2012-03-23 17:49:34
I ENFORCEMENT OF JUDGMENTS 每 TRADE, INVESTMENT AND POLICY ISSUES
The process of globalization 每 trade and investment flows across national borders has generated an ever increasing volume of international business transactions. The classic way in which a business transaction 每 such as a contract for the sale of goods can acquire an international dimension is where the parties to the transaction are resident (or in the case of corporations domiciled) in different countries.
When there is a dispute between parties to an international transaction, such as where a party to an international contract alleges a breach of this contract by another person,the process of dispute resolution will generally be more complex than resolution of a dispute confined to one country (or in the language of international law, one State, or jurisdiction).
If a contractual dispute occurs between A and B in Australia, the parties can resort to litigation in the appropriate domestic court, and enforcement of the judgment will be straightforward.What, however, of the situation where there is a dispute between corporation A in State
X, and corporation B in State Y? Suppose that A and B are parties to a contract for the sale of goods, with B the buyer, and B alleges that the goods are defective. If they cannot resolve their dispute by negotiation, B may have to contemplate litigation in a court, alleging that A breached the contract. B may sue A in B＊s own country, because their agreement has an exclusive jurisdiction clause providing for any dispute arising from the contract to be litigated in B＊s country. Or (if there is no contrary clause) B may sue in B＊s own country for practical reasons including the presence in that forum of witnesses, familiarity with the language and the law, and so on. If B secures a judgment in its favour, and A does not fulfil the terms of the judgment (such as by paying any damages awarded), and A does not have any assets in the jurisdiction against which the judgment can be enforced, then B will need to enforce judgment against A in a State 每 typically B＊s own country 每 where B has assets. The question then becomes one of whether B can in law and in practice enforce that judgment in B＊s country. Whether this is feasible will vary from State to State.The enforcement of judgments in foreign jurisdictions is potentially, if not in practice,an integral part of transnational business. Transparent procedural rules and a well developed and reliable judicial system play a major role in international trade when business deals miscarry. If international traders and investors lack confidence in their ability to resolve disputes effectively by compulsory adjudication (such as in the courts or by way of private arbitration) then they will be less inclined to enter into international business transactions.
As a general proposition, the legal systems of the world, developed and less developed, are less than fully accommodating of applications for the enforcement of a foreign court judgment. When the court in a State is asked to enforce a foreign judgment, it is being asked to give full faith and credit to the foreign judgment and not to go behind it and reexamine the case on the merits. In effect it is being asked to treat the judgment as one equivalent to its own. As judicial standards around the world vary considerably, there may be a reluctance by the State to accord equal status to the foreign judgments. Set against this is a recognition that effective international are to have the confidence to enter into these transactions. Examination of the response of developed legal systems to the issue of foreign judgment enforcement reveals that States have been cautious in seeking to balance these competing policy objectives. Foreign judgment enforcement is controlled by rules that significantly attenuate the power of the courts in this area. In Australia for instance, in the absence of reciprocal legislative arrangements with selected foreign jurisdictions for the mutual recognition and enforcement of each other＊s judgments, the restrictive common law rules govern recognition and enforcement. This common law regime is ineffective. In contrast, the legal system of the United States of America is more accommodating of applications for the enforcement of foreign judgments.
II CHINA 每 THE FORMAL RULES
The law applying to the enforcement of foreign judgments in China is found in Chapter XXIX, containing Articles 262-270 of the Law of Civil Procedure of the People＊s Republic of China. This Chapter is headed Judicial Assistance.These articles are as follows:
Article 267 Where a legally effective judgment or ruling made by a foreign court requires the people＊s court in the PRC to acknowledge its validity and execute it, the applicant may directly request a competent intermediate people＊s court to do so, or the foreign court may request the people＊s court to do so,according to the international treaties which China has concluded or to which China is party or in accordance with the principle of mutual reciprocity.
