THE SOLICITOR-GENERAL OF NEW ZEALAND V SOWMAN HC AK CIV 2005-404-2118

THE SOLICITOR-GENERAL OF NEW ZEALAND V SOWMAN HC AK CIV 2005-404-2118 30 July 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2005-404-2118UNDER the Proceeds of Crime Act 1991 BETWEEN THE SOLICITOR-GENERAL OF NEW ZEALAND Plaintiff AND GRANT IAN SOWMAN Defendant Hearing: 30 July 2007 Counsel: A Longdill for Plaintiff G Gotlieb for Defendant P Fusic for Mrs Sowman Judgment: 30 July 2007(ORAL) JUDGMENT OF HEATH JSolicitors: Crown Solicitor, Auckland Counsel: G Gotlieb, Auckland P Fusic, AucklandThe application[1] The Solicitor-General seeks a forfeiture order in respect of a rural residential property situated in Albany.Background[2] Following a trial before Simon France J and a jury in the High Court at Auckland, Mr Sowman was convicted, on 26 September 2005, on charges of manufacturing the Class A controlled drug, Methamphetamine, possession of equipment and precursor substances for such manufacture and two firearms offences, unlawful possession of a pistol and explosives respectively. [3] Subsequently, he was sentenced to serve a term of nine years imprisonment, with a minimum non-parole period of 50%. His appeals against both conviction and sentence were dismissed on 24 July 2007: see R v Sowman CA110/06 24 July 2007. [4] After conviction, the Solicitor-General sought a forfeiture order under the Proceeds of Crime Act 1991 (the Act), in respect of a property situated at 385 Sunnyside Road, Albany. It was alleged that this property was used for the purpose of the manufacturing enterprise. On that basis, the Solicitor-General contends that it is "tainted" property for the purposes of the Act. In an updated valuation filed by the Solicitor-General on 26 July 2007, the property is said to have a market value of approximately $1,200,000. [5] ASB Bank Ltd has a registered mortgage over the title to the land. No attack is made against its interest. As at 30 July 2007, the amount required to redeem the ASB mortgage is approximately $50,500. Similarly, the Crown accepts that a subdivisional bond registered against the title by the Rodney District Council ought to be paid out of the proceeds of sale as a charge against the land. [6] Although the property is registered in the sole name of Mr Sowman, his wife also claimed an interest in it through the Property (Relationships) Act 1976. Herinterest was raised in opposition to the forfeiture application and ultimately determined in another forum. [7] On 6 November 2006, the Family Court at North Shore, following a hearing at which the Solicitor-General was represented but at which Mr Sowman entered no appearance, fixed Mrs Sowman's interest on the basis of a formula, namely one-half of the net proceeds of sale plus the sum of $114,258, expressed as a percentage of the net sale proceeds. Although the Solicitor-General unsuccessfully argued before the Family Court that the adjusted sum should not come out of the property sought to be forfeited, he does not seek to disturb the Family Court finding. [8] Mr Sowman opposes the forfeiture application on the grounds that the property was acquired before the relevant offending and that the circumstances are such that no forfeiture order should be made. [9] In essence, Mr Gotlieb, for Mr Sowman, submits that any forfeiture of the property, taken in conjunction with the stern sentence he received for his criminal conduct, would amount to a "disproportionately severe punishment" for the purposes of s 9 of the New Zealand Bill of Rights Act 1990. All of the points raised on behalf of Mr Sowman go, ultimately, to the alleged disproportionality of forfeiture should it be ordered. [10] Mrs Sowman's sole interest in this proceeding (now that the Solicitor- General has recognised her position in terms of the Family Court order) relates to costs. Mr Fusic, on her behalf, submits that an order should be made that her costs be paid in full, ie she receive solicitor/client indemnity costs in relation to those incurred during the course of this proceeding. A global award (inlcuding costs and disbursements) is sought in the sum of $39,753.17.Legal principles[11] The jurisdiction for the Court to make a forfeiture order is set out in s 15(1) of the Act. That section provides:15 Forfeiture orders(1) On the hearing of an application for a forfeiture order in respect of a person's conviction of a serious offence, the Court may, if it is satisfied that property specified in the application is tainted property in respect of the offence, order that such of the property as is specified by the Court is forfeited to the Crown.