[2015] NZHC 540 in the MATTER of an Application Pursuant To

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY CIV-2010-419-990 [2015] NZHC 540

IN THE MATTER of an application pursuant to sections 49, 50, 53 to 55 and 58 of the Criminal Proceeds (Recovery) Act 2009

BETWEEN THE COMMISSIONER OF POLICE Applicant

AND BONNIE JOSEPH DE WYS First Respondent

PENELOPE HELEN LOUISA DE WYS Second Respondent

Hearing: 8 to 12 December 2014 (final submissions received 18 December 2014)

Counsel: RG Douch and TC Tran for applicant PJ Gorringe for first respondent RJ Laybourn and RM Laybourn for second respondent

Judgment: 24 March 2015

JUDGMENT OF FAIRE J

This judgment was delivered by me on 24 March 2015 at 4 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors: Almao Douch, Hamilton Gina Jansen, Hamilton

To: Laybourn Law, Hamilton

The Commissioner of Police v de Wys [2015] NZHC 540 [24 March 2015]

Table of Contents

The application ...... [1]

The procedural history ...... [4]

The first issue ...... [7]

General background ...... [14]

Suspicious transaction reporting ...... [31]

The law ...... [36] Assets forfeiture [39] Profit forfeiture 11]

Have the respondents unlawfully benefited from significant criminal activity from 6 August 2003 to 25 May 2012? ...... [54] Cannabis plants remnants found in the ceiling cavity at 344 Arapuni Road [60] Cannabis and cannabis constituents found at 501 Kihi Road 18 Mr O’Brien’s evidence [67]

The financial inquiry ...... [76]

Conclusion...... [96]

Costs ...... [103]

The application

[1] The Commissioner applies for civil forfeiture orders pursuant to Part 2, Subpart 3 of the Criminal Proceeds (Recovery) Act 2009 (the Act) for civil forfeiture orders.

[2] The application was filed on 25 May 2012. The principal orders sought are:

(a) A number of identified vehicles be treated as though the respondents have an interest in the vehicles;

(b) That listed real property and vehicles which are alleged to be tainted property be vested in the Crown and that the Official Assignee have custody and control over this property. The property is alleged to be tainted property;

(d) That the property vested in the Crown is to be sold.

[3] The Commissioner had originally sought a higher value. I granted leave to the Commissioner to vary that the application so that the amount was reduced to $729,558.62.

The procedural history

[4] The Commissioner applied pursuant to Part 2 Subpart 2 of the Act for restraining orders.

[5] A without notice application was filed on 6 August 2010. A restraining order was made on 19 October 2010 over three items of property, namely:

(a) A farm of 60.8780 hectares at 501 Kihi Road, Hauturu, Oparau (which is situated near the west coast of Waikato and is the home of the respondents);

(b) A Mahoe mini-max trailer, inclusive of the portable sawmill; and

[6] On 29 August 2011, the Commissioner applied for a further restraining order over eleven items of property. The order was made on 13 September 2011. It covered cars, motorbikes, utilities, a lawnmower, a motorised sprayer and tractor.

The first issue

[7] The Commissioner is required to prove, on the balance of probabilities, that the respondents in the period commencing 6 August 2003 and ending 25 May 2012 unlawfully benefited from significant criminal activity.

[8] The significant criminal activity alleged is the cultivation of cannabis for the purpose of onsale on a commercial basis for the respondents’ benefit and for the purpose of generating income.

[9] There has been no criminal charge laid which would fall within the definition of significant criminal activity in this case against either respondent. That, of course, is not required having regard to the definition of significant criminal activity in s 6. It does, however, mean that this case is different from many others that have been determined under the Act.

[10] Counsel for the Commissioner had submitted that the significant criminal activity is either or both of the following:

(a) The cultivation of cannabis, which is an offence against s 9 of the Misuse of Drugs Act 1975 and carries a maximum sentence of seven years’ imprisonment; and

(b) Selling cannabis, which is an offence against s 6(1)(e) of the Misuse of Drugs Act 1975 and carries a maximum sentence of eight years’ imprisonment.

[11] The background facts suggested the possibility of a money laundering and a possible breach of s 243 of the Crimes Act 1961.

[12] These offences fall within the definition of significant criminal activity contained in s 6 of the Act.

[13] The Commissioner relies on the definition of “unlawfully benefited from significant criminal activity” contained in s 7 of the Act, namely that:

… a person has unlawfully benefited from significant criminal activity if the person has knowingly, directly or indirectly, derived a benefit from significant criminal activity (whether or not that person undertook or was involved in the significant criminal activity).

General background

[14] The first respondent was born in 1968. His parents owned and lived on a dairy farm on Arapuni Road, near Putaruru. His parents owned another farm on Waotu Road.

[15] The first respondent commenced milking cows before and after school from the age of 8. In fact, his farm work caused him to miss a large number of days at school and he permanently withdrew from education at the age of 14. As a result he never learned to read and write properly.

[16] At 14 years old he worked in a factory in Putaruru, which produced chaff. In addition, he worked on the farm. Then, in 1983, he became the sole manager of his parents’ Waotu Road farm. At a later time, his sister and her husband took over the management of that farm.

