Cases in which the Doctrine is Invoked by the Pe...
In judicial practice,the People’s Courts of China have on occasion refused to apply foreign laws,recognize and enforce foreign judgments or arbitral awards,or even assist in the service and taking of evidence requested by foreign authorities on the grounds of ordre public.It is no easy task to list and analyze these cases exhaustively; all that can be done,therefore,is to enumerate several typical cases that have been influential in China.In this section,we will now deal separately with six such cases.
3.1 Refusal of a Request for Recognition and Assistance in Enforcing the Agreement of Legal Separation
In 1954,Wang Yu (husband) and Yang Jiemin (wife),a married Chinese couple residing in Argentina,concluded an agreement of legal separation pursuant to Argentinian Law,for irreconcilable differences.[4]The couple subsequently requested the Chinese Consulate or Embassy in Argentina to recognize and assist in enforcing the agreement,leading the Chinese Embassy to then submit a request to the Supreme People’s Court for instruction.11
The request was ultimately refused on the ground that the Chinese Marriage Act should govern where Chinese citizens are involved,in which case agreements of legal separation are not permitted.Furthermore,the Supreme People’s Court indicated that the application to request recognition of the validity of such an agreement,formed pursuant to Argentinean law,should more appropriately be filed directly with the Argentinean authorities.If the parties wished to petition for recognition of their legal separation as equivalent to the status of divorce in China,they would have to submit a separate application for divorce to the marriage registration authority where they had obtained their Marriage Certificate,or alternatively,to the People’s Court where the marriage registration authority was located.12
In this case,the separation agreement was rendered legally invalid on the ground of ordre public,insofar as separation was a legal institution recognized in Argentina,but absent in Chinese law.The Supreme People’s Court reasoned in this instance that the domestic rule designed to protect the public welfare needed to prevail over the inconsistent foreign rule.The domestic law was resorted to simply because the foreign law provided otherwise,irrespective of whether the effect of applying such foreign law would be contrary to China’s ordre public.
The author does not favor such a view,since invoking the doctrine in such a manner triggers the dangerous tendency to expand the reservation of ordre public (a tendency fortunately checked by the GPCL promulgated years later).Instead,the more appropriate way to deal with this case may have been to make the following distinction:
If the parties’ petition had extended no further than to ask recognition of the fact that they had separated,their request ought to have been upheld.China should not be so provincial as to say that every solution to a problem is,ipso facto,offensive to the ordre public whenever it is dealt with differently at home.If this were the case,almost any foreign rule that differs from the forum law would qualify for rejection regardless of its applicability,in which case the exception swallows the rule.13
If,on the other hand,the parties requested that the validity of their agreement be recognized as equal to that of divorce in China,it would have been reasonable to turn down such a request on the ground of ordre public.The rationale for such a ruling is that legal separation is an institution prescribed by the law of those states in which divorce is prohibited.Couples who have suffered a break up in their relationship may live in permanent separation pursuant to law; however,after such separation,the legal institution of marriage continues to survive,thus preventing the parties from remarrying.In this respect,separation undermines the freedom of marriage,one of the basic principles prescribed by the Marriage Act of the People’s Republic of China,and can be regarded as contravening the ordre public of China.14
3.2 Disregard of International Practice
On July 20,1988,the plaintiff,Hainan Wood Company (hereinafter referred to as “Hainan”),entered into a contract with the first defendant,TAI PIN (PTE) LTD.,(hereinafter referred to as “TAI PIN”),regarding the sale of wood,pursuant to which TAI PIN would sell 9,000 cubic meters of wood to Hainan at a total price of U.S.$1,831,500.In honor of its obligations under the contract,Hainan issued an irrevocable letter of credit through the Haikou Branch of the Bank of China in favor of TAI PIN.On December 1,1988,all required documents were presented to the Haikou Branch of the Bank of China by the paying bank.After receiving the required documents from the paying bank,the issuing bank asked Hainan to promise payment.However,after thorough investigation,Hainan obtained ample evidence to substantiate the fact that the bill of lading,along with other required documents,had been forged by TAI PIN,in collusion with the second defendant,TITAN SHIPPING PTE LTD.(hereinafter referred to as “TITAN”).Hainan thus refused to promise payment,bringing an action against TAI PIN and TITAN in the Guangzhou Maritime Court for fraudulent documentation,[5]and applying for the freezing of funds under the letter of credit that would have been honored but had not yet been paid by the Haikou Branch of the Bank of China.15
The trial judge acknowledged that: (i) letters of credit are,by their nature,transactions independent of the sales or other contract(s) on which they may be based and banks are therefore in no way bound by such underlining contract(s),and (ii) so long as the documents appeared to be authentic,the bank would ordinarily have to pay according to the Uniform Customs and Practices for Documentary Credits (the “UCP”).However,in this instance,the judge held that a different situation existed insofar as there was no controversy between the buyer and the seller concerning a mere breach of the warranty regarding the quality of the merchandise,but rather,solid evidence showing that the seller had intentionally failed to ship any goods ordered by the buyer and colluded with TITAN to present fraudulent documents to the issuing bank.In such a situation,if the case was governed by UCP,fraud would prevail while the legal interest of HAINAN would be prejudiced,thus contravening the ordre public of the State.In this light,the court chose to invoke Article 150 of the GPCL and exclude the application of the UCP,freezing the funds under the letter of credit,in accordance with the relevant laws of China.