[12] It is common ground that the manufacturing offence was a "serious offence" for the purposes of s 15(1) of the Act. [13] On a forfeiture application the Solicitor-General must establish a link between the property identified and "tainted property" as defined in the Act. Part of the definition of "tainted property" in s 2(1) of the Act means property used to commit, or to facilitate the commission of the offence. [14] In considering whether to make a forfeiture order in respect of a particular property the Court may take into account factors listed in ss 14(1) and 15(2) of the Act. Those provisions state:14 Procedure on application(1) Where an application for a confiscation order is made in respect of a person's conviction of a serious offence, the Court may, in determining the application, take into account— (a) Any evidence given in the proceedings taken against that person for the offence, including (but without limiting the generality of the foregoing)— (i) Any documents, exhibits, or other things connected with the proceedings that the Court considers relevant: (ii) Any note or transcript of the evidence admitted in the proceedings: (b) Any sanction imposed pursuant to the person's conviction (whether imposed on sentence or prescribed by law), being a sanction in the nature of a pecuniary penalty or forfeiture of property..15 Forfeiture orders (2) In considering whether or not to make an order under subsection (1) of this section in respect of particular property, the Court may have regard to— (a) The use that is ordinarily made, or was intended to be made, of the property; and (b) Any undue hardship that is reasonably likely to be caused to any person by the operation of such an order; and (c) The nature and extent of the offender's interest in the property (if any), and the nature and extent of any other person's interest in it (if any); and (d) In addition to the matter referred to in section 14(1)(b) of this Act, any other matter relating to the nature and circumstances of the offence or the offender, including the gravity of the offence. .[15] The jurisdiction needs to be exercised in accordance with underlying principles identified in appellate decisions. In R v Dunsmuir [1996] 3 NZLR 1 (CA) at 6, it was said:Where a forfeiture order is made in respect of property representing the proceeds of crime, it merely takes from the criminal his ill-gotten gains. There can be no complaint as to that. A forfeiture order in respect of property used for the commission of a crime goes further. It is an additional penalty provided by Parliament as a deterrent. The criminal is sentenced for his crime, and in addition any of his property used to commit or facilitate the crime is liable to forfeiture. If this is Draconian, that appears to be the intention of the legislation. Innocent third parties who have an interest in the property are protected under ss 17 and 18. [16] In Dunsmuir, the Court continued: Here the only item is the house, the upper portion of which had been elaborately set up and equipped for a large-scale cannabis operation. The fact that the house had been acquired by previous honest endeavours, and that the offences were discovered before he had enjoyed much of their intended fruits, is not a sufficient reason why forfeiture should not be ordered.[17] It is clear from the evidence that the property was used for the purpose of the Methamphetamine manufacturing operation. I find, therefore, that the property is "tainted" for the purposes of the Act.[18] So far as reliance on s 9 of the Bill of Rights is concerned, the Court of Appeal has affirmed the need for gross or severe disproportionality before the Court should reject a forfeiture application on those grounds. [19] The position is set out in R v Lyall [1997] 2 NZLR 641 (CA) at 647. That decision has been followed subsequently in R v Crombie CA45305 29 June 2006 andR v Anaru CA52/06 16 August 2006. In Lyall, at 647, the Court of Appeal said:We see nothing excessive in the forfeiture. It is not disproportionately severe treatment or punishment in terms of s9 of the New Zealand Bill of Rights Act 1990. Black had for a long period chosen to trade in drugs from his property frequently and in a quite substantial way. He may, as is submitted, have been primarily motivated by a need to feed his homebake addiction and may have in that manner parted with his cannabis dealing profits but that cannot excuse his deliberate participation in the distribution of an addictive substance. Other choices were open to him. The policy of the Act is to strip an offender of his or her interests in the property