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Germany Refuses to Enforce a Chinese Judgment in 2021

Sun, 23 Jan 2022
Categories: Insights

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Key takeaways:

  • In 2021, on the ground of lack of reciprocity, Germany refused to recognize and enforce a Chinese judgment, despite the fact that, as early as 2013, China confirmed that there was reciprocity between the two countries.
  • The Saarbrücken Regional Court of Germany concluded in 2021 that reciprocity was not guaranteed in the mutual recognition of judgments between Germany and China in terms of both rights and practice.
  • In the view of the Saarbrücken Regional Court, the German judgment being recognized by a Chinese Court in 2013 is only an isolated case, and hence, not enough to establish a reciprocal guarantee.
  • The case in 2021 is a result of a lack of public awareness towards both the opening trend in Chinese courts and the fact that quite a few foreign judgments have already been enforced in China based on reciprocity.

On 16 Apr. 2021, the Saarbrücken Regional Court of Germany (the "German Court") rendered a judgment (No. 5 O 249/19), refusing to recognize the civil judgment [(2017) Hu 0115 Min Chu No. 2248] (the "judgment") rendered by Shanghai Pudong District Primary People's Court of China (the "Shanghai Court") on 27 Feb. 2017.

The German Court held that reciprocity was not guaranteed between China and Germany, because China has not allowed more German judgments to be recognized and enforced after the Berlin Court of Appeal recognized a Chinese judgment in 2006.

In fact, a court in Wuhan recognized a German judgment in 2013 and held that there was reciprocity between China and Germany based on the judgment rendered by the Berlin Court of Appeal in 2006. Besides, since 2017 China has been liberalizing its rules and taking the initiative to recognize more foreign judgments based on the principle of reciprocity.

However, these facts are not known by more people, which results in misunderstandings. The judgment of the German Court is the latest example of such misunderstanding.

I. Case background

The respondent, a manufacturer supplying German automobile suppliers, designed auxiliary materials required for automobile engine production and manufactured them in China.

The product was originally manufactured by the applicant. To this end, the two sides signed a manufacturing agreement. After a dispute arisen between the two parties over the performance of the agreement, the applicant filed a lawsuit with the Shanghai Court, requesting the respondent to pay the arrears.

After trial by default, the Shanghai Court made a judgment on 27 Feb. 2017, ordering the respondent to pay CNY 4,267,303 and interest accrued to the applicant.

After that, the applicant applied to the German Court for enforcement of the said Chinese judgment.

However, the German Court dismissed the respondent's application.

The German Court held that according to Section  328 (1) No. 5 ZPO (German Code of Civil Procedure), the applicant cannot apply for recognition of a Chinese judgment.

There are two reasons: first, reciprocity is not guaranteed between China and Germany, and second, there are defects in the service of the Shanghai Court.

This post will focus on the reciprocal guarantee between China and Germany.

II. Reciprocal guarantee

There is no treaty on judgment recognition and enforcement between China and Germany. In addition, China has only signed the Hague Convention on Choice of Court Agreements, but has not yet ratified the same.

Under such circumstances, the recognition and enforcement of the Chinese judgment will be based on Article 328 of the German Code of Civil Procedure.

Even without formal agreements with the foreign state, reciprocity within the meaning of Section  328 (1) No. 5 ZPO is guaranteed if the mutual recognition right and the recognition practice create essentially equivalent conditions for the enforcement of a foreign judgment of the same type in an overall assessment

According to the German Code of Civil Procedure, if reciprocity is guaranteed in terms of both rights and practice, Germany can recognize and enforce a foreign judgment even if there is no pertinent treaty between Germany and the country where the judgment is rendered.

Namely, the reciprocity is guaranteed if the recognition and enforcement of a German judgment in the requesting state do not encounter significantly greater difficulties than, vice versa, the recognition and enforcement of a comparable foreign judgment in Germany.

Specifically, the German Court held that reciprocity was not guaranteed between China and Germany on the following grounds.

1. No reciprocal guarantee between China and Germany in terms of rights

On the one hand, Articles 281 and 282 of China's Civil Procedure Law stipulate the legal basis and conditions for the recognition and enforcement of foreign judgments. However, in the absence of pertinent bilateral or multilateral agreements, the existing Chinese law does not allow the recognition and enforcement of German judgments in China. 

On the other hand, Article 328 of the German Code of Civil Procedure allows the recognition and enforcement of foreign judgments in Germany even without an agreement. 

