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The First Time China Recognizes English Judgment, Implementing 2022 Judicial Policy in Full

Sun, 12 Jun 2022
Categories: Insights

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Key takeaways:

  • In March 2022, Shanghai Maritime Court ruled to recognize and enforce an English judgment in Spar Shipping v Grand China Logistics (2018) Hu 72 Xie Wai Ren No.1, marking the first time that an English monetary judgment has been enforced in China based on reciprocity.
  • This case not only opens the door for English monetary judgments to be enforced in China, but also indicates that China’s new foreign judgment-friendly judicial policy has already been put into practice.
  • One key to ensuring the enforcement of English judgments is the reciprocal relationship between China and England (or the UK, if in a wider context), which, under the de jure reciprocity test (one of the new three tests), was confirmed in this case.

This post was first published in CJO GLOBAL, which is committed to providing consulting services in China-related cross-border trade risk management and debt collection.We will explain how debt collection works in China below.

This case not only opens the door for English monetary judgments to be enforced in China, but also indicates that China’s new foreign judgment-friendly judicial policy has already been put into practice.

On 17 Mar. 2022, with the approval of China’s Supreme People’s Court (SPC), the Shanghai Maritime Court ruled to recognize a judgment rendered by the English Court of Appeal (hereinafter “the English Judgment”), in the case Spar Shipping AS v Grand China Logistics Holding (Group) Co., Ltd. (2018) Hu 72 Xie Wai Ren No.1 ((2018)沪72协外认1号), (hereinafter “the 2022 Shanghai Case”).

This is the first known case following the SPC’s new judicial policy published in 2022. One key to ensuring the enforcement of English judgments is the reciprocal relationship between China and England (or the UK, if in a wider context), which, under the de jure reciprocity test (one of the new three tests), was confirmed in this case. It also proves that the new policy will significantly increase the possibility of the recognition and enforcement of foreign judgments in China.

I. Overview of the 2022 Shanghai Case

The Claimant is Spar Shipping AS and the Respondent is Grand China Logistics Holding (Group) Co., Ltd.

A dispute arose between the Claimant and the Respondent with respect to the performance bonds for three time charter parties. The Claimant filed a lawsuit to the Queen’s Bench Division Commercial Court.

On 18 Mar. 2015, England Queen’s Bench Division Commercial Court rendered its judgment in favour of the Claimant’s claim for compensation. (See Spar Shipping AS v Grand China Logistics Holding (Group) Co, Ltd [2015] EWHC 718.)

After the judgment was appealed, the English Court of Appeal rendered its judgment of second instance on 7 Oct. 2016, and upheld the judgment of first instance. (See Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016] EWCA Civ 982.)

In March 2018, the Claimant applied to the court where the Respondent was located, i.e. China’s Shanghai Maritime Court, for recognition and enforcement of the English Judgment.

On 17 Mar. 2022, the Shanghai Maritime Court made a civil ruling on the case, recognizing the English Judgment.

II. What is the core issue of the 2022 Shanghai Case?

The core issue of the case is whether a reciprocal relationship has been established between China and England (or the UK in a wider context), in the area of recognition and enforcement of foreign judgments?

If such a reciprocal relationship exists, there will be no substantive threshold to enforcing English judgments in China.

More specifically, under the PRC Civil Procedure Law, Chinese courts will recognize and enforce a foreign judgment on the following conditions:

(1) China has concluded a relevant international treaty or bilateral agreement with the country where the judgment was rendered; or

(2) a reciprocal relationship exists between China and the country where the judgment was rendered in the absence of the aforesaid treaty or bilateral agreement.

Given the fact that the UK has not concluded any pertinent international treaty or bilateral agreement with China, the core issue leaves to be whether there is a reciprocal relationship exists between UK and China.

Clearly, to answer this question, we need to first understand how reciprocity is defined under Chinese law.

Before 2022, the reciprocity test in Chinese judicial practice is de facto reciprocity, which means that if a foreign country has already recognized a Chinese judgment, Chinese courts may consider that a reciprocal relationship exists between the two countries, and thereby Chinese courts will accordingly recognize the foreign judgment.

So, does the UK satisfy such standard? Is any reciprocal relationship established between China and UK?

