TWENTIETH CENTURY FOX FILM CORPORATION & ORS v DOTCOM [2014] NZHC 1789

TWENTIETH CENTURY FOX FILM CORPORATION & ORS v DOTCOM [2014] NZHC 1789 [30 July 2014]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2014-404-001272[2014] NZHC 1789BETWEEN TWENTIETH CENTURY FOX FILMCORPORATION, DISNEYENTERPRISES INC, PARAMOUNTPICTURES CORPORATION,UNIVERSAL CITY STUDIOSPRODUCTIONS LLLP and WARNERBROS ENTERTAINMENT INC,ApplicantsAND KIM DOTCOMFirst RespondentBRAM VAN DER KOLKSecond RespondentRSV HOLDINGS LIMITED(FORMERLY KNOWN ASMEGASTUFF LIMITED)Third RespondentHearing: 22 July 2014Appearances: M C Sumpter and L L Fraser for ApplicantsT J Walker and L F Stringer for First and Second RespondentNo appearance for Third RespondentsB F Fenton for Commissioner of PoliceM J Gavin for Recording IndustryJudgment: 30 July 2014JUDGMENT OF COURTNEY JThis judgment was delivered by Justice Courtneyon 30 July 2014 at 4.00 pmpursuant to R 11.5 of the High Court RulesRegistrar / Deputy RegistrarDate.Table of ContentsPara.Introduction [1]Background to the application [5]Jurisdiction for ancillary ordersIs there jurisdiction to make an ancillary order other than inconjunction with a freezing order? [10]Does the ancillary order sought fall within the scope of r 32.5? [14]Would it be unjust to grant the order even if the applicants satisfythe prerequisites? [16]A good arguable caseThe test [29]Is the summary of evidence produced by Ms Thorland admissible? [32]Is there a good arguable case? [42]Sufficient prospect that a judgment could be enforced in NewZealand [50]Would the order sought be inconsistent with the US stay order? [55]Is there a danger that a prospective judgment will go wholly orpartly unsatisfied because assets are disposed of? [61]Result [75]Introduction[1] The applicants are plaintiffs in civil proceedings brought against Mr Dotcom in the US claiming over $US100m for copyright infringement.1 They are concerned that any judgment they obtain may go unsatisfied, even though Mr Dotcom is subject to orders restraining the disposition of assets in New Zealand. A US court issued those orders in criminal proceedings based on the same allegations of copyright infringement and they are registered in NZ (the criminal restraining orders).2However, as a result of recent public statements by Mr Dotcom, the applicants believe that Mr Dotcom has access to assets in New Zealand that are outside the scope of the criminal restraining orders and is disposing of them.[2] The applicants have applied for freezing orders in respect of Mr Dotcom'sassets but at this stage are seeking an ancillary order under r 32.5 of the High Court Rules requiring Mr Dotcom to fully disclose his assets position by providing an affidavit detailing the nature, location and value of all of his assets (whether legally or beneficially owned) worldwide. Mr Dotcom opposes the application on the grounds that:(a) There is no jurisdiction to make the order;(b) It would be unjust to make the order because he cannot mount an effective opposition without waiving his privilege against self- incrimination and risking his fair trial rights;(c) The applicants cannot demonstrate a good arguable case;(d) There is not sufficient prospect that a judgment obtained by the applicants would be enforceable in New Zealand;1 There are others charged under the criminal proceedings and sued in the civil proceedings but the present application is brought only against Mr Dotcom and for convenience I refer only to him unless the context requires otherwise.2 Mutual Assistance in Criminal Matters Act 1992, ss 54 and 56, Criminal Proceeds (Recovery) Act 2009, s 132: Commissioner of Police v Dotcom & Ors [2012] NZHC 634.(e) There is no danger that a judgment obtained by the applicants would go unsatisfied as a result of his disposition of assets;(f) The order sought would be inconsistent with a stay order made in the US civil proceedings.[3] Counsel for interested parties, the Commissioner of Police and the recording industry, appeared but did not wish to be heard.[4] Mr Dotcom's wife, Mona Dotcom, is also an interested party. She hasindicated by counsel's memorandum that she supports Mr Dotcom's opposition butdoes not wish to be heard and will abide the decision of the Court.Background to the application[5] The applicants control five major motion picture studios. They allege that Mr Dotcom and others infringed their copyright interests through the operation of the online file hosting service Megaupload and related sites. Their complaints led to the criminal charges against Mr Dotcom. Mr Dotcom is facing extradition proceedings in relation to those charges.[6] The civil action is stayed pending the outcome of the extradition proceedings and the criminal prosecution. The stay was granted on 10 June 2014 at the request of Mr Dotcom and the other defendants. However, a condition of the stay is that theapplicants may "institute and pursue any action in the United States or a foreign jurisdiction to preserve the defendants' assets in the event that such action becomes necessary." That condition was included at the request of the applicants who were concerned that registration of the criminal restraining orders could lapse; a recent application to extend registration was refused and there is currently a temporary extension in place pending appeal against that decision.3[7] Against the possibility of the Court of Appeal dismissing the appeal, the applicants filed an originating application on 27 May 2014 seeking a freezing order3 Commissioner of Police v Dotcom & Ors [2014] NZHC 821. The appeal against that decision is to be heard this week.restraining Mr Dotcom from dealing with or disposing of his assets and ancillary orders. The substantive application seeks a freezing order in respect of:Any assets in New Zealand, being assets listed in the Schedule4 to this application and any other New Zealand assets owned (beneficially or legally) by the respondents...[8] One of the ancillary orders sought is disclosure by the respondents of their assets, which is a common form of ancillary order and allows both clarity and certainty as to the terms of the freezing order sought in the originating application.