ARTICLES The New Contract Law in the People's Republic of China and the UNIDROIT Principles of International Commercial Contracts:A Brief Comparison Zhang Yuqing*-Huang Danhan** The new unified Contract Law of the People's Republic of China(hereinafter referred to as the new Contract Law)was adopted at the Second Session of the Ninth National People's Congress on 15 March 1999 and came into force on 1 October 1999. Simultaneously,the Economic Contract Law of the People's Republic of China (hereinafter referred to as the Law on Economic Contracts),the Law of the People's Republic of China on Economic Contracts Involving Foreign Interests (hereinafter referred to as the Foreign Economic Contract Law and the Law of the People's Republic of China on Technology Contracts(hereinafter referred to as the Technology Contract Law).the three laws collectively referred to as the three former contract laws,were abrogated. Structurally,the new Contract Law is divided into three parts -General Pro visions,Specific Provisions and Supplementary Provisions with 23 Chapters featuring 428 Articles.The first part-General Provisions has 8 Chapters:General Provisions;Conclusion of Contracts;Effectiveness of Contracts;Performance of Contracts;Modification and Assignment of Contracts;Termination of the Rights and Obligations of Contracts;Liability for Breach of Contracts;Miscellaneous Provisions. The second part-Specific Provisions-contains 15 Chapters dealing with 15 types of contract:Sales;Supply and Use of Electricity,Water,Gas or Heating:Donation; Loans:Lease:Financial Lease:Hired Works;Construction Projects:Transport; Technology:Storage;Warehousing:Mandate:Commission Agency:Intermediation. The Supplementary Provisions contain one Article on the effectiveness of the new Contract Law and provides for the abrogation of the three former Contract Laws. Director General,Treaty and Law Department,Ministry of Foreign Trade and Economic Co- operation of the People's Republic of China(MOFTEC):Vice Chairman of the International Law Society of China;Member of the UNIDROIT Governing Council. Attorney;Professor of Law:Counsel of the Chinese International Private Law Society:Member of the Working Group for the Preparation of the UNIDROIT Principles of International Commercial Contracts. Rev.dr.unif.2000-3 429
Rev. dr. unif. 2000-3 429 ARTICLES The New Contract Law in the People’s Republic of China and the UNIDROIT Principles of International Commercial Contracts : A Brief Comparison Zhang Yuqing * – Huang Danhan ** The new unified Contract Law of the People’s Republic of China (hereinafter referred to as the new Contract Law) was adopted at the Second Session of the Ninth National People’s Congress on 15 March 1999 and came into force on 1 October 1999. Simultaneously, the Economic Contract Law of the People’s Republic of China (hereinafter referred to as the Law on Economic Contracts), the Law of the People’s Republic of China on Economic Contracts Involving Foreign Interests (hereinafter referred to as the Foreign Economic Contract Law) and the Law of the People’s Republic of China on Technology Contracts (hereinafter referred to as the Technology Contract Law), the three laws collectively referred to as the three former contract laws, were abrogated. Structurally, the new Contract Law is divided into three parts – General Provisions, Specific Provisions and Supplementary Provisions – with 23 Chapters featuring 428 Articles. The first part – General Provisions – has 8 Chapters: General Provisions; Conclusion of Contracts; Effectiveness of Contracts; Performance of Contracts; Modification and Assignment of Contracts; Termination of the Rights and Obligations of Contracts; Liability for Breach of Contracts; Miscellaneous Provisions. The second part – Specific Provisions – contains 15 Chapters dealing with 15 types of contract: Sales; Supply and Use of Electricity, Water, Gas or Heating; Donation; Loans; Lease; Financial Lease; Hired Works; Construction Projects; Transport; Technology; Storage; Warehousing; Mandate; Commission Agency; Intermediation. The Supplementary Provisions contain one Article on the effectiveness of the new Contract Law and provides for the abrogation of the three former Contract Laws. * Director General, Treaty and Law Department, Ministry of Foreign Trade and Economic Cooperation of the People’s Republic of China (MOFTEC); Vice Chairman of the International Law Society of China; Member of the UNIDROIT Governing Council. ** Attorney; Professor of Law; Counsel of the Chinese International Private Law Society; Member of the Working Group for the Preparation of the UNIDROIT Principles of International Commercial Contracts
