr Blance drive it. In cross-examination,Arthur Blance explained somewhat differently that the vehicle had been bought forfamily members to use, but not to own. Consistent with retaining control, ArthurBlance stated in evidence that he did not trust Mr Blance to drive it on an unsupervisedbasis.[36] That attitude to limited entitlement to use the vehicle on a supervised basis isinconsistent with the Impala having been left in Mr Blance's possession for significantperiods, including leaving to Mr Blance responsibility for registering the change ofownership and renewing the vehicle's warrant of fitness. It would not alter the analysisof possession and control if, as Arthur Blance explained in cross-examination, hereimbursed Mr Blance for the costs of obtaining warrants of fitness.[37] I infer that Arthur Blance did not know that the vehicle was being registered inMs Kirwan's name when that occurred. He did know that it would not be registeredin his or brother Wayne's name.[38] In Arthur Blance's affidavit he stated that the vehicle is not worth anythingmore than a few thousand dollars. However, during cross-examination he claimed thatthe vehicle has appreciated and it is probably now worth $20,000, and that it isincreasing in value. The change in attitude to value between completing the affidavitin December 2017 and giving evidence to the contrary in February 2018 cannot beexplained by such a short passage of time.[39] Ms Light criticised the absence of any evidence from Arthur Blance supportingthe claim that both he and his brother provided $7,500 in cash, and the absence of anyexplanation as to the source of such funds.[40] An affidavit was also completed by Mr Steve Roberts, confirming that hisdealings over sale of the Impala were with Messrs Arthur and Wayne Blance, and thatthey had paid him the asking price of $15,000 in cash. Mr Roberts was unaware ofMr Blance having anything to do with the vehicle.[41] Ms Hall submitted that the Commissioner could not make out control of theImpala by Mr Blance when he was not a party to the sale negotiations and it was notregistered in his name. That overlooks the evidence that those who claim to have paidfor the vehicle left registration of it to Mr Blance, he controlled whose name it wasregistered in, and that there is a pattern of the vehicle being in Mr Blance's possessionover a substantial period of time.[42] Ms Hall also submitted that Mr Blance did not enjoy control over the vehiclebecause of Arthur Blance's evidence that he told Mr Blance off for the manner inwhich he drove the vehicle, and purportedly limited the extent of Mr Blance's use ofit. I am not satisfied that there is evidence that whatever stance was adopted by ArthurBlance operated as effective control over the Impala when Mr Blance had possessionof it.[43] As with the other vehicles, I am readily satisfied of the reasonableness ofgrounds for belief that Mr Blance has exercised control over the Impala throughoutthe relevant period. It follows that the Commissioner is entitled to a restraining orderin respect of the Impala, pending pursuit of an application for forfeiture under the Act.Application for sale of the vehicles[44] The Commissioner has also sought orders for sale of the Falcon, the Pontiacand the Impala (the vehicles). Section 35(e)(v) of the Act provides:35 Types of further orderWithout limiting the generality of section 34(1), a court may, on an applicationunder section 33(1), make 1 or more of the following further orders in relationto restrained property:(e) an order relating to the Official Assignee that—(v) directs the Official Assignee to sell restrained property(including, without limitation, a business) in order to preservethe value of the restrained property [45] The rationale for the statutory power of sale was acknowledged by Venning Jin Commissioner of Police v Cavanagh in the following terms:1[7] A sale order may be made at any time. Typically sale orders arepursued by the Commissioner where the restrained assets in relation to whichthe sale orders are sought have high depreciation rates combined withadditional costs of storage and insurance which ultimately decrease thepotential return to the Commissioner and/or [the] parties who claim an interestin the assets. There is a further additional benefit in the sale in that, once theassets are sold, the Official Assignee is able to hold the funds in an interestbearing account.[46] The concern for the Commissioner here is that final resolution of forfeitureproceedings may be up to 18 months away, and appropriate storage costs $10.70 perday per vehicle. The Commissioner has not adduced any evidence of the realisablevalue of any of the vehicles.