Americhip, Inc v Dean
[2015] NZHC 1534
•3 July 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-004247 [2015] NZHC 1534
BETWEEN AMERICHIP, INC
Plaintiff
AND
JASON CHARLES DEAN First Defendant
JUAN CHEN Second Defendant
Hearing: 12 June 2015 Appearances:
David Goddard QC and Liesle Theron for the Plaintiff
David Jones QC for the DefendantsJudgment:
3 July 2015
RESERVED JUDGMENT OF MOORE J
This judgment was delivered by me on 3 July 2015 at 11:00am pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
AMERICHIP, INC v DEAN & ANOR [2015] NZHC 1534 [3 July 2015]
Contents
Paragraph
Number
Introduction ..............................................................................................................[1] The applications .......................................................................................................[5] Factual background .................................................................................................[6] Procedural background .........................................................................................[16] Freezing orders .......................................................................................................[28] Was there a failure to disclose material facts? ....................................................[35] Lack of full disclosure ..........................................................................................[36] Plaintiff ’s submissions..........................................................................................[38] Decision................................................................................................................[40] Does Americhip have a good arguable case? .......................................................[46] Defendants’ submissions ......................................................................................[47] Plaintiff ’s submissions..........................................................................................[51] Decision................................................................................................................[62]
Is there a risk of dissipation? ................................................................................[64] Defendants’ submissions ......................................................................................[65] Plaintiff ’s submissions..........................................................................................[66] Decision................................................................................................................[71] What are the interests of justice?..........................................................................[88] Defendants’ submissions ......................................................................................[89] Decision................................................................................................................[94] Conclusion............................................................................................................[98] Disclosure orders ....................................................................................................[99] Defendants’ submissions ....................................................................................[101] Plaintiff ’s submissions........................................................................................[102] Decision..............................................................................................................[103] Appointment of receivers ....................................................................................[109] Mairangi Bay ..................................................................................................... [113] Bank accounts .................................................................................................... [119] Timetabling orders ...............................................................................................[123] Result .....................................................................................................................[128] Costs ......................................................................................................................[135]
Introduction
[1] The plaintiff, Americhip, Inc (“Americhip”) claims that the defendants, Mr Jason Dean and Ms Zita Chan1 have defrauded it of approximately US$10 million. Americhip says they stole these funds using a variety of skimming techniques, but primarily through an elaborate fraudulent scheme involving the submission of false or inflated invoices for manufacturing work done for Americhip by various companies in China.
[2] The proceedings against Mr Dean were filed on 18 September 2013. The fourth amended statement of claim2 contains six causes of action alleging deceit, breach of fiduciary duty (by Mr Dean), breach of fiduciary duty (by Ms Chan), constructive trusts over the proceeds of fraud, knowing receipt (by Ms Chan) and dishonest accessory liability (against Ms Chan).
[3] On 24 April 2015 Americhip applied for and was granted various ex parte orders freezing the first defendant’s assets, requiring the disclosure of assets and joining Ms Chan as the second defendant. An application for orders appointing a receiver was adjourned.
[4] On the same day Americhip obtained freezing orders in the form of a Mareva injunction in Hong Kong. The banks in New Zealand and Hong Kong were served on 24 April 2015 after which Mr Dean and Ms Chan were notified.
The applications
[5] Americhip have now brought applications seeking the following:
(a) an order continuing the freezing orders made on 24 April 2015 restraining Mr Dean and Ms Chan from dissipating their assets;
(b)orders requiring Mr Dean and Ms Chan to fully comply with the disclosure orders made on 24 April 2015 by disclosing all deposits,
1 Also known as Juan Chan.
2 Dated 24 April 2015.
transfers or withdrawals of funds into, between or from the bank accounts affected by the freezing orders and the movement of funds through entities which they control or controlled within five working days. Americhip also seeks:
(i)an order that the defendants provide details of bank accounts since 2003 in either of their names and in the names of entities they control or controlled; and
(ii)an “unless” order: if the defendants do not comply with the disclosure orders, that the defendants be debarred from defending this proceeding;
(c) the appointment of receivers of:
(i)Mr Dean’s property in Mairangi Bay property to ensure it is maintained in good condition and is leased out to generate rental income, and to hold the net rental income on trust pending the determination of the claim in respect of the property; and
(ii)the frozen New Zealand bank accounts so that information can be obtained about them and any costs of the property can be met from those bank accounts. In the alternative, Americhip seeks an order that HSBC and ASB disclose all bank account statements, files and information held by them in any way relating to the defendants; and
(d) timetabling orders for trial.
Factual background
[6] Americhip is an American company which is in the business of designing, developing and selling a wide range of marketing and advertising materials and promotional products. It has limited in-house manufacturing capacity and, for the
most part outsources the manufacturing of its products to factories which build the
products according to the company’s specifications.
[7] By 2003 virtually all of Americhip’s products were being made in factories located in Taiwan and the Shenzhen District in China. This required the sourcing, project management and quality assurance and control work to be undertaken by the company’s Los Angeles-based staff. Because so much travelling was involved the Chief Executive and Chairman of the Board of Directors, Mr Timothy Clegg, decided to engage an executive based in that region who would undertake this work. In early 2003 Mr Clegg hired the first defendant, Mr Dean, for this purpose. Mr Dean is a New Zealander who was living in Taiwan at the time.
[8] Initially, Mr Dean’s responsibilities were to source new factories and manage the oversight of the company’s manufacturing projects. He was also directed to open a branch of Americhip in Shenzhen District, which he did at the end of 2003. When first hired by Americhip he was given the title of Project Manager. By the end of
2003, at his end of year performance and salary review, he was promoted and given the title “Vice President, Asia Division”. He was promoted because, according to Mr Clegg, he appeared to have been doing a good job. In 2006 Mr Dean was placed in charge of the day-to-day management of Americhip Shenzhen. Despite this he continued to be employed by Americhip US which paid his salary.
