Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd; The Gosford Pty Ltd v Bank of China Ltd

[2022] NSWSC 59

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Shinetec (Australia) Pty Ltd v The Gosford Pty Ltd; The Gosford Pty Ltd v Bank of China Ltd [2022] NSWSC 59

Hearing dates:

1 February 2022

Decision date:

04 February 2022

Jurisdiction:

Equity - Commercial List

Before:

Stevenson J

Decision:

The Cross-Defendant’s Notice of Motion filed 10 October 2021 is dismissed with costs

Catchwords:

PRIVATE INTERNATIONAL LAW – stay of proceedings – whether the Court a plainly inappropriate forum – where proceedings brought by plaintiff against defendant/cross-claimant seeking to restrain it from calling on $37 million standby letter of credit issued by cross-defendant in Peoples’ Republic of China in relation to plaintiff’s obligations under development contract made in New South Wales –where defendant/cross-claimant seeks orders that cross-defendant make payment under the letter of credit or pay damages or compensation for non-payment – where plaintiff’s ultimate holding company had simultaneously commenced proceedings in the Taiyuan Intermediate People’s Court of Shanxi Province against issuing bank

PRACTICE AND PROCEDURE – application to strike out or have dismissed certain claims in cross-claim list statement

CONSUMER LAW – whether obligations undertaken under a standby letter of credit capable of amounting to representations that the obligations will be performed – whether this will depend on all the circumstances of the case – whether such a question apt for summary resolution

Legislation Cited:

Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law

Corporations Act 2001 (Cth)

Corporations Regulations 2001 (Cth)

Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, opened for signature 18 March 1970, 847 UNTS 231 (entered into force 7 October 1972)

International Standby Practices ISP98

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470

Bowden Bros & Co v Imperial Marine & Transport Insurance Co (1905) 5 SR (NSW) 614

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25

Dey v Victorian Railways Commissioners (1949) 78 CLR 62; [1949] HCA 1

Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 129; [1964] HCA 69

Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197; [1988] HCA 32

RCR Energy Pty Ltd v WTE Co-Generation Pty Ltd [2017] VSCA 50

Regie Nationale des Usines Renault SA v Zhang (2002) 201 CLR 491; [2002] HCA 10

Spencer v Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28

United States Trust Co of New York v Australia and New Zealand Banking Group Ltd (1995) 37 NSWLR 131

Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538; [1990] HCA 55

Wright, Heaton & Co Ltd v Barrett (1892) 13 LR (NSW) 206

Texts Cited:

Practice Note SC Eq 3

Category:

Procedural rulings

Parties:

Shinetec (Australia) Pty Ltd (Plaintiff)
The Gosford Pty Ltd (First Defendant/Cross-Claimant/ Respondent)
David Anthony Hurst (Second Defendant)
David Anthony Sampson (Third Defendant)
Bank of China Limited (Fourth Defendant/ Cross-Defendant/ Applicant)
Macquarie Bank Limited (Fifth Defendant)

Representation:

Counsel:
J Kay Hoyle (Fourth Defendant/Cross-Defendant/ Applicant)
I M Jackman SC with M R Tyson (First Defendant/Cross-Claimant/ Respondent, Second and Third Defendants)

Solicitors:
King & Wood Mallesons (Fourth Defendant/Cross-Defendant/ Applicant)
Johnson Winter & Slattery (First Defendant/Cross-Claimant/ Respondent, Second and Third Defendants)

File Number(s):

2021/220732

Judgment

1. By Notice of Motion filed on 10 October 2021, the cross-defendant, Bank of China Ltd, seeks orders dismissing, or striking out, two of the three claims made by the cross-claimant, The Gosford Pty Ltd, in its Commercial List Cross-Claim Statement and an order that the cross-claim be permanently stayed on the basis that this Court is a clearly inappropriate forum.

2. The application arises under the following circumstances.

3. On 15 June 2020, the plaintiff, Shinetec (Australia) Pty Ltd, a NSW registered company, and The Gosford Pty Ltd, also a NSW registered company, entered into a contract (the “Development Contract”) for Shinetec to carry out for Gosford the design and construction of a residual development in Gosford for a total consideration of $185 million.

