FEDERAL COURT OF AUSTRALIA

Ye v Zeng [2015] FCA 1192 

Citation:	Ye v Zeng [2015] FCA 1192	
		
Parties:	JOHNSON YE v RONGHUO ZENG (ALSO KNOWN AS ANDREW TSANG), CHUNXIANG ZENG, QINGLONG ZENG, RONGXING ZENG, FUJIAN XIANGRONG CONSTRUCTION GROUP CO LTD and FUJIAN XIANGRONG DAQINSHAN TEA INDUSTRY DEVELOPMENT CO LTD	
		
File number:	NSD 1123 of 2015	
		
Judge:	ALLSOP CJ	
		
Date of Judgment:	2 November 2015	
		
Catchwords:	ARBITRATION – international arbitration – application for recognition and enforcement of foreign award – where there is an appeal of the arbitral award pending in a foreign Court – relationship between seat and enforcement Courts 	
		
Legislation:	International Arbitration Act 1974 (Cth)

New York Convention 1958 	
		
Cases cited:	Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46
Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; 304 ALR 468 
Minmetals Germany GmbH v Ferco Steel Ltd [1999] All ER (Comm) 315 
Travis Coal Restructured Holdings LLC v Essar Global Fund Ltd [2014] EWHC 2510 	
		
Textbooks:	Holmes M & Brown, C The International Arbitration Act 1974: A Commentary (2nd ed, Lexis Nexis, 2015)	
		
Date of Hearing:	2 November 2015	
		
Place:	Sydney	
		
Division:	GENERAL DIVISION	
		
Category:	Catchwords	
		
Number of paragraphs:	24	
		
Counsel for the Applicant:	Mr P E King	
		
Solicitor for the Applicant	Zhang Shijing Lawyers 	
	
Counsel for the Respondents:	Mr H Somerville	
		
Solicitor for the Respondents:	K L International Lawyers	

IN THE FEDERAL COURT OF AUSTRALIA		
NEW SOUTH WALES DISTRICT REGISTRY		
GENERAL DIVISION	NSD 1123 of 2015	
 
BETWEEN:	JOHNSON YE
Applicant
	
AND:	RONGHUO ZENG (ALSO KNOWN AS ANDREW TSANG)
First Respondent

CHUNXIANG ZENG
Second Respondent

QINGLONG ZENG
Third Respondent

RONGXING ZENG
Fourth Respondent

FUJIAN XIANGRONG CONSTRUCTION GROUP CO LTD
Fifth Respondent

FUJIAN XIANGRONG DAQINSHAN TEA INDUSTRY DEVELOPMENT CO LTD
Sixth Respondent

JUDGE:	ALLSOP CJ	
DATE OF ORDER:	2 NOVEMBER 2015	
WHERE MADE:	SYDNEY	

ON THE APPLICANT, BY HIS COUNSEL, GIVING THE USUAL UNDERTAKING AS TO DAMAGES, THE COURT ORDERS THAT: 

1.	Each of the first to sixth respondents not sell, encumber, or otherwise deal, in any way whatsoever, with any of the following properties:
(a)	3/507 Pacific Highway, Killara (Folio #3/SP86801);
(b)	36/507 Pacific Highway, Killara (Folio #36/SP86801);
(c)	39 Stanhope Road, Killara (Folio #1/551876);
(d)	39A Stanhope Road, Killara (Folio #2/551876); and
(e)	109 Pitt St, Sydney (Folio #99/SP72095 & #100/SP72095).
2.	The hearing of the application for enforcement and further adjournment be adjourned to 8:30am Thursday 12 November 2015.
3.	Leave be granted to the respondents to file and serve, on or before 3:00pm Friday 6 November 2015, any further affidavit material concerned with the primary facts of the claim for breach of procedural fairness to be made in the Chinese appeal.
4.	Leave be granted to the respondents to file and serve, on or before 9:00am Monday 9 November 2015, any affidavit material on which they seek to rely identifying available funds for security to be granted in lieu of an order for judgment. 
5.	No other leave be granted for further evidence to be filed, except by the filing of an interlocutory application supported by affidavit material, including the further evidence sought to be relied upon, with any such application to be made on or before 3:00pm Friday 6 November 2015.
6.	Any further submissions by the parties as to the proper relief to be granted in relation to this matter be filed and served on or before 12:00pm Wednesday 11 November 2015.
7.	The matter be stood over to 8:30am Thursday 12 November 2015.
8.	The respondents have liberty to apply on 24 hours’ notice to vary order 1.

