On 30 June 2017, for the first time in history, Chinese court recognized and enforced a U.S. commercial monetary judgment. The case is Liu Li v. Tao Li and Tong Wu,¹ decided by the Intermediate People’s Court of Wuhan City.

In this case, Liu Li (‘Liu’) concluded a Share Transfer Agreement with Tao Li (‘Tao’) on 22 September 2013 in the U.S., providing that Tao shall transfer 50% share of Jia Jia Management Inc., a company registered in California, to Liu. Liu paid USD 125,000 to Tao on 22 and 25 September 2013. Tao is Tong Wu’s (‘Tong’) wife. Liu provided evidence to show that USD 125,000 was transferred to Tong’s bank account from 14 September to 16 October 2013. After receiving the money, Tao and Tong disappeared. Liu reported to the local police in the U.S. but got no result. On 17 July 2014, Liu brought an action against Tao and Tong at the Los Angeles Superior Court in California U.S., alleging that Tao and Tong fabricated share transfer and defrauded him.

On 7 October 2014, U.S. Rolan Service Company issued an investigation report regarding Tao’s and Tong’s personal information and contact address. Liu authorized his U.S. lawyer to serve Tao and Tong relevant litigation documents by post according to the investigation report, but the service was unsuccessful. On 8 January 2015, Judge William D. Stewart of Los Angeles Superior Court ordered that the subpoena and notices related to this case should be published as public announcements at the San Gabriel Valley Tribune. The announcements were published continuously for four times on the San Gabriel Valley Tribune on 15, 22, 29 January and 5 February 2015. On 24 July 2015, Judge Stewart issued a default judgment (No. EC062608), holding that Tao and Tong had been properly summoned. They did not appear in the court so a default judgment was rendered. The Judge ordered Tao and Tong to return to Liu USD 125,000 and pre-judgment interests USD 20,818 (calculated from 25 September 2013 to 25 May 2015 at the daily interest rate USD 34.24) and the court fee USD 1,674. The total amount is USD 147,492.

On 19 October 2015, Liu applied to the Intermediate People’s Court of Wuhan City to recognize and enforce the U.S. judgment against Tao and Tong. The court arranged hearings on 25 December 2015 and 15 March 2016. Both parties authorized their lawyers to participate in the hearings.

Liu argues that the U.S. judgment is final and effective and Tao and Tong have not fulfilled the judgment yet. Tao and Tong currently live and have assets for enforcement in Wuhan City Hubei Province. Therefore, the court has jurisdiction. Moreover, the U.S. No. EC062608 judgment does not violate China’s fundamental legal principles, sovereignty, security and social interest. Therefore, Liu requests the court to recognize and enforce the U.S. judgment plus post-judgment interests from 25 May 2015 to the date that Tao and Tong fulfils the judgment, as well as judgment execution fee charged by the Chinese court.

Tao and Tong argue that (1) the U.S. judgment is not enforceable in China because they did not get due notice of the U.S. court proceedings, (2) the Share Transfer Agreement concluded between Liu and Tao is real, legal and effective, so Tao and Tong should not return the payment to Liu.

The Wuhan court holds that Tao and Tong own real estate in Wuhan and their habitual residence is also here, so it has jurisdiction according to Article 281 of the Chinese Civil Procedure Law. Liu has provided a copy of the U.S. EC062608 judgment, which has been verified is the authentic one, as well as a Chinese translation. Therefore, Liu has met the formality requirement of judgment recognition and enforcement (‘JRE’). Because the U.S. and China have not concluded or jointly participated in any JRE international agreements, the doctrine of reciprocity should be applied to Liu’s JRE application. Liu has provided evidence of Hubei Gezhouba Sanlian Industrial Co., Ltd et. al. v. Robinson Helicopter Co., Inc.,² where a U.S. court recognized and enforced a Chinese judgment. Therefore, reciprocity has been established between the two countries. Moreover, the U.S. judgment addresses the share transfer contractual relationship between Liu, and Tao and Tong. Recognition and enforcement of this U.S. judgment does not harm the fundamental legal principles, sovereignty, security, and social public interest in China. The U.S. judgment explicitly indicates it is a default judgment, and Liu has submitted evidence such as the investigation report, the U.S. court order of service by public announcements, and announcements published on the U.S. newspaper. Therefore, the Wuhan court holds that the Los Angeles Superior Court has properly summoned Tao and Tong in the U.S. Therefore, Tao and Tong’s undue service argument does not sustain.

