Introduction
Liu Li v. Tao Li and Tong Wu[1] (the Liu Li Case) caused a sensation in both China and the U.S. in 2017. It was the first time that a People’s Republic of China (PRC) court recognized and enforced a judgment rendered in the U.S. This paper aims to examine the Reciprocity Principle under the PRC law by reviewing the Liu Li Case. The paper includes five sections: (I) A brief review of the Liu Li Case; (II) How foreign court judgments are enforced under the PRC law; (III) A background of the practice of reciprocity before the Liu Li Case in China; (IV) An analysis of why the Liu Li case was enforced in a Chinese court; and (V) the problems remain to be solved after the Liu Li Case.
I. A Brief Review of the Liu Li Case
The Liu Li Case sprung from a commercial dispute between Liu Li (the Applicant) and Tao Li and Tong Wu (the Respondents). The Applicant signed a share transfer agreement with the Respondents. After the Applicant paid $125,000 to the Respondent for shares in a California company, the Respondents did not transfer anything to the Applicant. Subsequently, the Applicant filed a lawsuit against the Respondents for fraud before the Los Angeles Superior Court (the L.A. Court). The respondents were served with summons, but they were ignored. Consequently, the L.A. court rendered a default judgment in favor of the Applicant (the L.A. judgment).
The Applicant then applied to the Wuhan Intermediate People’s Court (the Wuhan Court) for recognition and enforcement of the L.A. Judgment. In order to prove that reciprocity existed between the U.S. and China, and that the U.S. had recognized Chinese judgements in the past, the Applicant submitted to the Wuhan Court a case report of Hubei Gezhouba Sanlian Indus. Co. v. Robinson Helicopter Co[2] (the Robinson Case). After the Wuhan Court reviewed the materials submitted by the Applicant, they found that the Robinson Case was a precedent as to recognition and enforcement of civil rulings of Chinese courts in the U.S. Thus it was determined that reciprocity for mutual recognition and enforcement of civil rulings existed between the two countries, which led to the Wuhan Court to recognize and enforce the L.A. Judgement.
II. How Foreign Court Judgments are Enforced under the PRC Law
In Article 281 and 282 of the PRC Civil Procedure Law (the CPL) and other relevant rules,[3] there are six requirements for enforcement of a foreign judgment in China which includes the basis requirement and five other requirements[4]. For the purpose of this paper, I will only focus on the basis requirement, which includes two bases. It requires that either (1) the country where the deciding court is located has a treaty with China, or is a signatory to an international treaty to which China is also a signatory; or (2) there is reciprocity between the countries.
With respect to the first basis, China is not a signatory to any international convention on recognition and enforcement of foreign court judgement. Meanwhile, although China has entered into bilateral judicial assistance treaties on enforcement of foreign judgment with 33 countries[5], there exists no such bilateral treaty signed between the U.S. and China.
With respect to the second basis, the PRC laws do not clearly define “reciprocity”. Theoretically speaking, there are two types of reciprocity, which includes the de facto reciprocity and the de jure reciprocity. The De facto reciprocity requires actual precedents demonstrating that the foreign country has recognized and enforced Chinese judgments in the past. The De jure reciprocity does not require actual precedents. If, by examining the foreign law there is a possibility that Chinese judgments may be enforced in the foreign court in principle, the reciprocal relationship then exists[6]. Previous PRC judgments indicate that the Chinese courts have adopted the de facto reciprocity approach.
III. A Background of the Practice of Reciprocity before the Liu Li Case in China
In the past, the De facto reciprocity had resulted in obstacles to recognize and enforce foreign judgments in China due to its strict requirements. In practice, many foreign judgements were refused because of the lack of evidence of de facto reciprocity. For example, in Gomi Akira v. Dalian Fari Seafood Ltd. (Gomi Case), a Japanese party applied to the Dalian Intermediate People’s Court (the Dalian Court) for recognition and enforcement of a judgement rendered by a Japanese court. The Dalian Court refused to enforce the Japanese judgement, holding that there existed no reciprocity relationship between Japan and China[7]. This decision was later reaffirmed by the Supreme People’s Court of China. Similarly, a Korean company petitioned to Shenzhen Intermediate People’s Court (the Shenzhen Court) for enforcement of a Korean judgment in 2011. Similarly, the Shenzhen Court refused to enforce the judgment for the same reason[8]. Up till now, PRC courts refused to recognize and enforce judgments rendered in Japan, Korea, Germany[9], England[10] and Australia[11] due to lack of evidence of de facto reciprocity.
