FEDERAL COURT OF AUSTRALIA

Ye v Zeng (No 4) [2016] FCA 386

ORDERS

THE COURT DECLARES THAT:

1.    Pursuant to s8(3) International Arbitration Act 1974 (Cth) the applicant is entitled to enforce the award dated 12 August 2015, made by the Xiamen Arbitration Commission in the Fujian Province of the People’s Republic of China, against the respondents, as if the said award were a judgment of the Court.

THE COURT ORDERS THAT:

2.    There be judgment in favour of the applicant against the respondents in the sum of AUD 10,471,991.40.

3.    Subject to the resolution of the applicant’s application for indemnity costs, the respondents pay the costs of the applicant of the application.

4.    The applicant’s application for indemnity costs be adjourned to be dealt with on the papers.

5.    The applicants file and serve any submissions on indemnity costs within 7 days.

6.    The respondents file and serve any submissions on indemnity costs within 7 days thereafter.

7.    The respondents have leave to file an application for the stay of the enforcement of Order 2, by filing an interlocutory application and any supporting material within 7 days.

8.    Any such application be stood over to a date to be fixed.

9.    The applicant have leave to file an interlocutory application for detailed enforcement orders, any such application to be filed and served within 7 days, together with any further supporting material.

10.    That application be stood over to a date to be fixed at the same time as any application for stay made in accordance with Order 7 above.

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

REASONS FOR JUDGMENT

ALLSOP CJ:

1    These are the reasons for the making of orders on 15 April 2016 in an originating application for the recognition and enforcement of a foreign award in an international commercial arbitration, pursuant to s 8(3) of the International Arbitration Act 1974 (Cth).

History of the matter

2    The Applicant is Mr Johnson Ye (an Australian Citizen). The First Respondent is Mr Ronghuo Zeng; the Second Respondent is his wife (Chunxiang Zeng); the Third Respondent is their son (Qinglong Zeng); the Fourth Respondent is the First Respondent’s brother (Rongxing Zeng); and the Fifth and Sixth Respondents (Fujian Xiangrong Construction Group Co Ltd, and Fujian Xiangrong Daqinshan Tea Industry Development Co Ltd) are corporations connected with the First Respondent which carry on business in the People’s Republic of China (PRC).

3    The basis of the claim of the applicant was that he had on several occasions, between 2011 and 2013, lent a large sum of money to the first respondent. This loan was said to be confirmed by a loan agreement signed between the applicant and first respondent on 7 December 2013, which was jointly guaranteed by the second to sixth respondents. In response the respondents contended that the purported loan principal was both significantly smaller than that asserted by the applicant, and that it had already been substantially repaid. The loan agreement contained a dispute resolution clause nominating the Xiamen Arbitration Commission as the body to resolve any dispute arising under the agreement. The dispute was submitted to the Commission on 10 December 2014 and concluded on 13 July 2015.

4    On 12 August 2015 the Xiamen Arbitration Commission published a final arbitration award in favour of the applicant in the sum of RMB37 million, plus interest and costs: Xia Zhong Cai Zi [2015] no.523.

5    On 21 September 2015 the applicant lodged his originating application with this court, along with an interlocutory application seeking to restrain the respondents from selling, mortgaging, encumbering or in any other way dealing with their interest in various Australian properties.

6    On 28 September 2015 the respondents lodged an appeal against the arbitration award with the relevant intermediate appeal court in the PRC (the Xiamen Intermediate People’s Court), identifying three grounds of appeal. The first ground comprised a procedural fairness complaint, asserting that the Commission had failed to provide sufficient notice and that the arbitral procedure was contrary to legal procedure. The second and third grounds related to factual matters.

7    The respondents in turn sought an adjournment of the enforcement action until the hearing of the appeal in the Xiamen Intermediate People’s Court was determined. The important influence of seat courts in procedural matters is well recognised: see Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; 304 ALR 468 at [65] and Colman J in Minmetals Germany GmbH v Ferco Steel Ltd [1999] All ER (Comm) 315 at 331.

8    On 17 November 2015 the Court made orders pursuant to s8(8) of the International Arbitration Act 1974 (Cth) adjourning the proceedings for recognition and enforcement pending the outcome of the Chinese appeal. Those orders were subject to freezing orders and orders requiring the delivery of mortgages in registrable form to the applicant, in order to provide suitable security: Ye v Zeng (No 3) [2015] FCA 1279 (see also: Ye v Zeng [2015] FCA 1192; Ye v Zeng (No 2) [2015] FCA 1243).

