THE COMMISSIONER, THE NEW ZEALAND POLICE v RAE [2020] NZHC 3132

THE COMMISSIONER, THE NEW ZEALAND POLICE v RAE [2020] NZHC 3132 [26 November 2020]ORDER PROHIBITING PUBLICATION OF NAMES, ADDRESSES ORIDENTIFYING PARTICULARS OF CONNECTED PERSONS.IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2020-485-43[2020] NZHC 3132UNDER the Criminal Proceeds (Recovery) Act 2009IN THE MATTER OF an application under sections 22, 24 and 25BETWEEN THE COMMISSIONER, THENEW ZEALAND POLICEApplicantAND DAVID CHARLES RAERespondentAND SARAH LOUISE RAEFirst Interested PartyS LIMITEDSecond Interested PartyR LIMITEDThird Interested PartyHearing: 20-21 October 2020Counsel: A Britton/S B McCusker for the ApplicantY Wang/R Langdana for the RespondentM G Robinson for the United States Government (Non-party)Judgment: 26 November 2020JUDGMENT OF COOKE JTable of ContentsFactual background [6]Grounds for restraint [19]The statutory requirements [22]The alleged offending [26]Are there reasonable grounds to believe the offence was committed? [31]Material non-disclosure [42]The obligation [43]Breach of the obligation [48]Consequences of breach [53]Was the breach here egregious? [59]Abuse of process [67]The arguments advanced [68]Assessment [70]Service on parties [82]Costs [87]Conclusion and formal orders [91][1] By application dated 19 February 2020 the Commissioner seeks an on noticerestraining order pursuant to ss 21, 24 and 25 of the Criminal Proceeds (Recovery) Act2009 (the Act). The application seeks continuation of restraining orders made by meon a without notice basis on 13 February 2020. The restraint covers certain funds inNew Zealand bank accounts totalling more than US$6.5 million.[2] On 23 June 2020 I discharged the restraint in relation to one of the accounts sorestrained having a balance of approximately $50,520.70. It became apparent afterservice of the proceedings on Mr Rae, the first respondent, that certain importantinformation had not been disclosed to the Court when the without notice orders weremade. After hearing from Mr Rae I determined the appropriate course was for theCommissioner's on notice application for restraint to be set down for hearing, and forMr Rae's complaints in relation to what had not been put before the Court to beaddressed at that time. I discharged the restraint over the funds referred to above givenwhat appeared to be material non-disclosure when the without notice application hadbeen made, and to ensure that Mr Rae had the ability to obtain legal representation inNew Zealand, particularly in the circumstances of the COVID-19 pandemic. At thetime Mr Rae was in Thailand.[3] The application for restraint on notice is opposed by Mr Rae by notice ofopposition dated 26 June 2020. There are two grounds of opposition — that the ordershould be discharged in its entirety because of the Commissioner's failure to discloserelevant information when the without notice orders were sought, and that the ordershould be discharged on the basis that the proceedings are an abuse of process.[4] Voluminous material has been filed. A number of affidavits with extensiveexhibits have been provided in support of the application. Affidavits have also beenfiled by Mr Rae. Cross-examination took place on those affidavits over a period ofmore than a day and a half, with the deponents being cross-examined by audio visuallink from the United States and Thailand given the location of the witnesses, and theimplications of COVID-19. The Commissioner's written submissions in support ofthe application totalled some 84 pages, and Mr Rae's 29 pages.[5] Much of this material, particularly the cross-examination, has ultimately littlerelevance to what the Court is called upon to decide, however.Factual background[6] I begin by setting out the factual background. Whilst detailed information hasbeen put before the Court, for the purposes of a summary I can confine myself to ageneral overview.[7] The Commissioner alleges that Mr Rae has engaged in money launderingwhich is an offence under s 243(2) of the Crimes Act 1961. He alleges that Mr Raehas used entities to "launder" proceeds of fraudulent schemes that took place in theUnited States, and that the proceeds currently held in the New Zealand bank accountsare proceeds of those frauds.[8] Similar allegations have also been investigated in the United States. On19 December 2019 Mr Rae pleaded guilty in the United States District Court for theDistrict of New Jersey to one count of conspiracy to commit international moneylaundering. On 7 February 2020 he was sentenced to 10 months' imprisonment, andwas released on time served.[9] There are two related fraudulent schemes which the Commissioner allegeswere in existence. The first is a durable medical equipment scheme, and the second isa cancer screening scheme. Both seek to take advantage of the Medicare system ofmedical insurance operating in the United States.[10] The alleged fraud in relation to durable medical equipment is alleged to havetaken advantage of the Medicare insurance benefits for disabled individuals aged 65and over. Those benefits include cover for medical equipment such as arm, leg, backand neck braces. It is alleged that telemarketers persuaded beneficiaries of thisinsurance to obtain such equipment irrespective of medical need. The telemarketerswould then refer those patients to a doctor, who would write prescriptions for thepatients for a flat fee, and without any meaningful patient interaction. Companieswould then supply the equipment to the patients, and then submit what theCommissioner says were fraudulently and unlawfully obtained claims to Medicare forpayment. The companies that supplied the equipment then paid commissions, referredto as "kickbacks" to the telemarketers. It is alleged that this fraudulent system was setup by the beneficial owners of at least 22 equipment supply companies.[11] The cancer screening scheme allegedly followed a similar general pattern.Medicare covers genetic cancer screening by clinical laboratories. Again it is allegedthat telemarketers, a telemedicine company, and a clinical laboratory that undertakesgenetic cancer screening persuaded patients to undertake genetic cancer screeningirrespective of need, with claims then being filed with Medicare (or private insurers),and kickbacks then earned.[12] Part of the allegations in relation to both of these schemes include a contentionthat both involve a violation of a Federal "anti-kickback statute".1 I understand thisstatute to prohibit commissions being earned for such referrals, and that the allegationseffectively involve offending in the nature of earning secret commissions. But theallegations go further, certainly in respect of the medical equipment scheme, on thebasis that there was no genuine need for the medical service. In other words thesewere dishonest claims for those medical services.1 Public Health and Welfare Act 42 USC § 1320a, s 7b(b).[13] It is alleged that the architects, or at least proponents, of these schemes wereMr Aaron Williamsky and Ms Nadia Levit. The majority of the funds in theNew Zealand bank accounts are in the name of the second interested party, S Ltd. TheCommissioner alleges that Mr Williamsky is the true owner of these funds, and thatMr Rae is only the nominal beneficiary of the accounts in his capacity as a moneylaunderer, albeit he is entitled to some of the proceeds.[14] It is alleged that Mr Rae is in the business of offering international businessstructures through vehicles incorporated in various jurisdictions which are then usedto assist persons like Mr Williamsky to dissipate funds from their fraudulent activitiesin order to avoid detection. It is alleged that Mr Rae does this for a fee, representingpart of the return from the illegitimate activities.[15] In particular, in relation to the medical equipment scheme it is alleged thatproceeds were moved from a bank account in New Jersey to a bank account in HongKong in the name of Cargill Consulting Ltd. It is then alleged that funds from theCargill account were moved into the New Zealand accounts in the names of the secondand third interested parties, "S Ltd" and "R Ltd". Similarly funds in relation to thecancer screening scheme in the name of a company called Clinical Lab Solutions LLCwere also transferred into the S Ltd account.