Chinese judgment denied recognition in the United States

In a judgment dated 30 April 2021, the New York County Supreme Court of the State of New York refused to recognize a civil judgment by the Beijing High People's Court (Jing Min Zhong No. 115) (Chinese Judgment) on the basis that, inter alia, the Chinese judgment was "rendered under a system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law in the United States".

The US judgement is reported as Shanghai Yongrun Inv. Mgt. Co., Ltd. v Kashi Galaxy Venture Capital Co., Ltd. - 2021 NY Slip Op 31459 (U).

Background

In August 2020, the plaintiff, Shanghai Yongrun Investment Management Co., Ltd. (SYIMC) commenced the present action under Article 53 of the Civil Practice Law and Rules (CPLR) for the recognition and enforcement of the Chinese Judgment in its favor.

In short, Kashi Galaxy Venture Capital Co., Ltd (KGVC) and an individual surnamed Xu (Defendants) defaulted on payment to SYIMC for purchasing the latter's interest in a target company during an earlier equity transfer arrangement. SYIMC accordingly sued the Defendants and another individual in the Beijing No .1 Intermediate People's Court in April 2018, and obtained a judgment in its favor in December 2018. KGVC appealed to the Beijing High People's Court which affirmed the first-instance judgment in May 2019 while making changes to the calculation of certain fees. SYIMC subsequently tried to enforce the judgment in China. However, the enforcement court ruled that it had to terminate enforcement due to the lack of assets available for enforcement within its jurisdiction.

SYIMC thus sought to have the Chinese Judgment recognized and enforced in New York because it believed that the Defendants had been channelling assets to the US. In the present suit, SYIMC argued, in essence, that there was no ground for non-recognition under CPLR §5304 because Chinese courts were compatible with the requirements of due process of law in the US. In support, it argued that the Chinese Judgment was final, conclusive and granted it recovery of a sum of money within the meaning of CPLR §5303, and that the Chinese courts had personal jurisdiction over the Defendants and the civil laws of China were administered by a fair system with impartial tribunals and procedures.

SYIMC specifically cited Liu v Guan, Index No. 71374/2019, 2020 WL 1066677 (NY Sup Ct 2020).

In moving to dismiss the application, the individual Xu argued that the Chinese Judgment was "rendered under a system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law" as required by CPLR §5304(a)(1), relying on the United States State Department Annual Country Reports for 2018 and 2019 which conclusively established the foregoing argument. Among his other arguments were that the Liu case was not binding because of an ongoing appeal.

In opposing XU's motion, SYIMC, among others, cited case law from the Ninth Circuit and the United States District Courts for the Northern District of Illinois and the Central District of California which recognized Chinese money judgments under the Uniform Foreign Money-judgments Recognition Act. It also argued that the State Development Country Reports were irrelevant and did not qualify as documentary evidence.

Judgment

In his judgment, the Honourable Arthur F. Engoron found, among others, that the State Development Country Reports were unambiguous and of undisputed authenticity and could and should be considered as documentary evidence. Based on the reports, the Honourable Engoron concluded that "Chinese justice looks good on paper, but in practice leaves much to be desired". Further, he found that the fact that the Defendants participated in the Chinese proceedings, were duly represented and even went through an appeal process was of no consequence because CPLR§5304(a)(1) looks at the entire system rather than any individual case.

The Liu case was distinguished on the basis that the conditional dismissal for forum non conveniens played a critical role in Justice Bulter's decision to recognize the Chinese judgment. Additionally, that judgment is not binding (although persuasive) since it is currently on appeal.

Commentary

It is yet unclear whether SYIMC would appeal this judgment. However, should this judgment stand, it will certainly shut the door for any future judgment from the New York County Supreme Court of the State of New York to be recognized in China as reciprocity is required under Chinese law. Whether the negative impact will extend to judgments from other states of the US is an open question, although the prospect looks rather grim.

It is also unclear whether this new tactic of "due process" defence employed by counsel in this case will gain traction in future instances where Chinese judgments are sought to be recognized and enforced abroad, and if so, what responses would the court addressed in future give.

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