I. INTRODUCTION
Exclusive jurisdiction clauses are contractual agreements entered into by the parties consenting to submit their disputes that have arisen or might arise to the chosen court, to the exclusion of any other fora.Footnote 1 With the development of party autonomy as one of the most important doctrines of modern private international law and with the purpose to provide certainty, predictability and efficiency to commercial parties, most countries adopt the policy in keeping the parties to their bargain and recognize the effectiveness of an exclusive jurisdiction clause in civil and commercial matters.Footnote 2
The effectiveness of exclusive jurisdiction clauses, however, is uncertain in China. The Chinese legislation provides very rigid requirements for a jurisdiction clause to be valid and does not clarify the prorogation and derogation effect of a valid exclusive jurisdiction clause. Because of the ambiguity in the law, Chinese judicial practice demonstrates great diversity. The most important diversity exists on the effectiveness given to a jurisdiction clause choosing a foreign court to hear their disputes. In practice, the derogation effect of a valid foreign jurisdiction clause is frequently ignored by the Chinese courts. It may be argued that the Chinese courts, when taking jurisdiction in breach of a foreign jurisdiction clause, have made a parochial and unfortunate decision, which is wrong in law.Footnote 3 However, a close scrutiny of Chinese judicial practice shows that the effectiveness of an exclusive jurisdiction clause has close connections with the recognition and enforcement of judgments. If the judgment of the chosen court cannot be recognized and enforced in the request court by any means, the request court may take jurisdiction in breach of the jurisdiction clause in order to achieve justice. Chinese judicial practice demonstrates the inevitable influence of the narrow scope of the Chinese law in recognition and enforcement of foreign judgments. It is submitted that the Chinese courts do not zealously guard Chinese jurisdiction, or deliberately ignore party autonomy and international comity, by asserting jurisdiction in breach of a valid foreign exclusive jurisdiction clause. Instead, the Chinese courts have considered the possibility of recognition and enforcement of judgments and the goal of justice. Making the prima facie unreasonable decision is the best the courts can do in the specific context of the Chinese law. The status quo cannot be improved simply by reforming Chinese jurisdiction rules in choice of court agreements. A comprehensive improvement of civil procedure law in both jurisdiction rules and recognition and enforcement of foreign judgments is needed.
This article conducts a pragmatic study of the effectiveness of exclusive jurisdiction clauses in the Chinese courts. Section 2 examines the prerequisites, including the exclusivity, existence and validity, of a jurisdiction clause. It demonstrates that the Chinese legislation on the preliminary issues is unduly restrictive. Section 3 considers the prorogation effect of a jurisdiction clause choosing a Chinese court. Section 4 explores the derogation effect of a foreign exclusive jurisdiction clause and examines how recognition and enforcement of judgments affect the effectiveness of a foreign jurisdiction clause. Section 5 considers the possible approaches which the Chinese legislative body could adopt in order to improve the current situation, especially to address the dilemma between the respect of party autonomy and the necessity to enforce the claimant's right.
II. PRELIMINARY REQUIREMENTS AND VALIDITY OF JURISDICTION CLAUSES
Ever since 1991, the Chinese legislative body has confirmed that the contractual parties are allowed to designate the competent court to hear disputes between the parties.Footnote 4 Party autonomy is adopted to address the tendency of some Chinese courts unduly to compete with each other for jurisdiction.Footnote 5 This doctrine remains in the 2007 amendment of the PRC Civil Procedure Law,Footnote 6 Article 242 of which provides that:
Parties to a dispute over a contract or property rights and interests involving foreign elements may, through written agreement, choose the court of the place which has practical connections with the dispute to exercise jurisdiction. If a People's court of the People's Republic of China is chosen to exercise jurisdiction, the provisions of this Law on jurisdiction by forum level and on exclusive jurisdiction shall not be violated.
Article 242 literarily grants the parties the right to choose jurisdiction in cross-border disputes. There is no doubt that a court can refuse to give effect to a jurisdiction clause if the clause is invalid.Footnote 7 Compared with the law on choice of court agreements in many other countries, Chinese law has established extra and, sometimes, unnecessary restrictions on party autonomy.
A. Applicable Law
A jurisdiction clause can only be enforced after the court verifies that the clause exists and is valid. The substantive law in deciding the preliminary issues of a jurisdiction agreement varies widely between each country, which raises the issue of the applicable law. The PRC Civil Procedure Law does not provide choice of law rules to decide the law applicable to the existence and validity of a jurisdiction clause and inconsistent judicial practice is observable.
Some Chinese courts treat jurisdiction clauses no differently from underlying contracts and, as a result, apply the lex causae to decide the existence and validity of a choice of court clause.Footnote 8 This approach is subject to criticism because it fails to comply with the doctrine of severability, which is a common doctrine in the conflict of laws.Footnote 9 A jurisdiction clause is different from other substantive provisions of a contract in that it is a conflict of laws agreement. According to the doctrine of severability, a jurisdiction clause is severable and independent from the main contract. The invalidity and non-existence of the main contract does not necessarily cause the invalidity and non-existence of a jurisdiction clause.Footnote 10 Chinese legislation does not explicitly accept the doctrine of severability for a jurisdiction clause.Footnote 11 However, the Supreme People's Court has provided judicial direction to adopt this doctrine to decide the validity of an arbitration agreement, which excludes the application of the lex causae.Footnote 12 A jurisdiction agreement in a contract can be analogized to an arbitration agreement in that both are conflicts provisions, both designate the competent forum and both relate to the procedure. It is recommended that similar treatment should be provided to jurisdiction agreements.
Most Chinese courts use the lex fori to decide the validity of a jurisdiction clause.Footnote 13 These courts classify the validity of a jurisdiction clause as an issue relating to procedure,Footnote 14 which should be governed exclusively by the lex fori. Footnote 15 This is the dominant approach currently used in the Chinese courts. As a result, once a Chinese court is seised by the claimant, no matter whether a Chinese court or a foreign court is chosen, the seised Chinese court will assess the validity of the jurisdiction clause pursuant to Chinese law, unless they expressly choose the law of another country to govern the jurisdiction agreement.
