Yan v Commissioner of Police
[2015] NZCA 576
•1 December 2015 at 10.00 am
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NOTE: PURSUANT TO CONSENT ORDERS MADE IN THE HIGH COURT BY VENNING J ON 24 NOVEMBER 2014, PUBLICATION OF DETAILS OF RESTRAINING AND ANCILLARY ORDERS CONTAINED IN [114]–[121] OF THIS JUDGMENT PROHIBITED.
IN THE COURT OF APPEAL OF NEW ZEALAND
CA683/2014 [2015] NZCA 576
BETWEEN WILLIAM YAN
First Appellant
WEI YOU
Second AppellantAND
COMMISSIONER OF POLICE Respondent
CA684/2014
BETWEEN ZHIHONG XU First Appellant
LIJING ZENG Second Appellant
ANDCOMMISSIONER OF POLICE Respondent
Hearing: 19 August 2015 Court:
French, Simon France and Asher JJ
Counsel:
D P H Jones QC and J K Goodall for Appellants in CA683/2014
P F Wicks QC and S J Lance for Appellants in CA684/2014
M R Harborow and K Eastwood for RespondentJudgment:
1 December 2015 at 10.00 am
JUDGMENT OF THE COURT
YAN v COMMISSIONER OF POLICE [2015] NZCA 576 [1 December 2015]
A The appellants’ application in CA683/2014 for leave to adduce two
affidavits in reply dated 21 July 2015 is granted.
B The appeals in CA683/2014 and CA684/2014 are dismissed.
CThe appellants in both appeals must pay the respondent costs for one standard appeal on a band A basis with usual disbursements.
REASONS
Para No
French and Simon France JJ [1]
Asher J (dissenting in relation to CA684/2014) [140]
FRENCH AND SIMON FRANCE JJ
(Given by French J)
Table of Contents
Para No
Introduction [1] Legislative Framework [4] Factual background [10] Application for leave to adduce new evidence on appeal [17] What is the correct approach to be taken in deciding
applications for an undertaking under s 29? [22]
Arguments on appeal [24] Our view [27] The correct approach to s 29 [39]
The delay in this case [49] The strength of the Commissioner’s case [62] Shares in Mega Limited
The facts before the High Court [67]
The decision in the High Court [68] Developments since the High Court decision [69] Arguments on appeal [70] Our view [71]
Shares in FM International (FMI)
The facts before the High Court [74]
The decision of the High Court [77]
Arguments on appeal [78]
Our view [79]
Interest in McClymonts Road property
The evidence before the High Court [81]
The decision of the High Court [87] Developments since the High Court decision [90] Arguments on appeal [97] Our view [99]
Right to share in profits generated by Gallinas Ltd
The evidence before the High Court [106]
The decision of the High Court [110] Arguments on appeal [112] Our view [113]
GEP loan funds [114]
The bank accounts in the name of Mr Xu and Ms Zeng
The evidence before the High Court [122]
The High Court decision [129] Arguments on appeal [131] Our view [132]
Outcome [136]
Introduction
[1] Under s 29(1) of the Criminal Proceeds (Recovery) Act 2009 (the Act), a court may require the applicant for a restraining order to give an undertaking to pay damages or costs in respect of the restrained property.
[2] The appellants asked the High Court to exercise its powers under s 29 to require an undertaking from the Commissioner of Police (the Commissioner). Justice Lang declined that application.1 The appellants now appeal his decision.
[3] The key issues raised by the appeal are:
(a) What general principles should be applied in determining an application under s 29?
(b) On the facts of this case, was Lang J wrong to refuse to require an undertaking?
1 Commissioner of Police v Yan [2014] NZHC 2688.
Legislative framework
[4] The Act provides for the restraint and forfeiture of property derived as a result of significant criminal activity without the need for a conviction.
[5] The purpose of the Act is set out in s 3:
3 Purpose
(1) The primary purpose of this Act is to establish a regime for the forfeiture of property—
(a) that has been derived directly or indirectly from significant criminal activity; or
(b) that represents the value of a person’s unlawfully derived
income.
(2) The criminal proceeds and instruments forfeiture regime established under this Act proposes to—
(a) eliminate the chance for persons to profit from undertaking or being associated with significant criminal activity; and
(b) deter significant criminal activity; and
(c) reduce the ability of criminals and persons associated with crime or significant criminal activity to continue or expand criminal enterprise; and
(d) deal with matters associated with foreign restraining orders and foreign forfeiture orders that arise in New Zealand.
[6] Under the Act, there are three types of forfeiture orders: instrument of crime forfeiture orders, assets forfeiture orders and profit forfeiture orders.2 Of the three types, only the latter two are relevant for present purposes. An assets forfeiture order is obtained over property that is “tainted”,3 tainted property being defined as property acquired as a result of, or directly or indirectly from, significant criminal activity.4 A profit forfeiture order operates to forfeit any property (not just tainted property) belonging to a person who has received an unlawful benefit from
significant criminal activity.5
2 Criminal Proceeds (Recovery) Act 2009, ss 70, 50 and 55 respectively.
3 Section 50(1).
4 See s 5(1); see further s 6, which defines “significant criminal activity”.
5 Sections 53–55. The value of the property to be restrained is assessed according to the value of the unlawful benefit as established in the application for the order.
[7] In order to preserve the property pending a hearing as to whether the property should be forfeited, the Commissioner may apply to the court for a restraining order.6
Restraining orders have been described by this Court as temporary orders that give the police time to gather further evidence.7 They may lead to forfeiture but only on the completion of further processes.8 In effect, restraining orders are a holding measure. They place the property in question under the control of the Official Assignee and prevent any person dealing with it, except with the approval of the court. It is not necessary for the police to apply for restraining orders before applying for forfeiture but it is common practice to do so.9
[8] Subpart 2 of pt 2 of the Act regulates the granting of restraining orders. Sections 24 to 26 confer power on the courts to grant a restraining order in respect of either specific property, all or part of a respondent’s property, or an instrument of crime. The court may only grant a restraining order if satisfied there are reasonable grounds to believe the property in question is tainted, or the respondent has unlawfully benefited from significant criminal activity and owns or effectively
controls the property in question.10
[9] Once an on notice restraining order is made, it remains in force for a period of one year unless the forfeiture proceedings associated with the relevant property are resolved in the meantime, in which case the restraining orders automatically expire.11 In the event the forfeiture proceedings are not resolved in the 12-month period, the Commissioner can apply to the court for an extension of the duration of the restraining order.12 Any extension can only be for a period not exceeding
12 months. There can be more than one extension.
6 Sections 21–22.
7 Vincent v Commissioner of Police [2013] NZCA 412 at [47].
8 At [47].
9 See s 11, which confirms a restraining order is not a prerequisite for obtaining a forfeiture order.
10 Sections 24(1) and 25(1) respectively.
11 Section 37(1).
12 Section 41.
Factual background
[10] Mr Yan is wanted in China for the alleged embezzlement in that country of an estimated NZD $129 million. He and his partner, Ms You, arrived in New Zealand in December 2001. In 2008 they obtained New Zealand residency and citizenship.13
[11] The Commissioner alleges that since arriving in this country Mr Yan and Ms You have engaged in large-scale money laundering of the proceeds of the fraud committed in China. According to the Commissioner, between 2002 and 2011
Mr Yan and Ms You accumulated a significant asset base in New Zealand and, together with a number of third parties, have been associated with or involved in transactions involving over $40 million.
[12] On 19 August 2014 the Commissioner obtained restraining orders without notice for a global restraint over all property owned or controlled by Mr Yan and Ms You, as well as a restraint in respect of various specific items the Commissioner believed were under the effective ownership and control of Mr Yan and Ms You. The items in question included bank accounts in the name of Ms Zeng and Mr Xu, the appellants in CA684/2014.
[13] After obtaining the without notice orders, the Commissioner applied on
25 August 2014 on notice for orders extending the period within which the restraining orders are to remain in force. That application is opposed and is to be heard in June of next year. Pending determination of the on notice application, the without notice restraining orders remain in force.14
[14] On 9 September 2014 Mr Yan and Ms You applied for an order under s 29 requiring the Commissioner to provide undertakings that he will meet any damages or loss they might suffer, including lost opportunities, as a result of the continued operation of the restraining orders in relation to some of the restrained property. A similar application was also made by Mr Xu and Ms Zeng as interested parties in
relation to the monies in the bank accounts in their names.
13 As mentioned later, Mr Yan was subsequently prosecuted for alleged immigration offences. The Crown was unable to proceed on some charges and Mr Yan was acquitted by Brewer J on the remaining counts: R v Ming [2012] NZHC 1205.
14 By virtue of s 39(2).
[15] The applications for an undertaking were heard by Lang J. For reasons we will address in greater detail later in this judgment, Lang J declined to order the Commissioner to provide an undertaking.15
[16] Dissatisfied with that outcome, both sets of appellants have appealed to this
Court.
