Guangzhou Dongjiang Petroleum Science & Technology Development Company Limited

[2020] NZHC 3068

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-921

[2020] NZHC 3068

BETWEEN

GUANGZHOU DONGJIANG PETROLEUM SCIENCE &

TECHNOLOGY DEVELOPMENT COMPANY LIMITED
Plaintiff

AND

YONGNAN KANG

Defendant

Hearing:

16 November 2020

Appearances:

J Strauss/A Yang for the Plaintiff

A Sharp/H Huang for the Defendant

Judgment:

20 November 2020

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 20 November 2020 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

JC Legal (A Yang), Princes Court Chambers, Auckland, for the Plaintiff Jesse & Associates (JST Nguy/H Huang) Auckland, for the Defendant

Copy for:

J Strauss, Barrister, Auckland, for the Plaintiff A Sharp, Barrister, Auckland, for the Defendant

GUANGZHOU DONGJIANG PETROLEUM SCIENCE & TECHNOLOGY DEVELOPMENT COMPANY LIMITED v KANG [2020] NZHC 3068

[1]    Guangzhou Dongjiang Petroleum Science & Technology Company Ltd sues Kang Yongnan on a judgment of the People’s Court of Tianhe District, Guangzhou City, Guangdong Province, People’s Republic of China, for RMB 7,657,156.16 (about NZD 1,700,000). It has applied for summary judgment. Mr Kang, the defendant in the Chinese proceeding, says that summary judgment should not be given because he has arguable defences:

(a)breach of natural justice;

(b)the judgment was obtained by fraud; and

(c)enforcement of the judgment in New Zealand would be contrary to public policy.

[2]    I find against Mr Kang. There was no breach of natural justice. Mr Kang was given short notice of the court hearing, but he obtained an adjournment. By the new date of hearing he had instructed a lawyer who presented Mr Kang’s case on the defences which he wanted the court to consider. Mr Kang says that he has another defence, based on a bribery allegation, but he chose not to instruct his lawyer to present that defence. His explanation for not raising that defence in the Chinese court does not raise an arguable defence. The bribery allegation goes to his fraud defence and the public policy question. To make that allegation there is a heightened standard of proof, which Mr Kang has not met.

[3]    The Court of Appeal re-stated the principles on a plaintiff’s application for summary judgment in Krukziener v Hanover Finance Ltd:1

The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried. … The court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated. The court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].

improbable. In the end the courts assessment of the evidence is a matter of judgment. The court may take a robust and realistic approach where the facts warrant it.

(Citations omitted)

Those principles have been repeated and applied in many summary judgment applications. In this case, however, one aspect requires attention. For Mr Kang’s fraud and public policy defences, special considerations arise as to the strength of the defence for it to be considered arguable.

[4] Guangzhou Dongjiang’s only cause of action is the claim on the judgment of the People’s Court of Tianhe District, Guangzhou City. There are no formal reciprocal enforcement of judgments arrangements between New Zealand and the People’s Republic of China, as under the Reciprocal Enforcement of Judgments Act 1934, the Trans-Tasman Proceedings Act 2010, or s 172 of the Senior Courts Act 2016. Instead, Guangzhou Dongjiang sues under the common law, which regards a judgment of a foreign court as creating an obligation enforceable under New Zealand law if the judgment was given by a court, the judgment is final and conclusive, the judgment is for a definite sum, the parties are the same or privies, and the court had jurisdiction under New Zealand’s jurisdiction recognition rules.2 The remedy is a money judgment. Defences to a claim on a foreign judgment are that it was obtained in breach of New Zealand’s standards of natural justice, enforcing the judgment would be contrary to public policy, the judgment was obtained by fraud, the judgment was for a revenue debt, or the judgment involves enforcement of a foreign penal law. Subject to those defences, the court does not review the merits of the foreign judgment.3 It does not matter whether the foreign jurisdiction recognises New Zealand judgments or not. Nor is the trading relationship between the two countries relevant. The same rules apply to a judgment from Chad or China.

The proceeding in China

[5]    While he originally comes from China, Mr Kang lives in Auckland. At the times relevant to this proceeding, he was one of the directors and a shareholder of One

2      Von Wyl v Engeler [1998] 3 NZLR 416 (CA) at 420-421.

3      Godard v Gray (1870) LR 6 QB 139.

Pure International Group Ltd, a New Zealand company, which exports drinking water to China. Guangzhou Dongjiang is a Chinese company, whose business included operating a petrol station. The man behind the company, Mr Pun Chung Hing, lives in Hong Kong. Mr Kang says that in March 2017 Mr Xu Deli, a former deputy governor of Guangdong Province, introduced him to Mr Pun as a potential investor in One Pure International Group Ltd. Mr Pun was interested in investing in One Pure International Group Ltd by taking an equity interest. They made an arrangement under which Guangzhou Dongjiang would advance funds to One Pure International while Guangzhou Dongjiang carried out due diligence. If the company took shares, the funds advanced would be deducted from the purchase price of the shares. It was also agreed that One Pure International would use part of the funds advanced by Guangzhou Dongjiang to sponsor the Canton golf team. Mr Xu was the chairman or former chair of the golf team.

