Sun v He

Ethan He and Vivian Zhang Pty Ltd (ACN 169 451 718) (Ninth Defendant) Second Master Capital Pty Ltd (ACN 622 077 696) (Thirteenth Defendant) Lei Zhang (Fourteenth Defendant) EVE Property Solutions Pty Ltd (ACN 155 290 958) (Fifteenth Defendant) Representation: Counsel: M Pesman SC with T Bors (Plaintiff) R de Meyrick with D Currie (Defendants)

Solicitors: Colin Biggers & Paisley Pty Ltd (Plaintiff) Link Lawyers (Defendants) File Number(s): 2019/00071078 Publication restriction: Nil

Judgment

1. HER HONOUR: Before me for hearing on 12 and 13 May 2020 were two notices of motion filed by the plaintiff (Mr Bo Sun, who is also known as Michael): first, a notice of motion filed on 11 February 2020, seeking inter alia that some or all of the defence (filed on 17 May 2019) of the first to fourth, ninth and thirteenth to fifteenth defendants (the He Defendants) be struck out (the Strike Out Motion); and, second, a notice of motion filed on 18 February 2020, seeking inter alia findings of contempt against the first defendant (Mr Xin He) in relation to the execution on 22 November 2019 of search orders (the Search Order) made by Lindsay J on 21 November 2019 (the Contempt Motion). In both motions, costs are sought by the plaintiff.
2. The He Defendants are Mr He (who is also known as Ethan), his wife, Ms Lei Zhang (who is also known as Vivian), and six companies controlled by Mr He that hold assets claimed by Mr Sun.
3. There was also listed before me at that time a notice of motion filed on 21 February 2020 by Mr He (and the He Defendants), seeking a variation of the existing freezing orders such that the amount they may expend on legal costs be increased to $500,000. Although written submissions were filed in relation to this motion, it was the position of Mr Sun (the logic of which was conceded by Mr He and the He Defendants) that this motion should be determined after the outcome was known of the Contempt Motion (and any sentencing for contempt if that be the outcome of that motion) (see T 48.5). In that respect, I pause to note that there had been agreement reached between the parties for Mr He to have access to a sum of $50,000 for costs in relation to the present applications.
4. For completeness, I note that a notice of motion has also been filed by Mr Sun on 17 March 2020, seeking a variation of the freezing orders to reduce the amount that Mr He and his wife may spend on living expenses. However, that notice of motion was not listed before me for hearing on 12 and 13 May 2020 and Mr Sun did not seek to move on it at this time (not least because it, too, may not arise if the relief sought on the Contempt Motion is granted).
5. Broadly, the complaint by Mr Sun (precipitating both the Strike Out Motion and the Contempt Motion) is that, in the course of the execution of the Search Order at Mr He's residential premises in Warrawee (the Warrawee premises) on 22 November 2019, Mr He deliberately destroyed electronic records the subject of the Search Order.
6. The Search Order was made in the context where a critical issue in these proceedings had been identified as being which of two versions of certain "WeChat" conversations between Mr Sun and Mr He should be accepted (each of Mr Sun and Mr He suggesting, in effect, that the other has doctored his records of those conversations). WeChat, I am told, is a messaging, social media and payment system popular in China.
7. Pausing here, the operation of WeChat was described in evidence by the plaintiff's computer expert (Mr Bell) as follows (T 38.3-.30): A. … they sort of exist within their own world, if you like, so an SMS is functionality that exists on a mobile phone ordinarily facilitated by the carrier of that phone, Telstra, Optus, et cetera; the WeChat functionality sits within an application called WeChat which is installed on a phone, and requires either access to the internet or the use of the data services of the mobile phone carrier, 4G for example, in order to be able to then use the application. But in terms of the way that it works by sending and receiving chats, pictures, et cetera, that process is akin to SMS functionality. Q. If I understand that correctly, unlike a text, which is often delivered over the phone network as a functionality of the phone provider, such as Telstra, Vodafone, etcetera, a WeChat message is a strictly internet based message only, and your phone may use its internet connection to send it, but it's not going through the telephone system as such, or your particular provider? A. In essence, its use is being governed by the application called WeChat, which is installed on the phone, so it will leverage the functionality of the phone, but it sort of operates in its own world, if that makes sense, which is that WeChat world and that application that is installed on each phone in order for people to be able to communicate with one another within that application. Q. Some of the messages can be also little audio files; is that right? A. Yeah, WeChat provides the functionality to write text in a message, photos, and record audio messages where you essentially speak or dictate into your phone and then send that audio file to a recipient. Q. And that is not converted to text, simply at the other end someone clicks on it and they hear the person speaking; is that right? A. Correct.
8. It is contended for Mr Sun that the resolution of the question as to who doctored the evidence will in essence be determinative of the litigation (see at T 5.7). Mr He, however, does not accept that the determination of what I might refer to as the "WeChat issue" will necessarily be dispositive.
9. Mr Sun contends that Mr He (by deleting the electronic records and by virtue of other conduct during the execution of the Search Order) is guilty of contempt (as charged in the Contempt Motion) and maintains that the pleadings of Mr He, and his related entities, ought be struck out. In the alternative, as a "fallback", Mr Sun contends that those parts of the affidavits of Mr He and the He Defendants which rely upon the disputed WeChat conversations ought be struck out and otherwise there should be limitations ordered on the extent to which Mr He and the He Defendants may rely on evidence relating to that issue.
10. There is no dispute that Mr He did deliberately delete a large amount of electronic data from a number of devices after service of the Search Order on him (although he does dispute having deleted data from one particular device - an Apple iPhone X). However, in effect, Mr He contends that he was unaware at the relevant time of the content of the Search Order (or, indeed, that it was a search order) and he proffers an innocent explanation for the deletion of the electronic data (in substance, that he did so to protect his privacy and avoid embarrassment).
11. For the reasons that follow, I have concluded (applying the criminal standard of proof) that Mr He is guilty of the contempts with which he has been charged. I will therefore list the matter for a sentence hearing and make directions for the filing of any further evidence on which Mr He wishes to rely for that hearing. Directions in relation to the other extant notices of motion will await the outcome of that sentence hearing.

