Guangzhou Dongjiang Petroleum Science & Technology Development Company Ltd v Kang

• Jurisdiction: New Zealand
• Judge: R M Bell
• Judgment Date: 20 November 2020
• Neutral Citation: [2020] NZHC 3068
• Court: High Court
• Docket Number: CIV-2020-404-921
• Date: 20 November 2020

Between

Guangzhou Dongjiang Petroleum Science & Technology Development Company Limited

Plaintiff

and

Yongnan Kang

Defendant

[2020] NZHC 3068

R M Bell

CIV-2020-404-921

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Civil Procedure, International Law — summary judgment application to enforce a judgment in New Zealand obtained in a Chinese Court — share purchase dispute — law of the contract was the People's Republic of China — conflict of laws — natural justice — public policy — requirement for evidence.

Appearances:

J Strauss/ A Yang for the Plaintiff

A Sharp/ H Huang for the Defendant

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

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

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

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...