Zhang Yuging-Huang Danhan In drafting the new Contract Law,the Chinese legislators referred extensively to the UNIDROIT Principles of International Commercial Contracts.1 Many Articles of the new Contract Law,in particular those in the chapter on General Provisions,are similar in spirit to the UNIDROIT Principles.From a practical point of view,it seem ed insufficient to have only general provisions without specific rules to deal with concrete cases,and this is why specific provisions were included to regulate different kinds of contract. I.-SIMILARITIES BETWEEN THE GENERAL PROVISIONS AND THE UNIDROIT PRINCIPLES 1. Scope of application The scope of application of the UNIDROIT Principles is confined to international commercial contracts.It is clearly stipulated in the Preamble that "[t]hese Principles set forth general rules for international commercial contracts."It is further emphasised that "the concept of 'commercial'contracts should be understood in the broadest possible sense,so as to include not only trade transactions for the supply or exchange of goods or services,but also other types of economic transactions such as investment and/or concession agreements,contracts for professional services,etc." In practice,the legal systems around the world apply different standards as to what constitutes "international contracts"and "commercial contracts".Although the UNIDROIT Principles do not define the words "international"and "commercial",they do provide some quidance in advocating that the concept should be understood in "the broadest possible sense".This is to allow different countries to decide for themselves,in accordance with their domestic contract laws,which contracts are "international"and "commercial",so promoting the widest possible application of the UNIDROIT Principles world-wide. This broad scope of application of the UNIDROIT Principles has no doubt had an impact on the new Contract Law,whose Article 2 stipulates that "[a]contract in this Law refers to an agreement establishing,modifying and terminating the civil rights and obligations between subjects of equal standing,that is,between natural persons,legal persons or other organisations.Agreements involving personal status relationships such as marriage,adoption,guardianship,etc.shall be governed by the provisions of other Laws. Compared to the three former Contract Laws,the scope of application of the new Contract Law has been appropriately widened to cover a broader range of contracts. Neither the former Economic Contract Law nor the former Foreign Economic Contract Law applied to contracts to which a natural person is a party.The former Technology Contract Law did not apply to technology contracts involving foreign elements.Under the new unified Contract Law,on the other hand,parties to contracts include both 1 The UNIDROIT Principles of International Commercial Contracts,UNIDROIT (Rome),1994. 430 Unif.L.Rev.2000-3
Zhang Yuqing – Huang Danhan 430 Unif. L. Rev. 2000-3 In drafting the new Contract Law, the Chinese legislators referred extensively to the UNIDROIT Principles of International Commercial Contracts.1 Many Articles of the new Contract Law, in particular those in the chapter on General Provisions, are similar in spirit to the UNIDROIT Principles. From a practical point of view, it seem ed insufficient to have only general provisions without specific rules to deal with concrete cases, and this is why specific provisions were included to regulate different kinds of contract. I. – SIMILARITIES BETWEEN THE GENERAL PROVISIONS AND THE UNIDROIT PRINCIPLES 1. Scope of application The scope of application of the UNIDROIT Principles is confined to international commercial contracts. It is clearly stipulated in the Preamble that “[t]hese Principles set forth general rules for international commercial contracts.“ It is further emphasised that “the concept of ‘commercial’ contracts should be understood in the broadest possible sense, so as to include not only trade transactions for the supply or exchange of goods or services, but also other types of economic transactions such as investment and/or concession agreements, contracts for professional services, etc.“ In practice, the legal systems around the world apply different standards as to what constitutes “international contracts“ and “commercial contracts“. Although the UNIDROIT Principles do not define the words “international“ and “commercial“, they do provide some guidance in advocating that the concept should be understood in “the broadest possible sense“. This is to allow different countries to decide for themselves, in accordance with their domestic contract laws, which contracts are “international“ and “commercial“, so promoting the widest possible application of the UNIDROIT Principles world-wide. This broad scope of application of the UNIDROIT Principles has no doubt had an impact on the new Contract Law, whose Article 2 stipulates that “[a] contract in this Law refers to an agreement establishing, modifying and terminating the civil rights and obligations between subjects of equal standing, that is, between natural persons, legal persons or other organisations. Agreements involving personal status relationships such as marriage, adoption, guardianship, etc. shall be governed by the provisions of other Laws.“ Compared to the three former Contract Laws, the scope of application of the new Contract Law has been appropriately widened to cover a broader range of contracts. Neither the former Economic Contract Law nor the former Foreign Economic Contract Law applied to contracts to which a natural person is a party. The former Technology Contract Law did not apply to technology contracts involving foreign elements. Under the new unified Contract Law, on the other hand, parties to contracts include both 1 The UNIDROIT Principles of International Commercial Contracts, UNIDROIT (Rome), 1994
The New Chinese Contract Law and the UNIDROIT Principles:A Brief Comparison natural persons and legal persons or other organisations.The range of contracts not only covers economic contracts and technology contracts,but also extends to all agreements establishing,modifying and terminating civil rights and obligations among independent parties.Only agreements involving personal status relationships such as marriage,adoption,quardianship,etc.are excluded. 2. Basic principles Articles 3-7 of the new Contract Law set forth its basic principles,i.e.equality (Article 3),party autonomy (Article 4),fairness (Article 5),good faith (Article 6),public interest (Article 7).Such basic principles are likewise embodied in the UNIDROIT Principles, albeit in different words.For example,Article 4 of the new Contract Law says: "The parties shall have the right voluntary to enter into a contract in accordance with the law.No entity or individual may illegally interfere with such right" while Article 1.1 of the UNIDROIT Principles emphasises the freedom of the contract, stipulating that "[t]he parties are free to enter into a contract and to determine its content." The same applies to the principle of good faith.Article 6 of the new Contract Law states that "[t]he parties must act in accordance with the principle of good faith,whether exercising rights or performing obligations," while Article 1.7 of the UNIDROIT Principles stipulates that "(1)[elach party must act in accordance with good faith and fair dealing in international trade.(2)The parties may not exclude or limit this duty." Clearly,the basic principles in the new Contract Law and the UNIDROIT Principles are much alike. 3. Effectiveness of contract Article 8 of the new Contract Law on the effectiveness of a contract reads as follows: "A contract established in accordance with the law shall be legally binding on the parties. The parties shall perform their respective obligations in accordance with the terms of the contract.Neither party may unilaterally modify or rescind the contract.The contract established according to law shall be under the protection of law." Article 1.3 of the UNIDROIT Principles stipulates: "A contract validly entered into is binding upon the parties.It can only be modified or terminated in accordance with its terms or by agreement or as otherwise provided in these Principles." Although expressed somewhat differently,the two stipulations are almost the same in content. Rev.dr.unif.2000-3 431
The New Chinese Contract Law and the UNIDROIT Principles : A Brief Comparison Rev. dr. unif. 2000-3 431 natural persons and legal persons or other organisations. The range of contracts not only covers economic contracts and technology contracts, but also extends to all agreements establishing, modifying and terminating civil rights and obligations among independent parties. Only agreements involving personal status relationships such as marriage, adoption, guardianship, etc. are excluded. 2. Basic principles Articles 3-7 of the new Contract Law set forth its basic principles, i.e. equality (Article 3), party autonomy (Article 4), fairness (Article 5), good faith (Article 6), public interest (Article 7). Such basic principles are likewise embodied in the UNIDROIT Principles, albeit in different words. For example, Article 4 of the new Contract Law says: “The parties shall have the right voluntary to enter into a contract in accordance with the law. No entity or individual may illegally interfere with such right.“ while Article 1.1 of the UNIDROIT Principles emphasises the freedom of the contract, stipulating that “[t]he parties are free to enter into a contract and to determine its content.“ The same applies to the principle of good faith. Article 6 of the new Contract Law states that “[t]he parties must act in accordance with the principle of good faith, whether exercising rights or performing obligations,“ while Article 1.7 of the UNIDROIT Principles stipulates that “(1) [e]ach party must act in accordance with good faith and fair dealing in international trade. (2) The parties may not exclude or limit this duty.“ Clearly, the basic principles in the new Contract Law and the UNIDROIT Principles are much alike. 3. Effectiveness of contract Article 8 of the new Contract Law on the effectiveness of a contract reads as follows: “A contract established in accordance with the law shall be legally binding on the parties. The parties shall perform their respective obligations in accordance with the terms of the contract. Neither party may unilaterally modify or rescind the contract. The contract established according to law shall be under the protection of law.“ Article 1.3 of the UNIDROIT Principles stipulates: “A contract validly entered into is binding upon the parties. It can only be modified or terminated in accordance with its terms or by agreement or as otherwise provided in these Principles.“ Although expressed somewhat differently, the two stipulations are almost the same in content
Zhang Yuging-Huang Danhan 4.Form of contract As to the form of contract,the UNIDROIT Principles set forth the principle of freedom of form: "Nothing in these Principles requires a contract to be concluded in or evidenced by writing.It may be proved by any means,including witnesses"(Article 1.2). and provide that "[w]riting'means any mode of communication that preserves a record of the information contained therein and is capable of being reproduced in tangible form."