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High Court of New Zealand Decisions |
Last Updated: 22 September 2015
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2011-470-001070 [2015] NZHC 2055
BETWEEN
|
THE COMMISSIONER OF POLICE
Applicant
|
AND
|
GARY JOHN READ First Respondent
WILLIAM JAMES READ Second Respondent
PHILLIPPA KAREN WILSON Third Respondent
KEVIN BARRY PARKINSON Fourth Respondent
RBA TRUSTEES LTD Party Served (Abiding)
|
Hearing:
|
16 and 17 March 2015 and 20 May 2015
|
Appearances:
|
Richard Jenson for the Applicant
Bill Nabney for the First Respondent
No appearances for the Second Respondent
Andrew Speed for the Third Respondent
No appearances for the Fourth Respondent
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Judgment:
|
28 August 2015
|
RESERVED JUDGMENT OF MOORE J
This judgment was delivered by me on 28 August 2015 at 10:00am pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
THE COMMISSIONER OF POLICE v READ & ORS [2015] NZHC 2055 [28 August 2015]
Contents
Paragraph
Number
Introduction ..............................................................................................................[1] Procedural history....................................................................................................[7] Applications and parties ........................................................................................[10] The property in question .......................................................................................[12] Commissioner’s application for profit forfeiture order (dated 22 May 2013)
Legal principles....................................................................................................[15]
(a) Stage 1: Unlawful benefit from significant criminal activity and
value of the benefit .............................................................................[18] (b) Stage 2: The maximum recoverable amount .....................................[29] (c) Stage 3: Undue hardship to the first respondent ................................[30] (d) Stage 4: Mr Read’s interest in the property .......................................[31]
Does Mr Read have an interest in the GRT? .......................................................[36] Does Mr Read have effective control over the property?.....................................[56] Howell Place ........................................................................................................[80] Rocky Cutting Road..............................................................................................[84] Bank accounts (12-3031-00235869-00 and 50)...................................................[88] Conclusion (on effective control of the GRT).......................................................[89] Internet Sales Limited ...........................................................................................[90] The motor bikes ....................................................................................................[101] William Read bank account ................................................................................ [112] Rocky Cutting Road............................................................................................. [113] Asset forfeiture application ................................................................................ [114] Profit forfeiture application ...............................................................................[130] Application for relief – Ms Wilson on behalf of the children ...........................[137] Result .....................................................................................................................[142] Disposition.............................................................................................................[143] Costs ......................................................................................................................[146]
Introduction
[1] Gary John Read (“Mr Read”) was sentenced to 11
years’ imprisonment after pleading guilty to a large number
of drug
related charges1 including importation of pseudoephedrine,
possession for supply and participating in an organised criminal
group.2
[2] On 14 December 2011, following Mr Read’s arrest six weeks
earlier, the Commissioner of Police (“the Commissioner”)
applied for
and was granted restraining orders in relation to property which the
Commissioner claimed Mr Read has a beneficial interest
in.
[3] The Commissioner then brought a profit forfeiture application in
relation to this property which includes a family trust,
property owned by a
company of which Mr Read is the sole director and shareholder, motor
bikes, bank accounts and miscellaneous
other property.
[4] The Commissioner has also applied for effective control orders in
relation to the trust, the company, the motor bikes and
a bank account in Mr
Read’s father’s name.
[5] Mr Read opposes these applications. With limited exceptions3
he says he neither has an interest in them nor does he have effective
control of them.
[6] In the event forfeiture orders are made against Mr Read, his former
partner,
Phillippa Wilson (“Ms Wilson”) applies for relief on behalf of
her children (who are
also Mr Read’s children).
1 The details of the charges are: importing pseudoephedrine (x 70); possession of pseudoephedrine for supply (x 1); possession of methamphetamine for supply (x 1); unlawful possession of a firearm (x 1); participation in an organised criminal group (x 1). In addition to the sentence of 11 years’ imprisonment imposed by Toogood J on 9 August 2013, an order was made that Mr Read serve a minimum period of five years and three months.
2 R v Read [2013] NZHC 2005.
3 The limited exceptions include bank accounts, paintings and the proceeds of sale of a Toyota
Corolla station wagon.
Procedural history
[7] The charges Mr Read faced arose from a Police operation commenced
in February 2009 under the auspices of the Organised Financial
Crime Agency of
New Zealand (“OFCANZ”). The sentencing Judge, Toogood J,
determined that Mr Read was the mastermind
behind a large scale and
sophisticated importation operation predicated on commercial gain. It involved
crushing ephedrine tablets
and mixing them into a paste which was then concealed
in cosmetic containers which were packaged in Thailand and mailed to various
addresses in New Zealand between July 2009 and September 2011. The Judge
assessed the total quantity imported in this fashion at
14.5 kilograms, a
quantity capable of producing around 8.5 kilograms of 70 to 80 per cent pure
methamphetamine with a street value
of several million dollars.
[8] On 14 December 2011, the Commissioner of Police (“the
Commissioner”) applied for without notice restraining
orders in relation
to a number of items of property which, the Commissioner claims, Mr Read has
a beneficial interest in and/or
effective control of. The restraining orders
were granted with the Commissioner filing an on notice application on 22
December
2011. The initial restraining orders were amended on 16 May 2012 and
have been renewed to the present date.
[9] On 22 May 2013 the Commissioner filed an application for a profit
forfeiture order. This was opposed by Mr Read. Ms Wilson
applied for relief on
behalf of her children.
Applications and parties
[10] For the purpose of this hearing the following
applications are for determination:
(a) By the Commissioner:
(i) an application for a profit forfeiture order (dated 22
May
2013);
(ii) application to amend the civil forfeiture order (dated
5 February 2015); and
(iii) applications to have Mr Read’s effective control over
property
treated as an interest in property (dated 5 February and
6 March 2015). (b) By Ms Wilson:
(i) an application on behalf of her children for relief from
forfeiture (dated 9 March 2015).
[11] In relation to the other parties named in these proceedings I
record the following:
(a) William James Read, the second respondent, is Mr Read’s
father. He was served with a profit forfeiture application
and was represented
by Mr Nabney at the first call on 11 June 2013. At the conference it was
ordered that any notice of opposition
and affidavits were to be filed and served
by 25 June 2013. Mr William Read has taken no further steps in the proceedings
although
he did make an affidavit and give evidence on behalf of the
Commissioner.
(b) Kevin Barry Parkinson, the fourth respondent, filed an application
for relief from forfeiture on 10 June 2013. The application
was opposed by the
Commissioner and has since been discontinued. He made no appearance in the
present proceedings.
(c) RBA Trustees Ltd was formerly the corporate trustee of Mr Read’s family trust known as the GRT Trust (“GRT”). It was the legal proprietor of a number of properties which feature in these proceedings. RBA Trustees Ltd sought directions from the Court as to whether they were required to take an active part in the proceedings. There being no opposition to that course RBA Trustees Ltd has
indicated it will abide the decision of the Court. Mr Bixley, a director of
RBA Trustees Ltd, made an affidavit in support of the
Commissioner’s
application and gave evidence at the hearing.
