SOLICITOR-GENERAL V X (CA173/2009) AND ANOR CA CA173/2009

SOLICITOR-GENERAL V X (CA173/2009) AND ANOR CA CA173/2009 14 October 2009ORDER PROHIBITING PUBLICATION OF THE JUDGMENT AND ANY PART OF THE PROCEEDINGS (INCLUDING THE RESULT) IN NEWS MEDIA OR ON THE INTERNET OR OTHER PUBLICLY AVAILABLE DATABASE UNTIL FINAL DISPOSITION OF TRIAL. PUBLICATION IN LAW REPORT OR LAW DIGEST PERMITTED. IN THE COURT OF APPEAL OF NEW ZEALAND CA173/2009 CA174/2009 [2009] NZCA 476 THE SOLICITOR-GENERALvX (CA173/2009) Y (CA174/2009)Hearing: 27 July 2009 Court: Hammond, Ronald Young and Simon France JJ Counsel: N P Chisnall and M Inwood for Crown J H M Eaton for Respondent X J R Rapley and C Gallavin for Respondent Y Judgment: 14 October 2009 at 10 amJUDGMENT OF THE COURT A The application for leave to appeal is granted. B The appeal is dismissed.C Order prohibiting publication of the judgment and any part of the proceedings (including the result) in news media or on the internet or other publicly available database until final disposition of trial. Publication in Law Report or Law Digest permitted. REASONS OF THE COURT(Given by Hammond J)Table of ContentsPara NoIntroduction [1]Worsley Spur and a spurious transaction [3]Enter Mr Zhou [21]The Mutual Assistance in Criminal Matters Act 1992 [24]Judge Farish's 344A Crimes Act 1961 decision [28]The appeal [31]Mr Zhou's availability as a witness [34]Conclusion [43]Introduction[1] The respondents, Mr X and Mr Y, are jointly charged with counts of dishonestly using a document and money laundering: ss 228 and 243 of the Crimes Act 1961. X also faces one count of attempting to obstruct the course of justice: s 117(e) of the Crimes Act. Their trial is scheduled to commence on 23 November 2009. [2] The Solicitor-General seeks leave to appeal against a decision of Judge Farish in the District Court at Christchurch. The Judge declined the Crown's application under s 22(2) of the Evidence Act 2006 to adduce a hearsay statement in evidence at the respondents' trial: DC CHCH CRI-2006-009-007790 24 February 2009. The application for leave to appeal and the appeal were heard together by this Court.Worsley Spur and a spurious transaction[3] Mr Li, a Chinese national, settled in New Zealand in March 2003. He started a property development company when he arrived in New Zealand along with Ms Liu, his business partner. [4] X, a partner in a Christchurch law firm, was introduced to Mr Li via Ms Liu; he acted as Mr Li's agent in respect of his residency application and was aware that Mr Li was eager to identify property development opportunities. [5] Y had met X in 1999 through a common desire to develop business relationships with Chinese nationals. [6] The context of the charges against X and Y concerned Worsley's Spur, a large piece of farmland on the outskirts of Christchurch. X, on Mr Li's behalf, asked Y whether land was available to purchase for development purposes at Worsley's Spur. [7] In November 2003, Y approached Mr Collins, a real estate agent and shareholder in Arboretum Ridge Estates Ltd (Arboretum). Arboretum had purchased Worsley's Spur prior to separate titles issuing in respect of each lot. Mr Collins advised Y that he would approach Arboretum's shareholders to determine if they wished to sell Worsley's Spur. [8] Mr Collins later met with Mr Li, who intended to incorporate a company entitled "Worsley Prestige Limited". Y participated in the negotiations as a "communicator" and assisted in brokering a successful sale agreement. X interpreted during the discussions. Mr Li also had his own translator present at times. [9] Mr Li was interested in purchasing Worsley's Spur rather than the related shares. Mr Collins accepted this proposal, with the proviso that the sale price would increase from $5 m to $5.5 m to account for tax consequences flowing from the transaction.