4. By a separate loan agreement Shinetec agreed to provide funding to Gosford for the project of $37.5 million.

5. It was a term of the Development Contract that Shinetec provide a standby letter of credit in favour of Gosford from its parent company or nominee in the sum of $37 million for the purpose of securing Shinetec’s obligation to provide that funding.

6. On 7 July 2020, by a “Letter of Commitment”, Shinetec’s ultimate holding company, Shanxi Construction Investment Group Co Ltd, a company incorporated in the People’s Republic of China, applied to the Shanxi branch of Bank of China for a Standby Letter of Credit.

7. In the Letter of Commitment, Shanxi Construction stated:

“1. We have sufficient capacity to perform the obligations under the [Gosford] project contract in Australia;

2. In the event of a claim, we will promptly make the payment within the payment time notified by you.”

8. On 14 July 2020 Shanxi branch of Bank of China sent the Sydney branch of Bank of China a SWIFT message:

“Without any undertaking responsibility on your part, pls authenticate and advise our standby letter of credit … as follows”.

9. The Letter of Credit was addressed to be in favour of Gosford in the sum of $37 million and expressed to be subject to International Standby Practices ISP98.

10. Its operative term was as follows:

“Therefore, we hereby affirm that we are responsible to you, on behalf of the Contractor [1] , up to a total amount of AUD37,000,000.00 (say Australian dollars thirty seven million only), and we undertake to pay you unconditionally and independently upon our receipt of your first written demand in original paper form declaring the Contractor fails to perform its obligations under the contract and specifying in which respects the Contractor is in failure and amount claimed.”

1. That is, Shinetec.

11. The Standby Letter of Credit made no provision for its governing law.

12. On 14 July 2020 the Sydney branch of Bank of China sent to Gosford a “Letter of Guarantee Advice” stating:

“Please be advised that we have received [the Standby Letter of Credit] issued by Bank of China [Shanxi] … without any responsibility on our part we enclose herewith a copy of [the Standby Letter of Credit] …

Please remit advising charge AUD110 to us through your Banker in Australia …”.

13. Gosford paid the $110 to Bank of China through its advising bank, Macquarie Bank Ltd.

14. After the Development Contract was made, and work commenced by Shinetec, disputes arose between Shinetec and Gosford concerning Shinetec’s performance of the Development Contract.

15. On 26 July 2021 Mr David Hurst and Mr David Sampson (the “Receivers”) were appointed as receivers of Gosford.

16. On 30 July 2021 Gosford, by the Receivers, made demand under the Standby Letter of Credit (the “Demand”).

17. There is no dispute, as I understand it, as to the manner in which the Demand was made nor that it was made timeously.

18. The Demand was delivered to Bank of China’s Shanxi branch by a solicitor, Ms Kate Wang.

19. Ms Wang has stated that an employee of Bank of China, a Mr Lu, said to her:

“[T]hat the Bank of China International Settlement Documents Processing Center had approved all the materials presented by Gosford, and in this regard, Gosford should be deemed to have fully fulfilled its obligation to present the Letter of Demand. However, BOC Shanxi Branch still could not pay on July 30, 2021 because they would also need to coordinate with Shinetec, the contractor and the applicant of the L/C, to persuade them to pay first. If Shinetec refused, then the bank would pay on behalf of it. In addition, Mr Lu said that afternoon he had made calls to Shinetec. During the calls, Mr Lu explained that the bank did not have the obligation to review the subject disputes of the involved parties, but only review material from Gosford on its face.”

20. The Bank of China has not made payment under the Standby Letter of Credit. It has not given a notice of dishonour.

21. However, on 3 August 2021, Bank of China sent a SWIFT message to Gosford’s advising bank, Macquarie Bank, containing what purports to be a request for additional documents under Art 6.13 of ISP98. That Article only applies when a claim is made under a Standby Letter of Credit by a “claimed successor” to the beneficiary of the Letter of Credit, including a “receiver … who claims to be designated by law to succeed to the interests of a beneficiary”. [2]

    2. See Art 6.11.

22. It is hard to see how that Article is relevant to the present circumstances as the Receivers, as I understand it, do not claim to be a “successor” to Gosford.

