Commissioner of Police v Gong

[2018] NZHC 1859

ORDER PROHIBITING PUBLICATION OF NAME OR IDENTIFYING PARTICULARS OF INTERESTED PARTY MS W.

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-003019

[2018] NZHC 1859

UNDER

the Criminal Proceeds (Recovery) Act 2009

BETWEEN

COMMISSIONER OF POLICE

Applicant

AND

YU PING GONG

First Respondent

Hearing:	On the papers
Judgment:	25 July 2018

JUDGMENT OF WYLIE J

This judgment was delivered by Justice Wylie On 25 July 2018 at 12.00 midday

Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar

Date:…………………………

Solicitors/counsel:

Crown Solicitor, Auckland

Pidgeon Law/R Reed QC, Auckland

COMMISSIONER OF POLICE v GONG [2018] NZHC 1859 [25 July 2018]

Introduction

[1]    The Court has received a joint memorandum filed on behalf of the applicant – the Commissioner of Police (the Commissioner), the respondents, Mr Gong and David 22 Trustee Limited, and the interested parties, Shuying Chen, Yuan Gong and Ms W (her name is suppressed for health reasons on the joint application of all parties). The memorandum requests Court approval under s 95 of the Criminal Proceeds (Recovery) Act 2009 (the Act) to a proposed settlement between the parties.

Background

[2]    Mr Gong is a plumber. He is the registered proprietor of two residential properties, which are currently restrained. David 22 Trustee Limited is the registered proprietor of six other properties which are also restrained. Mr Gong is the sole director and 80 per cent shareholder of David 22 Trustee Limited. Ms Chen, an interested party, owns the other 20 per cent of the shares. She is Mr Gong’s mother.

[3]    Mr Gong and his wife reside at one of the restrained properties – namely a property in Glenmore Road, Sunnyhills, Manukau. The other properties are tenanted.

[4]    In April 2016, a financial investigation into the affairs of Mr Gong was commenced by the Asset Recovery Unit of the Inland Revenue Department. Analysis confirmed that in the tax years ending 31 March 2011 to 31 March 2016, Mr Gong declared gross income to the Inland Revenue of $929, and David 22 Trustee Limited declared no income at all.

[5]    The Commissioner alleges that, in fact, Mr Gong and David 22 Trustee Limited earned gross income in excess of $2,100,000 over that period, and over $1,180,000 in taxable income. It is asserted that Mr Gong acquired interests in the restrained properties, estimated to be worth $9,130,000, with equity in the vicinity of $7,731,000, and that the purchase of the properties was funded from Mr Gong’s income, which he largely failed to return to Inland Revenue as income tax.

[6]    The Commissioner’s case is that Mr Gong failed to return his income to the Inland Revenue Department, and that he was involved in tax evasion. It is asserted

that Mr Gong and David 22 Trustee Limited acquired the restrained properties, in part, as the result of tax evasion, and that the properties are therefore tainted. The Commissioner also considers that Mr Gong has unlawfully benefited from the significant criminal activity of tax evasion, and failed to file tax returns.

[7]    This is all denied by Mr Gong. He maintains he did not evade either his or David 22 Trustee Limited’s tax obligations. He does, however, wish to regulate his tax affairs.

The restraining orders

[8]    On notice restraining orders were granted, by consent, over all eight residential properties on 8 May 2018. That followed earlier without notice restraining orders made against the properties in December 2017.

[9]    Counsel for the Commissioner, for Mr Gong, for David 22 Trustee Limited and for the interested parties, have been engaged in ongoing discussions, which have recently concluded.

Proposed settlement

[10]   The Commissioner, Mr Gong and David 22 Trustee Limited have agreed to settle (without acceptance of any liability) the question of forfeiture of assets as between themselves, subject to this Court’s approval under s 95 of the Act. The proposed settlement is as follows:

(a)that the Official Assignee (the OA) be directed to sell, for fair market value, each of the following restrained properties (the properties):

(i)518/176 Broadway;

(ii)11 Galloway Crescent;

(iii)18 Murphys Road;

(iv)9B Miranda Street;

(v)18/6 Porters Avenue; and

(vi)1/157 Bucklands Beach Road.

