If, like us, you’ve been following the China Law Blog for many years, you can’t have missed the numerous warnings it gives about the futility of obtaining judgments against Chinese companies in foreign courts since Chinese courts will not enforce them unless they were granted by a court in one of the limited number of countries with which China has a bilateral enforcement treaty. Furthermore, even where a treaty does exist, as is the case with Hong Kong, it can be extremely difficult if not outright impossible to get a foreign judgment enforced in China.
So it was with great interest that we read the recently issued judgment of the Tel Aviv-Jaffa District Court (a senior court of first instance) which turned, primarily, on the question of reciprocity. Reciprocity is a threshold condition to enforcement of foreign judgments under Israeli law and therefore we were certain that the Court would find that Israeli judgments would not be enforced in China and thus the Court would refuse to enforce the Chinese judgment. We were wrong.
The Court cited an Israel Supreme Court precedent holding that respecting the judgments of foreign courts advances important values including protecting the rights of the litigants, legal efficiency and certainty and the encouragement of international cooperation. As a result, Israeli courts have adopted an enforcement friendly approach to foreign judgments.
Following Supreme Court precedent, the Court employed an enforcement friendly standard whereby the reciprocity condition is met if there’s a “reasonable potential” (not likelihood, but potential) that the foreign court would enforce an Israeli judgment. In addition, the party opposing enforcement bears the burden of showing that such reasonable potential does not exist. Based on the litigants’ expert opinions, the Court quoted Article 282 of the Chinese Civil Procedural Law which provides for recognition of foreign judgments based either upon an international treaty to which China is a party “or according to the principle of reciprocity” to reach the conclusion that, even in the absence of a treaty, Chinese courts will enforce foreign judgments so long as the applicable foreign country’s courts (in our case, Israel) will enforce Chinese judgments. The absence of examples of Chinese courts enforcing or refusing to enforce Israeli judgments was not a barrier since requiring a positive precedent ignores the reality that reciprocal enforcement needs to start somewhere.
Having found that Chinese legislation authorizes enforcement of foreign judgments even in the absence of a treaty, the Court refused to give weight to a precedent cited by the Respondent’s expert of a Chinese court’s refusal to enforce an English judgment. In doing so, the Court took note of the fact that the cited case was 10 years old and that Chinese jurisprudence has advanced significantly in that time. The Court also distinguished that precedent because the Chinese court’s ruling was based on lack of examples of English enforcement of Chinese judgments. The Court reasoned that this precedent is distinguishable because it was agreeing to enforce a Chinese judgment. In addition, in her cross-examination, the Respondent’s expert agreed that it’s possible that there are examples of Chinese courts enforcing U.S. judgments even though China does not have an enforcement treaty with the United States (apparently, she doesn’t read this blog).
So what does all this mean? At its most basic level it means that Israelis cannot afford to ignore legal proceedings commenced against them in China and we suspect the same is true for other foreigners, even those who come from jurisdictions which require reciprocity as a condition to enforcing foreign judgments. Of more interest is the question of whether Chinese courts will now be more likely to enforce foreign judgments from countries like Israel that have already enforced Chinese judgments. Though there’s good reason for pessimism, we hope that as China’s legal system advances, we may see advancement in this field as well.
* The above is a guest post by Eli Barasch and Adi Weitzhandler, attorneys at the Tel Aviv law firm Gross, Kleinhendler, Hodak, Halevy Greenberg & Co. Eli’s practice focuses primarily on China-Israel cross border transactions and Adi is an associate in the firm’s Hi-Tech Department.