Tag Archive for: China

Chinese Court Enforces Singaporean Judgment based on De Jure Reciprocity

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By Zheng Sophia Tang, Wuhan University Institute of International Law and Academy of International Law and Global Governance

 

Chinese courts recognize and enforce foreign civil and commercial judgments under two circumstances: the existence of treaty obligations and the existence of reciprocity. In the past, Chinese courts relied solely on de facto reciprocity to enforce foreign judgments, which requires evidence to prove the courts in the foreign country enforced Chinese judgments in previous cases. Some courts have adopted an even tougher approach and rejected enforcing foreign judgments even though one positive precedent exists in the foreign country, arguing one case is not enough to prove reciprocity. The application of de facto reciprocity causes difficulty to enforce foreign judgments in Chinese courts. It makes enforcement impossible if no application was made to the foreign court to enforce Chinese judgment in the past, and if the other country also adopts the de facto reciprocity. It also makes proving reciprocity difficulty, especially if the foreign country has no comprehensive case report system.

After China commenced the One-Belt-One-Road initiative, efforts were made to relax the threshold to prove reciprocity. The Supreme Court has proposed, in two OBOR opinions, that China should adopt a presumed reciprocity approach, which presumes reciprocity exists if the other country demonstrates intention to establish judicial cooperation with China and no negative precedence exists.[1] However, since these opinions are not legally binding, they are not enough to reverse court practice. Although more Chinese courts enforce foreign judgments after 2013, they still need the proof of one positive case in the foreign country.

20 July, 2021, Shanghai No 1 Intermediate Court decided to recognize and enforce the Singaporean monetary judgment.[2] Although de facto reciprocity already exists between China and Singapore and Chinese courts enforced Singaporean judgments based on de facto reciprocity in the past,[3] this case justifies the decision based on de jure reciprocity. The judgment states: “The reciprocal relationship exists between China and Singapore, because Chinese judgments can be recognized and enforced in Singapore under the same conditions. On the other hand, Singaporean High Court recognized and enforced Chinese judgments in the past, and precedents to recognize and enforce Singaporean judgments also exist in Chinese courts. It shows de facto reciprocal relationship also exists between China and Singapore.”

It is clear that this judgment discusses both de facto and de jure reciprocity. The court considers whether Chinese judgments may be recognized and enforced in Singapore as a matter of law. However, proving de jure reciprocity is not easy. Unless the foreign law completely prohibits enforcing foreign judgments in the absence of treaty obligations, most law will provide conditions for foreign judgments enforcement. The conditions would allow foreign judgments enforced in certain circumstances and not others. In other words, no law would say foreign judgments can be recognized in all circumstances. How to assess if these conditions are enough to make enforcement possible in law? What if the foreign law provides different conditions to enforce foreign judgments from Chinese law? What if the foreign law require de facto reciprocity and China has not yet enforced judgments from this country, rendering enforcement of Chinese judgments practically impossible in the foreign court?

The Shanghai court adopts the equivalent condition test. It takes the seat of Singaporean court and imagine what may happen if this application is a Chinese judgment seeking Singaporean enforcement. It concludes that as far as Singaporean court can enforce Chinese judgments under the same condition, de jure reciprocity exists. In other words, it applies the Singaporean standard to assess enforceability of this judgment. The problem is it may lead to the result that between two countries de jure reciprocity exits in some cases but not others. As reciprocity refers to the relationship between two countries, it should be a systematic status, and not variable according to the different fact of a case.

Another difficulty is that it is usually hard for Chinese courts to know exactly how judicial decision of a foreign court may be made, especially how judicial discretion is going to be exercised in a foreign country. The assessment of the potential enforceability of Chinese judgments in the foreign court in the same condition can only be based on black-letter law which may not be so precise to test de jure reciprocity. Of course, it is arguable that de jure reciprocity only needs a general possibility for a foreign court to enforce Chinese judgments, but not specific Chinese judgments are definitely enforceable in the foreign country. If so, the equivalent condition test is not appropriate to assess de jure reciprocity.

One may suggest the legal comparability test. It argues that de jure reciprocity depends on whether the foreign law provide legally comparable conditions for FJR as Chinese law. This suggestion is also problematic, because many countries’ law provide much lower threshold to enforce foreign law than Chinese law. For example, they do not require reciprocity as a pre-condition. These laws are not comparable to Chinese law, but it is hard to argue that Chinese judgments cannot be enforced in those countries as a matter of law.

The third suggestion is the no higher threshold test. It suggests that if the foreign law does not make it more difficult to enforce Chinese judgments, de jure reciprocity exists. However, what if the foreign law adopts de facto reciprocity like most Chinese courts do in practice? Can we argue the foreign law provide higher threashold because one Chinese court uses de jure reciprocity? Or we consider these two laws provide simialr threshold and treat de jure reciprocity exists, even though the foreign court actually cannot enforce Chinese judgments because Chinese courts did not enforce judgments from this country before?

Anyway, although the test for de jure reciprocity is not settled, the Shanghai judgment shows a laudable progress. This is the first case that de jure reciprocity has been applied in a Chinese court. It shows a serious attempt to deviate from de facto reciprocity. Of course, since de facto reciprocity also exists between China and Singapore, this judgment does not bring significant difference in result. It is curious to see whether the Chinese court will apply de jure reciprocity alone to enforce foreign judgments in the future, and whether any new tests for de jure reciprocity may be proposed in the future judgments.

 

[1] Several Opinions of the Supreme People’s Court Concerning Judicial Services and Protection Provided by People’s Courts for the Belt and Road Initiative], [2015] Fa Fa No. 9, para 6; The Opinions of the SPC Regarding the People’s Court’s Further Provision of Judicial Services and Guarantees for the Construction of the Belt and Road, Fa Fa [2019] 29, para 24.

[2] (2019) Hu 01 Xie Wai Ren No 22.

[3] Singaporean case, Giant Light Metal Technology (Kunshan) Co Ltd v Aksa Far East Pte ltd [2014] 2 SLR 545; Chinese case, Kolmar Group AG v. Jiangsu Textile Industry Import and Export Corporation, (2016) Su 01 Xie Wai Ren No 3.

Virtual Hearing in China’s Smart Court

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By Zheng Sophia Tang, Wuhan University (China) and Newcastle University (UK)

Mr Ting Liao, PhD candidate at the Wuhan University Institute of International Law, published a note on the Chinese Smart Court, which attracted a lot of interest and attention. We have responded a few enquires and comments, some relating to the procedure and feasibility of virtual/remote hearing. Based on the questions we have received, this note provides more details on how the virtual hearing is conducted in China.

  1. Background

The fast development of virtual hearing and its wide use in practice in China are attributed to the Covid-19 pandemic. The pandemic causes serious disruption to litigation. China is a country that has adopted the toughest prevention and controlling measures. Entrance restriction, lockdown, quarantine and social distancing challenge the court process and case management. In the meantime, this challenge offers the Chinese courts a chance to reform and modernize their judicial systems by utilizing modern technology. Since suspending limitation period may lead to backlog and delay, more Chinese courts favour the virtual proceedings. This strategy improves judicial efficiency and helps parties’ access to justice in the unusual circumstances.

Before the pandemic, Chinese courts have already started their exploration of online proceedings. In 2015, the Provisions of the SPC on Several Issues Concerning Registration and Filling of Cases provides the People’s courts should provide litigation services including online filing.[1] In the same year, the SPC published the Civil Procedural Law Interpretation, which states that the parties can make agreement on the form of hearing, including virtual hearing utilizing visual and audio transfer technology. The parties can make application and the court can decide whether to approve.[2] Although online trial from filing to hearing is permitted by law, but it was rarely used in practice due to the tradition and social psychology. The adoption of virtual proceedings for cases with large value was even rarer. The relevant procedure and technology were also taking time to progress and maturase.

Because the pandemic and the controlling measures make serious disruption to traditional form of litigation, online trial becomes more frequently used and develops to a more advanced stage. The SPC provids macro policy instructions that Chinese courts should actively utilize online litigation platform, such as China Movable Micro Court, which allows the parties to conduct litigation through mobile, and Litigation Service Website to carry out comprehensive online litigation activities, including filing, mediation, evidence exchange, hearing, judgment, and service of procedure.[3] While more administrative and technological efforts have been put in, and the pandemic made no better alternatives, more trials were done online. For example, between Feb and Nov 2020, 959 hearings (16.42%) and 5020 mediations were carried out online in the Qianhai Court. Between Feb and July 2020, courts in Beijing conducted average 1,300-1,500 virtual hearings per day.

Some important cases were also tried online. For example, Boa Barges As v Nanjing Yichun Shipbuilding concerned a dispute worth nearly $50,000,000.[4] The contract originally included a clause to resolve disputes in London Court of International Arbitration (LCIA) and to apply English law. However, the pandemic outbroke in the UK in March 2020. The parties entered into a supplementary agreement in May 2020 to submit the dispute to Nanjing Maritime Court and apply Chinese law. Chinese commentators believe the change of chosen forum and governing law demonstrates the parties’ trust on Chinese international judicial system and courts’ capacity. Nanjing Maritime Court followed the SPC instruction by allowing the foreign party to postpone submitting authorization notarization and authentication, and conducted online mediation. In China, mediation is part of the formal litigation procedure. The parties settled by mediation within 27 days.

In 2021, the SPC published the Online Litigation Regulations for the People’s Courts, including detailed rules for how online litigation should be conducted.[5] This Regulations provides five principles for online litigation, including fairness and efficiency, freedom of choice, protection of rights, convenience and security.[6] This Regulations provides further clarification of certain key procedural issues and provide unified micro-guidance which helps the local courts to operate in the same standards and according to the same rule.

