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16 October 2018
The Hong Kong government recently issued a consultation paper, and sought views from members of the public and interested stakeholders, on a proposed arrangement between Hong Kong and the mainland for the reciprocal recognition and enforcement of judgments in civil and commercial matters (the proposed arrangement).(1) The proposed arrangement seeks to provide a mechanism which widens the existing and limited scope for the enforcement of mainland court civil judgments in Hong Kong and vice versa. Matters are at a relatively early stage and, if the proposals are to be implemented, legislation will be required. The proposals are expected to have broad support in principle and reflect the realities of an increased commercial interaction between two jurisdictions within 'One Country, Two Systems'.
To date, Hong Kong has entered into two arrangements with the mainland regarding the reciprocal recognition and enforcement of mainland judgments in certain civil matters.(2)
The first arrangement, implemented in Hong Kong through the enactment of the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap 597), created a statutory scheme for the mutual recognition of monetary judgments made by Hong Kong and mainland courts where the parties to a commercial contract have expressly designated either jurisdiction as the exclusive jurisdiction for the determination of contractual disputes (the so-called 'choice of court arrangement'). This arrangement is limited in scope; for example, monetary matters arising out of contracts containing exclusive jurisdiction clauses.(3)
The second arrangement, entered into by Hong Kong and the mainland in June 2017, provides for reciprocal recognition and enforcement of various matrimonial and family civil judgments (the so-called 'matrimonial arrangement'). However, this arrangement has yet to come into effect. The issues involved are complex and – a generation or so into 'One Country, Two Systems' – reflect the increased interaction of adults on both sides of the border.
In short, any mainland civil judgment which does not meet the requirements of the choice of court arrangement or the matrimonial arrangement may be recognised and enforced in Hong Kong only through the commencement of a fresh legal action and subject to established common law principles. This is often known to be a difficult process as (for example) it can be problematic for mainland judgments to satisfy the common law requirement that a non-Hong Kong judgment be final and conclusive, especially in the context of the mainland's trial supervision system.(4)
Given the complexities of the common law principles of recognition and enforcement, and the narrow application of the choice of court arrangement and the matrimonial arrangement, there have been frequent calls to widen the scope for the reciprocal enforcement of civil judgments between Hong Kong and the mainland.
During the consultation process, the Department of Justice sought views on various aspects of the proposed arrangement, including:
It appears from the consultation paper that the Department of Justice has adopted an open-minded attitude towards the extended scope of judgments which may be mutually recognised and enforced in either jurisdiction. For example, the consultation paper considers the possibility of covering all types of relief (eg, monetary relief, injunctions and specific performance). If implemented, such a proposal would represent a significant shift from the current statutory and common law regime which allows for the enforcement of specific monetary judgments with respect to the courts of certain jurisdictions.(5)
It is important to stress that any proposed arrangement is likely to have inbuilt protections that will (among other things):
Viewed in this light, the proposals set out in the consultation paper are hardly radical. Already, one major stakeholder has, in its public submission, broadly welcomed the proposals in principle, provided that they are limited to monetary relief – for example, an order for the payment of a sum of money, excluding a tax or charge of a similar nature or a fine or other penalty.(8) While this would exclude reliefs such as injunctions and specific performance, and significantly limit the scope of a proposed arrangement, it does reflect a justifiably cautious and realistic step-by-step approach of which many will approve.
Given the increasing economic and trade activities between Hong Kong and the mainland, there is a need to widen the framework for the reciprocal recognition and enforcement of judgments. The proposed arrangement, once implemented, will no doubt ease many of the challenges of cross-border disputes and, in doing so, increase Hong Kong's appeal to local and foreign investors seeking redress in the mainland.
However, no arrangement will be perfect or offer a guarantee for enforcement. Parties seeking redress in the mainland will still face some difficulties and, as many accept, this is in large part a cost of doing business. This is why due diligence on some transactions in the mainland is so important (litigation usually being a last resort).
While it is anticipated that the proposals in the consultation paper will have broad support in principle within the commercial community, their implementation will require legislation which cannot take effect until both jurisdictions have completed the necessary procedures for implementation. It is anticipated that this may take at least a couple of years. Although that may seem like slow progress, it needs to be seen in the local context of the complexities of 'One Country, Two Systems'. Legal developments often struggle to keep up with demographic change and commerce.(9)
For further information on this topic please contact Mark So, Gary Yin or Milo Qin at RPC by telephone (+852 2216 7000) or email (email@example.com, firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
(1) Consultation Paper on the "Proposed Arrangement Between Hong Kong and the Mainland on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters" (July 2018). The consultation period closed on 24 September 2018, subject to late submissions agreed with the Department of Justice (Legal Policy Division).
(8) Law Society of Hong Kong submission, available on its website.
(9) In order to increase the momentum, the chief executive of the Hong Kong Special Administrative Region mentioned the proposed arrangement in her policy address presented to the Legislative Council on 10 October 2018 (paragraph 134).
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