How To Set Forth The Jurisdiction Clause In A Foreign-Related Contract?

It can be expected that China’s Belt and Road Initiative, which calls for massive investment in and development of trade routes throughout Asia, will bring about much more international trade in future. Foreign enterprises who intend to contract Chinese persons should pay attention to jurisdiction clauses in the contract, to avoid unenforceability. In this article, starting with a real case, we will introduce the laws and regulations of the People’s Republic of China (PRC) relating to the choice of jurisdiction court under a foreign-related contract, and shed some light in this regard.

Case

Ogilvy＆Mather（China）HoldingsLimited (奥美（中国）控股有限公司, hereinafter “OM”) VS. Zhongqing Ogilvy＆Mather Technology Development (Beijing) Co., Ltd.（中青奥美科技发展（北京）有限公司, hereinafter “ZOTD”）on Applying for Company Liquidation Civil Decision of the First Instance (Case No.(2015)四中法特清预初字第00231号). 

Facts

1. OM is a limited company registered in Hong Kong. ZOTD is a Sino-foreign joint venture invested-in by OM and China Youth Society Service Center (a domestic institution, hereinafter “CYSC”) registered in Beijing on January 20, 2004.
2. Upon establishment of ZOTD, OM and CYSC entered into a joint venture contract, in which both parties agreed that the business term of ZOTD would be ten years starting from the establishment date of ZOTD, i.e. January 20, 2004.
3. On January 20, 2014, the business term of ZOTD expired and none of the two investors applied for extension of the term. After the expiration of the business term, OM and CYSC failed to form a liquidation term within the legitimated period to liquidate the assets of ZOTD which is a prepositional procedure for closing up the company.
4. In 2015, OM applied to the court to designate a liquidation team to liquidate the assets of ZOTD. 

Court’s Decision

In December 18, 2015, the court decided to accept the application. In the court’s decision, it first explained which court shall have jurisdiction over this case and held that:

• According to Article 266 of the Civil Procedure Law of PRC, an action instituted for a dispute arising from the performance in the PRC of a Sino-foreign equity joint venture contract, a Sino-foreign cooperative joint venture contract or a contract for Sino-foreign cooperative exploration and development of natural resources, shall come under the jurisdiction of the people's courts of the PRC. Therefore, in this case, the courts of the PRC have jurisdiction.
• As the applicant OM is a company registered in Hong Kong, this case should be treated as a foreign-related civil case. According to relevant laws and regulations of the PRC, the intermediate people’s court of the PRC where the respondent ZOTD resides shall be the competent court having jurisdiction over this foreign-related civil case, i.e. the court issuing this decision. 

A&Z’s Comments

Parties of a foreign-related contract may agree on a foreign or a domestic jurisdiction court at their own will in the contract for settling possible disputes. However, they shall note that only those jurisdiction courts as allowed by the relevant laws and regulations can be chosen.

In the event the parties of a foreign-related contract intend to agree on either a foreign or a domestic jurisdiction court, according to the relevant civil procedure laws of PRC, such court shall be one located in a place with a connection with possible disputes under the contract. Such a place could be the place where the defendant is domiciled, the place where the contract is performed, the place where the contract is signed, the place where the plaintiff is domiciled, the place where the object is located, or the place where the infringing act is committed.

The Parties shall further note that according to the provisions in Articles 33 and 266 of the Civil Procedure Law of the PRC, for cases which are under the exclusive jurisdiction of a court of the PRC, the parties involved may not agree on the choice of jurisdiction of a foreign court, unless the parties agree on the choice of arbitration. Article 266 has been addressed in the aforementioned part of this article. Article 33 provides that the following cases shall come under the exclusive jurisdiction of the people's courts specified in this Article:

1. an action involving a dispute over immovable property shall come under the jurisdiction of the people's court of the place where the immovable property is located;
2. an action involving a dispute arising from port operations shall come under the jurisdiction of the people's court of the place where the port is located; and
3. an action involving a dispute over an inheritance shall come under the jurisdiction of the people's court of the place of domicile at the time of death of the person whose property is inherited or where the major portion of the estate is located.

To summarize, the parties of a foreign-related contract shall ensure the jurisdiction court agreed in the contract has a real connection with the possible disputes under the contract and does not violate the exclusive jurisdiction provisions of the Civil Procedure Law of the PRC.