1 January 2021 was a significant date in the development of China’s legal system, as it was on this date that the Civil Code of the People’s Republic of China came into effect, repealing various laws including the Contract Law (for a discussion about the Civil Code and the recognition of custom, see China Business Law Journal volume 8, issue 6: Custom and Law). However, in line with the principle that law should not have retroactive effect, the Contract Law still governs legal acts that occurred prior to 1 January 2021. This is provided by articles 1 and 20 of the Certain Provisions of the Supreme People’s Court concerning the Time Validity of the Application of the Civil Code of the People’s Republic of China (passed at the 1,821st meeting of the judicial committee of the Supreme People’s Court on 14 December 2020).
This column discusses two issues: The continuing application of the Contract Law in respect of contracts and contracts disputes; and the above-mentioned provisions of the Civil Code in respect of contract interpretation.
Continuing application of Contract Law
Under the provisions, matters concerning formation in respect of contracts, entered into prior to 1 January 2021, will be governed by the Contract Law. This is subject to the exception in article 8 of the provisions that, in circumstances where the application of the Contract Law would result in the invalidity of the contract but the application of the Civil Code would result in the validity of the contract, the Civil Code will apply.
Article 20 of the provisions provides that in circumstances where performance of a contract entered into before 1 January 2021 continues after 1 January 2021, disputes in respect of the performance of the contract before 1 January 2021 will be governed by the Contract Law, and the judicial interpretations in respect of the Contract Law, and disputes in respect of the performance of the contract after 1 January 2021 will be governed by the relevant provisions of the Civil Code.
Contract interpretation under Civil Code
Articles 142 and 466 of the Civil Code govern contract interpretation and are applicable to the interpretation of all contracts governed by PRC law, whether entered into prior to or after 1 January 2021. These provisions clarify the previous position concerning contract interpretation under article 125 of the Contract Law. In order to understand how the new provisions governing contract interpretation clarify the previous position, it is necessary to compare the previous position under article 125 of the Contract Law with the new position under articles 466 and 142 of the Civil Code.
Article 125 of the Contract Law provided as follows:
Where the parties have a dispute about the understanding of a contract clause, the true meaning of the clause shall be determined according to the words and sentences used in the contract, the relevant provisions in the contract, the purpose of the contract, transaction custom and the principle of good faith.
Articles 466 and 142 of the Civil Code have amended the position under article 125 of the Contract Law as follows:
Where the parties have a dispute about the understanding of a contract clause, the meaning of the disputed clause shall be determined according to the provisions in the first paragraph of article 142 of this code.
Where an expression of intent is made to another person, The true intention of the clause the meaning of the intention expressed shall be determined according to the words and sentences used in the contract, with reference to the relevant provisionsin the contract, the nature and purpose of the contractcivil juristic act, transaction custom and the principle of good faith.
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A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew is currently on secondment to the ALRC as special counsel to assist with its inquiry into corporations and financial services regulation. Andrew’s new book is a compilation of China Business Law Journal’s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at www.vantageasia.com