Commissioner of Police v Gong
[2019] NZHC 2735
•25 October 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2017-404-454
[2019] NZHC 2735
UNDER the Criminal Proceeds (Recovery) Act 2009 BETWEEN
COMMISSIONER OF POLICE
Applicant
AND
XIAO HUA GONG
Respondent
Date of hearing: 4 October 2019 Appearances:
M E Harborow and H E Macdonald for the applicant A J Ellis and F C Jones for the respondent
Date of judgment:
25 October 2019
INTERIM JUDGMENT OF JAGOSE J
The judgment was delivered by me on 25 October 2019 at 3.00pm.
Pursuant to Rule 11.5 of the High Court Rules
……………………………… Registrar/Deputy Registrar
Solicitors/Counsel:
Meredith Connell, Auckland Anthony Ellis Barrister, Wellington Fee Langstone, Auckland
COMMISSIONER OF POLICE v GONG [2019] NZHC 2735 [25 October 2019]
[1] The Commissioner of Police’s application – for particular discovery, either after this proceeding for restraint orders commenced,1 or before the intended forfeiture orders proceeding commences2 – is brought to fill a perceived gap in the Criminal Proceeds (Recovery) Act 2009 (the “Act”): the inutility of exercise of the Commissioner’s powers under the Act to compel production of documents and information from people outside New Zealand.
Background
[2] The respondent, Mr Gong, is a Chinese national living in Canada. He is being investigated by both the Economic Crime Investigation Department of the Chinese Public Security Bureau and the Ontario Securities Commission in Canada. The investigations concern an alleged large-scale fraud and its consequences. The fraud is said to involve a pyramid scheme associated with the sale of health supplements, giving rise to unlawful benefits exceeding $200 million, of which the Commissioner here says Mr Gong remitted some $77 million obtained from the fraud to New Zealand, and used money obtained from the fraud to purchase assets in New Zealand.
[3] Previously in this proceeding, on the Commissioner’s without notice application for restraining orders, Davison J was “well satisfied” there were reasonable grounds to believe Mr Gong unlawfully benefited from significant criminal activity, being money laundering and receiving. He also was satisfied there were reasonable grounds to believe identified property in New Zealand property was ‘tainted property’ for the purposes of the Act. He accordingly made restraining orders over the property,3 preventing its disposal or any dealing in it, and putting it under the Official Assignee's custody and control.4
Statutory context
[4] The Commissioner may pursue on notice assets forfeiture orders for tainted property to vest absolutely in the Crown. Orders are made if the Court “is satisfied on
1 High Court Rules 2016 (“HCR”), r 8.19.
2 HCR 8.20.
3 Commissioner of Police v Gong [2017] NZHC 603 at [36]–[37].
4 Criminal Proceeds (Recovery) Act 2009, s 24.
the balance of probabilities that specific property is tainted property”.5 Typically, such will be in relation to property already restrained, for which the Court only required to be “satisfied it has reasonable grounds to believe that any property is tainted property”,6 that is, property acquired by or derived from significant criminal activity.7 The Commissioner also may pursue profit forfeiture orders, to recover the net value of unlawful benefit from significant criminal activity from the respondent as a debt due to the Crown. Orders are made if the Court is satisfied on the balance of probabilities of such benefit, and the respondent’s interest in property to realise it.8
[5] Under the Act’s subpart 7, the Commissioner may seek production or examination orders to obtain relevant documents and to compel disclosure of relevant information,9 enforceable on non-compliance by search warrant under the Search and Surveillance Act 2012.10 Such may be necessary to satisfy the Act’s burden of proof, although the threshold is only the information be “relevant” to the Commissioner’s investigations and proceedings under the Act.
Commissioner seeks discovery
[6] While previously in New Zealand, under an examination order, the Commissioner interviewed Mr Gong and sought he produce particular documents and information relating to the Commissioner’s investigation. He has not. The documents and information sought are likely to be in his control in Canada, where Mr Gong presently is remanded on bail pending determination of offences under the Canadian Criminal Code 1985. The Commissioner has not sought further to enforce his production and examination powers against Mr Gong in Canada.
[7] On the present application, the Commissioner instead turns to the High Court Rules’ provision for particular discovery, inferentially for such specified documents or groups of documents as may provide the evidence required to prove on the balance of probabilities the property is tainted property.
