A brave new world: enforcement of foreign judgments in China - Litigation Committee newsletter article, April 2020

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Mark Sachs, Charlotte Hill, Justine Porter
Penningtons Manches Cooper
mark.sachs@penningtonslaw.com
charlotte.hill@penningtonslaw.com
justine.porter@penningtonslaw.com

On 2 July 2019, the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (the Convention) was adopted by the delegates of the Hague Conference on Private International Law. It has been described as a ‘game changer’ for cross-border litigation.[1] The Convention aims to obtain recognition and enforcement of civil and commercial judgments internationally by promoting ‘effective access to justice for all and to facilitate rule-based multilateral trade and investment, and mobility’.[2]

According to China’s International Commercial Court, China played an active role in the conference: participating in negotiations, supporting multilateralism, building consensus among parties and leading the rule making. More specifically, the delegation’s proposals on anti-monopoly, intellectual property and other topics were adopted by the General Assembly, which contributed towards the conclusion and drafting of the Convention.[3]

Although Convention currently only has one signatory (Uruguay),[4] if widely ratified, it is likely to reduce transaction and litigation costs in cross-border dealings and promote effective access to justice for all. Ultimately, the Convention could challenge the status of arbitration as the dispute resolution process of choice for international disputes.

The Judgments Convention: an overview

The Convention regulates the recognition and enforcement of judgments made in civil or commercial matters, with an exhaustive list of grounds being provided.[5] By way of example, a judgment will be eligible if:

• the person against whom recognition or enforcement is sought was habitually resident in, or had their principle place of business in, the state of origin at the time they became a party to the proceedings in the court of origin;
• the judgment ruled on a contractual obligation and it was given by a court of the state in which performance of that obligation took place, or should have taken place;
• the defendant expressly consented to the jurisdiction of the court of origin in the proceedings in which the judgment was given;
• the defendant argued on the merits before the court of origin without contesting jurisdiction; or
• on the basis of a non-exclusive jurisdiction agreement.

The final point is a notable contrast with the 2005 Hague Convention of Choice of Court Agreements, which only provides for the recognition of an exclusive jurisdiction agreement.

If one of these broad grounds are met, the judgment will be eligible.

The Convention outlines a relatively simple procedure to have a foreign judgment recognised and enforced. The party applying for recognition or enforcement must provide the requested court with a certified copy of the judgment in question as well as a certified translation of the document in the language of the requested state.[6] The remainder of the procedure is left to the law of the state in which judgment is to be enforced.[7]

There are limits to the Convention. Excluded categories of civil and commercial disputes include insolvency, the carriage of passengers and goods, defamation, intellectual property and certain anti-trust disputes.[8] The Convention also does not apply to judgments subject to appeal (as would be expected).

Recognition and enforcement of a foreign judgment may only be refused by a contracting state where it falls under one of the grounds of refusal listed in article 7 of the Convention, such as:

• if the defendant was not properly notified of the proceedings against them;
• if the judgment was obtained by fraud;
• if enforcement would be incompatible with public policy; or
• if the proceedings in the court of origin were contrary to a choice of court agreement.

If therefore follows that the Convention should be of assistance to parties in a large majority of civil or commercial disputes.

Current enforcement mechanisms of judgments in China

Broadly speaking, there are two official ways to enforce foreign judgments in China, either through a bilateral treaty or ‘reciprocity’. China has bilateral treaties with many of its trading partners such as the UK, France, Russia, and Vietnam, however some of its largest trading partners, such as the United States and Japan, do not have such a treaty in place. These countries must therefore rely on judgments being recognised and enforced by a Chinese court on the basis of ‘reciprocity’, which to date has only happened in a handful of foreign judgments.

By way of example, China has only recently recognised and enforced two US judgments, the most recent judgment being No (2017) Hu 01 Xie Wai Ren No16 (2017)?01???16?. The case arose from a dispute between a US company which sued a US individual over a debt of approximately US$3.3m. As the individual held a position in a Chinese company and had assets in China, the US company applied to a Shanghai intermediate court for recognition and enforcement of the US judgment. In recognition of the judgment, the Chinese court noted that as long as a US judgment does not violate the laws of China or its public interest, it may be recognised and enforced in China.

By virtue of these examples, it is hoped that this new practice will become more common in China in future. Despite this, in light of the limited number of foreign judgments that have been recognised and enforced in China to date, it is clear that, if the Convention is widely ratified, it will be of great interest to those who trade and deal with China.

Why now for China?

In promoting the Belt and Road international trade initiative (BRI), China’s President Xi Jinping has advocated that China ‘should build the Belt and Road into a road of opening up. Opening up brings progress while isolation results in backwardness’.[9]

The BRI is a multi-billion dollar programme through which China aims to finance infrastructure projects along a transcontinental passage connecting Asia, Europe and Africa to revive the ancient Silk Road trade route. While presenting a huge trading opportunity, China is anticipating that it will face a vast number of international commercial disputes because of the planned success of the BRI. As a result, China has begun to ‘open up’ and develop its international dispute resolution and enforcement capabilities in furtherance of promoting the BRI.

By way of example, in June 2018 the Supreme People’s Court established two international commercial courts to handle international commercial disputes, particularly those arising from the BRI. In December 2019, it was announced that the first five cases accepted by the First International Commercial Court were judged on 18 September and 25 October 2019. The parties involved in the cases were companies from Japan, Italy, the British Virgin Islands, and companies and individuals from the Chinese mainland, Hong Kong (SAR) and Taiwan. With the introduction of these new international commercial courts, it is hoped that in future, parties to international commercial agreements will choose to settle disputes in the Supreme People’s Court’s International Commercial Court.[10]

A ‘game changer’ after all?

Whether the Convention will eventually have the same impact as the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards remains to be seen. The Convention will undoubtedly have a beneficial effect to the countries which sign up to it and agree to recognise and enforce judgments between them, leading to greater certainty and efficiency of international disputes and therefore a reduction in the costs of such disputes. With just one state currently signed up to the Convention however, it is not currently in force and has no contracting parties. It therefore has a long way to go before its impact can be realised in the world of international disputes, and will be of benefit to those who trade in or with China.

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