Commissioner of Police v Yan [2014] NZHC 2688 (31 October 2014)

Last Updated: 20 November 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-2040 [2014] NZHC 2688

BETWEEN	COMMISSIONER OF POLICE Applicant
AND	WILLIAM YAN First Respondent WEI YOU Second Respondent

Hearing:	24 October 2014
Appearances:	M Harborow for Applicant P Wicks QC and S J Lance for Respondents
Judgment:	31 October 2014

JUDGMENT OF LANG J

[on application for orders under s 29 of the

_{Criminal Proceeds (Recovery) Act 2009]}

This judgment was delivered by me on 31 October 2014 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

COMMISSIONER OF POLICE v YAN [2014] NZHC 2688 [31 October 2014]

[1] On 19 August 2014, the Commissioner of Police (the Commissioner) obtained without notice restraining orders under the Criminal Proceeds (Recovery) Act 2009 (the Act) in respect of numerous items that the Commissioner believed were under the effective ownership or control of the respondents, Mr Yan and Ms You. The Commissioner then applied on notice for orders under ss 24 and 25 of the Act extending the period within which the restraining orders are to remain in force. That application has not yet been determined.

[2] The respondents have applied for an order under s 29 of the Act requiring the Commissioner to provide undertakings that he will meet any damages or loss that the respondents might suffer as a result of the continued operation of the restraining orders in relation to some items of restrained property. Two interested parties, Mr Zhihong Xu (Mr Xu) and Ms Lijing Zeng (Ms Zeng), have similarly applied for undertakings in respect of bank accounts in their names that are also subject to the restraining orders. The Commissioner opposes the applications.

The restrained property

[3] The applications relate to the following restrained property:

(a) Two parcels of shares in Mega Limited held in the names of TEY Trustee Limited and New Vision Trustee Limited.

(b) The interest held by Elliott Lane Developments Ltd (Elliott Lane) in a property development project at 113 McClymonts Road, Albany.

(c) A right to share in any profits derived from the construction of a dairy factory at Arapuni by a company called Gallinas Limited.

(d) Two parcels of shares in a company to be listed on the New Zealand stock exchange under the name FM International Limited.

(e) Bank accounts totalling approximately $4 million in the name of Mr

Xu and Ms You.

Relevant principles

[4] Section 29 of the Act provides as follows:

29. Undertakings as to damages or costs in relation to restraining orders

(1) A court may require an applicant for a restraining order, or an applicant for an extension of the duration of a restraining order under section 41, to give satisfactory undertakings with respect to the payment of damages or costs, or both, in relation to the making, operation, or extension of the duration of the restraining order.

(2) A court may decline to make a restraining order or extend the duration of a restraining order if the applicant for the order or extension fails to give the court the undertakings with respect to the payment of damages or costs, or both, that the court requires.

(3) Any expense incurred by the Crown in satisfaction of an undertaking given on behalf of the Crown under subsection (1) may be incurred without further appropriation than this section.

[5] There is as yet little direct authority regarding the principles to be applied when the Court is asked to require the Commissioner to provide undertakings in respect of property restrained under the Act. In Commissioner of Police v Stepping Stone Finance Ltd, Rodney Hansen J observed:¹

[54] The power to require an undertaking is wholly discretionary. Section 29 gives no guidance as to the factors which should be considered. Australian statutes, to which I was referred, similarly confer the power to require an undertaking in broad terms. The discretion has been described as one which should be exercised according to considerations of justice and fairness and to diminish the possibility of oppression and injustice.² An undertaking will tend:

To satisfy any concerns the Court might have that the making of a restraining order might cause innocent persons to sustain damage in a context in which, upon acquittal of the person charged, it could well be regarded as unfair and unjust for such persons to be without means of recovering such damage.

¹ _{Commissioner of Police v Stepping Stone Finance Ltd [2013] NZHC 665.}

² Director of Public Prosecutions (WA) v Mansfield [2006] WASC 255; State of Queensland v

Rodd [2004] QSC 312.