9    On 3 March 2016 the Xiamen Intermediate People’s Court handed down its final civil ruling, dismissing all grounds of appeal and upholding the arbitration award: (2015) Xia Min Ren Zi no. 180.

Legislative scheme for recognition and enforcement of foreign awards under the International Arbitration Act 1974 (Cth)

10    The International Arbitration Act 1974 (Cth) (the Act) gives effect to Australia’s international obligations as a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and adopts as Australian law the provisions of the 1985 UNCITRAL Model Law on International Commercial Arbitration.

11    Part II of the Act establishes a comprehensive legislative framework for the recognition and enforcement of foreign arbitration awards. The relevant sections are extracted below:

8 Recognition of foreign awards

(1) Subject to this Part, a foreign award is binding by virtue of this Act for all purposes on the parties to the arbitration agreement in pursuance of which it was made.

…

(3) Subject to this Part, a foreign award may be enforced in the Federal Court of Australia as if the award were a judgment or order of that court.

(3A) The court may only refuse to enforce the foreign award in the circumstances mentioned in subsections (5) and (7).

…

(5) Subject to subsection (6), in any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court may, at the request of the party against whom it is invoked, refuse to enforce the award if that party proves to the satisfaction of the court that:

(a) that party, being a party to the arbitration agreement in pursuance of which the award was made, was, under the law applicable to him or her, under some incapacity at the time when the agreement was made;

(b) the arbitration agreement is not valid under the law expressed in the agreement to be applicable to it or, where no law is so expressed to be applicable, under the law of the country where the award was made;

(c) that party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his or her case in the arbitration proceedings;

(d) the award deals with a difference not contemplated by, or not falling within the terms of, the submission to arbitration, or contains a decision on a matter beyond the scope of the submission to arbitration;

(e) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(f) the award has not yet become binding on the parties to the arbitration agreement or has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made.

…

(7) In any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court may refuse to enforce the award if it finds that:

(a) the subject matter of the difference between the parties to the award is not capable of settlement by arbitration under the laws in force in the State or Territory in which the court is sitting; or

(b) to enforce the award would be contrary to public policy.

(7A) To avoid doubt and without limiting paragraph (7)(b), the enforcement of a foreign award would be contrary to public policy if:

(a) the making of the award was induced or affected by fraud or corruption; or

(b) a breach of the rules of natural justice occurred in connection with the making of the award.

…

9 Evidence of awards and arbitration agreements

(1) In any proceedings in which a person seeks the enforcement of a foreign award by virtue of this Part, he or she shall produce to the court:

(a) the duly authenticated original award or a duly certified copy; and

(b) the original arbitration agreement under which the award purports to have been made or a duly certified copy.

(2) For the purposes of subsection (1), an award shall be deemed to have been duly authenticated, and a copy of an award or agreement shall be deemed to have been duly certified, if:

(a) it purports to have been authenticated or certified, as the case may be, by the arbitrator or, where the arbitrator is a tribunal, by an officer of that tribunal, and it has not been shown to the court that it was not in fact so authenticated or certified; or

(b) it has been otherwise authenticated or certified to the satisfaction of the court.

(3) If a document or part of a document produced under subsection (1) is written in a language other than English, there shall be produced with the document a translation, in the English language, of the document or that part, as the case may be, certified to be a correct translation.

(4) For the purposes of subsection (3), a translation shall be certified by a diplomatic or consular agent in Australia of the country in which the award was made or otherwise to the satisfaction of the court.

(5) A document produced to a court in accordance with this section is, upon mere production, receivable by the court as prima facie evidence of the matters to which it relates.

12    The procedure for enforcing such an award in this Court under s 8(3) is also subject to the requirements in r28.44 of the Federal Court Rules 2011 (Cth) (the Rules): International Relief and Development Inc v Ladu [2014] FCA 887 at [41].

28.44 Enforcing foreign award

(1) A person who wants to enforce a foreign award under section 8 (3) of the International Arbitration Act must file an originating application, in accordance with Form 52.

