On 1 September 2023, the Standing Committee of the National People’s Congress of the People’s Republic of China (“PRC”) released its decision to amend, for the fifth time, the PRC Civil Procedure Law (“Old CPL”). The amended PRC Civil Procedure Law (“New CPL”) will take effect on 1 January 2024.
According to the introduction to the New CPL by the Legal Affairs Commission (Civil Law Office) of the Standing Committee of the National People's Congress (“NPC”), the amendment of the Old CPL focuses on revising and improving the content of Chapter IV – Special Provisions on Foreign-related Civil Litigation Procedures. The amendment is based on the practical experience in foreign-related civil and commercial trials.
Please find below an overview on the key aspects:
1. Court jurisdiction in foreign-related civil cases
a) Scope of People’s Courts’ jurisdiction (amended Article 276 of the New CPL)
According to Article 272 of the Old CPL, in case of a lawsuit initiated against a defendant without a domicile in the territory of the PRC due to a contractual dispute or other dispute on property rights and interests, if the contract was signed or performed within the territory of the PRC, or the subject matter of the lawsuit is within the territory of the PRC, or the defendant has property that can be seized within the territory of the PRC, or the defendant has a representative office in the territory of the PRC, the People’s Court at the place where the contract was signed or performed, or where the subject matter of the litigation is located, or where the property can be seized, or where the infringement was committed, or where the representative office is domiciled may have jurisdiction over such lawsuit.
This stipulation has been amended into Article 276 of the New CPL. Now it stipulates that in case of a lawsuit, other than a lawsuit on a personal status relationship, initiated against a defendant without a domicile in the territory of the PRC due to a foreign-related civil dispute, if the place where the contract was signed or performed, where the subject matter of the lawsuit is located, where the property can be seized, where the infringement was committed, or where the representative office is domiciled is within the territory of the PRC, the People's Court at the place where the contract was signed or performed, where the subject matter of the lawsuit is located, where the property can be seized, where the infringement was committed, or where the representative office is domiciled may have jurisdiction over such lawsuit. Apart from the preceding provision, where a foreign-related civil dispute has other appropriate connections with the PRC, a People's Court may also have jurisdiction over such dispute.
The amendment clarifies the relationship of this Article to the unchanged Article 23 of the CPL. According to Article 23, the People’s Court at the place where the plaintiff is domiciled shall have jurisdiction over a lawsuit on a personal status relationship initiated against the defendant without a domicile within the PRC. The wording of Article 272 of the Old CPL was ambiguous as to whether it also covers disputes on a personal status relationship (e.g. marriage, inheritance) and, if yes, it would have contradicted Article 23 of the CPL. Such ambiguity has now been eliminated.
Further, the additional sentence added at the end of Article 276 of the New CPL shall function as a catch-all clause to extend the jurisdiction of People’s Courts. The principle of “appropriate connections” is similar to that of “actual connection” in the (unchanged) Article 35 of the CPL. It stipulates that parties to a contractual or other property dispute may agree in writing on the People’s Court at the place having an actual connection with the dispute, but such agreement shall not violate the provisions on hierarchical jurisdiction and exclusive jurisdiction.
b) Agreement on People’s Courts’ jurisdiction (new Article 277 and 278 of the New CPL)
According to these two new Articles, parties to a foreign-related dispute may agree in writing on jurisdiction of a People’s Court. A People’s Court shall be deemed having jurisdiction, if the relevant party has not objected to such jurisdiction, but has responded with statements of defence or raised a counterclaim.
The substance of these two Articles is already stipulated in the (unchanged) Article 35 and the (amended) Article 130 of the New CPL. According to Article 35 of the CPL, parties to a contractual or other property dispute may agree in writing on the People’s Court at the place having an actual connection with the dispute, but such agreement shall not violate the provisions on hierarchical jurisdiction and exclusive jurisdiction. According to the (amended) Article 130 para. 2 of the New CPL, a People’s Court shall be deemed having jurisdiction, if the relevant party has not objected to such jurisdiction, but has responded with statements of defence or raised a counterclaim, unless the provisions on hierarchical jurisdiction and exclusive jurisdiction are violated.