(Article 1.10) In China,under the three former Contract Laws,contracts had in principle to be in writing,although there was no definition of what "written form"was.This require ment was no longer in tune with the rapid development of commercial transactions, in particular that of electronic commerce.The principle of freedom of form represents the new trend of commercial contract law around the world.Taking its cue from the UNIDROIT Principles,Article 10 of the new Contract Law stipulates that "[t]he parties may conclude a contract in written,oral or other forms." While this is a further step towards the principle of freedom of form,the new Contract Law nevertheless imposes some restrictions on the form of contract,as discussed in Section Il(1)infra 5. Conclusion of contract-offer and acceptance Like the UNIDROIT Principles,the new Contract Law (Article 13)assumes that a contract is normally concluded by means of an exchange of offer and acceptance. As to specifics,the two texts present strong similarities,which to a great extent depend on the fact that the relevant provisions in the UNIDROIT Principles taken as a model by the Chinese legislator were,in their turn,inspired by the United Nations Convention on Contracts for the International Sale of Goods (CISG).The most striking examples are the following: Offer:Article 14 of the new Contract Law and Article 2.2 of the UNIDROIT Prin- ciples provide exactly the same definition.An offer is a proposal made with a view to entering into a contract with other parties,and such a proposal must comply with the following stipulations:the contents must be detailed and definite,and indicate that the offeror is bound by the proposal in case of acceptance. Effectiveness of an offer:both Article 2.3 of the UNIDROIT Principles and Article 16 of the new Contract Law follow the "receipt doctrine":an offer becomes effective when it reaches the offeree. Withdrawal of an offer:Article 2.3 of the UNIDROIT Principles and Article 17 of the new Contract Law are definitely the same both stipulate that an offer may be with- drawn if the withdrawal notice reaches the offeree before or at the same time as the offer arrives. 432 Unif.L.Rev.2000-3
Zhang Yuqing – Huang Danhan 432 Unif. L. Rev. 2000-3 4. Form of contract As to the form of contract, the UNIDROIT Principles set forth the principle of freedom of form: “Nothing in these Principles requires a contract to be concluded in or evidenced by writing. It may be proved by any means, including witnesses“ (Article 1.2), and provide that “’[w]riting’ means any mode of communication that preserves a record of the information contained therein and is capable of being reproduced in tangible form.“ (Article 1.10) In China, under the three former Contract Laws, contracts had in principle to be in writing, although there was no definition of what “written form“ was. This requirement was no longer in tune with the rapid development of commercial transactions, in particular that of electronic commerce. The principle of freedom of form represents the new trend of commercial contract law around the world. Taking its cue from the UNIDROIT Principles, Article 10 of the new Contract Law stipulates that “[t]he parties may conclude a contract in written, oral or other forms.“ While this is a further step towards the principle of freedom of form, the new Contract Law nevertheless imposes some restrictions on the form of contract, as discussed in Section II(1) infra. 5. Conclusion of contract – offer and acceptance Like the UNIDROIT Principles, the new Contract Law (Article 13) assumes that a contract is normally concluded by means of an exchange of offer and acceptance. As to specifics, the two texts present strong similarities, which to a great extent depend on the fact that the relevant provisions in the UNIDROIT Principles taken as a model by the Chinese legislator were, in their turn, inspired by the United Nations Convention on Contracts for the International Sale of Goods (CISG). The most striking examples are the following: Offer: Article 14 of the new Contract Law and Article 2.2 of the UNIDROIT Principles provide exactly the same definition. An offer is a proposal made with a view to entering into a contract with other parties, and such a proposal must comply with the following stipulations: the contents must be detailed and definite, and indicate that the offeror is bound by the proposal in case of acceptance. Effectiveness of an offer: both Article 2.3 of the UNIDROIT Principles and Article 16 of the new Contract Law follow the “receipt doctrine“: an offer becomes effective when it reaches the offeree. Withdrawal of an offer: Article 2.3 of the UNIDROIT Principles and Article 17 of the new Contract Law are definitely the same: both stipulate that an offer may be withdrawn if the withdrawal notice reaches the offeree before or at the same time as the offer arrives
The New Chinese Contract Law and the UNIDROIT Principles:A Brief Comparison Revocation of an offer:Article 2.4 of the UNIDROIT Principles and Articles 18 and 19 of the new Contract Law set forth the same rule.An offer may be revoked if the revocation reaches the offeree before it has dispatched an acceptance.It may not be revoked if (1)the offeror indicates a fixed time for acceptance or otherwise explicitly states that the offer is irrevocable;or (2)the offeree has reasons to rely on the offer as being irrevocable and has made preparation for performing the contract. Meaning and form of acceptance:Article 2.6 of the UNIDROIT Principles and Articles 21,22 and 26 of the new Contract Law are the same in content.Both stipulate that acceptance is a statement made by the offeree indicating assent to an offer Unless based on usages or if the offer indicates that the offeree may indicate assent by its conduct,acceptance shall be by means of notice. Time of acceptance:the stipulations of Article 2.7 of the UNIDROIT Principles and Article 