Lonking (China) Machinery Sales Co. Ltd. Plaintiff v. Xingfu Zhao also known as Xing Fu Zhao and, 2024 BCSC 79

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Lonking (China) Machinery Sales Co. Ltd. v. Zhao, 2024 BCSC 79 Date: 20240117 Docket: S165799 Registry: Vancouver Between: Lonking (China) Machinery Sales Co. Ltd. Plaintiff And Xingfu Zhao also known as Xing Fu Zhao and Rentao Li also known as Ren Tao Li Defendants - and – Docket: S165800 Registry: Vancouver Between: Lonking Machine Replace Parts Co.

Ltd., Longyan Fujian Plaintiff And Xingfu Zhao also known as Xing Fu Zhao and Rentao Li also known as Ren Tao Li Defendants Before: The Honourable Madam Justice Wilkinson Reasons for Judgment Counsel for Plaintiffs: D. R. McGowan H. Parsons M. Xin Counsel for Defendants: S. R. Schachter, K.C. J. Parker E. Chen Place and Dates of Hearing: Vancouver, B.C. July 10-14, 17-21, 24, 26-28, 2023 Place and Date of Judgment: Vancouver, B.C. January 17, 2024 [ 1 ] The trial of these actions concerns the recognition and enforcement of two commercial judgments obtained by the plaintiffs, Lonking (China) Machinery Sales Co.

Ltd. (“Lonking Sales”) and Lonking Machine Replace Parts Co. Ltd. (“Lonking Parts”), against the defendants in the People’s Republic of China (the “Chinese Judgments”).

Issues [ 2 ] The defendants admit the plaintiffs met their onus that the Chinese Judgments are final and binding, and were made with proper jurisdiction by the Chinese court. [ 3 ] Therefore, the defendants must prove that this Court should decline presumptive recognition of the Chinese Judgments in British Columbia because one of the available defences applies in this case.

Background [ 4 ] The parties have agreed on a number of facts related to this matter. [ 5 ] Lonking Holdings Limited (“Lonking Public”) is a company incorporated in the Cayman Islands and publicly traded on the Hong Kong Stock Exchange. [ 6 ] Lonking Public owns the shares of a company known as China Dragon Investment Holdings Limited (“China Dragon”).

In turn, China Dragon owns Lonking Parts and Lonking Sales. [ 7 ] There are 19 different subsidiary companies in the Lonking group of companies, which the parties and I will refer to as “Lonking” unless specifically referring to either Lonking Sales or Lonking Parts. [ 8 ] Lonking manufactures and sells heavy equipment in China and around the world through commercial distributors. Lonking Sales is principally involved in the sale of Lonking heavy equipment.

Lonking Parts sells and distributes replacement parts for Lonking heavy equipment. [ 9 ] Lonking Parts and Lonking Sales each initiated the actions in this Court and which are before me for trial (the “BC Court Actions”) seeking to enforce an underlying default judgment and order obtained in 2014 through proceedings brought by those companies in 2013 in China (the “Chinese Court Actions”). [ 10 ] The Chinese Court Actions gave rise to monetary judgments. Personal defendants in the Chinese Court Actions and in the BC Court Actions, Mr. Xingfu Zhao and Ms. Rentao Li, are spouses. [ 11 ] In June 2011, Mr.

Zhao and Ms. Li moved from China to Canada. [ 12 ] By 2012, Lonking was aware that Mr. Zhao and Ms. Li had emigrated from China and were residing in Canada. [ 13 ] Prior to July 2012, Mr. Zhao and Ms. Li controlled a group of Chinese companies known as the Hexing Group (“Hexing”). From in or about 1999 to July 2012, Hexing was the exclusive distributor for Lonking Parts and Lonking Sales products in the Liaoning province of China and other areas.

Background to Chinese Court Actions [ 14 ] Until July 2012, the commercial relationship between Hexing and Lonking was governed by distributorship contracts that were renewed on a yearly basis by written agreement of the parties. The last distributorship contracts were entered into by:

a) Lonking Sales and Liaoning Hexing Machinery Equipment Co., Ltd. (“Hexing Machinery”) dated effective January 1, 2012 for a one-year term ending December 31, 2012 (the “Sales Agreement”); and

b) Lonking Parts and Shenyang Longshengxing Engineering Machinery Co., Ltd. (“SLEM”) dated effective January 1, 2012 for a one- year term ending December 31, 2012 (the “Parts Agreement”). [ 15 ] The Sales Agreement and the Parts Agreement do not contain addresses for service or notice. In the course of business, Lonking sent correspondence to Hexing at Hexing’s business office address located at 252 Lianhe Road, Dadong District, Shenyang, Liaoning, China (the “Shenyang Offices”) and communicated with Mr. Zhao by telephone at a number provided by Mr.

