Zhengzhou Lvdu Real Estate Group Co Ltd v Shu

1. [1]

   By a summons filed on 20 September 2023, the Plaintiff sought recognition and enforcement in New South Wales of a judgment made against the Defendant by the Zhengzhou Intermediate People’s Court of Henan Province, People’s Republic of China in proceedings (2020) Yu 01 Min-Chu No 503 (the Zhengzhou Judgment), less such amounts of the judgment debt as have already been satisfied. The Plaintiff also sought interest and costs.

2. [2]

   The matter was heard before me on 1 February 2024. At the end of the hearing, I made the following orders and directions and reserved my reasons.

3. [3]

   My reasons for making those orders are as set out below.

FACTUAL BACKGROUND

1. [4]

   The Plaintiff is a company named Zhengzhou Lvdu Real Estate Group Co Ltd. On 6 June 2019, the Plaintiff entered into a commercial loan agreement (the Loan Agreement) with Henan Shengrun Real Estate Group (the Borrower Company). The amount of principal advanced was ¥170,000,000. The Defendant, Pujuan Shu, was the guarantor for the Borrower Company. The guarantor’s obligations under the Loan Agreement were joint and several.

2. [5]

   On 12 May 2020, the Plaintiff initiated proceedings in the Zhengzhou Intermediate People’s Court of Henan Province (the Zhengzhou Court) against the Borrower Company and the Defendant for breach of the Loan Agreement.

3. [6]

   The Zhengzhou Judgment was delivered on 4 September 2020. The Zhengzhou Court made orders that the Borrower Company repay to the Plaintiff the principal of the loan plus interest. The Zhengzhou Judgment found the Defendant collaterally liable for the repayment of the loan and interest.

4. [7]

   Since the Zhengzhou Judgment was handed down, the Plaintiff has attempted to recover the judgment debt from the Borrower Company and the Defendant through negotiated payment agreements and through compulsory judgment execution procedures of the Zhengzhou Court. To date, the Plaintiff has recovered an amount of ¥22,964,226.54.

Procedural History

1. [8]

   On 20 September 2023, the Plaintiff filed the Summons and the First Affidavit of Xiangqian Lu. Mr Lu was Vice-Chief Executive Officer of the Plaintiff from March 2006 to December 2022 and had day-to-day carriage of the aspects of the Plaintiff’s business which are relevant to these proceedings. His affidavit referred to the Loan Agreement, the commencement and conduct of the proceedings in the Zhengzhou Court, the delivery of the Zhengzhou Judgment, the calculation of interest, and the amounts recovered to date in respect of the judgment debt.

2. [9]

   On 28 September 2023, the Summons and First Affidavit of Xiangqian Lu were served on the Defendant in China. These documents were personally handed to the Defendant by Mr Kai Li, who is head of the in-house legal department of the Plaintiff, at a meeting room in Shengrun International Plaza, Zhengzhou City, Henan Province. At the time of service, the Defendant and Mr Li had a conversation to the following effect:

3. [10]

   On 29 September 2023, a first directions hearing in this matter took place. The Defendant did not appear. The matter was stood over for further directions on 17 November 2023 and the Plaintiff was directed to notify the Defendant of orders made.

4. [11]

   On 1 October 2023, the Plaintiff sent a copy of the orders made at the first directions hearing by mail, addressed to the Defendant at Shengrun International Plaza. Mr Li also notified the Defendant of the Court’s orders by a WeChat message sent on the same date, which included the following text:

5. [12]

   On 13 October 2023, the Commercial Statement was served on the Defendant. This was again effected by Mr Li personally handing the document to the Defendant in a meeting room at Shengrun International Plaza. On this occasion, Ms Shu confirmed that she had received a copy of the orders made at the first directions hearing and stated that these appeared to relate to a hearing on 17 November 2023, but added that she had not examined their specific contents in detail. Mr Li confirmed that the next hearing in this matter was scheduled for 17 November 2023. The Defendant briefly reviewed the Commercial List Statement in Mr Li’s presence and then signed a proof of receipt in respect of this document, which was annexed to Mr Li’s second affidavit.

6. [13]

   On 17 November 2023, a second directions hearing in this matter took place before Ball ACJ in Eq. Once again, the Defendant did not appear. The Plaintiff referred on that occasion to Mr Li’s evidence establishing personal service on the Defendant. His Honour set the matter down for hearing on 1 February 2024 and ordered that the parties comply with the Usual Order for Hearing in Practice Note SC Eq 3 Annexure 3 in respect of the filing and service of documents in order to prepare the matter for hearing.

