In the Autumn 2006 issue of The HKey (“Two-way street”), we reported on the signing of the “Arrangement on Reciprocal Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administration Region pursuant to Choice of Court Agreements between Parties Concerned” (the Arrangement). There has been significant progress since then.

On 23 February 2007, as a first step towards implementing the Arrangement as legislation, the mainland judgments (reciprocal enforcement) bill was submitted to the Legislative Council. The first reading took place on 7 March 2007. It is unclear when the second and third readings will take place – let alone when any future legislation will come into effect. In the meantime, there is keen anticipation of the Supreme People’s Court promulgation of regulations or judicial interpretation of the proposed legislation setting out the details of the procedures for implementing the Arrangement in mainland China.

System of registration

The future legislation will provide a registration system enabling mainland judgments to be registered by a judgment creditor in Hong Kong if they can prove certain elements. In summary:

  • The judgment must be given by a designated court on or after the commencement of the new legislation. A “designated court” means the Supreme People’s Court, a higher people’s court, an intermediate people’s court or a recognised basic people’s court. 
  •  The judgment must be given under an exclusive choice of mainland court agreement made on or after the commencement of the new legislation. Additionally, only contracts of a specific nature – essentially, business and other commercial contracts – will be registrable. 
  •  The judgment must be final and conclusive as between the parties to the judgment. This applies to decisions of the Supreme People’s Court. It also includes judgments given by a higher people’s court, an intermediate people’s court or a recognised basic people’s court, provided no appeal has been allowed from the judgment or, alternatively, that the time limit for appeal has expired and no appeal has been filed. In addition, it covers judgments given in a retrial by a people’s court of a level higher than the original court (although this will not apply where the original court is the Supreme People’s Court).

The judgment must be enforceable in mainland China and order the payment of a sum of money. A judgment granting a mixture of relief (for example, an injunction plus damages) will only be registrable to the extent of its monetary nature.

Once registered, a mainland judgment will have the same force and effect as if it had been a judgment obtained in Hong Kong. It can then be enforced and executed in Hong Kong.

Setting aside registration

The bill also provides that a registered mainland judgment can be set aside on certain grounds. Modelled on similar provisions in the Foreign Judgments (Reciprocal Enforcement) Ordinance, the reasons for setting aside such a court decision include the following: 

  • The judgment does not satisfy the conditions for registration. 
  • The judgment has been registered in breach of the new legislation.
  • The choice of mainland court agreement is invalid under mainland law. 
  • The judgment has been wholly satisfied in mainland China. 
  • The Hong Kong courts have exclusive jurisdiction over the case under Hong Kong law. 
  • The judgment was given in the absence of the judgment debtor. 
  • The judgment was obtained by fraud. 
  • A judgment on the same cause of action has been given by a Hong Kong court. 
  • The enforcement of the judgment is contrary to public policy. 
  • The judgment has been reversed or otherwise set aside following an appeal or a retrial under mainland law. 
  • There is a pending appeal or a retrial has been ordered against the judgment in mainland China.

Reciprocal arrangements

Equally, a Hong Kong monetary judgment given by the District Court, the High Court or the Court of Final Appeal – and made under a choice of Hong Kong court agreement – may also be enforced in mainland China, following the issue of a certified copy of the Hong Kong judgment. The Supreme People’s Court in mainland China will in due course promulgate a judicial interpretation setting out the details for implementation of the Arrangement.

Limitations

At first glance, the future legislation would seem to provide a brand new mechanism designed to benefit businesses in mainland China and Hong Kong, by allowing judgments obtained in mainland China to be enforced in Hong Kong, and vice versa. However, a more detailed analysis reveals that the future legislation has certain limitations.

First, there are concerns over the concept of when a judgment is deemed to be “final and conclusive” as between the parties to the judgment. The bill makes provision as to when mainland judgments are deemed final and conclusive. It has, however, been criticised on the grounds that the concept as expressed in the bill may not be the same as the concept as understood at common law or under the Foreign Judgments (Reciprocal Enforcement) Ordinance.

Second, the future legislation only applies to monetary judgments. Other relief – such as declarations, injunctions, or orders for specific performance – will not be registrable.

Third, there must be an exclusive choice of court agreement. Care must therefore be taken when drafting the choice of court clause. The clause must be unequivocal – that is to say, it must designate a mainland court as having jurisdiction to the exclusion of courts of other jurisdictions. Furthermore, the clause must designate “a” mainland court, which arguably means that the clause must specify a particular mainland court (for instance, the Guangdong High People’s Court) and not just any court in mainland China or any court in a particular mainland province. As such, businesses are strongly recommended to revise and reconsider their standard form contracts if they want their disputes to be resolved by a mainland court and enforceable in Hong Kong.

It is important to note that it may not always be advisable or practicable to refer disputes to a particular jurisdiction (and a designated court) at the time of entering into the contract. Often, it will be best to keep one’s options open and determine which jurisdiction to invoke once a dispute arises (for example, after taking into account the nature of the dispute and the relief being sought).

Fourth, the future legislation applies to contractual disputes only. Disputes relating to any tortious acts, IP infringement and product liability will not be registrable.

Finally, only judgments given after the legislation comes into force will be registrable. Additionally, the exclusive choice of court jurisdiction must also be concluded after the legislation takes effect.

Conclusion

The bill (when it becomes law) is likely to be of less use to those carrying on business across the border than was originally heralded. One may also question the likely practical effect of the proposed legislation, given its limited application in many respects. It is, nonetheless, a step towards the reciprocal enforcement of judgments in mainland China and Hong Kong and we wait to see the full implications of the future legislation when it comes into force.