The property in question
[12] The items of property which are the subject of this proceeding fall into
five broad categories namely:
(a) property forming part of the GRT being: (i) 2 Howell Place;
(ii) 363 Rocky Cutting Road;
(iii) bank account numbers 12-3031-00235869-00 and 50;
(b) property legally owned by Internet Sales Limited (“ISL”)
being:
(i) caravan (registration number B130T);
(ii) 2003 Audi RS6 (registration number BGJ357); (iii) 2007 Nissan Tiida (registration number EZF512);
(iv) 2008 Nissan Station Wagon (registration number EQD591); (v) bank account numbers 12-3018-0199429-00 and 50;
(c) motor bikes registered to Kevin Barry Parkinson being:
(i) 1937 Harley Davidson WL (registration number 86ZGM); (ii) 1984 Harley Davidson FLH (registration number 63YMA);
(d) bank account number 03-0406-07325353 in the name of
William
James Read;
(e) items of property which are accepted as Mr Read’s being:
(i) proceeds from the sale of a 2000 Toyota Corolla station wagon
(registration number ZB8955);
(ii) bank account number 12-3457-0031142-00;
(iii) paintings, with the exception of the “One Tree Hill”
painting
in which Ms Wilson claims an interest;4
(iv) solar powered electricity system associated with the
caravan.5
[13] Given the legal ownership status of a number of the items of
property the Commissioner seeks effective control orders
in relation to
the GRT (of which Mr Read is a discretionary beneficiary), the ISL property
(this is the company of which Mr
Read is the sole director and shareholder), the
motor bikes and Mr William Read’s bank account.
[14] Alternatively, the Commissioner applies for an asset
forfeiture order in relation to the Rocky Cutting property
on the basis
it was purchased with the proceeds of significant criminal activity and is
therefore tainted property.
Commissioner’s application for profit forfeiture order (dated 22 May
2013)
Legal principles
[15] The power of the Court to make a profit forfeiture order is
contained in s 55
of the Criminal Proceeds (Recovery) Act 2009 (“the Act”).
Section 55 of the Act
provides as follows:
4 On 16 April 2015 I approved a conditional settlement under s 95 of the Act in relation to the painting. Counsel have advised the condition has been satisfied. Thus no orders are required in relation to this item.
5 In the course of the proceedings it became apparent that this item is in fact owned by the GRT
and Mr Read was incorrect when he said in his affidavit the item belonged to him.
“55 Making profit forfeiture order
(1) The High Court must make a profit forfeiture order if it is
satisfied on the balance of probabilities that—
(a) the respondent has unlawfully benefited from significant
criminal activity within the relevant period of
criminal activity;
and
(b) the respondent has interests in property. (2) The order must specify—
(a) the value of the benefit determined in accordance with section
53; and
(b) the maximum recoverable amount determined in accordance with section
54; and
(c) the property that is to be disposed of in accordance with section
83(1), being property in which the respondent has, or is treated as
having, interests.
(3) Subsections (1) and (2) are subject to
section 56.
(4) A profit forfeiture order is enforceable as an order made as a
result of civil proceedings instituted by the Crown against
the person to
recover a debt due to it, and the maximum recoverable amount is recoverable from
the respondent by the Official Assignee
on behalf of the Crown as a debt due to
the Crown.”
[16] Lang J, in Pulman v Commissioner of Police6 observed
that the making of a profit forfeiture order potentially requires the Court to
take four steps.
(a) First, it must determine7 whether the Commissioner has proved, on the balance of probabilities, that the respondent has unlawfully benefited from significant criminal activity during the relevant period.8 If the Court is so satisfied, the value of that benefit is presumed to be one of the values prescribed by s 53(1). The respondent may, however, rebut that presumption on the balance of
probabilities.9
6 Pulman v Commissioner of Police HC Auckland CIV-2010-404-5666, 27 May 2011.
7 Under s 53(1).
8 Section 6 defines “significant criminal activity” as an activity that if proceeded against a person as a criminal offence would be punishable by a maximum of five years’ imprisonment or more; or from which there is $30,000 or more of the resulting profits, proceeds or benefits.
9 Under s 53(2).
(b) Secondly, the Court is required to determine10 the maximum recoverable amount. It does that by taking the value of the benefit11 and deducting from that figure the value of any property already forfeited to the Crown by virtue of any assets forfeiture order made in
relation to the same criminal activity as that to which the profit
forfeiture application relates.12
(c) Thirdly, the Court must determine13 the circumstances
relevant to that enquiry as set out in s 56(2); whether any property should be
excluded from the operation of
the profit forfeiture order because
undue hardship is likely to be caused to the respondent if such property were
realised.
(d) Once the Court has undertaken such of these exercises as may be relevant, it must make a profit forfeiture order under s 55(1) if it is satisfied on the balance of probabilities that the respondent has interests in property. Any such order must specify the value of the
benefit,14 the maximum recoverable amount,15 and the
property that is
to be disposed of.16
[17] In their submissions before me both counsel adopted Lang J’s
helpful four
stage enquiry. I shall do the same.
(a) Stage 1: Unlawful benefit from significant criminal activity and
value of the benefit
[18] Mr Jenson, for the Commissioner, relies on the pleas, convictions and sentencing notes regarding Mr Read’s criminal offending to satisfy the first limb of the Stage 1 analysis; proof of an unlawful benefit. He submits that such evidence is
admissible in terms of s 47 of the Evidence Act 2006 which provides that
when the
10 Under s 53(2)(b).
11 As already determined in accordance with s 53.
12 By s 54(1).
13 Under s 51(1).
14 As determined in accordance with s 53.
15 As determined under s 54.
16 Being property in which the respondent has, or is treated as having, interests: s 55(2)(c).
fact a person has committed an offence is relevant to an issue in a civil
proceeding, proof the person has been convicted of that
offence is conclusive
proof the person committed the offence.
[19] Mr Jenson also submits that while the factual findings of
Toogood J at Mr Read’s sentencing are not binding
on the parties in this
proceeding they are nonetheless admissible as proof of the unlawful
benefit.17 I accept that submission.
[20] Next I must be satisfied the benefit has been derived from
significant criminal activity. I am so satisfied for
the reasons Mr Jenson
submits, namely:
(a) pseudoephedrine is an important pre-cursor and/or base product in the
manufacture of methamphetamine;
(b) the summary of facts which described Mr Read’s offending
recorded:
“The first respondent was at the top; he financed the
operation and received the majority of the money obtained as
a result of the
pseudoephedrine being sold on the domestic market.”
(c) Mr Read’s role was discussed by Toogood J when he
observed:18
“It is clear, Mr Read, that you headed this importation distribution
enterprise. You controlled the distribution of pseudoephedrine
through
methamphetamine cooks and you received at least some of the finished product at
the end. You then used people like Ms Brady
to distribute it. That is the basis
of the charge of participating in an organised criminal
group.”
[21] From this evidence it is plain that Mr Read derived an unlawful
benefit from significant criminal activity.
[22] Next I must consider the value of that
benefit.19
17 Commissioner of Police v Filer [2013] NZHC 3111 at [25]- [31].
18 R v Read, above n 2,2013 at [8].
19 Section 53.
[23] Section 53 of the Act deals with the value of the benefit. It
states:
“53 Value of benefit presumed to be value in application
(1) If the Commissioner proves, on the balance of probabilities, that
the respondent has, in the relevant period of criminal
activity, unlawfully
benefited from significant criminal activity, the value of that benefit is
presumed to be the value stated in—
(a) the application under section 52(c); or
(b) if the case requires, the amended application.
(2) The presumption stated in subsection (1) may be rebutted by the
respondent on the balance of probabilities.”
[24] For the reasons set out above I am satisfied Mr Read has, in the
relevant period of criminal activity,20 unlawfully benefitted from
significant criminal activity.
[25] By virtue of s 53(1) the value of that benefit is presumed to be the
value stated in the application.
[26] The application for a profit forfeiture order dated 22 May 2013
states that the value of the unlawful benefit is $1,714,889.
This figure is
based on the Commissioner’s belief the 70 packages of pseudoephedrine
imported by Mr Read contained 19.2 kilograms
of the drug. This figure does not
take into account benefits derived from the sale and supply of methamphetamine
and thus may be
taken as conservative.
[27] To rebut the presumption Mr Read must provide evidence which
establishes, on the balance of probabilities, that the value
of the benefit is
different to that stated by the Commissioner and what that difference in value
is.
[28] No such evidence has been adduced. In his affidavit, Mr Read simply
commented he did not accept this was the value of any
benefit obtained by him.
