COMMISSIONER OF POLICE v GONG [2019] NZHC 2735

COMMISSIONER OF POLICE v GONG [2019] NZHC 2735 [25 October 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2017-404-454[2019] NZHC 2735UNDER the Criminal Proceeds (Recovery) Act 2009BETWEEN COMMISSIONER OF POLICEApplicantAND XIAO HUA GONGRespondentDate of hearing: 4 October 2019Appearances: M E Harborow and H E Macdonald for the applicantA J Ellis and F C Jones for the respondentDate of judgment: 25 October 2019INTERIM JUDGMENT OF JAGOSE JThe judgment was delivered by me on 25 October 2019 at 3.00pm.Pursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors/Counsel:Meredith Connell, AucklandAnthony Ellis Barrister, WellingtonFee Langstone, Auckland[1] The Commissioner of Police's application – for particular discovery, eitherafter this proceeding for restraint orders commenced,1 or before the intended forfeitureorders proceeding commences2 – is brought to fill a perceived gap in the CriminalProceeds (Recovery) Act 2009 (the "Act"): the inutility of exercise of theCommissioner's powers under the Act to compel production of documents andinformation from people outside New Zealand.Background[2] The respondent, Mr Gong, is a Chinese national living in Canada. He is beinginvestigated by both the Economic Crime Investigation Department of the ChinesePublic Security Bureau and the Ontario Securities Commission in Canada. Theinvestigations concern an alleged large-scale fraud and its consequences. The fraud issaid to involve a pyramid scheme associated with the sale of health supplements,giving rise to unlawful benefits exceeding $200 million, of which the Commissionerhere says Mr Gong remitted some $77 million obtained from the fraud to NewZealand, and used money obtained from the fraud to purchase assets in New Zealand.[3] Previously in this proceeding, on the Commissioner's without noticeapplication for restraining orders, Davison J was "well satisfied" there were reasonablegrounds to believe Mr Gong unlawfully benefited from significant criminal activity,being money laundering and receiving. He also was satisfied there were reasonablegrounds to believe identified property in New Zealand property was 'tainted property'for the purposes of the Act. He accordingly made restraining orders over the property,3preventing its disposal or any dealing in it, and putting it under the Official Assignee'scustody and control.4Statutory context[4] The Commissioner may pursue on notice assets forfeiture orders for taintedproperty to vest absolutely in the Crown. Orders are made if the Court "is satisfied on1 High Court Rules 2016 ("HCR"), r 8.19.2 HCR 8.20.3 Commissioner of Police v Gong [2017] NZHC 603 at [36]–[37].4 Criminal Proceeds (Recovery) Act 2009, s 24.the balance of probabilities that specific property is tainted property".5 Typically, suchwill be in relation to property already restrained, for which the Court only required tobe "satisfied it has reasonable grounds to believe that any property is taintedproperty",6 that is, property acquired by or derived from significant criminal activity.7The Commissioner also may pursue profit forfeiture orders, to recover the net valueof unlawful benefit from significant criminal activity from the respondent as a debtdue to the Crown. Orders are made if the Court is satisfied on the balance ofprobabilities of such benefit, and the respondent's interest in property to realise it.8[5] Under the Act's subpart 7, the Commissioner may seek production orexamination orders to obtain relevant documents and to compel disclosure of relevantinformation,9 enforceable on non-compliance by search warrant under the Search andSurveillance Act 2012.10 Such may be necessary to satisfy the Act's burden of proof,although the threshold is only the information be "relevant" to the Commissioner'sinvestigations and proceedings under the Act.Commissioner seeks discovery[6] While previously in New Zealand, under an examination order, theCommissioner interviewed Mr Gong and sought he produce particular documents andinformation relating to the Commissioner's investigation. He has not. The documentsand information sought are likely to be in his control in Canada, where Mr Gongpresently is remanded on bail pending determination of offences under the CanadianCriminal Code 1985. The Commissioner has not sought further to enforce hisproduction and examination powers against Mr Gong in Canada.[7] On the present application, the Commissioner instead turns to the High CourtRules' provision for particular discovery, inferentially for such specified documentsor groups of documents as may provide the evidence required to prove on the balanceof probabilities the property is tainted property.5 Section 50.6 Section 24.7 Section 5(1).8 Section 55.9 Sections 104–105 and 106–107.10 Section 108.[8] There is an immediate difficulty with that course. The High Court Rules 2016specify applications under the Act "must be made by originating application".11Consistently with originating applications' attenuated nature, no explicit provision ismade for discovery. Nonetheless, HCR 19.11 draws in HCR 7.43A, to entitle the Courton an originating application to make "any direction or order that the court maymake under these rules". Those include the rules for particular discovery relied on bythe Commissioner on the present application. Each has its own requirements.