Civil and Commercial Litigation for Foreign Enterprises in China: Practical Guide (Part I)

As China's reform and opening-up continue to deepen, foreign enterprises are increasingly involved in civil and commercial litigation in China. In recent years, the relevant legislative and regulatory framework has been continuously refined, and the legal norms governing foreign-related litigation have become increasingly well-developed.

That said, numerous practical operational issues in this field merit the attention of foreign enterprises. This article, the first in a two-part series, provides a detailed analysis of practical points in foreign-related civil and commercial litigation involving foreign enterprises in China from three perspectives: litigation parties, jurisdiction, and notarization/authentication.

I. Litigation Parties

(A) Determining the Presence of Foreign Elements

Part IV of the Civil Procedure Law of the People's Republic of China (the "Civil Procedure Law") sets out special provisions on foreign-related civil procedure — that is, the procedures applicable when the people's courts adjudicate civil cases involving foreign elements.

Under Article 522 of the Supreme People's Court's Interpretation on the Application of the Civil Procedure Law (the "CPL Judicial Interpretation"), a case is deemed to involve foreign elements where any of the following circumstances is present:

One or both parties are foreign nationals, foreign legal persons or other organizations, or stateless persons;
The habitual residence of one or both parties is outside the territory of the People's Republic of China;
The subject matter is located outside the territory of the People's Republic of China;
The legal facts that create, modify, or extinguish the civil relationship occurred outside the territory of the People's Republic of China;
Other circumstances under which the civil relationship may be deemed foreign-related.

Thus, the determination of whether a case involves foreign elements must be examined from three aspects: the subjects of the legal relationship, the subject matter, and the legal facts that create, modify, or extinguish the civil relationship. A case is foreign-related — and the special provisions on foreign-related civil procedure apply — so long as any one of these three aspects involves a foreign element.

Where no other foreign elements are present:

If the litigant is a foreign-invested enterprise registered in China (i.e., a Sino-foreign equity joint venture, Sino-foreign cooperative joint venture, or wholly foreign-owned enterprise), ordinary civil procedure applies;
If the litigant is a foreign enterprise located overseas, foreign-related civil procedure applies.

It should be noted that a branch office lawfully established by a foreign enterprise within China and holding a business license has standing to participate in litigation as a party. However, because a branch office cannot independently bear civil liability, where the branch is named as a defendant, the people's court may, upon the plaintiff's application, join the foreign enterprise that established the branch as a co-defendant.

(B) Litigation Status of Representative Offices of Foreign Enterprises in China

Although representative offices of foreign enterprises in China are prohibited from engaging in profit-making activities and may only conduct market research, display, and promotional activities related to the foreign enterprise's products or services, or liaison activities related to the sale of the foreign enterprise's products, provision of services, domestic procurement, or domestic investment, in practice, some representative offices may execute contracts on behalf of the foreign enterprise, thereby giving rise to disputes.

Article 13 of the Minutes of the Second National Conference on Foreign-Related Commercial and Maritime Adjudication (the "Foreign-Related Adjudication Minutes") clarifies that a representative office established by a foreign enterprise within Chinese territory lacks standing to participate in litigation. Disputes involving a representative office shall be litigated with the foreign enterprise as the party. In judicial practice, courts typically hold that a representative office is funded by allocations from the foreign enterprise, does not constitute an "other organization" possessing its own assets, and, under Article 52 of the CPL Judicial Interpretation, is not a type of other organization that can legally serve as a party to civil litigation. Civil disputes arising from the activities of a representative office shall be litigated with the foreign enterprise as the party.

Practical guidance:

If suit is brought solely in the name of the representative office as plaintiff, the claim will typically be dismissed by the court;
If the representative office is to be named as defendant, the foreign enterprise that established it must be named as defendant as well;
In these circumstances, because the foreign enterprise is a party, foreign-related civil procedure applies.

(C) Foreign Enterprises Engaged in Production and Business Operations in China

Under the Administrative Measures for the Registration of Foreign (Regional) Enterprises Engaged in Production and Business Operations within Chinese Territory, a foreign enterprise that has been approved for registration and has obtained a business license may directly conduct production and business operations in China in its own name in the following areas:

Onshore and offshore petroleum and other mineral resource exploration and development;
Construction contracting for buildings, civil engineering works, decoration, or the installation of lines, pipelines, and equipment;
Contracting for or accepting entrustment to operate and manage foreign-invested enterprises;
The establishment of branches in China by foreign banks;
Other production and business operations permitted by the State.

