Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd; The Gosford Pty Ltd v Bank of China Ltd

1. [1]

   By Notice of Motion filed on 10 October 2021, the cross-defendant, Bank of China Ltd, seeks orders dismissing, or striking out, two of the three claims made by the cross-claimant, The Gosford Pty Ltd, in its Commercial List Cross-Claim Statement and an order that the cross-claim be permanently stayed on the basis that this Court is a clearly inappropriate forum.

2. [2]

   The application arises under the following circumstances.

3. [3]

   On 15 June 2020, the plaintiff, Shinetec (Australia) Pty Ltd, a NSW registered company, and The Gosford Pty Ltd, also a NSW registered company, entered into a contract (the “Development Contract”) for Shinetec to carry out for Gosford the design and construction of a residual development in Gosford for a total consideration of $185 million.

4. [4]

   By a separate loan agreement Shinetec agreed to provide funding to Gosford for the project of $37.5 million.

5. [5]

   It was a term of the Development Contract that Shinetec provide a standby letter of credit in favour of Gosford from its parent company or nominee in the sum of $37 million for the purpose of securing Shinetec’s obligation to provide that funding.

6. [6]

   On 7 July 2020, by a “Letter of Commitment”, Shinetec’s ultimate holding company, Shanxi Construction Investment Group Co Ltd, a company incorporated in the People’s Republic of China, applied to the Shanxi branch of Bank of China for a Standby Letter of Credit.

7. [7]

   In the Letter of Commitment, Shanxi Construction stated:

8. [8]

   On 14 July 2020 Shanxi branch of Bank of China sent the Sydney branch of Bank of China a SWIFT message:

9. [9]

   The Letter of Credit was addressed to be in favour of Gosford in the sum of $37 million and expressed to be subject to International Standby Practices ISP98.

10. [10]

    Its operative term was as follows:

11. [11]

    The Standby Letter of Credit made no provision for its governing law.

12. [12]

    On 14 July 2020 the Sydney branch of Bank of China sent to Gosford a “Letter of Guarantee Advice” stating:

13. [13]

    Gosford paid the $110 to Bank of China through its advising bank, Macquarie Bank Ltd.

14. [14]

    After the Development Contract was made, and work commenced by Shinetec, disputes arose between Shinetec and Gosford concerning Shinetec’s performance of the Development Contract.

15. [15]

    On 26 July 2021 Mr David Hurst and Mr David Sampson (the “Receivers”) were appointed as receivers of Gosford.

16. [16]

    On 30 July 2021 Gosford, by the Receivers, made demand under the Standby Letter of Credit (the “Demand”).

17. [17]

    There is no dispute, as I understand it, as to the manner in which the Demand was made nor that it was made timeously.

18. [18]

    The Demand was delivered to Bank of China’s Shanxi branch by a solicitor, Ms Kate Wang.

19. [19]

    Ms Wang has stated that an employee of Bank of China, a Mr Lu, said to her:

20. [20]

    The Bank of China has not made payment under the Standby Letter of Credit. It has not given a notice of dishonour.

21. [21]

    However, on 3 August 2021, Bank of China sent a SWIFT message to Gosford’s advising bank, Macquarie Bank, containing what purports to be a request for additional documents under Art 6.13 of ISP98. That Article only applies when a claim is made under a Standby Letter of Credit by a “claimed successor” to the beneficiary of the Letter of Credit, including a “receiver … who claims to be designated by law to succeed to the interests of a beneficiary”. [2]

22. [22]

    It is hard to see how that Article is relevant to the present circumstances as the Receivers, as I understand it, do not claim to be a “successor” to Gosford.

23. [23]

    However that may be, this communication did not come to Gosford’s attention until Gosford was served with the evidence on this application.

24. [24]

    On 2 August 2021 Shinetec commenced these proceedings against Gosford, the Receivers, Macquarie Bank and the Bank of China seeking:

25. [25]

    In its written submissions for urgent ex parte relief Shinetec contended that:

26. [26]

    On 2 August 2021, Lindsay J as Duty Judge made the interlocutory orders sought by Shinetec on the basis of Shinetec proffering the usual undertaking as to damages.

27. [27]

    As no orders were sought against Bank of China, no orders were made against it. Shinetec has since discontinued the proceedings against Bank of China.

28. [28]

    The orders made by Lindsay J remain in place.

