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 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 in advance. 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 Litigation in China: Expansion of the Jurisdiction of Chinese Courts over Foreign-Related Cases, Litigation in China: Choice of Chinese Courts No Longer Requests Actual Connection with China, Litigation in China: How to Avoid Constituting Responding Jurisdiction in Foreign-related Cases, Litigation in China: Two New Types of Foreign-related Cases under the Exclusive Jurisdiction of Chinese Courts, Litigation in China: Development of Forum Non Conveniens Rules, and Litigation in China: Accelerating the Process of Extraterritorial Service and Adding Extraterritorial Evidence Collection Methods.
I. Provision analysis: race to judgment
The three amended provisions of the Civil Procedure Law introduced a novel mechanism for the acceptance, suspension and resumption of cross-border parallel litigation. These amendments are designed to make appropriate concessions to foreign jurisdictions, so as to avoid making the resolution of disputes between parties more complicated as a result of parallel litigation.
The Civil Procedure Law (2023 Amendment) provides a race mechanism for cross-border parallel litigation. Specifically, when initiating litigation, the parties will first compete for “prior acceptance”, and then for “prior judgment” as the litigation progresses. According to Articles 280, 281 and 302 of the Civil Procedure Law (2023 Amendment), the handling of cross-border parallel litigation in Chinese courts can be summarised as follows:
1. First suspension of proceedings
When a case has been accepted by a foreign court, and a party to the case brings another lawsuit before a Chinese court, the Chinese court should accept the case if it has the jurisdiction. After the Chinese court has accepted the case, the defendant has the right to apply to the Chinese court for suspension of the proceedings while awaiting the judgment of the foreign court.
In accordance with Article 281(1), Chinese courts will examine three factors when determining whether to suspend proceedings:
- Whether the foreign court has jurisdiction over the accepted case. If there is an agreement between the parties to choose a Chinese court with jurisdiction, the foreign court lacks jurisdiction over the accepted case. If the parties have agreed to resolve the dispute through a foreign court or have not reached any agreement on jurisdiction, and the dispute accepted by the foreign court falls under the exclusive jurisdiction of the Chinese court as provided in the Civil Procedure Law (See Litigation in China: Two New Types of Foreign-related Cases under the Exclusive Jurisdiction of Chinese Courts for further information), the Chinese court will also hold that the foreign court lacks jurisdiction over the case accepted. If the foreign court lacks jurisdiction, there is no need for the Chinese court to exercise comity. The Civil Procedure Law (Draft Amendment) provided that “and the judgment made by the foreign court may be recognised by the people’s court of the People’s Republic of China pursuant to this Law” (which has been deleted from the official draft) as a precondition for the suspension of proceedings. This provision was also in the belief that the precondition for comity is the avoidance of contradictory judgements. If foreign judgements cannot be recognised at all, there will be no contradictory judgements in China and there is no need for comity.
- Who is evidently more convenient to try a case, a Chinese court or a foreign court? If it is evidently more convenient for the Chinese court to hear the case, there is no need to exercise comity. How can we determine that it is “evidently more convenient” for the Chinese court to hear the case? We believe that we can refer to the constituent elements of inconvenient jurisdiction as specified in Article 282[1] of the Civil Procedure Law (2023 Amendment), as well as the factors developed in judicial practice for determining whether it is convenient or not, such as whether the applicable law is PRC law, whether the service is convenient, whether the evidence is in Chinese, or centralised in China, and whether the preservation and enforcement of the judgement can be realised in a foreign country. (See Litigation in China: Development of Forum Non Conveniens Rules for further information)
- Whether suspension of proceedings is necessary. It is worth noting that, since the provision provides that the court “may” rule to suspend the proceedings, the Chinese court still has discretion as to whether or not to suspend the proceedings after the parties apply for a suspension. Therefore, we believe that the Chinese court may also make a comprehensive judgement by taking into account the parties’ views on whether the suspension of the proceedings would cause irreparable harm and the urgency of the preservation of (property, behaviour, and evidence) in China.
2. Resumption of proceedings after the first suspension
Since the suspension of proceedings will affect the parties’ timely access to judicial remedies in China, Article 281 (2) specifies the circumstances under which proceedings should be resumed. If the foreign court fails to take necessary measures to hear a case after accepting it first or fails to conclude the case within a reasonable period of time, the parties may apply to the court for resumption of the proceedings.
For a party to apply for resumption, it is required to prove that the proceedings before the foreign court meet either of the two conditions mentioned above. The question is should “failure to take necessary measures” and “reasonable period of time” be determined in accordance with the Civil Procedure Law of China or the procedural law applicable to foreign proceedings. At present, the Civil Procedure Law (2023 Amendment) has no specification on this issue in Articles 281 and 282. We believe that Chinese courts should not make judgements based solely on foreign procedural law, as this would result in the right to resume proceedings being overridden. Article 281 (1) provides that one of the reasons for prior acceptance is based on the assumption that the court that accepts the case first will provide quicker remedies to the parties. However, if the proceedings in the foreign court are lengthy (either because of a longer period of time required by the foreign procedural law or a delay by the foreign court), the Chinese court should resume the proceedings to provide more timely remedies to the parties.
