Landmark Decision in Mainland China - First Court English Judgment Recognised in Mainland China

Mainland China recognised an English Court judgment based on the principle of reciprocity for the first time on 17 March 2022. The English Court of Appeal decision in Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2016] EWCA Civ 982 was recognised for enforcement by the Shanghai Maritime Court of PRC with the approval by the Supreme People’s Court of the PRC in the milestone ruling of 2018 Hu 72 Xie Wai Ren No.1 ((2018)沪72协外认1号)). This case not only means that enforcement of English court judgments is now possible in Mainland China, it may also be an indication that Mainland China is adopting a more friendly policy towards foreign judgments generally.

In Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd, the charterer repeatedly failed to pay hire on time. The shipowner then terminated the three long-term charter parties, and sued the charterer for the unpaid hire under the charters as well as damages in respect of the remaining term of the charters. The court held that the hirer’s persistent breach of its obligation of punctual payment constituted repudiatory breach of the contract. The shipowner was thus entitled to terminate the charter parties. The charterparties were guaranteed by the parent company of the charterer. The English Court of Appeal ordered the parent company, as guarantor, to pay the outstanding hire and damages, plus interest and costs. Assets of the parent company were in Mainland China. The shipowner thus sought to enforce the English court judgment in Mainland China.

This case was the first heard by the Shanghai Maritime Court in 2018. The case was then submitted to the Supreme People’s Court for examination and approval. The core issue was whether there was a reciprocal relationship between Mainland China and the UK for the recognition and enforcement of civil and commercial judgments.

The principle of reciprocity and procedure for recognition of foreign judgments in Mainland China was explained in the conference summary of the National Court’s Symposium on Foreign-related Commercial and Maritime Trials issued by the Supreme People’s Court in January 2022 (the “Conference Summary”). A reporting system was prescribed in the Conference Summary for cases that concern the application of the reciprocity principle. The lower courts shall refer their opinion to the higher courts for approval. Upon approval by the high courts, they shall refer their opinions to the Supreme People’s Court for final approval. Final ruling will only be issued after the Supreme People’s Court has given its approval.

In making the decision on whether to recognise a foreign judgment, the court shall first examine whether there is any applicable international treaty between the jurisdictions. If there is no applicable international treaty, the court shall ascertain whether there is any reciprocal relationship between the jurisdictions. The Conference Summary provides that there is a reciprocal relationship if “

…according to the law of the country where the court is located, the civil and commercial judgments made by the People’s Court can be recognised and enforced by the courts of that country.”

Previously, PRC courts would only recognise and enforce a foreign court judgment if a court in the foreign jurisdiction has previously enforced a Chinese court judgment. The principle of reciprocity is thus only satisfied if there was a previous successful precedent of recognition of Chinese court judgment in the foreign jurisdiction. Thus in 2004, a Chinese court refused to recognised the English judgment of Russia National Symphony Orchestra, Art Mont Company v. Beijing International Music Festival Society (2004) Er Zhong Min Te Zi No. 928 ((2004) 二中民特字第928号) on the basis that there lacks reciprocity between the two jurisdictions. In the present case, although the Shanghai Maritime Court did not find any previous precedent of an English court recognising a Chinese judgment, it nevertheless decided to recognise the English judgment. It held that it was unnecessary to locate such a foreign precedent to establish that a Chinese judgment could be recognised under English law. The Shanghai Maritime Court was satisfied that a Chinese judgment can be recognised by an English court as a matter of principle, and that would suffice for it to recognise the English court of appeal judgment. This arguably means that the Shanghai Maritime Court has applied a new reciprocity test.

This decision no doubt lowers the threshold for foreign court judgments to be recognised in Mainland China, and made it easier for parties to enforce foreign court judgments in Mainland China. Having said that, it should be noted that court decisions in Mainland China are not binding. This decision only has persuasive value. However, given that this decision of the Shanghai Maritime Court was approved by the Supreme People’s Court, foreign parties can now be more optimistic about the prospect of enforcing foreign court decisions in Mainland China. This is particularly true when it comes to enforcement of English court judgments. There will be more certainty for foreign claimants when there are more successful cases of enforcement of foreign court judgments in Mainland China.