Consideration of the second issue
71 The question that is raised for determination is whether the primary judge erred in concluding that clauses 1.10 to 1.12 of the Deed were unenforceable as being contrary to public policy.
72 It is a rule of common law that promises that are contrary to public policy will be unenforceable and may be void. The test of public policy that is applied by the common law was explained by Isaacs J in Wilkinson v Osborne (1915) 21 CLR 89 (Wilkinson v Osborne) in the following terms (at 97):
In my opinion the " public policy " which a Court is entitled to apply as a test of validity to a contract is in relation to some definite and governing principle which the community as a whole has already adopted either formally by law or tacitly by its general course of corporate life, and which the Courts of the country can therefore recognize and enforce. The Court is not a legislator: it cannot initiate the principle; it can only state or formulate it if it already exists.
The rule of law as to contracts against public policy is constant - namely, that every bargain contrary to such a social governing principle is regarded as prejudicial to the State, or, in other words, contrary to "public policy" or, as it is sometimes called, "policy of the law'' and the State by its tribunals refuses to enforce it.
73 After referring with approval to the statement of the Privy Council in Evanturel v Evanturel (1874) LR 6 PC 1 (at 29) that the determination of what is contrary to public policy necessarily varies over time with the principles which for the time being guide public opinion, his Honour continued observing (at 97-98):
But the point to bear in mind is that the principle which is to be the standard of legality must at the time be one which is of general recognition in the community as one essential to its corporate welfare. Some are not the subject of actual law - such as sexual morality and the promotion of marriage. Others are recognized as fundamental principles of the common law - as the protection of the public revenue, the administration of justice, the freedom and inherent duty of the Legislature and Executive. Others, again, arise by Statute directly or indirectly, for whatever a Statute enacts is beyond all question, to that extent, the policy of the country. Whatever tends to defeat an enactment is necessarily against public policy.
74 In Wilkinson v Osborne, the High Court concluded that a promise by a land holder to pay a sum of money to two members of the NSW State Parliament as consideration for urging the Government, of which they formed part, to approve a purchase of the land, was contrary to public policy and void, and therefore could not be relied on in a bankruptcy proceeding.
75 A recognised category of promise that is contrary to public policy is a promise to stifle a prosecution. The applicable principles were considered by the High Court in Kerridge in the context of a promise by Kerridge to pay a sum of money to Simmonds in consideration of Simmonds withdrawing a criminal action against Kerridge for defamation. The defamatory statements had been made during a quarrel associated with the breakdown of their relationship and the agreement contained a number of other promises associated with their separation. Each of the High Court justices (Griffith CJ, Barton J and Higgins J) concluded that the agreement was lawful and valid. After surveying the authorities, Griffith CJ concluded (at 258 and 260) that the common law rule is that an agreement is invalid if it is founded on the consideration of stifling a prosecution for an offence of a public nature; it is lawful, though, for a person to compromise a criminal offence in so far as it concerns a claim for private injury. In respect of the agreement before the Court, Griffith CJ concluded (at 260):
For these reasons I am of opinion that it is not unlawful for a person defamed, or who has sustained purely personal injury, to withdraw a prosecution already instituted for such an offence, or to agree not to institute such a prosecution. Where a person is entitled to recover pecuniary damages, the suggestion that there is a social duty incumbent upon him to prosecute is untenable. The law allows him either to prosecute or to sue for damages, and I can see nothing to prevent him from agreeing to receive an indemnity for the personal injury he has sustained, leaving the representatives of the public to prosecute if they think fit. If, as in some cases, he is the only person entitled to institute the prosecution, then a fortiori it is a matter of private, and not of public, concern.