[6] In Stepping Stone Finance, the owner of restrained property was in the process of winding its business down. The Commissioner was prepared to agree to ancillary orders that enabled the owner to continue that process. Rodney Hansen J concluded that this voluntary undertaking meant that the owner would not suffer material prejudice, and that the restraining orders would not operate in an oppressive

or unjust way. Brewer J took a similar approach in Commissioner of Police v G.³

[7] In Commissioner of Police v C, the Commissioner initially sought restraining orders in respect of three parcels of real estate, listed bank accounts and “all of the respondent’s property in New Zealand and elsewhere in the world”.⁴ The Commissioner subsequently reduced the scope of the application by limiting it to bank accounts and the parcels of real estate, together with certain items of jewellery and cash that the police had found when they searched the respondent’s address. In declining to require the Commissioner to provide undertakings in relation to these items, Brewer J observed:

[42] In the civil jurisdiction, an interlocutory application for injunction is commonly accompanied by an undertaking as to damages. Section 29 of the Act makes specific provision for an undertaking as to damages to be given. Obviously, one will not be required in every case or the legislation would provide for such. In this case, had the Commissioner persisted with his application to restrain all of the respondent’s property, I would have been satisfied that an undertaking as to damages should be given. That is because such an application would necessarily include all the respondent’s interest in business assets. The applicant acknowledges that the respondent engages in legitimate business. The allegation is that he has intermingled the legitimate business with illegitimate enterprises. The respondent denies that. If the applicant had persisted and not been able to establish on the balance of probabilities that the respondent has engaged in illegitimate business, the respondent should have had an avenue for compensation for interference with his lawful business.

[43] The situation now is that the application relates materially to real estate and to listed accounts. There are no interim restraining orders in place. In the context of the Commissioner seeking to restrain assets under empowering legislation, I do not see a positive reason to order an undertaking as to damages. Accordingly, the application is dismissed.

[8] In Commissioner of Police v Reed, Woolford J observed that the discretion to require the Commissioner to provide an undertaking under s 29 is quite different

_{from the obligation under r 7.54 to provide an undertaking as to damages when a}

³ _{Commissioner of Police v G [2012] NZHC 465 at [41].}

⁴ Commissioner of Police v C [2012] NZHC 435.

party applies for an interim injunction.⁵ In the case before him, the Judge did not detect any real possibility of loss or damage arising from the restraining orders. He also considered that “unsubstantiated assertions about loss of business opportunities are not sufficient to engage s 29”.

[9] It is neither necessary nor appropriate for present purposes to attempt to prescribe the circumstances in which it will be appropriate to require the Commissioner to provide an undertaking under s 29. Determination of that issue in any given case will necessarily be dictated by the context and circumstances. It is not necessary to go beyond the statement of principle identified above from the Stepping Stone Finance case, namely that the discretion should be exercised so as to mitigate the risk that restraining orders will create injustice or oppression. That will usually occur where the existence of the restraining orders creates material and unfair prejudice for the owner of the restrained assets.

[10] An example of this is to be found in Director of Public Prosecutions v Mansfield,⁶ one of the cases cited by Rodney Hansen J in the passage set out above from the Stepping Stone Finance case.⁷ In Mansfield, the Director of Public Prosecutions for Western Australia (the DPP) had obtained freezing orders in respect all of the respondents’ property under the Western Australian equivalent of the Act. Blaxell J described the resulting consequences over the next four years as follows: ⁸

[11] In the meantime, and by any reasonably objective standard, the freezing order has had very dire consequences for both Mr and Mrs Mansfield. The whole of Mr Mansfield’s property, and all of Mrs Mansfield’s major assets, have been frozen since 12 July 2002, and pursuant to s 50 cannot be dealt with in any way. Consequently, Mr and Mrs Mansfield have been unable to meet mortgage payments that have fallen due on their jointly owed real estate, and they are also liable for interest which is continuing to accrue at default rates on the very substantial arrears. Because the freezing order has prevented Mr Mansfield from meeting other debts that he had incurred, he is subject to an ongoing petition for his bankruptcy (which itself cannot be resolved because of the freezing of his assets).

[11] The Judge also considered that the Commissioner had been largely responsible for the delay that had occurred in advancing the proceeding. In those

⁵ _{Commissioner of Police v Reed [2013] NZHC 802 at [48].}

⁶ _{Director of Public Prosecutions for Western Australia v Mansfield, above no 2.}

⁷ _{Commissioner of Police v Stepping Stone Finance Ltd, above n 1 at [54].}

⁸ Director of Public Prosecutions for Western Australia v Mansfield, above n 2.

circumstances the Judge described the factors in favour of requiring the DPP to provide an undertaking as being “fairly overwhelming”.⁹

Decision

The shares in Mega Ltd

[12] This issue can be disposed of in short order. It arises because Mega Ltd has entered into a contract with a company called TRS Ltd under which the two companies will complete a “reverse merger”. This will permit Mega Ltd to list on the New Zealand stock exchange. Through other entities, Mr Yan and Ms You own approximately 18.8 per cent of the shares in the Mega Ltd. They were concerned that the restraining orders might hinder or delay the merger and listing process. As their counsel accepted during the hearing, however, this does not appear to have been the case. The listing process has continued apparently unaffected by the existence of the restraining orders.