Zhao to Lonking. [ 16 ] The defendants, and Hexing employees Liu Qin, Yu Hongfei and Yong Haiyan, signed as personal guarantors of Hexing’s obligations under the Sales and Parts Agreements. [ 17 ] Lonking terminated the Sales and Parts Agreements in mid-2012, prior to the end of the terms of the agreements, and entered into a new arrangement with a replacement distributor called Dingfeng.

The termination of the Sales and Parts Agreements and transfer of Hexing’s distributorship to Dingfeng were documented by a tri-party agreement dated July 28, 2012 between Lonking Sales, Hexing Machinery and Feng Yan, the principal of Dingfeng (the “Tri-Party Agreement”). [ 18 ] The Tri-Party Agreement does not contain any addresses for service or notice. Following the execution of the Tri-Party Agreement, Lonking continued to send correspondence to Hexing at the Shenyang Offices, which Hexing received and to communicate with Mr. Zhao by the telephone number Mr.

Zhao had provided to Lonking. [ 19 ] In late 2012, senior Lonking executives and lawyers were sent to Shenyang to meet with Mr. Zhao. In particular, Mr. Debo Qiu (then CEO of Lonking Public), Mr. Xiangcheng Lu (the manager of Lonking Sales) and Mr. Baofa Zhang (Lonking’s external lawyer) were dispatched in December 2012 to meet with Mr. Zhao and to negotiate terms of a possible credit transfer agreement.

[ 20 ] In December 2012, meetings between the Lonking executives and Mr. Zhao led to the drafting of a three-party document titled the “Credit Transfer Agreement”, dated for reference December 19, 2012. The Credit Transfer Agreement was drafted by Mr. Zhang and given to Mr. Zhao, who then the next day returned a copy he had signed. Mr. Zhao never received back a signed copy of the Credit Transfer Agreement as signed by either Lonking or Dingfeng.

The Commencement of the Chinese Court Actions [ 21 ] By Civil Complaint filed October 15, 2013 with the Intermediate People’s Court of Longyan City (the “Intermediate Court”), Lonking Sales initiated an action against, inter alia , Hexing Machinery, Mr. Zhao, Ms.

Li, Hexing employees Liu Qin and Yong Haiyan and the corporation of Hexing employee Yu Hongfei (the “Sales Action”). [ 22 ] By Civil Complaint filed October 17, 2013 with the Intermediate Court, Lonking Parts initiated an action against, inter alia , SLEM, Zhao, Li and Hexing employees Liu Qin, Yong Haiyan and Yu Hongfei (the “Parts Action”). [ 23 ] The address for Hexing Machinery provided by Lonking to the Intermediate Court when initiating the Sales and Parts Actions was Hexing Machinery’s registered address. [ 24 ] The address for Mr. Zhao and Ms.

Li provided by Lonking to the Intermediate Court when initiating the Sales Action and Parts Action was 1-2-1, No. 11-5 Lane 2, Miaoshan Rd., Huanggu District, Shenyang City, Liaoning Province (the “Old Address”). It was the residential address listed on Mr. Zhao and Ms. Li’s China official identity cards prior to 2007. [ 25 ] At all material times, Ms. Li’s mother resided at the Old Address. [ 26 ] In November 2007, Mr. Zhao and Ms. Li had moved to 1-6-1, No. 12-3 Yinshan Rd., Huanggu District, Shenyang City, Liaoning Province (the “New Address”).

Following Zhao and Li’s immigration to Canada in June 2011, Zhao’s mother resided at the New Address from June 2011 to July 2014. [ 27 ] After Mr. Zhao and Ms. Li moved to the New Address in 2007, the New Address was listed on their official identity cards (the “New Identity Cards”). There is no record of Mr. Zhao and Ms. Li ever providing copies of their New Identity Cards to Lonking. [ 28 ] In the Chinese Court Actions, each of Liu Qin, Yu Hongfei and Yong Haiyan submitted to the court a “Letter of Explanation and Apology regarding Provision of Guarantee” dated November 3, 2013, signed and fingerprinted by Mr.

Zhao and Ms. Li (the “Apology Letters”). [ 29 ] On November 15, 2013, Mr. Qiu participated in a telephone call made at the request of Mr. Zhao. [ 30 ] Mr. Qiu retired from Lonking in February 2016 and lives in Shanghai, China. [ 31 ] The Sales Agreement, Parts Agreement and the Tri-Party Agreement did not include an address in Canada for Mr. Zhao or Ms. Li. [ 32 ] On June 16, 2014, Lonking Parts obtained default judgment from the Intermediate Court against, inter alia , SLEM, Mr. Zhao and Ms. Li.

The judgment was entered on June 16, 2014 (the “Parts Judgment”). [ 33 ] On July 9, 2014, Lonking Sales obtained default judgment from the Intermediate Court against, inter alia , Hexing Machinery, Mr. Zhao and Ms. Li. The judgment was entered on July 9, 2014 (the “Sales Judgment”).