23. However that may be, this communication did not come to Gosford’s attention until Gosford was served with the evidence on this application.

24. On 2 August 2021 Shinetec commenced these proceedings against Gosford, the Receivers, Macquarie Bank and the Bank of China seeking:

1. on an urgent interlocutory basis, orders restraining Gosford, the Receivers and Macquarie Bank (but not Bank of China) from acting on the 30 July 2021 Demand or dealing with any proceeds of the Standby Letter of Credit; and

2. on a final basis, a declaration that the Demand is “invalid and of no effect” and an order that the Standby Letter of Credit be returned by Gosford to Shinetec.

25. In its written submissions for urgent ex parte relief Shinetec contended that:

1. conditions precedent which Gosford and the Receivers had to meet before calling on the Standby Letter of Credit had not been satisfied at the time of the call;

2. Gosford and the Receivers had wrongly terminated the Development Contract;

3. Shinetec had accepted an alleged repudiation by Gosford and the Receivers of the Development Contract; and

4. Gosford and the Receivers were obliged to return the Standby Letter of Credit to Shinetec.

26. On 2 August 2021, Lindsay J as Duty Judge made the interlocutory orders sought by Shinetec on the basis of Shinetec proffering the usual undertaking as to damages.

27. As no orders were sought against Bank of China, no orders were made against it. Shinetec has since discontinued the proceedings against Bank of China.

28. The orders made by Lindsay J remain in place.

29. Also on 2 August 2021, and unbeknown to Gosford and the Receivers until 12 August 2021, Shanxi Construction, Shinetec’s ultimate holding company and the applicant for the Standby Letter of Credit, filed a Civil Complaint in the Taiyuan Intermediate People’s Court of Shanxi Province (the “People’s Court”) naming Gosford as “Defendant” and Bank of China as “Third Party”.

30. In the Civil Complaint, Shanxi Construction made the following “Claims”:

“1. The Plaintiff requests to affirm the act of Defendant that demanding Third Party to pay RMB 177 million (AUD 37 million) under a standby letter of credit No. GCO377020000874 has constituted fraud in relation to letter of credit;

2. The Plaintiff requests an order that the Third Party terminate the payment of RMB 177 million (AUD 37 million) under the standby letter of credit No. GCO377020000874”.

31. The Civil Complaint describes the “Complaint Reason” as:

“Dispute over fraud in relation to letter of credit”.

32. The fraud allegation is that Gosford:

“[K]nowing that the payment conditions of the standby letter of credit were not satisfied, and that the standby letter of credit shall be returned due to the termination of the construction contract as a result of its breach of contract, still requested the Third Party to make the payment as per the letter of credit … which has constituted fraud in relation to the letter of credit…”.

33. As I set out below, Shinetec makes no corresponding allegation in these proceedings.

34. On 3 August 2021 the People’s Court issued a “Civil Ruling”:

“To suspend the payment of RMB 177 million (AUD 37 million) under the standby letter of credit No. GC0377020000874 issued by the third party Bank of China Limited Shanxi Branch with the respondent THE GOSFORD PTY LIMITED as the beneficiary.”

35. The Civil Ruling also provided:

“This ruling will be enforced immediately upon service.

If you are not satisfied with this ruling, you may apply to the Court for reconsideration within 10 days from the date of service of the ruling.”

36. There is no evidence that the Civil Ruling has been served on Gosford.

37. Mr Jackman SC who appeared with Mr Tyson for Gosford and the Receivers informed me that his instructions were that the Civil Ruling has not been served.

38. The Bank of China’s expert in Chinese law, Dr Jie Huang, has stated:

“After the issuing the injunction, the Taiyuan Court should still follow the ordinary procedure under the [Chinese Civil Procedure Law] to serve the defendant (i.e. Gosford).”

