As business activity between China and Canada increases, cross-border commercial disputes are inevitable. Sometimes litigants prefer to have their disputes resolved by the courts in China. But would Canadian courts enforce a Chinese judgment? No Canadian court has ever directly addressed this question and, to our knowledge, no appellate-level guidance on this question was available from U.S. courts until March of 2011 when the U.S. Court of Appeals (9th Circuit) released its decision in Hubei Gezhouba Sanlian Industrial Co. Ltd., et al. v. Robinson Helicopter Company, 2011 U.S. App. LEXIS 6428, affirming 2009 U.S. Dist. LEXIS 62782.
In Sanlian, the appellate court affirmed a lower court decision recognizing and enforcing a monetary judgment issued by the Hubei provincial court in favour of the Chinese plaintiffs against a defendant resident in the U.S. Sanlian may be instructive to Canadian courts in determining whether to enforce a Chinese judgment in Canada. There are certain general criteria applicable to the determination of enforceability of foreign judgments in Canada. A Chinese judgment could be recognized and enforced in Canada if it meets those criteria.
The Sanlian Case
The facts in Sanlian involve a defective helicopter that crashed into the Yangtze River in China on March 22, 1994. The helicopter was manufactured by the U.S. based defendant, Robinson Helicopter. The Chinese plaintiffs originally filed an action in California for negligence, strict liability and breach of implied warranty. Robinson Helicopter moved to dismiss the California action on the grounds of forum non conveniens. They argued that China was the more suitable jurisdiction, that the Chinese legal system would follow due process of law, and that a Chinese court would exercise jurisdiction over the case. Robinson Helicopter agreed to submit to the jurisdiction of the Chinese court, toll the statute of limitations, and abide by any final judgment rendered in China. On the basis of this agreement, the motion was granted and the California action was stayed.
In January 2001, the plaintiffs filed an action against Robinson Helicopter in the Higher People’s Court of Hubei Province in China. In February 2004, Robinson Helicopter was served with a summons, statement of complaint, and related papers, which notified it of a trial commencing March 25, 2004. The legal documents were served pursuant to theHague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matter.
Robinson Helicopter did not defend the PRC action and failed to take any steps to participate in the trial. At trial, a panel of three judges considered extensive evidence submitted by the plaintiffs and the evidence collected by the court and, on December 10, 2004, issued a US$1 million judgment in favour of the plaintiffs. Robinson Helicopter did not challenge the jurisdiction of the Hubei Court or the adequacy of service, and did not appeal the judgment in China.
The plaintiffs filed a complaint in California seeking to enforce the Sanlian judgment pursuant to the Uniform Foreign Money-Judgments Recognition Act (“UFMJRA”). UFMJRA codifies the common law jurisprudence in the US and has been enacted in most of the states in the US. It provides that a US court shall recognize a foreign country money judgment subject to the following exceptions:
A US court may not recognize a foreign judgment if
• The foreign country does not provide impartial tribunals or procedures compatible with the due process requirements, or
• The foreign court did not have personal jurisdiction over the defendant. UFMJRA sets out a non-exhaustive list of bases for personal jurisdiction including consent or attornment by the defendant, the domicile or business office of the defendant, or personal service of process on the defendant in the foreign country.
A US court need not recognize a foreign judgment if
• The defendant was not provided with sufficient time to defend,
• The foreign judgment was obtained by fraud,
• The foreign judgment is repugnant to the US public policy,
• The foreign judgment conflicts with another final and conclusive judgment,
• The parties have agreed to the jurisdiction of another forum,
• Where personal jurisdiction was based on personal service, the forum was seriously inconvenient for the trial of the action, or
• The specific proceeding was not compatible with the due process requirements or otherwise raised substantial doubt about the integrity of the foreign court.
Sanlian opposed the recognition request before the California jurisdiction and that it was not provided with adequate notice in the PRC action. The California District Court held that the Sanlian judgment should be enforced in California because:
- The Hubei Court had jurisdiction over the PRC action based on Robinson Helicopter’s express agreement on jurisdiction.
- The legal documents were properly served under the applicable U.S. rules and theHague Convention. In addition, Robinson Helicopter never complained to the Hubei court that it was not afforded sufficient time to defend its position in the action or at trial;
- The Sanlian judgment was issued following a trial and a review of a full evidentiary record by a three-judge panel. It was not a default judgment.
- The Sanlian judgment was final, conclusive, and enforceable under the laws of the PRC.
- There was no suggestion or evidence that Chinese courts lack impartiality or the procedures were fundamentally unfair, either generally or in the Sanlian proceeding.
