Introduction

On 28 May 2020, China’s first civil code (“Civil Code”) was passed at the third session of the 13th National People’s Congress and the third session of the 13th National Committee of the Chinese People’s Political Consultative Conference. The Civil Code consists of 1260 articles in seven parts which include: (1) General Provisions, (2) Property Rights, (3) Contracts, (4) Personality Rights, (5) Marriage and Family, (6) Inheritance, (7) Torts, as well as the Supplementary Provisions. The Civil Code will take effect officially on 1 January 2021 and abolish simultaneously, among other laws in China, the General Principles of Civil Law, General Rules of the Civil Law, Property Law, Contract Law, Guarantee Law, Marriage Law, Inheritance Law and Tort Liability Law.

This article shall focus on discussing, inter alia, the key implications of the Civil Code on foreign nationals particularly from the contract, tort liability and personality rights perspectives.

Contract

The Contract Part in the Civil Code (the “Contract Part”) consisting of 562 articles is expected to be the most relevant part to most foreign nationals. Compared to the existing Contract Law, the Contract Part in introduces the following major changes which are important for foreign investors to pay attention to before carrying on any business in China:

1.        The number of typical contracts governed by law is increased from 15 in the existing Contract Law to 19 as listed in subdivision II in the Contract Part, with the addition of four news types of contracts, including guarantee contracts, factoring contracts, property service contracts and partnership contracts. Foreign investors are reminded to understand their rights and obligations stipulated in the four newly added typical contracts before entering into such contracts.

2.        In line with the fast growing e-commerce business in China, provisions are added to regulate the execution and performance of electronic contracts. For example, Article 491 of the Civil Code specifies that where the information of any commodity or service released by one party via the internet meets the conditions of offer, the contract shall be established when the other party successfully selects such commodity or service and submits an order. Foreign investors interested in or currently conducting e-commerce business in China shall pay attention to such newly added e-commerce related contract provisions.

3.        In terms of contract protection, foreign investors should be aware of the new articles added to strengthen the protection of the weaker contracting parties. For instance, Article 496 of the Civil Code stipulates that where standard terms are adopted in concluding a contract, the party supplying the standard terms shall observe the principle of fairness in defining the rights and obligations of the parties, remind the other party in a reasonable way of the provisions that greatly affect the other party, such as those that exclude or mitigate the other party's liabilities, and explain the standard terms at the request of the other party.

4.        In terms of non-terms contracts which contain the continuing performance of obligations, parties are now allowed under Article 563 of the Civil Code to terminate such contracts provided that they notify the other party a reasonable time in advance. Foreign investors shall review whether any of their existing contracts will be affected by such provisions.

5.        In terms of loan contracts, it is now clearly stipulated in Article 680 of the Civil Code that it is forbidden to lend money at a high interest rate which shall be defined in the State regulations in the foreseeable future.

6.        In terms of guarantee contracts, foreign investors should not overlook a number of changes newly introduced with respect to the guarantee liability and the guarantee period to enhance the protection of guarantors. Under the existing Guarantee Law, where a contract does not specify its form of guarantee, such contract will be considered as a joint and several liability guarantee where the creditor may elect to enforce the debt against the guarantor without firstly claiming against the debtor whereas Articles 686 and 687 of the Civil Code changes such default position by considering the same as a general guarantee whereby the guarantor have the right to refuse to assume guarantee liability to the creditor before a dispute concerning the principal contract has been adjudicated or arbitrated and when such debtor has failed to perform his obligation despite enforcement against his property in accordance with the law. In addition, where there is no agreement or such agreement as to the guarantee term is unclear, Articles 692 shortens the guarantee term from 2 years under the existing Guarantee Law to six months from the date of expiration of the term for performing the principal obligation.

7.        Lastly, in terms of mortgage contracts, modifications are made under Article 406 to allow a mortgagor to transfer the mortgaged property during the mortgage term without the mortgagee’s consent by giving timely notification to the mortgagee, unless the parties agreed otherwise. Where the mortgage property is transferred, the mortgagee’s rights shall not be affected. If the mortgagee can prove that the mortgage right may be damaged by the transfer of the mortgaged property, he may require the mortgagor to pay off the debt in advance with the money obtained from such transfer or submit it to a competent authority for safekeeping. Foreign investors intends to enter or entered into any mortgage contracts should get familiarized with the aforementioned changes in order to protect their rights in the mortgaged property.

