Enforcing Chinese Arbitration Awards in Australia

With so much trade between China and Australia the question arises of how to resolve disputes when agreements are breached.


Many commercial agreements now include arbitration provisions for resolving disputes.


Disputes between Chinese companies and their Australian counterparts may be subject to the United Nations Commission on International Trade Law (UNCITRL) and its arbitration rules.


Where contracting parties have an arbitration clause in their agreement and a dispute arises the parties submit to arbitration and an award is made.


Once an award is made for money in favour of the Chinese company, the question is how does that company enforce its award against a company based in Australia.


An award made in China can be recognised and enforced in Australia under the International Arbitration Act 1974 in an Australian court that has jurisdiction over the amount of the award.


The Chinese company needs to ascertain the state in Australia in which the Australian company has its registered office and may then take proceedings in that state in the appropriate court to have the award recognised.


The Australian company can object to the recognition of the award on grounds set out in section 8 of the Act.


The main grounds for objection are that the award is not final, in the sense that it can or is subject to appeal or that the making of the award was induced or affected by fraud or corruption.


If the Australian court decides that an objection is not valid the award becomes an order of that court. Depending on the amount, the award/order can be enforced by a warrant to seize the Australian company’s goods or commencing winding up proceedings under the Corporations Act 2001.


If you require assistance in recognising and enforcing an award in Australia please contact Greg Doran in our litigation department.

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Our China Conveyancing Team Expands

We are delighted to announce the appointment of Peter (Chi-Yuen) Pang and William Spencer-He to our China Conveyancing Team.

Peter and William are experienced Australian trained lawyers and will add further depth to our expanding China Conveyancing Practice.

Peter has previously acted as an Academic Advisor for the China Law Society for a period of over 8 years, prior to that Lecturing at various Universities in Hong Kong and Australia.

William has acted as a Solicitor at various practices in Victoria.  Prior to this he has had experience as a professional translator for NAATI, the UN, the Government of Shanghai and for the State Council of the People’s Republic of China.  He is also a Lobbyist for the Mainland Chinese community in Australia and additionally has experience as a lecturer, broadcaster and news reporter in China.

Both Peter and William are fluent in Cantonese, Mandarin and English.

Peter will predominately be based in Hong Kong assisting our Hong Kong, Shenzhen and Guang Dong clients.  William will be predominately based in Beijing.

We also wish to congratulate Diane (Jing Pei) Xu on her admission as a Barrister and Solicitor of the Supreme Court of Victoria.  In the short term Diane will continue to assist with Melbourne based China Conveyancing Team before rotating through our other departments.

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Changes to SMSF “Safe Harbour” Guidelines

In an earlier article this year we mentioned the ATO’s Practice Compliance Guideline 2016/5 on what constitutes arm’s length borrowing terms for limited recourse borrowing arrangements (LRBA).

PCG2016/5 sets out the “Safe Harbour” terms on which SMSF trustees may structure their LRBA’s consistent with an arm’s length dealing.

For existing LRBA’s with related parties, PCG2016/5 states that the ATO will not select an SMSF for income tax review for the 2014-15 year or earlier years in certain circumstances provided that the SMSF entered into or amended its LRBA’s consistent with an arm’s length dealing by 30 June 2016.

However, since the release of PCG2016/5 the ATO has determined that many taxpayers may require more time in order to review the terms of their LRBA’s.  The ATO has advertised that it will not select an SMSF for income tax review purely because it has an LRBA for the 2014-15 income year and prior years, provided that the SMSF trustee ensures that any LRBA’s their fund has is on commercial terms, or is alternatively brought to an end by 31 January 2017.

It is anticipated that by September 2016 the ATO will provide further information and illustrative examples to assist SMSF trustees to make decisions about their LRBA arrangements.

If you require assistance in establishing an LRBA or amending your existing LRBA’s so that they are on arm’s length commercial terms by 31 January 2017, please contact Andrew Bini.

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When is FIRB approval required for the purchase of Australian commercial land?

There is much interest from offshore investors, or foreigners living in Australia on a non-permanent basis, in buying Australian commercial land, often for redevelopment or to enjoy an existing rental income stream.   

For a foreign purchaser (individual or corporation) of Australian residential property, they must obtain the approval of the Australian Government's Foreign Investment Review Board (FIRB) before signing a contract of sale.  However, a foreign purchaser buying commercial land, FIRB approval is not always required. 

What is commercial land?

Commercial land means any land in Australia (including any building on the land), except for:

1. land used wholly and exclusively for a primary production business;
2. land on which the number of dwellings that could reasonably be built is less than 10; or
3. land on which there is at least one dwelling (except commercial residential premises).  Examples of commercial residential premises are hotels, serviced apartments or retirement villages.  

