25 June 2019

Enforcing Mainland judgments in Hong Kong – May/Shall/Can – Is there an exclusive jurisdiction clause?

Since the Mainland Judgments (Reciprocal Enforcement) Ordinance Cap. 597 (“Ordinance”) came into effect in August 2008, parties to litigations in Mainland China may have a judgment issued by a people’s court in the Mainland recognised as a Hong Kong court judgment, subject to satisfaction of the statutory requirements set out in section 5 of the Ordinance. A Mainland judgment registered under the Ordinance has the same force and effect as a judgment given by the Hong Kong Court of First Instance. Further, the registration is only amenable to being set aside on limited grounds as stated in the Ordinance and is therefore an effective means to enforce a Mainland judgment against someone who has assets in Hong Kong.

One of the statutory requirements for the Ordinance to apply is that the underlying contract leading to the Mainland judgment must contain a choice of court agreement in writing pursuant to which the Mainland court is designated as the court having sole jurisdiction for resolving the subject-matter dispute. In other words, the underlying contract should have provided that the Mainland court has an exclusive jurisdiction over the dispute in question. 

A common ground raised by parties seeking to set aside the registration of a Mainland judgment has been the lack of an exclusive jurisdiction clause in favour of the Mainland courts in the underlying contract. 

In this client alert, we will discuss the court’s approach in a recent judgment of黃书建 v 代威 [2019] HKCFI 1386 (“Huang”) which concerns an application to set aside the registration of a Mainland judgment in Hong Kong on this ground. We will also look at two earlier decisions in this respect - The Export-Import Bank of China v Taifeng Textile Group Co. Ltd and Another [2018] HKCFI 1840 (“Taifeng”) and Bank of China Limited v Yang Fan [2016] 3 HKLRD 7 (“Yang Fan”).

Background

In Huang, the applicant (a lender) tried to enforce a monetary judgment handed down by the Beijing Higher People’s Court in favour of him against the respondent (a guarantor) under a Mainland loan agreement.  

The lender successfully registered the Mainland judgment in Hong Kong pursuant to the Ordinance but the guarantor applied to set aside the registration on the grounds that the underlying agreement fails to satisfy the requirement for a “choice of Mainland court agreement” as specified in the Ordinance in that the jurisdiction clause is not exclusive.

The factual matrix in Taifeng and Yang Fan is not dissimilar. However, the choice of court clauses in the respective contracts in the three cases are slightly different.

Exclusive jurisdiction clause and expert evidence

Set out below is a comparison of the choice of court clauses in the three cases:

Yang Fan Taifeng Huang

协商不成的,任何一方可以采取下列第3种方式加以解决:

  1. 依法向有管辖权的人民法院起诉。

 

(translation: “Where negotiation fails, both parties may resolve the dispute by the third of the following methods:

  1. File a lawsuit to the people’s court with jurisdiction.”)

协商不能解决时,任何一方均可以依法向北京有管辖权的人民法院起诉。双方同意,因履行本合同发生的或与本合同有关的诉讼在北京有管辖权的人民法院进行。

(translation: “In the event that the negotiation cannot be resolved, either party may lawfully bring a suit to the people’s court with jurisdiction in Beijing. The parties agree that the litigation arising out of or in connection with the performance of this contract shall be conducted in a people’s court with jurisdiction in Beijing.”)

本协议在履行过程中若发生争议,友好协商解决。协商不成的,各方均向本合同签订地北京市朝阳区有管辖权的法院起诉。

(translation: “If there is dispute in the course of the performance of this agreement, the parties should try to resolve their dispute through mutual consultation. If it is not successful, any party can, in the Beijing Chaoyang district which is the place for the signing and the making of this agreement, institute legal proceedings.”)


The common issue in these cases was whether these clauses, with the words “may” (“可以”), “shall” (“应”) or “can” (“可”), suggested that the Mainland courts’ jurisdiction was exclusive.

