Solicitor-General of New Zealand v Anaru and ors [2006] NZCA 218 (8 August 2006)

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Solicitor-General of New Zealand v Anaru and ors [2006] NZCA 218 (8 August 2006)

Last Updated: 25 August 2006

IN THE COURT OF APPEAL OF NEW ZEALAND

CA52/06

BETWEEN SOLICITOR-GENERAL OF NEW ZEALAND
Appellant

AND NEPIA HENARE ANARU
First Respondent

AND TSB BANK LIMITED
Second Respondent

AND TE AMOMAITA WHITI NGARUHE
Third Party

Hearing: 8 August 2006

Court: Robertson, Rodney Hansen and Ronald Young JJ

Counsel: M D Downs for Appellant
C R Horsley for First Respondent

Judgment: 16 August 2006 at 4 pm

JUDGMENT OF THE COURT

A The appeal is allowed.

B The pecuniary penalty order is set aside.

C There will be an order for forfeiture of the respondent’s property at Awaiti Road, Paeroa, to the Crown.

REASONS OF THE COURT

(Given by Ronald Young J)

[1]

This is an appeal by the Solicitor-General from a decision of Judge Callander who declined to make an order pursuant to the Proceeds of Crime Act 1991 (s 15) that the respondent’s property at Awaiti Road, Paeroa, be forfeited as tainted property. Instead the Judge ordered the respondent pay a pecuniary penalty order of $50,000: s 12(1). The appellant says the Judge erred in law when he decided a pecuniary penalty was a "fairer approach" and erred when he failed to appreciate that he had no jurisdiction to impose a pecuniary penalty order. The Crown say this Court should order forfeiture of the respondent’s property.

Background

[2]

The respondent owns a one acre property at Awaiti Road, Paeroa. It has a three bedroom house, an adjacent shed and is fenced into paddocks. During 2002 the police made several visits to the property and found small amounts of cannabis and some cannabis seedlings. In March 2003 when visiting the property on unrelated matters the police discovered sophisticated hydroponic cannabis cultivation in the five by five metre shed. The Judge who sentenced the respondent for cultivation of cannabis described it in this way:

[3] On 10 March 2003 the Police went to this property on an unrelated matter and located in this rear shed was what was described as a sophisticated cannabis growing operation utilising hydroponics and artificial light. The building had the appearance of an outhouse and the door to it was locked. The rear wall had been removed and a hole cut through into the larger shed. The small tin shed had been annexed to the main one, the entry was through the adjoining walls. The frame had been totally covered with heavy duty plastic sheeting to create a large tent like enclosure and set up inside this larger shed were four hydroponics tanks, each capable of holding 40 plants. There was a lighting system suspended on tracks over the tanks allowing light to move backwards and forwards over the plants.
[4] The power to this shed was supplied by a heavy duty extension cord, leading from the stove on the rear wall of the house in which you were living, which went across the paddock and into the shed. The water supply had also been tapped into the house water tank.
[5] There were 181 cannabis plants located in the shed in the annex, five to 40 centimetres in height. This was a continual operation obviously and it was an operation which was properly described as being sophisticated. There was also $955.00 in cash hidden under a mattress inside the house.

[3]

The police estimate of the yield of cannabis was that the cultivation was capable of producing four crops per annum of approximately 160 plants each rotation worth between $217,000 and $1.448 million per annum. At least one crop previous to that discovered in March 2003 seems to have been harvested given the presence of mature cannabis stalks and some mature leaves in the shed.

[4]

The first respondent resided at the property with his partner, Ms Ngaruhe, and their children. It was acknowledged that the respondent and his partner had legitimately purchased the property in February 2002 with $25,000 of their money and a mortgage of approximately $75,000. Both the respondent and his partner pleaded guilty to cultivation of cannabis. Ms Ngaruhe was sentenced to two and a half years imprisonment, the respondent to four years imprisonment. By the time the application for forfeiture was heard the value of the property had increased to $160,000 with the respondent’s equity having increased to some $75,000. Ms Ngaruhe was a party to the Proceeds of Crime Act proceedings but apart from an initial appearance by counsel took no further part in the proceedings.

