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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: http://ssrn.com/abstract=1103364
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. I ENFORCEMENT OF JUDGMENTS – TRADE, INVESTMENT AND POLICY ISSUES
The process of globalization – trade and investment flows across national borders –
has generated an ever increasing volume of international business transactions. The
classic 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 are
resident (or in the case of corporations domiciled) in different countries.
When there is a dispute between parties to an international transaction, such as where
a 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 a
dispute confined to one country (or in the language of international law, one State, or
jurisdiction).
If a contractual dispute occurs between A and B in Australia, the parties can resort to
litigation in the appropriate domestic court, and enforcement of the judgment will be
straightforward.
What, however, of the situation where there is a dispute between corporation A in
State X, and corporation B in State Y? Suppose that A and B are parties to a contract
for the sale of goods, with B the buyer, and B alleges that the goods are defective. If
they cannot resolve their dispute by negotiation, B may have to contemplate litigation
in 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 dispute
arising from the contract to be litigated in B’s country. Or (if there is no contrary
clause) B may sue in B’s own country for practical reasons including the presence in
that forum of witnesses, familiarity with the language and the law, and so on. If B
secures a judgment in its favour, and A does not fulfil the terms of the judgment (such
as by paying any damages awarded), and A does not have any assets in the
jurisdiction against which the judgment can be enforced, then B will need to enforce
judgment against A in a State – typically B’s own country – where B has assets. The
question then becomes one of whether B can in law and in practice enforce that
judgment 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 well
developed and reliable judicial system play a major role in international trade when
business deals miscarry. If international traders and investors lack confidence in their
ability to resolve disputes effectively by compulsory adjudication (such as in the
courts or by way of private arbitration) then they will be less inclined to enter into
international business transactions.
As a general proposition, the legal systems of the world, developed and less
developed, are less than fully accommodating of applications for the enforcement of a
foreign court judgment. When the court in a State is asked to enforce a foreign
judgment, it is being asked to give full faith and credit to the foreign judgment and not
to go behind it and reexamine the case on the merits. In effect it is being asked to treat
the judgment as one equivalent to its own. As judicial standards around the world vary
considerably, there may be a reluctance by the State to accord equal status to the
foreign judgments. Set against this is a recognition that effective international
4
5. commercial dispute resolution is necessary if parties involved in international trade
are to have the confidence to enter into these transactions. Examination of the
response of developed legal systems to the issue of foreign judgment enforcement
reveals that States have been cautious in seeking to balance these competing policy
objectives. Foreign judgment enforcement is controlled by rules that significantly
attenuate the power of the courts in this area. In Australia for instance, in the absence
of reciprocal legislative arrangements with selected foreign jurisdictions for the
mutual recognition and enforcement of each other’s judgments,1 the restrictive
common law rules govern recognition and enforcement. This common law regime is
ineffective.2 In contrast, the legal system of the United States of America is more
accommodating of applications for the enforcement of foreign judgments.3
II CHINA – THE FORMAL RULES
The law applying to the enforcement of foreign judgments in China is found in
Chapter XXIX, containing Articles 262-270 of the Law of Civil Procedure of the
People’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 people's court shall examine it in accordance with the international treaties
concluded or acceded to by the People's 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 People's 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 People's Republic of China or violates the State sovereignty, security
and social and public interest of the country, the people's 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 people's court of the People's Republic of
China, the party concerned shall directly apply to the intermediate people's court
of the place where the party subjected to enforcement has his domicile or where
his property is located. The people's court shall deal with the matter in
1
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. accordance with the international treaties concluded or acceded to by the
People's Republic of China or with the principle of reciprocity.4
Article 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 the
judgment. Some conditions exist.
One is that the judgment or ruling be legally effective. This could be interpreted as
having two dimensions: (1) That the judgment or ruling be legally effective in the
foreign jurisdiction where it was rendered. The question might arise as to whether a
judgment that can be appealed from is legally effective. International practice
indicates that the decision of a trial court is effective for the purposes of foreign
enforcement, notwithstanding that the losing party has a right of appeal.5 If the
judgment has been appealed against but the appeal has not been determined, then the
foreign court where enforcement is sought would presumably stay enforcement
pending 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 it
contravenes the basic principles of PRC law – see Article 268).
