Fujian Rongtaiyuan Industrial Co Ltd v ZHAN

Supreme Court of NSW|2024-08-13|Before: Garling J

JUDGMENT

By Summons dated 6 August 2023, Fujian Rongtaiyuan Industrial Co ("Fujian") commenced proceedings against King Zhan ("Zhan") seeking the following orders: "1. Judgment be entered in favour of [Fujian] against [Zhan] in the sum of: a) Chinese Yuan Renminbi (CNY) 60,000,000; and b) CNY 27,853,150.68, being interest on CNY 60,000,000 at the rate of 6% per annum from 26 October 2011 to 19 July 2019, in such amount in Australian dollars as the Court may determine upon entry of judgment. 2. Judgment be entered in favour of [Fujian] against [Zhan] for interest on the sum in order 1 from 19 July 2019 to the date that order 1 is made: a) at the rate prescribed in Article 253 of the Civil Procedure Law of the People's Republic of China (being 0.0175% per day) less CNY 35,471.69; or b) alternatively, at the rate prescribed on s 100 in the Civil Procedure Act 2005 less CNY 35,471.69. 3. An order that [Zhan] pay interest on the sum in order 1 from the date of entry of that order until that payment is made of such sum whether before or after the date of entry of that order: a) at the rate of 0.0175% per day, being the rate prescribed by Article 253 of the Civil Procedure Law of the People's Republic of China; or b) alternatively, at the rate prescribed under s 100 in the Civil Procedure Act 2005. 4. Costs."
In general terms, the orders sought by Fujian are to recognise and give effect to a judgment of the High People's Court of Fujian Province in the People's Republic of China ("the FHPC") dated 19 July 2019, which was affirmed by a judgment of the Supreme People's Court of the People's Republic of China ("the SPC") on 15 March 2021.

Substantive Contractual Dispute

According to the judgment of the FHPC, on 6 September 2011, Fujian Zhan and Xiamen Zhongsheng Real Estate Development Co Ltd ("Xiamen") signed an agreement which stipulated that Zhan would transfer 20% of Xiamen's equity to the plaintiff and that Xiamen would acquire 75% equity of Zhandong Yigao Oil Shale Development Co Ltd ("Yigao") in the name of Xiamen. The agreement provided that within 20 days of signing the agreement, Fujian and Zhan would handle the equity transfer procedures at the Industrial Commercial Bureau. It was agreed that in acquiring the equity of Yigao, Zhan and Xiamen would contribute capital at a proportion of 20% and 80% respectively. That proportion was subsequently changed in a supplementary agreement made on the same day to a ratio of 10% to 90%.
After the two agreements were signed, Fujian remitted RMB 60,000,000 to Xiamen in two tranches, the first on 8 September 2011 and the second on 26 October 2011. Zhan did not fulfil his obligations of equity transfer in Xiamen. Nor did Zhan or Xiamen fulfill their obligations to contribute funds for the acquisition of equity in Yigao.
Accordingly, on 21 March 2017, Fujian issued a Notice to the defendants that they had not fulfilled their contractual obligations, resulting in what the FHPC described as "… the failure of the contract's purpose".
Fujian claimed that it was entitled to terminate the contract and that Zhang and Xiamen were required to return the RMB 60,000,000 of investment funds and interest to Fujian.

