The courts’ commercial jurisdiction stems from both the Chinese Constitution (as amended 1999) and the CCPL. These documents empower the courts to adjudicate cases arising from disputes concerning property and personal relations between or among citizens, legal entities, or other organizations. With regard to commercial litigation involving foreign elements, the jurisdiction of the courts is governed by both general and special provisions of the CCPL. In addition, the Supreme Court plays an important role in determining the lower courts’ jurisdiction pertaining to a particular type of case. For example, the Supreme Court requires that first instance cases involving patent disputes be adjudicated by an intermediate court appointed by the Supreme Court.

 

Under the provisions of the CCPL, the jurisdiction of the Chinese Courts is divided generally into four categories– tier jurisdiction, transferred jurisdiction, designated jurisdiction, and territorial jurisdiction.In addition to proper subject matter jurisdiction, the court must also meet both the tier and territorial requirements.

 

Tier jurisdiction  means the jurisdiction of the courts at each level, and dictates the level at which a particular case shall be filed in the first instance. Since in any given case there is only one appeal available under the “two-instance trials system,” it is important that the case start at the correct level. For a case involving foreign elements, commencing it at a higher level court is desirable given that most lower courts are inexperienced in handling international commercial litigation.

 

On April 9, 1999, the Supreme Court issued a “Notice on Taking of Cases Concerning Civil and Commercial Disputes at Higher Court of Provinces for the Trial of First Instance.” According to this Notice, a first instance case involving foreign elements may be initiated at a higher court if the amount in controversy meets minimum requirements. This jurisdictional amount requirement varies depending on the location and the cause of action, as well as whether a property-related or business dispute is at stake. In Beijing, Shanghai, and Guangzhou, for example, the amount in controversy requirement in a business dispute case is RMB 80 million (about U.S. $9.76 million). In provinces such as Gansu, Guizhou, Xing Jiang, Inner Mongolia, Qinghai, Ningxia, Yun Nan, and Tibet, the amount is reduced to RMB 8 million (about U.S. $976,000) for a similar case. In property-related cases, the Supreme Court set a ceiling for the number of cases per year that the higher courts may take in the first instance in addition to the amount in controversy requirement. An approval must be obtained from the Supreme Court if a higher court wants to take a first instance case on the ground of “significant impacts” when the case lacks the required jurisdictional amount, or the total number of cases taken exceeds the ceiling.

 

Transferred jurisdiction is analogous to a venue transfer and deals with the transfer of a case from a non-competent court to a competent court.Under Article 36 of the CCPL, if a court finds that it has taken a case without  jurisdiction, it shall transfer the case to the court that is competent. If the court to which the case is transferred believes that it also lacks jurisdiction, it shall refer the case to a higher court for designation of jurisdiction. In accordance with the CCPL, for transferred jurisdiction to be valid three conditions must be met: (1) the case must have been taken; (2) the transferring court must lack jurisdiction; and (3) the case must be transferred to a competent court. The jurisdiction of the transferring court shall be determined from the record as of the time the transferring court accepts the case.

 

Designated jurisdiction occurs when a higher court orders a lower court to exercise jurisdiction that it would otherwise lack. Pursuant to the CCPL, jurisdiction may be designated to a lower court if: (1) the case is transferred to a court that lacks jurisdiction; (2) the court that is competent could not exercise its jurisdiction due to some special reasons, such as natural disaster or on the legal grounds of recusal; or (3) more than two competent courts are in dispute over their jurisdiction on the case and the dispute cannot be solved by an agreement between the disputing courts.

 

The most important feature of the courts’ jurisdiction is territorial jurisdiction. Questions of territorial jurisdiction in the courts are typically determined by reference to the relations between the forum and the parties, disputes, or factum jurisdicum (legal facts). To be precise, territorial jurisdiction determines venue, personal jurisdiction, and jurisdiction over property. As noted, with regard to cases involving foreign elements, the CCPL contains both general and special rules determining the courts’ jurisdictional competence. The factors determining territorial jurisdiction are domicile, place of business, conduct, location of property, and party consent. Based on the difference of these factors, territorial jurisdiction can be further divided into general territorial jurisdiction, specific jurisdiction, consensual jurisdiction, and exclusive jurisdiction. Note that China does not follow the practice of some continental law countries, such as France, in which nationality serves as an important basis for a court to assert its jurisdiction.

 

A. Defendant Domicile-General Territorial Jurisdiction

General territorial jurisdiction is determined by the defendant’s domicile.The courts may exercise jurisdiction over a given defendant who is domiciled, resides, or conducts business within the territorial boundary of the court, regardless of the defendant’s nationality. According to the CCPL, a commercial lawsuit generally shall be brought in the court at the place of the defendant’s domicile. If a defendant has both a domicile and a habitual residence, jurisdiction is proper in the venue of the defendant’s habitual residence. When there are several defendants who are domiciled or reside in two or more jurisdictional territories, the courts in those territories shall all have jurisdiction. In this circumstance, the CCPL allows a plaintiff to choose one of the competent courts. If the plaintiff files a lawsuit with two or more competent courts, the court with which the lawsuit was first filed shall exercise jurisdiction. 