5 Section 50.
6 Section 24.
7 Section 5(1).
8 Section 55.
9 Sections 104–105 and 106–107.
10 Section 108.
[8] There is an immediate difficulty with that course. The High Court Rules 2016 specify applications under the Act “must be made by originating application”.11 Consistently with originating applications’ attenuated nature, no explicit provision is made for discovery. Nonetheless, HCR 19.11 draws in HCR 7.43A, to entitle the Court on an originating application to make “any … direction or order that the court may make under these rules”. Those include the rules for particular discovery relied on by the Commissioner on the present application. Each has its own requirements.
—particular discovery after proceeding commenced
[9]HCR 8.19 enables an order for particular discovery:
[… i]f at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered
1 or more documents or a group of documents that should have been discovered ….
[10] But, by “should have been discovered”, HCR 8.19 refers to parties’ continuing obligation to give discovery of relevant documents after a discovery order is made against them.12 The ‘generous’ approach to the words nonetheless is within that ambit.13 On an originating application, there may be no such order or obligation.
[11] The Commissioner’s counsel, Mark Harborow, says the Commissioner’s partially-unmet examination order is “akin to a pre-existing discovery order”. The obligation under s 106 of the Act for production of “any documents … in the person’s possession or control or may be relevant to the investigation or to any proceedings under this Act” is materially broader than the obligation under HCR 8.7 to:
… disclose the documents that are or have been in that party’s control and that are—
(a) documents on which the party relies; or
(b) documents that adversely affect that party’s own case; or
11 HCR 19.2(1).
12 HCR 8.18. By “discovery order” is meant “an order that requires each party to a proceeding to discover the existence of documents to every other party”: HCR 8.1 (definition of ‘discovery order’).
13 For example, see Southland Building Society v Barlow Justice Ltd [2013] NZHC 1125 at [18]– [30]; Hoyle v Hoyle [2015] NZHC 3001 at [24].
(c) documents that adversely affect another party’s case; or
(d) documents that support another party’s case.
But Mr Harborow also says, on the present application, the documents sought in fact fit within the narrower description, and therefore can be sought under HCR 8.19.
[12] I disagree. For HCR 8.19 to take effect in isolation on an originating application, the words “should have been discovered” must be given a different construction – essentially, that it is at least desirable for documents to be disclosed, notwithstanding the absence of any discovery obligation or order.
[13] HCR 8.19 cannot carry that weight. The rule is part of a carefully constructed procedure, starting with a Judge’s obligation to “make a discovery order for a proceeding unless he or she considers that the proceeding can be justly disposed of without any discovery”.14 The absence of a discovery order in a proceeding implies its just disposition without any discovery. That, of course, is consistent with expectations for originating applications, where any requirement for discovery tends against permission for such commencement.15
[14] In a proceeding that must be brought on originating application, a Judge may well consider it could not justly be disposed of without discovery. If so, s/he may be bound to make a discovery order, which HCRs 19.11 and 7.43A enable. Such likely is an organising principle for cases accepting discovery is available on originating applications.16
[15] It is well-accepted restraining orders are available to preserve property while evidence is compiled for its subsequent forfeiture.17 But forfeiture orders are to be
14 HCR 8.5(1).
15 For example, see Hong Kong and Shanghai Banking Corporation Ltd v Erceg (2010) 20 PRNZ 652 (HC) at [20] and [26]; Fisk v X [2014] NZHC 2797 at [18] (citations omitted); Solar Bright Ltd v Martin [2019] NZHC 300 at [21].
16 For example, see McCullagh v Robt. Jones Holdings Ltd [2015] NZHC 1462, (2015) 22 PRNZ 615 at [3] and [6]; Commissioner of Police v Yan [2015] NZHC 3315 at [41]; Manchester Securities Ltd v Body Corporate 172108 [2015] NZCA 29 at [15], in which a discovery order was made by consent, providing a foundation for the subsequent particular discovery application; and cases cited in Commissioner of Inland Revenue v Elementary Solutions Ltd [2017] NZHC 2411 at
[34] (the Associate Judge’s references at [36] and [37] to “Part 19 proceedings” may have been intended to refer to “Part 31 proceedings”, the subject of the decision).
17 Vincent v Commissioner of Police [2013] NZCA 412 at [45].
sought in a separate proceeding, commenced by originating application.18 The application for restraining orders sought in the present proceeding has justly been disposed of without any discovery. The property has been preserved. No discovery obligation or order exists. HCR 8.19 has no application.
—particular discovery before proceeding commenced
[16] HCR 8.20 enables discovery of particular documents required “to formulate the intending plaintiff’s claim” – where the intending plaintiff may be entitled to claim relief against someone, and there are grounds to believe an identified person has control of the documents – if “the order is necessary at the time when the order is made”.