[13] The Commissioner has also confirmed that once listing occurs, he will sell the restrained shares if Mr Yan and Ms You ask him to do so and he will not sell the shares without their consent. There can therefore be no suggestion that the existence of the restraining orders is detrimentally affecting the shares that Mr Yan and Ms You hold in Mega Ltd. No question of oppression or injustice arises. There is therefore no reason to require the Commissioner to provide an undertaking as to damages in relation to these assets.

The interest held by Elliott Lane in the McClymonts Road project

[14] Through Elliott Lane, Ms You was involved in a joint venture with a company called BC Corporate Administration Ltd (BCA) to develop a property situated in McClymonts Road, Albany. Had the project been successful, Elliott Lane and BCA would have shared equally in the profits. Ms You believes that this could have generated profits in the order of up to $88 million, meaning Elliott Lane stood

_{to make up to $44 million as a result of its interest in the project.}

⁹ At [18].

[15] The restraining orders initially applied to the sum of $4 million that was held in Elliott Lane’s bank account. Ms You deposes that these funds represented a loan she obtained from a business associate in China. She says Elliott Lane obtained the loan in order to meet its contractual obligation to pay one half of the deposit payable to acquire the property that is to be the subject of the development.

[16] In September 2014 the Commissioner agreed to a variation of the restraining orders so as to allow the funds to be released to pay Elliott Lane’s share of the deposit. Had that not occurred, it is probable that the vendor of the property would have cancelled the contract and BCA would have forfeited the deposit of $4 million that it had paid. In return, however, the Commissioner obtained a restraining order in respect of Elliott Lane’s interest in the project. He also required BCA to agree to acquire that interest for the sum of $4 million no later than 2 December 2014.

[17] BCA’s manager, Mr Howard Babbington, deposes that potential investors in the project have been influenced by the adverse publicity associated with the restraining orders, and are no longer willing to assist. He says they are unwilling to invest money in the project because they are concerned that “money lent to invest in the project faces the risk of an allegation that it is laundered money and may be subject to restraint”. As a result, BCA may not be able to meet its obligation to purchase Elliott Lane’s share in the project in December, and the project is at risk of collapse.

[18] Ms You contends that an undertaking as to damages is required to ensure that Elliott Lane has a measure of protection in respect of the $4 million it has already committed to the project, and also because it will no longer be able to share in the profits that the project would have realised but for the existence of the restraining orders.

[19] Mr Babbington’s evidence suggests that BCA’s problems have arisen as a result of misconceptions held by potential investors regarding the risks involved in investing in the project at this point. It is difficult to see how the Commissioner could be held responsible for that state of affairs. More importantly, it cannot be said that the continued existence of the restraining orders is likely to be oppressive or

create an injustice for Elliott Lane. The Commissioner has already demonstrated that he is prepared to assist Elliott Lane to meet its obligations by permitting the restrained funds to be released and used in payment of the deposit. He has also endeavoured to protect Elliott Lane’s interests so far as possible by effectively requiring BCA to repay the funds in December 2014. Moreover, Ms You’s claim that the project would have generated vast profits must be regarded as highly speculative.

[20] All of these factors persuade me that the Commissioner should not be required to provide an undertaking in relation to the interest held by Elliott Lane in the McClymonts Road project.

The right to share in any profits generated by Gallinas Ltd

[21] Gallinas Ltd has acquired a rural property near Arapuni, and plans to build a dairy factory on the site. Mr Yan has entered into an oral agreement with the developer that he and Ms You will assist in finding investors for the project. In return, Mr Yan’s company LY Investment Ltd will be entitled to receive one half of any profits that the project generates. Ms You considers that the project could generate hundreds of millions of dollars in profits. The right of LY Investments to share in those profits is presently subject to the restraining orders obtained by the Commissioner.

[22] Ms You deposes that her name and that of Mr Yan have been tainted by the restraining orders and the associated publicity. She is therefore concerned that they will not be able to raise sufficient capital to enable the project to proceed. She seeks an order requiring the Commissioner to provide an undertaking to meet the loss of profits that LY Investments will suffer in the event that the project fails.