76 A number of cases establish that an agreement to withdraw or not pursue a criminal prosecution for theft is void, the offence being of a public nature. In Kerridge, Barton J referred with approval to Jones v Merionethshire Permanent Benefit Building Society [1892] 1 Ch 173 (Jones). In that case, the secretary of a building society had made default in accounting for money paid to him, and was threatened with a prosecution for embezzlement. He applied for assistance from the plaintiffs (his relatives) and they gave a written undertaking to the society to make good the greater part of the debt due from the secretary, giving two promissory notes and some title deeds as collateral security. The society brought an action on the promissory notes. The Court of Appeal found that it was an implied term of the agreement between the plaintiffs and the society that there would be no prosecution of the secretary. The Court concluded that the agreement was founded on illegal consideration and void and, as a result, the society could not recover on the promissory notes. Bowen LJ discussed the competing public interests in the case. In respect of the duty to prosecute (excluding cases which only concern the personal interest of the injured party such as assaults not of an aggravated character or slanders or libels), his Honour observed (at 183):
The duty to prosecute, or not to prosecute, is a social and not a legal duty, which depends on the circumstances of each case. It cannot be said that it is a moral duty to prosecute in all cases. The matter depends on considerations, which vary according to each case. But the person who has to act is bound morally to be influenced by no indirect motive. He is morally bound to bring a fair and honest mind to the consideration and to exercise his decision from a sense of duty to himself and others.
What is it that the law requires about the exercise of this moral duty? It is that it shall not be made a matter of private bargain. … It may be made the matter of private bargain in two ways: first of all, if forbearance to prosecute is promised on condition of the receipt of a particular sum of money or a particular security; secondly, if the forbearance is given in consideration of money or security actually received. The second class of cases is a class in which there is a private bargain, because the security or the money is taken upon the terms that it shall be retained if the forbearance is given.
77 On the other hand, his Honour recognised that an agreement to make reparation of stolen monies is a social good, observing (at 185):
It is impossible, therefore, to say that reparation is a thing which ought not to be made, as it is also impossible to say it is a matter which is not likely to affect the mind, and, to a certain extent, reasonably to affect the mind, of a person who has been wronged. I agree with what Mr. Reid said, that the law certainly is not anxious to discourage reparation.
78 His Honour concluded, however, that while it is lawful for reparation for theft to be made, the person wronged by the theft may not make an agreement that would stifle a subsequent prosecution (at 185), stating:
He must make no bargain about that. If reparation takes the form of a bargain then, to my mind, the bargain is one which the Court will not enforce.
79 The same principle was applied by the ACT Supreme Court in Campion. In that case, the defendant's son was a member of the Credit Union and, on 14 occasions, used his debit card to withdraw monies from a malfunctioning automatic teller machine owned by the Credit Union, overdrawing his account. The Credit Union informed the defendant's son that unless restitution was made the matter would be given in to the hands of the police. The son requested his father (the defendant) to guarantee the indebtedness. The Court found that, in the course of discussions between the Credit Union and the defendant, the Credit Union gave an undertaking that, if the defendant guaranteed the repayment of the amounts withdrawn by the son, it would not to refer the matter to the police. After referring to Kerridge and Jones (and a number of other authorities), Kelly J concluded that the guarantee was void for illegality as an agreement to stifle prosecution for an indictable public offence. His Honour stated (at 139-140):
Subject to their proof the facts alleged against the defendant's son would, in my opinion, constitute a larceny. He is said to have taken away money belonging to the plaintiff with the intent of converting it to his own use and making it permanently his own property without the consent of the plaintiff. The elements necessary to establish the crime of larceny are therefore present. Croton v. The Queen (1967) 117 C.L.R. 326 at 328 per Barwick C.J.
The misappropriation alleged against the defendant's son was a wrong committed against the public and may not therefore be the subject of an agreement to stifle a prosecution in respect of it.
80 I note for completeness that Kelly J also made reference to s 44 of the Crimes Act 1914 (Cth) which made it an offence for a person to ask for, receive or obtain, or agree or attempt to receive or obtain, any property or benefit of any kind upon any agreement or understanding that the person will compound or conceal any indictable offence against the law of the Commonwealth or a Territory, or will abstain from, discontinue, or delay any prosecution for any such offence, or will withhold any evidence of such an offence. The respondents sought to place some reliance on that provision, suggesting that it was that provision, rather than the common law, that rendered the agreement illegal and unenforceable. I reject that submission. It is clear from the judgment that Kelly J applied the common law rule.
81 The decision of Sterling J in Lound v Grimwade (1888) 39 Ch D 605 shows that the common law rule applies even if the interference in a prosecution is reasonably slight or indirect. In that case, Lound had introduced Hiscock to Cameron, through whom Hiscock lost various sums of money through the alleged fraud of Cameron. On the complaint of Hiscock, criminal proceedings were commenced against Cameron and he was committed to stand trial for fraud. Lound entered into a bond (secured by a mortgage) in favour of Hiscock to secure payment of £3,000 on condition that Lound "[was] to be free and clear from any legal proceedings or other consequences for having introduced" Hiscock to Cameron. Sterling J continued (at 611-612):
Upon the whole evidence I have arrived at the following conclusions:-
1. The "legal proceedings" mentioned in the bond were meant to include, and did include, criminal proceedings.
2. By the "other consequences" mentioned in the bond were meant the public mention at the trial, or in the newspapers, or otherwise, of the [Lound's] name in connection with the criminal proceedings against Cameron.