The decision appealed from

[5]	The Judge in his decision concluded, and it was common ground, that the respondent’s property was "tainted property" as defined in s 15 of the Act. The Judge, after considering the possible financial reward from such cultivation said:

[8] . . . It is of relevance because as I see it, it is necessary to see some sense of justice and fairness in a forfeiture application of this sort. While it has often been said that provisions of the Proceeds Of Crime Act 1991 are draconian in their effect, several of the decisions which counsel have provided indicated that Judges try where it is possible to come to a final decision that is just in terms of the nature of the criminal activity of the drug offending, the history of ownership, and the equity that might well have existed in the property prior to the criminal acts having occurred thereon. A good example of that is the decision of His Honour Harrison J in the case of Solicitor-General v Fisher (High Court, Whangarei, M44/02, 27 June 2003, Harrison J). Williamson J in an earlier decision came to the similar view in the decision he gave on an application for forfeiture. [The reference to a decision of Williamson J appears to be Solicitor-General v Sanders (1994) 2 HRNZ 24].

[6]	The Judge then turned to s 15(2) of the Act and the question of undue hardship. He said:

[11] . . . I have to look at the estimate made of the property and Mr Anaru’s activities over the preceding months or years. I have to examine any undue hardship that is likely to be caused to any person by the operation of a forfeiture order. I have to look at the nature and extent of Mr Anaru’s interest. He is the sole registered owner of the property. I have to also take into account the position of the Savings Bank.

[7]	And the Judge in relation to the nature and circumstances of the offence said:

[13] The final consideration by the Court under the legislation, is any other matter relating to the nature and circumstances of the offence, including the gravity of the offence. I have already indicated the nature of the offence that resulted. The accused, Mr Anaru, was convicted by a Jury. He was sentenced by Judge Hobbs to four years imprisonment for his part in the offending. The third party, Ms Ngaruhe, was also convicted and sentenced to a lesser term of imprisonment for her permitting the premises to be used for the purposes of cultivating the cannabis in question.

[8]	Drawing these strands together the Judge said that:

[14] . . . I have come to the view that the fairer approach would be to adopt the submission made by Mr Horsley in terms of making the pecuniary penalty order rather than the order of forfeiture. It is clear that I do have the power to amend the application, so that it relates to a pecuniary penalty order.
[15] Overall, it seems to me that one has to try to be fair and even handed and just in an approach of this sort. While on its face the legislation may well be draconian, it seems that the tempered approach taken by Harrison J in Solicitor-General v Fisher is a fairer response to offending of this type. Is it not possible here to focus in any finite way on the actual value of the benefits received by Mr Anaru?

[9]	The Judge considered as relevant in reaching his conclusion that a pecuniary penalty order was fairer; that the respondent had honestly obtained the equity in the property; the offending was of relatively short duration and that there was no actual evidence of any significant profit.
[10]	In conclusion, the Judge said:

[18] I have reached the view that the application for forfeiture be dismissed. Instead, I make a pecuniary penalty order that there be paid to the Solicitor General by the first respondent Mr Anaru the sum of $50,000.00. I make an order to protect the Solicitor General’s position, declaring that the Solicitor General may register a charge against the title property for that sum, under s 4 of the Statutory Land Charges Registration Act 1928. I will also, as Harrison J did, reserve leave to the parties to apply for any further or other relief as may be thought necessary. There will be no order for costs.

Pecuniary penalty order

[11]	The Crown submitted that a pecuniary penalty was inapt because the statutory grounds for the imposition of such a penalty, evidence of particular benefits from the cultivation of cannabis, had not been established. We agree.
[12]	Section 25(1) of the Act provides as follows:

25 Pecuniary penalty orders

(1) On the hearing of an application for a pecuniary penalty order in respect of benefits derived by a person from the commission of a serious offence, the Court may, if it is satisfied that the person derived benefits from the commission of that offence,--

(a) Assess, in accordance with sections 27 and 28 of this Act, the value of the benefits so derived; and

(b) Order the person to pay to the Crown a pecuniary penalty not greater than the penalty amount.

