Foreign-Related Construction Disputes: Can Domestic Courts Exercise Jurisdiction? — Lessons from a "Saudi Project" Jurisdictional Battle

2026/10/14

A domestic general contractor and a subcontractor with overseas construction experience entered into a cooperation agreement, pursuant to which the subcontractor would borrow the general contractor's name and actually assume all construction obligations for an EPC project in Saudi Arabia. After completion of the project, the parties disputed the settlement amount. The general contractor commenced proceedings against the subcontractor in China, seeking payment of project funds, management fees and interest amounting to approximately RMB 160 million.

What appeared to be an ordinary contractual dispute triggered a fierce confrontation over whether a domestic court could exercise jurisdiction.

I. The First Hurdle: Why Did the Beijing No. 4 Intermediate People's Court Decline to Accept the Foreign-Related Construction Dispute?

The general contractor first filed suit with the Beijing No. 4 Intermediate People's Court, which has centralized jurisdiction over foreign-related commercial cases. However, the court clarified that construction contract disputes fall within the scope of the civil trial division. As this case was a foreign-related construction contract dispute, it constituted a foreign-related civil dispute and did not fall within that court's jurisdiction.

The general contractor then filed suit with the Beijing No. 3 Intermediate People's Court, whereupon the subcontractor immediately raised a jurisdictional objection. The focus of the dispute was directly on: whether a foreign-related construction contract dispute is subject to exclusive jurisdiction over immovable property; and whether the contractual jurisdiction clause agreeing to "the competent courts in Beijing" was valid.

II. The Key Ruling: Where the Works Are Located Abroad, Exclusive Jurisdiction Does Not Apply.

The court held that the premise for exclusive jurisdiction over immovable property is that the immovable property is located within China. The project in question was located in Saudi Arabia, so exclusive jurisdiction could not apply; instead, the general rules on contractual jurisdiction should apply. A relevant ruling of the Supreme People's Court also expressly confirmed that, based on the principle of judicial sovereignty, exclusive jurisdiction over immovable property disputes presupposes that the civil case falls within the jurisdiction of the people's courts, and that overseas projects are not subject to exclusive jurisdiction.

In this case, the cooperation agreement merely provided for jurisdiction by "the competent courts in Beijing" without specifying the district or county, and lacked a clear connecting factor. There are multiple courts in Beijing, and in light of the amount in dispute, the specific court could not be determined at the time of filing. Therefore, the contractual jurisdiction clause was invalid for lack of clarity, and statutory jurisdiction should apply.

III. The Turning Point: For a Monetary Payment Dispute, the Place of Contract Performance Is Beijing.

The court further pointed out that the nature of the case should be determined on the basis of the plaintiff's claims and the preliminary evidence. Although the underlying contract was a foreign-related construction contract, the project had been completed and the parties had signed a supplementary agreement reaching basic consensus on the settlement and the amount owed; the substantive dispute was therefore a monetary payment dispute.

Pursuant to the Civil Procedure Law and the relevant judicial interpretations, where the subject matter of the dispute is the payment of money, the place of the recipient of the money is the place of contract performance. In this case, the recipient of the money, namely the general contractor, was located in Chaoyang District, Beijing, which falls within the jurisdiction of the Beijing No. 3 Intermediate People's Court; and the amount in dispute exceeded RMB 170 million, satisfying the threshold for jurisdiction by level. Ultimately, the Beijing No. 3 Intermediate People's Court obtained jurisdiction and ordered the subcontractor to pay approximately RMB 160 million.

IV. Governing Law: Both Parties Agreed to Apply Chinese Law

As to the governing law for the substantive hearing, the court held that although the legal facts occurred abroad, both parties' habitual residences were in China and both agreed during the hearing to apply Chinese law; therefore, Chinese law applied to the trial of this case. It is noteworthy that the parties' mutual choice of law does not presuppose that such law has an actual connection with the foreign-related civil relationship.

V. Nature of the Contract: Nominally a Cooperation, in Substance a Borrowing of Qualification.

The court found that the cooperation agreement was nominally a cooperation but in substance the subcontractor's borrowing of the general contractor's name to perform the works, and was in nature a contract for borrowing qualification. However, the subcontractor possessed Grade I construction qualifications and the qualification to operate overseas contracting projects, so no circumstance of invalidity under the judicial interpretation on construction contract disputes was constituted. The agreement was lawful and valid, and the parties should perform it as agreed.

Lawyer's Recommendations

Foreign-related construction disputes often involve multiple contentious issues, including jurisdiction, governing law and contract validity. They are highly specialized and high-risk. Lawyers recommend:

1.Specify the competent court at the time of contracting: Avoid agreeing merely to "a court in a certain city"; specify the competent court at a particular district or county level to reduce room for dispute.

2.Pay attention to the place of the works and the place of contract performance: Overseas projects are not subject to exclusive jurisdiction, but a monetary payment dispute may be subject to the jurisdiction of the court where the recipient of the money is located.

3.Specify the governing law clause: It is advisable to directly agree on the application of Chinese law to reduce uncertainty regarding the governing law.

4.Prudently design the cooperation model: Models such as borrowing qualification and subcontracting carry risks as to contract validity, and qualifications and compliance should be assessed in advance.

In foreign-related construction disputes, early intervention and full-process control by lawyers often determine the direction of the case. Choosing a professional lawyer is choosing controllable risk and protectable rights.