[17] Plainly the Commissioner at least may be entitled to claim forfeiture orders against Mr Gong, and Mr Gong has control of documents at least relevant to that relief. The Commissioner’s claim will be impossible or impracticable to formulate if he lacks the information necessary to “plead the claim in accordance with the requirements of the Rules”.19
[18]A claim for forfeiture orders must be formulated in accordance with HCR
7.19.20 The originating application must “state the relief sought and the grounds justifying that relief”, with reference to “any particular enactments or principles of law or judicial decisions on which the applicant relies”.21
[19] On application for an assets forfeiture order, then, the relief sought is the property vests in the Crown absolutely and is in the custody and control of the Official Assignee.22 The ground justifying that relief is the property is “tainted property”:23
(a) … any property that has, wholly or in part, been—
(i)acquired as a result of significant criminal activity; or
(ii)directly or indirectly derived from significant criminal activity; and
18 HCR 19.7(1).
19 Exchange Commerce Corp Ltd v NZ News Ltd [1987] 2 NZLR 160 (CA) at 164.
20 HCR 19.10(a).
21 HCR 7.19(1).
22 Criminal Proceeds (Recovery) Act 2009, s 50.
23 Section 5(1) (definition of ‘tainted property’).
(b) includes any property that has been acquired as a result of, or directly or indirectly derived from, more than 1 activity if at least 1 of those activities is a significant criminal activity.
In other words, formulation of the claim will require a sufficiently-pleaded assertion of the property’s acquisition as a result of or derivation from significant criminal activity. By ‘significant criminal activity’ is meant “activity engaged in by a person that if proceeded against as a criminal offence would amount to [specified] offending”, whether or not the person is charged, acquitted, or convicted of an offence.24
[20] On application for a profit forfeiture order, the relief sought is the Court’s specification of each the value of the respondent’s unlawful benefit from relevant significant criminal activity, the maximum recoverable amount (after deduction of the value of forfeited assets from the value of the benefit), and the property for disposal.25 The grounds justifying that relief are the respondent has unlawfully benefited from significant criminal activity within the relevant period of criminal activity, and has interests in property. Again, formulation of the claim will require a sufficiently- pleaded assertion of the value of the benefit and its derivation from significant criminal activity, as well as the respondent’s interests in property.
[21] It is unclear precisely what assertions the Commissioner says he cannot, but need, make to plead his claim for forfeiture orders. Plainly no documents are required to enable him to plead the relief sought on assets forfeiture; some further documents may be required to plead the relief sought on profit forfeiture; the bulk of documents sought are to enable pleading of the grounds for either form of relief. Reference to all of the extensive list of sought documentation, annexed to the present application and subsequently amended on the Commissioner’s receipt of further information from the Ontario Securities Commission, is not necessary to enable pleading to that extent.
[22] But formulation of a claim in proceedings commenced by originating application goes further than mere specification of the relief and its grounds. Despite the oral evidence alternative provided by HCR 19.13, “[a]ny affidavit in support of the application must be filed at the same time as the application”.26 As with the HCRs’
24 Section 6.
25 Section 55.
26 HCRs 19.10(1)(b) and 7.20.
requirement for particularised claims,27 the accompanying affidavit is to ensure the opposing party is not taken by surprise.28 In context, the expectation on originating applications is the whole of relief and grounds on which it is sought, and evidence in its support, is filed contemporaneously – all that being the formulation of the claim.
[23] All the same, as particular discovery, I should still have to be satisfied as to the aspect(s) of formulation of the Commissioner’s claim sought to be met by reference to identified documents or groups of documents. That reference is what distinguishes particular discovery from standard discovery. At a simplistic level, I accept it is impossible or impracticable for the Commissioner to assert the property’s acquisition or derivation from significant criminal activity, and the value of Mr Gong’s alleged benefit from the latter, without reference to information connecting the property to the activity. That is likely to be a significant tracing exercise.
[24] The documents sought by the Commissioner suggest he intends to do so, top- down, from a universe of possible relevant information. The Commissioner seeks details of all Mr Gong’s and related entities’ bank accounts, or over which Mr Gong has any signing authority; of all entities, property, and assets in which he has any interest; and all business, conveyancing, financial, meeting, and tax records, including accounting electronic backups and passwords; as well as details of all business connections, accountants and lawyers. He also seeks information produced for the purposes of the health supplements scheme, and of the supplier factory.
