Key takeaways:
- In October 2024, the Supreme Court of New South Wales, Australia ruled to enforce a Chinese monetary judgment (Fujian Rongtaiyuan Industrial Co Ltd v Zhan [2024] NSWSC 1318).
- The interpretation of the Chinese term “gongtong fanhuan” (jointly refund) was pivotal, with differing expert opinions showcasing the challenges of translating and applying foreign legal concepts.
- The Australian court’s analysis shows that interpreting foreign judgments often necessitates examining underlying merits to ensure their legal implications are accurately understood.
On 25 October 2024, the Supreme Court of New South Wales, Australia (hereinafter “NSW Supreme Court”) ruled to enforce a Chinese monetary judgment (Fujian Rongtaiyuan Industrial Co Ltd v Zhan [2024] NSWSC 1318). The Chinese judgment was made by the High People’s Court of Fujian Province (FHPC) in 2019 ((2017) Min Min Chu No. 118 ((2017) 闽民初118号)), which was affirmed by a judgment of China’s Supreme People’s Court (SPC) in 2021((2020) Zui Gao Fa Min Zhong No. 29 ((2020) 最高法民终29号)).
Related Posts:
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- How Chinese Courts Determine the De Facto Reciprocity in Recognizing Foreign Judgments?
- Court of NSW Australia Recognizes Chinese Judgment for the First Time
- A Chinese Judgment Denied Enforcement by Court of NSW Australia, Due to Defective Service by Post?
1. Case Background
It is a contract dispute arising from a share transfer and investment arrangement between the Plaintiff (judgment creditor), Fujian Rongtaiyuan Industrial Co (“Fujian Company”), a Chinese company, and the Defendant (judgment debtor), Mr. King Zhan, an Australian citizen.
In September 2011, Fujian Company, Zhan, and Xiamen Zhongsheng Real Estate Development Co Ltd (“Xiamen Company”) signed an agreement which stipulated that Zhan would transfer 20% of Xiamen Company’s equity to Fujian Company and that Xiamen Company would acquire 75% equity of Shandong Yigao Oil Shale Development Co Ltd (“Yigao”) in the name of Xiamen Company. Xiamen Company was established by a Hong Kong company of which Zhan is the sole shareholder.
The agreement provided that within 20 days of signing the agreement, Fujian Company and Zhan would handle the equity transfer procedures at the Industrial Commercial Bureau. It was agreed that in acquiring the equity of Yigao, Zhan and Fujian Company would contribute capital at a proportion of 20% and 80% respectively. That proportion was subsequently changed in a supplementary agreement made on the same day to a ratio of 10% to 90%.
After the two agreements were signed, Fujian Company remitted RMB 60 million to Xiamen Company in two tranches. Zhan did not fulfill his obligations of equity transfer in Xiamen Company. Nor did Zhan or Xiamen Company fulfill their obligations to contribute funds for the acquisition of equity in Yigao. Fujian Company filed a lawsuit against Zhan and Xiamen Company before the FHPC, claiming that it was entitled to terminate the contract and that Zhang and Xiamen Company were required to return the CNY 60 million of investment funds and interest to Fujian.
On 19 July 2019, the FHPC ruled in favor of Fujian Company in the sum of CNY 60 million plus interest ((2017) Min Min Chu No. 118), ordering “The defendants [Zhan] and [Xiamen Company] shall jointly refund CNY 60,000,000 of investment funds to the plaintiff [Fujian Company] as well as the capital occupation fee (calculated at an annual interest rate of 6% from 26 October 2011 until the date of repayment)”.
Zhan appealed against the FHPC judgment to the SPC.
On 15 Mar. 2021, the SPC rendered the final judgment, rejecting the appeal and upholding the trial ruling ((2020) Zui Gao Fa Min Zhong No. 29).
In April 2021, Fujian Company made an application for enforcement before Xiamen Intermediate People’s Court of Fujian Province (“XIPC”). Two months later, the XIPC issued an enforcement ruling, ordering that “all of the funds of the judgment debtors [Xiamen Company] and [Zhan] shall be seized to the value of CNY 95,362,600 and transferred, or assets of the judgment debtors shall be seized, impounded, auctioned off, sold off to the equivalent value”.
On 6 Aug. 2023, Fujian Company commenced proceedings against Zhan in Australia, seeking recognition and enforcement of the Chinese judgment by the NSW Supreme Court.
On 25 Oct. 2024, the NSW Supreme Court ruled in favor of the judgment creditor, Fujian Company.
2. Court Views
To start with, Justice P Garling of the NSW Supreme Court indicated that the applications for recognition and enforcement of Chinese judgments are reviewed under Australian common law principles. These principles can be found in Schnabel & Ors v Lui & Ors [2002] NSWSC 15, Bao v Qu; Tian (No 2) [2020] NSWSC588; (2020) 102 NSWLR 435, including “1. the foreign court must have exercised jurisdiction of the requisite type over the defendant; 2. the judgment must be final and conclusive; 3. there must be identity of parties between the judgment debtors and the defendants in any enforcement action; and 4. the judgment must be for a fixed, liquidated sum” (Bao v Qu; Tian (No 2) [2020] NSWSC588; (2020) 102 NSWLR 435, at[25].
The key issue in this case, then, as Justice Garling pointed out, lies in the interpretation of the wording “jointly refund” in the FHPC judgment, so as to determine whether the FHPC judgment is to be construed as imposing joint and several obligations to pay on each of the defendants in the Chinese proceedings.
The question comes down to whether the phrase “jointly refund” places any personal obligation on Zhan to actually pay money to Fujian Company.
The parties engaged expert witnesses from two top Australian universities. Both experts agreed that the FHPC judgment was binding on Zhan in his personal capacity and that the order imposed personal liability on him. However, they disagreed as to the nature of the personal liability to which Zhan is subject and the legal basis on which such personal liability arose. Fundamental to this disagreement was the legal effect of the Chinese phrase “gongtong fanhuan” or “gongtong”. In English, this phrase can be translated as either jointly or together. Both experts agreed that there was no defined legal meaning of the phrase. (at [47]).
Faced with differing expert reports, the Australian judge was not persuaded by Zhan’s expert reports, as its views were found to be unconvincing and inconsistent, including the argument that Zhan as the person whose signature is on the contract, was not bound contractually as the counterparty to the contract. In addition, the judge opined that the XIPC enforcement order is a significant matter which assists in the interpretation of the FHPC judgment and does so in a way which is contrary to the opinion expressed by Zhan’s expert report (at [71]).
3. Comments
It is interesting to see how a term, such as the phrase “gongtong fanhuan” (jointly refund) in this case, which is familiar, and sometimes even straightforward, for practitioners in one country, can be a point of debate in another country. This may be seen as the beauty of conflict of laws, and for better or worse, this is how things unfold and play out in international litigation.
Notably, as much as "no review of the merits" is a widely accepted principle in the recognition and enforcement of foreign judgments (see Art. 4 of the Hague Judgments Convention), in some cases, the requested courts will have to look into the merits of the original proceeding in the courts of origin. Taking the case in this post as an example, the Australian court had to examine the facts found by the Chinese courts together with other evidence, not to assess whether the Chinese courts had done a proper job in deciding on the merits, but to ensure that it has correctly understood the wording and its effect of the Chinese judgments. From what we can learn from this case, it is not as easy a task as it seems.
Contributors: Meng Yu 余萌