Introduction
A recent Civil Ruling by Mainland China’s Supreme People’s Court (in proceedings commenced in the Shanghai Maritime Court) confirms that judgments and orders of the English High Court can be recognised and enforced in Mainland China.
In a nutshell, in this recent decision, the Shanghai Maritime Court had to decide:
- Whether there was reciprocity between Mainland China and the UK as to the recognition and enforcement of civil and commercial judgments;
- Whether recognition of an English court judgment will violate the principle of reciprocity under Chinese law; and
- Whether penalty interest in the judgments and orders fell within the scope of recognition.
Ultimately, the Supreme People’s Court held that there was reciprocity in respect of the recognition and enforcement of judgments of the English High Court in Mainland China.
Facts
The applicant, as the owner, and the Hong Kong wholly owned subsidiary of the respondent, as the charterer, concluded three time charterparties. Three performance guarantees were issued by the respondent to the applicant to guarantee the performance of the time charterparties. These guarantees stated that English law shall be applied, and any litigation shall be submitted to the English High Court for trial. As the charterer was not able to perform the time charterparties thereafter, the applicant commenced proceedings against the respondent in the English Court and eventually obtained judgments and orders in its favour, rendering the respondent liable to the applicant in the amount of USD 37,238,126.
Subsequently, an application was filed with the Shanghai Maritime Court for recognition of the judgments and orders of the English Court. On 17 March 2022, a Civil Ruling was handed down by the Shanghai Maritime Court which gave full recognition and respect to the abovementioned English High Court judgment.
In this regard (namely, reciprocity), there has been a previous occasion in which an English court has recognised a judgment handed down by a Chinese Court. In the case of Spliethoff’s Bevrachtingskantoor BV and Bank of China Limited, the English High Court rendered the judgment [2015] EWHC999 (Comm) (the Spliethoff case). In this case, the principle of reciprocity was well constituted, which reinforced the fact that there is a need to show reciprocity in order to ease enforcement in Mainland China.
Memorandum
The case before the Shanghai Maritime Court was heard in 2018 and was thereafter submitted through the judicial hierarchy to the Supreme People’s Court for examination and approval. The case was heard again (as a result of a change of panel members) in February 2022. Following that hearing a set of minutes was published and, importantly, Article 33 of the Memorandum stated that Mainland China and the UK have not concluded or jointly acceded to international treaties, however, Article 44 of the Memorandum provides that ‘…according to the law of the country where the court is located, the civil and commercial judgments made by the people’s court can be recognised and enforced by the courts of that country.’ In addition, the Memorandum stated, among other things, that as long as the judgment of the Chinese court can be recognised and enforced according to the foreign law, there is a reciprocal relationship.
Recognition and enforcement standards
Below are some of the standards for recognition and enforcement of foreign judgments in Mainland China under the Memorandum and this case. This is not an exhaustive list:
- Governing court. The intermediate court of the place where the respondent has their domicile in Mainland China or where their property is located, or the intermediate court of the place where the applicant has their domicile in Mainland China.
- Preservation measures. After an application for recognition and enforcement of a foreign judgment or order is accepted, the applicant may apply to preserve the property of the respondent.
- Determination of reciprocal relationship. One of the following criteria must be met for a reciprocal relationship to be concluded:
- Reciprocal on law: Chinese civil and commercial judgments can be recognised and enforced subject to the law of the jurisdiction where the foreign court is located;
- Reciprocal arrangement: Mainland China has had in place a reciprocal consensus with the foreign country; and
- No refusal of recognition: the country where the foreign judgment or order is rendered or Mainland China has made reciprocal arrangement to each other, and no evidence proves that the country where the foreign judgment or order is rendered has refused to recognise and enforce the Chinese judgment or order on the basis that no reciprocal relationship exists
- Foreign judgments rendered in breach of arbitration agreements – following a default judgment by a foreign court, if the court (in Mainland China) subsequently finds that the parties to the dispute have a valid arbitration agreement, the court shall not recognise and enforce the judgment of the foreign court.