Article 267 may also be interpreted as conditioning consideration of the application
for enforcement by reference two alternative factors: (a) the existence of a relevant
international treaty to which China and, inter alia, the country where judgment was
rendered, for the mutual enforcement of one another’s court judgments, or (b) the
principle of mutual reciprocity.
Treaties: China has signed bilateral treaties with certain countries for the mutual
recognition and enforcement of one another’s judgments.6 Thus far these bilateral
treaties 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 no
evidence to date of successful foreign judgment enforcement pursuant to these
treaties.
Reciprocity: in the alternative, enforcement may be justified according to the
principle of mutual reciprocity. This would appear to require that the relations
between the PRC and the foreign country where the award was rendered, be such that
each routinely gives full faith and credit to one another’s judgments, perhaps
according to certain uncontentious conditions which are accepted internationally. In
the early days such a mutuality may be difficult to substantiate – as between the PRC
and a given foreign country the issue will arise for the first time and there will be no
prior practice between the two that can be referred to, as a basis for asserting
mutuality. It may be that a country with a developed legal system does have a history
of foreign judgment recognition independently of treaty obligations made good
through legislation by, for example, domestic legislative provision for foreign
4
China Org www.newsgd.com/business/laws/200305220025.htm 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:/www.jurist.org.cn/doc/uclaw20050203.doc.
6
See Jian Han, ibid – for example the Treaty between China-France on Mutual Judicial Assistance.
7
A Sommers, “Enforcing US Court Judgments in China”, www.ssd.com 10 February 2008.
6
7. judgment enforcement, or in the case of the common law jurisdictions, by a process of
judicial precedent. In the United States, for example, legislation8 (applying in addition
to the common law) makes provision for foreign judgment enforcement in defined
circumstances. It would follow that an applicant from, say, the US, for enforcement of
a US judgment in the PRC, could argue that as the potential exists for the enforcement
of a PRC judgment in China, the Chinese court should invoke the reciprocity principle
in return as its own law recognises the principle.
Article 268 provides for the consideration by the people’s court of the application for
enforcement, by reference to the same matters listed in article 267, that is, a relevant
international treaty or de facto reciprocity, where either is extant. The provision
introduces a further matter – consideration of whether the judgment or ruling
contravenes the basic principles of law of the PRC, and whether it violates State
sovereignty or the security and social and public interest of the country. If there is
such a contravention or violation, the court is not to enforce it. If the court finds
otherwise, and determines that there is an applicable treaty or reciprocity, then the
court is to recognise the judgment or order and if necessary make an order for its
enforcement.
What is meant by a violation of “State sovereignty or security and social public
interest” of the PRC? These terms are not defined. The terminology is expansive and
gives the court a considerable discretion in matters of this type. Grounds for
concluding that a judgment ought not to be enforced under this head would
presumably include that the judgment of the foreign court was procured by fraud or
that it did not observe due process or natural justice in its conduct of the case in
question, or that enforcement of the judgment would involve enforcement of a foreign
penal or taxation law, or would involve enforcement of the interest of a foreign
government, or that enforcement would be against public policy. These are familiar
ground for refusing enforcement of foreign judgments in common law courts.9
The combined effect of articles 267 and 268 is that the foreign judgment or order may
be enforced where the following factors apply: (1) it is legally effective; (2) a relevant
international treaty to which China applies provides for enforcement, and/or the
principle of reciprocity applies as between the PRC and the foreign jurisdiction where
the judgment was rendered, pursuant to which each will enforce the other’s judgment
in defined circumstances; and (3) enforcement will not violate the basic principles of
Chinese law, nor violate Chinese sovereignty, security and social and public interest.
