The Law of the People’s Republic of China on Choice of Law for Foreign-Related Civil Relationships (“FRCR Law”) is the law applicable to foreign-related civil relationships. On 30 November 2023, the Supreme People’s Court of the People’s Republic of China (“SPC”) issued an Interpretation on Several Issues Concerning the Application of the FRCR Law (II)(“Judicial Interpretation II”), giving judicial interpretations on the provisions in the FRCR Law, such as the responsibility, channels, procedures, and identification for clarifying extraterritorial laws. To promote the accurate application of the Judicial Interpretation II, on 10 July 2024, the SPC released the first batch of five typical cases on ascertaining and applying extraterritorial laws, involving how to identify and apply the laws of the United States, the United Kingdom, Mexico, Tajikistan, and/or Hong Kong in disputes over company capital contributions, sales contracts, guarantee contracts, multimodal transport contracts, and engineering supervision contracts respectively. The publication of these typical cases not only provides important guidance for the practice of clarifying extraterritorial laws and the application of relevant rules but also demonstrates the SPC’s attitude in encouraging the courts at all levels in China to use the FRCR Law to improve the level of judicial trials and fairly protect the interests of all parties.
Typical Case One: Zhao A v Jiang A Bai, Shanghai Peng A (Group) Co., Ltd., Gao A Zhong and American M Co., Ltd., (2003) Hu Yi Zhong Civil 5 (Commercial) first instance No. 116, (2006) Hu Gao Civil 4 (Commercial) second instance No. 19 –It is a dispute involving foreign investment. The key issue is whether Zhao A is a shareholder or director of American M Co., Ltd. (“M Company”), a company registered according to the law of Delaware, USA. Although the parties agreed to apply Chinese law, according to the FRCR Law, the dispute should be determined according to the law of the place where M Company is registered. Articles 5 and 7 of the Judicial Interpretation II stipulate that the court shall listen to the opinions of all parties on the content, understanding, and application of extraterritorial laws. If necessary, the legal inquiry service agency or legal expert that provides extraterritorial laws could be notified to appear in court for questioning. In this case, both parties issued expert legal opinions through American law firms and provided relevant laws of Delaware, USA. The court took the initiative to use computer networks to inquire about and verify the disputed foreign legal provisions and precedents in court, fully listened to the debate opinions of both parties and invited legal experts to express their opinions. Finally, it determined that Zhao A had become a shareholder and director of M Company based on the Delaware General Company Law and related precedents. The court’s practice of verifying USA law on the Internet and confirming the content of the disputed law in this case was considered to effectively protect the parties’ right to fully express their opinions.
Jiang A Bai and Gao A Zhong are shareholders of the M Company, and Gao A Zhong is the president of the company. Zhao A signed a contract with Jiang A Bai, Gao A Zhong, and Shanghai Peng A (Group) Co., Ltd. (“Shanghai Company”), stipulating that Zhao A will remit RMB 33.04 million to the designated account as agreed, and then the M company will issue new shares worth US$ 4 million to Zhao A. Jiang A Bai and Gao A Zhong guarantee that they will complete the capital increase of the M Company in the name of Zhao A within two months after receiving the capital increase, ensuring that he will become a new shareholder and director of the M Company and enjoy shareholder rights and director powers. The Shanghai Company provides a guarantee for Jiang A Bai and Gao A Zhong to perform the contract. The contract stipulates that the laws of the People’s Republic of China shall apply to the conclusion, validity, interpretation, and dispute resolution of the contract. After Zhao A remitted the money, he received a share certificate of the M Company signed by Gao A Zhong as the President on 9 April 2002. In the following one and a half months, Gao A Zhong held a telephone conference to pass the capital increase proposal and the resolution to amend the company’s articles of association; the M Company held a special shareholders’ meeting and decided to elect Zhao A as a member of the company’s board of directors; on the shareholder list of the M Company, Zhao A was listed as a shareholder who “has signed a contract but has not yet issued shares”. Since the parties later had a dispute over whether Zhao A was a shareholder of the M Company, Zhao A sued the court to demand that Jiang A Bai, the Shanghai Company, and Gao A Zhong return RMB 33.04 million and pay interest and corresponding penalty interest.
