FEDERAL COURT OF AUSTRALIA

Ye v Zeng (No 2) [2015] FCA 1243

ON THE APPLICANT, BY HIS COUNSEL, GIVING THE USUAL UNDERTAKING AS TO DAMAGES, THE COURT ORDERS THAT, UNTIL FURTHER ORDER:

1.    Each of the first to sixth respondents not sell, encumber, or otherwise deal, in any way whatsoever, including by the obtaining of additional funding under any relevant facility, other than by the accrual of interest in the ordinary course of business, with any of the following properties:

(a)    3/507 Pacific Highway, Killara (Folio #3/SP86801);

(b)    36/507 Pacific Highway, Killara (Folio #36/SP86801);

(c)    39 Stanhope Road, Killara (Folio #1/551876);

(d)    39A Stanhope Road, Killara (Folio #2/551876);

(e)    109 Pitt St, Sydney (Folio #99/SP72095 & #100/SP72095);

(f)    73 and 74 Belssel St, Belconnen, ACT;

(g)    such interest of any kind as each may have in the Xiang Rong Management Trust or any other trust or legal structure or entity over 7 Help St, Chatswood; and

(h)    such interest of any kind as each may have in the property at 7 Help St, Chatswood.

2.    Stand over proceedings for judgment on Tuesday 17 November 2015 at 2:15pm.

3.    Should the respondents, or any one of them, proffer any payment into court or other secure repository before 4:00pm Monday 16 November 2015, the parties are to communicate such to the chambers of the Chief Justice and, if there be any application for the court to consider the proffered payment, such must be enunciated in writing by the respondents and filed and served by 10:00am Tuesday 17 November 2015. In such circumstances the court will inform the parties by 12:00pm as to whether it will receive argument at 2:15pm as to the form of orders to be made.

4.    Costs reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    In this matter, the applicant seeks recognition and enforcement of the arbitral award to which I made reference in my reasons of 2 November 2015: Ye v Zeng [2015] FCA 1192. I will not repeat what I said last week in relation to this matter. In pursuance of the orders that I made on that day, further material has been filed by both sides.

2    Briefly and relevantly, the first respondent has sworn an affidavit which sets outs, or purports to set out, an asset position in both China and Australia. As to the position in China, in its totality it gives no sure basis for this court to conclude that enforcement in China is secure. This conclusion, or unwillingness to conclude, as to safety of enforcement flows from the general nature of the material, together with the previous evidence that was filed for the applicant in relation to assets in China and the approach of the respondents to permitting the applicant to seek to value those assets.

3    Therefore, one comes back to the Australian assets. There has been, in the first respondent’s affidavit of 8 November, a higher degree of willingness to disclose and deal with assets. When I say “deal with”, I mean deal with in terms of evidence. Annexure K to Mr Zeng’s affidavit identifies, leaving aside motor vehicles which I don’t propose to consider, two or three properties previously not disclosed in the affidavit material.

4    The first is what I take to be real estate at 73 and 74 Belssel Street, Belconnen, in the ACT, and the second is a management trust, known as the Xiang Rong Management Trust, over property at 7 Help Street, Chatswood.

5    The annexure K reveals that 39 Stanhope Road, Killara and 73 and 74 Belssel Street, Belconnen are bundled and secured by a loan to the National Australia Bank of almost $4 million. The asserted asset value of those two properties is in the combined amount of $6.3 million. However, there is evidence from the applicant that their inquiries would indicate at least one of the properties is worth less than asserted. The 39 Stanhope Road property and the 39A Stanhope Road property in the schedule are said to be owned by Mr Zeng and his wife, the second respondent, who is also a party to the loan agreement.

6    The management trust, of which I know little else other than what is asserted in the annexure K, is said to be worth $3.5 million and is said to be secured to the Bank of Queensland in the sum of almost $1.8 million. It is asserted in the asset schedule that there would be security or equity available to something in the order of $6 million, assuming the loan amounts are correct and assuming the asset values are correct.

7    That would mean that there are insufficient assets in Australia for enforcement, unless there is money paid willingly from sources outside Australia, and that the applicant, even on this basis, is unlikely to be able to enforce the whole award from assets in this country.

8    This material would indicate, in the context that Mr Zeng is a property developer, that there is an absence of entitlement to secure the full amount from Australian assets, and that even the $6 million would totally exhaust the existing equity of the respondent, and common business sense would indicate that this may bring an end to his capacity to trade.

9    The applicant has in his favour an arbitral award from the tribunal agreed by the parties to resolve the matter. There is an appeal from that award that the evidence reveals will be heard on 4 December in China in the Xiamen Intermediate People’s Court. Whether or not a judgment will be available on or shortly after 4 December is a matter about which there is no evidence. I should not assume that we will know the outcome of the appeal on 4 December.

