Statutory Restrictions On Party Autonomy

Vol. 8 No.
1 Journal of Private International Law 77
Party Autonomy In China’s Private International Law Of Contract
STATUTORY RESTRICTIONS ON PARTY AUTONOMY

IN CHINA’S PRIVATE INTERNATIONAL LAW
OF CONTRACT: HOW FAR DOES THE 2010
CODIFICATION GO?
JIEYING LIANG*
A. INTRODUCTION
The principle of party autonomy in contractual choice of law can be seen as

the manifestation in private international law of freedom of contract or of
market autonomy.1 According to this principle, parties to an international con-
tract have the freedom to choose the law to govern their contract.2
It has been more than 25 years since the party autonomy principle was
first accepted in the Foreign Economic Contract Law of the People’s Repub-
lic of China (PRC).3 On 28 October 2010, the Standing Committee of the
National People’s Congress (SCNPC) passed a new codification of China’s
private international law entitled “Law on the Application of Laws to Foreign-
*
PhD Candidate, Faculty of Law, The University of Hong Kong; Junior Fulbright Visiting
Scholar, Emory University School of Law (2011–12); LLB, LLM (International Law), Sun
Yat-Sen University. I am extremely grateful to Professor Michael Tilbury for his insightful com-
ments on, and detailed corrections to, the earlier drafts of this article. I would like to thank
the two anonymous referees for their very helpful comments, and Professor Xingli Liu for her
valuable ideas on the development of China’s private international law. My sincere thanks also
go to my colleagues and friends Wenming Xiao, Yue Luo, Huimiao Zhao, Xiao Pan and Shi
Hu, for their suggestions on the earlier draft and kind help in collecting some of the cases and
journal articles.
1
See D McClean and K Beevers, Morris: The Conflict of Laws (Sweet & Maxwell, 7th edn, 2009),
[13-003].
2
See ibid, [13-003].
3
The history of China’s private international law legislation only began with the 1985 Foreign-
Related Economic Contract Law of the PRC. Art 5(1) of this law provided that the parties to a
foreign-related economic contract may choose the law to resolve their contractual disputes. See
Foreign-Related Economic Contract Law of the People’s Republic of China (hereinafter the
Foreign Economic Contract Law, adopted at the 10th meeting of the Standing Committee of
the 6th National People’s Congress (NPC) on 21 March 1985, effective on 1 July 1985, super-
seded by the Contract Law on 1 October 1999). In Chinese; an English translation is available
at http://www.lawinfochina.com/display.aspx?lib=law&id=55 (accessed 26 March 2010). For
each of the statutes and judicial documents referred to in this paper, the author provides a
source for its English version where such a translation is available. However, where the available
English translation cannot fully reveal the meaning of the cited Chinese provision, the author
has made some corrections. When no English translation is available, the translation is that of
the author.
78 Party Autonomy In China’s Private International Law Of Contract April 2012
related Civil Relationships of the PRC” (hereinafter “the 2010 Codification”),4

which became effective on 1 April 2011. The 2010 Codification is the first
statute in China that specifically addresses private international law issues. The
party autonomy principle is located in the first chapter as one of the “General
Provisions”.
This paper provides a critical commentary on the relevant rules in the
2010 Codification concerning the restrictions on party autonomy in contrac-
tual choice of law. The author investigates how the new Codification responds
to problems in the previous legal rules and judicial practice. The author argues
that, although the 2010 Codification has provided several rules to resolve some
previously unclear questions, it fails to address comprehensively the more criti-
cal issues relating to the operation of the party autonomy principle.
This paper is divided into five parts. Section B examines the statutory restric-
tions on the party autonomy principle before the 2010 Codification. Through
analysis of the rules and how they have been applied in people’s courts, con-
troversial issues are illustrated. Section C introduces the provisions that restrict
party autonomy in the Codification. Section D further analyses the statutory
restrictions in the 2010 Codification, and then sheds light on the outstand-
ing issues that are bound to arise. Section E summarises the previous parts
and touches upon underlying problems that are common to China’s develop-
ing legal system.
It should be noted at the outset that the sources of Chinese private interna-
tional law not only include the rules in the statutes which are adopted by the
National People’s Congress (NPC) or the SCNPC, the two legislatures under
China’s Constitution,5 but also the rules provided in the judicial interpretations
issued by the Supreme People’s Court (SPC).6
4
See Law on the Application of Laws to Foreign-related Civil Relationships of the People’s
Republic of China (adopted at the 17th meeting of the Standing Committee of the 11th NPC
on 28 October 2010, effective on 1 April 2011). In Chinese; an English translation is available
at http://www.lawinfochina.com/display.aspx?id=8315&lib=law (accessed 2 April 2012).
5
Art 58 of the Constitution reads: “The National People’s Congress and its Standing Committee
exercise the legislative power of the state.” See Constitution of the People’s Republic of China
(adopted by the 5th Session of the 4th NPC on 4 December 1982, amended for the first time
at the 1st Session of the 7th NPC on 12 April 1988, amended for the second time at the 1st
Session of the 8th NPC on 29 March 1993, amended for the third time at the 2nd Session of
the 9th NPC on 15 March 1999, and amended for the fourth time at the 2nd Session of the
10th NPC on 14 March 2004, hereinafter “the Constitution”). In Chinese; an English trans-
lation is available at http://www.lawinfochina.com/display.aspx?lib=law&id=3437 (accessed 16
March 2010).
6
In fact, the SPC has been very important and active in the interpretation of Chinese law. The
judicial activism of the SPC under China’s contemporary legal system has raised controversies
in theory and practice: see S Finder, “The Supreme People’s Court of the People’s Republic of
China” (1993) 7 Journal of Chinese Law 145; N Liu, Opinions of the Supreme People’s Court: Judicial
Interpretations in China (Sweet & Maxwell Asia, 1997); J Chen, Chinese Law: Context and Transfor-
mation (Martinus Nijhoff Publishers, 2008), 200–03; AH Chen, An Introduction to the Legal System
of the People’s Republic of China (LexisNexis, 4th edn, 2011), 161–66.
Vol. 8 No. 1 Journal of Private International Law 79
B. STATUTORY RESTRICTIONS ON PARTY

AUTONOMY BEFORE THE CODIFICATION
The party autonomy principle was first accepted in China’s Foreign Economic
Contract Law in 1985.7 Although this was a milestone in the history of China’s
private international law, the legislation limited the parties who were entitled to
choose the applicable law of their contract to Chinese and foreign enterprises
and other economic associations, and foreign individuals.8 Thus, Chinese indi-
viduals were not entitled to be a party to foreign-related economic contracts.
Although party autonomy was reiterated in Article 145(1) of “The General
Principles of Civil Law of the PRC” (hereinafter “the Civil Law”),9 this did
not affect the restrictions in the Foreign Economic Contract Law according to
the principle of generalia specialibus non derogant.10 In 1999, the “Contract Law
of the PRC” (hereinafter “the Contract Law”) was enacted and it superseded
the Foreign Economic Contract Law.11 Article 2 of the Contract Law confirms
that Chinese citizens are entitled to become a party to contracts with foreign-
related elements.12
The party autonomy principle was subject to three restrictions. First, the
principle was only applicable in limited categories of “foreign-related con-
7
See supra n 3.
8
Art 2 of the Foreign Economic Contract Law reads: “The scope of application of this law
is economic contracts concluded between enterprises or other economic organizations of the
People’s Republic of China and foreign enterprises and other economic organisations or indi-
viduals, but excluding international transport contracts.” See supra n 3.
9
Art145(1) of the Civil Law reads: “The parties to a foreign contract may choose the law
applicable to the settlement of the disputes arising from the contract, unless the law pro-
vides otherwise.” See The General Principles of Civil Law of the People’s Republic of China
(adopted on 12 April 1986 at the 4th Session of the 6th NPC, effective on 1 January 1987).
In Chinese; an English text translated by W Gray and HR Zheng can be found in (1986) 34
American Journal of Comparative Law 715. Art 7 of the Civil Law was revised by the SCNPC in
2009. See Decision of the Standing Committee of the National People’s Congress on Amend-
ing Some Laws (issued on 27 August 2009, effective on the same day), in Chinese; available at
http://www.lawinfochina.com/display.aspx?id=7672&lib=law (accessed 2 April 2012).
10
The Civil Law is silent regarding the parties who are entitled to conclude foreign-related con-
tracts. Therefore, the special restriction provided in Art 2 of the Foreign Economic Contract
Law prevailed over the Civil Law on this issue before the 1999 Contract Law entered into
force.
11
Art 428 of the Contract Law reads: “This Law shall enter into force as of October 1, 1999.
The Economic Contract Law of the People’s Republic of China, the Foreign-Related Eco-
nomic Contract Law of the People’s Republic of China and the Law of the People’s Republic
of China on Technology Contracts shall be simultaneously annulled.” See The Contract Law
of the People’s Republic of China (adopted by the 2nd Session of the 9th NPC on 15 March
1999, effective on 1 October 1999). In Chinese; an English translation is available at http://
www.lawinfochina.com/display.aspx?id=6145&lib=law (accessed 2 April 2012).
12
Art 2 of the 1999 Contract Law confirms that natural persons are also legitimate parties of a
contract. It provides: “For purposes of this Law, a contract is an agreement between natural
persons, legal persons or other organizations with equal standing, for the purpose of establish-
ing, altering, or discharging a relationship of civil rights and obligations”. See supra n 11; also
M Zhang, “Choice of Law in Contracts: A Chinese Approach” (2006) 26 Northwestern Journal
of International Law & Business 289, 314–15.
tracts”. Parties were not permitted to choose the governing law in purely
domestic cases, nor could they choose the applicable law in foreign-related
cases that were not contractual or that involved contracts where party auton-
omy was excluded. Secondly, if the application of the chosen law infringed
China’s social public interest, that law would not be applied. Thirdly, when
parties selected a foreign law with the intention of evading the mandatory or
prohibitive rules of Chinese law or administrative regulations, the chosen law
was not applicable and Chinese law would then be applied.
1. The Scope of the Party Autonomy Principle

Article 126 (1) of the Contract Law provides:
“Parties to a foreign-related contract may select the applicable law for resolution
of a contractual dispute, except as otherwise provided by law. Where parties to the
foreign-related contract fail to select the applicable law, the contract shall be gov-
erned by the law of the country with which the contract has the closest connection.”
According to this provision and Article 145(1) of the Civil Law,13 the party
autonomy principle in choice of law is only applicable in “contractual” disputes
that are “foreign-related”. In order to determine whether the principle applies,
it is first necessary for the people’s court to characterise the issue before it.
(a) Characterising the Case

