Commissioner of Police v Hua

[2025] NZHC 730

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-401

[2025] NZHC 730

BETWEEN

COMMISSIONER OF POLICE

Applicant

AND

YE HUA

First Respondent

ZHENHUA QIAN

Second Respondent

Hearing:

26 February 2025

Counsel:

M R Harborow and C F Hodgson for Applicant

S N B Wimsett KC and H Z L Krebs for Interested Party Hu

Judgment:

1 April 2025

JUDGMENT OF WILKINSON-SMITH J

[Application to vary restraining order]

This judgment was delivered by me on 01/04/2025 at 11 am Pursuant to Rule 11.5 of the High Court Rules

…………………………

Registrar/Deputy Registrar

Solicitors/Counsel:

Meredith Connell, Auckland Sam Wimsett KC, Auckland

COMMISSIONER OF POLICE v HUA & ANOR [2025] NZHC 730 [1 April 2025]

Introduction

[1]    The first respondent, Ye Hua operated a business called Qian DuoDuo Limited (QDD) which traded as Lidong Foreign Exchange, and which engaged in money laundering the proceeds of drug dealing. The second respondent is Ye Hua’s partner Zhenhua Qian who was charged with obtaining money by deception.

[2]QDD had legitimate and innocent clients who invested money in it.

[3]    Min Hu says she is one of those innocent investors and she seeks to recover her investment from the restrained funds. She applies pursuant to s 30 of the Criminal Proceeds Recovery Act 2009 (Act) to sever and exclude a sum owed to her by QDD, agreed in a notice of agreed facts dated 25 February 2025 to be $61,487.12, from property restrained under the Act.

[4]    The Commissioner says the first respondent Ye Hua benefited from the criminal offending in the region of $27.5 million. That amount is the subject of an application for a profit forfeiture order.

[5]     Only about $4.25 million of restrained property is available to meet any forfeiture order.

[6]    The Commissioner opposes the application and says that Min Hu does not have a severable proprietary interest in the restrained property. She is owed a debt along with other creditors and that should be dealt with at the profit forfeiture stage of the proceedings.

Background

[7]    In March 2021 a covert investigation into the first respondent Ye Hua terminated. Following that termination Ye Hua was charged with 19 counts of money laundering.   She was convicted of 15 of those charges following a jury trial  in    July 2023.

[8]    The second respondent, Ye Hua’s partner Zhenhua Qian, was charged with one charge of obtaining by deception. He was convicted by a jury and discharged without conviction.

[9]     QDD traded as Lidong Foreign Exchange and received funds that were derived from drug offending. The funds were converted into foreign currencies and Bitcoin. Through her control of a large number of third-party bank accounts Ye Hua transferred funds under her control into nominated bank accounts. By controlling a large number of third-party bank accounts in both New Zealand and China, Ye Hua was able to convert cash in New Zealand into bank funds and international accounts, or Bitcoin, without any money crossing borders. On occasion Ye Hua would also transfer money internationally by wire transfer.

[10]    The cash Ye Hua received was used as she saw fit, whether for her legitimate customers, deposited into accounts that she had control over or access to, or dealt with in some other way.

[11]QDD did however have legitimate and innocent clients who invested in QDD.

[12]   The applicant Min Hu is described as an afterschool care provider who invested money having been introduced to Ye Hua as someone who had good standing in the community, particularly in relation to economic and financial matters.

[13]   Min Hu made financial investments totalling $65,000 in November 2018 and May 2019. The invested money was originally paid to QDD via Alipay. The funds were subsequently transferred to another of Ye Hua’s accounts.

[14]For the purpose of this hearing the following facts are not disputed:

(a)Min Hu transferred funds to Ms Hua via Alipay and signed agreements with QDD. The funds transferred were investments.

(b)Min Hu did not receive any documentation or information about those investments from QDD, except for those attached to her affidavit.

