As part of a series of articles co-authored by IPO Pang Shenjun PLLC and
& Culbert Ellis
, both members of the International Commercial Law Alliance (“ICLA”), the authors exam-ine key distinctions between English and Chinese contract law, particularly in relation to the selection of governing law and jurisdiction clauses in cross-border transactions. English Contract Law English contract law is not directly codified as a single statute; rather, it is defined and well-developed by common law (being over centuries of case law as determined by an English judge) and supplemented by certain legislations (the Consumer Rights Act 2015, as an example). Some view English contract law as convenient and straightforward; others, too flexible. It is with this in mind that many contracts concluded across the globe, notwithstanding their execution in other ju-risdictions, designate England (and Wales) as the governing jurisdiction. For good measure, it is particularly considered the dominant ju-risdiction in international commercial con-tracts, mergers and acquisitions, litiga-tion/dispute resolution and international arbi-tration. One then turns to why this is the case, and we first must consider the principles of English contract law.
The Key Elements of an English Contract
First and foremost, under English law a con-tract is understood as a legally binding agreement, whether made in writing or orally, whereby one party agrees to fulfil an obliga-tion for another in exchange for consideration. In order to form an enforceable contract, there must be five key elements: 1. Offer: a promise by one party to enter into a contract on specific terms. 2. Acceptance: the final acceptance of an offer. The acceptance must usually be communicated, rather than by conduct. 3. Consideration: giving or promising something in exchange for the promise. 4. Intention to create legal relations: there must be a mutual intention to create a legally binding agreement. 5. Certainty of terms: all material terms of a contract must be agreed, i.e. it must be complete and not uncertain. If the key elements of a contract are estab-lished, either party may seek to enforce its terms. This is particularly relevant where goods or services have not been delivered in accordance with the contract, or where one party seeks to terminate the agreement. Im-portantly, the presence of these elements means that a contract need not be formal in order to be enforceable. Recent case law, such as Sundorne Products v Geminor UK [2024] EWHC 1666 (Ch), illustrates this principle – a Memorandum of Understanding, ordinarily not regarded as a legally binding document, was held capable of being binding where it had not been expressly caveated (for instance, through wording such as “subject to con-tract”).
& Culbert Ellis
have been instructed in a number of cases concerning issues of contract for-mation, including whether a contract has been concluded and/or varied orally, and whether the parties possessed the requisite intention to create legal relations so as to give effect to a contract. Although every case turns on its facts, the inherent flexibility of English con-tract law allows the parties to present an-dargue their positions comprehensively. For-instance, whilst contracts may be created orally, one must consider the case of Blue v Ashley [2017] EWHC 1928 (Comm), 26 July 2017, in which Leggatt LJ comments (and will overarchingly be in consideration by the English courts): It is rare in modern commercial litigation to encounter a claim, particularly a claim for millions of pounds, based on an agreement which is not only said to have been made purely by word of mouth but of which there is no contemporaneous documentary record of any kind. In the twenty-first century the prevalence of emails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic footprint.” Attention then turns to the reasons why Eng-lish law is regarded as the dominant choice of jurisdiction for contracts. One significant factor is historical – through the expansion of the British Empire, English law was intro-duced into numerous jurisdictions, including Hong Kong, India and other parts of Asia, Canada, Australia, New Zealand and the wider Commonwealth. These jurisdictions continue to reflect a predominantly English legal sys-tem, which has contributed to the recognition and enduring respect afforded to English law internationally. Another is the sufficient cer-tainty and confidence that parties place on English law contracts. It should be noted that, under English law, there is no implied over-arching duty of good faith between contracting parties, unlike in certain other jurisdictions. Accordingly, once the essential requirements of an English contract are established, the terms benefit from a greater degree of cer-tainty than would be the case if, for example, the parties’ conduct could be invoked to vary the agreed contractual terms. Thus, what is set out in writing is generally taken to represent the parties’ agreement, subject to certain other mechanisms such as implied terms or estoppel (the detailed discussion of which lies beyond the scope of this article).
