Kim Dotcom v Twentieth Century Fox Film Corporation

• Jurisdiction: New Zealand
• Judge: Wild J
• Judgment Date: 20 October 2014
• Neutral Citation: [2014] NZCA 509
• Docket Number: CA451/2014
• Court: Court of Appeal
• Date: 20 October 2014

Between

Kim Dotcom

Appellant

and

Twentieth Century Fox Film Corporation, Disney Enterprises, Inc, Paramount Pictures Corporation, Universal City Studios Productions Llp, Warner Bros. Entertainment, Inc

Respondent

[2014] NZCA 509

Court:

Harrison, Wild and French JJ

CA451/2014

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against a decision of the High Court (HC) which made an ancillary order requiring the appellant to file and serve an affidavit setting out the nature, extent and value of his assets wherever they were located and identifying the nature of his interest in them — appellant was facing extradition to the United States to face charges which included criminal copyright infringement — respondents had filed proceedings in a Virginia Court for breach of copyright in the amount of $175 million — on application of appellant's company (also a defendant) a stay of this proceeding had been granted by Virginia Court to preserve appellant's Fifth Amendment right (freedom from self- incrimination) — the common law applied to enforcement of US judgments in NZ and this depended on whether appellant had submitted to the jurisdiction of the Virginia Court by voluntarily appearing in the proceeding — whether the HC had jurisdiction to make the ancillary order where there was not an extant application for an order requiring more than the preservation of the status quo — whether the respondents had a good arguable case and a sufficient prospect a US Court would give judgment for a sum exceeding the value of assets currently restrained — whether there was an insufficient prospect of enforcement of any US judgment because the appellant had not submitted to the US jurisdiction — whether the ancillary order was inconsistent with the stay order made by the Virginia Court.

Counsel:

T J Walker and J S Caen for Appellant

M C Sumpter and L L Fraser for Respondents

JUDGMENT OF THE COURT

• A The appeal is dismissed.

• B The 20 August 2014 order of the High Court dealing with confidentiality and the 29 August 2014 order of this Court dealing with confidentiality are set aside.

• C The confidentiality orders set out in [45] are substituted.

• D The appellant is to pay the respondents' costs as for a standard appeal on a band A basis with usual disbursements.

REASONS OF THE COURT

(Given by Wild J)

Introduction

1 Mr Dotcom appeals against a judgment delivered by Courtney J in the High Court at Auckland on 30 July 2014. 1 The Judge made this ancillary order: 2

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.

2 In appealing against that order Mr Dotcom takes four points. We state them as questions:

• (a) Jurisdiction: Did the High Court have jurisdiction to make the ancillary order?

• (b) Requirements: Was the High Court wrong to conclude the respondents have a good arguable case and a sufficient prospect the United States Court will give judgment for a sum exceeding the value of assets currently restrained?

• (c) Submission to jurisdiction: Did the High Court err in concluding there is a sufficient prospect of enforcement in New Zealand of any United States judgment, because Mr Dotcom had submitted to the United States jurisdiction?

• (d) Inconsistency: Is the ancillary order inconsistent with the stay order made by the United States Court?

Background

Criminal proceedings

3 Mr Dotcom, Megaupload Ltd, Vestor Ltd and six other individual defendants face criminal charges in the United States of America. The charges are before the United States District Court for the Eastern District of Virginia (the Virginia Court). The charges include criminal copyright infringement.

4 Mr Dotcom is resident in New Zealand. The United States is seeking extradition of Mr Dotcom to face trial in the United States. The extradition application is scheduled to be heard by the Auckland District Court in February 2015.

5 In January 2012 the United States Government obtained orders from the Virginia Court restraining Mr Dotcom's use of his assets in various countries including Australia, Germany, Hong Kong, the Netherlands, New Zealand, the Philippines, the United Kingdom and of course in the United States. On 18 April 2012 the High Court ordered that those restraining orders be registered in New Zealand. 3 Registration was for an initial period of two years. In a judgment this Court delivered on 21 August 2014, it ordered that registration be extended for one further year, to 18 April 2015. 4

6 It is agreed that the value of Mr Dotcom's New Zealand assets secured by those criminal restraining orders is NZD11.8 million.

