Commercial Litigation
New law taking effect soon: Reciprocal Enforcement of Civil and Commercial Judgments between Hong Kong and Mainland China
Overview
On 26 October 2022, the Hong Kong Legislative Council passed the long-anticipated The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance, Cap 645 (the “MJREO”), which implements the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by Courts of the Mainland and of the Hong Kong Special Administrative Region signed on 18 January 2019 (the “2019 Arrangement”). As agreed between Hong Kong and the Mainland, the MJREO will take effect in both places simultaneously on 29 January 2024.
After the MJREO takes effect, it will apply to judgments made on or after the commencement date of MJREO. The existing regime under The Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597) (the “2006 Choice of Court Arrangement”) will continue to apply to Mainland judgments made before the commencement of the MJREO, provided that there is exclusive jurisdiction agreement under a contract in favour of the Mainland courts.
The MJREO will enable Mainland court judgments to be enforced in Hong Kong by a simple registration procedure, which in terms improve the efficiency and effectiveness of enforcing Mainland judgments in civil and commercial matters. This article will highlight the key changes brought about by the MJREO and their implications.
Removal of the exclusive jurisdiction requirement
One of the most significant changes to the 2006 Choice of Court Arrangement is the replacement of the exclusive jurisdiction requirement with a jurisdictional test, where the parties to a contractual dispute in favor of the Mainland courts only need to show the dispute has a nexus with the Mainland and vice versa. In other words, under the MJREO, the parties need not agree to the exclusive jurisdiction clause in the underlying contract before they may reciprocally enforce and recognise judgments in the requested place (i.e. the place where judgment was sought to be recognized and enforced).
For example, if the party is to enforce a Mainland judgment in Hong Kong, the jurisdictional requirement will be satisfied if, first, the underlying contract is not subject to exclusive jurisdiction of the Mainland; second, at the time when the proceedings were accepted by the Mainland courts, the parties show a connection between the dispute and the Mainland, including any of the following qualities:
(a) the defendant’s place of residence be in the Mainland;
(b) the defendant’s representative office, branch, office, place of business or other establishment located in the Mainland;
(c) the place of performance of the disputed contract was in the Mainland;
(d) The place of commission of the tortious act was in the Mainland; or
(e) A dispute concerning interests in property, where the parties expressly agreed in writing that the courts in Mainland were to have jurisdiction over the proceedings and the places of residence of all the parties were in Hong Kong, with evidence that there was a connection between the dispute and the Mainland (e.g. the subject matter was situated in the Mainland or the contract was signed in the Mainland).
The MJREO marks a great leap from the 2006 Choice of Court Arrangement where only Mainland judgments for claims under a contract with an exclusive jurisdiction agreement in favour of the Mainland courts are recognisable and enforceable in Hong Kong. The removal of this exclusive jurisdiction agreement requirement allows contract parties, particularly lenders in international financing transactions to opt for asymmetrical exclusive jurisdiction clause in offshore financing transactions involving borrowers with a strong basis in the Mainland.
Expanded Scope of Applicability and Enforceable Relief
The MJREO now covers a wider range of judgments of civil and commercial nature, where previously the 2006 Choice of Court Arrangement only applied to judgments arising from contractual disputes. Since the MJREO adopts an “exclusion” list, it only expressly excludes judgments rendered by Mainland arbitral institutions and other authorized bodies, those related to corporate insolvency and debt-restructuring, non-judicial and judicial proceedings, and a few intellectual property matters. Unlike the 2006 Choice of Court Arrangement which only covers monetary relief, the MJREO also expands the categories of remedies to both monetary and non-monetary relief.
It is noteworthy that the MJREO only requires judgments to be “legally effective”, unlike the 2006 Arrangement, that being “final” and “enforceable”. This is a welcoming change as there is difficulty to determine whether a Mainland judgment is “final”, as they are technically subject to trial supervision procedures and thus not final.
The expanded scope in applicability and enforceable relief under the MJREO will further strengthen Hong Kong as the choice of venue for dispute resolution involving assets in the Mainland or otherwise having a Mainland connection.
Expanded Grounds for Setting Aside Registration of Judgment
Compared to the 2006 Choice of Court Arrangement, the MJREO provides for new and clearer grounds for courts to set aside the registration of a judgment. They include, but not limited to:
(a) the Court of the original proceedings lacks jurisdiction;he Court of the original proceedings lacks jurisdiction;
(b) the judgment was obtained by fraud;
(c) the judgment of the original proceedings has been accepted by a Mainland Court where the same cause of action was started in a Hong Kong Court; or
(d) the enforcement of the registered judgment is manifestly incompatible with the public policy of Hong Kong.
Comments
The MJREO introduces several measures to expedite the enforcement process, ensuring timely resolution of disputes. Since there is systematic procedure to handle all applications for the reciprocal enforcement of judgments in Hong Kong and the Mainland, it promotes a more efficient process and saves costs effectively.
It is foreseeable that parties to international transactions will appreciate the new MJREO, as asymmetric exclusive jurisdiction clauses will be allowed. Asymmetric exclusive jurisdiction gives one party the liberty to elect the jurisdiction where it brings proceedings, while limiting the other to submit to the exclusive jurisdiction of a certain court. Under the 2006 Choice of Court Arrangement, an asymmetric exclusive jurisdiction clause would not satisfy the exclusive jurisdiction requirement. Following the commencement of the MJREO, this situation will be reversed. In other words, the party adopting asymmetric exclusive jurisdiction clause will have the flexibility to pursue claims in a jurisdiction where the assets of the other party are situated.
The need for re-litigation will be reduced. Previously, if a party could not obtain reciprocal enforcement arrangement for a Mainland judgment in Hong Kong, the party would have to initiate new proceedings in Hong Kong. Since the MJREO now broadens the reciprocal enforcement arrangement between Hong Kong and the Mainland, the need for re-litigation will be much lower and thus saves costs. This would be a relevant factor to be taken into account in drafting dispute resolution provisions in commercial contracts, and further enhance Hong Kong’s as the heading dispute resolution center, especially for transactions with a Mainland connection.
In a very recent case Tang Gang & Anor v. Wong Sai Chung [2023] HKCA 1338, the Court of Appeal relying on the principles set out for common law enforcement action in Jet Holdings Inc v. Patel [1990] 1 QB 335, ruled that where fraud is alleged, the issue should be revisited in Hong Kong. It is not a matter of discretion of Court.
Under the 2006 Choice of Court Arrangement or Cap.597, it is a discretion of the court to set aside the registration of a judgment obtained by fraud under s.18(1)(g). This ground corresponds to s.6(1)(a)(iv) of the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap.319). In such cases, the court has discretion to direct the issue of fraud to be tried, as in WFM Motors Pty Ltd v Maydwell [1996] 1 HKC 444. The defendant must provide precise details of the fraud and establish it to the appropriate standard. Although the relevant wording under MJREO ss.21(1) and 22(1)(d) are unidentical, it is submitted that the substance shall be the same. The Court of Appeal in Tang Gang might be distinguished when the MJREO has come into effect.