SOLICITOR GENERAL V MCQUADE HC AK CIV 2008-404-4161 [2009] NZHC 1290 (18 September 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                   CIV 2008-404-4161


                IN THE MATTER OF             an application under the Proceeds of Crime
                                      
      Act 1991

                BETWEEN                      THE SOLICITOR GENERAL OF NEW
                                      
      ZEALAND
                                             Applicant

                AND                          ALAN CLINTON MCQUADE
                                             Respondent


Hearing:        26 May 2009

Appearances: Mr Finn for applicant
      
      M Ryan for respondent

Judgment:       18 September 2009 at 3.00 pm


                         JUDGMENT OF WINKELMANN J



     This judgment was delivered by me on 18 September 2009 at 3.00 pm pursuant to
                           Rule 11.5 of the High
Court Rules.




                                 Registrar/ Deputy Registrar




Crown Solicitor, Auckland
Mark Ryan, Barrister,
Auckland


SOLICITOR GENERAL V MCQUADE HC AK CIV 2008-404-4161 18 September 2009

[1]    In June 2008 Mr McQuade was convicted of
serious drug offending. The
Solicitor General now seeks a pecuniary penalty order for an amount equal to the
benefits derived by
Mr McQuade from the commission of those offences. The
Solicitor General also seeks an order directing the Official Assignee to pay
to the
Crown a cash sum of $84,720.51 (plus any accumulated interest) held by him. That
sum is Mr McQuade's share of the net proceeds
from the sale of his property at
Welcome Bay, Tauranga.


[2]    Mr McQuade opposes the making of those orders on several bases.
First, he
says the Welcome Bay property was not purchased with the proceeds of any criminal
offending, nor was it used in the course
of his criminal offending. Secondly, he
argues that he did not derive any benefits from the offending, as he was merely a
middle
man, and any reward he got from his participation was by way of
methamphetamine, not cash. Finally, he says that the making of the
orders will
cause him undue hardship, such that it will prevent his proper rehabilitation when he
is released from prison, and prevent
him from providing for his small children.


Factual background


[3]    On 10 September 2008 Mr McQuade was sentenced to 14 years
imprisonment for 19 offences against the Misuse of Drugs Act 1975.                 The
application is brought on the grounds that
those convictions included eight
convictions for supply of a class A controlled drug methamphetamine, which are
"serious offences"
for the purposes of the Proceeds of Crime Act 1991 (the Act).


[4]    The basis upon which Mr McQuade was sentenced is set out in
the
sentencing notes of Keane J of 10 September 2008 at [7] ­ [11]:

       Between 10 ­ 31 October you drove to Auckland nine times
to purchase
       methamphetamine from a Chinese national, Ri Tong Zhou, who had
       obtained it from a supplier in mainland
China, Xiao Pang, acting through
       two intermediaries in New Zealand, Zhong Wei and another, Chen Huang.

       The Crown's
case is that Mr Zhou purchased in half kilogram or kilogram
       amounts from Mr Wei, to whom Mr Huang delivered the consignment
and

      received cash for it. You and others like you, the Crown's case is, were
      present or nearby when this happened and
received immediately, or nearly
      so, what Mr Zhou purchased. The Crown's case is, but you deny, that you
      purchased up
to half a kilogram each time, the issue I resolved before
      sentence. The quantity you purchased, I held, could not be established
      reliably but was of a significant order.

      The Crown's case is also that you then drove to various addresses in
     
Auckland and in the Waikato and the Bay of Plenty, and supplied the
      methamphetamine you had purchased to dealers one level
closer to the
      street; and that between 10 ­ 31 October you sold as much as 2.8 kilograms
      of methamphetamine.

      Such a quantity, I held, could not be sustained on the evidence. At
most, I
      concluded, consistent with what you concede you purchased on 31 October
      2006, five ounces, 1.5 kilograms of methamphetamine
came into your
      possession in October 2006. Buttressing that conclusion, which you do not
      concede, and indeed dispute,
I found, were the three ticklists discovered
      showing debts of the order of $90,000. Also that you had $3,000 cash in the
 
    car and other equipment consistent with dealing like a baton.