[6]    This led to Guangzhou Dongjiang, One Pure International Group Ltd  and  Mr Kang signing a written agreement dated 28 March 2017. The Chinese court called this a lending and investment contract. Under the agreement, Mr Kang was to borrow RMB 30,000,000 in two tranches. The first tranche would be RMB 15,000,000 for a term of 12 months with an interest rate of 0.8 per cent per month. Of the funds advanced, RMB 3,000,000 would be used to sponsor the Canton golf team. Mr Kang gave security over his shares (50 per cent of the total equity) in One Pure International Group Ltd by way of a guarantee. Guangzhou Dongjiang had three months to carry out due diligence. It could decide whether to lend a further RMB 15,000,000 and whether to buy a 20 per cent stake in One Pure International from Mr Kang. If Guangzhou Dongjiang did not decide to do either of these things, the loan was repayable after 12 months. If there was no further loan and Guangzhou Dongjiang did not take any shares in One Pure International Group Ltd, Guangzhou Dongjiang and Mr Kang would each pay a one-half share of the sponsorship of the Canton golf team. The agreement is in both Chinese and English. Any disputes are to be heard in the Guangzhou City Intermediate People’s Court. The contract is governed by the laws of the People’s Republic of China. All communications between the parties would be in Chinese. The contract was signed in Guangzhou.

[7]    On 4 April 2017 there was a variation, under which the first tranche of the loan was dropped from RMB 15,000,000 to RMB 8,000,000. If Guangzhou Dongjiang did not go ahead with the share purchase, it would increase its share of the sponsorship of the Canton golf team from RMB 1,500,000 to RMB 2,000,000.

[8]    Following the negotiations One Pure International Group Ltd acquired the sponsorship rights for the Canton golf team for RMB 2,250,000 and, in addition, it supplied water products at no cost to the team during the sponsorship from March 2017 to December 2019. Guangzhou Dongjiang paid Mr Kang the RMB 8,000,000. Mr Kang says, however, that Mr Pun did nothing about due diligence. By 2018, it was apparent that Guangzhou Dongjiang did not intend to go ahead with the share purchase. He asked Mr Pun to confirm that the amount to be repaid was RMB 6,000,000 plus interest, being the principal of RMB 8,000,000 less Guangzhou Dongjiang’s RMB 2,000,000 share of the sponsorship under the variation agreement. In response, Mr Pun said that Guangzhou Dongjiang would not bear any of the sponsorship fee paid to the Canton golf team. He demanded full repayment of the RMB 8,000,000.

[9]    There is one part of Mr Kang’s evidence that I have not addressed here, the reason given by Guangzhou Dongjiang for entering into the agreement. That has to do with the fraud defence which I will come to later.

[10]   On 28 September 2018 Mr Kang received a text from the People’s Court of Tianhe District advising him that Guangzhou Dongjiang and Mr Pun had filed proceedings against him. On 30 September 2018 he instructed a lawyer in China. The lawyer advised him that if Mr Kang was the defendant the court would send the documents including the filing notice, the proof of evidence, summons and the plaintiff’s statement of claim together with evidence and other related documents by post to him. The lawyer told Mr Kang to contact him once he had received the court documents. He accordingly waited for them.

[11]   On 10 March 2019, Mr Kang received a second text message from the court telling him that there was a hearing the following day, 11  March 2019 at 8:45am.  Mr Kang was not in Guangzhou City. He instructed his lawyer to go to court on

11 March 2019. His lawyer, Mr Sheng Zhilin, confirms receiving a Wechat message from Mr Kang on 10 March 2019. Mr Sheng went to the District Court and learned that the court had sent documents to Mr Kang to his previous registered household address in Shantou City, giving a date of hearing for 12 December 2018. Mr Sheng also found out that as no-one at the address had signed for the documents, the parcel was returned to the court, the hearing for 12 December 2018 was accordingly cancelled and a new hearing date was set. Instead, Mr Kang was served by public notice, as allowed under the Chinese court’s procedural rules. Mr Sheng applied for an adjournment to give Mr Kang time to collect and organise evidence to be presented to the court, so that the court could be properly informed as to the true situation. The court agreed to give Mr Kang 15 days to collect his evidence and present his case.

[12]   Mr Kang says that on 8 April 2019 he received a further text from the court, saying that the case would resume on 9 April 2019. He instructed his lawyer to appear and defend the case. Mr Sheng confirms that he appeared at the hearing on 9 April 2019, and that on 23 May 2019 he received the judgment which he sent on to Mr Kang.

