China: The Supreme People's Court clarifies main issues on Law of the Application of Law for Foreign-related Civil Relations of China

Last Updated: 20 June 2013
Article by Jiang Rongqing

Law of the Application Law for Foreign-related Civil Relations of China (hereinafter referred to as "the Law"), which is the first special regulation in respect of the issues on the application of law for foreign-related civil relations, came into force on 1 April 2011, having significant influence on the definition of rights and obligations of relevant parties with foreign-related civil relations. However, since not a few controversial issues emerge in the enforcement of the Law, the Supreme People's Court passed and enforced the Judicial Interpretation on the Law (hereinafter referred to as "the Judicial Interpretation") on 10 December 2012, explicitly clarifying major issues in several aspects, so as to have the adjudication approaches consistent.

The Judicial Interpretation of 21 articles mainly regulates the existing major issues found by the Supreme People's Court in the enforcement of the Law, including how to define "foreign-related civil relations", retrospective effect of the Law, how to deal with the relation between the Law and conflict rules of other laws, timing, means and scope of choice of applicable law by the parties, how to define "mandatory provisions" in law of China, consequences of evasion of law, application of law in respect of questo prejudicial, distinction of application of law between different foreign-related civil relations, determination of lex causae for foreign-related arbitration agreement, how to define "habitual residence" of a natural person and "place of registration" of a legal person, how to define "failure to prove foreign law", how to define the contents and meanings of foreign law, compliance with the Judicial Interpretation when dealing with Hong Kong and Macau related cases and retrospective effect of the Judicial Interpretation, etc.

1. How to define "foreign-related civil relations"?

The Judicial Interpretation provides that (1) "habitual residence" shall be an important connecting factor for the subject of the civil legal relation in addition to emphasis on the connecting factor of "nationality"; (2) a "foreigner" shall include foreign natural person, legal person and other organizations; (3) the statement of "foreign" shall be change to "outside the territory of the People's Republic of China"; and (4) a closing provision shall be included to cover other probably existing circumstances which should be regarded as foreign-related civil relations in practice.

Besides, as to whether or not foreign countries and international organizations should be included, China has always insisted on "absolute immunity" in practice despite that it is researching on changing its position of state immunity to "relative immunity". "Foreign countries or international organizations" are not included in the Judicial Interpretation because Chinese courts would probably be mistakenly assumed to have had the position of relative immunity if the Judicial Interpretation explicitly includes foreign countries and international organizations.

2.How to deal with the issue of the retrospective effect of the Law?

Since the Law is rule of conflict and the application of the Law will ultimately lead to the application of substantial law which has influence on the rights and obligations of the parties, the retrospective effect of the Law should be ascertained in accordance with the retrospective effect of the substantial law and the application principle of the Law shall be Ex Post Facto prohibition, so that reasonable expectations of the behavior of the parties can be ensured.

3. How to deal with the issue on the application of international treaties and international conventions?

Article 142 of General Principals of the Civil Law of China, Article 95 of Law on Negotiable Instruments, Article 268 of Maritime Law and Article 184 of Civil Aviation Law have similar provisions on the application of international treaties and international conventions in two paragraphs, for instance, the second paragraph of Article 142 of General Principals of the Civil Law of the People's Republic of China provides that if any international treaty concluded or acceded to by the People's Republic of China contains provisions different from those in the civil laws of the People's Republic of China, the provisions of the international treaty shall prevail, unless the provisions are ones on which the People's Republic of China has announced reservations. The third paragraph of the same article provides that international conventions may be applied to matters for which neither the law of the People's Republic of China nor any international treaty concluded or acceded to by the People's Republic of China has any provisions. With regards to the application of international treaties and international conventions in judicial practice, relevant provisions such as the above Article 142 of General Principals of the Civil Law of the People's Republic of China and so on shall be the legal basis.

However, since principles of territoriality and independent protection of intellectual property are universally recognized at an international level and China has incorporated TRIPS agreement under the WTO into domestic law and the international treaties in respect of the intellectual properties not covered in TRIPS agreement generally provide standards for minimum protection instead of completely unified specific rules, in judicial practice in respect of the area of intellectual property, international treaty will not necessarily prevail under the circumstance that domestic law contains different provisions from those under the international treaty. In view of this, the Judicial Interpretation has added the provision "other than those under the international treaties which have been incorporated into or need to be incorporated into domestic law".

