24 March, 2017
The Nanjing Intermediate People's Court in Jiangsu Province, China ("Nanjing Court") recently issued a ruling recognising and enforcing a default judgment granted by the High Court of Singapore ("Singapore Judgment") based on the reciprocity principle.
Although permitted under the PRC Civil Procedure Law, PRC courts have rarely, if ever, recognised and enforced foreign judgments on the reciprocity principle. While it is still too early to predict whether the ruling will see wider application, it is a positive attempt towards applying the reciprocity principle in the context of recognising and enforcing foreign judgments in China.
Background
Kolmar Group AG ("Kolmar") and Jiangsu Textile Industry (Group) Import & Export Co., Ltd. ("Sutex") were parties to a sales contract. A dispute arose which was later settled by both parties entering into a settlement agreement ("Settlement Agreement"). Pursuant to the Settlement Agreement, Sutex would compensate Kolmar for a total of US$350,000.
However, payment was never made. Kolmar had to commence proceedings against Sutex in the High Court of Singapore (which was the competent court under the Settlement Agreement) claiming for the payment. Sutex was given notice but chose not to appear before the court. The High Court of Singapore handed down a default judgment ordering Sutex to pay Kolmar US$350,000 together with interest. The Singapore Judgment was served on Sutex however there was no response from Sutex.
As the majority of Sutex's assets are located in China, Kolmar applied to the Nanjing Court for recognising the Singapore Judgement with an aim to enforcing the same in China.
Ruling
The Nanjing Court judge referred to and considered the application of Article 282 of the PRC Civil Procedure Law which sets out the circumstances when a PRC court shall recognise and enforce a foreign judgment or ruling. Article 282 provides that, the PRC court, if after examining the foreign judgment or ruling in accordance with (1) the international treaty concluded or acceded to by PRC or (2) under the reciprocity principle, deems it not to be in violation of the basic principles of the PRC law or sovereignty, security or public interest of PRC, shall issue a ruling recognising and enforcing the foreign judgment or ruling.
Sutex, in arguing against enforcement, stated that although the Treaty on Judicial Assistance in Civil and Commercial Matters between PRC and Singapore is in place, it does not cover issues on recognition and enforcement of judgments and rulings.
The judge accepted this, but added that in the absence of any international treaty, the reciprocity principle applies. The judge referred to an earlier Singapore court decision in January 2014 (Giant Light Metal Technology (Kunshan) Co Ltd v Aksa Far East Pte Ltd [2014] SGHC 16) in which the High Court of Singapore recognised and enforced a civil judgment rendered by the Suzhou Intermediate People's Court in Jiangsu Province – which is in the same province as the Nanjing Court. Interestingly, the judge considered that the judgment served as foundation for the Nanjing Court to recognise and enforce the Singapore Judgment based on the reciprocity principle.
The judge held that recognising and enforcing the Singapore Judgment will not violate the basic principles of the PRC law or the sovereignty, security or public interest of PRC.
Comment
A foreign judgment does not automatically convert itself into an enforceable judgment in the PRC. According to Article 281 of PRC Civil Procedure Law, where an effective judgment or ruling of a foreign court requires recognition and enforcement by a PRC court, a party may apply directly to the competent intermediate court in PRC, or request the foreign court to apply to the competent court in PRC for recognition and enforcement in PRC court in accordance with the international treaty or under the principle of reciprocity.
Although the mechanism is in place, it has long been seen as very rare for the PRC court to recognise and enforce a foreign judgment on the reciprocity principle. The reasons could be:
There are limited international treaties. As of July 2016, China has entered into around 20 bilateral treaties on civil and commercial judicial assistance (which might or might not cover the mutual recognition and enforcement of a court judgment) with, to name a few jurisdictions, France, Italy, Spain, Thailand, Singapore, South Korea, Brazil. Large economic entities such as the US, UK, Japan, Australia and Canada are not on the list. In the absence of international treaties, the only other option to enforce a foreign judgment in China is to rely on the reciprocity principle.
More importantly, there is limited guidance on the interpretation or application of the reciprocity principle. There are extensive discussions on the reciprocity principle from an academic perspective but the discussions/comments have not made their way into formal guidance.
However, the Supreme People's Court of China in one of its responses to a local court has indicated that the reciprocity principle shall be on de facto basis, i.e. the specific foreign jurisdiction has enforced Chinese court judgement.
The Nanjing Court's ruling will no doubt encourage discussions on the prospect of recognising foreign judgments in China. While it surely is a positive step, it leaves a number of open questions the most imminent of which is whether the foreign court's reciprocity precedent applies across different regions in China. For example, would a court in Beijing consider this judgment when considering a dispute on reciprocity and enforcement? In addition, would a court in Beijing agree to consider a Singapore judgment that has recognised a Suzhou court judgment, as a precedent/basis for Beijing to apply the reciprocity principle?
In spite of this positive decision, complexities surrounding the status of foreign judgments continue to exist in the PRC. It would be prudent, therefore, for parties dealing with cases that have a PRC element to consider arbitration as the dispute resolution option, rather than litigation. China is a signatory to the New York Convention which means that foreign arbitral awards will more readily be recognised and enforced in the PRC court than a foreign court judgment.
For further information, please contact:
Jessica Fei, Partner, Herbert Smith Freehills
jessica.fei@hsf.com
