Dotcom v Twentieth Century Fox Film Corporation [2014] NZHC 1980 (20 August 2014)

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BETWEEN	KIM DOTCOM Applicant
AND	TWENTIETH CENTURY FOX FILM CORPORATION First Respondent DISNEY ENTERPRISES INC Second Respondent PARAMOUNT PICTURES CORPORATION Third Respondent UNIVERSAL CITY STUDIOS PRODUCTIONS LLLP Fourth Respondent WARNER BROS ENTERTAINMENT INC _{Fifth Respondent}

Hearing:	19 August 2014
Appearances:	T J Walker and L F Stringer for Applicant J E Hodder and L L Fraser for Respondents M J Gavin for Applicant in Parallel Proceeding (Recording Industry)
_Judgment:	_{20 August 2014}

DOTCOM v TWENTIETH CENTURY FOX FILM CORPORATION & ORS [2014] NZHC 1980 [20 August

[1] Yesterday Kim Dotcom applied¹for a stay of execution of an order requiring him to file and serve an affidavit setting out the nature, extent and value of his assets by 20 August 2014.²This morning I issued a minute advising of my intention to deliver this judgment later in the day dismissing the application but varying the order to provide for the confidentiality of information disclosed by Mr Dotcom. I also indicated my intention to grant an interim stay to allow Mr Dotcom to apply to the Court of Appeal. Counsel are conferring regarding the terms of that interim stay.

(a) If execution of the order is not stayed Mr Dotcom’s appeal rights in respect of it will be rendered nugatory;

(b) Mr Dotcom has file a notice of appeal, the proposed grounds of appeal are seriously arguable and Mr Dotcom intends to prosecute the appeal promptly;

(c) A stay will not injuriously affect the respondents because Mr Dotcom has assets worth more than $30m that are currently restrained in New Zealand and elsewhere.

[3] The decision to stay execution of a judgment is an exercise in balancing the right of the successful party to enforce its judgment and the consequences for that party if it is not permitted to do so against the consequences for the party seeking the stay if the judgment is executed. This process is well described by Buckley LJ in Minnesota Mining & Manufacturing Co v Johnson & Johnson Ltd:³

On what principles ought such a discretion to be exercised? The object, where it can be fairly achieved, must surely be so to arrange matters that, when the appeal comes to be heard, the appellate court may be able to do justice between the parties, whatever the outcome of the appeal may be. Where the injunction is an appropriate form of remedy for a successful

³Minnesota Mining & Manufacturing Co v Johnson & Johnson Ltd [1976] RPC 671 (CA) cited in

plaintiff, the plaintiff, if he succeeds at first instance in establishing his right to relief, is entitled to that remedy upon the basis of the trial Judge’s finding of fact and his application of the law. This is, however, subject to the defendant’s right of appeal. If the defendant in good faith proposes to appeal, challenging either the trial Judge’s findings or his law, and has a genuine chance of success on his appeal, the plaintiff’s entitlement to his remedy cannot be regarded as certain until the appeal has been disposed of.

[4] The factors most frequently found to be relevant to the decision are those identified by Hammond J in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd:⁴

(1) If no stay is grant will the applicants’ right of appeal be rendered nugatory?

(2) Bona fides of the applicants as to the prosecution of the appeal. (3) Will the successful party be injuriously affected by the stay?

(5) The novelty and importance of the question involved. (6) The public interest in the proceedings.

[5] Only the factors at (1), (3), (5) and (7) are relevant in this case. Mr Dotcom has deposed to his genuine intent to prosecute his appeal and I have no reason not to accept that assertion. Whether a stay is granted will have no, or no significant, effect on third parties. Nor is there any particular public interest in the proceeding beyond the fact that Mr Dotcom’s affairs often attract public attention.

[6] However, the list of factors that Hammond J indentified is not exhaustive. In particular, it is accepted that, although it is not for the Court considering a stay application to attempt any kind of determination of the proposed grounds of appeal, the existence of questions that are properly or genuinely arguable on appeal is a

⁴_{Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola
Enterprises Ltd (1999) 13 PRNZ 48 at [9].}

⁵New Zealand Insulators Ltd v ABB above n 3, at [21]; Redhill Development (NZ) Ltd v Green

[7] I note, finally, that it is also recognised that conditions and undertakings may be appropriate tools in managing the issues arising on a stay application so as to protect the interests of both parties.

