On 14 July 2006, the Hong Kong and Mainland China Governments signed a ground-breaking agreement, rather lengthily entitled "An Arrangement on Reciprocal Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region pursuant to Choice of Court Agreements between Parties Concerned" (Arrangement), under which they agreed to recognise and enforce judgments made in each others courts.
Described by the Vice President of the Supreme People's Court as "a landmark" , the Arrangement has important consequences for anyone doing business in the Mainland or with Mainland persons. If a commercial contract designates Hong Kong as the exclusive forum for resolving disputes arising from the contract, a judgment obtained in Hong Kong will be recognised and enforced in the Mainland if the judgment debtor keeps his assets there. The reverse will also apply.
Legislative changes are now underway in Hong Kong and the Mainland in order to implement the Arrangement. The Mainland Judgments (Reciprocal Enforcement) Bill (Bill), gazetted in Hong Kong on 23 February 2007, is modelled on the Foreign Judgments (Reciprocal Enforcement) Ordinance (detailed below). The Bill will implement the Arrangement by providing for the registration and enforcement by the Hong Kong courts of certain money judgments given by designated Mainland courts exercising their jurisdiction pursuant to a valid exclusive choice of court clause contained in a commercial agreement.
The Existing Position: Enforcement Of Mainland Judgments In Hong Kong
The Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap 319) (Ordinance) provides a mechanism for enforcing civil and commercial foreign judgments in Hong Kong, by means of a simple and quick registration procedure. The Ordinance designates those foreign jurisdictions whose judgments the Hong Kong Courts will enforce. Such designation is based on whether that foreign jurisdiction allows the reciprocal enforcement of Hong Kong judgments, hence the term "reciprocal enforcement." Mainland judgments are not enforceable in Hong Kong by registration under the Ordinance. To enforce Mainland judgments in Hong Kong, the Mainland judgment creditor has to start a fresh action in Hong Kong under the common law, based on the Mainland judgment.
Enforcement Of Hong Kong Judgments In The Mainland
At present, it appears that Hong Kong judgments cannot be enforced in the Mainland at all. The Mainland does not have a rule similar to Hong Kong's common law rule on recognition and enforcement of foreign judgments. The Mainland's Civil Procedure Law provides that foreign judgments may be enforced in accordance with international agreements to which the Mainland is a party or in accordance with reciprocity. However, post-1997, Hong Kong, can probably no longer be considered a "foreign" country. A Hong Kong judgment creditor has to initiate fresh legal proceedings in the Mainland, but the Hong Kong judgment may be used as evidence in support of the claim.
The Position Under The Arrangement
Application for Registration in Hong Kong of Mainland Judgments
A judgment creditor under a Mainland judgment may apply to the Court of First Instance to have the judgment registered in Hong Kong. If one or more parties to the judgment are natural persons, such application must be made within 1 year and, in all other cases, within 6 months. The time starts to run from the date by which the Mainland judgment must be performed.
Pre-requisites for registration
Only judgments based on "specified contracts" can be registered. A "specified contract" is defined as a contract other than an employment contract or contract to which a natural person acting for personal consumption, family or other non-commercial purpose is a party.
The judgment creditor must prove to the Court of First Instance's satisfaction that:
a. the Mainland judgment was given by a designated Mainland Court on or after the commencement of the Mainland Judgments (Reciprocal Enforcement) Ordinance (Ordinance). Designated Mainland Courts will include courts at the Intermediate's People's Court level or above and to those Basic Level People's Court's designated to have jurisdiction over civil and commercial cases (42 in various provinces);
b. the Mainland judgment was given pursuant to a Choice of Mainland Court Agreement made on or after the commencement of the Ordinance. A "Choice of Mainland Court Agreement" is an agreement (in writing or evidenced in writing) made by the parties to a specified contract and designating a Mainland Court to determine a dispute which has arisen or may arise in connection with that contract, to the exclusion of other jurisdictions;
c. the Mainland judgment is final and conclusive as between the parties to the Mainland judgment. The Ordinance will set out the requirements for a judgment to be considered as "final and conclusive";
d. the Mainland judgment is enforceable in the Mainland;
e. the Mainland judgment orders the payment of a sum of money (not being a sum of money payable in respect of taxes or other similar charges or in respect of fines or other penalties).
