Key takeaways
- The court clarified that a judgment rendered pursuant to a “choice of Mainland court agreement” made before the commencement date of Cap. 645 constitutes an “excluded judgment” that cannot be registered in Hong Kong.
- Unless the validity of a jurisdiction clause is specifically challenged, it survives even when the underlying contract is found to be void. This confirms the separability principle in cross-border litigation.
- The decision demonstrates the technical requirements for judgment enforcement that must be carefully considered when structuring cross-border transactions.
- It is crucial to understand the transitional provisions of Cap. 645 in determining whether a Mainland judgment can be registered in Hong Kong.
In more detail
Background
The case involved a financial dispute between the applicant and the respondent who had entered into two agreements in July 2017, namely a Finance Management Agreement and a Loan Agreement. Under these agreements, the applicant provided RMB 2.4 million to the respondent for investment management purposes over a five-year period ending in June 2022 pursuant to those agreements.
Each agreement contained a jurisdiction clause. The Finance Management Agreement provided that disputes could be brought before the People’s Court where the applicant resided. The Loan Agreement stipulated that disputes could be brought before the People’s Court where the parties’ correspondence and residential addresses were situated.
When the respondent allegedly failed to repay the principal amount, the applicant initiated proceedings in the Fujian Court. However, that court determined that it lacked jurisdiction and transferred the case to the Shanghai First Instance Court, which ultimately found in favor of the applicant. This decision was upheld by the Shanghai Financial Court in its judgment dated 27 August 2024.
The applicant then sought to register the Shanghai judgment in Hong Kong to enforce against the respondent’s assets located there.
The Court’s Decision
The application was first refused by the Master, and the applicant appealed against this decision. The Honourable Madam Justice Au-Yeung dismissed the appeal and upheld the decision made by the Master. The Court held that the Shanghai judgment constituted an “excluded judgment” under Section 5(1)(j)(i) of Cap. 645, as it was given pursuant to a choice of Mainland court agreement made before the commencement date of the Cap. 645.
The three key findings made by the Court included the following:
- Application of the jurisdiction clause: The Court found that the Shanghai judgment was rendered pursuant to the jurisdiction clause in the Loan Agreement, as evidenced by the Fujian Court’s decision to transfer the case based on this clause.
- Separability of the jurisdiction clause: The Court emphasized that a jurisdiction clause is regarded as separate from the substantive agreement between parties. Therefore, the Shanghai Court’s ultimate finding that the Loan Agreement was void did not invalidate the jurisdiction clause itself.
- Statutory interpretation: The Court applied Hong Kong law to interpret whether the clause qualified as a “choice of Mainland court agreement” under Cap. 645, referring to the definition in the previous Cap. 597.
Importantly, the Court rejected the applicant’s argument that because the Loan Agreement was later found to be void, the jurisdiction clause should also be ineffective. It is held that unless specifically attacked, the respective jurisdiction clauses survive challenges to the underlying contract.
The Enforcement Framework Under Cap. 645
Cap. 645, which came into operation on 29 January 2023, significantly expanded the categories of Mainland judgments enforceable in Hong Kong beyond the previous regime under Cap. 597. However, Cap. 645 contains important transitional provisions, including the exclusion of judgments given pursuant to choice of court agreements made before the commencement date.
This transitional provision creates a significant limitation for parties seeking to enforce Mainland judgments in Hong Kong, particularly where the underlying contracts and jurisdiction clauses predate Cap. 645.
The definition of “choice of Mainland court agreement” incorporates the definition from Cap. 597, requiring that the agreement should specify courts in the Mainland “to the exclusion of courts of other jurisdictions”. This exclusivity requirement continues to be a critical factor in determining whether a judgment falls within the exclusion.
Implications for Cross-Border Dispute Resolution
This decision has significant implications for parties involved in cross-border transactions and disputes:
- Parties should review the existing contracts with Mainland entities, particularly those containing jurisdiction clauses made before January 2023, to understand the potential enforceability of any resulting judgments in Hong Kong.
- For new agreements, careful consideration should be given to a jurisdiction clause, including whether to opt for Hong Kong or Mainland courts, or arbitration, depending on where enforcement might be needed.
- The separability principle for a jurisdiction clause provides certainty but also requires specific attention when drafting dispute resolution provisions.
- Parties facing judgment enforcement challenges may need to consider alternative enforcement strategies where Cap. 645 registration is unavailable.
