A Brief Analysis On The Effectiveness And Applicable Laws Of Foreign-related Commercial Contract
By conducting a foreign-related commercial contract, several legal issues must be considered under the premise of having core items in general contract, since its foreign-related characteristic determines its difference from other general commercial contracts. This article will consult special provisions of Chinese laws to foreign-related contract, and give you a brief analysis on the effectiveness and the legal applicability of foreign-related commercial contract for reference.
(1)Determination of the effectiveness of foreign-related commercial contracts
Article 44 in "Contract Law of the People's Republic of China" regulates: "The contract established according to law becomes effective when it is established. With regard to contracts which are subject to approval or registration as provided for by the laws or administrative regulations, the provisions thereof shall be followed." According to the above regulations, the contract required registration and approval, can become effective only after the above procedures. However, some foreign commercial contracts are subject to the examinations and approvals of authorized departments. These foreign commercial contracts are summarized as follows:
1.Contract involving share transfer of foreign-funded enterprises.
Article 23 in "Regulations for the Implementation of the Law of the People's Republic of China on Sino-foreign Cooperative Enterprises" stipulates: "The transfer of all or part of rights under the cooperative enterprise contract among the cooperative parties or by a party to any person other than a party to the cooperative enterprise shall be subject to written approval by the other cooperative parties and shall be reported to the examination and approval authority for approval." Article 10 in "Law of the People's Republic of China on Chinese-Foreign Cooperative Joint Ventures" regulates: "If a Chinese or foreign party wishes to assign part or all of its rights and obligations under the cooperative joint venture contract, it must obtain the consent of the other party and submit the assignment to the examination and approval authority for approval." What's more, article 23 in "Regulation for the Implementing of the Law of the People's Republic of China on Wholly Foreign-Owned Enterprises" regulates: "The transfer and increase of registered capital in foreign-funded enterprise shall be submitted to the examination and approval authority for approval, and shall be registered with the administrative authorities for industry and commerce." Apparently, foreign-funded enterprises (investing) share transfer contract shall be subject to the approval of authorities and then becomes effective, which are mandatory regulations in China's laws on such contracts.
2."Regulations for Contracted Operation of Chinese-Foreign Equity Joint Ventures" were jointly issued by the former ministry and the state administration for industry and commerce on September 13th, 1990. The provisions in article 5 item (2) regulates: "The contract shall be concluded in accordance with relevant Chinese laws, in keeping with the purposes and principles of the original contract of the joint venture and without changing the items of the original contract that have nothing to do with the contracted operation", and the Item (5) states: "The revision, postponement, termination or expiration of the contract shall be approved by the original authorities which have approved the joint venture." In addition, Article 7 item (4) regulates: "Contracted operation of Sino-foreign cooperative joint ventures may refer to these regulations." In accordance with the provisions of these regulations, the management contract of Sino-foreign equity joint ventures and Sino-foreign cooperative joint ventures enterprise shall be approved by the original approval authority.
3.Three foreign acquisition contracts.
The six ministries and commissions under the state council jointly issued "Regulations for Merger and Acquisition of Domestic Enterprises by Foreign Investors" in August of 2008, which explicitly stipulated that foreign investors' equity purchase agreement, endowment agreement in a domestic company and asset merger agreement and so on, should be approved by authorities with corresponding privileges.
Therefore, the foreign commercial contract not only shall be signed by all parties but also shall be submitted to the approval authority for approving before it becomes effective. By signing a foreign-related commercial contract, besides making sure about the qualifications of both sides for signing contract and compliance with the law, whether the content of the contract need examination or approval of relevant governing authority shall be also considered, which would ensure a successful cooperation between both sides without obstacle, and reduce the risk of losses due to invalid contract.
(2) Options for legal application of foreign-related commercial contract
In foreign-related commercial contract, the parties can choose the applicable laws, that is to say, by signing an agreement or after any dispute comes out, the contracting parties can choose the governing law for this contract. A common practice is to stipulate the applicable law in contract. The contracting parties can choose Chinese laws, laws of Hong Kong and Macao regions and foreign laws, but the choice must be negotiated by both parties and would be consistent and expressed. In addition, it should be pointed out that the performance of the agreements on Sino-foreign equity joint ventures, Sino-foreign cooperative joint ventures, or Sino-foreign cooperative exploration and development of natural resources within the territory of China, as well as the foreign-related commercial contracts which need the examination and approval of relevant governing departments, must subject to Chinese laws. The contract terms based on application of foreign laws are invalid.
By signing an agreement or after any dispute comes out, with regard to the contract without choosing any applicable law, the People's Court shall allow the parties to make the choice before the trial. If the parties still can not reach an agreement, the People's Court shall determine applicable laws in accordance with The Doctrine of the Most Significant Relationship. According to relevant judicial explanation in China, the time when the parties choose or change the choice of applicable law shall be "before the end of the court debate in the first instance."
Therefore, litigant effectiveness of foreign-related commercial contract, the validity, and the effectiveness of the contract is determined by the governing law both parties choose. If they choose the application of Chinese laws, the general limitation of action is 2 years in accordance with the regulation in "General Principles of the Civil Law of the People's Republic of China".
