China Issues Rules On Foreign Investment Disputes

by Mary Swire, for LawAndTax-News.com, Hong Kong

24 August 2010

China’s Supreme People’s Court (SPC) has issued a series of rules which should clarify certain legal provisions for cases involving foreign-funded investment companies, and which went into effect on August 16.

For example, one of the new regulations laid down by the SPC states that, if a contract signed for the setting-up or change in ownership of a foreign investment company stipulates that it is to become effective after it has been approved by the relevant Chinese competent authority, it will, in fact, be considered by the court to have taken effect from the date of approval.

Therefore, it also follows, said the SPC, that, if the contract is not approved by the Chinese authority, it will never take effect and the court will refuse to recognize its validity in any respect.

In addition, the SPC has specified that if the shareholder of a foreign investment company has transferred his capital contribution but has not completed the formalities for its registration, the court will recognize the contribution in any court action if those formalities are completed within the period laid down by the court.

The detailed regulations are said to be aimed at the validation of contracts involving foreign investments wherever possible, except when the investors attempt not to observe local laws and regulations, or try to avoid their legal responsibilities. It is hoped that, by these means, the rules will promote a level playing-field between domestic and foreign investment companies.

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