Before 2022, our answer is ‘Not Sure’, because we have seen a case in earlier years where a Chinese court refused to recognize an English judgment based on the lack of reciprocity (See Russia National Symphony Orchestra, Art Mont Company v. Beijing International Music Festival Society (2004) Er Zhong Min Te Zi No. 928 ((2004)二中民特字第928号)), and then another case more recently where an English court referred to the recognition of a Chinese judgment and relevant preservation order in Spliethoff’s Bevrachtingskantoor Bv v. Bank of China Limited [2015] EWHC 999 (hereinafter “the Spliethoff Case”). It is, however, uncertain whether the Spliethoff Case can constitute a precedent, which sets the basis for the reciprocal relationship under the de facto reciprocity test.

III. How does Shanghai Maritime Court respond to the aforesaid core issue?

The case ruling has not yet been made public, and it is said to be so in a few months. However, in accordance with the information disclosed by the claimant’s lawyer, we can preliminarily understand the judge’s key opinions as follows:

1. China’s Reciprocity Standard

The Shanghai Maritime Court held that the principle of reciprocity provided under the PRC Civil Procedure Law wasn’t limited to the extent that the relevant foreign court should first recognize the judgments rendered by Chinese courts in civil and commercial matters.

(CJO Note: It means that the Shanghai Maritime Court is ready to overturn the de facto reciprocity test long held by Chinese courts.)

The Shanghai Maritime Court further stated that reciprocity would be deemed to exist if a Chinese judgment in civil or commercial matters could be recognized and enforced by the foreign court.

(CJO Note: It means that the Shanghai Maritime Court has clarified and applied a new reciprocity test– de jure reciprocity.)

2. The Spliethoff Case

The Shanghai Maritime Court held that, although expressions were made to “recognise” the Chinese court judgment and its preservation order in the Spliethoff Case, it should not be considered as “recognition” in the context of “recognition and enforcement of foreign court judgments”.

Therefore, the Spliethoff Case does not constitute a precedent for the English court to recognize and enforce the Chinese judgments.

(CJO Note: It means that the Spliethoff Case does not meet the de facto reciprocity test applied widely before 2022. The Shanghai Maritime Court mentioned the case to show that it recognized the English judgment this time not based on the old de facto reciprocity test, so as to emphasize the new reciprocity test it adopted instead.)

3. Substantive Review

The Shanghai Maritime Court held that although the Respondent argued that the English Judgment had errors in the application of Chinese law, it involved a substantive right and obligation relationship between the parties, so it fell beyond the scope of review in cases of recognition and enforcement of foreign judgments.

The Shanghai Maritime Court further stated that even if it constituted an erroneous application of the law, it would not constitute a cause for refusal of recognition and enforcement unless it had violated the basic principles of Chinese law, public order, and social public interests. However, there was no such situation where recognition should be refused in this case.

(CJO Note: it means that the Shanghai Maritime Court indicates that it will not conduct a substantive review of foreign judgments.)

IV. The 2022 Shanghai Case applies China’s new policy in 2022

China published a landmark judicial policy on the enforcement of foreign judgments in 2022, embarking on a new era for judgment collection in China.

The judicial policy is the “Conference Summary of the Symposium on Foreign-related Commercial and Maritime Trials of Courts Nationwide” (hereinafter “the 2021 Conference Summary”), issued by the SPC on 31 Dec. 2021.

The 2021 Conference Summary introduces new criteria for determining reciprocity, which replaces the previous de facto reciprocity test.

The new reciprocity criteria include three tests, namely, de jure reciprocity, reciprocal understanding or consensus, and reciprocal commitment without exception, which also coincide with possible outreaches of legislative, judicial, and administrative branches.

For more information about the new reciprocity criteria, please read an earlier post “How Chinese Courts Determine Reciprocity in Foreign Judgment Enforcement”.

In determining the reciprocal relationship between China and the UK, the court in the 2022 Shanghai Case adopted one of the three tests – de jure reciprocity test – which firstly appears in China’s new policy in 2022.

The case proves that the new policy in 2022 has been officially implemented.

 

 

 

Photo by Charles Postiaux on Unsplash

Contributors: Guodong Du 杜国栋 , Meng Yu 余萌

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