Abstract: In recent years, with China’s increasing emphasis on opening-up, the recognition and enforcement of foreign judgments has become more readily provided for under China’s laws and judicial practice. In this regard, China has seen more and more interaction – and indeed tension – between its own laws and regulations on one hand, and foreign judgments on the other. In this article, we will examine the attitudes of Chinese mainland courts to recognising and enforcing a judgment rendered by a foreign court, particularly as regards, as provided in Article 299 of the Chinese Civil Procedure Law (a) the principle of “reciprocity”; and (b) “not violating the basic principles of laws of China” — this article will specifically consider punitive damages as an example.
I.Introduction
Recognition and enforcement of foreign judgments is the final step of cross-border litigation proceedings. Civil and commercial disputes typically are only actually resolved when a judgement is enforced. If a judgment cannot be enforced, a party’s rights and interests cannot be fully protected, even with a favourable judgment on paper. The Chinese Civil Procedure Law (“CPL”)[1] sets out a framework of recognition and enforcement of foreign judgments, see in particular Article 298, which specifies the competent courts to decide questions of recognition and enforcement, as well as the conditions for filing an application for recognition and enforcement[2]; Article 299, which stipulates the circumstances under which foreign judgments should be recognised and enforced, i.e. the principles that Chinese courts should follow when deciding an application for recognition and enforcement[3]; and Article 300, which stipulates the circumstances under which foreign judgments should not be recognised and enforced[4]. With case analysis, we will examine the attitudes of Chinese mainland courts to recognizing and enforcing the judgments of foreign courts, particularly as regards the principle of “reciprocity” and “not violating the basic principles of laws of China” (taking punitive damages as an example) as provided in Article 299 of the CPL.
II.The Principle of Reciprocity
According to Article 298 of the CPL, applications for recognition and enforcement of foreign judgments can be made upon the existence of effective international conventions, treaties, or reciprocal relationships. In terms of international conventions and treaties, China has not yet ratified any international conventions on the recognition and enforcement of foreign judgments. As of August 2024, China has entered into 35 bilateral treaties with other countries on recognition and enforcement of foreign judgments. However, these treaties do not cover judgments from the United States (“US”), Singapore, and most EU countries.[5]
For judgements from countries with which China does not have a valid international convention or treaty, the principle of reciprocity will be examined as a basis for recognition and enforcement. When it comes to the principle of reciprocity, Article 299 of the CPL makes reference to “the principle of reciprocity”, but does not specify the standard to be applied in determining the existence of a reciprocal relationship. For over two decades, the Chinese courts had applied a requirement of de facto reciprocity in a stringent manner. This required the foreign country whose court issued the relevant judgement to have a precedent of recognising and enforcing judgements issued by a Chinese court.[6] Under this de facto standard, absent such a precedent, the judgment of that country can neither be recognised nor enforced in China.
In recent years, in line with its drive for opening up, China’s law and judicial practice has been more open and tolerant for the application of the reciprocity principle. In particular, the standard of de jure reciprocity has also been adopted. On 31 December 2021, the Supreme People’s Court issued the Minutes of the National Symposium on the Foreign-related Commercial and Maritime Trial Work of Courts, Article 44 of which stipulates that: “[Determination of reciprocal relationships] When hearing a case involving an application for the recognition and enforcement of a judgement of a foreign court, a people’s court may determine that there is a reciprocal relationship under any of the following circumstances: (1) According to the laws of the country of the foreign court, the civil and commercial judgement made by people’s courts can be recognised or enforced by the courts of the country ... The people’s court shall examine and determine whether there is a reciprocal relationship on a case-by-case basis”. The Minutes thus embody the essence of de jure reciprocity, that a reciprocal relationship can be found if there is a possibility that a Chinese court judgment “can” be recognised and enforced under the law of that foreign country, rather than requiring a precedent in the foreign country of the recognition and enforcement of a Chinese judgement as a prerequisite.