29. [29]

    Also on 2 August 2021, and unbeknown to Gosford and the Receivers until 12 August 2021, Shanxi Construction, Shinetec’s ultimate holding company and the applicant for the Standby Letter of Credit, filed a Civil Complaint in the Taiyuan Intermediate People’s Court of Shanxi Province (the “People’s Court”) naming Gosford as “Defendant” and Bank of China as “Third Party”.

30. [30]

    In the Civil Complaint, Shanxi Construction made the following “Claims”:

31. [31]

    The Civil Complaint describes the “Complaint Reason” as:

32. [32]

    The fraud allegation is that Gosford:

33. [33]

    As I set out below, Shinetec makes no corresponding allegation in these proceedings.

34. [34]

    On 3 August 2021 the People’s Court issued a “Civil Ruling”:

35. [35]

    The Civil Ruling also provided:

36. [36]

    There is no evidence that the Civil Ruling has been served on Gosford.

37. [37]

    Mr Jackman SC who appeared with Mr Tyson for Gosford and the Receivers informed me that his instructions were that the Civil Ruling has not been served.

38. [38]

    The Bank of China’s expert in Chinese law, Dr Jie Huang, has stated:

39. [39]

    An “Enforcement Assistance Notice” from the People’s Court, addressed to Bank of China Shanxi branch, recited the Civil Ruling and stated:

40. [40]

    Bank of China’s solicitor, Ms Edwina Kwan has deposed that the Bank of China Shanxi branch provided her with a copy of the Civil Ruling from which I infer that it was at some point served on Bank of China’s Shanxi branch.

41. [41]

    The evidence does not reveal when this occurred.

42. [42]

    On 8 September 2021 Shinetec filed its Commercial List Statement in these proceedings.

43. [43]

    Under the heading “Nature of the Dispute” Shinetec summarised its case as follows:

44. [44]

    Shinetec alleged that the first and third of these conditions precedent were not satisfied.

45. [45]

    As I have indicated above, unlike Shanxi Construction in the proceedings in the People’s Court, Shinetec makes no allegation of fraud in these proceedings.

46. [46]

    On 11 August 2021 Gosford filed a Cross-Summons against Bank of China seeking an order that Bank of China pay Gosford $37 million in accordance with the Standby Letter of Credit.

47. [47]

    On 16 September 2021 Gosford filed its Commercial List Cross-Claim Statement in which articulated its claim against Bank of China as:

48. [48]

    The latter two claims are the subject of Bank of China’s strike out application, to which I will now turn.

The strike out application

1. [49]

   Bank of China seeks an order that Gosford’s claims under s 18 of the Australian Consumer Law and under s 1041H(1) of the Corporations Act be dismissed pursuant to r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) or struck out pursuant to r 14.28 of the UCPR.

2. [50]

   The application is made in the face of the statement in Practice Note SC Eq 3 that:

3. [51]

   The application was also made notwithstanding the fact that, if successful, it would not be dispositive of Gosford’s cross-claim as Bank of China does not seek to have dismissed or struck out Gosford’s claim against Bank of China in contract.

4. [52]

   These factors alone militate against acceding to Bank of China’s application.

5. [53]

   There is no dispute about the relevant principles. They are familiar. The general test to be applied is that the impugned claim must be so obviously untenable that it cannot possibly succeed. [4] The power of the court to dismiss summarily a claim at an interlocutory stage of the proceedings must always be attended with exceptional caution, should not be exercised lightly, and should only be exercised in the clearest of cases. [5]

6. [54]

   I am not satisfied that either of Gosford’s impugned claims should be dismissed or struck out.

7. [55]

   Gosford alleges that Bank of China made the following representations:

8. [56]

   Gosford contends that the representations were not true and were thus misleading or deceptive.

9. [57]

   Mr Kay Hoyle, for Bank of China, submitted that the alleged representations were no more than a recitation of Bank of China’s obligations under the Standby Letter of Credit and that the cross-claim impermissibly seeks to characterise the undertaking of those obligations as representations.

10. [58]

    Mr Kay Hoyle relied, in particular, on the observations of the Court of Appeal of the Supreme Court of Victoria in RCR Energy Pty Ltd v WTE Co-Generation Pty Ltd [6] as follows:

11. [59]

    However assuming, as Mr Kay Hoyle submitted, that the allegations in the Cross-Claim List Statement should be read as no more than a recitation of Bank of China’s obligations under the Standby Letter of Credit (and that is a matter in contest), it does not follow that a representation is incapable of arising from such matters. That is a matter that, at least arguably, must be determined by reference to, not only all the terms of the contract, but all the circumstances of the case. It is thus not a matter apt for resolution summarily on an application such as this.

