First Time Chinese Court Recognises English Commercial Judgment - The Expanded Interpretation of the "Principle of Reciprocity"
Market Insight 26 April 2022 26 April 2022
The SMC Ruling, for the first time, changed the interpretation of the "principle of reciprocity" concerning the Chinese courts’ recognition and enforcement of foreign judgments from "factual reciprocity", which had been the long-standing position in Chinese judicial practice, to "legal reciprocity".
On 17 March 2022, after obtaining approval from the Supreme People's Court, the Shanghai Maritime Court (“SMC”) issued a ruling recognising a commercial judgment issued by English High Court (case no. (2018) H72XWR No.11, the “SMC Ruling”). The SMC Ruling, for the first time, changed the interpretation of the "principle of reciprocity" concerning the Chinese courts’ recognition and enforcement of foreign judgments from "factual reciprocity"2, which had been the long-standing position in Chinese judicial practice, to "legal reciprocity"3.
The disputes arose out of three long-term charterparties between a Norwegian Owner and a Hong Kong Charterer. After the Charterer went into liquidation, the Owner initiated legal proceedings, before the English High Court, against the Chinese parent company, on the basis of three performance guarantees expressly governed by English law, claiming the balance of hire due under the charterparties and damages for loss of bargain in respect of the unexpired term of the charterparties. The Chinese parent company proceeded to defend the case and did not raise any challenge to the English Court’s jurisdiction. In March 2015, the English High Court held the Chinese parent company liable for the balance of the hire due under the charterparties and the loss of bargain in respect of the unexpired term of the charters in a total amount of USD 25,308,320.25 plus interest. The Chinese parent company appealed the decision, but the English Court of Appeal dismissed the appeal. The Owner, thereafter, sought to have the judgment recognised in China.
Since the Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters has not yet entered into force in China (even though China has confirmed the texts of the Convention), the legal basis for the recognition and enforcement would generally rest on the “principle of reciprocity” (unless there is a bilateral agreement in place between the two jurisdictions on recognition/enforcement of judgments). Therefore, in the current case, one of the key issues to be decided was whether there was a reciprocal relationship between China and the UK, including:
- - whether there were precedents where English courts had recognised and enforced Chinese judgments or had refused to do so; and
- - in the absence of any precedents, whether the judgment issued by English High Court, in this case, could be recognised on the basis of the “principle of reciprocity”.
Regarding point 1, SMC held that although in the case of Spliethoff’s Bevrachtingskantoor BV and Bank of China Limited  EWHC 999 (Comm), the English High Court “recognised” the judgment and preservation ruling issued by the Qingdao Maritime Court (in the first instance (2011) QHFHSCZ No.271 and 3614 ) and Shandong Higher People's Court (in the second instance (2013) LMSZZ No.87 and 885), that case could not be regarded as a precedent for the English courts recognising Chinese judgments since the word “recognise” in that case was not used in the strict sense of recognising a judgment issued by a foreign court.
Regarding point 2, SMC held that the “principle of reciprocity” provided in Chinese Civil Procedure Law was not limited to “factual reciprocity” and reciprocity could be established if, according to the law of the country where the court was located, the civil and commercial judgments made by Chinese courts could be recognised and enforced by the courts of that country (i.e. the “legal reciprocity”)6.
Before the SMC ruling, although Chinese courts had recognised several judgments issued by foreign courts (for example, in (2016) S01XWR No.37, the Suzhou Intermediate People's Court recognised a judgment issued in Singapore), they were all based on the principle of "factual reciprocity". Besides, since the number of precedents was very limited and did not involve English judgments, the position under Chinese law on whether Chinese courts would recognise English civil judgments remained uncertain. As such, it was generally believed that compared to the position on litigation in English courts, the position on arbitration in the UK would be more beneficial when it came to the recognition and enforcement of awards in China as China is one of the contracting states of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention.
The SMC ruling has expanded the interpretation of the principle of reciprocity and looks likely to boost contractual parties’ confidence in choosing English law and English Courts as the dispute resolution mechanism in contracts with Chinese counterparts.
Furthermore, the principle of "legal reciprocity" established in the SMC ruling may encourage Chinese courts to recognise and enforce judgments issued by the courts of foreign countries that have not yet established "factual reciprocity" with China.
2 There should be an actual precedent for the recognition and enforcement of Chinese judgments in this country.
3 If, according to the law of the country where the court is located, the civil and commercial judgments made by Chinese courts can be recognised and enforced by the courts of that country, Chinese courts can determine that there is reciprocity. (根据该法院所在国的法律，人民法院作出的民商事判决可以得到该国法院的承认和执行，人民法院可以认定存在互惠关系)
6 This interpretation is based on Article 44 of the Memorandum of the National Courts' Symposium on Trials for Commercial and Maritime Cases, which was issued by the Supreme People's Court on 24 January 2022.