On 17 March 2022, the Shanghai Maritime Court of PRC (the “SMC“) issued a milestone ruling ((2018) Hu 72 Xie Wai Ren No.1) with the approval by the Supreme People’s Court of the PRC (the “SPC“), allowing for the recognition and enforcement of an English Court judgment based on the principle of reciprocity for the first time (the “Recognition Ruling“).
The English Judgment
Our previous blog here sets out the background to the underlying dispute which led to the English Court judgment in question (the “English Judgment“): Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2016] EWCA Civ 982. The case concerned the termination by a shipowner, Spar, of three long-term charter parties on the ground that the charterer failed to pay hire on time. Spar then sued the charterer under the guarantees for (i) the balance of unpaid hire under the charters; and (ii) damages for loss of bargain in respect of the unexpired term of the charters.
The English Court of Appeal found in favour of Spar and ordered the charterers’ parent company, as guarantor, to pay Spar the amounts due under the three charter parties including damages plus interest and costs.
Spar then sought to enforce the English Judgment against the charterers’ parent company in Mainland China, where the parent company had assets.
Principle of Reciprocity in recognising a foreign judgment
On 24 January 2022, the SPC issued a conference summary of the National Court’s Symposium on Foreign-related Commercial and Maritime Trials (“Conference Summary“), which clarified, among other issues, the principle of reciprocity in recognising a foreign judgment in Mainland China. Several notable points were made in the Conference Summary which include the following:
- The Court shall first examine whether there is any applicable international treaty (Article 33 of the Conference Summary).
- If there is no applicable international treaty, the Court should determine whether there is any reciprocal relationship. One of the conditions for satisfying the reciprocal relationship is 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.” (Article 44 of the Conference Summary).
- A reporting system (which is used in cases where there is a need to report the case to higher courts) is also prescribed for cases concerning the application of the principle of reciprocity (Article 49 of the Conference Summary). Under the reporting system, the lower courts shall first refer their opinion to the higher courts for examination. If the higher courts approve, they shall refer their opinions to the SPC for final approval and the final ruling will be issued once it has been approved by the SPC.
The Recognition Ruling
The case was first heard by the SMC in 2018 and was submitted to the SPC following the reporting system for examination and approval.
The key issue addressed in the Recognition Ruling was whether there was a reciprocal relationship between Mainland China and the UK as to the recognition and enforcement of civil and commercial judgments.
- Traditionally, PRC law allows a PRC Court to recognise and enforce a judgment of a foreign Court only if a Court in the foreign jurisdiction has previously enforced a Chinese judgment.
- Although the SMC did not find any previous precedent of an English Court recognising a Chinese judgment, the SMC went ahead to recognise the English judgment in this instance. The SMC held that it was unnecessary to provide such foreign precedents to prove that the PRC judgment can be recognised under foreign laws.
- The SMC was satisfied that, as a matter of principle, a Chinese judgment could be recognised by an English Court.
Observations and practical Implications
The Recognition Ruling arguably opens the gates for the PRC Courts to allow the enforcement of English judgments and will come as good news to English Court judgment creditors where their counterparty has assets in Mainland China.
However, court decisions in China only hold persuasive value, unlike in common law jurisdictions such as the UK where higher court decisions are binding on the lower courts. Although it cannot be said, for certain, whether this decision paves the way for future English judgments to be recognised and enforced in Mainland China, there is hope.
In addition, foreign judgment creditors will be watching the space with interest to see whether this Recognition Ruling widens the gate to include the recognition and enforcement of judgments from other common law jurisdictions.
Though not binding, at the very least, the Conference Summary provides important guidance to lower courts in China. The SMC had followed the internal reporting requirements before issuing the Recognition Ruling, where the SPC clarified that it was unnecessary to provide foreign precedents to prove a reciprocal relationship. This reduced the practical difficulty in proving the reciprocal relationship and has, importantly, led to a judgment which has demonstrated China’s willingness to cooperate with other jurisdictions on mutual recognition and enforcement of civil and commercial judgments.
For further information, please contact:
Gareth Thomas, Partner, Herebert Smith Freehills
gareth.thomas@hsf.com
