Note: On October 28, 2024, the International Commercial Court of Wuxi Intermediate People’s Court made an eye-catching ruling: to recognize and enforce a civil judgment of up to 500 million yuan issued by the San Mateo Court in California, USA.
The weight of this ruling goes beyond the amount. Since there is no treaty on mutual recognition of judgments between China and the United States, "whether a case won in the United States can be enforced in China" has long been the biggest concern for litigants in cross-border litigation.
The ruling in the Wuxi case clearly established that there is a "de facto reciprocal relationship" between China and the United States. This is both a ruling on an individual case and a "judicial declaration" that sends a signal: Chinese courts are handling cross-border judgments with a more pragmatic and open attitude.
For companies going overseas, this case is undoubtedly a wake-up call and a revelation.
1. Case Review: From U.S. Entrepreneurship Disputes to China Enforcement
The case originated from entrepreneurial cooperation in the United States more than ten years ago. The investor Huang invested in setting up a company in California, which was actually operated by Li. As the company's profits increased year by year, Li lied about not being able to distribute dividends and kept the profits when selling the company. He even forged documents to deny Huang's identity as a shareholder.
In 2016, the San Mateo Court in California ordered Li and his company to pay approximately US$73 million in compensation to Huang. Since then, the U.S. Court of Appeals and the California Supreme Court have upheld the original verdict, making the judgment officially effective.
The problem is: Li has property available for execution in China. Huang then applied to the Wuxi Intermediate Court in 2020 to recognize and enforce the US judgment.
Li raised multiple defenses:
- There is no reciprocal relationship between China and the United States;
- The U.S. judgment harms China’s public interests and basic legal principles;
- The procedure is unfair and there is fraud; The Wuxi Intermediate People's Court responded and rejected the defenses one by one, and finally recognized and enforced the US judgment.
2. Key breakthrough: How to identify "mutually beneficial relationship"
In the recognition and enforcement of foreign judgments, the identification of "reciprocal relations" has always been a core problem. According to Article 299 of the Civil Procedure Law, in the absence of relevant international treaties, a Chinese court can only recognize its judgment if it confirms that there is a reciprocal relationship with the other country.
The dilemma in the past was that there was always disagreement about how to judge a "reciprocal relationship."
In the Wuxi case, the court made it clear that as long as there is precedent showing that a U.S. court has recognized and enforced a Chinese judgment, it can be used to determine factual reciprocity.
In fact, the standard of de facto reciprocity was established as early as the [(2016) Su 01 Xiewai Recognition No. 3] case. At that time, the Nanjing Intermediate People's Court held that although there was no international treaty on the mutual recognition and enforcement of court judgments between China and Singapore, since the Singapore High Court had executed civil judgments of Chinese courts, Chinese courts could recognize and enforce relevant judgments of Singapore courts based on the principle of reciprocity.
It is these precedents that provide the basis for the Wuxi Intermediate People's Court to determine that there is de facto reciprocity between China and the United States.
3. Public Interests and Basic Principles: Boundaries are Narrowing
A common defense ground used by the respondent is that "foreign judgments violate China's public interests."
In the Wuxi case, Li argued that the U.S. judgment ignored China's foreign exchange management system and corporate law rules and harmed China's public interests. The court did not adopt it.
The court held that public interests should be limited to national security, social and political order, basic morality, etc.; general foreign exchange, industrial and commercial, and accounting systems are not within the scope of public interests.
Similarly, regarding the legal differences regarding “nominal shareholders”, the court held that these were different decisions resulting from differences in legal systems and could not be deemed to violate the basic principles of Chinese law.
4. Fraud and procedural fairness: formal review is the main issue
Li argued that Huang's perjury in the U.S. trial constituted a fraudulent verdict and should be rejected.
The court held that the fraud exception was indeed an internationally recognized reason for denial of recognition, but the Chinese court only conducted a formal review and did not conduct a "second trial" on substantive issues that had already been heard by the U.S. court. The so-called perjury in this case could have been raised in the U.S. appeals process and was not supported by other evidence. In summary, there is no sufficient evidence to show that the judgment involved was fraudulent.
5. Practical Enlightenment
Three key signals revealed by the Wuxi case deserve special attention:
First, the threshold for determining de facto reciprocity is only whether there is a precedent for the recognition and enforcement of Chinese court judgments in the other country, without further examination of the specific legal basis on which the recognition and enforcement process is based.
Second, the scope of application of “public interest” is narrow. Unless it involves national security and fundamental social order, the courts will not easily block the execution of foreign judgments on this ground.
Third, recognition and enforcement are mainly based on formal review. Chinese courts will not conduct “secondary hearings” on foreign cases, but respect res judicata and procedural legality.
6. The significance for enterprises to go overseas
For companies, this verdict brings at least three implications:
1. Winning overseas lawsuits is no longer just “paper talk”
If the other party has assets in China, the possibility of cross-border judgment enforcement in China is increasing.
2. Dispute resolution clauses must be designed in advance
It is not a matter of choosing a foreign court at random, but one must consider whether the judgment can be implemented. The enforceability of arbitration clauses and the path to mutual recognition of court judgments are both key.
3. Risk control logic requires “judgment thinking”
When it comes to overseas investments, equity cooperation, and mergers and acquisitions, we must not only consider the interests at the time of signing the agreement, but also consider whether the judgment can be truly enforced if it enters into litigation.
7. Case comparison: Singapore’s practice of mutual recognition of judgments
In contrast, mutual recognition of judgments between China and Singapore has been smoother. Although China and Singapore signed the "Treaty on Judicial Assistance in Civil and Commercial Matters between the People's Republic of China and the Republic of Singapore" as early as 1999, the treaty did not involve the mutual recognition and enforcement of civil and commercial judgments. In this case, On the 31st August 2018 , the Supreme People's Court of China and the Supreme Court of Singapore jointly signed the "Guidance Memorandum on the Recognition and Enforcement of Monetary Judgments in Commercial Cases" (hereinafter referred to as the "Memorandum") at the second China-Singapore Legal and Judicial Roundtable. According to Memorandum No.
Article 6, Chinese courts may recognize and enforce Singapore court judgments at the request of the applicant on the basis of reciprocity. In other words, Singapore court judgments must be based on a "reciprocal relationship" before they can be recognized and enforced in China.
This principle of reciprocity was first established in the Kolmar Group AG case (Kolmar Group AG v. Jiangsu Textile Industry (Group) Import and Export Co., Ltd., [2016] Su 01 Xiewai No. 3). The Nanjing Intermediate Court pointed out in this case that since the Singapore High Court had previously recognized and enforced a civil judgment issued by the Suzhou Intermediate Court in China, it could be determined that there was de facto reciprocity between China and Singapore, and ruled to recognize and enforce the relevant judgment of the Singapore High Court. This case became the first typical case in which a Chinese court used "factual reciprocity" as the standard to confirm the reciprocal relationship between China and New Zealand.
It can be seen that the mutual recognition of judgments between China and Singapore has been established in practice and has gained an institutional foundation through the path of "factual reciprocity", providing the parties of the two countries with higher predictability and operability in cross-border disputes.
Conclusion: The end point of cross-border disputes is “landing”
This "from California to Wuxi" judgment is not just a piece of news, it symbolizes the openness and confidence of Chinese courts in cross-border justice.
For companies going overseas, it reminds us that the last line of defense against cross-border risks is not when the contract is signed, but when the dispute enters the judicial stage and whether the judgment can be truly implemented.
The real end point of cross-border disputes is not who wins or loses, but whether the judgment can be turned into real rights.
This article is general information and not legal advice. Specific matters require assessment by appropriately qualified professionals.