New chapter in China’s foreign-related civil litigations: the 2023 amendments to the PRC Civil Procedure Law

 

Introduction

On 1 September 2023, the Standing Committee of China’s People’s Congress passed the Amendments to the PRC Civil Procedure Law (2023 Amendments), with the main changes relating to the provisions on foreign-related civil procedures. As the drafting authority of the 2023 Amendments, the Supreme People’s Court (SPC) explained that the amendments were driven by the trends that the international conflicts on jurisdiction are becoming more complicated, and China’s current rules on foreign-related civil litigation could no longer meet the requirement of fairly and efficiently resolving foreign-related disputes.

The 2023 Amendments will take effect on 1 January 2024. This article provides a brief overview of the major changes in the 2023 Amendments.

 

Extended jurisdiction on foreign-related civil disputes

Under the current 2021 PRC Civil Procedure Law (2021 CPL), if a plaintiff wants to initiate a civil litigation against a foreign entity in China, it needs to establish that the competent PRC court has “actual connection” to the dispute, such as the place of execution of agreement, contractual performance, the location of the subject, the place of infringement or the place of representative offices in China. In addition to the actual connection factor, the 2023 Amendments introduced the “proper connection”, as a catch-all connecting factor to give the Chinese courts the jurisdiction to hear foreign-related disputes (Article 276).

While the 2023 Amendments do not provide a definition of the “proper connection”, the term “proper” suggests that the PRC courts may, at their own discretion, decide whether to accept a foreign-related case which has no actual but only “proper” connection to China. In other words, the 2023 Amendments extend the PRC court’s jurisdiction over foreign-related civil cases.

 

Free choice of PRC courts

In addition to the above “proper connection”, the 2023 Amendments also allow parties to freely choose the PRC court as the dispute resolution forum, even though the pertinent foreign-related dispute does not have any connection to China (Article 277). This shows China’s respect for the party autonomy to choose an appropriate forum, as well as its interest to encourage more foreign-related civil cases to be heard in China.

 

Exclusive jurisdiction on PRC-oriented corporate and IP disputes

Under the 2021 CPL, the PRC courts enjoy exclusive jurisdiction over certain disputes, including disputes with regards to joint venture agreements and the development agreements of natural resources. The 2023 Amendments extend the scope of the exclusive jurisdiction to another two categories of cases (Article 279):

• the disputes relating to the establishment, dissolution, liquidation and the effect of resolution for companies registered in the PRC.
• the disputes relating to the validity of intellectual property granted in the PRC.

Foreign parties may enquire whether the above amendments exclude the party autonomy to refer disputes to arbitration. Under the 2021 CPL, although the PRC courts have exclusive jurisdiction over the joint venture agreement disputes, such exclusive jurisdiction provision does not prevent the parties from agreeing to submit such disputes to arbitration. The 2023 Amendments however may be more complicated, because some newly included category of cases, such as the liquidation of the PRC companies, are not arbitrable as a matter of the PRC law. It therefore remains to be clarified if the new exclusive jurisdiction regime will invalidate any arbitral agreement in respect of the relevant disputes.

 

Resolving international jurisdictional conflicts

Both the 2021 CPL and 2023 Amendments allow parallel litigation in China. Unless the foreign judgements have been recognised by the PRC courts, the PRC courts can exercise the jurisdiction on the same dispute which is the subject in another foreign court proceeding. China’s protection of its court jurisdiction can also be evidenced by some of the anti-anti-suit or anti-enforcement injunctions made by the Supreme People’s Court in the past few years (for example the Huawei vs Conversant case – see our previous post here).

Having said that, the 2023 Amendments add a clause which requires the PRC courts to respect the parties’ agreement on choosing the exclusive jurisdiction of a foreign court, provided that such agreement does not conflict with the PRC court’s exclusive jurisdiction or China’s public interests (Article 280).