However, applying the lex fori to decide the preliminary issues of a jurisdiction clause is not free from criticism. On the one hand, the existence and validity of a jurisdiction clause is not pure procedure. A jurisdiction clause is one of the contract terms and its effect largely depends on party autonomy. The determination of the existence and validity of a jurisdiction clause is primarily based on the contractual concept. To classify the existence and validity of a jurisdiction clause as purely procedural is not theoretically sound.Footnote 16 Recognizing the theoretical challenge, some Chinese courts have taken the approach of considering a jurisdiction clause to be governed by the lex fori, unless the parties have agreed otherwise.Footnote 17 The applicable law to a choice of court agreement thus can be designated specifically by the parties. On the other hand, if the lex fori is applied to decide the preliminary issues of a jurisdiction clause, the judgment on the validity of such a clause depends on which country is seised to decide this issue. Applying the lex fori could cause particular difficulties in China, because Chinese law provides very restrictive requirements for jurisdiction clauses—for instance, the parties cannot choose a neutral forum and the choice is only available for contractual or proprietary disputes.Footnote 18 Applying Chinese law could invalidate many jurisdiction clauses which might be valid under the law of other countries. This approach would encourage forum shopping and enable a party to seise the Chinese court with the purpose to avoid a jurisdiction clause concluded by it. Furthermore, debates exist as to whether it is more appropriate to apply the law of the chosen country to decide the validity of the jurisdiction clause, which could keep parties to their agreements, prevent forum shopping and ensure consistent results irrespective of which court is seised to decide this issue. For example, in the Hague Convention on Choice of Court Agreements 2005, the preliminary issue of a choice of court agreement is generally decided according to the law of the chosen country, with limited exceptions.Footnote 19 It is suggested that the applicable law to decide the existence and validity of a jurisdiction clause deserves more in-depth study in China.
B. Subject Matter
In the Chinese law, the parties can only choose the competent court in disputes concerning contracts or property rights.Footnote 20 In non-contractual obligations, such as personal injury or defamation, the parties are not allowed to choose the competent forum.Footnote 21 It is unclear why the legislation specifies the subject matter in which the parties could choose the competent forum. Although in some non-contractual obligations, such as tort, the parties usually have no plan to establish a relationship with each other and have no opportunity to enter into choice of court agreements prior to the wrongdoing, the parties could enter the agreement after the dispute has arisen. Providing the choice is genuine, there is no compelling reason to invalidate such a choice simply because the subject matter is non-contractual and non-proprietary.
In other cases, non-contractual obligations may arise out of a contractual relationship. Since the choice of court agreement does not apply to non-contractual disputes, a party sometimes wishes to avoid the effect of a jurisdiction clause by formulating its claim on a subject matter other than contract. Some non-contractual obligations have close connections with contracts, such as pre-contractual obligations, unjust enrichment based on the failure to conclude a valid contract, fraudulent misrepresentation inducing a party to enter into a contract, and the breach of fiduciary duty arising out of a contractual relationship. Although the PRC Civil Procedure Law does not define the concept of ‘contract’, the judicial practice has unanimously adopted a broad and flexible interpretation to cover all contract-related non-contractual issues within the classification of contract in order to enforce the parties' choice of court agreement. In Lai v ABN AMRO Bank,Footnote 22 for example, the claimant wanted to evade the jurisdiction clause in the investment agreement by formulating his claim on fraud. The claimant argued that the jurisdiction clause only applied to contractual obligations but not delictual ones. The court, however, decided that the scope of a jurisdiction clause was broad enough to cover not only contractual claims, but also tort claims arising out of or in relation to the contract where the jurisdiction clause was included. A claimant could not manipulate the basis of his claim in order to avoid a valid agreement which he had voluntarily entered into. In Watanabe v Culture & Art Press,Footnote 23 a Japanese writer and a Chinese press concluded a publication contract, choosing Japan as the exclusive forum. Watanabe later sued the Chinese publisher in China for infringement of his copyright, and claimed that the jurisdiction clause was invalid because the dispute was not contractual in nature. The court decided that if the contractual parties have expressly agreed on the competent court to decide disputes, they should not freely choose the basis of the claim to escape their agreement. Otherwise, the doctrine of party autonomy would be undermined. In legal practice, jurisdiction clauses have been extended to cover cases formulated in non-contractual obligations. This is one of the issues where the rigid legislation is relaxed by flexible judicial practice. It is suggested that the restriction on the subject matter should be removed to enable the proper effectiveness of party autonomy.
C. Practical Connections
The most criticized requirement is that the parties can only choose the court of the place with ‘practical connections’ with the dispute under the Chinese law.Footnote 24 According to the PRC Civil Procedure Law and the judicial direction of the Supreme People's Court, the parties could choose the court located in the domicile, place of registration or place of business of the claimant or defendant, the place where the contract is concluded, the place where the contract is performed and the place where the object of the dispute is located.Footnote 25 There is no consensus as to whether other connections are eligible to validate a choice of court agreement.Footnote 26 Four of the places expressly allowed by law are the competent fora in the absence of choice.Footnote 27 The current Chinese law on party autonomy is thus very restrictive in that it does not grant the parties the power to prorogate jurisdiction to any incompetent forum other than the claimant's domicile, place of registration or place of business. If the parties have chosen a foreign court, which does not have the ‘practical connection’ with the dispute, or which is a neutral forum, the Chinese court shall hold the jurisdiction clause invalid.
