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Conditions for Enforcement of Foreign Judgments in China - Breakthrough for Collecting Judgments in China Series (VII)

Sun, 01 May 2022
Categories: Insights

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Key Takeaways:

  • The 2021 Conference Summary sets out the grounds on which recognition and enforcement of foreign judgments may be refused. For instance, if the foreign judgment is found to be contrary to the public policy, the Chinese court shall refuse to recognize and enforce such judgment.
  • When examing a foreign judgment on the basis of reciprocity, the Chinese court shall rule against recognition and enforcement if, under the Chinese law, the judgment-making foreign court has no jurisdiction over the case. 
  • Where a foreign judgment awards damages, the amount of which significantly exceeds the actual loss, a people's court may refuse to recognize and enforce the excess.

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China published a landmark judicial policy on the enforcement of foreign judgments in 2022, embarking on a new era for judgment collection in China.

The judicial policy is the “Conference Summary of the Symposium on Foreign-related Commercial and Maritime Trials of Courts Nationwide” (hereinafter the “2021 Conference Summary”, 全国法院涉外商事海事审判工作座谈会会议纪要) issued by the China’s Supreme People’s Court (SPC) on 31 Dec. 2021.

As part of the ‘Breakthrough for Collecting Judgments in China Series’, this post introduces Articles 45, 46, and 47 of the 2021 Conference Summary, outlining the conditions for recognition and enforcement of foreign judgments in China.

Texts of the 2021 Conference Summary

Article 45 of the 2021 Conference Summary [Judgment concerning Punitive Damages]:

“Where a judgment rendered by a foreign court awards damages, the amount of which significantly exceeds the actual loss, a people's court may refuse to recognize and enforce the excess.”

Article 46 of the 2021 Conference Summary [Grounds for the Refusal of Recognition and Enforcement]:

“A people's court shall refuse to recognize and enforce the legally effective judgment or order made by a foreign court if, after examining it in accordance with the principle of reciprocity, it finds that any of the following circumstances exists:

(1) in accordance with Chinese law, the court in the country where the judgment is rendered has no jurisdiction over the case;

(2) the Respondent has not been lawfully summoned, or has not been given a reasonable opportunity to be heard and defended despite having been lawfully summoned, or the party without legal capacity has not been properly represented;

(3) the judgment was obtained by fraud; or

(4) the people’s court has rendered a judgment on the same dispute, or has recognized and enforced a judgment or arbitral award made by a third country on the same dispute.

Where a legally effective judgment or ruling made by a foreign court violates the basic principles of the Chinese law or violates state sovereignty, security and public interest, such judgment or ruling shall not be recognized or enforced.

Article 47 of the 2021 Conference Summary [Recognition of Foreign Judgments in Violation of the Arbitration Agreement]:

Where a party concerned applies to a people's court for recognition and enforcement of a default judgment rendered by a foreign court, and the people's court finds upon examination that the parties to the dispute have a valid arbitration agreement and that the absent party does not expressly waive to apply the arbitration agreement, the people's court shall refuse to recognize and enforce the foreign judgment."

Interpretations

You need to distinguish between “refusal of recognition and enforcement” (不予承认和执行) and “dismissal of the application” (驳回申请).

If the foreign judgment temporarily does not meet the requirements for recognition and enforcement, the Chinese court will render a ruling to dismiss the application. For example:

(1) China has not entered into relevant international or bilateral treaties with the country where the judgment is rendered, and there is no reciprocal relationship between them;

(2) the foreign judgment has not yet entered into force;

(3) the application documents submitted by the applicant have not yet met the requirements of Chinese courts.

Under the above circumstances, once the requirements are met, the applicant can file the application to the Chinese court again.

However, if the foreign judgment, in essence, cannot be recognized and enforced in China, the Chinese court will render a ruling not to recognize and enforce the judgment. The ruling is final and cannot be appealed.

We list the following circumstances that will lead to the refusal of recognition and enforcement.

1. The foreign judgment is contrary to China's public policy

Chinese courts will not recognize and enforce a foreign judgment if it is found that the foreign judgment violates basic principles of Chinese law or violates the public interest of China, no matter it reviews the application in accordance with the conditions set by the international or bilateral treaties, or on the basis of reciprocity.

However, very few cases have occurred in China where courts have ruled not to recognize or enforce foreign arbitral awards or judgments on the grounds of public policy. Applicants should not worry too much about it.

As far as we know, there are only five cases with such circumstances, among which:

(1) Two cases for recognition and enforcement of foreign arbitral awards
In the case of Palmer Maritime Inc (2018), the parties concerned applied for arbitration in a foreign country even when the Chinese court had already affirmed the invalidity of the arbitration agreement. The Chinese court held accordingly that the arbitral award had violated China’s public policy.

In the case of Hemofarm DD (2008), the Chinese court held that the arbitral award contained decisions on matters not submitted to arbitration and violated China’s public policy at the same time.

For a detailed discussion, please read our earlier post “China Refuses to Recognize a Foreign Arbitral Award on the Grounds of Public Policy for the 2nd Time in 10 Years”.

(2) Three cases for recognition and enforcement of foreign judgments

The Chinese court held that the use of facsimile or mail by the foreign court to serve court summons and judgment does not comply with the service methods as stipulated in relevant bilateral treaties, and undermines China's judicial sovereignty.