This is one of the most famous cases in China in which an international practice was excluded on the ground of ordre public.The author thinks that such exclusion of the UCP was inappropriate for the following reasons:
To begin with,under Paragraph 2 of Article 142 of the GPCL,the application of international practice is discretionary: “international practice may be applied to matters for which neither the law of the People’s Republic of China nor any international treaty concluded or acceded to by the People’s Republic of China has any provisions.” 16 Since application of any relevant international practice is left to the discretion of the judges,there is little need to resort to the ordre public reservation in order to avoid application of the UCP.
Furthermore,even if a letter of credit is independent of the primary contract between the seller and buyer,there is a distinction between a mere breach of warranty and actual fraud on the part of the seller,and as such,the principle of independence of letters of credit should not be extended to protect the unscrupulous seller.17 As Paragraph B of Article 3 of the UCP provides: “[A] Beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the Applicant and the Issuing Bank.”
The above provision demonstrates clearly that the beneficiary of a letter of credit (usually the seller in a sales contract) may not take advantage of the principle of independence of the bank’s obligation under such a letter of credit to cheat the applicant (or buyer) of its money.Where conclusive evidence proves that the beneficiary (or seller) has engaged in a scheme of fraud at the time the letters of credit were issued or the bank receiving them honored but yet had not paid them,the issuer of a letter of credit cannot be called upon to recognize such a document as complying with the terms of a letter of credit and efforts must be made to effectively prevent the actual occurrence of negative consequences stemming from the fraud.
Briefly expressed,the rules of UCP may not and should not be construed to protect acts of fraud,but should instead be interpreted to maintain both the independence of the relationship of letters of credit and the ordinary function of a bank in honoring bills and making payments,ensuring that fraud cannot be accomplished through taking advantage of the relationship of the letters of credit.In view of this,in the “Summary of the National Forum on Trying Cases of Economic Affairs in Coastal Zones Involving Foreign Elements,as well as Hong Kong and Macao,” the Supreme People’s Court sets forth the following distinction:
Trade with letters of credit and deals under contract are based upon two different legal relationships.Under general circumstances,the People’s Courts should not hastily freeze funds under letters of credit issued by Chinese banks merely because a dispute over contracts for deals involving foreign elements has arisen; otherwise,the credibility of the Chinese banks concerned would be put in jeopardy.In accordance with international and domestic practical experience,where there is ample evidence to show that a seller has made a contract in furtherance of a fraud and the Chinese bank concerned has not made payment to the seller within a reasonable time limit,the People’s Courts,under such circumstances,should be able to freeze the funds under the letter of credit at the request of the buyer.
In this light,the UCP should be applied in this case,and the request of the plaintiff should be granted without recourse to the ordre public.
3.3 Refusal of Assistance in Serving Judicial Documents
In October 1991,the United States Embassy in Beijing presented two diplomatic notes to the Foreign Ministry of China,seeking assistance in serving process on the People’s Republic of China and the Local and Animal Products Import & Export Corporation of China respectively,two defendants among several,in the case of Miller v.Pyrodyne and Etaly.18 This case arose after a U.S.national filed suit in the Superior Court of the State of Washington,seeking damages from six defendants,including three American companies and one Hong Kong Company,in addition to the People’s Republic of China and the Local and Animal Products Import & Export Corporation of China.The plaintiff claimed that he was blinded by fireworks manufactured or sold by the defendants.
In response,Chinese authorities argued that every state is bound to respect the independence and sovereignty of every other state,and by virtue of being a sovereign,China should be immune from the exercise of jurisdiction by any foreign national court.On the basis that the court documents listed the People’s Republic of China as a defendant in violation of the principle of sovereign immunity both in international law and in the law of China,the Foreign Ministry of China returned the relevant documents and asserted its clear stand on the sovereign immunity issue in its reply to the U.S.Embassy.At the same time,the U.S.Embassy was informed that the Local and Animal Products Import & Export Corporation of China was a separate legal entity established pursuant to Chinese law,bearing its own civil liabilities independently of the People’s Republic of China; therefore,if the People’s Republic of China was excluded as a defendant,the Foreign Ministry of China would take on the task of transmitting the relevant court documents to the competent authorities.