12. [60]

    Indeed, the Court of Appeal said in RCR Energy Pty Ltd v WTE Co-Generation Pty Ltd, [7] in a passage appearing immediately before those upon Mr Kay Hoyle relied:

13. [61]

    In my opinion, whether or not the representations alleged by Gosford made out will be a matter for the trial and should not be determined now by me.

14. [62]

    In this part of the Cross-Claim List Statement Gosford alleges that the conduct relied upon in relation to its claim under s 18 of the Australian Consumer Law was conduct “in relation to a financial product” within the meaning of s 763A of the Corporations Act and was thus misleading or deceptive for the purposes of s 1041H(1) of the Corporations Act.

15. [63]

    Thus, it adds nothing to the claim already made under s 18 of the Australian Consumer Law.

16. [64]

    However, it gives rise to the question of whether a standby letter of credit is a “financial product”.

17. [65]

    This involves consideration of the provisions of ss 763A, 763B, 763C, 765A and Corporations Regulations 2001 (Cth) reg 7.1.06.

18. [66]

    Mr Kay Hoyle and Mr Jackman both made submissions as to whether, in the light of those provisions, a standby letter of credit is a “financial product”.

19. [67]

    If, at trial, Gosford makes out its claim under s 18 of the Australian Consumer Law, its claim under s 1041H(1) of the Corporations Act will add nothing further to its position. On the other hand, if Gosford does not make out its claim under s 18 of the Australian Consumer Law it would not be able to make out a claim under s 1041H(1) of the Corporations Act.

20. [68]

    In those circumstances, I see no utility in resolving, at this stage, whether a standby letter of credit is a “financial product”.

21. [69]

    That matter can also be dealt with at the trial.

The stay application

1. [70]

   Bank of China contends that Gosford’s cross-claim should be stayed on the basis that this Court is a clearly inappropriate forum for its resolution. In effect, Bank of China contends that Gosford should pursue its claim against Bank of China in the pending proceedings in the People’s Court.

2. [71]

   There was no dispute as to the relevant principles. They were summarised in Mr Jackman’s and Mr Tyson’s submissions as follows:

3. [72]

   Mr Kay Hoyle also drew attention to the observations of Brereton J (as his Honour then was) in McGregor v Potts: [13]

4. [73]

   It is true, as Mr Kay Hoyle submitted, that much of the relevant conduct in this case occurred in the People’s Republic of China. Namely:

5. [74]

   Thus, it may well be, as Mr Kay Hoyle submitted, that the situs of the Standby Letter of Credit and therefore of any purported debt owed by the Bank of China to Gosford is the People’s Republic of China.

6. [75]

   However, the Standby Letter of Credit was procured by Shanxi Construction in satisfaction of Shinetec’s obligation under the Development Contract which related to construction of a development in NSW.

7. [76]

   Further Gosford’s cross-claim, is a direct response to Shinetec’s claim made in this Court seeking to restrain Gosford (and the Receivers) from seeking to enforce the Standby Letter of Credit. As Mr Jackman submitted, the cross-claim is a perfectly natural incident to the claim made against it by Shinetec, a matter pointing to the appropriateness of this Court as a forum.

8. [77]

   The issues that Gosford will seek to raise in answer to Shinetec’s claim for final relief are likely to be exactly the same as it seeks to establish on the cross-claim.

9. [78]

   Were I to grant a stay of the cross-claim, Gosford would nonetheless have to defend Shinetec’s claim and then, if successful here, have to agitate its claim against Bank of China in the People’s Court.

10. [79]

    Apart from having to prove service of the Demand of 30 July 2021 at the Shanxi branch of Bank of China, Gosford’s claim against Bank of China under the Standby Letter of Credit is documentary.

11. [80]

    It appears unlikely that Bank of China will dispute that Ms Wang attended its Shanxi branch on 30 July 2021 and delivered the Demand.

12. [81]

    As I have set out above, Ms Wang will give evidence of a conversation she had with Mr Lu on that occasion.

13. [82]

    There is no evidence on this application that there will be any dispute about what Mr Lu said.

14. [83]

    There is evidence that Ms Wang, and presumably Mr Lu, would not be permitted by Chinese law to prepare an affidavit within mainland China and would have to fly to Hong Kong to make an affidavit.