Finally,
English Contract
law places strong emphasis on the principle of freedom of con-tract. Parties are, in general, at liberty to agree upon whatever terms they choose, even where the result may amount to a poor bargain for one side, provided the terms are not inher-ently unlawful or contrary to public policy1. The courts are generally reluctant to interfere with the commercial bargain struck between the parties, save where intervention is abso-lutely necessary. On the contrary, English courts demonstrate a clear preference for upholding contractual terms rather than seeking mechanisms to avoid them. Conse-quently, contractual terms are more likely to be recognized and enforced under English law than in many other jurisdictions. The foregoing considerations render English law a prevalent choice of jurisdiction for the enforcement of contractual terms. However, as discussed below, there has been a growing trend towards contracts being governed by Chinese law, in preference to other jurisdic-tions. 1For the avoidance of doubt, certain matters cannot be excluded under English law, such as fraud, gross negli-gence, wilful misconduct, personal injury and death.
Chinese Contract Law
On the contrary, Chinese contract law is primarily codified in statutory legislation ra-ther than developed through case law. The principal legal framework governing con-tractual relationships in the People’s Republic of China is the Civil Code of the People's Republic of China, which came into force on 1 January 2021 and replaced several previous statutes, including the former Contract Law of the People's Republic of China. The Civil Code provides a comprehensive and system-atic legal framework regulating the formation, performance, modification, and termination of contracts. Unlike common law jurisdictions, where ju-dicial precedents play a central role, Chinese contract law relies heavily on statutory provi-sions. Judicial interpretations issued by the Supreme People's Court of the People's Re-public of China also play an important role in clarifying how the Civil Code should be ap-plied in practice. These interpretations provide guidance to lower courts and contribute to a more consistent application of contract law across China. In recent years, with the rapid expansion of China’s economy and the increasing number of cross-border commercial transactions in volving Chinese companies, Chinese law has increasingly been selected as the governing law for commercial contracts involving Chi-nese counterparties. This trend is particularly evident in supply agreements, manufacturing contracts, technology cooperation arrange-ments, and other commercial transactions closely connected with China. One must therefore consider the fundamental principles underlying Chinese contract law. The Key Elements of a Chinese Contract Under Chinese law, a contract is defined as an agreement between civil subjects establishing, modifying, or terminating civil legal rela-tionships. In order for a contract to be legally binding and enforceable, several key elements must generally be satisfied: 1. Offer: An offer is a definite expression of intent by one party to conclude a contract with another party on specific terms. The offer must contain sufficiently clear terms and in-dicate the intention of the offeror to be bound once accepted. 2. Acceptance: Acceptance refers to the of-feree’s assent to the terms of the offer. Ac-ceptance must be made within the time limit specified in the offer or within a reasonable time where no time limit has been stated. Once an offer is validly accepted, the contract is generally considered to be formed. 3. Capacity of the Parties: The parties en-tering into the contract must possess the ap-propriate civil capacity. Natural persons must have full civil capacity, while legal persons and other organizations must act within their registered business scope. 4. Lawful Purpose and Content: The pur-pose and content of the contract must not vi-olate mandatory provisions of laws or admin-istrative regulations, nor may they contravene public order or good morals. 5. Genuine Expression of Intent: The parties must enter into the contract voluntarily and based on genuine intent. Contracts entered into through fraud, coercion, or significant misunderstanding may be subject to rescission or invalidation. Where these elements are satisfied, a contract will generally be considered valid and legally binding under Chinese law. Notably, Chinese law recognises both written and oral contracts. However, in practice, written contracts are strongly preferred, particularly in commercial transactions, as they provide clearer evidence in the event of disputes.
