Commissioner of Police v Chen
[2013] NZHC 2259
•2 September 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-001779 [2013] NZHC 2259
BETWEEN THE COMMISSIONER OF POLICE Applicant
ANDCHEN KEEN (AKA JACK CHEN) First Respondent
MAY HAO (AKA MAY WANG) Second Respondent
YE FANG
Third Respondent
Hearing: 6 August 2013
Appearances: D G Johnstone for Applicant
J R Billington QC for Respondents
Judgment: 2 September 2013
JUDGMENT OF COURTNEY J
This judgment was delivered by Justice Courtney on 2 September 2013 at 11.00 am
pursuant to R 11.5 of the High Court Rules
Registrar / Deputy Registrar
Date.....................................
COMMISSIONER OF POLICE v CHEN & ORS [2013] NZHC 2259 [2 September 2013]
Introduction
[1] On 11 April 2013 Andrews J made an interim foreign restraining order1 in respect of various properties, including several farms held in the name of UBNZ Assets Holdings Limited (UBAH). The order was subsequently extended by Gilbert J on 7 May 2013. Woolford J varied it on 30 May 2013 and Woodhouse J varied it again on 18 July 2013. When the matter came before me on 6 August 2013
I extended the interim orders until 20 September 2013.
[2] The Commissioner of Police has applied under the Mutual Assistance in
Criminal Matters Act 1992 (MACMA) and the Criminal Proceeds (Recovery) Act
2009 (CPR) for:
(a) A final order registering the restraining order made by the High Court of the Hong Kong Special Administrative Region of the People’s Republic of China (Hong Kong High Court) on 26 October 2011 and orders made on 21 December 2012 and 10 January 2013 varying the original order;
(b)Various ancillary orders including an order that would permit the Official Assignee to sell property that is the subject of the restraining orders.
[3] Mr Billington QC, for the respondents, accepted that the order of the Hong Kong High Court made on 26 October 2011 was registerable under MACMA. However, he opposed the making of any orders beyond that on the basis that they fell outside the ambit of the Act.
[4] Mr Billington also appeared for an interested party, NZ Dairy Trustee
Limited (NZDT) in support of an application under s 139 of the CPR for an order excluding property owned by NZDT from the ambit of the restraining order.
1 Section 60 Mutual Assistance in Criminal Matters Act 1992 and s 128 Criminal Proceeds (Recovery) Act 2009.
[5] Ms Tabb appeared for an interested party, Ms Rong. However, no papers had been filed and Ms Tabb accepted that I could not take any steps in relation to Ms Rong’s position. Ms Tabb was excused for the duration of the hearing.
The statutory framework
[6] MACMA provides a process for the registration of foreign restraining and forfeiture orders.2 A foreign country may request the Attorney-General to assist in enforcing a foreign restraining order that relates to property believed to be located in New Zealand.3 Upon such a request the Attorney-General may authorise the Commissioner to apply to this Court to register the foreign restraining order provided the specified prerequisites are met.4 In addition, there must be reasonable grounds to believe some or all of the property that is able to be restrained under the order is located in New Zealand. The same process applies in relation to foreign forfeiture orders.5
[7] If this Court is satisfied that a foreign order that is the subject of an application to register is in force in a foreign country it must make an order that it be registered in New Zealand.6 The possibility of the foreign order being amended is anticipated, with provision for registration of both foreign orders and amendments to foreign orders through a prescribed procedure.7
[8] Foreign restraining orders and foreign forfeiture orders registered in New
Zealand have effect and may be enforced as if they were made under the CPR.8
Under CPR the effect of registration means, among other things, that the New Zealand property subject to the order cannot be disposed of or dealt with other than as provided for in the order and is to be under the Official Assignee’s custody and
control.9
2 Mutual Assistance in Criminal Matters Act 1992, ss 54 and 55.
3 Section 54(1).
4 Section 54(2).5 Section 55.
6 Section 56(1).
7 Section 56(3).
8 Section 57.9 Section 135 Criminal Proceeds (Recovery) Act 2009.
The Hong Kong restraining order and request for mutual assistance
[9] The request for assistance in this matter came in the form of a third supplemental Request for Legal Assistance in a Criminal Matter dated 28 January
2013, made for and on behalf of the Secretary of Justice of the Hong Kong Special Administrative Region, under cover of a letter dated 5 February 2013 to the Attorney-General of New Zealand from a senior government counsel. The request described the restraining order made against the various respondents and detailed the allegations against them.