Application for leave to adduce new evidence on appeal
[17] The appellants were given leave by this Court to adduce updating evidence regarding developments that have occurred since the High Court decision was issued on 31 October 2014.16 The Commissioner was also granted leave to adduce evidence in response.
[18] Ms You duly filed an affidavit.
[19] On 29 May 2015 the Commissioner filed two affidavits in response, one from Detective Senior Sergeant Hamilton, the officer in charge of criminal proceeds recovery proceedings, and the other from a real estate agent, Mr Bruce Whillans, who had previously dealt with Mr Yan. The affidavits contained what amounted to an allegation that Mr Yan was deliberately engineering a situation in which a commercial property transaction would be thwarted, so as to be able to claim compensation from the Commissioner by pointing to tangible loss. This drew a strong challenge from the appellants to the admissibility of some of the evidence and an application by the appellants for leave to adduce further affidavits, dated
21 July 2015, responding to that allegation.17
[20] The grounds advanced by the appellants for objecting to the Commissioner’s
new evidence are:
(a) it is not evidence properly in reply;
15 Commissioner of Police v Yan, above n 1.
16 Yan v Commissioner of Police CA683/2014, 8 May 2015 (Minute of Randerson J).
17 One from Mr Yan; one from Mr Paul Bublitz, representing the counterparty to the transaction in question.
(b) the evidence is incorrect; and
(c) the evidence is irrelevant because it engages questions of causation of loss, which ought properly to be addressed at a later stage.
[21] We have decided to admit the Commissioner’s new evidence as well as grant the appellants leave to adduce the two further affidavits. In our view, contrary to the appellants’ submissions, the Commissioner’s evidence can properly be characterised as evidence in reply because it relates to events detailed in Ms You’s updating affidavit and to the appellants’ assertion that those events exemplify the risk of loss created by the restraining orders. As for its relevance, that turns in large measure on our interpretation of s 29, which is the key issue on the appeal. Finally, the fact the evidence is disputed is not itself a reason for refusing to admit it. The allegation is, however, a serious one. As it has transpired, we consider we are not in a position to resolve the conflict and, in any event, are not required to do so in order to dispose of this appeal. We have therefore noted the allegation but have not relied on it in reaching our conclusions.
What is the correct approach to be taken in deciding applications for an undertaking under s 29?
[22] Section 29 states:
29Undertakings as to damages or costs in relation to restraining orders
(1) A court may require an applicant for a restraining order, or an applicant for an extension of the duration of a restraining order under section 41, to give satisfactory undertakings with respect to the payment of damages or costs, or both, in relation to the making, operation, or extension of the duration of the restraining order.
(2) A court may decline to make a restraining order or extend the duration of a restraining order if the applicant for the order or extension fails to give the court the undertakings with respect to the payment of damages or costs, or both, that the court requires.
(3) Any expense incurred by the Crown in satisfaction of an undertaking given on behalf of the Crown under subsection (1) may be incurred without further appropriation than this section.
[23] As Lang J noted in his decision, there is very little direct authority regarding the principles to be applied when considering an application under s 29.18 As the Judge also noted, previous cases have stated the power conferred by s 29 is “wholly discretionary” and that the discretion “should be exercised according to considerations of justice and fairness and to diminish the possibility of oppression and injustice”.19
Arguments on appeal
[24] On appeal, counsel for the appellants, Mr Jones QC and Mr Wicks QC, agreed with this broad statement of principle but argued that the fact the courts have never made an order under s 29 indicates an unduly restrictive approach is being taken.20 Counsel emphasised the presumption of innocence, 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; that is, should the Commissioner later fail to obtain a forfeiture order. It was submitted it would be unjust should the Commissioner not be held to account and that Parliament clearly intended the giving of an undertaking to be an important check or balance on his or her powers.
[25] Initially in developing that submission, counsel contended the giving of an undertaking should be the norm in every case, as it is in applications for interim injunctions or freezing orders in other civil proceedings. During oral argument, counsel modified this position. Instead, the position advanced was that a distinction should be drawn between business or dynamic assets, and personal and fixed assets. Counsel contended that in cases involving business or dynamic assets there will
always be the possibility of loss (including compliance costs),21 and therefore there
should be a presumption the court will require an undertaking.
18 Commissioner of Police v Yan, above n 1, at [5].
19 Citing Commissioner of Police v Stepping Stone Finance Ltd [2013] NZHC 665 at [54], citing
Director of Public Prosecutions (WA) v Mansfield [2006] WASC 255; State of Queensland v Rodd [2004] QSC 312. See also Commissioner of Police v G [2012] NZHC 465 at [41] and Commissioner of Police v C [2012] NZHC 435 at [42].
20 Mr Harborow for the Commissioner told us an undertaking has been provided voluntarily on one occasion.
21 Counsel pointed out that every consultation with the Commissioner/Official Assignee and every variation of a restraining order is a cost to the business.
[26] In counsel’s submission, the giving of the undertaking would not only provide a pathway for redress in the event of loss, but would also have a salutary effect on the behaviour of the Commissioner during the period of the restraint. Counsel talked about the “sea anchor” effect of the Commissioner and the Official Assignee on a business and argued that the prospect of a damages claim for losses suffered would provide a useful check on inflexible or unreasonable decision-making and incentivise responsible management.
Our view
[27] In our view, the argument there should be a presumption based on a distinction between fixed and dynamic assets puts an unwarranted gloss on the clear wording of s 29. The discretion conferred by s 29 is broad and untrammelled. Parliament must be taken to have done that deliberately and it would, in our view, be wrong in principle to fetter or qualify the discretion by adding words that are simply not there.
[28] The appellants’ arguments also, in our view, take insufficient account of two
other factors.
[29] First, the arguments overlook the existence of other key provisions in the Act designed to ameliorate the position of a person whose property has been restrained. Section 28, for example, empowers the court to make a restraining order subject to provision for the respondent’s reasonable living costs and reasonable business expenses to be met out of the restrained property. That power has in fact been exercised in this case, and further orders have also been obtained under s 34,
allowing Mr Yan and Ms You to operate an investment company.22
[30] The powers conferred on the court to grant orders following the making of a restraining order under s 34 are further elaborated by s 35. Section 35 includes various types of orders that may be made. These include the granting of a
supervisory jurisdiction over the Official Assignee and the exercise of his or her
22 Commissioner of Police v Yan [2014] NZHC 3367 at [74]–[79].
powers and duties in relation to restraining orders and the preservation of the value of restrained assets.23
[31] Most importantly of all, there is the ability under s 35(a) to vary restraining orders. Variations are commonplace. In practice, they are usually effected by consent orders, as indeed has happened on several occasions in the present case. There is no evidence to support claims the Commissioner generally acts in an arbitrary and unreasonable way. On the contrary, the experience of the courts is that, generally speaking, the Commissioner has demonstrated a willingness to be practical and responsive to changing circumstances.
[32] The role of s 29 and the fact undertakings have seldom been required must be seen against that legislative background and general practice.
[33] Second, the appellants’ arguments take insufficient account of the important public policy considerations at play under the Act. The Commissioner is not an ordinary civil litigant. He or she is acting in the public good with a law enforcement purpose designed to combat significant criminal activity, in particular organised crime. In the digital age and in a global economy, those imperatives are arguably more pressing than ever.
[34] While proceedings under the Act are civil proceedings, they are, because of these public policy factors, distinguishable from ordinary interlocutory measures in civil proceedings such as interim injunction and freezing order applications.
[35] The problems of adopting the sort of presumptive approach advocated by the appellants were highlighted in the case of Ms Zeng and Mr Xu, who are foreign exchange dealers. An undertaking would require the Commissioner to effectively underwrite the risks of a number of speculative transactions — an unattractive result, which we are confident Parliament would not have contemplated or intended to
occur as a matter of course.
23 Section 35(e). The Official Assignee is empowered by the Act to do anything reasonably necessary to preserve the value of the property: s 80.
[36] Counsel for the appellants acknowledged the relevance of these public policy considerations but suggested these could primarily be taken into account at what they termed the “second stage”, being the time the undertaking came to be enforced, rather than when deciding whether to impose one in the first place. Thus, it was suggested, in deciding whether to enforce the undertaking, the court could take into account that the Commissioner had acted reasonably, having regard to his law enforcement duties.
[37] We disagree. In our view, it would be wrong to relegate public policy considerations to the second stage. To do so ignores the chilling effect of requiring an undertaking in the first place. Unlike Rodney Hansen J in Commissioner of Police v Stepping Stone Finance Ltd,24 we consider it is a realistic possibility the Commissioner would become excessively cautious and be inhibited from seeking restraining orders because of the spectre of having to face a damages claim. That would clearly not be in the public interest. Further, the enforcement of an undertaking should be a relatively straightforward exercise. The approach advocated
by the appellants would result in uncertainty and protracted and unnecessarily complex enforcement litigation, undermining the value of the undertaking.
[38] In our view, a more discerning approach is required. We consider the correct approach to s 29 is as follows.