[17] The first respondent then worked at a sawmill for six months. In addition, he worked for Mr Frank Parata cutting and delivering firewood. That apparently was an introduction for him into a firewood business, which he undertook in a small way, relying on wood which he cut from the farms at Arapuni and Waotu.

[18] In 1985, his father made him the sole manager of the Arapuni Road farm. For the next four years he managed the farm and, at the same time, continued to do firewood work for Mr Parata and for himself.

[19] In 1989, he met the second respondent. She had been working on a neighbouring farm. In 1990 she left that position and commenced living with the first respondent. That change coincided with the first respondent moving from the cottage that he had been living in on the Arapuni farm and into the main house on that farm. By this time, his parents had moved to the main house on the Waotu farm.

The first and second respondents were married in 1992. They have two children, Daniel who was born in 1992 and Shari who was born in 1998.

[20] The first and second respondents continued farm work, including milking, and some off-farm work for the next four years. In the summer, the first respondent cut gum and lawsoniana trees on the Arapuni Road farm, which was stored for drying purposes on the farm before sale.

[21] In 1995, the first respondent’s parents built a new house on the Waotu farm. The first respondent says that they were under some financial pressure as a result. That led to a 50/50 sharemilking agreement being entered into with the first respondent’s parents. The first respondent said there were discussions at that time with a view to the first respondent eventually buying the Arapuni Road farm. The couple carried on the sharemilking arrangement. The first respondent also carried on his firewood business and also some contract work on other farms. In addition, he later established a pit on the farm and allowed local people to dump car bodies. That saved them the need to travel to Tokoroa to dump the cars. It also allowed the first respondent to set up a small business whereby he would strip parts from the car bodies and sell parts to members of the public. He was also involved in establishing a dirt track, although that only lasted for a year or so. In addition to general farm work the couple reared and sold Friesian bull calves.

[22] In 2007, the couple decided to buy a mill so that the first respondent could produce timber. The Waotu and Arapuni Road farms both had a good supply of gum, douglas fir, and lawsoniana trees. They commenced milling trees in 2007. Wood was advertised for sale at the farm gate.

[23] This time marked another significant change for the first and second respondent. The first respondent’s parents wished to sell the Arapuni Farm but were not proposing that the respondents buy it. They were anxious to sell the property without an existing sharemilker in place. In early 2008, the first respondent said his parents offered them $300,000 if they would move off the farm. That sum was meant to reimburse them for the effort they had put into the property over and above the completion of their sharemilking responsibilities. The respondents say that they

decided to accept the proposal and that then meant that they had to find a purchaser for their herd. They also began looking for a farm which they could buy. Clearly, they were in no position to buy a farm of the value of the Arapuni Road property. The first respondent was aware that that property’s market value at the time was approximately $2,700,000.

[24] The respondents recognised that they were not in a position financially to buy a Waikato dairy farm. Their plan was to ultimately own a dairy unit. They went looking for a property which could be developed either so that it could be converted to dairy or be increased in value so that it could be sold and a dairy farm purchased.

[25] The respondents located, through Trade Me, the property at Kihi Road. It is situated approximately 68km west of Te Awamutu. It is described as a fairly lonely location. A shift to such a property meant leaving friends and associates at Arapuni and moving into a new district. For the first respondent that meant leaving the area that he had lived in for all his life. In the case of the second respondent, it meant leaving her association with people she had met in Putaruru and, in particular, at a school where she had taught swimming and netball. It also meant that the couple’s children had to leave their school and friends.

[26] The Kihi Road farm consists of 60 hectares. It is hilly country. Fifteen hectares were in pasture at the time of the purchase by the respondents. The rest was in scrub and trees of various sorts. The trees were pine, which could be milled for timber and firewood. That was one of the attractions as far as the respondents were concerned, because they could see timber and firewood as a source of income.

[27] The respondents signed an agreement for sale and purchase in respect of the Kihi Road property on 11 February 2008. The purchase price was $675,000 plus GST. A deposit of $75,000 was required. The date fixed for settlement was 1 April 2008. The termination of the sharemilking contract with the first respondent’s parents and the settlement date of the Kihi Road property did not follow the traditional position in the Waikato, where farm sales and sharemilking contracts either terminate or commence on 1 June in a particular year. That, in this case, no doubt indicates the first respondent’s parents’ desire to sell Arapuni without a

sharemilker and for the respondents to look for something that was different, so far as farming operations were concerned, in a significant way from what they were then undertaking.

[28] The first respondent accounts for the purchase of the Kihi Road property as follows. The deposit, he says, was paid by cheque from the parties’ personal account of $55,000 and cash of $20,000, both of which were paid to the couples’ lawyers, Clancy Fisher, on 12 February 2008. The balance of $195,500 came from the parties’ personal BNZ account and was transferred to Clancy Fisher. In addition, the respondents raised a loan of $444,600 from the BNZ to complete the purchase, and secured it with a mortgage over the property. That apparently was a temporary short-term arrangement designed to tide the parties over until the sale of their herd was completed.

