Supreme Court New South Wales Medium Neutral Citation: Sun v He [2022] NSWSC 145 Hearing dates: 17 February 2022 Date of orders: 17 February 2022 Decision date: 17 February 2022 Jurisdiction: Equity - Duty List Before: Henry J Decision: Waive requirement for the Plaintiff to serve expert report on the Defendants prior to trial and grant leave to the Plaintiff to tender the report at the hearing: see [45]. Catchwords: EVIDENCE – PRACTICE AND PROCEDURE –Application for leave to tender expert evidence without serving on the opposing party prior to trial – where application brought ex parte – consideration of relevant factors – interests of justice – "Markus" order granted Legislation Cited: Civil Procedure Act 2005 (NSW) Court Suppression and Non-publication Orders Act 2010 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Halpin v Lumley General Insurance Ltd [2009] NSWCA 372; (2009) 78 NSWLR 265 Latimer v Day [2015] NSWSC 11 Markus v Provincial Insurance Co Ltd (1983) 25 NSWCCR 1 Orkzai v LMG Pty Ltd [2020] NSWSC 1366 Prasad v AMP Life Limited; Printer Ribbon Products Pty Ltd v AMP Life Limited [2012] NSWSC 1076 Sun v He [2020] NSWSC 802 Kon v AMP Life Ltd [2006] NSWSC 957 He v Sun (2021) 104 NSWLR 518; [2021] NSWCA 95 Sun v He (No 2) [2020] NSWSC 1298 Category: Procedural rulings Parties: Bo Sun (Plaintiff) Representation: Counsel: M Pesman SC and T Bors (Plaintiff) Solicitors: Colin Biggers & Paisley Pty Ltd (Plaintiff) File Number(s): 2019/71078 Publication restriction: Yes. See orders (4) and (5) Judgment – ex tempore (Revised) 1. This is an ex parte application brought by the plaintiff (Mr Sun) for orders seeking, amongst other things, dispensation with the requirement to serve an expert report in advance of the hearing of these proceedings and for leave to tender it at trial. The application is made by notice of motion which Mr Sun was granted leave to file in Court today and is being heard in my capacity as the Equity duty judge. 2. The urgency of the application arises as the final hearing of the proceedings, which is scheduled to run for four weeks, is listed to commence before Parker J on 28 February 2022. There is also a direction for Mr Sun to serve his evidence in reply by 25 February 2022, which would include the expert report the subject of his application. That direction was made in circumstances which I will come to. 3. In support of his notice of motion, Mr Sun relies on an affidavit of James Neal sworn 14 February 2022 and written submissions which were supplemented by oral submissions at the hearing. Background to this application 1. The nature and some procedural history of these proceedings are set out by Ward CJ in Eq in Sun v He [2020] NSWSC 802 at [12]-[36] (Sun v He). 2. In summary, Mr Sun commenced these proceedings on 5 March 2019 by summons on an ex parte application seeking freezing orders against Mr He and related entities, which were granted and have since been extended and varied. 3. In his statement of claim filed on 15 April 2019, Mr Sun alleges that he provided Mr He with sums totalling approximately $80 million to invest on Mr Sun's behalf in Australia. Mr Sun claims that approximately $20 million of that amount has been misappropriated by Mr He (against whom serious allegations of fraud are made). Mr Sun alleges that the balance of the $80 million claimed in the proceedings is in respect of property which is held by Mr He's related companies on trust for Mr Sun: Sun v He at [13]. 4. Mr Sun gives evidence that he arranged for his company, Lingshui Zhongxin Xiangshuiwan Development, to transfer ¥150 million RMB (approximately $27 million) of the money to be held and invested on his behalf by Mr He to Mr He's cousin's company, Suzhou Tianchuan Yucheng International Trade Pty Ltd (STY). Pausing here, Mr He's cousin is Shuoheng He, who I refer to as William to avoid confusion with Mr He and with no disrespect intended. 5. Mr Sun gives evidence that the amount of ¥150 million RMB was transferred by his company in three separate payments of ¥25 million RMB, ¥50 million RMB and ¥75 million RMB on 8, 12 and 16 June 2017 respectively (June transfers). 6. In his defence, Mr He admits to the receipt of approximately $60 million for the purpose of investment, but says that just under $20 million of the amount he received was a loan to Mr He from his family in China and accordingly not Mr Sun's money: Sun v He at [14]. According to Mr Sun's written submissions, Mr He contends that Mr Sun was the source of only $8 million of the June transfers, with the balance having been provided by Mr He's family to him, and it is common ground that William facilitated the June transfers using STY. 7. Thus, the source of the ¥150 million RMB is an issue in dispute in the proceedings. 8. On 10 January 2022, the defendants' solicitors served on Mr Sun an affidavit of William affirmed on 4 January 2022 which was asserted by the solicitors to be relevant to the issue of the source of the ¥150 million RMB, and in respect of which leave would be sought so as to rely on the affidavit in the proceedings. 