The correct approach to s 29
[39] There is a strong public interest in preventing criminals from benefiting as a result of significant criminal activity and, accordingly, a strong public interest in preserving tainted property prior to forfeiture being reasonably obtainable and preventing dissipation of those assets. On the other hand, a restraining order represents a significant infringement of property rights and has the potential to cause considerable injustice should it transpire the order was not justified. Section 29
provides a potential safeguard against the latter injustice.
24 Commissioner of Police v Stepping Stone Finance Ltd, above n 19, at [55].
[40] Having regard to the breadth of the wording of s 29, it is unhelpful to go beyond the general statement of principle endorsed by Lang J in this case, namely that the discretion “should be exercised according to considerations of justice and fairness and to diminish the possibility of oppression and injustice”.25 The inquiry is essentially fact-dependent and the weight to be afforded any particular factor, for example the fact business assets are involved, will necessarily vary from case to
case. There are no presumptions either way.
[41] Relevant factors to be taken into account include:
(a) the personal circumstances of the respondent; (b) delay;
(c) the nature of the asset;
(d) the likelihood of loss being suffered as a result of the restraint; (e) the extent of any likely loss;
(f) the conduct of the Commissioner;
(g) the strength of the Commissioner’s case; and
(h) the existence of a meaningful alternative avenue of redress. [42] We emphasise that this list is not intended to be exhaustive.
[43] In his separate judgment, Asher J would include another factor, namely the fact the applicant for an undertaking is a non-party. We agree that might well be a factor favouring the giving of an undertaking where, for example, there is evidence suggesting the non-party has been innocently caught up in events beyond their
control, but not where there is evidence of complicity.
25 Above n 1, at [5].
[44] As regards delay, it will usually be necessary to inquire into the reasons for any delay. However, as counsel for the Commissioner, Mr Harborow, accepted, delay of itself may, in an appropriate case, be an operative factor regardless of the cause of the delay.
[45] Finally for completeness, we note that counsel referred us to a number of authorities from other jurisdictions, notably Australia, Canada and England. Of those three jurisdictions, the various Australian forfeiture regimes operating at both Commonwealth and state levels are closest to ours. A survey of Australian authorities suggests undertakings are routinely given or ordered as a condition of restraining orders. This was understandably relied on by counsel for the appellants, who urged us to adopt the same approach. However, some care is required because, while there are similarities between the various Australian regimes and the Act, there are also important differences. In some instances in Australia, the restraining orders
are made by magistrates,26 the pre-requisites for obtaining them are less onerous than
under the Act,27 the effect of a restraining order does not automatically vest property in a third party equivalent to the Official Assignee,28 in some situations the state in question has power to sell or dispose of property subject to a restraint,29 and there are not the same provisions relating to variations.30 It was also not evident from reading the cases that Australian authorities adopt the same practices relating to variations as the Commissioner.31
[46] In our view, nothing in the Australian authorities would justify this Court adopting a presumptive approach in favour of giving an undertaking.
26 Confiscation of Criminal Assets Act 2003 (ACT), ss 238–239; Confiscation Act 1997 (Vic), ss 36H(3) and 36K; and Criminal Property Confiscation Act 2003 (WA), ss 34 and 101(3).
27 Criminal Assets Recovery Act 1990 (NSW), ss 10A(5) and 10A(9); Confiscation Act (Vic), ss 36K and 36M; and Criminal Property Confiscation Act (WA), s 34(2).
28 Proceeds of Crime Act 2002 (Cth), s 38; Criminal Assets Recovery Act (NSW), s 10B(2);
Confiscation Act (Vic), s 36W(6)(i) and (j); and Criminal Property Confiscation Act (WA), ss
45(c), 89(1) and 96.
29 Proceeds of Crime Act (Cth), s 47; Confiscation of Criminal Assets Act (ACT), s 22(b) and
57–61; Criminal Assets Recovery Act (NSW), s 14; Criminal Property Confiscation Act (WA), ss 93 and 94.
30 Proceeds of Crime Act (Cth), ss 23, 24 and 39; Confiscation of Criminal Assets Act (ACT), ss 37–39; Criminal Assets Recovery Act (NSW), ss 10B(3) and 10C, ss 12, and ss 16A–16B; and Confiscation Act (Vic), s 36H(4)–(5) and 36W(6).
31 See McCleary v Director of Public Prosecutions (Cth) (1998) 20 WAR 288 (WASC), and State of Queensland v Rodd, above n 19.
[47] Mindful of the principles articulated in [39]–[44] above, we turn now to consider the facts of this case. We do so primarily on an asset by asset basis but only because that was the way the case was argued. That will not necessarily be required in every case. In most cases, all that will usually be required is for the judge to stand back and undertake a global assessment.
[48] Before turning to the five specific items of property at issue, it is convenient to address the question of delay because that is a common factor in relation to all five assets. For the same reason, it is also convenient to address separately the strength of the Commissioner’s case.
The delay in this case
[49] The without notice application for restraining orders was made on
18 August 2014. The High Court granted the orders the following day on
19 August 2014. The Commissioner then filed an on notice application for restraining orders on 25 August 2014, within the statutory period prescribed by s 39.
[50] As mentioned, the application for restraining orders is to be heard in June of next year.
[51] The delay of almost two years between the filing of the on notice application and the hearing is unsatisfactory. The Commissioner is under a statutory duty to prosecute the application with all due diligence, while the court is also required to ensure the application is dealt with speedily.32 However, the appellants themselves must bear some responsibility for the delay. While they sought undertakings as a condition of the restraining orders at an early stage, it was only in late May 2015 that they indicated they would be challenging the grounds of the restraining orders.
[52] Contributing to the delay in having the matter set down for hearing was a belief that if the restraining order application were to be determined before the application for an undertaking, that might deprive the court of any jurisdiction under
s 29 to require an undertaking. That concern — shared by all counsel — was based
32 See ss 39(3) and (4).
on the wording of s 29, which refers to “an applicant for a restraining order”. The concern was that if the restraining order application were to be determined and restraining orders made, the Commissioner would no longer be “an applicant for a restraining order” and therefore s 29 could not apply.
[53] That would seem a surprising result having regard to the fact s 29 does not impose any express time limit on when an undertaking may be sought or required. We assume counsel’s interpretation was based on the existence of the second category of applicant in s 29 — “applicant for an extension of the duration of a restraining order” — which would arguably be unnecessary if the phrase “applicant for a restraining order” encompassed applications both before and after a restraining order was made. Further support might also be derived from s 29(2). Section 29(2) states that if the applicant fails to give the undertaking, the court may decline to make a restraining order or extend its duration. Those consequences obviously have no application at the stage where the restraining order has already been made and before there is a need to seek an extension.
[54] In our view, however, the better interpretation is that the phrase “applicant for a restraining order” is simply a descriptive phrase identifying who it is that has to give the undertaking. Generally speaking, an applicant does not cease being “the applicant” just because the order for which they have applied has been made. Once an applicant, always an applicant. Further, we know of no policy reason why Parliament would have wanted to impose any such temporal limitation. Indeed, imposition of a time limit would seem inconsistent with the legislature’s obvious concern to preserve flexibility and provide safeguards for a respondent. In the absence of any express time restriction in s 29, we consider it would be wrong to imply one.
[55] We have examined other provisions in the Act that use the phrase “applicant for a restraining order” to see what light (if any) they may shed on the interpretation of s 29. Unfortunately, there are only two post-restraining order provisions that use the phrase and they are ambivalent. One talks about “a successful applicant for a restraining order”, which would support a narrow view of the time at which the s 29
jurisdiction applies.33 The other uses the phrase “an applicant for a restraining order”, which would support the wider interpretation.34
[56] We have also considered what significance should attach to the use of the word “operation” in s 29. Section 29 refers to “satisfactory undertakings with respect to the making, operation or extension of the duration of the restraining order”.35 At first blush, reference to “operation” might seem to support s 29 applying during the life of a restraining order. However, in our view, the phrase does not take matters much further. The most likely interpretation is that it was simply
intended to be a description of the scope of the liability arising under the undertaking, that is, that the undertaking covers not only the loss arising from the making of the order, but also its operation. Seen in that light, the reference to “operation” of the restraining order does not inform the issue of the time at which s 29 applies.
[57] Ultimately, it is unnecessary for us to reach a concluded view on this issue for the purposes of this appeal. That is for three reasons. First, because we did not hear full argument on it. Second, because we are satisfied that even if there is no jurisdiction under s 29 to require an undertaking during the life of a restraining order, there would be jurisdiction under s 33. Section 33 confers a very broad power on the court to make further orders in relation to restrained property at any time. We acknowledge that the list of types of further orders that may be made includes “an order relating to the carrying out of any undertaking given under section 29” and
does not include an order requiring an undertaking.36 However, the list is not
exhaustive,37 the power to make further orders is a very broad one, and as a matter of policy there is no reason why, if it was in the interests of justice for an undertaking to be required, the court should not be able to make such an order. On the contrary, there is every reason why it should. The underlying purpose of the “further orders”
power is to ensure flexibility and protect the parties.
