Estate of Lu [2021] NZHC 2740 (13 October 2021)

Last Updated: 16 December 2021

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1817 [2021] NZHC 2740

UNDER	the Insolvency Act 2006
IN THE MATTER AND	The deceased estate of JIHONG LU
IN THE MATTER	of an application by DENNIS CLIFFORD PARSONS, the appointee in the deceased estate of JIHONG LU, for a search and seizure warrant under s 150 of the Insolvency Act 2006

Hearing:	On the papers
Counsel:	D Nielsen for the Applicant
Judgment:	13 October 2021

JUDGMENT OF GORDON J

This judgment was delivered by me

on 13 October 2021 at 3.30 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors: Nielsen Law, Hamilton Counsel: P Cornegé, Hamilton

Re Estate of JIHONG LU [2021] NZHC 2740 [13 October 2021]

Introduction

• [1] The applicant, Dennis Parsons, by application dated 8 September 2021, seeks leave to commence a proceeding under the Insolvency Act 2006 (the Act) by way of an originating application and applies for a search warrant under s 150 of the Act. Mr Parsons has filed an affidavit sworn 8 September 2021 in support of the application.

Background

• [2] On 6 August 2019, Jianping Wang obtained summary judgment against Jihong Lu¹ in the sum of $1.5 million. Mr Wang subsequently commenced bankruptcy proceedings against Jihong Lu in relation to the judgment debt.

• [3] On 7 January 2020, Jihong Lu made a Will which appointed his brother, Bin Lu, as his executor and trustee in the event of his death. On 22 January 2020, Jihong Lu died in Taiwan.

• [4] On 29 April 2021, following protracted proceedings brought by Mr Wang seeking an order that the deceased estate of Jihong Lu be administered by an appointee under Part 6 of the Act, an order was made to that effect and Mr Parsons was appointed to administer the deceased estate of Jihong Lu pursuant to s 385(2)(b) of the Act. In the course of those proceedings, Bin Lu deposed that he was familiar with Jihong Lu’s assets and liabilities.

• [5] Jihong Lu’s Will indicates that he had assets including real estate, securities, stock, an art collection and jewellery. The Will also refers to shares in “UXTRATA”, jewellery stored in Shanghai, China, property in Shanghai and Changsha, China and a valuable yacht.

• [6] Since Mr Parsons’ appointment, Bin Lu has denied that there are any substantial assets in the estate and that assets specifically identified in Jihong Lu’s Will

¹ I will continue to refer to Jihong Lu using his first name to avoid confusion with his brother, Bin Lu, who is also mentioned in this judgment.

are in fact “family assets”. Mr Parsons deposes that his investigation to date has established that:

(a) Jihong Lu freely received and transferred material amounts from and to the bank accounts of related companies, Templar Fund Ltd, Templar Investments Ltd and MY Templar Ltd;

(b) Jihong Lu had access to material funds from overseas;

(c) In 2019, Jihong Lu indicated in his application for mortgage funds to General Finance Ltd that he received an annual salary of $3 million. However, the Inland Revenue Department has confirmed that no personal income tax returns were filed by Jihong Lu from 31 March 2015 to 31 March 2020. Mr Parsons says he has not been able to determine any evidence of any income derived at the level referred to;

(d) Between July 2015 to July 2020, Jihong Lu’s personal bank accounts received and disbursed more than $22 million, with no apparent assets or income; and

(e) Jihong Lu was able to receive and use funds received into his personal bank accounts, from related companies and overseas investments as required, to support what Mr Parsons says can only be described as a lavish lifestyle, which included: material improvements to a property at 45 Godden Crescent, Mission Bay, Auckland;² expensive furniture and effects; luxury motor vehicles; a fine art collection; and use of the 85-foot vessel named “Templar”.

Previous applications

• [7] Mr Parsons deposes that he has made two applications to the High Court in respect of this matter to date. First on 1 July 2021, he applied to the Court³ for a search

² The net proceeds from the sale of that property are subject to a freezing order made on 28 November 2020 under CIV-2019-404-2583.

³ Under CIV-2021-404-1174.

and seizure warrant under s 150 of the Act relating to valuable artwork. In his affidavit in support of that application, Mr Parsons detailed his concern that Bin Lu had failed to disclose those items, despite Mr Parsons’ request, and was seeking to conceal the assets from him. The High Court issued a search warrant on 7 July 2021 in response to the application.

• [8] Mr Parsons made a second application on 30 July 2021 to this Court⁴ for freezing and ancillary orders in relation to the vessel “Templar” which had been owned by Jihong Lu and transferred to a related company. The parties agreed that the sale of the vessel by MY Templar Ltd could proceed, provided the proceeds of sale and proceeds from the charter operations of the vessel were held pending agreement or further order of the Court. Orders were made by consent.