Jurisdiction and Procedure of People’s Courts [ 34 ] An action on a commercial contract entered into in China as between Chinese Companies and Chinese nationals is, in the ordinary course of Chinese rules of civil procedure, an action that comes within the ordinary jurisdiction of the Intermediate Court. [ 35 ] The Sales and Parts Agreements provide, among other things, that the parties agreed to submit to the jurisdiction of the Intermediate Court at the place of contract and the place of contract was Xinluo District, Longyan City, Fujian District. [ 36 ] The court in which the Chinese Court Actions were commenced was the Intermediate Court, located in Longyan City, where Lonking had its headquarters, and where the Sales Agreement and Parts Agreement were made.

Judicial History and Procedure of the Parts Action [ 37 ] Lonking commenced the Parts Action by filing a Parts Civil Complaint with the Intermediate Court on October 17, 2013. [ 38 ] The Parts Civil Complaint was based on allegations relating to the Parts Agreement and alleged guarantees between Lonking Parts and various other defendants, including SLEM, Mr. Zhao and Ms. Li. [ 39 ] Notice of the Parts Civil Complaint was published in the court newspaper, the People’s Court Daily, on December 7, 2013 (the “Parts Public Announcement”). [ 40 ] Mr. Zhao and Ms.

Li did not appear in court in the proceedings of the Parts Action. [ 41 ] The Intermediate Court granted default judgment against SLEM, Mr. Zhao and Ms. Li on June 16, 2014 in the Parts Judgment. [ 42 ] A public announcement of the Parts Judgment was published in the People’s Court Daily on July 26, 2014 (the “Parts Judgment

Public Announcement”). [ 43 ] The Parts Judgment Public Announcement states that the judgment will be deemed to have been served 60 days after the Parts Judgment Public Announcement is made. [ 44 ] The Parts Judgment had at some point on or prior to February 2016 been posted on the Intermediate Court website online and was available to be searched by an internet search. [ 45 ] The Parts Judgment states that a party may appeal the judgment to the Higher People’s Court within 15 days from the date of the Judgment being served by submitting copies of an appeal to the Court in the required form. [ 46 ] Lonking first provided the Parts Judgment to Mr.

Zhao and Ms. Li after commencement of the BC Court Actions in 2016. [ 47 ] No appeal was filed with respect to the Parts Judgment within the 15 days after September 24, 2014, being 60 days after the publication of the Parts Judgment Public Announcement. [ 48 ] As of October 9, 2014, the Parts Judgment was effective.

Judicial History and Procedure of the Sales Action [ 49 ] Lonking commenced the Sales Action by filing the Sales Civil Complaint filed with the Intermediate Court on October 17, 2013. [ 50 ] Notice of the Sales Civil Complaint was published in the People’s Court Daily on December 7, 2013 (the “Sales Public Announcement”).

The Sales Public Announcement states that the defendants shall be deemed to have been served 60 days after the Sales Public Announcement is made. [ 51 ] The Intermediate Court sent the Sales Civil Complaint by mail to the defendants’ addresses that were provided to the court by Lonking when it commenced the Sales Action. [ 52 ] Copies of the courier envelopes by which the Intermediate Court attempted to mail the Sales Civil Complaint to Mr. Zhao and Ms. Li and the defendant companies of Hexing were provided in evidence. Most of the courier envelopes addressed to Mr. Zhao and Ms.

Li and the defendant companies included the telephone number I3066696506, which was the telephone number Mr. Zhao had provided to Lonking and through which they regularly communicated between 2012 and 2015. [ 53 ] The courier envelopes were addressed:

a) to Ms. Li at the Old Address on November 6, 2013, and included handwritten notes on return slip stating “no one answered the phone, no such person found at the original address, returned due to exceeding the time limit”;

b) to Mr. Zhao at the Old Address on November 6, 2013, and included handwritten notes on return slip stating “no one answered the phone, no such person found at the original address, returned due to exceeding the time limit”;

c) to Mr. Zhao and defendant Hexing Machinery at Hexing Machinery’s registered office on November 6, 2013, and included handwritten notes stating “phone off” and return slip with the box “no such person found” ticked;

d) to Mr. Zhao and the defendant Hexing Shengda Construction Machinery Ltd. (“Hexing Shengda”) on November 6, 2013, and included handwritten notes stating “no person answered phone”; and

e) to Mr. Zhao and the defendant Shenyang Longgong Commercial and Trading Co. Ltd. (“Longgong Trading”), a company owned by Mr. Zhao, at the registered office of Longgong Trading and included handwritten notes on return slip stating '”unable to contact customer”, with the box “no such person found” ticked. [ 54 ] The Intermediate Court then published the Sales Public Announcement. [ 55 ] The Sales Civil Complaint was based on allegations relating to the Sales Agreement and alleged guarantees between Lonking Sales and various other defendants, including Hexing Machinery, Mr. Zhao and Ms. Li. [ 56 ] Mr.