The Chinese court’s approach to the reciprocity principle has led to other problems. The countries that were refused by the PRC courts have taken revenge on the principle of reciprocity by following suit to not enforce judgement rendered by the PRC Court. For example, Japan also adopts the principle of reciprocity for enforcement of foreign judgments. In 2004, the Osaka High Court refused to enforce and recognize a judgment rendered in China because it found the Dalian Court had previously refused to enforce the Japanese judgement in the Gomi Case[12].
However, before the Liu Li Case, the PRC courts had recognized and enforced two foreign judgments based on the reciprocity principle. The first case occurred in 2013 by the Wuhan Court, which is the same court that enforced the U.S. judgment in the Liu Li Case. In that case, the Wuhan court enforced a German judgment rendered by Montabaur District Court of Germany because the court found that Berlin High Court recognized and enforced a judgment made by the Wuxi District Court of China in 2006[13]. The second case occurred in 2016, in which the Nanjing Intermediate People’s Court (the Nanjing Court) rendered a decision to recognize and enforce a Singapore judgment based on reciprocity. The Nanjing Court held that the principle of reciprocity should be applied because the Singapore High Court enforced a civil judgment made by the Suzhou Intermediate Court in 2014[14].
IV. An Analysis of Why the Liu Li Case was Enforced in a Chinese Court
Although the Liu Li case is not the first foreign judgment enforced by the PRC court based on reciprocity, it is the first time that a PRC court ruled that mutual reciprocity exists between the U.S. and China. Given the fact that U.S. and China are the world largest and second largest economy with huge trade volume with each other, the Liu Li Case is a great significance to both countries.
It is worth mentioning that several attempts had been made to enforce U.S. judgments in China before the Liu Li case, but they all were unsuccessful. For example, in 2015, a U.S. applicant petitioned to the Nanchang Intermediate People’s Court (the Nanchang Court) for enforcement of a U.S. judgment. The applicants also claimed there was reciprocity between the U.S. and China because of the Robinson case. However, the Nanchang Court, after reviewing the Robinson case, held the U.S. and China had not established reciprocity and thus refused to enforce the U.S. judgments[15].
There comes a problem: why can the Liu Li Case get recognized and enforced? In my view, it was because the Applicant in the Liu Li case petitioned at the right place at the right time.
First, the Applicant applied for enforcement before the Wuhan court. As mentioned above, the Wuhan court was the first court which recognized and enforced the foreign judgment in China back in 2013. The Wuhan Court has been known for its enforcement of the German judgment at the time Liu Li filed his case. Therefore, the Wuhan Court, as one of the most open-minded courts in China, was more likely to keep its tradition of enforcing foreign judgments provided that it found the other country had previously enforced any PRC judgment.
Secondly and more importantly, Liu Li filed the case at the right time. The Chinese government launched “Belt and Road Initiative” in 2013. In the past four years, China has already invested billions of dollars in several South Asian countries, focusing on infrastructure investment, construction materials, railway and highway. As a result, China has emerged as one of the fastest-growing sources of foreign direct investment. This policy has been reshaping the mindset of the Chinese legislators and legal practitioners, driving them to embrace more open-minded ideas to keep in line with the international practice. As the fastest growing investor, China is more likely to get involved in litigations as the plaintiff in the future. If China keeps on sticking to the conservative and isolated view on its foreign judgment enforcement rules, it will inevitably and severely damage its domestic investors.
This advancement is encouraged by the legal professionals in China. Justice Hongyu Shen, who is one of the presiding judges in the Supreme People’s Court of the PRC (SPC), once said in her speech that “the standard of de facto reciprocity discouraged the enforcement of foreign judgment in China, which had led to numerous international parallel proceedings. In solving this problem, we could consider adopting the de jure reciprocity, by which courts can recognize reciprocity by examining the foreign law there is a possibility that Chinese judgments may be enforced in that country. In this way, we can pave the way for establishing judicial assistance with other countries[16]”.
Some newly-issued judicial opinions also point to the trend. In a judicial opinion released in 2015, the SPC suggested that courts should create a better legal environment for the Belt and Road Initiative. Courts should “accurately apply international treaties,” “enhance the credibility of PRC judgment,” and “effectively protect the lawful rights and interests of Chinese and foreign parties”.[17] With regards to judicial assistance, it indicated that “if the countries in the Belt and Road region have not concluded judicial assistance agreements with China, but promised to offer judicial benefits to us, courts may consider offering judicial assistance to the party from that country first, paving the way for the formation of reciprocal relationship.” [18] In addition, the SPC also reviews foreign-related cases tried by lower courts on regular basis and publishes those cases it deems appropriate as “Model Cases” for lower courts’ reference. The Kolmar Group case (the Singapore judgment which was enforced by Nanjing Court in 2016) was one of the Model Cases published by the SPC on May 15, 2017.