[16] On 9 April 2019 Mr Rae was arrested and indicted in the state of New Jerseyon two counts of money laundering. He was also indicted in the state of SouthCarolina for money laundering. On 19 December 2019 Mr Rae and the United StatesDepartment of Justice entered a formal plea agreement by way of counter-signed letter.Under the terms of that plea agreement:(a) Mr Rae agreed to plead guilty to two counts of money laundering in theNew Jersey indictment, and the one count of money laundering in theSouth Carolina indictment.(b) In terms of forfeiture Mr Rae agreed to pay US$1,775,000 in relationto the indictments, and to forfeit all of his right, title, or interest inproperty referred to in a schedule. This included the proceeds in theANZ S Ltd account.(c) Mr Rae agreed that he would not file any claim in any forfeitureproceedings in respect of the property in the schedule.(d) The Department of Justice for New Jersey agreed not to initiate anyfurther criminal charges against Mr Rae for his role in internationalmoney laundering.[17] The plea agreement did not address the R Ltd accounts. The evidence disclosesthat there was a proposal that the agreement would cover the R Ltd accounts, but itwas agreed that it would not do so.[18] It is also common ground that Mr Rae cooperated with the United Statesauthorities, including by providing information at interviews, and that the pleaagreement recognised the cooperation he had given. These factors are also reflectedin the sentence imposed after Mr Rae entered guilty pleas, which effectively involvedhis release on time served.Grounds for restraint[19] I deal first with the requirements set out in the Act for obtaining a restrainingorder on notice. There are two preliminary points of significance.[20] First, it is possible to obtain restraint orders in support of foreign forfeitureorders under ss 140–147 of the Act. That applies when a foreign court has made aforfeiture order, and there is a request for New Zealand assistance under the MutualAssistance in Criminal Matters Act 1992. That is potentially relevant here because theUnited States Court for the District of New Jersey had made what is in substance aprofit forfeiture order for an amount of US$1,775,000. But the Commissioner herehas not proceeded in accordance with those provisions. What he has sought isrestraining orders in relation to an anticipated forfeiture application for New Zealandoffending. That has significance in the present case in terms of Mr Rae's oppositionon the grounds of abuse of process, which I address below.2[21] Secondly Mr Rae's opposition to the restraint application does not include achallenge or opposition to the establishment of the requirements for a restraint orderon notice. Rather the opposition is based on the contention that any restraint ordersshould be discharged for the reasons I have summarised. Ms Wang explained that thisstance had been taken for essentially for strategic reasons, principally because of thelow threshold that needs to be established in relation to the allegations of offendingbefore the Court can make a restraint order. Having said that, Mr Rae does not consentto the orders so it is still necessary for the Commissioner to satisfy the Court that thestatutory requirements are met.The statutory requirements[22] The Commissioner's application relies on both ss 24 and 25 of the Act. Section25 provides:25 Making restraining order relating to all or part of respondent'sproperty(1) A court hearing an application for a restraining order relating to all orpart of a respondent's property may, if the court is satisfied it hasreasonable grounds to believe that the respondent has unlawfullybenefited from significant criminal activity, make an order that theproperty it specifies in the order (restrained property)—(a) is not to be disposed of, or dealt with, other than is provided forin the restraining order; and(b) is to be under the Official Assignee's custody and control.(2) A restraining order made under subsection (1) may relate to any of thefollowing:(a) all of a respondent's property (including property acquired afterthe making of the order):(b) specified parts of a respondent's property:(c) all of a respondent's property (including property acquired afterthe making of the order) other than specifically excludedproperty.2 See [70]–[78] below.[23] Significant criminal activity is defined in s 6, and by way of summary involvesoffences punishable by a maximum term of five years or more, or an offence whereproperty, proceeds or benefits of $30,000 or more have been acquired or derived. Theapplication here is only in relation to particular property, being the funds in theNew Zealand bank accounts I have referred to. Section 24 involves similarrequirements for an order in relation to specific property if that property is "taintedproperty" as defined.3[24] The relevant requirements for making orders under s 25 were summarised byClark J in Commissioner of Police v Smith:4[10] The threshold for making an order under s 25 has been described as"relatively low".5 That is because the court is not required to make a findingthat the respondent has unlawfully benefited from significant criminal activity.As the Court of Appeal explained in Vincent v Commissioner of Policerestraining orders are often sought in situations of urgency.6 Restrainingorders are temporary orders to give the police time to gather further evidenceleading to possible forfeiture of property. Restraining orders are made wherethe court has reasonable grounds for the requisite statutory belief.7 The onuson the Commissioner is not one of proof but to adduce a sufficient evidentialbasis to enable the court to be satisfied it has reasonable grounds for therequisite belief. Thus, an application for a restraining order may proceedjustifiably on an evidentiary basis that in other contexts would be regarded asnon-compliant with requirements of the Evidence Act 2006 as toadmissibility.8[25] The last point is a significant one. At the restraint stage the Commissioner isnot expected to adduce evidence in relation to the underlying allegations meetingevidentiary standards normally relevant to making those allegations, for example therules in relation to hearsay. Rather the evidence is directed to a reasonable belief, andthat belief can arise from other than admissible evidence. In the present case theprimary evidence of the alleged underlying offending has been provided in theaffidavits of FBI Special Agent Marc VanZetta, although there is also relevantevidence in other affidavits filed.3 Criminal Proceeds (Recovery) Act 2009, s 5, definition of "tainted property".4 Commissioner of Police v Smith [2018] NZHC 10.5 See for example the cases cited at Bruce Robertson (ed) Adams on Criminal Law (looseleaf ed,Thomson Reuters) at [CP25.02].6 Vincent v Commissioner of Police [2013] NZCA 412 at [47].7 That is, in the case of applications under s 24 that the property is "tainted" property and in the caseof applications under s 25 that the respondent had unlawfully benefitted from significant criminalactivity.8 Vincent v Commissioner of Police, above n 6, at [45]–[48].The alleged offending[26] The relevant offending alleged by the Commissioner is money launderingunder s 243 of the Crimes Act 1961. That section provides:243 Money laundering(1) For the purposes of this section and sections 243A, 244 and 245,—act includes an omissionconceal, in relation to property, means to conceal or disguise theproperty; and includes, without limitation,—(a) to convert the property from one form to another:(b) to conceal or disguise the nature, source, location, disposition, orownership of the property or of any interest in the propertydeal with, in relation to property, means to deal with the property inany manner and by any means; and includes, without limitation,—(a) to dispose of the property, whether by way of sale, purchase, gift,or otherwise:(b) to transfer possession of the property:(c) to bring the property into New Zealand:(d) to remove the property from New Zealandinterest, in relation to property, means—(a) a legal or equitable estate or interest in the property; or(b) a right, power, or privilege in connection with the propertyoffence means an offence (or any offence described as a crime) that ispunishable under New Zealand law, including any act, wherevercommitted, that would be an offence in New Zealand if committed inNew Zealandproceeds, in relation to an offence, means any property that is derivedor realised, directly or indirectly, by any person from the commissionof the offenceproperty means real or personal property of any description, whethersituated in New Zealand or elsewhere and whether tangible orintangible; and includes an interest in any such real or personalproperty.