China: Retrial Ruling of the Supreme People’s Court Settles the Dispute of the Jurisdiction over Joint Tort Cases: Litigation or Arbitration

Last Updated: 8 January 2013
Article by Harry Liu and Qiu Yue

As an alternative dispute resolution mechanism, arbitration has been increasingly widely chosen as the dispute resolution method by parties to the commercial contracts. A signatory to the arbitration clause may bring litigation jointly against the other party to the arbitration clause and non-signatories to such arbitration clause. It remains uncertain in judicial practice whether courts have jurisdiction over such joint tort disputes despite the arbitration clause. The Supreme People's Court's view towards the issue also has shifted back and forth. The retrial ruling lately handed down by the Supreme People's Court after confirmed by its judicial committee gave a clearer answer to the question, which will definitely have a demonstration effect on the judicial practice in the future.

I. Overview of the Previous Cases

During performance of the contract, a party's deceit or other breach of the contract may also amount to tort. In such cases, the other party would rather initiate a tort claim in court than resort to arbitration pursuant to the arbitration clause in the contract, while the breaching party tends to insist on arbitration. Can the breaching party compel arbitration against the non-breaching party? The Supreme People's Court has given confirmative answer in the Summary of the Second National Working Conference on Foreign-related Commercial and Maritime Trials. It is emphasized by the Supreme People's Court that in case there is an effective arbitration agreement between the parties to a foreign-related commercial contract providing that all disputes arising out of or in connection with the contract are to be settled through arbitration, the people's court shall not exercise jurisdiction over the lawsuit brought by the plaintiff disregarding the fact that the cause of action was tort.

However, the abovementioned Summary did not specifically address the issue whether the People's Court has jurisdiction over the cases brought jointly against a party to the contract and a non-contractual party for a tort arising out of the conclusion and performance of the contracts. Since it is not uncommon that contract claim and tort claim duplicate, there has been considerable number of cases in which objection to the jurisdiction of courts was raised. The People's Courts tend to hold two opposite positions when dealing with such disputes over jurisdiction. One side holds the view that courts have no jurisdiction over the disputes between the signatories to the arbitration clause, but can exercise jurisdiction over the disputes between the plaintiff and non-signatory defendant. The opposing side contends that arbitration cannot solve the disputes completely and appropriately given that arbitration agreement won't be able to bind non-signatories to the arbitration agreement, i.e., the joint tortfeasors. No consensus has been reached in judicial practice with respect to this issue. Published cases have shown inconsistent opinions by the Supreme People's Court on such issue.

In the Appeal Case of Light Industry and Textiles Company of Jiangsu Material Group ("Textiles Company") against (Hong Kong) Top Capital Holding Ltd. ("Top Capital Company") and (Canada) Prince Development Ltd. ("Prince Company") for relief in tort, the Supreme People's Court adopted the first position as mentioned above. In specific, even if the case involves a non-signatory to the arbitration agreement, the parties' legitimate interests and rights can still be protected because the plaintiff can bring an independent legal action against the non-signatory in court when the arbitral tribunal has no jurisdiction over the third party. In this case, Textiles Company signed on the sales contracts of used generators respectively with Top Capital Company and Prince Company, both contracts have an arbitration clause. Textiles Company lodged a lawsuit against Top Capital Company and Prince Company to seek relief for tort of deceit under the disguise of contracts. The Supreme People's Court held that given the fact that the parties expressly agreed in the contracts to submit their disputes to arbitration, such agreements shall be binding on the parties unless confirmed to be void by relevant authorities. All the parties in this case shall be bound by the arbitration clauses set forth in the contracts. The disputes arising from the contracts shall be submitted for arbitration, while courts have no jurisdiction over such disputes.

In the Appeal Case of WP International Development Company ("WP Company") v. Songmei Acetic Acid Co., Ltd. ("Songmei Company") and Jilin Chemical Co., Ltd. ("Jihua Company") on the disputes over the jurisdiction of tort liability actions decided on May 10th, 2005 ("WP Company Case"), the Supreme People's Court took the second stance stated above and rejected the Jihua Company's jurisdiction objection on the basis that the arbitration clause cannot govern the indispensable joint tort disputes between the signatory and non-signatory parties. In this case, WP Company signed a Joint Venture Contract with Jihua Company and agreed to establish a joint venture named Songmei. WP Company alleged that Songmei Company colluded with Jihua Company during production process and took measures such as increasing prices of the resources, absorbing unreasonable costs for other companies, faking losses etc. to deceive WP Company. Therefore, WP Company sued Jihua Company and Songmei Company jointly as defendants, requesting the two companies to bear shared liability for compensation. The Supreme People's Court held that the lawsuit of WP Company against Jihua Company and Songmei Company is an indispensable joint tort action, and concluded that the court has jurisdiction over the case because the arbitration clause between WP Company and Jihua Company cannot govern the indispensable joint-tort action among the three parties in this case.

