11 April, 2017
For the first time, a court in the People's Republic of China (PRC) has recognised and enforced a civil judgment made by the Singapore High Court based on the principle of reciprocity. For Australian companies contracting with PRC entities, this case increases the prospect of a judgment of an Australian court being enforced in the PRC in the future.
However, at this time, given that the Australian courts are yet to enforce a PRC judgment, the PRC courts' requirement of reciprocity is unlikely to be established. Therefore, Australian companies contracting with PRC entities should continue incorporating other provisions in contracts, such as arbitration clauses, to improve the prospects of being able to enforce remedies against PRC entities.
Case summary
The Nanjing Intermediate People's Court (Jiangsu Court) has recognised and enforced a civil judgment made by the Singapore High Court based on the principle of reciprocity (Nanjing IPC decision).1. This was a landmark decision because it was the first time a PRC court has recognised and enforced a Singaporean judgment on the basis of reciprocity, in the absence of a bilateral treaty for reciprocal enforcement of judgments.
In the underlying case, a dispute arose between a Swiss company and a PRC company that was resolved by a settlement agreement. The PRC company failed to comply with the settlement agreement and proceedings were commenced in the Singapore High Court. Judgment was issued and the Swiss company sought to enforce the judgment in the PRC by applying to the Jiangsu Court to recognise and enforce that judgment.
The Jiangsu Court held that it could recognise and enforce foreign court judgments if three conditions were satisfied:
- there is no applicable international or bilateral treaty between both nations;
- the courts in the foreign nation have previously recognised a judgment issued by a PRC court; and
- the underlying foreign judgment does not violate the basic principles of the PRC laws, state sovereignty, security or public interest.
While the PRC and Singapore are parties to a bilateral treaty for judicial assistance, that treaty does not provide for the reciprocal enforcement of judgments. However, in 2014, a Singapore court had enforced a judgment issued by the Jiangsu Suzhou Intermediate People's Court.2 Accordingly, in the Nanjing IPC decision, the Jiangsu Court applied the principle of reciprocity to recognise the Singaporean judgment.
The case follows the publication by the Supreme People's Court of China of an advisory in 20153 which encouraged the PRC courts to, among other things, reduce conflicts on cross-border jurisdiction issues and actively handle requests for judicial assistance to provide efficient and prompt relief to protect the rights of Chinese and foreign entities – this includes the recognition and enforcement of foreign court judgments.
Implications for enforcing Australian judgments in the PRC
To date, no judgment of the Australian courts has been enforced in the PRC, and no judgment of the PRC courts has been enforced in Australia. The PRC is not party to the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, nor has the PRC entered into a bilateral treaty with Australia for the mutual recognition and enforcement of court judgments. Also, the PRC is not listed in the Foreign Judgments Act 1991 (Cth) which recognises and enforces foreign judgments.
Accordingly, the only basis for the PRC courts to recognise judgments from Australia would be based on the principle of reciprocity pursuant to Article 267 of PRC Civil Procedure Law.
In Australia, however, there are no known cases of the Australian courts recognising a PRC judgment. This means that the PRC court's requirement for reciprocity is unlikely to be satisfied and therefore at this time Australian judgments are unlikely to be enforced in the PRC, at least until an Australian court does enforce a PRC judgment. An Australian court could enforce a PRC judgment based on the common law principles if:
- the court in the PRC had jurisdiction over the defendant in the international sense;
- the judgment was final and conclusive;
- the judgment was for a definite sum of money; and
- the parties to the PRC proceeding and enforcement proceeding were identical and had the same interest.
Enforcement of foreign arbitral awards in the PRC
Foreign arbitral awards can be enforced in the PRC pursuant to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, to which the PRC is a party. The PRC courts have adopted a pro-arbitration approach to the enforcement of awards and have on multiple occasions enforced arbitral awards under the New York Convention.
Currently the prospects of being able to enforce a foreign arbitral award in the PRC are greater than the prospects of enforcing a judgment of the Australian courts. Although there are cases in which the PRC courts have refused to enforce arbitral awards these appear to be based on the grounds provided for in the New York Convention, relating to procedural irregularities, arbitrability or public policy. These grounds are:
- the parties to the arbitration agreement lacked capacity or the arbitration agreement was invalid;
- the losing party was not given proper notice of an arbitrator appointment or the arbitral proceedings or was otherwise unable to present its case;
- the award deals with matters not contemplated by or falling within, or beyond the scope of, the terms of the submission to arbitration;
- the arbitral tribunal was not formed or the arbitration was not conducted in accordance with the parties’ agreement or, failing such agreement, the law of the seat of the arbitration;
- the award has not yet become binding or has been set aside or suspended by the courts of or under the laws of the seat of the arbitration;
- the subject matter of the dispute is not capable of settlement by arbitration under PRC law; or
- the recognition or enforcement of the award would be contrary to public policy in the PRC.
Comments
]As the Australia-China economic and trade relationship continues to steadily expand with the China-Australia Free Trade Agreement and there is increased investment by Chinese businesses in Australian infrastructure projects, disputes between Australian and Chinese entities will inevitably arise. Whilst the Nanjing IPC decision is a significant step in the enforcement of foreign judgments in the PRC, it does not mean that companies can assume that they will be able to enforce Australian judgments in the PRC.
It is important to consider when entering into contractual relationships with PRC entities where that entity holds assets and whether it will be possible to enforce any judgment against any such assets. If a PRC entity only holds assets in China, then there is a significant risk that a judgment from an Australian court may go unsatisfied. Consideration should therefore be given to whether it would be preferable to require arbitration for any disputes. Alternatively, the parties could agree that any disputes are to be heard by a court whose judgments have already been enforced by a PRC court, such as Singapore, although if that jurisdiction has no connection with the contract or dispute, then in some cases, it may be possible to challenge the validity of that jurisdiction.
1. Kolmar Group A.G. v Jiangsu Textile Industry (Group) Import & Export Co Ltd (2016) Su01 Assisting Foreign Recognition No 3.
2. Giant Light Metal Technology (Kunshan) Co Ltd v Aksa Far East Pte Ltd [2014] SGHC 16.
3. Titled 'Several Opinions on the Provision of Judicial Service and Guarantee by People's Courts for the "One Belt and One Road" Construction'.
For further information, please contact:
Georgie Farrant, Partner, Baker McKenzie
georgie.farrant@bakermckenzie.com
