This year the Intermediate People’s Court in Wuhan (IPCW) became the first court in the People’s Republic of China (China or PRC) to recognize a United States judgment. In combination with previous recent developments in the PRC this could have a significant effect on the way foreign judgments are treated by PRC courts, and make widespread recognition of foreign judgments possible in China.
A California case involving an alleged equity transfer breach and the misappropriate of monies resulted in a default judgment of almost $150,000 entered against Chinese nationals on behalf of a Chinese national plaintiff. The execution of the judgment proved to be impossible in the U.S., so plaintiff sought to execute in China. The matter was heard in Wuhan and both parties appeared in court.
Article 282 of the PRC Civil Procedure Law states that PRC courts will recognize and enforce foreign judgments or rulings whenever this is required by: (i) a multilateral or bilateral treaty concluded or acceded to by PRC; or (ii) the principle of reciprocity, provided that the judgment is not in violation of the basic principles of the PRC law or sovereignty, security or the public interest of the PRC. Note that the U.S. has not entered a multilateral or bilateral treaty with China regarding the recognition of judgments, so that avenue was closed. However, the court held that reciprocity between China and the U.S. was established by another case out of a U.S. district court in California, and that enforcement of the instant U.S. judgment would not harm the sovereignty, security, or public interest of China pursuant to the mandates of Article 282. Of import is that all parties in this case were Chinese nationals and no foreign nationals or corporations were involved.
China does not have a common law system; therefore, Chinese judges are not bound by precedent. It is not unforeseeable that Chinese courts will continue to protect Chinese citizens and businesses against attempts to execute foreign judgments in China. Considering that China is one of the 150 signatories of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, international arbitration tribunals worldwide remain the best (and often only) option to pursue a Chinese defendant without assets outside of the China.
However, there are more effective and powerful ways to pursue a Chinese counterpart with assets only in China. Read the full article, or contact your Ally Law member firm, to discuss best practices for conducting your business in China and preparing your business contracts to assure adequate safeguards for business dispute resolution. For more information about our services in this area, contact us at email@example.com.