[13]   According to the judgment of the Tianhe District People’s Court, at the hearing on 9 April 2019 the parties were Guangzhou Dongjiang and Pun Chung Hing as plaintiffs and Kang Yongnan as defendant. The plaintiffs were represented by a lawyer and an executive director of Guangzhou Dongjiang also appeared. Mr Kang did not appear, but he was represented by Mr Sheng. The case was heard in open court before a full court (rather than a collegial panel).

[14]   The court held that the contract was governed by the mainland laws of the People’s Republic of China, notwithstanding that Mr Pun lived in Hong Kong. As Mr Pun was not a party to the agreement, he was not entitled to any rights under it. The court upheld the contract and the variation. They did not violate any laws. They were lawfully concluded and valid under the law. The parties were required to perform their respective rights and obligations. It rejected Mr Kang’s defence that Guangzhou Dongjiang had failed to do due diligence. It held that Guangzhou Dongjiang had a discretion whether or not to acquire the equity in One Pure International Group Ltd and was not in breach because it had decided not to buy the shares. It rejected Guangzhou Dongjiang’s claim that Mr Kang had failed to sponsor Guangzhou

Dongjiang’s golf team, and accepted Mr Kang’s evidence that he had sponsored as required under the agreement. It held that Mr Kang was liable to repay Guangzhou Dongjiang RMB 6,500,000 plus interest. He was also liable for Guangzhou Dongjiang’s costs on the proceeding. It made these orders:

(a)Mr  Kang  was  to  repay  RMB  6,500,000,  accrued  interest  of RMB 384,000 and ongoing overdue interest at the monthly rate of

0.8 per cent per annum from 1 April 2018 to the date of actual repayment on RMB 6,500,000. This was to be paid within 10 days of the judgment taking effect.

(b)Mr Kang was also to pay legal costs of RMB 50,000 within 10 days of the judgment taking effect.

(c)Mr Pun’s claim was dismissed.

(d)Guangzhou Dongjiang’s other claims were also dismissed.

(e)Mr Kang was to pay the court’s own costs of RMB 60,338. Guangzhou Dongjiang was to pay RMB 12,740.

[15]   The judgment finishes by advising the parties of their appeal rights. Mr Kang was entitled to appeal within 15 days of service of the judgment. He did not appeal. Enforcement of civil judgments in China is through the courts. On 28 August 2019 the court accepted an application to enforce the judgment. On 2 December 2019 it issued a notice advising that no assets of Mr Kang could be found against which the judgment could be enforced.

[16]   Mr Sheng, who appeared for Mr Kang in the hearing on 9 April, describes how he was instructed, how he appeared on the first call, and successfully sought an adjournment and that he appeared on Mr Kang’s behalf at the hearing on 9 April and that he received the judgment. He says nothing about how the parties came to enter into the contract, the validity of the contract, the contents and merits of the judgment or the conduct of the hearing.

[17]   The judgment may be open to question on the merits. While the court upheld the variation agreement, it did not fix the amount Mr Kang had to pay according to the variation. He was ordered to pay RMB 6,500,000, not RMB 6,000,000. But that cannot be reviewed in this proceeding. The judgment is final.

[18]   Up to this point, the evidence shows that Guangzhou Dongjiang obtained a final money judgment in the People’s Court. Under New Zealand’s jurisdiction recognition rules, the court had jurisdiction because Mr Kang voluntarily submitted to the jurisdiction of the court by instructing his lawyer who appeared and took part in the proceeding on his behalf.4 The judgment was for a definite sum. The judgment creditor and the judgment debtor under the Chinese judgment are the plaintiff and the defendant respectively in this proceeding. Subject to Mr Kang’s affirmative defences, Guangzhou Dongjiang has made out its case for summary judgment.

Breach of natural justice

[19]   A New Zealand court will not recognise and enforce a foreign judgment if it was obtained in breach of New Zealand’s standards of natural justice. Those standards require that the judgment debtor had adequate notice of the proceeding and had fair opportunity to put their case before an impartial court.

[20]   In China, the courts attend to service, not the parties. The Chinese proceeding was not served on Mr Kang in New Zealand. The court did, however, notify him by text message that a proceeding had started and he instructed lawyers as a result. The court texted him a second time, when the case was to be heard the next day. Mr Kang acted promptly. His lawyer appeared in court and successfully sought an adjournment. Mr Kang complains that he did not have sufficient time to prepare his case for trial. It was difficult for him to obtain all the evidence and fully instruct his lawyer in the time frame and on short notice.

4      The choice of forum clause in the contract in favour of the Intermediate People’s Court is not adequate under New Zealand’s jurisdiction recognition rules because there is no evidence that the court that heard Guangzhou Dongjiang’s case is the Intermediate People’s Court in the contract. A contractual submission to one court in a jurisdiction is not a submission to all the courts in that jurisdiction, Elmar Hertzog und Partner Management Consultants GmbH v Perlich HC Whangarei, CIV-2011-488-185, 23 September 2011 at [28].

