Legal Update
Mar 10, 2025
Key Breakthroughs in the Choice of Governing Law in Guangdong-Hong Kong-Macao Greater Bay Area
On February 13th 2025, Supreme People’s Court of The People’s Republic of China (“PRC”) issued the Reply on Validity of Agreements by Hong Kong and Macao-Invested Enterprises Registered in Mainland Cities of the Guangdong-Hong Kong-Macao Greater Bay Area to Choose Hong Kong or Macao Law as the Governing Law or to Designate Hong Kong or Macao as the Place of Arbitration (the “Reply”), which took effect on February 14th 2025. The two key breakthroughs are as follows.
1. Litigation
According to the Reply, “If one or both parties to an agreement are Hong Kong-[1] or Macao-invested[2] enterprises registered in Shenzhen or Zhuhai of the Guangdong-Hong Kong-Macao Greater Bay Area, and they have agreed to apply the laws of HKSAR or MSAR as the governing law of their contract and assert the application of such law in litigation, the People’s Court shall uphold the agreement, provided that it does not contravene the mandatory provisions of national laws or harm public interests.”
Prior to this, the People’s Court generally held that foreign-invested enterprises were not considered foreign-related cases, so the relevant dispute concerning the agreement has to be governed by the laws of the PRC.
2. Arbitration
According to the Reply, “If one or both parties to an agreement are Hong Kong- or Macao-invested enterprises registered in any of the nine Mainland cities of the Guangdong-Hong Kong-Macao Greater Bay Area and have designated Hong Kong or Macao as the place of arbitration, the People’s Court shall not uphold a party’s request to invalidate the arbitration agreement on the grounds that the dispute lacks Hong Kong or Macao-related elements.
If the parties submit their dispute to arbitration as agreed, and after an arbitral award is rendered, one party claims that the dispute lacks Hong Kong or Macao-related elements and asserts that the arbitration agreement is invalid to resist the recognition and enforcement of the arbitral award, the People’s Court shall not uphold such a claim. ”
Previously, according to Answers to Practical Issues in Foreign-Related Commercial and Maritime Trials (Supreme People's Court Fourth Civil Division, December 2008), the Supreme People’s Court Fourth Civil Division held that the law does not permit domestic parties to submit disputes without foreign-related elements to foreign arbitration.
The Reply grants parties greater autonomy in the choice of governing law. Foreign investors looking to invest in Greater Bay Area through a Hong Kong or Macau entity may now be able to adopt the laws of HKSAR or MSAR and designate Hong Kong or Macao as the place of arbitration to resolve disputes in respect their investment agreements. Such change further strengthens the convenience of Hong Kong seated arbitrations in addition to the existing "friendly policy" on the recognition of Hong Kong arbitration awards in Mainland China under the Arrangement Concerning Mutual Enforcement of Arbitral Awards and its subsequent Supplemental Arrangement.
Seyfarth has experience in advising on foreign investments in China and our attorneys has profound experience in cross-border transactions and litigations in the region of Greater Bay Area.
[1] Hong Kong-invested enterprises refer to enterprises wholly or partly invested by natural persons, enterprises, or other organizations from the Hong Kong Special Administrative Region and legally registered in Mainland China.
[2] Macao-invested enterprises refer to enterprises wholly or partly invested by natural persons, enterprises, or other organizations from the Macao Special Administrative Region and legally registered in Mainland China.