Commissioner of Police v Gong

[2018] NZHC 1686

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-000454

[2018] NZHC 1686

UNDER

the Criminal Proceeds (Recovery) Act 2009

BETWEEN

COMMISSIONER OF POLICE
Applicant

AND

XIAO HUA GONG

Respondent

Hearing:	On the papers
Judgment:	10 July 2018

JUDGMENT OF DOWNS J

(Costs)

This judgment was delivered by me on Tuesday, 10 July 2018 at 3 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Meredith Connell, Auckland. Chapman Tripp, Auckland.

COMMISSIONER OF POLICE v GONG [2018] NZHC 1686 [10 July 2018]

Issue

[1]    The parties agree Mr Gong must pay the Commissioner of Police 2B costs in relation to five applications abandoned by Mr Gong. But, they disagree about how much Mr Gong should pay—$81,952.00 versus $9,366.00—and whether payment may be made from property restrained under the Criminal Proceeds (Recovery) Act 2009 (the Act).

Background

[2]Little background is required.

[3]    On 24 March 2017, Davison J made a restraining order over Mr Gong’s property, without notice.1 On 23 June 2017, Duffy J restrained realty not restrained by Davison J, on notice. That order was made by consent. The Commissioner agreed not to pursue an application for a restraining order beyond New Zealand, and Mr Gong provided an undertaking not to dispose Canadian realty.

[4]    These orders remain significant. They restrain more than $60 million of property on the basis Mr Gong allegedly derived great wealth from pyramid-style frauds perpetrated, with others, in China. China has issued a “detention warrant” for Mr Gong, who now lives in Canada. Mr Gong is being prosecuted there for alleged offending in relation to China.

[5]    On 19 December 2017, Mr Gong filed five applications—in one document— seeking:

(a)Release of more than $30 million to pay the Canadian tax debt of a company connected to him.

(b)Release of realty restrained by Duffy J.

(c)Release from the undertaking he not dispose Canadian realty.

1      Commissioner of Police v Gong [2017] NZHC 556.

(d)An order requiring the Commissioner to give an undertaking as to costs and damages.

(e)An unless order (if the Commissioner did not promptly file an application for civil forfeiture).

[6]    A three-day hearing was allocated to begin 14 May 2018. On 30 April 2018, Mr Gong abandoned all applications.

Analysis

Were the applications interlocutory or originating?

[7]    Schedule 3 of the High Court Rules 2016 (the Rules) distinguishes between interlocutory and originating applications for costs purposes. The latter attract more time, and hence cost.2

[8]    Mr Gong contends his applications were all interlocutory in nature. He submits under the Act, only the Commissioner of Police is truly an applicant, and Mr Gong’s applications did no more than seek to modify orders obtained by the Commissioner. Mr Gong also contends the Act is weighted against respondents like him. Consequently, to treat his applications as originating rather than interlocutory could “chill” a respondent’s access to justice in proceedings under the Act. Injustice may follow.

[9]    I disagree because of three things. First, the Rules. Rule 19.1 provides an “originating application means an application made in accordance with this Part”. Rule 19.2 lists a series of enactments under which: “Applications ... must be made by originating application”,3 and para (r) of the same rule identifies the Act as one such enactment. Materially, r 19.2 also identifies provisions of specified enactments that must be dealt with by originating application. So, r 19.2 identifies some enactments under which all applications are originating in nature, and other enactments in which

2      See items 22 to 29 in the Schedule.

3      Emphasis added.

only specified sections attract originating application procedure. The Act is in the former category.4

[10]   Second, the substance of the applications. Mr Gong’s first three applications (see [5](a)–(c)) sought significant modifications to Court orders obtained through originating procedure. The most striking example is his application for release of more than $30 million of restrained property. The remaining two applications (see [5](d) and (e)) sought to expose the Commissioner to liability for costs and damages, and terminate the Commissioner’s case in the event of non-compliance. Again, each was a response to orders obtained through originating procedure. It is difficult to conceive of any as interlocutory in nature, a conclusion buttressed by the definition of “interlocutory order” in the Rules:

interlocutory order—

(a)   means an order or a direction of the court that—

(i)is made or given for the purposes of a proceeding or an intended proceeding; and

(ii)concerns a matter of procedure or grants some relief ancillary to that claimed in a pleading; and

(b)   includes—

(i)an order for a new trial; and

(ii)an order striking out the whole or part of a pleading; and

(iii)an order varying or rescinding an interlocutory order

[11]   Mr Gong contends substance should triumph over form.5 But as observed, this leads to the conclusion his applications were not interlocutory given the definition above. The applications did not concern matters of procedure or seek relief ancillary to that claimed in a pleading. Again, each sought significant modification—and one potential termination—of an order obtained through originating procedure.

