Interpretation on Several Issues Concerning the Application of the «PRC Foreign Investment Law»

(Promulgated by the Supreme People's Court on December 26, 2019 and effective as of January 1, 2020.)

SPC Interpretation [2019] No.20

With a view to correctly applying the PRC Foreign Investment Law, protecting the lawful rights and interests of Chinese and foreign investors equally in accordance with the law and creating a law-based business environment that is stable, fair and transparent, we have, in light of adjudication practice, rendered the following interpretation on issues of the application of the law in trials by people's courts of investment contract disputes between equal subjects.

Article 1:        For the purposes of the Interpretation, the term "investment contract" means the relevant agreement arising when a foreign investor, i.e. a foreign natural person, enterprise or other organization, directly or indirectly invests in China, including a contract for the establishment of a foreign-invested enterprise, share transfer contract, equity transfer contract, contract for the transfer of a share in property or other similar rights and interests and contract for the construction of a new project.

The Interpretation shall apply to contractual disputes arising in connection with rights and interests secured by a foreign investor through means such as a gift, property division, corporate merger or corporate division.

Article 2:        If a party claims that an investment contract arising in a sector not covered by the negative list for foreign investment access specified in Article 4 of the Foreign Investment Law is invalid or did not enter into effect on the grounds that it was not approved by, or registered with, the relevant competent administrative department, the people's court shall reject such claim.

If an investment contract as specified in the preceding paragraph was executed prior to the implementation of the Foreign Investment Law but the people's court had not rendered an effective judgment or ruling at the time of the implementation of the Foreign Investment Law, the validity of the contract shall be determined by applying the preceding paragraph,

Article 3:        If a foreign investor invests in a sector in which investment is prohibited by the negative list for foreign investment access and a party claims that the investment contract is invalid, the people's court shall uphold such claim.

Article 4:        If a foreign investor invests in a sector in which investment is restricted by the negative list for foreign investment access and a party claims that the investment contract is invalid on the grounds that it violates the special administrative measures that restrict access, the people's court shall uphold such claim.

If the concerned party takes the necessary measures to satisfy the requirements of the special administrative measures for access before the people's court renders an effective judgment or ruling and a party claims that the investment contract specified in the preceding paragraph is valid, such claim shall be upheld.

Article 5:        If the negative list for foreign investment access is revised before an effective judgment or ruling is rendered such that the sector invested in by a foreign investor is no longer prohibited or restricted and a party claims that the investment contract is valid, the people's court shall uphold such claim.

Article 6:        When a people's court tries a relevant dispute arising from an investment in mainland China by an investor from the Hong Kong Special Administrative Region or Macao Special Administrative Region, by a Chinese citizen who has taken up permanent residence abroad or by an investor from Taiwan, it may apply the Interpretation mutatis mutandis.

Article 7:        The Interpretation shall be effective as of January 1, 2020.

In the event of a discrepancy between the Interpretation and a relevant judicial interpretation rendered by this court prior to the implementation hereof, the Interpretation shall prevail.