Hebei Huaneng Industrial Development Co Limited v Shi [2021] NZHC 2687 (8 October 2021)

Last Updated: 18 October 2021

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-733 [2021] NZHC 2687

BETWEEN	HEBEI HUANENG INDUSTRIAL DEVELOPMENT CO LIMITED Plaintiff
AND	DEMING SHI Defendant

Hearing:	12 April 2021
Counsel:	K Morrison and E Hong for the Plaintiff B O’Callahan and J Nolen for the Defendant
Judgment:	8 October 2021

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 8 October 2021 at 2.30pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors/Counsel:

Meredith Connell, Auckland K3 Legal Limited, Auckland

B O’Callahan, Barrister, Auckland

HEBEI HUANENG INDUSTRIAL DEVELOPMENT CO LTD v SHI [2021] NZHC 2687 [8 October 2021]

Introduction

• [1] The plaintiff is applying by way of summary judgment for recognition in New Zealand of a judgment of the Higher People’s Court of Hebei Province in the People’s Republic of China.

• [2] The defendant, Mr Shi, is a Chinese resident who remains in China but who has assets in New Zealand.

• [3] The judgment is for RMB104,544,241.28, approximately NZD23 million.

• [4] Before a foreign judgment can be enforced in New Zealand it must be recognised by a New Zealand court. Following recognition by a New Zealand court, all of the consequences of having a New Zealand judgment flow including being able to enforce payment of the judgment sum.

• [5] The Higher People’s Court found Mr Shi liable on a personal guarantee. The guarantee related to the liability of the company, Qinhuangdao Boen Trading Co Ltd, a company associated with the defendant. A further company, Tangshan Seaport Detai New Material Technic Co Ltd was also found liable under a separate guarantee supported by collateral security.

• [6] The decision of the Higher People’s Court overturned the first instance decision where the plaintiff’s claim, although successful against the other defendants, had been dismissed against Mr Shi.

• [7] There is no treaty between the People’s Republic of China and New Zealand for the enforcement of judgments. Any enforcement, therefore, has to be in accordance with the common law. The requirements for enforcement at common law are relatively settled but the question here is whether the defendant has an arguable defence either that those requirements are not satisfied in this case or that he can bring himself within one of the exceptions to recognition. If he is able to do so, then the matter cannot be determined on a summary judgment application and must go to a full hearing.

Legal principles applying to summary judgment

• [8] At the outset it is important to set out the principles of summary judgment. These are well settled. Rule 12.2(1) of the High Court Rules 2016 allows summary judgment to be granted where a plaintiff satisfies the Court that the defendant “has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action”.¹

• [9] The plaintiffs must demonstrate the “absence of any real question to be tried”.² The critical question is generally whether the Court is satisfied that the plaintiff’s case is unanswerable. The Court will not reach that conclusion if it can see an arguable defence.

• [10] To succeed, the Court needs to be “confident, sure, convinced, persuaded to the point of belief, left without any real doubt or uncertainty”.³

• [11] Even if difficult legal questions are involved, there is no reason why summary judgment cannot be entered.⁴

• [12] While the onus is ultimately on the plaintiff to demonstrate that the defendant has no defence to a claim,⁵ the circumstances of a case may be such that the evidentiary onus will shift to the defendant to demonstrate that they have a tenable defence.⁶ The defendant may adduce evidence directed to show that they do have a defence.⁷ It is appropriate for the Court to stand back and to consider whether the defence advanced could realistically succeed at trial.⁸

¹ Pemberton v Chappell [1986] NZCA 112; [1987] 1 NZLR 1 (CA) at 3–4.

² At 3.

³ At 4.

⁴ Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 383 at [37].

⁵ Ma v Ming Shan Holdings Ltd [2010] NZCA 325 at [25]; Pemberton v Chappell, above n 1, at 3– 4; MacLean v Stewart [1997] 11 PRNZ 66 (CA) at [69].

⁶ Auckett v Falvey HC Wellington CP296/86, 20 August 1986 at 2.

⁷ MacLean v Stewart, above n 5, at [69].

⁸ Ma v Ming Shan Holdings Ltd, above n 5, at [30].

Procedural background

• [13] Two judgments have already been issued in these proceedings leading up to the hearing of the plaintiff’s summary judgment application. The first is in relation to freezing orders first issued on an interim basis against Mr Shi’s assets in New Zealand together with an order for security supporting the undertaking as to damages given by the plaintiff.⁹

• [14] In addition, the defendant protested the jurisdiction of the New Zealand courts to hear this proceeding.¹⁰ Mr Shi’s objections to New Zealand hearing the case were the same as in response to this summary judgment application, namely that the People’s Republic of China (“PRC”) does not have courts whose judgments ought to be recognised at common law and that the plaintiff has failed in its obligation under the “property first” principle of PRC law to exhaust the collateral security before pursuing the personal guarantee (or has waived the guarantee, fully or in part, by not taking the necessary steps in relation to the collateral).

• [15] Associate Judge Bell set aside Mr Shi’s protest on the basis that neither of these arguments were strong enough for the court to decline jurisdiction.

• [16] The plaintiff submitted that the question of whether the Hebei Higher People’s Court was a court for the purposes of recognition had been decided by Associate Judge Bell finally and conclusively and so the principle of res judicata prevented further consideration of that question. Associate Judge Bell however concluded that the plaintiff had established a “good arguable case” that it was suing on a judgment of a court. This is not sufficient for the purposes of a summary judgment claim where it must be established that there is no arguable defence. I therefore reconsider the question below.

Factual background

• [17] The plaintiff is a subsidiary of a state-owned enterprise and started dealing with Qinhuangdao Boen Trading Co Ltd (“Boen China”), a company associated with Mr

⁹ Hebei Huaneng Industrial Development Co Ltd v Shi [2020] NZHC 2470.

¹⁰ Hebei Huaneng Industrial Development Co Ltd v Shi [2020] NZHC 2992.

Shi in 2003. The plaintiff paid Boen China to source coal and distribute it to various electricity production companies in PRC. Each electricity production company would pay the plaintiff for the coal received. From these payments the plaintiff kept an agreed margin and paid the remainder to Boen China.

• [18] As part of these arrangements, the plaintiff made an advance payment to Boen China to enable it to ensure an adequate coal supply. Each month, after completing a reconciliation, the plaintiff would make adjustments to ensure the advance payment was kept at the agreed level. Since 2012, the advance payment was agreed to be RMB103,426,379.28, approximately NZD23 million.

• [19] A new contract was entered into each year between the parties. Both the defendant, Mr Shi, and a further company, Tangshan Seaport Detai New Material Technic Co Ltd (“Detai”), guaranteed Boen China’s obligation to repay the advance payment if the contract was terminated. Mr Shi’s evidence is that he only agreed to a new personal guarantee based on the existence of the Detai security. Detai’s security included collateral that was listed in detail and valued in a valuation report to ensure that it was sufficient to cover the advance payment. The valuation report was registered with the Department of Collateral Mortgage Registration of the Administration for Industry and Commerce of Tangshan Seaport Economic Development Zone.

• [20] At the end of 2015 the plaintiff decided not to renew its agreement with Boen China. Boen China was consequently obliged to repay the advance payment but failed to do so.

