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  1. 1. RECOGNITION AND ENFORCEMENT OF FOREIGN JUDGMENTS IN  CHINA  Patricia Blazey and Peter Gillies  Macquarie University – Division of Law  Macquarie Law WP 2008‐5  March 2008  Electronic copy available at:
  2. 2. DisclaimerWorking papers are produced as a means of disseminating work in progress to thescholarly community in Australia and abroad. They are not to be considered as theend products of research, but as a step towards publication in scholarly outlets.© Copyright: Patricia Blazey and Peter Gillies*Division of Law - ResearchMacquarie UniversitySydney NSW 2109AustraliaTel 61 2 9850 7061Fax 61 2 9850 7686Email Dean, Research Professor Bryan HorriganResearch Officer Ms Gwyneth TehISSN 1835-2286Macquarie Law WP 2008-5RECOGNITION AND ENFORCEMENT OF FOREIGN JUDGMENTS INCHINA* Corresponding authorContact Details:Phone: + 61 2 9850 8460Fax: + 61 2 9850 9952Email: Peter Gillies Division of Law Macquarie University NSW 2109 Australia ii Electronic copy available at:
  3. 3. RECOGNITION AND ENFORCEMENT OF FOREIGN JUDGMENTS IN  CHINA    Patricia Blazey* and Peter Gillies**    Abstract  This paper examines the law governing recognition of foreign court judgments in China, and whether this regime is in practice effective. It is concluded that it is not, reflecting among other factors a more extensive problem in the Chinese legal system, that is, the limited reach of the courts in civil matters.   Key Words  China, foreign judgments, recognition, enforcement _______________________* Head of Department of Business Law, Division of Law, Macquarie University.** Professor of Law, Division of Law, Macquarie University, Sydney, Australia. iii
  4. 4. I ENFORCEMENT OF JUDGMENTS – TRADE, INVESTMENT AND POLICY ISSUESThe process of globalization – trade and investment flows across national borders –has generated an ever increasing volume of international business transactions. Theclassic way in which a business transaction – such as a contract for the sale of goods –can acquire an international dimension is where the parties to the transaction areresident (or in the case of corporations domiciled) in different countries.When there is a dispute between parties to an international transaction, such as wherea party to an international contract alleges a breach of this contract by another person,the process of dispute resolution will generally be more complex than resolution of adispute confined to one country (or in the language of international law, one State, orjurisdiction).If a contractual dispute occurs between A and B in Australia, the parties can resort tolitigation in the appropriate domestic court, and enforcement of the judgment will bestraightforward.What, however, of the situation where there is a dispute between corporation A inState X, and corporation B in State Y? Suppose that A and B are parties to a contractfor the sale of goods, with B the buyer, and B alleges that the goods are defective. Ifthey cannot resolve their dispute by negotiation, B may have to contemplate litigationin a court, alleging that A breached the contract. B may sue A in B’s own country,because their agreement has an exclusive jurisdiction clause providing for any disputearising from the contract to be litigated in B’s country. Or (if there is no contraryclause) B may sue in B’s own country for practical reasons including the presence inthat forum of witnesses, familiarity with the language and the law, and so on. If Bsecures a judgment in its favour, and A does not fulfil the terms of the judgment (suchas by paying any damages awarded), and A does not have any assets in thejurisdiction against which the judgment can be enforced, then B will need to enforcejudgment against A in a State – typically B’s own country – where B has assets. Thequestion then becomes one of whether B can in law and in practice enforce thatjudgment in B’s country. Whether this is feasible will vary from State to State.The enforcement of judgments in foreign jurisdictions is potentially, if not in practice,an integral part of transnational business. Transparent procedural rules and a welldeveloped and reliable judicial system play a major role in international trade whenbusiness deals miscarry. If international traders and investors lack confidence in theirability to resolve disputes effectively by compulsory adjudication (such as in thecourts or by way of private arbitration) then they will be less inclined to enter intointernational business transactions.As a general proposition, the legal systems of the world, developed and lessdeveloped, are less than fully accommodating of applications for the enforcement of aforeign court judgment. When the court in a State is asked to enforce a foreignjudgment, it is being asked to give full faith and credit to the foreign judgment and notto go behind it and reexamine the case on the merits. In effect it is being asked to treatthe judgment as one equivalent to its own. As judicial standards around the world varyconsiderably, there may be a reluctance by the State to accord equal status to theforeign judgments. Set against this is a recognition that effective international 4