39. An “Enforcement Assistance Notice” from the People’s Court, addressed to Bank of China Shanxi branch, recited the Civil Ruling and stated:

“Please suspend the payment for 12 months from 4 August 2021 to 3 August 2022”.

40. Bank of China’s solicitor, Ms Edwina Kwan has deposed that the Bank of China Shanxi branch provided her with a copy of the Civil Ruling from which I infer that it was at some point served on Bank of China’s Shanxi branch.

41. The evidence does not reveal when this occurred.

42. On 8 September 2021 Shinetec filed its Commercial List Statement in these proceedings.

43. Under the heading “Nature of the Dispute” Shinetec summarised its case as follows:

“[Gosford] was only entitled to make demand on the standby letter of credit if relevant conditions precedent were satisfied, including a failure by [Shinetec] to secure finance as required by Item 6A of Part A of the Construction Contract, the demand being made on 31 July 2021 and 5 days’ advance notice being first provided to [Shinetec]”.

44. Shinetec alleged that the first and third of these conditions precedent were not satisfied.

45. As I have indicated above, unlike Shanxi Construction in the proceedings in the People’s Court, Shinetec makes no allegation of fraud in these proceedings.

46. On 11 August 2021 Gosford filed a Cross-Summons against Bank of China seeking an order that Bank of China pay Gosford $37 million in accordance with the Standby Letter of Credit.

47. On 16 September 2021 Gosford filed its Commercial List Cross-Claim Statement in which articulated its claim against Bank of China as:

1. a breach of the contract constituted by the Standby Letter of Credit and the Letter of Guarantee Advice to which I have referred; and

2. a claim that, by “offering” to Gosford and “authenticating” the Standby Letter of Credit Bank of China made representations:

1. that were misleading or deceptive for the purposes of s 18 of the Australian Consumer Law; [3] and

2. concerning a “financial product” within the meaning of s 763A of the Corporations Act 2001 (Cth) that were misleading or deceptive for the purpose of s 1041H(1) of the Corporations Act.

   3. Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law.

48. The latter two claims are the subject of Bank of China’s strike out application, to which I will now turn.

The strike out application

49. Bank of China seeks an order that Gosford’s claims under s 18 of the Australian Consumer Law and under s 1041H(1) of the Corporations Act be dismissed pursuant to r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) or struck out pursuant to r 14.28 of the UCPR.

50. The application is made in the face of the statement in Practice Note SC Eq 3 that:

“As a general rule applications to strike out or for summary judgment will not be entertained. Sometimes applications are appropriate, but Practitioners should expect strictness in declining to entertain such applications.”

51. The application was also made notwithstanding the fact that, if successful, it would not be dispositive of Gosford’s cross-claim as Bank of China does not seek to have dismissed or struck out Gosford’s claim against Bank of China in contract.

52. These factors alone militate against acceding to Bank of China’s application.

53. There is no dispute about the relevant principles. They are familiar. The general test to be applied is that the impugned claim must be so obviously untenable that it cannot possibly succeed. [4] The power of the court to dismiss summarily a claim at an interlocutory stage of the proceedings must always be attended with exceptional caution, should not be exercised lightly, and should only be exercised in the clearest of cases. [5]

    4. General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 129 at 129-130; [1964] HCA 69 (Barwick CJ); Spencer v Commonwealth of Australia (2010) 241 CLR 118 at [54]-[55]; [2010] HCA 28 (Hayne, Crennan, Kiefel and Bell JJ).

    5. Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91; [1949] HCA 1 (Dixon J); General Steel Industries Inc v Commissioner for Railways at 129 (Barwick CJ); Spencer v Commonwealth of Australia at [24] (French CJ and Gummow J); at [54]-[55] and [60] (Hayne, Crennan, Kiefel and Bell JJ).

