context: The country’s top legislature adopted the Foreign Investment Law in March 2019. It was criticised as being too general to be implemented. These new rules specify contracts required for establishing new foreign-invested companies and transfer of shares, property or stock rights.
People’s Court issued a judicial interpretation of the Foreign Investment Law on 27 Dec 2019. The interpretation will take effect on 1 Jan 2020, concurrent with the law.
During trials, foreign investment contract disputes increased significantly, so the interpretation focuses on their settlement, especially the determination of contract effectiveness, observes Luo Dongchuan 罗东川 People’s Court vice president. Contracts are essential for investors and are an important part of international trade, he added.
According to the interpretation
- investment contracts formed in areas not on the negative list are void because the contracts have not been approved or registered by administrative authorities.
- investment contracts formed in areas where foreign investment is restricted by the negative list can still take effect as long as the parties concerned take necessary corrective measures before courts make effective judgements
- investment contracts that did not meet the requirements of the negative list when they were signed can still be deemed valid if the negative list loosens restrictions before court judgements take effect
These designs aim at guaranteeing the legitimate rights and interests of investors to the largest extent under the prerequisite of safeguarding the stability of foreign capital management, Luo said.