Choice of Law in Foreign-Related Contracts: Why Doesn't the Court Accept "I Choose Chinese Law"?

2026/10/14

— Two Adapted Cases That Clarify the Boundaries of Party Autonomy.

A Mainland company entered into a sales contract with a Hong Kong resident. After the counterparty defaulted on the purchase price, it became uncontactable. In court, the Mainland company argued: "The contract did not specify the governing law, but I choose Mainland law!" The defendant was served by public announcement and failed to appear. What law do you think the court ultimately applied? The answer may be surprising: the court did not directly apply the law chosen by the plaintiff, but instead went back to the "closest connection" test to determine the applicable law.

Freedom of choice of law is not "whatever you say goes."

I. Two Pathways First

For the governing law of a foreign-related contract, there are usually four steps: identify the foreign-related element → ascertain whether there is a choice of law → if there is a choice of law, examine its validity → if there is no choice of law, apply the closest connection test. The two adapted cases happen to cover the two typical scenarios of "mutual agreement" and "unilateral choice."

II. Case One: Only When Both Parties Agree Is the Choice of Law Secure.

A Chinese-American and a Mainland resident entered into a private lending arrangement. The defendant issued a USD promissory note in the United States and subsequently made only partial repayment. At trial, both parties unanimously agreed to apply Chinese law.

The court held: the parties had expressly agreed by mutual consent to choose Chinese law, and therefore Chinese law was the governing law, under which the principal and interest were calculated.

Key Points: Party autonomy requires "mutual agreement" as an essential element; an express choice may be made at trial, but it is most secure when written into the contract; once chosen, substantive issues such as interest and damages are all governed by the chosen law.

III. Case Two: One Party Chooses, the Other Defaults — Whose Choice Does the Court Follow?

A Mainland business entity was involved in a sales contract dispute with a Hong Kong resident. The defendant was untraceable and, after service by public announcement, defaulted. The plaintiff unilaterally chose Mainland law.

The court held: Hong Kong-related cases are handled by reference to foreign-related provisions; although the plaintiff chose Mainland law, the defendant did not appear and was deemed to have waived the right to choose, which could not be treated as consent to the plaintiff's choice. Ultimately, the court applied the closest connection principle and determined that Mainland law applied on the basis of the place where the contract was performed.

Key Points: A unilateral choice does not automatically bind the other party; default does not equal consent; the court must still independently examine the connecting factors. Although the result "happened" to be the application of Mainland law, the pathway was entirely different — it rested on "closest connection," not on "listening to you."

IV. The Biggest Pitfall: Implied Choice Is Not Recognized

At the conflict-of-laws level in our country, only "express choice" is recognized; broad implied choice is not. The following factors are often misread:

1.Agreeing on arbitration or court jurisdiction in a certain country: this may affect procedure, but does not equate to a choice of substantive law;

2.Use of a certain language or agreement on a certain currency: usually merely a matter of transactional convenience;

3.Place of performance or place of contracting in a certain country: more likely to be identified as the "closest connection" rather than an implied choice of law;

4.Both parties agreeing at litigation to apply a certain law: this may be regarded as an express agreement at trial and carries the greatest certainty.

Conclusion: Do not rely on implied choice to lock in the governing law; an explicit choice-of-law clause must be written into the contract.

V. Lawyer's Opinion and Recommendations

As practicing lawyers, we remind you:

First, when drafting foreign-related contracts, an explicit choice-of-law clause must be included. For example, "This contract shall be governed by the laws of the People's Republic of China." One sentence may determine the entire trajectory of a case. A unilateral oral choice is not as good as a written express agreement.

Second, when the other party may default or become uncontactable, do not harbor the illusion that "if I choose, the court must apply it." You should simultaneously solidify the connecting factors, such as the place of contract performance or the place of conduct being in the Mainland, so as to leave a fallback anchor for the closest connection principle.

Third, Hong Kong, Macao, and Taiwan-related transactions are handled by reference to foreign-related provisions, but they are inter-regional conflicts and the pathways differ. An arbitration agreement or jurisdiction clause cannot automatically be presumed to determine the substantive governing law, and professional counsel should review each case individually.

Fourth, a choice-of-law clause is not omnipotent; it must also be coordinated with jurisdiction, arbitration, service, and other clauses as an integrated design. A contract with loopholes often exposes fatal risks only when a dispute arises.

VI. One-Sentence Summary

Choice of law is not "whatever you say goes": only mutual agreement is secure; a unilateral choice relies on connecting factors as a fallback; and implied choice is basically not recognized. Writing the choice-of-law clause into the contract and having a lawyer review it before a dispute arises is the most secure step.

If you are currently handling a foreign-related or Hong Kong/Macao/Taiwan-related contract dispute, it is advisable to consult a professional lawyer as early as possible to avoid finding yourself in a passive position on the issue of governing law.