Before the 2010 Codification, there were no statutory provisions that specifi-
cally address characterisation in China. As to the meaning of “contractual”
disputes where the party autonomy principle is applicable, Article 2(1) of the
“Response of the Supreme People’s Court to Certain Questions Concerning
the Application of the Foreign Economic Contract Law” (hereinafter “the 1987
Response”) provided that all disputes between the two parties to a contract over
matters such as the existence of a contract, the time of its establishment, inter-
pretation of the contents of a contract, implementation of a contract, liability
for breach of contract, as well as disputes over the amendment, suspension,
assignment, dissolution or termination of a contract were included.14 Accord-
13
See supra n 9, 742.
14
See Response of the Supreme People’s Court to Certain Questions Concerning the Application
of the Foreign Economic Contract Law (issued on 19 October 1987 by the SPC). In Chinese; an
English translation is available at http://www.lawinfochina.com/display.aspx?lib=law&id=458
(accessed 26 March 2010). Although the Contract Law has been effective since 1 October 1999,
it was not until 2000 that the 1987 Response was formally invalidated by the SPC. See The
Catalogue of the Relevant Judicial Interpretations issued before the End of 1999 which would
be Abolished by the Supreme People’s Court (the Third Batch) (adopted at the 1119th meet-
ing of the Judicial Committee of the SPC on 16 June 2000, promulgated on 13 July 2000 and
effective on 25 July 2000), in Y Sun (ed), Principles and Positive Analysis of Foreign-Related Civil and
Commercial Law (People’s Court Press, 2004) 747. For the confusion concerning the effect of the
1987 Response after 1 October 1999 and before it was formally invalidated by the SPC, see
ingly, the situation where the breach of contract by either party also causes
infringement of the personal or property rights of the other party would be
encompassed in “contractual” disputes.
However, it is not clear how a court should characterise a case when there
is concurrence of rights in contract and tort in transnational litigation. On 12
June 1989, the SPC issued a “Summary of the National Conference on For-
eign-, Hong Kong- and Macau-Related Economic Trials in Coastal Areas”.15
Article 3(2)(1) provides that if the behaviour of the defendant constitutes both
a breach of the plaintiff ’s contractual right and a breach of the plaintiff ’s per-
sonal or property rights, the plaintiff is free to sue based on the cause of action
most favourable to him or her. This provision seems to confirm a plaintiff ’s
right to choose the cause of action16 in foreign-related cases. Nevertheless, it
leaves open whether a court is bound by a plaintiff ’s choice or whether it can
characterise a case according to its own determination of the nature of the
dispute. In judicial practice, people’s courts tend to select the classification they
prefer, but the criteria they use are not clear.17
The issue is important because the characterisation of disputed issues deter-
mines the applicable scope of the party autonomy principle in China’s private
international law. Before the 2010 Codification, if a case was characterised as
a contractual one, the parties concerned were free to select the governing law
to resolve their dispute provided that other statutory limitations on the principle
were not triggered. However, if a case was characterised as an action in tort,
the party autonomy principle would be excluded according to Article 146 of
the Civil Law and the applicable law would be the lex delicti.18
Y Lin, “Legal Analysis of the Judicial Interpretation on Private International Law in China”
(2000) 5 Legal Science 27, 30–31. The scope of “contractual” disputes is defined again in Article
2 of the 2007 Provisions. See infra, n 34.
15
See Summary of the National Conference on Foreign-, Hong Kong- and Macau-Related Eco-
nomic Trials in Coastal Areas (issued by the SPC on 12 June 1989), in Chinese, available at
www.law-lib.com/law/law_view.asp?id=50595 (accessed 15 January 2011). Although this docu-
ment is entitled as a conference summary, it is a category of judicial interpretation and is thus
binding on the people’s courts. For the analysis of the effects of the conference summary issued
by the SPC, see Finder, supra n 6, 180–84. Cf L-C Wolff, “China’s Private International Law:
One-Way Street into PRC Law?” (2008) 56 American Journal of Comparative Law 1039, 1046.
16
The classification of cause of action means the allocation of the question raised by the factual
situation before the court to its correct legal category. Its object is to reveal the relevant rule
for the choice of law. See JJ Fawcett and JM Carruthers, Cheshire, North & Fawcett’s Private Inter-
national Law (Oxford University Press, 14th edn, 2008), 42; S Li, F Ou, P Jin and M Zhang,
General Private International Law of China (Law Press, 3rd edn, 2007) 141 (in Chinese). The dis-
cussion of characterisation here focuses only on the characterisation of the cause of action. For
other types of characterisation, see Fawcett and Carruthers, ibid, 45–50.
17
For case analysis, see infra, nn 19–30 and accompanying text.
18
Art 146 of the Civil Law provides: “The law of the place where an infringing act is committed
shall apply in handling compensation claims for any damage caused by the act. If both par-
ties are citizens of the same country or have established domicile in another country, the law
of their own country or the country of domicile may be applied. An act committed outside
the People’s Republic of China shall not be treated as an infringing act if under the law of
the People’s Republic of China it is not considered an infringing act”. See supra n 9, 742. This
In American President Lines Ltd v Feida Appliance Company, Feili Industry Co Ltd &
Changcheng Industry Company,19 the Feida Appliance Company (“Feida”) acknowl-
edged with the carrier, American President Lines Ltd (“President Lines Ltd”),
shipment on board cargoes for carriage to and delivery at Singapore for pay-
ment. President Lines Ltd issued bills of lading which specified GB Lighting
Supplier of Singapore as the consignee. After the cargoes arrived at Singapore,
President Lines Ltd released the cargoes without asking for the production of
the original bills of lading. Feida could not receive payment for the goods and
thus sued President Lines Ltd for the amount of payment in Guangzhou Mari-
time Court. A paramount clause on the back of each of the bills of lading
referred to the 1936 US Carriage of Goods by Sea Act (COGSA).20
The Guangzhou Maritime Court, applying Article 71 of the Maritime
Code21 and Articles 106 and 117 of the Civil Law,22 decided that President
Article has been superseded by Article 44 of China’s 2010 Codification on Private International
Law. The party autonomy principle is now applicable within a restricted scope in tortious case.
See infra, n 97 and accompanying text.
19
See American President Lines Ltd v Feida Appliance Company, Feili Industry Co Ltd & Changcheng Indus-
try Company (2005) 7 Gazette of the Supreme People’s Court of the People’s Republic of China 175–78 (in
Chinese); also in The Fourth Division of Civil Case Trial of the SPC (ed), (2002) 2 Guide and
Study on Foreign-Related Commercial and Maritime Trial (People’s Court Press, 2002) 186–93 (in Chi-
nese). It should be noted that only the SPC’s retrial judgment has been published in the above
two sources, and the judgments of first trial and appeal are only briefly mentioned in the SPC’s
judgment. Moreover, the published versions of the SPC’s judgment are slightly different in the
above two sources. The analysis of the case in this article is based on the version published in
the Gazette of the Supreme People’s Court, and only focuses on the characterisation issue. For other
outstanding issues involved in the SPC’s judgment on this case, see W Wang, Law and Practice
for the Delivery of Goods without Presentation of Original Bills of Lading – A Comparative Study on Rel-
evant Legal Issues of International Carriage of Goods by Sea] (Law Press, 2010) 62–87 (in Chinese);
for a more detailed discussion of characterisation in China’s maritime trial practice, see Wang,
ibid, 52–62.
20
The paramount clause at the back of each of the bills of lading provided: “The loading,
handling, stowage, carriage and delivery of the goods should be governed by the terms and
conditions of the contract for carriage as evidenced by this bill of lading, including: . . . (3)
the provisions of the Carriage of Goods by Sea Act of United States, 1936 (“US COGSA”)
or national laws as applied by a competent court when adjudicating disputes arising from car-
riage contracts in a country where the International Convention for the unification of certain
rules of law relating to Bills of lading signed at Brussels on 25 August 1924 (the Hague Rules)
is applicable.”
21
Art 71 of the Maritime Code provides: “A bill of lading is a document which serves as an evi-
dence of the contract of carriage of goods by sea and the taking over or loading of the goods
by the carrier, and based on which the carrier undertakes to deliver the goods against surren-
dering the same. A provision in the document stating that the goods are to be delivered to the
order of a named person, or to order, or to bearer, constitutes such an undertaking.” See The
Maritime Code of People’s Republic of China (promulgated at the 28th Meeting of the Stand-
ing Committee of the 7th NPC on 7 November 1992, effective on 1 July 1993). An English
translation is available at http://www.lawinfochina.com/display.aspx?lib=law&id=191 (accessed
27 March 2010).
22
Art 106 provides: “A citizen or legal person who breaches a contract or fails to perform other
obligations must bear civil liability. Where a citizen or legal person through fault interferes with
and causes damage to State or collective property, or to the property or person of another, he
must bear civil liability. Where there is no fault, but the law provides that there must be civil
Lines Ltd had infringed Feida’s proprietary rights over the cargoes under the
original bills of lading, and held that President Lines Ltd were liable for Fei-
da’s loss.
President Lines Ltd then appealed to Guangdong Higher People’s Court.
The appellate court held that as Feida had based its cause of action on Presi-
dent Lines Ltd’s contravention of Feida’s proprietary rights over the cargoes,23
the case should be characterised as a foreign-related action in tort. The court
then decided the rights and obligations of both parties by the relevant tort rules,
not by reference to those under the carriage of goods contract. According to
Article 146 of the Civil Law24 and Article 28 of “The Opinions Concerning
Implementation and Application of the Civil Procedure Law of the People’s
Republic of China”,25 the Guangdong Higher People’s Court held that as
China was the place where Feida’s proprietary right was breached, China’s
Maritime Code should be applied. The judgment from Guangzhou Maritime
Court was affirmed and the appeal was dismissed.
President Lines Ltd applied to the SPC for a retrial and also for suspension
of the execution of the appellate judgment. President Lines Ltd argued that
a bill of lading was one of the written forms of the contract for carriage of
goods by sea, and the delivery of goods was one of the contractual issues under
it. The essential issue in the case was whether the cargoes should be released
upon the presentation of the original bills of lading and this was different from
a tortious case where there were no contractual agreements. Accordingly, there
liability, there must be civil liability.” Article 117 provides: “Where there is interference with
possession with regard to State or collective property or another person’s property, the origi-
nal property must be returned, or if return of the property is impossible, an amount equal to
its value must be paid as compensation. If there is interference causing damage to State or
collective property or another person’s property, the property must be restored to its original
condition, or an amount equal to its value must be paid as compensation. Where the injured
party sustains other substantial loss as a result, the party who caused the damage must also pay
compensation for that loss.” See supra n 9, 735, 737 respectively.
23
Because the bills of lading in question, which were considered by Feida to be documents of
title over the cargoes, were in Feida’s possession and had not been transferred to the consignee,
Feida argued that its proprietary rights were breached by President Lines Ltd.
24
See supra n 18.
25
Art 187 of The Opinions Concerning Implementation and Application of the Civil Procedure
Law of the People’s Republic of China reads: “The place where a tort occurred as provided
in the Civil Procedure Law refers to the place where tort was committed and the place where
the consequence of the tort occurred.” See The SPC’s Notice on Distributing the “Opin-
ions Concerning Implementation and Application of the Civil Procedure Law of the People’s
Republic of China” (issued on 14 July 1992), in Chinese; available at http://www.lawinfochina.
com/display.aspx?id=6690&lib=law (accessed 2 April 2012). It should be noted that some of
the provisions therein should be revised according to the 2007 Civil Procedure Law. See Civil
Procedure Law of the People’s Republic of China (Adopted at the 4th Session of the 7th
NPC on 9 April 1991, and revised according to the “Decision of the Standing Committee of
the National People’s Congress on Amending the Civil Procedure Law of the People’s Repub-
lic of China” as adopted at the 30th Session of the Standing Committee of the 10th NPC on
28 October 2007). In Chinese; an English translation is available at http://www.lawinfochina.
com/display.aspx?id=6459&lib=law (accessed 2 April 2012).
were serious errors in the categorisation of issues in both the first trial and
appellate judgments. The case should be characterised as a foreign-related con-
tractual case and the law chosen by the parties in the bills of lading, the 1936
US COGSA or the Hague Rules,26 should be applied. In defence, Feida also
stated that the critical issue in this case was the legality of President Lines Ltd’s
releasing of the cargo without the presentation of the original bills of lading.
However, Feida argued that the conduct of President Lines Ltd constituted a
fundamental breach of contract and thus it could not invoke the choice-of-law
clause (the paramount clause) in the bills of lading. Chinese law should be
applied in this case.
The judicial committee of the SPC decided to remove the case from the
Guangdong Higher People’s Court to the SPC for retrial. According to the
pleadings of the plaintiff Feida and the facts of the case, the SPC decided that
it should be characterised as a dispute concerning an international contract for
carriage of goods by sea. Therefore, the judgment of the Guangdong Higher
People’s Court was wrong in characterising the case as a tortious one. Based
on its characterisation of the case, the SPC further analysed the governing law
of the disputed issue. It applied the 1936 US COGSA and 1916 Shipping
Act,27 reversed the judgments in first trial and appeal, and decided in favour
of President Lines Ltd.
In fact, Feida’s cause of action in the first trial is not clearly stated in
the judgment published in the Gazette of the SPC.28 It only mentioned that
“Feida filed an action based on President Lines Ltd’s releasing cargoes with-
out the presentation of original bills of lading.” Therefore, it is not clear what
exactly the plaintiff Feida’s cause of action was and whether it had changed
26
President Lines Ltd was referring to the Paramount Clause at the back of the bills of lading.
See supra n 20. It is controversial whether a paramount clause incorporates the rules referred
to into a bill of lading, or whether it actually represents parties’ selection of the governing
law of their contract. See P Liu, A Study on PIL Problems in Delivery of Cargo without B/L: Based
on China’s Theoretic Analysis and Practical Inspection (Law Press, 2008) 148–56 (in Chinese). In this
case, the SPC held that the paramount clause represented the parties’ choice of the governing
law and was effective. However, the SPC’s determination of the applicable law in this case is
problematic. See infra n 27.
27
As the provisions of § 1303(4) and § 1308 of the US COGSA provided that they do not affect
the rights and obligations of the carrier under the provisions of the 1916 Shipping Act, the
SPC held that the rights and obligations of the parties could only be determined by applying
both of the two Acts. See supra n 18, Gazette of the Supreme People’s Court of the People’s Republic
of China, 177; Guide and Study on Foreign-Related Commercial and Maritime Trial, 192. However, the
1916 Shipping Act of the United States was not expressly chosen by the parties but was only
referred to in § 1303(4) and § 1308 of the 1936 COGSA (the 1936 COGSA has been re-cod-
ified as 46 USC § 30701 hist n (2006)). The legal basis for the SPC’s application of the 1961
Shipping Act is problematic. See H Li, “Consideration on Certain Issues Contained in Civil
Judgment (1998) Jiao Fa Ti Zi No 3 of the Supreme People’s Court – On Applicable Law in
Disputes Concerning Delivery of the Goods Without the Original Bill of Lading” (2003) 14
Annual of China Maritime Law 326, 336–41.
28
See supra n 19.
its pleadings at the retrial of the case. According to Article 30 of “Interpreta-