33 Section 32(1). Emphasis added.
34 Sections 33–35 set out the procedural requirements for obtaining further orders.
35 Emphasis added.
36 Section 35.
37 Section 34(1).
[58] The third reason it is unnecessary for us to reach a concluded view is that the relevance of the interpretation point for present purposes is simply that it provides a reasonable explanation for most of the current delay. A minute of Venning J in the High Court dated 10 September 2014 records counsel’s advice that, but for the jurisdiction issue, Mr Yan and Ms You would have been prepared to consent to the restraining orders.
[59] More concerning to us at the hearing was that the Commissioner had still not filed an application for forfeiture orders. We were told he was resisting doing so on the grounds of the extraordinary complexities of this case, involving as it does the investigation of highly intricate business transactions concluded both in New Zealand and in an overseas jurisdiction, multiple entities and vast sums of money. We appreciate the difficulties but there must come a point when the continued delay becomes oppressive. Mr Yan and Ms You face the prospect of having most, if not all, of their property restrained for several years to come.
[60] At this stage, we do not yet consider delay to be an operative factor. However, if the delay were to continue for any significant period without progress towards a forfeiture hearing, then we accept in such a situation delay could of itself afford grounds for requiring an undertaking.
[61] Since the hearing before us, there has been a further important development bearing on the issue of delay. The High Court has directed the Commissioner to file the application for forfeiture by 29 April 2016, failing which the restraining orders will be discharged and set aside.38
The strength of the Commissioner’s case
[62] In support of the application for an undertaking, counsel pointed out that the underlying significant criminal activity relied upon by the Commissioner in this case relates to events in China and the evidence of Chinese witnesses. Counsel contended
these witnesses have already been found to be unreliable and wanting. This, it was
38 Commissioner of Police v Yan [2015] NZHC 2544.
submitted, places the Commissioner’s assertions in “a far more unstable situation”
than might otherwise be the case.
[63] The reference to witnesses being found wanting is a reference to the fact that when Mr Yan was prosecuted for alleged immigration offences in 2012, nine Chinese witnesses failed to present themselves for the trial. No explanation for this has ever been given.
[64] However, while these same nine witnesses are also supposed to be giving evidence at the hearing of the application for a restraining order, Mr Harborow told us they are only nine out of a total of 38 Chinese witnesses to be called by the Commissioner. Mr Harborow also filed an affidavit from the Deputy Director General of the Bureau of International Cooperation in the Chinese Ministry of Public Security. The affidavit states that the Department of Public Security in the province from which Mr Yan comes has recently contacted the Chinese citizens who can provide evidence that Mr Yan has committed the crimes of which he is accused, that these citizens are willing to give evidence in the New Zealand proceedings, and if required the Provincial Department and the Ministry of Public Security will assist in organising for that to happen.
[65] Mr Jones and Mr Wicks said similar assurances were given for the purposes of the immigration trial. That may be so, but we are willing to accept it is at least arguable the Chinese authorities will be more motivated to co-operate with the New Zealand police in relation to a proceeding in which they have a direct interest.
[66] We are not persuaded the dependence of the Commissioner on the Chinese witnesses renders the case against Mr Yan so fragile that it justifies requiring an undertaking.
Shares in Mega Limited
The facts before the High Court
[67] Through other entities, Mr Yan and Ms You own 18.81 per cent of shares in
Mega Ltd. At the time the application for an undertaking was filed, Mega Ltd was in
the process of being listed on the New Zealand stock exchange via a reverse merger arrangement with an investment company. Mr Yan and Ms You were concerned the restraining orders might hinder or delay the merger and listing process, thereby affecting the value of their shareholding.
The decision in the High Court
[68] In his decision, Lang J noted the listing process had in fact continued apparently unaffected by the existence of the restraining orders.39 The Judge also noted the Commissioner had confirmed that once listing occurred he would only sell the shares if Mr Yan and Ms You asked him to do so. In those circumstances, the Judge held there could be “no suggestion that the existence of the restraining orders is detrimentally affecting the shares” and that “no question of oppression or injustice arises”.40 It followed, the Judge said, there was no reason to require the Commissioner to provide an undertaking in relation to the shares.
Developments since the High Court decision
[69] We were told the listing did not in fact proceed via the investment company for reasons unrelated to the restraining order.
Arguments on appeal
[70] Mr Jones argued Lang J erred by effectively requiring the appellants to prove loss, whereas in Mr Jones’ submission the correct approach should be that loss is presumed. Mr Jones said the restraint might still have an effect on any listing and might also in the future affect the value of the shares by preventing the exercise of voting rights.
Our view
[71] For the reasons already traversed, we do not accept there are any presumptions to be applied. We do, however, accept an applicant is not required to
prove actual loss. Apart from anything else, undertakings are prospective in nature.
39 Commissioner of Police v Yan, above n 1, at [12].
40 At [13].
We also agree an applicant is not required to establish that future loss is certain, but Lang J’s decision cannot reasonably be interpreted as importing such an inflexible requirement. The correct position is simply that the likelihood of loss and the extent of that loss are relevant factors and the more likely the loss is to occur, the stronger the argument for an undertaking. In this case the submissions made about future loss in relation to what is a minority shareholding are pure conjecture.
[72] We note too that the Commissioner continues to engage with the appellants and Mega Ltd to ensure the workability of the restraining orders. An agreed variation to Mega Ltd’s constitution was recently approved by the High Court.
[73] We are satisfied there are no grounds for appellate intervention in relation to this asset.
Shares in FM International (FMI)
The facts before the High Court
[74] The restraining order covers two parcels of shares in FMI held conditionally by third parties for the benefit of Mr Yan and Ms You.
[75] FMI carries on business in China as a trader in seafood and agricultural products. Mr Yan has agreed to assist FMI to list as a public company in New Zealand. In return, an entity associated with Mr Yan has been allocated
355 million shares in FMI. The allocation is conditional on FMI listing on the
New Zealand stock exchange and raising the necessary capital of NZD $3.8 million.
[76] In affidavit evidence, Ms You claimed the listing process has stalled because professional advisers do not want to proceed while there are restraints over the shares. She also asserted there is a very real possibility FMI will be forced to abandon its bid to list on the New Zealand stock exchange. That in turn would mean the loss of the allocated shares, which she says have a current value of between
$14 million and $18 million.
The decision of the High Court
[77] In refusing to require an undertaking in relation to these shares, the Judge noted the absence of any independent evidence to support Ms You’s claims and suggested if the professional advisers were reluctant to proceed, there might be other reasons for that reluctance, such as adverse publicity surrounding the appellants’ business affairs generally.41 The Judge said in the absence of any independent evidence he was not prepared to conclude there was a risk the continued existence of the restraining orders would result in injustice or oppression for Mr Yan and Ms You.
Arguments on appeal
[78] Similar arguments to those made in relation to the Mega Ltd shares were also advanced in relation to the FMI shares. Mr Jones contended the Judge had erred by engaging in questions of causation. Causation, Mr Jones argued, was only relevant at the enforcement stage and not for determining whether an undertaking should be given in the first place. In Mr Jones’ submission, the shares were a business asset and it should be sufficient that the restraint could impact adversely on a listing.
Our view
[79] We have already held that likelihood of loss being suffered as a result of the restraint is a relevant factor in determining whether an undertaking should be given. Such an inquiry inherently engages issues of causation. We consider Lang J was entitled to be sceptical of the self-serving assertions made by Ms You without any supporting evidence. The absence of any evidence from the professional advisers is telling.
[80] We agree with the Judge’s decision in relation to the FMI shares.
41 Commissioner of Police v Yan, above n 1, at [27].
Interest in the McClymonts Road property
The evidence before the High Court42
[81] Elliot Lane Developments Ltd (Elliot Lane) is an investment vehicle of
Mr Yan and Ms You.
[82] Through Elliot Lane, Ms You was involved in a joint venture with a company called BC Corporate Administration Ltd (BCCA) to acquire and develop a property situated at McClymonts Road. Had the project been successful, Elliot Lane and BCCA were to share equally in the profits. Ms You claimed Elliot Lane stood to make up to $44 million.
[83] The restraining orders initially applied to the sum of $4 million, which was held in Elliot Lane’s bank account. According to Ms You’s evidence, those funds represented a loan she had obtained from a business associate in China called Mr Chen. She had obtained the loan in order to pay Elliot Lane’s one half share of the deposit required to buy the McClymonts Road property.
[84] In September 2014 the Commissioner agreed to a variation of the restraining order so as to allow the funds to be released to pay the deposit. Had that not occurred, it is likely the vendor would have cancelled the sale and BCCA would have forfeited its share of the deposit, which it had already paid. In return, the Commissioner obtained a restraining order in respect of Elliot Lane’s interest in the project. He also required BCCA to agree to acquire that interest for the sum of
$4 million by no later than 2 December 2014. Consent orders were made to that effect on 2 September 2014. The effect of those orders was that Elliot Lane exited the development.