9. According to William's affidavit (which was exhibited to Mr Neal's affidavit): 1. STY received transfers of ¥150 million RMB from Mr Sun (or companies associated with him), but the transfer of ¥75 million RMB represented repayment of an earlier loan of ¥62.5 million RMB made to Mr Sun in June 2006; 2. the transfer of ¥25 million RMB plus ¥21 million RMB in cash (less ¥5 million RMB commission to William) represents Mr Sun's contribution to the June transfers and that ¥50 million RMB was transferred by Mr Sun for the purpose of William handing over ¥45 million RMB "in cash" to a connection in Shanghai; 3. the loan to Mr Sun of ¥62.5 million RMB was documented in a written agreement and its repayment was receipted, but William no longer has the original loan agreement with Mr Sun or the receipts; and 4. photographs which are said to depict the written agreement and receipts are exhibited to his affidavit (at WH-1). 1. William also gives evidence of having made investment loans of Mr He's family's money and hand-written notes of those arrangements, loans with Mr He's family's money to a third party (Jun Jiang), which were also documented in writing, and that photographs of his hand-written notes and the loan to Jun Jiang are exhibited to his affidavit (at WH-1). 2. William deposes that he located the photographs (at Exhibit WH-1), while preparing his affidavit and he took them using an old Apple iPhone 6 which he no longer has. He says that he located the photographs in his Apple iCloud account (which contains online backups), and he downloaded them from his iCloud account to a folder in another online backup service similar to Dropbox (called Baidu) and to a USB storage device. 3. The defendants' solicitors letter of the 10 January 2022 noted that it was anticipated that the authenticity of the documents in Exhibit WH-1 would be a matter of concern to Mr Sun given findings made by Ward CJ in Eq in relation to Mr He and, for that reason, they had obtained a report from Mr Jarrett Le Roux, a digital forensic expert, to inspect the documents and provide an opinion as to their authenticity. A copy of that report was enclosed (which did not comply with the usual exert report formalities). 4. Pausing here, the reference in the solicitors' letter to Her Honour's findings relates to the judgment to which I have earlier referred (at [4]), in which Her Honour found that Mr He was guilty of contempt of Court by deliberately destroying electronic records that were the subject of a search order. The search order was made in the context where a critical issue in the proceedings had been identified as being which of two versions of certain "WeChat" conversations between Mr Sun and Mr He should be accepted, with each of Mr Sun and Mr He suggesting that the other had doctored his record of the conversations: at [6]. The electronic records that were destroyed may have been capable of establishing which version of the WeChat conversations and related documents were authentic: Sun v He at [6], [8], [10] and [96]. 5. On 8 February 2022, the defendants served a report from Mr Le Roux dated 8 February 2022. Mr Le Roux had been instructed to conduct forensic analysis of the files stored on William's USB storage device which contained the images at Exhibit WH-1. In his report, Mr Le Roux identifies "creation dates" for each of the images in Exhibit WH-1 in 2016 and 2017 based on his analysis of the embedded EXIF data stored within the images, and states that he did not find any evidence that the metadata or digital images saved to the USB storage device had been altered or tampered with. 6. On 14 February 2022, Parker J granted leave to the defendants to rely upon William's affidavit and the expert report of Mr Le Roux dated 8 February 2022, and directed Mr Sun to serve any evidence in reply to the defendants' recent evidence by 25 February 2022. 7. In accordance with that direction, Mr Sun proposes to serve an affidavit in which he denies ever seeing or signing the loan agreement documents referred to in William's affidavit and said to be depicted in the images in Exhibit WH-1, and denies ever borrowing or receiving any money from William. 8. The subject of Mr Sun's current application is an expert report that Mr Sun's solicitors have obtained from Mr Shane Bell, a Partner of McGrathNicol, dated 14 February 2022 (McGrathNichol report). Mr Bell works as a Computer Examiner and undertakes digital device and network examinations for clients and was instructed to review and respond to Mr Le Roux's report. 9. In summary, the McGrathNichol report is to the effect that: 1. whilst the metadata does suggest that the photographs were taken in 2016 to 2017 that was, in turn, determined by the settings applied to the device; 2. the metadata revealed that the photographs had been taken using system software not released until 2019 and 2020; 3. the photographs could not have been taken on the "creation" dates in 2016 and 2017 suggested by the metadata because the relevant operating software version installed when the photographs were taken had not yet been released; 4. by controlled experiment, Mr Bell was able to replicate the process whereby one might take relatively simple steps to create photographs containing metadata suggesting any date desired and containing metadata observed in relation to the documents in Exhibit WH-1; and 5. access to William's iCloud account would likely have aided in establishing the date the digital images were first created and uploaded. Mr Sun's application 1. Mr Sun submits that the McGrathNichol report undermines the conclusions reached in Mr Le Roux's report and raises significant doubts about the authenticity of the photographs exhibited to William's affidavit. This, it is submitted, goes directly to the credit of William, and by extension to the credit of Mr He, and is also prima facie evidence of a common fraudulent design between the witnesses. 