The Analysis of the Chinese Contract Law - Essay Example

Chinese Law of Contract Name: Tutor: Subject: Date: WHАT IS THЕ HISTОRY ОF СHINА (РRС) СОNTRАСT LАW? The Chinese contract law was established many years ago. Historians believe that the Chinese contract law can be traced back to West Zhou (1100 to 770 BC). By then, the Chinese contract law was mainly an agreement between parties. However, unlike the West, an agreement was not commonly used. The Chinese people preferred other means of agreement other than the contract law. The reason for this was because of planned economy that dominated all civil activities in China. Everyone at that time was satisfied with a planned economy and no one minded about the contract law1. This old Chinese contract law was later abolished by the politicians. They argued that the laws operating at that time (1949) were outdated and it was irrelevant. Many of the Chinese people were reluctant to oppose the politician, but instead the second the thought. The politician was interested in designing a new constitution that would serve the interest of Chinese people. They wanted a constitution that would favor their interests. Mr. Mao Zedong was the leader of  the Communist Party of China. He did not want any form of law that would restrict the powers of his party. He did not want laws that would interfere with the socialist revolutions2. As a trading nation, China did not have any specific laws that would give clear guidelines on various issues. The political parties, then, would only participate in the formation of certain parts of the laws that would favor their interests. The economy, then, was self-reliant, and there was no need of having laws. The planned economy did not focus on promoting equality in various entities such as commerce, trade and supply demand. With time, the people and the entire government were unconvinced because they lacked operational laws. It became so hard to carry out activities because there were no specific laws that could compel parties to perform their contractual obligations. In 1981, as a result of these inconveniences, the National People's Congress drafted and passed the economic contract law. Furthermore, they drafted and passed other essential laws of the foreign investment contracts and the technological transaction contract. They felt the need to have these two forms of laws because it was the only way of encouraging foreign investors to trade in the country. After the development of the domestic economy and the international trade, there was pressure on the Chinese government and the state council to form more specific laws, especially on the side of contract law. This pressure led to the formation of uniform contract law. This law intended for the protections of the legitimate rights and interests of the parties to contracts3. The department of trade, at that time, considered that the promulgation of the uniform contract laws was essential because China was planning to join the World Trade organization. Immediately after the formation of this law, it invalidated the previous contract laws. On a lighter note, it was evident that the new uniform contract laws gave parties flexibility in their contractual relations and the assurance that the parties’ concern was to fulfill their obligation. Without uniform contract laws, it is impossible to compel the importer to pay or the goods ship to him or her.4 Sources of modern PRC contract laws There are various sources of contract laws in China. These sources include the uniform contract laws, the judicial interpretation and the Chinese civil code. PRC civil code – this source is wide and comprehensive. It covers all the issues affecting human being. It gives the relevant remedies for parties who do not meet their contractual obligation. The doctrine of the Precedent - according to the common law, the doctrine of the precedent is considered as the key essential sources of law. It is also considered in solving international trade issues. However, the Chinese laws does not value it. The Chinese do not recognize the doctrine of the precedent as a source of law. China does not recognize the doctrine of the precedent because, traditional judicial system in China is not independent. Many cases in China are politically solved. This means that justice is political. Such judgement cannot be used later because they lack justice. Secondly, cases in China plays a primary role as a tool of the Ministry of Propaganda. Publishing of cases raised more concern in China. They are selective on what to publish and the content that are not suppose to be published. The Chinese government will only consider publishing information that is interesting to the domestic and international community. Thirdly, the database that is used to save the details of the cases are in two versions i.e. in Chinese and English5. The Chinese version is more detailed than the English version. This makes it unreliable and, therefore, using this information for application in courts can present various problems. The Chinese government is corrupt; the influence judicial system making the institution ton be corrupt. Lastly, the reason why the precedent does not hold any weight in China is because of the questionable competences of the Chinese judges. The judges are very incompetent. The Chinese government has, in the past, tried to improve the judicial system but they have not achieved much. This is because the training system of judges in China is below the required standard as compared to western countries6. The legislations – what the law look like. The uniform contract law in China is of two forms, namely: 1. The general provision 2. The specific provision The general provision provides the basic essential for forming contract