Background

1. These proceedings were commenced by Mr Sun by summons filed in Court on 5 March 2019 on an ex parte application for freezing orders against Mr He and related entities (which orders have been extended and varied from time to time since then). A statement of claim was filed by Mr Sun on 15 April 2019. The He Defendants filed their defence to that statement of claim on 15 May 2019.
2. In the proceedings, Mr Sun has alleged (at [20] of the statement of claim) that he provided Mr He with sums totalling $80,113,752.04 to invest on his behalf in Australia and that approximately $20 million of that amount has been misappropriated by Mr He (against whom serious allegations of fraud are made). In particular, the sum of $19,310,000 is the amount said to have been misappropriated by Mr He in cash (see at [56] of the statement of claim); the balance of the approximately $80 million claimed in the proceedings against the defendants is in respect of properties which it is alleged are held by Mr He's related companies on trust for Mr Sun (see the relief sought in prayers 1 and 4 of the statement of claim). This is relevant to note at the outset since, in submissions on the present application, it was put for Mr He that the allegations made against him had "significantly collapsed" since the proceedings were commenced (on the basis that that Mr Sun's own submissions (see at [12] in support of his motion) acknowledged that the allegation of misappropriation by Mr He was approximately $20 million - not $80 million). However, Senior Counsel for Mr Sun made very clear that what is sought against the defendants remains the whole of the sum provided by Mr Sun for investment (i.e., the amount of around $80 million) that is claimed in the pleading (see T 3.3-6): around $60 million from the companies in the form of the property and around $20 million from Mr He (see T 2.5ff).
3. There seems little doubt that the proceedings will involve the analysis of a large number of financial and property transactions between the parties, involving considerable sums of money. Mr He in his defence admits (at [16]) to the receipt of $60,836,824 for the purpose of investment but, broadly, says (at [18]) that $19,206,927 of the amount received was in fact a loan to him from his family in China (and therefore not Mr Sun's money). Mr He has also filed a cross-claim, alleging that Mr Sun is indebted to the defendants in a sum of approximately $5 million and with some "rental" payments continuing to accrue.

Evidence

1. Mr Sun relies on the following evidence: an affidavit affirmed on 21 November 2019 by his solicitor, Mr James Andrew Neal, deposing to the execution of the Search Order and the different versions of the WeChat conversations in Mr Sun's and Mr He's respective affidavits; affidavits affirmed on 27 November 2019, 31 January 2020 and 9 April 2020 by Mr Blaxell, deposing to the execution of the Search Order and as to the subsequent regime for examination of the electronic and other records obtained (and annexing his independent solicitor's report to the Court); affidavits affirmed on 18 February 2020 and 5 May 2020 by Ms Balit, deposing to the execution of the Search Order and her later examination of the electronic devices and records obtained pursuant to them (and annexing her independent computer expert's report to the Court); and affidavits affirmed on 21 November 2019 and 4 May 2020 by Mr Bell, the forensic computer expert retained by Mr Sun.
2. In addition, Mr Sun tendered at the hearing of the present applications: the transcript of the hearing on 22 November 2019 before Lindsay J (Exhibit G) and records produced under subpoena by Vodafone Australia (Vodafone) showing the telephone calls made between Mr He and his lawyers during execution of the Search Order on 22 November 2019 (Exhibit F). Also tendered by Mr Sun (Exhibit H) was a notice to produce that had been issued to Mr He, seeking communications between Mr He and someone referred to by him in his affidavit evidence as a "technician friend" in China (in answer to which no documents were produced). Mr Sun also relied on an affidavit affirmed on 17 March 2019 by his solicitor, Mr Neal, in the context of the earlier freezing order application; and tendered (Exhibit B) an affidavit affirmed by Mr Sun on 19 November 2019 (as evidence of what was before Lindsay J on the application for the Search Order).
3. Mr He relied upon two affidavits affirmed by him (on 21 February 2020 and 27 March 2020); two affidavits affirmed on 8 April 2020 by a forensic expert retained by him, Mr Jarrett Le Roux, annexing reports as to his examination of the screenshots and his comments in relation to Mr Bell's report; and an affidavit affirmed on 21 February 2020 by his solicitor, Mr Leung, in relation to the application (yet to be determined) to vary the freezing orders.

Chronology of events on execution of the Search Order

1. From their respective affidavits, there emerged substantial disagreement between Mr He, on the one hand, and Mr Blaxell and Ms Balit, on the other hand, as to the events occurring during the execution of the Search Order. It is necessary, since this is critical to the disposition of the Contempt Motion, to consider in some detail the chronology of events in this regard, to which I now turn. For ease of reference, I have emboldened the time line references.
2. As noted above, the Search Order was made on 21 November 2019 and executed on 22 November 2019.
3. In Mr Blaxell's report to the Court as independent solicitor (Annexure A to his affidavit affirmed on 27 November 2019), Mr Blaxell reports that at 9.20am on 22 November 2019 he briefed the search team at a café in Warrawee (see [4] of Annexure A to Mr Blaxell's affidavit affirmed on 27 November 2019).
4. Mr Blaxell reports (see at [5]-[6] of Annexure A to Mr Blaxell's affidavit affirmed on 27 November 2019) that: he arrived at the Warrawee premises at 10.10am; the front gate was locked; he rang the doorbell; Mr He approached the front gate; Mr Blaxell served Mr He with the Search Order and additional documents (being the accompanying motion and affidavits, which it is accepted comprised some four lever arch folders); and Mr He placed the additional documents on the right hand side of the path from his house to the front gate.
5. Mr He admits (see his affidavit affirmed on 27 March 2020 at [34] and [42]) that he placed the additional documents to the side of the front gate. There is a disparity in the evidence of Mr Blaxell and Mr He as to whether Mr He took the Search Order with him when he went back into the house (see below).
6. Mr Blaxell has deposed (see [6] of Mr Blaxell's affidavit affirmed on 9 April 2020) that he said to Mr He words to the effect: I am a solicitor of the Supreme Court. I am here to serve on you an Order made by the Supreme Court for the searching and seizure of documents and electronic devices at your house and I am an independent solicitor appointed by the Court to represent the Court and to ensure that the search is carried out properly.
7. Mr Blaxell has further deposed (see [7] of Annexure A to Mr Blaxell's affidavit affirmed on 27 November 2019) that he emphasised that the Search Order was a "very serious matter" and that he read to Mr He the Penal Notice appearing (in bold) on the front page of Search Order.

