In international commercial activities, it is inevitable to encounter disputes between parties. There are usually two ways to resolve disputes, namely litigation and arbitration.

Recognition and enforcement of foreign court judgements in China

However, due to the judicial sovereignty of a country, the cross-border dispute resolution can be complicated, especially on the recognition and enforcement of foreign court judgements.

According to Articles 281 and 282 of the Civil Procedure Law of the People’s Republic of China (“Civil Procedure Law”):

“Article 281 If a legally effective judgement or ruling made by a foreign court requires recognition and execution by a people’s court of the People’s Republic of China, the party concerned may directly apply for recognition and execution to the intermediate people’s court with jurisdiction of the People’s Republic of China. Alternatively, the foreign court may, pursuant to the provisions of an international treaty concluded between or acceded to by the foreign state and the People’s Republic of China, or in accordance with the principle of reciprocity, request the people’s court to recognize and execute the judgement or ruling.

Article 282 Having received an application or a request for recognition and execution of a legally effective judgement or ruling of a foreign court, a people’s court shall review such judgement or ruling pursuant to international treaties concluded or acceded to by the People’s Republic of China or in accordance with the principle of reciprocity. If, upon such review, the people’s court considers that such judgement or ruling neither contradicts the basic principles of the law of the People’s Republic of China nor violates State sovereignty, security and the public interest, it shall rule to recognize its effectiveness. If execution is necessary, it shall issue an order of execution, which shall be implemented in accordance with the relevant provisions of the Law. If such judgement or ruling contradicts the basic principles of the law of the People’s Republic of China or violates State sovereignty, security or the public interest, the people’s court shall refuse to recognize and execute the judgement or ruling.”

The recognition and enforcement of foreign court judgements for Chinese courts are based on international treaties or the principle or reciprocity.

In reference to the situation in the Netherlands, the recognition and enforcement of non-EU courts judgements are mainly based on international treaties as well. According to Article 431 paragraph 1 of the Dutch Code of Civil Procedure (DCCP), unless otherwise provided in Articles 985-994 of this law, judgements made by foreign courts shall not be enforced in the Netherlands; as to Articles 985-994, it mainly stipulates the general principles of the procedure to enforce such foreign judgements which are enforceable in the Netherlands by virtue of a Convention or an Act. In reference to Article 431 paragraph 2 DCCP, if there is no treaty between the countries, the disputes may be resolved by starting over by Dutch courts.

In practice, from the Bontmantel case in 1924[1] to the Gazprombank case in 2014[2], Dutch courts have established four standards: (1) the jurisdiction of the foreign court that issued the judgement is acceptable by international standards; (2) the judgement is under the procedure following fair trial principle; (3) the recognition of the judgement does not violate the public policy of the Netherlands; (4) the judgement does not conflict with an earlier judgement by Dutch courts on the same dispute between the same parties, nor does it conflict with the corresponding earlier judgement by foreign courts (provided that such judgement can be recognized in the Netherlands).[3]

Back to the situation between China and the Netherlands, there is no existing treaty between the two countries on judicial assistance of foreign judgements in civil and commercial matters. Nevertheless, the Dutch court recognized and enforced a Chinese civil judgement for the first time in 2015.[4] In this case, the Chinese company requested the Dutch court to recognize a decision by Shandong Province Higher People’s Court, China. On the basis of Article 431 paragraph 2, the Dutch court assessed the case, following the abovementioned four principles. Although this is the only case, it opens the door for the recognition and enforcement of Dutch court judgements in China according to the principle of reciprocity.

It is worth mentioning that The Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgements in Civil or Commercial Matters (HCCH 2019 Judgements Convention) is adopted on the 22^nd Diplomatic Conference, and representatives including China and the European Union have signed on the text. Once the Convention takes effect, it will be clearer of the standards for mutual recognition and enforcement of judgments between China and the Netherlands.

 

Recognition and enforcement of foreign arbitration awards in China

On the other hand, arbitration, as a method of dispute resolution parallel to litigation, compared to the lengthier procedure as litigation, is more favored by parties in international business.

Arbitration follows the principle of autonomy. Parties can design arbitration clauses in the contract that meet their own needs, such as to choose the arbitration institution, arbitrators, place of arbitration, applicable laws and rules, and language for arbitration. Further, a system of a single and final award shall be practiced for arbitration, thus, the award takes legal effect upon its issuing, which meets the needs of speed and efficiency in international commercial activities. In addition, public trial is generally not applicable in arbitration, which provides protection of the commercial secrets and business reputation.

In contrary to the absence on the treaties regarding recognition and enforcement of judgements, China has joined the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) with other more than 160 countries, including the Netherlands, with only two reservations, namely reciprocal reservations and commercial reservations:

(1) The People’s Republic of China will apply the Convention, only on the basis of reciprocity, to the recognition and enforcement of arbitral awards made in the territory of another Contracting State;

(2) The People’s Republic of China will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the People’s Republic of China.

The New York Convention guarantees the certainty and enforceability of arbitration awards between two countries, and avoids the situation where decisions are made but cannot be realized.

It is worth noting that Article 5 of the New York Convention exhaustively lists the circumstances to refuse the recognition and enforcement of the award. Article 5.1 stipulates five conditions, which could be initiated at the request of either party, including the absence of a valid arbitration agreement, the absence of proper notice, awards beyond the scope of the agreement, inconsistence with the agreement regarding the composition of the arbitral authority or the arbitral procedure, as well as non-binding of the award. Article 5.2 states two situations, which could be activated by the court, including the non-arbitration matters and violation of public policy.

 

Remarks

At present, arbitration is still the main solution for dispute resolution in the business activities between China and the Netherlands. Consequently, it is particularly important to insert an effective arbitration agreement or article in the contract. If you need to draft an agreement with arbitration articles, or have questions about an existing agreement including the arbitration articles therein, we are pleased to discuss with you by phone or email. You can reach out to us via email info@amice-advocaten.nl or j.wang@amice-advocaten.nl, or call us by +31 (0) 30 23 00230 or +31 (0) 85 48 35230.

[1] ECLI:NL:HR:1924:19

[2] ECLI:NL:HR:2014:2838

[3] Page 158, Chapter 28, ICLG TO: ENFORCEMENT OF FOREIGN JUDGMENTS 2018.

[4] ECLI:NL:GHARL:2015:8059