Therefore, Article 277 and 278 of the New CPL have confirmed that the principle of party autonomy in determining the jurisdiction of People’s Courts also applies in general for foreign-related disputes.
Of course, before agreeing on jurisdiction of a PRC court in a foreign-related case, the parties should carefully check whether judgements of PRC courts are enforceable at the location of the counterparty. Currently, there are only few foreign countries where PRC court judgements are enforceable.
c) Exclusive People’s Courts’ jurisdiction (amended Article 279 of the New CPL)
This amends Article 273 of the Old CPL. According to Article 273 of the Old CPL, People's Courts shall have jurisdiction over lawsuits initiated due to disputes arising from 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 the PRC. Now, besides the aforementioned cases, two additional types of lawsuits have been added in Article 279 of the New CPL to expand the exclusive jurisdiction of People’s Courts. They are:
(1) Lawsuits initiated due to disputes arising from the establishment, dissolution or liquidation of a legal person or other organization within the territory of the PRC, as well as the validity of resolutions made by such legal person or other organization;
(2) Lawsuits initiated due to disputes relating to the validity of intellectual property rights examined and granted within the territory of PRC.
Lacking explicit legal provisions, it has so far not been entirely clear under PRC law whether lawsuits mentioned in the above items (1) and (2) are allowed to be subject to foreign court jurisdiction. Article 279 of the New CPL has now clarified this, i.e. such lawsuits shall not be subject to foreign court jurisdiction, but the exclusive jurisdiction of People’s Courts.
To be noted is that the exclusive jurisdiction of People’s Courts under the New CPL does not exclude arbitration. According to Article 529 of the Interpretation of the PRC Supreme People’s Court on the Application of the Civil Procedure Law (effective since 1 April 2022, “SPC Interpretation”), for cases which are under the exclusive jurisdiction of People’s Courts according to Articles 34 (i.e. disputes in relation to real estate, port operation and inheritance) and Article 273 of the Old CPL, the parties involved shall not agree on the choice of jurisdiction of a foreign court, unless the parties agree on the choice of arbitration. We expect that this SPC Interpretation will be accordingly updated soon to reflect Article 279 of the New CPL. Therefore, although all lawsuits mentioned in Article 279 of the New CPL are subject to the exclusive jurisdiction of People’s Courts, the relevant parties can still agree on an arbitration clause to resolve related disputes through a Chinese or a foreign arbitration institution. It is also common practice for joint venture contracts to agree on arbitration.
d) Conflict of court jurisdiction (new Article 280 to 282 of the New CPL)
Article 280 to 282 of the New CPL are new provisions regulating conflict of jurisdiction between People’s Courts and foreign courts. The principles are as follows.
(1) If a lawsuit has been initiated simultaneously to a People’s Court and a foreign court, such People’s Court may accept the lawsuit, if it has jurisdiction according to the New CPL.
(2) The People’s Court may decide not to accept the lawsuit if the parties have agreed on an exclusive foreign court’s jurisdiction which neither violates any provisions of the New CPL on the exclusive jurisdiction of People’s Courts nor concerns the sovereignty, security or social public interests of the PRC.
(3) The People’s Court may decide to suspend an accepted lawsuit if the relevant party applies in writing for suspension based on the reason that a foreign court has accepted the lawsuit before the People’s Court did so, unless either of the following conditions are fulfilled:
(a) The parties have agreed on the People’s Court’s jurisdiction or the dispute is subject to the exclusive jurisdiction of the People’s Court; or
(b) It is obviously more convenient for the People’s Court to hear the lawsuit.
The People’s Court may, upon a party’s application, resume a suspended lawsuit. if the foreign court has failed to adopt necessary measures to hear the case or to conclude the case within a reasonable period of time.
(4) The People’s Court may reject a lawsuit and inform the plaintiff to raise the lawsuit to a more convenient foreign court, if the defendant has filed a jurisdiction objection and all of the following conditions have been fulfilled:
(a) It is obviously inconvenient to hear the case because the basic facts of the dispute did not take place within the territory of the PRC;
(b) The parties have not agreed on the People’s Court’s jurisdiction;
(c) The case is not subject to the exclusive jurisdiction of a People’s Court;
(d) It is more convenience for a foreign court to hear the case.
