Bar to English judgments being enforced in China lifted

An order handed down by the Shanghai Maritime Court recognising the principle of judicial ‘legal’ reciprocity has recently been approved by the People’s Republic of China (PRC) Supreme Court, opening the door for English High Court judgments to be enforced against PRC entities.

The potential ability to seek enforcement locally in China will encourage those who contract with PRC entities to reconsider whether to incorporate English law and jurisdiction clauses over arbitration dispute resolution provisions that are typically negotiated. The PRC Supreme Court ruling will also provide comfort and reassurance to those already engaged in litigation with companies and businesses in China now that there is a viable method to obtain payment of outstanding judgments through the court system.

Underwriters that have suffered losses and had discounted the option of progressing subrogated actions against PRC entities because of a fear of not being able to attach assets to the judgment may now wish to reconsider their options in the light of the ruling.

Background

Charterparty disputes arose following a charterer’s (Grand China Shipping [Hong Kong] Co Ltd ) failure to perform and pay hire in advance to owners (Spar Shipping AS). This resulted in the owners obtaining judgments from the English Court of Appeal (Spar Shipping AS v Grand China Logistics Holding [Group] Co Ltd [2016]) totalling over US$37m for the balance of outstanding hire due against the Chinese parent company (Grand China Logistics Holding [Group] Co Ltd).

The owners thereafter filed an application before the Shanghai Maritime Court seeking recognition of the English judgments, which was approved on 17 March 2022.

Legal issues

China has yet to enter into bilateral treaties or conventions for recognition and enforcement of judgments with its major trading and investment partners, and reciprocity is not easy to establish before Chinese Courts. Traditionally, judgments from foreign jurisdictions could only be enforced by the PRC courts in instances where there was a judicial precedent for the relevant foreign jurisdiction enforcing a PRC judgment.

In this case, the Shanghai Maritime Court and Supreme People’s Court of China was asked whether there was a reciprocal relationship between China and the United Kingdom. Whilst it found that there was no precedent for English courts recognising Chinese judgments, the Chinese Courts concluded that there was reciprocity in respect of the recognition and enforcement, and therefore judgments and orders of the English High Court can be recognised and enforced in Mainland China.

Implications

This seemingly historic result may result in a significant step-change in the way that those who contract and do business with Chinese entities view their options when disputes unfortunately arise. English law and jurisdiction clauses may become more popular than arbitration clauses (which have traditionally been favoured because of China’s participation as a contracting State to The Convention on the Recognition and Enforcement of Foreign Arbitral Awards [the New York Convention]), and there may be an increased appetite to revisit potential recovery actions against PRC entities that previously appeared out of reach.