[25] Particular discovery anticipates a bottom-up analysis, rather than the standard discovery approach adopted by the Commissioner. Best practice is to submit a draft application and affidavit, identifying what additional information is sought by reference to specific allegations, to illustrate the materiality of the sought particular documents or groups of documents in formulation of the intended claim.29 Once the
27 HCR 5.26: in addition to showing the general nature of the plaintiff’s claim to the relief sought, giving “sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the court and the party or parties against whom relief is sought of the plaintiff’s cause of action”.
28 Premier Events Group Ltd v Beattie [2012] NZHC 1025 at [30].
29 Welgas Holdings Ltd v Petroleum Corp of NZ Ltd (1991) 3 PRNZ 33 (HC) at 46; Truck Master Ltd v Mastagard Waste Ltd [2014] NZHC 1676 at [19] and [73].
claim is articulated and the proceeding commenced, standard or tailored discovery may be sought if required for its just disposition, even on originating application.30
[26] Mr Gong’s counsel, Tony Ellis, endorses such submission of draft documents while asserting the exceptionality of pre-commencement discovery. He says the Commissioner is seeking to use the process on an impermissible ‘fishing expedition’, looking for rather than at prospective causes of action.31 As the Commissioner must identify predicate offences in Canada as the foundation for money-laundering and receiving offending in New Zealand, Mr Ellis is critical of the Commissioner’s express submission pre-commencement discovery is sought to consider “whether” the funds at issue are so derived, “or otherwise”.
[27] There is no ‘exceptionality’ to pre-commencement discovery beyond the necessity for its order. The Commissioner is looking ‘at’ identified causes of action in New Zealand. If pre-commencement discovery from Canada is necessary to formulate that claim by reference to predicate offending, that is not fishing in the relevant sense. And s 6(2)’s allowance significant criminal activity does not require charge or conviction may extend to the predicate offending (for example, including “any act, wherever committed, that would be an offence in New Zealand if committed in New Zealand”).32
[28] Mr Ellis says pre-commencement discovery should not be permitted at all, as it would be to “circumvent important safeguards built in to the criminal part of the the [Act’s] regime”. He says the “internal logic” of the Act’s “hybrid system” anticipates primacy being given to that part, so civil procedural powers only may be exercised “after the criminal investigation has finished”. Inferentially, pre-commencement discovery cannot yet be ‘necessary’.
[29] I disagree. Nothing in the Act establishes effectively a stay on civil proceedings, pending criminal determinations. The Act’s express limitations, disciplines and powers are capable of being duplicated, where necessary, in exercise
30 See [14] above.
31 Re Securitibank (No 31) (1984) 1 PRNZ 514 (HC) at 519–520.
32 Crimes Act 1961, s 243(1) (definition of ‘offence’).
of the discretion to grant pre-commencement discovery. That is not likely to be required of the only substantive safeguard emphasised by Mr Ellis: s 165’s limitations to the admissibility of self-incriminating statements made in response to production or examination orders. As Mr Ellis himself recognises, collateral use of discovered documents is prohibited,33 at least without leave,34 on application for which here s 165 would carry significant weight.
[30] Mr Ellis also says the Commissioner should prefer reliance on the Mutual Assistance in Criminal Matters Act 1992. But that does not deny the availability of pre-commencement discovery in appropriate circumstances. ‘Necessity’ is about the order at the time of its making, and not the proceeding at the time of its issue.
Interim result
[31]I am satisfied from the Commissioner’s evidence:
(a)he is entitled to claim forfeiture orders against Mr Gong, but it is impossible or impracticable to formulate his claim without reference to documents or groups of documents; and
(b)there are grounds to believe such documents are in Mr Gong’s control. He admits having records relating to the immediate, intermediate and ultimate sources of the funds he remitted to New Zealand, or used to purchase assets here, and the activities by which they were generated.
But I lack the specificity to identify what particular documents or groups of documents may be necessary to enable formulation of the Commissioner’s claim.
Next steps
[32] Rather than dismiss the Commissioner’s application for its present lack of specificity, I invite counsel (desirably jointly) to submit a timetable within which the Commissioner will file and serve an originating application for forfeiture orders and supporting affidavit, both in draft, to illustrate the particular documents or groups of
33 HCR 8.30(4).
34 Wilson v White [2005] 3 NZLR 619 (CA) at [47].
documents necessary to enable their formulation. I anticipate the timetable should provide also for an exchange of memoranda as to such necessity in the particular circumstances, and possibly for a further hearing if final determination on those papers is not desired.
—Jagose J
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