tion of the SPC Regarding Law Application Matters of the Contract Law of
the People’s Republic of China (1)” (hereinafter “the Interpretation of Contract
Law (1)”), the plaintiff Feida should not be permitted to change the cause of
action of its case after the hearing in the first trial began.29 Had Feida changed
its action into one that was based on contract in the retrial of the case, the
SPC should not have accepted that change but should instead have decided the
case according to Feida’s choice of its cause of action in the first trial. If Feida
did file an action in contract rather than in tort in the first trial, then both the
Guangzhou Maritime Court and the Guangdong Higher People’s Court were
wrong in characterising this case as a tortious one.30
The analysis of this case has illustrated an inherent problem that charac-
terisation can be used as a tool to avoid the application of the party autonomy
principle.31 By categorising the case as a tortious one, the courts of first instance
and appeal did not have to analyse the effect of the paramount clause32 at all.
In 2007, the SPC issued “Provisions on Several Issues Concerning the
Application of the Law in Trials of Foreign-related Civil and Commercial
Contract Disputes” (“the 2007 Provisions”).33 Although an article similar to
29
Art 30 of the Interpretation of Contract Law (1) provides: “Where a creditor makes a choice
of claim when instituting an action with a people’s court in accordance with Article 122 of
the Contract Law, and subsequently changes its choice of claim prior to the commencement of
the court hearing of first instance, the people’s court shall allow such change. Where the other
party raises an objection to the jurisdiction and the objection is found to be tenable upon exam-
ination, the people’s court shall reject such action.” See Interpretation of the SPC Regarding
Law Application Matters of the Contract Law of the PRC (1) (issued on 19 December 1999,
effective on 29 December 1999). In Chinese; an English translation is available at http://www.
lawinfochina.com/display.aspx?lib=law&id=7577 (accessed 27 March 2010).
30
For further analysis of the characterisation issue in this case, see Wang, supra n 19, 62–87.
31
People’s courts may tend to use this tool to justify the application of Chinese law especially
when parties have referred to a foreign law in their contract. It is interesting to note that peo-
ple’s courts may adopt a different approach in determining jurisdictional issues in foreign-related
cases. In Lai Jianping and Liu Zhuping v ABN AMRO Bank NV, there was a choice-of-jurisdiction
clause in the Individual Foreign Exchange and Derivatives Trading Agreement (Agreement)
between the parties, which selected the Hong Kong courts. The plaintiffs framed the claim in
tort in order to avoid that clause. Both the first trial and appellate courts held that, however the
claim was framed, the facts pleaded by the plaintiffs were all related to the interpretation and
performance of the Agreement and thus the jurisdiction clause therein, which represented the
intention of both parties, should be enforced. The two courts declined to exercise jurisdiction
over this case. See Lai Jianping and Liu Zhuping v ABN AMRO Bank NV (in Chinese), available at
http://www.fsou.com/html/text/fnl/1177587/117758768.html (accessed 2 April 2012)..
32
See supra n 20.
33
See Provisions on Several Issues Concerning the Application of the Law in Trials of For-
eign-Related Civil and Commercial Contractual Disputes, in (2007) 9 Gazette of the Supreme
People’s Court of the People’s Republic of China 6–7 (effective on 8 August 2007). In Chinese; an
English translation is available at http://www.lawinfochina.com/display.aspx?lib=law&id=6300
(accessed 26 March 2010).
Article 2(1) of the 1987 Response is included,34 the 2007 Provisions do not
specify the effect of a plaintiff ’s choice of cause of action.
In the judicial interpretation on causes of action for civil cases, the instruc-
tions of the SPC have even created ambiguity. On the one hand, the SPC has
confirmed that the cause of action in civil cases must be determined according
to the nature of civil legal relationships pleaded by parties. On the other hand,
the SPC has also stipulated that in cases of concurrence of rights of claim,
a people’s court must determine the cause of action on the basis of the right
of claim chosen by the parties and according to the nature of legal relation-
ships disputed thereby.35 In the 2009 judicial interpretation on the trial of cases
involving delivery of goods without original bills of lading, the SPC again
confirmed a plaintiff ’s right to choose the cause of action: it specifies that the
holder of original bills of lading may sue the carrier on the basis of breach of
contract or tort when any loss is caused due to the delivery of goods by a car-
rier without the original bills of lading.36
Therefore, none of the above interpretations clarify whether a court is bound
by a plaintiff ’s selection of cause of action, and if it is not bound by that selec-
tion, how it should characterise a case in foreign-related civil litigation. This
issue will be ultimately determined by people’s courts on a case-by-case basis.37
That presents an uncertainty in the operation of the party autonomy principle.
(b) “Foreign-related” Contract

In line with Article 145 of the Civil Law and Article 126(1) of the Contract
Law, the party autonomy principle in choice of law is only applicable in “for-
34
Art 2 of the 2007 Provisions provides: “For the purposes of these Provisions, the term ‘contrac-
tual dispute’ includes disputes over the formation, validity, performance, amendment, transfer
and termination of contracts as well as liability for breach of contract.” See supra n 33.
35
See Notice of the Supreme People’s Court on Printing and Distributing the “Provisions on
Causes of Action for Civil Cases” (issued by the SPC on 4 February 2008). In Chinese; avail-
able at http://www.pkulaw.cn/fulltext_form.aspx?Gid=102339 (accessed 2 April 2012). The
“Provisions on Causes of Action for Civil Cases” was passed by the trial committee of the
SPC on 29 October 2007, became effective on 1 April 2008, and revised on 18 February 2011
by the SPC. See “Notice of the Supreme People’s Court on Issuing the Decision on Amend-
ing the Provisions on the Cause of Action of Civil Cases”. In Chinese; an English translation
is available at http://www.lawinfochina.com/display.aspx?id=8607&lib=law (accessed 2 April
2012). The revised version of “Provisions on Causes of Action for Civil Cases” became effec-
tive on 1 April 2011 (hereinafter Provisions on Causes of Action).
36
See Provisions of the Supreme People’s Court on Certain Issues Concerning the Application of
Law to the Trial of Cases Involving Delivery of Goods without Original Bills of Lading (issued
by the SPC on 26 February 2009, effective on 3 May 2009). In Chinese; an English translation
is available at http://www.lawinfochina.com/display.aspx?id=7525&lib=law (accessed 2 April
2012).
37
For the controversial issues concerning characterisation in foreign-related civil litigation and rel-
evant analyses, see X Hou, “On Several Issues Concerning Characterisation in Foreign-Related
Commercial Cases”, in Guangdong Higher People’s Court (ed), Study on Questions of Commercial
Trials Involving Hong Kong and Macau’s Affairs (Law Press, 2006), 70–83 (in Chinese).
eign-related” contracts. The term “foreign-related” is defined in Article 178

of the SPC’s “Opinions on Several Issues Concerning the Implementation of
the General Principles of Civil Law of the People’s Republic of China” (“the
1988 Opinions”):
“Where one or both parties of a civil law relationship are foreign nationals, state-
less or foreign legal persons, or where the subject matter of their civil relationship
is located abroad, or where the establishment, modification or termination of their
civil rights and obligations takes place in a foreign country, the matter is considered
a foreign-related civil relationship.”38
Article 178 defines “foreign-related” civil relationship from three aspects: the
subject, subject matter and the legal facts involved in a civil relationship. How-
ever, the criteria it provides are limited and ambiguous. Ambiguities exist as to
whether elements besides nationality should also be considered regarding the
subject, and which legal facts are relevant in defining a “foreign-related” civil
relationship.
Concerning the subject of a civil relationship, although only nationality is
provided in Article 178, additional criteria have been added by people’s courts
in judicial practice. The following elements have also been taken into consid-
eration: that a third party to the litigation has a foreign nationality;39 that a
natural person has Chinese nationality but lives in a foreign country;40 and that
a company registered in China has a branch abroad.41
38
See The Opinions Concerning Implementation and Application of the General Principles
of the Civil Law of the People’s Republic of China (Provisional) (issued on 2 April 1988).
In Chinese; an English translation is available at http://www.lawinfochina.com/display.
aspx?id=3700&lib=law (accessed 2 April 2012).
39
In both Liu Zecheng v Dongguan Lvzhou Shoes Production Co Ltd and Li Bingkun v Nanhai Jiarong
Clothes Production Co Ltd, the plaintiffs were Chinese citizens, the defendants were companies
registered in China and all other elements were also related to China except that the third par-
ties, Gaoyun Trading Co Ltd in the former, and East Asian Holdings Ltd in the latter, were
registered in Taiwan and Hong Kong, respectively. Both cases were decided by people’s courts
as foreign-related cases. See Liu Zecheng v Dongguan Lvzhou Shoes Production Co Ltd (in Chinese),
available at www.110.com/panli/panli_85114.html (accessed 29 June 2011); Li Bingkun v Nanhai
Jiarong Clothes Production Co Ltd (in Chinese), available at www.110.com/panli/panli_86091.html
(accessed 29 June 2011).
40
In Yang Zhenlong v Xiamen Zhuocheng Developing Co Ltd, the plaintiff ’s nationality was Chinese but
he lived in Hungary. The defendant was Chinese and all other elements were related to China.
The Fujian Higher People’s Court decided this case was foreign-related. See Yang Zhenlong v
Xiamen Zhuocheng Developing Co Ltd (in Chinese), available at www.110.com/panli/panli_24075.
html (accessed 29 June 2011).
41
In Bank of China (Singapore Branch) v Maikete Cargo Container (Huizhou) Co Ltd etc, the plaintiff was
a Singapore Branch of the Bank of China, which was registered in China. All other elements
were related to China. Both the Guangdong Higher People’s Court and the SPC decided that
since the business place of the plaintiff was in Singapore, this case was foreign-related. See
Bank of China (Singapore Branch) v Maikete Cargo Container (Huizhou) Co Ltd etc (in Chinese), avail-
able at www.110.com/panli/panli_43494.html (accessed 29 June 2011). For other cases where
people’s courts adopted a broader interpretation of Article 178, see Y Guo and J Xu, “On the
Development of China’s Foreign-Related Civil and Commercial Trial Practice from Statistical
According to Article 178, choice-of-law agreements are available in relation

to contracts concluded between purely Chinese entities if the subject matter is
located abroad or the contract is concluded or amended abroad.42 However,
it is not clear which legal facts are related to the “establishment, modifica-
tion or termination” of parties’ contractual rights and obligations. In some
cases concerning carriage of goods by sea contracts, both of the parties were
Chinese, but the cargoes involved were in foreign countries and the facts of
releasing cargos without the presentation of original bills of lading also hap-
pened in other jurisdictions. However, the people’s courts concerned did not
classify these cases as foreign-related and thus directly applied Chinese law
without analysing the conflict-of-laws issues.43
As can be seen from the above, the restricted but also ambiguous criteria
provided in the 1988 Opinions result in inconsistency in judicial practice. On
the one hand, people’s courts may adopt a broader understanding as to “for-
eign-related” subjects; on the other hand, they may make use of the unclear
criteria as an “escape device” to avoid the discussion of whether a foreign law
is applicable.
(c) Categories of Contracts Where Party Autonomy Is Excluded

Article 145(1) of the Civil Law and Article 126(1) of the Contract Law both
stipulate that the party autonomy principle is not applicable when a law pro-
vides otherwise. Under Article 126(2) of the Contract Law, Chinese law shall
apply to contracts to be performed in China concerning Chinese-foreign equity
joint ventures, Chinese-foreign contractual joint ventures, or Chinese–foreign
co-operative exploitation and development of natural resources.44
Analysis”, in Chinese Yearbook of Private International Law and Comparative Law, vol 11 (Peking Uni-
versity Press, 2008), 135–36.
42
See Wolff, supra n 15, 1053. However, Yang argues that choice-of-law clauses in purely domes-
tic contracts are not expressly forbidden and thus parties to domestic sales in the PRC should
be free to choose the applicable law. See F Yang, “The Application of the CISG in the Cur-
rent PRC Law and CIETAC Arbitration Practice” (2006) 2 Nordic Journal of Commercial Law at
16, Section 1.4.3.1 (www.njcl.fi/about.htm).
43
See the cases cited in Liu, supra n 26, 28–29.
44
See supra n 11. It is said that because all these three categories of contracts have their closest
connection with China, and the conclusion of them require registration and approval by the
relevant administrative authorities, Chinese law must be applied to resolve the disputes arising
from these contracts. See Editorial Group of the Research Office of the Law Committee of
the National People’s Congress, Interpretation of the Contract Law of the People’s Republic of China
(People’s Court Press, 1999) 201–02 (in Chinese); X Tan (ed), Interpretation of “Contract Law of the
People’s Republic of China” (Nanjing University Press, 1999), 114–15 (in Chinese). For the effect
of Art 126(2) of the Contract Law after the 2010 Codification entered into force, see infra text
to nn 138–39.
Article 8 of the 2007 Provisions includes five additional categories of con-

tracts in which only Chinese law should be applied.45 These contracts are
identified because their validity is subject to the approval of the administra-
tive authorities, and the relevant regulations are considered to be mandatory.46
However, as discussed below,47 the legal basis for excluding party autonomy in
those contracts is problematic.
2. The Social Public Interest Reservation

The second restriction is provided in Article 150 of the Civil Law and Article
7 of the 2007 Provisions. They stipulate that if the application of foreign law
infringes the social public interest of China, it should not be applied by the
people’s courts.48 The “social public interest” is generally understood in China
to mean fundamental legal principles, state sovereignty and security, and public
order.49 It is an expression with Chinese characteristics of the more commonly
used term “public policy reservation” (or ordre public) in private international
law. However, the boundary of “social public interest” is not clearly defined.
This reservation thus has an elastic nature and people’s courts are provided
with broad discretionary power to make decisions on an ad hoc basis. The
45
They are: (1) contracts for the transfer of shares in Sino-foreign equity joint ventures, Sino-
foreign co-operative joint ventures and wholly foreign-owned enterprises; (2) contracts under
which foreign natural persons, legal persons or other organisations contract for the operations
of Sino-foreign equity joint ventures or co-operative joint ventures established within the ter-
ritory of the PRC; (3) contracts for the purchase by foreign natural persons, legal persons or
other organisations of equity from shareholders of non-foreign-invested enterprises within the
territory of the PRC; (4) contracts for the subscription by foreign natural persons, legal persons
or other organisations for capital increases of non-foreign-invested limited liability companies or
companies limited by shares within the territory of the PRC; and (5) contracts for the purchase
by foreign natural persons, legal persons or other organisations of assets of non-foreign-invested
enterprises within the territory of the PRC. See supra n 33.
46
See J Chen, “On the Understanding and Application of the ‘Provisions on Several Issues
Concerning the Application of the Law in Trials of Foreign-Related Civil and Commercial
Contract Disputes’”, in The Fourth Division of Civil Case Trial of the SPC (ed), (2007) 2 Guide
on Foreign-Related Commercial and Maritime Trial (People’s Court Press, 2008), 264 (in Chinese).
47
See infra Section D.
48
Art 150 of the Civil Law provides: “The application of foreign laws or international practice in
accordance with the provisions of this chapter shall not violate the public interest of the Peo-
ple’s Republic of China.” Art 7 of the 2007 Provisions provides: “When the application of a
foreign law violates any public policy of the People’s Republic of China, the foreign law shall
not apply, and the law of the People’s Republic of China shall apply.” See supra, n 9, 742 and
n 33. There is a difference between these two Articles: the latter does not provide that the res-
ervation also applies to international practice. Many Chinese scholars consider it unreasonable
to include international practice in the reservation. See J Huang, “On the Codification and
Improvement of the Law on the Application of Laws to Foreign-related Civil Relationships”
(2011) 3 Tribune of Political Science and Law 3, 8 (in Chinese). Art 5 of the 2010 Codification is
similar to Art 7 of the 2007 Provisions. See infra Section C.
49
See S Zhang (ed), Private International Law (China Renmin University Press, 2000), 94 (in Chi-
nese).
relationship between this reservation and the evasion of law exception is very
unclear and this results in inconsistency in judicial practice.50
3. The Evasion of Law Exception and Mandatory Rules

