Spar Shipping v. Grand China Logistics: English court judgment recognised in mainland China for the first time

On 17 March 2022, the Shanghai Maritime Court (the SMC) handed down a landmark decision (2018) Hu 72 Xie Wai Ren No. 1), recognising the English court judgment in Grand China Logistics Holding (Group) Co. Ltd v Spar Shipping AS ([2015] EWHC 718 (Comm); [2016] EWCA Civ 982). This is thought to be the first instance in which a commercial judgment from an English court has been recognised and enforced in mainland China.

With approval from the Supreme People’s Court of China (the SPC), the SMC held that, for the purpose of recognising and enforcing the English judgment, reciprocity was established on the basis that under English law a Chinese court judgment was capable of being enforced by the English courts. This appears to be a departure from previous judicial practice which had required precedents of actual enforcement. In this article, we discuss what this case means for the recognition and enforcement, in future, of English (as well as other foreign) court judgments in China.

Background

The underlying dispute arose from three long-term charterparties between a Norwegian ship owner, Spar Shipping AS (Spar), and Grand China Shipping (Hong Kong) Co., Ltd (GCS) as charterer. After GCS went into liquidation, Spar issued proceedings in the English High Court against GCS’s Chinese parent company, Grand China Logistics Holding (Group) Co. Ltd (GCL), under three performance guarantees, claiming for unpaid hire due under the charterparties and damages for loss of bargain in relation to the unexpired term of the charterparties. The key question in the dispute was whether Spar was entitled to terminate the charterparties for repudiatory breach at common law and therefore to damages representing its loss of bargain.

At first instance, Popplewell J found in favour of Spar, holding that although punctual payment of hire was not a condition, GSC’s conduct amounted to a renunciation of the charterparties. The Court of Appeal upheld both findings and ordered GCL, as guarantor, to pay the sums due under the charterparties and damages for loss of bargain plus interest and costs.

Spar then sought to enforce the Court of Appeal judgment against GCL in mainland China where it had assets.

The principle of reciprocity

Under Chinese law, foreign court civil and commercial judgments can generally be recognised and enforced in accordance with an international convention (or bilateral treaty) to which China has acceded or on the basis of reciprocity, provided that to do so does not contravene the basic principles of Chinese law and state sovereignty, national security and public interest.¹

China is not a signatory to the Hague Judgments Convention², nor has it concluded any bilateral treaties in this respect with the world’s major economies such as the US, the UK, Germany, Australia, Japan and South Korea. This means that Spar’s case primarily turned on the court’s determination of reciprocity.

Traditionally, Chinese judicial practice is such that a reciprocal relationship is often found to exist where there are precedents of foreign courts having previously recognised and enforced a Chinese court judgment. For example, on 30 June 2017, the Wuhan Intermediate People’s Court recognised and enforced a money judgment issued by the Los Angeles Superior Court³; it considered that China and the US had a reciprocal relationship because the US District Court for the Central District of California had previously recognised and enforced a civil judgment of a Chinese court. In the absence of an established precedent of this nature, however, Chinese courts generally find themselves less able to support attempts to recognise and enforce foreign judgments and have previously turned down applications to enforce English court judgements for this reason.⁴

The SPC guidance

On 24 January 2022, the Supreme People’s Court of China, issued a written memorandum of the National Courts Symposium on Trials of Foreign-related Commercial and Maritime Matters (the Memorandum)⁵, which sets out the following guidance on Chinese courts’ determination of reciprocity:

1. Courts in China ought first to ascertain whether there is an applicable international convention to which China has acceded (Article 33); and
 
2. In circumstances where no applicable international convention has been identified, Article 44(1) of the Memorandum states that Chinese courts should approach the issue on a case-by-case basis but may conclude that there is a reciprocal relationship if, under the law of the foreign country in which the relevant court is located, “civil and commercial judgments of the People’s Courts are capable of being recognised and enforced by the courts of that country” (emphasis added).⁶

Furthermore, Article 49 of the Memorandum provides for a reporting system whereby, in cases involving determination of reciprocity, lower courts are required to report their preliminary opinions up the judicial hierarchy and ultimately to the SPC. It is only with the approval of the SPC that lower courts are permitted to issue their rulings.

The SMC Decision

The enforcement action brought by Spar was first heard by the SMC in August 2018. A second hearing was held in February 2022, shortly after the Memorandum came into effect. The key issue for the SMC was whether there was a reciprocal relationship between the UK and China. In particular, the court considered:

1. Whether there were precedents where English courts had previously recognised and enforced Chinese court judgments or had refused to do so; and
 
2. In the absence of such precedents, whether the English court judgment in favour of Spar could still be recognised and enforced on the basis of reciprocity.

On the first issue, the SMC took the view that the English court decision in Spliethoff's Bevrachtingskantoor BV v Bank of China Ltd [2015] EWHC 999 (Comm), which was relied on by Spar, could not be regarded as a precedent of an English court recognising and enforcing a Chinese court judgment for the purpose of establishing reciprocity. This was because the English proceedings in that case did not seek to enforce the underlying Chinese court judgments against the original defendant but sought to pursue against a different party (i.e. Bank of China, as guarantor) in what was essentially a separate dispute.

As regards the second issue, it was noted that, as a matter of English law, the existence of an international convention or bilateral treaty was not a prerequisite for the English court’s recognition and enforcement of a foreign court judgment. Satisfied that a Chinese judgment was, in principle, capable of being recognised by English courts, the SMC held that there was a reciprocal relationship between China and the United Kingdom and that the judgment in this instance should be recognised and enforced.

Takeaways

Even though the success of Spar before the SMC holds little precedential value in a civil law legal system such as China, the Memorandum issued by the highest court in the land will likely have a significant impact on judicial practice across China. In particular, in its guidance the SPC appears to have sent out a message that courts in China are encouraged to take a more liberal approach to the recognition and enforcement of foreign court judgments, particularly in respect of consideration of reciprocity. This will be encouraging news for judgment creditors looking to enforce English and other foreign court judgments in China.

That said, it is worth noting that the Memorandum contains some restrictions on the types of foreign court judgments to which it applies – for example, judgments concerning bankruptcy, intellectual property, anti-competitive and antitrust disputes are excluded; preservatory measures and procedural decisions are also outside the scope of the Memorandum. It is therefore important that foreign judgment creditors have a good understanding of the Memorandum (and the relevant issues under local law) before embarking upon any enforcement proceedings in China.

If you have any questions or would like further information or training on the matters discussed, please feel free to get in touch.