Judicial Practice and Contract Formation
In determining whether a contract has been-formed, Chinese courts primarily examine the objective evidence of the parties’ intentions, including written agreements, correspond-ence, transaction records, invoices, delivery documents, and other commercial records. Chinese courts often adopt a pragmatic ap-proach to contract formation. Even where a formal written contract has not been executed, a contractual relationship may still be recog-nised if the parties’ conduct clearly demon-strates mutual intent to establish contractual obligations. However, similar to other modern jurisdic-tions, contemporary commercial practice in China leaves a substantial documentary trail. Emails, electronic contracts and online transaction records are commonly relied upon as evidence in litigation or arbitration pro-ceedings. One of the main reasons for the increasing use of Chinese law as the governing law of contracts is the growing commercial presence of Chinese companies in global trade. Where contracts are closely connected with China, such as manufacturing agreements, supply contracts, or transactions involving Chinese assets, it is often practical for the governing law to be Chinese law, particularly where disputes may ultimately need to be enforced within China. Another factor is the relatively comprehensive and codified nature of Chinese contract law. The Civil Code provides detailed provisions governing many aspects of contractual rela-tionships, including contract interpretation, liability for breach, termination rights, and damages. This codification offers a degree of predictability for parties engaged in transac-tions involving China. Chinese contract law also recognises the principle of good faith, which plays a central role in the performance and interpretation of contracts. Parties are expected to observe honesty and good faith throughout the nego-tiation, formation, and performance of con-tracts. This principle allows courts to address unfair conduct even where the contract terms themselves may not expressly regulate the situation. Furthermore, Chinese law respects the princi-ple of freedom of contract, allowing parties considerable autonomy to negotiate and structure their contractual arrangements.
Subject to mandatory legal provisions and public policy considerations, parties are gen-erally free to determine the rights and obliga-tions arising from their contractual relation-ship. Chinese courts typically place emphasis on enforcing the parties’ agreement while also ensuring fairness and compliance with statu-tory requirements. As a result, contractual obligations are generally enforceable pro-vided that the agreement does not violate mandatory legal rules. Conclusion As China continues to play a central role in global trade and investment, Chinese law has increasingly become a practical and relevant choice for the governance of commercial contracts involving Chinese counterparties. Its codified structure, detailed statutory framework, and emphasis on good faith pro-vide a comprehensive legal basis for regulat-ing contractual relationships. For parties entering into commercial ar-rangements connected with China, a clear understanding of the principles of
Chinese Contract Law
is essential in order to structure enforceable agreements and effectively manage legal risks.
Contracting under English and Chinese Law: Practical Consid-erations In practice, the choice between English law and Chinese law as the governing law of a contract will largely depend upon the com-mercial context of the transaction, the location of the parties and assets and the forum in which any dispute may ultimately be resolved. English law is frequently selected in interna-tional commercial transactions owing to its well-established body of case law, the pre-dictability of judicial interpretation, and the global reputation of the English courts and arbitral institutions. Its emphasis on certainty and freedom of contract enables parties to structure complex commercial arrangements with confidence that the contractual bargain will generally be upheld. Conversely, where a transaction is closely connected with China, particularly where manufacturing, supply chains or assets are located within the jurisdiction, Chinese law may present a more practical governing framework. The codified structure of the Civil Code of the People’s Republic of China, to-gether with the central role of the good faith principle, provides a comprehensive statutory regime regulating contractual relationships and their enforcement within China. For cross-border transactions involving both jurisdictions, careful consideration should therefore be given not only to the governing law clause, but also to jurisdiction and dispute resolution provisions, as well as the location of enforceable assets. In many cases, interna-tional arbitration may provide an effective neutral forum capable of bridging differences between legal systems while ensuring en-forceability of awards. Ultimately, the selection of governing law is a strategic commercial decision. By under-standing the the structural and doctrinal dif-ferences between English and Chinese con-tract law, parties are better placed to structure agreements that are both legally robust and commercially effective.