Commissioner of Police v Cotton [2018] NZHC 3110 (29 November 2018)

Last Updated: 13 February 2019

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2016-404-000658 [2018] NZHC 3110

IN THE MATTER OF	the Criminal Proceeds (Recovery) Act 2009
BETWEEN	COMMISSIONER OF POLICE Applicant
AND	EDDY RAE COTTON First Respondent SHEREE DENA EDWARDS Second Respondent

Hearing:	18 October 2018
Counsel:	M R Harborow for the Applicant S P H Elliott for the Second Respondent
Judgment:	29 November 2018

JUDGMENT OF EDWARDS J

This judgment was delivered by Justice Edwards on 29 November 2018 at 3.00 pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Counsel: S P H Elliott, Auckland

Solicitors: Meredith Connell (Office of the Crown Solicitor), Auckland

COMMISSIONER OF POLICE v COTTON [2018] NZHC 3110 [29 November 2018]

[1] Ms Cotton has applied for relief from an assets forfeiture order made under the Criminal Proceeds (Recovery) Act 2009 (Act) in respect of a residential property on Pooks Road in Ranui (Property). Her application is made on the ground that she has a relationship property interest in the Property.

[2] This judgment concerns the Commissioner of Police’s (Commissioner) challenge to the jurisdiction to hear Ms Cotton’s application. That challenge is advanced on several grounds, but this judgment is limited to the Commissioner’s contention that Ms Cotton is precluded from bringing the application by a settlement agreement between the parties which was approved by the Court on 19 January 2017.¹

Key facts

[3] The Property is registered in the name of Mr Eddie Cotton. It appears he purchased it in 2005, two years after he divorced Ms Cotton.

[4] In March 2016, Police conducted a search of the Property, and found a hidden basement area containing a cannabis growing facility. Approximately 20 kilograms of harvested cannabis heads, other cannabis material, packaging, assorted electrical equipment and $153,000 in cash were found in the basement. Mr Cotton was charged and remanded in custody.

[5] On 7 April 2016, without notice restraining orders were made in respect of the Property. Mr Cotton was the only named respondent. The Commissioner subsequently applied for, and was granted, an on-notice restraining order in respect of the Property, the sum of $153,000 and a white Hyundai Santa Fe motor vehicle registered in Mr Cotton’s name. The on-notice application was served on Mr Cotton and orders were made unopposed.

[6] On 7 June 2016, further without notice restraining orders were made in respect of bonus bonds held by Mr Cotton, bonus bonds held in the name of Ms Cotton (also

1. Commission of Police v Cotton [2017] NZHC 21. I do not consider the Commissioner’s contention that Ms Cotton is precluded from bringing her application for relief on the grounds that
   • (a) she is a respondent to the proceeding; (b) she is estopped from bringing the application by reason of her conduct; and (c) the application, and Ms Cotton’s conduct, constitutes an arrangement under s 167 of the Act to defeat, avoid, prevent or impede the Act’s operation.

known as Ms Edwards), and a 2012 Mitsubishi station-wagon registered to Ms Cotton. The Commissioner contended that Ms Cotton had unlawfully benefited from Mr Cotton’s criminal activity, and the property in her name was tainted property. On- notice restraining orders in relation to this further property were made by consent on 26 July 2016. However, Ms Cotton opposed the Commissioner’s application for a sale order in respect of the Mitsubishi.

[7] On 15 November 2016, having instructed new counsel, Ms Cotton applied to set aside the restraining orders made in relation to the Mitsubishi vehicle. That application, and the Commissioner’s application for a sale order of the Mitsubishi, were set down for hearing on 17 February 2017.

[8] Discussions between the Commissioner and Ms Cotton ensued and resulted in a settlement agreement being reached and recorded in a joint memorandum of counsel dated 16 January 2017.