  5. 5. commercial dispute resolution is necessary if parties involved in international tradeare to have the confidence to enter into these transactions. Examination of theresponse of developed legal systems to the issue of foreign judgment enforcementreveals that States have been cautious in seeking to balance these competing policyobjectives. Foreign judgment enforcement is controlled by rules that significantlyattenuate the power of the courts in this area. In Australia for instance, in the absenceof reciprocal legislative arrangements with selected foreign jurisdictions for themutual recognition and enforcement of each other’s judgments,1 the restrictivecommon law rules govern recognition and enforcement. This common law regime isineffective.2 In contrast, the legal system of the United States of America is moreaccommodating of applications for the enforcement of foreign judgments.3 II CHINA – THE FORMAL RULESThe law applying to the enforcement of foreign judgments in China is found inChapter XXIX, containing Articles 262-270 of the Law of Civil Procedure of thePeople’s Republic of China. This Chapter is headed Judicial Assistance.These articles are as follows: Article 267 Where a legally effective judgment or ruling made by a foreign court requires the people’s court in the PRC to acknowledge its validity and execute it, the applicant may directly request a competent intermediate people’s court to do so, or the foreign court may request the people’s court to do so, according to the international treaties which China has concluded or to which China is party or in accordance with the principle of mutual reciprocity. Article 268 In the case of an application or request for recognition and enforcement of a legally effective judgment or written order of a foreign court, the peoples court shall examine it in accordance with the international treaties concluded or acceded to by the Peoples Republic of China, or according to the principle of reciprocity. If the court arrives at the conclusion that it does not contradict the basic principles of the law of the Peoples Republic of China nor violate the State sovereignty, security and social and public interest of the country, recognise the validity of the judgment or written order, and, if required, issue a writ of execution to enforce it in accordance with the relevant provisions of this Law. If the application or request contradicts the basic principles of the law of the Peoples Republic of China or violates the State sovereignty, security and social and public interest of the country, the peoples court shall not recognise and enforce it. Article 269 If an award made by a foreign arbitral organ requires the recognition and enforcement by a peoples court of the Peoples Republic of China, the party concerned shall directly apply to the intermediate peoples court of the place where the party subjected to enforcement has his domicile or where his property is located. The peoples court shall deal with the matter in1 See the Foreign Judgments Act 1991 (Cth).2 See J Hogan-Doran, “Enforcing Australian Judgments in the United States and Vice Versa: How the Long Arm of Australian courts reaches across the Pacific”, (2006) 80 Aust LJ 361.3 Ibid. 5
  6. 6. accordance with the international treaties concluded or acceded to by the Peoples Republic of China or with the principle of reciprocity.4Article 267 provides for enforcement at the initiative of either (a) the party concerned,viz the successful party in the proceedings, or (b) the foreign court which rendered thejudgment. Some conditions exist.One is that the judgment or ruling be legally effective. This could be interpreted ashaving two dimensions: (1) That the judgment or ruling be legally effective in theforeign jurisdiction where it was rendered. The question might arise as to whether ajudgment that can be appealed from is legally effective. International practiceindicates that the decision of a trial court is effective for the purposes of foreignenforcement, notwithstanding that the losing party has a right of appeal.5 If thejudgment has been appealed against but the appeal has not been determined, then theforeign court where enforcement is sought would presumably stay enforcementpending resolution of the appeal, provided that the appellant acts in a timely way. (2)That the judgment or ruling is legally effective in China (it may not be if itcontravenes the basic principles of PRC law – see Article 268).Article 267 may also be interpreted as conditioning consideration of the applicationfor enforcement by reference two alternative factors: (a) the existence of a relevantinternational treaty to which China and, inter alia, the country where judgment wasrendered, for the mutual enforcement of one another’s court judgments, or (b) theprinciple of mutual reciprocity.Treaties: China has signed bilateral treaties with certain countries for the mutualrecognition and enforcement of one another’s judgments.6 Thus far these bilateraltreaties extend to relatively few States. The United States of America and Australia,for example, are not party to any such agreements with the PRC.7 There is noevidence to date of