Judgment of the High People's Court of Fujian Province

After a hearing at which a variety of evidence was admitted, the FHPC delivered a substantial written judgment and made orders. The judgment canvassed the evidence and arguments sought to be made by Fujian and also those sought to be made by Zhan and Xiamen. Thereafter, the Court, having given a ruling on admissibility of evidence, found a series of facts. In the course of the judgment, the FHPC recorded an argument of the defendants that, in fact, the relevant defendant ought to have been a Hong Kong company of which Zhan was the 100% shareholder and not the defendants. The Court rejected this argument, holding that this was a misunderstanding "… of the rights and obligations of the contractual dispute in this case". In coming to this conclusion, the Court said, amongst other things, this: "Therefore, it is wrong to absolve [Zhan] and [Xiamen] from the responsibilities they should bear in the involved agreements on the grounds that [the Hong Kong company] is the actual contributor."
The Court upheld Fujian's claim that the contract had been terminated by it unilaterally. The Court held the following in these terms: "As the main purpose and focus of the agreement signed by both parties were on the acquisition and subsequent investment, the failure to cooperate and complete the procedure for equity transfer and change in accordance with the agreement so far has prevented the plaintiff from obtaining the legal shareholder qualification of [Xiamen]. The RMB 60 million payment made by the plaintiff [Fujian] to [Xiamen] can only be regarded as the financing received by [Zhan] and [Xiamen] from the plaintiff [Fujian] which was contracted to be used for the acquisition of Yigao and subsequent investments."
The FHPC referred to a subsequent transfer of shares by Zhan in the Hong Kong company, which the Court held involved a fact of serious breach of contract: "… for which the two defendants bear significant responsibility, resulting in the destruction of the cooperation basis and trust mechanism of the agreement signed by both parties, causing … the ultimate purpose of the contract in this case cannot be achieved."
The Court noted that the original investment of RMB 60,000,000 was to be refunded together with compensation for the loss of the capital occupation fee on the date when the payment was made. Such fee to be calculated at the annual rate of 6%.
The FHPC then made orders which were said to be in accordance with the provisions of: "Article 8, Article 94(3)(4), Article 96 Paragraph 1 and Article 97 of the Contract Law of the People's Republic of China, and Article 41 of the Law of the People's Republic of China on Choice of Law for Foreign-related Civil Relationships,"
The orders were: "1. Terminate the Agreement and Supplementary Agreements signed by the plaintiff [Fujian] and the defendants [Zhan] and [Xiamen] on 6 September 2011. 2. The defendants [Zhan] and [Xiamen] shall jointly refund RMB 60,000,000 of investment funds to the plaintiff [Fujian] as well as the capital occupation fee (calculated at an annual interest rate of 6% from 26 October 2011 until the date of repayment). If the above two defendants fail to fulfil their obligations to pay the money within the period specified in this judgment, they shall pay double the interest for the period of delayed performance in accordance with the provisions of Article 253 of the Civil Procedure Law of the People's Republic of China."
The FHPC ordered that the case acceptance fee be borne jointly by Zhan and Xiamen. It also ordered that they were able to appeal within 15 days from the date of service of the judgment for Xiamen and 30 days for Zhan.

