Introduction: Recently, Hai Tong & Partners, acting for a Norwegian shipowner, applied to Shanghai Maritime Court for recognition of the judgments and orders of English courts and was ruled in favor. This is a case in which Chinese court for the first time recognized commercial judgment of English court in accordance with the principle of reciprocity. This case reverses the long-standing misunderstanding that the reciprocal relationship is interpreted restrictively as ‘reciprocal on fact’ in Chinese judicial practice, and is the first case in which Chinese court recognizes commercial judgments of English courts on the basis of the principle of “reciprocal on law”. This case is also the first case for trial of the recognition and enforcement of foreign court judgments with reference to the Memorandum of the National Courts' Symposium on Trials for Commercial and Maritime Cases Involving Foreign Elements (hereinafter as “the Memo”). Basic opinions put forward by Hai Tong in this case were fully reflected in Part 9 of the Memo concerning “Trial of Cases Concerning Application for Recognition and Enforcement of Judgments of Foreign Courts”. Given the global influence of English courts in commercial disputes resolution, the ruling of Chinese court in this case is of milestone significance, which shows that with the tremendous development of China in economic field, China will be more open and inclusive in the field of foreign-related commercial trial and judicial assistance.

Facts in the case

The Applicant as the owner and the Hong Kong wholly-owned subsidiary of the Respondent as the charterer concluded three time charterparties. The Respondent issued three performance guarantees to the Applicant to guarantee the performance of the three time charterparties by the charterer. It was stipulated in all the performance guarantees that English law shall be applied, and any litigation against the Respondent under the performance guarantees shall be submitted to English High Court for trial. Thereafter, the charterer was unable to perform the time charterparties, and the Applicant brought a lawsuit against the Respondent in the English High Court in accordance with the performance guarantees. After due trial, the English High Court delivers judgments and orders holding the Respondent liable to the Applicant in the amount of USD 37,238,126. In the proceedings of the English High Court, the Respondent did not raise any objection to jurisdiction, nor did it bring a lawsuit to any Chinese court, it appeared in English High Court to defend itself, and appealed to the English Court of Appeal after losing the lawsuit, which was finally rejected by the English Court of Appeal.

In March 2018, Hai Tong, acting on behalf of the Norwegian shipowner, filed an application with the Shanghai Maritime Court, the court of jurisdiction where the Respondent is located, for recognition of the judgments and orders of the English court. On March 17, 2022, Shanghai Maritime Court issued a Civil Ruling, which fully recognized the judgments and orders of the English court involved in this case.

Core disputes

Upon trial, core disputes of the case are as follows:

• Whether there is a reciprocal relationship between China and UK on the recognition and enforcement of civil and commercial judgments, including whether there are precedents for the recognition and enforcement of Chinese judgments by English courts, and whether there are precedents for refusing to recognize and enforce Chinese judgments; In the absence of the aforementioned precedent, whether it can be based on the principle of reciprocity to recognize the judgment of English court in advance in present case;
• Whether the anti-suit injunction system of English courts constitutes a reason not to recognize judgments of English courts;
• Whether recognition of the English judgment will violate the principle of reciprocity under the Chinese law;
• Whether the part of penalty interest in the judgments and orders of the English court fell within the scope of recognition.

Applicant’s opinions

1. The original meaning of the principle of reciprocity should be “reciprocal on law”.

Art.288 of the Civil Procedure Law of PRC and Art.544 of the Interpretations of the Supreme People’s Court on the Application of the Civil Procedure Law of PRC take reciprocal relationship as one of the basis for recognizing and enforcing judgments of foreign courts. However, relevant laws and judicial interpretations of civil procedure in China do not specify how to identify the reciprocal relationship. We proposed that, in its literal sense, reciprocal relationship should not be interpreted restrictively as reciprocal on fact. “Reciprocal” contains the meaning of mutual, and the mutual recognition of the judgments in China or foreign countries should not be done in sequential order; Reciprocity emphasizes the interaction and follow-up in the field of judicial assistance and recognition and enforcement between two countries. However, in judicial practice of China, there has long been an incorrect recognition that the reciprocal relationship is interpreted restrictively as reciprocal on fact, that is, there should be precedent in which judgment of Chinese court has already been recognized first by the foreign court of that country. In 2005, the Second Intermediate People’s Court of Beijing ruled that there was no reciprocal relationship between China and UK, so it did not recognize the civil and commercial judgment of the English High Court.