[9] When Americhip Shenzhen was first opened Mr Clegg says he advised Mr Dean to employ a Chinese office manager to assist him with the process of ensuring compliance with the legal requirements for running the office. Mr Dean recommended Ms Chan, the second defendant, be engaged. Mr Clegg approved Ms Chan’s engagement. She started working for the company in January 2004. Ms Chan is now married to Mr Dean.
[10] Mr Dean continued to impress Mr Clegg who placed him in charge of the day-to-day management of Americhip Shenzhen.
[11] However, in mid-2012 Mr Clegg began to suspect that Mr Dean had been stealing from Americhip by submitting inflated bids from fraudulent entities or
“dummy” companies and supplying Americhip Shenzhen staff to contract manufacturers to work as off-the-books labour.
[12] As a result, Mr Clegg and another Americhip representative flew to New Zealand. On 14 August 2013 Mr Clegg and a private investigator hired by him, Ms van Leeuwarden, confronted Mr Dean and Ms Chan at Mr Dean’s Mairangi Bay home where the couple were then living. The evidence of Ms van Leeuwarden is that both Mr Dean and Ms Chan made admissions of wrong doing and offered “to put things right”. Although Mr Dean acknowledged that what he had done was morally wrong he is reporting as saying he “didn’t really know it was legally wrong…” According to Ms van Leeuwarden he stated he did not feel he had done anything wrong because he was not an employee of Americhip.
[13] It is claimed he did, however, state that he had around $30,000 in cash and estimated he had between $3.5 million to $4 million in assets. When it was put to him that, in reality, the amount was much higher, it is claimed Mr Dean became animated in his denial. It is also claimed that Ms Chan apologised to Mr Clegg and promised she would return her assets, property and accounts. When Mr Clegg challenged Ms Chan that she was responsible for setting up “fraudulent dummy companies,” she replied by starting to name three of the companies before Mr Dean is alleged to have cut her off. Mr Dean and Ms Chan deny making these admissions.
[14] Mr Dean’s former wife made an affidavit in support of Americhip’s summary judgment application3 in which she said Mr Dean had told her after he had left Americhip that he had stolen more than US$10 million from Americhip. The following year he told her he had just bought a house in New Zealand and had used the money he had stolen from Americhip to fund the purchase. She said that Mr Dean asked her to lie for him and that if she was ever a witness she was to say that he was not an employee and was thus entitled to take Americhip’s money. She has since retracted this statement.
[15] Within a week of the 14 August 2013 encounter Mr Dean and Ms Chan left
New Zealand for China.
3 The summary judgment application was filed on 18 September 2013.
Procedural background
[16] On 18 September 2013, proceedings were filed together with an application for summary judgment. In Mr Dean’s and Ms Chan’s absence, orders for substituted service were made.
[17] Then, on 22 October 2013, Mr Dean filed an appearance under protest to jurisdiction and a week later made an application for dismissal of the proceedings for lack of jurisdiction.
[18] The High Court allowed the protest to jurisdiction on 12 March 2014.4 But that decision was reversed by the Court of Appeal on 8 August 2014.5 The Court of Appeal held that the constructive trust claim in relation to the Mairangi Bay home should be heard as a whole in New Zealand. It left open the question of whether
New Zealand was also the appropriate forum to hear and determine the rest of
Americhip’s claim.
[19] On 15 October 2014, Mr Dean applied for a stay on the grounds that New Zealand was not the appropriate forum for the claims to be heard and determined. Rather, he submitted, Americhip should issue proceedings against him in China, which he claimed was an available and more appropriate forum in which to resolve the issues in dispute.
[20] Significantly, in the evidence filed by Mr Dean in opposition to summary judgment and in support of his application for a stay, he asserted that he was entitled to, and did take, a margin on orders sourced for Americhip and disputed he had made any admissions to Mr Clegg or Ms van Leeuwarden on 14 August 2013. His defence was, and remains, that he was not an employee of Americhip during the relevant period. He says he never entered into an employment agreement with Americhip. Instead, he claims he was a consultant or middle man. The arrangement was that he would work for Clegg Industries in return for US$3,000 per month. He does not deny taking a “margin” on all orders he sourced from Americhip but says that as a
consultant he was entitled to do so. He claimed he received no additional payments
4 Americhip Inc v Dean [2014] NZHC 450.
5 Americhip Inc v Dean [2014] NZCA 380.
but continued to source and quote product for Clegg Industries on which he added a profit margin. He goes further. He says that he took these margins with Mr Clegg’s full knowledge and consent. Furthermore, Mr Dean has filed expert evidence in support of his claim that the taking of secret commissions or margins by intermediary agents, as opposed to employees, is permissible under Chinese law.
[21] Unsurprisingly these claims are strenuously disputed by Americhip. It says the information Mr Dean sent from China was deliberately false and misleading and as a result it had no knowledge he was taking a margin on product sales.
[22] Once Mr Dean filed this evidence, it became clear that the dispute at trial would focus on whether Mr Dean was legally entitled to take margins on the orders. Given this factual dispute, the resolution of which will necessarily turn on questions of credibility, Americhip withdrew its application for summary judgment.
[23] In a reserved judgment delivered on 14 April 2015, Katz J dismissed Mr Dean’s application for a stay. In discussing the legal principles, her Honour listed the factors relevant to the question of determining the appropriate trial forum. Amongst these was an assessment of the strength of the plaintiff’s case.6 In discussing the strength of Americhip’s case, her Honour observed:
“Based on the affidavit evidence alone, however, Americhip appears to have a fairly strong case. Mr Dean provides no documentary evidence to back up a number of the assertions he makes in his affidavits.”
[24] She then went on to discuss the evidence in some detail.7 I shall return to the question of the strength of Americhip’s case later in this judgment.
[25] On 21 April 2015, Americhip applied without notice to join Ms Chan as defendant. It also applied for freezing orders and ancillary orders requiring the disclosure of assets and for the appointment of a receiver of the property and bank accounts. It is the freezing and ancillary orders which are the subject of the present
applications.
6 Judgment at [15].
7 Judgment at [21] to [23].
[26] The orders sought were all made with the exception of the application to appoint a receiver, which was adjourned. The fourth amended statement of claim, which recorded Ms Chan as second defendant was filed. In addition to including Ms Chan as the second defendant, the new pleadings included the alternative claim that if Mr Dean was not an employee of Americhip he was an agent.
