Speech by Secretary for Justice (English only)

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Following is the speech delivered by the Secretary for Justice, Ms Elsie Leung, on Reciprocal Enforcement of Judgments between the Hong Kong Special Administrative Region (HKSAR) and the Mainland at a breakfast meeting with the Board Members of the British Chamber of Commerce today (April 24):

Chairman, Ladies & Gentlemen:

I am pleased to be here this morning to meet Board Members and to discuss about the proposed Reciprocal Enforcement of Judgments between the HKSAR and the Mainland. On the 20th of last month, the Director of Administration sent to you and to other Chambers of Commerce and organizations a Consultation Paper on the proposed Reciprocal Enforcement of Judgments in Commercial Matters between the HKSAR and the Mainland. The subject matter has already been in public domain for some time and I proposed to speak only briefly on it, leaving more time on Q & As. There may be other issues apart from Reciprocal Enforcement of Judgments that you wish to discuss. By all means, although I understand CS will be meeting you soon to speak on the Accountability System.

Implications of China's accession to WTO

On the 11 December last year, China has become a member of WTO after 15 years of lengthy and difficult negotiations. It is leading 13 billion people to the path of globalisation and bringing historical opportunities for China to become the production base of production for investors from all over the world and will increase imports and exports as a result of the lowering of tariffs. As well as raising standards of living in China, membership of WTO will be a catalyst for the development of its legal system. A comprehensive set of published laws, coupled with a stable and transparent legal system, are fundamental to investors' confidence. The reform of China's laws is already well under way. Accession to WTO will increase the momentum for change. Legal procedures must be more transparent and there must be finality of proceedings. The Chinese Judiciary has been pushing hard with reforms.

In addition, China has also committed to relax foreign investment restrictions on many important service industries including distribution services, telecommunications, financial services, professional services, audio-visual equipment and tourism etc. Foreign investors will turn to lawyers for legal advice in the negotiation and conclusion of China-related agreements, as well as for help in resolving disputes that arise from these agreements.

Negotiation and drafting of economic contracts are very important in trade and investments. A good contract may avoid disputes and even in the event of disputes, the parties will have a more certain and reasonable settlement. If the contract is properly drawn, the parties would be clear about their rights and obligations, and there will be less chances for disputes to arise. In the course of negotiation or drafting, legal services will be of great assistance to the parties. We believe that Hong Kong legal services will help Hong Kong investors and foreign investors in their investments in and trades with the Mainland.

In negotiations of contracts, the parties are always concerned about the solution of disputes should they arise: what is the applicable law to the contract? Is such law fair and clear? Which court or arbitral body would have jurisdiction over the dispute? Is the procedure fair, impartial and transparent? Will the award be enforced? Each party would like to have the applicable law that is most favourable to it in deciding its rights and obligations, and to choose the organ that would be most favourable to it in the adjudication of disputes. Often agreement is held up because of the difficulty in reaching an agreement on these matters. Sometimes, in order to reach an agreement, the parties would like to choose the law of a third jurisdiction, and/or the court of a third jurisdiction for the solution of disputes. We suggest that Hong Kong is a good choice of venue.

Hong Kong is a good legal services centre

Hong Kong possesses various features that make it an important legal services centre in Asia:

* Hong Kong has a sound legal system and a clean government;

* Hong Kong maintains the common law system familiar to most foreign investors;

* Hong Kong is the meeting place between the Chinese and western cultures.

* Both the English and Chinese languages are our official languages;

* There are practising in Hong Kong sufficient English speaking lawyers and

arbitrators to provide legal and arbitral services to client;

* It has also lawyers who are well versed in Chinese and are conversant with the Chinese law and China trade providing services for the negotiation, drafting and execution of contracts including ancillary documents like guarantees, mortgages and pledges, etc.

* Hong Kong is the meeting place of talents in trading, financial services, information and technology, shipping and architecture etc. There is no lack of experts like financial advisers, bankers, accountants, architects and engineers, and insurance experts to give advice in the solution of disputes;

* Hong Kong is conveniently located geographically, has proper infrastructures, good communications and transport system and accommodation facilities for visitors;

* Hong Kong has an independent judiciary with international recognition and the rule of law is robust; and

* Hong Kong has a smoothly run and successful Hong Kong International Arbitration Centre.

Government's Proposal: Using Hong Kong Law and Hong Kong Courts

Since its inauguration in 1985, the Hong Kong International Arbitration Centre has accrued abundance of experience and gained for itself a good reputation as one of the important arbitration centres in Asia. Since December last year, the Centre and the CIETIC have been appointed to be the mediator of domain names for Internet websites. It was the first recognition of a Hong Kong organisation jointly with a Mainland organization as a mediation centre for solution of disputes. In the past 9 years, Hong Kong International Arbitration Centre has increasingly been appointed to undertake arbitration cases. The number rose from 195 cases in 1992 to 298 cases in 2000, whilst the arbitral bodies of CCPIT handled 633 cases in 2000. It shows that the arbitration services in Hong Kong is steadily developing.

Because of these advantages, I believe that Hong Kong may provide good investment environment and is a good vehicle for investment into the Mainland. The Chief Executive Mr. Tung Chee-hwa mentioned in his last Policy Address that Hong Kong may be used as the place for negotiation and execution of contracts and the venue for solution of disputes. Hong Kong may be a good legal services centre. The proposal is not to restrict the freedom of choice of the parties to the contract; our proposal is that we may maximize our potentials and promote the legal services in Hong Kong.