Witnesses

1. As a general proposition, Mr Sun submits (and I accept) that the evidence of the independent witnesses should be preferred to that of Mr He.
2. Those independent witnesses have no interest in the outcome of the proceedings and their reports evidence a consciousness of their responsibilities as the independent solicitor and computer expert, respectively, appointed by this Court.
3. Further, it is said, in the case of Ms Balit, that her evidence is supported by examination of electronic records (it being noted that no contrary expert evidence has been served). It is further noted that the accuracy of the timeline in Ms Balit's initial report was confirmed by the later forensic examination of the devices (establishing her reliability in terms of the reporting of the timing of events on that day).
4. As to each of the witnesses, I make the following observations and findings in relation to his or her evidence.

Mr Blaxell

1. Mr Blaxell, the independent solicitor appointed by the Court, was cross-examined by Counsel for Mr He (see from T 14).
2. Mr Blaxell's evidence was that he first handed Mr He the Search Order and asked him to read it and then (shortly after) he handed him the four lever arch files of accompanying documents (see at T 16).
3. Mr Blaxell said in his report (at [7] of Annexure A to Mr Blaxell's affidavit affirmed on 27 November 2019) that he emphasised that it was a serious matter and that he read Mr He the penal notice. During cross-examination as to this, there was the following exchange (at T 17.1-13; T 17.35-T 18.7): Q. …. Was that, was he reading at the same time or was he listening to you, what was happening then? A. He was listening, we were engaging in conversation then. Q. And you then say he started to read the documents in paragraph 8 and he went through a few pages of it and then said, "It's too much for me I have to talk to my solicitor" or words to that effect? A. That's right. Q. Now at that stage he left the documents on the side of his gate and went back inside is that right? A. My recollection is that he took the order with him but left the remainder of the documents. … Q. Sir I was taking you to page 462 of the Court book and to Mr He's account of the initial exchanges between you and him. He says at paragraph 38 that at one stage he was trying to say something and you were trying to say something to him and you were basically if I can summarise talking over each other, did that happen? A. I don't recall specifically, no. Q. Right. You don't say it didn't happen you just don't recall it or? A. I don't recall it. Q. And he said to you in effect something like "It's too much for me, I'll leave everything here, I'm not taking anything from you or discussing anything with you", and I'm reading from the top of page 463 here sir, "I have my solicitor to handle my case for a couple of months already, please direct to my solicitor any legal documents." Do you remember him saying something like that? A. I remember him saying, "It's too much for me and I need to talk to my solicitor. Q. All right. And then you said, "You have to let me come in now." And he said, "No I won't let you come in before I fully understand what's going on. How do I know who you are, where you're from, I'm going to call my solicitor." Do you remember him saying something like that sir? A. Yes.

Ms Balit

1. Ms Balit, the independent computer expert appointed by the Court, was also cross-examined by Counsel for Mr He (see from T 24). I also considered Ms Balit to be a measured and objective witness.
2. In relation to the desktop computer, as indicated above, Ms Balit confirmed that she was unable to know when files had been moved to the "trash can" but she confirmed that the "trash can" had been emptied on 22 November 2019 (see T 26.4).
3. Ms Balit was able to identify what mail boxes were associated with the computer. Ms Balit confirmed that there were two user accounts linked to the device (and said that there were no mail boxes configured for use by the second account name - "Ethan") (T 26.5 - T 27.6).
4. As to the incident concerning the Apple iPhone X with the broken screen, about which there was no little time spent in cross-examination, Ms Balit said that the interpreter had handed her the device when the search party was looking through some of the rooms and that the interpreter told her it did not have any charge. Ms Balit agreed that she plugged it into a power supply and saw that the screen was damaged (see T 27.42-47); and that the time was not set to local Sydney time (she thought it might have been set to an overseas time but was only speculating as to this) (see T 27.49 - T.28.2).
5. The significance of Ms Balit's evidence as to the Apple iPhone X goes to whether it was "factory reset" by Mr He (in her presence and at a time after he was clearly aware of the import of the Search Order) or whether, as Mr He says, it may have been reset or "remotely" reset at some previous time and this "reset" was effected automatically when the handset was recharged.
6. Relevantly, the cross-examination proceeded as follows (at T 28.4-20; T 28.31-50): Q. You know, don't you, not only as an IT expert, but as a phone user yourself, that any phone that is functional and operative will automatically show the right time normally? A. It depends if you override the settings to pick a different time zone. It also comes down to if you have a SIM card in the phone. If you do it usually picks up what time zone that SIM card is in. Q. All right‑‑ A. There was no SIM card in this phone, so my guess is I hadn't looked at it at the time but it may have been either set to the Apple time or it may have been set to I think there was some overseas times on some of the phones but I ‑ as I said I didn't get a chance to examine that phone. Q. So you mention in the first full paragraph on page 145 around about 4.30‑ish, 4.37 you say, Mr He asked you if he could check the Apple iPhone X for the Vodafone SIM card that you'd returned to him earlier in the day? A. Correct. … Q. All right. Now you go on to say that when you got up to look you noticed that while in his possession Mr He initiated a factory reset? A. Correct. Q. Now can I take it that the way you formed that view is as described after that sentence on page 145, namely that you observed a black screen on the mobile phone with the Apple logo and loading screen? A. Correct. Q. Followed by a display with a welcome start up page? A. Correct. Q. At that stage prior to Mr He picking up the phone had you done anything more than simply plug it in to charge? A. I confirmed the PIN number on the phone by testing the one that he'd provided me to his main Huawei phone to see that it unlocks it, I took a photo of the home screen once I noticed the damage and saw notifications on the screen. I did not do - I'd have to go back to my notes, I don't believe I got the serial number or the IMEI at the time prior to handing it to Mr He but I definitely got that afterwards.

