Comments on the Chinese Law of Conflict of Laws Applicable to Trusts: In Comparison with the U.S. Law and the Hague Convention

Abstract

China has entered a new era represented by the newly established China (Shanghai) Pilot Free Trade Zone, in which further reform and development of its financial system and capital market are highly prioritized. The trust as an important vehicle in development of the financial market in China as well as in the world will play an important role, and there will be more foreign elements involved in Chinese trusts. The Law of the People’s Republic of China on Application of Laws in Civil Relations with Foreign Elements provides rules, in its article 17, on the application of laws to trusts, which symbolizes the formal creation of rules of conflict of laws in China in this area. However, it seems to cause more problems than it may resolve. For example, it may not always be possible for the parties to determine the applicable law through consultation and agreement, and the parties’ right to choice of law should not be without limitation either. By allowing judges to choose from “the law of the situs where the trust property is situated” and “the law of the situs where the trust relationship occurred” in the absence of an effective choice of law by the parties may lead to a situation contrary to existing laws and may create uncertainty for the parties as well. This paper analyzes this article 17 by comparing it with the conflict law rules adopted in the United States and by the Hague Convention, identifies problems, and seeks to find solutions in order to promote the healthy development of the trust system in China.