Litigation in China: Choice of Foreign Courts No Longer Requests Actual Connection with the Foreign Country

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 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, Litigation in China: Accelerating the Process of Extraterritorial Service and Adding Extraterritorial Evidence Collection Methods, Litigation in China: Race to Judgment in Cross-border Parallel Litigation, and Litigation in China: Opportunities and Challenges in Enforcement of Foreign Judgments in China.

In Litigation in China: Opportunities and Challenges in Enforcement of Foreign Judgments in China, we outlined the basic system for recognising and enforcing foreign judgments in China. Due to space constraints, we reserved the rules for Chinese courts to review the jurisdiction of foreign courts for separate discussion in this article. To have a comprehensive understanding, we suggest readers refer to this article in conjunction with the previous one.

Analysis of provisions

Articles 280, 300 and 301 of the Civil Procedure Law (2023 Amendment) (the “new CPL”) provide regulations on how Chinese courts determine the jurisdiction of foreign courts in parallel proceedings, and in the context of recognising and enforcing foreign judgments.

In accordance with the provisions of Article 280 of the new CPL on parallel litigation scenarios, an agreement on the exclusive jurisdiction of foreign courts will be valid if it does not violate the exclusive jurisdiction prescribed by the CPL and does not involve the protection of China’s public policy. In contrast, Article 529 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) (the “CPL Interpretation”), which was paired with the Civil Procedure Law (2021 Amendment), provided that in addition to not violating China’s exclusive jurisdiction, agreement on jurisdiction of a foreign court also required actual connections between the foreign court and the dispute.

In accordance with the provisions of Articles 300 and 301 of the new CPL on the scenario of recognising and enforcing foreign judgments, Chinese courts need to conduct a secondary review of the jurisdiction of foreign courts, or indirect jurisdiction in theory. The 2023 amendment made adjustments by referring to Articles 46 and 47 of the conference summary of the National Symposium on Foreign-Related Commercial and Maritime Trial Work (the “2022 Foreign-Related Summary”) issued by the Supreme People’s Court in January 2022. It is the first time that China has made clear provisions on this issue in law. The determination of indirect jurisdiction as provided in Article 301 of the new CPL is neither a pure adoption of the law of the country where a judgment is rendered, nor a simple “mirroring” of the law of the requested country. Instead, a comprehensive “two-way combination” determination model was adopted. [1] Therefore, the new CPL changes the position stated in Article 46 of the 2022 Foreign-Related Summary.

The determination of indirect jurisdiction specified in Article 301 of the new CPL is as follows:

• The foreign court must have jurisdiction according to the laws of the foreign country.
• Even if the foreign court has jurisdiction according to the laws of the foreign country, Chinese courts will still determine that the foreign court lacks jurisdiction if its jurisdictional basis is too weak, lacks appropriate connection with the dispute, or is purely an abuse of jurisdiction.
• If it violates China’s provisions on exclusive jurisdiction, Chinese courts will determine that the foreign court lacks jurisdiction. (See Litigation in China: Two New Types of Foreign-related Cases under the Exclusive Jurisdiction of Chinese Courts for further information)
• If it violates the parties’ agreement on exclusive choice of court jurisdiction, Chinese courts will determine that the foreign court lacks jurisdiction.

It should be noted that, although the new CPL, unlike the Civil Procedure Law (Draft Amendment), does not enumerate the circumstances in which the parties enter into an arbitration agreement, we believe that such circumstances should be covered by the circumstances in which “the foreign court has no jurisdiction over the case pursuant to the laws of the foreign country”, and therefore still fall within the scope of the Article 301.

In addition, readers should note that Articles 300 and 301 of the new CPL are only applicable when international conventions or bilateral treaties are not applicable. If conventions or treaties specify the rules for indirect jurisdiction determination, those provisions should be applied (See Litigation in China: Opportunities and Challenges in Enforcement of Foreign Judgments in China for further information).

Enterprises FAQ: Is it necessary to have appropriate connections with the foreign country to agree on a foreign court?

As the new CPL abolishes the requirement of “actual connection” for agreeing on Chinese courts (See Litigation in China: Choice of Chinese Courts No Longer Requests Actual Connection with China for further information), enterprises are expected to know whether the requirement of “actual connection” for agreeing on the jurisdiction of foreign courts has also been abolished. Does Article 301 of the new CPL, which states that “the foreign court has jurisdiction over the case but has no appropriate connection with the dispute involved in the case” apply to jurisdiction by agreement? Will a lack of “appropriate connection” prevent foreign judgments from being recognised and enforced in China?

We believe that the requirement of “actual connection” has been abolished for the agreement on foreign courts. Article 301 of the new CPL’s “appropriate connection” only applies to statutory jurisdiction and not to jurisdiction by agreement. There are three reasons for this:

Firstly, Article 280 of the new CPL only considers the violation of exclusive jurisdiction and public policy as grounds for Chinese courts not to recognise the validity of the agreement on a foreign court, without requiring an examination of whether the foreign court has an “actual connection” or “appropriate connection” with the dispute.