Mr Bell

1. Mr Bell, a partner of McGrathNicol Advisory and a certified computer examiner, has examined Mr Sun's devices. Mr Bell was asked to identify whether a number of "read" WeChat conversations existed on the devices with which he was provided. He accepted that he was unable to say what might have happened with the devices before he was provided with them (see T 36.17), but explained that the defendants' expert, Mr Le Roux, had only been provided with some screenshot images in some zip folders (i.e., not the actual devices from which they were purported to have come) (see T 36.28-35).
2. In other words, as I understand his evidence, Mr Bell was able to perform a different analysis (and perhaps more safely reach certain conclusions) in relation to the devices than could, or has, Mr Le Roux (who was restricted to analysing the screenshots and did not have the devices in question). Relevantly, in cross-examination there was the following exchange (at T 37.29-50): Q. Yes. So I guess the proposition I wanted to put to you then is that if this is a contest between the veracity of Mr Sun's phone records of WeChat conversations, and the veracity of Mr He's phone records, or records of those same conversations, there are chain of custody problems with both sets of records, are there? A. To that I would say that obviously on the device, and the subsequent analysis that I was able to perform through the forensic analysis process, I've obviously connected the WeChat conversations to the devices, and on the analysis that's been performed by Mr La Rue [sic], he hasn't managed to do that. So I guess what I am saying is that there's a difference between the information, in that one set of information was extracted from a phone, and the other information we don't know that it was extracted from a phone. Does that make sense? Q. Yes. Is another way of looking at that saying it would be harder for Mr Sun's records to be false than it would be for Mr He's records to be false? A. Yes, in that obviously those chats or conversations exist on the devices, and so whereas with the other sets of conversations that Mr La Rue [sic] analysed, those conversations only exist in the zip files, and so there's a point there in being able to provide a level of comfort, I guess, that there was no modification of the chats that Mr La Rue [sic] analysed in between it existing on the device and then being provided to Mr La Rue [sic].

Mr He

1. Mr He gave his evidence through an interpreter, although he speaks and writes English (and his affidavit was not, on its face, translated for him - though he says his solicitor speaks Mandarin and read it to him).
2. Mr He first moved to Australia in 2006 when he was about 22; he completed a degree in accounting at Macquarie University, where his course was in English; he has spent the majority of his time in this country since 2006 and became an Australian citizen in 2013. Since 2012, Mr He has earned his living as a property developer in Australia. Mr He accepted in cross-examination that he conversed with his Counsel in English (though he converses with his solicitor, at least at times, in Mandarin).
3. It is clear that Mr He is able to understand spoken English (and he accepts that in the past he has been cross-examined in English) but he said (and this is understandable) that he was more comfortable having the assistance of an interpreter; and that he can read written English (though, again, he says that his affidavits, not the subject of a certified translation, were read to him in Mandarin).
4. Pausing here, part of the significance of this goes to Mr He's understanding of what occurred when the Search Order was executed. Suffice it here to note that there was a Mandarin interpreter present on that occasion (who gave a simultaneous translation of the briefing by Mr Blaxell) and that Mr He was sufficiently comfortable in the use of spoken English to converse with Mr Blaxell in English (including his threat to call the police which was made in English).
5. Mr He's explanation of his reasons for not permitting access to the premises on the occasion of the execution of the Search Order was at points (as Senior Counsel for Mr Sun has submitted) "fanciful" (see T 99.25).
6. For example, the suggestion that he thought the search party might be robbers or other sinister intruders (referring, as noted earlier, to the experience of persons disappearing in China and saying, in cross-examination, that this is not limited to China and that he had heard of similar incidents in the Chinese community in Australia - see T 54.6-7) is inconsistent with Mr He's apparent realisation (or, as he put it in the witness box, "assumption" - see T 57.5) at the time that the documents had something to do with the court proceedings then on foot.

Mr Le Roux

1. I must observe that much of the reports of Mr Le Roux comprised what he accepted in cross-examination was "boilerplate" material (repeated verbatim in his second report) and there were various errors and inconsistencies to which he was taken in cross-examination.
2. I note, particularly, that Mr Le Roux's evidence was that he had had access to the device, which he later accepted was incorrect. It is inexplicable how such a statement could have been made in that instance. For example, the following line of cross-examination occurred (at T 94.31-36): Q. If you go back to paragraph 19 on page 5, you say this, "Based on my education, training and experience in digital forensics, and my investigation of the mobile device, I make the following findings"; you didn't investigate any mobile devices, did you? A. Okay, I acknowledge that that's an error, and that was the boilerplate part of my report, so I apologise.
3. To the extent that there is any inconsistency between his evidence and that of Mr Bell, I prefer Mr Bell's evidence. I consider it to be far more reliable.

