Despite the
volume of trade between Canada and the People’s Republic of China (“PRC”) cases
involving the recognition or enforcement of PRC judgments are rare. It is only a matter of time before courts
will need to address this. A recent
case in California alerts us to aspects of PRC law relevant to proceedings in Canada. In California, as in Canada, courts will
recognize foreign judgments if the foreign court had jurisdiction over the
defendant, and as in Canada, failure to properly serve process in the foreign
proceeding is generally a full defence to enforcement.
In Folex Golf v. O-TA Precision, Folex Golf (“F”) and the Luoyang Ship
Material Research Institute (“L”) had an agency agreement, F introduced O-TA
Precision (“O”) to L, and O became L’s customer. L later sued F in the PRC. A default judgment there dissolved the agency
agreement. F then sued O in California. O, arguing that the default judgment bars
F’s action, won summary judgment
dismissing F’s action.
The U.S Court of Appeals for the 9th
Circuit reversed in a ruling last month, giving two reasons why the PRC default
judgment was not enforceable. One was
that the PRC claim had not been properly served, even under PRC law. According to expert evidence on PRC law in
that case, PRC law permits service by way of publication, if personal service
is shown to be impossible. Such
publication must be done both in the PRC and abroad in cases where the
defendant is based outside the PRC. In other words, the PRC judgment was arguably
invalid even in the PRC. As such, the
PRC judgment would likely not be enforceable in Canada, where one prerequisite
to enforcement is that the judgment be final and conclusive. If the judgment is vulnerable to be being set
aside due to shortcomings in service, it is not conclusive. Incidentally, the fact the PRC plaintiff did
not comply with PRC law regarding service does not by itself constitute a
reason in Canada to not recognize the judgment.
In Canada, failure to provide the defendant a fair process is a defence
to enforcement of foreign judgments, but fairness is based on Canadian
standards, not the foreign country’s legal requirements.
The second reason the California
court reversed was that according to expert evidence in that case, PRC law does
not recognize third party collateral estoppel.
In other words, under PRC law, the PRC would not enforce its judgment
against L, which was not a party to that proceeding. Therefore the PRC would not enforce the
California summary judgment ruling. Under California law, courts will not
recognize a judgment from another U.S. state unless that state recognizes
California judgments; presumably the same applies to judgments from the
PRC. Accordingly, the appeal court
ruled that it would not recognize the PRC judgment in this case. Canadian courts, in determining whether to
enforce a foreign judgment, generally do not consider whether courts in the
foreign jurisdiction would enforce Canadian judgments. However, Canadian courts will consider, when
asked to issue an order to be enforced abroad, whether such order could in fact
be enforced. Thus if F had sued L in
Canada to obtain an order to be used against O in the PRC, the PRC law described in Folex would be a reason for the Canadian court not to issue the
order.