Editor’s Note: The Fourth Seminar of the International Commercial Expert Committee of the Supreme People’s Court and Reappointment (New appointment) Ceremony of Expert Members was held successfully on September 25, 2024. Over 40 experts from more than 20 countries and regions focused on the theme of the “Collaborative Dialogue, Diverse Integration, Peaceful Development” during the seminar. Extensive and in-depth discussions were held within the framework of four specific issues. The texts of speeches delivered by the members of expert committee and distinguished guests during the discussion session on Topic Two International commercial transactions from a comparative law perspective: navigating legal intersections of international and domestic law would be posted on the CICC’s website.

Cross-border Commercial Transactions from a Comparative Law Perspective: Interaction of Public and Private Law and the Interpretation

ZHAO Hong

Professor in the Law School of the Peking University

Former Chairman of the Appellate Body of the WTO

Due to the complexity of the nature of international commercial cases, both transactions and disputes may involve multiple fields of public and private law, diverse legal frameworks, and various legal liabilities. As a result, the interaction, overlap, and conflicts between public and private law in cross-border commercial transactions are extremely intricate. However, the application of public law in international civil and commercial disputes should be approached with caution. It is important to ensure that while applying public law to safeguard public interests, the rights of private parties are also protected. Finding the core issue of the cases, properly handling the primary and secondary conflicts, and balancing interests are crucial for achieving fairness, justice, and reasonableness in dispute resolution.

I. The Relationship between Public and Private Law in Civil and Commercial Cases: A Violation of Public Law Does Not Necessarily Terminate the Assignment of Private Liability

Similar to cases involving criminal or administrative proceedings attached to civil litigation, international civil and commercial cases may also involve violations of public law during the trial. For instance, an international sale of goods contract may violate regulations concerning the prohibition of importing/exporting certain goods or controlled technologies, international financing agreements may breach mandatory foreign exchange control laws, or one of the parties to the contract may be subject to national sanctions. These situations may result in the contract being void or voidable, with the criminal or administrative liabilities of the civil or commercial parties handled in accordance with relevant laws. However, whether the rights and obligations between the parties are automatically terminated or whether the fault and responsibility of the parties must be considered can vary from case to case.

In a case heard in China regarding an international sale of goods contract, the Xiaoshan Customs imposed administrative penalties on the defendant for attempting to export unqualified masks, and the court, in its civil judgment, ruled under Article 35 of the CISG that the defendant’s failure to deliver the goods due to violations of Chinese regulations resulted in civil liability. Similarly, in a product liability dispute between Guangdong Ben Cao Company and Besty Pharmaceuticals heard by the National Commercial Court, although no contractual relationship existed between the two companies, Ben Cao Company was still entitled to demand that Besty Pharmaceuticals fulfill its recall obligations under an order from the National Food and Drug Administration and to claim damages for tort liability. In the UK case of Patel v. Mirza, despite both parties engaging in insider trading (a criminal offense), the Supreme Court of the UK, by a majority opinion, supported one party’s civil claim for the return of money paid under unjust enrichment. Thus, even if an international civil or commercial transaction violates public law, this does not necessarily lead to the automatic termination of civil or commercial legal relations or the exemption of liability. When dealing with cases involving multiple legal relationships, the appropriate application and interpretation of both public and private law must be carefully addressed on a case-by-case basis.

II. The Relationship Between Public and Private Law in Jurisdiction: Exclusive Jurisdiction Supersedes Agreed Jurisdiction

Jurisdiction is typically considered a matter of public law, representing a state’s judicial sovereignty. However, in international civil cases, many national laws uphold the principle of party autonomy, a basic tenet of private law.

In 2023, China’s Civil Procedure Law introduced Article 277 in its section on foreign-related disputes, no longer requiring a factual connection between foreign-related civil and commercial disputes and the selected forum in agreements. This demonstrates China’s respect for party autonomy and equal protection, enhancing its status as a preferred forum for resolving international commercial disputes. However, Article 279 of the Civil Procedure Law allows exclusive jurisdiction to override agreed jurisdiction. How then should we reasonably define the scope of exclusive jurisdiction in a way that balances public interest and party autonomy? On one hand, the perspectives of the parties must be considered to ensure efficient and convenient proceedings; on the other hand, it is necessary to consider the legitimacy of setting exclusive jurisdiction to protect public interest amidst complex inter-state coordination of jurisdictional issues.

