A Third-Country Jurisdiction Clause in a Foreign-Related Contract: Why Can a Chinese Court Still Exercise Jurisdiction?

2026/10/14

A jurisdiction clause that appeared to be "set in stone" was nonetheless held invalid by a Chinese court. The parties had originally agreed that all disputes would be submitted to the courts of a certain third country. Ultimately, however, a Chinese court still exercised jurisdiction over the case. What legal logic lies behind this?

Case Summary

Company A, a domestic company, entered into a network game agency and licensing contract with Company B, a foreign company. The contract provided that it would be governed by Chinese law, but that disputes would be finally resolved by the courts of a certain third country. A dispute subsequently arose between the parties, and Company A commenced proceedings before a Chinese court. Company B raised a jurisdictional objection, arguing that the dispute should be heard by the third-country court as agreed. The Chinese court of first instance held that the third country had no actual connection with the dispute, that the jurisdiction agreement was therefore invalid, and that the Chinese court, as the court of the place of contract performance, had jurisdiction. Company B appealed, and the appellate court upheld the ruling.

Issues in Dispute

Can parties to a foreign-related contract agree to submit disputes to the courts of a third country that has no actual connection with the dispute? After the agreement is held invalid, can a Chinese court exercise jurisdiction on the basis that it is the place of contract performance?

Court's Reasoning

According to the relevant provisions of China's Civil Procedure Law, parties to a foreign-related contract may select a court by written agreement, but the selected court must have an actual connection with the dispute. In this case, the third country was neither the domicile of either party, nor the place of contract signing, the place of performance, or the place where the subject matter was located, and the parties had not chosen the law of that country. The jurisdiction agreement was therefore invalid. Once the agreement was invalid, the Chinese court, as the court of the place of contract performance, had jurisdiction in accordance with the law.

Lawyer's Notes

1.A jurisdiction agreement is not a matter of "choosing whatever one likes": In foreign-related contracts, the chosen court must have an actual connection with the dispute; otherwise, the agreement may be held invalid. Companies should not blindly agree to third-country jurisdiction, lest they find themselves in a passive position.

2.The governing law and the court with jurisdiction are two different matters: Choosing Chinese law as the governing law does not mean that a Chinese court must have jurisdiction; nor does the converse follow. The two must be assessed separately and must not be conflated.

3.The place of contract performance is a key point of leverage: Even if the jurisdiction agreement is invalid, a Chinese court may still exercise jurisdiction based on connecting factors such as the place of contract performance. Companies should preserve evidence concerning the place of contract signing, performance, and the location of the subject matter, so as to secure a favorable jurisdiction if a dispute arises.

4.Professional lawyers are indispensable: Jurisdictional issues in foreign-related contracts are complex, involving private international law, domestic law, and judicial practice. A lawyer can assist in reviewing jurisdiction clauses, assessing risks, designing dispute resolution mechanisms, and accurately asserting jurisdiction in litigation, thereby safeguarding the client's rights and interests to the greatest extent possible.

Conclusion

Jurisdiction in foreign-related contracts is by no means something that can be secured simply by putting an agreement on paper. Only a lawful, reasonable jurisdictional arrangement with an actual connection can truly safeguard dispute resolution. If you encounter relevant issues, it is advisable to consult a professional lawyer as early as possible, so as to avoid losing the initiative in litigation due to an improper jurisdiction agreement.