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Whilst parties to a transaction don’t usually contemplate what is hoped to be a profitable venture ending up in litigation and enforcement of a judgment, it is important that they and their legal team do prepare for the worst and think about a recovery strategy well before any dispute arises. Some of the protective measures that can be considered are as follows:
- Ensuring that the jurisdiction and dispute resolution clauses are tailored to the parties to the contract. Whilst it may be necessary, or preferable, to litigate in a certain jurisdiction, in many circumstances there will be a need to enforce outside that jurisdiction. The dispute resolution clause should be drafted to take this into account. Taking the time to do due diligence on the counter parties to a contract not only helps from a commercial point of view, but may influence the dispute resolution clause itself.
- Dispute resolution clauses do not need to be a one size fits all across the transaction documents. Consider whether it is necessary to include jurisdiction clauses in ancillary documents (such as guarantees, security documents etc.) which are different to those in the principal agreement. Guarantors and secured assets may be located in other jurisdictions, so consider whether adjustments need to be made to account for this.
- The due diligence process undertaken when negotiating a transaction (which can be periodically updated even after the transaction documents have been signed) can help in getting a head start on any enforcement steps. It may be possible to take advantage of the intelligence gained during due diligence to apply to freeze assets pre judgment or find leverage points (either pre or post judgment) to bring the counter parties to the negotiating table. Some of the most successful enforcement strategies do not involve enforcing directly against assets, but rather taking aggressive steps to elicit voluntary payment from the debtor.
A recent decision handed down by the High Court in Hong Kong highlights the importance of parties and their lawyers giving consideration to judgment enforcement well before judgment is obtained.
In Beijing Real Estate Development Group Co., Ltd v Zhu Min [2022] HKCFI 1027 the Plaintiff applied for and obtained in Hong Kong registration of a mainland judgment under the Mainland Judgments (Reciprocal Enforcement) Ordinance (MJREO). The MJREO allows for registration of a mainland judgment in Hong Kong if the contract on which the judgment was obtained contains an agreement specifying the courts in the Mainland or any of them as the court to determine a dispute relating to the contract to the exclusion of other courts.
The mainland judgment was obtained on the back of a partnership agreement executed in Beijing and subsidiary guarantees provided by the defendant and another guarantor. The partnership agreement contained a dispute resolution clause (specifying the People’s Court where the contract is signed as the court to determine disputes), but the guarantee contained no dispute resolution clause at all. Nevertheless, the Intermediate People’s Court in Beijing dismissed a jurisdictional challenge holding that the dispute resolution clause under the partnership agreement applied to the guarantee on the basis that the guarantee was a contract subordinate or subsidiary to the partnership agreement.
The Hong Kong High Court agreed that the dispute resolution clause in the partnership agreement also applied to the dispute between the plaintiff and the defendant under the guarantee. However, it ruled that the mainland judgment was not registerable in Hong Kong under the MJREO on the basis that the guarantee, whilst a written agreement between the parties, did not itself contain any provision specifying the courts in the mainland as the courts with jurisdiction to resolve their disputes. However, the court did find that there was a good arguable case that the judgment could be enforced by the plaintiff at common law, and thus allowed an injunction previously obtained in aid of the mainland judgment to stand on this basis.
Whilst the plaintiff in this case ultimately retained the protection it had obtained through the injunction, many of the issues argued in this case (and the time and costs associated with it) could have been avoided by ensuring that a proper jurisdiction clause was included in the guarantee.
At Georgiou Partnership, we have dedicated and experienced judgment enforcement and corporate lawyers that can help you achieve valuable results in a dispute situation, even before a judgment is obtained (or proceedings are even commenced).
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