      Clearly, as that evidence that I reviewed this morning shows,
you were very
      active during October 2006. In fact one of your clients described you as
      offering a service, you were so
reliable. 225 meetings occurred, and that
      alone confirms the scale of your activity, if not the quantities in which you
  
   traded.


Parties submissions


[5]   The Solicitor General seeks an order under s 25 of the Act which provides:

      (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.

      (2)     The penalty amount is the value of the benefits assessed
under
              sections 27 and 28 of this Act, reduced by -

              (a)     An amount equal to the value of any property
that has been
                      forfeited, or is proposed to be forfeited, to the Crown under
                      this Part
of this Act as proceeds of the relevant serious
                      offence; and

              (b)       An amount equal to the
value of any pecuniary penalty that
                        has already been imposed, in respect of the benefit, under
         
              this Act or any other enactment; and

              (c)       Any further amount which the Court considers appropriate
to
                        take into account, after having regard to the matter referred
                        to in section 14(1)(b)
of this Act.

       (3)    A pecuniary penalty order against a person may be enforced as if it
              were an order made
in civil proceedings instituted by the Crown
              against the person to recover a debt due by that person to the Crown.

[6]    The Solicitor General submits that for the purposes of a s 25 order, he need
not establish that the Welcome Bay property
of Mr McQuade was tainted property.
What is sought is an assessment from the Court that Mr McQuade has derived a
benefit, and a pecuniary
penalty order in respect of that amount. Then consequential
orders are sought allowing that order to be enforced against particular
property of
Mr McQuade currently held by the Official Assignee pursuant to restraining orders.


[7]    As to the extent of the benefit,
the applicant submits that he need only prove
that a benefit has been derived, not that a profit in an accounting sense has been
made. It is beyond doubt, it is said, that Mr McQuade benefited from the offences,
when he had been selling methamphetamine for cash
on a major commercial scale
over a 21 day period.


[8]    The applicant submits that a robust approach to calculating that benefit
is
required. The applicant refers to the intercepted communications which evidence
that the price Mr McQuade obtained for half an
ounce of methamphetamine was
between $6,000 and $6,500 (that is to say $12,000 and $13,000 an ounce). Keane J
sentenced Mr McQuade
on the basis that he sold 1.5 kilograms of methamphetamine.
Using this figure the benefits derived by Mr McQuade fall between $630,000 and
$687,000.


[9]    Mr McQuade opposes
the making of the orders. In an affidavit he filed in
opposition to the application he says that he purchased the Welcome Bay property
with his partner, some years prior to the offending. There is no evidential basis to
infer that any of the funds used to purchase
the property originated from criminal
offending, that the proceeds of the sale of the property are the profits of criminal

activities,
or that the sale of the house was used to facilitate the commission of any
offence.


[10]    Mr McQuade also says that he did not
receive any financial benefit from his
offending. He was a "middle man in a hierarchical criminal enterprise". Any
payment for his
actions he received by way of product which he used to satisfy his
methamphetamine addiction. He argues that a calculation that he
derived sums in
the order claimed by the Solicitor General is "absurd". Any financial benefit or
revenue was enjoyed by associates
of Mr McQuade higher than he was in the
hierarchy of the criminal enterprise. In these circumstances it is argued that it would
be
wrong to impose the pecuniary penalty order on Mr McQuade.


[11]    Finally, if these submissions are not accepted then counsel
for Mr McQuade
asks that not all of the proceeds of the property be subject to the orders sought. His
counsel emphasises that the
making of a penalty order is a discretionary one, and
urges that in exercising that discretion, I should take into account the need
to provide
for Mr McQuade's rehabilitation on his release from prison by leaving him with
some means, and also that I should take
into account his need to provide for his two
children, aged 13 and 11. His children are currently being cared for by his wife, and
because of his imprisonment he is unable to pay money to assist in their support. He
would prefer to give the $94,000 to his children
rather than see it go to the Crown. It
is submitted on behalf of Mr McQuade that this could be achieved if the amount was
set aside
in a trust for their benefit.


