Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd; The Gosford Pty Ltd v Bank of China Ltd (No 5)

1. [1]

   I set out the background to this matter in my judgment of 20 November 2023 as follows: [1]

2. [2]

   On 20 November 2023, I:

3. [3]

   On 14 December 2023 I stayed that judgment and gave my reasons the following day: [5]

4. [4]

   On 23 July 2024, the Court of Appeal [7] dismissed Shinetec’s and Shanxi’s appeal from my decisions. [8] The Bank did not appeal from my decision.

5. [5]

   On 12 September 2024, Shinetec filed an Application for Special Leave to Appeal in the High Court of Australia against certain aspects of the decision of the Court of Appeal.

6. [6]

   I am now dealing with Gosford’s Notice of Motion filed on 3 September 2024 seeking an order that I lift the stay on the judgment.

Can Gosford cause my judgment to be registered in the Chinese Court?

1. [7]

   As I have set out, [9] in my 15 December 2023 judgment I said that Gosford had not yet been served with the Civil Complaint but that Mr Galvin, who then appeared for Shinetec, said this would occur shortly. That did not occur, and Gosford was only served with the Civil Complaint on 19 September 2024. There is no explanation in the evidence as to the delay.

2. [8]

   In my 15 December 2023 judgment, I also said that Gosford could seek to have the judgment entered in its favour recognised in a court of competent jurisdiction in China. [10] That has not occurred. Gosford has, however, received advice from its Chinese lawyers that one of the requirements for a judgment made by a foreign court to be recognised and enforced by a Chinese court is that such judgment “has taken legal effect” and that a judgment pending an appeal or in the process of an appeal is not seen by Chinese courts to be a “legally effective judgment or ruling”.

3. [9]

   I see no reason to doubt that this is an accurate statement of the position in China, at least for present purposes. Although the appeal to the Court of Appeal against my decision has been resolved, as I have set out above, [11] Shinetec has sought special leave to appeal to the High Court from the decision of the Court of Appeal. It thus appears likely that the Chinese Court would see the proceedings here as yet to have “taken legal effect”, with the consequence that Gosford is not yet in a position to have the judgment in this Court recognised in China.

What has happened in the proceedings in the Chinese Court?

1. [10]

   Following my exhortation to the Bank to draw my decision to the Chinese Court, there have been a number of developments.

2. [11]

   On 16 January 2024, the Bank drew my reasons to the attention of the Chinese Court.

3. [12]

   Six weeks later, on 28 February 2024, the Chinese Court conducted a hearing in relation to my judgment.

4. [13]

   Ms Edwina Kwan, then the solicitor for the Bank, gave this evidence, on information and belief, as to what occurred on 28 February 2024:

5. [14]

   However, on 22 March 2024, the Chinese Court published this “Notice” addressed to the Shanxi branch of the Bank:

6. [15]

   Thus, the Chinese Court refused to discharge the Civil Ruling made on 3 August 2021 for three reasons.

7. [16]

   First, the Chinese Court concluded that as the Bank is located in China, it had “jurisdiction over this case”.

8. [17]

   Second, the Chinese Court noted that Gosford had not then been served with process in the Chinese proceedings and was “yet to be heard on this case”.

9. [18]

   Third, the Chinese Court stated that the matter was fixed for hearing on 24 September 2024 and that the Court would then “investigate and make a ruling according to law”.

10. [19]

    On 23 July 2024, the Chinese Court extended the “suspension of payment” under the Letter of Credit from 23 July 2024 to 22 July 2025. The Chinese Court had earlier made annual extensions of the “suspension of payment” to 23 July 2024.

11. [20]

    On 29 July 2024, the Bank filed in both the Taiyuan Municipal Intermediate People’s Court and also in the Shanxi High People’s Court an “Application for Reconsideration” of the Civil Ruling.