  1. Initiation of virtual hearing

Virtual proceedings may lead to several controversies. Firstly, how are the virtual proceedings initiated? Could the court propose by its own motive, or should the parties reach agreement? What if a physical trial is not possible due to the pandemic control, both the court and the claimant want a virtual trial, but the defendant refuse to consent? In such a case, would a virtual trial in the absence of the defendant an infringement of the defendant’s due process right and should not be enforced abroad? What if the defendant and the court agree to go ahead with a virtual trial, but the claimant refuses? Would a default judgment in the absence of the claimant infringe the claimant’s due process right?

The Online Litigation Regulations provides clear guidance. Online litigation should follow the principle of freedom of choice. In other words, parties should give consent to the online procedure and cannot be forced by the court.[7] If a party voluntarily chooses online litigation, the court can conduct litigation procedure online. If all the parties agree on online litigation, the relevant procedure can be conducted online. If some parties agree on online litigation while others not, the court can conduct the procedure half online for parties who give consent and half offline for other parties.[8] However, what if a party cannot physically participate in the offline litigation because of the pandemic, and this party also refuses online litigation? This party certainly can apply for suspension or postponement of procedure. However, if this party has no legitimate reason to refuse online litigation like technical problems or the lack of computer literacy, would not the court consider such a refusal unreasonable? Does it mean a person may use the refusal rights to delay otherwise legitimate procedure to the detriment of the other party? Would the refusal turn to be a torpedo action? Does this strict autonomy approach meet the purpose of good faith and judicial efficiency? Although the freedom of choice is important, would it necessary to provide some flexibility by allowing the court to assess special circumstances of a case? It seems that this strict consent condition is based on the traditional attitude against online litigation. This attitude makes offline litigation a priority and online litigation an exception, which will only be used by parties’ choice. This approach does not provide online litigation true equal footing as offline litigation, and still reflect the social psychological concern over the use of modern technology in the court room. Although the pandemic speed the development of online litigation in China, it is treated as an exceptional emergency measure and the emphasis on it may fade away gradually after the pandemic is ending, unless the social psychology is also changed after a longer period of successful use of online litigation.

  1. Public hearing

Would virtual hearing satisfy the standard of public hearing? Certainly, there is no legal restriction preventing public access to the hearing.[9] Furthermore, the Online Litigation Regulations provides that online litigation must be made public pursuant to law and judicial interpretation, unless the case concerns national security, state secrets, individual privacy, or the case concerns a minor, commercial secrets and divorce where the parties apply for the hearing not be made public.[10] However, how to make online hearing public is a technical question. If the virtual hearing is organised online, without an openly published “link”, no public will be able to access the virtual court room and the trial is “secret” as a matter of fact. This may practically evade the public hearing requirement.

Chinese online litigation has taken into account the public hearing requirement. Both SPC litigation service website and the Movable Micro Court make open hearing an integral part of the platform. The public can register and create an account for free to log in the platform. After log in, the public can find all available services in the webpage, including Hearing Livestream. After click in, the pubic can find the case that they want to watch by searching the court or browse the “Live Courtroom Today”. There are also recorded hearing for the public to watch. In contrast to traditional hearing, the only extra requirement for the public to access to the court is registration, which requires the verification of ID through triple security check: uploading the scan/photo of an ID card, verifying the mobile number via security code and facial recognition.

It shows that Chinese virtual hearing has been developed to a mature stage, which meets the requirement of due process protection and public hearing. Chinese virtue hearing has been systematically updated with the quick equipment of modern technologies and well-established online platform. This platform is made available to the local courts to use through the institutional power of the centre. Virtual hearing in China, thus, will not cause challenge in terms of public hearing.

  1. Evidence

Although blockchain technology can prove the authenticity of digital evidence, many original evidence exists offline. The parties need to upload an electronic copy of those evidence through the “Exchange evidence and cross-examination” session of the smart court platform, and other parties can raise queries and challenges. During trial, the litigation parties display the original evidence to the court and other parties through the video camera. If the court and other parties raise no challenges in the pre-trial online cross-examination stage and in the hearing, the evidence may be admitted. It, of course, raises issues of credibility, because electronic copy may be tempered with and the image displayed by video may not be clear and cannot be touched, smelled and felt for a proper evaluation. Courts may adopt other measures to tackle this problem. For example, some courts require original evidence to be posted to the court if the court and other parties are not satisfied of the distance examination of evidence. Other courts may organise offline cross-examination of the evidence by convening a pre-trial meeting. However, in doing so, the value of the online trial will be reduced, making the trial process lengthier and more inefficient.

The practical difficulty also exists in witness sequestration. Article 74 of the “Several Provisions of the Supreme People’s Court on Evidence in Civil Litigations” provides witnesses in civil proceedings shall not be in court during other witnesses’ testimony, so they cannot hear what other witnesses say.[11] This is a measure to prevent fabrication, collusion, contamination and inaccuracy. However, in virtual hearings, it is difficult for judges to completely avoid witnesses from listening to other witnesses’ testimony online. There is no proper institutional and technical measure to address this problem and it remains one of the fallbacks in the virtual litigation.

 

 

[1] Provisions of the SPC on Several Issues Concerning Registration and Filling of Cases, Fa Shi [2015] No8, Art 14.

[2] The SPC Interpretation of the Application of the PRC Civil Procedure Law, Art 295.

[3] Notice of the SPC about Strengthening and Regulating Online Litigation during the Prevention and Controlling of the Covid-19 Pandemic, Fa [2020] 49, Art 1.

[4] The Supreme People’s Court issued the sixth of ten typical cases of national maritime trials in 2020: BOABARGESAS v Nanjing Yichun Shipbuilding Co., Ltd. Ship.

[5] SPC, Online Litigation Regulations for the People’s Court, Fa Shi [2021] No 12.

[6] Art 2.

[7] Art 2(2).

[8] Art 4.

[10] Art 27.

[11] Fa Shi [2019] 19.

Tort Choice of Law Rules in Cross-border Multi-party Litigation under European and Chinese Private International Law

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Tort Choice of Law Rules in Cross-border Multi-party Litigation under European and Chinese Private International Law Read more

Red-chip enterprises’ overseas listing: Securities regulation and conflict of laws

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Written by Jingru Wang, Wuhan University Institute of International Law

 

1.Background

Three days after its low-key listing in the US on 30 June 2021, Didi Chuxing (hereinafter “Didi”) was investigated by the Cyberspace Administration of China (hereinafter “CAC”) based on the Chinese National Security Law and Measures for Cybersecurity Review.[1] Didi Chuxing as well as 25 Didi-related APPs were then banned for seriously violating laws around collecting and using personal information,[2] leading to the plummet of Didi’s share. On 16 July 2021, the CAC, along with other six government authorities, began an on-site cybersecurity inspection of Didi.[3] The CAC swiftly issued the draft rules of Measures for Cybersecurity Review and opened for public consultation.[4] It proposed that any company with data of more than one million users must seek the Office of Cybersecurity Review’s approval before listing its shares overseas. It also proposed companies must submit IPO materials to the Office of Cybersecurity Review for review ahead of listing.

It is a touchy subject. Didi Chuxing is a Beijing-based vehicle for hire company. Its core business bases on the accumulation of mass data which include personal and traffic information. The accumulated data not only forms Didi’s unique advantage but also is the focus of supervision. The real concern lays in the possible disclosure of relevant operational and financial information at the request of US securities laws and regulations, which may cause data leakage and threaten national security. Therefore, China is much alert to information-based companies trying to list overseas.

The overseas listing of China-related companies has triggered regulatory conflicts long ago. The Didi event only shows the tip of an iceberg. This note will focus on two issues: (1) China’s supervision of red-chip companies’ overseas listing; (2) the conflicts between the US’s demand for disclosure and China’s refusal against the US’s extraterritorial jurisdiction.

 

2. Chinese supervision on red-chip companies’ overseas listing

A red-chip company does most of its business in China, while it is incorporated outside mainland China and listed on the foreign stock exchange (such as New York Stock Exchange). Therefore, it is expected to maintain the filing and reporting requirements of the foreign exchange. This makes them an important outlet for foreign investors who wish to participate in the rapid growth of the Chinese economy. When asking Chinese supervision on red-chip companies listed overseas, such as Didi, the foremost question is whether the Chinese regulatory authority’s approval is required for them to launch their shares overseas. It is uneasy to conclude.

One reference is the Chinese Securities Law. Article 238 of the original version of the Chinese Securities Law provides that “domestic enterprises issuing securities overseas directly or indirectly or listing their securities overseas shall obtain approval from the securities regulatory authority of the State Council following the relevant provisions of the State Council.” This provision was amended in 2019. The current version (Art. 224 of the Chinese Securities Law) only requires the domestic enterprises to comply with the relevant provisions of the State Council. The amendment indicated that China has adopted a more flexible approach to addressing overseas listing. Literally, the securities regulatory authority’s approval is no longer a prerequisite for domestic enterprises to issue securities overseas.