3. Second suspension of proceedings and dismissal of lawsuit
In a cross-border parallel litigation race, in addition to the suspension of proceedings at the acceptance stage, the second suspension of proceedings may occur at the stage of recognition and enforcement of the foreign judgment. Article 302 of the Civil Procedure Law (2023 Amendment) provides that where, during the proceedings before a Chinese court, a foreign court first renders a judgement or ruling and the relevant party applies to a Chinese court for recognition and enforcement of the foreign judgement or ruling, the proceedings in China may be suspended pending the Chinese court’s decision as to whether the foreign judgement or ruling should be recognised and enforced in China.
If the foreign judgement or ruling rendered earlier is recognised and enforced, the proceedings in China will be dismissed directly. If the foreign judgement or ruling is not recognised and enforced, the proceedings in China will be resumed. It can be seen that whether the foreign judgement or ruling is recognised will play a decisive role in the outcome of the cross-border parallel litigation race. In the next article of the series, we will discuss the impact of amendments to the Civil Procedure Law on the recognition and enforcement of foreign judgements.
II. Enterprises FAQ: How to win the cross-border parallel litigation race?
Enterprises should initiate proceedings before the Chinese courts as soon as possible if there is likely to be parallel litigation, so as to prevent foreign courts from accepting the case and making a judgment first, and then entering the recognition and enforcement stage. In addition, initiating proceedings in China can quickly preserve the property of the opposing party in China, which can exert pressure, help resolve disputes through negotiations, and avoid the high cost of taking legal actions at home and abroad.
Even for cases that have already been accepted by foreign courts first, it is still advisable to initiate proceedings before the Chinese courts as soon as possible. Moreover, the suspension of proceedings in China, following their acceptance, will not affect the preservation measures already taken. In other words, during the suspension of proceedings, the effects of property preservation measures persist, creating continual pressure and building up leverage for negotiations. Furthermore, should the legal proceedings in China culminate in a judgment before the foreign action, the foreign judgment may be precluded from recognition and enforcement in China[2].
III. Enterprises FAQ: How to determine if an offshore case and a domestic case are brought for the same dispute?
It is important to note that the rule of parallel litigation applies only to the “same dispute”, and the parties sometimes may have disputes over whether cases are brought for the same dispute. It is sometimes hard to determine due to the legal complexity of claims and the focus of disputes. In judicial practice[3], it is generally held by courts that the “same dispute” can be judged with reference to the provisions of Article 247 (1) of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People's Republic of China on the principle of “protection against double jeopardy” and determination criteria: (I) the parties to the latter lawsuit and those to the former lawsuit are the same; (II) the subject matter of the latter lawsuit and that of the former lawsuit is the same; and (III) the claims of the latter lawsuit and those of the former lawsuit are the same, or the claims of the latter lawsuit essentially deny the judgment of the former lawsuit.
In the next article of the series, we will discuss the impact of the amendments to the Civil Procedure Law on the recognition and enforcement of foreign judgements. 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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For a foreign-related civil case accepted by a people’s court, where the defendant raises an objection to the jurisdiction, the people’s court may rule to reject the lawsuit and instruct the plaintiff to file the lawsuit with a foreign court which is more convenient to hear the case, if:(I) The basic facts of the dispute in the case did not occur within the territory of the People’s Republic of China, and it is obviously inconvenient for a people’s court to hear the case and for the parties to participate in the proceedings thereof; (II) There is no agreement on the choice of jurisdiction of a people’s court between the parties involved; (III) The case is not under the exclusive jurisdiction of a people’s court; (IV) The case does not involve the sovereignty, security or public interests of the People’s Republic of China; and (V) It is more convenient for a foreign court to hear the case. Where, after ruling to reject the lawsuit by a people’s court, the foreign court refuses to exercise jurisdiction over the dispute or fails to take necessary measures to hear the case or fails to conclude the case within a reasonable period, and a party concerned once again files a lawsuit with a people’s court, the people’s court shall accept the lawsuit..
Article 300 of the Civil Procedure Law (2023 Amendment): A people’s court shall, after examining an application or request for the recognition and enforcement of a legally effective judgment or ruling rendered by a foreign court, rule not to recognise or enforce the judgment or ruling under any of the following circumstances: (I) The foreign court has no jurisdiction over the case according to Article 301 of this Law; (II) The respondent has not been lawfully summoned or has not been given a reasonable opportunity to make representation or arguments although lawfully summoned, or the party without the capacity to action is not properly represented; (III) The judgment or ruling is obtained by fraud; (IV) A people’s court has rendered a judgment or ruling on the same dispute or has recognised a judgment or ruling rendered by a court of a third country on the same dispute; or (V) The basic principles of the laws of the People’s Republic of China are violated or the sovereignty, security, or public interest of the State is damaged.
The Supreme People’s Court held in (2019) Zui Gao Fa Min Shen Civil Ruling No. 5605 that the basic connotation of the principle of “protection against double jeopardy” is that the parties shall not file repeated lawsuits and the people’s courts shall not adjudicate repeatedly in respect of the same dispute. The Fourth Intermediate People’s Court of Beijing Municipality held in (2017) Jing 04 Min Te Civil Ruling No. 39 that the system of a single and final award is practised for arbitration, i.e., an arbitration hearing and award is rendered in respect of the “same dispute”, and the application for arbitration by the parties based on the dispute will no longer be accepted. The core of the system lies in the determination of the “same dispute”. In this regard, reference can be made to the provisions of Article 247 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China on the principle of “protection against double jeopardy” and determination criteria, to analyse and determine the “same dispute” in terms of the parties, the subject matter of the action and arbitration claims.