54. I am not satisfied that either of Gosford’s impugned claims should be dismissed or struck out.

Gosford’s claim under s 18 of the Australian Consumer Law

55. Gosford alleges that Bank of China made the following representations:

“By offering to [Gosford] and authenticating the Letter of Credit via its Sydney branch as pleaded in paragraph C4, [Bank of China] represented to [Gosford] that:

(a)   the Letter of Credit was issued on behalf of Shinetec;

(b)   the Letter of Credit was provided by [Bank of China] as security for Shinetec’s performance obligations under the Construction Contract;

(c)   [Bank of China] would pay to [Gosford] unconditionally and independently upon receipt by [Bank of China] of [Gosford’s] Complying Demand provided that:

(i)   the signatures on the demand were confirmed by [Gosford’s] bank via SWIFT as being authentic;

(ii)   such demand was presented in original to [Bank of China]; and

(iii)   such demand reached [Bank of China’s] counter at the Shanxi Branch not later than close of their business hours on 31 July 2021;

(d)   the Shanxi Branch had the power and authority to receive a Complying Demand and upon receipt, to unconditionally and independently of Shinetec or any other branch or department of [Bank of China] pay the amount claimed up to a limit of AUD 37 million;

(e)   [Bank of China] and/or the Shanxi Branch had the necessary funds or financial support from Shinetec to satisfy any Complying Demand up to a limit of AUD 37 million without further reference to Shinetec”.

56. Gosford contends that the representations were not true and were thus misleading or deceptive.

57. Mr Kay Hoyle, for Bank of China, submitted that the alleged representations were no more than a recitation of Bank of China’s obligations under the Standby Letter of Credit and that the cross-claim impermissibly seeks to characterise the undertaking of those obligations as representations.

58. Mr Kay Hoyle relied, in particular, on the observations of the Court of Appeal of the Supreme Court of Victoria in RCR Energy Pty Ltd v WTE Co-Generation Pty Ltd [6] as follows:

“[64]   Subject to what we say in the next paragraph, where the representation is said to appear in a contract, it will be necessary to examine all the terms of the contract to see if the allegation that there is a representation is made good…

…

[65]   On the other hand, it may be that, properly construed, a provision of a contract is not a representation but nothing more than the undertaking of an obligation. In that eventuality, there can be no misleading conduct. This is because nothing is ‘represented’ other than that an obligation has been undertaken, which is self-evidently true.”

6. [2017] VSCA 50 (Weinberg, Whelan and Santamaria JJA).

59. However assuming, as Mr Kay Hoyle submitted, that the allegations in the Cross-Claim List Statement should be read as no more than a recitation of Bank of China’s obligations under the Standby Letter of Credit (and that is a matter in contest), it does not follow that a representation is incapable of arising from such matters. That is a matter that, at least arguably, must be determined by reference to, not only all the terms of the contract, but all the circumstances of the case. It is thus not a matter apt for resolution summarily on an application such as this.

60. Indeed, the Court of Appeal said in RCR Energy Pty Ltd v WTE Co-Generation Pty Ltd,[7] in a passage appearing immediately before those upon Mr Kay Hoyle relied:

“Whether contractual promises can form representations for the purposes of the TPA or the ACL remains a matter of controversy. In several cases, judges have said that the fact that the particulars of the alleged misleading conduct are based upon the making of a contractual promise does not prevent a claim being made under either the TPA or the ACL. In Campbell v Backoffice Investments Pty Ltd,[8] French CJ said:

‘There is no reason in principle why the fact that a false statement is contained in a contractual document thereby takes the use of that statement in the document out of the scope of ‘misleading or deceptive conduct’. Whether the proffering of a contractual document containing a false statement amounts to a misrepresentation or to misleading or deceptive conduct, is a matter of fact to be determined by reference to all the circumstances. The circumstance that such a representation is the subject of a contractual warranty does not, as a matter of law, exclude the making of it from the purview of the statutory prohibition’[9] .” (Emphasis added.)

7. At [62].

8. (2009) 238 CLR 304; [2009] HCA 25.

9. Ibid at 322, [35] (French CJ). See also Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470, at 505-6 (Lockhart and Gummow JJ); Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217, at 239-41 (Ormiston J).