2. In that context, Mr Sun wishes to maintain the confidentiality in respect of the McGrathNichol report until using it in the proceedings, initially in his cross‑examination of the defendants' witnesses. 3. By his notice of motion, Mr Sun seeks what has been referred to in the authorities as a 'Markus' order of the type made by Clarke J (as his Honour then was) in Markus v Provincial Insurance Co Ltd (1983) 25 NSWCCR 1 (Markus v Provincial) and since endorsed by the Court in Halpin v Lumley General Insurance Ltd (2009) 78 NSWLR 265; [2009] NSWCA 372 (Halpin v Lumley). 4. In Markus v Provincial, Clarke J exercised the discretion to refuse a party access to inspect documents produced on subpoena. In doing so, his Honour denied the application to inspect the documents and accepted the submission that (at [5]): … the interests of justice would not be served by producing the document because it contains material which does not advance the plaintiffs case but which on the other hand would, if the plaintiffs are not genuine, put the plaintiffs on notice of some allegedly suspicious circumstances and enable them to tailor or endeavour to tailor their evidence to meet the circumstances. 1. While the usual course requires a party to serve all the evidence on which they rely on the other parties prior to the commencement of the hearing, the authorities have recognised that in some exceptional circumstances a document or report should not be inspected or served, notwithstanding it may be used at a hearing: see, for example, Kon v AMP Life Ltd [2006] NSWSC 957 (Kon v AMP Life); Prasad v AMP Life Limited; Printer Ribbon Products Pty Ltd v AMP Life Limited [2012] NSWSC 1076 (Prasad v AMP) and Orkzai v LMG Pty Ltd [2020] NSWSC 1366 (Orkzai v LMG). 2. Drawing from the Court of Appeal's decision in Halpin v Lumley, in Prasad v AMP, Stevenson J (at [22]) identified a number of factors to consider on an application such as this, which may be summarised as follows (citations omitted): 1. whether the making of the orders would promote the speedy determination of the real issues in the proceedings and the just, quick and cheap disposition of the proceedings; 2. whether the dictates of justice would be served by the making of the orders; 3. whether the material is of a kind that would be of assistance only to the withholding party in meeting the case of the deprived party and not of a kind which would assist the deprived party in the formulation and presentation of his or her own case; 4. the usual rule that it would normally be unjust to withhold material which might assist the deprived party; 5. whether there is a risk that the material, if made available, would tend to tempt the deprived party to tailor his or her evidence, or at least consider doing so; 6. it is inappropriate for the Court to make any assessment as to the honesty of the party against whom fraud is alleged; 7. there is a need to be satisfied that there is some real basis for suspicion of fraud; and 8. it is relevant to take account of the likely risk of adjournment that the withholding of the material may cause and the impact on the prospects of settlement in the event that the material is withheld. 1. Applying those factors to this case, and having considered the evidence and the submissions made, I am satisfied that it is appropriate to grant a Markus order as sought by Mr Sun. This is for the following reasons. 2. In my view, the material in the McGrathNicol report could be of assistance only to Mr Sun in meeting the defence of Mr He regarding the source of part of the ¥150 million RMB as the material undermines the conclusions in Mr Le Roux's report and raises doubts about the veracity of the loan documents and receipts exhibited to William's affidavit, rather than advancing Mr He's contentions. As Mr Sun submits, the material in the McGrathNicol report tends to suggest that the loan agreement and other documents sought to be relied on by the defendants may have been fabricated for the purpose of obtaining a forensic advantage in the proceedings. 3. In other words, the McGrathNicol evidence is unlikely to be of any assistance to Mr He or the other defendants in the formulation and the presentation of their case and there should be no forensic disadvantage to them if the report is withheld until its use at the relevant time during the trial. 4. I also accept Mr Sun's submission that the material in the McGrathNichol report could, if the defendants are not genuine, put them on notice of highly suspicious circumstances and may enable them to tailor or endeavour to tailor their evidence to meet those circumstances. 