Judgment of the Supreme People's Court

Zhan appealed against the judgment of the FHPC to the SPC. Xiamen did not do so. It was made a respondent to the appeal and was represented. Fujian was also a respondent to the appeal and was legally represented.
A public hearing of the appeal by the SPC occurred on 12 October 2020.
The judgment recited in some detail the facts which had been found by the FHPC in its judgment. The Court noted that the proceedings constituted a "foreign related contract dispute" over which the Court had jurisdiction. It also noted that the applicable law was that of the People's Republic of China.
The second issue considered by the SPC was "whether the agreement involved in this case is binding on [Zhan] and [Xiamen]". In this respect, the SPC noted the submission by Zhan and Xiamen that the appropriate defendant was the actual transferor of the equity rights, which was the Hong Kong company, and the rights did not belong to the individual representative, Zhan.
During the course of the hearing in the SPC, Zhan submitted that Party A to the Agreement should be the Hong Kong Company. The SPC found the following with respect to the correct parties: "The Party A of the Agreement is [Zhan]. … in Article 1 of the Agreement, all parties to the agreement signed the Agreement in their personal capacity, which means it was knowingly signed as an individual agreement, and the Party A of the agreement should be [Zhan]." And "[Zhan] is a party to the agreement involved in the case and shall perform his contractual obligations. … During the performance of this Agreement, there has been no dispute over the performance subject. [Zhan], as one of the parties to the contract, represents the true intention of the parties. Therefore, [Zhan] is the counterparty of [Fujian] in the Agreement and should fulfill his obligations pursuant to the Agreement."
The SPC rejected the arguments of Zhan on the appeal with respect to this issue.
The SPC then turned to consider whether the conditions for terminating the contract existed. In the course of that consideration and determination in favour of Fujian, it noted that Zhan and Xiamen had failed to cooperate and complete the procedure for the equity transfer.
The SPC said: "As [Zhan] failed to fulfill his obligation to invest 90% of the funds as agreed in the Agreement and Supplementary Agreement and failed to fulfill the obligation within a reasonable period after being urged, and he had already transferred all of his 100% equity of [the Hong Kong company] to a third party in 2012, so that the purpose of the contract could not be realised, [Fujian] could claim to cancel the contract. [Zhan's] claim that the agreement involved in the case does not have the legal conditions for dissolution cannot be established, and the Court does not support it."
The SPC then said: "The main purpose of [Fujian] entering into the Agreement with [Zhan] was to invest and obtain returns in the [Yigao] project through [Xiamen]. Both parties agreed that when [Xiamen] transferred its equity to a third party, [Fujian] would transfer its equity to [Zhan] at a price of RMB 1 after receiving the expected return. The RMB 60 million invested by [Fujian] should be considered as funds for financing [Yigao] project jointly with [Zhan] and [Xiamen]. In the event of termination of the agreement involved in the case, [Zhan] and [Xiamen] should return the amount of money to [Fujian]."
The SPC's judgment concluded in this way: "To sum up, [Zhan's] appeal cannot be established and should be rejected. The judgment of first instance clearly ascertained the facts and correctly applied the law, which should be upheld. In accordance with the provisions of Paragraph 1(1) of Article 170 of the Civil Procedure Law of the People's Republic of China, the judgment is as follows: The appeal is rejected and the original judgment is sustained. The case acceptance fee of the second instance is RMB 341,800, which shall be borne by [Zhan]. This judgment is the final judgment."

Judgment and Orders of the Xiamen Intermediate People's Court

In April 2021, Fujian made an application for enforcement. It sought orders for enforcement separately against Zhan and Xiamen and sought that the RMB 60,000,000 payment be accompanied by interest, and double interest if the payment was delayed.
The enforcement proceedings were conducted in the Xiamen Intermediate People's Court of Fujian Province ("XIPC").
On 23 June 2021, the XIPC issued an enforcement ruling. It noted the judgments of the SPC and the FHPC, and that they "have come into legal effect". It noted that the judgment debtors Zhan and Xiamen had "… failed to discharge their obligations as affirmed by the legal instruments".
The XIPC issued its ruling in the following terms: "All of the funds of the judgment debtors [Xiamen] and [Zhan] shall be seized to the value of RMB 95,362,600 and transferred, or assets of the judgment debtors shall be seized, impounded, auctioned off, sold off to the equivalent value. This ruling shall be executed with immediate effect."

The Australian Proceedings

As described at the start of this judgment, Fujian, as plaintiff, claims that the effect of the judgment of the FHPC was a judgment which was final for the payment of an identifiable and ascertainable sum of money being CNY 60,000,000 together with interest, or its equivalent, before and after the order was made.
Fujian claims that the order of the FHPC that Zhan and Xiamen "jointly refund" the CNY 60 Million as well as the capital occupation fee (i.e., interest) meant that each of Zhan and Xiamen were jointly and severally liable for the entirety of those monies.
Zhan submits that the use of the words "jointly refund" was not an order that he pay the funds because only Xiamen had actually received the monies into its bank account and that, properly understood, the FHPC was ordering him only to take reasonable steps to cause Xiamen to pay the adjudged sum and not to be personally liable to pay the monies himself.
The resolution of this substantive difference between the parties was the subject of evidence from two experts in Chinese law, which evidence is described below.
The parties were agreed on the Australian common law rules of private international law as they relate to the recognition and enforcement of a foreign judgment. Fujian contended that the rules had been satisfied and, hence, it was entitled to the fruits of the foreign judgment through obtaining a judgment of this Court. Zhan contended that the plaintiff could not satisfy those requirements and, hence, the proceedings should be dismissed.
It is appropriate to set out the relevant requirements at common law for the enforcement of a foreign judgment.

