In a broad sense, enforcement of judgments in international commercial litigation embraces two aspects. The first aspect is to enforce the judgment entered by a domestic court of a country, and the second involves recognition and enforcement of foreign judgments. In many cases, it also involves enforcement of foreign arbitral awards. More importantly, given the nature of judicial sovereignty, a judgment of one country’s courts does not automatically gain extraterritorial recognition and enforcement in another country. This matter may only be resolved through a special channel, which is commonly called “international judicial assistance.”

 

A.  Enforcement of Courts’ Judgments

The CCPL provides a number of devices by which a court judgment may be satisfied. In general, the enforcement is divided into (a) enforcement against property, and (b) enforcement against required activities. Enforcing a judgment against property is called execution. Under the CCPL, the available means for execution include inspection, freezing, and transfer of judgment debtor’s deposits, withholding and withdrawal of judgment debtor’s income; sequestration, seizure, freezing, public auction, and sale of judgment debtor’s property;and eviction and return of land. The enforcement against required activities involves forced delivery of specified value instruments or certificates, and forced performance of acts as specified in the judgment.   Additionally,  for purposes of enforcing judgments, the CCPL also provides certain protective measures, which include search, issuance of certificates for the transfer of property rights, as well as monetary penalties for delayed payment.

 

There are two ways to initiate the process of enforcement in the courts. The first, and more common, one is the “enforcement by petition” made by the judgment creditor. If the judgment debtor refuses to satisfy the court judgment, the judgment creditor may file a petition for enforcement of the judgment with a competent court. The enforcement petition may be made in writing or orally if the petitioner has difficulty writing. When making the petition, the petitioner provides the court with documents stating the reasons and items for enforcement, as well as a copy of the court judgment. The petitioner may also need to furnish information about the financial status and property of the judgment debtor. The time limit for the judgment enforcement petition is one year, if at least one party is citizen, or six months, if all parties are legal persons or other organizations.

 

Enforcement may also be triggered by referral of the judge in the case, which is called “judge-referred enforcement.” The enforcement under the judge’s referral, however, is limited to legal documents such as judgments, orders, and mediation papers made by the court only. In 1998, the Supreme Court adopted the “Rules (Provisional) on Several Matters Concerning Enforcement Work in the courts.” Under these Rules, a judge may refer for enforcement: (1) judgments for child support, alimony, pension, medical expenses, and salaries; (2) legal documents made by the courts in criminal proceedings containing property-related commercialjudgments, orders, and mediation papers; (3) court orders pertaining to attachment and advance execution; (4) court decisions on fines and detention; and (5) commercial  judgments and orders made by the court concerning major interests of China.

 

In the courts, enforcement of a judgment is executed by an enforcement officer.Many courts have formed an enforcement division in charge of judgment execution. Upon receipt of a petition or judge referral for enforcement, the enforcement officer or division sends the execution notice to the judgment debtor, instructing him or her to comply with the judgment within a specified period of time. If the judgment debtor fails to comply, the enforcement officer may explore other enforcement devices to compel the debtor to satisfy the judgment.

 

However, if the judgment debtor or their property is not within the territory of China, the judgment creditor may directly apply to a competent foreign court for enforcement. If necessary, the court may also send the enforcement request to a foreign court under the provisions of bilateral or international treaties to which both China and the foreign country are members. Absent these treaties, the request may be made on the basis of reciprocity If required by a foreign court, the court may issue a certificate of judgment to the judgment creditor.

 

B.  Recognition and Enforcement of Foreign Judgments and Arbitral Awards

Articles 267 and 268 of the CCPL provide the process to enforce foreign judgments by the court.There are two alternatives to start the process: (1) the foreign judgment creditor may file a petition directly with the competent court for recognition and enforcement of the judgment; or (2) the foreign judgment court may make a judgment recognition and enforcement request to the competent court. Note that the foreign court request in this regard shall be directed to the competent court through the means provided in the treaties to which both China and the forum country have joined, or on the basis of reciprocity. If neither treaty nor reciprocity exists, a diplomatic channel is usually employed. For purposes of the recognition and enforcement of a foreign judgment, the competent court shall be the intermediate court of the place where the judgment debtor resides or his property is located.

 

Upon receipt of the judgment recognition and enforcement petition or request, the intermediate court shall examine and review the foreign judgment on the basis of international treaties to which China is a member, the principle of reciprocity, or relevant Chinese law.The examination and review, however, is limited to the formality of the foreign judgment without questioning the merits of the foreign court’s determination of facts and application of law.After the examination and review, the court may issue an order of recognition or a writ of enforcement provided the foreign judgment does not contradict basic principles of Chinese law nor violates Chinese sovereignty, public security, or social interests.

