FEDERAL COURT OF AUSTRALIA
Ye v Zeng (No 5) [2016] FCA 850
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Order 3, made on 15 April 2016, be varied by substituting the following order:
3. The respondents pay the costs of the applicant of the application, including the interlocutory applications:
(a) on a party/party basis up to 18 October 2015; and thereafter
(b) on an indemnity basis; but
(c) not including the respondents’ interlocutory application for an adjournment, granted on 17 November 2015, which should be paid on a party/party basis.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ALLSOP CJ:
1 The history of this matter has been set out in earlier judgments: Ye v Zeng [2015] FCA 1192; Ye v Zeng (No 2) [2015] FCA 1243; Ye v Zeng (No 3) [2015] FCA 1279; Ye v Zeng (No 4) [2016] FCA 386. It is necessary however, to recount much of it to explain why the applicant should receive his costs on a full and complete indemnity basis. That conclusion can be comfortably reached by applying entirely conventional and unremarkable authority. The argument also raised the question of the proper approach to costs in proceedings to enforce international commercial arbitration awards under the International Arbitration Act 1974 (Cth) (the Act).
2 On 18 September 2015, the applicant sought under ss 8 and 9 of the Act to enforce an award made in the People’s Republic of China (PRC) in the Xiamen Arbitration Commission on 12 August 2015. Judgment was sought in the sum of RMB 50,055,950.26 or AUD 10,999,263.19 (at the official exchange rate of 4.5463). (I should say at this point that in the entry of judgment that was made in due course, and discussed below, there was never any debate or disagreement about exchange rates or the form of currency in which the judgment should be framed.)
3 The application also sought freezing orders restraining the respondents from dealing with assets (principally land in Sydney) pending resolution of the matter.
4 The application in September 2015 was supported by complete and full affidavit evidence satisfying all the requirements of the Act. The evidence (none of which was objected to) disclosed the following:
(a) That the Xiamen Arbitration Commission was set up under the law of the PRC.
(b) That the PRC is a party to the New York Convention 1958 (NYC).
(c) That the award in favour of the applicant was one to which the NYC and s 3 of the Act applied.
5 The relevant underlying facts can be taken from the award.
6 From 2011, Ronghuo Zeng (the first respondent) borrowed money from the applicant. On 7 December 2013, all six respondents (the second respondent being the wife of the first, the third and fourth respondents being the son and brother, respectively, of the first, and the fifth and sixth respondents being companies apparently controlled by the first respondent or in which he had an interest) entered into a loan agreement. In that loan agreement, the parties to it confirmed that the first respondent had received loan funds of RMB 37,000,000 (being principal), carrying interest of 2.5% per month from 8 December 2013; that he would pay the principal in full by 7 December 2014; that the second to sixth respondents would guarantee said payment; and that the parties agreed to submit any dispute to arbitration at the Xiamen Arbitration Commission.
7 The moneys were not repaid. The applicant claimed RMB 37,000,000 principal and RMB 11,100,000 in interest (RMB 48,100,000 in total).
8 In the arbitration, the respondents claimed that only RMB 15,00,000 was principal and the balance interest; that repayments had been made; and that security pledges had been given, including valuable watches and jewellery.
9 After examining all relevant material and setting out the parties’ arguments, the Commission ordered that the first respondent repay RMB 37,000,000 principal and RMB 12,214,460.26 in interest (up to 31 July 2015); that the second to sixth respondents assume joint liability for these payments; and that the six respondents pay costs and arbitration fees.
10 An appeal against the award was lodged in the Xiamen Intermediate People’s Court. In my reasons of 2 November 2015 (Ye v Zeng [2015] FCA 1192 at [6]) I described the grounds of appeal as follows:
[6] Mr Ye, as the applicant, now comes to this court for enforcement of the award under s8(3) of the International Arbitration Act 1974 (Cth). Meanwhile an appeal has been lodged in the relevant intermediate appeal court in the PRC (the Xiamen Intermediate People’s Court) identifying 3 grounds of appeal. The first ground is a procedural fairness complaint, which, if made out, would be a breach of public policy and a ground not to enforce the award. The second and third grounds seem to be factual matters and an apparent re-litigation of what appears to have already been fought out before the Commission, when one looks at the Commission’s lengthy reasons: Xia Zhong Cai Zi [2015] no.523.