Secondly, Article 529 of the CPL Interpretation, which provides that the agreement on a foreign court requires the foreign country to have an actual connection with the dispute, is based on Article 35 of the CPL (2021 Amendment)[2], which states that “the parties to a dispute over a contract or over any other property rights and interests may, by a written agreement, choose a people’s court at the places that have actual connections with the dispute to exercise jurisdiction, including the place where the defendant is domiciled, where the contract is performed, where the contract is executed, where the plaintiff is domiciled, or where the subject matter is located, but shall not violate the provisions hereof on grade jurisdiction and exclusive jurisdiction.” In an article[3] by Judge Shen Hongyu of the Supreme People’s Court, who participated in the amendment, she pointed out that when the CPL was revised in 2012, provisions regarding foreign-related jurisdiction by agreement were deleted, and thereafter, no differentiation was made between foreign-related and non-foreign-related jurisdiction by agreement, and Article 35 of the CPL was uniformly applied. It emphasises that a dispute should have an actual connection with the court selected by agreement. However, with the development of foreign-related civil and commercial trial practices, the principle of requiring “actual connection” for jurisdiction by agreement has lagged behind actual needs and does not conform to the international trend of respecting the autonomy of parties in choosing courts. From the aforementioned background of the amendment, it can be seen that China has followed the international trend by cancelling the requirement of “actual connection” for foreign-related jurisdiction by agreement. This change in stance does not differentiate between choices of Chinese courts or foreign courts. Therefore, we believe that after the new CPL came into effect, Article 529 of the new CPL is no longer applicable.

Thirdly, the cancellation of the requirement for actual connection when agreeing on foreign courts aligns with the stance of the Hague Convention on Choice of Court Agreements (See The Choice of Court Agreement And Its Implications on China for further information). According to Article 5[4] of the Convention, the validity of jurisdiction agreements should be determined according to the law of the State of the chosen court. As per Article 9[5] of the Convention, a court not chosen has no authority to declare a jurisdiction agreement invalid under the law of the State. As long as the jurisdiction agreement is valid under the law of the State of the chosen court, the court not chosen must recognise and enforce the judgment. Therefore, if parties agree to have a dispute heard by a court of the neutral country with which the dispute has no connection, the Convention does not allow Chinese courts to deny the validity of the jurisdiction agreement on the grounds of lacking “actual connection” under the Chinese Civil Procedure Law. China signed the Convention on September 12, 2017, and is currently awaiting approval from the Standing Committee of the National People’s Congress. Adopting the same stance as the Convention in the new Civil Procedure Law helps avoid differential treatment by Chinese courts when reviewing judgments from contracting and non-contracting States to the Convention.

In conclusion, we believe that Article 301 (1) of the new CPL, which states that “the foreign court has no jurisdiction over the case pursuant to its laws, or the foreign court has jurisdiction over the case but has no appropriate connection with the dispute involved in the case”, refers to situations in which a foreign court exercises statutory jurisdiction on the basis of the provisions of the law of the State, excluding situations in which a foreign court exercises jurisdiction on the basis of a jurisdiction agreement between the parties.

Enterprises FAQ: When a foreign court exercises statutory jurisdiction, how is it determined that the foreign country has an appropriate connection with the dispute at issue?

According to the principles of private international law, when a foreign court exercises its statutory jurisdiction based on its domestic law and issues a judgment, another country, when recognising and enforcing the foreign judgment, has the right to independently assess whether the foreign court correctly exercised jurisdiction. This involves applying certain jurisdictional filters to recognise and enforce judgments that meet the standards, or indirect jurisdiction in theory. Articles 5 and 6 of the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters, in which China participated in negotiations, list the bases for indirect jurisdiction (See Looking Ahead: Two Decades of Efforts Lead to the Passage of the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters for further information).

The purpose of the “appropriate connection” requirement in Article 301 of the new CPL is also to serve as a filter. You can refer to Article 276 of the new CPL and judicial practices to understand what constitutes an “appropriate connection”.

Enterprises FAQ: How to determine the exclusive choice of court agreements?

The new CPL introduces the concept of exclusive jurisdiction agreements for the first time. Article 3 of the Convention on Choice of Court Agreements, which China has signed, provides a definition for “exclusive choice of court agreements,” including explicit and presumed exclusivity: (1) Explicit exclusivity: means an agreement concluded by two or more parties for the purpose of deciding disputes which have arisen or may arise in connection with a particular legal relationship, the courts of one Contracting State or one or more specific courts of one Contracting State to the exclusion of the jurisdiction of any other courts; (2) Presumed exclusivity: a choice of court agreement which designates the courts of one Contracting State or one or more specific courts of one Contracting State shall be deemed to be exclusive unless the parties have expressly provided otherwise.

Article 1 of the 2022 Foreign-Related Summary also specifies the rule of presumed exclusivity: Where a jurisdiction agreement entered into by and between the parties to a dispute over a foreign-related contract or any other property rights and interests explicitly provides that the court of one country shall exercise jurisdiction but does not stipulate that the jurisdiction agreement is a non- exclusive jurisdiction agreement, the jurisdiction agreement shall be presumed to be an exclusive jurisdiction agreement. Therefore, under the new CPL, exclusive jurisdiction agreements include both explicit and presumed exclusive jurisdiction agreements.

There is also a type of asymmetric jurisdiction agreements in practice, as stipulated in Article 2 of the 2022 Foreign-Related Summary: Where a jurisdiction agreement entered into by and between the parties to a dispute over a foreign-related contract or any other property rights and interests explicitly provides that one party may select a court of a country from courts of more than one countries to initiate a lawsuit, and the other party may initiate a lawsuit in the court of only one particular country only. Chinese courts generally recognise the validity of such agreements, but there is still controversy over whether they can apply the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region pursuant to Choice of Court Agreements between Parties Concerned (See the Latest Practice on Exclusive Jurisdiction in Mutual Recognition and Enforcement of Civil and Commercial Judgments Between Mainland and Hong Kong for further information).

This article marks the final instalment of the Litigation in China series. If there are any aspects left unaddressed, please feel free to contact the author for further discussion.

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

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