(c)Min Hu has not taken any formal steps to recover her investments, including from QDD, Ye Hua or Zhenhua Qian directly.

(d)The quantum owed by QDD to Min Hu’s total $61,487.13 is comprised of:

(i)investment one - $11,674.51; and

(ii)investment two - $49,812.62.

The first investment

[15]    Min Hu initially invested approximately $10,000 on 6 November 2018. The interest rate offered was 10 per cent. In November 2018 Min Hu entered into a client agreement with QDD which outlined that Min Hu was to deposit $10,000 for a one- year period and would earn 10 per cent interest over that period.

[16]    Min Hu transferred CNY 50,000 from her Chinese bank account to Ye Hua’s Chinese bank account on 6 November 2018. The money had been a wedding gift from Min Hu’s parents.

[17]   In November 2019, Min Hu entered into another client agreement in relation to the funds invested. It was agreed that Min Hu would leave the principal amount of

$10,000 invested and would be paid out the interest of $1,000. Min Hu says this was paid in cash.

[18]   On 6 November 2020, Ms Hu was again paid $1,000 interest and again left the original $10,000 invested. The interest rate was amended from 10 per cent to seven per cent due to the influence of Covid-19.

[19]   In November 2021, Min Hu submitted she should have been offered the opportunity to reinvest or have her full investment paid out.

The second investment

[20]The second investment amounts to $49,812.62.

[21]   In May 2019 Min Hu  made a second investment of $41,929.82, again at     10 per cent interest.

[22]   In May 2020, Min Hu was paid interest of $4,192.98. She left the interest and original investment of $41,929.82 invested at eight per cent interest.

[23]   In May 2021, there was again no contract renewal on the second investment. Under the terms of the contract, Min Hu should have been offered the opportunity to reinvest or have the full investment paid out.

Criminal Proceeds (Recovery) Act proceedings

[24]   By May and November 2021, however, when Min Hu should have been offered the opportunity to reinvest or have her investments paid out, events had overtaken QDD.

[25]    In March 2021, the Commissioner was granted without notice restraining orders over QDD’s accounts. On 5 May 2021, an on-notice application for restraining orders was granted.

[26]Min Hu was served with the proceedings as an interested party in March 2024.

[27]Min Hu says that:

(a)she has a severable interest in the property that has been restrained; and

(b)that she has not unlawfully benefitted from significant criminal activity to which the restraining orders relate.

[28]   On 14 November 2023, following her convictions for money laundering but prior to sentencing, Ye Hua filed an affidavit deposing that Min Hu provided $65,000 in funds to Lidong Foreign Exchange (QDD’s trading name). Ye Hua says that the funds received for investment were invested in forex trading, Bitcoin and “running the day-to-day business” and are therefore part of the restrained property. $10,000 of

Min Hu’s investment was said to have been transferred to a “Lidong third party account as a term deposit”.

[29]   The Commissioner says that Ye Hua and QDD utilised a wide variety of bank accounts to operate their money remitting and money laundering services. Many accounts were in the names of third parties including shell companies. Where it has been possible to trace funds, the Commissioner has identified that 88 per cent of all money deposited was paid into shell companies’ bank accounts and 12 per cent were paid into bank accounts in the names of the first and/or second respondent, QDD or Elim Global Limited (a shell company controlled by Ye Hua).

[30]   The Commissioner has been unable to identify all accounts used for Ye Hua’s money remitting and laundering operations. The Commissioner does not know whether QDD has interests in unrestrained funds held in accounts in third parties’ names or foreign jurisdictions.

[31]   The Commissioner says that Min Hu has no legal interest in the restrained property, but instead has a contractual claim against QDD to recover a debt owed to her. The Commissioner says that an unsecured debt does not create a legal or equitable estate or interest in QDD’s assets. The extent of any debt owed will need to be judicially determined. Access to the restrained property to meet the debt would then require a charging order and/or a sale order.