When it comes to Didi’s listing in the US, a preliminary question is the applicability of such provision. Art. 224 is applied to “domestic enterprise” only. China adopts the doctrine of incorporation to ascertain company’s nationality.[5] According to Article 191 of the Chinese Company Law, companies established outside China under the provisions of foreign law are regarded as foreign companies. Didi Global Inc. is incorporated in the state of Cayman Islands, and a foreign company under the Chinese law. In analogy, Alibaba Group Holding Ltd., another representative red-chip enterprise, had not obtained and not been required to apply for approval of the Chinese competent authority before its overseas listing in 2014. A Report published by the Chinese State Administration of Foreign Exchange specifically pointed out that “domestic enterprises” were limited to legal persons registered in mainland China, which excluded Alibaba Group Holding Ltd., a Cayman Islands-based company with a Chinese background.[6]

In summary, it is fair to say that preliminary control over red-chip enterprise’s overseas listing leaves a loophole, which is partly due to China’s changing policy. That’s the reason why Didi has not been accused of violating the Chinese Securities Law but was banned for illegal accumulation of personal information, a circumvent strategy to avoid the possible information leakage brought by Didi’s public listing. Theoretically, depends on the interpretation of the aforementioned rules, the Chinese regulatory authority may have the jurisdiction to demand preliminary approval. Based on the current situation, China intends to fill the gap and is more likely to strengthen the control especially in the field concerning data security.

 

3. The conflict between the US’s demand for audit and China’s refusal against the US’s extraterritorial jurisdiction

Another problem is the conflict of supervision. In 2002, the US promulgated the Sarbanes-Oxley Act, under which the Public Company Accounting Oversight Board (hereinafter “PCAOB”) was established to oversee the audit of public companies. Under the Sarbanes-Oxley Act, wherever its place of registration is, a public accounting firm preparing or issuing, or participating in the preparation or issuance of, any audit report concerning any issuer, shall register in the PCAOB and accept the periodic inspection.[7] The PCAOB is empowered to investigate, penalize and sanction the accounting firm and individual that violate the Sarbanes-Oxley Act, the rules of the PCAOB, the provisions of the securities laws relating to the preparation and issuance of audit reports and the obligations and liabilities of accountants. Opposed to this provision (although not intentionally), Article 177 of the Chinese Securities Law forbids foreign securities regulatory authorities directly taking evidence in China. It further stipulates that no organization or individual may arbitrarily provide documents and materials relating to securities business activities to overseas parties without the consent of the securities regulatory authority of the State Council and the relevant State Council departments. Therefore, the conflict appears as the US requests an audit while China refused the jurisdiction of PCAOB over Chinese accountant companies.

It is suspected that despite the PCAOB’s inofficial characteristic, information (including the sensitive one) gathered by the PCAOB may be made available to government agencies, which may threaten the national security of China.[8] Consequently, China prevents the PCAOB’s inspection and some of Chinese public accounting firm’s application for registration in the PCAOB has been suspended.[9] In 2013, the PCAOB signed a Memorandum of Understanding with Chinese securities regulators that would enable the PCAOB under certain circumstances to obtain audit work papers of China-based audit firms. However, the Memorandum seems to be insufficient to satisfy the PCAOB’s requirement for supervision. The PCAOB complained that “we remain concerned about our lack of access in China and will continue to pursue available options to support the interests of investors and the public interest through the preparation of informative, accurate, and independent audit reports.”[10] After the exposure of Luckin Coffee’s accounting fraud scandal, the US promulgated the Holding Foreign Companies Accountable Act in 2020. This act requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the PCAOB is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the PCAOB. If the PCAOB is unable to inspect the issuer’s public accounting firm for three consecutive years, the issuer’s securities are banned from trade on a national exchange or through other methods.

China has made “national security” its core interest and is very prudent in opening audit for foreign supervisors. From the perspective of the US, however, it is necessary to strengthen financial supervision over the public listing. As a result, Chinese enterprises have to make a choice between disappointing the PCAOB and undertaking domestic penalties. Under dual pressure of China and the US, sometimes Chinese companies involuntarily resort to delisting. This may not be a result China or the US long to see. In this situation, cooperation is a better way out.

 

4. Conclusion

China’s upgrading of its cybersecurity review regulation is not aimed at burning down the whole house. Overseas listing serves China’s interest by opening up channels for Chinese companies to raise funds from the international capital market, and thus contribute to the Chinese economy. The current event may be read as a sign that China is making provisions to strengthen supervision on red-chip companies’ overseas listing. It was suggested that the regulatory authority may establish a classified negative list. Enterprises concerning restricted matters must obtain the consent of the competent authority and securities regulatory authority before listing.[11] It is not bad news for foreign investors because the listed companies will undertake more stringent screening, which helps to build up an orderly securities market.

 

 

 

[1] http://www.cac.gov.cn/2021-07/02/c_1626811521011934.htm

[2] http://www.cac.gov.cn/2021-07/04/c_1627016782176163.htm; http://www.cac.gov.cn/2021-07/09/c_1627415870012872.htm.

[3] http://www.cac.gov.cn/2021-07/16/c_1628023601191804.htm.

[4] Notice of Cyberspace Administration of China on Seeking Public Comments on the Cybersecurity Review Measures (Draft Revision for Comment), available at: http://www.cac.gov.cn/2021-07/10/c_1627503724456684.htm

[5] The real seat theory is recommended by commentators, but not accepted by law. Lengjing, Going beyond audit disputes: What is the solution to the crisis of China Concept Stocks?, Strategies, Volume 1, 2021, p. 193.

[6] 2014 Cross-border capital flow monitoring report of the People’s Republic of China, available at: http://www.gov.cn/xinwen/site1/20150216/43231424054959763.pdf

[7] Sarbanes-Oxley Act, §102(a), §104 (a) & (b).

[8] Sarbanes-Oxley Act, §105 (b)(5)(B).

[9] https://pcaobus.org/Registration/Firms/Documents/Applicants.pdf

[10] China-Related Access Challenges, available at: https://pcaobus.org/oversight/international/china-related-access-challenges.

[11] https://opinion.caixin.com/2021-07-09/101737896.html.

China Enacts the Anti-Foreign Sanctions Law

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Xu Huang, Sophia Tang
Wuhan University Institute of International Law

1. Background
On 10 June 2021, China’s Standing Committee of the National People’s Congress (hereinafter “NPC”) issued “Anti-Foreign Sanctions Law of the People’s Republic of China” (hereinafter “CAFSL”), which entered into force on the date of the promulgation. This is a reaction in response to the current tension between China and some western countries, in particular, the US and the EU that have imposed a series of sanctions on Chinese officials and entities. For example, in August 2020, the Trump administration imposed sanctions on 11 individuals for undermining Hong Kong’s autonomy and restricting the freedom of expression or assembly of the citizens of Hong Kong. In June 2021, President Biden issued Executive Order 14032 to amend the ban on US persons purchasing securities of certain Chinese companies. In March 2021, the EU imposed unilateral sanctions on relevant Chinese individuals and entity, based on the human rights issues in Xinjiang. China has responded by imposing counter sanctions, which were issued by the Ministry of Foreign Affairs as administrative orders. The Anti-Foreign Sanctions Law provides the legal basis for China’s further action and counter measures. This law was enacted after only two readings rather than the normal three demonstrating China’s urgent need to defend itself against a growing risk of foreign hostile measures.

2. The main content

Competent Authority: All relevant departments under the State Council have been authorized to involve issuing the anti-sanction list and anti-sanction measures (Art. 4 and Art. 5). The “Ministry of Foreign Affairs” and “other relevant departments under the State Council” are authorized to issue orders of announcement (Art. 9). Reviewing from the current practice of China’s response to foreign sanctions, the Ministry of Foreign Affairs has always issued sanctions lists against foreign individuals and organizations, so it is likely that the China’s Ministry of Foreign Affairs will still lead the movement of announcing and countering the foreign sanctions. However, other departments now also have the authority to sanction relevant individuals and entities. This provides flexibility if the foreign sanctions relate to a particular issue that is administrated by the particular department and when it is more efficient or appropriate for the particular department to handle it directly.

Targeted measures: Circumstances under which China shall have the right to take corresponding anti-sanction measures are as follows: (1) a foreign country violates international law and basic norms of international relations; (2) contains or suppresses China on various pretexts or in accordance with its own laws; (3) adopts discriminatory, restrictive measures against any Chinese citizen or organization; (4) meddles in China’s internal affair (Art. 3).The CAFSL does not expressly specify whether the circumstances should be satisfied simultaneously or separately. From the perspective of legislative intent, it is obvious that the full text of the CAFSL is intended to broaden the legal authority for taking anti-sanctions measures in China, so it may not require the fulfillment of all four conditions.

It does not clarify the specific meanings of “violates international law and the basic norms of international relations”, “contains or suppresses”, and “meddles in China’s internal affairs”, which vary in different states and jurisdictions. But considering the sanctions issued by China and answers by the NPC spokesman, the key targeted circumstances are meddling China’s internal affairs. It is reasonable to assume that these circumstances, mainly aimed at unilateral sanctions suppressing China under the pretexts of so-called sea-based, epidemic-based, democracy-based and human rights-based issues in Xinjiang, Tibet, Hong Kong and Taiwan. Therefore, other issues may not be included.

Art. 3 aims against the sanctions imposed by foreign states, for example the US and the EU. But from the text of the law, the concept of “sanctions” is not used, instead the concept of “discriminatory, restrictive measures” is adopted, which is very vague and broad. Discriminatory restrictive measures can be interpreted as foreign unilateral sanctions directly targeting Chinese individuals and organizations, which are the so-called “primary sanctions”, different from the “secondary sanctions” restricting Chinese parties from engaging in normal economic, trade and related activities with directly sanctions third state’s parties. In a press conference, the NPC spokesman stated that “the main purpose of the CAFSL is to fight back, counter and oppose the unilateral sanctions against China imposed by foreign states.” It should only apply to tackle the primary sanctions against China.