In addition, the solutions to the possible disputes, as well as the priority effect in bilingual contract also shall not be ignored by signing a foreign-related commercial contract.
(1)Determination of the effectiveness of foreign-related commercial contracts
Article 44 in "Contract Law of the People's Republic of China" regulates: "The contract established according to law becomes effective when it is established. With regard to contracts which are subject to approval or registration as provided for by the laws or administrative regulations, the provisions thereof shall be followed." According to the above regulations, the contract required registration and approval, can become effective only after the above procedures. However, some foreign commercial contracts are subject to the examinations and approvals of authorized departments. These foreign commercial contracts are summarized as follows:
1.Contract involving share transfer of foreign-funded enterprises.
Article 23 in "Regulations for the Implementation of the Law of the People's Republic of China on Sino-foreign Cooperative Enterprises" stipulates: "The transfer of all or part of rights under the cooperative enterprise contract among the cooperative parties or by a party to any person other than a party to the cooperative enterprise shall be subject to written approval by the other cooperative parties and shall be reported to the examination and approval authority for approval." Article 10 in "Law of the People's Republic of China on Chinese-Foreign Cooperative Joint Ventures" regulates: "If a Chinese or foreign party wishes to assign part or all of its rights and obligations under the cooperative joint venture contract, it must obtain the consent of the other party and submit the assignment to the examination and approval authority for approval." What's more, article 23 in "Regulation for the Implementing of the Law of the People's Republic of China on Wholly Foreign-Owned Enterprises" regulates: "The transfer and increase of registered capital in foreign-funded enterprise shall be submitted to the examination and approval authority for approval, and shall be registered with the administrative authorities for industry and commerce." Apparently, foreign-funded enterprises (investing) share transfer contract shall be subject to the approval of authorities and then becomes effective, which are mandatory regulations in China's laws on such contracts.
2."Regulations for Contracted Operation of Chinese-Foreign Equity Joint Ventures" were jointly issued by the former ministry and the state administration for industry and commerce on September 13th, 1990. The provisions in article 5 item (2) regulates: "The contract shall be concluded in accordance with relevant Chinese laws, in keeping with the purposes and principles of the original contract of the joint venture and without changing the items of the original contract that have nothing to do with the contracted operation", and the Item (5) states: "The revision, postponement, termination or expiration of the contract shall be approved by the original authorities which have approved the joint venture." In addition, Article 7 item (4) regulates: "Contracted operation of Sino-foreign cooperative joint ventures may refer to these regulations." In accordance with the provisions of these regulations, the management contract of Sino-foreign equity joint ventures and Sino-foreign cooperative joint ventures enterprise shall be approved by the original approval authority.
3.Three foreign acquisition contracts.
The six ministries and commissions under the state council jointly issued "Regulations for Merger and Acquisition of Domestic Enterprises by Foreign Investors" in August of 2008, which explicitly stipulated that foreign investors' equity purchase agreement, endowment agreement in a domestic company and asset merger agreement and so on, should be approved by authorities with corresponding privileges.
Therefore, the foreign commercial contract not only shall be signed by all parties but also shall be submitted to the approval authority for approving before it becomes effective. By signing a foreign-related commercial contract, besides making sure about the qualifications of both sides for signing contract and compliance with the law, whether the content of the contract need examination or approval of relevant governing authority shall be also considered, which would ensure a successful cooperation between both sides without obstacle, and reduce the risk of losses due to invalid contract.
(2) Options for legal application of foreign-related commercial contract
In foreign-related commercial contract, the parties can choose the applicable laws, that is to say, by signing an agreement or after any dispute comes out, the contracting parties can choose the governing law for this contract. A common practice is to stipulate the applicable law in contract. The contracting parties can choose Chinese laws, laws of Hong Kong and Macao regions and foreign laws, but the choice must be negotiated by both parties and would be consistent and expressed. In addition, it should be pointed out that the performance of the agreements on Sino-foreign equity joint ventures, Sino-foreign cooperative joint ventures, or Sino-foreign cooperative exploration and development of natural resources within the territory of China, as well as the foreign-related commercial contracts which need the examination and approval of relevant governing departments, must subject to Chinese laws. The contract terms based on application of foreign laws are invalid.
By signing an agreement or after any dispute comes out, with regard to the contract without choosing any applicable law, the People's Court shall allow the parties to make the choice before the trial. If the parties still can not reach an agreement, the People's Court shall determine applicable laws in accordance with The Doctrine of the Most Significant Relationship. According to relevant judicial explanation in China, the time when the parties choose or change the choice of applicable law shall be "before the end of the court debate in the first instance."
Therefore, litigant effectiveness of foreign-related commercial contract, the validity, and the effectiveness of the contract is determined by the governing law both parties choose. If they choose the application of Chinese laws, the general limitation of action is 2 years in accordance with the regulation in "General Principles of the Civil Law of the People's Republic of China".
In addition, the solutions to the possible disputes, as well as the priority effect in bilingual contract also shall not be ignored by signing a foreign-related commercial contract.
