The Wuhan Intermediate People’s Court recently handed down a decision recognizing and enforcing a civil judgment made by a US court based on the principle of reciprocity.

Along with the recognition of a Singapore court judgment earlier this year by a Jiangsu court (the Nanjing decision), this indicates that in the absence of a bilateral treaty for mutual recognition and enforcement of judgments, Chinese courts are starting to recognize foreign court judgments based on the principle of reciprocity.

For parties doing business in China, the Wuhan decision is a positive development. Under the PRC Civil Procedure Law, Chinese courts can recognize and enforce foreign court judgments only on the basis of international convention, bilateral treaties or the principle of reciprocity, provided they do not violate basic principles of Chinese law, state sovereignty and security, or public interest. So unless China has entered into a bilateral treaty with a foreign jurisdiction for the mutual recognition and enforcement of court judgments, the only practical available ground to recognize commercial judgments from the foreign jurisdiction is the principle of reciprocity.

The Wuhan decision again demonstrates the Chinese courts’ willingness to apply the principle of reciprocity to enforce foreign judgments in the absence of conventions or treaties. Both the Wuhan and Nanjing decisions reinforce the position that if a foreign court has previously enforced a Chinese court judgment, a Chinese court will likely apply the principle of reciprocity to enforce the court judgment of that foreign nation.

The Wuhan decision reminds parties to continue to be vigilant when managing litigation risks. We recommend that both foreign and Chinese businesses take the following steps:

  • Parties entering into transactions who wish to submit their disputes to foreign courts (but have concerns over enforceability of the foreign judgment in China) should check in advance whether there is a bilateral treaty between the foreign nation and China. If there is no applicable treaty, the parties should investigate whether the relevant foreign courts have previously enforced judgments issued by Chinese courts, and vice versa.
  • Chinese companies should seek legal advice and vigorously defend their cases in foreign proceedings, even if those foreign nations, such as the US and Singapore, have no bilateral enforcement treaties with China.
  • Given the ease of enforceability of arbitral awards under the New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, which has been ratified by more than 150 countries including China, clients should seek advice on the suitability of arbitration for parties entering into cross-border transactions.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by emailing: Danian Zhang at danian.zhang@bakermckenzie.com, or for general enquiries contact Anand Ramaswamy at anand.ramaswamy@bakermckenzie.com