Targeted entities: The targeted entities of the anti-sanction list and anti-sanction measures are vague and broad. The targeted entities of anti-sanctions list include individuals and organizations that are directly involved in the development, decision-making, and implementation of the discriminatory restrictive measures (Art. 4). What means involvement in the development or decision-making or implementation is ambiguous. And the indirect involvement is even vaguer, which may broaden the scope of the list. Besides, following entities may also be targeted: (1) spouses and immediate family members of targeted individuals; (2) senior executives or actual controllers of targeted organizations; (3) organizations where targeted individuals serve as senior executives; (4) organizations that are actually controlled by targeted entities or whose formation and operation are participated in by targeted entities (Art. 5).

Anti-sanction measures: The relevant departments may take four categories of anti-sanction measures: (1) travel ban, meaning that entry into China will not be allowed and deportation will be applied;(2) freezing order, namely, all types of property in China shall be seized, frozen or detained; (3) prohibited transaction, which means entities within the territory of China will not be allowed to carry out transactions or other business activities with the sanctioned entities; (4) the other necessary measures, which may include measures like “arms embargoes” or “targeted sanctions” (Art. 6). Former three anti-sanction measures have been taken by the Ministry of Foreign Affairs in practice. For example, on 26 March 2021, China decided to sanction relevant UK individuals and entities by prohibiting them from entering the mainland, Hong Kong and Macao of China, freezing their property in China, and prohibiting Chinese citizens and institutions from doing business with them.

Relevant procedure: The decisions made by the competent authorities shall be final and not subject to judicial review(Art. 7).The counterparty shall not file an administrative lawsuit against anti-sanction measures and other administrative decisions. The counterparty can change the circumstance causing anti-sanction measures, and request the relevant department for the modification and cancellation of anti-sanction measures. If any change in the circumstances based on which anti-sanction measures are taken happens, the competent authorities may suspend, change or cancel the relevant anti-sanction measures (Art. 8). The transparency requirement stipulates the relevant orders shall be announced (Art. 9).

A coordination mechanism for the anti-foreign sanctions work shall be established by the state to coordinate the relevant work. Coordination and cooperation, and information sharing among various departments shall be strengthened. Determination and implementation of the relevant anti-sanction measures shall be based on their respective functions and division of tasks and responsibilities (Art. 10).

Legal consequences of violation: There are two types of legal consequences for violating the obligation of “implementation of the anti-sanction measures”. Entities in the territory of China will be restricted or prohibited from carrying out relevant activities (Art. 11). Any entities, including foreign states’ parties, will be held legally liable (Art. 14).

Besides, a party suffering from the discriminatory, restrictive measures may be entitled to bring a civil action against the entities that comply with the foreign discriminatory measures against China (Art. 12). The defendant, in theory, includes any entities in the world, even entities that are the nationals or residents of the country imposing sanctions against China. It is curious how this can be enforced in reality. In particular, if a foreign entity has no connections with China, it is hard for a Chinese court to claim jurisdiction, and even taking jurisdiction, enforcing judgments abroad can also be difficult, if not impossible. Because enforcement jurisdiction must be territorial, without assets and reputation in China, a foreign party may disregard the Chinese anti-sanction measure.

3. Impact of the CAFSL

The CAFSL is a higher-level legislation in the Chinese legal system than the relevant departmental rules, such as the Chinese Blocking Rules and “unreliable entity list”. It is a much more powerful legal tool than former departmental rules as it directly retaliates against the primary sanction on China. It provides a legal basis and fills a legal gap. However, it may not be good news for international businesses that operate in both the US and China. Those companies may have to choose between complying with US sanctions or Chinese laws, which may probably force some enterprises to make strategic decisions to accept the risk of penalty from one country, or even to give up the Chinese or US market. The CAFSL is vaguely drafted and likely to create unpredictable results to the commercial transaction and other interests. The application and enforcement of the CAFSL and Chinese subsequent rules and regulations may give detailed interpretations to clarify relevant issues to help parties comply with the CAFSL. However, to China, the CAFSL serves a political purpose, which is more important than the normal functioning of a law. It is a political declaration of China’s determination to fight back. Therefore, the most important matter for Chinese law-makers is not to concern too much of the detailed rules and enforcement to provide predictability to international business, but to send the warning message to foreign countries. International businesses, at the same time, may find themselves in a no-win position and may frequently face the direct conflict of overriding mandatory regulations in China and the US. By placing international businesses in the dilemma may help to send the message and pressure back to the US that may urge the US policy-makers to reconsider their China policy. After all, the CAFSL is a counter-measure, which serves defensive purposes, and would not be triggered in the absence of sanctions against Chinese citizens and entities.

Can China’s New “Blocking Statute” Combat Foreign Sanctions?

/in /by

by Jingru Wang, Wuhan University Institute of International Law

  1. Background

A blocking statute is adopted by a country to hinder the extraterritorial application of foreign legislation.[1] For example, the EU adopted Council Regulation No 2271/96 (hereinafter “EU Blocking Statute”) in 1996 to protest the US’s extraterritorial sanctions legislation concerning Cuba, Iran and Libya.[2] Since Donald Trump became the US president, the US government officially defined China as its competitor.[3] Consequently, China has been increasingly targeted by US sanctions. For example, in 2018, the US imposed broad sanctions on China’s Equipment Development Department (EDD), the branch of the military responsible for weapons procurement and its director for violating the US law on sanctions against Russia.[4] In 2020, the US announced new sanctions on Chinese firms for aiding North Korea’s nuclear weapons program.[5] A number of “Belt and Road” countries are targeted by US primary sanctions, which means that Chinese entities may face a high risk of secondary sanctions for trading with these countries. In these contexts, Chinese scholars and policy makers explore the feasibility to enact blocking law to counter foreign sanctions.[6] On 9 January 2021, China’s Ministry of Commerce (hereinafter “MOFCOM”) issued “Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures” (hereinafter “Chinese Blocking Rules”), which entered into force on the date of the promulgation.[7]

 

  1. Analysis of the Main Content

Competent Authority: Chinese government will establish a “Working Mechanism” led by the MOFCOM and composed of relevant central departments, such as the National Development and Reform Commission. The Working Mechanism will take charge of counteracting unjustified extraterritorial application of foreign legislation and other measures (Art. 4).

Targeted extraterritorial measures: The Chinese Blocking Rules target foreign legislation and other measures unjustifiably prohibit or restrict Chinese parties from engaging in normal economic, trade and related activities with third state’s parties (Art. 2), which is the so-called “secondary sanction”. Namely, if China considers sanctions unilaterally imposed by the US against a third country unjustified and violating international law, it may nullify such sanctions and allow Chinese companies to continue to transact with the third country. These Rules do not impact restrictions on business activities between China and the sanctioning country.

Unlike the EU Blocking Statute, the Chinese Blocking Rules do not provide an annex listing the legislation subject to the blocking but grant the Working Mechanism discretion. To determine whether foreign legislation or other measures fall within the application scope of the Chinese Blocking Rules, the Working Mechanism shall consider (1) the international law and fundamental principle of international relations; (2) potential impact on China’s national sovereignty, security and development interests; (3) potential impact on the legitimate interest of the Chinese party and (4) all other factors (Art. 6). On the one hand, the non-exhaustive list grants the Working Mechanism broad flexibility to analyse on a case-by-case basis. China has repeatedly become the target of US secondary sanctions. An exhaustive list of foreign legislation and other measures is insufficient to deal with the changing situations. On the other hand, China is prudent in confrontation with other countries. In a press conference, the MOFCOM spokesman stated that “the working mechanism will closely follow the inappropriate extraterritorial application of relevant national laws and measures.”[8] Therefore, the response of other countries will influence the enforcement of the Chinese Blocking Rules.

It is noteworthy the Chinese Blocking Rules will not affect China’s performance of its international obligations. These Rules shall not apply to such extraterritorial application of foreign legislation and measures as provided for in treaties or international agreements to which China is a party (Art. 15).

Information reporting system: A Chinese party prohibited or restricted by foreign legislation and other measures from engaging in normal economic, trade and related activities with a third state’s party shall report such matters to the MOFCOM within 30 days (Art. 5). Otherwise, the Chinese party may be warned, ordered to rectify or fined (Art. 13). To encourage the information report, Art. 5 of the Chinese Blocking Rules also provides that the competent authority shall keep such report confidential at the request of the Chinese party. The staff of the competent authority may undertake administrative penalties if they fail with such obligation (Art. 14).

Concerning the Information reporting system, when the report obligation is triggered is unclear. Should the Chinese party report within 30 days after the foreign legislation is published or other measures are taken or after its actual operation is restricted? Moreover, since the Chinese Blocking Rules do not list targeted foreign legislation and other measures, the Chinese party should rely on their judgment to report. Finally, who should report on behalf of the legal person remains to be answered.

Prohibition order: Once the unjustified extraterritorial application of foreign legislation and other measures is confirmed, the Working Mechanism may decide that the MOFCOM shall issue a prohibition order to ban the effect of relevant foreign legislation and other measures (Art. 7). A Chinese party that fails to observe the prohibition order will be punished (Art. 13). Therefore, Chinese parties are forced to comply with either Chinese or foreign laws. In other words, they will be punished by one or the other. To free the party from the dilemma, a Chinese party may apply for exemption from compliance with a prohibition order (Art. 8). China-based subsidiaries of foreign companies are formed under Chinese law. They are considered to be Chinese entities. Therefore, unless otherwise provided by law, they are subject to the prohibition order issued under the Chinese Blocking Rules and can apply for the exemption.

