How Chinese Courts Determine the De Facto Reciprocity in Recognizing Foreign Judgments ?

Tue, 16 Jul 2019 Insights

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Australian courts recognized two Chinese judgments while refused one. The situation in Australia can help us analyze how de facto reciprocity is determined by Chinese courts in recognizing foreign judgments.

The definition of de facto reciprocity adopted by China in recognizing foreign judgments is too simple and vague, thus resulting in the inconsistency of local courts’ views and the lack of predictability of their judgments. It is necessary for us to explore the specific meaning of de facto reciprocity.

1. Three Cases in Australia

From 2017 to 2019, there were three cases concerning the recognition and enforcement of Chinese judgments in Australia. In the first two cases, the Chinese judgments were recognized and enforced; while in the latest one, recognition and enforcement of a Chinese judgment was denied.

The three cases are as follows:

• On 19 December 2017, in Liu v Ma & Anor [2017] VSC 810, the Supreme Court of Victoria recognized and enforced a judgment rendered by the Chongchuan District People’s Court of Nantong, Jiangsu Province.

• On 27 February 2019, in Suzhou Haishun Investment Management Co Ltd v Zhao & Ors [2019] VSC 110, the Supreme Court of Victoria recognized and enforced judgments rendered by the Huqiu District People’s Court of Suzhou City, Jiangsu Province.

• On 30 April 2019, in Xu v Wang [2019] VSC 269 (30 April 2019), the Supreme Court of Victoria refused to recognize and enforce a judgment rendered by the Ningbo Intermediate People’s Court. The Ningbo judgment was refused because the Chinese judgment creditor engaged in an abuse of process.

According to these three cases, can we still believe that China and Australia have established a reciprocal relationship in recognition and enforcement of foreign judgments? Our answer is yes.

To shed light on this issue, we need to explore China’s reciprocity criteria and purposes.

2. Criteria and Purposes of Reciprocity

According to an article published by Judge Song Jianli (宋建立)on the website of the International Commercial Court of the Supreme People’s Court (SPC), in the Fifth Draft Judicial Interpretation on Recognition and Enforcement of Foreign Judgments being prepared by the SPC, three criteria - de facto reciprocity, de jure reciprocity and presumptive reciprocity are proposed. If any one of the criteria is satisfied, a reciprocal relationship shall be deemed to exist:

  • De facto reciprocity: The foreign country has a precedent for the recognition of a Chinese judgment;
  • De jure reciprocity: According to the law of the country where the judgment is rendered, a Chinese judgment may, under the same circumstances, be recognized and enforced by the foreign court;
  • Presumptive reciprocity: On the basis of the consensus on judicial assistance between China and the foreign country, the principle of reciprocity may be applied.

De facto reciprocity is the only criterion that has been adopted in China’s practice at present. However, in the said draft judicial interpretation and relevant court judgments, the definition of de facto reciprocity is too simple: foreign countries have recognized and enforced Chinese judgments. That’s it. This leads to:

Firstly, there is a bug in the literal meaning of de facto reciprocity, that is, the expression “foreign countries have precedents for recognizing Chinese judgments”, cannot solve the situation where there are two precedents in foreign countries: one recognizing Chinese judgments and one refusing to do so at the same time.

Secondly, the previous practice of Chinese local courts in applying de facto reciprocity was inconsistent. For example, in 2011, the Shenzhen Intermediate People’s Court refused to recognize a South Korean judgment on the ground of lack of reciprocity between China and South Korea, even though the parties are said to have provided evidence to prove that South Korea recognized a Chinese judgment in 1999. In contrast, the Qingdao Intermediate People’s Court recognized the reciprocal relationship between two countries in 2019, based on the recognition of a Chinese judgment by Korea in 1999.

In order to explore the criterion of de facto reciprocity more clearly, we believe that we should first examine the purpose of de facto reciprocity. To this end, we can refer to de jure reciprocity and presumptive reciprocity that Chinese courts are considering, because there are more details available.

Firstly, starting from de jure reciprocity. According to Judge Song’s article, de jure reciprocity means that Chinese courts can reasonably assume that Chinese judgments will be recognized in foreign countries under the same circumstances according to foreign laws. Therefore, what Chinese courts need is a basis for reasonable assumption, such as foreign laws.

Secondly, starting from presumptive reciprocity. According to the Nanning Statement (南宁宣言), presumptive reciprocity means that the existence of reciprocity is presumed if there is no precedent of foreign courts refusing to recognize and enforce Chinese judgments on the grounds of reciprocity. In fact, presumptive reciprocity is also the basis for Chinese courts to make reasonable assumptions, but the basis focuses on “there is no precedent of refusal on the grounds of reciprocity”.

