In the past, only arbitration awards were mutually enforceable between Hong Kong and the PRC pursuant to the Memorandum of Understanding on the Reciprocal Enforcement of Arbitration signed in February 2000. There were no laws or treaties concerning the reciprocal enforcement of court judgments between Hong Kong and the PRC. PRC judgments could only be enforced in Hong Kong by way of fresh legal action under common law principles.
On 14 July 2006, an agreement (the "Agreement") on Reciprocal Enforcement of Judgments in Civil and Commercial Matters by the Supreme Courts of the PRC and the Secretary of Justice of Hong Kong was signed which will, once implemented, put in place an arrangement for the mutual recognition and enforcement of civil and commercial judgments between the PRC and Hong Kong. It is consistent with the principles of the Hong Kong Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319) and with Article 95 of the Basic Law.
Pursuant to the Agreement, when a designated court in the PRC has made a judgment requiring the payment of money in a civil or commercial case pursuant to a jurisdiction clause in a commercial agreement, any party may apply to a court in Hong Kong for recognition and enforcement of that judgment. Likewise, the Agreement provides for judgments obtained in Hong Kong to be enforceable in the PRC. When implemented, the Agreement will be the first ever of its kind between the PRC and a common law jurisdiction.
Details of the Agreement
The new mechanism under the Agreement will, however, be subject to the following restrictions :-
1. Choice of Court
It will only be applicable to money judgments in disputes arising from commercial contracts where the parties concerned have voluntarily agreed in writing that a court of the PRC or a court of Hong Kong is designated as the court to have sole jurisdiction for resolving the dispute concerned.
2. Court Level
The judgment in question must be made, in the case of the PRC, by an Intermediate People’s Court or above or a Basic People’s Court that has been authorised to exercise jurisdiction in civil and commercial cases involving foreign parties; or in the case of Hong Kong, by the District Court or above.
3. Monetary Judgments
It only applies to judgments for payment of money (including damages that have been quantified) in a commercial contract. It does not apply to other disputes eg employment contracts or other types of remedies eg equitable relief.
4. Finality of Judgment
One of the main factors hindering enforcement of judgments given by the courts of the PRC has been the "finality issue". Under Hong Kong common law, for a foreign judgment to be enforceable in Hong Kong, it must be "final and conclusive". Since the PRC’s judgments can be re-opened by the original trial court on broad grounds, its judgments have not been able to comply with the "final and conclusive" requirement to the satisfaction of Hong Kong courts. Now, whenever an application for enforcement of a PRC’s judgment is made in Hong Kong, the case can only be sought to be re-opened and varied by a "higher court" (not the original trial court) in the PRC.
5. Enforcement Court
In the PRC, an application for recognition and enforcement of a Hong Kong judgment which complies with the requirements of the Agreement can be made to the Intermediate People’s Court at the place of domicile or where the debtor’s assets are located. Should these be in different People’s Courts’ jurisdictions, then the application can be made to either of the People’s Courts. In Hong Kong, such an application must be made to the Court of First Instance of the High Court.
6. Time Limit
Where either of the parties is an individual, the application for enforcement must be made within 1 year. If the parties are both companies, the application must be made within 6 months.
7. Grounds for Refusal
The Agreement also stipulates the grounds on which the courts of both places may refuse to enforce a judgment with a view to protecting the interests of debtors. These include the following :-
- the choice of court agreement is invalid under the law of the place of the court chosen by agreement of the parties where the original trial was conducted, unless the chosen court has nonetheless determined that the choice is a valid one;
- the judgment has been fully satisfied;
- the court of the place where enforcement of the judgment is sought has exclusive jurisdiction over the case according to the law of the same place. By way of example, the majority of PRC Sino-foreign Joint Venture cases are within the exclusive jurisdiction of the PRC courts under PRC law;
- the party that did not appear in court and against whom a judgment was given had not been summoned according to the law of the place where the original trial was conducted, or that party had been summoned according to such law but had not been given sufficient time to defend the proceedings as specified by such law;
- the judgment has been obtained by fraud;
- the "enforcement court" has made a prior ruling on the same cause of action; or
- enforcement will be against public interest in the PRC or Hong Kong.
Benefits of the Agreement
The Agreement will provide convenience for and enhance the confidence of those who are involved in business dealings involving Hong Kong and the PRC, particularly where the parties have assets in both jurisdictions. Creditors may now choose to initiate proceedings in 1 jurisdiction and apply to the appropriate court of the other jurisdiction for enforcement of a judgment where the assets of the debtor are situated.
The Agreement will allow litigants, especially multinational companies, access to the Hong Kong judicial system which they know and trust, being built and modelled on British common law, and at the same time enjoy the right of enforcement of Hong Kong judgments in the PRC, where common law does not exist. It is also expected to alleviate concerns of investors about litigation and enforcement of judgments in the PRC and make the business environment of both places more attractive.
However, the Agreement does not at present have the force of law. It will only be implemented once the Supreme People’s Court of the PRC has promulgated a relevant judicial interpretation and the implementing legislation has been passed in Hong Kong.
If you wish to know more about enforcement of judgments of any jurisdictions in Hong Kong or the PRC, lawyers in our Litigation and Dispute Resolution Department will be happy to assist you.
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.