[85] At the time the consent orders were made, BCCA’s sole director and shareholder had confirmed in an affidavit that BCCA had found two investors who were willing to provide future funding for the project. However, a later affidavit
from BCCA stated that potential investors had been influenced by the adverse
42 The summary of the evidence that follows is largely taken from the decision of Lang J. Counsel on appeal accepted it was accurate.
publicity associated with the restraining orders and were no longer willing to invest. As a result, there was concern BCCA might not be able to meet its obligation to purchase Elliot Lane’s share in the project in December 2014. The project was said to be at risk of collapse.
[86] Ms You contended in the High Court that an undertaking was required to ensure Elliot Lane had a measure of protection in respect of the $4 million it had already committed to the project. An undertaking was also said to be appropriate because Elliot Lane had been forced to surrender its rights in the development and thus deprived of the opportunity to share in the profits.
The decision of the High Court
[87] Justice Lang noted that, according to BCCA’s own evidence, the problems it was experiencing were the result of misconceptions held by potential investors.43 Its sole director had deposed the reason investors were unwilling to get involved was because they were concerned any investment they might make would face the risk of an allegation it too was laundered money and so be restrained. In the view of Lang J, it was difficult to see how the Commissioner could be held responsible for such misconceptions.
[88] The Judge also found it could not be said the continued existence of the restraining orders was likely to be oppressive or create an injustice for Elliot Lane.44
The Commissioner had already demonstrated he was prepared to assist Elliot Lane to meet its obligations by permitting the restrained funds to be released and used in payment of the deposit. He had also endeavoured to protect Elliot Lane’s interests as far as possible by effectively requiring BCCA to repay the funds. Further, in the view of Lang J, claims the project would have generated vast profits were highly
speculative.
43 Commissioner of Police v Yan, above n 1, at [19].
44 At [19].
[89] The Judge concluded by saying that all of those factors persuaded him the Commissioner should not be required to provide an undertaking in relation to the interest held by Elliot Lane in the McClymonts Road project.45
Developments since the High Court decision
[90] The effect of the September 2014 consent orders was that the onus of completing the purchase of the McClymonts Road property rested on BCCA alone.
[91] In mid-October 2014, BCCA advised the Commissioner it was not likely to be in a position to complete the purchase, nor would it be in a position to repay the
$4 million to Elliot Lane, which, it will be recalled, it was required to do by December 2014. According to Ms You, Mr Chen, who had advanced the $4 million for the deposit, had been willing to advance a further $8 million towards the purchase, but was not willing to do so while Elliot Lane’s deposit funds were subject to restraint.
[92] Discussions then ensued between the parties. The Commissioner made a proposal that was not acceptable to Elliot Lane and BCCA.
[93] On 14 November 2014 BCCA advised the Commissioner it had negotiated an arrangement with a company called Kingston Developments Ltd (Kingston) that would allow BCCA to obtain the necessary funding to settle the purchase of the property. Under the arrangement, Kingston agreed to advance the balance of the purchase price to BCCA on condition Kingston took ownership of the property, with BCCA having the right to purchase the property back for the same amount as the advance plus interest and costs.
[94] The Commissioner considered the buy-back option was at that point the best available option and agreed to it, but only on the basis the Official Assignee be empowered to nominate a third party to re-purchase the property if BCCA was not in
a position to do so.
45 At [20].
[95] These agreements were incorporated in consent orders made on an urgent basis in the High Court on 20 November 2014.
[96] As events transpired, the Official Assignee exercised the buy-back option on
13 January 2015. However, settlement did not take place, resulting in Kingston purporting to cancel the agreement, which in turn led to proceedings in the High Court between the Official Assignee, Kingston and the Official Assignee’s on-purchaser. The focus of that litigation was communications between the solicitors acting for the Official Assignee and the solicitors for Kingston. In a decision delivered on 25 June 2015 Fogarty J held the Official Assignee’s solicitors were obliged to tender settlement and because they had failed to do so Kingston was
entitled to cancel.46 The Official Assignee has filed an appeal against Fogarty J’s
decision. That appeal has yet to be heard.
Arguments on appeal
[97] Mr Jones submitted the unfortunate history of this matter provided a stark illustration of the sort of significant losses that can be created by restraining orders over commercial assets. He contended it also highlighted the adverse effect the involvement of the Official Assignee can have on the free flow of business and the value of assets retained.
[98] In Mr Jones’ submission, Lang J erred again by effectively requiring the appellants to prove loss. Further, even if it was necessary to show a causal link between the restraint and the loss, there was, in any event, sufficient prima facie evidence of loss to justify requiring an undertaking. There was a direct link between the restraint and Mr Chen’s refusal to provide further funding. Mr Chen’s refusal had in turn forced BCCA into alternative arrangements with Kingston. Mr Jones submitted Mr Yan and Ms You had sustained or will sustain the following losses in relation to the McClymonts Road property:
(a) The loss of the investment opportunity.
46 Official Assignee v Kingston Developments Group Ltd [2015] NZHC 1416.
(b) Interest on the $4 million advance from Mr Chen at the rate of 25 per cent per annum. It continues to run.
(c) If Fogarty J’s decision is upheld on appeal, the loss of Elliot Lane’s
$4 million.
Our view
[99] There is reason to view some of the appellants’ evidence relating to this asset with caution, particularly the evidence about Mr Chen, who is said to be a pivotal figure. On the appellants’ version of events, Mr Chen was prepared to invest up to
$12 million (the deposit of $4 million and a further $8 million) without security, even though he had only known Ms You for approximately six months and had had no previous dealings with her. Further, Mr Chen is conspicuous by his absence. He has taken no steps in the proceeding. He has not instructed counsel. Nor has he filed an application for severance of his interests. Nor has he provided any evidence in support of Ms You’s claims.
[100] Mr Jones submitted Ms You was under no obligation to provide evidence from Mr Chen.
[101] That is correct but, as Mr Jones also accepted, the Court is entitled to draw adverse inferences from the absence of any supporting evidence from Mr Chen. It is curious and it is unexplained.
[102] It is also apparent that, in any event, BCCA would have had to secure substantial additional funding from other sources to be in a position to settle the purchase. The amount required to complete the purchase was $16.6 million. By November 2014 it would have been apparent to potential investors that Elliot Lane had exited the development. Yet, in January 2015 BCCA elected not to exercise its buy-back option. That would tend to undermine claims its difficulties in attracting investors were due to the restraining order.
[103] As regards the possible loss of the $4 million, we do not consider it just to require the Commissioner to give an undertaking. That loss, if it eventuates, will
arise only indirectly from the restraining order. It is also relevant to take into account that, should the Official Assignee’s appeal against Fogarty J’s decision fail, Mr Yan and Ms You will still have a practical means of alternative redress against the solicitors.
[104] Contrary to a submission made by Mr Harborow, we consider it may, in appropriate cases, be just to require an undertaking in respect of lost opportunities. However, this is not one such case. In our view, the evidence is not sufficiently compelling. We note too that, in any event, Elliot Lane and Mr Yan and Ms You consented to Elliot Lane exiting the development. The appellants said they were forced into consenting, but, as Mr Harborow pointed out, it would always have been open to Elliot Lane to apply for a variation of the restraining orders to enable it to continue in the joint venture. It elected not to do so.
[105] The updating evidence does not persuade us Lang J was wrong.
Right to share in profits generated by Gallinas Holdings Ltd
The evidence before the High Court
[106] A development company called Gallinas Holdings Ltd is planning to build a dairy factory on a site it has acquired near Arapuni.
[107] Gallinas Holdings Ltd verbally agreed that, in exchange for Mr Yan and Ms You’s assistance in finding investors for the project, Mr Yan’s company LY Investment (No 1) Ltd will receive one half of any profit the project generates. The right to share in those profits is currently subject to the restraining orders obtained by the Commissioner.
[108] At the time of the application for an undertaking the project had not progressed beyond the planning stage.
[109] Ms You considered the project could generate profits in the order of hundreds of millions of dollars but was concerned that, because of the publicity surrounding
the making of the restraining orders, they will not be able to raise sufficient capital to enable the project to proceed.
The decision of the High Court
[110] Justice Lang said he was not satisfied potential losses of this type could realistically be attributed to the restraining orders.47 In his assessment, an informed investor would be highly unlikely to be influenced by the fact such orders exist. Any reluctance by investors was, the Judge said, far more likely to have been caused by the adverse publicity surrounding the business affairs of Mr Yan and Ms You generally.
[111] For those reasons the Judge did not consider the Commissioner should be required to provide an undertaking in relation to any loss that might be suffered under this head.
Arguments on appeal
[112] Mr Jones submitted the Judge erred by pre-empting causation, which, in Mr Jones’s submission, was a matter properly to be assessed at the time the undertaking is enforced.
Our view
[113] This is the same argument advanced in relation to the FMI shares and for the same reasons given in relation to that asset we do not accept it. We agree with the Judge’s finding.
GEP Ltd loan funds
[114] Mr Yan and Ms You did not seek an undertaking in relation to this asset in the High Court. However, they said events since the High Court hearing make one appropriate now.
[115] The parties agreed to submit the matter for determination by this Court.