• [21] The plaintiff commenced a proceeding against Boen China, Detai and the defendant to recover the advance payment. On 3 June 2019, a panel of three judges in the first instance court, Shijiazhuang Intermediate People’s Court of Hebei Province, found Boen China liable under the coal contracts and Detai liable for Boen China’s obligations pursuant to the mortgage agreements entered into.
• [22] The Intermediate People’s Court did not however find the defendant, Mr Shi, liable under his guarantee because the plaintiff did not require Mr Shi to “assume the guarantee responsibility within the guarantee period”. The Intermediate People’s Court relied on Article 26, paragraph 2 of the Guarantee Law of PRC, holding that if the creditor does not demand that the guarantor undertake guarantee liability during the guarantee period stipulated in the contract and in the preceding paragraph, the guarantor shall be exempted from liability. The Intermediate Court therefore only found Boen China and Detai liable.

• [23] The plaintiff appealed to the Hebei Higher People’s Court. On 12 August 2019 the Higher People’s Court overturned the court at first instance and held Mr Shi liable on the guarantee. The appeal court found that where the guarantee did not stipulate the guarantee period the relevant PRC law provided that the guarantee period would be 2 years from the date of maturity of the main debt. The Court found that the latest repayment date of the advance payment was 31 January 2016 so the guarantee period ran from 31 January 2016 to 31 January 2018. As the plaintiff had brought its claim against Mr Shi on 26 December 2017 the claim was brought in time and Mr Shi was liable under the guarantee.

• [24] The orders made by the Intermediate People’s Court in relation to Boen China and Detai were not appealed to the Higher People’s Court so the plaintiff continued to have priority in relation to the collateral provided by Detai against Detai’s other creditors.

• [25] The plaintiff says that in late 2019 it sought to enforce the judgment of the Higher People’s Court against Boen China, Detai and the defendant, Mr Shi. The plaintiff’s evidence is that the two companies had no assets. As mentioned above, the defendant is resident in PRC but his only assets were RMB4196 (approximately NZD839) in his bank account. The PRC Court ordered that this was to be applied towards the plaintiff’s execution expenses. At the same time the Court sealed an order restricting the defendant from spending money other than for reasonable and ordinary living expenses.
• [26] The plaintiff became aware that the defendant had assets in New Zealand and so commenced this proceeding in May 2020.

Recognition principles

• [27] At common law the three prerequisites that the plaintiff must satisfy for the Court to order recognition of a foreign judgment are that the judgment must:¹¹

(a) be issued by a foreign court of competent jurisdiction;

(b) for a definite sum of money; and

(c) be final and conclusive.

• [28] Once those requirements are established, there are three settled exceptions to recognition where:

(a) the judgment was obtained by fraud;

(b) enforcement of the judgment will be contrary to public policy; or

(c) the proceedings in which the judgment was obtained were contrary to natural justice.

• [29] Before considering these elements, it is useful to consider the underlying rationale for the enforcement of foreign judgments. In Eilenberg v Gutierrez, the Court of Appeal explained that the power to enforce foreign judgments arose originally from the doctrine of comity of nations. In the mid-nineteenth century however there was a conceptual shift from the doctrine of comity to that of obligations, with the Court in Eilenberg noting that the Court of Appeal’s statement in Chen v Lin¹² that the jurisdiction is based on the principle of comity is contrary to settled authority.

¹¹ Eilenberg v Gutierrez [2017] NZCA 270 at [30] relying on Kemp v Kemp [1996] 2 NZLR 454 (HC) and Reeves v OneWorld Challenge LLC [2005] NZCA 314; [2006] 2 NZLR 184 (CA).

¹² Chen v Lin [2016] NZCA 113 at [18].

• [30] The Court of Appeal in Eilenberg referred to Adams v Cape Industries Plc where Scott J at first instance approved earlier dicta stating that part of the rationale for enforcing an obligation incurred abroad is the presumption that the defendant was bound by and also enjoyed the protection of the laws of the foreign country at the time of the judgment.¹³ The Court of Appeal continued that the “overriding consideration”, as referred to by Scott J in Adams v Cape Industries Plc, is whether the foreign judgment created an “obligation to pay” which “under English law” the debtor is bound to discharge. The Court of Appeal quoted the following passage from Owens Bank Ltd v Bracco:¹⁴

[I]n order for the foreign judgment to be enforced in this country, it is essential that the foreign court should have had jurisdiction over the defendant, not in the sense of the foreign law but according to the rules of our law ... and the defences which may be pleaded by the defendant in an action upon a foreign judgment, such as that the judgment was obtained by fraud, are themselves creatures exclusively of English law.

(Court of Appeal emphasis.)

• [31] The question of recognition must therefore be understood in terms of obligation and whether the New Zealand courts ought to recognise that obligation in New Zealand.

Discussion

• [32] The plaintiff claims that the Hebei Higher People’s Court judgment ought to be recognised because:

(a) the PRC courts had jurisdiction over the defendant in accordance with New Zealand conflict of law rules;

(b) the judgment is for a definite sum of money; and

(c) the judgment is final and conclusive.

¹³ Adams v Cape Industries Plc [1990] 2 WLR 657.

¹⁴ Owens Bank Ltd v Bracco [1992] 2 AC 443 (CA) at 457.

• [33] The defendant does not deny that he submitted to the jurisdiction of the Higher People’s Court and that the judgment was for a definite sum. However, he raises the following defences:

(a) a New Zealand court should not recognise the judgment because the Higher People’s Court judgment is not given by a “court” as understood for recognition at common law; and

(b) the judgment is not final and conclusive between the parties because it is a judgment on a personal guarantee, with enforceability depending on further analysis of the plaintiff’s conduct in relation to the property security provided by Detai.

Is it arguable that a PRC court is not a court for the purposes of recognition at common law?

• [34] The defendant submits that the foreign judgment that the plaintiff seeks recognition of has not been issued by a “court” as that term is understood for the purposes of recognition at common law.

• [35] The defendant relies on the definition of a court from Attorney-General v British Broadcasting Corporation where Lord Scarman described a court’s defining nature, referring to it as a court of judicature:¹⁵

Though the United Kingdom has no written constitution comparable with that of Australia, both are common law countries, and in both judicial power is an exercise of sovereign power. I would identify a court in (or ‘of’) law, i.e. a court of judicature, as a body established by law to exercise, either generally or subject to defined limits, the judicial power of the state. In this context, judicial power is to be contrasted with legislative and executive (i.e. administrative) power. If the body under review is established for a purely legislative or administrative purpose, it is part of the legislative or administrative system of the state, even though it has to perform duties which are judicial in character. Though the ubiquitous presence of the State makes itself felt in all sorts of situations never envisaged when our law was in its formative stage, the judicial power of the state exercised through judges appointed by the state remains an independent, and recognisably separate, function of government. Unless a body exercising judicial functions can be demonstrated to be part of this judicial system, it is not, in my judgment, a court in law.

(footnotes omitted)

¹⁵ Attorney-General v British Broadcasting Corporation [1981] AC 303 at 359–360.

• [36] In Attorney-General v British Broadcasting Corporation, the House of Lords was considering whether the local valuation tribunal was a court for the purposes of determining whether the Divisional Court’s power to punish for contempt of court extended to punishing for contempt of the land valuation tribunal. It was not a case where recognition of a foreign judgment was being sought. But the defendant submits that the common law rules for recognition of foreign judgments rely on the court that issued the judgment having the characteristics described in the passage referred to above.