For a detailed discussion, please read our earlier post, “China Refuses to Enforce Uzbekistan Judgments Twice, Due to Improper Service of Process”.

The above five cases show that Chinese courts limit the interpretation of public interest to very narrow scope and do not extend its interpretation. Therefore, we believe that in most cases applicants should not be overly concerned.

2. The court rendering the judgment has no jurisdiction over the case.

(1) Pursuant to Chinese law, the judgment-making foreign court has no jurisdiction over the case.

The key to determining whether the judgment-making foreign court has jurisdiction (also known as ‘indirect jurisdiction’) over a case lies in the standard, i.e. based on which country’s law, the law of China (the requested state) or the law of the country where the judgment is rendered (the requesting state), the competence of the foreign court is determined?

Nevertheless, it is noted that there is no uniform rule on indirect jurisdiction among the pertinent bilateral agreements -- one can find Chinese law as the basis in some agreements, and the law of requesting state, or a list of jurisdictional grounds, in other agreements. 

For countries that have concluded international or bilateral treaties with China, Chinese courts shall determine the indirect jurisdiction in accordance with the treaties. Nevertheless, it is noted that there is no uniform rule on indirect jurisdiction among the pertinent bilateral agreements -- one can find Chinese law as the basis in some agreements, and the law of requesting state, or a list of jurisdictional grounds, in other agreements.

For countries with a reciprocal relationship with China, the 2021 Conference Summary clarifies in a uniform manner that Chinese courts need to determine whether the foreign court has jurisdiction over the case in accordance with Chinese law.

(2) There is a valid arbitration agreement between the parties

If the parties have an existing valid arbitration agreement, the foreign court apparently has no jurisdiction over the case.

In addition, if a party responds to the litigation, it is deemed that the party has waived to apply the arbitration agreement, and been subject to the court's jurisdiction. But what if the judgment is rendered by default?

If the judgment is rendered by default and the absent party does not respond to the case nor expressly waives the right to apply the arbitration agreement, the Chinese court may hold that the arbitration agreement is still valid and has not been waived. Under this situation, foreign courts have no jurisdiction over the case.

3. The Respondent’s litigation rights are not fully guaranteed. (Due process requirement)

It mainly refers to the following circumstances where:

(1) the respondent has not been lawfully summoned;

(2) the respondent has not been given a reasonable opportunity to be heard and defended despite having been lawfully summoned; or

(3) the party with no legal capacity is not properly represented.

In this area, Chinese courts pay extra attention to the way in which the notice of court hearings or the written statement of defense is served. If the ways of service are inappropriate, Chinese courts will consider that the respondent’s litigation rights are not fully guaranteed.

Specifically, if the Respondent is in China, the writ of summons must be served in a manner accepted by China, i.e, under the treaties (if there is any applicable international and bilateral treaties ) or by diplomatic means.

4. The judgment was obtained by fraud

This requirement is consistent with the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters.

5. Conflicting judgments 

The Chinese court will consider that conflicting judgments exist in China and refuse to recognize and enforce the judgment accordingly under the following circumstances where :

(1) the Chinese court has rendered a judgment on the same dispute; or

(2) China has recognized and enforced a judgment or arbitral award rendered by a third country in respect of the same dispute.

However, if a Chinese court is in the process of hearing the same dispute but has not yet made a binding judgment, how will the Chinese court handle the application for recognition and enforcement of a foreign judgment? Chinese law does not clearly stipulate how to handle such a case potentially leading to conflicting judgments.

“Dismissal of the application" is the solution we find Chinese courts adopt in a recent case. However, the Chinese court in this case does not give any reasons in its judgment.

We surmise that the court seems to believe that there are two prospects:

(1) No conflicting judgment appears after the dismissal of the application

If the plaintiff in the future withdraws its lawsuit in the same dispute currently heard in the Chinese court, the conflicting judgment would not appear. In such a case, the creditor may re-apply to the Chinese court for recognition and enforcement of the foreign judgment.

(2) Conflicting judgment appears after the dismissal of the application

If the Chinese court finally rendered a judgment on the dispute which later comes into effect, the conflicting judgment appears now. Creditors can no longer apply for recognition and enforcement of foreign judgments.

Nevertheless, at this time, the creditor has already obtained the favorable judgment rendered by the Chinese court and remedies arising therefrom, and it does not need to apply for recognition and enforcement of the foreign judgment again.

6. Punitive damages

If the amount of damages awarded by the foreign judgment significantly exceeds the applicant's actual loss, the Chinese court may not recognize and enforce the excess.

In some countries, courts may grant a large sum of punitive damages. However, in China, on the one hand, the basic principle of civil compensation is the “principle of full compensation”, which means compensation shall not exceed the losses incurred; on the other hand, a huge amount of punitive damages are not widely acceptable in China's social and business practice for the time being.

That being said, China's recent legislation moves gingerly beyond the “principle of full compensation”, i.e., punitive damages are recognized in specific areas and are required not to exceed a specific capped amount.

For example, China's Civil Code, enacted in 2020, allows punitive damages in three areas, namely, intellectual property infringement, product liability, and environmental pollution.

For the time being, it seems that Chinese courts are not prepared to get such a breakthrough on punitive damages in the recognition and enforcement of foreign judgments.

 

 

Photo by Max Zhang on Unsplash

Contributors: Guodong Du 杜国栋 , Meng Yu 余萌

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