Professional Interpretation

Abstract: the jurisdiction clause is an essential precondition for resolving contract dispute. In the event that the jurisdiction is not stipulated in contract while neither of the place where the contract is signed or performed is in China, China courts can still assert jurisdiction as long as defendant has distrainable property within territory of China. Other than that, it would not affect China court’s jurisdiction that the same case have been accepted by a foreign court.

I. Introduction

The issue we will discuss here is in which situation a China court is able to exercise jurisdiction when forum court is not stipulated in an International Sales Contract. For foreign companies who run business in China, learning jurisdiction rules can be useful in predicting dispute resolving result.

II. Case brief

Case name: dispute over International Sales Contract between American company A and Xuzhou Company X.

Case index: (2014) Suzhou bus. Foreign Jurx. Final No. 0010

Case facts: Plaintiff: American company A

Defendant: Xuzhou company (hereinafter referred to as “company X”)\

On August 8, 2013, a suit was filed to Xuzhou Intermediate People’s Court (hereinafter referred to as “Xuzhou Intermediate Court”) by Company X against Company A for breaches in performance. On April 6, 2006, in Xuzhou, China, Company X signed an Exclusive Tire Distribution Agreement with Company A for distributing Apmour tire. It is prescribed in the clause 11 that if any dispute arises from this contract, after negotiating, either party has rights to file to Los Anglos court or relevant China court for an adjudication. Controversy arose in performance of contract. Company A answered that the jurisdiction clause is invalid, since the place of defendant domicile and where the contract is performed are within the territory of US, China Court has no jurisdiction.

Also, Company A claimed in answer that it has brought a suit against Company X to Los Angeles County Superior Court. Company X has answered and filed a counterclaim which consists of exactly same pleadings as in the current case. Such action demonstrates Company X has agreed upon the jurisdiction of American court over this controversy hence the jurisdiction of China court is excluded. All facts above is supported by evidence.

III. Court opinion

Decision of Court of first instance: the Xuzhou Intermediate Court believes that despite the existence of dispute resolution clause in the Exclusive Tire Distribution Agreement, the content of such clause is vague. Therefore, such clause should be deemed not excluded jurisdiction of China court. In the meantime, pursuant to the I-94 record of a representative of Company X who signed the agreement, along with affidavit of a witness testifying that the contract was signed in Xuzhou, as set in the Civil Procedure Law of People’s Republic of China, Xuzhou Intermediate Court is able to exercise jurisdiction over this controversy.

With regard to the fact that company X answered and filed a counterclaim to the Los Angeles County Superior Court, according to Second National Adjudication Working Meeting Minutes, Supreme Court elaborated that acceptance of a case by a foreign court has no effect on exercising jurisdiction by China court. Moreover, Xuzhou Intermediate Court believes that it is appropriate for it to claim jurisdiction. Consequently, the objection on jurisdiction is overruled for the reason that the arguments for such objection cannot be established.

Decision of Xuzhou Intermediate Court: the jurisdiction clause in tire Exclusive Tire Distribution Agreement signed by Company X and Company A is invalid. In the light of article 265 of Civil Procedure Law of People Republic of China, since Company A has distrainable property within territory of China, Xuzhou Intermediate Court has jurisdiction for it is located at where the distrainable property is. It has no effect on trial of this case that LA court exercised jurisdiction. As to the fact whether or not the Exclusive Tire Distribution Agreement has been signed in Xuzhou, since this fact does not sway the determination of jurisdiction, the court shall not decide on this issue. In conclusion, the first instance court has adjudicated appropriately, therefore, judgment upheld.

IV. Issues in controversy

a) Since defendant has distrainable property in China, China court retains jurisdiction over controversy.

Based on article 30 of Interpretations of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China, in the current case, if parties reached an agreement on jurisdiction before filing the suit, the said agreement shall prevail. As in this case when the jurisdiction could not be agreed upon, and where the defendant domicile together with where the contract was performed are located in the U.S. while defendant has distrainable property in China, thus both U.S and China has substantial connection with the claim. Therefore, both China and the U.S court could assert jurisdiction over this dispute.

b) The fact that the case has been accepted by a foreign court, does not affect exercising jurisdiction by China court.

According to article 10 of the Second National Adjudication Working Meeting Minutes, when China and foreign country both have jurisdiction over the same case, even though the party has brought a suit to foreign court, it does not affect China court exercising jurisdiction.

V. Risk avoidance tips for International Sales Contract concluded from this case

a) The internationality of Sales Contract is determined by their places of business instead of their nationalities.  