7. [14]

   On 27 November 2023, Mr Li informed the Defendant via WeChat of the Court’s orders of 17 November 2023, including the order that the matter be set down for hearing on 1 February 2024. A copy of the orders was sent to the Defendant both by WeChat and by mail addressed to the Defendant at Shengrun International Plaza.

8. [15]

   On 12 January 2024, Mr Li and his colleague, Zhenyu Wang, met the Defendant and discussed various matters relating to the judgment debt, including providing guarantees from associated companies, increasing repayment sources and the ongoing lawsuit in Australia. There was reference in these discussions to a property located at 31 Union Street, Pyrmont, New South Wales, of which the Defendant is the sole registered proprietor. The conversation included words to the following effect:

9. [16]

   Despite indicating to Mr Wang that a lawyer would be appearing on her behalf, the Defendant did not appear at the hearing before me on 1 February 2024 and has not taken any step in the proceedings.

10. [17]

    The Plaintiff did not seek default judgment against the Defendant, but instead sought final judgment on the basis that the evidence established that the requirements for recognition and enforcement of the Zhengzhou Judgment had been satisfied. Given the evidence, summarised above, that the Summons, Commercial List Statement and supporting affidavit had been personally served on the Defendant in China, that the orders made in these proceedings had been brought to her attention, and that she was aware of, and had the opportunity to participate in, the hearing on 1 February 2024, I formed the view that it was appropriate for the hearing to proceed against the Defendant, on a final basis, in her absence.

PRINCIPLES FOR ENFORCEMENT OF FOREIGN JUDGMENTS

1. [18]

   In Australia, foreign judgments may be enforced either at common law or pursuant to the statutory regime under the Foreign Judgments Act 1991 (Cth). The statutory regime applies where the Foreign Judgment Regulations 1992 (Cth) designate a country as a jurisdiction of substantial reciprocity. This is not the case with judgments of the courts of the People’s Republic of China (other than the judgments of certain courts of Hong Kong).

2. [19]

   Accordingly, it is necessary to apply common law principles in order to determine whether the Zhengzhou Judgment is to be recognised and enforced.

3. [20]

   The principles for the enforcement of foreign judgments at common law are well settled. They were helpfully summarised by Rothman J in Bao v Qu; Tian (No 2) (2020) 102 NSWLR 435; [2020] NSWSC 588 at [26], as follows:

4. [21]

   Further, as his Honour stated (at [29]):

5. [22]

   This statement of principles has been adopted and applied in various subsequent decisions of this Court, including Bank of China Ltd v Chen [2022] NSWSC 749 at [8]; Tianjin Yingtong Materials Co Ltd v Young [2022] NSWSC 943 at [13]; Bank of China Ltd v Chen (No 2) [2022] NSWSC 1168 at [11]; and Anna Zhou v Xiaoli Jing [2023] NSWSC 214 at [15]-[16];

6. [23]

   Where these four conditions have been established, the Defendant may only challenge the recognition and enforcement of the foreign judgment on limited grounds. In Tianjin Yingtong Materials Co Ltd v Young at [21], such grounds were said to include:

CONSIDERATION

1. [24]

   In Bao v Qu; Tian (No 2) at [27], Rothman J stated that:

2. [25]

   The Zhengzhou Judgment records that the Defendant is a resident of Zhengzhou City. However, there is no evidence, one way or the other, as to whether she was personally served with the originating process for the Zhengzhou proceedings within the jurisdiction of the Zhengzhou Court. That is of little significance where it is established that the Defendant appeared at the hearing before the Zhengzhou Court and was represented by lawyers who argued the merits of the claim.

3. [26]

   The Plaintiff tendered the Trial Hearing Record before the Zhengzhou Court on 8 July 2020. The Trial Hearing Record sets out the “Parties involved” as including two defendants:

4. [27]

   That is, Ms Shu was not only the legal representative of the Borrower Company in respect of the Zhengzhou proceedings, but participated in those proceedings as a defendant in her own right. The same lawyers represented the Borrower Company and Ms Shu at those proceedings. Each page of the Trial Hearing Record is signed by one of those lawyers, Guodong Ni, who is recorded as having been present at the hearing.