10    However, one thing we do know is that China is a signatory to the New York Convention 1958 and has incorporated that convention into its legal system. Parts of the arbitration law have been put into evidence before me in an English translation. Mr Lynch, on behalf of the respondents, relies upon article 64 of the Arbitration Law of the People’s Republic of China (promulgated by Order No. 31 of the President of the People's Republic of China on August 31, 1994), which, in its English translation, appears to provide for an automatic suspension of procedural enforcement if one party applies for it. The evidence reveals that there has not been received from the Chinese court recognition of that application being received formally. The appeal has, of course, been lodged, and as I said, there will be a hearing on 4 December.

11    As discussed in my reasons last week, aspects of the complaint about the award seemed to be focused on factual questions which would not be likely to engage any aspect of the Chinese law equivalent to Art V of the New York Convention. There was a complaint as to a lack of natural justice or procedural fairness. That, of course, would be recognised in Australia and in any civilian country as an aspect of public policy, if not otherwise picked up by the legal equivalent of Art V(2)(b).

12    In order to elucidate the nature of that complaint, I gave leave to file affidavit material substantiating the nature of the procedural fairness complaint. No evidence was filed. Therefore, I do not have a basis to consider that there is any sound or clear basis for such a challenge. So I am left with the conclusion that there is a weak case at best put forward for identifying any likely success in the Chinese appeal. In those circumstances, I should take all appropriate steps to protect the position of the applicant, given the rights that he has.

13    There are a number of ways of doing this. The applicant asks for the entry of judgment for the relevant sum, to which I will come back in a few moments, and would be bound to keep those sums separate, either by payment into court or by some identified trust account over which the respondents’ solicitors would have part control. Or, alternatively, an order for judgment, stayed for a period of time permitting for security to be paid into court. On the evidence before me at the moment, both those steps would likely bring about, or could bring about, the cessation of the first respondent’s business in Australia. Nevertheless, he is an award debtor at the moment. If in fact his assets in China would not permit ready realisation to pay the full amount that may lead to insolvency proceedings against all respondents.

14    There has been delay by the respondents in recognising – if I may put it this way – with sufficient clarity the limited basis upon which they can resist enforcement in this country against what is, at present, an existing effective contractual debt of the clearest kind. One of the matters that concern me is that there has been no offer of any sum whatsoever by way of securing. There have only been assertions as to equity in relation to property in China and Australia, most of which cannot be tested.

15    I am alive to the injustice that would be visited upon the respondents if the award were set aside and steps were taken in this country, by way of protection of the applicant, which caused the bankruptcy and insolvency of the respondents. But, at the same time, I am also alive to the injustice to the applicant should insufficient steps be taken here, while there are assets here, that would see the applicant unsatisfied to the extent that Australian assets can now do so in satisfying the award.

16    Before going any further, I should add this. That there has been some discussion in this country, and a matter raised on other occasions, of the position in other countries of the question of costs and the enforcement of awards. There is a live issue, and one that needs to be addressed, as to whether or not successful applicants, in enforcing contract entitlements of this kind, should, upon success, as a matter of course, obtain indemnity costs.

17    In this case, that issue would be very live given the amount of costs that have thus far been spent, in circumstances where there has been a delay in bringing forward an asset position by the respondents and still yet no offer of any security. I propose to consider this matter over the weekend and re-read the evidence in its totality. What I will do in the interim is vary the existing orders that were made on 2 November as follows:

ON THE APPLICANT, BY HIS COUNSEL, GIVING THE USUAL UNDERTAKING AS TO DAMAGES, THE COURT ORDERS THAT, UNTIL FURTHER ORDER:

1.    Each of the first to sixth respondents not sell, encumber, or otherwise deal, in any way whatsoever, including by the obtaining of additional funding under any relevant facility, other than by the accrual of interest in the ordinary course of business, with any of the following properties:

(a)    3/507 Pacific Highway, Killara (Folio #3/SP86801);

(b)    36/507 Pacific Highway, Killara (Folio #36/SP86801);

(c)    39 Stanhope Road, Killara (Folio #1/551876);

(d)    39A Stanhope Road, Killara (Folio #2/551876);

(e)    109 Pitt St, Sydney (Folio #99/SP72095 & #100/SP72095);

(f)    73 and 74 Belssel St, Belconnen, ACT;

(g)    such interest of any kind as each may have in the Xiang Rong Management Trust or any other trust or legal structure or entity over 7 Help St, Chatswood; and

(h)    such interest of any kind as each may have in the property at 7 Help St, Chatswood.

2.    Stand over proceedings for judgment on Tuesday 17 November 2015 at 2:15pm.

3.    Should the respondents, or any one of them, proffer any payment into court or other secure repository before 4:00pm Monday 16 November 2015, the parties are to communicate such to the chambers of the Chief Justice and, if there be any application for the court to consider the proffered payment, such must be enunciated in writing by the respondents and filed and served by 10:00am Tuesday 17 November 2015. In such circumstances the court will inform the parties by 12:00pm as to whether it will receive argument at 2:15pm as to the form of orders to be made.

4.    Costs reserved.

Associate:

Dated:    16 November 2015