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ENQUIRE PROJECT DETAILS BY GENERAL PUBLIC |
| Project Details |
| Funding Scheme : | Early Career Scheme | ||||||||||||||||||||||||||||
| Project Number : | 24601416 | ||||||||||||||||||||||||||||
| Project Title(English) : | An Empirical Review of China’s New Choice-of-Law Regime: In Search of Clear Guidelines? | ||||||||||||||||||||||||||||
| Project Title(Chinese) : | 中國新涉外民事關係法律適用法之實證硏究：需尋求清晰的指引嗎？ | ||||||||||||||||||||||||||||
| Principal Investigator(English) : | Prof Tsang, King-fung | ||||||||||||||||||||||||||||
| Principal Investigator(Chinese) : | |||||||||||||||||||||||||||||
| Department : | Faculty of Law | ||||||||||||||||||||||||||||
| Institution : | The Chinese University of Hong Kong | ||||||||||||||||||||||||||||
| E-mail Address : | kftsang@cuhk.edu.hk | ||||||||||||||||||||||||||||
| Tel : | |||||||||||||||||||||||||||||
| Co - Investigator(s) : |
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| Panel : | Humanities, Social Sciences | ||||||||||||||||||||||||||||
| Subject Area : | Social and Behavioural Sciences | ||||||||||||||||||||||||||||
| Exercise Year : | 2016 / 17 | ||||||||||||||||||||||||||||
| Fund Approved : | 532,901 | ||||||||||||||||||||||||||||
| Project Status : | Completed | ||||||||||||||||||||||||||||
| Completion Date : | 30-6-2020 | ||||||||||||||||||||||||||||
| Project Objectives : |
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| Abstract as per original application (English/Chinese): |
Aim
This project is the first attempt to assess the impacts of the new choice-of-law regime of China on international contracts since the new choice-of-law statute came into force in 2011.
Project Background
The Law on the Application of Law for Foreign-Related Civil Legal Relationships (New Law) came into force on 1 April, 2011. Its stated goals are to “clarify the application of laws concerning foreign-related civil relations” (Certainty), “reasonably solve foreign-related civil disputes” (Reasonableness) and “safeguard the legal rights and interests of parties” (Parties’ Rights). Should these goals be achieved, the New Law shall make Chinese courts more popular for international commercial disputes. However, official data show that the percentage of foreign-related disputes has actually declined for each of the years since 2011. This project will investigate the reasons behind this anomaly, particularly testing the thesis whether it is due to the uncertainty of the “closest connections” test.
Brief Project Description
This project involves three separate but related surveys. A primary survey will be conducted on all the foreign-related contract cases decided by Chinese courts in the ten-year period between 1 January 2008 and 31 December 2017, covering both the past (2008-2010) and the present (2011-2017) regimes. Since the primary survey is to be based on court cases, it will not cover cases that have gone through arbitration or settlement and other practical perspectives. Two supplementary surveys will be conducted to collect non-court data. The first will be through interviewing leading Chinese legal practitioners, while the second will be by surveying the dispute resolution clauses of international contracts of Chinese listed companies.
To assess the viability of the primary survey, a preliminary survey covering the six-month period between 1 January 2012 and 30 June 2012 was conducted (Preliminary Research). This Preliminary Research shows that the New Law’s problem might lie in the vagueness of the “closest connections” test which in turn causes an unusually low number of cases applying foreign laws (only nine during the six-month period). This project will test this thesis and suggest new guidelines for improvement of the regime.
Significance of the Project
A good dispute resolution system is essential to international transactions and a fair choice-of-law regime is a mainstay thereof. This project serves the dual purposes of finding the New Regime’s problems and suggesting guidelines by utilizing empirical data. It will contribute to the healthy developments of dispute resolutions of both of China and Hong Kong, her largest trading partner.
