Commissioner of Police v Zhang

[2020] NZHC 841

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2016-404-002608

[2020] NZHC 841

UNDER

Criminal Proceeds (Recovery) Act 2009

BETWEEN

COMMISSIONER OF POLICE

Applicant

AND

SHEN ZHANG

First Respondent

SHANSHAN LI
Second Respondent

CHUNHAI ZHANG
Third Respondent

YUEFANG XIA

Fourth Respondent

Hearing:	(On the papers)
Judgment:	30 April 2020

JUDGMENT OF VENNING J

This judgment was delivered by me on 30 April 2020 at 2.15 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Meredith Connell, Auckland

Hamlin Law, Auckland

COMMISSIONER OF POLICE v ZHANG [2020] NZHC 841 [30 April 2020]

Introduction

[1]                 The Commissioner of Police (Commissioner) seeks civil forfeiture of a number of assets which are currently restrained.

[2]                 In a minute dated 29 April 2020 the Court noted that the fixture scheduled for 18 May 2020 had been vacated given the Covid-19 emergency and made directions to ready the case for an alternative fixture. Coincidentally, on 28 April 2020 counsel had filed a joint memorandum regarding a proposed overall settlement of the proceeding. That memorandum has now been referred to me.

The criminal proceedings

[3]                 Following a trial by jury on 25 September 2017, Mr S Zhang, first respondent, was found guilty of two charges of possession of the class B drug, ephedrine, for supply and one charge of supplying the class B drug, ephedrine. He was sentenced to six years, three months’ imprisonment. The convictions related specifically to offending on 25 November 2015. The convictions involved approximately 2.7 kgs of ephedrine, which was clearly a commercial quantity.

Restraining orders

[4]                 On 23 November 2016 and in advance of the criminal trial restraining orders were made by Hinton J over the following property:

(a)29 Challinor Street, Pakuranga; registered proprietor Mr Li, the second respondent’s father and father-in-law of Mr Zhang. The order excluded the interest of China Construction Bank (New Zealand) Limited as mortgagee;

(b)31 Challinor Street, registered proprietor Mr Li, excluding the interest of ANZ Bank Limited as mortgagee;

(c)4 Tamaki Drive, Pakuranga, registered proprietor Ms Xia, Mr Zhang’s mother, excluding the interest of Westpac New Zealand as mortgagee;

(d)All funds in the following bank accounts totalling $377,975.03;

(i)four bank accounts in the name of S Zhang,

(ii)two bank accounts held jointly in the names of Mr S Zhang and Ms Li;

(iii)two bank accounts in the name of Ms Li; and

(iv)bank account in the name of Anson Zhang.

(e)2014 Toyota Land Cruiser Prado, registered to C Zhang, the third respondent; and

(f)2009 Jaguar XF, registered to Ms Li.

[5]                 On 7 June 2017 a further restraining order was made by Lang J over the interest held by Mr S Zhang in 14-16 Belvedere Court, the registered proprietors of which were Zhineng Wang and Lulu Yu.

[6]                 During the course of the proceeding Mr S Zhang and Ms Li applied unsuccessfully to have their restraining orders varied. Costs of $44,744.60 were awarded against them.

[7]                 On 20 August 2019 the Commissioner filed an application for civil forfeiture orders. The Commissioner sought a profit forfeiture order in the first instance seeking all restrained property be disposed of to satisfy the order. To the extent that any of the restrained property was not disposed of for that purpose the Commissioner sought an assets forfeiture order in relation to the remaining property.

The evidence

[8]                 The Commissioner’s case is supported by the substantive affidavits of Matthew Tapurau and Tanya Thompson. The Commissioner’s case is that Mr S Zhang derived substantial unlawful financial benefits from drug dealing and that his wife, Ms Li, his

parents Mr C Zhang and Ms Xia were aware of the offending and also derived substantial benefits. Further, Mr Li received money from unknown sources which he used to make mortgage payments over the properties in his name. The Commissioner’s case is that the scale and duration of Mr Zhang’s offending extended beyond that established in the criminal proceedings.

[9]                 On 6 May 2019 Mr S Zhang was examined pursuant to s 107 of the Act. During that examination he admitted importing ephedrine into New Zealand. He stated he received $10,000 to $20,000 for every kilogram imported and that he earned approximately $100,000 to $300,000 in total.

[10]              However, the evidence supports a conclusion that Mr Zhang was involved in considerably more offending than that. Mr Tapurau confirms that for the seven years leading up to the application for the restraining orders in 2016 inquiries with the Inland Revenue revealed that the respondents declared either no or minimal income. For example, for the 2009 to 2016 tax years Mr S Zhang declared a total income of

$174,422 (an average of less than $22,000 a year). During the same period Ms Li declared a total income of $81,513 (just over $10,000 a year) and Mr C Zhang and Ms Xia did not declare any income, with the exception of Ms Xia’s declared rental income of $9,727.