laws. It specifies the procedures, obligations of the parties' concerns and the means of terminating the contracts. The specific provision provides for specific contracts only. Some of the primary contracts that are covered in this statute include the sale of good contract, the construction contract, the financial of leasing contract and the donation contract7. Particulars of the UCL – what do you need to know The formation of a legal contract calls for various issues such as parties, the agreement and the object. Furthermore, the Clouse covered in the Art 13 of UC requires that a valid contract must have an offer and acceptance that are made with the clear consent of the parties involved. The parties must enter into as a contract in their own free will. O one should be coerced or threaten so that he or she can form a contract. Another unique nature of Chinese contract law is that, the Chinese law system does not recognize consideration as the essential element. This element has got some support from other people for the simple reason that even the common law jurisdictions in Australia do not recognize consideration. However, parties who are forming contracts need to be careful for issues such as “an open offer”, because it can complicate issues. Liability for breach of contract in China The means and the methods of settling issues that concerns breach of contracts in China vary with the method used in common law. According to the Art.114 of UCL, it provides that the parties to the contract can decide that in case of a breach, the party liable will compensate certain amount depending on the seriousness of the breach. They can also agree on the method of calculating the loss in case the aggrieved party suffered losses8. This is completely different with the procedures of the common law that have been used for centuries across the world. Privity of the contract vs. the notion of subrogation As per the common law, if you are not a party to the contract then you have no business prosecuting the party who breached the contract. Only parties have a right of suing their counterpart parties. However, the Chinese laws state otherwise. The notion of subrogation gives the right a third party to sue on behalf of the aggrieved party. This law has support from other countries such as France, Japanand Italy. The most interesting part of this situation is the fact that Germany does not support the notion, yet they are the dominating part of the PRC law and the makers of it9. China supports the notion of subrogation under the PRC’s contract rules. However, there are advantages and disadvantages of this notion in the PRC’s contract rules. Advantages 1. It gives an opportunity semi-creditor to claim his or her due, thus avoiding unnecessary losses. 2. China believes that the black point in the judicial system that prevent 3rd parties from claiming what it needs to be broken and this statute does exactly that 3. The notion allows the third party to make legal claims in his or her own name, making it practical for the court to order a withdrawal, freezing the account of the culprit 4. It makes the all procedures to be simple. It saves time. No need for the real creditor to make a claim and later transfer funds to the 3rd party. Disadvantages 1. China might be the only jurisdiction that allows third parties to make claims. This causes problems if the procedures involved many creditors. 2. This issue has been a controversial one for many years but the Chinese government is not ready to cooperate in withdrawing it 3. There is no clear jurisdiction for this issue of sharing, even in China itself. 4. The Chinese subrogation principle has little jurisprudence both domestically and internationally. 5. The paper argues that the disadvantages outweigh advantages Judicial interpretation It is undeniable that the judicial interpretation in China has been problematic since independence. They have never come into agreement on how issues should be handled. However, the judicial interpretation has a judicial binding. The common misunderstanding on the nature of the Chinese legal system should be not of any concern. RECENT CHANGES IN THE CHINESE CONTRACT LAW 1. Some restrictions on form of contract The new contract law amends the weaknesses of the old Chinese law. Some of these amendments are the requirements of the contract to be in writing. A legal action against defaulter can be handled in an efficient manner. These laws were necessary because there were sections of in Chinese laws that require to be written for them so as to be legally and actionable in courts of law. Some of the examples of Chinese laws that required being in writing includes domestic laws and other regulations.10 In practice, Chinese people have been through troubles and problems coping with a contract in oral form. On the other hand, the Chinese courts have also been through hell settling contracts that are not in writing. Due to this, the new contract law reflects the interest of Chinese people and the entire judicial system. However, the new law leaves a room for maneuver in case of further adjustments. 2. Contracts concluded by electronic means Both the old and the new Chinese contract laws recognizes contracts that are in the form of writing. The only difference between the old and the new Chinese contract law is that the new Chinese contract law adopt a quite a descriptive approach on what amounts “written forms”. It clearly elaborates on this. According to the new Chinese contract law, the written contractual agreement can be in forms of letters and electronic data. In addition, the new law recognizes electronic data in the following forms: telegram, electronic data interchange (EDI), telex, fax, and electronic mails. In law, it is essential to mention details of the contract, rather than assuming them. The old Chinese law recognizes the contract laws in writing form but it does not clarify what constitute “written form” as it does not give details. This can be a problem when handling such cases in the courts. 