(b)the proceeds from the sale of the properties be applied by the OA in the following manner:

(i)first, the OA will meet the costs of the sales and all other associated expenses;

(ii)second, the OA will meet Mr Gong’s existing mortgage liability to Westpac New Zealand Limited ($1,398,469.72 as at 21 May 2018);

(iii)third, the OA will meet the tax liability owed to the Commissioner of Inland Revenue by Mr Gong of $1,101,899.30 and by Ms W of $138,669.96; and

(iv)finally, all excess proceeds of sale be forfeited to the Crown (if there are no excess proceeds of sale, the Commissioner will not further pursue a civil forfeiture application under the Act for the same alleged significant criminal activity).

(c)Mr Gong is to pay an additional sum of $175,000, to be forfeited, as follows:

(i)$75,000 within five working days of the Court making orders; and

(ii)$100,000 on or before 5 pm on 28 September 2018.

(d)upon Mr Gong paying the OA the sum of $75,000 in accordance with paragraph (c)(i) above, 127 Glenmore Road is released from restraint;

(e)the restraining order over 162 Redoubt Road continues in force until Mr Gong pays the sum of $100,000 in accordance with paragraph (c)(ii) above and in the event he pays that sum in accordance with paragraph (c)(ii), 162 Redoubt Road is released from restraint;

(f)in the event Mr Gong fails to pay the sum of $100,000 in accordance with paragraph (c)(ii) above, the OA may, on five working days’ notice, sell 162 Redoubt Road to recover the outstanding sum;

(g)the Commissioner will not pursue an application for profit forfeiture orders against any of Mr Gong, David 22 Trustee Limited or Ms W, or further pursue Mr Gong, David 22 Trustee Limited or Ms W, in respect of any alleged tax liability for the period from 1 January 1997 to 31 March 2017;

(h)the Commissioner will not advise the existence of, or share, any of the evidence he has gathered against Mr Gong, David 22 Trustee Limited or Ms W (including transcripts of the examinations of Mr Gong and Ms

W) with any person, unless required by law;

(i)all electronic equipment and files seized during the search warrant at Mr Gong and Ms W's home will be returned to them as soon as practicable following the Court making orders, and the Commissioner will not review any of the documents held on any of the electronic equipment, or review the equipment or retain a copy of any clone of the electronic equipment;

(j)Mr Gong and David 22 Trustee Limited make no admission of liability of any sort and do not concede any aspect of the Commissioner's case;

(k)The Commissioner of Inland Revenue confirms she does not intend to review the income tax periods from 1 January 1997 to 31 March 2017. She has confirmed in writing that it will regard the tax liabilities to be satisfied upon payments of the tax referred to above by the OA. She

does, however, reserve the right to pursue Mr Gong, David 22 Trustee Limited and/or Ms W if additional information emerges regarding substantial sources of income beyond that returned in Mr Gong, David 22 Trustee Limited or Ms W’s tax returns; and

(l)costs in relation to all matters to lie where they fall.

[11]   In short, the value of six of the eight restrained properties (after repayment of Mr Gong’s mortgage) will be forfeited and two properties will be released to Mr Gong, including his home address where he resides with his family. Mr Gong will also make an additional payment of $175,000 which will be forfeited upon receipt.

[12]   The approximate total value of the settlement to the Crown as a result of the proposed settlement is $4,941,000.1 The approximate value of the property currently subject to restraining orders, but which will not be forfeited, is approximately

$2,965,000.

Legal principles

[13]Section 95 of the Act governs settlements. It provides as follows:

95High Court must approve settlement between Commissioner and other party

(1)The Commissioner may enter into a settlement with any person as to the property or any sum of money to be forfeited to the Crown.

(2)A settlement does not bind the parties unless the High Court approves it.

(3)The High Court must approve the settlement if it is satisfied that it is consistent with—

(a)the purposes of this Act; and

(b)the overall interests of justice.

1      Comprising the value of the six properties to be sold, less Mr Gong’s existing mortgage liability to Westpac New Zealand Limited, plus the additional payment of $175,000.

[14]   As can be seen, Parliament has entrusted the Court with a supervisory jurisdiction, aimed at ensuring that any settlements reached are consistent with the intent of the Act, and in the overall interests of justice.2

[15]   The primary purpose of the Act is contained in s 3(1): the establishment of a regime for forfeiture of property that has been derived directly or indirectly from significant criminal activity, or that represents the value of a person's unlawfully derived income. Ancillary purposes are to “eliminate the chance” for persons to profit from undertaking or being associated with significant criminal activity (s 3(2)(a)) and to “deter” significant criminal activity (s 3(2)(b)). The Court of Appeal in Hayward v Commissioner of Police has confirmed the Act has a "strongly expressed statutory purpose".3 More recently, the Supreme Court has said the language of s 3(2)(a) is “aspirational”, and that it provides a “clear and emphatic signal as to the legislative purpose”.4

[16]   The statutory language “overall interests of justice” indicates a broad enquiry is required. In considering whether a settlement is in the interests of justice, relevant factors will include the saving of time and cost, and the litigation risk of a hearing to both the Commissioner and respondent.5 The Court has recognised that the decision to settle proceedings under the Act may be made on economic and pragmatic grounds, and that it may reflect a “common sense compromise” between the parties.6

[17]   If the Court is satisfied of the two matters set out in s 95(3), the settlement reached between the parties must be approved.