[10] It is alleged that the respondents conspired to defraud China Jin Hui Mining Corporation Limited/Natural Dairy (NZ) Holdings Limited (China/Natural Dairy) and, consequently, the Hong Kong stock exchange, by dishonestly inducing China/Natural Dairy to acquire 22 New Zealand dairy farms then owned by the CraFarms Group at an inflated price and without disclosing their interest. The company associated with Ms May Hao, UBNZ Assets Holdings Limited (UBAH), was to purchase the farms, with China/Natural Dairy then acquiring the share capital of UBAH for a purchase price of $500m. An associated company, UBNZ Trustee Limited, acted as vendor. The deal was promoted to China/Natural Dairy by Ms Hao, who became an executive director of the company for the purposes of handling the acquisition.
[11] It is alleged that the first respondent, Mr Keen, and the second respondent, Ms Hao, arranged for false accounting records relating to the farms to be provided as part of the due diligence. These accounts overstated the profit of the farms by approximately NZ$50m. Some of the funds raised by China/Natural Dairy were used to buy four of the farms with substantial funds (NZ$13.7m) paid from Ms Hao to Mr Keen in cash and used to purchase residential properties in Auckland.
[12] It is asserted that Mr Keen has obtained NZ$23.5m from these activities and Ms Hao approximately NZ$201.6m. The third respondent, Ms Fang, is Mr Keen’s wife. She is said to have obtained substantial funds from deposits into her bank account which she knew or had reasonable grounds to believe were the proceeds of crime. Mr Keen and Ms Hao are facing charges of conspiracy to defraud. In
addition, Mr Keen is charged with dealing with property known or reasonably believed to represent the proceeds of an indictable offence and Ms Fang is facing similar charges.
The restraining order
[13] On 26 October 2011 the Hong Kong High Court issued a restraining order in relation to the respondents’ property within and outside Hong Kong. The relevant terms of the order are that:
The respondents must not:
…
(b) In any way dispose of or deal with, or diminish the value of any of their property, which is located within Hong Kong or outside Hong Kong, whether in their own names or not, and whether solely or jointly owned …
[14] The prohibition was specified to include identified property. The properties did not specifically include the Crafar farms.
[15] On 21 December 2012 the Hong Kong High Court made a further order that:
The Restraint Order … be varied to expressly bring the following property
of the Respondents within the ambit of the Restraint Order …
[16] The property specified in this order included 13 New Zealand farms.
[17] Finally, on 10 January 2013 a further amendment was made correcting errors in the 21 December 2012 order.
Are the orders of 21 December 2012 and 10 January 2013 registerable?
[18] Mr Billington argued that, although the 26 October 2011 order must be registered, the subsequent orders varying the terms of that order are not “foreign restraining orders” for the purposes of s 54 and are therefore not capable of being registered.
[19] “Foreign restraining order” is defined as:
An order made under the law of a foreign country by a court or other judicial authority that –
(a) Restrains a particular person, or all persons, from dealing with the property specified in the order; and
(b) Relates to –
(i) Tainted property (as defined in relation to Part 3); or
(ii) Property of a person who has, or who may have, unlawfully benefited from significant foreign criiminal activity; or
(iii) An instrument of crime (as defined in relation Part 3); or
(iv) Property that will satisfy some or all of a foreign pecuniary penalty order.
[20] The first order sought by the Commissioner is framed in terms that treats all three orders as forming a single order:
… An order that the restraining order made … on 26 October 2011 as amended on 21 December 2012 and 10 January 2013 (collectively the Foreign Restraining Order) be registered …
[21] I accept that the three orders are to be treated as individual orders for the purposes of s 56(3). However, as I have already noted, the legislation anticipates that foreign restraining orders may be the subject of amendment and allows for the registration of those amendments.
[22] I indicated to Mr Billington that I would accept an application to amend the terms in which the order was sought so as to reflect the existence of the three separate orders. Mr Johnstone, in the course of his submissions, sought to make that amendment and I proceed on the basis that the application seeks the registration of each of the orders and that the terms of MACMA require that they each be registered.
Can the ancillary orders be made?
[23] The ancillary orders sought are orders:
(a) Directing the sale of all UBAH assets, with net proceeds retained pending further order (s 35(e)(v) CPR);
(b) Permitting payment of UBAH’s ongoing ordinary business expenses
(s 28(1)(d) CPR);
(c) Directing the sale of mortgaged restrained property if the relevant mortgage enters two months default with retention of net proceeds pending further order (s 35(e)(v) CPR); and
(d) Directing affected companies’ directors to furnish statements as to
property interests (s 35(e)(iv) CPR).
