Department of Internal Affairs v Ping an Finance (Group) New Zealand Limited

[2018] NZHC 530

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-000028

[2018] NZHC 530

UNDER

the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 and the Court's inherent jurisdiction

BETWEEN

DEPARTMENT OF INTERNAL AFFAIRS

Plaintiff

AND

PING AN FINANCE (GROUP) NEW ZEALAND LIMITED

First Defendant

AND

XIAOLAN XIAO

Second Defendant

Hearing:

2 March 2018

Appearances:

B Tantrum for Plaintiff

Second Defendant in person, assisted by Interpreter, R Qui

Judgment:

26 March 2018

JUDGMENT OF TOOGOOD J

[Application to Set Aside Judgment]

This judgment was delivered by me on 26 March 2018 at 11.00 am Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Department of Internal Affairs v Ping An Finance (Group) New Zealand Company Limited & Anor [2018] NZHC 530 [26 March 2018]

Introduction

[1]                  On 28 September 2017, following a formal proof hearing, I gave judgment by default against Ping An Finance (Group) New Zealand Company Limited and Xiaolan Xiao imposing pecuniary penalties on the company and granting injunctions against both respondents for serious breaches of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the AML/CFT Act).1

[2]                  Mr Xiao now applies for an order under r 15.10 of the High Court Rules 2016 setting the judgment aside. The rule provides a judgment obtained by default may be set aside or varied by the Court on such terms as it thinks just, if it appears to the Court that there has been, or may have been, a miscarriage of justice.

Background - the judgment

[3]                  The Department of Internal Affairs had brought the application for the imposition of pecuniary penalties for civil liability acts founded on alleged multiple failures by Ping An to comply with requirements under Part 2 of the AML/CFT Act. Mr Xiao is the sole director and shareholder of the company. I concluded that, between 1 January 2014 and 9 January 2015, the company committed numerous civil liability acts in that it:

(a)failed to carry out customer identity and verification of identity checks as part of customer due diligence;2

(b)failed to adequately monitor accounts and transactions;3

(c)entered into or continued business relationships with persons who did not produce or provide satisfactory evidence of their identity;4

1      Department of Internal Affairs v Ping An Finance (Group) New Zealand Company Limited [2017] NZHC 2363.

2      Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 78(a).

3      Section 78(b).

4      Section 78(c).

(d)failed to keep transaction, customer due diligence, and other records;5 and

(e)failed to report suspicious transactions in breach of relevant AML/CFT requirements in Part 2 of the Act.6

[4]I held:

[6]        What I regard as serious, systemic deficiencies in complying with a multiplicity of obligations under the Act resulted in widespread contraventions across several key areas which were not isolated or infrequent. The company’s sole director and shareholder, Mr Xiao, misled the Department in the course of its investigation and demonstrated a complete disregard for the Act’s requirements, if not a wilful intention to flout them. His failures as a director and manager of the business led directly to the scale and severity of Ping An’s breaches. Overall, Ping An failed to keep appropriate records for 1588 transactions totalling $105,413,026.44; the identity and verification of

362 customers; and the establishment and continuation of 122 business relationships. In all, 173 transactions presented to the Court by the Department contained several indicia of suspicious transactions, including unnecessary use of several transactions to pay or receive funds from a single customer on a single day or within a short period; the presence of very large transactions; and significant high-value cash deposits. Nevertheless, Ping An failed to submit a single suspicious transaction report in respect of any of the 1588 transactions it conducted during the relevant period. It is not difficult to infer that the company’s non-compliance amounted to a calculated and contemptuous disregard for the AML/CFT requirements, and that non- compliance was a cultural norm within the business.

[7]        I agree with the submission for the Department of Internal Affairs that the failure of Mr Xiao and his company to meet their obligations under the AML/CFT Act is at the higher end of non-compliance with the Act’s requirements.

[5]                  In consequence of those findings, I made orders requiring the company to pay a total of $5.29 million in pecuniary penalties and granted an injunction against the company and Mr Xiao, until the further order of the Court, from carrying out any financial activities that would cause either of them to be deemed to be a financial institution as defined in s 5 of the Act.

5      Section 78(e).

6      Sections 40 and 78.

Procedural history

[6]                  The Department had initially sought leave to bring the proceeding by way of originating application but leave was declined by Downs J on 25 October 2016.7 On 11 January 2017, the Department filed a statement of claim essentially repeating the allegations made in the proposed originating proceeding. Neither the company nor Mr Xiao took any step in the reconstituted proceeding. The matter was set down for a formal proof hearing at the direction of Katz J. After a hearing on 12 April 2017 and receiving further submissions from counsel for the Department on 2 May 2017 and 23 August 2017, I issued the judgment.