This restriction is inconsistent with common practice globally and incompatible with commercial convenience.Footnote 28 In international commerce practice, it is common for the parties to choose a neutral forum, which may be the most experienced and highly-reputed court to hear a dispute, especially in the area of maritime insurance and bills of lading.Footnote 29 In Shandong Jufeng,Footnote 30 for example, a Chinese company and a Korean company concluded a contract and agreed that the Chinese law should be the applicable law and the courts of Singapore should have exclusive jurisdiction. The Supreme People's Court held that Singapore was not one of the five places explicitly listed in the civil procedure law and the judicial direction; nor had it any other connections with the dispute. The chosen court thus had no connections to the dispute and the choice should be invalid.Footnote 31 Specifically, the Supreme People's Court said that since the parties had chosen Chinese law instead of the Singaporean Law to govern their dispute, Singaporean Courts had no connection with the dispute. This reasoning seems suggest that the practical connection can be established by the parties' choice of law agreement and could be both ‘objective and ‘subjective’. This decision deviates from the original legislative purpose which prevents the parties from choosing a court without objective connections to a contract. It shows that Chinese judicial practice has recognized that the rigid requirement in law is incompatible with commercial needs and seeks to interpret the law in a way that relaxes the negative influence of the law and provides flexibility that suits commercial practice.
D. Choice of More than One Court, Alternative Choice and Asymmetric Choice
Chinese law does not permit the parties to choose more than one court in a jurisdiction agreement.Footnote 32 Such a choice is considered an ambiguous choice and invalid. In SBF Inc (Korea) v Teng Garments Ltd (Beijing),Footnote 33 the parties agreed in their contract that any disputes should be submitted to the court of Seoul or the court designated by SBF Inc. The Beijing Municipal High People's Court affirmed the decision of the Beijing Municipal No 1 Intermediate People's Court, holding the jurisdiction clause invalid because it had chosen more than one court.Footnote 34 This restriction has harsh results in practice. The parties might genuinely agree to submit their disputes to one of the designated fora, either with or without exclusion of other competent courts. If the choice is based on the authentic consent of the parties and does not infringe public policy, there is no reason why a court cannot recognize the validity of such a choice. Directly invalidating such a choice unduly restricts party autonomy and induces rigidity. Secondly, in terms of practice, providing the parties clearly express their intention, such a choice is not too ambiguous to be enforced. A choice of more than one court is not rendered unenforceable under the Hague Choice of Court Convention, though the Convention treats it a non-exclusive clause.Footnote 35 Under the Brussels I Regulation, such a clause can even be enforced as an exclusive jurisdiction clause unless the parties expressly provide otherwise.Footnote 36 Neither has directly invalidated such a choice without considering the parties' intention.
However, it is necessary to note that the PRC Civil Procedure Law does not provide this restriction. This requirement was introduced by the Supreme People's Court in its 1992 Opinion in relation to the choice of court agreement in domestic cases.Footnote 37 In SBF (Korea), the court relied on Article 237 of the PRC Civil Procedure Law 1991Footnote 38 to extend the effect of the judicial direction to jurisdiction agreements in cross-border disputes. Article 237 provides that ‘(t)he provisions of this Part (special provisions for civil procedure of cases involving foreign elements) shall be applicable to civil proceedings … in regard to cases involving foreign element. Where this Part did not provide otherwise, other relevant provisions … shall apply.’ However, Article 237 refers to provisions in law and does not explicitly extend its effect to judicial direction. Secondly, Article 237 is deleted in the 2007 amendment of the PRC Civil Procedure Law. It is thus arguable that the choice of more than one court in cross-border disputes may not necessarily be invalid under the current Chinese law.
Although it is likely that the parties could not choose more than one court in a cross-border dispute, they could choose alternative courts to decide their disputes. For example, in Zheng v Wider Logistics Ltd,Footnote 39 the parties chose the New York court and the English court respectively, depending on the different causes of action. This choice was held valid.Footnote 40 There is no strict rule to classify an alternative choice of court agreement as exclusive or non-exclusive. Its exclusivity depends on the wording and intention of the parties. A special type of the alternative choice of court agreement is the asymmetric jurisdiction agreement. In Lai v ABN AMRO Bank,Footnote 41 a private investor entered into an investment agreement with a Dutch bank. Within this agreement, there was a choice of court clause to the effect that the investor could only sue the bank in Hong Kong to the exclusion of any other competent courts, while the bank could sue the investor in any competent fora. Both the Shanghai Municipal No 1 Intermediate People's Court and the Shanghai Municipal High People's Court upheld the choice of court agreement and fully respected the parties' intention in deciding the respective exclusivity of the chosen court. Pursuant to the wording of the agreement, the courts held that where the investor brought the proceedings, Hong Kong courts had exclusive jurisdiction; while the bank acted as the claimant, the jurisdiction clause was non-exclusive. An asymmetric clause is thus treated a third type of the choice of court agreement, which is neither fully exclusive nor non-exclusive. It could be exclusive for one party, but non-exclusive for another, depending on the parties' intention. The asymmetric choice of court agreement is frequently used in the standard terms of a loan agreement. It is appropriate to uphold it as a common practice in international commerce unless it is included in the contract with the inequality of bargaining power.Footnote 42
E. ‘In Writing’
A jurisdiction clause must be ‘in writing’.Footnote 43 The Chinese legislation does not distinguish between ‘in writing’ and ‘evidenced in writing’. According to the Chinese Contract Law,Footnote 44 the ‘written form’ is defined to mean ‘any form which renders the information contained in a contract capable of being reproduced in tangible form such as a written agreement, a letter, or electronic text (including telegram, telex, facsimile, electronic data interchange and e-mail)’.Footnote 45 If the lex fori is applied to decide the validity of a jurisdiction clause, the formal requirement of a jurisdiction clause is broad to cover the written form by any modern technology as far as it could reproduce in tangible formFootnote 46 Thus far, there is no case law to the author's knowledge that has invalidated a jurisdiction clause because it is orally agreed and evidenced in writing, or is written by different means. The relaxation of the writing requirement is consistent with international practice and commercial needs.