used to commit the crime. The reason for committing those crimes will ordinarily be immaterial. The property was not bought using tainted money but it was largely dedicated by its owners to drug dealing. Those who establish drug houses and commit serious offences in or from them can normally expect to lose them unless there is gross or severe disproportion between the gravity of offending and the value of the property sought to be forfeited coupled with the other punishment inflicted on the offender. We have obtained some guidance on this question from the decision of the Court of Appeals for the Ninth Circuit in United States v Washer 817 F.2d 1409 (1987) in which it was held that only those forfeitures that in light of all the circumstances are grossly disproportionate to the offence committed are prohibited by the Eighth Amendment's ban on cruel and unusual punishment. (my emphasis)[20] The Solicitor-General's argument is that the property was used as a base for the manufacture of Methamphetamine on a significant scale. That submission reflects the evidence given at trial. On sentencing, Simon France J concluded, at para [9], that Mr Sowman was a "central player in the manufacturing enterprise" carried on at the location. As to the scale of the operation, the sentencing Judge said:[10] Concerning the scale of the operation, this was a significant manufacturing operation. Around the time of the search we have Mr Kinney and Mr Reeves both arriving with their product. In the house there were jars of pseudoephedrine extract in your fridge; in the kitchen there was an acetone bottle containing methamphetamine. In the lounge there was a similar bottle, plus a container of methamphetamine. You were acquitted of possessing that for supply. In your shed there was a backpack laden with capsules containing pseudoephedrine in a pharmaceutical preparation – 308 capsules in one container, over 300 in another, and over 200 in a third.[11] The evidence at trial was that many of these pharmaceutical products are now being replaced by an imported product known as Contac NT. In a different bag outside were a collection of capsules extracted from Contac NT pills. The capsules weighed 450 grams. The ESR evidence concerning this showed there would be a methamphetamine yield of between 90 and 126 grams from these capsules alone. This is based on a 40% yield of product weight to pseudoephedrine, and a very standard yield of between 50-70% from pseudoephedrine to methamphetamine.[21] While the Court of Appeal regarded the Judge's description of Mr Sowman's role ("central player") as "a touch graphic", it confirmed the general proposition that he was "deeply and directly involved in all of the offending at his property of which he was convicted" (at [63]).Competing submissions[22] Ms Longdill, for the Solicitor-General, referred to the general deterrent approach to applications for forfeiture under the Act which was emphasised inDunsmuir. She submitted that forfeiture has been regarded as an addition to the sentencing process. Here, she submitted, that a substantial use of the property was for criminal offending. She noted that items associated with the manufacture of Methamphetamine were spread over the property. [23] Ms Longdill submitted that the interests of others on the title and Mrs Sowman, were being brought to account. So, there was no prejudice to innocent third parties if an order for forfeiture were made. [24] Ms Longdill relied on the gravity of the offending as described both by the sentencing Judge and the Court of Appeal. She also submitted that authority cited by Mr Gotlieb, for Mr Sowman, which deals with secondary offenders (or those of less culpability) had no relevance in assessment whether a forfeiture order should be made in this case. [25] Ms Longdill acknowledged that the amount likely to be forfeited if the Solicitor-General's application were successful was substantial. It is estimated as being around $450,000. However, taking account of the comments in Lyall at 647, Ms Longdill submitted that it was not disproportionate to the extent described in thatcase. Ms Longdill also emphasised that the sentencing Judge acted with the knowledge that the forfeiture application was pending. [26] Mr Gotlieb submitted that it was significant that the jury found Mr Sowman not guilty on a charge of possession for supply of Methamphetamine. He submitted that that tended to give less weight to the sentencing Judge's observation that the jury had rejected Mr Sowman's evidence. Mr Gotlieb submitted that there was no evidence of any financial benefits being gained from the