If, after the People’s Court has rejected a lawsuit, the relevant foreign court has refused to exercise its jurisdiction over the lawsuit, or failed to adopt necessary measures to hear the lawsuit or to conclude the case within a reasonable period of time, and the relevant party has initiated the same lawsuit to the People’s Court again, the People’s Court shall accept the lawsuit.
In fact, Article 280 to 282 of the New CPL are not entirely new under PRC Law. Similar provisions exist already in the SPC Interpretation. They have now been modified and transformed into law under the New CPL. Article 280 to 282 of the New CPL provide People’s Courts with a legal basis to potentially extend their jurisdiction over foreign-related disputes. Parties to foreign-related contracts are recommended to get familiar with these provisions in order to effectively tailor-make the dispute resolution clauses in their contracts.
2. Service of foreign-related litigation documents (amended Article 283 of the New CPL)
Article 283 of the New CPL (i.e. the amended Article 274 of the Old CPL) stipulates ten methods of service of litigation documents on a recipient without a domicile within the territory of the PRC. These methods are as follows (with the amended and newly added parts under the New CPL marked in bold):
(1) Service in accordance with the methods provided for in international treaties concluded or jointly acceded to by the country where the recipient is located and the PRC;
(2) Service through diplomatic channels;
(3) Service through entrusting the embassy or consulate of the PRC in the country where the recipient of Chinese nationality is located;
(4) Service on a litigation proxy entrusted by the recipient in the concerned case [instead of: service on a litigation proxy entrusted by the recipient for receiving on behalf of the recipient];
(5) Service on the wholly-owned enterprise, representative office, or branch established by the recipient within the territory of the PRC, or to a business agent authorized to be serviced;
(6) If the recipient is a foreigner or stateless person who serves as the legal representative or a main responsible person in a legal person or other organization established within the territory of the PRC and is a joint defendant with such legal person or other organization, service on such legal person or other organization;
(7) If the recipient is a foreign legal person or other organization, the legal representative or main responsible person of which is located within the territory of the PRC, service on such legal representative or main responsible person;
(8) Service by mail, if permitted in the country of the recipient. If the certificate of service is not returned after three months from the date of mailing, but it is sufficient to determine that service has been made according to various circumstances, the litigation documents shall be deemed to have been served on the date of expiry of a three months’ period;
(9) Service by electronic means which can confirm the recipient's receipt, unless such electronic means are prohibited by the laws of the country where the recipient is located;
(10) Service by other means agreed upon by the recipient, unless such means are prohibited by the laws of the country where the recipient is located.
If litigation documents cannot be served by the above means, they shall be served by a public announcement and be deemed to have been served after 60 days [instead of: three months].
According to the introduction of the Legal Affairs Commission (Civil Law Office) of the Standing Committee of the NPC, Article 283 of the New CPL should solve the practical difficulties in serving litigation documents in foreign-related cases. Therefore, the previous restriction “for receiving on behalf of the recipient” in the above item (4) has been deleted so that the litigation proxy of the recipient does not need to be explicitly entrusted for receiving litigation documents. Further, the additional legal form of a wholly-owned enterprise established by the recipient in the PRC (above item (5)) will expand the servable group because a wholly-owned enterprise (e.g. a wholly foreign-owned enterprise with one or more foreign shareholders) is a common investment vehicle compared to a representative office or a branch. This also means that if the recipient has established a joint venture in the PRC, service cannot be made on such joint venture. However, if a foreigner or stateless person serves as the legal representative or a main responsible person in a legal person or other organization within the PRC, as long as the other conditions in the above item (6) are met, such legal person or other organization, regardless of its legal form, can be served on. Especially, for foreign corporate investors, litigation documents can now be served on their legal representatives or main responsible persons located in the PRC according to the above item (7). This will increase the chances of success for service on foreign companies.