• [37] The defendant submits that all that is needed is cogent evidence that the court lacks independence for the judgment not to be recognised, relying on Altimo Holdings and Investment Ltd v Kyrgyz Mobile Tel Ltd, where the Privy Council distinguished the rules of recognition from the “act of state” doctrine which gives legal recognition to the exercise of the sovereign power of a foreign state.¹⁶ The Privy Council (on appeal from the Manx High Court of Justice) held:¹⁷

The true position is that there is no rule that the English Court (or Manx Court) will not examine the question whether the foreign court or the foreign court system is corrupt or lacking in independence. The rule is that considerations of international comity will militate against such finding in the absence of cogent evidence. That, and not the act of state doctrine or the principle of judicial restraint in Buttes Gas & Oil Co v Hammer (Nos 2 & 3), is the basis of Lord Diplock’s dictum in The Abidin Daver and the decisions which follow it. Otherwise the paradoxical result would follow that, the worse the system of justice in the foreign country, the less it would be permissible to make adverse findings on it.

• [38] The defendant further relies on Carl Zeiss Stiftung v Rayner and Keeler Ltd (No 2) where the defendant says the House of Lords was prepared to consider the question of whether a court in a foreign jurisdiction was a “court” if there was evidence that it might not be.¹⁸ In that case a submission had been made that determinations of the courts of the German Democratic Republic should be disregarded as decisions of a centralised state guided by policy. In response, Lord Wilberforce held:¹⁹

¹⁶ Altimo Holdings and Investment Ltd v Kyrgyz Mobile Tel Ltd [2011] UKPC 7, [2012] 1 WLR 1804.

¹⁷ At [101].

¹⁸ Carl Zeiss Stiftung v Rayner and Keeler Ltd (No 2) [1967] 1 AC 853 (HL).

¹⁹ At 976.

If this argument could have been carried to the point of showing that the courts of East Germany are not courts of law at all or that their decisions were corrupt or perverse, that might (I do not say would) be a ground for disregarding them in favour of decisions of other courts shown to act more judicially. But the evidence did not, in my opinion, approach this point, and a mere difference in philosophy, or even of method, so far from entitling us to prefer the West German approach, on the contrary gives support to those who argue that the East German variety of German law should be taken as being the law in East Germany.

• [39] Lord Guest separately held:²⁰

The only criticism which is made by the West German lawyers of the East German judgment is that there are no free judges in East Germany and that no East German court would dare to come to a contrary conclusion. But this is only the opinion of the West German lawyers and there is not a shred of evidence to support it.

• [40] The question of whether a foreign judgment was issued by a “court” for the purposes of recognition has been considered in New Zealand in Kuwait Finance House (Bahrain) BSC v Teece.²¹ The foreign judgment that was the subject of those proceedings was issued by the Bahrain Chamber for Dispute Resolution (“BCDR”). The question of whether the BCDR was a court for recognition purposes was determined as a preliminary question with the remaining elements for recognition to be considered at a later hearing.²² In approaching the issue, Mander J explained:²³

What is required is an assessment of the tribunal’s nature and function within the setting of Bahrain’s domestic local system to determine whether the BCDR meets the criteria of a judicial tribunal and has the fundamental attributes to be recognised as a Court in this jurisdiction for the purpose of enforcing one of its decisions.

• [41] As counsel for the plaintiff submits, Mander J therefore identified two considerations:

(a) the nature and function of the BCDR in Bahrain’s legal system; and

(b) whether the BCDR has the fundamental attributes for recognition as a court in New Zealand.

²⁰ At 939.

²¹ Kuwait Finance House (Bahrain) BSC v Teece [2017] NZHC 1308, [2018] 2 NZLR 257.

²² At [2]–[3].

²³ At [16].

• [42] The plaintiff seeks to rely on this decision as authority for their submission that the Higher People’s Court must be a court because it was part of the judicial branch of the PRC government, exercised a judicial function, and its procedures and decisions were recognisably judicial.

• [43] Associate Judge Bell accepted this submission in his Honour’s decision on the defendant’s protest to jurisdiction but only for the purposes of setting aside Mr Shi’s protest.²⁴

• [44] When the whole of the judgment in Kuwait Finance House (Bahrain) BSC v Teece²⁵ is considered, however, in my view there is a clear argument that Mander J’s use of the word “judicial” imports with it impartiality and independence.

• [45] In discussing the second consideration set out above, his Honour repeatedly refers to independence. Mander J begins by referring to Lord Scarman’s description of a court set out above and the reliance on that description by the Court of Appeal in Waikato/Bay of Plenty District Law Society v Harris (“Harris”).²⁶ That case concerned whether the Law Practitioner’s Disciplinary Tribunal was a court. Mander J observed that the Court of Appeal in Harris had regard to the following as identifying features of a court:²⁷

(a) A chief characteristic of a court of judicature is the exercise of judicial power of the state through Judges appointed by the state. The appointment of members of the tribunal by the Council of the New Zealand Law Society was contrasted with members of the Employment Tribunal being appointed by the Governor-General on the recommendation of the Minister of Labour under the Employment Contracts Act 1991.

(b) The public function of the tribunals in question. The Employment Tribunal determines disputes between parties to employment contracts which would otherwise have to be dealt with by the ordinary courts, whereas the Law Practitioners Disciplinary Tribunal’s responsibility was to maintain standards within the legal profession. The important public benefit in maintaining those standards was acknowledged but the primary beneficiary was the profession itself, which was why most professions and service industries develop their own disciplinary regimes.

²⁴ Hebei Huaneng Industrial Development Co Ltd v Shi, above n 10, at [60].

²⁵ Kuwait Finance House (Bahrain) BSC v Teece, above n 21.

²⁶ Waikato/Bay of Plenty District Law Society v Harris [2006] NZCA 532; [2006] 3 NZLR 755 (CA).

²⁷ Kuwait Finance House (Bahrain) BSC v Teece, above n 21 at [59].

(c) The ability to enforce its own orders. The Law Practitioners Disciplinary Tribunal has no power to enforce its own orders. Orders were required to be filed in the High Court and could only then take effect as if they were orders of this Court. This was to be compared with the position of the Employment Tribunal which possessed the power to enforce its own orders.

(d) The omission by Parliament to include in the Law Practitioners Disciplinary Tribunal’s constitutive statute a provision declaring its proceedings to be “judicial proceedings” as it had for the Employment Tribunal in the Employment Contracts Act 1991. To the contrary, under s 127 of the Law Practitioners Act 1982 immunity was conferred on witnesses and counsel in relation to disciplinary proceedings “as if they were proceedings in a Court of law”; the implication being that disciplinary proceedings under that regime were not in fact “proceedings in a Court of law”.

• [46] Mander J says those factors were applied by the Court of Appeal in Daimler AG v Sany Group Co Ltd²⁸ where the Court accepted that processes adopted by the Commissioner of Trademarks for trademark registration disputes were “consistent with those adopted by courts exercising judicial authority.”²⁹ Mander J refers to the Court of Appeal’s conclusion that the Commissioner of Trademarks was not a “court of judicature” within s 2 of the Judicature Act 1908 and therefore not an “inferior court” for the purposes of an appeal, recording that the Court of Appeal:³⁰

... noted the primarily administrative statutory functions of the Commissioner and his status as an employee of the Ministry of Justice rather than as an independent officer. These features were considered to be telling.

• [47] Under the heading “[t]he rationale for recognition of foreign judgments” Mander J held:³¹

... it will ultimately be a question of New Zealand law whether the character of the foreign tribunal and its role within the foreign jurisdiction is sufficient to constitute what is considered to be a court in this country. However, the principle of comity requires the domestic Court to be circumspect about denying recognition to a foreign tribunal created by the legislative authority of a sovereign state, to exercise that state’s judicial power as a component part of its legal system.

²⁸ Daimler AG v Sany Group Co Ltd [2014] NZCA 421.