The California District Court found that none of the exceptions in JFMJRA were available to Robinson Helicopter to avoid recognition and enforcement of the Sanlian judgment. The appellate court (9th circuit) affirmed the decision by the California District Court.
Enforceability of foreign judgments in Canada
As a general rule, a judgment rendered by a foreign court is not automatically recognized or enforced in Canada. However, Canadian courts recognize the increasing globalization of commercial dealings, the inevitability of cross-border disputes, and the need for the effective enforcement of rights as determined by other legal systems.
In the absence of an international treaty on foreign judgments, Canadian courts will respect international comity and give “full faith and credit” to foreign judgments that meet the following criteria:
1. The foreign court has proper jurisdiction over the dispute. Jurisdiction may be established on either the consent/attornment of the defendant or on a “real and substantial connection” between the territory of the foreign court and the subject matter in dispute.The Supreme Court of Canada recently set out a non-exclusive list of presumptive “real and substantial” connecting factors for jurisdictions, including (a) the defendant is domiciled or resident in the forum; (b) the defendant carried on business in the forum; (c) the tort was committed in the forum; and (d) a contract connected with the dispute was made in the forum.
2. The judgment is final and conclusive in the foreign jurisdiction; and
3. The judgment is for a definite sum of money.1
A foreign money judgment that meets the above criteria may be denied recognition and enforcement if the judgment was obtained by fraud, there was a lack of natural justice or due process either generally in the foreign court system or specifically in the foreign proceeding that led to the judgment, or if its recognition or enforcement is contrary to public policy in Canada. The public policy defence is available if a foreign law is contrary to the Canadian concept of basic morality. It is a very narrow exception and unlikely to arise in commercial disputes.
The factors set out by Canadian courts in jurisprudence are similar to the factors US courts would consider pursuant to UFMJRA in determining whether to recognize and enforce a foreign money judgment. Proper jurisdiction, due process/natural justice, integrity, finality and public policy must all be respected or complied with before a North American court gives effect to a foreign money judgment. As a result, being the first case in North America to recognize a Chinese judgment, Sanlian would be an instructive and persuasive authority for Canadian courts if and when they are asked to recognize Chinese judgments in Canada.
Enforcing Chinese Judgments in Canada
To our knowledge, as with the situation in the U.S. prior to Sanlian, no Chinese judgment has ever been recognized or enforced in Canada, and vice versa. But the lack of prior reciprocal enforcement of judgments does not preclude the enforcement of a Chinese judgment that otherwise meets the Canadian enforcement criteria.
If a Chinese judgment is rendered by a court with proper jurisdiction and meets the Canadian criteria for the enforcement of foreign judgments, it is foreseeable that a Canadian court would agree to recognise and enforce the Chinese judgment. On the other hand, as the court system in China is different from the Canadian system, it is also foreseeable that opposition to recognition and enforcement may be raised with a focus on the differences in the two systems. Such an argument was raised in one case where the Ontario court was asked to recognize and enforce a money judgment rendered by the High Court of Singapore against an Ontario defendant. The defendant attempted to resist enforcement of the Singapore judgment by relying on the public policy defence and arguing that the judgment was granted by a corrupt legal system, with biased judges and in a jurisdiction that operates outside of the rule of law. The Ontario Superior Court of Justice found that those arguments were not supported by the evidence. As there was a real and substantial connection to Singapore and no defences to enforcement had been made out, the Court held that the Singapore judgment should be recognized and enforced in Ontario. In affirming the enforcement decision, the Ontario Court of Appeal noted that the public policy defence must be based on evidence of actual corruption or bias in the specific proceeding instead of an unsubstantiated wholesale impeachment of the foreign law or system. The fact that the US courts in Sanlian expressed no concerns about the impartiality or due process of the Chinese court system will be an indication to Canadian courts that enforcement of a Chinese judgment in Canada cannot be denied on public policy grounds simply because it is rendered in a Chinese legal system that is different from the Canadian legal system.
Sanlian is a helpful decision for litigants seeking to enforce monetary judgments obtained in China against defendants that have connections to, and assets in, Canada. The case also provides a useful reminder to litigants and their counsel to proactively consider enforcement steps from the outset of an action, and where appropriate, to engage Canadian counsel to ensure compliance with the applicable criteria for the enforcement of foreign judgments in Canada.
1. Recognition and enforcement of foreign non-money judgments in Canada is not impossible but will involve many other considerations such as whether the terms are clear and specific enough and whether the Canadian litigant would be exposed to unforeseen obligations.
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