[9] The settlement terms were approved by Heath J under s 95 of the Act on 19 January 2017.² Under the terms of settlement, Ms Cotton’s bonus bonds account and the Mitsubishi car vested in the Crown absolutely and were placed under the Official Assignee’s custody and control. The sum of $5,000 was paid to Ms Cotton from forfeited funds. Ms Cotton agreed not to pursue her application to set aside the restraining orders and the Commissioner agreed not to pursue an application for a profit forfeiture order against Ms Cotton. It was agreed that costs would lie where they fell.

[10] On 16 February 2018, the Commissioner filed an application for civil forfeiture orders against Mr Cotton. Ms Cotton was not named as a party to that application, and it was not served on her. It appears that the Commissioner was not aware that Ms Cotton was living in the Property by this time.

[11] On 30 April 2018, Ms Cotton’s new counsel, Mr Elliott, contacted the Commissioner’s counsel requesting deferment of settlement on the ground that Ms Cotton intended to file an application for relief. The Commissioner refused on the

² Commissioner of Police v Cotton [2017] NZHC 21.

basis that the previous settlement with Ms Cotton meant that she had no standing to bring such an application.

[12] The Commissioner and Mr Cotton entered a settlement agreement which was approved by Venning J on 1 May 2018. The terms of settlement provided for assets forfeiture orders to be made over the proceeds of sale of the Property and other property in Mr Cotton’s name, with the sum of $12,500 released to Mr Cotton.

[13] On 16 August 2018, Ms Cotton filed her application for relief from the civil forfeiture order made over the Property. The jurisdictional issue arising out of the settlement between Ms Cotton and the Commissioner was set down for a one-hour hearing, and came before me as duty judge. The allocated time for the hearing was only sufficient to hear argument on whether the settlement agreement precluded Ms Cotton from bringing the relief application. That issue turns on the interpretation of the terms of settlement, and whether terms should be implied into the agreement. Both questions are considered below.

Interpretation of the settlement agreement

[14] It is common ground that the terms of settlement between the Commissioner and Ms Cotton are to be interpreted in accordance with contract interpretation principles. Those principles were summarised by the Supreme Court in Firm PI 1 Ltd v Zurich Australian Insurance Ltd as follows:³

[63] While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.

(footnotes omitted)

³ Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432.

[15] The starting point is the ordinary and natural meaning of the terms of settlement. Those terms were set out in a joint memorandum filed with the Court as follows:

3.1 The Commissioner and [Ms Cotton] (the parties) have entered into discussions with a view to settling the question of restraint, [Ms Cotton’s] application and forfeiture in respect of [Ms Cotton’s] property. To recap, that property is:

(a) the Mitsubishi (approximate value $15,500); and

(b) the bonus bonds in [Ms Cotton’s] name (approximate value

$5,000)

3.2 The Commissioner and [Ms Cotton] jointly seek orders as follows:

(a) assets forfeiture orders under s 50 of the Act in respect of [Ms Cotton’s] bonus bonds and the Mitsubishi so that they vest in the Crown absolutely and is to be under the Official Assignee’s custody and control;

(b) the sum of $5,000 is to be paid to [Ms Cotton] from forfeited funds;

(c) [Ms Cotton] will not pursue her application (dated 1 November 2016) to vary or rescind the restraining orders;

(d) the Commissioner will not pursue an application for a profit forfeiture order against [Ms Cotton]; and

(e) costs will lie where they fall, noting that by operation of s 82(1)(b) of the Act, [Ms Cotton’s] legal aid debt will be paid from forfeited funds.

[16] Mr Harborow, on behalf of the Commissioner, submits that these terms reflect the parties’ joint intention that settlement would resolve Ms Cotton’s involvement in the proceedings in their entirety. Ms Cotton, he says, forwent her ability to claim an interest in the Property by resolving her interests in the restrained property, just as the Commissioner forwent his own ability to seek a profit forfeiture order against Ms Cotton. Mr Harborow submits that this intention is reinforced by the terminology used at [3.1] of the joint memorandum which refers to Ms Cotton’s property. That property was the only property which all the parties understood was restrained in the proceeding at the time the settlement was concluded.