11 Given the procedural fairness ground of the appeal, I was not prepared to enforce the award in November. But orders were made extending the freezing orders previously made by Yates J.
12 In the reasons of 2 November 2015, I said the following about the respondents’ conduct at [12] and [13]:
[12] If I may respectfully say so, the approach of the respondents to these proceedings has left more than a little to be desired. In making these comments I should not be seen, in the slightest way, as being critical of Ms Koh (the solicitor for the respondents). I do not assume that any of the problems that I am about to identify are her fault.
[13] I have very little evidence about the financial position of the respondents. Justice Yates accepted some undertakings on 25 September 2015 in this matter to hold the position of the respondents. One of those was an undertaking in [7] of his orders. In most respects, it has barely been complied with. In one respect, it has not been complied with.
13 After 2 November 2015, further material was filed by both sides. The respondents filed material dealing with their asset position. No evidence was filed by the respondents directed to the procedural fairness complaint, notwithstanding an expressly directed opportunity to that end.
14 I adjourned enforcement until after the hearing of the appeal in the PRC: Ye v Zeng (No 3) [2015] FCA 1279. This was done on the basis of the continuation of the freezing orders and the delivery of mortgages in registrable form over certain properties.
15 On 3 March 2016, the Xiamen Intermediate People’s Court dismissed the appeal.
16 On 15 April 2016, I made orders enforcing the award. As the reasons for judgment make clear, the applicant was put to significant cost in the preparation of evidence and dealing with the material filed by the respondents: Ye v Zeng (No 4) [2016] FCA 386.
17 There was no coherent challenge in this Court on any basis that would see any part of ss 8 or 9 engaged. I refer to the arguments put forward at [18] and [19] of the April judgment:
[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.
18 There has never been an attempt to agitate any legitimate ground to resist enforcement. I can only conclude that no such ground existed at any point. On that basis, it can be concluded that, subject to the question of the adjournment to agitate the Chinese appeal, there never has been any basis for resistance to enforcement. In these circumstances, to put the applicant through the process that he has gone through involving expenditure of large amounts of legal costs was entirely unreasonable and lacking any foundation in legal merit. In such circumstances, the clear conclusion is that the resistance to the legitimate claim for enforcement was made and continued in circumstances where the respondents, properly advised, should have known that there was no chance of resistance: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 364; 81 ALR 397. Whilst an appeal was lodged in China, and one ground (that of a denial of procedural fairness) resonated in the text of the Act, no attempt was made in evidence in this Court to substantiate that claim. The reasons of the commission, on their face, reveal a careful attendance to the parties’ submissions and cases.
19 If I may be permitted to paraphrase Langley J in Exfin Shipping (India) Ltd Mumbai v Tolani Shipping Co Ltd Mumbai [2006] EWHC 1090 (Comm) at [13], the respondents have acted in their own perceived commercial interests and without merit and should pay the commercial price of doing so.
20 In these circumstances, the applicant is entitled to indemnity costs from a reasonable time after 18 September 2015. A period of four weeks would be adequate to give instructions and receive advice. The one exception to this is the application to adjourn the enforcement application until after the appeal in the PRC. I have no sure foundation to conclude that under the law of the PRC such an appeal was hopeless. I would therefore exclude the adjournment application from the order for indemnity costs. In all the circumstances, however, it is appropriate that the respondents pay the costs of that interlocutory application on a party/party basis. I would thus vary Order 3 made on 15 April 2016 by substituting the following order for Order 3:
3. The respondents pay the costs of the applicant of the application, including the interlocutory applications:
(a) on a party/party basis up to 18 October 2015; and thereafter
(b) on an indemnity basis; but
(c) not including the respondents’ interlocutory application for an adjournment, granted on 17 November 2015, which should be paid on a party/party basis.
21 There is a question as to whether the courts should adopt a particular approach to costs in applications to enforce international commercial arbitration awards. In Hong Kong the approach is that in the absence of special circumstances, when an award is unsuccessfully challenged, the Court will award indemnity costs: A v R [2009] HKCFI 342 at [72] (Reyes J); Gao Haiyan v Keeneye Holdings Ltd (No 2) [2012] 1 HKC 491 at [12] (Hon Tang VP, Fok JA and Sakhrani J agreeing).