[10] The alleged fraud commenced when X represented to Mr Li that the purchase price was $6.1 m. Mr Li was also unaware of a contractual obligation to pay Mr Collins a $150,000 commission payment for brokering the deal. [11] On 30 January 2004, Mr Li signed an agreement to purchase Worsley's Spur, as Worsley Prestige Limited's nominee, for $6.1 m plus GST. Prior to the date of settlement (21 April 2004), Worsley Prestige Limited was incorporated. The shareholding was as follows, with one share equalling one dollar of the purchase price: Mr Li (2.7 million shares); Ms Liu (1 million shares); Y (1.9 million shares); and X (500,000 shares). [12] Because Mr Li was the only shareholder whose shares were fully paid up, Worsley Prestige Limited made an application to Westpac Bank for a loan of $2.8 m to settle the purchase of Worsley's Spur. The legitimacy of the amounts paid for Worsley's Spur ($5.5 m) and Mr Colin's commission ($150,000) are not in dispute. But it is alleged that the remaining $450,000 comprised a secret commission for the respondents. It was deposited into a bank account held in the names of X and his wife as trustees of the ACTS Trust, of which Y is the beneficiary. [13] Unbeknownst to Mr Li and Ms Liu, Y arranged for a commission agreement to be drawn up by Mr Wolfe, who was Arboretum's solicitor during the sale. Y directly advised Mr Wolfe of the terms to be included in the agreement, which named Arboretum as the principal and a Dr Chuang as "the agent". Although Mr Wolfe had no direct dealings with Dr Chuang, Y advised Mr Wolfe that Dr Chuang was the agent for a man based in China, Mr Zhou, and that he (Y) was acting on Mr Zhou's instructions. [14] Dr Chuang is X's friend. In early 2004, X asked that Dr Chuang receive, on his behalf, a commission payment that X asserted he had obtained via the sale of land. [15] On 17 March 2004, Y telephoned Dr Chuang. He said that he was X's business associate and subsequently faxed a copy of the commission agreement that Mr Wolfe had prepared on his behalf. The agreement has already been signed byArboretum. Dr Chuang signed the agreement and faxed it back to Y on 18 March 2004. [16] The commission agreement attributed retrospective credit to Dr Chuang for locating Mr Li and enabling him to purchase Worsley's Spur. The agreement's operative clause recorded that Dr Chuang was to approach those whom he had identified as potential purchasers residing in China, with the intent of initiating the sale of Worsley's Spur. The consideration for providing this service was $450,000, equivalent to the amount of the alleged secret commission (see [12] above). [17] On 4 April 2004, X emailed Dr Chuang and advised that the transaction was to settle on 15 April 2004. Dr Chuang, at X's bequest, advised Mr Wolfe that the $450,000 was to be paid to a specified bank account in Hong Kong. On 15 April 2004, X emailed Dr Chuang three pre-prepared letters that instructed Mr Wolfe to pay specified amounts from the proceeds of the commission to X's wife. Dr Chuang subsequently forwarded these letters to Mr Wolfe. Shortly after, X advised Dr Chuang that part of the commission payment was to be returned to New Zealand. On 26 April 2004, X emailed Dr Chuang the account number for the ACTS Trust and requested that he deposit the commission payment into it. [18] On 30 April 2004, $450,000 was transferred to Dr Chuang's Hong Kong account. On 5 May 2004, Dr Chuang transferred $436,000 to the ACTS Trust's account. Both X and Y withdrew funds from this account over time. The remainder of the commission was subsequently provided to X and his wife when they met Dr Chuang in Hong Kong. [19] Y's explanation to the Serious Fraud Office (SFO) was that Mr Zhou had instructed Dr Chuang to remit $436,000 to the ACTS Trust's account. [20] The SFO commenced its investigation on 20 January 2005. X attended an interview on a voluntary basis on 16 March 2005, where the details of the suspected offending were put to him. In early April 2005, X telephoned Dr Chuang and told him that an issue had arisen regarding the commission transaction. Dr Chuang subsequently received a facsimile from X that stated that the "Special Fraud Squad"in New Zealand had received a complaint. The fax requested that Dr Chuang pretend to be Mr Zhou's agent. The fax provided instructions that X intended Dr Chuang to follow should he be approached by the New Zealand authorities. This fax provided the basis of the obstruction count faced by X.Enter Mr Zhou[21] Mr Zhou made the hearsay statement that is the subject of this Crown appeal. He was interviewed by Chinese law enforcement officials on 31 July 2006, triggered by a request made by the New Zealand Central Authority to China's Central