successful foreign judgment enforcement pursuant to thesetreaties.Reciprocity: in the alternative, enforcement may be justified according to theprinciple of mutual reciprocity. This would appear to require that the relationsbetween the PRC and the foreign country where the award was rendered, be such thateach routinely gives full faith and credit to one another’s judgments, perhapsaccording to certain uncontentious conditions which are accepted internationally. Inthe early days such a mutuality may be difficult to substantiate – as between the PRCand a given foreign country the issue will arise for the first time and there will be noprior practice between the two that can be referred to, as a basis for assertingmutuality. It may be that a country with a developed legal system does have a historyof foreign judgment recognition independently of treaty obligations made goodthrough legislation by, for example, domestic legislative provision for foreign4 China Org 10 February 2008.5 Colt Industries v Sarlie (No 2) [1966] 3 All ER 85. See R Mortensen, Private International Law in Australia, LexisNexis Butterworths, Australia, 2006, at 136, commenting that a judgment is final and conclusive where it is res judicata, viz, the matter could not be re-litigated by the same parties in the same court. See also Jian Han, “Recognition and Enforcement of Foreign Judgments and Awards in Mainland China” 2 US-China Law Review, 2 (Serial No3), at http:/ See Jian Han, ibid – for example the Treaty between China-France on Mutual Judicial Assistance.7 A Sommers, “Enforcing US Court Judgments in China”, 10 February 2008. 6
  7. 7. judgment enforcement, or in the case of the common law jurisdictions, by a process ofjudicial precedent. In the United States, for example, legislation8 (applying in additionto the common law) makes provision for foreign judgment enforcement in definedcircumstances. It would follow that an applicant from, say, the US, for enforcement ofa US judgment in the PRC, could argue that as the potential exists for the enforcementof a PRC judgment in China, the Chinese court should invoke the reciprocity principlein return as its own law recognises the principle.Article 268 provides for the consideration by the people’s court of the application forenforcement, by reference to the same matters listed in article 267, that is, a relevantinternational treaty or de facto reciprocity, where either is extant. The provisionintroduces a further matter – consideration of whether the judgment or rulingcontravenes the basic principles of law of the PRC, and whether it violates Statesovereignty or the security and social and public interest of the country. If there issuch a contravention or violation, the court is not to enforce it. If the court findsotherwise, and determines that there is an applicable treaty or reciprocity, then thecourt is to recognise the judgment or order and if necessary make an order for itsenforcement.What is meant by a violation of “State sovereignty or security and social publicinterest” of the PRC? These terms are not defined. The terminology is expansive andgives the court a considerable discretion in matters of this type. Grounds forconcluding that a judgment ought not to be enforced under this head wouldpresumably include that the judgment of the foreign court was procured by fraud orthat it did not observe due process or natural justice in its conduct of the case inquestion, or that enforcement of the judgment would involve enforcement of a foreignpenal or taxation law, or would involve enforcement of the interest of a foreigngovernment, or that enforcement would be against public policy. These are familiarground for refusing enforcement of foreign judgments in common law courts.9The combined effect of articles 267 and 268 is that the foreign judgment or order maybe enforced where the following factors apply: (1) it is legally effective; (2) a relevantinternational treaty to which China applies provides for enforcement, and/or theprinciple of reciprocity applies as between the PRC and the foreign jurisdiction wherethe judgment was rendered, pursuant to which each will enforce the other’s judgmentin defined circumstances; and (3) enforcement will not violate the basic principles ofChinese law, nor violate Chinese sovereignty, security and social and public interest.Where there is no relevant international treaty providing for the enforcement of aforeign award rendered in a given State in China, and there is an absence of mutualreciprocity between China and this State, the party seeking enforcement would need8 Uniform Foreign Money Recognition Act, 13 ULA 261, which has been adopted in a majority of states including nearly all of the large population states – see J Hogan-Doran, op cit at 365.9 See R Mortensen, op cit, at pp130ff. The concept of public policy is frequently encountered in the domestic law of civil law countries and in international law instruments such as the New York Convention for the Enforcement of Foreign Arbitral Awards (where it can be raised as a defence in court proceedings for the enforcement of a foreign arbitral award. One view of it in the latter context is that it is made out – exceptionally – where “enforcement would violate [the forum State’s] most basic notions or morality and justice”: Waterside Ocean Navigation Co v International Navigation Ltd (1984) 737 F 2d 150, 152 (2nd Cir). See G Moens and P Gillies, International Trade and Business: Law, Policy and Ethics, 2 ed, Routledge-Cavendish, Oxford, 2006, pp610ff. The courts have recognized in a number of States that a mere breach of technical law will not violate public policy. 7