(2) Subject to sections 244 and 245, every one is liable to imprisonment fora term not exceeding 7 years who, in respect of any property that is theproceeds of an offence, engages in a money laundering transaction,knowing or believing that all or part of the property is the proceeds ofan offence, or being reckless as to whether or not the property is theproceeds of an offence.(3) Subject to sections 244 and 245, every one is liable to imprisonment fora term not exceeding 5 years who obtains or has in his or her possessionany property (being property that is the proceeds of an offencecommitted by another person)—(a) with intent to engage in a money laundering transaction in respectof that property; and(b) knowing or believing that all or part of the property is theproceeds of an offence, or being reckless as to whether or not theproperty is the proceeds of an offence.(4) For the purposes of this section, a person engages in a money launderingtransaction if, in concealing any property or by enabling any person toconceal any property, that person—(a) deals with that property; or(b) assists any other person, whether directly or indirectly, to dealwith that property.(4A) Despite anything in subsection (4), the prosecution is not required toprove that the defendant had an intent to—(a) conceal any property; or(b) enable any person to conceal any property.(5) In any prosecution for an offence against subsection (2) or subsection(3),—(a) it is not necessary for the prosecution to prove that the defendantknew or believed that the property was the proceeds of aparticular offence or a particular class of offence:(b) it is no defence that the defendant believed any property to be theproceeds of a particular offence when in fact the property was theproceeds of another offence.(6) Nothing in this section or in sections 244 or 245 limits or restricts theoperation of any other provision of this Act or any other enactment.(7) To avoid doubt, for the purposes of the definition of offence insubsection (1), New Zealand law includes, but is not limited to, theMisuse of Drugs Act 1975.[27] Section 245 also relevantly provides:245 Application of section 243 to acts outside New Zealand(1) Section 243 applies to an act that has occurred outside New Zealandand that is alleged to constitute an offence resulting in proceeds onlyif—(a) the act was an offence under the law of the place where and whenit occurred; or(b) it is an act to which section 7 or 7A of this Act applies; or(c) an enactment provides that the act is an offence in New Zealand,and no additional requirement exists for the act to be an offencein the place where and when it occurred.(2) If a person is charged with an offence under section 243 and subsection(1)(a) applies, it is to be presumed, unless that person puts the matter atissue, that the act was an offence under the law of the place where andwhen it occurred.[28] Contrary to the Commissioner's written submissions, and the way his case wasoriginally presented, the "offence" which has generated the proceeds being referred toin s 243(2) is not an offence under foreign law. The offence referred to in s 243(2) isdefined in s 243(1) to be an offence under New Zealand law, even though it may havebeen committed overseas. What s 245 then adds is effectively a requirement fordouble criminality — where the offending has taken place overseas it must also be anoffence in that place under s 245(1)(a) unless subsections (b) or (c) apply.[29] By way of summary the following requirements arise in the present case:(a) There must have been conduct that is an offence under New Zealandlaw.(b) The conduct must also have been an offence where it was committed.(c) There must be property that are proceeds of that offence.(d) The defendant must know, believe or be reckless as to whether theproperty is the proceeds of the offence.(e) The person must deal, or assist a person dealing with that property byconcealing, or enabling a person to conceal it as defined.[30] For the purposes of the restraining order, the Commissioner needs todemonstrate reasonable grounds to believe that this offence has been committed.Are there reasonable grounds to believe the offence was committed?[31] The fact that the Commissioner presented his case based on offences havingbeing committed against the laws of the United States is significant. There are materialdifferences between the health systems operated in each country. As part of the lawsof the United States there is a particular statute prohibiting "kickbacks".9 That mightbe seen to be a particular feature of that regime. The violation of the anti-kickbacklaws appears to have been the central feature of the allegations made in the UnitedStates. It is possible that this conduct would not amount to an offence under NewZealand law.[32] After the point was raised at the hearing Mr Britton accepted that the relevantoffending generating the proceeds must be offending under New Zealand law. He thenidentified s 241 of the Crimes Act — the offence of obtaining or causing loss bydeception — as the relevant New Zealand offending. I accept that the offence unders 241(a) is relevant to the conduct the Commissioner has raised. He also referred tos 310, although that provision itself requires conduct which would be an offence ifcommitted in New Zealand. There may be other relevant New Zealand offences, andnot only under the Crimes Act. Although Mr Britton did not refer to it, there areoffences under the Secret Commissions Act 1910 that may have relevance.10 Theymay be the closest New Zealand equivalent to the anti-kickback laws at the centre ofthe allegations in the United States.[33] On the basis of the evidence that has been adduced I am satisfied that there arereasonable grounds to believe that conduct that is an offence under New Zealand lawhas taken place in relation to the durable medical equipment scheme. Even putting toone side the question of secret commissions, it seems to me that the evidence of theconduct involves patients being prescribed and supplied medical equipment when itwas not genuinely needed, which would involve obtaining financial advantage by9 See [12] above.10 For example, Secret Commissions Act 1910, ss 10 and 13, maximum penalty seven years'imprisonment.deception. The evidence currently before the Court on this offending is not extensive,and largely takes the form of allegations rather than the evidence supporting them.But as the authorities say the threshold must be addressed in light of the restraint ordersbeing designed as a kind of holding pattern in relation to the proceeds in question.11Applying that approach I am satisfied that there are reasonable grounds to believe thatthe offending has taken place.[34] The allegations in relation to the cancer screening scheme are less clear cut, asit is not quite so clear that the cancer screening services were not genuinely needed bythe patient. The allegations are even more clearly based on the anti-kickback regime.But I nevertheless accept that the standard required by s 25 of the Act has been met.At its heart the allegations involve a system of setting up telemarketers, doctorreferrals, and a provider to take advantage of Medicare's funding of this medicalservice. The system that has been established, and then the elaborate mechanisms forwithdrawing the proceeds from the jurisdiction, satisfy me that it was intended togenerate financial benefits derived from cancer screening services that were knownnot to be properly available under Medicare's cover.[35] In addition I am satisfied that the requirement of s 245(1)(a) of the Crimes Actis satisfied. In particular I accept that the conduct in question is an offence under thelaw of a place where and when it occurred — namely in the United States. This arisesfrom the anti-kickback provisions that were the focus of the Commissioner'sapplication.[36] For these reasons I accept that a qualifying offence under New Zealand law inrelation to both schemes has been established to the required statutory threshold.