Zhao and Ms. Li did not appear in court in the proceedings of the Sales Action. [ 57 ] The Intermediate Court granted default judgment against Hexing Machinery, Mr. Zhao and Ms. Li on July 9, 2014 in the Sales Judgment. [ 58 ] A public announcement of the Sales Judgment was published in the People’s Court Daily on August 6, 2014 (the “Sales Judgment Public Announcement”). [ 59 ] The Sales Judgment Public Announcement states that the judgment will be deemed to have been served 60 days after the Sales Judgment Public Announcement is made.

The Sales Judgment was posted at some point on or prior to February 2016 on the Intermediate Court website online and was available to be searched by an Internet search. Ms. Li found the Sales Judgment on the website in February 2016. [ 60 ] The Sales Judgment states that a party may appeal the judgment to the Higher People’s Court within 15 days from the date of the Judgment being served by submitting copies of an appeal to the Court in the required form. [ 61 ] Lonking first provided the Sales Judgment to Mr. Zhao and Ms. Li after commencement of the BC Court Actions in 2016.

[62] No appeal was filed with respect to the Sales Judgment within the 15 days after October 7, 2014, being 60 days after thepublication of the Sales Judgment Public Announcement. As of October 21, 2014, the Sales Judgment was effective. The BC Court Actions and Retrial Applications in China [63] The BC Court Actions were commenced by Lonking Parts and Lonking Sales in June of 2016, and Mr. Zhao and Ms.

Li werepersonally served within a few days of commencement. [64] Service of the Civil Complaints for the Sales Action and Parts Action by public announcement as the last-resort method ofdelivery complied with the laws and regulations of the People’s Republic of China. [65] On or about April 2, 2017, Mr. Zhao and Ms.

Li, through their legal counsel in China, filed for a retrial application with the HighCourt in both the Sales Action and the Parts Action. [66] On August 30, 2017, the Fujian High People’s Court released the judgment to dismiss the application to retry the Parts Action. [67] On August 31, 2017, Fujian High People’s Court released the judgment to dismiss the application to retry the Sales Action. [68] The expert confirmed that retrials before the Fujian High People’s Court are not trials de novo. The retrial applications weredismissed as the defendants were out of time.

Lack of notice is not a valid ground for a retrial beyond the six-month deadline. The Procuratorate of Longyan City [69] On January 15, 2018, the People’s Procuratorate of Longyan City dismissed Mr. Zhao and Ms. Li’s application for supervision inrelation to the Parts Action. [70] On January 16, 2018, the People’s Procuratorate of Longyan City dismissed Mr. Zhao and Ms. Li’s application for supervision inrelation to the Sales Action. [71] These proceedings provide relief to parties who were denied procedural fairness in the Chinese courts. They are not appeals ortrials de novo.

The People’s Court Daily [72] According to expert evidence accepted by the parties, the People’s Court Daily is a public newspaper which is edited by theSupreme People’s Court. Most of its contents are related to Chinese courts. Service announcements are normally published in thispublication. In 2013, it was printed in China and at the same time published online open to public searching. In 2013 and 2014, it couldbe subscribed to by any person but its major readers are the courts and legal departments of enterprises, especially state-ownedenterprises. It was seldom seen at newspaper retail shops.

Should this Court decline presumptive recognition of theChinese Judgments in British Columbia due to a breach ofnatural justice? [73] As set out in Wei v. Mei, 2018 BCSC 157 at para. 56, aff’d Wei v. Li, 2019 BCCA 114 [Wei BCCA] and Beals v. Saldanha, 2003SCC 72, in Canada, a foreign judgment is recognized and enforceable if three requirements are met:

a) the foreign court had jurisdiction over the subject matter of the foreign judgment;

b) the foreign judgment is final and conclusive; and

c) there is no available defence. [74] Canadian courts have established liberal rules for the recognition and enforcement of foreign judgments. Central to this liberalapproach is the doctrine of comity, which is defined as “the deference and respect due by other states to the actions of a state legitimatelytaken within its territory”: Beals at para. 20.

The doctrine is “grounded in the need in modern times to facilitate the flow of wealth, skillsand people across state lines in a fair and orderly manner”: Beals at para. 27. [75] There are three recognized defences to contest the recognition of a foreign judgment: fraud, lack of natural justice and publicpolicy: Beals at para. 40. [76] With regard to the defence of denial of natural justice, the defendants must demonstrate concerns relating to basic proceduralsafeguards, which include due process.

The question of whether a defendant was personally served with notice is not necessarilydeterminative of that question, given that a foreign system of law may have rules for service that are different from those of countrieswith different traditions: Wei BCCA at paras. 26–28. [77] The defence of denial of natural justice requires the defendants to prove on a balance of probabilities that the foreign proceedingswere contrary to Canadian notions of fundamental justice: Beals at paras. 59–61, 64; Oakwell Engineering Ltd. v. Enernorth IndustriesInc. (2005), 76 O.R. (3d) 528, (S.C.J.) at paras. 62–64.