5. Relevantly, William does not give evidence as to when he took the photographs in question or when he last had physical possession of the original documents, such as the alleged loan agreement and receipts. He simply gives evidence that he took the photographs using an old Apple iPhone 6 smart phone (which he no longer has) and understands that the date of the creation of the photographs (in Exhibit WH-1) can be determined from a copy of the photographs he downloaded into the folder from the online backup service he used. Although William was prepared to allow lawyers or independent computer experts in these proceedings to access the folder in order to determine "whatever they wish" about the documents in Exhibit WH-1, he gave evidence that he would not allow those people to access his Apple iCloud account, without any explanation about why such access was refused. 6. The vagueness of William's evidence about when he had the original documents and took the photographs and his refusal to grant access to his Apple iCloud account raises, In my view, the risk that the McGrathNicol report, if made available, might tempt the tailoring of evidence by the defendants (or William) to meet that material. 7. While I make no finding as to the honesty of Mr He and the other parties against whom Mr Sun is alleging fraudulent activity, it is not irrelevant to my consideration of where justice lies that the Court has already made findings in relation to Mr He's conduct which led to him being convicted for contempt of court in these proceedings. Those findings include the following (Sun v He at [259], per Ward CJ in Eq) that: Mr He's actions were calculated to interfere with (and to frustrate) legitimate investigations into the electronic devices in his possession and hence that they had a tendency to (and were calculated to) interfere with the administration of justice (by making it difficult for Mr Sun to establish the reliability of the WeChat conversations deposed to in the extant evidence). 1. Mr Sun's submissions also pointed to the seriousness of Mr He's contempt of court, (as evidenced by her Honour's sentencing judgment) which resulted in Mr He being incarcerated, and which decision was upheld on appeal: Sun v He (No 2) [2020] NSWSC 1298; He v Sun (2021) 104 NSWLR 518; [2021] NSWCA 95. 2. Her Honour's findings are a factor which contributes to my conclusion that there is some basis to suspect that Mr He might be tempted to tailor his evidence or take steps (by himself or in conjunction with William) to do so in order to meet the material that Mr Sun seeks to withhold. 3. As to case management considerations, I am satisfied that Mr Sun and his legal representatives have acted in a manner consistent with the overriding purpose expressed in s 56(1) of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act) and the objects identified by s 57(1). They moved quickly to respond to the defendants' new evidence that was served without leave last month. 4. I am also persuaded that the making of the orders should not result in any appreciable injustice to the defendants, particularly as they were granted leave to rely on William's affidavit and their own expert report (from Mr Le Roux) late in the day and the current application is of a confined nature that concerns only one aspect of the evidence Mr Sun proposes to serve in reply. The nature of the claims in these proceedings, the procedural history (including Mr He's conviction for contempt), the degree to which the parties' positions seem to be entrenched, and the timing and nature of the defendants' recent evidence, also suggests that it is unlikely that service of the McGrathNichol report before trial would have any appreciable effect on the prospects of settlement. 5. The risk of an adjournment that withholding the McGrathNicol report may cause is a relevant consideration, particularly as it may be expected that Mr Le Roux may need some time to consider and respond to some of the technical matters referred to in the McGrathNichol report when (and if) it is deployed. That said, when this matter was raised with Mr Sun's Senior Counsel, he submitted that the report was likely to be tendered during the course of cross‑examination of Mr He and/or William (which was expected to be during the second week of the four‑week hearing) and there was also a possibility that that the McGrathNichol report would not, in fact, be used (for example, if William is not called by Mr He or concessions regarding the date or authenticity of the documents are made during cross‑examination). 6. This explanation and the fact that the release dates of the 2019 and 2020 system software used to take the photographs are, according to the McGrathNicol report, publicly available information satisfies me that withholding the material should not necessarily cause any significant delay or adjournment of the trial. The length of the trial may provide sufficient time for Mr Le Roux to review and respond to the McGrathNichol report during the course of the hearing, and there should be case management options available to allow him to do so if needed, such as providing for Mr Le Roux's evidence to be deferred until the last week or allowing him to be recalled after Mr Bell gives evidence. 