Given the aforementioned non-exhaustive changes to the law on contracts from various perspectives, foreign nationals interested in or currently conducting business in China are reminded to review their business operations and contracts before the Civil Code comes into force on 1 January 2021.

Liability for tort

The new Civil Code is considered as an amalgamation of the existing civil and tort related laws and regulations. After the promulgation of the Civil Code, the liability for tort can be divided into three categories according to whether the perpetrator is at fault:

1.        Fault liability: if the perpetrator infringes upon the civil rights and interests of others due to the fault and causes damage, it should bear the liability for tort.

2.        Presumed fault liability: if it is presumed that the perpetrator is at fault according to law, and the perpetrator cannot prove otherwise, it shall bear the liability for tort.

3.        Strict liability: if a perpetrator shall assume the tort liability according to the law for causing damages to the civil rights and interests of others regardless of whether the perpetrator is at fault or not, it shall be subject to the provisions.

Where the tortfeasor infringes another person and causes personal injury, the tortfeasor shall make the following compensation:

1.        The tortfeasor shall make compensation for reasonable expenses incurred for treatment and rehabilitation such as medical fees, nursing fees, transportation fees, nutrition fees, hospitalization meal subsidies, etc., and the decreased income due to lost time at work.

2.        If the tortfeasor caused a disability of the infringed, the tortfeasor shall also compensate the infringed for assistive equipment fees and disability compensation.

3.        If the tortfeasor caused the death of the infringed, the tortfeasor shall pay the infringed funeral expenses and death compensation.

4.        If the tortfeasor caused serious mental damage to the infringed nature person, the infringed shall have the right to claim compensation for mental damage.

In case of infringement upon another person’s property, the property loss shall be calculated according to the market price when the loss is incurred or by other reasonable means. If a person intentionally infringes upon the intellectual property of others and the circumstance is serious, the infringed shall have the right to request for the corresponding punitive damages.

Article 1194-1197 introduce internet-related tort liabilities and obligations for network users and network service providers and provide rights holders with new recourses such as notifying the network service providers to adopt the requisite measures such as deletion, shielding, breaking of hyperlinks in relation to the internet-related tort liabilities.

Moreover, the new “self-assumed risk” rule in Article 1176 clarifies that in the event that the participant is willing to participate in recreational and sports activities with certain risks, the injured party shall not request other participants to bear tort liability if the damages are caused by the conduct of other participants, unless other participants have intentional or gross negligence on the occurrence of the damages. By the newly established rule, Article 1167 states that where a tortious act endangers the personal or property safety of another person, the party whose rights are infringed upon shall have the right to request that the infringing party assume tort liability such as ceasing infringement, removing obstruction, eliminating danger, etc.

Personality rights

In contrast to many other parts of the new Civil Code, Part 4 - Personality Rights - is not based on a precedent law that was incorporated into the Civil Code. Instead, regulations that were scattered in various laws were bundled together and supplemented by provisions in administrative regulations and court interpretations. The inclusion of personality rights in the Civil Code represents a significant development and innovation in Chinese law.

In particular, Article 990 defines personality rights as “the rights of life, body, health, name, portrait, reputation, honor, privacy and other rights enjoyed by civil subjects.” However, these rights cannot be waived, transferred or inherited per Article 992.  Even though there is no inheritance, a spouse, children and parents can enforce the deceased rights per Article 994.  This codifies existing law from the Supreme People’s Court case Zhou Haiying v Shaoxing Yuewang Jewellery and Gold Co., Ltd., which held a close relative was entitled to sue for a violation of Lu Xun’s portrait right after his death. 

Article 995 confirms that plaintiffs are entitled to compensation and injunctions for the violation of personality rights.  Article 996 adds that the compensation may include damages for mental anguish. Article 997 adds preliminary injunctions are available when “a civil subject has evidence to prove that the perpetrator is or is about to commit an illegal act that infringes on his personality rights, and if he fails to stop it in time, his legal rights and interests will be irreparably damaged.”

Foreign nationals would also be delighted to note that the Civil Code also enhances their right to privacy and protection of personal information by introducing new provisions (Article 1032-1039) which now define personal information, prescribe the requirement to handle personal information and designated certain prohibited acts in relation to personal information.

Conclusion

As a major consolidated piece of legislation in China, the Civil Code now makes it easier for foreign nationals to understand their rights and obligations on almost every aspect of their civil lives in China without referring to the scattered pieces of legislations. Foreign nationals are reminded to read the Civil Code together with the relevant implementation rules and judicial interpretations that may follow soon in order to fully understand its effects in practice.