Federal Court of Australia Enforces Foreign Arbitral Award of $40 Million

In Guoao Holding Group Co Ltd v Xue (No 2) [2022] FCA 1584, the Federal Court of Australia granted enforcement in Australia of a foreign arbitral award issued in China, and dismissed objections that enforcement would be contrary to Australian public policy.
Author(s): Sam Dorne
A traditional Chinese pavilion with intricate details and a tiled roof stands in the foreground. In the background, a modern city skyline is visible under a partially cloudy blue sky. Lush greenery surrounds the pavilion, blending nature with architecture.

The facts

The parties to the dispute were a Chinese construction Company (Guoao Group) and a Chinese national (Ms Xue). Ms Xue had significant business interests in China, but resided in Australia. The parties’ dispute arose in relation to their joint venture and funding agreements for the development and construction of an aged care village in China. The joint venture was arranged through a new joint venture company with shareholdings allocated to Ms Xue and related entities, as well as a 51% shareholding to Guoao Group. Through a further agreement Guouo Group had an approximate 25% interest in the overall project.

The parties referred their dispute to the Beijing Arbitration Commission. The joint venture company was not a party to the arbitration.The arbitral tribunal found in favour of Guoao Group and ordered Ms Xue to pay Gouao Group over AUD40 million (being payment for the shares in the joint venture entity and shareholder loans by Guoao Group) without transferring back to Ms Xue the shares in the joint venture entity.

Ms Xue made a number of unsuccessful challenges to the award in the Chinese courts. Guoao Group successfully enforced and recovered some of the award debt in China against Ms Xue’s assets. However, there were insufficient assets for full recovery.  

Guoao Group applied to the Federal Court of Australia (FCA) to enforce the remainder of the award in Australia pursuant to section 8(3) of the International Arbitration Act 1974 (IAA). Ms Xue sought to oppose Guoao’s enforcement application by invoking section 8(7)(b) of the IAA – this provides that the court may refuse to enforce a foreign award if it finds that enforcing it would be contrary to Australian public policy. 

A bronze balance scale and a wooden gavel are placed on a wooden surface. Two closed black binders are situated in the background. The scene suggests a legal or judicial context.

The issues

The main issue that the FCA had to decide was whether, in respect of the arguments brought forward by Ms Xue, enforcing the foreign tribunal’s award would be manifestly unfair and contrary to Australian public policy, with the result that the FCA should exercise its discretion not to enforce it.

Ms Xue argued that enforcement would be contrary to public policy because of procedural unfairness in the tribunal’s award.[1] In particular, she argued that the award produced real unfairness because it rescinded (or cancelled) the parties’ original disputed contract without an order that the parties were to be restored to their pre-contractual positions, effectively allowing Guoao Group double recovery. This was essentially the same argument that Ms Xue had unsuccessfully raised in the Chinese courts to try to challenge enforcement of the award in China. 

A construction site under a clear blue sky, featuring a partially built multi-story building with scaffolding and cranes. The bright yellow construction crane towers over the structure, while another crane is visible in the background.

The decision

The FCA rejected Ms Xue’s arguments and made orders for the enforcement of the award. 

The FCA held that:[2] 

Ms Xue’s complaints about the award do not rise to the level of the award being contrary to the fundamental norms of justice and fairness in Australia within the context of international commercial arbitration such as to enliven the public policy ground for resisting enforcement. 

It noted that Ms Xue had unsuccessfully raised the same arguments regarding procedural unfairness in the Chinese courts. There was also an ability in the Chinese courts for Ms Xue to seek re-conveyance (restitution or return) of the shares in the joint venture company in question, so as to prevent double recovery. She had not exercised her rights in this regard. In the FCA, Guoao Group adduced expert evidence on the point.[3] That there was a court of competent jurisdiction to do this in China was a factor in negating Ms Xue’s public policy arguments.[4]

The FCA recognised the importance of harmony in the recognition of awards made under a standardised rules-based international system. It found that to circumvent another jurisdiction’s decisions, the foreign award would have to be so fundamentally offensive to that jurisdiction’s notions of justice that, despite its being a party to the [New York] Convention, it could not reasonably be expected to overlook the objection.[5]

Three people are seated at a conference table in an office, focusing on a laptop screen. A woman and two men appear to be engaged in a discussion. Large windows behind them allow natural light into the room, and the table is mostly clear except for a few items.

