Supreme Court's New Guidelines on the Trial of Civil and Commercial Contract Cases
On July 7, 2009, the Supreme People's Court of the
People's Republic of China (the "Supreme Court") released the Guidelines on the
Trial of Civil and Commercial Contract Cases Under the Current Condition (the
"Opinions"). With a total of 17
articles, the Opinions focus on six fundamental issues involved in the trial
and/or settlement of civil and commercial contract disputes: (i) the principle
of "material change of circumstances" shall be applied in a cautious manner and
the courts shall differentiate "material change of circumstances" from ordinary
commercial risk; (ii) liquidated damages may be adjusted by the courts in the
spirit of fairness; (iii) loss of profit shall be decided taking into
consideration whether the loss is foreseeable, whether the non-breaching party
has made efforts to mitigate loss, and whether the non-breaching party has
gained interest due to the breaching party's breach; (iv) to find agency estoppel, the party who
claims it must prove not only the existence of "agency act," but also that the
party believes in good faith and without fault that the "agent" has the
authorization; (v) to protect the efficiency of civil and commercial contracts,
and maintain the safety and stability of transactions, the courts shall be
cautious about invalidating a contract on the ground of violation of mandatory
provisions within a law or administrative rule; and (vi) the courts may
accelerate the due date of a payment if a party meets the burden of proof for
the precarious right to defense. Even without details regarding the actual
implementation of the principles for each issue, the Opinions provide useful
guidance for lower courts to decide on civil and commercial contract cases, as
current economic conditions have precipitated many disputes arising from civil
and commercial contracts.
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