- Bao v Qu; Tian (No 2)  NSWSC 588 is the first case in New South Wales of Australia to enforce a monetary judgment made by a Chinese court.
The penalty interest in accordance with Article 253 of the PRC Civil Procedure Law is neither criminal fines nor punitive damages, but belongs to compensatory damages, which is enforceable in Australia.
- Given both the courts in Victoria and New South Wales have recognized Chinese judgments, the likelihood of Chinese courts recognizing that China and Australia have established a reciprocal relationship has increased significantly, resulting in a promising future for mutual judgment enforcement between the two states.
On 19 May 2020, the New South Wales Supreme Court ruled in Bao v Qu; Tian (No 2)  NSWSC 588, deciding to enforce the judgment delivered by Qingdao Intermediate People’s Court, Shandong, China.
This is the first case in New South Wales of Australia to enforce a monetary judgment made by a Chinese court.
The New South Wales Supreme Court confirmed in this case that the penalty interest judgment rendered by a Chinese court was enforceable in Australia.
I. Case Overview
The plaintiff Dexu Bao, and the defendants Mei Qu and Xin Tian, a married couple, are all Chinese citizens.
From December 2012 to March 2013, the plaintiff allegedly made four loans (hereinafter ‘the Loans’) to the defendants, totaling CNY 2,550,000.
The defendants allegedly did not repay the Loans.
On 24 Apr. 2014, the plaintiff filed a lawsuit with the Laoshan Primary People’s Court, Qingdao, Shandong (“China’s court of the first instance”).
On 23 Nov. 2014, China’s court of the first instance handed down a judgment in favor of the plaintiff with the defendants in absentia, ordering the defendants to pay CNY 2,550,000 plus interest to the plaintiff.
On 6 Mar. 2015, Mei Qu, one of the defendants, appealed to the Qingdao Intermediate People’s Court of Shandong Province (“China’s court of the second instance”). There was no absence of any party in the appellate proceedings.
On 10 Sept. 2015, China’s court of second instance delivered a final judgment dismissing the appeal, save in respect of one loan (“the Final Chinese Judgment”). The Court varied the amount to be paid by the defendants, ordering them to pay CNY 2,050,000 plus interest to the plaintiff.
The plaintiff took steps to enforce the Final Chinese Judgment against the defendants in China. He had recovered the sum of CNY 19,205. The plaintiff submitted that the balance of the judgment amount, being an amount of CNY 2,030,795 plus interest, remained unpaid.
The defendant resides in the State of New South Wales, Australia. Therefore, the plaintiff filed a lawsuit in the New South Wales Supreme Court, applying for the enforcement of the Final Chinese Judgment.
The defendant admitted that (1) the Final Chinese Judgment was real, (2) the Chinese court had jurisdiction over the case, and (3) the judgment was final.
However, the defendants disputed over the enforcement amount. The plaintiff argued that these matters are not relevant, in that they go to the merits of the underlying dispute and, therefore, they are not reviewable by this Court.
Finally, the New South Wales Supreme Court ordered the defendant to pay the plaintiff a total of CNY 2,802,849 for the loan and interest. Besides, the defendants shall pay the plaintiff’s costs, as agreed, or assessed, of and incidental to these proceedings.
II. Court views
1. How the Australian courts review the application for recognition and enforcement of foreign judgments
Chinese courts may be enforceable in Australia under the common law procedure for the enforcement of foreign judgments.
At common law, a foreign judgment is prima facie capable of recognition and enforcement if the following requirements have been met:
(1) the foreign court must have exercised jurisdiction of the requisite type over the defendant (also known as a jurisdiction “in the international sense”);
(2) the judgment must be final and conclusive;
(3) there must be the identity of parties between the judgment debtors and the defendants in any enforcement action; and
(4) the judgment must be for a fixed, liquidated sum.
A forum court may also refuse to enforce a foreign judgment where the foreign judgment was obtained by fraud (including equitable fraud) by the parties or by the foreign court.