[29] The first respondent gives an account of how he saved money from his various occupations. He said that, from a very young age, he did not use a bank account but kept his savings in a safe place. He complained from time to time he had experienced his father taking money that he had saved and hidden from him. Because he left school unable to read and write, he preferred to deal in cash and not cheques. He says that he can now read, but with some difficulty. The first bank account he opened in his own name was completed by the second respondent when they started sharemilking in 1994.

[30] Suffice to say, the somewhat unusual way that the first respondent went about retaining his savings and then accessed those savings to make them available for the purchase of the Kihi Road property ultimately led to the Commissioner’s investigation of this case.

Suspicious transaction reporting

[31] Detective Hopkins of the New Zealand Police outlined how this case came to the notice of the authorities.

[32] In 2008 the Financial Transactions Reporting Act 1996 applied. Financial institutions were required to report to the Commissioner of Police transactions or

proposed transactions that are or may be relevant to the investigation or prosecution of a money laundering offence. They were also required to report transactions or proposed transactions that are or may be relevant to enforcement of the Criminal Proceeds (Recovery) Act 2009. Detective Hopkins advised that the Financial Intelligence Unit, based at Police National Headquarters in Wellington, was the entity within the police with delegated authority to act on behalf of the Commissioner of Police to administer his obligations under the Financial Transactions Reporting Act 1996. The Act contains rules governing the disclosure of Suspicious Transaction Reports (STR), their existence and information that will, or is reasonably likely to, identify persons involved in the report.

[33] Detective Hopkins said that on 26 May 2008 the Financial Intelligence Unit received an STR from the Bank of New Zealand. The report related to the respondents who are account holders with the BNZ Putaruru branch. The report included, he said, the following:

Between 8 January 2008 and 26 May 2008 numerous cash deposits were made into the BNZ account of the respondents.

The cash deposits totalled approximately $320,000. The deposits were made in $20 denominations. The cash was always flat.

The cash smelt of mould.

When questioned regarding the cash deposits the customer said they were selling farm equipment on the Trade Me website.

[34] Detective Hopkins next referred to an inquiry made on 3 May 2010 into the respondents’ employment and tax history with the Inland Revenue Department. It established that the tax agent for the respondents was Graham Brown & Co Ltd, chartered accountants, and that the historic employment of business was that of dairy cattle farming.

[35] Detective Hopkins next advised that he sought electronic copies of deposit slips as they related to cash deposits from the BNZ. A number of inquiries flowed from the information obtained on those deposit slips. In addition, an investigation of Trade Me transactions was undertaken. I will refer, in more detail, to the specific evidence collected later in this judgment.

The law

[36] Counsel were agreed on the relevant law which can be shortly stated.

[37] It is important to recognise that an assets forfeiture order can only be made in respect of “tainted property”. A profit forfeiture order can apply to any property, whether or not “tainted”.1

[38] The distinction between the two types of orders is set out below.

Assets forfeiture

[39] Pursuant to s 50(1) of the Act, if the 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”.

[40] “Specific property” means identifiable property in relation to which there may, but need not, be a person who is an identifiable owner.2

[41] “Tainted property” is defined in s 5 of the Act as:

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.

[42] “Significant criminal activity” is defined in s 6 of the Act as:

1 Commissioner of Police v Nelson HC Auckland CIV-2010-404-983, 30 July 2010. 2 Section 5 of the Act. The authors of Adams on Criminal Law state that because an application for an “assets forfeiture order” and a “restraining order” in respect of any property that may be the subject of such an order is in rem, it is not necessary that any owner or any person with an interest in the property be identified. It is sufficient that the property itself be proved to be property acquired or derived from “significant criminal activity”.

6 Meaning of significant criminal activity

(1) In this Act, unless the context otherwise requires, significant criminal activity means an activity engaged in by a person that if proceeded against as a criminal offence would amount to offending—

(a) that consists of, or includes, 1 or more offences punishable by a maximum term of imprisonment of 5 years or more; or

(b) from which property, proceeds, or benefits of a value of $30,000 or more have, directly or indirectly, been acquired or derived.

(2) A person is undertaking an activity of the kind described in subsection (1) whether or not—

(a) the person has been charged with or convicted of an offence in connection with the activity; or

(b) the person has been acquitted of an offence in connection with the activity; or

(3) Any expenses or outgoings used in connection with an activity of the kind described in subsection (1) must be disregarded for the purposes of calculating the value of any property, proceeds, or benefits under subsection (1)(b).

[43] In Commissioner of Police v Warner, Allan J observed that the burden is on the applicant is to satisfy the Court on the balance of probabilities that the property concerned is tainted property.3 In other words, the Court must be satisfied that it is more likely than not that the property is so tainted. If the Court is satisfied, then it must make an assets forfeiture order. It has no discretion to do otherwise, subject to ss 51, 61 – 69 of the Act.

Profit forfeiture

[44] The Court has jurisdiction to make a profit forfeiture order under ss 53 to 56 of the Act.

[45] Sections 53 and 55 relevantly provide:

3 Commissioner of Police v Warner [2012] NZHC 3584.

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.

…

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.