Authority under the Mutual Assistance in Criminal Matters Act 1992 (MACMA). [22] In the interview, Mr Zhou was asked whether he knew either Mr Li or Dr Chuang, and he responded that he did not know Dr Chuang. While he acknowledged that he had met X, X's wife and Y in China, Mr Zhou stated that he was not owed any money by them. While X had asked him whether he could find potential buyers for Worsley's Spur, he was not able to do so and was not expecting to be reimbursed for his fruitless efforts. He further noted that "there was [sic] no actual financial transactions". [23] The Crown places importance on the translated document of Mr Zhou's statement because it says it confirms that the respondents' defence – that there was a commission payable to Mr Zhou – was a lie.The Mutual Assistance in Criminal Matters Act 1992[24] In June 2007, the Attorney-General sent China's Central Authority a request to arrange for Mr Zhou to attend a preliminary hearing in Christchurch. A similar request was made to the Hong Kong authorities to facilitate Dr Chuang's attendance. Neither request was fruitful because China's Central Authority failed to respond. [25] The requests to China were made under s 12 of MACMA. Although the Treaty between New Zealand and China on Mutual Legal Assistance in CriminalMatters was signed on 6 April 2006, it did not come into force until 1 January 2008. Section 12(1) provides:Where the Attorney-General is satisfied that there are reasonable grounds for believing that a person in a foreign country could give or provide evidence or assistance relevant to any criminal matter in New Zealand, the Attorney- General may request that foreign country to assist in arranging the attendance of the person in New Zealand to give or provide that evidence or, as the case may be, that assistance.[26] In December 2007, the Attorney-General made a further request under s 12 of MACMA, which sought Mr Li's and Mr Zhou's presence at the trial in June 2008. In the alternative, the Attorney-General sought China's assistance with arranging a video-link between China and New Zealand. [27] Neither Mr Zhou nor Mr Li agreed to travel to New Zealand. Their reasons for declining to do so are unknown, as they were not transmitted to the Attorney- General by China's Central Authority. Section 14 of MACMA prevents a person who refuses to consent to a request that he or she travel to New Zealand from being penalised. This is because there is no legal obligation on a foreign national to attend and give evidence in a New Zealand court.Judge Farish's s 344A Crimes Act 1961 decision[28] As noted at [2] above, Judge Farish declined the SFO's application to adduce Mr Zhou's hearsay statement in evidence at the respondents' trial. According to Judge Farish (at [51]), the SFO had proposed to have the evidence read or presented to the District Court by the registrar or the investigating officer. [29] The Judge declined the SFO's application in relation to Mr Zhou for a number of reasons. First, there was an indequate record of precisely how Mr Zhou's statement was taken by Chinese officials (at [49]). Secondly, while Mr Zhou had made his statement in the knowledge that there were potential adverse consequences should he not be truthful, there was no evidence that these consequences had been precisely explained (at [49]). Thirdly, the respondents would be prejudiced by not having an opportunity to cross-examine Mr Zhou (at [52]).[30] The Judge also declined the SFO's application to introduce the deposition of Mr Li. However, the Crown is not appealing that decision.The appeal[31] Mr Chisnall for the Crown challenged Judge Farish's refusal of the SFO application in relation to Mr Zhou's evidence. He submitted that the appropriate course, having regard to s 18 of the Evidence Act (the admissibility of hearsay statements provision), is for this Court to substitute its own discretion for that of the Judge and admit Mr Zhou's statement into evidence. [32] There is no dispute on this appeal that the statement is relevant under s 7(3) of the Evidence Act: "evidence is relevant in a proceeding if it has a tendency to prove or disprove anything that is of consequence to the determination of the proceeding." Mr Chisnall persuasively argued that Mr Zhou's statement