[9] Mr Dotcom indicated that he would agree to an interim freezing order toensure that the applicants' position is not prejudiced in the event that registration ofthe criminal restraining orders lapses.5 Notwithstanding that agreement, the applicants have brought this application seeking an ancillary order requiring Mr Dotcom to make immediate and full disclosure of his financial position. The application was prompted by recent public statements made by Mr Dotcom indicating that he has access to substantial funds which are not subject to the criminal restraining orders. The applicants are concerned because, whilst they havenever known the exact nature, extent or whereabouts of Mr Dotcom's assets, theyhad believed that his New Zealand assets were entirely restrained by the criminal restraining orders.Jurisdiction for ancillary ordersIs there jurisdiction to make an ancillary order other than in conjunction with a freezing order?[10] Under r 32.2(2) the High Court may make a freezing order to "restrain arespondent from removing assets that are located either in or outside New Zealand orfrom disposing of, dealing with or diminishing the value of those assets".6 A freezing order is a powerful order that is sometimes described as draconian; it prevents the respondent from dealing with his or her own assets before any judgment4 The assets identified in the schedule to the application are those subject to the criminal restraining orders.5 The parties have now settled the terms of an interim order which preserves the status quo created by the criminal restraining orders in the event the registration of those orders lapses.6 Previously known as a Mareva injunction after Mareva Compania Naviera SA v Inernational Bulkcarriers SA [1980] 1 All ER 213; [1975] 2 Lloyds Rep 509 (CA).entered, sometimes for lengthy periods. The purpose of the order must, therefore, be kept firmly in mind when considering an application; it is not intended to place the applicant in a position of effectively having security. The purpose is, rather, to address the risk of a prospective judgment creditor being unable to enforce the judgment because assets have been removed or disposed of.[11] The Court may also make an ancillary order under r 32.3:(1) The Court may make an order (ancillary order) ancillary to a freezing order or prospective freezing order if the Court considers it just.(2) Without limiting the generality of subclause (1), an ancillary order may be made for any of the following purposes:(a) Eliciting information relating to assets relevant to the freezing order or prospective freezing order;(b) Determining whether the freezing order should be made;(c) Appointing a receiver of the assets that are the subject of the freezing order.(3) An ancillary order is subject to the court's jurisdiction to decide an objection raised on the ground of privilege against self-incrimination conferred by s 60 of the Evidence Act 2006.[12] Although Ms Walker, for Mr Dotcom, was critical of the applicants' attemptto obtain an ancillary order other than in conjunction with a freezing order, rule 32.3 clearly contemplates an ancillary order being made before a freezing order and even without any freezing order ultimately following. The jurisdiction to make an ancillary order has been recognised as having the degree of flexibility needed to meet the justice of the individual case.7[13] The prerequisites for a freezing order or ancillary order are set out at r 32.5:(1) This rule applies if –(a) judgment has been given in favour of an applicant by –(i) the court; or(ii) in the case of a judgment to which subclause (2) applies, another court; or7 Shaw v Narain [1992] 2 NZLR 554 (CA) at 548; Shen v An Ying Group Ltd (No 3) (2006) 3 NZCCLR 351 (HC) at [83].(b) An applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in –(i) the court; or(ii) in the case of a cause of action to which subclause (3) applies another court.8(2) This subclause applies to a judgment if there is a sufficient prospect that the judgment will be registered in or enforced by the court.(3) This subclause applies to a cause of action if –(a) there is sufficient prospect that the other court will give judgment in favour of the applicant; and(b) there is a sufficient prospect that the judgment will be registered in or enforced by the court; and(c) there is a real connecting link between the subject matter of the order sought and the territorial jurisdiction of the New Zealand court; and(d) the order sought would not be inconsistent with interim relief granted by the other court.(4) The court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because –(a) the judgment debtor, prospective judgment debtor, or another person might abscond; or(b) the assets of the judgment debtor, prospective judgment debtor, or another person might be –(i) removed from New Zealand or from a place inside or outside New Zealand; or(ii) disposed of, dealt with, or diminished in value (whether the assets are in or outside New Zealand).(5) The court may make a freezing order or an ancillary order or both against a person other than a judgment debtor (a third party) if the court is satisfied, having regard to all the circumstances, that –(a) there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because –(i) the third party holds or is using, or has exercised or is exercising a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or(ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or8 "Another court" is defined at r 32.1 and is "a court outside New Zealand or a court in New Zealand other than the High Court."(b) a process in the court is or may ultimately be available to the applicant, as a result of a judgment or prospective judgment, under which the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.Does the ancillary order sought fall within the scope of r 32.5?[14] Ms Walker argued that the ancillary order sought does not fall within the scope of r 32.3 because all New Zealand assets are already restrained and therefore known and since Mr Dotcom has agreed to an interim freezing order preserving that position there is no need for further disclosure. Ms Walker submitted that the application is a mere fishing expedition to determine whether there are assets or whether a freezing application should be persisted with.9[15] I do not accept these arguments. The underlying premise of the application is that Mr Dotcom has assets which do not fall within the scope of the criminal restraining orders. The applicants maintain that they have a good arguable case to support the application for a freezing order and grounds for believing that assets exist beyond the scope of the criminal restraining orders but need to know the details of those assets in order to formulate the terms of the order eventually sought. Provided they can satisfy the prerequisites of r 32.5 there must be scope for the ancillary order as sought.Would it be unjust to grant the order even if the applicants satisfy the prerequisites?