23 of the new Contract Law are similar in general,differing slightly only with respect to oral offers.The former stipulates that "an oral offer must be accepted immediately unless the circumstances indicate otherwise," whereas the new Contract Law reads that "[i]f the offer is made orally,acceptance shall be indicated immediately except as other- wise agreed upon by the parties.' Time limit for acceptance:again,the new Contract Law and the UNIDROIT Prin ciples are essentially the same.Both Article 2.8 of the UNIDROIT Principles and Article 24 of the new Contract Law stipulate that "where the offer is made in a letter or a telegram,the time limit for acceptance commences from the date shown in the letter or from the moment the telegram is handed in for dispatch.If no such date is shown in the letter,it commences from the date shown on the envelope.Where an offer is made by means of instantaneous communication,such as telephone or facsimile,the time limit for acceptance commences from the moment that the offer reaches the offeree." The one (slight)difference between the new Contract Law and the UNIDROIT Prin ciples is that the latter provide more detailed rules on such matters as holidays and non-business days,whereas the new Contract Law contains no such provisions. Article 2.8(2)of the UNIDROIT Principles stipulates that "official holidays or non-business days occurring during the period for acceptance are included in calculating the period.However,if a notice of acceptance cannot be delivered at the address of the offeror on the last day of the period because that day falls on an official holiday or a non-business day at the place of business of the offeror,the period is extended until the first business day which follows." The reason why the UNIDROIT Principles go into such detail in this matter is that they are intended to apply in wide range of countries and that each country may look at such matters differently,so the more detail the better.In China,the matter of official holidays or non-business days occurring within the time limit is covered by Article 154 of the General Principles of Civil Law,so there is no need to repeat it in the new Contract Law. Rev.dr.unif.2000-3 433
The New Chinese Contract Law and the UNIDROIT Principles : A Brief Comparison Rev. dr. unif. 2000-3 433 Revocation of an offer: Article 2.4 of the UNIDROIT Principles and Articles 18 and 19 of the new Contract Law set forth the same rule. An offer may be revoked if the revocation reaches the offeree before it has dispatched an acceptance. It may not be revoked if (1) the offeror indicates a fixed time for acceptance or otherwise explicitly states that the offer is irrevocable; or (2) the offeree has reasons to rely on the offer as being irrevocable and has made preparation for performing the contract. Meaning and form of acceptance: Article 2.6 of the UNIDROIT Principles and Articles 21, 22 and 26 of the new Contract Law are the same in content. Both stipulate that acceptance is a statement made by the offeree indicating assent to an offer. Unless based on usages or if the offer indicates that the offeree may indicate assent by its conduct, acceptance shall be by means of notice. Time of acceptance: the stipulations of Article 2.7 of the UNIDROIT Principles and Article 23 of the new Contract Law are similar in general, differing slightly only with respect to oral offers. The former stipulates that “an oral offer must be accepted immediately unless the circumstances indicate otherwise,“ whereas the new Contract Law reads that “[i]f the offer is made orally, acceptance shall be indicated immediately except as otherwise agreed upon by the parties.“ Time limit for acceptance: again, the new Contract Law and the UNIDROIT Principles are essentially the same. Both Article 2.8 of the UNIDROIT Principles and Article 24 of the new Contract Law stipulate that “where the offer is made in a letter or a telegram, the time limit for acceptance commences from the date shown in the letter or from the moment the telegram is handed in for dispatch. If no such date is shown in the letter, it commences from the date shown on the envelope. Where an offer is made by means of instantaneous communication, such as telephone or facsimile, the time limit for acceptance commences from the moment that the offer reaches the offeree.“ The one (slight) difference between the new Contract Law and the UNIDROIT Principles is that the latter provide more detailed rules on such matters as holidays and non-business days, whereas the new Contract Law contains no such provisions. Article 2.8(2) of the UNIDROIT Principles stipulates that “official holidays or non-business days occurring during the period for acceptance are included in calculating the period. However, if a notice of acceptance cannot be delivered at the address of the offeror on the last day of the period because that day falls on an official holiday or a non-business day at the place of business of the offeror, the period is extended until the first business day which follows.“ The reason why the UNIDROIT Principles go into such detail in this matter is that they are intended to apply in wide range of countries and that each country may look at such matters differently, so the more detail the better. In China, the matter of official holidays or non-business days occurring within the time limit is covered by Article 154 of the General Principles of Civil Law, so there is no need to repeat it in the new Contract Law