3.The consideration for the bond and mortgage included promises on the part of Hiscock that no criminal proceedings should be commenced against [Lound], and that the pending criminal proceedings against Cameron should be conducted in such a way that either [Lound's] name should not be mentioned, or that if it was mentioned [Lound] should be exonerated from all blame in connection with the transactions.
4. Criminal proceedings against [Lound] were not seriously contemplated by Hiscock nor apprehended by [Lound].
5. The bond and mortgage were not executed under pressure of threats of criminal proceedings by Hiscock, nor under the influence of any undue pressure on his part, but were executed by [Lound] under the advice of Addison, mainly to avoid his name being publicly connected with the fraudulent dealings of Cameron and the criminal proceedings against him, but also to prevent the failure of pending negotiations for a loan from [Lound's] father, which might have fallen through if [Lound's] name had been mixed up with the pending proceedings.
Under these circumstances I am of opinion that the consideration was partly illegal. It included, as I think, not only a stipulation that no criminal proceedings should be begun against [Lound]; but also stipulations as to the conduct of the pending criminal proceedings against Cameron, by which the course and result of those proceedings might have been affected. Now in Egerton v. Earl Brownlow [4 HLC 1, 163] Lord Lyndhurst says: "It is admitted, that any contract or engagement having a tendency, however slight, to affect the administration of justice, is illegal and void." And he accepts that as an accurate statement of the law, though he doubtless applies it to a state of circumstances widely different from those which occur in the present case. Upon this principle it has been repeatedly held that agreements tending to affect the course of legal proceedings are illegal, even although those proceedings may not be strictly criminal in their nature. …
82 The common law rule was also considered by the High Court in A v Hayden. That case concerned the possible commission of criminal offences in connection with a security training exercise arranged by the Australian Secret Intelligence Service (ASIS) at the Sheraton Hotel in Melbourne. The facts of the case were colourfully described by Mason J as having "the appearance of a law school moot based on an episode taken from the adventures of Maxwell Smart" (at 550). The plaintiffs, relevantly being members of ASIS, sought to restrain the Commonwealth from disclosing their identities to Victoria Police (to investigate the possible commission of criminal offences) on the ground (amongst others) that their contracts of employment with the Commonwealth stipulated for the identity of each, and of any act done in the course of training or work for ASIS, to be confidential. Mason, Wilson, Deane and Dawson JJ concluded that the Court will not lend its aid to the enforcement of a contractual obligation of confidentiality undertaken by the Commonwealth, the effect of which would be to obstruct the administration of the criminal law, because to do so would be contrary to public policy. Mason J observed (at 553, citations omitted):
…if the promise is void or unenforceable, it is not because it is inconsistent with the duty imposed on the Commonwealth by law but because the promise seeks to impose an obligation which is at variance with a fundamental head of public policy - the public interest in the enforcement of the criminal law and in the administration of justice. That there is a powerful public interest in the enforcement of the criminal law as an important element in the administration of justice does not admit of debate. Indeed, its importance has been such that the common law has regarded as illegal "any contract or engagement having a tendency, however slight, to affect the administration of justice" to use the words of Lord Lyndhurst in Egerton v. Brownlow (Earl).
83 After referring to a number of examples in the cases of agreements that may interfere with the administration of justice, Mason J continued (at 554-555, citations omitted):
The final example is an agreement to compromise legal proceedings for an offence of a public nature which is illegal: Keir v. Leeman; Windhill Local Board of Health v. Vint. In Windhill, Cotton L.J. said:
" ... the Court will not allow as legal any agreement which has the effect of withdrawing from the ordinary course of justice a prosecution when it is for an act which is an injury to the public. It would be the case of persons taking into their own hands the determining what ought to be done; and that ought not to be taken into the hands of any individuals, ... but ought to be left to the due administration of the law ... "
These remarks are of special significance because they show that the underlying thrust of the common law principle was directed as much against the detriment which would be caused to the administration of justice if agreements of the kind in question were to be enforced as against the evil of making knowledge of the commission of the crime a source of profit to the individual.