Furthermore, the Chinese law does not specify the format of ‘writing’. In principle, a jurisdiction clause can be written in different format, including being clearly written in the contract, contained in the standard terms of the general contract which is explicitly accepted by the parties, or contained in the small print on the back of the contract. If a contract is unilaterally drafted or is a standard form contract of one party, once the jurisdiction clause is properly notified to the other party, it is valid. The requirement of ‘proper notice’ demonstrates that some courts are ready to consider the format of writing to decide the authentic consent of the parties.Footnote 47 The proper notice requirement also applies to the valid incorporation of a jurisdiction clause contained in another contract. In a few disputes relating to bills of lading, the Chinese courts have held that a dispute resolution clause contained in the charter could not be successfully incorporated in the bill of lading if the language of incorporation only refers to ‘all the terms whatsoever of the charter’, instead of specifying the dispute resolution agreement,Footnote 48 or where the dispute resolution clause is only referred to on the back of the bill of lading.Footnote 49
III. PROROGATION EFFECT OF JURISDICTION CLAUSES CHOOSING CHINESE COURTS
Article 242 does not clarify the effectiveness of a jurisdiction clause. However, since the parties have the right to choose, it is reasonable to conclude that the provision aims to provide the chosen court with jurisdiction. Strictly speaking, the jurisdiction does not completely stem from party autonomy, because the Chinese law generally allows the parties to select from those courts that have jurisdiction under the default rules.Footnote 50
If the parties have chosen the Chinese court in a valid jurisdiction agreement, the chosen court must take jurisdiction.Footnote 51 According to the judicial direction of the Supreme People's Court in the ‘Summary of the Second National Conference on the Adjudication of Commercial and Maritime Cases with Foreign Elements' published in 2005 (‘2005 Summary’),Footnote 52 a Chinese court is not allowed to decline jurisdiction if there is an agreement between the parties choosing the Chinese court,Footnote 53 even if the foreign court may be more appropriate and convenient to hear the dispute. There may be doubt as to whether the 2005 Summary continues to apply to the amended PRC Civil Procedure Law. The probability is that it does. Although the 2005 Summary provides interpretation to the PRC Civil Procedure Law 1991, the 2007 amendment does not make any revision to the old rule in choice of court agreements. Furthermore, the 2005 Summary is not repealed by the Supreme People's Court. It suggests that the 2005 Summary continues to have legal effect.
The 2005 Summary raises three issues: firstly, in contrast with the presumption of many commentators, the Supreme People's Court of China accepts that in certain circumstances a Chinese court could decline jurisdiction even if it has jurisdiction pursuant to the Chinese law. This approach is very similar to the doctrine of forum non conveniens which is used widely in the common law countries. Although China has a civil law tradition and the court's discretion is very limited, the Supreme People's Court has recognized the possibility that in cross-border actions there might be cases to which a Chinese court has jurisdiction but it is difficult or inconvenient for the Chinese court to proceed due to the convenience of the parties and witnesses, the location of the properties, the application and the proof of the applicable law, and the accessibility of the evidence.Footnote 54
Secondly, the discretion cannot be exercised where a Chinese court is designated by the parties. This is probably due to the reason that since a Chinese court is chosen, the parties have agreed that this jurisdiction should be the appropriate one and promised not to submit the dispute to other jurisdictions. Party autonomy excludes the necessity to conduct a normal check on connections between the dispute and the country to establish the more convenient forum. In practice, many Chinese courts need to be satisfied that there are no agreements choosing the Chinese court before moving to consider whether they should use discretion to decline jurisdiction.Footnote 55
Thirdly, the compulsory effect is granted to any jurisdiction clauses choosing Chinese courts, regardless of their exclusivity.Footnote 56 Suppose a Chinese court is designated in a non-exclusive jurisdiction agreement. If there is another forum, which is clearly more appropriate or convenient to hear the dispute, the Chinese court could not use its discretion to decline jurisdiction pursuant to Article 11 of the 2005 Summary. A non-exclusive jurisdiction clause has no power to exclude jurisdiction of other competent fora. The judicial direction thus provides a Chinese non-exclusive jurisdiction clause stronger effects than it otherwise has. The judicial direction clearly shows that the Chinese courts recognize the importance of party autonomy and accept jurisdiction granted by consent. However, it also demonstrates the lack of proper understanding of the difference between non-exclusive and exclusive jurisdiction clauses and the failure to take parties' real intention into consideration.
IV. DEROGATION EFFECT OF EXCLUSIVE JURISDICTION CLAUSES CHOOSING FOREIGN COURTS
Although the PRC Civil Procedure Law accepts parties' freedom in choosing a competent court to decide cross-border disputes, the Chinese law fails to clarify whether an exclusive foreign jurisdiction clause has the effect of excluding jurisdiction of an otherwise competent Chinese court. Because of the legislative uncertainty, the tradition to make jurisdiction granted by law ‘compulsory’,Footnote 57 the Chinese traditional tendency to expand jurisdiction in order to assert state sovereigntyFootnote 58 and the absence of judicial cooperation between China and most countries to recognize and enforce each other's judgments, the Chinese courts are more reluctant to decline jurisdiction in favour of a foreign jurisdiction clause. The Supreme People's Court provides in Article 12 of the 2005 SummaryFootnote 59 that even if the parties agree in their contract that a foreign court has exclusive jurisdiction, this agreement could not exclude the jurisdiction of other competent courts. A Chinese court, which is competent under the Chinese law, could hear a dispute subject to a valid exclusive jurisdiction clause choosing a foreign court.Footnote 60 However, it is necessary to note that the 2005 Summary only provides that a Chinese court ‘could’, instead of ‘should’, exercise jurisdiction granted by Chinese law if the parties have concluded an exclusive foreign jurisdiction clause. The Chinese court, pursuant to its judicial direction, may decide whether or not to take jurisdiction in breach of the foreign jurisdiction agreement.Footnote 61 There is no mandatory requirement for a Chinese court to decline jurisdiction in face of a valid exclusive jurisdiction clause choosing a foreign court.