61. In my opinion, whether or not the representations alleged by Gosford made out will be a matter for the trial and should not be determined now by me.

The claim under s 1041H(1) of the Corporations Act

62. In this part of the Cross-Claim List Statement Gosford alleges that the conduct relied upon in relation to its claim under s 18 of the Australian Consumer Law was conduct “in relation to a financial product” within the meaning of s 763A of the Corporations Act and was thus misleading or deceptive for the purposes of s 1041H(1) of the Corporations Act.

63. Thus, it adds nothing to the claim already made under s 18 of the Australian Consumer Law.

64. However, it gives rise to the question of whether a standby letter of credit is a “financial product”.

65. This involves consideration of the provisions of ss 763A, 763B, 763C, 765A and Corporations Regulations 2001 (Cth) reg 7.1.06.

66. Mr Kay Hoyle and Mr Jackman both made submissions as to whether, in the light of those provisions, a standby letter of credit is a “financial product”.

67. If, at trial, Gosford makes out its claim under s 18 of the Australian Consumer Law, its claim under s 1041H(1) of the Corporations Act will add nothing further to its position. On the other hand, if Gosford does not make out its claim under s 18 of the Australian Consumer Law it would not be able to make out a claim under s 1041H(1) of the Corporations Act.

68. In those circumstances, I see no utility in resolving, at this stage, whether a standby letter of credit is a “financial product”.

69. That matter can also be dealt with at the trial.

The stay application

70. Bank of China contends that Gosford’s cross-claim should be stayed on the basis that this Court is a clearly inappropriate forum for its resolution. In effect, Bank of China contends that Gosford should pursue its claim against Bank of China in the pending proceedings in the People’s Court.

71. There was no dispute as to the relevant principles. They were summarised in Mr Jackman’s and Mr Tyson’s submissions as follows:

“A stay will only be granted if the relevant Australian court is a clearly inappropriate forum for the trial of the claim. This condition would be satisfied if the continuation of proceedings in New South Wales would be oppressive (‘seriously and unfairly burdensome, prejudicial or damaging’) or vexatious (‘productive of serious and unjustified trouble and harassment’). [10] The strictness of the threshold that the applicant must meet was again confirmed in Regie Nationale des Usines Renault SA v Zhang. [11] The jurisdiction is to be exercised with ‘great care or extreme caution’. [12] ”

10. Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197; [1988] HCA 32; Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538; [1990] HCA 55.

11. (2002) 201 CLR 491; [2002] HCA 10.

12. Voth, supra 10 at [30].

72. Mr Kay Hoyle also drew attention to the observations of Brereton J (as his Honour then was) in McGregor v Potts:[13]

“…The Voth principles do not require proof of actual vexation or oppression; what they require is proof of a sufficient imbalance of the ‘connecting factors’ that it can be said that the local forum is a ‘clearly inappropriate’, as distinct from ‘less appropriate’, one. Once that is established, the law presumes vexation and oppression will be occasioned to the foreign party by requiring it to litigate in a clearly inappropriate forum, without requiring proof of actual vexation or oppression.”

13. (2005) 68 NSWLR 109; [2005] NSWSC 1098 at [43].

The context

73. It is true, as Mr Kay Hoyle submitted, that much of the relevant conduct in this case occurred in the People’s Republic of China. Namely:

1. the Standby Letter of Credit was issued by the Bank of China’s Shanxi branch;

2. the Demand under the Standby Letter of Credit was made at the Bank of China’s Shanxi branch; and

3. payment under the Standby Letter of Credit would have been effected in the People’s Republic of China.

74. Thus, it may well be, as Mr Kay Hoyle submitted, that the situs of the Standby Letter of Credit and therefore of any purported debt owed by the Bank of China to Gosford is the People’s Republic of China.

75. However, the Standby Letter of Credit was procured by Shanxi Construction in satisfaction of Shinetec’s obligation under the Development Contract which related to construction of a development in NSW.