He
20 “Relevant period of criminal activity” is defined in s 51 as the period which ends on the date the application is made and starts seven years before (a) the date of the application for the relevant restraining order, if the application for the profit forfeiture order relates, wholly or in part, to restrained parties; or (b) the date of the application for the profit forfeiture order, if the application for the profit forfeiture order does not relate to estranged property. In the present case the relevant restraining order was filed on 22 December 2011. The offending for which Mr Read was charged covered the period between July 2009 and September 2011.
claimed that the value of any benefit would be the difference in the price he
paid when importing the pseudoephedrine and the price
paid to him by those to
whom he on-sold it. This approach was expressly rejected by this Court in
Commissioner of Police v Tang.21 In the absence of evidence
to the contrary I thus find the value of the unlawful benefit to be
$1,714,889.
(b) Stage 2: The maximum recoverable amount
[29] In determining the maximum recoverable amount the Court must take
the value of the unlawful benefit, as already discussed,
and deduct from that
figure the value of any property already forfeited to the Crown by
virtue of any assets forfeiture
order made in relation to the same criminal
activity as that to which the profit forfeiture order relates. The only
deduction to
the maximum recoverable amount in the present case relates to the
Rocky Cutting Road property if this Court grants the asset forfeiture
application in relation to that property. However, such an order would also
remove this property from the remaining property to
be forfeited, rendering this
exercise moot.
(c) Stage 3: Undue hardship to the first respondent
[30] No undue hardship has been advanced by Mr Read.
(d) Stage 4: Mr Read’s interest in the
property
[31] Having determined that the first three stages under Pulman have been satisfied the Court is then required to make a profit forfeiture order under s 55(1) if it is satisfied on the balance of probabilities that the respondent has interests in property. Any such order must specify the value of the benefit, the maximum recoverable amount and the property that is to be disposed of. This is the area of
contest in the present
case.
21 Commissioner of Police v Tang [2013] NZHC 1750 at [21]- [25].
[32] The key issues in this proceeding are whether Mr Read has an
interest in, or effective control over:
(a) the GRT property; (b) the ISL property;
(c) the William Read bank account;22
and
(d) the motor bikes.
[33] Interest is defined in s 5 of the Act as
follows:23
interest, in relation to property of any kind (including, without
limitation, restrained property or forfeited property), means—
(a) a legal or equitable estate or interest in the property; or
(b) a right, power, or privilege in connection with the property
[34] This definition is deliberately broad, and can include an inchoate right, such as the right to bring proceedings under the Property (Relationships) Act 197624 or an interest by way of constructive trust.25 However, a mere expectation on the part of a discretionary beneficiary that cannot be legally enforced will not be sufficient.26
Whether such an expectation may form part of effective control is, of course,
a different question.
[35] I shall now deal with the position of the GRT first; examining the question of whether Mr Read has an interest in the trust and then, alternatively, whether he has
effective control over the trust and its
property.
22 In the course of the hearing the Commissioner abandoned his claim in respect of this item.
23 Criminal Proceeds (Recovery) Act 2009, s 5, definition of “interest”.
24 See Hayward v Commissioner of Police [2014] NZCA 625 at [25].
25 Lankow v Rose [1995] 1 NZLR 277 (CA) at 294.
26 R v Corless [2013] NZHC 2735 at [82]- [83]; Commissioner of Police v Winsor [2014] NZHC
161 at [40]-[43].
Does Mr Read have an interest in the GRT?
[36] Mr Nabney submits Mr Read does not have an interest in the GRT. It
is the Commissioner’s case that he does.
The property of the
GRT comprises the following:
(a) the real estate and chattels situated at 2 Howell Place,
Tauranga;
(b) the real estate and chattels situated at 363 Rocky Cutting Road;
and
(c) the GRT bank accounts.
[37] In considering each of these property items it is necessary to
examine the formation of the GRT, the trust deed’s terms
and conditions
and its operation in practice.
[38] The GRT was established under a deed of trust dated 26 March 2007.
It was settled following the separation of Mr Read
and Ms Wilson which
occurred in November 2006. It was accepted for the Commissioner that the
trust was settled before any of
the relevant offending.
[39] The settler of the GRT was Georgina Ann Read, Mr Read’s
mother. The trustee, during the relevant period, was
first RBA
Trustees Limited and later Mr Mark Asher. The final beneficiaries are
Mr Read’s four children.
The discretionary beneficiaries include
the final beneficiaries and Mr Read.
[40] The power of the trustees to make distributions is broad and
empowers the trustees to make distributions:
“... towards the personal support, maintenance, comfort, education,
advancement in life or otherwise how so ever of the benefit
of such of the
discretionary beneficiaries as may from time to time be living during the trust
period also such one or more them
to the exclusion of others ... in such shares
and proportions as to trustees in their absolute and uncontrolled discretion
shall
think proper.”
[41] The deed also provides that the number of trustees should be no less than one and not more than four. Despite this, over the more than decade long existence of
the GRT only one trustee has been appointed at any time. Mr Read has the
sole right to appoint and remove Trustees at any time and
in his sole and
absolute discretion.
[42] Unusually, the deed contains a special clause requiring the trustee
to treat, as a “first responsibility”,
Mr Read’s
circumstances. The clause refers to the purchasing or refurbishing of a
home or homes, new cars and the
costs of holidays. The clause requires the
trustee to exercise this power in a “liberal way” and that Mr
Read’s
“comfort and welfare ... is the primary consideration of the
Trustees”.
[43] Clause 15 of Schedule A of the deed is reproduced in full
below:
“15 TRUSTEES FIRST RESPONSIBILITY
15.01 The first responsibility of the trustee shall be to consider on a
regular basis the circumstances of [Mr Read] while he is
living and to pay or
apply so much of the income or of the capital of the trust fund as the Trustee
thinks fit to or for the maintenance
and benefit of them including the provision
of sufficient funds ... to provide such financial assistance as may be necessary
for
the purposes of purchasing or refurnishing a home or homes, purchasing a new
car or cars, meeting expenses of holiday tours
whether they are in New
Zealand or abroad, or other purposes of a capital nature such power to be
exercised by the Trustees in
a liberal way (but having regard to any other
sources of income or capital known by the Trustees to be available to them) to
enable
them to maintain a reasonable standard of living throughout their lives
having regard to the standard of living to which they have
been accustomed so
that the comfort and welfare of [Mr Read] is the primary consideration of the
Trustees. (sic)”
[44] Mr Jenson submits that the combined effect of this clause and the
clause giving Mr Read the sole discretion to appoint and
remove trustees is to
confer rights, powers and privileges to Mr Read in connection with the trust
property. He thus submits that
Mr Read has an interest in the
property.
[45] In response, Mr Nabney submits that the trust deed is not unusual and contains the usual rights and responsibilities that devolve on the trustee. More particularly, he submits that the trust deed makes it clear that the legal ownership of trust property vests with the trustee and any benefits derived from trust property are at the sole discretion of the trustee.
[46] He submits that the fact that the trustee’s first
responsibility is to consider the circumstances of Mr Read while
he is
living, does not alter the fact that the discretion to make a
distribution remains solely with the trustee. That
Mr Read may be the subject
of the trustee’s first responsibility is a provision directed at assisting
the trustee in the trustee’s
exercise of their discretion and nothing
more. He submits it does not create any special interest in the trust property
in favour
of Mr Read.
