Recognition and Enforcement of a Mainland Judgment in Hong Kong:
First Reported Decision

In the recent case of Chan Sang v Chan Kwok & Ors [2016] HKCU 401 (“Chan Sang v Chan Kwok”), Master Harold Leong held that a Mainland judgment is final and enforceable where a certificate has been issued by the original court to that effect.

This is the first reported decision of the Hong Kong courts under the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597) (the “Ordinance”).

The decision affirms the Hong Kong Courts approach to uphold, rather than set aside, judgments issued in the Mainland.

Legislative Background

The Ordinance took effect on 1 August 2008, after several years of legislative debate. Its purpose was to effectively implement the ‘one country, two systems’ principle by putting in place a robust reciprocal enforcement regime providing for the mutual recognition of qualifying judgments between the Mainland and Hong Kong. Given the sheer volume of commercial and business activity between the two countries, the implementation of the Ordinance (and the resulting development of mutual legal assistance between the two regions) was heralded as, and continues to be, a positive step forward.

Between 30 June 1997 and 1 August 2008, foreign judgments could only be enforced in Hong Kong pursuant to the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319) (the “Foreign Judgments Ordinance”). Since enforcement through registration was only available to certain jurisdictions (not including the Mainland), it meant that a litigant who had obtained a judgment from the Mainland courts had no choice but to enforce it under the common law by commencing fresh proceedings in Hong Kong. This was both cumbersome and costly. Given that Hong Kong was now part of China, it was also ironic that a judgment issued by a Mainland court was harder to enforce than a foreign judgment.

The provisions of Article 95 of the Basic Law coupled with consultation between the Supreme People’s Court and the Hong Kong Government gave rise, on 14 July 2006, to an arrangement that permitted the recognition and enforcement of judgments in civil and commercial matters pursuant to choice of court agreements made between the parties in question. Sensibly, the Ordinance was then enacted on 1 August 2008 in order to make the process of enforcing judgments more straightforward.

Summary of the Terms of the Ordinance

The Ordinance provides for a simple two-step process of registration followed by enforcement. In order to be enforceable, the Mainland judgment must meet the following criteria:

  1. it must be given by a court specified in Schedule 1 of the Ordinance;
  2. it must have been issued on or after 1 August 2008;
  3. it must be final and conclusive;
  4. it must be for the payment of a sum of money (not being a sum payable in respect of taxes or for fines or other penalties) arising from commercial contracts (excluding employment, personal and family related contracts); and
  5. it must not be in respect of equitable relief such as injunctions and orders for specific performance.

It is also necessary for the parties to have designated, in writing, a Mainland court or Hong Kong court as the exclusive forum having jurisdiction over their dispute. This provision is intended to prevent the risk of parallel proceedings.

Pursuant to section 7 of the Ordinance, the limitation period to register a Mainland judgment with the Court of First Instance in Hong Kong (the “HKCFI”) is 2 years (commencing from the last day of the specified period within which the judgment ought to have been performed; or in any other case, from the date from which the judgment takes effect).

Facts of Chan Sang v Chan Kwok

In Chan Sang v Chan Kwok the dispute concerned a Loan Agreement dated 10 December 2013 between the Plaintiff (lender), the 1st Defendant (borrower), and the 2nd to 5th Defendants (guarantors).

The 1st Defendant defaulted in repayment which resulted in the parties attending conciliation sessions at the Shenzhen Intermediate People’s Court (“Shenzhen Court”). On 4 November 2014, the Shenzhen Court issued a Reconciliation Statement setting out the terms of settlement (the “Mainland Judgment”). The parties complied with only part of the Mainland Judgment. On 22 December 2014, the Plaintiff applied to enforce the Mainland Judgment in the Shenzhen Court. The Shenzhen Court subsequently issued an enforcement order on 24 December 2014 (the “Shenzhen Enforcement Order”). On 15 January 2015, the Plaintiff obtained a certificate from the Shenzhen Court certifying that the Mainland Judgment was final and enforceable in the Mainland (the “Certificate”).

Subsequently, on 28 October 2015, the Plaintiff obtained an order in the HKCFI to register parts of the Mainland Judgment (the “Registration Order”).

On 25 November 2015 the 1st to 5th Defendants applied to set aside the Registration Order.

The Defendants’ Arguments

The Defendants argued, amongst other things, that (a) the 1st Defendant had made an application on 30 September 2015 to set aside the Mainland Judgment; and (b) that no enforcement action was being actively pursued by the Plaintiff in the Mainland.

The Court’s Decision

Master Leong dismissed both of the Defendant’s arguments for the following reasons.

First Argument

In respect of the first argument, Master Leong observed that section 5(2)(d) of the Ordinance required the HKCFI to order registration if the judgment creditor proved to the satisfaction of the court that the judgment was enforceable in the Mainland. In this regard, section 6(2) of the Mainland Judgment Order stated that a Mainland judgment was deemed (unless the contrary was proved) to be enforceable in the Mainland if a certificate was issued by the original court that the judgment was final and enforceable in the Mainland.

Since the Plaintiff had obtained and produced the Certificate from the Shenzhen Court, the onus shifted to the Defendants to “prove the contrary” (i.e. that the judgment was not in fact enforceable in the Mainland, contrary to what the Certificate stated).

Master Leong observed that the Defendants’ allegation that there was a pending application on 30 September 2015 to set aside the Mainland Judgment was in fact, from the wording of the application itself, an application to set aside the Shenzhen Enforcement Order and not an application to set aside the Mainland Judgment. The defendants need to “prove the contrary” and submitting a pending application to set aside the Shenzhen Enforcement Order (not the Mainland Judgment) was far from enough.

In conclusion, the Defendants had failed to discharge the burden of proof to displace the presumption that the Mainland Judgment was enforceable in the Mainland. Master Leong’s view was reinforced by the opinion of the Plaintiff’s China law expert that an appeal against a reconciliation statement which had taken legal effect must be made within 6 months of the reconciliation statement taking effect. On that basis, the deadline for appeal had expired on 8 May 2015 and consequently the 1st Defendant’s application on 30 September 2015 could not therefore have been a proper appeal against the Mainland Judgment as it was made out of time.

Second Argument

With respect to the second argument advanced by the Defendants, Master Leong held that there was no requirement for a judgment creditor to show active enforcement in the Mainland prior to seeking registration in Hong Kong.

Conclusion

The decision reaffirms the Hong Kong courts pro-enforcement approach. Also noteworthy is the fact that Hong Kong courts are not willing to entertain semantic arguments. Finally, this decision encapsulates the close relations between the Mainland and Hong Kong.

Contacts

Brooke Holden, Partner
Tel +852 3405 7671
brookeholden@gallhk.com