Article 268 In the case of an application or request for recognition and enforcement of a legally effective judgment or written order of a foreign court,the people's court shall examine it in accordance with the international treaties concluded or acceded to by the People's Republic of China, or according to the principle of reciprocity. If the court arrives at the conclusion that it does not contradict the basic principles of the law of the People's Republic of China nor violate the State sovereignty, security and social and public interest of the country, recognise the validity of the judgment or written order, and, if required, issue a writ of execution to enforce it in accordance with the relevant provisions of this Law. If the application or request contradicts the basic principles of the law of the People's Republic of China or violates the State sovereignty, security and social and public interest of the country, the people's court shall not recognise and enforce it.
Article 269 If an award made by a foreign arbitral organ requires the recognition and enforcement by a people's court of the People's Republic of China, the party concerned shall directly apply to the intermediate people's court of the place where the party subjected to enforcement has his domicile or where his property is located. The people's court shall deal with the matter inaccordance with the international treaties concluded or acceded to by the People's Republic of China or with the principle of reciprocity.
Article 267 provides for enforcement at the initiative of either (a) the party concerned,viz the successful party in the proceedings, or (b) the foreign court which rendered the judgment. Some conditions exist.One is that the judgment or ruling be legally effective. This could be interpreted as having two dimensions: (1) That the judgment or ruling be legally effective in the foreign jurisdiction where it was rendered. The question might arise as to whether a judgment that can be appealed from is legally effective. International practice indicates that the decision of a trial court is effective for the purposes of foreign enforcement, notwithstanding that the losing party has a right of appeal. If the judgment has been appealed against but the appeal has not been determined, then the foreign court where enforcement is sought would presumably stay enforcement pending resolution of the appeal, provided that the appellant acts in a timely way. (2) That the judgment or ruling is legally effective in China (it may not be if it contravenes the basic principles of PRC law 每 see Article 268).
Article 267 may also be interpreted as conditioning consideration of the application for enforcement by reference two alternative factors: (a) the existence of a relevant international treaty to which China and, inter alia, the country where judgment was rendered, for the mutual enforcement of one another＊s court judgments, or (b) the principle of mutual reciprocity.
Treaties: China has signed bilateral treaties with certain countries for the mutual recognition and enforcement of one another＊s judgments.Thus far these bilateral treaties extend to relatively few States. The United States of America and Australia,for example, are not party to any such agreements with the PRC. There is no evidence to date of successful foreign judgment enforcement pursuant to these treaties.
Reciprocity: in the alternative, enforcement may be justified according to the principle of mutual reciprocity. This would appear to require that the relations between the PRC and the foreign country where the award was rendered, be such that each routinely gives full faith and credit to one another＊s judgments, perhaps according to certain uncontentious conditions which are accepted internationally. In the early days such a mutuality may be difficult to substantiate 每 as between the PRC and a given foreign country the issue will arise for the first time and there will be no prior practice between the two that can be referred to, as a basis for asserting mutuality. It may be that a country with a developed legal system does have a history of foreign judgment recognition independently of treaty obligations made good through legislation by, for example, domestic legislative provision for foreignjudgment enforcement, or in the case of the common law jurisdictions, by a process of judicial precedent. In the United States, for example, legislation(applying in addition to the common law) makes provision for foreign judgment enforcement in defined circumstances. It would follow that an applicant from, say, the US, for enforcement of a US judgment in the PRC, could argue that as the potential exists for the enforcement of a PRC judgment in China, the Chinese court should invoke the reciprocity principle in return as its own law recognises the principle.
Article 268 provides for the consideration by the people＊s court of the application for enforcement, by reference to the same matters listed in article 267, that is, a relevant international treaty or de facto reciprocity, where either is extant. The provision introduces a further matter 每 consideration of whether the judgment or ruling contravenes the basic principles of law of the PRC, and whether it violates State sovereignty or the security and social and public interest of the country. If there is such a contravention or violation, the court is not to enforce it. If the court finds otherwise, and determines that there is an applicable treaty or reciprocity, then the court is to recognise the judgment or order and if necessary make an order for its enforcement.
