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published on 4 May 2021 | Reading time approx. 6 minutes
In determining jurisdiction, in general, the Civil Procedure Law of China (“CPL”) stipulates that the people’s court at the defendant's domicile or habitual residence (in case of natural persons) or domicile (in case of legal persons) shall have jurisdiction. Further, cases involving foreign elements are governed by Articles 265 and 266 CPL.
According to Article 265 CPL, in case of an action concerning a contract dispute or other disputes over property rights and interests, brought against a defendant who has no domicile within the territory of China, if the contract is signed or performed within the territory of China,
the people's court of the place where the contract is signed or performed, or where the subject matter of the action is,
According to Article 266 CPL, actions brought on disputes arising from the performance of contracts for Chinese-foreign equity joint ventures, or Chinese-foreign contractual joint ventures, or Chinese-foreign cooperative exploration and development of the natural resources in China shall fall under the jurisdiction of the people's courts of China.
The laws regarding the recognition and enforcement of foreign judgments in China are principally governed by Articles 281 and 282 of the CPL. Prior to enforcement, the foreign judgment must be recognized by an intermediate people’s court. Applications may be made by an applicant directly, or by a foreign court, for recognition and enforcement consistent with a Chinese treaty requirement, or on the basis of juridical reciprocity.
The requirements for the recognition and enforcement of a foreign judgment are laid down in Article 282 CPL. Once the court has verified that the foreign judgment is legally effective, the court will review whether there is a bilateral treaty with the state of the foreign judgment. If such treaty exists, the court will rely on it to determine whether recognition is being considered. If there is no such treaty, recognition can be granted if the principle of reciprocity is guaranteed between the foreign state and China. If there is neither a bilateral treaty nor a guarantee of reciprocity, recognition will be refused. Further, the court will also refuse recognition if the application contradicts the primary principles of the law of China or violates Chinas sovereignty, security and social and public interest. In the event that the court recognises the foreign judgement, it will, on request, issue a writ of execution.
In principle, judgments (including default judgements subject to further conditions) relating to the payment of money or requiring the defendant to act or refrain from acting/injunctions are enforceable. The enforcement of a recognised foreign judgement is similar to the enforcement of a domestic judgement. However, in practice and without a bilateral treaty the enforceability of a foreign judgment in China is not guaranteed. There are only few cases in which China confirmed the enforceability on the grounds of reciprocity.
China is a signatory state to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) but with reservations. Only foreign arbitral awards resulting from contractual and non-contractual legal relationships that are considered commercial under Chinese law may be enforced in China in accordance with the New York Convention. The enforcement of a foreign arbitral award is carried out in the same way as the enforcement of a domestic arbitral award, which in turn is carried out according to the same rules applicable to the enforcement of a domestic court judgment.
In 2017 China signed the Hague Convention on Choice of Court Agreements (HCCCA, the “Convention”). The Convention seeks to provide certainty in cross-border litigation by allowing parties to choose the exclusive court in which any disputes arising under a commercial agreement will be resolved. Courts of member states must respect exclusive jurisdiction clauses in commercial agreements by staying proceedings in favor of the courts of other member states. They must also recognize and enforce judgments of the courts of other member states, subject to certain limited exceptions. China still did not ratify the Convention and, hence, is not yet bound by the terms of it.
China has a four-level court system. The first level of jurisdiction is formed by the People's Courts. The next highest instance are the Intermediate People's Courts, followed by the Higher People's Courts and the Supreme People's Court. In addition, there are a number of special courts such as Intellectual Property Courts, Internet Courts, Maritime Courts, Railway Courts and a Financial Court in Shanghai.
The question as to which court is competent at first instance depends in particular on the amount in dispute and the circumstances of the individual case as well as the locality. For example, for more complex cases with foreign elements, the Intermediate People's Courts are the first instance. However, even the International Commercial Courts established by the Supreme People’s Court has begun to accept first-instance commercial cases.
In civil and commercial cases, the appeal procedure is generally two-tiered, with appeals being lodged with the court of the next higher instance. The second-instance judgment is generally final with the exception of the remedy “Retrial”. However, a retrial is only rarely granted. A leapfrog appeal will be rejected in the vast majority of cases. An exception of this rule are intellectual property cases involving sophisticated technical features, where the Intellectual Property Tribunal of the Supreme People's Court is the second instance even if the first instance was an Intermediate Court.
With regard to arbitration there is no hieratical or territorial jurisdiction of the various arbitral institutions in China. However, is it generally agreed that the Arbitration Law of the People’s Republic of China recognises only institutional arbitration and no ad-hoc arbitration. An ad-hoc arbitral award rendered outside of China may be recognised if the governing law of the arbitration permits such ad-hoc arbitration.
Litigation costs are the direct costs incurred by the parties in conducting a litigation. A distinction is made between court fees and out-of-court costs.
In China, pre-litigation and out-of-court costs can become considerable. According to the CPL, a plaintiff must submit evidence to prove its claim. If sufficient evidence cannot be provided, a private investigator may be able to support, but this will incur additional costs. Further, any evidence not origined in China must be notarised and legalised by the Chinese embassy or consulate in the respective jurisdiction.
Lawyer fees are not regulated in China. The fees therefore vary depending on the circumstances of the case, the locality and the law firm. Usually, in cases with foreign relations, law firms charge on the basis of hours worked. It is therefore advisable to obtain estimations of the time required for all steps of litigation, i.e. out of court, first instance, second instance and enforcement or, where possible, to agree on lump sums. However, contingency fee arrangements are not possible in criminal and administrative cases, and civil cases concerning family law, alimonies, welfare etc.
The court costs include the court acceptance fees, filing fees, and miscellaneous expenses for witnesses and other relevant personnel engaged in trial. The court acceptance fees in civil claims normally amount to 0,5 per cent to 2,5 per cent of the amount in dispute.
The court costs shall be prepaid by the plaintiff, and such costs shall be borne by the party that loses the lawsuit. However, the court may also apportion the costs between the parties. The same may apply to pre-litigation costs, though awarding them to the winning party is at the discretion of the court even if such costs are reasonable.
Lawyer’ fees are usually not awarded. The court may decide otherwise if a contract stipulates that the losing party to a lawsuit must also pay the lawyer's fees of the winning party. However, even then, it is possible that the court might adjust lawyers' fees, which it considers to be too high, to a level that the court considers appropriate (e.g. reduction to the standard rate of the local bar association).
Usually a court case in the first instance is to be completed within six months which is extendable with the approval of the court’s president or the next level court. In case of summary procedures, the timeframe is three months. For the second instance the time frame is three months, which is extendable with the approval of the court’s president. In practice however, the time frames are often hit due to a strongly increase of cases. All timeframes apply to domestic proceedings only.
Interim orders can be applied for before or during court proceedings.
The applicant whose legitimate rights and interests would, due to urgent circumstances, suffer irreparable damage without immediate application for property preservation, may, before filing a lawsuit, apply to the people's court in the place where the applicant is located or the people’s court which has jurisdiction over the case for the adoption of property preservation measures.
In cases where the execution of a judgment may become impossible or difficult or otherwise harmful to the applicant because of the acts of the other party or for other reasons, the people's court may, at the application of the applicant, make a ruling to preserve the assets of the other party or order the other party to perform certain acts or to prohibit the other party from committing certain acts.
In both cases, the applicant needs to provide a security; if the applicant fails to do so, his application will be rejected.
Litigation & Arbitration
Sebastian Wiendieck
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