New South Wales Crime Commission v Kelly and Ors

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

JUDGMENT 1 Shaw J: This is an application for the Court to make an assessment of the amount of money or other consideration derived by the defendants from their (alleged) illegal activities in the period from 13 February 1993 to 12 February 1999. It is put by the plaintiff, the New South Wales Crime Commission ("the NSWCC"), that the defendants were engaged in the sale of illegal drugs. They did so from what one might have assumed was the relatively sleepy town of Boggabri, with a population of approximately 900 people.

2 On 4 April 2001 Greg James J made orders, pursuant to s 22 of the Criminal Assets Recovery Act 1990 ("the Act"), that the interests in certain property of the first, second and third defendants be forfeited to, and vest in, the Crown: [2001] NSWSC 247. That property included:

· the whole of the land in DP Lot 81 591032 known as 11 Brent St, Boggabri ("the Boggabri residence"); · a 1983 Subaru Wagon registration number UOS821 ("the subaru"); · a 1978 Holden Utility registration number RKC235 ("the ute"); · the whole of the land in Lot 1272 DP 874790 known as Parish of Baan Baa ("the farm"); · a 1996 Mitsubishi Starwagon registration number QQR265 ("the starwagon"); · a Viscount Royal Caravan registration number J21416 ("the caravan"); · a Chamberlain Tractor having engine registration number 0240762 ("the tractor"); · a Suzuki brand Bike having engine registration number J412100845 ("the bike"); · a Chamberlain 18 Disc plough ("the plough"); · a Kilkenny Scarifier ("the scarifier"); · and approximately 75 mixed sex cattle ("the cattle").

3 These orders were stayed pending any application of the defendants to exclude such property pursuant to ss 25 or 26 of the Act. The defendants have made such an application as well as an application pursuant to s 24 of the Act, which I have previously determined may be heard: [2003] NSWSC 56.

4 The NSWCC sought to prove that the defendants have been engaged in a course of criminal conduct from 1995 to 1998 involving the supply of illegal drugs in the Boggabri region of north-west New South Wales. 5 The defendants deny any dealing in illegal drugs. However, the difficulty I see with that proposition advanced in evidence and submissions is the judgment of Greg James J delivered on 4 April 2001: New South Wales Crime Commission v Kelly [2001] NSWSC 247. 6 That judgment involved findings against the current defendants to the effect that an assets forfeiture order should be made pursuant to s 22(2) of the Criminal Assets Recovery Act 1990 (NSW) ("the Act") in that it was concluded by his Honour that it was more probable than not that a serious crime related activity involving an indictable quantity had occurred around April 1998. His Honour made an order under s 27 of the Act, without any necessity for a finding that there was the commission of a particular offence or a particular quantity. The Court is faced with an existing proceeds assessment order made under the legislation, and a standing judgment of the Court against which no appeal has been brought. 7 The defendants initially included in their notice of motion an application to set aside the judgment of Greg James J, but such an application, understandably and properly in my opinion, was abandoned by counsel for the defendants. In my view, and as was conceded by the defendants, the prior judgment constitutes an issue estoppel in relation to critical aspects of this case and the task of the Court now is to give effect to the order setting out specified property and other assets and to quantify the amount that should be confiscated as the proceeds of crime. 8 The proceedings focus upon s 27 of the Act, empowering the plaintiff to apply to the Supreme Court for a proceeds assessment order requiring a person to pay to the Treasurer an amount assessed by the Court as the value of the proceeds derived from an illegal activity. The Court is given no discretion in the matter if various prerequisite conditions are met. The Court must make a proceeds assessment order pursuant to s 27(2) of the Act if: the Court finds it to be more probable than not that the person against whom the order is sought was, at any time, not more than six years before the application for the making of the order, engaged in: (a) serious crime related activity involving an indictable quantity; or (b) serious crime related activity involving an offence punishable by five years imprisonment or more.