²⁹ At [14].

³⁰ Kuwait Finance House (Bahrain) BSC v Teece, above n 21 at [61].

³¹ At [63].

• [48] His Honour expanded on the above, saying:

[67] The differences between a body such as the BCDR and a New Zealand court in terms of process and procedure ought not, therefore, necessarily be greatly influential. However, some elements may be considered fundamental to a recognised judicial process. Importantly the tribunal must have sufficient judicial attributes enacted in a sufficiently judicial way to be recognised as a court by this jurisdiction. At the most fundamental level, any tribunal must have employed a process which included the application of the law to the facts with opportunity to parties to participate.

• [49] One of the reasons Mander J concluded the BCDR was a court followed from his analysis of the decision of the Bahrain Constitutional Court which held the original draft legislative decree establishing the BCDR (“Draft Decree”) to be unconstitutional. Mander J records that the BCDR has two separate forms of jurisdiction:

(a) Section (1) disputes under which the BCDR exercises a mandatory jurisdiction as a matter of law over a prescribed category of commercial disputes; and

(b) Section (2) disputes under which the BCDR exercises a voluntary jurisdiction by agreement of the parties.

• [50] The Draft Decree for the BCDR did not originally require the tribunals constituted under its Section (1) jurisdiction to include judges, nor a judicial quorum.³² Mander J explained:

[47] Because Art (18) required the Supreme Judicial Council to exercise oversight over the conduct of the BCDR’s Section (1) work as an entity with “judicial jurisdiction”, the Constitutional Court held the members of such an entity should be judicial, thereby providing the accompanying “guarantees” of competency, impartiality and independence, and appointed in the ordinary way by resolution of the Supreme Judicial Council upon the request of the Minister of Justice. The Court explained that because of the protections provided in the Constitution of the right to litigate and equality of access to the courts to litigate, a dispute resolution tribunal formed to exercise Section

(1) jurisdiction needed to be judicial. Because the draft Decree failed to require that judicial element for the purpose of exercising its compulsory jurisdiction, Art (1) of the draft Decree breached the Constitution.

³² Kuwait Finance House (Bahrain) BSC v Teece, above n 21 at [45].

• [51] As Mander J says in the quote above, the reference to “judicial” brought with it “the accompanying “guarantees” of competency, impartiality and independence”. In my view, there is a clear argument that when Mander J later refers to “judicial power” or uses the word “judicial”, guarantees particularly of impartiality and independence are implied.

• [52] Following the quote above, Mander J sets out a passage from the decision of the Bahrain Constitutional Court referring to the articles in the Bahrain Constitution that the Draft Decree was inconsistent with, including:³³

... Article 32 that states “a. The system of government rests on a separation of the legislative, executive and judicial authorities while maintaining cooperation between them in accordance with the provisions of the Constitution. None of the three authorities may assign all or part of its powers stated in this Constitution.

• [53] His Honour added a footnote to this paragraph, quoting another article of the amended Bahrain Constitution:³⁴

Article 104 [Independence, Public Prosecutor]

1. The honour of the judiciary, and the probity and impartiality of judges, is the basis of government and the guarantee of rights and freedoms.

2. No authority shall prevail over the judgment of a judge, and under no circumstances may the course of justice be interfered with. The law guarantees the independence of the judiciary, and the law shall lay down the guarantees of judges and the provisions pertaining to them.

• [54] The decree constituting the BCDR was amended as a result of the Bahrain Constitutional Court’s decision that the Draft Decree was unconstitutional. The amendment made was to include a requirement that for all Section 1 disputes the tribunal must include a majority of Judges deputised by the Supreme Judicial Council to provide “the essential ‘judicial element’ necessary to legitimately exercise such a compulsory form of jurisdiction”.³⁵

³³ At [48].

³⁴ At n 31.

³⁵ At [49].

• [55] Counsel for the plaintiff attempts to draw a parallel with Mander J’s reference to the effect of the decree establishing the BCDR being that if the BCDR did not qualify as a court there would be no other court in Bahrain which had jurisdiction to hear disputes of the kind the BCDR is charged with determining under its section (1) jurisdiction.³⁶ Counsel for the plaintiff submits that similarly:

[w]ithout the people’s court system, there would be no body capable of adjudicating on the dispute between the defendant and plaintiff. It cannot be the intention of the state to leave its citizens without the means to resolve disputes between them.

• [56] But Mander J’s comment was made when explaining why the Bahrain Constitutional Court declared the Draft Decree unconstitutional and required judges to be appointed to the BCDR tribunals exercising Section (1) jurisdiction. If the Higher People’s Court is held not to be a court for the purposes of recognition in these proceedings, that does not mean it is not a court in PRC; nor does it diminish its role within the PRC judicial system. It is important to distinguish between the question of whether the Higher People’s Court is a court in PRC (the first consideration referred to above) and whether the Higher People’s Court is a court for the purposes of recognition in New Zealand (the second consideration).

• [57] I accept that the focus in Kuwait Finance House (Bahrain) BSC v Teece was more on the nature of the tribunal rather than whether independence and impartiality were fundamental characteristics of a court but those characteristics appear to have been accepted as prerequisites for a court in the judgment, as the above discussion makes clear. Another example can be found in the response to a submission made on behalf of Mr Teece, the defendant in Kuwait, that the way in which judges were selected for the BCDR by the Registrar and the parties “was incompatible with the characteristics of independence and impartiality considered to be a hallmark of a court.”³⁷ Rather than finding that independence and impartiality were not necessary hallmarks of a court, Mander J found that the appointment process did not detract from the independence of the judges sitting on the tribunal.³⁸

³⁶ At [81].

³⁷ At [89].

³⁸ At [94].

• [58] One of the difficulties in Kuwait Finance House was that the assessment of whether the BCDR was a court:³⁹

... has not been undertaken against any factual matrix of how the proceeding unfolded in Dr Teece’s case. For example, a tribunal has flexibility as to how it will proceed, including the ability to engage experts who may investigate and present evidence in the form of a report. Of itself such a process does not prevent a decision making body from being recognised as a court, but how such a process is carried out and utilised in a given case may affect whether a tribunal is acting in a manner which would be considered consistent with the expectations of a judicial body in this country.

• [59] I now consider the evidence filed to understand the way in which the PRC court operated in this case to assist in assessing whether the defendants have an arguable defence.

Is there evidence in support of the defendant’s position?

• [60] The defendant filed evidence from two expert witnesses:

(a) Dr Ding Chunyan, an Associate Professor of Law from Hong Kong who has expertise in Chinese civil and comparative law; and

(b) Mr Clive Ansley, a Canadian lawyer who speaks and reads Chinese and has significant experience of Chinese civil, criminal and maritime law.

• [61] Dr Ding describes the PRC civil system:

• [46] The Chinese judiciary system consists of four level courts: from top to bottom, the Supreme People’s Court (SPC), the High People’s Court (HPC) at the provincial level, the Intermediate People’s Court (IPC) at the municipal level and the Basic People’s Court (BPC) at the district or county level. The latter three are categorised as local courts. In addition, there are specialised courts, which include Military Courts, Railway and Transport Courts, Maritime Courts, Intellectual Property Courts, Internet Courts and Financial Courts across the country. Specialised courts are at the same level to the municipal-level Intermediate People’s Courts. The SPC also sets circuit courts in various provinces to try cases.

• [47] Chinese civil procedure system is set out in the Civil Procedure Law of the People’s Republic of China ... made by the National People’s Congress on 9 April 1991 (effective on the same day, amended in 2007, 2012, 2017).