The third restriction is contained in two judicial interpretations of the SPC.
Article 194 of the 1988 Opinions provides: “The foreign law shall not be
applied where the parties evade the mandatory or prohibitive rules of law.”51
Article 6 of the 2007 Provisions stipulates: “If the parties select a foreign law
with the intent to evade mandatory rules of Chinese law or administrative reg-
ulations, the foreign law shall not be applied and the law of China will then
be the governing law.”52
The scope of “mandatory rules” in China’s private international law, how-
ever, was not defined in the Chinese legal system. In domestic law, only the
effect and sources of mandatory rules are provided.
Article 52(5) of the Contract Law provides that a contract is invalid if it
violates the mandatory provisions of any law or administrative regulation.53 In
Article 4 of the Interpretation of Contract Law (1), the SPC further specifies
that the “mandatory provisions” are those contained in laws adopted by the
NPC or its Standing Committee, or in administrative regulations adopted by
the State Council, but not those provided in local regulations or administra-
tive rules.54
50
For the problems existing in the application of this reservation, see infra text to nn 55–64.
51
See supra n 38.
52
See supra n 33.
53
Art 52 of the Contract Law reads: “A contract is invalid in any of the following circumstances:
(1) one party induced conclusion of the contract through fraud or duress, thereby harming the
interests of the state; (2) the parties colluded in bad faith, thereby harming the interests of the
state, the collective or any third party; (3) the parties intended to conceal an illegal purpose
under the guise of a legitimate transaction; (4) the contract harms public interests; (5) the con-
tract violates a mandatory provision of any law or administrative regulation.” See supra n 11.
54
See supra n 29. In China’s legal system, “laws” (falü) are enacted by the NPC or SCNPC.
“Administrative regulations” (xingzheng fagui) are enacted by the State Council, and “local regu-
lations” (difangxing fagui) are formulated by the people’s congresses and their standing committees
of provinces, autonomous regions, directly administered municipalities or relatively large cities.
“Administrative rules” (xingzheng guizhang) are divided into “departmental rules” (bumen guizhang),
which are formulated by the various ministries and commissions under the State Council, the
People’s Bank of China, the Auditor-General, and organs with administrative powers and
functions directly under the State Council, and “government rules” (defang zhengfu guizhang),
which are formulated by the people’s governments of provinces, autonomous regions, directly
administered municipalities and relatively large cities. According to Article 79 of the Law on
Legislation, the legal effects of laws is higher than that of administrative regulations, local reg-
ulations and administrative rules; and the legal effect of administrative regulations is higher
than that of local regulations and administrative rules. See Law on Legislation of the People’s
Republic of China (adopted by the 3rd Session of the 9th NPC on 15 March 15 2000, effec-
tive on 1 July 2000), Arts 7, 56, 63, 71 and 79. In Chinese; an English translation is available in
JM Otto, MV Polak, J Chen and Y Li (eds), Law-Making in the People’s Republic of China (Kluwer
Law International, 2000), Appendix 2.
Although the SPC issued two more documents in 2009 which contain two
specific articles dealing with the definitions of “mandatory rules”, the issue still
remains ambiguous. This section looks at the situation before 2009 to reveal
the uncertainties in judicial practice, and then examines the 2009 judicial docu-
ments.
(a) Situation before 2009

The confusion concerning the meaning of “social public interest” and “manda-
tory or prohibitive rules”, and the application of the evasion of law exception,
became most manifest in cases involving foreign-related guaranty contracts.
In Starflower Investment Services Co Ltd v Hangzhou Jinma Real Estate Co Ltd and
Hangzhou Weilai Shijie Recreation Co Ltd,55 the parties chose Hong Kong law as
the applicable law of a contract of guarantee. The clause was not enforced
because the SPC considered the choice to be an intentional evasion of China’s
registry rules relating to guarantees on foreign loans,56 which were seen as man-
datory rules by the court. However, the registry regulations in issue in this case
are only departmental rules issued by the People’s Bank of China and thus
their binding force is lower than laws and administrative regulations.57 Accord-
ing to Article 52(5) of the Contract Law, these rules are not mandatory even
in domestic contract law. Therefore, the registry regulations cannot be taken
as a legal basis for deciding that the parties had the intent to evade law in a
foreign-related contract.58
In Bank of China (Hong Kong) Co Ltd v Shantou Hongye Co Ltd and Shantou
Xinye Co Ltd,59 the two defendants were Chinese companies in Shantou. They
55
Starflower Investment Services Co Ltd v Hangzhou Jinma Real Estate Co Ltd and Hangzhou Weilai Shijie
Recreation Co Ltd (Supreme People’s Court, 2004), in The Fourth Division of Civil Case Trial
of the SPC (ed), (2006) 1 Guide and Study on Foreign-Related Commercial and Maritime Trial (People’s
Court Press, 2007), 110–21 (in Chinese).
56
Arts 12 and 17(1) of “Procedures for the Administration of Guarantees Overseas by Institu-
tions within the Chinese Territory” read:
Article 12 Guarantors can only provide guarantees overseas upon approvals by State Admin-
istration for Exchange Control.
Article 17 (1) If a guarantor provides guarantee overseas without approval, the foreign guar-
antee contract it concludes is invalid.
See Procedures for the Administration of Guarantees Overseas by Institutions within the Chi-
nese Territory (issued by the People’s Bank of China on 25 September 1996, effective on 1
October 1996). In Chinese; an English translation is available at http://www.lawinfochina.com/
display.aspx?id=539&lib=law (accessed 2 April 2012).
57
For the effect of departmental rules and the different sources of Chinese law, see Arts 71 and
79 of the Law on Legislation, supra n 54, 272 and 273.
58
The definition and scope of “mandatory rules” in private international law should be narrower
than those in domestic law. See P Nygh, Autonomy in International Contracts (Oxford University
Press, 1999), 212; KA-S Schäfer, Application of Mandatory Rules in the Private International Law of
Contracts (Peter Lang, 2010), 31, 115. In this regard, a rule that is not mandatory in domestic
sense cannot be categorised as mandatory in private international law.
59
See Bank of China (Hong Kong) Co Ltd v Shantou Hongye Co Ltd and Shantou Xinye Co Ltd, in (2005)
7 Gazette of the Supreme People’s Court of the People’s Republic of China 22–35 (in Chinese).
explicitly chose Hong Kong law in their guaranty contract with the Bank of
China (Hong Kong) Co Ltd, which was registered in Hong Kong, but they did
not complete the registry procedures with the State Administration of Foreign
Exchange. In the first trial of this case, the Guangdong Higher People’s Court
excluded the application of Hong Kong law according to Article 150 of the
Civil Law (which concerns the “social public interest” exception) and Article
194 of the 1988 Opinions (which provided the “evasion of law” exception).
Further, based on Article 7 of the Civil Law60 and Article 6 of the “Judicial
Interpretation of the Supreme People’s Court on Some Issues Regarding the
Application of Security Law”,61 the court decided that the failure of registra-
tion made the contract void under Chinese law. In the second and final trial
of the case, the SPC held that that the regulations concerning the registration
procedure of guarantee were mandatory; the selection of Hong Kong law was
obviously an intentional evasion of these mandatory rules; and thus the chosen
Hong Kong law should not be applied. The governing law should be the law
of mainland China.
The court of first instance gave no detailed analysis of the reason why
the application of Hong Kong law would be against the social public inter-
est of China, or as to how to adjudicate the parties’ intent of evading the
mandatory rules. The SPC confirmed that the relevant rules were of a manda-
tory nature. If the SPC considered those rules to be mandatory, it could have
directly applied them to the case and thus should not have taken “evasion of
law” as a basis.
More importantly, the binding force of the identified rules concerning the
registration procedure of guarantee were lower than both laws promulgated
by the NPC and SCNPC and regulations issued by the State Council, because
they were only departmental rules provided in “Procedures for the Adminis-
60
Art 7 of the Civil Law then provided: “Civil activities must be in accordance with social moral-
ity. They must not harm the public interest, undermine the State economic plan, or disrupt the
economic order.” This article was revised by the SCNPC in 2009. See supra n 9.
61
Art 6 of “Interpretation of the Supreme People’s Court on Some Issues Regarding the Appli-
cation of Security Law” reads: “A foreign security contract shall be invalid if: (1) the security
is not approved or registered by relevant administration authorities; (2) the security is provided
to domestic creditor for overseas organs without approval or registration by relevant adminis-
tration authorities; (3) the security is created to secure registered capital or the foreign party’s
external debt of its investment in a foreign-invested enterprise; (4) a foreign exchange security
is provided by a financial organ whose business scope does not include foreign exchange secu-
rity, or a foreign exchange security offered by a non-financial enterprise legal person without
foreign exchange income; (5) the security provider will not assume any obligation if the princi-
pal contract is altered or the creditor transfers the right of a foreign security contract without
consent of the security provider or approval of relevant administration authorities, except as
otherwise provided by laws and regulations.” See Interpretation of the Supreme People’s Court
on Some Issues Regarding the Application of Security Law (issued by the SPC on 8 December
2000, effective on 13 December 2000). In Chinese; an English translation is available at http://
www.lawinfochina.com/display.aspx?lib=law&id=1776 (accessed 19 March 2010).
tration of Guarantees Overseas by Institutions within the Chinese Territory”62

and “Detailed Rules for the Implementation of the Administrative Measures
for the Provision of Foreign Guarantees by Domestic Institutions”.63 According
to Article 52(5) of the Contract Law, they could not be taken as a legal basis
to invalidate a contract.64
The application of the social public interest reservation, evasion of law
exception and mandatory rules in people’s courts in these cases was thus far
from convincing.
(b) Two SPC Documents in 2009

In April 2009, the SPC issued “Interpretation of the SPC Regarding Law
Application Matters of the Contract Law of the PRC (2)” (hereinafter “the
Interpretation of Contract Law (2)”).65 It includes one specific article that
deals with the categorisation of “mandatory rules”: Article 14 provides that
the “mandatory rules” articulated in Article 52(5) of the Contract Law66 means
mandatory rules “that affect validity”.
Shortly after the issuance of the Interpretation of Contract Law (2), the
SPC issued another guiding opinion in July 2009, where the categorisation of
“mandatory rules” is further addressed. In Article 5(15) of “Guiding Opinions
on Several Issues Concerning the Trial of Civil and Commercial Contract
Disputes under Current Circumstances” (hereinafter “the 2009 Guiding
62
See supra n 56.
63
Art 39 (1) of “Detailed Rules for the Implementation of the Administrative Measures for the
Provision of Foreign Guarantees by Domestic Institutions” reads: “A guarantor shall, after pro-
viding a foreign guarantee, handle the guarantee registration formalities with the local foreign
exchange bureau.” Art 48 reads: “For a foreign guarantee subject to the approval of the for-
eign exchange bureau as required by these Detailed Rules, if the guarantor provides it without
approval, the guarantee contract it concludes shall be invalidated.” See Detailed Rules for
the Implementation of the Administrative Measures for the Provision of Foreign Guarantees
by Domestic Institutions (issued by State Administration of Foreign Exchange on 11 Decem-
ber 1997). In Chinese; an English translation is available at http://www.lawinfochina.com/
display.aspx?id=2348&lib=law (accessed 2 April 2012). It should be noted that Art 21 of this
document has been superseded by “Notice of the State Administration of Foreign Exchange
on the Administration of External Guarantees Provided by Domestic Institutions”, which was
issued in July 2010 by the State Administration of Foreign Exchange. See Notice of the State
Administration of Foreign Exchange on the Administration of External Guarantees Provided
by Domestic Institutions. In Chinese; an English version is available at http://en.pkulaw.cn/
display.aspx?cgid=135787&lib=law (accessed 2 April 2012).
64
Therefore, Art 6(1) and (2) of the SPC’s interpretation on the Security Law are problematic in
that they invalidate the foreign-related guarantee contracts according to the above-mentioned
departmental rules. See supra n 61.
65
See Interpretation of Supreme People’s Court Regarding Law Application Matters of the Con-
tract Law of the People’s Republic of China (2) (issued by the SPC on 24 April 2009, effective
on 13 May 2009). In Chinese; an English translation is available at http://www.lawinfochina.
com/display.aspx?id=7533&lib=law (accessed 2 April 2012).
66
See supra n 53.
Opinions”),67 the SPC requires people’s courts to distinguish between man-