In FIRB’s Guidance Note 14 which was last updated on 1 July 2016 (see https://firb.gov.au/resources/guidance/gn14/), FIRB approval is required if a foreign purchaser intends purchasing the following types of commercial real estate:

1. vacant land for commercial development, regardless of the value of the land;
    
2. developed commercial land that is valued at $252 million or more.  However, a different threshold may apply for a country investor or foreign government investor.  Commonly, if the value of the land the foreign purchaser intends to buy is less than $252 million, then FIRB approval is not required;    
    
3. if the land is considered to be 'sensitive', such as a land will be leased to the government, then a $55 million threshold applies.  

You should always seek professional advice before entering into a contract of sale for the purchase of Australian commercial land. 

When is FIRB approval not required when buying commercial land?

Foreign purchasers do not require FIRB approval to acquire an interest in commercial land in following situations:

1.  the acquisition is pursuant to a last will and testament of a deceased person, or is a  devolution by operation of law;
2. The acquisition is from an Australian Commonwealth, State, Territory or local government or local governing body, or an entity wholly owned by the Australian Government;
3. the foreign purchaser will hold less than 10% of shares in a listed company that is acquiring the commercial real estate, or less than 5% of shares in an unlisted company,  and the foreign purchaser does not hold a management position within the purchaser company. 

Different rules may apply for the purchase of commercial residential premises. 

If you are unsure if FIRB approval is required, please contact Yuan (Nathan) Xu at nxu@nevettford.com.au or Yao (Chloe) Chen at cchen@nevettford.com.au for more information.

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Due Diligence and IPO’s

On 14 July 2016 ASIC released Report 484 “Due Diligence Practices in Initial Public Offerings”.  The Report outlines ASIC’s key findings from its review of due diligence practices of issuers of securities in relation to twelve initial public offers (IPO’s).  The Report is designed to help issuers of securities, their directors and advisors to conduct effective due diligence.

Due diligence practice is the process issuers adopt to comply  with their obligations under Part 6D.2 of the Corporations Act 2001 (Cth) in the preparation of IPO (and other rights issues) prospectuses.  The due diligence process involves among other things a thorough investigation into the issuer and its activities to ensure that all material information is contained within the relevant prospectus for consideration by investors.

Responsibility for the quality of the information in prospectuses lies with the issuers of securities and their directors who must ensure the prospectus is accurate and complete.

Typically the due diligence process comprises the establishment of a due diligence committee, the preparation of and adherence to a due diligence compliance program, the participation by directors, management and advisors of the issuer in investigating particular tasks and the verification of the content of draft prospectuses to ensure they do not contain false and misleading statements.

The key findings of the Report are as follows:

1. Poor due diligence often leads to defective disclosure, such as misleading and deceptive statements, statements with no reasonable basis or the omission of material information;
2. There was considerable variation in due diligence processes which led to different levels of investigation resulting in sometimes less desirable outcomes;
3. Some issuers adopted a “form over substance” approach to due diligence indicating less focus on actual disclosure in prospectuses and more on “ticking the boxes”;
4. Instances of superficial involvement by boards, despite significant directors’ liabilities under the Corporations Act;
5. Poor oversite by some Australian legal advisors of due diligence enquiries conducted by foreign advisors;
6. Inconsistent quality of contribution in the due diligence process between investigating accountants (who usually ranked high in their contribution) compared to legal advisors, which in some cases demonstrated a less consistent standard in conducting due diligence;
7. The costs of conducting due diligence may have an effect on the result.  It was found that a well-advised issuer would be better placed to mitigate risks.

The Report makes 5 recommendations for effective due diligence:

1. Issuers should adopt a due diligence process that promotes the oversight of the process, promotes investigations into the information contained in the prospectus, promotes record keeping of significant matters, promotes verification of all material statements contained in prospectuses and involves the continuation of the process after lodgement of the prospectus to capture any further material issues arising after lodgement;
2. Issuers should adopt a “substance over form” approach to ensure prospectuses comply with the law and promote informed decision making by investors who are relying on the content of prospectuses;
3. Directors should take an active role in the process and ensure that a robust due diligence process is undertaken;
4. Competent expert advisors should be engaged to identify material matters in the preparation of the prospectus; and
5. Australian advisors should focus on effective overside of due diligence carried by foreign legal advisors.

The clear message in the Report is that issuers should adopt a more rigorous approach to due diligence, their obligations under Part 6D.2 of the Corporations Act and to prospectus writing.

If you require assistance with IPO due diligence planning please contact Andrew Bini.

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Landlords and Essential Safety Measures

We often receive enquiries from landlords and tenants concerning essential safety measures obligations and whether it is the landlord or the tenant who must comply with those obligations.

Essential safety measures (ESM) are defined in Part 12 of the Building and Regulations 2006 (Vic) and are essentially a broad range of obligations ranging from sprinkler and air-conditioning systems, fire extinguishers, exit signs and compliance inspection, reporting and maintenance.

Until May 2015 there was much confusion in the property industry over whether a landlord could require a tenant to comply with the ESM provisions.  Many existing lease documents attempted to make it the tenant’s responsibility for complying with and bearing the cost of compliance with the ESM provisions. However, even if existing lease documents do allocate responsibility for compliance, the position has since been clarified by the VCAT Advisory Opinion (Building and Property [2015] VCAT 478) opinion handed down on 1 May 2015 (Opinion).

