Jurisdiction of Chinese Courts Expanded

On September 1, 2023, the Fifth Session of the Standing Committee of the Fourteenth National People’s Congress of China adopted the Decision on Amending the Civil Procedure Law of the People’s Republic of China, which will take effect on January 1, 2024. Among others, this amendment further expands the jurisdiction of Chinese courts over foreign-related civil disputes. In future, litigation at Chinese courts in foreign-related civil disputes will be facilitated. Both Chinese parties and foreign parties should pay due attention to this development.

As a result of this amendment, a party to a foreign-related civil dispute will be able to sue at a Chinese court if there are so-called “other appropriate connections between the dispute and China”. Currently, if a civil lawsuit is brought against a defendant not domiciled in the territory of China (i.e. a foreign party), it can only be subject to the jurisdiction of a Chinese court in the place of the conclusion of the contract, the place of the performance of the contract, the place of the subject matter of the action, the place of the property available for seizure, the place of the tortious act, or the domicile of the foreign party’s representative office in China. While these are clear cases in which a Chinese court may have jurisdiction, the amended legislation has not yet provided a clear definition of what “other appropriate connections” shall be. In practice, therefore factors such as the Chinese plaintiff's nationality, habitual residence and domicile, place of business, the Chinese law applicable to the dispute, the place where the damage occurred, and the foreign party’s actual control over the relevant entity or property located in China might all constitute “other appropriate connections between the dispute and China”, which would allow the relevant Chinese court to have jurisdiction over the case.

The amended Civil Procedure Law of China clarifies for the first time that a foreign-related dispute may be subject to the jurisdiction of a Chinese court upon written agreement of the parties. It remains to be clarified by the relevant judicial interpretations whether the currently applicable limitation of “the court in the place of actual connection” also applies to the agreed jurisdiction over foreign-related civil disputes. Currently, the parties to a domestic civil dispute may only agree on the jurisdiction of “the people’s court in the place of actual connection”, i.e. they must choose from the Chinese courts in the defendant’s domicile, the place of the performance of the contract, the place of the conclusion of the contract, the plaintiff's domicile, the place of the subject matter and other places of actual connection with the dispute. To be on the safe side, for the time being it is recommended to choose the court in the place of actual connection when agreeing on the jurisdiction of the court.

The amendment adds two types of civil actions that are subject to the exclusive jurisdiction of Chinese courts. Currently, Chinese courts have the exclusive jurisdiction over actions arising from disputes relating to the performance of Sino-foreign equity joint venture contracts, Sino-foreign cooperative joint venture contracts, and Sino-foreign cooperative contracts for the exploration and exploitation of natural resources in China. From January 1, 2024, Chinese courts will also have the exclusive jurisdiction over the following foreign-related civil actions:

• Actions arising from disputes relating to the establishment, dissolution or liquidation of a legal person or other organization established in China and the effect of such entity’s resolutions; and
• Actions arising from disputes relating to the examination of the validity of intellectual property rights granted in the territory of China.

Chinese courts will not recognize or enforce a judgment or decision rendered by a foreign court in violation of the above provisions on exclusive jurisdiction. However, it remains to be clarified by the relevant judicial interpretations whether the above-mentioned exclusive jurisdiction of Chinese courts can be avoided by entering into a valid (international) arbitration agreement. Currently, in order to resolve Sino-foreign joint venture disputes (under the exclusive jurisdiction of Chinese courts) the parties may choose arbitration over Chinese courts by written agreement.

The amended Civil Procedure Law of China clarifies the basic principles for Chinese courts to handle parallel actions in foreign-related civil cases. Chinese courts may accept cases where such cases have already been brought to courts outside China. A Chinese court may (not shall) decline a case only if:

• the parties have entered into an exclusive jurisdiction agreement to choose the jurisdiction of a foreign court, and
• the agreement does not violate the above-mentioned exclusive jurisdiction of Chinese courts, and
• does not affect China’s sovereignty, security or social public interests.

A party may request to stay the proceedings at the Chinese court on the grounds that the action has already been accepted by a foreign court. However, the Chinese court may reject such request if:

• the parties to a foreign-related civil case have agreed to choose the jurisdiction of a Chinese court, or
• if the dispute falls within the exclusive jurisdiction of a Chinese court, or
• if it is obviously more convenient for the dispute to be heard by a Chinese court.

If a Chinese court accepts a foreign-related civil case and the defendant challenges the jurisdiction in time, the Chinese court may (not shall) reject the action and advise the plaintiff to file an action in a more convenient foreign court, provided that:

• The basic facts of the case in dispute did not occur in China, and it is obviously inconvenient for the Chinese court to hear the case and for the parties to participate in the action; and
• There is no agreement between the parties to choose the jurisdiction of a Chinese court; and
• The case does not fall within the exclusive jurisdiction of the Chinese courts; and
• The case does not affect China’s sovereignty, security or social public interests; and
• It is more convenient for a foreign court to hear the case.

How to determine whether it is “convenient” or not for Chinese and foreign courts has yet to be clarified by the relevant judicial interpretations. The competent Chinese court in a particular case will need to make a comprehensive judgment based on all relevant and specific circumstances of the case.