The CISG Applies to Hong Kong and Mainland China Now: Shall Macau Follow Suit?

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(This post is provided by Zeyu Huang & Wenhui Chi. Mr. Huang practises law as a Shenzhen-based associate at Hui Zhong Law Firm. He holds LLB (Renmin U.), LLM & PhD (Macau U.). Ms. Chi is now working as a legal counsel at the Shenzhen Court of International Arbitration (SCIA) and the South China International Arbitration Center (Hong Kong) (SCIAHK). She holds BA (PKU), LLM & JD (PKU School of Transnational Law). The authors may be contacted at huangzeyu@huizhonglaw.com or chiwenhui@scia.com.cn.)

 

The People’s Republic of China (hereinafter “China” or “PRC”) deposited its instrument of ratification for the United Nations Convention on Contracts for the International Sale of Goods (hereinafter “CISG”) on 11 December 1986. Since its entry into force in 1988, it is beyond doubt that CISG applies to the territory of Mainland China albeit with some reservations and/or declarations (e.g. Article 96). However, businesspeople, courts, practitioners and scholars are split, uncertain and inconsistent over the issue whether the CISG should extend to Hong Kong and Macau after their returns respectively in 1997 and 1999. [1]

 

This issue stemed from the unclear intentions of China when it submitted the diplomatic notes to the United Nations, which purported to inform the Secretary-General of the status of Hong Kong and Macau in relation to deposited treaties. [2] However, China did not mention CISG in the Diplomatic Notes at all. As a result, whether China had expressed its intention of extending or excluding CISG to Hong Kong and Macau has been subject to inconsistent interpretations and enquires conducted by different non-Hong Kong fora. [3]

 

To solve this problem, China, after seeking the views of Hong Kong SAR Government, determined to actively remove the uncertainty by depositing a declaration of extension of the territorial application of CISG to Hong Kong on 5 May 2022. [4] On and after 1 December 2022, CISG will apply to both Hong Kong and Mainland China. It should be noted that the declaration that China is not bound by Article 1(1)(b) CISG does not apply to Hong Kong. Nevertheless, it remains to be seen whether the Macau SAR government will follow suit on this matter, requesting the Central Government to extend the application of CISG to Macau.

 

Extension of International Treatises Ratified by China to Hong Kong and Macau

 

The issue of whether international treaties ratified by China ‘automatically’ applies to the territory of the Hong Kong and Macau SARs was once hotly debated in the investor-State arbitration cases of Tza Yap Shum v. Peru [5] and Sanum v. Laos-I [6]. Contrary to international tribunals and the Court of Appeal of Singapore’s confirmative and liberal stances, Chinese government and commentators said no. [7] They all insist that China has made its intentions clear in the Diplomatic Notes that the treaty to which China is or will become a party applies to Hong Kong and Macau only after China has decided so and carried out separately the formalities for such application. [8] Moreover, the extension of territorial application to Hong Kong and Macau must be in line with the “One Country, Two Systems” policy and the Basic Laws of Hong Kong and Macau. [9] Accordingly, the PRC Central People’s Government in Beijing has the final say over whether the international treaty to which China is or will be a party applies to Hong Kong and Macau after consulting with the two SARs’ governments.

 

The same problem stays with the applicability of CISG in the Hong Kong and Macau SARs. On the one hand, no mention of CISG in the Diplomatic Notes submitted by China, at least on the side of Hong Kong, demonstrates China’s true intentions in public international law that the CISG shall not apply in the SAR. [10] In this view embraced by some French and US courts, China’s Diplomatic Notes not mentioning CISG qualify as Article 93(1) CISG reservation indicating that CISG does not apply to Hong Kong and Macau. [11] On the other hand, some other foreign courts considered the Diplomatic Notes did not constitute an Article 93(1) CISG reservation and therefore the default rule in Article 93(4) applies, saying that CISG ‘automatically’ applies to all territorial unites of China. [12] This interpretive approach is similar to the confirmative and liberal approach adopted by the tribunals in Tza Yap Shum v. Peru and Sanum v. Laos-I on the issue whether Chinese investment treaty absent in the Diplomatic Notes extends to territory of the Hong Kong and Macau SARs. However, such approach was often criticized as contrary to China’s expressed intentions. [13]

 

What Does It Mean for Hong Kong?

 

Legally speaking, the act of China’s depositing the declaration of extension of CISG to Hong Kong has three implications.

 

Firstly, and most obviously, on and after 1 December 2022 it would be correct for any foreign court or international tribunal to hold that CISG applies to Hong Kong. This will wipe out the “confusion and conflict as to whether or not China’s diplomatic notes for Hong Kong and Macao, deposited in 1997 and 1999 respectively, are sufficient to exclude the application of the CISG” to Hong Kong and Macau under Article 93 CISG. [14] Indeed, they are sufficient; but China has now decided to reverse its previous intention.

 

Secondly, China has impliedly confirmed that the Diplomatic Notes qualify as Article 93(1) CISG reservation, which means CISG would not automatically apply to territorial units of China such as Hong Kong and Macau unless China has determined so. In other words, China’s Central People’s Government has the final say on whether a Chinese international treaty applies to Hong Kong and Macau or not.

 

Thirdly, any construction of the Diplomatic Notes by foreign courts or arbitral tribunals which leads to the ‘automatic’ application of CISG or other international treaties (including Chinese investment agreements) to Hong Kong and Macau would be incorrect and in disregard of China’s true intentions expressed in the Diplomatic Notes. This will possibly prevent foreign courts or investment arbitration tribunals from easily reaching the decision that CISG or Chinese international investment agreement ‘automatically’ applies to Hong Kong and Macau. It also means Hong Kong might need seek the views of Central People’s Government on whether or not to extend Chinese international investment agreement to the Hong Kong SAR, especially in cases where the Hong Kong investors intend to rely on these international instruments to safeguard their rights and interests in investments made overseas.