47 Commissioner of Police v Yan, above n 1, at [23].
[116] Ms You is the beneficiary of a trust known as the LY Investment (No 1) Trust
(the trust).48 Under an agreement dated 10 July 2014 the trust made an advance of
$5.65 million to GEP Ltd (GEP). The term of the loan was for three years and interest was payable at the rate of 28 per cent per annum. The interest was not to be paid monthly but was to accrue on a capitalising and compounding basis.
[117] The Commissioner took the view the loan monies were subject to the restraining orders. This prompted GEP to file an application on 3 October 2014 in the High Court, seeking orders under s 30 of the Act that the loan funds be excluded from restraint. The main ground of the application was that the trust had agreed to loan the funds prior to the date of the without notice restraining orders. At the time GEP filed its application, the funds were held in a bank account in the name of GEP. Subsequently, in November 2014 GEP settled the purchase of 11 properties in Queenstown using $2.55 million of the funds at issue.
[118] GEP’s application to the High Court was settled with the Commissioner by the making of consent orders on 24 November 2014. The consent orders provided, among other things, that the Queenstown properties would be restrained subject to various conditions and that, of the loan monies still in GEP’s bank account, half ($1.455 million) would be restrained and paid within three days to the Official Assignee. The other half and any other funds under the loan agreement were agreed to be excluded from the restraint.
[119] Mr Yan and Ms You contended the early repayment of part of the loan had caused them loss in the form of reduced interest. This was disputed by the Commissioner, who claimed there was a material risk GEP would not be in a position to repay the full amount of the loan together with interest at the end of the three years. The Commissioner considered the early repayment, far from causing loss, had mitigated the risk of loss.
[120] At the hearing before us, Mr Wicks accepted it was doubtful whether an undertaking could operate retrospectively to provide for loss already incurred, but
48 This trust is a corporate trustee of the previously mentioned LY Investment (No 1) Ltd.
submitted there was, in any event, an evidential foundation for the possibility of future loss and that was sufficient.
[121] In our view, an undertaking is not warranted. Under the loan agreement, GEP was always entitled to repay early and the funds are being held by the Official Assignee in an interest bearing account. Further, the consent orders provide that if the loan funds are not ultimately forfeited, then the terms of the original loan agreement including all interest obligations will apply.
The bank accounts in the name of Mr Xu and Ms Zeng
The evidence before the High Court
[122] The appellants in CA684/2014, Ms Lijing Zeng and Mr Xu, are husband and wife. They live in China. Ms Zeng has a married sister living in New Zealand called Yingzi Zeng. The two sisters and their respective husbands are all associates of Mr Yan. In an affidavit, Yingzi Zeng described Mr Yan as “a close friend” of her husband. There is also evidence that when Mr Yan arranged for a new company to be incorporated to acquire shareholding in Mega Ltd, he instructed his lawyer to make Mr Xu the sole director and shareholder of the new company. Mr Xu was also involved in FMI.
[123] Ms Lijing Zeng, the appellant, deposed in an affidavit that she and her husband visited New Zealand in February 2013 and decided they would “one day” migrate here. As a result, they opened bank accounts in New Zealand and deposited money in them. They appointed Lijing Zeng’s sister, Ms Yingzi Zeng, as their attorney to manage and control their business affairs in New Zealand, including the bank accounts. They have since revoked that authority.
[124] The restraining order covers the bank funds. The total amount restrained is approximately $4.5 million.
[125] There is evidence that some time prior to the restraining order Ms Yingzi Zeng transferred $100,000 from the bank accounts to a New Zealand lawyer acting for Mr Yan. She did so at the request of Mr Yan. Her explanation was
that Mr Yan had agreed to lend the lawyer $100,000 but did not have funds of his own immediately available so asked her and her husband and, as a favour to Mr Yan, she actioned the transfer. She said neither she nor her husband personally knew the lawyer.
[126] There is also evidence Yingzi Zeng withdrew millions of dollars from the accounts, which she used for gambling at various casinos.
[127] According to the Crown, Yingzi Zeng’s past use of the accounts demonstrates the money does not really belong to her sister and brother-in-law but is under the effective control of Mr Yan. The Crown further alleged there are discrepancies and errors in Mr Xu’s account of how he came to acquire the money that was deposited into the bank accounts.
[128] Ms Zeng and Mr Xu claimed in the High Court that the restraining order was preventing them from taking advantage of future opportunities to acquire assets in New Zealand, including real estate. Ms Zeng and Mr Xu sought consent to use funds from the restrained account to purchase a property, but the Commissioner would not agree to a variation.
The High Court decision
[129] Justice Lang noted Ms Zeng and Mr Xu appeared to be skilled business people of substantial wealth. The Judge said there was no suggestion the existence of the restraining order was having any other adverse effect on their business or personal lives, beyond an inability to use the funds to acquire assets in New Zealand.49 Further, there was no risk the money would dissipate in value because it was being held in interest bearing accounts with major banks.
[130] The Judge concluded by saying that all of those factors persuaded him there was no risk the continued existence of the restraining orders would create oppression
or injustice for Ms Zeng and Mr Xu.50
49 Commissioner of Police v Yan, above n 1, at [31].
50 At [32].
Arguments on appeal
[131] On appeal, Mr Wicks emphasised that Ms Zeng and Mr Xu had not been involved in any criminal activity. They were, he contended, innocent third parties being unfairly denied the opportunity to grow the funds as they had intended. The money had been deposited in New Zealand specifically for investment purposes and, while asset preservation was not an issue, asset enhancement was. Elementary fairness dictated that the Commissioner should be required to give an undertaking.
Our view
[132] Obviously the personal circumstances of a respondent are highly relevant in deciding whether to require an undertaking.
[133] It is not disputed that Mr Xu and Ms Zeng are substantially wealthy. In his affidavit, Mr Xu estimated his personal wealth is approximately NZD $100 million.
[134] Mr Wicks told us the reason Mr Xu and Ms Zeng are not prepared to use other funds for investing in New Zealand is because of concern those too might be restrained by the Commissioner. However, it emerged they have never asked the Commissioner if they could use off shore funds.
[135] In those circumstances, we agree with the Judge that the Commissioner should not be required to give an undertaking.
Outcome
[136] We are not persuaded Lang J’s decision was wrong or that the Judge erred in principle. The decision was one with which we agree.51
[137] The application in CA683/2014 for leave to adduce two affidavits in reply dated 21 July 2015 is granted.
[138] The appeals in CA683/2014 and CA684/2014 are dismissed.
51 The Commissioner submitted the appeal was an appeal against the exercise of a discretion. It has not been necessary for us to determine whether that is a correct characterisation of the appeal because we have independently reached the same conclusion as the Judge.
[139] As regards costs, counsel were agreed these should follow the event. We therefore order that the appellants in both appeals must pay the respondent costs for one standard appeal on a band A basis with usual disbursements.
ASHER J Introduction
[140] I must respectfully differ from the other members of the Bench, in that I disagree with some of the reasoning of Lang J that they accept, and, while I would dismiss the appeal of Mr Yan and Ms You, I would allow the appeal by Mr Xu and Ms Zeng.
[141] Restraining orders have two effects. They prevent any person from disposing of property without a court order and they place the property under the custody and control of the Official Assignee.52 Without notice orders, which restrain a person’s property on a temporary basis without an opportunity for a hearing, offend against the audi alteram partem principle. Even if they are on notice they constitute a temporary confiscation of assets without compensation (although the confiscation
may later be proven to be justified). It is not surprising, therefore, that Parliament, in creating the particular regime to apply to such orders, has ensured there are a number of provisions in place to minimise the possibility of injustice.
[142] Under the Act, an order obtained without notice lasts for only seven days, at which point it ceases to be in force unless followed within that time by an application on notice.53 The Commissioner must prosecute the on notice restraint application “with all due diligence”, and the court must, so far as is practicable and consistent with the interests of justice, ensure the application is dealt with “speedily”.54 There is also provision at s 28 for the court to provide for the respondent’s reasonable living costs and business expenses, at s 35(e) for the court to regulate and direct the Official Assignee, and at s 35(a) for the court to vary
restraining orders. Relevant to this application, at s 29(1) there is provision for the
52 Criminal Proceeds (Recovery) Act, ss 24(1) and 25(1).
53 Sections 39(1) and 39(2).
54 Sections 39(3) and 39(4).
Commissioner to provide an undertaking as to damages, and that is the safeguard at issue in this appeal.
Approach
[143] There are no guidelines set out for the exercise of a judge’s power to require an undertaking to be given. The purposes of the Act, which include eliminating the chance of profit from criminal activity and deterring that activity, are relevant.55
Those strong words indicate an intention to ensure everything reasonably possible is done to prevent such profit being retained. With these purposes in mind a restraint regime has been created, aimed at preventing assets from being dissipated with the effect of rendering a forfeiture order ineffective. As a counterbalance, Parliament has expressed an intention to provide for undertakings as a protection for a respondent against the harshness of temporary restraint orders.56
[144] Mr Jones and Mr Wicks submitted the approach to undertakings developed in the freezing order jurisdiction should apply to restraint orders. I do not agree with that as an unqualified proposition.
