Hebei Huaneng Industrial Development Co Limited v Shi

[2022] NZCA 534

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

 CA353/2022
 [2022] NZCA 534

BETWEEN	HEBEI HUANENG INDUSTRIAL DEVELOPMENT CO LIMITED Applicant
AND	DEMING SHI Respondent

Court:	French and Collins JJ
Counsel:	K H Morrison and A Manuson for Applicant B O’Callahan and J P Nolen for Respondent
Judgment: (On the papers)	10 November 2022 at 3 pm

JUDGMENT OF THE COURT

AThe application for leave to appeal is declined.

BThe applicant must pay the respondent costs for a standard application on a band A basis with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by French J)

Introduction

1. The applicant wishes to appeal a decision of Associate Judge Sussock declining to grant its summary judgment application to enforce a judgment issued by a court in the People’s Republic of China.[1] 

   [1]Hebei Huaneng Industrial Development Co Ltd v Shi [2021] NZHC 2687 [High Court judgment].

2. In order to bring its appeal, the applicant must first obtain leave.[2]  Leave to appeal was declined by the Associate Judge[3] and so leave is now sought from this Court under s 56(5) of the Senior Courts Act 2016.  Mr Shi the respondent opposes leave being granted.

Background

[2]Senior Courts Act 2016, ss 27 and 56(3).

[3]Hebei Huaneng Industrial Development Co Ltd v Shi [2022] NZHC 1484.

1. The applicant is a subsidiary of a state-owned enterprise managed by the central Chinese government.  It entered into certain contractual arrangements with a company associated with Mr Shi called Qinhuangdao Boen Trading Co Ltd (Boen China).

2. Under the contract, the applicant agreed to pay Boen China to source and distribute coal to various electricity providers throughout China.  Each electricity provider would then pay the applicant who after retaining an agreed margin paid the balance to Boen China.  In order to ensure coal supply, the applicant made an advance payment to Boen China in the sum of RMB 103,426,379.28 (approximately NZD 23 million).  It was agreed that in the event the contract between the applicant and Boen China was terminated Boen China would repay the advance.

3. Mr Shi personally guaranteed Boen China’s obligation to repay the advance as did an entity called Tangshan Seaport Detai New Material Technic Co Ltd (Detai).

4. In late 2015, the applicant decided not to renew its contract with Boen China and sought repayment of the advance.  Boen China failed to pay.

5. On 3 June 2019 the Shijiazhuang Intermediate People’s Court of Hebei Province found Boen China was liable under the coal contracts to repay the advance as was Detai under its guarantee but not Mr Shi.

6. This decision in favour of Mr Shi was however subsequently overturned on appeal to the Higher People’s Court of Hebei Province.  Mr Shi was held to be liable on the guarantee as well as Detai (Higher People’s Court judgment).

7. The applicant sought to enforce the Higher People’s Court judgment in China but claimed neither Mr Shi nor Detai had any assets in that country.  It then became aware that Mr Shi had assets in New Zealand and in May 2020 issued proceedings in the High Court of New Zealand for recognition of the Higher People’s Court judgment.  It also sought and obtained freezing orders which were subsequently extended on condition the applicant provide security to support an undertaking as to damages.[4]

   [4]Hebei Huaneng Industrial Development Co Ltd v Shi [2020] NZHC 2470 at [95(a)–(b)].

8. Mr Shi filed a protest to jurisdiction but on 12 November 2020 that was set aside by Associate Judge Bell.[5]

The High Court decision declining summary judgment

[5]Hebei Huaneng Industrial Development Co Ltd v Shi [2020] NZHC 2992 [Jurisdiction decision].

1. At the hearing before Associate Judge Sussock, it was common ground that because there is no treaty between this country and China providing for the reciprocal enforcement of judgments, common law principles applied.

2. In her decision, the Associate Judge identified three prerequisites which she said a plaintiff was required to meet before the Court will order recognition at common law.  First, the judgment sought to be enforced must have been issued by a foreign court of competent jurisdiction.  Second, the judgment must be for a definite sum of money and third, it must be final and conclusive.[6]  There was no dispute that the second of these requirements was satisfied but the Associate Judge held it was arguable the other two requirements were not.[7]

   [6]High Court judgment, above n 1, at [27], citing Eilenberg v Gutierrez [2017] NZCA 270, [2017] NZFLR 471 at [30].

   [7]At [91]–[92] and [126].

3. As regards the first prerequisite, the Associate Judge placed significant weight on the fact that the jurisdiction to recognise foreign judgments is no longer considered to rest on the doctrine of comity as between nations but on obligation, meaning the key question is whether the foreign judgment created an obligation to pay which under New Zealand law the debtor was bound to discharge.[8]

   [8]See the discussion at [29]–[31].

4. This being the underlying rationale of the common law jurisdiction, the Associate Judge went on to reason that in order to qualify as “a foreign court of competent jurisdiction” for the purposes of recognition, it was arguable that the foreign entity in question must be independent and impartial because that was an integral part of the definition of a court under New Zealand law.[9]  In this case there was in the Associate Judge’s assessment cogent evidence that the Higher People’s Court may have lacked the necessary independence and impartiality required before it could be said to be exercising a judicial function.  In particular, there was a possibility that a judicial committee had decided the appeal and not the panel named in the decision and before whom the parties had argued their case.[10]

   [9]At [40]–[44], citing Kuwait Finance House (Bahrain) BSC v Teece [2017] NZHC 1308, [2018] 2 NZLR 257.