5. [28]

   At the commencement of the proceedings, the Presiding Judge asked the parties to confirm, and the “Defendant” did confirm, that there was no objection to the opposing parties’ legal representatives and no application for recusal in respect of any of the members of the panel hearing the case. Given that there was one set of lawyers representing Ms Shu and the Borrower Company, each of whom was a “Defendant”, and given that Ms Shu was named as the legal representative of the Borrower Company, it is apparent that statements in the Trial Hearing Record attributed to the “Defendant” are statements made on behalf of each of the Borrower Company and Ms Shu.

6. [29]

   According to the Trial Hearing Record, the Presiding Judge then outlined the trial schedule:

7. [30]

   The hearing followed this schedule. The Borrower Company and Ms Shu were given an opportunity to state their defence, to lead evidence, to ask any questions, to make submissions and to respond to the Plaintiff’s contentions. According to the Trial Hearing Record, the Borrower Company and Ms Shu raised two substantive points in outlining their defence to the Plaintiff’s claim:

8. [31]

   Having regard to those matters, the Plaintiff has established that the Defendant appeared before the Zhengzhou Court, without objecting to jurisdiction, and argued the merits of the case. It follows that the Plaintiff has established that the Zhengzhou Court exercised jurisdiction in the requisite “international” sense.

9. [32]

   In Bao v Qu; Tian (No 2) at [28], Rothman J stated that:

10. [33]

    As noted above, the Trial Hearing Record of 8 July 2020 included a statement by the Presiding Judge regarding the schedule for the proceedings before the Zhengzhou Court which, after evidence and argument, concluded with the following step: “The collegial panel deliberate and pronounce a judgment.”

11. [34]

    At the end of the hearing on 8 July 2020, the parties agreed to mediation. The Presiding Judge then stated: “If mediation fails after court adjournment, a judgment will be pronounced on another day”.

12. [35]

    The Zhengzhou Judgment was tendered by the Plaintiff. It is headed “Civil Judgment”, is dated 4 September 2020, and has been stamped by the Zhengzhou Court. The Zhengzhou Judgment states that (emphasis added):

13. [36]

    The Zhengzhou Judgment sets out the contentions advanced by each of the Plaintiff and the Defendant and the determinations of the Zhengzhou Court regarding the factual matters and legal matters at issue. For example, the Zhengzhou Judgment records that:

14. [37]

    The Zhengzhou Judgment also records that the Zhengzhou Court found that:

15. [38]

    At the conclusion of the Zhengzhou Judgment, the Zhengzhou Court made orders disposing of all of the Plaintiff’s claims in the proceedings, as follows:

16. [39]

    In addition, the Zhengzhou Judgment records that the Zhengzhou Court found that the Borrowing Company and Ms Shu were both liable for an amount of ¥969,855 in respect of the costs of the proceedings.

17. [40]

    The Zhengzhou Judgment noted that there was a right of appeal, but it was time limited and had to be made to the Henan Provincial Higher People’s Court:

18. [41]

    No such appeal was lodged within time or at all. In any case, as noted above, the fact that a foreign judgment may be the subject of an appeal does not prevent it from being final and conclusive. In Nouvion v Freeman (1889) 15 App Cas 1 at 9-10, Lord Herschell stated as follows (emphasis added):

19. [42]

    The Zhengzhou Court held in the Zhengzhou Judgment that additional interest would be payable on the outstanding principal of the loan if the judgment debt was not paid within the period specified in the court’s orders:

20. [43]

    The “period specified in this judgment” for payment of the judgment sum was “within ten days after this judgment takes effect” (see order 1 in paragraph 38 above). Mr Lu gave evidence that the Zhengzhou Judgment took effect after the expiration of the appeal period. The appeal period began, as set out above, on the date that the Zhengzhou Judgment was pronounced (4 September 2020) and expired 15 days thereafter (19 September 2020). Accordingly, the date which was ten days after the judgment took effect was 29 September 2020.

21. [44]

    Article 253 is addressed further below. The Plaintiff tendered an “Interpretation by the Supreme People’s Court on Several Issues concerning the Applicable Law for Calculating the Interest of Debt on Delayed Performance in Execution Procedures” dated 7 July 2014 which deals, inter alia, with the interest payable under Article 253. This document states that the interpretation has been formulated in order “to standardise the calculation of interest of debt on delayed performance in enforcement procedures, in accordance with the provisions of the Civil Procedure Law of the People’s Republic of China and in combination with judicial practice”. The fact that, as stated in the Zhengzhou Judgment, Article 253 would be applicable following the date for payment of the judgment debt specified in the orders of the Zhengzhou Court indicates that, from that date, the judgment debt would be capable of being subject to enforcement procedures. This has in fact occurred. Mr Lu has deposed that the Plaintiff has in fact availed itself of “compulsory judgment execution procedures of the Court in China”.

