FM Custodians Limited v R [2019] NZCA 598 (28 November 2019)

Last Updated: 3 December 2019

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA294/2019 [2019] NZCA 598

	BETWEEN	FM CUSTODIANS LIMITED Applicant
	AND	THE QUEEN First Respondent LINDSAY BECKETT SMITH Second Respondent

Hearing:	19 November 2019
Court:	Collins, Brewer and Gendall JJ
Counsel:	G P Blanchard QC and E B Moran for Applicant C Ure for First Respondent No appearance for Second Respondent
Judgment:	28 November 2019 at 4.00 pm

JUDGMENT OF THE COURT

1. The application for an extension of time to apply for leave to appeal is granted.
2. The application for leave to appeal is granted to the extent explained at [14].

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REASONS OF THE COURT

(Given by Collins J)

Introduction

[1] FM Custodians Ltd (FM Custodians) seeks leave to appeal a decision of the High Court in which Nation J upheld a District Court judgment granting an application by the Crown for an instrument forfeiture order in respect of two properties owned by Ballarat Terrace Ltd (Ballarat) and one property owned by the Prospect Family Trust (the Trust).^[1] Those properties have since been sold and the instrument forfeiture order varied to cover the proceeds of the sale of those properties.
[2] Ballarat was owned by Mr and Mrs Ross, who through a family trust held 50 per cent of the shares in that company, and Mr Smith, who through the Trust held the remaining shares. FM Custodians lent $264,000 to Ballarat secured by a mortgage over properties in a subdivision being carried out by Ballarat. All but two of those properties were sold by the time the matters giving rise to this litigation were discovered, hence, the instrument forfeiture order related to only two of the Ballarat properties.
[3] FM Custodians also lent $520,000 to the Trust. Mr and Mrs Smith were the trustees of the Trust. The Trust loan was secured over the Smiths’ family home, which is the third property we have referred to at [1]. Ballarat and the Trust each guaranteed the other’s obligations under the loans to FM Custodians.
[4] It transpired the documents concerning the mortgage and guarantee over the Ballarat properties, and the guarantee but not the mortgage over the Trust property, were fraudulent. Mr Woulfe, the lawyer who was instructed to act for both the lender and the borrowers, provided the documents to Mr Smith, who forged Mr Ross’ signature on the Ballarat loan and mortgage documents. Mr Woulfe falsely certified he had witnessed Mr Ross’ signature on the Ballarat client authority and instruction form and that each guarantor had received independent legal advice or had been recommended to obtain such advice.
[5] Mr Smith was convicted of using a document to obtain a pecuniary advantage.^[2] Before his sentencing the Crown gave notice pursuant to s 142B of the Sentencing Act 2002 that the Court should consider making an instrument forfeiture order in relation to the two Ballarat properties and the Smiths’ property. FM Custodians applied under s 142J of the Sentencing Act for relief from an instrument forfeiture order.
[6] There are two possible grounds for relief set out in s 77(1) of the Criminal Proceeds (Recovery) Act 2009, namely that:

• (a) FM Custodians had an interest in the property; or
• (b) undue hardship was reasonably likely to be caused to FM Custodians if it were not granted relief from the operation of the instrument forfeiture order.

[7] On 5 September 2017, Judge Neave refused FM Custodians’ application for relief from an instrument of forfeiture order.^[3]
[8] On appeal, Nation J reasoned that the present case was substantially governed by the Supreme Court’s decision in Nathan v Dollars & Sense Ltd.^[4] He held inter alia:

• (a) The three properties were an instrument of crime.^[5]
• (b) The District Court had properly concluded FM Custodians was not entitled to relief from the instrument forfeiture order.^[6]
• (c) The three properties or the proceeds of sale from those properties, should be forfeited to the Crown.^[7]

[9] The application for leave was filed out of time. The delay was minimal and the Crown does not oppose the extension of time. Leave to appeal out of time is granted accordingly.

Application for leave to appeal

[10] In his submissions in support of the application for leave to appeal, Mr Blanchard QC, senior counsel for FM Custodians, referred to the following grounds in support of the application for leave to appeal to this Court:

• (a) The High Court erred when it held that the three properties were instruments of crime as defined in s 5 of the Criminal Proceeds (Recovery) Act. The relevant parts of that definition refer to:^[8]

(a) property used (wholly or in part) to commit or facilitate the commission of a qualifying instrument forfeiture offence [which includes using a document to obtain a pecuniary advantage]; and

...

(c) ... the proceeds of any disposition of that property ...

(b) The High Court erred when it concluded FM Custodians had no interest in the three properties as required by s 77(1) of the Criminal Proceeds (Recovery) Act.
(c) The District Court did not have jurisdiction to hear and determine a claim for the removal of FM Custodians’ mortgage over the three properties because the sums involved exceeded $350,000, which is the jurisdictional limit for civil proceedings in the District Court set out in ss 74, 78 and 79 of the District Court Act 2016.
[11] The application for leave to appeal is governed by s 78 of the Criminal Proceeds (Recovery) Act and s 276(2) of the Criminal Procedure Act 2011. As a consequence, we must not grant leave for a second appeal unless we are satisfied that:

(a) the appeal involves a matter of general or public importance; or

(b) a miscarriage of justice may have occurred, or may occur unless the appeal is heard.

Analysis and disposition

[12] We are satisfied that the decision of the High Court raises issues of general or public importance that justify this Court determining whether or not FM Custodians is entitled to relief from the instrument forfeiture order. This conclusion does not, however, extend to the proposed ground of appeal we have summarised at [10(c)] because the proceeding in the District Court was not a civil proceeding. Instead, it arose from the District Court’s criminal jurisdiction. Accordingly, in granting leave we exclude from the appeal the jurisdictional issue we have referred to at [10(c)].
[13] The application for an extension of time to apply for leave to appeal is granted.
[14] Save for the exception we have referred to at [12], we grant leave to appeal the High Court’s decision that FM Custodians was not entitled to relief from an instrument forfeiture order.

Solicitors:
DLA Piper, Wellington for Applicant
Crown Law Office, Wellington for First Respondent

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^[1] FM Custodians Ltd v R [2019] NZHC 1128 [High Court judgment].

^[2] Crimes Act 1961, s 257(1)(a).

^[3] R v Smith [2017] NZDC 19891 [District Court judgment].

^[4] Nathan v Dollars & Sense Ltd [2008] NZSC 20, [2008] 2 NZLR 557.

^[5] High Court judgment, above n 1, at [55].

^[6] At [157].

^[7] At [180].

^[8] Criminal Proceeds (Recovery) Act 2009, s 5(1).