For instance, in the event that both parties are companies incorporated in the U.S, so long as the defendant has distrainable property in China, China court retained jurisdiction. To be noted, whether or not the case would be accepted by China court is subject to the court discretion.

b) The analysis of scenarios of determining the jurisdiction in International Sales Contract.  

In the International Sales Contract, if the Party has agreed upon the dispute resolution method, then said agreement prevails. If there is no agreement reached, the jurisdiction could be classified in a few situations.

i. The agreed jurisdiction prevails when agreement does not violate exclusive jurisdiction

Because Civil Procedure Law does not specially regulate the jurisdiction agreed by both parties in foreign-element-involved cases, thus China court shall apply the article 34, agreed jurisdiction of domestic civil action, to decide whether the agreed jurisdiction is valid. According to article 34 in civil procedure law, in the case either of the five locations, which are where defendant domiciles, where the contract is performed or signed, where the plaintiff domiciles or where the subject matter is, locates outside China, then the parties could negotiate to set a foreign court as forum.

To be noted, according to article 266, if the disputes arise from the performance of contracts for “Chinese-foreign equity joint ventures, or Chinese-foreign contractual joint ventures, or Chinese-foreign cooperative exploration and development of the natural resources in the People's Republic of China”, then the parties are only able to agree upon the jurisdiction by courts of China.

ii. Parties agree upon arbitration so to exclude the jurisdiction of court.

According to China law, the parties in the foreign-element-involved disputes could set an arbitration tribunal as the dispute resolving institute, as in article 126 of Contract Law and article 271 in Civil Procedure Law. Furthermore, “other arbitral body” refers to foreign arbitration institute and temporary arbitration tribunal. Therefore, parties could stipulate arbitration institute so that to prevent China court exercising jurisdiction.

iii. Statutory jurisdiction varied on whether defendant resides in China.

China laws regarding statutory jurisdiction over International Sales Contract could be summarized as below:

If defendant has domicile in China, then plaintiff could bring a suit to the court located in where the defendant’s domicile is or where the contract is performed.

If defendant has no domicile in China but the contract has been signed or performed in China, or the subject matter is located in China, or defendant has distrainable property in China, or defendant has a representative office in China, then the court located in above mentioned location could exercise jurisdiction over the dispute.   

c) China courts also apply Forum Non Conveniens principle.

Since plaintiff is given the liberty to choose forum, she is likely to bring a suit to a court which is inconvenient for defendant. Although said court has jurisdiction over disputes, proceeding trial there would bring undue hardship to defendant. As prescribed in Judicial Interpretation of Civil Procedure Law, the court could act sua sponte to dismiss the case without prejudice and allow case be filed in a different jurisdiction.

d) Concurring of torts and breach of contract

Act of torts and breach of contract commonly appears in a same dispute. Under this situation, the parties should cautiously choose among multiple forums in light of the best interests of themselves.

VI. A viewpoint in practice

The determination of jurisdiction is a preliminary issue to be solved in the International Sales Contract dispute. In most cases, such contract is performed cross-borders thus multiple countries have jurisdiction in the same time. For a company, proceeding a case abroad could be extremely costly. On one hand, writing evidence need to be notarized, exhibits need to be authenticated and witnesses might need to travel aboard. On the other hand, even when one party wins, it is time-consuming to apply for enforcement of a foreign judgment. So there are our suggestions:

a) Stipulate the jurisdiction

Choose a forum among the five locations below you would like to resolve the potential dispute: plaintiff’s domicile, defendant’s domicile, where the contract signed or performed and where the subject matter is located. As you may notice, since it’s hard to tell who will sue whom before the disputes arise, we suggest you choose courts located other than plaintiff’s or defendant’s domicile .

b) Specified the only Country who has jurisdiction.

As indicated in this case, when the dispute resolve clause is vague, it will be deemed invalid. As a result, you may want to specify the one and the only country who shall exercise jurisdiction over potential dispute.

c) Ask yourself if you have distrainable property in China.

If a property is distrainable, then it has to be, at least, tangible. Ask yourself if you have any such property in China. Because if you do, even your dispute has nothing to do with China, theoretically although unlikely, China court could assert jurisdiction over your dispute. It would be in vain if you try to persuade the court to dismiss the case because of a previous foreign judgment against you, for collateral estoppel does not apply internationally.

VII. Conclusion

To conclude, as a foreign company, when you sign an International Sales Contract, on one side, make sure you specify the only forum court and try your best to avoid potential application of forum non convenien principle. On the other side, keep an eye on your property in China in order to prevent potential double judgment.

Disclaimer

While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. The professional articles of Docvit Law Firm WeChat Official Account are all original to our lawyers team.If you need to reprint, please leave a message on our WeChat background.Please do not reprint without authorization.