Preparation
Two years is the time limitation period for enforcing foreign monetary judgments in Mainland China (subject to Supreme People’s Court opinions on the subject). While this period is sufficient in most cases, it is advisable to start preparing for enforcement soon after the judgment becomes final. Preparations will include the execution of a power of attorney in favour of Mainland China legal representatives, usually in their preferred form, certificates of registration and good standing in respect of the claimant entity; an application for enforcement, the judgment to be enforced, authentication of documents created outside Mainland China all of which will need to be translated into Chinese by a certificated translator (which can be arranged by Mainland China legal representatives most efficiently) and notarised and legalised by Chinese consular authorities. These steps usually take weeks and months to complete and should be put in hand sooner rather than later. They should not be deferred for any settlement talks that may be envisaged. Time limits are mandatory in Mainland China and cannot be extended by agreement.
Regimes application to recognising and enforcing judgments in Mainland China
Below is a summary of key regimes applicable to recognising and enforcing judgments in Mainland China and the names of the countries to which such special regimes apply:
| Applicable law/statutory regime | Relevant jurisdiction(s) |
|---|---|
| Civil Procedure Law of the People’s Republic of China and Interpretations of the Supreme People’s Court on Applicability of the Civil Procedure Law Zhu Shi [2015] No 5 | Jurisdictions which have no treaty with Mainland China |
| 34 Bilateral Treaties between Mainland China and another country (France, Italy, Russia, Ukraine, Spain, Hungary, Morocco, United Arab Emirates, Brazil, Poland, Mongolia, Belarus, Argentina, Viet Nam, Turkey, Egypt, Greece, Cyprus, Kazakhstan, Romania, Bulgaria, Cuba, Kyrgyzstan, Tajikistan, Uzbekistan, Tunisia, Peru, Algeria, Kuwait, Bosnia-Herzegovina, Ethiopia, Laos, Lithuania and the DPRK) | Jurisdictions which have concluded bilateral treaties with Mainland China with special provisions governing the recognition and enforcement of foreign judgments in civil and commercial matters |
| The Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region Pursuant to Choice of Court Agreements Between Parties Concerned 2008 | Hong Kong SAR |
| The Arrangement between the Mainland and Macau Special Administrative Region on the Mutual Acknowledgement and Enforcement of Civil and Commercial Judgments 2006 | Macau SAR |
| The Provisions of the Supreme People’s Court on Recognition and Enforcement of the Civil Judgments of Courts of the Taiwan Region 2015 | Taiwan, China |
Takeaways
With the surge in cross-border commercial activities involving Chinese entities, it is not uncommon to see parties to international disputes seeking enforcement of foreign judgments in Mainland China. However, the enforcement of foreign judgments is a concern.
It is well known that Mainland China has long been a signatory to the New York Convention (since 1987), allowing recognition and enforcement of foreign arbitral awards in Mainland China. Meanwhile, under Article 281 of Mainland China’s Civil Procedure Law, the Chinese courts can only recognise and enforce foreign court judgments on the basis of international convention, bilateral treaties or the ‘principle of reciprocity’, provided that the recognition and enforcement of these foreign court judgments do not breach basic principles of Chinese law, state sovereignty and security or public interest.
For Hong Kong SAR, Macao SAR and Taiwan, China judgments, they can be acknowledged and enforced in accordance with the respective applicable judicial interpretations promulgated by the Supreme People’s Court. Mainland China has not ratified the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters.
To date, Mainland China has signed bilateral judicial assistance agreements involving civil and commercial matters with 39 countries, of which 38 have entered into force and 34 have stipulated the conditions for the recognition and enforcement of foreign court judgments. Mainland China has yet to enter into bilateral treaties or conventions for recognition and enforcement of judgments with its major trading and investment partners, such as the US and the UK. It follows that the only ground upon which US and UK commercial judgments may be recognised by the Chinese courts is the principle of reciprocity.
Between 2018 and 2020, the Chinese courts have accepted a total of 1301 cases of application for recognition and enforcement of civil and commercial judgments of foreign courts, and concluded 1226 cases, of which 1142 were recognised and enforced, involving more than 30 countries. The Chinese courts’ increasingly liberal approach to recognition and enforcement of foreign judgments is a welcome and positive sign, especially for those in business with Chinese entities.
Some practical points for clients
For clients (such as marine, trade, energy, offshore and construction fields) where overseas parties are involved, most lawyers typically advise that the dispute resolution clause should include an arbitration agreement because of the ability to enforce an award under the New York Convention. Of course, as between Hong Kong and Mainland China there is a long-established agreement on the enforcement of arbitral awards in Mainland China obtained in Hong Kong.
This case, together with the body of cases from other jurisdictions may ultimately see the erosion of arbitration agreements in construction contracts and greater reliance upon court judgments.