is relevant because it responds to the assertion that a commission payment was due to Mr Zhou. Mr Zhou's statement closes the "transactional loop" because he is the only person who can definitively say that he did not introduce Mr Li to the Worsley's Spur transaction, and to refute that the commission agreement was created so as to facilitate the payment to him of an amount previously agreed upon with X and Y. [33] In our view, the critical issue on this appeal is whether Mr Zhou is unavailable as a witness in terms of the Evidence Act.Mr Zhou's availability as a witness[34] Section 18(1) of the Evidence Act provides:(1) A hearsay statement is admissible in any proceeding if – (a) the circumstances relating to the statement provide reasonable assurance that the statement is reliable; and (b) either – (i) the maker of the statement is unavailable as a witness; or(ii) the Judge considers that undue expense or delay would be caused if the maker of the statement were required to be a witness.[35] Mr Chisnall initially argued that Mr Zhou was "unavailable as a witness" because he was not compellable to give evidence (see s 16(2)(e)). But that is not correct. The scheme of the Evidence Act, as expressed in s 71, is that everyone is compellable unless they come within the exceptions set out at ss 72 to 75. A person does not have to be living in New Zealand in order to be eligible to give evidence. The fact that enforcement of the compellability may be difficult or even impossible does not make a person non-compellable in terms of the Evidence Act. By the end of oral argument, the Crown had accepted this proposition. [36] The Crown also relied on s 16(2)(b), which provides that a person is unavailable as a witness in a proceeding if that person is outside New Zealand and it is not reasonably practicable for him or her to be a witness. Mr Zhou is undoubtedly outside New Zealand. The focus of the appeal necessarily shifts to the factual issue of reasonable practicability: what steps had been taken to secure Mr Zhou's attendance at trial, whether in person, or by some technological means, such as video-link? [37] We are not satisfied that the Crown has discharged the burden of demonstrating that it was not reasonably practicable for Mr Zhou to be a witness. [38] The evidence is clear that the Crown has made requests to China's Central Authority, but that the Authority failed to respond (see [24]-[27] above). But the matter cannot end there. Mr Zhou's contact details are known to the Crown. Yet no evidence was advanced to the District Court, or for that matter to this Court, as to why direct inquiries of the witness are no longer permissible or practicable, or that the witness himself was unresponsive. [39] In short, it was not sufficient in this instance for the Crown to simply assert that China's Central Authority has not responded. [40] It follows that an essential precondition for resort to s 18 of the Evidence Act (s 18(1)(b)(i)) has not presently been met. The appeal is therefore dismissed.[41] We observe however that this dismissal would not appear to preclude a further application by the Crown to the District Court if the evidential deficiencies we have identified can be rectified, or if there is evidence that, for reasons not presently before us, there is some reason why the witness cannot be approached directly. [42] Given the basis of this Court's reasoning, it is neither necessary nor appropriate for us to comment on whether the other conditions for admissibility, such as reliability, are met. This is because we do not know what Mr Zhou might say if he is approached directly. Because of the way we have disposed of the appeal, this judgment should not be interpreted as an endorsement of Judge Farish's approach to the SFO application in other respects.Conclusion[43] The application for leave to appeal is granted. [44] The appeal is dismissed. [45] Order prohibiting publication of the judgment and any part of the proceedings (including the result) in news media or on the internet or other publicly available database until final disposition of trial. Publication in Law Report or Law Digest permitted.Solicitors: Crown Law Office, Wellington Ambler Tee, Christchurch for Respondent X Tomlinson Paull, Christchurch for Respondent Y