7. The risk of delay is also to be balanced against the fact that the use of the McGrathNicol evidence at trial and during the course of cross-examination may dispose of aspects of William's evidence and, presumably, aspects of the defendants' claims regarding the source of the June transfers and, therefore, may reduce the hearing time. 8. Taking into account all of these matters, in my view, exceptional circumstances exist in this case that warrant waiving compliance with Parker J's orders and the usual requirements under Uniform Civil Procedure Rules 2005 (NSW) Part 31, r 31.28(1) (UCPR) for Mr Sun to serve the McGrathNicol report in advance of the hearing. I also consider that making a Markus order in the terms sought in Mr Sun's notice of motion is in the interests of justice and consistent with the just, quick and cheap resolution of the real issues in these proceedings. 9. I should also record that I am satisfied that this application was appropriately brought on an ex parte basis. While some of the cases to which I was referred involved applications made on notice to the party(s) in respect of whom material was to be withheld (see, for example, Prasad v AMP), other judges of this court have made orders exempting a party from the requirement to serve evidence on another party on an ex parte basis: see, for example, Orkzai v LMG per Bellew J, and Latimer v Day [2015] NSWSC 11 per Davies J (Latimer v Day). In both Orkzai v LMG and Latimer v Day, a party sought to be exempted pursuant to r 31.10(2) of the UCPR from the service requirements under r 31.10(1) which relate to the tendering of plans, photographs, audio-visual recordings and models. In Latimer v Day, Davies J explained that, prior to the enactment of r 31.10 of the UCPR, "the cases had dealt with analogous principles" and referred to Markus v Provincial, Kon v AMP Life and Halpin v Lumley. Further, and as Mr Sun's Senior Counsel submits, and I accept, it would have been virtually impossible to run this application without discussing the nature of the evidence openly with the Court. 10. Mr Sun's notice of motion also seeks orders for the suppression of certain material pursuant to s 8(1)(a) of the Court Suppression and Non‑publication Orders Act 2010 (NSW). Given the matters to which I have referred, I accept that it is necessary to prevent prejudice to the proper administration of justice and the proper conduct of Mr Sun's case for an order to be made that suppresses the following material from disclosure until further order of the court: Mr Sun's notice of motion, the affidavit of James Andrew Neal sworn 14 February 2020, Exhibit JAN-2 to that affidavit (which includes the McGrathNichol report), the transcript of the hearing, these reasons and the orders I will make today. In my view, it would not be consistent with the proper administration of justice if the purpose of the Markus orders was subverted by publication of those materials prior to the hearing. 11. Accordingly, and for these reasons, I make the following orders: 1. Upon the undertaking from the solicitor for the Plaintiff to pay the applicable filing fee, grant leave to the Plaintiff to file in Court: 1. the Notice of Motion dated 14 February 2022; and 2. the affidavit of Mr James Andrew Neal and the exhibit thereto (JAN-2). 1. Notes the reasons given ex tempore. 2. Pursuant to sections 61(1) and 61(2)(c) of the Civil Procedure Act 2005 (NSW) and rules 2.1 and 2.3 of the Uniform Civil Procedure Rules 2005 (NSW): 1. the requirement in Order 7 in proceeding 2019/71078-025 made by his Honour Justice Parker on 25 February 2020 be waived in respect of the expert report of McGrathNicol dated 14 February 2022 appearing at TAB-9 of the exhibit JAN-2 to the affidavit of James Andrew Neal sworn 14 February 2022 (McGrathNicol Report); and 2. the Plaintiff be granted leave to tender in the hearing of these Proceedings the McGrathNicol Report, notwithstanding the fact that such report has not been served on the Defendants. 1. Until further order of the Court and pursuant to s 8(1)(a) of the Court Suppression and Non-publication Orders Act 2010 (NSW), the publication of: 1. the notice of motion dated 14 February 2022; 2. the affidavit of James Andrew Neal, sworn 14 February 2022 (together with exhibit JAN-2 thereto); 3. the orders made pursuant to this notice of motion dated 14 February 2022; 4. the transcript of the hearing of this application; and 5. this judgment, be supressed. 1. The material set out in order 3 be placed in a sealed envelope to remain in the Court file, endorsed "Confidential – material suppressed by an order made by Henry J on 17 February 2022, pursuant to s 8(1)(a) of the Court Suppression and Non-publication Orders Act 2010 (NSW)". 2. The costs of and incidental to this Notice of Motion be reserved for determination by the trial judge at a later date. ********** 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: 03 March 2022