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On 18 January 2019, Hong Kong and China signed the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters between the Courts of the Mainland and of the Hong Kong SAR (Arrangement).

This is an important development for parties negotiating dispute resolution mechanisms and considering choice of court provisions. The Arrangement applies to civil judgments and covers both monetary and non-monetary relief. Judgment creditors will not need to commence fresh proceedings in the enforcing jurisdiction.

The Arrangement will take effect on a date to be announced and supersedes the Choice of Court Arrangement signed in 2006 (2006 Arrangement), which was far more limited in its scope than the new Arrangement.

What It Means for You

The new regime has positive implications for doing business with parties that have assets in the PRC or Hong Kong. Parties seeking to enforce judgments covered by the Arrangement will not need to re-litigate their cases when seeking to recover assets in Hong Kong or the PRC. This will mean greater certainty and expediency for parties litigating in Hong Kong or China, and will benefit investors in China's Belt and Road Initiative and the Guangdong-Hong Kong-Macao Greater Bay Area.

Prior to the Arrangement, the only mechanism for mutual recognition or enforcement of judgments between Hong Kong and China was the 2006 Arrangement. The 2006 Arrangement applied only to commercial contracts and placed a number of requirements on those contracts in order to rely on the 2006 Arrangement. It also only applied to money judgments, not to nonmonetary orders.

The new Arrangement removes these limitations. Save for satisfying certain jurisdictional thresholds, parties will now have more options in determining their preferred dispute resolution mechanism in Hong Kong and China. The Arrangement applies to judgments made on or after its commencement date, but there will be a transition period for agreements made before the commencement of the Arrangement, in which case the 2006 Arrangement will continue to apply.

Key Features of the Arrangement

  1. Scope – The Arrangement covers civil and commercial matters under Hong Kong and Mainland law. Excluded are judgments on corporate insolvency, debt restructuring, matrimonial or family disputes, succession disputes, maritime disputes, certain patent infringement disputes, validity of arbitration agreements and the setting aside of arbitral awards, among others.
  2. Enforceable judgments – Mainland judgments must be final judgments given by the Primary People's Courts or above, but exclude rulings on preservation orders. Similarly, Hong Kong judgments exclude anti-suit injunctions and interim relief.
  3. Jurisdiction – To establish jurisdiction, save for express or deemed agreement, a connection will need to be shown between the dispute and the requesting place, such as place of the defendant’s residence, place of the defendant’s business or place of performance of the contract or tort. In addition, jurisdiction can also be established by express agreement in writing to submit to the jurisdiction of the requesting court or by participating in the proceedings in the defence without raising a jurisdictional challenge, provided that the requesting court must otherwise have connection with the dispute if both parties have residence in the territory of the requested court.
  4. Place of business – Under the Arrangement, the place of business of legal entities includes the place of incorporation or registration, principal office, principal place of business or place of central management. This is broader than the place of business defined under the General Principles of Civil Law of the PRC.
  5. Grounds for refusal – In addition to a lack of jurisdiction, grounds for refusal include, among others, circumstances where a judgment has been obtained by fraud, vitiated by violation of due process, or where a judgment or an arbitral award has been given or recognized in the requested place on the same cause of action. The requested court can also refuse if it considers that recognition and enforcement of the judgment is contrary to the fundamental legal principles or public policy or public interests of their jurisdiction.
  6. Court's discretion – A court has the discretion to refuse an application where the proceedings in the court of the requesting place were contrary to a valid arbitration agreement or a valid agreement designating a court (not being a court of the requesting place) as having jurisdiction for resolving the same cause of action. It also has the discretion to cease the process of recognition and enforcement upon an appeal or retrial.
  7. Review – Parties who do not accept a decision on the application of recognition and enforcement of a relevant judgment may apply for a review or appeal in accordance with the relevant law.
       

Actions to consider

We recommend that parties doing business in Hong Kong and China avail themselves of the best options by taking the following steps:

  1. When entering into transactions, seek legal advice on issues such as where the counterparty's assets may be located and how this may impact enforcement.
  2. When negotiating or drafting the dispute resolution clause, seek legal advice as to whether litigation or arbitration may be more appropriate, what relief may be required in the event of a dispute and whether Hong Kong or China would be a suitable forum for determining their disputes.
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