China Dismisses Application for Enforcing New Zealand Judgment Due to Parallel Proceedings

Key takeaways:

In November 2019, due to parallel proceedings, Shenzhen Intermediate People’s Court of China ruled to dismiss the application for enforcing a New Zealand judgment (See Americhip, Inc. v. Dean et al. (2018) Yue 03 Min Chu No. 420 ).
Back in 2016, a New Zealand court recognized a Chinese judgment for the first time (See Yang Chen v. Jinzhu Lin, CA334/2015, [2016] NZCA 113). Therefore, should there exist no parallel proceedings, it would be very likely for the Chinese court to recognize the New Zealand judgment based on the principle of reciprocity.
As bizarre as it may seem for the judgment creditor to sue for the same disputes in China before applying for enforcing the New Zealand judgment, this may be a belt and braces approach when one is not sure about the prospects of enforcing foreign judgments in China. Now things have changed. Judgment creditors can now apply for recognition and enforcement of a New Zealand judgment in China without having to sue for the same dispute in China.

In 2019, the enforcement of a New Zealand judgment was refused in China, because proceedings between the same parties on the same subject matter were pending before another Chinese court.

On 12 Nov. 2019, the Shenzhen Intermediate People’s Court, Guangdong, China (hereinafter the “Shenzhen Intermediate Court”) rendered the civil ruling “(2018) Yue 03 Min Chu No. 420” ((2018) 粤03民初420号) to dismiss the application for recognition and enforcement of a judgment rendered by the High Court of New Zealand. (See Americhip, Inc. v. Dean et al. (2018) Yue 03 Min Chu No. 420 ).

The Shenzhen Intermediate Court stated that since another Chinese court was hearing the same dispute between the same parties, the applicant’s application for recognition and enforcement of the foreign judgment should be dismissed.

It should be noted that back in 2016, a New Zealand court recognized a Chinese judgment for the first time (See Yang Chen v. Jinzhu Lin, CA334/2015, [2016] NZCA 113). Therefore, should there exist no parallel proceedings, it would be very likely for the Chinese court to recognize the New Zealand judgment based on the principle of reciprocity.

Table of Contents

I. Case overview

The applicant, Americhip, Inc., is a limited liability company incorporated in California, USA.

The respondents are Jason Charles Dean, a New Zealand citizen, and Chen Juan, a Chinese citizen.

On 12 Nov. 2019, the Shenzhen Intermediate Court rendered the civil ruling (2018) Yue 03 Min Chu No. 420 ((2018) 粤03民初420号) to dismiss the application for recognition and enforcement of the High Court of New Zealand’s civil judgment No. [2016] NZHC 1864 dated 11 Aug. 2016 (the “New Zealand Judgment”).

II. Case facts

Prior to 2012, the respondent Jason Charles Dean worked as the vice president of Asia area for the applicant, and the other respondent, Chen, also worked for the applicant.

The applicant alleged that the respondents had defrauded it of over USD 12 million during their employment.

In September 2013, the applicant filed a lawsuit against the respondents with the High Court of New Zealand, requesting the court to order the respondents to pay USD 12.9 million plus interest to the applicant (the “New Zealand Case”).

On 11 Aug. 2016, the High Court of New Zealand issued judgment No. 1864, ordering the respondents to pay compensation of USD 15,796,253.02 and court costs and related costs of NZD 28,333 to the applicant.

The respondents did not appeal within the statutory appeal period, and thus the New Zealand Judgment has entered into force.

On 3 Nov. 2016, three months after the New Zealand Judgment was rendered, the applicant filed another lawsuit (“Qianhai Case”) against the two respondents with another Chinese court in China, the Shenzhen Qianhai Cooperation Zone People’s Court (“Qianhai Court”).

The plaintiff, the defendants, and the dispute involved in the New Zealand Case and the Qianhai Case are the same. However, the applicant’s claims are not identical.

In the New Zealand Case, the applicant sought compensation of USD 12.9 million plus interest and other costs from the respondents. In the Qianhai Case, the applicant sought compensation of USD 5.02 million plus interest and other costs from the respondents.

According to the applicant, it claimed different amounts in controversy in the two cases because it believed that some of its claims brought in the High Court of New Zealand could be rejected in China. Therefore, in order to save litigation costs, it filed a lawsuit in the Qianhai Court for only part of the facts.

Before the Qianhai Court rendered its judgment, the applicant applied to the Shenzhen Intermediate Court in 2018 for recognition and enforcement of the New Zealand judgment.

This means that with respect to the same dispute and the same parties, the applicant not only filed a lawsuit in a Chinese court in 2016, but also applied to another Chinese court in 2018 for recognition and enforcement of the foreign judgment.

On 8 Jan. 2018, the Shenzhen Intermediate Court accepted the applicant’s application for recognition and enforcement of the New Zealand judgment.

On 12 Nov. 2019, the Shenzhen Intermediate Court rendered a ruling to dismiss the application.

III. Court views

The Shenzhen Intermediate Court held that the two lawsuits filed by the applicant respectively with the High Court of New Zealand and the Qianhai Court were both against the respondents’ act of taking advantage of their positions to get funds from the applicant. Therefore, it could determine that the applicant’s lawsuit with the High Court of New Zealand and the Qianhai Court aimed at the same dispute.

At the time the applicant applied for recognition and enforcement of the New Zealand judgment, the Qianhai Court was still hearing the same dispute between the same parties.

In order to ensure the independent exercise of jurisdiction and judicial power by the Qianhai Court and to avoid any conflicts between its ruling on the matter of the recognition and enforcement of the New Zealand judgment and the coming judgment by the Qianhai Court, it is inappropriate for the Shenzhen Intermediate Court to review the judgment of the High Court of New Zealand based on the principle of reciprocity.