A. Breach of Valid Foreign Jurisdiction Clauses for the Purpose of Enforcement
It has been argued by some commentators that if a court refuses to give effect to a valid foreign exclusive jurisdiction clause, it denies the importance of party autonomy, breaches international comity, and infringes the commercial requirement.Footnote 62 The allegation may be true in many countries. However, many Chinese courts accept jurisdiction in breach of a valid exclusive jurisdiction clause not because these courts view foreign jurisdiction clauses as an intervention in the state's sovereignty, but because foreign judgments could not be enforced in China, even if the foreign courts take jurisdiction pursuant to valid jurisdiction clauses.
The Chinese law provides very narrow grounds for a Chinese court to recognize and enforce the judgment given by a foreign court. Foreign judgments can be recognized and enforced in China based on two grounds: (1) there is an international treaty, ratified or acceded to by both the foreign country and China, which grants treaty obligations to the Contracting States to recognize and enforce each other's judicial decisions; (2) in the absence of treaty obligations, the Chinese courts can only recognize and enforce foreign judgments based on the principle of reciprocity.Footnote 63 The principle of reciprocity refers to the factual reciprocity, which means that the concerned foreign country must have precedents recognizing and enforcing the Chinese judgements.Footnote 64 If such precedents do not exist, the Chinese courts will not consider the fact that, according to the domestic law of the foreign country, Chinese judgments are eligible to be recognized and enforced in this country in principle.Footnote 65 Without treaty obligations and reciprocal precedents, Chinese courts will not recognize and enforce judgments made by a foreign court. No exception is given where the foreign court takes jurisdiction under an exclusive jurisdiction clause which is valid under the Chinese law. Where neither ground is met, the only remedy left for the judgment creditor is to recommence the same cause of action in the Chinese court.Footnote 66 The claimant thus has to bring the substantive claim in the Chinese court for the enforcement purpose, and go through the whole proceedings for the second time. If the Chinese court decides differently from the court chosen by the parties, the claimant loses its chance to get any remedies. The current law increases litigation costs, produces extra burden to both parties, causes duplication of proceedings, leads to potentially irreconcilable judgments, causes delay, wastes judicial recourses and hampers international comity.
The barrier to the recognition and enforcement of foreign judgments is a fundamental reason preventing a Chinese court from giving the derogation effect to a foreign jurisdiction clause. Even if the parties have entered into a valid jurisdiction clause choosing a foreign country, the foreign judgments cannot be recognized and enforced in China and the Chinese courts might be asked by the judgment creditor to rehear the case at the recognition and enforcement stage. In NKK (Japan) v Beijing Zhuangsheng,Footnote 67 for example, a Japanese company and a Chinese company concluded a contract for the sale of goods which contained an exclusive jurisdiction clause choosing the Hong Kong court. The dispute was firstly brought in the Hong Kong court which gave judgments in favour of the claimant. However, when the Hong Kong judgment was given, there was no judicial cooperation between China Mainland and Hong Kong. Hong Kong judgments, thus, could not be recognized and enforced in China. Since the judgment debtor had no property in Hong Kong, or anywhere else in the world, NKK, the judgment creditor, had to bring the same action in China. The Chinese court accepted jurisdiction pursuant to the Chinese law holding that the existence of an exclusive jurisdiction clause designating a foreign court and the existence of parallel proceedings could not, in principle, prevent the competent Chinese courts from hearing the case.Footnote 68 The Court further stated that if the Chinese court refused jurisdiction based on the ground that the parties had entered into an agreement giving a foreign court exclusive jurisdiction, it denied the remedy that the claimant should be able to get and it eventually refused the claimant's right to have its right enforced.Footnote 69 In RNO v Beijing International Music Festival Society,Footnote 70 the Beijing Municipal No 2 Intermediate People's Court refused to recognize the judgment given by the English court, because there was no judicial cooperation treaty between China and the UK and there was no precedent in which the English courts recognized or enforced Chinese judgments.Footnote 71 The Court explicitly suggested that the claimant could consider bringing the same action in a competent people's court irrespective of the exclusive jurisdiction agreement choosing the English court.
In order to avoid the cost of duplicate proceedings, some contractual parties are forced to breach their jurisdiction agreements by commencing the action directly in the Chinese courts.Footnote 72 Some Chinese courts, recognizing the difficulty of the recognition and enforcement of foreign judgments made pursuant to a choice of court agreement, will take jurisdiction in breach of such an agreement in the interests of justice. In Kwok & Yih Law Firm v. Xiamen Huayang Color Printing Company,Footnote 73 the Xiamen Municipal Intermediate People's Court refused to decline jurisdiction in favour of the Hong Kong court, which was chosen by the parties in their jurisdiction clause, primarily based on the fact that the defendant had all their property located in China Mainland and the judgment of the Hong Kong court, if against the defendant, could not be enforced.Footnote 74 It is interesting to note that although these courts did not use the terminology of forum conveniens, they have followed the basic spirit of forum conveniens to assert jurisdiction in breach of a foreign exclusive jurisdiction clause. Recognition and enforcement of judgments and the location of assets are closely connected to the determination of an appropriate forum. If the judgment cannot be enforced, no matter how closely the country is connected with the dispute, the trial is ineffective and asserting jurisdiction is not sound management of judicial resources.Footnote 75
However, this approach could lead to unreasonable results and procedural difficulty. Firstly, the difficulty of enforcement only exists where the claimant has succeeded or would succeed in the action. Whether a claimant could succeed should be determined at trial. When a court determines its international jurisdiction at a preliminary stage, it will not consider the merit of each party's case or predict the possible outcome of the dispute. In other words, the possible outcome of the dispute should not be a factor for a court to take into consideration when deciding jurisdiction. Secondly, if a Chinese court blindly takes jurisdiction in all cases where the defendant has all assets in China for the purpose of enforcement, it may encourage a party to breach its contractual agreement by bringing a claim in the Chinese court. A claimant may try to bring an action, which does not have a real prospect of succeeding, in China, with the sole purpose of creating inconvenience to the defendant.