9 The commission brought evidence in this regard from several former and current police officers serving in the Narrabri and Boggabri region over the past decade. 10 Detective Sergeant Andrew Layhe gave evidence that he attended at the Boggabri residence of Mr Kelly and Ms Rangi on 31 October 1995 in executing a search warrant upon the residence. In a written statement dated 18 January 1996 the Detective Sergeant records that he found three $100 bills in the Boggabri residence in a black 'bum bag' that he subsequently found to be marked bills for the Drug Enforcement Agency. 11 Detective Sergeant Layhe then arrested Ms Rangi for possession of a prohibited drug, which subsequently tested positive as amphetamine. 12 During an ERISP with Ms Rangi she made some admissions that the white powder found during the search was located in the right front pocket of her jeans and more packets of powder fell when she lifted her dress during the search. Ms Rangi also agreed in the ERISP that when the search was conducted the Detective Sergeant asked her: Where did you get the speed from? to which she replied: Some black fella in Gunnedah. 13 Ms Rangi admitted that she bought the packets of power a day before the search was conducted and that the bum bag containing the marked $100 notes was her own, but that the wallet holding the bills inside the bum bag belonged to 'Scrooge' Kelly (as the first defendant, for reasons which are obscure, is known). 14 Also in the ERISP Ms Rangi agrees that a letter shown to her in the interview is a letter from a person known as 'Scrooge', who she then identifies as the first defendant, to herself. Ms Rangi then goes on to say Yes, but me old man can't read and write, so how would he write the letter? 15 When giving evidence, both Mr Kelly and Ms Rangi denied that the letter came from Mr Kelly. 16 Detective Inspector Christopher Clarke also gave evidence for the plaintiff. He said in evidence that he swore to an affidavit in these proceedings under an assumed name of Jeff Peters. In two written statements dated 30 October 1995 and 31 October 1995 he deposes to a supply of amphetamine from the first and second defendants to himself. 17 Inspector Jan Krwczyk and Detective Senior Constable Michael Gray both depose to handing marked $100 bills to 'Jeff Peters' and the return to them from him of a supply of amphetamine. 18 Gregory James Eade, formerly a Sector Commander at Boggabri Police Station, deposed that it was his belief that the first defendant was 'heavily involved in the sale of drugs (mainly cannabis)' up to March 1994. He deposed that he saw people attend at the Boggabri residence frequently; received complaints about the first and second defendants from residents of the Boggabri area; received community information about the defendants; and that he had received phone calls from Mr Kelly who would say, 'You haven't got me yet' and 'I am too quick for you'. 19 Under cross examination, Mr Eade admitted that the sources of community information he received was not often documented, nor could he remember specific details of those complaints, nor any particular incidents when the police were aware of actual sales of illegal drugs by the defendants. 20 Gregory Robinson, formerly a member of the police stationed at Boggabri, also gave evidence of receiving complaints about the first and second defendants. He testified that he made many intelligence reports on the subject of the defendants and their activities. However, under cross examination he too could not specify with particularity any of the complaints made to him regarding actual sale of illegal drugs by the defendants. 21 Both Mr Kelly, Ms Rangi and Mrs Rangi gave evidence that they had no knowledge of, or involvement in, the supply of illegal drugs.

Conclusion on crime related activity 22 On the evidence, and having regard to the prior findings of Greg James J, I am compelled to find that the statutory pre-requisites have been met and that I am required to make a proceeds assessment order against the defendants. I am particularly influenced by the provisions of s 27(3) to the effect that the Court does not require, in determining whether the prerequisites have been met, the establishment of a particular offence or a finding as to any particular quantity involved. The Court does not require evidence of any conviction of a relevant offence. This is legislation which may have drastic effects, but the Court is obliged to act in accordance with it. 23 Having determined that the evidence warrants the making of a proceeds assessment order under s 27 of the Act the Court must give consideration to the criteria set out in s 28 of the Act and I have given anxious consideration to those factors specified by the legislature. I refer in particular to s 28(2) which provides that: If evidence is given at the hearing of an application for a proceeds assessment order that the value of the defendants' property after an illegal activity or activities exceeded the value of the defendants' property before the activity or activities, the Supreme Court is to treat the excess as proceeds derived by the defendant from the activity or activities, except to the extent, if any, that the Supreme Court is satisfied that the excess was due to causes unrelated to an illegal activity or activities. 24 As the plaintiff rightly submits, it must be concluded that the defendants, as the suppliers of illegal drugs, buried in the backyard the proceeds from those sales. The defendants contend however that certain sums of money from relatives in New Zealand were supplied to them and that the profits from a business which they ran by way of fishmongering (including the sale of crustaceans) was also part of the money that was so buried. There is a vagueness about the evidence in this respect, and it is difficult to quantify and dissect the proceeds of illegal activities from monies which were lawfully obtained by the defendants either from New Zealand or from their selling of fish and prawns.

