The PRC Application of Laws in Foreign-related Civil Relations Law was considered and adopted at the seventeenth meeting of the standing committee of the eleventh National People’s Congress on 28 October, and will come into effect on 1 April 2011. As China’s first single piece of consolidated legislation on the application of laws in civil relations with foreign parties, the Law has integrated the provisions of the PRC General Principles of Civil Law and their judicial interpretations as well as other laws and regulations regarding the application of laws in civil relations involving foreign elements.
Basic principles
According to the Law, the following principles must be observed in determining applicable laws for foreign-related civil relations.
Special laws are superior to general laws. The Law is a general law of China governing the application of laws in foreign-related civil relations. Where laws such as the PRC Maritime Law, PRC Civil Aviation Law and other legislation contain separate specific relevant provisions, those provisions will prevail.
Principle of autonomy of will. The Law highlights the principle of autonomy of will. In addition to traditional contractual relationships, the Law also allows concerned parties to choose, by agreement, applicable laws in foreign-related civil and legal relations such as agency, trusts, marital property relationships, rights over movable property in transit, general tortious liability and liability for infringement of intellectual property (where the concerned parties choose applicable laws after the event), unjust enrichment and management of affairs without mandate as well as the transfer and licensing of intellectual property.
Principle of the closest connection
The Law establishes the principle of the closest connection, which means if the Law and other laws do not provide for the application of laws in a foreign-related civil relationship, “the law with the closest connection to that relationship shall apply”. For foreign-related civil contracts, in case the parties do not choose an applicable law, it is provided in the Law that “the law of the habitual residence of a party that best reflects the characteristics of a contract in the performance of obligations, or the law with the closest connection to the contract, shall apply”. This requirement is consistent with the principle established by the Supreme People’s Court in 2007 in article 5 of the Several Issues Regarding the Application of Laws in the Hearing of Foreign-related Civil or Commercial Contract Dispute Cases Provisions. This judicial interpretation sets out the applicable laws in 17 categories of foreign-related civil and commercial contracts.
Exclusive application of PRC law. As an exception to the principle of autonomy of will and the principle of the closest connection, the laws of the PRC must apply in the following circumstances:
(1) where PRC laws contain mandatory provisions on foreign-related civil relations;
(2) where the application of foreign laws would jeopardize the public interest in China; and
(3) where it is not possible to ascertain that foreign laws contain such provisions, or where foreign laws do not contain such provisions.
There are some other noteworthy points. The determination of the nature of foreign-related civil relations is governed by forum law. Foreign laws governing foreign-related civil relations will not be deemed to include the law of a foreign country on the application of laws. Foreign law governing foreign-related civil relations is to be ascertained by a people’s court or the arbitration or administrative authorities. A concerned party that chooses an applicable foreign law is responsible for providing the law of that foreign country.
Explicit rules
The Law specifies the rules for the application of laws in six aspects: civil subject, marriage and family, inheritance, property rights, creditor’s rights and intellectual property. Some of the major particulars of the Law are:
Civil subject
Habitual residence is an important factor in the application of laws. The capacity of a natural person for civil rights and civil acts is governed by the law of the place of habitual residence of the natural person. The capacity of a corporation and its branches for civil rights, civil acts, organizational structure, shareholder rights and obligations and other matters is governed by the law of its place of registration; but if the place of habitual residence is inconsistent with the place of registration, the law of the place of habitual residence will prevail.
Property rights
Compared with the General Principles of Civil Law, the Law has introduced more rules for the application of laws to movable property, negotiable securities and the pledge of rights. The concerned parties may choose, by agreement, applicable law in the rights over movable property and changes in the rights over movable property in transit. If the parties have not done so, the rights over movable property will be governed by the law of the place where the movable property is located when legal facts are being established, while changes in the rights over movable property in transit are governed by the law of the destination of the transit. Negotiable securities are to be governed by the law of the place where the rights to such negotiable securities are realized, or other laws with the closest connection to such negotiable securities. Pledges of rights will be governed by the law of the place where the pledge is created.
Creditor’s rights
The Law offers protection for disadvantaged groups in debtor-creditor relationships. For example, as a general principle, consumer contracts will be governed by the law of the habitual residence of consumers; contracts of workers will be governed by the law of the place where the workers are working;and product liability will be governed by the law of the place of habitual residence of the victim.
Intellectual property
The ownership and substance of intellectual property will be governed by the law of the place where protection is sought; liability for infringement of intellectual property will be governed by the law of the place where protection is sought; the concerned parties may also choose, by agreement, the applicable forum law after the act of infringement is carried out.
Having responded, in a systematic and comprehensive manner, to the issue of the application of laws in foreign-related civil relations, the Law will form an integral part of Chinese civil law to be incorporated into a Chinese civil code in the future.