For example, Article 279(2) of the Civil Procedure Law, a widely recognized rule internationally, reflects the territorial nature of intellectual property rights, where the administrative power of domestic authorities over the validity of such rights involves the sovereignty of national law, justifying exclusive jurisdiction. Moreover, using the location of intellectual property grants as a basis for jurisdiction offers efficiency in private law. Thus, exclusive jurisdiction must be supported by both public and private law principles, and their relationship should be properly managed in judicial practice.

Courts must actively exercise exclusive jurisdiction when the law so mandates, ensuring the convenience of the parties while safeguarding national interests and public policy. However, the application of exclusive jurisdiction in civil and commercial cases should be appropriately limited. For instance, the European Court of Justice has clarified that exclusive jurisdiction over foreign-related company decisions is limited to decisions made in accordance with the functions outlined in company law or the company’s articles of association, and thus a lawsuit challenging the board’s refusal to compensate would not fall under exclusive jurisdiction. Similarly, in a Chinese patent assignment dispute, the Korean Supreme Court held that the dispute merely concerned the interpretation and validity of the assignment agreement and did not involve the creation of patent rights, and thus did not fall under exclusive jurisdiction. Therefore, the scope of exclusive jurisdiction must be carefully determined in judicial practice.

III. The Relationship Between Public and Private Law in the Application of Law: Can Foreign Public Law Be Applied?

In conflict of laws, the application of public law is generally an exception to the principle of private law autonomy. When the conflict rules refer to a foreign law that is deemed to violate the sovereignty, public order, public interest, or traditional customs of the forum, such as a law that contravenes local antitrust regulations, foreign exchange controls, environmental safety laws, tax laws, or moral standards, the court may exclude the application of that law through mandatory provisions, public order exceptions, or rules preventing evasion of law.

The question arises: Can foreign public law be applied in domestic courts when hearing international civil and commercial disputes? Traditionally, the doctrine of “public law taboo” held that conflict rules could only refer to foreign civil and commercial law, not foreign public law. However, as society evolves and the distinction between public and private law blurs, and as globalization challenges traditional sovereignty theories, many countries have accepted the application of foreign public law in international civil and commercial cases. For instance, Article 19 of Korea’s Private International Law and Article 13 of Switzerland’s Federal Act on Private International Law explicitly provide that the scope of applicable foreign law includes foreign public law. Although China’s Law on the Application of Law to Foreign-related Civil Relations does not explicitly address this, there is room for applying foreign public law in Chinese courts when adjudicating foreign-related civil and commercial cases.

In conclusion, the historical reasons for denying the applicability of foreign public law in traditional private international law are gradually being eroded by international developments. For example, difficulties in ascertaining foreign public law have been mitigated by the publication of the Interpretation (II) of the Law on the Application of Law to Foreign-related Civil Relations, which points to methods for resolving the challenges of identifying and applying foreign law. However, domestic courts still face the challenge of correctly understanding the underlying public policy intentions behind foreign public law provisions.

A notable case is the Vitamin C antitrust case (Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co.), in which China’s Ministry of Commerce appeared as an amicus curiae, stating that price-fixing practices were mandated by Chinese law. How should courts treat the Chinese government’s interpretation of its public law? This involves significant debates, such as the “doctrine of substantive respect” versus the “doctrine of high respect” and differing views on international comity. Although the U.S. courts did not directly rely on the Chinese government’s statement, they ultimately recognized the legitimacy of China’s regulatory practices and dismissed the plaintiffs’ claims.

This case raises further questions about how to handle foreign public law, including: (1) the scope of ascertainment for foreign public law; (2) how to resolve conflicts within foreign public law or between a foreign government’s actions and its statutory provisions; and (3) whether the court should give complete deference to foreign legislative or governmental interpretations of their public law, or whether some discretion is permissible. These questions continue to challenge both legal theory and practice.

IV. Intersection of Public and Private Law in Substantive Case Adjudication: The Impact of Public Law Decisions on Private Law Cases

During the adjudication of substantive matters, public and private law often intersect and overlap in various ways. For instance, in a case heard by the Austrian Supreme Court, the court held that the protection of national cultural heritage is an internationally recognized concern, which should be an important factor in determining whether a contract violates public order and morals.

