Litigation in China: How to Avoid Constituting Responding Jurisdiction in Foreign-related Cases

Tag:dispute-resolution-and-litigation-commercial-disputes

The Decision of the Standing Committee of the National People’s Congress on Amending the Civil Procedure Law of the People’s Republic of China officially came into effect on 1 January 2024. This amendment to the Civil Procedure Law will bring significant changes to the addressing of international commercial cases, making it crucial for multinational enterprises and Chinese enterprises engaged in cross-border transactions to pay close attention and make preparations. We introduce, through a series of articles, the impact of the amendments to Civil Procedure Law on the jurisdiction of international commercial cases and cross-border litigation, assisting enterprises in adapting to the changes. We have already published the Litigation in China: Expansion of the Jurisdiction of Chinese Courts over Foreign-Related Cases and the Litigation in China: Choice of Chinese Courts No Longer Requests Actual Connection with China.

I. Introduction of the change of provisions for responding jurisdiction in foreign-related civil procedures

Compared to the Civil Procedure Law (2021 Amendment), the Civil Procedure Law (2023 Amendment) adds one article as Article 278 in Part IV (Special Provisions On Foreign-Related Civil Procedures), introducing separate provisions on responding jurisdiction.

Prior to this amendment, Article 130(2) of the Civil Procedure Law (2021 Amendment) simultaneously applied to both domestic and foreign-related cases. With the implementation of the newly amended Civil Procedure Law, in accordance with the principle of priority application indicated in Article 270 [1] of Part IV, Article 130(2) no longer applies to foreign-related cases.

The result of the above change is that if the parties do not raise objections to jurisdiction within the objection period and defend or counterclaim on the substantive dispute, even if the court violates the provisions of hierarchical jurisdiction and exclusive jurisdiction, it still has the right to hear the case.

Why did the Civil Procedure Law cancel the restrictions on hierarchical jurisdiction and exclusive jurisdiction for responding jurisdiction in foreign-related cases? We believe that the reason lies in respecting the autonomy of the parties’ intentions. The principle of responding jurisdiction is based on the fact that when the defendant has the right to raise objections to jurisdiction but chooses not to do so and instead respond to the lawsuit, it actually indicates that both parties are willing to resolve the dispute through the court where the lawsuit is filed. Since defendants in foreign-related cases may not be familiar with China’s provisions on hierarchical jurisdiction and exclusive jurisdiction, denying the parties’ choice of court where the lawsuit is filed in reliance on the provisions on hierarchical jurisdiction and exclusive jurisdiction would undermine the autonomy of the parties’ intentions.

The philosophy behind the above-mentioned amendment is consistent with that for the consensual jurisdiction in foreign-related cases introduced in the Litigation in China: Choice of Chinese Courts No Longer Requests Actual Connection with China. It aims to protect the parties’ choice of court as much as possible in foreign-related cases and avoid contravening the parties’ expectations due to restrictions in statutory actual connections, hierarchical jurisdiction, and exclusive jurisdiction.

II. Enterprises FAQ: time limit for jurisdictional objections

Raising jurisdictional objection is a crucial tool in litigation. If successful, it can help the defendant save the costs required for substantive defence and achieve the goal of resolving disputes with minimal costs. Therefore, enterprises need to check jurisdictional issues immediately upon receiving the court’s service of the copy of the statement of claim, and raise written jurisdictional objections within the statutory time limit.

The statutory time limit for raising jurisdictional objections is the response period. The response period differs between domestic cases and foreign-related cases. In domestic cases, the response period is fifteen days, and the defendant has no right to request an extension. [2] In foreign-related cases, if the defendant does not have a domicile in the PRC, the response period is within thirty days after receiving a copy of the statement of claim. Extension requests are allowed and determined by the court. [3] It is important to note that in some foreign-related cases where there are multiple defendants, if some defendants are domestic enterprises or have a domicile in the PRC, the response period remains fifteen days, and they have no right to request an extension. For cases classified as foreign-related ones, please refer to the Litigation in China: Expansion of the Jurisdiction of Chinese Courts over Foreign-Related Cases.

III. Enterprises FAQ: how to raise jurisdictional objections on the basis of arbitration clauses

Challenging the jurisdiction of the court based on arbitration clauses is theoretically referred to as a challenge to the court’s competence (which is different from the concept of jurisdiction). In practice, most parties still, following the rules of jurisdictional objections in accordance with the Civil Procedure Law, submit challenges to the court’s competence based on arbitration clauses within the response period. Courts also accept this practice.

However, the Arbitration Law of the People’s Republic of China actually has different provisions regarding the time limit for raising objections to the court’s competence. Article 26 of the Arbitration Law stipulates that “Where the parties concerned have reached an arbitration agreement and one party has filed for a suit to be heard before the people’s court without declaring the existence of the arbitration agreement, and following acceptance of the case by the people’s court, the other party provides the arbitration agreement prior to the beginning of the hearing, the people’s court shall dismiss the case, except if the arbitration agreement is invalid. Where the other party fails to provide the opposing opinion prior to the beginning of the hearing by the people’s court, the arbitration agreement shall be regarded as having been forfeited and the people’s court shall continue the hearing.” Therefore, if a party fails to raise objections to the court’s competence within the response period, the latest time to do so is before the first hearing.

IV. Enterprises FAQ: can opinions on the substantive issues be expressed in jurisdictional objections?

Article 223 of the Interpretation of Civil Procedure Law states that “Where a party raises an objection to jurisdiction within the period for submitting a statement of defence and defends against the content of the statement of claim, the people’s court shall examine the objection in accordance with Article 130(1) of the Civil Procedure Law.” Therefore, parties can express opinions on the substantive dispute while raising jurisdictional objections. In practice, when there is uncertainty about whether the jurisdictional objection is established, lawyers sometimes advise enterprises to express preliminary views on the substantive dispute to influence the court’s preliminary assessment of the case outcome and further influence the court’s inclination regarding jurisdictional issues.

In the next article of the series, we will discuss the impact of amendments to the Civil Procedure Law on exclusive jurisdiction. Stay tuned!

Thanks to associates Huang Yabing, Shen Yue, paralegal Liu Shuyang, and interns Tan Xiao and Zhang Xi for their contributions to this article.

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