[78] The authorities speak to the importance of adequate notice of a claim: Beals at para. 65; Oakwell at paras. 73–76. The failure of aplaintiff to provide adequate notice is a primary breach of natural justice: Cortés v. Yorkton Securities Inc., 2007 BCSC 282 at para. 118.Adequate notice does not require personal service, but it does require delivery or knowledge of the actual claim. In the case of delivery, aquestion to be asked is, where claims were delivered to the defendant’s address, can the defendant credibly deny receipt.

Thecircumstances of a debt claim will require steps enabling the court to infer adequate notice that provided an opportunity to defend againstthe claim, as described in LLS America LLC (Trustee of) v. Grande, 2013 BCSC 1745: [61] What will constitute due service will depend on the circumstances, and the nature of the process.

Where, as here, the process isthe commencement by summons of a proceeding intended to culminate in a money judgment against the defendant, of which proceedingthe defendant is unaware, then I find that due service requires, at the minimum, steps from which it may reasonably be inferred that thedefendant received adequate notice that granted him an opportunity to defend. Those steps may consist, for instance, of personal serviceor delivery by registered mail or courier.

In the absence of any evidence of such steps, the only reasonable conclusion where thedefendants credibly deny actual notice is that they have been deprived of an opportunity to be heard in the defence of the claim againstthem, offending fundamental principles of natural justice. [Italic emphasis in original; underline emphasis added.] [79] The viability of default judgment requires notice: Casa Manila Inc. v. Iannuccilli, 2018 ONSC 7083 at para. 17.

Delivery to anon-resident national’s registered address without acceptance, even where the party is aware of the nature of the proceedings, isinsufficient notice: Novikova v. Lyzo, 2019 ONCA 821 at paras. 6–7 and 19. [80] In Canada, a substitutional service order is not a purely administrative step. It is an order requiring service to be made in amanner calculated to reach a defendant, usually after efforts to locate and serve the defendant personally. [81] In Luu v.

Wang, 2011 BCSC 1240, the Court set out the applicable law for ordering substitutional service in this province: [14] Of similar effect are the statements of van der Hoop L.J.S.C., as he then was, in Credit Foncier Franco-Canadien v. McGuire(1979), (BC SC), 14 B.C.L.R. 281 (S.C.): Before a Judge can grant an order for substituted service, then, he must be supplied with facts establishing that personal service cannot beusefully effected or will involve too great a cost.

The applicant must show that reasonable steps have been taken to locate the party to beserved and, if he has been located, that reasonable efforts had been made to effect personal service. … [82] In this case, under Chinese law, it appears that notice by publication followed one failed attempt to deliver the claims by mail orcourier to corporate and residential addresses in China. The court documents for service upon the defendants were not left at any of theaddresses where service was attempted.

When delivery to Hexing was attempted at the registered address, a registered office where it didnot regularly receive mail or conduct business, and the packages were returned unopened, the plaintiffs did not reach out to Hexing’sofficial representatives in China.

It did not send the claims to Hexing’s business office address, where the plaintiffs continued toregularly send correspondence to Hexing even after the takeover by Dingfeng, and after obtaining the judgments. [83] The service by publication in the People’s Court Daily was essentially an administrative step utilised for many parties notpersonally served in Chinese proceedings. It would not appear to be calculated to reach defendants who resided outside China orotherwise tailored to the present individual defendants. The Chinese court was not informed by the plaintiffs that the defendants residedin Canada.

The plaintiffs took no steps to locate the defendants in Canada, despite the significant value of the claims. [84] Without more, the obtaining of the Chinese Judgments by way of the substitutional service was a breach of natural justice.

Despite a breach of natural justice, did the defendants have actual notice of the claimsand wilfully fail to defend them? [85] The plaintiffs submit that the process for service in the Intermediate Court was either effective in providing actual notice to thedefendants, or it did not matter, as they obtained notice of the Chinese Actions shortly after commencement through the freezing ordersand their phone call with Ms. Liu at the start of November 2013.

They submit effective notice and their actual knowledge isdemonstrated by their express acknowledgement of the Parts Action and the Sales Action in the Apology Letters written on behalf ofother defendants, during an alleged phone call between Mr. Zhao and Mr. Zhang in early November 2013 and a second call between Mr.Zhao, Ms. Li and Mssrs. Qiu, Zhang and Lu on November 15, 2013.

With actual knowledge of the Chinese Actions and the opportunityto enter a defence, they then submit the defendants elected to ignore the Chinese Actions because they thought they were beyond thereach of enforcement in Canada. [86] In these circumstances the plaintiffs submit, there can be no breach of natural justice, whether “primary” or otherwise: Cortés atpara. 118; Liu v.