manufacturing operation by Mr Sowman, nor was there any evidence to connect Mr Sowman to cash found at the location on initial search. [27] In summary, Mr Gotlieb submitted that the substantial sum of money that the Crown sought to forfeit was disproportionate to the nature of the offending and inconsistent with the lack of evidence of financial benefits derived by Mr Sowman from the offending. [28] Mr Gotlieb submitted that forfeiture was inappropriate but that it was appropriate to consider making a pecuniary penalty order in a sum which would still enable Mr Sowman to have cash from the sale to use when he was released from imprisonment. That approach follows one adopted by Harrison J in Solicitor- General v Fisher (High Court, Whangarei, M44/02, 27 June 2003). Mr Gotlieb suggested that an order in the vicinity of $300,000 may be justified. [29] Mr Gotlieb also pointed to the fact that the property had been gifted to Mr Sowman by his parents and that, while he would retain a property on Great Barrier Island as a result of the Family Court decision, that was acquired well before the offending. He submitted that a forfeiture order would inappropriate penalise Mr Sowman in excess of that amount already achieved through a stern prison sentence. [30] On issues of costs involving Mr Sowman, Ms Longdill accepts that costs incurred on behalf of Mr Sowman should be brought to account under s 88 of the Act. Those costs are agreed and I will be making an order that Mr Gotlieb's global costs in the sum of $10,023.75 be paid from the proceeds of sale.[31] The issues concerning Mrs Sowman's costs are somewhat more complex. [32] Mr Fusic submitted that, because Mrs Sowman had been successful in ensuring that her interest was carved out of any forfeiture proceeds, she should receive full solicitor/client costs in relation to those incurred during the course of the proceedings under the Act and independent of the relationship property proceedings. He pointed to s 88 of the Act and suggested that there was a presumption in favour of an innocent spouse such as Mrs Sowman in obtaining costs. He noted that Mr and Mrs Sowman were separated in 1999, well before the offending which gave rise to Mr Sowman's convictions. [33] Ms Longdill submitted that indemnity costs were not justified. She emphasised that there is no presumption in s 88, because the section itself provides a discretion to the Court to order the Crown to pay all or part of costs incurred by any other person in respect of the proceeding. [34] Ms Longdill submitted that the Solicitor-General did not know of the precise arrangements involving Mr and Mrs Sowman's relationship property interests at the time the proceedings under the Act were initiated. Although they separated in 1999, they had not divorced and no steps appeared to have been taken to divide relationship property. The Solicitor-General took the view that her interest needed to be established, after a full hearing to establish the pool of relationship property. Subsequently proceedings were issued in the Family Court to achieve that end, with the Solicitor-General being heard.Analysis[35] On the forfeiture application the issue is whether, as Mr Gotlieb submits, the proportionality of the combined effects of the sentence of nine years imprisonment and forfeiture of Mr Sowman's interest in the Sunnyside Road property would justify refusal of the forfeiture order sought and the making of a pecuniary penalty order instead.[36] The first question is whether it is open to me to adopt the Fisher approach and to make a pecuniary penalty order in preference to a forfeiture order. This point was explored in Anaru. At para [16], Ronald Young J, delivering the judgment of the Court of Appeal said:[16] There was no jurisdiction for the Judge to make a pecuniary penalty order on the facts of the present case. The Crown had sought a forfeiture order. The Judge had either to make or refuse such an order. In doing so, the Judge had to consider the s 15(2) factors, apply them and any other relevant factors to the facts of the case and decide if such an order should be made. The legislature does not allow some form of comparison between the fairness of a forfeiture order as against a pecuniary penalty order. The proper course, therefore, is for us to set aside the pecuniary penalty order made by the Judge.