Key takeaways:
- In December 2022, the King’s Bench Division (Commercial Court) of the High Court of Justice, UK, ruled to recognize and enforce two Chinese monetary judgments rendered by local courts in Hangzhou, Zhejiang province (See Hangzhou Jiudang Asset Management Co Ltd & Anor v Kei [2022] EWHC 3265 (Comm)).
- Under Chinese Civil Procedure Law, in the event of non-payment of the sums due, the interest on the debt during the delayed period shall be doubled. The claim to enforce such ‘double default interest ruled in Chinese judgment can be supported by English courts.
On 19 Dec. 2022, the King’s Bench Division (Commercial Court) of the High Court of Justice, UK, hereinafter “the English court”, ruled to recognize and enforce two Chinese monetary judgments in the case of Hangzhou Jiudang Asset Management Co Ltd & Anor v Kei [2022] EWHC 3265 (Comm), upholding the claimants’ claim that the defendant should pay the principal amount of the debts and interests thereon, and double default interest for failure to perform the judgments.
In this case, the claimants are Hangzhou Jiudang Asset Management Co Ltd (HJAM) and Hangzhou Biaoba Trading Co Limited (HBT), and the defendant is KEI KIN HUNG (Mr. Kei). The dispute arose out of three loan agreements.
I. Case Overview
The claimant, HJAM, was the creditor of the loan contract, who lent funds to Yaolai Culture Industry Co. Ltd (Yaolai). Mr. Kei, the beneficial owner of Yaolai, guaranteed Yaolai’s obligations to HJAM. Afterwards, the parties had a dispute over the loan agreement. Gongshu Primary People’s Court of Hangzhou made a judgment, ordering the debtor to repay the loan with Mr. Kei and other guarantors to assume the guarantee liability.
A lender, lending funds to Mr. Kei, was involved in a loan contract dispute between the parties. After that, the claimant, HBT, was assigned the creditor’s rights from the lender. Jianggan Primary People’s Court of Hangzhou issued a judgment, ordering Mr. Kei to repay the loan.
Court judgments in both cases were later appealed to the Hangzhou Intermediate People’s Court. In HJAM case, the Hangzhou Intermediate People’s Court ruled to dismiss the appeal and uphold the first instance judgment on 6 Mar. 2020. In HBT case, the appeal was treated as withdrawn after the appellant failed to appear in court, and the first instance judgment was declared of legal effect from service of the Hangzhou Intermediate People’s Court’s ruling on 20 Oct. 2020.
The claimants HJAM and HBT jointly apply to the English court for recognition and enforcement of the judgments of the two cases in the amounts of:
- HJAM case: the sum of RMB 21,412,450 together with interest at 24% pa of RMB 17,889,743.81, a guarantee service fee of RMB 24,150 and further default interest of RMB 2,705,463.06.
- HBT case: the sum of RMB 39,000,000 together with interest at 24% pa of RMB 35,574,301.37, legal costs of RMB 200,000, and further default interest at RMB 3,344,250.
The total amount applied for enforcement in the two cases is RMB 120,150,358.24.
Due to the Chinese judgments remaining outstanding in full, the two claimants applied in the English court to recognize and enforce the two Chinese judgments.
II. Court Views
1. On the finality of Chinese judgments
The English court held that each of the Chinese Judgments is final and conclusive.
In both Chinese cases, one or more of the defendants in the PRC proceedings sought to appeal the first instance judgment or part of it. However, both appeals were either dismissed or treated as withdrawn, with the effect that the first-instance decisions were final and effective. No party sought a retrial (to the extent different) in either of the proceedings.
2. On the jurisdiction of Chinese courts
Mr. Kei submitted to the PRC Courts in at least two of these ways:
i) Mr. Kei appeared at the hearings of each of the claims in the PRC Courts, through a lawyer, and participated in those proceedings including arguing the merits of the substantive claims. Accordingly, Mr. Kei submitted to the jurisdiction of the relevant PRC Courts.
ii) Under the jurisdiction clauses of the parties’ loan agreements, PRC Courts (of the relevant district where those agreements were signed) had non-exclusive jurisdiction to hear claims arising from them.
