Key Points:

  • China clarifies application of laws on various foreign-related civil relations
  • The Law intends to protect the weak and certain groups such as consumers
  • Party automony is highly respected

The Law of the People’s Republic of China on Application of Laws on Foreign-Related Civil Relations (the Law) was adopted at the 17th session of the Eleventh Standing Committee of the National People’s Congress of the People’s Republic of China on 28 October 2010 and will go into effect on 1 April 2011.

Before promulgation of the Law, rules regarding the application of laws on foreign-related civil relations were spread among the General Principles of the Civil Law, different divisional laws and judicial interpretations (collectively the “existing related laws”). The Law aims to provide comprehensive and uniform guidelines with regard to application of laws on foreign-related civil relations. It does not automatically make all existing related laws obsolete unless they conflict with the Law. In addition, if there are other specific provisions on application of laws on certain foreign-related civil relations, such specific provisions shall prevail.

The Law is organized into the following eight chapters, with 52 articles in total:

  • General Provisions;
  • Civil Subjects;
  • Marriage and Family;
  • Inheritance;
  • Real Rights;
  • Claim-Rights;
  • Intellectual Property Rights; and
  • Supplementary Provisions.

Principles Established

The Law specifies several principles with regard to the application of laws on foreign-related civil relations, including but not limited to (1) freedom of choice of the governing law to the extent allowed by law, (2) application of the law with the closest connection to the foreign-related civil relations in the absence of express provisions under the Law and other related PRC laws, (3) direct application of PRC compulsory laws on some foreign-related civil relations, and (4) exclusion of foreign law if application of such foreign law could harm the public interests of China.

The Law clarifies that the statute of limitations shall be governed by the substantive law applicable to the foreign-related civil relations and the determination of the nature of a civil relation shall be governed by lex fori. The Law imposes the burden of proof of foreign law on the party that chooses the foreign law as applicable law; if this party fails or the foreign law is silent, PRC law will apply.

Noticeable Provisions

If the locality of registration of a legal person or its branch differs from its main operational location, the law at its main operational location may determine its capacity for civil rights or civil actions, organizational structure and shareholder’s rights and obligations and others. (The Law, Article 14)

The laws of the locality where an agency act takes place shall apply, but the civil relation between the principal and the agent shall be governed by the law of the location where the agency relation is concluded. In addition, the parties have the right to choose the governing law for entrusted agency by agreement. (The Law, Article 16)

The Law expressly displays its intention to protect the rights and interests of the weak or other special groups.

The Law states that the laws at the mutual habitual residence shall apply to the personal and property relations between parents and children; if there is no mutual habitual residence, the law at the habitual residence or of the state of nationality of one party, which is in favor of protecting the rights and interests of the weak, shall apply. (The Law, Article 25)

Regarding foster parenting, the law at the habitual residence, of the state of nationality, or at the locality of the main properties of one party – which is in favor of protecting the rights and interests of the persons being fostered – shall apply. (The Law, Article 29)

Regarding guardianship, the law at the habitual residence or of the state of nationality of one party – which is in favor of protecting the rights and interests of the persons under guardianship – shall apply. (The Law, Article 30)

For consumer contracts, the law at the habitual residence of the consumer shall be the governing law; however, if the consumer chooses the law in effect where the products or services are provided, or the operator has no business activities in the consumer’s habitual residence, the law at the location of provision of products or services shall apply. (The Law, Article 42)

The law at the working location of the employee shall be the applicable law for the employment contract; if it is difficult to determine the employee’s working location, the law at the main operational location of the employer shall apply. Regarding secondment, the law at the destination where the individual is seconded shall apply. (The Law, Article 43)

Regarding product liabilities, the law at the habitual residence of the infringed shall apply. If the infringed chooses the law at the infringer’s main operational location or at the locality where the damage takes place, or the infringer has no business activities in the habitual residence of the infringed, the law at the infringer’s main operational location or the locality where the damage takes place shall apply. (The Law, Article 45)

The Law clarifies the applicable laws for many foreign-related civil relations, which were not addressed in existing laws and rules.

The Law grants the parties the right to choose the applicable law for the real rights of chattel. In the absence of applicable law chosen by the parties, the law at the locality of the chattel where the legal fact takes place shall apply. (The Law, Article 37) In addition, the parties may choose the applicable law for a change of the real rights of chattel in transit, and in the absence of a chosen applicable law, the law at the transport destination shall apply. (The Law, Article 38)

The Law also clarifies that if the parties do not choose an applicable law for a contract, the law at the habitual residence of the party whose performance of his or her obligation can best reflect the feature of the contract or other laws with the closest connection to the contract shall apply. (The Law, Article 41)

With regard to intellectual property rights, the Law specifies that the law at the locality where protection is claimed shall apply to the ownership and content of intellectual property rights. The parties also have the right to choose the applicable law for assignment or license of intellectual property rights, and in absence of a chosen law, the applicable law shall be decided according to Article 41 of the Law as discussed above. Regarding liabilities for infringement of intellectual property rights, the law at the locality where protection is claimed shall apply; however, if the parties agree to choose lex fori as the applicable law, such agreement will be respected. (The Law, Article 48-50)

Pending Issues

The Law makes remarkable advances in clarifying the application of laws on many foreign-related relations. However, there are some matters or terms that require further legislation or judicial interpretations for implementation of these provisions in the future. For instance, both Article 42 and Article 45 provide that if the operator or infringer has no business activities in the habitual residence of the consumer or the infringed, the law at the habitual residence of the consumer or the infringed will be excluded; however, PRC law has yet to provide an express definition of “business activities.” Furthermore, the Law repeats the principle of exclusion of application of foreign law by “public interests”; however, there is no clear definition of “public interests.” The lack of clear definitions for some key terms increases the risk of abuse of these provisions to exclude application of foreign laws.