Research On The Application Of Law In International Banking Contracts

International banking contract is the contract concerning parties located in different countries, and one of the parties is the bank. The goal of the contract is providing the financial services and financial products. The basic business of the bank includes taking deposits and offering loans, therefore the basic contract form of international banking contract including deposit contract and loan contract. With the development of finance, the financial instruments and the guaranty and collateral agreement had been derived. The free floating of the interest and exchange rates reduce the profits which the bank can gain from the basic business, and tend to make more financial innovations to gain the profits and shift the financial risks. The trend of financial innovation drives the development of financial instruments. The financial instruments congregate the rights and obligations of the bank and multiple investors. The essence of financial instrument is a kind of derived contract of the international banking business.The dispute relating the international contract occurs frequently. The author will analyze the most common contracts of the business of international banking and research the theory of the application of law.The contract which the international bank acts as a party has its particularity. First, as particular subject of the private business, the bank could act as a party in the private business and still should be regulated by home country’s financial regulator. In one hand, the bank should follow the principle of autonomy of private law; in another hand, the parties’ autonomy has to be reduced by the financial regulation. In the meantime, the consumer protection rules require the special coordination of financial profits among different nations. In complex international banking businesses, the systematic and explicit conflict of law rules are required to achieve the fair and efficiency dispute resolution and business system. Second, the banking laws congregate the private law sector and public law sector. The scholars had paid more attention on the transformation of the lex personalis of international bank and the exterritorial effect of banking law, the essence of this phenomenon is the concentration and coordination of public law and private law.The application of law of the international banking contract differs from the different goals of the contract. The applications of laws are different in international deposits contract, loan contract, financial instruments contract and the guarantee and collateral contract. For example, the bank is the party of characteristic performance, and the international deposit contract always applies the law of the place where the bank of deposit locates. Nevertheless, the law of the place where the bank of deposit locates could not apply for every questions related to the international deposit contract, such as the contractual capacity of the parties.In essence, the businesses of the bank including the deposit and loan, financial instrument, guarantee and collateral contract are belong to the concept of service contract. The principal of freedom to provide the financial services has already been regarded as the trend of the development of finance with the background of globalization, and it is crucial to the internationalization of the banking and the application of laws in banking contract.The banking contracts could be differentiated into bank-commerce contract and bank-consumer contract, the applications of laws are different between these two categories of contracts. The negotiation power of the consumer is weak comparing with the bank. To protect the consumers in the international banking business, the special consumer protection rules had been adopted in the application of law in international banking contract. Nevertheless, the particularity of the financial instrument business is the large number of consumers. Consumer protection rules had been excluded in the financial instruments contract to protect the reasonable rights of the bank of avoiding the trouble of apply many different rules in the same financial instrument contract.Chapter1of this paper lays the foundation of the theory of the application of law in international banking contract including the reason caused the conflict of laws, forms of the conflict and how to settle them. With the globalization of industrial economy and the development of global market, the international banking had been developed very fast after the20th century. Banks had become the important subjects in international financial market. The contracts related to the international bank always concern different countries’laws, and the question of extraterritorial application of the banking law becomes important. The attitude of international society towards this question had changed from completely opposition to conditional acceptance, and this change is related to the important effect of the bank in international financial market. In the consequence, the exterritorial application causes the conflict of banking laws among the nations. The forms of conflict of laws including (1) the conflict in the lex personalis of the international banks;(2) the law of the place where the bank locates and the law of habitual residence of the consumer;(3) intertemporal conflict of laws;(4) the principle of freedom to provide financial service and domestic rules of conflict of laws. The author will analyze the settlement method of the conflict of laws abovementioned from domestic conflict of rules, international uniform conflict of rules and international substantive rules. And the importance of the principle of comity in the settlement of conflict of laws would be emphasized.In Chapter2, the author analyzes the application of law in international deposit contract. Credit is the basis of the bank, and the deposit taking is its classic business. Firstly, the author focuses on the establishment of the right and obligation relationships concerning the deposit, including the applicable law of pre-contract obligations and the establishment of the contract in traditional transaction mode and modern electronic commerce mode. The bank undertakes more obligations than the customer in the relationship of international deposit contracts. According to the most significant principal, the law of the place of the bank should be applied, the application scope including the validity, interpretation, enforcement and discharge of the contract. Exception of application of the law of the place of bank includes the contractual capacity and the consumer protection in international deposit contract. In addition, as a kind of property, the legal nature of the deposit and the effect to the application of law would be discussed in this chapter. The essence of this chapter is the analysis of the law of the place of the bank which is the characteristic performance party of international deposit contract, including the scope of application, the rigidity and how to improve it.In Chapter3, the author analyzes the application of law of the international loan contract which could be divided into international term loan contract and international syndicated loan contract based on the different subjects and loan method. Sometimes the parties choose the law of the debtor’s residence as the applicable law of the contract, nevertheless the law of the debtor’s residence changed when the contract is performing. The phenomenon of intertemporal conflict of laws is very distinct in the international loan contract including the effect on contractual capacity of the parties by the change of laws and the payment of the contract affected by the change of currency regulation. The rights and obligations are unsteady because of the change of relevant laws. In practice, the method of "frozen application law" and the "insulation of application law" had been adopted.In Chapter4, the author analyzes the application of law of the financial instrument, and emphasizes the importance of consumer protection. The essence of the financial instrument is the combination of a series of rights and obligations which constitute a kind of service. The rights and obligations constituting the financial instrument are very complicated, and related to several issuing banks and investors located in many countries. It would be possible to apply many countries’laws on single financial instrument if the consumer protection rules applied. Therefore the consumer protection had been excluded in the application of law of the financial instrument. The natural person always authorize the brokers to trade the financial instruments with the banks, and the consumer protection rules would be applied to the relationship between the natural persons and brokers. The doctrine of the most significant relationship should be applied to determine the applicable law of the financial instrument.In Chapter5, the author analyzes the applicable law of the security agreement which constituted on the credits of the international banks. The credit is the basis of banking, and the securities issued by the banks are well accepted for its quality and reliability. For example, the letter of credit and bank’s guarantee which issued by the banks are independent from the underlying contract, and the application of laws are also independent. As the latest uniform legislation of conflict of laws, the Rome I Regulation had affected the application of law of the letter of credit. China had restricted the application of bank’s guarantee and it need to be reformed.In Chapter6, the author analyzes the impact of the development of internet and electronic commerce on the application of law of the traditional banking professions, and the trend of reform of lex personalis of the bank and the consumer protection. The principle of financial service freedom has interaction with the conflict rules and it worth to be analyzed. Comparing with the international bank, the consumers’ negotiation power is very weak. Many countries have special consumer protection legislation for the substantial equal and protection the rights of the banking consumer. The author provides recommendations for the perfection of Chinese legislation on the application of law and choice in the trend of financial service freedom. There is no particular statute for the application of law on international banking disputes. Law of the Application of Law for Foreign-related Civil Relations is the latest private international law legislation of China, and its clauses relevant to the application of law of international banking contract would be emphasized in this chapter.