When is an undertaking for damages and costs required in proceeds of crime litigation?
The Court of Appeal has its say in Commissioner of Police v Salter.
The Court of Appeal has released a much anticipated judgment on the issue of whether an undertaking for damages was required by the Commissioner of New Zealand Police (Commissioner) in proceeds of crime litigation.
Mr and Mrs Salter are the directors of an oil recycling company, Salters Cartage Limited (SCL). In 2015, an SCL employee died while carrying out welding and sanding work on a tank that exploded. As a result, Mr Salter and SCL were each charged with multiple offences under health and safety and hazardous substances legislation. They pleaded guilty and were sentenced to a combination of fines and (in Mr Salters’ case) a period of home detention.
The Commissioner subsequently brought proceedings under the Criminal Proceeds (Recovery) Act 2009 (Act) against Mr Salter and SCL, seeking restraining orders against four properties, including land on which SCL’s refinery operated. The basis for the application was that the Salters and SCL had “unlawfully benefitted” from “significant criminal activity”, namely the health and safety at work and hazardous substances offending.
The Salters and SCL did not oppose the making of restraining orders against the properties, but sought that the Commissioner be directed under s 29 of the Act to give an undertaking that if the ultimate application to seize the properties was unsuccessful, and they had suffered loss as a result of the restraining orders, the Commissioner would be liable to pay damages to them. The Commissioner opposed the application.
Under s 29 of the Act, the Court has a broad discretion to require the Commissioner to provide an undertaking as to damages and costs. Factors relevant to the discretion in s 29 were previously set out by the Court of Appeal in Yan v Commissioner of Police, as including: personal circumstances of the respondent; delay; nature of the assets; the likelihood of loss being suffered because of restraint; the extent of any likely loss; the conduct of the Commissioner; the strength of the Commissioner’s case; and the existence of a meaningful alternative avenue of redress. Ultimately, Yan noted the guiding principle under s 29 is that of “justice and fairness” and to “diminish the possibility of oppression and injustice”.
In the High Court, Palmer J had ruled that the Commissioner should provide an undertaking to the respondents. His Honour was satisfied there was evidence the respondents could suffer loss either through the inability to increase business debt or to sell the business at its full value due to the restraint, such that an undertaking was in the interests of justice and fairness. While he considered the Commissioner had an arguable case for forfeiture, the novelty of the proceedings, based on regulatory offending, was a relevant factor.
The permanent bench of the Court of Appeal dismissed the Commissioner’s appeal against the High Court’s decision. In doing so, it confirmed the non-exhaustive list of relevant factors it had previously espoused in Yan as well as the “guiding principle”.
Applying those factors, the novelty of the proceedings was noted as relevant. The arguments in the Court of Appeal then focused on the likelihood and extent of prospective loss. The Court of Appeal agreed with the Commissioner’s argument that every restraining order over land may impact borrowing, and that something more is needed to justify an undertaking. However, the Court held that a respondent is not required to establish that future loss is certain, which would be a difficult threshold to reach.
The Court of Appeal agreed with the High Court and the respondents that there was evidence to support the conclusion that SCL’s future sale price would likely suffer because of the restraining orders. It accepted the evidence of a corporate adviser called by the respondents to that effect while noting the limitations of that evidence.
The Court of Appeal was not persuaded that ordering an undertaking would create a chilling effect, observing that the Commissioner’s confidence in its application for forfeiture against the Salters and SCL was more powerful than any chilling effect that may result.
The Court of Appeal again emphasized that whether an undertaking is required will be a factual inquiry to be assessed on a case-by-case basis.
The next step is the determination of the Commissioner’s application for forfeiture, currently set down for a seven-week trial in October 2024.
Article written by Lauren Esatlake and Richard Belcher
To find out more about our Proceeds of Crime practice please contact; Emma Ferrier or Grant Burston