3. Contracts concluded under a mandatory State plan The new Chinese contract law was drafted out of the three previous laws. The main differences are only an addition of a few parts. The designers thought of what was suppose to be in the other three and was omitted. 4. Extinction of the right to avoid the contract The new Chinese law contract address essential issues that were not addressed by the China’s three former Contract Laws. The contract clearly stipulates the condition that can relieve the party from performing his contractual obligation. It is essential to lay down clearly guidelines and consequences of avoiding contractual obligation. This ensures that the other arty is fully protected in case the other party fails to deliver what is expected from him or her. 5. Compensation for losses Article 113 of the new Chinese contract law clearly explains the consequences of breaching the contract. If the party decides to breach or fail to perform its contractual obligation, then the other aggrieved party will be fully compensated for damages. Furthermore, the other party will be compensated for any benefit that was expected at the completion of the contract. This clause is so essential in contract laws11. However, the new Chinese contract fails to include the essential elements in this clause. There are vitals elements that were ignored in this section and yet it was reflected in the old contract law (UNIDROIT Principles in Articles) include the proof of harm in replacement transaction, full compensation, proof of harm by current price, feasibility of harm, and certainty of harm. In addition, the new Chinese contract law is silent compensation for non-pecuniary harm, yet this was fully covered in the old Chinese contract law. This section needs to be amended so that the Chinese people will be assured of fairness. 6. Interpretation of contracts The three old Chinese contract law was silent on this issue. That was not appropriate because justice was never delivered for this section. The new Chinese contract, on the other hand, has an attention to the interpretation of the contract under Article (Article 125). Article 125 of the new China stipulates the fact the contract will be interpreted based on the contract itself. The interpretation will focus on the content of the contract, the principle of good faith, and the purpose of the contract. The new contract also deals with the issue whereby the contract is drawn in two or more languages, and the parties give equally authentication in all verses. In case of discrepancies, the content of the contract will decide on the way forward. Furthermore, the new contract has left room for courts to decide on any further action. The old UNIDROIT Principles, on the other hand, emphasize on going with the original version. That was not fair because it limits the chances of delivering justice where it is due. 7. Change of Circumstances This is an international problem affecting parties when circumstances change. The most common change of circumstances is the change in the economic situation of a country. When this happens, parties or even a party suffers a lot and there is no compensation of it. According to the Chinese UNIDROIT Principles, compensating the disadvantaged party can amount to ambiguity making it impossible. It is, therefore, essential for the parties assessing the economic situation before forming the contracts to avoid unnecessary losses. The drafters of the new Chinese contract laws were not able to contain this issue in the law. Negotiating of the contract or even requesting the courts to modify the contract to suit the interest of the disadvantaged party was considered, by law experts, vague and can cause uncertainty and ambiguity in its interpretation and application of the contract in court of law. Many countries across the world are taking caution on this issue and forbear to create a legal and acceptable means of handling such issue when arises. To summarize it, it is essential, and it was, for the Chinese government to revise its laws especially contract law to ensure that justice is for all. The new China contracted touches sensitive areas that were ignored by the three old laws. Some of these issues include the third party right under the contracts, agency and the set-offs. It is my wish that the China contract law will be perfect as the contract law is adopted worldwide. I am happy to see Chinese people get justice through effective and relevant judicial system. WHY HАVЕ THОSЕ СHАNGЕS BЕЕN MАDЕ? It became necessary for the Chinese government and the law drafters to change their contract laws because of changing economic circumstances. Changes in economic situation interferes with the laws and making it impossible for courts to rule on such. This was disadvantageous to the parties that are affected as a result of economic changes. It has also become necessary for the Chinese contract laws to be changed because of the expansion of trade. In early 1990s the Chinese government expands its trading block so that they trade with the western countries12. It is impossible for the country like china not to trade internationally. Therefore, various laws need to be amended so that it can be simple for the country to monitor the trading activities within and outside the country. Trading internationally calls for the drafting down of laws that protect exporters and importers. There are situations when an exporter exports its goods and the importer, on the other hand, can fail to