The above evidence demonstrates that Chinese law and practice, being driven by the new economic policy are evolving towards a more sophisticated level. As evidenced, China is trying to integrate itself more into the world with a view to meeting its new needs. In the process of the evolution, the PRC courts are encouraged to enforce the foreign judgments. The Liu Li case is one of the indicators of that trend. I believe we will see more foreign judgments to be recognized and enforced in China in the near future.
V. The Problems that Remain to be Solved after the Liu Li Case
While the trend of enforcing foreign judgments based on reciprocity seems to be building momentum in Chinese courts, there remains several problems to be solved. This part identities three questions arising from the Liu Li Case which deserves attention. The questions include: (1) Was the reciprocity formed between the U.S. and China or between the state of California and China? (2) If one PRC Court ruled that the reciprocity exists between the U.S. and China, are other PRC courts obligated to make the same ruling? (3) If U.S. Court refuses to enforce other PRC Judgment in the future, can PRC court revoke its recognition of the reciprocity?
1. Was the Reciprocity Formed between the U.S. and China or between the state of California and China?
In the Liu Li Case, the Wuhan court favored the view that reciprocity had been formed between the U.S. and China. First, Wuhan Court did not mention California state in its judgment. When addressing the reciprocity issue, it only referred to the U.S. as whole[19]. Second, in the Liu Li Case, the court which recognized and enforced the PRC judgment was a U.S. federal court in California. The U.S. judgment which was enforced by the Wuhan Court was in fact made by a state court in California. It is suggested that since the Wuhan court did not address this difference, the Wuhan court deemed all the U.S. courts as a whole and not by the state of California.
However, this issue is not as simple as it appears to be. It could get complicated if the state which enforces the PRC judgment is different from the state which renders the judgment to be enforced in China. For example, can I enforce a New York judgment in China on the basis that a California court used to enforce a Chinese judgment?
This problem arises out of the form of government. Contrary from China or Singapore (which are unitary countries), the U.S. is composed of federal states. Each state can enjoy considerable independence and great legislative power. In terms of enforcing the foreign judgment, states have the power to adopt any law they deem appropriate[20]. That is to say, different state may apply different rules governing the enforcement of the foreign judgment which may lead to contradict ruling on the same issue. As the enforcement standards differ from state-to-state, it is not a good idea to treat all U.S. courts as a whole. China needs more sophisticated rules defining reciprocity when dealing with a federal country like the U.S.
2. If One PRC Court Ruled that the Reciprocity Exists between U.S. and China, are other PRC courts Obligated to Make the Same Ruling?
Generally speaking, a court’s judgement is not a source of law in China and thus has no binding effect on other courts (including its lower courts). Therefore, even if the Wuhan Court clearly ruled that there exists reciprocity between the U.S. and China, it is still possible that other PRC court rules the opposite by applying the same law as the Nanchang Court did. Hence, it would be too quick to conclude that the reciprocity between these two countries is (widely) recognized in China.
However, if SPC makes the Liu Li Case as a Model Case (like what SPC did to the Kolmar Group Case) or as a Guiding Case[21], then we may deem such reciprocity is (widely) recognized all over China. But I do not think the SPC would do that in a short period. Given the complicated relationship between the U.S. and China in terms of politics and economy, China needs more time to consider this issue.
3. If U.S. Court Refuses to Enforce Other PRC Judgment in the Future, Can PRC Courts Revoke its Recognition of the Reciprocity?
There is no answer to this question under the PRC law because it lacks a clear definition of reciprocity. However, PRC courts will have to face this question sooner or later. In my view, court’s recognition on the reciprocity should be revocable, otherwise it would defeat the purpose of reciprocity. If a PRC court finds very few number of PRC judgments having been enforced in the U.S. (compared to the number of the cases that have been refused to enforce), it would be unreasonable and inappropriate for China to keep the view that reciprocity exist between the two countries. However, if such ruling is revocable, it will also lead to many unanswered questions. Some questions include: When shall we revoke the ruling? Is it based on the judge’s general feeling that greater judgments are enforced than those that are refused in the U.S., or is it based on a particular enforcing rate? These uncertainties should be figured out by China before we draw any further conclusion on the certainty of Chinese court’s enforcement of the U.S. judgment.