(2) The originating application must be accompanied by:

(a) the documents mentioned in section 9 of the International Arbitration Act; and

(b) an affidavit stating:

(i) the extent to which the foreign award has not been complied with, at the date the application is made; and

(ii) the usual or last-known place of residence or business of the person against whom it is sought to enforce the foreign award or, if the person is a company, the last-known registered office of the company.

(3) The application may be made without notice to any person.

13    It must also be born in mind that s39 of the Act sets out a number of matters to which the Court must have regard when considering exercising a power under s8, including the objects of the Act (in s2D):

2D Objects of this Act

The objects of this Act are:

(a) to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes; and

(b) to facilitate the use of arbitration agreements made in relation to international trade and commerce; and

(c) to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce; and

(d) to give effect to Australia’s obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty‑fourth meeting; and

(e) to give effect to the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended by the United Nations Commission on International Trade Law on 7 July 2006; and

(f) to give effect to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States signed by Australia on 24 March 1975.

39  Matters to which court must have regard

…

(2) The court or authority must, in doing so, have regard to:

(a) the objects of the Act; and

(b) the fact that:

(i) arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes; and

(ii) awards are intended to provide certainty and finality.

Consideration

14    During the course of the hearing before me, the applicant filed and read a number of affidavits: five affidavits of Mr Terry Zhang, the solicitor for the applicant (sworn 18 September 2015, 16 October 2015, 28 October 2015, 29 October 2015, and 14 April 2016); two affidavits of Mr Johnson Ye, the applicant (affirmed 19 September 2015 and 23 September 2015); three affidavits of Mr Shijie Ye, the applicant’s son (affirmed 29 October 2015, 11 November 2015, and 17 November 2015); and one affidavit of Ms Xiqiong (Carol) Wu, a law clerk working with Mr Terry Zhang (affirmed 22 March 2016). No objection was taken by the respondents to any part of that evidence.

15    The respondents also filed and read a number of affidavits: two affidavits of Mr Ronghuo Zeng, the first respondent (affirmed 30 October 2015 and 8 November 2015); and four affidavits of Ms Kang Hong (Margaret) Koh, the solicitor for the respondents (affirmed 15 October 2015, 30 October 2015, 6 November 2015, and 13 April 2016). No objection was taken by the applicant to any part of that evidence.

16    From that evidence, the following matters have been proven by the applicant:

(1)    Annexure A to the affidavit of Mr Terry Zhang, sworn 18 September 2015, comprises a duly certified copy of the original award in the Chinese language, and Annexure C to that same affidavit comprises a duly certified translation of that award in the English language. The applicant has therefore satisfied s9(1)(a) of the Act (as to which see the additional guidance in s9(2)-(5) of the Act).

(2)    Annexure B to the affidavit of Mr Terry Zhang, sworn 18 September 2015, comprises a duly certified copy of the document which comprises the Loan Agreement between the applicant and respondents, together with an English translation of that agreement. This agreement contains cl VIII, which is the original arbitration agreement under which the award purports to have been made. The applicant has therefore satisfied s9(1)(b) of the Act (as to which see the additional guidance in s9(2)-(5) of the Act).

(3)    Paragraphs [2]-[5] of the affidavit of Mr Terry Zhang, sworn 18 September 2015, indicate that the PRC is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and that the arbitral award made by the Xiamen Arbitration Commission on 12 August 2015 is an award in relation to which the Convention applies. The applicant has therefore demonstrated that the award is a “foreign award” within the meaning of s3(1) of the Act (“an arbitral award made, in pursuance of an arbitration agreement, in a country other than Australia, being an arbitral award in relation to which the Convention applies”), which is a prerequisite for the application of s8 of the Act.

(4)    Paragraphs [10]-[11] of the affidavit of Mr Terry Zhang, sworn 18 September 2015, indicate that, as at the date of application, the foreign award has not been complied with, and provide the usual or last-known place of residence or business of each of the respondents. Paragraphs [5]-[6] of the affidavit of Mr Terry Zhang, sworn 14 April 2016, indicate that the foreign award has still not been complied with. The applicant has therefore satisfied r28.44 of the Rules.

(5)    Paragraph [6] of the affidavit of Mr Terry Zhang, sworn 14 April 2016, indicates that the current sum of debt owed by the respondents to the applicant is AUD10,471,991.40. (Further, there was no debate that this was the sum owing under the award, translated into Australian dollars. There was no issue raised about the currency translation.)