Essentially, all three kinds of reciprocity tests are for Chinese courts to obtain the basis of reasonable assumptions, that is, de facto reciprocity is based on precedent, de jure reciprocity is based on law, and presumptive reciprocity is based on the fact that there is no precedent of refusal. The core of the three lies in reasonable assumptions: whether Chinese judgments can be recognized in foreign countries under the same circumstances.

Accordingly, even if a foreign court refuses to recognize a Chinese judgment, while Chinese courts will also refuse the judgment from that foreign country if under the same circumstances as per its examination on the basis of the Chinese judgment and its grounds for refusal, then such precedent will not lead Chinese courts to deny the reciprocal relationship between the two countries.

Under what circumstances will it constitute “the same circumstances”? Judge Shen Hongyu (沈红雨) of the SPC believes that, in the absence of international treaties, it is impossible for the two countries to have the exact same conditions for recognizing foreign judgments; therefore, so long as the substantive conditions are the same, it will be deemed as “the same circumstances”.[1]

To sum up, we believe that from the standpoint of Chinese courts on the purpose of reciprocity, the criterion of de facto reciprocity should be: if a foreign local court recognizes a Chinese judgment, and according to that foreign legal system, Chinese courts can reasonably believe that Chinese judgments can be recognized in all courts of that foreign country under the same circumstances in the future, then Chinese courts will find that there is a reciprocal relationship between the two countries.

3. Territorial Scope of Reciprocity

Does the Supreme Court of Victoria’s recognition of the Chinese judgments mean that China has established a reciprocal relationship with the State of Victoria, or that China has established a reciprocal relationship with the Commonwealth of Australia?

Chinese scholars differ on whether a reciprocal relationship has been established between China and the United States, because the United States is a federal country and each state has its own independent legal system, which means that although one state in the United States has recognized the Chinese judgment, other states in the United States may still refuse to do so. Australia is also a federal country, so will similar disputes occur on the issue of reciprocity between China and Australia? Probably not.

We believe that, according to the aforesaid criterion of de facto reciprocity, if a local court of a federal country recognizes a Chinese judgment and, according to the legal system of that foreign country, Chinese courts can reasonably believe that Chinese judgments can be recognized in other courts of that country under the same circumstances in the future, then Chinese courts will be able to ascertain the reciprocal relationship between the two countries. Otherwise, Chinese courts won’t do so.

This requires us to examine whether the federal country has a unified legal system, or in other words, whether the laws based on which it recognizes the Chinese judgment apply to the whole country.

At least for Australia, the answer is relatively simple, because there is only one common law system in Australia.

Under section 73 of the Constitution of Australia, the Federal High Court shall govern appeals of the State Supreme Court or any other state court. In the case of Lange v Australian Broadcasting Corporation, the Federal High Court of Australia stated: With the establishment of the Commonwealth of Australia, as with that of the United States of America, it became necessary to accommodate basic common law concepts and techniques to a federal system of government embodied in a written and rigid constitution. The outcome in Australia differs from that in the United States. There is but one common law in Australia which is declared by this Court as the final court of appeal. In contrast to the position in the United States, the common law as it exists throughout the Australian States and Territories is not fragmented into different systems of jurisprudence, possessing different content and subject to different authoritative interpretations. 

Because of this, the common law of the State of Victoria is in line with that of other States and territories of Australia. If Chinese judgments are recognized by the Supreme Court of Victoria under the common law, then there is a reason to believe that Chinese judgments will be recognized in other Australian courts under the same circumstances in the future.

Under this situation, China and Australia have established a reciprocal relationship according to the criteria and purposes of de facto reciprocity.    

4. Precedents of Refusal

Although Australia has recognized two Chinese judgments, it also has a precedent of refusing the Chinese judgment which happened recently. So, is there still a reciprocal relationship between China and Australia?

We believe that, according to the aforesaid criterion of de facto reciprocity, if a foreign court refuses to recognize a Chinese judgment, but as per its examination on the basis of the Chinese judgment and its grounds for refusal, China will also refuse to recognize the foreign judgment under the same circumstances, then such precedent will not lead Chinese courts to deny the reciprocal relationship between the two countries. 

In Xu v Wang [2019] VSC 269, the Supreme Court of Victoria refused to recognize the Chinese judgment on the ground that the Chinese judgment creditor engaged in an abuse of process.

