Will Israeli courts enforce the judgments of their Chinese counterparts? An Israeli court recently ruled on exactly that question and the result may have very important consequences for business relations between the two countries.
The Tel Aviv District Court, which is Israel’s highest level trial court, was asked to enforce a judgment issued during late 2009 by a Chinese court in Jiangsu Province ordering an Israeli citizen to pay close to two million dollars to a number of Chinese plaintiffs. Obtaining the judgment, however, is only half the battle; the plaintiffs will not have achieved anything if they are not able to collect the money awarded to them. If the defendant had sufficient assets in China to pay the judgment, the plaintiffs would have been free to avail themselves of China’s domestic enforcement procedures and we wouldn’t be discussing this case today. However, since that wasn’t the case, the plaintiffs launched an action in an Israeli court to enforce the Chinese court’s ruling.
When asked to enforce a foreign judgment, the Israeli court does not retry the dispute or consider whether the foreign court reached the same decision that the Israeli court would have reached and, in fact, the Israeli court does not deal with the merits of the original dispute at all. Rather, the Israeli court limits its review into whether the primarily procedural conditions set out in Israeli legislation have been met.
One such condition is reciprocity; meaning that a court in the relevant foreign jurisdiction would also enforce a judgment issued by an Israeli court. In this case, the Israeli defendant’s primary argument against enforcing the judgment against him was, in fact, that a Chinese court would not enforce a judgment of an Israeli court and this question was the primary focus of the Israeli Court’s judgment.
The Court adopted a lenient view regarding the demand of reciprocity and cited Israel Supreme Court precedent holding that respecting the judgments of foreign courts advance important values including protecting the rights of litigants, legal efficiency and certainty and the encouragement of international collaboration with other legal systems. It was also determined that the burden to prove the absence of reciprocity is imposed on the party claiming against it.
The Israeli Court cited the Chinese Civil Procedural Law which provides that Chinese courts will recognize a foreign judgment if either an international treaty between China and the foreign country exists or according to the principles of reciprocity. Therefore, the Tel Aviv Court concluded that, even in the absence of a treaty, there is a reasonable potential that the Chinese courts will enforce an Israeli court’s judgment.
The Court found that the absence of any example of a Chinese court enforcing an Israeli judgment didn’t mean that there isn’t reciprocity and emphasized that where both sides demand reciprocity one side has to go first if judgments are to be enforced and therefore Israel should do so.
This is a very important precedent and both Israeli and Chinese business leaders should take note of it. If, in the past, Israelis might have been tempted to ignore legal proceedings commenced against them in China, they now do so at their own risk. And while there’s far less certainty that a Chinese court will enforce an Israeli judgment, Chinese business persons also need to take note of the fact that Israel has proved that it will enforce Chinese judgments so now China’s own reciprocity condition has been met.
As Israel’s leading law firm in China-Israel cross border transactions with over 10 years of experience in the field representing Chinese entities in the largest investments in Israel, we see this judgment as a significant milestone in Sino-Israeli relations. We believe that this judgment shows Israel’s growing respect for China’s legal system and we believe that this is another step in the yet strong collaboration between the two countries.
David Hodak, Adv. Head of the law firm Gross, Kleinhendler, Hodak, Halevy Greenberg & Co. leads the GKH Asia practice and has developed the firm’s working relationships in China and Hong Kong.
Eli Barasch, Adv. heads the China Desk of GKH and his practice has focused primarily on China-Israel cross border transactions since 2004.
Adi Weitzhandler, Adv. is an associate in the China Desk of GKH and has extensive experience in working with the Chinese market. Adi is conversationally fluent in Mandarin and studied at the Beijing Language and Culture University, Beijing, China.