China - First U.S. Civil Judgment Recognised And Enforced In The PRC.

Legal News & Analysis - Asia Pacific - China - Dispute Resolution

Asia Pacific Legal Updates

 

5 October, 2017

 

China - First U.S. Civil Judgment Recognised And Enforced In The PRC.

 

In June 2017, in the case of Liu Li v Tao Li et al. for Recognition and Enforcement of a Civil Judgment of a Foreign Court (No. 00026 [2015]) the Intermediate People’s Court of Wuhan, Hubei Province of the People’s Republic of China (the “PRC”) recognised and enforced a judgment from the Los Angeles County Superior Court, U.S.. 

 

This is the first time a PRC court has recognised and enforced a judgment of a U.S. court based on the principle of reciprocity. Late last year, the Nanjing Intermediate People’s Court in Jiangsu Province, the PRC also recognised and enforced a judgment of the High Court of Singapore based on the principle of reciprocity. 

 

Background 

 

The applicant and the two respondents were parties to a share transfer agreement under which the respondents were to transfer 50% of the shares of Jiajia Management Inc., a company incorporated in the U.S., to the applicant for US$150,000. However, after the applicant paid US$125,000 to the respondents, the respondents disappeared with the money. The applicant obtained a default judgment against the respondents from the Los Angeles County Superior Court, CA, which ordered the respondents to pay the applicant US$125,000 together with interests and costs. 

 

As the respondents own properties in Wuhan, Hubei, the PRC, the applicant applied to the Wuhan Court for recognition and enforcement of the U.S. judgment in the PRC. 

 

Ruling 

 

In recognising and enforcing the U.S. judgment, the Wuhan Court referred to and considered the application of Articles 281 and 282 of the Civil Procedure Law of the PRC. Article 281 provides that a party applying to the PRC court to recognise and enforce a foreign judgment may apply to the intermediate people’s court in accordance with an international treaty or under the principle of reciprocity. Article 282 provides that the PRC court may recognise and enforce a foreign judgment if doing so is not in violation of the fundamental principles of the law of the PRC or the sovereign, security or public interest of the PRC. 

 

As the U.S. and the PRC have not entered into any international treaty on the mutual recognition and enforcement of judgments, the Wuhan Court considered the application under the principle of reciprocity. The Wuhan Court accepted a precedent submitted by the applicant of the U.S. court recognising and enforcing a civil judgment of the PRC court (the civil judgment of the Higher People’s Court of Hubei in the case of Hubei Gezhouba Sanlian Industry Co., Ltd and Hubei Pinghu Tour Boat Co., Ltd v Robinson Helicopter Company, USA), and determined that there is a reciprocal relationship between the U.S. and the PRC in the recognition and enforcement of civil judgments. The Wuhan Court also held that recognising and enforcing the U.S. judgment would not contravene the fundamental principles of the laws of the PRC, or the sovereignty, security or public interest of the PRC. The U.S. judgment was therefore recognised and enforced on this basis. 

 

The respondents argued that they did not receive notice of the U.S. proceedings. This argument was rejected by the Wuhan Court as the service by publication was ordered in the U.S. proceedings and there was evidence of service by advertisement on newspaper. The Wuhan Court also rejected the respondents’ arguments on the validity of the share transfer agreement because the PRC court would not examine the substantive rights and obligations of the parties in applications for request for judicial assistance. 

 

Comment 

 

Whilst recognition and enforcement of foreign judgments by the PRC courts remain rare, this is a positive decision and serves as an example of the application of the reciprocity principle between judgments of the PRC and the U.S. courts. It remains to be seen as to whether U.S. judgments may be recognised and enforced across different provinces in the PRC. 

 

Given the uncertainties over the enforceability of foreign judgments in the PRC, and with the PRC being a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, parties are still recommended to consider arbitration as the dispute resolution mechanism when contracting with PRC parties. 

 

 

For further information, please contact:

 

Melvin Sng , Partner, Linklaters

melvin.sng@linklaters.com