Proposed settlement

[18]   I accept the view of the parties, namely that the settlement is consistent with the purposes of the Act and in the overall interests of justice. I have reached that conclusion for the following reasons:

2      Commissioner of Police v Know-All Group Ltd HC Auckland CIV-2010-404-403, 7 November 2011 at [11].

3      Hayward v Commissioner of Police [2014] NZCA 625 at [29(c)].

4      Marwood v Commissioner of Police [2016] NZSC 139, [2017] 1 NZLR 260 at [12].

5      Commissioner of Police v Kree [2013] NZHC 2972 at [11].

6      Commissioner of Police v Douglas [2015] NZHC 1293 at [6]; Commissioner of Police v Venn

[2014] NZHC 361 at [6].

(a)there will be a saving of time and cost if the matter can be resolved by consent, without the need for a substantive hearing;

(b)the settlement has an overall value to the Crown of approximately

$4,941,000. It will see well over half of the equity in the restrained properties forfeited, as well as outstanding tax paid to the Commissioner of Inland Revenue;

(c)while the Commissioner considers he has a strong case to show that all of the restrained property is tainted, so as to support assets forfeiture orders, the Commissioner acknowledges that there is some risk in a contested hearing. Whether tax evasion can taint property is not altogether clear;7

(d)the Commissioner accepts that the amount of outstanding tax –

$1,240,569.26 – is relatively modest, when compared with the amount of the allegedly tainted equity;

(e)Mr Gong, David 22 Trustee Limited and/or the interested parties, could bring claims for relief from forfeiture, and the Commissioner acknowledges that the Court might be sympathetic to any such claims given that all of Mr Gong’s (and his dependents) properties would otherwise be forfeited;

(f)one of the properties to be released and returned to Mr Gong is Mr Gong’s home address, where Mr Gong currently lives with his family;

(g)Mr Gong has denied tax evasion, or the commission of any other criminal offence. He, however, recognises the mandatory nature of civil forfeiture orders under the Act, the statutory presumption in favour of the Commissioner’s nominated profit forfeiture figure and the civil standard of proof; and

7      Commissioner of Police v Dryland HC Auckland CIV-2012-419-242, 30 August 2012 at [22];

Commissioner of Police v Winsor [2014] NZHC 161 at [33].

(h)all parties wish to have certainty as to outcome. There is considerable truth in the old adage – a bird in the hand is worth two in the bush.

Orders

[19]   Taking all of these matters into account, I approve the following orders, to give effect to the settlement reached between the parties:

(a)Further orders ancillary to restraining orders under ss 33 – 35 of the Act:

(i)the OA is directed to sell, as soon as practicable, for their fair market values, the properties:

1.  518/176 Broadway, Newmarket, Auckland, certificate of title 340387;

2.  11 Galloway Crescent, Farm Cove, Manukau, Auckland, certificate of title NA42D/169;

3.  18 Murphys Road, Flat Bush, Manukau, Auckland, certificate of title NA93B/366;

4.  9B Miranda Street, Avondale, Auckland, certificate of title 302074;

5.  18/6 Porters Avenue, Mt Eden, Auckland, certificate of title 55621; and

6.  1/157 Bucklands Beach Road, Bucklands Beach, Auckland, certificate of title NA92D/492.

(ii)the proceeds of the sales of the properties are to be applied by the OA in the following manner:

1.  first, pay the costs of the sales and all other associated expenses;

2.  second, repay the loans to Westpac New Zealand Limited secured against the properties and against 162 Redoubt Road, Manukau, Auckland, certificate of title NA1100/59 (162 Redoubt Road) (a sum of $1,398,469.72 as at 21 May 2018);

3.  third, pay the tax liability owed to Inland Revenue by Mr Gong of $1,101,899.30 and by Ms W of $138,669.96; and

4.  finally, all net proceeds of the sales be forfeited to the Crown in accordance with the assets forfeiture order at paragraph (b)(i) below.