The Wuhan court also rejects Tao and Tong’s second argument that the Share Transfer Agreement is real, legal and effective so no need to return the payment to Liu. The court indicates that in the JRE proceeding, the court shall not consider the merits of the U.S. judgment. Therefore, the U.S. judgment shall be recognized and enforced according to Article 282 of the Chinese Civil Procedure Law.

However, the Wuhan court does not support the post-judgment interests from 25 May 2015 (when the U.S. judgment was rendered) to the date that Tao and Tong will fulfil the judgment, because this is a JRE proceeding and the Chinese court only determines whether to recognize and enforce the U.S. judgment. The U.S. judgment does not mention the post-judgment interests. However, the court application fee, CNY 100, charged by the Wuhan court shall be borne by Tao and Tong.

The Wuhan court’s decision to recognize and enforce the U.S. judgment is significant in three aspects.

First, it demonstrates Chinese courts’ increasingly liberal attitude to recognize and enforce a foreign judgment if the judgment-rendering jurisdiction has recognized and enforced a Chinese judgment before. In 2014, High Court of Singapore recognized and enforced a commercial monetary judgment issued by the Intermediate People’s Court of Suzhou City in Jiangsu Province.³ In 2016, in Kolma v. SUTEX Group, the Intermediate People’s Court of Nanjing City in Jiangsu province recognized and enforced a commercial monetary judgment issued by the High Court of Singapore.⁴ Kolma v. SUTEX Group has been published by the Supreme People’s Court in the Second Series of Typical Cases concerning ‘One Belt and One Road’ on 15 May 2017.⁵ The Vision and Action Plan on the ‘One Belt and One Road’ Initiative (also translated as “Belt and Road” Initiative) was unveiled to the world in March 2015.⁶ It is constituted by the ‘Silk Road Economic Belt’⁷ and the ‘21st-Century Maritime Silk Road’.⁸ The Initiative is grand, covering 64 countries, aiming to enhance connectivity of Asian, European and African continents and their adjacent seas to promote free flow of economic factors,⁹ and ultimately making China the global hub to connect the vibrant East Asia economic circle at one end and developed European economic circle at the other.¹⁰ The Initiative has become the focal point of China’s national strategy.¹¹ In order to facilitate the implementation of the ‘One Belt and One Road’ Initiative, early in July 2015, the Supreme People’s Court issued Several Opinions to Provide Judicial Service and Safeguard for ‘One Belt and One Road’ Initiative. Article 6 of this Opinions indicates that Chinese courts should enhance international judicial assistance and promote JRE with countries alongside the ‘One Belt and One Road’. Although China has never explicitly included the U.S. into its ‘One Belt and One Road’ Initiative, Liu Li v. Tao Li and Dong Wu benefits from and reflects this pro-JRE momentum.

Different from common law countries, China has no formal precedent system. However, the Supreme People’s Court has established a guiding case system and suggested the lower courts to refer to the guiding cases in their adjudication.¹² Kolma v. SUTEX Group has been strongly endorsed by the Supreme People’s Court and favorably reported by many Mainland media under the contexts of ‘One Belt and One Road’. Therefore, Kolma v. SUTEX Group and Liu Li v. Tao Li and Tong Wu may probably encourage other Chinese courts to recognize and enforce judgments issued in Singapore and the U.S.

Second, both Kolma v. SUTEX Group and Liu Li v. Tao Li and Tong Wu are based upon the principle of de facto JRE reciprocity as demonstrated by the following tables.

Liu Li v. Tao Li and Tong Wu goes further than Kolma v. SUTEX Group in two aspects. In the de facto JRE reciprocity between China and Singapore, the two judgments are both about contract disputes and the relevant Singaporean court is the High Court of Singapore. In contrast, in the de facto JRE reciprocity between China and the U.S., one judgment is about tort and the other deals with contract; and one U.S. court is a federal court and one is a state court. This development is significant because it helps to clarify how Chinese court would interpret de facto reciprocity. Even after Kolma v. SUTEX Group, doubts still remain whether Chinese court would require the same cause of action and how Chinese court would apply de facto reciprocity if the requested judgment is rendered in a federal country. Liu Li v. Tao Li and Tong Wu demonstrates that de facto reciprocity does not require the same cause of action in the two judgments and Chinese courts do not distinguish federal and state courts in the JRE proceedings.