So much at least was recognized by Slesser L.J. in Howard v. Odhams Press Ltd when, in relation to the agreement under consideration in that case, he observed that it would have the effect of restricting the opportunity which the defendants and others might otherwise possess to assist the authorities in the investigation and prosecution of the alleged crime and went on to refer to the judgment of Stirling J. in Lound v. Grimwade, where his Lordship, after quoting the observations of Lord Lyndhurst in Egerton said:
"Upon this principle it has been repeatedly held that agreements tending to affect the course of legal proceedings are illegal, even although those proceedings may not be strictly criminal in their nature."
The assumption, unstated but unquestionably well founded, which lies behind the observations of Cotton L.J. in Windhill as applied and expounded by Slesser L.J. is that the effective enforcement of the criminal law and the administration of justice, which are central elements in a well ordered democratic society, depend for their efficacy on the unrestricted freedom of each and every citizen to assist and co-operate with the authorities in the investigation and prosecution of criminal offences. There is therefore a powerful public interest in promoting and preserving the citizen's freedom to assist and co-operate with the authorities in the investigation and prosecution of crime.
84 Deane J stated the applicable principle in the following terms (at 595-596):
The relevant proposition of law was shortly stated at the commencement of this judgment. It is that the courts of this country will not lend their aid to enforce a promise not to disclose information where the circumstances are such that enforcement or insistence upon observance of the promise would obstruct the due administration of the criminal law of Australia, whether Commonwealth or State. The rationale of that proposition is that, apart from the exceptional case (such as that of a professional legal adviser) where the overall administration of the law itself requires that confidentiality be maintained, it would be contrary to public policy for the courts to enforce a right on the part of one person to insist that another fail or refuse to disclose relevant information to assist those entrusted with the ordinary administration of the criminal law in the proper investigation and prosecution of criminal activity: the enforcement by the courts of such a private right to insist that another fail or refuse to disclose relevant information would involve the courts in the obstruction of the due administration of the criminal law which is a mainstay both of the rule of law which they exist to serve and of the very existence of effective private rights. For the purposes of that proposition, the investigation of actual or reasonably apprehended criminal activity by a regular law enforcement agency of the Commonwealth or of a State is part of the administration of the criminal law. Whether enforcement or observance of a term of a particular promise of confidentiality would obstruct that administration is a question which must be determined in the context of the circumstances of the particular case.
85 Whether a promise that impedes the administration of justice is to be characterised as void or merely unenforceable depends on the nature of the promise. In A v Hayden, Mason J explained (at 557, citations omitted) that:
Sometimes it is said that a contract to which the principle applies is void; at other times it is said that the contract is unenforceable or, as Lord Tenterden C.J. expressed it in Wetherell v. Jones, that the court will not lend its aid to the enforcement of the contract. The true position, as I see it, is that some contracts are void whereas others are valid, though the court will decline to enforce the particular provision in a valid contract in particular circumstances when enforcement of that provision would have an adverse effect on the administration of justice. Thus, a simple agreement not to disclose the existence of a serious criminal offence, which has been, or is about to be, committed in consideration of the payment of a sum of money may well be void because it is illegal. However, it will be otherwise with a contract which is in all respects lawful but nevertheless contains a provision which, if enforced according to its terms, will result in an interference with the administration of justice. Take a contract which contains a minor or subsidiary provision which, though not directed to non-disclosure of criminal offences, imposes an obligation of confidentiality in sweeping terms. If those terms are not susceptible of being read down, the court will refuse to lend its aid to the enforcement of the provision if enforcement would result in the non-disclosure of a criminal offence adversely affecting the administration of justice. In such a case the contract is not void; nor is it unenforceable in the sense in which that term is customarily used in the law of contracts. The case is one in which the court refuses a remedy on the ground of public policy.
