Professional Interpretation

Introduction: The development of China’s international relations has been blooming up with more and more frequent commercial activities. However, enterprise may trap into a dilemma if there are ambiguities on the dispute resolution clauses of contract with foreign enterprise. The International Business Team of Beijing DOCVIT Law Firm will analyze and interpret some misunderstandings of international contract written towards dispute resolution clauses, in the hope of protecting the interests and rights of China’s enterprise to the utmost.   

I. Is it appropriate for international contract to be governed by China’s laws?

For the legal protection of foreign contract, the first problem needs to handled with is how to make right choice of applicable law. What we need to do is not just find a law benefiting the contract party but also to learn how to make full use of it to ensure the stability and conformability of practical application. The ultimate difference between the common domestic contract and the applicable law is that the latter not only makes fully consideration the interests of both our parties and our country, meanwhile it also protect properly the legitimate rights and interests of foreign parties in maintaining of international economic and trade relations. The so-called application of law in foreign contract refers to the applicable law of contract which country’s law was to use on the disputes.

According to the 126th provisions of Contract law of the people's Republic of China, parties to a contract involving foreign interests can select the applicable law for resolving the disputes unless it is otherwise prescribed by laws. If the two parties didn’t make choice, the laws in the country which most closely connected with the contract will be used as the applicable law. Such types of contract performed within the territory of the People's Republic of China applicable to China’s laws as contract of Sino foreign joint venture enterprise, Sino foreign contractual joint venture contract and Sino foreign cooperative exploration and exploitation of natural resources contracts, but should note that the laws selected by the two parties should be of “good will” and “with in the law”, i.e. shall not damage the social public interests. The foreign applicable law-to-be could be replaced by the laws of our country if it violates the basic principles of laws and the public interest of our country.

China’s parities in contract often acquire to adopt China’s laws because familiar of it. However, in practice, it is fairer and easier to solve relevant disputes to select the foreign laws for handling with merge matters, namely, maritime matters. Hence, law applicability depends on the specific situation.

Take one case of the International Business Team of DOCVIT once dealt with before as an example, in which the x acquire party is a state-owned enterprise of China, who insisted on take China’s laws as the applicable law for the contract, and the acquired party is a mining enterprise of Mongolia. There are many special regulations on certain matters in the laws of Mongolia such as land ownership, mining conditions and the definition of strategic mine, which could not solved by China’s laws. Hence, we finally provided advice for our clients to select the local laws of Mongolia.

II. It is appropriate for foreign contract to be governed by Chinese court?

Just as the former question, in which Chinese parties often considered that it is most appropriate for Chinese part to agree with the jurisdiction of Chinese court, often was strongly insisted during the legal negotiations of foreign contract.   

In fact, it’s no necessarily good to agree with the jurisdiction of Chinese court, taking a case of international dispute earlier handled by us as an example, in which the Chinese party, as the  plaintiff ,need to lodge a lawsuit in China, but all of the property of the defendant located Singapore. For Chinese court, there is no right to preserve the property outside the country in advance, which gave the defendant sufficient time to transfer the relevant property. If we had agreed to a Singapore arbitration agency, the result may be totally different.

Hence, DOCVIT International Business Team suggested clients to take such factors into account as location of property and relevant provisions of international treaties rather than select the most convenient Chinese court blindly when consider about the Jurisdiction.

III. How to avoid or eliminate the conflicts provisions of foreign contract to minimize the uncertainty of law?

According to the article titled “Huang Yiming, Su Wei and Chow Tai Fook Nominee Ltd, Heng man Development Co., Ltd. and Bao Yi Development Co., Ltd. contract disputes” of seventh issue in 2016 of Gazette of the Supreme People's Court, on 19,June , 2000, Chow Tai Fook Nominee Ltd, Heng man Development Company Limited and Huang Guanfang ( husband of Su Yuedi and father of Huang Yiming) signed the share operation agreement ,of which the 27th provision “the application of law and disputes solution” said, This Agreement shall be governed by and construed in accordance with the laws of Hongkong, the parties agree that the non exclusive jurisdiction shall be exercised by the courts of the Hongkong.

In litigant process, Chow Tai Fook and Heng man held that this case should governed by the laws of Hongkong, and after the death of Huang Guangfang, Huang Yiming and Su Yuedi had no evidence of being will executor or estate administrator by performing statutory procedures of Hongkong under laws of Hongkong. Hence they are not statute of a subject for conducting prosecutionHowever, the court held that whether they are proper litigants should based on procedural law. The laws at the locality of the court- mainland law shall apply the procedural law matters. Hence, the view of Chow Tai Fook and Heng man on definite judge the statute of a subject for conducting prosecution of Huag Yiming and Su Yuedi under laws of Hongkong. This result made all the efforts in ruin taken by the party to select the laws of Hongkong as applicable law during the negotiations of the contract, and deviated from their original intention. But if we pay a little attention to eliminate the conflict principles in law, when make agree on the applicable law, this irretrievable situation may never accure.

