Canadian Court Enforces Chinese Civil Settlement Statement/Mediation Judgment in 2019

Key takeaways:

In April 2019, the Court of Appeal for British Columbia of Canada upheld the trial ruling to enforce a Chinese civil settlement statement (Wei v. Li, 2019 BCCA 114).
There are three requirements for a foreign judgment to recognizable and enforceable in British Columbia, namely: (a) the foreign court had jurisdiction over the subject matter of the foreign judgment; (b) the foreign judgment is final and conclusive; and (c) there is no available defence.
The Canadian courts did not question the nature of civil settlement statement. The courts referred it as the ‘Civil Mediation Paper’, and took it as an equivalent of Chinese judgment.
Under Chinese law, civil settlement statements are made by Chinese courts upon the settlement arrangement reached by the parties, and do enjoy the same enforceability as the court judgments.

In February 2017, the Supreme Court of British Columbia ruled to enforce the a civil settlement statement (in Chinese: 民事调解书, sometimes translated as a “Civil Mediation Judgment”, or a “Civil Mediation Paper”) rendered by a local court in Shandong Province, China (see Wei v Mei, 2018 BCSC 157).

The trial ruling was later upheld by the Court of Appeal for British Columbia in April 2019 (Wei v. Li, 2019 BCCA 114).

I. Facts and Proceedings in China

Mr. Tong Wei (“Mr. Wei”), a coal trader residing in Tangshan, Hebei Province, China. He made several loans to Tangshan Fenghui Real Estate Development Co. Ltd. (“the Company”) from 2010 to 2012. Mr. Zijie Mei (“Mr. Mei”) and Ms. Guilian Li (“Ms. Li”) were the shareholders and hold executive positions in the Company. They each guaranteed Mr. Wei’s loans to the company. Mr. Mei and Ms. Li are husband and wife.

Since then, because the Company and the couple defaulted in the repayment of the loans and in honouring the guarantees, Mr. Wei brought a lawsuit against the Company, Mr. Mei and Ms.Li (collectively, “the Chinese defendants”) before the Tangshan Intermediate People’s Court of China (“Tangshan Court”).

On 14 Mar. 2014, the Tangshan court held a pre-hearing mediation meeting. Ms. Yajun Dong (Ms. Dong), an employee of the Company, represented the Chinese defendants in all the legal proceedings. During the mediation process, Ms. Dong contacted Mr. Mei by phone to ask for his mediation intention, and read the mediation agreement to Mr. Mei before the mediation agreement was reached. Mr. Mei instructed Ms. Dong in the call to accept the mediation agreement.

Accordingly, on 21 Apr. 2014, the Tangshan Court issued a Civil Settlement Statement, Case No. (2014) Tang Chu Zi No. 247((2014)唐初字第247号) with the following pertinent terms:

(i) The Company must make a lump sum payment of CNY 38,326,400.00 (the “Principal Debt”) to Mr. Wei prior to 14 June, 2014, which sum includes the principal and interest of the arrears, liquidated damages, economic losses and all other expenses;

(ii) If the Company fails to make full payment prior to June 14, 2014, then the remaining balance of the Principal Debt is subject to default penalties calculated at 0.2% of the remaining balance for each day that the remaining balance remains outstanding; and

(iii) Mr. Mei and Ms. Li are jointly and severally liable for the aforementioned payment obligations. In March 2017, the three defendants applied to the Hebei High People’s Court (“Hebei Court”) for a retrial on the following grounds:

(i) When the mediation proposal was reached and the Tangshan Court made the Civil Settlement Statement accordingly, although there existed a power of attorney where Ms. Li authorized Ms. Dong to participate in the mediation and accept the mediation agreement, Ms. Li claimed that she had no knowledge of such authorization and did not give such authorization in person; and

(ii) Ms. Li was living in Canada at the time, so the authorization issued by her outside of China should have been notarised and certified before it was valid. However, the authorization received by the Tangshan Court did not go through this procedure and was therefore invalid.