[11]              Despite the lack of income the respondents had interests in four properties, substantial bank funds and two expensive cars. Mr Tapurau’s analysis of the relevant bank accounts identified unexplained deposits totalling in excess of $1,201,000. In addition, the respondents apparently earned approximately $212,160 in rental income from tenants in 29 Challinor Street and 4 Tamaki Bay Drive, but apart from Ms Xia’s declaration of $9,727 in rental income for the 2015 and 2016 tax years the respondents have not declared any of that income.

[12]              The Commissioner’s assessment of the quantum of the respondents’ unlawful benefit jointly from the criminal offending stands at in excess of $6,589,000. That includes the value of the ephedrine imported and seized; the unexplained sources of funds deposited into their bank accounts; capital gains from the sale of 29 and 31 Challinor Street; the capital gain of other properties at 56 Prince Regent Drive and 6

Seven Oaks Drive; an increase in value of 4 Tamaki Bay Drive; and the total rental income.

[13]              On the basis of the evidence of Mr Tapurau and Ms Thompson the Court is satisfied that the restrained property is tainted property. Funds from unexplained sources were used for the purchase of the various properties, to service the mortgages, or otherwise to fund the purchase of the vehicles. With the exception of the Belvedere Court property the properties are in the name of the respondents. The Belvedere Court property is held in the name of Mr Wang and Ms Yu. Mr S Zhang had initially paid a deposit on the property using the proceeds of sale of 29 Challinor Street but the restraining orders prevented him from completing the purchase. Mr Wang and Ms Yu completed the purchase.

[14]              Although the respondents have failed to file any substantive affidavits to support their case they claim that some funds from the proceeds of the sale of Mr C Zhang’s property in China were used for the purchase of 29 Challinor Street. All respondents (apart from Mr S Zhang) also deny any knowledge of the significant criminal activity by Mr Zhang.

[15]              The Commissioner and the respondents and Mr Li have agreed to settle the matter of civil forfeiture of assets, subject to the Court’s approval under s 95 of the Criminal Proceeds (Recovery) Act 2009. Z Wang and Lulu Yu also have joined in a memorandum confirming they consent to the orders to the extent it affects the Belvedere Court property.

Proposed settlement

[16]The proposed settlement is that:

(a)there be an assets forfeiture order over all of the restrained property;

(b)the Commissioner would release $150,000 from the bank funds to be dealt with between the respondents and Mr Li as they see fit on the basis that from that $150,000 the indemnity costs order of $44,744.60 is to be met;

(c)the Commissioner will not pursue his application for profit forfeiture orders against any of the respondents;

(d)the respondents abandon all claims under the Act to the property;

(e)costs in relation to all matters lie where they fall (apart from the payment of the outstanding indemnity costs order of $44,744.60.

1. The approximate value of the property being forfeited is $1,928,562.72.

Court approval

1. The Court’s approval to the settlement is required under s 95 of the Act:

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.

[19]              Having reviewed the file I am satisfied that the settlement is consistent with the purposes of the Act and the overall interests of justice.

[20]I have come to that conclusion for the following reasons:

(a)although the hearing scheduled for 18 May 2020 has had to be vacated an alternative four day fixture was to be allocated for this case. There will be a significant saving of time and cost if the proceedings can be settled without the need for a fixture;

(b)on the evidence before the Court the Commissioner has a strong case that the restrained assets are tainted and ought to be forfeited by way of asset forfeiture orders;

(c)while the Commissioner considers there is a good case to show the respondents benefited from significant criminal activity to be subject to a profit forfeiture order he is not aware of any other major assets that could be disposed of to meet such an order;

(d)there is a possibility, albeit in this case slight, that the respondents may obtain a limited measure of relief from forfeiture. On that basis the return of approximately net $105,000 to Mr Li to be dealt with between the respondents and Mr Li as they see fit is reasonable;

(e)while the respondents may say they contest the Commissioner’s case there is no substantive evidence to support their challenges;

(f)the agreed settlement allows certainty and control to all parties; and

(g)there will be a saving in cost to the judicial system overall.

[21]              For the above reasons the Court is satisfied that the proposed settlement meets the purposes of the Act and the overall interests of justice in this particular case.

