Key Points

  • Clarification of "foreign-related civil relations".
  • Choice of law by the parties involved in foreign-related civil relations.
  • Scenarios when application of PRC law is mandatory.

Background

On 28 December 2012, the Supreme People’s Court ("SPC") of China announced the Interpretations on Several Issues Concerning the ‘Law of the People’s Republic of China on the Application of Laws to Foreign-Related Civil Relations (the "Law")’, which came into effect on 7 January 2013 (the "Interpretations").

Highlights of the Regulations

Clarification of "Foreign-Related Civil Relations"

The Interpretations have supplemented the previous rules under SPC’s judicial interpretations on what may determine a civil relation as a "foreign-related civil relation". A foreign-related civil relation can occur in any of the following instances:

  • Where either party (or both parties) of a civil relationship is a foreign citizen, foreign legal person, or other organization or stateless person.
  • Where the subject matter of the relation is located outside the territory of the People’s Republic of China.
  • Where the legal facts that trigger, change or terminate the civil relation take place outside the territory of the PRC.
  • Where the "regular residence" of either party (or both parties) is located outside the territory of the PRC.
  • Other circumstances that may be determined as foreign-related civil relations.

"Regular residence" is further defined as a place where a party to the relationship has consecutively resided for more than one year, with that residence functioning as the center of the party’s living at the time the civil relation established, changed or terminated. Medical treatment, labor dispatch and business affairs are excluded from this definition.

Choice of Law by the Parties

Under the Interpretations, if the PRC law does not specifically allow parties to choose applicable law for foreign-related civil relations, and the parties choose the applicable laws themselves, these will be deemed invalid by a PRC court. Domestic parties (including foreign-invested enterprises) without a foreign element in their relations may not choose applicable laws. Further, if a party intentionally creates a foreign-related element in order to avoid application of mandatory PRC law, this will be deemed invalid.

The Interpretations also clarify the selection of neutral law not connected to civil relations in Article 7. Here, if a party claims that the choice of law is invalid on the grounds that the law chosen by the parties has no connection with the foreign-related civil relation in dispute, such claim will not be upheld by the court.

Scenarios Where Application of PRC Law is Mandatory

Under the Interpretations, PRC law must apply – regardless of the agreement between the parties – if the relation involves:

  • labor protection
  • food and public health safety
  • environmental safety
  • financial safety such as foreign exchange control
  • anti-monopoly and anti-dumping

Other circumstances may also be governed by PRC mandatory provisions.

Other Changes Under the Regulations

In addition to the changes highlighted above, the Interpretations also cover the retrospective force of the Law, the relations between the Law and other relevant laws, when international treaties and practices apply, the timeline for the choice of law and proof of foreign law.

Conclusion

The Interpretations intend to clarify certain major questions raised by the implementation of the Law since it came into effect in late 2010. According to the SPC, the Interpretations only provide explanations to the general principles of the Law and further interpretation on special provisions will follow.