The court of first instance, Shanghai No. 1 Intermediate People’s Court, held that the key issue in this case was whether Zhao A had become a shareholder and director of the M Company after his investment. This issue should be determined by the provisions of the law where the M Company is registered. According to Sections 158 and 142 of the Delaware General Corporation Law, company shares should be normally certified by a certificate signed by two persons, including the chairman of the board of directors, and one person can concurrently hold several positions in the company. In addition, according to the precedent of the Delaware Court of Chancery, the legality of the share certificate issued by the company to shareholders cannot be questioned because the certificate is signed by only one person. In this case, the share certificate issued by Gao A Zhong, the president of the M Company, to Zhao A was to fulfill the dual duties of the chairman and secretary of the company, and was an important credential to establish the identity of the shareholder. Therefore, the court held that the share certificate of the M Company held by Zhao A was authentic and valid, and Zhao A had become a shareholder of the M Company. Section 211 of the Delaware General Corporation Law provides that the board of directors may decide at its sole discretion to convene a board meeting by remote communication. It does not provide that such a decision of the board of directors must be made in writing. In this case, Zhao A has become a director of the M Company after being elected at the special shareholders meeting of the M Company. Therefore, the court determined that Jiang A Bai and Gao A Zhong had fulfilled their contractual obligations, and Zhao A had become a shareholder and director of the M Company. Based on this, the court ruled to dismiss Zhao A’s lawsuit. Zhao A was dissatisfied with the first-instance judgment and appealed to the Shanghai High People's Court, which rejected the appeal and upheld the original judgment in the second-instance judgment.
Typical Case Two: Sheng A Medical Technology (Hong Kong) Co., Ltd. v Wei A Medical Co., Ltd., (2021) Yue Yi Civil first instance No. 543—Article 10 of the FRCR Law and Article 1 of the Judicial Interpretation II provide that the court is the responsible entity for clarifying extraterritorial laws, unless the parties choose to apply extraterritorial laws. In this contract dispute case, both parties submitted their legal investigation reports, including a large amount of information such as statutory laws, case laws, and legal works. There is a great deal of controversy between the parties regarding the content, understanding, and application of extraterritorial laws. In this case, the court did not simply determine that extraterritorial laws could not be ascertained, but rather made a prudent determination of extraterritorial laws after comprehensive analysis and careful comparison. This is conducive to enhancing the credibility of the court’s foreign-related judicial adjudication.
The plaintiff and the defendant, a British company, signed a distribution agreement. According to the agreement, the plaintiff, on behalf of the defendant, would apply to the China Food and Drug Administration for a medical device registration certificate for the AlignRT product, a radiotherapy patient positioning system; and the defendant authorized the plaintiff to sell the product in China. If the plaintiff did not purchase the products with a minimum value of US$ 500,000 in one year, the defendant had the right to terminate the agreement. Both parties chose that the contract disputes would be governed by the laws of England and Wales. Later, the defendant announced the termination of the agreement because the value of the products purchased by the plaintiff in 2020 was less than US$ 500,000. The plaintiff believed that the value of the products purchased in 2020 exceeded the minimum value agreed upon in the agreement, and the defendant continued to trade with the plaintiff via email and WeChat within two months after the expiration of the year, which should be regarded as the defendant’s waiver of the right to terminate the agreement. Therefore, the plaintiff requested the defendant to compensate for the losses caused by refusing to perform the agreement and the expected profits that could be obtained if the agreement continued to be performed.
The two parties in this case respectively commissioned the China-ASEAN Legal Research Center and a British barrister to issue a report on the laws of England and Wales. The Guangzhou Intermediate People’s Court, the first instance court, analyzed and compared the probative force of the two reports based on the facts of this case, and finally accepted the law report provided by the defendant. The court held that, according to the case rules stated in the report provided by the defendant, when the express terms of the contract are inconsistent with the implied terms, there is no room for the court to apply the implied terms to fill the contract loopholes. Therefore, when the agreement has clearly defined the meaning of the minimum value, the plaintiff’s claim that the implied terms of the British contract law can be applied and the value of products other than Appendix 6 purchased by the plaintiff can be included in the minimum value for commercial purposes lacks legal basis. In addition, according to the relevant case laws of the British court, the implied waiver of the right to terminate the contract by the party who abides by the contract should be proved by clear behavior and sufficient evidence. There is no evidence in this case to prove that the defendant has waived the right to terminate the contract. Accordingly, the court ruled to dismiss all the plaintiff’s claims.
Typical Case Three: China A Bank Zhejiang Branch v Hangzhou A Information Technology Co., Ltd., A (Hong Kong) Technology Co., Ltd., Beijing A Technology Co., Ltd., He A Tao, (2020) Zhejiang YI Civil first Instance No. 1145, (2022) Zhe Civil second instance No. 162—According to the contract, the two parties chose that the legal relationship of loan and guarantee shall be subject to Chinese law; in the legal relationship of pledge, the review of the rights and obligations under the equity pledge contract shall be subject to Hong Kong law, and the review of the rights and obligations under the pledge agreement shall be subject to the laws of the State of New York, USA. Article 10 of the FRCR Law stipulates that when the parties choose to apply extraterritorial laws, they shall be obliged to provide the extraterritorial laws. However, this provision does not restrict the court from actively and proactively ascertaining or supplementing the extraterritorial laws to resolve disputes at one time. In this case, based on the application of China A Bank Zhejiang Branch (“China A Bank”), the court commissioned a foreign law investigation research center to investigate the laws of multiple jurisdictions involved, which expanded the way to investigate extraterritorial laws and improved the efficiency of investigation.