Procedural caution: In judicial practice, courts with less experience handling foreign-related cases may, upon seeing a foreign enterprise's business license issued in China, mistakenly treat the enterprise as a domestic entity and apply ordinary civil procedure. However, foreign-related civil procedure should in fact apply.

For example, in Civil Ruling No. (2015) San Zhong Min (Shang) Te Zi 04910, the Beijing Third Intermediate People's Court held: "Although Far East Energy Company holds a business license issued within China, it was incorporated and registered in Bermuda under the Bermuda Companies Act 1981. This case is therefore a foreign-related case."

II. Jurisdiction

In addition to the jurisdictional rules applicable in ordinary civil procedure, the Civil Procedure Law and relevant judicial interpretations set out special provisions on jurisdiction over foreign-related cases.

(A) Jurisdiction by Agreement and Territorial Jurisdiction

Article 34 of the Civil Procedure Law provides that parties to a contract may agree to choose a Chinese court for jurisdiction — a provision that applies to foreign-related contracts. Article 531 of the CPL Judicial Interpretation further provides that parties to a foreign-related contract may agree to choose a foreign court for jurisdiction, except where the case falls within the exclusive jurisdiction of Chinese courts under Articles 33 and 266 of the Civil Procedure Law.

Cases subject to the exclusive jurisdiction of Chinese courts:

Actions arising from disputes over immovable property;
Actions arising from disputes occurring during port operations;
Actions arising from inheritance disputes;
Actions arising from disputes concerning the performance within China of Sino-foreign equity joint venture contracts, Sino-foreign cooperative joint venture contracts, or Sino-foreign contracts for cooperative exploration and development of natural resources.

Except for the above categories of cases subject to exclusive jurisdiction, parties to a foreign-related contract may agree to choose either a Chinese or a foreign court for jurisdiction, provided the location of the chosen court has an actual connection with the dispute.

Practical Issue 1: Governing Law for Determining the Validity of a Jurisdiction Agreement

Chinese courts typically hold that even where a foreign-related contract designates foreign law as the governing law, that foreign law applies only to the adjudication of substantive contractual issues, and the validity of the jurisdiction clause must be determined under Chinese law (the law of the forum).

The Supreme People's Court stated unequivocally in Case No. (2011) Min Ti Zi 301: "Jurisdiction is a procedural matter and shall be adjudicated under the law of the forum. Accordingly, the law of the People's Republic of China shall apply to determine whether the jurisdiction clause in question can exclude the judicial jurisdiction of the Chinese courts."

Practical Issue 2: Determining "Actual Connection"

Under the Foreign-Related Adjudication Minutes, when determining whether the court chosen by the parties qualifies as "a court at a place with an actual connection to the dispute," factors such as the parties' domicile, place of registration, place of business, place of contract execution, place of contract performance, and location of the subject matter shall be considered.

If the parties to a foreign-related case choose a court in a particular country or region solely because that jurisdiction's laws are more sophisticated or more favorable to one party, but the chosen location has no actual connection to the dispute, the jurisdiction clause will be held invalid. The Supreme People's Court confirmed this position in both Case No. (2011) Min Ti Zi 301 and Case No. (2013) Min Ti Zi 243. Accordingly, when agreeing on a jurisdiction clause, parties must ensure that the location of the chosen court has an actual connecting factor with the dispute.

Determining Jurisdiction Where No Choice-of-Court Agreement Exists

Where a jurisdiction agreement exists, it shall be applied with priority. Where no such agreement exists and suit must be brought against a defendant with no domicile within Chinese territory, it is not necessarily the case that litigation must be pursued overseas. Under Article 265 of the Civil Procedure Law, if:

The contract was executed or performed within Chinese territory; or
The subject matter of the action is located within Chinese territory; or
The defendant has attachable assets within Chinese territory; or
The defendant maintains a representative office within Chinese territory,

then jurisdiction may be exercised by the people's court at the place where the contract was executed or performed, where the subject matter is located, where the attachable assets are located, where the tortious act occurred, or where the representative office is domiciled.

(B) Special Provisions on Subject-Matter Jurisdiction (Tier of Court)

Article 18 of the Civil Procedure Law provides that major foreign-related cases shall be under the jurisdiction of intermediate people's courts, devolving certain foreign-related cases not classified as "major" to basic-level people's courts. Article 1 of the CPL Judicial Interpretation defines "major foreign-related cases" as those involving a large amount in dispute, complex facts, or a large number of parties amounting to a significant impact.

