By John Shi and Richard Feller of Mallesons Stephen Jaques

The Supreme People's Court (SPC) recently issued new Provisions which deal with the applicable law in foreign-related commercial or civil contracts.¹ These new Provisions also apply to civil or commercial contracts involving parties from Hong Kong and Macao.

Prior to the new Provisions, contracting parties had to rely on vague articles contained in the Civil Law and the Contract Law.² These articles simply stipulate that parties to a foreign-related contract are free to choose the governing law - save for those contracts where PRC³ law is mandatory. Further, the articles provide that where the parties failed to elect a governing law, the law of the jurisdiction which has the closest connection with the contract applies.

Although these articles form the basic principles governing the applicable law for foreign-related contracts, they tend to lack sufficient clarity and substance. The new Provisions deal with some of these issues of clarity and substance, addressing problems often encountered in foreign-related civil and commercial cases. One salient outcome is that the Provisions significantly expand existing statutory provisions on the scope of contracts that must be governed by PRC law. They also provide more specific guidelines for determining the governing law where parties have failed to elect a law themselves.