What is meant by a violation of ※State sovereignty or security and social public interest§ of the PRC? These terms are not defined. The terminology is expansive and gives the court a considerable discretion in matters of this type. Grounds for concluding that a judgment ought not to be enforced under this head would presumably include that the judgment of the foreign court was procured by fraud or that it did not observe due process or natural justice in its conduct of the case in question, or that enforcement of the judgment would involve enforcement of a foreign penal or taxation law, or would involve enforcement of the interest of a foreign government, or that enforcement would be against public policy. These are familiar ground for refusing enforcement of foreign judgments in common law courts.The combined effect of articles 267 and 268 is that the foreign judgment or order maybe enforced where the following factors apply: (1) it is legally effective; (2) a relevant international treaty to which China applies provides for enforcement, and/or the principle of reciprocity applies as between the PRC and the foreign jurisdiction where the judgment was rendered, pursuant to which each will enforce the other＊s judgment in defined circumstances; and (3) enforcement will not violate the basic principles of Chinese law, nor violate Chinese sovereignty, security and social and public interest.Where there is no relevant international treaty providing for the enforcement of a foreign award rendered in a given State in China, and there is an absence of mutual reciprocity between China and this State, the party seeking enforcement would need to re-litigate their case on the merits in China. That appears to be the effect of article 318 of the ※Opinions of the Supreme People＊s Court on Some Issues Concerning the Execution of ＆Civil Procedure Law of the PRC§:Article 318 Where a party applies to a competent Intermediate People＊s Court of the PRC for recognition and enforcement of a legally effective judgment or written order made by a foreign court, if the country in which such foreign court is located and the PRC have not concluded or acceded to an international treaty and have no reciprocal relations, the party may initiate an action in the people＊s Court. In such case the competent people＊s Court will make a judgment and enforce the judge or written order of the People＊s Court.
If this construction is accurate, the Chinese court will need to examine or at least substantially re-examine the facts of a case and give a judgment. An independent assessment has to be made by the people＊s court of the facts of the case ab initio,applying PRC law.Arbitral awards: article 269 deals with the analogous situation where foreign arbitral awards are sought to be recognised and enforced in a Chinese court. Essentially the applicant is asking the court to accord the award the status of a court judgment and to enforce it. Again, enforcement is to be tested by reference to any international treaty China has acceded to or to the principle of reciprocity. In formal terms at least the enforcement of a foreign arbitral award in China is more straightforward, in that China is party, along with about 140 other States including most of the major trading countries, to the New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards. The Convention provides for a model code for recognition
and enforcement of foreign awards, and countries that have signed it have undertaken
to introduce this code into domestic law. It follows that this famous exemplar of ※international legislation§ has effectively created a uniform regime for award enforcement across many countries, and (to the extent that their courts will routinely enforce foreign awards in practice) the regime has provided for the portability of awards. There is no equivalent widely acceded to treaty dealing with the enforcement of foreign court judgments as opposed to arbitral awards.
III CHINA＊S FOREIGN JUDGMENTS RULES 每 AN INEFFECTUAL REGIME?
The evidence is that China's legal system fails to provide a reliable legal system in respect of foreign judgment enforcement, and that the recognition and enforcement of foreign judgments is rare.
Quite apart from the formal statutory obstacles including a lack of reciprocity via a bilateral treaty or otherwise, this ineffectiveness may reflect a broader failing 每 the ineffectiveness of the Chinese legal system in enforcement of domestic judgments in civil cases.China is particularly ineffective in this area, but it is not uncommon to find that enforcement regimes in other countries including developed countries with long standing legal systems are likewise less than fully accommodating to applications for the enforcement of foreign court judgments.
Donald C Clarke considered the issue in 2004 in a paper dealing with the enforcement of US court judgments in China. There was no treaty between the two countries for the mutual recognition of one another＊s judgments, nor was there a recognised mutual reciprocity. He concluded that US judgments would not, at least in a contested case, be enforced in China. Likewise, there was no known case where a US court had enforced a Chinese judgment without enquiry into the merits. There was scant evidence that judgments from any other jurisdiction had been enforced in a contested situation, without enquiry into the merits. He elicited three cases where a foreign jurisdiction divorce decree had been recognised. The cases were uncontested 每 both parties sought recognition. The issue was simply one of recognition, and not enforcement, with the parties wanting to re-marry in China without having to initiate divorce proceedings in China.
