II. Formation of contracts under PRC law
Structurally, the Contract Law, like many other laws on contracts, is divided into three sections:
(1) General Provisions;
(2) Specific Provisions; and
(3) Supplementary Provisions.
In the Contract Law, there are many black letter provisions that are common to contract laws in other jurisdictions. But there are also certain provisions that may come as a surprise to foreign practitioners which will be discussed in more detail below.
In Writing means a memorandum of contract, letter or electronic message (including telegram, telex, facsimile, electronic data exchange and e-mail), etc. which is capable of expressing its contents in a tangible form -- ***therefore an email may be considered a proof of writing and be used to conclude a contract.
Choice of Law - In contracts with a foreign element, the parties may choose the law for dispute settlement. In the absence of a stated law, the law of the jurisdiction with the closest connection to the contract will apply.
Structurally, the Contract Law, like many other laws on contracts, is divided into three sections:
(1) General Provisions;
(2) Specific Provisions; and
(3) Supplementary Provisions.
In the Contract Law, there are many black letter provisions that are common to contract laws in other jurisdictions. But there are also certain provisions that may come as a surprise to foreign practitioners which will be discussed in more detail below.
In Writing means a memorandum of contract, letter or electronic message (including telegram, telex, facsimile, electronic data exchange and e-mail), etc. which is capable of expressing its contents in a tangible form -- ***therefore an email may be considered a proof of writing and be used to conclude a contract.
Choice of Law - In contracts with a foreign element, the parties may choose the law for dispute settlement. In the absence of a stated law, the law of the jurisdiction with the closest connection to the contract will apply.
****Notable Exceptions: PRC law applies in specific cases such as: (1) Sino-foreign cooperative joint venture contracts; (2) Sino-foreign equity joint venture contracts.
III. Recent clarifications on the Contract Law
III. Recent clarifications on the Contract Law
(i) Second Judicial Interpretation and the Recent Judicial Direction on Contracts
24 April 2009 the Supreme People's Court (the "SPC") issued a second judicial interpretation re "Interpretation on Several Issues Concerning the Application of the PRC Contract Law" (the “New Interpretation”);and on 7 July 2009 the Supreme People’s court issued the Direction on Dealing with Several Issues in Civil and Commercial Contract Disputes (“Direction”), for more guidance on how lower PRC courts should apply the Contract Law.
Highlights include:
Introduction of a “Change of Circumstances” rule - According to Article 26, of the New Interpretation, where a change of circumstances has occurred due to various reasons enumerated in the Article such as, material objective changes, unforeseen circumstances, or unfairness, etc., the party affected may apply to the court for amendment or termination of the contract. **It should be noted that courts will proceed with this issue with caution in order to maintain fairness and not overly hinder freedom of the market economy.
Liability for failure to carry out formalities to effectuate a contract – such as failure to complete government registrations, etc., can subject the offending party to relevant expenses. For foreign parties who often depend on the Chinese party to the transaction to complete government registrations/filings/approvals, etc., this may be a valuable tool - however in practice I can't imagine negotiations would go very well if this rule was sprung up on the Chinese party. But at least we know its there.
Liquidated damages may be adjusted by the courts to the actual losses suffered by the party – but in no event shall be more than 30% of the actual losses suffered by the party. **The principals here are fairness and good faith.
Standard Form Contracts and Exemption of Liability Clauses– here the contract provider must use reasonable efforts to draw attention of the other party to clauses in which it attempts to limit its liability. **Reasonableness will be based on, among others, font size, typeface, and other sufficient markings. Failure to do so, may allow the court to rescind the contract.
Fingerprints may be recognized as fulfilling the requirement of “signing” or “sealing” the contract.
Place of Signing may be determined according to the place agreed by the parties, even if it is not actually signed there, or if it is signed in different places or no location is specified, the final signing place will be recognized.
In absence of a writing or oral agreement, actions by parties may be sufficient to conclude a contract unless laws or regulations otherwise provide.
If a contractually named principal begins performance of a contract but has no power of agency in the contract, the contract will nevertheless stand effective.
The New Interpretation, still remains quite general in parts, but should nevertheless provide more guidance to contracting parties and in some respects reinforces the Supreme People’s Court’s desire to allow the free will of contracting.
That's all for now visit again for an even deeeper look... (and remember this is for reference only and not legal advice)
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