…

[46] Section 7 of the Act states:

In this Act, unless the context otherwise requires, a person has unlawfully benefited from significant criminal activity if the person has knowingly, directly or indirectly, derived a benefit from significant criminal activity (whether or not that person undertook or was involved in the significant criminal activity).

[47] The word “benefit” is broadly defined in s 5(1). It is an inclusive definition.4 It is defined to include proceeds and property. Case law suggests that “benefits”

4 Commissioner of Police v Rewita [2012] NZHC 967.

include the immediate proceeds derived from the criminal activity, rather than the net profits.5

[48] In the case of Pulman v Commissioner of Police, Lang J stated that the making of a profit forfeiture order under s 55 potentially requires the Court to take four separate steps.6 They are:

(a) First, the Court must determine whether the Commissioner has proved, on the balance of probabilities, that the respondent has unlawfully benefited from significant criminal activity during the relevant period;7

(b) Second, the Court is required to determine the maximum recoverable amount.8 It does that by taking the value of the benefit 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 to that which the profit forfeiture application relates;9

(c) Third, the Court must determine 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;10

(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, the maximum recoverable amount, and the property that is to

5 R v Pedersen [1995] 2 NZLR 386 at 389. See also Solicitor-General v Rhodes HC Auckland CIV-2007-404-3773, 16 February 2010 at [38] and [41]; Pulman v Commissioner of Police HC Auckland CIV-2010-404-5666, 27 May 2011 at [28]. 6 Pulman v Commissioner of Police. 7 Criminal Proceeds (Recovery) Act 2009, s 53(1). 8 Section 55(2)(b). 9 Section 54(1). 10 Section 56(1).

be disposed of, being the property in which the respondent has, or is treated as having, interests.11

[49] If the Court is so satisfied, the value of the benefit is presumed to be one of the values prescribed by s 53(1).

[50] The respondent may, however, rebut the presumption as to the value of the benefit on the balance of probabilities.12

[51] The above approach in Pulman was endorsed by Wylie J in Commissioner of Police v Rewita.13

[52] Profit forfeiture is retrospectively assessed, not prospectively. The profit is that derived within the “relevant period of activity”. This term is defined in the Interpretation provision. Pursuant to s 5 of the Act, the relevant period is ascertained by reference to the date the application for a profit forfeiture order is made (here 25 May 2012) and by reference to the date which is seven years before the date of the application for the relevant restraining order where the profit forfeiture order application relates to the restrained property (6 August 2003, being seven years before 6 August 2010). Thus the relevant period is 6 August 2003 to 25 May 2012. As it happens the Commissioner’s calculation of alleged profit covers a different period, namely from 20 December 2004 to 16 July 2010.

[53] Participation in the significant criminal activity is not a requirement. What is required to be proven, however, is that the respondents had knowledge that a benefit directly or indirectly derived from the significant criminal activity has been obtained.14 Section 5 makes it clear that the benefit includes proceeds and property. Accordingly, money obtained from the commercial distribution of cannabis is captured within the definition of “benefit”.

11 Section 55(2). 12 Section 53(2). 13 Commissioner of Police v Rewita, above n 4 at [25]. 14 Section 7.

Have the respondents unlawfully benefited from significant criminal activity from 6 August 2003 to 25 May 2012?

[54] The respondents’ position is that Mr de Wys never grew, or sold, or possessed for sale any cannabis at any time. If accepted, it follows that there can be no potential offence pursuant to the Misuse of Drugs Act, nor can there be any question of laundering of cash from the sale of cannabis in circumstances which might have amounted an offence under s 243 of the Crimes Act 1961, dealing with money laundering.

[55] Mr Gorringe noted that the first respondent accepts:

(a) That from an early age he traded for cash and accumulated a not inconsiderable sum of cash by 2008, when most of the cash was put into the purchase of 501 Kihi Road;

(b) Much of this cash ought to have been, but was not, declared to the Inland Revenue Department as taxable income; and

(c) From time to time he smoked cannabis acquired from others. He pleaded guilty for possession of cannabis in the Te Awamutu District Court on 27 October 2010 following a police visit to Kihi Road on 10 August 2010.

[56] I now consider the evidence which the Commissioner of Police relies upon in support of the allegation that the respondents have benefited from significant criminal activity in the period 6 August 2003 to 25 May 2012. Counsel for the Commissioner of Police helpfully summarised in his written submissions that the matters that are relied upon as follows:

(a) Cannabis plant remnants were found in the ceiling cavity of the property at 344 Arapuni where the respondents used to live between Jan 1998 and May 2008;

(b) The presence of cannabis and cannabis constituents at four separate locations at the 501 Kihi Road property where the respondents currently reside;

(d) The respondents’ involvement in money laundering activities including the preparation of false records, failure to keep records, failure to declare income to the Inland Revenue, preparation of false accounts;

(e) Cash deposits totalling $427,596.70 into bank accounts between 20 December 2004 and 16 July 2010;

(f) $20,000 cash deposited into a solicitor’s trust account to help purchase the property at 501 Kihi Road and various other cash deposits;

(g) The respondents purchased the Mahoe Trailer, Sawmill and other assets using cash/funds from an unidentified cash source;

(h) Attempts to conceal and disguise the ownership of some assets held by the respondents.