[27] Neither defendant has fully complied with the disclosure orders made in New
Zealand and in Hong Kong.
Freezing orders
[28] Rule 32.2 of the High Court Rules provides that the Court may make a freezing order restraining a party from removing assets located in or outside New Zealand or disposing, dealing with or diminishing the value of those assets.
[29] Three requirements are needed for a freezing order.8 These are: (a) an arguable case on the substantive claim;
(b) assets to which the order can apply; and
(c) a real risk that the respondent will dissipate or dispose of those assets. [30] The principal asset identified thus far by Americhip is the Mairangi Bay
property owned by Mr Dean. Americhip lodged a caveat over the title on 22 July
2013.
[31] In addition, Americhip is aware of a number of accounts in Mr Dean’s or
Ms Chan’s names in New Zealand, Hong Kong, China and Taiwan.
[32] There are also companies to which Americhip made payments which are or were controlled by Mr Dean or Ms Chan. Ms Chan was the director and sole
shareholder of Aoweili Electronics Ltd and Sun To International Ltd. She was the
8 Shaw v Narain [1992] 2 NZLR 544 (CA); McGechan on Procedure (online looseleaf ed) at
[HR32.2(03)].
sole shareholder of Color Bright Printing Group Ltd and Guanguyu Printing Group
Ltd.
[33] Americhip has been unable to identify any other assets although Mr Dean has disclosed the existence of a life insurance policy.
[34] In addition to the Mairangi Bay property, Mr Dean and Ms Chan are known to have the following assets:
(a) HK$2,102,825.42 (approximately NZ$370,000) in Mr Dean’s Hong
Kong HSBC bank account;
(b)a life insurance policy with a surrender value of US$92,000. The identity of the insurer or where the policy is held has not been disclosed;
(c) Mr Dean’s income of HK$3,000 (approximately NZ$530) per month;
(d) NZ$380 in a joint ASB account;
(e) NZ$5,623.07 in Mr Dean’s HSBC account at the Takapuna Branch; (f) a sum less than NZ$100 in Mr Dean’s Taiwanese bank account;
(g) HK$990,000 (approximately NZ$174,000) in Ms Chan’s Hong Kong
HSBC account;
(h)RMB69,000 (approximately NZ$12,130) in Ms Chan’s Chinese bank account and less than RMB10,000 (approximately NZ$1,750) held in another Chinese bank account by Ms Chan;
(i) a BMW vehicle in New Zealand (insured for NZ$17,000); and
(j) Ms Chan’s income of RMB20,000 (approximately NZ$4,400) per
month.
Was there a failure to disclose material facts?
[35] Mr Jones QC, for Mr Dean and Ms Chan, opposes the continuation of the freezing orders and ancillary orders on the following grounds:
Lack of full disclosure
[36] (a) There was a lack of full disclosure by Americhip and, more
particularly, a failure to “fully and frankly disclose to the Court all
material facts” as required by r 32.2(3). This failure, Mr Jones submits, includes the failure of Americhip to disclose any possible
defences known to it.9 He says that the material omissions included
the nature of the relationship between Mr Dean and Americhip. Mr Jones’ principal criticism is that when the proceedings were first issued the statement of claim relied upon the sole assertion that Mr Dean was an employee. However, in the plaintiff’s ex parte memorandum, Mr Dean was recorded as having received the margins in his capacity as either an employee or as an agent of Americhip. Mr Jones submits that this material change in Americhip’s case undermines the essence of the plaintiff’s claim that the relationship between Americhip and Mr Dean was one of employer/employee. Mr Jones submits the subsequent concession that Mr Dean may not have been employee is entirely consistent with Mr Dean’s defence that he was a consultant or a middle man, procuring contracts on Americhip’s behalf and thus independent of Americhip. (b)
Mr Jones develops this criticism noting that Americhip also failed to
mention in its memorandum that it had withdrawn its summary judgment application. This, he submits, is a material omission
because it demonstrates Americhip elected not to pursue its summary judgment application in the face of evidence filed in opposition by and on behalf of Mr Dean. He submits that Americhip must have
assessed the evidence as credible because it abandoned its
9 Rule 32.2(3)(a).
application. The decision to withdraw, he submits, flies in the face of
Americhip’s claim it has a strong case.
(c) He is also critical of the lack of detail around Americhip’s explanation of Mr Dean’s defence. He submits the closest Americhip got to disclosing Mr Dean’s defence was to refer to Katz J’s judgment in the memorandum’s footnotes.
(d)Mr Jones submits that the individual and cumulative effect of these omissions is that material facts which showed Mr Dean has a defence were not disclosed or were obscured. In applying for ex parte orders without full disclosure he submits Americhip gained a strategic advantage which it is now using in an improper attempt to obtain further orders designed to oppress and “financially starve” the defendants and prevent them from effectively defending the claim.
[37] As a result, Mr Jones submits that the orders should be discharged as was done in Automatic Parking Coupons Limited v Time Ticket International Ltd10 or, at the least, the Court should review the orders on a de novo basis11.
Plaintiff ’s submissions
[38] Mr Goddard QC, for Americhip, submits that this is not the sort of case where the applicant is required speculate as to possible defences. Mr Dean disclosed his defence in the course of his stay application before Katz J and those defences were expressly recorded in at least three paragraphs of Katz J’s judgment and referred to in the ex parte memorandum in support of the freezing orders. Furthermore, Mr Goddard submits that the fact Americhip omitted to make specific reference to the withdrawal of its summary judgment application was not a material non disclosure. In any event, it was recorded in the judgment of Katz J which was
provided to the Court.