The current application

• [9] Mr Parsons says his investigation has revealed that Jihong Lu used two email addresses which he identifies. Both email addresses are hosted via a free cloud-based website operated by Microsoft New Zealand Ltd (Microsoft) on behalf of Microsoft Corporation (USA).

• [10] Mr Parsons considers that the email accounts are likely to contain information regarding Jihong Lu’s dealings with his personal and business assets. Mr Parsons annexes to his affidavit examples of Jihong Lu’s emails, which use these addresses for his property, conduct and dealings.

• [11] On 18 July 2021, Mr Parsons requested Microsoft to reset the password to one of Jihong Lu’s accounts and forward the link to him so he could access the contents of that email address. (At that stage Mr Parsons was not aware that Microsoft also hosted a second account).

• [12] On 5 August 2021, counsel for Microsoft refused the request and stated that Microsoft required a Court order that specifically required Microsoft to provide access to Jihong Lu’s email account.

⁴ Under CIV-2021-404-1542.

• [13] Mr Parsons responded on 22 August 2021, sending two emails to counsel for Microsoft, including specific reference to s 171 of the Act in support of his request for access to Jihong Lu’s email account. Mr Parsons wrote in one of those emails:

For completeness, the request I am making is pursuant to Section 171 Insolvency Act 2006. As stated in my original letter

“I have been appointed to administer the deceased estate of Jihong Lu pursuant to Section 365(2)(b) of the Insolvency Act 2006”. You will appreciate that in accordance with Section 392 of the Insolvency Act 2006 that as the appointee I have, in relation to the estate, the same authority, powers and functions as the Assignee has in relation to the property of a bankrupt”.

So my request is in terms of that Section:

171 Assignee may obtain documents. In addition to the power contained in section 165(1)(b)(i), the Assignee may, by notice in writing, require the bankrupt, the bankrupt’s spouse, or any other person to deliver to the Assignee any document relating to the bankrupt’s property, conduct, or dealings in that person’s possession or under that person’s control.

As stated I am seeking a reset of the password of this account (as by NZ law I am now in charge of the deceased’s affairs) to enable me to deal with those affairs.

• [14] Counsel for Microsoft responded on 23 August 2021 saying that in the absence of a specific Court direction, Microsoft would not provide access to Jihong Lu’s email account. Subsequent to those communications, Mr Parsons became aware that Microsoft also hosts the second email account.

• [15] Mr Parsons says he appreciates the two email addresses are likely to contain emails of a private nature. He says he is also aware of the decision of Hinton J in Henderson v Attorney-General⁵ and the discussion in that judgment as it relates to notices issued pursuant to s 171 of the Act. Mr Parsons says he adopts a strict policy for handling information received from a third party pursuant to powers available to him as administrator in terms of the Act. He annexes a copy of his policy to his affidavit. Parts of that policy are incorporated in the draft warrant filed with the application and which is annexed to this judgment as Annexure A.

• [16] Mr Parsons says the information on the email accounts is critical to properly administering the deceased estate of Jihong Lu. He says the inability to access two

⁵ Henderson v Attorney-General [2017] NZHC 606.

Outlook email accounts is significantly impeding his investigation of the property, conduct and dealings of the deceased.

Relevant statutory provisions

• [17] Pursuant to s 387 of the Act, the whole of the estate vests in the person appointed by the Court to administer the estate. In this case, that is Mr Parsons.

• [18] Section 392 of the Act provides that, as the appointee, Mr Parsons has, in relation to the estate, the same authority, powers and functions as the Assignee⁶ has in relation to the property of a bankrupt.

• [19] In his capacity as appointee, Mr Parsons has the power to obtain information regarding the deceased estate of Jihong Lu pursuant to s 171 of the Act, which provides that the Assignee (or in this case Mr Parsons) may require:

... any other person to deliver to the Assignee any document relating to the [deceased’s] property, conduct or dealings in that person’s possession or under that person’s control.

(emphasis added)

• [20] Section 150 of the Act provides:

150 Warrant to search for and seize bankrupt’s property

(1) The court may issue a search warrant to the Assignee or any other person if there is reason to believe that any relevant property is concealed in a locality.

(2) The warrant may authorise the Assignee or other person named in the warrant, together with any assistants that may be necessary, to—

(a) enter and search the locality; and

(b) seize and take possession of any relevant property; and

(c) if necessary, use force to enter the locality, whether by breaking open doors or otherwise; and

(d) break open any box or receptacle at the locality, by force if necessary.

⁶ Assignee is defined in s 3 of the Act as “the Official Assignee for New Zealand or the Deputy Official Assignee or Deputy Assignee for New Zealand and any other Official Assignee or Deputy Assignee appointed under the Act.”

(3) In this section and in section 151,—

locality means any building, aircraft, ship, carriage, vehicle, premises, or place

relevant property means—

(a) any property of the bankrupt; or

(b) any document relating to the bankrupt’s property, conduct, or dealings.