The New CPL does not define the term “main responsible person”. In our view, they include, at least, directors (or an executive director in lieu of a board of directors), supervisors and senior management personnel of a company as stipulated in Item 12 of the Summary of Panel Discussion on Foreign-related Commercial and Maritime Trial Work of Courts Nationwide (“SPC Summary”, issued by the SPC on 31 December 2021). According to the PRC Company Law, “senior management personnel” are managers, deputy managers and persons responsible for finance. We do not exclude the possibility that this term will be further defined in the to-be updated SPC Interpretation. It is also possible that the Chinese legislator has intentionally left a definition open so that People’s Courts will be allowed to decide in their discretion who is a main responsible person on a case-by-case basis.
Article 283 of the New CPL has further shortened the time period of service by public announcement from three months to 60 days. This will increase the efficiency of service of foreign-related litigation documents.
3. Collection of evidence overseas (new Article 284 of the New CPL)
According to the new Article 284 of the New CPL, a People’s Courts may, upon a party’s application, investigate and collect evidence located outside the territory of the PRC according to an international treaty entered into or jointly acceded to by the country where the evidence is located and the PRC or through diplomatic channels. Unless prohibited by the law of the country where a party or a witness is located, a People’s Court may entrust the Chinese embassy or consulate in that country to collect evidence or collect evidence through instant communication tools or by other means agreed by the parties.
Up to now, the PRC has concluded treaties on mutual judicial assistance in civil and commercial matters with approximately 40 countries and regions. Such treaties usually cover mutual assistance in collecting evidence among the contracting parties. For safety, it is recommendable for contractual parties to, while negotiating on a contract to be signed, check whether the country or region of the other party has concluded a treaty with the PRC on mutual assistance in collection of evidence and, if there is no such treaty, agree on individual methods for evidence collection.
4. Recognition and enforcement of court judgements and arbitration awards
a) Arbitration awards (amended Article 297 and 304 of the New CPL)
Amendments in this regards concern Article 287 and 290 of the Old CPL. According to the old law, currently, a claimant shall apply directly to the competent foreign court for recognition and enforcement of an arbitration award rendered within the PRC, if the defendant or its property is not located within the territory of the PRC. Vice versa, a claimant shall apply directly to the competent Intermediate People’s Court for recognition and enforcement of an arbitration award rendered outside the territory of the PRC, if the defendant or its property is located within the PRC.
According to Article 297 and 304 of the New CPL, “shall” in the above two articles has been amended to “may”. This means that the claimant in both cases will be allowed to select between a People’s Court or a foreign court for recognition (if necessary) and enforcement of the arbitration award.
The advantage of such amendments is that a claimant who has received the arbitration award in one country will not need to, if required at all, apply for recognition of the arbitration award to a court in another country (see the function of the “New York Convention” in the next paragraph). At least under PRC law, arbitration awards rendered by arbitration institutions within the PRC can be directly enforced by a competent Intermediate People’s Courts without an additional recognition process. However, the disadvantage is that, for instance, if a People’s Court has decided on the enforcement of an arbitration award rendered within the PRC against a defendant or its property outside the PRC, it will still need to seek recognition and enforcement by the competent foreign court according to a concluded international treaty on mutual recognition and enforcement of judgements (“REJ Treaty”) or based on the principle of reciprocity. Currently, there are about 35 countries and regions with which the PRC has each concluded an REJ Treaty. Among them, however, there are only 3 Western European countries (i.e., France, Italy and Spain). Thus, due to lack of an REJ Treaty between the PRC and most of the other, in particular Western European countries and regions, REJ in the PRC is very difficult and unpredictable. And whether reciprocity exists within the relationship between the PRC and another country or region is often a disputable issue and very much depends on individual cases.
Therefore, it is normally recommendable for a claimant to apply for enforcement of an arbitration award to the competent Intermediate People’s Court or foreign court where the defendant or its property is located. If such location is different to the country or region where the arbitration award has been rendered, the arbitration award can usually be enforced according to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) ("New York Convention"). Since the PRC is a contracting State to the New York Convention, an arbitral award issued in another member State of the New York Convention shall be recognized and enforced in the PRC and vice versa.
b) Court judgments (new Article 300 – 303 of the New CPL)
The new Article 300 of the New CPL concerns the cases where a People’s Court shall not recognize or enforce an effective judgement of a foreign court. The content of this Article has already been stipulated in Item 46 of the SPC Summary, but now been transformed into law. Such cases are:
(1) The foreign court has no jurisdiction over the case according to Article 301 of the New CPL, i.e.