 

Standardised rules to recognise and enforce foreign judgements

Although the 2021 CPL provides that the PRC courts can recognise and enforce foreign judgments in accordance with an international convention (or bilateral treaty) to which China has acceded or on the basis of reciprocity, it does not provide clear guidelines. While the PRC courts do have enforced judgments rendered by foreign courts (such as Singapore, UK and the US), such cases hold little precedential value in a civil law legal system such as China. The 2023 Amendments resolve this problem.

Drawing on the experiences from the National Courts Symposium on Trials of Foreign-related Commercial and Maritime Matters (the Memorandum) (see our previous post here), the 2023 Amendments provide that a foreign judgement can be generally recognised and enforced in China unless (Article 300):

1. the foreign court has no jurisdiction over the case.
2. the respondent has not been lawfully summoned or has not been given a reasonable opportunity to present its case, or the party without the capacity to action is not properly represented.
3. the judgment or ruling is obtained by fraud.
4. the PRC court has rendered a judgment/ruling on the same dispute or has recognised a judgment/ruling rendered by another foreign court on the same dispute.
5. the enforcement of foreign judgement violates China’s public interests.

Besides, the 2023 Amendments provide that when the applicant applies to recognise and enforce the foreign judgment, the PRC court should stay the parallel litigation on the same dispute (Article 302).

 

Enhanced legal framework to enforce foreign arbitral awards

China used to determine the nationality of an arbitral award pursuant to the place of arbitration institution, rather than the seat of arbitration (as seat is not a defined term under the PRC Arbitration Law). For example, a Chinese court once decided in 2004 an ICC award made in Hong Kong as a French award.

That said, as the legal rules develop over the years, Chinese courts have gradually adopted the concept of seat of arbitration, at least with regards to foreign-related arbitrations, in its various judicial interpretations. A recent case, Brentwood Industries v. Guangzhou Faanlong Machinery Engineering Co. Ltd., also endorses the concept of seat of arbitration, in which the Guangzhou court found an ICC award rendered in Guangzhou, China to be a Chinese arbitral award.

Those judicial developments have now been absorbed into the 2023 Amendments. Article 304 of the 2023 Amendments change the definition of foreign arbitral award from “arbitral award rendered by the foreign arbitration institution” to “arbitral award which takes effect outside China” for the purpose of recognition and enforcement. This will also include any foreign arbitral award rendered in ad hoc arbitrations.

In addition to the PRC courts at the place of respondent and the place of respondent’s assets, the 2023 Amendments also allow the parties to apply to the court with “proper connection” to foreign arbitral award to recognise and enforce the award (Article 304).

 

Accelerated service to foreign parties

With regards to service on international parties, the 2023 Amendments conditionally pierce the corporate veil between the company and its director (even reversely) to accelerate the service on foreign parties (Article 283). Under the 2023 Amendments, the PRC courts can serve the litigation documents on foreign parties in the following ways:

1. for service on any foreign individual, if such individual is the legal representative/director of a PRC registered company, and such company is the co-defendant in the PRC litigation, the court can serve the documents on the PRC company directly.
2. for service on any foreign company, if its legal representative/director resides in China, the court can serve the document on the legal representative/director directly.

Besides, the 2023 Amendments shorten the period of public announcement service from three months to 60 days. The public announcement service is a service approach recognised by the PRC law in circumstances where service through other channels fail. The expiry of the public announcement period will be deemed as the completion of service.

 

Collection of evidence from foreign countries

The 2023 Amendments grant the power to the PRC courts to investigate and collect evidence located outside China (Article 284). To the extent the law at the place of evidence allows, the PRC courts can entrust the local Chinese embassy to collect evidence from Chinese parties and witnesses and investigate the facts via simultaneous communication vehicles or other methods as agreed by the parties.

 

Summary

To sum up, the 2023 Amendments have not only absorbed both international and domestic best practices, it has also introduced some improved legal frameworks to the foreign-related civil procedure regime. As the 2023 Amendments approach the effective date, international parties with business in China are recommended to familiarise themselves with these new rules.

If you have any questions or would like further information or training on the matters discussed, please feel free to get in touch with the authors.