One major uncertainty is whether third state’s parties are subject to the prohibition order. These Rules do not stipulate that foreign entities will be punished by violating the prohibition order or can apply for the exemption. However, it is suggested that the prohibition order may bind the third state’s party for two reasons. Firstly, the US may issue secondary sanctions to prohibit Chinese parties from trading with third state’s parties (Iran as an example), or to prohibit third state’s parties (EU as an example) from trading with Chinese parties. According to Art. 2 of the Chinese Blocking Rules, both situations may obstruct the normal economic, trade and related activities between the Chinese party and the third state’s party. If the prohibition order merely applies to the Chinese party, it cannot protect Chinese businesses from being prejudiced by the US secondary sanctions in the latter situation. Secondly, a Chinese party can bring a lawsuit before the People’s Court against the party who infringes the legitimate interest of such Chinese party by complying with the foreign legislation and other measures covered by the prohibition order (Art. 9). This article does not limit the defendant to “a Chinese party.” Thus it shall include the third state’s party. If the prohibition order does not bind the third state’s party, it is doubtful that such third state’s party is liable for not complying with the prohibition order.

The prohibition order refrains relevant parties from complying with specific foreign legislation and other measures. A question is how should the prohibition order be observed. According to the European Commission’s Guidance Note, the purpose of the EU Blocking Statute is to ensure that business decisions on trading with third States remain free. It does not oblige EU operators to do business with Iran or Cuba. Also, the Chinese Blocking Rules cannot and should not oblige the Chinese party and the third state’s party to engage with each other. Therefore, it raises the worry that these Rules may apply better for breach of existing contract but be more difficult to “force” someone to enter into a contract or in terms of the pre-contractual obligation.

Judicial Remedy: A Chinese party can bring a lawsuit before the People’s Court of PRC against the party who infringes its legitimate interest by complying with the foreign legislation or measures covered by the prohibition order. A Chinese party may also suit the party who benefits from the judgment or ruling made under such foreign legislation or other measures before the People’s Court (Art. 9). Problems may arise if the losing party has no asset in China seized for enforcement by the Chinese court. Other countries may be reluctant to recognize and enforce such judgment.

Government support: Members of the Working Mechanism shall provide guidance and service to Chinese parties to deal with unjustified extraterritorial application of foreign legislation and other measures (Art. 10). Suppose a Chinese party that observes the prohibition suffers significant losses resulting from non-compliance with the relevant foreign legislation and measures. In that case, relevant government departments may provide necessary support based on specific circumstances (Art. 11). Which government department is responsible for these matters? Does “Necessary support” include financial compensation or support on litigation in the sanctioning country? These questions remain to be answered.

 

  1. Impact of the Blocking Statute

Considering that China has long suffered from secondary sanctions issued by the US government, promulgating the Chinese Blocking Rules is not a surprise. Overall, the Chinese Blocking Rules attempt to establish three core institutions anticipated by Chinese scholars: (1) blocking the effect and enforcement of specific foreign legislation in China; (2) prohibiting relevant parties from complying with specific foreign legislation and other measures; (3) enabling relevant parties to recover the damage from the party who complies with the foreign legislation and measures covered by the prohibition order. Therefore, a blocking statute serves as both shield and sword to fight against foreign sanctions.

But the function of blocking statute shall not be overemphasized. The same as the EU Blocking Statute, the Chinese Blocking Rules create a quandary for relevant parties.

For Chinese parties, if they comply with the Chinese prohibition order, they have to deal with US penalties. Chinese parties may invoke “foreign sovereign compulsion”[9] as a defence to insulate themselves from certain US sanctions penalties. In determining whether to buy such argument, US courts often consider whether foreign states actively enforce them.[10] The Chinese Blocking Rules can provide a legal basis for Chinese parties to exempt from the US sanctions by strategic enforcement actions. If so, Chinese parties will be relieved to transact with third state’s parties. But the Chinese government may not be willing to provide the same exemption. Out of self-interest, Chinese parties may be more likely to comply with the Chinese Blocking Rules.

These Rules have not yet stipulated the legal result if third states’ parties violate the Chinese prohibition order. In principle, prescriptive jurisdiction can be extraterritorial, but enforcement jurisdiction must be territorial. Therefore, China cannot always extend the effect of Blocking Rules to a third state’s party even if it has the will. However, it is reasonable to assume that third state’s parties may be added to the “unreliable entities list”[11] for disregarding the Chinese prohibition order. It may prompt third state’s parties to observe the Chinese prohibition order voluntarily to preserve their assets and reputation in China. But even if third state’s parties value the Chinese market, it is uneasy for them to choose China over the US.

China has become more active in exploring countermeasures against the US. On 19 September 2020, MOFCOM released provisions on establishing “unreliable entity list.”[12] Promulgation of the Chinese Blocking Rules is another proactive attempt. However, both are departmental rules, which are at a relatively low-level in the Chinese legal system. Predictably, higher-level legislation concerning the extraterritorial effect of foreign legislation and other measures will be enacted in the future. It may prompt China and the US back to the negotiating table.

[1] Menno T. Kamminga, “Extraterritoriality”, Max Planck Encyclopedia of Public International Law, November 2012, para. 26.

[2] COUNCIL REGULATION (EC) No 2271/96, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:01996R2271-20140220.

[3] White House, National Security Strategy of the United States of America, December 2017.

[4] CAATSA – Russia-related Designations, available at: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20180920_33. aspx.

[5] North Korea Designations, available at: https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20201208.

[6] Ye Yan, “On the EU Blocking Statute”, Pacific Journal, Vol. 28, No. 3, Mar. 2020, pp. 50-66; Huo Zhengxin, “Extraterritoriality of Domestic Law: American Model, Jurisprudential Deconstruction and Chinese Approach”, Tribune of Political Science and Law, Vol. 38, No. 2, Mar. 2020, pp. 173-191.

[7] Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures, available at: http://www.mofcom.gov.cn/article/i/jyjl/e/202101/20210103032421.shtml.

[8] The Head of the Department of Treaty of Law of Ministry of Commerce answers press on “Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures”, available at:  http://www.mofcom.gov.cn/article/news/202101/20210103029779.shtml.

 

[9] “Foreign Sovereign Compulsion” means that if a party is obliged to do or not to do an act by a state, it may constitute a defence for not complying with the obligation specified by the US law before the US court. See American Law Institute, Restatement of the Law, Third, The Foreign Relations Law of the United States, American Law Institute Publishers, 1990, p. 341.

[10] M. J. Hoda, “The Aerospatiale Dilemma: Why U.S. Courts Ignore Blocking Statutes and What Foreign States Can Do About It”, California Law Review, Vol. 106, No. 1, 2018.

[11] The entity added to the list will be restricted on China-related trade, investment in China and travel or work permits. See “MOFCOM Order No. 4 of 2020 on Provisions on the Unreliable Entity List”, available at:

http://www.mofcom.gov.cn/article/b/fwzl/202009/20200903002593.shtml.

[12] Ibid.

 

The Chinese villages win a lawsuit in China to repatriate a Mummified Buddha Statue hold by a Dutch Collector —What Role has Private International Law Played?

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The Chinese villages win a lawsuit in China to repatriate a Mummified Buddha Statue hold by a Dutch Collector

—What Role has Private International Law Played?

By Zhengxin Huo, Professor of Law, China University of Polit’l Science and Law; Associate Member of International Academy of Comparative Law; Observer of the UNESCO 1970 Convention. Email: zhengxinh@cupl.edu.cn. The author would like to thank Dr. Meng YU for valuable comments.

  1. Introduction

On 4 December 2020, the Sanming Intermediate People’s Court of China’s southeastern Province of Fujian rendered a judgment ordering the Dutch defendants to return a stolen 1,000-year-old Buddhist mummy, known as the statue of Zhanggong-zushi, to its original owner: two village committees in the Province within 30 days after the verdict comes into effect. [1]

This is the first time in history that a Chinese court seized jurisdiction over a case filed by Chinese plaintiffs to repatriate a stolen cultural property illicitly exported. Once published, the judgment has aroused immediate attention both at home and abroad. Given the enormous quantity of Chinese cultural property stolen and illegally exported overseas, the potential influence of the judgment can hardly be overstated. This note focuses on the major legal issues that the Chinese judgment dealt with and attempts to analyse the role of private international law that has played.

 

2. Summary of Facts

Oscar Van Overeem, a Dutch architect, purchased a Buddhist statue for 40,000 Dutch guilders (US $20,500) in 1996 from a collector in Amsterdam who had acquired it in Hong Kong. In 1996, Van Overeem contacted a restorer to repair some chips and cracks in the exterior. When the restorer opened the bottom of the statue, he found two small pillows, and resting on the pillows, the body of a mummified monk. Initial radiocarbon testing found that the body was approximately 900-1000 years old. The statue was taken to the Meander Medical Center in Amersfoort, where a full CT scan was performed and samples taken through endoscopy. The investigative team found scraps of paper on which Chinese characters were written, placed inside the body in the cavities normally containing organs. These identified the Buddhist mummy as the mummy of a monk known as “Zhanggong-zushi”.

 

In 2014, Van Overeem loaned the statue to the Drents Museum in Assen for an exhibition, “Mummy World,” which traveled to the Hungarian Natural History Museum in the spring of 2015. Press reporting on the Hungarian exhibition alerted the Chinese villagers. Based on photographs from Hungary and archival materials in China, the Chinese villagers believe the statue is the one that have held the mummy of the village’s patriarch, Zhanggong Zushi. The statue was enshrined in the Puzhao Temple, jointly owned by the two villages named “Yunchun” and “Dongpu”, and worshiped by the local residents, for over 1,000 years until it went missing in December 1995.