Viewed from the institutional perspective, it is more difficult to enforce a German judgment in China compared with the situation in Germany, which shows that reciprocity is not guaranteed.

2. No reciprocal guarantee between China and Germany in terms of practice

However, whether the reciprocity of the recognition of mutual court decisions between Germany and China is guaranteed is highly controversial for civil judgments and has not yet been clarified by the highest court (see summary in Deißner, IPRax 2011, 565, 567). 

Judging from the existing civil judgments, it is highly controversial whether reciprocity is guaranteed in the mutual recognition of judgments between Germany and China. Besides, the controversy has not been clarified by the Supreme Court of Germany.

A. The Berlin Court of Appeal recognized a Chinese judgment in 2006

The Berlin Court of Appeal rendered a decision (No. 20 SCH 13/04) recognizing a Chinese judgment on 18 May 2006.

The Berlin Court of Appeal held that one side must take the initiative to recognize the other side's judgment before the other side could follow suit, so as to establish reciprocity. Otherwise, it will lead to mutual refusal to take the first step, resulting in mutual refusal to recognize each other's judgment. This is not the result that the legislature wanted when formulating the German Code of Civil Procedure.

The Berlin Court of Appeal predicted that the recognition of Chinese judgments by German Courts would also lead to the recognition and enforcement of German judgments in China, which could prevent the two sides from the mutual refusal of recognition.

B. A German representative office in China did not believe that the German judgment could be recognized and enforced in China in 2014

The German Court believes that the prediction of the Berlin Court of Appeal is wrong because the German representative office in China said in a brochure in 2014:

"If German enterprises or individuals want to enforce their German judgments in the People's Republic of China, they will probably fail, because there is no enforcement agreement between Germany and China. Chinese courts will recognize or enforce German judgments only if reciprocity is guaranteed, and Chinese judgments would also in turn be recognized or enforced in Germany. However, this has not been the case so far. The Chinese judgment recognized by the Berlin Court of Appeal in 2006 was only an individual case, which has not been heard of in China."

C. The German judgment recognized by the Wuhan Intermediate People's Court in 2013 is not enough to establish a reciprocal guarantee

The applicant provided a briefing to the German Court on the case of the Wuhan Intermediate People's Court recognizing a German judgment in 2013 (the "Wuhan Case"). However, the German Court held that this was only an isolated case, which was not enough to show that a reciprocal guarantee in a general sense had been established through judicial practice.

D. Considering that no German judgment has been recognized by China for a long time, it cannot be deemed that China bears a positive attitude towards the recognition and enforcement of foreign judgments

The applicant said that theoretically speaking, it could be observed that China has been increasingly open to the recognition and enforcement of foreign judgments. However, in practice, the applicant only listed the recognition of a California judgment in 2017 and a Singaporean judgment in 2016 by Chinese courts, while failed to prove that Chinese courts had also recognized other German judgments except for the Wuhan Case.

It has been 15 years since the 2006 decision of the Berlin Court of Appeal. Considering the huge trade volume between China and Germany, there should have been a large number of cases where China and Germany recognize and enforce each other’s judgments. However, there is none.

Consequently, it cannot be assumed that reciprocity is guaranteed between China and Germany.

III. Our comments

The German Court missed the breakthrough made by the Wuhan Case.

The Wuhan Intermediate People's Court pointed out, in its ruling, that it confirmed the reciprocal relationship between China and Germany according to the 2006 decision of the Berlin Court of Appeal, and recognized the judgment of the District Court of Montabaur accordingly.

If the German Court were given the opportunity to read the full text of the ruling in the Wuhan Case, it would probably make a totally different judgment.

The German Court has missed so much progress made by other Chinese courts.

The applicant only submitted to the German Court two foreign judgments recognized by Chinese courts based on reciprocity. But in fact, in addition to the foregoing two judgments, China has also recognized the other five foreign judgments based on reciprocity.

For example:

For China's Cases on Recognition of Foreign Judgments, see our regularly updated List.

However, legal professionals and the public have not reached a public awareness towards these cases and the opening trend thereof.

Neither the German Court nor the applicant has noticed that reciprocity has actually been guaranteed between China and Germany.

We will walk you to more about this in our next post "China Reluctant to Recognize Foreign Judgments? A Huge Misunderstanding!".

 

Photo by Vincent Eisfeld on Unsplash

Contributors: Guodong Du 杜国栋 , Meng Yu 余萌

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