Chinese Court recognises a US commercial judgment for the first time based on principle of reciprocity

On 30 June 2017, the Wuhan Intermediate People’s Court (Wuhan Court) handed down a decision recognising and enforcing a civil judgment of the Los Angeles Superior Court in California, USA (the "Wuhan Decision") based on the principle of reciprocity. This is the first time that a Chinese court has recognised and enforced a US commercial judgment.

Pursuant to the PRC Civil Procedure Law, Chinese courts can recognise and enforce foreign court judgments only on the basis of international convention, bilateral treaties or the principle of reciprocity, provided they do not violate basic principles of Chinese law, state sovereignty and security, or public interest. China has not ratified the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters nor has it entered into any bilateral treaty with major jurisdictions such as US and UK for the mutual recognition and enforcement of civil court judgments. It follows that the only ground upon which US commercial judgments may be recognised by the Chinese courts is the principle of reciprocity.

There is no clarity as to the meaning of the principle of reciprocity in China. However, we note that in December 2016, the Nanjing Intermediate People's Court recognised and enforced a Singaporean commercial judgment in Kolma v SUTEX Group (the "Nanjing Decision") on the basis of de facto reciprocity in Singapore.

The Wuhan Decision

In the case of Liu Li v Tao Li and Tong Wu, Liu Li  brought an action against Tao Li and Tong Wu  at the Los Angeles Superior Court in California for a fabricated share transfer under a share transfer agreement between Tao and Liu concerning a company registered in California. On 24 July 2015, a default judgment against Tao and Tong was issued by Judge Stewart at the US Court (US judgment). Tao and Tong were ordered to return to Liu a total amount of USD 147,492 being the purchase price of the shares, pre-judgment interest and the court fee.

On 19 October 2015, Liu applied to the Wuhan Court seeking to enforce the US judgment against Tao and Tong as they lived in Wuhan and owned assets located in Wuhan.  Liu relied on the case of Hubei Gezhouba Sanlian Industrial Co., Ltd et. Al. v Robinson Helicopter Co., Inc., in which the District Court of the Central District of California recognised a Chinese judgment issued by the Higher People's Court of Hubei Province, to show that the US court has reciprocally recognised Chinese judgments.

The Wuhan Court held that Tao and Tong owned real estate and habitually resided in Wuhan, and therefore that it had jurisdiction according to Article 281 of the PRC Civil Procedure Law. It also ruled that de facto reciprocity has been established between China and the US by virtue of Hubei Gezhouba Sanlian Industrial Co., Ltd et. Al. v Robinson Helicopter Co., Inc., and accordingly ordered that the US judgment be recognised and enforced in China. The Wuhan Court also held that in judgment recognition and enforcement proceedings, the Chinese court shall not consider the merits of the foreign judgment.

Looking forward

The Nanjing Decision and the Wuhan Decision are a welcome indication of Chinese courts' increasingly liberal attitude to recognition and enforcement of foreign judgments where the judgment-rendering jurisdiction has previously recognised and enforced a Chinese judgment.

In Spliethoff’s Bevrachtingskantoor Bv V. Bank of China Limited, the High Court in UK recognised a Chinese judgment issued by the Qingdao Maritime Court in 2015. It remains to be seen whether the Chinese courts will recognise and enforce UK judgments based upon de facto reciprocity. However, the Nanjing Decision and the Wuhan Decision clearly suggest the possibility of an increased scope for mutual recognition and enforcement of commercial judgments between China, Singapore, the US and other common-law jurisdictions, which can only be good news for international parties seeking to enforce their judgments against Chinese parties and assets.

For more information, please contact Gareth Thomas, Dominic Geiser, Rachel Yu or your usual Herbert Smith Freehills contact.