[24] The basis for the application for ancillary orders appears primarily from the reports of the Official Assignee as at 17 May 2013 and 11 July 2013. The largest asset is a farm situated on Napier and Te Matai Roads in the Manawatu/Wanganui region and referred to as the Napier Road farm. It comprises seven separate titles making up 142.8464 hectares. A valuation dated 9 May 2013 valued the farm, including chattels, at $4.003m. However, a general security agreement over the business and all assets of UBAH secures a debt of over $2m to ASAP Finance Limited (ASAP). In addition, there is a mortgage to NZ Trustee Limited though the amount owing under that mortgage is not known. The restraining order has placed UBAH in breach of its security. The ASAP loan matures on 27 September 2013.
[25] On 30 May 2013 Woolford J made orders varying the interim foreign restraining order, allowing the Official Assignee to become involved in the management of the farm so as to deal with animal welfare issues and outstanding creditors. The order placed the Official Assignee in custody and control of the assets of UBAH. Woolford J’s orders provided for any expenses that were established to the satisfaction of the Official Assignee to be expenses incurred by UBAH in the ordinary course of its farming business to be paid by the Official Assignee from the proceeds of the sale of the cow herd from the Linton farm. In addition, the orders provided that the property restrained did not include the interests of various third party financiers including ASAP Finance Limited.
[26] The Linton farm herd was sold and creditors paid from the proceeds. However, the proceeds are insufficient to meet ongoing expenses and there is no
order permitting the payment of operating expenses from operating income. In particular, there is insufficient income from the farm operation to meet interest payments to ASAP Finance. The GSA in favour of ASAP Finance matures on
27 September 2013. The Official Assignee wishes to be in a position to sell the property without ASAP Finance having recourse to its powers of sale.
[27] Mr Billington argued that the terms of the orders made by the Hong Kong High Court do not authorise or entitle this Court to make the ancillary orders that the Commissioner is seeking. Mr Billington’s argument was essentially that the terms of the Hong Kong High Court order are to restrain the activities of the respondents, particularly in relation to the disposition of property. The ancillary orders that are sought would authorise the disposition of the property by the Official Assignee, which is contrary to the whole purpose of the restraining order.
[28] Mr Billington acknowledges the effect of s 57 MACMA, which provides that once a foreign restraining order is registered in New Zealand it has the “effect and may be enforced in New Zealand as if it is a Restraining Order” made under CPR. Under s 134(1) CPR specified provisions of the Act apply, with necessary modifications, to foreign restraining orders registered under s 54 of MACMA. These include ss 34 and 35 which allow for orders of the kind being sought by the Commissioner:
34 Making further orders
(1) On an application under section 33(1) a court may, if it considers it appropriate, make further orders in relation to the restrained property (which may, but need not, be an order of any 1 or more of the types referred to in section 35).
(2) A further order may be made —
(a) at the time the associated restraining order is made; or
(b) at any later time before the expiry of the associated restraining order.
35 Types of further order
Without limiting the generality of section 34(1), a court may, on an application under section 33(1), make 1 or more of the following further orders in relation to restrained property:
(a) an order varying the restrained property to which a restraining order relates:
(b) an order varying any condition to which a restraining order is subject:
(c) an order for any person (including, without limitation, the respondent) to be examined by the court or the registrar of the court concerning the nature and location of any restrained property:
(d) an order relating to the carrying out of any undertaking given under section 29:
(e) an order relating to the Official Assignee that —
(i) regulates the manner in which the Official Assignee may exercise his or her powers or perform his or her duties under a restraining order;
(ii) determines any question relating to the restrained property (including any question relating to the liabilities of any person holding an interest in the restrained property), or the exercise of the powers, or the performance of the duties, of the Official Assignee;
(iii) requires the examination, before the Official Assignee, of any person holding an interest in the restrained property or any other person, concerning the nature and location of the restrained property;
(iv) directs any person holding an interest in the restrained property to furnish the Official Assignee, within the time specified in the order, with a statement on oath setting out any particulars of that interest or that property that the court thinks fit;
(v) directs the Official Assignee to sell restrained property (including, without limitation, a business) in order to preserve the value of the restrained property;
(vi) directs the Official Assignee to make mortgage payments or payments in respect of any other encumbrance from the restrained property.
[29] However, Mr Billington argued that under s 57(1) the effect of registering a foreign restraining order is that the order “has effect, and may be enforced” as if it were a restraining order made under CPR and the orders being sought are not orders that are required to enforce the restraining order. To the contrary, whilst the restraining order simply has the effect of restraining respondents from dealing with the property, the orders sought allow the disposition of the property. Mr Billington submitted that the restraining order is properly enforced simply by the application of
ss 150 and 151 which create offences for the breach of any restraining or forfeiture orders.