[57] There is no direct evidence that the respondents were involved in a significant criminal activity from which they had benefitted. The applicant invites the Court to draw an inference from the evidence that they have in fact been involved in a significant criminal activity from which they had benefitted.

[58] I am mindful of what the Court of Appeal has recently said about the process relating to drawing inferences:15

The methodology involved in drawing an inference has never been better put than by Lord Wright in Caswell v Powell Duffryn Associated Collieries Ltd:16

Inference must be carefully distinguished from conjecture or speculation. There can be no inference unless there are objective facts from which to infer the other facts which it is sought to establish. In some cases the other facts can be inferred with as much practical certainty as if they had been actually observed. In other cases the inference does not go beyond reasonable probability. But if there are no positive proved facts from which the inference can be made, the method of inference fails and what is left is mere speculation or conjecture.

The drawing of an inference is itself an exercise in fact finding. It is frequently strongly contested. … An inference turns on all the available evidence.

15 R v Kinghorn [2014] NZCA 168 at [20] and [21]. 16 Caswell v Powell Duffryn Associated Collieries Ltd [1940] AC 152 (HL) at 169–170.

[59] I now set out the facts from which the Commissioner’s allegations arose. I also address each allegation and why I consider there to be no positive proved facts from which an inference of the respondents’ involvement in significant criminal activity can be made.

Cannabis plants remnants found in the ceiling cavity at 344 Arapuni Road

[60] On 5 December 2009 Constable Maddren went to 344 Arapuni Road, Putaruru. He spoke with the occupant, Kit Ogle and her partner. He was directed to a roof space by which access was gained via a manhole. He found a number of newspaper sheets spread over the ceiling joists. There were cannabis remnants on the newspaper, consisting of cannabis twigs, cannabis leaf and cannabis head. Cobwebs were undisturbed over the majority of the roof space. He noted that the newspapers were dated 2001. He removed the cannabis remnants and some of the newspaper from the roof space and took them to the Putaruru police station. The cannabis was weighed and totalled 60 grams. A further police search of the dwelling was undertaken on 13 August 2010. It located cannabis leaf and stalk on newspapers.

[61] The initial search occurred as a result of a plumber, Mr TJ Samuel, being called to the property to attend to a header tank leak problem. He discovered the cannabis which he described as “green in colour and it had an odour to it when I got close”. He told the occupants of his find. Perhaps, understandably, they reported the position to the police to avoid suspicion that they were involved.

[62] Mr Laybourn drew specific attention to the following matters concerning this evidence:

(a) The remnants discovered on 5 December were discovered some 18 months after the respondents had left the address;

(b) There is no forensic evidence such as fingerprints or DNA analysis connecting the respondents to the material and the newspapers;

(d) A second search on 13 August 2010 found further cannabis which counsel submitted suggests that some other person, namely persons who had access to the property and not the respondent, placed it there;

(e) No forensic evidence has been advanced which attempts to put an age on the cannabis material found. The fact that it was seen by the plumber as green and having an odour suggests against any basis for assuming that it had been there for a period in excess of 18 months; and

(f) The occupant of the property at the time of the discovery, Ms Ogle, had a previous conviction in 1996 for cultivation of cannabis.

Cannabis and cannabis constituents found at 501 Kihi Road

[63] On 10 August 2010 the Police executed a search warrant at the respondents’ Kihi Road property. That led to the first respondent being charged with possession of cannabis. Detective Hopkins said that on 27 October 2010 the first respondent appeared in the Te Awamutu District Court and was convicted of possession of cannabis. The summary of facts recorded that:

There were cannabis remnants on the respondent’s clothing on 10 August 2010.

The respondent admitted disposing of a small amount of cannabis on police arrival.

There were seven grams of cannabis plant in a tool box in the implement shed and

The respondent said the cannabis was for his own personal use and that he had forgotten where he got it from.

[64] Constable Lunt, who assisted with the search warrant, said that he was searching for a sawmill in a paddock towards the back of the Kihi Road farm when he located a black plastic rubbish bin with a lid, inside a large blue feed bin. He removed the lid and said he noted a strong smell similar to cannabis coming from inside the lid. He said he later questioned the first respondent about the smell. He

said that the first respondent said “It shouldn’t do, I use it to run water to some of the stock up here”.

[65] The black plastic bin was sent for analysis. Ms Seagars, an expert with the ESR, found cannabis constituents in an ethanol rinse in the black plastic bag. A ten litre paint tin and a sample of liquid, however, showed no traces of cannabis. A cannabis plant was sent for analysis by the ESR. The analyst’s certificate identified plant in the samples weighing 0.5, 0.6 and 2.9 grams respectively.

[66] Mr Laybourn, in his submissions, observed in relation to this evidence that:

“the minimum amount of cannabis to give rise to a presumption of commerciality, namely possession for sale or supply is 28 grams pursuant to Schedule 5 of the Misuse of Drugs Act 1975. The total weight [referring to the analyst’s certificate] amounts to 4 grams.

He submitted that the low quantities of cannabis were simply consistent with personal use.

