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Melody Wang
Fangda Partners, Beijing
melody.wang@fangdalaw.com

Brian Lin
Fangda Partners, Beijing
brian.lin@fangdalaw.com

 

Introduction

As the Covid-19 pandemic continues to intensify and affect businesses around the world, we are likely to see an increase in the amount of disputes initiated by foreign companies against Chinese entities. China was the first jurisdiction to be significantly affected by the present pandemic and, given its leading role in the global supply chain, the fact that many Chinese businesses suddenly found themselves unable to perform or fully perform their contractual obligations predicts a rise in future disputes.

In an attempt to mitigate the potential legal exposure of Chinese businesses, the China Council for the Promotion of International Trade (the CCPIT) issued over 1,600 force majeure certificates as of 26 February 2020.^[1] However, having a CCPIT force majeure certificate by no means guarantees a company will be shielded from legal action or an adverse judgment. For any party which successfully obtains a judgment from a foreign court against a Chinese entity, the priority is to ensure that the judgment can be enforced in China.

The enforcement of foreign judgments is a concern because there is not yet a widely-ratified convention for the recognition and enforcement of foreign judgments analogous to the New York Convention for arbitral awards. However, fresh developments in Chinese judicial practice as well as some of China’s recent international dealings suggest that foreign judgments are becoming increasingly readily enforceable in China.

What can Chinese judicial practice teach us?

Reciprocity is a key factor in any Chinese court’s decision to recognise and enforce a foreign judgment

Chinese law allows for the recognition and enforcement of foreign commercial or civil judgments if the country where the foreign judgment was rendered is a party to a treaty with China – be it a multilateral treaty to which China is also a member or a bilateral judicial assistance treaty with China – or pursuant to the principle of reciprocity.^[2]

China iscurrently party to bilateral judicial assistance treaties with over 30 jurisdictions.^[3] In the absence of such legal instruments, it has traditionally been difficult for a party to get a foreign judgment recognised and enforced in China as courts were reluctant to reach the finding that a reciprocal relationship existed between China and foreign jurisdictions. This approach resulted in rejected requests for the recognition and enforcement of judgments from Australia, Germany, Japan, South Korea, the United Kingdom and United States.

In 2010 however, a case set the stage for successful recognition and enforcement of foreign judgments in the years that followed.^[4] Subsequently, a significant positive policy shift occurred as early as 2016. By way of example, Chinese courts have recently recognised and enforced foreign judgments from the following jurisdictions:

• Singapore – 9 December 2016, Nanjing Intermediate People’s Court, Case No (2016) Su 01 Xie Wai Ren No 3.^[5]

• The United States:

– State of California – 30 June 2017, Wuhan Intermediate People’s Court, Case No (2015) E Wu Han Zhong Min Shang Wai Chu Zi No 00026;^[6]

– State of Illinois – 17 September 2018, Shanghai No 1 Intermediate People’s Court, Case No (2017) Hu 01 Xie Wai Ren No 16.^[7]

• South Korea – 25 March 2019, Qingdao Intermediate People’s Court, Case No (2018) Lu 02 Xie Wai Ren No 6.^[8]

The above cases (Positive Decisions) were all decided on the principle of reciprocity. The Chinese courts relied on evidence that courts of the jurisdiction of the respective foreign judgments had previously recognised and enforced Chinese judgments to determine that a reciprocal relationship existed between China and the foreign jurisdiction. It was on the basis of such reciprocity that the courts then applied Article 282 of the PRC Civil Procedure Law^[9] to recognise and enforce the foreign judgments in the respective cases.

Jurisdictions to monitor

From the above, it is clear that any party wishing to recognise and enforce a foreign judgment in China would be advised to provide evidence of the recognition and enforcement of Chinese judgments in the relevant foreign jurisdiction.