86 So too, Deane J observed (at 596, citations omitted):
In stating the relevant proposition in terms of unenforceability by the courts, I have avoided the question whether a general contractual promise which, properly construed, requires the maintenance of confidentiality notwithstanding that the administration of the criminal law will be obstructed thereby is wholly or partially "illegal", "void" or "invalid". That question raises problems of terminology and substance, including the nature and effect of any distinctions between "illegal", "void", "invalid" and "unenforceable" (cf. Brooks v. Burns Philp Trustee Co. Ltd; Buckley v. Tutty) and the identification of the precise principles governing the residual enforceability (if any) of such a general contractual promise to the extent that the maintenance of confidentiality would not adversely affect the due administration of the criminal law. At one end of the scale is the case where the direct and immediate operation of the contractual promise to preserve confidentiality is to obstruct the due investigation of crime by concealing information about criminal activity and where it would seem clear enough that the promise itself is tainted with illegality and is void. At the other end of the scale is the case where a general promise of confidentiality is innocently given and where it is only in remote and unforeseen circumstances that an adverse effect upon the due administration of the criminal law would result from its observance: in such a case, there is much to be said for the view that the result is superseding unenforceability merely to the extent that observance of the promise would have such an adverse effect.
87 Extrinsic evidence is admissible to prove that a contractual promise is illegal or contrary to public policy: see Pao On v Lau Yiu Long [1980] AC 614 at 631; Electric Acceptance Pty Ltd v Doug Thorley Caravans (Aust) Pty Ltd [1981] VR 799 (Electric Acceptance) at 808 per Brooking J. The evidence in the proceeding demonstrated that clauses 1.10 to 1.12 of the Deed were directed at the Criminal Conduct Complaint filed by the respondents against the appellant (in China). The primary judge correctly described the complaint as an allegation of larceny, which is an offence of a public character. The Filing Notification affords evidence that the "Second vice squad of the First Interpol Detachment, Economic Crime Investigation, Shanghai Public Security Office Pudong Branch" had investigated the complaint, considered that it satisfied the criterion of a criminal case filing and gave notice that the case had been filed. By clause 1.10, the respondents promised to submit a request to the relevant authorities seeking to withdraw the complaint. By clause 1.12, the respondents promised to take any further reasonable steps within their power to support the termination of criminal proceedings. The promises involve actions that would interfere with the due prosecution of the criminal complaint. On the basis of the authorities referred to above, if clauses 1.10 to 1.12 of the Deed concerned criminal complaints made in Australia, in my view the clauses would have been void as contrary to public policy, constituting promises to stifle a prosecution of a public nature.
88 I do not accept the respondents' submission that Kerridge stands for the proposition that conduct may give rise to both public and private action and the private rights stemming from the conduct can always be compromised. In my view, Kerridge and the authorities referred to in Kerridge distinguish between claims involving contraventions of the criminal law that involve only private injury, such as libel, and those that are of a public nature. The common law does not permit claims of the latter kind to be compromised for consideration. In my view, the Criminal Conduct Complaint was of the latter kind.
89 I also do not accept the respondents' submissions that, on their proper construction, clauses 1.10 to 1.12 did not purport to stifle a prosecution. Contrary to the respondents' submission, there is no material difference between promising to submit a request seeking to withdraw the complaint and promising to withdraw the complaint. Further, while the obligation in clause 1.12 requiring the respondents to take "further reasonable steps within their power to support the termination of criminal proceeding" is a broadly defined obligation, the required actions are nevertheless directed to the termination of criminal proceedings and offend the common law rule.
90 The more difficult question is whether clauses 1.10 to 1.12 are contrary to public policy in circumstances where they are directed to a criminal prosecution in China. The respondents referred to the statement by Prof Carter in his textbook Contract Law in Australia (Lexis Nexis, 7th ed, 2018) (at 25-19) that: "The relevant public policy is, of course, the public policy of Australia (or perhaps more accurately that of the jurisdiction in which the dispute is adjudicated)". I consider that statement to be axiomatic. As McHugh JA observed in A-G (UK) v Heinemann Publishers Australia Pty Ltd (1987) 10 NSWLR 86 as a justice of the NSW Court of Appeal (at 196-197) (a decision that was affirmed by the High Court in A-G (UK) v Heinemann Publishers Australia Pty Ltd [No 2] (1988) 165 CLR 30 (the Spycatcher case)):
The courts of Australia are part of the machinery of the government of Australia. With the legislature and the executive, they share the burden of exercising the public power of the nation. Decisions by the courts of this country that particular acts or publications are or are not in the public interest of other countries would constitute a fertile source of embarrassment for the relations of Australia with those countries. …
The courts, being part of the machinery of government in this country, are required to determine issues concerning the public interest of this country when they arise for judicial determination.
