Legal Crossroads: Canadian Court Denies Summary Judgment for Chinese Judgment Recognition When Faced with Parallel Proceedings

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Key takeaways:

In January 2022, the Ontario Superior Court of Justice of Canada refused to grant summary judgment to enforce a Chinese monetary judgment in the context of two parallel proceedings in Canada, indicating that the two proceedings should proceed together as there was factual and legal overlap, and triable issues involved defenses of natural justice and public policy (Qingdao Top Steel Industrial Co. Ltd. v. Fasteners & Fittings Inc. 2022 ONSC 279).
Key concerns in the Canadian court decision shows included the Chinese court (allegedly) limiting F&F's defense, issues of natural justice and public policy. The Candian judge emphasized the need for a comprehensive evaluation of facts and circumstances, denying the motion for summary judgment.
It is interesting to observe how courts from China and Canada have dealt with parallel proceedings, and how the phenomenon of “race to judgment” may affect the parties involved.

On 12 January 2022, the Ontario Superior Court of Justice of Canada (hereinafter the “OSCJ”) refused to grant summary judgment to enforce a Chinese monetary judgment rendered by the Qingdao Intermediate People’s Court, China (see Qingdao Top Steel Industrial Co. Ltd. v. Fasteners & Fittings Inc. 2022 ONSC 279).

In the OSCJ’s view, the Respondent, Fasteners & Fittings Inc. (“F&F”), had already initiated a parallel court proceeding against the Applicant, Qingdao Top Steel Industrial Co. Ltd. (“Top Steel”) in Canada on the same matter, and the judgment resulting from the Canadian proceeding might not be recognized and enforced in China. Therefore, the OSCJ considered that a full assessment of the case facts was necessary and subsequently denied the motion for summary judgment.

The case involves three lawsuits:

The case of Qingdao Top Steel Industrial Co. Ltd. v. Fasteners & Fittings Inc. before the Qingdao Intermediate People’s Court of China (Case Number: (2018) Lu 02 Min Chu No. 1417 ((2018)鲁02民初1417号)). This case involves a sales contract dispute. The Qingdao Intermediate People’s Court rendered a judgment on 26 Dec. 2019 over the case. (hereinafter the “Qingdao Case”)
The case of Fasteners & Fittings Inc. v Wang et al. before the OSCJ, 2020 ONSC 1649, (Court File number: CV-17-588442). The dispute in this case involves a breach of fiduciary duty by corporate officers. F&F initiated the case on 14 Dec. 2017, and it is currently pending. (hereinafter the “Canadian Fiduciary Duty Case”).
The case of Qingdao Top Steel Industrial Co. Ltd. v. Fasteners & Fittings Inc. before the OSCJ, 2022 ONSC 279, (Court File number: CV-21-663189). This case involves a dispute over the recognition and enforcement of the judgment from the Qingdao Case. It is currently pending. (hereinafter the “Canadian Enforcement Case”).

I. The Qingdao Case

We have not yet located the full judgment for the Qingdao Case, specifically the civil judgment (2018) Lu 02 Min Chu No. 1417, but we have found the appellate ruling issued by the Shandong High People’s Court concerning jurisdictional challenge in this case.

In this case, the Plaintiff is Top Steel and the Defendant is F&F.

Top Steel claimed that it entered into multiple international sales contracts with F&F, under which it agreed to sell standard hardware products to F&F.

Top Steel delivered the goods to F&F under the contracts, but F&F failed to make some payments, which constituted a breach of contract. As a result, Top Steel requested the Qingdao Intermediate People’s Court to order F&F to pay the outstanding amount with corresponding interest.

F&F alleged that the wife of its employee, Michael Wang, effectively controlled Top Steel, and that Micheal Wang had obtained substantial unlawful benefits through transactions with Top Steel on behalf of F&F. Consequently, F&F filed a lawsuit against Mr. Wang, Top Steel and other parties with the OSCJ, asserting claims of fraud, breach of fiduciary duty, breach of confidentiality obligation, breach of contract, unjust enrichment, and set-off of payments under the principles of equity (the aforementioned “Canadian Fiduciary Duty Case”).

Therefore, F&F argued that the Canadian Fiduciary Duty Case had covered all the disputes in the Qingdao Case. Moreover, in the Canadian Fiduciary Duty Case, F&F specifically claimed that it did not owe Top Steel any payment. If the Chinese court were to hear the Qingdao Case, it would result in two lawsuits on the same subject matter by courts in both countries.

Since the final judgment in the Qingdao Case is not publicly available, we do not know how the Qingdao Intermediate People’s Court resolved the disputes arising from the aforementioned parallel proceedings. However, it is clear from the Canadian Enforcement Case that the Qingdao Intermediate People’s Court has issued a substantive judgment and required F&F to enforce the payment for the goods to Top Steel.