  8. 8. to re-litigate their case on the merits in China. That appears to be the effect of article318 of the “Opinions of the Supreme People’s Court on Some Issues Concerning theExecution of ‘Civil Procedure Law of the PRC”: Article 318 Where a party applies to a competent Intermediate People’s Court of the PRC for recognition and enforcement of a legally effective judgment or written order made by a foreign court, if the country in which such foreign court is located and the PRC have not concluded or acceded to an international treaty and have no reciprocal relations, the party may initiate an action in the people’s Court. In such case the competent people’s Court will make a judgment and enforce the judge or written order of the People’s Court.If this construction is accurate, the Chinese court will need to examine or at leastsubstantially re-examine the facts of a case and give a judgment. An independentassessment has to be made by the people’s court of the facts of the case ab initio,applying PRC law.10Arbitral awards: article 269 deals with the analogous situation where foreign arbitralawards are sought to be recognised and enforced in a Chinese court. Essentially theapplicant is asking the court to accord the award the status of a court judgment and toenforce it. Again, enforcement is to be tested by reference to any international treatyChina has acceded to or to the principle of reciprocity. In formal terms at least theenforcement of a foreign arbitral award in China is more straightforward, in thatChina is party, along with about 140 other States including most of the major tradingcountries, to the New York Convention on the Recognition and Enforcement ofForeign Arbitral Awards. The Convention provides for a model code for recognitionand enforcement of foreign awards, and countries that have signed it have undertakento introduce this code into domestic law. It follows that this famous exemplar of“international legislation” has effectively created a uniform regime for awardenforcement across many countries, and (to the extent that their courts will routinelyenforce foreign awards in practice) the regime has provided for the portability ofawards. There is no equivalent widely acceded to treaty dealing with the enforcementof foreign court judgments as opposed to arbitral awards.11 III CHINA’S FOREIGN JUDGMENTS RULES – AN INEFFECTUAL REGIME?The evidence is that Chinas legal system fails to provide a reliable legal system inrespect of foreign judgment enforcement, and that the recognition and enforcement offoreign judgments is rare.Quite apart from the formal statutory obstacles including a lack of reciprocity via abilateral treaty or otherwise, this ineffectiveness may reflect a broader failing – theineffectiveness of the Chinese legal system in enforcement of domestic judgments incivil cases.1210 See Dou Shaowu, Liu Qian, “Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters”, http:/ On the Convention, see G Moens and P Gillies, op cit, chap11.12 See the comment in 2006 by Graeme Johnson, a Shanghai attorney, at the Chinese Law Prof Blog website under the heading “Enforcement of Foreign and Mainland Judgments in Hong Kong”: “Even enforcement of domestic judgments in China can still cause major problems: the Supreme Peoples Court President has candidly acknowledged this and improving enforcement is one of the major themes of the reform 8
  9. 9. China is particularly ineffective in this area, but it is not uncommon to find thatenforcement regimes in other countries including developed countries with longstanding legal systems are likewise less than fully accommodating to applications forthe enforcement of foreign court judgments.Donald C Clarke considered the issue in 2004 in a paper dealing with the enforcementof US court judgments in China.13 There was no treaty between the two countries forthe mutual recognition of one another’s judgments, nor was there a recognised mutualreciprocity. He concluded that US judgments would not, at least in a contested case,be enforced in China. Likewise, there was no known case where a US court hadenforced a Chinese judgment without enquiry into the merits. There was scantevidence that judgments from any other jurisdiction had been enforced in a contestedsituation, without enquiry into the merits. He elicited three cases where a foreignjurisdiction divorce decree had been recognised. The cases were uncontested – bothparties sought recognition. The issue was simply one of recognition, and notenforcement, with the parties wanting to re-marry in China without having to initiatedivorce proceedings in China.Mo Zhang14 has instanced of the problems that a foreign judgment can encounter in aChinese court