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Cross-border Enforcement of Judgments

The long-awaited Arrangement between Hong Kong and Mainland China for reciprocal enforcement of certain civil court judgments was finally signed on Friday 14 July.

This describes, with brief commentary, the main features of the Arrangement of practical significance.

Executive Summary

• The Arrangement will only apply in commercial cases where judgment was delivered pursuant to a written exclusive jurisdiction agreement.
• The limitation period for applying to enforce is very short (six months in the case of disputes between companies.)
• Certain important categories of dispute fall outside the scope of this Arrangement (for example, Sino-foreign joint venture disputes - see below, exception 3.)
• Commencement date remains to be announced. The issue of whether it will apply to judgments on or after the commencement date or only to agreements entered into thereafter would also benefit from some clarification.

The Exclusive Jurisdiction Clause Requirement

As expected from previous announcements, the Arrangement's most obvious characteristic is that it only applies to judgments rendered pursuant to an agreement between the judgment creditor and judgment debtor "in written form... in which a people’s court of the Mainland or a court of the HKSAR is expressly designated as the court having sole jurisdiction for resolving any dispute which has arisen or may arise in respect of a particular legal relationship."

The Commercial Subject Matter Requirement

The Arrangement only applies to "civil and commercial contracts between the parties concerned, excluding any employment contracts and contracts to which [an individual] acting for personal consumption, family or other non-commercial purposes is a party."

One of the reasons why the Arrangement reportedly took so long to agree since negotiations started in 2002 was the Mainland side's wish for greater coverage on this point. It has been reported that, at the signing ceremony, the Mainland side took the opportunity to express the hope that the Arrangement would gradually be expanded in future to cover matters "such as labour disputes, matrimonial and domestic cases."

Non-Retrospectivity

Article 3 provides for the Arrangement to apply to agreements made "as from the day of commencement of this Arrangement." However, article 17 provides that the Arrangement "shall apply to any judgment made after the day of commencement of this Arrangement (including the day of commencement) by the courts of the Mainland and of the HKSAR." This appears somewhat inconsistent.

Article 19 provides that "after a judicial interpretation has been promulgated by the Supreme People’s Court of the Mainland and the relevant legislative amendment procedure has been completed in the HKSAR, both sides shall announce a date on which this Arrangement shall come into effect and be put into implementation." Perhaps the implementing interpretation and legislation, and the subsequent announcement, will clarify the point.

"In Written Form"

This may include not only a formal agreement signed by both parties, but also an exchange of correspondence, including an exchange of emails. The full definition is: "a form in which the contents may be displayed in visible form and are accessible for subsequent reference and use, such as a written contract, a letter or an electronic data message (including a telegram, a telex, a facsimile, an electronic data interchange and an e-mail). A choice of court agreement in writing may consist of one or several documents in written form."

Separability

The Arrangement adopts a principle long familiar from the arbitration context: "Unless otherwise provided in the contract, a clause for the choice of court in a contract exists independently and its validity will not be affected by the modification, discharge, termination or nullification of the contract."

Finality

A factor which has led to significant complications when attempts have been made to enforce Mainland judgments in the Hong Kong courts in the past is the trial supervision process whereby Mainland courts' judgments are susceptible to retrial on relatively broad grounds (compared with those available in Hong Kong and most other jurisdictions). It has been argued that such judgments are never "final" and, as such, ought not to be enforced in Hong Kong. It is unclear whether such arguments will ultimately prevail in Hong Kong but they have had some success in the lower courts to date (see e.g. Johnston, The Conflict of Laws in Hong Kong (Sweet & Maxwell, 2005), pp. 600 et seq., Smart, Finality and the enforcement of foreign judgments under the common law in Hong Kong (2005) 5 OUCLJ 301.)

The Arrangement provides, in effect, that the trial supervision process shall not prevent Mainland judgments being regarded as final for the purpose of the Arrangement. However, it also provides that, where the trial supervision process is commenced after the filing of an application for recognition or enforcement in Hong Kong, then the retrial court shall be one level higher than that which made the original judgment (e.g. a judgment of an Intermediate People's Court can only be retried, in these circumstances, by a Higher People's Court.)

The Hong Kong court has discretion to suspend enforcement whilst the retrial process is continuing in the Mainland, and the Mainland court has discretion to suspend enforcement whilst a Hong Kong appeal process is under way. The principles applicable in the exercise of that discretion are not spelled out in the Arrangement.