B. Declining Jurisdiction without Considering Enforcement
Some Chinese courts hold that an exclusive jurisdiction clause has the effect to preclude all other competent fora, including an otherwise competent Chinese court. These courts decline jurisdiction in cases where there are valid jurisdiction clauses by providing the full derogation power to an exclusive foreign jurisdiction clause, regardless of the possibility to enforce the foreign judgment.Footnote 76
These decisions are undoubtedly correct in theory and consistent with the international tendency to respect party autonomy and international comity. However, making the decision in the specific context and background of the Chinese judicial system leads to unexpected difficulty to the claimant and hampers the ends of justice from being achieved. Junichirou Watanabe v Culture & Art Press Footnote 77 is a case concerning conflict of jurisdiction between China and Japan. The parties had concluded a jurisdiction clause granting exclusive jurisdiction to the Japanese court. The claimant was a Japanese citizen, habitually resident in Japan. The defendant was a Chinese company with all its assets in China. Under normal circumstances, the claimant should have commenced the proceedings in the Japanese courts, which were also a more convenient forum to the claimant. The claimant, however, realized that the Chinese courts had refused to recognize and enforce the Japanese judgments in previous cases.Footnote 78 Although Japan was the forum chosen by the parties and had the personal connection with the claimant, the claimant eventually decided to commence the action in China in breach of the choice of court agreement.
Although the claimant commenced the Chinese proceedings violating his freely-entered agreement, this is an understandable action. From the perspective of law, the Supreme People's Court, in its judicial direction, accepts that a Chinese court could take jurisdiction irrespective of a foreign exclusive jurisdiction clause;Footnote 79 from the perspective of justice, suing in China was the only way by which the claimant can obtain his remedy. The claimant certainly did not bring the action with bad faith; the Japanese proceedings might prevent the claimant from receiving remedies or enforcing his rights and the Chinese proceedings were hardly vexatious or oppressive to the defendant. All these factors demonstrated that this was an exceptional case and it was better for the ends of justice for the Chinese court to take jurisdiction. The Shanghai Municipal No 1 Intermediate People's Court, however, declined jurisdiction. The only consideration in making the decision was that the jurisdiction clause was valid and exclusive and the parties should be bound by their agreements. The court did not consider the fact that there was no judicial cooperation or reciprocity between China and Japan. It is almost certain that if the Japanese court gave judgment in favour of the claimant, this judgment could not be enforced in China. The claimant, as a judgment creditor, must commence the same proceedings in China at the enforcement stage, and the Chinese court should take jurisdiction to hear the substance of the case upon this application pursuant to the 1992 Opinion.Footnote 80 The Chinese court would thus take jurisdiction in breach of the Japanese jurisdiction clause in any event. It is hard to justify why the court should not accept jurisdiction at the adjudication stage which, in the unsatisfactory circumstances, should be the only reasonable approach to prevent duplicity of proceedings and to achieve the ends of justice.
C. Declining Jurisdiction Where There Is No Difficulty of Enforcement
In cases where there was judicial cooperation or reciprocity between China and the country designated by the parties in their agreement, recognition and enforcement of foreign judgments is no longer a barrier preventing the enforcement of a valid exclusive jurisdiction clause. China has entered into around 30 bilateral agreements with foreign countries or regions to recognize and enforce each other's judgments,Footnote 81 and the courts of some countries have already recognized and enforced Chinese judgments, which generates the principle of reciprocity.Footnote 82 When the Chinese courts are seised to hear a case which is subject to an exclusive jurisdiction clause choosing one of those countries, the Chinese courts should decline jurisdiction in favour of the chosen court.
For example, China Mainland and Hong Kong have entered into a judicial cooperation arrangement in 2006.Footnote 83 This arrangement facilitates mutual recognition and enforcement of judgments between China Mainland and Hong Kong Special Administrative Region (HKSAR) pursuant to choice of court agreements. If a court of China Mainland or HKSAR has taken jurisdiction designated by an exclusive choice of forum clauseFootnote 84 and has given judgments enforceable by payment of money,Footnote 85 the beneficiary can rely on the arrangement to have the decision recognized and enforced in HKSAR or China Mainland.Footnote 86 In Lai v ABN AMRO Bank,Footnote 87 a Chinese citizen and a Dutch bank entered into an investment agreement providing that the investor could only sue the bank in the Hong Kong court to the exclusion of any other fora. After the dispute arose, the Chinese investor sued the bank in Shanghai, which had jurisdiction in the absence of party autonomy under the Chinese law. The Shanghai court, correctly, declined jurisdiction by providing the full derogation effect to the jurisdiction clause. Lai v ABN can be compared with NKK (Japan).Footnote 88 In both cases, the parties had chosen the Hong Kong Court in the exclusive jurisdiction agreement. In the former, the Chinese court declined jurisdiction in favour of the chosen courts; in the latter, the Chinese court had taken jurisdiction to decide the substance of the case regardless of the jurisdiction agreement and the fact that the Hong Kong court had already heard the case and made judgments. The key difference between the two cases is that at the time of decision in Lai, the China–HK arrangement had entered into force; while in NKK, there was no ground for the Chinese courts to enforce the Hong Kong judgments pursuant to the choice of court agreement.
