Written By: Edward Sun, Esq.
Hengtai Law Offices
We came across an interesting clause regarding forum selection inChinawhen we were engaged to review “General Terms and Conditions for Purchasing” by a European company’sChinasubsidiary (“ABC Company”). The document says, in pertinent part: Place of Jurisdiction for all disputes arising from orders placed by the ABC Company shall beShanghai. The ABC Company also has the right to legal recourse at the supplier’s place of business. We suppose such a choice of jurisdiction must be valid in that European company’s own country. Unfortunately it is invalid under the laws of the People’s Republic of China.
Wikipedia (http://en.wikipedia.org/wiki/Forum_selection_clause) gives a template forum selection clause. It says: A simple forum selection clause covering both the proper law of the contract and the forum for resolving disputes might read:” This contract is governed by the laws ofEngland and any dispute shall be finally resolved by the English courts.” But if “England” is changed into “China” and “English” into “Chinese”, this template clause will become invalid under the laws of P.R. China.
The provisions about choice of jurisdiction were set forth in the Civil Procedure Law of the People’s Republic of China (“Civil Procedure Law”), codified in 1991 (revised in 2007) and the Supreme People’s Court’s Opinions on Several Questions regarding the Application of the Civil Procedure Law (“Opinions”) in 1992 (revised in 1998). PRC laws allow contracting parties to choose a particular court or an arbitration committee for dispute resolution with the following restrictions:
1. Chosen court must be linked to the contract in certain point
If a contract has no link to a particular court, the contracting parties can not choose that court for jurisdiction. According to Clause 25 of the Civil Procedure Law, the contracting parties are allowed and only allowed to choose a court located either in the plaintiff’s domicile, or in the defendant’s domicile, or in the performance place of the contract, or in the execution place of the contract or in the place of the contract subject.
2. Only one court or one arbitration committee can be chosen
Forum selection clause calls for express specificity .If more than one court, or more than one arbitration committee, or one court and one arbitration committee are chosen, the choice of jurisdiction shall be invalid. For example, if the parties simply say that their dispute shall be submitted to the arbitration committee inBeijingfor settlement, then such choice is invalid; because there are more than one arbitration committees inBeijingincluding the Beijing Arbitration Committee and the China International Economic and Trade Arbitration Commission (“CIETAC”). As another example, if the choice is written as “court in the place of execution of the contract or in the place of plaintiff’s domicile”, such clause is also invalid as there are two choices. Needless to say, if a contract says “Shanghaicourt” or “Beijingarbitration committee”, according to the PRC Laws, it shall be invalid too.
That’s why we say that the clause used in that European company’s “General Terms and Conditions for Purchasing” is invalid. For the ABC Company, the choice of jurisdiction is unspecified and uncertain, and this is not allowed under the PRC law. For the same reason, a forum selection clause can not say that any dispute shall be finally resolved by the Chinese courts.
3. Forum selection clause can not violate Exclusive Jurisdiction regulations
For some particular types of contracts parties are not allowed to choose place of jurisdiction. The so-called “exclusive jurisdiction regulations principle” under the Civil Procedure Law, stipulates that:
“The following cases shall be under the exclusive jurisdiction of the people’s courts herein specified:
(1) A lawsuit concerning real estate shall be under the jurisdiction of the people’s court located in the place where the real estate is located;
(2) A lawsuit concerning harbor operations shall be under the jurisdiction of the people’s court located in the place where the harbor is located; and
(3) A lawsuit concerning an inheritance shall be under the jurisdiction of the people’s court located in the place where the decedent was domiciled upon death, or where the principal portion of the decedent’s estate is located.”