[8] Mr Hodder, for the respondents, endeavoured to argue that Mr Dotcom’s appeal rights would not be rendered nugatory because a successful appeal would still result in a vindication of Mr Dotcom’s position, entitle him to costs, may found a claim for damages and further disclosure can be prevented by a confidentiality order. However, Mr Hodder acknowledged that the prospect of Mr Dotcom being able to recover damages in the event of his appeal succeeding was unlikely. It is true that Mr Dotcom could obtain a confidentiality order but that would be of limited benefit

if disclosure has already been given.⁶Whilst Mr Hodder’s point is right in a

[9] I accept Ms Walker’s submission for Mr Dotcom that if a stay is not granted his appeal rights will, effectively, be rendered nugatory. However, the mere fact that appeal rights are rendered nugatory is not necessarily determinative and in the circumstances of this case I consider that this consequence carries little weight. This is because Mr Dotcom himself does not assert that there will be any adverse effect on him if deprived of an effective appeal.

[10] The affidavit that Mr Dotcom filed in support of his application does not touch on the issue of what effect complying with the disclosure order would have on him. He does not say that he will be adversely affected if required to make disclosure of his financial position. Ms Walker did not address the issue in her submissions and dealt with it only in reply. But I found her argument unconvincing.

[11] Ms Walker submitted that it is axiomatic that an individual whose appeal rights are rendered nugatory is prejudiced. When pressed about the nature of the prejudice Ms Walker submitted that a person should not be required to disclose

_{private financial matters without justification and that to do so would
cut across}

privacy rights and values that underpinned s 21 of the NZ Bill of Rights Act 1990 (BORA), drawing an analogy with the right against unreasonable search and the right to freedom of expression. Ms Walker did not develop the argument beyond general reliance on the Supreme Court’s discussion of the nature of those rights in Hamed v R⁷. I am unable to accept, on the strength of the argument presented, that requiring disclosure of financial information in the context of an application for an ancillary order under Part 32 of the High Court Rules could be regarded as a search in the sense of the privacy interests protected by NZBORA.

[12] I accept, and Mr Hodder acknowledged, that this case raises some difficult issues. It cannot be said that there is no genuine issue in the appeal. However, nor do I see sufficient merit in those issues to outweigh the concerns that I have found to be justified by Mr Dotcom’s disposal of assets in circumstances where there is doubt over whether his assets will be sufficient to meet a judgment against him.

[13] The proposed grounds of appeal, which are set out in the recently filed notice of appeal, are the jurisdictional point regarding the scope of an ancillary order and its relationship with a prospective freezing order, the overall justice of the case and the prerequisites of r 32.5. The last of these centres on the assessment of damages, which I discuss later, and the question of whether there is sufficient prospect of an enforceable judgment.

[14] Ms Walker had previously submitted that there was no basis on which to conclude that there was a sufficient prospect of a judgment obtained in the US proceedings being enforced by this Court. I rejected that submission; it appeared from a submission filed in the US proceedings in relation to the stay of those proceedings that Mr Dotcom had submitted to the US jurisdiction. The relevant part of the submission is set out at [53] of my judgment. Ms Walker pointed out that the application to stay had been made only by Megaupload and not by any of the

_{individual defendants, including Mr Dotcom. She submitted that, as a
result, there}

[15] Having reflected again on this issue I am unable to accept Ms Walker’s proposition. The reply submissions that Mr Dotcom put before this Court through Mr Fellows’ affidavit, sworn on 21 July 2014, seem very clear that, although the application for stay in the US was brought by Megaupload it was advanced for the benefit of all the defendants, including Mr Dotcom. The submissions refer throughout to ‘defendants’ rather than Megaupload alone. And although Ms Walker is right that the onus at the last hearing was on the respondents to satisfy me of a sufficient prospect of an enforceable judgment, the onus at this hearing is on Mr Dotcom to persuade me that there is sufficient strength in the appeal points to justify a stay. Had Mr Dotcom seriously wished to advance this argument he could very easily have deposed that he has not submitted to the US jurisdiction but he has not.

[16] The basis for the application for ancillary order was the respondents’ concern that any judgment they obtained against Mr Dotcom was at risk of going unsatisfied because the damages obtained are likely to exceed the value of the assets subject to criminal restraining orders in New Zealand and Mr Dotcom apparently has access to assets that are not restrained and is disposing of those assets. I concluded that the respondents had shown a good arguable case for damages in excess of $11.8m being the value of the New Zealand assets currently subject to the criminal restraining orders that are temporarily extended pending a decision by the Court of Appeal as to whether they are to lapse or be the subject of a further extension. As a result I considered that the respondents did have grounds for their concern.

[17] At the time of the earlier hearing I had no evidence of assets in other jurisdictions before me. I declined to accept advice from the bar about assets located in Hong Kong and subject to restraining orders there. I noted in my judgment that Mr Dotcom could have given some details of those assets without detriment to

himself but chose not to. Now, however, Mr Dotcom has deposed that his assets restrained here and in Hong Kong are worth not less than NZ$33,933,974.28.