Applicable Legal Principles for Enforcement of Foreign Judgments at Common Law

In Schnabel & Ors v Lui & Ors [2002] NSWSC 15, Bergin J dealing with an application to enforce at common law the judgment of a court of the United States of America, said (at [74]-[75]): "74. … The intrinsic merits of the foreign judgment may not be called into question however there are certain pre-requisites that must be met before the foreign judgment will be recognised and enforced. 75. For the plaintiffs to obtain the orders they seek enforcing the US judgment they must establish (a) that the US Court possessed the necessary jurisdiction, (b) that the judgment was for a sum certain and (c) that the judgment was final and conclusive."
Rothman J considered the requisite principles in Bao v Qu; Tian (No 2) [2020] NSWSC 588; (2020) 102 NSWLR 435. At [25] his Honour held that the decisions of courts in the People's Republic of China were capable of being enforced in Australia under the common law procedure for the enforcement of foreign judgments. With respect to the applicable principles, his Honour (at [26]) said: "At common law, a foreign judgment is prima facie capable of recognition and enforcement if the following requirements have been met: 1. the foreign court must have exercised jurisdiction of the requisite type over the defendant …; 2. the judgment must be final and conclusive; 3. there must be identity of parties between the judgment debtors and the defendants in any enforcement action; and 4. the judgment must be for a fixed, liquidated sum." See also: Doe v Howard [2015] VSC 75 at [56], [67] per J Forrest J; Benefit Strategies Group Inc v Prider [2005] SASC 194; (2005) 91 SASR 544 at [18] per Bleby J, (Vanstone and Anderson JJ agreeing).
The parties were agreed that these were the applicable legal principles.
Subject to the determination of the substantive issue, namely what was the proper interpretation of the orders of the FHPC, the defendant accepted that if the Court was satisfied that the construction which Fujian advanced in this Court was correct, all of the conditions for the making of the orders by this Court and entering judgment against the defendant were fulfilled.
Equally, the defendant submitted that if the Court was not so satisfied but rather accepted its construction that the proper interpretation of the orders of the FHPC did not include an order against Zhan for the payment of any money, then the Court would reject the plaintiff's application for the registration of the judgment.

Evidence in the Australian Proceedings

Besides proving the judgments of the three Chinese courts, and providing translated copies of those judgments and the relevant laws, the plaintiff, Fujian, relied upon evidence from Professor Bing Ling, a professor of Chinese law at the University of Sydney Law School. Professor Ling responded to an expert report which had been relied upon by Zhan of Dr Andrew Godwin, who is a professor of commercial law at the University of Melbourne Law School. Dr Godwin had written his report before he accepted an appointment as a professor. The parties referred to him by his title as "Dr Godwin" and, without meaning any disrespect, I will do so in that way in the course of this judgment as well.
Whilst there was a good measure of agreement between the expert witnesses, they disagreed on important issues. Prior to the trial, they conferred and produced a joint report dated 22 April 2024.

