On 2 Apr. 2020, the Shanghai First Intermediate People’s Court (hereinafter “the Shanghai Court”) recognized a judgment rendered by the Seoul Southern District Court of South Korea (hereinafter “the Korean Court”) in Pektor Art Co., Ltd. v. Shanghai Chuangyi Baby Education Management Consulting Co., Ltd., (2019) Hu 01 Xie Wai Ren No. 17 (For the full text of the court decision, see 韩国彼克托美术式有限公司与上海创艺宝贝教育管理咨询有限公司申请承认和执行外国法院民事判决、裁定一案(2019)沪01协外认17号).
This is the second case where a Chinese court recognizes and enforces a Korean judgment (“the second case”), and the applicant of which was clearly encouraged by the Qingdao Intermediate People’s Court recognizing a Korean judgment in 2019 (“the first case”). (For the first case, please refer to our previous post “Chinese Court First Recognizes a South Korean Judgment: Another Sign of Door Open for Foreign Judgments”.)
The second case has proved our previous view: to initiate China’s recognition of the judgment of a certain country, we can first file a “testing case”. By doing so, not only does it give a chance to the Chinese court to confirm the reciprocity between the two countries, but also gives expectation to the parties for similar results. After that, it will be no surprise that more applications for recognition and enforcement of foreign judgments will be filed before Chinese courts.
The details of the second case are as follows:
I. Case overview
The applicant of the case is Pektor Art Co., Ltd. (彼克托美术式有限公司), registered at Seoul, South Korea, and the respondent is Shanghai Chuangyi Baby Education Management Consulting Co., Ltd. (上海创艺宝贝教育管理咨询有限公司), registered at Shanghai, China.
The applicant applied with the Shanghai Court for recognition and enforcement of the 11th civil judgment (No.: 2011Gahap6992) rendered by the Korean Court.
The Shanghai Court accepted the case on 9 Aug. 2019. Thereafter, on 2 Apr. 2020, the Shanghai Court issued a civil ruling [(2019) Hu 01 Xie Wai Ren No. 17] ((2019)沪01协外认17号), recognizing the Korean judgment.
II. Case details
The applicant and the respondent entered into a license contract in 2007, agreeing that the applicant authorized the respondent to use its trademark in China and to open franchise stores based on its educational curricula, and the respondent shall pay the corresponding royalties to the applicant.
Later on, the two parties had disputes over the performance of the license contract, and the applicant filed a lawsuit against the respondent before the Korean Court.
The Korean Court made a judgment, while dismissing other requests of the applicant, requiring the respondent: (1) to pay the royalties of USD 840,000 and corresponding interest; (2) not to use the trademark of the applicant; (3) to remove the trademark from the website or other materials of the respondent; (4) to bear the court costs.
The Korean judgment was served on the respondent on 19 Feb. 2019 and came into force on 5 Mar. 2019.
When applying to the Shanghai Court, the applicant indicated that according to the civil ruling [(2018) Lu 02 Xie Wai Ren No. 6] ((2018)鲁02协外认6号) rendered by Qingdao Intermediate People’s Court, in which the Chinese court recognized and enforced the Korean judgment for the first time, the Qingdao Court confirmed that the reciprocity between China and South Korea had existed as early as 1999. The applicant, based on the ruling of the Qingdao Court, believed that by the same token, the judgment should also be recognized and enforced by the Shanghai Court this time.
The Shanghai Court supported the applicant’s proposition and confirmed the establishment of the reciprocity between China and South Korea in 1999. Accordingly, the Shanghai Court ruled to (1) recognize the Korean judgment; and (2) enforce the first and third items of the Korean judgment, namely, the payment of royalties of USD 840,000 and the removal of the corresponding trademark from the respondent’s website or other materials.
III. Our comments
1. Testing cases are conducive to promoting China’s recognition of foreign judgments
If it were not for the party’s attempts in the first case (as a testing case), Chinese courts would not have a chance to confirm the reciprocity between China and South Korea. And naturally, the successful testing case further encouraged the applicant in the second case to have another go.
As we have commented in our previous post, although China had refused to recognize and enforce the South Korean judgment twice on the grounds of lack of reciprocity, even after South Korea had already recognized Chinese judgment as early as 1999, we don’t think it necessarily means that China would never return the favor.
With China’s attitude being more open to foreign judgments since 2015, the parties may learn from this case: it is worth filing a testing case before the Chinese court under controllable costs.
Once the Chinese court recognizes and enforces the foreign judgment in the testing case, more cases from this country will flow into China for the days to come.
In fact, the Chinese court is probably expecting more cases as well, thus giving itself an opportunity to show its attitude.
The second case above has proved our point of view.
2. In addition to money judgments, performance-related judgments may also be recognized and enforced by Chinese courts
In the second case, the Shanghai Court not only ruled to enforce the payment of royalties to the applicant, but also required the respondent to remove the trademark from its website and materials. The latter is a typical performance-related ruling.
Before that, almost all foreign judgments recognized and enforced by Chinese courts were money judgments without involving specific performance. The Memorandum of Guidance on Recognition and Enforcement of Money Judgments in Commercial Cases signed by China and Singapore also clearly indicates that it is only applicable to money judgments.
It may be seen as a great breakthrough that the Shanghai Court has supported the performance-related judgment.
We are not sure whether other Chinese courts will do the same in the future, but we are optimistic about this trend. Because it is very likely that the Shanghai Court has consulted the Supreme People’s Court before making the ruling, that is to say, this reflects the SPC’s attitude. Still, this is only our optimistic guess, but the parties may as well give it a try.
3. The court cost is not charged on a case basis
There are two approaches to the court cost for recognition and enforcement of foreign judgments in China: one is to charge on a case basis, which usually ranges from CNY 100 to CNY 500, and the other is to charge by the amount in controversy. For example, in the second case, the court cost charged by the Shanghai Court was CNY 55,120.
The coexistence of the two charging approaches shows that Chinese courts have not yet formed a unified approach on the court cost in such cases. This may hinder the parties to establish a reasonable expectation on the court cost.
One thing is for sure though: these court costs are generally borne by the losing party.
An analysis is also available on Asia Business Law Institute.