Contempt Motion

1. It is convenient next to consider the Statement of Charge.

Statement of Charge

1. The Statement of Charge accompanying the Contempt Motion contains four charges. The Statement of Charge is as follows. Charge 1 1. On 22 November 2019, the First Defendant intentionally destroyed electronic files and data relating to those files in his possession, power, custody and/or control: (a) in breach of Order 26 of the Orders made by Justice Lindsay on 21 November 2019; (b) for a purpose, which was a material purpose, of preventing some or all of those files and data being accessed pursuant to an order of this Court and available for use as evidence in these proceedings; and (c) further or in the alternative, in circumstances where that destruction had an inherent tendency to interfere with the administration of justice. Particulars 1. Order 26 of the Orders made by Justice Lindsay on 21 November 2019 (Search Order). 2. On 22 November 2019: (a) At about 10:24am the Search Order together [sic] the Plaintiff's application (Notice of Motion filed 21 November 2010 [sic]) and evidence in support was personally served on the First Defendant at [the Warrawee premises] by Stuart Blaxell, the Independent Solicitor authorised by the Court to supervise the undertaking of the Search Order. (b) Shortly after 10:24am, the First Defendant was advised by the Independent Solicitor that: (i) he was required to allow the Independent Solicitor entry to the premises; and (ii) he must not disturb or destroy any document of thing covered by the Search Order. (c) At 10:32am, the First Defendant was again advised by the Independent Solicitor that he was obliged to his entry however the First Defendant refused entry to the Independent Solicitor. (d) At 11:00am (prior to entry of the Search Party), the First Defendant performed a factory re-set of a Huawei Mate Pro 20 (serial number 8UG021880000335) found within [the Warrawee premises] which had the effect of deleting all data from the device which was previously stored on the device. (e) Between 11:25am and 11:36am (prior to entry of the Search Party), the First Defendant deleted approximately 8GB of data, comprising of 548 files, on an Apple iMac desktop computer (Serial Number C02TD54LGGTL) in [the Warrawee premises]. (f) At 11:45am, the First Defendant's solicitor confirmed with the Independent Solicitor that he had advised the First Defendant of his obligations under the Search Order. (g) At 11:49am (prior to entry of the Search Party), the First Defendant performed a factory re-set of an Apple iPad Pro (serial number DMPY 412UKD6N) found within [the Warrawee premises] which had the effect of deleting all data from the device which was previously stored on the device. (h) At about 4:40pm (after access had been granted to the Search Party), the First Defendant performed a factory re-set of an Apple iPhone X (serial number G0NVNFVRJCL7) found within the house at [the Warrawee premises] in the presence of the Independent Computer Expert. 3. The files, and any data relating to the access and use of those files referred to in particular 2(d), 2(e), 2(g) and 2(h) were potentially relevant to issues in these proceedings, including: (a) whether the First Defendant has deleted, modified, fabricated or otherwise altered the WeChat communications and spreadsheets that appear in the: (i) Affidavit of Xin He affirmed 10 May 2019; and (ii) Affidavit of Xin He affirmed 29 October 2019. (b) whether the Plaintiff has deleted, modified, fabricated or otherwise altered the WeChat communications and spreadsheets that appear in the affidavit of Bo Sun affirmed 26 July 2019. Charge 2 4. On 22 November 2019, the First Defendant intentionally failed to facilitate access to his "iCloud" or other web-based storage services and e-mail accounts: (a) in breach of Order 9(d)-(e) of the Search Order. (b) for a purpose, which was a material purpose, of preventing some or all of the files and data held on his web-based storage services and e-mail accounts being accessed pursuant to an order of this Court and available for use as evidence in these proceedings; and (c) further or in the alternative, in circumstances where that failure to facilitate access to his "iCloud" or other web-based storage services and e-mail account had an inherent tendency to interfere with the administration of justice. Particulars 5. Orders 9(d)-(e) of the Search Order. 6. On 22 November 2019: (a) At about 10:24am the Search Order together the [sic] Plaintiff's application and evidence in support was personally served on the First Defendant at [the Warrawee premises] by Stuart Blaxell, the Independent Solicitor authorised by the Court to supervise the undertaking of the Search Order. (b) At 11:45am, the First Defendant's solicitor confirmed with the Independent Solicitor that he had advised the First Defendant of his obligations under the Search Order. (c) Between 5:05pm and 5:50pm, the First Defendant failed to give access to the following web-based storage services or e-mail accounts: (i) Microsoft Hotmail; (ii) Apple iCloud; (iii) Google Gmail; and (iv) Dropbox (d) The First Defendant prevented access to his web-based storage services and e- mail accounts by providing: (i) incorrect passwords, and (ii) preventing 2-factor authentication via his mobile phone by removing the SIM card on his mobile phone and refusing to provide the location of the SIM card's whereabouts. 7. The First Defendant's web-based storage services and e-mail accounts (and the files and data contained therein) referred to in particular 6(c) were potentially relevant to issues in these proceedings, including: (a) whether the First Defendant has deleted, modified, fabricated or otherwise altered the WeChat communications and spreadsheets that appear in the: (i) Affidavit of Xin He affirmed 10 May 2019; and (ii) Affidavit of Xin He affirmed 29 October 2019. (b) whether the Plaintiff has deleted, modified, fabricated or otherwise altered the WeChat communications and spreadsheets that appear in the affidavit of Bo Sun affirmed 26 July 2019. Charge 3 8. On 22 November 2019, the First Defendant intentionally refused access to the Independent Solicitor for nearly three hours following service of the Orders made by Justice Lindsay on 21 November 2019: (a) in breach of Orders 8 and 14(b) of the Search Order; (b) for a purpose, which was a material purpose, of preventing the search party from access to [the Warrawee premises] to undertake the search order pursuant to an order of this Court; (c) for a purpose, which was a material purpose, of allowing him time to destroy certain of the listed things in the Search Order; and (d) further or in the alternative, in circumstances where the refusal of access had an inherent tendency to interfere with the administration of justice. Particulars 9. Orders 8 and 14(b) of the Search Order. 10. On 22 November 2019: (a) At about 10:24am the Search Order together [sic] the Plaintiff's application and evidence in support was personally served on the First Defendant at [the Warrawee premises] by Stuart Blaxell, the Independent Solicitor authorised by the Court to supervise the undertaking of the Search Order. (b) At 10:32am, the Independent Solicitor advised the First Defendant that he was obliged to permit him entry to [the Warrawee premises]. (c) At 11:00am (prior to entry of the Search Party), the First Defendant performed a factory re-set of a Huawei Mate Pro 20 (serial number 8UG021880000335) found within [the Warrawee premises] which had the effect of deleting all data from the device which was previously stored on the device. (d) Between 11:25am and 11:36am (prior to entry of the Search Party), the First Defendant deleted approximately 8GB of data, comprising of 548 files, on an Apple iMac desktop computer (Serial Number C02TD54LGGTL) in [the Warrawee premises]. (e) At 11:45am, the First Defendant's solicitor confirmed with the Independent Solicitor that he had advised the First Defendant of his obligations under the Search Order. (f) At 11:49am (prior to entry of the Search Party), the First Defendant performed a factory re-set of an Apple iPad Pro (serial number DMPY 412UKD6N) found within [the Warrawee premises] which had the effect of deleting all data from the device which was previously stored on the device. (g) At around 1:20pm, the search party under the Search Order was permitted entry to [the Warrawee premises]. Charge 4 11. On 22 November 2019, the First Defendant intentionally failed to disclose the whereabouts of electronic devices, including mobile telephones, and storage devices such as may contain such as may contain [sic] any documents, records, spreadsheets, screen shots, electronic data and metadata relating to, used by, created by or in consequence of the transmission of any communications between the Plaintiff and First Defendant by way of the "WeChat" and/or "Whatsapp" and/or any other communications applications and services between January 2016 and January 2019: (a) in breach of Order 9(c) of the Search Order. (b) or [sic] a purpose, which was a material purpose, of preventing some or all of the files and data held on his electronic devices and storage devices being accessed pursuant to an order of this Court and available for use as evidence in these proceedings; and (c) further or in the alternative, in circumstances where the failure to disclose the whereabouts of electronic devices, including mobile telephones, and storage devices [sic] an inherent tendency to interfere with the administration of justice. Particulars 12. Order 9(c) of the Search Order. 13. On 22 November 2019: (a) At about 10:24am the Search Order together [sic] the Plaintiff's application and evidence in support was personally served on the First Defendant at [the Warrawee premises] by Stuart Blaxell, the Independent Solicitor authorised by the Court to supervise the undertaking of the Search Order. (b) At 11:45am, the First Defendant's solicitor confirmed with the Independent Solicitor that he had advised the First Defendant of his obligations under the Search Order. (c) During the undertaking of the Search Order and after the First Defendant had purported to gather up all of the electronic devices in the house: (i) the search party later located in the First Defendant's home office: (A) an Apple iMac desktop computer (Serial Number C02TD54LGGTL), found to have had had approximately 8GB of data, comprising of 548 files, deleted from it prior to the entry of the search party; (B) an iPad Pro; and (C) a number of USB and memory cards and other data storage locations including [two] hard disk drives. (ii) the search party later located in the upstairs study: (A) an Apple iPhone X (serial number G0NVNFVRJCL7), which the First Defendant performed a factory re-set of in the presence of the Independent Computer Expert.