Where there is no relevant international treaty providing for the enforcement of a
foreign award rendered in a given State in China, and there is an absence of mutual
reciprocity between China and this State, the party seeking enforcement would need
8
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. to re-litigate their case on the merits in China. That appears to be the effect of article
318 of the “Opinions of the Supreme People’s Court on Some Issues Concerning the
Execution 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 least
substantially re-examine the facts of a case and give a judgment. An independent
assessment has to be made by the people’s court of the facts of the case ab initio,
applying PRC law.10
Arbitral awards: article 269 deals with the analogous situation where foreign arbitral
awards are sought to be recognised and enforced in a Chinese court. Essentially the
applicant is asking the court to accord the award the status of a court judgment and to
enforce it. Again, enforcement is to be tested by reference to any international treaty
China has acceded to or to the principle of reciprocity. In formal terms at least the
enforcement of a foreign arbitral award in China is more straightforward, in that
China is party, along with about 140 other States including most of the major trading
countries, to the New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards. The Convention provides for a model code for recognition
and enforcement of foreign awards, and countries that have signed it have undertaken
to introduce this code into domestic law. It follows that this famous exemplar of
“international legislation” has effectively created a uniform regime for award
enforcement across many countries, and (to the extent that their courts will routinely
enforce foreign awards in practice) the regime has provided for the portability of
awards. There is no equivalent widely acceded to treaty dealing with the enforcement
of foreign court judgments as opposed to arbitral awards.11
III CHINA’S FOREIGN JUDGMENTS RULES – AN INEFFECTUAL REGIME?
The evidence is that China's legal system fails to provide a reliable legal system in
respect of foreign judgment enforcement, and that the recognition and enforcement of
foreign judgments is rare.
Quite apart from the formal statutory obstacles including a lack of reciprocity via a
bilateral treaty or otherwise, this ineffectiveness may reflect a broader failing – the
ineffectiveness of the Chinese legal system in enforcement of domestic judgments in
civil cases.12
10
See Dou Shaowu, Liu Qian, “Recognition and Enforcement of Foreign Judgments in Civil and
Commercial Matters”, http:/test.civillaw.com.cn/en/article.asp?id+988.
11
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 People's Court President has
candidly acknowledged this and improving enforcement is one of the major themes of the reform
8
9. China is particularly ineffective in this area, but it is not uncommon to find that
enforcement regimes in other countries including developed countries with long
standing legal systems are likewise less than fully accommodating to applications for
the enforcement of foreign court judgments.
Donald C Clarke considered the issue in 2004 in a paper dealing with the enforcement
of US court judgments in China.13 There was no treaty between the two countries for
the mutual recognition of one another’s judgments, nor was there a recognised mutual
reciprocity. 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 had
enforced a Chinese judgment without enquiry into the merits. There was scant
evidence that judgments from any other jurisdiction had been enforced in a contested
situation, without enquiry into the merits. He elicited three cases where a foreign
jurisdiction divorce decree had been recognised. The cases were uncontested – both
parties sought recognition. The issue was simply one of recognition, and not
enforcement, with the parties wanting to re-marry in China without having to initiate
divorce proceedings in China.
Mo Zhang14 has instanced of the problems that a foreign judgment can encounter in a
Chinese court which will result in non-recognition and non-enforcement:
1. The foreign judgment is made by an incompetent foreign court. The incompetence
is 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 a
foreign country.
3. The defendant is not given adequate notice of the proceedings, or was not properly
represented by a guardian if lacking legal capacity.
4. An effective judgment has been made by a people’s court for the same cause of
action between the same parties.
5. The case is in the middle of trial in a people’s court and the trial has begun before
the proceedings commenced in the foreign court.
6. Recognition and enforcement of the foreign judgment would cause harm to Chinese
security and or public policy. Security and public policy is not defined in the Civil
Procedure Law therefore it is open to varying interpretations by Chinese courts.15
Mo Zhang also contends that problems can arise with domicile. The people’s court
only 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 People's Congress.” -
http://lawprofessors.typepad.com/china_law_prof_blog/2006/03/enforcement_of_.html.
13
“The Enforcement of United States Court Judgments in China: A Research Note (May 27 2004)
http:ssrn.com/abstract=943922.
14
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 www.allbusiness.com/legal/international-law/1052940-1.html 12 February
2008.
9
10. presence is not a sufficient basis on which jurisdiction can be exercised. The
connection must be meaningful providing sufficient ground warranting the exercise of
the people’s court’s judicial power. 16
Another barrier to contemplated foreign judgment enforcement is encountered where
the judgment is against a State Owned Enterprise (SOE). There is the prospect that the
government will intervene in favour of an SOE. The court will not enforce a judgment
if it would threaten the survival of an SOE, particularly in the situation where an SOE
may be forced to sell its assets to satisfy a judgment.
A difficulty may arise in respect of enforcing a foreign judgment concerning a dispute
arising from a contract to which a foreign investment enterprise (FIE) is party. Article
246 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 litigated
in 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 is
the stipulated court. The latter interpretation would leave open the technical
possibility that a foreign judgment in this context could be enforced but the first
interpretation is more likely to prevail.