[13]	In this case there is no evidence of any benefit being derived by the respondent from the cannabis growing operation. There is some evidence that there may have been a previous crop which was harvested. Some stalks and leaves were found. However, there is no evidence of any benefits derived by the respondent. Nor could counsel for the respondent point to any such benefits.
[14]	Judge Callander relied upon the decision of the High Court in Solicitor-General v Fisher to make the pecuniary penalty order. The facts of that case were quite different from the present case. Harrison J concluded, that having considered the range of factors set out in s 15(2) of the Proceeds of Crime Act, that forfeiture was not appropriate and dismissed the application. The Judge considered he could amend the original application for forfeiture to one seeking a pecuniary penalty order by virtue of s 12(2) of the Act. Harrison J concluded that Mr Fisher had derived financial benefits from his offending "in the order of $50,00 to $75,000". Accordingly, the Judge was satisfied that he had jurisdiction to make a pecuniary penalty order and did so in the sum of $75,000.
[15]	In this case, however, Judge Callander reached no firm conclusion about forfeiture although he did consider the s 15(2) factors. After recounting these factors the Judge said that he thought a "fairer’ approach was the making of a pecuniary penalty order.
[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.

Forfeiture order

[17]	Both counsel accepted that the appropriate course was for this Court to consider afresh whether a forfeiture order should be made with respect to the property at Paeroa, as by common agreement it was tainted property.
[18]	The Crown submitted that a forfeiture order should be made. They pointed to the fact that this was a sophisticated cultivation commenced within 12 months of purchasing the property. They said the fact that both owners were involved in the cultivation meant no claim of hardship to an innocent party could be made. The Crown noted that while the cultivation was in the shed the power supply and water were re-routed from the house to support the cultivation and thus the cultivation could not be described as "subsidiary" to the residential use of the property.
[19]	The first respondent submitted that this Court should exercise its discretion and refuse to order forfeiture. Counsel identified three primary reasons:

(1) That the original contribution by the first respondent and his partner to the purchase of the property ($25,000) was legitimately obtained by them.
(2) The Crown could not identify any actual economic benefit to the family from the cannabis cultivation.
(3) The first respondent’s sentence of four years imprisonment was at the top end of a range of such offending and together with forfeiture, if made, would amount to a disproportionately severe punishment: see New Zealand Bill of Rights Act 1990, s 9.

Discussion

[20]	Section 15(2) sets out factors the Court may have regard to in considering whether to make a forfeiture order. They are not said to be the only factors that are relevant but are guidance for the Courts.

The use that is ordinarily made, or was intended to be made, of the property

[21]

On the facts it is clear the cultivation of cannabis was a significant part of the use of this property. The cultivation of cannabis began within 12 months of the purchase of the property. Given the time required to convert the shed to a hydroponic operation, planning and preparation must have begun shortly after the purchase of the property by the respondent and his partner. This indicates that almost from purchase the owners intended to use the property to grow cannabis. In addition, the house supplied power and water for the cannabis cultivation and so the residence itself was a pivotal part of the cannabis growing operation. The property was, in addition, used as a residence for the first respondent, his partner and their children.

Any undue hardship that is reasonably likely to be caused to any person by the operation of such an order

[22]

There is no undue hardship likely to be caused by an order for forfeiture. The first respondent and his partner will lose their property and the equity in their property if a forfeiture order is made. However, this is an inevitable consequence of such an order. Both owners of the property cultivated cannabis at a significant scale and in a sophisticated operation commenced shortly after purchase. The cultivation used electricity and water from the residence. Large profits from such an operation could reasonably have been expected in the future. The sentencing levels for both owners reflected a clear and substantial commercial element to their cultivation. While the family will lose their home, beyond that fact, the respondent cannot point to any other hardship. We do not consider that this hardship could be described as "undue".

