China-Hong Kong Agreement On Judgments Requires Jurisdiction Agreement
A little more than a week ago I did a post, entitled, "China And Hong Kong Tie Judgment Enforcement Knot: What's Good For The Goose Is Almost Good Enough For The Gander," on how Hong Kong and China were about to sign an agreement making commercial judgments from each other's courts enforceable on both sides of the "border."
The agreement between China and Hong Kong has now been signed and The China Law Prof Blog just did a post on it that includes a copy of the agreement in both English and in Chinese. The China Law Prof also very astutely points out that the agreement applies only when the parties previously contractually agreed on jurisdiction in China or in Hong Kong:
Essentially, the agreement allows parties to choose PRC or HK courts as they would choose an arbitration organ; it will not result in HK courts enforcing PRC judgments against parties that have not bargained for it.
I am of the view that in almost all cases, the best strategy for foreign companies doing business in China is to negotiate an arbitration provision. Two main reasons for this. One, arbitrators are usually more knowledgeable about international commercial disputes than the courts. Two, arbitration awards are generally much easier to enforce internationally than court judgments.
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Comments
Actually, the way I see this development is that Hong Kong and the PRC missed a "win-win", in the truest sense of the word, means for China to leverage the benefits of Hong Kong's legal infrastructure onto the mainland. The exceptions to the Arrangement mean that arbitration will remain the preferred method of resolving business disputes on the mainland.
China could have presented foreign investors the right to have business disputes adjudicated in a well-settled and respected legal system based on the English common law (which means it's accessible and trusted by outsiders), by judges, barristers, and solicitors perceived to operate with a high degree of integrity. And yet Hong Kong is still Chinese, and its legal profession is still a Chinese one.
Hong Kong could have reasserted primacy as a financial-services entrepot to the mainland -- and beaten back, for a time, the challenge from Shanghai. Unfortunately the Arrangement is not going to do much to halt the slow decline of the Hong Kong legal market. Which is a shame, because Hong Kong could really be an even stronger lever for the mainland's development than it already is.
An ideal choice would be for Hong Kong to push out its legal system into other jurisdisctions within China. But that's not going to happen, thanks to nationalism and ersatz Communism. Legal technology is just technology, and whatever has been proved to work well ought to be adopted widely.
Posted by: Brendon Carr | July 23, 2006 7:54 PM
Mr. Carr --
You are absolutely right to pitch for HK helping to modernize China's legal system, but there are so many reasons (beyond just those you have given) why it will never happen on a massive scale. But, I think we will see both Singapore and Hong Kong slowly impacting China's legal system and lawyers and I think that is already happening.
Yet, HK law is not without its flaws also. For example, the lawyers there tend to be very expensive and they are also prohibited from taking cases on a contingency fee basis. I have found HK lawyers great for the big matter, less so for the smaller ones.
Posted by: China Law Blog | July 24, 2006 12:29 AM