Foreign Court Judgments and Mediation Agreements Potentially Enforceable in China in the Future

NEW HAGUE CONVENTION ON ENFORCEMENT OF FOREIGN JUDGMENTS

On 2 July 2019, the Hague Conference on Private International Law announced the conclusion of a new international convention, the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (the “Judgments Convention”). Once ratified, the contracting countries, including China, will be required to recognise and enforce judgments given in civil or commercial matters in the states that have acceded to or ratified the Judgments Convention (a “Contracting State”).

We summarise the highlights below. 

1. STATUS QUO

Generally, countries are not obliged to recognise and enforce foreign judgments. Without a formal bilateral treaty, every country can decide, on their own, whether and how they enforce foreign judgments. China has so far only concluded a handful of bilateral treaties with other countries, but none with its major western business partners. Foreign judgments in China are thus mainly acknowledged and enforced based on the principle of reciprocity, i.e. whether or not the other state also acknowledges and enforces Chinese judgements. However, it is relatively rare for a Chinese court to recognise a judgment made in a western court. Over the past two years, China has only enforced two judgments made by two US courts. This lack of acknowledgment and enforcement is the main reason for the popularity of arbitration in international business disputes with a connection to China since China acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1987 (the “New York Convention”).

2. RECOGNITION AND ENFORCEMENT REGIME OF THE JUDGMENTS CONVENTION

The Judgments Convention is equivalent to the New York Convention in the field of court judgments. The Judgments Convention applies broadly to judgments relating to civil or commercial matters. Notably, excluded from the Judgments Convention are intellectual property and anti-trust matters. A judgment given by a court of a Contracting State (the “State of Origin”) shall be recognised and enforced in another Contracting State (the “Requested State”) in accordance with Chapter 2 of the Judgments Convention:

a) A judgment may only be recognised by the Requested State if it is enforceable and has effect in the State of Origin.

b) If the judgment is subject to review by the courts in the State of Origin or if the time limit for seeking ordinary review has not expired, the court addressed may grant, postpone or refuse recognition or enforcement at that time.

c) There shall be no review of the merits of the judgment in the Requested State, except to the extent necessary for the application of the Judgments Convention.

If these requirements are satisfied, the Requested State may only refuse to recognise or enforce the judgment in limited circumstances, which are exhaustively and explicitly listed in the Judgments Convention. 

3. CONCLUSION AND IMPACT ON CHINA

The impact of the Judgments Convention is still speculative, as it has only been announced recently. It will only have a beneficial effect if many states sign and ratify it and hence expand the number of jurisdictions in which cross-border recognition and enforcement of judgments can be sought. Uruguay has signed the Judgments Convention on the first day it was open for signatory and the European Commission has started to prepare accession to the Judgments Convention. China participated in the drafting of the Judgments Convention but has not signed it yet. However, China is actively participating and implementing international regulations relating to civil or commercial matters during the recent years. China expects that due to the One Belt, One Road Initiative (the “OBOR Initiative”), it will face a huge increase of civil disputes on an international level. China’s position is that the Judgments Convention helps China to offer a comprehensive international enforcement regime, which in turn helps to promote their OBOR Initiative. It remains to be seen whether China will ratify the Judgments Convention soon. For the time being however, it is still recommended to implement arbitration clauses in international contracts.

SINGAPORE CONVENTION ON MEDIATION SIGNED BY 46 COUNTRIES

On 7 August 2019, The United Nations Convention on International Settlement Agreements Resulting from Mediation, also known as the Singapore Convention on Mediation (the “Mediation Convention”) was signed (but not yet ratified) by 46 countries, including the USA, China, India and South Korea, at an official signing ceremony in Singapore. The Mediation Convention seeks to facilitate the cross-border enforcement of settlement agreements resulting from mediation. The Mediation Convention remains open to further signatories and will enter into force once three countries have formally ratified it.

We summarise the highlights of the Mediation Convention below. 

1. STATUS QUO

Currently, with regard to China, mediated settlement agreements cannot be enforced across jurisdictions. If one of the parties under the settlement agreement refuses to comply with its obligations, the other party does not have an efficient enforcement instrument. He must enforce the settlement agreement through the dispute resolution clause (if any) in the settlement agreement. This would then lead to court proceedings or arbitration. This unsatisfying result deters parties from resolving cross-border disputes through mediation. 

2. BENEFITS OF THE MEDIATION CONVENTION

The Mediation Convention is equivalent to the New York Convention in the field of settlement agreements. It provides a relatively efficient and mechanical process for the direct enforcement of cross-border settlement agreements between parties resulting from mediation. A settlement agreement may then be enforced directly by the courts of a country that has acceded to or ratified the Mediation Convention (a “Convention State”). This enforcement regime promotes the image of mediation as an alternative to litigation and arbitration, which may involve substantial time and costs thereby delaying the settlement.

3. INCLUSION

The Mediation Convention will only apply to settlement agreements resulting from mediation which:

a) are concluded in writing;

b) resolve a commercial dispute;

c) is an agreement between two or more parties who have their place of business in different states; and

d) the place of business of each of the parties to the agreement is in a Convention State.

4. EXCLUSION

The Mediation Convention does not apply to settlement agreements:

a) Concluded to resolve a dispute arising from transactions engaged in by one of the parties (a consumer) for personal, family or household purposes;

b) relating to family, inheritance or employment law; or

c) which have been approved by a court or concluded in the course of proceedings before a court and are enforceable as a judgment in the state of that court; and which have been recorded and enforceable as an arbitral award.

5. ENFORCEMENT PROCEDURE

A party must provide the following to the relevant competent authority in the jurisdiction in order to enforce the settlement agreement:

a) the signed agreement; and

b) evidence that the settlement agreement resulted from mediation (This can be the mediator’s signature on the settlement agreement).

6. GROUNDS FOR RESISTING RELIEF

The grounds for resisting enforcement are listed in Art. 5 of the Mediation Convention, which are exhaustive and resembles those in the New York Convention. However, in order to ensure these grounds are not too widely engaged, the bar to conduct a refusal is relatively high. 

7. CONCLUSION AND IMPACT ON CHINA

The Mediation Convention seeks to facilitate international trade and promote the use of mediation for the resolution of cross-border commercial disputes. Overall, the Mediation Convention has received a positive response in both the political and legal arenas. China has signed but has not yet ratified the Mediation Convention. However, as a result of, and in-line with the OBOR Initiative (please see above), it is highly possible that China will ratify the Mediation Convention soon. For the time being, it is still recommended to pay attention to valid arbitration clauses in international contracts though.

Partner, CMS (China)

Falk has been advising clients in corporate law, Chinese and international commercial law as well as dispute resolution since 2006. His clients comprise foreign companies and their Chinese subsidiaries in the sectors of consumer products, automotive, IT technology, lifesciences, machinery and equipment, textile and logistics.

Falk started practicing with CMS in Germany in 2006 and joined CMS in China in April 2007. Before that, he worked at the University of Freiburg as a teaching and research assistant at the Institute for German and International Civil Procedural Law for more than five years. He is also the lawyer of confidence of the Embassy of the Federal Republic of Germany in Beijing.