[32]    In the absence of a legal interest the Commissioner says that Min Hu would need to establish an equitable interest through the existence of a trust (an express or institutional constructive trust) or the Court declaring the existence of a remedial constructive trust because equity should intervene in her favour.

[33]   The Commissioner concedes that QDD may owe Min Hu a debt. Prima facie QDD also owes other debts as well. The Commissioner submits that pari passu issues arise.

[34]    The Commissioner says that even if the Court finds Min Hu has an interest in the restrained property by virtue of a remedial constructive trust, her interest is not severable and can only be dealt with as a matter of relief.1

[35]   The Commissioner accepts that the Act enables a “first in, first served” determination of applications but says that typically competing claims on a restrained estate are dealt with at a substantive forfeiture hearing. That enables the Court to grant relief it considered appropriate if forfeiture orders are made.

[36]   Variation of restraining orders was ordered in Commissioner of Police v Burgess, where a profit forfeiture order could attach to other restrained property and the released property was not required to provide security for any forfeiture orders.2

[37]   The Commissioner also opposes Min Hu’s application because granting it will diminish the property available for forfeiture and relies partly on the fact that Min Hu has taken no steps to recover the claimed debt for over three years. She is not a judgment creditor.

[38]   Mr Wimsett KC submits that the effective control orders obtained by the Commissioner defeat the usual company structure. Ye Hua was the sole director of QDD and the 80 per cent shareholder. Her husband was the 20 per cent shareholder. Requiring Min Hu to obtain a judgment would simply and unnecessarily prolong matters. Min Hu should not have to wait for money which she has a legal right to have paid back. Mr Wimsett emphasises that there is no suggestion Min Hu has unlawfully benefitted from significant or indeed any criminal activity. Min Hu is an afterschool care provider and does not have access to significant amounts of funds. As such, waiting for forfeiture applications and orders is financially burdensome to her and her husband. There is some current urgency because Min Hu wishes to buy a house and needs access to her funds in order to raise the deposit.

[39]   Mr Wimsett submits that the law of restraint does not operate in a similar way to insolvency proceedings, where unsecured creditors are dealt with equally at the

1      As per Commissioner of Police v Briggs [2012] NZHC 2324, at [42]-[43].

2      Commissioner of Police v Burgess [2024] NZCA 46 at [24].

same time. Section 30 creates a mandatory requirement. The Court must release funds if an applicant proves they have a severable interest in restrained property. In such a situation, there is no discretion involved.

[40]   Mr Wimsett says the issues are simple: Is Min Hu owed a debt? Is she a criminal? Mr Wimsett says that the reality is Ye Hua is not going to acknowledge any additional funds available to meet the debt. The Commissioner has been unable to locate or trace other funds. Ye Hua is currently serving a sentence of imprisonment and is unlikely to be motivated by the prospect of potential bankruptcy proceedings or the liquidation of QDD.

[41]   Mr Wimsett relies on Commissioner of Police v Venkatnaidu.3 In that case there was an application to exclude from restraint, funds necessary to pay a debt. Namely legal fees incurred prior to the restraining order. It was held that the debt to the lawyer was a debt incurred in good faith for services over the preceding year and the debt could properly be met from restrained funds under s 28(1)(c).4 The Judge said that it was important to consider whether the respondent had any independent ability to meet liabilities out of unrestrained property:5

Where the respondent does have independent means, that must stand against any payment from restrained property. Were that not so Mr Venkatnaidu would be able to preserve any independent property he has, at the expense of the restrained property. Section 28(3), however, is not absolute. Much will depend on how clear it is that he does have independent means, and their extent. As to that issue there is no formal onus either way. I must resolve it as a matter of discretion.

[42]   The application for an order varying the restraining order was granted to the extent that the respondent could have recourse to the restrained funds to meet a reparation order made on sentence and to meet legal fees, subject to his ability to meet the liabilities from other sources identified.

[43]   That case was however decided under s 28 of the Act and different considerations apply to an application for relief under s 30.