which will result in non-recognition and non-enforcement:1. The foreign judgment is made by an incompetent foreign court. The incompetenceis judged under the relevant provisions of international treaties and Chinese laws.2. The foreign judgment has not taken effect or has no effect at all under the law of aforeign country.3. The defendant is not given adequate notice of the proceedings, or was not properlyrepresented by a guardian if lacking legal capacity.4. An effective judgment has been made by a people’s court for the same cause ofaction between the same parties.5. The case is in the middle of trial in a people’s court and the trial has begun beforethe proceedings commenced in the foreign court.6. Recognition and enforcement of the foreign judgment would cause harm to Chinesesecurity and or public policy. Security and public policy is not defined in the CivilProcedure Law therefore it is open to varying interpretations by Chinese courts.15Mo Zhang also contends that problems can arise with domicile. The people’s courtonly has jurisdiction if the defendant has established connections within China. Mere programme announced at the end of 2005 and reiterated at the March 2006 National Peoples Congress.” - “The Enforcement of United States Court Judgments in China: A Research Note (May 27 2004) Mo Zhang, “International Civil Litigation in China: A Practical Analysis of the Chinese Judicial System”, (2002) 25 Boston College International comparative Law 59.15 AA Yuan, “Enforcing and Collecting Money Judgments in China from a US Judgment Creditor’s Perspective”, All Business 12 February 2008. 9
  10. 10. presence is not a sufficient basis on which jurisdiction can be exercised. Theconnection must be meaningful providing sufficient ground warranting the exercise ofthe people’s court’s judicial power. 16Another barrier to contemplated foreign judgment enforcement is encountered wherethe judgment is against a State Owned Enterprise (SOE). There is the prospect that thegovernment will intervene in favour of an SOE. The court will not enforce a judgmentif it would threaten the survival of an SOE, particularly in the situation where an SOEmay be forced to sell its assets to satisfy a judgment.A difficulty may arise in respect of enforcing a foreign judgment concerning a disputearising from a contract to which a foreign investment enterprise (FIE) is party. Article246 of the Civil Procedure Law provides as follows: Article 246 Civil actions arising from disputes over the implementation of contracts of Chinese foreign joint ventures, Chinese-foreign cooperative enterprises and Chinese- foreign joint exploration and exploitation of natural resources are under the jurisdiction of the people’s court of the PRC.This is susceptible to two interpretations: (1) that such disputes may only be litigatedin the people’s court, with the result that a foreign judgment will not be recognised, or(2) that where such disputes are to be litigated within China, then the people’s court isthe stipulated court. The latter interpretation would leave open the technicalpossibility that a foreign judgment in this context could be enforced but the firstinterpretation is more likely to prevail.Another barrier to a party contemplating applying for enforcement of a foreignjudgment is the lack of credit checking in China and asset tracking systems. It is verydifficult to obtain a judgment debtor’s financial and asset status, particularly in thecase of a foreign judgment creditor. A request for recognition and enforcement has tobe submitted to the court of the place whether the judgment debtor resides or hasproperty, but the debtor may disappear in order to avoid judgment and move hisaccounts elsewhere.Language too can be a major problem, as if there is any mistranslation in the nameand address of the party, enforcement will not be ordered, ie, the mistranslationprovides ground for the judgment debtor to deny the judgment.The internal structure of the judiciary militates against effective foreign judgmentenforcement.17 First, priority is given to criminal trials. Second, enforcement divisionsare insufficiently funded. Court officials are particularly loath to go on circuit becausetheir per diem allowance is small even by Chinese standards. They must stay in thecheapest hotels, eat at the worst restaurants in order to stay within their allowance,and must travel by train rather than by air, which can require up to an extra week intravel time. Third, a court does not place its better employees in the enforcementdivision because the execution of judgements has not traditionally been a matter ofhigh priority. Courts conceive of their role as being primarily to try criminal16 Mo Zhang, op cit.17 The following comments are derived from an interview with the retired Chief Justice of the Guangdong Peoples’ Court and the retired Registrar of the same court carried out by the late Dr Alex Low of the Department of Business Law at Macquarie University, a Mandarin speaker and expert in Chinese Law. 10