[47] Notwithstanding the expansive definition of
“interest” under the Act the Courts have found that the
expectation
by a beneficiary of a discretionary trust, does not amount to an
interest under the Act. In particular, Ellis J noted in R v
Corless:27
“[82] But the difficulty that exists for both Luke and Casey is that
the Courts have declined to recognise the mere "expectation"
possessed by
beneficiaries under a trust as coming within even the wide definition of
"interest" that I have set out above. That
would be so whether or not the matter
were to be pursued on their behalf by the trustees or not. As
Venning J said in
Solicitor-General v Monk at [31]:28
‘[31] Even given the extended definition of "interest" under the Act, the individual discretionary beneficiaries do not have individual interests in the property. As discretionary beneficiaries they may have certain expectations but in Hunt v Muollo the Court of Appeal confirmed that a discretion my beneficiary has no interest, legal or equitable, in the assets of the trust.29 The discretionary beneficiary only acquires an interest in the property on the making of the distribution and then only to the extent of the distribution.’
[83] Even if, as was urged upon me by Mr Leabourn (for Casey) and Mr
Dickinson (for Luke) I were prepared to reject Venning J's
analysis and regard
their clients' respective beneficial interests as falling within the wide
statutory definition, the reality would
be that those interests are incapable of
valuation for the purposes of granting relief. While both counsel rather
optimistically
suggested that between 25 and 30 per cent of the value of the
property was appropriate that is simply not correct. The only expectation
that
either of Mr Corless' sons had as beneficiaries under the trust is that they
might receive some unspecified sum at some point
in the next 70 years. This
expectation is all that they will lose in the event that the property is
forfeited. A contingency of this
kind (effectively a loss of chance) cannot in
my view be valued for the purposes of s 142L; it would, in any event, be de
minimis at best.”
27 R v Corless [2013] NZHC 2735.
materially identical.
29 Hunt v Muolla [2003] NZCA 66; [2003] 2 NZLR 322 (CA) was not a forfeiture case.
[48] The same analysis was upheld in relation to civil
forfeiture orders in
Commissioner of Police v Winsor30 where Courtney J
said:
“[42] Even under the wider definition of ‘interest’ being a right, power or privilege in connection with the prope1ty, the rights, powers and privileges which Mr Wimsett has correctly identified that Ms Wark and Ms Lyttle have as discretionary beneficiaries are rights in connection with the trust as an entity, not with the trust property. For example, they could apply to have the trustee removed and another trustee appointed, but this right does not alter the fact that the discretionary beneficiaries only have a mere expectation in relation to the trust property.
[43] This does not deprive the second limb of the ‘interest’
definition of effect. It applies to rights, powers and
privileges that a person
has in connection with property such as in Solicitor-General v Hammond,
where the Solicitor-General sought a restraining order under the Proceeds of
Crime Act 1991 in relation to property owned by the
respondent which had been
used in drug offending. The ASB Bank, having a registered mortgage over the
property, sought to have its
interest excluded from the restraining order.
Justice Laurenson considered that the mortgagee's interest amounted to a legal
interest
in the property, and the power of sale contained in the
mortgage amounted to a right in connection with the land for the
second limb of
the meaning of ‘interest’”.
[49] These authorities make it plain that discretionary beneficiaries,
even under the breadth of the definition of interest in
s 5(1) have, at best,
only an expectation in relation to the trust property. Even the requirement on
the trustees to consider Mr
Read as a first responsibility does not alter that
premise. I agree with Mr Nabney that this clause is directed at assisting the
trustee in his exercise of its discretion. Whether or not a distribution is made
remains at the discretion of the trustee even though
the “first
responsibility” clause makes it abundantly plain how that discretion is
expected to be exercised. I shall
return to this issue in the context of
effective control.
[50] Another feature of the operation of the trust which Mr
Jenson submits supports the conclusion Mr Read has an interest
in the GRT
property is not only his ability to remove trustees but also the manner in which
he, in fact, has exercised that power.
[51] In 2007, following his separation from Ms Wilson, Mr Read contacted
a chartered accountant, Mr Bixley, who had acted for
him in the past. Mr Read
asked
30 Commissioner of Police v Winsor [2014] NZHC 161.
Mr Bixley if he would agree to be a trustee of the GRT. Mr Bixley agreed.
RBA Trsutees Limited was appointed trustee. Mr Bixley
is a director and
shareholder of that company which provides trustee services to trusts. Mr
Bixley was the person who dealt with
Mr Read in the context of the GRT. At that
time the trust’s assets included the property at 2 Howell Place. In
early 2009
this was followed by the acquisition of 363 Rocky Cutting
Road.
[52] Shortly after the Commissioner restrained Mr Read’s
assets Mr Bixley advised Mr Read he no longer wished to
be the trustee and
indicated his desire to resign. According to Mr Bixley, Mr Read did not respond
to this request. Mr Bixley then
indicated he intended to put the trust in the
care of the Public Trustee. This, apparently, lead Mr Read to remove RBA
Trustees
Ltd and appoint Mr Asher in its place. Mr Asher was described in the
evidence as a friend and trusted associate of Mr Read’s.
[53] Mr Jenson submits that Mr Asher’s engagement as the
replacement trustee cemented Mr Read’s control of the trust
and, by
implication, effectively means that Mr Read has an interest in the trust
property because he can dictate the operation of
the trust to his
benefit.
[54] I do not accept that submission. While the evidence of the
appointment of Mr Asher and the surrounding circumstances
are relevant to
an assessment of whether Mr Read has effective control, it does not assist in
determining whether he has an
interest in the trust property. This is because,
as a discretionary beneficiary, Mr Read is still dependant on the exercise of
the
trustee’s discretion. I do not consider that the effect of the trust
deed is such as to grant Mr Read an interest in the
trust or its property. At
no point did he have a legal right to the property that could have been enforced
in Court. It follows
I do not accept Mr Read has an interest in the
GRT.
[55] However, as noted above, the evidence concerning the operation of the GRT is relevant to the question of whether Mr Read has effective control of the trust when assessed with the evidence of how, in fact, Mr Read has dealt with the trust. This is the issue I now turn to.
Does Mr Read have effective control over the property?
[56] In the alternative, the Commissioner applies to have Mr Read’s
effective control over the property treated as an interest
in property. There
are two such applications dated 5 February 2015 and 6 March 2015
respectively.
[57] The application dated 5 February 2015 relates to the Howell Place
and Rocky Cutting Road properties, the ASB and Westpac
bank accounts and the
three vehicles being the Audi and the two Nissans, although I note that those
vehicles are the property of
Internet Sales Ltd. I will discuss the disposition
of that company and its property later in the judgment.
[58] The application dated 6 March 2015 relates to the two Harley
Davidson motorcycles which are registered to Mr Parkinson.
[59] Section 58 of the Act relevantly provides as follows:
“58 Court may treat effective control over property as interest in
property
(1) If the High Court is satisfied that a respondent has effective
control over property, the Court may, on an application
made by the
Commissioner, order that the property is to be treated as though the
respondent had an interest in the property
specified by the Court.
[...]”
[60] This section enables the Court to go behind any corporate structure or trust which disguises the true and effective control of property and determine the actual factual position of the respondent in relation to that property.31 It allows the Court to consider the practical reality of ownership, rather than being limited by legal forms. In particular, it has been used to set aside corporate structures32 and trusts33 to
identify the person exercising control over the property. The
fundamental question is
31 Solicitor-General v Bartlett [2007] NZHC 684; [2008] 1 NZLR 87 (HC).
32 Commissioner of Police v Li [2014] NZHC 479.
33 Commissioner of Police v Ranga [2013] NZHC 745 at [30]; Commissioner of Police v Clifford
whether, in fact, the respondent has the capacity to control, use, dispose
of, or otherwise treat the property as their own.34
[61] Mr Nabney submits that the manner in which the GRT has been operated
since its inception demonstrates that Mr Read does not
have effective control
over the trust or its assets. He refers to the evidence of Mr Bixley who
described the contact he had with
Mr Read while the former was trustee, noting
that the decisions he made in relation to distributions were in accordance with
his
obligations as a trustee under the trust deed and that he did not accede to
every request Mr Read made for a distribution.