Mr Sun's submissions

1. Mr Sun seeks the following principal factual findings: (a) Mr He was served with the Search Orders at about 10.10am on 22 November 2019. (b) Mr He was aware from shortly after service that the Search Orders related to electronic devices and records (alternatively, Mr He knew that no later than 1.15pm on 22 November 2019). (c) Between about 11.15am and 4.37pm on 22 November, Mr He deliberately deleted electronic records stored on four devices, being a Huawei mobile phone, an iMac Computer, Apple iPad Pro and an Apple iPhone X. (d) Mr He intentionally failed to disclose the whereabouts of electronic devices, including mobile telephones and storage devices, the subject of the Search Orders. (e) Mr He has failed to provide passwords enabling the independent expert to access his mail and online accounts. (f) Mr He's actions in (c) to (e) above were in deliberate defiance of the Search Orders. (g) Mr He's actions in (c) to (e) above were done to frustrate legitimate investigations into the reliability of the WeChat conversations deposed to in his evidence.
2. Mr Sun submits (and I would accept) that it should be concluded that the submissions made by Mr de Meyrick to Lindsay J on the application to vary or discharge the Search Order were made on instructions; and that Mr He had not told Mr de Meyrick that he had already "wiped" three such devices.
3. Mr Sun further submits (and, again, I accept) that it must follow from this application to vary or discharge the Search Order that, by then, Mr He knew at least in general terms the subject matter of the Search Order. It is said that that would also explain why the variation sought by Mr de Meyrick (again, I would infer, on instructions) was that the electronic devices be inspected at the premises rather than removed (see T 4.45-50 on the application before Lindsay J).
4. Mr Sun also emphasises that, as 29 October 2019, Mr He must have had access to the impugned screenshots because they are extensively reproduced in his 29 October 2019 affidavit and were provided to an interpreter for translation. Mr Sun notes that, on 27 November 2019, Mr Sun's Counsel provided Mr He's Counsel with a list of the disputed WeChat messages and spreadsheets; and that, on 2 December 2019, Mr He's solicitors indicated the underlying electronic records were held by a "technician" in China and would take three weeks to produce.

Mr He's submissions

1. It is noted for Mr He that the four allegations of breach of the Search Order are: performing a "factory reset" of various electronic devices, including a Huawei Mate Pro 20, an Apple iPad Pro and an Apple iPhone X, and wiping 548 files (some eight gigabytes of data) from an Apple iMac computer; intentionally failing to facilitate access to the iCloud or other web-based storage services attached to his email account(s); intentionally refusing access to the independent solicitor (Mr Blaxell) conducting the search and seizure for nearly three hours; and intentionally failing to disclose the location of electronic devices used to create WeChat and/or WhatsApp communications.
2. As to Mr He's account of the relevant events (set out in his affidavit affirmed on 27 March 2020), Mr He points to the affidavit evidence filed in the substantive proceedings detailing relevant money transfers to Mr Sun and Mr Zeng and (at [8]-[9]) refers to the numerous bank transfer records attached to his evidence. It is noted that (at [11]-[13]) Mr He deposes to some $34,398,532 worth of transactions that he says are admitted in the defence to the second cross-claim. Mr He says that that this does not include an estimated $27 million relating to certain shares and two lots in what is referred to as the "Thornleigh Project".
3. Mr He submits that the admitted receipt by Mr Yan Zeng (a defendant to one of the cross-claims filed in the extant proceedings) of over $60 million contradicts the assertion by Mr Sun that such sums are owed to Mr Sun by Mr He.
4. It is noted that Mr He also attaches to his affidavit a letter (Ex XH-1 to that affidavit) detailing a communication on behalf of Mr Sun, which admits that Mr Sun received from Mr He or his companies a transfer in ownership of the Palisade Hotel with a value of at least $16 million together with a number of luxury cars estimated at about $1,600,000 (see at [17] of Mr He's affidavit).
5. It is further said that (referring to [18]-[22]) Mr Sun refers to concessions made in the evidence, and a total of $27,736,807 received in various forms by Mr Sun. Mr He says that the defendants' case, as pleaded in his defence and cross-claim, is that in fact, on an accounting basis, between the parties Mr Sun owes many millions of dollars to Mr He.
6. Mr He accepts that, on his own evidence, he has engaged in some (but not all) of the conduct complained of in the Contempt Motion. However, he submits that the conduct does not constitute a contempt in the sense described in the authorities referred to by me in Gage (see below). It is submitted that Mr He "was clearly confused and flustered when a search team presented to his front door on 22 November 2019". It is said that the documents to be served were "voluminous and complex". It is said that the evidence reveals that, whilst he may have understood "in a broad sense" that those at his door were there to search his house in some way, he did not apprehend the detail of the Search Order that had been made.