In Wenzhou Foreign Trade Co of Light Industry Arts and Crafts v Compagnie Maritime d'Affrètement (France),Footnote 89 the Fujian Province High People's Court affirmed the decision of the Xiamen Maritime Court to decline jurisdiction in favour of the chosen French court in the bill of lading. This decision, again, would not cause difficulty in recognition and enforcement of judgments. China and France had entered into a bilateral agreement for reciprocal recognition and enforcement of judgments in civil and commercial matters in 1987.Footnote 90 According to the treaty, China and France should recognize and enforce each other's judicial decisions,Footnote 91 unless the judgments fall in one of the grounds justifying refusal,Footnote 92 one of which is that the trial court has no jurisdiction under the law of the requesting country.Footnote 93 Since the choice of court agreement is valid under the PRC Civil Procedure Law, the French judgment was eligible for recognition and enforcement in China.
D. Declining Jurisdiction Where Judgments Are Not Enforced in China
In other cases, if the defendant has no assets in China, or the defendant has assets located in China and other countries, the judgment in favour of the claimant need not be enforced in China. A Chinese court, in such cases, should have no difficulty to decline jurisdiction by giving full effectiveness to the foreign exclusive jurisdiction clause. In Yacheng Automobile Fittings v HSBC Holdings Plc,Footnote 94 for example, the parties entered into an agreement for the claimant to transfer its share in a subsidiary company to the defendant. The defendant failed to pay the price according to the agreement and the claimant brought an action in the Chinese courts demanding the defendant to perform the contract and to pay compensation. The contract contained a clause providing exclusive jurisdiction to the Singaporean courts. Although China and Singapore entered into a bilateral judicial cooperation treaty,Footnote 95 this treaty only provides the reciprocal recognition and enforcement of arbitral awards pursuant to the New York Convention.Footnote 96 It does not contain any provision facilitating the recognition and enforcement of court judgments. There is also no precedent of reciprocity between China and Singapore. The Singapore judgment cannot be recognized and enforced in China. However, in this particular case, both parties were companies registered in Singapore and the Singaporean court could directly enforce the judgment in Singapore. There was no difficulty in terms of recognition and enforcement of judgment. The Chinese court then recognized the derogation effect of the exclusive jurisdiction clause and declined jurisdiction accordingly.
E. Conclusion
Declining jurisdiction in cases where there is an exclusive choice of court agreement choosing a foreign court is far more complicated than it looks. Although it is admitted that parties should be bound by their agreements and party autonomy should be respected by the court, enforcing such an agreement in certain circumstances is impractical. Cross-border jurisdiction is closely connected with recognition and enforcement of judgments. Without the possibility to have a judgment enforced, the jurisdiction taken by the court loses its pragmatic value. The legal proceedings become largely symbolic.
The effect of a jurisdiction clause cannot be assessed in a vacuum without considering the whole context of cross-border access to justice. Without the effective mechanism to facilitate recognition and enforcement of judgments, declining jurisdiction would cause more inconvenience and costs to the parties than taking jurisdiction in breach of foreign jurisdiction clauses.Footnote 97 Although it is accepted that a court should respect the legitimate choice made by the parties, it is also true that practicability and judicial feasibility justify that sometimes courts will not give the full effect to a valid foreign jurisdiction clause. Given the narrow ground on which the Chinese courts may recognize and enforce foreign judgments, it is difficult for the courts to give judgments that both achieve the ends of justice and respect the doctrine of party autonomy. It is thus unrealistic to argue that these Chinese courts are certainly ‘wrong’ or ‘unreasonable’ to take jurisdiction irrespective of a valid foreign jurisdiction clause. On the other hand, if a Chinese court takes jurisdiction in all cases, where there might be requirements to enforce the judgment in China, this would hamper the reasonable expectation of commercial parties by entering into a jurisdiction agreement and may encourage a claimant to abuse the process.Footnote 98
In areas where recognition and enforcement of judgments is not a problem, ie there is a judicial assistance treaty, the principle of reciprocity is applicable or the defendant has assets located somewhere else, the Chinese courts have demonstrated the clear attitude to uphold the foreign jurisdiction clause.Footnote 99 Declining jurisdiction in these cases would not cause difficulties in enforcing the claimant's rights. It is reasonable to conclude that the greatest barrier for a Chinese court to fully respect party autonomy is the unduly narrow ground for the recognition and enforcement of foreign judgements.
V. THREE APPROACHES TO IMPROVE THE STATUS QUO
The status quo in China is clearly not ideal. On the one hand, some issues relating to the prerequisites of a jurisdiction clause are uncertain, and the law has provided unnecessary restrictions to a valid jurisdiction clause. On the other hand, the current law on recognition and enforcement of foreign judgments directly hampers the effectiveness of a foreign jurisdiction clause. The current situation cannot be improved simply by producing a legislative provision or judicial interpretation to require a Chinese court to decline jurisdiction in favour of a valid chosen forum. The reform in the law on jurisdiction clauses can only clarify the preliminary issues relating to the exclusivity and validity of a jurisdiction clause but cannot fundamentally improve the dilemma caused by enforcing a foreign jurisdiction clause.
The status quo can be improved by three different means: the first one is to amend the current Chinese law on recognition and enforcement of foreign judgments. The current grounds for recognizing and enforcing foreign judgments are unduly narrow.Footnote 100 It is suggested that China should abandon the doctrine of reciprocity and follow the practice in most countries by establishing standard conditions and principles and recognize foreign judgments satisfying these standards. The procedure for enforcement application should be simpler, speedier and more straightforward than deciding an action in substance. If the legislative body finds it is hard to make the fundamental amendment to the law on recognition and enforcement of foreign judgments in all types of cases, it is possible to make experimental reform in selected issues where consensus is easy to reach.Footnote 101
The second approach is to strengthen judicial cooperation with foreign countries or regions, by concluding bilateral judicial cooperation treaties on recognition and enforcement of judgments in civil and commercial matters pursuant to choice of court agreements. However, this approach requires the Chinese government to enter into treaties with each individual country. This is an extremely slow method for improving the whole situation and since each treaty will vary in content, it also hampers certainty in cross-border commercial relationships.