[62] Mr Nabney submits that in order to find Mr Read has effective
control over the trust’s assets there needs to be evidence
he dealt with
the trust’s assets as if they were his own. Mr Nabney submits there is no
such evidence and, indeed, he says
the evidence points to the
contrary.
[63] Mr Nabney submits that there is no evidence that Mr Asher,
as the replacement trustee, is being controlled by
Mr Read. Mr Asher remains
bound by the provisions of the trust deed.
[64] Effective control is to be assessed as at the date of the
hearing.35 However, the background as to how the trust has been
operated is informative on the issue of effective control.
[65] Although I have found that Mr Read, as a discretionary beneficiary, does not have an interest in the GRT, his influence and involvement in the operation of the trust and its property is relevant in considering whether he has effective control. There are several aspects of Mr Read’s relationship to the trust and his involvement
in its assets which require examination. The first is the trust deed
itself.
34 Bartlett above n 31 at [27]; Solicitor-General v Huang HC Auckland CIV-2005-404-1538, 18
December 2007 at [70].
35 Huang above n 34.
[66] Mr Bixley, who obviously has professional experience as a trustee,
said that clause 15 of Schedule A to the deed, titled,
“Trustees First
Responsibility” was not something he had ever come across
before.
[67] I have already discussed this clause. The wording of clause 15
plainly directs the trustee that the primary and preferred
beneficiary is Mr
Read. Furthermore, the trustee is required to exercise the power to make
distributions “in a liberal way”.
That the primary consideration of
the trustees is the comfort and welfare of Mr Read is also noteworthy as is the
listing of the
purposes for which financial assistance may be given including
purchasing homes, new cars, meeting the expenses of holidays, etc.
[68] This provision, when considered alongside Mr Read’s sole right
to appoint and remove trustees at any time in his sole
and absolute
discretion,36 emphasises Mr Read’s ability to influence the
manner in which the trust is operated and, in particular, the distribution of
benefits to him personally.
[69] Under clause 15 virtually any request for a distribution by Mr Read
would, subject to the availability of funds, require
the trustee to comply. If
the trustee did not comply Mr Read would be at liberty to remove the trustee and
appoint a more compliant
successor. In that way Mr Read has effective control
of the GRT. In my view, on its own, this would be sufficient to meet the
statutory
test.
[70] However, the evidence demonstrates that not only did Mr Read possess
the powers to effectively control the trust through
the wording and construction
of the deed, but he also ensured that, in fact, he exercised effective
control.
[71] For example, Mr Bixley through RBA Trustees Ltd, remained trustee until December 2013. Following the making of restraining orders Mr Bixley advised Mr Read he no longer wished to remain a trustee. Having received no response from Mr Read, Mr Bixley indicated he would put the trust’s affairs in the care of the Public Trust. It was only then that Mr Read appointed Mr Asher was appointed to
replace RBA Trustees Ltd.
36 Clause 7 of the trust deed.
[72] In my view it is significant that instead of utilising the
services of a professional trustee who would be expected
to ensure Mr Read was
maintained at arm’s length from the affairs of the trust, Mr Read
appointed Mr Asher. Mr Read, in answer
to a question that when Mr Bixley sought
to have the Public Trust appointed, Mr Read knew his level of control would be
diminished,
replied that that was not the “sole” reason for
appointing Mr Asher. Thus on Mr Read’s own evidence it must have
been at
least part of his reason to appoint Mr Asher.
[73] Mr Read accepted that Mr Asher was a friend and trusted associate of
his. He is godfather to Mr Read’s children and
is managing Mr
Read’s affairs while he is in prison.
[74] I also regard as relevant the fact that despite the deed providing
for the appointment of up to four trustees, Mr Read has
only ever appointed one
at any time. This ensures Mr Read needs only deal with only a single individual
rather than four; the latter
circumstance inevitably complicating and
restraining his ability to influence the manner in which distributions in his
favour
are made. In this context it is also noteworthy he has chosen to appoint
a friend and trusted associate.
[75] Also of relevance is Mr Bixley’s evidence that Mr Read would frequently contact him in relation to the trust’s affairs to follow up on payments of rent, rates and insurance. Mr Read claimed he did this in order to keep tabs on Mr Bixley because he felt he was remiss in his discharge of his duties. Mr Bixley said he left many of Mr Read’s calls unanswered because he was getting queries from him all the time about what he had done or what he had not done. Mr Bixley indicated it was time wasting and trivial. Plainly, from this evidence, Mr Read exercised a high degree of sustained interest in how the trust assets were being managed. Mr Read explained this by describing himself as the “overseer of things”. He accepted he telephoned Mr Bixley to check on whether Mr Bixley had attended to various administrative tasks and said the exchanges got quite heated.
[76] On behalf of the trust Mr Read said he signed agreements but when
doing so always added the notation “on behalf of
the trust”. When
it was put to him he ran the day to day management of the trust’s assets
he tellingly replied:
“No. I tried to sometimes but Mr Bixley wouldn’t let
me.”
[77] Additionally, Mr Read was the principal provider of funds into the trust. For example, Ms Falkner, Mr Read’s sister, deposed that in 2007 Mr Read was looking to buy a house in Waihi. In the course of the negotiations, on three separate occasions in November 2007, he gave her large quantities of cash totalling $63,830 which she deposited into her own account. The sale of the house did not progress and Mr Read asked his sister to transfer $63,000 into the trust. This took place on 19
November 2007. Ms Falkner said Mr Read never told her where the money came
from. She said he got her to complete some legal documentation
which included a
deed of forgiveness of debt for $27,000. She said she had no idea
what the document was. She signed
it because her brother asked her
to.
[78] Plainly this arrangement was used by Mr Read as a mechanism to
dispose of cash funds into the GRT using the artifice of a
gift. According to
Mr Bixley these funds sat in the trust account for some time and were used for
loan repayments and could have
been used for distributions.
[79] In addition to the trust itself I am also satisfied Mr Read
maintained effective
control over the trust’s assets and I shall discuss these
now.
Howell Place
[80] Howell Place was Mr Read’s residence. During telephone calls
from prison
he referred to it as his own.
[81] Howell Street was originally owned by the Jewell Trust. This was a family trust the beneficiaries of which were Mr Read, Ms Wilson and the children. When Mr Read and Ms Wilson separated in November 2006, as part of their relationship property settlement it was agreed the ownership of Howell Place would pass to Mr Read or a trust nominated by him. The relevant provision in the agreement read:
“Gary and Pip agree the ownership of the Howell Place property shall be
resettled from the trust to Gary or a trust nominated by
Gary.”
[82] Mr Read, as mortgagee, was responsible for the payment of the
mortgage. During the period of his offending ISL was
the tenant and
covered the rental payments although these were treated in part as an
advance to Mr Read for accounting
purposes. The rent was paid into
the GRT bank account and then transferred into Mr Read’s account for
payment
of the mortgage.
[83] Additionally, Mr Bixley said that Mr Read initially arranged for the
bank to have the trust transfer the rental payments
into his account without Mr
Bixley’s authority. Mr Bixley intervened. However, this evidence is a
further indication, not
only of Mr Read’s degree of control over the
trust’s assets, but also his willingness to deal directly with the
trust’s
affairs including its banking. Additionally Mr Read was living in
the property, paying the mortgage and for intents and purposes
exerting control
over the property as if it was his own.
Rocky Cutting Road
[84] This property is subject to an asset forfeiture application on the
grounds that the property was acquired or derived using
funds from significant
criminal activity. The Commissioner claims the property is tainted. I shall
return to the asset forfeiture
application later in this judgment.
[85] However, Mr Read’s use and treatment of the property
provides further evidence of his effective control of
property owned by the
GRT.