In the application in this case, we proposed that with the development of international civil and commercial exchanges of China, the legal application of the principle of reciprocity in China should be more flexible and reasonable, and return to the essence of the principle of reciprocity in civil procedure law. The essence of the principle of reciprocity should be “reciprocal on law”, that is, as long as the judgment of the Chinese court can be recognized and enforced according to the law of the country where the foreign court is located, the reciprocity relationship between China and that country should be recognized. In addition, we have also submitted the English legal opinions issued by English lawyers on the recognition of foreign court judgments by English courts to prove that, according to the English law, the basic principle of recognition of foreign court judgments by English courts is that under the rules of English common law, the enforcement of foreign judgments is the effective enforcement of a debt, provided only that it is necessary to transform the foreign debt into a form that can be recognized under English common law, to prove the debt to the English court.

2. English courts have taken the lead and recognized the judgments of Chinese courts, constituting “reciprocal on fact”

On the basis of adhering to the above views on the principle of reciprocity, we also put forward that even according to the judicial practice of our country that reciprocity is reciprocal on fact, there has been precedent that English court has recognized judgment of the Chinese court. In the case of Spliethoff’s Bevrachtingskantoor BV and Bank of China Limited, the English High Court rendered the judgment [2015] EWHC 999 (Comm) (hereinafter referred to as the “Spliethoff” case). The judgment recognized judgments and stop payment order rendered by Qingdao Maritime Court and Higher People’s Court of Shandong Province for disputes arising from sales contract between Rongcheng Xixiakou Shipbuilding Co., Ltd. and Wartsila Engine (Shanghai) Co Ltd. and Wartsila Finland Oy ([2011]QHFHSCZ No 271 and 361; [2013] LMSZZ No.87 and 88), which constituted “reciprocal on fact”, but such opinion was not adopted by Shanghai Maritime Court. 

3. With respect to anti-suit injunction

We proposed that the applicant did not apply for an anti-suit injunction during the hearing of the English proceedings involved, nor did the English court issue an anti-suit injunction. The anti-suit injunction system had nothing to do with the recognition application of the English judgment in this case. However, even if the anti-suit injunction system exists in UK, the anti-suit injunction was not a reason to refuse to recognize the English judgments involved. We pointed out that,

• English courts issue anti-suit injunction is to maintain the principle of freedom of contract and respect the jurisdiction clause in the contract agreed by the parties,and such anti-suit injunction is issued directly against the breaching party, not against any foreign country and its courts;
• English courts place a high probabilistic burden on the applicant for an anti-suit injunction to prove the existence of a valid jurisdictional agreement, taking into account the principle of comity;
• Anti-suit injunction is mainly issued in the disputes of bill of lading contract of carriage, the main reason is that the legal provisions of incorporation clause in bill of lading are different between China and UK. The Spliethoff case can prove that even if the English court issued an anti-suit injunction, as long as the respondent accepted the jurisdiction of Chinese court, the English court could not refuse to recognize the judgment of the Chinese court on the grounds of violating public policy of UK.

4. With respect to “principle of reciprocity”

During the court hearing, the Respondent raised the “principle of reciprocity”, arguing that when the English court recognizes and enforces foreign court judgments, it will examine whether foreign courts have jurisdiction over the disputes in accordance with English law, and there was no evidence that the criteria of English courts were equal or similar to that of Chinese courts. This involves the issue of “indirect jurisdiction”, which is also one of the most common criterions for the recognition and enforcement of foreign judgments in private international law. The Supreme People’s Court also adopted such practice in Art.46 (1) of the Memo, that is, if, according to Chinese law, the court of the country rendering the judgment has no jurisdiction over the case, Chinese court shall not recognize and enforce the judgment of that foreign court.

5. We pointed out that the nature of interests and additional costs in the judgments and costs orders of the English court involved is similar to the debt for the belated payment in Chinese civil procedure law, which is not a penalty, but a “monetary debt” and should be recognized.