Determination of Contempt Motion

1. There is a traditional distinction between civil and criminal contempt - a civil contempt involves disobedience to a court order or breach of an undertaking in civil proceedings, whereas a criminal contempt is committed either where there is a contempt in the face of the court or there is an interference with the course of justice. There is no dispute that the contempt here alleged is criminal contempt, comprising deliberate defiance of the Search Order and interference with the due administration of justice.
2. In accordance with the ordinary procedure on a contempt charge, I have proceeded as an initial matter to determine the question of guilt and have indicated that there would be a separate hearing on penalty if a finding of guilt were made (see Mead v Mead [2007] HCA 25; (2007) 235 ALR 197 at [3] per Gleeson CJ, applied in Gage at [111]).
3. Both parties referred to the decision in Gage, where I found Mr Gage to be in contempt and struck out certain paragraphs of his defence; although, as adverted to above, the parties now before me take a different stance as to how analogous the facts there were for the present.
4. For Mr Sun, it is submitted that the present case bears considerable similarity to that considered by me; though Mr Sun says that Mr He's conduct is more egregious than that of Mr Gage.
5. Meanwhile, for Mr He, it is said that the conduct is distinguishable for the reasons that I have outlined when summarising his submissions on the Contempt Motion (and, to the extent relevant, the Strike Out Motion). It will be recalled that the conduct of Mr Gage that was found to be in contempt was his deliberate deletion from his computer of documents and files relevant to proceedings after their commencement. It is noted by Mr Sun that, in contrast to the present case, Mr Gage did not do so in face of a specific order; and that Mr Gage also made relevant admissions.
6. As to the general principles applicable to a matter involving charges of contempt (considered in Gage at [116]-[125]), it is sufficient here to note that the burden of proof rests upon the party alleging contempt of court to establish the charge, and each element of the charge, beyond reasonable doubt. Mr Sun accepts that he is to be held to the precise formulation of each of the charges in the Statement of Charge; and he accepts that, absent extraordinary circumstances, the Court is not entitled to draw Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 inferences (and indeed I was positively discouraged from so doing). Mr Sun also accepts that it is necessary (so far as the interference with justice element is concerned) to demonstrate that Mr He intended to do something likely to, or calculated to, interfere with the course of justice.

Findings

1. Before turning to the particular charges it is convenient here to set out my factual findings on the disputed events of 22 November 2019, reiterating as I here do that these findings are made applying the criminal standard of proof.
2. There is no dispute, and I hereby find, that Mr He was served with the Search Order at about 10.10am on 22 November 2019.
3. I accept Mr Blaxell's evidence that he informed Mr He at the time of service of the Search Order that the order was for the searching and seizure of documents and electronic devices at Mr He's house. In this regard, I again note that Mr Blaxell was the independent solicitor appointed by this Court and he had no reason not to discharge properly his duties. Further, it is not credible to suggest that he did not explain to Mr He that the orders were for the search and seizure of electronic devices, since that was the fundamental purpose of the orders and the independent computer expert was there for that purpose.
4. It is not disputed that Mr He did not read fully the Search Order at the time of service but it is not plausible to suggest that he did not appreciate at the time that they were court orders, particularly when Mr Blaxell had told him that he was there to serve on Mr He an order from the Court (and Mr He's affidavit evidence was that Mr Blaxell said that there were some court documents for him). The fact that Mr He was aware that this was a document from the Court is made abundantly clear from his very first enquiry to Mr Leung which, on Mr He's own evidence, was to enquire whether Mr Leung had received anything from the Court that morning. It is also apparent from Mr He's own evidence of that conversation that he was aware that Mr Blaxell (and indeed the search party) wanted to come into the house.
5. Therefore, I find that Mr He was aware at that time that what he was being served with were court documents and that it was a serious matter.
6. I also accept that Mr Blaxell informed Mr He at that time that Mr Blaxell was there to supervise the search and seizure of documents, objects and things covered by the Search Order and that Mr He must not disturb or destroy any document or thing covered by the Search Order. Again, this was the fundamental object of the Search Order. It is not credible that someone in Mr Blaxell's position would have failed to do so and the fact that he did so was recorded in a relatively contemporaneous document (being his report, as the independent appointed solicitor, to the Court). Mr Blaxell's evidence in cross-examination (that he told Mr He more than once about the destruction of documents) rang true and is consistent with his obligations as the Court appointed solicitor to make clear to Mr He what the Search Order provided. I accept that account.

Charge 1 -deletion of electronic data

1. As to the particulars in relation to charge 1, Mr Sun relies upon the following.
2. First, that the Search Order was served on 22 November 2019 (referring to Mr Blaxell's 27 November 2019 report at [6]). This is not in dispute.
3. Second, that at or about 10.24am Mr Blaxell offered to explain the order to Mr He and observed him reading "perhaps four or five pages" (which Mr He disputes) and then saying to Mr Blaxell that he had to talk to his solicitor. (Mr Sun relies in this regard upon Mr Blaxell's 27 November 2019 report at [9]).
4. Third, that at 10.32 am Mr Blaxell again informed Mr He that he was obliged to permit Mr Blaxell to enter while he took legal advice and that this was repeated in Mandarin by Ms Shi (referring to Mr Blaxell's 27 November 2019 report at [11]). Mr He again disputes this.
5. Fourth, that at 11am the Huawei Mate Pro 20 had been "wiped" - the only information then on it being two contacts (those of Mr Leung and Mr de Meyrick) created at about 11am (that is after the handset had been "wiped"). Mr He does not dispute this occurred (and see Ms Balit's second report dated 31 January 2020 at p 10).
6. Fifth, the deletion, between 11.25am and 11.36am, of some eight gigabytes of data from the Apple iMac computer and, at 11.36am, the emptying of the trash folder. The fragments of deleted files could only be partially recovered, but they included references to WeChat, WhatsApp, "BoSun" and an identified telephone number (with the +8618 prefix). Ms Balit could not determine when those deletions occurred. In this regard, it is said for Mr Sun that that material would likely have fallen within the Search Order. Mr He says that he only emptied the trash folder (see Ms Balit's second report dated 31 January 2020 at p 10 which contradicts Mr He's position. In this regard, I note also my findings, and what I have said elsewhere, in these reasons. .
7. Sixth, the conversation to which Mr Blaxell deposes with Mr Leung at 11.45am (see at [14] of Annexure A to Mr Blaxell's affidavit affirmed on 27 November 2019) during which he says that Mr Leung confirmed that he had advised his client that he ought to permit entry by the independent solicitor. Mr He argues that as soon as he was advised by his lawyer to permit entry he did so. However, Mr He's submission in this regard cannot be accepted in light of the chronology of events and findings that I have made (as set out above).

