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General, Trustees, Trusts

Trust no defence against Proceeds of Crime Act

The Proceeds of Crime Act 1991 (since replaced by the Criminal Proceeds (Recovery) Act 2009) provides for the forfeiture of property used in the commission of a crime.  In the case of Solicitor-General v Monk the property in question was a family home that had been used in the manufacture of methamphetamine.  The fact that the home was owned by a trust did not protect the home from forfeiture.

However, as there were future beneficiaries who had not been party to the criminal proceedings, the question for consideration was whether any relief from forfeiture was available on account of those beneficiaries.

The approach the court took was to assess the trust’s equity in the property as 25% (the market value of the property less the amount owing to Mr Monk), and to then hold that although the house was forfeited the Crown was required to pay back 25% of the net sale proceeds to the trustees on account of the trust’s final beneficiaries.  It was noted in the decision that this would mean that Mr Monk, who was also a beneficiary of the trust, could benefit in the future from the trust’s assets.

It is noted that it is unclear from the decision whether the debt owing to Mr Monk, which was capable of requiring a mortgage security, was repayable upon demand.

The question for consideration is what the approach might have been if Mr Monk had fully gifted the advance to the trust that provided the purchase price for the trust’s sole property such that, using the court’s reasoning, the trust had a 100% interest in the property.

Criminal Proceeds (Recovery) Act 2009

Commissioner of New Zealand Police v Jiang relates to claims for forfeiture of tainted assets under Criminal Proceeds (Recovery) Act 2009 (the 2009 Act).

Also see R v Brazendale, which considers an unsuccessful application for relief in respect of a forfeiture order made in respect of a trust owned property under the 2009 Act.   In that case it was necessary for the Court to decide whether the respondent had effective control of trust property (so that the jurisdiction under s 58 of the 2009 Act applied) and whether trust property can be subject to an assets forfeiture order on the grounds that it is tainted property.

As noted at [43]:

It is clear that neither Ms Jiang’s status as a trustee, nor as a discretionary beneficiary are sufficient, on their own, to treat her as having “effective control” over the property. The real issue is whether, in all the circumstances, she has the capacity to “control, use, dispose of, or otherwise treat the property as his [or her] own.”

The Court found that she did for the following reasons:

  • Ms Jiang treated the property as her own “living in it and using it without regard to the need to maintain it as an asset for all the discretionary beneficiaries of the Trust”
  • payment of outgoings (although little weight was put on this as she was an owner as a trustee) and it was a formal term of the right of occupation
  • Ms Jiang did not “actively confer with, nor report to, the independent trustee … Mr Townley’s affidavit evidence demonstrates no meaningful conferral between the trustees since Ms Jiang’s appointment.”
  • the trustee did not jointly present the case and Ms Jiang was not represented as a trustee.  As noted at [46]: Indeed, one of the difficulties in advancing those proceedings was Ms Jiang’s failure to engage with the other trustee, in order to present the trustees’ position to this Court.
  • pivotal to the finding of control was the power of appointment.  As noted at [47]:

Finally, I consider Ms Jiang’s power of appointment is pivotal. Not only has she acted independently of her fellow trustee but, should TTSL resist a decision she wishes to make, her ability to replace the independent trustee without giving reasons, means that she has effective control of the Trust. There is no realistic prospect that she will treat the property other than as her own property without regard to the interests of the other discretionary beneficiaries given this combination of circumstances. Indeed, that is the way the property has been treated to date.

The Court was satisfied that Ms Jiang had effective control of the property at the relevant time and an order was made under s 58 of the 2009 Act that it be treated as if Ms Jiang had an interest in the property.     However, effective control does not mean that property is tainted, which was considered separately.

Also see R v Brazendalewhich considers an unsuccessful application for relief in respect of a forfeiture order made in respect of a trust owned property under the 2009 Act; and FM Custodians Limited v R, trust property and related company property mortgaged (and cross-securitised) as part of a fraud were instruments of crime as defined in s 5 of the Criminal Proceeds (Recovery) Act and s 4 of the Sentencing Act.

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