The Measures for the Supervision and Administration of Contract Violations ("Measures") promulgated by the State Administration of Industry and Commerce ("SAIC") were implemented on 13 November 2010. The Measures define fraudulent conduct, activities that damage the national interest and public interest and the misuse of standard term contracts. They apply to natural persons, legal persons and other organisations and institutions.
1. Main contents
The Measures prohibit ten kinds of fraudulent conduct, including forging a contract; providing a false guarantee; making up a false reason to terminate a contract; defrauding someone of property; disseminating or using false information to entice others into concluding a contract; and conducting and performing a contract through other deceptive ways.
The Measures further describe several types of activities that damage the national or public interest through the use of a contract; for example, concluding and performing contracts through bribery, threats, or malevolent collusion, and buying or selling property that may not be transferred, or which may only be transferred by the State.
2. Restrictions on standard term contracts
The Measures protect consumers who are subject to standard term contracts by prohibiting an operator from exempting itself from liability, encumbering the consumer with certain liabilities and waiving the consumer's rights.
Restricting operator liability exemptions
The Measures prohibit an operator from exempting itself from the following liabilities:
- liability of personal harm caused to the consumer;
- liability of property loss caused to the consumer due to deliberate or culpable negligence;
- warrantee liability of the products or services provided under law;
- liability for breach of contract under law; and
- other liabilities under law.
Restricting consumer liability
The Measures also prohibit the operator from using a standard term contract to encumber a consumer by:
- stipulating liquidated damages or other compensation exceeding the legal amount or a reasonable amount;
- shifting to the consumer the operational risk that is the responsibility of the operator; and
- evading other responsibilities under law that protect consumers.
Protecting consumers from waiving rights
Consumers may not waive the following rights though a standard term contract:
- right to alter or terminate the contract by law;
- right to apply for payment of liquidated damages;
- right to apply for damage awards;
- right to an explanation of the standard terms;
- right to institute legal proceedings due to a dispute over the standard terms; and
- other rights which the consumers have under law.
3. Liability and/or responsibility due to misuse
The Measures provide that violations should be handled according to existing laws and regulations. In the absence of applicable law, industry and commerce authorities can, according to the seriousness of the case, issue a warning or a penalty of up to three times the illegal gains (up to a maximum of RMB 30,000). Penalties of up to RMB 10,000 can be assessed if there are no illegal gains.
Where the contract violation is minor and rectifi ed in a timely manner, such penalties may be disregarded or replaced by other penalties.
In contrast, where violation of the Measures involves a criminal act, industry and commerce authorities should refer the case to judicial authorities for an investigation of criminal liability.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.