On 9 December 2016, the Nanjing Intermediate People’s Court (“Jiangsu Court”) handed down a decision recognizing and enforcing a civil judgment made by the Singapore High Court (“Nanjing IPC Decision”) based on the principle of reciprocity. This is a landmark development and is the first time that a Chinese court has recognized and enforced a Singapore commercial judgment.

More significantly, this is the first time that a Chinese court has recognized and enforced a foreign court judgment based on the principle of reciprocity in the absence of a bilateral treaty for mutual recognition and enforcement of judgments.

Our alert will discuss this development and its implications.

Implications to parties seeking to enforce foreign judgments

Prior to the Nanjing IPC decision, we have not seen any reported cases of Chinese courts recognizing a foreign court judgment based on the principle of reciprocity. The Nanjing IPC Decision indicates that Chinese courts are prepared to apply the principle of reciprocity to enforce foreign judgments in the absence of conventions or treaties. This is a positive development for parties seeking to enforce foreign judgments in China.

For years, Chinese courts have taken a conservative position in invoking the principle of reciprocity. Pursuant to the PRC Civil Procedure Law, Chinese courts can recognize and enforce foreign court judgments only on the basis of international convention, bilateral treaties or the principle of reciprocity, provided they do not violate basic principles of Chinese law, state sovereignty and security, or public interest. So far, China has not ratified the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters. Nor has China entered into a bilateral treaty with major jurisdictions such as Singapore, US and UK for the mutual recognition and enforcement of court judgments. As such, the only practical available ground to recognize commercial judgments from these jurisdictions is the principle of reciprocity.

However, there is no official interpretation, either legislative or judicial, on what constitutes reciprocity and the basis of the application. It has been commonly understood that reciprocity is interpreted as the willingness by a foreign court to enforce a judgment issued by a Chinese court. In practice, this has been difficult to establish.

The Nanjing IPC Decision suggests that if a foreign court has previously enforced a Chinese court judgment, a Chinese court will likely apply the principle of reciprocity to enforce the court judgment of that foreign nation. Parties seeking to enforce such judgments will have a greater chance of enforcing their judgments without the need to re-litigate their cases.

Background of the Nanjing IPC Decision

In the underlying case, a Swiss company (“Swissco”) had a dispute over a sales agreement with a Nanjing based company (“Nanjing Company”). The parties resolved the dispute by entering into a settlement agreement which provided that all disputes be submitted to the Singapore High Court. However, the Nanjing Company failed to comply with the settlement agreement.

Swissco commenced action before the Singapore High Court resulting in a judgment issued by the Singapore High Court in October 2015 against the Nanjing Company. Swissco then applied to the Jiangsu Court to recognize and enforce the Singapore judgment.

The Jiangsu Court held that the court can issue an order recognizing and enforcing foreign court judgments if the following three conditions are met:

(i) There is no applicable convention or treaty between the two nations;

(ii) The courts in the foreign nation have recognized a judgment issued by a Chinese court; and

(iii) The underlying foreign judgment does not violate the basic principles of the PRC laws, state sovereignty, security or public interest.

Although China and Singapore are parties to a bilateral treaty relating to judicial assistance, this treaty does not provide for the reciprocal enforcement of court judgments. In the absence of an applicable bilateral treaty, the Jiangsu Court held that the principle of reciprocity could be applied in this matter. This is based on the fact that in January 2014, the Singapore Court had enforced a court judgment issued by the Jiangsu Suzhou Intermediate court (see Giant Light Metal Technology (Kunshan) Co Ltd v Aksa Far East Pte Ltd [2014] SGHC 16).

Actions to consider

The Nanjing IPC Decision has raised some useful reminders on managing litigation risks. We recommend that both foreign and Chinese businesses take the following steps:

  • Chinese companies should seek legal advice and vigorously defend their cases in foreign proceedings even if those foreign nations have no bilateral enforcement treaties with China. In the event of a foreign judgment obtained against such Chinese companies, the Nanjing IPC Decision may be indicative of future court attitudes when those judgments are sought to be enforced in China.
  • Parties entering into transactions who wish to submit their disputes to foreign courts (but have concerns over enforceability of the foreign judgment in China) should check in advance whether there is a bilateral treaty between the foreign nation and China. If there is no applicable treaty, the parties should investigate whether the relevant foreign courts have previously enforced judgments issued by Chinese courts and vice versa.

Conclusion

Given the rapid growth of cross-border transactions in recent years, the Nanjing IPC Decision is a welcome development for parties doing business in China.

Nevertheless, it remains uncertain as to whether other Chinese courts will strictly follow the approach of the Jiangsu Court. Given the ease of enforceability of arbitral awards under the New York Convention which has been ratified by more than 135 countries including China, arbitration may still be a preferred option for parties entering into cross-border transactions.

Previous articleU.S. Fifth Circuit Allows Receiver to Avoid Arbitration Clauses
Next articleInvestor State Arbitration under CETA: Key Provisions and What to Watch for in 2017