TWENTIETH CENTURY FOX FILM CORPORATION & ORS v DOTCOM & ORS (NO 3) [2016] NZHC 2509 [20 October 2016]

TWENTIETH CENTURY FOX FILM CORPORATION & ORS v DOTCOM & ORS (NO 3) [2016] NZHC 2509 [20 October 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2014-404-001272[2016] NZHC 2509BETWEEN TWENTIETH CENTURY FOX FILMCORPORATION, DISNEYENTERPRISES INC, PARAMOUNTPICTURES CORPORATION,UNIVERSAL CITY STUDIOSPRODUCTIONS LLLP, WARNER BROSENTERTAINMENT INCApplicantsAND KIM DOTCOMFirst Respondentintituling contʼd over Hearing: 25-28 July 2016Appearances: M C Sumpter and L L Fraser for ApplicantsR M Mansfield and S L Cogan for First RespondentS L Cogan for Second DefendantD J Boldt and J D Slankard for Third and Fifth RespondentsJ R Hosking and C A Jones for Fourt Respondent and FirstInterested PartyJ E M Lethbridge and B G Frowein for Second Interested PartyM J Gavin for Third Interested PartyJudgment: 20 October 2016JUDGMENT (NO 3) OF COURTNEY JThis judgment was delivered by Justice Courtneyon 20 October 2016 at 3.30 pmpursuant to R 11.5 of the High Court RulesRegistrar / Deputy RegistrarDate..BRAM VAN DER KOLKSecond RespondentRSV HOLDINGS LIMITEDThird RespondentCOATESVILLE TRUSTEE SERVICES LIMITEDFourth RespondentMDM CORPORATION TRUSTEELIMITEDFifth RespondentMONA DOTCOMFirst Interested partyCOMMISSIONER OF POLICESecond Interested PartyRECORDING INDUSTRYAPPLICANTS IN PARALLELPROCEEDINGThird Interested PartyIntroduction[1] Mr Dotcom's personal assets, both in New Zealand and overseas, and allassets of the Trust Me Trust are frozen pursuant to a freezing order made in 2014 in favour of the applicant film studios. I have already determined applications by the studios, Mr Dotcom and Mrs Dotcom arising from the 2014 freezing order.1 In this judgment I determine the following remaining applications:(a) Mr Dotcom applies to vary the freezing order to release a third motor vehicle to him for his personal use; and(b) Mrs Dotcom applies to vary the freezing order so as to permit the transfer of two frozen properties, 5G and 5H The Prom, to be transferred to her; and(c) Mrs Dotcom seeks the release of certain personal possessions that are subject to the freezing order.Mr Dotcom's application to release a third vehicle[2] Among the assets held by the Official Assignee pursuant to the freezing order is a 2011 Mercedes Benz GFFAMG. Mr Dotcom seeks to vary the freezing order so as to release that vehicle for his personal use. The application is opposed on the ground that Mr Dotcom already has access to two vehicles and has not made out the grounds on which to justify the release of a third.[3] Mr Dotcom's evidence in support of his application appears in his affidavit sworn 9 February 2016. He explains that one of the vehicles he currently has access to is a van which is used primarily to transport his older children from their mother'shome in Coatesville (where they live during the week) to their school in Albany and home again. Mr Dotcom has a second vehicle which he currently uses for his personal and business use. However, it is planned that the two youngest children (pre-school at the time of the application) will attend an inner-city pre-school and the second vehicle would be needed to transport them to and from their pre-school.1 Twentieth Century Fox Film Corporation & Ors v Dotcom [2016] NZHC 1948 and Twentieth Century Fox Film Corporation & Ors v Dotcom [2016] NZHC 2497.Mr Dotcom considers that this is not workable because it would interfere with his vehicular needs.[4] Mr Dotcom does not say how providing transport for the children to and from school would interfere with his personal needs. Nor is it apparent why that should be the case. Mr Dotcom lives in an inner-city apartment. He works from his apartment. He is substantially engaged in litigation which is managed from Auckland. He is working on other business plans, also from his apartment. The evidence does not explain why a separate vehicle is needed. This application is declined.Transfer of 5G and 5H The PromThe application and the relevant principles[5] The Prom properties comprise a house and a separate section in Coatesville. Mrs Dotcom has applied to vary the freezing order to allow both properties to be transferred to her. The application rests on an agreement between Mr and Mrs Dotcom dated 26 February 2015 under which Mr Dotcom agreed that The Promproperties were Mrs Dotcom's separate property and undertook to effect transfer ofthem to her (the PRA agreement). Ms Hosking, for Mrs Dotcom, argued that, by reason of the PRA agreement, The Prom properties are Mrs Dotcom's separateproperty and ought to be transferred to her. Mrs Dotcom is agreeable to the properties continuing to be subject to the 2014 freezing order but does not suggest that this will always be her position. In particular, she contemplates the possibility of selling the section to borrow against one or both properties.