Non-appearance and overseas winding-up no bar to proceeding against foreign defendant in Australia

This article considers the New South Wales Supreme Court’s decision to grant leave to proceed against non-appearing foreign defendants, which were in foreign insolvency proceedings.

There has been a significant growth of litigation in Australia where there is at least one foreign defendant. This is unsurprising given the growing number of international agreements under which the parties govern their contract under Australian law and expressly agree to Australian court jurisdiction, and the volume of global trade with Australia and foreign direct investment.

However, foreign defendants, believing that all’s fair in love and war, can seek to frustrate the Australian proceeding by not entering an appearance. This is because, generally, where a claim has been served on a person outside Australia and that person does not enter an appearance, the serving party cannot proceed against the other without leave of the court.

In Horizon Capital Financial S.A.R.L v BCC Trade Credit Pty Ltd [2023] NSWSC 917, the Supreme Court of New South Wales clarified the requirements a plaintiff needs to demonstrate to proceed against a foreign defendant that fails to enter an appearance. The decision provides much-needed reassurance to parties adopting Australian court jurisdiction clauses, that the jurisdiction of the Australian courts to make orders against foreign defendants who do not enter an appearance will not be thwarted. This is especially important where defendants have assets in Australia, for the purpose of enforcement of any orders.

Background facts in Horizon

The plaintiff, Horizon Capital Finance S.A.R.L (a Swiss company) was allegedly assigned the benefit of a trade credit insurance policy issued by the first and second defendants (BCC Trade Credit Pty Ltd and Tokio Marine & Nichido Fire Insurance Co Ltd) to the fourth and fifth defendants (Lemarc Agromond Pte Ltd and Lemarc Agromond Ltd).

The fourth and fifth defendants were served an Australian originating process in Singapore and Hong Kong respectively (being their countries of incorporation), however they did not enter an appearance in the Australian court.

The plaintiff sought leave under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 11.8AA to proceed against the fourth and fifth defendants. UCPR r 11.8AA states that if an originating process is served on a person outside Australia and the person does not enter an appearance, the party serving may not proceed against the person served except by leave of the court.

Supreme Court judgment

Stevenson J highlighted 4 factors to be satisfied for the court to grant leave to proceed against a non-appearing foreign defendant:

1. The defendant must have been served in accordance with the laws of the foreign jurisdiction.
2. The claim made must fall within one of the several categories in Sch 6 of the UCPR. These include, amongst others, claims for the enforcement, interpretation or other relief in relation to a contract made in Australia, enforcement of judgments, injunctions and interim relief.
3. The plaintiff’s case is arguable, and the test is whether it would survive a summary judgment application.
4. New South Wales, where the case was being heard, is “not a clearly inappropriate forum.”

Application to the facts

1. The fourth and fifth defendants were served by registered post at their registered offices, which, critically, was permitted under both Singapore and Hong Kong law.
2. The claim was for the enforcement of a contract made in Australia and therefore fell within Sch 6.
3. The plaintiff was able to show that it had documents which appeared to be assignments of the benefits under the insurance policy, and this was enough to survive a summary judgment application.
4. New South Wales was where the first and second defendants (the insurers) were located, and the insurance policy was governed by New South Wales law. The plaintiff adduced evidence that showed that the fourth and fifth defendants were at various stages of being wound up. The insolvency regime in Singapore and Hong Kong have terms similar to those of s 471B of the Corporations Act 2001 (Cth) which stipulates that once winding up of a company has begun, no person can start a proceeding against the company or in relation to its property without leave of the court. Stevenson J drew attention to the fact that these provisions only applied domestically, and the plaintiff could bring a proceeding in a New South Wales court notwithstanding the overseas stay of proceedings.

Key takeaways

1. In negotiating contracts involving foreign parties, close consideration should be given to the adoption of Australian governing law and or Australian court jurisdiction. This is especially so where a foreign party has assets within Australia.
2. This decision reinforces the resolve of the Australian court to uphold its jurisdiction, thwarting the (sometimes) ill-conceived game theory of foreign defendants.
3. Where a defendant company is being wound up overseas, and a stay of proceedings against that company or its property operates in the foreign jurisdiction, consider whether the Australian court might have jurisdiction and the claim could nevertheless proceed. This can be an important strategic move where the putative foreign defendant has assets in Australia, or in an overseas jurisdiction where the Australian judgment might be enforced, or where an Australian judgment will enable the plaintiff to participate in any distribution of the assets of the company being wound up. In making this decision, careful consideration of cross-border insolvency laws will be necessary.
4. Rather than simply not appearing in the Australian proceeding, the controller (liquidator) of a foreign defendant in liquidation (winding up) / insolvency proceeding, should consider having the foreign insolvency proceeding recognised in Australia which might then give rise to the maintenance of the stay of proceedings against the foreign defendant.