Shanghai Chenggong Industrial Co Ltd v Zhihua Chen

1. [1]

   Shanghai Chenggong Industrial Co Ltd seeks to have two judgments entered in the People’s Republic of China enforced as a judgment of this Court:

   1. (1)

      The first judgment dated 4 January 2024 is for the principal amount of RMB5,200,000.

   2. (2)

      The second judgment dated 1 April 2024 is for the principal amount of RMB2,227,205.76.

2. [2]

   The defendant, Zhihua Chen, was a former shareholder of Shanghai with his former wife. He does not dispute he has not paid the two judgment sums in full. He does not raise any reason not to enforce the judgments here, other than the issue of interest.

3. [3]

   The common law principles for recognition and enforcement of foreign judgments are relevant, because the Courts of the People’s Republic of China are not prescribed by the Foreign Judgments Regulations 1992 (Cth) for the purpose of registration under the Foreign Judgments Act 1991 (Cth).

4. [4]

   Shanghai must demonstrate the satisfaction of four requirements for a foreign judgment to be recognised and enforced at common law; the principles were summarised by Rothman J in Bao v Qu; Tian (No 2) (2020) 102 NSWLR 435 (Bao) at [23]-[29]:

   1. (1)

      the foreign court must have exercised jurisdiction of the requisite type over the defendant;

   2. (2)

      the judgment must be final and conclusive;

   3. (3)

      there must be identity of parties between the judgment debtors and the defendants in any enforcement action; and

   4. (4)

      the judgment must be for a fixed, liquidated sum.

5. [5]

   If those matters are established, the judgment is prima facie enforceable as a valid obligation: Bao at [29], citing Stern v National Australia Bank Ltd [1999] FCA 1421 at [133] (Tamberlin J); Suzhou Haishun Investment Management Co Ltd v Zhao [2019] VSC 110 at [92] (Cameron J).

6. [6]

   I accept that the four requirements are satisfied, and the judgments are enforceable as valid obligations (Bao at [29]), including as to interest, contrary to Mr Chen’s submissions as explained below.

7. [7]

   Mr Chen submitted that interest under Article 264 of the Civil Procedure Law of the People’s Republic of China is “penal” and therefore that part of the judgments ought not be enforced: see eg Schnable v Lui [2002] NSWSC 15 at [180] (Bergin J) (Schnable).

8. [8]

   As for what constitutes a relevant penal foreign judgment, the decision of Watson LJ in Huntington v Attrill [1893] AC 150 at 156 remains authoritative:

9. [9]

   See also the summary of principles in Schnable at [164]-[179].

Interest ordered under judgments

1. [10]

   Each of the judgments in question provides for the payment of interest, but on a different basis.

2. [11]

   The relevant portion of the first judgment, as translated, reads:

3. [12]

   The relevant portion of the second judgment, as translated, reads:

4. [13]

   Therefore, in effect the pre-judgment interest is as follows, and Mr Chen does not dispute he is liable for it:

   1. (1)

      For the first judgment, the defendant must pay interest at an annual interest rate of 3.55% from the date specified to the date of payment.

   2. (2)

      For the second judgment, interest is fixed in the amount of RMB536,730.06.

5. [14]

   However, Mr Chen resists liability for the additional interest. According to the judgments, if each judgment debt (with the above pre-judgment interest) is not paid within 10 days of judgment, then “double the debt interest” is payable as calculated in accordance with Article 264 of the Civil Procedure Law of the People’s Republic of China. For the first judgment, Article 264 interest will run in addition to the 3.55% interest rate. The purpose of the award of the additional interest is not specified in the judgments.

6. [15]

   Article 264 was formerly numbered Article 253, and was translated in slightly different ways in the evidence. The below version includes the various differences in the translations:

7. [16]

   Mr Chen focused on the words “fails to fulfil” and “fine” to support the submission that the “double debt interest” was penal and I ought not enforce it. In addition, it was said that adding the “double debt interest” to the pre-judgment interest in the first judgment was penal.

8. [17]

   In evidence was an extract from “The Interpretation of the Supreme People’s Court on Several Issues concerning the Application of Law in the Calculation of Interest on Debts during the Dealy in the Performance of Execution Procedures” which was adopted by the relevant Judicial Committee on 9 June 2014 and implemented from 1 August 2014. Article 1 provides:

Interest payable under Article 264 is not penal

1. [18]

   The question is the purpose and nature of the interest payable under Article 264: does it punish for non-compliance with Court orders, or is it more appropriately considered a legislated post-judgment interest rate?

2. [19]

   I reject Mr Chen’s submissions that the Article 264 interest component of the judgments is penal for the following reasons.

3. [20]

   First, the comparison of the interest with the Australian law of contractual penalties is not apt. A similar conclusion was reached in eg Doe v Howard [2015] VSC 75 (J Forrest J); Fu v Pang [2025] VSC 597 at [17]-[20] (Watson J).

4. [21]

   Secondly, the authorities set out below do not assist Mr Chen.

5. [22]

   Mr Chen relied on Schnabel, in which Bergin J ordered enforcement of a judgment for compensatory damages made by a federal court in California, but refused to enforce that part of the judgment attributable to an award of punitive damages. The United States judge had made orders for compensation, but then added punitive damages, stating that their purpose was to “penalise the first defendant and to deter others from failing to comply with the Court’s orders”: at [176].