91 In certain circumstances, however, the public policy of Australia may extend to promises that are to be performed in another "friendly" country.
92 As noted above, the appellant submitted that a contract entered into in Australia that provides for the commission of a criminal offence in a friendly foreign country is illegal or against Australian public policy because it would be contrary to Australia's obligations of international comity and Australia's notions of public morality. Nygh's Conflict of Laws in Australia (10th edition) states (at [18.46]) that "It is contrary to Australian public policy to enforce an agreement the performance of which would, to the knowledge of each of the parties to the agreement, involve of necessity the breach of the law of another country on its territory".
93 In Foster v Driscoll, a majority of the Court of Appeal (Lawrence and Sankey LJJ) considered the enforceability of agreements, made in the United Kingdom, to arrange for a cargo of whisky to be loaded on a ship in Edinburgh or Glasgow and shipped across the Atlantic and sold in the United States in breach of the laws of that country. Lawrence LJ stated the applicable principle as follows (at 510):
On principle however I am clearly of opinion that a partnership formed for the main purpose of deriving profit from the commission of a criminal offence in a foreign and friendly country is illegal, even although the parties have not succeeded in carrying out their enterprise, and no such criminal offence has in fact been committed; and none the less so because the parties may have contemplated that if they could not successfully arrange to commit the offence themselves they would instigate or aid and abet some other person to commit it. The ground upon which I rest my judgment that such a partnership is illegal is that its recognition by our Courts would furnish a just cause for complaint by the United States Government against our Government (of which the partners are subjects), and would be contrary to our obligation of international comity as now understood and recognized, and therefore would offend against our notions of public morality.
94 Similarly, Sankey LJ concluded (at 521-522) that:
To sum up, in my view an English contract should and will be held invalid on account of illegality if the real object and intention of the parties necessitates them joining in an endeavour to perform in a foreign and friendly country some act which is illegal by the law of such country notwithstanding the fact that there may be, in a certain event, alternative modes or places of performing which permit the contract to be performed legally.
95 As submitted by the appellant, Foster v Driscoll was applied in Regazzoni in respect of an agreement for the supply of jute sourced from India for delivery to South Africa in contravention of an Indian law prohibiting the supply of goods to South Africa and by the West Australian Court of Appeal in Fullerton Nominees in respect of an agreement by which an Australia company agreed to pay its representative agent in Indonesia (who was an Australian citizen) sums of money for the purpose of making illegal payments to Indonesian Government officials to procure a business licence.
96 The above cases can be distinguished from the present case in an important respect. As submitted by the respondents, no evidence was adduced by the appellant before the primary judge to prove that the promises in clauses 1.10 to 1.12 of the Deed, or their performance, are or would be illegal in China. Although the appellant submitted that if that issue were raised before the primary judge it could have been met with evidence, in my view the burden lay on the appellant, who sought to prove that clauses 1.10 to 1.12 were void, to establish all necessary factual findings for that conclusion (relevantly, the illegality of the promises under Chinese law). The appellant did not seek to rely on a presumption that Chinese law is the same as Australian law. In any event, the presumption is not always applicable. In Damberg v Damberg (2001) 52 NSWLR 492, Heydon JA (with whom Spigelman CJ and Sheller JA agreed) surveyed the authorities in Australia and England in which courts declined to apply the presumption, ultimately concluding that German law in relation to the avoidance or evasion of capital gains tax should not be assumed to be the same as Australian law. His Honour referred to the reasoning of Hunt J in BP Exploration Co (Libya) Ltd v Hunt [1980] 1 NSWLR 496 at 503 to the effect that the application of the presumption is intended to operate against, not in favour of, the party whose obligation it is to prove the foreign law, so that they are deprived of the benefit of a right or exemption given by that foreign law if they do not establish that foreign law in the proper way. The cases of Florance and Norris v Woods (1926) 26 SR (NSW) 234 support the proposition that a party who wishes to establish that a contract is unlawful under foreign law must prove the foreign law in the usual way. Applying those principles, I do not consider that any presumption should be applied in the present case. It follows, in my view, that the appellant has not established that the promises or their performance would be illegal in China, and therefore cannot succeed on that basis.
