Hong Kong: Enforcing Judgments And Arbitral Awards Between Hong Kong And Mainland China

The line of authorities following the HK decision in Chiyu Banking Corp. Ltd. v. Chan Tin Kwun [1996] 2 HKLR 395 demonstrates the supremacy of the various political and administrative arms of the PRC over its judiciary and poses uncertainty as to the enforcement of PRC judgments in HK. In this article we will examine some of the issues involved with enforcing judgments and arbitral awards between HK and the PRC.

The PRC legal system for resolving commercial disputes is quite different from HK's common law system and includes the following methods: -

• Negotiation  (hejie) - under Article 51 of the PRC Civil Procedure :-(aw ("PRCCP:-("), "the two parties may reach a compromise of their own accord". However, a compromise reached under those circumstances may not have the legal effect of a judgment declared by the court. Parties therefore need to institute court proceedings if a compromise is breached.

• Conciliation (tiaojie) - under Article 85 of the PRCCP:-(, the People's Court can "conduct conciliation between the parties on a voluntary basis". A settlement agreement reached through conciliation will be signed by the judge and sealed by the People's Court and will have the legal effect of a judgment.

• Arbitration (domestic and CITEAC) - Under Article 16 of the PRC Arbitration :-(aw, the parties in dispute must agree to resolve their dispute through arbitration either through an arbitration clause in the commercial contract or pursuant to a subsequent written agreement. An award made under a domestic arbitration in PRC is subject to review by the court whereas an award made by CITEAC is final and the parties cannot lodge an appeal in the court or any other institution for a substantive review of the award  (Article 259 of PRCCP:-( and Article 60 of CITEAC Rules). An arbitral award can be enforced in jurisdictions that are signatories to the New York Convention.

• Litigation - There are four levels of courts under the PRC legal system: basic, intermediate, high and supreme. Under the general trial system, any litigants have two chances to try their claims in court (the first instance and the second instance). Although described as an "appeal" to the court of second instance under the PRCCP:-(, the hearing by a court of second instance is a retrial rather than an appeal. The court of second instance is free to accept new evidence, decide new issues, make investigations and question the parties.

Currently, a PRC judgment can be enforced in HK as a matter of common law if it is:

• final and conclusive;

• for a liquidated monetary sum;

• of a court having competent jurisdiction;

• not impeachable according to the rules on conflict of laws in HK

The issue of finality of a PRC judgment has been the subject of litigation in HK. Theoretically, a PRC judgment of a court of second instance is "final" and therefore should be able to satisfy the requirement of finality. In reality, a judgment of second instance can be reviewed under the Supervisory Procedure. Government bodies like the People's Procuratorate, the Supreme People's Court, the People's Congress, the Political and Legal Committee of CCP can intrude and review a judgment and there is no time limit or limit to the number of interferences. Such potential uncertainty may therefore affect a party's choice of having the dispute resolved through litigation in the PRC, in particular when one foresees the need of enforcing the judgment in HK.

Comparatively, arbitral awards rendered by CITEAC are more "final" and can be enforced in HK following the amendments to the Arbitration Ordinance in 2000.

Under Article 268 of PRCCPL, a judgment of a foreign court can be enforced in the PRC provided it does not contradict the basic principles of the law of the PRC nor violate State sovereignty, security, social and public interest of the country. It is however difficult to predict how a court will react when the enforcement subject is related to the government or a state-owned enterprise when the concept of judicial independence does not exist within a communist regime. Also, it is doubted whether under the "one country, two systems" principle, HK will be treated as foreign and whether Article 268 of PRCCPL has any application at all. In the circumstances, it remains to be seen whether HK and the PRC can reach an agreement to ensure HK judgments can be effectively enforced in the PRC.

At the moment, it seems that HK arbitral awards have the advantage of enforcement in China. In 1999, HK and the PRC signed the Arrangement Concerning The Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR. The agreement reflects the principles of the New York Convention and in essence continues the enforcement mechanisms in place prior to the handover of HK on 1 July 1997. The Supreme People's Court has subsequently issued a notice to implement the Arrangement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.