Choice of Law in Contracts: A Chinese Approach

Northwestern Journal of International Law & Business, Dec 2006

This article attempts to emphasize that the choice of law analysis in China is distinct from that of other countries, despite the fact that many of the theories and approaches originate in Western countries. The underlying argument is that the ongoing economic reform in China has become a dramatic and driving force for change in the country. This change necessarily shapes the development of choice of law in China in a unique way, and also de. monstrates how China is getting closer to the rest of world while searching for the "China brand" theory and approach in this regard. What seems to have emerged is what will becalled, for the purposes of this article, the "China Phenomenon." This phenomenon can be seen in several ways. First of all, though China has a unitary legal system, the system is now entangled with the quasi-sovereign states of Hong Kong and Macao. These quasi-states raise choice of law issues not only between China and other countries, but also between China's mainland and its quasi- sovereign regions. Second, the clash between the concepts commonly accepted in Western countries and Chinese tradition often seem so obvious that a well-balanced symmetry needs to be established. For instance, China, which has a centralized economic structure based on paternalistic traditions, is still struggling to determine the significance of the party autonomy theory, which is premised on the principle of freedom of contract. Third, China's desire and need for a place in the global market has been a strong impetus for China to open its door to international trade. This in turn makes choice of law in China more internationally oriented. As an example of this, the international substantive law rules of international treaties and customs are commonly deemed to be a part of private international law in China. Part II of this article addresses choice of law issues in contracts that are deemed to be "foreign" in China. Part III then discusses the evolution of choice of law theories in China and the development of these doctrines. Part IV examines the ability of parties to express their own choice of law preferences in their contracts and the degree of freedom of choice. Part V focuses on judicial discretionary determination of applicable law in the absence of choice of law by the parties. In Part VI, the matters concerning application of international treaties in foreign contracts are addressed. Finally,

A PDF file should load here. If you do not see its contents the file may be temporarily unavailable at the journal website or you do not have a PDF plug-in installed and enabled in your browser.

Alternatively, you can download the file locally and open with any standalone PDF reader:

https://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=1624&context=njilb

Choice of Law in Contracts: A Chinese Approach

Choice ofLaw in Contracts:A Chinese Approach Choice of Law in Contracts: A Chinese Approach Mo Zhang 0 0 Thi s Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons - There are at least two explanations for the under-development of conflict of laws legislation and literature in China. The first is historical; during more than 2000 years of Chinese history the country was basically a * Associate Professor of Law, Temple University Beasley School of Law, Director of Temple University China Law Programs. The author wishes to thank Professor Jacques DeLisle of University of Pennsylvania School of Law for his invaluable advice. The author is also deeply indebted to Professors Jane Baron, Jeff Dunoff and Laura Little of Temple University Beasley School of Law for their guidance and comments. 1 The most acclaimed ancient Chinese choice of law rule is the provision on application of law in the Tang Code (or Yonghui Code), adopted in 651. Under the provision, "a case involving persons who are the subjects of the same foreign sovereignty shall be governed by the law of the said sovereignty, and a case concerning persons who belong to different sovereignties shall apply the code." Note, however, that in Chinese history, a code, if any, applied to both civil and criminal cases. 2 The only choice of law rules in China between 1911-1979 were perhaps the Rules of Application of Law adopted by the Nationalist government on August 5, 1918 and the application of law provisions scattered in a few Consular Treaties in the 1950s between China and other countries. For example, Article 20 of the 1959 Sino-Soviet Consular Treaty provided that any property, including both movables and immovables, left by a citizen of one country after his death in the territory of another country shall be governed by the law of the country where the property is situated. Note that in the 1918 Rules of Application of Law, there was nothing about contracts or torts. I closed and self-sufficient society in which there was little need to engage in "foreign business transactions." 3 The second reason has to do with the philosophy of "socialist supremacy" that dominated the nation during the period between when the Communist party took power in 1949 and when the country initiated economic reform in 1979. Under this philosophy, state ownership reached almost every corner of the country and no individual or private person was permitted to participate in any business transaction, especially international ones. Nevertheless, the last two decades have witnessed the remarkable progress China has made in conflict of laws legislation. All of this effort was made in line with the country's economic reform aimed at moving the nation towards the main stream of the world economy. As far as choice of law rules are concerned, contracts is the area of law in which many of these rules were adopted. To be more specific, the first set of choice of law rules was provided in the 1985 Foreign Economic Contract Law,4 followed by the General Principles of Civil Law, promulgated in 1986 ("1986 Civil Code").5 In 1999, when the Contract Law of China was adopted ("Contract Law"), the rules regarding choice of law in contracts were stipulated in Article 126.6 In addition, in order to implement the choice of law rules, the Supreme People's Court, in its capacity as interpreter of the application of law as prescribed by the Organic Law of the People's Courts of China,7 issued 3There were a number of "events" in Chinese history where trade and commercial activities were promoted between China and its neighboring countries or regions, but most of them were not motivated by the desire to expand business transactions. For example, one such "event" was called "Zhang Qian being as an envoy to the west regions" that occurred in the Han Dynasty (202-220 BC), which resulted in a widely-known legend called "Silk Road." The main purpose of the envoy going to the west was unfortunately not for trade but to deal with the minority tribes that were deemed dangerous to the emperor. Another event was "Zheng He's seven trips to the west by the sea" (now the areas of Southeast Asia and the Indian Ocean) during the Ming Dynasty (1368-1636) that helped develop trade between China and countries nearby. Although the official reason for Zheng He to make the trips was to promote trade, many historians in China believe that the actual purpose was to round up the dethroned Emperor Zhu Yongwen, who was said to have escaped the country during the coup d'etatled by his brother Zhu Di. 4See Law on Economic Contracts Involving Foreign Interest (promulgated by the Standing Comm. Nat'l People's Cong., Mar. 21, 1985, effective July 1, 1985), arts. 37-41, translatedin ISINOLAW (...truncated)


This is a preview of a remote PDF: https://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=1624&context=njilb

Mo Zhang. Choice of Law in Contracts: A Chinese Approach, Northwestern Journal of International Law & Business, 2006, pp. 289, Volume 26, Issue 2,