97 The further question that then arises is: in circumstances where the promises in clauses 1.10 to 1.12 would be regarded as being contrary to Australian public policy if they concerned a criminal complaint or proceeding in Australia, are they contrary to Australian public policy, on a principle of international comity, or a principle of public morality, when they concern a criminal complaint or proceeding in China? In respect of that question, the respondents placed reliance on various statements of the High Court in the Spycatcher case, to the effect that a claim is not maintainable in an Australian court which is to vindicate the governmental interests of a foreign state. However, the question raised by the present case does not involve the principles stated in the Spycatcher case. The appellant's defence of the creditor's petition does not seek to protect or vindicate the interests of the Chinese government. Rather, the defence raises the question whether clauses 1.10 to 1.12 of the Deed are unenforceable in Australian courts as being contrary to Australian public policy.
98 The appellant relied on the decision of the Court of Appeal in Kaufman. The case concerned an agreement made in France between persons domiciled in France. The plaintiff, Kaufman, paid monies to Gerson for business purposes, but Gerson misappropriated the monies. The misappropriation was criminal in France and Kaufman threatened a criminal prosecution. The defendant, Gerson's wife, under the influence of Kaufman's threats and to protect the reputation of her children and herself, agreed that she would within a period of three years pay to Kaufman the amount misappropriated by her husband in consideration of Kaufman forbearing to prosecute her husband. According to the uncontradicted evidence of an expert in French law, such an agreement was not invalid by the law of France, either on the ground that it was an agreement for the compromise of a criminal charge, or on the ground that it was obtained by duress or undue influence. The Court of Appeal concluded that an English Court would not enforce a contract so procured. The basis for that conclusion was not, however, a principle of international comity, by which English Courts would not enforce a promise that was detrimental to the administration of justice in a friendly foreign country. Rather, each of the justices of the Court of Appeal applied a principle of private international law that a contract will not be enforced in England where the contract was obtained in a manner which the law deems contrary to morality (by reason of duress), regardless of whether the contract is enforceable in the country in which it was made: at 598 per Collins MR; 599 per Romer LJ; and 600 per Matthew LJ. Although in the present case the appellant argued that clauses 1.10 to 1.12 of the Deed were procured by duress, for the reasons given below I reject that argument. Accordingly, the principles applied in Kaufman have limited application to the present case.
99 On many occasions, the courts have cautioned that "public policy is a very unruly horse, and when once you get astride it you never know where it will carry you": see for example Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432 (Brooks) at 451 per Windeyer J (in dissent); Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 at 232, 248 per Kirby J. The cases show that the answer to the question raised in this case is fact specific and depends upon the nature of the obligation sought to be enforced and the public policy in issue. For example, in Saxby v Fulton (1909) 2 KB 208, the Court of Appeal concluded that money lent in a foreign country for the purposes of being used by the borrower for lawful gambling in that country could be recovered in an action in England, notwithstanding that the gambling transactions could not be enforced in England as being illegal. Buckley LJ observed (at 228) that "…a betting or gaming contract in a country where betting or gaming is recognized by the law cannot be said to be contrary to essential principles of morality or justice" (see also Kennedy LJ agreeing at 232). Similarly, in Addison v Brown [1954] All ER 213, Streatfeild J concluded that a deed, which was entered into between a husband and wife intending to divorce and which provided for the payment of maintenance and that the deed would be binding in any divorce proceedings in California (thereby purporting to exclude the jurisdiction of the courts of that state), was enforceable in England notwithstanding that, if it had purported to oust the jurisdiction of the English Courts, it would have been unenforceable as contrary to public policy. In respect of the above cases, the learned authors of Nygh's Conflict of Laws in Australia express the following opinion (at [18.42]:
Clearly the approach taken in Saxby v Fulton is to be preferred in most cases. If a foreign agreement does not affect any interest of the forum, as spatially defined, there is no reason why an agreement should not be enforced. In that case public policy only comes into play if the agreement seeks to do something in the forum that is contrary to public policy.
100 In Lemenda Trading Co Ltd v African Middle East Petroleum Co Ltd [1988] QB 448, the plaintiff company sought to recover from the defendant company commission for using its influence in assisting to procure the renewal of a contract between the defendant and the Qatar General Petroleum Co. It was conceded that the agreement was governed by English law. Phillips J found (at 454) that the agreement between the parties involved a transaction which was contrary to public policy in Qatar and, as a consequence, the agreement was void under the law of Qatar and unenforceable in Qatar. His Honour also found (at 458) that, had the agreement related to the procurement of a contract from a British Government department or state-owned authority, it would have been unenforceable by reason of English public policy. The question to be determined was whether an English court should enforce the contract in those circumstances. In respect of that question, Phillips J observed (at 459):
…Some heads of public policy are based on universal principles of morality.
