Monday, 6 April 2015

Recognition of a Chinese Judgment

             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.

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