Another barrier to a party contemplating applying for enforcement of a foreign
judgment is the lack of credit checking in China and asset tracking systems. It is very
difficult to obtain a judgment debtor’s financial and asset status, particularly in the
case of a foreign judgment creditor. A request for recognition and enforcement has to
be submitted to the court of the place whether the judgment debtor resides or has
property, but the debtor may disappear in order to avoid judgment and move his
accounts elsewhere.
Language too can be a major problem, as if there is any mistranslation in the name
and address of the party, enforcement will not be ordered, ie, the mistranslation
provides ground for the judgment debtor to deny the judgment.
The internal structure of the judiciary militates against effective foreign judgment
enforcement.17 First, priority is given to criminal trials. Second, enforcement divisions
are insufficiently funded. Court officials are particularly loath to go on circuit because
their per diem allowance is small even by Chinese standards. They must stay in the
cheapest 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 in
travel time. Third, a court does not place its better employees in the enforcement
division because the execution of judgements has not traditionally been a matter of
high priority. Courts conceive of their role as being primarily to try criminal
16
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. prosecutions not civil actions. If they convict an accused person, the execution of the
sentence 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 branch
concerned with execution of judgments,18 these branches are not very active.
Enforcement work is less prestigious than deciding disputes and other matters brought
before the court for decision. The internal organisation of courts reflects their
priorities: the president takes charge of criminal adjudication, the vice-president takes
charge of civil adjudication, and the vice-president’s assistant takes charge of
execution.
Finally, when the adjudication committee discusses cases, criminal cases are at the top
of the agenda. Problems in executing civil judgments are considered last, if there is
any time or are any resources remaining.
IV CONCLUSION
Enforcement of foreign judgments in the PRC is ineffective. This alone would not be
unusual – as noted foreign judgments are typically difficult to enforce even in States
with developed legal systems such as Australia. But unusually, the ineffective
enforcement of foreign judgments is paralleled by the ineffectiveness of the Chinese
court system in enforcing purely domestic decisions in its civil jurisdiction. This
general ineffectiveness reflects broader factors – the lack of resources given to, and
status accorded to the courts in China in the respect of civil litigation. To sum up, the
civil courts in China have in practice very limited reach.
This brand of judicial action by priority, that is, criminal over civil, is very much at
odds with the comprehensive and consistent application of law required if a vibrant
economic sector is to be supported. The most fundamental of these interrelated
problems affecting the court system and enforcement of judgments include the lack of
financial resources, local protectionism, the limited educational qualifications of
judges, and the network of personal connections characterising the official sphere
(Guanxi). These factors limit the reach of the domestic legal system. Little reverence
is paid to a legal system which is both a functionary of the Party, and intermittent in
its 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 diverted
into strengthening the underlying judicial institutional structure. The problem Chinese
politicians must face when espousing a desire for economic development, is that
impeding parallel legal developments is counterproductive to their stated policy ends.
A major reason for local protectionism is structural. A local court is under the
leadership of the local government, which in turn has a direct or indirect interest in
regional economic affairs. This means the judiciary is not totally free from executive
18
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. interference and suffers from a combination of local government’s direct involvement
in local enterprises and its control over the personnel and financial affairs of its
subordinates, including the judiciary.
The parochialism of China’s court system is reinforced by the growing economic and
political independence enjoyed by China’s provinces.19 As a result, the Chinese
judicial system suffers from court-to-court hostility, a problem recently
acknowledged by Ren Jianxian, President of the Supreme People’s Court. Ren stated
that in “recent years, local protectionism has seriously affected the judicial work of
the courts…[in] order to protect local interests, some courts deviated from the
principle of basing their judgment on the facts and using the law as the basis of their
decision and were partial to local parties.”20
Perhaps local protectionism would not be such a problem if it were generally
acknowledged that putting local interests first must ultimately damage the economic
and political development of the whole of China. The shift of emphasis to individual
responsibility and self-interest, necessarily influences the developing socialist market
economy and undermines the system of socialist morality which is still official
policy. Perhaps some local judges are already determined to protect those local
interests on which they depend, for judges’ salaries are paid by local authorities. This
link between the lack of resources and the predisposition towards local protectionism
clearly demonstrates that the factors identified above are very much interrelated and
must 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
