New challenges of commercial disputes in Civil Code era

By Han Huixiao and Tang Jie, Dentons
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On 28 May 2020, the Civil Code era in China began with its approval by the legislature. It is less than half a year since its implementation, and from a perspective of legal interpretation the authors will focus on the impact and changes brought by the Civil Code in order to meet the new challenges of future commercial dispute cases.

Han Huixiao Dentons Civil Code
Han Huixiao
Senior Partner
Dentons

Literal interpretation

In the Civil Code, about a third of the provisions are non-substantial amendments to existing laws and relevant judicial interpretations. Without changing the literal meaning of the provisions, legislators can make the core literal meaning of the legal provisions clearer and reduce the burden of literal interpretation by modifying words or punctuation, integrating the legal provisions and supplementing incomplete enumerations.

In addition, the Civil Code revises and unifies many concepts, such as changing “requirement” into “request”, “right of contract” into “creditor’s right”, and using the concept of “civil subject”, which not only returns to the traditional civil law, but also becomes more concise. As far as literal interpretation is concerned, such modification makes the “identical interpretation rule” more useful. It also helps to enhance the consensus of the legal community, and there lies a broad world for interpretation with the help of jurisprudence.

Tang Jie Dentons Civil Code
Tang Jie
Partner
Dentons

Systematic interpretation

The Civil Code is a national epic of the civil law system. To compile the Civil Code is to compile the norms and systems of civil law into a whole, according to certain logic and style, so as to eliminate the contradictions, loopholes and repetitions among separate laws and build a unified and systematic civil law norm system. As far as the Civil Code is concerned, among all kinds of interpretation methods, the functional enhancement of the systematic interpretation method is the most remarkable.

China’s Civil Code adopts the style of “civil and commercial integration”, and the general provisions of the code are uniformly applicable to all civil and commercial relations, covering the rules of civil and commercial transactions, while some legal norms in other parts are also applicable to commercial trials. Therefore, apart from the systematization of the Civil Code itself, we should also pay attention to the relationship between the Civil Code and the special commercial law. In specific commercial disputes, we can make legal interpretations based on the system between the Civil Code and the special commercial law.

Subjective, objective purposes

Teleological interpretation is the “crown” of the narrow legal interpretation. On the one hand, interpretation cannot be separated from the consideration of legislative purpose, and is based on teleological interpretation; on the other hand, the teleological interpretation has the function of verifying other interpretation conclusions. There are subjective and objective teleological interpretations. The former refers to the subjective purpose of legislators in history, while the latter is the normative purpose expressed in legal texts.

The priority of objective legislative purpose is usually emphasized in teleological interpretation. Because of the lag of law, it may be divorced from social reality to interpret with the subjective purpose of legislators in history. For example, General Principles of the Civil Law were formulated in China’s “planned economy” period, so it is difficult to effectively solve the disputes in today’s market economy period if interpreted according to the subjective purpose of legislators at that time.

However, the Civil Code is a new law, which is a response to the realistic legal needs in China’s social and economic fields. The subjective legislative purpose of legislators has practical guiding significance for civil and commercial trials in a certain period of time in the future. Therefore, to make teleological interpretation of the provisions of the Civil Code, we should take both subjective and objective purposes into consideration, and fully explore the true intent of legislators.

Historical interpretation

In China’s judicial practice, historical interpretation is rarely applicable. One of the reasons is that there are few legislative materials in China, and it is difficult to examine them. After the implementation of the Civil Code, perhaps this interpretation method will get more opportunities for application. The reasons are as follows: (1) the Civil Code has revised some provisions of several separate laws such as General Principles of the Civil Law, Contract Law and Security Law, and the revision itself is an important reference for historical interpretation; and (2) many drafts were published during the formulation of the Civil Code, and some provisions were revised repeatedly. These open legislative processes are helpful for interpreters to explore the true intent of legislators and make a proper historical interpretation.

The loopholes

As a saying in law goes, a code cannot be without its gaps. There are 1,260 articles in China’s Civil Code. By comparison, there are 2,281 articles in the French Civil Code and 2,385 articles in the German Civil Code. In terms of the number of articles, China’s Civil Code is not detailed enough, and there may be many legal loopholes.

Specifically, for example, article 519 of the Civil Code provides that joint and several debtors shall have the right of recovery when the performance amount exceeds the contribution amount. However, when the performance amount of a joint and several debtor is lower than the contribution amount, if the creditor exempts the remaining creditor’s rights, whether the debtor can recover from other joint and several debtors who have failed to perform their debts is not specified, which constitutes a legal loophole. In commercial disputes, in case of such problems, it is necessary to complete the legal interpretation to fill the loopholes before the disputes can be resolved.

“Law shall not be applied without interpretation” and legal interpretation is the bridge between legislation and judicature. The authors suggest that apart from paying attention to the influence of the Civil Code on legal interpretation, we should also pay attention to the ongoing judicial interpretation cleanup and new judicial interpretation formulation of the Supreme People’s Court.

These changes have a far-reaching impact on future commercial trials, and for lawyers the challenges and opportunities cannot be ignored. In the Civil Code era it is necessary not only to have accurate understanding and construction of laws, but also to make proper legal interpretation in specific cases, so as to realize proper settlement of commercial disputes.

Han Huixiao is a senior partner, and Tang Jie is a partner at Dentons

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