Professional Interpretation

Abstract: subrogation right, which is the guarantors recourse right against the debtor after the guarantor paying back for the debtor. In the dispute arising between guarantor and DOCVIT dispute resolve team will discuss today is if the jurisdiction agreed upon on in the main contract should be applied or the statutory jurisdiction should dominate when to exercise the subrogation right. Beijing DOCVIT dispute resolve team will discuss this problem.

A common question in the subrogation suit is Whether the jurisdiction agreed upon on in the main contract or the statutory jurisdiction should dominate when to exercise the subrogation right? 

There are two mainstream opinions on this issue. Some argue that since the subrogation right is a statutory right, it should be independent from the main contract thus the statutory jurisdiction should apply. Therefore, the court in defendants domicile or the court in performance place of the contract should exercise the jurisdiction. The other argues that, according to “Interpretation of the Supreme People's Court on Certain Issues Concerning the Application of the "Guaranty Law of the People's Republic of China” article 129, Where the objects the courts of jurisdiction agreed upon in principal and guarantee contracts are different, all returned decisions shall be based on the principal contract.

There is a typical case. The defendant D bought an apartment from plaintiff P with the down payment paid, both parties agree upon that the rest should be paid by mortgage. P is also the guarantor for the mortgage loan. Since the D didnt pay back the $10,000 dollars, the bank deduct such amount in Ps account. P brought a suit to exercise its subrogation right. The jurisdiction issue soon get in the dispute.

The court agree with the first issue mentioned above, that the subrogation right is statutory right so it is independent from the contract, except when specially agreed by the guarantor and debtor, the jurisdiction concerns subrogation right should be determined according to the principle of statutory jurisdiction. in this case, the contract didnt agree upon the jurisdiction of subrogation right, therefore the dispute concerned doesnt apply to the jurisdiction clause in the contract. In conclusion the jurisdiction court should be determined based on the article 33, contract law which is where the contract is performed or the domicile of defendant. Furthermore, according to the Interpretations of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China, In the absence of any agreement or any clear agreement on the place of performance under a contract, if the disputed subject matter is payment of monetary funds, the domicile of the party receiving the monetary payment shall be the place of performance of the contract.

We agree on the court judgment. Although some would insist that the jurisdiction should be determined by the main contract. the supporting evidence comes from Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China article 129, the jurisdiction shall be determined on the basis of the principal contract when a dispute of principal and guarantee contracts is brought to court. Where a dispute of joint liability security is brought to court and the creditor claims against the guarantor, such lawsuit shall be under the jurisdiction of the court where the guarantor established domicile. In fact, this clause does not rule the justification court for the subrogation dispute because of its special characteristic. The subrogation is independent from the debt relationship and the guarantee relationship. Different from other disputes arising solely from a contract, the subrogation dispute is established based on the existence of two legal relationships along with one fact base. One of the legal relationship is the main contract exist between the debtor and creditor. The other is ancillary contract relationship between the creditor and guarantor. The one fact base is the guarantor has performed the contract debt for the debtor. Those factors complicates the establishment of the subrogation legal relationship and also endow it a unique characteristic distinguish from other contract relationship.

If there is an exclusive jurisdiction existing in the main contract, does the exclusive jurisdiction also apply to the subrogation suit? Our answer is no. the principle applied in the exclusive jurisdiction is the closest nexus. In the typical case involved with a property, in order to execute the judgment like sealing up or auction, the jurisdiction court should be in where the property is. Differently, the performance in the subrogation suit doesnt concern the subject matter anymore. Therefore there is no need to apply the exclusive jurisdiction in this case. In conclusion, in case there is exclusive jurisdiction in the main contract, the jurisdiction court should still be determined according to the contract law, where is the defendant domicile or the guarantors domicile.