In 2011, the “PRC Law on the Application of Laws to Foreign-Related Civil Relations” (“Law”) was promulgated to provide for what the applicable laws should be when foreign-related civil relations are involved. The definition of “foreign-related civil relations”, however, was not specifically set out in the Law and was, more or less, scattered across various laws and regulations, as well as judicial interpretations of the Supreme People’s Court.

The Law of PRC on Application of Law in Foreign-related Civil Relations (The Law), effective from 1 April 2011, is a singular legislation for the choice of foreign law concerning property rights, intellectual property rights, civil capacity, creditors’ rights, marriage and inheritance. The Law acts as a supplement to existing regulations concerning foreign-related civil relations and only overrides conflicting laws in accordance with the given provisions.

Principally, parties in a foreign-related civil relations may expressly select the governing law by agreement. In cases where there is no selection, the law of the common residence of the party who best fulfils the contractual obligations applies — the law closest to the contract. Significant aspects relevant to foreign business include:

Labour contract
Governed by the place where the labour takes place or the place of business if the location of labour is difficult to distinguish.

Consumer protection
Consumers may choose to apply the law prescribed in the contract or by agreement select the law of where the commodities or service commences. Similarly, in the case of product liability, the infringed party can choose between the law of the party’s regular place of residence, the law where the main business commences or the law where the damage occurred.

Intellectual property rights
The law of the protected area determines the ownership and content of IP rights. Whilst in cases involving infringement of IP rights, the law of the place where the protection is requested shall apply, though, after the occurrence of a violation, parties may choose the applicable law.

Under the Interpretation of the Supreme People’s Court on Several Issues Concerning The Law promulgated on 28 December 2012, foreign-related civil relations are defined as: (1) foreign nationality such as a natural person, legal representative or organisation; (2) foreign locality in which the common place of residence or subject matter is located outside the PRC; and (3) other circumstances regarded as foreign-related civil relation. Though, intent to evade PRC law by a deliberate creation of a foreign connection will invalidate the application of foreign law.

Parties shall provide the relevant foreign laws to be ascertained by the people’s court, arbitration institutions or administration organs and if there are no provisions within the foreign law or no explicit allowance in PRC law, the choice of law is invalid. Furthermore, PRC law will prevail when special or mandatory provisions are prescribed in other existing PRC laws or the foreign laws impair social and public interests.

The Law and the Supreme Court interpretation provide a legal framework to protect civil and commercial transactions in line with international practise. Although, companies should closely follow the established provisions to avoid an invalid choice of the foreign law, specifically any contract that requires being governed by Chinese law under special or mandatory provisions.

If you would like more information on the application of law in foreign-related civil relations in China or other related issues, send us an email at talktous@horizons-advisory.com, and we’ll have a Horizons professional contact you.  

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