Nonetheless,the U.S.proceeded to make an alternative request for assistance in the service of the very same documents,pursuant to the Hague Convention on the Service Abroad of Judicial and Extra-judicial Documents in Civil or Commercial Matters (the “Hague Service Convention”),pursuant to which both China and the United States are parties.[6]Again the request was refused on the same ground,as Paragraph 1 of Article 13 of the Hague Service Convention provides unambiguously that the State addressed may refuse to comply therewith if it deemed that compliance would infringe its sovereignty or security.
It is well-established that states and state-related entities enjoy important immunities from the exercise of judicial jurisdiction by foreign national courts; thus,the right of the Foreign Ministry of China to refuse assistance in the serving of process on the People’s Republic of China was undisputed and in conformity with international law.Nevertheless,there may have been room for further improvement in terms of the specific steps taken to exercise this right.(https://www.daowen.com)
First,service in United States federal and state courts on foreign sovereigns and their agencies and instrumentalities is governed primarily by the Foreign Sovereign Immunities Act (the “FSIA”),which establishes a distinct and specialized regime for service of process.Pursuant to the FSIA,service on a foreign state is deemed to have been made as of the date of transmittal indicated in the certified copy of the diplomatic note,whereas service on a foreign corporation requires a signed and returned postal receipt,19 which is more time-consuming and bothersome to accomplish.In light of this,a U.S.court would be apt to hold that the service of process on the People’s Republic of China was properly made,while service on the Local and Animal Products Import & Export Corporation of China failed.[7]The government of China would therefore have been more likely to be included as a party to the litigation,thus making it possible that a judgment by default could not be entirely ruled out.[8]
Furthermore,the Foreign Ministry of China’s demand that the U.S court modify the judicial document so as to exclude the People’s Republic of China from the list of defendants was a request the U.S.court was simply incapable of granting.Who to sue is a matter completely decided by the claimant,without any say by a U.S.court; otherwise,a court would be infringing upon the litigious right of the claimant.[9]
For the sake of better safeguarding the sovereignty and interest of China,the author thus suggests that the following accommodations should have been made in this case: As an initial matter,the request for assistance in the service of judicial documents on the People’s Republic of China should have been refused without exception.On the other hand,the request for assistance in the service of process on the Chinese corporation should have been granted,notwithstanding the fact that China was included among the defendants; when serving the answer,the competent Chinese authorities could have indicated China’s clear-cut stand that as a sovereign,China enjoys immunity from the judicial jurisdiction of foreign national courts.In this way,China does not waive its sovereign immunity,but the relevant corporations are nonetheless urged to appear before court,with China freed from the litigation.20
It is worth noticing that the Hague Service Convention does not explicitly refer to the term “ordre public” to rationalize its refusal of the request for service of process by the United States.As provided in the Explanatory Report,execution of such a demand may be refused only when the offense of ordre public is such that the state addressed considers its sovereignty or security to be prejudiced thereby.The usage of terms such as “sovereignty” or “security” demonstrates intent to restrict the scope of the ordre public.As analyzed by one legal scholar,“[t]hese words are imprecise but they are acceptable in order to follow this intention.”21 In this light,in discharging China’s responsibilities under the Hague Service Convention,Chinese authorities should interpret ordre public very restrictively,so that no grounds other than an infringement upon the “sovereignty” or “security” of the State would be invoked.
3.4 Refusal of Assistance in the Taking of Evidence
In 1988,the U.S.District Court for the Central District of California entertained a petition in bankruptcy in which neither the creditor nor the debtor was a Chinese corporation.In the course of preparing the case for trial,the debtor came to China to take the sworn testimony of certain Chinese corporations and nationals before a U.S.consular officer.Since the depositions were taken without the prior knowledge or consent of Chinese authorities,the Ministry of Foreign Affairs of China protested the conduct of the respondent to the United States Embassy in Beijing.[10]Subsequently,the attorney for the creditor also came to China seeking assistance in the taking of evidence.After his attempts were refused by the relevant Chinese authorities,the attorney entrusted a Chinese lawyer with the task of taking evidence.In this way,depositions were ultimately taken and notarized by the Beijing Notary Public Office; however,the Consular Department of the Ministry of Foreign Affairs of China declined to authenticate the depositions due to the fact that the way in which the depositions had been collected violated the law of China.