10 Automatic Parking Coupons Limited v Time Ticket International Limited (1996) 10 PRNZ 538 (HC) at 541.
11 See Allen v Commissioner of Inland Revenue (2004) 21 NZTC 18,178 at [93].
[39] Mr Goddard further describes the criticism of the change in the vocational description from the initial claim Mr Dean was an employee to one which alleges he was an employee or agent, as puzzling. Once Americhip became aware of the nature of Mr Dean’s defence it took the prudent and logical step of amending its pleadings to broaden its allegation in relation to Mr Dean’s occupational relationship with Americhip in order to also capture the claimed defence. It took this step despite strongly maintaining its original position that at all material times Mr Dean was an employee. Mr Goddard points out that the ex parte memorandum expressly recorded the amended statement of claim had been updated in this respect.
Decision
[40] I agree with Mr Goddard. The amendments to the pleading simply reflect the need to broaden the definition of the relationship to reflect Mr Dean’s defence as disclosed to Katz J.
[41] Neither do I regard the omission to disclose the withdrawal of the summary judgment application as an incident of material non-disclosure. The decision to withdraw the summary judgment application was a proper one recognising, as it did, that the resolution of the application would necessarily turn on contested questions of fact, requiring credibility findings which make the summary judgment procedure
inappropriate.12
[42] Even if this fact had been disclosed I am satisfied it would have had no material effect on the outcome of the freezing orders.
[43] The memorandum of counsel expressly recorded that in the evidence filed in opposition to summary judgment and in support of the stay Mr Dean asserted he was entitled to (and did) take a margin on orders sourced for Americhip and disputed he made any admissions on 14 August 2013. While it is correct that there is no reference in the body of the memorandum as to why Mr Dean claimed he was
entitled to take a margin that comment is footnoted. The footnote reads:
12 Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC) at 14.
“Mr Dean’s defences are described at [11]-[12] of Americhip Inc v Dean
[2014] NZHC 700.”
[44] Although it would have been preferable for the defences to have been specified in the body of the memorandum, rather than as a footnoted reference to, I do not accept that this amounts to a material non-disclosure at anything approaching the level which confronted Tipping J in Automatic Parking Coupons Ltd and which led to her Honour not extending the freezing orders in that case.
[45] I am satisfied that the alleged non-disclosure does not provide a ground to overturn the freezing orders. However, for completeness, I will also address the test for granting a freezing order afresh.
Does Americhip have a good arguable case?
[46] It is common ground that a party seeking a freezing order against a prospective judgment debtor must be able to show it has a good arguable case13 and that it will succeed in a claim against the owner of the property to be frozen. In Hannay v Mount14 the Court of Appeal noted that “a good arguable case” is established when the allegations in the proposed claim are capable of tenable argument and are supported by sufficient evidence.
Defendants’ submissions
[47] Mr Jones submits that in the memorandum in support of the freezing orders Americhip claimed it had a strong case against Mr Dean. However, that statement referenced the comments made by Katz J in the stay application that Americhip appeared to have “a fairly strong case”.
[48] This judicial assessment was based on the state of evidence before the Judge at the hearing.
[49] However, since that time, Americhip has amended its pleadings and, according to Mr Jones, resiled from its position that Mr Dean was an employee; a
13 Rule 32.5.
14 Hannay v Mount [2011] NZCA 530 at [21]-[22].
deviation which it is claimed supports Mr Dean’s defence he was independent of Americhip and received the margins in his position as a middle man. Mr Jones submits that Americhip could not and cannot rely on Katz J’s comments because they were predicated on Americhip’s claim at the time of that hearing and before Americhip changed its position.
[50] Mr Jones submits that there is very little other evidence in support of
Americhip’s claim it has a good arguable case.
Plaintiff ’s submissions
[51] Mr Goddard submits that reliance can be placed on Katz J’s comments on the stay application. Her assessment that “Americhip appears to have a fairly strong case”15 reflects an assessment which exceeds the “good arguable case” test.
[52] He also refers to Katz J’s observation of Mr Dean’s claim he was legally
entitled to take margins on orders. She described it in the following way:16
“Such an argument is likely to face serious obstacles unless Mr Dean can prove that an employee or intermediary agent is legally entitled to take such margins, in the absence of any contractual arrangement expressly permitting such conduct. Such an argument is likely to be a difficult one to pursue if California or New Zealand law governs the parties’ relationship.”
[53] It is noteworthy that in addition to her reference to an employee, the Judge also referred to an intermediary agent. This was plainly in recognition of the defence disclosed by Mr Dean in his affidavit.
[54] However, Mr Goddard goes further. He describes Americhip’s case against Mr Dean and Ms Chan as strong and, in the course of argument, referred me to the evidence which he submits supports this claim.
[55] He described the relationship between Americhip and Mr Dean (and
Ms Chan) as one characterised by a high degree of trust with Mr Dean operating as a senior, trusted representative in a foreign environment.
15 Americhip v Dean above n 4 at [76(b)] and [20].
16 At [23].
[56] He submits that Mr Dean’s defence that he and Ms Chan were independent contractors authorised by Americhip to take margins, is inherently implausible and unsupported by the documentary record. For example, Mr Goddard submits that Mr Dean has failed to explain why, on many occasions:
(a) the companies which provided quotes did not correspond to the company’s Mr Dean and Ms Chan nominated as payee, and how or why he was paid a margin on the amount charged to Americhip;
(b)Americhip was told the quotes were provided by one company and payment was to made to that company, when in fact payment was made to other companies (which Mr Dean suggested in his evidence were “subcontracting” the companies that “provided” the quotes);
(c) Mr Dean’s and Ms Chan’s involvement in the companies to which the
payments were made was not disclosed to Americhip;
(d)the amount taken as a margin is not identified in any of the communications about price between Mr Dean, Ms Chan and Americhip.
[57] Mr Goddard then referred me to the body of evidence which he submits further demonstrates that both Mr Dean and Ms Chan were employees of Americhip.
[58] While it appears that no formal employment contract was entered into by either of the defendants there is a documentary trail stretching back to 2003 shortly after Mr Dean commenced his relationship with America. This indicates the nature of that relationship between Americhip and the defendants was one of employer/employee. Both the subject matter of the correspondence and the sign off and corporate title of Mr Dean and Ms Chan is suggestive of an employment role. For example, there are emails which relate to Mr Dean claiming expenses and referring to his “salary”. There are references to bonus payments being made to him. There is correspondence between Mr Clegg and Mr Dean in which the former refers to Mr Dean as “a key part of the team …” and hiring a manager to free Mr Dean up.