Joint Report of Experts

It is convenient to note the experts' agreement in various respects first. The experts agreed that the dispositive part of the judgment of the FHPC, which was affirmed by the SPC, was as follows: "In accordance with the provisions of Article 8, Article 94(3)(4), Article 96 Paragraph 1 and Article 97 of the Contract Law of the People's Republic of China, and Article 41 of the Law of the People's Republic of China on Choice of Law for Foreign-related Civil Relationships, the judgment is as follows: '1. Terminate the Agreement and Supplementary Agreement signed by the plaintiff [Fujian] and the defendants [Zhan] and [Xiamen] on 6 September 2011. 2. The defendants [Zhan] and [Xiamen] shall jointly refund RMB 60,000,000 of investment funds to the plaintiff [Fujian], as well as the capital occupation fee (calculated at an annual interest rate of 6% from 26 October 2011 until the date of repayment).' If the above two defendants fail to fulfil their obligations to pay money within the period specified in this judgment, they shall pay double the interest for the period of delayed performance in accordance with the provisions of Article 253 of the Civil Procedure Law of the People's Republic of China. The case acceptance fee is RMB 3,041,800 which shall be borne jointly by the defendants [Zhan] and [Xiamen]."
Both experts agreed that the reasons provided by each of the FHPC and the SPC were relevant in determining the effect of the orders made by those two courts.
The experts also agreed that the enforcement ruling of the XIPC, which has been set out above at [29], was relevant to the interpretation of the orders of the FHPC. They differed as to the weight of the XIPC ruling when considering the FHPC orders.
However, the experts were in significant disagreement about the true construction and effect of the order of the FHPC which was phrased as [Zhan] and [Xiamen] "… shall jointly refund RMB 60,000,000 of investment funds to the plaintiff [Fujian]" (emphasis added).
The experts agreed that the order set out above was binding on Zhan in his personal capacity and that the order imposed personal liability on him. However, they disagreed as to the nature of the personal liability to which Zhan is subject and the legal basis on which such personal liability arose. Fundamental to this disagreement was the legal effect of the Chinese phrase "gongtong fanhuan" or "gongtong". In English, this phrase can be translated as either jointly or together. Both experts agreed that there was no defined legal meaning of the phrase.
To summarise, Professor Ling expressed the view that the use, in the order of the FHPC, of that Chinese phrase meant that both defendants, Zhan and Xiamen, were under the same obligation to return the capital contribution plus interest. He expressed the view that as Chinese law does not adopt the concept of "joint liability" (as that concept is known in Australian law) the use of such a phrase requiring the defendants to "jointly refund" meant either a joint and several obligation, or an obligation divisible in shares (or proportions). Professor Ling noted that there was no suggestion of any obligation divisible in shares and, accordingly, the Chinese phrase which translated literally as "jointly refund" meant that in this case each of the two defendants had joint and several obligations to pay the monies to Fujian.
Dr Godwin expressed the view that the orders of the FHPC required the defendants to "together" return the capital contribution. He expressed the view that if "gongtong" was given its ordinary meaning as an adverb to describe joint action to be taken by two or more persons, then the order required Zhan and Xiamen to act together in returning the capital contribution. He expressed the view that there was no basis for interpreting the phrase as a reference to joint and several liability and that, having regard to the fact that the remedy being ordered was one of restoration of Fujian to its original state pursuant to Article 97 of the PRC contract law, since Xiamen had been the only one of the two defendants to actually receive the RMB 60,000,000, the effect of the order was that Zhan was obliged not to pay the money himself but, rather, to cause Xiamen to return the RMB 60,000,000 capital contribution to Fujian.