Luo, 2018 BCSC 1237 at para. 21. [87] The defendants point out that in the context of notice of a proceeding, wilful blindness arises where a defendant chooses not toread a claim or ignores the import of a claim that has been served upon them. As set out in Zhang v. Ton, 2014 BCSC 122 at para. 34, ifa party chooses not to read documents that were served upon them, that behaviour is consistent with wilful blindness and should not becondoned. [88] I agree with the defendants. Wilful blindness is equivalent to a person’s actual knowledge of the claims against it.

It does notarise without service or other means of delivery of the claims having been provided. [89] The plaintiffs do not suggest that the defendants ever received the claims. None of the plaintiff’s witnesses claimed to have toldthe defendants the plaintiffs had filed claims against them and subsequently obtained judgment against them. They all simply stated itwas known.

[ 90 ] What was clearly known was that Hexing owed money to the plaintiffs by way of uncollected receipts from customers/secondary distributors. The amounts involved were in dispute. The relationship between the plaintiffs and Hexing was changed at the insistence of the plaintiffs. Efforts were underway to collect from Hexing’s original customers in order to repay the plaintiffs. These efforts apparently continued for a long time and may still have continued as of the date of trial. [ 91 ] For the first time, at trial Mr. Zhang testified that he received a call from Mr.

Zhao in early November 2013, after the litigation was filed but before the November 15, 2013 call which included Mr. Qiu. He testified that on the earlier call Mr. Zhao acknowledged being sued by Lonking. Mr. Zhang explained this call as the call he mentions in his pre-trial evidence, and that he did not actually recollect the November 15, 2013 call at all until he recently reviewed his notebook. The defendants deny this earlier call ever took place. [ 92 ] Mr. Zhang seems to discover evidence to refresh his memory each time he goes back and reviews his phone records and other documents.

This includes not only notes of the November 15, 2013 call, but also email correspondence with Ms. Liu (Ms. Li’s sister-in- law and former Hexing employee) on March 12, 2014 using Mr. Zhang’s personal email address in which she provides him with banking, passport and Canadian address information of the defendants. He testified he thought the March 12 email referred to the address of the defendants’ daughter and he did not think he could make use of the bank and passport information, so he forgot about it. This makes no sense given Mr. Zhang’s role and the payments Lonking were seeking.

The email was also sent to Yueda Huang the CFO of Lonking Sales, contained an email address clearly revealing Ms. Liu’s identity, contained further personal information of the defendants and it showed that Lonking had the address for the defendants before obtaining the judgments. Yet Lonking never sent the defendants any notice that would have enabled them to appeal or seek a retrial within the deadlines. Lonking did produce a later, anonymous-looking screenshot of an email from Ms. Liu from April 2015 and described the sender as an informant. This supported earlier pre-trial evidence of Mr.

Zhang that Lonking did not know how to reach the defendants until well after the effective dates of the judgment. This reaises serious concerns about Mr. Zhang’s credibility and the reliability of his recollection. [ 93 ] Given these concerns, I do not accept that this earlier November call took place. [ 94 ] The defendants testified they heard rumours of litigation against Hexing. Mr. Qiu confirmed he did not say to Mr. Zhao or otherwise confirm that the plaintiffs were suing Hexing or the defendants: At that time, I knew for myself. I thought that -- I believed and thought that Mr.

Zhao knew about him being sued, so during that conversation, I did not tell him he was being sued, because I knew that I – my understanding was that he knew about it. [ 95 ] Notes of the November 15, 2013 call made by Mr. Zhang (the “Notes”) confirm (as translated) that the issue of who decides whether to instigate litigation was discussed, but there is no further notation: Lawsuit/lawsuits is/was (are/were) led by the President… [ 96 ] I accept that Mr. Qiu may have believed that the subject of the call was about resolving the Chinese litigation. However, what the defendants testified they understood from Mr.

Qiu’s words, including the fact that he did not confirm the existence of a lawsuit and referred generally to litigation being the responsibility of Mr. San Yim Li (Chairman of Lonking), is that Mr. Qiu was not going to sue them. As aptly described by the defendants, the parties were ships passing in the night. [ 97 ] The Notes provide support for this gap in the parties’ understandings of the call. Mr. Qiu acknowledged that during the call Mr. Zhao told Mr.

Qiu he was unhappy because his business had been seized from him, the creditor’s rights had been taken away and his employees had been taken away and given to Dingfeng. [ 98 ] The key statement attributed to Mr. Zhao in the Notes is consistent with these parts of Mr. Qiu’s evidence: “Own property was seized” and “team was also shut down”. [ 99 ] Mr. Zhang offered the court an

interpretation of the Notes. He asserted that the Notes indicate Mr. Zhao knew about and was upset by the Intermediate Court freezing his properties and the properties of the former employees who were also defendants in the Chinese Actions. However, Mr. Zhang had no independent memory of the call. [ 100 ] Mr. Qiu was not asked if he himself knew about the freeze orders, and he did not give any evidence that Mr. Zhao referred to frozen or seized personal properties during the call. No evidence was led to indicate how Mr. Zhao could know about the freezing of his properties.

