By George W. Thompson and Meng Jiang*
*Ms. Jiang received her law degree from Ocean University in China, and is a candidate for the degrees of LL.M at The Dickinson School of Law of Pennsylvania State University and Master of International Law at Ocean University of China.
A. Background
Trade between the United States and the Peoples Republic of China has grown steadily over the past decades. The types of trade include sales of merchandise between the two countries, provision of services and investments in assets. The parties engaging in these transactions do so for their perceived mutual benefit, and in the vast majority of cases, they are satisfied with the results.
One of the consequences of increased trade is an increase in the number of legal disputes. In particular, one party to the transaction may believe the other has breached the contract and seek redress if attempts at amicable resolution fail. At that point, the aggrieved party may commence a civil action. The contract may have a choice of venue provision that determines where such an action should be brought.
Very often –more often than not, in our experience – the contract is silent on dispute resolution issues. In such situations, the injured party may be inclined to bring the case in the courts of its home country which, after all, provides the more familiar location and procedures.
There are, however, practical difficulties involved in suing a foreign party in domestic courts, particularly when there is no contractual provision under which that foreign party agreed to this process. In particular, there are concerns about service of process, obtaining personal jurisdiction, discovery and trial procedures and enforcement of a judgment.
This article focuses on the last of these issues. It summarizes the rules under which Chinese courts consider enforcement of court judgments rendered in the United States, as well as the rules under which U.S. courts may enforce Chinese judgments. Parties to disputes should take these points into account in evaluating how to proceed.
Besides regular commercial disputes, U. S. bankruptcy law has a feature that authorizes proceedings to collect “preferential” payments made by the bankrupt company to creditors. It is commonplace for Chinese companies to have substantial claims relating to unpaid invoices for merchandise delivered to the debtor, and yet face demands that they return any money they received from it in the 90-day period before the bankruptcy petition’s filing. Judgments in such preference actions, whether contested or default, may also be subject to enforcement in China, under the rules we discuss below.
B. States of the United States Have Adopted a Uniform Law to Enforce Foreign Judgments
In the United States, foreign court judgments are not self-executing, that is, a person that has been granted a money judgment by a foreign court cannot simply seize the losing party’s property to satisfy the judgment. Instead, the party wishing to enforce a judgment must apply to a court in the United States to turn the foreign judgment into a judgment of that domestic court.
There is no national law in the U.S. addressing foreign judgments. Instead, the process for whether and how to enforce them is left up to the individual states. Most states have adopted either the Uniform Foreign Money Judgments Recognition Act or the Uniform Foreign-Country Money Judgments Recognition Act. Thus, although individual details may vary from one state to another, each has the same underlying requirements. Because these laws are very similar in most respects, we do not distinguish between them in this article and refer to them both as the “Uniform Law”.
Under the Uniform Law, a domestic court must first “recognize” a foreign court judgment as a prerequisite for enforcing it. “Recognition” means that the judgment is valid. To be eligible for recognition, the foreign judgment must provide an award of money and be final and conclusive and enforceable in place where it was issued.
There are limited grounds for not recognizing a judgment. These include:
- The foreign justice system is not impartial or does not provide due process of law.
- The losing defendant was not subject to personal jurisdiction in the foreign court.
- The foreign court lacked subject matter jurisdiction.
- The defendant did not receive adequate notice of the foreign court proceedings.
- The foreign judgment was fraudulent.
- The cause of action underlying the foreign judgment is contrary to U.S. public policy.
- Another judgment conflicts with the foreign judgment.
- The parties had agreed to arbitrate the dispute, not go to court.
- The foreign court was a seriously inconvenient place to hear the dispute.
In addition, a few states have adopted “reciprocity” as another standard for recognition. This standard considers whether the foreign country in question enforces judgments issued by courts in the United States, raising the possibility that the foreign judgment will not be recognized if the foreign country does not enforce U.S. judgments.
The Uniform Law provides several procedural methods to seek recognition and enforcement, though the details may vary from state to state. In New York, the options are “by an action on the judgment, a motion for summary judgment in lieu of complaint, or in a pending action by counterclaim, cross-claim, or affirmative defense.” The foreign judgment thus may be used as a sword or a shield: the winning party may seek to enforce it to collect a judgment debt, or raise it as a defense in a separate action covering the same subject matter.
Once recognized, the foreign judgment shall be enforced by the domestic court except in very unusual circumstances. Thus, the key step is to get the foreign judgment recognized in a U.S. court.
