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Under the “one country two systems” principle governing the relationship between the Hong Kong Special Administrative Region (“HKSAR”) and Mainland China (“PRC”), increasingly more mutual recognition and enforcement of judgments regimes have been put into place across different areas of the law. This series explores the latest developments of such regimes.
In part 1 of the series, we start with the regime that comes closest to home to individuals and companies engaged in cross-border corporate and commercial transactions: reciprocal recognition and enforcement of civil and commercial judgments.
In subsequent parts of the series, we will explore the cross-border enforcement of judgments in arbitration, insolvency/bankruptcy, and matrimonial proceedings.
Part 1: Update on Reciprocal Enforcement of Civil and Commercial Judgments
It has almost been a year since the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap 645) (the “New Regime”) came into force, superseding the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap 597) (the “MJREO”) which only applies to PRC judgments rendered before 29 January 2024. This article serves as a refresher on the differences between the New Regime and the MJREO, then explores how the HKSAR Courts have interpreted or will likely interpret the more liberal approach offered by the New Regime.
The Basics
Here is a chart comparing the more stringent criteria under the MJREO and the more relaxed requirements under the New Regime.
| Requirement | MJREO | New Regime |
| 1. PRC Court giving the judgment must be: | – the Supreme People’s Court; – a Higher People’s Court; – an Intermediate People’s Court; – a recognized Primary People’s Court, i.e. the Courts listed in Schedule 1 of the MJREO. | any PRC Court |
| 2. Nature of Judgment capable of being recognized | monetary judgments only | – monetary and non-monetary judgments that are civil and commercial in nature; – declaratory relief; – orders for specific performance; – orders for compensation and damages arising from criminal proceedings; – intellectual property judgments included judgments: given in proceedings brought in respect of: – a copyright or related right; – a trade mark; – a geographical indication; – an industrial design; – a patent; – a lay-out design (topography) of integrated circuit; – a right to protect undisclosed information; – a right enjoyed by a person in respect of a new plant variety under Article 123 of the Civil Code of the PRC or under the Plant Varieties Protection Ordinance (Cap 490) excluded judgments: – given in a tortious dispute over an infringement of an invention patent or utility model patent; – given for a determination of the license fee rate of a standard-essential patent. |
| 3. Other excluded judgments (besides those relating to intellectual property rights – see 2 above) | – Judgments in insolvency, debt restructuring, and bankruptcy cases (there is separate legislation dealing with the recognition/enforcement of judgments in insolvency and bankruptcy proceedings, to be discussed in another part of the series); – Judgments in certain arbitration matters (concerning the validity of arbitration agreements, setting aside arbitral awards and for recognition/enforcement of PRC arbitral awards) (there is separate legislation dealing with the recognition/enforcement of arbitral awards, to be discussed in another part of the series); – anti-suit injunctions; – interim relief (e.g. interlocutory injunctions); – judgments in matrimonial cases (there is separate legislation dealing with the recognition/enforcement of judgments given in matrimonial cases, to be discussed in another part of the series); – judgments concerning the administration or distribution of estates; – judgments in certain maritime cases; – judgments in certain administrative cases. | Same. |
| 4. Finality of judgment | – the judgment was given by the Supreme People’s Court; – the judgment was a judgment of the first instance given by a Higher People’s Court, an Intermediate People’s Court or a recognized Primary People’s Court, and no appeal is allowed or the appeal period under PRC law has expired; – the judgment was a judgment of the second instance (unless the judgment was given by a recognized Primary Court); – the judgment was given in a retrial by a Court higher in level than the Court whose judgment gave rise to the retrial. – Deemed final if the PRC Court issues a certificate certifying that the judgment is final and enforceable in the PRC (can be proven to be otherwise). | Same – basically if the judgment was given by the Supreme People’s Court or the appeal period has expired and the case is not under a retrial, it is considered final. |
| 5. Exclusive Jurisdiction Clause (or Choice of PRC Court Agreement) | Parties must have agreed in writing that disputes arising from the underlying contractual documents shall be resolved exclusively in the PRC Courts. | The dispute resolution clause written in the underlying contractual documents can provide for the non-exclusive jurisdiction of the PRC Court. |
| 6. Actual jurisdiction to decide the case and enforceability in the PRC | The PRC Court must have actual jurisdiction to hear the case: – Defendant must have an actual or a representative presence in the PRC Court accepted the proceedings. – The PRC must be the place where the infringing conduct took place (e.g. breach of the disputed contract, committal of a tortious act). – An actual connection exists between the dispute and the PRC. The judgment must also be enforceable in the PRC. | Same. |
| 7. Grounds to set aside registration | Breach of procedural fairness and natural justice principles, e.g. defendant was not given a reasonable opportunity to be heard, defendant was not given notice. Manifestly incompatible with the public policy of HKSAR. Registered judgment was obtained by fraud. Case was accepted by the PRC Court after proceedings in respect of the same cause of action between the same parties were commenced in the HKSAR. A HKSAR Court has already given judgment on the same cause of action between the same parties and the judgment has already been recognized/enforced in HKSAR. | Same. |
Impact of the New Regime and how the HKSAR Courts have interpreted its more liberal requirements
As the plaintiff’s registration application to the HKSAR Court is done on an ex parte basis, i.e. without the need to notify the defendant, only those cases in which the defendant challenged the Registration Order (by way of an application to set aside) will be reported. Making the landscape more uncertain is the fact that the vast majority of reported cases deal with the MJREO (the New Regime has come into existence for less than a year).