[16] Ms Walker submitted that Mr Dotcom cannot advance an effective opposition to the application because, in order to engage in any meaningful discussion about the merits of the applicants' case, he would have to waive his fair trial rights and hisprivilege against self-incrimination, including that conferred by the Fifth Amendment to the US Constitution. She said, therefore, that the present application is an abuse of process or tactical oppression by the applicants.[17] There are difficulties with this submission. First, I do not think that the privilege against self-incrimination applies under NZ law. Under s 60(1) the9 As discussed in the case cited to me, Parker v CS Structured Credit Funds Ltd [2003] EWHC 391 (Ch); [2003] 1 WLR 1680 at 1683.privilege is conferred only if the person is "required to provide specific information"and if doing so would be likely to incriminate that person under New Zealand law. If those prerequisites are met the person has a privilege in respect of the specific information. However, a person claiming the privilege against self-incrimination must offer sufficient evidence to enable the Judge to assess whether self- incrimination is reasonably likely.10 Mr Dotcom has not provided an affidavit. There is only a blanket claim through counsel that he would be unable to engage in a meaningful comment on the merits of the application without risk to himself.[18] Secondly, under s 63(2) the privilege conferred by s 60 does not apply in the context of civil proceedings, though s 63(3) provides that where a person is required by a court order to disclose information for the purposes of civil proceedings evidence of that information cannot be used in criminal proceedings (except proceedings relating to the falsity of the information). So in this civil proceeding Mr Dotcom has no privilege against self-incrimination and concern over his position in the criminal proceedings or the extradition proceedings could have been managed by an order under s 63(3), had such an order been sought.[19] Thirdly, Mr Dotcom is not being required to provide "specific information".Whether he chooses to advance evidence in response to the application is a matter for him, but there is no requirement for him to do so.[20] Fourthly, it is not suggested that the provision of information would be liable to incriminate him under New Zealand law; Mr Dotcom's concerns are focused onthe extradition proceedings related to the criminal prosecution in the US. Protection is available under s 61 in respect of specific information required to be provided that would, if so provided, be likely to incriminate the person under foreign law for an offence punishable by capital punishment, corporal punishment or imprisonment. That protection does not come in the form of a privilege but, rather, a discretion on the Judge to direct that the person cannot be required to provide the information"having regard to the likelihood of extradition and other relevant matters" if he or she thinks that it would be "unreasonable" to require the person to incriminate10 Evidence Act 2006, s 62(2)himself or herself. If Mr Dotcom had been genuinely concerned about self- incrimination he could have applied for an order under s 61 but he did not.[21] Finally, I am not satisfied that any information Mr Dotcom might want toprovide in relation to the applicants' claim would be incriminating. Mr Dotcom is currently engaged in a vigorous defence of the extradition proceedings against him. It cannot reasonably be suggested that his defence would rest on incriminating evidence. Logically, Mr Dotcom could only defend the extradition proceedings by use of exculpatory evidence.[22] The Supreme Court considered a similar issue in Singh v R, which involved the prosecution of a man for, among other things, violent offences against his partner. During the trial the woman, Ms D, claimed privilege against self- incrimination based on the fact that her previous statements, including depositions, had been false. The District Court Judge refused to accept that Ms D was entitled to claim the privilege; he was not satisfied that if she was forced to give evidence she would incriminate herself. The Court of Appeal upheld that finding. In dismissing an appeal against that decision the Supreme Court said:11Under s 60(1)(b) of the Evidence Act 2006 the privilege against self- incrimination can only be invoked in relation to information which, ifprovided, would be "likely" to incriminate the person claiming the privilege. The use by the legislature of the word "likely" shows that it intended toconfine the privilege to circumstances where the potential for incriminationis "real and appreciable" and not "merely imaginary and fanciful".12This means that the claim can only be invoked where later prosecution is itself likely. We also see the current test under the statute as being the same as that explained by Cockburn CJ in R v Boyes:13The court must see, from the circumstances of the case and the nature of the evidence which the witness is called to give, that there is reasonable ground to apprehend danger to the witness from hisbeing compelled to answer Further than this, we are of the opinion that the danger to be apprehended must be real and appreciable, with reference to the normal operation of law in the ordinary course of things – not a danger of an imaginary and unsubstantial character, having reference to some extraordinary and barely possible contingency, so improbable that no reasonable man would suffer it to influence his conduct. We think that a merely11 Singh v R [2011] 2 NZLR 322; [2010] NZSC 161.12 Busby v Thorn EMI Programmes Ltd [1984] 1 NZLR 461 (CA).13 R v Boyes (1861) 1 B & S 311 at 330; 121 ER 740 (KB) at 738.remote and naked possibility, out of the ordinary course of the law and such as no reasonable man would be affected by, should not be suffered to obstruct the administration of justice.[23] Ms Walker's real complaint is that if Mr Dotcom were to go on oath to pointout the flaws in the case he will be disadvantaged in the extradition proceeding by disclosing his defence at such an early stage; contrary to initial expectations the extradition proceedings are now to be heard early next year and Mr Dotcom, understandably, does not wish to lay out his position earlier than he needs to do. Ms Walker characterised the application as unfair pressure or tactical oppression thatrisked undermining Mr Dotcom's "fair trial rights". She was not specific as toprecisely which rights she was referring to.