# PRC – the UK
Case I - New move broadening definition of “reciprocity” principle in PRC
[Keywords: reciprocity principle, legal reciprocity, Minutes of Meeting, punitive damages]
On March 17, 2022, Shanghai Maritime Court (“Court”) recognized and enforced a judgment rendered by the UK High Court of Justice (“Judgment”), which is the first time a PRC court recognized a commercial judgment rendered by a UK court (“Case”).
The main issue before the court is whether there exists a “reciprocity” basis between PRC and UK for recognizing and enforcing foreign judgments since no multilateral or bilateral treaty in this regard has been signed or concluded between these two countries.
Failing bilateral or multilateral treaties, PRC courts would not recognize the establishment of “reciprocity” between PRC and the country where the judgment sought to be recognized was made, unless there was precedent that a PRC judgment was once successfully recognized and enforced in that country in previous legal practice. However, in this Case, the Court held that the “reciprocity” principle stipulated under Article 288 of PRC Civil Procedure Law should not be narrowly interpreted, which is also the spirit of Article 44.1(a) of the Minutes of Meeting of the Trial Work of the National Courts on the Foreign-related Commercial and Maritime Matters (“Minutes”) issued on 31 December 2021, stating that “(1) [w]here the court exams the application to recognize and enforce a foreign court commercial judgment, the reciprocity may exist, if any of the following situations arise: (a) the Chinese commercial judgment can be recognized and enforced by the foreign court in light of their law…(2) [t]he Court shall examine the existence of reciprocity on a case-by-case basis.” Therefore, after comprehensive consideration, the Court ruled that the Judgment could be recognized and enforced in PRC and the ruling is also upheld by the Supreme Court of PRC.
Besides, the Respondent argued that the interests and fines claimed by the Applicant in the Case are punitive damages and shall not be recognized in accordance with Article 45 of the Minutes, which states that “[w]here the judgment rendered by a foreign court includes damages which obviously exceed the actual losses, the court may rule not to recognize and enforce the excessive part.” However, the Court decided that the interests and fines are parts of the Respondent’s duties arising out of its failure to fulfill the payment obligation and shall be recognized and enforced.
The Case concerns a dispute arising out of performance guarantees of Time Charter Party between a Norwegian shipowner and a PRC guarantor. It’s the first time a PRC court recognize and enforce a UK judgment solely applying the rule “legal reciprocity”, i.e., “the Chinese commercial judgment can be recognized and enforced by the foreign court in light of their law”, without proving that a PRC court judgment was made enforceable antecedently in the UK.
Case II – Recognition and enforcement of the ICA Arbitral Award
[Keywords: electronic delivery, document-only arbitration, ICA Arbitration Rule]
On February 25, 2022, the Intermediate People's Court of Qingdao City of Shandong Province (“Court”) recognized and enforced an arbitral award issued by International Cotton Association (“ICA”) dated on May 6, 2020 (“Award”) (“Case”).
The Respondent argued that it was never served during the whole arbitration proceeding and therefore it cannot submit its application of oral hearing to the arbitral tribunal, which did deprive its opportunity and right to present the Case. The Court, however, found that all the arbitration files have been delivered by email to the Respondent’s designated email address, which is satisfied with the electronic delivery requirement under ICA Arbitration Rule and the arbitral tribunal has the discretion on whether the oral hearing is essential for each case in accordance with ICA Arbitration Rule. Accordingly, the Court ruled that there are no grounds for non-recognition in accordance with New York Convention.
The Case concerns a dispute arising out of an international sale contract of cotton between a Swiss seller and a PRC buyer registered in Qingdao City.
# PRC - the U.S.
Case I – The first batch of U.S. judgments related to EB-5 fraud have been partially recognized and enforced
[Keywords: EB-5, CIIF, reciprocity, Shanghai Yongrun, punitive damages]
On March 4 and March 7, 2022, the Intermediate People's Court of Guangzhou City of Guangdong Province (“Court”) respectively and partially recognized and enforced three judgments rendered by U.S. California courts (“Judgments”) (“Case”), which is the first batch of U.S. judgments related to EB-5 immigration fraud have been partially recognized and enforced in PRC.
In April 2017, the U.S. FBI searched California Investment Immigration Fund (“CIIF”), a California immigrant investor regional center, for alleged fraud. It was discovered that attorney Victoria Chen, her father Tat Chen, and Fang Zeng recruited Chinese investors, who were non-native English speakers and wanted to obtain a U.S. green card via the EB-5 immigration program, to join the “San Gabriel Valley Chinese Cultural Center” and other cultural centers, hotel and restaurant projects, however, collected the “investment” funds into their own pockets, used most of the funds for personal spending, e.g., purchasing luxury properties, and none of the projects they had promised were ever built. Subsequently, some of the victims of the CIIF Case filed civil lawsuits in California against Victoria Chen, Tat Chen, Fang Zeng and others, demanding the corresponding damages. And the California courts issued several default judgments in favor of the victims including special damages, punitive damages and other fees and costs.