Mo Zhang has instanced of the problems that a foreign judgment can encounter in a
Chinese court which will result in non-recognition and non-enforcement:
1. The foreign judgment is made by an incompetent foreign court. The incompetence is judged under the relevant provisions of international treaties and Chinese laws.
2. The foreign judgment has not taken effect or has no effect at all under the law of a foreign country.
3. The defendant is not given adequate notice of the proceedings, or was not properly represented by a guardian if lacking legal capacity.
4. An effective judgment has been made by a people＊s court for the same cause of action between the same parties.
5. The case is in the middle of trial in a people＊s court and the trial has begun before the proceedings commenced in the foreign court.
6. Recognition and enforcement of the foreign judgment would cause harm to Chinese
security and or public policy. Security and public policy is not defined in the Civil Procedure Law therefore it is open to varying
interpretations by Chinese courts.
Mo Zhang also contends that problems can arise with domicile. The people＊s court only has jurisdiction if the defendant has established connections within China. Mere presence is not a sufficient basis on which jurisdiction can be exercised. The connection must be meaningful providing sufficient ground warranting the exercise of the people＊s court＊s judicial power.
Another barrier to contemplated foreign judgment enforcement is encountered where the judgment is against a State Owned Enterprise (SOE).
There is the prospect that the government will intervene in favour of an SOE. The court will not enforce a judgment if it would threaten the survival of an SOE, particularly in the situation where an SOE may be forced to sell its assets to satisfy a judgment.
A difficulty may arise in respect of enforcing a foreign judgment concerning a dispute arising from a contract to which a foreign investment enterprise (FIE) is party. Article 246 of the Civil Procedure Law provides as follows:
Article 246 Civil actions arising from disputes over the implementation of contracts of Chinese foreign joint ventures, Chinese-foreign cooperative enterprises and Chineseforeign joint exploration and exploitation of natural resources are under the jurisdiction of the people＊s court of the PRC. This is susceptible to two interpretations: (1) that such disputes may only be litigated in the people＊s court, with the result that a foreign judgment will not be recognised, or (2) that where such disputes are to be litigated within China, then the people＊s court is the stipulated court. The latter interpretation would leave open the technical possibility that a foreign judgment in this context could be enforced but the first interpretation is more likely to prevail.
Another barrier to a party contemplating applying for enforcement of a foreign judgment is the lack of credit checking in China and asset tracking systems. It is very difficult to obtain a judgment debtor＊s financial and asset status, particularly in the case of a foreign judgment creditor. A request for recognition and enforcement has to be submitted to the court of the place whether the judgment debtor resides or has property, but the debtor may disappear in order to avoid judgment and move his accounts elsewhere.
Language too can be a major problem, as if there is any mistranslation in the name and address of the party, enforcement will not be ordered, ie, the mistranslation provides ground for the judgment debtor to deny the judgment.The internal structure of the judiciary militates against effective foreign judgment enforcement. First, priority is given to criminal trials. Second, enforcement divisions are insufficiently funded. Court officials are particularly loath to go on circuit because their per diem allowance is small even by Chinese standards. They must stay in the cheapest hotels, eat at the worst restaurants in order to stay within their allowance, and must travel by train rather than by air, which can require up to an extra week in travel time. Third, a court does not place its better employees in the enforcement division because the execution of judgements has not traditionally been a matter of high priority. Courts conceive of their role as being primarily to try criminal prosecutions not civil actions. If they convict an accused person, the execution of the sentence is in the hands of other bodies such as the police and prison administration,so enforcement of their judgments is not often an issue for them.
While the majority of basic level and intermediate courts do have a specialised branch concerned with execution of judgments,these branches are not very active.
IV CONCLUSION
Enforcement of foreign judgments in the PRC is ineffective. This alone would not be unusual 每 as noted foreign judgments are typically difficult to enforce even in States with developed legal systems such as Australia. But unusually, the ineffective enforcement of foreign judgments is paralleled by the ineffectiveness of the Chinese court system in enforcing purely domestic decisions in its civil jurisdiction.
By Patricia Blazey & Peter Gillies
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