Canada: Enforcing Chinese Judgments In Canada: When, How Long, And Why (Not)?

Foreign judgments may be recognized and enforced in Canada through three routes: (1) at common law; (2) under applicable legislation; or (3) pursuant to a treaty. Canada currently does not have any legislation or treaty with China governing the recognition and enforcement of Chinese judgments. Consequently, a judgment creditor must commence a proceding for recognition or enforcement of a Chinese judgment under the common law. In these cases, the plaintiff/judgment creditor will typically seek to have the matter decided by summary procedure.¹

The limitation period, the time frame within which such action must be commenced, is governed by provincial limitation statutes and varies between provinces. In British Columba, for instance, a proceeding to enforce a Chinese judgment must be commenced by the earlier of (i) the expiry of the time for enforcement in China and (ii) ten years after the Chinese judgment became enforceable in China.²

In Ontario, the applicable limitation period is two years from the date on which the grounds for bringing a claim in Ontario is discovered.³ The discovery date is fact-driven and is typically the date that all options to appeal the Chinese judgment have been exhausted.⁴ A claim, however, may not be discovered until "such time as the judgment creditor knew or ought to have known that the judgment debtor had exigible assets in Ontario and could be served with process."⁵

Based on the past jurisprudence (see the chart below), after an action is commenced, it typically takes one to three years to have the first hearing and an additional one to three months to receive a judgment. Depending on the type of procedure and the complexity of the issues in dispute, the whole proceeding can vary from under eight months to over ten years, with most cases taking two to four years.

Among the cases, 61 per cent resulted in the court refusing to recognize or enforce the Chinese judgments,⁶ which was mostly due to insufficient or contested evidence concerning the finality of the Chinese judgment and the defence of natural justice. The balance of this article examines the legal requirements for recognizing and enforcing Chinese judgments in Canada, highlighting various grounds upon which the court refused to permit summary judgment.

What is required for recognition and enforcement of Chinese judgments?

In a Canadian enforcement proceeding, the foreign judgment, which is treated as a debt, is not judged on the merits or substance of the underlying case. If the decision comes from a court of competent jurisdiction and is final, courts will recognize and enforce it unless one or more of several specific grounds of defence are available.⁷ The most common reasons for rejection are insufficient or contested evidence to prove finality and natural justice. This section discusses the legal requirements for enforcement and the next section addresses the available defences.

(a) Competent jurisdiction

The Canadian court will conclude that the foreign court is one of competent jurisdiction if it finds a "real and substantial connection" between the foreign court and the subject-matter of the action.⁸ Competency can also be established where a claimant participated fully at every stage of the foreign court proceedings without challenging the court's jurisdiction.⁹ Consequently, this element has rarely been a ground for rejection.

(b) Finality

Finality requires that the decided issue cannot be revisited in the jurisdiction that made the order.¹⁰ In Wei v. Mei, the court found finality where there was no appeal available under Chinese law, and the Chinese court had taken enforcement measures.¹¹ In Cao, the fact that a Chinese judgment left certain open issues was irrelevant to the finality of the matters decided. The court in that case also noted that the retrial process in China does not affect the finality of Chinese decisions issued by "second-instance courts."

The Canadian courts have refused to permit the enforcement of a Chinese judgment in several cases where they have concluded that there was insufficient evidence proving that the judgment was final under Chinese law. For example, in Xu v Yang, the court, on a summary judgment application, refused to recognize the Chinese judgment on finality grounds because there was a lack of expert evidence regarding the legal effect of the judgment in China.¹² However, the court noted that the trial judge could order the enforcement of the judgment provided the plaintiff introduced expert evidence on Chinese law at trial.

Similarly, in Yang v Kong, the court refused to grant summary disposition due to insufficient evidence on the finality of the decision. This included: the structure of the legal system in China; the interaction of the various levels of court with each other; the potential roles or powers of the prosecutor in China; and the impact of a certain appeal on the Chinese judgment.¹³

What defences are available?

Even if a Chinese judgment meets the above requirements, courts may refuse to give effect to a foreign judgment where a defence of fraud, public policy, or natural justice is available. They may also consider whether the judgment is penal, deals with an issue of taxation or public law, or is inconsistent with a prior domestic judgment.¹⁴

(a) Fraud

The defence of fraud is rarely argued, and courts tend to treat it narrowly in order to avoid relitigation of the underlying decision.¹⁵ In the Lonking case, the defendants resisted an application for summary trial on the basis that the plaintiff failed to disclose certain agreements relevant to the finding of the amounts owing in the foreign judgment, which the plaintiff argued were not operative. The court found that such an issue required interpretations of the terms of the agreements and the case was consequently not suitable for a summary decision.¹⁶

(b) Natural justice

Natural justice, a common ground for rejection, is a minimum standard of fairness that requires adequate notice and an opportunity to be heard.¹⁷ This defence is typically successful where there is insufficient or contested evidence surrounding the adequate notice requirement. Proper service is relevant but not necessary to establish adequate notice. The notice requirement has been satisfied where the party attorned to the jurisdiction of the foreign court and participated actively in the proceedings.¹⁸ In Liu, the court acknowledged the gaps in the evidence on whether the Chinese court properly followed its procedures respecting service but noted that the real issue was whether the defendants had adequate notice and an opportunity to be heard as defined in Canadian law.¹⁹

Actual knowledge or willful blindness could also negate a defence of inadequate notice. In Lonking, the defendants asserted that the plaintiffs could have served them with the Chinese proceedings but failed to do so. The plaintiff's response was that the defendants had actual knowledge of the Chinese proceeding or were wilfully blind to the existence of the proceeding.²⁰ The court concluded it needed to make findings of fact concerning whether the defendants had actual knowledge of the claims or whether knowledge should be imputed to them due to their actions. It found that the evidence was so contested that it required critical credibility assessments and thus the claim was inappropriate to be addressed by summary trial.