—particular discovery after proceeding commenced[9] HCR 8.19 enables an order for particular discovery:[ i]f at any stage of the proceeding it appears to a Judge, from evidence orfrom the nature or circumstances of the case or from any document filed in theproceeding, that there are grounds for believing that a party has not discovered1 or more documents or a group of documents that should have beendiscovered .[10] But, by "should have been discovered", HCR 8.19 refers to parties' continuingobligation to give discovery of relevant documents after a discovery order is madeagainst them.12 The 'generous' approach to the words nonetheless is within thatambit.13 On an originating application, there may be no such order or obligation.[11] The Commissioner's counsel, Mark Harborow, says the Commissioner'spartially-unmet examination order is "akin to a pre-existing discovery order". Theobligation under s 106 of the Act for production of "any documents in the person'spossession or control or may be relevant to the investigation or to any proceedingsunder this Act" is materially broader than the obligation under HCR 8.7 to: disclose the documents that are or have been in that party's control and thatare—(a) documents on which the party relies; or(b) documents that adversely affect that party's own case; or11 HCR 19.2(1).12 HCR 8.18. By "discovery order" is meant "an order that requires each party to a proceeding todiscover the existence of documents to every other party": HCR 8.1 (definition of 'discoveryorder').13 For example, see Southland Building Society v Barlow Justice Ltd [2013] NZHC 1125 at [18]–[30]; Hoyle v Hoyle [2015] NZHC 3001 at [24].(c) documents that adversely affect another party's case; or(d) documents that support another party's case.But Mr Harborow also says, on the present application, the documents sought in factfit within the narrower description, and therefore can be sought under HCR 8.19.[12] I disagree. For HCR 8.19 to take effect in isolation on an originatingapplication, the words "should have been discovered" must be given a differentconstruction – essentially, that it is at least desirable for documents to be disclosed,notwithstanding the absence of any discovery obligation or order.[13] HCR 8.19 cannot carry that weight. The rule is part of a carefully constructedprocedure, starting with a Judge's obligation to "make a discovery order for aproceeding unless he or she considers that the proceeding can be justly disposed ofwithout any discovery".14 The absence of a discovery order in a proceeding implies itsjust disposition without any discovery. That, of course, is consistent with expectationsfor originating applications, where any requirement for discovery tends againstpermission for such commencement.15[14] In a proceeding that must be brought on originating application, a Judge maywell consider it could not justly be disposed of without discovery. If so, s/he may bebound to make a discovery order, which HCRs 19.11 and 7.43A enable. Such likely isan organising principle for cases accepting discovery is available on originatingapplications.16[15] It is well-accepted restraining orders are available to preserve property whileevidence is compiled for its subsequent forfeiture.17 But forfeiture orders are to be14 HCR 8.5(1).15 For example, see Hong Kong and Shanghai Banking Corporation Ltd v Erceg (2010) 20 PRNZ652 (HC) at [20] and [26]; Fisk v X [2014] NZHC 2797 at [18] (citations omitted); Solar BrightLtd v Martin [2019] NZHC 300 at [21].16 For example, see McCullagh v Robt. Jones Holdings Ltd [2015] NZHC 1462, (2015) 22 PRNZ615 at [3] and [6]; Commissioner of Police v Yan [2015] NZHC 3315 at [41]; ManchesterSecurities Ltd v Body Corporate 172108 [2015] NZCA 29 at [15], in which a discovery order wasmade by consent, providing a foundation for the subsequent particular discovery application; andcases cited in Commissioner of Inland Revenue v Elementary Solutions Ltd [2017] NZHC 2411 at[34] (the Associate Judge's references at [36] and [37] to "Part 19 proceedings" may have beenintended to refer to "Part 31 proceedings", the subject of the decision).17 Vincent v Commissioner of Police [2013] NZCA 412 at [45].sought in a separate proceeding, commenced by originating application.18 Theapplication for restraining orders sought in the present proceeding has justly beendisposed of without any discovery. The property has been preserved. No discoveryobligation or order exists. HCR 8.19 has no application.—particular discovery before proceeding commenced[16] HCR 8.20 enables discovery of particular documents required "to formulatethe intending plaintiff's claim" – where the intending plaintiff may be entitled to claimrelief against someone, and there are grounds to believe an identified person hascontrol of the documents – if "the order is necessary at the time when the order ismade".