Chinese Business Law. Contract Law in China A Comparative Approach

Transcription

1 Prof. Knut B. Pißler Research Fellow Max Planck Institute for Comparative and International Private Law Chinese Business Law Contract Law in China A Comparative Approach 1

2 Contract Law in the PR China: Content I. Introduction II. Chinese Private International Law III. Main Principles IV. Liability for Breach of Contract 2

3 I. Introduction Pre-1999: - Economic Contract Law Economic Contract Involving Foreign Interests Technology Contract Law General Principles of Civil Law ( 民法通则 ) 1986 (GPCL 1986) - Opinions of the Supreme People s Court on the GPCL

4 I. Introduction Currently: - Contract Law of the PR China ( 合同法 - hétongfă) Supreme People s Court (SPC) Interpretations on the Contract Law, part SPC Interpretations on the Contract Law, part SPC Interpretations on numerous specific contracts, e.g. Contracts for Construction Projects (Work Contacts), 2004 Technology Contracts, 2004 Lease Contracts on Urban Buildings, 2009 Sales Contracts, 2012 Financial Leasing Contracts,

5 I. Introduction From October 1, 2017: - General Part of Civil Law ( 民法总则 ), promulgated on March 15, 2017, coming into force on October 1, 2017 (GPCL 2017) Not replacing GPCL 1986, but superseding certain rules in the GPCL 1986 according to the principle lex posterior derogat legi priori (later law removes the earlier), i.e. on agency! GPCL 2017 will form the General Part of a comprehensive Chinese Civil Code scheduled to be promulgated until 2020 The other five parts of this Civil Code are scheduled to be brought for the first reading in 2018 It has to be seen if and what amendments of the Contract Law are planned 5

6 Contract Law in the PR China: Content I. Introduction II. Chinese Private International Law III. Main Principles IV. Liability for Breach of Contract 6

7 II. Chinese Private International Law Why do we have to apply Chinese Private International Law (PIL)? - The courts of a country must apply PIL of the lex fori on cases with foreign elements. E.g. German courts would apply German PIL in the EGBGB. - If, according to German PIL (in the EGBGB), Chinese law is applicable on a specific case, this designation of Chinese law includes Chinese PIL. German courts must apply Chinese PIL. - If the Chinese PIL designates German law as the applicable law, German PIL accepts this renvoi with the consequence of the application of German substantive law, i.e. the application of German law to the case in question 7

8 II. Chinese Private International Law Main legal basis for Chinese Private International Law - Articles 142 to 150 GPCL - Articles 178 to 195 SPC Opinions on the GPCL 1988 SPC Opinions - SPC Provisions on Several Issues Concerning the Application of the Law in Trials of Foreign-related Civil and Commercial Contract Disputes 2007 SPC Provisions Abolished in April PRC Law on the Application of Laws to Foreign-related Civil Relationships ( 中华人民共和国涉外民事关系法律适用法 ) effective since April 1st, 2011 PRC PIL - SPC Interpretation on Certain Issues Concerning the Application of the PRC PIL (part I),

9 II. Chinese Private International Law CISG and Chinese Private International Law Article 142 para. 2 GPCL stipulates that the provisions contained in international treaties concluded or acceded to by the PR China shall prevail over those in the civil laws of the PR China. In the case of the applicability of international treaties (e.g. the CISG) the provisions of Chinese PIL do not have to be examined beforehand. A choice of law clause for the application of a national jurisdiction (e.g. German law) must exclude the applicability of international treaties. To all disputes arising from this contract German law should be applicable with the exclusion of international treaties. 9

10 II. Chinese Private International Law The choice of law in Chinese Private International Law - Article 126 Contract Law: Choice of law or law of the country having the closest connection ( 有最密切联系 ) with the contract shall apply Article 5 of the (abolished) Supreme People s Court Provisions included a list of connecting factors for some important contracts. Now: Article 41 PRC PIL Parties may agree to select the laws applicable to their contract. If the parties have not made such selection, either the laws of the place where the party whose performance of his/her obligations most manifests the character of the contract is normally resident or other laws that have the closest connection with the contract in question shall govern. 10