After the publication of the Minutes, in March 2022, Shanghai Maritime Court, in Spar Shipping v Grand China (A Case of Applying for Recognition of Foreign Court Judgement), applied, inter alia, the de jure reciprocity standard. The Shanghai Maritime Court ultimately ruled to recognise and enforce the English court judgment on such an approach.[7] This case marks the first time that a Chinese court recognised and enforced a commercial judgment rendered by an English court pursuant to the principle of de jure reciprocity, and also marks a change in the restrictive interpretation of reciprocity where de facto reciprocity was applied as the sole standard. This change marked a departure point from what had been a long-standing practice of the Chinese courts.[8]
There are three noteworthy points to the Court’s interpretation of the principle of reciprocity in this case. First, pursuant to Article 289 of the CPL (2021 Amendment), the Court determined that it should decide the case based on the principle of reciprocity as there were no international conventions or treaties on the recognition and enforcement of foreign judgments binding between China and the United Kingdom (“UK”).[9] The CPL (2021 Amendment) did not limit the interpretation of reciprocity to de facto reciprocity, so the Court held itself competent to adopt the standard of de jure reciprocity and did do so in this case——“Where Chinese court judgments can also be recognised and enforced according to the law of the country of the court which rendered the judgement, a reciprocal relationship between China and that foreign country on recognition and enforcement of civil and commercial judgements is found”. Second, the Court recognised that de facto reciprocity was still applicable——“Undoubtedly, if there is such precedent that the foreign court has recognised and enforced a Chinese court judgment, it is naturally a strong proof that Chinese court judgments can be recognised and enforced in that country”. However, in this regard, the Applicant had failed to prove that such a precedent (of an English court recognising and enforcing a Chinese court judgement) exists. Indeed, there was an expression in [2015] EWHC 999 (Comm), a case cited by the Applicant, that Chinese court judgments and orders obtained by Rongcheng Xixiakou Shipyard Co Ltd in Chinese litigation “f[e]ll to be ‘recognised’” by the English court[10], but the Applicant failed to demonstrate that under English law, any recognition or citation of a foreign court judgment expressed which arose only in relation to certain defences would amount to “recognition” within the meaning of the “recognition and enforcement of foreign court judgments”. Third, the Court considered whether English courts had ever refused to recognise and enforce Chinese court judgments on the ground that no reciprocal relationship existed. The Respondent argued that English court’s refusal to grant a stay of execution per the Bank of China Limited’s application in [2015] EWHC 999 (Comm) was essentially a denial of recognition and enforcement of Chinese court judgments. However, the Court held that [2015] EWHC 999 (Comm) was not a matter of recognition and enforcement of foreign judgments, and that the English court did not dismiss the Bank’s application for stay of execution on the ground that no judicial reciprocity existed between China and the UK. Accordingly, the Court decided that [2015] EWHC 999 (Comm) could not serve as a precedent of the English courts’ refusal to recognise and enforce Chinese court judgments, nor could it serve as an illustration to demonstrate that no reciprocal relationship existed between China and the UK.
This case was followed by the First Intermediate People’s Court of Beijing, which also adopted the standard of de jure reciprocity to recognise a German court ruling concerning insolvency proceedings.[11]
III.Non-recognition as to Punitive Damages
According to Article 299 of the CPL, a foreign judgment is not entitled to recognition and enforcement merely on the basis of the principle of reciprocity; the Chinese court will also examine whether the judgment “violates the basic principles of Chinese law” and whether it “damages the sovereignty, security, and public interest of China”. Here, we will explore the attitude of Chinese courts on the recognition and enforcement of punitive damages in foreign judgments.
Punitive damages are widely seen in American jurisdictions in cases concerning tort, contract and maritime law, etc. It is not uncommon that the amount of punitive damages is several times the amount of compensatory damages. For example, in Pacific Mutual Life Insurance Co. v. Haslip, the Supreme Court of Alabama upheld a judgment of USD 1 million in punitive damages (four times the amount of compensatory damages sought and awarded).[12] In TXO Production Corp. v. Alliance Resources Corp. (a bad-faith slander of title action), the Supreme Court of Appeals of West Virginia upheld a judgement of USD 19,000 in compensatory damages and USD 10 million in punitive damages against TXO.[13] However, under Chinese law, civil and commercial damages are awarded for the purpose of compensating, prohibiting the injured party from profiting from the act of infringement[14], and any compensation is limited to the scope of “actual losses”, see, for example, the limitation of damages for breach of contract under Chinese law.[15]
Article 45 of Minutes of the National Symposium on the Foreign-related Commercial and Maritime Trial Work of Courts also provides clarification on the negative approach of Chinese Courts to the recognition of punitive damages in foreign judgments: “[Court decisions awarding punitive damages] Where a decision of a foreign court awards damages in conspicuous excess of actual loss, the people’s court may refuse to recognise and enforce the excess”. This provision also explains that Chinese courts may partially recognise and enforce civil and commercial judgments rendered by foreign courts, and may refuse to recognise and enforce only the punitive damages award (or any other offending provision).