[23] The obvious answer to this submission is that the existence of the restraining orders is not preventing Mr Yan and Ms You from continuing to attempt to find investors for the project. Nor is the existence of the restraining orders preventing LY Investments from having resort to an asset, because the asset does not as yet exist. Moreover, even applying a liberal approach, I do not consider that potential losses of this type can realistically be attributed to the fact that the Commissioner obtained restraining orders in respect of the right of LY Investments to share in profits

generated by the project. An informed investor would be highly unlikely, in my view, to be influenced by the fact that such orders exist. Any reluctance by investors to invest in the project is far more likely to have been caused, as Ms You candidly acknowledges, by the adverse publicity surrounding Ms You and Mr Yan and their business affairs generally.

[24] For those reasons I do not consider the Commissioner should be required to provide an undertaking in relation to any loss that might be suffered under this head.

The shares in FM International

[25] FM International carries on business in China as a trader in seafood and aquacultural products. Mr Yan agreed to assist FM International to list as a public company in New Zealand, presumably to carry on a similar business in this country. This required the company to raise NZ$3.8 million in capital from investors. In return, a company associated with Mr Yan has been allocated 355 million shares in the new company. The allocation is conditional, however, on the new company listing on the stock exchange and raising the necessary capital. The shares are currently subject to the restraining orders that the Commissioner obtained.

[26] Ms You deposes that the listing process has now stalled because the company’s professional advisors have declined to continue acting for the company. She says that this is due to “the restraints against the 355 million shares conditionally owned by [her husband’s company]”. She also says that there is a very real possibility that the new company will be forced to abandon its bid to list on the New Zealand stock exchange. If that occurs, her husband’s company will have to surrender the shares it has been allocated. She believes these have a current value of between NZ$14 and NZ$18 million.

[27] Again, however, the restraining orders are not preventing Mr Yan and Ms You from having resort to an asset, because Mr Yan’s company will not beneficially own the shares until the new company lists on the stock exchange in New Zealand. In addition, Ms You has provided no evidence to support her assertion that professional advisors are reluctant to provide the new company with further assistance because of the existence of the restraining orders. There could be any number of reasons why

they might be taking that stance. There must be a real possibility that the reluctance stems not from the existence of the restraining orders, but rather from the adverse publicity regarding Mr Yan and Ms You’s business affairs. It is also difficult to see why the existence of the restraining orders would have the effect that Ms You describes. In the absence of independent support for Ms You’s claim, I am not prepared to conclude there is a risk that the continued existence of the restraining orders will result in oppression or injustice for Ms You and Mr Yan so far as the shares in FM International are concerned.

The bank accounts in the names of Mr Xu and Ms Zeng

[28] Mr Xu and Ms Zeng are husband and wife, and reside in China.

[29] Ms Zeng deposes that she and Mr Xu visited New Zealand in February 2013, and decided that they would one day migrate to this country. As a result, they opened bank accounts in New Zealand and subsequently deposited monies into the accounts. Ms Zeng also appointed her sister as her attorney to manage and control her affairs in New Zealand, including the bank accounts.

[30] Ms Zeng and Mr Xu say that the restraining orders are preventing them from taking advantage of opportunities to acquire assets in New Zealand, including real estate. Ms Zeng recently sought the Commissioner’s consent to a variation of the restraining orders to enable her and Mr Xu to use funds from their accounts to purchase a property, but the Commissioner was not prepared to agree to the variation they sought. They now seek an order requiring the Commissioner to provide an undertaking to meet the losses they will suffer by not being able to take advantage of future opportunities to acquire assets in New Zealand.

[31] I acknowledge that the restraining orders are currently preventing Mr Xu and Ms Zeng from having resort to their bank accounts in New Zealand. There is no suggestion, however, that this is causing them any hardship or inconvenience beyond an inability to use the funds to acquire assets in New Zealand. Ms Zeng’s affidavit suggests that she and her husband are skilled business people who derive substantial sums of money from their business activities. She does not suggest that the existence of the restraining orders is having any other adverse effect on their

business or personal lives. Nor is there any risk that the funds will dissipate in value, because they are being held in interest bearing accounts with major New Zealand banks.

[32] All of these factors persuade me that there is no risk that the continued existence of the restraining orders will create oppression or injustice for Mr Xu and Ms Zeng.

Result

[33] The applications are dismissed.

Costs

[34] If counsel cannot reach agreement regarding costs they may file brief memoranda and I will determine the issue of costs on the papers.

Lang J

Solicitors:

Meredith Connell, Auckland

Jesse & Associates

Counsel:

P Wicks QC, Auckland