New South Wales Supreme Court held that the defendant had recognized the above four requirements are all met, and there was no fraud. The defendants only disputed the enforcement amount and stated that they had already repaid part of the amount.
2. Whether the defendant’s repayment can be a reason for not enforcing the Final Chinese Judgment
The repayment alleged by the defendants must be made before the delivery of the Final Chinese Judgment.
The New South Wales Supreme Court held that: (1) the defendants had the opportunity to present their claim of having made repayment in both the first instance and appellate proceedings in China; (2) the Chinese court did not deny the defendants the opportunity of presenting their case before an impartial tribunal or that the defendants were otherwise not given due notice; and (3) there was no evidence that the defendants’ stated repayment was related to the loan in the case.
Accordingly, New South Wales Supreme Court rejected the defendant’s claim based on repayment.
3. Whether the penalty interest in the Final Chinese Judgment should be enforced?
According to the Final Chinese Judgment, interest was payable, as follows:
(1) from the date on which proceedings were commenced, being 24 Apr. 2014, until 10 days from the effective date of the judgment, being 20 Sept. 2015, at the “benchmark interest rate for the loans in the same type as issued by the People’s Bank of China for the same period” (General Interest); and
(2) if the judgment debt was not satisfied by 20 Sept. 2015, then “the interest on the debt during the period of delay in fulfillment shall be paid at the double amount in accordance with the provisions of Article 253 of the Civil Procedure Law of the People’s Republic of China” (Article 253 Interest).
4. How do Australian courts view the penalty interest in accordance with Article 253 of the PRC Civil Procedure Law (‘Article 253 Interest’)?
The New South Wales Supreme Court held that: (1) Australian courts do not enforce criminal fines. (2) Australian courts do not enforce punitive damages, which are awarded for a party’s failure to respect a court order. (3) Australian courts may enforce compensatory damages, which are awarded to compensate other parties for their failure to satisfy a judgment.
The New South Wales Supreme Court held that the Article 253 interest is neither criminal fines nor punitive damages, but belongs to compensatory damages. Article 253 Interest has no substantial difference from General Interest in nature and is hence enforceable.
Accordingly, the New South Wales Supreme Court recognized the penalty interest judgment delivered by the Chinese court.
In our view, the reasons why New South Wales Supreme Court held this opinion are as follows. According to the Chinese final judgment: (1) the interest on the loan was only calculated up to the date of the court’s judgment and no interest was awarded to the defendant on the loan after that date; and (2) the penalty interest awarded by the Chinese court to the defendant after the judgment was rendered playing the role of interest on the loan under PRC Civil Procedure Law. Therefore, the penalty interest is essentially interest on the loan and not punitive damages.
III. Our comments
1. the Recognition and enforcement of judgments in China and Australia have been regularized
We have introduced in previous posts about (1) the cases that China and Australia mutually recognized and enforced judgments, and (2) Chinese courts handle the recognition and enforcement of Australian judgment in accordance with the principle of reciprocity.
We believe that Australia should be considered as a whole, though it is a federal state with multiple legal jurisdictions. The fact that a court in any Australian state recognizes a Chinese judgment is enough to develop a reciprocal relationship between Australia and China. Chinese courts can then recognize Australian judgments based on the principle of reciprocity.
Now both the courts in Victoria and New South Wales have recognized Chinese judgments. The likelihood of Chinese courts recognizing that China and Australia have established a reciprocal relationship has increased significantly, resulting in a promising future for mutual judgment enforcement between the two states.
2. The Chinese courts’ penalty interest may be accepted by Australian courts
In accordance with Article 253 of the PRC Civil Procedure Law, if the judgment debtor fails to perform the monetary payment obligation within the period specified in the judgment, ruling, or other legal documents, he or she shall double the interest on the debt during the period of delayed performance.
In civil judgments in China, the courts often award penalty interest under Article 253.
In this case, the Australian court has held that such penalty interest is to compensate the damage suffered by the plaintiff when the defendant fails to satisfy a judgment and is therefore enforceable in Australia.
Contributors: Meng Yu 余萌