[86] Although the property was acquired in late 2008 and thus
pre-dates the relevant period of criminal activity, Mr
Read’s treatment
and use of the property is relevant. Mr Read arranged the tenants. He
signed them up. He
undertook extensive work on the property. His
company’s caravan was placed on the property. In response, Mr Nabney
submits
that nothing should be taken from this conduct. It was logical and cost
effective for a local person to manage this asset for the
trust.
[87] While there is some force in that submission if this evidence was to be considered in isolation, Mr Read’s conduct in relation to Rocky Cutting Road is
consistent with the evidence of his engagement and effective control of the
trust itself and Howell Place. It is inconsistent with
a trust operating at
arm’s length from the beneficiaries with the trustee being left to manage
the affairs of the property.
It is further evidence of Mr Read treating the
asset as if it was his own.
Bank accounts (12-3031-00235869-00 and 50)
[88] I have not been referred to any evidence indicating Mr Read’s
direct involvement in operating either of the trust’s
bank accounts.
However, as already discussed, Mr Read directed Ms Falkner to transfer cash into
the trust’s account. Furthermore,
until Mr Bixley stopped the practice, Mr
Read arranged for the bank to have the trust transfer the rental payments into
his bank
account.
Conclusion (on effective control of the GRT)
[89] For the reasons set out above I am satisfied on the evidence that Mr
Read has effective control over the trust.
Internet Sales Limited
[90] ISL was incorporated on 24 November 2006. Mr Read was
the sole shareholder and director.
[91] In his affidavit, Mr Read said that the company was engaged in the business of manufacturing, marketing and distributing herbal products through the internet and in excess of 300 retail stores. In his oral evidence Mr Read said that the sales were from party pills, sex pills and gym pill supplements. Mr Read said the business of the company was lucrative and that he could take over $100,000 in cash on a Saturday afternoon, an explanation which he had not given in his affidavit. On that point Mr Nabney submitted that Mr Read giving this explanation for the first time in Court is readily explicable by the fact that the asset forfeiture application for Rocky Cutting Road was made after Mr Read had provided his affidavit. The relevance of Mr Read’s ready access to large amounts of cash is because Mr Read paid $112,500 in cash for Rocky Cutting Road.
[92] Further evidence of the merging and intermingling of funds between
the various entities associated with Mr Read emerged in
his evidence when he was
cross-examined about the large quantities of cash he claimed could be earned.
When it was put to him that
it was the company’s cash not his, Mr Read
responded that it was the same thing, noting he was a shareholder and director
of
the company. The motor bikes, which I discuss later in this judgment, were
also owned by the company and yet when they were transferred
to the ownership of
Mr Parkinson the agreement was signed by Mr Read. No mention was made of ISL.
Invoices for work done on the
motor bikes were also made out to Mr Read. There
are further examples of how Mr Read intermingled his own affairs with those of
the trust and the company. Despite his attempts to suggest otherwise it is plain
Mr Read paid only lip service to the need to segregate
himself from the affairs
of the various business and property entities he was involved with.
[93] Of course, as the sole director and shareholder of ISL, Mr Read had both an interest in and effective control of ISL. In this regard the case is identical to Commissioner of Police v Li where Katz J held that the two directors and shareholders of a group of companies had an interest in the property of those
companies and had effective control over them.37
[94] However, Mr Nabney’s submission that Mr Read does not have an
interest in or control over ISL is based on the fact
that now the company has
been struck off, Mr Read has no interest or effective control.
[95] ISL was struck off the companies register on 18 November 2014. It
seems
that the reason for this was the company’s failure to file its 2014
annual return.
[96] Mr Jenson submits that as a consequence, under s 234 of the
Companies Act
1993, the ISL property vests in the Crown. Pursuant to s 239 Mr Read is entitled to apply to the Court to restore the company to the register. If this was to occur the
property would re-vest in the company and Mr Read’s interests
would be restored.
37 Commissioner of Police v Li [2014] NZHC 479 at [50]- [55].
[97] Mr Jenson submits that the appropriate course is for the
Court to order forfeiture to preserve the Commissioner’s
position and to
prevent Mr Read from regaining an interest in or effective control of the
company.
[98] Mr Nabney submits that the effect of ISL vesting in the Crown
necessarily means that Mr Read cannot be said to be in effective
control of any
assets owned by ISL. He could only do so if he was to apply to the Registrar of
Companies or the High Court which
has not occurred.38 Mr Nabney
submits that because neither the Commissioner nor any other person who has
standing to apply to restore ISL to the register
has done so, Mr Read cannot be
said to have effective control of the assets owned by ISL. This is because the
treatment of assets
is at the sole discretion of the Secretary to Treasury and
there has been no notice of disclaimer by the Crown.39
[99] I consider that the right which Mr Read retains to apply for the reinstatement of the company is an interest in property for the purposes of the Act. In this way, I adopt the reasoning of the Court of Appeal in Clayton v Clayton where it held that Mr Clayton’s power to appoint and remove discretionary beneficiaries was property
for the purposes of the Property (Relationships) Act 1976.40 In
that case, Mr Clayton
had a power to make himself the sole beneficiary in the trust. Here, Mr Read
has the power to make himself sole director and shareholder
of the company by
applying for its reinstatement. As a result, I am persuaded that he has an
interest in the property.
[100] Therefore, I am prepared to order forfeiture as requested by the
Crown.
The motor bikes
[101] The registered owners of the motor bikes was ISL. However, invoices
for work undertaken on the bikes were made out to Mr
Read
personally.
[102] On 27 September 2011, Mr Read was arrested. A week later, on 5
October
2011, the registration of both motor bikes was transferred from ISL to
Mr Parkinson.
38 Companies Act 1993, ss 328 and 329.
39 Companies Act 1993, s 325.
40 Clayton v Clayton [2015] NZCA 30, [2015] NZFLR 233 at [99]- [110].
[103] Mr Read said he transferred the ownership to Mr Parkinson because he
had either done, or had arranged to have done, a significant
amount of work on
the motor bikes which Mr Read said he was unable to pay for. What is
particularly significant is that the agreement
between Mr Read and Mr Parkinson
purports to record the transfer date as 15 September 2011, approximately two
weeks before Mr Read’s
arrest. And yet the agreement is dated 12 May 2012
eight months later.
[104] I accept Mr Jenson’s submission that limited weight should be
put on the statements made by Mr Parkinson given that
he was not produced for
cross- examination41 and does not appear to be unavailable as a
witness.42
[105] Mr Nabney made no submissions in relation to the motor bikes
observing that because Mr Read’s position is they are not
his property and
Mr Parkinson has elected not to continue with his application for relief, there
is little more which can be said
from Mr Read’s perspective.
[106] I am satisfied the claim by Mr Read that he owed money to Mr
Parkinson for work completed on the motor bikes to explain why
their ownership
was transferred deserves sceptical consideration. Mr Parkinson was on a
sickness benefit and had not declared any
income or ability to work for the
relevant period. Furthermore, given the income streams available to Mr Read at
the time, his
claim the motor bikes were transferred to Mr Parkinson’s
ownership because he was unable to meet his financial obligations,
cannot be
correct.
[107] Furthermore, as Mr Jenson submits, a personal debt does not
create an interest in property for the purpose of the
Act.43
[108] But of greatest significance is the timeline which plainly exposes
the so- called transfer for the sham it is:
(a) 15 September 2011 – the transfer is alleged to have been made but
not contemporaneously recorded;
41 High Court Rules, rr 9.74 and 19.14.
42 Evidence Act 2006, s 18.
43 Solicitor-General v Sanders (1994) 2 HRNZ 24, pp 12-13.
(b) 27 September 2011 - Mr Read is arrested;
(c) 5 October 2011 – motor bikes registered in Mr Parkinson’s
name;
(d) 12 May 2012 – the agreement recording the transfer is
created.
