China Justice Observer

中国司法观察

When Will China Ratify the Hague Convention on Choice of Court Agreements?

Sat, 06 Jun 2020
Categories: Insights
Contributors: Meng Yu 余萌

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In 2017, China signed the Hague Convention on Choice of Court Agreements (HCCCA, hereinafter referred to as ‘the Convention’). The question naturally arises, will China ratify the Convention?

‘Yes, it’s only a matter of time’, as pointed out by Justice Song Jianli (宋建立) from China’s Supreme People’s Court (SPC), now the Secretary-General of the International Commercial Expert Committee of SPC’s International Commercial Court, in his recent article titled “The Hague Convention on Choice of Court Agreements and Its Impact on China” (《选择法院协议公约》及对我国的影响). The article was published in the “People’s Judicature” (人民司法) (No. 4, 2019), a journal affiliated to the SPC.

So, the issues at stake are when and how China would ratify the Convention. Justice Song provided his views by discussing the possible impacts of the Convention on China. In short, regarding consensual jurisdiction and the recognition and enforcement of the judgment, the Convention differ materially from the current judicial practice in China in terms of, inter alia, the applicable law of the choice of court agreement, the exclusivity of the choice of court agreement and the substantial connection principle, which may affect China’s process of ratifying the Convention.

1. The applicable law of the choice of court agreement

A valid choice of court agreement is the prerequisite for the chosen court to exercise jurisdiction, and it is also an important factor for the judgment to be recognized and enforced in other countries. The question is which law should be applied to determine the validity of the court agreement?

For example, two companies confer jurisdiction upon Singapore courts in writing, but when the dispute occurs, a party nevertheless commences proceedings in China. According to China’s current judicial practice, the Chinese court will apply Chinese law (i.e. lex fori) to determine the validity of the jurisdiction; by contrast according to the Convention, the Chinese court would be bound to apply Singapore law (i.e. the law of the State of the chosen court).

In the above example, if a party commences proceedings in Singapore, after the court has accepted the cases and rendered the judgment, the party applies to the Chinese court for recognition and enforcement of the judgment, then the Chinese courts need to examine whether the Singapore court (court of origin) has jurisdiction. As in the previous answer, according to China’s current judicial practice, the Chinese court will apply Chinese law to review the jurisdiction of the Singapore court. If the Chinese court believes the Singapore court has no jurisdiction, it will refuse to recognize the judgment accordingly. By contrast, according to the Convention, the Chinese court would be bound to apply Singapore law to review its jurisdiction, and usually, the result is positive (otherwise it will not accept the case). Therefore, the Chinese court is likely to recognize the judgment.

Obviously, Chinese judicial practice is different from the Convention. In China, the answer is lex fori. Generally, Chinese courts view the validity of the choice of court agreement a procedural matter, which, under traditional private international law, shall be governed by lex fori. By contrast, pursuant to the Convention, the governing law is the law of the State of the chosen court (Art.5(1), Art. 6 (a), Art. 9(a)).

In Justice Song’s opinion, the Convention establishes clear rules for the applicable law of the choice of court agreement, which contributes to the predictability and stability of the validity of the forum selection clause. If China ratifies the Convention, its traditional judicial practice also needs to be adjusted.

2. The exclusivity of the choice of court agreement

Chinese judicial practice also differs from the Convention when it comes to determining whether the choice of court agreement is exclusive or not.

In China, courts usually deem the choice of court agreement to be non-exclusive, unless expressly provided otherwise by the parties. It is thus clear that Chinese courts consider the jurisdiction agreement to be non-exclusive in principle and exclusive in exceptional cases.

However, in accordance with Art.3(a) of the Convention, a choice of court agreement that 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. In other words, the Convention considers the choice of court agreement to be exclusive in principle, and non-exclusive in exceptional cases.

Therefore, it means that, in the aforementioned scenario, if the parties choose a Singapore court without indicating the exclusivity of the choice of court agreement, a Chinese court will be likely to accept the case on the ground that the agreement is non-exclusive. However, if China ratifies the Convention, Chinese courts shall deem the agreement to be exclusive and refuse to accept that case on that ground.

