English court judgment enforced in China for the first time following landmark policy announcement

A court in the People's Republic of China (PRC) has for the first time recognised and enforced an English court judgment in Mainland China. The decision, which was formally approved by the country's highest court, the People's Supreme Court (PSC), granted enforcement of a High Court commercial judgment based on the principle of reciprocity: (2018) Hu 72 Xie Wai Ren No.1 (Shanghai Maritime Court, 17 March 2022).

Importantly, the court held that China's courts have the requisite reciprocal relationship with the English courts without needing to identify a prior instance in which the English courts have enforced a Chinese judgment – as has traditionally been required.

The decision follows an important judicial statement published by the PSC earlier this year, which indicated that a Chinese court may (if it is appropriate to do so) enforce a foreign judgment on the basis of reciprocity as long as it is satisfied that the foreign court could under its laws enforce a Chinese judgment.

Although neither the judicial statement nor the recent enforcement decision are strictly binding as precedent, their endorsement by the PSC means they will be extremely influential. There are therefore strong grounds to believe this heralds a significant liberalisation of China's restrictive approach to reciprocity.

That restrictive approach has meant that enforcement of foreign judgments in Mainland China has been very rare in the absence of an applicable treaty or bilateral agreement (which China currently does not have with most of its major trading partners - it has signed but not yet ratified the 2005 Hague Convention on Choice of Court Agreements). This policy shift, if implemented widely, could open the gates for the enforcement in China of not only English judgments but those of many other jurisdictions.  Given the number of cross-border disputes likely to arise out of China's Belt and Road initiative, such a development could prove very important.

Of course, as we have noted, the liberalisation of China's approach to international disputes has also been evidenced in the Chinese Government's concerted efforts to promote international mediation, alongside litigation and arbitration. That has now been reinforced by China's signing of the Singapore Convention on Mediated Settlement Agreements which, if ratified, will provide an alternative mechanism to directly enforce in China the outcome of international disputes, without the need to enforce a foreign court judgment or an arbitral award.

Background – China's approach to reciprocity

Broadly speaking, PRC law only allows a Chinese court to recognise and enforce a judgment of a foreign court on the basis of either (i) an international convention or bilateral treaty or (ii) reciprocity.  Reciprocity is the principle by which a court enforces the judgments of foreign courts on the basis that the foreign court reciprocally enforces judgments from the first court.

Traditionally, PRC courts have refused to recognise reciprocity with a foreign jurisdiction unless it could be shown that a court there had previously enforced a Chinese judgment.

That approach has severely restricted this route to enforcement, and the PRC courts had in fact not recognised any foreign judgment on the basis of reciprocity until two decisions in 2016 and 2017 (discussed in our earlier article here). Those decisions enforced judgments from Singapore and California, each on the basis that the foreign jurisdiction had previously enforced a judgment from the particular Chinese province where enforcement was being sought.  While this was seen as a promising development, it remained unclear how far the Chinese courts would be prepared to go in recognising reciprocity, including whether it would be restricted to judgments in the same geographical region or from a particular level of court.

We noted at that time that the PSC was apparently planning to issue a "judicial interpretation" (a type of formal judicial guidance) clarifying the operation of the reciprocity principle. Although no such document has been published, guidance on the topic has recently been issued in the form of a "Conference Summary" dated 31 December 2021, which records the consensus reached by representatives of the Chinese judiciary at a national symposium on cross-border civil and commercial disputes.  Though not binding, the document provides important guidance from the PSC to lower courts in China.

The Conference Summary clarifies the threshold to be applied by a Chinese court when determining whether there is reciprocity with a foreign country, as well as the criteria by which it should decide whether to enforce a particular judgment presented to it.  Importantly, as to the threshold test, it confirms that reciprocity with a foreign court will exist if

“… according to the law of the country where the court is located, the civil and commercial judgments made by the People’s Court can be recognised and enforced by the courts of that country” (emphasis added).

The present case

The English judgment in this case was a 2016 Court of Appeal decision in a charterparty dispute, which ordered the charterers’ parent company, as guarantor, to pay to the shipowner outstanding payments and damages, plus interest and costs (see our previous post).  The shipowner sought to enforce the judgment against the parent company in Mainland China, where it had assets.

The enforcement application came before the Shanghai Maritime Court in 2018 and its opinion in favour of granting enforcement was then escalated for approval through the higher courts, in accordance with local procedure.

Having obtained formal approval from the PSC, the Shanghai Maritime Court issued the decision granting enforcement.  It held (consistent with the Conference Summary published two months earlier) that a finding of reciprocity did not require a Chinese court to be provided with proof that the courts of the foreign country had previously enforced a Chinese judgment. Accordingly, although it did not identify any prior instance of an English court recognising a Chinese judgment, it could enforce the judgment on the basis that it was satisfied that, as a matter of principle, a Chinese judgment could be recognised by an English court under English law.

For more detail, see this post on our Asia Disputes blog.