remit payment for the goods exported. In such situations, the prevailing contract laws are applied to compel the importer to pay for the goods. Furthermore, the exporter can enter into a contract with the paying bank so that the bank can collect the funds from the advising/confirming bank on behalf of the exporter. To participate in international business or to be a member of trading blocks such as World Trade Organizations (WTO) requires a country to have a law that is relevant to the international communities. This is vital because there some cases of misunderstanding between traders or businessmen from different countries. Most businesses misunderstandings are solved through formations of international tribunals, and, therefore, it calls for international laws. The PRC’s Patent Law amended in 2000 was necessary because it's a way of improving the technology and innovation in the country Chinese people found it necessary to amend the laws so that they can introduce changes such as the absolute novelty requirement. This will help judges when they are discharging their duties. This change gave the judges powers to increase the penalty on cases of  patent infringement and can make other changes on similar cases13. The Chinese laws were changed to ensure uniformity within the country. In China, the laws governing one province might differ from the laws governing other provinces. For example, the regulation of obtaining a driving license varies from province to province. There was a need for China to change its laws especially the contract laws so that they can be relevant to the changes that are expected in the country. The people of China wanted laws that could accommodate the future changes. There was a need for the establishment of the new contract laws that will support the economic reforms, and can be used when solving problems that arises because of foreign exploitations. Amendments of the Chinese contract laws were considered one of the essential innovation of the reformed constitution. It became necessary to enact this contract law so that it could benefit Chinese people. The main reason for changing the China labor contract laws was because of the increasing foreign multinational corporations in China. The labor laws seek to ensure that the Chinese people are not exploited especially when negotiating the terms of employment. The government has a duty to protect the civilian with less authority. If the clear guidelines were not set, there could be the possibility of exploiting people through the setting of unfavorable terms of employment14. Besides, the international cooperation could underpay the employees. It was also necessary to change the law so that it can allow Chinese people to work in the domestic and foreign companies unlike the old days when the laws dictate that the Chinese citizen must work for the state owned enterprises leaving many unemployed. Another factor that led to changes of the contract labor laws was the social unrest that was witnessed in China. Many people were protesting for the rising income inequality and increasing labor disputes. Before the enactment of the new labor laws, there many cases of unpaid wages, lost lands and the poor working conditions. There many Chinese men and women who were exploited, their rights were never delivered. The main aim of the new contract labor laws was to ensure a stable employment relationship between the employers and the employees in China. The labor laws focused on the welfare of the employees who working for the domestic companies, foreign invested companies and the foreign invested companies. The new labor contract laws aim at empowering labor unions so that they can fight for the employees who are working in poor conditions15. Furthermore, the union focused on fighting for the employees working in hardship conditions. It became necessary fro the union and employers to negotiate on measures of rewarding the employees working in areas with harsh conditions. The new contract laws aim at improving the nature of employment. According to the new contract laws on employment, the employers would be compelled by the law to offer employment through a written contract of open ended or fixed term contract. This law aims at protecting employees from exploitation. The conditions of the new employment contract state that the human source managers have one month, from the time an employee physically appears to the company for work, to process a written contract that defines the nature of the employment. The contract does not allow employers to lay off employees who are employed under fixed-term contract without providing a satisfactory reason and a notice. Before laying off employees who are employed under the fixed term contract, it is compulsory to give them a notice of a reasonable time. The new laws have been beneficial to Chinese people because it seeks to bring the culture of equality. The new contract law invalidates the issue of an employer employing without a written contract. As per the constitution, the employment without a written contract is one way of exploiting employees. The minimum legal employment requirement in China is for the employers or the human resource managers to establish written employment contract within one month of employment. No company or business enterprise will operate in the employer - employee relationship will be allowed in china under the new employment contract. The policy further states that the employers who are not willing to produce employment contract within one month of employment will be compelled by law to pay that employee twice. For example, if today, an employer employed a Chinese and to fail to produce a valid contract by the end of one month from now, then the employer will double