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

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

1. 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. 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. 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. Following my exhortation to the Bank to draw my decision to the Chinese Court, there have been a number of developments.
2. On 16 January 2024, the Bank drew my reasons to the attention of the Chinese Court.
3. Six weeks later, on 28 February 2024, the Chinese Court conducted a hearing in relation to my judgment.
4. Ms Edwina Kwan, then the solicitor for the Bank, gave this evidence, on information and belief, as to what occurred on 28 February 2024: "(a) The legal representatives for both [the Shanxi branch of the Bank] and [Shanxi] appeared, and there was no appearance from Gosford; (b) The [Chinese Court] organised during the hearing a procedure called 'evidence exchange', where [Shanxi] inspected the new evidence (i.e. documents relating to Australian judgments) submitted by [the Shanxi branch of the Bank], and advised they do not object [to] this evidence; (c) The [Chinese Court] advised [the Shanxi branch of the Bank] and [Shanxi] about the progress of the service of the relevant court documents concerning the [Chinese Court] proceedings on Gosford. The [Chinese Court] confirmed the relevant documents were sent to the relevant Australian authority for the purpose of service through diplomatic channels, but was not able to confirm whether the relevant documents had been served on Gosford by the relevant Australian authority; and (d) The [Chinese Court] did not make any orders on 28 February 2024."
5. However, on 22 March 2024, the Chinese Court published this "Notice" addressed to the Shanxi branch of the Bank: "During the trial, your Bank submitted the judgement made by the Equity Division of the Supreme Court of New South Wales on 20 Nov[ember] 2023 in respect of the two cases of Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd and [T]he Gosford Pty Ltd v Bank of China Ltd, and the court order made by the same Division on 15 Dec[ember] 2023 with the decision of 'judgment entered in favour of cross-claimant against cross-defendant stayed until further order; parties to undertake further steps in respect of Civil Ruling', in which our Court is invited to consider discharging the above Civil Ruling on suspension of payment under the standby letter of credit. Our Court organised a hearing on this matter and the collegial panel deliberated and held that, given that: 1. our Court, as the court of the place where the issuing bank is located, has jurisdiction over this case; 2. the formalities of responding of the Defendant Gosford Pty Limited in this case are still in the process of being served and the Defendant has yet to be heard on this case; 3. the case has been set for hearing on 24 Sep[tember] 2024 and whether the Plaintiff's argument that the 'acts of the Defendant Gosford Pty Limited constitute a letter of credit fraud' can be supported will only be found out after the hearing, during which our Court will investigate and make a ruling according to law. Therefore, the Civil Ruling (2021) Jin 01 Min Chu No.809 made by our Court on 3 Aug[ust] 2021 should not be discharged at the moment."
6. Thus, the Chinese Court refused to discharge the Civil Ruling made on 3 August 2021 for three reasons.
7. First, the Chinese Court concluded that as the Bank is located in China, it had "jurisdiction over this case".
8. 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. 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. 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. 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. Amongst the submissions made in those applications, the Bank referred to proceedings in this Court as follows: "Shinetec has filed a lawsuit in the Australian court for the underlying contract and standby certificate disputes in the case. The Australian court shall have jurisdiction over the disputes as to whether the parties relating to the underlying contract were fraudulent in their claims thereunder, and whether [the Shanxi branch of the Bank] has an obligation to pay thereunder. On 20 November and 15 December 2023, the Australian court reviewed the underlying contract and the standby letter of credit and ruled that Shinetec's claims should be dismissed in its entirety and that Gosford should be entitled to the payment under the standby letter of credit. Following an appeal by Shinetec and [Shanxi], the Court of Appeal in Australia continued to dismiss the appeal on 23 July 2024. … [The Shanxi branch of the Bank] challenged the jurisdiction of the Australian court over the standby letter of credit in the Australian court proceedings, but the challenge was not upheld by the Australian court. [12] … The Court of Appeal in Australia noted that Shinetec had initially sued [the Bank] in the first instance proceedings in Australia, but had subsequently withdrawn its suit against [the Bank] and denied that the beneficiary's demand was fraudulent. [13] Therefore, both the first instance judgement and the appeal judgement of the Australian courts held that the beneficiary shall be entitled to claim under the standby letter of credit." [14]
13. The Bank concluded: "In summary, given that (1) there was an error in the application of law because the subject standby letter of credit is an independent guarantee and therefore the PRC Independent Guarantee Provisions should have been applied; (2) The second instance judgement of the Australian court confirmed, after a trial, that there was no fraud or abuse of the beneficiary's right to claim under the underlying contract, and that the prerequisites for the granting of an interim suspension of payment order by your honourable court no longer exist; (3) There is no longer an emergency in which failure by China to provide interim suspension of payment relief will result in irreparable loss as provided under Article 14 of the PRC Independent Guarantee Provisions. Therefore, the interim suspension of payment order should not have been issued and should be revoked even if it had been issued; and (4) Because of the existence of bona fide third party and according to paragraph 3 of Article 14 of the PRC Independent Guarantee Provisions, the payment under the standby letter of credit shall not [be] suspended further by your honourable court. Even if such an order had been issued, it should now be cancelled." (Footnote omitted.)
14. As I have said, Shinetec or Shanxi caused the Civil Complaint to be served on Gosford on 19 September 2024.
15. On 20 September 2024, the Chinese Court made the following "People's Court Announcement" directed to Gosford: "To Gosford Pty Limited: This Court has accepted the letter of credit fraud dispute case between the plaintiff Shanxi Construction Investment Group Co., Ltd. and the defendant Gosford Pty Limited, and is serving you with a copy of the statement of claim, notice of responding to the claims, notice to produce and summons to court in accordance with the law. The above shall be deemed to have been served after 60 days from the date of this announcement. The time limit for filing a defence and for the production of evidence shall be 30 days after the expiry of the announcement, respectively. This case is scheduled for public hearing on 26 December 2024 at 9 a.m. in Courtroom No.36 of the Court, failing which it will be heard in absentia in accordance with the law."
16. 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: 1. such service is deemed to take effect 60 days later, that is, by 19 November 2024; and 2. the time for Gosford to serve any documents in defence and to adduce evidence is 30 days thereafter, that is, by 20 December 2024.
17. 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. 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. Gosford's current position is that it does not intend to appear at the hearing.