22. [45]

    Having regard to those matters, the Plaintiff has established that the Zhengzhou Judgment is final and conclusive, in that it put an end to the proceedings and quelled the controversy between the parties, subject only to a right to appeal to the Henan Provincial Higher People’s Court, which was not exercised.

23. [46]

    The third requirement is that there must be identity of parties between the judgment debtors and the defendants in any enforcement action.

24. [47]

    There were two defendants before the Zhengzhou Court, namely, the Borrower Company and the guarantor, Ms Shu, who was the Chairman of the Borrower Company. Enforcement is sought against only the guarantor in the current proceeding.

25. [48]

    If the foreign judgment is expressed to be against several defendants acting as separate legal entities, enforcement proceedings may be brought in Australia against any or all of them: see M Davies et al, Nygh’s Conflict of Laws in Australia (10th ed, 2020) at [40.37], and the cases there cited. Accordingly, it is not necessary to seek enforcement and recognition against the Borrower Company, in order to seek enforcement and recognition against Ms Shu. Importantly, Ms Shu is a judgment debtor in her own right. She was personally sued in respect of the guarantee which she had given in respect of the Borrower Company’s liability under the Loan Agreement and the Zhengzhou Court ordered that she was “bears collateral liability for all the payments obligations and debts of the [Borrower Company]”.

26. [49]

    The Plaintiff has led evidence that the Defendant in these proceedings, Pujuan Shu, is the same as the “Pujuan Shu” who is a judgment debtor in respect of the Zhengzhou Judgment. Mr Lu, who is the officer of the Plaintiff who had day-to-day carriage of the aspects of the Plaintiff’s business which are relevant to these proceedings, deposes that the Defendant in these proceedings is the person who entered into the Loan Agreement as guarantor, was sued in the Zhengzhou proceedings, and was represented at and participated in those proceedings. Mr Lu has also deposed that, subsequent to the pronouncement of the Zhengzhou Judgment, the Plaintiff has attempted to recover the judgment debt from both the Borrower Company and the Defendant in these proceedings, through negotiated payment agreements as well as through compulsory judgment execution procedures.

27. [50]

    Similarly, Mr Li has given evidence, which has been summarised above, regarding his communications with the Defendant regarding the subject matter of the dispute in these proceedings. It is clear from this evidence, summarised at paragraphs 9-15 above, that the Defendant understands that the purpose of these proceedings is to enforce the Zhengzhou Judgment against her on the basis that she is the same person as the Pujuan Shu referred to in that judgment. The Defendant has not said anything to indicate that this is not the case, and has instead stated that the Plaintiff should “proceed with enforcement [in Australia] through legal means”.

28. [51]

    Having regard to those matters, the Plaintiff has satisfied the third requirement for the recognition and enforcement of the Zhengzhou Judgment at common law.

29. [52]

    The final requirement for recognition and enforcement is that the judgment must be for a fixed, liquidated sum.

30. [53]

    The Zhengzhou Judgment is for a specific sum (¥170,000,000), being the amount of principal advanced under the Loan Agreement, together with interest calculated according to specific percentages: (i) from 12 June 2019, when the principal was advanced, to 11 May 2020; (ii) from 12 May 2020 until the date when the debt is fully repaid; and (iii) pursuant to Article 253, from the date that the judgment debt was required to be paid (being 29 September 2020) until the debt is fully repaid. The Zhengzhou Judgment also holds that the Borrower Company and the Defendant are liable for the costs of the proceedings in the amount ordered by the Zhengzhou Court (¥969,855).

31. [54]

    The fact that interest continues to accrue according to some formula which is specified in the foreign judgment does not prevent the foreign judgment being for a fixed, liquidated sum. In the ordinary course, it is appropriate to make an order for pre-judgment interest in accordance with the foreign judgment: Bao v Qu; Tian (No 2) at [59].

32. [55]

    Accordingly, the fourth requirement for recognition and enforcement at common law is satisfied.

33. [56]

    Mr Lu provided interest calculations, applying the rates determined by the Zhengzhou Court from the dates specified in the court’s orders, up until 1 February 2024, being the date of the orders made in these proceedings.

34. [57]

    Mr Lu also provided evidence of the quantum recovered to date in respect of the Zhengzhou Judgment and the amount outstanding as at 1 February 2024.

