Tag:dispute-resolution-and-litigation-international-arbitration-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 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, and Litigation in China: How to Avoid Constituting Responding Jurisdiction in Foreign-related Cases.
Two new types of foreign-related cases under the exclusive jurisdiction of Chinese courts
Firstly, Article 279 of the newly amended Civil Procedure Law concerning the exclusive jurisdiction of Chinese courts includes in paragraph (1) “actions initiated due to disputes over the establishment, dissolution or liquidation of legal persons or other organizations established within the territory of the People’s Republic of China, or over the validity of resolutions adopted by such legal persons or other organizations, etc.” We believe the reason is that the artificial personality of legal persons and unincorporated organisations is derived from the confirmation by national public power and closely related to the law of the place of registration, i.e. the laws of China. It often involves rules and regulations of public registration, dissolution and liquidation of legal persons incorporated in China, which has a bearing on the public order of China. Therefore, it is deemed appropriate for these actions to be subject to the exclusive jurisdiction of Chinese courts. There are also similar practices in comparative law.
In accordance with the Regulations on Causes of Action for Civil Cases (2020), there are more than 40 causes of action for disputes relating to enterprises, companies and partnerships. According to Article 279(1) of the newly amended Civil Procedure Law, causes of action including disputes over the establishment, dissolution, and liquidation liability of a company, as well as disputes over the resolution of a company (which may be further categorised into disputes over the validity of the resolution and disputes over the revocation of the resolution) should also be subject to exclusive jurisdiction. However, it is worth noting that Article 279(1) also used the word “etc.”, but it remains unclear what additional types of disputes are to be included. Moreover, in practice, disputes over company dissolution and resolutions are often intertwined with disputes over shareholder agreements and infringement by officers. The parties sometimes make multiple claims in a single case, which resultantly involves multiple causes of action. The new paragraph (1) mentioned above poses a new challenge to the determination of jurisdiction for complex corporate disputes arising in foreign-invested enterprises. Disputes over jurisdiction and the validity of arbitration clauses in such cases are likely to increase in the future.
Secondly, Article 279 of the newly amended Civil Procedure Law concerning the exclusive jurisdiction of Chinese courts includes in paragraph (2) “actions initiated due to disputes in relation to the validity of intellectual property granted upon examination within the territory of the People’s Republic of China”. We believe the reason is that intellectual property generally follows the principle of territoriality. In particular, patents, trademarks, new plant varieties, and integrated circuit layout designs, among others, are intellectual property generated upon the examination and approval of the competent administrative authorities of a country. Therefore, the courts in the country where such intellectual property is granted are justified to have exclusive jurisdiction over litigation arising from the validity of such intellectual property. From a comparative law perspective, most countries provide in their domestic legislation that disputes over the validity of registered intellectual property shall be subject to the exclusive jurisdiction of their courts.
Enterprises FAQ: Is it allowed to agree on offshore arbitration when the agreement on jurisdiction of foreign courts is deemed invalid for cases under the exclusive jurisdiction of Chinese courts?
After the effectiveness of the Civil Procedure Law (2023 Amendment), disputes over company establishment, dissolution, liquidation, resolutions, etc., and disputes over invalidation of intellectual property granted upon examination shall be subject only to the jurisdiction of Chinese courts. Enterprises are required to revise the jurisdiction clause in their contracts. The following three points are worth noting when making such revisions:
Firstly, according to Article 529(2) of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China (Amended in 2022)[1], the exclusive jurisdiction of Chinese courts does not exclude agreement on arbitration. Under Article 278[2] of the Civil Procedure Law (2021 Amendment), a contract involving foreign elements may agree on the submission of a dispute to an offshore arbitration institution. See the SPC case numbered (2019) Zui Gao Fa Min Shen No. 3896, which involves a dispute over a Sino-foreign joint venture contract.
Secondly, however, the above provisions do not mean that all cases falling within the scope of the exclusive jurisdiction of Chinese courts may be resolved by arbitration. Among disputes over company establishment, dissolution, liquidation, resolutions, etc., some causes of action, such as the validity of company resolutions, are not arbitrable, while it is still controversial whether company dissolution is arbitrable. As the arbitrability is complex, it is recommended to consult a lawyer for advice if you have any questions when designing a jurisdiction clause.
Finally, Article 279(2) of the newly amended Civil Procedure Law only governs “disputes over the invalidation of the intellectual property granted upon examination”. For disputes involving intellectual property verified without examination, such as copyright, parties may still retain the freedom to agree upon a foreign court or arbitration institution for dispute resolution[3]. In addition, Article 279(2) of the newly amended Civil Procedure Law also does not affect agreements on jurisdiction in respect of disputes over the determination of the ownership of any intellectual property. Therefore, if the parties agree in their contract to settle disputes arising from the ownership of any intellectual property through arbitration, either domestically or internationally, or by resorting to a foreign court, such agreement will remain valid.
In the next article of the series, we will discuss the impact of amendments to the Civil Procedure Law on inconvenient forum rules. 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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Article 529(2) of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China (Amended in 2022): In accordance with Articles 34 and 273 of the Civil Procedure Law, for a case under the exclusive jurisdiction of a court of the People's Republic of China, the parties may not agree on the selection of a foreign court for jurisdiction, unless they agree on the selection of arbitration.
Article 278: Where the parties include an arbitration clause in the contract or subsequently reach a written arbitration agreement providing for the submission of disputes arising from foreign-related economic trade, transport and maritime affairs to a foreign-related arbitration institution of the People’s Republic of China or other arbitration institutions for arbitration, the parties may not file a lawsuit with a people’s court. If the parties do not include an arbitration clause in the contract or do not subsequently reach a written arbitration agreement, the parties may file a lawsuit with a people’s court.
Article 60 of the Copyright Law: Copyright disputes may be mediated, or submitted to an arbitration institution for arbitration in accordance with the written arbitration agreement reached by the parties or the arbitration clause in the copyright contract.