6. [23]

   Bergin J found that the award of punitive damages was not compensation for a detriment but, rather, as was expressed in the judgment, to punish the defendant in the form of a sanction. The damages were “the penal consequence for the first defendant’s failure to comply with the Court’s orders”: at [176]. Her Honour severed the unenforceable award of punitive damages from the award of compensatory damages, which was enforceable: at [180].

7. [24]

   Bergin J’s example of a determination that a foreign judgment was penal was cited in Surgibit Ip Holdings Pty Ltd v Ellis (No 2) [2017] NSWSC 1379. There, Adamson J (as her Honour then was) did not accept that an American judgment for “treble damages” was penal, concluding at [29]:

8. [25]

   However, there are no authorities decided after Schnabel that find that punitive damages will always be considered penal in Australian law: see eg Doe v Howard; Benefit Strategies Group Inc v Prider (2005) 91 SASR 544 (Benefit Strategies); Suzhou Haishun Investment Management Co Ltd v Zhao [2019] VSC 110.

9. [26]

   In Benefit Strategies, Bleby J (Vanstone and Anderson JJ agreeing) provided some obiter comments on the issue of penal judgments, and in particular, whether foreign judgments for exemplary or punitive damages ought to be enforced in an Australian court. At [68]ff, his Honour noted that not all foreign judgments for punitive damages are unenforceable on public policy grounds. Bleby J considered Bergin J’s decision in Schnabel. At [72], his Honour indicated that the decision “if correct” was based on the finding of the relevant US court that the order for punitive damages was intended to punish for failure to comply with an order of that court, giving the orders “an obvious ‘public’ connotation”.

10. [27]

    However, Bleby J explained at [68]-[73] that where the foreign court’s award of punitive damages is made to punish the defendant’s deliberate and callous disregard of the plaintiff’s rights, the award has “no public element” and enforcement of it would not be contrary to the public policy of Australia, even if the amount awarded far exceeds what an Australian court would order.

11. [28]

    There have been several decisions that consider to various degrees whether Article 264 (formerly numbered Article 253) is penal.

    1. (1)

       In Bao at [60]-[62], Rothman J considered authorities concerning the enforcement of what was alleged to be penal in nature, when reaching the conclusion that Article 253 interest was not penal at [63]:

    2. (2)

       In Fujian Rongtaiyuan Industrial Co Ltd v Zhan [2024] NSWSC 1318, after a fully contested hearing, where the defendant was legally represented by senior and junior counsel, Garling J agreed with Rothman J’s approach to interest in Bao. I accept that the judgment does not record any argument concerning whether interest under Article 253 was penal in nature.

    3. (3)

       In Zhengzhou Ludu Real Estate Group Co Ltd v Shu [2024] NSWSC 58, Nixon J enforced a Chinese judgment, including for interest under Article 253, relying on the approach taken in Bao. In circumstances where the onus was on the defendant to demonstrate the judgment ought not be enforced because it was penal in nature, and the defendant did not appear or engage, his Honour was satisfied it was appropriate to enforce the whole judgment.

    4. (4)

       In Suzhou Haishun Investment Management Co Ltd v Zhao [2019] VSC 110, Cameron J rejected the defendant’s submission that that Article 253 interest was penal, without providing detailed reasoning.

    5. (5)

       In Fu v Pang [2025] VSC 597, Watson J considered a case very similar to the present, where on an application to enforce a Chinese judgment, the defendant sought to persuade the court that Article 264 interest was penal in nature. His Honour rejected the defendant’s submission and concluded at [30]:

12. [29]

    The one decision to which I was referred, in which “double interest” has been determined to be penal, is Hung Fung Enterprises Holdings Ltd v The Agricultural Bank of China [2012] HKCA 251. At [91], the Hong Kong Court of Appeal considered that a different article in Chinese law requiring double interest was penal and stated:

13. [30]

    That case concerned a different article, namely, Article 229 of the Civil Litigation Law, and the Court of Appeal accepted the trial judge’s finding that the purpose of the interest award was to punish, not to compensate. It was then concluded that this was comparable to “punitive damages” and therefore was penal. Moreover, the Court of Appeal accepted a submission that “[t]he double interest bears no relation to any loss suffered by the defendant, nor was there any inquiry as to the loss”. These factors may be illustrative of a penalty under Hong Kong law. However, Australian courts routinely award post-judgment interest on judgment debts under court rules, such as the UCPR, without specific enquiry into actual loss, and, as noted, punitive damages are not necessarily penal.

14. [31]

    Article 264 interest is triggered where there is late or deferred payment. I consider it is appropriate to compensate a plaintiff for being held out of money, just the way the UCPR provides for post-judgment interest on judgment debts. The Article 264 interest appears to recognise and enforce Shanghai’s private law rights for repayment of a debt, with a post-judgment interest rate. The Article provides a formula for the calculation of post-judgment interest in the context of other lower rates for pre-judgment interest (here, relevantly the 3.55% interest rate or the fixed sum for interest).

15. [32]

    In the above circumstances, I am satisfied that the purpose of the interest ordered was to compensate, not to punish. Therefore, the whole of the judgments ought to be enforced.

Orders

1. [33]

   In light of the above, the appropriate orders are:

   1. (1)

      On or before 4pm on 5 November 2025, the plaintiff serve on the defendant short minutes of order intended to give effect to these reasons for judgment together with the orders it proposes in relation to costs and any necessary explanation;

   2. (2)

      On or before 4pm on 12 November 2025, the defendant: