a Gard perspective
Posted on: 12 April 2022
On March 17, 2022, the Shanghai Maritime Court (following approval from the Supreme People’s Court) issued a ruling confirming that English High Court judgments can be recognised and enforced in the People’s Republic of China. This is the first time that a PRC Court has, on the basis of acknowledging judicial reciprocity between PRC and English Courts, ruled that an English civil judgment is legally binding in the PRC.
The English Proceedings
The case arose from the shipowner’s termination of three long term charter parties on the grounds that the charterer had persistently failed to pay hire in advance and as required by the charterparties. The shipowner first commenced arbitration against the charterer under three charterparties. These arbitration proceedings were suspended because the charterer went into liquidation.
The shipowner therefore brought suit against the parent company of the charterer based on three performance guarantees. In the first instance, Popplewell J. held that payment of hire was not a condition but that the charterer had renounced the charter parties and that the shipowner was entitled to about USD 24 million in damages for loss of bargain in respect of the unexpired terms of the charter parties. Spar Shipping AS v Grand China Logistics Holding (Group) Co, Ltd [2015] EWHC 718 (Comm) (18 March 2015).
The decision was appealed, and the English Court of Appeal provided a decision answering two main questions:
- whether a charterer’s failure to pay instalments of hire punctually is a breach of condition under a time charterparty which enabled the shipowner to terminate the charterparties and claim for damages; and
- whether the conduct of the charterer was repudiatory or renunciatory, entitling the shipowner to terminate the charterparties and recover damages.
On the first question, the English Court of Appeal held that failure to pay instalments of hire punctually and in advance under the charterparties was not a breach of condition thus upholding the judgment of Popplewell J in the first instance and confirming that The Astra was wrongly decided.
In consideration of the issues surrounding the second question, a three-stage test was adopted by the English Court:
1) what was the contractual benefit of the shipowner under the charterparties;
2) what was the prospective non-performance shown by conduct of charterer; and
3) did the prospective non-performance go to the root of the contract?
The Court of Appeal held, that the benefit to the owner was regular and periodic payment in advance and the charterer showed prospective non-performance by their conduct by paying in arrears. The Court concluded that the prospective non-performance did go to the root of the contract in that charterer’s conduct evidenced an intent to turn the charterparties into something radically different from their terms – namely, from a contract for payment in advance to one for payment in arrears.
As such, the conduct of charterers amounted to a renunciation of the charters, and the shipowner was entitled to terminate the charter parties and recover damages for loss of bargain – the amount of hire that would have been earned had the charterparties been performed for their full terms. Grand China Logistics Holding (Group) Co. Ltd v Spar Shipping AS [2016] EWCA CIV 982.
The English Judgment was widely welcomed for clarifying the position under English law and bringing an end to a period of uncertainty that surrounded whether payment of hire is a condition following the decision in The Astra. The English Judgment also confirmed that there is no automatic right to damages for loss of bargain under English law. Rather, the right to terminate the contract and/or claim for damages following a repudiatory or renunciatory breach will be based on the facts of each case. Damages for loss of bargain may be recoverable if the breach deprives the innocent party of substantially the whole of the benefit of the contract.
The English Courts ordered the charterers’ parent company as guarantor to pay the shipowner the amounts due under the three charterparties including damages plus interest and costs. To collect on the English Judgment, the shipowner filed a claim in the Shanghai Maritime Court, as the court with jurisdiction over the charterer’s parent company, for the recognition and enforcement of the English Judgment.
The PRC Ruling – Spar Shipping AS v Grand China Logistics Holding (Group) Co, Ltd. (2018) H72XWR No.1
The PRC Ruling considered that the PRC and United Kingdom have not concluded or acceded to treaties on mutual recognition and enforcement of court judgments in civil and commercial matters, so the principle of reciprocity should be taken as the basis for the recognition of an English Judgment. Reciprocity, in theory, requires that both states recognize the judgments of the other. Thus, the Shanghai Maritime Court reviewed submissions from the parties in relation to previous matters concerning the recognition and enforcement of Chinese judgments by the English Courts.
The Shanghai Maritime Court considered that “To this point, the dispute between the parties in this case first lies in whether the judgment [2015] EWHC 999 (Comm) of the English High Court [Spliethoff’s Bevrachtingskantoor BV and Bank of China Limited] constitutes the recognition of the judgment and preservation ruling of court for first instance in the case (2011) QHFHSCZ No.271 and the judgment of the court for second instance in the case (2013) LMSZZ No.87” and concluded that these cases could not be regarded as precedent of recognition and enforcement by English Courts for Chinese judgments but they were also not precedent of the English Court’s refusal to recognise Chinese court judgments.
It further explained the principle of reciprocity: “The Civil Procedure Law PRC does not limit the principle of reciprocity to the prior recognition and enforcement of civil and commercial judgments of our courts by relevant foreign courts, so this court holds that if according to the law of the country where the foreign court renders the judgment, the civil and commercial judgments made by Chinese courts can be recognised and enforced by the courts of that country, it can be concluded that there is a reciprocal relationship between China and the country in recognising and enforcing civil and commercial judgments.”
Although the Shanghai Maritime Court found no precedent in which a civil and commercial judgment issued by a Chinese court was recognised and enforced by the English court, it was satisfied that as a matter of principle Chinese civil and commercial judgments can be recognised and enforced by the English courts.
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