[145] I accept that, like freezing orders, restraint orders stop a party from doing what that party wishes with its assets, and in both there is a potential for unfair losses if there is no subsequent order and it becomes apparent the order should not have been made. Both arise in civil proceedings.57 However, there are significant differences between the undertaking that is required for the granting of without notice freezing orders under the High Court Rules and the undertaking required for
restraint orders.
[146] In the freezing order jurisdiction a plaintiff seeks redress based on a private right. In the restraint jurisdiction the Commissioner is discharging a duty that has been created for the benefit of the community: to recover assets that are the proceeds
of criminal acts. This difference was addressed by the United Kingdom Supreme
55 Section 3(2).
56 At the first reading of the Criminal Proceeds (Recovery) Bill 2007 (81-3) the Hon Mark Burton referred to the undertaking as a protection for those targeted by the various orders: (20 March
2007) 638 NZPD 8120.
57 Criminal Proceeds (Recovery) Act, s 10(1).
Court in Financial Services Authority v Sinaloa Gold Plc, where Lord Mance observed:58
Different considerations arise in relation to law enforcement action, where a public authority is seeking to enforce the law in the interests of the public generally, often in pursuance of a public duty to do so, and enjoys only the resources which have been assigned to it for its functions.
[147] Undertakings for restraint orders are discretionary, unlike freezing order undertakings, which are compulsory under the High Court Rules unless there are special circumstances.59 A freezing order protects the dissipation of assets that usually have nothing to do with the substantive dispute, but that might not be available for execution if not preserved by an order. In contrast, in a restraint and forfeiture proceeding under the Act, the proceeding is all about the assets themselves and whether they should be forfeited.
[148] Importantly for the purposes of this application, a freezing order may be made without notice,60 and, although it can be challenged, in the absence of a challenge it remains in place until the conclusion of the substantive hearing. There is provision for the respondent to have an opportunity to be heard, but the onus on the applicant to satisfy the court the freezing order should continue is not high, there is no need for evidence and the opportunity is seldom exercised.61 In contrast, while the restraint order application will generally be made without notice initially, it must go to a full hearing “speedily”, where the Commissioner must establish reasonable grounds to believe the restrained property is tainted property or the respondent has unlawfully benefited from significant criminal activity.62 At that hearing there is a right to be heard,63 and it follows, as Mr Harborow submitted, there is a right to
cross-examine deponents and to make full submissions. This full interlocutory hearing is a significant safeguard for restraint orders that is not available for freezing
orders.
58 Financial Services Authority v Sinaloa Gold Plc [2013] UKSC 11, [2013] 2 AC 28 at [31].
59 High Court Rules, rr 32.2(5) and 32.6(4).
60 Rule 32.2(1).
61 Rule 32.7.
62 Criminal Proceeds (Recovery) Act, ss 39(4), 24, and 25.
63 Section 23.
[149] Therefore both remedies temporarily freeze or restrain assets before a claim is established and are intended to preserve assets that might otherwise be dissipated, but their different features and procedures mean that freezing order principles and procedures must be applied with caution to restraints.
[150] Further, I do not accept Mr Jones’s and Mr Wicks’s proposition that in the case of commercial assets undertakings should generally follow. The discretion created by s 29, the particular position of the Commissioner as a representative of the community, and the requirement for a speedily-timetabled full restraint hearing mean there are no presumptions against or for a grant under s 29, or any onus on a particular party. It comes down to an assessment of the various relevant factors.
[151] On the other hand, I do not accept Mr Harborow’s submission for the Commissioner that the requirement of a full hearing of a restraint application all but removes the need for an undertaking. This overlooks the fact that the threshold at the restraint hearing of “reasonable grounds to believe” is lower than the balance of probabilities test at the final forfeiture hearing. Evidence that passes the restraint test may fall short at the forfeiture hearing because of a failure to prove the case to the requisite standard. This means that a restrained party may successfully resist forfeiture, and have suffered losses during the restraint period.
[152] It was observed in McCleary v Director of Public Prosecutions (Cth) that in restraint jurisdictions in Australia such undertakings are given as a matter of general practice.64 The Federal statutory regime has similarities to the New Zealand Act, involving an initial restraint hearing process including the hearing of evidence, and a similar restraint hearing threshold of reasonable grounds for believing the property is tainted property. In McCleary the Full Court of the Supreme Court of Western Australia considered the test to be applied in relation to a regime similar to that in New Zealand. Justice Ipp said an undertaking:65
… would tend to satisfy any concerns the court might have that the making of a restraining order might cause innocent persons to sustain damage in a context in which, upon acquittal of the person charged, it could well be
64 McCleary v Director of Public Prosecutions (Cth), above n 31, at 304.
65 At 304.
regarded as unfair and unjust for such persons to be without means of recovering such damage.
[153] This was adopted by Rodney Hansen J in Commissioner of Police v Stepping
Stone Finance Ltd, where he observed that:66
The discretion has been described as one which should be exercised according to considerations of justice and fairness and to diminish the possibility of oppression and injustice.
The consideration of actual loss and other factors
[154] Justice Lang and to an extent the majority have undertaken a detailed examination of whether actual losses will accrue to each particular asset. There were affidavits filed, and it was argued losses were being suffered. Nevertheless, Mr Jones submitted this is not the correct way to approach the decision of whether to grant an undertaking, and, with some qualifications, I respectfully agree. In my view, the judge should apply her or his general knowledge of how assets are used and transactions unfold, rather than focus on the immediate future or past of particular assets and whether the restraint has been shown to be causative of loss. There is no need to prove the restraint has caused or for that matter will cause loss.
[155] Undertakings are not intended to be used to recover past losses. They relate to the future inability to use the assets. While the past history of an asset can be relevant, a series of mini-trials focusing on possible past or immediately pending losses to a particular asset may not provide the answer, particularly so when the likely delay will be some years.
[156] The consideration should not, in my respectful view, come down, as it has in considerable part in the High Court, to only a consideration of what losses have been shown to have arisen or to be about to arise. In assessing the need for an undertaking a judge should stand back and carry out a general assessment of the sort of losses that are likely to result from the assets being frozen, looking into the future
and at the likely expected uses.
66 Commissioner of Police v Stepping Stone Finance Ltd, above n 19, at [54], citing Director of Public Prosecutions (WA) v Mansfield, above n 19, and State of Queensland v Rodd, above n 19. See also Commissioner of Police v G, above n 19, at [41] and Commissioner of Police v C, above n 19, at [42].
[157] The need for an undertaking is not necessarily nullified by the Official Assignee showing that reasonable positions have been taken by that office in relation to investment possibilities. The Official Assignee has a duty to “preserve the value of” assets.67 That is a different goal from that of an investor who wishes to grow the value of assets even at the risk of their preservation. Moreover, the need for an investor to go to the Official Assignee for action on every transaction is
inevitably going to have a restrictive effect on the making of quick decisions, limit the willingness of prospective joint venturers to participate, involve delay and create cost. In that respect, while I agree there is danger in confusing reputational damage arising from the adverse publicity surrounding the proceedings and damage from the actual restraints, I do see the restraints being a deterrent to prospective business partners who might otherwise still be prepared to deal with the appellants, but who would not want the shadow of the Official Assignee over every transaction.
[158] I do not see the existence of a meaningful alternative avenue of redress as particularly relevant. Establishing liability through an undertaking is more likely to offer a direct route to success than alternatives such as claims in negligence. The whole purpose of the undertaking is to provide a direct route for recovering losses. In this regard, it is relevant to note that the possibility of other causes of action has not been seen as a reason not to order an undertaking in the Australian cases, and is not a factor of importance in the freezing order jurisdiction.
The factors in this case
Strength of the Commissioner’s case
[159] In relation to Mr Yan and Ms You, the Commissioner’s case is that Mr Yan committed large-scale fraud to the value of NZD $129 million in China between
2000 and 2001. Between then and now it is alleged Mr Yan and Ms You have brought a significant amount of money, in the order of NZD $40 million, into New Zealand and have engaged in money laundering. Australian proceedings restraining money from two bank accounts were settled, whereby Mr Yan consented to the forfeiture of AUD $3.3 million to the Australian authorities and the remaining
funds of AUD $4 million were returned to him.
67 Criminal (Proceeds) Recovery Act, s 80(1).
[160] The evidence of the two police officers outlining the alleged fraud in China are hearsay in that they consist of summaries of evidence, but they annex detailed sworn translated statements from a total of 38 witnesses, and these present an apparently strong case of corporate fraud by the misappropriation of funds. The evidence of money laundering in New Zealand was of extraordinary multiple money deposits, often of large sums within one day where the money was put in and out of different accounts. These are hard to understand, save as attempts to disguise the sources of the money.