17    In light of the above, I am satisfied that the applicant is entitled to have the award recognised and enforced in Australia, and that it has satisfied the procedural requirements within the Act and Rules. As I have already noted, the respondents did not object to any of this evidence. Nor was any application made by the respondents, after the appeal in China, that pursuant to s8(5) or (7) of the Act the Court should refuse to enforce the award.

18    During the course of the hearing, on 15 April 2016, counsel for the respondents, on instructions, submitted that the Court should stay the recognition and enforcement of the award, on the basis that the respondents had lodged an application for an anti-suit injunction in China. In making that submission the respondents relied upon the affidavit of Ms Kang Hong (Margaret) Koh, affirmed 13 April 2016, which annexed a copy of an application which had been made by the first and second respondents to the Xiamen Intermediate People’s Court on 1 April 2016. That application seeks an order from the Chinese Court to terminate the collection actions against the respondents in Australia, on the basis that there are sufficient assets within China to comply with the arbitral award, and that the continuation of the proceedings in Australia would be in conflict with the ongoing Chinese enforcement proceedings.

19    Alternatively the respondent conceded that orders for recognition and enforcement of the award should be made, but submitted that orders should not be made for execution.

20    In considering this submission, regard should be had to the overall objects, and mandatory considerations, of the Act, as contained in ss2D and 39 (see above at [13]).

21    It may also be noted that, separate to the question of a stay of recognition and enforcement of an award under the Act (which was the respondents’ primary submission) there remains the possibility for the respondents to seek an order staying execution of that award. In the Federal Court, once a judgment has been ordered, the Court retains the power to stay that judgment or to stay execution upon it: r41.03 and 41.11 of the Rules (as well as the Court’s inherent power to regulate its own processes: see Beijing Be Green Import & Export Co Ltd v Elders International Australia Pty Ltd [2014] FCA 1375 per Foster J at [58]-[71]). By stating this I am not suggesting that there is a ground for such stay.

22    Having considered all of the circumstances of the case, I have concluded that it would not be appropriate to adjourn the application, and that it is appropriate to make orders for the recognition and enforcement of the arbitral award, and to enter judgment in that respect under s8(3) of the Act. Such orders, however, should be subject to also granting leave to the respondents to file an application seeking to stay the enforcement and execution of that judgment.

Costs

23    During the course of the proceedings, the applicant made submissions that costs should be awarded on an indemnity basis. It may be noted that the Court has a broad discretion to order costs under s 43 of the Federal Court of Australia Act 1976 (Cth); see also comments of Edelman J in Sino Dragon Trading Ltd v Noble Resources International Pte Ltd (No 2) [2015] FCA 1046 regarding the awarding of indemnity costs within the context of arbitration awards. The respondents submitted that the application should be dealt with by way of written submissions. The applicant did not demur to that proposed course of action. I will reserve the question of indemnity costs, to be dealt with upon the papers.

Disposition

24    For the reasons stated, the foreign award is binding, for all purposes, on the parties to the arbitration agreement in pursuance of which it was made, by reason of s8(1) of the Act. Accordingly, the Court made the following orders:

1.    The court declares that, pursuant to s8(3) International Arbitration Act 1974 (Cth) the applicant is entitled to enforce the award dated 12 August 2015, made by the Xiamen Arbitration Commission in the Fujian Province of the People’s Republic of China, against the respondents, as if the said award were a judgment of the Court.

2.    The court orders that there be judgment in favour of the applicant against the respondents in the sum of AUD 10,471,991.40.

3.    Subject to the resolution of the applicant’s application for indemnity costs, the respondents pay the costs of the applicant of the application.

4.    The applicant’s application for indemnity costs be adjourned to be dealt with on the papers.

5.    The applicants file and serve any submissions on indemnity costs within 7 days.

6.    The respondents file and serve any submissions on indemnity costs within 7 days thereafter.

7.    The respondents have leave to file an application for the stay of the enforcement of Order 2, by filing an interlocutory application and any supporting material within 7 days.

8.    Any such application be stood over to a date to be fixed.

9.    The applicant have leave to file an interlocutory application for detailed enforcement orders, any such application to be filed and served within 7 days, together with any further supporting material.

10.    That application be stood over to a date to be fixed at the same time as any application for stay made in accordance with Order 7 above.

Associate:

Dated:    18 April 2016