  11. 11. prosecutions not civil actions. If they convict an accused person, the execution of thesentence is in the hands of other bodies such as the police and prison administration,so enforcement of their judgments is not often an issue for them.While the majority of basic level and intermediate courts do have a specialised branchconcerned with execution of judgments,18 these branches are not very active.Enforcement work is less prestigious than deciding disputes and other matters broughtbefore the court for decision. The internal organisation of courts reflects theirpriorities: the president takes charge of criminal adjudication, the vice-president takescharge of civil adjudication, and the vice-president’s assistant takes charge ofexecution.Finally, when the adjudication committee discusses cases, criminal cases are at the topof the agenda. Problems in executing civil judgments are considered last, if there isany time or are any resources remaining. IV CONCLUSIONEnforcement of foreign judgments in the PRC is ineffective. This alone would not beunusual – as noted foreign judgments are typically difficult to enforce even in Stateswith developed legal systems such as Australia. But unusually, the ineffectiveenforcement of foreign judgments is paralleled by the ineffectiveness of the Chinesecourt system in enforcing purely domestic decisions in its civil jurisdiction. Thisgeneral ineffectiveness reflects broader factors – the lack of resources given to, andstatus accorded to the courts in China in the respect of civil litigation. To sum up, thecivil courts in China have in practice very limited reach.This brand of judicial action by priority, that is, criminal over civil, is very much atodds with the comprehensive and consistent application of law required if a vibranteconomic sector is to be supported. The most fundamental of these interrelatedproblems affecting the court system and enforcement of judgments include the lack offinancial resources, local protectionism, the limited educational qualifications ofjudges, and the network of personal connections characterising the official sphere(Guanxi). These factors limit the reach of the domestic legal system. Little reverenceis paid to a legal system which is both a functionary of the Party, and intermittent inits dispensation of justice.Having regard to the vast amount of effort and resources expended in “managing”Chinese society and the economy, it is conceivable that resources could be divertedinto strengthening the underlying judicial institutional structure. The problem Chinesepoliticians must face when espousing a desire for economic development, is thatimpeding parallel legal developments is counterproductive to their stated policy ends.A major reason for local protectionism is structural. A local court is under theleadership of the local government, which in turn has a direct or indirect interest inregional economic affairs. This means the judiciary is not totally free from executive18 China has four levels of courts: basic, intermediate, higher (at the provincial level), and supreme. Execution branches are most necessary at the basic and intermediate level, because they have original jurisdiction over almost all cases and are thus in charge of execution of the judgment whether or not it is appealed (See appendix 1). 11
  12. 12. interference and suffers from a combination of local government’s direct involvementin local enterprises and its control over the personnel and financial affairs of itssubordinates, including the judiciary.The parochialism of China’s court system is reinforced by the growing economic andpolitical independence enjoyed by China’s provinces.19 As a result, the Chinesejudicial system suffers from court-to-court hostility, a problem recentlyacknowledged by Ren Jianxian, President of the Supreme People’s Court. Ren statedthat in “recent years, local protectionism has seriously affected the judicial work ofthe courts…[in] order to protect local interests, some courts deviated from theprinciple of basing their judgment on the facts and using the law as the basis of theirdecision and were partial to local parties.”20Perhaps local protectionism would not be such a problem if it were generallyacknowledged that putting local interests first must ultimately damage the economicand political development of the whole of China. The shift of emphasis to individualresponsibility and self-interest, necessarily influences the developing socialist marketeconomy and undermines the system of socialist morality which is still officialpolicy. Perhaps some local judges are already determined to protect those localinterests on which they depend, for judges’ salaries are paid by local authorities. Thislink between the lack of resources and the predisposition towards local protectionismclearly demonstrates that the factors identified above are very much interrelated andmust be addressed in a manner that acknowledges this fact.19 See Luming Chen, “Some Reflections in International Commercial Arbitration in China”, (1996) 13 Journal of International Arbitration at 121-162, and Matthew D Bersani, “Enforcement of Arbitration Awards in China”, China Business Review, Washington, May/June 1992 at 6.20 In his address to the NPC in 1991, which is normally an opportunity for highlighting the past years accomplishments. 12