Oral Evidence of the Experts

The oral evidence of the experts was given concurrently.
In the course of that evidence, Dr Godwin accepted a number of matters which seemed to me to derogate from the persuasiveness of his opinion.
Dr Godwin's opinion was that Zhan had not signed the agreement as "Party A" otherwise than as the legal representative of Xiamen. Dr Godwin used the term "legal representative", not to suggest that Zhan was a lawyer representing the company but, rather, to suggest that he, as a company officer or director, had been delegated to represent the company.
Dr Godwin accepted in evidence that the SPC had found that Zhan had signed the agreement between the parties in his personal capacity and that he was a party to the agreement in that capacity and should perform his contractual obligation. He also agreed that the SPC had found that Zhan was one of the parties to the contract, and "is the counterparty of [Fujian] in the agreement and should fulfil his obligations pursuant to the agreement".
However, Dr Godwin resisted the proposition that those findings were inconsistent with his expressed opinion that Zhan had only signed the agreement in his capacity as the legal representative of the company. He expressed the view that Zhan's signature was intended to be the act of the company in becoming a party to the contract. It was on this basis that he expressed the view that Zhan did not have any contractual consequence arising from placing his signature on the document. That is to say that Zhan did not incur any contractual obligations to a third party, being the other party to the contract. The following exchange took place: "His Honour: Does it follow from that that they, as such a person, could not breach the contract because they're not a party to it? Their signature only indicating that the company is a party to it. Witness Godwin: I think that's a fair commentary on it. To the extent that the agreement contemplated that they would do certain things to achieve certain outcomes, then they may have personal liability to the extent that they haven't done so. His Honour: If that's specified in the agreement? Witness Godwin: Yes."
This opinion, that Zhan could not have breached the contract, seems to be inconsistent with the statements of the SPC in its judgment set out above at [20]. This was further explored in the evidence.
Dr Godwin maintained the view that Zhan as the person whose signature is on the contract, was not bound contractually as the counterparty to the contract. The following exchange occurred: "Hogan-Doran: But the finding by the Supreme People's Court and perhaps, similarly by the Fujian High People's Court, that Mr Zhan breached his obligations under the contract, is a clear indication, isn't it, that each of these courts found that Mr Zhan was a party to the contract in his individual capacity as a party to the contract, not merely a legal representative? Witness Godwin: I think that's a view that could be maintained, yes. Hogan-Doran: It's obvious, isn't it? Witness Godwin: Well, I think you need to read all of the reasons and the surrounding circumstances instead of just focusing on that statement. … His Honour: You couldn't resist the conclusion that counsel put to you, could you? Witness Godwin: No. As a matter of principle, your Honour."
Dr Godwin also agreed that there were a number of phrases in the reasons of the SPC which considered in isolation were indications that in the view of the SPC, Zhan had a personal liability to return the capital and interest to Fujian. In particular, he agreed that the sentence in the SPC judgment: "In the event of the termination of the agreement involved in the case, Mr Zhan and Xiamen Real Estate, should return the amount of money to the plaintiff.", which did not include the use of the phrase "together return" or "jointly refund" was an indication on a normal construction (and in isolation) that each of Zhan and Xiamen had an obligation to return the money to Fujian.
The following exchange occurred: "Hogan-Doran: I'm asking you if where the words are not being used by the Supreme People's Court to describe an obligation, whether normative or legal, of Mr Zhan and Xiamen indicates that the obligation of both those parties can be understood clearly without needing the words 'jointly refund' or 'together return' being used? Witness Godwin: I think in isolation and on the normal construction, yes, I accept that."
Further in oral evidence, Dr Godwin accepted, contrary to an earlier opinion that the application for enforcement to the XIPC did not accurately state the orders of FHPC, that in fact the enforcement application did actually do so. He agreed, having accepted that the enforcement application accurately stated the effect of the orders that were made by the FHPC, Fujian sought an order from the XIPC that was, according to his interpretation of the orders of the FHPC, in different terms with a different effect. The following exchange then occurred: "Hogan-Doran: Again, as we've explored before, it doesn't use the words 'jointly refund' or 'together return' there. Witness Godwin: Correct. Hogan-Doran: Is it not a fair reading of the orders sought in the application that it is simply stating an order that is consistent with what the Supreme People's Court said in its judgment back at page 13.85 [of Exhibit B]? Witness Godwin: I would identify an inconsistency with the actual order as affirmed by the Supreme People's Court. Hogan-Doran: It's inconsistent - Witness Godwin: It's a matter of text, I agree, I accept your proposition."