Civil proceedings

7 On 7 April 2014 the respondents filed a civil proceeding against Mr Dotcom and some of the other defendants in the criminal proceeding, also in the Virginia Court. The allegation is breach of copyright, earning the defendants some USD175 million before Megaupload was closed by the United States authorities in January 2012.

8 On 27 May, in light of the High Court's refusal on 16 April to extend the criminal restraining orders, 5 the respondents applied under r 32.2 of the High Court Rules for a freezing order. The aim was to prevent Mr Dotcom disposing of his New Zealand assets so that they would remain available to satisfy any judgment the respondents obtained in their United States proceeding.

9 Early in June, Mr Dotcom publicly announced:

• (a) he was personally funding the Internet Party in the New Zealand general election to the extent of about NZD3.7 million; and

• (b) he would pay a USD5 million “bounty” for “information that proves unlawful or corrupt conduct by the US Government, the New Zealand Government, spy agencies, law enforcement and Hollywood”.

10 The respondents believed Mr Dotcom's assets in New Zealand and in the other countries listed in [5] above were frozen. Understandably, the respondents were concerned as to the source of the approximately NZD9 million mentioned by Mr Dotcom in his public announcements. Mr Dotcom refused to answer an inquiry made by the respondents through their solicitors. It was Mr Dotcom's public pronouncements indicating he had millions of dollars of available cash, coupled with his refusal to cooperate with the respondents' inquiry as to the source of these monies, that prompted the respondents to apply to the High Court for the ancillary order against which Mr Dotcom appeals.

11 After that ancillary order was made on 30 July Mr Dotcom applied for a stay of it. Courtney J refused that in a judgment she delivered on 20 August. 6

12 Having also applied unsuccessfully to this Court for a stay of the ancillary order, 7 Mr Dotcom complied with the ancillary order by swearing two disclosure of assets affidavits, on 5 and 17 September.

Issue 1: Jurisdiction: Did the High Court have jurisdiction to make the ancillary order?

13 Rule 32.3 of the High Court Rules provides:

32.3 Ancillary order

(1) The court may make an order (an 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.

…

14 No freezing order has been made. The order under appeal therefore needed to be ancillary to a “prospective freezing order”. Because freezing and ancillary orders interfere with property rights, Ms Walker argued the appropriately cautionary approach required an extant application for a freezing order. When the Court pointed out such an application had been made, on 27 May, Ms Walker submitted that application was only to preserve the status quo, against the event the criminal restraining orders would not be renewed. Ms Walker argued that a fresh application, seeking more than preservation of the status quo, was required. She sought support for this submission in the decision of the English High Court in Parker v C S Structured Credit Fund Ltd. 8

15 We reject Ms Walker's submission. We do not accept that r 32.3(1) requires an extant application for a freezing order. It requires just what it says; a “prospective freezing order”. That is, the prospect a freezing order will be made. But even if an extant application is a requirement, the respondents' 27 May application for a freezing order remains before the High Court, undetermined. Mr Sumpter assured us the respondents intend to pursue it

16 Parker, if it has any relevance, supports the existence of jurisdiction, rather than the converse. The English Court interpreted the differently worded English equivalent of r 32.3(1) as “dealing with a situation where there is either an application for a freezing injunction on foot or one where it is at least likely that there will be such an application”. 9 The judgment in Parker records that counsel for the applicant “candidly admits that he does not have the material with which to apply for a freezing injunction”. 10 That is not the situation in this case.

17 The submission we have just disposed of appears not to have been put to Courtney J, or at least not in the same way. The Judge recorded merely that Ms Walker “was critical of the applicants' attempt to obtain an ancillary order other than in conjunction with a freezing order”. 11 The Judge went on to reject that criticism, pointing out that r 32.3(3) “clearly contemplates an ancillary order being made before a freezing order and even without any freezing order ultimately following”. 12 We obviously agree with those observations.

Issue 2: Requirements: Was the High Court...