On October 13, 2010, the State Administration for Industry and
Commerce ("State AIC") adopted the Measures for
Supervision and Abolishment of Contract-related Illegal Activities
("Measures"). The Measures take effect as of November 13,
2010.
The purpose of the Measures is to tighten the regulation of all
business activities connected to civil and commercial contracts in
the People's Republic of China ("PRC"). The Measures
stipulate that no natural person, legal entity or other
organization shall gain profits by illegally utilizing contracts.
To achieve the above purpose, the Measures partly reiterate
existing principles and statutory provisions of the civil law and
criminal law. However, the Measures also to a certain extent modify
and clarify the civil law regime by setting up new criteria for the
validity of contract content and conclusion. Although the Measures
are issued by the State AIC and, therefore, do not constitute a
formal revision or modification of the PRC Contract Law which was
enacted by the National People's Congress, they should be taken
into account when concluding contracts subject to PRC law. Finally,
the Measures introduce supervision and control functions of
administrative organs over the conclusion of contracts, including
the power to impose fines.
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Full Article
On October 13, 2010, the State Administration for Industry and
Commerce ("State AIC") adopted the Measures for
Supervision and Abolishment of Contract-related Illegal Activities
("Measures"). The Measures take effect as of November 13,
2010.
The purpose of the Measures is to tighten the regulation of all
business activities connected to civil and commercial contracts in
the People's Republic of China ("PRC"). The Measures
stipulate that no natural person, legal entity or other
organization shall gain profits by illegally utilizing contracts.
To achieve the above purpose, the Measures partly reiterate
existing principles and statutory provisions of the civil law and
criminal law. However, the Measures also to a certain extent modify
and clarify the civil law regime by setting up new criteria for the
validity of contract content and conclusion. Although the Measures
are issued by the State AIC and, therefore, do not constitute a
formal revision or modification of the PRC Contract Law which was
enacted by the National People's Congress, they should be taken
into account when concluding contracts subject to PRC law. Finally,
the Measures introduce supervision and control functions of
administrative organs over the conclusion of contracts, including
the power to impose fines.
Special provisions for general terms and conditions in consumer contracts
Articles 9 to 11 of the Measures are very important for
businesses which directly conclude contracts with consumers. The
Measures modify the existing civil law regime by introducing new
criteria for the validity of general terms and conditions
("General Terms") used in consumer contracts
("B-to-C contracts"). In the past, the use of all kinds
of General Terms was only subject to the restrictions of Article 39
to 41 of the PRC Contract Law, being that General Terms should not
increase the liability of the other party or exclude material
rights of the other party, or exempt the liability of the party
using the General Terms ("User"). Further, General Terms
were subject to the same restrictions as any other contractual
provisions, such as precluding the exclusion of a user's
liability for personal injury or property damage caused willfully
or through gross negligence. The above restrictions equally applied
to General Terms in contracts between business operators
("B-to-B contracts") as well as to General Terms in
B-to-C contracts.
Now, Articles 9 to 11 of the Measures introduce a special regime
which only applies to General Terms in B-to-C contracts.
First, the Measures reiterate the major existing statutory
restrictions on excluding liability for personal injury or property
damages caused willfully or through gross negligence.
Further, the Measures introduce the following reasons for
invalidating General Terms in B-to-C contracts. Such General Terms
shall not:
- exclude warranties for provision of goods or services which the business operators shall bear in accordance with the law;
- exclude liability for breach of contract or any other legal liability;
- exclude the consumer's right to terminate the contract in accordance with the law,
- exclude the consumer's right to request payment of liquidated damages or other damages;
- exclude the consumer's right to have an explanation of the General Terms,
- exclude the consumer's right to commence legal proceedings over disputes arising out of the General Terms;
- exclude other legal rights of consumers;
- increase the consumer's obligation to pay liquidated damages or damages beyond the statutory amount or a reasonable amount;
- increase the consumer's obligation to bear responsibility for operational risks which are undertaken by the business operator, or
- increase other responsibilities which should not be borne by the consumer in accordance with the law.
The Measures do not stipulate the above mentioned statutory and
contractual rights and liabilities of consumers which, according to
the Measures, can not be excluded or increased respectively by
means of the General Terms. Such rights and liabilities are
stipulated in the PRC Contract Law, PRC Product Quality Law, PRC
Consumer Protection Law, Provisions on the Liability for the
Repair, Replacement and Return of Certain Commodities
("Three-Guarantee Provisions") and in other statutory
laws and regulations.
In a nutshell, the Measures introduce a stricter regime for
determining the validity of General Terms in B-to-C contracts. In
contrast, General Terms in B-to-B contracts are not subject to the
above restrictions, but only to the provisions of the PRC Contract
Law. It is essential for all business operators to adjust their
General Terms used in B-to-C contracts to be in full compliance
with the statutory PRC law when the Measures enter into effect on
November 13, 2010.
General prohibition of fraudulent activities
Article 6 of the Measures lists ten types of prohibited
fraudulent activities when entering into or performing a contract.
Article 6 applies to all kinds of contracts, including B-to-B
contracts, B-to-C contracts and General Terms. Several of them do
not constitute anything new, but simply reiterate existing
statutory prohibitions, such as not falsifying or fabricating
contractual documents, not publicizing incorrect information to
seduce others to conclude contracts, and other forms of forgery or
cheating.
However, in particular Article 6 lit. h) is worth noting due to its
potential to be too widely applied by the authorities or courts.
This provision prohibits the fabrication of false reasons to
suspend or terminate a contract, in order to unlawfully gain the
other party's money or property. It would be desirable if the
courts and authorities can avoid using this provision to prevent
any parties from exercising their due and lawful statutory or
contractual termination rights. PRC courts appear at times to be
inclined to decide in favor of the party objecting to a contract
termination, in particular if a foreign party intends to terminate
its contractual relationship with a domestic party.
Article 7 of the Measures mainly reiterates the parties'
obligations to comply with major criminal and administrative
obligations, such as refraining from bribery, malicious conspiracy,
or any business activities subject to prohibition or restriction by
the State, and thereby, damaging the interests of the State and the
public.
Administrative measures and fines
Article 12 of the Measures provides that in case of any
violation of the Measures, the existing statutory laws and
regulations shall apply. If any case is not covered by specific
applicable laws or regulations, the industrial and commercial
administrative organs are authorized by the Measures to, depending
on the seriousness of the case, issue a warning letter, or impose a
fine of less than three times of the illegal income and no more
than RMB 30,000. If no illegal income has been obtained, a fine of
less than RMB 10,000 shall be imposed. Any effort by a party to
promptly correct, eliminate or mitigate the violations and
respective damages shall be rewarded by a waiver or decrease of the
administrative penalty, in accordance with the Measures. The option
of imposing criminal punishment remains unaffected by the
Measures.
Article 15 of the Measures provides that the State AIC is
responsible for the interpretation of the Measures. It is to be
expected that the State AIC will soon issue interpretation
regulations, such as stipulating which administrative authorities
will be in charge of supervision and punishment under the
Measures.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 22/11/2010.