Hong Kong enhances position as hub for China-related disputes

In a major development on 18 January 2019, the Hong Kong Secretary for Justice and the Vice-President of the PRC Supreme People’s Court signed an arrangement greatly expanding the circumstances in which judgments of the Hong Kong SAR courts will be recognised and enforced in Mainland courts and vice versa.

This new comprehensive mechanism for reciprocal enforcement of judgments is the sixth arrangement concluded between Hong Kong and the Mainland covering various aspects of mutual legal assistance in civil and commercial matters. It is a welcome extension of the more limited arrangement signed in 2006 which only applied in cases of exclusive jurisdiction agreements, and was modelled on the Hague Choice of Court Convention.

Similarly, the new arrangement draws on the work done internationally to produce the 2018 Draft Hague Judgments Convention, as well as existing bilateral arrangements between Hong Kong and certain other jurisdictions covered by the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319).

Once brought into force by local legislation, the new arrangement will apply to all judgments in civil and commercial matters (both monetary and non-monetary) unless expressly excluded. The excluded areas include certain family, inheritance, intellectual property and maritime matters, as well as bankruptcy and insolvency cases. Property preservation and interim relief measures also fall outside the scope of the arrangement. It is expected, however, that discussions will continue on expanding the arrangement into currently excluded areas.

The arrangement makes detailed provision for the circumstance in which the original court (i.e. the court in the requesting place) will be considered to have jurisdiction over the matter. These include cases where:

1. When the action was brought, the defendant's place of residence (in the case of an individual) or relevant place of business, branch or representative office (in the case of a company) was in the requesting place;
2. In a contractual dispute, the place of performance was in the requesting place; and
3. In a tortious dispute, the tort was committed in the requesting place.

The arrangement will also give effect to non-exclusive jurisdiction clauses so long as the place where the action is brought has some real connection with the dispute – for example, where relevant property is situated.

The court in the requested place shall refuse enforcement in certain limited circumstances, including where:

1. According to its law, the court in the requested place had exclusive jurisdiction over the dispute;
2. The defendant was not properly summoned or did not have a reasonable opportunity to defend the case;
3. An action on the same dispute was commenced first in the requested place or a court in the requested place has already rendered a judgment on the same dispute; or
4. An arbitral award on the same dispute has been made in the requested place or made in another country and recognised in the requested place.

In addition, the requested court has a discretion to refuse enforcement where the action in the original court was contrary to a valid arbitration or choice of court agreement.

In cases where the defendant has assets in both Hong Kong and the Mainland, the successful claimant may take action to enforce a single judgment in both places at the same time, although the total recovery cannot exceed the judgment sum. It is also possible to seek security by way of injunction or property preservation during the application process.

Parties arbitrating in Hong Kong already benefit from an arrangement with the Mainland for mutual enforcement of arbitration awards, which means that Hong Kong awards skip the "recognition" stage applicable to foreign arbitration awards. The new arrangement for reciprocal enforcement of judgments complements the arbitration arrangement and means that, whether parties prefer to litigate or arbitrate their disputes with Chinese counterparties, Hong Kong is the natural forum.

Full details of all the arrangements on mutual legal assistance between the Mainland and Hong Kong SAR can be found on the Hong Kong Department of Justice website here.

This article is produced by Lau, Horton & Wise LLP, a Hong Kong law firm in association with CMS Hasche Sigle, Hong Kong LLP