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A milestone in cross-border legal co-operation

Hong Kong and China have taken a major step forward in legal collaboration with a reciprocal deal to recognise and enforce judgments in certain types of cases. The historic move will bring clarity and reduce litigation costs, writes Boase Cohen & Collins Partner Alex Liu.

Hong Kong, 8 March 2019: A legal dispute can be a headache, so imagine how you would feel if you had to go through it twice, first in one jurisdiction and then another. Well, currently, this is the position for certain parties in Hong Kong and Mainland China because – with just a few limited exceptions – judgments handed down on one side of the border are not enforceable on the other.

But this is about to change. On 18 January 2019 in Beijing, Hong Kong’s Secretary for Justice, Teresa Cheng, and the Vice-president of the Supreme People's Court of China, Yang Wanming, signed an arrangement on reciprocal recognition and enforcement of judgments (REJ) in civil and commercial matters.

When it is formally passed into law in both jurisdictions, the arrangement will mark a major step forward in reducing the need for re-litigation of the same disputes in both places. Further, this bilateral legal mechanism will offer greater clarity and certainty for REJ, reduce litigation costs and provide improved protection of the respective parties’ rights and interests.

Apart from furthering legal co-operation between Hong Kong and the Mainland in civil and commercial matters, the arrangement will also enhance the former’s status as a regional centre for international legal and dispute resolution services.

Hong Kong has now concluded six arrangements with the Mainland concerning various aspects of mutual legal assistance in civil and commercial matters. This latest is the third one providing for REJ between the two places in civil and commercial matters. Indeed, once the legislation is passed, the Supreme People’s Court forecasts that about 90% of judgments of a civil and commercial nature will be reciprocally recognised and enforced between Hong Kong and the Mainland.

The new arrangement applies to matters considered to be of a “civil and commercial” nature under both Hong Kong and Mainland law and covers both monetary and non-monetary relief, including all types of costs orders. It will ensure parties are better able to enforce judgments, in either jurisdiction, in matters such as contract or employment disputes. Moreover, they will not be limited to monetary judgments that meet certain requirements, as is currently the case. It also sets out jurisdictional grounds for the purposes of recognition and enforcement as well as grounds for refusal of recognition and enforcement.

However, it should be noted that there remain significant differences in the way Hong Kong and Mainland courts handle civil matters and so non-judicial proceedings and judicial proceedings relating to administrative or regulatory matters are excluded from the agreement. For example, cases brought by the Securities and Futures Commission and the Competition Commission are not covered, and neither are corporate insolvency, debt restructuring or personal bankruptcy matters.

The Secretary for Justice, it should be noted, did address concerns regarding this issue in the weeks before signing the arrangement, saying both sides were striving towards the goal of establishing a workable legal mechanism in respect of insolvency and restructuring matters.

The Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters between the Courts of the Mainland and of the Hong Kong Special Administrative Region – its full title – will take effect after both jurisdictions have completed the necessary procedures to enable implementation, most likely later this year. It will apply to judgments made on or after the commencement date.

The signing of this new agreement is good news for people doing business with individuals or companies that have assets in both Hong Kong and the Mainland. Beneficiaries of the legislation would certainly include investors in the Belt and Road Initiative and Greater Bay Area.

For anyone doing business in Hong Kong or the Mainland, I would always recommend seeking legal advice before entering into transactions, drafting agreements or signing contracts. Yes, the REJ brings greater clarity, but the cross-border legal landscape remains crowded, competitive and complex.

REJ PHOTO

Hong Kong’s Secretary for Justice, Teresa Cheng, and the Vice-president of the Supreme People's Court of China, Yang Wanming, after signing the historic arrangement. Photograph courtesy of the Department of Justice of the HKSAR