The evidence of lawfully acquired funds 25 The defendants sought to prove that the assets were obtained with lawfully acquired funds. 26 Mr Kelly gave evidence that he was a disability pensioner and that this pension afforded him approximately $300 per fortnight. He said that he had lived with Ms Rangi at Boggabri for nearly ten years. After a shearing injury in 1985, Mr Kelly said that he was given $25,000 and the pension mentioned above. However, Mr Kelly said that he could generate income from other activities such as cotton chipping, fox shooting, killing pigs and a bit of shearing. 27 However Mr Kelly said that the income needed to acquire the assets came from two major sources. The first was money sent or brought from New Zealand that belonged to Ms Rangi's father, Mr George (or Ehau) Rangi, the husband of the third defendant. The second was funds generated by a business owned by the third defendant, Mrs Rangi, selling seafood and crustaceans in the Boggabri region. Mr Kelly later added that he had buried money from the estate of his mother in the backyard. 28 Mr Kelly said that George and Lillian Rangi would give him either $5,000 or $10,000 each time they visited and each time Mr Kelly and Ms Rangi visited them in New Zealand. He said that such amounts were chosen because that way George Rangi would not have to pay tax on the amounts exported. 29 Mr Kelly said that he buried the money each time. He could not say whether Ms Rangi had ever buried money in the backyard. Mr Kelly said that he would bury money behind the aviary in the backyard. This was contradictory with evidence given by Mr Rangi before the Registrar who said that he saw Glenda bury money inside the aviary. Mr Kelly gave evidence that the aviary had a concrete floor. Mr Kelly said that the buried money was kept in a steel box, and later in a plastic cake container, and a bottle. 30 Mr Kelly said that the money for the farm equipment came from Mr Rangi. He said that the money for the starwagon, farm and cattle came from a mixture of funds imported from New Zealand and profits raised from the sale of seafood. 31 Under cross examination Mr Kelly agreed that the starwagon was bought with cash. He said that the dealer asked him to arrange several bank cheques each for a value under $5,000 be prepared as any cash transaction over $5,000 would need to be reported. Mr Kelly said that he was unsure what authority the dealer would have to report but did arrange for several bank cheques, each bought with cash, to be produced by several different banks. 32 Mr Kelly also agreed that he arranged for most of the sale of the farm with Mr Smith and that he was now in charge of it though he denied that he was the owner of the farm or the cattle kept on it. Mr Kelly agreed that the cattle were marked 'SK' and that people in the area would know those initials to mean Scrooge Kelly. 33 Mr Kelly said that he received no personal income from the seafood business other than having his vehicles registered and the free supply of seafood for himself. However, Mr Kelly said that the business was making a profit of over $5,000 a week, which he would bury in the backyard of the Boggabri residence. Mr Kelly later said that the business would make between $3,000 and $4,000 each week in profit. 34 Mr Kelly agreed that the business would only operate approximately five months of the year. 35 Mr Kelly said that the reason receipts analysed by the NSWCC only show a trading activity over a few limited months is because during a police raid of the Boggabri residence in 1997 members of the serving police force took all the business records maintained in relation to the seafood business except the documents produced to the Court. 