Impacts of Amended Civil Procedure Law on Foreign-Related Litigations in China

Impacts of Amended Civil Procedure Law on Foreign-Related Litigations in China

September 25, 2023, Covington Alert

In early September 2023, the Standing Committee of the National People’s Congress of China approved the latest amendments to the Civil Procedure Law (the “2023 Amendment”). Effective January 1, 2024,[1] this amendment represents a significant change from the current Civil Procedure Law (the “Current Law”, in effect since January 1, 2022). Part IV, entitled  “Special Provisions for Foreign-Related Civil Procedures,” has undergone significant changes that will redefine China’s strategy for foreign-related civil litigation, including intellectual property (“IP”) cases. This article provides foreign companies doing business in China with information concerning the implications of these changes.

The primary features of the 2023 Amendment are:

• Expanded court jurisdiction over foreign-related cases;
• Streamlined process for serving notices on foreign entities by Chinese courts; and
• Elevated criteria for acknowledging and enforcing foreign court decisions.

Once the 2023 Amendment goes into effect next year, foreign companies, including those not domiciled in China, will face a greater risk of being sued in China. Further, Chinese courts may assert greater influence in foreign-related disputes—particularly IP cases.

Expanded Court Jurisdiction Over Foreign-Related Cases

Under the Current Law, the jurisdiction of Chinese courts is restricted to specific cases involving foreign defendants not domiciled in China and requires those cases to have a strong connection with China.[2] The 2023 Amendment broadens jurisdiction considerably, allowing Chinese courts to oversee all civil disputes involving foreign defendants if there are “appropriate connections” with China, except for cases concerning personal relationships. These “connections” may be based on, e.g., the location of contract formation, contract execution, subject matter of the litigation, assets available for attachment, tort committed, or the place of residence of the defendant’s representative office.[3] The 2023 Amendment also introduces two new mechanisms for determining jurisdiction:

• The court chosen by the parties; and
• The defendant’s implicit acceptance of jurisdiction.[4]

Accordingly, the 2023 Amendment eliminates the jurisdictional requirement of a direct, tangible link with China.

Furthermore, the 2023 Amendment expands the exclusive jurisdiction of Chinese courts in IP cases. Currently, Chinese courts’ exclusive jurisdiction is limited to certain types of foreign-related cases.[5] Under the 2023 Amendment, Chinese courts can exclusively adjudicate disputes concerning IP rights granted within China.[6] This change emphasizes China’s growing role in global IP dispute resolution.

Flexible Process for Serving Notices on Foreign Entities

Wider Set of Persons Eligible for Service:

Per the 2023 Amendment:

• Foreign entities not domiciled in China can have service accepted by their wholly-owned subsidiaries, branches or agents within China.[7]
• Legal representatives or principal officers of foreign organizations can receive service on behalf of these organizations when they are within a Chinese territory.[8]
• In cases where a foreign individual (lacking a Chinese domicile) acts as a representative or principal officer for a Chinese entity, the Chinese entity is authorized to accept service if both the foreign representative and the Chinese entity are sued together.[9]

More Service Methods are Available:

In addition to the traditional methods of service, such as hand delivery, mail, fax and e-mail, which are already allowed under the Current Law,[10] the 2023 Amendment authorizes Chinese courts to use any electronic means to effectuate service, or, with the consent of the recipient, any other method, provided that it complies with the laws of the recipient’s country.[11]

Expedited Public Announcement Service:

Public notice service to a foreign party is deemed completed 60 days after the announcement,[12] lowering the current three-month requirement.[13]

Clear Boundaries for Foreign Parallel Proceedings

Limiting Influences from Parallel Foreign Proceedings:

The 2023 Amendment offers clear guidelines on how Chinese courts should address parallel litigations in foreign jurisdictions:

• The Chinese courts’ decision to proceed with a case is not to be influenced by the presence of parallel cases in foreign jurisdictions.[14]
• The hearing of a similar dispute by a foreign court does not obligate the Chinese court to suspend proceedings. Generally speaking, Chinese courts will not stay a case in favor of a foreign parallel proceeding—especially if the case is within China’s exclusive jurisdiction or if it is determined that it is “obviously more convenient” to adjudicate the case in China.[15]
• Chinese courts may decline to hear a case if they believe it would be overly burdensome to do so and more appropriate for a foreign court to adjudicate. In such a situation, Chinese courts may dismiss the case in response to the defendant’s jurisdictional objections and advise the plaintiff to seek relief from a foreign forum.[16]

Stringent Review Before Enforcing Decisions Made by Foreign Courts:

The current standard for recognizing and enforcing foreign court decisions in China hinges on whether such decisions conflicted with fundamental Chinese laws or compromised China’s national interests.[17] The 2023 Amendment adds more nuanced conditions. One key condition involves examining the foreign court’s jurisdiction: even if a foreign law supports a foreign court’s jurisdiction, Chinese courts might not recognize and enforce the foreign court’s decision if there is no appropriate connection between the foreign court and the dispute, or if the foreign court’s decision encroached on the exclusive jurisdiction of the Chinese courts.[18]

Greater Likelihood That Foreign Businesses Will Be Sued in China:

The 2023 Amendment simplifies the process for serving foreign defendants who have no domicile in China. Consequently, foreign businesses may be directly sued in Chinese courts, either individually or jointly with a Chinese subsidiary or branch. Foreign businesses should be alert to potential default judgments that result from a failure to appear before the applicable Chinese court.

Chinese Courts Have Greater Influence in IP Disputes:

The 2023 Amendment allows Chinese courts to hear and decide a broader range of foreign-related cases. This positions the Chinese courts as a prominent forum for resolving global IP disputes—in particular, for cases involving standard essential patents. Additionally, judgments from foreign courts that conflict with China’s exclusive jurisdiction may not be recognized or enforced in China.

In summary, the 2023 Amendment introduces important changes to foreign-related civil litigation that will have a meaningful impact on IP disputes. Foreign businesses should monitor these developments closely.

If you have any questions concerning the material discussed in this client alert, please contact the following members of our firm.