(emphasis added)

Discussion

• [21] In summary, Mr Parsons is required to establish that there is “reason to believe that any [property of the deceased estate or document relating to the deceased’s property, conduct or dealings] is concealed” in any building, aircraft, ship, carriage, vehicle, premises or place.

• [22] In Williams v Simpson, Heath J stated:⁷

[49] The “reason to believe” test is the same as that applied when search warrants are sought in respect of suspected criminal offending, under s 198 of the Summary Proceedings Act 1957. In R v Williams, the Court of Appeal expressed the view that “reasonable grounds to believe” meant an “objective and credible basis for thinking that a search will turn up the item(s) named in the warrant ...”. It is for the judicial officer determining the application to determine whether that standard has been reached.

• [23] Although the Search and Surveillance Act 2012 is now the operative statute, the principles in R v Williams⁸ referred to by Heath J remain the accepted guidelines to be broadly followed in their spirit rather than to the letter⁹ in search warrant applications.

• [24] As Mr Parsons mentions in his affidavit, in Henderson v Attorney-General, the High Court considered the scope of s 171 of the Act, in the context of considering whether a requirement by the Official Assignee under s 171 of the Act for production of documents on Mr Henderson’s laptop and subsequent review of some of those

⁷ Williams v Simpson HC Hamilton CIV-2010-419-1174, 17 September 2010 at [49].

⁸ R v Williams [2007] NZCA 52, [2007] 3 NZLR 207 at [208]–[225].

⁹ Ferens v R [2015] NZCA 564 at [76]; and R v T [2008] NZCA 99 at [9].

documents breached Mr Henderson’s rights under s 21 of the New Zealand Bill of Rights Act 1990.¹⁰

• [25] Hinton J noted that Courts have interpreted the language of s 171 very broadly.¹¹ She also agreed with (then) Associate Judge Osborne,¹² that an interpretation of “conduct” in s 171, which puts documents involving personal communications beyond the reach of the Official Assignee, would cut across the very legislative purpose of enabling the Official Assignee to make a fully-informed decision on the very matters which Parliament had entrusted to her.¹³ Hinton J continued:¹⁴
  • [56] However, the language of s 171 is obviously not meant to cover all documents of the bankrupt (nor all documents the bankrupt might have in his possession, as for example in the case of documents stored on a laptop). If it were, it would simply have said so. ...

• [57] In my view, s 171 covers all documents, whether of the bankrupt or others, which are or could be relevant to the administration of the bankruptcy. The section would not extend to personal documents that are clearly irrelevant to the bankruptcy.

...

[59] Although s 101 of the Act vests all property of the bankrupt in the Official Assignee, and property has been defined broadly, I do not consider that enables me to read s 171 as encompassing all documents of the bankrupt

...

• [26] Hinton J held that the s 171 request (in the way it was framed in that case) was unlawful because there were documents of a personal nature that were irrelevant to the bankruptcy, stored on the computer. However, the Judge also noted there was the power to obtain a warrant under s 150 of the Act and the Court can then set conditions, if appropriate.¹⁵ Importantly, the Judge said:¹⁶

[66] I should add that had the request been within the scope of s 171 and lawful, and documents had been provided that were personal and irrelevant, I would not consider that made the seizure of the documents unlawful. An ability to inspect documents to determine their relevance is a necessary aspect

¹⁰ Henderson v Attorney-General, above n 5.

¹¹ At [52].

¹² In Havenleigh Global Services Ltd v Henderson [2014] NZHC 499 at [48].

¹³ Henderson v Attorney-General, above n 5, at [54].

¹⁴ At [56], [57] and [59].

¹⁵ Henderson v Attorney-General, above n 5, at [65].

¹⁶ At [66].

of a requisition power. The Official Assignee should not be responsible for the receipt and initial inspection of documents that are, as a result of inspection, found to be outside the scope of s 171. That is necessary to ensure the Official Assignee’s power under s 171 is not unjustifiably curtailed.

• [27] Havenleigh Global Services Ltd v Henderson,¹⁷ referred to by Hinton J, was an earlier judgment dealing with the same laptop seized under search warrant and held by a third party liquidator. In that case, the High Court endorsed a “quarantine” process to protect the privacy and legal privilege of the bankrupt in terms of the Official Assignee’s access to material on the laptop.¹⁸

• [28] I am satisfied that:

(a) the information provided by Mr Parsons in his affidavit follows the spirit of the guidelines in R v Williams;

(b) in terms of s 150 of the Act, I am satisfied on the evidence of Mr Parsons that there is reason to believe the two email accounts identified will contain information regarding the property, conduct and dealings of Jihong Lu;

(c) while that information is not “concealed” in the sense that that word is traditionally used, the reality is that Mr Parsons cannot access the information and that means, for practical purposes, the information is concealed from him; and

(d) while the “locality” identified is not a physical locality, I consider that it is nevertheless held in a locality, which Mr Parsons has identified.¹⁹

• [29] For the above reasons, Mr Parsons has satisfied the “reason to believe” test in s 150 of the Act.

