Forum Non Conveniens in China: Think Twice Before Filing a Motion to Dismiss on FNC grounds

Fri, 15 Feb 2019 Insights

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By Meng Yu &  Guodong Du 

 

In specific circumstances, Chinese courts may dismiss a case on forum non conveniens (FNC) ground, and inform the plaintiff to bring a lawsuit in a more convenient foreign court. However, in most cases, Chinese courts do not support the defendant's motion to dismiss on FNC grounds, but tend to exercise jurisdiction over relevant cases. The case of Singapore Chi Cheng Pte. Ltd. et al. v. SinCo Technologies Pte. Ltd. (Case No.: [2017] Yue Min Xia Zhong No. 684) discussed in this post is a classic example of the judicial practice in China. 

1. The Doctrine of FNC in China's Civil Procedure

The Supreme People's Court's Interpretation on the Application of the Civil Procedure Law of the People's Republic of China (CPL Interpretation), which came into effect on 4 February 2015, newly added the doctrine of FNC in Article 532 of the CPL Interpretation, that is, in certain circumstances, if the Chinese court considers that another foreign court may more conveniently hear a case, it may rule to dismiss the case, and inform the plaintiff to bring a lawsuit in a more convenient foreign court.  

The article stipulates the conditions under which Chinese courts may apply the doctrine of FNC, that is, if a foreign-related civil case simultaneously meets the following circumstances, the people's court may rule to dismiss the case and inform the plaintiff to bring a lawsuit in a more convenient foreign court: 

 (1) Where the defendant raises the request that the case should be governed by a more convenient foreign court, or raises an objection to jurisdiction;            

(2) Where there is no agreement between the parties to select a court of the People's Republic of China as the competent court;            

(3) Where the said case does not fall under the exclusive jurisdiction of the courts of the People's Republic of China;           

(4) Where the said case does not involve the state interests of the People’s Republic of China, the interests of citizens, legal persons or other organizations of the People's Republic of China;            

(5) Where the main disputed facts did not occur within the territory of the People's Republic of China, and the case is not governed by the laws of the People's Republic of China, posing significant difficulties to the people's court in finding facts and applying laws during case trial; and         

(6) Where a foreign court has jurisdiction over the said case, and it is more convenient for the foreign court to hear the case.

2. Case Overview 

On 14 November 2017, the Guangdong High People's Court (the "Guangdong Court") issued a second-instance ruling in which it held that in the case of contract disputes over equity transfer between the first-instance plaintiffs Singapore Chi Cheng Pte. Ltd. ("Chi Cheng"), Zhuhai Guangyao Paper Packaging Co., Ltd. ("Guangyao"), Kunshan Litaixiang Machinery & Equipment Co., Ltd. ("Litaixiang") and the first-instance defendant SinCo Technologies Pte. Ltd. ("SinCo"), given that the case involves the interests of Chinese legal persons Guangyao and Litaixiang, it does not satisfy the doctrine of FNC. Accordingly, the Guangdong Court held that the Zhuhai Intermediate People's Court (the "Zhuhai Court") in the First Instance should exercise jurisdiction over the case, and dismissed SinCo's objection to the jurisdiction on FNC grounds.

3. Case Background

Chi Cheng, Guangyao and Litaixiang (collectively referred to as the "three companies") are shareholders of Zhuhai Jicheng Communications Technology Co., Ltd. ("Jicheng"). SinCo signed an agreement with the three companies to acquire the equity of Jicheng held by the three companies. 

Both Chi Cheng and SinCo are companies registered in Singapore, while Guangyao, Litaixiang and Jicheng are companies registered in China. 

Under the agreement, SinCo paid a deposit of US$3 million to Chi Cheng's bank account opened in Singapore, from its bank account which was also opened in Singapore. 

Subsequently, SinCo has offered to terminate the acquisition of Jicheng and requested the refund of the US$3 million deposit. The three companies did not agree to refund the US$3 million deposit.

In response to the dispute, SinCo filed a lawsuit against Chi Cheng in a Singapore Court while the three companies filed a lawsuit against Sinco in the Zhuhai Court.

In the lawsuit of Zhuhai Court, SinCo, the defendant, raised an objection to the jurisdiction, arguing that the Zhuhai Court should dismiss the case according to the doctrine of FNC in Article 532 of CPL Interpretation. The Zhuhai Court dismissed SinCo's objection to jurisdiction. SinCo dissatisfied with the ruling and appealed to the Guangdong Court.

The core issues of SinCo's defense in the second instance are:

i. SinCo, the payer, and Chi Cheng, the payee, are both Singaporean companies with respect to the disputed US$3 million. Therefore, the dispute in this case does not involve the state interests, the interests of citizens, legal persons or other organizations of China.

ii. The payment of US$3 million, which is the main fact of the dispute, took place in Singapore. In addition, given that Singapore is the place where the payment is most closely linked, the law of Singapore should be applied in the case. Therefore, the jurisdiction of Chinese courts is inconvenient in terms of familiarity with the law of Singapore, the convenience of obtaining evidence, fact-finding and trial efficiency.

iii. The scope of judicial assistance between China and Singapore does not include recognition and enforcement of court judgments. It is highly uncertain about the enforcement of Chinese court judgments by Singapore courts. Chi Cheng and SinCo are Singaporean companies whose executable property is in Singapore. Therefore, the jurisdiction of Singapore courts is more conducive to the enforcement of judgments.