Analysis and decision



Relevant principles


[12]    To obtain a pecuniary penalty order under
s 25, it is not necessary for the
Solicitor General to prove that the property against which that order is sought to be
enforced
is tainted property, within the meaning of the expression as defined in s 2 of
the Act. Section 25(1) provides for the making of
a pecuniary penalty order which
does not attach to any particular property, but is rather an order that the respondent

pay a certain
sum. How that sum is to be assessed is provided for in s 27 of the Act
which provides in material part:

       (2)    For the purposes
of an application for a pecuniary penalty order, the
              value of the benefits derived by a person (in this subsection
referred
              to as the "defendant") from the commission of an offence or
              offences shall be assessed by the
Court having regard to evidence
              before the Court concerning all or any of the following matters:

              (a)
    The money, or the value of the property other than money,
              that came into the possession or under the control of
-

                      (i)     The defendant; or

                      (ii)    Another person at the request or direction of the
                              defendant -

                      by reason of the commission of the offence or any of the offences:

              (b)     The value of any other benefit provided to -

                      (i)     The defendant; or

          
           (ii)    Another person at the request or direction of the
                              defendant -

                
     by reason of the commission of the offence or any of the
                      offences:

              (c)     The value of
the defendant's property, -

                      (i)     Where the application relates to a single offence,
                              before and after the commission of the offence;
or

                      (ii)    Where the application relates to 2 or more offences,
                              before, during,
and after the offence period.

       (3)    In calculating, for the purposes of a pecuniary penalty order, the
              value
of benefits derived by a person from the commission of an
              offence or offences, any expenses or outgoings of that person
in
              connection with the commission of the offence or offences shall be
              disregarded.

[13]   Here the applicant
relies upon s 27(2)(a) and (b) to support the calculation of
the "benefit" he says Mr McQuade derived from his offending.


[14]
  The applicant then invokes s 25(3) which provides that that order may be
enforced as if it were an order in civil proceedings.
The connection to the property

currently restrained under orders of this Court is s 55 of the Act which provides in
material part:

       (1)       Where -

                 (a)   A pecuniary penalty order is made against a person in
                       reliance
on the person's conviction of a serious offence; and

                 (b)   A restraining order, in relation to the offence or a
related
                       offence, is or has been made against -

                       (i)     Property of the defendant;
or

                       (ii)    Property of another person in relation to which an
                               order under
section 29(3) of this Act is, or has been,
                               made, -

       then, upon the making of the later of the
orders, there is created, by force of
       this section, a charge on the property to secure the payment to the Crown of
      
the amount payable under the pecuniary penalty order.

[15]   It is not therefore necessary for the Crown to prove that the property
is
tainted property; resort is had to it simply in satisfaction of the amount due under the
pecuniary penalty order, and by reason
of the statutory charge. For this reason, the
first ground of opposition raised for Mr McQuade must fail.


[16]   The second ground
of opposition is that Mr McQuade received no financial
benefit, and therefore the requirements of s 25(1) are not met. For Mr McQuade,
Mr Ryan contends that benefit in that section is to be read as meaning some sort of
advantage or profit. Mr Ryan correctly identified
that the leading Court of Appeal
decision of R v Pedersen  [1995] 2 NZLR 386 (390) caused him difficulty with this
argument. In Pedersen it was said that the benefit from a sale was what the seller
received
in return, with no allowance to be made for the fact that the seller may in
turn have obligations to pay someone else.          
 But Mr Ryan points to what he
characterises as more recent authority, and argues that it is plain from those decisions
that the
Court of Appeal has moved away from the "gross profit" analysis, toward an
approach based on a notion of profit, perhaps in the sense
of economic benefit.
Mr Ryan relied on the following passage from R v Brough  [1995] 1 NZLR 419 at
423:

       The policy of the Act, therefore, is twofold. First, a person who has engaged
       in criminal activity should
be required to disgorge what in common parlance

       may be referred to as his or her ill-gotten gains. Requiring these to be
paid
       cannot in any way be regarded as a penalty. Rather, it is simply a recognition
       that the law should not permit
a person to retain the profits of criminal
       activity. Secondly, it empowers the Court to forfeit property used to facilitate
       the commission of the offences. That too is not for reasons of penalty or
       punishment, but rather in recognition of
the principle that persons who use
       property to commit crimes should be liable to have that property forfeited.

