Notice of the Supreme People’s Court on Issuing the Minutes of the National Court Work Conference for Civil and Commercial Trials has been issued on 8 Nov. 2019

The Supreme People’s Court issued the “Notice of the Supreme People’s Court on Issuing the Minutes of the National Court Work Conference for Civil and Commercial Trials” (Fa [2019] No.254, hereinafter referred to as the “Minutes”) on 8 Nov. 2019. The Minutes has stipulates the determination rules on difficult issues related to 9 categories of disputes, such as the company, contract, guarantee, bankruptcy and etc.. The Minutes has also stipulates the rules on dealing with the problems related to civil procedures, such as the connection of laws for the application of the General Rules of the Civil Law, hearing of relief cases of outsiders, procedural handling of cases regarding both civil and criminal liability and etc..

Due to space limitation, we only introduce the rules related to the relevant problems in contract dispute cases.

1. To clarify the determine a contract invalid on the ground of violation of mandatory provisions of laws and administrative regulations

The “Judicial Interpretations (II) of the Contract Law” clearly provides that a contract shall be determined invalid on the ground of. The “Guiding Opinions of the Supreme People’s Court on Several Issues concerning the Trial of Cases on Disputes over Civil and Commercial Contracts in the Current Situation” further points out that where mandatory administrative provisions are violated, the people’s courts shall determine the validity of contracts as the case may be. However, in practice, different courts have different standards on distinguishing mandatory provisions on validity and mandatory administrative provisions.

In view of this, the Minutes has clarified that the mandatory provisions on validity shall include 5 circumstances, which are, (1) mandatory provisions relating to public order and good morals; (2) prohibited transactions of subject matters of transaction; (3) violation of franchise provisions;(4) serious violations of transaction methods; and (5) transactions at illegal trading premises. In addition, the Minutes has further pointed out that mandatory administrative provisions on
business scopes, trading hours, trading volumes and other administrative natures shall generally be deemed as “mandatory administrative provisions”. To be noted that many courts would take those administrative natures as mandatory provisions on validity in the past.

The Minutes has also points out that in general, a breach of rules will not affect the validity of a contract, but where the contents of such rules involve financial security, market order, national macro policies, or other public order and good morals, the contract shall be determined to be invalid.

2. Legal validity of affixation of seal

In judicial practice, where some companies intentionally produce two or more sets of official seals, some legal representatives or agents even engrave official seals privately. The Minutes requires the court to check whether the signatory has representative rights or agency rights at the time of affixation of seal, and determine the validity of the contract pursuant to the relevant rules on representative or agency.

3. Criteria for Excessive Liquidated Damages and Burden of Proof

The Minutes points out that whether the agreed liquidated damages are excessive shall generally be determined on the basis of the losses provided in Article 113 of the Contract Law, and such losses include the benefits that can be obtained after the performance of the contract. Except for a loan contract, a bilateral contract with consideration or payment of compensation is not a repayment obligation under the loan contract, so the cap of private lending rate protected by law shall not be used as a criterion for judging whether the penalty for breach of contract is too high, while such factors as performance of the contract, degree of fault of the parties and expected benefits shall be taken into account. The party who claims that liquidated damages are too high shall bear the burden of proof to prove whether such damages are too high.