[24] The Supreme Court has held that, in the context of the extradition proceedings against Mr Dotcom, proceedings brought to determine the eligibility for surrender under s 24 of the Extradition Act do not engage the fair trial rights conferred by ss 24 and 25 of the New Zealand Bill of Rights Act (BORA).14Mr Dotcom cannot complain that engaging with this application would affect rights he does not have.[25] A person in Mr Dotcom's position is, however, entitled to the observance byany tribunal or public authority to the principles of natural justice under s 27(1) (BORA).15 In this regard Ms Walker relied on the following statements from the decisions of McGrath and Blanchard JJ:16The appellants are persons, lawfully in New Zealand, whose rights to remainwill be substantially affected by the District Court's decision on their eligibility for surrender. More specifically, in the exercise of its functions under the Extradition Act that Court is a public authority determining the rights of persons such as the appellants to liberty and in respect of the rights to freedom of movement. The appellants accordingly have the right toobservance of principles of natural justice in the Court's process under s279(1).In 1997 Elias J (as she then was) pointed out, in an immigration case, that the principles affirmed by s 27 are those established, prior to the enactment of the Bill of Rights Act, by the common law, adding:14 Dotcom v The United States of America [2014] NZSC 24 at [115] – [ 116].15 At [117] – [118].16 At [118].Fundamental to the principles of natural justice is the requirement that where the circumstances of decision making require that someone affected by it be given an opportunity to be heard, that person must have a reasonable opportunity to present his case at reasonable notice of the case he has to meet. The more significant decision the higher the standards of disclosure and fair treatment. In cases involving immigration status, high standards of fairness are required by natural justice because of the profound implications for the lives of those affected.[26] Their Honours, however, went on to comment:17The content of the right to natural justice, however, is always contextual. The question is what form of procedure is necessary to achieve justice without frustrating the apparent purpose of the legislation.[27] I do not consider that the dilemma Mr Dotcom claims to face between disclosing his defence too early and offering an effective opposition to the present application, creates an injustice. This was a situation that must have been contemplated by the terms of the order staying the civil proceedings; had registration of the freezing orders lapsed then, absent an agreement between the parties, the applicants would have been entitled to apply for a new freezing order and an ancillary order of the kind now sought. Mr Dotcom has avoided that particular difficulty by agreeing to an interim freezing order. But that does not change the fact that having to make full disclosure in the context of an application for a freezing order prior to the extradition proceedings being heard was always possible in terms of the stay order.[28] It is really the change to the hearing date for the extradition proceedings that is causing the difficulty, with the gap between the application for a freezing order and the extradition hearing now much greater than expected. But this application was filed in May 2014 and Mr Dotcom could have sought an order suppressing any evidence he wished to give in opposition to this application.17 At [120].A good arguable caseThe test[29] The relevant threshold under r 32.5(1) is that the applicants must have a good arguable case on the cause of action before the District Court in Virginia. There isno argument as to the standard required by the phrase "good arguable case": inHannay v Mount the Court of Appeal considered that a good arguable case would be established:18 if the allegations in the proposed claim are capable of tenable argument and are supported by sufficient evidence, bearing in mind the early stage at which the application is likely to be brought.[30] In articulating the test in this way, the Court of Appeal approved itsarticulation of the test for "good arguable case" in r 6.2919 in Wing Hung Printing Ltd v Saito Offshore Pty Ltd:20 the good arguable case test does not require the plaintiff to establish aprima facie case. This recognises that disputed questions of fact cannot be readily resolved on affidavit evidence. On the other hand, there must be asufficiently plausible foundation established [31] In terms of what "sufficient evidence" might be the Court in Hannay said:21[36] The standard of proof to which applicants in freezing order applications must adduce evidence is important because such applications will usually be advanced at a very early stage of the proceedings, often before the discovery process, and at a time when access to relevant evidence may be limited.Is the summary of evidence produced by Ms Thorland admissible?[32] The evidence in support of the application comes from affidavits filed by Karen Rae Thorland, the senior vice president and global content protection counsel, of the Motion Picture Association of America Inc (MPAA) and an affidavit of Robert Henry Rotstein, a US attorney specialising in copyright and other forms of18 Hannay v Mount [2011] NZCA 530 at [22].19 Jurisdiction where there has been overseas service without leave.20 Wing Hung Printing Ltd v Saito Offshore Pty Ltd [2011] 1 NZLR 754 (CA) at [41].21 Hannay v Mount, above n 18, at [36].intellectual property and related litigation. Neither gives direct evidence of the factual basis for the allegations against Mr Dotcom.[33] Ms Thorland has exhibited to her affidavit a summary of the evidence disclosed by the US government in the criminal proceedings; it was obtained pursuant to an order by the United States District Court for the Eastern District of Virginia authorising the US government to publicly notify victims of Megaupload (including the applicants) of the evidence held by it. The summary, which is not attributed to a particular author, records that:As per Judge O'Grady's order of November 22, 2013, the United States ofAmerica has been authorised to provide notice to potential victims in the criminal case. As part of that notice, the government has been permitted to release a summary of the evidence that has already been provided to the defendant in the extradition proceedings pending in New Zealand and thatwould otherwise have become public at the defendants' extradition hearing(which has recently been re-scheduled by the New Zealand District Court to start on July 7, 2014).The government today has further served Judge O'Grady's chambers withthe notice package (including a copy of this summary) and has informed theclerk that Judge O'Grady's Order may now be unsealed. Due to the lengthof the documents in the notice the government will publish the notice through a release on the US government website and will not file a copy electronically with the court clerk.The summary reflects evidence produced by Assistant United StatesAttorneys Jay V. Prabhu and Ryan K Dickey of the US Attorney's Office forthe Eastern District of Virginia for purposes of the extradition process and is not exhaustive of the evidence gathered by the government. The paragraphs are ordered based primarily on when they were submitted to the defendants. Additional information is expected to be provided in future submissions to the defendants. Personal identifying information such as bank account and passport numbers has been redacted.