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| Realisation of objectives: | 1. Objective One (To test whether the New Law suffers from vagueness of “closest connection” test): this objective was fully achieved by the review of 15,266 cases decided by Chinese courts between 8-8-2007 and 31-12-2018 (“Empirical Research”). The database “Bei Da Fa Bao” was first utilized to identify relevant cases involving foreign-related contracts. This process produced 112,222 “raw cases”. These cases were then each reviewed for relevance for choice of law, resulting in 15,266 relevant cases. During the review process, relevant data from each of these relevant cases were collected in spreadsheet. They were eventually analyzed by the PI (note that the ECS proposal originally set 31-12-2017 as the end date of the survey period. However, due to the COVID-19 pandemic, it took longer than usual for the submission process of the publications. The PI therefore conducted additional review of the 2018 cases (2,832 cases) himself so as to make the research more up-to-date). More specifically regarding the “closest connection” test, it was found that more than half of the relevant cases (8,434) were decided under the closest connection test, i.e. did not involve a choice by the parties, and that only 50 such cases (0.59%) applied foreign law (see Table 4 of Publication 2). Thus, China clearly suffered from a “homeward trend” towards the application of Chinese law by Chinese courts in its “closest connection” approach. The vagueness of new law (i.e. the Act on the Application of Laws over Foreign-related Civil Relationships) was clearly the main reason of how the Chinese judges could achieve the homeward trend. This was established by collecting data on the factors considered by the Chinese courts in the cases. Of the 8,434 cases, the court cited at least a factor in 6,296 cases while conducting closest connection analysis. In total, 9,650 factors were considered, but only 328 factors that were cited are foreign-related. On average, courts only cited 0.05 foreign factor in a case (see Table 8 of Publication 2). Thus, the “homeward trend” was achieved by this “cherry picking” exercise by Chinese courts of only China-related factors. They can do this because (1) the new law does not have a mandate on which factors the court needs to consider; (2) Article 41 of the new law literally (and wrongly) provides that the courts can choose between closest connection and characteristic performance (which imposes rebuttable presumption on applicable law). As a result, only 544 of the 7,890 applied characteristic performance (see Table 9 of Publication 2); (3) Article 2 of the new law also allows courts to apply Contract Law, Maritime Law and General Principles of Civil Law in lieu of the new Act. None of these laws contains provision regarding characteristic performance, thus allowing the courts to bypass the test. The new act was only cited in 66.79% in closest connection cases (see Table 10). 2. Objective Two (To suggest improvements to the New Law): this objective was fully achieved by the Empirical Research. Having regard to the findings referred to in Objective One, China suffers from the blackletter law being disjoined from the actual judicial practice. The PI therefore suggested that China should either: (1) amend the law by a new Supreme People’s Court Interpretation to provide for a mandatory application of characteristic performance and/or a mandatory laundry list of factors (including foreign related factors) to be considered by Chinese courts in their application of the closest connection test, thereby changing the future practice of the courts to align with the current law; or (2) amend the law such that the default law to be applied but for parties' choice is Chinese law, thereby aligning the law with the current practice (see Part V.4 of Publication 2). 3. Objective Three (To provide empirical data for future study): this objective was fully achieved by the Empirical Research. To the knowledge of the PI, the Empirical Research is the largest empirical research conducted on the choice of law practice in China. It covers plenty of data on the choice of law practice of China. For example, apart from the closest connection cases, it also covers the choice of law practice in cases where parties have made a choice (see Tables 4, 5, 6, 7 of Publication 2). There is also general information regarding the breakdowns for years, provinces, size of judgment and lawyer’s fees. All these will not only be beneficial for future studies on Chinese choice of law, but choice of law by scholars around the world given the international nature of private international law. 4. Objective Four (To serve as a practical guideline for practitioners in drafting foreign-related contracts): this objective was fully achieved by the Empirical Research, interviews with practitioners, and review of material contracts of listed companies. It is clear from the empirical findings that the inclusion of an express governing law clause designating a foreign law offers the best chance for Chinese court to apply foreign law (see Table 7). This is confirmed by Chinese practitioners interviewed by the PI as well as the consistent inclusion of Hong Kong governing law clause in material contracts of Chinese companies listed in Hong Kong. Accordingly, the conventional wisdom of including an express governing law clause is proven to be correct. 5. Objective Five (To facilitate Hong Kong courts in making China-related conflict-of-laws decisions): this objective was fully achieved by the Empirical Research. As the Empirical Research has identified a clear “homeward trend” in the application of Chinese law (98.35% of all cases applied Chinese law, see Table 1 of Publication 2), that can facilitate Hong Kong court in making decision on forum non conveniens, the decline of Hong Kong courts’ jurisdiction in favor of the alternative forum (here, the Chinese court). In making such decision, Hong Kong court will now know that if it decline jurisdiction in a particular contract case in favor of a Chinese court, it is most likely that Chinese court will apply Chinese law on the matter, regardless of other connecting factor save perhaps for an express governing law clause. In other words, Hong Kong courts will now be fully aware of forum shopping motive of litigants (going to Chinese courts means getting Chinese substantive law to apply). In addition, a specific empirical research has been conducted on the choice of law regarding limitation period and forum non conveniens in Hong Kong courts, see Parts III, IV and V of Publication 3. 6. Objective Six (To observe the extent of judicial involvement in the development of Chinese law): this objective was fully achieved by the Empirical Research. The whole Empirical Research reflects on the importance of judiciary in the development of Chinese law. As the research traces the development of the law since 2007 (across both the old and new regimes), it is clearly seen that Chinese courts always found a way to apply the lex fori, Chinese law (see Table 2 of Publication 2). This is so regardless of what the law literally provides, both in terms of its official goals (such as reasonableness and protection of private interests), and its operation articles (such as characteristic performance). It is expected that they will continue to have such influence in the future development of the law. | ||||||||||||||||||||||||||||