In my view, this confirmation by Dr Godwin of consistency between the reasoning of the SPC and the terms of the enforcement order sought from and made by the XIPC does not support his opinion that the phrase "jointly refund" or "together refund" did not place any personal obligation on Zhan to actually pay money to Fujian.
With respect to this evidence and the role of the XIPC, Professor Ling said this to senior counsel for Zhan: "Kay‑Hoyle: Just keeping in mind that regime, it's fair to say, isn't it, that the process of execution undertaken by the intermediate court was simply a process of enforcing what that court perceived to be the orders made by a court higher up in the hierarchy? Witness Ling: Well, the intermediate court, in this case, was given the authority, the jurisdiction, to enforce the judgment. I think its fair to say that its job, in this case, was to enforce the terms of that judgment. In that process, we have this enforcement ruling by the intermediate court. Kay‑Hoyle: Just so as to assist his Honour in terms of this proceeding, the enforcement ruling is a ruling relating to execution. It doesn't change or alter the nature of the orders that are being executed? Witness Ling: That's correct. It doesn't change the judgment that it was enforcing. Now, it may need to interpret the original judgment that it is enforcing in the process of its ordering the attachment and seizure of property and so forth. Some interpretation is often inevitably involved at the enforcement level, but the enforcement court is not supposed to change what you call the orders or the results in the original judgment. Kay‑Hoyle: In paragraph 2.3, you say towards the bottom, the enforcement ruling by the intermediate court, XIPC in the report, that's the only evidence of authoritative interpretation. When you say 'authoritative', its fair to say, isn't it, that what you mean as a court with authority to carry out the execution process? Witness Ling: Hmm - hmm. Kay‑Hoyle: Is that right? Witness Ling: Well, the Xiamen Court has been delegated authority to enforce the judgment. So, it becomes the only court that has the competence to interpret and to put into effect the judgment. That's what I mean by it's the only authoritative court to do that. Kay‑Hoyle: To pick up on your earlier point, you'd accept with me what's going on here is that the enforcement court is interpreting the orders thatare in fact the binding legal orders on the parties for the purposes of execution? Witness Ling: The enforcement court is interpreting the orders in the original judgment and that interpretation, as reflected in the enforcement ruling, can be challenged but without challenge, it becomes binding obligations on the parties. Kay‑Hoyle: The execution ruling becomes binding on the parties? Witness Ling: Yes."
As earlier noted, Dr Godwin accepted that there was no inconsistency between the application for enforcement and the relevant orders sought from and made by the FHPC (as affirmed by the SPC). The enforcement order of the XIPC was as Professor Ling said, simply a reflection of those orders as construed for the purpose of enforcement.
I note that the evidence also showed that a sum had in fact been recovered from the assets of Zhan in the People's Republic of China, for which the plaintiff Fujian allowed credit in this Court against the sum which was the subject of the original order.
Further in his evidence, Dr Godwin accepted that on the findings of the SPC, Zhan had had the benefit of the monies paid by Fujian to Xiamen, which, as it seemed to me, lessened the importance to his opinion of the fact that the money had been paid by Fujian to the bank account of Xiamen.
In the course of the oral evidence, Dr Godwin was taken to the judgment of the FHPC and asked about an extract which appeared there. That extract was: "The RMB 60,000,000 made by the plaintiff to [Xiamen] can only be regarded as the financing received by [Zhan] and [Xiamen] from the plaintiff, which was contractually agreed to be used for the acquisition of [Yigao]and subsequent investments."
Having drawn his attention to those words, the following exchange took place: "His Honour: It seems by the use of the words 'can only be regarded', that that Court is under no misapprehension as to what it's talking about. Would I be wrong in understanding your opinion to be that this entire sentence refers to the transaction as a whole by which the plaintiff was obliged to pay the other contracting parties RMB 60,000,000? Witness Godwin: That is my interpretation, your Honour, yes. His Honour: That may suggest - and I invite your comment - that the fact it went into one account or another account is not the critical issue? Witness Godwin: I accept that, your Honour."
Professor Ling was asked whether he wished to make any comment about that. He said: "Witness Ling: The - I considered this particular finding by the Fujian Higher Court really as critical in underpinning its ruling that both parties should be required to pay RMB 60,000,000 - … back to the plaintiff. The only thing I want to add here is that the Court here, in the earlier discussions in this same paragraph, was trying to figure out exactly what is [the] legal character of this payment. But the argument was made before the Court that this was merely a shareholder investing money into this company for the purpose of a project. The Court dismissed that for the simple reason that the plaintiff never became a shareholder and therefore the money could only be construed as a type of financing to both defendants in order to invest in [Yigao]."