C. The Recognition and Enforcement of American Judgments in China
1. Introduction
Conventions and treaties play little role in the recognition and enforcement of American court judgments in China.
First, China is not a party to any international conventions relating to foreign judgments, aside from ratification of some articles of The Convention on Civil Liability for Oil Pollution Damage in April, 1980. According to the ratified articles, China would recognize and enforce the judgments from countries which also were the parties of the Convention relating only to the issue of oil pollution damage.
Second, China is not a signatory of any multilateral treaties for the recognition and enforcement of foreign judgment, although it has entered into reciprocal treaties with more than thirty countries. However, United States is not one of them.
In the absence of a treaty arrangement involving the United States, the conditions and procedures for recognition and enforcement of judgments rendered by American court should be in accordance with the relevant domestic laws in China: Civil Procedure Law of the People’s Republic of China (PRC Civil Procedure Law), Enterprise Bankruptcy Law of the People’s Republic of China (PRC Enterprise Bankruptcy Law) and Foreign Trade Law of The People’s Republic of China (PRC Foreign Trade Law).
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The Recognition and Enforcement Distinction
The relationship of recognition and enforcement is mentioned in Article 282 of PRC Civil Procedure Law: “… after examining it in accordance with the international treaty concluded or acceded to by the People’s Republic of China or with the principle of reciprocity and arriving at the conclusion that it does not contradict the basic principles of the law of the People’s Republic of China nor violates State sovereignty, security and social and public interest of the country, recognize 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.”
According to this article, the enforcement of a foreign judgment shall take place after recognition. Recognition of the judgment is pre-condition of enforcement. In practice, if the foreign judgment is recognized by the court, it is enforceable, and could be automatically enforced by the court. If the court does not issue a writ of execution to enforce, the party could then apply for enforcement.
The form of decision of recognition is a “written order”. In China, there are two main forms for judges’ decisions: “written order” and “judgment”. A judgment is the decision made by court for the substantial disputes of the case, while a written order is the decision made by court to determine procedural issues, such as jurisdiction, qualification for appeal, choice of law, and similar matters. One case could have multiple written orders, but there should be only one judgment for one case.
“Writ of execution” is a court order to a sheriff to enforce a judgment by levying on real or personal property of a judgment debtor to obtain funds to satisfy the judgment amount. The requirements of the enforcement of American judgments in China are the same as the domestic law, which are described in Article 224-258 of PRC Civil Procedure Law.
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The Eligibility of Recognizable and Enforceable American Judgments
3.1 Summary of conditions for recognition and enforcement of foreign judgments
Currently, the conditions for recognition and enforcement for foreign judgments in China are as follows:
(1) The judgment must be a final binding judgment made by a foreign court with proper jurisdiction.
(2) The recognition and enforcement shall be applied for by either the party seeking recognition or the American court which made the decision.
(3) If the application is initiated by the party, it should be submitted to the intermediate people’s court of the People’s Republic of China (PRC intermediate court) which has jurisdiction. If it is initiated by the U.S. court, the application should be in accordance with the provisions of the international treaties or with the principle of reciprocity. Since there is no treaty between U.S. and China on that issue so far, the recognition and enforcement shall be reviewed under the principle of reciprocity.
A (4) The application cannot contradict the basic principles of the law of the People’s Republic of China or violate the state’s sovereignty, security and social and public interest of the country.
(5) If there is no mutually beneficial treaty or reciprocity relationship existing between China and the foreign country, the party may choose to file litigation in the corresponding level of court in China.
3.2 The eligible parties to submit an application
The eligible parties to submit an application for recognition and enforcement are either the party who received the judgment or the written order or the American court that rendered it. No other parties are eligible.
3.3 The proper Chinese courts for submission of the application
A party seeking recognition and enforcement must ensure it files the application in the correct court, based on the following requirements.
First, the courts should be one of the intermediate people’s courts. Courts in China are divided into four levels: the highest court is called the Supreme People’s Court; the lower levels are the Higher People’s Courts; the last two levels are the Intermediate People’s Courts and the Basic People’s Courts. According to the requirements of the Civil Procedure Law, the party or the court shall apply for recognition and enforcement to the intermediate people’s court of the People’s Republic of China.
Second, the intermediate people’s court should have proper jurisdiction. In order to determine if it has jurisdiction, the status of the party should be considered first. There are three situations: first, if the party subjected to execution is a natural person, the court should be one of the intermediate peoples’ courts in the place of registered permanent residence or the domicile place; second, if the party subjected to execution is a legal person, the court should be one of the intermediate people’s courts in the place of its principle business; third, if the party subjected to execution has some property in China, but does not have registered permanent residence, domicile place or the place of principle business, the court which has jurisdiction is one of the intermediate people’s courts in where the property is located.