[21]   That, however, is belied by the court’s judgment. Mr Kang’s lawyer appeared on his behalf and conducted an effective defence for Mr Kang. The court considered, but rejected, the lawyer’s submissions that Guangzhou Dongjiang’s failure to carry out due diligence excused him from repaying the loan. It rejected Guangzhou Dongjiang’s claim that Mr Kang had not sponsored the Canton golf team and found that he had. Clearly, the lawyer had the evidence to present to the court. There was no factual dispute that Guangzhou Dongjiang had not carried out due diligence. The effect of the failure to carry out due diligence was a question of law.  For the defences that  Mr Kang wanted to present to the court, there was no breach of natural justice. Within the time given by the court, he prepared his case and he was heard. The fact that Chinese procedural law does not have interlocutory steps such as discovery does not mean that there was a failure of natural justice.

[22]   Mr Kang’s fraud defence is about a matter which he did not want to raise with the court in China. That requires separate consideration.

The fraud defence

[23]   Mr Kang’s evidence for the fraud defence is that at the time of the variation agreement on 4 April 2017 Mr Pun told him the reason for entering into the agreement. Mr Pun wanted to please Mr Xu, the former deputy governor of Guangdong province, by providing funds to sponsor the Canton golf team. Mr Pun wanted Mr Xu to assist Guangzhou Dongjiang in obtaining a licence to reopen a petrol station located in a busy street near a large school. Mr Pun told Mr Kang that if Guangzhou Dongjiang obtained the licence with Mr Xu’s help, Guangzhou Dongjiang would waive repayment of the RMB 8,000,000 loan, even if the share purchase did not go ahead. Mr Kang understands that Guangzhou Dongjiang did not obtain the licence.

[24]   Mr Kang’s case is that the loan agreement with Guangzhou Dongjiang was illegal because it involved bribery to obtain the petrol station licence. Guangzhou Dongjiang had been fraudulent in obtaining judgment, because while it claimed that the agreement was lawful, it failed to disclose to the Chinese court that it in fact involved corruption. Because Guangzhou Dongjiang had deceived the Chinese court, the judgment should not be enforced in New Zealand.

[25]As to why he did not raise the matter in the Chinese court, Mr Kang says:

The reason I did not instruct my lawyer to disclose Mr Xu’s involvement in this matter to the Guangzhou Court was because I was afraid that doing so would have amounted to accusing Mr Xu of being involved in bribery. This is an extremely dangerous accusation to make in the Chinese courts against a former senior government official.

[26]   Before going to the merits of the defence, I deal with a procedural matter, the standard for raising the defence to oppose a summary judgment application. A party alleging fraud, dishonesty or other reprehensible conduct must show a proper basis for the allegation, plead it clearly and give adequate particulars.5 The Court of Appeal stated the standard approach in Schmidt v Pepper New Zealand (Custodians) Ltd:6

Allegations of fraud or dishonesty are very serious. They must be pleaded with care and particularity. As the authors of Bullen & Leake & Jacobs Precedents of Pleadings emphasise, counsel must not draft any originating process or pleading containing any allegation of fraud unless they have reasonably credible material which, as it stands, establishes a prima facie case of fraud – that is, material of such a character which would lead to the conclusion that serious allegations could properly be based upon it. Fraud cannot be left to be inferred from the facts – fraudulent conduct must be distinctly alleged and as distinctly proved. General allegations, however strong the words may appear to be, are insufficient to amount to a proper allegation of fraud.

[27]   That applies to the fraud defence in proceedings to enforce a foreign judgment. In Owens Bank v Étoile Commerciale SA, the Privy Council said:7

There is nothing in the authorities which precludes a party from obtaining summary judgment or an order striking out a pleading on the grounds of abuse of process when a fraud is alleged. It is axiomatic that where fraud is alleged full particulars should be given. Where allegations of fraud have been made and determined abroad, summary judgment or striking out in subsequent proceedings are appropriate remedies in the absence of plausible evidence disclosing at least a prima face of fraud. No strict rule can be laid down; in every case the court must decide whether justice requires the further investigation of alleged fraud or requires that the plaintiff, having obtained a foreign judgment, shall no longer be frustrated in enforcing that judgment.

5      Three Rivers District Council v Bank of England (No 3) [2003] 2 AC 1 (HL), the judgment of 22 March 2001, at [55] and [184]-[189].

6      Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15]. For the responsibility of counsel in alleging fraud or other reprehensible conduct, see X v Y [2000] 2 NZLR 748 (HC) at

[58] and the Lawyers Conduct and Client Care Rules 2008, r 13.8.

7      Owens Bank v Étoile Commerciale SA [1995] 1 WLR 44 (PC) at 51.

The Privy Council struck out as an abuse of process the defence that judgment had been fraudulently obtained in France, as the matters of fraud on which the judgment debtor relied had been thoroughly examined by the French court and there was nothing new to suggest that the French courts had been misled.

