A ground-breaking ruling by a Chinese Court allows for the recognition and enforcement of an English Commercial Court judgment for the first time

A recent ground-breaking judgment by the Shanghai Maritime Court has allowed for the recognition and enforcement of an English court judgment in mainland China for the first time under the principle of reciprocity. In Spar Shipping AS v Grand China Logistics Holding (Group) Co, Ltd. (2018) H72XWR No.1 the Shanghai Maritime Court recognised that a judgment from an English court could be recognised and enforced by a court in the Chinese Mainland. This article will consider the practical implications of this decision for businesses who may already have a judgment against a Chinese entity they wish to enforce in China or who may be negotiating contractual arrangements with a Chinese entity and considering their dispute resolution options.

English Judgment

The English judgment was the result of a Court of Appeal decision in Grand China Logistics Holding (Group) Co. Ltd v Spar Shipping AS [2016] EWCA CIV 982. The case concerned the termination by a shipowner, Spar, of three long term charter parties on the grounds that the charterer failed to pay hire on time and in September 2011 Spar withdrew the vessels and terminated the charterparties. Spar then sued the charterer under the guarantees, claiming the balance of hire unpaid under the charters and damages for loss of bargain in respect of the unexpired term of the charters. The Court of Appeal found in favour of Spar and ordered the charterers’ parent company as guarantor to pay Spar the amounts due under the three charterparties including damages plus interest and costs.

Application for Recognition and Enforcement

In 2018, Spar filed a claim in the Shanghai Maritime Court, which was the court with jurisdiction over the charterer’s parent company, for the recognition and enforcement of the English Court of Appeal judgment. The Shanghai Maritime Court concluded that there had been no previous precedent of an English court recognising a Chinese judgment, but it was satisfied that as a matter of principle a Chinese judgment could be recognised by an English court. This meant that the principle of reciprocity was engaged. Following its decision, the case was referred up to the Supreme People’s Court of the PRC for approval.

Following a change of the panel members, the case was re-heard by the Shanghai Maritime Court in February 2022. Significantly, shortly before the hearing took place the Supreme People’s Court published a set of important minutes and, in particular, a Memorandum which clarified the principle of “reciprocity” applicable to China.

Article 44 of the Memorandum provides that a condition for the recognition of a foreign court judgment is that: “…according to the law 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.” Following the issue of the memorandum the Supreme Court approved the Shanghai Maritime Court’s ruling and on 17 March 2022, the Shanghai Maritime Court handed down the Civil Ruling which allowed for the recognition and enforcement of the English judgment

Practical Implications of this Ruling – opening up the Chinese courts

It is worth noting that, before the present decision by the Shanghai Maritime Court, there were only a handful of cases in which the parties could successfully get the Chinese courts to recognise a foreign judgment (see, for example, in (2016) S01XWR No.37, the Suzhou Intermediate People's Court recognised a judgment issued in Singapore). Article 44 of the Memorandum has significantly broadened the scope of the applicability of the principle of “reciprocity” such that, as long as the judgment of the Chinese court can be recognised and enforced according to the foreign law, there exists a reciprocal relationship between China and the country from which a judgment is sought to be enforced.

It is generally believed that the present decision by the Shanghai Maritime Court was deeply influenced by the Memorandum. However, as China is not a common law country, the present decision by the Shanghai Maritime Court remains as a persuasive precedent only, and unlike a decision or ruling handed down by the Supreme People’s Court, this decision has no binding effect. Therefore, whether this decision marks a significant expansion of recognising and enforcing a foreign judgment, especially an English judgment, is still uncertain. That being said, it is expected that this decision is an important “test case” which showcases China’s willingness to cooperate with other countries on mutual recognition and enforcement of civil and commercial judgments and that this judgment could pave the way for the recognition of judgments not just from the English courts but also judgments from other jurisdictions where the principle of reciprocity is found to exist.

Crucially it provides parties who are in possession of an English court judgment with the knowledge that it is possible to try and seek enforcement in the Chinese courts, although as mentioned above, the decision does not have binding effect. We would therefore still advise parties to insert arbitration clauses into their contracts with Chinese entities as China is a signatory to the New York Convention which makes the recognition and enforcement of arbitral awards relatively easy. The PRC courts have much more experience dealing with applications for recognition and enforcement of arbitral awards (especially in large cities). The present Shanghai Maritime Court’s judgment is still not the norm and the PRC courts will no doubt look at each application for recognition on a case by case basis.

For further information about the recognition and enforcement of foreign judgments in Mainland China please see our article here

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