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Hong Kong and Mainland China Take Steps Towards Arrangement On Reciprocal Enforcement of Judgments

July 15, 2006

By Litigation & Arbitration Practice Group

After four years of negotiations, on 14 July 2006, Hong Kong and Mainland China finally signed an agreement for the reciprocal enforcement of judgments in civil and commercial matters (the "Arrangement").  It has been described variously as "a cautious first step" and a "danger for the unwary".

Not Yet in Force

Although there has been considerable press coverage and commentary on the Arrangement, it has not yet come into force and there have been no indications as to when it will do so.  The Hong Kong Government will need to complete relevant legislative procedures and the Supreme People's Court will need to promulgate a judicial interpretation to give effect to the Arrangement.  This could take several months and concerns about the Arrangement could delay the process.

Limited Scope

The Arrangement will only apply to limited judgments:-

1. the Arrangement only covers monetary judgments relating to commercial contracts;

2. the litigants must have submitted in their contract to the exclusive jurisdiction of a court of the Mainland or Hong Kong;

3. for judgments issued in the Mainland, only those by an Intermediate People's Court or above, or a Basic People's Court which has been authorised to exercise jurisdiction in civil and commercial cases involving foreign parties will be covered;

4. Hong Kong judgments must be issued by the District Court or a higher court.

Although the Arrangement is a significant development, it remains to be seen how effective it will be in practice.

Concerns

These stem largely from a lack of confidence in the quality of decisions handed down by some Mainland Chinese Courts.  In earlier negotiations between Hong Kong and Mainland China there was an emphasis on party autonomy - the parties expressly had to have agreed in their contract that any judgment obtained in Hong Kong would be enforceable in Mainland China and vice versa.  However, Mr. Wong Yan Lung SC, Secretary for Justice of Hong Kong, has stated that the Arrangement, as signed, will apply:-

"... where the parties concerned, on the basis of freedom of contract, have made an agreement in writing in which a court of the Mainland or a court of the HKSAR is expressly designated as the court to have sole jurisdiction for resolving the dispute concerned."

It therefore appears that if parties choose in their contracts to submit to the exclusive jurisdiction of the Courts of Hong Kong or Mainland China, the Arrangement will bite.  Parties need to be alert to this and to consider expressly opting out of the Arrangement.

What About Arbitration?

There is already a tried and tested arrangement in place between Hong Kong and Mainland China for the mutual recognition and enforcement of arbitral awards.  In entering into a contract with a Mainland Chinese entity, arbitration in Hong Kong is usually a good choice, provided the Mainland Chinese entity will agree to it.  This subject is considered in more detail in Paul Hastings' China Matters newsletter on "Effective techniques to resolve disputes with Chinese companies".

For further information regarding this alert, please contact:
Hong Kong
Robert Pé:


Andrew Dale:

Beijing David Livdahl:

StayCurrent is published solely for the interests of friends and clients of Paul, Hastings, Janofsky & Walker LLP and should in no way be relied upon or construed as legal advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. Paul Hastings is a limited liability partnership. Copyright © 2006 Paul, Hastings, Janofsky & Walker LLP.

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