Reed Smith In-depth

On 31 December 2021, the Supreme People’s Court of PRC (SPC) issued a Meeting Note of the National Symposium on Foreign-related Commercial and Maritime Trials (全国涉外商事海事审判工作座谈会会议纪要) (the Meeting Note).

The 111 articles in the Meeting Note are divided into three main categories, namely (1) foreign-related commercial matters, (2) maritime matters and (3) judicial supervision of arbitration. Under article 111 of the Meeting Note, the Meeting Note applies to Hong Kong, Macau and Taiwan-related cases.

The SPC previously issued several similar meeting notes in respect of foreign-related maritime and commercial litigation. While such meeting notes are not a judicial interpretation and cannot be adopted by PRC courts as the legal basis for their decisions, they reflect the broad consensus among Chinese judges and provide important practice guidance as to how PRC courts will deal with issues referred to in the Meeting Note. Therefore, such meeting notes play an important role in practice, and the Meeting Note is highly relevant to future cross-border litigation in China.

(1) Foreign-related commercial matters

The first section of the Meeting Note covers the following topics:

  1. Jurisdiction
  2. Litigants
  3. Service in foreign-related proceedings
  4. Evidence in foreign-related litigation
  5. Application of international conventions
  6. Ascertaining foreign laws
  7. Corporate disputes
  8. Finance-related disputes
  9. Applications for recognition and enforcement of foreign judgments
  10. Restrictions on departure

A. Jurisdiction

Under PRC law, there are no specific provisions as to the determination of exclusive or non-exclusive jurisdiction by agreement. In practice, PRC courts have indicated that a jurisdiction agreement will be considered exclusive unless the parties expressly agree in the jurisdiction clause that the jurisdiction is non-exclusive. Article 1 provides that if a jurisdiction agreement signed by the parties to a foreign-related agreement or to a property rights dispute expressly submits the parties to the competent court of a country without describing it as a non-exclusive jurisdiction agreement, it shall be construed as an exclusive jurisdiction agreement, thereby clarifying the legal position under PRC law.

Asymmetric jurisdiction agreements, whereby one party is given a right to commence proceedings in one or more jurisdictions while the other party is confined to an exclusive jurisdiction, are common in the financial sector. Article 2 recognises the enforceability of such agreements unless they violate PRC rules on exclusive jurisdiction or concern consumer or labour rights.

B. Litigants

Article 9 of the Meeting Note provides that if a party sends a jurisdictional challenge by post or authorises its submission from a place outside China, it shall submit proof of its subject qualifications and valid contact details. Lawyers representing foreign parties in foreign-related jurisdictional challenges in China should inform their clients well in advance so that the relevant materials can be prepared accordingly.

C. Service in foreign-related proceedings

Articles 10 to 14 cover issues relating to service of court instruments in foreign-related proceedings. In particular, recognising the option of electronic service, article 11 of the Meeting Note provides that the PRC court may serve judicial instruments by electronic means if service on a person without domicile in China is needed and electronic service is not prohibited by the law of the country of the person to be served. It is worth noting that the same article further says that if the country of the person to be served is a contracting state to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters and has declared certain objections on service by post thereunder, that country shall be deemed to have prohibited electronic service.

D. Evidence

Article 93(1) of the Interpretation of the Supreme People’s Court on the Civil Procedure Law (the Interpretation) sets out a list of matters that need not be proved by the party relying on the same, which includes facts ascertained by binding judgments issued by PRC courts. In this regard, article 15 of the Meeting Note provides that legally binding judgments made by a foreign court or arbitral awards made by a foreign arbitral institution do not fall within article 93(1) of the Interpretation. The court shall ascertain and verify the relevant facts. On the other hand, the fact that such foreign judgments or arbitral awards have not been recognised by the PRC court shall not be a ground for their inadmissibility as evidence.

E. Corporate disputes

Article 28 of the Meeting Note provides that unless otherwise agreed by the relevant parties or otherwise stipulated under the law of the place of incorporation, execution of documents by directors of a company incorporated outside China on its behalf shall be considered a corporate act of the company, and the absence of its seal shall not affect the validity of execution. It further says that subject to the law of the place of incorporation, restrictions on the scope of directors’ authority imposed by the articles or the decision-making organ of the company shall not be binding against bona fide parties.

F. Finance-related disputes

Article 31 of the Meeting Note specifies that a notifying bank under a letter of credit may bear liability in tort where there is fault on its part when fulfilling its notification obligations, although its liability shall not exceed the outstanding amount under the letter of credit plus interest. Further, it is noteworthy that the underlying contracts in connection with the letter of credit shall not be the basis of claims by the beneficiary in respect of its loss.

Article 32 of the Meeting Note provides general guidance for PRC courts regarding calculation of interest on overdue payments denominated in a foreign currency. Unless parties otherwise agree, the interest rate may be calculated by reference to the interest rate on loans denominated in the same foreign currency for the same period published by relevant PRC banks.

(2) Maritime matters

The section on maritime matters covers issues relating to contracts of carriage of goods, insurance contracts, disputes over title to ships and tortious disputes over maritime matters.

A. Contracts of carriage of goods

Discharge of cargo without presentation of original bills of lading is the most common type of dispute over contracts of carriage of goods by sea. Under article 62 of the Meeting Note, the shipper or holder of a bill of lading shall have the burden of proving that it is the legitimate holder of the original bill of lading and that the carrier has released the cargo without presentation of the same. Where the carrier seeks to argue that the goods have not been released, it must prove that the goods are still under its control. In this regard, the Meeting Note reminds holders of original bills of lading of the importance of providing sufficient evidence to prove that they are unable to collect the goods, proof of which is sometimes difficult if the discharge takes place in a foreign country.

Article 63 of the Meeting Note further provides that where a carrier intends to argue that it should not be liable for any claims arising from discharge of cargo without presentation of original bills of lading, one of the possible defences is that the cargo has been handed over to local customs or port authorities in accordance with the law of the place of discharge and the carrier no longer has control over the goods after handing over the same.

On the other hand, there have been inconsistent interpretations as to whether a port operator is deemed to be a de facto carrier and thereby enjoys certain exemptions or limitations of liability under PRC laws. Article 67 of the Meeting Note clarifies that port operators are not carriers, de facto carriers or their agents or servants and are therefore not entitled to rely on the exceptions or limitations of liability under articles 58 and 61 of the Maritime Law.

B. Insurance contracts

China has no clear provisions dealing with the situation where the agreed insured sum exceeds the actual value of the insured matter, which has led to some inconsistent rulings in practice. Under paragraph 1 of article 73, even if the agreed insured sum exceeds the actual value of the insured matter, unless there is fraud on the part of the insured, any arguments put forward by the insurer that it is not liable for the difference between the agreed insured sum and the amount assessed in accordance with article 219 of PRC Maritime Law may be rejected by PRC court. This article respects the freedom of contract between the parties in respect of the insured sum and facilitates standardisation of practice in the maritime insurance industry.