36 Mr Kelly agreed that the documents produced relate to purchases of seafood of approximately $12,000. 37 The plaintiff called evidence from Mr Leonard Evans, a local of the Narrabri region who owns a business supplying seafood to the Narrabri, Gunnedah, Wee Waa, Coonabarabran and Boggabri regions. Mr Evans said that he had heard that Mr Kelly was operating a similar business to his own but that his own sales remained unaffected if this was so. Mr Evans said that he thought Mr Kelly's activities were restricted to 1996. Mr Evans said that after over twenty years in the industry he would make a profit margin of approximately 25 to 30 per cent each year after costs of approximately $250,000 each year. 38 Mr Kelly said that Mr Evans may feel some animosity against him since his business was achieving greater profits than Mr Evans. Mr Kelly said that whereas Mr Evans was sourcing his seafood from New South Wales at an initial cost of $26, he could obtain product from Queensland for approximately $12 and have it couriered to him to save on further costs. Mr Kelly said that Mr Evans might not be aware of his business as they would operate in different areas to him and at different times. 39 Mr Kelly said that they had to cease trading because the police would 'tear it to pieces'. 40 Ms Rangi gave evidence that she receives a parenting allowance of approximately $300 to $400 each week. Ms Rangi said the combined income of the household was approximately $500 each week. Ms Rangi gave evidence of the thrift required to balance the household budget. 41 Ms Rangi said that the money for the farm equipment and cattle came sent from her father in New Zealand and was not paid for with buried money. She said that the starwagon and farm were paid for with buried money. 42 Ms Rangi said that the money was buried in the backyard in several large plastic takeaway containers. 43 Ms Rangi said that though the seafood business was licensed in her mother's name, she had most of the control over the operation of the business. Ms Rangi gave evidence that profits from the business were approximately $1,000 to $2,000 per week, as a conservative figure. She later said that the profits were around $3,000 to $4,000 per week. Later again these figures climbed to between $7,000 and $10,000 per week. She said that costs would be approximately $300 to $400 per week. 44 Ms Rangi said that the seafood business would operate for approximately six months over the years 1996-1998. She said that neither herself or Mr Kelly received any money from the business. Ms Rangi said that she kept some records for the business but that these were taken by the police in the search of the property in 1997. 45 Mr Shayne Smith gave evidence for the defendants. He said that Mr Kelly and Ms Rangi were in the business of selling seafood for approximately 18 months over 1996-1997. 46 Mrs Lillian Rangi, the third defendant, also gave evidence. She said that she was aware that her husband had older half-brothers. She said that she held bank accounts in New Zealand in banks that have branches in Australia but has never transferred money across the Tasman Sea electronically. 47 Mrs Rangi testified that her husband was in control of most of the finances in the marriage but that she could recall being given money by him to bring to Ms Rangi in Australia from time to time. Mrs Rangi agreed that she has filed Australian tax returns declaring a loss on cattle interests, but not filed any relating to the seafood business. 48 Though Mr Rangi was too ill to attend Court to give evidence he had attended previously to be examined before the Registrar. At that hearing Mr Rangi said that he gave money only to Ms Rangi to be buried at the Boggabri residence.