Note:	Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA		
NEW SOUTH WALES DISTRICT REGISTRY		
GENERAL DIVISION	NSD 1123 of 2015	
 
BETWEEN:	JOHNSON YE
Applicant
	
AND:	RONGHUO ZENG (ALSO KNOWN AS ANDREW TSANG)
First Respondent

CHUNXIANG ZENG
Second Respondent

QINGLONG ZENG
Third Respondent

RONGXING ZENG
Fourth Respondent

FUJIAN XIANGRONG CONSTRUCTION GROUP CO LTD
Fifth Respondent

FUJIAN XIANGRONG DAQINSHAN TEA INDUSTRY DEVELOPMENT CO LTD
Sixth Respondent

JUDGE:	ALLSOP CJ	
DATE:	2 NOVEMBER 2015	
PLACE:	SYDNEY	

REASONS FOR JUDGMENT

1		This is an application for the recognition and enforcement of a foreign award in an international commercial arbitration. It is unnecessary to spend too much time going over the facts. A brief outline will suffice for today’s purposes. The arbitration award is of the Xiamen Arbitration Commission resolving a dispute, if I may put it so, between parties in two families. 
2		The applicant is Mr Johnson Ye (an Australian Citizen). The First Respondent is Mr Ronghuo Zeng; the Second Respondent is his wife (Chunxiang Zeng); the Third Respondent is their son (Qinglong Zeng); the Fourth Respondent is the First Respondent’s brother (Rongxing Zeng); and the Fifth and Sixth Respondents (Fujian Xiangrong Construction Group Co Ltd, and Fujian Xiangrong Daqinshan Tea Industry Development Co Ltd) are corporations connected with the First Respondent which carry on business in the People’s Republic of China (PRC). 
3		The basis of the complaint is that the applicant says that he lent a large sum of money to the first respondent which was guaranteed by one or more of the other respondents. There was a dispute resolution clause nominating the Xiamen Arbitration Commission as the body to resolve that dispute. The respondents have property development interests in this country and significant property and other industrial interests in the PRC. 
4		The Xiamen Arbitration Commission heard and decided the dispute, handing down an award in favour of the applicant for the sum of money which the applicant said was owed to him, together with interest. The respondents in the arbitration had argued a number of matters, including that some of the money had not been lent but in fact represented accrued interest at, in effect, penal rates. The Commission resolved these disputes and brought an award down in the sum of RMB37 million, which has an approximate value of AUD11 million. That sum under the award is owing and accruing interest
5		I should add that the basis for the award was a written loan agreement between the parties, which the first respondent (and each of the other respondents) signed, and which identified the loan principal of RMB37 million.
6		Mr Ye, as the applicant, now comes to this court for enforcement of the award under s8(3) of the International Arbitration Act 1974 (Cth). Meanwhile an appeal has been lodged in the relevant intermediate appeal court in the PRC (the Xiamen Intermediate People’s Court) identifying 3 grounds of appeal. The first ground is a procedural fairness complaint, which, if made out, would be a breach of public policy and a ground not to enforce the award. The second and third grounds seem to be factual matters and an apparent re-litigation of what appears to have already been fought out before the Commission, when one looks at the Commission’s lengthy reasons: Xia Zhong Cai Zi [2015] no.523. 
7		No attempt has been made to put before the Court the primary facts of the breach of natural justice or procedural fairness. However I am not in a position to conclude that the respondents’ application for appeal, as lodged with the Xiamen Intermediate People’s Court, is not bona fide. 
8		I have some understanding that the Chinese arbitration law is founded upon the New York Convention 1958. I do not understand there to be any particular force in grounds 2 and 3, given that they appear to be a re-litigation of factual matters. I make no comment upon the procedural fairness ground.
9		The applicant wishes to have enforcement in this country. The respondents have sought an adjournment of the enforcement action on the basis of pending the outcome of the appeal in the PRC. 
10		The respondents say that there has been a freezing order put on all of the respondents’ properties in the PRC, by the Xiamen Intermediate People’s Court (Xia Min Bao Zi [2015] no.2), and that the applicant is thus protected. There are two difficulties with that proposition. First, there is evidence that the respondents’ properties in PRC are highly leveraged to Chinese lenders. Secondly, it does not follow from the fact that an award is set aside in the seat country that the award will not be enforced elsewhere. It certainly is a ground not to enforce it, but there is an ongoing debate worldwide as to the independent operation of enforcement courts from the operation of seat courts. One only has to understand the decision of the House of Lords in Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46 to understand this.  
11		That said, if an award was set aside because of a failure to afford procedural fairness, and that judgment was apparently made by an intermediate appellate court of the PRC, applying Chinese law to the extent that Chinese law would be seen to be the lex arbitri, it might be thought that an Australian court would need a lot of persuasion for why it would not refuse to enforce the award. As to the recognition of the influence of seat courts in procedural matters, see: Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; 304 ALR 468 at [65] and Colman J in Minmetals Germany GmbH v Ferco Steel Ltd [1999] All ER (Comm) 315 at 331. 
