Provisions on Several Issues Concerning the Application of the Law in Trials of Foreign-related Civil and Commercial Contract Disputes

(Promulgated by the Supreme People's Court on July 23 2007 and effective as of August 8 2007.)

SPC Interpretation [2007] No.14

These Provisions have been formulated pursuant to the relevant provisions of the PRC General Principles for Civil Law, the PRC Contract Law, etc., in order to correctly try foreign-related civil and commercial disputes and accurately apply the law.

Article 1: The law applicable to foreign-related civil and commercial contracts refers to the substantive law of the relevant country or region, exclusive of the conflict of laws and procedural law.

Article 2: For the purposes of these Provisions, the term "contract dispute" includes disputes over the formation, validity, performance, amendment, transfer and termination of contracts as well as liability for breach of contract.

Article 3: If the concerned parties select or change their selection of the law applicable in a contract dispute, they shall do so expressly.

Article 4: If the parties reach a consensus through consultations on the selection or a change in the selection of the law applicable to their contract dispute prior to the conclusion of arguments in the court of first instance, the people's court shall give its approval.

If the parties have not selected the law applicable to their contract dispute but both cite the law of the same country or region and neither has raised an objection to the applicable law, they shall be deemed to have made a selection as to the law applicable to their contract dispute.

Article 5: If the parties have not selected the law applicable to their contract dispute, the law of the country or region with the closest connection to the contract shall apply.

When determining the law applicable to a contract dispute pursuant to the doctrine of closest connection, a people's court shall, based on factors such as the particular nature of the contract and the obligations performed by a party that best demonstrate the nature of the contract, etc., determine the law of the country or region that has the closest connection with the contract as the law governing such contract.

(1) For a sale and purchase contract, the law of the place where the seller was domiciled at the time of the formation of the contract shall apply; if the contract was negotiated and formed at the place where the buyer is domiciled or if the contract expressly specifies that the seller is required to perform its delivery obligation at the place where the buyer is domiciled, the law of the place where the buyer is domiciled shall apply.

(2) For a contract for the processing of supplied materials, the assembly of provided parts and other such processing contracts, the law of the place where the processor is domiciled shall apply.

(3) For a contract for the supply of a complete set of equipment, the law of the place where the equipment is installed shall apply.

(4) For a contract for the sale, lease or mortgage of immovable property, the law of the place where the immovable property is located shall apply.

(5) For a contract for the lease of movable property, the law of the place where the lessor is domiciled shall apply.

(6) For a contract for the pledge of movable property, the law of the place where the pledgee is domiciled shall apply.

(7) For a loan contract, the law of the place where the lender is domiciled shall apply.

(8) For an insurance contract, the law of the place where the insurer is domiciled shall apply.

(9) For a lease financing contract, the law of the place where the lessee is domiciled shall apply.

(10) For a construction project contract, the law of the place where the construction project is located shall apply.

(11) For a storage and custody contract, the law of the place where the storage provider or custodian is domiciled shall apply.

(12) For a guarantee contract, the law of the place where the guarantor is domiciled shall apply.

(13) For an entrustment contract, the law of the place where the entrusted party is domiciled shall apply.

(14) For contracts for the issuance, sale and transfer of bonds, the law of the place where the bonds are issued, the bonds are sold and the bonds are transferred shall respectively apply.

(15) For an auction contract, the law of the place where the auction is held shall apply.

(16) For a brokerage contract, the law of the place where the broker is domiciled shall apply.

(17) For an intermediary contract, the law of the place where the intermediary is domiciled shall apply.

If it is clear that any of the foregoing contracts has a closer connection with another country or region, the law of such other country or region shall apply.

Article 6: If the parties act in such a way as to circumvent mandatory provisions of laws or administrative regulations of the People's Republic of China and the applicable foreign law does not have effect, the law of the People's Republic of China shall apply to the dispute over the relevant contract.

Article 7: If the applicable foreign law violates the public interest in the People's Republic of China, such foreign law shall not apply and the law of the People's Republic of China shall apply.

Article 8: The law of the People's Republic of China shall apply to contracts of the types set forth below performed within the territory of the People's Republic of China:

(1) contracts for Sino-foreign equity joint ventures;

(2) contracts for Sino-foreign cooperative joint ventures;

(3) contracts for Sino-foreign cooperation in the exploration for, and development of, natural resources;

(4) contracts for the transfer of shares in Sino-foreign equity joint ventures, Sino-foreign cooperative joint ventures and wholly foreign-owned enterprises;

(5) contracts under which foreign natural persons, legal persons or other organizations contract for the operations of Sino-foreign equity joint ventures or cooperative joint ventures established within the territory of the People's Republic of China;

(6) contracts for the purchase by foreign natural persons, legal persons or other organizations of equity from shareholders of non-foreign-invested enterprises within the territory of the People's Republic of China;

(7) contracts for the subscription by foreign natural persons, legal persons or other organizations for capital increases of non-foreign-invested limited liability companies or companies limited by shares within the territory of the People's Republic of China;

(8) contracts for the purchase by foreign natural persons, legal persons or other organizations of assets of non-foreign-invested enterprises within the territory of the People's Republic of China; and

(9) other contracts that laws and administrative regulations of the People's Republic of China require to be governed by the law of the People's Republic of China.

Article 9: When parties select the law of a foreign country as the law applicable in a contract dispute or change their selection of the law applicable in a contract dispute to the law of a foreign country, they shall provide or attest to the relevant provisions of such foreign law.

When determining that the law of a foreign country is the law applicable to a contract dispute pursuant to the doctrine of closest connection, a people's court may, ex officio, ascertain or require the parties to provide or attest to the relevant provisions of such foreign law.

If both the parties and the people's court fail to ascertain the provisions of the foreign law through suitable means, the people's court may apply the law of the People's Republic of China.

Article 10: If the parties have no objection following cross-examination of the ascertained provisions of the foreign law, the people's court shall give its confirmation. If a party has an objection, the people's court shall conduct an examination and arrive at a determination.

Article 11: Reference shall be made to these Provisions with respect to the law governing Hong Kong Special Administrative Region and Macao Special Administrative Region related civil and commercial contracts.

Article 12: In the event of an inconsistency between provisions previously issued by this Court and these Provisions, these Provisions shall prevail.