In relevant judicial practice, disputes involving the interaction of public and private law in substantive matters tend to focus on two common issues:

1. What are the boundaries for invalidating cross-border civil legal actions that violate “public order and morals”?

It is relatively easy to determine the invalidity of legal acts that violate mandatory legal provisions. However, in cross-border cases, how should one determine whether an action violates public order and morals—a universally recognized ground for nullity across jurisdictions? Chinese courts have taken a cautious approach to this issue. Generally, legal actions are only found to be invalid if they contravene mandatory legal provisions. Courts do not invalidate legal actions simply based on vague notions of protecting public interests or maintaining social order. For instance, courts have found foreign exchange contracts that violate the “Regulations on Foreign Exchange Control,” which prohibit unauthorized currency transactions, to be invalid. Similarly, contracts involving the fraudulent acquisition of license plates for vehicles crossing the Guangdong-Hong Kong-Macao region were declared invalid for violating public order and morals. Conversely, if an action does not breach mandatory legal provisions, even if it violates legal norms or order, it is generally not deemed to violate public order and morals, and the contract is not easily invalidated.

This rule of adjudication has gained broad international consensus. For example, in the well-known common law case Foster v. Driscoll, during the Prohibition era in the United States, the parties entered into an agreement to lease a vessel to transport whiskey to the U.S. The U.K. Court of Appeal ultimately dismissed the claim, illustrating that even if an agreement has been reached for an illegal activity, the courts will not recognize it as valid.

2. How should the validity of contracts and liability for breach be determined when government actions affect the normal performance of commercial contracts?

In international trade, commercial entities may face sanctions or be subjected to trade remedy measures, which can obstruct the performance of contracts, leading to disputes over contract termination or modification and the allocation of civil liability. A frequent issue is whether these government actions can be deemed force majeure, thereby exempting the affected party from civil liability.

Generally, in Chinese judicial practice, it is rare for economic sanctions to be considered force majeure justifying exemption from liability. For example, in one case, the court ruled that currency is a fungible item, and the defendant’s bank account freeze imposed by the Office of Foreign Assets Control (OFAC) did not constitute an insurmountable obstacle that prevented the fulfillment of contractual obligations. Therefore, it did not qualify as a statutory force majeure event. In another case, the court similarly held that even though the defendant was sanctioned by OFAC, the defendant could still fulfill its obligations by exchanging renminbi for U.S. dollars in China or through other means, thus it did not constitute force majeure. Other jurisdictions have also had similar outcomes. For example, in a U.S. case, the court found that despite the defendant being sanctioned by the U.S. government, there were alternative methods for fulfilling the contractual obligations, and the force majeure defense was rejected.

As for trade remedy measures, the courts have been similarly strict in their determinations. For instance, courts have not considered anti-dumping duties to be unforeseeable risks, and suppliers who failed to demonstrate that market supply was affected or to take proactive measures to mitigate losses were not able to claim force majeure.

Besides raising force majeure defenses, the affected party may argue that trade remedy measures constitute a change in circumstances, thereby requesting modification or termination of the contract or exemption from liability. However, courts are generally reluctant to support such claims. For example, in a case where the U.S. Department of Commerce imposed anti-dumping and countervailing duties on Chinese photovoltaic products, the court found that the parties’ ten-year “Cooperation Supply Agreement” inherently carried commercial risks, and the changes in the business environment were foreseeable at the time of the contract’s formation. As such, the court did not support the defendant’s request for exemption from liability.

V. Conclusion

In today’s globalized world, the intertwining of public and private law in international commercial disputes has become increasingly complex and diverse. This phenomenon is influenced by the trend of public-private law integration within the field of international law, as the concept of the “public law taboo” in private international law is gradually being broken, and the traditional binary division between public and private law is subject to critique and reflection in theoretical discourse. Furthermore, in practical terms, commercial transactions are inherently influenced by the regulation of public authority and may impact social public interests and public order.

For China, in the context of international engagement, we not only need to consider how to safeguard our public interests and maintain a stable and normal economic and social order through legal means amid growing international economic conflicts. We must also recognize that promoting the establishment of a new international economic order, fostering mutual benefit and win-win economic cooperation among nations, and achieving cooperative development are also our objectives and guiding principles. Therefore, we should adopt a cautious attitude towards restricting international commercial exchanges in the name of public interest. On the basis of mutual respect and comity in the judiciary of different countries, we should strive to achieve fair and just resolutions of civil and commercial disputes.

*The original text is Chinese and has been translated into English for reference only. If there is any inconsistency or ambiguity between the Chinese version and the English version, the Chinese version shall prevail.