In Kolma v. SUTEX Group, the relevant Chinese courts are both in the same Chinese province (see the above table). The same is Liu Li v. Tao Li and Tong Wu. Kolma v. SUTEX Group and Liu Li v. Tao Li and Tong Wu are the pioneering cases. It is prudent for Chinese courts to ‘test the waters’ so the relevant Chinese courts are in the same province. The question is whether courts in other Chinese provinces would recognize and enforce Singaporean judgments or U.S. judgments in the future. This is possible, because China is a unified country and its judicial system is centralized. If courts in Hubei province can recognize and enforce a U.S. judgment, no law explicitly bans courts in the nearby Hunan province or other provinces to recognize and enforce other U.S. judgments. Especially considering the pro-judgment momentum, the Supreme People’s Court will probably not impose internal barrier within the court system to prevent cross-province JRE.

However, Kolma v. SUTEX Group and Liu Li v. Tao Li and Tong Wu do not clarify all issues that Chinese courts may be confronted in the future JRE based upon de facto reciprocity. For example, whether Chinese courts should apply Chinese law to determine whether the judgment-rendering foreign courts have jurisdiction, which law needs to be applied to determine whether service of process in the foreign courts is proper, how to deal with U.S. punitive damages judgments, and whether the Supreme People’s Court should establish a similar reporting system like the current one for recognition and enforcement of arbitral awards.

Third, Liu Li v. Tao Li and Tong Wu has significant practical implications for mutual recognition and enforcement of commercial monetary judgments between China and common-law jurisdictions. China has never concluded a JRE treaty with a common-law jurisdiction, except Hong Kong. In Spliethoff’s Bevrachtingskantoor Bv V. Bank of China Limited,¹³ the court in UK recognized a Chinese judgment issued by Qingdao Maritime Court in 2015. It opens the possibility that Chinese courts may recognize and enforce judgments issued in the UK based upon de facto reciprocity. Therefore, the major common-law jurisdiction left behind is Australia. Ironically, Taiwanese judgments can be recognized and enforced in Australia under the registration system of the Foreign Judgment Act 1991 (Cth). However, Australia common law never forbids recognition and enforcement of Mainland China judgments. Notably, Article 6 of the Supreme People’s Court Several Opinions to Provide Judicial Service and Safeguard to ‘One Belt and One Road’ Initiative indicates that, if countries alongside the ‘One Belt and One Road’ have not concluded a judicial assistance treaty with China and if these countries promise to provide reciprocity, China may consider take the initiative to offer judicial assistance (including JRE) to these countries. Therefore, the opportunities for Australian legal practitioners are twofold. They might apply to Chinese courts to recognize and enforce Australian judgments based upon de jure reciprocity. Alternatively, they may request Australian courts to recognize and enforce a Chinese judgment according to common law. If successful, it will open the door for Chinese courts to recognize and enforce Australian judgments based upon de facto reciprocity in the future.

As a conclusion, although uncertainties remain, Liu Li v. Tao Li and Tong Wu should be considered as an important breakthrough for mutual JRE between China and the U.S. It may create new business areas for lawyers in China and the U.S., deter losing parties who escape from one country to the other in order to evade JRE, and ultimately facilitate business between the two countries.

The post Chinese Court Recognizes US Commercial Money Judgment appeared first on Letters Blogatory. Letters Blogatory by Ted Folkman and contributors is © 2011-2024 and is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. Images may be separately licensed.

On August 9, 2012, Mainland China and Taiwan concluded the Cross-Strait Bilateral Investment Protection and Promotion Agreement (hereinafter “BIA”)¹ during the eighth Chen-Jiang Meeting (meeting between the Association for Relations across the Taiwan Straits and Straits Exchange Foundation).² It is the first cross-strait investment agreement and also the first follow-up agreement to the Economic Cooperative Framework Agreement (hereinafter “ECFA”) concluded on April 26, 2009.³

As a highlight of the BIA, the dispute resolution mechanism covers three types of disputes: disputes between Parties to the BIA, investment disputes, and investment business disputes. This post focuses on the latter two types. All comments are highly appreciated.