In this case, Mr. Xu and Mr. Wang had a loan dispute, and Mr. Xu asked Mr. Wang to repay the loan. To this end, Mr. Xu sued Mr. Wang in the Supreme Court of Victoria in March 2014. Meanwhile, Mr. Xu sued Mr. Wang for the same reason in Ningbo Intermediate People’s Court of China. The Ningbo Intermediate People’s Court rendered its judgment on 9 July 2015 and Mr. Xu obtained the judgment in March 2016. However, Mr. Xu did not tell Mr. Wang about the lawsuit in China, nor did he tell the Chinese court the contact information of Mr. Wang. The Chinese court, on the ground that it could not contact Mr. Wang, served the process to Mr. Wang by public announcement and rendered a default judgment. The Supreme Court of Victoria did not know about the case in China until January 2017. Since then, Mr. Xu applied to the Supreme Court of Victoria for recognition and enforcement of the Chinese judgment.

The Supreme Court of Victoria refused to recognize the judgment on the grounds that:

Firstly, after ascertaining the provisions of China’s Civil Procedure Law (CPL) on the service by public announcement, it was found that Mr. Xu’s concealment of Mr. Wang’s contact information led to the service by public announcement by the Chinese court, which violated the provisions of CPL. Because Mr. Xu had filed a lawsuit against Mr. Wang in Australia, and the lawsuit in Australia was in progress during the trial by the Chinese court, Mr. Xu would have no trouble in contacting Mr. Wang, but Mr. Xu had never told Mr. Wang about the lawsuit in China.

Secondly, some important documents mentioned by Mr. Xu had not been submitted to the Chinese court. Although Mr. Xu argued that he was not obliged to submit the documents to the Chinese court according to the Chinese civil procedure, the Supreme Court of Victoria held that whether these documents played an important role in the case or not should be examined by the Chinese judges. 

Thirdly, after Mr. Xu filed a lawsuit in the Australian court, he filed a lawsuit in secret with the Chinese court without informing the former, which resulted in a waste of judicial resources of the Australian court. Mr. Xu’s subsequent application to the Australian court for recognition of the Chinese judgment was an utter disrespect for the Australian court. 

Thus, the grounds for the Supreme Court of Victoria’s refusal to recognize the Chinese judgment mainly involve three issues: service of process, fraud and parallel proceedings. According to the bilateral judicial assistance treaties on recognition and enforcement of judgments concluded by China and other countries in the past, as well as the draft judicial interpretation on recognition and enforcement of foreign judgments mentioned by Judge Song, Chinese courts will also examine the issues such as service of process, fraud and parallel proceedings in foreign judgments. Therefore, China is consistent with Australia in terms of these conditions.

In other words, the Chinese judgment can still be recognized by Australian courts if it does not meet the above grounds for refusal.

Therefore, we believe that Australia’s refusal to recognize the judgment of the Ningbo Intermediate People’s Court does not affect the reciprocal relationship between China and Australia.

5. Our Comments

In judicial practice, Chinese courts have not clearly stated the criterion of de facto reciprocity, which leads to many unpredictable situations.

For example, a state court in the United States has recognized a Chinese judgment, while in another state it is likely that the same Chinese judgment will not be recognized. Under this situation, if Chinese courts find that there is reciprocity between China and the United States, it seems to be inconsistent with the purpose of de facto reciprocity. So how should Chinese courts examine American judgments?

Moreover, if a foreign country adopts stricter criteria for Chinese judgments compared with those adopted by China, and conducts a substantive review on judgments, then recognizes the judgment that meets the requirements, but most of other Chinese judgments may not be recognized in the future. Under this situation, if Chinese courts find that there is a reciprocal relationship between the two countries, which though in line with the practice of the current de facto reciprocity, it does not seem to be consistent with the purpose of de facto reciprocity. 

Therefore, the best practice should be that the SPC unifies the confirmation of reciprocal relationships. For example, on the one hand, the criterion of de facto reciprocity should be clarified through the judicial interpretation; on the other hand, the treaties, laws and judgments of various countries should be collected and sorted out in time to confirm in advance whether there is a reciprocal relationship between China and a foreign country, especially China’s major trading partners, such as the United States, thus reducing the cost for ascertaining reciprocal relationships given the understaffed situation of local courts.

 

 

[1] 沈红雨.外国民商事判决承认和执行若干疑难问题研究[J].法律适用,2018(05):9-15.

 

If you would like to discuss with us about the post, or share your views and suggestions, please contact Ms. Meng Yu (meng.yu@chinajusticeobserver.com).

Contributors: Guodong Du 杜国栋 , Meng Yu 余萌

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