China Contracts: Watching Jurisdictional Sausage Get Made.

China contract jurisdiction

I love when blog posts come pre-written. Today I was cc’ed on an email from one of my law firm’s international dispute resolution lawyers to a Canadian client’s in-house lawyer who had proposed writing a contract that would give the client the choice of suing its Chinese counter-party in either Canada or China.

In her response, our international litigator explained why this jurisdiction provision sounds good in theory but is too risky in practice for China contracts. She then gives a short dissertation on the factors that typically go into choosing jurisdiction, choice of law, and official language in China contracts:

On jurisdiction, I used to advocate for what you suggest.

However, after Chinese courts started holding this kind of split jurisdiction means there is no jurisdiction in China, I stopped doing that. If you want jurisdiction in China, the agreement should  be 1) governed by Chinese law, 2) written in Chinese and 3) provide for exclusive jurisdiction in China. Note that none of this is black letter law. This is just what actually happens on the ground in China and this is why I recommend all three of these where one really wants the right to sue in China.

To properly evaluate whether to go with Chinese law in a Chinese Court (which is what we nearly always end up choosing), we should talk about your concerns. Do you prioritize having an effective remedy against your Chinese counter-party or making it as difficult as possible for them to sue you? Once we get clear on your chief concerns, we can draft the enforcement section.

If your primary goal is to enforce this contract against your Chinese counter-party, we should provide for exclusive jurisdiction in China and Chinese law should apply and the contract should be in Chinese  But if your primary goal is to prevent the Chinese side from suing you, we should provide for exclusive jurisdiction in Canada. But if you do this, you should realize that China does not enforce Canadian judgments and so your agreement will be nearly useless as a means of enforcement against your Chinese counter-party.

In any event, the split approach will not work. We need to pick a single jurisdiction and governing law and official contract language and then go from there.

Arbitration is supposed to resolve this issue, however, it does not work so well for China since the Chinese courts as a practical matter are neither good nor enthusiastic about enforcing foreign arbitration awards.

There is no simple answer. A hard choice has to be made. The first thing we litigators consider when someone shows us an agreement is its jurisdiction provision. In most cases, the foreign lawyer has screwed up and made it impossible for the foreign company to enforce the contract and that stops things right there. We must avoid that result if you — like nearly all of our clients — prioritize enforcement against your Chinese counter-party over preventing a lawsuit against you. If you choose to go with a Canada for the jurisdiction and the law, it will not be necessary for us to draft this contract in Chinese as well as in English. Nonetheless, we still strongly recommend doing this because it will ensure that your Chinese counter-party fully understands it and that you two are on the same page before you two start doing business with each other.

Wow.  What do you think?

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