In May 2019, Hangzhou A Information Technology Co., Ltd. (“Hangzhou A Company”) borrowed RMB 200 million in principal from China A Bank, with A (Hong Kong) Technology Co., Ltd (“A HK Company”) and He A Tao providing guarantees. The parties agreed that the dispute resolution of the loan and guarantee contracts shall be subject to the laws of China. To this end, A HK Company and China A Bank signed an equity pledge contract and a pledge agreement respectively. The two parties agreed that the equity pledge contract was governed by Hong Kong law, and the subject of the pledge was the shares of Lei A Company held by A HK Company, which was registered under the laws of the Cayman Islands; the pledge agreement was governed by the laws of the State of New York, USA, and the subject of the pledge was the shares of Xin A Company held by A HK Company, which was registered in Delaware, USA. A HK Company registered the pledge of the shares of Lei A Company following the Companies Ordinance of Hong Kong. Later, due to the overdue loan, China A Bank sued the Hangzhou A Company for repayment of principal and interest, etc., and requested priority repayment rights for the shares of Lei A Company and Xin A Company pledged by A HK Company.
Hangzhou Intermediate People’s Court, the first instance court, held that, according to the ascertained Hong Kong laws and multiple precedents, the establishment of stock pledges is generally carried out by signing a stock pledge agreement. Combined with the provisions of the equity pledge contract and the pledge registration behavior, it should be determined that A HK Company has established a legal and valid equity pledge (charge) for the equity of Lei A Company stipulated in the contract. Article 911 of the New York Business Corporation Law provides that the committee may authorize any mortgage or pledge of all or any part of the company’s property or any interest therein, or the establishment of a security interest. Unless otherwise provided in the company certificate, the board of directors may approve the action without shareholder vote or consent. A HK Company has passed a board resolution to provide a guarantee by its equity of Xin A Company, and no restrictive provisions have been found in the equity certificate. Therefore, it should be determined that A HK Company has established a valid equity pledge for its equity of the Xin A Company. The court ruled in favor of China A Bank’s request for priority repayment rights for the pledged equity and for the defendant to bear the costs of clarifying extraterritorial laws. China A Bank was dissatisfied with the other judgments of the first instance and appealed to the Zhejiang Provincial High People’s Court. The court rejected the appeal in the second instance and upheld the original judgment.
Typical Case Four: Jiangsu A Glass Company v. Qingdao A Logistics Company, (2020) Su 72 Civil first instance No. 1061—Although the parties agreed to apply Chinese law, since the cargo damage in the case occurred in the railway transport section of Mexico, according to the provisions of China’s Maritime Law, the relevant Mexican laws should be applied to determine the compensation liability and liability limit of the multimodal transport operator. The court commissioned a foreign law research center to investigate the Mexican law involved in this case. To improve the efficiency of clarifying extraterritorial laws and reduce duplication of work, the court convened all parties, in this case, to jointly determine the key issues to be investigated and the scope of the extraterritorial laws involved. According to this case, it can be concluded that the court can negotiate with the parties on the scope of extraterritorial laws to be investigated through pre-court meetings and other means.
In early 2020, Jiangsu A Glass Company (“Glass Company”) and Qingdao A Logistics Company (“Logistics Company”) signed an international freight transport agency agreement. The agreement stipulates that the Logistics Company shall bear the responsibility of the carrier if it issues a bill of lading or other transport documents. After the signing of the agreement, the Glass Company issued a power of attorney to the Logistics Company through its agency, entrusting it to transport a batch of tempered glass and plastic trims to Mexico. In April 2020, the Logistics Company issued a multimodal bill of lading, with the port of discharge and place of delivery being Apodaca, Mexico, and the mode of transportation being CY-DOOR, and charged the Glass Company a sea freight of US$ 15,400. On 20 May 2020, the goods involved in the case arrived in Mexico by sea. During the subsequent railway section transportation, the goods in the five containers were all damaged due to the derailment of the train. The Glass Company filed a lawsuit, requiring the Logistics Company to bear the full liability for cargo damage and compensate for the sea freight.