[37] In terms of the remaining elements of the offence of money laundering unders 243 of the Crimes Act I also conclude they are also established to the standardrequired. In particular there are reasonable grounds to believe that the funds that arenow in the New Zealand bank accounts are proceeds of the alleged offending, and thatMr Rae knew, or was reckless as to whether the proceeds were proceeds from such11 See Yan v Commissioner of Police [2015] NZCA 576, [2016] 2 NZLR 593 at [7]; and Vincent vCommissioner of Police, above n 6, at [47].offending, and that he dealt with the funds to enable the participants in this scheme toconceal those funds.[38] Mr Rae's evidence was that he was involved in international business, whichincluded use of entities incorporated in different countries — here entities operated inHong Kong and New Zealand — for such activities. He said that this involvedlegitimate international business. For example he said they were involved in thebusiness of consulting and that the funds in the accounts were the product of thoseactivities.[39] For the purpose of the standard required under ss 24 and 25 of the Act, I do notaccept his explanation on the basis of the evidence received. To the extent thatdocumentation is in existence that suggests legitimate business, such as agreementsfor consulting services, it is notable that there is no real evidence of what thecommercial activities or consulting services that generated the relevant funds actuallywas. It would be a reasonably straightforward matter to identify the activities thatgenerated the kinds of sums in question had they taken place. Moreover there is littleexplanation for the use of entities incorporated in different countries, and themovement of funds between jurisdictions other than for the purpose of concealing thedissipation of funds. The very fact that there are entities in New Zealand operated bytrust officers holding significant sums demonstrates the point. There is no suggestionthat there is any commercial or business activity taking place in New Zealand, and Ido not understand Mr Rae or any of the other protagonists have any real connectionwith New Zealand. Yet significant sums are held in New Zealand bank accounts whichin turn received funds from entities incorporated or conducting business in othercountries, including Hong Kong. It is also relevant to take into account that Mr Raehas pleaded guilty to charges of money laundering in the United States District Courtfor New Jersey. In light of the general character of the conduct I have described, astrong basis for the belief that this involved money laundering in New Zealand exists.[40] For these reasons I am satisfied that the statutory pre-requisites for an on noticerestraining order under s 25 are satisfied.[41] In the alternative the Commissioner contended that the funds can be restrainedunder s 24 on the basis that the funds in the accounts are tainted property. Taintedproperty is defined in s 5 in the Act to include property "wholly or in part" resultingfrom significant criminal activity. It has been held that "even modest contributions toan asset is sufficient to taint the asset".12 For this reasons, even if some of the fundsin the account were not the proceeds of the alleged offending, or themselves fundswhich have been laundered, the intermixing with funds that are of that quality meansthe funds in totality are tainted property. For this reason, therefore, the requirementsfor orders under s 24 are satisfied as well as for orders under s 25.Material non-disclosure[42] As indicated one of the two key grounds of the position advanced by Mr Raeto the on notice restraining orders is that the Commissioner failed to comply with hisobligation to provide full disclosure when applying for restraining orders on a withoutnotice basis. On that basis Mr Rae contends that the current restraining orders shouldbe discharged.The obligation[43] Applications under the Act proceed by way of a civil proceeding under Part 19of the High Court Rules 2016 (the Rules).13 Rule 19.10(e) provides that r 7.23 of theRules applies to Part 19 proceedings. Rule 7.23 provides:7.23 Application without notice(1) A person who wants to make an application to the court and have theapplication determined without any other party having been served (inthese rules referred to as an application without notice) must use formG 32.(2) An application without notice may be made only—(a) on 1 or more of the following grounds:(i) that requiring the applicant to proceed on notice wouldcause undue delay or prejudice to the applicant:12 Commissioner of Police v Cheah [2018] NZHC 2825 at [26]; see also Commissioner of Police vYim [2019] NZHC 1681 at [38].13 See r 19.2(r).(ii) that the application affects only the applicant:(iii) that the application relates to a routine matter:(iv) that an enactment expressly permits the application to bemade without serving notice of the application:(v) that the interests of justice require the application to bedetermined without serving notice of the application; and(b) if the applicant has made all reasonable inquiries and taken allreasonable steps to ensure that the application and supportingdocuments contain all material that is relevant to the application,including any defence that might be relied on by any other partyand any facts that would support the position of any other party.(3) An applicant who makes an application without notice must, if theapplication is of a kind that is likely to be contested if it were made onnotice, file a memorandum with the application that sets out—(a) the background to the proceeding (including the material factsthat relate to the proceeding); and(b) the grounds on which each order is sought; and(c) an explanation of the grounds on which each order is soughtwithout notice; and(d) all information known to the applicant that is relevant to theapplication, including any known grounds of opposition ordefence that any other party might rely on, or any facts that wouldsupport opposition to the application or defence of theproceeding by any other party.(4) Failure to disclose all relevant matters to the court or to comply withsubclause (3) may result in the court—(a) dismissing the application; or(b) if 1 or more orders have been made by the court in reliance onthe application, rescinding those orders.[44] In terms of the pre-requisites set out in r 7.23(2)(iv), it is relevant that s 22 ofthe Act provides:22 Application for restraining order without notice(1) A court that receives an application for a restraining order may, on therequest of the applicant, consider the application without notice beinggiven to any or all of the persons mentioned in section 21(1)(a) if thecourt is satisfied that there is a risk of the proposed restrained propertybeing destroyed, disposed of, altered, or concealed if notice were givento the person or those persons.(2) If an application is made for a restraining order without notice, the courtmust, so far as it is practicable and consistent with the interests ofjustice, ensure that the application is dealt with speedily.(3) Any provisions of this subpart that relate to restraining orders appliedfor on notice apply, with any necessary modifications, to restrainingorders applied for without notice.