It should also be noted that first instance Mainland judgments are only enforceable in Hong Kong if "no appeal is allowed according to the law" or if "the time limit for appeal has expired and no appeal has been filed." No similar restriction applies to Hong Kong judgments or to second instance Mainland judgments.

Short Limitation Period

It is important to note that, in contrast with the position for enforcement of foreign judgments in Hong Kong, the Arrangement imposes some very short time limits for enforcement of judgments (in either direction) between Hong Kong and Mainland China. The limitation period is one year if either the judgment creditor or the judgment debtor is an individual (or if both are individuals). In other cases (e.g. where both parties are companies) the limitation period is even shorter - six months.

The limitation period starts running from the day on which the judgment ought to have been performed (or, in the case of a Hong Kong judgment, was enforceable). Provision is also made for cases such as judgments requiring performance in stages (in summary, a separate limitation period runs for each stage).

Procedure

Procedural issues (including such matters as Court fees, and the availability of interim remedies, such as freezing orders) are mostly governed by the laws and regulations of the place in which enforcement is sought, though there are specific requirements as to the filing of documents. Provision is also made to the effect that a certificate of the court which issued the judgment suffices to determine its finality and enforceability in the issuing jurisdiction, and that no notarisation is required.

Jurisdiction

In Hong Kong, the only court with jurisdiction to deal with enforcement or recognition applications is the High Court.

In the Mainland, jurisdiction lies with the courts of the respondent's domicile or ordinary residence and also with the courts of any place where the respondent has property. However, the applicant must elect to file in only one such court.

It is possible for an application to file simultaneous enforcement applications in Hong Kong and the Mainland, though both courts are of course under a duty not to allow double recovery, and are authorised to share information in order to prevent this.

Consent Orders and Mediation

As well as ordinary judgments and orders (including, it seems clear, consent orders), the Arrangement helpfully clarifies that "conciliation statements" issued by the Mainland courts are within its scope.

Interest and Costs Orders

Interest awards are enforceable on the same basis as the principal judgment sum.

"Lawyers’ fees and litigation costs... certified by the court" (i.e. "costs orders") are within the scope of the Arrangement. For the enforcement of a Hong Kong costs order in the Mainland it is first necessary to obtain an allocatur, i.e. the official Hong Kong court document which specifies exactly how much a party has to pay pursuant to the costs order.

Courts

Hong Kong judgments are covered irrespective of whether they are judgments of the District Court or High Court (which comprises the Court of First Instance and the Court of Appeal), or of the Court of Final Appeal.

Mainland judgments of courts at the Intermediate level or higher are all covered. This will comprise most cases of real commercial significance. Basic level court judgments are not covered unless the court in question included in a list annexed to the Arrangement; but the list is a long one and may be amended by the Supreme People's Court without reference to the Hong Kong authorities.

On the subject of Basic People's Court judgments, note also the text under the heading "Finality" above - part of the effect of which is that, unless the losing party neglects to appeal against a Basic People's Court's judgment, there will be nothing enforceable in Hong Kong unless and until the Intermediate People's Court has ruled upon the appeal.

The Seven Exceptions

In any such cross-border arrangement, a key issue in determining its practical effect is the scope and clarity of the exceptions.

In this case, there are seven exceptions. Points 3, 5 and 7 are perhaps the most interesting.

Remaining Scope for Common Law Enforcement in Hong Kong?

The Arrangement does not expressly provide whether it excludes the possibility of an application to enforce a Mainland judgment in Hong Kong under common law principles, though article 1 is drafted in permissive rather than mandatory terms. The case law in Hong Kong on this issue is, in any event, rather unsettled - such judgments are, in principle enforceable in Hong Kong but the finality issue referred to above has often made it difficult to obtain summary enforcement in practice. This point may or may not be clarified by the implementing legislation. It may be of practical significance in at least two main contexts:

1. "The choice of court agreement is invalid under the law of the place of the court chosen by agreement of the parties where the original trial was conducted, unless the chosen court has determined that the choice of court agreement is valid."
   
   This ought to be academic in most cases. The main practical point arising out of this exception is that in certain circumstances parties may wish to consider asking the trial court to rule expressly on the validity of the choice of court agreement under the law of the place where the trial court is situated (i.e. the lex fori), so as to put beyond argument that the agreement is valid (as opposed to the case being one in which the issue was ignored or conceded.)
   
   
2. The judgment has been wholly satisfied."
   
   This is obviously unexceptionable.
   
   
3. "The court of the place where enforcement of the judgment is sought has exclusive jurisdiction over the case according to the law of the same place."
   