Under the Supreme People's Court's Notice on Clarifying the Tier-Based Jurisdiction Standards for First-Instance Foreign-Related Civil and Commercial Cases and Related Issues Concerning Centralized Handling (Fa [2017] No. 359), the tier-based jurisdiction standards for first-instance foreign-related civil and commercial cases are categorized into four tiers by reference to the amount in dispute, based on the economic development level of each province, directly-administered municipality, and autonomous region:

Tier	Region	High People's Court	Intermediate Court (provincial capital, etc.)	Intermediate Court (other prefecture-level city)
1	Beijing, Shanghai, Jiangsu, Zhejiang, Guangdong	RMB 200 million and above	RMB 20 million and above	RMB 10 million and above
2	Tianjin, Hebei, Shanxi, Inner Mongolia, Liaoning, Anhui, Fujian, Shandong, Henan, Hubei, Hunan, Guangxi, Hainan, Sichuan, Chongqing	RMB 80 million and above	RMB 10 million and above	RMB 5 million and above
3	Jilin, Heilongjiang, Jiangxi, Yunnan, Shaanxi, Xinjiang	RMB 40 million and above	RMB 5 million and above	RMB 2 million and above
4	Guizhou, Tibet, Gansu, Qinghai, Ningxia	RMB 20 million and above	RMB 2 million and above	RMB 1 million and above

Practical notes:

Foreign-related cases must be tried by a foreign-related adjudication division or a specially constituted collegial panel;
Under Article 275 of the CPL Judicial Interpretation, small claims procedure does not apply to foreign-related civil disputes;
If a case involving a foreign enterprise in China is erroneously handled under ordinary procedure or small claims procedure, the foreign enterprise may raise a corresponding procedural objection.

(C) The Forum Non Conveniens Doctrine and Parallel Foreign Proceedings

The Forum Non Conveniens Doctrine

Article 532 of the CPL Judicial Interpretation provides that where a foreign-related civil case concurrently satisfies all of the following conditions, the people's court may rule to dismiss the plaintiff's action and direct the plaintiff to bring suit in a more convenient foreign court:

The defendant raises a request that the case be under the jurisdiction of a more convenient foreign court, or raises a jurisdictional objection;
There is no agreement between the parties choosing the jurisdiction of a court of the People's Republic of China;
The case does not fall within the exclusive jurisdiction of the courts of the People's Republic of China;
The case does not involve the interests of the State, citizens, legal persons, or other organizations of the People's Republic of China;
The principal facts in dispute did not occur within the territory of the People's Republic of China, the law of the People's Republic of China does not apply, and adjudication of the case by the people's court would present significant difficulties in finding facts and applying law;
A foreign court has jurisdiction over the case and it would be more convenient for it to hear the case.

The application of this doctrine requires two preconditions to be satisfied simultaneously: first, the Chinese court must itself have jurisdiction over the case; and second, all six conditions set out above must be concurrently satisfied.

Parallel Foreign Proceedings

Article 533 of the CPL Judicial Interpretation sets out the principles governing parallel foreign proceedings: where both a Chinese court and a foreign court have jurisdiction over a case, and one party brings suit in the foreign court while the other party brings suit in the Chinese court, the people's court may accept the case. After judgment, if the foreign court applies, or a party requests, for recognition and enforcement of the foreign court's judgment or ruling in the case, such recognition and enforcement shall not be granted, unless otherwise provided for in an international treaty jointly concluded or acceded to by both countries. Where a foreign court's judgment or ruling has already been recognized by the people's court, the people's court shall not accept an action brought by a party concerning the same dispute.

In other words, based on the principle of national judicial sovereignty, regardless of whether the foreign court has accepted the case or rendered a judgment, so long as the Chinese court has jurisdiction and accepting the case does not contravene Chinese law or jurisdictional provisions under international treaties, the Chinese court may accept the case.

Note: Parallel foreign proceedings and the forum non conveniens doctrine are independent concepts requiring separate analysis. The Supreme People's Court in Civil Ruling No. (2018) Zui Gao Fa Min Xia Zhong 261 also indicated that whether a mainland court should accept a Hong Kong-related case depends on the specific circumstances, including consideration of whether factors of forum non conveniens are present.

III. Notarization and Authentication

In foreign-related litigation, powers of attorney, proof of the party's legal status, proof of the representative's identity, and foreign-generated evidence must be notarized and authenticated. In practice, numerous details relating to specific notarization and authentication requirements merit attention.

(A) Power of Attorney

Under Article 264 of the Civil Procedure Law, where a foreign enterprise with no domicile within Chinese territory appoints a Chinese lawyer or another person to act as its litigation agent, the power of attorney mailed or delivered from outside Chinese territory must be certified by a notary public in the country of origin and authenticated by the Chinese embassy or consulate in that country, or must undergo the certification formalities prescribed in the relevant treaty between China and the country of origin, before it will take effect.