[45] Section 22 contemplates the application being made without notice, andaccordingly in accordance with r 7.23 of the Rules. Form 2 of the Criminal Proceeds(Recovery) Regulations 2009 is a form for making a without notice application, and itrefers to a certification that the application complies with the Rules. Form G32 of theRules more explicitly requires the party, or a solicitor, to certify that the requirementsof r 7.23(2) have been met.14 But form 2 is to the same effect as it is a certificationthat the requirements of the Rules, and accordingly that r 7.23 have been compliedwith. Certification is more than merely a technicality, and is a mandatory pre-condition.15 As indicated by the authors of McGechan on Procedure "the certificateemphasises the importance of accuracy and propriety in an application without noticebecause, by definition, an application without notice is a denial of the natural justiceupon which all litigation is fundamentally intended to rest".16[46] The relevant obligation on the Commissioner is spelled out in r 7.23(2)(b). Itcan be described as a "duty of candour", but the substance of the obligation goes alittle further than that phrase suggests. The obligation requires the applicant to make"reasonable enquiries" to ensure that all relevant information is placed before theCourt. The "relevant information" not only contemplates any defence to theapplication a party might rely on, but also any facts that would support the position ofthat party. This is a long standing principle.17 As Hughes LJ said in Re StanfordInternational Bank in relation to the equivalent proceeds of crime provisions operatingin England and Wales:1814 The Criminal Proceeds (Recovery) Regulations 2009, r 4(1)(b) provides that form 2 should beused for a without notice application, and form 2 more simply provides that "as required byr 19.10(1)(e) of the High Court Rules 2016 I certify this application complies with the Rules".15 Craig v Craig [2019] NZHC 414, (2019) 4 NZTR 29-030 at [5].16 Andrew Beck and others McGechan on Procedure (looseleaf ed, Thomson Reuters, updated to2 October 2020) at [HR 7.23.01].17 See United People's Organisation World Wide) Inc v Rakino Farms Ltd (No 1) [1964] NZLR 737(HC).18 Re Stanford International Bank (in liq) [2010] EWCA Civ 137, [2011] CH 33.[191] In effect a prosecutor seeking an ex-parte order must put on hisdefence hat and ask himself what, if he were representing the defendant orthird party with the relevant interests, he would be saying to the Judge, and,having answered that question, that is what he must tell the Judge.[47] There are features of the regime established by the Act that are different fromthe legislation in England and Wales. Under s 39(1) a without notice restraining orderonly lasts for seven days unless a with notice application is made. There are then otherprovisions that ensure that the applications are dealt with promptly.19 What this meansis that any without notice orders are soon superseded by an application with noticethat must be determined promptly. That is not the case in England and Wales — therethe approach is that a respondent can apply to discharge a without notice order. Butthe approach described by Hughes LJ nevertheless seems to me to be appropriate, asit corresponds to what the New Zealand rule provides.Breach of the obligation[48] The application here was supported by two affidavits, one from DetectiveSergeant Alex Macdonald dated 7 February 2020, and one from Mr VanZetta dated5 February 2020. The application itself was preceded by an earlier application dated11 February 2020 to allow the affidavits to be filed to refer to information obtainedfrom a suspicious activity report provided under s 40 of the Anti-Money Launderingand Countering Financing of Terrorism Act 2009. The Commissioner sought, and wasgranted, permission under s 47 of that Act to put forward information derived fromthat report.[49] The primary evidence outlining the existence of conduct generating proceedswarranting the making of orders under ss 24 and 25 of the Act was set out inMr VanZetta's affidavit. That affidavit outlined the nature of the alleged fraudulentschemes, the nature of the alleged money laundering activities in association with theschemes, and described that Mr Rae had been indicted in the United States District ofNew Jersey. A copy of the indictment itself had been provided in a memorandum ofcounsel. Further relevant information was set out in Mr Macdonald's affidavit. Inparticular he explained that Mr VanZetta had advised him on 3 January 2020 that19 See Criminal Proceeds (Recovery) Act 2009, s 39(3) and (4). See Yan v Commissioner of Police,above n 11, at [142] per Asher J (dissenting, but not on this point).Mr Rae had entered a guilty plea in relation to his indictments and was to be sentencedin February 2020, that his likely sentence would normally be between 57 and 71months' imprisonment "however with his co-operation to the investigation the Judgemay sentence him to less than this at his discretion".[50] There is no dispute that there was certain key information that was not putbefore the Court on the without notice application. In particular:(a) The Court was not advised that a formal agreement had been reachedbetween Mr Rae and the United States authorities, which led to theguilty pleas, and that forfeiture would be ordered limited to a particularsum (US$1,775,000).(b) That the forfeiture so agreed, and then ordered, did not include anyfunds in the R Ltd accounts.(c) That these limitations were agreed as a consequence of Mr Raeproviding assistance to the United States authorities, including byproviding detailed information at interviews.[51] Not only was the Court not informed of these matters, but Mr VanZetta'saffidavit stated that the United States was asking for repatriation of the New Zealandfunds for the purpose of compensating Medicare which had suffered more than $212million in losses as a result of the criminal activity he described. The New Zealandfunds described specifically included the R Ltd account. Those statements were madenotwithstanding the agreement between Mr Rae and the United States authorities thatforfeiture would be limited to US$1,775,000, and that the R Ltd account was not partof the agreed forfeiture.[52] I am satisfied the matters not disclosed, and misrepresented, were material tothe decisions the Court made. In particular these facts and matters would have beenrelevant to the consideration of whether restraint should exist over the full amount ofthe balances in the New Zealand bank accounts, whether it should include the R Ltdaccount, whether the underlying offending had already been resolved, and whetherthere was genuinely a risk of dissipation given the cooperation Mr Rae had provided.It may well be that without notice orders would still have been made, but it wasincumbent upon the Commissioner to squarely place those matters before the Court asinformation that could support Mr Rae's position.Consequences of breach[53] A question then emerges as to what the consequences should be if it isestablished that the Commissioner has obtained an order without notice incircumstances where there has been a failure to comply with the requirements.[54] In advancing submissions for Mr Rae, Ms Wang referred to the analogoussituation where the Court grants freezing notice orders on a without notice application.Ms Wang accepted that the Court would discharge such orders in what has beendescribed as "egregious cases".20 But she argued that the Court would also do so whenthe non-disclosure was sufficiently material to impact on the original decision to grantthe order.21 She emphasised the higher standards that are expected of the Crown inlitigation before the Courts, and argued that the Crown must be an exemplar of highstandards.22 A related concept was that the Commissioner was exercising the powersof the state such that the Court "should particularly insist on strict compliance with itsrules and standards, not least the duty of disclosure".23[55] I accept it is relevant that the Commissioner is exercising powers of the state,and that there are particular expectations that the Court has in relation to his conductof litigation. But as Mr Britton argued, there are additional considerations ofsignificance. In Yan v Commissioner of Police the Court of Appeal stated, in respectof the potential requirement for the Commissioner to give an undertaking as todamages or costs under s 29 for a restraining order:24[34] While proceedings under the Act are civil proceedings, they are,because of these public policy factors, distinguishable from ordinary20 See Allen v Commissioner of Inland Revenue [2004] 21 NZTC 17, 718 (CA) at [93].21 See Zhou v Chi [2018] NZHC 1298 at [72]–[73]; and Haven Insurance Ltd v Lombard [2017]NZHC 1336 at [25].22 With reference to Solicitor-General v Alice [2007] 2 NZLR 783 (HC) at [48].23 Jennings v Crown Prosecution Service [2005] EWCA Civ 746, [2006] 1 WLR 182 at [56].24 Yan v Commissioner of Police, above n 11, per French and Simon France JJ.interlocutory measures in civil proceedings such as interim injunction andfreezing order applications.