Later, the victims of the CIIF Case, i.e., the Judgments creditors, discovered that Fang Zeng, one of the defendants in the Judgments, was living in Guangzhou and her own property in Guangzhou was enforceable, therefore, filed applications with the Court for recognition and enforcement of the Judgments.
The Court mainly reviewed two issues – (i) failing multilateral or bilateral treaties, whether there exists the “reciprocity” basis between PRC and U.S. in respect of recognizing and enforcing commercial judgments rendered by the other country; and (ii) whether punitive damages could be recognized and enforced in PRC.
For the first issue, the Court ruled that tracing back to two-way leading cases established by both PRC and U.S. courts, there does exist a “reciprocity” basis for recognizing and enforcing U.S. judgments. And for the second issue, considering the discrepancy regarding punitive damages between common law and civil law legal systems and the lack of cause of action for punitive damages on the basis of security fraud according to PRC laws, the Court finally refused to recognize and enforce the punitive damages’ part, the spirit of which is also confirmed by Article 45 of the Minutes of Meeting of the Trial Work of the National Courts on the Foreign-related Commercial and Maritime Matters (“Minutes”) issued on 31 December 2021, stating that “[w]here the judgment rendered by a foreign court includes damages which obviously exceed the actual losses, the court may rule not to recognize and enforce the excessive part.” The final decision was also upheld by the Supreme Court of PRC.
The judgment date of the Case is quite close to the one when the New York Court of Appeals reversed the first trial decision made by the Supreme Court of the State of New York regarding the case - Shanghai Yongrun Inv. Mgt. Co., Ltd. v Kashi Galaxy Venture Capital Co., Ltd. (“Shanghai Yongrun Case”). During the first trial of the Shanghai Yongrun Case, a judgment rendered by the High People's Court of Beijing Municipality was refused to recognize and enforce on the grounds that “the PRC judgment was rendered under a system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law in the United States”, which did bring uncertainties, confusions, and complexities in the area during the past one year.
Fortunately, the final outcomes of the Case and the Shanghai Yongrun Case do present the current positive judiciary attitude towards mutual recognition and enforcement of foreign judgments in both PRC and U.S.
# Mainland China – Hong Kong
Case I – Can an out of China winding-up suspend the recognition procedure in PRC?
[Keywords: Cap.32 Ordinance, liquidation, winding-up, insolvency]
On February 15, 2022, Tianjin Maritime Court (“Court”) recognized and enforced two Arbitral Awards (“Awards”) rendered by an ad hoc arbitral tribunal seated in Hong Kong (“Case”).
The Respondent argued that it has applied for liquidation and appointed liquidators in accordance with the British Virgin Islands (BVI) Insolvency Act, 2003 in BVI court, which was also recognized by the Court of First Instance of the High Court of Hong Kong upon the Respondent’s application with the letter of request for judicial assistance issued by BVI court. In accordance with Hong Kong Cap. 32 Companies (Winding Up and Miscellaneous Provisions) Ordinance (“Cap.32 Ordinance”), all litigations and legal proceedings shall be void after the commencement of the winding up.
Therefore, since the Respondent is in insolvency, it is believed that the Awards shall be refused to recognize and enforce in accordance with Article 7.1(5) of Arrangements of the Supreme People's Court on the Reciprocal Enforcement of Arbitration Awards by Mainland China and the Hong Kong Special Administrative Region – “…the relevant court may decide not to enforce the award: …(5) the award has not become effective in relation to the parties, or it has been annulled or its enforcement has been suspended by a court in the place of arbitration or in accordance with the law of the place of arbitration…”.
However, the Court decided that Hong Kong Cap.32 Ordinance shall not be straightly applied for the following reasons:
a. the alleged liquidation was applied under BVI laws rather than Hong Kong Cap.32 Ordinance;
b. the alleged liquidation is voluntary liquidation/winding-up, which falls outside of the scope of Article 327(2) of Hong Kong Cap.32 Ordinance, which states that “[n]o unregistered company shall be wound up voluntarily under this Ordinance”; and
c. the Respondent is not entitled to apply for suspending the process in accordance with Hong Kong Cap.32 Ordinance directly without filing application with Hong Kong courts.
Therefore, the Court rejected the Respondent’s arguments and ruled that there were no grounds for non-recognition in the Case.
The Case concerns a dispute arising out of Charter Parties between two Hong Kong enterprises.