With
the rapid economic integration between Hong Kong and Mainland China, it is
often common for the parties to a Mainland dispute to be holding assets in Hong
Kong, and the winning party would wish to enforce the Mainland judgment in Hong
Kong or otherwise to find ways to get ahold of the counterparty’s assets in
Hong Kong.
However,
as we shall discuss below, the existing regime for enforcement of Mainland
judgments in Hong Kong is highly restrictive, and only applies to limited types
of Mainland judgments. As an alternative, there is a trend for winning parties
to explore commencing insolvency proceedings in Mainland China, and seek
recognition of the Mainland insolvency proceedings in Hong Kong to take control
of the counterparty’ Hong Kong assets.
In
this article, we will discuss the current legal framework on the recognition of
Mainland insolvency proceedings and the enforcement of Mainland judgment, as
well as key new legislation and court rulings which facilitate deeper
cross-border mutual assistance.
Recognition
of Mainland insolvency proceedings in Hong Kong
The
“Cooperation Mechanism”
In
Hong Kong, there is no legislation regulating the recognition and assistance of
foreign insolvency proceedings, and the same is governed by common law. To
facilitate economic integration and development in Hong Kong and the Mainland, the
Supreme People's Court of China and the Government of Hong Kong reached a
consensus in May 2021 in relation to mutual recognition of and assistance to
insolvency proceedings between the courts of the Mainland and of Hong Kong (the
“Cooperation Mechanism”).
However,
it is specified under the Cooperation Mechanism that an application for recognition
of Mainland insolvency proceedings must be initiated by an
Intermediate People’s Court in the pilot areas designated by the SPC, i.e. Shenzhen,
Shanghai and Xiamen. This has raised uncertainty as to whether in light of the
terms of the Cooperation Mechanism, a Mainland court outside the pilot areas
may initiate a request for assistance to the Hong Kong court.
Liquidation
proceedings in non-pilot areas may be recognized in Hong Kong?
In
late 2021, shortly following the introduction of the Cooperation Mechanism, an
order for recognition of and assistance was first granted in Re HNA Group
Co., Ltd [2021] HKCFI 2897 at the request of a Mainland court outside the pilot
areas under the Cooperation
Mechanism. In a recent milestone case, Re Guangdong Overseas Construction
Corporation [2023] HKCFI 1340 in May 2023, the Court has further upheld the
principle adopted in the Re HNA Group case.
It
is explicitly stated in the Re Guangdong case that the Cooperation
Mechanism and the relevant guidelines merely prescribe the procedure and manner
in which an application for mutual recognition and assistance is to be made. As
the power of the court to recognize and assist office-holder appointed by a
court of another jurisdiction derives from common law, whether the request is
initiated by a Mainland court outside the pilot areas shall not be
a consideration of the Hong Kong court.
With
the pro-assistance approach adopted by the Hong Kong courts, the position is now
generally settled that insolvency proceedings in non-pilot areas can also
obtain recognition and assistance in Hong Kong.
Enforcement
of Mainland judgments in Hong Kong
The
existing regime
The
existing regime for enforcement of Mainland judgments in Hong Kong is mainly
outlined under the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap.
597) (the “MJREO”) which came into effect on 1 August 2008.
Under
the MJREO, a Mainland judgment registered in Hong Kong will have same force as
a judgment originally given by the Court of First Instance in Hong Kong.
However, the existing regime is highly restrictive and only Mainland judgments
meeting the following requirements are enforceable in Hong Kong:-
1. Choice
of Mainland Court Contract: The disputes covered by the Mainland judgment must arise from a civil or
commercial contract which contains an exclusive jurisdiction clause in favour
of the Mainland courts.
2. Final and Conclusive Judgment enforceable in the Mainland China: The
judgment must be final and conclusive (as defined under the MJREO) as between
the parties to the judgment, and must be enforceable in the Mainland China.
3. For payment of a sum of money: The judgment must order the payment of a sum
of money, and the same does not include a sum payable in respect of taxes or other charges of a like nature or
in respect of a fine or other penalty. This excludes Mainland judgments
providing non-monetary reliefs.
4. Judgment made by a Designated Mainland Chinese
Court: The judgment
must be given by a designated Mainland Chinese court, which only include the
Supreme People’s Court, Higher People’s Courts, Intermediate People’s Court and
recognized Primary People’s Courts.
The
new regime
In
January 2019, the Supreme People’s Court of the People’s Republic of China and
the Department of Justice of Hong Kong signed a new arrangement for the
reciprocal recognition and enforcement of judgments relating to civil and
commercial matters.
The
new regime establishes a more comprehensive mechanism for reciprocal
recognition and enforcement of judgments in civil and commercial matters
between Hong Kong and Mainland China, and many of the restrictive features
under the existing regime are relaxed:-
1. Expanded Scope of Disputes: The scope of the new regime is expanded to
cover most civil and commercial matters as well as criminal matters with
monetary compensation or damages ordered. Notably, specified intellectual
property right matters (e.g. trademark, copyright, and patent and design
infringement cases) as well as unfair competition matters are covered under the
new regime.
2. Choice of
Mainland Court Requirements Removed: Generally, only a connection with the Mainland
is required under the new regime. For example, the connection may be based on
the fact that the individual defendant has a place of residence in Mainland
China, or a company defendant being registered or having its principal office
there. As for contractual dispute, that the place of performance of the
contract was in the Mainland, and in the case of a tortious or infringement
dispute, that the tortious or infringement act was committed in Mainland China.
3. Extension to the enforcement of non-money
judgments: Apart from
monetary judgments, the new regime extends to cover judgments which require the
performance of an act by a party to the original proceedings for the judgment.
This entails that injunctions and specific performance ordered by Mainland
court may also be enforceable in Hong Kong.
4. Judgments by Lower Mainland Courts Covered: The new regime is broadened to cover
judgement, ruling, conciliatory statement or order of payment made by lower
Mainland courts not currently recognized under the existing regime.
The
bill for the new regime was passed in late 2022 and the effective date is yet
to the announced. However, a recent blog post made by the Secretary of Justice,
Mr. Paul Lam, SC, stating that the Department of Justice will strive to bring
the new ordinance, MJCCO into operation as soon as possible, has raised the
public’s anticipation that this long-awaited new regime for reciprocal
enforcement of judgments in Mainland and Hong Kong will be implemented very
shortly.
We
will keep you posted as to further legal development on mutual assistance between
Hong Kong and Mainland China. If you have any questions or concerns on the
reciprocal enforcement of judgments as well as the mutual recognition of
insolvency proceedings in Hong Kong and Mainland China, please let us know and
we are happy to discuss.
© Vivien Chan & Co., Newsletter issue 06, June 2023
All Rights Reserved
About Us
Vivien Chan & Co. is a full-service law practice with offices in Hong Kong (1985) and Beijing (1993). We are consistently recognized as a premier law firm for and in Greater China. With over 35 years of doing business in Greater China, our Hong Kong and China teams have an in-depth understanding and knowledge of the legal culture and market dynamics.
Our long established licensed law offices in Greater China have allowed us to develop deep local roots and an integrated global perspective necessary to help domestic businesses and multinational companies alike seamlessly manage even the most complex local and cross border transactions.
We have advised on some of the most significant acquisitions, arbitrations, real estate projects and intellectual property enforcement to date. This is particularly evident from our leading position in areas such as intellectual property, tax, employment, mergers & acquisitions and dispute resolution. Our ability to collaborate across practices and borders with ease allows us to bring the right team to every transaction, regardless of location.
