Choice of Governing Law is Allowed for Contracts without Foreign Elements?
According to the current Law of the PRC on the Application of Law in Foreign Related Civil Relations, the parties to a contract involving foreign elements may choose the applicable or governing law of the contract. But it is not allowed for the parties to a civil or commercial contract without foreign elements.
The bases or connecting points for determining whether foreign elements are involved in China mainly include the location of subject, location of subject matter and the place where legal facts occur. In view of the above, contracts with foreign elements include but not limited to the following circumstances:
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One or both parties to the contract are foreign natural persons, foreign legal persons or other organizations or stateless persons;
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The habitual residence of one or both parties of the contract are outside the territory of the PRC;
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The subject matter of the contract is outside the territory of the PRC;
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The legal facts that established, changed and eliminated the contractual relationship occur outside the territory of the PRC, for example, the place of contract signing or place of performance is outside the territory of China.
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The Regulations of Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone of Shenzhen (hereinafter referred to as the "Qianhai Regulations"), which was formally implemented on 1 October 2020, has broken through the restriction that contracts without foreign elements cannot choose foreign law as the governing law.
According to Article 57 of the Qianhai Regulations, if one of the parties to a civil or commercial contract is an enterprise funded and established in Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone by Hong Kong, Macao, Taiwan or foreign investors, the law of any jurisdiction may be chosen by agreement as the applicable or governing law of the contract even without any foreign elements. However, if the application of foreign laws will contradict the basic principles of the Chinese law, violate State sovereignty, or the security and public interests in China, the foreign laws shall not be applied, and the law of the PRC shall be applied instead.
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