[17] I take a different view of [3.1]. I consider the natural and ordinary meaning of that clause is that settlement is limited to the applications as they relate to Ms Cotton’s
property – namely the Mitsubishi and the bonus bonds in Ms Cotton’s name. There is no reference to full and final settlement of all property interests that Ms Cotton might assert, whether specified in the joint memorandum or not. Nor is there any reference to the Property, any interests in the Property, or any other restrained property in the proceeding. In other words, I consider [3.1] means that any interest which Ms Cotton may have in the Property was not included in the settlement.

[18] Other passages in the joint memorandum do not lead to a different conclusion. Mr Harborow submits that it is plain that both parties were of the view that Ms Cotton did not have any other property restrained in the proceeding. But I consider a more likely construction is that neither party turned their mind to whether Ms Cotton had an interest in the Property. That is not surprising because, as Mr Elliott submits, at the time the joint memorandum was being agreed, the Property was only restrained and an application for forfeiture of the Property had not yet been made. The focus of the settlement discussions was on the applications then before the Court which were limited to the property in Ms Cotton’s name. There is no evidence that the parties paid any attention at all to any potential interest in any other property the subject of the proceeding.

[19] The fact that approval under s 95 of the Act is required does not give cause to interpret the agreement differently. Under s 95, the Court must approve settlement if satisfied that it is consistent with the purposes of the Act and the overall interests of justice. The primary purpose of the Act is to establish a regime for the forfeiture of property that has been derived directly or indirectly from significant criminal activity or that represents the value of a person’s unlawfully derived income.⁴

[20] In this context, Mr Harborow placed particular emphasis on the joint submissions made in the memorandum as to the time and cost that would be saved by approving the settlement, the avoidance of litigation risk, and the desirability of achieving certainty in the outcome of the proceeding. But those considerations apply equally to settlement of any claims relating to property in Ms Cotton’s name and the subject of applications which were then before the court as they do to Ms Cotton’s

⁴ Section 3(1).

wider involvement in the proceeding. They do not provide a reason to read the operative terms of settlement more expansively than the plain and ordinary meaning of the words would allow.

[21] Similarly, there is nothing in the judgment of Heath J approving the settlement that would suggest a different meaning should be ascribed. Indeed, his Honour observed that the proposed settlement did not address the separate application brought in respect of Mr Cotton, which remained to be resolved.⁵ That passage substantiates the view that the settlement was limited to the property in Ms Cotton’s name that was the subject of applications then before the Court and did not include any interests in any other property the subject of the proceeding.

[22] Finally, Mr Harborow points to an email sent on behalf of the Commissioner to counsel for Ms Cotton regarding the draft memorandum which states:

Please see attached joint memorandum in relation to the settlement of Ms [Cotton’s] interests in the proceeding.

[23] Mr Harborow submits that Ms Cotton’s then counsel did not raise any objection to this statement, which sets out the premises upon which settlement was achieved. That may be so, but contractual interpretation is an objective exercise. Meaning is to be ascertained “through the eyes of a reasonable reader”.⁶ The unilateral and subjective statement by one party’s counsel cannot alter the plain meaning of the language used to record the terms of settlement. Accordingly, I consider the email bears little weight in the interpretation exercise.

[24] In summary, I do not consider the terms of the settlement agreement extended to the Property and any interest that Ms Cotton may have had in the Property. Nor did it exclude Ms Cotton from participating in the proceeding in relation to applications or property that were not expressly specified in the terms of settlement. Accordingly, properly construed, the terms of settlement do not preclude Ms Cotton from advancing her application for relief from forfeiture on the grounds that she has an interest in the Property.

⁵ At [13].

⁶ Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [17].

An implied term?

[25] As an alternative to the interpretation argument, the Commissioner says that the Court may imply either or both of the following terms:

(a) First, that settlement was “full and final” in resolving what was at issue in the proceeding.

(b) Second, that Ms Cotton agreed not to make a claim in relation to the Property or any other property restrained at the time of settlement.

