Beware of expressions of intent to “waive rights” in standard terms

By Zhao Dongxu, Leaqual Law Firm
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In business dealings, there will usually be a stronger and a weaker party based on their different positions in the transaction, with the former in the driver’s seat. Accordingly, the weaker party must beware of any expressions of intent to “waive rights” concealed in the terms when concluding a standard contract.

In conjunction with an actual contract dispute case between Tianjin Tingjin Food and one of its downstream distributors in Hebei, the article will introduce how to approach the expression of intent to “waive rights” and how to deal with agreement terms containing this expression that have already been executed.

Zhao Dongxu, Leaqual Law Firm
Zhao Dongxu
Senior Partner
Leaqual Law Firm

At the end of April 2021, a distributor in Hebei paid RMB1 million to order a batch of beverages from Tingjin. The distributor, the party in the weaker position, pre-signed a “shipping order” for the goods at the request of Tingjin’s staff without receiving the ordered goods. After the normal shipping and receiving dates had passed, the distributor inquired as to the whereabouts of the ordered goods and Tingjin’s staff prevaricated, giving various reasons. After repeated attempts to no avail, the distributor resorted to litigation to recover the goods or demand a refund of its payment.

At the first hearing in August 2021, the defendant, Tingjin, insisted in its defence that it had completed its shipping obligations. Considering the possibility that the carrier could have stolen the goods, the plaintiff filed a report with the public security authority after withdrawing its suit. The facts ascertained by the authority showed that in the course of the sale and carriage of the goods, the defendant failed to ship the goods to the designated location, failed to complete its delivery obligations according to the distribution contract and there was no evidence of theft, so the case was a contract dispute. Consequently, it rendered a decision not to open a case and the plaintiff sued again.

This article will not discuss the probatory value of findings or evidence from the public security authority. Before the new hearing in the case, an employee of the defendant sent the plaintiff’s wife a Customer Care Agreement via WeChat, which terminated the distribution agreement and refunded the margin previously arising out of operational considerations. However, the fifth line from the end of the agreement contained this: “Henceforth, the rights and obligations of the parties arising on the basis of the Distribution Contract shall be terminated and there are no further disputes over any payments, claims or debts that arose during the performance of the Contract”. Based on this provision, the people’s court of Binhai New Area of Tianjin, and the Tianjin municipal third intermediate people’s court rendered a conclusion that “in support of its claim that the defendant owed it money, the plaintiff not only failed to provide a clear account of the occurrence of the facts but also failed to provide evidence in corroboration. Additionally, the distributor constantly used signatures to confirm there were no disputes between the parties over payments, claims or debts during the performance of the contract. Accordingly, the plaintiff’s claim is rejected”.

Did the Customer Care Agreement constitute a waiver of rights arising from the previous contract dispute? Many disputes that arise during ongoing business co-operation are independent and will not lead to the termination of all relationships. Therefore, close attention must be paid to whether “concealed” standard terms containing an expression of intent to “waive previous rights” exist in the subsequent documents signed in the continuing co-operation.

Back to the Tingjin case, whether the provision that “there are no further disputes over any payments, claims or debts that arose during the performance of the contract” in the Customer Care Agreement can give the basis of waiving the rights requires a closer look at the three points below.

    1. Whether it’s the expression of true intent. One of the basic conditions for the validity of a civil act is an “expression of true intent”. The concerned party, in this case, asserted his rights through litigation, filing a report with the police, re-litigation and an appeal, which clearly shows that he had not waived his rights. The wife was consistently expressly told that “upon signing of this agreement, the margin of RMB10,000 shall be returned” without being cognisant that “once this agreement is signed, the rights in question shall be waived”. The signing of the agreement clearly was not an “expression of true intent” from the party or his family. An agreement based on a material misunderstanding or fraudulent means can be revoked by the people’s court or arbitration institution in accordance with the law.
    2. Whether the rights waived are clear and can they be waived “in a sweeping manner”. The claim arising from the breach of contract is clear, i.e. the amount paid for the goods. The provision that “there are no further disputes over any payments, claims or debts that arose during the performance of the Contract” in the Customer Care Agreement does not expressly designate the entity whose “rights have been waived”. In normal logic, no one will waive the right to obtain RMB1 million for a margin of RMB10,000. It is therefore more appropriate to refer to the fairness principle in the Civil Code to define whether “the rights and obligations of the parties have been reasonably determined”.
    3. Was there any explicit act of a waiver. A “waiver of rights” is a civil legal act, meaning that a civil subject establishes, modifies or suspends a civil legal relationship through an expression of true intent. Therefore, if the downstream distributor waived the rights arising from the contractual breach, at the very least, he should have given a clear indication of such a waiver, either orally or in writing.

In summary, in the course of ongoing business dealings, once a dispute arises, attention should be given to whether subsequent documents, including any manner of mediation or settlement agreement, contain standard terms that express an intent to “waive previous rights”, and if such a document is signed, a response should be promptly made and preparations for risk prevention and response to litigation must be pursued in advance.

Zhao Dongxu is a Senior Partner at Leaqual Law Firm

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