Methods of assessment 49 In relation to broadly analogous legislation, namely the Crimes (Confiscation of Profits) Act 1985 (NSW) Allen J said that the Court's assessment must necessarily be reached upon a 'rough and ready' approach: R v Fagher (1989) 16 NSWLR 67 at 80. The obvious point was made that people engaged in criminal activities do not ordinarily keep accounts or perhaps appropriate taxation records. There are difficulties of quantification and the Court will simply do its best to reach a reasonable result in all of the circumstances, bearing in mind the self-evident legislative intent that people should not profit from criminal activities. 50 The applicant presents a number of modes of calculation which, at least in their primary propositions, would result in a confiscation of approximately $1 million from both Mr Kelly and Ms Rangi. Indeed, it is suggested that something somewhat in excess of that figure should be the appropriate amount of confiscation. 51 The plaintiff called evidence from a Mr Robert Davis, a financial analyst with the NSWCC. Mr Davis outlined methods of assessing the gross income derived by the defendants from the alleged sales of illegal drugs. 52 The methods of assessment adopted by the plaintiff were as follows. First, the court could determine from four known sales of illegal drugs (two in 1995 to Mr Clarke and two in 1998 to Mr Parker) a series of daily transactions to multiple numbers of purchasers each at $200 per supply. At two sales per day over the period from 1993 to 1998 the plaintiff submits the proceeds would amount to $1,095,000 for Ms Rangi and $1,018,958.33 for Mr Kelly. 53 This method of assessment must be rejected. There is no simply evidence upon which the Court can be persuaded on the balance of probabilities that the defendants were engaged in the regular sale of illegal drugs in the order of those amounts. The observations of former police officers that members of the public would visit the defendants do not amount to proof of drug sales. 54 The second method of assessment urged by the NSWCC was to receive evidence of a diminution of the use of the needle exchange program at Boggabri District Hospital following a search of the defendants premises as indicative of the supply of illegal drugs by the defendants. Extrapolation of these figures generates figures of $1,125,000 for Ms Rangi and $1,031,250 for Mr Kelly. 55 This method of assessment must be rejected. There is plainly no evidence upon which the Court can proceed according to this methodology. 56 The third method offered by the NSWCC was to take the profits asserted by Mr Kelly on the seafood business as actually derived from the sale of illegal drugs. According to this method the NSWCC offers an assessment of $1,560,000 for Ms Rangi and $1,451,666,67 for Mr Kelly. 57 This method must similarly be rejected. Though the plaintiff drew some comfort for the fact that each method generated a similar figure the Court cannot rely on either method of assessment offered as reliable and based on actual evidence. Accordingly I am required to undertake my own assessment of the profits generated by the defendants, taking into account money acquired from Mr and Mrs Rangi and profits derived from the seafood business. 58 The final method of assessment asserted by the plaintiff was to compare the income generated by the defendants against their expenditure. Mr Davis concludes that Mr Kelly and Ms Rangi spent $161,782 more than they earned from 1993 to 1998. The plaintiff asserts that this figure represents the minimum figure for net profits since it assumes that there was no other expenditure and that drug sales account only for this deficit and were not responsible for generating a greater income. 59 Mr Davis gave this evidence about the amounts of expenditure for the seafood business according to receipts and documents provided to him. He concludes that the business had an approximate expenditure of $12,000 based on those documents. Mr Davis conceded that if further invoices existed, his figures would need to be adjusted. 60 In my opinion the most rigorous and methodologically correct evidence as to the comparison between the legitimate income of the defendants and known expenditure is to be obtained from the affidavit of Mr Robert Davis. Although the applicant suggests that that constitutes an 'underestimate', nevertheless, it seems to me that is the appropriate basis upon which the judgment and orders should be made and the conclusion of Mr Davis is that there was a deficit (that is a contrast between legitimate and illegitimate earnings) of $161,782. 61 The plaintiff contends that this figure is the 'absolute minimum' of net profits from drug sales. The plaintiff submits this figure makes a number of assumptions favourable to the defendants. Nonetheless I feel more confident in basing an assessment on expert analysis of the financial position of the defendants rather than some broad and perhaps excessive figure which might do injustice to the dependants. The applicant suggests that that figure should be doubled, as I understand it, because two people were involved. I do not regard that as compelling or even persuasive. Mr Davis does not suggest that the estimated deficit should be doubled in relation to an assessment of gross drug proceeds and therefore I would accord weight to his 'bottom line' figure. 62 The question then arises as to whether the figure calculated by Mr Davis should be discounted or ameliorated on any basis in accordance with to the statutory regime. 63 Mr Temby, QC, fairly conceded for the NSWCC, that it is distinctly possible that monies came in from New Zealand as a result of Ms Rangi's parents' contribution to the family in New South Wales. 