3      Commissioner of Police v Venkatnaidu [2013] NZHC 3424.

4 At [26].

5 At [28].

Discussion

[44]   Section 30 of the Act confers a mandatory right to relief where certain criteria apply:

30 Excluding severable interest from restrained property

(1)  A person (other than the respondent) who has a severable interest in proposed restrained property or restrained property may apply to the court that is to consider, or has considered, the application for a restraining order to have that person’s severable interest excluded from—

(a)   a restraining order that the court may make; or

(b)   a restraining order the court has made.

(2)  The court must exclude a severable interest from proposed restrained property or restrained property at, or after, the time a restraining order is made if the applicant proves on the balance of probabilities—

(a)      that the applicant has an interest in the property to which the restraining order relates; and

(b)     if the order was or is to be made under section 24 or 25, that the applicant has not unlawfully benefited from the significant criminal activity to which the restraining order relates; and

(ba) if the order was or is to be made under section 24A, that the applicant has not unlawfully benefited from significant criminal activity in which any persons (as members of or participants in the organised criminal group that is referred to in section 24A(1)(a)) have been involved at any time; and

(c)      if the order was or is to be made under section 26, that the applicant was not involved in the qualifying instrument forfeiture offence to which the restraining order relates.

(3)  The court may exclude a severable interest from proposed restrained property or restrained property at, or after, the time a restraining order is made if it considers that it is in the public interest to do so, having regard to all the circumstances, including, without limitation, —

(a)      any undue hardship that is reasonably likely to be caused to any person by the severable interest in property being made or having been made restrained property:

(b)      the gravity of any significant criminal activity or the qualifying instrument forfeiture offence with which the property in which the person has a severable interest is associated:

(c)     the likelihood that the interest will become subject to a forfeiture order.

[45]   It is a prerequisite to the mandatory relief provisions under s 30 that the applicant has an interest in part of the restrained property. Interest is defined in the Act:6

… in relation to property of any kind (including, without limitation, restrained property or forfeited property), means–

(a)a legal or equitable estate or interest in the property; or

(b)a right, power, or privilege in connection with the property.

[46]   Further, any interest must be severable. An interest is severable if it “can easily and legally be excluded from any restraining order that is made”.7 Severable has its natural and ordinary meaning.8

[47]   The Commissioner submits that before an interest can be severed, it must be affixed to or form part of an existing interest.9 The inability to trace Min Hu’s funds is important. Simply because Min Hu deposited funds into an account controlled by Ye Hua, it does not follow that she obtained an interest in all accounts controlled by Ye Hua on a global basis. The restrained property consists of multiple bank accounts, Cryptocurrency, the proceeds of the sold vehicle and cash. Any interest Min Hu may have cannot be readily distinguished from other parties’ contributions or interests in the restrained property.

[48]   I do not agree that Min Hu has a legal interest in the restrained cash. She invested in a company expecting a return on her investment. She has a claim in contract. There is also no evidence for an equitable interest by way of an express trust. The contracts did not preclude QDD from utilising the funds in any particular manner. Nor do the facts disclose the existence of a constructive trust. There is no evidence that Min Hu contributed directly or indirectly to the property at issue. It has not been possible to trace Min Hu’s funds into the restrained property. The cash restrained is a small proportion of the cash that passed through the accounts since Min Hu made her investments. There is no evidence of the existence of a separate trust account for which Ye Hua was required to account. The contracts disclose no obligation for

6      Criminal Proceeds (Recovery) Act, s 5.

7      Commissioner of Police v Briggs [2012] NZHC 2324 at [40].

8      Commissioner of Police v Johnson [2020] NZHC 1317 at [50]; Commissioner of Police v Unknown [2024] NZHC 2016 at [72].

9      Commissioner of Police v Johnson, above n 8, at [51].

Min Hu’s funds to be held in a separate account. The evidence suggests that Ye Hua was able to deal with the funds as she saw fit and did so. Min Hu’s expectation extended to repayment of her principal plus interest, as contractually agreed.