4      In Commissioner of Police v Burgess HC Auckland CIV-2010-404-2893, 15 June 2015 (Minute), Ellis J left open the possibility of an interlocutory application under the Act, for example, one seeking discovery. I leave the same possibility open.

5      Citing Ceramalus v Chief Executive of Ministry of Business, Innovation and Employment [2018] NZSC 26; and Waterhouse v Contractors Bonding Ltd [2013] NZCA 151, [2013] 2 NZLR 361.

[12]   Third, case law. In Commissioner of Police v Burgess,6 Ellis J held an application by Mrs Burgess to vary the restraining order to allow weekly expenditure from restrained property was originating rather than interlocutory. The Judge considered the application went to “the very substance of the proceedings” and was inconsistent with the definition of interlocutory order set out above.7

[13]   Wylie J reached the same conclusion in Li v Commissioner of Police.8 Mr Li too applied for release of restrained property for living expenses. The Commissioner sought to cross-examine him. Cross-examination was available as of right if Mr Li’s application was originating, not interlocutory. Wylie J  adopted the reasoning of  Ellis J:9

Mr Li by his application ... is seeking to vary the existing on notice restraining order. It is not an interlocutory application made in accordance with rr 7.19 or 7.41 of the High Court Rules. Nor is it an application which seeks to vary or rescind an interlocutory order. It is an application which weeks to vary an extant Court order.

[14]   For completeness, I do not accept Mr Gong’s concerns about chilling effect, or his related characterisation of the Act. Similar arguments were advanced to the Court of Appeal in Yan v Commissioner of Police.10 Mr Yan contended the Commissioner should be routinely required to give an undertaking as to damages and costs because of “the far-reaching nature of powers granted under the Act to the police and the unfairness to an individual who is left without any means of compensation should it be later found their property was wrongly restrained”.11 French and Simon France JJ did not accept this argument.

[15]   Their Honours noted restraining orders require a reasonably grounded belief property is either tainted or the respondent has unlawfully benefited from significant criminal activity and owns or effectively controls the property.12 Restraining orders were considered a “temporary” or “a holding measure” only.13

6      Commissioner of Police v Burgess, above n 4.

7 At [6].

8      Li v Commissioner of Police [2016] NZHC 909.

9      At [8](e).

10     Yan v Commissioner of Police [2015] NZCA 576.

11 At [24].

12 At [8].

13 At [7].

[16]   The majority also highlighted other provisions of the Act “designed to ameliorate the position of a person whose property has been restrained”, including variation for release of living expenses.14 French and Simon France JJ observed the Commissioner often agreed to (reasonable) variations,15 and Mr Yan’s argument overlooked the role of the Commissioner in acting in the public interest “to combat significant criminal activity”.16

[17]   The obvious should also be stated: if a respondent is successful against the Commissioner with an application (of whatever nature), he, she or it is presumptively entitled to costs because of that success.

Five originating applications or one?

[18]   Mr Gong contends the applications should be treated as one as they were filed and served that way; attracted a like notice of opposition; and “a single round of evidence”.17

[19]   Again, I disagree. Each application was distinct, both as to nature and relief. Each application was also significant. The anticipated three-day hearing reflected that.

Increased costs?

[20]   2B costs for five originating applications comes to $54,635.00. The Commissioner contends this figure should be uplifted by 50 percent to $81,952.00, as Mr Gong acted unreasonably.

[21]   The Commissioner observes Mr Gong initially sought orders through memorandum of counsel; filed applications only three working days before Christmas; and then sought to impose an unreasonable timetable. The Commissioner also contends the applications were abandoned later than necessary.

14     Yan v Commissioner of Police, above n 10, at [29].

15 At [31].

16 At [33].

17 In Kite v May (2000) 14 PRNZ 296 at [11], Master Faire said if one application is made “that embodies a range of orders sought then it is still considered as one application”. Form should not be controlling, particularly if each application is distinct and significant.