The Guangdong Court did not respond to SinCo’s arguments one by one, but considered that since the case involved the interests of Chinese legal persons Guangyao and Litaixiang, the doctrine of FNC is not applied in this case.

4. Our Comments

In most cases, when the defendant files a motion to dismiss on FNC Grounds in China, the Chinese court will consider that the case involves the interests of Chinese citizens or legal persons on the ground that the litigants include Chinese citizens or legal persons and thus is not in conformity with the doctrine of FNC, and the court should exercise jurisdiction over the case. 

Therefore, whether there are Chinese citizens or legal persons among the litigants is one of the core issues for Chinese courts to apply the doctrine of FNC. 

In the relevant cases of Chinese courts in recent years, we have found some noteworthy points:

 (1) Does "involving the interests of Chinese citizens or legal persons" mean "involving the interests of other Chinese citizens or legal persons other than the parties concerned"?

In some cases, the defendant claims that "involving the interests of Chinese citizens or legal persons" refers to the interests of other Chinese citizens or legal persons other than the parties concerned. Therefore, the fact that Chinese citizens or legal persons are involved as the litigants should not affect the application of the doctrine of FNC.

Chinese courts did not support such claims. In fact, in almost all relevant cases, the court held that "involving the interests of Chinese citizens or legal persons" mainly means that Chinese citizens or legal persons are among the litigants.

 (2) If "the interests of Chinese citizens or legal persons" are involved, can the defendant himself, being a Chinese citizen or legal person, request the court to apply the doctrine of FNC?

CPL Interpretation makes such a provision on the doctrine of FNC, to a large extent, seemingly in order to give Chinese courts the opportunity to safeguard the legitimate interests of Chinese citizens or legal persons. If so, it seems that Chinese citizens or legal persons should also have the right to voluntarily waive this protection by Chinese courts.

However, in some cases, even if a party as a Chinese citizen or legal person requests the court to apply the doctrine of FNC itself, the court will turn down the request on the ground that the party is a Chinese citizen or legal person. The Supreme People's Court (SPC) held this view in one case (Abax Nai Xin A Ltd. v. Ji Qin'an Corporate Bond Rights Confirmation Dispute, Case No. [2016] Zui Gao Fa Min Xia Zhong No. 202[2016])( 磐石乃鑫甲有限公司与姬秦安公司债券权利确认纠纷,案件编号[2016]最高法民辖终202号), while other local courts also held the same view.

 (3) Does the fact that the plaintiff intentionally includes Chinese citizens or legal persons in the plaintiff or the defendant when lodging a lawsuit affect the application of the doctrine of FNC?

We find that in some cases, the plaintiff/defendant most substantially related to the case are foreign citizens or legal persons. However, it seems that the plaintiff intentionally includes some Chinese citizens or legal persons who are not so closely related to the case into the plaintiff or the defendant, thus enabling the Chinese courts to determine that the case "involves the interests of Chinese citizens or legal persons".

Some defendants claim to the court that these Chinese citizens or legal persons have no substantive relationship with the case. However, most courts did not support this claim. In only one case (Welsh Company v. Dongsheng Chemphy Ltd., Dalian Chemphy Fine Chemical Co., Ltd., et al., Case No.: (2016) Liao 02 Min Chu No. 624-1)( 威尔士公司与英国东化有限公司、大连凯飞精细化工有限公司等公司债券交易纠纷, 文书编号:(2016)辽02民初624号之一), the court held that considering the fact that other parties as Chinese citizens or legal persons are not related to the case, the case does not meet the requirement of "involving the interests of Chinese citizens or legal persons" under the doctrine of FNC. 

This case is also one of the two cases in which the court has applied the doctrine of FNC and thus granted a dismissal. (The other case can be referred to in our previous post “Forum Non Conveniens in China: The Most Stringent Standards Ever?”.)

In this case, there was a bond contract dispute between two companies registered in the British Virgin Islands, where one party sues the other party as the issuer of bonds to the Dalian Intermediate People's Court, and at the same time, the Chinese enterprise as the actual fund user and the Chinese citizens as the Chinese enterprise’s shareholders are also listed as defendants. The court held that the case was a dispute over a bond contract, and that the Chinese citizens and the enterprise were not parties to the bond contract, so the case did not "involve the interests of Chinese citizens or legal persons". Accordingly, the court applied the doctrine of FNC and dismissed the case.

 

 

If you would like to discuss with us about the post, or share your views and suggestions, please contact Ms. Meng Yu (meng.yu@chinajusticeobserver.com).

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Contributors: Guodong Du 杜国栋 , Meng Yu 余萌

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