³⁹ At [68].

According to the Civil Procedure Law, a civil case should be finally decided after two trials, that is, the “final after two trials” system. The first instance court for most civil cases is either the basic or intermediate people’s court. A party can bring an appeal only once to the people’s court at the next higher level within fifteen days from the date of service of the written judgment (which deals with substantive legal issues ...) or verdict (which deals with procedural legal issues ...). The judgment or verdict made by the appellate court is final and effective. An exception is that any decision rendered by the SPC as the first instance court becomes immediately legally binding.

• [62] Dr Ding discusses the independence of Judges from four perspectives including the selection of Judges, the internal structure of the court, the judicial accountability system, and the performance appraisal system.

• [63] She concludes that while recent judicial reforms have enhanced the independence of Judges, they remain subject to influence or interference by the division chief judge and the leadership team of the court especially when adjudicating high profile cases. Dr Ding defines the leadership team as the president and vice- president of the court and the adjudication committee, or judicial committee as it is referred to by the other witnesses.

• [64] Dr Ding refers to Article 39 of the Court Organic Law which provides that the basic duties of the Judicial Committees include:

(a) summing up trial work experience;

(b) deliberating and deciding on the application of law in major, difficult and complicated cases;

(c) deliberating and deciding whether the judgments, verdicts and mediation documents of the court that have come into force should be re-tried; and

(d) deliberating and deciding on other major issues relevant to trial.

• [65] Dr Ding then explains:

On the one hand, the Adjudication Committee is criticised for its influential decision-making power over those major, difficult and complicated cases as well as its problematic “deciding without hearing” practice. On the other

hand, the Adjudication Committee is exploited by both individual Judges and Committee members to shelter responsibility in reality.

• [66] Dr Ding discusses reforms to the judicial accountability system in 2013 that reduced the supervisory powers of the Division Chief Judge and limited the powers of the Judicial Committees. Dr Ding reports however that further reforms in 2018 have strengthened internal supervision because Dr Ding says the Supreme People’s Court (“SPC”) considered the scale had tilted too much towards judicial independence.

• [67] Dr Ding separately addresses the independence of the courts (as opposed to the Judges), recording that the judiciary is subordinated to the National People’s Congress and the People’s Congress at the various local levels with the People’s Congress having the power to appoint and dismiss judges of the court.

• [68] In practice, Dr Ding explains, the power of the People’s Congress to supervise the court at the same level is exercised through the representatives of the People’s Congress. Dr Ding gives as an example, “the representative may send a letter to the court to express their attention or concerns on some ongoing judicial cases”. Furthermore, interference with the court may come from the local government at the same level. Dr Ding says that “although the Constitution declares that the court is free of interference by any administrative organs, it is another story in practice.” Reforms in 2012 established a centralised court funding regime which Dr Ding says has enhanced the independence of the courts, but Dr Ding deposes that the SPC and provincial courts are still subject to influence and interference from administrative agencies at the same or higher level.

• [69] Dr Ding concludes:

Although the SPC’s recent judicial reforms have reduced or mitigated both internal and external interference with judicial decisions, the independence of individual Judges are still subject to the supervisory power of the Division Chief Judge and the leadership team of the court as well as the Adjudication Committee in the court; and Chinese courts as an institution remains under the supervision of the People’s Congress or its representatives and the CPC [Communist Party of China], and the interference by administrative organs (sic).

• [70] In his affidavit Mr Ansley says that he is conscious that the question of whether a Chinese court is a “court” for the purposes of recognition is a question for this Court rather than the expert witnesses but he acknowledged his long held view that PRC courts are not courts as that term is understood in jurisdictions that follow the rule of law. For his definition of a court, Mr Ansley uses the same definition as in Attorney-

General v British Broadcasting Corporation.⁴⁰

• [71] Mr Ansley lists the attributes of the Chinese legal and judicial system which distinguish it from that definition:

(a) There is no separation of powers in China.

(b) The members of the judiciary are all members of the Chinese Communist Party (“CCP”).

(c) The Judges that “hear” cases do not decide them.

(d) Cases are decided secretly by Judicial Committees both appointed in each Court whose members are drawn from the Judges in the Court and from the CCP. Decisions are delivered as they have been determined by the Judges who conducted the trial.

(e) It is a feature of the system that through several mechanisms, cases are routinely influenced by political matters. This is not ad hoc corruption or poor decision making. It is how the system is designed to work.

(f) As a further elaboration of this last point, Judges are expected to do whatever is in the interests of the CCP, must answer to or be accountable to the CCP and are not to regard themselves as independent. Judicial independence has often been described as an immoral western concept in China’s top leadership and has denounced it, rejected it, and pledged to never allow judicial independence to be implemented now or in the future.

(g) Some Judges are not trained in law and in any event the political/legal committee of the Chinese Communist Party at every level can overrule the Courts at that level.

(h) China has no rule of law. Instead it has a system of rule by law although laws are codified in statutes and may be consulted if necessary, the decisions are arbitrary and reflect, ultimately, the will of the CCP. There is no mechanism for any individual to challenge the CCP or require it to be judged or assessed according to fundamental overriding principles.

• [72] Mr Ansley goes into more detail in respect of each of the items listed above discussing the involvement of judicial committees as canvassed by Dr Ding. He describes these committees as follows:

⁴⁰ Attorney-General v British Broadcasting Corporation, above n 15, at 359–360.

48. The “Judicial Committee” is an invisible group which meets regularly within each “court” to decide on the judgments in cases which have already been “tried” in court and are awaiting a ruling by the judicial committee, none of whom will normally have attended the trial and perhaps may not have even read the file.

• [73] Mr Ansley says in his evidence that not all cases go to a judicial committee though the majority do. Small matters of no significance to the CCP either for political or economic reasons will not be sent to the judicial committee and may be decided by the Judges who hear the case. Any issue which may involve the reputation of the CCP or result in public disenchantment with Government policies will automatically go to the judicial committee. Mr Ansley’s evidence goes on:

When the Judicial Committee has heard the views of the CCP Secretary and agreed on the basic terms of the “judgment”, it instructs the original tribunal to write and issue the decision over the signatures of the original three tribunal members. Every Judicial Committee includes the official CCP Secretary within the “court” and he or she drives the decisions and specifically informs the other “Judges” on the Committee on how the CCP wishes the decision to be decided.

If the CCP at the level of the particular “court” concerned were supporting the claimant, the claimant was frequently allowed to attend the committee meeting and provide input; no such privilege would be extended to the defendant.

• [74] Mr Ansley deposes that in recent years courts’ spokespeople have claimed that because of the increase in sophistication and legal training of judges, the monitoring and supervisory role of the judicial committees is no longer as important and therefore fewer and fewer cases are being referred to the judicial committees. Mr Ansley does not accept this.

• [75] The plaintiff filed expert evidence in response from Dr Zhang, an associate professor at Renmin University of China Law School in Beijing, PRC.

• [76] One of the main differences in the evidence between the experts is that Dr Zhang says that when a judicial committee is involved in a case, the deliberations by the committee and the reasons for their opinion will be disclosed in the written judgment. Dr Zhang says that the two judgments in this case were decided by a collegial panel only. He does not give reasons for this evidence, but it is presumably

on the basis that the judgments themselves do not record the involvement of a judicial committee. The evidence filed on behalf of the defendant disputes this.

• [77] Dr Zhang’s evidence does not set out the details of how a judicial committee determines a case if it is involved but nor does he dispute Dr Ding’s and Dr Ansley’s evidence that if a judicial committee is involved, it does not hear the case or necessarily hear from the parties.