11 II. Chinese Private International Law Mandatory application of Chinese law in Chinese PIL Provisions on the mandatory application of Chinese law, Article 126 para. 2 Contract Law Article 8 of the (abolished) SPC Provisions, extending the list of contracts with mandatory application of Chinese law Official justification: Preventing the evasion of Chinese approval requirements But: Approval requirements seem to be misused for the enforcement of the mandatory application of Chinese law! Possible explanation: China fears infiltration of foreign law? The PIL does not contain provisions on the mandatory application of Chinese law, but (in Article 4) a (general) provision on mandatory provisions ( 强制性规定 ) and (in Article 5) a ordre public ( 社会公共利益 ) clause For more details: Peter Leibküchler, Die Parteiautonomie im chinesischen internationalen Privatrecht (2017), pp.79 et seq. 11

12 Chinese Contract Law: Content I. Introduction II. Chinese Private International Law III. Main Principles IV. Liability for Breach of Contract 12

13 III. Main Principles The Contract Law ( 合同法 ), like many other Chinese laws (GPCL 1986, GPCL 2017), contains certain fundamental principles of law in its opening part Articles 3 to 8 Contract Law: (1) Freedom of Contract (2) Principles of Equality, Fairness and Good Faith (3) The Principle of Legality (4) The Principle of pacta sunt servanda 13

14 III. Main Principles (1) Freedom of Contract (1) Freedom of Contract ( 自愿订立合同的权利 ), Article 4 Contract Law. Codified for the first time in modern Chinese law. Freedom of Contract means: - the freedom to select and enter contracts of any imaginable type, - the freedom to decide whether to contract or not and - the freedom of each contractor to fix the terms of his own promise, subject to the agreement of the other party. 14

15 III. Main Principles (1) Freedom of Contract Limits to the Freedom of Contract: (a) Social morals, economic order and public interest, Articles 7, 52 No. 1-4 Contract Law (b) Laws and administrative regulations, Articles 7, 52 No. 5 Contract Law (c) Obligations to contract, Article 38 Contract Law, formerly Article 11 Economic Contract Law (d) Misapprehension due to mistake, deceit and duress, Article 54 Contract Law 15

16 III. Main Principles (1) Freedom of Contract Limits to the Freedom of Contract: (e) Equivalence between performance and counterperformance? Formerly: Article 4 GPCL 1986 (compensation at equal value 等价有偿 ) Now: Article 54 No. 2 Contract Law (clearly unfair 显失公平 ) Compared to the GPCL 1986 the Contract Law may be interpreted more narrowly in the sense of striking disproportion between performance and counterperformance as seen also in 138 BGB Article 151 GPCL 2017 adopts the approach of the Contract Law 16

17 III. Main Principles (1) Freedom of Contract Limits to the Freedom of Contract: (f) Inequality of bargaining power and prohibitively high transaction costs Leading to a situation that one party (due to its economic or other superiority) dictates the terms of the deal. Problem regarding standard terms in contracts ( 格式条款 - géshìtiáokuăn), Articles 39 to 41 Contract Law. 17

18 III. Main Principles (1) Freedom of Contract Limits for the Freedom of Contract: According to Article 40 Contract Law a standard clause is without effect if it possesses the characteristics set out in Articles 52 or 53 Contract Law, excludes the liability of the party proposing the standard clause, increases the liabilities of the other party or removes important rights enjoyed by the other party. 18

19 III. Main Principles (1) Freedom of Contract Limits to the Freedom of Contract: The Contract Law contains no blacklist of invalid standard terms, leaving the work of examination of the validity of standard terms to the courts. Moreover, Article 41 Contract Law includes some principles also known in other jurisdictions: - the principle of customer-friendly interpretation of ambiguous terms and - the principle that an ad hoc agreement takes precedence over standard terms. 19

20 III. Main Principles (2) Principles of Equality, Fairness and Good Faith (2) Principles of Equality, Fairness and Good Faith, Articles 3, 5, 6 Contract Law. Those principles need interpretations of Chinese courts and need to be applied by legal scholars in a consistent manner. 20