Effect Of Registration
For the purposes of execution, a registered judgment will have the same force and effect as if it had been a judgment originally given by the Court of First Instance and entered on the day of registration. Accordingly, upon the registration of a Mainland judgment (a) proceedings may be taken on the judgment; (b) the sum for which judgment is entered carries interest; and (c) the Court of First Instance has the same control over execution of the judgment as if the judgment had originally been given by the Court of First Instance and entered on the day of registration.
Setting Aside Registration Of Registered Mainland Judgments
There will be safeguards under the Ordinance whereby registration of a Mainland judgment can be set aside. When making an order to register a Mainland judgment, the Court of First Instance may specify a period (which may be extended) within which an application can be made to set aside the registration.
On an application by a party against whom the registered Mainland judgment may be enforced, the Court of First Instance shall set aside the registration if satisfied that:
a. the judgment is not a Mainland judgment which satisfies the pre-requisites for registration (as set out above);
b. the Mainland judgment has been registered in contravention of the Ordinance;
c. the Choice of Mainland Court Agreement pursuant to which judgment was given is invalid under Mainland law;
d. the Mainland judgment has been wholly satisfied;
e. the Hong Kong courts have exclusive jurisdiction over the case according to Hong Kong law;
f. the Mainland judgment was given in the absence of the judgment debtor;
g. the Mainland judgment was obtained by fraud;
h. a judgment on the same cause of action between the parties to the Mainland judgment has been given by a Hong Kong court;
i. a judgment on the same cause of action between the parties to the Mainland judgment has been given by a court in a place outside Hong Kong or an arbitral award has been made by an arbitration body, and the judgment or award has already been recognised in or enforced by the Hong Kong courts;
j. the enforcement of the Mainland judgment is contrary to public policy; or
k. the Mainland judgment has been reversed or otherwise set aside pursuant to an appeal or a retrial under Mainland law.
The Court of First Instance may also set aside registration or adjourn an application to set aside registration where an appeal against the Mainland judgment is pending or a designated Mainland Court has ordered a retrial.
Legislative Timetable
The first reading of the Bill took place on 7 March 2007. There is no indication of when the second and third readings will take place, but the Bills Committee is due to meet at the end of November 2007 and we are hopeful that the Ordinance will come into effect next year.
Enforcement In The Mainland Of Hong Kong Judgments
In the Mainland, the Supreme People's Court is to promulgate a judicial interpretation to set out the details for implementation of the Arrangement.
Where a sum of money is payable (not being a sum payable in respect of taxes or charges of a similar nature or in respect of a fine or other penalty) under a Hong Kong judgment given by the Court of Final Appeal, the High Court or District Court pursuant to a Choice of Hong Kong Court Agreement, and the judgment creditor wishes to enforce that judgment in the Mainland, he or she can apply under the Ordinance for a certified copy of the Hong Kong judgment.
A "Choice of Hong Kong Court Agreement" is an agreement (in writing or evidenced in writing) made between the parties to a specified contract (which has the same definition as above) which designates a Hong Kong court to determine a dispute that has arisen or may arise in connection with that contract, to the exclusion of courts of other jurisdictions.
Upon the issue of the certified copy of the Hong Kong judgment, the High Court or District Court, as the case may be, will issue a certificate certifying that the judgment can be enforced by execution in Hong Kong (which will be a pre-requisite for enforcement in the Mainland).
Arbitration
Arbitration awards rendered in Hong Kong and recognised arbitration commissions in the Mainland have been mutually enforceable since February 2000. From our experience, the arrangement for mutual enforcement in both places is working smoothly. When the Arrangement for reciprocal enforcement of judgments is implemented, litigation can be considered as a real and viable alternative to arbitration.
Implications
The Ordinance will affect everyone doing business with Mainland parties, as with suitably worded contractual clauses, it will be possible to sue in Hong Kong and enforce Hong Kong judgments in the Mainland without the need for lengthy litigation. The following steps should be taken:
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Standard form contracts should be reviewed to determine whether they require revision.
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In cases where you are contracting with parties who have assets in the Mainland, you will probably want to be able to enforce judgments in the Mainland. In such case, a suitably worded clause should be included in the contract.
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In any cases where reciprocal enforcement is not desired, alternatives should be considered.
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If you have an arbitration clause in your standard contract, you may wish to consider whether to change it to litigation.
Published December 1, 2007.