The same email refers to recommendations which would not normally be consistent with the role of an independent contractor.
[59] Furthermore, Mr Goddard referred me to Mr Dean’s annual performance reviews. For example, in his first review in 2003, there is reference to Mr Dean being promoted to Vice President, Asia Division for both Americhip and Clegg Industries. The same document refers to Mr Dean’s salary and a bonus payment; features which are not normally associated with independent suppliers. Similar themes emerge from of a review of Mr Dean’s subsequent annual performance reviews.
[60] I was also referred to email correspondence from 2004 in which Mr Dean reported to Mr Clegg on setting up the new Chinese company. The correspondence is peppered with the pronoun “we” in reference to the realisation of their corporate aspirations. This document, read as a whole, conveys the impression of an employee reporting to their employer.
[61] Furthermore, there is correspondence which involved Mr Dean making bonus and salary recommendations, in relation to staff. These include M Chan whose title was Operation Manager. Other documents record the payment of Ms Chan’s salary.
Decision
[62] This catalogue of correspondence, stretching across all of Mr Dean’s time with Americhip, leads to the firm inference that both Mr Dean and Americhip viewed the relationship as one of an employer and employee.
[63] Add this body of evidence to the dearth of documentary material supportive of Mr Dean’s claim he and Ms Chan were independent contractors and I am easily satisfied Americhip has a good arguable case against both defendants.
Is there a risk of dissipation?
[64] Americhip must satisfy me there is a real risk that the defendants will dissipate or dispose of a nominated asset. Affirmative proof of likelihood of
dissipation or of a nefarious intent is not necessary.17 The question for the Court is whether a prudent, sensible commercial person could properly infer a danger of dissipation of assets from the circumstances of the case.18 It is an abuse of the Court’s process to seek a freezing order where there is no risk of dissipation.19
Defendants’ submissions
[65] Mr Jones submits there are no circumstances from which a prudent, sensible, commercial person could properly infer a danger of dissipation in the circumstances of this case. He lists the following factors:
(a) the plaintiff’s delay in applying for freezing and ancillary orders shows there is no real risk of dissipation and neither does Americhip consider there is a risk;
(b)Mr Dean is actively engaged in the litigation process and is plainly aware of the risk that judgment may be entered against him. Despite this he has not attempted to frustrate any prospective judgment debt despite ample opportunity to do so;
(c) one of the assets owned by Mr Dean is the Mairangi Bay property purchased by him in April 2013. This property is currently subject to the freezing orders of April 2015. Americhip has also applied for the appointment of receivers in relation to it and, furthermore, Americhip lodged a caveat against the title on 22 July 2013.Thus the Mairangi Bay property is fully protected and should not continue to be the
subject of freezing orders.
17 Shaw v Narain [1992] 2 NZLR 544 (CA) at 548.
18 Raukura Moana Fisheries Limited v The Ship “Irina Zharkikh” [2001] 2 NZLR 801 (HC) at
[122]; McGechan on Procedure (online looseleaf ed) at [HR32.2.03(3)].
19 Tranquil Holdings Limited v Hudson (1987) 2 PRNZ 551 (HC) at 552.
Plaintiff ’s submissions
[66] Mr Goddard submits that the test is satisfied because the following features demonstrate that Americhip will be unable to enforce any judgment if the identifying assets are dissipated. The features he relies upon are as follows:
(a) it is a strong case of fraud;
(b) Mr Dean and Ms Chan’s conduct in leaving New Zealand shortly after
14 August 2013 when they were first confronted with the allegation of fraud;
(c) Mr Dean and Ms Chan’s failure to identify their exact whereabouts;
(d)the apparent location of both defendants in China, a jurisdiction where it will inevitably prove more difficult to enforce any judgment against them (given that Reciprocal Enforcement of Judgments does not apply and there is no treaty providing for the enforcement of judgments between New Zealand and China);
(e) the fact that the companies controlled by Ms Chan to which payments were made no longer exist;
(f) the defendants’ compliance with Court orders and resistance to
disclosing information about their assets.
[67] In response to Mr Jones’ criticism that the delay in applying for freezing orders demonstrates that Americhip does not assess the risk of dissipation as high, Mr Goddard submits that simply because Americhip’s position may have been better protected had it applied for the orders early should not prevent it from being protected now to the extent that assets can still be located and frozen. The only effect of the passing of time is that some assets may already have been dissipated.
[68] Furthermore, he submits that the risk of dissipation of assets is inherent in every case of sophisticated fraud, particularly where the defendants leave the jurisdiction and do not disclose their whereabouts.
[69] Furthermore, Mr Goddard submits that Ms Chan was not a party to the proceedings until she was joined at the same time as the freezing orders were obtained. The evidence is that many of the payments made by Americhip were paid into accounts in Ms Chan’s name or companies she controlled.
[70] Furthermore, Mr Goddard points to the defendants’ failure to comply with the disclosure orders made in New Zealand and Hong Kong. These, he submits, underscore the need for the freezing orders and the need for further disclosure in order to ensure they are effective.
Decision
[71] Applying the test I am satisfied that a prudent, sensible, commercial person could properly infer a danger of dissipation of assets from the circumstances of this case.
[72] I have already determined that the “good arguable case” test is easily satisfied. On its face, for the reasons discussed above, Americhip appears to have a strong case in fraud.
[73] Although Mr Dean has instructed counsel and actively engaged in the litigation to date, he and Ms Chan left the jurisdiction shortly after being first confronted with Americhip’s allegations. Their whereabouts were sufficiently unknown to justify this Court making orders for substituted service. While an explanation has been given by Mr Dean for the couple’s sudden decision to return to China, I cannot ignore the likelihood that if the alleged admissions made on
14 August 2013 were, in fact, made, this provides an alternative and plausible explanation for their flight at a time when they were aware of the potential for criminal prosecution and arrest.