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)

[23]

The first respondent owns the property. His partner would have had a property relationship claim to a share in the property. We were informed from the bar that she has abandoned that claim given her acceptance that she was also involved in the cultivation of cannabis on the property. The first respondent and his partner contributed $25,000 to the purchase price of $100,000. At the hearing of the application for forfeiture the property was valued at $160,000 and the original $25,000 equity had trebled to $75,000. The current value of the property is not known. The mortgagee, the Taranaki Savings Bank, claims to be owed as at 8 August 2006 $108,449.00 being the loan principal and interest of $83,450.55 and costs and disbursements of $24,999.24. If these figures are accurate then the respondent’s equity, based on the most recent valuation of $160,000 would be little more than $52,000.

Other relevant matters

[24]	The Court is invited to take into account any additional pecuniary penalty imposed and any other matters relating to the gravity and circumstances of the offence or the offender. The first respondent invites us to conclude that the sentence of imprisonment, along with forfeiture, would make the "total" penalty disproportionately severe.
[25]	That issue was raised in this Court in R v Crombie CA453/05 29 June 2006. There the Court said:

[15] . . . logic suggests that s 9 of New Zealand Bill of Rights Act may have a role to play when, post-sentence, the Court is considering whether to forfeit property which was utilised in the underlying offending. Indeed this was recognised by this Court in Cooksley-Mellish v Solicitor-General CA209/05 27 March 2006 at [34].
[16] We emphasise that in order to engage in s 9 it will be necessary, in each case, to point to treatment or punishment that is "disproportionately severe": a high threshold. Further, the policy factors in favour of forfeiture of property utilised in the commission of offending are cogent. This is apparent from the judgment of this Court in R v Lyall [1997] 2 NZLR 641 at 647:

We see nothing excessive in the forfeiture. It is not disproportionately severe treatment or punishment in terms of s 9 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 [1987] USCA9 934; 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. Black's appeal against the forfeiture order is dismissed.

[26]	Based on the best information which we currently have, the value of the respondent’s interest in the forfeited property would be approximately $52,000. This is almost exactly the sum counsel for the respondent suggested to Judge Callander should be the subject of a pecuniary penalty order. While it has not been possible to quantify the benefits derived from the cultivation, it is clear the cultivation was capable of producing cannabis valued at tens, if not hundreds of thousands of dollars per annum. The evidence from an expert police officer at depositions identified a yield of $54,000 from each "cycle" of cannabis cultivation with the capacity of up to four cycles per annum possible. Even on the basis of only one cycle having been completed, with another under cultivation when the respondent was apprehended, there is evidence of substantial money to be made.
[27]	The Act contemplates forfeiture where property is tainted unless the Court concludes the circumstances do not justify such an order. The legislature accepted that in cases of tainted property there would be a sanction in addition to the sentencing process. In this case we do not consider the combination of imprisonment and forfeiture is disproportionately severe.
[28]	Overall, we are satisfied that this is a proper case for forfeiture. The only information we have as to the value of the property was the valuation obtained in late 2005 which valued the property at $160,00. For the purpose of s 15(4) we therefore set the value of the property at $160,000.
[29]	Section 15(3)(a) provides as follows:

15 Forfeiture orders

. . .

(3) A Court that makes a forfeiture order against property may, if it considers that it is appropriate to do so, by order,--

(a) Declare the nature, extent, and value of any person's interest in the property.

[30]

The Taranaki Savings Bank is the sole mortgagee. An affidavit has been filed on its behalf claiming $108,449.00 is due under the mortgage: see [25] above. We do not know if the respondent accepts or disputes this sum. We propose, therefore, pursuant to s 15(3) to declare that the Taranaki Savings Bank has an interest in the property as mortgagee. It is entitled to be paid what the respondent has contractually agreed to pay it under the mortgage.

Conclusion

[31]	The appeal is therefore allowed. The Judge had no jurisdiction to order a pecuniary penalty order and that order is cancelled. This is an appropriate case for forfeiture. There is an order that the property at Awaiti Road, Paeroa, be forfeited to the Crown.

Solicitors:
Crown Law Office, Wellington
Adams & Horsley, Tauranga for First Respondent