The nature of letters of credit

1. As Gosford emphasised, an important factor is the nature and importance of letters of credit in international trade.
2. Thus, Lord Denning MR said in Power Curber International Ltd v National Bank of Kuwait SAK: [15] "[Letters of credit] are the means by which goods are supplied all the world over. It is vital that every bank which issues a letter of credit should honour its obligations. The bank is in no way concerned with any dispute that the buyer may have with the seller. The buyer may say that the goods are not up to contract. Nevertheless the bank must honour its obligations. The buyer may say that he has a cross-claim in a large amount. Still the bank must honour its obligations. A letter of credit is like a bill of exchange given for the price of goods. It ranks as cash and must be honoured."
3. The Bank did not dispute this.
4. Indeed, Mr Kay Hoyle SC, who appeared for the Bank, submitted: "As [the Bank] made clear at trial and before the Court of Appeal, it accepts that the [Letter of Credit] is an independent obligation, unconnected with the dispute between Shinetec and Gosford. [The Bank] chose not to appeal and accepts that it has a liability to pay. It is uncontentious that in most letter of credit cases, subject to any available defences, a bank should pay promptly. In the ordinary case, it would be startling to find that a bank had not paid out on the letter of credit for a period of three years. [16] But this is no ordinary case. Irrespective of the route by which the current situation has arisen, the Bank finds itself subject to a judgment for payment whilst still subject to both an interim order preventing payment and the potential for a final order preventing payment in the place whose laws govern all relevant aspects of the [Letter of Credit] (including its performance). That is not a submission about the appropriateness of the PRC proceedings; rather it is a recognition of the essential reason why the stay should be maintained." (Emphasis in original.)

An exception to the general rule?

1. In argument, Mr Kay Hoyle drew my attention to passages appearing in the current edition of Paget's Law of Banking. [17]
2. The editors state the general position to be as follows: "The court will generally decline to recognise the order of a foreign court restraining payment under a letter of credit on the application of the buyer where the foreign court, applying a law which is not the proper law of the credit, has made a restraining order contrary to the above principles." [18]
3. The editors then continued: "However, where the foreign court was the proper place of performance and the governing law of the guarantee, the English court will grant judgment in the sum of the amount payable, but will not compel a guarantor to pay. It is then for the foreign court to decide whether to lift the injunction." [19]
4. 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.
5. 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: "What the French injunctions do is to prevent Calyon [the French bank that issued the Bond] from currently complying with their obligations under the Bond or that judgment. What Ralli Bros [22] establishes is that the English court will not, in such circumstances, require Calyon to act in a manner which is illegal under French law because of the existence of the injunctions. The expectation would be that on the basis of this judgment, handed down by a court which has jurisdiction to determine liability under the Bond, the French Court would discharge the injunction. That however is matter for the French Court." [23]
6. 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".
7. My attention has not been drawn to any other authority that would support the posited "narrow exception" to the "general rule".

Comity

1. 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.
2. As the Full Court of the Federal Court has observed, comity: "… in the legal sense, is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and goodwill, on the other. It is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws. … Thus, comity is not an uncritical, automatic or unexamined recognition of a foreign court's process or judgment; it is nuanced and depends on the nature of what is sought to be recognised, the purpose for which recognition is sought, domestic rights and the ramifications of recognition." [26]
3. 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".
4. This submission was, evidently, a reference to the Chinese Court's Notice of 22 March 2024 to which I have referred above. [27]
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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]
14. 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.