12		If I may respectfully say so, the approach of the respondents to these proceedings has left more than a little to be desired. In making these comments I should not be seen, in the slightest way, as being critical of Ms Koh (the solicitor for the respondents). I do not assume that any of the problems that I am about to identify are her fault. 
13		I have very little evidence about the financial position of the respondents. Justice Yates accepted some undertakings on 25 September 2015 in this matter to hold the position of the respondents. One of those was an undertaking in [7] of his orders. In most respects, it has barely been complied with. In one respect, it has not been complied with.
14		In an era of electronic commerce and fast moving funds, it is unsatisfactory to expect the courts to stand by and simply wait weeks or months for another country’s courts to go about their work and not protect a party that has, until set aside, a binding award entered into and awarded pursuant to the contractual undertakings of the parties. 
15		The relief which Mr Ye seeks today is to have full security put up or for judgment to be entered to enforce the award. 
16		Authorities such as the recent decision of Blair J in Travis Coal Restructured Holdings Llc v Essar Global Fund Ltd [2014] EWHC 2510 and the other authorities referred to in Holmes, M & Brown, C The International Arbitration Act 1974: A Commentary (2nd ed, Lexis Nexis, 2015) at [8-27] pp89-92, make clear that the court has a discretion, in any adjournment, to order security and is required, or should, approach the matter by assessing the legitimacy and strength of the appeal, and all other factors that would lead to the just protection of the award creditor 
17		In looking at the matter thus and the present state of material I do not see a strong case for setting aside the award. Two of the respondents’ grounds seem to be simple factual contests which, on the basis of the New York Convention 1958, would not get very far. The natural justice point may or may not have grounds to it, but, to the extent that it seems to be a complaint that an inadequate amount of time was given before the hearing of the arbitration, there does not seem to have been any such complaint made to the arbitrators themselves. 
18		There is also evidence that the respondents have been less than helpful in giving access to their properties in the PRC for the assessment as to whether there is any equity that might protect the applicant. I am not prepared to assume that any of the Chinese properties, given their apparent heavy leveraging, will be of use in allowing the applicant to execute his award in the PRC. I say this because of the size of the leveraging and the apparent attitude, on the evidence, to the obstruction of the applicant’s agents in obtaining some information about those properties.
19		Added to this are the comments I have already made in relation to the undertaking in [7] of Justice Yates’ orders, and the imprecision of the present affidavit of Mr Zeng (the First Respondent), affirmed 30 October 2015 and read today. That imprecision and generality is such that I conclude that he appears to be, as presently advised, unwilling to be precise about his net worth in this country. 
20		If the information before me remained as it is now I would make an order, in the nature of that sought in [1A] of the applicant’s application, to be complied with within a short period of time, and if there was any failure to comply with that, I would enter judgment. That judgment would be one which would be attended to by certain personal conditions upon the applicant, namely that the obtaining of execution and funds from the enforcement of the judgment in this country would lead to such sums as were obtained being paid into court or into an account controlled by two solicitors.  
21		It may be that the respondents have misunderstood the approach of the court in relation to international commercial arbitration. Its proper, speedy and unequivocal enforcement is an essential part of international commerce. At present the respondents have an award against them. The applicant is to be secured properly in this country for such amounts as are appropriate and reasonable. On the material at the moment I do not see why at least the full principal sum, together with some of the interest, should not be secured properly 
22		What I propose to do, subject to further submissions, is to give the respondents until 9:00am Monday 9 November 2015, to provide affidavit material as to their available commercial or personal funds that can be used to secure the award (the principal sum and accrued interest). I will not specify what nature that security could be. It is a matter for the respondents to identify what security and the source of that security by 9am on Monday. 
23		I do not propose to reopen this litigation generally, with one exception. I will permit the respondents to file an affidavit by 3:00pm Friday 6 November deposing with precision to the primary facts said to give rise to the procedural fairness complaint in the Chinese appeal.
24		In that context I will make an order restraining each of the respondents from dealing with, whether by sale, mortgage, or in any way whatsoever, any of the properties referred to in 1.1 (c), (f), (h), (i), and (l) of the applicant’s application, and I will grant liberty to the respondents to apply, on notice to the applicant of 24 hours, to approach the court for variation of that order should a sale be contemplated. I will otherwise stand the matter over to Thursday 12 November, for submissions to be made about the proper relief to which the applicant is entitled.
 I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop.	

Associate: 

Dated:	5 November 2015