[39] There is a strong public interest in preventing criminals frombenefiting as a result of significant criminal activity and, accordingly, a strongpublic interest in preserving tainted property prior to forfeiture beingreasonably obtainable and preventing dissipation of those assets. On the otherhand, a restraining order represents a significant infringement of propertyrights and has the potential to cause considerable injustice should it transpirethe order was not justified. Section 29 provides a potential safeguard againstthe latter injustice.[56] In Jennings v Crown Prosecution Service, the English and Welsh Court ofAppeal referred to the competing policy considerations of the kind I have referred toand indicated that, while important considerations, they did not promote a distinct orseparate test on the question of discharge.25 I respectfully agree. The Commissioneris making the application in the furtherance of the public interest and is exercising thepower of the state against the individual. There are expectations that he will beexercise high standards in the conduct of litigation. The consequences of the failureto disclose are to be assessed against that background, but the same principles apply.I also consider that, if the Court is persuaded that the missing information does notalter the decision that would have been made in relation to restraint, then the ordershould only be discharged in what has been described as "egregious" cases. That isalso consistent with the scheme of the Act, as the question of discharge will likely ariseat the same time as the consideration of the on-notice application.26 So if therequirements of an on-notice order are met, there would need to be compelling reasonswhy it should not be made.[57] As to what is regarded as an "egregious" case, and without seeking tocircumscribe future cases, it seems to me that such a case would most likely arise whenthe non-disclosure, or misrepresentation, is deliberate. That is, that there is an elementof bad faith in the pursuit of the application. It is perhaps only then that the Courtwould be able to say that the integrity of the administration of justice is a moresignificant consideration than the public interest in offenders not being able to enjoy25 At [57].26 See Allen v Commissioner of Inland Revenue, above n 20, at [93]; and Mudajaya CorporationBerhad v Keng [2019] NZHC 1436 at [24].the fruits of their significant offending. A failure to act in accordance with therequirements, even accompanied by a certification, would not in itself be sufficient initself to warrant such an outcome. Mere negligence is not enough. Such a failure maybe addressed by other means, such as a costs awards.[58] I approach the present case on that basis.Was the breach here egregious?[59] A number of affidavits were filed on behalf of the Commissioner, and cross-examination took place on those affidavits. The short point is that, whilst I haveconcerns about the way in which the Commissioner approached the application, I amsatisfied that he did not act in bad faith. The failure to meet the duty of candour arisingwith the without notice application was the consequence of a lapse of standards anderrors of judgment on behalf of those involved, but not bad faith.[60] First, I am satisfied from the evidence that has been filed, including theevidence of Mr Macdonald and Detective Senior Sergeant Brent Murray (the managerof the Commissioner's Central Asset Recovery Unit), that the Commissioner wasunaware of the matters that were not properly disclosed, and misdescribed. Inparticular they were unaware that there had been a formal agreement between Mr Raeand the United States authorities which resulted in more limited forfeiture orders notincluding the R Ltd account.[61] I also accept that the misleading information set out in Mr VanZetta's affidavit,and its material non-disclosures, were not the consequence of bad faith on behalf ofeither Mr VanZetta or the other United States officials. I heard evidence fromMr VanZetta, and also from Ms Barbara Anne Ward, an Assistant United StatesAttorney for the district of New Jersey. Ms Ward was engaged in the relevant eventsfor the United States Attorney's office. I accept that there was no intention to misleadthe New Zealand Court, or misdescribe the factual position in the evidence.Mr VanZetta was unaware of the plea and forfeiture agreement at the time he sworehis affidavit in support of the without notice application. That is so notwithstandingthat the affidavit was sworn after that agreement was entered. The fact that theaffidavit was not reviewed more carefully and updated for completeness before it wassworn by those who were aware can be criticised. But at least part of the reason whythat did not happen was that there was a lack of appreciation by those dealing with itin the United States that there was a need to ensure the affidavit complied with a dutyto provide complete information.[62] In short, the United States authorities were not advised by those acting for theCommissioner that there was any duty to provide full disclosure of all matters,including matters that might be said to support Mr Rae's position. TheCommissioner's personnel were then not told of those matters when Mr VanZetta'saffidavit was finalised and the Commissioner completed his preparations for makingthe without notice application.[63] Given the above findings, I am satisfied that the case did not involve egregiousbehaviour by the Commissioner, even though there was a significant failure to meetthe requirements for a without notice application.[64] In reaching these conclusions I nevertheless wish to identify matters that seemto me to be of concern in relation to the approach the Commissioner took which maysuggest a more systemic issue. When he gave evidence Mr Macdonald explained thatwhilst he was aware of the relevant obligation it had not been discussed with theCrown solicitor when the application was formulated. He also explained that he hadbeen involved in approximately 10 without notice applications to the High Court, butsaid that he did not think he had ever had a conversation with a Crown solicitor orotherwise about the duty when those applications were made. Similarly whenMr Murray was cross-examined and asked why the Commissioner had not asked theUnited States authorities for further information he responded that that was not his job.When contemporaneous documents were put to him suggesting it was apparent therewas more involved — for example references to Mr Rae cooperating with the UnitedStates authorities — he said that was a matter for the United States and Mr Rae. Ineffect his evidence was the Commissioner had made the relevant enquiries of theUnited States authorities which had resulted in the evidence that provided a basis forthe application, and that they saw no need to go any further.[65] What this suggests is the potential for a general lack of true understanding ofthe extent of the Commissioner's obligations around without notice applications underthe Act. It is not simply a matter of providing adverse material if the Commissionerbecomes aware of it. The Commissioner is obliged to make reasonable inquiries toensure that any material that may be advanced by the other party is fairly placed beforethe Court.27 The answers by the Commissioner's witnesses, when pressed, did notsuggest that this obligation is taken sufficiently seriously.[66] Many without notice applications are made in connection with alleged drugdealing operations, where the Commissioner's application in the civil jurisdiction willcoincide with steps taken in potential criminal proceedings. Mr Murray estimated thatapproximately 80 per cent of property restrained under the provisions was drugrelated. These more routine applications might not be thought to so readily involvepotentially exculpatory material, or material that respondents may wish to put forward.But it is a matter of observation that the Commissioner's without notice applicationsin such cases can sometimes appear very broad in relation to the property sought to berestrained. So it may be that even in those cases insufficient care is being taken toensure the duty is being complied with.Abuse of process[67] Mr Rae's second ground of opposition is that the continuation of the restraintorders would amount to an abuse of process. That argument is advanced on four inter-related grounds:(a) That the forfeiture proceedings are being advanced for the collateralpurpose of recovery and repatriation of additional funds on behalf ofthe United States authorities.