The third approach is to improve the situation based on the existing global judicial cooperation instrument. The Hague Conference on Private International Law adopted the Hague Convention on Choice of Court Agreements in 2005, which is currently open for signature. The Convention aims to facilitate judicial cooperation between the Contracting States in enforcing exclusive jurisdiction clauses and to recognize and enforce judgments given by the other Contracting States pursuant to a valid jurisdiction clause. After becoming a Contracting Party of the Convention, the Convention rules on exclusive jurisdiction clauses and recognition and enforcement of foreign judgments replace domestic law for disputes falling within the scope of the Hague Convention. Although this Convention is not yet in force,Footnote 102 once it is ratified by most countries in the world, it has the potential to become a judicial counterpart of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (‘New York Convention’).Footnote 103
Although the third approach is a promising one, it is necessary to recognize that diversity exists between the Chinese law and the Hague Convention. The Chinese law on the prerequisites of a jurisdiction clause is uncertain and over rigid. There are strong arguments suggesting that the Chinese law on this issue should be revised, and the judicial practice has shown that some Chinese courts voluntarily provide flexible interpretation to relax the law.Footnote 104 One of the possible approaches recommended by commentators is to revise the Chinese law in line with the Hague Convention.Footnote 105 The divergence between the Chinese law and the Hague Convention on the preliminary issues cannot form a fundamental barrier preventing China from ratifying the Hague Convention.
The major difference between the Chinese law and the Hague Convention is the recognition and enforcement of foreign judgments. It is likely that the Chinese lawmakers would be more reluctant to open the door to the recognition of a foreign judgment in civil and commercial matters than to relax the prerequisites. However, the potential concern of the Chinese legislator may be reduced by considering two facts. On the one hand, China has ratified the New York Convention and participated in the international cooperation recognizing the effect of an arbitration agreement and enforcing arbitral awards. The Hague Convention 2005 does not produce more risk to the Chinese court than the New York Convention. Both Conventions exclude a large number of issues from their scope,Footnote 106 provide similar grounds for refusal,Footnote 107 and the Hague Convention provides the possibility to make relatively broad reservations.Footnote 108 The practice in the past 25 years in enforcing the New York Convention in China demonstrates great benefits to the international trade and commerce involving Chinese interests and the development of arbitration as one of the most popular dispute resolution methods in China. The successful experience in arbitration could encourage China to take a positive view over the choice of court convention. On the other hand, an experimental arrangement has been made between China and HKSAR. The terms of the bilateral arrangement largely imitate the Hague Convention. The arrangement can be regarded as an experiment of enforcing the Hague Convention in China. The effect of the arrangement in the Hong Kong related business relationship could provide useful evidence demonstrating the future influence of the Hague Convention in China in the global context. If the experiment is successful, it could encourage China to ratify the Hague Choice of Court Convention.Footnote 109
However, the attitude of the Chinese legislative body is still ambiguous and hard to predict. In many cases in the past it has amended Chinese domestic law in harmony with an international treaty before China ratifies or accedes to the treaty.Footnote 110 The Hague Convention was established in 2005, the China–HK Arrangement was adopted in 2006, and China reformed the PRC Civil Procedure Law in 2007. Unfortunately, the 2007 amendment does not address any diversity between the Chinese law and the Hague Convention, demonstrating an absence of present intention to ratify the Hague Convention. The PRC Civil Procedure Law is currently under review again and it is necessary to wait and see whether the Chinese lawmaker will bridge the difference between the Chinese law and the Hague Convention in the forthcoming amendment. If the Chinese law is reformed by emulating the Hague Convention, it would give a clearer signal that China might be preparing to ratify the Hague Convention in the future.
VI. CONCLUSION
The pragmatic study of Chinese judicial practice in enforcing choice of court agreements gives rise to some interesting discoveries. Firstly, in contrast with the traditional presumption that the Chinese courts have no discretion in deciding whether to take or to decline jurisdiction, discretion arguably plays an active role in the current context where the legislation is ambiguous, inappropriate and outdated. Since it usually takes time for the legislative body to amend the current law to suit the urgent needs of commercial practice, some Chinese courts have used discretion to apply the law in a flexible manner in order to provide reasonable judgments in this unsatisfactory legislative context.Footnote 111 However, the actual exercise of discretion in the Chinese courts leads to inconsistent and unpredictable results. This is largely due to the fact that no consistent guidance has been provided and precedent has only instructive value in the Chinese legal system. Although the attempt of these Courts is laudable, the effect of the discretionary decisions is limited and produces uncertainty for the parties. Discretion is not enough to save ill-formed law, and the Chinese courts frequently encounter a dilemma in choosing between the ends of justice and respect for party autonomy, and between what the law is and what the law should be.
Secondly, recognition and enforcement of judgments is a very important factor in deciding the effectiveness of a jurisdiction clause. The doctrine of party autonomy only requires the court to consider whether there is an authentic agreement between the parties and whether the agreement has infringed public policy or mandatory rules. However, the ultimate goal of every claimant by commencing an action is to have its legal right enforced. Since the valid choice of court agreement does not necessarily lead to the enforcement of the judgment in another country, the compulsory requirement for a court to decline jurisdiction in every case where there is a valid foreign exclusive jurisdiction clause is not pragmatic. The difficulty in China also demonstrates that fully respecting party autonomy and protecting certainty and predictability requires judicial cooperation in facilitating mutual recognition and enforcement of judgments at the international level.
The Chinese law needs to be reformed and the reform requires a review of a broad range of issues, especially the recognition and enforcement of foreign judgments in China. Although China has played an important role in international trade and economy and has demonstrated a clear intention to give more commitment to international judicial cooperation, it is uncertain whether the Chinese legislator is ready systematically to reform law on the recognition and enforcement of foreign judgments. However, it is necessary to understand that the international tendency is to move from isolation to cooperation. With the improvement of its economy as the core of Chinese policy, China will inevitably step out and become more engaged with international judicial cooperation. Although it is hard to predict when the change will be made, it is almost certain that such a change is only a matter of time.