 

After an unsuccessful negotiation, the Committee of Yunchun Village and the Committee Dongpu Village sued Van Overeem to demand the statue’s return both in Fujian Province of China and in Amsterdam of the Netherlands at the end of 2015,[2] fearing that a statute of limitation might bar their case. Three years later, the Amsterdam District Court made a decision on 12 December 12, 2018, [3] ending one chapter in the legal battle over the statue of Zhanggong-zushi, but failed to resolve a controversial situation or illuminate the path forward for the parties, as the Dutch court did not decide anything about the ownership of the parties.[4] It simply determined not to hear the case, based on its finding that the two village committees did not have standing to sue in the Dutch court.[5]

 

Against this background, the lawsuit before the Chinese court is more important in terms of legal analysis. According to the information released by the Sanming Intermediate People’s Court (the Court), it formally filed the case on 11 December 2015, which then served the Dutch defendants by international judicial cooperation. The Court, thereafter, held the hearings on 26 July and 12 October of 2018 respectively, and publicly pronounced the judgement on 4 December 2020.[6] Lawyers of both sides were present both at the hearings and the pronouncement of the judgement. From the perspective of private international law, the following two issues, among others, are particularly worth of concern:

 

(1) Jurisdiction: The Court exercised the jurisdiction over the dispute because the Dutch defendants did not raise an objection to its jurisdiction who responded to the action timely.[7]

(2) Application of Law: Based on the interpretation of “the lex rei sitae at the time that the legal fact occurred” in Article 37 of the Private International Law Act, the Court held that Chinese law, rather than Dutch law, shall govern the ownership of the statue.[8]

 

3. The Jurisdiction of the Chinese Court: Prorogated Jurisdiction

Jurisdiction is the first issue that the Court had to consider when it dealt with the dispute. Under the Civil Procedure Law of China (CPL), the general rule of territorial jurisdiction is that a civil action shall be brought in the People’s Court of the place in which the defendant is domiciled subject to various exceptions grouped together under the title of “special jurisdictions”.[9] As the defendants in the present case are domiciled in the Netherlands,[10] the jurisdiction of the Court depended on “special jurisdictions” among which the jurisdiction on actions on contractual disputes or disputes over property rights is most relevant.

 

In international civil litigation, many cases involve a foreign defendant not domiciled or residing within China. Given the importance of some of such cases, the CPL empowers Chinese courts the jurisdiction over actions involving contract disputes or disputes over property rights against a non-resident defendant if certain conditions are satisfied. Article 265 of the CPL prescribes the following:[11]

In the case of an action concerning a contract dispute or other disputes over property rights and interests, brought against a defendant who has no domicile within the territory of the People’s Republic of China, if the contract is signed or performed within the territory of the People’s Republic of China, or if the object of the action is located within the territory of the People’s Republic of China, or if the defendant has distrainable property within the territory of the People’s Republic of China, or if the defendant has its representative office within the territory of the People’s Republic of China, the People’s Court of the place where the contract is signed or performed, or where the object of the action is, or where the defendant’s distrainable property is located, or where the torts are committed, or where the defendant’s representative office is located, shall have jurisdiction.

 

Therefore, for actions concerning a dispute over property rights brought against a defendant who has no domicile in China, a Chinese Court may exercise jurisdiction if one of the following conditions are satisfied: (1) the property is located in China; (2) the defendant has distrainable property in China; (3) the tort was committed in China; (4)the defendant has its representative office in China.

 

In the case at hand, one can hardly argue that the Court has the jurisdiction under Article 265 of the CPL, as the statue is not located in China when the action was filed, nor did the defendants steal it or purchase it in China, nor do they have distrainable property or representative office in China. However, the Court ruled that its jurisdiction over the case was established pursuant to the prorogated jurisdiction under the CPL regime.

 

Prorogated jurisdiction under the CPL refers to situations where a party institutes proceedings in a court, and the other party implicitly acquiesces to the jurisdiction of that court by responding to the action and not raising an objection to the jurisdiction. That is to say, the defendant’s failure to object is understood as defendant’s consent to the Chinese court’s jurisdiction. Article 127 of the CPL provides as follows:[12]

Where a party raises any objection to jurisdiction after a case is accepted by a people’s court, the party shall file the objection with the people’s court during the period of submitting a written statement of defense. The people’s court shall examine the objection. If the objection is supported, the people’s court shall issue a ruling to transfer the case to the people’s court having jurisdiction; or if the objection is not supported, the people’s court shall issue a ruling to dismiss the objection. Where a party raises no objection to jurisdiction and responds to the action by submitting a written statement of defense, the people’s court accepting the action shall be deemed to have jurisdiction, unless the provisions regarding tier jurisdiction and exclusive jurisdiction are violated.

 

Since the defendant’s failure to object constitutes consent to jurisdiction, it is imperative that defendants, foreign defendants in particular, raise a timely jurisdictional objection. Under Article 127 of the CPL, if a party to a civil action objects to the jurisdiction of a People’s Court, the objection must be raised within the time period prescribed for the filing of answers. According to Articles 125 and 268, defendant shall have fifteen days, or thirty days if residing outside the territory of China, to file his answer upon receipt of plaintiff’s complaint. Thus, if a defendant wants to challenge the People’s Court’s jurisdiction, he must do so within this statutory fifteen-day or thirty-day period.[13]

 

It should be noted that the Dutch defendants in the present case did not raise objection to the jurisdiction of the Court; instead, they had responded to the lawsuit by submitting a written statement of defense represented by two Chinese lawyers, to the surprise of many observers. Hence, jurisdiction of the Court over this case was established under the prorogated jurisdiction of the CPL in an unexpected manner.

 

4. Choice of Law Issue: Lex Rei Sitae = Lex Furti?

One of the most widely accepted and significant rules of private international law today is that, in determining property rights, a court applies lex rei sitae. This rule has been accepted by Chinese private international law, though party autonomy is placed before lex rei sitae by Article 37 of the Private International Law Act. Given that it is very rare that the parties reach agreement on the applicable law after the dispute over the property has occurred, the lex rei sitae plays a de facto decisive role.

 

However, the question of application of the lex rei sitae in specific cases remains open out of diverse possible interpretations of the rule. From the perspective of comparative law, it can be found that many jurisdictions, say England, prefer to apply the law of the place of last transaction,[14] while others, say France, apply the law of place where goods are located at the time of the litigation.[15] As far as China is concerned, its courts has never clarified the meaning of the lex rei sitae in Article 37 of the Private International Law Act; therefore, the outcome of the present action was entirely dependent on the interpretation of this article.

 

The Chinese plaintiffs commenced the action for recover of the stolen statue by arguing, among other things, that they are its owners because bona fide acquisition does not apply to stolen cultural property under the Property Law of China. The Dutch defendants took the stand, claiming to have purchased the statue on good title under Dutch Civil Code. Thus, it had to be decided which of the two laws shall be used in the present case: whether Chinses law or Dutch law shall govern the ownership of the statue. The Court, by resorting to Article 37 of the Private International Law Act, held that title was to be determined by Chinese law.

 

However, the Court acknowledged that the statue was stolen and illicitly exported before the implementation of the Private International Law Act, therefore, it had to decide in the very beginning whether the Act is applicable to the present dispute. To determine the issue, the Court referred to Article 2 of the Judicial Interpretation on the the Private International Law Act issued by the Supreme People’s Court,[16] which states that:

As to a civil relationship involving foreign elements which occurred before the implementation of the Private International Law Act, People’s Court shall determine the governing law according to the choice-of-law rules effective at the time of the occurrence of such relationship. In case no choice-of-law rules existed at that time, the Private International Law Act may be resorted to in order to determine the applicable law.

 

Given the General Principles of Civil Law, the most significant and primary legislation on private international law in China before 2010, is silent on the law applicable to property right,[17] the Court decided it is proper to invoke the Private International Law Act to fill the lacunae pursuant to the above article. The Court then referred to Article 37 of the Private International Law Act of China which provides that “the parties may choose the law applicable to the real rights in movable property; in the absence of such choice, the lex rei sitae at the time when the legal fact occurred applies”.[18] As the parties in the case failed to reach agreement on the applicable law, the Court decided that the ownership of the statue shall be governed by the lex rei sitae at the time when the legal fact occurred.

 

With regard to the meaning of “the time when the legal fact occurred”, the Court stated that it pointed to the time when the statue was stolen, rather than the time when Oscar Van Overeem purchased it in Amsterdam. Summarising the conclusion, the judge stressed that the statue is a cultural property of great historic and religious significance, instead of an ordinary property. As the illicit traffic of cultural property usually creates a number of legal facts which inevitably leads to the proliferation of the lex rei sitae, including the law of the location of a cultural property had been stolen (lex furti), the law of the place of first transaction, the law of the place of last transaction, the law of the place of exhibition, the law of the location of a cultural property at the time of litigation, etc., the judge emphasised the need to spell out the lex rei sitae at the time when the legal fact occurred for the cases of recovering cultural property.

 

The Court stressed that when interpreting the lex rei sitae in a cultural property repatriation case, the object and purpose of international conventions of cultural property should be taken into consideration. It went on to highlight two conventions to which China is a contracting party: Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (“the 1970 Convention”) and Convention on Stolen or Illegally Exported Cultural Objects (“the 1995 Convention”). As both those conventions are devoting to prohibiting the illicit trafficking of cultural property and facilitating the return of cultural property to its origin nations, the Court concluded that it should interpret the lex rei sitae at the time when the legal fact occurred in the light of their object and purpose.