[28]   That approach has been applied in New Zealand. In an application to set aside a domestic judgment on the ground that it had been obtained fraudulently,

Paper Reclaim Ltd v Aotearoa International, Harrison J said:8

[17]      It has been said by many Judges, and on many occasions, that a claim based on fraud is extremely serious. It must be properly particularised and proven to a high standard, commensurate with the severity of the allegation. In the context of an attempt to impeach a judgment on the ground of fraud, the same principles apply – “particulars of the fraud must be exactly given” (Jonesco v Beard (supra) per Lord Buckmaster at 300, applied in Ongley v Brdjanovic [1975] 2 NZLR 242 by Beattie J at 244, and in Shannon v Shannon [2002] 3 NZLR 567 by Potter J at para 51). It follows, in my judgment, that when filing an application to set aside a judgment a plaintiff alleging fraud must have an evidential foundation sufficient to establish a prima facie or arguable case (cf. Owens Bank Ltd v Etoile Commerciale SA [1995] 1 WLR 44 (PC) at 51C). The probative value and admissibility of its evidence must be apparent at that stage.

[18]      There is no room for a provisional or equivocal claim, based on suspicion, to be bolstered by fishing expeditions through the problematical process of interrogatories and discovery.

He struck out the application to set aside the judgment as it did not meet that test. Associate Judge Faire followed a similar approach in Vanhoy v Howick Engineering Ltd (in liq)9 where a creditor claiming in a liquidation relied on a foreign judgment. Similarly, in Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd, the Supreme Court said in relation to proceedings to set aside a domestic judgment as having been obtained by fraud: 10

So where a defendant in a proceeding involving the fraud exception applies to strike it out, the plaintiff is required to discharge the onus of showing it has a case with an evidential foundation amounting to a prima facie case of fraud. The plaintiff’s claim of fraud must be one that is fully and precisely pleaded and particularised and of sufficient apparent cogency that it should go to trial.

8      Paper Reclaim Ltd v Aotearoa International Ltd HC Auckland, CIV-2004-404-4728, 14 February 2005 at [17] and [18].

9      Vanhoy v Howick Engineering Ltd (in liq) HC Auckland, CIV-2004-404-4428, 23 August 2005.

10     Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1 NZLR 804 at [33].

[29]   Against that general line of cases, there is the Court of Appeal’s decision in Svirskis v Gibson on an application under s 6(1)(d) of the Reciprocal Enforcement of Judgments Act 1934 to set aside registration of a judgment of a Queensland court on the ground that it had been obtained by fraud.11 It declined to follow Syal v Heyward, which held that the court should not direct an issue under the equivalent English provision, unless a prima facie case of fraud on the foreign court was established.12 Instead it held that under the rules13 the court had a discretion which allowed a range of matters to be considered. It was enough that the court should feel unease about the foreign judgment. The case can be distinguished as coming under the Reciprocal Enforcement of Judgments Act and therefore it is not strictly binding. Still, the fraud ground under the Act is the same as that under the common law. And it would be odd to treat judgments of jurisdictions  with  which  we  have  reciprocal  recognition (and therefore greater confidence in their legal systems) with more suspicion than judgments from countries where there are no reciprocity arrangements. I do not however accept that the approach under Svirskis v Gibson should be extended to common law claims on foreign judgments. For common law claims the cases are consistent in requiring a stricter test. The decisions  of  the  Privy  Council  in  Owens Bank v Étoile Commerciale SA and the Supreme Court in Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd are strong authorities that Svirskis v Gibson should not be applied outside the Reciprocal Enforcement of Judgments Act.

[30]   The cases cited above all involved strike-out applications. Unlike most applications to strike out pleadings as defective, the party pleading fraud is required to show that it has a proper evidential basis for its claim. The usual assumption that the party will be able to prove what it has pleaded does not apply. As the Privy Council recognised in the Owens Bank decision, the same approach applies on an application for summary judgment. If a fraud defence will be struck out for not meeting the standards for such a plea, it cannot be used to oppose an application for summary judgment. It would not make sense to allow a lower standard to oppose a summary judgment application, but then leave the defence to be removed on a separate strike out application. Accordingly, on an application for summary judgment brought on a

11     Svirskis v Gibson [1977] 2 NZLR 4 (CA) at 10.

12     Syal v Heyward [1948] 2 KB 443 (CA).

13     Now r 23.20 of the High Court Rules 2016.

foreign judgment a defendant raising the fraud defence must show a prima facie case on the evidence that the judgment creditor misled the foreign court with sufficient cogency to warrant the matter going to trial. If the defendant’s case is anything less, the plaintiff will have made out its case for summary judgment.

[31]   A defendant may allege fraud on the foreign court by the judgment creditor, even if the defendant was unsuccessful in the foreign court in contesting the issue on which he alleges the judgment creditor was fraudulent.14 That is subject to the defence being struck out as an abuse of process, as shown by Owens Bank v Étoile Commerciale SA. The defendant is not required to prove that he discovered the facts supporting the fraud allegation after the foreign judgment.15

[32]    Now for the merits of Mr Kang’s fraud defence. He says that Guangzhou Dongjiang deceived the court because the agreement on which it sued involved bribery but it did not disclose that to the court. It does not matter that he did not point this out to the court, even though he knew it.

