Ruling highlights intricacies of enforcing mainland China judgements in Hong Kong SAR

The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance Cap 645 – ‘the new regime’ – came into force on 29 January, succeeding the previous Mainland Judgments (Reciprocal Enforcement) Ordinance Cap 597 – ‘the Ordinance’.

While the new regime is expected to provide a more comprehensive framework for the reciprocal recognition and enforcement of judgements in civil and commercial matters between Hong Kong and mainland China, the Ordinance remains relevant in two ways - it continues to apply to mainland China judgments relating to mainland court agreements before 29 January, and the case law decided under the Ordinance may be relevant to disputes under the new regime when similar issues arise.

In the recent case, the High Court of the Hong Kong SAR set aside a registration order of a mainland China judgment made under the Ordinance, on the basis that the mainland judgment was not final and conclusive and not for payment of a sum of money. The decision handed down in the case will be applicable to similarly disputed issues under the new regime.

The High Court’s decision is a timely reminder to parties that, while the reciprocal mechanism is likely to reduce the time and legal costs associated with cross-boundary enforcement of judgments, they must remain vigilant about complying with the registration requirements for mainland judgments in Hong Kong SAR under the Ordinance.

Background to the case

In the case, the plaintiff claimed for the repayment of a loan of RMB38 million (US$5.24 million) at the Intermediate People’s Court of Huzhou City of Zhejiang Province. The Court ruled in favour of the plaintiff, ordering the borrowers to repay the sum with interest. The defendant guarantor was held liable for 50% of the borrowers’ liability that they were unable to repay.

The defendant appealed this mainland judgement, however the appeal was dismissed by the Higher People’s Court of Zhejiang Province.

Following this, the plaintiff sought to enforce the mainland judgment against the borrowers in mainland China, but the borrowers failed to pay their liability in full. As a result, the plaintiff applied for the mainland judgment to be registered in Hong Kong SAR for further enforcement, and a registration order was made.

The defendant then filed a ‘setting aside’ summons of the registration order under section 18 of the Ordinance on the basis that the mainland judgement:

• did not order the payment of a sum of money;
• was not final and conclusive;
• ·ordered the payment of a penalty; and
• did not provide the parties the opportunity to choose a mainland court.

The Court’s decision

The High Court decided to set aside the registration order on the basis that the mainland judgement was not for payment of a sum of money and that it was not final and conclusive. The Court did not find it necessary to consider the point that the mainland judgement had ordered the payment of a penalty, and rejected the basis that the mainland judgement did not provide the parties the opportunity to choose a mainland court.

The mainland judgement was not for payment of a sum of money

Section 5(2)(e) of the Ordinance requires that the mainland judgment should order the payment of a sum of money in order to be seen as ‘registered’.

The High Court held that the registration order should be set aside for non-compliance with section 5(2)(e) of the Ordinance. It dismissed the defendant's argument that their liability under the mainland judgment was not in effect, however it held that the defendant's liability was not readily identifiable because the plaintiff had to rely on the enforcement decision and relevant explanation to conclude that certain sums had been enforced against the borrowers.

The mainland judgement was not final and conclusive

Section 5(2)(c) of the Ordinance requires the mainland judgement to be final and conclusive. According to Section 6, this follows for a first instance judgement if no appeal is allowed from such a judgement – the point of issue in this case - or the time limit for appeal has expired.

The plaintiff argued that, as the mainland judgement was affirmed by the appeal judgement, the mainland judgement must therefore be seen as final and conclusive.

While the High Court acknowledged that the mainland judgement might be valid, effective, and enforceable now that the appeal has been dismissed, it emphasised that a judgement must be final and conclusive under the Ordinance. According to section 6(1) of the Ordinance, this means that, among other things, "no appeal is allowed from the judgement".

Using a literal interpretation, the High Court found that a judgement must not be subject to appeal under mainland Chinese law. The Court also referenced the Chinese version of this provision, for which the wording confirms such interpretation.

The High Court remarked that there is “… no room for the Court to deviate from the definition and requirements as set out in the Ordinance”.

In line with this literal interpretation, the Court held the mainland judgement was not ‘final and conclusive’ and the registration order must be set aside.

The mainland judgement orders the payment of a penalty

The High Court did not address the penalty interest issue because, as there was an absence of a payment order in the mainland judgement, it would not affect the decision to set aside the registration order.

No mainland court agreement between parties

Section 3(2) of the Ordinance provides that the contract should contain an agreement between the parties to specify the courts in the mainland which will determine any disputes.

The defendant argued that this requirement was not fulfilled because the mainland judgement found the guarantee provisions under the loan agreement were void. However, relying on the doctrine of separability set out in the Ordinance, it was held by the High Court that the validity of such agreements to choose mainland courts does not depend on other terms in the contract. As such, despite parts of the contract terms being found invalid, the choice of mainland court in the loan agreement remains valid and enforceable.

Practical implications

The ruling highlights the importance of compliance with the requirements for registration of mainland judgments in Hong Kong SAR, in line with the Ordinance. It affirms the outcome of other cases in recent years that the court must be satisfied that section 5(2)(a) to (e) of the Ordinance are fulfilled. Otherwise, the registered judgment will be set aside in line with section 18 of the Ordinance.

In these situations, registrable mainland judgements must include an order for the payment of a specific, certain, quantified, or readily quantifiable sum of money. If it is necessary to consult enforcement decisions or explanations to determine the exact amount payable, the judgement will not meet this requirement.

A registrable mainland judgement should also be final and conclusive within the instances set out in section 6(1) of the Ordinance. If there is an appeal judgement as in this case, the party should seek to register the appeal judgement if it has become the final and conclusive judgement, rather than the first instance judgement, even if it was affirmed on appeal. This point is also relevant to the new regime, which similarly requires that no appeal is allowed for a first instance mainland judgement or - if an appeal is allowed - the time limit for appeal has expired.

In addition, parties should keep in mind that the validity of the choice of mainland court agreement is independent and separable from other contract terms. It is not affected by any modification, discharge, termination, or nullification to other terms of the contract.

Co-written by Jason Wong of Pinsent Masons.