China Justice Observer

中国司法观察

Jurisdiction by Agreement in China: Exclusive or Non-exclusive?

Thu, 17 Sep 2020
Categories: Insights
Contributors: Zilin Hao 郝梓林
Editor: C. J. Observer

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In Chinese judicial practices, unless the jurisdictional clause stipulates that is "non-exclusive", it is more likely that the agreement of jurisdiction would be deemed as "exclusive". 

Article 531 of the Judicial Interpretation of PRC Civil Procedure Law (hereinafter “the CPL Interpretation”) clearly provides that the parties to foreign-related contracts or other property rights disputes may choose a foreign court that has a substantial connection to the dispute by a written agreement. However, China has no specific legal provisions on how to identify the exclusive or non-exclusive jurisdiction by agreement. In practice, Chinese courts have given a confirmed answer that the jurisdiction of the chosen court shall be held exclusive in principle, unless the parties expressly make it as non-exclusive in the jurisdiction clause.

I. When Do the Courts Characterize a Jurisdiction Agreement as Non-Exclusive?

If and only if the jurisdiction agreement is clearly "non-exclusive", shall the Chinese courts hold the agreed jurisdiction non-exclusive. According to Article 531 of the CPL Interpretation, the party autonomy over the court jurisdiction of a foreign-related contract or other property rights dispute shall be permitted and respected as long as 1) the agreement is made in writing, 2) the chosen court has a substantial connection to the dispute, and 3) the case is not under the exclusive jurisdiction of Chinese courts. 
 
In ABAXLOTUSLTD. v. Zhang Zhengyu, [1] the plaintiff ABAXLOTUS Ltd. was registered at the Cayman Islands, concluded an Investor Rights Agreement with the defendant, Zhang Zhengyu (hereinafter "Zhang"). The parties agreed that "[e]ach group company and the controlling shareholders agree to bring any litigation against them that arises from or is based on this agreement or the transactions considered in this agreement or legal proceedings can be filed in any state court in New York City and New York County or the United States Federal Court, and irrevocably accept the non-exclusive jurisdiction of such courts in any litigation, legal action or procedure". After disputes arose, ABAXLOTUSLTD filed a suit against Zhang before the Changping District People's Court (hereinafter "Changping Court") where the defendant was domiciled. Zhang failed to challenge the jurisdiction of the court. [See the court ruling rendered by Changping Court, (2015) Chang Min (Shang) Chu No. 09248 ((2015) 昌民(商)初字第09248号)]
 
Zhang appealed to the Beijing First Intermediate People’s Court (hereinafter "Intermediate Court"). However, it was rejected, and the original ruling was upheld. The Intermediate Court held that the jurisdiction of the New York court is clearly stated as non-exclusive in the jurisdiction clause, which means the parties have more options on the jurisdiction and they can file a suit either in a court under the choice of court agreement or a court with statutory jurisdiction. Zhang was domiciled within the jurisdiction of the court of first instance, so the Changping Court has legal and appropriate jurisdiction over this case.

Similarly, in the case of Shanzheng International Securities Co. v. Yang Kai,[2] the Supreme People’s Court (SPC) held that parties to Customer Agreement and other Stock Financing Contracts clearly agreed that "[b]oth parties to this agreement accept the non-exclusive jurisdiction of the Hong Kong courts.", which means the jurisdiction of the Hong Kong courts is non-exclusive. 

II. When Do the Courts Characterize a Jurisdiction Agreement as Exclusive?

When the parties make a choice of court agreement specifying "the only court" or "excluding the jurisdiction of other courts" to clarify the exclusivity, or, there is no indication whether the chosen court is exclusive or non-exclusive, the Chinese courts usually characterize the jurisdiction agreement as exclusive. 