64 Mr Davis has given evidence as to the amount of money that could have been brought into the country during the trips made by Mr and Mrs Rangi (and received by Mr Kelly and Ms Rangi on trips taken to New Zealand) according to the evidence of Mr Rangi before the Registrar. Mr Davis deposed that such figure amounts to a maximum of $58,090. In a comprehensive analysis of the possible amounts of money imported into Australia by Mr and Mrs Rangi from New Zealand Mr Davis' evidence reveals that at times Mr Kelly and Ms Rangi were up to $23,220 out of pocket though making cash transactions of up to $10,000 at the time. 65 I accept Mrs Rangi's evidence (the mother of the second defendant) that some monies were brought in, although I acknowledge the difficulties arising from the incapacity of her husband (on medical grounds, accepted by all parties) to give evidence before this Court. Doing the best I can, I think the calculations in relation to money which came in from New Zealand relatives result in a figure of $50,000 and therefore this should be deducted from the figure of confiscation I have otherwise indicated. 66 In addition, I think that it is undoubted that some profits were raised from the fishmongering business although it is my view that the defendants' evidence as to the quantum of those profits is grossly exaggerated. In the inflation of figures from $1,000 per week profit to $10,000 it is difficult to assess a proper figure. The Court is willing to give weight to the evidence of Mr Evans that he would could generate approximately 25 per cent profit on expenditure. Taking an expenditure of approximately $12,000 the Court will consider a profit from the seafood business in the amount of $4,000. Accordingly, I would deduct $4,000 from the figure as being a rough and ready estimate of the amount that might have been earned form the sale of fish and prawns. 67 Thus, the Court can make an assessment that the amount of income generated by the defendants from criminal related activity in the amount of $96,000. 68 It is difficult to assess the amount that should be set aside from the sale of any interests forfeited for the hardship that may be suffered by the dependants of the defendants. The reliability of Mr Kelly and Ms Rangi as witnesses was not impressive. However, when speaking of their children, the evidence was clear, cogent and corroborative. 69 In an earlier judgment in this case ([2003] NSWSC 56) I have held that account may be taken of the hardship to any dependant of a person who will forfeit an interest in property under an order made by the Court in accordance with s 24 of the Act. This is subject to a limitation that the Court must be satisfied that the dependant had no knowledge of any serious crime related activities in relation to the person who was the subject of the forfeiture order. I am so satisfied. The details of the dependants in the present case, their age and their schooling are as follows: · Jason, 13, the son of Mr Kelly and Ms Cynthia Price; attending Gunnedah High School in year 8; expectations of completing High School and entering into the Air Force; Jason receives an Abstudy allowance and ATSIC contributes to the costs of schooling and some extra-curricular activities; · Raelene, 8, the daughter of Mr Kelly and Ms Rangi; in year 3 at Boggabri Primary School; performing well at school and in sporting activities; and · Jess, 6, the son of Mr Kelly and Ms Rangi; in kindergarten at Boggabri Primary School; also performing well at school and in sporting activities. 70 Mr Kelly and Ms Rangi gave evidence that it would be difficult to keep the children at their current levels of academic and physical commitment if they were required to sell the Boggabri residence. Mr Kelly and Ms Rangi gave evidence, that was not challenged by the plaintiff, that they would have to rent a property in that circumstance and that the availability of housing in the Boggabri region was limited and that prices in the Gunnedah area are much higher than those in Boggabri. Ms Rangi also gave evidence that the Boggabri residence was of a higher standard than that which they would probably lease if it were sold. 71 The evidence of hardship led by the defendants on behalf of their children was restricted. However, there was sufficient evidence led for me to be able to find that if the Boggabri residence needs to be sold this will cause hardship to the dependants of Mr Kelly and Ms Rangi and I should take this hardship into consideration after I have reached a conclusion on the assessment of the proceeds of crime. 72 However, Mr Temby, QC, submits that a pre-requisite of any order for amelioration from hardship is dependant upon the 'sale of the interest', and being an amount that the Court thinks is necessary to prevent hardship to the dependant. Although Mr Temby asserts to the contrary, it is my view not inevitable that the property must be sold. It may be that the defendants can raise the monies to satisfy the order of assets forfeiture in some other way, whether by way of mortgage, assistance from New Zealand or otherwise. But if there is a 'sale of the interest' I think the innocent dependants should be accommodated to some extent. 73 It is difficult to assess what amount should be allocated to their welfare in terms of their future education and progress, but I would suggest that if there is a sale of the relevant interest, then an amount resulting from that sale of $20,000 for the three dependant children should be allocated for that purpose pursuant to s 24 of the Act. 74 The Court is empowered to make ancillary orders for the purpose of ensuring the proper application of such an amount so allocated pursuant to s 24(1)(b) of the Act and I would direct that contingent upon the property being sold that the amount that I have determined should be allocated for the welfare of the dependants should be held on trust by the solicitors for the defendants (or such other person as may be agreed between the parties) and should be used in their discretion for the welfare of the children. 75 I exercise my discretion in this regard on the basis of the uncontradicted evidence that it would be in the interests of the children to remain in Boggabri and to continue their current schooling and social, educational and sporting relationships in that town. 76 I direct the applicant to bring in short minutes of orders to give effect to this judgment on Monday 24 March 2003 at 10am, and, subject to any further argument, take the view that the costs of the application must be paid by the defendants.

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