28 May 2020

First Chinese Court Judgment Enforced in NSW (Bao v Qu; Tian (No 2) [2020] NSWSC 588)

This article was written by Daisy Mallett, Amber Hu and Benedict Porter.

The NSW Supreme Court has just enforced the first Chinese court judgment in New South Wales (Bao v Qu; Tian (No 2) [2020] NSWSC 588 (Bao)).

Bao sends a clear message to judgment creditors in China and beyond that New South Wales courts (and Australian courts generally) will enforce their foreign court judgments if the requirements under the Australian common law are satisfied.

Implications of the Bao Decision

There have only been two other cases where an Australian court has enforced a Chinese judgment. Both Chinese judgments were enforced in recent years, and in the Victorian Supreme Court: Liu v Ma & anor [2017] VSC 810, and Suzhou Haishun Investment Management Co Ltd v Zhao & Ors [2019] VSC 110. With the Bao decision, there is now a clear practice of Australian courts enforcing Chinese judgments beyond Victoria.

It may be that this growing practice of Australian courts enforcing Chinese judgments will also encourage Chinese courts to enforce Australian court judgments.  Chinese courts generally will enforce foreign court judgments where foreign courts have demonstrated a track record of enforcing Chinese judgments, and have recently enforced US court judgments, and a Singapore court judgment on this basis.  Given the Bao decision, we can expect that Chinese courts will now be more likely to enforce Australian court judgments. 

What does the Bao Decision mean for holders of unsatisfied judgments from other jurisdictions?

Bao provides precedent in New South Wales that the enforcement of Chinese judgments under the common law can occur. Given the approach by the Australian courts to the enforcement of foreign court judgments is the same for all jurisdictions other than those to which the Foreign Judgments Act 1991 (Cth) (FJA) applies, this means that the Bao decision is also precedent for the enforcement of other foreign court judgments in such jurisdictions, including the US, India, Indonesia, Malaysia, and Thailand.  

This decision should increase the confidence of those holding unsatisfied court judgments from court systems outside Australia that those judgments may be capable of enforcement in Australia. 

The Facts of the Case

Both the Plaintiff and the Defendants in Bao are Chinese nationals. Between 2012 and 2013, the Plaintiff loaned the Defendants amounts totalling RMB2,550,000 (A$546,432) together with an agreed regime of repayment. When the Defendants failed to repay the loan, the Plaintiff commenced proceedings in the People’s Court of Laoshan District, Qingdao, to recover the owed money in April 2014. In November 2014, judgment was entered against the Defendants for the total loan sum, and interest was awarded (First Instance Judgment).

In March 2015, the Defendants appealed the First Instance Judgment to the Qingdao Intermediate People’s Court of Shandong Province. In September 2015, the appellate court dismissed the appeal, save in respect of one loan. The Plaintiff was awarded judgment in the amount of RMB2,050,000 (A$439,294) plus interest (Final Chinese Judgment).

The Plaintiff’s efforts to recover the judgment debt in China were largely unsuccessful, producing only RMB19,205 (A$4,115). Sometime after the Final Chinese Judgment was handed down, the Defendants left China.

In 2019, the Plaintiff discovered that the Defendants had immigrated to Australia and sought to enforce the Final Chinese Judgment in New South Wales against the Defendants’ Australian assets.

Foreign judgment enforcement regime and common law principles

There is no formal reciprocal arrangement between China and Australia to recognise and enforce the court judgments of one another’s courts.  As such, where an entity seeks to enforce a Chinese court judgment in Australia, it is necessary to do so through common law principles as the statutory regime (notably the FJA) does not apply to Chinese court judgments.

In order to have a foreign judgment enforced under the common law, four principles must be satisfied;

  1. the foreign court must have exercised proper jurisdiction;
  2. the judgment must be final (with no appeals available);
  3. the parties to the judgment of the foreign court and to the enforcement proceedings must be identical; and
  4. the judgment must be for a fixed sum.

The onus rests on the party seeking to enforce the foreign judgment to establish that these four principles have been satisfied.