The Nanjing Maritime Court, the first instance court, held that the parties in this case agreed in the agreement that Chinese law should apply, so this case should apply Chinese law. According to the relevant provisions of China’s Maritime Law, the Logistics Company, as a multimodal transport operator, should bear compensation liability to the consignor for the loss or damage of goods during transportation. The goods involved in the case were damaged during railway transportation. The compensation liability and liability limit of the Logistics Company should be determined by the civil and commercial laws of Mexico governing railway transportation based on the provisions of Article 105 of China’s Maritime Law. According to the results of the investigation of a foreign law investigation research center, the compensation liability and liability limit of the Logistics Company should be subject to Article 52 of Mexico’s Law on the Implementation of Railway Services, which is calculated based on the amount of 15 days of the current general minimum wage in the Federal Capital District per ton from the date when the Glass Company filed a compensation claim. Therefore, the court ruled that the Logistics Company should pay RMB 19,662.93 and interest to the Glass Company.
Typical Case Five: Sichuan A Engineering Company, A Central Asian Company v Shaanxi A Chemical Company, (2020) Shaanxi Yi Civil first instance No. 49, (2021) Shaanxi Civil second instance No. 892—The key issue in this case is whether Shaanxi A Chemical Company (“Shaanxi Company”), as the sole shareholder of A Central Asian Company (“CA Company”), must prove that the CA Company’s property is independent of the Shaanxi Company’s property and whether it should bear joint and several liability. According to the FRCR Law, the rights and obligations of shareholders shall be subject to the laws of the place of registration, that is, the Republic of Tajikistan. To ascertain the relevant provisions on the joint and several liability of shareholders of a one-person limited liability company in the Republic of Tajikistan, the court entrusted the Legal Policy Collaborative Innovation Center jointly established with universities to ascertain the relevant laws of the Republic of Tajikistan when none of the parties provided extraterritorial laws. This has accumulated experience for the accurate application of the laws of countries along the Belt and Road, especially those in Central Asia, and provided effective judicial guidance for Chinese companies’ overseas economic and trade investment and major project construction.
In 2017, the Shaanxi Company won the bid for the high-voltage power transmission and transformation project in the Dangora Special Economic Zone of the Republic of Tajikistan and registered and established the CA Company in the country. On 29 September 2017, Sichuan A Engineering Company (“Sichuan Company”) signed an entrusted supervision contract with the CA Company, responsible for supervising the above-mentioned project. The project has been put into operation in the Republic of Tajikistan, and the CA Company owes supervision fees. The Sichuan Company believes that it has fully fulfilled its supervision obligations by the contract, and the CA Company should pay the full supervision fee of US$ 360,000 and delayed payment interest. In addition, as the only shareholders of the CA Company, the Shaanxi Company, and the CA Company have confusion in property, management, and personnel, and should bear joint and several liability for the above debts. The CA Company believes that the Sichuan Company has not fulfilled its supervision obligations and should not pay the full supervision fee. The Shaanxi Company believes that there is no confusion between it and the CA Company, and it should not bear joint and several liabilities. The Sichuan Company then filed a lawsuit in court, demanding that the Shaanxi Company and the CA Company jointly pay the supervision fee of RMB 2,472,552 plus interest.
The Xi’an Intermediate People’s Court, the first instance court, held that both parties acknowledged that the project, in this case, was completed and put into operation, the Sichuan Company had completed the preliminary inspection report before the commissioning of the project, and the CA Company acknowledged that the Sichuan Company had handed over some supervision materials, so the payment conditions for the remaining basic supervision fees were partially met. Meanwhile, the Shaanxi Company was not a party to the supervision contract, and the evidence provided by the Sichuan Company was insufficient to prove that the Shaanxi Company and the CA Company had a confusion of legal personality. Therefore, the court ruled that the CA Company should pay the Sichuan Company a supervision fee of US$ 226,800 and interest, and rejected the Sichuan Company's other claims. The Sichuan Company and the CA Company both appealed to the Shaanxi Provincial Higher People’s Court against the first instance judgment.
The Shaanxi Provincial High People’s Court, the second instance court, held that the first instance’s determination of the supervision fees payable by the CA Company was by the contract agreement, and the appeal of the CA Company was not valid. The Sichuan Company requested the Shaanxi Company to bear joint and several liabilities for the debts of the CA Company, which it wholly owned. This involved the issue of shareholder obligations and should be determined by the law of the place where the CA Company was established and registered, namely the law of the Republic of Tajikistan. According to the provisions of the Civil Code of the Republic of Tajikistan and the Law of the Republic of Tajikistan on Limited Liability Companies, a shareholder of a limited liability company can be a natural person or a legal person, and the shareholder must make full capital contribution. In general, the shareholders of a company shall be liable to the extent of their capital contribution, but there are also statutory and agreed exceptions. However, the statutory exceptions do not include the practice of reversing the burden of proof for a one-person company, that is, the presumption of confusion of legal personality. Since the evidence provided by the Sichuan Company was insufficient to prove its claim that the Shaanxi Company and the CA Company had confusion of personality, the request should be rejected. The facts determined in the first instance judgment were correct, and the application of the law on shareholder obligations was wrong, but the judgment was correct. The court’s second instance judgment rejected the appeal and upheld the original judgment.