(b) That the New Zealand proceedings relate to the same underlyingcriminality which has been the subject of a full and final settlementagreement, including the quantum of forfeiture, which has receivedjudicial approval in the United States.27 See Brink's Mat Ltd v Elcombe [1988] 3 All ER 188 (CA).(c) The New Zealand proceedings have, and will need to rely on, evidencefrom the United States which is inconsistent with the position taken bythe United States authorities with respect to Mr Rae.(d) The pursuit of forfeiture for alleged domestic criminality inNew Zealand, rather than enforcing the foreign restraint order, isimproper in light of the above factors.The arguments advanced[68] Ms Wang relied on a number of authorities in advancing these arguments. Interms of collateral purpose identified in [67](a) above she referred to FinancialMarkets Authority v Hotchin where the Court confirmed that a claim could be struckout as an abuse of process where it was shown that a process ancillary to a principleclaim for relief had been used to effect an object not within the scope of that process,but rather to seek a collateral advantage.28 In relation to the factor in [67](b) aboveshe relied on issue estoppel,29 contractual estoppel30 and the principle in Henderson vHenderson.31 In relation to the factor in [67](c) above she relied on the more limitedscope of the allegations accepted by the United States authorities (and the UnitedStates Court) in the context of accepting that Mr Rae's disclosures at interview weretruthful and reliable. And in relation to the factor in [67](d) she referred to theobservations of the Court in Commissioner of Police v Rodriguez that the statutorylanguage in relation to foreign forfeiture is permissive, and other recovery mechanismscan apply.32 The more appropriate remedy in this case was the more confinedinterference with property implemented by the United States Courts, where the allegedfrauds originated.[69] Although these were advanced as separate factors, they are all based on similarconsiderations, and I intend to address the arguments on that basis. As Ms Wang saidin her written submissions:28 Financial Markets Authority v Hotchin [2011] 3 NZLR 469 (HC) at [140]; and Ullrich v Ullrich(1996) 10 PRNZ 253 (HC) at 255–256.29 van Heeren v Kidd [2016] NZCA 401, [2017] 3 NZLR 141.30 Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567.31 Henderson v Henderson [1843] 67 ER 313 (Ch) at 414–415. See also Beattie v Premier EventsGroup Ltd [2014] NZCA 184, [2015] NZAR 1413 at [43].32 Commissioner of Police v Rodriguez [2019] NZHC 3265 at [49]–[50].A clear abuse of process is the use of proceedings for a collateral purpose. Asnoted in the Factor A analysis above, the Commissioner's proceedings areinitiated and continued for the collateral purpose of repatriating funds (at leastin the [S Ltd] accounts) back to the United States. This allows the USAuthorities to circumvent the Plea and Forfeiture Agreement with Mr Rae andcasts the Commissioner in the role of the party who is potentially liable forprocuring a breach of contract. The use of the domestic [significant criminalactivity] pathway under the [Act] under Factor D allows the Commissioner toreach for more funds than those specified in the US forfeiture order.Assessment[70] In my view Mr Rae's arguments in this respect cannot succeed for two relatedreasons.[71] First there is nothing about the plea and forfeiture agreement, and the relatedorders of the United States District Court, that prevents criminal or civil proceedingsin New Zealand in relation to the same matters. Indeed the agreement recorded asfollows:This agreement is limited to the United States Attorney's Office for the Districtof New Jersey and cannot bind other federal, state, or local authorities.However, this Office will bring this agreement to the attention of otherprosecuting offices, if requested to do so.This agreement was reached without regard to any civil or administrativematters that may be pending or commenced in the future against RAE. Thisagreement does not prohibit the United States, any agency thereof (includingthe Internal Revenue Service and Immigration and Customs Enforcement) orany third party from initiating or prosecuting any civil or administrativeproceeding against RAE.[72] There is disagreement as to whether Mr Rae was expressly told by one of theUnited States attorneys that the agreement could not bind New Zealand authorities, orcontrol what actions New Zealand might take, before the agreement was entered. Thatis what Ms Ward testified, but Mr Rae disputed that. Whether that was said or not isnot ultimately material as the agreement is plain on its face, and does not purport toprevent any action by New Zealand authorities in New Zealand in relation to the samematters.[73] Mr Rae may be able to argue that the steps that have been taken by the UnitedStates authorities, including by swearing substantial affidavits in relation to theseproceedings, is not fully consistent with the spirit of the plea agreement even if theremay be no inconsistency with its terms. The Commissioner's proceedings before theNew Zealand courts to seek forfeiture orders — which will involve proceedings toestablish the underlying illegality of the alleged fraudulent schemes in the UnitedStates — will no doubt require substantial evidence from the United States. The morerelaxed rules concerning admissibility do not apply at the forfeiture order stage. TheCommissioner may need to establish that the schemes were fraudulent as part ofestablishing the offending under s 243 of the Crimes Act, albeit only to the requiredcivil standard. It seems inevitable the Commissioner will need substantial assistancefrom the United States authorities.[74] But whether the provision of that assistance, including assistance by way ofproviding evidence, is fully consistent with the spirit of the plea and forfeitureagreement is not something that is relevant to the New Zealand Court. If Mr Rae saysthat the United States Attorney's office for the District of New Jersey cannot properlyprovide that kind of assistance to the Commissioner, that is something for him to raisein New Jersey. That is not something to be controlled by the New Zealand Court.[75] This then leads to the second point, which is that the Commissioner hasdetermined to advance his own case in this proceeding. The Commissioner has decidednot to simply enforce the foreign forfeiture order. He has made his own contentionsthat offences under s 243 of the Crimes Act have been committed as a consequence ofconduct overseas that is regarded as an offence under New Zealand law. He takes onthe additional burden on proving that offending before the New Zealand Court in theseproceedings. The amount to be forfeit if he succeeds is then determined by the Act. Itis an independent process from the one that has taken place in the United States. Itfollows there is no abuse of process in the Commissioner advancing that argument,rather than enforcing the United States forfeiture order. That is exactly what the Actcontemplates.[76] Mr Rae contended that the Commissioner was effectively acting on behalf ofthe United States authorities, and in particular that any forfeited funds would berepatriated to the United States. I accept the position might be different if theCommissioner was acting as the agent of the United States government. I do notaccept that he is. It is true that the United States authorities appear to have thisobjective in mind, but I do not accept that there has been any agreement orarrangement to that effect. If the forfeiture proceedings the Commissioner brings areultimately successful, the Act requires that the relevant proceeds be forfeit to theCrown. If an assets forfeiture order is made under s 50, the property vests in the Crownabsolutely and is in the custody and control of the Official Assignee.33 If a profitforfeiture is made the order amounts to a debt recoverable by the Crown under s 55(4).Section 83 then prescribes how the priorities are to be followed by the OfficialAssignee after disposal of the property subject to the order. This includes payment ofany amounts ordered by way of reparation under s 79 of the Summary ProceedingsAct 1957. The Act does not specify, for example, that any amounts will be paid by theCrown to the alleged victims of the underlying offending in the United States.