 

In parallel with the ongoing Reform and Opening-up within and beyond China, China’s accession to CISG has fundamentally shaped the legislative and judicial landscape of codifying Chinese contract law. It is believed that the Ordinance [15] implementing the CISG in Hong Kong would for sure reshape the legislative and judicial landscape of Hong Kong law. [16]

 

Conclusion: Shall Macau Follow Suit?

 

The answer is of course yes. As another major player in the Belt and Road Initiative (BRI) and Greater Bay Area (GBA) in China, Macau is now confronted with the same “confusion and conflict” issue once faced by Hong Kong before 5 May 2022. As mentioned earlier, such “confusion and conflict” as to whether the Diplomatic Notes are sufficient to exclude the application of CISG and other international treaties not mentioned therein to Hong Kong and Macau has been removed. China impliedly reiterated itself through this act of extending CISG to Hong Kong that the Diplomatic Notes are sufficient to do so.

 

Hence, whether CISG or Chinese investment treaty extends to Macau is likewise subject to the final decision of China’s Central People’s Government. Despite divergent opinions and interpretations, Chinese government’s stance has been consistent – CISG or Chinese international investment agreement outside the Diplomatic Notes does not ‘automatically’ applies to Hong Kong and Macau, and such extension needs the Central People’s Government’s final approval. Therefore, according to Article 138(1) of the Macau Basic Law, Macau should follow up on future consultations with the Central People’s Government in Beijing to decide whether the CISG (and Chinese investment treaty) should apply to the Macau SAR, and if so, how they should apply. It is foreseeable that China would probably also deposit another separate instrument of extending the application of CISG to Macau. By then, perhaps we can see the dawn of unifying the sales law as key part of inter-regional private laws within the PRC. 

 

——

Endnotes

[1] See the Department of Justice of Hong Kong, Consultation Paper titled “Proposed Application of The United Nations Convention on Contracts for the International Sale of Goods to the Hong Kong Special Administrative Region” (hereinafter “Consultation Paper”), Consultation Period expired by 30 December 2020, paras. 3.33-3.44. It is available at https://www.gov.hk/en/residents/government/publication/consultation/docs/2020/CISG.pdf.

[2] See United Nations, ‘Multilateral Treaties Deposited with the Secretary-General’ (hereinafter “Diplomatic Notes”), China: Notes 2 and 3, which informed the Secretary-General of the status of Hong Kong and Macau in relation to treaties deposited with the Secretary-General. The diplomatic notes laid out the deposited treaties that would respectively apply to Hong Kong and Macau.

[3] See Consultation Paper, supra note 1, paras. 3.38-3.39.

[4] For Press Release, see https://unis.unvienna.org/unis/en/pressrels/2022/unisl327.html.

[5] See Tza Yap Shum v. Peru, ICSID Case No. ARB/07/6, Award, 7 July 2011, where a Hong Kong resident having Chinese nationality relied upon the Peru-China BIT 1994 to bring the ICSID arbitration against Peru.

[6] See Sanum Investments Ltd. v. Lao People’s Democratic Republic, PCA Case No. 2013-13, Decision on Jurisdiction of 13 December 2013, where a Macau-based company invoked the China-Laos BIT 1993 to initiate the UNCITRAL ad hoc arbitration administered by PCA against Laos.

[7] See e.g., PRC Ministry of Foreign Affairs, ‘Foreign Ministry Spokesperson Hua Chunying’s Regular Press Conference on October 21, 2016’, available at https://www.mfa.gov.cn/ce/cegv//eng/fyrth/t1407743.htm; An Chen, ‘Queries to the Recent ICSID Decision on Jurisdiction Upon the Case of Tza Yap Shum v. Republic of Peru: Should China-Peru BIT 1994 Be Applied to Hong Kong SAR under the “One Country, Two Systems” Policy?’ (2009) 10 Journal of World Investment & Trade 829, at 832-844.

[8] See Diplomatic Notes, supra note 2.

[9] See Article 153 of the Hong Kong Basic Law and Article 138 of the Macau Basic Law.

[10] See Consultation Paper, supra note 1, paras. 3.42 (“While it is not disputed that in Hong Kong at least, the CISG should not apply ….”).

[11] See ibid, at para. 3.38. The Consultation Paper cited the following cases: Telecommunications Products Case, Cour de Cassation, Case No. 04-117726, 2 April 2008 (France); Innotex Precision Ltd v Horei Image Products, 679 F. Supp. 2d 1356 (2009) (US); America’s Collectibles Network Inc. v Timlly (HK) Ltd., 746 F. Supp. 2d 914 (2010) (US); Wuhan Yinfeng Data Network Co. Ltd. v Xu Ming (19 March 2003), Hubei High People’s Court (China).

[12] See ibid, at para. 3.39. The Consultation Paper cited the following cases: CNA Int’l Inc. v Guangdong Kelon Electronical Holdings et al. Case No. 05 C 5734 (2008) (US); Electrocraft Arkansas, Inc. v Super Electric Motors Ltd. (2009) 4:09 CV 00318 SWW (US).

[13] See Consultation Paper, supra note 1, para. 3.42. See also Mahdev Mohan & Siraj Shaik Aziz, ‘Construing A Treaty Against States Parties’ Expressed Intentions: Sanum Investments Ltd v Government of the Lao People’s Democratic Republic’ (2018) 30 Singapore Academy of Law Journal 384.

[14] See Consultation Paper, supra note 1, para. 3.42.

[15] https://www.elegislation.gov.hk/hk/cap641!en.

[16] For comparison between the CISG and Hong Kong law, see Consultation Paper, supra note 1, para. 2.8.

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