China has for the longest time been known for adopting one of the most restrictive reciprocity systems in the world. A view widely accepted by even Chinese scholars, this approach has made it almost impossible to recognise foreign judgments in China. China's refusal to recognise foreign judgments unless there is a convention or treaty obligation or "reciprocity" practice, has led to certain countries responding adversely to the enforcement of Chinese decisions.
In 2003 and 2015 respectively, the Japanese Courts refused to recognise judgments rendered by the Chinese Courts for lack of reciprocity on the basis that the Chinese Courts refused to recognise Japanese judgments. Whilst the civil procedure laws in China allow for the recognition and enforcement of foreign court judgments on the principle of reciprocity, there was no statutory or judicial interpretation on what the principle of reciprocity entails or when it is to be applied, until recently.
Kolmar Group AG Case
For the first time in December 2016, the Nanjing Intermediate People’s Court recognised and enforced a judgment rendered by the High Court of Singapore based on the principle of reciprocity. A Swiss company had a dispute over a sales agreement with a Nanjing based textile company. The dispute was resolved by parties entering into a settlement agreement. The settlement agreement provided for all disputes to be submitted to the High Court of Singapore. The Nanjing based company failed to comply with the terms of settlement agreement.
Consequently, the Swiss company commenced proceedings in the High Court of Singapore. A decision was issued by the High Court of Singapore sometime in October 2015 against the Nanjing based company. The Swiss company therefore applied to the Chinese Court to recognise and enforce the Singapore judgment even though there is no treaty or bilateral agreement which allows for the mutual recognition and enforcement of each other's judgments.
In a ground breaking decision, the Court held that in the absence of a treaty on the recognition and enforcement of judgments, it could apply the principle of reciprocity in this matter on the basis that the Singapore Court had previously in 2014 enforced a judgment issued by the Jiangsu Suzhou Intermediate People's Court in Giant Light Metal Technology (Kunshan) Co Ltd v Aksa Far East Pte Ltd.
Whether a precedent has indeed been set is still unknown but many welcome this decision and are hopeful that it will be persuasive in the enforcement of foreign judgments in China. With the growth of cross-border transactions and trade, the decision of the Chinese Court will increase the confidence of foreign entities conducting business in China and with Chinese companies. Parties looking to enforce foreign judgments are now likely to stand a better chance of enforcing the judgments without having to recommence litigation process afresh in China.
Will all Foreign Judgments be enforced?
Whilst there may be reasons for foreign companies to rejoice, the Chinese Court's decision does not guarantee the recognition and enforcement of all foreign judgments. The reality may be far from it. The Chinese Courts can recognise and enforce foreign judgments only if there is an international convention or treaty, or if reciprocity applies. The Courts must also be satisfied that these do not contravene Chinese law, state sovereignty, security or public interest. Therefore, these restrictions on the enforceability of foreign judgments limit the countries whose judgments may be recognised and enforced.
Countries that do not have bilateral treaties or arrangements with China, are not members of an international convention which allows for the recognition and enforcement of foreign judgments, do not practise the principle of reciprocity and have not had the opportunity of enforcing a Chinese judgment may never have their judgments recognised and enforced in China. In such circumstances, arbitration may still be the preferred choice since it would be much easier enforcing an arbitral award under the New York Convention which China has ratified.
The Nanjing Court's decision may start the ball rolling for the enforcement of foreign judgments in future. However, there still remain some unresolved issues. Apart from foreign judgments not falling within the ambit of the Chinese civil procedure law, it is unknown if other Courts in China will take the Nanjing Court's lead when deciding on whether or not to enforce a foreign judgment on the basis of reciprocity.
Further, the Singapore Court is not the first to have recognised and enforced a Chinese judgment. Despite countries such as the United States having enforced Chinese judgments in the past, the Chinese Courts have yet to enforce a United States judgment on the basis of reciprocity. In light of the Nanjing Court's decision, it would be interesting to see when and whether the Chinese Courts will reciprocate and accord these other countries the judicial courtesy of enforcing their judgments.