[22]The Court makes the following orders to give effect to the settlement:

(a)Further orders associated with restraining orders, under s 34 of the Act:

(i)from the Bank Funds (set out in paragraph (a)(ii) below), the following sums are released from the restraining orders, and the Official Assignee is to pay them, as soon as reasonably practicable, as indicated:

(A)$105,255.40 to Mr Li (to a bank account nominated by him); and

(B)$44,744.60 to the Commissioner of Police (to a bank nominated by him);

(ii)the Bank Funds are the funds formerly held in the following bank accounts, totalling $377,975.03, plus all interest earned on them:

(A)bank accounts held in the name of Shen Zhang as follows: 12-3034-0240022-00; 12-3034-0240022-50; 01-1841-0116088-46; 01-1841-0116088-00;

(B)bank accounts jointly held in the names of Shen Zhang and Shanshan Li as follows: 06-0991- 0251571-00; 06-0991-0251571-01;

(C)bank accounts held in the name of Shanshan Li as follows: 03-0104-0196589-000; 03-0104-0196589- 001; and

(D)bank account 03-1508-0064712-001 held in the name of Anson Zhang.

(b)Assets forfeiture orders, under s 50(1) of the Act: the following property vests in the Crown absolutely and is in the Official Assignee’s custody and control:

(i)all interests in the property located at 29 Challinor Street, Pakuranga, Manukau, Auckland, record of title unique identifier NA3D/298, registered proprietor Kaiti Li, excluding the interest of China Construction Bank (New Zealand) Ltd as mortgagee (including the proceeds of its sale);

(ii)all interests in the property located at 31 Challinor Street, Pakuranga, Manukau, Auckland, record of title unique identifier NA1996/53, registered proprietor Kaiti Li, excluding the interest of ANZ Bank New Zealand Ltd as mortgagee (including the proceeds of its sale);

(iii)all interests in the property located at 4 Tamaki Bay Drive, Pakuranga, Manukau, Auckland, record of title unique identifier NA1040/290, registered proprietor Yuefang Xia, excluding the interests of Westpac New Zealand Ltd as mortgagee (including the proceeds of its sale);

(iv)the Bank Funds, plus all interest earned on them (with the exception of the sums set out in paragraph (a)(i) above);

(v)the proceeds of sale of a black 2014 Toyota Land Cruiser Prado, previously registered to Chunhai Zhang, registration HKY966 plus all interest earned on the proceeds;

(vi)the proceeds of sale of a silver 2009 Jaguar XF, previously registered to Shanshan Li, registration GJC926 plus all interest earned on the proceeds; and

(vii)Shen Zhang’s interest in the property at 14 – 16 Belvedere Court, West Harbour, Auckland, record of title unique

identifiers NA92A/274 and NA92A/275 (Belvedere Court), registered proprietors Zhineng Wang (Mr Wang) and Lulu Yu (Ms Yu).

(c)Additional orders necessary and convenient for giving effect to the assets forfeiture order in respect of Shen Zhang’s interest in Belvedere Court, under s 59 of the Act:

(i)Shen Zhang has a 16.19 percent interest in Belvedere Court;

(ii)when discharging the assets forfeiture order under s 82(1) of the Act, the Official Assignee shall:

(A)give Mr Wang and Ms Yu the first option to purchase Shen Zhang’s interest in Belvedere Court, at fair market value (the option to be open for them to exercise for one month after the date these orders are made);

(B)sell Shen Zhang’s interest in Belvedere Court to Mr Wang and Ms Yu, provided they wish to purchase it and provided the Official Assignee is satisfied the sale price to them represents fair market value; and then

(C)forfeit the sale proceeds in accordance with the assets forfeiture order set out in paragraph (b)(vii) above (after the Official Assignee’s reasonable costs in effecting the sale are deducted from the sale of proceeds);

(iii)in the event Mr Wang and Ms Yu do not wish to purchase Shen Zhang’s interest in Belvedere Court, or the Official Assignee is not satisfied that the sale price to them represents fair market value, the Official Assignee shall:

(A)sell Belvedere Court for its fair market value; and then

(B)first, deduct from the sale of proceeds his reasonable costs in effecting the sale, including any decontamination costs;

(C)second, pay Mr Wang and Ms Yu 83.81% of the net sale proceeds;

(D)third, forfeit the remaining 16.19% of the net sale proceeds in accordance with the assets forfeiture order set out in paragraph (b)(vii) above;

(iv)for the purposes of effecting the sale of Belvedere Court, the Official Assignee (including a person delegated his function and powers under the Act) has the power to execute any deed or instrument in the name of the registered proprietor(s) of the properties, and to do anything necessary to give validity and operation to the deed or instrument.

(d)Costs: costs lie where they fall in relation to all matters as between the Commissioner, the respondents and Mr Li (except for the outstanding indemnity costs order of $44,744.60).

[23]In addition the Court records:

(a)The Commissioner will not pursue his application for profit forfeiture orders against any of the respondents in relation to the significant criminal activity alleged in these proceedings; and

(b)the respondents and Mr Li abandon all claims, under the Act or otherwise, to the property to be forfeited.

[24] The Court also records Mr Wang and Ms Yu consent to the orders set out at [22](c) above in relation to Belvedere Court.

[25]              For the sake of completeness I confirm that once the orders are sealed the proceeding will be at an end.

Venning J