[34] There follows some 190 pages describing the FBI investigation into Megaupload, details as to the operation of Megaupload and a summary of the evidence expected to be given by various FBI witnesses, many of them named agents.[35] Rule 9.76(1)(d)(i) of the High Court Rules requires an affidavit to be confined to matters that would be admissible if given in evidence at trial by the deponent. Ms Walker submitted that the summary was inadmissible because it was hearsay and did not satisfy the prerequisites of s 18 of the Evidence Act 2006 underwhich a hearsay statement could be admitted. Further, even if the summary was admissible it should be given little weight.[36] Ms Walker did not accept that r 7.30, which allows a judge to accept statements of belief in an affidavit in which the grounds for belief are given, should apply because the circumstances do not fall within any of the prerequisites in r 7.30(1)(a) – (c). This includes r 7.30(1)(c) which permits statements of belief in an affidavit to be admitted where it is in the interests of justice; Ms Walker submitted that it could not be in the interests of justice for evidential quality to be set at a low bar, particularly in the context of the draconian effect of the freezing and ancillary orders sought.[37] However, I do not accept that the summary is not hearsay, so there is no bar to admissibility on that ground. Hearsay is a statement made by a person other than a witness that is offered in evidence to prove the truth of its contents.22 I accept Mr Sumpter's submission that the summary of evidence is not being offered to provethe truth of its contents. He likened the situation to that discussed by the Court of Appeal in Vincent & Ashby v Commissioner of Police in relation to restraining orders made under the Criminal Proceeds (Recovery) Act 2009:23[45](b) It is important to recall what the Judge must be satisfied about before issuing a restraining order. He or she must be satisfied that there are'reasonable grounds to believe' that the property is tainted property or thatthe relevant person unlawfully benefited from significant criminal activity. The Judge is not required to make a finding that the relevant property is tainted property or that the particular person did unlawfully benefit from significant criminal activity. The relevance of this is that Mr Rainey argued that the officers had sought to produce the transcripts of the intercepted conversations and other documents as evidence of the truth of their contents.Mr Rainey argued that 'these statements' as defined in s 4 of the Evidence Act 2006 and are hearsay statements which are prima facie inadmissible [46] In their affidavits the police officers set the background andbrought together a wide range of investigative work For the purposes ofthe restraining order applications at least we consider this to be justifiable.[47] Restraining orders are issued on the basis of reasonable grounds to believe, rather than proof that the target has unlawfully benefited from significant criminal activity. This means, in our view, that affidavits such as those filed by the two police officers are admissible, without the need for a22 Evidence Act 2006, s 4.23 Vincent & Ashby v Commissioner of Police [2013] NZCA 412, at [45] – [47].formal application under s 19 of the Evidence Act. Rather, they fall within r 7.30 of the High Court Rules and s 20 of the Evidence Act. The alternative to allowing what are, technically at least, hearsay statements in affidavits such as those at issue would be to require a very elaborate evidentiary basis for the issue of restraining orders, which would be impractical and inconsistent with the approach taken in other contexts.[38] I infer that the summary is the work of the named attorneys, Messrs Prabhu and Dickey, though that is not material; the author or authors are simply summarising the evidence expected to be given by others, not all of whom are named. It is clear that the summary could not be and is not offered to prove the truth of its contents. It is therefore not hearsay. Ms Thorland does no more than offer it to the Court as the basis for her assertion that the applicants have a good arguable case.[39] It is relevant that restraining orders often are, as the present application is, brought and determined under circumstances of urgency. As I have alreadydiscussed, the meaning of "good arguable case" does not require proof to a highlevel. It requires the Judge to be satisfied that the allegations are tenable. The evidential basis for that does not extend to the underlying facts of the case but to the apparent likelihood of the allegations being proven.[40] Whilst a judge considering an application for a freezing order is conscious of the serious implications that such an order can have pre-judgment, it is also in the interests of justice that the freezing and ancillary order jurisdiction is responsive to litigants who need to apply at short notice. It is evident from the allegations made bythe applicants and from the summary of evidence attached to Ms Thorland's affidavit that it would not have been possible to provide direct evidence of the allegations within a short time frame because of the sheer number of witnesses, the extent of the documentary material referred to and the complexity of the evidence overall.[41] I therefore accept that the summary of evidence can be considered. The weight given to it must reflect the various factors that are apparent on its face,including that it is not direct evidence but that its provenance is the US Attorney'soffice and that it contains what purport to be direct quotes from emails by and to Mr Dotcom.Is there a good arguable case?