12. [21]

    Amongst the submissions made in those applications, the Bank referred to proceedings in this Court as follows:

13. [22]

    The Bank concluded:

14. [23]

    As I have said, Shinetec or Shanxi caused the Civil Complaint to be served on Gosford on 19 September 2024.

15. [24]

    On 20 September 2024, the Chinese Court made the following “People’s Court Announcement” directed to Gosford:

16. [25]

    As I read that Announcement, its intended effect is that Gosford is taken to have been served with the documentation in the Chinese proceedings by reason of the Announcement, and that:

17. [26]

    As is stated in the final sentence of the Announcement, the matter is scheduled for a “public hearing” on 26 December 2024 “failing which it will be heard in absentia in accordance with the law”.

18. [27]

    The Bank intends to appear at the hearing on 26 December 2024 and to submit that the suspension on payment under the Letter of Credit should be lifted so that the Bank is free to pay Gosford the $37 million. The Bank intends to include in its submissions the matters that I have set out from its 29 July 2024 Applications for Reconsideration.

19. [28]

    Gosford’s current position is that it does not intend to appear at the hearing.

Should the stay be lifted?

1. [29]

   As Gosford emphasised, an important factor is the nature and importance of letters of credit in international trade.

2. [30]

   Thus, Lord Denning MR said in Power Curber International Ltd v National Bank of Kuwait SAK: [15]

3. [31]

   The Bank did not dispute this.

4. [32]

   Indeed, Mr Kay Hoyle SC, who appeared for the Bank, submitted:

5. [33]

   In argument, Mr Kay Hoyle drew my attention to passages appearing in the current edition of Paget’s Law of Banking. [17]

6. [34]

   The editors state the general position to be as follows:

7. [35]

   The editors then continued:

8. [36]

   In oral argument, Mr Kay Hoyle described this as being a “narrow exception” to the “usual principle” set out in the earlier passage from Paget’s that I have quoted.

9. [37]

   The authority cited by Paget’s for that proposition is AES-3C Maritza East 1 EODD v Credit Agricole Corporate and Investment Bank. [20] But that case is not authority for the stated proposition. In the passages from AES-3C Maritza cited in Paget’s, Ramsey J drew a distinction between entering a “judgment which determines what, as a matter of contractual obligations, a party is obliged to do” on the one hand, and “the enforcement of any payment obligation on the other”. [21] That is, in effect, what I have done in my judgments of 20 November 2023 and 15 December 2023. His Lordship then, in the passages referred to by Paget’s, said:

10. [38]

    That did not establish the proposition advanced in Paget’s. His Lordship was arguably dealing with a case where “the foreign court was the proper place of performance” of the bond in question. [24] But his Lordship was not dealing with a case where “the foreign court was … the governing law” of the instrument in question. The governing law of the bond in that case was England, [25] not that of the “foreign court”.

11. [39]

    My attention has not been drawn to any other authority that would support the posited “narrow exception” to the “general rule”.

12. [40]

    As Mr Braham SC, who appeared with Mr Farinha for Gosford, submitted, the reasons I expressed on 15 December 2023 to stay my judgment were essentially reasons of comity.

13. [41]

    As the Full Court of the Federal Court has observed, comity:

14. [42]

    Mr Braham and Mr Farinha submitted that comity was now “exhausted” and that “[a]ny concern for comity is undermined in circumstances where the Chinese Court has declined to afford reciprocal recognition to a final judgment of this Court by discharging an interlocutory order seeking to suspend payment”.

15. [43]

    This submission was, evidently, a reference to the Chinese Court’s Notice of 22 March 2024 to which I have referred above. [27]

16. [44]

    I do not read the 22 March 2024 Notice as a statement by the Chinese Court that it has declined to afford reciprocal recognition to this Court.

17. [45]

    I read that Notice, and the Chinese Court’s Announcement of 20 September 2024 [28] as the Chinese Court stating that it would consider what it should do in relation to the Civil Ruling at the final hearing, now scheduled for 26 December 2024.

