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Federal Court of Australia issues freezing orders to enforce Chinese arbitration award, despite appeal pending in Chinese court

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11 Nov 2015

International arbitration continues to grow in importance as a means of regulating trade and commerce between the People Republic of China (PRC) and Australia.   Last week, the Chief Justice of the Federal Court of Australia enforced a Chinese arbitral award by “freezing” five properties in Australia, despite the fact that an appeal from the award is pending in a Chinese Court.

Background

Mr Johnson Ye, an Australian citizen, loaned money to Mr Ronghuo Zeng and his wife.  Repayment of the debt was guaranteed by Mr Zeng’s brother and by two companies related to Mr Zeng which carried on business in China.  The loan and guarantee agreement provided for disputes to be resolved by the Xiamen Arbitration Commission (the Commission) in southeast China.

A dispute arose and Mr Ye filed for arbitration in Xiamen.  The Commission heard and decided the dispute.  It brought down a detailed award in Mr Ye’s favour for RMB 37 million (approximately A$11 million), against Mr and Mrs Zeng, Mr Zeng’s brother and the two companies (the Respondents).  

Mr Ye applied to the Federal Court of Australia (FCA) for enforcement of the arbitration award pursuant to the New York Convention.  In the meantime, the Respondents had lodged an appeal against the arbitration award in the Xiamen Intermediate Appeals Court.  They asked the FCA to adjourn the enforcement action in Australia pending the outcome of the appeal in Xiamen.

The Respondents argued that the Xiamen Intermediate Appeals had imposed a freezing order on all the respondents’ properties in PRC, which were valued at far more than the award for damages, hence there was no need for enforcement in Australia.

Decision of Allsop CJ

Allsop CJ acknowledged the strong influence of seat courts in procedural matters (see e.g. Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; 304 ALR 468 at [65].  However, his Honour noted that there did not seem to be a strong case for the Respondents to persuade the Xiamen Intermediate Appeals Court to set aside the arbitral award – two of their grounds for relief sought re-hearing of factual issues which had been canvassed in detail before the arbitral tribunal.  The other ground was a complaint of lack of procedural fairness which could indeed have provided a basis not to enforce the award, but it appeared that this had never been raised before the arbitral tribunal.

Allsop CJ also took into account that the Respondents’ properties in the PRC appeared to be highly leveraged, and that there was evidence to indicate that Mr Ye’s agents had been obstructed in their attempts to obtain information about the properties. 

His Honour therefore could not see why at least the full principal sum, together with some of the interest, should not be secured in Australia.  He made an order restraining each of the Respondents from dealing with five properties located in Australia, but with leave to approach the court for a variation of the order if a sale of any of the properties was contemplated.

His Honour also commented at paragraph 14 of the judgment: “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.

Implications

This judgment illustrates the effective way in which Australian courts will enforce Chinese arbitration awards pursuant to the New York Convention. 

An award debtor who wishes to stave off enforcement of the award in Australia pending an appeal should at the very least bring frank and complete disclosure of its assets overseas, and ensure that there is no basis for an allegation of obstruction of the other side when investigating the value of assets. 


Ye v Zeng [2015] FCA 1192 (2 November 2015)  ]]>http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2015/2]]>