"Where a contract is void on the ground of immorality, or is contrary to such positive law as would prohibit the making of such a contract at all, then the contract would be void all over the world, and no civilised country would be called on to enforce it"; per Lord Halsbury L.C. in In re Missouri Steamship Co. (1889) 42 Ch.D. 321, 336."
Where a contract infringes such a rule of public policy the English court will not enforce it, whatever the proper law of the contract and wherever the place of performance. Other principles of public policy may be based on considerations which are purely domestic. In such a case there would seem no good reason why they should be a bar to the enforcement of a contract to be performed abroad.
101 Phillips J ultimately concluded that the court would not enforce the contract on the basis of international comity because the contract was contrary to public policy in both England and Qatar. His Honour reasoned (at 461) that:
The principles underlying the public policy in the present case are essentially principles of morality of general application. The practice of exacting payment for the use of personal influence, particularly when the person to be influenced is likely to be unaware of the pecuniary motive involved, is unattractive whatever the context. Yet it is questionable whether the moral principles involved are so weighty as to lead an English court to refuse to enforce an agreement regardless of the country of performance and regardless of the attitude of that country to such a practice. The later English decisions were influenced, at least in part, by the effect of the practice in question upon good government in England. It is at this stage that, in my judgment, it becomes relevant to consider the law of Qatar. The significant fact in Kaufman v. Gerson was that the contractual adventure was not contrary to French law and the contract was valid and enforceable in France. In the present case Qatar, the country in which the agreement was to be performed and with which, in my view, the agreement had the closest connection, has the same public policy as that which prevails in England. Because of that policy, the courts of Qatar would not enforce the agreement.
In my judgment, the English courts should not enforce an English law contract which falls to be performed abroad where: (i) it relates to an adventure which is contrary to a head of English public policy which is founded on general principles of morality, and (ii) the same public policy applies to the country of performance so that the agreement would not be enforceable under the law of that country.
In such a situation international comity combines with English domestic public policy to militate against enforcement.
102 The above authorities show that the question whether clauses 1.10 to 1.12 are unenforceable as being contrary to Australian public policy (because they have the effect of stifling a criminal prosecution in China) depends on whether the obligations in those clauses are contrary to principles of morality or justice that are recognised in Australia as being of universal application. It must be accepted, as stated by Mason J in A v Hayden, that it does not admit of debate that there is a powerful public interest in the enforcement of the criminal law as an important element in the administration of justice. However, as cases such as Kerridge show, the question whether, and to what extent, an Australian court will enforce a promise to compromise or withdraw a criminal complaint or prosecution involves an evaluation of the nature of the criminal complaint. A promise will be enforceable in so far as it concerns a criminal complaint of a private nature. The fact that Australia's common law on this topic is not absolute and admits of exceptions demonstrates that the principle cannot be regarded as having universal application in foreign countries. It is possible that, in China, clauses 1.10 to 1.12 of the Deed are entirely unexceptional obligations and would be enforceable. For the reasons given earlier, this is not a case in which a presumption that Chinese law is the same as Australian law should be applied.
103 As Isaacs J observed in Wilkinson v Osborne (in the passages cited earlier), the public policy which a court is entitled to apply as a test of validity to a contractual promise is in relation to some definite and governing principle which the community as a whole has already adopted either formally by law or tacitly by its general course of corporate life, and the principle must be one which is of general recognition in the community as one essential to its corporate welfare. The Australian community is taken to have adopted a principle that contracts to stifle a prosecution in Australia should not be enforced (unless the prosecution relates to a wholly private concern). However, in my view principles of international comity and principles of public morality do not require a conclusion that a contract to stifle a prosecution in China should not be enforced in the absence of evidence that such a contract would be illegal or unenforceable as contrary to public policy in China.
104 Respectfully, therefore, I disagree with the conclusion of the primary judge that clauses 1.10 to 1.12 of the Deed are contrary to Australian public policy as having the effect of stifling a criminal prosecution in China and are therefore unenforceable.