3.4 Time limitation for submission of the application
According to the Civil Procedure Law, the application period (i.e., statute of limitations) is one year after the date the judgment was issued if one of the parties is a natural person, or six months if both parties are legal persons or other organizations.
3.5 The effect of written order
Generally, the Chinese judicial system is a two-tier review system, meaning the parties have one chance to appeal. However, the decision on the recognition and enforcement of foreign judgments is “one-final trial”. In other words, the court’s decision cannot be appealed.
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The standard of reciprocity
China follows the principle of reciprocity, under which foreign judgments will be recognized and enforced when the foreign country which issued them provides the same conditions for recognition and enforcement of Chinese judgments. In the absence of a treaty between the U.S. and China on the issue, Chinese courts will enforce American judgments based on reciprocity.
Application of the reciprocity principle is complicated, however. Since the case law is not binding as precedent in China, different judges may have a different understanding of the applicable circumstances. Currently, there are three interpretations of when reciprocity is appropriate: (1) the relationship of reciprocity needs to be shown in written; (2) the relationship of reciprocity only exists when there are some precedents to prove it; (3) the relationship of reciprocity is presumed to exist, unless there are contrary precedents to prove it does not.
In practice, the trend is for a broader interpretation of the term. In particular, following recognition and enforcement of a Chinese judgment in Hubei Gezhouba Sanlian Industrial Co., Ltd. v. Robinson Helicopter Co., Inc., 2009 WL 2190187 (C.D. Cal. 2009), aff’d, 425 Fed. Appx. 580 (9th Cir. 2011), many Chinese legal scholars have voiced the opinion that the principle of reciprocity is established for the United States.
Appendix. The applicable rules
- Civil Procedure Law of the People’s Republic of China
Article 5 Foreign nationals, stateless persons, foreign enterprises, or organizations, which initiate or respond to lawsuits in people’s courts, shall have the same litigation rights and obligations as the citizens, legal persons, or other organizations of the People’s Republic of China.
Should the courts of a foreign country impose restrictions on the civil litigation rights of the citizens, legal persons, or other organizations of the People’s Republic of China, the people’s courts of the People’s Republic of China shall follow the principle of reciprocity regarding the civil litigation rights of the citizens, enterprises, or organizations of that foreign country.
Article 281 If a legally effective judgment or written order made by a foreign court requires recognition and enforcement by the people’s court of the People’s Republic of China, the party may directly apply for recognition and enforcement to the intermediate people’s court of the People’s Republic of China which has jurisdiction. The foreign court may also, in accordance with the provisions of the international treaties concluded or acceded to by both the foreign country and the People’s Republic of China or with the principle of reciprocity, request recognition and enforcement by the people’s court.
Article 282 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, after examining it in accordance with the international treaty concluded or acceded to by the People’s Republic of China or with the principle of reciprocity and arriving at the conclusion that it does not contradict the basic principles of the law of the People’s Republic of China nor violates State sovereignty, security and social and public interest of the country, recognize 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 recognize or enforce it.
Article 283 If an award made by a foreign arbitral organ requires the recognition and enforcement by the people’s court of the People’s Republic of China, the party concerned shall directly apply to the intermediate people’s court in 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 accordance with the international treaties concluded or acceded to by the People’s Republic of China or with the principle of reciprocity.
- PRC Enterprise Bankruptcy Law
Article 5 When a bankruptcy procedure is initiated in accordance with this Law, it shall apply to the property outside the territory of the People’s Republic of China of the debtor.
If a legally effective judgement or ruling rendered by a foreign court in a bankruptcy case involves property in the territory of the People’s Republic of China of the debtor and an application or petition is made to a people’s court for recognition and enforcement, the people’s court shall conduct an examination thereof in accordance with the international treaties concluded or acceded to by the People’s Republic of China or in accordance with the principle of reciprocity, and, if it holds that such application or petition does not oppose the basic principles of the laws of the People’s Republic of China, does not prejudice state sovereignty or security or the public interest, and does not harm the lawful rights and interests of creditors in the People’s Republic of China, it shall rule to recognize and enforce such judgement or ruling
- Foreign Trade Law of The People’s Republic of China
Article 5 The people’s Republic of China shall, on the principle of equality and mutual benefit, promote and develop trade relations with other countries and regions, enter into or participate in such regional economic trade agreements as customs union agreement, free trade agreement and participate in regional economic organizations.