The findings of the Court of Appeal

1. I have mentioned that Shinetec joined Shanxi as an appellant in the appeal from my decision. [32]
2. 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).
3. 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]
4. The Court concluded: [34] "We have indicated above Shinetec's candid submission at trial that it did not join the Bank of China in order to prevent there being an abuse of process. But the course adopted on appeal has made the abuse quite clear. There is one process in this Court: the amended notice of appeal. Bank of China is a respondent, and Shanxi sought to be, and was permitted to be, joined as a second appellant. Shinetec and Shanxi together seek to argue points so as to obtain a binding decision in their favour against both Gosford and Bank of China. Yet they insist that Shanxi is entitled to litigate in China the fraud case which was consciously eschewed in New South Wales. That is the clearest possible case of Gosford being vexed in twice different jurisdictions by the same party in circumstances where, to use the language in Carron Iron Company v Maclaren [35] and as adopted by the High Court of Australia in CSR v Cigna, [36] 'complete relief' is available in the local proceedings."
5. 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".
6. 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. I decline to lift the stay on my judgment.
2. 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. I will hear the parties as to what I should do in relation to Gosford's motion and as to costs.

Endnotes

1. Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd; The Gosford Pty Ltd v Bank of China Ltd (No 2) [2023] NSWSC 1405 at [1]-[9]. I shall use the same abbreviations here.
2. At [126]-[152].
3. At [154]-[239].
4. At [240]-[260] and Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd; The Gosford Pty Ltd v Bank of China Ltd (No 3) [2023] NSWSC 1596 at [4], [7]-[15].
5. Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd; The Gosford Pty Ltd v Bank of China Ltd (No 3) (supra) at [22]-[28], [31].
6. Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd; The Gosford Pty Ltd v Bank of China Ltd (No 2) (supra) at [76].
7. Ward ACJ, Leeming and Kirk JJA.
8. Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd [2024] NSWCA 174. Shanxi was not a party to these proceedings before me; Shinetec joined Shanxi as an appellant.
9. At [3] above.
10. At [28]; see [3] above.
11. At [4].
12. Evidently a reference to my judgment of 4 February 2022 in which I refused the Bank's application to stay these proceedings on the basis that this Court was a plainly inappropriate forum: Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd; The Gosford Pty Ltd v Bank of China Ltd [2022] NSWSC 59.
13. "See par 3, page 5 of judgment of Court of Appeal NSW on 23 July 2024: 'Shinetec withdrew its claim against that Bank well before trial, and disavowed fraud.'" This footnote appeared in the application.
14. "See par 6, page 5 of judgment of Court of Appeal NSW on 23 July 2024: 'In the absence of any claim for fraud or unconscionability, any breach of the Construction Contract by Gosford did not mean that its call on the letter of credit was invalid or void or of no effect. It is axiomatic that, absent fraud or unconscionability, the issuing bank must pay if the documents presented are compliant. If the beneficiary is in breach, it will be liable in damages to its contracting party, but that gets determined at a trial, and is not a reason for the bank not to comply with its undertaking to pay.'" This footnote appeared in the application.
15. (1981) 1 WLR 1233 at 1241; [1981] 3 All ER 607; the decision in Power Curber concerning the proper law of the letter of credit in question has since been criticised and not followed by the Supreme Court of the United Kingdom in Taurus Petroleum Limited v State of Oil Marketing Co. of the Ministry of Oil, Republic of Iraq [2018] AC 680 (eg at [41] (Lord Clarke); but this statement was not doubted.
16. "The Court of Appeal stated that the fact that [the Bank] had not honoured or dishonoured for a period of three years was not the subject of criticism: CA at [2]." This footnote appeared in Mr Kay Hoyle's submissions.
17. J Odgers KC and I Wilson KC, Paget's Law of Banking (16th ed, 2023, LexisNexis) at [35.16].
18. Citing Power Curber International Ltd v National Bank of Kuwait SAK (supra).
19. Citing AES-3C Maritza East 1 EOOD v Credit Agricole Corporate and Investment Bank [2011] EWHC 123 at [67]-[69].
20. Ibid.
21. At [67].
22. Ralli Brothers v Compania Naviera Sota v Aznar [1920] 2 KB 287.
23. At [67].
24. That is not expressly stated but might be inferred from [64].
25. See [8].
26. Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company (2021) 290 FCR 298; [2021] FCAFC 110 at [81] (Stewart J, Allsop CJ and Middleton J agreeing), citing CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 at 395-396 (Dawson, Toohey, Gaudron, McHugh, Gummow and Kirby JJ); [1997] HCA 33.
27. See [14].
28. See [24] above.
29. See my 20 November 2023 judgment at [170]-[175]; in contrast to cases referred to in argument, such as Power Curber International Ltd v National Bank of Kuwait SAK (supra), where the restraint was by a court in Kuwait but the letter of credit was found to be governed by the law of North Carolina, and AES-3C Maritza East 1 EOOD v Credit Agricole Corporate and Investment Bank (supra), where the restraint was by a French tribunal but the bond in question was governed by English law.
30. Cf Gosford's submissions in reply at pars 13 and 15: emphasis in original.
31. Cf Gosford's submissions in reply at par 26.
32. See [4] above.
33. At [191]-[197].
34. At [195].
35. (1855) 5 HL Cas 416; 10 ER 961.
36. Supra. 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: 15 October 2024