Case studies for doctrine on jurisdiction in mainland

Mainland China sets stringent conditions for the application of the doctrine of forum non conveniens (see MHP’s column in the July/August 2016 issue of China Business Law Journal). The author searched on the retrieval website for judgments and found 50 cases relating to the doctrine of forum non conveniens.

Among them, the proportion of cases that must apply the doctrine in final rulings and be transferred to jurisdiction of foreign courts is quite low. A considerable number of cases were dismissed by the courts because they did not comply with the fourth or fifth provision under article 532 of the Interpretation on the Application of the Civil Procedure Law of the People’s Republic of China.

The main reason is that few cases can satisfy the very broad condition that they do not involve “the interest of the state, citizens, corporations or other organizations”. Meanwhile, the provisions that “the main facts in dispute do not occur in mainland China” and “it’s quite difficult for the court in mainland China to ascertain the facts and applicable law” are also vague, and mainly depend on the discretion of the judges regarding the definition of “main facts” and “quite difficult”.

As can be seen from judicial precedents, in general mainland China takes a more cautious approach to applying the doctrine of forum non conveniens. On the other hand, the judicial precedents also show that the application of the doctrine by China’s courts has undergone a process, from a vague and one-sided standard to a relatively clear and comprehensive one. The following examples show the changes of the understanding and application of the doctrine by China’s courts.

The first case is the ruling by the Supreme People’s Court (SPC) on the objection to jurisdiction over a loan contract dispute between Sumitomo Bank and Xinhua Real Estate in 1999. Both Sumitomo Bank (the lender) and Xinhua (the borrower) were incorporated in Hong Kong. Under the financing agreement entered into by both parties, the borrower agreed that Hong Kong courts should have non-exclusive jurisdiction over disputes under the agreement, and litigation concerning any dispute may be submitted to Hong Kong courts. It was also stipulated in the agreement that the lender must not be subject to the above-mentioned restrictions, and can bring an action in another court of competent jurisdiction. The agreement must be governed by Hong Kong laws.

Xinhua filed a lawsuit concerning a financing agreement dispute with the Higher People’s Court of Guangdong province, and Sumitomo Bank raised objection to jurisdiction. The higher people’s court ruled that it had jurisdiction over the case. Sumitomo Bank appealed to the SPC against the ruling. The SPC held in its order that the higher people’s court “should not accept the case”, and it was “more appropriate” to be under the jurisdiction of Hong Kong courts, on the grounds that: both parties were corporates registered in Hong Kong; the financing agreement was executed and performed in Hong Kong; and the applicable law of the agreement must be Hong Kong laws.

The SPC eventually repealed the order of the Higher People’s Court of Guangdong province and dismissed the prosecution of Xinhua. Several years after the order in this case, the Answers to Questions Concerning Trial Practices of Foreign-related Commercial and Maritime Affairs was published in 2004. Therefore, we may conclude from the grounds listed by the SPC that the application of the doctrine of forum non conveniens by China’s courts at that time was still in an “exploratory stage” and the understanding of conveniens was intuitive but slightly narrow. Comprehensive and logical criteria have not yet been established when determining theconveniens of China’s courts only from the objective circumstances of the case.

Another case was a dispute over the purchase and sale contract between Green Tech Electronics and Smartech Electronics. The first instance by Shanghai No. 1 Intermediate People’s Court ordered that the court was forum non conveniens, and Shanghai Higher People’s Court upheld the order of the Shanghai court in the second instance. The judgment of this case was entered in 2009, and we may conclude from the grounds for judgment that great progress had been made concerning the application of the doctrine of forum non conveniens by courts in mainland China, and the grounds were more comprehensive and logical.

Shanghai No.1 Intermediate People’s Court firstly affirmed its jurisdiction over the case. As the author stated previously, “having jurisdiction” is the prerequisite to prove “whether the court is forum non conveniens”. It makes sense to discuss whether it is convenient for trial only when the court has jurisdiction. Second, the court held that there were many inconvenient factors concerning its jurisdiction over this case, including: the main facts occurred in Hong Kong, and Hong Kong laws should be applicable to the case, therefore it was difficult for the court to ascertain the facts and apply the laws; both parties were enterprises in Hong Kong; Hong Kong courts had jurisdiction over the dispute, and it was more convenient for Hong Kong courts to try the case; there was no agreement between both parties concerning jurisdiction of courts in mainland China; and defendant Smartech had requested to apply the doctrine of forum non conveniens.

The judgment of this case adopts the standard defined in the answers to trial practices, and similar documents promulgated after that. The judgment considers the facts of the case, and also includes the reasons concerning agreement between the parties about the jurisdiction, whether a foreign court has jurisdiction, and whether a defendant makes the request, which when compared with the afore-mentioned Sumitomo Bank v Xinhua Real Estatecase, the grounds for judgment are more adequate and comprehensive.

However, as the answers to trial practices and other documents are only a reference for the court to enter judgment, the Shanghai court did not mention them. Instead, it adopted principle provisions under article 2 of the Civil Procedure Law (2007) as legal basis, and held that trial by a Shanghai court violated the two facilitation principles of provisions under the article 2, i.e. facilitation for all parties to exercise their procedural rights, and for a people’s court to exercise its judicial power, and therefore dismissed the prosecution by Green Tech.

Sally Wang is a partner at Martin Hu & Partners