[18] Complementing Mr Dotcom’s evidence, Ms Walker sought to demonstrate that my assessment of the strength of the respondents’ case for damages was against the weight of the evidence given by the parties’ respective experts, Mr Rotstein and Professor Jaszi. Their respective assessments of the likely level of damages were very different. Mr Rotstein thought that damages in excess of US$100m was likely. Professor Jaszi proposed a range at well below US$10m, potentially a fraction of that. To a significant extent the difference between them was attributable to the fact that Professor Jaszi, who gave evidence for Mr Dotcom, assumed that only the 30 works referred to in the schedule attached to the statement of claim in the US civil proceedings would form the basis for the claim. The respondents’ expert, Mr Rotstein, asserted in his evidence that illustrative lists of infringed works were typically included in the early stages of proceedings but amended later. Professor Jaszi made no comment on this assertion. I inferred that Mr Rotstein’s experience was correct.

[19] A second aspect that Ms Walker raised was the reference in Ms Thorland’s evidence to her understanding that Megaupload had earned ‘profit’ of about US$175m from the copyright infringements. Ms Walker submitted that this figure was ‘obviously revenue and not profit’ and submitted that the figure was overstated for that reason and also because inadequate allowance had been made for the fact that this figure related to the entire life of the Megaupload sites, whereas damages could only be claimed for approximately nine months, criticising Mr Rotstein’s opinion that the volume of traffic on the Megaupload site supported the conclusion that the number of infringing works would support a damages award in excess of US$100m.

[20] To a certain extent this discussion becomes circular. There is a limited amount of information available at this stage of the proceedings. Damages ultimately sought will reflect the level of infringement over the relevant nine month period. I was satisfied, based on the summary of evidence and the experts’ views, that there was a good arguable case for a claim in excess of the value of the assets

secured in New Zealand. I was not required to go further and did not purport to do so.

[21] Mr Dotcom’s evidence regarding the Hong Kong assets does not change my view on this issue. Mr Dotcom has deposed to having (unspecified) assets in Hong Kong worth NZ$22,134,390 and assets subject to the New Zealand criminal restraining orders worth NZ$11,799,404.28. He says that there are restrained assets in other jurisdictions of minimal value. He acknowledges that all of his assets are subject to a potential claim by his former wife under the Property (Relationships) Act

1976. Taking that claim into account, I proceed on the basis that Mr Dotcom is likely to retain assets worth approximately $17m.

[22] One can immediately see that even if damages ultimately obtained are only half of Mr Rotstein’s assessment, Mr Dotcom’s restrained assets will not be sufficient to cover a judgment obtained by the respondents. As a result, the additional information provided by Mr Dotcom in his affidavit does not remove the basis for the respondents’ concerns and does not justify any different approach from that taken in my judgment.

[23] It is notable also that there are assets restrained in Hong Kong belonging to defendants in the Hong Kong and US proceedings, including Megaupload. In addition to the Hong Kong assets owned by Mr Dotcom personally, to which I have already referred, there are assets valued at approximately NZ$25m owned by Megaupload and Vestor Limited. Megaupload has applied to set aside the Hong Kong restraining order and that application is due to be heard next week. Regrettably, Ms Walker was unable to put before me a copy of the Hong Kong restraining order. It is unclear as to why there is difficulty obtaining a copy of that order.

[24] On the one hand Mr Dotcom says he has an arguable appeal and that the respondents will not be worse off if they have to wait until his appeal is determined because there are sufficient assets that are already restrained which exceed any reasonable assessment of damages they could obtain. Although Mr Dotcom himself

has not asserted any prejudice as a result of having to comply with the order, his counsel argues that requiring him to disclose financial information is, in itself, prejudicial.

[25] Mr Dotcom’s counsel has raised points which appear on their face to be arguable on appeal. But they are not so compelling as to justify staying execution of the judgment. Nor am I satisfied that the additional information about Mr Dotcom’s Hong Kong assets alters my conclusion regarding the respondents’ concerns. To the extent that disclosure in itself may be shown to be prejudicial, I accept Mr Hodder’s suggestion that Mr Dotcom’s concerns can be adequately addressed through a

‘waterfall’ of orders ensuring the confidentiality of information that Mr Dotcom puts before the Court.

[26] Mr Dotcom’s application for a stay of execution is dismissed. [27] My original order is, however, varied so that:

(a) Mr Dotcom must, by 5 pm 22 August 2014 file under seal and serve on the respondents’ solicitors the affidavit required by the disclosure order;

(b) The respondents’ solicitors are not to disclose the contents of the affidavit to any person without the leave of the Court. Leave is reserved to apply for directions as to the taking of instructions from any of the respondents on information contained in the affidavit;

High Court of New Zealand Decisions

Dotcom v Twentieth Century Fox Film Corporation [2014] NZHC 1980 (20 August 2014)