In an unprecedented decision handed down on 30 June 2017, the Wuhan Intermediate People's Court recognised and enforced a judgment of the Los Angeles Superior Court in California for the first time in the case of Liu Li v Tao Li & Tong Wu (the "Judgment"). The Judgment is significant as not only is it the first decision of a Chinese court to recognise a US court judgment, it also appears to reinforce China's recent efforts to implement a change in Chinese law on the recognition and enforcement of foreign judgments more widely.
The Judgment arose out of a share transfer agreement dispute concerning a company registered in California where the applicant paid US$125,000 to the respondents to purchase shares under the agreement but the respondents failed to transfer the equity. The applicant filed a suit in the Los Angeles Superior Court and on 24 July 2015, was awarded default judgment for the total amount plus interest and costs.
In October 2015, after being unable to collect the judgment in the US, the applicant brought an action in the courts of Wuhan, China (where the respondents were then resident and owned real property) seeking recognition and enforcement of the Judgment. On 30 July 2017, the Wuhan Court issued its decision holding that the Judgment would be recognised and enforced in China.
Recognition and enforcement of foreign judgments in China
Articles 281 and 282 of China's Civil Procedure Law authorise recognition and enforcement of foreign judgments based on either a treaty obligation or a finding of reciprocity, provided that a judgment will not be recognised if it conflicts with the primary principles of law of China or violates state sovereignty, security, social or public interest.
The Wuhan Court held that it had jurisdiction pursuant to Article 281 of the Civil Procedure Law of China on the grounds that the respondents resided in Wuhan and owned real property there. In determining whether de facto reciprocity had been established between China and the U.S. under Article 282 (as no treaty exists between China and the U.S.), the Wuhan Court relied on the fact that a Chinese judgment obtained in the Hubei People's Supreme Court had previously been recognised and enforced by the US District Court for the Central District of California. This in itself is a significant development, given the Chinese court's previous reluctance to recognise and enforce foreign judgments on the grounds of reciprocity.
Another interesting element of the decision of the Wuhan Court is that the court was adamant that it would not reconsider the merits of the underlying dispute, noting that recognition and enforcement is a case of judicial assistance rather than another assessment of the rights and obligations of the parties.
A more liberal approach to reciprocity?
The Liu case marks a change in the court's approach to establishing reciprocity when no bilateral judicial assistance treaties exist between China and another country i.e. the de facto reciprocity standard. Until recently, there were few (if any) Chinese cases recognising and enforcing a foreign judgment and the courts have previously refused to recognise judgments of Japan, Germany, Australia, Korea, Malaysia, and the UK on the grounds that no de facto reciprocity exists in respect of these jurisdictions. However, recent developments would suggest that the Chinese courts are taking a broader and more flexible approach to establishing reciprocity in the recognition and enforcement of foreign judgments in China.
Prior to the Liu decision, the decision of the Nanjing Intermediate People's Court in 2016 signalled the start of a growing acceptance of the recognition and enforcement of foreign judgments in China. In the case of Kolmar Group AG v Jiangsu Textile Industry Import and Export Corporation, the Nanjing Court recognised and enforced a judgment from the Singapore High Court on the grounds that de facto reciprocity had been previously established in Singapore. This decision is considered the turning point with regard to establishing reciprocity in the Chinese courts and was a step towards a broader acceptance of the recognition and enforcement of foreign judgments in China.
Wider significance of the Liu case
The decision of the Wuhan Court is therefore a welcome development in terms of the recognition and enforcement of foreign judgments based on reciprocity and judicial assistance in China in general. But it is also important to look at these developments through the wider lens of China's recent focus on strengthening its international trade and investment on a more global scale.
Take for example, the Belt and Road Initiative led by China in a bid to encourage and assist trade, development and to strengthen regional and international relations. In June 2015, the Supreme People's Court of China issued guidance with regard to the development of judicial cooperation and assistance in China in relation to this Initiative. The guidance expressly refers to the desire to "strengthen international judicial assistance with countries along the 'Belt and Road' and effectively safeguard the lawful rights and interests of Chinese and foreign parties". Where no treaty agreement exists between China and other countries, the guidance goes on to state that the Chinese courts may offer judicial assistance to foreign parties in the recognition and enforcement of judgments rendered by foreign courts in order to "gradually expand the scope of international judicial assistance".
The future therefore looks hopeful with regard to the recognition and enforcement of foreign judgments in China where no international treaties or conventions exist with other countries. It remains to be seen whether or not this 'liberalisation' of judicial cooperation will continue but it appears from the recent decision of the Wuhan Court, together with China's desire to increase international relations more generally, that China may continue to open its doors to the recognition and enforcement of foreign judgments and expand the scope of its international judicial assistance.