Contract Law in the Civil Code

Contract Law in the Civil Code Presented by: Dr Mimi Zou (Associate Professor in Law, University of Reading) Overview 1. Background of Chinese Contract Law 2. New contract law provisions under the Civil Code 3. Illustration: force majeure & change of circumstances Background of Chinese Contract Law - 1980s-1999: Economic Contract Law 1981, Foreign Economic Contract Law 1985 and Technology Contract Law 1987 - -  Focused on the state's economic planning and market reform goals  Regulatory scope excluded natural persons  Overlapping, inconsistent, and conflicting provisions across the three laws  Did not contain some basic rules e.g. contract formation 1986: General Principles of Civil Law  Regulated personal and property relations between civil subjects  Not a comprehensive civil code  Contained ten provisions related to contracts Contract Law 1999  China's transition to a more market-oriented economy in the 1990s; impending accession to the WTO  NPC passed Contract Law on 15 March 1999, replacing the ECL, FECL & TCL  - New legislation brought far greater clarity than predecessors Various influences from civil law, common law, and international instruments (CISG, UNIDROIT Principles) - The CL 1999 was aimed at strengthening party autonomy and reducing room for administrative or judicial interventions Contract Law Provisions Under The Civil Code  Relevant parts of the Civil Code 1. Book 1: general provisions covering juridical acts (which include contracts) 2. Book 3: general rules on contracts (Part 1), specific types of contracts (Part 2) and quasi-contracts (Part 3)  Fundamental principles remain the same as CL 1999 1. New 'Green Principle': Article 9 (Book 1) & Article 509 (Book 3)  A handful of changes to the substantive rules  Two SPC judicial interpretations related to CL 1999 have been repealed New Provisions Under The Civil Code Some examples of changes to CL 1999 under the Civil Code: 1. Quasi-contracts a. Arts 979-984: Maggotorium gestio b. Arts 985-988: Unjust enrichment 2. Contract formation a. Art 471: parties may conclude a contract through offer and acceptance or other methods. b. Art 491: contract formation in e-commerce transactions 3. Validity of contract a. Removes a contentious provision from CL 1999 re: validity of a contract involving unauthorized disposal of another's property and subsequent ratification b. Rescission of contract available where fraud or duress is committed by a third party c. Integrates two grounds of voidable contracts under the CL:  A party taking advantage of the other party's state of distress;  A contract that was evidently unfair at the time of its conclusion. d. Does not offer the possibility for parties to request the modification of voidable contracts before the court, except on the ground of change of circumstances Force Majeure & Change of Circumstances - Force majeure  'Objective circumstances which are unforeseeable, unavoidable and insurmountable'  - - Similar definitions in CL 1999 and Civil Code Change of circumstances  CL 1999 did not explicitly mention the doctrine  SPC Judicial Interpretation II of the Contract Law 1999, Art 26 Force majeure under the Civil Code  No civil liability shall arise from non-performance of civil obligations caused by force majeure: Art 180  Parties may terminate contract if the purpose of the contract cannot be realized because of force majeure: Art 563(1)  A party is exempt from liability for non-performance in part or in whole in light of the impact of the force majeure: Art 590  Must promptly notify other party to mitigate potential loss and provide evidence of the force majeure event within a reasonable time: Art 590  If force majeure occurs after a party's delay of performance, the party shall not be exempted from liability for breach: Art 590 - Change of circumstances  SPC Judicial Interpretation II of the Contract Law 1999, Art 26  Where there is a substantial change to the objective situation after the formation of the contract due to reasons which, except for force majeure and commercial risks, the parties could not foresee at the time of entering into the contract, making it obviously unfair or impossible to realize the purpose of the contract for any of the parties to perform as originally stipulated, the court shall, upon the claim of either party, decide to uphold, modify or terminate the contract based on the principle of fairness along with the actual situation of the case in question. - Change of circumstances: Art 533 of the Civil Code  Where there is a substantial change to the basis of the contract after conclusion which, except for commercial risks, was unforeseeable by the parties at the time of concluding the contract, making it obviously unfair for any of the parties to perform as originally stipulated, the party who suffers the disadvantage may elect to renegotiate with the counterparty; and, in the case of failure to reach a new consensus within a reasonable time period, the party who suffers the disadvantage may bring a claim before the court or arbitral tribunal to modify or terminate the contract.  The court or arbitral tribunal shall decide to modify or terminate the contract based on the actual circumstances of the case in accordance with the principle of fairness. - Civil Code recognizes that the two concepts are not mutually exclusive: force majeure events can trigger change of circumstances - Whether the occurrence of force majeure renders it obviously unfair for any of the parties to perform the contract as originally stipulated - See further: WANG Yi, Mimi Zou & WU Zhicheng, "Force Majeure and Covid-19: A Critical Assessment of Key Issues under the Chinese Civil Code" (2021) Journal of Contract Law – forthcoming Key Takeaways - The Civil Code is a historical milestone in the development of China's legal system, as a foundational legal framework for regulating a wide range of civil relations, including contracts - The Civil Code added some new provisions and tidied up, refined & clarified principles and rules in CL 1999 and related regulations and judicial interpretations - Implementation of the Civil Code will continue to be shaped by new normative instruments such as judicial interpretations.