Investment Disputes

The BIA defines “investment dispute” as a dispute between an investor and a host region where the investor claims that the host region fails to fulfill its obligations under the BIA and results in the investor’s losses.⁴ The BIA provides five different options to resolve such a dispute: (1) through friendly negotiations between an investor and a host region; (2) through the coordination mechanism at the place of the investment or at the next higher level; (3) through the assistance provided by the investment division of the ECC; (4) through the Mediation Procedure for Investment Disputes Concerning Compensation (hereinafter “Mediation Procedure”); and (5) through the administrative or judicial proceedings in a host region.⁵ The Mediation Procedure is different from the other four options, because it only deals with investment disputes concerning compensation.⁶ Mainland China and Taiwan shall exchange and publish a name list of the Cross-Strait Investment Dispute Resolution Organization soon after the BIA becomes effective.⁷ Investors can submit investment disputes concerning compensation to this Organization according to the Mediation Procedure.⁸ Every half a year, the Organization shall report to the investment division of the ECC about results of investment compensation disputes.⁹ If an investor has initiated an administrative or judicial proceedings for his or her investment disputes concerning compensation in a host region, the investor is precluded from submitting the same dispute to the Cross-Strait Investment Dispute Resolution Organization, except as otherwise provided by the law of the host region.¹⁰

The Mediation Procedure is an annex to the BIA. An investor can submit an investment dispute concerning compensation to the Cross-Strait Investment Dispute Resolution Organization according to the Mediation Procedure. Notably, a host region cannot reject the jurisdiction of the Organization, because by concluding the BIA, both Mainland China and Taiwan have consented to the jurisdiction of the Organization. The Mediation Procedure requires the Organization to solve investment disputes concerning compensation in an objective, fair, just, and reasonable way.¹¹ Investors and the host region should actively and honestly participate in the mediation without undue delay.¹² Except as otherwise agreed by the parties, the mediation process is confidential.¹³ The confidential obligation also binds the Cross-Strait Investment Dispute Resolution Organization, its staff, and mediators, except as otherwise agreed by the parties.¹⁴ However, the right to mediation under the Mediation Procedure will expire in three years starting from the investors know or should have known the host region breaches the BIA.¹⁵ Nevertheless, the statute of limitation can be suspended if the delay is caused by force majeure.¹⁶

According to the Mediation Procedure, a mediator shall be neutral and try to help both parties to reach a consensus.¹⁷ If parties reach a consensus, the mediator shall prepare a mediation agreement according to the consensus, both parties and the mediator shall sign or seal the agreement, and the Cross-Strait Investment Dispute Resolution Organization shall also affix its stamp to the agreement.¹⁸ Mainland China and Taiwan shall establish a new system or improve the existing one for recognition and enforcement of mediation agreements.¹⁹ Investors can also recognize and enforce mediation agreements in a Party according to its law.²⁰ If parties fail to reach an agreement in the mediation, they can submit the same dispute to administrative or judicial proceedings of a host region.²¹ However, except as otherwise agreed upon by the parties, any indication, confession, and concession made by a party or the mediator in the mediation process shall not be introduced as evidence unfavorable to the party in the administrative or judicial proceedings.²² Moreover, under the Mediation Procedure, remedies for investment disputes concerning compensation are limited to the following three options: (1) monetary compensation and appropriate interests; (2) property restitution, or using monetary compensation and interests to replace property restitution; (3) other lawful compensation agreed upon by the parties.²³

The five options to resolve investment disputes between an investor and a host region are a distinguished part of the BIA. Except the administrative and judicial proceedings, the other four options are non-adversarial dispute settlement methods different from arbitration and litigation. From this aspect, the BIA is significantly different from international free trade agreements or bilateral investment treaties recently concluded by Mainland China, where international arbitration is a prevalent method to resolve disputes between an investor and a host state. The non-litigious Chinese tradition is only a superficial explanation of why the BIA prefers non-adversarial dispute resolution methods. The deep reason is that Mainland China and Taiwan have not yet resolved the issue of sovereignty, and adopting international investment arbitration for disputes between an investor and a host region may complicate the issue. The cross-strait relationship is so delicate that Mainland China tries to avoid any possibility that may internationalize cross-strait disputes. Therefore, the BIA does not adopt international investment arbitration.