[74] Even now it seems the whereabouts of Mr Dean and Ms Chan is uncertain other than it is believed they are both in Shenzen Province, China. Despite enquiries by Americhip their exact location is not known.
[75] I also accept Mr Goddard’s submission regarding the difficulty of enforcing
any judgment in China.
[76] A further circumstance which persuades me there is a risk of dissipation of assets is that companies which were controlled by Ms Chan and to which payments were made, now no longer exist. A search of the Integrated Company Registry Information System maintained by the Government of the Hong Kong Special Administrative Region has led to the discovery that Sun To International Limited was dissolved by de-registration in February 2014, Aoweili Electronics Limited was dissolved by de-registration in November 2012 and Guanguyu Printing Group Limited was dissolved by de-registration in March 2013. Although two of the dissolutions pre-date the 14 August 2013 confrontation, the de-registration of these companies between March 2013 and February 2014 is a relevant circumstance which adds to the assessment of risk.
[77] Finally, the disclosure orders made in New Zealand and Hong Kong have not been complied with. On 1 May 2015, Mr Dean filed a notice of opposition to the freezing and other orders and an affidavit from his mother was filed in support.
[78] On 4 May 2015, the return date, the Court extended the orders requiring compliance with the disclosure orders by Mr Dean by 8 May 2015 and for Ms Chan by 11 May 2015.
[79] On 8 May 2015 Mr Dean filed an affidavit in partial compliance with the disclosure orders.
[80] On 12 May 2015 the defendants provided:
(a) a short affidavit sworn by Ms Chan on 11 May 2015 in partial compliance with the disclosure orders;
(b)a further affidavit of Mr Dean (sworn 11 May 2015) which attached to the first page 12 months of bank statements from May 2014 to April
2015 from an account in Mr Dean’s name at HSBC in Hong Kong;
and
(c) an affidavit from Mr Dean’s solicitor attaching solicitor’s
correspondence.
[81] I accept Mr Goddard’s submission that this disclosure identifies assets at only a high level. There is none of the detailed information which the orders require. Mr Dean has provided a summary of bank statements for one HSBC account for one year. No information has been provided about the movement of funds through any of the bank accounts identified or any of the companies controlled by Ms Chan.
[82] Mr Dean has explained that some records may well not be available in the banking system. He says he started to make enquiries and may have to travel to Hong Kong to deal with the bank and has indicated he is not prepared to do so. Ms Chan has said that she will make enquiries to see what information she can obtain but will need to do so from China subject to her care giving duties.
[83] This less than satisfactory response needs to be assessed against Americhip’s claim that when confronted in August 2013 Mr Dean told the private investigator he had $3.5 million to $4 million in assets. Americhip’s claim is for $10 million. Furthermore, in Aril 2013 Mr Dean had sufficient funds in cash to purchase the Mairangi Bay property for $2 million.
[84] Even allowing for a high degree of financial attrition the shortfall is such that it must raise concerns around the risk of dissipation.
[85] Furthermore, Mr Dean and Ms Chan have lived in China for the last decade or so. In October 2014 Mr Dean gave evidence that the balance of the purchase price for the Mairangi Bay came from rental earnings on commercial properties in China which he owned since 2005. However, according to the defendants’ May
2015 disclosure their only asset is some NZ$13,880 cash and bank accounts. They claim not to own any real estate other than the Mairangi Bay property.
[86] Finally, Mr Dean refers to himself in his affidavits as a self employed businessman but no businesses have been identified and the only income disclosed is HK$3,000 (approximately NZ$530) per month for teaching English part-time. Ms Chan is earning NZ$4,400, caring for a friend. No other income, now or recently, has been disclosed.
[87] For these reasons, applying the prudent and sensible commercial person test, I am easily satisfied that there exist circumstances in this case from which an inference of a risk of dissipation of assets may be drawn.
What are the interests of justice?
[88] The freezing and ancillary orders must also be weighed against the interests of justice.20
Defendants’ submissions
[89] Mr Jones submits that the current freezing and ancillary orders are oppressive and unnecessary in their nature, extent and form.
[90] He submits that the effect of the orders severely restrict Mr Dean’s ability to conduct his defence. The order in New Zealand restricts payments to reasonable living expenses and legal costs relating to the freezing orders. There is no ability for legal costs relating to the substantive claim under the current terms of the order.
[91] Mr Jones submits that Americhip’s conduct in gaining the orders has been
both inappropriate and oppressive for the reasons already discussed in this judgment.
[92] Mr Jones refers to the Mareva injunction obtained in Hong Kong as an example of oppression. Once the freezing orders in New Zealand were obtained
Americhip instructed Hong Kong lawyers to obtain the injunction based on the
20 Shaw v Narain, above n 8.
New Zealand order because some of the defendants’ assets are located in Hong Kong. However, the terms of the Hong Kong order are much stricter than its New Zealand equivalent with the defendants’ living expenses limited to HK$5,000 and legal expenses to HK$30,000. There is no such limit in the New Zealand order.
[93] Mr Jones submits that the collateral purpose of the orders, rather than preserving the assets, is to place effective control over the defendants’ assets in favour of Americhip. By continuing the current orders, Mr Jones submits that Americhip will have the ability to monitor and control the defendants’ ability to properly defend the claim and such a course would be contrary to the interests of justice.
Decision
[94] For reasons already discussed in this judgment I am satisfied that the case against Mr Dean and Ms Chan appears to be a strong one. The primary issue to be determined at the trial will be whether Mr Dean was authorised to take the margins he accepts he took. There is no documentary evidence which supports his claim he was so authorised.
[95] Furthermore, I am satisfied, again for reasons already discussed, that the combination of the defendants’ non-compliance and the patent discrepancy between his declared assets and his admissions, albeit challenged, raise serious questions as to the risk of dissipation.
[96] While I accept that the present orders may well create inconvenience for the defendants I am satisfied that the basis upon which the application for the freezing and ancillary orders were made was proper and I am not satisfied that the orders were obtained for the collateral and improper purposes advanced by the defendants. The defendants are at liberty to apply to vary the freezing orders if their circumstances justify that course.