The defendant’s domicile-based jurisdiction rests with the jurisdiction doctrine commonly characterized as “plaintiff’s accommodating defendant.” An exception to this doctrine applies, however, when the personal status of the parties is involved. Under the CCPL, if a commercial lawsuit concerning personal status is brought against a person not residing in China, the court of plaintiff’s domicile or habitual residence shall have jurisdiction.According to the Supreme Court, a Chinese plaintiff may sue his or her spouse in a court of his or her domicile for divorce if the spouse resides in a foreign country.

 

B.  Conduct and Property-Specific Territorial Jurisdiction

In international commercial litigation, many cases involve a foreign defendant not domiciled or residing in China. In such a case, the  court has jurisdiction if the defendant has established certain connections with China. It is of importance to note that “mere presence” in China does not constitute a basis on which a court may exercise jurisdiction. Therefore, for jurisdiction purposes, the connection must be meaningful, providing a “sufficient ground” warranting the exercise of the courts’ judicial power.

 

Thus, the CCPL specifically grants the courts jurisdiction over international commercial actions founded upon claims arising out of a foreign defendant’s conduct or property. Under Article 243 of the CCPL, certain specific jurisdiction rules shall apply to actions involving contract disputes or other disputes over property rights against a non-resident defendant. According to these rules, if the contract is concluded or performed in China, a court at the place of contract or the place of performance shall have jurisdiction. If the subject matter of the claim is located in China, the jurisdiction shall rest with the court where the subject matter of the claim is located. If the defendant has attachable property in China or has a representative office in China, the defendant shall be subject to the jurisdiction of the court at the place of such property, or the place of the representative office. In a tort action, the place of tort shall be the determinative factor for jurisdiction.

 

A contract or tort action requires further attention. In a contract dispute, parallel jurisdiction would exist between the court of locus contractus (the place of a contract) and the court of locus solutionis (the place of a contract performance), if these jurisdictions are different. In this situation, the plaintiff may choose either one of these courts for litigation. In a business contract, if the name of the contract does not match the substance of contractual obligations contained therein, the place of contract performance shall be determined with reference to the substance. If it is difficult to tell the nature of a contract on the basis of its substance and if the name of the contract matches part of the substance, the name of the contract shall be used to determine the place of contract performance. As far as a tort action is concerned, jurisdiction shall be asserted by the court where the cause of action arose or the place of defendant’s domicile.The place of tort is interpreted by the Supreme Court to include both locus delicti commissi (place where a tort is committed) and the place where harms have occurred. Once again, the plaintiff may choose among these venues.

 

On November 22, 2000, the Supreme Court issued an “Interpretation on Matters Concerning Application of Law in the Trial of Cases Involving Computer Network Copyright.” In this Judicial Interpretation, the Supreme Court expanded the place of tort to include the location of the computer equipment, such as the server or network terminal, where the tortious act is committed. The Supreme Court was also of the opinion that in a tort action concerning computer network copyright where both the place of the tort and the place of defendant’s domicile could not be determined, the place of the network terminal equipment where the tortious contents were found may be deemed as the place of the tort.

 

For cases arising from other causes of action, jurisdiction is determined with reference to other provisions of the CCPL. For example, under Article 26 of the CCPL, a case involving insurance contracts shall be adjudicated by the court at the place of defendant’s domicile or the place where the insured object is located. According to Article 27, jurisdiction over disputes concerning negotiable instruments is proper at the place where payment was due.

 

C.  Exclusive Jurisdiction

The CCPL expressly excludes foreign courts from exercising jurisdiction over certain commercial actions over which the Chinese Courts shall have exclusive jurisdiction.The most prominent commercial actions subject to the exclusive jurisdiction of the courts are disputes arising from contracts of foreign investment enterprises (FIEs). Article 246 of the CCPL explicitly provides that the courts of China shall have exclusive jurisdiction over disputes concerning the performance within China of contracts of Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures, or Chinese-foreign cooperative exploration and development of natural resources.

In addition, certain actions shall be under the exclusive jurisdiction of a particular Chinese Court. In accordance with Article 34 of the CCPL, if: (1) a lawsuit involves a dispute over real estate, the court of the place where the real estate is located shall have jurisdiction; (2) a lawsuit involves a dispute over harbor operations, the jurisdiction shall rest with the court of the place where the harbor is situated; and (3) a lawsuit arises out of the dispute over succession, jurisdiction is proper where the decedent was domiciled upon his death, or where the major estate is located.

 

D.  Parties’ Choice or Consent-Consensual Jurisdiction

The CCPL allows litigants to choose a court through mutual agreement. Therefore, the courts’ jurisdiction could also be established by consent of the parties. However, under Article 244 of the CCPL, such choice is subject to three conditions: (1) the agreement must be made in writing; (2) the court chosen must have an actual connections with the dispute; and (3) the dispute must involve foreign contracts or foreign property rights.Article 244 further requires that the parties’ choice of court be made without violating the provisions of the CCPL concerning tier and exclusive jurisdiction if a Chinese Court is chosen.A similar provision is found in Article 25 of the CCPL, which applies to domestic commercial cases.It provides that parties to a contract may choose, in their written contract, to be subject to the jurisdiction of the court at the place of defendant’s domicile/ residence, contract performance, contract conclusion, or subject matter of the claim. Again, the choice of jurisdiction shall not violate the provisions of the courts’ tier and exclusive jurisdiction.

