This is an important area of law to understand for all parties doing business in the PRC.
I. Legislative Overview
(i) Background
• As a trading nation which functioned under a strictly planned economy, China had no need to have an established system of law for centuries. However, with the opening of the PRC and the altering of trade culture, the legislature quickly realized a need for laws on contracts to provide structure and guidance to the mounting complications arising in trade related transactions.
• Prompted by such circumstances, the National People’s Congress, passed the following three laws on contracts in the early 1980’s:
1 Economic Contracts Law of the PRC (1981);
2 Law of the PRC on Economic Contracts Involving Foreign Interests; and
3 Law of the PRC on Technology Contracts.
These three-piece laws on contract were largely inconsistent and overlapped in many areas while offering little guidance for complex contractual cases. The purpose of the second law on the list was to promote foreign trade and investment, and for the first time in PRC history incorporated Western notions of freedom to contract and party autonomy.
(ii) Promulgation of one uniform contract law in 1999
Initiated by further globalization in the 90's, the State Council undertook a major overhaul to further reform this area of law – which resulted in the promulgation of the ‘PRC Contract Law’ (1999) (the “Contract Law”) - which repealed the former three laws – and was an overt effort by the government toward "protecting the legitimate rights and interests of parties to contracts, maintaining socio-economic order and promoting socialist modernization”.
The Contract Law is a hybrid of key concepts from Common Law and Civil law jurisdictions.
The Contract Law is not comprehensive in itself, and other laws which must be referenced include:
I. Legislative Overview
(i) Background
• As a trading nation which functioned under a strictly planned economy, China had no need to have an established system of law for centuries. However, with the opening of the PRC and the altering of trade culture, the legislature quickly realized a need for laws on contracts to provide structure and guidance to the mounting complications arising in trade related transactions.
• Prompted by such circumstances, the National People’s Congress, passed the following three laws on contracts in the early 1980’s:
1 Economic Contracts Law of the PRC (1981);
2 Law of the PRC on Economic Contracts Involving Foreign Interests; and
3 Law of the PRC on Technology Contracts.
These three-piece laws on contract were largely inconsistent and overlapped in many areas while offering little guidance for complex contractual cases. The purpose of the second law on the list was to promote foreign trade and investment, and for the first time in PRC history incorporated Western notions of freedom to contract and party autonomy.
(ii) Promulgation of one uniform contract law in 1999
Initiated by further globalization in the 90's, the State Council undertook a major overhaul to further reform this area of law – which resulted in the promulgation of the ‘PRC Contract Law’ (1999) (the “Contract Law”) - which repealed the former three laws – and was an overt effort by the government toward "protecting the legitimate rights and interests of parties to contracts, maintaining socio-economic order and promoting socialist modernization”.
The Contract Law is a hybrid of key concepts from Common Law and Civil law jurisdictions.
The Contract Law is not comprehensive in itself, and other laws which must be referenced include:
a. PRC Civil Code;
b. PRC Supreme Court interpretations and administrative regulations;
c. District level, city level, provincial level and national level rules, ordinances, guidelines, etc.; and
d. Specific laws such as, PRC Law on Chinese-Foreign Equity Joint Ventures (2001).
(iii) Legislative developments of the PRC Contract Law
PRC Contract Law (effective October 1, 1999)
Interpretation of Issues relating to the PRC Contract Law (Supreme Court, effective December 29, 1999)
Interpretation of Issues relating to Construction Contracts (Supreme Court, 2005)
Interpretation on Several Issues Concerning the Application of the PRC Contract Law (Supreme Court, April 24, 2009)
Direction on Dealing with Several Issues in Civil and Commercial Contract Disputes (July 7th, 2009)
Come back next week for a closer look!
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