July 7, 2009

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.

Copyright ©2009 by Kaye Scholer LLP. All Rights Reserved. This publication is intended as a general guide only. It does not contain a general legal analysis or constitute an opinion of Kaye Scholer LLP or any member of the firm on the legal issues described. It is recommended that readers not rely on this general guide but that professional advice be sought in connection with individual matters.References herein to "Kaye Scholer LLP & Affiliates," "Kaye Scholer," "Kaye Scholer LLP," "the firm" and terms of similar import refer to Kaye Scholer LLP and its affiliates operating in various jurisdictions.

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