[49]   The purpose of the Act is to ensure that criminals do not benefit from their criminal offending. Permitting funds to be released from restraint to meet the contractual obligations of a respondent does confer a benefit on the respondent. That is because the respondent is released from future contractual liability.

[50]   Min Hu does appear to be an innocent party caught up in the situation; but that is unfortunately not determinative. There are competing considerations.

[51]    In Solicitor-General v de Bruin, Ms D had an identifiable equitable interest in a restrained house, but the Court declined to release funds equivalent to the value of her interest because her interest was in the house and not the funds.10

[52]    In Crown Solicitor at Auckland v Bourne, the Court determined that the determination of interests in restrained property (a vehicle) should be made at the forfeiture stage of the process, not the restraint stage.11

[53]   In Fuati v Jin the Court of Appeal identified the appropriate pathway to be followed when a judgment debtor with restrained property claims seeks recourse to restrained property, to satisfy the debt.12

[54]   The Court of Appeal said that the point of a restraining order is to ensure the preservation of property pending resolution of forfeiture proceedings:13

A judgment debtor whose assets are proposed to be, or have been, restrained to an extent where the debtor contends they are unable to meet a judgment debt can and should apply to the court under s 28 and/or s 33 for a condition or further order permitting payment of the debt to be made.

10     Solicitor-General v de Bruin HC Auckland CIV-2002-404-3302, 22 July 2005.

11     Crown Solicitor at Auckland v Bourne [2021] NZHC 1078 at [80].

12     Fuati v Jin [2023] NZCA 165.

13 At [77].

[55]   The Court of Appeal went on to acknowledge that such an application may be opposed by the Commissioner and may be declined by the Court.14 One example given was where there are reasonable grounds to believe that the restrained property is tainted and the restraining order (like any assets forfeiture order that may follow) operates in rem and should not be interfered with to satisfy some personal liability of the debtor.15 Alternatively, the Commissioner may have evidence that the respondent has other unrestrained assets available from which he can meet the judgment debt.16

[56]   The distinction between Fuati and the present case is that in Fuati there was an actual judgment debt, whereas in the present case there is a claim. Secondly, the person applying for release of the funds from restraint is the innocent third party and not the debtor. These distinctions however do not change the main problem facing Min Hu, which is that she does not have a legal or equitable interest in the property restrained. It is not her property. It is the property of QDD, a company that owes her a debt.

[57]   Fuati suggests that the correct approach is for Min Hu to obtain judgment against QDD. Min Hu can take action to enforce the debt. The directors of QDD, being Ye Hua and Zhenhua Qian, could then apply for order for release of the funds to pay the debt.

[58]   In the present case, there are numerous interested parties who invested funds and who claim, or are likely to claim, repayment from the restrained property. Ye Hua has filed an affidavit setting out funds which she says are legitimately owed to       14 separate debtors. The total amount is almost $1.5 million. Those debts, if released from restraint, would significantly diminish the property available for forfeiture while releasing Ye Hua and QDD from contractual obligations to the debtors.

[59]   The situation is very unfortunate for Min Hu. She invested in a company expecting a financial return. Investment carries risk. It may well be that the Court will grant relief to her and other innocent investors at the forfeiture stage when

14 At [78].

15 At [78].

16 At [78].

Min Hu’s position is considered, in the context of other interested parties and the Commissioner’s interest. She does not however meet the criteria for mandatory relief under s 30 of the Act.

Result

[60]The application to vary the restraining order is declined.

Costs

[61]I make the following directions:

(a)any application for costs is to be made by memorandum to be filed and served within 10 working days of the date of this judgment;

(b)any reply to be filed and served by memorandum within a further     10 working days; and

(c)memoranda as to costs are not to exceed five pages.

[62]I will deal with the issue of costs on the papers.

Wilkinson-Smith J