When the deposition without authentication was submitted to the District Court,the Court,through diplomatic channels,requested the assistance of the Chinese Court in confirming the testimony (i.e.,by asking the Chinese Court to declare the testimony to the witness,who would then directly confirm it).The request,however,was turned down once again,the Chinese Court reiterating its reasoning that the taking of depositions had been conducted in violation of the law of China.The District Court was notified that it should put forward a fresh request for assistance in the taking of whatever evidence it deemed necessary to the case,and the competent Chinese Court would then render assistance pursuant to Chinese law.
Some Chinese legal scholars have argued that the request of the District Court to certify the deposition was acceptable as a special procedure,since it did not infringe upon the sovereignty or security of China.However,the author would like to advocate a different viewpoint.The request for assistance in confirming the deposition was in essence the continuation of the taking of evidence without authorization by Chinese authorities.Infringement upon sovereignty or security in the context of a refusal of the taking of evidence takes on broader meaning than in the mere context of the service of process.When documents requested concern state secrets,for example,the state addressed often refuses the request for assistance in the taking of evidence on the grounds of national sovereignty or security.Expressed differently,ordre public assumes a more prominent role in the taking of evidence than it does in the mere service of process.For instance,ordre public,inter alia,is the express reason for refusing a request for the taking of evidence,but not for the service of process,pursuant to the Convention on Judicial Assistance in Civil and Commercial Matters between China and France.22 The refusal of the request for assistance in confirming the deposition in the instant case is in fact justified and reasonable.
3.5 Disregard of Arbitral Award
In 1988,Henan Garment Import & Export Corporation (hereinafter referred to as “Henan”),Kaifeng Dongfeng Garment Factory (hereinafter referred to as “Dongfeng”) and Daking International Trade (Hong Kong) Co.Ltd.entered into a contract whereby they would jointly invest funds to form a joint venture named Henan Kaida Garment Corporation (hereinafter referred to as “Kaida”),which would engage in the manufacturing of clothes for export.Pursuant to the contract,Henan would be responsible for obtaining the relevant approvals from Chinese agencies and supplying Kaida with the stipulated export quota to the United States.
After two years of abiding by the terms of the contract,in 1990,Henan suddenly refused to continue providing export quota to Kaida on the grounds that all foreign-founded enterprises (i.e.,contractual joint ventures,cooperative ventures and solely foreign-founded enterprises) were forbidden to get access to export quotas pursuant to the laws of China.In accordance with the arbitration clause set forth in the contract,Dongfeng submitted the dispute to the China International Economic and Trade Arbitration Commission (“CIETAC”) for arbitration in April 1991.CIETAC rendered the final arbitral award on April 20,1992,ruling that the contract was valid and that the respondent should therefore compensate the claimant for breach of contract.
Henan nonetheless failed to execute the arbitral award within the time specified by CIETAC in its ruling.As a result,Dongfeng then applied on May 28,1992 to the Zhengzhou Intermediate People’s Court for enforcement of the arbitral award On September 28,the Zhengzhou Intermediate People’s Court made the following written order: “[I]n line with the current policy,law and regulations of China,if the arbitral award were enforced,the economic and social public interest of the state would be manifestly violated and the foreign trade order of the state would be undermined.Hence,according to Paragraph 2 of Article 260 of the Civil Procedure Law of the People’s Republic of China,the enforcement of the arbitral tribunal is not allowed.”23
It is widely accepted that an arbitral award will be reviewed by the court to which a party applies for enforcement thereby and that enforcement of such arbitral award will be refused where it is found to be contrary to ordre public.However,it has also been established that before a court exercises such power,it must first scrutinize ordre public from an objective standpoint.A judge may expound upon,but must not expand,the scope of ordre public,as it has long been settled that judges are no longer free to invent new heads of public policy.Generally,ordre public is invoked only in those cases in which the enforcement of an arbitral tribunal would affront some fundamental economic interest,general principle of justice,or basic conception of good morals of the forum,the maintenance of which provides no room for compromise.In the present case,the Zhengzhou Intermediate People’s Court regarded interest in a kind of trade as a component of ordre public,unreasonably and inappropriately disallowing the enforcement of the arbitral award in a conclusory written order lacking any convincing explanations.Accordingly,the Supreme People’s Court overruled this order a month later and stated unambiguously that “after examination,the Court holds that the disallowing of the arbitral tribunal by the Zhengzhou Intermediate People’s Court,on the ground that the economic and social public interest of the state would be manifestly violated and the foreign trade order of the state would be undermined,was incorrect.”24
3.6 Refusal of a Request for Service of Process
On August 7,2003,Yang Rong,former chairman of the board of directors of the Brilliance China Automotive Holdings Ltd.(the “Company”),filed suit in the U.S.District Court for the District of Columbia against the Provincial Government of northeast China’s Liaoning Province,the Company’s largest shareholder.25 Yang Rong charged that the defendant,Liaoning Provincial Government,had expropriated Company shares and sought compensation in the amount of U.S.$690,000,000.Due to the prominent status of both plaintiff and defendant,this case has stirred worldwide concern.[11]On August 21,the U.S.District Court for the District of Columbia authorized the summons directed to the Liaoning Provincial Government and declared that the defendant shall serve an answer to the complaint within sixty days after service of process.Failure to do so would result in a judgment by default against the defendant for the relief requested in the complaint.On the same day,counsel to Yang Rong submitted the summons to the Ministry of Justice of China via the United Parcel Service Inc.(“UPS”),requesting service of process on the Liaoning Provincial Government.