In the infamous CIIF EB-5 Scam, which arose out of an immigration scam involving a total amount of up to USD 50 million, several courts in the US ruled that Zeng Fang and other defendants were to return to the plaintiffs the investment amount they had obtained through fraud. Punitive damages in the sum of several times the investment amount were also ordered, and the defendants were made jointly and severally liable.[16] After learning that one of the defendants, Zeng Fang, had enforceable properties in Guangzhou, a number of successful plaintiffs (including one Wang Anqin) applied to the Intermediate People’s Court of Guangzhou for recognition and enforcement of three US judgments relating to the scam.[17] In relation to punitive damages, the Respondent Zeng Fang raised a consistent defence in (2019) Yue 01 Xie Wai Ren No. 3 and (2019) Yue 01 Xie Wai Ren No. 58 that any damages ordered should be limited to only direct and indirect losses, and that punitive damages several times the amount of compensatory damages “obviously violate the basic principles of Chinese law” such that recognition and enforcement should not be granted. In her defence, Zeng Fang summarised that “the US civil judgment ruled that Zeng Fang should compensate Wang Anqin for his investment of USD 560,000 and punitive damages in the amount of USD 1.24 million, close to three times of the amount of compensatory damages”, “the US court, in the civil judgement, ordered Zeng Fang to pay to Jiang Hui and the other five people, respectively, 1.6 million in punitive damages close to three times of the total investment ranging from US $50,000 to US $540,000, in addition to paying such investment amount as compensation [Authors’ Note: the US Court in this judgment awarded USD 540,000 in compensatory damages to each of the six plaintiffs including Jiang Hui, and USD 1.6 million in punitive damages to each of the six plaintiffs, respectively.]”.[18] In these three judgments, the Guangzhou Intermediate Court unanimously determined that “the civil judgment[s] rendered by the US court may be recognised and enforced according to the principle of reciprocity, but the portion of punitive damages that is in manifest excess of actual losses shall not be recognised and enforced”. Under Article 289 of CPL (2021 Amendment),[19] and upon findings by Higher People’s Court of Guangdong Province and the Supreme People’s Court, the Guangzhou Intermediate Court ruled to “partially recognise and enforce the civil judgment” rendered by the US court, and “recognise and enforce part of the main text of the judgment”. In other words, the defendants were held to be jointly and severally liable for paying compensatory damages (returning the investment amount), but not punitive damages, which is the part of judgement that the Court refused to recognise and enforce.
IV.Conclusion
When a party seeks to recognise and enforce a foreign judgment before a Chinese court, it should check whether there is an international convention or treaty on the recognition and enforcement of judgments between China and the country of the court that rendered the relevant judgment. Absent an international convention or treaty, the party should then look into whether there is reciprocity between China and that foreign country — whether there is a precedent that a Chinese court judgment was recognised and enforced by that foreign country, or whether the laws of that country allow Chinese court judgments to be recognised and enforced there. As for foreign judgments which may be said to offend against basic principles of Chinese Law, as is the case with punitive damages, a party should be aware that the Chinese courts may refuse to recognise and enforce the offending part(s) of the foreign judgement on the ground that they “violat[e] the basic principles of Chinese law”, while recognise and enforce only the remaining content of the foreign judgments.
[1] Unless otherwise specified, all references to the Civil Procedure Law (the “CPL”) (without indicating a specific version) in this article are to the Civil Procedure Law of the People’s Republic of China (2023 Amendment).
[2] Article 298 of the CPL: “Where an effective judgment or ruling rendered by a foreign court requires recognition and enforcement by a people’s court, a party may directly apply to the intermediate people’s court having jurisdiction for recognition and enforcement or the foreign court may request recognition and enforcement by a people’s court in accordance with the provisions of an international treaty concluded or acceded to by the foreign country and the People’s Republic of China or under the principle of reciprocity”.
[3] Article 299 of the CPL: “After examining an application or request for the recognition and enforcement of an effective judgment or ruling rendered by a foreign court in accordance with an international treaty concluded or acceded to by the People’s Republic of China or under the principle of reciprocity, a people’s court shall render a ruling to recognize the legal force of the judgment or ruling and issue an order for enforcement as needed to enforce the judgment or ruling according to the relevant provisions of this Law, if the people’s court deems that the judgment or ruling neither violates the basic principles of laws of the People’s Republic of China nor damages the sovereignty, security, and public interest of the state”.