For the foreign contract, the provision of governing law( or Applicable law), the normal writing is “This Agreement shall be governed by and construed in accordance with the laws of B.(Note: B is country name)”.However, because the understand to the scale of international law(law of B)under  ()the domestic private international law( conflict rules of A )of different judges in different countries differ a lot, some countries holds that the designated foreign law also includes the conflict rules of that country(conflict rules of B), which may cause that the ultimate governing law under the ( guidance of) conflict rules of B is the law of A or the third country. According to this, for the party’s aim of selecting the laws of B as the applicable law, the party should eliminate the application of the conflict rules of B. Hence, the provisions of application of law should be written in this way(like this): “This Agreement shall be governed by and construed in accordance with the laws of B, excluding conflict of law’s provisions.”

IV. Recognition and enforcement of foreign adjudication in China and recognition and enforcement of China’s adjudication on foreign soil

On 18,September, 2006, China international economic and trade arbitration commission gave a ruling on the dispute over sale contract between companies A and B, acquiring company B perform duty of paying within 30 days from the date of adjudication. According to the article 266 in Civil Procedure Law of the People's Republic of China of 1991(applicable at that time), if the person subjected to execution or his property are not in the realm of the country, the application of recognition and enforcement by foreign court with the legal jurisdiction should be acquired. Because that the abode and enforceable property of the party subjected to execution, company B, are not in the realm of our country, on 27, August,2007, company A apply to the Lenzburg Court of Switzerland for commit and enforce the adjudication and submitted the translation document of arbitral award which was certified by Consulate General of Switzerland in Shanghai and Shanghai Foreign Affairs Office and translated by China Central translation agency.

On 25, October of the same year, Lenzburg Court of Switzerland rejected this application of Company A for reasons of the translation document of arbitral award submitted by Company A fail to conform to the 4th article “The translator or by a diplomatic or consular personnel certification by the public or sworn” of Convention on the recognition and enforcement of Foreign Arbitral Awards. After that, company A apply to the Lenzburg Court of Switzerland twice again for commit and enforce the adjudication and submitted two translation documents of arbitral award which were translated respectively by Swiss regional translation agency and Shanghai SISU translation Corporation, certified by Shanghai Foreign Affairs Office and Shanghai Foreign Affairs Office. But Lenzburg Court, on 17,March, 2009 and 31,August,2010, respectively rejected the application of Company A for reason of the translation documents of arbitral award were not in strictly compliance with the 4th article “The translator or by a diplomatic or consular personnel certification by the public or sworn” of Convention on the recognition and enforcement of Foreign Arbitral Awards. Seemingly its not possible for this case to get through.  

But, on 30,july,2008,things turned over. On that day, A company found that abatch of machinery equipment belonging to B Company were on display at the exhibition in Pudong, Shanghai. According to the particles 202 and 257 of Civil Procedure Law of the People's Republic of China and the particles 8 and 9 of Interpretation of the Supreme People's Court on Several Issues concerning the application of the procedures of the Civil Procedure Law of the People's Republic of China, if the person subjected to execution or his property are in the realm of the country, the application can be recognized and enforced by Intermediate people's court of where the property located. After A company applying to Shanghai First Intermediate People's court at the same day, that batch of machinery equipment of company B were sealed up or seized.

From the surface, A company found keenly the property available for execution of Company B in the realm of our country and timely applied to the court for the property preservation thus enforcing the adjudication and protecting its interests with a ultimate good result. But if we anatomize this case, we will find a little in it. It is because company B came China for exhibition that give the opportunity to China’s court to seal up or seize the property. Furthermore, there is little hope for company A after the application rejected by Swiss court so many times.

According to particle 282 of Civil Procedure Law of the People's Republic of China, for the application for recognition and enforcement of legally effective judgments or orders of the foreign court, the people's court shall, after its examination according to international treaties concluded or acceded to by the People's Republic of China or reciprocity principle and ensure it doesn’t violate the basic principles of China or state sovereignty, security, social and public interests , acknowledge its validity by a ruling and, where necessary, issues an order of execution to implement it according to the procedure specified by this law. Otherwise, the people's court shall refuse to admit and execute it

Up to now, on that matter there is no applicable multilateral international treaty in or country, the main reference is Bilateral judicial assistance treaty on Civil (business) matters concluded with foreign country. Supreme People’s court explained the reciprocal relationship as “factual reciprocity”, that is, between the two countries, there is a precedent to go by to mutual admit and execute the ruling of each other’s court .

China jointed Convention on the recognition and enforcement of Foreign Arbitral Awards in 1987, mutual admit and execute the ruling of each other’s court with 130 countries and regions. However, for the mutual admitting and executing the ruling of others country, China has not jointed Convention on the recognition and enforcement of foreign judgments in international civil and commercial cases signed in Hague, 1971 or other multilateral treaty. Moreover, China’s court mostly disapproval the reciprocal relationship with other country except the 130 ones unless it be proved by the parties. Hence, in practice, if parties want to apply for recognition and enforcement of foreign adjudication in China, for the most part, then only can take the mutual treaty signed by China and the forum state as reference.

Hence, DOCVIT international business team suggested you clients that the treaty and domestic law should be fully concerned about when you are about to sign foreign contract, and so were the enforcement matter in the future when chose the reputes solution and place.