[17]   He
also relies on the Court of Appeal decision R v Jury  [2004] 2 NZLR 457
where in discussing the purpose of the Act, the Court said that the purpose relevant
to the case before them was that [27]:

   
   A person who engages in criminal activity should be required to pay the
       profits from that activity, either by a forfeiture
order or by a pecuniary
       penalty order.

[18]   It must be observed that the decision in Brough predated Pedersen, and so
could
hardly signal a departure from it. Moreover in Brough the Court was not
addressing the meaning of "benefit" in s 25. Jury does post-date
Pedersen, but a
general comment that does not expressly address the interpretation of s 25 should not
be read as a departure by the
Court from the well established approach to calculating
of benefit, as articulated in Pedersen. It is also significant that in Jury
the pecuniary
penalty order made by the trial Judge, and upheld on appeal, applied a gross receipt
methodology.


[19]   The analysis
suggested for Mr McQuade also faces the considerable statutory
hurdle of s 27(3) of the Act.


[20]   For these reasons, this second
ground of opposition must fail.


[21]   I then come to the final ground of opposition. Mr Ryan correctly observes
that even if satisfied
that Mr McQuade has received benefits, I have a discretion as to
the level at which I set the pecuniary penalty order. He asks that
I exercise that
discretion and allow Mr McQuade to retain the money currently held by the Official
Assignee to enable him to provide
for his children and his own rehabilitation.


[22]   I am not persuaded that that is an appropriate exercise of the discretion,
as
that would be inconsistent with the policy objectives of the Act. In this regard, I
attach considerable weight to the comments
of Cooke P in Pedersen at 391:

       Being a measure designed to deter serious crime by demonstrating
       emphatically that
it does not pay, the Proceeds of Crime Act should be
       judicially administered in that spirit. In simple cases of serious drug
selling
       the Courts should be slow to award less than the maximum penalties against
       sellers. This is a move in a necessary
direction, involving recognition that
       imprisonment is not an adequate remedy for crime. From time to time this
       Court
and other Courts have urged the introduction of remedies alternative
       or additional to imprisonment.

[23]   A more significant
issue arises in relation to the level at which a pecuniary
penalty order should be set, given Mr McQuade's evidence that the $94,000
is the
only money he has. The offender's ability to pay any pecuniary penalty is a relevant
consideration.   Where, as here, there
is no suggestion that the respondent has
secreted away proceeds of his offending, there is no reason to impose a penalty
greater
than the amount the respondent can pay. I see no point in fixing a pecuniary
penalty order that Mr McQuade will not be able to pay
when he is to serve a lengthy
sentence of imprisonment.        It is highly undesirable that Mr McQuade face a
substantial penalty
on his release from prison, many years in the future, that he must
then set about paying. That is likely to hinder his rehabilitation
and therefore will
not be in the public interest. I record, however, that if there were any suggestion that
Mr McQuade had funds
hidden away, the attitude I would take on this issue would
most likely be different.


Decision


[24]   That brings me to the appropriate
level of order. I accept the applicant's
calculation of benefit, and take the conservative figure of $624,000.               There
is
sufficient evidence that money at that level at least came into the possession of
Mr McQuade (s 27(2)(a)). However, I consider
that the pecuniary penalty order
should be set no higher than the amount of funds available to meet it, which are the
funds currently
held by the Official Assignee after payment of costs in accordance
with my judgment.


[25]   I make no allowance for an amount of
$3,000 ordered forfeited by Keane J,
as part of the sentencing process. Since the penalty order is set at a lesser amount
than the assessed benefit (because
of Mr McQuade's limited means), it is not
appropriate that any deduction be made for that amount.

Winkelmann J