the salary for that month or face the law. This is the strict new laws that are being put in place to ensure that the habit of exploitation comes to an end16. No employee in China will ever be exploited. On the other hand, the employers are also protected by the laws. Every employee must give a one month notice before resigning. However, the new contract law exempts overtime employees from legalizing the work through the establishment of the contract. The new labor laws dictate the nature of overtime. No employee in China will be allowed to work for more than four a day or 24 hours a week. This news laws was enacted so that the right of employees is protected from the greedy employers in China. The new labor contract laws in China leaves employers with limited options of negotiating a flexible employment terms. This is because the employers are only allowed to terminate the services of an employee on a small number of a narrowly defined grounds. Employers in China, before enactment of the new employment contract laws, used to employ people for a very short time and fire them any time they wish. This habit is seen in many countries, and needs to be stopped, otherwise greedy employees will exploit the people with less power. The new China laws on employment is essential because it controls unethical behavior in within companies. Issues of employing through the employment agencies does not work in this new labor contract employment17. Foreign companies do not have legal personality in China, therefore, they can only employ people through the “dispatch agencies”. Foreign companies are not allowed to employ people directly in china18. Another is reason is that the establishing of new labor laws was to ensure that there is an official step followed when laying off the employees. An employer who wants to layoff employees need to visit, and explain to the labor union the reason for the layoffs. Secondly, the employer need to get go ahead order from the labor union before acting on his wishes, and lastly, the employee need to face the appropriate authorities and explain why he intend to lay off his employees. According to the new Chinese labor contract laws, there are acceptable explanation for layoffs especially when layoff involves many many employees. The key reason that is acceptable for the mass layoff is the changes in economic situations. These include: 1. Bankruptcy related organization 2. When the objective circumstances of the company change 3. Serious losses within the company 4. Changes in technology, and as a result the company’s performance gets affected 5. In case the government nullifies the legality of the company In addition to this, the Chinese contract law was revised so that it clarify the order an employer needs to follow in case of mass layoffs. There are various classes of employees. Some of the common classes of employees in China include the open-ended contracts, fixed-long-term contract and the employees who are sole bread-winners for their families. It is a law that the human resource manager to exercise enough caution when dealing with such classes of employees. It is not only in China that this issue is discussed, even in superpower countries like the USA has their own laws governing the welfare of their employees. According to Grauer and Peter, the new Chinese labor contract law was changed so they can accommodate issues of severance. The content of the new Chinese labor law has a clear provision of the severance. An employee will be rewarded depending on the time he or she has been working for the company19. In addition, the new labor contract law clear states seven circumstances that will amount to payment of the severance. This is essential because it ensures that the employees’ rights are considered by the law20. There has been debate on whether the local companies are implementing the changes that was brought by the new Chinese labor contract law. The foreign companies feel disadvantaged because the local companies are effectively implementing the laws and are able to get away with it. However, these are not confirmed allegation, and therefore, it need not to be emphasized. Conclusion The changes in the new contract laws were essential because China was a growing in terms of business. There were various changes in the country that include joining of world trade organization. Furthermore, the technological changes have changed various issues and for effective implementation, it requires new laws. The old contract laws were outdated and was not relevant to the current life. It became, therefore, necessity to amend the contract laws. The old laws had loopholes making it difficult for justice to be delivered in court of laws. This made the judicial system to be seen as an ineffective organ. It was necessary for the changes to be implemented to ensure that all the contract laws are put in written form so that the judicial system can pass effective charges on contracts brought before the Chinese courts. Finally, the Chinese employees were exploited by the employers, and it became necessary for law drafters to designed labor contract laws that would protect their interest and their well being. Both the domestic and foreign companies had a habit of underpaying, sacking of employees without any valid reason. That was a complete exploitation of the Chinese people. Many people were frustrated with these immoral behaviors of employers. The employers were irresponsible when handling their employees. References Peter Drahos, The Global Governance of Knowledge: Patent Offices and Their Clients. Cambridge University Press, 2010 Peter K. Yu, Intellectual Property and Information Wealth: Issues and Practices in the Digital Age. 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