Member Article

On 14 July 2006, the Hong Kong and Mainland Chinese Governments signed a ground-breaking agreement entitled “An Arrangement on Reciprocal Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region pursuant to Choice of Court Agreements between Parties Concerned” (the “Arrangement”), under which they agreed to recognise and enforce judgments made in each others courts. Legislative changes will be made in Hong Kong and the Mainland in order to implement the Arrangement.

The landmark Arrangement has important consequences for anyone doing business in the Mainland or with Mainland persons. If a commercial contract designates Hong Kong as the exclusive forum for resolving disputes arising from the contract, a judgment obtained in Hong Kong will be recognised and enforced in the Mainland if the judgment debtor keeps his assets there. The reverse will also apply.

THE EXISTING POSITION

Enforcement of Mainland Judgments in Hong Kong
The Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap 319) (Ordinance) provides a mechanism for enforcing civil and commercial foreign judgments in Hong Kong, by means of a simple and quick registration procedure. The Ordinance designates those foreign jurisdictions whose judgments the Hong Kong Courts will enforce. Such designation is based on whether that foreign jurisdiction allows the reciprocal enforcement of Hong Kong judgments. Mainland judgments are not enforceable in Hong Kong by registration under the Ordinance. To enforce Mainland judgments in Hong Kong, the Mainland judgment creditor has to start a fresh action in Hong Kong under the common law, based on the Mainland judgment.

Enforcement of Hong Kong Judgments in the Mainland
At present, it appears that Hong Kong judgments cannot be enforced in the Mainland at all. The Mainland does not have a rule similar to Hong Kong’s common law rule on recognition and enforcement of foreign judgments. The Mainland’s Civil Procedure Law provides that foreign judgments may be enforced in accordance with international agreements to which the Mainland is a party or in accordance with reciprocity. However, post-1997, Hong Kong, can probably no longer be considered a “foreign” country. A Hong Kong judgment creditor has to initiate fresh legal proceedings in the Mainland, but the Hong Kong judgment may be used as evidence in support of the claim.

THE POSITION UNDER THE ARRANGEMENT

The Arrangement will initially only apply to “money judgments of commercial cases given by specified courts of either the Mainland or Hong Kong made pursuant to a valid exclusive choice of court agreement in writing”. Accordingly, the Arrangement will only apply to:

• money judgments. So, for example, orders for specific performance or injunctions will not be covered;

• commercial cases. Contracts relating to matrimonial matters wills and successions, bankruptcy and winding up, employment and consumer matters etc are excluded;

• judgments of specified courts. In Hong Kong, it is to apply to judgments of the District Court and above. In the Mainland, it is to apply to courts at the Intermediate People’s Court level or above and to those Basic Level People’s Courts designated to have jurisdiction over civil and commercial cases involving foreign parties (42 in various provinces and municipalities);

• if the parties concerned have expressly agreed in writing to designate a Mainland or a Hong Kong Court to have exclusive jurisdiction for resolving any dispute;

• “legally enforceable final judgments.” There is to be a special procedure under the Arrangement for determining whether a judgment is final.

IMPACT ON ENTERTAINMENT, MEDIA OR INTELLECTUAL PROPERTY DISPUTES

Whilst the Arrangement is a welcome move in the right direction, it is unlikely, in its current form, to be of much use in assisting enforcement of Intellectual Property Rights (“IPR’s”). Most infringements of IPR’s involve third parties that have no pre-existing relationship with the IPR owner. Therefore, there will be no agreement with an exclusive jurisdiction clause as required under the Arrangement.

In situations where there is an agreement (such as a distribution or licensing relationship involving a foreign IPR owner and a PRC distributor or licensee), it will be possible to utilize the Arrangement by choosing exclusive Hong Kong jurisdiction in the agreement. However, careful thought must be given to whether the benefits outweigh the disadvantages: the Arrangement only applies to monetary judgments. In most IPR infringement cases, one of the most important remedies for the IPR owner is the right to seek an injunction. Injunctive relief is not available under the current Arrangement. However, in film distribution agreements where for example, the licensor specifically agreed to waive any injunctive relief, the Arrangement could be useful as the parties can then choose the exclusive jurisdiction of the Hong Kong courts.

Moreover, once an exclusive jurisdiction clause is chosen, it means that the parties are precluded from litigating in any other country. Many foreign IPR owners may wish to take advantage of Hong Kong law and the Hong Kong legal system. However, this could have undesirable results. If a foreign IPR owner, entering into an agreement with its PRC manufacturer, chooses Hong Kong law and the exclusive jurisdiction of the Hong Kong courts, it could end up with a judgment in Hong Kong which may be enforceable in the PRC only in relation to monetary damages, but not the injunction. Further, if the PRC party continues to be in breach of the agreement, the IPR owner will, by virtue of the exclusive jurisdiction clause, be precluded from taking a separate action in the PRC for an injunction.

In conclusion, in film distribution the Arrangement is certainly an improvement in its current state, and could be useful to IPR owners in some circumstances only. IPR owners need to be careful in adopting exclusive jurisdiction clauses in their agreements and, more importantly, in general to ensure that it is able to enforce any judgments against the party in breach.