 

In cases involving foreign elements, a non-resident defendant may stipulate to the jurisdiction of a court by consent. The consent need not be specifically made in writing, but may be assumed by the court through the defendant’s filing of an answer to the complaint. The defendant’s failure to object is essential in defendant’s consent to the court’s jurisdiction.Article 245 of the CCPL provides that if the defendant raises no objection to the jurisdiction of a court and files its answer to the complaint in a commercial action involving foreign elements, the defendant shall be deemed to have accepted the court’s jurisdictional competence.

 

Since the defendant’s failure to object constitutes consent to jurisdiction, it is imperative that defendants, foreign defendants in particular, raise a timely jurisdictional objection. Under Article  of the CCPL, if a party to a commercial action objects to the jurisdiction of a people’s court, the objection must be raised within the time period prescribed for the filing of answers. According to Articles 113 and 248, defendant shall have fifteen days, or thirty days if residing outside the territory of China, to file his answer upon receipt of plaintiff’s complaint. Thus, if a defendant wants to challenge the court’s jurisdiction, he must do so within this statutory fifteen-day or thirty day period. According to the Supreme Court, a third party to the litigation may also challenge the jurisdiction of a court if the third party has an independent claim. Once the jurisdiction is challenged, the court shall have fifteen days to review the challenge and make a decision in the form of a court order. A court order on jurisdictional matters is appealable.

 

A number of Chinese scholars have strongly advocated introducing the doctrine of forum non-conveniens into the Chinese courts. In August, 2000, the China Society of Private International Law published the “Model Law of Private International Law ” . Article 51 of the Model Law states that a Chinese Court may, at the request of a defendant, decline its jurisdiction over a commercial action, which is lawfully under the jurisdiction of the court, if the court believes that the exercise of the jurisdiction will result in obvious inconvenience to the parties and another court would be more convenient.

 

It seems in practice that the forum non-conveniens doctrine has gained some judicial recognition in the courts. This recognition, however, is limited.On April 17, 2000, the Supreme Court issued a “Notice on Several Questions in Adjudication and Enforcement Concerning Civil and Commercial Cases with Foreign Elements” to urge the Chinese Courts not to give up jurisdiction without reasonable cause. According to the Notice, it is required that the courts strictly follow the jurisdiction provisions of the CCPL, and shall carefully review all jurisdictional matters in each case brought before them. It is further required that acourt shall neither delay nor decline exercising judicial power over the case under its jurisdiction as provided by law. But, if the parties to a commercial litigation are all non-Chinese enterprises and the disputes have no practical connection with China, a court may advise the parties to choose alternative courts in other countries.In this case, litigation in the court would be deemed unrealistic in terms of the determination of evidence and enforcement of judgments.

 

One important aspect concerning jurisdiction of the courts is the arbitration clause or agreement. Under Article 257 of the CCPL, the court’s jurisdiction is excluded in disputes arising from foreign economic, trade, transport, or maritime activities if there is an arbitration clause in such contract, or if the parties to the contract have subsequently reached an arbitration agreement for dispute settlement. Furthermore, pursuant to Article 259, a court shall have no jurisdiction over a case in which an award has been made by a foreign arbitration body. However, these restrictions do not apply if the arbitration clause or agreement is found invalid or the arbitration award is set aside by court order.

 

Another factor affecting the courts’ jurisdiction over foreign defendants is service of process. It is critical to note that service of process in China is deemed judicial conduct, and therefore only the court may serve process. The CCPL provides six methods of service, which include: (1) personal service upon defendant (also called direct service); (2) service left at the defendant’s residence; (3) entrusted service through the court of the place where defendant resides; (4) service by mail; (5) service forwarded to defendant by defendant’s work unit or authority; and (6) service by public notice. Under the CCPL, a receipt of service signed by the receiving person is required except for service made by pubic notice.

 

If a defendant resides outside China, the extraterritorial service shall be made through either: (1) the means as provided for by international treaties to which both China and the foreign country are members; (2) the methods permitted by bilateral agreements for judicial assistance between China and the foreign country; or (3) diplomatic channels.

 

The Chinese Courts’ jurisdiction can also be excluded by a statute of limitations. According to

General Principles of the Civil Law of 1986, except where otherwise provided by law, the limitations period for commercial actions is two years from the date when plaintiff knows or should have known that his rights have been infringed. Under Article 136, the period is one year for actions involving: (1) personal injury; (2) sales of qualitatively substandard goods without proper notice; (3) delays in paying rent or refusal to pay rent; or (4) loss of or damage to property left in the custody of another person. Pursuant to theContract Law of 1999, the time limit for actions concerning disputes over contracts for international sales of goods and import or export of technology is four years. In all others cases, the maximum time period is twenty years from the day on which the infringement occurs.