China: New Developments concerning the Enforcement of Foreign Judgements

​Introduction

In a decision of 30 June 2017, the People’s Middle Court in Wuhan, comparable to a German district court, recognized the judgement of a court in the United States. So far, foreign judgements have been declared enforceable in China only in a few instances. There is no publicized decision that recognizes the judgement of a German court. How will this handling be affected by the decision of the court in Wuhan?

 
The decision

In Liu Li v. Tao Li and Tong Wu, a Californian court held a default judgement against two Chinese citizens, which was not enforceable in the United States. At the request of the injured party the court in Wuhan declared the judgement enforceable in China. The court reasoned that there was reciprocity between the two countries, i.e. that China could anticipate US courts to recognize and enforce judgements of Chinese courts. The grounds for this reasoning a Chinese judgement that had been executed by a Californian court in 2009.
 

Enforcement of German judgements in China

The enforcement of foreign judgements in China is subject to Art. 282 of the Chinese Civil Procedure Code. Enforcement is possible where a bilateral or multilateral agreement was made with the People's Republic of China. This is not the case for most countries, including Germany, but change may come along as China signs the Hague Choice of Court Agreement.
  
At the time being, enforcement of foreign judgement requires reciprocity between the PRC and the country in which the judgement was made. Reciprocity means that judgements of Chinese courts are also recognized and enforced in the other country.
  
While German scholars disagree whether reciprocity with China exists, the question has already been addressed by German courts, which indirectly ruled in favor of it. On the other hand, no decision that would support this view has been published in China. On the contrary, Chinese courts have repeatedly rejected reciprocity between the two countries. They also refused to acknowledge reciprocity with countries that apply similar conditions for enforcement as German law.
 
Besides reciprocity, enforcement of the foreign judgement must also not conflict with any basic principles or the sovereignty and security of China or any public interest. Especially with respect to political economic interests, this provision allows for a wide range of interpretations.
 

Aftermath of the decision

However, the decision of the Middle Court in Wuhan could be seen as part of a new development towards the recognition of foreign judgements. In 2015, the Supreme Chinese Court called upon other instances to facilitate the establishment of reciprocity in the enforcement of foreign judgements. The following year, the ruling of a court in Singapore was declared enforceable by the Nanjing Intermediate Court on grounds that a Chinese judgement had previously been recognized in Singapore.
 
Accordingly, Chinese courts should rule in favor of reciprocity with Germany, because PRC judgements have already been recognized by German courts. However, whether other courts will subscribe to this new trend remains uncertain, since they are not bound by the recent decision. And even if they will, the unspecific ordre public provision, i.e. the public interest of China, bars the establishment of a clear legal situation.
 
As to certain disputes, German investors should nonetheless benefit from the signing of the Hague Choice of Court Agreement by China on 12 September 2017. Once ratified, Chinese courts will have to recognize judgements that were made in other party states to the agreement. The convention applies if the contracting parties made an exclusive choice of law and the dispute revolves around civil or commercial law matters. It should be noted that Germany is a party to the agreement.
 

Conclusion

Until the Hague Choice of Court Agreement enters into force, foreign companies should not rely on the recognition of foreign judgements in China. Therefore, parties should refrain from including a provision in their agreement that declares foreign courts as the competent place of jurisdiction. The downside of resolving a dispute in one’s home state is that the decision might not be enforceable after all. Consequently, it is more advantageous to include an arbitration clause that selects a particular arbitration body in contracts. Since China is a party to the so-called New York Convention, the arbitral award from another member state is generally enforceable in China.