The Hebei Court held that the power of attorney had the personal seals of both Mr. Mei and Ms. Li, who were husband and wife. Mr. Mei did not object to Ms. Dong’s authorization, whereas Ms. Li claimed that she did not know about the authorization and did not authorize it personally, her claim was however not in line with common sense. In addition, after the Civil Settlement Statement came into effect, Ms. Li also issued a power of attorney to appoint Ms. Dong as her agent at the execution stage, which was signed by Ms. Li in her own handwriting. This further proved that Ms. Li was aware of Ms. Dong’s authorization at the time the settlement agreement was made.

Although Ms. Li resides in Canada, she is a Chinese citizen and the requirement for the issuance of a power of attorney outside the country does not apply.

Accordingly, the Hebei Court dismissed the application for retrial.

As the Civil Settlement Statement was not fully implemented, the plaintiff, Mr. Wei, attempted to apply for the enforcement of this Chinese Civil Settlement Statement in British Columbia, Canada.

II. A Canadian Mareva injunction (freezing order)

In February 2017, upon learning that the Defendants, Mr. Mei and Ms. Li, owned properties in British Columbia, Canada, Mr. Wei, the Plaintiff, applied to the Supreme Court of British Columbia (“BC Supreme Court”) for a Mareva Injunction order (freezing order).

On 3 Feb. 2017, the BC Supreme Court granted Mr. Wei a Mareva injunction to seize $20.5 million in assets owned by Mr. Mei and Ms. Li in Canada, including two villas and a farm.

Thereafter, Mr. Wei applied to the BC Supreme Court for an order enforcing the Chinese Civil Settlement Statement.

III. First-instance proceedings in Canada

In the first-instance proceeding(summary trial), the BC supreme Court examined the admissibility of the Chinese court documents, and went to address the three requirements for a foreign judgment to recognizable and enforceable in British Columbia, namely:

(a) the foreign court had jurisdiction over the subject matter of the foreign judgment;

(b) the foreign judgment is final and conclusive; and

When examining the requirement a)-competent foreign court, the BC supreme Court found that “Chinese Court had jurisdiction over the matter”, given there is a “real and substantial connection” between the cause of action and the Chinese court.

The requirement b)-finality is also met, because as the BC supreme Court noted, no appeal is available under the Civil Procedure Law of the People’s Republic of China because the Chinese Civil Settlement Statement is a consent order based on a mediated settlement.

With regard to third requirement, the BC Supreme Court went to list out available defenses, including that the Chinese Judgments were inconsistent with a prior judgment; they were obtained by fraud; they were based on a foreign penal, revenue, or other public law; or the proceedings were conducted in a manner contrary to natural justice. Upon analysis, the BC supreme Court found above that none of those defenses apply to the facts of this case.

On 1 Feb. 2018, the BC Supreme Court ruled to enforce the Chinese Civil Settlement Statement.

IV. Second-instance proceedings in Canada

In the appeal from order holding defendants jointly and severally liable to pay debt owed to plaintiff under Chinese judgments plus interest at effective annual rate of 60 percent, the Defendant Ms. Li alleged judge erred in finding procedure for obtaining Chinese judgments did not breach natural justice, and by notionally severing rate of interest owed on Chinese judgments from effective annual rate of 73 percent to the maximum allowable annual rate under s. 347 of Criminal Code.

On 9 April 2019, the Court of Appeal for British Columbia dismissed the appeal in its entirety, by reasoning that the defendant failed to show Chinese judgments were obtained in breach of minimum standards of fairness. Judge did not err in applying concept of notional severance from Transport v. New Solutions (SCC, 2004) to Chinese judgments.

V. Our comments

It is interesting to note that when a Chinese civil settlement statement is applied for recognition and enforcement in Canada, the Canadian courts did not question the nature of civil settlement statement. The trial court referred it as the ‘Civil Mediation Paper’, and without any hesitation, took it as an equivalent of Chinese judgment. The appellate court followed the fashion in the second instance.

In June 2022, the New South Wales Supreme Court of Australia ruled to recognize two Chinese civil settlement statements, where Chinese civil settlement statements were considered as ‘foreign judgments’ under Australian law.

We believe this practice is correct and should be followed in other foreign countries, because under Chinese law, civil settlement statements are made by Chinese courts upon the settlement arrangement reached by the parties, and do enjoy the same enforceability as the court judgments.