You must carefully consider and negotiate to achieve the most appropriate governing law and dispute resolution clauses when entering into cross-border transactions.
The significance of Australia's trade and business relationship with Asia now and into the future is undisputed. The most recent trade data available from the Department of Foreign Affairs and Trade indicates that the combined markets of East Asia and Oceania was responsible for 79% of all Australian exports and 55.4% of imports in 2014. A recent report from a leading Australian professional services firm indicates that approximately half of Australian large businesses now conduct business in Asia, and this trend is expected to continue and increase in light of forecasts indicating that Asia will contribute half of the world's total economic output by 2025, in part due to growing middle class expected to reach 3.2 billion by 2030.
With the increase in activity between Asian and Australian businesses comes the prospect of an increase in litigation, and the reality of having to navigate the difficulties associated with doing business across different jurisdictions. Litigation commenced in an Asian jurisdiction may ultimately result in a judgment in favour of the successful party who then seeks to enforce it against the defendant's assets in Australia.
So how does a party enforce a judgment in Australia?
Part 1 of this two-part article considers the procedure for enforcing in Australia a judgment obtained in Asia.
The Foreign Judgments Act 1991 (Cth) provides the statutory basis for the recognition of foreign judgments by Australian courts. The Act is limited however, in that it applies only to certain courts of countries that are listed in the Foreign Judgments Regulations 1992 (Cth).
In order to register a judgment in accordance with the Act the following criteria must be met:
- the foreign judgment must:
- be final and conclusive (this includes interlocutory judgments);
- come from a court that is listed in the Regulations;
- not have been obtained by fraud;
- not have been discharged or wholly satisfied; and
- be able to be enforced in the country of the original court;
- the judgment creditor must register the judgment within six years of the date of the judgment or relevant appeal;
- the original court must have had jurisdiction to make the judgment concerning the relevant parties;
- the judgment debtor must have been duly served and provided with notice of the proceedings; and
- enforcement would not be contrary to public policy.
Several nations located in Asia are listed in the Regulations including (for example) Hong Kong, Japan, South Korea, Singapore, Sri Lanka and Taiwan.
However, notably, China and Indonesia (being two of Australia's largest trading partners in the Asia region) are not listed in the Regulations. To enforce a judgment from those countries and any other unlisted country, the common law must be relied upon.
The common law on the enforcement of foreign judgments
At common law, the elements that must be established for the recognition/enforcement of a foreign judgment can be summarised as follows:
- the foreign court has exercised a jurisdiction which Australian courts will recognise;
- the foreign judgment is final and conclusive;
- the parties to the foreign judgment and the recognition proceeding are identical; and
- if based on a judgment in personam (that is, a judgment imposing a personal obligation on the defendant), the judgment must be for a fixed debt.
The party seeking to rely upon the foreign judgment bears the onus of establishing these elements. If the foreign judgment satisfies these elements, it has "jurisdiction in the international sense" and is prima facie enforceable in Australia unless the defendant can establish one or more of the recognised defences to the enforcement of a foreign judgment.
Does the foreign court have jurisdiction?
A foreign judgment will not be enforced by Australian courts unless the foreign court had jurisdiction over the defendant at the time when that jurisdiction was invoked.
This element is commonly established in one of two ways:
- the defendant was resident or had a presence in the foreign jurisdiction; or
- the defendant voluntarily submitted to the jurisdiction.
A defendant will normally be found to have voluntarily submitted to the jurisdiction of a foreign court if it appeared in proceedings to argue the merits of the case or agreed in advance that the foreign court had jurisdiction. This was recently confirmed by the Queensland Court of Appeal in relation to a decision from the District Court of Dallas County, Texas, United States of America where the appellant was found to have submitted to the jurisdiction by contesting an interlocutory application in the Texas court (an application by the plaintiff to join an additional defendant) despite having earlier lodged an objection to the court's jurisdiction.
In another recent decision, a defendant was found to have submitted to the jurisdiction of the foreign court where it was a party to a settlement agreement which disposed of proceedings brought in the foreign court and in which the defendant expressly acknowledged and agreed that the other party was entitled to file for default judgment in the event of breach of the settlement agreement.
As for a corporation, the question whether it "resides" or is "present" in a jurisdiction is generally considered to be artificial because within the same jurisdiction a corporation may use subsidiaries, branch offices, and commercial agencies to carry out its business. As such, a foreign court will generally be considered to have had jurisdiction over a corporation if the corporation carried on business in that jurisdiction "at a definite, and to some extent, permanent place" (for example, at a branch office that used premises leased by the corporation). Other criteria indicative of a corporation carrying on business in a particular jurisdiction include circumstances where the corporation was represented in the jurisdiction by an agent with authority to bind the corporation to contracts with persons in that jurisdiction and where business has been conducted by the corporation in the jurisdiction for a sufficiently substantial period of time.
Is the judgment of the foreign court final and conclusive?
A foreign judgment, in order to be "final and conclusive", must end not only the proceedings between the parties, but also the dispute which gave rise to proceedings in the first place.
The fact that a right may exist to appeal the foreign judgment does not normally affect the conclusiveness of the judgment. However, the existence of such a right is likely to be relevant to the court exercising its discretion to grant a stay.
Foreign judgments that are obtained by default are generally treated as final and conclusive, for example, after the time for setting them aside has expired or until the time when they are actually set aside.
Does the original judgment involve the same parties?
The parties to the foreign judgment and the parties to the recognition proceeding must be identical and in the same interest. For example, an application for recognition would almost certainly fail in circumstances where the original judgment concerned a corporation and the local Australian proceeding concerned a director of that corporation.
Is the judgment for a fixed debt?
An Australian court will only enforce a foreign judgment under the common law for a fixed debt, or for a debt which is readily calculable.
If the foreign judgment is contingent upon unascertained amounts, it will generally not be enforceable.
Defences at common law
There are a number of defences at common law that are available to a defendant in an Australian proceeding for the recognition/enforcement of a foreign judgment. Broadly, these defences can be summarised as:
- the foreign judgment was obtained by fraud;
- the foreign judgment is contrary to public policy;
- the foreign court acted contrary to the principles of natural justice;
- the foreign judgment is penal or for a revenue debt; and
- the enforcing party is estopped from relying on the foreign judgment because there is a prior judgment within the forum between the same parties and concerning the same issues.
It is generally not possible to challenge the merits of a foreign judgment on the basis that the court erred as to the relevant facts or law. Further, a defendant cannot rely on the fact that in the foreign proceeding an available defence was not raised, even if that defence may have changed the result. From our experience, however, certain foreign laws and judgments are based on a particular "public policy" in that country which is significantly different from that in Australia. It is arguable that the "public policy" defence would be available in those cases.
Given the ever-expanding and strengthening trade and economic ties between Australia and Asia, consideration has recently been given to legal facilitation of those relationships in Australia: most significantly, a codified international contract law, applying to transnational transactions, and an international commercial court.
In the meantime, until such developments manifest, it is now more important than ever that parties understand the legal consequences of a dispute arising in the course of doing business across borders ? most significantly, the end game of enforcing, in Australia, any judgment or arbitral order successfully obtained in an Asian jurisdiction. In this regard, it is important to carefully consider and negotiate to achieve the most appropriate governing law and dispute resolution clauses when entering into cross-border transactions.
Part 2 of this series will consider the procedure for enforcement of a foreign arbitral award in Australia ? stay tuned.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.