However, as observed, in fact, the attitude of Chinese courts is gradually converging to the Convention. For example, in Cathay United Bank Co., Ltd. v. a certain Gao (国泰世华商业银行股份有限公司诉高某案) heard by Shanghai High People’s Court in 2016, [1] the Court found the choice of court agreement to be exclusive because there was no contrary intention. It is worth noting that Shanghai High People’s Court directly cited Art.3 of the Convention in the judgment, holding that the crux to tell the exclusiveness of the forum selection clause lies in the wording of the agreement. If there is no clear intention that the agreement is non-exclusive, the agreement should be deemed exclusive.

3. The substantial connection principle

In Chinese judicial practice, the courts adhere to the substantial connection principle. According to Chinese laws,[2] apart from maritime disputes, the parties to a dispute over a foreign-related contract or any other rights or interest in property may, by a written agreement, choose to submit the case to the people’s court at the place of domicile of the defendant, at the place where the contract is performed or signed, at the place of domicile of the plaintiff, at the place where the subject matter is located or at any other place substantially connected to the dispute. In other words, if the chosen court has no aforementioned objective connection with the dispute, the court will deem the choice of court agreement invalid.

By contrast, the Convention takes another approach. It does not require the substantial connection principle, but provides that a state may declare that substantial connection principle is required when its courts are chosen in the forum selection clause (see Art. 19 “Declarations limiting jurisdiction” of the Convention).

Justice Song indicates that this means that if the parties agree to choose a court which has no substantial connection with the dispute, even if contracting states still adhere to substantial connection principle, their courts cannot find the choice of court agreement invalid based on that ground, but they can refuse to accept the case. 

How to deal with the differences is a problem to be solved when China deliberates on the ratification of the convention. Justice Song holds that the consensual jurisdiction manifests the party autonomy on the dispute settlement methods, and should not be over disturbed and restricted.

I understand that according to Justice Song’s idea, after China’s ratification of the Convention, if the parties agree on a court which has no connection with the dispute, Chinese courts will likely find the agreement valid, and determine whether to accept the case based on the agreement.

Based on my observation, the original intention for China to adopt the substantial connection principle is to stop the parties to submit a Chinese case to a foreign court, which results in the outflow of the cases. If Chinese courts are sufficiently competitive, abandoning the principle will not lead to such an outflow, instead, it may lead to the inflow of foreign cases. Therefore, whether China should give up the principle depends on the confidence of its own competitiveness.

It is worth noting that instead of merely relying on the substantial connection principle, Chinese courts are making efforts to promote their competitiveness to avoid the outflow of cases. For example, in Sept. 2019, the SPC issued Opinions of the Supreme People’s Court Regarding Further Providing Judicial Services and Guarantees by the People's Courts for the Belt and Road Initiative(最高人民法院关于人民法院进一步为“一带一路”建设提供司法服务和保障的意见),[3] stating that the SPC would “reinforce the international publicity and communication for the International Commercial Court, encourage and attract the parties to international commercial disputes to choose China international commercial court, and serve international commercial dispute settlement worldwide”.

 

Reference:
1. Shanghai High People’s Court, Some Comments on the Case of Cathay United Bank Co., Ltd. v. a certain Gao, available at 
http://shfy.chinacourt.gov.cn/article/detail/2018/06/id/3226679.shtml.
2. See Art. 34 of the PRC Civil Procedure Law, Art. 531 of the 2015 Supreme People’s Court’s Interpretation of Civil Procedure Law, Art. 8 of the PRC Special Maritime Procedure Law.
3. See Art. 26, the Supreme People’s Court Regarding Further Providing Judicial Services and Guarantees by the People's Courts for the Belt and Road Initiative (最高人民法院关于人民法院进一步为“一带一路”建设提供司法服务和保障的意见).


Photo by Terry Xu (https://unsplash.com/@coolnalu) on Unsplash

Contributors: Meng Yu 余萌

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