76. Further Gosford’s cross-claim, is a direct response to Shinetec’s claim made in this Court seeking to restrain Gosford (and the Receivers) from seeking to enforce the Standby Letter of Credit. As Mr Jackman submitted, the cross-claim is a perfectly natural incident to the claim made against it by Shinetec, a matter pointing to the appropriateness of this Court as a forum.

77. The issues that Gosford will seek to raise in answer to Shinetec’s claim for final relief are likely to be exactly the same as it seeks to establish on the cross-claim.

78. Were I to grant a stay of the cross-claim, Gosford would nonetheless have to defend Shinetec’s claim and then, if successful here, have to agitate its claim against Bank of China in the People’s Court.

A documentary case

79. Apart from having to prove service of the Demand of 30 July 2021 at the Shanxi branch of Bank of China, Gosford’s claim against Bank of China under the Standby Letter of Credit is documentary.

80. It appears unlikely that Bank of China will dispute that Ms Wang attended its Shanxi branch on 30 July 2021 and delivered the Demand.

81. As I have set out above, Ms Wang will give evidence of a conversation she had with Mr Lu on that occasion.

82. There is no evidence on this application that there will be any dispute about what Mr Lu said.

83. There is evidence that Ms Wang, and presumably Mr Lu, would not be permitted by Chinese law to prepare an affidavit within mainland China and would have to fly to Hong Kong to make an affidavit.

84. There may be restrictions on Ms Wang’s and Mr Lu’s ability to travel arising out of the Covid pandemic and it may be that one or both parties will have to invoke the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters [14] seeking permission from the Chinese Ministry of Justice and the Supreme People’s Court to obtain a written witness statement or permission to examine the witnesses by video link for the purposes of cross-examination.

    14. Opened for signature 18 March 1970, 847 UNTS 231 (entered into force 7 October 1972).

85. If and when any such difficulty arises, no doubt the question of whether these proceedings should be stayed could be further considered. But at the moment there is no evidence to suggest that the case will be otherwise than one to be determined on the documents and thus no evidence to suggest that any such difficulty will arise.

Proper law of the Standby Letter of Credit

86. Mr Kay Hoyle and Mr Jackman made competing submissions as to whether the proper law of the Standby Letter of Credit was that of the People’s Republic of China or of NSW. Mr Jackman accepted that the matter was “fairly in contest”.

87. However, as Mr Jackman submitted, even if the proper law of the Standby Letter of Credit is the law of the People’s Republic of China, there is no evidence before me that there is any relevant aspect of the People’s Republic of China law which differs from Australian law. Indeed, as Mr Jackman submitted, it appears unlikely that there is any material difference as the Standby Letter of Credit is expressed to be subject to ISP98 which appears to contain an exhaustive statement of the rights, powers and discretion that exist in relation to standby letters of credit.

88. In the absence of any evidence I would presume the law to be the same. [15]

    15. Wright, Heaton & Co Ltd v Barrett (1892) 13 LR (NSW) 206; Bowden Bros & Co v Imperial Marine & Transport Insurance Co (1905) 5 SR (NSW) 614; United States Trust Co of New York v Australia and New Zealand Banking Group Ltd (1995) 37 NSWLR 131.

Risk of inconsistent findings?

89. Mr Kay Hoyle submitted that “there is a very real risk of inconsistent findings” between those in the People’s Court and those that would be made were Gosford to be successful on its cross-claim in these proceedings.

90. Mr Kay Hoyle submitted:

“If the local proceedings were to continue in parallel with the proceedings commenced by [Shanxi Construction] in the [People’s] Court, [Bank of China] might be subject to an injunction restraining payment in the [People’s Republic of China] and simultaneously subject to an order of this Court to make payment under the [Standby Letter of Credit].”

91. Dr Huang gave evidence that a Chinese court is likely to have “little regard to the existence and conduct of the NSW proceedings” and that any judgment of this Court “will not be recognised and enforced in China because it conflicts with the injunction issued by the [People’s] Court”.