[97] Amongst the various orders which Americhip seeks is for this case to be set down for trial on the first available date after 9 November 2015. A draft timetabling order has also been suggested. Americhip seeks to have this matter to get to trial as
soon as possible and in order to achieve that purpose, Mr Goddard suggests that subject to full disclosure being made, the defendants could apply to have funds released. He has proposed a formula in that event.
Conclusion
[98] For these reasons I am satisfied that it is proper to make an order continuing the freezing orders made on 24 April 2015 restraining Mr Dean and Ms Chan from dissipating their assets.
Disclosure orders
[99] Rule 32.2(a) provides for ancillary orders which include orders eliciting information relating to assets relating to the freezing order. Such orders are designed to ensure that the freezing order can properly be policed and is effective.21
[100] Americhip seeks orders requiring Mr Dean and Ms Chan to fully comply with the disclosure orders made on 24 April 2015. It seeks the disclosure of all deposits, transfers or withdrawals of funds into, between or from the bank accounts to which the freezing orders are directed and the movement of funds through entities which they control or controlled within five working days. Americhip also seeks:
(a) an order that the defendants provide bank accounts since 2003 in either of their names and in the names of entities they control or controlled; and
(b)an “unless” order that if the defendants do not fully comply with the disclosure orders, the defendants be debarred from defending this proceeding.
Defendants’ submissions
[101] Mr Jones submits that the application for further orders, particularly the
“unless” order is illustrative of the oppressive manner in which Americhip is
21 McGechan on Procedure (online looseleaf ed) at [HR32.3.01(1)].
conducting this litigation. He submits there is no legitimate basis for this allegation and it demonstrates the plaintiff’s strategy to continue the current orders and obtain further ones on the basis of alleged material non-compliance that cannot be substantiated.
Plaintiff ’s submissions
[102] Mr Goddard submits that r 32.3 is expressed in broad terms: ancillary orders may be made for the purpose of “eliciting information relating to assets relevant to the freezing order…” He submits that by its term this rule is not limited to identifying the assets themselves. He points out that orders are regularly made requiring disclosure of income and the movement of funds between bank accounts and to and from other parties. He reminds the Court that the present orders are entirely distinguishable from orders for discovery. The purpose of the present orders is to identify and restrain assets.
Decision
[103] The disclosure sought by Americhip relates, primarily, to personal bank statements and the bank statements of entities over which the defendants presently have, or have in the past had, control over. These documents will disclose the deposits, transfers and withdrawals of funds between or from the bank accounts to which the freezing orders are directed and the movement of funds through entities controlled by the defendants. Neither Mr Dean nor Ms Chan has claimed that the orders are impossible to comply with or that the information sought does not exist.
[104] Instead, Mr Dean says that the only bank account which has any substantial funds is his HSBC account in Hong Kong, an account he has held for well over a decade and which, he says, Americhip is well aware of because it was the account into which Americhip made payments. Mr Dean said that he telephoned the bank to start the process of obtaining the more historical records Americhip seeks but was directed to a call centre in India. Because of the extent of the information required he claims he may have to travel to Hong Kong to deal with the bank direct but is not prepared to do so because he harbours concerns he may be imprisoned for breaching the order. That is now no longer an issue. Mr Goddard has filed a supplementary
memorandum in which he confirms that Americhip undertakes not to seek the committal of Mr Dean for contempt in Hong Kong for a period of three months from the date of the memorandum.22
[105] Ms Chan has disclosed that she has only two bank accounts; one in Hong Kong and the other in China. The Hong Kong current balance is HK$990,000 and the current balance account in China is RMB69,000. Ms Chan states that it is impossible for her to comply with an order requiring her to provide particulars of transactions going back to 2003 in the time available. However, what Americhip requires are the bank statements of the entities over which Ms Chan had control and explanations of transfers in and out of those accounts. What Americhip wants is to know where the funds in those entities went and where they are now.
[106] The defendants have had since 24 April 2015 to comply. While their precise whereabouts is unknown it appears they are both presently in China. The entities controlled by Ms Chan are in China and on the face of the evidence before me I am satisfied the defendants’ attempts to comply with the disclosure orders have been unsatisfactory.
[107] However, in the circumstances, I am not prepared to make an “unless” order at this stage. I am prepared to extend some latitude to the defendants by granting them three further weeks, or 15 working days from the date of this judgment, within which to make the disclosure sought by Americhip.
[108] If by that time the defendants are still in default of the order leave is reserved to Americhip to seek further orders to compel compliance which may include the making of an “unless” order.
Appointment of receivers
[109] Americhip seeks the appointment of receivers of:
(a) the Mairangi Bay property to ensure it is maintained in good condition and is leased to generate rental income and to hold the net rental
22 Dated 16 June 2015.
income on trust pending the determination of the claim in respect of the property; and
(b)the frozen New Zealand bank accounts so that information can be obtained about them and any costs of the property can be met from those bank accounts. In the alternative, Americhip seeks an order that HSBC and ASB disclose all bank account statements, files and information held by them in any way relating to the defendants.
[110] The jurisdiction of this Court to appoint a receiver arises under either: (a) r 32.3(c), as an ancillary order to a freezing order; or
(b)in this Court’s inherent jurisdiction as a means of preserving property until the rights of those interested in it can be determined.
[111] The Courts have made the following observations about the inherent jurisdiction:23
(a) no positive unvarying rule can be laid down as to whether the Court will or will not interfere by this kind of interim protection of property;
(b)it should only be exercised so as to reserve property which, but for such an appointment, might disappear or be dissipated;
(c) it should be exercised sparingly and only when no other practical solution could be obtained;
(d)if no one is in the actual lawful enjoyment of the property no wrong can be done to anyone by taking and preserving it for the benefit of the successful litigant.
[112] It appears to be common ground that this Court has the jurisdiction to make orders for the appointment of receivers. However, the defendants claim that such
23 Runanganui o Ngati Kahungunu Inc v Scott [1995] 1 NZLR 250 (HC).
orders are unnecessary and it is counterproductive to appoint professional receivers in the circumstances of this case.