The exclusivity of a jurisdiction clause is a question of law to be determined by the relevant court with reference to the construction of the real meaning of the clause. It is reaffirmed in Huang that the jurisdiction clause should be construed in accordance with the governing law of the contract.

The relevant contracts in all three cases were governed by the Mainland law and thus the jurisdiction clause should be construed accordingly.   

However, in Yang Fan, the parties did not adduce evidence from Mainland legal experts on the issue of exclusivity. The court proceeded to construe the meaning of the relevant jurisdiction clause from the perspective of a reasonable person who possessed the background knowledge as the contractual parties and took into account the ordinary meaning of the word “may” (“可以”). The Hong Kong court held that the word “may” could be permissive or imperative depending on circumstances and eventually concluded that the clause in question was an exclusive jurisdiction clause given the contract’s strong connection to the Mainland.

In Taifeng, only the lender adduced expert evidence in the form of a written Mainland legal opinion. The Hong Kong court accepted the expert evidence and ruled, upon a purposive interpretation, that the choice of court clause conferred exclusive jurisdiction on the Mainland courts. 

Huang is different from Yang Fan and Taifeng in the sense that the Hong Kong court was presented with conflicting expert evidence adduced by each side on the exclusivity of the jurisdiction clause in the underlying contract. The guarantor’s Mainland legal expert sought to rely on a series of case law in the Mainland to support his view that, with the use of the word “can” (“可”), the jurisdiction clause is non-exclusive. However, the court preferred the expert evidence of the lender and found that the relevant jurisdiction clause is exclusive for the following reasons:

  • Article 125 of the Mainland Contract Law shows that in construing contractual terms the Mainland court needs to consider its literal construction, overall construction, purposive construction, custom construction and equity construction in order to ascertain the true intention of the parties. For this purpose, the court will also look at all the circumstances of the case and not just the literal words used by the parties;
  • In any event, the court takes the view that words such as “can” (“可”) are not necessarily always permissive in nature and therefore it would be prudent to take into account the factual matrix of the matter; and
  • The factual background of the underlying contract and dispute pointed to the Mainland.

An overriding observation from Yang Fan, Taifeng and Huang is that the Hong Kong court has consistently adopted a substance-over-form approach in deciding whether the relevant jurisdiction clause is exclusive. Regardless of the use of the wordings, such as “can”, “may” or “shall”, or the absence of wordings such as “sole discretion” or “exclusive” in the jurisdiction clause, a jurisdiction clause could be exclusive as long as in substance and effect it confers exclusive jurisdiction on the nominated courts. Factors considered in the three cases included:

  • the identity of parties involved;
  • the parties’ place of residence or incorporation;
  • the parties’ place of business; and
  • the place of execution, performance and breach of the relevant contract.

Designation of court

Sometimes parties seeking to set aside a registration of a Mainland judgment would try to argue that a failure to designate a specific court in the Mainland is insufficient to satisfy the “choice of Mainland court agreement” requirement in section 3(2) of the Ordinance. This argument was also rejected in Taifeng and Huang and the Hong Kong court held that a general choice of the Mainland courts would be sufficient. 

New arrangement

While we are pleased to see that the Hong Kong courts have clarified the ambiguities of the requirement for a choice of Mainland court agreement under the Ordinance, it is worth noting that the existing regime will be updated following the signing of the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region (“New Arrangement”) on 18 January 2019.

The New Arrangement refines the recognition and enforcement regime and provides more certainty to the parties involved in cross-border disputes. Specifically, the “choice of Mainland court agreement” requirement will effectively be abolished thereon, eliminating this type of common issues in the enforcement of a Mainland judgment in Hong Kong.

However, it takes time for the New Arrangement to be implemented and in the meantime, the enforcement of Mainland judgments obtained pursuant to contracts entered prior to the implementation of the New Arrangement will remain subject to the Ordinance and the relevant case law.    

We will continue to monitor the development of the implementation of the New Arrangement. Meanwhile, if you wish to know more about the New Arrangement, please refer to our earlier publication here.

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