[33]   Bribery can arise in two contexts, the private sector and the public sphere. Bribery in the private sector involves conduct caught by the Secret Commissions Act 1910. It can be seen in Industrial & General Mortgage Co Ltd v Lewis:16

For the purposes of the civil law a bribe means the payment of a secret commission, which only means (i) that the person making the payment makes it to the agent of the other person with whom he is dealing; (ii) that he makes it to that person knowing that that person is acting as the agent of the other person with whom he is dealing; and (iii) that he fails to disclose to the other person with whom he is dealing that he has made that payment to the person whom he knows to be the other person's agent. Those three are the only elements necessary to constitute the payment of a secret commission or bribe for civil purposes.

In this context, “payment” can include other benefits, besides money. The key point here is the agency. The person receiving the bribe is the agent of some principal or employer that the payer is dealing with. The law against bribery in the private sector

14     Abouloff v Oppenheimer (1882) 10 QBD 295 (CA) and Vadala v Lawes (1890) 25 QBD 310.

15     Syal v Heyward [1948] 2 KB 443 (CA).

16     Industrial & General Mortgage Co Ltd v Lewis [1949] 2 All ER 573 at 575.

is directed against diverting the agent from the faithful performance of his duties to his principal.

[34]   Mr Kang has not shown that this case involves that sort of bribery. While the loan agreement conferred a benefit on Mr Xu, sponsorship of his golf team, there is no evidence of any relevant agency. Mr Xu does not have any employer or principal. There is nothing to suggest that because his golf team was sponsored he was to be diverted from duties to an unidentified principal.

[35]   In the other sort of bribery, in the public sphere, the person receiving the payment or some other benefit holds some official position, but they need not be an agent or employee (although they may be). The law against bribery in the public sphere is directed against diverting public officers from faithfully performing their public duties. The bribery offences in Part 6 of the Crimes Act 1961 are aimed against that conduct.

[36]   Mr Xu is described as a former deputy governor of the Guangdong province, but there is no evidence that he held any public office at the time of the loan agreement. There is nothing showing that he had any formal role in allocating petrol station licences. The evidence does not show that he received a bribe because he held some public office.

[37]   The other possibility is that Mr Xu was to use his influence on other officials to help Guangzhou Dongjiang get its petrol station licence. But that has to be a corrupt influence. According to Mr Kang, Mr Pun wanted Mr Xu to assist him. But “assist” is equivocal. It may be legitimate or not. Equivocal assertions are not enough to establish fraud. Mr Xu’s assistance could have been lawful lobbying and that is not bribery.

[38]   Mr Sharp tried to get around these difficulties by saying that in China it was against the law to bribe former officials. For that he relied on parts of a publication by the United Kingdom Foreign & Commonwealth Office, “Overseas Business Risk

– China” (updated June 2020). It has general advice to Britons intending to do business in China. There is a section on bribery and corruption, including on a current

wide-ranging anti-corruption campaign by Xi Jinping. Among other things it refers to a judicial interpretation by the Supreme People’s Court of 18 April 2016 about a criminal statute, which is said to make it illegal to provide money or property to former public officials for illegitimate benefits.

[39]   That is not satisfactory evidence of Chinese law. Foreign law is a question of fact and must be proved by evidence. While evidence can be given by an expert, s 144 of the Evidence Act 2006 allows the court to accept other evidence, including:

(3)        A party may offer as evidence of a statute or other written law of a foreign country, or of the unwritten or common law of a foreign country, any publication—

(a)that describes or explains the law of that country; and

(b)that appears to the Judge to be a reliable source of information about the law of that country.

(4)        A Judge is not bound to accept or act on a statement in any document as evidence of the law of a foreign country.

I do not accept that the publication is reliable for this proceeding. It is not intended for legal readers. It gives only general advice. For understandable reasons it gives warnings as to the potential scope of Chinese law so that British businesspeople do not risk falling foul of it. But it does not set out the terms of the criminal statute or the judicial interpretation. I cannot tell how they apply to the facts in this case. As China does not have a common law system, there are large gaps to be filled for a common lawyer to understand how its criminal law works. That information is missing.

[40]   Other aspects of Mr Kang’s evidence to support his fraud allegation are unconvincing. While he alleges attempted corruption in the allocation of petrol station licences, he says nothing about how petrol station licences are allocated in Guangdong province. He does not say how Mr Xu as a former deputy governor could influence that process.