[17] Plainly the Commissioner at least may be entitled to claim forfeiture ordersagainst Mr Gong, and Mr Gong has control of documents at least relevant to that relief.The Commissioner's claim will be impossible or impracticable to formulate if he lacksthe information necessary to "plead the claim in accordance with the requirements ofthe Rules".19[18] A claim for forfeiture orders must be formulated in accordance with HCR7.19.20 The originating application must "state the relief sought and the groundsjustifying that relief", with reference to "any particular enactments or principles of lawor judicial decisions on which the applicant relies".21[19] On application for an assets forfeiture order, then, the relief sought is theproperty vests in the Crown absolutely and is in the custody and control of the OfficialAssignee.22 The ground justifying that relief is the property is "tainted property":23(a) any property that has, wholly or in part, been—(i) acquired as a result of significant criminal activity; or(ii) directly or indirectly derived from significant criminal activity; and18 HCR 19.7(1).19 Exchange Commerce Corp Ltd v NZ News Ltd [1987] 2 NZLR 160 (CA) at 164.20 HCR 19.10(a).21 HCR 7.19(1).22 Criminal Proceeds (Recovery) Act 2009, s 50.23 Section 5(1) (definition of 'tainted property').(b) includes any property that has been acquired as a result of, or directly orindirectly derived from, more than 1 activity if at least 1 of those activitiesis a significant criminal activity.In other words, formulation of the claim will require a sufficiently-pleaded assertionof the property's acquisition as a result of or derivation from significant criminalactivity. By 'significant criminal activity' is meant "activity engaged in by a personthat if proceeded against as a criminal offence would amount to [specified] offending",whether or not the person is charged, acquitted, or convicted of an offence.24[20] On application for a profit forfeiture order, the relief sought is the Court'sspecification of each the value of the respondent's unlawful benefit from relevantsignificant criminal activity, the maximum recoverable amount (after deduction of thevalue of forfeited assets from the value of the benefit), and the property for disposal.25The grounds justifying that relief are the respondent has unlawfully benefited fromsignificant criminal activity within the relevant period of criminal activity, and hasinterests in property. Again, formulation of the claim will require a sufficiently-pleaded assertion of the value of the benefit and its derivation from significant criminalactivity, as well as the respondent's interests in property.[21] It is unclear precisely what assertions the Commissioner says he cannot, butneed, make to plead his claim for forfeiture orders. Plainly no documents are requiredto enable him to plead the relief sought on assets forfeiture; some further documentsmay be required to plead the relief sought on profit forfeiture; the bulk of documentssought are to enable pleading of the grounds for either form of relief. Reference to allof the extensive list of sought documentation, annexed to the present application andsubsequently amended on the Commissioner's receipt of further information from theOntario Securities Commission, is not necessary to enable pleading to that extent.[22] But formulation of a claim in proceedings commenced by originatingapplication goes further than mere specification of the relief and its grounds. Despitethe oral evidence alternative provided by HCR 19.13, "[a]ny affidavit in support of theapplication must be filed at the same time as the application".26 As with the HCRs'24 Section 6.25 Section 55.26 HCRs 19.10(1)(b) and 7.20.requirement for particularised claims,27 the accompanying affidavit is to ensure theopposing party is not taken by surprise.28 In context, the expectation on originatingapplications is the whole of relief and grounds on which it is sought, and evidence inits support, is filed contemporaneously – all that being the formulation of the claim.[23] All the same, as particular discovery, I should still have to be satisfied as to theaspect(s) of formulation of the Commissioner's claim sought to be met by referenceto identified documents or groups of documents. That reference is what distinguishesparticular discovery from standard discovery. At a simplistic level, I accept it isimpossible or impracticable for the Commissioner to assert the property's acquisitionor derivation from significant criminal activity, and the value of Mr Gong's allegedbenefit from the latter, without reference to information connecting the property to theactivity. That is likely to be a significant tracing exercise.[24] The documents sought by the Commissioner suggest he intends to do so, top-down, from a universe of possible relevant information. The Commissioner seeksdetails of all Mr Gong's and related entities' bank accounts, or over which Mr Gonghas any signing authority; of all entities, property, and assets in which he has anyinterest; and all business, conveyancing, financial, meeting, and tax records, includingaccounting electronic backups and passwords; as well as details of all businessconnections, accountants and lawyers. He also seeks information produced for thepurposes of the health supplements scheme, and of the supplier factory.