 

Hence, the Court decided that the lex rei sitae at the time when the legal fact occurred should be understood as the lex furti, i.e., law of the location of a cultural property had been stolen, insofar as such interpretation favours the protection of cultural heritage and facilitates the return of cultural property illicitly trafficked, whereas the place of transaction not only favours the laundering of stolen cultural property but also adds considerable uncertainty to the question of title.

 

The Court then referred to the Property Law of China under which bona fide acquisition does not apply to stolen cultural property. Consequently, the Court ruled that the Chinese village committees retain the title of the statue and demanded the defendants to return it to plaintiffs.

 

5. Concluding Remarks

Under the CPL, judicial proceedings in China occur in two instances, namely, trial and appeal. Therefore, the Dutch defendants are entitled to appeal to the Higher People’s Court of Fujian Province within 30 days. If they do not appeal within the time limit, the judgment will become effective.

 

At the present stage, it is not clear whether the defendants will comply with the judgment or appeal, or simply ignore it. Though as a Chinese, I do hope that the Dutch defendants will return the statue as ordered by the Court; nevertheless, I am afraid that ignoring the Chinese judgment may be one of their reasonable options because of serious obstacles to recognize and enforce this Chinese judgment in the Netherlands.

 

In spite of the uncertainty ahead, one cannot overestimate the significance of this judgment. First of all, as noted in the very beginning, this is the first time that a Chinese court exercises the jurisdiction over case to recover a Chinese cultural property stolen and illicitly exported. Therefore, it is a historic judgment, no matter it will be enforced or not in the future.

 

Second, the Court in the judgement clarified for the first time that “lex rei sitae at the time when the legal fact occurred” in Article 37 of the Private International Law should be interpreted in the light of the object and purpose of the 1970 Convention and the 1995 Convention, so that the lex furti, i.e., Chinese law, shall govern the ownership of cultural property lost overseas. Given the huge number of Chinese cultural property stolen and illicitly exported abroad, the author believes the impact of the judgment is tremendous.

[1] The Committee of Yunchun Village and the Committee Dongpu Village v. Oscar Van Overeem, Design & Consultancy B.V. and Design Consultancy Oscar van Overeem B.V., the Sanming Intermediate People’s Court (2015) Sanmin Chuzi No. 626, Date of judgment: 4 December 2020.

[2] China villagers launch Dutch court bid to retrieve mummy, https://www.bbc.co.uk/news/world-europe-40606593, last visited on 8 December 2020.

[3] C/13/609408 / HA ZA 16-558, Court of Amsterdam, 12 December 2018, available at https://uitspraken.rechtspraak.nl/inziendocument?id=ECLI:NL:RBAMS:2018:8919, last visited on 8 December 2020.

[4] Chinese villagers disappointed about Dutch rejection of mummy Buddha repatriation case, http://www.xinhuanet.com/english/2018-12/14/c_137672368.htm, last visited on 8 December 2020.

[5] Uncertain Future for Golden Statue Holding Buddhist Mummy, https://culturalpropertynews.org/uncertain-future-for-golden-statue-holding-buddhist-mummy/, last visited on 8 December 2020.

[6] http://fjfy.chinacourt.gov.cn/article/detail/2020/12/id/5647265.shtml, last visited on 8 December 2020.

[7] The Committee of Yunchun Village and the Committee Dongpu Village v. Oscar Van Overeem, Design & Consultancy B.V. and Design Consultancy Oscar van Overeem B.V., the Sanming Intermediate People’s Court (2015) Sanmin Chuzi No. 626, Date of judgment: 4 December 2020, p.21.

[8] Id,. at pp. 24-35.

[9] Zhengxin Huo, Private International Law (2017), pp.148-151.

[10] The defendants are Oscar Van Overeem, Design & Consultancy B.V. and Design Consultancy Oscar van Overeem B.V.

[11] Zhonghua Renmin Gongheguo Minshi Susongfa [Civil Procedure Law] art. 265 (1991, revised in 2017) (PRC).

[12] Zhonghua Renmin Gongheguo Minshi Susongfa [Civil Procedure Law] art. 127 (1991, revised in 2017)(PRC).

[13] Zhengxin Huo, Private International Law (2017), p.157.

[14] E.g., Winkworth v. Christie’s Ltd.[1980] 1 Ch. 496.

[15] Stroganoff-Scerbatoff v. Bensimon, 56 Rev. crit. De dr. int. privé(1967).

[16] See Zhengxin Huo, ‘Two Steps Forward, One Step Back: A Commentary on the Judicial Interpretation on the Private International Law Act of China’ (2013) 43 HKLJ 685, 710.

[17] The General Principles of Civil Law was adopted at the Fourth Session of the Sixth National People’s Congress on April 12, 1986, coming into force on January 1, 1987. It was abolished on January 1, 2021 when the Civil Code of the PRC took effect. For a quite a long period, the GPCL was the most important source of Chinese private international law. Structurally, the GPCL has devoted an entire chapter to regulating the conflict of laws (i.e., Chapter Eight, Application of Laws to Civil Matters Involving Foreign Elements), where nine conflict rules can be found.

[18] Zhonghua Renmin Gongheguo Shewai Minshi Falvguanxi Shiyongfa [Act on the Application of Laws over Foreign-related Civil Relationships] art. 37 (2010) (PRC).

 

 

 

 

 

 

Anti-Suit Injunction Issued in China: Comity, Pragmatism and Rule of Law

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1 Anti-suit Injunctions issued in Huawei v Conversant and Xiaomi v Intel Digital

Chinese courts have issued two anti-suit injunctions recently in cross-border patent cases. The first is the Supreme Court’s ruling in Huawei v Conversant, (2019) Zui Gao Fa Zhi Min Zhong 732, 733 and 734 No 1. (here) Huawei, a Chinese telecom giant brought an action on 25 Jan 2018 in Jiangsu Nanjing Intermediate Court requiring determination of FRAND royalty for all Chinese patents held by Conversant that is essential to 2G, 3G and 4G standard (standard essential patent or ‘SEP’). Conversant brought another action in Düsseldorf, Germany on 20 April 2018 claiming Huawei infringed its German patents of the same patent family. On 16 Sept 2019, the Chinese court ordered a relatively low rate pursuant to Chinese standard and Conversant appealed to the Supreme Court on 18 Nov 2019. On 27 Aug 2020, the German Court held Huawei liable and approved the FRAND fee proposed by Conversant, which is 18.3 times of the rate determined by the Chinese court. Pursuant to Huawei’s application, the Chinese Supreme Court restrained Conversant from applying the German court to enforce the German judgment. The reasons include: the enforcement of the Düsseldorf judgment would have a negative impact on the case pending in Chinese court; an injunction is necessary to prevent irreparable harm to Huawei; the damage to Conversant by granting the injunction is significantly smaller than the damage to Huawei if not granting injunction; injunction will not harm public interest or international comity.

On 9 June 2020, Chinese company Xiaomi brought the proceedings in the Wuhan Intermediate Court requesting the determination of the global FRAND rate for SEPs held by the US company, Inter Digital. On 29 July, Intel Digital sued Xiaomi in Delhi High Court in India for infringement of Indian patents of the same patent family and asking for injunction. The Wuhan Intermediate Court ordered Inter Digital to stop the injunction application in India and prohibited Intel Digital from applying injunctions, applying for the determination of FRAND rate or enforcing junctions already received in any countries. (Xiaomi v Intel Digital (2020) E 01 Zhi Min Chu 169 No 1) The court provides reasons as follows: Inter Digital intentionally brought a conflicting action in India to hamper the Chinese proceedings; the Indian proceedings may lead to judgments irreconcilable to the Chinese one; an anti-suit injunction is necessary to prevent irreparable harm to Xiaomi’s interests; an anti-suit injunction will not harm Intel Digital’s legitimate interests or public interests.

2 Innovative Judicial ‘Law Making’ to Transplant Foreign Law

These two cases are interesting in that they open the door for the courts to ‘make law’ by providing Chinese legislation innovative interpretation. Chinese law does not explicitly permit the courts to issue anti-suit or anti-arbitration injunctions. Article 100 of the Civil Procedure Law of China permits Chinese courts to order or prohibit the respondent to do, or from doing, certain actions, if the respondent’s behaviour may lead to the difficulty to enforce the judgment or cause other damages to the other party. But this act preservation provision was generally used only in the preservation of property, injunction of infringing actions, or other circumstances where the respondent’s action may directly cause substantive harm to the applicant’s personal or proprietary rights. It was never applied as the equivalent to anti-suit injunctions. The ‘Provisions of the Supreme People’s Court on Several Issues concerning the Application of Law in Cases Involving the Review of Act Preservation in Intellectual Property Disputes’ (No. 21 [2018] of the Supreme People’s Court) enforced from 1 Jan 2019 did not mention the court’s competence to issue anti-suit injunction. These two judgments provide innovative interpretation to Art 100 by extending act preservation measures to cover anti-suit injunction.