datory rules “that affect validity” and mandatory rules “of an administrative
nature” pursuant to Article 14 of the Interpretation of Contract Law (2). Peo-
ple’s courts should invalidate those contracts which violate the mandatory rules
that affect validity, and determine the validity of the contracts which are in viola-
tion of the mandatory rules of an administrative nature on a case-by-case basis.68
Regarding the criteria for the categorisation of rules as mandatory, Article 5(16)
of the 2009 Guiding Opinions also states:
“People’s courts shall comprehensively consider the policy behind the laws and reg-
ulations and weigh mutually conflicting rights and interests, eg the types of rights
and interests, the security of transactions and the objects regulated thereby, etc to
determine the type of the mandatory provision. If what is regulated by a manda-
tory provision is a contractual act itself and the interests of the state or the public
interest would be harmed absolutely should such contractual act occur, the people’s
court shall hold the contract to be invalid. If what is regulated by the mandatory
provision is the ‘market entry’ qualifications of a concerned party and not a certain
type of contractual act, or what is regulated is an act of performance of a contract
and not a certain type of contractual act, the people’s court shall determine the
validity of such contract with prudence and, where necessary, it shall seek the opin-
ion of the relevant legislative authority or seek instructions from the people’s court
immediately above.”
The Interpretation of Contract Law (2) and 2009 Guiding Opinions have pro-
vided a standard to determine two categories of mandatory rules: those “that
affect validity” and those “of an administrative nature”. However, the rules
therein are ambiguous and open-ended.
First, under Article 14 of the Interpretation of Contract Law (2), people’s
courts should invalidate a contract according to the mandatory rules that are
not only provided in laws or administrative regulations,69 but also fall into the
category that affects validity. With regard to the mandatory rules “of an admin-
istrative nature”, a court should determine their effects in accordance with the
circumstances of a case. Does this mean that there can be some situations
where a court may also invalidate a contract on the basis of the “administra-
tive” mandatory rules, and if so, are there any restrictions on the discretionary
power of judges on this issue? The two 2009 judicial documents do not pro-
vide further instructions.
67
See Guiding Opinions on Several Issues Concerning the Trial of Civil and Commercial Con-
tract Disputes under Current Circumstances (issued by the SPC on 7 July 2009), in (2009) 8
Gazette of the Supreme People’s Court of the People’s Republic of China 25–28. In Chinese; an Eng-
lish translation is available at http://www.lawinfochina.com/display.aspx?lib=law&id=7741
(accessed 27 March 2010).
68
See supra n 67.
69
See Art 52 (5) of the Contract Law and Art 4 of the Interpretation of Contract Law (1), supra
nn 53 and 29.
Secondly, in China’s legal system, it is not clear how the “policy behind the
laws and regulations” can be ascertained.70 Moreover, the Contract Law does
not make policy compliance a determinant for the validity of a contract.71
Therefore, taking the “policy” as an element for the categorisation of manda-
tory rules is problematic in contractual cases.
Thirdly, the standard of “the interest of the state or the public interest” is
no more than a restatement of the broad concept of “social public interest” in
the Civil Law, and can provide no specific instructions to the people’s courts in
categorising mandatory rules.72
Fourthly, it is not appropriate for a court to seek opinions from the legis-
lative authority or a higher court during the process of adjudicating a case.
On the one hand, the opinion from a relevant legislative authority is by its
nature a legislative interpretation under China’s legal system, and is thus a
source of law.73 Therefore, it cannot affect retroactively the rights and obliga-
tions of the parties concerned.74 Even if the legislative authority (the NPC or
SCNPC) only clarifies the meaning of a legal rule rather than amending an
existing law or making a new law, to seek opinions from it during the process
of a foreign-related civil litigation may conflict with the principle of fair trial.75
On the other hand, the parties’ right to appeal will be undermined if a court
70
For the controversial issues concerning policy, see M Zhang, Chinese Contract Law: Theory and
Practice (Martinus Nijhoff Publishers, 2006), 82.
71
State policy is an important determinant for the validity of civil activities in the Civil Law. Art
6 of the Civil Law provides: “Civil activities must be in compliance with the law; where there
are no relevant provisions in the law, they shall be in compliance with state policies.” In con-
trast, state policy is not provided as an element to be considered as to the validity of a contract
under the Contract Law. Art 7 of the Contract Law stipulates: “The parties shall, in making
and fulfilling the contract, abide by laws and administrative regulations and respect social ethics,
and may not disrupt the socio-economic order or impair social and public interests.” See supra
n 9, 716 and n 11. Thus, the Contract Law is generally regarded as being more rule-based
than the Civil Law in this aspect. See Zhang, supra n 70, 82.
72
In judicial practice, people’s courts seem to identify the mandatory rules “that affect validity”
by examining whether the text of the relevant provisions explicitly stipulates that parties’ fail-
ure to follow those provisions will result in the invalidity of their contract. See infra n 78 and
accompanying text.
73
Art 47 of the Law on Legislation provides: “The legal interpretation adopted by the Standing
Committee of the National People’s Congress has the same effect as the laws enacted by it.”
See supra n 54, 266.
74
Art 84 of the Law on Legislation provides: “Laws, administrative regulations, local regula-
tions, autonomous regulations, separate regulations and rules shall not be retroactive, but the
regulations formulated specially for the purpose of better protecting the rights and interests of
citizens, legal persons and other organizations are excepted.” See supra n 54, 274. Since legal
interpretation “has the same effect as laws”, it should not be retroactive unless exceptional rules
are provided.
75
According to Art 12 of the Civil Procedure Law, parties have the right to present their argu-
ments before a decision is made. See supra n 25. However, if the legislative authority is consulted
during the process of a foreign-related civil litigation, the parties concerned would not be able
to present their arguments before the authority because, according to Arts 44, 45 and 46 of the
Law on Legislation, a legislative interpretation must be deliberated and adopted by the mem-
bers of the SCNPC. See supra n 54, 266.
“immediately above” the seized court is consulted for guidance before a judg-
ment is made.76
Fifthly and most importantly, mandatory rules in the sense of domestic
substantive law should be distinguished from those in the sense of private inter-
national law. The prior category of rules would be applied both in purely
domestic cases and foreign-related cases where Chinese law has been decided
as the applicable law, whereas the latter should be applied in foreign-related
cases where the Chinese people’s courts have competent jurisdiction regardless
of whether the governing law is Chinese law or not. In addition, the latter cat-
egory should, no doubt, be narrowly defined.77 But neither the Interpretation
of Contract Law (2) nor the 2009 Guiding Opinion provides for the distinction
between the two categories.
In fact, the distinction between mandatory rules that affect validity and
those of an administrative nature provided in the two judicial interpretations
looks more like an academic or theoretical construct that is difficult to under-
stand and apply in the context of China’s contemporary legal system.
In judicial practice, a court seems to adopt a more straightforward approach:
to determine the category into which a mandatory rule falls by looking at the
relevant provision to see whether it explicitly provides that breach of that pro-
vision would result in the voidness of a contract.78 Based on this approach, the
rules on the administration of foreign exchange in China cannot be catego-
rised as mandatory rules that affect the validity of a contract,79 even though the
76
For a more detailed discussion of the issues related to consultation of the SPC on individual
cases, see Y Wan, “History, Status Quo and Future Tendency: Issues in Relation to Consult-
ing the Supreme Court on Individual Cases – A Survey on the Chinese Supreme Court as the
Pivot”, in W Zuo et al, Study on Supreme Courts (Law Press, 2004), 355–71 (in Chinese).
77
See supra n 58.
78
In a case recently published in the Gazette of the SPC, one of the disputed issues was whether
Art 16 of the Company Law should be taken as a mandatory rule that affected the validity of
the guarantee contract concerned. The Beijing Higher People’s Court, on appeal, decided that
since Art 16 did not explicitly provide that the breach of that Article would result in the void-
ness of the contract, it was not a mandatory rule that would affect validity. The court based
its decision on Art 4 of the Interpretation of Contract Law (1), and Art 14 of the Interpre-
tation of the Contract Law (2), and also took the protection of security of transaction and
stability of contractual relationship into consideration. See China National Building Materials Import
& Export Corporation v Beijing Lang & Overseas Trading Co Ltd, Beijing Tianyuan Shengtang Investment
Co Ltd, Tianbao Shengshi Technology Development (Beijing) Co Ltd, Jiangsu Yinda Technology Co Ltd and
Sichuan Yibin Eou Project Development Co Ltd (2011) 2 Gazette of the Supreme People’s Court of the Peo-
ple’s Republic of China 40 (in Chinese).
79
It has been analysed that the registry rules relating to guarantees on foreign loans contained in
the departmental rules cannot be classified as mandatory rules because they are not provided
in laws or administrative regulations. See supra, text to nn 55–64. On 5 August 2008, the State
Council issued “Regulation of the People’s Republic of China on Foreign Exchange Admin-
istration”. Although this is an administrative regulation, the provisions therein do not specify
that the failure to complete the registration procedure will make a contract void. See Regula-
tion of the People’s Republic of China on Foreign Exchange Administration (Promulgated by
the State Council on 5 August 2008, effective on the same day). In Chinese; an English trans-
lation is available at http://www.lawinfochina.com/display.aspx?id=6970&lib=law (accessed 2
April 2012).
administration of foreign exchange is considered to be one of the fundamental

state policies of China.80
This approach seems clear and predictable for parties, but it is not certain
whether it is to be adopted widely, as the adoption of this approach will make
the criteria provided in the 2009 Guiding Opinions meaningless. Therefore,
the scope of “mandatory rules” remains unclear even after the 2009 judicial
documents.
C. RESTRICTIONS ON PARTY AUTONOMY

IN THE 2010 C ODIFICATION
Article 3 of the Codification provides: “Parties may, in accordance with

laws, expressly choose the law that is to govern their foreign-related civil
relationship.”81 This Article is positioned as one of the “General Provisions”
in Chapter One of the Codification, and it does not specify the categories of
relationships where parties have the freedom to choose. Some Chinese scholars
consider it to be a “declaratory provision”, which, on the one hand, indicates
the legislative purpose of the Codification, and on the other hand, provides
the two general conditions on the exercise of party autonomy.82 The first con-
dition is that parties should make their choice expressly, whether in written
or oral form.83 The second condition is that the application of the principle
should be within the scope provided by laws: for relationships where there are
clear choice-of-law rules other than party autonomy, parties are not allowed to
choose the governing law;84 but for relationships where there are no specific
choice-of-law rules, parties are free to select the applicable law.85
With regard to contractual choice of law, Article 41 of the 2010 Codifica-
tion stipulates:
80
See Research Group (comprised of Y Wang, J Chen and X Zhou in the Fourth Division of Civil
Case Trial of the CPC), “The Development of Foreign-invested Financial Services and Foreign-
related Civil Trial”, in The Fourth Division of Civil Case Trial of the SPC (ed) (2005) 2 Guide on
Foreign-Related Commercial and Maritime Trial (People’s Court Press, 2006), 231 (in Chinese).
81
See supra n 4.
82
See E Wan (ed), Interpretation and Application of “Law on the Application of Laws to Foreign-related Civil
Relationships of the People’s Republic of China” (China Legal Publishing House, 2011), 26–27 (in
Chinese); J Huang and R Jiang (eds), Interpretation and Analysis of “Law on Application of Laws to
Foreign-related Civil Relationships of the People’s Republic of China” (Law Press, 2011), 13 (in Chinese).
However, Huang considers that since there are specific provisions concerning the party auton-
omy principle in succeeding chapters of the Codification, Art 3 is unnecessary. See Huang,
supra n 48, 12.
83
See Huang and Jiang, ibid, 13–14. This paper only focuses on the statutory restrictions on party
autonomy and thus will not elaborate on this condition.
84
For example, as to the personal relationship between husband and wife, Art 23 of the Codifi-
cation provides that it is governed by the laws of the couple’s mutual habitual residence and
if there is no mutual habitual residence, the laws of the mutual state of nationality shall apply.
See supra n 4.
85
See Huang and Jiang, supra n 82, 13.
“Parties may choose by agreement the laws applicable to their contract. If the parties
do not choose, the laws at the habitual residence of the party whose performance of
his or her obligations best reflects the characteristics of their contract or other laws
which have the closest connection with the contract shall apply.”
Parties’ freedom to choose in contract is subject to several provisions in the

2010 Codification.
First, their freedom is restricted or even excluded in two contexts, namely
consumer contracts and labour contracts. According to Article 42, the laws at
the habitual residence of consumers shall normally apply to consumer con-
tracts. The laws at the locality of the provision of goods or services shall apply
if the consumer chooses them or if a business operator does not engage in the
relevant business activities at the habitual residence of the consumer.86 Pursuant
to Article 43, parties are not allowed to select the governing law in labour con-
tracts.87 Before the 2010 Codification, parties’ freedom was at least not formally
restricted in these two kinds of contracts.88 Articles 42 and 43 are included in
the Codification for the purpose of safeguarding the interests of consumers
and labourers.89
Secondly, Article 4 of the Codification clearly specifies that the manda-
tory provisions on foreign-related civil relationships in the laws of China shall
directly apply, and the law chosen by the parties will accordingly not be applied
to determine relevant issues.90 This Article, for the first time, specifies the effect
of “mandatory rules” for the purpose of private international law. However, it
does not provide any definition of “mandatory rules”, nor does it clarify the
distinction between domestic mandatory rules and those applicable in foreign-
related cases.
Thirdly, Article 5 of the Codification also provides for the reservation of
social public interest: if the application of the selected foreign laws infringes
the social public interests of China, Chinese law will apply. This provision is
different from Article 150 of the Civil Law in two aspects: on the one hand,
based on Article 5, the reservation can only exclude the application of foreign
laws, not including international practice;91 on the other hand, the Codification
86
That is to say, only the consumer is entitled to select the governing law and he or she can only
choose the laws at the locality of the provision of goods or services. See supra n 4.
87
Art 43 provides: “The laws at the working locality of labourers shall apply to labour contracts.
If it is difficult to determine the working locality of a labourer, the laws at the main business
place of the employer shall apply. The laws at the dispatching place of labour services shall
apply to labour dispatch.” See supra n 4.
88
See supra, Section B.
89
See Report on the Main Issues concerning the Law on the Application of Laws to Foreign-related Civil Rela-
tionships of the People’s Republic of China (in Chinese), available at http://www.npc.gov.cn/wxzl/
gongbao/2010-12/09/content_1614048.htm (accessed 2 April 2012).
90
See supra n 4.
91
The reservation can also exclude the application of international practice according to Art 150
of the Civil Law. See supra n 48.
clarifies that Chinese law should be applied after a foreign law is excluded.92
Article 5 of the Codification is thus regarded as more feasible.93
D. ISSUES OUTSTANDING AFTER THE 2010 CODIFICATION
Several critical issues with regard to the operation of the party autonomy prin-
ciple arise.
1. The Scope of the Party Autonomy Principle

(a) Defining a “Foreign-related” Civil Relationship
As the title and Article 2 of the 2010 Codification indicate, parties are empow-
ered to choose the applicable law only in foreign-related civil relationships.94
However, no definition of “foreign-related civil relationships” is given in the
Codification.95 People’s courts may find it convenient to refer to Article 178 of
the 1988 Opinions.96 Whether a strict or broad approach should be adopted is
left to be decided by judges on a case-by-case basis.
(b) Characterising a Contractual Case