1. Shanzheng International Securities Co. v. Yang Kai

In this case, Shanzheng International Securities Co. (hereinafter "Shanzheng"), a Hong Kong-registered company, and Yang Kai (hereinafter "Yang") signed the Guarantee Contract on 22 Sep. 2016. Yang is domiciled in Liaoning Province, China. The Supreme People’s Court (SPC) was the second-instance court, in which Yang raised a jurisdictional objection to the disputes involving the Hong Kong guarantee contract. The Guarantee Contract provides that "[t]he guarantee is bound and interpreted by Hong Kong law, and I/We accept the jurisdiction of the Hong Kong court." 

The author believes that as to the criteria for the exclusive of the choice of court agreement, the 2005 Hague Convention on Choice of Court Agreement (hereinafter "the 2005 Hague Convention") gave explanations and it has come into force since 1st October 2015. China has signed it in 2017, but the ratification has not been finished. Although the 2005 Hague Convention has not yet entered into force for China, according to article 12 and article 18 of the 1969 Vienna Convention on the Law of Treaties (hereinafter "1969 Vienna Convention"), China is obliged to refrain from acts which would defeat the object and purpose of the 2005 Hague Convention as it has signed it.

It is worth noting that although China has not ratified the 2005 Hague Convention, the SPC positively held that according to Article 3.b) of the 2005 Hague Convention, "a choice of court agreement which designates the courts of one Contracting State or one or more specific courts of one Contracting State shall be deemed to be exclusive unless the parties have expressly provided otherwise". Therefore, the choice of court agreement in the Guarantee Contract should be deemed to be exclusive. (For a more detailed discussion on the role and impacts of the 2005 Hague Convention in China, see the post “When Will China Ratify the Hague Convention on Choice of Court Agreements?” )

2. Xu Zhiming v. Zhang Yihua

This is another case [3] involving the exclusive choice of court agreement heard by the SPC. In this case, Xu Zhiming (hereinafter "Xu") and Zhang Yihua (hereinafter "Zhang") signed an Equity Transfer Contract (hereinafter "the Contract") in Ulaanbaatar, Mongolia. As to the jurisdiction, article 7 of the Contract stipulates: "[o]nce the agreement is signed, both parties shall not go back, if any party breaches the contract, both parties can sue before the Mongolian court." Xu challenged the jurisdictional clause before the SPC, and claimed it was invalid on the grounds that the court chosen by the agreement was non-exclusive and indeterminate.

SPC held that although there is no specific designation of which Mongolian court that will have jurisdiction over the dispute, the parties can sue in an appropriate and specific court of Mongolia in accordance with the governing law, which is equally certain and determinate. Besides, the Contract did not specify that Mongolian courts have non-exclusive jurisdiction over relevant disputes. Therefore, the SPC decided that the jurisdictional clause was valid and exclusive.

III. Conclusion

In short, unless the jurisdictional clause clearly stipulates that is "non-exclusive", it is more likely that the agreement of jurisdiction would be deemed as "exclusive" in Chinese judicial practices. In other words, the Chinese courts consider the choice of court agreement to be exclusive in principle, and non-exclusive in exceptional cases. 

In case of commercial risk control, it is advisable to formulate the dispute resolution clause discreetly, such as the choice of court agreement. In Chinese judicial practice, if the parties don’t want to be constrained by the chosen court in their agreement, they shall expressly agree that the court has a non-exclusive jurisdiction in the jurisdictional clause. 

 

 

References:

[1]ABAXLOTUSLTD. v. Zhang Zhengyu, (2016) Jing 01Min Xia Zhong No.524.(磐石莲花有限公司与张征宇合同纠纷案,(2016)京01民辖终524号)

[2] Shanzheng International Securities Co. v. Yang Kai(2018) Zui Gao Fa Min Xia Zhong No.28. (山证国际证券有限公司与杨凯保证合同纠纷案, (2018)最高法民辖终28号)

[3] Xu Zhiming v. Zhang Yihua, (2015) Min Shen Zi No.471. (徐志明与张义华股权转让合同纠纷案, (2015)民申字第471号)

 

Contributors: Zilin Hao 郝梓林

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