Cross-border transactions have grown so rapidly in the globalization era that it is now quite common for a litigant to receive a judgment from a court in one country and then need to enforce it in another. When dealing with China-related deals involving mainland parties or assets, it is important to understand if and how China recognizes and enforces foreign judgments.
The Civil Procedure Law and the Supreme People’s Court-released Interpretation of the Civil Procedure Law used to recognize and enforce such judgments in China. According to Chinese law, it is possible to enforce foreign judgments in China, based on either treaties or the principle of reciprocity. Judgments made in Taiwan, Macau and Hong Kong can be enforced in China under respective reciprocal arrangements.
China has sealed bilateral judicial cooperation treaties with many countries, including Bulgaria, Poland, Russia, Hungary, Spain, Italy, France, Greece, and some developing nations, for the recognition and enforcement of foreign commercial judgments. Only commercial judgments made in these countries are recognized and enforced in China. Under the treaties, when determining if a foreign judgment can be recognized and enforced, Chinese courts examine certain points, including: i) whether the foreign judgment is final and effective; ii) whether the court rendering the judgment has jurisdiction over the case; iii) whether the litigation procedure conducted in the foreign court is fair and legitimate, ensuring parties involved have been duly served and given opportunities to present their cases; iv) whether conflicting judgments exist; and v) whether enforcement of a foreign judgment will contradict with the basic principles of PRC law or the public interest.
However, China has yet to enter into treaties with some major market players, such as the UK, Japan, Germany, Australia and the US, for the recognition and enforcement of judgments. Moreover, there is neither legislative nor official judicial interpretation for the application of reciprocity. It is generally understood that a Chinese court may recognize and enforce the judgment of a foreign country only if the latter has actually done the same previously for a mainland judgment. In other words, the Chinese courts typically apply de facto reciprocity, i.e., examine if there is a precedent where the foreign court in question has enforced a Chinese judgment. Previously, it has been reported that applications for recognition of judgments made in Japan, Germany, the UK, Australia, Germany and Republic of Korea were all rejected in the absence of de facto reciprocity.
The de facto reciprocity standard has been demonstrated in two recent cases. In December 2016, in the Kolmar Group versus Jiangsu Textile Industry (Group) Import & Export, the Nanjing Intermediate Court issued a verdict that the judgment of the Singapore Court should be recognized and enforced in China on the ground that the Supreme Court of the Republic of Singapore had enforced a civil judgment of the Intermediate People’s Court of Suzhou, Jiangsu Province in January 2014. In June 2017’s Liu Li versus Tao Li and Tong Wu case, the Intermediate People’s Court of Wuhan in Hubei Province recognized and enforced a judgment of the Los Angeles Superior Court in California after it found that the materials the applicant had submitted proved there had been a precedent in relation to recognition and enforcement of a Chinese court’s judgment in the US.
A further development might illustrate a significant change in the court’s approach to establishing reciprocity. On 8 June 2017, the 2nd China-ASEAN Justice Forum held in Nanning approved a Statement (the Nanning Statement). Article 7 of the Nanning Statement makes an endorsement that, if two countries have not been bound by any international treaty on mutual recognition and enforcement of foreign civil or commercial judgments, both may, subject to their domestic laws, presume the existence of their reciprocal relationship. In order words, all participating countries accept the consensus of “presumptive reciprocity”.
Unlike de facto reciprocity, presumptive reciprocity requires that one country’s courts presume the existence of a reciprocal relationship with another nation, unless there is evidence that courts in the latter have refused to recognize or enforce its judgments. Presumptive reciprocity reduces the burden of proof to establish the existence of the reciprocal relationship, which will enhance the possibility of recognition and enforcement of foreign judgments in China. Although it is unclear if this approach applies only to ASEAN countries, it is believed China is gradually shifting from adopting a conservative approach to a relaxed one with respect to the recognition and enforcement of judgments.
Another action China has taken also shows a shift in position. On 12 September 2017, China signed the Hague Convention on Choice of Court Agreements, which major market players, including the EU, the UK, and the US, have joined. Under the said convention, the court of a member state is obliged to recognize and enforce a final judgment of the court of another member state designated in the parties’ exclusive choice of court agreement without review of the merits, subject to a limited number of grounds. Although it may take some time for the convention to go through approval formalities in China, it is anticipated that choice of court clauses may become a practical alternative to the arbitration in global transactions.
With its deepening reforms in many areas, we believe the mainland is likely to keep taking a more flexible approach to make recognition and enforcement of foreign judgments in China more accessible, convenient and efficient.
Tom Zhang is a partner at GoldenGate Lawyers. He can be contacted on +86 10 8589 0501 or by email at firstname.lastname@example.org
Tim Meng is the managing partner at GoldenGate Lawyers. He can be contacted on +86 10 8589 0501 or by email at email@example.com