Mairangi Bay
[113] Mr Jones submits that while Mr Dean does not reside in the Mairangi Bay property his adult daughter does. Since February she has occupied the property rent free with her boyfriend. Mr Dean’s daughter is in the last semester of her Bachelor’s degree. Although Ms Dean does not currently pay rent for the property she continues to pay rent for the flat she previously occupied with a number of others. She is concerned that if she was required to vacate the property it would be disruptive to her university studies. She said she treats the property as her home and keeps it tidy and ensures that any maintenance issues are raised with her grandparents who maintain the property for their son. Mr Dean’s mother says that in her son’s absence she and her husband have looked after the property for nearly two years. They have paid insurance, rates and outgoings. They continue to maintain the property and ensure it is kept to a high standard.
[114] Americhip claims it is the beneficial owner of the property under a constructive trust. It is the most significant asset identified by the defendants. As such, Mr Goddard submits that the asset should be appropriately preserved to earn an income rather than used as a rent free student flat.
[115] The evidence is that if the property was rented on the open market it would be capable of earning between NZ$1,500 and NZ$1,600 per week.
[116] In the circumstances and taking into account the principles set out above I am not satisfied that the appointment of a receiver in relation to the Mairangi Bay property is presently justified.
[117] While I accept that if commercially tenanted the property is capable of providing a handsome return, I am not convinced that the extraordinary step of appointing a receiver is justified. The evidence is that the property is being responsibly tenanted and is well maintained and cared for. There can be no question
that the value of the property is, in any way, being diminished or compromised in a way which would justify the intervention of a receiver.
[118] If the circumstances change, Americhip is at liberty to make another application.
Bank accounts
[119] Mr Dean opposes receivers being appointed in relation to his New Zealand bank accounts. Mr Jones submits that the cost of receivers has not been calculated and the scope of their involvement is largely undefined.
[120] As I understood Mr Goddard’s argument, it was that because Americhip also claims a beneficial interest in the proceeds of the fraud, the appointment of receivers would facilitate the obtaining of information about those accounts which has not been forthcoming from Mr Dean. In other words this application, if successful, would serve the same purpose as the ancillary disclosure orders. I am not prepared to appoint receivers in addition to making disclosure orders.
[121] However, Mr Goddard suggests that an alternative to the appointment of receivers would be to order ASB and HSBC to disclose all bank account statements, files and information held by them in any way relating to the defendants. This was the course adopted by Courtney J in Sovereign Services Ltd v Mitchell Te Awhina
Catterall24 in circumstances not wholly dissimilar to the present. There her Honour
made ancillary orders requiring the six nominated banks to disclose, within five working days of the service of the order, all bank account statements, files and information held by them.
[122] I am prepared to make such an order and invite Americhip to file draft orders.
24 Sovereign Services Ltd v Mitchell Te Awhina Catterall [2014] NZHC 279.
Timetabling orders
[123] Mr Goddard submits that any injustice to the defendants arising from their assets being frozen would be minimised if this matter was to proceed to trial as quickly as possible and with minimum unnecessary expense to the parties.
[124] He further submits that if I was not prepared to appoint receivers in relation to the Mairangi Bay property the potential prejudice to Americhip in the loss of a rental income would be mitigated.
[125] Mr Goddard invites me to make timetabling orders to progress the case to a two week trial on the first available date after 9 November 2015.
[126] While I am not prepared to direct that a trial date be allocated at this stage, I agree with Mr Goddard that these proceedings should be expedited and I direct the Registrar to convene a case management conference with counsel at which the following matters will be discussed:
(a) the pleadings;
(b) whether there are any outstanding interlocutory matters that require
the Court’s direction;
(c) the issues requiring resolution at trial; (d) any discovery orders sought;
(e) the fixing of a close of pleadings date, the time required for trial and the allocation of a fixture. In respect of the time required for trial, counsel are required to advise the number of witnesses to be called and, in respect of experts, the disciplines to be covered by the experts so that the Court can give consideration to the making of orders pursuant to r 9.44 dealing with expert conferences.
[127] Because the issues requiring resolution at trial will be considered at this conference, memoranda shall be filed sequentially so that the plaintiff’s memorandum shall be filed and served eight working days before the conference and the defendants’ memorandum shall be filed and served four working days before the conference. The purpose in so directing is to ensure that the defendants have the opportunity of commenting upon or adding to the plaintiff’s list of issues which require resolution at trial.
Result
[128] The freezing orders made on 24 April 2015 are continued.
[129] Orders are made requiring the defendants, within 15 working days from the date of this judgment, to fully comply with the disclosure orders made on 24 April
2015 by disclosing all deposits, transfers or withdrawals of funds into, between or from bank accounts to which the freezing orders are directed and the movement of funds through entities which they control or controlled.
[130] An order is made requiring the defendants, within 15 working days from the date of this judgment, to provide bank statements since 2003 in either of their names and in the names of the entities they control or controlled.
[131] The plaintiffs’ application seeking an “unless order” if the defendants do not fully comply with the above disclosure orders, that the defendants be debarred from defending this proceeding, is declined. Leave is reserved to the plaintiff to apply for further orders to compel compliance in the event of further default.
[132] The application to appoint receivers for the Mairangi Bay property is declined but leave is reserved to the plaintiff to re-apply if circumstances change.
[133] The application to appoint receivers in relation to the frozen New Zealand bank accounts is refused. However, the alternative application for an order that HSBC and ASB disclose all bank account statements, files and information held by them in any way relating to the defendants is granted. The plaintiff is to file draft orders. Leave is reserved to the defendants to apply for a variation of these orders in
the event the orders may require the disclosure of personal information unrelated or irrelevant to these proceedings.
[134] A case management conference is to be convened in terms of [126] of this judgment.
Costs
[135] I invite counsel to confer on the question of costs with a view to settlement. In the event there is no agreement I direct the plaintiff to file and serve its memorandum by 14 August 2015 and the defendants to file and serve their
memorandum by 28 August 2015.
Moore J
Solicitors:
Mr Goddard QC and Ms Theron, Auckland
Mr Jones QC, Auckland
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