(c) Public policy

The public policy defence has a high bar to satisfy and thus is not a common ground for rejection.²¹ In Ace, for instance, the judgment creditor applied to enforce a costs judgment granted in Hong Kong. The judgment debtor raised the public policy defence, arguing that the amount of the costs award was contrary to the proportionality principles applied to cost awards in British Columbia. The judge rejected this argument, quoting the court's finding in Beals that the public policy defence cannot succeed merely on the basis that a Canadian court would have awarded a lesser amount in similar circumstances.²²

However, in some enforcement decisions, Canadian courts have reduced the amount of the debt determined in the Chinese judgments albeit not expressly because of the public policy defence. For example, the specified interest rate in the Chinese judgments in Wei exceeded the annual rate of 60 per cent permitted by the Criminal Code of Canada.²³ The court, in that case, read down the interest provision in two Chinese rulings when granting judgment to enforce them. As a result, the judgment creditor could only enforce up to the maximum allowed interest rate in Canada of 60 per cent on his two loans.

While the public policy defence is difficult to raise successfully, it has succeeded in some cases by overlapping with the defence of a lack of natural justice. For instance, in Qingdao, the main question the court was asked to answer related to the natural justice requirement (i.e., whether the respondent was denied the right to answer and defend the claim in China).²⁴ However, the court noted that the impact of being denied, in that case, could be repugnant to Canadian law or so unfair as to raise a prima facie case for a new defence. Accordingly, the court found that prima facie defences of both natural justice and public policy were sufficiently raised and that a full assessment of facts and circumstances was required; consequently, it refused to award summary judgment.

Implications

In conclusion, the primary grounds for rejection in the jurisprudence, regardless of the type of proceedings, are typically the failure to prove finality or to disprove the lack of natural justice. In the summary procedure cases, which comprise the majority of the jurisprudence, the underlying rationale for rejection has been that summary determination was unsuitable or would be unjust due to evidence issues.

Those cases can be grouped into two situations: (1) the evidence was insufficient for courts to summarily decide on an element of the tests, especially the requirements for finality and natural justice; and (2) due to contested evidence, determining the sufficiency of the defences (especially the natural justice defence) required a full assessment of the facts and circumstances through a trial. Consequently, to successfully enforce or recognize Chinese judgments in Canada, judgment creditors should ensure they prepare and file sufficient evidence, including expert evidence on the appeal process in China and evidence for adequate notice to the other party.

Footnotes

1. In a summary procedure, the court makes its determination based on affidavit evidence (and other written evidence, in some cases) as opposed to oral testimony at trial. The requirements for moving by way of summary procedure vary by province. In Ontario, the enforcement proceeding is typically done through a motion for summary judgment. In British Columbia, it can be done through an application for summary judgment or summary trial. Losing on summary procedure does not necessarily preclude moving to trial. For example, a court will not typically permit a matter to be decided summarily if there are material issues on the evidence in dispute, particularly if they go to credibility. If the court makes such a determination, then it will refuse to grant a summary decision but will typically permit the matter to proceed to a trial on the merits.

2. Limitation Act, SBC 2012, c 13, s 7(b).

3. Limitations Act, 2002, SO 2002, c 24, Sch B, s 4; Independence Plaza 1 Associates, LLC v Figliolini, 2017 ONCA 44 [Independence Plaza].

4. Independence Plaza, ibid at paras 76-79.

5. Independence Plaza, supra note 3 at para 82.

6. Some of the cases that were rejected on summary procedure were allowed to proceed to trial. At the time of this article, there was no information available on any trial relating to those cases.

7. In the family law context, courts also showed respect for the parties' intention to divorce in recognizing Chinese divorce orders and tend to be more stringent for child custody and support orders. However, this is beyond the scope of this article.

8. Beals v Saldanha, [2003] 3 SCR 416 (SCC) [Beals]; Morguard Investments Ltd. v De Savoye, [1990] 3 SCR 1077 (SCC); Ace Life Insurance Co v Li, 2015 BCSC 2533 [Ace].

9. Cao v Chen, 2020 BCSC 735 [Cao].

10. Ibid.

11. Wei v. Mei, 2018 BCSC 157 (affirmed in Wei v Li, 2019 BCCA 114) [Wei].

12. Xu v Yang, 2018 BCSC 393.

13. Yang v Kong, 2021 BCSC 809.

14. Wei, supra note 11.

15. Beals, supra note 8.

16. Lonking (China) Machinery Sales Co. Ltd. v Zhao, 2019 BCSC 1110 [Lonking].

17. Liu v Luo, 2018 BCSC 1237 [Liu].

18. Cao, supra note 9.

19. Liu, supra note 17.

20. Lonking, supra note 16.

21. Ni v Yan, 2020 ONSC 912; Ace Life Insurance Co. v Li, 2015 BCSC 2533 [Ace], Cao, supra note 9.

22. Ace, ibid.

23. Wei, supra note 11.

24. Qingdao Top Steel Industrial Co. Ltd. v Fasteners & Fittings Inc., 2022 ONSC 279 [Qingdao].

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