[6] In my judgment of 5 February 2016, in which I gave reasons for refusing to allow Mr Dotcom to use The Prom properties as security for personal borrowings, I reviewed the principles that govern the variation of freezing orders.2 In summary, given the purpose of freezing orders and the limitations on their scope imposed by2 Twentieth Century Fox Film Corporation & Ors v Dotcom [2016] NZHC 88, citing Iraqi Ministry of Defence v Arcepey Shipping Co SA [1981] QB 65 at 71; PCW (UnderwritingAgencies) Ltd v Dixon [1983] 2 All ER 158 (QB) at 165; Noga v Australia & New Zealand Banking Group [2006] EWHC 602 (Comm) at [9]; Abbey Forwarding Ltd v Home [2010] EWHC 1532 at [20]; Hunt v BP Exploration Company (Libya) Ltd [1980] 1 NZLR 104 at [116]–[118]; Covington Group Holdings Ltd v Zhong (No 3) (2004) 17 PRNZ 819 (HC) at [54].r 32.6(3), the power to vary is to be regarded as a residual discretion to be exercised in the interests of justice and mindful of the purpose of the freezing order (to respond to the risk of a judgment or award going unsatisfied as a result of a defendant dissipating or disposing of assets so as to render himself judgment-proof) and thatthe jurisdiction is not intended to provide security over a respondent's assets.3A history of orders affecting the Prom properties[7] In 2012 the US government obtained a foreign restraining order that was registered under the Mutual Assistance in Criminal Matters Act 1992. The Prom properties were subject to that order when the PRA was entered into.[8] In November 2014 the freezing order was made in relation to Mr Dotcom'sassets not already subject to the restraining order and the assets of the Trust Me Trust. The freezing order did not affect The Prom properties at that stage; they were still subject to the restraining order.[9] In March 2015 a US court issued a civil forfeiture order in respect of MrDotcom's assets. Mrs Dotcom had asserted an interest in all the properties in respect of which the forfeiture order was sought on the basis of her right to claim under the Property (Relationships) Act 1976. Her interest in 5H The Prom (in which she was living) was recognised and that property and a vehicle were excluded from the order. She was not regarded as having a sufficient interest in the other assets. An appeal against the civil forfeiture order failed.4 Because the order has not been registered in New Zealand it has no direct relevance to the status of the properties for present purposes; I have mentioned it only for the sake of completeness.[10] In April 2105, shortly before the restraining order expired, the 2014 freezing order was amended to include the assets (including the Prom properties) that were subject to the restraining order upon the expiry of that order.3 Twentieth Century Fox Film Corp & Ors v Dotcom [2016] NZHC 88 at [19].4 The decision dismissing an appeal against the order was released in August 2016, after the hearing of the present application.Should the freezing order be varied to allow the transfer of the Prom properties?[11] Ms Hosking's argument depended on the PRA, which she asserted had theeffect of recognising The Prom properties as Mrs Dotcom's separate property andsubmitted that there was no reason not to transfer them. She also submitted that Mr Dotcom entered into the PRA in consideration for Mrs Dotcom not opposing his application for access to his frozen Government Bonds to meet living and legal expenses and that it would be unfair, and would undermine the agreement, if Mrs Dotcom could not now also access frozen assets for the same purpose.[12] Mr Sumpter, for the studios, argued that the PRA was invalid and so did not confer any right on Mrs Dotcom that would justify transferring the properties to her. He pointed out that the existence of the restraining order when the PRA was entered into meant that the properties were subject to s 135 of the Criminal Proceeds (Recovery) Act 2009 which prohibits the disposition of or dealing with restrained property other than as provided for in the order. As a result, Mr Dotcom's purportedassignment of his interest in the properties under the PRA was not valid. Mr Sumpter noted, too, that agreements of this kind made under s 21A of the Property (Relationships) Act 1976 continue to be subject to any other enactment or rule of law or equity rendering a contract void, avoidable or unenforceable. He submitted that the agreement was vulnerable to being set aside under the InsolvencyAct as an arrangement intended to defeat Mr Dotcom's creditors.