Mr O’Brien’s evidence

[67] Mr O’Brien said that he was employed as a contract driver, involved in maize harvesting. His employer is Precision Harvester, whose proprietor is Mr Cameron Bishop. In his affidavit, he said that for around five years he carried out maize harvesting at the de Wys Arapuni Road property. He said that he met the first respondent on about seven or eight occasions. He said that each time he went to the Arapuni Road property to harvest the maize in March or April the centre three rows of the maize plants had either been sprayed or pulled. He said he was aware that Mr Edmeades purchased the Arapuni farm in 2008. He said that the last time he was on the farm was in the spring of 2008 when Mr Edmeades was cultivating a maize crop. He said that on one occasion he saw cannabis plants growing in the maize crop at the Arapuni Road farm. He said it was either the season before, or two seasons before Mr Edmeades bought the farm. He thought the purchase was either April 2007 or April 2008.

[68] He then describes how he calls the farmer the night before a harvest is to be undertaken as part of being a contract driver involved in maize harvesting. On the

occasion that he then described he said he was not able to reach the de Wyses. He then described what happened on the occasion when he said he saw the cannabis plants growing. He said he went to cut the first round of maize and noted it was obvious that rows were missing out of the middle. He thought the rows had been freshly pulled and there had been some activity earlier in the morning. He could see cannabis plants remaining in the centre rows. He then said he caught a glimpse of someone on foot in his rear vision mirror as he was driving the harvester. He then said he saw the respondent, who had his arms around mature cannabis plants. He described the height of the maize and the size of the cannabis plants. He said that it was about 20 to 30 minutes before he came back around to the place where he had first seen the respondent and at that time he did not see him and there were no cannabis plants left.

[69] Mr O’Brien was recalled. He confirmed he had not met the first respondent many times. He also advised that he had not met the first respondent in the year when he said he saw the respondent with his arms full of cannabis plant. His evidence as to how the respondent was identified to him was vague. There is no evidence of a formal introduction or an acknowledgement of names. Faced with this conflict, Mr Douch sought leave to call Mr Bishop. I heard counsel. Arrangements were made for a brief of evidence to be prepared ahead of Mr Bishop being called and he was then called.

[70] Both respondents had given evidence that there was no maize harvest in 2008. There was a logical reason for this, namely, that they had made the decision to leave the farm. There was simply no point in planting and harvesting a maize crop for 2008.

[71] The respondents were also clear that Mr O’Brien was not the harvester driver in 2007. The second respondent was challenged about this. Her evidence that Mr O’Brien was not the harvester driver in 2007 clearly proved to be correct because Mr Bishop, when he was cross-examined by Mr Gorringe, was shown an invoice from which he was able to confirm quite clearly that he, personally, had been the driver of the harvester in 2007. The evidence of what transpired during the 2007

harvest was given by the respondents. In particular, Mr O’Brien was not there. I accept it as an accurate account of the position.

[72] As to precisely what year Mr O’Brien was on the property, is not clear. What I am quite sure of, however, is that he was not there in 2007 and clearly, there was no maize to be harvested in 2008. I am not satisfied from his evidence that he was in a position to identify Mr de Wys at any time as the farmer who instructed the harvester. Whilst I accept that he was on the property at some earlier time, I am not satisfied that he was in a position and did correctly identify the first respondent as the person he said he saw taking cannabis plants away from the maize crop.

[73] Counsel also drew attention to the fact that Mr O’Brien was incorrect as to the actual paddocks that contained the maize. Google maps were presented which support the respondents’ evidence in respect of the areas where maize had been grown in 2007. There was nothing in those photographs that suggested cannabis plants had been removed, or were present. The result is that I am not satisfied that Mr O’Brien identified the first respondent in any year prior to 2007 as the person who he saw with cannabis in his arms. It is simply not possible to exclude the likelihood that cannabis, if it was on the Arapuni property, had been planted by someone other than the respondents. The paddock described by Mr O’Brien was close to a public road.

[74] The above summary is the full extent of the evidence relied upon by the applicant to show involvement in a significant criminal activity.

[75] Counsel for the respondents correctly, in my view, drew attention to the following:

(a) Despite thorough police searches and investigations, there was no evidence of any significant cultivation, sales or any other indicia supporting the manufacture and sale of cannabis;

(b) There is no evidence of a large amount of cannabis being dried, cannabis head and leaf being sorted, weighing and packaging of

cannabis for sale, or any evidence of regular contact with likely purchasers either for sale on a wholesale or retail basis;

(c) There are no electronic scales. There is no packaging material. There is no written documents recording customers and there is no evidence of purchasers attending the farm on a regular basis to acquire cannabis;

(d) What was discovered on the police searches were very small quantities which, at the most, suggest cannabis use for personal purposes only.

The financial inquiry

[76] Counsel for the applicant broke this aspect of the case into four parts, being those which are set out in [56] as:

 Cash deposits totalling $427,596.70 into bank accounts between 20 December 2004 and 16 July 2010;

 $20,000 cash deposited into a solicitor’s trust account to help purchase the property at 501 Kihi Road and various other cash deposits;

 The respondents purchased the Mahoe trailer, sawmill and other assets using cash/funds from an unidentified cash source;

 Attempts to conceal and disguise the ownership of some assets held by the respondents.