15. [84]

    There may be restrictions on Ms Wang’s and Mr Lu’s ability to travel arising out of the Covid pandemic and it may be that one or both parties will have to invoke the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters [14] seeking permission from the Chinese Ministry of Justice and the Supreme People’s Court to obtain a written witness statement or permission to examine the witnesses by video link for the purposes of cross-examination.

16. [85]

    If and when any such difficulty arises, no doubt the question of whether these proceedings should be stayed could be further considered. But at the moment there is no evidence to suggest that the case will be otherwise than one to be determined on the documents and thus no evidence to suggest that any such difficulty will arise.

17. [86]

    Mr Kay Hoyle and Mr Jackman made competing submissions as to whether the proper law of the Standby Letter of Credit was that of the People’s Republic of China or of NSW. Mr Jackman accepted that the matter was “fairly in contest”.

18. [87]

    However, as Mr Jackman submitted, even if the proper law of the Standby Letter of Credit is the law of the People’s Republic of China, there is no evidence before me that there is any relevant aspect of the People’s Republic of China law which differs from Australian law. Indeed, as Mr Jackman submitted, it appears unlikely that there is any material difference as the Standby Letter of Credit is expressed to be subject to ISP98 which appears to contain an exhaustive statement of the rights, powers and discretion that exist in relation to standby letters of credit.

19. [88]

    In the absence of any evidence I would presume the law to be the same. [15]

20. [89]

    Mr Kay Hoyle submitted that “there is a very real risk of inconsistent findings” between those in the People’s Court and those that would be made were Gosford to be successful on its cross-claim in these proceedings.

21. [90]

    Mr Kay Hoyle submitted:

22. [91]

    Dr Huang gave evidence that a Chinese court is likely to have “little regard to the existence and conduct of the NSW proceedings” and that any judgment of this Court “will not be recognised and enforced in China because it conflicts with the injunction issued by the [People’s] Court”.

23. [92]

    However, as I have said, there is no evidence that the Civil Ruling made by the People’s Court has been served on Gosford. Indeed, as I have said, Mr Jackman’s instructions are that the Civil Ruling has not in fact been served on Gosford. Thus, as Mr Jackman submitted, there is no basis for the assertion that the Civil Ruling is operative and effective.

24. [93]

    Further, the Civil Ruling is expressed to operate to suspend payment under the Standby Letter of Credit and would not be inconsistent with this Court ordering that Bank of China pay damages or compensation to Gosford were Gosford’s claims to be upheld.

25. [94]

    Further the Enforcement Assistance Notice provides that the suspension is until 4 August 2022 and thus would not prevent enforcement of any judgment obtained by Gosford that Bank of China honour its obligations under the Standby Letter of Credit after that date.

26. [95]

    Finally, the evidence of Gosford’s Chinese law expert, Dr Andrew Godwin, is that:

27. [96]

    This evidence is not challenged. Its effect is that the Enforcement Assistance Notice does not extend to Sydney offices of Bank of China.

28. [97]

    Dr Godwin further opined that even if the Enforcement Assistance Notice did extend to the Head Office of the Bank of China Ltd and to its other branches, there would be no breach of the Civil Ruling.

29. [98]

    Dr Godwin explained:

30. [99]

    Thus, as Mr Jackman submitted:

31. [100]

    Finally, there is a clear juridical advantage to Gosford in bringing its cross-claim in this jurisdiction.

32. [101]

    That is because there is no equivalent under Chinese law to provisions in s 18 of the Australian Consumer Law and s 1041H(1) of the Corporations Act concerning misleading or deceptive conduct.

33. [102]

    Dr Huang said that “the Chinese Consumer Law is not a direct comparator to Australian Consumer Law on this aspect” and to bring a cross-claim against Bank of China in the People’s Court Gosford would have to establish that Bank of China acted otherwise than with a “true will” thus in effect, fraudulently.

34. [103]

    Thus, Dr Huang opined:

35. [104]

    Thus, the law corresponding in China is anchored in the concept of fraud and is thus distinctly different from the notions of misleading or deceptive conduct.

Conclusion

1. [105]

   For these reasons, in my opinion, Bank of China has failed to establish that this Court is a clearly inappropriate forum for the determination of Gosford’s cross-claim against Bank of China.

The result

1. [106]

   The cross-defendant’s Notice of Motion filed 10 October 2021 is dismissed with costs.

2. [107]

   I list the matter for directions before the Commercial List Judge on 11 February 2022.