Accordingly, Mr. Kei can be taken to have expressly or impliedly agreed to or acknowledged the jurisdiction of the PRC Courts.
3. Chinese judgments are for certain debts
These debts are either definite and actually ascertained (insofar as the interest due thereon has already been expressed) or are capable of ascertainment by a mere arithmetical calculation (which is sufficient for these purposes). Upon judgment being given on the Claimants’ claims, the subject matter of the judgment will be a debt in a definite and ascertained sum.
4. On the enforceability of double default
The English court may uphold the double interest during the delayed performance period under the PRC Civil Procedure Law.
Defendant submitted that the Default Interest portions of the Judgments were rendered unenforceable by virtue of the application of section 5 of the Protection of Trading Interests Act 1980 (the “PTIA”).
Section 5 (1) – (3) of the PTIA provide as follows:
“5. Restriction on enforcement of certain overseas judgments.
(1) A judgment to which this section applies shall not be registered under Part II of the Administration of Justice Act 1920 or Part I of the Foreign Judgments (Reciprocal Enforcement) Act 1933 and no court in the United Kingdom shall entertain proceedings at common law for the recovery of any sum payable under such a judgment.
(2) This section applies to any judgment given by a court of an overseas country, being—
(a) a judgment for multiple damages within the meaning of subsection (3) below;
(b) a judgment based on a provision or rule of law specified or described in an order under subsection (4) below and given after the coming into force of the order; or
(c) a judgment on a claim for contribution in respect of damages awarded by a judgment falling within paragraph (a) or (b) above.
(3) In subsection (2)(a) above a judgment for multiple damages means a judgment for an amount arrived at by doubling, trebling, or otherwise multiplying a sum assessed as compensation for the loss or damage sustained by the person in whose favour the judgment is given.”
The Chinese judgments stated that if Defendants fail to perform the payment obligation within the period specified in this judgment, they shall pay double interest of the debt during the delayed performance period as per the stipulation of Article 253 of the Civil Procedure Law of the People’s Republic of China.
The Judicial Committee of the Supreme People’s Court of China promulgated on 7 July 2014 an “Interpretation” of double interest under Article 253 (“the 2014 Interpretation”). It stated that “the formula of calculating the doubled interest on debts shall be as follows: the doubled interest on debts = the outstanding pecuniary debts determined by the effective legal instruments other than the general interest on debts x 0.175‰/day x the period of delay in the performance” – emphasis added.
The defendant argued that the judgment debtor is penalized by reason of the fixed rate multiplier of 0.0175% per day in addition to the contractual interest liability, and such double default interest is unenforceable according to the PTIA.
The English court, however, held that, in this case, there are, in effect, two separate causes of action. The first is for the recovery of the judgment debt and interest, assessed as of the date of the Judgments. The second is for the recovery of an entirely separate amount, payable in the event of a contingency (i.e. non-payment within the 10 days), which contingency is entirely within the control of the judgment debtor.
According to the English court, the double default interest involved in the latter did not apply to the PTIA. Under Chinese law, the default interest is not paid to the state but to creditors, which is a provision in pursuit of legitimate objectives and thus not contrary to English law.
III. Our comments
1. Double default interest may be supported
It is common in Chinese civil judgments to see “If Defendants fail to perform the payment obligation within the period specified in this judgment, they shall pay double interest of the debt during the delayed performance period as per the stipulation of Article 253 of the Civil Procedure Law of the People’s Republic of China.”
In this case, the English court accepted this double default interest.
2. Acceptable trial period in English courts
Many Chinese judgment creditors are always concerned about the lengthy trial period in foreign courts. But in this case, the claimant filed the application on or about 22 Mar. 2022, and the English court rendered its judgment on 19 Dec. 2022. The case was concluded in nine months, which we believe is sufficient to overcome the misgiving of some Chinese judgment creditors.
Contributors: Guodong Du 杜国栋 , Meng Yu 余萌