Special circumstances: If the foreign enterprise maintains a representative office in China or is lawfully engaged in production and business operations in China and holds a business license, and the power of attorney is mailed from within Chinese territory, is notarization and authentication still required? The precondition for the notarization and authentication requirement under the aforementioned provision is that the power of attorney has been "mailed or delivered from outside Chinese territory." Where the person in charge of the representative office in China has authority to exercise signing authority on behalf of the foreign enterprise, or the foreign enterprise is itself lawfully conducting production and business operations in China, and its authorized signatory signs and mails the power of attorney from within Chinese territory, notarization and authentication are not required.

Alternative methods: Articles 525 and 526 of the CPL Judicial Interpretation provide two alternatives:

Where the representative of the foreign enterprise signs the power of attorney in the presence of a judge of the people's court, the people's court shall accept it;
Where the representative of the foreign enterprise signs the power of attorney within Chinese territory and the signature is notarized by a Chinese notary public, the people's court shall accept it.

(B) Proof of Legal Status and Representative Identity

Article 523 of the Civil Procedure Law provides that when a foreign enterprise participates in litigation, the identity documents submitted to the people's court must be certified by a notary public in the country of origin and authenticated by the Chinese embassy or consulate in that country, or alternatively, must undergo the certification formalities prescribed in the relevant treaty between China and the country of origin. A person representing the foreign enterprise in litigation must submit to the people's court proof of their authority to act as representative, which proof is likewise subject to notarization and authentication requirements.

Comparative overview of proof-of-status documents by country:

Country/Region	Typical Proof-of-Status Document
United Kingdom, United States	Certificate of Incorporation or Certificate of Formation
Canada	Certificate of Continuance
Sweden	Certificate of Registration
Singapore	Biz File (from ACRA)
Finland	Trade Register extract

The representative issue: Foreign enterprises do not have a "legal representative" in the Chinese law sense. In some countries, proof-of-status documents may indicate the company's representative (e.g., the "Representation" section of a Finnish Trade Register extract identifying authorized signatories). However, proof-of-status documents from common law jurisdictions such as the UK and US typically do not identify the company's representative. In practice, the board of directors may authorize a representative in writing, who then signs the power of attorney in favor of the Chinese lawyer.

(C) Foreign-Generated Evidence

The Supreme People's Court's Several Provisions on Evidence in Civil Procedure (2019 revision, Fa Shi [2019] No. 19) maintains the requirement for notarization and authentication of foreign-generated evidence. However, in Article 39 of the Foreign-Related Adjudication Minutes, the Supreme People's Court drew a distinction between categories of foreign-generated evidence:

Evidence proving the litigant's capacity as a party: Must undergo the relevant notarization, authentication, or other certification formalities;
All other evidence: The party submitting the evidence may elect whether to undergo the relevant notarization, authentication, or other certification formalities, unless the people's court deems it necessary.

This differentiated treatment avoids imposing unnecessary procedural burdens on foreign-related litigants. Foreign litigants may decide whether to carry out notarization and authentication formalities based on factors such as the importance of the foreign evidence to the case and whether the opposing party is likely to raise objections. However, regardless of whether notarization and authentication have been completed, the court must arrange for cross-examination of all evidence generated outside Chinese territory.

Practical note: The absence of notarization and authentication does not necessarily render foreign-generated evidence inadmissible. The key factors are whether the opposing party can raise effective challenges and whether the evidence can be corroborated by other evidence. Conversely, even evidence that has been notarized and authenticated remains subject to cross-examination. The Supreme People's Court affirmed this position in Civil Judgment No. (2015) Min Si Zhong Zi 13.

Conclusion

This article has examined key practical points in civil and commercial litigation involving foreign enterprises in China from three dimensions: litigation parties, jurisdiction, and notarization/authentication. When determining the presence of foreign elements, a comprehensive review should be undertaken at three levels — the litigants, the subject matter, and the legal facts. On jurisdiction, attention should be paid to the "actual connection" requirement for choice-of-court agreements, the amount-in-dispute thresholds for tier-based jurisdiction, and the conditions for the application of the forum non conveniens doctrine. On notarization and authentication, different categories of documents should be distinguished by reference to certification requirements, and alternative mechanisms should be properly utilized to reduce procedural burdens.

In Part II, we will continue the discussion with other important practical issues in foreign-related litigation, including the application of law, service of process, and time periods.

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