[30] The underlying purpose of the restraining order is to preserve the subject property because it represents a monetary value to the parties concerned. The legislature can be taken to have appreciated that property may be subject to a restraining order for a considerable time and that circumstances may change over the life of the order that so as put the property at risk. Some risks may be of a kind that action, including disposition of the property itself, may be needed to preserve the value that the property represents. If there were no mechanism for responding to such risks the rationale for the scheme would be significantly undermined.
[31] Section 35(e)(v) specifically recognises the need to preserve the value of the restrained property through the sale of it. There are many foreseeable circumstances that might justify such an order. These include a significant drop in the property market, the risk of a mortgagee sale and the reduction in value caused by lack of funds to maintain the property. For these reasons I consider that the ancillary orders can properly be made in the terms sought.
NZ Dairy Trustee’s application to exclude its interest from the order
[32] The schedule of the proposed restrained property attached to the Commissioner’s application includes farm assets in the form of both real property and Fonterra shares held by UBAH. NZ Dairy Trust Limited (NZDT) applies under s 139 CPR for those assets to be excluded from any orders made.
[33] To make an order under s 139 excluding NZDT’s interest in the UBAH assets I need to be satisfied of the matters identified in s 139(1).10 These include that NZDT has not unlawfully benefited from the significant foreign criminal activity to which the foreign restraining order relates.
[34] NZDT applies on the basis that it is a majority shareholder in UBAH for the purposes of s 139 of CPR which provides that a person with a severable interest in
10 Section 139(2) Criminal Proceeds (Recovery) Act 2011.
property that is restrained under a foreign restraining order registered in New Zealand may apply for an exclusion of that interest. The basis for the application is essentially that the assets are beneficially owned by UBAH, NZDT and Natural Dairy, none of which are defendants or respondents in the Hong Kong proceedings. Affirmations by Mr Shum and Ms Hao in virtually identical terms have been filed in support of the application. They assert that they have no legal beneficial interest in UBAH or in any of the assets owned by it including the farm assets.
[35] NZDT relies on the 2010 changes to UBAH’s shareholding as demonstrating
that Ms Hao no longer holds any interest in the company or its assets. In 2009
Ms Hao was the settlor of the UBNZ trust. The trustee was UBNZ Trustee Limited, a company of which Ms Hao was the sole director. As trustee UBNZ Trustee Limited held 80% of the shares in UBAH. However, in December 2010 Ms Hao was bankrupted and the Appointor of the UBNZ Trust removed UBNZ Trustee Limited as trustee. NZDT is now the 80% shareholder of UBAH.
[36] The basis for the restraining order insofar as it affects NZDT as disclosed in the Mutual Assistance Request is that there are grounds for believing that Ms Hao does retain an interest in the UBAH properties. It is asserted in the Mutual Assistance Request (including by reference to documents) that although UBNZ Trustee Limited transferred its 80% shareholding in UBAH to NZDT, the directors and the shareholders of NZDT are associates of Ms Hao. Further, in December 2011
NZDT, Natural Dairy, UBAH and UBNZ Trustee Limited agreed that the proceeds of sale from four of the farms would go to NZDT. However, in August 2012 Natural Dairy, in issuing its final results announcement for the year ended 31 May 2012, stated that the proceeds of sale would belong to UBNZ Trustee Limited.
[37] I accept Mr Johnstone’s submission that the affirmations filed by Ms Hao and Mr Shum make no attempt to address these aspects. Given the basis on which the foreign restraining order was required to be registered in New Zealand, the information provided falls well short of satisfying me that NZDT has not unlawfully benefited from the alleged criminal activity to which the foreign restraining order relates.
Result
[38] I make a final order that the restraining order made by the Honourable Madam Justice Poon in the High Court of the Hong Kong Special Administrative Region of the People’s Republic of China on 26 October 2011 (the foreign restraining order) and the orders made on 21 December 2012 and 10 January 2013 amending the foreign restraining order are to be registered in New Zealand. For the avoidance of doubt, the property restrained does not include any of the interests in the property held by ASAP Finance Ltd, ASB Bank Ltd, Kiwibank Ltd, Bank of New Zealand Ltd or the Hong Kong and Shanghai Banking Corporation Ltd.
[39] I make ancillary orders in the terms sought at paragraph 2 of the Commissioner’s application dated 20 May 2013 save that order 2.2 will have added to it the words “including such operating revenue as is available from time to time”.
[40] New Zealand Dairy Trustee’s application to exclude its interest in the UBAH
assets from any order is dismissed.
P Courtney J
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