   In the case of Mainland judgments for which enforcement is sought in Hong Kong, the main issues arising under this clause will relate to Mainland judgments affecting Hong Kong land or (arguably) Hong Kong intellectual property. See Johnston, The Conflict of Laws in Hong Kong (Sweet & Maxwell, 2005), pp. 147 et seq. for the issue here.
   
   Mainland Chinese law has a similar exception in respect of Mainland Chinese land (Civil Procedure Law, article 34(1)).
   
   However, the point is of hugely greater significance in the Hong Kong-to-Mainland direction because Mainland Chinese law also gives exclusive jurisdiction to the Mainland courts over a significant body of commercial matters, including (i) Sino-foreign joint ventures (equity or contractual), (ii) "Sino-foreign co-operative exploration and development of the natural resources of the People's Republic of China," (iii) disputes concerning Mainland harbours (Civil Procedure Law, articles 246 and 34(2).)
   
   This point is very important because Hong Kong litigation remains ruled out as a dispute resolution option in one of the largest category of Sino-foreign commercial disputes which arise in practice, namely Sino-foreign JV cases. In contrast, arbitration in Hong Kong or abroad is recognised by Mainland Chinese law as a valid option for resolving Sino-foreign JV disputes.
   
   
4. "The party that did not appear in court and against whom a judgment was given had not been summoned according to the law of the place where the original trial was conducted or the party had been summoned according to such law but had not been given such time to defend the proceedings as specified by such law. However, if the service was effected by way of public announcement according to the law or relevant regulations of the place where the original trial was conducted, it shall not be regarded as a case mentioned above."
   
   This is the only specific procedural guarantee given in the Arrangement, but in practice there is likely to be scope to bring other serious alleged procedural defects into play under exceptions (5) and (7) below.
   
   
5. "The judgment has been obtained by fraud."
   
   As in other common law jurisdictions, a similar exception has long existed in the Hong Kong law relating to the enforcement of foreign judgments. Its scope has, however, been much debated over the years and different common law jurisdictions have reached significantly different conclusions. See Johnston, The Conflict of Laws in Hong Kong (Sweet & Maxwell, 2005), pp. 572-563 for details. The precise scope of this clause is likely to be a source of legal debate in Hong Kong, one possibility being that the courts will decide that it is most sensible to apply the detailed common law principles which have grown up in this area. The likely approach of the Mainland courts to this issue remains to be seen.
   
   
6. "A judgment on the same cause of action between the parties has been made by a court of the place where enforcement of the judgment is sought, or by a court of a foreign country or outside the territory, or an arbitral award has been made by the arbitration body concerned, and the said judgment or award has already been recognized or enforced by the court of the place where enforcement of the judgment is sought."
   
   This is for the most part unexceptionable, though note that it depends on actual recognition or enforcement "by the court of the place where enforcement of the judgment is sought." As such, it is significantly narrower than the rule which Hong Kong courts apply in relation to prior foreign judgments (in which the question is whether the foreign judgment is "enforceable or entitled to recognition in Hong Kong": Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance, Cap. 46.)
   
   
7. "Recognition and enforcement of a judgment shall be refused if the people’s court of the Mainland considers that the enforcement of the judgment made by the court of the HKSAR in the Mainland is contrary to the social and public interests of the Mainland, or if the court of the HKSAR considers that the enforcement of the judgment made by the people’s court of the Mainland in the HKSAR is contrary to the public policy of the HKSAR."
   
   The Hong Kong courts are likely to interpret "public policy" very narrowly, in accordance with long-established practice in other contexts. The approach of the Mainland courts to the interpretation of "social and public interests" remains to be seen. Historically, this point has sometimes given rise to problems in Mainland courts in the arbitration context. The Mainland courts' approach to this issue in the present context is likely to be crucial in determining whether the Arrangement will operate in a reasonably even-handed way in both directions.

Remaining Scope for Common Law Enforcement in Hong Kong?

The Arrangement does not expressly provide whether it excludes the possibility of an application to enforce a Mainland judgment in Hong Kong under common law principles, though article 1 is drafted in permissive rather than mandatory terms. The case law in Hong Kong on this issue is, in any event, rather unsettled - such judgments are, in principle enforceable in Hong Kong but the finality issue referred to above has often made it difficult to obtain summary enforcement in practice. This point may or may not be clarified by the implementing legislation. It may be of practical significance in at least two main contexts:

1. Cases where the Mainland judgment falls outside the scope of the Arrangement.
2. Cases where the short limitation period under the Arrangement has expired, but where the much longer period given by the general law is still running.