The People's Republic of China (PRC) acknowledges judicial reciprocity and recognises for the first time an English High Court judgment against a PRC incorporated entity

In the absence of any treaty or convention between the UK and the PRC on the mutual recognition of civil judgments, attempting enforcement of a judgment obtained in the English courts against a PRC entity has until now been a feat without precedent. However, a March 2022 Order handed down by the Shanghai Maritime Court (and approved by the PRC Supreme Court), has confirmed the principle of judicial reciprocity, thereby recognising and allowing enforcement of a series of English High Court judgments and rulings relating to a c.US$25m English Court of Appeal judgment in the case of Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2016] EWCA Civ 520.

In brief overview of the English court proceedings, the claimant shipowner, Spar Shipping AS, entered into three long-term time charterparties with Grand China Shipping (Hong Kong) Co Ltd as charterer, each secured by a separate performance guarantee issued by the charterer's parent company, Grand China Logistics Holding (Group) Co Ltd, subject to English law and jurisdiction, with disputes to be submitted to the English High Court. In breach of the terms of the charterparties, the charterer persistently failed to pay hire in advance, resulting in the shipowner terminating the charterparties and commencing arbitration proceedings. Following the liquidation of the charterer, the arbitration proceedings were stayed and the shipowner pursued the parent company guarantor in the English High Court, ultimately obtaining a Court of Appeal judgment in its favour. The Court of Appeal ordered the guarantor to pay c.US$25m, being the balance due under the charterparties prior to termination, damages for loss of bargain under the remaining term of the charterparties, as well as the costs plus interest of the stayed arbitration proceedings.

To enforce the English court judgment, the shipowner filed a claim with the Shanghai Maritime Court, being the court with jurisdiction over the parent guarantor. As the UK and PRC have not acceded to any conventions or treaties on the mutual enforcement of civil court judgments, the Shanghai Maritime Court considered the principle of reciprocity as a potential route to enforcement. The PRC Civil Law Procedure provides that foreign court judgments may be enforced by a PRC court under the principle of reciprocity if the foreign judgment does not violate the laws sovereignty, security or public interest of the PRC.

In assessing what would constitute reciprocity, the court noted that traditionally, judgments of foreign jurisdictions could only be enforced by the PRC courts where there is judicial precedent for the relevant foreign jurisdiction enforcing a PRC judgment.

The PRC court therefore considered prior English case law relating to recognition and enforcement of Chinese court judgments, notably Spliethoff's Bevrachtingskantoor BV v Bank of China Ltd [2015] EWHC999 (Comm), but ultimately held that the English courts had simply acknowledged the evidential significance of the PRC judgment in question, rather than considering it to be binding on the English court.

However, the Shanghai Maritime Court did not stop there. It noted that despite the usual interpretation of reciprocity as outlined above, the PRC Civil Law Procedure does not specifically limit enforcement of foreign judgments by the PRC courts to circumstances where a foreign court has previously enforced a PRC judgment. Provided that the relevant foreign jurisdiction can in principle, under its own laws, enforce a PRC judgment, so too can the PRC enforce a judgment of that jurisdiction.

This acknowledgment is reflected in, and likely derived from, a memorandum issued by the PRC's Supreme Court just a couple of months before the ruling in Spar Shipping was handed down. The memorandum, entitled "Memorandum of the National Courts' Symposium on Trials for Commercial and Maritime Cases", notes in Article 44 that a foreign judgment can in principle be recognised by a PRC court, provided that "…according to the laws of the country where the court is located, the civil and commercial judgments made by the People's Court can be recognised and enforced by the courts of that country." For the avoidance of doubt, Article 33 states that the memorandum can be used to guide the assessment of enforcement of English court judgments, in view of the lack of treaty or convention between the two jurisdictions on the matter. Given the civil law nature of the PRC legal system which, unlike England & Wales, does not operate on the basis of case precedent, such memoranda are issued in the PRC with a view to guiding the courts in interpreting statutory laws.

The recent Shanghai Maritime Court ruling certainly marks an intriguing departure from tradition which will prick the ears of P&I clubs and other players in the maritime sector. Where previously arbitration clauses have typically been the dispute resolution preference in contracts with PRC incorporated entities, where there are more favourable prospects of enforcement, this decision may instil confidence in the industry in selecting the English courts as an alternative. Given the PRC's non-precedent based civil law system, however, the impact of the ruling on future PRC enforcement endeavours cannot be guaranteed. Whilst it is hoped that the PRC Ruling may indicate a shift towards a more straightforward route for recognition, and ultimate enforcement, of English court judgments, it remains to be seen whether the judicial reciprocity which previously existed in theory will be exercised more extensively in practice.

* Whilst every care has been taken to ensure the accuracy of this information at the time of publication, the information is intended as guidance only. It should not be considered as legal advice.

* The article was written by Ruth Allan de Maldonado and Guy Main, both of HFW's Shipping Team in the firm's London office. Research was carried out by Sophie Dent.

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