The BIA’s emphasis on non-adversarial methods to resolve investment disputes also probably results from the successful practices of Taiwan Affairs Office at all levels, SEF, ARATS, and mediation practices in both Mainland China and Taiwan. Different from Taiwan Affairs Office, SEF, and ARATS, the Mediation Procedure under the BIA imposes both Mainland China and Taiwan an obligation to recognize and enforce mediation agreements. Also compared with judges in judicial mediation in Mainland China, the Cross-Strait Investment Dispute Resolution Organization is more neutral, because the Organization is an interregional institution. The investment division of the Economic Cooperation Committee (hereinafter “ECC”) is also an interregional authority created under the BIA to handle investment matters. The institutionalized protection will help boost investors’ confidence that their investment will not be discriminated by regional laws. Therefore, the dispute resolution methods under the BIA will combine the advantages of the current non-adversarial methods in regional laws to resolve investment disputes.

Notably, the BIA gives no claim to a host region against an investor in investment dispute. It also does not indicate whether a host region is allowed to bring a counterclaim against an investor in a case brought by the investor under the BIA.

Moreover, investors shall not invoke Article 3.4 of the BIA (most-favoured-nation treatment) to apply dispute resolution mechanisms in the bilateral investment treaties concluded by Mainland China or Taiwan, respectively.²⁴ In other words, investors must select one of the five options under Article 13 of the BIA to resolve investment disputes with a host region. This is to prevent an investor from picking and choosing from different investment treaties by the most-favoured-nation clause. Importantly, this also avoids Taiwan residents to follow the example of Tza Yap Shum v. The Republic of Peru, to invoke bilateral investment treaties concluded by Mainland China.²⁵ Furthermore, the definition of the “investor” under the BIA includes a business entity established in a third region but owned or controlled by a Mainland or Taiwan investor.²⁶ Therefore, theoretically, if this third region has an investment treaty with Mainland China or Taiwan, this business entity can enjoy the protection under the treaty. Therefore, this business entity should have rights to invoke either the BIA or the treaty. However, in terms of dispute resolution mechanism, it cannot combine the BIA and the treaty.

Additionally, the confidentiality of the Mediation Procedure brings pros and cons. Without the exposure to the news media and the interference of interested third parties, a closed procedure may streamline the dispute resolution and promote parties to reach an agreement quickly. In investment arbitrations, parties can also close their procedure and make everything confidential. However, compared with well-developed international arbitration rules, the Mediation Procedure is not a sophisticated procedure. At least, it does not provide rules for joinder of additional parties and it also does not impose parties an obligation to inform interested third parties. Because the Mediation Procedure is confidential, if an investment dispute concerns a third party or the general public, they may have no opportunity to be heard in the Procedure.

Investment Business Disputes

According to the BIA, the concept of “investment business dispute” refers to a business dispute related to investment between an investor of a Party and a natural person, a legal person, or any other business entity of the other Party.²⁷ Therefore, investment business disputes are between private parties. Private parties can submit their disputes to arbitration if they reach arbitration agreements before or after their disputes.²⁸ The arbitration should be conducted under the auspices of arbitration institutions in Taiwan or Mainland China (Hong Kong and Macao included).²⁹ But the seat of arbitration can be outside of China, such as Singapore, as long as it is mutually agreed upon by the parties.³⁰ The arbitration award can be recognized and enforced in either Mainland or Taiwan courts according to relevant regional laws.³¹ Allowing parties to select a Taiwan arbitration institution to resolve investment business disputes is a breakthrough in current Mainland law. Article 24 of the Rules for Implementation of Law on Protecting Taiwan Compatriots’ Investment provides that investment business disputes can be submitted to a Mainland arbitration institution only.³² Therefore, after the BIA becomes effective, it will prevail against Article 24 of the Rules for Implementation of Law on Protecting Taiwan Compatriots’ Investment. Both Mainland and Taiwan arbitration institutions can hear investment business disputes. In case that parties fail to reach an arbitration agreement, they can bring a lawsuit before a competent court in the two regions.

The post Mediation and Arbitration Mechanism under the Mainland-Taiwan Bilateral Investment Agreement appeared first on Letters Blogatory. Letters Blogatory by Ted Folkman and contributors is © 2011-2024 and is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. Images may be separately licensed.