In this regard, the following foreign jurisdictions have recently recognised and enforced Chinese judgments (collectively, the 'Recent Judgments')::

• The United Kingdom – 17 April 2015, English High Court decision in Spliethoff’s Bevranchtingskantoor BV v Bank of China Ltd, [2015] EWHC 999;^[10]

• Israel – 14 August 2017, Supreme Court of Israel (sitting as the Court of Civil Appeals) decision in Isaac Reitman v Jiangsu Overseas Group Co Ltd, Case No 7884/15;

• Australia– 27 February 2019, Supreme Court of Victoria decision in Suzhou Haishun Investment Management Co, Ltd v Zhao & Ors, [2019] VSC 110; and

• Canada – 9 April 2019, Court of Appeal for British Columbia decision in Wei v Li, 2019 BCCA 114 (collectively, the Recent Judgments).

It will be exciting to see if a creditor with a judgment from one of these jurisdictions will be able to persuade a Chinese court to recognise and enforce their judgment. Given the Positive Decisions, one would expect that the Recent Judgments would give Chinese courts sufficient basis to find that a reciprocal relationship exists and then to recognise and enforce a foreign judgment from one of those jurisdictions. Whether or not Chinese courts will ultimately adhere to the approach taken in the Positive Decisions despite the exceptional circumstances caused by the Covid-19 pandemic may be a good barometer of the courts’ attitude towards foreign judgments.

A closer look at the position regarding the United States

Fangda Partners represented a US client before the Shanghai No 1 Intermediate People’s Court in respect of a multimillion dollar monetary judgment awarded by the United States Federal Court for the Northern District of Illinois.^[11] The counterparty argued that US judgments should not be recognised because there is no reciprocity between the US and China. In rebuttal, Fangda Partners presented US court decisions recognising and enforcing Chinese judgments as well as expert testimony on crucial aspects of US law, such as the Uniform Money Judgment Recognition Act, a standard adopted by various States recognising foreign monetary judgments.

The court accepted Fangda Partners’ evidence, determined that a reciprocal relationship existed between China and the US and went on to decide that, under such circumstances, Chinese courts should recognise and enforce foreign judgments if the judgments do not break basic principles of Chinese law or Chinese national sovereignty, security or public interest.

This case further supports the position that, if a foreign jurisdiction has previously recognised and enforced Chinese judgments, Chinese courts are likely to be more inclined to find that a reciprocal relationship exists and will in turn more readily recognise and enforce foreign judgments from such jurisdictions.

China’s international moves signal a pro-foreign judgment stance

Some of China’s recent dealings with the international community also suggest that China is becoming increasingly welcoming towards the recognition and enforcement of foreign judgments.

On 31 August 2018, the Supreme People’s Court signed a memorandum of guidance with the Supreme Court of Singapore for the recognition and enforcement of money judgments in commercial cases (the MOG).^[12] Although this legal document is non-binding, under the MOG, a final and conclusive Singaporean judgment will, in principle, be enforceable in China if it is not contrary to principles of Chinese law, if there are no procedural defects and if there are no parallel proceedings in China.

Furthermore, the China International Commercial Court has indicated that the Chinese delegation to the 22nd Diplomatic Session of the HCCH ‘constructively participated in negotiations, firmly supported multilateralism, actively played the role as a bridge and built consensus among all the parties, and took the initiative to lead the rule-making’ in respect of the 2 July 2019 Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (the '2019 Convention').^[13]

These developments signal that China is taking a proactive stance to facilitate the enforcement and recognition of foreign judgments.

Conclusion

As China continues to play an increasingly important role in global commerce, its courts must also keep pace to ensure China’s continued growth and development. Fortunately, the courts appear to be keenly aware of their responsibility as they have exhibited a progressively open attitude towards foreign judgments. Perhaps the underlying motivation may be the Chinese courts’ desire to promote themselves as a more suitable forum for the resolution or handling of international disputes.

Regardless of the reason behind such progress, this is a positive sign for all those in business with Chinese companies. Parties will be able to incorporate forum selection clauses designating courts of their own jurisdiction or that of a neutral third-party jurisdiction with more confidence that any ensuing judgment would be enforceable in China.

What would be interesting to observe is whether these recent developments in China will prompt a positive feedback loop – incentivising foreign courts to recognise and enforce Chinese judgments to increase the chances of judgments from their jurisdiction being treated similarly in China. If so, this would be a significant step towards building an international legal framework spearheaded by the judiciary of various jurisdictions to help bridge the gap until more countries ratify instruments such as the 2019 Convention.