4. What are the provisions on the scale, timing and means of choice of applicable law by the parties?

Firstly, only if Law of china explicitly stipulated that the parties are allowed to choose the applicable law, the parties may make a choice on the application of law for foreign-related civil relations. Otherwise, the choice of law made by the parties is invalid and the people's court shall not support the choice of law. Secondly, if one party claims that the choice of law is invalid on the basis that the choice of law as agreed by the parties has no actual link with the disputed foreign-related civil relation, the people's court shall not support the claim. The Judicial Interpretation also explicitly provides that the timing of choice of applicable law shall be "before the court debate of the first instance". If each party has invoked the law of the same country and does not challenge the issue of the application of law, the Chinese courts will commonly recognize that the parties have made the choice on the application of law for foreign-related civil relations and will make a judgment in accordance with that law.

5. In maritime cases, if the parties of the case clearly set out in the bill of lading that relevant rules of the international treaties such as "International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, 1924" (i.e. the "Hague Rules") and "United Nations Convention on the Carriage of Goods by Sea, 1978" (i.e. the "Hamburg Rules") shall be applied, but China does not enter into such international treaties, how should the people's court deal with this case?

In judicial practice, if the parties invoke the international treaties which have not became effective in China in the legal documents such as contracts, the people's court will commonly respect the choice of the parties and at the same time hold that since the international treaties have not became effective in China, the treaties are not binding on China and they shall not be the legal basis for the judgment, that is the Chinese courts shall not apply them as international treaties.

6. How to properly deal with "mandatory provisions" in law of China in judicial practice?

Article 4 of the Law for the first time explicitly provides that mandatory provisions in law of China shall be directly applied. In general, mandatory provision means the provisions which the court does not need to be directed by domestic rules of conflict to directly apply in the course of adjudicating cases as domestic law explicitly provides that certain law provisions shall be directly applied for certain legal relations and the parties are not allowed to choose the applicable law or exclude such application of law by agreement. Mandatory provisions must involve considerations of domestic social and public interests and generally aim at protecting domestic economic order or providing special protection for certain interests and the law of such kind is of great significance to foreign-related civil relations, for instance, anti-trust law, foreign exchange control law, foreign trade control law, price law, social security law and law on the protection of consumer rights and interests and so on.

It must be highlighted that the "mandatory provisions" herein are different from the so-called effective or administrative or mandatory provisions in Chinese contract law and must be the mandatory provisions applicable to foreign-related civil relations, which shall be considered from the prospective of legislative purposes.

7. What is the provision on habitual residence of a natural person?

Paragraph 1 of Article 9 of the judicial interpretation on General Principals of the Civil Law of China provides that the last place where the citizen continuously lives for one year or more after it leaves the domicile shall be its habitual residence, expect the hospital where it has its medical treatment. Article 5 of the judicial interpretation on civil procedural law provides that the citizen's habitual residence means the place where the citizen continuously lives for one year or more during the period from its departure from the domicile till the beginning of the proceeding, except the hospital where it has its medical treatment. The "habitual residence" of a natural person can be explicitly defined based on the aforementioned judicial interpretations. At the same time, the starting point of "continuously lives for one year or more" shall be the time "when the civil relations begin, alter or end". However, the place where the citizen has its medical treatment abroad, where it is dispatched to work abroad, and where it works or study on business abroad shall not be regarded as habitual residence.

8. How to identify the contents of foreign law and how to correctly understand foreign law?

As for applicable foreign law, whether it is provided by the parties or obtained by the people's court under its power, the people's court shall hear the understanding of the contents of the foreign law and the opinions on its application from the parties. In the case that the parties do not challenge the application of the foreign law, the people's court shall determine the contents and application of the foreign law in accordance with the parties' mutual understanding. In the case that the parties challenge the application of the foreign law, the people's court shall on itself finally determine the contents, understanding and the application of the foreign law.

9. How to deal with the issue on the application of law for Hong Kong, Macau and Taiwan related cases?

There are no provisions on the application of law for Hong Kong, Macau and Taiwan related civil relations in China. Taiwan related cases shall be dealt with in accordance with the Provisions on Application of Law for Adjudication of Taiwan-related Civil and Commercial Cases. The Judicial Interpretation shall be applied when dealing with the issue on the application of law for Hong Kong and Macau related civil relations.

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.

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