[77] I have set out, under the heading Suspicious Transactions Report, how this aspect of the case arose.

[78] The applicant’s position is that the possession and use of unexplained cash over a comparable period is evidence to be added to the evidential pool regarding

significant criminal activity. Clearly, however, it does require, in the first place, evidence of participation in the cultivation of cannabis.

[79] In the trial directions I made on 16 July 2014, I directed that counsel for the parties arrange for a meeting of Ms MacDonald, who is a financial analyst attached to the New Zealand Police’s Hamilton Asset Recovery Unit and who had completed affidavits in this proceeding, and Mr Parsons, a forensic chartered accountant employed by the respondents, to analyse the inquiry undertaken by Ms MacDonald. The purpose of the meeting was to complete a report pursuant to r 9.44 of the High Court Rules. They met and have produced a helpful report, to which I will make reference.

[80] Ms MacDonald has been employed by the New Zealand Police since 10 May 2010. She is currently in the final stage of completing a Bachelor of Accountancy degree at Massey University. She was asked to undertake an analysis of the financial affairs of the respondents. Her analysis relied on a variety of documents which she received from Detective Hopkins and covered the period from 20 December 2004 to 16 July 2010. Her initial conclusion was that the respondents had access to income from an unidentified source of not less than $806,439.97. As a result of inquiries which Mr Parson had undertaken and discussions with her, in a later affidavit of 8 May 2014 she reduced that amount to $729,558.62.

[81] In their report, Ms MacDonald and Mr Parsons advise that the cash availability statement represents unexplained net cash deposits into the bank account of the first and second respondents and unexplained cash payments that have been made by them to various third parties to acquire goods. Both the experts advise that the cash availability statement amounting to $729,558.62 could be reduced “on the acceptance by the Court as to the source of the funds”. Ms MacDonald and Mr Parsons differ on how the respondents’ explanations for the funds ought to be treated, and whether or not they are reliable. Mr Parsons reported that:

In my opinion if the Court on considering all of the evidence, determines that the respondents’ explanations in respect of the source of the case for the years 2002 to 2008 are satisfactory then the unexplained amount will amount to $310,178.63.

He set out how that figure was arrived at.

[82] The report made by the BNZ identified cash deposits totalling approximately $320,000 made in $20 denominations between 8 January 2008 and 26 May 2008. This, of course, was a critical time when the de Wyses were trying to put together funds to complete the purchase of the property at 501 Kihi Road, Te Awamutu. It was that report which caused the inquiry which the police commissioned in respect of the period 20 December 2004 to 16 July 2010.

[83] There were two aspects identified, namely:

(a) Income from an unidentified source; and

(b) Purchase of assets with funds/cash, the source of which was considered could not be explained.

[84] With respect to the acquisition of assets, the police inquiry located the following matters which, essentially, are not disputed:

(a) The funding surrounding the purchase of 501 Kihi Road, Te Awamuta, which required funding of $715,100 inclusive of GST, which I have already explained;

(b) Payments made in respect of the portable saw mill. In this respect, a payment of $17,000 in cash was made by the second respondent on 16 July 2007 to Stephanie Bergman on behalf of the first respondent and herself;

(c) Mrs de Wys purchased a 2008 Suzuki Swift for $25,300. A $2000 deposit was paid by way of a credit card transaction. The balance of $23,300 was later paid in cash by the second defendant ;

(d) The first respondent a 2009 Kubota RTV 900 utility for $22,387.50; and

(e) The first respondent purchased a 1998 Nissan caravan motor vehicle. The previous owner confirmed that he received a payment in cash. The invoice was discovered on 10 August and records a payment of $6,850 by the first respondent.

[85] The police inquiry also discovered a purported sale to the respondents’ 13 year old daughter for $1 of a motor cycle and a sale of the Kubota RTV 900 utility to the respondents’ son for $1 on 12 August 2010. In addition, a Suzuki quad racer motorbike was sold the respondents’ son for $1. On 18 August 2010, the 1998 Nissan caravan motor vehicle was transferred to the respondents’ son. On 23 August 2010 the Nissan Navara was transferred to the respondents’ son.

[86] The police inquiry involved contact with the respondents’ chartered accountant, Mr Graham Brown.

[87] A Suzuki motor cycle was transferred to the respondents’ son on 14 February 2011.

[88] The investigation of the respondents’ financial affairs, however, does not specifically deal with the claim made by the first respondent that he had kept his savings outside the banking system. Indeed, the case put forward by the respondents is that the shortfall not accounted for in Mr Parsons’ inquiry was primarily referable to the pre-December 2004 savings. It will be recalled that this was the method by which Mr de Wys, a man who has difficulty with reading and unfamiliarity with banking practice, maintained his savings. That there is support for the sales of firewood, scrap metal and calf sales returns, though not specifically in documents, was known to Detective Hopkins who had interviewed Mr Lane, who is the second respondent’s father. Mr Lane swore an affidavit in which he commented upon his visits to see his daughter, son-in-law and grandchildren over a substantial period at the Arapuni farm. He said he walked over the farm, saw the maize growing there and identified no cannabis plants growing on the property. Of importance, so far as the financial aspect is concerned, he confirmed his observations of the milling business, sale of firewood, the clearing of the land and other activities undertaken to improve the Kihi property.