(a) The foreign court has no jurisdiction according to the law of the country of the foreign court or, although it has jurisdiction according to the law of its country, it has no appropriate connection to the concerned dispute;
(b) The jurisdiction of the foreign court violates the exclusive jurisdiction of a People’s Court over the case according to the New CPL;
(c) The jurisdiction of the foreign court violates the agreement of the parties on an exclusive court jurisdiction.
(2) The defendant has not been lawfully summoned, or has not been given a reasonable opportunity to make or debate despite being lawfully summoned, or the party without litigation capacity has not been properly represented;
(3) The judgment or ruling by the foreign court was obtained fraudulently;
(4) A People's Court has already rendered a judgment or ruling on the same dispute, or has recognized a judgment or ruling made by a court of a third country on the same dispute;
(5) There is or would be a violation of the basic principles of PRC law or harm of the national sovereignty, security, or the public interest of the PRC.
Further, according to the new Articles 302 and 303 of the New CPL, a People’s Court may suspend a lawsuit, if it concerns the same dispute as concerned in the effective judgement or ruling of a foreign court for which a party has applied to the People’s Court for recognition and enforcement. However, the People’s Court shall resume the lawsuit if the judgement or ruling of the foreign court does not meet the conditions of recognition under the New CPL. The resumed lawsuit shall be eventually rejected, if the People’s Court rules to recognize and enforce the foreign court’s judgement or ruling according to the New CPL. If a party is dissatisfied with the ruling of the People’s Court to or not to recognize and enforce a foreign court’s judgement or ruling, it may apply to the next higher level People's Court for reconsideration within ten days of service of the ruling.
Articles 300 – 303 of the New CPL basically provide for more clarity on when a People’s Court shall not recognize or enforce a foreign court’s judgment. This will make a “negative” decision of the People’s Courts more predictable. However, the New CPL does not contribute to shedding light on any tendency of recognition and enforcement of foreign courts’ judgements within the PRC. Therefore, the general principle on this topic remains unchanged: unless the PRC has concluded an REJ with a foreign country or region, whether a People’s Court will recognize and enforce a foreign court’s judgement is still subject to the principle of reciprocity. REJ generally still remains difficult and unpredictable in the current PRC courts’ practice.
c) Law on the Immunity of Foreign States (new Article 305 of the New CPL)
This is the last new provision under the New CPL. It stipulates that the PRC laws in relation to the immunity of foreign States apply for civil litigation concerning a foreign State. The New CPL applies if the relevant law does not contain any provisions.
On 1 September 2023, the Standing Committee of the NPC of the PRC released the PRC Law on the Immunity of Foreign States which will take effect on 1 January 2024. According to this law, if a foreign State has entered into an agreement in writing according to which a dispute arising out of a commercial activity between the foreign State and an organization or an individual of another State, including the PRC, is submitted to arbitration, or a foreign Sate has agreed in an international investment treaty or otherwise in writing to submit an investment dispute between the foreign State and an organization or an individual of another State, including the PRC, to arbitration, the foreign State shall not enjoy immunity from the jurisdiction of a People’s Court over, among other matters, the recognition and enforcement of the arbitration award. Such matters shall be subject to review by the competent People’s Court.
Therefore, Article 305 of the New CPL echoes the promulgation of the Law on the Immunity of Foreign States. It will apply, if the Law on the Immunity of Foreign States lacks a certain specific provision on the jurisdiction of People’s Courts.
Conclusion
The amendment of the Old CPL is necessary to keep pace with the growing demand for solving procedural problems in foreign-related lawsuits. Such problems have become more and more frequent and complicated due to the continuous economic development and further opening up for foreign investment in China. However, the practical implementation of the New CPL after 1 January 2024 still remains to be seen. In practice, if the parties to a foreign-related contract want to avoid potential uncertainties connected with court jurisdiction, or if they want to avoid court jurisdiction at all, they are recommended to agree on an arbitration clause in their contract. Under PRC law, the parties to a foreign-related contract may either choose a Chinese or a foreign arbitration institution, while arbitration between two PRC parties can only be conducted before a PRC arbitration institution.
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