[47] Orders for sale are opposed in each case. Mr Walker deposed that the Falconis one of only 500 made, having been developed for the Australian Bathurst motorrace. Mr Walker's intention is to carry out a complete restoration of the vehicle overtime, with a view to it representing a worthwhile investment. He opposes sale andinstead invites the Court to return the vehicle to him, subject to restraints on hisentitlement to dispose of it.[48] The Commissioner generally approaches depreciation on motor vehicles byadopting the rule of thumb applied by Inland Revenue of 30 per cent per annum.1 Commissioner of Police v Cavanagh [2014] NZHC 2978.Whilst that might be appropriate for relatively new vehicles, I do not accept that it isthe case in so-called classic cars of the age of the Pontiac and the Impala. I am notpersuaded that there is a material risk of their value depreciating substantially beforethe Commissioner's entitlement to forfeiture orders can be resolved.[49] In the case of all the vehicles, the sale prices are likely to be modest. The riskis therefore not that delay will reduce the net recovery, but that the holding costs untilrealisation might substantially reduce or even extinguish the amount recovered.Holding a vehicle under restraining order for a period of 18 months would not meetstorage and other costs unless the vehicle realised more than approximately $5,000.There is a real risk that the vehicles in question here will not realise more than thatamount.[50] Given the low interest rate regime currently applying, the prospect of theOfficial Assignee earning interest on net proceeds until the entitlement to them isresolved is also not compelling. Three per cent on $5,000 for 12 or 15 months is hardlya compelling improvement in the overall financial outcome.[51] In Commissioner of Police v Evans, Brown J was not prepared to orderimmediate sale for a vehicle then valued in excess of $26,000 where there was theprospect that the vehicle would hold its value.2 Brown J observed:[33] While I recognise that there will be costs associated with storage,and insurance, such costs are the inevitable by-product of asset seizures. I donot consider that it is appropriate to take such expenditure into account inaddressing the question posed by s 35(e)(v). Were it otherwise, then in orderto defeat an application for sale an owner would need to demonstrate that thevehicle was likely to appreciate in value at a rate at least equal to the annualcost of storage, maintenance and insurance. I do not consider that the sectionimposes that obligation.[52] With respect, I would not go so far as to disregard the relevance of holdingcosts in all cases. However, in the case of vehicles that are appropriately treated asinvestments, or at least where the rate of depreciation has bottomed out, nor can thereduction in the eventual return caused by the holding costs be sufficient of itself towarrant an order for sale.2 Commissioner of Police v Evans [2015] NZHC 1240.[53] In this case, Mr Fenemor wanted to sell the Pontiac but was doubtful of hisability to do so. Accordingly, a sale supervised by the resources available to theOfficial Assignee will effect the realisation for whatever the market will produce forit. I am therefore prepared to make an order of sale in respect of the Pontiac.[54] In the case of the Falcon and the Impala, there is scope for contending thatMr Walker and Arthur Blance attribute sentimental or other forms of non-monetaryvalue to those vehicles, giving them a worth to them greater than the amount theywould realise on sale.[55] The criminal proceedings to which these applications relate are scheduled tobe completed by the end of September 2018. In the case of the Falcon, Mr Walker isnot facing charges. The further evidence available on the anticipated forfeitureapplication for the Falcon will likely arise out of the evidence given, but is unlikely tobe directly influenced by the verdicts for any of the existing defendants. Therefore thelength of time before forfeiture applications can be realistically assessed is notextensive relative to the period during which holding costs have already been incurred.[56] For these reasons, I am not prepared to order sale of the Falcon and the Impalaat the present time. If the delay until determination of forfeiture applications on thosetwo vehicles remains a material distance away by the end of September 2018, then Ireserve leave to the Commissioner to make further application under s 35(e)(v) forsale of the vehicles on the circumstances as they then appear.[57] There will be no order as to costs on the present applications.Dobson JSolicitors:Crown Solicitor, Wellington for applicantJefferies Law, Wellington for second respondentCounsel:Elizabeth Hall, Wellington for first respondent