Summary of the Opinion

The Opinion was sought to clarify, amongst other issues, who (landlord or tenant) is responsible for the cost of complying with Section 251 of the Building Act 1993 (Vic).

Section 251 of the Building Act provides:

• if the owner of a building or land is required under the Building Act 1993 (Vic) to carry out any work or do any other thing and the owner does not carry out the work or do the thing, the tenant of that building or land or any mortgagee may carry out the work or do the thing; and

• a tenant may recover any expenses incurred by it from the owner as a debt due to the tenant and deduct those expenses from or set them off against any rent due to the owner. 

The main points in the Opinion are:

1. if a landowner is required to undertake work or do a thing under Sction 251 of the Building Act 1993 (Vic) and related provisions in the Building Regulations 2006 (Vic) (Building Act) including ESMs, the cost of undertaking that work or doing that thing must be borne by the landowner.  This applies to leases regulated by the Retail Leases Act 2003 (Vic)(RLA) and leases outside the scope of the RLA , such as commercial leases; and
   
2. for some obligations the landlord may agree with the tenant for the tenant to meet the requirements, but at the landlord’s expense.

Status of the Opinion

While the Opinion is not binding on courts or tribunals, it will clearly influence VCAT Members and Judges of the Magistrates’ Court, County Court and the Supreme Court.

On that basis:

1. landlord’s should consider the Opinion as being a statement of the law which will be applied by VCAT and the Courts;
   
2. landlords should not charge ESM outgoings to tenants;
   
3. and landlords should reserve their right to charge ESM outgoings to tenants at a later date, should the Opinion not become law.

Recovery of ESM Outgoings by Tenants 

There is commentary that some tenants are considering whether they have claims against landlords for ESM outgoings that have been incorrectly paid by tenants.  It is suggested that only tenants who have substantial claims which justify taking action may consider seeking reimbursements of those amounts from landlords.

However, landlords should not automatically repay such amounts without considering:

1. the effect of Statute of Limitations which limits claims back to six (6) years;
2. whether in fact, it is commercially viable for the tenant to make a claim, especially in a jurisdiction such as VCAT which does not provide orders as to costs;
3. the extent of any benefit received by the tenant for the payments;
4. the possibility of future amendments to the Building Act;
5. the possibility that the Opinion will not be adopted by a subsequent court or tribunal, especially on appeal; and
6. a consideration of the relevant provisions of the Building Act.

Please contact Andrew Bini if you would like assistance with your leasing matters.

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Liquor Licensing and changes of directors and shareholders of Licensees

Quite often we are engaged to assist with the purchase of a licensed business which usually occurs by way of a sale by a licensed vendor of its business assets to a purchaser which is accompanied by an application to transfer the liquor licence to the purchaser.

Where the licensee is a corporation, an alternative method exists for effecting the sale of the licensed business, which involves the sale of shares in that corporation to the purchaser and a change of directors of that corporation.  This method does not require an application to transfer the liquor licence (as the liquor licence remains with the licensed corporation) but will require compliance with the Liquor Control Reform Act 1998 (Vic) (Act) which provides as follows:

1. Section 103 (regarding change of directors of a licensed entity):

• If a person ceases to be a director of a body corporate that is a licensee, the licensee must notify the Commission in writing within 14 days after the person so ceases;

• A body corporate that is a licensee must not appoint a person as, or allow a person to become, a director of the body corporate without the approval of the Commission under Section 104 (Penalty: 5 penalty units).

2. Section 103A (which deals with the change of “associates” which includes shareholders) provides:

• A licensee must within 14 days after the occurrence of either of the following events notify the Commission in writing of the event;

• That a person has ceased to be a shareholder; and

• That a person has become its associate. (Penalty: 5 penalty units).

3. Section 104 (regarding the approval of directors) provides, amongst other things:

• A licensee may apply to the Commission for the approval of a person to be a director of the licensee;

• The Commission must give a copy of an application under section 104 to the Chief Commissioner of Police;

 

• The Chief Commissioner of Police may object to the application on the grounds that the person is not a suitable person to be director of the licensee; and

 

• Further provisions regarding the timing of the notification of objections and extension to time.

 

On that basis:

 

4. The resignations of the vendor’s appointed directors of the licensed corporation will need to be notified to the Victorian Commission for Gambling and Liquor Regulation (VCGLR) within 14 days after they have resigned as directors (ie usually within 14 days after settlement of the sale of shares);

 

5. The transfer of shares of the licensed corporation will need to be notified to VCGLR within 14 days after settlement;

 

6. The appointment of the new directors as nominees on behalf of the purchaser  cannot occur without the VCGLR’s approval under section 104 (1) of the Act.   

 

Accordingly, any sale documentation will need to accommodate the notification requirements under sections 103 and 103A and be conditional upon the purchaser’s nominee directors obtaining VCGLR’S approval.

 

We can assist with the sale and purchase of licensed businesses, notifications to VCGLR and applications for approval.

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