II. Retrial Ruling of the Supreme People's Court

  1. Background of the Case
  2. In the present case, a Chinese ship building company ("Ship Yard") signed a Ship Building Contract with a foreign shipping company ("Ship Owner"), in which Ship Yard undertook to build ships for the Ship Owner. The parties agreed in the Ship Building Contract that any disputes arising out of or in connection with the contract shall be submitted for arbitration in England and the arbitration will take place in London. The Ship Yard signed the Supply Contract with a foreign ship equipment supply company ("Equipment Company") in which the Equipment Company is obligated to provide ship equipments to the Ship Yard. The Supply Contract provides that any disputes arising out of or in connection with the Supply Contract shall be submitted for arbitration in Paris. After the Ship Yard installed the equipment, one of the Equipment Company's affiliated companies in China ("Service Company") provided commissioning service to the Ship Yard at the direction of the Equipment Company.

    Subsequently, the Ship Yard sought relief jointly against the Ship Owner, the Equipment Company and the Service Company in court with the cause of action of commercial deceit. The Ship Yard, the Equipment Company and the Service Company raised objection to the jurisdiction of the court of first trial, arguing that the court has no jurisdiction over any disputes arising out of or in connection with the Ship Building Contract and the Supply Contract, including tort disputes, because there exist valid arbitration clauses both between the Ship Owner and the Ship Yard and between the Equipment Company and the Ship Yard.

  1. The Rulings of the Court of First Instance and the Court of Second Instance
  2. The court of first instance held that the arbitration clause between the Ship Owner and the Ship Yard and the arbitration clause between the Equipment Company and the Ship Yard are not binding because the clauses cannot cover all the disputes of the case. The current case is a tort dispute. Given that the place where the tort occurred falls under the territorial jurisdiction of the court of first instance, therefore, the court of first instance has jurisdiction over the case.

    The court of second instance held that the court of first instance has jurisdiction over the case because it is the court of the place where the tortious actions occurred. The claim of the appellants that the disputes shall be submitted for arbitration in compliance with the arbitration agreements was denied, as the court maintained that the arbitration agreements have no binding effects on the tort disputes among all the parties.

  1. The Reasoning and Decision of the Supreme People's Court

The Ship Owner, the Equipment Company and the Service Company disagreed with the ruling of court of the second instance and applied for retrial with the Supreme People's Court. Recently, the Supreme People's Court has delivered the retrial ruling and upheld the decision of the court of second instance.

The Supreme People's Court concluded that the Ship Yard provided prima facie evidence to allege that the Ship Owner and the Equipment Company maliciously conspired to supply used equipments and the Service Company installed the equipments with the knowledge of the defects, and that the three defendants' wrongful actions amounted to a joint tort as they infringed the legitimate interests of the Ship Yard by taking advantage of the contracts. Based on the above claims and requests, it is held that the tort action jointly against the Ship Owner, the Equipment Company and the Service Company shall be construed as indispensable joint action. Due to the fact that the Supply Contract between the Equipment Company and the Ship Yard is not binding on the Ship Owner, whereas the Ship Building Contract between the Ship Owner and the Ship Yard does not bind the Equipment Company, and that both the arbitration agreements have no binding effect on one of the joint defendants, the Service Company, which is not a party to either of the contracts. In this regard, the arbitration agreements cannot bind all the parties involved in the joint tort disputes in this case. Based on the discussion and decision of the judicial committee of the Supreme People's Court, it is decided that the original court has jurisdiction over the case.

III. Influence of the Retrial Ruling

The ruling of the Supreme People's Court reemphasized its stance in the case of WP Company, i.e, the arbitration agreement between the parties has no binding effect on the joint-tort disputes between a signatory and a non-signatory to the arbitration agreement and the court can exercise its jurisdiction over such tort cases. The stance the Supreme People's Court took in the retrial showed its tendency to protect the interests of the infringed parties, and has a significant value as a reference for similar jurisdiction objections. The decision being made after discussions and decision of the judicial committee further proves that Supreme People's Court intends to emphasize the jurisdiction of courts over such cases. On the other hand, the retrial ruling would probably be utilized by the party seeking to avoid arbitration. The party can circumvent the arbitration clauses by means of bringing tort claims, as the court will not examine the legality, genuineness and relevance of the evidence when deciding whether to accept the lawsuit or not. In order to make up the reason for court to exercise jurisdiction, the party seeking to avoid arbitration only needs to provide prima facie evidence to prove the existence of a joint tort. As long as such evidence is submitted, the court will be able to exercise jurisdiction over the disputes in tort between the plaintiffs and all the defendants regardless whether there is a valid arbitration clause between the parties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions