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

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

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;

(c) That the value of the benefit determined in accordance with s 53 of

the Act is $729,558.62; and

(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

(c) A Hyundai excavator (digger).

[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

(c) the person's conviction for an offence in connection with the

activity has been quashed or set aside.

(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;

(c) The statement from Mr O’Brien who says the first respondent

involved in a large scale cultivation of cannabis;

(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;

(c) The newspapers were at least eight years old;

(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.

____________________

JA Faire J