[77] That is also so in relation to the registration of a foreign forfeiture order.Section 144 simply provides the amount so restrained vests in the Crown absolutelyunder the custody and control of the Official Assignee. So it would appear that anydecision to repatriate monies to the United States is not regulated by the Act. Thatwould appear to be a governmental decision only. Mr Britton confirmed that this wasthe Commissioner's position.[78] In any event I accept the evidence given on behalf of the Commissioner thatno arrangement has been made to repatriate any sums to the United States authorities.For this reason I do not accept Mr Rae's argument that the Commissioner is acting asthe effective agent of the United States authorities.[79] There is one complication, however. As I understand it the forfeiture ordermade by the District Court for the State of New Jersey has not been satisfied. Mr Raeshould not be placed in the position where he is obliged to comply with two forfeitureorders in relation to the same funds. I am not presently clear the appropriateprocedural pathway for ensuring that that does not happen. Perhaps the United StatesGovernment/Mr Rae should apply for relief against forfeiture, or even relief againstrestraint, to allow the United States order to be satisfied. This issue will need to beaddressed.33 Criminal Proceeds (Recovery) Act 2009, s 50(3).[80] Nevertheless for the above reasons I do not accept that the application on noticefor restraint is an abuse of process for the reasons advanced by Mr Rae. Given that Ihave concluded that the ground to make a restraint order on notice has beenestablished, and that neither of the grounds of opposition advanced by Mr Rae areaccepted, then the foundation to make the order sought has been made out.[81] There is, however, a final complication.Service on parties[82] During the course of the hearing I raised an issue with Mr Britton andMr McCusker concerning the service of the proceedings as required by the Act.Section 21 of the Act provides:21 Application for restraining order on notice(1) An applicant for a restraining order must,—(a) so far as is practicable, serve a copy of the application on anyperson who, to the knowledge of the applicant, has an interestin the proposed restrained property (including, if applicable, therespondent); and(b) serve a copy of the application on the Official Assignee.(2) The court hearing an application for a restraining order may, at anytime before the application is finally determined, direct the applicantto serve a copy of the application on a specified person or class ofpersons, in the manner and within the time that the court thinks fit.[83] It had earlier been identified that the first interested party, Mrs Rae, needed tobe served with these proceedings. At the hearing Mr Britton confirmed that she hadnot yet been served in accordance with the earlier directions of the Court. Followingthe conclusion of the hearing an affidavit has subsequently been filed indicating thatMrs Rae has now been served.[84] More troubling is the Commissioner's argument that Mr Rae was only thenotional owner of the restrained funds, and the true beneficial owner of them isMr Williamsky. When I asked whether Mr Williamsky had been served, or givennotice of the application, Mr Britton indicated that it had not occurred to theCommissioner that this was necessary.[85] It seems to me that in those circumstances the requirements of s 21 have notbeen satisfied. The obligation in s 21 is mandatory. On the Commissioner's casebefore this Court it has not been satisfied. It seems to me that the Court should notfinally determine the with notice restraining orders until the obligation under s 21 hasfully been addressed.[86] For these reasons, whilst I accept that the grounds for a with notice order areestablished, and I dismiss Mr Rae's grounds of opposition, I do not yet make the withnotice restraining orders. The appropriate outcome given the above conclusions is forthe without notice restraint to continue, the with notice application adjourned pendingservice on the parties required to be served under s 21, and any argument advanced bythem has been considered.Costs[87] The Commissioner would normally be entitled to an award of costs given thegrounds of opposition advanced by Mr Rae have been rejected. But, as previouslyindicated, the Commissioner's earlier failure to meet his duty when making a withoutnotice application may properly be addressed by other means, including through acosts award.[88] Ms Wang submitted that, even if the Commissioner's application wassuccessful, Mr Rae should be awarded costs on an indemnity basis under r 14.6 of theRules. She relied on Commissioner of Inland Revenue v Dymock where the Courtordered indemnity costs when the Commissioner of Inland Revenue had applied forfreezing orders without notice but it failed to disclose all relevant material to theCourt.34 For his part Mr Britton accepted that the Court could take into account thefailure to meet the duty when deciding what costs award should be made, but he arguedthat it did not reach the point where an indemnity award of costs against theCommissioner was appropriate. He referred to the decision of the English and WelshHigh Court in National Crime Agency v Simkus where the Court had referred to the34 Commissioner of Inland Revenue v Dymock [2013] NZHC 3346.ability to reduce the costs award in favour of the National Crime Agency in light ofsimilar factors.35[89] I do not see this case is in the same category as Commissioner of InlandRevenue v Dymock. There the Court discharged freezing orders that had been granted,and noted that there were a number of aspects about the without notice application thatwere inappropriate. The Court described them as "significant, avoidable andtroubling".36 Such conduct would be within the concepts referred to in r 14.6(4)(a) ofthe Rules. Whilst the Commissioner's failure here is significant, it was not deliberate,and I have concluded that the grounds for restraint orders exist in any event. I accept,however, that the Court should take into account the Commissioner's breach of dutyin deciding what costs award should be made. In effect, what has now been put beforethe Court is a corrected picture. It was always necessary for the Commissioner tocome back to the Court and correct this misleading impression given about thosecircumstances. He also needed to explain the breach of his obligation. In other wordsthe Commissioner was obliged to incur the cost of this application in any eventbecause of his earlier breach. Whilst Mr Rae's opposition meant that the cost of theapplication became more extensive, that can also be seen as a consequence of theCommissioner's earlier breach. For these reasons the appropriate course is not toaward the Commissioner any costs of this application.[90] On the other hand, it does not seem to be to be appropriate to award Mr Raecosts. He has failed with the arguments that he has pursued. For these reasons therewill be no award of costs in the Commissioner's favour, and no award of costs inMr Rae's favour. Costs will lie where they fall.Conclusion and formal orders[91] For the reasons outlined above I make the following formal orders:(a) Mr Rae's opposition to the with notice restraining order is dismissed.35 National Crime Agency v Simkus [2016] EWHC 255, [2016] 1 WLR 3481 at [116]; and NationalCrime Agency v Simkus [2016] EWHC 728 (Admin), [2016] Lloyd's Rep FC 300 at [38]–[40].See also Mudajaya Corporate Barhad v Keng, above n 26.36 Commissioner of Inland Revenue v Dymock, above n 34, at [36].(b) Notwithstanding that the grounds for a with notice restraining are madeout, the application is adjourned to enable the Commissioner to satisfythe requirements of s 21 of the Act.(c) The restraining orders already made in the proceedings continue ineffect pending formal determination of the with notice restraining order.(d) The matter is to be set down for a telephone conference before me atwhich the steps required by the Commissioner to satisfy therequirements of s 21 are to be addressed, and any other directions forthe proceeding are also considered.(e) The costs of the hearing before me are to lie where they fall.Cooke JSolicitors:LukeCunninghamClere, Wellington for the ApplicantK3 Legal Ltd, Auckland for the RespondentRobinson Legal, Wellington for the United States Government