Over the past decade, Chinese and U.S. courts have become increasingly willing to recognize and enforce each other's judgments. But a decision by the Supreme Court of New York at the end of April threatens to bring this positive trend to a halt. In Shanghai Yongrun Investment Management Co. v. Kashi Galaxy Venture Capital Co., 2021 NY Slip Op 31459(U), Judge Arthur Engoron denied enforcement of a Chinese court judgment on the ground that the judgment "was rendered under a system which does not provide impartial tribunals or procedures compatible with the requirements of due process of law." If upheld on appeal, this ruling means that no Chinese judgment would ever be enforceable in the state of New York. But the implications of the decision are even broader. Because China recognizes foreign judgments based on reciprocity, New York's refusal to enforce Chinese judgments would inevitably lead Chinese courts to refuse to enforce New York judgments and, perhaps, U.S. judgments more generally.

The judgment in Shanghai Yongrun arose from an ordinary contractual dispute. Shanghai Yongrun had invested in Kashi Galaxy, and Kashi Galaxy agreed to repurchase the investment before an initial public offering. When Kashi Galaxy breached by failing to pay the full repurchase price, Shanghai Yongrun sued in a Beijing court as provided in the parties' agreement. After a trial in which the defendants were represented by counsel, the Beijing court granted judgment for the plaintiff. The decision was affirmed on appeal but could not be enforced because there were insufficient assets within the court's jurisdiction. The plaintiff alleged that the defendants had transferred their assets to the United States and brought suit to enforce the Chinese judgment in New York state court.

Article 53 of New York's Civil Practice Law and Rules (CPLR) has adopted the 1962 Uniform Foreign Money-Judgments Recognition Act. Article 53 provides that final money judgments of foreign courts must be recognized and enforced in New York unless one of the grounds for non-recognition set forth in CPLR 5304 is established. These include a range of case-specific grounds: that the foreign court did not have personal jurisdiction, that the foreign court did not have subject matter jurisdiction, that the defendant did not receive notice of the foreign proceeding, that the judgment was obtained by fraud, that the judgment is repugnant to the public policy of New York, that the judgment conflicts with another final judgment, that the judgment is contrary to a forum selection clause, that personal jurisdiction was based only on service, and that the judgment is for defamation and provided less protection for speech than would be available in New York. New York may soon add two more case-specific grounds to the list by adopting the updated 2005 Uniform Foreign-Country Money Judgments Recognition Act, which has passed New York's Assembly and Senate and awaits the Governor's approval: (1) substantial doubt about the integrity of the rendering court with respect to the judgment and (2) denial of due process in the specific proceeding.