Shanghai Chenggong Industrial Co Ltd v Zhihua Chen

Texts Cited: 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

Category: Principal judgment

Parties: Shanghai Chenggong Industrial Co Ltd (plaintiff)
Zhihua Chen (defendant)

Representation: Counsel:
D Townsend (Plaintiff)
N Bailey (Defendant)
Solicitors:
Jurisbridge Legal (Plaintiff)
AHD Lawyers (Defendant)

File Number(s): 2024/00447469

Publication restriction: Nil

JUDGMENT

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:

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

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

4. 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.

5. 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 199**1 (Cth).

6. 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]:

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

8. the judgment must be final and conclusive;

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

10. the judgment must be for a fixed, liquidated sum.

11. 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).

12. 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.

13. 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).

14. 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:

[N]o proceeding, even in the shape of a civil suit, which has for its object the enforcement by the State, whether directly or indirectly, of punishment imposed for such breaches by the lex fori, ought to be admitted in the Courts of any other country. …

A proceeding, in order to come within the scope of the rule, must be in the nature of a suit in favour of the State whose law has been infringed. All the provisions of Municipal Statutes for the regulation of trade and trading companies are presumably enacted in the interest and for the benefit of the community at large; and persons who violate these provisions are, in a certain sense, offenders against the State law, as well as against individuals who may be injured by their misconduct. But foreign tribunals do not regard these violations of statute law as offences against the State, unless their vindication rests with the State itself, or with the community which it represents. Penalties may be attached to them, but that circumstance will not bring them within the rule, except in cases where these penalties are recoverable at the instance of the State, or of an official duly authorized to prosecute on its behalf, or of a member of the public in the character of a common informer.

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

Interest ordered under judgments

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

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

The Defendant, Zhihua Chen, shall repay the Plaintiff, Shanghai Chenggong Industrial Co., Ltd., the loan principal of RMB 5,200,000 and the interest (calculated at an annual interest rate of 3.55% on the principal amount of RMB 5,200,000, from 18 August 2023 [the date on which the Defendant accepted service] until the date of actual payment) within ten days from the date this judgment takes effect. If the party with the monetary payment obligation fails to fulfil this obligation within the period specified in this judgment, they shall pay double the debt interest for the delay period in accordance with Article 264 of the Civil Procedure Law of the People's Republic of China.

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

1. Defendant … shall pay the Plaintiff … the amount of RMB 2,227,205.76… plus interest of RMB 536,730.06, within ten days from the date of this judgment takes effect.

…

If the party with the monetary payment obligation fails to fulfil this obligation within the period specified in this judgment, they shall pay double the debt interest for the delay period in accordance with Article 264 of the Civil Procedure Law of the People's Republic of China.

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

14. 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.

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

16. 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.

17. 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:

If the person subject to enforcement/execution fails to fulfil the monetary payment obligations within the period/time limit specified in the judgment, ruling or other legal document, they shall pay double/twice the debt interest for the period of delay/during which the performance is deferred. If the person subject to enforcement/execution fails to fulfil/perform other obligations within the specified period, they shall pay a delay fee/fine for deferred performance.

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.

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:

According to the provisions in Article 253 of the Civil Procedure Law of the People’s Republic of China, after doubled, the interest on the debts during the delay in the performance shall include the general interest on debts and the doubled interest on debts during the delay in the performance.

The general interest on debts during the delay in the performance shall be calculated by methods determined by effective legal instruments; for interest that is not determined by the effective legal instruments, it will not be calculated.

The formula of calculating the doubled interest on debts shall be as follows: the doubled interest on debts = the outstanding pecuniary debts determined by the effective legal instruments other than the general interest on debts x 0.000175%/day x the period of delay in the performance.

Interest payable under Article 264 is not penal

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?

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

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).

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

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].

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].

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]:

I am not satisfied that the award of treble damages was made on the basis of lack of respect for the court, much less failure to comply with the US court’s orders. Rather, it appears from the reasons that the damages were trebled because of the defendants’ wilful breach of the patents-in-suit. This does not contain the necessary penal element to prevent its enforcement in this jurisdiction (citations omitted).

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.

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”.

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.

Application to Article 264 (formerly 253)

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

29. 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]:

In the circumstances of this case, no evidence is before the Court nor were submissions received as to whether the imposition of Article 253 Interest has a “public element” of the kind described by the Court in Benefit Strategies. As such, and having regard to the interest rate imposed, which is not substantially dissimilar to the rate applicable for General Interest, I consider it appropriate to award pre-judgment interest to the plaintiff in accordance with the Final Chinese Judgment, including the element of Article 253 Interest.

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. 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. 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. 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]:

Here, there is no public interest element. The double part interest arises out of the exercise of a private right and it has no connection with the state, nor is the plaintiff here acting as a common informer. There is no basis on which it can be concluded that the payment of the extra interest component is imposed for public purposes to punish the defendant for non-compliance with the judgment, rather than being an additional compensation for the plaintiff for the detriment of being kept out of the judgment sum.

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:

The judge did recognise that the double interest was to penalise the plaintiffs for not complying with the orders of the PRC courts to pay the judgment sums within ten days of the judgments coming into effect. Where he has gone wrong is to attach undue significance to the fact that double interest is recoverable at the instance of the judgment creditor in a civil litigation, and not by the state under a penal law or other public law. That the sum is not payable to the state is not a determinative factor. If the court is satisfied that the purpose of the amount ordered was not to compensate for the loss suffered but to punish the defendant and deter others from acting in the same way, this could properly be regarded as a penalty. The award of punitive damages which the court in Schnabel v Lui declined to enforce is an example of this.

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.

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).

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

33. In light of the above, the appropriate orders are:

34. 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;

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

(a) if he agrees with the plaintiff’s short minutes of order, notify the plaintiff and my Associate of their agreement, in which case the orders will be considered in Chambers; (b) if he does not agree with the plaintiff’s short minutes of order, serve on the plaintiff a document (which may include alternative short minutes of order) setting out the matters on which he disagrees and provide copies of the plaintiff’s short minutes of order and his document to my Associate, in which case the matter will be listed, initially for directions, at 9:30am on 13 November 2025, or such other date as is agreed with my Associate, to deal with all outstanding issues.

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