35. [58]

    Mr Lu’s calculations as at 1 February 2024 were as follows (with emphasis added and notes added):

36. [59]

    It should be noted that the same calculations were undertaken by Mr Lu as at an earlier date (23 August 2023) and were annexed to his first affidavit, which was personally served on the Defendant on 28 September 2023. The Defendant has not, in any of the communications since that time which are in evidence, raised any issue about any aspect of this calculation. That is despite the Defendant engaging, as recently as mid-January 2024, in discussions about increasing repayment sources, providing guarantees from associated companies and realising property to meet the judgment debt.

37. [60]

    Because the Plaintiff has established each of the four requirements for recognition and enforcement at common law, the Zhengzhou Judgment is prima facie enforceable. It then falls to the Defendant to establish any basis on which that judgment should not be recognised and enforced.

38. [61]

    Since the Defendant has not participated in these proceedings, no contention has been advanced that any such basis has been established.

39. [62]

    Further, and in any event, there does not appear to be, on the material before me, any material capable of making out any of the limited bases for declining to recognise and enforce a foreign judgment.

40. [63]

    As regards whether there is fraud or a denial of natural justice or the obtaining of a judgment by improper means such as duress, the Trial Hearing Record indicates that the Defendant participated in the Zhengzhou proceedings through lawyers, advanced arguments, and had an opportunity to lead evidence, ask questions, make submissions and respond to the Plaintiff’s contentions. The Trial Hearing Record does not contain any complaint by the Defendant’s solicitors regarding the process adopted or regarding the Plaintiff’s conduct of the claim. The Defendant made clear at the hearing that there was no issue regarding the validity of the Loan Agreement or the advancing and non-repayment of the principal:

41. [64]

    I have considered whether the application of Article 253, which applies “double interest” in the event of the failure of a party to make a judgment debt by the date specified in the judgment, could be regarded as penal in nature.

42. [65]

    The term “double interest” is something of a misnomer. Article 253 does not double the interest rate provided for under the Loan Agreement (which was 12% per annum from the date of the advance until the date of maturity, and then 18% per annum from the date of default until repayment). Instead, there is “double” interest in the sense that, from the date when the judgment debt was required to be paid until the date of actual payment, there is a second interest rate applicable, in addition to the contractual interest rate of 18% which was found to apply in the Zhengzhou Judgment. Article 1 of the “Interpretation by the Supreme People’s Court” states as follows:

43. [66]

    The “outstanding monetary debt of the debtor other than ordinary debt interest specified by effective legal document” is, in this case, the amount of the principal (¥170,000,000). Mr Lu’s calculations of Article 253 interest have been performed on this basis. The specified rate is 0.0175% per day, which equates to around 6.3875% per annum.

44. [67]

    In Bao v Qu; Tian (No 2) at [59]-[63], Rothman J considered whether this additional interest under Article 253 was penal in nature:

45. [68]

    Given that it is the Defendant who bears the burden of showing that any element of the Zhengzhou Judgment is penal in nature, given that no evidence and no submissions have been advanced to this effect, and given the observations made by Rothman J in the passage quoted above, I do not consider there is a sufficient basis for me to determine, in the circumstances of this case, that any such reason for not enforcing the Zhengzhou Judgment is established on the evidence.

CONCLUSION

1. [69]

   For the reasons set out above, I was satisfied, at the conclusion of the hearing before me, that the Zhengzhou Judgment was enforceable by this Court, that the outstanding amount of the Zhengzhou Judgment was as quantified by the Plaintiff, and that orders should be made accordingly.

2. [70]

   Since the Plaintiff was entirely successful, it was in my view appropriate that costs should follow the event.

3. [71]

   In order to take into account that the Defendant was not represented at the hearing before me and in order to ensure that she was given an opportunity to challenge any orders made disposing of the Summons, if she wished to do so, I included in the orders and directions:

4. [72]

   I also considered it appropriate to include a note in the Court’s orders to the effect that interest on the amount of the judgment of this Court will accrue in accordance with the Civil Procedure Act 2005 (NSW) s 101. That is, the interest payable under s 101 shall be in substitution for and not in addition to any interest otherwise payable, either pursuant to the Loan Agreement or the Zhengzhou Judgment, for the period after 1 February 2024: see Bao v Qu; Tian (No 2) at [71].

5. [73]

   For those reasons I made, on 1 February 2024, the orders set out in paragraph 2 above.