• [78] Since the hearing of this case, the Supreme Court in New Zealand has delivered its decision on the appeal in Minister of Justice v Kim.⁴¹ The defendant relied on the Court of Appeal decision in its submissions as confirming its position that political influence in general is pervasive in the PRC courts.⁴² In Kim v Minister of Justice and the appeal to the Supreme Court, the courts were not considering a claim for recognition of a PRC judgment but rather judicial review of the Minister of Justice’s decision to surrender the defendant, Mr Kim, to PRC to face a charge of intentional homicide. However, the discussion of the PRC court system and particularly the operation of judicial committees is relevant to this case.

• [79] In the decision of the majority,⁴³ Glazebrook J describes the PRC court structure as follows:⁴⁴

• [301] The hierarchy of courts in the PRC corresponds to the hierarchy of procuratorates, with the Supreme People’s Court being the highest. The next level of courts are the High People’s Courts established at the provincial and equivalent level. These hear appeals from the Intermediate People’s Courts, which are established at prefecture and equivalent level. It appears that, because the alleged offending occurred in Shanghai, Mr Kim would be tried by a collegial panel in an Intermediate People’s Court in Shanghai.

• [302] The Constitution of the PRC and the Criminal Procedure Law both provide that procuratorates and the courts exercise their powers independently, without interference by any administrative organ, public organisation or individual. There remain concerns, however, that there is inadequate separation of powers and that the judiciary is not in practice independent from political interference.

⁴¹ Minister of Justice v Kim [2021] NZSC 57.

⁴² Kim v Minister of Justice [2019] NZCA 209, [2019] 3 NZLR 173.

⁴³ The minority decision of O’Regan and French JJ records that they agree with the reasons given by Glazebrook J but not the disposition of the appeal.

⁴⁴ Minister of Justice v Kim [2021] NZSC 57.

• [303] There is also an issue of the extent to which the actual decision on outcome is made by the panel that hears the case. Each People’s Court, whatever its level in the judicial hierarchy, establishes its own judicial committee. This is considered an internal court body and is the “highest authority in the court”. It consists of the court’s president, vice-presidents and other senior members of the court.

(footnotes omitted)

• [80] Glazebrook J records that the role of judicial committees was not addressed in depth before them and so the Supreme Court asked for further submissions, “directing the parties’ and the intervener’s attention to material that had not been before the Minister or the Courts below”⁴⁵ with the parties asked to address:⁴⁶

the likelihood of Mr Kim’s case being referred to a judicial committee, the composition of the committee, the material that would be considered by it, any ability to make oral submissions before the committee, the function the committee would perform and the extent of any written judgment.

• [81] Based on the further submissions filed, the Supreme Court set out the criteria for referral to a judicial committee citing “Opinions” in 2010, 2015 and August 2019 (just prior to the first instance decision in this case) providing for referral.⁴⁷ A ground for referral in all three Opinions is in cases involving a question of law (as the appeal in respect of Mr Shi’s liability appeared to be in this case).

• [82] One of the expert witnesses for the defendant, Mr Ansley, was also an expert witness for Mr Kim. The Supreme Court accepted his evidence in relation to the involvement of judicial committees, concluding the section on referral to such committees by saying:⁴⁸

It appears that one of the motivations for cases being referred to a judicial committee beyond those that might strictly fit the criteria above was (and perhaps remains) the sharing of responsibility for decisions, as Mr Ansley said.

• [83] When considering the rate of referral to judicial committees the Supreme Court referred to two studies, one which found 96.8 per cent of criminal cases were referred to these committees and the other which found that between 1 April 2014 and 31

⁴⁵ At [316].

⁴⁶ At [316].

⁴⁷ At [318] to [321].

⁴⁸ At [321].

August 2014, the judicial committee of a particular court only discussed 39 cases. The Supreme Court commented:⁴⁹

The vastly different results in these two studies speak to the difficulty in establishing the rate of referral in courts across the PRC.

• [84] The rates of referral discussed by the Supreme Court are for criminal cases rather than civil cases, as is in issue here, but the Supreme Court’s reference to the difficulty in establishing the rate of referral echoes the evidence of Dr Ding and Mr Ansley in this case.

• [85] Furthermore, the Supreme Court said in relation to the operation of judicial committees:

[341] As noted above, the essence of the requirement for judicial independence and impartiality is that judges should decide a case on the basis of the evidence before them and on their understanding of the law, free of outside influence and, in particular, from the other branches of government.

[342] A very common criticism of the judicial committee system has been that it “leads to a separation between the trial process and the actual decision-making. Judges who are involved in the trial do not deliver the final judgment and members of the judicial committee who do not hear a case make the final decision for the judges”. The system “directly results in excluding the judges who know the cases better from making the decision, which result[s] in [the] criminal trial losing its function in China”. Further, it seems that the parties cannot make oral or written submissions directly to the judicial committee. This “denies those individuals whose interests are directly affected by the judgment opportunity to present their case before the actual decision maker”.

[343] Although the material we have referred to was not before the Minister, it is consistent with the evidence given by Mr Ansley for the first judicial review, which was before her when she made her second surrender decision. The uncontradicted evidence from Mr Ansley was that most cases are referred to judicial committees and that it is those bodies, rather than the court which had heard the evidence, that decide on the verdict. In addition, there is regular input from external figures at judicial committee level and no opportunity for input by the accused.

[344] We do not accept the appellants' submission that, because it was reasonable for the Minister to conclude that political interference in Mr Kim's case is unlikely, it would also have been reasonable to conclude that referral to a judicial committee would not occur. As noted, the Minister had uncontested evidence before her that referral was very common for reasons beyond the exertion of political influence. As such, this conclusion would not have been available on the evidence. In any event, the Minister did not in fact reach a conclusion on this issue, shown by the fact that her first decision letter does not mention judicial committees and her second surrender decision refers to

⁴⁹ At [322].

concerns regarding political interference in judicial decision-making but again does not deal with judicial committees specifically.

[345] On the basis of the evidence before her at the time of her second surrender decision, it was not possible for the Minister to have come to the conclusion that Mr Kim's case would be decided by the judges who had heard the evidence rather than by a judicial committee. Nor was it possible to consider that the judicial committee would decide the case on the basis of the evidence and free of outside influence, and in particular influence from party representatives. Even if that influence would not be political in the sense discussed above, it is nonetheless influence from external bodies in a judicial decision-making process. It was therefore not open to the Minister to have considered that Mr Kim would be tried by an independent and impartial tribunal.

[346] There is, however, more information before us on judicial committees than was before the Minister and the Courts below. We now consider whether that new information changes the above assessment.

[347] From the referral criteria in the 2019 Opinions, it seems Mr Kim's case will have to be referred to the judicial committee if a question of law arises or where there is a possibility of an acquittal. It may also be that it will be considered mandatory to refer Mr Kim's case because it could be seen as a case involving foreign affairs, given that diplomatic assurances are involved. Mr Kim's case may in any event, because of the international dimension, be a case where a sharing of responsibility for the decision may provide a motive to refer the case to a judicial committee. We therefore consider that, absent further inquiries changing the above assessment, any Minister making a decision about extradition would have to consider there was a real possibility that Mr Kim's case would be referred to a judicial committee. (footnotes omitted)

• [86] The footnotes are omitted from the above paragraphs, but they show that the Supreme Court reached the views above on the basis of evidence from a number of sources, not just Mr Ansley. The further evidence relied on however is consistent with Mr Ansley’s evidence.