18. [46]

    The Chinese Court has not yet decided, on a final basis, and after full argument, whether payment under the Letter of Credit will remain suspended.

19. [47]

    The Chinese Court will proceed to a final hearing knowing of this Court’s decision. At that final hearing, the Bank, as the issuing bank of the Letter of Credit, will itself be advocating that the suspension of payment be lifted on a final basis. The Bank will be arguing, as it has foreshadowed in its Applications for Reconsideration, that one basis upon which it should now be permitted under Chinese law to honour its obligations under the Letter of Credit and pay Gosford the $37 million is Shinetec’s and Shanxi’s active involvement in the proceedings in this Court. The Bank will also emphasise to the Chinese Court that, after full argument, this Court has adjudicated on the merits of Gosford’s claim against the Bank in relation to the Letter of Credit.

20. [48]

    My conclusion is that, notwithstanding the undoubted importance of letters of credit in international trade, comity requires, in the particular circumstances of this case, that I await the Chinese Court’s decision, provided that it is made within a reasonable time of the hearing scheduled for 26 December 2024.

21. [49]

    I do not accept Mr Braham’s submission that a continuation of the stay in those circumstances would constitute a “subordination” or a “submission” by this Court to that of the Chinese Court.

22. [50]

    A further factor that I find to be relevant to the question of comity is that, unlike cases referred to in argument, this Letter of Credit was issued in China by a Chinese bank in circumstances where the place of presentation of the demand and the place for performance was in China, leading me to conclude the proper law of the Letter of Credit is the law of the PRC. [29] As I have explained above, I do not see that this enlivens an exception to any general rule about letters of credit. But it is, in this case, a factor relevant to the question of what this Court, as a matter of comity, should do.

23. [51]

    I accept that the parties’ rights under the Letter of Credit have now merged in this Court’s judgment. But the fact that the Letter of Credit in question is one the proper law of which I have found to be the law of the PRC is a further factor requiring, as a matter of comity, that this Court await the Chinese Court’s final decision, provided that it is made within a reasonable time of the 26 December 2024 hearing, before further considering whether to lift the stay.

24. [52]

    This is not a conclusion that the stay on a judgment should “continue forever” or that there should be a “permanent stay”. [30] Nor do I see this as being a case of “now or never”. [31]

25. [53]

    If the Chinese Court lifts the suspension currently binding the Bank, the Bank will undoubtedly pay. If the Chinese Court comes to a different conclusion, the matter can be reconsidered then.

26. [54]

    I have mentioned that Shinetec joined Shanxi as an appellant in the appeal from my decision. [32]

27. [55]

    Although the Bank did not appeal from my decision, Shinetec and Shanxi sought to advance an argument based on the operation of ISP 98 (Ground 6) and an argument as to the effect of the order of the Chinese Court (Ground 7).

28. [56]

    The Court of Appeal rejected both Grounds 6 and 7 but concluded that, in the event, it was an abuse of the process of this Court for Shinetec and Shanxi to seek to agitate those grounds. [33]

29. [57]

    The Court concluded: [34]

30. [58]

    I am not sure that it is correct, as Gosford has submitted, to read these findings as a finding by the Court of Appeal that “the proceeding in the Chinese Court is vexatious and oppressive”.

31. [59]

    However that may be, I accept that the Court of Appeal’s observations are relevant to the course that I should follow but I am not persuaded that, taken alone, they compel a conclusion that I should lift the stay at the moment. After all, the Court of Appeal’s findings, although of course serious, concerned circumstances that have existed since these proceedings, and those in the Chinese Court, were commenced in 2021.

Conclusion

1. [60]

   I decline to lift the stay on my judgment.

2. [61]

   I will stand the proceedings over for directions on 7 February 2025 in order that the question of continuation of the stay can be further considered in the light of what occurs at the 26 December 2024 hearing in the Chinese Court.

3. [62]

   I will hear the parties as to what I should do in relation to Gosford’s motion and as to costs.