Typical Case One: Zhao A v Jiang A Bai, Shanghai Peng A (Group) Co., Ltd., Gao A Zhong and American M Co., Ltd., (2003) Hu Yi Zhong Civil 5 (Commercial) first instance No. 116, (2006) Hu Gao Civil 4 (Commercial) second instance No. 19 –It is a dispute involving foreign investment. The key issue is whether Zhao A is a shareholder or director of American M Co., Ltd. (“M Company”), a company registered according to the law of Delaware, USA. Although the parties agreed to apply Chinese law, according to the FRCR Law, the dispute should be determined according to the law of the place where M Company is registered. Articles 5 and 7 of the Judicial Interpretation II stipulate that the court shall listen to the opinions of all parties on the content, understanding, and application of extraterritorial laws. If necessary, the legal inquiry service agency or legal expert that provides extraterritorial laws could be notified to appear in court for questioning. In this case, both parties issued expert legal opinions through American law firms and provided relevant laws of Delaware, USA. The court took the initiative to use computer networks to inquire about and verify the disputed foreign legal provisions and precedents in court, fully listened to the debate opinions of both parties and invited legal experts to express their opinions. Finally, it determined that Zhao A had become a shareholder and director of M Company based on the Delaware General Company Law and related precedents. The court’s practice of verifying USA law on the Internet and confirming the content of the disputed law in this case was considered to effectively protect the parties’ right to fully express their opinions.
Jiang A Bai and Gao A Zhong are shareholders of the M Company, and Gao A Zhong is the president of the company. Zhao A signed a contract with Jiang A Bai, Gao A Zhong, and Shanghai Peng A (Group) Co., Ltd. (“Shanghai Company”), stipulating that Zhao A will remit RMB 33.04 million to the designated account as agreed, and then the M company will issue new shares worth US$ 4 million to Zhao A. Jiang A Bai and Gao A Zhong guarantee that they will complete the capital increase of the M Company in the name of Zhao A within two months after receiving the capital increase, ensuring that he will become a new shareholder and director of the M Company and enjoy shareholder rights and director powers. The Shanghai Company provides a guarantee for Jiang A Bai and Gao A Zhong to perform the contract. The contract stipulates that the laws of the People’s Republic of China shall apply to the conclusion, validity, interpretation, and dispute resolution of the contract. After Zhao A remitted the money, he received a share certificate of the M Company signed by Gao A Zhong as the President on 9 April 2002. In the following one and a half months, Gao A Zhong held a telephone conference to pass the capital increase proposal and the resolution to amend the company’s articles of association; the M Company held a special shareholders’ meeting and decided to elect Zhao A as a member of the company’s board of directors; on the shareholder list of the M Company, Zhao A was listed as a shareholder who “has signed a contract but has not yet issued shares”. Since the parties later had a dispute over whether Zhao A was a shareholder of the M Company, Zhao A sued the court to demand that Jiang A Bai, the Shanghai Company, and Gao A Zhong return RMB 33.04 million and pay interest and corresponding penalty interest.
The court of first instance, Shanghai No. 1 Intermediate People’s Court, held that the key issue in this case was whether Zhao A had become a shareholder and director of the M Company after his investment. This issue should be determined by the provisions of the law where the M Company is registered. According to Sections 158 and 142 of the Delaware General Corporation Law, company shares should be normally certified by a certificate signed by two persons, including the chairman of the board of directors, and one person can concurrently hold several positions in the company. In addition, according to the precedent of the Delaware Court of Chancery, the legality of the share certificate issued by the company to shareholders cannot be questioned because the certificate is signed by only one person. In this case, the share certificate issued by Gao A Zhong, the president of the M Company, to Zhao A was to fulfill the dual duties of the chairman and secretary of the company, and was an important credential to establish the identity of the shareholder. Therefore, the court held that the share certificate of the M Company held by Zhao A was authentic and valid, and Zhao A had become a shareholder of the M Company. Section 211 of the Delaware General Corporation Law provides that the board of directors may decide at its sole discretion to convene a board meeting by remote communication. It does not provide that such a decision of the board of directors must be made in writing. In this case, Zhao A has become a director of the M Company after being elected at the special shareholders meeting of the M Company. Therefore, the court determined that Jiang A Bai and Gao A Zhong had fulfilled their contractual obligations, and Zhao A had become a shareholder and director of the M Company. Based on this, the court ruled to dismiss Zhao A’s lawsuit. Zhao A was dissatisfied with the first-instance judgment and appealed to the Shanghai High People's Court, which rejected the appeal and upheld the original judgment in the second-instance judgment.