• [87] It cannot therefore be presumed that because the decisions in this case do not record that a judicial committee was involved, the collegial panels named in the decisions decided the case.

• [88] If a judicial committee has been involved, there may be an issue regarding whether the judgment can be described as a judgment of a tribunal employing “a process which includes the application of the law to the facts with opportunity to parties to participate”, as Mander J referred to as being fundamental in Kuwait Finance

House.⁵⁰ In any event, questions remain about the independence and impartiality of the collegial panels even if a judicial committee was not involved.

• [89] Whilst the defendant characterises these questions as going to whether the PRC courts are courts of judicature for the purposes of recognition principles, these questions and further questions about process may also be relevant to the exception available to a defendant in recognition proceedings, that the proceeding in which the judgment was obtained was contrary to natural justice.

• [90] One of the requirements for natural justice is that a party had a fair opportunity to put their case before an independent and impartial tribunal. The issues raised by the defendant go to the question of whether the court that gave the judgment the plaintiff is seeking to recognise can be described as independent and impartial or whether the defendant had an opportunity to put his case before the tribunal that decided his case.

• [91] For the purposes of the summary judgment application, it is unnecessary for me to decide these questions. I simply need to reach a view on whether the defendant has an arguable defence either on the basis that the foreign judgment is not a judgment of a court as that term is understood for the purposes of recognition or that it is arguable that one of the exceptions to recognition, namely a breach of natural justice, may be available.

• [92] I consider that both are arguable in this case and ought not to be determined summarily before a full hearing following discovery and cross examination of the witnesses, including the experts. On this basis the summary judgment application ought to be dismissed.

• [93] In any event, if I am wrong in this conclusion, I consider the defendant has an arguable defence that the judgment is not final and conclusive because of the uncertain operation of the PRC Guarantee Law as discussed further below.

⁵⁰ Kuwait Finance House (Bahrain) BSC v Teece, above n 21 at [67].

Is the judgment final and conclusive?

• [94] The second basis upon which the defendant submits that the PRC judgment ought not to be enforced is that it is not final and conclusive between the parties.

• [95] The defendant submits that enforceability depends on further analysis of the plaintiff’s conduct in relation to the security provided by Detai.

What does “final and conclusive” mean?

• [96] The classic statement of the meaning of “final and conclusive” is in Nouvion v Freeman where the House of Lords considered whether a Spanish judgment could be enforced at common law when that judgment was essentially provisional as it was open to the losing party to take “plenary” proceedings in which the merits of the issue would be reconsidered.⁵¹ The House of Lords held that it could not be enforced because such a judgment was not “final and conclusive”, with Lord Herschell saying:⁵²

My Lords, I think that in order to establish that such a judgment has been pronounced it must be shewn that in the Court by which it was pronounced it conclusively, finally, and for ever established the existence of the debt of which it is thought to be made conclusive evidence in this country, so as to make it res judicata between the parties. If it is not conclusive in the same Court which pronounced it, so that notwithstanding such a judgment the existence of a debt made between the same parties be afterwards contested in that Court, and upon proper proceedings being taken and such contest being adjudicated upon, it may be declared that there existed no obligation to pay the debt at all, then I do not think that a judgment which is of that character can be regarded as finally and conclusively evidencing the debt, and so entitling the person who has obtained the judgment to claim a decree from our courts for the payment of the debt.

The principle upon which I think our enforcement of foreign judgments must proceed is this: that in a Court of competent jurisdiction, where according to its established procedure the merits of the case were open, at all events, to the parties, however much they may have failed to take advantage of them, or may have waived any of their rights, a final adjudication has been given that a debt or obligation exists which cannot thereafter in that Court be disputed, and can only be questioned in an appeal to a higher tribunal. In such a case it may well be said that giving credit to the Court of another country we are prepared to take the fact that such an adjudication has been made as establishing the existence of the debt or obligation. But where, as in the present case, the adjudication is considered with the non-existence of the debt or obligation which it is sought to enforce, and it may thereafter be declared by the tribunal which pronounced it that there is no obligation and no debt, it appears to me

⁵¹ Nouvion v Freeman (1889) 15 App Cas 1 (HL).

⁵² At 9–10.

that the very foundation upon which the Courts of this country would proceed in enforcing a foreign judgment altogether fails.

What are the parties’ positions?

• [97] The plaintiff submits that the Hebei Higher People’s Court’s judgment is final and conclusive as there are no further rights of appeal and its judgment as to the defendant’s liability is unconditional.

• [98] The defendant accepts that there are no further rights of appeal but submits the judgment is not final and conclusive because the plaintiff also had security over the assets of Detai. Counsel for Mr Shi submits that under PRC law the plaintiff had to exhaust its remedies against the assets of Detai before it could enforce any judgment against him.

• [99] This ground of opposition was also relied on by the defendant in his protest to jurisdiction.

What do the respective experts say?

• [100] The parties each provided expert evidence in relation to the relevant Chinese law with Dr Ding giving evidence for the defendant and Dr Zhu Xiaofeng, of the Central University of Finance and Economics in Beijing, giving evidence in response for the plaintiff. The same evidence is relied on for this hearing together with a further affidavit provided by Dr Zhu following the decision of Associate Judge Bell.⁵³

• [101] In summary, the parties’ experts both agree that under Article 176 of the Property Law, in the absence of any agreement by the parties, where the debtor has given security over his assets, the creditor should have recourse to those assets first. But where a third party provides security over its assets and another has given a personal guarantee, the creditor has the option (also referred to as the “right of choice”) to:

⁵³ Hebei Huaneng Industrial Development Co Ltd v Shi, above n 10.

(a) enforce the security rights over the assets of the third party;

(b) pursue the guarantor on his personal covenant; or

(c) to pursue both.

• [102] In the present case, security was provided by a third party, Detai, and the plaintiff took the third option and pursued both Detai and the defendant, Mr Shi.

• [103] Where the parties’ experts diverge is whether the right of choice continues after enforcement steps are taken. The plaintiff says it does whereas the defendant says the law reverts back to a “property first principle” so that the debt is first satisfied by the third party property security.

• [104] For the plaintiff, Dr Zhu submits that Dr Ding’s view is contrary to Article 178 of the Property Law, which explicitly states that where any provision in the Guarantee Law conflicts with the Property Law, the Property Law prevails. This submission however depends on the Property Law being in conflict with the Guarantee Law. Dr Ding’s position is that the Property Law is silent on this question, rather than in conflict, and so the Guarantee Law would apply.

• [105] Furthermore, Dr Zhu explains in his evidence filed following Associate Judge Bell’s decision, the Civil Procedure Law regulates how a judgment debt is enforced. His evidence is that once an application for enforcement has been made, a personal guarantor can file an enforcement objection under Article 225 of the Civil Procedure Law if they consider the enforcement is in violation of the law.

• [106] Dr Zhu states that under Provision 6 of the Supreme People’s Court on Several Issues concerning the Handling of Enforcement Opposition and Reconsideration Cases by People’s Courts, an objection under Article 225 of the Civil Procedure Law needs to be raised before the termination of the enforcement procedure.

• [107] In Dr Zhu’s view, where the court has found that both the guarantor and third party security provider are liable for the judgment debt, if the guarantor files an enforcement objection claiming the creditor failed to follow the property first

principle, the objection would be dismissed. This submission is based however on his interpretation that Article 178 of the Property Law means that Article 28 of the Guarantee Law does not apply. As noted above, this is an issue on which the experts differ.