Principles

[7]                  The ultimate issue for the Court is possible miscarriage of justice if the judgment is allowed to stand.8 The test against which an application is to be considered is whether it is just in all the circumstances to set aside the judgment. Relevant considerations include whether the party’s failure to appear was excusable; there is a substantial ground of defence; and irreparable injury to the party that obtained the judgment would result if the judgment was set aside.9

The application to set the judgment aside

[8]                  On 12 October 2017, Mr Xiao filed an application for an order setting aside the judgment. The grounds for the application were:

(a)That the Department "avoided any contest in this case with a view to achieving a favourable result for them".

(b)There had been a miscarriage of justice.

(c)Mr Xiao's failure to appear at the hearing was excusable.

7      Department of Internal Affairs v Qian Duoduo Ltd [2016] NZHC 2544, (2016) 23 PRNZ 386.

8      KBR MacFinder Ltd v Fine Art Productions Ltd HC Wellington A372/84, 17 April 1986.

9      Russell v Cox [1983] NZLR 654 (CA) and Norwich Winterthur Insurance (NZ) Ltd v Erikson

CA370/91, 2 October 1992.

(d)The defence had substance.

(e)The DIA's methodology and proceeding was cavalier.

Mr Xiao’s evidence

[9]                  Mr Xiao said that the Department had not been successful in applying to commence proceedings against Ping An by originating application. He said that he had attended Court hearings on two occasions in relation to the failed originating application "and was happy to comply with all requests." He admitted that he received the notice of proceeding supporting the statement of claim on 17 January 2017 but said that he did not "hear any further correspondence until 29 September 2017 when it was made public on the news."

[10]              In affirmed affidavit evidence in support of the application to set aside the judgment, Mr Xiao said that, when he attended the Court in relation to the failed originating application, he made it clear that he had little ability to bear legal costs and had difficulty with the English language. He claimed that, as a result, he was not given a fair chance in this proceeding to provide a prepared response. Further, he complained that the Department did not make any effort to contact him although his contact details were available.

[11]              On the merits of the Department's claims, Mr Xiao said that the Department misrepresented many of the facts in the case. He said they did not have sufficient proof and had no idea of "common sense in business". He said he believed that the Department had abused its position and power and had made racist inferences in the case as it was presented through the media.

Discussion

[12]              Mr Xiao was cross-examined at the hearing of the present application. He explained that he had read and understood the statements in the notice of proceeding informing him that, if he did not file a statement of defence within 25 working days after the date on which he had been served with the notice, the Department could

proceed to judgment and that judgment could be given in his absence. He said, however, that he understood from the notes beneath the signature of the plaintiff's solicitor on the notice that he would be notified of a date and time for a first case management conference. He said that he understood that there would be a meeting to discuss the case and read that he was expected to have discussed certain matters with the plaintiff before the hearing.

[13]              As the notice of proceeding made clear, the procedure for a case management conference will only be adopted if a statement of defence is filed. My impression of Mr Xiao is that he is an intelligent and capable man and that, although he made proper use of an interpreter’s services at the hearing before me, he has a sufficient grasp of English to have understood the true position. I do not believe that he misunderstood the consequences of not filing a defence. At the time of the originating application, Mr Xiao said that the company was no longer in business and I think it is probable that he took the view that there would be no seriously adverse consequences if he simply ignored the Department’s claims.

[14]              It is clear from email exchanges involving Mr Xiao over the originating application   that  he  was  contactable  by  email   at   a  “gmail.com”  address.   On 8 September 2016, for example, he received an email from Mr David Johnstone, a partner at Meredith Connell (the Department's solicitors), explaining what the originating application was about and advising Mr Xiao that he should get his own lawyer to get advice on what to do. On 13 September 2016, Mr Xiao sent an email to Mr Johnstone saying that he had read the application but needed some help to understand it. Mr Johnstone explained that he could not give advice and repeated to Mr Xiao that he should get his own lawyer. There was further email correspondence between Mr Johnstone and Mr Arnold (a solicitor at Meredith Connell), and Mr Xiao over the originating application.

[15]              On 18 January 2017, Mr Xiao sent a further email to Mr Arnold confirming that he had received the notice of proceeding and statement of claim. He said he did not know how to respond to the proceeding and asked for a suggestion where to get legal aid. Mr Arnold responded promptly, telling Mr Xiao that he had been on notice for a significant period of time and that he should engage a lawyer. Mr Arnold

reminded Mr Xiao that, at the last hearing Mr Xiao attended in the High Court at Auckland, Downs J had also advised him to do that and said that he should contact Legal Aid. Mr Arnold included in the email a hyperlink to a Ministry of Justice website relating to legal aid.

