On Oct. 26, many in Hong Kong’s legal community applauded the culmination of a prolonged cross-border judicial and legislative endeavour aimed at expanding the enforceability in Hong Kong of some judgments granted by civil courts in the mainland.
The Legislative Council, reshaped by a sweeping overhaul of the city’s electoral system last year, has approved the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Bill. The RE bill is expected to enter into force in the coming months after relevant regulations are put in place in respective jurisdictions.
Lawyers in Hong Kong are buoyed by the development, which they tout as integral in positioning the Chinese special administrative region as a leading dispute resolution hub in Asia. But the bill falls short of addressing some concerns raised by local barristers, which could risk undercutting its local implementation.
WHAT DOES THE BILL’S PASSAGE MEAN FOR HONG KONG?
Amidst growing calls to enhance mutual legal assistance between mainland China and Hong Kong, the RE bill aims to establish a more comprehensive mechanism for reciprocal recognition and enforcement of judgments in civil and commercial matters between the two jurisdictions. Through the process, it is also expected to reduce the need for re-litigation of the same disputes in both places.
The bill completed the local enactment of the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong SAR, which was signed between the PRC Supreme People’s Court and the SAR government in 2019.
The 2019 Arrangement itself was an expansion of a 2006 framework that only covered monetary judgments and reliefs, and contracts with exclusive jurisdiction clauses in favour of mainland courts. Only a handful of matters, including corporate and individual insolvency and certain intellectual property cases and rulings, fall outside the rubric of the updated Arrangement.
It was not until late 2021 that Hong Kong’s Department of Justice began to push for the domestic implementation of the 2019 Arrangement. Officials explained that the move was necessitated by the “increasingly close interaction and cooperation between Hong Kong and the mainland,” both economically and socially.
Edward Liu, a disputes partner at Haiwen & Partners, says the RE bill signifies the enhanced interaction between the two legal systems. “The bill expands the scope for mainland judgments to be enforced in Hong Kong, which opens up more opportunities for transactions involving mainland parties to resolve their disputes in Hong Kong,” says Liu.
WHAT SHOULD CROSS-BORDER COMMERCIAL DISPUTE LAWYERS BE AWARE OF?
Liu identifies three significant improvements comparing to the existing rules, including the expanded scope of matters for recognition and the introduction of pro-enforcement mechanisms.
Notably, the scrapping of the exclusive jurisdiction agreement requirement has drawn widespread praise from the industry. Previously, only mainland judgments with a written agreement in favour of the exclusive jurisdiction of the mainland courts may be enforced in Hong Kong.
“The replacement of the exclusive jurisdiction requirement with a jurisdictional test, which requires parties to a contractual dispute only to show that there is a connection with mainland China, further opens up the scope of reciprocal enforcement,” explains Liu.
However, during the RE bill’s public consultation period, the Hong Kong Bar Association has highlighted several provisions that it deemed in need of further clarifications.
The final version of the legislation fails to address some of the HKBA’s main concerns, including the lack of stipulation of a two-year time limit for the recognition and enforcement of a mainland judgement. The HKBA believed such stipulation would have more accurately reflected the position of the 2019 Arrangement, whose implementation on the mainland is through judicial interpretation.
Neither does the bill provide further guidelines in the situation where a party appeals only part of a mainland judgment, and the counterparty seeks to enforce and register the rulings or reliefs unaffected by the appeal.
“Parties should take note of the two years’ time limit and the inability to register mainland judgments that are partly under appeal,” notes Liu.
HOW DOES THIS BILL FIT INTO THE BROADER EVOLUTION OF HONG KONG-MAINLAND LEGAL TIES?
From a holistic perspective, the RE bill is one part of a sprawling mutual legal assistance regime between Hong Kong and mainland China as the central government has tasked the SAR with burnishing the legal capabilities of the Greater Bay Area.
“Apart from this bill, Hong Kong has also entered into various arrangements with the mainland in relation to the mutual enforcement of arbitral awards and the mutual assistance in court-ordered interim measures in aid of arbitral proceedings, which signify the trend of the two jurisdictions working more closely with each other,” notes Liu.
Looking forward, Liu expects more legislations to be ushered in to forge closer ties between the PRC and its common-law enclave.
For example, “it is understood that the mainland and Hong Kong are studying the feasibility for wholly owned Hong Kong enterprises registered on the mainland, or at least in the Greater Bay Area, to adopt Hong Kong law and choose Hong Kong as the seat of arbitration,” Liu adds.