21 III. Main Principles (3) The Principle of Legality (3) The Principle of Legality, Article 7 Contract Law Public interests ( 社会公共利益 ) should be interpreted with care. 21

22 III. Main Principles (4) The Principle of pacta sunt servanda (4) The Principle of pacta sunt servanda, Article 8 Contract Law? ( [ ] 当事人应当按照约定履行自己的义务 [ ]) Freedom of contract would be meaningless if the contract that the parties conclude is not legally binding and enforceable. Problem: Wording ( 应当 -yīngdāng) shall and not ( 必须 -bìxū) must seems to suggest that the duty to perform a contract is not absolute. 22

23 Chinese Contract Law: Content I. Introduction II. Chinese Private International Law III. Main Principles IV. Liability for Breach of Contract 23

24 IV. Liability for Breach of Contract 1. Introduction 2. Specific Performance 3. Remedial Measures 4. Damages 5. Liquidated Damages 6. Forfeiture of Deposit 7. Exemption from Liability 24

25 IV. Liability for Breach of Contract 1. Introduction The Contract Law adopts pacta sunt servanda as one of its fundamental principles, and spells out in Chapter 7 the remedies that the aggrieved party may resort to in the event of non-performance by the other party. Liability for breach of contract - vindicates the enforceability of the contractual right of the aggrieved party and - secures the accomplishment of the expectation interest of the aggrieved party under the contract. 25

26 IV. Liability for Breach of Contract 1. Introduction Article 107 Contract Law sets forth the general rule on liability for breach of contract stating: Where a party fails to perform its contractual obligations or where its performance of the contractual obligations is not in conformity with the agreement, it shall bear liability for breach of contract by continuing its performance ( 继续履行 ), taking remedial measures ( 补救措施 ) or paying compensatory damages ( 赔偿损失 ). 26

27 IV. Liability for Breach of Contract 1. Introduction Chinese Contract Law, as the CISG, adopted mainly the concept of strict liability. The breaching party s liability does not depend on whether or not it has been at fault breaching the contract. However, fault liability applies as exception in cases of gratuitous contracts: Article 189 Contract Law (liability of the donor in a gift contract), Article 374 Contract Law (gratuitous storage contract), Article 406 para. 1 Contract Law (gratuitous mandate contracts) 27

28 IV. Liability for Breach of Contract 2. Specific Performance From the order in the wording of Article 107 Contract Law it is deemed that the Contract Law follows the civil law tradition by adopting specific performance as a primary remedy. The legal systems of most contracting states of the CISG (in particular Germany and the other continental European systems) regard the creditor s right to claim specific performance as the simple consequence of the principle pacta sunt servanda. The party in breach should not have the right to buy itself free from the contract. 28

29 IV. Liability for Breach of Contract 2. Specific Performance This is different in the common law, where damages are regarded as the primary remedy. The right to require performance in the manner agreed ( specific performance ) is permitted only exceptionally where the creditor has a special interest in such performance. Common law evaluates parties interest different from civil law. If a substitute transaction is possible and reasonable, it is considered to be preferable and more reasonable in economic terms to liquidate the contract rather than to compel the debtor to perform it. Article 28 CISG makes an allowance for the common law approach. 29

30 IV. Liability for Breach of Contract 3. Remedial Measures Article 111 Contract Law sets out a set of remedies that serve to accomplish specific performance in the case of defective performance. A party, which sustained the loss due to the defective performance, may reasonable choose the following remedies by demanding: repair ( 修理 - xiūlĭ), replacement ( 更换 -gēnghuàn), redoing ( 重作 - chóngzuò), return of the goods ( 退货 tuìhuò) or reduction of price or remuneration ( 减少价款或者报酬 jiănshăo jiàkuăn, bàochóu). 30

31 IV. Liability for Breach of Contract 4. Damages Article 113 Contract Law provides that the defaulting party is liable for such damages that would fully compensate the aggrieved party for its loss. Aims to place the aggrieved party in as good a position as if the contract has been fully performed without any breach. Includes expectation interests : the benefits that could have been obtained after the performance of contract. 31