Typical Case Two: Sheng A Medical Technology (Hong Kong) Co., Ltd. v Wei A Medical Co., Ltd., (2021) Yue Yi Civil first instance No. 543—Article 10 of the FRCR Law and Article 1 of the Judicial Interpretation II provide that the court is the responsible entity for clarifying extraterritorial laws, unless the parties choose to apply extraterritorial laws. In this contract dispute case, both parties submitted their legal investigation reports, including a large amount of information such as statutory laws, case laws, and legal works. There is a great deal of controversy between the parties regarding the content, understanding, and application of extraterritorial laws. In this case, the court did not simply determine that extraterritorial laws could not be ascertained, but rather made a prudent determination of extraterritorial laws after comprehensive analysis and careful comparison. This is conducive to enhancing the credibility of the court’s foreign-related judicial adjudication.
The plaintiff and the defendant, a British company, signed a distribution agreement. According to the agreement, the plaintiff, on behalf of the defendant, would apply to the China Food and Drug Administration for a medical device registration certificate for the AlignRT product, a radiotherapy patient positioning system; and the defendant authorized the plaintiff to sell the product in China. If the plaintiff did not purchase the products with a minimum value of US$ 500,000 in one year, the defendant had the right to terminate the agreement. Both parties chose that the contract disputes would be governed by the laws of England and Wales. Later, the defendant announced the termination of the agreement because the value of the products purchased by the plaintiff in 2020 was less than US$ 500,000. The plaintiff believed that the value of the products purchased in 2020 exceeded the minimum value agreed upon in the agreement, and the defendant continued to trade with the plaintiff via email and WeChat within two months after the expiration of the year, which should be regarded as the defendant’s waiver of the right to terminate the agreement. Therefore, the plaintiff requested the defendant to compensate for the losses caused by refusing to perform the agreement and the expected profits that could be obtained if the agreement continued to be performed.
The two parties in this case respectively commissioned the China-ASEAN Legal Research Center and a British barrister to issue a report on the laws of England and Wales. The Guangzhou Intermediate People’s Court, the first instance court, analyzed and compared the probative force of the two reports based on the facts of this case, and finally accepted the law report provided by the defendant. The court held that, according to the case rules stated in the report provided by the defendant, when the express terms of the contract are inconsistent with the implied terms, there is no room for the court to apply the implied terms to fill the contract loopholes. Therefore, when the agreement has clearly defined the meaning of the minimum value, the plaintiff’s claim that the implied terms of the British contract law can be applied and the value of products other than Appendix 6 purchased by the plaintiff can be included in the minimum value for commercial purposes lacks legal basis. In addition, according to the relevant case laws of the British court, the implied waiver of the right to terminate the contract by the party who abides by the contract should be proved by clear behavior and sufficient evidence. There is no evidence in this case to prove that the defendant has waived the right to terminate the contract. Accordingly, the court ruled to dismiss all the plaintiff’s claims.
Typical Case Three: China A Bank Zhejiang Branch v Hangzhou A Information Technology Co., Ltd., A (Hong Kong) Technology Co., Ltd., Beijing A Technology Co., Ltd., He A Tao, (2020) Zhejiang YI Civil first Instance No. 1145, (2022) Zhe Civil second instance No. 162—According to the contract, the two parties chose that the legal relationship of loan and guarantee shall be subject to Chinese law; in the legal relationship of pledge, the review of the rights and obligations under the equity pledge contract shall be subject to Hong Kong law, and the review of the rights and obligations under the pledge agreement shall be subject to the laws of the State of New York, USA. Article 10 of the FRCR Law stipulates that when the parties choose to apply extraterritorial laws, they shall be obliged to provide the extraterritorial laws. However, this provision does not restrict the court from actively and proactively ascertaining or supplementing the extraterritorial laws to resolve disputes at one time. In this case, based on the application of China A Bank Zhejiang Branch (“China A Bank”), the court commissioned a foreign law investigation research center to investigate the laws of multiple jurisdictions involved, which expanded the way to investigate extraterritorial laws and improved the efficiency of investigation.