 

The CCPL does not dictate the conditions under which a court may refuse to recognize and enforce a foreign judgment. In practice, however, the courts may strike down a petition or request for recognition and enforcement if the foreign judgment is found to have one of the following defects:

(1)the foreign judgment was made by an incompetent foreign court according to relevant provisions of international treaties and Chinese laws,

(2)the foreign judgment has not taken effect or has no effect at all under the law of such foreign country,

(3)the defendant was not given adequate notice for the proceedings, or was not properly represented by a guardian if lacking legal capacity,

(4)an effective judgment has been made by a court for the same cause of action between the same parties, or the case was in the middle of trial in acourt and the trial had begun before the proceedings in the foreign court started, or

(5)recognition and enforcement of the foreign judgment would cause harm to Chinese sovereignty, security, and public order.

 

On December 1, 1992, the Supreme Court issued its “Opinions on Relevant Questions Concerning Courts’ Handling Petition for Recognition of Divorce Judgment Made by a Foreign Court.” These Opinions specifically address the recognition of foreign divorce judgments sought by Chinese citizens as well as foreigners. The Supreme Court emphasizes that a court should not decline to take action on the recognition petition submitted by a Chinese citizen even though the marriage was concluded outside China. But, if the judgment was made in default, the petitioner shall provide the court with evidence that the defendant was properly notified of the divorce action. According to the Supreme Court, a court may deny a foreigner’s petition for recognition of their divorce judgment if their spouse is not a Chinese citizen.

 

With respect to a foreign arbitral award, Article 269 of the CCPL provides a similar procedure to that for the recognition and enforcement of foreign judgments. A major difference is that only the parties to the arbitration may initiate the process by submitting the petition directly to the intermediate court of the place where the award debtor resides or property is located. In addition, since China is a member state to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention), in nearly all cases recognition and enforcement of foreign arbitral awards are subject to the conditions set forth in the Convention.

 

C.  Practical Concerns in Seeking Enforcement of Judgments in the courts

The enforcement of court judgments in China is difficult. Each year a considerable number of court judgments or orders are not enforced. It is obvious that this sluggishness in enforcing judgments, including arbitral awards, in China has become a major concern for many foreign companies. Though the Supreme Court is under tremendous pressure to resolve this problem, the result still is far from optimal. Partly because of this reason, during the past two general sessions of the National Congress, the Supreme Court barely survived approval of its working report to the Congress.

 

It is unfair, however, to blame the Supreme Court alone on this matter, and many factors attribute to the problem of enforcement difficulty. Local protectionism is the main obstacle to enforcement. As noted, since China adopts a two-instance system of adjudication, a majority of cases conclude in intermediate courts situated at the level of prefecture between county and province. The enforcement of domestic judgments normally rests with the trial courts, county courts in many cases, unless an intermediate court conducts the first instance trial. When a commercial case involves different counties or prefectures, the trial court encounters local government influence driven by local interests such as the desire or policy to protect local industries or businesses. The more local interests are involved, the more difficult it is to enforce a judgment against a local party. In case of enforcing foreign judgments against a local party, such protection could become more dominant.

 

A second factor hindering enforcement is government interference in favor of state-owned enterprises (SOE). If a SOE is a judgment debtor, the enforcement of a judgment may be halted if such SOE is financially unable to satisfy the judgment or the enforcement would threaten the survival of the SOE. The interesting phenomenon is that many SOEs in China are both creditors and debtors. More importantly, a SOE may not sell or be forced to sell its assets to satisfy a court judgment.

 

The third factor is a lack of credit-checking and asset-tracking systems. In many cases, it is very difficult, if not impossible, to obtain a judgment debtor’s financial and asset information, especially for a foreign judgment creditor. Under the CCPL, a request for recognition and enforcement of a foreign judgment shall be submitted to the intermediate court of the place where the judgment debtor resides or his property is located. Quite often, however, the judgment debtor disappears in order to evade the judgment, and his assets, including bank accounts, are all transferred to an undisclosed place.

 

The fourth factor is the lower court’s abuse of discretion. For example, when recognition and enforcement of foreign arbitral awards are requested, lower Chinese courts often arbitrarily decide to set aside the awards. In order to curb this practice, the Supreme Court established a pre-reporting system under which a decision on whether an arbitral award is to be recognized and enforced shall be reported to the Supreme Court for review. No decision shall be made before the Supreme Court review is complete.

 

The language barrier might be another factor. For a foreign judgment to be enforced in China, it is required that the judgment be translated to the Chinese language. Therefore, any mistranslation in the parties’ name or address may result in a failure of recognition and enforcement because it could constitute a ground on which the judgment debtor denies the judgment.