This content is from: Local Insights

China

The long-awaited promulgation of the new Chinese Contract Law approaches. On September 7 1998, the People's Daily published the draft of a Contract Law containing 441 articles, another step towards unification of domestic and foreign-related legislation in China. The draft contains general provisions on formation, validity, performance and termination of contracts, as well as special provisions on certain types of contracts (eg sales contracts, loan contracts, lease and financial lease contracts, construction contracts and transportation contracts).

While the present Chinese legislation on contracts is divided into the Foreign Economic Contract Law (1985) and the Domestic Economic Contract Law (1993), and further contractual provisions are contained in the General Principles of Civil Law (1986), the draft unifies all aspects of contract law. The new Contract Law will no longer distinguish between economic contracts and other types of contracts or between foreign-related contracts and domestic contracts.

The draft contains, for the first time, provisions on the use of standard clauses. Standard clauses must comply with the principle of fairness with regard to the determination of the rights and obligations of the parties. The party using standard clauses must notify the other party of any limitations or exclusions of liability. Standard clauses will not take effect if the party using them fails to notify the limitation or exclusion of liability to the other party, or refuses to explain the clauses on request of the other party.

Several provisions of the Foreign Economic Contract Law are repeated in the draft. Thus, the principle of free choice of law applies (with the exception of certain joint venture contracts and other contract types, in accordance with previous legislation). Also, the grandfather clause of the present article 40 of the Foreign Economic Contract Law remains unchanged. In case of new statutory provisions, contracts for Sino-foreign joint venture companies which have already been approved may still be performed according to the stipulations of the contracts, even if they deviate from the new provisions.

While the four-year period under the statute of limitations for instituting litigation or arbitration in case of disputes on foreign-related sales contracts remains unchanged, claims under technology contracts are barred by the statute of limitations after just one year. This is a new regulation for technology contracts between Chinese and foreign parties.

The draft Contract Law may be revised before its promulgation. However, changes are usually limited once the draft legislation has been published in national newspapers. Unification of Chinese Contract Law will definitely promote the predictability of decisions made by Chinese authorities and courts with regard to domestic and international contracts in China.

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