In May 2019, Hangzhou A Information Technology Co., Ltd. (“Hangzhou A Company”) borrowed RMB 200 million in principal from China A Bank, with A (Hong Kong) Technology Co., Ltd (“A HK Company”) and He A Tao providing guarantees. The parties agreed that the dispute resolution of the loan and guarantee contracts shall be subject to the laws of China. To this end, A HK Company and China A Bank signed an equity pledge contract and a pledge agreement respectively. The two parties agreed that the equity pledge contract was governed by Hong Kong law, and the subject of the pledge was the shares of Lei A Company held by A HK Company, which was registered under the laws of the Cayman Islands; the pledge agreement was governed by the laws of the State of New York, USA, and the subject of the pledge was the shares of Xin A Company held by A HK Company, which was registered in Delaware, USA. A HK Company registered the pledge of the shares of Lei A Company following the Companies Ordinance of Hong Kong. Later, due to the overdue loan, China A Bank sued the Hangzhou A Company for repayment of principal and interest, etc., and requested priority repayment rights for the shares of Lei A Company and Xin A Company pledged by A HK Company.
Hangzhou Intermediate People’s Court, the first instance court, held that, according to the ascertained Hong Kong laws and multiple precedents, the establishment of stock pledges is generally carried out by signing a stock pledge agreement. Combined with the provisions of the equity pledge contract and the pledge registration behavior, it should be determined that A HK Company has established a legal and valid equity pledge (charge) for the equity of Lei A Company stipulated in the contract. Article 911 of the New York Business Corporation Law provides that the committee may authorize any mortgage or pledge of all or any part of the company’s property or any interest therein, or the establishment of a security interest. Unless otherwise provided in the company certificate, the board of directors may approve the action without shareholder vote or consent. A HK Company has passed a board resolution to provide a guarantee by its equity of Xin A Company, and no restrictive provisions have been found in the equity certificate. Therefore, it should be determined that A HK Company has established a valid equity pledge for its equity of the Xin A Company. The court ruled in favor of China A Bank’s request for priority repayment rights for the pledged equity and for the defendant to bear the costs of clarifying extraterritorial laws. China A Bank was dissatisfied with the other judgments of the first instance and appealed to the Zhejiang Provincial High People’s Court. The court rejected the appeal in the second instance and upheld the original judgment.
Typical Case Four: Jiangsu A Glass Company v. Qingdao A Logistics Company, (2020) Su 72 Civil first instance No. 1061—Although the parties agreed to apply Chinese law, since the cargo damage in the case occurred in the railway transport section of Mexico, according to the provisions of China’s Maritime Law, the relevant Mexican laws should be applied to determine the compensation liability and liability limit of the multimodal transport operator. The court commissioned a foreign law research center to investigate the Mexican law involved in this case. To improve the efficiency of clarifying extraterritorial laws and reduce duplication of work, the court convened all parties, in this case, to jointly determine the key issues to be investigated and the scope of the extraterritorial laws involved. According to this case, it can be concluded that the court can negotiate with the parties on the scope of extraterritorial laws to be investigated through pre-court meetings and other means.
In early 2020, Jiangsu A Glass Company (“Glass Company”) and Qingdao A Logistics Company (“Logistics Company”) signed an international freight transport agency agreement. The agreement stipulates that the Logistics Company shall bear the responsibility of the carrier if it issues a bill of lading or other transport documents. After the signing of the agreement, the Glass Company issued a power of attorney to the Logistics Company through its agency, entrusting it to transport a batch of tempered glass and plastic trims to Mexico. In April 2020, the Logistics Company issued a multimodal bill of lading, with the port of discharge and place of delivery being Apodaca, Mexico, and the mode of transportation being CY-DOOR, and charged the Glass Company a sea freight of US$ 15,400. On 20 May 2020, the goods involved in the case arrived in Mexico by sea. During the subsequent railway section transportation, the goods in the five containers were all damaged due to the derailment of the train. The Glass Company filed a lawsuit, requiring the Logistics Company to bear the full liability for cargo damage and compensate for the sea freight.
The Nanjing Maritime Court, the first instance court, held that the parties in this case agreed in the agreement that Chinese law should apply, so this case should apply Chinese law. According to the relevant provisions of China’s Maritime Law, the Logistics Company, as a multimodal transport operator, should bear compensation liability to the consignor for the loss or damage of goods during transportation. The goods involved in the case were damaged during railway transportation. The compensation liability and liability limit of the Logistics Company should be determined by the civil and commercial laws of Mexico governing railway transportation based on the provisions of Article 105 of China’s Maritime Law. According to the results of the investigation of a foreign law investigation research center, the compensation liability and liability limit of the Logistics Company should be subject to Article 52 of Mexico’s Law on the Implementation of Railway Services, which is calculated based on the amount of 15 days of the current general minimum wage in the Federal Capital District per ton from the date when the Glass Company filed a compensation claim. Therefore, the court ruled that the Logistics Company should pay RMB 19,662.93 and interest to the Glass Company.