In this case, the FCA found that that threshold had not been met and there were no compelling reasons why the award should not be enforced in Australia. 

Conclusion

The FCA’s decision reinforces the high threshold for refusing to enforce a foreign arbitral award in Australia. Refusal on the basis that enforcement would be contrary to Australian public policy (under section 8(7)(b) of the IAA) is very narrow in scope and limited to breaches of the most basic fundamental principles of morality and justice, recognising the context of international commercial arbitration. In this case there were processes of the law still available to Ms Xue in China to ensure an equitable outcome. 

The door is left ajar for a finding that double-recovery will be a basis to refuse enforcement of a foreign arbitral award, (on public policy grounds under the IAA) as this was implicit in the FCA’s reasoning in this complex case. 

References

[1] Ms Xue also unsuccessfully raised a number of other arguments about the translation, certification and authentication of the foreign award. 

[2] Guoao Holding Group Co Ltd v Xue (No 2) [2022] FCA 1584 at [35].

[3] Guoao, above n 2, at [41].

[4] Gutnick v Indian Farmers Fertiliser Cooperative Ltd [2016] VSCA 5, 49 VR 732.

[5] Guoao, above n 2, at [33].

Other resources you might like

If you found this article helpful and are interested in learning more, there is a wealth of other resources available on our website. We have a wide array of articles and guides on a variety of topics, each designed to provide you with a deeper understanding of the subject matter. We encourage you to explore these resources and deepen your knowledge.

A person in a suit sits at a desk, writing with a pen on a piece of paper. The image focuses on their hands and the pen, with their face and upper body blurred in the background. The setting appears to be a professional or formal environment.
Arbitration

Marco Polo’s arbitration odyssey: When can the courts play the guessing game?

Two similar cases. Two different jurisdictions. Two different outcomes. How did two courts in Hong Kong and Singapore reach such opposing conclusions on whether a mystery Chinese arbitration centre can be read into an agreement? The cases, while held in different common-law jurisdictions, saw arbitration clauses put under the microscope due to errors at the drafting stage. In both, the parties had attempted, and failed, to name an arbitration centre in China. Despite the commonalities, the courts treated the mistake in different ways. The clear unpredictability of these decisions shows why care and precision are needed when drafting arbitration agreements, and why periodically reviewing your nominated centre(s) might not be such a bad idea.
Learn more
Three people in business attire gathered around a table. Two are shaking hands while standing, and the third person, holding a laptop, stands nearby. A smartphone, coffee cup, and a rectangular planter are visible on the white conference table.
Arbitration, Mediation

Singapore High Court compels party to arbitration to engage in mediation

In the first case of its kind in Singapore, the High Court (Court) has ordered specific performance compelling a party already involved in arbitral proceedings to attend mediation. With no previous caselaw in Singapore ordering performance of mediation as a contractual obligation, Maxx Engineering Works Pte Ltd v PQ Builders Pte Ltd [2023] SGHC 71 will be useful precedent for future disputes involving tiered dispute resolution clauses.
Learn more
A person in a blue lab coat and blue gloves uses tweezers to pick up a pill from a petri dish filled with various colorful pills. The background is a laboratory setting with scientific equipment.
Arbitration

Serious irregularity standard in arbitration

In Cipla Limited v Salix Pharmaceuticals Inc [2023] EWHC 910, the English High Court has confirmed a high threshold exists for successful challenges to awards on the basis that the arbitral tribunal committed serious irregularity because it failed to act fairly.
Learn more

Get in touch

Contact our team today to see how we can help

Contact us

This field is for validation purposes and should be left unchanged.