[41]   Nor does his evidence explain the effect of the alleged bribe on the enforcement of the loan contract in China. Evidence as to the effects of illegality on contracts governed by Chinese law is required. It would not be correct to apply the presumption that in the absence of evidence the foreign law is to be treated as the same as

New Zealand law. The presumption does not always apply.17 It is not plausible to say that the Chinese court was tricked into coming to a wrong result because the result would be different under New Zealand law. For all I know, the Chinese courts might deal with an illegal contract in any of a number of ways.   They might not allow     Mr Kang to keep that part of the loan which had nothing to do with golf team sponsorship.

[42]   If Mr Kang did have a proper fraud defence, he would need to give more extensive evidence, much of it from China. That would be difficult and time- consuming. While Mr Sharp did not raise this, Mr Kang would not have been constrained by the normal time limits for preparing for a summary judgment hearing. If more time was required, it would have been given.18 Mr Kang did have a convenient source of information to show a proper basis for his defence, his lawyer in China. He could have given evidence on many of the matters where Mr Kang’s case has gaps. While Mr Sheng did make an affidavit, he says nothing to support Mr Kang’s fraud defence.

[43]   Overall, Guangzhou Dongjiang has shown that Mr Kang does not have an arguable defence that it obtained judgment against him by fraud.

Mr Kang’s failure to raise the bribery issue in the Chinese court

[44]   Under his case, Mr Kang knew about the alleged illegality said to taint the loan agreement with Guangzhou Dongjiang, but deliberately chose not to refer to the matter in the hearing in China. He says that he should still be free to address it in this proceeding. One way of dealing with this is to point out that he has raised it here but Guangzhou has shown that there is no merit in the defence. But there is also the question whether his failure means that he cannot run the fraud defence in this proceeding.

17 Heydon JA examined the question thoroughly in Damberg v Damberg [2001] NSWCA 87, (2001) 52 NSWLR 492 without coming to a firm conclusion.

18 For example, in Yoonwoo C & C Development Corp v Huh [2019] NZHC 2986, which involved enforcement of Korean judgments in New Zealand, extended time was given for evidence on Korean law and procedure.

[45]   In Svirskis v Gibson the Court of Appeal noted as one relevant factor in deciding whether to direct an issue:19

If a defendant had adequate notice of the nature of the evidence likely to be given by the plaintiff but did not avail himself of the opportunity of contradicting it, he may have difficulty in persuading the New Zealand court to exercise the discretion in his favour.

Similarly in a common law claim on a foreign judgment, the fraud defence may be disallowed as an abuse of process, if the defendant actually knew that the other side was to present a fraudulent case in the foreign court but chose not to contest it.

[46]   Mr Kang says however that his decision not to raise the bribery issue in the Chinese court should not be held against him because he could not expect a fair hearing on that issue. On this I was invited to take judicial notice that the Chinese government does not tolerate dissent or criticism of public officials. There would be repercussions for Mr Kang if he were to suggest that Mr Xu had been corrupt. The United Kingdom Foreign & Commonwealth Office publication tendered to prove Chinese laws against bribery referred to an official campaign directed against corruption in the Chinese Communist Party and the government. Given that information, without other evidence it is not obvious that there would be repercussions for Mr Kang, who after all remained in New Zealand. As authority that I could take judicial notice, Mr Sharp cited Oppenheimer v Louis Rosenthal & Co AG and Ellinger v Guinness Mahon & Co, where English courts accepted jurisdiction instead of requiring German Jews to bring proceedings in Nazi Germany because of the risks to them there.20 In the Ellinger case, there was expert evidence21 and there is no suggestion that the court was going by press reports alone in the Oppenheimer case.

[47]   Instead evidence is required that Mr Kang would not have received a fair hearing in China. The usual approach is to treat assertions that justice cannot be obtained in the foreign court with wariness and caution. Cogent evidence is required.

19     Svirskis v Gibson [1977] 2 NZLR 4 (CA) at 10.

20     Oppenheimer v Louis Rosenthal & Co AG [1937] 1 All ER 23 and Ellinger v Guinness, Mahon & Co [1939] 4 All ER 16.

21     At 24.

In Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd, the Privy Council said:22

[95] The better view is that depending on the circumstances as a whole, the burden can be satisfied by showing that there is a real risk that justice will not be obtained in a foreign court by reason of incompetence or lack of independence or corruption. Of course, if it can be shown that justice “will not” be obtained that will weigh more heavily on the exercise of the discretion in the light of all other circumstances.

…

[97] Comity requires that the court be extremely cautious before deciding that there is a risk that justice will not be done in a foreign country by the foreign court, and that is why cogent evidence is required. But, contrary to the appellant’s submission, even in what they describe as endemic corruption cases (i.e. where the court system itself is criticised), there is no principle that the court may not rule.

…

[101] The true position is that there is no rule that the English court (or Manx court) will not examine the question whether the foreign court or the foreign court system is corrupt or lacking in independence. The rule is that considerations of international comity will militate against any such finding in the absence of cogent evidence…

[48]   Mr Kang’s evidence is only assertion and  is  not  cogent.  As  he  was  in New Zealand, it is not clear that he would have been under any personal risk if he had run an illegality defence. Again, if there were anything in his explanation, his lawyer could have given evidence about it.