[109] I am satisfied that Mr Read retains effective control over the motor
bikes and that the purported agreement was a clumsy pre-emptive
attempt to avoid
the consequences of the Commissioner’s application. The evidence shows
the motor bikes are, by some margin,
the most valuable assets of ISL. The
motive to avoid them being forfeited is obvious. In particular, the timing of
the transfer
makes such an inference irresistible.
[110] Even if I am wrong, I am satisfied that s 167 of the Act has
application in the present circumstances. Section 167 provides
as
follows:
“167 Arrangements to avoid operation of this Act or Sentencing Act
2002
(1) In this section, arrangement means—
(a) any agreement, arrangement, understanding, promise of undertaking
whether express or implied and whether or not enforceable
or intended to be
enforceable at law; and
(b) any scheme, plan, proposal, action, course of action, or course of
conduct.
(2) If the High Court (or if the matter relates to an instrument of
crime in relation to which proceedings were commenced in
the District Court,
the District Court) is satisfied that a person has an arrangement for the
purposes of directly or indirectly
defeating, avoiding, preventing, or impeding
the operation of this Act or sections
142A to 142Q of the Sentencing Act 2002 in any way, the Court
may—
(a) make an order declaring the arrangement to be void wholly or in
part; or
(b) make an order varying the arrangement in whole or in part.
(3) The High Court or District Court may also make other orders that it considers necessary in the circumstances to
give effect to an order made under subsection (2), including, without
limitation, an order to do all or any of the following:
(a) dispose of property (including selling property): (b) pay money to any person:
(c) dispose of the proceeds of any disposal of the property:
(d) create a charge on property in favour of a person and enforce that
charge.
(4) The High Court or District Court may rescind or vary any order made under
this section.”
[111] For the reasons set out above I am satisfied that the purported
agreement between Mr Read and Mr Parkinson is an arrangement
within
the meaning of s 167(1). I am also satisfied that the agreement amounts to an
arrangement for the purposes of directly
or indirectly defeating, avoiding,
preventing or impeding the operation of the Act. In the circumstances I
make an order
under s 167(3)(a) declaring the arrangement to be wholly void
and I further order that the motor bikes are to be included in the
Commissioner’s profit forfeiture order as property of ISL. I also note
that if s 167 had not applied, I would nonetheless
have considered that the
motorbikes remained in Mr Read’s effective control.
William Read bank account
[112] No orders are required in respect of this property. The Commissioner
does not dispute Mr William Read’s claim
that the bank account
which has been restrained does, in fact, contain monies belonging to
him. While this was
the account via which Mr Read transferred significant
amounts of money to Thailand the applicant submits that as at the date of the
hearing the Commissioner accepts this is no longer the case.
Rocky Cutting Road
[113] I deal with this property separately at this point because it is subject to alternative applications; an asset forfeiture order and a profit forfeiture order. However, this property is owned by the GRT and, as such, is subject to the forfeiture
orders which apply to the trust. Despite this fact I intend to discuss the
separate grounds for forfeiture raised by the Commissioner
below for
completeness.
Asset forfeiture application
[114] The Commissioner applies for an asset forfeiture order on the grounds
that the Rocky Cutting Road property was purchased with
the proceeds of
significant criminal activity and is thus tainted property. “Tainted
property” is defined in s 5(1)
of the Act as follows:
“tainted property—
(a) means any property that has, wholly or in part, been—
(i) acquired as a result of significant criminal activity; or
(ii) directly or indirectly derived from significant criminal
activity; and
(b) includes any property that has been acquired as a result
of, or directly or indirectly derived from, more than
1 activity if at least 1
of those activities is a significant criminal activity”
[115] Section 50(1) of the Act provides that if the Court is satisfied on
the balance of probabilities that the property is tainted
property the Court
must make an asset forfeiture order in respect of the property.
“50 Making assets forfeiture order
(1) If, on an application for an assets forfeiture order, the High
Court is satisfied on the balance of probabilities that
specific property is
tainted property, the Court must make an assets forfeiture order in respect of
that specific property.
(2) Subsection (1) is subject to
section 51.
(3) The Court must specify in an assets forfeiture order the
property to which the order applies and that the property—
(a) vests in the Crown absolutely; and
(b) is in the custody and control of the Official
Assignee.
(4) Despite subsection (1), the Court may not make an assets forfeiture order in relation to property that no person has claimed an interest in, unless the Court is satisfied, on the balance of probabilities, of the following additional matters:
(a) that a restraining order was earlier made in relation to the same
property; and
(b) that the restraining order has been in place for a period of at
least 1 year; and
(c) that the Commissioner has contacted or made all reasonable efforts
to contact any person the Commissioner believes may have
an interest in the
property.
(5) If any property that is land is vested in the Crown absolutely as a
consequence of an assets forfeiture order made under
subsection (3), an interest
recorded on the title to the land that is not affected by the assets forfeiture
order is not extinguished.”
[116] The acquisition of Rocky Cutting Road property was described Mr
Pidduck who had previously owned the block. The defendant
approached him
in 2008 expressing an interest in purchasing the 3.3 hectare property known as
363 Rocky Cutting Road, Waitao,
Tauranga. Mr Pidduck agreed to sell and the
parties settled on a sale price of $112,500. Mr Read paid this sum in three
payments
in October or November 2008. Each payment was in cash. At about
this time Mr Read also sponsored, to the tune of $7,000 in cash,
a race car
which Mr Pidduck owned.
[117] In his affidavit, Mr Read said that the GRT purchased the property when the first registered proprietor was RBA Trustees Ltd as the corporate trustee for the GRT. Mr Read said that in order to assist the trust in purchasing the property he loaned
$100,000 to the GRT.
[118] He said he did not have a copy of the loan document but remembered Mr Bixley was careful to ensure any paper work required for transactions involving the GRT was properly maintained and assumed he would have a copy of the agreement. While the purchase of the property was made outside the relevant period of criminal activity44 no conviction is required in relation to the offending which
taints the property.45 Instead, the Court is required to be
satisfied on the balance of
probabilities that the specified property is
tainted.
44 Section 51 of the Act.
45 Section 6(2)(a) of the Act.
[119] Mr Read also said he was not responsible for the various transfers
and that Mr Bixley would have taken all the steps necessary
on behalf of the
trust. His affidavit conveys the impression that Mr Read was not familiar with
the history of the property or
the various transfers which lead to the GRT
acquiring it.
[120] However, after Mr Read swore his affidavit on 22 October 2013 the
Commissioner undertook further enquiries into the circumstances
surrounding the
purchase of Rocky Cutting Road. These revealed that Mr Read had paid Mr Pidduck
in cash.
[121] Mr Read’s next opportunity to describe the circumstances
around the purchase was when he gave evidence at the
hearing.
[122] The payment of the purchase price was confirmed by Mr Bixley who
referred to the GRT minute book which recorded the following:
“Trust to purchase property at Rocky Cutting Road for $110,000. Funds
to be advanced by Gary Read for purchase.”
[123] A further minute contains a type written notation dated 27 February
2009 confirming the decision of the GRT to complete a
private corporate client
authority and instruction for an electronic transaction relating to the purchase
of the Rocky Cutting Road
property:
[124] I agree with Mr Nabney that it is clear from this evidence that the
Commissioner must have been aware that the source of funding
for the purchase of
Rocky Cutting Road came from Mr Read. The advance was treated as a loan from Mr
Read to the trust with payments
being made, subsequent to that advance, to Mr
Read from the trust being treated as loan repayments.
[125] Mr Read gave evidence that the source of the cash he paid to Mr Pidduck came from cash sales of party pills through ISL. It was accepted by Detective Jonson, the officer-in-charge of this inquiry, that Mr Read had declared income of $110,000 for the year ending 31 March 2013. Thus it cannot be said the money was a result of tax evasion as suggested by Mr Jenson.