[4] Article 300 of the CPL: “A people’s court shall, after examining an application or request for the recognition and enforcement of an effective judgment or ruling rendered by a foreign court, render a ruling not to recognize and enforce the judgment or ruling under any of the following circumstances:
(1)The foreign court has no jurisdiction over the case according to Article 301 of this Law.
(2)The respondent has not been lawfully summoned or has been lawfully summoned but has not been given a reasonable opportunity to make statements or arguments, or the party without the capacity to action is not properly represented.
(3)The judgment or ruling is obtained by fraud.
(4)A people’s court has rendered a judgment or ruling on the same dispute or has recognized a judgment or ruling rendered by a court of a third country on the same dispute.
(5)The basic principles of the laws of the People’s Republic of China are violated or the sovereignty, security, or public interest of the state is damaged.”
[5] The Treaty Database of the People’s Republic of China, see http://treaty.mfa.gov.cn/Treaty/web/list.jsp?nPageIndex_=1&keywords=%E5%85%B3%E4%BA%8E%E6%B0%91%E4%BA%8B&chnltype_c=all, last accessed on 14 August 2024.
[6] For example, Reply of the Supreme People’s Court of the People’s Republic of China on Whether Chinese Courts Should Recognize and Enforce the Decisions on claims and debts by Japanese Court, (1995) Min Ta Zi No.17 ((1995)民他字第17号); Beijing No. 2 Intermediate People’s Court, (2004) Er Zhong Min Chu Zi No. 12687 ((2004)二中民初字第12687号).
[7] Spar Shipping AS v Grand China Logistics Holding (Group) Co. Ltd (A Case of Applying for Recognition of Foreign Court Judgement), (2018) Hu 72 Xie Wai Ren No. 1 ((2018)沪72协外认1号).
[8] Haitong Cases: The First Time a Chinese Court Recognizes U.K. Judgment, https://mp.weixin.qq.com/s/mlNwEIJqnqT309JxsdRWJA.
[9] Article 289 of the CPL (2021 Amendment): “After examining an application or request for recognition and enforcement of an effective judgment or ruling of a foreign court in accordance with an international treaty concluded or acceded to by the People’s Republic of China or under the principle of reciprocity, a people’s court shall issue a ruling to recognize the legal force of the judgment or ruling and issue an order for enforcement as needed to enforce the judgment or ruling according to the relevant provisions of this Law if the people’s court deems that the judgment or ruling does not violate the basic principles of the laws of the People’s Republic of China and the sovereignty, security and public interest of the People’s Republic of China. If the judgment or ruling violates the basic principles of the laws of the People’s Republic of China or the sovereignty, security or public interest of the People’s Republic of China, the people’s court shall not grant recognition and enforcement”.
[10] See Spliethoff’s Bevrachtingskantoor BV v Bank of China Ltd, [2015] EWHC 999 (Comm), 17 April 2015, paragraph 139.
[11] See (2022) Jing 01 Po Shen No.786 ((2022)京01破申786号).
[12] Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1 (1991).
[13] TXO Production Corp. v. Alliance Resources Corp. 509 U.S. 443 (1993).
[14] Song Lianbin, Chen Xi, Divergence and Coordination of Recognition and Enforcement of Foreign Punitive Damages in Practice, Jianghuai Tribune 2021(3), p.111.
[15] Article 584 of Civil Code of the People’s Republic of China: “Where a party fails to perform its obligations under the contract or its performance fails to conform to the agreement, causing losses to the other party, the amount of compensation for losses shall be equal to the losses caused by the breach of contract, including the interests receivable after the performance of the contract, but not exceeding the probable losses caused by the breach of contract which are foreseen or should have been foreseen when the party in breach concludes the contract”.
[16] CV-17-08936-MWF (RAOx) of the United States District Court for the Central District of California, CV17-7149-MWF (RAOx) of the United States District Court for the Central District of California, and BC661793 of the Superior Court of California, County of Los Angeles.
[17] See (2019) Yue 01 Xie Wai Ren No.3 ((2019)粤01协外认3号), (2019) Yue 01 Xie Wai Ren No.22 ((2019)粤01协外认22号) and (2019) Yue 01 Xie Wai Ren No.58 ((2019)粤01协外认58号).
[18] See (2019) Yue 01 Xie Wai Ren No.3 ((2019)粤01协外认3号) and (2019) Yue 01 Xie Wai Ren No.58 ((2019)粤01协外认58号).
[19] Supra note 9.