He testified that he did not discover that they had been frozen until 2016, and this was supported by the evidence of Ms. Qiuyan Pan and Ms. Qingfeng Sun, former Hexing employees. [ 101 ] The reference to Mr. Zhao’s “team” being shut down is consistent with Mr. Qiu’s evidence that Mr. Zhao complained about his employees, who were working to collect the receivables, being taken away and given to Dingfeng. Mr. Qiu said Mr. Zhao complained about the great difficulty in collecting the receivables as a result of this. The Notes, which do not refer to any property of the “team” being frozen, do not fit with the

interpretation Mr. Zhang offered the court. [ 102 ] That Mr. Zhao was upset about the seizure of his business and his creditor’s rights and was complaining about this takeover is supported by the statement attributed to Mr. Zhang in the Notes following Mr. Zhao’s statement: Lack of clarity with accounts handover, creditor’s right can be returned back to Shenyang Lonking [meaning Hexing]. [ 103 ] Mr. Zhao complained about his creditor’s rights being taken away and Mr. Zhang’s response is that those rights could be returned to Hexing. [ 104 ] Mr.

Zhang’s statement in the Notes is also consistent with the Credit Transfer Agreement, which transferred Hexing’s creditor’s rights to Dingfeng. This lines up with the evidence about the March 2015 call with Mr. Zhang. In that call, Mr. Zhao was continuing to bring up the Credit Transfer Agreement when the question of payment arose in that call. Such an inquiry is inconsistent with knowing about the judgment.

[ 105 ] Most of the November 15, 2013, call focused on the collection of Hexing’s receivables. Mr. Zhao gave evidence that he told Mr. Qiu he would appoint an authorized representative in China to assist with the collection of receivables. [ 106 ] Any confusion about the takeaways from the November 15, 2013, call is understandable if Lonking’s representatives on the call simply assumed that the defendants knew about the litigation. [ 107 ] What occurred after the November 15, 2013 call accords with Mr. Zhao’s evidence of the call. He appointed Ms.

Sun to work on collecting the receivables and continued with the process of assisting the plaintiffs to sue the secondary distributors. The plaintiffs admit that there was no discussion of the Chinese Actions or judgments with Ms. Sun, nor did anyone from Lonking call Mr. Zhao to tell him about the judgments. Mr. Zhang testified he made a specific point of not telling Mr. Zhao about the judgments when they spoke in March 2015. [ 108 ] Actions were commenced against secondary distributors by Hexing in cooperation with Lonking and Dingfeng. [ 109 ] In December 2014, when the neighbour told Ms.

Li about a piece of paper on the door of the defendants’ former residence in China at the New Address (which was not an address where service was attempted), Ms. Li said she was told that the paper said that a lot of money was owing. She accepted that there was indebtedness to the plaintiffs at that time, but she thought the piece of paper might be a scam. When asked on cross examination why she thought it was a scam, she said that if the paper had something to do with the plaintiffs, she thought they would just tell her and her husband.

There was no evidence from the plaintiffs about whether it had anything to do with what was posted on the door or that the notice had any connection to the Chinese Court Actions. Apology Letters [ 110 ] On the evidence, the plaintiffs did not send demand letters for payment of the debts prior to the filing of the Chinese Actions. [ 111 ] The plaintiffs rely heavily on the existence and content of the Apology Letters to indicate actual knowledge of the claims by the defendants. The author(

s) and recipients of the letters did not provide evidence. They were sought to be admitted as evidence in the Chinese Court Actions by the recipients, as additional named defendants who provided written guarantees for the Hexing obligations to the plaintiffs. The letters were not accepted into evidence in the Chinese Court Actions, as their authenticity was not proven to the satisfaction of the Chinese court. Despite that, the defendants admit the authenticity of Sales Action letters. The Parts Action letters were not authenticated. [ 112 ] Ms. Liu worked at Hexing. She is a sister-in-law of Chairman Li.

It was clear that Ms. Li and Ms. Liu had a falling out at some point early on when Ms. Liu started working with Ms. Li at Hexing. Ms. Li stopped working at Hexing to avoid the conflict. [ 113 ] The evidence about the purpose of the Apology Letters and the signing of them comes from the testimony of Mr. Zhao and Ms. Li and their discovery evidence, which was read in by the plaintiffs. It is not contradicted. [ 114 ] The Sales Action letters are dated November 3, 2013, approximately two weeks after the dates of the filing of the Chinese Court Actions, but three days before the service attempts.