However, certain cases recently decided under the MJREO indicate that certain restrictions under the MJREO will continue to pose a problem for plaintiffs seeking registration under the new regime.
Challenging the dispute resolution clause in favour of the PRC Court vs challenging the underlying merits of PRC Judgment
The decision of the High Court (Court of First Instance) in 信达澳亚基金管理有限公司 v 宜华生科技股份有限公司 [2024] HKCFI 1957 (date of decision: 30 July 2024) demonstrates that although the merits of the underlying claim as decided by the PRC Court are not allowed to be questioned by the HKSAR Court, in considering whether a jurisdiction clause in favour of the PRC Court exists, the HKSAR Court will indirectly look into the “merits of the claim” in certain circumstances.
In this case, the Plaintiff purchased corporate bonds from the plaintiff company and the transaction was governed by a set of contractual documents: (a) a bond document issued to the investing public (募集说明书); (b) a bond trustee agreement entered into between the Plaintiff company and the trustee (受托管理协议); and (c) Rules of Bondholders’ Meetings. Besides the 1st Defendant, the rest of the Defendants (the 2nd to 5th Defendants) acted as guarantors. The PRC Court issued a judgment pinning liability on all the guarantor Defendants.
Upon engaging in a detailed analysis of the contractual framework, the HKSAR Court decided that the clause relied upon by the Plaintiff as the clause providing jurisdiction to the PRC Court derived from the bond trustee agreement but since the Plaintiff was not a party to the agreement, the Plaintiff should not be allowed to benefit from the jurisdiction clause, leaving the Plaintiff with no jurisdiction clause to rely upon and one of the key requirements of the MJREO unsatisfied. Further, the Court interpreted the contractual framework as conferring status solely on the trustee to sue the Plaintiff only AFTER due authorization has been obtained in bondholders’ meetings.
This case is a good reminder that in certain circumstances, the HKSAR Courts, in assessing whether certain requirements for recognition have been met, will indirectly look into the underlying merits of the case as part of the exercise of assessing if the “apparently-technical” requirements have been met.
As the exclusivity requirement is not in contention in the action, the decision serves as a precedent for cases decided under the New Regime (which does not require exclusivity of jurisdiction but does require that there be a clear jurisdiction clause naming the PRC Courts as the forum for dispute resolution).
What constitutes a final judgment and the treatment of PRC enforcement judgments (执行令)
It is common for plaintiffs in the PRC to seek an enforcement order (执行令) upon the rendering of a judgment granting damages and unlike in the HKSAR, the enforcement order is assigned a different case number. In some cases, plaintiffs will sue the borrower, obtain judgment against the borrower only, then start enforcement actions against both the borrower and the guarantor when the guarantor was never made a defendant in the original action.
Beware that the enforcement action has fully completed against the borrower before applying for registration of the judgment in the HKSAR Courts against the guarantor.
In 湖州升帮金融服務有限公司 v 杭邑生活科技股份有限公司 [2024] HKCFI 1464 (date of decision: 13 June 2024), the HKSAR Court set aside the Registration Order made against a guarantor not only on the basis that the judgment does not name a fixed or liquidated sum, but also because the enforcement process against the borrowers has not yet completed, and therefore the judgment is not considered to be of a final nature.
There are some cases where in the PRC enforcement proceedings, the PRC plaintiff joins the shareholder or a subsidiary of the defendant as a party. Under HKSAR law, this act would be a violation of the principle that the corporate veil cannot be pierced, i.e. the shareholder is a separate legal entity that is distinct and separate from the company held. The author questions whether the enforcement order granted by the PRC Court in this situation will be considered a “judgment” under the MJREO or the New Regime because in the HKSAR, one form of enforcement order is the garnishee order which is not considered to be a judgment (let alone a money judgment under the MJREO)[1]. Further, would piercing the corporate veil in this manner be contrary to public policy, making the judgment liable to be set aside?
Difficulty in proving exclusivity of jurisdiction
Although the New Regime does not require the presence of a clause in the contractual document giving jurisdiction to the PRC Court to resolve disputes exclusively, it does require clear language granting jurisdiction even if it is not exclusive. In Beijing Renji Real Estate Development Group Co Ltd v Zhu Min [2022] HKCFI 1027, much time and fees of expert witnesses were spent interpreting the following clause:
“Disputes arising from the performance of this agreement by the partners shall be resolved through negotiation. Where the partners are unwilling to resolve the disputes through negotiation or a consensus fails to be reached through negotiation, a lawsuit may be filed in the People’s Court where this contract is signed in accordance with the law.” [emphasis added]
「各合夥人履行本協議所發生的事蹟，應通過協商解決。合夥人不願通過協商解決或者通過協商不能達成一致意見的，可依法向本合同簽署地人民法院起訴。」
In the end, the HKSAR Court decided that the word, “may” (可) is permissive and does not confer exclusivity. This case serves as a reminder to contractual parties to seek legal advice on the wording of the dispute resolution/jurisdiction clause in the contract if the option of enforcing a judgment across the border is important.
Litigation is becoming increasingly complex due to the growing number of cross-border transactions and the vastly different legal systems in place in each jurisdiction. When in doubt, whether at the contract-signing stage or when a dispute arises, please seek the assistance of a legal professional.
If you would like our assistance, please do not hesitate to contact our Disputes Partner, Eunice Chiu, for a confidential discussion (+852 9169 4356 / +852 2186 1885).
[1] See 吳仲程 v 梁耀 [2016] HKEC 400 (CFI) (date of judgment: 16 February 2016) where despite the presence of an enforcement order in the PRC, the Plaintiff sought to register only the original judgment.
Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.