92. However, as I have said, there is no evidence that the Civil Ruling made by the People’s Court has been served on Gosford. Indeed, as I have said, Mr Jackman’s instructions are that the Civil Ruling has not in fact been served on Gosford. Thus, as Mr Jackman submitted, there is no basis for the assertion that the Civil Ruling is operative and effective.

93. Further, the Civil Ruling is expressed to operate to suspend payment under the Standby Letter of Credit and would not be inconsistent with this Court ordering that Bank of China pay damages or compensation to Gosford were Gosford’s claims to be upheld.

94. Further the Enforcement Assistance Notice provides that the suspension is until 4 August 2022 and thus would not prevent enforcement of any judgment obtained by Gosford that Bank of China honour its obligations under the Standby Letter of Credit after that date.

95. Finally, the evidence of Gosford’s Chinese law expert, Dr Andrew Godwin, is that:

“…the Enforcement Assistance Notice applies only the Bank of China Limited Shanxi Branch and does not apply to Bank of China Limited as the ‘Head Office’ of the Shanxi Branch or other branches of Bank of China Limited.”

96. This evidence is not challenged. Its effect is that the Enforcement Assistance Notice does not extend to Sydney offices of Bank of China.

97. Dr Godwin further opined that even if the Enforcement Assistance Notice did extend to the Head Office of the Bank of China Ltd and to its other branches, there would be no breach of the Civil Ruling.

98. Dr Godwin explained:

“This is because non-compliance with an injunction per se does not constitute ‘acts that involve a refusal to assist with enforcement’ under Article 114(4) of the Civil Procedure Law and therefore does not result in a breach of the law or trigger any consequential illegality.

…

In my opinion, this view is particularly cogent in circumstances where the commercial bank (Bank of China in this matter) is a party to proceedings outside China (along with the counterparty to the commercial contract to which the Standby Letter of Credit relates) and those proceedings are intended to resolve the underlying dispute and to determine the relevant matters between the parties, including whether the commercial bank is liable under the Standby Letter of Credit.”

99. Thus, as Mr Jackman submitted:

“There won't be any illegality that arises if the Bank of China has to make a payment which might at first glance have been thought to conflict with the orders that have been made in the PRC. In other words, there is no reason to think that the orders made by the Court in the Peoples Republic of China will be inconsistent with success by us, and enforcement of that success, in the Supreme Court of NSW.” [16]

16. T50.1-7.

Juridical advantage to Gosford

100. Finally, there is a clear juridical advantage to Gosford in bringing its cross-claim in this jurisdiction.

101. That is because there is no equivalent under Chinese law to provisions in s 18 of the Australian Consumer Law and s 1041H(1) of the Corporations Act concerning misleading or deceptive conduct.

102. Dr Huang said that “the Chinese Consumer Law is not a direct comparator to Australian Consumer Law on this aspect” and to bring a cross-claim against Bank of China in the People’s Court Gosford would have to establish that Bank of China acted otherwise than with a “true will” thus in effect, fraudulently.

103. Thus, Dr Huang opined:

“Where a juridical act is performed by a party against his or her true will as a result of fraud by a third party, the defrauded party shall have the right to request a people’s court or an arbitral institution to revoke the act if the other party knows or should have known the fraud.

Even though [Bank of China] is a third party to the construction contract between Shinetec and Gosford, if Gosford considered that it entered into the contract with Shinetec against its true will as a result of the fraud in the Standby Letter of Credit provided by [Bank of China], it may have a cause of action to request a people’s court to revoke the construction contract if Shinetec knew or should have known the fraud of [Bank of China].”

104. Thus, the law corresponding in China is anchored in the concept of fraud and is thus distinctly different from the notions of misleading or deceptive conduct.

Conclusion

105. For these reasons, in my opinion, Bank of China has failed to establish that this Court is a clearly inappropriate forum for the determination of Gosford’s cross-claim against Bank of China.

The result

106. The cross-defendant’s Notice of Motion filed 10 October 2021 is dismissed with costs.

107. I list the matter for directions before the Commercial List Judge on 11 February 2022.

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Endnotes

Amendments

04 February 2022 - Formatting of headings

Decision last updated: 04 February 2022