What enforcement steps did the plaintiff take against Detai?

• [108] In any event, the plaintiff submits that it did seek to enforce the judgment against the security provided by Detai but was unable to obtain any actual recovery from Detai.

• [109] The evidence given by Mr Lixin Shao, the lawyer for Mr Shi in PRC, is that he would have expected the plaintiff to take steps immediately following the release of the Intermediate People’s Court’s judgment in respect of the property security provided by Detai (if not before). The first time that the plaintiff appears to have taken steps to enforce the judgment against Detai, however, is following the decision of the Higher People’s Court in late 2019.

• [110] The appeal to the Higher People’s Court was only in respect of that part of the judgment relating to Mr Shi so there may be an argument that the plaintiff ought to have taken steps at least when the Intermediate People’s Court issued its decision, if not before.

• [111] Dr Ding’s evidence is that the plaintiff’s failure to apply to the Court to seize the collateral security in a timely manner amounts to a failure to take proper measures to exercise its mortgage rights. According to Article 38(3) of the Judicial Interpretation on Security Law, if such failure results in depreciation, damage or loss of the collateral, then the plaintiff’s failure will be deemed to be a partial or full waiver of their mortgage rights. If so, Dr Ding deposes that Mr Shi’s guarantee liability would also be less or exempted to the extent of the mortgagee interests waived by the plaintiff.

• [112] Dr Ding makes a further comment that if the plaintiff has failed to take proper measures to preserve the collateral from the time of the debtor, Boen China’s, default, thus causing depreciation, damage or loss of the collateral, the plaintiff’s failure would

equally amount to a partial or full waiver of the mortgage rights under Article 38(3) and Mr Shi could again claim his liability under the judgment ought to be reduced or exempted to the extent of the plaintiff’s waiver.

Is the defendant prevented from raising enforcement issues now?

• [113] The plaintiff submits that Mr Shi is prevented from raising this issue when it has been finally determined against him in the original proceeding.

The Henderson v Henderson principle precludes a party from raising in subsequent proceedings matters which were not, but should and could have been, raised in earlier ones.⁵⁴

• [114] The New South Wales Supreme Court considered this principle in relation to recognition of a foreign judgment in Bau v Qu; Tian (No 2),⁵⁵ a case relied on by the plaintiff. The paragraph relied on states the classic principle that it is not open to a defendant to challenge the merits of a foreign judgment and then goes on to say that a plaintiff seeking to enforce a foreign judgment can rely on the judgment as creating an estoppel precluding the defendant from raising any defence which was or could have been raised in the foreign proceedings, referring to Carl Zeiss Stiftung v Rayner and Keeler Ltd (No 2).⁵⁶

• [115] Bau v Qu; Tian (No 2) is distinguishable from this case however as the defendant was seeking to rely on payments made prior to the proceedings being brought in the foreign jurisdiction. As the court found, the issue of what was owing by the defendant had been determined by the foreign court and any payments made by the defendant prior to that determination must be accepted as having been taken into account by that court.

• [116] In the present case, the defendant submits that the plaintiff must look first to the property security provided by Detai rather than arguing that Mr Shi’s liability under the guarantee is reduced by payments made by him. The further issues raised by Dr

⁵⁴ Henderson v Henderson [1843] EngR 917; [1843] 67 ER 313 (Ch).

⁵⁵ Bau v Qu; Tian (No 2) [2020] NSWSC 588 at [30].

⁵⁶ Carl Zeiss Stiftung v Rayner and Keeler Ltd (No 2), above n 18.

Ding in respect of waiver and the plaintiff’s obligation to preserve the security raise further factual and legal issues.

• [117] In the enforcement proceedings in PRC, Mr Shi did not appear or oppose the enforcement order sought or seek an order in relation to the priority in which enforcement was obtained. However, when the enforcement proceedings were brought in PRC, Mr Shi only had approximately $839 in his bank account and no other assets. A response to the enforcement proceedings may not have been justified given the amount at stake.

• [118] No ruling has been made by any of the PRC courts that have heard the case that the plaintiff must first proceed against Detai, but neither have any of those courts said that the plaintiff is not required to proceed first against Detai.

• [119] The plaintiff submits that the defendant may not have participated in the enforcement court, but he did participate in both the first instance and appellate courts and he did not raise this defence before either of these courts. But the fact that a defendant may raise an objection to enforcement once enforcement proceedings are brought, as Dr Zhu says in his second affidavit, supports the view that this defence may not necessarily need to be raised at that stage because a party has a right to object once the enforcement process begins.

• [120] The House of Lords in Arnold v Westminster Bank plc states that cause of action estoppel (which they describe the Henderson v Henderson principle to be a case of) may not apply in its full rigour where the earlier decision did not decide, because they were not raised, points which might have been vital to the existence or non- existence of a cause of action.⁵⁷ The House of Lords cites Wigram V-C in Henderson v Henderson, where he stated that there may be special circumstances where estoppel does not operate and then concludes that special circumstances may exist where the earlier proceedings have resulted in a default judgment.⁵⁸

⁵⁷ Arnold v National Westminster Bank plc [1991] 2 AC 93 at 105.

⁵⁸ At 104–105.

• [121] The defendant may not therefore be prevented from saying that the plaintiff must look to Detai before seeking to enforce its guarantee against the defendant.

Is this issue capable of determination in a summary judgment context?

• [122] The plaintiff submits that while the experts have different views on the law, there is actually no need to have regard to the expert evidence as the PRC Court has already taken enforcement steps in relation to the judgment.

• [123] The plaintiff relies on the decision of the Court of Appeal in Chen v Lin where the defendant was challenging the interest awarded by the PRC Court on the basis that it was contrary to public policy.⁵⁹ The Court of Appeal held that the calculation of interest could not be challenged as the “enforcement jurisdiction does not critique the application of substantive law by the foreign court”.⁶⁰ The award of interest by a court however can be distinguished from the argument being made by the defendant in this case. Here Dr Ding’s evidence is that the amount of the debt may be reduced by PRC law in relation to waiver, preservation of assets and priority of satisfaction.

• [124] The plaintiff submits that in any event the dispute between Dr Ding and Dr Zhu is an issue that is capable of being determined on the basis of the affidavit evidence filed with the relevant facts and legal issues sufficiently exposed.

• [125] From the discussion above there are clearly disputed issues of both law and of fact. In my view these need to be properly explored in a full hearing.

• [126] I therefore conclude Mr Shi has an arguable case that the judgment is not final and conclusive because the plaintiff may not have first exhausted its rights against Detai’s assets or waived its rights over, or failed to preserve, those assets and thereby reduced the liability of Mr Shi. Because of the evidential disputes, I am unable to reach a view on a summary basis as to the facts or the law. This issue therefore provides a further basis for declining to grant the summary judgment application.

⁵⁹ Chen v Lin, above n 12.

⁶⁰ At [20].

Result

• [127] I order:

(a) the plaintiff’s application for summary judgment is dismissed;

(b) a case management conference is to be allocated by the Registry at least four weeks from the date of this judgment, three working days prior to which memoranda (preferably joint) are to be filed proposing next steps and addressing Schedule 5 matters.

Costs

• [128] The defendant has succeeded in opposing the application. I did not hear from the parties on costs but my preliminary view is that the defendant is entitled to costs on a 2B basis. The parties are to confer and if costs are not able to be agreed, memoranda may be filed on behalf of the defendant within 20 working days of this judgment and on behalf of the plaintiff within a further 10 working days.

Associate Judge Sussock