The foreign court must have exercised proper jurisdiction

This requirement addresses the competence of the foreign court to exercise jurisdiction over a defendant and to decide the matters before it. In the case which led to the Final Chinese Judgment which Bao enforced, the Defendants submitted to the jurisdiction of the Qingdao Intermediate People’s Court of Shandong Province by appealing the First Instance Judgment and engaging attorneys to argue the merits of their case before the court.

The judgment must be final

The foreign court’s judgment must be final, in that it must put to an end the proceedings concerned. In Bao, the Defendants did not, and could not, as a matter of Chinese law, appeal the Final Chinese Judgment and so it was considered final.

Defences

In seeking to resist the enforcement of a foreign judgment, the defendant cannot challenge the merits of the foreign judgment.  In the NSWSC judgment, Justice Rothman explained:

Subject to certain exceptions (including fraud, as explained below), it is not open to a defendant to challenge the merits of the foreign judgment…A plaintiff seeking to enforce a foreign court’s judgment can rely on the judgment as creating an estoppel precluding the defendant from raising any defence which was, or could have been, raised in the foreign proceedings.”[1]

There are few defences available for a defendant attempting to resist the enforcement of a foreign judgment; namely, that the foreign judgment:

  • had already been wholly satisfied;
  • was obtained by fraud;
  • is contrary to local public policy; and
  • involved the denial of natural justice.

Any defence to the enforcement of a foreign judgment on the basis of alleged fraud will require proof of that fraud.  In the NSWSC judgment, Justice Rothman explained:

The preferable view seems to be that fraud, on the part of the party in whose favour the judgment has been given, must be an allegation of fraud based on evidence not available or not reasonably discoverable at the time of the foreign proceedings.”[2]

In Bao, the Defendants made submissions that they had made repayments prior to the Chinese hearings and that the Final Chinese Judgment was obtained by fraud, in that the Chinese court was intentionally or recklessly misled into determining the incorrect value of the judgment debt by not being made aware of the alleged repayments.

This argument was dismissed.  Justice Rothman found that the Defendants had ample opportunity, and in fact did raise the alleged repayments before the Chinese courts. Justice Rothman declined to examine the Chinese courts’ approach to the alleged repayments and the Chinese courts’ judgments were not found to be tainted by fraud:

“Either the matter [of the alleged repayments] was raised and determined in the foreign proceedings or the matter should have been raised, there being no suggestion that evidence of the Alleged Repayments was not reasonably discoverable at the time of the Chinese proceedings.”[3]

Interest

The Final Chinese Judgment which the Plaintiff sought to enforce in the Supreme Court of New South Wales included interest earnt on the fixed sum of RMB2,050,000 (A$431,855). The Final Chinese Judgment awarded to the Plaintiff two types of applicable interest: general interest and Article 253 interest.[4] Ordinarily, the enforcing court simply enforces the interest as made by the foreign court. The Supreme Court of New South Wales considered that general interest was applicable and deliberated on the Article 253 interest.

The deliberation concerned whether Article 253 interest (which was only applicable if a judgment award is not paid within a certain time period) was penal in nature. If the Article 253 interest is considered penal, it would not be enforced in Australia. Penal orders are not enforced in Australia as the imposition of a foreign penalty would involve the enforcing country imposing a sovereign act of the original judgment country outside of its jurisdiction.

To determine a law’s penal nature, it is necessary to examine whether the law has a “public law” element of punishment or deterrence. In this case, the Supreme Court of New South Wales determined that the Article 253 interest as not penal, as Article 253 is directed at the Defendants’ deliberate disregard of the Plaintiff’s rights.

The Plaintiff was awarded the full interest rate as awarded by the Final Chinese Judgment. In addition, the standard rate of interest as contemplated by the Civil Procedures Act 2005 (NSW) would apply to the NSWSC judgment award if the Defendants fail to abide by the award.

A KWM team led by Daisy Mallett, partner and Amber Hu, solicitor, with Mr Jonathan Kay Hoyle of Counsel, acted for The Plaintiff.

The full NSW Supreme Court judgment can be found here: https://jade.io/article/730213?at.hl=%255B2020%255D+NSWSC+588

 

[1] Bao at [30].

[2] Bao at [35].

[3] Bao at [49].

[4] The article reference being to the Civil Procedure Law of the People’s Republic of China.

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