Foreign-related preliminary questions in cross-border disputes

By Yvonne Lu, Martin Hu & Partners
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With the flood of new-type foreign-related cases in cross-border disputes, a Chinese court may face difficulties dealing with the preliminary question. In the trial of foreign-related case A where the Chinese court has jurisdiction but the case is dependent on the outcome of the trial of case B pending in another jurisdiction, or if the Chinese court has jurisdiction over case B but trial by a Chinese court is deemed inconvenient, how should a Chinese court deal with the preliminary question?

Yvonne Lu Counsel Martin Hu & Partners
Yvonne Lu
Counsel
Martin Hu & Partners

In the first part of this article published in the previous issue, the author analyzed the circumstances under which preliminary questions could be involved by examining two examples, particularly looking at cross-border dispute cases in which the author had acted as counsel. In continuation, the author proposes to summarize the two situations of preliminary questions, the governing law, the method of resolution and adjudication steps by taking into account the views of theoretical circles, real-world cases presented in the previous issue and the adjudication experience of judges.

PRELIMINARY QUESTIONS

Two situations. Preliminary questions in private international law can be: (1) the principal question is subject to domestic law and the preliminary question is a foreign-related legal question, and (2) both the preliminary question and the principal question are foreign-related legal questions. Both of the company licence/certificate return cases presented in the previous issue fall into the former category.

Determination of the governing law. There are two arguments in theoretical circles, one that the law of the country whose legislation governs the principal question should determine the law governing the preliminary question, and the other that it should be determined based on the law of the place where the court is located. However, with the increasing number of cases relating to preliminary questions in practice and the increasing complexity and variety of types, it is now difficult to use a single rule to determine the law that governs a preliminary question. The judges in the Bading case (see the previous issue) adopted the case analysis theory, which has arisen in recent years, namely that there is no uniform mechanical method for resolving the preliminary question in each case, and that the determination needs to be made based on the relationship between the countries whose laws govern the preliminary question and the principal question, on the one hand, and the country where the court is located.

Method of resolution and adjudication steps. (1) Looking at the circumstances of the two cases presented in the previous issue, where a judgment or ruling has not been rendered on the preliminary question by the court of another jurisdiction, two issues need to be considered: firstly, the examination by the Chinese court that accepted the principal question as to whether it has jurisdiction over the preliminary question. If it does not, it can suspend the trial of the principal question and tell the parties to institute a legal action in the competent extraterritorial court within a certain period of time to obtain a judgment on the preliminary question. Secondly, if it does have jurisdiction over the preliminary question, it needs to further consider whether it is convenient for it to try the preliminary question. If convenient, it can try the preliminary question with the principal question, and may even try them together by adding third parties. If not convenient, it will likewise suspend trial of the principal question and tell the parties to institute, within a certain period of time, a legal action in respect of the preliminary question with the competent extraterritorial court that can try it more conveniently.

(2) In contrast to the two cases mentioned in the previous issue, if the extraterritorial court has rendered a judgment or ruling on the preliminary question, one possibility is that the case relating to the preliminary question has been recognized (and enforced) by a Chinese court in this case the facts determined in the recognized (and enforced) judgment or ruling of the extraterritorial court equate to the facts determined in the judgment or ruling of the Chinese court. Another possibility is that if the above mentioned judgment or ruling on the preliminary question has not been recognized by a Chinese court, current laws and judicial interpretations are silent on whether the judges can treat the extraterritorial judgment or ruling as evidence. Scholars argue that the court trying the principal question is required to examine, in accordance with regulations on jurisdiction, whether the court that rendered the judgment or ruling has jurisdiction over the preliminary question. If it does, it can refer to the approach in China Agricultural Finance Company Limited v Guangdong Samsung Enterprise (Group) Company Axle Company Limited. The loan security dispute case tried by the Supreme People’s Court treated the preliminary question as evidence and confirmed it if the parties had no counter evidence. And if it does not, it may be deemed that there is no judgment or ruling relating to the preliminary question.

CONCLUSION

Where a court does not have jurisdiction over the preliminary question or has jurisdiction but finds it inconvenient to try the question, if the court tries the preliminary question with the principal question, the litigation rights of the parties to the preliminary question may not be accorded the protections that they are entitled to. Under such circumstances, the fairness of the judgment rendered by the court on the rights-obligation relationship between the parties will be questionable and it is possible this ruling will be unable to secure recognition and enforcement in other relevant countries (particularly the country that deems itself to have jurisdiction over the preliminary question).

The two cases mentioned in the previous issue are different examples on foreign-related preliminary questions in cross-border dispute resolution. In the case of a company A licence and certificate return, the court trying the principal question did not have jurisdiction over the preliminary question. In the Bading case, the court trying the principal question had jurisdiction over the preliminary question, but found it inconvenient to proceed with the trial. This latter example is one of the relatively few foreign-related commercial cases in which the Chinese court rendered a ruling on the preliminary question.

Therefore, a ruling may be rendered to suspend the trial pursuant to item (5) of the first paragraph of article 150 of the Civil Procedure Law when facing the circumstances proposed at the beginning of this column.

Yvonne Lu is a counsel at Martin Hu & Partners

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