Although the 2010 Codification applies the party autonomy principle to tor-
tious claims, its application differs from that in contractual cases: parties are
only permitted to choose the governing law of a tort after the occurrence
of the tortious act,97 while they can make a choice-of-law agreement in their
92
Art 150 of the Civil Law does not specify which law should be applied after the exclusion of
foreign law. See supra n 48.
93
See supra n 48; Huang and Jiang, supra n 82, 29.
94
Therefore, Art 41 of the 2010 Codification does not specify that parties can choose the appli-
cable law only in “foreign-related” contracts.
95
When the draft of the 2010 Codification was submitted to the SCNPC for examination, some
of the committee members did point out that, “foreign-related civil relationship” is a very
important term in the 2010 Codification and thus should be clearly defined. They suggested
that the term should include several situations: (1) one of the subjects of the relationship is
foreigner, including foreign nationals, legal persons or other organisations; (2) the property or
subject matter of a civil relationship is located in, or has connection with, other jurisdictions; (3)
the legal act or the consequence happens in or has connection with other jurisdictions; (4) the
legal facts happen in or have connection with other jurisdictions; and (5) the legal documents
in issue have connection with other jurisdictions. See “Some SCNPC Members Point out that
the Term ‘Foreign-related Civil Relationship’ Should be Clearly Defined” (in Chinese), available
at www.npc.gov.cn/huiyi/cwh/1116/2010-08/25/content_1590953.htm (accessed 25 October
2010). However, their suggestion was not adopted in the final version of the 2010 Codification.
96
See supra n 38.
97
Art 44 of the Codification provides: “The laws at the place where a tort is committed shall
apply to torts. But if the parties have a common habitual residence, the laws at that habitual
residence shall apply. If the parties choose the applicable laws by agreement after the occur-
rence of the toutious act, the agreement shall prevail.” See supra n 4.
contract before a dispute arises. Therefore, when there is a concurrence of

actions, as in the case of releasing cargoes without the presentation of original
bills of lading, it is necessary for a court to decide whether the cause of action
can be classified as contract or tort in order to determine the effect of a choice
of the governing law by parties.
Article 8 of the 2010 Codification provides that the characterisation of a
foreign-related civil relationship is governed by the forum law.98 Accordingly, a
court should characterise the case before it by reference to the principles of
Chinese law. Both the Contract Law and Tort Law provide a definition of con-
tractual and tortious relationships,99 but neither of them specifically provides
how to determine the cause of action where there is concurrence of rights.
Nor does the 2010 Codification. As can be seen from previous analysis, the
characterisation that will be adopted will possibly be that which will lead to the
application of the law of the forum.
(c) Characterisation of Consumer Contracts and Labour Contracts

Before a judge knows whether Articles 42 and 43 of the Codification are appli-
cable, he or she has to determine the category into which the contract involved
in the dispute falls on the basis of Chinese law.
No definition of consumer contract is provided in Chinese law. Accord-
ing to Article 2 of the “Law on Protection of Consumer Rights and Interests
of the PRC”, it is the purpose of the transaction that matters: a person is a
consumer if he purchases and uses commodities or receives services “for daily
consumption”.100 Does Article 2 mean that any contract where a consumer
is involved can be defined as a consumer contract for the purpose of Article
42 of the 2010 Codification? “Consumer contract” is not included in the 15
98
See supra n 4.
99
Art 2(1) of the Contract Law provides: “For the purpose of this Law, a contract means an
agreement on the establishment, alteration or termination of a civil right-obligation relationship
between natural persons, legal persons or other organizations as subjects with equal status.”
See supra n 11. Art 2(1) of the Tort Law provides: “Those who infringe upon civil rights and
interests shall be subject to tort liability according to this Law.” See Tort Law of the People’s
Republic of China (adopted at the 12th Session of the Standing Committee of the 11th NPC
on 26 December 2009, effective as of 1 July 2010). In Chinese; an English translation is avail-
able at www.lawinfochina.com/law/display.asp?ID=7846&DB=1 (accessed 6 December 2010).
100
Art 2 of this law provides: “The rights and interests of consumers in purchasing and using
commodities or receiving services for daily consumption shall be under the protection of the
present Law, or under the protection of other relevant laws and regulations in absence of stip-
ulations in this Law.” See Law on Protection of Consumer Rights and Interests of the People’s
Republic of China (Adopted at the 4th Meeting of the Standing Committee of the 8th NPC
on 31 October 1993, effective as of 1 January 1994). In Chinese; an English version is avail-
able at www.lawinfochina.com/NetLaw/display.aspx?db=law&sen=rLdDdW4drhdDdWfdrdd5
dW4d/LdDdWfd9DdwdW4drDdxdWudrDdvdWPd/Ld5dWudrhdDdWdd9D7SdCudsh7FdmE
dfhdYdWndrdd5dd++&Id=6137& (accessed 1 June 2011).
categories of typical contracts in the Specific Provisions of the Contract Law.101

Nor is it categorised as one of the causes of action in the SPC’s Provisions on
Causes of Action.102 Therefore, disputes involving a consumer contract may
be categorised as disputes concerning contracts of sales, carriage, insurance,
service, etc. Given that, it is not clear on what legal basis a people’s court can
classify a contract as consumer contract and apply Article 42 to determine the
governing law. Consequently, the boundary of protection provided by Article
42 is vague.103 Without a clear definition of consumer contract, the ability of
Article 42 to protect weaker parties is questionable.
“Labour contract” is used in Article 43 of the 2010 Codification, rather
than “employment contract”, which is more widely recognised as a category of
contract where a special choice-of-law rule is needed to protect employees.104
Although the Labour Contract Law of the PRC has been passed to protect
the rights and interests of labourers,105 there is no definition of labour contract
in that law.
In the law of China, the concept of labour contract is considered to pre-
suppose a relationship of subordination of the labourer to the employer.106
Employers governed by the Labour Contract Law mainly include state authori-
ties, enterprises, institutions and family proprietors that have been registered
by the administrative authorities.107 Those who do not have the qualification to
101
The 15 categories of contracts include: (1) purchase and sale contracts; (2) contracts for the
supply and consumption of electricity, water, gas or heat; (3) donation contracts; (4) loan con-
tracts; (5) lease contracts; (6) contracts for financial lease; (7) work contracts; (8) construction
project contracts; (9) carriage contracts; (10) technology contracts; (11) contracts of deposit; (12)
warehousing contracts; (13) entrustment contracts; (14) brokerage contracts; and (15) interme-
diation contracts. See supra n 11.
102
See supra n 35.
103
Some Chinese judges consider that the scope of “consumer contract” in private international
law should be defined restrictively. See Wan, supra n 82, 305–06.
104
See Nygh, supra n 58, 150. It should be noted that, the meaning of “labour contract” (laodong
hetong) is different from that of “employment contract” (guyong hetong) under Chinese law. For the
difference between labour contract and employment contract, see infra, text to nn 106–13. Cf
G Tu, “China’s New Conflicts Code: General Issues and Selected Topics” (2011) 59 American
Journal of Comparative Law 563, 582; Huang and Jiang, supra n 82, 236. Tu translates the term
“laodong hetong” into “employment contract”; Huang and Jiang consider that “labour contract”
is also called “employment contract”.
105
See Labour Contract Law of the People’s Republic of China (Adopted at the 28th Session of
Standing Committee of the 10th NPC on 29 June 2007, effective on 1 January 2008). In Chi-
nese, an English translation is available at www.lawinfochina.com/display.aspx?lib=law&id=6133
(accessed 1 June 2011).
106
See K Chang (ed), Interpretation of the Labour Contract Law of the People’s Republic of China (China
Labour and Social Security Press, 2007), 1–3 (in Chinese); Drafting Group of the Labour Con-
tract Law of the People’s Republic of China (ed), Interpretation of the Labour Contract Law of the
People’s Republic of China (China Market Press, 2007), 34–35 (in Chinese); Huang and Jiang, supra
n 82, 236.
107
Art 2 of the Labour Contract Law provides: “This Law shall govern the establishment of
employment relationships between enterprises, family proprietors, private non-enterprise work
units and other such organisations (Employers), on the one hand, and workers, on the other
employ labourers can only establish an employment relationship with labourers,

and their employment relationship is considered to be one where the parties
involved are independent subjects with equal status, and thus governed by the
Civil Law.108 In a labour contract, the extent of state intervention and the allow-
ances that labourers enjoy under the workers’ compensation insurance scheme
are substantially different from those that they can enjoy under an employment
relationship.109 Furthermore, in the Provisions on Causes of Action, disputes
over labour contracts and those over labour services (employment) contracts are
classified as different kinds of disputes: the former are classified as “labour and
personnel disputes”, while the latter are categorised as “contractual disputes”.110
Collective agreements are also covered in the Special Provisions in the
Labour Contract Law,111 and disputes over collective agreements are catego-
rised as a type of labour contract dispute.112 A collective agreement is superior
to an individual labour contract in terms of effect in that a collective agree-
ment is applicable to all the labourers of an enterprise, while a labour contract
is only binding on an individual labourer.113
Without a clear definition of labour contract, particularly in the field of
foreign-related litigation, it is not clear what kind of relationships are covered
under Article 43. If the scope of “labour contract” in Article 43 is the same
hand, and the conclusion, performance, amendment, termination and ending of employment
contracts. The conclusion, performance, amendment, termination and ending of employment
contracts between state authorities, institutions and social organisations, on the one hand, and
the workers with whom they have an employment relationship, on the other hand, shall be
handled in accordance herewith.” See supra n 105.
108
See X Xie, “The Definitions of Labour Relationship, Employment Relationship and Relation-
ship of Hired Work and the Application of the Principle of Fairness – On Hu Xiangxiong v
Dayawan Guangbao Co Ltd ”, in E Zheng (ed), Selected Cases of Guangdong People’s Courts (Jinan Uni-
versity Press, 2010), 229. This kind of “employment relationship” may also be bounded by
a contract, which is called “a contract for labour services” (such as a contract for work and
transport). See Department of Legal Affairs of the Ministry of Labour and Social Security and
PRC Advisory Service to the Legal Reform in China Undertaken by the German Development
Corporation (GTZ), Commentaries on Chinese Labour and Social Security Laws and Regulations (China
Press of Democracy and Legal System, 2004), 475–76 (in Chinese).
109
See Xie, ibid, 229.
110
See supra n 35. Employment contract was included in the 21 types of contracts in the draft
Contract Law, but it is not included in the current Contract Law. See P Jiang, “Drafting the
Uniform Contract Law in China” (1996) 10 Columbia Journal of Asian Law 245, 256.
111
A collective agreement is concluded between the staff and workers of an enterprise and the
employer on matters such as labour compensation, working hours, rest, leave, work safety and
hygiene, insurance, benefits, etc. See Art 51 of the Labour Contract Law, supra n 105.
112
According to the Provisions on Causes of Action, there are six types of labour contract dis-
putes. These are disputes over: (1) acknowledgement of labour relationships; (2) collective
agreements; (3) labour dispatching contracts; (4) part-time employment; (5) claims for labour
remuneration in arrears; and (6) economic compensation. See supra n 35.
113
According to Art 55 of the Labour Contract Law, the rate for labour compensation, and
the standards for working conditions, etc, in the employment contract concluded between an
employer and a labourer cannot be lower than the minimum rates or standards specified in the
collective agreement. See supra n 105.
as that under China’s Labour Contract Law, then other employment relation-
ships may not be covered by Article 43. In this regard, the labour contract in
the 2010 Codification may be too narrowly interpreted on the basis of China’s
domestic law and the protective function of Article 43 will be undermined in
transnational litigation. Moreover, if collective agreements are included in the
term “labour contract” as in the domestic law of China, it is not clear to what
extent the law applicable to an international labour contract should be ascer-
tained by reference to the law governing a collective agreement.114
The above analysis has revealed the inherent difficulties or uncertainties in
the determination of the scope of the party autonomy principle. They exist
because the relevant issues are not clearly addressed in the 2010 Codification,
or the relationships between the provisions and those in other laws or judicial
interpretations are vague. Those ambiguities are left to be resolved by judges.
In transnational litigation, the object of characterisation is to serve the pur-
poses of private international law, and therefore the classification which is to
be made will not necessarily be the same as that which would be made in a
purely domestic case.115 Judges may take into account the international ele-
ments involved in foreign-related cases when characterising the relevant issues.
2. Identification of Mandatory Rules