(iii)for the purposes of effecting sales of the properties in accordance with paragraph (a)(i) above, Guy Francis Sayers of Napier, OA, has the power to execute any deed or instrument in the name of Mr Gong and David 22 Trustee Limited, and to do anything necessary to give validity and operation to the deed or instrument.

(b)Assets forfeiture orders under s 50 of the Act:

the following property vests in the Crown absolutely and is to be in the OA’s custody and control:

(i)the net proceeds of the sales of the properties, in accordance with the order at paragraph (a)(ii)(4) above;

(ii)a further sum of $175,000 which must be paid by Mr Gong to the OA as follows:

1.  $75,000 within five working days of the Court making orders; and

2.  $100,000 on or before 5 pm on 28 September 2018.

(c)Upon Mr Gong paying the OA the sum of $75,000 in accordance with paragraph (b)(ii)(1) above, 127 Glenmore Road, Sunnyhills, Manukau, Auckland, certificate of title NA23C/1354, is released from restraint and the OA is then directed to remove the restraining order from the certificate of title of that property.

(d)Upon Mr Gong paying the OA the sum of $100,000 in accordance with paragraph (b)(ii)(2) above, 162 Redoubt Road is released from restraint and the OA is then directed to remove the restraining order from the certificate of title of that property.

(e)In the event Mr Gong fails to pay the sum of $100,000 in accordance with paragraph (b)(ii)(2) above, the following provisions shall apply:

(i)the OA must, as soon as practicable, given written notice to Mr Gong’s solicitors of the default and that he intends to sell 162 Redoubt Road;

(ii)if, after five working days of that written notice being given, the default has not been remedied, the OA may sell 162 Redoubt Road for its fair market value and he shall deal with the proceeds of the sale as follows:

1.  first, deduct the OA’s costs in effecting the sale;

2.  second, apply the net proceeds of sale toward the assets forfeiture order at paragraph (b)(ii) above; and

3.  third, return any balance to Mr Gong.

(iii)if, when 162 Redoubt Road is sold, there remains borrowing secured against it (because some or all of the properties have not yet been sold in accordance with paragraph (a)), the OA must repay any remaining borrowing secured against 162 Redoubt Road from its proceeds of sale;

(iv)if the OA does repay any remaining borrowing secured against 162 Redoubt Road from its proceeds of sale, the OA must account to Mr Gong for a sum equivalent to the amount of the repayment from the proceeds of the sales of the properties when they are sold in accordance with paragraph (a);

(v)for the purposes of effecting a sale of 162 Redoubt Road in accordance with paragraph (e)(ii) above, Guy Francis Sayers of Napier, OA, has the power to execute any deed or instrument in the name of David 22 Trustee Limited, and to do anything necessary to give validity and operation to the deed or instrument; and

(vi)Costs in relation to all matters to lie where they fall.

[20]   I record the following additional terms of settlement, which the parties have agreed are binding on them, but which do not form part of the Court’s formal orders:

(a)The Commissioner will not pursue an application for profit forfeiture orders against any of Mr Gong, David 22 Trustee Limited or Ms W, or further pursue Mr Gong, David 22 Trustee Limited or Ms W, in respect of any of their alleged tax liability for the period from 1 January 1997 to 31 March 2017.

(b)The Commissioner will not advise the existence of, or share, any of the evidence he has gathered against Mr Gong, David 22 Trustee Limited or Ms W (including transcripts of the examinations of Mr Gong and Ms

W) with any person, unless required by law to do so.

(c)All electronic equipment and files seized during the search warrant at Mr Gong and Ms W’s home will be returned to them as soon as practicable following the Court making orders, and the Commissioner will not review any of the documents held on any of the electronic equipment, or review the equipment or retain a copy of any clone of the electronic equipment.

(d)Mr Gong and David 22 Trustee Limited make no admission of liability and do not concede any aspect of the Commissioner's case.

(e)The Commissioner of Inland Revenue confirmed that she does not intend to review the income tax periods in question from 1 January 1997 to 31 March 2017. She has confirmed in writing that she will regard the tax liabilities to be satisfied upon payments of the tax by the OA in accordance with the orders above. She does, however, reserve the right to pursue Mr Gong, David 22 Trustee Limited and/or Ms W if additional information emerges regarding substantial sources of income beyond that returned in Mr Gong, David 22 Trustee Limited or Ms W’s tax returns.

[21]   I record that on the making of this order, this matter will be at an end. The file may be closed accordingly.

Wylie J