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China Reluctant to Recognize Foreign Judgments? A Huge Misunderstanding

Sun, 30 Jan 2022
Categories: Insights

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Key takeaways:

  • It’s time to raise public awareness of China’s open attitude in recognizing and enforcing foreign judgments.
  • It is incorrect and groundless to assume that China is extremely conservative in recognizing foreign judgments. In fact, incomprehension, or unawareness of the opening trend, is the main reason why China has received very few applications for recognition and enforcement of German and other foreign monetary judgments.
  • Due to the failure to notice positive signals from China, a great number of creditors have failed to enforce their judgments and collect their debts in China.

In our previous article, we presented the case where the Saarbrucken Regional Court refused to recognize a Chinese judgment based on the lack of reciprocity in April 2021 (the “Saarbrucken Case”).

With regard to the recognition and enforcement of foreign judgments, the Saarbrucken Regional Court overlooked the fact that China had confirmed the reciprocity with Germany and its open attitude to foreign judgments.

This conclusion comes not only from a textual analysis of laws and policy documents, but also from observation based on actual cases.

In fact, due to failure to notice such signals from China, a great number of creditors have failed to enforce their judgments and collect their debts in China.

Ⅰ. The Saarbrucken Regional Court missed the breakthrough made by the Wuhan Case

In the Saarbrucken Case, the Saarbrucken Regional Court referred to a case in which the Wuhan Intermediate People’s Court of China (the “Wuhan Court”) had recognized a German judgment in 2013 (the “Wuhan Case”).

It refers to the civil ruling “(2012) E Wu Han Zhong Min Shang Wai Chu Zi No.00016”((2012)鄂武汉中民商外初字第00016号) rendered by the Wuhan Court on 26 Nov. 2013.

In this ruling, the Wuhan Court recognized the decision (No. 14 IN 335/09) of the District Court of Montabaur of Germany, which was rendered on 1 Dec. 2009 and concerned the appointment of a bankruptcy administrator.

The Wuhan Court pointed out, in its ruling, that it confirmed the reciprocal relationship between China and Germany based on the 2006 decision of the Berlin Court of Appeal, and recognized the decision of the District Court of Montabaur accordingly.

The Saarbrucken Regional Court held that this was an isolated case, which was insufficient to show that a reciprocal guarantee in the general sense had been established through judicial practice. It also argued that the 2006 decision of the Berlin Court of Appeal failed to receive a positive response from the Chinese court.

However, if the Saarbrucken Regional Court had actually read the Wuhan Court’s statement of the reciprocal relationship between China and Germany, it would not have made such a judgment.

We presume that the Saarbrucken Regional Court only read the briefing of the Wuhan Case provided by the applicant, for such statement was hard to be missed should the court have had the chance to read the full text of the ruling.

In fact, the ruling in the Wuhan Case is difficult to obtain through public channels, even in the Chinese world.

Therefore, presumably, the applicant failed to obtain the original ruling of the Wuhan Case and did not present to the Saarbrucken Regional Court the Wuhan Court’s view on reciprocity between China and Germany.

This led the Saarbrucken Regional Court to make a negative judgment on the reciprocal guarantee between China and Germany.

Ⅱ. Saarbrucken Regional Court has missed more progress made by other Chinese courts

In the Saarbrucken case, the applicant only submitted to Saarbrucken Regional Court a case in which China recognized a California judgment in 2017 and a case in which China recognized a Singapore judgment in 2016 as evidence of China’s more positive stance on reciprocity.

The Saarbrucken Regional Court believed that the relevant cases were too few and none of them was the recognition and enforcement of German judgment.

China’s recognition of the California judgment and the Singaporean judgment has attracted the attention of many lawyers and scholars outside China due to its groundbreaking status and publicity by the Supreme People’s Court.

In fact, besides these two cases, Chinese courts have recognized four other foreign judgments based on reciprocity before the Saarbrucken Regional Court’s decision, including:

However, these cases have not received widespread attention in the legal profession, nor have they been widely publicized by the Chinese courts.