This evidence suggests to me that the earlier concentration by Dr Godwin on the fact that the money was paid into a back account of Xiamen solely as being relevant to whether Zhan had any liability under the orders was not a strong foundation for that conclusion. As this extract shows, both Zhan personally and Xiamen were found by the FHPC to have benefitted from the receipt of the funds which had been paid under the contract as fulfillment by Fujian of its obligations.
The next reason that I was not persuaded by Dr Godwin's view is that, except that for the word "gongtong" or "jointly" or "together", the orders pronounced by the FHPC were not worded in any way which expressed the view that Zhan did not have any personal monetary liability, nor did the orders set out in any direct sense or any special words that his obligations were only to cause Xiamen to repay the monies. They do not set out what he was required to do, when he was required to do so or anything else which might be expected to be described to make the order an effective one.
As senior counsel for Zhan ultimately accepted in final submissions, the acceptance of Dr Godwin's opinion as to the meaning of the orders of the FHPC with respect to Zhan not having an obligation to pay money to Fujian would mean that I would have to give little to no weight to the enforcement orders of the XIPC, and to thereby disregard what that Court did entirely.
The effect of this submission is contrary to the expert evidence of both of the experts, that the enforcement decision of the XIPC was one relevant matter to which the Court ought have regard, and I would not be prepared to adopt it. Accepting that the XIPC is a lower court in the hierarchy of courts, it nevertheless interpreted the orders of the FHPC as obliging Zhan to pay money and permitting enforcement of that order up to the specified value by means of the seizure of assets, goods and the like. No appeal was taken against the XIPC enforcement order. It was executed in part against the assets of Zhan without any further proceedings being brought. In my view, the enforcement order of the XIPC is a significant matter which assists in the interpretation of the orders of the FHPC and does so in a way which is contrary to the opinion expressed by Dr Godwin.
Ultimately, I do not accept that Zhan was not a party to the agreement in his own right and that he was only a party to the agreement because he signed to bind the company Xiamen, in his capacity as the legal representative (or delegate) of the company. The terms of the agreement do not reflect that, including terms which impose a personal liability on Zhan to contribute money. The statements in the judgments of the FHPC and the SPC about the contract being applicable to Zhan, and his being a party, do not support the construction given by Dr Godwin. On the contrary, they support the opposing construction. Zhan received the benefit of the monies which were paid. By his conduct he breached the contract, and put completion of his obligations beyond reach by transferring his own share capital in the Hong Kong company. He was unsuccessful in his appeal to the SPC contending that he was not a proper party to the litigation and did not bear any of the obligations which the FHPC found.
Each of these matters point against the acceptance of Dr Godwin's opinion. I am unpersuaded by it, and I reject it.
In my view, having regard to the previous discussion, the correct interpretation to be placed on the word "together" or "jointly" or the Chinese phrase "gongtong" is, as explained by Professor Ling whose opinion I accept, that Zhan and Xiamen are jointly and severally liable to pay RMB 60,000,000 to Fujian and are jointly liable to pay the capital occupation fee and interest as the orders of the FHPC make plain.

Conclusion

I have been persuaded by the plaintiff that the orders of the FHPC established a substantive obligation falling on Zhan personally and as well falling on Xiamen itself to pay the plaintiff the sum of RMB 60,000,000 and the sums nominated in the subsequent orders.
The appropriate course to be taken is that the parties be asked to agree upon orders to take effect on a date to be agreed, which orders should include the precise calculations of the sum owing and any capital occupation fee or other interest upon them.
In order to assist the parties in this task, I note that I agree with the decision of Rothman J in Bao, which is that interest on the ultimate sum of the judgment of the FHPC should be paid in accordance with Chinese law up until the time the judgment is entered in this Court. Thereafter, once judgment is entered, it carries interest in accordance with the Civil Procedure Act (NSW) 2005.

Orders

I make the following orders: 1. Direct the parties to confer and agree upon the form of the orders which the Court should make and provide to the Court, within 14 days of delivery of this judgment, with either an agreed form of orders or else the orders which each party contends should be made. 2. Order the defendant to pay the plaintiff's costs of these proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 November 2024

(2020) 102 NSWLR 435

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (13 paragraphs)

Parties

Cases Cited (6)