06 March 2024
6 min read
#Dispute Resolution & Litigation
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International arbitration is often seen as the preferable option to proceeding before a national court perhaps primarily due to the relative ease of enforcement of awards under the processes laid down by the New York Convention (and given force of law in Australia by the International Arbitration Act 1974 (Cth)).
While the New York Convention process certainly has its advantages, the case of Zhengzhou Lvdu Real Estate Group Co Ltd v Shu [2024] NSWSC 58 (Proceedings) reminds us that it is not the only show in town and that, at common law, a foreign judgment creditor needs to only satisfy four requirements to enforce a foreign court judgment. The four requirements, subject to any grounds of challenge, are not particularly onerous for any judgment creditor.
The plaintiff (Zhengzhou) loaned a sum of 170 million yuan (~AU$37 million) to a Chinese company. The loan was guaranteed by its director, a Chinese resident and the defendant in the Proceedings (Ms Shu). The company defaulted on the loan and Zhengzhou successfully obtained judgment in the Intermediate PRC Court of Henan Province in China (Chinese court) against the defaulting company and Ms Shu (Chinese judgment).
Ms Shu owns a property in Pyrmont, NSW, so Zhengzhou commenced the Proceedings in Australia to recognise and enforce the Chinese judgment. Ms Shu was validly served with court documents in China yet she did not appear in the Proceedings. Zhengzhou moved to recognise and enforce the Chinese judgment and the Australian court made orders in the Proceeding recognising and enforcing the Chinese judgment.
China (excluding Hong Kong) is not recognised as a jurisdiction of substantial reciprocity under the Foreign Judgments Act 1991 (Cth), therefore, common law principles apply to determine whether the Chinese judgment could be recognised and enforced.
The four requirements for enforcement of a judgment at common law are well-settled and set out in Bao v Qu; Tian (No 2) (2020) 102 NSWLR 435.
The foreign court must have exercised jurisdiction of the requisite type over the defendant to ensure that the defendant submitted to the jurisdiction of the foreign court. This usually requires that the defendant was personally served (i.e. the defendant must be given a copy of the documents in person by a process server, a lawyer or another person not a party to the proceedings) in the foreign case.
While there was no evidence that Ms Shu was personally served in the Chinese proceedings, the fact that she appeared and made submissions before the Chinese court meant that she had submitted to the jurisdiction of that court. There was no evidence of any objection taken to the jurisdiction of the Chinese court and so this requirement was satisfied.
The foreign judgment must be final and conclusive, meaning it ends the proceedings and quells the controversy between the involved parties – even if it is appealable.
The Chinese judgment included words that confirmed the dispute was quelled and the proceedings ended. For example, the Chinese judgment concluded by stating the words “The case has now been heard and concluded”. Additionally, it was clear that Zhengzhou could enforce the Chinese judgment because it managed to recover approximately 22 million yuan in China before commencing the Proceedings. Thus, this requirement was fulfilled.
There must be ‘identity of the parties’ – that is, the parties being sued in the enforcement proceedings must be a party in the foreign proceedings. The identity of the parties in the enforcement and foreign proceedings must be shown to be the same by evidence – it is not sufficient that the person’s name is the same.
In the Proceedings, this requirement was satisfied. Lawyers from China who interacted with Ms Shu in the Chinese proceedings presented evidence to show it was the same person. Additional evidence of correspondence with Ms Shu discussing both the Chinese judgment and the Proceedings was provided, further confirming her identity.
The foreign judgment must be for a fixed liquidated sum. This requirement was also fulfilled in the Proceedings. The Chinese judgment was for the loan amount, plus interest and costs. This was a fixed sum. While interest accrued in accordance with a fixed formula, this did not mean that the Chinese judgment was not for a liquidated sum.
It was open to Ms Shu to challenge the recognition and enforcement of the Chinese judgment by relying on one of the following grounds set out in Tianjin Yingtong Materials Co Ltd v Young [2022] NSWSC 943:
Ms Shu did not appear so none of the defences were argued. Even after applying its own consideration, the Court did not find that any of these grounds were satisfied. In relation to grounds one, two and four, the court found that they were not made out because the trial record for the Chinese judgment showed that Ms Shu participated in the Chinese proceedings, made arguments and led evidence but did not make any complaints regarding the process or conduct of Zhengzhou.
In relation to ground three, the court held that it was open to Ms Shu to make the argument that there were two sets of interest accruing (under the Chinese judgment, Zhengzhou was entitled to recover interest under the loan contract and post-judgement interest – a practice known as “double interest”) which meant that the judgment was penal in nature. Since there was no evidence or submissions to this point (as Ms Shu did not appear), the court held that the responsibility on Ms Shu to prove this ground was not satisfied.
As a result, judgment was ordered in favour of Zhengzhou by recognising the Chinese judgment.
While international arbitral awards are often considered easy to recognise and enforce, the judgment in this case shows that foreign court judgments can similarly be enforced quite easily in common law by meeting the four requirements described above. However, this is also subject to issues like service of the Australian proceedings on the foreign resident in a foreign country – though this was not an issue in this particular case.
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Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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