Civil Procedure Law amendments impact provisions on negotiated jurisdiction

By Vincent Mu, Martin Hu & Partners
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Among the recent amendments to the Civil Procedure Law implemented since 1 January 2013, a significant revision has been made in respect of negotiated jurisdiction in domestic civil cases. The original article 25 reading: “the parties to a contract may agree in the written contract to choose the people’s court of the place where the defendant is domiciled, where the contract is performed, where the contract is signed, where the plaintiff is domiciled, or where the subject matter of the contract is located to be the competent court” has been revised to the current article 34 reading: “the parties in a contractual dispute or other dispute over rights and interests in property may agree in writing to choose the people’s court of a place which has an actual connection with the dispute, such as 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 of the contract is located, to be the competent court.”

The amended Civil Procedure Law draws on the provisions concerning foreign-related negotiated jurisdiction of article 242 of the original Civil Procedure Law, bringing in the concept of “actual connection” within the scope of negotiated jurisdiction, giving parties in domestic cases a greater freedom of choice. With this change, there are no longer any marked differences in negotiated jurisdiction in domestic and foreign-related cases, with legislators deleting the original article 242, but adding the unified provision on negotiated jurisdiction to article 34 of the new Civil Procedure Law.

Negative impact

The new provisions of article 34 have received wide-ranging praise, being seen as one of the key bright spots in the recent amendments to the Civil Procedure Law. However, the author recently discovered while handling a jurisdiction opposition case that the act of unifying the provision on domestic and foreign-related negotiated jurisdiction has benefited parties in domestic cases, but paradoxically could have a negative impact on parties to foreign-related agreements.

牟笛 Vincent Mu 胡光律师事务所 资深律师 Senior Associate Martin Hu & Partners
牟笛
Vincent Mu
胡光律师事务所
资深律师
Senior Associate
Martin Hu & Partners

In the case in question, a certain mainland enterprise and a certain Hong Kong enterprise concluded a sale and purchase contract specifying that all disputes would be referred to the courts of the Hong Kong Special Administrative Region for trial. Contrarily, when a dispute arose, the mainland enterprise instituted a legal action in the people’s court of the place where it is domiciled. The author was engaged by the Hong Kong enterprise to file an opposition to jurisdiction pursuant to the negotiated jurisdiction clause in the sale and purchase contract. Unexpectedly, the people’s court that accepted the suit requested that the author give an explanation as to whether the Hong Kong court selected in the negotiated jurisdiction clause was a “sole determination”.

Before 1 January 2013, the request made by the judge would have been a hypothetical question, or even an erroneous question. The requirement of so-called “sole determination” as to the selection of the court stems from the provision of article 24 of the Opinions on Several Issues Concerning the Application of the Civil Procedure Law of the People’s Republic of China reading: “if the agreement on the selection of jurisdiction of the parties to a contract is unclear, or they select two or more of the people’s courts specified in article 25 of the Civil Procedure Law to be competent courts, the agreement on the selection of jurisdiction shall be invalid”, which is solely addressed to negotiated jurisdiction in domestic cases as specified in article 25 of the original Civil Procedure Law, while foreign-related negotiated jurisdiction as specified in article 242 of the original Civil Procedure Law was free of the restriction imposed by the criterion of “sole determination”.

However, with the deletion of article 242, article 34 of the new Civil Procedure Law unifies negotiated jurisdiction in domestic and foreign-related cases, and the hypothetical question becomes a real question – as article 34 covers both domestic and foreign-related cases. Accordingly, the criterion of “sole determination” of article 24 of the opinions that corresponds with it also applies to foreign-related negotiated jurisdiction, at least in theory, thereby overturning the routine handling model long used for foreign-related negotiated jurisdiction.

Based on the author’s experience, because of the relatively large difference in the organisational systems of China and foreign courts, parties will seldom consider whether their choice is a “sole determination” when opting for foreign jurisdiction, usually only stating the country or region. For example, a typical jurisdiction clause will simply state “jurisdiction of UK courts”; such China-flavoured phrases as “jurisdiction of such and such a UK court”, or “jurisdiction of the UK court of the place where the plaintiff is domiciled” are not used.

However, under the impact of the above-mentioned legislative amendment, commonly seen negotiated jurisdiction clauses will suddenly face the risk of being invalid, not only greatly affecting the drafting of similar clauses in future, but more importantly, having a tremendous impact on the interpretation and application of the large number of negotiated jurisdiction clauses that have already been formulated.

Closing loopholes

The author is confident that the appearance of this problem stems solely from a momentary lack of attention, and does not imply that the legislators intended to bring the criterion of “sole determination” into foreign-related negotiated jurisdiction. However, in practice, once a party faces a challenge to the validity of a negotiated jurisdiction clause from this angle by the judge and/or the other party, it has no current legal provision to cite, but to provide a theory of law analysis from the perspective of the legislative intent and amendment history, which greatly adds to the uncertainty of the outcome and exposes it to huge legal risks.

In light of this, the author calls upon the legislative authority and the Supreme People’s Court to clarify this issue as soon as possible, and close this loophole by amending the Civil Procedure Law and the opinions. Additionally, until the above-mentioned measures have been taken, lawyers should pay close attention to the existence of this risk and endeavour to prevent its occurrence through such means as formulating a backup contingency plan, liaising with the parties and the judge in advance, studying and analysing the reasons giving rise to this issue and how to use legitimate grounds to return to the true legislative intent under current conditions, etc., so as to protect the reasonable and lawful expectations of concerned parties in respect of the place of jurisdiction.

Vincent Mu is a senior associate at Martin Hu & Partners

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牟笛 Vincent Mu

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