Branches require careful strategy selection in litigation cases

For some business operators, the establishment of branches to carry on business activities is a relatively ideal business framework. Pursuant to the Company Law, a branch neither has independent legal personality nor its own independent property. Once a party is involved in a dispute with a branch, it will, in formulating its litigation strategy, often be vexed by such issues as selection of the defendant, jurisdiction and enforcement. This column seeks to clarify and analyse these issues with current PRC law.

Competent defendant

One theory holds that since a branch is not an independent legal person, it lacks the qualifications to serve as a defendant in a litigation case. This is a misunderstanding. Article 48 of the Civil Procedure Law specifies that “any citizen, legal person or other organisation may be a party to a civil action … Other organisations shall be represented in litigation by the main person in charge thereof”. So, participation by a branch in litigation as “another organisation” that has a “main person in charge thereof” does not run counter to the provisions of principle of the Civil Procedure Law.

The Opinions of the Supreme People’s Court on Several Issues Concerning the Application of the Civil Procedure Law of the People’s Republic of China further specify that “other organisations” in the above provisions include “organisations that are lawfully established, have a certain organisational structure and property, but do not have legal personality, including: (sub-)branches that are lawfully established by legal persons and have business licences”. This constitutes the direct basis for the independent participation by branches in civil actions.

Vincent Mu is a senior associate and Zhou Chengcheng is an associate at Martin Hu & Partners