Litigating in China: Domestic proceedings and cross-border enforcement – webinar report

Ryo Kikuchi
Anderson Mori & Tomotsune, Tokyo

On 14 June 2024, the IBA Litigation Committee and IBA Asia Pacific Regional Forum presented the first of the Litigation Asia Pacific Webinar Series, entitled ‘Litigating in China: domestic proceedings and cross-border enforcement’. It provided insights into strategies for international parties seeking to litigate against Chinese counterparts under the latest legal framework.

Tim Yimin Liu of Global Law Office outlined three primary approaches for foreign parties. The first approach involves initiating a direct lawsuit in China. The second, pursuing legal action in the foreign jurisdiction and subsequently enforcing the judgment in those foreign locations where the Chinese defendant holds assets. This method can be advantageous as it involves enforcing a judgment in the jurisdiction where it was originally issued. The third approach involves filing a lawsuit in the foreign jurisdiction and seeking enforcement of the resulting judgment in China, which necessitates presenting the judgment to a Chinese court. A critical consideration is that foreign judgments must be recognised and enforced by a Chinese court, and the decision must not conflict with the exclusive jurisdiction of Chinese courts over the dispute.

Next, Jun Yang from Jade & Fountain elaborated on the Chinese legal framework governing judgment enforcement, which includes national laws such as the Civil Procedure Law and bilateral treaties with over 30 countries. Enforcement applications can be based on treaties or reciprocity, with reciprocity defined by a 2022 circular from the Supreme People’s Court of the People’s Republic of China. This circular outlines three conditions for establishing reciprocity: i) proof that the foreign jurisdiction recognizes Chinese judgments, ii) a bilateral memorandum between China and the foreign jurisdiction, or iii) a diplomatic assurance from the foreign jurisdiction regarding the recognition of Chinese judgments, provided there are no contradictory judicial practices.

The enforcement process in China involves filing an application with the appropriate court, being either the intermediate court where the respondent is domiciled or where they have assets. Applicants must present evidentiary documents, particularly to substantiate reciprocity, and may also consider seeking conservatory measures against the respondent to preserve its assets. Jun noted that respondents frequently raise jurisdictional objections to delay proceedings, and cases with foreign elements may extend beyond 12–18 months.

A notable recent development was a Chinese court's recognition of a Japanese judgment in a cross-border insolvency case, despite the absence of a treaty or established reciprocity between China and Japan. The case involved appointing a supervising commissioner to oversee the assets and activities of the Japanese company in insolvency in China. The Chinese judge faced the challenge of there being no direct equivalent under Chinese law. As such, the judge decided to retain only the overlapping responsibilities of the supervising commissioner under Japanese law and the administrator under Chinese law. This was seen as an innovative decision and potentially indicative of a positive trend for future cases.

Marina Chin from Tan Kok Quan Partnership, Singapore, discussed the China–Singapore relationship, highlighting the 2018 Memorandum of Guidance on the Recognition and Enforcement of Money Judgments in Commercial Cases. Although not a treaty, this memorandum fosters mutual understanding and stipulates four key requirements for reciprocal enforcement: i) jurisdiction of the original court; ii) a final judgment; iii) a money judgment; and iv) a commercial case. Exceptions apply to intellectual property rights, unfair competition, and matters reserved for domestic courts.

Dhiraj Mhetre from Khaitan Legal Associates addressed the legal arrangements and challenges regarding the enforcement of judgments between China and India. Currently, China and India do not have a formal treaty for judgment enforcement and rely on the principle of reciprocity. This means that if Indian courts observe precedents of Indian judgments being enforced in China, they may allow the enforcement of Chinese judgments in India. To enforce a Chinese judgment in India, a specific procedure must be followed, including filing fresh proceedings, submitting the original judgment, and providing expert testimony on the originating jurisdiction’s laws. While enforcement through these fresh proceedings is possible, the current legal scenario appears to discourage Indian parties from seeking enforcement of a Chinese judgment.

Tim Liu followed this with further discussion of the benefits of bringing direct lawsuits in China, including avoiding the need for recognition and enforcement and simplifying asset and evidence preservation. He highlighted strategic advantages in bringing parallel litigation directly in China due to recent changes in Chinese civil procedure law, which encourages Chinese parties to file lawsuits promptly. If the Chinese party wins in the Chinese courts, it makes it difficult for foreign parties to enforce judgments from other countries against the Chinese party in China, even if they win their case elsewhere. This creates a ‘race’ to file lawsuits first, making it crucial for lawyers handling international cases to carefully consider where to file, as the choice of court can greatly affect the outcome.

The webinar concluded with a discussion on factors to consider when choosing a litigation venue, such as jurisdiction clauses in contracts, governing law, the location of evidence and witnesses, asset location, and existing treaties or memorandums. Marina Chin emphasised how these factors could impact contract drafting and litigation strategy, while Tim Liu also highlighted the importance of early collaboration between international partners and the necessity of understanding local legal concepts when litigating in foreign jurisdictions.