[13] If the PRA were invalid, the ground for Mrs Dotcom's application would fallaway. The present application is not the appropriate context for a final determination of that question but I accept that the validity of the agreement is sufficiently in doubt that it would not be in the interests of justice to give effect to it. To do so would risk allowing frozen assets to be dissipated; although Mrs Dotcom is presently accepting of the properties remaining subject to the order she is candid about the possibility that this will not always be the case.[14] The fact that Mrs Dotcom entered into the agreement in order to facilitate Mr Dotcom's access to frozen assets cannot alter the position. In any event, as a result of my allowing other aspects of Mrs Dotcom's application to vary the freezingorder, her living expenses and ongoing legal expenses are to be meet from other assets.[15] Fnally, allowing the transfer of the properties would also undermine thepurpose of the freezing order, which is to prevent the dissipation of Mr Dotcom's assets pending determination of the studios' claim; I accept Mr Sumpter's argument that the transfer of the properties would make it more difficult for creditors to access those assets, even if they were still subject to the freezing order. This is particularlyrelevant given the proprietary nature of the studios' claims.[16] The application is dismissed.Mrs Dotcom's application in relation to personal possessions[17] Mrs Dotcom asserts that a number of items subject to the 2014 freezing order are her personal property and ought to be returned. They are four watches, three pieces of jewellery, a sculpture, an I-phone and a computer.[18] The studios have agreed that two of the items, a ring and a crucifix, can be released. I make an order varying the freezing order to that extent.[19] The phone and the computer are said by the studios not to be subject to the asset freeze. If those items have not yet been returned to Mrs Dotcom, they should be returned promptly.[20] The studios oppose the release of the remaining items on the basis that they are subject to competing proprietary claims and liable to forfeiture. The freezing order does not give a plaintiff security and is intended only to prevent the dissipation of assets against which judgment might later be enforced. If, as appears to be the case, the subject items were gifts by Mr Dotcom to Mrs Dotcom there would ordinarily be no reason for them to remain frozen. But the situation is more difficult where the items are the subject of a proprietary claim, which is the position here.[21] The distinction was described in PCW (Underwriting Agencies) Ltd v Dixon.5In that case counsel for the plaintiffs sought to support an injunction over the wholeof the defendant's assets save for a modest amount for reasonable living expenseseach week on the ground that the fund that was subject to the injunction belonged, in equity, to claimants whom the plaintiff represented. Lloyd J said:6The distinction between the ordinary Mareva plaintiff and the case wherethe plaintiff is laying claim to a trust fund on the so-called wider ground, is thus clear. In the latter case the whole object is to secure the trust fund itself so that it should be available if the plaintiff should prove his claim. In the former case by contrast the plaintiff is not entitled to any security. The purpose of the jurisdiction, as is now clearly established, is not to provide the plaintiffs with any form of pre-trial attachment. It is simply to prevent the injustice of a defendant removing or dissipating his assets so as to cheat the plaintiff of the fruits of his claim.[22] The issue of the extent to which an injunction should be varied in the face of a proprietary claim generally arises in relation to attempts by the defendant to access frozen funds for the purposes of living or legal expenses. There is, however, no reason that the same approach ought not be taken more generally. In this case the granting of the restraining order and the amended 2014 freezing order were based on an asserted proprietary claim by the studios that was not the subject of any appeal. In these circumstances there is no basis on which I could properly vary the freezing order so as to release these assets.[23] The application is refused.____________________P Courtney J5 PCW (Underwriting Agencies) Ltd v Dixon [1983] 2 All ER 158 at 162.6 At [164].