Charge 2 - password change

1. As to charge 2, Mr Sun relies upon: Mr Blaxell's report of 27 November 2019 (Annexure A to Mr Blaxell's affidavit affirmed on 27 November 2019 at [38]-[42]); Ms Balit's first report dated 26 November 2019 (at pp 6-7); and Ms Balit's second report dated 31 January 2020 (at pp 1-2) and contends that Mr's He's deletion, modification, fabrication or otherwise alteration of the WeChat conversations should be inferred from Mr He's refusal to provide this information in face of the Search Order.
2. Having regard to the factual findings that I have made above, I am satisfied that this charge is established beyond reasonable doubt. None of the passwords provided by Mr He enabled access to Mr He's online or email accounts and Mr He appears to have made no effort since then to facilitate the provision of such passwords. Again, I accept Ms Balit's evidence in this regard.

Charge 3 - refusal to allow access

1. As to charge 3, Mr Sun says that Mr He's purpose of preventing the search party from accessing the premises may be inferred from the fact of his refusal to allow Mr Blaxell entry to the premises.
2. Mr Sun also says that Mr He's purpose of doing so in order to allow him time to destroy certain of "Listed Things" may be inferred from the fact that he took these steps commencing shortly after refusing Mr Blaxell entry.
3. Further or in the alternative, Mr Sun says that Mr He's refusal of access having the tendency to interfere with the administration of justice arises from Mr He's deliberate defiance of the Search Order.
4. As to the particulars of charge 3, reliance is placed on Mr Blaxell's report of 27 November 2019 (Annexure A to Mr Blaxell's affidavit affirmed on 27 November 2019 at [20]).
5. Having regard to the factual findings I have made, I am satisfied that this charge is established beyond reasonable doubt. At the very least, by 11.45am, Mr Leung had (according to Mr Blaxell) confirmed that he had advised Mr He that he was required to permit access. Again, the same conclusion follows as to the purpose of preventing access and the tendency to interfere with the administration of justice.

Charge 4 - failure to disclose devices

1. As to charge 4, it is said that Mr He's purpose of preventing access to data may be inferred from the fact he did not disclose all electronic devices in his possession and the fact that he had (without informing the search party) already taken steps to delete information from three such devices before the search party was allowed entry.
2. Further or in the alternative, Mr Sun says that Mr He's failure to disclose the whereabouts of devices having the tendency to interfere with the administration of justice arises from Mr He's deliberate defiance of the Search Order.
3. As to the particulars to charge 4, reliance is placed on Mr Blaxell's report of 27 November 2019 (Annexure A to Mr Blaxell's affidavit affirmed on 27 November 2019 at [23], [30], [37]).
4. Again, having regard to the factual findings I have made above, I am satisfied that this charge is established beyond reasonable doubt. My conclusion as to the failure to disclose this device is reinforced by the fact that Mr He performed a factory reset on the device. I make the same findings as to purpose and the tendency to interfere with the administration of justice.

Strike Out Motion and an abuse of process

1. Turning to the Strike Out Motion per se, it may be noted that the ordinary civil standard of proof would here apply.
2. In Gage, I noted (see at [185]) the relevant cases in that context as including Clark First Instance Decision, Palavi v Radio 2UE Sydney Pty Ltd [2011] NSWCA 264 (Palavi v Radio 2UE), Palavi v Queensland Newspapers and Clark Court of Appeal Decision.
3. In Clark First Instance Decision (it will be recalled, where a cassette and compact disc were destroyed at a time when the proceedings had been adjourned to permit technical analysis of the tape recordings to be undertaken), Johnson J emphasised (at [103]) that the power of the court to stay or dismiss proceedings for an abuse of process was to be exercised "sparingly". His Honour said (at [104]): 104. Ordinarily, a party is entitled to initiate and continue proceedings with the court determining those proceedings on their merits. Where, however, a party to proceedings intentionally destroys material which is significant to the determination of the proceedings, and such destruction occurs after the proceedings have been commenced, then a clear foundation would appear to exist for the court to call in aid its power to stay or dismiss the proceedings. The court will have in mind the interests of the individual parties to the civil proceedings, but also the protection of the administration of justice and the integrity of the courts and the system of justice generally. Resolution of an application for a stay or dismissal of the proceedings will consider the question whether a fair trial may take place in the absence of the destroyed material even where an appropriate inference may be drawn adverse to the destroying party. [Emphasis added]
4. In Palavi v Radio 2UE, the destruction of the documents in question occurred after proceedings had commenced. Allsop P, as his Honour then was, said (at [93]) that the "deliberate destruction of discoverable material in knowing defiance of discovery obligations that produces the real risk of impairment to the case of the other side may lead to restrictions on what points litigants can run or to the striking out of all or parts of their claims". His Honour also referred (at [93]) to the duty under the legislative regime of the Civil Procedure Act 2005 (NSW) on those using the courts "to act responsibly, honestly and to further the just, quick and cheap resolution of proceedings".

Conclusion

1. For the above reasons, I am satisfied that the charges of contempt have been proved beyond reasonable doubt. I note, again, that had I not been so persuaded, I would nevertheless have found that the conduct of deleting the electronic records was an abuse of process. I will list the matter for directions as to the sentence hearing (and in due course as to the extant motions).
2. I will reserve the question of costs and will defer making any orders in relation to the Strike Out Motion.

Orders

1. I make the following orders: 1. Declare that the first defendant was in contempt of this Court by engaging in the conduct in the circumstances described in each of Charges 1, 2, 3 and 4 of the Statement of Charge annexed to the plaintiff's notice of motion filed on 18 February 2020. 2. List the matter before me at 8.30am on 30 June 2020 for further directions as to the filing of evidence and listing of the matter for a sentencing hearing in respect of the contempt of court committed by the first defendant. 3. Reserve the question of costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 June 2020