Therefore, the Shenzhen Intermediate Court dismissed the applicant’s application.

IV. Our comments

1. Why did the applicant both file a lawsuit with a Chinese court and apply to another Chinese court for recognition and enforcement of the New Zealand judgment?

We guess that the applicant was not confident that the Chinese court would recognize and enforce the New Zealand judgment because no New Zealand judgment has ever been recognized by Chinese courts up to now. Therefore, it hoped to increase its chances of obtaining compensation through litigation in China——a kind of belt and braces approach.

There is no international treaty or bilateral agreement between China and New Zealand on the recognition and enforcement of judgments. In such cases, under Chinese law, Chinese courts shall first review whether a reciprocal relationship exists between China and New Zealand. Traditionally, Chinese courts will determine that a reciprocal relationship is established between the two countries only if there is a precedent of a foreign court recognizing a Chinese judgment, based on the de facto reciprocity test. (Please note that since a landmark judicial policy was published in 2022, Chinese courts have further relaxed the criteria on reciprocity, by introducing three new reciprocity tests to replace the old ones.)

For more information on the conference summary, please read an earlier post ‘How Chinese Courts Determine Reciprocity in Foreign Judgment Enforcement – Breakthrough for Collecting Judgments in China Series (III)’.

The New Zealand courts had not recognized Chinese judgments for the first time until April 2016. At this point, it became possible for Chinese courts to find that reciprocity had been established between China and New Zealand. For more information, please see our earlier post “New Zealand Court Recognizes a Chinese Judgment for the First Time”.

When the applicant filed a lawsuit with the Qianhai Court on 3 Nov. 2016, it may have not yet learned that New Zealand had recognized a Chinese judgment. Therefore, it may not have known that it could apply directly to a Chinese court for recognition of the New Zealand judgment.

Therefore, its strategy was to file another lawsuit in China, and then enforce the Chinese judgment in China and the New Zealand judgment in New Zealand.

In 2018, the applicant may have realized that reciprocity had been established between China and New Zealand and thus applied again to a Chinese court for recognition of the New Zealand judgment.

This would, however, lead to a conflict. If a Chinese court recognizes the New Zealand judgment, and another Chinese court renders a judgment, there would be two enforceable judgments in China concerning the same dispute and the same parties. This is a violation of the principle of “non bis in idem” under the PRC Civil Procedure Law (CPL).

Of course, this conflict can be avoided because the reciprocal relationship between China and New Zealand has been established.

Judgment creditors can now apply for recognition and enforcement of a New Zealand judgment in China without having to sue for the same dispute in China.

2. Why did the Shenzhen Intermediate Court dismiss the applicant’s application?

Under Chinese law, there is no provision fully applicable to the situation in this case. And there have also been no similar cases before Chinese courts. We will analyze it in the following two scenarios.

A. A party files a lawsuit with a foreign court, and then files a lawsuit with a Chinese court AFTER the foreign judgment has been recognized by a Chinese court

If a foreign judgment or ruling has been recognized by a Chinese court and then the party files a lawsuit with another Chinese court over the same dispute, the lawsuit will be ruled inadmissible, in accordance with Article 533(2) of the CPL Interpretation.

This can be interpreted that after recognizing a foreign judgment, a Chinese court has already made an effective judgment on the dispute in China, and thus Chinese courts shall not accept lawsuits on the same subject matter between the same parties, based on the principle of “non bis in idem”.

B. A party files a lawsuit with a foreign court, and then files a lawsuit with a Chinese court BEFORE the foreign judgment is recognized in China

If one party files a lawsuit with a foreign court, and then files a lawsuit with a Chinese court, the Chinese court may accept the case. If a party applies to Chinese courts for recognition of the foreign judgment after the Chinese court has already rendered a judgment, the Chinese court shall not grant permission, in accordance with Article 533(1) of the CPL Interpretation.

This means that in the case of parallel proceedings, China will protect the jurisdiction and judicial independence of Chinese courts.

However, the aforementioned Article 533(1) applies provided that “one party files a lawsuit with a foreign court, while the other party files a lawsuit with a Chinese court”. In this case, however, the same party filed lawsuits respectively with a foreign court and a Chinese court. Strictly speaking, this provision is not fully applicable in this case. However, the Shenzhen Intermediate Court seems to have referred to the provision.

It is also important to note that after the Shenzhen Intermediate Court dismissed the application, theoretically, the applicant can still apply again when the conditions are met, such as when the lawsuit of the Qianhai Case is withdrawn.

However, if the Qianhai Court issues an enforceable judgment, the applicant will lose all opportunity to apply for recognition and enforcement of the New Zealand judgment. This is because there is already an enforceable judgment on the dispute in China, rendered by a Chinese court.

This case brings to our attention one of the litigation strategies that parties may pursue:

For judgment debtors, even if they lose the case in a foreign court, they may file a lawsuit with a Chinese court of competent jurisdiction as long as Chinese courts have not yet recognized the foreign judgment. This can prevent the foreign judgment from being recognized and enforced in China. In particular, Chinese law is less supportive of the compensation amount than equity law. Therefore, the debtor can reduce the compensation amount by obtaining a Chinese judgment and preventing recognition of the foreign judgment.

Admittedly, this strategy is very likely to frustrate the possibility of recognizing and enforcing foreign judgments in China, a result that we, as advocates for the global circulation of foreign judgments, do not wish to see.

We wish judgment creditors can notice the possible strategy taken by the judgment debtors, and make their move, as fast as possible, to apply for recognition and enforcement of foreign judgments in China.

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