[89] The first respondent’s evidence is that in 2000 there was at least $230,000 in cash secured in a tin underneath the Arapuni house and outside the period of investigation.

[90] Some reliance is placed on records that were created by the respondents at the request of their accountant and lawyers for the purpose of making a voluntary income return to the Inland Revenue Department. There are mistakes in those documents, which I do not intend to analyse in depth. These were attempts, from memory, to explain the respondents’ financial position over a number of years. This case, however, is not about analysing any default on the respondents’ part in respect of their responsibilities for the payment of income tax.

[91] Mr Douch was not able to complete his submissions in the hearing time allocated. He sought, and I granted leave for him to file a memorandum setting out his additional submissions.

[92] In those submissions he undertook a review of the financial analysis undertaken by Ms MacDonald. Its purpose was to cast doubt on the proposition that the respondents had been able to increase their pre-2000 alleged savings.

[93] The analysis would have been more helpful had it been put to the respondents so that an evidential response was available. The analysis that was undertaken draws on the material contained in the red book, which was the book prepared by the respondents for submission by the respondents’ lawyer and accountant and, at the request of the lawyer, with a view to a tax disclosure position being made to the Inland Revenue Department.

[94] Mr Douch’s analysis, however, proceeds on a number of assumptions. He proceeds by adopting an assumed income for the period 1 June 2001 to 31 May 2006, admittedly based on what was submitted to the lawyers and accountant for the tax case. That analysis, he properly points out, would show that the increase from the 2000 alleged savings of $230,000 to $320,000 at the time of the purchase of the sawmill unit produces a surplus of $116,455.90. However, he submits that that surplus only available if one ignores the other expenditure in that period which the

case availability summary identified. He then refers to the red book to get an income figure for the period February 2005 to February 2007, which, with allowance for GST, he finds is $68,726.25. However, he points out that the cash availability statement shows cash expenditure in this period of $84,832.10 which would indicate a reduction in cash resources by $16,105.85. He uses that over-expenditure to suggest that if one goes back to the 2000 starting figure there would be a reduction in that figure of $230,000 to $152,049.05. I am not satisfied that it is appropriate that I make the assumptions that Mr Douch invites me to without having it fully put to the respondents in the first place. If that is the case, then it would be wrong to start from the premise that the first respondent’s savings, which he claimed to exist in 2000, have been substantially eroded by the expenditure that has been conducted in the later years.

[95] A similar analysis was undertaken in respect of the financial position post the purchase of Kihi Road on 1 April 2008. Again, the object of the exercise was designed to show that the respondents simply did not have the cash resources to undertake the expenditure that the accounting analysis indicated had occurred.

Conclusion

[96] I must look at all the evidence to see if one can draw an inference that the assets now held by the respondents, or other benefits which they have acquired, being a result of a significant criminal activity. I am not satisfied that there is proof on the balance of probabilities that the cannabis plant remnants found at 344 Arapuni Road can be attributable to either of the respondents. I accept and agree with Mr Laybourn’s submissions, which I have set out in [62] of this judgment.

[97] So far as the presence of cannabis and cannabis constituents at the four separate locations at the 501 Kihi Road property, I am not satisfied that that evidence forms a basis upon which a court could draw an inference that the first respondent was involved in the cultivation of cannabis for supply.

[98] Next, there is Mr O’Brien’s evidence. I am simply not satisfied that the person he observed was the first respondent. The respondents’ account of what happened in 2007 is credible and was corroborated. Whatever Mr O’Brien saw does

not satisfy me that it can be connected to the first respondent. Mr O’Brien’s identification of the person he saw as the first respondent is not satisfactory. In addition, whilst I have no doubt that Mr O’Brien observed an incident on the Arapuni Road farm, he certainly did not observe it in 2007.

[99] In [75] I drew attention to a lack of material that might have supported the drawing of an inference that the first respondent was involved in the manufacture of cannabis for supply. There is, in my view, no foundation for drawing that inference for the additional reasons that I have set out in [75].

[100] That brings me to the financial inquiry. The question then is whether that inquiry, added to what material the police did uncover in relation to cannabis, is enough to draw an inference on the balance of probabilities that the availability of cash to the respondents was as a result of a significant criminal activity.

[101] The real problem with the financial inquiry undertaken stems, in the first place, from the fact that there is no hard and fast evidence as to what the position was for the period prior to Ms MacDonald’s inquiry. The second problem is although one has some suspicions about the source of funds available to the respondents, there is nothing like the degree of proof on the balance of probabilities from which one could draw the inference that they had been involved in a significant criminal activity.

[102] I therefore conclude that it has not been proved on the balance of probabilities that the respondents have been involved in a significant criminal activity. On that basis the application fails and is dismissed.

Costs

[103] I reserve costs. If the parties cannot agree, memoranda in support, opposition and reply shall be filed and served at seven-day intervals.

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JA Faire J