Ⅱ. The Canadian Fiduciary Duty Case

On 14 Dec. 2017, F&F commenced this action and filed a Statement of Claim to the OSCJ. It advanced claims of breach of contract, inducing breach of contract, breach of fiduciary duty, breach of confidence, misrepresentation, fraud, conversion and conspiracy.

During this period, both parties went through several stages of litigation.

Based on the OSCJ’s decision of 4 June 2021, F&F was required to provide further details on the relevant issues.

To date, there have been no updates on this case.

Ⅲ. The Canadian Enforcement Case

The Canadian Enforcement Case is the focus of this post. The Applicant in this case is Top Steel and the Respondent is F&F. The Applicant requested the OSCJ to recognize and enforce the judgment in the Qingdao Case, i.e., the civil judgment (2018) Lu 02 Min Chu No. 1417 issued by the Qingdao Intermediate People’s Court on 26 Dec. 2019.

The OSCJ determined that the case was not suitable for summary judgment proceedings. Therefore, on 12 Jan. 2022, the judge ruled to proceed to trial and requested both parties to submit their statements of claim and defense. A final decision in the case is pending.

F&F contended that if it had satisfied the judgment of the Qingdao Case and fulfilled its payment obligations, Top Steel would likely have transferred the funds back to China. However, in the Canadian Fiduciary Duty Case, if the OSCJ made a judgment in F&F’s favor in the future, F&F would not be able to recover its payments to Top Steel by having the judgment recognized and enforced by Chinese courts.

This is because, in accordance with Article 533 of the “Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China (2015)”, if, in respect of the same dispute, one party files a lawsuit with a foreign court while the other party files a lawsuit with a Chinese court, and a party requests the Chinese court to recognize and enforce the judgment issued by the foreign court in the same case after the Chinese court has issued a judgment, the Chinese court shall render a ruling against recognition and enforcement of the foreign judgment.

The judge of the OSCJ has ascertained the aforementioned provisions of Chinese law and opined that “the applicable Chinese law in evidence may expressly
prohibit enforcement of a foreign judgment where the Chinese court has
already ruled as between the parties”, and the judge further stated: “moreover, irrespective of the blocking statute, the applicant was not able to show any instance of a court in the People’s Republic of China enforcing a civil judgment of a Canadian court”.

The judge emphasized that “the merits of the judgment of Qingdao case would not be contested in this court”, and that “it was not the potential injustice on the merits of the foreign action that was the issue”.

The judge believed that the current issues were as follows:

1. In the Qingdao Case, the Qingdao Intermediate People’s Court did not allow F&F to defend issues in the Canadian Fiduciary Duty Case, such as breach of fiduciary duty, and only permitted confirmation of the outstanding invoice amounts.

2. The issues for trial involved defenses of natural justice and public policy, and the possibility of a new defence applying where the processes of a foreign court and the system of foreign law are so different from Canadian law as to create a race to judgment or an overall result that might appear to be intolerably unjust.

3. The judgment of the Canadian Fiduciary Duty Case appears to be enforceable in China “by statute and a historic lack of bilateral comity”.

The judge stated that the issues turned on the potential unfairness of the Chinese process and the assessment of Chinese laws against Canadian conceptions of commercial morality and justice in international commerce.

In light of the above, the judge believed that this case required a full assessment of the facts and circumstances.

On that basis, the judge refused the motion for summary judgment in this case.

IV. Our Comments

Parallel proceedings are not uncommon in the field of recognition and enforcement of foreign judgments.

It is interesting to observe how courts from China and Canada have dealt with parallel proceedings, and how the phenomenon of “race to judgment”, as the Canadian judge called for attention, may affect the parties involved.

The so-called ‘blocking statute’, as part of the Canadian judge’s concern, is nothing new. It is true, as the Canadian judge pointed out, ‘Chinese law might explicitly prevent enforcing a foreign judgment if the Chinese court has ruled on the matter’.

In fact, it is a very common defense for judgment debtors, also known as the ‘inconsistent judgment’ defense. It exists in Chinese domestic law - not only in the judicial interpretation of the PRC Civil Procedure Law (CPL) but also in the newly adopted Fifth Amendment to the CPL - as well as in Sino-foreign bilateral treaties in judicial assistance in civil and commercial matters. It is also frequently found in many jurisdictions and international instruments, such as the 2019 Hague Judgment Convention.

Among others, this case also raises an intriguing question: how far can the requested court go in reviewing defenses of natural justice and public policy while maintaining the principle of ‘no review of merits’? The boundary can sometimes be not so clear cut, in particular in cases of cross-border parallel proceedings.

Photo by Ray S on Unsplash

Contributors: Guodong Du 杜国栋 , Meng Yu 余萌