On October 23,the spokesman for the Ministry of Justice of China declared that the request was turned down on the ground that the U.S.District Court for the District of Columbia lacked jurisdiction over the Liaoning Provincial Government of China.The official went on to explain that in accordance with international law and universally recognized norms governing international relations,the judicial bodies of any one country are not entitled to exercise jurisdiction over any other sovereign state and its state institutions.Therefore,in line with Article 13 of the Hague Service Convention,which stipulates that the State addressed may refuse to comply with a request if it deems that such compliance would infringe upon its sovereignty or security,the Ministry refused the request advanced by Yang’s lawyer and returned the documents.
This case has aroused hot debate among Chinese scholars.Some scholars argue that the Liaoning Provincial Government should proceed with serving its answer to the action,since doing so will not necessarily lead to defeat,while refusing to do so will undoubtedly result in judgment by default.Other scholars,however,advocate the opposite,suggesting that it is a well-established principle that states and state entities enjoy immunity from the judicial jurisdiction of foreign national courts,and thus,refusal of the request for service of process on the Liaoning Provincial Government by the Ministry of Justice is entirely justified.26
It is my opinion that the answer is far from simple.In this case,there is a special element differentiating it from the Case in 3.3,supra,insofar as the request for service of process was submitted by mail courier,instead of through diplomatic channels.As stated above,service in United States federal and state courts on foreign sovereigns and their agencies and instrumentalities is governed primarily by the FSIA.Since there is no special agreement for service of process between China and the U.S.,pursuant to the FSIA,the Hague Service Convention to which both countries are party is the applicable instrument in this case.27
It is worth noticing that upon accession and ratification of the Hague Service Convention,China notified the Hague Conference on Private International Law of its objection,in accordance with Article 10,sub-paragraph (a) of the Convention,to service of process via postal channels;28 therefore,service by counsel to Yang Rong of a summons on the Ministry of Justice of China via UPS is not effective.In fact,out of this very concern,the Administrative Office of the United States Courts issued a memorandum informing all court clerks in the United States District Courts that they should advise all counsel who request their assistance with service of process by mail on state entities in China,among other countries,“that service should instead be attempted under 28 U.S.C.section 1608(a)(4),which is service through diplomatic channels”.29
Under these circumstances,the author argues that it is premature to rely on Article 13 of the Hague Service Convention as justification for refusing the request for service of process in this case,insofar as such an argument presumes that the request for service has already effectively been made to the state addressed.The Ministry of Justice of China already possesses sound reasons for ignoring the request advanced by the counsel to Yang Rong,without needing to invoke the ordre public reservation.Only in the event that the request for service of process is later appropriately submitted should the government of China then take into account Article 13 of the Hague Service Convention,with consideration given to the development of the general context of the case.[12]
In light of the analysis of the above cases,the following conclusions can be drawn:
In general,Chinese courts are unlikely to resort to the ordre public reservation arbitrarily,save in instances in which the requirements of the doctrine have by and large been satisfied,which basically accords with the international practice of confining the use of the doctrine.However,the doctrine of ordre public is applied rather broadly in Chinese judicial practice,including in the application of foreign law,the recognition and enforcement of foreign judgments or arbitral awards,and the service of process and taking of evidence requested by foreign authorities.Moreover,Chinese courts have employed somewhat inconsistent criteria to determine whether the ordre public has been violated when they deal with these different issues.The specific mechanisms for application of the ordre public reservation need further improvement,and application of the doctrine should be made and explained more solidly and concretely by Chinese courts.It should be emphasized that compared to courts in developed countries,Chinese courts are more apt to apply the doctrine even where there are better alternatives,thus failing to use it as a corrective measure of the last resort and meriting particular need for reexamination.