The defendants testified their signatures were requested by Ms. Liu. Mr. Zhao testified Ms. Liu called him in November 2013 asking him to sign a letter for her. She said she heard that the secondary distributers were being sued, and she was concerned that the plaintiffs may sue her in the future based on her Hexing guarantee. She wanted Mr. Zhao to sign an apology letter which she drafted, “just in case”. Mr. Zhao testified he told Ms. Liu her concern was unnecessary but he would sign if she asked. He and Ms. Li did as requested. Ms. Li clearly dislikes Ms. Liu and testified she only signed because Mr.

Zhao asked her to sign. She claimed she did not pay much attention to the content of the letter. [ 115 ] Mr. Zhao testified that they signed one letter for Ms. Liu with respect to the Parts Action, but could not recall others. Ms. Li testified she signed three letters with respect to the Sales Action. [ 116 ] The Sales Action Apology Letters contain the following wording: I have acknowledged, through certain channels, that Lonking (China) machinery Sales Co. Ltd. has taken an action at the Intermediate People’s Court of Longyan City against Liaoning Hexing Machinery and Equipment Co.

Ltd. and certain individuals including you, and has claimed that you shall undertake the responsibility as guarantor. [ 117 ] The letters go on to state that the guarantee was insisted on by Lonking and that it was inappropriate for Hexing to request the guaranteeing employee sign or wages would be withheld or employment terminated. In essence, Mr. Zhao and Ms. Li signed letters stating the employee provided the guarantee under duress. [ 118 ] The tense of the letter does appear to conflict with Mr. Zhao’s testimony regarding the conversation. The court information could have been known to Ms.

Liu since it is the court where Lonking is located and is specified in the distribution agreements, for which she was responsible. We have no evidence from Ms. Liu. [ 119 ] Lonking’s primary argument is that the Apology Letters and the defendants’ evidence about them is not believable, and the court should infer the defendants’ actual knowledge of the proceedings from the Apology Letters. However, that inference cannot be drawn from the available evidence. [ 120 ] The Apology Letters were sought by Ms.

Liu and signed by the defendants before the Chinese court attempted service of the claims on any of the defendants, including Ms. Liu. In addition, the defendants’ evidence about Mr. Zhao’s discussion with Ms. Liu (which was read in by Lonking) establishes a prophylactic purpose of the request Ms. Liu made for the Apology Letters. She asked for them because of a concern she said she had about potential future claims. This is the only evidence before the court. [ 121 ] Lonking denied the authenticity of the 2013 and 2014 Apology Letters at the Chinese trials. It may have been correct about the

inauthenticity of the Parts Apology Letter. [ 122 ] Lonking argues that Mr. Zhao and Ms. Li’s credibility is compromised due to impeachment under cross examination and the shifting of their evidence at trial, which Mr. McGowan disparaged as “migration”. The examples cited by Lonking are overstated and were all dealt with by Mr. Zhao and Ms. Li in a forthright manner. Difficulties in translation also play a role with regard to the evidence of the parties provided over the years. [ 123 ] While Mr.

Zhao’s testimony was permeated with his anger at Lonking’s decision to take their business away and give it to Dingfeng, including the subsequent handling of Hexing’s collections, this does not mean his credibility is tainted. [ 124 ] At the retrial applications, the defendants attempted to show that the debts claimed in the Chinese Court Actions were inaccurate. Mr. Zhao was adamant in his testimony that the plaintiffs should not have taken action against Hexing since the real source of the debts were the secondary distributors. That is why, he says, the plaintiffs replaced Hexing with Dingfeng.

This does not mean that the defendants have no defence or otherwise concede the validity of the claims of the plaintiffs. The plaintiffs and defendants had long- standing dealings with each other over many years by way of a variety of agreements. Hexing was assisting with the debt litigation against the secondary distributors. [ 125 ] Without having seen the claims themselves, even if they knew there were debt claims proceedings against Hexing and themselves, the defendants have not received adequate notice: Novikova at paras. 7 and 19 . [ 126 ] There is no evidence the defendants attempted to evade service.

They did not, as Mr. Zhang testified, “quietly” move to Canada. They were easily served personally with the materials for the BC Court Actions. Conclusion [ 127 ] There has been a primary breach of natural justice due to insufficient notice of the Chinese Court Action claims. The defendants did not have actual notice of the claims until after appeal periods ran out. Lack of notice is not a valid ground for a retrial beyond the six- month deadline, therefore the defendants were not provided with procedural safeguards under Chinese law to cure the breach of natural justice: Al-Marzouq v.

Nafissah , 2019 BCSC 1759 at paras. 61–62 . [ 128 ] The Sales and Parts Judgments are not enforceable. Costs [ 129 ] As the successful parties, the defendants are entitled to their costs at Scale B. [ 130 ] In the event that a party seeks a different costs award, they may contact trial scheduling within 30 days to arrange a hearing of up to one hour. [ 131 ] Absent such a hearing request, this costs order will stand. “Wilkinson J.”