22 The Court of Appeal of Victoria in IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; 38 VR 303 at [55], in the context of submissions and a view of the arbitration judge (Croft J) based on these cases, declined to distinguish proceedings for the enforcement of international arbitral awards from other civil proceedings, and held that the failure to successfully challenge the enforcement of such an award did not represent a distinct category of special circumstances which would justify indemnity costs. The Chief Justice said the following at [54]-[58] (with Hansen JA and Kyrou AJA (as his Honour then was) expressing a similar statement at [335]-[338]):
[54] As I would allow the appeal, I need not determine how costs should have been awarded. However, were it necessary to do so, my view would be as follows.
[55] A decision to award indemnity costs against an unsuccessful party is dependant upon there being ‘circumstances of the case ... such as to warrant the Court ... departing from the usual course’ of awarding costs on a party and party basis.[Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 233. See also, Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435] Such a departure will only be countenanced in the presence of special circumstances.[Australian Electoral Commission v Towney (No 2) (1994) 54 FCR 383, 388] Unsuccessfully resisting enforcement of a foreign arbitral award is not an established category of special circumstances in Australia. However, as Harper J observed in Ugly Tribe Co Pty Ltd v Sikola, ‘[t]he categories of special circumstances are not closed’.[[2001] VSC 189, [8]].
[56] In Hong Kong, the decision of Reyes J in A v R has formed the basis for a number of decisions in which the failure to successfully resist the enforcement of a foreign arbitral award has been treated as justifying departure from the ordinary orders as to costs.[[2009] HKCF1 342; [2009 3 HKLRD 389, 400-401 [67]-[72]. See also, Wing Hong Construction Ltd v Tin Wo Engineering Co Ltd [2010] HKEC 918; Taigo Ltd v China Master Shipping Ltd [2010] HKCF1 530 [13]-[16]]. That decision was based upon three considerations. First, award creditors should be entitled to expect that enforcement courts will enforce awards made in their favour and applications to resist enforcement should be exceptional. Secondly, unsuccessful award debtors would be in breach of their overarching obligations under the Hong Kong Civil Justice Reform (‘CJR’) to assist the court in achieving just, cost-effective and efficient resolution of disputes. Thirdly, the losing award debtor should bear the full costs consequence of bringing an unsuccessful application to dissuade them from pursuing ‘unmeritorious challenges.’
[57] The learned judge below found that such considerations applied with equal force in Victoria, ‘both from an arbitration perspective and also from the perspective of legislation such as that contained in the Civil Procedure Act and in the Hong Kong CJR.’[First Costs Decision, [20]]. Therefore, failure to successfully resist a foreign arbitral award by an award debtor should be treated as a category of special circumstances in which indemnity costs may be awarded against that party by a Victorian court. Nevertheless, his Honour stated:
It should be ... stressed that the finding of a category of special circumstances in this context does not mean that it would follow, inexorably, that a special costs order would be made. The award of costs is discretionary and the exercise of that discretion depends on the particular circumstances. Nevertheless in an arbitration context that discretion should be exercised against the backdrop of the considerations discussed.[First Costs Decision, [21]].
[58] Insofar as his Honour mistakenly characterised the substantive decision which he was required to make as an application to resist enforcement of the Award by IMC Solutions pursuant to ss 8(5) and (7), his Honour’s understanding of the basis on which the discretion as to costs should be exercised, and the considerations relevant to that decision, was erroneous. It is unnecessary for me to express a view on whether the approach of Reyes J in A v R should be followed in Victoria. What is clear, however, is that the terms and objects of the Act will be a relevant factor to be considered when exercising the discretion to award costs.
23 It is both unnecessary, and, sitting at first instance, inappropriate, to decide the obiter question whether the Hong Kong approach should be preferred and adopted in Australia. There can be seen to be powerful considerations to that effect. See generally the discussion, though without the benefit of argument, in “Public Policy in the New York Convention and the Model Law”, Enforcement of International Arbitration Awards and Public Policy: Part III (Paper presented to the AMTAC and Holding Redlich Seminar, Sydney, 10 November 2014) at [56]-[77]. The parties have had their dispute resolved under contract by the tribunal of their choice. The NYC and the Act have limited and constrained bases for resistance to paying an award sum that is the contractually provided outcome of a dispute. It is not merely a debt, it is the resolution of a dispute by a chosen contractual mechanism. Courts should be astute to distinguish between conduct that reflects no more than an attempt to delay or impede payment and the reasonable invocation of the proper protections built into the NYC and the Act.
I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop. |
