Chinese courts have now only twice recognized and enforced U.S. civil court judgments. Most recently, a Chinese company successfully obtained a ruling from the Shanghai First Intermediate People’s Court in September 2018 recognizing a civil judgment rendered by a U.S. court that it obtained in its favor (the “Shanghai Ruling”). The first instance was a ruling from the Wuhan Intermediate People’s Court in June 2017 recognizing a civil judgment rendered by the Los Angeles Superior Court in California (the “Wuhan Ruling”).
In the Shanghai Ruling, the underlying civil judgment was issued by the United States District Court for the Northern District of Illinois against a U.S. debtor for a RMB 23 million debt (approximately USD 3.3 million) in favor of the creditor, another U.S. company. In recognition of the judgment, the Chinese court noted that as long as a U.S. judgment does not violate the basic principles of the laws of China or its public interest, it may be recognized and enforced in China.
The Shanghai Ruling may indicate that the PRC courts are slowly opening the door to the recognition and enforcement of judgments rendered in other jurisdictions. Meanwhile, this case raises some unique issues which may shed more light on future recognition and enforcement of foreign judgments, including those issued by U.S. courts.
First, unlike the U.S. state court judgment recognized in the Wuhan Ruling, the judgment recognized in the Shanghai Ruling was rendered by a U.S. federal court. The Shanghai Ruling, therefore, indicates that a Chinese court, when addressing an application to recognize a U.S. court judgment, might not distinguish between federal court judgments and state court judgments. Rather, it appears, that the Chinese courts consider the courts of the U.S. as a whole and recognize both state court and federal court judgments.
Second, it is reported that the defendant in the Shanghai Ruling challenged the U.S. judgment on the grounds that it was obtained by summary judgment, arguing that the U.S. summary judgment procedure did not comply with the procedural requirements of Chinese law. The court, however, rejected the argument on the grounds that the parties had had sufficient opportunity to present their case in the U.S. court proceedings. This indicates that a Chinese court’s assessment will include a review of the underlying U.S. court procedures to determine whether the parties had a fair and sufficient opportunity to present their case.
Third, the parties to the judgment recognized in the Wuhan Ruling were both Chinese citizens, while the parties to the judgment recognized in the Shanghai Ruling were both from the U.S. This is an encouraging sign that the parties’ nationalities may not be a factor in a Chinese court’s decision to recognize and enforce a U.S. judgment.
The Shanghai Ruling represents only the second time that a Chinese court has recognized and enforced a U.S. judgment. The Shanghai Ruling indicates that Chinese courts are warming up to recognizing U.S. judgment more often, however, the instances are still too few and far between. The most recommended dispute resolution mechanism for enforcement in China, aside from litigation in China, is still arbitration. Chinese courts routinely give effect to arbitral awards pursuant to the New York Convention—a 60-year old, multi-lateral treaty requiring courts of contracting states, e.g. China, to recognize and enforce arbitral awards. While the progress with enforcement of U.S. judgments within the Chinese court system is promising, parties that intend to enforce in China should still opt for arbitration.