[42] I turn then to consider whether, on the basis of the evidence from Ms Thorland, including the summary of evidence and the evidence of Mr Rotstein, the applicants have a good arguable case.[43] Ms Thorland has deposed to the applicants' ownership or control over thecopyright and exclusive rights in thousands of motion pictures and television shows. A brief list, by way of example, is annexed to her affidavit. The summary of evidence includes extracts from emails to and from Mr Dotcom and other Megaupload operators. It includes the results of analysis of data copied from the servers of Megaupload and related sites. It includes extracts from emails sent by and received from Mr van der Kolk and Mr Dotcom regarding complaints about illegaldownloading and Mr Dotcom's responses. It includes references to the downloadingof specific copyrighted movies, naming the movies and the number of times they had been downloaded from Mega sites. It contains a summary of information drawn from the financial records of Mr Dotcom and Megaupload Limited. These were said to include transfers totalling more than $25 million from the proceeds of criminal copyright infringement.[44] The evidence described in the summary of evidence is arguably capable of proving the allegations that Megaupload committed substantial infringements of theapplicants' copyright interests and that Mr Dotcom controlled Megaupload, wasaware of the copyright infringements and benefited from them. Mr Rotstein'sevidence is that the circumstances described in the summary of evidence would support a finding of copyright infringement by Megaupload and Mr Dotcom (and others) under US law. In particular, he considers that they would show that the respondents actively and intentionally encouraged Megaupload users to upload to its servers files, the content of which included copyrighted works, and distribute those files to other users by rewarding users, including in cash, calculated by reference to how many times their files were downloaded by others. He considers that that summarised evidence, if given, would also show that the defendants encouraged Megaupload users to distribute URL (uniform resource locator) links to infringing content via third party linking sites that the defendants knew promoted links topirated content for the purpose of increasing the Megaupload data user base and, in turn, the revenue gained from it. This evidence would also show that the defendants knew of the infringements, failed to block users responsible for such infringements and, to the contrary, rewarded those users and benefited themselves.[45] Mr Rotstein has expressed his opinion that, on the basis of the allegations and the description of the evidence in the summary of evidence, the respondents would be liable for both direct and secondary copyright infringement and that there is no effective affirmative defence available. His assessment of damages is a recovery in excess of US$100 million.[46] Mr Rotstein's evidence is vigorously challenged. Mr Dotcom has filed anaffidavit by an experienced US attorney and professor of law, Peter Jaszi, who specialises in copyright and other intellectual property law. Professor Jaszi focuses his attention on the fact that the Megaupload site was able to be used for non- infringing purposes such as personal file storage and publishing user-generated content. He describes in some detail US decisions, including the decision of the United States Supreme Court in Sony Corp of America v Universal City Studios Inc24which limited the exposure for the manufacturers and suppliers of so-called "mixed use" products and services. Professor Jaszi also raises doubts over whether the defendants' pleading could support a claim of secondary infringement, noting the divergence in the approach of US Circuit Courts to the prerequisites for pleading in acopyright case and the fact that the Fourth Circuit (where the applicants' civil casewill be heard) has not yet ruled on the issue.[47] Professor Jaszi further observes the considerable difficulty copyright holders face in proving claims for infringement. These particularly include the difficulty in proving specific knowledge to the required standard and the nature of the financial benefit/interest required. He concludes that:It is my opinion that, on the current evidence, Applicants are less than 50 percent likely to succeed in their litigation with Defendants on the foundational issue of liability for copyright infringement.24 Sony Corp of America v Universal City Studios Inc 464 US 417 (1984).[48] Nor does Professor Jaszi consider that, even if liability could be established, any recovery would be significant. I discuss this aspect in more detail later.[49] Ms Walker made submissions as to the correct legal position under US law in relation to liability for "mixed use" providers, the pleading requirements for primaryand secondary infringement and the limitations on damages that could be claimed. But it is neither possible nor necessary for me to reach a conclusion as to the position regarding liability, pleadings and possible damages in copyright cases in the US.Professor Jaszi has quite properly identified potential weaknesses in the applicants' case. However, even on his own evidence, I could not conclude that the applicants'case as pleaded is untenable. Professor Jaszi puts the applicants' prospects ofsuccess at significantly less than Mr Rotstein. But those perceived weaknesses depend to a considerable extent on how the Fourth Circuit courts will view some of these legal issues and on how the evidence is ultimately presented at trial. Looked atbroadly, and even on Professor Jaszi's assessment, the applicants' have a goodarguable case for the purposes of r 32.5.Sufficient prospect that a judgment would be enforced in New Zealand[50] Under r 32.5(3)(a) and (b) there must be a sufficient prospect that the US Court will give judgment for the applicant and that such a judgment will be enforced or registered in New Zealand. Ms Walker argued that there was not a sufficient prospect that a judgment obtained in Virginia would be enforced in New Zealand because the US is not a country to which the Reciprocal Enforcement of Judgments of Act 1934 applies and any judgment obtained would therefore not be able to be registered under s 56 of the Judicature Act 1908.