The State Administration of Commerce and Industry
(SAIC) recently promulgated the Measures on
Supervision and Handling of Unlawful Contractual Practices
(the Measures) , which will take effect as of November 13, 2010.
The Measures aim to further regulate the entry and performance of
commercial contracts, paying particular attention to how standard
contractual clauses are applied by the business operators, in an
effort to better protect the legitimate interests of the
The Measures define "unlawful contractual practices"
as behaviours designed to derive illegal profits from contractual
activities and in contravention of applicable laws and regulations.
The Measures target three types of actions. The first is
contractual fraud, meaning obtaining money or valuables by means of
fabricating facts or concealing truth for the purposes of
possessing money or valuables of the others. The second is seeking
an illegitimate benefit by means of bribery, coercion or collusion
with others using a contract. The third is to infringe upon the
interests and rights of consumers by using standard contractual
clauses to disclaim liability of its own and to aggravate liability
on the part of the consumers.
The Measures clearly spell out the scope of contractual fraud by
enumerating 10 types of prohibitive behaviours, including:
to fabricate fraudulent excuses for suspension (termination) of
to circulate or utilize false information to lure others into
to maliciously include in the contracts, provisions which
cannot be performed and as a result rendering the counterparty
unable to perform contract obligations.
It is worth noting that anyone knowingly (or should have known)
facilitating contractual fraud, such as intentionally furnishing
certificates, licenses, stamps, accounts or other facilitating
acts, are also punishable under the Measures.
Misuse of standard contractual clauses
According to the Measures, business operators are now prohibited
to disclaim liability by adopting standard contractual clauses
personal injury to consumers;
property damage to consumers caused by wilful misconduct or
gross negligence of the business operators;
warranty prescribed by law on goods and services provided by
the business operators to consumers;
liability arising out of breach of contract; and
other liability prescribed by law.
The Measures further provide that business operators cannot use
standard contractual clauses to aggravate consumer's liability
in respect of:
penalty for breach that exceeds the lawful limit or reasonable
operational risk that should be born by the business operators
who drafted the standard contractual clauses; and
other liability that should not be assumed by the consumers by
Finally the Measures list various consumer rights that cannot be
eliminated by way of standard contractual clauses:
right to amend or terminate contract pursuant to applicable
right to claim penalty for breach by the other party;
right to compensation;
right to seek explanation of standard contractual clauses;
any other rights enjoyed by consumers by law.
Based on the foregoing, some commonly seen unfair clauses or the
so-called "overlord clauses" such as "we reserve the
right to final interpretation of the provisions under the
contract", "the products cannot be returned by customers
for whatsoever reason", and "tourist agency shall not be
liable for the accidental personal injuries of tourists", etc,
will be caught under the Measures.
Any unlawful contractual practices caught under the Measures
could render a penalty to the business operator of a fine of up to
three times the illegitimate benefit, but capped at RMB 30,000.
Time for business operators to review their standard contract
If business operators have been using their standard contractual
clauses to mitigate their contractual liability, it is time for
them to revisit and review those standard clauses to ensure they
are not caught under the Measures.
Mallesons Stephen Jaques is licensed in China as a foreign
law firm and, as is the case for all international law firms, we
are not authorised to issue legal opinions on matters of Chinese
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.
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