Selecting the competent court and governing law in Taiwan-related cases

Article 5 of the Provisions of the Supreme People’s Court (SPC) on Several Issues Concerning Jurisdiction in Foreign-Related Civil and Commercial Cases specifies that reference is to be made to the provisions when dealing with the issue of jurisdiction in civil and commercial disputes involving parties from Taiwan, determining that reference is to be made to regulations on foreign-related civil and commercial cases when instituting legal action on the mainland in Taiwan-related civil and commercial cases. In practice, courts do indeed try Taiwan-related commercial cases in accordance with regulations on foreign-related civil and commercial cases.

The selection of the competent court and governing law in relevant cases is the major condition on which Taiwan-related commercial cases can be instituted in mainland China.

Determining the competent court

Pursuant to article 3 of the foreign-related provisions, the following types of cases constitute foreign-related civil and commercial cases: (1) foreign-related contract and tort disputes; (2) letter of credit disputes; (3) applications for vacating, recognizing and enforcing international arbitration awards; (4) examinations of the validity of foreign-related civil and commercial arbitration clauses; and (5) applications for the recognition and enforcement of civil and commercial judgments and rulings of foreign courts.

Articles 17 to 20 of the Civil Procedure Law specify that basic-level courts are the competent courts at first instance for Taiwan-related commercial cases, save for material foreign-related cases, where Intermediate People’s Courts are the competent courts at first instance, or cases that have material impact in courts at a certain level, where the courts at such level are determined be the competent courts at first instance. However, due to the varying circumstances in different regions, the determination of material foreign-related cases, and of those that have a material impact in the jurisdiction in question, are handled by referring to other regulations of the SPC or those of a higher-level court for lower-level courts, or those of the lower-level court.

When selecting a competent court, article 265 of the Civil Procedure Law specifies that, in Taiwan-related commercial cases, in addition to invoking the basic principle that the “plaintiff accommodates the defendant”, where the defendant does not have a domicile in mainland China, the people’s court of the place where the contract was executed, the place where the contract was performed, the place where the subject matter of the legal action is located, the place where seizable property is located, the place where the tort occurred or the place where the representative office is domiciled, may exercise jurisdiction.

Article 266 of the Civil Procedure Law also notes: legal actions instituted in connection with disputes over the performance in mainland China of Sino-foreign EJV contracts, Sino-foreign CJV contracts and Sino-foreign CJV for the exploration and development of natural resources, fall under the jurisdiction of a people’s court in mainland China.

Selection of governing law

Pursuant to the first paragraph of article 126 of the Contract Law, unless otherwise provided in law, the parties to a foreign-related contract may select the law that is to govern when handling contract disputes. Based on this provision, the following three points need to be explored:

First, what does “unless otherwise provided in law” mean? The main restriction on free selection of the governing law by parties to a foreign-related contract is found in the second paragraph of article 126 of the Contract Law, namely that the governing law for the performance in mainland China of Sino-foreign EJV contracts, Sino-foreign CJV contracts and Sino-foreign CJV for the exploration and development of natural resources, is the law of China.

Second, can Taiwan law be selected as the governing law? Pursuant to article 1 of the Provisions of the Supreme People’s Court on the Issue of the Application of the Law in the Trial of Taiwan-Related Civil and Commercial Cases, where the governing law principle is selected and application of Taiwan civil law is determined pursuant to laws and judicial interpretations, the people’s court will apply the same. Accordingly, in a Taiwan-related commercial case, if the contract provides, or it is deemed in accordance with legal principles that Taiwan law is to govern, the people’s court is required to apply Taiwan law in the trial of the case, unless such law violates the fundamental principles of state laws or runs counter to the public interest, in which case it may not be applied (refer to article 3 of the Taiwan-related provisions).

Third, if the parties to a foreign-related contract have not provided for the governing law, what is to be done? The first paragraph of article 126 of the Contract Law specifies that where the parties to a foreign-related contract have not selected the governing law, the law of the country with the closest connection to the contract governs. Article 41 of the Law on the Application of Laws to Foreign-Related Civil Relationships specifies that when the parties have not selected the governing law, the law of the place where the party the performance of whose obligations most closely reflects the features of the contract, is permanently resident, or other law that is most closely connected to the contract, is to govern.

The Interpretations of the Supreme People’s Court of Several Issues Concerning the Application of the Law of the People’s Republic of China on the Application of Laws to Foreign-Related Civil Relationships (1) established the sequence for the governing law for foreign-related contracts and foreign-related civil relationships, namely international treaties take priority, domestic laws come second and international practice comes third. Article 5 of the law specifies that if the applicable foreign law would harm the public interest in China, that foreign law will not be applied, and only the laws of China will govern. Although article 19 of the interpretations does not expressly state that the interpretations apply to Taiwan-related civil relationships, this column would argue that, in practice, a court would use the same principle to handle such a matter.

Equal treatment

Pursuant to article 2 of the Taiwan-related provisions, a party from Taiwan participating in a legal action concerning a commercial case before a people’s court has the same litigation rights and obligations as the party from mainland China and his lawful rights and interests are subject to equal protection. Accordingly, in terms of the two issues of the competent court and governing law, the parties from either side of the Taiwan Strait are subject to consistent and equal treatment.

Alex Hsin is a senior partner and Craig Zhou is an associate at Martin Hu & Partners