¹⁷ Havenleigh Global Services Ltd v Henderson, above n 12.

¹⁸ At [143(b)].

¹⁹ I adopt this approach based in part on the wide definition of “document” in the Act, which includes information stored electronically.

• [30] The draft warrant contains mechanisms to deal with any issues of privacy or privilege in line with the two Henderson judgments referred to above.²⁰

• [31] Finally, as to the form of the proceeding, I consider it is in the interests of justice, in terms of r 19.5 of the High Court Rules 2016, to permit the proceeding to be commenced by originating application.

Orders

• [32] I make the following orders:

(a) I grant leave to commence this proceeding by way of an originating application; and

(b) I make an order that a search warrant be issued to Dennis Clifford Parsons in the terms of the draft warrant filed with the application, a copy of which is annexed to this judgment.








Gordon J

²⁰ Henderson v Attorney-General, above n 5; and Havenleigh Global Services Ltd v Henderson, above n 12.

ANNEXURE A

2

TO: DENNIS CLIFFORD PARSONS

1. On 29 April 2021, DENNIS CLIFFORD PARSONS (“the Administrator”) was appointed to administer the deceased estate of Mr Jihong Lu pursuant to section 385(2)(b) of the Insolvency Act 2006 in the High Court at Auckland.

2. You and your assistants are authorised to:

• 2.1 Access and take possession of any emails or other papers or documents (including in electronic form) deemed to be the property of the deceased, Mr Jihong Lu ("țh/e Ełeceased"), and/or relating to the property, conduct, or dealìngs of the Deceased that are held on the servers of Microsoft 'INew Zealand Limited ("Microsoft"), including min relation 'to the email accounts [redacted] and [rêdàcted_l

3. Microsoft shall provide such reasonable ass*i'stance to the Administrator (or other authorised persõn.ąnd assistantsg as may be required to allow the Administrator (or other autho2ised person and assistants) to access and take possession of añÿ emails òr other papers or documents (including in electronic.Țorm) de‘emed to be the property of the deceased, Mr Jihong Łu ("the Deceased"). ead/or relating to the property, conduct, or dealings òf the Oecèaśëd that"are held on the servers of Microsoft, Jnčludíng 'in relation to the email accounts [redacted] and [redacted]

4. ’'” the Administtatar or ot Îhęr authorised person or such assistants as may be necessary are'țequired to safely detain and keep in their possession anything that they have seized until it is disposed of or dealt with by the Administratõr in” accordance with the Insolvency Act 2006.

5. Upon receipt and examination of the emails or other papers or documents (including in electronic form) by the Administrator, his officers or his agents, requiring the Administrator, his officers or his agents to comply with the following conditions:

• 5.1.1 As the information is available via a shared Cloud Based Service,

the information will be reviewed first using a non-networked computer. In this case, a specific examination computer will be

1010.94.128.v1:sj

3

used for this purpose. OnIy emails or other papers or documents (including in electronic form) that relate to the property, conduct or dealings of the Deceased will be scanned or copied onto the specific secure file;

• 5.1.2 The files available for viewing will be separated into two parts — those that "relate to the property, conduct or dealings of the deceased" and those that are "irrelevant person at information". Those that are "relevant" should be downloaded and transferred into the specific secure fìle. Those that are “irrelevant" shall not be downloaded;

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exami^'na^t'ion i^'s comp^Ie^te^d, ^the s^haring ^Ii^'n^k s^ha^{II b}e

• 5.1.4 In the event the Administrãtoï“ considers some ernąils or other papers or documents (incÌuõing in electronic form) arè'not purely "irrelevant personal information taut’ comes to the view that the family of the Dèceased or any third party identified would reasonably consider them to be pureI‘y”qersonat, such documents are to ğe qûarantined by.the Admiñi'”sttàtor and not disclosed in the absence of further order õf the Court;

• 5.1.5 In the -event that*tŁiê Admini'strator considers that any emails or

, ' õther papèrs or documents (including in electronic form) by their

:.”*” contènt, might‘ reasonably attract privilege (within the meanings " " covered'by ss 54, 55 and 56 Evidence Act 2006), such documents
.. are to be qúarantined by the Administrator and not disclosed in the

' ábsence-òf further order of the Court; and

• 5.1.6 The term “quarantine" in these conditions means "to hold safe and inaccessible by any person other than the Administrator, the Administrator’s employees and agents engaged in the conduct of the deceased estate of Jihong Lu, and the Administrator’s legal and accounting advisors".

DATED at Auckland this day of September 2021

(Deputy) Registrar

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