Arguments of the Respondent

1. There is no reciprocal judicial relationship between China and UK, and the Spliethoff case does not constitute a precedent for the English court to recognize Chinese judgment, and the English court in substance did not recognize the stop payment order issued by the Chinese court in the Spliethoff case; In addition, comparing the conditions of recognition of foreign judgments in China and UK, we can see that the conditions of recognition in UK and China are inconsistent under the same circumstances, and the conditions in UK are not more loosen than those in China, so Chinese court shall not recognize English judgments on the basis of “reciprocal on law”;
2. In a large number of disputes over the contract of carriage of goods by sea as evidenced by bills of lading heard by maritime courts of China, the English courts issued anti-suit injunctions. Moreover, when the English common law is applied for recognition of Chinese judgments, if the Chinese judgments conflict with the judgments made by the relevant English courts having jurisdiction, Chinese judgments will not be recognized, which violates the principle of reciprocity under Chinese law;
3. In the judgment by English court for the Spliethoff case, the English court wrongly applied the Chinese law to hear the case;
4. Penalty on interests and costs in the Applicant’s application is punitive damages and did not fall within the scope of recognition of a foreign judgment;
5. Given the leading position of UK in international commercial and maritime dispute resolution, if the English judgment in this case is recognized, it will lead to the result of fully recognizing commercial judgments of English courts in the future, which will cause the collapse of conditions of

After this case was heard in 2018, due to change of collegial panel members, the case was heard again in February 2022 and the abovementioned Memo was published in January 2022. According to Art.33 of the Memo, since China and UK have not concluded or jointly acceded to international treaties, the Memo can be applied for the specific standards of review for recognition of English court judgments. Para.1 of Art.44 of the Memo provides that “according to the law of the country where the court is located, the civil and commercial judgments made by people’s court can be recognized and enforced by the courts of that country”, the reciprocity standard of recognizing foreign court judgments in China is not so-called “reciprocal on fact”, but formally defined as “reciprocal on law” through the Memo. We put forward in court hearing that according to English law, civil and commercial judgments made by Chinese courts can be recognized and enforced by English courts. In fact, by examining the various views put forward by both parties in this case, Shanghai Maritime Court adopted the principled opinions put forward by us on behalf of the applicant, which were reflected fully in certain articles of the Memo.

Court ruling

Upon examination, Shanghai Maritime Court recognizes the judgments of English courts involved in the case for the following reasons:

1. The Civil Procedure Law PRCdoes not limit the principle of reciprocity to the prior recognition and enforcement of civil and commercial judgments of Chinese courts by relevant foreign courts, if according to the law of the country where the foreign court renders the judgment, the civil and commercial judgments made by Chinese courts can be recognized and enforced by the courts of that country, it can be concluded that there is a reciprocal relationship between China and the country in recognizing and enforcing civil and commercial judgments;
2. Although there was an expression in the judgment of the Spliethoff case that “recognise” the judgment and its preservation ruling of Chinese courts, it can not be regarded as “recognition” in the sense of “recognition and enforcement of foreign court judgments”. The Spliethoff case did not constitute a precedent that English court recognized and enforced judgments of Chinese courts;
3. English court acquired jurisdiction and rendered judgments on disputes involved not by prohibiting the parties from bringing lawsuit in Chinese courts (anti-suit injunction). In present case, it was agreed between the parties under the letters of guarantee to submit to English court, thus English court had jurisdiction over the dispute involved;
4. The error in the application of Chinese law in the English judgment as alleged by the respondent is the substantive right and obligation relationship between the parties, which does not fall within the scope of examination in this case; even if the problem of incorrect application of law is indeed established, only when it violates the primary principles of Chinese law or State sovereignty, security and social and public interests of China can it constitute a reason for refusing the recognition and enforcement by Chinese court, and there is no such situation in this case that recognition should be refused;
5. Interest, costsand penalties in this case fall within the scope of recognition as they were incurred due to respondent’s failure to fulfill its obligation to pay,

Hai Tong will continue to pay attention to the legal development and trial cases in the field of recognition and enforcement of foreign court judgments in Chinese courts, and will report relevant progress to our customers and friends in a timely manner. If you have any questions about the legal issues involved in this article or encounter related problems, please feel free to contact our lawyers Greg Yang and Joy Luo.

Email:

greg.yang@haitonglawyer.com

joy.luo@haitonglawyer.com