Article 4 of the 2010 Codification stipulates that if a law of the PRC contains
mandatory provisions on a foreign-related civil relationship, such mandatory
provisions must be applied directly.116 Accordingly, there are two critical ele-
ments involved in the identification of mandatory rules: first, the applicable
mandatory rules should be those governing foreign-related civil relations; and
second, they are provided in a law of China.117
114
It is common practice for individual employees (labourers) to enter into contracts embodying
terms of collective agreements. Art 6 of the 1980 Rome Convention on the Law Applicable to
Contractual Obligations, as its heading “individual employment contracts” indicates, is clearly
concerned with the enforcement by an individual employee of his or her employment rights,
even though such rights may be derived from a collective agreement. See M Giuliano and P
Lagarde, “Report on the Convention on the Law Applicable to Contractual Obligations”, avail-
able at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31980Y1031(01):EN:
HTML (accessed 4 June 2011); Nygh, supra n 58, 150; R Plender and M Wilderspin, The Euro-
pean Contracts Convention: The Rome Convention on the Law Applicable to Contractual Obligations (Sweet
& Maxwell, 2nd edn, 2001), 159–61. Art 8 of the Regulation of the European Parliament and
of the Council on the Law Applicable to Contractual Obligations also specifies that it applies
to individual employment contracts only. See [2008] OJ L177, 13.
115
See Fawcett and Carruthers, supra n 16, 44; AH Robertson, Characterization in the Conflict of Laws
(Harvard University Press, 1940), 33.
116
See supra n 4.
117
Generally the term “mandatory rule” refers to the rules that do not permit any derogation by
contract. Nevertheless, the term includes different kinds of mandatory rules that have to be
distinguished from each other. See Schäfer, supra n 58, 30–33.
There are three outstanding issues: (i) whether the previous rules concerning
the categorisation of domestic mandatory rules are applicable after the Codifi-
cation becomes effective; (ii) whether the scope of “law” (falü) under Article 4
only includes the statutes adopted by the NPC or SCNPC, or it also encom-
passes other sources; and (iii) how to distinguish between mandatory rules that
apply in international cases and those in the domestic sense.
First, although Article 4 of the Codification clarifies the effect of manda-
tory rules, no further guidance is provided as to the definition or categorisation
of those rules. Therefore, the legal basis upon which judges can identify the
mandatory rules applicable in foreign-related litigation is not clear. The cat-
egorisation criteria provided in the 2009 Guiding Opinions are only for the
purpose of domestic law.118 It is uncertain whether those rules can be applied
for the identification of mandatory rules in private international law and, if so,
whether they should be further revised for that purpose.
Second, the meaning of “law” under Article 4 is not clear. The term “law”
or its plural from “laws” in the Chinese legal literature is both a generic word,
which means all the norms laid down by the state,119 and a specific term with
particular reference to enactments by the NPC or SCNPC, ie one of the cat-
egories of legislative documents under the former meaning.120 In the 2010
Codification, only the term “law” (falü) is used and no reference is made to
other sources. It is uncertain which meaning should be adopted. Some Chinese
scholars consider that administrative regulations are also included in the term
“law” in Article 4.121 It is submitted that it is more reasonable to interpret the
term “law” as meaning the statutes enacted by the NPC or SCNPC.
On the one hand, the term “law” in the Contract Law is used in its restricted
meaning concerning the sources of domestic mandatory rules. Article 52(5) of
118
Those rules are issued for the clarification of the meaning of Art 52(5) of the Contract Law.
See supra text to nn 65–68.
119
Under this meaning, “law” includes the Constitution, laws enacted by the NPC or SCNPC,
regulations issued by the State Council or its commissions and ministries, and local regulations
issued by the local people’s congresses, etc. See H von Senger, “Ideology and Law-Making” in
Otto et al, supra n 54, 41. In line with the 1982 Constitution, it classifies legislative documents
into law, administrative regulations, local regulations, autonomous regulations, departmental
rules, and local governmental rules. The Law on Legislation adopts this classification and pro-
vides further rules concerning the effects and procedures of making those rules. See supra nn 5
and 54.
120
Art 7 of the Law on Legislation provides: “The National People’s Congress enacts and amends
basic laws governing criminal offences, civil affairs, the State organs and other matters. The
Standing Committee of the National People’s Congress enacts and amends laws other than the
ones to be enacted by the National People’s Congress, and when the National People’s Con-
gress is not in session, partially supplements and amends laws enacted by the National People’s
Congress, but not in contradiction to the basic principles of such laws.” See supra n 54, 258.
121
Art 19 of the Regulation on Foreign Exchange Administration is taken as an example. See
Huang and Jiang, supra n 82, 22. However, as has been pointed out, it is not clear whether the
article can be categorised as a mandatory rule that affects validity even in domestic law. See
supra, n 79.
the the Contract Law stipulates that these rules are provided in “laws” (falü)
and “administrative regulations” (xingzheng fagui).122 Article 4 of the Interpre-
tation of Contract Law (1) confirms that “laws” in that Article refers to the
laws adopted by the NPC or its standing committee.123 That is to say, in the
context of the Contract Law, the scope of “laws” should not be understood in
its widest sense.124 The very purpose of Article 52(5) is to improve the predict-
ability of the legal regulation of contractual activities as the Chinese market
progressively opens up and foreign entities are increasingly involved in eco-
nomic transactions.125
The term “law” (falü) is also used in Article 126(2) of the Contract Law. It
stipulates that parties to a foreign-related contract may choose the laws applica-
ble to the settlement of contract disputes, unless stipulated otherwise by law.126
According to the SPC’s interpretation in “Notice on Several Issues Concerning
the Adjudication and Enforcement of Foreign-related Civil and Commercial
Cases”, the term “law” here should also be interpreted restrictively.127 The SPC
stipulates that people’s courts should determine the applicable law based on
parties’ choice or other relevant provisions except in the three categories of
contracts provided in Article 126(2) of the Contract Law.128
As can be seen from the above, the narrower meaning of the term “law” or
“laws” is adopted in the Contract Law with regard to the scope of domestic
mandatory rules or the restrictions on party autonomy.
Since the mandatory rules in the sense of private international law should
be more narrowly understood than in domestic law,129 the meaning of “law”
(falü) in Article 4 of the 2010 Codification should at least be the same as, if
not narrower than, the meaning of “law” under the Contract Law.
On the other hand, to adopt the restricted meaning of “law” also serves the
value underlying the party autonomy principle in contractual choice of law, ie
predictability, legal certainty and the protection of the legitimate expectations
122
See supra n 53.
123
See supra n 29.
124
See K Hu, S Wang and L Sun (eds), Interpretation of the Contract Law (Law Press, 1999), 93 (in
Chinese); J Cui (ed), Contract Law, rev edn (Law Press, 2000), 86 (in Chinese).
125
See Z Huang, “On the Paths to Determine the Validity of Contracts Infringing Mandatory
Rules” (2010) 5 Jurist 56, 64 (in Chinese); H Su, The Conclusion and Validity of Contracts (China’s
Legal System Press, 1999), 285 (in Chinese); L Wang, On the New Issues of the Contract Law (Chi-
nese Social Science Press, 2003), 318–19 (in Chinese).
126
See supra n 11. Art 126(2) of the Contract Law should be applicable even after the 2010 Codi-
fication. See infra text to nn 138–39.
127
See Notice of the Supreme People’s Court on Several Issues Concerning the Adjudication and
Enforcement of Foreign-Related Civil and Commercial Cases (issued by the SPC on 17 April
2000), in Chinese, available at http://www.law-lib.com/lawhtm/2000/71787.htm (accessed 2
April 2012).
128
See supra n 127.
129
See supra n 58.
of parties.130 Besides the laws passed by the NPC or SCNPC, there are a huge
number of administrative regulations issued by the State Council which touch
almost every aspect of political, social and economic life in China.131 Moreo-
ver, as mentioned above, the definition of mandatory rules is not clarified in
the Codification, and thus the identification of those rules will be addressed
by judges in specific cases. If the term “law” in Article 4 of the Codification
also encompasses administrative regulations and other sources, it will be rather
difficult, if not impossible, for the foreign parties to predict which rules are by
nature mandatory in transnational litigation.132 Only the narrow meaning of
“law” achieves the purpose of the Codification, namely to clarify the applica-
tion of laws in foreign-related civil relations.133
Thirdly, the Codification does not specify how to distinguish between man-
datory rules that apply in foreign-related cases and those in the domestic sense.
Article 4 seems to touch upon mandatory rules in private international law
because it stipulates that the rules should govern foreign-related civil relation-
ships. However, given that all the relevant laws and judicial interpretations on
mandatory rules do not distinguish on the basis of domestic and international
issues,134 it is not clear how a court can identify the rules referred to by Article
4 of the 2010 Codification. That is to say, it is ambiguous which provisions in
China’s legal system can be classified as mandatory rules that can override the
law chosen by parties in transnational civil litigation.
130
See WLM Reese, “Power of Parties to Choose Law Governing their Contract” (1960) 54 Ameri-
can Society of International Law Proceedings 49, 50–51; EA O’Hara and LE Ribstein, The Law Market
(Oxford University Press, 2009), 37.
131
See Chen, supra n 6, 183–84. According to one decision of the State Council, there are 691
administrative regulations issued as of the end of 2009. See Decision of the State Council on
Abolishing and Amending Some Administrative Regulations (adopted at the 138th executive
meeting of the State Council on 29 December 2010, issued on 8 January 2011 and effective
on the same date). In Chinese; an English translation is available at http://www.lawinfochina.
com/display.aspx?id=8679&lib=law (accessed 2 April 2012). 5 of the 691 administrative regu-
lations were invalidated by this decision.
132
For example, according to the announcement of the Ministry of Commerce, as of 30 June
2010, there are 183 applicable departmental rules and 502 regulatory documents issued by it.
See Announcement No 2 [2011] of the Ministry of Commerce – List of Currently Effective
Rules of the Ministry of Commerce and List of Currently Effective Regulatory Documents
of the Ministry of Commerce, in Chinese, available at http://www.mofcom.gov.cn/aarticle/
b/g/201107/20110707671215.html (accessed 2 April 2012). Therefore, it is hard to estimate
how many administrative documents will be covered if the term “law” in Art 4 is taken as
encompassing other sources.
133
Art 1 of the Codification provides: “This Law is enacted in order to clarify the application of
laws concerning foreign-related civil relationships, reasonably solve foreign-related civil disputes
and safeguard the legal rights and interests of parties”. See supra n 4.
134
See supra Section B.
3. Effects of Previous Judicial Interpretations

Article 2 of the 2010 Codification only specifies its relationship with other pre-
vious laws containing special provisions.135 Article 51 provides that in the event
of a discrepancy between the Codification and Article 146 or 147 of the Civil
Law or Article 136 of the Succession Law, the Codification shall apply.136
Concerning the effects of the previous judicial interpretations, the SPC issued
its “Notice on Seriously Studying and Implementing the Law on Application
of Laws to Foreign-related Civil relationships of the PRC” (hereinafter “the
2010 Notice”) on 2 December 2010.137 It specifically provides that if the rules
concerning the application of laws to foreign-related civil relationships in the
previous judicial interpretations contradict the provisions in the 2010 Codifica-
tion, those rules shall not apply. Without more specific instructions, it is unclear
which rules this provision renders inapplicable. Moreover, it is insufficient for
the SPC to deal with the relationship between the current and previous rules
only by providing such an abstract rule. Two contentious issues will arise with
regard to the party autonomy principle.138
The first relates to the categories of contracts where party autonomy is
excluded. Article 126(1) of the Contract Law and Article 145(1) of the Civil
Law both provide that parties are free to select the governing law of their con-
tract, unless stipulated otherwise by law. Article 126(2) of the former further
provides that Chinese law must be applied where contracts are to be performed
in the territory of the People’s Republic of China on Chinese-foreign equity
joint ventures, on Chinese-foreign contractual joint ventures and on Chinese-for-
eign cooperation in exploring and exploiting natural resources. Compared with
Article 41 of the Codification, Article 126(2) of the Contract Law excludes the
application of the party autonomy principle in three categories of contracts.
According to Article 2 of the Codification, if there are special provisions on
the application of laws to foreign-related civil relationships in other laws, those
provisions shall apply. Moreover, Article 3 reiterates that parties should exercise
their autonomy in accordance with law. Therefore, Article 126(2) of the Con-
tract Law is still applicable after the Codification enters into force.
135
For the relationship between the 2010 Codification and other previous laws, see W Ding,
“Analysis of the Mutual Relationship between the Law on the Application of Laws to Foreign-
Related Civil Relationships and ‘Other Laws’” (2011) 29(3) Tribune of Political Science and Law 13
(in Chinese).
136
These articles are related to choice of law in tort, marriage and succession to property.
137
See Notice of the SPC on Seriously Studying and Implementing the Law on Application of
Laws to Foreign-related Civil Relationships of the People’s Republic of China, in (2011) 3
Gazette of the Supreme People’s Court of the People’s Republic of China 11 (in Chinese).
138
Cf Tu, supra n 104, 579. Tu argues that there are no essential conflicts between the 2010 Codi-
fication and the 2007 Provisions except the rules concerning proof of foreign law. However, the
analysis in this paper demonstrates that conflicts do exist and further instructions are needed
for the resolution of those conflicts.
Based on the meaning of “law” under the Contract Law,139 the party
autonomy principle is applicable except in the three identified categories of
contracts. That is to say, if that principle is to be excluded in additional kinds
of contracts, the restrictions should be provided in a law passed by the NPC
or SCNPC. However, in a judicial interpretation of 2007, five categories of
contracts are added, where Chinese law must be solely applied and party
autonomy is excluded.140
According to the SPC’s explanations, the public policy reservation may be
called into operation in two situations: on the one hand, it can exclude the
application of a foreign law when that application will infringe the public
policy of the forum country; on the other hand, it directly results in the appli-
cation of mandatory rules of the forum country when an issue involves the
fundamental interest or a critical legal or moral principle of the forum coun-
try.141 It was based on the second function of the public policy reservation
that the SPC added five categories of contracts in the 2007 Provisions: the
SPC considered that the relevant registry rules provided in the administrative
regulations are all mandatory, and thus those contracts should be governed by
Chinese laws only.142
The SPC’s explanations are not convincing, and it is inappropriate to restrict
the scope of the party autonomy principle by a judicial interpretation, particu-
larly after the 2010 Codification. First, the so-called “mandatory rules” are all
departmental rules. As has already been pointed out, those rules are not man-
datory according to Article 4 of the Codification. Secondly, Article 145(1) of
the Civil Law and Article 126(1) of the Contract Law stipulate that the party
autonomy principle is applicable unless a law provides otherwise. Therefore, it
is beyond the SPC’s power to restrict the application of the party autonomy
principle by issuing judicial interpretations.143 Thirdly, as mentioned above, the
mandatory rules that Article 4 of the Codification refer to should be the man-
datory rules that are also applicable in foreign-related cases. The effect of their
application only excludes the provisions contained in the law chosen by parties
that are contrary to them. However, the 2007 provisions completely exclude
party autonomy in those contracts. Therefore, a contradiction with the 2010
Codification may exist on this issue.144
139
See supra, text to nn 121–28.
140
See supra n 45.
141
See supra n 46, 264.
142
See supra n 46, 264–65.
143
Professor Weizuo Chen also argues: “It is unclear whether the SPC has been empowered by
the NPC to issue such conflicts rules. If indeed they have been given this mandate, it remains
questionable whether conflicts rules made by the SPC have corresponded with the will of the
Chinese legislature.” See W Chen, “The Necessity of 2010 Codification of China’s Private
International Law and Arguments for a Statute on the Application of Laws as the Legislative
Model” (2009) 1 Tsinghua China Law Review 1, 14.
144
Cf Tu, supra n 104, 581. Tu argues that Art 8 of the 2007 Provisions should continue to apply.
According to the SPC’s 2010 Notice,145 it seems that Article 8 of the 2007
Provisions should no longer be effective. However, it is probably too quick to
draw such a conclusion. Article 6 of the “Provisions of the SPC on the Judi-
cial Interpretation Work” stipulates that a judicial interpretation is no longer
applicable when the SPC issues another interpretation in the form of a “deci-
sion” that provides so.146 Moreover, Article 7 of the “Provisions of the SPC on
Citation of Such Normative Legal Documents as Laws and Regulation in Judg-
ments” provides that where the normative legal documents which need to be
cited by the people’s court in making a judgment conflict with each other, and
the court concerned is unable to make a decision in accordance with the Law
on Legislation and other relevant laws, the court should request the author-
ity with the competent power to make a ruling, and must not determine the
effectiveness of the relevant normative legal documents in the judgment on its
own.147 Accordingly, before the SPC issues another interpretation concerning
the effect of the 2007 Provisions, people’s courts cannot in judicial practice
deny the effect of Article 8 of the Provisions on the basis that it contradicts
the 2010 Codification.
The second contentious issue concerns the effect of the “evasion of law”
exception, which is provided in Article 194 of the 1988 Opinions and Article
6 of the 2007 Provisions. This exception is not repeated in the 2010 Codifica-
tion. Both the effects of the two provisions and their relationship with Article
4 of the Codification need further investigation.148
The general principle of evasion of law covers situations where persons, in
order to avoid the mandatory rules of the normally applicable legal system,
“act . . . to create artificial connecting factors which attract to them or their
transaction some other system as governing law”.149 According to the above-
mentioned two Articles (ie Article 194 of the 1988 Opinions and Article 6
145
See supra n 137.
146
See Provisions of the Supreme People’s Court on Judicial Interpretation Work (hereinafter Provi-
sions on Judicial Interpretation Work) (issued on 23 March 2007). In Chinese; an English translation
is available at http://www.lawinfochina.com/display.aspx?lib=law&id=5970 (accessed 17 March
2010).
147
According to Art 2 of this judicial interpretation, “normative legal documents” include the
SPC’s judicial interpretations. See Provisions of the Supreme People’s Court on Citation of
Such Normative Legal Documents as Laws and Regulations in the Judgments (issued on 26
October 2009, effective on 4 November 2009). In Chinese; an English translation is available
at http://www.lawinfochina.com/display.aspx?lib=law&id=7818 (accessed 14 June 2011).
148
The validity of and relationship between the SPC’s different judicial interpretations is a com-
plex issue under China’s legal system. For the controversial issues and relevant analysis, see X
Zhang and W Wang, “On the Retroactive Effects of the Supreme People’s Court’s Judicial
Interpretations on Civil and Commercial Matters, (2010) 6 Science of Law 109 (in Chinese); G
Zhao, “Development and Improvement of China’s Judicial Interpretation Rules: A Comparison
between the ‘07 Rules’ and ‘97 Rules’” (2008) 4 Modern Law Science 180 (in Chinese); Finder,
supra n 6, 184–90.
149
See Schäfer, supra n 58, 72; W Tetley, “Evasion / Fraude à la loi and Avoidance of the Law”
(1994) 39 McGill Law Journal 303, 306.
of the 2007 Provisions), parties’ evasion of mandatory provisions of laws or