[161] The position is different in relation to Mr Xu and Ms Zeng. They are not defendants to the restraint orders. Mr Xu and Ms Zeng live in China. They claim to be worth over NZD $100 million. They deposed that in 2011 they became familiar with New Zealand through family connections, and they developed a wish to invest in this country. As a result they transferred bank funds into an account in their name in New Zealand. Ms Zeng deposed that she appointed her sister as her attorney, and produced a power of attorney. Some of the funds have been used by the sister to gamble, Mr Xu said, in a breach of trust. They also have acquired shares in their name in FMI, which they conceded are beneficially owned by Mr Yan.
[162] Mr Xu and Ms Zeng claimed the restraining order prevents them from engaging in business opportunities in New Zealand. Mr Xu set out a detailed account as to the sources of his wealth, and the sources of the money in New Zealand. There is some corroboration for Mr Xu being wealthy in his own right, and for his claims about how they use their funds. On the face of it, Mr Xu and Ms Zeng presented an explanation for their money being in New Zealand and being owned by them beneficially, as well as being in their name.
[163] The Commissioner has filed affidavits in reply, alleging that elements of Mr Xu’s explanations are incorrect regarding his use of the money. Many of the affidavits in reply have been filed in different proceedings involving Mr Xu and Ms Zeng, and allegations that this money was used by other third parties in drug transactions. There is no cogent evidence at this point linking Mr Xu and Ms Zeng to the alleged crimes of Mr Yan.
[164] It is difficult to evaluate this claim at this stage, but it is in a very different category from the case against Mr Yan. Mr Xu and Ms Zeng have provided detailed explanations on oath that the funds belong to them, with some apparent corroboration. There is no direct evidence from the Commissioner that the effective owner of the funds in the bank accounts is Mr Yan. The case against them at this point cannot be categorised as strong, in the way that it can against Mr Yan and Ms You.
Investment nature of the assets
[165] The restrained assets are at least in part investment assets. This must be qualified by the fact that a lot of the money appears to have been used for gambling and has washed around in accounts for no apparent purpose. But there are a number of significant investments, and it is clear some of the funds are intended for speculative business ventures aimed at achieving significant profits. This is a factor in favour of the granting of an undertaking, particularly when the owners are prepared to invest in less than orthodox assets, such as Mega Ltd, and property developments where there is the prospect of significant profit.
[166] As to the funds held in the bank for Mr Xu and Ms Zeng, Lang J commented:
[31] I acknowledge that the restraining orders are currently preventing Mr Xu and Ms Zeng from having resort to their bank accounts in New Zealand. There is no suggestion, however, that this is causing them any hardship or inconvenience beyond an inability to use the funds to acquire assets in New Zealand. Ms Zeng’s affidavit suggests that she and her husband are skilled business people who derive substantial sums of money from their business activities. She does not suggest that the existence of the restraining orders is having any other adverse effect on their business or personal lives. Nor is there any risk that the funds will dissipate in value, because they are being held in interest bearing accounts with major New Zealand banks.
[167] I do not agree that it is a reason not to order an undertaking that the only hardship is an inability to use the funds to acquire assets in New Zealand. The inability to acquire assets can indeed be a hardship if that is why the funds are in New Zealand. The fact the funds will not dissipate while under restraint is not the point. On the face of it, Mr Xu and Ms Zeng are active investors and wish to bring the funds to New Zealand for investment purposes, including but not limited to
property investment, money exchange transactions and business investment. They were intending to achieve more than bank interest. These monies cannot now be used for these investment purposes. They claimed they sought the Commissioner’s consent to use part of the funds to purchase bare land and fund a construction project, but the Commissioner declined their request. The estimated profit, if it had gone ahead, was NZD $2.1 million. There is a real possibility of loss. There could be a significant injustice to them.
[168] It is not an answer to say that if they are as wealthy as they say, they can invest new money from other overseas sources into New Zealand. Their asset pool for investment has suffered a net reduction, and their investment assets will suffer a diminished return because of the restraint.
[169] It is also no answer to point to difficulties they will face in ultimately proving loss. If they suffer no loss, the granting of the undertaking will be of no concern to the Official Assignee. Of course, it may be difficult for Mr Xu and Ms Zeng to establish loss, but that is not the issue at this stage. They may be able to show what their funds have been earning in other similar jurisdictions and establish that, but for the restraint, their funds could have earned that return in New Zealand. Their position would be complicated by the breach of trust by the sister. These issues do not need to be considered at this stage, and would be for a damages hearing should the applications for restraint or forfeiture fail. It is sufficient that it is entirely foreseeable that they may suffer loss because they cannot use their money for active investment as they wish to do because of the restraint.
Delay
[170] There have been two new developments since the hearing before Lang J. First, the restraint application is to be opposed and is set down for a hearing on
13 June 2016. Second, Venning J has made orders that the forfeiture application must be filed by 29 April 2016, failing which the restraining orders will be discharged and set aside.68 The forfeiture proceeding has been set down for a
five-month hearing commencing on the first available date after 26 April 2017.
68 Commissioner of Police v Yan, above n 38.
[171] The approximate two year delay in hearing the on notice restraint application is very long indeed. Given the Commissioner’s duty to prosecute the restraint application with all due diligence and the court’s duty to ensure it is dealt with speedily, the long wait is of concern and not consistent with the speedy scheme created by Parliament. However, there are two factors that ameliorate this delay.
[172] First, it is in part contributed to by the appellants Mr Yan and Ms You, who initially indicated they would not oppose the restraint and did not change that position until late May 2015. Matters were allowed to drift in part because the parties were concerned if the restraining orders were made there would no longer be jurisdiction to order an undertaking. Second, there is now a timetable in place for a forfeiture hearing in two years’ time. Two years is not an unreasonable wait, given the complexities of the proceeding.
[173] This investigation began almost seven years ago in 2008, and has been underway as a restraint application for over a year. However, establishing the history of the assets is undoubtedly difficult, given the tortuous money transactions of Mr Yan that have been recorded in New Zealand alone. It appears the Commissioner is giving the case priority. If the forfeiture application is not filed by April next year, then the restraints are likely to terminate in any event because of the orders of Venning J. Any further delays would indeed strengthen the case for a further application for an undertaking.
[174] The delay can be more of an injustice to third parties like Mr Xu and Ms Zeng. Mr Xu and Ms Zeng have little control over the proceeding, and there can be no doubt that if it affected only their $4.5 million the case would proceed much more speedily. If the funds are indeed their funds, they are bystanders who are obliged to participate in what is a very significant and protracted litigation exercise.
Overall analysis
[175] In exercising the discretion the particular factor of note is the strength of the Crown case against Mr Yan and Ms You, and the lack of an apparent defence if the evidence the Crown says it can call is called. This does not apply to the case against the deposits in the names of Mr Xu and Ms Zeng. They have provided on oath what
may be a complete answer to the Commissioner’s claims, and provided some corroboration (although there are aspects of that evidence that are strongly contested by the Commissioner).
[176] The assets, being business assets, are of a type where there is a particular susceptibility to loss if they are restrained for a long period. The Official Assignee’s duty to preserve the assets does not coincide with an investor’s wish to increase the value of assets by active investment. The potential for loss is particularly apparent in relation to Mr Xu and Ms Zeng’s deposit, where there are funds in the bank that, but for the restraint, would be invested at least in part in property assets, and where the return could be greater than bank interest.
[177] There is significant delay, and delay is relevant even if there is no fault on the part of the Crown, as the longer a party is restrained from using assets, the greater the potential injustice. In relation to Mr Yan and Ms You the delay can be seen to be a result of the unexplained complexity of their financial dealings. Mr Xu and Ms Zeng’s dealings, at least in relation to the bank deposits, are in a different category, and the delay they face in accessing funds that are held on bank deposit is a greater concern.
[178] I respectfully consider there was undue focus on proven loss by Lang J. Nevertheless, in relation to Mr Yan and Ms You the decision not to require an undertaking has not been shown to be wrong. The case against them is strong and at this stage unanswered, and, in relation to the delay, they initially did not oppose the restraint. Their investment plans and strategies are speculative.
[179] The position in relation to Mr Xu and Ms Zeng is different. They are non-parties, not alleged to be involved in the original fraud. They have provided a full prima facie explanation for their funds being in New Zealand, although aspects are contested by the Commissioner. Nevertheless, the assets are identified bank deposits in their names. Because of the complexities of Mr Yan’s position they will have to wait for seven months or more for a decision on the restraint hearing, and seventeen months for the start of a five-month forfeiture hearing. If the restraint is
upheld the total further wait for them is likely to be well over two years, and possibly much longer.
[180] I respectfully consider that Lang J erred in his approach in not accepting that the inability of Mr Xu and Ms Zeng to use their funds for investment was a sufficient hardship. There is a likely hardship to them if the case against them is not proven, and at this stage they appear to be able to put forward an arguable defence. I would order the Commissioner to provide an undertaking to the Court in respect of any losses they might suffer as a consequence of the restraint.
Solicitors:
Kirkland Morrison O’Callaghan & Ho, Auckland for Appellants in CA683/2014
Jesse & Associates, Auckland for Appellants in CA684/2014
Meredith Connell, Auckland for Respondent
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