It is important to note that anti-suit injunction is a controversial instrument used to combat the conflict of jurisdiction and forum shopping. It is not issued frequently or lightly. Instead, there is a high threshold to cross. In England, for example, an anti-suit injunction can be ordered only if the foreign proceedings are vexatious or oppressive and England is the natural forum, (Airbus Industrie GIE v Patel [1999] AC 119) or the foreign proceedings would breach a valid exclusive jurisdiction or arbitration clause between the parties. (The “Angelic Grace”, [1995] 1 Lloyd’s Rep. 87) In both cases, neither courts justify China is a natural forum. Such justification may be more difficult in disputes concerning foreign patent due to the territoriality of patent.  Furthermore, foreign proceedings are not oppressive just because they award higher rate to the parent holder, which is not properly handled either by the Chinese judgments. In the US, anti-suit injunction requires the parties and issues in foreign proceedings are ‘the same’ as the local ones. (E. & J. Gallo Winery v. Andina Licores SA, 446 F. 3d 984 (Court of Appeals, 9th Circuit 2006)) This barrier is difficult to lift in disputes concerning infringement of national patents in the same family. In FRAND cases, the court usually relies on the ‘contractual umbrella over the patent’ to avoid the difficulty brought by the territoriality of patent. (Huawei v Samsung, Case No. 3:16-cv-02787-WHO) Even if a contractual approach is adopted, the court still needs to ascertain the foreign litigation may frustrate a local policy, would be vexatious or oppressive, would threaten the U.S. court’s in rem jurisdiction, or would prejudice other equitable considerations. (Zapata Off-Shore Company v. Unterweser Reederei GMBH, 428 F.2d 888 (United States Court of Appeals, Fifth Circuit, 1970))

The Chinese judgments show clear sign of borrowing the common law tests. In particular, the Huawei v Conversant judgment has high similarity with Huawei v Samsung judgment rendered by the California Northern District Court. The problem is the enjoined Düsseldorf judgment awarded FRAND rate instead of an unconditional injunction like the Shenzhen judgment. While enforcing a permanent injunction in the biggest market of Samsung may lead to a forced settlement which would make the US proceedings unnecessary or redundant, enforcing the court determined FRAND rate covering only one state may not have the same effect on the Chinese proceedings. In particular, due to different standards to calculate the FRAND rate, a higher rate covering the German market is not oppressive and would not result in a forced settlement for Chinese FRAND rate. The Wuhan judgment focuses on the vexatious foreign proceedings brought in bad faith and abuse of process. The Wuhan court considers the Indian proceedings was brought to frustrate the pending proceedings before the Wuhan court. The judgment seems to follow the English trait. However, the court did not fully explain how an action purely covering Indian patents and concerning Indian market would affect the Chinese proceedings based on contract. It is also unclear whether Chinese court could award a global FRAND rate as the English court will do. Although in contrast to many other judgments, these two judgments show reasonable quality and laudable efforts of reasoning, reading in details may suggest the courts have learnt more in form instead of substance. The judicial transplant of very unfamiliar common law instruments into Chinese practice seems a little awkward and immature.

3 Comity, Pragmatism and Rule of Law

Anti-suit injunction is a controversial instrument in that it may infringe foreign judicial sovereignty and comity. Even if it is technically directed to the respondent not a foreign court, it makes judgment on the appropriateness of foreign proceedings, which, in normal circumstances, should be judged by the foreign court. No matter how indirect the interference is, an interference is there. Such an approach is fundamentally incompatible with Chinese jurisprudence and diplomatic policy, which emphasise on the principle of sovereign equality and non-interference. China usually considers parallel proceedings tolerable which concern the judicial sovereignty of two countries and each could continue jurisdiction pursuant to their domestic law. (Art 533 of Civil Procedural Law Judicial Interpretation by SPC) Adopting anti-suit injunction to tackle foreign parallel proceedings or related proceedings directly contradicts this provision.

Since Chinese courts would not deviate from the central government’s policy, the two judgments may be a sign to show China is gradually adjusting its international policy from self-restraint to zealous competition, at least in the high-tech area. This is consistent with China’s strategic plan to develop its high-tech industry and a series of reform is adopted to improve IP adjudication. It may imply consideration of diffused reciprocity, i.e. since some foreign courts may issue anti-suit injunction to obstruct Chinese proceedings, Chinese courts should have the same power. It may also reflects China’s increased confidence on its institutions led by its economic power. The transplant of anti-suit injunction cannot be deemed as admiring foreign law, but a pragmatic approach to use any tools available to achieve their aims. Since anti-suit injunctions may interfere a state’s sovereignty, a foreign state may issue ‘anti-anti-suit injunction’ to block it. While injunction wars occur in high-tech cases, the final trump card should be a country’s economic power. Since China is the biggest market for many telecom products, it would be the last market that most companies would give up, which would provide Chinese courts a privilege.

Finally, since anti-suit injunction is not included explicitly in Chinese law, there is no consistent test applying to it. The two judgments have applied different tests following the practice from different common law countries. It is also noted that the lack of relevant training in exercise discretion in issuing anti-suit injunctions or applying precedents leads to uncertainty and some discrepancy. Issuing anti-suit injunction is serious in that it may affect comity and international relation. It thus cannot be adopted randomly or flexibly by mirroring one or two foreign judgments. If China indeed wants to adopt anti-suit injunction, a test guidance should be provided. Anti-suit injunction needs to be issued under the rule of law.

 

 

 

 

 

 

 

Chinese court refuses enforcement of an IFTA Arbitration award

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Shawn He reported recently on a Chinese judgment refusing the declaration of enforceability of an arbitral award issued by the Independent Film & Television Alliance Arbitration Court.

The Tianjin Intermediate People’s Court dismissed the application on two grounds: No standing to be sued of the Chinese company, and notification vices.

One point which should be highlighted is the duration of the proceedings: The application was filed on March 2018, and the judgment (in first instance) was rendered on May 2020…

 

Supreme Court of California (ROCKEFELLER TECHNOLOGY INVESTMENTS (ASIA) v. CHANGZHOU SINOTYPE TECHNOLOGY CO., LTD). A European reading of the ruling

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A bit more than a month ago, the Supreme Court of California rendered its decision on a case concerning the (non-)application of the 1965 Hague Service Convention. The case has been thoroughly reported and commented before and after  the ruling of the Supreme Court. I will refrain from giving the full picture of the facts; I will focus on the central question of the dispute.

THE FACTS

The parties are U.S. and Chinese business entities. They entered into a contract wherein they agreed to submit to the jurisdiction of California courts and to resolve disputes between them through California arbitration. They also agreed to provide notice and “service of process” to each other through Federal Express or similar courier. The exact wording of the clause in the MOU reads as follows:

“6. The Parties shall provide notice in the English language to each other at the addresses set forth in the Agreement via Federal Express or similar courier, with copies via facsimile or email, and shall be deemed received 3 business days after deposit with the courier.

“7. The Parties hereby submit to the jurisdiction of the Federal and State Courts in California and consent to service of process in accord with the notice provisions above”.

ARBITRATION PROCEEDINGS

An agreement between the companies was eventually not reached, which was reason for Rockefeller to initiate arbitration proceedings. All materials were sent both by email and Federal Express to the Chinese’s company address listed in the MOU. The latter did not appear. The arbitrator awarded Rockefeller the amount of nearly 415 million $. The decision was sent to Sinotype by e-mail and Federal Express.

COURT PROCEEDINGS

In accordance with the Civil Procedure Code of the State of California [§ 1285.  Any party to an arbitration in which an award has been made may petition the court to confirm, correct or vacate the award…], Rockefeller petitioned the award to be confirmed. The same ‘service’ method was used by the petitioner, i.e. e-mail and Federal Express. Again, Sinotype did not take part in the proceedings.

At a later stage, Sinotype became active, and filed a motion to set aside the default judgment for insufficiency of service of process. In particular, it asserted that it did not receive actual notice of any proceedings until March 2015 and argued that Rockefeller’s failure to comply with the Hague Service Convention rendered the judgment confirming the arbitration award void. The motion was denied by the Los Angeles County Superior Court; the Court of Appeal reversed; finally, the Supreme Court reversed the appellate decision.

THE RULINGS

The first instance court confirmed that the Service Convention was in principle applicable, however, the agreement between the parties to accept service by mail was valid and superseded the Convention. The Court of Appeal reversed the judgment, stating exactly the opposite, namely that the Service Convention supersedes private agreements. In light of China’s opposition to service by mail, the agreed method of communication was considered inadequate for the purposes of the Convention. The Supreme Court held yet again the opposite, because the parties’ agreement constituted a waiver of formal service of process under California law in favor of an alternative form of notification; hence, the Convention does not apply.

COMMENT

I place myself next to the commentators of the case: It is true that the Service Convention does not apply in the course of arbitration proceedings. There is convincing case law to support this view from different jurisdictions in different continents (example here). However, in the case at hand, the issue at stake was the use of a method not permitted by the Convention in court proceedings. It was lawfully agreed to send all documents by e-mail or FedEx during arbitration. Nowadays, this has become standard procedure in international commercial arbitration. However, a multilateral convention may not succumb to the will of the parties. If a contracting state refuses to accept postal service within the realm of litigation, the parties have no powers to decide otherwise. The best option would be, as already suggested, to oblige a party to appoint a service agent. This enables service within the jurisdiction, as already decided by the U.S. Supreme Court in the Volkswagen Aktiengesellschaft v. Schlunk case. In a similar fashion, the CJEU consolidated the same position in the Corporis Sp. z o.o. v Gefion Insurance A/S case, following its ruling in the case Spedition Welter GmbH v Avanssur SA.

Finally, returning to the EU, postal service would not require any agreement between the parties; Article 14 of the Service Regulation stipulates service by mail as an equivalent means of service between Member States. In addition, service by e-mail is scheduled to be embedded into the forthcoming Recast of the Regulation under certain requirements which are not yet solidified.