   [10]At [76]–[88].

5. The Associate Judge further held that the evidence relating to the involvement and operation of judicial committees provided an arguable basis for a defence of breach of natural justice.[11]

   [11]At [89]–[92].

6. As for the requirement that the foreign judgment be final and conclusive, the Associate Judge accepted there were no further rights of appeal from the Higher People’s Court judgment.[12]  However she said on the information before her it was arguable that under Chinese law the applicant was required to pursue or preserve its rights against Detai first, thereby reducing or extinguishing Mr Shi’s liability under the guarantee, before taking enforcement steps against him.  And that was something the applicant had not done.  The Associate Judge acknowledged there was conflicting expert evidence about Chinese law on this point but considered that in the context of a summary judgment proceeding she was unable to resolve it.[13]

   [12]See at [97]–[98].

   [13]At [125]–[126].

7. In coming to these conclusions, the Associate Judge rejected an argument advanced by the applicant that Mr Shi was estopped from raising enforcement issues because he did not appeal or oppose the enforcement steps that were taken against him in China.  The Associate Judge held relying on the decision of Henderson v Henderson that in the context of a default judgment an estoppel to this effect does not always operate and she was unable to conclude for the purposes of a summary judgment application that Mr Shi would inevitably be estopped from raising enforcement issues.[14]

The application for leave to appeal

[14]At [119]–[120], citing Henderson v Henderson (1843) 3 Hare 100, 67 ER 313 (Ch).

1. Applications for leave to appeal under s 56(5) of the Senior Courts Act are governed by the following principles:[15]

   (a)a high threshold exists;

   (b)the applicant must identify an arguable error of law or fact;

   (c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;

   (d)the circumstances must warrant incurring further delay; and

   (e)the ultimate question is whether the interests of justice are served by granting leave.

   [15]Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].

2. In its application for leave to appeal, the applicant identifies four alleged errors of law and fact in the High Court judgment.

3. First, it is contended that the Associate Judge wrongly applied the common law test for recognition of a foreign judgment by importing a requirement of independence and impartiality in circumstances where there was no specific defence to this effect.  Further and in any event, there was no cogent evidence there may have been a lack of independence and impartiality.

4. Secondly the applicant submits that the Associate Judge erred in finding an arguable defence of natural justice when that had not been raised by Mr Shi.

5. Thirdly the Associate Judge erred in finding the Higher People’s Court judgment was arguably not final or conclusive and fourthly that the cause of action and/or issue estoppel did not apply in the context of enforcement of a foreign judgment.

Our view

1. As Mr Shi himself acknowledges, the proposed appeal raises issues of general or public importance involving as it does the enforcement of foreign debt and the interaction of the Chinese and New Zealand legal systems. 

2. We also accept that although the Associate Judge’s decision was undoubtedly well reasoned there are arguments to be had that are worthy of submission to this Court.

3. A further factor favouring the granting of leave is the paucity of authority.  While the recent Supreme Court decision of Minister of Justice v Kim supports the Associate Judge’s concerns about the role of judicial committees in the Chinese legal system,[16] that decision was not concerned with the common law test of recognition and the question of whether that test requires a foreign court to act judicially.  Indeed, there appears to be little or no authority directly on point and it is worth noting that in the decision regarding protest to jurisdiction in this case Associate Judge Bell expressed a different view on the question of whether judgments of the Higher People’s Court meet the requirements for recognition.[17]

   [16]See Minister of Justice v Kim [2021] NZSC 57, [2021] 1 NZLR 338 at [342]–[345].

   [17]See Jurisdiction decision, above n 5, at [60].

4. On the other hand, contrary to a submission advanced on behalf of the applicant, there is in our view a compelling argument that a proper consideration of all the matters raised requires a full hearing where the disputed issues of both law and fact can be fully ventilated and explored.  That in our assessment is simply not possible in a summary judgment context given the disputes in the evidence.

5. Added to that is the delay that would be caused by allowing an appeal to proceed and the prejudice that delay would cause to Mr Shi.  Any appeal is unlikely to be able to be heard until September of next year at the earliest and unless the applicant is successful on all issues, it may well not be dispositive.  Mr Shi’s assets have been subject to freezing orders since June 2020 and as noted by the Associate Judge in her leave decision he therefore has no certainty about the future of those assets while this multi-million dollar claim remains extant.  This is said to be particularly problematic because a substantial portion of the assets relate to shares in a New Zealand company which is currently undertaking a major residential development requiring ongoing effort, skill and acceptance of risk by Mr Shi.

6. The prejudice occasioned to Mr Shi if leave were to be granted in our view far outweighs the prejudice caused to the applicant if leave is declined.

7. Taking all these factors into consideration, we have concluded that the interests of justice are best served by declining leave.

8. As regards the costs of the contested application, there is no reason why they should not follow the event and an award of costs made in favour of Mr Shi.

Outcome

1. The application by Hebei Huaneng Industrial Development Co Ltd for leave to appeal is declined.

2. The applicant must pay the respondent costs for a standard application on a band A basis with usual disbursements.

Solicitors:
Meredith Connell, Auckland for Applicant
K3 Legal Ltd, Auckland for Respondent