administrative regulations of China would make the foreign law chosen by
them not applicable and Chinese law would instead be applied to resolve dis-
putes over the relevant contract.
Based on Article 4 of the 2010 Codification, only the mandatory rules
provided in laws can be directly applied. Therefore, if parties, by choosing a
foreign governing law, avoid the application of rules that do not satisfy the cri-
teria stipulated in Article 4, their choice-of-law clause is still enforceable. Even if
the mandatory rules under Article 4 are applicable according to the facts of
their dispute, the law selected by the parties is still applicable to determine the
issues that are not governed by the mandatory rules. However, in this situation,
Article 188 of the 1988 Opinions and Article 6 of the 2007 Provisions would
totally exclude the choice-of-law clause and result in the application of Chinese
law. That is to say, the legal effect of the two Articles is substantially different
from that of Article 4, and a contradiction may thus exist.
As already noted, the application of the evasion of law exception in peo-
ple’s courts has been unsatisfactory.150 Judges have decided that parties have
intentionally evaded the Chinese mandatory rules only on the basis of their
choice of a foreign law. It is unclear how the courts adjudicated the intention
of parties.
Since Articles 4 and 5 of the 2010 Codification have stipulated the applica-
tion of mandatory rules and the public interest reservation, it is not necessary
to provide the evasion of law exception as a restriction on party autonomy.151
E. CONCLUSION
This paper illustrates the difficulties and ambiguities involved in the statutory
restrictions on the party autonomy principle in contractual private international
law of China. The uncertainties will arise even after the 2010 Codification for
two reasons.
First, the Codification has been drafted in vague terms and does not clarify
some critical issues. It is said that loose drafting has long marked Chinese leg-
islation and contributed to its lack of precision.152 The prevailing principle of
Chinese legislative drafting has been that laws should be both “general” (yuanze
xing) and “flexible” (linghuo xing). These qualities are sometimes referred to by
Chinese law drafters as the policy of “preferring the coarse to the fine” (yicu buyi
150
See supra, text to nn 55–64.
151
Some Chinese scholars consider that Art 4 of the Codification indicates that evasion of man-
datory rules is prohibited in China. However, they do not clarify the effects of Art 188 of the
1988 Opinions and Art 6 of the 2007 Provisions. See Huang and Jiang, supra n 82, 25.
152
S Lubman, “Looking for Law in China” (2006) 20(1) Columbia Journal of Asian Law 1, 36.
xi).153 This doctrine is understandable in the early period when China began to
establish a system of modern law: the implementing provisions and interpreta-
tions, which are intended to supplement the laws, can be changed much more
easily than laws. In this way, the laws that are drafted in broad language can be
adapted to new circumstances without the need for amendment.154
However, the general language in legislation also inevitably sacrifices a
degree of certainty and clarity.155 As the analysis in this paper indicates, the
provisions concerning the party autonomy principle in the Codification are
general. Moreover, the meanings of some provisions are ambiguous.156 It is not
clear how they should be interpreted for the purpose of private international
law. Therefore, people’s courts may have to look at the existing rules in domes-
tic law for further instructions. In this regard, the functions of the rules in the
Codification may be undermined.
Second, most of the previous rules are scattered in different judicial inter-
pretations issued in different period for different purposes. That leads to further
uncertainty concerning the relationship between them and the new Codification.
The primary purpose of issuing interpretations is to respond to the chal-
lenges that the rapid development of international commercial transactions
have brought to people’s courts, and provide specific instructions and guidance
as to the determination of applicable law in foreign-related contracts.157 It has
been argued by some Chinese scholars that as commercial transactions have
developed at a dramatically rapid speed since 1978 and as legislation cannot
immediately respond to that, it is desirable that the SPC issue interpretations
to supplement and even broaden the content of the legal rules. It is hoped
that after those interpretations have been applied “experimentally” for a certain
period, they can provide lessons and experiences on which the legislature can
draw in subsequent statutes.158
However, the SPC can only resolve existing problems generally within the
boundary of its power. The SPC does not have the power to create any new
laws, and it should limit itself to judicial interpretation of laws by interpret-
ing their original meaning.159 It cannot resolve such critical uncertainties as the
153
For the principle of Chinese legislative drafting, see D Guo, “On the Conjunction of General-
ity and Flexibility in Legislation” (1987) 1 Law Review 15 (in Chinese).
154
See P Keller, “The National People’s Congress and the Making of National Law”, in Otto et
al, supra n 54, 81.
155
See Lubman, supra n 152, 36; Keller, ibid, 81.
156
See supra Section D, especially the characterisation of consumer contracts and labour contracts,
and the identification of mandatory rules.
157
See E Wan (the vice president of the SPC), “Speech in the National Conference on Trial of
Foreign-Related Commercial and Maritime Cases”, in The Fourth Division of Civil Case Trial
of the SPC (ed), (2002) 1 Guide and Study on Foreign-Related Commercial and Maritime Trial (People’s
Court Press, 2002), 43–44 (in Chinese).
158
See C Wang (ed), Theory and Practice of Chinese Private International Law (People’s Court Press,
1993), 34 (in Chinese).
159
See Liu, supra n 6, 31.
identification of mandatory rules, which is related to the effects of different

sources under China’s legal system and also the relationship between parties
and the state. Moreover, the above-mentioned ambiguities are also caused by
the unclear relationship between the previous rules and the 2010 Codification.
Since the legal rules in different statutes are not in harmony and cannot con-
stitute an orderly body of rules for the resolution of foreign-related contractual
disputes, the scope for the SPC to resolve those issues is rather limited.
China’s legislative institutions, the NPC and its standing committee, should
play a more active role in the resolution of these issues. On the one hand,
they should draft statutes in clear and consistent terms with an awareness of
the particular issues in China’s private international law. It is not sufficient
just to provide more rules. What is more important is to ensure those rules
are coherent with other existing rules so that they can be easily understood
by parties involved in transnational litigation and also consistently applied by
people’s courts. On the other hand, the SCNPC should exercise its interpretive
power more positively. Article 67(4) of the Constitution authorises the SCNPC
to interpret basic laws.160 The SCNPC is thus allowed to supplement and
amend laws through issuing legislative interpretations if necessary. However,
the SCNPC has seldom undertaken to construe laws, particularly in the fields
of commercial law and private international law. Consequently, the SPC has
obtained an almost exclusive power to interpret laws,161 or even make quasi-
legislative interpretations which are broader in scope than the law concerned.162
On 1 April 2011, when the 2010 Codification became effective, the China
Law Society held a conference on the application of laws to foreign-related
civil relationships. The purpose of this conference was to further study how
to better implement the Codification, and how to resolve the issues that may
arise in judicial practice related to the Codification.163 The Vice President of
the SPC delivered a speech at this conference in which he urged the mem-
bers and judges to provide feasible suggestions to the SPC for the making of
judicial interpretations or policies. It is very likely that the SPC will issue an
interpretation concerning the 2010 Codification. It remains to be seen whether
the uncertainties mentioned in this paper can be comprehensively addressed
through judicial interpretations.
160
Art 67(4) of the Constitution reads: “The Standing Committee of the National People’s Con-
gress exercises the following functions and powers: … (4) to interpret laws … .” See supra n 5.
161
See Liu, supra n 6, 30–31.
162
See supra Section D. For the criticism on the legislative function of the SPC, see Chen, supra
n 6, 164–66; Finder, supra n 6, 186. Some scholars have argued that one possible way to solve
this problem is for the SPC to confine judicial interpretations to replies to lower courts on spe-
cific points of law arising from particular cases, and to refrain as far as possible from engaging
in projects of a general legislative nature. See X Hu and R Feng, Research on Judicial Justice and
Judicial Reform (Tsinghua University Press, 2001) 416–17 (in Chinese).
163
See The Commission on Foreign-related Relationships of the China Law Society Holds its Second Conference
(in Chinese), available at www.ccmt.org.cn/shownews.php?id=9927 (accessed 16 May 2011).

Statutory Restrictions On Party Autonomy

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Statutory Restrictions On Party Autonomy

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Vol. 8 No.

1 Journal of Private International Law 77

Party Autonomy In China’s Private International Law Of Contract

STATUTORY RESTRICTIONS ON PARTY AUTONOMY

The principle of party autonomy in contractual choice of law can be seen as

related Civil Relationships of the PRC” (hereinafter “the 2010 Codification”),4

B. STATUTORY RESTRICTIONS ON PARTY

1. The Scope of the Party Autonomy Principle

(a) Characterising the Case

its pleadings at the retrial of the case. According to Article 30 of “Interpreta-

(b) “Foreign-related” Contract

eign-related” contracts. The term “foreign-related” is defined in Article 178

According to Article 178, choice-of-law agreements are available in relation

(c) Categories of Contracts Where Party Autonomy Is Excluded

Article 8 of the 2007 Provisions includes five additional categories of con-

2. The Social Public Interest Reservation

3. The Evasion of Law Exception and Mandatory Rules

(a) Situation before 2009

tration of Guarantees Overseas by Institutions within the Chinese Territory”62

(b) Two SPC Documents in 2009

Opinions”),67 the SPC requires people’s courts to distinguish between man-

administration of foreign exchange is considered to be one of the fundamental

C. RESTRICTIONS ON PARTY AUTONOMY

Article 3 of the Codification provides: “Parties may, in accordance with

Parties’ freedom to choose in contract is subject to several provisions in the

D. ISSUES OUTSTANDING AFTER THE 2010 CODIFICATION

1. The Scope of the Party Autonomy Principle

(b) Characterising a Contractual Case

contract before a dispute arises. Therefore, when there is a concurrence of

(c) Characterisation of Consumer Contracts and Labour Contracts

categories of typical contracts in the Specific Provisions of the Contract Law.101

employ labourers can only establish an employment relationship with labourers,

2. Identification of Mandatory Rules

3. Effects of Previous Judicial Interpretations

of the 2007 Provisions), parties’ evasion of mandatory provisions of laws or

identification of mandatory rules, which is related to the effects of different

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