[37] Accordingly, a comparison between the fairness of the respective approaches to confiscation orders is not open to me. I must decide whether or not to make a forfeiture order on the evidence presented. [38] I am persuaded that a forfeiture order is appropriate for the following reasons: a) First, on any view, Mr Sowman was a major participant in what was a substantial and relatively sophisticated Methamphetamine manufacturing operation. Despite the lack of evidence of particular financial benefits derived by Mr Sowman, it would be naïve to accept he received none from the operation. Whether his interest in the Sunnyside Road property should be forfeited must be viewed in that context. In my view, the nature and scope of the offending is a major indicator of the desirability of forfeiture, on the Dunsmuir approach. b) Second, as a result of the relationship property proceedings, Mr Sowman is left with an unencumbered property on Great Barrier Island. It can be confidently predicted that that property is likely to accrue in value during the time Mr Sowman is incarcerated. Two years ago it had a Quotable Value of about $360,000. That property will provide Mr Sowman access to financial support on his releasefrom imprisonment. It too is a significant factor pointing against the argument of disproportionality. c) Third, for offending on this scale a deterrent approach is required. Criminals who engage in manufacturing Class A controlled drugs of a pernicious nature must realise that they stand not only to lose liberty but also to suffer significant financial consequences as a result of that offending. [39] It follows that I am satisfied a forfeiture order is justified in respect of Mr Sowman's interest in the Sunnyside Road property.Costs[40] Section 88 of the Act provides:88 CostsWhere— (a) A person brings or appears in proceedings under this Act in order— (i) To prevent a forfeiture order or restraining order being made against property of the person; or (ii) To have property of the person excluded from a forfeiture order or restraining order; and (b) The person is successful in the proceedings; and (c) The Court is satisfied that the person was not involved in the commission of the offence in respect of which the order was sought or made,— the Court may order the Crown to pay all the costs incurred by the person in connection with the proceedings or such part of those costs as the Court thinks fit.[41] On questions of costs arising between the Solicitor-General and Mrs Sowman, I take the view that Mrs Sowman has received considerable benefits from the Family Court judgment. Those benefits were derived primarily from the Court's decision to require an adjusted sum to represent her interest in the general pool ofrelationship property being paid out of the proceeds of sale of the Sunnyside Road property. She does not have to sell any other property and she receives a cash sum to utilise as she sees fit. [42] Further, I am satisfied that, at least to some extent, there would have been an overlapping of issues in relation to the Solicitor-General's application and the relationship property proceedings. That may have resulted in some duplication of costs. At least, there would have been savings in costs in the relationship property proceedings as a result of the investigations required when Mrs Sowman was served with the present proceedings. [43] I am satisfied that s 88 of the Act can be applied to recognise Mrs Sowman's overall success in having her interest excluded from any forfeiture order made. However, costs cannot be justified on a solicitor/client basis. Nor are all costs sought claimable. [44] I direct that a global sum of $12,000 (inclusive of disbursements) be paid out of the proceeds of sale of the forfeited property as a contribution to costs incurred by Mrs Sowman in this proceeding.Orders[45] For those reasons, I make the following orders: a) A forfeiture order in respect of Mr Sowman's interest in the property at 385 Sunnyside Road, Albany comprised and described in Certificate of Title NZ80A/793. The sale shall be effected by the Official Assignee and the proceeds of sale applied as follows: i) The costs of sale, including fees incurred by the Official Assignee. ii) Repayment of the ASB Bank Ltd mortgage as at the date of settlement of the sale.iii) Repayment of the bond due to the Rodney District Council in the sum of $2,000 iv) Mrs Sowman's interest, as calculated in terms of the formula set out in para [19][iii] of the Family Court decision v) Costs to Mrs Sowman of $12,000 (inclusive of disbursements). vi) Costs to Mr Gotlieb, on behalf of Mr Sowman, of $10,023.75. vii) The balance to be forfeited to the Crown. b) Leave to apply in respect of any issue concerning sealing or implementation of my formal orders is reserved. [46] I thank counsel for their assistance. __________________________ P R Heath J