[16]              On each of the occasions on which Mr Xiao and the lawyers at Meredith Connell communicated by email, Mr Xiao used the same “gmail.com” address. It is the same email address which appears at the foot of Mr Xiao's application to set aside the judgment and on the coversheets of the affidavits filed in support of the application, the latest being dated 15 February 2018.

[17]              An affidavit of service filed by the Department proved service of the statement of claim and notice of proceeding on Mr Xiao, something which he had acknowledged, in any event. On 3 March 2017, Mr Arnold filed by email a memorandum to the Court seeking judgment by default pursuant to r 15.9(1) of the High Court Rules and requesting that a formal proof hearing be allocated on a without notice basis. As a courtesy, however, Mr Arnold copied the email to Mr Xiao at the “gmail.com” address which Mr Xiao had given and which had previously been used successfully in correspondence with him.

[18]              Mr Xiao took no steps in the proceeding. The application for judgment was heard and determined in the ordinary course of the Court's business without further notice to Mr Xiao.

[19]              Mr Xiao claimed in his affidavit in support of the application to set aside the judgment,  and in his  evidence in  cross-examination, that he had  never received  Mr Arnold's email to the Court attaching the 3 March 2017 memorandum requesting a formal proof hearing. In support of that proposition he referred to a copy of a screenshot of what he said was a part of his email account inbox.

[20]              Having seen and heard Mr Xiao give evidence under cross-examination, I am wholly satisfied that, contrary to his evidence, he did in fact receive the email of 3 March 2017 notifying him that the Department had applied to the Court to obtain a judgment.

[21]              I did not find Mr Xiao to be a convincing witness. He claimed in evidence that the Department's principal investigator, Mr Timothy Milnes, was the only person who went to his office to interview him during the investigation. He said Mr Milnes was only at the office briefly, for approximately 10 minutes, on 12 August 2015. Faced with clear proof to the contrary in the Department’s records of the investigation and in Mr Milnes’ affidavit, Mr Xiao sought to explain it by saying that he meant to convey that Mr Milnes was the only person who spoke to him. I do not accept that explanation and consider that Mr Xiao set out to mislead the Court on that issue. I have concluded that, as Mr Tantrum put to Mr Xiao in cross-examination, he deleted the copy of the email of 3 March 2017 from his inbox and printed out a false list of received messages with the intention of deceiving the Court.

[22]              In any event, the Department's solicitors were under no obligation to notify Mr Xiao or Ping An of the request for a formal proof hearing. I would have disregarded Mr Xiao's evidence that he never received a copy of the 3 March 2017 email and memorandum as irrelevant, even if I had accepted it was true.

[23]              Most significantly, Mr Xiao has not provided any evidence or reasoned grounds to support a challenge to the findings in the judgment. He has said only that the Department's methodology and proceeding was cavalier and that he had a substantial defence.

[24]              The case presented by the Department was supported by comprehensive evidence obtained during a thorough investigation. It was given careful consideration before a reasoned judgment comprising 50 pages was delivered. Nothing in the material presented by Mr Xiao in support of the application to set the judgment aside goes anywhere near persuading me that judgment by default ought not to have been entered. As I said to Mr Xiao in the course of the hearing of the application, it was open to the company and to him to appeal against the judgment if he considered that it was not justified on the merits of the applicant's evidence and submissions. He has not taken that step.

Conclusions and result

[25]I am satisfied that:

(a)Mr Xiao and Ping An were duly served with the statement of claim and notice of proceeding on 18 January 2017.

(b)Neither the company nor Mr Xiao filed or served a statement of defence.

(c)Mr Xiao understood the likely consequences of not filing a defence.

(d)Mr Arnold sent, and Mr Xiao received into the inbox of his email account, a copy of Mr Arnold's memorandum to the Court requesting a formal proof hearing to obtain judgment by default.

(e)There was no procedural irregularity prior to the entry of judgment.

(f)The judgment was properly founded on the evidence adduced in support of the Department’s claims.

(g)There is no reasonable basis to conclude that there has been, or may have been, a miscarriage of justice.

[26]I dismiss the application.

Costs

[27]              The Department of Internal Affairs is entitled to costs calculated on a Category 2B basis and disbursements. If costs cannot be agreed, then the Department may file a memorandum. Mr Xiao shall have 10 working days from the date of the filing of that memorandum in the Court to respond by memorandum, and costs will then be determined on the papers.

[28]              I put Mr Xiao on notice that if he requires the Department to make a formal application for costs by way of memorandum, and the Department is awarded costs and disbursements strictly in accordance with the costs provisions of the High Court Rules 2016, I will allow the Department costs on the costs application.

............................................

Toogood J