[25] Particular discovery anticipates a bottom-up analysis, rather than the standarddiscovery approach adopted by the Commissioner. Best practice is to submit a draftapplication and affidavit, identifying what additional information is sought byreference to specific allegations, to illustrate the materiality of the sought particulardocuments or groups of documents in formulation of the intended claim.29 Once the27 HCR 5.26: in addition to showing the general nature of the plaintiff's claim to the relief sought,giving "sufficient particulars of time, place, amounts, names of persons, nature and dates ofinstruments, and other circumstances to inform the court and the party or parties against whomrelief is sought of the plaintiff's cause of action".28 Premier Events Group Ltd v Beattie [2012] NZHC 1025 at [30].29 Welgas Holdings Ltd v Petroleum Corp of NZ Ltd (1991) 3 PRNZ 33 (HC) at 46; Truck MasterLtd v Mastagard Waste Ltd [2014] NZHC 1676 at [19] and [73].claim is articulated and the proceeding commenced, standard or tailored discoverymay be sought if required for its just disposition, even on originating application.30[26] Mr Gong's counsel, Tony Ellis, endorses such submission of draft documentswhile asserting the exceptionality of pre-commencement discovery. He says theCommissioner is seeking to use the process on an impermissible 'fishing expedition',looking for rather than at prospective causes of action.31 As the Commissioner mustidentify predicate offences in Canada as the foundation for money-laundering andreceiving offending in New Zealand, Mr Ellis is critical of the Commissioner's expresssubmission pre-commencement discovery is sought to consider "whether" the fundsat issue are so derived, "or otherwise".[27] There is no 'exceptionality' to pre-commencement discovery beyond thenecessity for its order. The Commissioner is looking 'at' identified causes of action inNew Zealand. If pre-commencement discovery from Canada is necessary to formulatethat claim by reference to predicate offending, that is not fishing in the relevant sense.And s 6(2)'s allowance significant criminal activity does not require charge orconviction may extend to the predicate offending (for example, including "any act,wherever committed, that would be an offence in New Zealand if committed inNew Zealand").32[28] Mr Ellis says pre-commencement discovery should not be permitted at all, asit would be to "circumvent important safeguards built in to the criminal part of the the[Act's] regime". He says the "internal logic" of the Act's "hybrid system" anticipatesprimacy being given to that part, so civil procedural powers only may be exercised"after the criminal investigation has finished". Inferentially, pre-commencementdiscovery cannot yet be 'necessary'.[29] I disagree. Nothing in the Act establishes effectively a stay on civilproceedings, pending criminal determinations. The Act's express limitations,disciplines and powers are capable of being duplicated, where necessary, in exercise30 See [14] above.31 Re Securitibank (No 31) (1984) 1 PRNZ 514 (HC) at 519–520.32 Crimes Act 1961, s 243(1) (definition of 'offence').of the discretion to grant pre-commencement discovery. That is not likely to berequired of the only substantive safeguard emphasised by Mr Ellis: s 165's limitationsto the admissibility of self-incriminating statements made in response to production orexamination orders. As Mr Ellis himself recognises, collateral use of discovereddocuments is prohibited,33 at least without leave,34 on application for which here s 165would carry significant weight.[30] Mr Ellis also says the Commissioner should prefer reliance on the MutualAssistance in Criminal Matters Act 1992. But that does not deny the availability ofpre-commencement discovery in appropriate circumstances. 'Necessity' is about theorder at the time of its making, and not the proceeding at the time of its issue.Interim result[31] I am satisfied from the Commissioner's evidence:(a) he is entitled to claim forfeiture orders against Mr Gong, but it isimpossible or impracticable to formulate his claim without reference todocuments or groups of documents; and(b) there are grounds to believe such documents are in Mr Gong's control.He admits having records relating to the immediate, intermediate andultimate sources of the funds he remitted to New Zealand, or used topurchase assets here, and the activities by which they were generated.But I lack the specificity to identify what particular documents or groups of documentsmay be necessary to enable formulation of the Commissioner's claim.Next steps[32] Rather than dismiss the Commissioner's application for its present lack ofspecificity, I invite counsel (desirably jointly) to submit a timetable within which theCommissioner will file and serve an originating application for forfeiture orders andsupporting affidavit, both in draft, to illustrate the particular documents or groups of33 HCR 8.30(4).34 Wilson v White [2005] 3 NZLR 619 (CA) at [47].documents necessary to enable their formulation. I anticipate the timetable shouldprovide also for an exchange of memoranda as to such necessity in the particularcircumstances, and possibly for a further hearing if final determination on those papersis not desired.—Jagose J