In international commercial transactions, it is very common that one deal is performed by various parties (buyer, seller, carrier, bank, etc.) from different countries and regions. As a result, when a dispute arises, the parties tend to seek remedies in their own home countries. Therefore, related overseas legal proceedings or even parallel proceedings are very likely to exist in disputes arising from international trade. This article will make a brief analysis of overseas parallel proceedings in foreign-related commercial disputes under Chinese law.

1. The Parallel Proceedings in International Commercial Disputes

The parallel proceedings in international commercial disputes commonly refer to the situation in which different courts or arbitration tribunals in two or more jurisdictions hear the same claim from the same parties based on the same cause of action. If this situation happens in purely domestic disputes, the problem can be treated as an issue of ne bis in idem, while in an international context, the problem also relates to judicial sovereignty, judicial assistance, etc.

(1) Overseas Parallel Litigations

Under Chinese law, when parallel litigations occur in purely domestic legal proceedings, a party usually can raise a jurisdictional challenge in the later litigation proceedings based on non bis in idem and the courts shall uphold (See Article 247 of Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China). However, when there are overseas parallel litigations, based on the principle of judicial sovereignty, a Chinese court can still exercise its own jurisdiction upon the case. As long as Chinese courts have jurisdiction upon a case and the acceptance of submissions from the parties does not violate Chinese law and conventions or judicial assistance treaties signed by China, Chinese courts can hear the case no matter whether the case has already been heard or ruled by foreign courts (See Article 533 of Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China).

(2) Overseas Parallel Arbitrations

Different from court litigations, the problem of judicial sovereignty is rarely involved in arbitrations (judicial sovereignty is rarely involved in normal arbitral proceedings, but is involved at the enforcement stage of foreign arbitral awards, e.g. public policy etc.). As a result, as long as there is an effective arbitration agreement between the parties to submit a dispute for arbitration outside China and the submitted dispute is within the scope of the arbitration agreement, Chinese courts usually do not have jurisdiction upon the case (see Article 124.2 of the Civil Procedure Law of the People’s Republic of China and Article 5 of the Arbitration Law of the People’s Republic of China).

2. Risk Management against Overseas Parallel Proceedings in International Commercial Disputes under Chinese Law

The existence of parallel proceedings can easily cause a series of problems. The most obvious problem is that the parties need to spend more time and money in dealing with multiple procedures. As a result, the large cost is spent on merely solving procedural matters (such as jurisdictional challenges) instead of substantial issues, while the whole dispute resolution process is prolonged. Meanwhile, different court proceedings arising from the same case often occur in different legal regimes and potentially contradictory judgments may also bring challenges at the enforcement stage.

When talking about parallel proceedings, there are many preventive mechanisms in international investment treaties, for example, exhaust local remedies and umbrella clauses under earlier BITs, Article 1126 Consolidation under NAFTA, etc. However, in ordinary commercial disputes, without effective conventions/treaties, in order to prevent parallel proceedings, it all depends on the parties taking preventive measures — such as making clear agreements on dispute resolution mechanisms, arguing for forum non conveniens, or applying for anti-suit injunctions.

(1) Making Agreements on Dispute Resolution Mechanisms

On enforcement, the parties usually choose litigation or arbitration to resolve commercial disputes. However, when considering judicial sovereignty in international commercial disputes, courts are more likely to exercise their jurisdictions upon a case uncompromisingly, ignoring the agreement between the parties who consented to submit the case to foreign courts or even the ongoing overseas court proceedings.

Therefore, to be prudent, the parties may want to choose arbitration over court litigation to avoid undesirable intervention from courts. In addition, the New York Convention also greatly safeguards the cross-border enforcement of foreign arbitral awards.

If a party still prefers court litigation, it is critical that an exclusive jurisdiction clause is used as a non-exclusive jurisdiction clause has much less binding power. Besides, it should be notes that although China has formally signed the Convention of 30 June 2005 on Choice of Court Agreements in September 2017 and the Convention can guarantee the cross-border enforcement of court judgments to some extent within the territory of contracting states, when compared with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, its worldwide influence is still very limited and has far fewer contracting states. So far, the convention has come into force in European Union (includes UK but not Denmark), Mexico, and Singapore. China, Republic of Montenegro, Ukraine, and the United States have signed the convention but have not ratified it yet. Whereas the number of contracting states of the New York Convention has reached 159 (by April 2018).

(2) Arguing for Forum Non Conveniens

Forum non conveniens is one possibility to contend against parallel proceedings. Nevertheless, the effect of its application in practice is still weak. Under Chinese law, the test for forum non conveniens is extremely strict.

Firstly, in order to make a successful jurisdictional challenge based on forum non conveniens under Chinese law, a party has to show that its case meets all the six criteria under Article 532 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China:

  1. the defendant raises the request that the case shall be handled by a more convenient foreign court, or brings up jurisdictional challenge;
  2. the parties concerned have no agreement on selecting a Chinese court as the competent court;
  3. the case is subject to no exclusive jurisdiction of Chinese courts;
  4. the case involves no interests of the nation, citizens, legal entities or other organizations in China;
  5. main facts of the dispute have not occurred within the territory of China, and the case shall not be governed by Chinese law, due to which Chinese courts may have substantial difficulties in terms of ascertaining facts and applying laws when hearing the case; and
  6. a foreign court has exclusive jurisdiction upon the case and would hear the case in a more convenient manner.

Secondly, even if all the six criteria are met, Chinese courts still have discretion as to whether to dismiss the case or not. In other words, Chinese courts can still exercise jurisdiction and hear the case. The rationale behind this is, once again, the issue of judicial sovereignty.

(3) Applying for Anti-suit Injunction

While frequently used in common law (especially in English law), there is no anti-suit injunction under Chinese law. Therefore, based on the current law and the principle of territorial sovereignty, it is no surprise that Chinese courts do not recognize anti-suit injunctions issued by foreign courts against parties who have commenced court proceedings in China.

In practice, Chinese courts tend to simply ignore anti-suit injunctions issued by courts outside mainland China and for a long period of time, there was simply no official record on the view of the Chinese courts on such judicial document. However, on 21 July 2017, the Wuhan Maritime Court issued a maritime injunction to order the respondent, who previously obtained an anti-suit injunction from the High Court of the Hong Kong Special Administrative Region, to immediately file a request to the Hong Kong High Court to withdraw the anti-suit injunction. This was the very first official response regarding anti-suit injunction from the Chinese courts.

However, it should be noted that while Chinese courts tend to ignore anti-suit injunctions issues by courts outside mainland China or even expressly rule that the injunction is invalid, Chinese parties still cannot simply ignore an anti-suit injunction. For example, in English law, breach of an anti-suit injunction can lead to severe consequences — failure to obey is deemed a contempt of court. If so, English courts have broad coercive powers over those in contempt and can impose a fine, expropriate assets, or even impose a jail sentence. Thus, for entities or persons who have overseas business and assets or frequently travel abroad should be more careful when receiving an anti-suit injunction and deal with the issue on a case-by-case basis.

This article is mainly excerpted from the authors’ article in China Commercial Dispute Resolution Annual Report (2018). The report is edited by Beijing Arbitration Commission / Beijing International Arbitration Center (BAC/BIAC) and will be officially published by Wolters Kluwer soon.