I would like to draw attention to Article 145 of the Code of Civil Procedure and Article 126 of the Contracts Law of the PRC, which permits parties to a foreign related agreement to choose the law of a third country or territory as the applicable law of the contract, with the exception of Sino Foreign Equitable Joint Ventures and Sino Foreign Contractual Joint Ventures and the Sino Foreign Co-operative Joint Ventures for Exploration and Development of Natural Resources which must adopt the domestic law. Furthermore, Article 244, 246 & 257 of the Code of Civil Procedure and Article 128 of the Contracts Law of the PRC permit the parties to a foreign-related contract or property disputes to agree in writing the venue for solution of disputes outside China so long as there is connection between such place and the contract (e.g. one of the parties is resident of such place or the contract was executed there). Article 15 of the Sino Foreign Equitable Joint Venture Law and article 25 of the Sino Foreign Contractual Joint Venture Law of the PRC provides that if the Board cannot resolve any dispute arising from the joint venture by amicable agreement, the dispute may be resolved by any arbitral body in the Mainland or elsewhere (including Hong Kong). Unfortunately, many investors still have the misconception that they could only choose the Mainland law as the applicable law and Mainland courts or arbitral bodies for the solution of disputes.

Enforcement of Judgments

I appreciate that if judgments of the courts or the arbitral awards cannot be enforced, then no matter how good legal services are, they will have no attraction for the business sectors. In this respect, Hong Kong has all along been a member of the New York Convention, and arbitral awards made in Hong Kong may be enforced between member states of the Convention. After reunification, the Convention continues to apply in Hong Kong. However, it can no longer apply between two jurisdictions within one country but must rely on juridical relations with the judicial organs of other parties of the country. This was achieved by an Arrangement reached between Hong Kong and the Mainland in June 1999 whereby arbitral awards of the two jurisdictions may be enforced in accordance with the principles and spirits of the Convention. Such arrangements came into operation in February 2000 with an amendment of the Arbitration Ordinance in January 2000, and the HKSAR received 40 applications for enforcement of arbitral awards made in the Mainland, or which 26 had been given leave to enforce and the others were either pending or there was no longer need to enforce. In June 2000, we further amended the Arbitration Ordinance to enable arbitral awards of non-convention countries to be enforced, including countries or territories like Albania, Brazil, Iraq, New Foundland and Macau, etc.

Although arbitral awards in the Mainland may be enforced in Hong Kong and vice versa, judgments made by the Mainland courts are not enforceable in Hong Kong without an action on the judgment or the original cause of action.

These measures are very important for people doing business in the Mainland because it would be futile if the winning party in litigation cannot have his judgment enforced. Currently the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319) establishes a statutory scheme for registration of money judgments (in civil and commercial matters) given by the superior courts of designated foreign countries on the basis of reciprocity. 15 countries have entered into agreements with Hong Kong for reciprocal enforcement. Judgments from non-designated countries may be enforced by action under the common law. The Hague Conference on Private International Law started the negotiation on the draft Convention in March 1997. The aim is to conclude a global convention that would harmonise international rules of jurisdictions in civil and commercial matters. Hong Kong participates in the negotiation as part of the Chinese delegation. Once the Hague Convention enters into force, the basis for reciprocity would rest on a more formal footing in the form of the Convention. As between Mainland and Hong Kong, arrangements for reciprocal enforcement of judgments have not yet been made because of the differences between the legal systems of the two places. However, negotiation is about to begin and the scheme will as a start be limited to commercial money judgments in which the parties have by contract chosen to have their dispute resolved either in Hong Kong courts or in the Mainland courts, subject to such grounds of refusal as are in the draft Hague Convention. The scheme will be on a very similar basis as the reciprocal enforcement of arbitral awards. With such arrangement in place, foreign investors who have chosen Hong Kong as the venue for solution of dispute and have obtained judgments in Hong Kong may have them enforced in the Mainland. On the principle of "One country, two systems", we are unable to interfere with the administration of justice by the Mainland courts. However, with an Arrangement, the HKSARG may take the matter up with the Mainland courts if the Hong Kong judgments under the scheme are not enforced.

Under the Foreign Judgments (Reciprocal Enforcement) Ordinance and the rules of the common law, the court may refuse enforcement of judgments on the following grounds:

* if the judgment has already been satisfied;

* if the judgment is obtained by fraud;

* if the judgment is obtained in circumstances that are against natural justice;

* if the enforcement of the judgment is against the public policy of the place where the enforcing court is situated;

* if the judgment is inconsistent with a judgment awarded by the enforcing court;

* if the defendant did not receive sufficient notice of the legal proceedings in which the judgment was given;

* if the enforcing court had no jurisdiction over the debtor or the debtor was entitled to immunity from the jurisdiction of the court in which the judgment was given and did not submit to the jurisdiction of such court.

There are therefore sufficient safeguards in the enforcement of judgments and my advice is of course make a choice for Hong Kong law to be the applicable law and Hong Kong courts to be the forum for solution of dispute.

End/Wednesday, April 24, 2002

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