Typical Case Five: Sichuan A Engineering Company, A Central Asian Company v Shaanxi A Chemical Company, (2020) Shaanxi Yi Civil first instance No. 49, (2021) Shaanxi Civil second instance No. 892—The key issue in this case is whether Shaanxi A Chemical Company (“Shaanxi Company”), as the sole shareholder of A Central Asian Company (“CA Company”), must prove that the CA Company’s property is independent of the Shaanxi Company’s property and whether it should bear joint and several liability. According to the FRCR Law, the rights and obligations of shareholders shall be subject to the laws of the place of registration, that is, the Republic of Tajikistan. To ascertain the relevant provisions on the joint and several liability of shareholders of a one-person limited liability company in the Republic of Tajikistan, the court entrusted the Legal Policy Collaborative Innovation Center jointly established with universities to ascertain the relevant laws of the Republic of Tajikistan when none of the parties provided extraterritorial laws. This has accumulated experience for the accurate application of the laws of countries along the Belt and Road, especially those in Central Asia, and provided effective judicial guidance for Chinese companies’ overseas economic and trade investment and major project construction.
In 2017, the Shaanxi Company won the bid for the high-voltage power transmission and transformation project in the Dangora Special Economic Zone of the Republic of Tajikistan and registered and established the CA Company in the country. On 29 September 2017, Sichuan A Engineering Company (“Sichuan Company”) signed an entrusted supervision contract with the CA Company, responsible for supervising the above-mentioned project. The project has been put into operation in the Republic of Tajikistan, and the CA Company owes supervision fees. The Sichuan Company believes that it has fully fulfilled its supervision obligations by the contract, and the CA Company should pay the full supervision fee of US$ 360,000 and delayed payment interest. In addition, as the only shareholders of the CA Company, the Shaanxi Company, and the CA Company have confusion in property, management, and personnel, and should bear joint and several liability for the above debts. The CA Company believes that the Sichuan Company has not fulfilled its supervision obligations and should not pay the full supervision fee. The Shaanxi Company believes that there is no confusion between it and the CA Company, and it should not bear joint and several liabilities. The Sichuan Company then filed a lawsuit in court, demanding that the Shaanxi Company and the CA Company jointly pay the supervision fee of RMB 2,472,552 plus interest.
The Xi’an Intermediate People’s Court, the first instance court, held that both parties acknowledged that the project, in this case, was completed and put into operation, the Sichuan Company had completed the preliminary inspection report before the commissioning of the project, and the CA Company acknowledged that the Sichuan Company had handed over some supervision materials, so the payment conditions for the remaining basic supervision fees were partially met. Meanwhile, the Shaanxi Company was not a party to the supervision contract, and the evidence provided by the Sichuan Company was insufficient to prove that the Shaanxi Company and the CA Company had a confusion of legal personality. Therefore, the court ruled that the CA Company should pay the Sichuan Company a supervision fee of US$ 226,800 and interest, and rejected the Sichuan Company's other claims. The Sichuan Company and the CA Company both appealed to the Shaanxi Provincial Higher People’s Court against the first instance judgment.
The Shaanxi Provincial High People’s Court, the second instance court, held that the first instance’s determination of the supervision fees payable by the CA Company was by the contract agreement, and the appeal of the CA Company was not valid. The Sichuan Company requested the Shaanxi Company to bear joint and several liabilities for the debts of the CA Company, which it wholly owned. This involved the issue of shareholder obligations and should be determined by the law of the place where the CA Company was established and registered, namely the law of the Republic of Tajikistan. According to the provisions of the Civil Code of the Republic of Tajikistan and the Law of the Republic of Tajikistan on Limited Liability Companies, a shareholder of a limited liability company can be a natural person or a legal person, and the shareholder must make full capital contribution. In general, the shareholders of a company shall be liable to the extent of their capital contribution, but there are also statutory and agreed exceptions. However, the statutory exceptions do not include the practice of reversing the burden of proof for a one-person company, that is, the presumption of confusion of legal personality. Since the evidence provided by the Sichuan Company was insufficient to prove its claim that the Shaanxi Company and the CA Company had confusion of personality, the request should be rejected. The facts determined in the first instance judgment were correct, and the application of the law on shareholder obligations was wrong, but the judgment was correct. The court’s second instance judgment rejected the appeal and upheld the original judgment.