32 IV. Liability for Breach of Contract 4. Damages Limitations of Article 113 Contract Law: - Foreseeability at the time of conclusion of the contract. Foreseeability interpreted as in Article 74 CISG. Not to be interpreted as fault, as fault is not required for breach of contract. 32

33 IV. Liability for Breach of Contract 5. Liquidated Damages Article 114 para. 1 Contract Law provides for what is called liquidated damages ( 违约金 money for breach of contract ). However, the provision does not incorporate a presumption of liquidated damages as the proper compensation for the aggrieved party. This is contrary to the general principle of liquidated damages that its recovery requires no proof of actual loss. 33

34 IV. Liability for Breach of Contract 5. Liquidated Damages The principle of freedom of contract allows the parties to determine their contractual obligations as well as the consequences of not performing the contractual obligations. - This principle is manifested in the agreement between the parties on the specific amount of damages or the specific method for calculating the amount of damages that flow from a certain breach of contract ( liquidated damages ). - Such an agreement is widely used in commercial transactions as a useful device to simplify and expedite the resolution of disputes that may arise from non-performance and to enable the parties to assess the risks involved in the transaction. 34

35 IV. Liability for Breach of Contract 6. Forfeiture of Deposit Deposit ( 定金 - dìngjīn) is an amount of money or other valuables paid by one party to the other party to secure the performance of the contract, Article 115 Contract Law. If the party delivering the deposit fails to perform, it has no right to demand the return of the deposit. If the party receiving the deposit fails to perform, it must return double the amount of the deposit. Deposit secures the performance of both parties as it stipulates mutual forfeiture. 35

36 IV. Liability for Breach of Contract 7. Exemption from Liability a. force majeure ( 不可抗力 - bùkĕkànglì) According to Article 117 Contract Law a party is exempted from liability for breach of contract if it is not possible to perform the contract due to force majeure. Force majeure is defined as a situation which, on an objective view, is unforeseeable, unavoidable and is not able to be overcome. Should be interpreted as exemption for liability in Article 79 CISG. 36

37 IV. Liability for Breach of Contract 7. Exemption from Liability a. force majeure But: Contrary to Article 79 para 5 CISG force majeure exempts the other party not only from the liability for damages, but from all remedies. And: Liability is not necessary exempted in whole, but may be exempted in part depending on the effect of the force majeure. 37

38 IV. Liability for Breach of Contract 7. Exemption from Liability b. Agreement of the parties The parties may also free to negotiate a liability exemption clause. This possibility is limited by Articles 40, 53 Contract Law in order to protect the party with less negotiating power. 38

39 IV. Liability for Breach of Contract 7. Exemption from Liability c. Transfer of Risk in Sales Contracts Articles 142 to 149 Contract Law stipulate from which time on the buyer has to pay the full purchase price although the subject matter of the contract is damaged or even lost. With the transfer of risk ( 毁损, 灭失的风险的转移 ) the seller is exempted from liability for an event subsequent to the passing of the risk to the buyer. 39

40 IV. Liability for Breach of Contract 7. Exemption from Liability c. Transfer of Risk in Sales Contracts In general, the risk of damage and loss of the subject matter passes to the buyer with delivery ( 交付 ), Article 142 Contract Law. Exemptions for an earlier transfer of the risk are made in cases of default of the buyer, Articles 143, 146 Contract Law, or when the seller dispatches the subject matter to a carrier for transport, Articles 144 to 145 Contract Law. 40

41 IV. Liability for Breach of Contract 7. Exemption from Liability c. Transfer of Risk in Sales Contracts Due to the possibility of transport insurance the importance of the rules of transfer of risk is often restricted to the question which party has to deal with the insurance. Of relevance also in international transactions are the International Commercial Terms (Incoterms 2010). 41

42 Prof. Knut B. Pißler Research Fellow Max Planck Institute for Comparative and International Private Law Chinese Business Law Contract Law in China A Comparative Approach 42