Therefore, we presume that the applicant also failed to collect these cases and remind the Saarbrucken Regional Court of these developments.

Ⅲ. Incomprehension is the main reason why China recognizes so few German (or other foreign) judgments

The Saarbrucken Regional Court held that the number of cases in which China had recognized German judgments was extremely small and disproportionate to the size of trade between China and Germany. It accordingly presumed that this was because China would not recognize German judgments.

However, the Wuhan Case shows that China is open to recognizing German judgments.

It is true that China has recognized very few foreign judgments, except for divorce judgments. However, there are also very few cases in which China has refused to recognize foreign judgments.

In other words, it shows that there is very little chance that a Chinese court will receive an application for recognition of a foreign judgment.

In fact:

In the case of the United States, South Korea, Singapore and Germany, Chinese courts have confirmed the reciprocal relationship between the parties in actual cases and recognized their judgments accordingly.

In the case of Australia, the British Virgin Islands, Canada, the Netherlands, New Zealand, and the United Kingdom, they have recognized Chinese judgments. Therefore, although the Chinese courts have not yet had the opportunity to hear cases related to these countries, they will probably confirm the reciprocal relationship between China and these countries in the future, and thus recognize and enforce their judgments accordingly. 

These countries are among China’s main trading partners, but China has received very few, if any, applications for recognition and enforcement of their monetary judgments.

Why?

In many articles written by foreign lawyers, certain legal guides and even official investment guides issued by foreign governments, we can see similar statements that China is extremely conservative in recognizing foreign judgments.

In our view, it is such widespread misunderstanding, or unawareness of the opening trend, that prevents more cases from reaching the Chinese courts and deprives them of more opportunities to prove their position.

The Saarbrucken Regional Court’s opinion further demonstrates how deeply entrenched the misunderstanding is.

Ⅳ. Publicity can enhance understanding and eliminate misunderstandings

There is a Chinese proverb that “Good wine needs no bush”.

It means that if the wine of a pub is fragrant enough, customers will find it even if the pub is deep in the alley.

This proverb encourages the Chinese to focus on quality, rather than on promotion and marketing.

However, the truth is that even the best wine needs promotion. Otherwise, no one will find a hidden pub.

If the Saarbrucken Regional Court had easy access to the full text of the judgment of the Wuhan Case, it would be very likely to have made a different decision.

If a judgment collection applicant is reasonably aware of the actual possibility of recognizing and enforcing a judgment in China, he/she will be willing to collect his/her judgments in China.

Lawyers in other countries would, of course, be willing to help their clients collect their debts in China if they were aware of such opportunity.

However, Chinese courts and lawyers have not done enough to promote and publicize the recognition and enforcement of judgments in China.

Therefore, the cases listed above and the trends they demonstrate do not appear to be public awareness of cross-border companies and lawyers.

If a Chinese court makes a breakthrough in recognizing another country’s judgment, it should at least inform the embassy, consulate, and chamber of commerce of the country in China as soon as possible, so as to better protect the interests of creditors and promote the bilateral economic and trade exchanges.

We, for our part, have been working to facilitate the accurate assessment of the possibility of recognizing and enforcing foreign judgments in China by enterprises, individuals, lawyers and courts.

In “Can Foreign Judgments Be Enforced in China?”, we have listed at least 44 countries whose judgments could probably be enforced in China, covering most of China’s major trading partners.

In “List of China's Cases on Recognition of Foreign Judgments”, we have listed cases of mutual recognition and enforcement of judgments between China and foreign countries as many as we can, and update them regularly.

We hope to increase the opportunities for creditors in all countries to collect their China-related debts and to prevent more misunderstandings like that of the Saarbrucken Regional Court.

 

Photo by Zhang qc on Unsplash

Contributors: Guodong Du 杜国栋 , Meng Yu 余萌

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