| Summary of objectives addressed: |
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| Research Outcome | |||||||||||||||||||||||||||||
| Major findings and research outcome: | The Empirical Research provides numerous major findings on the choice of law practices of Chinese courts. The major findings are set out below: 1. China has a clear “homeward trend” in applying Chinese law in foreign related contract cases. Cases that applied Chinese law account for 98.35% of the all reviewed cases. This homeward trend is the same (1) whether under the old or new regime and (2) throughout the survey period. See Tables 1 & 2 and related section in Publication 2. 2. Among foreign laws applied, more than half are Hong Kong law. See Table 3. 3. The choice of law basis most utilized by Chinese courts was “closest connection”, accounting for more than half of the relevant cases (8,434). See Table 4 of Publication 2. 4. Cases with parties’ choice have a slightly higher foreign application rate (2.76%), see Table 5 of Publication 2. 5. Express choice of law clauses designating foreign law as governing law has the best chance to get Chinese courts to apply foreign law, see Tables 6 and 7 of Publication 2. 6. In applying the closest connection test, Chinese courts consistently conducted “cherry picking” of Chinese related factors. See Table 8 of Publication 2. 7. They were able to do so by applying the characteristic performance test and the new law arbitrarily. See Tables 9 and 10. 8. There is no evidence that the homeward trend is attributable to lack of training of Chinese judges. See Table 11. 9. Rather, given that disputes going to Chinese courts are generally small disputes, it does not make sense in most cases for costly and sophisticated choice of law analysis be conducted. The low-cost dispute resolution is a strength of Chinese courts. See Table 12-13. 10. The PI therefore suggested that China should either: (1) amend the law by a new Supreme People’s Court Interpretation to provide for a mandatory application of characteristic performance and/or a mandatory laundry list of factors (including foreign related factors) to be considered by Chinese courts in their application of the closest connection test, thereby changing the future practice of the courts to align with the current law; or (2) amend the law such that the default law to be applied but for parties' choice is Chinese law, thereby aligning the law with the current practice (see Part V.4 of Publication 2). | ||||||||||||||||||||||||||||
| Potential for further development of the research and the proposed course of action: |
Of the three major private international law questions, i.e. jurisdiction, choice of law, and enforcement of foreign judgment, the PI has conducted and completed empirical research of the latter two in relation to China. The PI plans to apply for a new GRF funding to conduct empirical research on the last topic, jurisdiction. The new proposal will utilize similar research methodology to gather data from Chinese courts judicial decisions. The experience of managing the completed project will greatly facilitate the new project. In addition, while the research questions are different, the two projects will complement each other. For example, it will be interesting to see whether there is any correlation between the jurisdictional basis and choice of law basis applied by the courts. The new proposal will also be very timely given that the Hague Conference on Private International Law has recently restarted the Jurisdiction Project which aims at creating a new convention to harmonize the world’s conflicting jurisdictional practices. The PI has already prepared a proposal on jurisdiction that has been submitted to CUHK LAW to secure internal funding to conduct a feasibility research that will facilitate the preparation of the final proposal for the GRF in fall 2021. | ||||||||||||||||||||||||||||
| Layman's Summary of Completion Report: | One of the most important issues in international commercial litigation is which country’s law governs the dispute. It is often said that Chinese courts prefer to apply their own substantive law, the lex fori, over foreign law. This phenomenon is known as the “homeward trend” in conflict of laws which was widely attributed to courts’ arbitrary judicial practice. This project examines three issues: To what extent is there a “homeward trend” in China? If there is such “homeward trend,” what caused it? What should be done with the “homeward trend”? Through an empirical research conducted on 15,266 foreign-related contract cases between 2007 and 2018, this article found the answers as follows: First, with 98.35% of the surveyed cases ruled by the courts to be governed by Chinese law, the homeward trend is confirmed. Second, the law’s vagueness allows judges to apply Chinese law in most cases. Third, China can certainly change the law to rein in courts’ discretion. Alternatively, given the homeward trend fits the dispute resolution system of China and offers certainty to litigation, a viable alternative is to simply amend the statute so that it reflects the existing judicial practice. | ||||||||||||||||||||||||||||
| Research Output | |||||||||||||||||||||||||||||
| Peer-reviewed journal publication(s) arising directly from this research project : (* denotes the corresponding author) |
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| Recognized international conference(s) in which paper(s) related to this research project was/were delivered : |
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| Other impact (e.g. award of patents or prizes, collaboration with other research institutions, technology transfer, etc.): |
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| Realisation of the education plan: | |||||||||||||||||||||||||||||
| SCREEN ID: SCRRM00542 |