Suni Gong
Suni Gong is an LL.M. Candidate in the International Business Regulation, Litigation and Arbitration Program at the NYU Law School. He received his Juris Master degree from Tsinghua Law School in 2014 and enrolled in the International Commercial Arbitration and Dispute Resolution Program. Before coming to NYU, Suni had practiced law in Shanghai for three years, focusing on foreign-related arbitration and litigation.
[1] (2015) E Wuhan Zhong Min Shang Wai Chu Zi No. 00026.
[2] In Robinson case, two Chinese companies, Sanlian and Pinghu (“SP”), bought helicopters from a California company Robinson Helicopter Co. (“Robinson”). After one of the helicopters crashed in China, SP sued Robinson in the LA Court. Robinson sought to say the action on forum non conveniens grounds, arguing that the Chinese courts should rule on the case and agreed to abide by any final judgment rendered in China. The LA court granted Robinson’s motion. SP then sued Robinson in the Hubei Higher People’s Court and got a judgment in favor of it (Hubei Judgment). SP applied for enforcement of the judgment in the U.S. District Court for the Central District of California (the District Court). The District Court ruled for SP, enforcing and recognizing and the Hubei Judgment. Robinson appealed. The U.S. Court of Appeals for the Ninth Circuit affirmed. Hubei Gezhouba Sanlian Indus. Co. v. Robinson Helicopter Co., 425 Fed. Appx. 580 (9th Cir. 2011).
[3] Article 543 of the Supreme People’s Court Interpretations concerning the PRC Civil Procedural Law (2012)
[4] The other five requirements are: (1) Effectiveness: the foreign judgment has taken legal effect in the jurisdiction in which it was rendered; (2) Non-violation of Public Policy: the foreign judgment does not violate any basic principles of Chinese law, national sovereignty, security, or social public interest; (3) Proper Notice: in case of a default judgment, whether the defendant were served with proper notice of the proceedings; (4) No Conflicting Judgment: whether there is any conflicting domestic or foreign judgment; and (5) Foreign Court’s Jurisdiction: whether the foreign court has jurisdiction over the case.
[5] In fact, China has signed bilateral judicial assistance treaties with 37 countries. These treaties usually contain the provision of recognition and enforcement of judgment made in the other country. However, there are 4 exceptions: China’s bilateral treaties with Singapore, Korea, Thailand and Belgium do not include the enforcement of foreign judgement. This information was found on the official website of Ministry of Foreign Affairs of the PRC: http://www.fmprc.gov.cn/mfa_eng/
[6] Zheng Sophia Tang et al., Conflict of Laws in the People’s Republic of China 162 (2016).
[7] Gomi Akira v. Dalian Fari Seafood Ltd., (1995) Min Ta Zi No. 17.
[8] Spring Comm Ltd. V Piao Zonggen, (2011) Shen Zhong Fa Min Yi Chu Zi No.45.
[9] (2010) Min Si Ta Zi No. 81.
[10] (2010) Er Zhong Min Tezi No. 10324.
[11] (2004) Ning Min Wu Chu Zi No. 7.
[12] Osaka High Court decision of April 9 2003, Hanrei Jiho, No. 1841.
[13] (2012) E Wu Han Zhong Min Shang Wai Chu Zi No.16.
[14] Kolmar Group AG v. Jiangsu Textile Industry Import and Export Corporation, (2016) Su 01 Xie Wai Ren No.3.
[15] (2016) Gan 01 Min Chu No. 354.
[16] Hongyu Shen, Belt and Road Initiative and the Enforcement and Recognition of Foreign Judgment, 2017 Vol. 15.
[17] The Supreme People’s Court concerning Providing Judicial Services for “Belt and Road” by People’s Courts. (2015)
[18] Please note that this provision only applies to countries in the Belt and Road region, which covers some countries in Asia, Europe and Africa.
[19] The wording Wuhan Court used was: “because the court found there existed precedent enforcing a PRC judgment in the U.S., it could be deemed there exists reciprocity in terms of enforcement civil judgment”.
[20] In fact, 32 states in the U.S. have adopted the Uniform Foreign-Country Money Judgments Recognition Act as their law regulating the enforcement of foreign award while the rest states still keep their own “homemade” common law governing the recognition of foreign judgment.
[21] Since 2012, the SPC has published 87 cases tried by lower courts as the “Guiding Cases”. Under the PRC law, if PRC courts deal with a case which is similar to a Guiding Case, the courts “shall refer to the ruling of the Guiding Case”. In contrast, Model Cases do not have such legal effect.