[22]   These matters do not warrant increased costs. Mr Gong lives in Canada. He was charged there only recently. The underlying offending occurred in China. And, New Zealand is remote from both. Critical events and decisions lie elsewhere, whereas Mr Gong’s New Zealand legal advisors are here. Satellite litigation can be awkward for this reason.

[23]   The Commissioner also contends the applications should attract increased costs as they were meritless.

[24]   Those for release of realty, release from the undertaking, and requiring an undertaking from the Commissioner were ambitious, particularly as the first two had questionable evidential support and the last is unprecedented. However, the applications were not clearly devoid of merit. The Act empowers a Court to require an undertaking from the Commissioner, and Mr Gong’s personal circumstances had continued to evolve. Potential curial recourse was not unreasonable.

[25]   Conversely, Mr Gong’s application for release of more than $30 million plainly lacked merit. The tax debt was not Mr Gong’s, but that of a company associated to him. Mr Gong’s evidence failed to directly address the key statutory consideration: whether unrestrained property could satisfy the debt.18 Mr Gong sold two hotels in December 2017. The resulting funds—CAD$20 million—were not subject to restraint. And, Mr Gong failed to respond to the Commissioner’s request for information in relation to the tax debt (before filing his application for payment from restrained property).

[26]   Similarly, Mr Gong’s application for an unless order lacked cause and was peremptory. The Commissioner had not breached any material timetable order. And the Commissioner’s action—the largest to date—had been prosecuted in a timely fashion since March 2017, when Mr Gong’s property was first restrained.

[27]Fifty percent uplift for each application is warranted for these reasons.

18     Criminal Proceeds (Recovery) Act 2009, s 28(3).

Payment from restrained property?

[28]   Section 28(1) of the Act permits payment from restrained property of the defendant’s “reasonable living costs”; “reasonable business expenses”; “any specified debt”; and “any other expenses”. But, s 28(2) precludes a Court from allowing “any legal expenses to be met out of a respondent’s restrained property”.

[29]   Mr Gong contends the costs order should be met from restrained property as costs  are  not  synonymous  with  legal  expenses.    Mr  Gong  invites  attention  to  s 128(3)(b)(ii) of the Act, which in the context of an interim foreign restraining order, treats legal expenses “as including a reference to a person’s expenses in defending allegations of the commission of significant foreign criminal activity in a foreign country”.

[30] A little history is necessary. The Act’s precursor was the Proceeds of Crime Act 1991. Section 42(2)(c) of that Act permitted release of restrained property for payment of a defendant’s “reasonable expenses in defending any criminal proceedings”, including proceedings under the 1991 enactment. This provision was not reproduced in the Act.19 Instead, s 28(2) was enacted, so “the court may not allow legal expenses to be paid out of … restrained property”.20

[31]   This history suggests the provision means exactly what it says: a Court may not sanction payment of “any legal expenses” from restrained property.21 Self-evidently, Court-ordered costs are one species of legal expense.22

[32]   Section 128(3)(b)(ii) does not affect this conclusion.23 The definition is inclusive rather than exhaustive. Moreover, it is likely s 128(3)(b)(ii) is intended to make clear s 28(2), in the context of an interim foreign restraining order, also includes reference to legal expenses incurred outside of New Zealand. In short, this reference does not support a distinction between “any legal expenses” and costs.

19     Payment of legal expenses is permissible in the context of registration of foreign restraining orders; see s 134(1)(d) of the Act and Commissioner of Police v Dotcom [2012] NZHC 2190.

20     Criminal Proceeds (Recovery) Bill Explanatory Note at 8.

21     Emphasis added.

22     See Commissioner of Police v Stepping Stone Finance Ltd [2013] NZHC 1537.

23     Neither does Rea v Omana Ranch Ltd [2013] 1 NZLR 587 (HC), which was concerned with costs and expenses of a court-appointed receiver.

[33]   In any event, it would be wrong to allow costs to be met from restrained property. Section 28(3) of the Act requires reference to the “ability of the respondent to meet the … expense … concerned out of property that is not restrained”. There is no evidence Mr Gong could not otherwise pay costs.

Orders

[34]Mr Gong must pay the Commissioner uplifted costs of $65,562.00.

……………………………..

Downs J