Shanghai Maritime Court Recognizes English Judgment in Unprecedented Ruling

by Yi Dai, Joel Evans, and Michelle Zheng

It has been a long-standing belief among practitioners that judgments issued by courts in England and other jurisdictions are seldomly enforced in China. This situation is now changing. A recent decision of the Shanghai Maritime Court recognized and enforced an English court judgment within China.

For cross-border litigants, obtaining a favorable judgment is often only the start of the battle, as the challenge of achieving recognition and enforcement of the judgment/ruling often proves to be a significant hurdle. This is especially true in China, because under PRC law, absent an international convention or bilateral treaty, parties must rely on the principle of reciprocity to get a foreign judgment enforced[1].

Because of this reliance on reciprocity, PRC judges have historically looked at existing precedents that demonstrate the recognition and enforcement of PRC court judgments in the country whose court judgment is sought to be recognized and enforced in China[2]. As a result, PRC courts have been reluctant to recognize and enforce court judgments originating from countries that have not previously enforced PRC court judgments. Having said this, PRC courts have regularly enforced judgments from countries that have previously enforced PRC judgments, such as those originating from the US and Australia.

On 31 December 2021, the Supreme People’s Court issued the Minutes of the National Symposium on the Foreign-related Commercial and Maritime Trial Work of Courts (“Minutes”). The Minutes clarified that whether a reciprocal relationship exists depends on whether PRC court judgments could be recognized or enforced in that foreign country according to its laws[3]. The Minutes therefore imply that China does not require an existing precedent to enforce court judgments by the court of that foreign country; all that is required is a foreign country’s laws provide the possibility that a PRC court judgement could be enforced in that country. On 17 March 2022, in an unprecedented ruling rendered by the Shanghai Maritime Court (“Court”) the Court echoed the reasoning set out in the Minutes and for the first time in PRC judicial history, recognized an English court judgment not by relying upon precedents, but on the grounds that English law could, in practice, recognize and enforce PRC court judgments in English courts on a ‘de jure’ reciprocity basis.

On 30 June 2023, the Supreme People’s Court selected this case as a Model Maritime Trial Case for the year 2022. Not surprisingly, the judgement appears to have opened the door for the enforcement of similar judgments, such as the January 2023 decision of the Beijing First Intermediate People’s Court that recognized a German bankruptcy judgement on a similar “de jure” reciprocity basis.

Factual Background

The underlying dispute arising in this case arose out of three long-term charterparties between a Norwegian shipowner, Spar Shipping AS (“SPAR”) and Grand China Shipping (Hong Kong) Co. Ltd. (“GCS”) as charterer. GCS later went into liquidation and SPAR initiated proceedings in the English High Court against GCS’s parent company, Grand China Logistics Holding (Group) Co. Ltd (“GCL”), under three performance guarantees on the basis of unpaid hire due under the charterparties alongside damages for loss of bargain in relation to the unexpired term of the charterparties. The English High Court later ruled that GCL should assume responsibility under the performance guarantees to SPAR,[4] and several orders were made to determine the amount of costs GCL was required to pay. GCL appealed to the English Court of Appeal, which upheld the decision of the High Court and dismissed GCL’s appeal[5].

GCL later failed to perform its payment obligations as determined by (1) [2015] EWHC 718 (Comm), (2) [2016] EWCA Civ 982 and (3) their respective cost orders (collectively, “English Judgments”), and as a result of GCL’s failure to comply, SPAR applied to the Court to seek recognition and enforcement of the English Judgments in China.

Issues

(1) Whether there were any precedents where English courts had recognized and enforced PRC court judgments in England; and

(2) if not, whether the principle of reciprocity could be relied upon to recognize and enforce the English Judgments under PRC law, and if so, how the establishment of a reciprocal relationship could be determined.

Arguments

SPAR argued that precedents where English courts recognized and enforced PRC court judgments in England already existed. More specifically, the English Court of Appeal had previously recognized two PRC court judgments concerning disputes arising from the sale and purchase of faulty ship equipment[6]. In addition, an English Court had once recognized a maritime injunction issued by the Guangzhou Maritime Court as supporting evidence in its judgment. In view of these “precedents”, SPAR asserted that the English Judgments should be recognized and enforced based on the principle of reciprocity.

GCL attempted to counter these arguments on the basis that both of the cases that SPAR referred to were not precedents, as the English courts had only approved the PRC court judgment and injunction as evidence, and had not directly recognized/enforced them (which would be a notable step further).

GCL also provided three further arguments to resist recognition of the English Judgments: (1) The requirements for recognizing foreign court judgments under English law differs from those under PRC law because English law permits the use of anti-suit injunctions whereas PRC law does not. Furthermore, English courts would not recognize a PRC court judgment if it was obtained despite an anti-suit injunction having been issued by an English court. (2) The English Judgments displayed clear errors in relation to the application of PRC law. (3) According to the Hague Convention on Choice of Court Agreements, which China has acceded to, the recognition or enforcement of a court judgment may be refused if the judgment awards exemplary or punitive damages[7].

Findings

After deliberation, the Court ruled to recognize the English Judgments by citing Article 289 of the Civil Procedure Law of the PRC (2021), which provides that foreign court judgments can be recognized and enforced in accordance with treaties that China has acceded to, or as an alternative, on the basis of reciprocity, provided that to do so would not be contrary to the principles of PRC law, sovereignty, national security, or China’s public policy[8].