[126] ISL declared substantial income, apparently from the sale of party
pills which was then a legal activity. Thus access to
substantial amounts of
cash is not unexplained.
[127] Furthermore, for the year ended 31 March 2008, ISL recorded gross
sales of
$1,371,560 with a profit of $950,668. The following year it earned a profit
of
$376,988.
[128] It would be expected that the transfer of the money to Mr Read should
have been reflected in ISL’s balance sheet. However,
I agree with Mr
Nabney that the fact that it was not does not necessarily infer it came from
illegal activity. Mr Read has provided
an explanation for the source of the
funds which is supported by the financial statements of ISL.
[129] I am not satisfied on the balance of probabilities that the Rocky
Cutting Road property is “tainted property”.
Nonetheless, as
property of the GRT, it remains subject to the orders in relation to that
trust.
Profit forfeiture application
[130] I have earlier discussed the Rocky Cutting Road property in the
context of my finding that Mr Read had effective control
of the GRT.
I conclude that Mr Read’s use and treatment of this property
provides further evidence of his
effective control of the GRT and the
property it owned.
[131] I have already referred to the fact that Mr Read undertook work on
the
property, arranged tenants and placed ISL’s caravan on the
property.
[132] Mr Nabney submits there is insufficient evidence to support the inference that Mr Read had effective control over Rocky Cutting Road. In support of this submission he points to Mr Read’s claim in his affidavit that the source of the funding for the installation of a solar power unit at Rocky Cutting Road was owned by him when, in fact, the trust’s minute book recorded on 30 November 2009 the trust was to build the solar power unit. Mr Nabney submits this illustrates it was the trustee who was in control of the trust’s assets rather than Mr Read.
[133] However, in my view, this error on Mr Read’s behalf supports Mr
Jenson’s submission that Mr Read’s intermingling
of personal and
trust property was to such an extent that Mr Read believed, albeit erroneously,
that the trust property was his.
[134] I also note Mr Read’s lack of candour in relation to the
circumstances around the purchase of Rocky Cutting Road.
A reading of
his affidavit conveys the impression this was an arm’s length purchase
between Mr Pidduck and the GRT
with Mr Read’s involvement being limited to
the lending of the $100,000 to the GRT when, in fact, it was Mr Read himself who
gave Mr Pidduck various sums of cash totalling $112,500 which Mr Pidduck
deposited into his own company’s account. These are
not matters about
which Mr Read is likely to have been mistaken or confused. I am satisfied Mr
Read made these statements in his
affidavit for the purpose of giving a
misleading impression that his involvement in this transaction was remote and
hands off when
plainly it was not. The fact that it was not and that Mr Read
proffered misleading evidence about it further supports the
inference Mr
Read had effective control over the Rocky Cutting Road property.
[135] It thus follows that I am satisfied that Mr Read was attempting to
disguise the true nature of his control over the property.
Having regard to the
issues that arise in drawing inferences from lies,46 I consider that
this lack of candour, in the wider context of the evidence provides some
further support for the conclusion
that Mr Read did have effective control
over this property.
[136] Given my earlier conclusions as to the GRT more generally, it is not necessary to make a particular order concerning the Rocky Cutting Road property. Nonetheless, I am satisfied that if I had concluded that Mr Read did not have effective control over the whole of the GRT and its property, I would nonetheless have concluded that he did have effective control over the Rocky Cutting Road
property.
46 In the criminal context, this would be addressed under s 124 of the Evidence Act 2006.
Application for relief – Ms Wilson on behalf of the
children
[137] Ms Wilson, as litigation guardian for her infant children, applies
for an order for relief from a civil forfeiture order/profit
forfeiture order
that the Court may make. The grounds on which Ms Wilson relies are that
she:
(a) has an interest as a litigation guardian for the beneficial interests of
her infant children and/or the infant children of Gary
John Read;
and
(b) has not unlawfully benefited from the significant criminal offending to
which the application for a civil forfeiture order relates.
[138] Mr Speed, for Ms Wilson refers to the GRT trust deed and, in particular the inclusion of the four children as discretionary beneficiaries and final beneficiaries.47
In particular, he submits that as the final beneficiaries, they are entitled to the residual trust property on the vesting date. This date, he says, would occur on the date when the trust property is forfeited. As such, he argues the children have an interest in the property that is to be forfeited. In making this submission, Mr Speed relies on a decision of the Court of Appeal in Johns v Johns where the Court concluded that the contingent interest of a final beneficiary in the trust property was
a “future interest” that could be recognised in the context of a
limitation defence.48
He submits that this interest is an interest in the trust property for the
purposes of the
Act.
[139] The difficulty in this argument is that the “interest” which he seeks to claim on behalf of his clients is an interest over non-specific property. There is no piece of property that the children can claim a certain interest in. They can only claim they have an interest in any remainder which exists when the trust vests. Indeed, they would have no remedy if the full assets of the trust were distributed prior to the vesting date. While this may be a future interest in the trust property, such that the trustee owes a duty to the beneficiaries, this does not amount to having a present
interest in the particular property of the trust.
48 Johns v Johns [2004] NZCA 42; [2004] 3 NZLR 202 (CA).
[140] This conclusion is consistent with what the Court of Appeal concluded
in Johns. Indeed, in that case the Court was careful to point out that
the beneficiaries’ interest was strictly contingent and
did not
amount to a present interest in the property, and that the language of
interest depended on its statutory context.49 The Court also
accepted as settled law the fact that a discretionary beneficiary does not have
an interest beyond a mere expectancy.50 It is clear that the
interest which the Court of Appeal was prepared to recognise in that case, is
not an interest in property such
that it will fall within the Act.
[141] As the children have no interest in the property, there is no proper
basis on which to make an order in their favour, and
I decline to make such an
order.
Result
[142] For the reasons set out above I make the following general orders
subject to
[143] and [144] below:
(a) The Commissioner’s application for a profit forfeiture order
dated
22 May 2013 is granted.
(b) The Commissioner’s applications to have Mr Read’s
effective control over property treated as an interest in
property (dated 5
February 2015 and 6 March 2015) are granted.
(c) The Commissioner’s civil forfeiture application in relation to
Rocky
Cutting Road is refused.
(d) Ms Wilson’s application on behalf of her children for relief
from
forfeiture dated 9 March 2015 is refused.
Disposition
[143] Due to the time which has elapsed since the property was first
restrained in
December 2011 and various events which have intervened including the
conditional
49 At [38].
50 At [31].
orders I made on 16 April 2015 in relation to the “One Tree Hill”
painting I am not prepared to make orders in relation
to the specific property
which was the subject of the applications without the benefit of first receiving
submissions from counsel
as to what specific property should be included under
the various orders made above as well as any other orders which should be made
in the circumstances.
[144] Accordingly, I direct the parties to consult with a view to filing an
agreed memorandum as to disposition, identifying what
specific property is to be
included pursuant to the orders made. In the event the parties are unable to
agree I direct the Crown
to file and serve its memorandum in this regard no
later than 20 working days from the date of this judgment and I direct Mr Read
and Ms Wilson to file and serve their responses within 10 working days of
receiving the Crown’s memorandum.
[145] I reserve leave to the parties to seek such further directions or
orders as may be necessary to give effect to this judgment.
Costs
[146] The Commissioner is entitled to costs.
[147] In the event the Commissioner seeks costs I direct the parties to
consult with a view to filing a consent memorandum.
[148] In the event the parties are unable to agree I direct the Commissioner to file and serve his memorandum no later than 20 working days after the date of this judgment and that Mr Read and Ms Wilson file and serve their memoranda within 10
days of receiving the Commissioner’s
memorandum.
Moore J
Solicitors:
Crown Solicitor, Tauranga
Mr Nabney, Tauranga Mr Speed, Auckland Ms Bruton, Auckland
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URL: http://www.nzlii.org/nz/cases/NZHC/2015/2055.html