[51] Nor, she submitted, was it likely for such a judgment to be enforceable at common law, the prerequisites for which are summarised in Von Wyl v Engeler:25A foreign judgment in personam given by the Court of a foreign country with jurisdiction to give that judgment is enforceable by action in NewZealand. The foreign Court must have had jurisdiction as determined by the New Zealand rules of conflict of laws rather than according to the foreignCourt's own law Jurisdiction in personam exists where the debtor waspresent in the foreign country at the time the proceedings were instituted; 25 Von Wyl v Engeler CA47/97, 25 May 1998.or where, being defendant in the foreign Court, submitted to the jurisdictionof that Court by voluntarily appearing in the proceedings; [52] Ms Walker submitted that there was no evidence to satisfy any of these prerequisites and therefore no basis on which to conclude that there was a sufficient prospect that any judgment obtained in the Virginia proceedings would be enforced by this Court.[53] I find that a difficult submission to accept because the evidence strongly suggests that Mr Dotcom has submitted to the jurisdiction of the Virginia Court. In an affidavit filed on behalf of Mr Dotcom, a solicitor from Simpson Grierson, Mr Fellows, has exhibited a reply submisson filed on behalf of Mr Dotcom and other defendants in the Virginia proceedings, in support of their application for a stay ofthose proceedings. The submission was made in opposition to the plaintiffs' effortsto secure conditions on the stay to allow it to apply for freezing orders if necessary. At page 5 of that submission it was said that:Through United States counsel, the individual defendants (Dotcom, Ortmann and van der Kolk), who are in New Zealand, have formally waived service of process under r 4(d) and have 90 days to respond to the complaint (which period would be suspended if the stay is granted).[54] In his order of 10 June 2012 granting the stay on conditions, Judge O'Gradymade no reference to any challenge by Mr Dotcom to jurisdiction. I can only conclude, on the evidence before me, that Mr Dotcom has submitted to the jurisdiction of the Virginia Court in the civil proceedings and there must therefore be sufficient prospect that any judgment obtained in that court would be enforceable in this Court.Would the order sought be inconsistent with the US stay order?[55] Rule 32.5(3)(d) requires that the order being sought not be inconsistent with interim relief granted by the other court. No interim relief has been granted by a US court but Ms Walker submitted that the ancillary order sought would be inconsistent with the stay order granted by the United States District Court at Virginia in the civil proceedings and that should preclude it being granted.[56] The relevant part of the order made in the Virginia Court was that:Plaintiffs may institute and pursue any action in the United States or aforeign jurisdiction to preserve defendants' assets in the event that such action becomes necessary. The Court finds that each of the Plaintiffs'proposed conditions are reasonable under the circumstances of this casebecause of the possibility that Defendants' assets are broad may becomeunfrozen.[57] Ms Walker made two points. First, the US civil proceedings were stayed outof respect for the respondents' Fifth Amendment rights against self-incrimination and to require them to participate in a discussion of the merits of the civil case before this Court would therefore be contrary to the stay order. I cannot accept that submission. Whilst the argument was advanced before the Virginia Court, that Court plainly did not consider that allowing the plaintiffs to apply elsewhere for freezing orders wouldadversely affect the defendants' Fifth Amendment right against self-incrimination.[58] Ms Walker's second point was that Judge O'Grady's order clearly contemplates that any action to preserve the respondents' assets would only becomenecessary if the assets became unfrozen, indicating that he was not contemplating a situation where the freezing orders would extend beyond the restraining orders. I certainly accept that the applicants sought that condition out of concern that the Court of Appeal may decline to extend the registration of the criminal restraining orders, with the result that there would be a significant risk of the subject assets being dissipated. There was also concern raised over a recent application made in Hong Kong to set aside freezing orders relating to assets in that jurisdiction.[59] However, I accept Ms Thorland's evidence that the applicants had understoodthat all of Mr Dotcom's assets were subject to the freezing order subject only toallowances for living and legal expenses. That was an entirely understandable belief, no doubt encouraged by the assertion in the reply brief filed on behalf of the defendants (including Mr Dotcom) in support of their stay application that:At present, pursuant to the Court's orders entered in the criminal action in2012, every asset of the defendants that the United States could find has been seized pending criminal forfeiture. Those orders were directed at assets in Germany, Hong Kong, the Netherlands, New Zealand, the Philippines, the United Kingdom and Australia. Thus, until the criminal action is resolved or those assets are otherwise released, they remain frozen.[60] Although Judge O'Grady's order recorded the motivation for the plaintiffs'seeking the condition 3, the order itself is not confined in that way. It is a clear order. It is not the subject of any appeal. I am not prepared to find that the orders currently sought would be inconsistent with it.Is there a danger that a prospective judgment will go wholly or partly unsatisfied because assets are disposed of?[61] The basis for the applicants' assertion that there was a risk of Mr Dotcom'sassets being disposed of is based on statements made publicly by Mr Dotcom inrecent months. On 7 June 2014, the website "TorrentFreak" published an articlebased on an interview with Mr Dotcom in which they reported Mr Dotcom as havingoffered a US$5 million "bounty" on the social media website Twitter for informationon any "unlawful or corrupt conduct" by entities associated with the US governmentor the Hollywood movie industry. Mr Dotcom was quoted as saying:I'm currently in talks with my legal team about how to formalise the bounty. We will probably set up a trust fund to deposit the bounty and provide terms and conditions for anyone who will provide information.[62] Subsequently, Mr Dotcom made several statements on Twitter confirming his intention to offer a US$5 million bounty for information from any whistle blower.[63] On 29 May 2014, TVNZ's One News played an interview with Mr Dotcom in which he said:I've this week, you know, funded the Internet Party in full so it will take them all the way to the campaign and beyond $3 million in the last seven days and about $1 million before the Internet Party was registered.