[26] A majority of the Court of Appeal has said that the correct approach to implying contractual terms is currently uncertain.⁷ That uncertainty concerns whether the test for an implication is essentially the same as the approach to be taken to interpretation of the contract or whether the orthodox approach in BP Refinery (Westernport) Pty Ltd v Shire of Hastings should apply.⁸ The latter approach establishes five “guidelines” for the implication of terms in a contract:

(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”;

(4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

[27] Whatever approach is adopted in this case, the result is the same. If the implication of a term follows from the process of contractual interpretation, then for the reasons noted above, I do not consider implication of the terms proposed by the Commissioner to be appropriate. The application of the BP Refinery guidelines leads to the same result for the reasons that now follow.

[28] First, although the terms are not inherently unreasonable, nor inequitable, the consequence of implying them in circumstances where neither party intended, nor turned their mind to the settlement of any interest in the Property, would lead to an unreasonable and inequitable result. The Court would, in effect, be presuming an

7. Ward Equipment Ltd v Preston [2017] NZCA 444, [2018] NZCCLR 15 at [46]–[47] per French and Winkelmann JJ.

⁸ BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC) at 283.

intention in the absence of anything to suggest that intention existed. Ms Cotton would be precluded from advancing her application in circumstances where there is no suggestion that the parties thought about interests in other property, let alone decided to settle any claims to that property. This is a factor weighing against implication.

[29] Second, the proposed terms are not necessary to make the settlement agreement effective. It works perfectly well without the implied terms. The settlement was in relation to the property expressly identified at [3.1] of the joint memorandum. It is not necessary to imply a term to extend the scope of the settlement beyond what the parties intended.

[30] Third, the terms are not so obvious that they go without saying. This is not a case of a gap in the contract which can be filled in accordance with the parties’ intentions. Implication of the terms proposed by the Commissioner would improve it from the Commissioner’s perspective. But that is not the objective of implication. As Kós P observed in Ward Equipment Ltd v Preston:⁹

... implication is not to be deployed to improve a contract, but simply to ascertain the meaning all parties intended the contract to bear. The officious bystander, rather abruptly dismissed by Lord Hoffmann in Belize Telecom but reinstated by Lord Neuberger in Marks & Spencer, may be called on still where a gap has been identified to tell us what the parties would have said they meant.

[31] Fourth, and finally, whilst the proposed terms may be capable of clear expression, they sit uneasily with the express terms of the agreement. Implication of the terms proposed by the Commissioner would be at odds with the express identification of the property interests and applications the subject of the settlement at [3.1] and [3.2] of the joint memorandum. To imply a term in those circumstances would be to write the bargain for the parties. That is not the function of contractual implication.

[32] It follows that I do not consider there is any basis to imply terms into the parties’ settlement agreement which would effectively preclude Ms Cotton from bringing her application.

⁹ Ward Equipment Ltd v Preston [2017] NZCA 444, [2018] NZCCLR 15 at [94].

Result

[33] I find that the parties’ settlement agreement only relates to the express property interests and applications identified in the joint memorandum. There is no need to imply terms into the settlement agreement.

[34] It follows that the terms of settlement do not extend to any interest Ms Cotton may have in the Property, and she is not precluded by the settlement agreement from advancing her application for relief from forfeiture in that Property. That application should now be set down for hearing, and I direct the Registry to allocate a hearing date accordingly.

[35] Ms Cotton is entitled to costs as the successful party. However, as this matter has been determined as a preliminary issue on the substantive application, and as there was insufficient time to hear all the Commissioner’s arguments in relation to the preliminary issue, I consider it preferable that costs be fixed once the substantive application has been determined. Accordingly, costs in relation to this preliminary issue are reserved.

[36] Finally, I continue the order made by van Bohemen J at [11](f) of his minute dated 5 September 2018 (and extended by me to the date of delivery of this reserved judgment) until the determination of Ms Cotton’s application for relief, or such other date as the Court may order.







Edwards J