In the absence of applicable treaties between the PRC and England, the Court was required to consider the principle of reciprocity. When determining the reciprocal relationship, the Court made the following key findings:

• A reciprocal relationship between China and the foreign country from which a court judgment is sought to be enforced could be established if under the law of that country, a PRC court judgment could be enforced.
• English law, as presented to the Court by GCL, does not consider treaties an essential element when deciding whether to recognize and enforce foreign court judgments. When seeking recognition and enforcement of a PRC court judgment in England, an applicant should start a new action before the English court by referring to the PRC court judgment itself. The English court will then render judgment based on the PRC court judgment that will be recognized if the requirements of recognition and enforcement under English law are met. Moreover, GCL did not demonstrate any legal or factual obstacle for a PRC court judgment to be enforced in England. Therefore, a PRC court judgment could be recognized and enforced by English courts under English law.
• A precedent could be strong proof that PRC court judgments can be recognized and enforced in the foreign country, but such a precedent is not necessary to determine a reciprocal relationship.
• No precedent was found in the present case because the English Judgment referred to by SPAR[9] was not a precedent for two reasons. First, it was not a case where the cause of action was the recognition and enforcement of a foreign judgment, as it solely involved a dispute regarding letters of guarantee. Second, the parties to the two PRC court judgments were different from the parties to the English proceedings concerning the letters of guarantee dispute.
• Furthermore, no precedent regarding the English court’s refusal to enforce PRC court judgments based on the absence of a reciprocal relationship was found.

In addition to the above analysis, the Court also held that there are no grounds for refusing to recognize and enforce the English Court Judgments for the following reasons:

• GCL participated in the English court proceedings, during which no objection to jurisdiction was raised.
• As for errors in applying PRC law, the legal binding effect of the Guarantees concerns the substantive rights and obligations of the parties and thus does not fall within the scope of the examination of recognition and enforcement of the judgment. Furthermore, even if errors were found to exist, only when the judgment contravenes the principles of PRC law, sovereignty, national security, or the public policy of China can it then be refused.
• Interest and penalties ruled by the English Judgments are not exemplary or punitive damages, thereby disqualifying the third defense made by GCL.

Based on the above, the Court found in favor of SPAR and ruled to recognize and enforce the English Judgments.

Takeaways

For foreign court judgments rendered against PRC entities in other countries that have no judicial assistance treaties with China, the above case constitutes a good example of how such judgments can be recognized and enforced in China based on the reciprocity principle. It follows that parties are expected to demonstrate to PRC courts that the law of that foreign country may recognize and enforce a PRC court judgment without the need to prove that a PRC court judgment has already been recognized and enforced by a court of that country. The proof that the law of a particular country would permit the enforcement of a PRC judgment may be provided by foreign legal expert opinions together with relevant textual authorities. To this end, China has set up various institutions to assist parties and the courts with their understanding of foreign law, such as the Foreign Law Ascertainment and Research Center of CUPL, the ECUPL Center for Proof of Foreign Law, and the Wuhan University Center of Ascertainment of Foreign Law, alongside the efforts of the Supreme People’s Court to set up an online platform.

The Minutes, while they technically pertain to commercial and maritime cases, nonetheless will be persuasive authority for courts in all regions and at all levels, making them a formidable tool in the enforcement of foreign judgments in China. Although this is the first instance of a PRC court recognizing and enforcing an English court judgment, we expect more PRC courts in Shanghai and beyond to follow suit in the future.

Footnotes

[1] Articles 288 and 289 of the Civil Procedure Law of the PRC provide that in the absence of applicable international conventions or bilateral treaties, reciprocity is a condition for the recognition and enforcement of foreign judgments.

[2] See [(1995) Civil Request No.17] Letter of Reply of the Supreme People’s Court on whether PRC Courts Shall Recognize and Enforce Japanese Judgments on Claims and Debts.

[3] Article 44 of the Minutes provides that reciprocity is established between China and a foreign country if any of the following conditions are met:

(1) a civil or commercial Chinese judgment can be recognized and enforced in that foreign country according to the law thereof; or

(2) China and that foreign country have reached a mutual understanding on reciprocity; or

(3) that foreign country has made a commitment on reciprocity to China through diplomatic means or China has made a commitment on reciprocity to that foreign country through diplomatic means, and there is no evidence suggesting that the foreign country has refused to recognize and enforce a Chinese judgment due to a lack of reciprocity.

[4] Spar Shipping AS v Grand China Logistics Holding (Group) Co, Ltd [2015] EWHC 718 (Comm) (18 March 2015).

[5] Grand China Logistics Holding (Group) Co. Ltd v Spar Shipping AS (Rev 1) [2016] EWCA Civ 982 (7 October 2016).

[6] Spliethoff’s Bevrachtingskantoor BV v Bank of China Ltd [2015] EWHC 999 (Comm) (17 April 2015).

[7] Hague Convention on Choice of Court Agreements, Article 11: “Recognition or enforcement of a judgment may be refused if, and to the extent that, the judgment awards damages, including exemplary or punitive damages, that do not compensate a party for actual loss or harm suffered”.

[8] Notably, there was an Amendment to the Civil Procedure Law of the PRC issued on 1 September 2023 which will come into force on 1 January 2024. The amended version provides the basis for the recognition and enforcement of foreign judgments (Article 299) and the circumstances under which foreign judgments should not be recognized and enforced (Article 300).

[9] Supra note 6.