[64] The applicants also rely on various statements made by Mr Dotcom on social media reporting on apparently extravagant holidays he has enjoyed recently, including travelling between Auckland and Queenstown by helicopter.[65] Mr Dotcom has not denied making these various statements and I take them at face value. In relation to the Internet Party funding, they evidence actual expenditure of at least $4 million. That sum would require funds well in excess ofthe amounts to which Mr Dotcom currently has access under the terms of the criminal restraining orders. Ms Walker suggested, though not very strongly and without any evidential basis, that the reported expenditure, including the funding of the Internet Party should be viewed as expenditure in the usual course of Mr Dotcom's business, bringing them within r 32.6(3)(c). I do not accept that.[66] The real issue, however, is whether there is a danger to the applicants of any judgment obtained in the civil proceedings going unsatisfied, either wholly or partly,as a result of Mr Dotcom's use of the funds to which he apparently has accessoutside the terms of the criminal restraining orders.[67] This issue is the subject of comment by both Mr Rotstein and Professor Jaszi. They agree that the applicants may elect either compensatory damages comprisingactual damages together with the disgorgement of the respondents' profits or,alternatively, statutory damages. Where wilfulness is alleged (as it is here) the maximum statutory damages recoverable is $150,000 per infringement (there is an issue raised by Professor Jaszi as to whether this means $150,000 for each work infringed rather than each case of infringement). The pleaded claim in the civil proceedings identifies these alternatives but does not indicate an election at this stage. It does, however, specifically plead wilfulness.[68] The real difference between Mr Rotstein and Professor Jaszi in assessing the likely extent of damages is the number of works that might ultimately be the subjectof the proceeding. The pleading contains an "illustrative" list of 30 movies allegedto have been the subject of copyright infringement. Professor Jaszi eschews any assessment based on more than the 30 listed movies. He considers that would be mere speculation and limits his assessment to the possible outcomes based only on the 30 named movies. On his view, regardless of how damages are approached, a claim based on those 30 movies will not produce a significant figure. For example, on the maximum statutory figure the award would be $4.5 million. Professor Jaszi also relies strongly on the fact that, because of the applicable limitation period the applicants are able to recover damages only in respect of infringements that occurred after 7 April 2011.[69] However, the pleadings allege "massive infringement" and "large scale infringement" and Ms Thorland speaks in similar terms. Realistically, one would notregard a list of 30 works as falling within those descriptions. Mr Rotstein has deposed that it is common practice in US copyright cases for plaintiffs to amend the initial Complaint, adding infringements, including those that come to light in the course of the litigation. Mr Rotstein asserts that leave to amend is freely given. Therefore any assessment as to the possible quantum of damages must be approached on the basis that, ultimately, there will be allegations that many more works were infringed.[70] Mr Rotstein rejects Professor Jaszi's suggestion that any damages would be minimal. Pointing to the allegation that Megaupload was estimated to be the thirteenth most frequently visited website on the entire internet with an average of 50 million visits daily, he maintains his view that the number of infringing works at issue within the relevant period would easily support a damages claim in excess of US$100 million.[71] I have considered the points made by both witnesses. I have also taken into account references in the summary of evidence as to the apparent revenue being generated by the Megaupload sites; Ms Thorland has said that the applicants understand that Megaupload earned profits of about US$175 million from copyrightinfringement. That figure must have relevance in relation to the applicants' right to seek a disgorgement of profits. I note, too, that the summary of evidence refers to a number of movies alleged to have been the subject of infringement but which do notappear in the illustrative schedule attached to the applicants' complaint. I infer,because it is the applicants' allegations that led to the criminal proceedings, thatthese movies are most likely works in which the applicants hold the copyright.[72] Taking all the points, both evidential and legal, into account and acknowledging of course that this assessment is being made at a very early stage in the proceedings, I am satisfied that the applicants have shown a good arguable case for damages in excess of $11.8 million, being the value of the New Zealand assets currently subject to the criminal restraining orders.[73] Ms Walker pointed out that Mr Dotcom has many other assets restrained in other jurisdictions which would also be available to satisfy any judgment and therefore the order being sought is unnecessary. There is, however, no evidential basis for that submission. It is known that Mr Dotcom has applied to restraining orders made by the Hong Kong courts set aside. But I have no information about the nature or value of other assets that are restrained or the terms on which they are restrained. This is a critical issue and one that Mr Dotcom could have addressed in an affidavit without risk to himself but chose not to.[74] The fact that Mr Dotcom is making very substantial payments such as those to the Internet Party and is making statements of intent regarding other substantial payments leads me to conclude that there is a danger that any judgment obtained by the applicants will go unsatisfied, partly or wholly, as a result of Mr Dotcom disposing of assets.Result[75] The application for an ancillary order requiring Mr Dotcom to make full disclosure of his assets is granted. By 20 August 2014 Mr Dotcom is to file and serve an affidavit setting out the nature, extent and value of his assets wherever they are located and identifying the nature of his interest in them.[76] The issue of costs may be addressed by memoranda filed on behalf of the applicants within 14 days, Mr Dotcom within a further seven days, and the applicants in reply within seven days after that.____________________P Courtney J