[49]   In summary, Mr Kang has not been prejudiced by his failure to run the defence in China, because it has been considered and found wanting in this court. His failure to raise the issue was deliberate and his explanation for that is unconvincing. That also counts against his fraud defence.

Contrary to public policy

[50]   For Mr Kang it was submitted that enforcing the judgment of the Tianhe Court would be contrary to public policy because it would involve enforcing in New Zealand an agreement involving corruption.

22     Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd [2011] UKPC 7, [2012] 1 WLR 1804.

[51]   In line with the general conflict of laws principle that rejection of foreign law may be justified on public policy grounds, the defence is narrow. The foreign judgment will not be enforced if to do so would shock the conscience of the reasonable New Zealander or would be contrary to our view of basic morality or would offend some moral, social or economic principle so sacrosanct as to require its maintenance without exception. It is not to be used to put right perceived injustices that do not offend our sense of morality.23

[52]   For Mr Kang, it was submitted that even though the Chinese court was not aware of the bribery issue, that should not stand in the way of a New Zealand court refusing to enforce a judgment based on a corrupt agreement. Refusal to enforce the judgment would not amount to a denunciation of Chinese law. Instead, it was submitted that China has strict laws against bribery.

[53]   Bribery of public officials is anathema in New Zealand. Bribery and corruption of public officials are offences under the Crimes Act 1961. Those convicted under these provisions often receive significant sentences of imprisonment. Moreover, it is also an offence to bribe foreign public officials.24 New Zealand residents and citizens commit an offence if they bribe a foreign public official outside New Zealand.25 Under New Zealand contract law, a contract that is prejudicial to good government is illegal.26 New Zealand prides itself upon being generally free from corruption. Accordingly, it is arguable for Mr Kang that a judgment of a foreign court enforcing payment of a bribe to a foreign public official by a New Zealand resident should not be enforceable in New Zealand because it offends basic New Zealand values.

[54]   The difficulty, however, for Mr Kang is that, just as with his fraud defence, his evidence is not strong enough to raise an arguable defence that his agreement with Guangzhou Dongjiang involved bribery. For his public policy defence he relies on

23 Reeves v OneWorld Challenge LLC [2006] 2 NZLR 184 (CA) at [46]-[67], citing Beals v Saldanha [2003] SCC 72, [2003] 3 SCR 416, Society of Lloyd’s v Meinzer (2001) 55 OR 3d 688, (2002) 210 DLR (4th) 519 (Ont CA); Stern v National Australia Bank [1999] FCA 1421, Bank of Kiribati Ltd v Harrison (1990) 3 PRNZ 111, Collins (ed) Dicey and Morris on the Conflict of Laws (13th ed 2000) and North and Fawcett Cheshire and North’s Private International Law (13th ed 1999).

24     Crimes Act 1961, s 105C.

25     Crimes Act 1961, s 105D.

26     Garforth v Fearon (1787) 1 Hy BI 328.

matters of fraud and similar reprehensible conduct. He must also show a prima facie case with cogent evidence. The same matters that count against his fraud defence also count against his public policy defence.

[55]   While that is enough to dispose of that defence I note another issue without deciding it. On Mr Kang’s case, the bribe element in the transaction was the sponsorship of the Canton golf team. In the proceeding in China, Mr Kang was given credit for RMB 1,5000,000, one half of the amount of the sponsorship. His case is that he should be able to keep the rest of the funds lent by Guangzhou Dongjiang. That raises the question how and whether restitution ought to be made when a contract is alleged to be illegal. That is a matter on which the laws of different countries give different responses. After all, before the Illegal Contracts Act 1970, in New Zealand a court would not recognise a claim brought on an illegal contract and would not grant any restitutionary relief.27 But the court now has power to grant relief.28 The Chinese judgment required Mr Kang to repay an amount which was calculated to exclude at least some of the sponsorship component of the loan. It is not clear that performance of that part of the contract which was extraneous to the sponsorship would be unenforceable as contrary to public policy, simply because a New Zealand court might deal with a comparable illegal contact differently in New Zealand. I have only noted the point, in case this case goes further.

Outcome

[56]   Overall, I am satisfied that Mr Kang does not have an arguable defence to the claim on the Chinese judgment. I give judgment for Guangzhou Dongjiang against Mr Kang for:

(a)       RMB 7,657,156.16;

(b)Interest on RMB 6,500,000 at 1.6 per annum from 29 May 2019 to the date of payment; and

(c)Costs. If the parties cannot agree costs, memoranda may be filed.

27     Bowmakers Ltd v Barnet Instruments Ltd [1945] 1 KB 65 (CA), Singh v Ali [1960] AC 167 (PC).

28     Contract and Commercial Law Act 2017, ss 75 and 82 (replacing the Illegal Contracts Act 1970, s 7).

…………………………………….

Associate Judge R M Bell